<PAGE>
As filed with the Securities and Exchange Commission on December 6, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CHORDIANT SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------------
<TABLE>
<S> <C> <C>
Delaware 7372 93-1051328
<CAPTION>
(State or other jurisdiction Primary Standard Industrial (I.R.S. Employer
of incorporation or
organization) Classification Code Number Identification No.)
</TABLE>
20400 Stevens Creek Blvd., Suite #400
Cupertino, CA 95014
(408) 517-6100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
Samuel T. Spadafora
Chordiant Software, Inc.
President, Chief Executive Officer and Chairman of the Board
20400 Stevens Creek Blvd., Suite 400
Cupertino, CA 95014
(408) 517-6100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
Copies to:
<TABLE>
<S> <C>
Craig E. Dauchy, Esq. Curtis L. Mo, Esq.
Eric C. Jensen, Esq. J. Omar Mahmud, Esq.
Cooley Godward LLP Julie Freese, Esq.
Five Palo Alto Square Brobeck, Phleger & Harrison LLP
3000 El Camino Real Two Embarcadero Place
Palo Alto, CA 94306 2200 Geng Road
Palo Alto, CA 94303
</TABLE>
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Securities to Be to Be Offering Price Aggregate Registration
Registered Registered(1) Per Share(2) Offering Price(2) Fee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.. 5,175,000 $10.00 51,750,000 $13,662
- ----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1)Includes 675,000 shares the underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act.
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 6, 1999
PRELIMINARY PROSPECTUS
[LOGO OF CHORDIANT SOFTWARE, INC.]
4,500,000 Shares
Common Stock
Chordiant Software, Inc. is offering 4,500,000 shares of its common stock.
This is our initial public offering, and no public market currently exists for
our shares. We have applied to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "CHOR." We anticipate that the
initial public offering price will be between $8.00 and $10.00 per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Chordiant........................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 425,000 shares of our common stock to cover over-allotments. Certain
stockholders have granted the underwriters a 30-day option to purchase up to an
additional 250,000 shares of our common stock to cover over-allotments.
--------------
Robertson Stephens
Dain Rauscher Wessels
Thomas Weisel Partners LLC
The date of this prospectus is , 1999
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
Front Cover:
The inside front cover graphic for Chordiant will be a single page (not
gate folded):
On the top inch and a half of the front inside cover there will be the
Chordiant logo on the far left hand side of the page and on the far right
hand side of the page will read e-Business Infrastructure Software.
In the upper middle of the page the following graphic will appear:
The graphic is circular in shape with three layers of circles. There is a
woman in the center of the graphic smiling on the telephone and she is
labeled CUSTOMER, which is written, on the bottom of the inner circle.
Around the woman, who is central in the graphic, you have another circle
which is labeled CUSTOMER TOUCH-POINTS which is written on the bottom of
the 2nd layer of the circle. The second layer of the circle has images of
8-10 men and women who are on the telephone and working with computers.
Five words are written in square blocks (equal distant apart) inside the
second circle: FAX, INTERNET, PHONE, EMAIL, DIGITAL TV. The outer layer of
the circle is labeled E-BUSINESS INFRASTRUCTURE, which is written on the
bottom of the outer layer. The outer layer of the circle has a shadow of a
woman on the bottom left of the outer circle and a vertical view of 3
skyscrapers. Eight words are written in oval blocks (equal distant apart)
inside the outer layer of the circle: CUSTOMER DATABASE, SALES, MARKETING,
CUSTOMER SERVICE, FIELD SERVICE, PRODUCT OFFERING, BILLING, FULFILLMENT.
Three-quarters of the way down the Front Inside Cover will read:
Chordiant provides e-business infrastructure software that enables
companies to offer their customers highly personalized marketing, sales
programs, e-business services, and customer support across multiple
communication channels.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus,
"Chordiant," "we," "us," and "our" refer to Chordiant Software, Inc. and its
wholly owned subsidiary.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 20
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 25
Business................................................................. 36
Management............................................................... 50
Certain Transactions..................................................... 63
Principal Stockholders................................................... 65
Description of Capital Stock............................................. 68
Shares Eligible for Future Sale.......................................... 70
Underwriting............................................................. 72
Legal Matters............................................................ 75
Experts.................................................................. 75
Where You Can Find More Information...................................... 75
Index to Financial Statements............................................ F-1
</TABLE>
--------------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
. the conversion of all our outstanding shares of preferred stock and
convertible debentures into shares of common stock upon the closing of
this offering;
. no exercise of the underwriters' over-allotment options;
. the filing of our amended and restated certificate of incorporation
prior to the closing of this offering; and
. a 1 for 2 reverse stock split.
Chordiant and the Chordiant logo are registered trademarks of Chordiant.
WSOP, CCS-Customer Communications Solution and One Click, One Call, One
Customer are trademarks of Chordiant. This prospectus also includes trademarks
owned by other parties. All other trademarks mentioned are the property of
their respective owners.
Dealer Prospectus Delivery Obligation
Until , 2000, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
3
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all the information you should consider before
buying shares in the offering. You should read the entire prospectus carefully.
Chordiant Software, Inc.
Chordiant provides e-business infrastructure software that enables
companies to offer their customers highly personalized marketing, sales
programs, e-business services and customer support across multiple
communication channels. These channels include the Internet, e-mail systems,
automated telephony self-service systems, and customer service representatives
in call centers, and retail outlets. We believe that companies that use
organization-wide customer information to provide consistent customer support
through interactions across multiple channels will be able to compete more
successfully in the rapidly changing Internet economy.
Today, customers are placing increasing value on convenient access to
products, information and services. To be successful in the next generation of
online commerce, commonly referred to as e-business, companies have begun
taking a customer-centric approach. To attract and retain customers, we believe
that companies must develop and execute a new set of online strategies that
provide users with relevant and targeted experiences each time interactions
take place.
Our product provides a customer-centric e-business solution designed to
improve the ability to attract, engage and retain customers on a personalized
basis, understand their needs and preferences and provide consistent
interactions with customers through any communication channel. We believe that
companies that use our product can increase the lifetime value of their
customers through improved retention rates and linked selling opportunities.
Our software is designed to enable companies to:
. develop a comprehensive single view of the customer;
. use automated, sophisticated decision making processes;
. offer their customers consistent experiences across multiple
communications channels; and
. utilize standard and customizable business services.
Our Customer Communications Solution, or CCS, software product, is
comprised of a suite of applications, and includes standard business services,
a workflow engine and enterprise integration services supporting network,
telephony, legacy and data management interfaces. The product is licensed to
our customers as a complete e-business infrastructure system. CCS includes a
customer service representative application, a Web communications application
and an e-mail communications interface application.
We license our product and provide related services primarily through our
direct sales organization, complemented by the selling and support efforts of
systems integrators. We target our product towards multinational market leaders
in business-to-consumer industries, particularly companies in the financial
services, telecommunications, retail, direct merchandise, travel and leisure
and automotive industries. Our customers as of November 30, 1999, include Bank
One International, Cable & Wireless Communications, Canadian Tire Acceptance
Limited, Chase Manhattan Mortgage Corporation, First USA Bank, General Motors'
OnStar division, KLM Royal Dutch Airlines, NedCorp Bank RSA, Thomas Cook Global
Services, Total System Services, Inc. and Ventura.
Our objective is to continue to provide leading-edge e-business
infrastructure software that enables companies to offer their customers
personalized interactions across multiple communications channels to increase
the lifetime value of their customers.
4
<PAGE>
To achieve this goal we intend to:
. continue to devote substantial resources to the development of new and
innovative products;
. maintain and seek strategic alliances to assist in developing,
marketing, and selling our product;
. continue to target global leaders in our primary business-to-consumer
markets by providing solutions to the financial services,
telecommunications, travel and leisure, and retail industries, including
many Internet-only businesses that compete in these segments;
. aggressively grow our global presence by expanding our worldwide field
sales, marketing and services organizations; and
. continue to grow through building our referenceable customer base.
Our principal executive offices are located at 20400 Stevens Creek Blvd.,
Suite 400, Cupertino, CA 95014, and our telephone number is (408) 517-6100. Our
Internet address is www.chordiant.com. The information on our Web site is not
incorporated by reference into this prospectus and does not constitute a part
of this prospectus.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered................................ 4,500,000 shares
Common stock to be outstanding after this offering.. 34,594,801 shares
Use of proceeds..................................... General corporate
purposes, including
working capital and
capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.............. CHOR
</TABLE>
--------------------
The number of shares of common stock to be outstanding after this offering
assumes no exercise of the underwriters' over-allotment options. The number of
shares of common stock to be outstanding after this offering is based on the
number of shares outstanding as of November 18, 1999, and excludes:
. 7,824,162 shares subject to options outstanding as of November 18,
1999, at a weighted average exercise price of $1.75 per share
. 1,071,509 additional shares that we could issue under our equity
incentive stock option plan;
. 700,000 shares that we could issue under our non-employee directors'
stock option plan; and
. 2,000,000 shares that we could issue under our employee stock purchase
plan.
6
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenues:
License..................... $ -- $ 1,142 $ 4,360 $ 2,634 $ 5,325
Service..................... 2,312 1,766 8,105 3,345 6,922
------- -------- -------- -------- --------
Total net revenues...... 2,312 2,908 12,465 5,979 12,247
Cost of net revenues......... 2,353 1,535 9,372 4,392 9,983
------- -------- -------- -------- --------
Gross profit (loss).......... (41) 1,373 3,093 1,587 2,264
Loss from operations......... (7,642) (11,923) (17,880) (12,699) (14,759)
Net loss..................... (7,562) (11,593) (17,440) (12,288) (15,436)
======= ======== ======== ======== ========
Net loss per share:
Basic and diluted........... $ (1.51) $ (2.31) $ (3.44) $ (2.44) $ (2.93)
======= ======== ======== ======== ========
Weighted average shares..... 5,002 5,009 5,075 5,034 5,264
======= ======== ======== ======== ========
Pro forma net loss per share
(unaudited):
Basic and diluted........... $ (0.81) $ (0.67)
======== ========
Weighted average shares..... 21,524 23,086
======== ========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------
Actual Pro Forma As Adjusted
-------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................... $ 21,077 $21,077 $57,642
Working capital............................... 7,368 7,368 43,933
Total assets.................................. 27,276 27,276 63,841
Borrowings.................................... 15,141 5,141 5,141
Deferred revenues............................. 7,763 7,763 7,763
Mandatorily redeemable convertible preferred
Stock....................................... 51,109 -- --
Stockholders' equity (deficit)................ (52,207) 8,902 45,467
</TABLE>
See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share data.
The pro forma consolidated balance sheet data reflects the conversion of
outstanding shares of Mandatorily Redeemable Convertible Preferred Stock and
convertible debt that will be effective upon the closing of this offering. The
as adjusted balance sheet data reflects the net proceeds from the sale by us of
shares of common stock in this offering at an assumed initial public offering
price of $9.00 per share, after deducting underwriting discounts and
commissions and offering expenses, and our estimated offering expenses. See
"Use of Proceeds" and "Capitalization."
7
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. Please carefully consider the following risk factors and the other
information in this prospectus before deciding to purchase shares of our common
stock. Additional risks and uncertainties not presently known to us or that we
currently see as immaterial may also impair our business. Any of the following
risks could seriously harm our business and results of operations. As a result,
the trading price of our common stock could decline, and you could lose part or
all of your investment. You should also refer to the other information in this
prospectus, including our consolidated financial statements and the related
notes.
Risks Related to Chordiant
Because our short operating history makes it difficult to evaluate our
prospects, our future financial performance may disappoint securities analysts
or investors and result in a decline in our stock price.
Until September 1997, we were engaged primarily in the research and
development of our CCS software product. We licensed our first product in
September 1997 and our sales and service organizations are relatively new and
still growing. Because of our short operating history, we have limited insight
into trends that may emerge in our market and affect our business. The revenue
and income potential of our product is unproven. As a result of our short
operating history, we have limited financial data that you can use to evaluate
our business. You must consider our prospects in light of the risks, expenses
and challenges we might encounter because we are at an early stage of
development in a new and rapidly evolving market.
We have a history of losses, we expect to continue to incur losses and we may
not achieve or maintain profitability, which may cause our stock price to
decline.
We have incurred quarterly and annual losses since we were formed, and we
expect to continue to incur losses on both a quarterly and annual basis for the
foreseeable future. We incurred net losses of $7.6 million for 1996, $11.6
million for 1997, $17.4 million for 1998 and $15.4 million for the nine months
ended September 30, 1999. As of September 30, 1999, we had an accumulated
deficit of $54.9 million. Moreover, we expect to continue to incur significant
sales and marketing and research and development expenses and to establish
additional sales offices domestically and internationally, and, as a result, we
will need to generate significant revenues to achieve and maintain
profitability. Although our revenues have grown in recent quarters, we cannot
be certain that we can sustain this growth or that we will generate sufficient
revenues to achieve profitability. If we do achieve profitability, we cannot be
certain that we can sustain or increase profitability on a quarterly or annual
basis in the future.
Our operating results fluctuate significantly and an unanticipated decline in
revenues may disappoint securities analysts or investors and result in a
decline in our stock price.
Our quarterly operating results have fluctuated significantly in the past
and may vary significantly in the future. If our operating results are below
the expectations of any securities analysts that may analyze our company, or
investors, our stock price is likely to decline. We believe that period-to-
period comparisons of our historical results of operations are not a good
predictor of our future performance. Although our revenues have grown in recent
quarters, our revenues may not grow and prospective investors should not use
these past results to predict future operating margins or financial results.
Our revenues and operating results depend upon the volume and timing of
customer orders and payments, the date of product delivery and the timing of
actual product implementation by our customers. We have historically recognized
most of our license and services revenue using the percentage-of-completion
method using labor hours incurred as the measure of progress towards completion
of implementation of our product and we expect this practice to continue. As a
result, we expect to have amounts billed to customers in excess of revenues
recognized and we will record these amounts as deferred revenues. Since a large
portion of our
8
<PAGE>
revenues each quarter is expected to be recognized from deferred revenues, our
quarterly revenues will depend primarily upon the schedule of product
implementation by our customers. If one or more customers, or their system
integrator, does not complete product implementations or experiences delays
implementing a project, we may not be able to recognize revenues when
anticipated, causing our quarterly results to fluctuate and fall below
anticipated levels. This could cause our stock price to decline.
Historically, a substantial portion of new customer orders have been booked
in the third month of the calendar quarter, with a concentration of these
bookings in the last two weeks of the third month. We believe this is primarily
due to the budgeting cycles and timing of purchasing decisions by our
customers. We expect this trend to continue and, therefore, any failure or
delay in bookings would have an adverse effect on our quarterly operating
results, financial position and cash flows.
We have limited experience with large-scale deployments and if our product does
not scale to operate in a company-wide environment, we may lose sales and
suffer decreased revenues.
Our success requires that our product be highly scalable, or able to
accommodate substantial increases in the number of users. However, we are just
beginning to deploy our CCS product in large-scale or "enterprise"
environments. To date, no large-scale deployment has been operating at any
customer site and our products are currently being used by only a limited
number of users. Our product is expected to be deployed on a variety of
computer hardware platforms and to be used in connection with a number of
third-party software applications by personnel who may have not previously used
application software systems or our product. Such deployment presents very
significant technical challenges, which are difficult or impossible to predict,
particularly as large numbers of users attempt to use our products
concurrently. If our customers are not able to customize and deploy our product
successfully and on a timely basis to the number of anticipated users,
customers may not complete expected product deployments, which would prevent
recognition of revenues and materially affect the financial condition of our
business. We have in the past had disputes with customers concerning product
performance. One dispute, from a 1995 consulting agreement, resulted in
contractually-required mediation and one, from a 1997 CCS product license,
resulted in litigation. Each matter was settled. In addition to revenues from
previously licensed products, we expect that a significant percentage of any
future revenues will be derived from additional sales to existing customers.
However, such customers are not contractually committed to purchase additional
product licenses. If existing customers have difficulty deploying our product
or for any other reason are not satisfied with our product, it could have a
material adverse effect on our reputation and reduce future revenues.
Our product has a long sales and implementation cycle, which makes it difficult
to predict our quarterly results and may cause operating results to vary
significantly.
The licensing of our CCS product is often an enterprise-wide decision that
generally requires us to provide a significant level of education to
prospective customers regarding the use and benefits of our product. The
implementation of our products involves significant commitment of resources and
is commonly associated with substantial implementation efforts that may be
performed by us, the customer or third-party system integrators. Customers
generally consider a wide range of issues before committing to purchase our
product, including product benefits, ability to operate with existing and
future computer systems, ability to accommodate increased transaction volume
and product reliability. Many customers will be addressing these issues for the
first time. The cost to the customer of our product is typically only a portion
of the related hardware, software, development, training and integration costs
of the entire project. Because of these and other reasons, the commitment to
license our products requires significant technical review and senior level
management approval. As a result of these factors, the period between initial
contact with a prospective customer and the implementation of our product is
often lengthy, ranging to date from between approximately three and twenty-four
months. Any delays in the sale and implementation of our product could cause
reductions in our revenues and cause our operating results to vary
significantly from quarter to quarter.
9
<PAGE>
Because a small number of customers account for a substantial portion of our
software license revenues, our revenues could decline if we lose a major
customer.
We derive a significant portion of our software license revenues in each
quarter from a limited number of customers. In 1998, sales to our four largest
customers, KLM Royal Dutch Airlines, Thomas Cook Global Services, Canadian Tire
Acceptance Limited and Chase Manhattan Mortgage Corporation accounted for 36%,
19%, 14% and 12% of our total net revenues. For the nine months ended September
30, 1999, revenues from Chase Manhattan Mortgage Corporation and First USA Bank
accounted for 29% and 22% of our total net revenues. We expect that a limited
number of customers will continue to account for a substantial portion of our
revenues for the foreseeable future. As a result, if we lose a major customer,
if a contract is delayed, cancelled or deferred or if an anticipated product
implementation is not made, our revenues would be adversely affected. In
addition, customers that have accounted for significant revenues in the past
may not continue to generate revenues in any future period and, therefore, our
failure to obtain new significant customers or additional orders from existing
customers would materially affect our operating results.
Defects in our product could diminish demand for our products and result in
loss of revenues, delay in market acceptance and injury to our reputation.
Complex software products like ours may contain undetected errors or
defects, including year 2000 related errors, that may be detected at any point
in the life of the product. Although we conduct extensive product-testing
during product development, we have in the past discovered software errors in
our products and as a result have experienced delays in shipment of products.
The latest version of our CCS product was only introduced in October, 1999.
Errors may be found from time to time in our new or enhanced products after
commencement of commercial shipments, such as this latest version of our
product, resulting in loss of revenues, delay in market acceptance and sales,
diversion of development and engineering resources, injury to our reputation or
increased warranty and repair costs.
Our revenues will likely decline if we do not develop and maintain successful
relationships with EDS and other system integrators.
System integrators install and deploy our product, in addition to those of
our competitors, and perform custom integration of systems and applications.
Some system integrators engage in joint marketing and sales efforts with us. If
these relationships fail, we will have to devote substantially more resources
to the sales and marketing, implementation and support of our product than we
would otherwise, and our efforts may not be as effective as those of the system
integrators, thereby reducing revenues. In many cases, these parties have
extensive relationships with our existing and potential customers and influence
the decisions of these customers. We rely upon these firms for recommendations
of our product during the evaluation stage of the purchasing process, as well
as for implementation and customer support services. A number of our
competitors have stronger relationships with these system integrators and, as a
result, these system integrators may be more likely to recommend competitors'
products and services. In addition, a number of our competitors have
relationships with a greater number of these system integrators and, therefore,
have access to a broader base of enterprise customers. Our failure to establish
or maintain these relationships would significantly harm our ability to license
our software product.
In particular, we have established a non-exclusive relationship with
Electronic Data Systems Corporation, or EDS, a large system integrator and one
of our principal stockholders. A significant portion of our revenues have
historically been derived from customers for whom EDS has been engaged to
provide system integration services. Deterioration of our relationship with EDS
could have a material adverse effect on our business. We are currently
investing, and plan to continue to invest, significant resources to develop
system integrator relationships. Our operating results could be adversely
affected if these efforts do not generate license and service revenues
necessary to offset this investment.
10
<PAGE>
We may suffer product deployment delays, a lower quality of customer service
and increased expenses if sufficient system integrator implementation teams are
not available.
System integrators help our customers install and deploy our product. These
system integrators are not contractually required to implement our product, and
competition for these resources may preclude us from obtaining sufficient
resources to provide the necessary implementation services to support our
needs. If the number of installations of our product exceeds our access to the
resources from system integrators or other third parties, we will be required
to provide these services internally, which would significantly limit our
ability to meet our customers' implementation needs, increase our expenses and
adversely affect our gross margins. In addition, we cannot control the level
and quality of service provided by our current and future implementation
partners.
To date, our sales have been concentrated in the financial services, travel,
automotive and telecommunications markets and if we are unable to continue
sales in these markets or successfully penetrate new markets, our revenues may
decline.
Sales of our products and services in four markets--financial services,
travel and leisure, automotive and telecommunications--accounted for 98% of
total net revenues in 1998 and 97% of our total net revenues for the nine
months ended September 30, 1999. We expect that revenues from these four
markets will continue to account for a substantial portion of our total net
revenues in 2000. We are targeting expansion in additional markets defined by
industries where e-business software is highly strategic and promotes
competitive advantage, including manufacturing, retail and insurance. If we are
unable to successfully increase penetration of our existing markets or achieve
sales in these additional markets, or if the overall economic climate of our
target markets deteriorates, our revenues may decline.
Our dependence on service revenues, which have historically had a negative
gross margin, could adversely impact our overall gross margin and operating
results.
We anticipate that services revenues will continue to represent a
significant percentage of total net revenues as we continue to provide
consulting and training services and maintenance and support related to our
product. To increase services revenues, we must expand our services
organization, successfully recruit and train a sufficient number of qualified
services personnel, and obtain renewals of current maintenance contracts by our
customers.
Although providing services to our customers is an important part of our
business, services revenues have lower gross margins than license revenues. As
a result, an increase in the percentage of total net revenues represented by
services revenues or an unexpected decrease in license revenues could have a
detrimental impact on our overall gross margins and our operating results.
Many of our key personnel are relatively new and must be integrated into our
organization, if we do not successfully hire additional qualified personnel,
our revenues and operating results could be adversely affected.
We have recently experienced a period of rapid growth and expansion, which
places significant demands on our managerial, administrative, operational,
financial and other resources. From September 30, 1997 to September 30, 1999,
we expanded from 70 to 127 employees. Our new employees include a number of key
sales, managerial, marketing, technical and operations personnel who have not
yet been fully integrated into our organization.
We also plan to add additional personnel and expand the geographic scope of
our operations. Our rapid growth and expansion places significant demands on
our managerial, administrative, operational, financial and other resources. To
accommodate continued anticipated growth and expansion, we will be required to:
. improve existing and implement new operational and financial systems,
procedures and controls; and
. hire, train, manage, retain and motivate qualified personnel.
These measures may place additional burdens on our management and our
internal resources.
11
<PAGE>
We depend on technology licensed to us by third parties, and the loss or
inability to maintain these licenses or defects in these third party products
could result in increased costs or delay sales of our products.
We license technology from several software providers that is incorporated
in our product. In particular, we license Forte Tool and related Forte products
from Forte Software, a Sun Microsystems, Inc. company. Our license agreement
with Forte expires in September 2001, and can be extended upon agreement of the
parties. We anticipate that we will continue to license technology from Forte
and other third parties in the future. This software may not continue to be
available on commercially reasonable terms, if at all. The loss of the Forte
technology or other technology licenses could result in delays in the license
of our product until equivalent technology, if available, is developed or
identified, licensed and integrated into our product. The use of new or
additional third-party software may require us to enter into license agreements
with third parties, which could result in higher royalty payments.
In addition, the effective implementation of our products depends upon the
successful operation of third-party licensed products in conjunction with our
products, and therefore any undetected errors in these licensed products could
prevent the implementation or impair the functionality of our products, delay
new product introductions and/or injure our reputation.
Our customers have the ability to alter our source code and inappropriate
alterations could adversely affect the performance of our product, cause injury
to our reputation and increase operating expenses.
Customers have access to our computer source code when they license our
product and may alter the source code. Alteration may lead to implementation,
operation and upgrade problems. Such problems could reduce the effectiveness of
our product and lead customers to believe our products are ineffective or
inefficient. This could adversely affect the market acceptance of our products,
and any necessary investigative work and repairs could cause us to incur
significant expenses and delays in implementation.
If we fail to introduce new versions and releases of our CCS product in a
timely manner, our revenues may decline.
Since 1997, a majority of our total revenues have been, and are expected to
be, derived from the license of our CCS product to a limited number of
customers. Accordingly, our future operating results will depend on the demand
for this product by future customers, including new and enhanced releases that
are subsequently introduced. If our competitors release new products that are
superior to ours in performance or price, or we fail to enhance our product and
introduce new features and functionality in a timely manner, demand for our
product may decline. A decline in demand for our CCS product as a result of
competition, technological change or other factors would significantly reduce
our revenues.
We expect to add new features and functionality to our CCS product by
acquisition or internal development. We have in the past experienced delays in
the planned release dates of new versions of our software product and upgrades.
New versions may not be released on schedule or may contain defects when
released. The introduction of enhancements to our product may cause customers
to defer orders for existing versions. Enhanced versions may not meet the
requirements of the marketplace and may not achieve market acceptance. If we
are unable to ship or implement enhancements to our product when planned, or
fail to achieve timely market acceptance of these enhancements, we may suffer
lost sales and could fail to achieve anticipated revenues.
If our product does not operate with the many hardware and software platforms
used by our customers, our revenues will decline.
We currently serve a customer base with a wide variety of constantly
changing hardware, software applications and networking platforms. Customer
acceptance of our product depends, among others things, on the following
factors:
. our ability to integrate our product with multiple platforms and
existing, or legacy systems and to modify our product as new versions
of applications are introduced;
12
<PAGE>
. our ability to anticipate and support new standards, especially
Internet standards;
. the integration of additional software modules under development with
our existing product; and
. our management of software being developed by third parties for our
customers or use with our product.
If our product fails to satisfy these technological requirements, whether due
to our actions or as a result of the implementation of our product on a
customers' system by a system integrator, the market acceptance of our product
and our business could be adversely affected.
Our reliance on international operations involve unique operating factors that
may cause our revenues to decline and our operating results to fluctuate.
A significant portion of our revenues have been from the license of our
product and related services outside the United States. In 1998, international
revenues were 78% of our total net revenues. International revenues were 33% of
total net revenues in the nine month period ended September 30, 1999. We expect
international revenues will continue to represent a significant portion of our
total net revenues in future periods. International operations are subject to a
variety of risks, including
. difficulties in managing operations across disparate geographic areas;
. difficulties in hiring qualified local personnel;
. seasonal fluctuations in customer orders;
. longer accounts receivable collection cycles;
. expenses associated with localizing products for foreign markets;
. unexpected changes or conflicts in tax and trade laws and regulations;
. difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems;
. shipping delays;
. various trade restrictions;
. customs duties, export quotas; and
. economic or political instability.
Any of these factors could have a significant impact on our ability to
deliver products on a competitive and timely basis and adversely affect our
revenues and results of operations.
Our international sales are currently U.S. dollar-denominated. As a result,
an increase in the value of the U.S. dollar relative to foreign currencies
could make our products less competitive in international markets. In the
future, we may elect to invoice some of our international customers in local
currencies. Doing so will subject us to fluctuations in exchange rates between
the U.S. dollar and the particular local currency.
International expansion could be difficult and we may not achieve sales growth.
We have expanded, and intend to continue expanding, our international
operations and enter additional international markets. In October 1997, we
opened an office in London, England and as of September 30, 1999 we had 28
employees based internationally. To increase our international sales
opportunities, we will need to further develop our international sales,
professional services and support organizations, and we will need to form
additional relationships with system integration partners worldwide. If we are
unable to expand our international operations, sales and build relationships
with third parties outside the United States on a timely
13
<PAGE>
basis, we may not achieve anticipated sales growth. This expansion may be more
difficult or take longer than we anticipate, and we may not be able to
successfully market, sell, deliver and support our product internationally,
which would cause sales to decline.
Industry Risks
Competition in our markets is intense and comes from custom-developed products
and vendors of "point" products. Competition may in the future come from
vendors of enterprise class software and emerging companies focused on
electronic commerce. Such competition could reduce our sales and prevent us
from achieving profitability.
The market for our product is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition is expected to
increase in the future. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any one of which
could significantly reduce our future revenues. Our current competitors
include:
Internal IT departments. "In house" information technology departments of
potential customers have developed or may develop systems that provide some or
all of the functionality of our product. We expect that internally developed
application integration and process automation efforts will continue to be a
significant source of competition for the foreseeable future. In particular, it
can be difficult to sell our product to a potential customer whose internal
development group has already made large investments in and progress towards
completion of systems that our product is intended to replace.
Companies that have already invested substantial resources in other methods
of conducting commerce may be reluctant to adopt a new approach that may
replace, limit or compete with their existing systems. We expect that we will
continue to need intensive marketing and sales efforts to educate prospective
customers about the uses and benefits of our products and services. Therefore,
demand for and market acceptance of our products and services will be subject
to a high level of uncertainty.
Point application vendors. We compete with providers of stand-alone point
solutions for Web-based customer relationship management, such as Silknet
Software, Inc., and Webline and providers of stand-alone e-mail response
capabilities, such as Kana Communications, Inc., Mustang Software, Inc. and
Brightware. We also compete against traditional client/server-based, call-
center service customer and salesforce automation solution providers, such as
Siebel Systems, Inc., The Vantive Corporation, Clarify, Inc. and Pegasystems
Inc.
Other software vendors. We may in the future encounter competition from
major enterprise software developers including Oracle Corporation, PeopleSoft,
Inc., International Business Machines Corporation and SAP AG.
Many of our competitors have greater resources and broader customer
relationships than we do. In addition, many of these competitors have extensive
knowledge of our industry. Current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to offer a single solution and increase the ability of their products
to address customer needs.
New technologies could render our products less competitive or require us to
rewrite our software in new computer languages or for other operating systems,
which rewrite could delay product releases and reduce sales.
The market for software and services that provide e-business infrastructure
for customer interaction is characterized by rapid technological change,
changes in customer requirements, frequent new product and service
introductions and enhancements, and emerging industry standards. Advances in
Internet technology or in applications software directed at customer
interaction, or the development of entirely new technologies to
14
<PAGE>
replace existing software, could lead to new competitive products that have
better performance or lower prices than our products and could render our
products obsolete and unmarketable. In addition, if a new software language or
operating system becomes standard or is widely adopted in our industry, we may
need to rewrite portions of our software in another computer language or for
other operating systems to remain competitive. If we are unable to develop
products that respond to changing technology, our business could be harmed.
It is common for software companies to acquire other companies as a means
of introducing new products or emerging technologies. If a new technology or
product emerges that may displace our product lines, competitors with large
market capitalizations or cash reserves would be better positioned than we are
to acquire such new technology or product.
Because competition for qualified personnel is intense, we may not be able to
retain or recruit personnel, which could impact the development and sales of
our product.
Our success depends largely on the continued contributions of our key
management, engineering, sales and marketing and professional services
personnel, including Samuel T. Spadafora, our Chairman, President and Chief
Executive Officer. Except for our Chief Executive Officer, we do not have
employment agreements with any of our key personnel. We have experienced
significant turnover in our key personnel in the recent past. If one or more
members of our current senior management were to resign, the loss of personnel
could result in loss of sales, delays in new product development and diversion
of management resources.
In addition, we will need to continue to retain and expand our direct sales
force and qualified sales engineering, marketing and professional services
personnel. In particular our ability to increase our sales will depend on our
ability to recruit, train and retain top quality sales people who are able to
target prospective customers' senior management, and who can productively
generate and service large accounts. There is a shortage of sales personnel and
competition for qualified personnel is intense, particularly in Silicon Valley.
In addition, it will take time for new sales personnel to achieve full
productivity. If we are unable to hire or retain qualified personnel, or if
newly hired personnel fail to develop the necessary skills or to reach
productivity, our business may be adversely affected.
Year 2000 considerations may cause our customers and potential customers to
delay purchases of our product until later in 2000, which could reduce our
sales.
We may experience reduced sales and licenses of our product as customers
and potential customers who put a priority on correcting year 2000 problems and
therefore defer purchase decisions for software products until later in 2000.
Accordingly, demand for our product may be particularly volatile and
unpredictable for calendar 2000.
If our systems and the systems of our key suppliers and customers are not year
2000 compliant, we could incur increased costs, delay or loss of revenues,
diversion of development resources or damage to our reputation.
Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year
2000 compliant. The failure of our customers' systems to be year 2000 compliant
could impede the success of applications that we or our partners have developed
for them. Accordingly, known or unknown defects that affect the operation of
our software, including any defects or errors in applications that include our
products, could result in delay or loss of revenues, diversion of development
resources, damage to our reputation, or increased service or warranty costs and
litigation costs.
We have not completed our year 2000 investigation and overall compliance
initiative, and the total cost of our year 2000 compliance may be substantial.
We may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal systems.
15
<PAGE>
If we become subject to product liability litigation, it could be costly and
time consuming to defend.
Since our products are used for company-wide computer applications that are
central to our customers' sale and support of their products, errors, defects
or other performance problems could result in financial or other damages to our
customers. Although our license agreements generally contain provisions
designed to limit our exposure to product liability claims, existing or future
laws or unfavorable judicial decisions could negate such limitation of
liability provisions. Product liability litigation, even if it were
unsuccessful, would be time consuming and costly to defend and could damage our
reputation. While we have product liability insurance in the amount of $1
million per occurrence, $2 million in the aggregate, this insurance may not
provide adequate coverage in the event of significant claims.
If we are unable to protect our intellectual property we may lose a valuable
asset or incur costly litigation to protect our rights.
Our success and ability to compete depend upon our proprietary technology.
We rely on trademark, trade secret and copyright laws to protect our
intellectual property. We have no patents or patent applications. We ship
source code to our customers and third-party integrators are given access to
it. Despite our efforts to protect our intellectual property, a third party
could copy or otherwise obtain the source code to our software or other
proprietary information without authorization, or could develop software
competitive to ours. Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop similar technology or
duplicate our products. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States, and we expect that it will become more difficult to monitor the
use of our products if we increase our international presence.
We may have to litigate to enforce our intellectual property rights, to
protect our trade secrets or know-how or to determine their scope, validity or
enforceability. Enforcing or defending our proprietary technology is expensive,
could cause the diversion of our resources and may not prove successful. Our
protective measures may prove inadequate to protect our proprietary rights. If
we are unable to protect our intellectual property, we may lose a valuable
asset or incur costly litigation to protect our rights.
If we become subject to intellectual property infringement claims, these claims
could be costly and time-consuming to defend, divert management attention and
cause product delays and have an adverse effect on our revenues and operating
results.
There has been substantial litigation in the software and Internet
industries regarding intellectual property rights. In the future, third parties
may claim that we or our current or potential future products infringe their
intellectual property. We expect that software product developers and providers
of e-business software will increasingly be subject to infringement claims as
the number of products and competitors in our industry grows and the
functionality of products overlaps. Any claims, with or without merit, could be
costly and time-consuming to defend, divert our management's attention, or
cause product delays. If our product was found to infringe a third party's
proprietary rights, we could be required to enter into royalty or licensing
agreements in order to be able to sell our product. Royalty and licensing
agreements, if required, may not be available on terms acceptable to us or at
all.
If use of the Internet does not continue to develop and reliably support the
demands placed on it by more widespread electronic commerce, it may not develop
as a commercial marketplace, causing us to fail to achieve sales growth.
Growth in sales of our products and services depends upon the continued and
increased use of the Internet as a medium for commerce and communication.
Although the Internet is experiencing growth in the number of users and
traffic, such rapid growth is a recent phenomenon and may not continue. In
addition, the infrastructure of the Internet may not be able to support the
demands placed on it by increased usage and bandwidth requirements.
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<PAGE>
Other risks associated with commercial use of the Internet could slow its
growth, including:
. inadequate security of information distributed over the Internet,
resulting in privacy concerns;
. inadequate reliability of the network infrastructure;
. slow development of enabling technologies and complementary products;
and
. limited accessibility and ability to deliver quality service.
In addition, the recent growth in the use of the Internet has caused
frequent periods of poor or slow performance, requiring components of the
Internet infrastructure to be upgraded. Delays in the development or adoption
of new equipment and standards or protocols required to handle increased levels
of Internet activity, or increased government regulation, could cause the
Internet to lose its viability as a commercial medium. If the Internet
infrastructure does not develop sufficiently to address these concerns, it may
not develop as a commercial marketplace, and our sales may decrease.
Government laws and regulations could limit the market for our product and
services and adversely affect our business.
Federal, state or foreign agencies may adopt laws or regulations affecting
the use of the Internet as a commercial medium. If enacted, these laws or
regulations could limit the market for our product, which could materially
adversely affect our business. Although many of these laws or regulations may
not apply to our business directly, we expect that laws and regulations
relating to user privacy, security, pricing, content and quality of products
and services could indirectly affect our business. It is possible that these
laws or regulations could expose companies involved in electronic commerce to
liability, which could limit the growth of electronic commerce generally.
Current or future government regulations, including export restrictions could
also limit our ability to distribute our products.
Offering Risks
We have discretion as to the use of the proceeds from this offering and may not
obtain a significant return on the use of these proceeds.
Our management has complete discretion as to how to spend the proceeds to
us from this offering and may spend these proceeds in ways with which our
stockholders may not agree. We do not have a specific plan for use of the
proceeds of this offering; however, we will likely need to use the proceeds for
additional working capital and other general corporate purposes. We cannot
predict that investment of the proceeds will yield a favorable return. See "Use
of Proceeds" on page 21 for further discussion of how we intend to use the
proceeds from this offering.
Our directors and executive officers will retain significant control over
Chordiant after the offering, which may lead to conflicts with other
stockholders over corporate governance.
Following the completion of this offering, our directors, executive
officers, and holders of 5% or more of our outstanding common stock will
beneficially own approximately 78.6% of our outstanding common stock. These
stockholders, acting together, will be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and significant corporate transactions, such as mergers or other
business combination transactions. This control may delay or prevent a third
party from acquiring or merging with us.
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<PAGE>
Our charter documents and Delaware law may inhibit a takeover or change in our
control that a stockholder may consider favorable.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:
. establishment of a classified board of directors requiring that not all
members of the board may be elected at one time;
. authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
. limitations on the ability of stockholders to call special meetings of
stockholders;
. prohibiting stockholder action by written consent, thereby requiring
all stockholder actions to be taken at a meeting of our stockholders;
and
. establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
upon by stockholders at stockholder meetings.
Our stock price may be volatile because our shares have not been publicly
traded before, and you may lose all or a part of your investment.
Prior to this offering, you could not buy or sell our common stock
publicly. The price of our common stock that will prevail in the market after
this offering may be higher or lower than the price you pay.
An active public market for our common stock may not develop or be
sustained after the offering. We negotiated and determined the initial public
offering price with the representatives of the underwriters and this price may
not be indicative of prices that will prevail in the trading market.
As a result you may be unable to sell your shares of common stock at or
above the offering price. The market price of the common stock may fluctuate
significantly in response to factors, including the following, most of which
are beyond our control:
. variations in our quarterly operating results;
. changes in securities analysts' estimates of our financial performance;
. changes in market valuations of similar companies;
. announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. loss of a major customer or failure to complete significant license
transactions;
. additions or departures of key personnel; and
. fluctuations in stock market price and volume, which are particularly
common among securities of software and Internet-oriented companies.
We are at risk of securities class action litigation due to our expected stock
price volatility.
In the past, securities class action litigation has often been brought
against a company following a decline in the market price of its securities.
This risk is especially acute for us because technology companies have
experienced greater than average stock price volatility in recent years and, as
a result, have been subject to, on
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<PAGE>
average, a greater number of securities class action claims than companies in
other industries. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, and could seriously harm our business.
The purchasers of shares in this offering will experience immediate dilution.
We expect that the initial public offering price will be substantially
higher than the pro forma net tangible book value per share of our outstanding
common stock. Accordingly, if we were liquidated for book value immediately
following this offering, each stockholder purchasing in this offering would
receive less than the price they paid for their common stock. In addition,
because our success is so heavily dependent on our ability to attract and
retain talented personnel, we expect to offer a significant number of stock
options to employees in the future. If other stockholders exercise options or
or otherwise acquire our common stock, you will experience further dilution.
The substantial number of shares that will be eligible for sale in the near
future may cause the market price for our common stock to drop significantly,
even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public
market following this offering could depress the market price for our common
stock. The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and under
agreements that our stockholders have entered into with the underwriters and
with us. Those agreements generally restrict our stockholders from selling,
pledging or otherwise disposing of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of BancBoston
Robertson Stephens. However, BancBoston Robertson Stephens may, in its sole
discretion, release all or any portion of the common stock from the
restrictions of these agreements at any time. The following table indicates
approximately when the 30,094,801 shares of our common stock that were
outstanding as of November 18, 1999, after giving effect to the conversion of
all outstanding shares of preferred stock into common stock upon the closing of
the offering, will be eligible for sale into the public market:
<TABLE>
<CAPTION>
Eligibility of Restricted Shares
for Sale in Public Market
--------------------------------
<S> <C>
For the first 180 days after the date of
this prospectus.......................... --
180 days after date of this prospectus.... 24,131,646
At various times after 180 days after date
of this prospectus....................... 5,963,155
</TABLE>
Additionally, of the 7,824,162 shares issuable upon exercise of options to
purchase our common stock outstanding as of November 18, 1999, approximately
4,007,612 shares will be vested and eligible for sale 180 days after the
completion of this offering.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of such
terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors, including
the risks outlined under "Risk Factors," that may cause our or our industry's
actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results, unless required by law.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of 4,500,000 shares
of our common stock in this offering are approximately $36.6 million,
approximately $40.1 million if the underwriters' over-allotment options are
exercised in full, at an assumed initial public offering price of $9.00 per
share, after deducting the underwriting discounts and commissions and estimated
offering expenses.
We intend to use the net proceeds from the sale of shares in this offering
primarily for additional working capital and other general corporate purposes,
including the payment of our outstanding bank lines of credit, increased
professional services organization expenditures, research and development
expenditures, sales and marketing expenditures, capital expenditures and
general and administrative expenditures. As of September 30, 1999, the
outstanding balance of our lines of credit was $4.2 million. We have not yet
determined our expected use of the remaining portion of these proceeds, but we
currently estimate that we will incur at least $15 million in operating
expenses during the next 12 months as we increase our investments in
professional services, research and development, sales and marketing and
general and administrative operations. These operating expenses will be
partially offset by the degree to which we continue to receive revenues from
the ongoing licensing of our products.
The amounts and timing of these expenditures will vary depending on a
number of factors, including the amount of cash generated by our operations,
competitive and technological developments and the rate of growth, if any, of
our business. As a result, we will retain broad discretion in the allocation of
our net proceeds from the sale of shares in this offering. Pending the uses
described above, we will invest the net proceeds of this offering in short term
interest bearing, investment-grade securities. We cannot predict whether the
proceeds will be invested to yield a favorable return. We believe that our
available cash, together with our net proceeds of this offering, will be
sufficient to meet our capital requirements for at least the next 12 months.
We will not receive any proceeds from the sale of shares by the selling
stockholders in the over-allotment portion of this offering.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain our earnings, if any, for the development of our business. See
also "Description of Capital Stock."
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to:
. the conversion of all outstanding shares of preferred stock and
convertible debentures into shares of common stock upon closing of
this offering;
. no exercise of the underwriter's over allotment options;
. the filing of our amended and restated certificate of incorporation
prior to the closing of this offering; and
. a 1 for 2 reverse stock split.
. on the same pro forma basis, as adjusted to give effect to the sale of
shares of common stock in this offering at an assumed initial public
offering price of $9.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------------
Pro Forma
Actual Pro forma As Adjusted
-------- --------- -----------
(in thousands)
(unaudited)
<S> <C> <C> <C>
Long-term borrowings........................... $ 10,962 $ 962 $ 962
-------- -------- --------
Mandatorily Redeemable Convertible Preferred
Stock: par value $0.001 per share; 25,027,985
shares authorized, 22,280,615 shares issued
and outstanding, actual; 51,000,000 shares
authorized and none issued and outstanding,
pro forma and pro forma as adjusted........... 51,109 -- --
-------- -------- --------
Stockholders' equity (deficit):
Common Stock: par value $0.001 per share;
51,578,947 shares authorized, 5,436,349
shares issued and outstanding, actual;
29,716,964 shares issued and outstanding,
pro forma; and 300,000,000 shares issued and
outstanding, pro forma as adjusted.......... 5 30 34
Additional paid-in capital................... 3,433 64,517 101,078
Unearned compensation........................ (782) (782) (782)
Accumulated deficit.......................... (54,863) (54,863) (54,863)
-------- -------- --------
Total stockholders' equity (deficit)........ (52,207) 8,902 45,467
-------- -------- --------
Total capitalization........................ $ 9,864 $ 9,864 $ 46,429
======== ======== ========
</TABLE>
The number of shares of common stock to be outstanding after this offering
assumes no exercise of the underwriters' overallotment options. The number of
shares of common stock to be outstanding after this offering is based upon the
number of shares outstanding as of November 18, 1999, and excludes:
. 7,824,162 shares subject to options outstanding as of November 18, 1999
at a weighted average exercise price of $1.75 per share
. 1,071,509 additional shares that we could issue under our equity
incentive stock option plan;
. 700,000 shares that we could issue under our non-employee directors'
stock option plan; and
. 2,000,000 additional shares that we could issue under our employee
stock purchase plan.
Of the total shares outstanding, 42,981 shares are subject to our right of
repurchase as of November 18, 1999. Please read the above information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and
related notes beginning on page F-1, of this prospectus.
22
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock, on September 30,
1999, after giving effect to the conversion of all outstanding shares of
preferred stock and the conversion of convertible debentures upon the closing
of the offering, was approximately $8.9 million, or approximately $0.30 per
share. Pro forma net tangible book value per share represents the amount of our
total tangible assets less total liabilities divided by the number of shares of
common stock outstanding. Dilution in pro forma net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of common stock in this offering and the net tangible book value per
share of our common stock immediately afterwards. Assuming our sale of
4,500,000 shares of common stock offered by this prospectus at our assumed
initial public offering price of $9.00 per share, and after deducting
underwriting discounts and commissions and estimated offering expenses, our net
tangible book value at September 30, 1999 would have been approximately $45.5
million or $1.33 per share. This represents an immediate decrease in net
tangible book value of $7.67 per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $ 9.00
Pro forma net tangible book value per share as of September
30, 1999................................................... $ 0.30
Increase per share attributable to new investors............. 1.03
------
Pro forma net tangible book value after this offering........ 1.33
------
Dilution per share to new investors.......................... $ 7.67
======
</TABLE>
The following table summarizes, on a pro forma basis, as of September 30,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors purchasing shares in this
offering. We used an assumed initial public offering price of $9.00 per share
and we have not deducted underwriting discounts and commissions and estimated
offering expenses in our calculations.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 29,716,964 86.8% $57,005,845 58.5% $1.92
New investors................. 4,500,000 13.2 40,500,000 41.5 9.00
---------- ---- ----------- ----
Total....................... 34,211,981 100% $97,505,845 100%
========== ==== =========== ====
</TABLE>
In the event that we issue additional shares of common stock in the future,
purchasers of common stock in this offering may experience further dilution.
The foregoing discussion and tables assume no exercise of any outstanding
stock options. The exercise of options outstanding under our stock option plans
having an exercise price less than the offering price would increase the
dilutive effect to new investors. See "Capitalization" and "Management--
Employee Stock Plans." The foregoing discussion gives effect to the issuance of
2,000,000 shares of Series D Preferred Stock upon conversion of the outstanding
debentures, and the conversion of all outstanding shares of preferred stock
into common stock upon the closing of this offering.
If the underwriters exercise their over-allotment options in full, the
following will occur:
. the number of shares of common stock held by existing stockholders will
decrease to 29,461,981, or approximately 86.1% of the total number of
shares of our common stock outstanding; and
. the number of shares held by new investors will increase to 4,750,000,
or approximately 13.9% of the total number of our common stock
outstanding after this offering.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated selected financial data should be read in
conjunction with our consolidated financial statements and related notes
beginning on page F-1 of this prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The consolidated
statement of operations data for the years ended December 31, 1996, 1997 and
1998, and the consolidated balance sheet data as of December 31, 1997 and 1998,
are derived from the audited consolidated financial statements included
elsewhere in this prospectus. The consolidated statement of operations data for
the years ended December 31, 1994 and 1995, and the consolidated balance sheet
data as of December 31, 1994, 1995 and 1996, are derived from audited financial
statements not included in this prospectus. The consolidated statement of
operations data for the nine months ended September 30, 1998 and 1999 and the
consolidated balance sheet data as of September 30, 1999 are derived from
unaudited consolidated financial statements included elsewhere in this
prospectus that have been prepared on the same basis as the audited
consolidated financial statements and in the opinion of management, include all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of such information. The historical results are not necessarily
indicative of results to be expected for future periods.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------ ------- ------- -------- -------- -------- --------
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues:
License................ $ -- $ -- $ -- $ 1,142 $ 4,360 $ 2,634 $ 5,325
Service................ 3,636 7,328 2,312 1,766 8,105 3,345 6,922
------ ------- ------- -------- -------- -------- --------
Total net
revenues.......... 3,636 7,328 2,312 2,908 12,465 5,979 12,247
------ ------- ------- -------- -------- -------- --------
Cost of net revenues:
License................ -- -- -- 73 425 288 218
Service................ 3,045 5,634 2,353 1,462 8,947 4,104 9,765
------ ------- ------- -------- -------- -------- --------
Total cost of net
revenues.......... 3,045 5,634 2,353 1,535 9,372 4,392 9,983
------ ------- ------- -------- -------- -------- --------
Gross profit (loss)..... 591 1,694 (41) 1,373 3,093 1,587 2,264
------ ------- ------- -------- -------- -------- --------
Operating Expenses:
Sales and marketing.... 691 780 1,140 5,142 12,580 8,517 9,557
Research and
development........... -- 2,741 4,598 6,240 5,858 4,143 4,790
General and
administrative........ 497 1,019 1,860 1,416 2,046 1,352 1,912
Stock-based
compensation.......... -- -- 3 498 489 274 764
------ ------- ------- -------- -------- -------- --------
Total operating
expenses.......... 1,188 4,540 7,601 13,296 20,973 14,286 17,023
------ ------- ------- -------- -------- -------- --------
Loss from operations.... (597) (2,846) (7,642) (11,923) (17,880) (12,699) (14,759)
Interest expense........ -- -- (55) (112) (121) (84) (747)
Other income (expense),
net.................... (28) (44) 135 442 561 495 70
------ ------- ------- -------- -------- -------- --------
Net loss................ $ (625) $(2,890) $(7,562) $(11,593) $(17,440) $(12,288) $(15,436)
====== ======= ======= ======== ======== ======== ========
Net loss per share:
Basic and diluted...... $(0.13) $ (0.58) $ (1.51) (2.31) (3.44) (2.44) (2.93)
====== ======= ======= ======== ======== ======== ========
Weighted average
shares................ 5,000 5,000 5,002 5,009 5,075 5,034 5,264
====== ======= ======= ======== ======== ======== ========
Proforma net loss per
share:
Basic and diluted...... $ (0.81) $ (0.67)
======== ========
Weighted average
shares................ 21,524 23,086
======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------- September 30,
1994 1995 1996 1997 1998 1999
------ ------- ------- -------- -------- -------------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 1 $ 2,053 $ 2,678 $ 18,916 $ 1,713 $ 21,077
Working capital
(deficit).............. (469) (852) (1,368) 7,767 (10,162) 7,368
Total assets............ 1,559 6,113 7,282 21,360 11,521 27,276
Borrowings.............. 884 483 1,045 1,268 1,687 15,141
Deferred revenues....... -- 1,950 4,179 4,402 5,719 7,763
Mandatorily Redeemable
Convertible Preferred
Stock.................. -- 2,014 9,047 28,949 28,949 51,109
Stockholders' equity
(deficit).............. 362 (2,024) (9,586) (20,682) (37,604) (52,207)
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes beginning on page F-1 of
this prospectus. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under "Risk Factors" and elsewhere
in this prospectus.
Overview
Chordiant provides e-business infrastructure software that enables
companies to offer their customers highly personalized marketing, sales
programs, e-business services and customer support across multiple
communication channels. Our product, Customer Communications Solution, or CCS,
is a suite of applications designed to integrate customer information from
disparate data sources, automate business processes dependent on a customer's
specific profile and request, and provide consistent service to customers
across communications channels including Internet, telephone, e-mail and branch
offices.
Chordiant was incorporated in California in March 1991 and was
reincorporated in Delaware in October 1997. Prior to 1997, we were primarily
engaged in custom consulting services. We released the first version of our CCS
product in September 1997. With the release of this product, we accelerated the
development of our sales and marketing organizations.
We derive revenues primarily from licenses of our CCS software product and
from related services, which include implementation, consulting, customization
and integration, post-contract customer support and training. Our product is
typically licensed directly to customers for a perpetual term, with pricing
based on a server basis and the number of users.
On contracts involving significant implementation or customization
essential to the functionality of our product, license and service revenues are
recognized using the percentage-of-completion method using labor hours incurred
as the measure of progress towards completion. We classify revenues from these
arrangements as license and services revenues, respectively, based upon the
estimated fair value of each element. Provisions for estimated contract losses
are recognized in the period in which the loss becomes probable and can be
reasonably estimated. We expect that for the foreseeable future, a majority of
our license and service revenues will be recognized using this percentage-of-
completion methodology.
On contracts that do not involve significant implementation or
customization essential to the functionality of our product, license revenues
are recognized when there is persuasive evidence of an arrangement for a fixed
and determinable fee that is probable of collection and when delivery has
occurred. For arrangements with multiple elements, we recognize revenues for
the delivered elements based upon the residual contract value as prescribed by
Statement of Position No. 98-9, "Modification of SOP No. 97-2 with Respect to
Certain Transactions."
Other service revenues from consulting and training services are recognized
as such services are performed. Service revenues from post-contract customer
support are recognized ratably over the contractual support term, generally one
year.
In future periods, we expect to derive revenues from contracts that provide
for implementation services at a fixed hourly rate. On other contracts we
expect to derive revenues from the licensing of the installed product on a per
transaction basis. In connection with such arrangements, we will recognize the
fair value of the implementation services as such services are delivered and
will recognize license fees on a monthly basis at the contractual rate.
25
<PAGE>
We bill customers in accordance with contract terms. Amounts billed to
customers in excess of revenues recognized are recorded as deferred revenues.
Service revenues as a percentage of total revenues were 61% in 1997, 65% in
1998 and 56% in the nine month period ended September 30, 1999. To help ensure
the success of early product deployments by customers, in early 1998 we began
establishing a significant service organization. The organization assists
customers, and third parties such as system integrators, in the design and
implementation of our product. Since service revenues have a lower gross margin
than license revenues, this service activity resulted in reduced overall gross
margins. In addition, in the fourth quarter of 1998 and through September 30,
1999, we engaged third parties to provide services to customers, which service
providers then billed us for their services. As a result of using third party
resources, revenues from these contracts generated very small gross margins. As
a result of expansion of our service organization and use of system integrators
that bill our customers directly for services, we believe that our use of third
party service providers will decline substantially in future periods. We expect
that service revenue will continue to represent a significant portion of total
revenues.
We sell our product through our direct sales force, and augment our sales
efforts through relationships with system integrators, application service
providers and technology vendors. Our revenues, to date, have been derived from
customer accounts in the United States, United Kingdom, Netherlands, Canada and
South Africa. In October 1997, we opened an office in London, England. In 1998,
international revenues were $9.7 million or approximately 78% of our total net
revenues and for the nine months ended September 30, 1999, international
revenues were $4.0 million or approximately 33% of our total revenues. We
believe international revenues will continue to represent a significant portion
of our total revenues in future periods.
A relatively small number of customers account for a significant portion of
our total revenues. As a result, the loss or delay of individual orders or
delays in the product implementations for a customer can have a significant
impact on our revenues. In 1998, revenues from KLM Royal Dutch Airlines, Thomas
Cook Global Services, Canadian Tire Acceptance Limited and Chase Manhattan
Mortgage Corporation accounted for 36%, 19%, 14% and 12% of our total net
revenues. For the nine months ended September 30, 1999, revenues from Chase
Manhattan Mortgage Corporation and First USA accounted for 29% and 22% of our
total net revenues. We expect that revenues from a limited number of customers
will continue to account for a relatively large percentage of our total net
revenues in future quarters as historical implementations are completed and
replaced with new projects from new and existing customers.
Since inception, we have incurred substantial research and development
costs and have invested heavily in the expansion of our product development,
sales, marketing and professional services organizations to build an
infrastructure to support our long-term growth strategy. The number of our
full-time employees increased from 70 as of September 30, 1997 to 127 as of
September 30, 1999, representing an increase of 81%. Generally, as a result of
start-up costs, development and increasing sales and marketing expenses, we
have incurred net losses in each quarter since inception and, as of September
30, 1999, had an accumulated deficit of $54.9 million. We anticipate that our
operating expenses will increase for the foreseeable future as we expand our
product development, sales and marketing and professional services
organization. Accordingly, we expect to incur net losses for the foreseeable
future.
We believe that period-to-period comparisons of our operating results are
not meaningful and should not be relied upon as indicative of future
performance. Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving markets. There
can be no assurance we will be successful in addressing such risks and
difficulties. In addition, although we have experienced significant revenue
growth recently, this trend may not continue. In addition, we may not achieve
or maintain profitability in the future. See "Risk Factors--We have a history
of losses, we expect to continue to incur losses and we may not achieve or
maintain profitability" and "Our operating results fluctuate significantly and
an unanticipated decline in revenue may disappoint securities analysis or
investors and result in a decline in our stock price."
26
<PAGE>
Results of Operations
The following tables set forth consolidated statement of operations data
for each of the years ended December 31, 1996, 1997 and 1998 and the nine month
periods ended September 30, 1998 and 1999, as well as the percentage of our
total net revenues represented by each item. This information has been derived
from the consolidated financial statements included in this prospectus. You
should read this information in conjunction with our annual audited
consolidated financial statements and related notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues:
License................ $ -- $ 1,142 $ 4,360 $ 2,634 $ 5,325
Service................ 2,312 1,766 8,105 3,345 6,922
------- -------- -------- -------- --------
Total net
revenues......... 2,312 2,908 12,465 5,979 12,247
------- -------- -------- -------- --------
Cost of net revenues:
License................ -- 73 425 288 218
Service................ 2,353 1,462 8,947 4,104 9,765
------- -------- -------- -------- --------
Total cost of net
revenues......... 2,353 1,535 9,372 4,392 9,983
------- -------- -------- -------- --------
Gross profit (loss)..... (41) 1,373 3,093 1,587 2,264
------- -------- -------- -------- --------
Operating expenses:
Sales and marketing.... 1,140 5,142 12,580 8,517 9,557
Research and
development.......... 4,598 6,240 5,858 4,143 4,790
General and
administrative....... 1,860 1,416 2,046 1,352 1,912
Stock-based
compensation......... 3 498 489 274 764
------- -------- -------- -------- --------
Total operating
expenses......... 7,601 13,296 20,973 14,286 17,023
------- -------- -------- -------- --------
Loss from operations.... (7,642) (11,923) (17,880) (12,699) (14,759)
Interest expense....... (55) (112) (121) (84) (747)
Other income (expense),
net.................. 135 442 561 495 70
------- -------- -------- -------- --------
Net loss................ $(7,562) $(11,593) $(17,440) $(12,288) $(15,436)
======= ======== ======== ======== ========
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
As a Percentage of Total
Net Revenues:
Net revenues:
License................ -- % 39 % 35 % 44 % 43 %
Service................ 100 61 65 56 57
------- -------- -------- -------- --------
Total net
revenues......... 100 100 100 100 100
------- -------- -------- -------- --------
Cost of net revenues:
License................ -- 3 3 5 2
Service................ 102 50 72 69 80
------- -------- -------- -------- --------
Total cost of net
revenues......... 102 53 75 74 82
------- -------- -------- -------- --------
Gross profit (loss)..... (2) 47 25 26 18
------- -------- -------- -------- --------
Operating expenses:
Sales and marketing.... 49 177 101 142 78
Research and
development.......... 199 214 47 69 39
General and
administrative....... 81 49 16 23 16
Stock-based
compensation......... 0 17 4 5 6
------- -------- -------- -------- --------
Total operating
expenses......... 329 457 168 239 139
------- -------- -------- -------- --------
Loss from operations.... (331) (410) (143) (213) (121)
Interest expense....... (2) (4) (1) (1) (6)
Other income (expense),
net.................. 6 15 4 8 1
------- -------- -------- -------- --------
Net loss................ (327)% (399)% (140)% (206)% (126)%
======= ======== ======== ======== ========
</TABLE>
27
<PAGE>
Net Revenues
License. License revenues consist of licenses of our CCS software. License
revenues increased from $0 in 1996, to $1.1 million in 1997 to $4.4 million in
1998, due to the growth in the number of product implementations by new
customers. Comparing the nine months ended September 30, 1998 to the nine
months ended September 30, 1999, license revenues increased from $2.6 million
to $5.3 million due to the growth in the number of product implementations by
new customers and higher average transaction size. Our average transaction size
has increased due to deployments by our customers to larger numbers of users.
Service. Service revenues consist of consulting assistance and
implementation, customization and integration, and post-contract customer
support and training. Service revenues decreased from $2.3 million in 1996, to
$1.8 million in 1997 and increased to $8.1 million in 1998. Prior to the
introduction of our product in 1997, we were primarily engaged in providing
custom design and consulting services. The 1998 increase in service revenues
was due to consulting work performed in connection with several large customer
implementations. Comparing the nine months ended September 30, 1998 to the nine
months ended September 30, 1999, service revenues grew from $3.3 million to
$6.9 million. This substantial increase in service revenues versus the prior
period began in the first quarter of 1999 due primarily to a continuation in
large customer implementations as well as the growth of maintenance, support
and consulting revenues associated with license agreements signed in earlier
periods. Service revenues continued to increase for the nine months ended
September 30, 1999 as we supported a number of new deployments of our product.
Cost of Net Revenues
License. Cost of license revenues consist primarily of royalty payments to
third parties for technology incorporated in our product. We began incurring
royalty payment obligations in 1997.
Service. Cost of service revenues consist primarily of salaries, facility
costs and payments to third-party consultants incurred in providing customer
support, training and implementation services. Cost of service revenues was
$2.4 million in 1996, $1.5 million in 1997 and $8.9 million in 1998. As
compared to the prior period, our cost of service revenues increased
significantly in dollar amounts, beginning in the fourth quarter of 1998, due
to our use of a third-party service provider to provide implementation services
to our customers and our hiring of additional service personnel. Cost of
service revenues for the nine months ended September 30, 1998 was $4.1 million.
Cost of service revenues for the nine months ended September 30, 1999 was $9.8
million. During the nine months ended September 30, 1999, we hired a number of
additional service personnel in anticipation of supporting a larger customer
base in future periods. This increased investment, combined with slower service
revenues growth during this period, resulted in a substantial increase in the
cost of services measured as a percentage of service revenues. We expect that
the cost of service revenues will continue to increase in dollar amount as we
continue to expand our professional services organization to meet anticipated
customer demand.
Operating Expenses
Sales and marketing. Sales and marketing expenses consist of salaries,
commissions, field office expenses, travel and entertainment, promotional
expenses and facility costs. Sales and marketing expenses increased from $1.1
million in 1996 to $5.1 million in 1997 to $12.6 million in 1998, and were $8.5
million for the nine months ended September 30, 1998 and $9.6 million for the
nine months ended September 30, 1999. The increase in these expenses for 1997
compared to 1996 was attributable to increases in personnel expenses. The
increase in these expenses for 1998 compared to 1997 was attributable to
increases of $5.2 million in personnel expenses, $1.6 million in allocated
depreciation and overhead costs, and $600,000 in marketing and advertising
costs. The increase of $1.0 million for the nine months ended September 30,
1999 compared to the nine months ended September 30, 1998 was attributable to
increases of $1.4 million in personnel expenses partially offset by a $400,000
decrease in advertising costs as a result of the postponement of a proposed
product advertising campaign. We expect that sales and marketing expenses will
continue to increase in dollar amounts as we continue to expand our sales and
marketing efforts, establish additional U.S. and international sales offices
and increase promotional activities.
28
<PAGE>
Research and development. Research and development expenses include costs
associated with the development and enhancement of our product, quality
assurance activities and allocated facility costs. These costs consist
primarily of employee salaries, benefits and the cost of consulting resources
that supplement our internal development team. Research and development
expenses increased from $4.6 million in 1996, to $6.2 million in 1997. Due to
the relatively short time between the date our products achieve technological
feasibility and the date they become generally available to customers, costs
subject to capitalization under SFAS No. 86 have been immaterial and have been
expensed as incurred. Research and development expenses decreased from $6.2
million in 1997 to $5.9 million in 1998, and were $4.1 million for the nine
months ended September 30, 1998 and $4.8 million for the nine months ended
September 30, 1999. The increase in these expenses for 1997 compared to 1996
was attributable to increases of $1.0 million in personnel expenses and
$600,000 in allocated depreciation and overhead costs. The decrease in these
expenses for 1998 compared to 1997 was attributable to personnel related
expenses. The increase of $647,000 for the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998 was attributable to
increases of $535,000 in personnel expenses and $112,000 in general and
administrative costs. We anticipate that we will continue to devote substantial
resources to research and development and that these expenses will continue to
increase in dollar amounts.
General and administrative. General and administrative expenses consist of
salaries for administrative, executive and finance personnel, recruiting costs,
information systems costs, professional service fees and allocated facility
costs. These expenses decreased from $1.9 million in 1996 to $1.4 million in
1997 and increased to $2.0 million in 1998 and were $1.4 million for the nine
months ended September 30, 1998 and $1.9 million for the nine months ended
September 30, 1999. The decrease of $500,000 for 1997 compared to 1996 was
primarily attributable to fixed asset adjustments of approximately $330,000 in
1996. The increase in these expenses for 1998 compared to 1997 was attributable
to increases of $100,000 in professional service fees and $500,000 in facility
costs due to the move of our corporate offices to a larger facility in support
of our growing business. The increase in expenses for the nine months ended
September 30, 1999 compared to September 30, 1998 was attributable to increased
personnel expenses. This increase was primarily the result of additional
finance, executive and information services and an increase in outside
contractor expenses associated with increased recruiting efforts and expanded
human resource programs. We believe that our general and administrative
expenses will continue to increase in dollar amounts as a result of our growing
operations and the additional expenses associated with operating as a public
company.
Amortization of stock-based compensation. Amortization of stock-based
compensation includes the amortization of unearned employee stock-based
compensation and expenses for stock granted to consultants in exchange for
services. Employee stock-based compensation expense is amortized over a four-
year vesting schedule using the multiple option approach. In connection with
the grant of some employee stock options, we recorded aggregate unearned stock-
based compensation expense of $2.6 million through September 30, 1999. During
the period from October 1, 1999 through November 30, 1999, we will record an
additional $5.8 million in unearned stock-based compensation. Stock-based
compensation included in operating expenses totalled $3,000 in 1996, $498,000
in 1997 and $489,000 in 1998, $274,000 for the nine months ended September 30,
1998 and $764,000 for the nine months ended September 30, 1999.
Interest and Other Income (Expense), and Interest Expense
Interest and other income (expense), net, and interest expense consists of
interest income generated from our cash, cash equivalents and short-term
investments, interest expense incurred in connection with outstanding
borrowings and other non-operating income and expenses. Interest and other
income (expense), net of interest expense increased from $80,000 in 1996 to
$330,000 in 1997 to $440,000 in 1998, and was $411,000 for the nine months
ended September 30, 1998 and $(677,000) for the nine months ended September 30,
1999. The increase in these expenses for 1997 compared to 1996 was attributable
to increased interest income. The increase in these expenses for 1998 compared
to 1997 was attributable to increased interest income. The decrease of
$1,088,000 for the nine months ended September 30, 1998 compared to September
30, 1999 was attributable to the decrease in interest bearing cash, cash
equivalents and short-term investment balances.
29
<PAGE>
Provision for Income Taxes
We incurred operating losses for all periods. Our deferred tax assets
primarily consist of net operating loss carryforwards, nondeductible allowances
and research and development tax credits. We have recorded a valuation
allowance for the full amount of our net deferred tax assets, as the future
realization of the tax benefit is not considered by management to be more-
likely-than-not.
As of December 31, 1998, we had net operating loss carryforwards for
federal tax purposes of approximately $25.7 million and for state tax purposes
of approximately $13.0 million. As of September 30, 1999, we had net operating
loss carryforward for federal tax purposes of approximately $40.3 million and
for state tax purposes of approximately $19.9 million. These federal and state
tax loss carryforwards are available to reduce future taxable income. The
federal tax loss carryforwards expire beginning in 2011 and the state tax loss
carryforwards expire beginning in 2001. Under the provisions of the Internal
Revenue Code, substantial changes in our ownership may limit the amount of net
operating loss carryforwards that could be utilized annually in the future to
offset taxable income.
30
<PAGE>
Quarterly Results of Operations
The following table sets forth unaudited consolidated statement of
operations data for the seven quarters in the period ended September 30, 1999,
as well as such data expressed as a percentage of our total net revenues for
the periods indicated. This data has been derived from our unaudited
consolidated financial statements that have been prepared on the same basis as
the audited consolidated financial statements and, in the opinion of
management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the information when read in
conjunction with the audited consolidated financial statements and related
notes thereto. Our quarterly results have been in the past and may in the
future be subject to significant fluctuations. As a result, we believe that
results of operations for interim periods should not be relied upon as any
indication of the results to be expected in any future period. See "Risk
Factors--Our operating results fluctuate significantly and on unanticipated
decline in revenue may disappoint securities analysts or investors and result
in a decline in our stock price" on page 8.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues:
License................ $ 253 $ 955 $ 1,426 $ 1,726 $ 1,769 $ 1,671 $ 1,885
Service................ 596 1,018 1,731 4,760 2,702 2,050 2,170
------- ------- ------- ------- ------- ------- -------
Total net
revenues......... 849 1,973 3,157 6,486 4,471 3,721 4,055
------- ------- ------- ------- ------- ------- -------
Cost of net revenues:
License................ -- -- 288 137 7 38 173
Service................ 694 1,183 2,227 4,843 3,313 3,050 3,402
------- ------- ------- ------- ------- ------- -------
Total cost of net
revenues......... 694 1,183 2,515 4,980 3,320 3,088 3,575
------- ------- ------- ------- ------- ------- -------
Gross profit............ 155 790 642 1,506 1,151 633 480
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 2,236 3,197 3,084 4,063 2,959 3,315 3,283
Research and
development.......... 1,456 1,281 1,406 1,715 1,632 1,671 1,487
General and
administrative....... 364 460 528 694 578 633 701
Stock-based
compensation......... 4 33 237 215 268 294 202
------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 4,060 4,971 5,255 6,687 5,437 5,913 5,673
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (3,905) (4,181) (4,613) (5,181) (4,286) (5,280) (5,193)
Interest expense....... (27) (26) (31) (37) (67) (324) (356)
Other income (expense),
net.................. 224 169 102 66 16 16 38
------- ------- ------- ------- ------- ------- -------
Net loss................ $(3,708) $(4,038) $(4,542) $(5,152) $(4,337) $(5,588) $(5,511)
======= ======= ======= ======= ======= ======= =======
As a Percentage of Total
Net Revenues:
Net revenues:
License................ 30 % 48 % 45 % 27 % 40 % 45 % 46 %
Service................ 70 52 55 73 60 55 54
------- ------- ------- ------- ------- ------- -------
Total net
revenues......... 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- -------
Cost of net revenues:
License................ -- -- 9 2 0 1 4
Service................ 82 60 71 75 74 82 84
------- ------- ------- ------- ------- ------- -------
Total cost of net
revenues......... 82 60 80 77 74 83 88
------- ------- ------- ------- ------- ------- -------
Gross profit............ 18 40 20 23 26 17 12
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 263 162 97 63 66 89 81
Research and
development.......... 171 65 45 26 37 45 37
General and
administrative....... 43 23 16 11 13 17 17
Stock-based
compensation......... 1 2 8 3 6 8 5
------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 478 252 166 103 122 159 140
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (460) (212) (146) (80) (96) (142) (128)
Interest expense....... (3) (2) (1) (1) (1) (9) (9)
Other income (expense),
net.................. 26 9 3 1 0 1 1
------- ------- ------- ------- ------- ------- -------
Net loss................ (437)% (205)% (144)% (79)% (97)% (150)% (136)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
31
<PAGE>
We have a limited operating history, which makes it difficult to predict
future operating results. We believe our success requires expanding our
customer base and continuing to enhance our product. We intend to continue to
invest significantly in our professional services organization, sales and
marketing, and research and development, and expect to incur net losses for the
foreseeable future. Our operating expenses are relatively fixed and are based
on anticipated revenues trends; a delay in the recognition of revenues from one
or more license transactions could cause significant variations in operating
results from quarter to quarter. We bill customers in accordance with contract
terms. Amounts billed to customers in excess of revenues recognized are
recorded as deferred revenues. While a significant portion of our license
revenues each quarter is recognized from deferred revenues on a percentage of
completion basis, our quarterly performance will depend primarily upon entering
into new contracts to generate revenues for both current and future quarters.
New contracts will likely not result in revenues during the quarter in which
the contract was signed, and we may not be able to accurately predict when
revenues from these contracts will be recognized. We have experienced a period
of rapid growth and expansion, and expect to continue to expand. Our future
operating results will depend on many factors, including the following:
. delays in our ability to recognize revenues as a result of the decision
by our customers to postpone software delivery or implementation;
. size and timing of customer orders and product and service delivery
schedules;
. length of our sales cycle;
. international operations;
. success in maintaining and enhancing existing relationships and
developing new relationships with system integrators;
. the level of utilization of our own professional services organization
and third-party service providers;
. timing of our development and release of new and enhanced products;
. changes in the mix of our products and services;
. ability to hire, train and retain sales and consulting personnel; and
. customer budget cycles and changes in these budget cycles.
As a result of these factors, we believe that period-to-period comparisons
of our results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. It is likely that in some
future quarter our operating results will be below the expectations of public
market analysts, if any, and investors. In this event, the price of our common
stock would likely decline.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of common and preferred stock, with net proceeds totaling $51.1 million,
and through the sale of $10.0 million in convertible debentures. As of
September 30, 1999, we had $21.1 million in cash and cash equivalents, and $7.4
million in working capital with $15.1 million of outstanding debt. Of such
debt, $10.0 million is in the form of convertible debentures that will convert
into 2 million shares of our common stock on the closing of this offering. We
intend to repay our outstanding bank line of credit following the closing of
this offering.
Net cash used in operating activities was $5.7 million in 1996. Net cash
used in operating activities was $3.1 million in 1997 and $14.6 million in
1998. Net cash used in operating activities was $16.9 million for the nine
months ended September 30, 1999. Net cash used in investing activities was $1.2
million in 1996, $744,000 in 1997, $3.1 million in 1998 and net cash generated
of $548,000 for the nine months ended September 30, 1999. Investing activities
consist primarily of purchases of property and equipment and net proceeds from
transactions involving our short-term investments. Net cash generated from
financing activities
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<PAGE>
was $7.5 million in 1996, $20.1 million in 1997, $448,000 in 1998 and $35.7
million for the nine months ended September 30, 1999. Net cash generated from
financing activities consists primarily of net proceeds from the issuance of
preferred stock.
As of September 30, 1999, we had two lines of credit with a bank permitting
borrowing up to an aggregate of $5.0 million. Borrowings under the accounts
receivable line of credit bear interest at the lending bank's prime rate, of
8.25% as of September 30, 1999. Borrowings under the equipment loan bear
interest at the lending bank's prime rate plus 0.25%. Borrowings under the
accounts receivable line of credit are limited to 80% of eligible accounts
receivable. The assets of the Company secure borrowings under both lines of
credit. As of September 30, 1999, we had borrowed $4.2 million against the
lines of credit.
Payments under our non-cancelable operating lease agreements for facilities
and other equipment expire on various dates through 2004, resulting in
aggregate lease expenses ranging from $1.3 million to $1.6 million per year. We
finance the acquisition of property and equipment, primarily computer hardware
and software for our increasing employee base as well as for our management
information systems, primarily through non-cancelable leases. We project
capital expenditures of $1.7 million in 2000 for computer hardware and software
applications.
We expect to continue to experience significant growth in our operating
expenses for the foreseeable future. As a result, we anticipate that operating
expenses and planned capital expenditures will continue to be a material use of
our cash resources. In addition, we may utilize cash resources to fund
acquisitions or investments in other businesses, technologies or product lines.
We believe that available cash and cash equivalents and the net proceeds from
the sale of the common stock in this offering will be sufficient to meet our
working capital and operating expense requirements for at least the next 12
months. Thereafter, 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 and not dilutive to our
stockholders.
Recently Issued Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we
do not currently hold any derivative instruments and do not engage in hedging
activities, we expect the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flow. In July
1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133" was
issued. We will be required to adopt SFAS No. 133 in 2000.
Qualitative and Quantitative Disclosures About Market Risk
We are developing products in the United States and currently market our
product in North America, Europe and Africa. As a result, our financial results
could be affected by factors including changes in foreign currency exchange
rates or weak economic conditions in foreign markets. Since all sales are
currently made in U.S. dollars, a strengthening of the dollar could make our
product less competitive in foreign markets. Our interest income is sensitive
to changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the short-
term nature of our investments, we believe that there is no material risk
exposure. Therefore, no quantitative tabular disclosures have been provided.
Year 2000 Readiness
The "Year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able
to distinguish whether "00" means 1900 or 2000, which may result in failures or
the creation of erroneous results.
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<PAGE>
We designed our product to be Year 2000 compliant when configured and used
in accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software used with or in the
host machine or our product are Year 2000 compliant. However, we have not
exhaustively tested older versions of our product for Year 2000 compliance. We
continue to respond to customer questions about prior versions of our product
on a case-by-case basis.
We have defined Year 2000 compliant as the ability to:
. correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
. respond to two-digit date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner;
. store and provide output of date information in ways that are
unambiguous as to century if the date elements in interfaces and data
storage specify the century; and
. recognize year 2000 as a leap year.
As part of our Year 2000 compliance strategy, we request assurances from
our vendors that licensed software is Year 2000 compliant. To date, we have
received assurances from all significant vendors of our enterprise resource
planning software, and technology support software as to their Year 2000
compliance. Despite testing by us and current and potential customers, and
assurances from developers of technology incorporated into our product, our
product may contain undetected errors or defects associated with Year 2000 date
functions. Known or unknown errors or defects in our product could result in
delay or loss of revenues, diversion of development resources, damage to our
reputation, increased service and warranty costs, or liability from our
customers, any of which could seriously harm our business.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of these potential lawsuits against other
software vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we may be affected by it. Congress recently
passed a law that is intended to limit liability for some failures to achieve
Year 2000 compliance. There can be no assurance that this bill will provide us
with any protection.
We have completed an assessment of our material internal information
technology systems, including our own software products and third-party
technology. We are in the process of assessing our non-information technology
systems. We expect to complete testing and to perform any needed remediation of
these systems by the end of December 1999. To the extent that we are not able
to test the technology provided by third-party vendors, we are seeking
assurances from these vendors that their systems are Year 2000 compliant. We
are not currently aware of any material operational issues or costs associated
with preparing our internal information technology and non-information
technology systems for Year 2000. However, we may experience material
unanticipated problems and costs caused by undetected errors or defects in the
technology used in our internal information technology and non-information
technology systems.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate the budgets that current or potential customers could have for or
delay purchases of our product and services. As a result, our business could be
seriously harmed.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the
34
<PAGE>
Year 2000 plan for administrative personnel to manage the project, outside
contractor assistance, technical support for our products, product engineering
and customer satisfaction. In addition, we may experience material problems and
costs with Year 2000 compliance that could seriously harm our business.
We are developing a contingency plan to address situations that may result
if our critical internal systems are not Year 2000 ready. The cost of
developing and implementing the plan may itself be material. Finally, we are
also subject to external forces that might generally affect industry and
commerce, including utility, telecommunication, or transportation company Year
2000 compliance failure interruptions.
Year 2000 issues affecting our business, if not adequately addressed by us,
our third-party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:
. claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our product and services
to function properly, and any resulting settlements or judgments; and
. material disruption to our business.
35
<PAGE>
BUSINESS
Overview
Chordiant provides e-business infrastructure software that enables
companies to offer their customers highly personalized marketing, sales
programs, e-business services and customer support across multiple
communication channels. Our product, Customer Communications Solution, or CCS,
is a suite of applications designed to integrate customer information from
disparate data sources, automate business processes dependent on a customer's
specific profile and request, and provide consistent service to customers
across communications channels including Internet, telephone, e-mail and branch
offices. Chordiant's product is designed to enable companies to increase the
lifetime value by empowering high value interactions that consistently retain
customers, grow revenues and drive profits. Our customers include multinational
market leading business-to-consumer companies such as Bank One International,
Cable & Wireless Communications, Canadian Tire Acceptance Limited, Chase
Manhattan Mortgage Corporation, First USA Bank, General Motors' OnStar
division, KLM Royal Dutch Airlines, NedCorp Bank RSA and Thomas Cook Global
Services.
Industry Background
The Internet is large, pervasive, and rapidly growing. The Internet has
emerged as a major platform for communication, providing new, highly efficient
channels through which companies can engage in commerce and interact directly
with customers. International Data Corporation forecasts that commerce
conducted over the Internet will grow from $50 billion in 1998 to $1.3 trillion
by 2003.
First generation electronic commerce companies generally offered a wider
selection of products at lower prices than traditional businesses and measured
success primarily by the number of Web site visitors. These online businesses
focused primarily on gaining new customers and focused less on ways to deliver
high levels of customer service to retain existing customers. The Internet has
created a new set of retail challenges, including price standardization,
product commoditization, decreased customer loyalty and high customer
acquisition and retention costs. As a result many of these early online
businesses struggled to continue their rapid growth without delivering
consistent high quality customer service across the broad array of
communications channels that were created by the convergence of traditional and
Internet-based communications channels.
Today, customers are placing increasing value on convenient access to
information, products and services. To be successful in the next generation of
online commerce, commonly referred to as e-business, companies must take a
customer-centric approach to attract and retain valuable customers. To attract
customers, companies must focus on developing and executing a new set of
strategies that provide users with personalized experiences when they first
contact the company. Companies must be more responsive to customer needs and
focus on delivering superior customer service and satisfaction to differentiate
themselves from their competitors. Companies must work to retain their
customers by providing relevant and targeted experiences each time interactions
take place. Moreover, companies must recognize that every customer interaction
provides an opportunity to sell additional, and more valuable, products and
services, as well as to increase customer loyalty through personalized customer
interaction.
While the Internet has emerged as a significant channel to initiate and
maintain customer relationships, existing and established customer
communication channels have not become less significant. Specifically, to
remain competitive, companies must provide consistent high quality customer
service across all communication channels including the Internet, e-mail
systems and automated telephony self-service systems as well as call center,
branch and retail outlet contact points. Companies that use organization-wide
customer information to provide consistent customer services through
interactions across multiple channels and contact points will be able to
compete more successfully in the rapidly changing Internet economy.
There are many challenges to implementing a customer-centric approach for
e-business. These challenges include providing customers access to information
and functionality that traditionally resides within complex
36
<PAGE>
back-end systems, integrating and managing disparate systems and generating
relevant processes in real time. Successful integration of these systems and
the creation of a comprehensive single view of the customer will allow
companies to control routing and prompting of appropriate responses to the
customer in an automated and dynamic process.
Many existing product technologies do not meet the new requirements of e-
business. Client/server technologies for sales force automation, call centers
and field service management were originally designed for departmental
functions and use by employees rather than customers. The growth of the
Internet has given rise to a wide range of new products focused on a specific
channel of customer contact such as Web self-service, e-mail response, and
marketing automation. These single function Web-based products are not likely
to completely replace existing means of handling customer service and commerce.
For instance, many companies continue to rely heavily on telephone-based
customer service representatives and are struggling to integrate Web and e-mail
products with the telephone. Companies have responded to the lack of
integration among existing products by attempting to design and build their own
e-business software applications. The cost and time to custom build these new
systems can be prohibitive, and the expertise required to design and integrate
the systems are often beyond the capabilities of most companies. Additionally,
most commercially-available and custom-built systems do not have the
flexibility to integrate existing and anticipated technologies or to allow
customization in order to keep up with a constantly changing Internet economy.
Companies need a flexible, integrated e-business infrastructure solution
that supports all channels of customer contact with a comprehensive single view
of the customer and consistent business services. Today, customer data must be
accessed from multiple data sources, legacy applications and transaction
systems to respond to customer inquiries according to company specific business
rules. Unlike traditional customer profiles, a comprehensive single view of the
customer must be updated real time for each customer contact and reflect the
customer's contact history and other relevant information. A complete customer-
centric e-business solution improves the ability to attract, engage and retain
customers on a personalized basis and understand their needs and preferences to
provide consistent interactions with customers through any communication
channel.
Solution
We provide e-business infrastructure software that enables companies to
offer their customers highly-personalized marketing, sales programs, e-business
services and customer support across multiple communication channels. We have
designed our product to integrate customer information from disparate data
sources, generate business processes dependent on a customer's specific profile
and request, and provide uniform service and data to customers across multiple
communications channels. Our product is designed to enable companies to deliver
appropriate offers and information to a targeted customer at the time of
customer need. We believe that companies that use our product can increase the
lifetime value of their customers through improved retention rates and linked
selling opportunities that result from a personalized customer interaction.
Key benefits of our solution include:
Comprehensive single view of the customer. Companies that have a
comprehensive single view of their customers and distribute that information
throughout the enterprise to the points of customer contact can provide a more
consistent and personalized consumer experience. Our unique data management
technology helps companies develop a single view of the customer by
integrating, consolidating and managing data derived from external and internal
sources. Our product accesses multiple data sources, legacy applications and
transaction systems to build a comprehensive single view of the customer and
generate the appropriate response at time of contact. A bank, for example,
might use our product to integrate information about a customer contained in
internal databases such as credit card, mortgage and savings account historical
transaction systems, Web logs and e-mail management systems, as well as
external databases such as national credit check services. By integrating this
information, the bank has a more comprehensive understanding of the customer's
ability to repay a loan and the value of that customer's relationship with the
bank.
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<PAGE>
Automated, sophisticated decision making processes. Workflow-driven
business processes empower companies to make automated, yet informed, decisions
regarding customer inquiries. Our workflow processing system supports
customizable business processes that allow companies to develop business rules
that will be implemented consistently. Our workflow editor is a graphical user
interface application that allows business analysts to customize and automate
their company's unique business rules. Our sophisticated queuing and routing
engine is designed to allow companies to instantly determine how to respond to
specific customer inquiries and generate offers appropriate for particular
customers. A bank, for example, could specify that at the time of contact, only
customers with a solid credit card history, an existing home loan, a savings
account with a certain minimum balance and a clean credit history should
receive an attractive auto loan rate and free online bill payment services.
Consistent customer experience across multiple channels. Companies that
provide customers with a consistent experience across multiple communication
channels should enjoy greater customer satisfaction because customers are able
to receive the same reliable service and information regardless of how they
choose to contact the company. There is a large and increasing number of
customer communications channels, including Web, e-mail, fax, self-service
systems, call centers and retail outlets. Our product implements a common set
of business rules uniformly across systems already existing in different
customer communications channels. A bank, for example, could ensure that a
particular customer receives the same attractive auto loan rate and online bill
payment service promotion, regardless of whether the customer contacts the bank
through the Web, e-mail, a customer service call center or in person at a local
branch.
Standard and customizable business services. Companies that implement
customized business services realize greater levels of efficiency, consistency
and customer satisfaction. Our product provides a rich set of standard business
objects, or fundamental business functions, that are common across industries.
These standard business objects can be customized to accommodate specific
customer and business processes, policies and transactions of individual
companies. A bank, for example, could customize our business objects by
activating specific financial services objects related to certain transactions,
such as processing auto loans, and alter our standard loan business processes
to bypass an external credit check if the customer has a clean credit and
mortgage history.
Strategy
Our objective is to continue to provide leading-edge e-business
infrastructure software that enables companies to offer their customers
personalized marketing, sales programs, e-business services and customer
support across multiple communication channels.
Key elements of our strategy include:
Continue technology leadership. The increasing demands for multi-channel
interactive e-business solutions require an infrastructure that is adaptable,
extensible and interoperable. To meet these requirements, we intend to continue
to devote substantial resources to the development of new and innovative
product capabilities. Because we have designed our product from the beginning
to utilize the capabilities of the Internet, we believe that our product is
more easily adapted to a constantly changing, Web-oriented, e-business
environment. For example, this architecture will more easily integrate
additional contact points such as personal digital assistants, cellular
telephones and digital television.
Leverage and extend technology and integration partners. We have sought,
secured and continue to seek, strategic alliances to assist in developing,
marketing and selling our product. This approach is intended to leverage the
technology and resources available to perform application design and
development services for our customers and provide additional marketing and
technical expertise in certain industry segments. To help ensure that we
deliver a comprehensive product to our customers, we have established strategic
relationships with organizations in four general categories:
. computing and network platform vendors;
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<PAGE>
. software platform vendors;
. application service providers; and
. systems integrators.
Target leading global business-to-consumer companies. We intend to
continue to target the global leaders in our primary business-to-consumer
markets by providing solutions to the financial services, telecommunications,
travel and retail industries, including many Internet-only businesses that
compete in these markets. These industries are characterized by commodity-like
products and large numbers of geographically- dispersed customers, partners,
vendors and suppliers. We believe that companies in these industries will be
early users, and early beneficiaries, of an integrated multi-channel system
that delivers personalized, real-time processes utilizing a comprehensive
single view of the customer.
Expand worldwide infrastructure. We intend to continue to grow our global
presence by expanding our worldwide field sales, marketing and services
organizations. To execute this strategy, we intend to expand our existing
global operations and investments outside of North America to take advantage
of our early and continued international success. We plan to continue to
expand our international presence by adding direct sales personnel and
increasing our indirect sales channels to capitalize on international market
opportunities. In particular, we plan to expand our European operations from
our existing international headquarters in London, England in early 2000.
Growth Through Customer References. We plan to achieve additional market
success as our customers become successful in leveraging their e-business
initiatives to increase customer retention and revenues. Our most successful
customers become valuable references for our future sales opportunities. In
order to ensure that all our customers become Chordiant references, we intend
to:
. hire and retain expert consultants to assist our customers in
implementation of our product;
. work with experienced and knowledgeable systems integrators to help
enable our customers to implement large scale deployments successfully;
. deliver world-class customer education and training on our product to
assist our customers to meet and exceed their e-business expectations;
and
. deliver superior customer service to our customers, to help ensure
their long-term satisfaction and success with our product.
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<PAGE>
Products
Our software product, Customer Communications Solution, or CCS, is licensed
to our customers as a complete e-business infrastructure system. CCS comes
available with the following customer facing applications: a customer service
representative application, a Web communications interface application and an
e-mail communications interface application. Regardless of the customer-facing
application(s) chosen, CCS includes business management, operations management
and customer case management capabilities. All applications utilize a standard
set of business services that are customizable and a workflow engine. CCS also
provides interfaces supporting various network protocols, telephony
environments, legacy systems and data management services. The CCS product is
illustrated and summarized below:
[Graphic: Depicts the components of the Chordiant product including the
following:
. Customer-Facing Applications
-Customer Service Application
-Web Communications Application
-E-mail Communications Application
. Management Applications
-Business Management
-Operations Management
-Case Management
. E-business Infrastructure
-Business Services
-Workflow Engine
. Customers' IT Systems
-Telephony Systems
-Internal Databases
-External Data Sources
-Legacy Applications
-Third-Party Applications]
Customer-Facing Applications
CCS can be licensed with one or more customer-facing applications. All
customer-facing applications share common access to the business services and
workflow capabilities in our e-business infrastructure. All customer
interactions through these applications are logged in a comprehensive case
management system. In addition, companies can also choose to integrate their
existing customer-facing applications into our e-business infrastructure.
Customer Service Representative Application. The customer service
representative application supports high-volume processing of telephony-based
calls and enables conversations between customers and representatives. The
application provides the customer service representative with personalized
recommendations, promotions, and sale offers based on a customer's demographic
profile, preferences and history of purchases, inquiries and service incidents.
Web Communications Application. The Web communications interface
application provides companies with Web-based functionality including self-
service enhancement features such as context-specific help, inquiry and
escalation via Web forms, or a "call me" button that schedules an outbound call
from a customer service representative.
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E-mail Communications Application. The e-mail communications interface
application provides a tracking and routing system to respond to customer e-
mail. The application interface enables customer service representatives to
manage both e-mail received from, and e-mail sent to, customers in a consistent
manner.
Management Applications
CCS includes three management applications: business management, operations
management and case management.
Business Management. The business management application includes a
workflow editor for design, modification and control of company specific
workflow processes. These processes can be managed efficiently by sales,
marketing and service management personnel, keeping the product and corporate
business objectives coupled.
Operations Management. The operations management application allows a real-
time view of the processes, users and activity status throughout the
enterprise.
Case Management. The case management application enables companies to
create and resolve customer case histories, manage customer service
representative workloads and create user-defined workflows according to company
specific business process. Customer case histories allow all customer-facing
applications to access previous interactions related to a specific customer in
real time when a customer contacts a company. Within the application, cases can
be prioritized for purposes of assignment, workload management and reporting.
Features of this capability include:
. displays of a workload summary and real-time selection of case views;
. automatic display of customer history for viewing, editing, tracking
and routing;
. case history analysis; and
. work assignment and escalation procedures.
E-business Infrastructure
The e-business infrastructure manages information and workflow between the
customer-facing and management applications and applicable back-end systems.
The infrastructure contains a workflow system with hundreds of standard
business objects providing fundamental business services. We provide companies
with a standard set of business services that contains functionality usable
across industries. A company or system integrator can customize these services
and define specific functions and rules according to the specialized needs of
their business processes and customer profiles. Workflow rules can be processed
in real time based on a customer's profile and request. Because business
processes are automated by our workflow system, customer service
representatives are available to manage customer relationships. Companies can
also incorporate third-party applications into our infrastructure and allow our
business services and applications to respond automatically to changes in these
third-party applications and systems.
Interfaces and coordination with back-end systems
CCS provides interfaces supporting various network protocols, telephony
environments, legacy systems and data management services, allowing connection
of our product to a company's existing information technology infrastructure.
Our data management services enable companies to create a comprehensive single
view of the customer from multiple data sources and update these sources in
real time. The data management services can be customized to interface with
third-party applications and systems to enable access to financial
transactions, order processing, billing, payment and other financial and
business services. This flexibility allows application developers to build and
deploy applications that can access and manage multiple types of data through a
single application programming interface.
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Customers and Case Studies
We target multinational market leaders in business-to-consumer industries,
particularly companies in the financial services, telecommunications, travel
and leisure and automotive industries. In the future, we plan to expand into
the retail, direct merchandise and utilities industries. Below is a list of our
customers as of November 30, 1999, each of which has purchased $500,000 or more
of product during the last two years.
. Bank One International
. Cable & Wireless Communications
. Canadian Tire Acceptance Limited
. Chase Manhattan Mortgage Corporation
. First USA Bank
. General Motors' OnStar division
. KLM Royal Dutch Airlines
. NedCorp Bank RSA
. Thomas Cook Global Services
. Total System Services, Inc.
. Ventura
The following are examples of how selected customers are using our product
to implement customer interaction applications based on an e-business
infrastructure. We compiled this information in consultation with the companies
listed below.
Bank One International
Bank One International Credit Card, a subsidiary of Bank One Corporation,
the fourth largest bank in the U.S., selected our prduct to provide its e-
business and customer interaction software to support its European credit card
operation.
Bank One International's new highly personalized Web site allows customers
to apply online for a credit card and existing customers to access account
details, view and print statements, examine recent transactions and conduct
online payment of card balances. By empowering the customer to get the service
they require via their preferred channel, our product helps enable Bank One
International to build relationships that will enhance customer retention in
the highly competitive European credit card marketplace.
With the requirement to add the promotion of its products and services via
the Internet, Bank One International needed a solution capable of more than
just providing Web-enabled customer services. It needed a system that could
integrate with both existing systems and other customer service delivery
channels, such as the traditional call center, without compromising the quality
and consistency of the customer's experience.
Our product's ability to provide Bank One International's customers with
consistent personalized service, whether through the Internet, telephone, e-
mail, or other communications methods, was key to meeting both current and
future customer service requirements. With our product, Bank One International
will have the flexibility to automate its business processes once, and then
adapt the product to meet the requirements of alternative delivery channels.
Bank One International chose our product for its ability to link front and
back-end operations and integrate with Bank One International's outsourced
processing system.
First USA Bank
First USA Bank, the world's largest issuer of Visa credit cards, has
selected Chordiant software to provide the technology for its next-generation
customer retention system. Marketing services advisors in key
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customer centers serving First USA's card members will use the Chordiant
system. CCS is being deployed at an initial location and is scheduled for roll-
out to two additional customer centers.
Total System Services, Inc.
Total System Services, Inc. is one of the leading information technology
processors of data and transactions for issuers of credit, debit, commercial
and private-label cards. Total Systems' sophisticated systems offer online
accounting, data processing, electronic commerce services, portfolio
management, account acquisition, credit evaluation, risk management and
customer service.
Until now, integrating customer-facing applications with back-end data,
transaction systems and business processes required extensive custom
development. Total Systems developed TSeclipseSM, a new customer interaction
application that enables financial services companies to deliver personalized
service using unique business processes. TSeclipse, is based on our product, a
suite of applications and business processes, to provide a single view of the
customer at every point of contact.
TSeclipse is aimed at banks and private-label credit card issuers that need
to provide faster, more efficient, and more personalized interactions for their
consumers by delivering one-to-one service through call centers, via e-mail,
and other customer contact methods. CCS was chosen because it provides a
complete customer interaction solution, including real-time changes to business
processes, and its support of multiple channels, such as the Web, and other e-
business environments.
Thomas Cook Global Services
Chordiant's product has assisted Thomas Cook in launching its new Global
Services business, a worldwide service center providing complete traveler
assistance services. These capabilities were realized as a result of the first
live European implementation of our product. CCS is the core platform which
Thomas Cook uses to provide a full range of business processes which enable the
Global Services business to operate, making effective relationship marketing a
reality.
Operational since July 1998, the center offers travelers a comprehensive
range of services varying from emergency cash facilities to medical and legal
assistance. With a single telephone call to the service center from anywhere in
the world, at any time, night or day, Thomas Cook customers have access to a
complete range of travel, emergency, legal and medical services in over thirty
languages.
Technology
We design and build our product to provide an e-business infrastructure for
customer interaction applications. Using a software methodology based on a
flexible, object oriented, multi-tiered architecture, our product combines
advanced distributed object technology with a new approach to workflow
capabilities called workflow sequenced object processing, or WSOP. WSOP
provides a unique application development capability we call P3 Active. P3
Active was developed to deliver an enhanced level of personalization with every
customer interaction experience based on distributed information and processing
of business logic.
Our product is designed to handle multiple data sources, real-time
transaction systems and a large number of transactions. Our product
architecture supports a multi-tier e-business application environment for
deployment of Web browser applications and desktop applications and also
extends application and business services to Web, e-mail, fax, self-service
telephone systems, call centers, direct mail and retail outlets. The core
technologies that we have developed include:
. multi-channel integration capabilities
. workflow engine for all queuing, routing, scheduling and applying
business rules; and
. persistent data management for integrating multiple real-time data
sources.
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Our product is based on open system standards and is designed to be
scalable and integrate with the enterprise, various information technology
systems, networks and telephony systems. Our architecture is designed to
utilize the capabilities of the Internet. Unlike a Web-enabled client/server
architecture, where the application and user interface reside on the client
system, our product's multi-tier distributed object architecture provides the
means to distribute discrete objects for each customer contact point and to
deploy the application logic, business services and data management
appropriately to all parts of the system. This allows for increased
scalability, reliability and security. The Web application, which operates
outside a company's security system, or firewall, is open to the public through
standard network protocols and security. The customer service representative
application is typically used within the company's information technology
infrastructure behind the firewall and is closed to public access. Our server
software runs on both UNIX server platforms and Windows NT servers and can be
configured for multiple servers.
Our product architecture complies with software industry standards for
building large systems for performance on both network applications and
Internet applications. For example, our product uses Java for application
development and customization and Hypertext Transfer Protocol for Internet
access. Adherence to these industry standards provides compatibility with many
existing applications. We develop our client software in Java, and we use Sun
Microsystems' Forte Tool and C++ programming languages for the enterprise
server programs and management of data. The distributed object architecture is
based on industry standard interfaces at the object and communications level;
Java and HTML for application development; and XML, CORBA, IIOP and Forte
services for data management and transaction services.
Sales and Marketing
We license our product and sell services primarily through our direct sales
organization, complemented by the selling and support efforts of system
integrators, application service providers and technology vendors. Our market
focus is in the business-to-consumer segment of the economy with a targeted
effort on leading consumer-centric companies and companies using the Internet
as the means of conducting business and serving customers. We proactively
target our sales and marketing efforts, together with our product design
efforts, on industries such as retail banking, consumer financial services,
telecommunications, travel and leisure, automotive and direct merchandisers and
retailers.
The sales process generally ranges from three to eighteen months depending
on the level of education that prospective customers need regarding the use and
benefits of our products and the involvement of system integrators. During our
sales process, we typically approach senior executive management teams
including the senior marketing officer, chief information officer and chief
executive officer of our potential customers. We utilize sales teams consisting
of sales and technical professionals who work with our strategic partners to
create organization-specific proposals, presentations and demonstrations that
address the specific needs of each potential customer.
We have sales offices in the greater metropolitan areas of Dallas, Chicago
and New York, and in Cupertino, California and London, England. Technical sales
consultants who provide pre-sales support to potential customers on product
information and deployment capabilities complement our direct sales
professionals. We plan to significantly expand the size of our direct sales
organization and to establish additional sales offices domestically and
internationally.
We focus our marketing efforts on educating potential customers, generating
new sales opportunities and creating awareness of our product. We conduct a
variety of marketing programs to educate our target market, including seminars,
trade shows, press relations and industry analyst programs.
Our marketing organization serves an integral role in acquiring, organizing
and prioritizing customer and industry feedback in order to help provide
product direction to our development organization. We also have a detailed
product management process that surveys customers and identifies market needs
to help predict and prioritize future customer requirements.
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Strategic Relationships
To enhance the productivity of our sales and service organizations, we have
established relationships with systems integrators, complementary technology
providers and alternative service providers.
System integrators
We have established relationships with a number of leading system
integrators including EDS. We plan to expand these relationships to increase
our capacity to sell and implement our products. We have trained a significant
number of consultants in these organizations for the implementation and support
of our products. We believe that expanding our relationships with systems
integrators and independent consulting firms will enable us to gain a greater
share of emerging markets more rapidly.
Application service providers
Application service providers provide an additional channel of delivery for
e-business services and customer interaction applications. A hosted application
model may improve time-to-market, reduce the implementation risk and the
internal resources required while facilitating the deployment to the client. We
have recently entered into an application service provider relationship with
Total Systems Services, Inc., an outsourcer for retail banking credit and
consumer finance processing. Total Systems is expected to deliver our
application and integrate their processing and data services with our e-
business services and workflow. The resulting business model is intended to
provide clients with transaction pricing for an immediately available solution
hosted by Total Systems. We expect to continue to expand our relationships with
other application service providers.
Complementary technology providers
To design our products to be based on industry standards and take advantage
of current and emerging technologies, we emphasize support for a number of key
software platforms. This enables us to focus on our core competencies. We have
complementary software product and technology relationships with Sun
Microsystems for development of business services and client applications, IBM
Software for IBM Visual Age tool support, Forte Software, a division of Sun
Microsystems, for enterprise data and transaction management services and
Oracle and Sybase, Inc., providers of industry-standard relational databases.
Professional Services and Customer Support
We offer a broad range of customer services including professional
consulting services and product support and training services. We believe that
providing a high level of customer service is critical to achievement of rapid
product implementation, customer success and continued revenues growth.
Professional Services
Our professional service consulting teams assist our customer and system
integrator partners in the design and implementation of our product. Our
professional services organization deploys consultants as part of the project
team alongside system integration partners and members of the client's internal
team to proactively provide the technical knowledge, business engineering,
project guidance and quality assessments during the project. In the design
stage, we provide a variety of professional services that help determine
customer's business objectives and the technical requirements of the
application implementation. In the implementation stage, we utilize our
delivery methodology to assist customers and integration partners in planning
and managing the implementation. System integrators, supported by our
consultants, manage the overall project and implement the product with a
customer's existing communications, applications, databases and transaction
systems. In the final phases of an implementation the system integrators
provide education and training to enable a customer's internal team to deploy
the new system, train internal users and assume control over ongoing support.
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Our methodology includes:
. user requirements and needs analysis;
. business engineering consultation;
. architectural analysis and performance planning;
. project management support services;
. engineering support for development and deployment; and
. technical support for software integration and communications
integration.
Customer Support Services
Our customers have a choice of support and maintenance options depending on
the level of service desired. Our technical support is available to clients by
telephone, over the Web and by e-mail. We maintain a technical support hotline
staffed by engineers from 8:00 a.m. to 9:00 p.m., Eastern time, Monday through
Friday, from our corporate headquarters in Cupertino, California and local
support during business hours for European customers from London, England. An
optional premium service is available providing technical support 24 hours a
day, seven days a week. Additionally, we provide product enhancement releases
to all customers as part of their support and maintenance contract. We use a
customer service automation system to track each customer inquiry until it is
resolved. We also make use of our Web site and a secured customer forum to
provide product information and technical support information worldwide 24
hours a day, seven days a week.
Educational Services
We provide educational services to train and enable our system integrators
and customers to use our product. We offer a comprehensive series of training
modules to provide the knowledge and skills to successfully deploy, use and
maintain our products. These training courses focus on the technical aspects of
our product as well as business issues and processes. A complete set of modules
covering business engineering, project management and development engineering
are available. Training courses can be provided on-site for a custom session at
a fee and are regularly scheduled through classroom and lab instruction at our
Cupertino, California corporate headquarters, and at our London, England
offices for European system integrators and customers.
Product Development
We have made substantial investments in research and development through
internal development and technology licensing. Our product development efforts
are focused on extending our e-business services, application functionality,
self-service and Web-based collaboration functionality, and continued
integration of key industry-specific transaction systems and services.
Our product development resources are organized into a number of
development teams including: system services and workflow development, business
services and application design, tools and Internet development, enterprise
integration, documentation, quality assurance and release management. Our
software and Internet applications teams have extensive experience in object
oriented development, data management, workflow engineering, Java programming
and Internet deployment.
Our research and development expenditures were $6.2 million in 1997, $5.9
million in 1998 and $4.8 million for the nine months ended September 30, 1999.
Competition
The market for our product is new and rapidly evolving, and is highly
competitive. The competitive landscape is rapidly evolving to address the
convergence of e-business services and customer interaction
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applications. To realize the potential of this convergence, companies must be
able to offer personalized marketing and sales and extend e-business services
to all points of customer contact. This must be done through an integrated
system and customer data model tailored by each company to meet its specific
customer requirements.
We face three main sources of competition: custom-built solutions; point
application vendors extending from their origins in the help desk, field
service, call center and salesforce automation businesses and enterprise
resource planning application vendors.
Custom-Built Solutions
Corporate customer systems supporting branch and call centers have
historically been custom-built by professional services organizations or
internally developed. Custom development has the inherent limitation of being a
high cost alternative because it relies on building the entire solution from
scratch and the resulting configuration is difficult to upgrade to take
advantage of new requirements and channels of communication (e.g. the
Internet). We expect that internal development will continue to be a
significant source of competition for the foreseeable future.
Point Application Vendors
We compete with providers of stand-alone point solutions for Web-based
customer relationship management, such as Silknet, and Webline and providers of
stand-alone e-mail response capabilities, such as Kana, Mustang Software and
Brightware. We also compete against traditional client/server-based, call-
center service customer and salesforce automation solutions, such as Siebel
Systems, Vantive, Clarify and Pegasystems. Most point application providers
started with a single application focus (service, salesforce automation, help
desks) and then added additional modules addressing other needs, such as e-
mail, field service or quality tracking. Although these vendors have started to
pursue the enterprise-wide opportunity of providing e-business services to all
points of customer contact, their lack of multichannel integration, real-time
data models for integration of multiple data sources and lack of
personalization capability and their client/server architecture are
limitations.
ERP Application Vendors
We anticipate competitive offerings and consolidation from several major
enterprise software developers, such as Oracle, PeopleSoft, IBM and SAP. To
date Oracle has announced and began delivery of modules to compete in various
areas of the traditional customer relationship management market and PeopleSoft
has announced its intent to purchase Vantive. We expect ERP vendors to acquire
and integrate point solutions as they approach different segments of the
e-business and customer relationship management markets.
Other Potential Competitiors
The telephony market for equipment and software is in the midst of a major
transition from proprietary systems to open software applications running on
commodity hardware. Recent software acquisitions announced by traditional
telephony vendors, such as Lucent Technologies Inc.'s purchase of Mosaix, Inc.
and Nortel Networks Corporations' purchase of Clarify are examples of the
desire to move from hardware platforms into software applications. Examples of
companies providing middleware in support of computer and telephony integration
are Genesys Telecommunications Laboratories, Inc. and Geotel Communications
Corporation (recently purchased by Cisco Systems). Providers of client/server
and mainframe call center systems include Pegasystems for financial services
and IMA and Quintas for outsourcers and call centers. These companies have not
historically provided e-business infrastructure and customer management
applications but may in the future.
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We believe that the principal competitive factors in our market include:
. the breadth and depth of solutions;
. product quality and performance;
. relationships with system integrators;
. the ability to implement solutions;
. establishment of a significant base of reference customers;
. the ability of products to operate with multiple software applications;
. customer service; and
. product price.
Although we believe that our product competes favorably with respect to these
factors, our market is relatively new and is evolving rapidly. We may not be
able to maintain our competitive position against current and potential
competitors, especially those with significantly greater financial and
personnel resources.
Intellectual Property and Propriety Rights
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights. We rely primarily
on a combination of contractual provisions, confidentiality procedures, trade
secrets, and copyright and trademark laws to accomplish these goals.
We license our product pursuant to non-exclusive license agreements that
impose restrictions on customers' ability to utilize the software. In addition,
we seek to avoid disclosure of our trade secrets, including but not limited to,
requiring employees, customers and others with access to our proprietary
information to execute confidentiality agreements with us and restricting
access to our source code. We also seek to protect our rights in our product,
documentation and other written materials under trade secret and copyright
laws. Due to rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments
and enhancements to our existing product are more important than the various
legal protections of our technology to establishing and maintaining a
technology leadership position.
We integrate third-party software into our product. This third-party
software may not continue to be available on commercially reasonable terms. In
particular, we license Forte Tool and related Forte products from Forte
Software, a Sun Microsystems company. The license agreement expires in
September 2001, and can be extended upon agreement of the parties. If we cannot
maintain licenses to the Forte products or other key third-party software,
shipments of our product could be delayed until equivalent software could be
developed or licensed and integrated into our product. Moreover, although we
are generally indemnified against claims that technology licensed from third
parties infringes the intellectual property and proprietary rights of others,
such indemnification is not always available for all types of intellectual
property and proprietary rights and in some cases the scope of such
indemnification is limited. There can be no assurance that infringement or
invalidity claims arising from the incorporation of third-party technology, and
claims for indemnification from our customers resulting from these claims, will
not be asserted or prosecuted against us. These claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources in addition to potential product redevelopment costs and
delays.
Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or reverse engineer
aspects of our product or to obtain and use information that we regard as
proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Use by others of our proprietary rights could materially harm our business.
Furthermore, policing the unauthorized use of our product is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.
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It is also possible that third parties will claim that we have infringed
their current or future products. We expect that software developers will
increasingly be subject to infringement claims as the number of products in
different industry segments overlap. Any claims, with or without merit, could
be time-consuming, result in costly litigation, prevent product shipment, cause
delays, or require us to enter into royalty or licensing agreements, any of
which could harm our business. Patent litigation in particular has complex
technical issues and inherent uncertainties. In the event an infringement claim
against us was successful and we could not obtain a license on acceptable terms
or license a substitute technology or redesign to avoid infringement, our
business would be harmed.
Employees
As of September 30, 1999, we employed 127 full-time employees. Of that
total, 32 were primarily engaged in product development, engineering or systems
engineering, 38 were engaged in sales and marketing, 43 were engaged in
professional services and 14 in operational, financial and administrative
functions.
None of our employees is represented by a labor union and we have never
experienced a work stoppage. We believe that our relations with our employees
are good.
Facilities
Our headquarters are located in approximately 31,000 square feet in
Cupertino, California, occupied under an office lease expiring in July 2004. We
also lease office space in Mahwah, New Jersey; Irving, Texas; Lisle, Illinois;
and London, England.
Legal Proceedings
We are not a party to any material legal proceedings. We may be subject to
various claims and legal actions arising in the ordinary course of business.
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MANAGEMENT
Officers and Directors
Our officers and directors and key employees, the positions held by them,
and their ages as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------------------------------- --- ----------------------------
<C> <C> <S>
President, Chief Executive
Samuel T. Spadafora........................ 57 Officer and Chairman
Steven R. Springsteel...................... 42 Executive Vice President,
Chief Financial Officer and
Secretary
Donald J. Morrison......................... 42 Executive Vice President,
World Wide Sales and
Marketing
Chief Technology Officer and
Joseph F. Tumminaro........................ 51 Director
Senior Vice President,
Steven J. Sherman.......................... 41 Engineering
Stephen Kelly.............................. 38 Senior Vice President, EMEA
Oliver D. Curme(1)......................... 45 Director
Kathryn C. Gould(2)........................ 49 Director
Mitchell E. Kertzman(2).................... 50 Director
William Raduchel(1)........................ 52 Director
Carol L. Realini........................... 45 Director
</TABLE>
- --------
(1)Member of the audit committee.
(2)Member of the compensation committee.
Samuel T. Spadafora has served as President, Chief Executive Officer and a
director of Chordiant since June 1998. In November 1999, Mr. Spadafora was
elected as our Chairman. From April 1994 to June 1998, Mr. Spadafora served as
Vice President of Worldwide Field Operations for the microelectronic business
of Sun Microsystems, Inc., a computer and networking company. From October 1988
to January 1994, Mr. Spadafora served as senior vice president and general
manager of field operations for The Santa Cruz Operation, a software provider.
Mr. Spadafora has also served as Senior Vice President of Sales and Marketing
at Altos Computer System, and Vice President of U.S. Sales and Operations at
Memorex. Mr. Spadafora holds a B.A. in marketing from Eastern Michigan
University.
Steven R. Springsteel has served as our Executive Vice President and Chief
Financial Officer since November of 1996, and Secretary since October 1999.
From April 1995 to November 1996, Mr. Springsteel served as Corporate
Controller at Global Village Communications, a communications company. From
February 1994 to April 1995, Mr. Springsteel was Vice President and Chief
Financial Officer and Secretary at Multipoint Networks, a wireless data
communications company. From September 1990 to February 1994, Mr. Springsteel
served as Corporate Controller at the Santa Cruz Operation, a software
provider. Mr. Springsteel received his B.A. in Business Administration from
Cleveland State University.
Donald J. Morrison has served as our Executive Vice President, World Wide
Sales and Marketing since January 1999. Mr. Morrison joined Chordiant as
Executive Vice President of Marketing in June 1997. From March 1995 to June
1996, Mr. Morrison served as Senior Vice President of Marketing and OEM Sales
for Network Peripherals Inc., a high-speed networking company focused on Fast
Ethernet products. From January 1994 to February 1995, Mr. Morrison served as
Vice President of Marketing at Strategic Mapping, Inc., an applications
software company. Mr. Morrison has also held various sales and marketing
positions at the Santa Cruz Operation, a software provider. Mr. Morrison
received his B.A. in business administration from San Francisco State
University and his Masters in marketing management from Golden Gate University.
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Joseph F. Tumminaro is a founder of Chordiant and has served as Chief
Technology Officer and a director since Chordiant's inception in March 1991.
Mr. Tumminaro served as Secretary of Chordiant from its inception until October
1999. From 1985 to 1990, Mr. Tumminaro served as President, Vice President of
Technology and a director of J. Frank Consulting. Mr. Tumminaro received his
B.A. from Southern Illinois University.
Steven J. Sherman has served as our Senior Vice President of Engineering
since October 1999. From January 1999 to September 1999, Mr. Sherman served as
vice president of product development for The Vantive Corporation, a customer
relationship management software vendor. From June 1996 to December 1998, Mr.
Sherman served as Executive Vice President, of Product Development and later
President, of Tetra International, Inc. for Tetra plc, an enterprise software
provider. From March 1994 to May 1996, Mr. Sherman was Vice President of
Engineering for Frame Technology and Adobe Systems (after the acquisition of
Frame by Adobe), each of which are publishing software companies. Mr. Sherman
received his B.A. in Mathematics and Computer Science from Emory University in
1979 and an M.B.A. from San Jose State University in 1991. Mr. Sherman has
served on the board of Marin Research, Inc., a private project management
software company, since September 1999.
Stephen Kelly has served as our Senior Vice President of Europe, Middle
East and Africa (EMEA) operations since October 1998. From October 1997 to
September 1998, Mr. Kelly served as our Vice President of EMEA operations. From
1987 to 1998, Mr. Kelly worked in various sales, alliances and marketing roles
at Oracle Corporation's United Kingdom operations, most recently as Director of
Europe, Middle East and Africa Alliances and Industry Groups. Mr. Kelly
received his B.A. with honors in business administration and accounting from
the University of Bath, in England.
Oliver D. Curme has been a director of Chordiant since July, 1996. Mr.
Curme has served as a general partner of several entities affiliated with
Battery Ventures, a venture capital company since 1988. Mr. Curme received his
B.S. from Brown University and his M.B.A. from Harvard Business School.
Kathryn C. Gould has been a director of Chordiant since July, 1996. She is
a manager for each of the General Partners for Foundation Capital I, II, and
III, a family of venture capital limited partnerships, and has been a member of
such firm since December 1995. Since 1989, Ms. Gould has been a general partner
of Merrill, Pickard, Anderson & Eyre, a venture capital firm. Ms. Gould also
serves as a Director of Documentum, Inc., a publicly held Web-based software
application developer. Ms. Gould also serves as a director of Interwoven, a
publicly held software provider. Ms. Gould received a B.Sc. in physics from the
University of Toronto and an M.B.A. from the University of Chicago.
Mitchell E. Kertzman has been a director of Chordiant since February, 1997.
Mr. Kertzman has served as President, Chief Executive Officer and a director of
Liberate Technologies, a public internet access software company since November
1998. Prior to joining Liberate, Mr. Kertzman was a member of the board of
directors of Sybase, a database company, from February 1995 until November
1998. He has served as Chairman of Sybase's board of directors since July 1997.
Between February 1998 and August 1998, he also served as Co-Chief Executive
Officer of Sybase. From July 1996 until February 1997 Mr. Kertzman served as
Chief Executive Officer of Sybase and from July 1996 until July 1997 he also
served as President of Sybase. Between February 1995 and July 1996, Mr.
Kertzman served as an Executive Vice President of Sybase. In February 1995,
Sybase merged with Powersoft Corporation, a provider of application development
tools. Mr. Kertzman had served as Chief Executive Officer and a director of
Powersoft since he founded it in 1974. Mr. Kertzman has also served as a
director of CNET, a internet content company since 1997.
William Raduchel has been a director of Chordiant since August, 1998. Mr.
Raduchel is currently the Chief Technology Officer of America Online
Incorporated, an online service provider. Mr. Raduchel held various positions
with Sun Microsystems, Inc., a computer systems company from 1989 to 1998
including Chief Strategy Officer from January, 1998 to September, 1999 and Vice
President, Corporate Planning and Development and Chief Information Officer
from July 1991 to January 1998. Mr. Raduchel received his B.A.
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from Michigan State University in 1966 and his A.M. and Ph.D. from Harvard
University in 1968 and 1972. He is a director of MIH Limited and OpenTV, Inc.
and two private companies.
Carol L. Realini was a founder of Chordiant and has been a director since
our inception in March 1991. Ms. Realini has served as President, Chief
Executive Officer and Chairman of the Board of Xokidz.com, Inc. since November
1999. From May 1997 to November 1999, she served as our Chairman. From May 1997
until June 1998, Ms. Realini served as our President and Chief Executive
Officer. From January 1990 until May 1997, Ms. Realini served as President,
Chief Executive Officer and Chairman of the Board of J. Frank Consulting, Inc.,
a consulting services firm and the predecessor company to Chordiant. From June
1988 to January 1990, Ms. Realini served as Vice President of Sales and
Marketing of Legato Systems, Inc. Ms. Realini received her B.A. with honors in
mathematics from University of California, Santa Cruz and her Masters degree
from California State University, San Jose.
Joseph Tumminaro, our Chief Technology Officer and a director, and Carol
Realini, a director, are married to each other. There are no other family
relationships among any of our directors and executive officers.
Board Committees
The board of directors has established an audit committee and a
compensation committee. The audit committee consists of Oliver D. Curme and
William Raduchel. The audit committee makes recommendations to the board of
directors regarding the selection of independent auditors, reviews the results
and scope of the audit and other services provided by our independent auditors
and reviews and evaluates our audit and control functions.
The compensation committee consists of Kathryn C. Gould and Mitchell
Kertzman. The compensation committee makes recommendations regarding our 1999
Equity Incentive Plan and concerning salaries and incentive compensation for
our employees and consultants.
Director Compensation
Directors currently receive no compensation from us for their services as
members of the board or for attendance at committee meetings. In February 1997,
Mr. Kertzman, a director of Chordiant, was granted an option to purchase 88,825
shares of our common stock at an exercise price of $0.14 per share. In August,
1998, Mr. Raduchel, also a director of Chordiant, was granted an option to
purchase 87,500 shares of our common stock at an exercise price of $0.90 per
share. Each option was granted under the 1999 Equity Incentive Plan. Pursuant
to our 1999 Non-Employee Directors' Stock Option Plan, each non-employee
director will be granted an option to purchase up to 25,000 shares of our
common stock on the effective date of this offering, if a director on such
date, or on such director's election or appointment to the board, if later.
Thereafter directors will be granted an option to purchase up to 7,500 shares
of our common stock on the day after each annual meeting of stockholders after
the effective date of this offering. Also, directors who serve as committee
members will be granted an option to purchase up to 5,000 shares of our common
stock on the day after each of our annual meetings of stockholders. The
exercise price of each option will be the fair market value of a share of our
common stock on the date of grant of the option. See "--Employee Stock Plans--
1999 Non-Employee Directors' Stock Option Plan."
Compensation Committee Interlocks And Insider Participation
None of our executive officers serve as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee. Ms.
Gould and Mr. Kertzman serve as members of our compensation committee.
Individuals and investment entities affiliated with Ms. Gould and Mr. Curme
have purchased shares of our preferred stock. See "Certain Transactions." For a
further description of interlocking transactions, see "Certain Transactions."
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Board Composition
Upon the closing of this offering, we will have authorized seven directors.
In accordance with the terms of our amended and restated certificate of
incorporation, the terms of office of the board of directors will be divided
into three classes. As a result, a portion of our board of directors will be
elected each year. The division of the three classes and their respective
election dates are as follows:
. the class I directors' term will expire at our first annual meeting of
stockholders;
. the class II directors' term will expire at our second annual meeting
of stockholders; and
. the class III directors' term will expire at our third annual meeting
of stockholders.
Our class I directors will be Oliver D. Curme, Kathryn C. Gould and Carol
L. Realini. Our class II directors will be Samuel T. Spadafora and Joseph F.
Tumminaro. Our class III directors will be Mitchell E. Kertzman and William
Raduchel. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will
be elected to serve from the time of election and qualification until the third
annual meeting following election. Any additional directorships resulting from
an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the board of directors may have the
effect of delaying or preventing changes in control or management of Chordiant.
Executive Compensation
The following table sets forth information concerning compensation for
services rendered during the year ended December 31, 1999 by our Chief
Executive Officer and our most highly compensated executive officers whose
salary and bonus for the last year exceeded $100,000.
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------- ------------
Other
Compensation Number of
Including Securities
Bonuses and Underlying
Name and Principal Position Salary Commissions Options
--------------------------- -------- ------------ ------------
<S> <C> <C> <C>
Samuel T. Spadafora........................ $250,000 $175,000 --
President and Chief Executive Officer
Steven R. Springsteel...................... $183,912 $ 55,250 100,000
Chief Financial Officer
Donald J. Morrison......................... $190,836 $111,684 87,500
Senior Vice President, Worldwide Sales and
Marketing
Joseph F. Tumminaro........................ $160,000 $ 43,077 --
Chief Technology Officer
John Palmer(2)............................. $169,999 $ 36,975 --
Former Executive Vice President,
Engineering
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits that are available generally to all salaried
employees of Chordiant and other perquisites and personal benefits received
that do not exceed the lesser of $50,000 or 10% of any officer's salary and
bonus disclosed in this table.
(2) In August 1999, Mr. Palmer resigned as our Executive Vice President,
Engineering and is no longer an officer of Chordiant.
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Option Grants in Fiscal Year 1999
The following table sets forth each grant of stock options during the year
ended December 31, 1999, to each of the individuals listed on the previous
table.
The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at
fair market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by:
. multiplying the number of shares of common stock subject to a given
option by the assumed initial public offering price of $9.00 per share;
. assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
. subtracting from that result the aggregate option exercise price.
The initial public offering price may be higher than the estimated fair
market value on the date of grant, and the potential realizable value of the
option grants could be significantly higher than the numbers shown in the table
if future stock prices were projected to the end of the option term by applying
the same annual rates of stock price appreciation to the initial public
offering price.
The shares listed in the following table under "Number of Securities
Underlying Options Granted" vest in a series of equal monthly installments over
the four years following the vesting start date. Our stock option plans allow
for the early exercise of options granted to employees. All options exercised
early are subject to repurchase by Chordiant at the original exercise price,
upon the optionee's cessation of service prior to the vesting of the shares.
Each of the options has a ten-year term, subject to earlier termination if the
optionee's service with us ceases. See "--Employee Stock Plans" for a
description of other terms of these options.
Percentages shown under "Percent of Total Options Granted to Employees in
Fiscal Year" are based on an aggregate of 1,274,817 options granted to our
employees under our equity incentive plans during the period from January 1,
1999 through December 31, 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees in Price Per Expiration ---------------------
Name Granted Fiscal 1999 Share Date 5% 10%
---- ---------- ------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Samuel T. Spadafora..... -- -- -- -- -- --
Steven R. Springsteel... 50,000 3.9% $2.90 03/19/09 $ 588,003 $1,022,184
50,000 3.9% $4.00 11/16/09 $ 533,003 $ 967,184
Donald J. Morrison...... 37,500 2.9% $2.90 03/19/09 $ 441,002 $ 766,638
50,000 3.9% $4.00 11/16/09 $ 533,003 $ 967,184
Joseph F. Tumminaro..... -- -- -- -- -- --
John Palmer............. -- -- -- -- -- --
</TABLE>
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Fiscal Year-End Option Values
The following table sets forth the number and value of securities
underlying unexercised options that are held by each of the individuals listed
on the previous page as of December 31, 1999.
Amounts shown under the columns "Value Realized" and "Value of Unexercised
In-the-Money Options at December 31, 1999" are based on an assumed initial
public offering price of $9.00, without taking into account any taxes that may
be payable in connection with the transaction, multiplied by the number of
shares underlying the option, less the exercise price payable for these shares.
Our stock option plans allow for the early exercise of options granted to
employees. All options exercised early are subject to repurchase by Chordiant
at the original exercise price, upon the optionee's cessation of service prior
to the vesting of the shares.
Option Exercises in Last Fiscal Year
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1999 December 31, 1999
Acquired on Value ------------------------ -------------------------
Name Exercise Realized Vested Unvested Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Samuel T. Spadafora..... 35,000 $292,813 821,112 954,038 $14,840,254 --
Steven R. Springsteel... 10,000 $ 88,600 200,532 262,811 $ 3,627,365 --
Donald J. Morrison...... 15,000 $130,500 253,260 339,598 $ 4,787,693 --
Joseph F. Tumminaro..... -- -- 28,560 2,465 $ 267,948 --
John Palmer............. -- -- 316,031 -- $ 1,641,382 --
</TABLE>
Employee Stock Plans
1999 Equity Incentive Plan.
Our board adopted our 1999 Equity Incentive Plan on November 30, 1999. The
incentive plan is an amendment and restatement of our 1997 Equity Incentive
Plan.
Administration. The board administers the incentive plan unless it
delegates administration to a committee. The board or this committee has the
authority to construe, interpret and amend the incentive plan as well as to
determine:
. the grant recipients;
. the grant dates;
. the number of shares subject to the award;
. the exercisability and vesting of the award;
. the exercise price;
. the type of consideration; and
. the other terms of the award.
Share Reserve. We have reserved a total of 9,712,500 shares of our common
stock for issuance under the incentive plan. On October 1 of each year for 10
years, starting on October 1, 2000, the share reserve will automatically be
increased by a number of shares equal to the greater of:
. 5% of our outstanding shares on a fully-diluted basis; or
. that number of shares subject to stock awards made under the incentive
plan during the prior 12-month period.
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However, the automatic increase is subject to reduction by the board, and
no more than 20 million shares of the share reserve, as increased, may be used
for incentive stock options. If the recipient of a stock award does not
purchase the shares subject to his or her stock award before the stock award
expires or otherwise terminates, the shares that are not purchased again become
available for issuance under the incentive plan.
Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to our employees and to the employees
of our affiliates. The board also may grant nonstatutory stock options, stock
bonuses and restricted stock purchase awards to our employees, directors and
consultants as well as to the employees, directors and consultants of our
affiliates.
. A stock option is a contractual right to purchase a specified number of
our shares at a specified price (exercise price) for a specified period
of time.
. An incentive stock option is a stock option that has met the
requirements of Section 422 of the Internal Revenue Code. This type of
option is free from regular tax at both the date of grant and the date
of exercise. However, the difference between the fair market value on
date of exercise and the exercise price is an item of alternative
minimum tax unless there is a disqualifying disposition in the year of
exercise. If two holding period tests are met--two years between grant
date and sale date and one year between exercise date and sale date--
all profit on the sale of our shares acquired by exercising the
incentive stock option is long-term capital gain income. However, if
either of the holding periods is not met, there has been a
disqualifying disposition, and a portion of any profit will be taxed at
ordinary income rates.
. A nonstatutory stock option is a stock option not meeting the Internal
Revenue Code criteria for qualifying incentive stock options and,
therefore, triggering a tax upon exercise. This type of option requires
payment of state and federal income tax and, if applicable, FICA/FUTA
on the difference between the exercise price and the fair market value
on the exercise date.
. A restricted stock purchase award is our offer to sell our shares at a
price either at or near the fair market value of the shares. A stock
bonus, on the other hand, is a grant of our shares at no cost to the
recipient in consideration for past services rendered.
The board may not grant an incentive stock option to any person who, at the
time of the grant, owns or is deemed to own stock possessing more than 10% of
our total combined voting power or the total combined voting power of an
affiliate of ours, unless the exercise price is at least 110% of the fair
market value of the stock on the grant date and the option term is five years
or less.
Limits on Option Grants. There are limits on the number of shares that the
board may grant under an option.
. Section 162(m) of the Internal Revenue Code, among other things, denies
a deduction to publicly held corporations for compensation paid to the
chief executive officer and the four highest compensated officers in a
taxable year to the extent that the compensation for each the officer
exceeds $1,000,000. When we become subject to Section 162(m), in order
to prevent options granted under the incentive plan from being included
in compensation, the board may not grant options under the incentive
plan to an employee covering an aggregate of more than 5 million shares
in any calendar year.
. In addition, an employee may not receive incentive stock options that
exceed the $100,000 per year limitation set forth in Section 422(d) of
the Internal Revenue Code. In calculating the $100,000 per year
limitation, we determine the aggregate number of shares under all
incentive stock options granted to that employee that will become
exercisable for the first time during a calendar year. For this
purpose, we include incentive stock options granted under the incentive
plan as well as under any other stock plans that our affiliates or we
maintain. We then determine the aggregate fair market value of the
stock as of the grant date of the option. Taking the options into
account in the
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order in which they were granted, we treat only the options covering
the first $100,000 worth of stock as incentive stock options. We treat
any options covering stock in excess of $100,000 as nonstatutory stock
options.
Option Terms. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock
on the grant date. It may grant nonstatutory stock options at a discount. If
the value of our shares declines thereafter, the board may offer option holders
the opportunity to replace their outstanding higher-priced options with new
lower-priced options. To the extent required by Section 162(m) of the Internal
Revenue Code, the old repriced option is deemed to be canceled and a new option
granted, but both options will be counted against the Section 162(m) limit
discussed above.
The maximum option term is 10 years. The board may provide for exercise
periods of any length in individual option grants. However, generally an option
terminates three months after the option holder's service to our affiliates and
to us terminates. If this termination is due to the option holder's disability,
the exercise period generally is extended to 12 months. If this termination is
due to the option holder's death or if the option holder dies within three
months after his or her service terminates, the exercise period generally is
extended to 18 months following the option holder's death.
The board may provide for the transferability of nonstatutory stock options
but not incentive stock options. However, the optionholder may designate a
beneficiary to exercise either type of option following the option holder's
death. If the optionholder does not designate a beneficiary, the option
holder's option rights will pass by his or her will or by the laws of descent
and distribution.
Terms of Other Stock Awards. The board determines the purchase price of
other stock awards. However, the board may award stock bonuses in consideration
of past services without a purchase payment. Shares that we sell or award under
the incentive plan may, but need not be, restricted and subject to a repurchase
option in our favor in accordance with a vesting schedule that the board
determines. The board, however, may accelerate the vesting of the restricted
stock.
Other Provisions. Transactions not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend, and stock
split, may change the class and number of shares subject to the incentive plan
and to outstanding awards. In that event, the board will appropriately adjust
the incentive plan as to the class and the maximum number of shares subject to
the incentive plan, to the cap on the number of shares available for incentive
stock options, and to the Section 162(m) limit. It also will adjust outstanding
awards as to the class, number of shares and price per share subject to the
awards.
In the event of a change in control, the surviving entity may either assume
or replace outstanding awards under the incentive plan. If this does not occur,
then generally the vesting and exercisability of the awards will accelerate,
and unexercised awards will terminate immediately prior to the event. A change
in control includes the following:
. A dissolution, liquidation or sale of all or substantially all of our
assets.
. A merger or consolidation in which we are not the surviving
corporation.
. A reverse merger in which we are the surviving corporation but the
shares of our common stock outstanding immediately preceding the merger
are converted by virtue of the merger into other property.
. After this initial public offering, generally the acquisition by any
person, entity or group of the beneficial ownership of our securities
representing at least 50% of the combined voting power entitled to vote
in the election of directors.
If there is a change in control (other than a merger or consolidation for
the purpose of a change in domicile), then for options held by persons then
performing services as an employee or director of, or consultant to, us, the
vesting of the option will be accelerated by one year.
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<PAGE>
Stock Awards Granted. As of November 18, 1999, we have issued 816,829
shares upon the exercise of options under the incentive plan; options to
purchase 7,824,162 shares at a weighted average exercise price of $1.75 per
share were outstanding; and 1,071,509 shares remained available for future
grant. As of November 18, 1999, the board had not granted any stock bonuses or
restricted stock under the incentive plan.
Plan Termination. The incentive plan will terminate in 2009 unless the
board terminates it sooner.
1999 Non-Employee Directors' Stock Option Plan.
We adopted the 1999 Non-Employee Directors' Stock Option Plan on November
30, 1999. The directors' plan provides for the automatic grant to our non-
employee directors of options to purchase shares of our common stock.
Share Reserve. We have reserved a total of 700,000 shares of our common
stock for issuance under the directors' plan. On October 1 of each year for 10
years, starting on October 1, 2000, the share reserve will automatically be
increased by a number of shares equal to the greater of:
. 0.5% of our outstanding shares on a fully-diluted basis, or
. that number of shares subject to options granted under the directors'
plan during the prior 12-month period.
However, the automatic increase is subject to reduction by the board. If an
option holder does not purchase the shares subject to his or her option before
the option expires or otherwise terminates, the shares that are not purchased
again become available for issuance under the directors' plan.
Administration. The board administers the directors' plan. The board has
the authority to construe, interpret and amend the directors' plan but the
directors' plan specifies the essential terms of the options, including:
. the option recipients;
. the grant dates;
. the number of shares subject to the option;
. the exercisability and vesting of the option;
. the exercise price; and
. the type of consideration.
Eligibility. We automatically will issue options to our non-employee
directors under the directors' plan as follows:
. Each person who is an non-employee director on the effective date of
this offering or who is first elected or appointed thereafter as a non-
employee director will automatically receive an initial grant for
25,000 shares. The initial grant is exercisable immediately but will
vest at the rate of 25% of the shares on the first anniversary of the
grant date and monthly thereafter over the next three years.
. In addition, on the day after each of our annual meetings of the
stockholders, starting with the annual meeting in 2001, each non-
employee director will automatically receive an annual grant for 7,500
shares. The annual grant is exercisable immediately but will vest
monthly over the next year. If the non-employee director is appointed
to the board after the annual meeting, the annual grant will be pro
rated.
. Finally, on the day after each of our annual meetings of the
stockholders, starting with the annual meeting in 2001, each non-
employee director who is serving on a board committee will
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<PAGE>
automatically receive a committee grant for 5,000 shares. The committee
grant is exercisable immediately but will vest monthly over the next
year. If the non-employee director is appointed to the committee after
the annual meeting, the committee grant will be pro rated.
As long as the option holder continues to serve with us or with an
affiliate of ours, whether in the capacity of a director, an employee or a
consultant, the option will continue to vest and be exercisable during its
term. When the option holder's service terminates, we will have the right to
repurchase any unvested shares at the original exercise price, without
interest.
Option Terms. Options have an exercise price equal to 100% of the fair
market value of our common stock on the grant date. The option term is 10 years
but it terminates three months after the option holder's service terminates. If
this termination is due to the option holder's disability, the post-termination
exercise period is extended to 12 months. If this termination is due to the
option holder's death or if the option holder dies within three months after
his or her service terminates, the post-termination exercise period is extended
to 18 months following death.
The option holder may transfer the option by gift to immediate family or
for estate-planning purposes. The option holder also may designate a
beneficiary to exercise the option following the option holder's death.
Otherwise, the option exercise rights will pass by the optionholder's will or
by the laws of descent and distribution.
Other Provisions. Transactions not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend, and stock
split, may change the class and number of shares subject to the directors' plan
and to outstanding options. In that event, the board will appropriately adjust
the directors' plan as to the class and the maximum number of shares subject to
the directors' plan and to the automatic option grants. It also will adjust
outstanding options as to the class, number of shares and price per share
subject to the options.
In the event of a change in control, the surviving entity may either assume
or replace outstanding options under the directors' plan. If this does not
occur, then generally the vesting of the options will accelerate, and
unexercised options will terminate immediately prior to the event. A change in
control includes the following:
. A dissolution, liquidation or sale of all or substantially all of our
assets.
. A merger or consolidation in which we are not the surviving
corporation.
. A reverse merger in which we are the surviving corporation but the
shares of our common stock outstanding immediately preceding the merger
are converted by virtue of the merger into other property.
. Generally the acquisition by any person, entity or group of the
beneficial ownership of our securities representing at least 50% of the
combined voting power entitled to vote in the election of directors.
If there is a change in control (other than a merger or consolidation for
the purpose of a change in domicile), then for options held by persons then
performing services as an employee or director of, or consultant to, us, the
vesting of the option will be accelerated by one year.
Options Issued. The directors' plan will not be effective until the
effective date of this offering. Therefore, we have not issued any options
under the directors' plan.
Plan Termination. The directors' plan has no set termination date.
1999 Employee Stock Purchase Plan
Our board adopted the 1999 Employee Stock Purchase Plan on November 30,
1999.
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Administration. The board administers the purchase plan unless it delegates
administration to a committee. The board or this committee has the authority to
construe, interpret and amend the purchase plan as well as to determine the
terms of rights granted under the purchase plan.
Share Reserve. We authorized the issuance of 2,000,000 shares of our common
stock pursuant to purchase rights granted to eligible employees under the
purchase plan. On October 1 of each year for 10 years, starting on October 1,
2000, the share reserve will automatically be increased by a number of shares
equal to the greater of:
. 2% of our outstanding shares on a fully-diluted basis; or
. that number of shares issued under the purchase plan during the prior
12-month period.
However, the automatic increase is subject to reduction by the board, and
no more than 13,000,000 shares of the share reserve, as increased, may be used
under the purchase plan.
Eligibility. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We implement the purchase plan by
offerings of purchase rights to eligible employees. Generally, all of our full-
time employees and full-time employees of our affiliates incorporated in the
United States or in the United Kingdom who have been employed for at least 10
days may participate in offerings under the purchase plan. However, no employee
may participate in the purchase plan if immediately after we grant the employee
a purchase right, the employee has voting power over 5% or more of our
outstanding capital stock.
Offerings. Under the purchase plan, the board may specify offerings of up
to 27 months. Unless the board otherwise determines, common stock is purchased
for accounts of participating employees at a price per share equal to the lower
of:
. 85% of the fair market value of a share on the first day of the
offering; or
. 85% of the fair market value of a share on the purchase date.
The first offering will begin on the effective date of this offering, and
we will offer shares registered on a Form S-8 registration statement. The fair
market value of the shares on the first date of this offering will be the price
per share at which our shares are first sold to the public as specified in the
final prospectus with respect to this offering. Otherwise, fair market value
generally means the closing sales price (rounded up where necessary to the
nearest whole cent) for these shares (or the closing bid, if no sales were
reported) as quoted on the Nasdaq National Market on the last trading day prior
to the relevant determination date, as reported in The Wall Street Journal.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
. 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
. 85% of the fair market value of a share on the purchase date.
Participating employees may authorize payroll deductions of up to 15% of
their compensation for the purchase of stock under the purchase plan. Employees
may end their participation in the offering before a purchase period ends.
Their participation ends automatically on termination of their employment.
Other Provisions. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established
by us or by our affiliates, if any, do not permit the employee's rights to
purchase our stock to accrue at a rate which exceeds $25,000 of fair market
value of our stock for each calendar year in which the purchase rights are
outstanding.
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Upon a change in control, the board may provide that the successor
corporation either will assume or replace outstanding purchase rights.
Alternatively, the board may shorten the ongoing offering period and provide
that our stock will be purchased for the participants immediately before the
change in control.
Shares Issued. The purchase plan will not be effective until the effective
date of this initial public offering of our stock. Therefore, as of the date
hereof, no shares of common stock have been purchased under the purchase plan.
Plan Termination. The purchase plan has no set termination date.
401(k) Plan
We have established the Chordiant Corporation Retirement Savings Plan
effective January 1, 1996. The 401(k) Plan is intended to qualify under
Section 401 of the Code so that contributions by employees or by Chordiant,
and income earned thereon, are not taxable until withdrawn and so that
contributions by us will be deductible by us when made. The 401(k) Plan
provides that each participant may reduce his or her pre-tax gross
compensation by up to 15% (up to a statutorily prescribed annual limit of
$10,000 in 1999) and have that amount contributed to the 401(k) Plan.
Employees become eligible to participate in the 401(k) Plan upon commencement
of their employment with Chordiant. Participants are fully vested in all
amounts they contribute under the 401(k) Plan and in the earnings on such
amounts.
In addition to the employee salary deferrals described above, the 401(k)
Plan requires us to make contributions under the 401(k) Plan on behalf of the
participants. These contributions include a matching contribution of up to
$1,500 per year of salary deferred contributions made by each participant. The
employer contributions to the 401k plan each year will be divided among
participants in the ratio that each participant's compensation bears to the
compensation of all participants. Participants become vested in matching
contributions and employer contributions according to a graded vesting
schedule under which they become fully vested after five years of service with
Chordiant.
Employee participants may elect to invest their accounts under the 401(k)
Plan in various established funds.
Limitations On Directors' And Executive Officers' Liability And
Indemnification
Our amended and restated certificate of incorporation and amended and
restated bylaws contain provisions permitted under Delaware law relating to
the liability of directors and officers.
These provisions eliminate a director's personal liability for monetary
damages resulting from a breach of fiduciary duty, except in circumstances
involving wrongful acts, including:
. for any breach of the directors' duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for any acts under Section 174 of the Delaware General Corporation Law;
or
. for any transaction from which the director derives an improper
personal benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, including an injunction or rescission, in
the event of a director's breach of fiduciary duty. These provisions will not
alter a director's liability under federal securities laws.
In addition, we intend to enter into separate indemnification agreements
with our directors and executive officers that provide each of them
indemnification protection in the event the amended and restated certificate
of incorporation and amended and restated bylaws are subsequently amended. We
believe that these provisions and agreements will assist us in attracting and
retaining qualified individuals to serve as directors and officers.
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CERTAIN TRANSACTIONS
The following is a description of transactions since January 1, 1997, to
which we have been a party, in which the amount involved in the transaction
exceeds $60,000, and in which any of our directors, executive officers or
holders of more than 5% of the capital stock had or will have a direct or
indirect material interest, other than compensation arrangements that are
otherwise required to be described under "Management."
The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts as of the
date set forth below.
<TABLE>
<CAPTION>
Shares of Preferred Stock
Common -------------------------------------------
Stock Series B Series C Series D Series E
-------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers
Samuel T. Spadafora(1).. 1,810,150 -- -- -- --
Steven R.
Springsteel(2)........ 473,343 -- -- -- --
Donald J. Morrison(3) .. 607,858 -- -- -- --
Joseph F. Tumminaro(4)
...................... 5,023,417 -- -- -- --
Carol Realini(4) ....... 5,023,417 -- -- -- --
Steven Sherman(5) ...... 400,000 -- -- -- --
Stephen Kelley.......... 350,000
John Palmer(6) ......... 316,031 -- -- -- --
Mitchell Kertzman....... 88,825 -- -- -- --
William Raduchel........ 87,500 -- -- -- --
Entities Affiliated with
Directors
Entities affiliated with
Foundation
Capital(7)............ -- 588,235 195,312 -- 52,631
Battery Ventures III,
LP(8)................. -- -- 195,312 -- 26,316
Other 5% Stockholders
Entities affiliated with
Charter Growth
Capital(9)............ -- -- -- 2,000,000 --
First Plaza Trust(10)... -- -- -- -- 3,947,368
Electronic Data Systems
Corporation........... -- -- 2,421,875 -- --
Norwest Venture Partners
VI LP................. -- 2,073,529 195,312 -- 52,361
Orchid/T. Rowe Threshold
III................... -- 470,588 351,562 -- 263,158
Vertex Investment II
Ltd.(11).............. -- 1,175,625 390,624 -- 131,579
Price Per Share....... $0.04 to $4.00 $ 1.70 $ 2.56 (9) $ 3.80
Date(s) of Purchase... various 6/1997 12/1997 (9) 9/1999
</TABLE>
- --------
(1) Includes shares held by Mr. Spadafora's children and 1,775,150 shares
subject to outstanding options, of which 856,112 shares are fully vested.
(2) Includes shares held by Mr. Springsteel's children and 463,343 shares
subject to outstanding options, of which 210,532 shares are fully vested.
(3) Includes shares held by Mr. Morrison's children and 592,858 shares subject
to outstanding options, of which 253,260 shares are fully vested.
(4) The common stock held by both Mr. Tumminaro and Ms. Realini includes
4,970,000 shares held in a family trust and trusts for the benefit of Mr.
Tumminaro and Ms. Realini's children; 31,025 shares subject to outstanding
options held by Mr. Tumminaro, of which 28,560 shares are fully vested;
and 22,392 shares subject to an outstanding option held by Ms. Realini, of
which 21,718 shares are fully vested. Includes shares held in a family
trust and shares held in trusts for the benefit of Mr. Tumminaro and
Ms. Realini's children.
(5) Includes 400,000 shares subject to an outstanding option, of which 8,333
shares are fully vested.
(6) Includes 316,031 shares subject to an outstanding option, all of which
shares are fully vested. In August 1999, Mr. Palmer resigned as our
Executive Vice President, Engineering, and is no longer an officer of
Chordiant.
(7) Kathryn C. Gould, one of our directors, is a managing member of Foundation
Capital Management, LLC, which is the general partner and managing member
of Foundation Capital, LP and Foundation Capital Entrepreneurs Fund LLC.
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<PAGE>
(8) Oliver D. Curme, one of our directors, is a general partner of, Battery
Partners III LP, which is the sole general partner of Battery Ventures
III, LP.
(9) Consists of a subordinated unsecured convertible debenture held by Charter
Growth Capital, L.P. convertible into 560,000 shares of Series D preferred
stock, a subordinated unsecured convertible debenture held by CGC
Investors, L.P. convertible into 35,000 shares of Series D preferred
stock, and a subordinated unsecured convertible debenture held by Charter
Growth Capital Co-Investment Fund, L.P. convertible into 1,405,000 shares
of Series D preferred stock. The conversion price of the debentures is
$5.00 per share. The debentures were purchased in April 1999.
(10) The Chase Manhattan Bank acts as the trustee (the Trustee) for First Plaza
Group Trust (the Trust), a trust under and for the benefit of certain
employee benefit plans of General Motors Corporation (GM) and its
subsidiaries and certain former subsidiaries. These shares may be deemed
to be owned beneficially by General Motors Investment Management
Corporation (GMIMCo), a wholly owned subsidiary of GM. GMIMCo's principal
business is providing investment advice and investment management services
with respect to the assets of certain employee benefit plans of GM and its
subsidiaries and certain former subsidiaries and with respect to the
assets of certain direct and indirect subsidiaries of GM and associated
entities. GMIMCo is serving as the Trust's investment manager with respect
to these shares and in that capacity it has the sole power to direct the
Trustee as to the voting and disposition of these shares. Because of the
Trustee's limited role, beneficial ownership of the shares by the Trustee
is disclaimed.
(11) Includes 130,625 shares of Series B Preferred Stock held by HWH Investment
PTE, Ltd. 522,500 shares of Series B1 and 195,312 shares of Series C
Preferred Stock held by Vertex Asia Ltd., and 522,500 shares of Series B,
and 195,312 shares of Series C and 131,579 shares of Series E Preferred
Stock held by Vertex Investments II Ltd.
Chordiant and the preferred stockholders described above have entered into
an agreement pursuant to which these and other preferred stockholders, together
with holders of our convertible debentures described above, will have
registration rights with respect to their shares of common stock following this
offering. See "Description of Capital Stock--Registration Rights." Upon the
completion of this offering, all shares of our outstanding preferred stock and
convertible debentures will be automatically converted into an equal number of
shares of common stock.
We intend to enter into indemnification agreements with our directors and
officers for the indemnification of and advancement of expenses to these
persons to the full extent permitted by law. We also intend to execute these
agreements with our future directors and officers.
Carol Realini entered into a separation agreement with Chordiant dated
December 9, 1998 terminating her employment with us as President and Chief
Executive Officer effective December 31, 1998. From January 1, 1999 until
January 1, 2000, the company continued to pay Ms. Realini's base salary and car
allowance. Her option to purchase 40,746 shares of common stock was fully
vested as of November 30, 1998. Her second option to purchase 4,045 shares of
common stock shall continue to vest for so long as she serves as a member of
our Board of Directors.
John Palmer entered into a separation agreement with Chordiant dated August
23, 1999 terminating his employment with us as Executive Vice President,
Engineering effective August 26, 1999. From his separation date until February
26, 2000, the company has agreed to continue to pay Mr. Palmer's base salary.
Mr. Palmer is not eligible for further vesting of his options after August 26,
1999, but has the right to exercise on those option shares that are vested for
a period of up to ninety days after February 26, 2000.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested directors, and will continue to be on terms no less favorable to
us than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of November 18, 1999, and as adjusted to
reflect the sale of our common stock offered by this prospectus, by:
. each of the individuals listed on the "Summary Compensation Table"
above;
. each of our directors;
. each person (or group of affiliated persons) who is known by us to own
beneficially 5% or more of our common stock; and
. all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of November 18, 1999 are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares shown as
beneficially owned by them. Applicable percentage ownership in the following
table is based on 30,094,801 shares of common stock outstanding as of November
18, 1999, after giving effect to the conversion of all outstanding shares of
preferred stock and convertible debentures into common stock upon the closing
of the offering and 34,594,801 shares of common stock outstanding immediately
following completion of the offering. This table assumes no exercise of the
underwriters' over-allotment options. Unless otherwise indicated, the address
of each of the individuals named below is: c/o Chordiant Software, Inc., 20400
Stevens Creek Blvd, Suite 400, Cupertino, California 95014.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to the Offering After the Offering
---------------------- ----------------------
Name of Beneficial Owner Shares Percent (%) Shares Percent (%)
- ------------------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Directors, Executive Officers:
Samuel T. Spadafora(1)......... 1,810,150 5.68 1,810,150 4.98
Steven R. Springsteel(2)....... 473,343 1.55 473,343 1.35
Donald J. Morrison(3).......... 607,858 1.98 607,858 1.73
Joseph F. Tumminaro(4)......... 5,023,417 16.66 5,023,417 14.50
Carol L. Realini(4)............ 5,023,417 16.66 5,023,417 14.50
Steven Sherman(5).............. 400,000 1.31 400,000 1.14
Stephen Kelly(6)............... 350,000 1.15 350,000 1.00
John Palmer(7)................. 316,031 1.04 316,031 *
Oliver D. Curme(8)............. 2,501,263 8.31 2,501,263 7.23
Kathryn C. Gould(9)............ 3,115,813 10.35 3,115,813 9.01
Mitchell Kertzman(10).......... 88,825 * 88,825 *
William Raduchel(11)........... 87,500 * 87,500 *
All Directors and Officers as a
group(12).................... 14,774,200 43.17 14,774,200 38.15
Five Percent Stockholders:
First Plaza Group Trust(13).... 3,947,368 13.12 3,947,368 11.41
The Chase Manhattan Bank
3 Chase Metrotech Center
7th Floor
Brooklyn, NY 11245
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to the Offering After the Offering
--------------------- ---------------------
Name of Beneficial Owner Shares Percent (%) Shares Percent (%)
- ------------------------ --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Entities affiliated with Foundation
Capital, L.P(14)................. 3,115,813 10.35 3,115,813 9.01
70 Willow Road
Suite 200
Menlo Park, CA 94025
Orchid & Co., nominee for T. Rowe
Price Threshold Fund III, L.P.... 2,605,065 8.66 2,605,065 7.53
100 East Pratt Street
Baltimore, MD 21202
Battery Ventures III, L.P.......... 2,501,263 8.31 2,501,263 7.23
20 William Street
Suite 200
Wellesley, MA 02481
Electronic Data Systems
Corporation...................... 2,421,875 8.05 2,421,875 7.00
5400 Legacy Drive
Plano, TX 75024
Norwest Venture Partners VI,
LP(15)........................... 2,321,202 7.71 2,321,472 6.71
245 Lytton Avenue
Suite 250
Palo Alto, CA 94301
Entities affiliated with Charter
Growth Capital(16)............... 2,000,000 6.65 2,000,000 5.78
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Entities affiliated with Vertex
Investment II(17)................ 1,697,828 5.64 1,697,828 4.91
Three Lagoon Drive
Suite 220
Redwood City, CA 94065
</TABLE>
- --------
* Represents beneficial ownership of less than 1.0%.
(1) Includes shares held by Mr. Spadafora's children and 1,775,150 shares
subject to an outstanding option, of which 856,112 shares are vested.
(2) Includes shares held by Mr. Springsteel's children and 463,343 shares
subject to an outstanding option, of which 210,532 shares are vested.
(3) Includes shares held by Mr. Morrison's children and 592,858 shares
subject to an outstanding option, of which 253,260 shares are vested.
(4) The common stock held by both Mr. Tumminaro and Ms. Realini includes
4,790,000 shares held in a family trust and trusts for the benefit of Mr.
Tumminaro and Ms. Realini children; 31,025 shares subject to an
outstanding option held by Mr. Tumminaro, of which 28,560 shares are
vested; and 22,392 shares subject to an outstanding option held by Ms.
Realini, of which 21,718 shares are vested. Mr. Tumminaro and Ms. Realini
have granted an option to the underwriters to purchase up to aggregate of
250,000 shares of common stock to cover over-allotments. See
"Underwriting--Over-allotment options."
(5) Includes 400,000 shares subject to an outstanding option, of which 8,333
shares are vested.
(6) Includes 350,000 shares subject to an outstanding option of which 269,792
shares are vested.
(7) Includes 316,031 shares subject to an outstanding option, all of which
shares are vested. In August 1999, Mr. Palmer resigned as our Executive
Vice President, Engineering, and is no longer an officer of Chordiant.
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<PAGE>
(8) Mr. Curme is a general partner of Battery Ventures III, L.P, which is the
sole general partner of Battery Ventures III LP. Mr. Curme disclaims
beneficial ownership of the shares held by these entities except to the
extent of his proportionate partnership interest in these entities.
(9) Ms. Gould is a managing member of Foundation Capital Management, LLC,
which is the general partner and managing member of Foundation Capital,
LP and Foundation Capital Entrepreneurs Fund LLC. She disclaims
beneficial ownership of the shares held by the entities affiliated with
Foundation Capital, except to the extent of her proportionate partnership
interest in these entities.
(10) Includes 88,825 shares subject to an outstanding option, of which 61,067
shares are vested.
(11) Includes 87,500 shares subject to an outstanding option, of which 27,343
shares are vested.
(12) Includes shares described in the notes above, as applicable.
(13) The Chase Manhattan Bank acts as the trustee (the Trustee) for First
Plaza Group Trust (the Trust), a trust under and for the benefit of
certain employee benefit plans of General Motors Corporation (GM) and its
subsidiaries and certain former subsidiaries. These shares may be deemed
to be owned beneficially by General Motors Investment Management
Corporation (GMIMCo), a wholly owned subsidiary of GM. GMIMCo's principal
business is providing investment advice and investment management
services with respect to the assets of certain employee benefit plans of
GM and its subsidiaries and certain former subsidiaries and with respect
to the assets of certain direct and indirect subsidiaries of GM and
associated entities. GMIMCo is serving as the Trust's investment manager
with respect to these shares and in that capacity it has the sole power
to direct the Trustee as to the voting and disposition of these shares.
Because of the Trustee's limited role, beneficial ownership of the shares
by the Trustee is disclaimed.
(14) Includes 260,724 shares held by Foundation Capital Entrepreneurs LLC and
2,802,458 shares held by Foundation Capital LP. Foundation Capital
Management, LLC is the managing member of Foundation Capital
Entrepreneurs Fund, LLC and is the general partner of Foundation Capital,
LP. Ms. Gould is a director of Chordiant and disclaims beneficial
ownership of the shares held by these Foundation Capital entities, except
to the extent of her pecuniary interest as a member of Foundation Capital
Management, LLC.
(15) The sole general partner of Norwest Venture Partners VI, LP is Itasca VC
Partners VI, LLP, whose managing partner is George Still and whose
managing administrative partner is John Whale. All voting and investment
power with respect to these shares is held solely by Norwest Venture
Partners VI, LP acting by and through Itasca VC Partners VI and its
managing partner and managing administration partner.
(16) Includes a subordinated unsecured convertible debenture held by Charter
Growth Capital, L.P. convertible into 560,000 shares of Series D
preferred stock, a subordinated unsecured convertible debenture held by
CGC Investors, L.P. convertible into 35,000 shares of Series D preferred
stock, and a subordinated unsecured convertible debenture held by Charter
Growth Capital Co-Investment Fund, L.P. convertible into 1,405,000 shares
of Series D preferred stock.
(17) Includes 130,625 shares held by HWH Investment PTE, Ltd., 717,812 shares
held by Vertex Asia Ltd., and 849,391 shares held by Vertex Investments
II Ltd.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 300,000,000 shares of common
stock, $0.001 par value per share and 51,000,000 shares of preferred stock,
$0.001 par value per share. There were 30,094,801 shares of our common stock
outstanding as of November 18, 1999, held of record by 126 stockholders, after
giving effect to the conversion of our preferred stock and convertible
debentures into common stock.
Common Stock
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding shares of preferred stock, holders of common
stock are entitled to receive ratably such dividends as may be declared by the
board of directors out of funds legally available. In the event we liquidate,
dissolve or wind up, holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities and the liquidation
preferences of any outstanding shares of preferred stock. Holders of common
stock have no preemptive, conversion, or subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
Preferred Stock
Under our amended and restated certificate of incorporation, our board has
the authority, without further action by stockholders, to issue up to 3,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges, qualifications and restrictions granted to or imposed
upon such preferred stock, including dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preference and sinking fund
terms, any or all of which may be greater than the rights of the common stock.
The issuance of preferred stock could adversely affect the voting power of
holders of common stock and reduce the likelihood that such holders will
receive dividend payments and payments upon liquidation. Such issuance could
have the effect of decreasing the market price of the common stock. The
issuance of preferred stock could also have the effect of delaying, deterring
or preventing a change in control of Chordiant. We have no present plans to
issue any shares of preferred stock.
Registration Rights
Upon completion of this offering and subject to contractual limitations,
the holders of 24,412,193 shares of common stock or their transferees will be
entitled to rights to register these shares under the Securities Act of 1933.
If we propose to register any of our securities under the Securities Act,
either for our own account or for the account of other securityholders, the
holders of these shares will be entitled to notice of the registration and will
be entitled to include, at our expense, their shares of common stock. In
addition, the holders of these shares may require us, at our expense and on not
more than two occasions at any time beginning on the later of (i) September 28,
2000 and (ii) six months from the date of the closing of this offering, to file
a registration statement under the Securities Act with respect to their shares
of common stock, and we will be required to use our best efforts to effect the
registration. Further, the holders may require us, at our expense, to register
their shares on Form S-3 when this form becomes available. These rights shall
terminate six years after the effective date of this offering.
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law. In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:
. prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
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<PAGE>
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding those shares owned by persons
who are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. on or subsequent to the date, the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of
at least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
Section 203 defines "business combination" to include:
. any merger or consolidation involving the corporation and the
interested stockholder;
. any sale, transfer, pledge or other disposition involving the
interested stockholder of 10% or more of the assets of the corporation;
. subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Our amended and restated certificate of incorporation provides that any
action required or permitted to be taken by our stockholders must be effected
at a duly called annual or special meeting of stockholders and may not be
effected by any consent in writing. In addition, our amended and restated
bylaws provide that special meetings of our stockholders may be called only by
the Chairman of the board of directors, the Chief Executive Officer or the
board of directors pursuant to a resolution adopted by a majority of the total
number of authorized directors, or by the holders of 50% of our outstanding
voting stock. Our amended and restated certificate also specifies that our
board of directors will be classified into three classes of directors. Under
Delaware law, directors of a corporation with a classified board may be removed
only for cause unless the corporation's certificate of incorporation provides
otherwise. Our amended and restated certificate does not provide otherwise. In
addition, the amended and restated certificate specifies that the authorized
number of directors may be changed only by resolution of the board of directors
and does not include a provision for cumulative voting for directors. Under
cumulative voting, a minority stockholder holding a sufficient percentage of a
class of shares may be able to ensure the election of one or more directors.
Certain provisions of our amended and restated certificate may only be amended
with the approval of 66 2/3% of our outstanding voting stock and our amended
and restated bylaws may be amended only by the board or by the approval of 66
2/3% of our outstanding voting stock. Furthermore, our amended and restated
certificate requires the advance notice of stockholders' nominations for the
election of directors and business brought before a meeting of stockholders.
Lastly, the amended and restated certificate provides that a majority of the
directors in office, even if less than a quorum, are entitled to fill vacancies
created by resignation, death, disqualification, removal or by an increase in
the size of the board. These provisions contained in the amended and restated
certificate and our amended and restated bylaws could delay or discourage
certain types of transactions involving an actual or potential change in
control of Chordiant or its management, which includes transactions in which
stockholders might otherwise receive a premium for their shares over then
current prices, and may limit the ability of stockholders to remove our current
management or approve transactions that stockholders may deem to be in their
best interests and, therefore, could adversely affect the price of our common
stock.
Transfer Agent And Registrar
The transfer agent and registrar for our common stock is Bank Boston, N.A.
Its telephone number is (781) 575-3120.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices. Furthermore, since,
other than the shares offered in this offering, no shares will be available for
sale shortly after this offering because of contractual and legal restrictions
on resale as described below, sales of substantial amounts of our common stock
in the public market after these restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
34,594,801 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options after November 18,
1999. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless these shares are purchased by affiliates. The remaining 30,094,801
shares of common stock held by existing stockholders are restricted securities.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration described below under Rules
144, 144(k) or 701 promulgated under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be
available for sale in the public market as follows:
. no shares will be eligible for sale prior to 180 days from the date the
registration statement of which this prospectus is a part is declared
effective;
. 24,131,646 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, 180 days after the date this
offering is declared effective;
. 5,963,155 shares will be eligible for sale at various times after the
expiration of the lock-up agreements, described below, 180 days after
the date this offering is declared effective; and
. 4,007,612 shares will be eligible for sale upon the exercise of vested
options 180 days after the date this offering is declared effective.
Lock-Up Agreements
All of our officers, directors, and stockholders have agreed, subject to
certain exclusions, not to transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock, until 180 days after the date upon
which the registration statement of which this prospectus is a part is declared
effective. Transfers or dispositions can be made sooner in certain
circumstances or with the prior written consent of BancBoston Robertson
Stephens Inc.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of our public offering, a person who has beneficially owned shares of
our common stock for at least one year, including any affiliates of ours, would
be entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 345,948 shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about Chordiant.
69
<PAGE>
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates," as defined in Rule 144, at any time during the 90 days preceding
a sale, and who has beneficially owned the shares proposed to be sold for at
least two years, including the holding period of any prior owner other than an
"affiliate," is entitled to sell such shares without complying with the manner
of sale, notice filing, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
Rule 701
In general, under Rule 701, any Chordiant employee, director, officer,
consultant or advisor who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of the offering is entitled to resell such shares 90 days after
the effective date of our initial public offering in reliance on Rule 144,
without having to comply with certain restrictions, including the holding
period, contained in Rule 144.
The Securities and Exchanges Commission has indicated that Rule 701 will
apply to stock options granted by an issuer before it becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, along with the
shares acquired upon exercise of such options, including exercises after the
date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than "affiliates," as defined in Rule 144, subject only to the
manner of sale provisions of Rule 144 and by "affiliates" under Rule 144
without compliance with its one-year minimum holding period requirement.
Registration Rights
Upon completion of this offering, the holders of 24,412,193 shares of our
common stock, or their transferees, will be entitled to rights with respect to
the registration of their shares under the Securities Act. Registration of
their shares under the Securities Act would result in the shares becoming
freely tradable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of the registration
statement of which this prospectus is a part. See "Description of Capital
Stock--Registration Rights."
Stock Options
After this offering, we intend to file a registration statement under the
Securities Act covering the shares of common stock reserved for issuance under
our 1999 Equity Incentive Plan, the 1999 Employee Stock Purchase Plan and the
1999 Non-employee Directors Stock Option Plan. The registration statement is
expected to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares registered under the registration
statements will, subject to Rule 144 volume limitations applicable to
affiliates and contractual limitations, be available for sale in the open
market, immediately after the effective date of such registration statement.
70
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, and Thomas Weisel Partners LLC, have severally agreed
with us and the selling stockholders, subject to the terms and conditions of
the underwriting agreement, to purchase from us the number of shares of common
stock set forth opposite their names below. The underwriters are committed to
purchase and pay for all of these shares if any are purchased.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Dain Rauscher Wessels.......................................
Thomas Weisel Partners LLC..................................
</TABLE>
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession of not more than $ per share, of
which $ may be allowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the representatives. No such reduction shall change the amount of proceeds
to be received by us or the selling stockholders as set forth on the cover page
of this prospectus. The common stock is offered by the underwriters as stated
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
91 filed public offerings of equity securities, of which 73 have been
completed, and has acted as a syndicate member in an additional 48 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
The following table summarizes the compensation to be paid to the
underwriters by Chordiant:
<TABLE>
<CAPTION>
Per Share Total
------------------- -------------------
Without With Without With
Over- Over- Over- Over-
allotment allotment allotment allotment
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
paid by Chordiant................... $ $ $ $
Expenses payable by Chordiant......... $ $ $ $
</TABLE>
Over-allotment Options. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 425,000 additional shares of common stock at the same price per
share as we will receive for the 4,500,000 shares that the underwriters have
agreed to purchase from us in this offering. Certain stockholders have granted
to the underwriters an option, exercisable during the 30-day period after the
date of this prospectus, to purchase up to 250,000 additional shares of common
stock at the same price per share as we will receive for the 4,500,000 shares
that the underwriters have agreed to purchase from us in this offering. To the
extent that the underwriters exercise either option, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
these additional shares that the number of shares of common stock to be
purchased by it shown in the above table represents as a percentage of the
shares offered hereby. If purchased, these additional shares will be sold by
the underwriters on the same terms as those on which the 4,500,000 shares are
being sold. We will be obligated, pursuant to the
71
<PAGE>
option we have granted to the underwriters, to sell shares to the extent the
option is exercised. The selling stockholders will be obligated, pursuant to
the option they have granted to the underwriters, to sell shares to the extent
the option is exercised. The underwriters will be obligated to exercise the
option with the selling stockholders in full prior to exercising their option
with us. The underwriters may exercise these options only to cover over-
allotments made in connection with the sale of the shares of common stock
offered in this offering.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters, Chordiant and the selling stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Lock-up Agreements. Each of our officers, directors and stockholders has
agreed, for a period of 180 days after the date of this prospectus, that,
subject to exceptions, they will not offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
any shares of common stock, any options or warrants to purchase any shares of
common stock, or any securities convertible into or exchangeable for shares of
common stock owned as of the date of this prospectus or, with certain
exceptions, thereafter acquired directly by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the
prior written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the lock-up
agreements. There are no agreements between the representatives and any of our
stockholders providing consent by the representatives to the sale of shares
prior to the expiration of the lock-up period other than pursuant to this
offering.
Future Sales. In addition, we have agreed that until 180 days after the
date of this prospectus, we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens Inc.:
. consent to the disposition of any shares held by stockholders prior to
the expiration of the lock-up period; or
. issue, sell, contract to sell or otherwise dispose of any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than (1) the sale of
shares in this offering, (2) the issuance of common stock upon the
exercise of outstanding options, and (3) the issuance of options under
existing stock option and incentive plans. See "Shares Eligible for
Future Sale."
Listing. We have applied for quotation on the Nasdaq National Market under
the symbol "CHOR."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby will be determined through negotiations
between us and the representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to ours, estimates of our business
potential, our present state of development and other factors deemed relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the representatives to reclaim the selling
concession otherwise accruing to an underwriter or
72
<PAGE>
syndicate member in connection with this offering if the common stock
originally sold by such underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not been
effectively placed by such underwriter or syndicate member. The representatives
have advised us that these transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
Directed share program. At our request, the underwriters have reserved up
to 225,000 shares of common stock to be issued by Chordiant and offered hereby
for sale, at the initial public offering price, to directors, officers,
employees, business associates and related persons of Chordiant. The number of
shares of common stock available for sale to the general public will be reduced
to the extent such individuals purchase such reserved shares. Any reserved
shares that are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered hereby. We have
agreed to indemnify the underwriters against certain liabilities and expenses,
including certain liabilities under the Securities Act of 1933, in connection
with the sales of such shares.
73
<PAGE>
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998, and
for each of the three years in the period ended December 31, 1998, included in
this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement, which term shall include any amendment to the registration
statement, on Form S-1 under the Securities Act of 1933 with respect to the
shares of common stock offered by Chordiant. This prospectus, which constitutes
a part of the registration statement, does not contain all of the information
set forth in the registration statement, some items of which are contained in
exhibits to the registration statement as permitted by the rules and
regulations of the Securities and Exchange Commission. For further information
with respect to Chordiant and the common stock offered hereby, reference is
made to the registration statement, including the exhibits, and the financial
statements and notes filed as a part of the registration statement. A copy of
the registration statement, including the exhibits and the financial statements
and notes filed as a part of it, may be inspected without charge at the public
reference facilities maintained by the Securities and Exchange Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of all or any part of the
registration statement may be obtained from the Commission upon the payment of
fees prescribed by it. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding companies that file electronically with it.
74
<PAGE>
CHORDIANT SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Stockholders' Deficit............................ F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Chordiant Software, Inc.
The recapitalization and reverse stock split described in Note 14 to the
consolidated financial statements has not been consummated at November 30,
1999. When it has been consummated, we will be in a position to furnish the
following report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of stockholders' deficit
and of cash flows present fairly, in all material respects, the financial
position of Chordiant Software, Inc. (the "Company"), at December 31, 1997
and 1998 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion
expressed above."
PricewaterhouseCoopers LLP
San Jose, California
November 30, 1999
F-2
<PAGE>
CHORDIANT SOFTWARE, INC.
CONSOLIDATED BALANCE SHEET
(amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Liabilities and
Stockholders'
December 31, Equity at
------------------ September 30, September 30,
1997 1998 1999 1999
-------- -------- ------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.............. $ 18,916 $ 1,713 $ 21,077
Short-term investments..... -- 1,051 --
Accounts receivable--third
parties, net............. 341 5,287 1,905
Accounts receivable--
related parties.......... 117 102 828
Other current assets....... 585 274 742
-------- -------- --------
Total current assets.... 19,959 8,427 24,552
Property and equipment, net.. 1,354 2,866 2,414
Other assets................. 47 228 310
-------- -------- --------
$ 21,360 $ 11,521 $ 27,276
======== ======== ========
LIABILITIES, MANDATORILY
REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Borrowings................. $ 637 $ 776 $ 4,179 $ 4,179
Accounts payable--related
parties.................. 206 206 -- --
Accounts payable--third
parties.................. 410 4,346 2,572 2,572
Accrued expenses........... 807 2,115 2,387 2,387
Prepaid licenses--related
parties.................. 6,000 6,000 283 283
Deferred revenue........... 4,132 5,146 7,763 7,763
-------- -------- -------- --------
Total current
liabilities........... 12,192 18,589 17,184 17,184
Borrowings, long-term........ 631 911 10,962 962
Deferred revenue............. 270 573 -- --
Other liabilities............ -- 103 228 228
-------- -------- -------- --------
13,093 20,176 28,374 18,374
-------- -------- -------- --------
Mandatorily Redeemable
Convertible Preferred
Stock, $0.001 par value;
25,027,985 shares
authorized; 16,449,038,
16,449,038 and 22,280,615
(unaudited) shares issued
and outstanding; no shares
(unaudited) issued and
outstanding pro forma...... 28,949 28,949 51,109 --
-------- -------- -------- --------
Commitments and contingencies
(Notes 6 and 8)
Stockholders' Equity
(Deficit):
Common Stock, $0.001 par
value; 51,578,947 shares
authorized; 5,012,733,
5,218,973 and 5,436,349
(unaudited) shares
issued and outstanding;
29,716,964 (unaudited)
shares issued and
outstanding pro forma.... 5 5 5 30
Additional paid-in
capital.................. 1,300 2,820 3,433 64,517
Unearned compensation...... -- (1,002) (782) (782)
Accumulated deficit........ (21,987) (39,427) (54,863) (54,863)
-------- -------- -------- --------
Total stockholders'
equity (deficit)...... (20,682) (37,604) (52,207) 8,902
-------- -------- -------- --------
$ 21,360 $ 11,521 $ 27,276 $ 27,276
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CHORDIANT SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
License--third
parties.............. $ -- $ 1,142 $ 4,360 $ 2,634 $ 3,363
License--related
parties.............. -- -- -- -- 1,962
Service--third
parties.............. 2,312 1,677 8,013 3,276 6,692
Service--related
parties.............. -- 89 92 69 230
--------- --------- ---------- --------- ----------
Total net
revenues......... 2,312 2,908 12,465 5,979 12,247
--------- --------- ---------- --------- ----------
Cost of net revenues
License--third
parties.............. -- 73 425 288 158
License--related
parties.............. -- -- -- -- 60
Service--third
parties.............. 2,353 1,388 8,846 4,019 9,412
Service--related
parties.............. -- 74 101 85 353
--------- --------- ---------- --------- ----------
Total cost of net
revenues......... 2,353 1,535 9,372 4,392 9,983
--------- --------- ---------- --------- ----------
Gross profit (loss)..... (41) 1,373 3,093 1,587 2,264
--------- --------- ---------- --------- ----------
Operating expenses:
Sales and marketing.... 1,140 5,142 12,580 8,517 9,557
Research and
development.......... 4,598 6,240 5,858 4,143 4,790
General and
administrative....... 1,860 1,416 2,046 1,352 1,912
Stock-based
compensation......... 3 498 489 274 764
--------- --------- ---------- --------- ----------
Total operating
expenses......... 7,601 13,296 20,973 14,286 17,023
--------- --------- ---------- --------- ----------
Loss from operations.... (7,642) (11,923) (17,880) (12,699) (14,759)
Interest expense........ (55) (112) (121) (84) (747)
Other income (expense),
net................... 135 442 561 495 70
--------- --------- ---------- --------- ----------
Net loss................ $ (7,562) $ (11,593) $ (17,440) $ (12,288) $ (15,436)
========= ========= ========== ========= ==========
Net loss per share:
Basic and diluted...... $ (1.51) $ (2.31) $ (3.44) $ (2.44) $ (2.93)
========= ========= ========== ========= ==========
Weighted average
shares............... 5,002,217 5,008,623 5,074,533 5,033,682 5,263,874
========= ========= ========== ========= ==========
Pro forma net loss per
share (unaudited):
Basic and diluted...... $ (0.81) $ (0.67)
========== ==========
Weighted average
shares............... 21,523,573 23,085,861
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CHORDIANT SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------- Paid-in Unearned Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Deficit
--------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 5,000,000 $ 5 $ 803 $ -- $ (2,832) $ (2,024)
Exercise of stock
options............... 70,625 -- 6 -- -- 6
Repurchase of Common
Stock................. (66,250) -- (9) -- -- (9)
Stock compensation..... -- -- 3 -- -- 3
Net loss............... -- -- -- -- (7,562) (7,562)
--------- --- ------ ------- -------- --------
Balance at December 31,
1996................... 5,004,375 5 803 -- (10,394) (9,586)
Exercise of stock
options............... 31,638 -- 4 -- -- 4
Repurchase of Common
Stock................. (23,280) -- (5) -- -- (5)
Stock compensation..... -- -- 498 -- -- 498
Net loss............... -- -- -- -- (11,593) (11,593)
--------- --- ------ ------- -------- --------
Balance at December 31,
1997................... 5,012,733 5 1,300 -- (21,987) (20,682)
Exercise of stock
options............... 236,635 -- 56 -- -- 56
Repurchase of Common
Stock................. (30,395) -- (27) -- -- (27)
Unearned compensation.. -- -- 1,500 (1,500) -- --
Amortization of
unearned
compensation.......... -- -- -- 489 -- 489
Stock option
cancellations......... -- -- (9) 9 -- --
Net loss............... -- -- -- -- (17,440) (17,440)
--------- --- ------ ------- -------- --------
Balance at December 31,
1998................... 5,218,973 5 2,820 (1,002) (39,427) (37,604)
Exercise of stock
options (unaudited)... 241,067 -- 108 -- -- 108
Repurchase of Common
Stock (unaudited)..... (23,691) -- (39) -- -- (39)
Unearned compensation
(unaudited)........... -- -- 640 (640) -- --
Amortization of
unearned compensation
(unaudited)........... -- -- -- 764 -- 764
Stock option
cancellations
(unaudited)........... -- -- (96) 96 -- --
Net loss (unaudited)... -- -- -- -- (15,436) (15,436)
--------- --- ------ ------- -------- --------
Balance at September 30,
1999 (unaudited)...... 5,436,349 $ 5 $3,433 $ (782) $(54,863) $(52,207)
========= === ====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CHORDIANT SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(7,562) $(11,593) $(17,440) $(12,288) $(15,436)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 611 913 521 400 955
Stock-based compensation.... 3 498 489 274 764
Provision for doubtful
accounts................... -- 569 17 17 211
Changes in assets and
liabilities:
Accounts receivable--third
parties................... 1,728 467 (4,963) (1,632) 3,171
Accounts receivable--
related parties........... -- (117) 15 (628) (726)
Other current assets....... (1,643) 1,074 311 228 (468)
Other assets............... (8) (2) (181) (181) (82)
Accounts payable--third
parties................... (2,906) 37 3,936 668 (1,774)
Accounts payable--related
parties................... -- 206 -- (206) (206)
Accrued expenses........... 1,881 (1,417) 1,308 722 272
Prepaid licenses--related
parties................... -- 6,000 -- -- --
Deferred revenue........... 2,229 223 1,317 2,615 (3,673)
Other liabilities.......... -- -- 103 -- 125
------- -------- -------- -------- --------
Net cash used in
operating activities.... (5,667) (3,142) (14,567) (10,011) (16,867)
------- -------- -------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................... (1,232) (744) (2,033) (1,572) (503)
Purchases of short-term
investments................. -- -- (9,558) (9,042) (800)
Proceeds from sales and
maturities of short-term
investments................. -- -- 8,507 6,436 1,851
------- -------- -------- -------- --------
Net cash provided by
(used in) investing
activities.............. (1,232) (744) (3,084) (4,178) 548
------- -------- -------- -------- --------
Cash flows from financing
activities:
Issuance of Mandatorily
Redeemable Convertible
Preferred Stock, net........ 6,966 19,902 -- -- 22,160
Exercise of stock options.... 5 4 56 35 108
Repurchase of Common Stock... (9) (5) (27) (27) (39)
Proceeds from borrowings..... 1,045 558 781 523 14,726
Repayment of borrowings...... (483) (335) (362) -- (1,272)
------- -------- -------- -------- --------
Net cash provided by
financing activities.... 7,524 20,124 448 531 35,683
------- -------- -------- -------- --------
Net increase (decrease) in
cash and cash equivalents.... 625 16,238 (17,203) (13,658) 19,364
Cash and cash equivalents at
beginning of period.......... 2,053 2,678 18,916 18,916 1,713
------- -------- -------- -------- --------
Cash and cash equivalents at
end of period................ $ 2,678 $ 18,916 $ 1,713 $ 5,258 $ 21,077
======= ======== ======== ======== ========
Supplemental cash flow
information:
Cash paid for interest....... $ 55 $ 112 $ 112 $ 85 $ 747
======= ======== ======== ======== ========
Cash paid for income taxes... $ -- $ -- $ -- $ -- $ --
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
NOTE 1--THE COMPANY:
Chordiant Software, Inc. (the "Company"), formerly J. Frank Consulting,
Inc. and J. Frank & Associates, Inc., was incorporated in California in March
1991 and reincorporated in Delaware by merging into Chordiant Delaware, Inc., a
wholly-owned Delaware subsidiary, in October 1997. At that time, Chordiant
Delaware, Inc. changed its name to Chordiant Software, Inc. The Company
provides e-business infrastructure software for the next generation of customer
interaction applications. The Company's product helps enable companies to offer
their customers consistent and personalized marketing, sales, e-business
services and customer services across multiple channels of communication and
contact with customers.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash, cash equivalents and short-term investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 1997 and 1998, and at September 30, 1999, $18,800, $1,477 and $20,607
(unaudited), respectively, of money market account balances, commercial paper
and municipal bonds, the fair value of which approximates cost, are included in
cash and cash equivalents. The gross unrealized gains and losses were not
significant in the periods presented.
The Company classifies its short-term investment securities as "available-
for-sale." At December 31, 1998, the fair value of these securities, comprised
primarily of medium-term notes, approximates cost, and the gross unrealized
gains and losses were not significant. These securities mature within one year.
Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, deposits, accounts payable and borrowings are carried at
cost, which approximates fair value because of the short-term nature of those
instruments.
Property and equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of assets which
range from three to seven years. Amortization of leasehold improvements is
calculated using the straight-line method over the shorter of the estimated
economic life of the asset or the lease term. Purchased internal-use software
consists primarily of amounts paid for perpetual licenses to third party
software applications which are amortized over their estimated useful life,
generally three years.
F-7
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the estimated
future undiscounted cash flows attributable to such assets.
Revenue recognition
The Company derives revenues from licenses of its software and related
services, which include assistance in implementation, customization and
integration, post-contract customer support, training and consulting.
On contracts involving significant implementation or customization
essential to the functionality of the Company's product, license and service
revenues are recognized using the percentage-of-completion method using labor
hours incurred as the measure of progress towards completion. The Company
classifies revenues from these arrangements as license and services revenues,
respectively, based upon the estimated fair value of each element. Provisions
for estimated contract losses are recognized in the period in which the loss
becomes probable and can be reasonably estimated.
On contracts that do not involve significant implementation or
customization essential to the functionality of the Company's product, license
fees are recognized when there is persuasive evidence of an arrangement for a
fixed and determinable fee that is probable of collection and when delivery has
occurred. For arrangements with multiple elements, the Company recognizes
revenue for the delivered elements based upon the residual contract value as
prescribed by Statement of Position No. 98-9, "Modification of SoP No. 97-2
with Respect to Certain Transactions."
Other service revenues from consulting and training services are recognized
as such services are performed. Service revenues from post-contract customer
support are recognized ratably over the support period, generally one year.
In future periods, the Company expects to derive revenues from contracts
that provide for implementation services at a fixed hourly rate. On other
contracts the Company expects to derive revenues from the licensing of the
installed product on a per transaction basis. In connection with such
arrangements, the Company will recognize the fair value of the implementation
services as such services are delivered and will recognize license fees on a
monthly basis at the contractual rate.
The Company bills customers in accordance with contract terms. Amounts
billed to customers in excess of revenues recognized are recorded as deferred
revenues.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents, short-term
investments and accounts receivable. To date, the Company has invested excess
funds in money market accounts, commercial paper, municipal bonds and term
notes. The Company deposits cash, cash equivalents and short-term investments
with financial institutions that management believes are credit worthy. The
Company's accounts receivable are derived from revenues earned from customers
located in the United States, United Kingdom, Canada, Netherlands and Africa.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company maintains an allowance for doubtful accounts receivable based upon the
expected collectibility of all accounts receivable.
F-8
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
The following table summarizes the revenues from customers, all of which
were third parties, in excess of 10% of total net revenues:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
---------------- ---------------
1996 1997 1998 1998 1999
---- ---- ---- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Company A................................... 33% 28% -- -- --
Company B................................... -- -- 12% 11% 29%
Company C................................... 27% -- -- -- --
Company D................................... 17% 53% -- -- --
Company E................................... 13% -- -- -- --
Company F................................... -- -- 14% 15% --
Company G................................... -- -- 36% 20% 13%
Company H................................... -- -- 19% 38% --
Company I................................... -- -- -- -- 22%
</TABLE>
At December 31, 1998, Companies B and G accounted for 21% and 26%,
respectively, of accounts receivable, net. At September 30, 1999, companies B
and I accounted for 19% (unaudited) and 26% (unaudited), respectively, of
accounts receivable. At September 30, 1999, 21% of accounts receivable was due
from a separate company. The offsetting amount has been included in deferred
revenues until earned.
Research and development
Research and development costs are expensed as incurred in accordance with
Statement of Financial Accounting Standards No. 2, "Accounting for Research and
Development Costs."
Software development costs
Costs incurred in the research and development of new products and
enhancements to existing products are charged to expense as incurred until the
technological feasibility of the product or enhancement has been established
through the development of a working model. After establishing technological
feasibility, additional development costs incurred through the date the product
is available for general release would be capitalized and amortized over the
estimated product life. No costs have been capitalized to date, as the effect
on the financial statements for all periods presented is immaterial.
Advertising costs
Advertising costs are expensed as incurred in accordance with Statement of
Position No. 93-7, "Reporting on Advertising Costs." Advertising costs for the
years ended December 31, 1996, 1997 and 1998 totaled $135, $1,316 and $1,955,
respectively. Advertising costs for the nine months ended September 30, 1998
and 1999 totaled $1,370 (unaudited) and $971 (unaudited), respectively.
Stock-based costs and expenses
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Under APB 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock.
F-9
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
Foreign currency translation
The functional currency of the Company's sales office located in the United
Kingdom is its local currency. Foreign currency assets and liabilities are
translated at the current exchange rates at each balance sheet date. Revenues
and expenses are translated at weighted average exchange rates in effect during
the year. Gains and losses resulting from foreign currency translation have not
been material to the financial statements of any period presented. To the
extent these gains or losses are recognized in future periods, such amounts
will be recorded directly into a separate component of stockholders' equity
(deficit). Foreign currency transaction gains and losses are included in the
determination of net income or loss. During the years ended December 31, 1996,
1997 and 1998 and the nine months ended September 30, 1998 (unaudited) and 1999
(unaudited), net foreign currency transaction gains or losses were immaterial.
Income taxes
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Net loss per share
Basic net loss per share is computed by dividing the net loss for the
period by the weighted average shares of Common Stock outstanding during the
period. Diluted net loss per share is computed by dividing the net loss for the
period by the weighted average number of common and potential common shares
outstanding during the period. Potential common shares consist of the
incremental number of common shares issuable upon conversion of Mandatorily
Redeemable Convertible Preferred Stock (using the if-converted method), common
shares issuable upon the exercise of stock options (using the treasury stock
method), common shares issuable upon the assumed conversion of convertible debt
(using the if-converted method) and common shares subject to repurchase by the
Company. The calculation of diluted net loss per share excludes potential
common shares if their effect is anti-dilutive.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss................ $ (7,562) $ (11,593) $ (17,440) $ (12,288) $ (15,436)
--------- --------- --------- --------- ---------
Weighted average Common
shares................ 5,002,217 5,008,623 5,074,533 5,033,682 5,306,157
Weighted average
unvested
Common shares subject
to repurchase......... -- -- -- -- (42,283)
--------- --------- --------- --------- ---------
Denominator for basic
and diluted
calculation........... 5,002,217 5,008,623 5,074,533 5,033,682 5,263,874
--------- --------- --------- --------- ---------
Net loss per share--
basic and diluted..... $ (1.51) $ (2.31) $ (3.44) $ (2.44) $ (2.93)
========= ========= ========= ========= =========
</TABLE>
F-10
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
The following table sets forth the weighted average potential common shares
that are excluded from the calculation of diluted net loss per share as their
effect is anti-dilutive:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average effect of antidilutive
securities:
Mandatorily Redeemable Convertible
Preferred Stock.................... 4,823,464 10,008,307 16,449,038 16,449,038 16,513,187
Convertible debt..................... -- -- -- -- 1,308,800
Employee stock options............... 129,611 506,603 1,908,598 1,492,262 4,873,775
Common shares subject to repurchase.. -- -- -- -- 42,283
--------- ---------- ---------- ---------- ----------
4,953,075 10,514,910 18,357,636 17,941,300 22,738,045
========= ========== ========== ========== ==========
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and the
nine months ended September 30, 1999, is computed using the weighted average
number of common shares outstanding, including the assumed conversion of the
Company's Mandatorily Redeemable Convertible Preferred Stock and the conversion
of convertible debt which the holders have committed to converting, into shares
of the Company's Common Stock effective upon the closing of an initial public
offering, as if such conversions occurred on January 1, 1998, or at date of
original issuance, if later. The resulting unaudited pro forma adjustment
includes an increase in the weighted average shares used to compute basic and
diluted net loss per share of 16,449,038 and 17,821,987 for the year ended
December 31, 1998 and the nine months ended September 30, 1999, respectively.
The calculation of pro forma diluted net loss per share excludes other
potential common shares as the effect is anti-dilutive. Pro forma potential
common shares are comprised of Common Stock subject to repurchase and
incremental Common Stock issuable upon the exercise of stock options.
Pro forma liabilities and stockholders' equity (unaudited)
Effective upon the closing of the Company's initial public offering (the
"Offering"), the outstanding shares of Mandatorily Redeemable Convertible
Preferred Stock and the outstanding convertible debt will convert into
approximately 22,280,615 and 2,000,000 shares of Common Stock, respectively.
Also effective upon the closing of this offering the Company will be authorized
to issue 300,000,000 shares of Common Stock and 51,000,000 shares of
undesignated Convertible Preferred Stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma Liabilities and Stockholders' Equity as of September 30, 1999.
Segment information
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way companies report information about operating segments in financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. In accordance with
the provisions of SFAS No. 131, the Company has determined that it operates in
one operating segment.
F-11
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
Foreign revenues are based on the country in which the customer is located.
The following is a summary of total net revenues by geographic area:
<TABLE>
<CAPTION>
Nine Months
Year Ended December Ended
31, September 30,
--------------------- --------------
1996 1997 1998 1998 1999
------ ------ ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
United States........................... $2,312 $2,719 $ 2,729 $1,315 $ 8,244
United Kingdom.......................... -- 189 3,441 2,500 1,967
Canada.................................. -- -- 1,724 924 429
Netherlands............................. -- -- 4,500 1,200 1,607
Other................................... -- -- 71 40 --
------ ------ ------- ------ -------
$2,312 $2,908 $12,465 $5,979 $12,247
====== ====== ======= ====== =======
</TABLE>
Property and equipment information is based on the physical location of the
assets. The following is a summary of property and equipment by geographic
area:
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
United States.................................... $1,354 $2,587 $2,205
United Kingdom................................... -- 279 209
------ ------ ------
$1,354 $2,866 $2,414
====== ====== ======
</TABLE>
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined, includes
all changes in equity during a period from nonowner sources. To date, the
Company has not had any material transactions that are required to be reported
in comprehensive income other than its net loss.
Unaudited interim results
The accompanying interim financial statements at September 30, 1999, and
for the nine months ended September 30, 1998 and 1999, are unaudited. The
unaudited interim financial statements have been prepared on the same basis as
the annual financial statements and in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and cash
flows as of September 30, 1999 and for the nine months ended September 30, 1998
and 1999. The financial data and other information disclosed in these notes to
financial statements related to these periods are unaudited. The results for
the nine months ended September 30, 1999 are not necessarily indicative of the
results to be expected for the year ended December 31, 1999.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain
F-12
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivatives Instruments and Hedging Activities--Deferral of Effective Date of
FASB Statement No. 133." SFAS No. 133, as amended by SFAS No. 137, is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000, with
earlier application encouraged. The Company does not currently nor does it
intend in the future to use derivative instruments and therefore does not
expect that the adoption of SFAS No. 133 will have any impact on its financial
position or results of operations.
NOTE 3--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
December 31,
---------------- September 30,
1997 1998 1999
------- ------- -------------
(unaudited)
<S> <C> <C> <C>
Accounts receivable--
third parties, net:
Accounts receivable..... $ 578 $ 5,541 $ 2,189
Allowance for doubtful
accounts.............. (237) (254) (284)
------- ------- -------
$ 341 $ 5,287 $ 1,905
======= ======= =======
Property and equipment,
net:
Computer hardware....... $ 2,230 $ 3,190 $ 3,501
Purchased internal-use
software.............. 662 895 1,042
Furniture and
equipment............. 491 983 998
Leasehold improvements.. 152 500 530
------- ------- -------
3,535 5,568 6,071
Accumulated depreciation
and amortization...... (2,181) (2,702) (3,657)
------- ------- -------
$ 1,354 $ 2,866 $ 2,414
======= ======= =======
Accrued expenses:
Accrued payroll and
related expenses...... $ 617 $ 1,799 $ 1,692
Other accrued
liabilities........... 190 316 695
------- ------- -------
$ 807 $ 2,115 $ 2,387
======= ======= =======
</TABLE>
NOTE 4--SOFTWARE DEVELOPMENT AGREEMENT:
During 1995, the Company and Visa International Services Association
("Visa") entered into an agreement to jointly perform research and development
for a call center software application ("CCF/GCAS") ("the Agreement"). In
December 1996, the Company received notice from Visa terminating the Agreement.
At December 31, 1996, the Company had recorded the total advances received
under the Agreement of $2,500 as deferred revenue. On May 29, 1997, Visa and
the Company completed mediation surrounding the termination of the Agreement
and the Company agreed to refund Visa $1,700 of the advances received. The
remaining advances totaling $800 were recognized as service revenue during the
year ended December 31, 1997.
NOTE 5--RELATED PARTY TRANSACTIONS:
The Company has entered into various agreements with certain holders of the
Company's Mandatorily Redeemable Convertible Preferred Stock. These agreements
consist primarily of product licenses and related services. Revenues and
related costs of revenues together with deferred revenues, accounts receivable,
accounts
F-13
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
payable and prepaid licenses from these related parties are separately
disclosed in the consolidated statements of operations and cash flows and in
the consolidated balance sheet.
NOTE 6--BORROWINGS:
Bank credit facility
At December 31, 1998, the Company maintained a credit facility with a bank
consisting of two term loans and an equipment loan in the amounts of $857, $313
and $1,500, respectively. As of December 31, 1998, the Company had borrowed
$573, $162 and $945, respectively, under these loans. The loans accrue interest
at the bank's prime rate plus 0.25% (8% at December 31, 1998). The Company is
required to make monthly payments of $18, $10 and $39 plus accrued interest,
respectively, under these loans. The loans mature in June 2000, March 2000 and
December 2000, respectively. The loans are collateralized by the assets of the
Company and include certain financial covenants, including a minimum capital
base and quick ratio. At December 31, 1998, the Company was in compliance with
these covenants.
In January 1999, the Company renegotiated its credit facility and entered
into an accounts receivable line of credit arrangement for borrowings of up to
$4,000 (unaudited) and an equipment loan in the amount of $1,000 (unaudited).
The Company's borrowings under the accounts receivable line of credit are
limited to 80% of eligible accounts receivable, accrue interest at the bank's
prime rate and mature in January 2000. The borrowings under the equipment loan
accrue interest at the bank's prime rate plus 0.25%, 8.5% at September 30,
1999, and mature in January 2002.
At September 30, 1999, the Company had lines of credit with a bank totaling
$5.0 million (unaudited). Borrowings under the accounts receivable line of
credit bear interest at the lending bank's prime rate. Borrowings under the
equipment loan bear interest at the lending bank's prime rate plus 0.25%, 8.5%
at September 30, 1999 . Borrowings under the accounts receivable line of credit
are limited to 80% of eligible accounts receivable. The assets of the Company
secure borrowings under both lines of credit. As of September 30, 1999, the
Company had borrowed $4.1 million (unaudited) against the lines of credit.
Convertible debt (unaudited)
In April 1999, the Company raised $10,000 through a convertible debt
financing arrangement. The convertible debt bears interest at a rate of 9% per
annum and is payable in April 2004. The holders have the right to accelerate
the Company's obligation to repay the convertible debt upon a change in
control, initial public offering of at least $20,000 at a price not less than
$10.00 per share, or a significant transaction, as defined. The convertible
debt also provides the holders the right to convert the debt instrument into
shares of the Company's Series D Mandatorily Redeemable Convertible Preferred
Stock at a conversion rate of $5.00 per share.
F-14
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
The aggregate future payments under the bank credit facilities and
convertible debt financing arrangement are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
Year Ending December 31, 1998 1999
------------------------ ------------ -------------
(unaudited)
<S> <C> <C>
1999............................................ $ 776 $ 212
2000............................................ 765 4,329
2001............................................ 146 563
2002............................................ -- 37
2003............................................ -- --
2004............................................ -- 10,000
------ -------
1,687 15,141
Less current portion............................ (776) (4,179)
------ -------
Long-term portion............................... $ 911 $10,962
====== =======
</TABLE>
NOTE 7--INCOME TAXES:
No provision for income taxes has been recorded for any period presented as
the Company has incurred net operating losses for tax purposes.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Net operating loss carryforwards............ $ 5,411 $ 9,483 $ 14,856
Accrued expenses and provisions............. 2,799 3,588 4,041
Tax credit carryforwards.................... 668 864 1,116
------- -------- --------
Gross deferred tax assets................... 8,878 13,935 20,013
Deferred tax valuation allowance............ (8,878) (13,935) (20,013)
------- -------- --------
Net deferred tax assets..................... $ -- $ -- $ --
======= ======== ========
</TABLE>
The Company provides a valuation allowance for deferred tax assets when it
is more likely than not that some portion or all of the net deferred tax assets
will not be realized. Based on a number of factors, including the lack of a
history of profits and the fact that the market in which the Company competes
is intensely competitive and characterized by rapidly changing technology,
management 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, 1998, the Company had approximately $25,664 and $12,983 of
net operating loss carryforwards for federal and state purposes, respectively.
At September 30, 1999, the Company had approximately $40,288 (unaudited) and
$19,852 (unaudited) of net operating loss carryforwards for federal and state
purposes, respectively. These carryforwards are available to offset future
taxable income and expire beginning in 2011 and 2001, respectively.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be impaired or limited in
certain circumstances. Events which may cause limitations in the
F-15
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
utilization of net operating losses include, but are not limited to, a
cumulative stock ownership change of greater than 50%, as defined, over a three
year period. The Company has not yet determined whether or not operating loss
benefits are impaired or limited.
NOTE 8--COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases its facilities and certain equipment under noncancelable
operating leases which expire on various dates through 2004. Rent expense is
recognized ratably over the lease term. Future minimum lease payments as of
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999............................................................. $1,313
2000............................................................. 1,340
2001............................................................. 1,410
2002............................................................. 1,475
2003............................................................. 1,556
Thereafter....................................................... 799
------
$7,893
======
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 totaled
$522, $559, and $1,036 respectively. Rent expense for the nine months ended
September 30, 1998 and 1999 totaled $746 (unaudited) and $1,070 (unaudited),
respectively.
Legal proceedings
The Company is not a party to any material legal proceedings. The Company
may be subject to various claims and legal actions arising in the ordinary
course of business.
NOTE 9--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Mandatorily Redeemable Convertible Preferred Stock consists of the
following:
<TABLE>
<CAPTION>
Shares Issued and Outstanding Redemption Amount at
----------------------------------- --------------------------
December 31,
Shares --------------------- September 30, December 31, September 30,
Authorized 1997 1998 1999 1998 1999
---------- ---------- ---------- ------------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Series A................ 6,838,905 6,838,905 6,838,905 6,838,905 $ 9,000 $ 9,000
Series B................ 5,410,917 5,410,917 5,410,917 5,410,917 9,199 9,199
Series C................ 4,199,216 4,199,216 4,199,216 4,199,216 10,750 10,750
Series D................ 2,000,000 -- -- -- -- --
Series E................ 6,578,947 -- -- 5,831,577 -- 22,160
---------- ---------- ---------- ---------- ------- -------
25,027,985 16,449,038 16,449,038 22,280,615 $28,949 $51,109
========== ========== ========== ========== ======= =======
</TABLE>
F-16
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
The Series A, Series B, Series C, Series D and Series E have certain
rights, preferences and restrictions with respect to dividends, conversion,
liquidation, voting and redemption as follows:
Dividends
The holders of Series A, B, C, D and E are entitled to receive
noncumulative, preferential dividends of $0.1316, $0.17, $0.256, $0.50
(unaudited) and $0.38 (unaudited), respectively, per share per annum when and
if declared by the Board of Directors.
Conversion
Each share of Series A, B, C, D and E is convertible into one share on
Common Stock, subject to dilution. For Series A, B, and C such conversion is
automatic upon the completion of a public offering of Common Stock for which
the aggregate proceeds exceed $10 million and the per share offering price
equals or exceeds $4.00. For Series D and E such conversion is automatic upon
the completion of a public offering of Common Stock for which the aggregate
proceeds exceed $30 million and the per share offering price equals or exceeds
$10.00 or at such a time as the holders of the majority of the outstanding
Series A, B, C, D and E elect to convert such shares into Common Stock. A total
of 25,027,985 shares of Common Stock have been reserved for the conversion of
the Preferred Stock.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
Series A, B, C, D and E stockholders are entitled to a per share distribution
in preference to the holders of Common Stock equal to the original issue price
per share of $1.316, $1.70, $2.56, $5.00 (unaudited) and $3.80 (unaudited),
respectively, plus any declared but unpaid dividends. Upon liquidation, the
Series E stockholders are entitled to receive their liquidation prior to and in
preference to the holders of Series A, B, C and D. In the event funds are
sufficient to make a complete distribution to the holders of Series A, B, C, D
and E as described above, all such remaining assets shall be distributed pro
rata among the holders of the Common and Preferred Stock until the holders of
the Series A, B, C, D and E have received a maximum distribution of $3.40,
$3.40, $3.40, $6.64 and $6.64, respectively.
Voting
The holders of Series A, B, C, D and E have the right to one vote for each
share of Common Stock into which the Series A, B, C, D and E could be
converted. The holders of Series A, B, C, D and E have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock.
The consent of more than fifty percent of the holders of Series A, B, C, D and
E shares, voting together as a single class, shall be required for the Company
to perform the following (i) redeem or acquire any shares of Series A, B, C, D
or E except as discussed below; (ii) in any twelve month period, repurchase
shares of Common Stock having a value in excess of $25 excluding the Company's
right to repurchase certain shares held by employees, and directors upon
termination of employment; (iii) create any new class of securities convertible
into equity securities of the Company having preference over the Series A, B,
C, D and E shares; (iv) pay or set aside payment of any dividend or
distribution on any share of Common Stock; (v) effect any transaction or series
of related transactions in which more than 50% of the voting power of the
Company is disposed of; (vi) increase or decrease the authorized amount of
Preferred Stock; (vii) cause the sale of shares of any additional stock by a
subsidiary of the Company; and (viii) consent to any liquidation, dissolution,
or winding up of the Company.
F-17
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
The holders of Series A, B, C, D and E, voting as a separate class, shall
be entitled to elect one member to the Board of Directors. The holders of
Common Stock, voting as a separate class, shall be entitled to elect one member
to the Board of Directors. The holders of Common and Preferred Stock, voting
together as a class on an as-if converted basis, shall be entitled to elect all
remaining members of the Board of Directors.
Redemption
On or after June 17, 2001 for Series A and B, on or after December 31, 2001
for Series C, on or after April 6, 2003 for Series D (unaudited) and on or
after September 28, 2003, for Series E (unaudited) the Company shall be
required, at the written request of holders of not less than sixty percent of
the then outstanding Series A, B, C, D or E shares to redeem such holders'
outstanding shares of Series A, B, C, D or E (unaudited) for cash at the
original issue price plus declared and unpaid dividends in three annual
installments commencing no earlier than one full year following the date of the
redemption request.
NOTE 10--COMMON STOCK:
During 1996, 1997 and 1998, the Company repurchased 66,250, 23,280 and
30,395, respectively, shares of Common Stock at original issuance prices for a
total repurchase price of $9, $5 and $27, respectively. During the nine months
ended September 30, 1999, the Company repurchased 23,691 (unaudited) shares of
Common Stock at original issuance prices for a total repurchase price of $39
(unaudited). The shares were retired upon repurchase.
NOTE 11--STOCK OPTION PLAN:
The Company's 1997 Equity Incentive Plan (the "Plan") authorizes the Board
to grant incentive stock options and nonstatutory stock options to purchase up
to 9,712,500 shares of Common Stock to employees, directors and consultants.
Under the Plan, no incentive stock options may be granted to a person who, at
the time of grant, owns stock representing more than ten percent of the total
combined voting power of all classes of stock of the Company unless at the time
such options are granted the option price is at least one hundred ten percent
of the fair market value of the stock and such option is not exercisable until
after five years from the date of grant. The Plan is administered by the Board
of Directors or its designees and provides generally that the option price
shall not be less than the fair market value of the shares on the date of grant
and that no portion may be exercised beyond ten years from that date. Under the
Plan, stock options vest over a period which is limited to five years, but are
generally granted with four year vesting. Each option outstanding under the
Plan may be exercised in whole or in part at any time. Exercised but unvested
shares are subject to repurchase by the Company at the initial exercise price.
At September 30, 1999, 42,283 shares were subject to repurchase.
During 1997, the Company implemented the Bonus and Salary Conversion Plan
(the "Bonus Plan"). The Bonus Plan provides a means by which selected employees
may elect to forego cash bonuses in exchange for fully vested options to
purchase shares of the Company's Common Stock. During the years ended
December 31, 1997 and 1998, 500,000 and 189,108 options were granted under the
Bonus Plan with exercise prices ranging from $0.07 to $0.32 per share. During
the nine months ended September 30, 1999 (unaudited), no options were granted
under the Bonus Plan. The shares subject to the Bonus Plan shall not exceed
750,000.
F-18
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
The following table summarizes option activity under the Company's stock-
based compensation plans:
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------------------------- --------------------
1996 1997 1998 1999
------------------ ------------------- ------------------- --------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
-------- -------- --------- -------- --------- -------- ----------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............. 454,500 $0.08 774,187 $0.12 2,207,653 $0.21 5,970,581 $0.60
Granted................. 741,750 0.13 1,619,762 0.25 4,435,474 0.74 1,274,817 3.12
Cancelled............... (351,438) 0.10 (154,658) 0.13 (435,911) 0.32 (394,987) 1.23
Exercised............... (70,625) 0.08 (31,638) 0.14 (236,635) 0.26 (241,067) 0.62
-------- --------- --------- ---------
Outstanding at end of
period................ 774,187 0.12 2,207,653 0.21 5,970,581 0.60 6,609,344
-------- --------- --------- ---------
Options exercisable at
end of period......... 104,170 507,402 1,273,887 2,542,743
-------- --------- --------- ---------
Weighted average minimum
value of options
granted during the
period................ $0.04 $0.06 $0.16 $0.67
===== ===== ===== =====
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding at Options Exercisable
December 31, 1998 at December 31, 1998
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.08-0.10 186,000 6.29 $0.09 170,581 $0.09
$0.14 640,610 7.9 0.14 333,690 0.14
$0.30-0.40 869,046 8.67 0.30 366,813 0.30
$0.64 3,427,925 9.37 0.64 401,033 0.64
$0.90-1.30 847,000 9.77 1.17 1,770 0.90
--------- ---------
5,970,581 1,273,887
========= =========
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at September 30, 1999 (unaudited):
<TABLE>
<CAPTION>
Options Exercisable
Options Outstanding at at September 30,
September 30, 1999 1999
------------------------------ --------------------
Weighted Weighted
Weighted Average Average
Range of Number Average Exercise Number Exercise
Exercise Prices Outstanding Remaining Price Exercisable Price
--------------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.08-0.14 750,479 6.74 $0.12 564,327 $0.12
$0.30-0.40 754,593 7.93 0.30 429,554 0.30
$0.64 3,235,285 8.62 0.64 1,324,811 0.64
$0.90-1.50 728,688 9.02 1.18 127,246 1.05
$2.90 811,299 9.47 2.90 91,993 2.90
$3.10-4.00 329,000 9.79 3.92 4,812 3.56
--------- ---------
6,609,344 2,542,743
========= =========
</TABLE>
F-19
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
During the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999, the Company recorded unearned compensation expense
of approximately $498, $1,500, $1,165 (unaudited) and $640 (unaudited),
respectively, related to the issuance of stock options. These expenses are
being amortized over a period of four years from the date of issuance using the
"multiple option" approach prescribed by FASB Interpretation No. 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Reward Plans. Amortization of unearned compensation expense related to these
options of approximately $498, $489, $274 (unaudited) and $764 (unaudited), was
included in operating expenses as stock-based compensation in the years ended
December 31, 1997 and 1998 and in the nine months ended September 30, 1998 and
1999, respectively. See Note 14--Subsequent Events.
Had compensation cost for the Company's stock-based compensation awards
been determined based on the minimum value at the grant dates as prescribed by
SFAS No. 123, the Company's net loss would have been as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net Loss:
As reported.............. $(7,562) $(11,593) $(17,440) $(12,288) $(15,436)
Pro forma................ $(7,567) $(11,643) $(17,746) $(12,470) $(15,945)
Basic and diluted net loss
per share:
As reported.............. $ (1.51) $ (2.31) $ (3.44) $ (2.44) $ (2.93)
Pro forma................ $ (1.51) $ (2.32) $ (3.50) $ (2.48) $ (3.03)
</TABLE>
Under SFAS No. 123, the minimum value of each option grant is estimated on
the grant date using the following weighted average assumptions:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
---------------- -------------
1996 1997 1998 1998 1999
---- ---- ---- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Expected lives in years.................. 4.6 4.6 4.6 4.6 4.6
Risk free interest rates................. 6.2% 6.2% 5.4% 5.4% 5.4%
Dividend yield........................... 0.0% 0.0% 0.0% 0.0% 0.0%
Volatility............................... 0.0% 0.0% 0.0% 0.0% 0.0%
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the other factors described in the table above and because
additional option grants are expected to be made each year, the above pro forma
disclosures are not representative of the pro forma effects of option grants on
reported results for future years.
NOTE 12--EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) Savings Plan (the "401(k) Plan"). Under the
401(k) Plan, employees may elect to contribute up to 15% of their pre-tax
compensation. The Company's contributions to the 401(k) Plan totaled $59, $66,
$99, $75 (unaudited) and $137 (unaudited) for the years ended December 31,
1996, 1997 and 1998 and for the nine months ended September 30, 1998 and 1999,
respectively.
F-20
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
The Company also sponsors a defined contribution pension plan (the "Pension
Plan") for the employees of the Company's sales office in the United Kingdom.
Under the Pension Plan, each employee of the United Kingdom sales office may
elect to contribute 5% of their pre-tax compensation. The Company's
contributions to the Pension Plan totaled $0, $0, $62, $39 (unaudited) and $100
(unaudited) for the years ended December 31, 1996, 1997, and 1998 and for the
nine months ended September 30, 1998 and 1999, respectively.
NOTE 13--LICENSE AGREEMENT:
During 1996, the Company entered into a Value-Added Reseller License and
Services Agreement with Forte Software, Inc. Pursuant to this agreement, the
Company may acquire full-use product licenses for assignment to one or more
third-party end-users and pay Forte Software, Inc. the license fees due upon
delivery of the product licenses. The amounts payable to Forte Software, Inc.
total 75% of the license fees charged to the end-user by the Company and are
recognized as a cost of net revenues.
During 1997, following the re-negotiation of a product license agreement
with a third-party end-user, Forte Software, Inc. forgave certain amounts due
from the Company under the Value-Added Reseller License and Services Agreement.
Accordingly, the Company recognized $333 in other income during 1997.
NOTE 14--SUBSEQUENT EVENTS:
Series E Mandatorily Redeemable Convertible Preferred Stock Financing
In October 1999, the Company completed the second closing of its Series E
Mandatorily Redeemable Convertible Preferred Stock selling an aggregate of
131,579 shares at $3.80 per share for gross proceeds totaling $500.
Stock Option Grants
In October and November 1999, the Company granted stock options to purchase
an aggregate of 1,824,232 shares of Common Stock at a weighted average exercise
price of $4.00 per share. In connection with these stock option grants, the
Company recorded unearned compensation totaling $5,838.
1999 Stock Plan
In November 1999, the 1999 Equity Incentive Plan (the "1999 Plan") was
adopted by the Board of Directors and will be submitted to the stockholders for
their approval prior to the date of the Company's initial public offering, to
become effective on the date of the initial public offering. The 1999 Plan
provides for the grant to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for grants to employees, directors and consultants of nonstatutory
stock options and stock purchase rights. Unless terminated sooner, the 1999
Plan will terminate automatically in 2009. A total of 9,712,500 shares of
Common Stock have been reserved for issuance pursuant to the 1999 Plan. The
amount reserved under the Plan will automatically increase at the end of each
year by the greater of (1) 5% of outstanding shares on such date or (2) the
number of shares subject to stock awards made under the 1999 Plan during the
prior twelve month period. However, the automatic increase is subject to
reduction by the Board of Directors.
In November 1999, the Board of Directors approved and adopted an increase
in the number of shares reserved for issuance under the Company's 1997 Stock
Option Plan by an additional 2,200,000 shares.
F-21
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
1999 Employee Stock Purchase Plan
In November 1999, the 1999 Employee Stock Purchase Plan (the "Purchase
Plan") was adopted by the Board of Directors and will be submitted to the
stockholders for their approval prior to the date of the Company's initial
public offering, to become effective on the date of the initial public
offering. The Purchase Plan permits participants to purchase Common Stock
through payroll deductions. A total of 2,000,000 shares of Common Stock have
been reserved for issuance pursuant to the Purchase Plan. The amount reserved
under the Plan will automatically increase at the end of each year by the
greater of (1) 2% outstanding shares on such date or (2) the number of shares
subject to stock awards made under the Purchase Plan during the prior twelve
month period. However, the automatic increase is subject to reduction by the
Board of Directors.
1999 Non-employees Director Option Plan
In November 1999, the 1999 Director Option Plan (the "Director Plan") was
adopted by the Board of Directors and will be submitted to the stockholders for
their approval prior to the date of the Company's initial public offering, to
become effective on the date of the initial public offering. The Director Plan
provides for the automatic grant of a nonstatutory option to purchase 25,000
shares of Common Stock to each new non-employee director who becomes a director
after the date of the Company's initial public offering on the date that such
person becomes a director. Each current and future non-employee director will
automatically be granted an additional nonstatutory option to purchase 7,500
shares on the day after each of the Company's annual meetings of the
stockholders. Each director who is a member of a Board committee will
automatically be granted an additional nonstatutory option to purchase 5,000
shares on the day after each of the Company's annual meetings of the
stockholders. A total of 700,000 shares of Common Stock have been reserved for
issuance pursuant to the Director Plan. The amount reserved under the plan will
automatically increase each year by the greater of (1) 0.5% outstanding shares
on such date or (2) the number of shares subject to stock awards made under the
Director Plan during the prior twelve month period. However, the automatic
increase is subject to reduction by the board of directors.
Reverse Stock Split
In November 1999, the Company's Board of Directors approved a 1-for-2
reverse stock split of the Company's outstanding shares. The reverse stock
split is expected to become effective prior to the effective date of the
initial public offering. All share and per share information included in these
consolidated financial statements have been retroactively adjusted to reflect
this reverse stock split.
Recapitalization
In November 1999, the Company's Board of Directors approved the filing of a
registration statement for an underwritten public offering of the Company's
Common Stock whereupon the authorized number of shares of Common Stock will be
increased to 300,000,000 and the authorized number of shares of undesignated
Preferred Stock will be increased to 51,000,000. All share information included
in these consolidated financial statements have been retroactively adjusted to
reflect their recapitalization.
F-22
<PAGE>
[LOGO OF CHORDIANT SOFTWARE, INC.]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Chordiant in connection with
the sale of the common stock being registered hereby. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market Filing Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 13,662
NASD Filing Fee.................................................. 5,000
Nasdaq National Market Additional Listing Fee.................... 95,000
Printing......................................................... 140,000
Legal Fees and Expenses.......................................... 500,000
Accounting Fees and Expenses..................................... 250,000
Blue Sky Fees and Expenses....................................... 10,000
Transfer Agent and Registrar Fees................................ 10,000
Miscellaneous.................................................... 76,338
----------
Total.......................................................... $1,100,000
==========
</TABLE>
We intend to pay all expenses of registration, issuance and distribution.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of Chordiant will be personally liable
to us or our stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability:
. for any breach of duty of loyalty to us or to our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived an improper
personal benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
We intend to enter into indemnification agreements with each of our
directors and officers. These agreements, among other things, will require us
to indemnify each director and officer for expenses including attorneys' fees,
judgments, fines and settlement amounts incurred by any of these persons in any
action or proceeding, including any action by or in the right of Chordiant,
arising out of person's services as our director or officer, any subsidiary of
ours or any other company or enterprise to which the person provides services
at our request.
The underwriting agreement (Exhibit 1.1) will provide for indemnification
by the underwriters of Chordiant, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, we have sold and issued the following unregistered
securities:
(1) From March 13, 1991 through November 18, 1999, we have granted stock
options to purchase 10,372,693 shares of the common stock to employees,
consultants and directors pursuant to our 1999 Equity Incentive Plan, as
amended. Of these stock options, 1,731,702 shares have been canceled without
being exercised, 816,829 shares have been exercised, 142,981 shares of which
have been repurchased and 7,824,162 shares remain outstanding.
(2) In April 1991, we issued an aggregate of 5,000,000 shares of common stock
to two purchasers at $0.044 per share, for an aggregate purchase price of
$220,000.
(3) In June 1996, we issued an aggregate of 6,838,905 shares of Series A
preferred stock to five purchasers at $1.316 per share, for an aggregate
purchase price of $9,000,000. Shares of Series A preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series A preferred stock owned.
(5) In June 1997, we issued an aggregate of 5,410,917 shares of Series B
preferred stock to thirteen purchasers at $1.70 per share, for an aggregate
purchase price of $9,198,564. Shares of Series B preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series B preferred stock owned.
(6) In December 1997, we issued an aggregate of 4,199,216 shares of Series C
preferred stock to twelve purchasers at $2.56 per share, for an aggregate
purchase price of $10,750,000. Shares of Series C preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series C preferred stock owned.
(7) In April 1999, we issued an aggregate principle amount of $10,000,000 of
convertible subordinated debt, which is convertible into 2,000,000 shares of
Series D preferred stock at $5.00 per share, to three affiliated purchasers.
Shares of Series D preferred stock are convertible into shares of common stock
at the rate of one share of common stock for each share of Series D preferred
stock owned.
(8) In September 1999, we issued an aggregate of 5,963,155 shares of Series E
preferred stock to thirteen purchasers at $3.80 per share, for an aggregate
purchase price of $22,660,000. Shares of Series E preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series E preferred stock owned.
The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 of the Securities Act in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701.
The sales and issuances of securities described in paragraphs (2) or
through (8) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 4(2) or Regulation D promulgated thereunder.
With respect to the grant of stock options described in paragraph (1), an
exemption from registration was unnecessary in that none of the transactions
involved a "sale" of securities as this term is used in Section 2(3) of the
Securities Act.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with
any subsequent sales of any of these securities. All recipients either received
adequate information about Chordiant or had access, through employment or other
relationships, to such information.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant to
be effective following the closing of this offering.
3.2 Amended and Restated Bylaws of the Registrant.
3.3 Amended and Restated Certificate of Incorporation of the Registrant.
4.1 Reference is made to Exhibits 3.1 through 3.3.
4.2* Specimen Stock Certificate.
4.3 Amended and Restated Registration Rights Agreement, dated as of
September 28, 1999.
5.1* Opinion of Cooley Godward llp.
10.1 Form of Indemnification Agreement.
10.2 1999 Equity Incentive Plan and form of stock option agreement.
10.3 1999 Employee Stock Purchase Plan.
10.4 1999 Non-Employee Directors' Plan and form of stock option agreement.
10.5 Cupertino City Center Net Office Lease by and between Cupertino City
Center Buildings, as Lessor, and the Registrant, as Lessee, dated June
11, 1998.
10.6(1) Forte Software, Inc. Value-Added ReSeller (VAR) License and Services
Agreement, dated October 29, 1998.
10.7(1) Software License Agreement between Electronic Data Systems Corporation
and the Registrant, dated July 11, 1998.
10.8 Employment Agreement of Samuel T. Spadafora, dated April 24, 1998.
10.9 Severance Agreement of Carol Realini, dated December 9, 1998.
10.10 Severance Agreement of John Palmer, dated August 23, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward llp (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Confidential treatment requested
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of this prospectus
filed as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
II-3
<PAGE>
(2) That for purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14
of this Registration Statement or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against these liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by a director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether the indemnification by it is against
public policy as expressed in the Securities Act of 1933, and will be
governed by the final adjudication of this issue.
(4) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in the denomination and registered in
the names required by the Underwriters to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cupertino, State of
California, on December 6, 1999.
CHORDIANT SOFTWARE, INC.
By: /s/ Samuel T. Spadafora
----------------------------------
Samuel T. Spadafora
President, Chief Executive
Officer and Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Samuel T. Spadafora and Steven R.
Springsteel, and each of them, his or her true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him
or her and in his or her name, place and stead, in any and all capacities, to
(i) act on, sign and file with the Securities and Exchange Commission any and
all amendments (including post-effective amendments) to this Registration
Statement together with all schedules and exhibits thereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, together with all schedules and exhibits thereto, (ii) act
on, sign and file such certificates, instruments, agreements and other
documents as may be necessary or appropriate in connection therewith, (iii) act
on and file any supplement to any prospectus included in this registration
statement or any such amendment or any subsequent Registration Statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended and (iv)
take any and all actions which may be necessary or appropriate to be done, as
fully for all intents and purposes as he or she might or could do in person,
hereby approving, ratifying and confirming all that such agent, proxy and
attorney-in-fact or any of his substitutes may lawfully do or cause to be done
by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on these dates stated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Samuel T. Spadafora President, Chief Executive December 6, 1999
____________________________________ Officer (Principal Executive
Samuel T. Spadafora Officer) and Chairman
/s/ Steven R. Springsteel Executive Vice President and December 6, 1999
____________________________________ Chief Financial Officer
Steven R. Springsteel (Principal Financial and
Accounting Officer),
Secretary
/s/ Joseph F. Tumminaro Chief Technical Officer and December 6, 1999
____________________________________ Director
Joseph F. Tumminaro
/s/ Oliver D. Curme Director December 6, 1999
____________________________________
Oliver D. Curme
/s/ Kathryn C. Gould Director December 6, 1999
____________________________________
Kathryn C. Gould
/s/ Mitchell Kertzman Director December 6, 1999
____________________________________
Mitchell Kertzman
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William Raduchel Director December 6, 1999
____________________________________
William Raduchel
/s/ Carol L. Realini Director December 6, 1999
____________________________________
Carol L. Realini
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant to
be effective following the closing of this offering.
3.2 Amended and Restated Bylaws of the Registrant.
3.3 Amended and Restated Certificate of Incorporation of the Registrant.
4.1 Reference is made to Exhibits 3.1 through 3.3.
4.2* Specimen Stock Certificate.
4.3 Amended and Restated Registration Rights Agreement, dated as of
September 28, 1999.
5.1* Opinion of Cooley Godward llp.
10.1 Form of Indemnification Agreement.
10.2 1999 Equity Incentive Plan and form of stock option agreement.
10.3 1999 Employee Stock Purchase Plan.
10.4 1999 Non-Employee Directors' Plan and form of stock option agreement.
10.5 Cupertino City Center Net Office Lease by and between Cupertino City
Center Buildings, as Lessor, and the Registrant, as Lessee, dated June
11, 1998.
10.6(1) Forte Software, Inc. Value-Added ReSeller (VAR) License and Services
Agreement, dated October 29, 1998.
10.7(1) Software License Agreement between Electronic Data Systems Corporation
and the Registrant, dated July 11, 1998.
10.8 Employment Agreement of Samuel T. Spadafora, dated April 24, 1998.
10.9 Severance Agreement of Carol Realini, dated December 9, 1998.
10.10 Severance Agreement of John Palmer, dated August 23, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward llp (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Confidential treatment requested
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
CHORDIANT SOFTWARE, INC.
Samuel T. Spadafora and Steven Springsteel hereby certify that:
1. The original name of this corporation is Chordiant Acquisition
Corporation and the date of filing the original Certificate of
Incorporation of this corporation with the Secretary of State of the
State of Delaware is October 1, 1997.
2. They are the duly elected and acting President and Secretary,
respectively, of Chordiant Software, Inc., a Delaware corporation.
3. The Certificate of Incorporation of this corporation is hereby amended
and restated to read as follows:
"I.
The name of the corporation is Chordiant Software, Inc. (the "Corporation"
or the "Company").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
County of New Castle
The name of the Corporation's registered agent at said address is
Corporation Service Company.
III.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is Three Hundred Fifty
One Million (351,000,000) shares, Three Hundred Million (300,000,000) shares of
which shall be Common Stock (the "Common
1.
<PAGE>
Stock") and Fifty One Million (51,000,000) shares of which shall be Preferred
Stock (the "Preferred Stock"). The Preferred Stock shall have a par value of
one-tenth of one cent ($.001) per share and the Common Stock shall have a par
value of one-tenth of one cent ($.001) per share.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications,
limitations, or restrictions of any wholly unissued series of Preferred Stock,
and to establish from time to time the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. Management
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Board of Directors
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be
2.
<PAGE>
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting. During such time or times that the
corporation is subject to Section 2115(b) of the California General Corporation
Law ("CGCL"), this Section A.2.a of this Article V shall not be effective and
Section A.2.b of this Article shall apply.
b. In the event that the corporation is subject to Section
2115(b) of the CGCL, Section A.2.a of this Article V shall not apply and all
directors shall be shall be elected at each annual meeting of stockholders to
hold office until the next annual meeting.
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL and (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. Removal of Directors
a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A. 3. a. above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.
3.
<PAGE>
4. Vacancies
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) The Superior Court of the proper county shall,
upon application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. Bylaw Amendments
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
4.
<PAGE>
3. No action shall be taken by the stockholders of the corporation
except (i) at an annual or special meeting of stockholders called in accordance
with the Bylaws or (ii) by written consent of stockholders in accordance with
the Bylaws prior to the closing of the Initial Public Offering, and following
the closing of the Initial Public Offering no action shall be taken by the
stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, following the closing of
the Initial Public Offering the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock, voting together as a single class,
shall be required to alter, amend or repeal Article V, VI or VII of this
Certificate of Incorporation.
* * * *
THREE: This Amended and Restated Certificate of Incorporation has been duly
approved by the Board of Directors of this Corporation.
5.
<PAGE>
FOUR: This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware by the Board of Directors and
the stockholders of the Corporation.
6.
<PAGE>
In Witness Whereof, Chordiant Software, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by the President and the
Secretary in __________, California this _______ day of ____ 1999.
Chordiant Software, Inc.
By: ____________________
Samuel T. Spadafora
President
Attest:
By:________________________
Stephen Springsteel
Secretary
7.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
CHORDIANT SOFTWARE, INC.
(A DELAWARE CORPORATION)
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Article I. Offices........................................................................ 1
Section 1. Registered Office.......................................................... 1
Section 2. Other Offices.............................................................. 1
Article II. Corporate Seal................................................................. 1
Section 3. Corporate Seal............................................................. 1
Article III. Stockholders' Meetings......................................................... 1
Section 4. Place of Meetings.......................................................... 1
Section 5. Annual Meeting............................................................. 1
Section 6. Special Meetings........................................................... 3
Section 7. Notice of Meetings......................................................... 3
Section 8. Quorum..................................................................... 3
Section 9. Adjournment and Notice of Adjourned Meetings............................... 4
Section 10. Voting Rights.............................................................. 4
Section 11. Joint Owners of Stock...................................................... 4
Section 12. List of Stockholders....................................................... 5
Section 13. Action Without Meeting..................................................... 5
Section 14. Organization............................................................... 6
Article IV. Directors...................................................................... 6
Section 15. Number and Term of Office.................................................. 6
Section 16. Powers..................................................................... 6
Section 17. Term of Directors.......................................................... 6
Section 18. Vacancies.................................................................. 7
Section 19. Resignation................................................................ 7
Section 20. Removal.................................................................... 7
Section 21. Meetings................................................................... 7
(a) Annual Meetings............................................................ 7
(b) Regular Meetings........................................................... 7
(c) Special Meetings........................................................... 8
(d) Telephone Meetings......................................................... 8
(e) Notice of Meetings......................................................... 8
(f) Waiver of Notice........................................................... 8
Section 22. Quorum and Voting.......................................................... 8
Section 23. Action Without Meeting..................................................... 9
Section 24. Fees and Compensation...................................................... 9
Section 25. Committees................................................................. 9
(a) Executive Committee........................................................ 9
</TABLE>
i
<PAGE>
Table of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
(b) Other Committees...................................... 9
(c) Term.................................................. 10
(d) Meetings.............................................. 10
Section 26. Organization.......................................... 10
Article V. Officers................................................. 11
Section 27. Officers Designated................................... 11
Section 28. Tenure and Duties of Officers......................... 11
(a) General............................................... 11
(b) Duties of Chairman of the Board of Directors.......... 11
(c) Duties of President................................... 11
(d) Duties of Vice Presidents............................. 11
(e) Duties of Secretary................................... 12
(f) Duties of Chief Financial Officer..................... 12
Section 29. Delegation of Authority............................... 12
Section 30. Resignations.......................................... 12
Section 31. Removal............................................... 12
Article VI. Execution Of Corporate Instruments And Voting Of
Securities Owned By The Corporation...................... 13
Section 32. Execution of Corporate Instruments.................... 13
Section 33. Voting of Securities Owned by the Corporation......... 13
Article VII. Shares Of Stock.......................................... 14
Section 34. Form and Execution of Certificates.................... 14
Section 35. Lost Certificates..................................... 14
Section 36. Transfers............................................. 14
Section 37. Fixing Record Dates................................... 15
Section 38. Registered Stockholders............................... 16
Article VIII. Other Securities Of The Corporation...................... 16
Section 39. Execution of Other Securities......................... 16
Article IX. Dividends................................................ 17
Section 40. Declaration of Dividends.............................. 17
Section 41. Dividend Reserve...................................... 17
Article X. Fiscal Year.............................................. 17
Section 42. Fiscal Year........................................... 17
Article XI. Indemnification.......................................... 17
</TABLE>
ii
<PAGE>
Table of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
Section 43. Indemnification of Directors, Executive Officers,
Other Officers, Employees and Other Agents........... 17
(a) Directors and Officers............................... 17
(b) Employees and Other Agents........................... 17
(c) Expenses............................................. 18
(d) Enforcement.......................................... 18
(e) Non-Exclusivity of Rights............................ 19
(f) Survival of Rights................................... 19
(g) Insurance............................................ 19
(h) Amendments........................................... 19
(i) Saving Clause........................................ 19
(j) Certain Definitions.................................. 19
Article XII. Notices................................................. 20
Section 44. Notices.............................................. 20
(a) Notice to Stockholders............................... 20
(b) Notice to Directors.................................. 20
(c) Affidavit of Mailing................................. 20
(d) Time Notices Deemed Given............................ 21
(e) Methods of Notice.................................... 21
(f) Failure to Receive Notice............................ 21
(g) Notice to Person with Whom Communication Is Unlawful. 21
(h) Notice to Person with Undeliverable Address.......... 21
Article XIII. Amendments.............................................. 22
Section 45. Amendments........................................... 22
Article XIV. Right Of First Refusal.................................. 22
Section 46. Right of First Refusal............................... 22
Article XV. Loans To Officers....................................... 24
Section 47. Loans to Officers.................................... 24
Article XVI. Miscellaneous........................................... 25
Section 48. Annual Report........................................ 25
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
CHORDIANT SOFTWARE, INC.
(A DELAWARE CORPORATION)
Article I
Offices
Section 1. Registered Office. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle. (Del. Code Ann., tit. 8, (S) 131).
Section 2. Other Offices. The corporation shall also have and
maintain an office or principal place of business at such place as may be fixed
by the Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require. (Del. Code
Ann., tit. 8, (S) 122(8))
Article II
Corporate Seal
Section 3. Corporate Seal. The corporate seal shall consist of a
die bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8, (S)
122(3))
Article III
Stockholders' Meetings
Section 4. Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the principal office of the corporation required
to be maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, (S)
211(a))
Section 5. Annual Meeting.
1.
<PAGE>
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. (Del. Code Ann., tit. 8, (S)
211(b))
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholders' meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted. (Del. Code Ann., tit. 8: (S) 211(b))
2.
<PAGE>
(c) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of shares entitled to cast not
less than fifty percent (50%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other than
the Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within
sixty (60) days after the receipt of the request, the person or persons
requesting the meeting may set the time and place of the meeting and give the
notice. Nothing contained in this paragraph (b) shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action of
the Board of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law
or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote at such
meeting, such notice to specify the place, date and hour and purpose or purposes
of the meeting. Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, signed by the person entitled to notice
thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given. (Del. Code Ann., tit. 8, (S)(S) 222, 229)
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Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote cast,
including abstentions, at any meeting at which a quorum is present shall be
valid and binding upon the corporation; provided, however, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by statute or by the Certificate of
Incorporation or these Bylaws, the affirmative vote of the majority (plurality,
in the case of the election of directors) of the votes cast, including
abstentions, by the holders of shares of such class or classes or series shall
be the act of such class or classes or series. (Del. Code Ann., tit. 8, (S)
216)
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
(S) 222(c))
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period. (Del. Code Ann., tit. 8, (S)(S) 211(e), 212(b))
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Section 11. Joint Owners of Stock. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes, but
the vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or may apply to the Delaware Court of
Chancery for relief as provided in the General Corporation Law of Delaware,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the purpose
of subsection (c) shall be a majority or even-split in interest. (Del. Code
Ann., tit. 8, (S) 217(b))
Section 12. List of Stockholders. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present. (Del. Code Ann., tit.
8, (S) 219(a))
Section 13. Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(Del. Code Ann., tit. 8, (S) 228)
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(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
Article IV
Directors
Section 15. Number and Term of Office.
The authorized number of directors of the corporation shall be fixed
by the Board of Directors from time to time.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at
an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws. (Del. Code Ann., tit. 8, (S)(S) 141(b), 211(b), (c))
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Section 16. Powers. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the Certificate
of Incorporation. (Del. Code Ann., tit. 8, (S) 141(a))
Section 17. Term of Directors. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of stockholders
for a term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 18. Vacancies. Unless otherwise provided in the Certificate
of Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director. (Del. Code Ann.,
tit. 8, (S) 223(a), (b))
Section 19. Resignation. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8,
(S)(S) 141(b), 223(d))
Section 20. Removal. Subject to the rights of the holders of any
series of Preferred Stock, the Board of Directors or any individual director may
be removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least a majority of the voting power of all the then-outstanding
shares of the Voting Stock. (Del. Code Ann., tit. 8, (S) 141(k))
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such
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meeting is held. No notice of an annual meeting of the Board of Directors shall
be necessary and such meeting shall be held for the purpose of electing officers
and transacting such other business as may lawfully come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors. (Del. Code Ann., tit. 8, (S) 141(g))
(c) Special Meetings. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors. (Del. Code
Ann., tit. 8, (S) 141(g))
(d) Telephone Meetings. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, (S) 141(i))
(e) Notice of Meetings. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least twenty-
four (24) hours before the date and time of the meeting, or sent in writing to
each director by first class mail, postage prepaid, at least three (3) days
before the date of the meeting. Notice of any meeting may be waived in writing
at any time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. (Del. Code
Ann., tit. 8, (S) 229)
(f) Waiver of Notice. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting. (Del. Code Ann., tit. 8, (S) 229)
Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time, a quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from
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time to time by the Board of Directors in accordance with the Certificate
of Incorporation; provided, however, at any meeting whether a quorum be present
or otherwise, a majority of the directors present may adjourn from time to time
until the time fixed for the next regular meeting of the Board of Directors,
without notice other than by announcement at the meeting. (Del. Code Ann., tit.
8, (S) 141(b))
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8,
(S) 141(b))
Section 23. Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and such
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee. (Del. Code Ann., tit. 8, (S) 141(f))
Section 24. Fees and Compensation. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, for attendance at each regular or
special meeting of the Board of Directors and at any meeting of a committee of
the Board of Directors. Nothing herein contained shall be construed to preclude
any director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, (S) 141(h))
Section 25. Committees.
(a) Executive Committee. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
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exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation. (Del.
Code Ann., tit. 8, (S) 141(c))
(b) Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws. (Del. Code Ann., tit. 8, (S) 141(c))
(c) Term. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. (Del. Code
Ann., tit. 8, (S)141(c))
(d) Meetings. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at
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any meeting at which a quorum is present shall be the act of such committee.
(Del. Code Ann., tit. 8, (S)(S) 141(c), 229)
Section 26. Organization. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
Article V
Officers
Section 27. Officers Designated. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman of
the Board of Directors, the Chief Executive Officer, the President, one or more
Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by the
Board of Directors. (Del. Code Ann., tit. 8, (S)(S) 122(5), 142(a), (b))
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. (Del. Code Ann., tit. 8, (S) 141(b), (e))
(b) Duties of Chairman of the Board of Directors. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, (S) 142(a))
(c) Duties of President. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of
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Directors has been appointed and is present. Unless some other officer has been
elected Chief Executive Officer of the corporation, the President shall be the
chief executive officer of the corporation and shall, subject to the control of
the Board of Directors, have general supervision, direction and control of the
business and officers of the corporation. The President shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors shall designate from time
to time. (Del. Code Ann., tit. 8, (S) 142(a))
(d) Duties of Vice Presidents. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time. (Del. Code Ann., tit. 8,
(S) 142(a))
(e) Duties of Secretary. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a))
(f) Duties of Chief Financial Officer. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. (Del. Code Ann., tit. 8, (S) 142(a))
Section 29. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
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Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer. (Del. Code Ann., tit. 8, (S) 142(b))
Section 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
Article VI
Execution Of Corporate Instruments And Voting
Of Securities Owned By The Corporation
Section 32. Execution of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, (S)(S) 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock of
the corporation, shall be executed, signed or endorsed by the Chairman of the
Board of Directors, or the President or any Vice President, and by the Secretary
or Treasurer or any Assistant Secretary or Assistant Treasurer. All other
instruments and documents requiring the corporate signature, but not requiring
the corporate seal, may be executed as aforesaid or in such other manner as may
be directed by the Board of Directors. (Del. Code Ann., tit. 8, (S)(S) 103(a),
142(a), 158)
All checks and drafts drawn on banks or other depositories on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, (S)(S) 103(a), 142(a), 158).
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Section 33. Voting of Securities Owned by the Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President. (Del. Code Ann., tit. 8, (S) 123)
Article VII
Shares Of Stock
Section 34. Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical. (Del. Code Ann., tit. 8, (S) 158)
Section 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it
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may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed. (Del. Code Ann., tit. 8, (S) 167)
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
8, (S) 201, tit. 6, (S) 8-401(1))
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit. 8,
(S) 160 (a))
Section 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within 10 days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Directors within 10 days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business or an officer or agent of the corporation
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having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, (S) 213)
Section 38. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, (S)(S) 213(a), 219)
Article VIII
Other Securities Of The Corporation
Section 39. Execution of Other Securities. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile
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signature shall appear thereon or on any such interest coupon, shall have ceased
to be such officer before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
corporation.
Article IX
Dividends
Section 40. Declaration of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation. (Del. Code Ann., tit. 8, (S)(S) 170, 173)
Section 41. Dividend Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, (S) 171)
Article X
Fiscal Year
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
Article XI
Indemnification
Section 43. Indemnification of Directors, Executive Officers, Other
Officers, Employees and Other Agents.
(a) Directors and Officers. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such
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indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the Delaware General Corporation
Law or (iv) such indemnification is required to be made under subsection (d).
(b) Employees and Other Agents. The corporation shall have power
to indemnify its employees and other agents as set forth in the Delaware General
Corporation Law.
(c) Expenses. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an officer of
the corporation (except by reason of the fact that such officer is or was a
director of the corporation in which event this paragraph shall not apply) in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such officer is or was a director of
the corporation) for advances, the
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corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
(e) Non-Exclusivity of Rights. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) Survival of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement,
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arbitration and appeal of, and the giving of testimony in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
(ii) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(iv) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(v) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
Article XII
Notices
Section 44. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8,
(S) 222)
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(b) Notice to Directors. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, (S) 222)
(d) Time Notices Deemed Given. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) Failure to Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) Notice to Person with Whom Communication Is Unlawful. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h) Notice to Person with Undeliverable Address. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
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two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, (S) 230)
Article XIII
Amendments
Section 45. Amendments.
Subject to paragraph (h) of Section 43 of the Bylaws or the provisions of
the Company's Certificate of Incorporation these Bylaws may be amended or
repealed and new Bylaws adopted by the stockholders entitled to vote. The Board
of Directors shall also have the power, if such power is conferred upon the
Board of Directors by the Certificate of Incorporation, to adopt, amend, or
repeal Bylaws (including, without limitation, the amendment of any Bylaw setting
forth the number of Directors who shall constitute the whole Board of
Directors). (Del. Code Ann., tit. 8, (S)(S) 109(a), 122(6)).
Article XIV
Right Of First Refusal
Section 46. Right of First Refusal. No stockholder shall sell, assign,
pledge, or in any manner transfer any of the shares of stock of the corporation
or any right or interest therein, whether voluntarily or by operation of law, or
by gift or otherwise, except by a transfer which meets the requirements
hereinafter set forth in this bylaw:
(a) If the stockholder desires to sell or otherwise transfer any
of his shares of stock, then the stockholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration, and
all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the stockholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Section 46, the
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price shall be deemed to be the fair market value of the stock at such time as
determined in good faith by the Board of Directors. In the event the corporation
elects to purchase all of the shares or, with consent of the stockholder, a
lesser portion of the shares, it shall give written notice to the transferring
stockholder of its election and settlement for said shares shall be made as
provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring stockholder as specified in said
transferring stockholder's notice, the Secretary of the corporation shall so
notify the transferring stockholder and settlement thereof shall be made in cash
within thirty (30) days after the Secretary of the corporation receives said
transferring stockholder's notice; provided that if the terms of payment set
forth in said transferring stockholder's notice were other than cash against
delivery, the corporation and/or its assignee(s) shall pay for said shares on
the same terms and conditions set forth in said transferring stockholder's
notice.
(e) In the event the corporation and/or its assignees(s) do not
elect to acquire all of the shares specified in the transferring stockholder's
notice, said transferring stockholder may, within the sixty-day period following
the expiration of the option rights granted to the corporation and/or its
assignees(s) herein, transfer the shares specified in said transferring
stockholder's notice which were not acquired by the corporation and/or its
assignees(s) as specified in said transferring stockholder's notice. All shares
so sold by said transferring stockholder shall continue to be subject to the
provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A stockholder's transfer of any or all shares held
either during such stockholder's lifetime or on death by will or intestacy to
such stockholder's immediate family or to any custodian or trustee for the
account of such stockholder or such stockholder's immediate family. "Immediate
family" as used herein shall mean spouse, lineal descendant, father, mother,
brother, or sister of the stockholder making such transfer.
(2) A stockholder's bona fide pledge or mortgage of any
shares with a commercial lending institution, provided that any subsequent
transfer of said shares by said institution shall be conducted in the manner set
forth in this bylaw.
(3) A stockholder's transfer of any or all of such
stockholder's shares to the corporation or to any other stockholder of the
corporation.
(4) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
23.
<PAGE>
(5) A corporate stockholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate stockholder.
(6) A corporate stockholder's transfer of any or all of its
shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited or
general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, upon duly authorized action of its Board of
Directors, or by the stockholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the votes
represented by those shares to be transferred by the transferring stockholder).
This bylaw may be amended or repealed either by a duly authorized action of the
Board of Directors or by the stockholders, upon the express written consent of
the owners of a majority of the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on either
of the following dates, whichever shall first occur:
(1) On October 1, 2007; or
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS
PROVIDED IN THE BYLAWS OF THE CORPORATION."
24.
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Article XV
Loans To Officers
Section 47. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute. (Del. Code Ann., tit. 8, (S)143)
Article XVI
Miscellaneous
Section 48. Annual Report.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the
Board of Directors shall cause an annual report to be sent to each stockholder
of the corporation not later than one hundred twenty (120) days after the close
of the corporation's fiscal year. Such report shall include a balance sheet as
of the end of such fiscal year and an income statement and statement of changes
in financial position for such fiscal year, accompanied by any report thereon of
independent accounts or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation. When there are more than
100 stockholders of record of the corporation's shares, as determined by Section
605 of the California Corporations Code, additional information as required by
Section 1501(b) of the California Corporations Code shall also be contained in
such report, provided that if the corporation has a class of securities
registered under Section 12 of the 1934 Act, that Act shall take precedence.
Such report shall be sent to stockholders at least fifteen (15) days prior to
the next annual meeting of stockholders after the end of the fiscal year to
which it relates.
(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the stockholders of the corporation is hereby expressly waived.
25.
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EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CHORDIANT SOFTWARE, INC.
CHORDIANT SOFTWARE, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
FIRST: The name of the Corporation is Chordiant Software, Inc.
SECOND: The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State on October 1, 1997 under the Corporation's
previous name Chordiant Acquisition Corporation.
THIRD: The Amended and Restated Certificate of Incorporation of the
Corporation, in the form attached hereto as Exhibit A, amends and restates such
Certificate of Incorporation of the Corporation and has been duly adopted by the
Corporation and the stockholders of the Corporation in accordance with the
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
FOURTH: The Amended and Restated Certificate of Incorporation has
been adopted by the written consent of the stockholders in accordance with
Section 228(d) of the General Corporation Law of the State of Delaware, and
written notice has been provided to the stockholders in accordance with such
section.
FIFTH: The Amended and Restated Certificate of Incorporation so
adopted reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its President this 27th
day of September, 1999.
CHORDIANT SOFTWARE, INC.
By: /s/ Samuel T. Spadafora
_____________________________________
Samuel T. Spadafora, President
<PAGE>
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CHORDIANT SOFTWARE, INC.
I.
The name of this corporation is Chordiant Software, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at such
address is Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Preferred Stock" and "Common Stock". The total number
of shares which the Corporation is authorized to issue is one hundred fifty-
three million two hundred thirteen thousand eight hundred eighty-one
(153,213,881). One hundred three million one hundred fifty-seven thousand eight
hundred ninety-five (103,157,895) shares shall be Common Stock (the "Common
Stock"), and fifty million fifty-five thousand nine hundred eighty-six
(50,055,986) shares shall be Preferred Stock (the "Preferred Stock"). The Common
Stock shall have a par value of one-tenth of one cent ($.001) per share and the
Preferred Stock shall have a par value of one-tenth of one cent ($.001) per
share.
The rights, preferences, privileges, restrictions and other matters
relating to the Preferred Stock are as follows:
A. Designation.
Thirteen million six hundred seventy-seven thousand eight hundred thirteen
(13,677,813) of the shares of Preferred Stock shall be designated and known as
Series A Preferred Stock ("Series A Preferred"). Ten million eight hundred
twenty-one thousand eight hundred forty (10,821,840) of the shares of Preferred
Stock shall be designated and known as Series B Preferred Stock ("Series B
Preferred"). Eight million three hundred ninety-eight thousand four
1.
<PAGE>
hundred thirty eight (8,398,438) of the shares of Preferred Stock shall be
designated and known as Series C Preferred Stock ("Series C Preferred"). Four
million (4,000,000) of the shares of Preferred Stock shall be designated and
known as Series D Preferred Stock ("Series D Preferred"). Thirteen million one
hundred fifty-seven thousand eight hundred ninety-five (13,157,895) of the
shares of Preferred Stock shall be designated and known as Series E Preferred
Stock ("Series E Preferred"). The Series A Preferred, the Series B Preferred,
the Series C Preferred, the Series D Preferred and the Series E Preferred are
sometimes collectively referred to herein as the "Series Preferred." The balance
of the shares of Preferred Stock, if any, may be divided into such number of
series as the Board of Directors may determine with such rights, preferences,
privileges and restrictions as the Board of Directors may determine in
connection herewith.
B. Liquidation Rights.
1. a. In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or not, the holders of Series E Preferred
shall be entitled to receive, before any amount shall be paid to holders of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
or Common Stock, an amount per share equal to the Series E Original Issue Price,
as adjusted for stock splits, dividends, combinations, recapitalizations and the
like with respect to such shares, plus an amount equal to all dividends declared
but unpaid thereon (the "Series E Preference Amount"). The Series E Original
Issue Price shall be one dollar and ninety cents ($1.90). If, upon the
occurrence of a liquidation, dissolution or winding up, the assets and surplus
funds distributed among the holders of Series E Preferred shall be insufficient
to permit the payment to such holders of Series E Preferred of the full Series E
Preference Amount, then the entire assets and surplus funds of the Corporation
legally available for distribution shall be distributed pro rata among the
holders of Series E Preferred based upon the Series E Preference Amount due each
holder.
b. Thereafter, if assets or surplus funds remain in the
Corporation after the payment of the full Series E Preference Amount as set
forth above, the holders of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred shall be entitled to receive, before any amount
shall be paid to holders of Common Stock, an amount per share equal to the
Series A Original Issue Price, Series B Original Issue Price, Series C Original
Issue Price, or Series D Original Issue Price, as the case may be, as adjusted
for stock splits, dividends, combinations, recapitalizations and the like with
respect to such shares, plus an amount equal to all dividends declared but
unpaid thereon (collectively, the "Series Preference Amount"). The Series A
Original Issue Price shall be $0.658. The Series B Original Issue Price shall be
$0.85. The Series C Original Issue Price shall be $1.28. The Series D Original
Issue Price shall be $2.50. If, upon the occurrence of a liquidation,
dissolution or winding up and after the full payment of the Series E Preference
Amount, the remaining assets and surplus funds distributed among the holders of
Series A, Series B, Series C and Series D Preferred shall be insufficient to
permit the payment to such holders of Series A, Series B, Series C and Series D
Preferred of the full Series Preference Amount, then the entire remaining assets
and surplus funds of the Corporation legally available for distribution shall be
distributed pro rata among the holders of
2.
<PAGE>
Series A, Series B, Series C and Series D Preferred based upon relative Series
Preference Amounts for each series.
c. Thereafter, if assets or surplus funds remain in the
Corporation, all such remaining assets or surplus funds shall be distributed
among the holders of the Series Preferred and Common Stock on an as converted,
pro rata basis; provided that, notwithstanding and irrespective of any of the
foregoing provisions of this Section B:
(i) The holders of Series A Preferred, Series B Preferred
or Series C Preferred shall not, as a result of distributions pursuant to
Sections B.1.b. and B.1.c., receive an aggregate amount per share in excess of
one dollar and seventy cents ($1.70) (as appropriately adjusted for any stock
splits, dividends, recapitalizations, consolidation or the like); and
(ii) The holders of Series D Preferred or Series E Preferred
shall not, as a result of distributions pursuant to Sections B.1.a., B.1.b and
B.1.c., as the case may be, receive an aggregate amount per share in excess of
$3.32 (as appropriately adjusted for any stock splits, dividends,
recapitalizations, consolidation or the like).
2. For purposes of this Section B, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, and to
include: (i) the Corporation's sale or transfer of more than fifty percent (50%)
of the assets of the Corporation and its subsidiaries on a consolidated basis
(measured either by book value in accordance with generally accepted accounting
principles consistently applied or by fair market value determined in the
reasonable good faith judgment of the Corporation's Board of Directors) in any
transaction or series of transactions (other than sales in the ordinary course
of business); (ii) the acquisition of the Corporation by or reorganization of
this Corporation into or with another entity in which the stockholders of the
Corporation immediately prior to such acquisition or reorganization do not own a
majority of the outstanding shares of the surviving, purchasing, or newly
resulting corporation, whether by means of merger or consolidation or
reorganization or otherwise resulting in the exchange of the outstanding shares
of this Corporation for securities or consideration issued, or caused to be
issued, by the acquiring corporation or its subsidiary; or (iii) any sale,
transfer or issuance or series of sales, transfers and/or issuances of Common
Stock by the Corporation or any holders thereof which results in any person or
group of persons (as the term "group" is used under the Securities Exchange Act
of 1934), other than the holders of Common Stock and Series Preferred as of the
date of the Issuance Date, owning more than fifty percent (50%) of the Common
Stock outstanding at the time of such sale, transfer or issuance or series of
sales, transfers and/or issuances. No later than twenty (20) days before any
event that permits a holder of Series Preferred to have each share of Series
Preferred held by such holder treated for all purposes as if it had been
converted into Common Stock, the Corporation shall deliver a notice to each
holder of Series Preferred setting forth the principal terms of such merger or
sale of the Corporation. Such notice shall be deemed delivered upon delivery by
personal service or overnight courier, by telex or facsimile transfer, or three
(3) business days after deposit in the United States mail, by registered or
certified mail, return receipt requested (in each case, fully prepaid),
addressed to a party at its address as shown on the stock records of the
3.
<PAGE>
Corporation. Such notice shall include a description of the amounts that would
be paid to holders of Series Preferred under this Section B and of the
consideration that such holders would receive if they were to exercise their
rights to have shares of Series Preferred treated as if they had been converted
into Common Stock. No later than ten (10) days after delivery of the notice,
each holder of Series Preferred may deliver an election to the Corporation
notifying the Corporation that the holder desires that such holder's shares of
Series Preferred be treated as if they had been converted into shares of Common
Stock and, if no such election is delivered to the Corporation, such holder
shall receive such amounts as are provided for under this Section B.
3. In the event the Corporation shall propose to take any action
regarding the liquidation, dissolution or winding up of the Corporation which
will involve the distribution of assets other than cash, the value of the assets
to be distributed to the holders of shares of the Preferred Stock shall be
determined by the consent or vote of the Board of Directors and such
determination shall be binding upon the holders of the Preferred Stock and
Common Stock, except that any securities distributed shall be valued as follows:
a. Securities not subject to investment letter or other similar
restrictions on free marketability:
(i) if traded on a securities exchange, the value shall be
deemed to be the average of the security's closing prices on such exchange over
the thirty (30) day period ending three (3) days prior to the closing; and
(ii) if actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid prices over the thirty (30) day
period ending three (3) days prior to the closing; and
(iii) if there is no active public market, the value shall
be the fair market value thereof, as determined in good faith by the consent or
vote of the Board of Directors and such determination shall be binding upon the
holders of the Preferred Stock and Common Stock.
b. The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subparagraphs
B.3(a)(i), (ii) or (iii) to reflect the approximate fair market value thereof,
as determined by the consent or vote of the Board of Directors and such
determination shall be binding upon the holders of the Preferred Stock and the
Common Stock.
C. Dividends.
1. Preferred Stock. The holders of the outstanding Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred shall be entitled to receive in any fiscal year, when and as
declared by the board of directors, out of any assets at the time legally
available therefor, dividends in cash at the rate of $.0658, $0.085, $0.128,
$0.250 and $0.190 per share, respectively, per annum, as adjusted for stock
splits, dividends,
4.
<PAGE>
combinations, recapitalizations and the like with respect to such shares before
any dividend is declared or paid on shares of Common Stock; provided, however,
no dividend on the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred shall be declared or paid until the holders of Series E
Preferred shall have first received a dividend at the applicable rate set forth
in this paragraph C.1. Dividends may be payable quarterly or otherwise as the
Board of Directors may from time to time determine.
2. Common Stock. No distributions (as defined below) shall be paid
on the Common Stock until the holders of the Series Preferred then outstanding
shall have first received all dividends declared at the rates specified in
paragraph C.1 above.
3. Distributions Defined. For purposes of this Section C, unless the
context requires otherwise, "distribution" shall mean the transfer of cash or
property without consideration, whether by way of dividend or otherwise, payable
other than in Common Stock or other securities of the Corporation, or the
purchase or redemption of shares of the corporation (other than repurchases of
Common Stock held by employees of, or consultants to, the corporation upon
termination of their employment or services pursuant to written agreements
providing for such repurchase) for cash or property, including any such
transfer, purchase, or redemption by a subsidiary of the corporation.
D. Conversion to Common Stock.
The Series Preferred shall be convertible into Common Stock of the
Corporation as follows:
1. Definitions. For purposes of this Section D the following
definitions shall apply:
a. "Issuance Date" shall mean the first date on which the
Corporation issues any shares of Series E Preferred after the date hereof.
b. "Series D Issuance Date" shall mean the first date on which
the Corporation issues shares of Series D Preferred after the date hereof.
c. "Series A Conversion Price" shall mean the price, determined
pursuant to this Section D, at which shares of Common Stock shall be deliverable
upon conversion of Series A Preferred.
d. "Series B Conversion Price" shall mean the price, determined
pursuant to this Section D, at which shares of Common Stock shall be deliverable
upon conversion of Series B Preferred.
e. "Series C Conversion Price" shall mean the price, determined
pursuant to this Section D, at which shares of Common Stock shall be deliverable
upon conversion of Series C Preferred.
5.
<PAGE>
f. "Series D Conversion Price" shall mean the price, determined
pursuant to this Section D, at which shares of Common Stock shall be deliverable
upon conversion of Series D Preferred.
g. "Series E Conversion Price" shall mean the price, determined
pursuant to this Section E, at which shares of Common Stock shall be deliverable
upon conversion of Series E Preferred.
h. "Current Series A Conversion Price" shall mean the Series A
Conversion Price immediately before the occurrence of any event, which, pursuant
to this Section D, causes an adjustment to the Series A Conversion Price.
i. "Current Series B Conversion Price" shall mean the Series B
Conversion Price immediately before the occurrence of any event, which, pursuant
to this Section D, causes an adjustment to the Series B Conversion Price.
j. "Current Series C Conversion Price" shall mean the Series C
Conversion Price immediately before the occurrence of any event, which, pursuant
to this Section D, causes an adjustment to the Series C Conversion Price.
k. "Current Series D Conversion Price" shall mean the Series D
Conversion Price immediately before the occurrence of any event, which, pursuant
to this Section D, causes an adjustment to the Series D Conversion Price.
l. "Current Series E Conversion Price" shall mean the Series E
Conversion Price immediately before the occurrence of any event, which, pursuant
to this Section D, causes an adjustment to the Series E Conversion Price.
m. "Convertible Securities" shall mean any indebtedness or
shares of stock convertible into or exchangeable for Common Stock, including
Preferred Stock.
n. "Options" shall mean any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
o. "Common Stock Outstanding" shall mean the aggregate of all
Common Stock outstanding and all Common Stock issuable upon exercise of all
outstanding Options and conversion of all outstanding Convertible Securities.
p. "Common Stock Equivalents" shall mean Convertible Securities
and rights entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock without the payment of any consideration by
such holder for such additional shares of Common Stock or Common Stock
Equivalents.
2. Right to Convert; Initial Conversion Price.
a. Each holder of Series Preferred may, at any time, convert
any or all of such Series Preferred shares into fully-paid and nonassessable
shares of Common Stock at the
6.
<PAGE>
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price or the Series E Conversion
Price, as applicable. Each share of Series A Preferred shall be convertible into
the number of shares of Common Stock that results from dividing the Series A
Conversion Price in effect at the time of conversion for Series A Preferred into
$0.658 for each share of Series A Preferred being converted; the initial Series
A Conversion Price shall be $0.658 per share of Common Stock. The Series A
Conversion Price shall be subject to adjustment from time to time in certain
instances as hereinafter provided. Each share of Series B Preferred shall be
convertible into the number of shares of Common Stock that results from dividing
the Series B Conversion Price in effect at the time of conversion for Series B
Preferred into $0.85 for each share of Series B Preferred being converted; the
initial Series B Conversion Price shall be $0.85 per share of Common Stock. The
Series B Conversion Price shall be subject to adjustment from time to time in
certain instances as hereinafter provided. Each share of Series C Preferred
shall be convertible into the number of shares of Common Stock that results from
dividing the Series C Conversion Price in effect at the time of conversion for
Series C Preferred into $1.28 for each share of Series C Preferred being
converted; the initial Series C Conversion Price shall be $1.28 per share of
Common Stock. The Series C Conversion Price shall be subject to adjustment from
time to time in certain instances as hereinafter provided. Each share of Series
D Preferred shall be convertible into the number of shares of Common Stock that
results from dividing the Series D Conversion Price in effect at the time of
conversion for Series D Preferred into $2.50 for each share of Series D
Preferred being converted; the initial Series D Conversion Price shall be $2.50
per share of Common Stock. The Series D Conversion Price shall be subject to
adjustment from time to time in certain instances as hereinafter provided. Each
share of Series E Preferred shall be convertible into the number of shares of
Common Stock that results from dividing the Series E Conversion Price in effect
at the time of conversion for Series E Preferred into $1.90 for each share of
Series E Preferred being converted; the initial Series E Conversion Price shall
be $1.90 per share of Common Stock. The Series E Conversion Price shall be
subject to adjustment from time to time in certain instances as hereinafter
provided. No adjustments with respect to conversion shall be made on account of
any dividends that may be declared but unpaid on the Series Preferred
surrendered for conversion, but no dividends shall thereafter be paid on the
Common Stock unless such unpaid dividends have first been paid to the Series
Preferred holders entitled to payment at the time of conversion of the Series
Preferred.
b. Before any holder of Series Preferred shall be entitled to
convert the same into Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, to the office of the Corporation or any
transfer agent for such Series Preferred and shall give written notice to the
Corporation at such office that he elects to convert the same. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series Preferred, or to his nominee or nominees, certificates for
the number of full shares of Common Stock to which he shall be entitled,
together with cash in lieu of any fraction of a share as hereinafter provided,
and, if less than all of the shares of Series Preferred represented by such
certificate are converted, a certificate representing the shares of Series
Preferred not converted. Such conversion shall be deemed to have been made as of
the date of such surrender of the certificate for the Series Preferred to be
converted, and the person or persons entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Stock on such date. If the conversion is in
connection with
7.
<PAGE>
an offer of securities registered pursuant to the Securities Act of 1933, as
amended, the conversion may, at the option of any holder tendering Series
Preferred for conversion, be conditioned upon the closing of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Series Preferred
shall not be deemed to have converted such Series Preferred until immediately
prior to the closing of such sale of securities.
3. Adjustments to Conversion Price. Subject to subsection D.3(j),
the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price and the Series E Conversion
Price in effect from time to time shall be subject to adjustment in certain
cases as follows:
a. Issuance of Additional Shares of Common Stock. In case the
Corporation shall at any time after the Issuance Date or, with respect to the
Series D Preferred, the Series D Issuance Date, issue or sell any Common Stock,
Options, Convertible Securities, or Common Stock Equivalents (the "Additional
Shares of Common Stock") without consideration or for a consideration per share
less than the Current Series A Conversion Price, Current Series B Conversion
Price, Current Series C Conversion Price, Current Series D Conversion Price or
Current Series E Conversion Price, as applicable, then the applicable Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price and Series E Conversion Price shall simultaneously with such
issuance or sale be adjusted to a Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price or Series E
Conversion Price, as the case may be, (calculated to the nearest cent)
determined by multiplying such Current Series A Conversion Price, Current Series
B Conversion Price, Current Series C Conversion Price, Current Series D
Conversion Price or Current Series E Conversion Price, as applicable, by a
fraction, the numerator of which shall be the number of shares of Common Stock
Outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of such Additional Shares of Common Stock so issued would purchase
at such Current Series A Conversion Price, Current Series B Conversion Price,
Current Series C Conversion Price, Current Series D Conversion Price or Current
Series E Conversion Price, as applicable; and the denominator of which shall be
the number of shares of Common Stock Outstanding immediately prior to such issue
plus the number of such Additional Shares of Common Stock so issued. For the
purpose of the above calculation, the number of shares of Common Stock
Outstanding immediately prior to such issue shall not include any additional
shares of Common Stock issuable with respect to shares of Series Preferred,
Convertible Securities, or outstanding options, warrants or other rights for the
purchase of shares of stock or Convertible Securities, solely as a result of the
adjustment of the Conversion Price (or other conversion ratios) resulting from
the issuance of Additional Shares of Common Stock causing such adjustment.
For purposes of this subsection D.3(a), the following provisions
shall also be applicable:
(i) Cash Consideration. In case of the issuance or sale of
Additional Shares of Common Stock for cash, the consideration received by the
Corporation
8.
<PAGE>
therefor shall be deemed to be the amount of cash received by the Corporation
for such shares (or, if such shares are offered by the Corporation for
subscription, the subscription price, or, if such shares are sold to
underwriters or dealers for public offering without a subscription offering, the
initial public offering price), without deducting therefrom any compensation or
discount paid or allowed to underwriters or dealers or others performing similar
services or for any expenses incurred in connection therewith.
(ii) Non-Cash Consideration. In case of the issuance
(otherwise than upon conversion or exchange of Convertible Securities) or sale
of Additional Shares of Common Stock for consideration other than cash or for
consideration a part of which shall be other than cash, the fair value of such
consideration as determined by the Board of Directors of the Corporation in the
good faith exercise of its business judgment, irrespective of the accounting
treatment thereof, shall be deemed to be the value, for purposes of this Section
D, of the consideration other than cash received by the Corporation for such
securities.
(iii) Options and Convertible Securities. In case the
Corporation shall in any manner issue or grant any Options or any Convertible
Securities, the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable shall (as of the date of issue or grant
of such Options or, in the case of the issue or sale of Convertible Securities
other than where the same are issuable upon the exercise of Options, as of the
date of such issue or sale) be deemed to be issued and to be outstanding for the
purpose of this subsection D.3(a)(iii) and to have been issued for the sum of
the amount (if any) paid for such Options or Convertible Securities and the
amount (if any) payable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable; provided, however, that, subject to
the provisions of subsection D.3(b), no further adjustment of the Current Series
A Conversion Price, Current Series B Conversion Price, Current Series C
Conversion Price, Current Series D Conversion Price or Current Series E
Conversion Price shall be made upon the actual issuance of any such Common Stock
or Convertible Securities or upon the conversion or exchange of any such
Convertible Securities.
b. Change in Option Price or Conversion Rate. In the event that
the purchase price provided for in any Option referred to in subsection
D.3(a)(iii), or the rate at which any Convertible Securities referred to in
subsection D.3(a)(iii) are convertible into or exchangeable for shares of Common
Stock shall change at any time (other than under or by reason of provisions
designed to protect against dilution), the Current Series A Conversion Price,
Current Series B Conversion Price, Current Series C Conversion Price, Current
Series D Conversion Price or Current Series E Conversion Price in effect at the
time of such event shall forthwith be readjusted to the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion
Price or Current Series E Conversion Price, as applicable, that would have been
in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time the same were initially
granted, issued or sold. In the event
9.
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that the purchase price provided for in any such Option referred to in
subsection D.3(a)(iii), or the additional consideration (if any) payable upon
the conversion or exchange of any Convertible Securities referred to in
subsection D.3(a)(iii), or the rate at which any Convertible Securities referred
to in subsection D.3(a)(iii) are convertible into or exchangeable for shares of
Common Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of shares of Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Securities, the Current Series A
Conversion Price, Current Series B Conversion Price, Current Series C Conversion
Price, Current Series D Conversion Price or Current Series E Conversion Price,
as applicable, then in effect hereunder shall, upon issuance of such shares of
Common Stock, be adjusted to such amount as would have been obtained had such
Option or Convertible Security never been issued and had adjustments been made
only upon the issuance of the shares of Common Stock delivered as aforesaid and
for the consideration actually received for such Option or Convertible Security
and the Common Stock.
c. Termination of Option or Conversion Rights. In the event of
the termination or expiration of any right to purchase Common Stock under any
Option or of any right to convert or exchange Convertible Securities, the
Current Series A Conversion Price, Current Series B Conversion Price, Current
Series C Conversion Price, Current Series D Conversion Price or Current Series E
Conversion Price shall, upon such termination, be changed to the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price or Series E Conversion Price, as applicable, that would have
been in effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the shares of Common Stock
issuable thereunder shall no longer be deemed to be Common Stock Outstanding.
d. Stock Splits; Dividends; Distributions and Combinations. In
the event the Corporation should at any time or from time to time after the
Issuance Date fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or Common Stock Equivalents, then, following
such record date (or the date of such dividend, distribution, split or
subdivision if no record date is fixed), the Current Series A Conversion Price,
Current Series B Conversion Price, Current Series C Conversion Price, Current
Series D Conversion Price and Current Series E Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series Preferred shall be increased in proportion to
such increase in the number of outstanding shares of Common Stock (including for
this purpose, Common Stock Equivalents). If the number of shares of Common
Stock outstanding at any time after the Issuance Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Current Series A Conversion Price, Current
Series B Conversion Price, Current Series C Conversion Price, Current Series D
Conversion Price and Current Series E Conversion Price shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of Series Preferred
10.
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shall be decreased in proportion to such decrease in the number of outstanding
shares of Common Stock.
e. Other Dividends. In the event this Corporation shall
declare a distribution payable in securities of other persons, evidence of
indebtedness issued by this Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection D.3(a)(iii), then,
in each such case for the purpose of this subsection D.3(e), the holders of
Series Preferred shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series Preferred are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
f. Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or a sale of assets transaction provided for elsewhere in
this Section D), provision shall be made so that the holders of Series Preferred
shall thereafter be entitled to receive upon conversion of shares of Series
Preferred the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
such conversion would have been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section D with respect to the rights of the holders of Series Preferred
after the recapitalization to the end that the provisions of this Section D
(including adjustment of the Current Series A Conversion Price, Current Series B
Conversion Price, Current Series C Conversion Price, Current Series D Conversion
Price and Current Series E Conversion Price then in effect and the number of
shares purchasable upon conversion of shares of Series Preferred) shall be
applicable after that event as nearly equivalent as may be practicable.
g. Successive Changes. The above provisions of this Section D
shall similarly apply to successive issuances, sales, dividends or other
distributions, subdivisions and combinations on or of the Common Stock after the
Issuance Date.
h. Other Events Altering Conversion Price. Upon the occurrence
of any event not specifically described in this Section D as reducing the
Current Series A Conversion Price, Current Series B Conversion Price, Current
Series C Conversion Price, Current Series D Conversion Price or Current Series E
Conversion Price that, in the reasonable exercise of the business judgment of
the Board of Directors of the Corporation reached in good faith, requires, on
equitable principles, the reduction of the Current Series A Conversion Price,
Current Series B Conversion Price, Current Series C Conversion Price, Current
Series D Conversion Price or Current Series E Conversion Price, the Current
Series A Conversion Price, Current Series B Conversion Price, Current Series C
Conversion Price, Current Series D Conversion Price or Current Series E
Conversion Price will be so equitably reduced.
i. No Impairment. Without the consent of the holders of
Preferred Stock as required under Section F.1, the Corporation will not, by
amendment of this Certificate
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of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section D and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series
Preferred against impairment.
j. Excluded Events. Notwithstanding anything in this Section D
to the contrary, the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price, Series D Conversion Price or Current Series E
Conversion Price shall not be adjusted by virtue of (a) the conversion of shares
of Series Preferred into shares of Common Stock, (b) the repurchase of Common
Stock shares from the Corporation's employees, consultants, officers or
directors at such person's cost (or at such other price as may be agreed to by
the Corporation's Board of Directors) and any subsequent re-issuance of such
shares; provided that such shares are outstanding as of the date this
Certificate of Incorporation is filed, (c) the issuance and sale of, or the
grant of options to purchase after the Issuance Date, an aggregate of not more
than one million five hundred fourteen thousand eight hundred sixty-nine
(1,514,869) shares of Common Stock, including any shares sold to employees,
advisors, directors, officers or consultants of the Corporation and its
subsidiaries (including shares issued or sold pursuant to the exercise of any
stock option or purchase pursuant to a grant under the Corporation's stock
option plan or stock purchase plan), (d) the issuance of not more than fifty
thousand (50,000) shares of Common or Preferred Stock in connection with lease
financing arrangements approved by the Company's Board of Directors, at a price
which is not more than the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price, Series D Conversion Price or Series E Conversion
Price at the time of such issuance or sale (all as determined in accordance with
this Section D), (e) shares of Common Stock or Preferred Stock issued pursuant
to the exercise of options, warrants or convertible securities outstanding as of
the Issuance Date, or (f) shares of Common Stock and/or options, warrants or
other Common Stock purchase rights, and the Common Stock issued pursuant to such
options, warrants or other rights issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business combination
approved by the Board of Directors.
k. No Fractional Shares. No fractional shares shall be issued
upon conversion of shares of Series Preferred. The Corporation shall deliver
cash to any holder of Series Preferred in lieu of any fraction of a share.
l. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price or Series E
Conversion Price pursuant to this Section D, the Corporation, at its expense
upon request by any holder of Series Preferred, shall compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series
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Preferred, furnish or cause to be furnished to such holder a like certificate
setting forth (a) such adjustment and readjustment, (b) the Current Series A
Conversion Price, Current Series B Conversion Price, Current Series C Conversion
Price, Current Series D Conversion Price and Current Series E Conversion Price,
and (c) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Series A, Series B, Series C, Series D or Series E Preferred, as applicable.
m. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of (i) Common Stock, solely for the purposes of effecting
the conversion of the shares of the Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock and Series D
Preferred issuable upon conversion of outstanding debentures convertible into
Series D Preferred and (ii) Series D Preferred, solely for the purposes of
effecting the conversion of outstanding debentures issued by the Corporation
which are convertible into Series D Preferred, such number of its shares of
Series D Preferred as shall from time to time be sufficient to effect the
conversion of all outstanding debentures issued by the Corporation which are
convertible into shares of Series D Preferred. If at any time the number of
authorized but unissued shares of Common Stock or Series D Preferred, as the
case may be, shall not be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock and debentures convertible into Series
D Preferred, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock and/or Series D Preferred, as the case may be, to such
number of shares as shall be sufficient for such purposes, including, without
limitation, engaging in best efforts to obtain the requisite shareholder
approval of any necessary amendment to this Certificate of Incorporation.
4. Automatic Conversion. Each share of Series A Preferred, Series B
Preferred and Series C Preferred shall automatically be converted into shares of
Common Stock at the then effective Series A Conversion Price, Series B
Conversion Price or Series C Conversion Price, as applicable, upon the closing
of a firmly underwritten public offering pursuant to an effective registration
statement on a Form S-1 (or any other form equivalent thereto) pursuant to which
Common Stock is sold to the public by the Corporation (and selling stockholders,
if any) in a public offering registered under the Securities Act of 1933, as
amended ("1933 Act"), at a per share public offering price of not less than two
dollars ($2.00) (as adjusted for stock splits, recapitalization and the like)
and an aggregate public offering price not less than ten million dollars
($10,000,000), prior to underwriting commissions and expenses. Each share of
Series D Preferred and Series E Preferred shall automatically be converted into
shares of Common Stock at the then effective Series D Conversion Price or Series
E Conversion Price, as applicable, upon the closing of a firmly underwritten
public offering pursuant to an effective registration statement on a Form S-1
(or any other form equivalent thereto) pursuant to which Common Stock is sold to
the public by the Corporation (and selling stockholders, if any) in a public
offering registered under the 1933 Act, as amended, at a per share public
offering price of not less than five dollars ($5.00) (as adjusted for stock
splits, recapitalization and the like) and an aggregate public offering price
not less than thirty million dollars ($30,000,000), prior to underwriting
commissions and expenses (a "Qualified Offering"). In addition, at such time as
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the holders of a majority of the outstanding Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, or Series E Preferred, as
applicable, elect to convert into shares of Common Stock, each share of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, or Series
E Preferred, as applicable, shall automatically be converted into shares of
Common Stock at the then effective Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price, or
Series E Conversion Price. On and after said conversion date, notwithstanding
that any certificates for the shares of Series Preferred shall not have been
surrendered for conversion, the shares of Series Preferred evidenced thereby
shall be deemed to be no longer outstanding, and all rights with respect thereto
shall forthwith cease and terminate, except only the rights of the holder (a) to
receive the shares of Common Stock to which he shall be entitled upon conversion
thereof, (b) to receive the amount of cash payable in respect of any fractional
share of Common Stock to which he shall be entitled, and (c) with respect to
dividends declared but unpaid on such Series Preferred prior to such conversion
date. In the event that any holder of Series Preferred presents such holder's
certificate therefor for surrender to the Corporation or its transfer agent upon
such conversion, a certificate for the number of shares of Common Stock into
which the shares of Series Preferred surrendered were convertible on such
conversion date will be promptly issued and delivered to such holder.
5. Merger; Sale of Corporation. After the Issuance Date, in the
event of any proposed consolidation or merger of the Corporation with or into
another corporation (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result in any
reclassification of, or change in, the outstanding shares of Common Stock), or
in the event of any proposed sale or transfer to another corporation of all or
substantially all of the assets of the Corporation, any holder of Series
Preferred may, upon delivery of such shares and election pursuant to Section B
above, have each share of Series Preferred held by such holder treated for all
purposes as if it had been converted into Common Stock on the earlier of (a) the
record date, if any, for voting by holders of Common Stock on such event, and
(b) the date of such event.
6. Status of Converted Stock. In the event any shares of Preferred
Stock shall be converted pursuant to this Section D, the shares converted shall
be cancelled and shall not be issuable by the Corporation.
E. Redemption.
The shares of Series Preferred shall be redeemed as follows:
1. Mandatory Redemption. At any time after the fourth anniversary
of the Issuance Date, upon the written request of the holders of not less than
sixty percent (60%) of the then outstanding Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred, the
Corporation shall redeem any outstanding shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred, as
applicable. Such written request (the "Redemption Request") shall be provided
to the Corporation at least ninety (90) days prior to the date of redemption
(the "Redemption Date"), shall specify the number of shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D
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Preferred or Series E Preferred to be redeemed on the Redemption Date, and shall
be sent to the Corporation. Within five (5) days of receipt of a Redemption
Request, the Corporation shall provide written notice of such Redemption Request
to each other holder of Series Preferred (the "Series Holders") and such Series
Holders may elect to participate in such Redemption by providing the Corporation
written notice of such participation within forty-five (45) days of the
Redemption Request. Any series of Series Preferred to be redeemed by the
Corporation pursuant to this Section E may be redeemed, at the option of the
Corporation, in installments on an annual basis ratably over a period not to
exceed three (3) consecutive calendar years (an "Annual Redemption Date"), with
the first installment to be made on the first day of the first full calendar
year following the date of the Redemption Request.
2. Redemption Price and Payment. The shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E
Preferred, to be redeemed on any Redemption Date or Annual Redemption Date, as
the case may be, shall be redeemed by paying for each share in cash an amount
equal to the Series A Original Issue Price, Series B Original Issue Price,
Series C Original Issue Price, Series D Original Issue Price or Series E
Original Issue Price, as applicable, plus, in the case of each share, an amount
equal to all dividends declared and unpaid thereon computed to such Redemption
Date or Annual Redemption Date, as the case may be, such amount being referred
to as the "Redemption Price". Such payment shall be made in full on the
applicable Redemption Date or Annual Redemption Date to the holders entitled
thereto.
3. Redemption Mechanics. At least twenty (20) but not more than 30
days prior to each Redemption Date or Annual Redemption Date, written notice
(the "Redemption Notice") shall be given by the Corporation by delivery in
person, certified or registered mail, return receipt requested, or by facsimile,
to each participating holder of shares of Series Preferred notifying such holder
of the redemption and specifying the Redemption Price, such Redemption Date or
Annual Redemption Date, the number of shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred, as
applicable, to be redeemed from such holder (computed on a pro rata basis in
accordance with the number of such shares held by all holders thereof) and the
place where said Redemption Price shall be payable. The Redemption Notice shall
be addressed to each holder at his address as shown by the records of the
Corporation. From and after the close of business on a Redemption Date or
Annual Redemption Date, unless there shall have been a default in the payment of
the Redemption Price, all rights of holders of shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred
(except the right to receive the Redemption Price) shall cease with respect to
the shares to be redeemed on such Redemption Date or Annual Redemption Date, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Series Preferred on a
Redemption Date or Annual Redemption Date are
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insufficient to redeem the total number of shares of Series Preferred to be
redeemed on such Redemption Date or Annual Redemption Date, the holders of
Series E Preferred shall be entitled to receive the Redemption Price for each
share of Series E Preferred held, before any amount is paid to other holders of
Series Preferred. If the funds of the Corporation legally available for
redemption of shares of Series Preferred on a Redemption Date or Annual
Redemption Date are insufficient to redeem the total number of shares of Series
E Preferred to be redeemed on such Redemption Date or Annual Redemption Date,
the holders of Series E Preferred shall share ratably any funds legally
available for redemption of such shares. If funds remain following payment to
the holders of Series E Preferred, other holders of Series Preferred shall share
ratably, based on the Redemption Price for each series, in any funds legally
available for redemption of such shares according to the respective amounts
which would be payable to them if the full number of shares to be redeemed on
such Redemption Date or Annual Redemption Date were actually redeemed. The
shares of Series Preferred requested to be redeemed but not so redeemed shall
remain outstanding and entitled to all rights and preferences provided herein.
At any time thereafter when additional funds of the Corporation are legally
available for the redemption of such shares of Series Preferred, such funds will
be used, at the end of the next succeeding fiscal quarter, to redeem the balance
of such shares, or such portion thereof for which funds are then legally
available, on the basis set forth above.
4. Put Right for Series E Preferred. At any time after the fifth
anniversary of the Issuance Date, the holders of a majority of the currently
outstanding shares of Series E Preferred shall have the right to require the
Corporation to purchase all shares of outstanding Series E Preferred at a price
per share in cash (the "Put Price") equal to the greater of (i) the fair market
value (as mutually determined by the Corporation and a majority in interest of
the Series E Preferred without regards to minority positions or illiquidity), or
(ii) the Redemption Price. Such holders shall deliver to the Corporation a
written notice specifying the number and type of shares to be purchased (the
"Put Notice"). The Corporation shall deliver the aggregate Put Price to such
holders by certified check or by wire transfer to an account or accounts as
directed by such holders in exchange for such shares within 60 days following
delivery of the Put Notice on a date which is mutually agreeable to the
Corporation and such holders. At any time after a Put Notice has been
delivered, the Corporation shall be required to pay the Put Price before it may
pay (i) any Redemption Price for any Series Preferred (other than Series E
Preferred) or (ii) any distribution (as defined in paragraph C.3 above) in
respect of any capital stock (other than in respect of Series E Preferred).
F. Voting Rights.
1. In General.
a. Each holder of shares of Series Preferred shall be entitled
to the number of votes equal to the number of shares of Common Stock into which
such shares of Preferred Stock could be converted on the record date for the
vote or the date of the solicitation of any written consent of stockholders and
shall have voting rights and powers equal to the voting rights and powers of the
Common Stock. The holder of each share of Series Preferred shall be entitled to
notice of any stockholders' meeting in accordance with the Bylaws of the
Corporation and, except those matters required by law or the Corporation's
Certificate of Incorporation to be submitted to a class vote, shall vote with
holders of the Common Stock upon all matters submitted to a vote of stockholders
(including the election of directors). Holders of Common Stock and Series
Preferred shall be entitled to cumulate their votes in any election of
directors. Fractional votes by the holders of Series Preferred shall not,
however, be permitted
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and any fractional voting rights resulting from the above formula (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) shall be rounded to the nearest whole number.
b. The consent of more than fifty percent (50%) of (i) the
Series Preferred (other than the Series E Preferred), voting together as a
single class, and (ii) the Series E Preferred, shall be required for any action
which:
(i) redeems or otherwise acquires any shares of Series
Preferred except as expressly authorized in Section E hereof or pursuant to a
purchase offer made pro rata to all holders of the shares of Series Preferred on
the basis of the aggregate number of outstanding shares of Series Preferred then
held by each such holder;
(ii) in any twelve (12) month period, repurchases shares
of Common Stock having a value in excess of twenty-five thousand dollars
($25,000), but excluding the purchase or repurchase of shares of Common Stock
from former employees of, directors of, or consultants to the Corporation
pursuant to written agreements granting the Corporation such repurchase rights
upon termination of employment;
(iii) creates any new class or series of stock or any other
securities (including debt securities), whether by reclassification or
otherwise, convertible into equity securities of the Corporation (including
securities having rights similar to those granted under this paragraph), having
a preference over or being on a parity with, the Series Preferred with respect
to voting, dividends, redemption or upon liquidation, dissolution or winding up;
(iv) pays or sets aside for payment any dividend or
distribution on any shares of Common Stock, except as permitted under subsection
F.1(b)(ii) above;
(v) sells, conveys or otherwise disposes of all or
substantially all of the property of the Corporation (including, for purposes of
this paragraph, intellectual property rights which, in the aggregate, constitute
substantially all of the Corporation's material assets) or business or merge
into or consolidate with any other corporation (other than a wholly owned
subsidiary of the Corporation) or effects any transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Corporation is disposed of;
(vi) increases or decreases the authorized amount of the
Preferred Stock;
(vii) causes the sale of shares of any class or series of
shares of stock by a subsidiary of the Corporation other than to the Corporation
or any direct or indirect wholly owned Subsidiary of the Corporation; or
(viii) consents to any liquidation, dissolution or winding
up of the Corporation.
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c. In addition to any other rights provided by law, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of at least a majority of the outstanding shares of Series A Preferred,
amend or repeal any provision of, or add any provision to, this Corporation's
Certificate of Incorporation or Bylaws if such action would adversely alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of the Series A Preferred.
d. In addition to any other rights provided by law, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of at least a majority of the outstanding shares of Series B Preferred,
amend or repeal any provision of, or add any provision to, this Corporation's
Certificate of Incorporation or Bylaws if such action would adversely alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of the Series B Preferred.
e. In addition to any other rights provided by law, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of at least a majority of the outstanding shares of Series C Preferred,
amend or repeal any provision of, or add any provision to, this Corporation's
Certificate of Incorporation or Bylaws if such action would adversely alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of the Series C Preferred, including any increase in
the authorized number of shares of Series C Preferred.
f. In addition to any other rights provided by law, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of at least a majority of the outstanding shares of Series D Preferred,
amend or repeal any provision of, or add any provision to, this Corporation's
Certificate of Incorporation or Bylaws if such action would adversely alter or
change the preferences, rights, privileges, or powers of, or the restrictions
provided for the benefit of the Series D Preferred, including any increase in
the authorized number of shares of Series D Preferred.
g. In addition to any other rights provided by law, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of at least a majority of the outstanding shares of Series E Preferred,
amend or repeal any provision of, or add any provision to, this Corporation's
Certificate of Incorporation or Bylaws if such action would adversely alter or
change the preferences, rights, privileges, or powers of, or the restrictions
provided for the benefit of the Series E Preferred, including any increase in
the authorized number of shares of Series E Preferred.
2. Election of Board of Directors. (i) The holders of Series A
Preferred, voting as a separate class, shall be entitled to elect two (2)
members of the Corporation's Board of Directors at each meeting or pursuant to
each consent of the Corporation's stockholders for the election of directors,
and to remove from office such directors and to fill any vacancy caused by the
resignation, death or removal of such directors; (ii) the holders of Series B
Preferred, voting as a separate class, shall be entitled to elect one (1) member
of the Corporation's Board of Directors at each meeting or pursuant to each
consent of the Corporation's stockholders for the
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election of directors, and to remove from office such directors and to fill any
vacancy caused by the resignation, death or removal of such directors; (iii) the
holders of Series C Preferred, voting as a separate class, shall be entitled to
elect one (1) member of the Corporation's Board of Directors at each meeting or
pursuant to each consent of the Corporation's stockholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors; (iv) the holders
of Common Stock, voting as a separate class, shall be entitled to elect two (2)
members of the Board of Directors at each meeting or pursuant to each consent of
the Corporation's stockholders for the election of directors, and to remove from
office such directors and to fill any vacancy caused by the resignation, death
or removal of such directors; (v) the holders of Common Stock and Series
Preferred, voting together as a class on an as-if-converted to Common Stock
basis, shall be entitled to elect all remaining members of the Board of
Directors; and (vi) in the event the Corporation has not effected a Qualified
Offering prior to the date one (1) year after the Issuance Date, the holders of
Series E Preferred, voting as a separate class, shall be entitled to elect one
(1) member of the Corporation's Board of Directors at each meeting or pursuant
to each consent of the Corporation's stockholders for the election of directors,
and to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director.
3. Common Stock Voting Rights. Each holder of Common Stock shall be
entitled to one vote per share of Common Stock held by such holder.
V.
The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.
VI.
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
19.
<PAGE>
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this reservation.
20.
<PAGE>
EXHIBIT 4.3
CHORDIANT SOFTWARE, INC
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (this "Agreement")
is entered into as of September 28, 1999 by and among Chordiant Software, Inc.,
a Delaware corporation (the "Company") and each of the persons or entities
listed on the schedule attached hereto as Schedule A (the "Investors").
Recitals
Whereas, the Company and certain of the Investors have entered into that
certain Amended and Restated Registration Rights Agreement dated as of April 6,
1999 (the "Prior Agreement");
Whereas, the Company is entering into a Series E Preferred Stock Purchase
Agreement of even date herewith (the "Purchase Agreement") with certain of the
Investors who will purchase shares of Series E Preferred Stock (the "Series E
Preferred Stock") of the Company; and
Whereas, the parties to the Prior Agreement desire that the Prior Agreement
be amended and restated as set forth herein to grant registration rights to the
Investors with respect to the Series E Preferred Stock being purchased pursuant
to the Purchase Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1. Registration Rights.
1.1 Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Common Stock" means the Company's Common Stock.
(d) "Debentures" means the Company's convertible subordinated
debentures issued pursuant to the Convertible Subordinated Debenture Purchase
Agreement dated as of April 6, 1999.
(e) "Form S-3" means such form under the 1933 Act as in effect on
the date hereof or any registration form under the 1933 Act subsequently adopted
by the Securities and Exchange Commission ("SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
1.
<PAGE>
(f) "Holder" means any person owning of record Registrable
Securities or any permitted assignee thereof in accordance with Section 1.12
hereof.
(g) "Initiating Holders" shall mean any Holders who in the
aggregate possess at least forty percent (40%) of the then outstanding
Registrable Securities.
(h) "Preferred Stock" shall mean the Company's Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock issued or issuable upon conversion of the Debentures and Series E
Preferred Stock.
(i) The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by the
SEC.
(j) The term "Registrable Securities" means: (i) the Common Stock
issued or issuable upon conversion of the Preferred Stock (as defined below);
and (ii) any Common Stock of the Company issued (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued) by way of a
stock split, stock dividend, recapitalization, merger or other distribution with
respect to, or in exchange for, or in replacement of, such Preferred Stock,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which its rights under this Section 1 are not assigned. A
holder of Preferred Stock need not convert such Preferred Stock into Common
Stock prior to requesting registration hereunder but may make such a request in
contemplation of conversion of such Preferred Stock into Common Stock prior to
the closing of any such registration.
(k) The number of shares of "Registrable Securities then
outstanding" shall be the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
1.2 Requested Registration.
(a) Request for Registration. In case the Company shall receive from
Initiating Holders a written request that the Company file a registration
statement under the 1933 Act with respect to shares of Registrable Securities
having an expected aggregate offering price of at least seven million five
hundred thousand dollars ($7,500,000), the Company will:
(i) promptly give written notice of such request to all other
Holders; and
(ii) subject to the limitations of Section 1.2(b), as soon as
practicable, use its best efforts to effect such registration under the 1933 Act
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the 1933 Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in
2.
<PAGE>
such request as are specified in a written request received by the Company
within twenty (20) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 1.2:
(A) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the 1933 Act;
(B) Prior to the earlier of (i) the first anniversary of the
date of this Agreement, or (ii) six (6) months after the closing date of the
Company's first registered public offering of its stock (other than a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or a SEC
Rule 145 transaction) (the "Initial Offering");
(C) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date six
(6) months immediately following the closing date of, any initial registration
statement pertaining to securities of the Company (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction); provided, however, that the Company is acting in good faith and
using all reasonable efforts to cause such initial registration statement to
become effective;
(D) After the Company has effected five (5) such registrations
pursuant to Initiating Holders' demand under this Section 1.2; or
(E) If the Company shall furnish to such Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company and
its shareholders for a registration statement to be filed at such time, then the
Company's obligation to use its best efforts to register, qualify or comply
under this Section 1.2 shall be deferred for a period not to exceed one hundred
twenty (120) days from the date of receipt of written request from the
Initiating Holders; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
Subject to the foregoing clauses (A) through (E) inclusive, the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders and in any event within one hundred twenty (120) days
after receipt of such request.
(b) Underwriting. In the event that a registration pursuant to
Section 1.2 is for a registered public offering involving an underwriting, the
Initiating Holders shall so advise the Company as part of their request made
pursuant to this Section 1.2 and the Company shall include such information in
the written notice given pursuant to Section 1.2(a)(i). In such event, the right
of any Holder to registration pursuant to Section 1.2 shall be conditioned upon
such
3.
<PAGE>
Holder's participation in the underwriting arrangements required by this Section
1.2, and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with a managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be mutually acceptable to the Company). Notwithstanding any
other provision of this Section 1.2, if the managing underwriter advises the
Initiating Holders in writing that market factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof (except those Holders who have indicated to
the Company their decision not to distribute any of their Registrable Securities
through such underwriting) in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders at the time of
filing the registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's market limitation shall be included
in such registration. To facilitate the allocation of shares in accordance with
the above provisions, the Company or the underwriters may round the number of
shares allocated to any Holder to the nearest one hundred (100) shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders.
1.3 Piggy-back Registration Rights. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
securities under the 1933 Act in connection with the public offering of such
securities solely for cash (other than a registration (i) on Form S-8 or any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or (ii) with respect to an employee benefit plan, or
(iii) solely in connection with a Rule 145 transaction under the 1933 Act), the
Company shall, each such time, promptly give each Holder written notice of such
registration together with a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under applicable state securities
laws. Upon the written request of each Holder given within twenty (20) business
days after delivery of such written notice by the Company in accordance with
Section 4.4, the Company shall, subject to the provisions of Section 1.8, use
its best efforts to cause to be registered under the 1933 Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities
4.
<PAGE>
registered thereunder, keep such registration statement effective for up to one
hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be reasonably appropriate for the distribution of the
securities covered by the registration statement; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such jurisdiction, and further provided that (anything in this Agreement to
the contrary notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in that
jurisdiction be borne by selling shareholders, then such expenses shall be
payable by the selling Holders pro rata, to the extent required by such
jurisdiction if such Holders do not elect to withdraw from the registration
after notice of such requirement.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
1.5 Furnish Information. In connection with any action pursuant to this
Section 1, the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities. In that connection, each selling
Holder shall be required to represent to the Company that all such information
which is given is both complete and accurate in all material respects when made.
5.
<PAGE>
1.6 Definition of Expenses.
(a) "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 1.2, 1.3 and 1.15 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and reasonable fees and disbursements not
to exceed thirty thousand dollars ($30,000) of a single special counsel for the
Holders and the expenses of any special audits incident to or required by any
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
(b) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of the Registrable Securities in the
registration.
1.7 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.2 and 1.3 and the first five (5) registrations under Section 1.15
shall be borne by the Company. All Selling Expenses and all Registration
Expenses incurred in connection with any registration, qualification or
compliance after the first five registrations pursuant to Section 1.15 shall be
borne by the Holders of the securities so registered, pro rata on the basis of
the number of shares so registered (provided that each Holder shall bear the
full amount of the fees and disbursements of any counsel retained by it).
1.8 Underwriting Requirements in Piggy-back Registration. The right of any
Holder to registration pursuant to Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and any other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected by the Company.
Notwithstanding any other provision of Section 1.3 and this Section 1.8, if the
underwriter determines that market factors require a limitation of the number of
shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude some or all Registrable Securities from such
registration and underwriting. The Company shall so advise all persons
requesting registration, and the number of shares of securities that may be
included in the registration and underwriting shall be allocated in the
following manner. The number of shares that may be included in the registration
and underwriting shall be allocated first to the Company; second, among all
Holders thereof (except those Holders who have indicated to the Company their
decision not to distribute any of their Registrable Securities through such
underwriting) in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities held by such Holders at the time of filing the
registration statement, and third, to any shareholder of the Company (other than
a Holder) on a pro rata basis. No such reduction shall reduce the securities
being offered by the Company for its own account to be included in the
registration and underwriting, and in no event shall the amount of securities of
the selling Holders included in the registration be reduced below twenty-five
percent (25%) of the total amount of securities included in such registration,
unless such offering is the Initial Offering and such registration does not
include shares of any other selling shareholders, in which event any or all of
the
6.
<PAGE>
Registrable Securities of the Holders may be excluded in accordance with the
immediately preceding sentence. In no event will shares of any other selling
shareholder be included in such registration which would reduce the number of
shares which may be included by Holders without the written consent of the
Holders of not less than two-thirds of the Registrable Securities proposed to be
sold in the offering. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
1.9 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as a
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers, directors and partners of each Holder,
any underwriter (as defined in the 1933 Act) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state securities
law; and the Company will reimburse each such Holder, officer, director or
partner, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the Company's indemnity contained in this Section 1.10(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished in writing
and expressly stated for use in connection with such registration by any such
Holder, or such Holder's officers, directors or partners, underwriter, or
controlling person. The Company shall not be required to indemnify any person
against any liability arising (i) from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is corrected
in the final prospectus or (ii) out of the failure of any person to deliver a
prospectus as required by the 1933 Act. The indemnity provided for in this
Section 1.10(a) shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller, underwriter, participating
person or controlling person and shall survive transfer of such securities by
such seller.
7.
<PAGE>
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter (within
the meaning of the 1933 Act) for the Company, any person who controls such
underwriter, and any other Holder selling securities in such registration
statement or any of its partners, directors or officers or any person who
controls such Holder, against any losses, claims, damages or liabilities (joint
or several) to which any of the foregoing persons may become subject, under the
1933 Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly stated in a writing for
use in connection with such registration; and each such Holder will reimburse
any legal or other expenses, as incurred, where same are reasonably incurred by
any person intended to be indemnified pursuant to this Section 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, the liability of each Holder under this
Section 1.10(b) shall be limited to an amount equal to the net proceeds after
expenses and commissions of the shares sold by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, notify the
indemnifying party in writing of the commencement thereof, and the indemnifying
party shall have the right to participate in and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the reasonable fees and expenses to be paid by the
indemnifying party if the indemnified party reasonably determines that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party within a
reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to notify the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise than under
this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s)
8.
<PAGE>
that resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by a court of law by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, that in no event shall any
contribution by a Holder thereunder exceed the net proceeds after expenses and
commissions from the offering received by such Holder.
(e) The obligations of the Company and the Holders under this Section
1.10 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this Agreement. No indemnifying
party, in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
1.11 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the 1933 Act
and any other rule or regulation of the SEC that may at any time permit a Holder
to sell securities of the Company to the public without registration, the
Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all times
after ninety (90) days after the closing date of the first registration
statement filed by the Company;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the 1933 Act and the
1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request: (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144 (at any time after
ninety (90) days after the closing date of the first registration statement
filed by the Company), the 1933 Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies); (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company; and (iii) such other information as may be reasonably requested in
order to permit any Holder to avail itself of any rule or regulation of the SEC
or any state securities authority which permits the selling of any such
securities without registration or pursuant to such form.
9.
<PAGE>
1.12 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 1 may be assigned by a
Holder to a transferee or assignee of such securities: (i) if such transferee or
assignee was a Holder of Registrable Securities hereunder prior to such
transfer, (ii) if such transferee or assignee acquires at least five percent
(5%) of the then outstanding Registrable Securities, (iii) if such Holder
transfers all, but not less than all, of its Registrable Securities to such
transferee, or (iv) if such transferee or assignee is an affiliate of such
Holder. For the purpose of this Agreement, "affiliate" means any other person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with the Company (or other referenced person) and includes
without limitation, (a) any person who is an officer, director, or direct or
indirect beneficial holder of at least five percent (5%) of the then outstanding
capital stock of the Company (or other referenced person), and any of the family
members of any such person, (b) any person of which the Company (or other
referenced person) and/or its affiliates (as defined in clause (a) above),
directly or indirectly, either beneficially own(s) at least five percent (5%) of
the then outstanding equity securities, either beneficially own(s) at least five
percent (5%) of the then outstanding equity securities or constitute(s) at least
a five percent (5%) equity participant, (c) in the case of a specified person
who is an individual, family members of such person, and (d) in the case of the
Holders, any entities for which a Holder or any of its affiliates serve as
general partner and/or investment adviser or in a similar capacity, and all
mutual funds and/or other pooled investment vehicles or entities under the
control or management of such Holder or the general partner or investment
adviser thereof, or any affiliate of any of them, or any affiliates of any of
the foregoing.
1.13 Limitations on Subsequent Registration Rights. From and after the date
of this Agreement, the Company shall not, without the prior written consent of
the Holders of at least a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company which would: (i) allow such holder or prospective
holder to include such securities in any registration filed under Sections 1.2,
1.3 or 1.15 hereof if such inclusion would adversely affect the rights of any
Holder of Registrable Securities hereunder; (ii) permit such holder or
prospective holder to require the Company to initiate any registration of any
securities of the Company; or (iii) otherwise be in conflict with the terms
hereof.
1.14 "Market Stand-off" Agreement. Each Holder agrees, so long as such
Holder holds securities totaling or convertible into at least one percent (1%)
of the Company's outstanding voting equity securities, in connection with the
Company's initial underwritten public offering of the Company's securities that,
upon request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Common Stock
of the Company (other than those Common Stock shares included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the closing date of such registration as may be
requested by the underwriters; provided, however, that such covenants shall
apply only if all of the officers, directors and holders of at least one percent
(1%) of the Company's Equity Securities who own stock of the Company also agree
to such restrictions on any shares not being registered in such offering.
10.
<PAGE>
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares of securities of every other person subject to the
foregoing restriction) until the end of such period.
1.15 Form S-3 Registration. In case the Company shall receive from
Initiating Holders a written request or requests that the Company effect a
registration on Form S-3 (or any similar successor form) and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Initiating Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, use its best efforts to effect such
registration and all such qualifications and compliance as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Initiating Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within fifteen (15) days after receipt of
such written notice from the Company; provided, however, that the Company shall
not be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 1.15: (i) if the Company is not qualified as a
registrant entitled to use Form S-3 (or the applicable successor form); (ii) if
the Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than one million dollars ($1,000,000); (iii) if the Company shall
furnish to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than one hundred twenty (120) days after
receipt of the request of the Holder or Holders under this Section 1.15;
provided, however, that the Company shall not utilize this right more than once
in any twelve (12) month period; or (iv) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
Subject to the foregoing, the Company shall file and use its best efforts
to bring effective a registration statement covering the Registrable Securities
and other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders.
1.16 Termination of the Company's Obligations.
(a) The Company shall have no obligations pursuant to Sections 1.2,
1.3 or 1.15 with respect to any request or requests made by any Holder six (6)
years after the Company's first firm commitment underwritten public offering of
its Common Stock registered under the 1933 Act.
11.
<PAGE>
(b) Notwithstanding any contrary provision of this Section l, the
Company shall not be required to effect any registrations under the 1933 Act or
under any state securities laws on behalf of any Holder or Holders if, in the
opinion of counsel to the Company, the offering or transfer by such Holder or
Holders in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred, the time of sale, and the method
of offering or transfer) is exempt from the registration requirements of the
1933 Act and the securities laws of applicable states and the Company consents
to such transfer, if required.
SECTION 2. Right of First Refusal.
2.1 Right to Purchase New Securities. The Company hereby grants to each
Investor, as long as the Investor holds Debentures or Preferred Stock, the right
of first refusal to purchase, pro rata, all or any part of New Securities (as
defined in Section 2.2 below) which the Company may, from time to time, propose
to sell and issue. An Investor's pro rata share, for purposes of this right of
first refusal, is equal to such Investor's percentage interest in the
outstanding Common Stock of the Company at the time such New Securities are
offered (assuming, for purposes of such percentage interest, complete conversion
of all outstanding convertible securities, including the Debentures, and
complete exercise of all outstanding options and warrants of the Company). This
right of first refusal shall be subject to the following provisions.
2.2 Definition of New Securities. "New Securities" shall mean any shares
of capital stock of the Company, including Common Stock and Preferred Stock,
whether or not now authorized, and any rights, options or warrants to purchase
said shares, and securities of any type whatsoever that are, or may become,
convertible into said shares; provided that "New Securities" does not include
(a) Common Stock issuable upon conversion of any series of the Company's
Preferred Stock, (b) securities issued for consideration other than cash
pursuant to the acquisition of another corporation by the Company by merger,
purchase of all or substantially all of the assets or other reorganization
whereby the Company acquires not less than fifty-one percent (51%) of the voting
power of such corporation, (c) shares of the Company's Common Stock (or related
options exercisable for such Common Stock) issued to employees, officers and
directors of, and consultants to, the Company pursuant to any arrangement
unanimously approved by the Board of Directors of the Company, (d) any security
if Investors holding at least a majority of the outstanding shares of Preferred
Stock and at least a majority of the outstanding shares of Series E Preferred
Stock consent in writing that the right of first refusal shall not apply to such
securities, (e) stock issued in connection with any stock split, stock dividend
or reclassification of Common Stock, distributable on a pro rata basis to all
holders of Common Stock, and (f) shares of Series D Preferred Stock issuable
upon conversion of the Debentures.
2.3 Notice. In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Investor written notice of its intention,
describing the type of New Securities, and the price and terms upon which the
Company proposes to issue the same. Each Investor shall have twenty-five (25)
days from the date of receipt of any such notice to agree to purchase up to the
Investor's pro rata share of such New Securities for the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased. If not all of
the Investors elect to purchase their pro rata share of the New Securities
within said twenty-five (25) day period, then the Company shall
12.
<PAGE>
promptly notify in writing the Investors who do so elect and shall offer such
Investors the right to acquire such unsubscribed shares. The Investors shall
have five (5) days after receipt of such notice to notify the Company of its
election to purchase all or a portion thereof of the unsubscribed shares. If the
Investors fail to exercise in full the rights of first refusal, the Company may
within sixty (60) days thereafter sell any or all of such New Securities not
purchased by the Investors, at a price and upon general terms no more favorable
to the purchasers thereof than specified in the notice given to each Investor
pursuant to the foregoing paragraph. In the event the Company has not sold such
New Securities within such sixty (60) day period, the Company shall not
thereafter issue or sell any New Securities without first offering such New
Securities to the Investors in the manner provided above.
2.4 Expiration of Right of First Refusal. The right of first refusal
granted under this Agreement shall expire upon the first to occur of the
following: (a) the closing of the first public offering of the Common Stock of
the Company to the general public which is effected pursuant to a registration
statement filed with, and declared effective by, the Commission under the 1933
Act, provided that such offering results in thirty million dollars ($30,000,000)
or more in aggregate cash proceeds to the Company, and that the public offering
price is not less than five dollars ($5.00) per share (adjusted to reflect
subsequent stock dividends, stock splits, or recapitalizations); or (b) as to an
Investor if such Investor (when aggregated with any of such Investor's wholly-
owned subsidiaries) has disposed of all of its shares of Preferred Stock and
Debentures.
SECTION 3. AMENDMENT AND RESTATEMENT; WAIVER.
3.1 Amendment and Restatement. Effective upon the closing of the sale and
issuance of the Series E Preferred Stock pursuant to the Purchase Agreement, all
provisions of, rights granted and covenants made in the Prior Agreement are
hereby waived released and terminated in their entirety and shall have no
further force or effect whatsoever. The rights and covenants contained in this
Agreement set forth the sole and entire agreement among the Company and the
Investors on the subject matter hereof and supersede any and all rights granted
or covenants made under any prior agreement.
3.2 Waiver. Pursuant to Section 2 of the Prior Agreement, the Investors
who were parties to the Prior Agreement hereby waive (i) the notice provisions
with respect to the right of first refusal set forth in Section 2.3 of the Prior
Agreement and (ii) the right of first refusal set forth in Section 2.1 of the
Prior Agreement with respect to the issuance of the Series E Preferred Stock and
the issuance of any equity securities upon conversion thereof.
SECTION 4. General Provisions.
4.1 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to better evidence and reflect the transactions described herein
and contemplated hereby, and to effect the intents and purposes of this
Agreement.
13.
<PAGE>
4.2 Rights Cumulative. Each and all of the various rights, powers and
remedies of the parties hereto shall be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have at
law or in equity in the event of the breach of any of the terms of this
Agreement. The exercise or partial exercise of any right, power or remedy shall
neither constitute the exclusive election thereof nor the waiver of any other
right, power or remedy available to such party.
4.3 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
4.4 Notices. All notices, consents or demands of any kind which any party
to this Agreement may be required or may desire to serve on any other party
hereto in connection with this Agreement shall be in writing and may be
delivered by personal service or overnight courier, by telex or facsimile
transfer, or by registered or certified mail, return receipt requested,
deposited in the United States mail with postage thereon fully prepaid,
addressed: (a) if to the Company, at its address set forth on the signature page
hereof, to the attention of the Chief Financial Officer; or (b) if to an
Investor, at its address as set forth on Exhibit A attached hereto. Service of
any such notice or demand so made by mail shall be deemed complete on the date
of actual delivery as shown by the addressee's registry or certification receipt
or at the expiration of the third (3rd) business day after the date of mailing,
whichever is earlier in time. Any party hereto may from time to time by notice
in writing served upon the others as aforesaid, designate a different mailing
address or a different person to which such notices or demands are thereafter to
be addressed or delivered.
4.5 Captions. Captions are provided herein for convenience only and they
form no part of this Agreement and are not to serve as a basis for
interpretation or construction of this Agreement, nor as evidence of the
intention of the parties hereto.
4.6 Severability. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions of this
Agreement with valid and enforceable provisions which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
4.7 Attorneys' Fees. In any action at law or in equity to enforce any of
the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the court in a final judgment or decree, shall pay
the successful party all reasonable costs, expenses and attorneys' fees incurred
by the successful party (including, without limitation, costs, expenses and fees
on any appeal) with respect to such action.
4.8 Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original, and when executed,
separately or together, shall constitute
14.
<PAGE>
a single original instrument, effective in the same manner as if the parties
hereto had executed one and the same instrument.
4.9 Waiver. Any party hereto may, as to itself, by a writing signed by an
authorized representative of such party: (i) extend the time for the performance
of any of the obligations of another party; (ii) waive any inaccuracies in
representations and warranties made by another party contained in this Agreement
or in any documents delivered pursuant hereto; (iii) waive compliance by another
party with any of the covenants contained in this Agreement or the performance
of any obligations of such other party; or (iv) waive the fulfillment of any
condition that is precedent to the performance by such party of any of its
obligations under this Agreement. No waiver of any term, provision or condition
of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or be construed as, a further or continuing
waiver of any such term, provision or condition or as a waiver of any other
term, provision or condition of this Agreement.
4.10 Entire Agreement. This Agreement (together with its Exhibits and the
other documents referred to herein) is intended by the parties hereto to be the
final expression of their agreement and constitutes and embodies the entire
agreement and understanding of the parties with regard to the subject matter
hereof and is a complete and exclusive statement of the terms and conditions
thereof, and shall supersede any and all prior correspondence, conversations,
negotiations, agreements or understandings relating to the same subject.
4.11 Choice of Law. It is the intention of the parties that the internal
laws of the State of California (irrespective of its choice of law principles)
shall govern the validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties.
4.12 Binding on Heirs, Successors and Assigns. This Agreement and all of
its terms, conditions and covenants are intended to be fully effective and
binding, to the extent permitted by law, on the heirs, executors,
administrators, successors and permitted assigns of the parties hereto.
4.13 Survival. The respective representations and warranties given by each
of the parties, as contained herein shall survive without regard to any
investigation made by any party. All statements as to factual matters contained
in any certificates, exhibits or other instruments delivered by or on behalf of
any party pursuant to the terms hereto or in connection with the transactions
contemplated hereby shall be deemed, for all purposes, to constitute
representations and warranties by such party under the terms of this Agreement
given as of the date of such certificate or instrument.
4.14 Amendment. Any provision of this Agreement may be amended or the
observance thereof may be waived upon the written consent of the Company and the
Holders of a majority of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this Section 4.14 shall be
binding upon each Holder of any Registrable Securities then outstanding
(including securities into which such securities are convertible), each future
Holder of all such Registrable Securities, and the Company; provided that, in
the event that such amendment or waiver would disproportionately or adversely
affect a holder or group of
15.
<PAGE>
holders of Registrable Securities in a manner different than any of the holders
of Registrable Securities, then such amendment or waiver will require the
consent of such holder(s) of Registrable Securities disproportionately or
adversely affected.
[THIS SPACE INTENTIONALLY LEFT BLANK]
16.
<PAGE>
In Witness whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: CHORDIANT SOFTWARE, INC.
By: /s/ Steven R. Springsteel
----------------------------
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: ________________________________
(Print Name of Investor)
By:_____________________________
Title:__________________________
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:________________________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: Foundation Capital, L.P.
By Foundation Capital Management, LLC
By: /s/ Kathryn C. Gould
----------------------------------------
Kathryn C. Gould
Title: Manager
-------------------------------------
Foundation Capital Entrepreneurs Fund, LLC
By Foundation Capital Management, LLC
By: /s/ Kathryn C. Gould
----------------------------------------
Kathryn C. Gould
Title: Manager
-------------------------------------
<PAGE>
By:________________________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: Orchid & Co., Nominee for
T. Rowe Price Threshold Fund III, LP
-------------------------------------------
(Print Name of Investor)
By: Junerose C. Sordini
----------------------------------------
Title: Vice President
------------------------------------
<PAGE>
In Witness whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By: ______________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR:
NORWEST VENTURE PARTNERS VI, LP
By: Itasca VC Partners VI, LLP, General Partner
-----------------------------------------
(Print Name of Investor)
By: /s/ George J. Still, Jr.
--------------------------------------
Title: George J. Still, Jr., Partner
-----------------------------------
<PAGE>
In Witness whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_____________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR:
MARGARET L. TAYLOR
--------------------------------
(Print Name of Investor)
By: /s/ Margaret L. Taylor
-----------------------------
Title: _________________________
<PAGE>
In Witness whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_____________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR:
/s/ Robert Rayne
--------------------------------
(Print Name of Investor) FOR AND ON BEHALF OF
LION INVESTMENTS LIMITED
By: ROBERT RAYNE
-----------------------------
Title: DIRECTOR
-------------------------
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_____________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR:
LION INVESTMENTS LIMITED
--------------------------------
(Print Name of Investor)
By: /s/ M. Waldron
-----------------------------
Title: DIRECTOR
--------------------------
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_____________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR:
VERTEK INVESTMENT (II) LTD.
---------------------------------
(Print name of Investor)
By: /s/ Chua Joo Hock
------------------------------
Title: President
---------------------------
<PAGE>
In Witness whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:___________________________________
Steven R. Springsteel,
Chief Financial Officer
Brentwood Associates VII, L.P.
By: Brentwood VII Ventures, L.P.
INVESTOR: its General Partner
--------------------------------------
(Print Name of Investor)
By: /s/ Jeffrey Brody
-----------------------------------
Title: Jeffrey Brody
--------------------------------
General Partner
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_____________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: BATTERY VENTURES, III, L.P.
--------------------------------
(Print Name of Investor)
By: BATTERY PARTNERS, III, L.P.
-----------------------------
Title: GENERAL PARTNER
---------------------------
BY: /s/ Oliver D. Curme
------------------------------
OLIVER D. CURME
GENERAL PARTNER
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_____________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: ASPECT COMMUNICATIONS
---------------------------------
(Print Name of Investor)
By: /s/ Mark Meltzer
------------------------------
Title: V.P. GENERAL COUNSEL
---------------------------
<PAGE>
In Witness whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_____________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: Weber Family Trust dated 1/6/89
--------------------------------
(Print Name of Investor)
By: /s/ Eugene Weber
--------------------------------
Title: Trustee
--------------------------
<PAGE>
In Witness whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:______________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: EDS/SHL Corporation
---------------------------------
(Print Name of Investor)
By: /s/ Scott J. Krenz
------------------------------
Scott J. Krenz
Title: Treasurer
---------------------------
<PAGE>
In Witness whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_____________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: Charter Growth Capital, L.P.
---------------------------------
(Print Name of Investor)
By: /s/ Steven P. Bird
------------------------------
Title: General Partner of the
---------------------------
General Partner
<PAGE>
IN Witness whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:___________________________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: Charter Growth Capital Co-Investment Fund, L.P.
-----------------------------------------------
(Print Name of Investor)
By: /s/ Steven P. Bird
--------------------------------------------
Title: General Partner of the
-----------------------------------------
General Partner
-----------------------------------------
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_____________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: CGC Investors, L.P.
--------------------------------
(Print Name of Investor)
By: /s/ Steven P. Bird
-----------------------------
Title: General Partner of the
--------------------------
General Partner
--------------------------
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:__________________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: THE CHASE MANHATTAN BANK, AS TRUSTEE
FOR FIRST PLAZA GROUP TRUST
-------------------------------------
(Print Name of Investor)
By: /s/ John F. Weeda
----------------------------------
JOHN WEEDA
Title: VICE PRESIDENT
-------------------------------
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:________________________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: /s/ Robert P. Forlenza
-------------------------------------------
Robert P. Forlenza
Managing Director
Tudor Global Trading LLC as General Partner
Tudor Private Equity Fund L.P.
-------------------------------------------
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_______________________________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: /s/ Robert P. Forlenza
--------------------------------------------------
Robert P. Forlenza
Managing Director
Tudor Investment Corporation as Investment Advisor
Raptor Global Fund Ltd.
--------------------------------------------------
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Registration Rights Agreement with the intent and agreement that the
same shall be effective as of the day and year first above written.
THE COMPANY: Chordiant Software, Inc.
By:_______________________________________________
Steven R. Springsteel,
Chief Financial Officer
INVESTOR: /s/ Robert P. Forlenza
--------------------------------------------------
Robert P. Forlenza
Managing Director
Tudor Investment Corporation as General Partner
Raptor Global Fund, L.P.
--------------------------------------------------
<PAGE>
Schedule A
INVESTORS
Name and Address
- -----------------------------------------------
Foundation Capital
75 Willow Road, Suite 103
Menlo Park, CA 94025
Foundation Capital Entrepreneurs Fund, L.L.C.
75 Willow Road, Suite 103
Menlo Park, CA 94025
ORCHID & CO., nominee for T. Rowe Price Threshold Fund III, L.P.
100 East Pratt Street
Baltimore, MD 21202
Norwest Venture Partners VI, L.P.
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301
Margaret Taylor
PeopleSoft, Inc.
4440 Rosewood Drive, Bldg. 4
Pleasanton, CA 94588
Aneel Bushri
PeopleSoft, Inc.
4440 Rosewood Drive, Bldg. 4
Pleasanton, CA 94588
Lion Investments Limited
c/o London Merchant Securities plc
Carlton House
33 Robert Adam Street
London, England W1M 5AH
Vertex Investment (II) Ltd.
Three Lagoon Drive, Suite 220
Redwood City, CA 94065
<PAGE>
Name and Address
- -----------------------------------------------
Vertex Asia Ltd.
Three Lagoon Drive, Suite 220
Redwood City, CA 94065
HWH Investment PTE. Ltd.
Three Lagoon Drive, Suite 220
Redwood City, CA 94065
Brentwood Associates VII, L.P.
3000 Sand Hill Road
Building 1, Suite 260
Menlo Park, CA 94025
Brentwood Affiliates Fund, L.P.
3000 Sand Hill Road
Building 1, Suite 260
Menlo Park, CA 94025
Battery Ventures
20 William Street
Wellesley, MA 02181
Aspect Telecommunications Corporation
1730 Fox Drive
San Jose, CA 95131
Weber Family Trust dated 1/6/89
c/o Eugene M. Weber
Bluewater Capital Management, Inc.
50 California Street, Suite 3200
San Francisco, CA 94111
<PAGE>
Name and Address
- -----------------------------------------------
MCI Systemhouse Corp.
1275 Center Court Drive
Cerritos, CA 90703-8583
Attn: Jim Madden
cc: MCI Systemhouse Corp.
1801 Pennsylvania Avenue, NW
Washington, D.C. 20006
Attn: General Counsel
Charter Growth Capital, L.P.
525 University Avenue, Suite 1500
Palo Alto, CA 94301
Charter Growth Capital Co-Investment Fund, L.P.
525 University Avenue, Suite 1500
Palo Alto, CA 94301
CGC Investors, L.P.
525 University Avenue, Suite 1500
Palo Alto, CA 94301
First Plaza Group Trust
The Chase Manhattan Bank
3 Chase Metrotech Center, 7/th/ Floor
Brooklyn, NY 11245
Tudor Private Equity Fund L.P.
40 Rowes Wharf, 2/nd/ Floor
Boston, MA 02110
Raptor Global Fund Ltd.
40 Rowes Wharf, 2/nd/ Floor
Boston, MA 02110
Raptor Global Fund, L.P.
40 Rowes Wharf, 2/nd/ Floor
Boston, MA 02110
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EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This Agreement is made and entered into this _____ day of ________________,
____ by and between Chordiant Software, Inc., a Delaware corporation (the
"Corporation"), and ______________________ ("Agent"). This Agreement terminates
any and all previous indemnification agreements entered into by and between the
Corporation and Agent.
Recitals
Whereas, Agent performs a valuable service to the Corporation in the
capacity as _________ of the Corporation;
Whereas, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
Whereas, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
Whereas, in order to induce Agent to continue to serve as director of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
Now, Therefore, in consideration of Agent's continued service as director
after the date hereof, the parties hereto agree as follows:
Agreement
1. Services to the Corporation. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as director
of the Corporation or as a director, officer or other fiduciary of an affiliate
of the Corporation (including any employee benefit plan of the Corporation)
faithfully and to the best of his ability so long as he is duly elected and
qualified in accordance with the provisions of the Bylaws or other applicable
charter documents of the Corporation or such affiliate; provided, however, that
Agent may at any time and for any reason resign from such position (subject to
any contractual obligation that Agent may have assumed apart from this
Agreement) and that the Corporation or any affiliate shall have no obligation
under this Agreement to continue Agent in any such position.
2. Indemnity of Agent. The Corporation hereby agrees to hold harmless and
indemnify Agent to the fullest extent authorized or permitted by the provisions
of the Bylaws and the Code, as the same may be amended from time to time (but,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than the Bylaws or the Code permitted prior to
adoption of such amendment).
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3. Additional Indemnity. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and the Bylaws.
4. Limitations on Additional Indemnity. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;
(c) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers
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vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. Partial Indemnification. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. Notification and Defense of Claim. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of Agent's separate counsel shall be at the expense
of the Corporation. The Corporation shall not be entitled to assume the defense
of any action, suit or proceeding brought by or on behalf of the Corporation or
as to which Agent shall have made the conclusion provided for in clause (ii)
above; and
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(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. Expenses. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. Enforcement. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. Survival of Rights.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
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(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. Headings. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to:
Chordiant Software, Inc.
20400 Stevens Creek Blvd., Suite #400
Cupertino, CA.95014
or to such other address as may have been furnished to Agent by the Corporation.
19. This Agreement supercedes and terminates any previous agreement
between Agent and the Corporation regarding the subject matter hereof.
5.
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In Witness Whereof, the parties hereto have executed this Agreement on and as of
the day and year first above written.
CHORDIANT SOFTWARE, INC.
By: ___________________________
Samuel T. Spadafora
President and Chief Executive Officer
Agent
By: ___________________________
Name: _________________________
Address:_______________________
6.
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EXHIBIT 10.2
Chordiant Software, Inc.
1999 Equity Incentive Plan
Adopted November 30, 1999
Approved By Stockholders _______________, ______
Termination Date: November 29, 2009
1. Purposes.
(a) Amendment and Restatement. The Plan initially was established as the
Equity Incentive Plan on February 12, 1997, as amended through October 28, 1999
(the "Initial Plan"). The Initial Plan hereby is amended and restated in its
entirety as the 1999 Equity Incentive Plan effective upon adoption. The terms of
the Initial Plan (other than the aggregate number of shares issuable thereunder)
shall remain in effect and apply to all Stock Awards granted pursuant to the
Initial Plan.
(b) Eligible Stock Award Recipients. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(c) Available Stock Awards. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(d) General Purpose. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "Common Stock" means the common stock of the Company.
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(f) "Company" means Chordiant Software, Inc., a Delaware corporation.
(g) "Consultant" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(h) "Continuous Service" (formerly "Continuous Status as an Employee,
Director or Consultant") means that the Participant's service with the Company
or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a
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share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or market (or
the exchange or market with the greatest volume of trading in the Common Stock)
on the last market trading day prior to the day of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "Officer" means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.
(t) "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
3.
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(u) "Option Agreement" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "Participant" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(y) "Plan" means this Chordiant Software, Inc. 1999 Equity Incentive Plan.
(z) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "Securities Act" means the Securities Act of 1933, as amended.
(bb) "Stock Award" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(cc) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
(dd) "Ten Percent Stockholder" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what
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type or combination of types of Stock Award shall be granted; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive Common Stock pursuant to a
Stock Award; and the number of shares of Common Stock with respect to which a
Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.
(c) Delegation to Committee.
(i) General. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more Non-
Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not Non-
Employee Directors the authority to grant Stock Awards to eligible persons who
are not then subject to Section 16 of the Exchange Act.
(d) Effect of Board's Decision. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
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4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock and to the provisions of subsection
4(b) relating to automatic increases in the share reserve, the Common Stock that
initially may be issued pursuant to Stock Awards shall not exceed in the
aggregate Nine Million Seven Hundred Twelve Thousand Five Hundred (9,712,500)
shares of Common Stock.
(b) Automatic Increase to the Share Reserve. The aggregate number of
shares of Common Stock that may be issued pursuant to Stock Awards granted under
the Plan as specified in subsection 4(a) hereof automatically shall be increased
as follows:
(i) For a period of ten (10) years, on October 1 of each year (the
"Calculation Date"), commencing in 2000, the aggregate number of shares of
Common Stock specified in subsection 4(a) hereof shall be increased by the
greater of (1) that number of shares of Common Stock equal to five percent (5%)
of the Diluted Shares Outstanding or (2) that number of shares of Common Stock
that have been made subject to Stock Awards granted under the Plan in the prior
12-month period; provided, however, that each year the Board, in its discretion,
may provide for a smaller increase in the share reserve.
(ii) For purposes of subsection 4(b)(i) hereof, "Diluted Shares
Outstanding" shall mean, as of any date, (1) the number of outstanding shares of
Common Stock on such Calculation Date, plus (2) the number of shares of Common
Stock issuable upon such Calculation Date assuming the conversion of all
outstanding Preferred Stock and convertible notes, plus (3) the additional
number of dilutive Common Stock equivalent shares outstanding as the result of
any options or warrants outstanding during the fiscal year, calculated using the
treasury stock method.
(iii) Notwithstanding the foregoing, the aggregate number of shares
of Common Stock that may be issued pursuant to Incentive Stock Options granted
under the Plan from the share reserve provided in subsection 4(a) hereof, as
automatically increased, shall not exceed Twenty Million (20,000,000) shares of
Common Stock.
(c) Reversion of Shares to the Share Reserve. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.
(d) Source of Shares. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
(e) Share Reserve Limitation. Prior to the Listing Date and to the extent
then required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares of Common Stock
provided for under any stock bonus or similar plan of the Company shall not
exceed the applicable percentage as calculated in accordance with the
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conditions and exclusions of Section 260.140.45 of Title 10 of the California
Code of Regulations, based on the shares of Common Stock of the Company that are
outstanding at the time the calculation is made./1/
5. Eligibility.
(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b) Ten Percent Stockholders.
(i) A Ten Percent Stockholder shall not be granted an Incentive
Stock Option unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of the Common Stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(ii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a Nonstatutory Stock Option unless the exercise price of such Option
is at least (i) one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
(iii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a restricted stock award unless the purchase price of the restricted
stock is at least (i) one hundred percent (100%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
(c) Section 162(m) Limitation. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than Five Million
(5,000,000) shares of Common Stock during any calendar year. This subsection
5(c) shall not apply prior to the Listing Date and, following the Listing Date,
this subsection 5(c) shall not apply until (i) the earliest of: (1) the first
material modification of the Plan (including any increase in the number of
shares of Common Stock reserved for issuance under the Plan in accordance with
Section 4); (2) the issuance of all of the shares of Common Stock reserved for
issuance under the Plan; (3) the expiration of the Plan; or
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/1/ Section 260.140.45 generally provides that the total number of shares
issuable upon exercise of all outstanding options (exclusive of certain rights)
and the total number of shares called for under any stock bonus or similar plan
shall not exceed a number of shares which is equal to 30% of the then
outstanding shares of the issuer (convertible preferred or convertible senior
common shares counted on an as if converted basis), exclusive of shares subject
to promotional waivers under Section 260.141, unless a percentage higher than
30% is approved by at least two-thirds of the outstanding shares entitled to
vote.
7.
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(4) the first meeting of stockholders at which Directors are to be elected that
occurs after the close of the third calendar year following the calendar year in
which occurred the first registration of an equity security under Section 12 of
the Exchange Act; or (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.
(d) Consultants.
(i) Prior to the Listing Date, a Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, either the offer or the
sale of the Company's securities to such Consultant is not exempt under Rule 701
of the Securities Act ("Rule 701") because of the nature of the services that
the Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule 701 and
will satisfy another exemption under the Securities Act as well as comply with
the securities laws of all other relevant jurisdictions.
(ii) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, a Form S-8
Registration Statement under the Securities Act ("Form S-8") is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (1) that such grant (a) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(b) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (2) that such
grant complies with the securities laws of all other relevant jurisdictions.
(iii) Rule 701 and Form S-8 generally are available to consultants
and advisors only if (1) they are natural persons; (2) they provide bona fide
services to the issuer, its parents, its majority-owned subsidiaries or
majority-owned subsidiaries of the issuer's parent; and (3) the services are not
in connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option granted prior to the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was granted,
and no Incentive Stock Option granted on or after
8.
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the Listing Date shall be exercisable after the expiration of ten (10) years
from the date it was granted.
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) Exercise Price of a Nonstatutory Stock Option. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The Board
shall determine the exercise price of each Nonstatutory Stock Option granted on
or after the Listing Date. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth above if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(d) Consideration. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) Transferability of an Incentive Stock Option. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form
9.
<PAGE>
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option granted prior to the Listing Date shall not be transferable except by
will or by the laws of descent and distribution and, to the extent provided in
the Option Agreement, to such further extent as permitted by Section
260.140.41(d) of Title 10 of the California Code of Regulations at the time of
the grant of the Option, and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or
after the Listing Date shall be transferable to the extent provided in the
Option Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) Vesting Generally. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) Minimum Vesting Prior to the Listing Date. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California Code
of Regulations at the time of the grant of the Option, then:
(i) Options granted prior to the Listing Date to an Employee who is
not an Officer, Director or Consultant shall provide for vesting of the total
number of shares of Common Stock at a rate of at least twenty percent (20%) per
year over five (5) years from the date the Option was granted, subject to
reasonable conditions such as continued employment; and
(ii) Options granted prior to the Listing Date to Officers,
Directors or Consultants may be made fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company.
(i) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period shall not be
10.
<PAGE>
(j) Extension of Termination Date. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(k) Disability of Optionholder. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(l) Death of Optionholder. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (2) the expiration of the term of
such Option as set forth in the Option Agreement. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate.
(m) Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Subject to the "Repurchase Limitation" in subsection 10(h), any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be
11.
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appropriate. Provided that the "Repurchase Limitation" in subsection 10(h) is
not violated, the Company will not exercise its repurchase option until at least
six (6) months (or such longer or shorter period of time required to avoid a
charge to earnings for financial accounting purposes) have elapsed following
exercise of the Option unless the Board otherwise specifically provides in the
Option. Under the circumstances set forth in subsection 11(c), with respect to
any person holding shares of Common Stock purchased as the result of early
exercise of an Option, the Company's repurchase right as to such shares shall
lapse to the same degree, if at all, as the vesting provisions of such Option
would have been accelerated pursuant to subsection 11(c).
(n) Right of Repurchase. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option. Provided that the "Repurchase Limitation" in subsection
10(h) is not violated, the Company will not exercise its repurchase option until
at least six (6) months (or such longer or shorter period of time required to
avoid a charge to earnings for financial accounting purposes) have elapsed
following exercise of the Option unless the Board otherwise specifically
provides in the Option.
(o) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option. Except as expressly provided in this
subsection 6(o), such right of first refusal shall otherwise comply with any
applicable provisions of the Bylaws of the Company.
(p) Re-Load Options.
(i) Without in any way limiting the authority of the Board to
make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Unless otherwise specifically provided in the Option, the Optionholder shall not
surrender shares of Common Stock acquired, directly or indirectly from the
Company, unless such shares have been held for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).
(ii) Any such Re-Load Option shall (1) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock surrendered
as part or all of the exercise price of such Option; (2) have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (3) have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option shall be subject to the same
exercise price and term provisions heretofore described for Options under the
Plan.
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(iii) Any such Re-Load Option may be an Incentive Stock Option or
a Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. Provisions of Stock Awards other than Options.
(a) Stock Bonus Awards. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) Consideration. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit.
(ii) Vesting. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock awarded under the stock bonus agreement
may, but need not, be subject to a share repurchase option in favor of the
Company in accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participant's Continuous Service. Subject
to the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) Transferability. For a stock bonus award made before the
Listing Date, rights to acquire shares of Common Stock under the stock bonus
agreement shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a stock bonus award made on or after the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall be transferable by the Participant only upon such terms and conditions as
are set forth in the stock bonus agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the stock bonus agreement
remains subject to the terms of the stock bonus agreement.
(b) Restricted Stock Awards. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The
13.
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terms and conditions of the restricted stock purchase agreements may change from
time to time, and the terms and conditions of separate restricted stock purchase
agreements need not be identical, but each restricted stock purchase agreement
shall include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:
(i) Purchase Price. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the Common Stock's Fair Market Value on the date
such award is made or at the time the purchase is consummated. For restricted
stock awards made on or after the Listing Date, the Board shall determine the
purchase price.
(ii) Consideration. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) Vesting. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iv) Termination of Participant's Continuous Service. Subject to
the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) Transferability. For a restricted stock award made before the
Listing Date, rights to acquire shares of Common Stock under the restricted
stock purchase agreement shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award made on or
after the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.
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8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) Securities Law Compliance. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. Miscellaneous.
(a) Acceleration of Exercisability and Vesting. The Board shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) Stockholder Rights. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Stock Award unless and until such Participant
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
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(d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) Investment Assurances. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(f) Withholding Obligations. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.
(g) Information Obligation. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
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(h) Repurchase Limitation. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is made, any repurchase
option contained in a Stock Award granted prior to the Listing Date to a person
who is not an Officer, Director or Consultant shall be upon the terms described
below:
(i) Fair Market Value. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
employment at not less than the Fair Market Value of the shares of Common Stock
to be purchased on the date of termination of Continuous Service, then (i) the
right to repurchase shall be exercised for cash or cancellation of purchase
money indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the shares
of Common Stock become publicly traded.
(ii) Original Purchase Price. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
Continuous Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate of at least
twenty percent (20%) of the shares of Common Stock per year over five (5) years
from the date the Stock Award is granted (without respect to the date the Stock
Award was exercised or became exercisable) and (ii) the right to repurchase
shall be exercised for cash or cancellation of purchase money indebtedness for
the shares of Common Stock within ninety (90) days of termination of Continuous
Service (or in the case of shares of Common Stock issued upon exercise of
Options after such date of termination, within ninety (90) days after the date
of the exercise) or such longer period as may be agreed to by the Company and
the Participant (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code regarding "qualified small business stock").
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the shares of
Common Stock subject to the Plan, or subject to any Stock Award (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the type(s) and maximum
number of securities subject to the Plan pursuant to subsection 4(a) and the
maximum number of securities subject to award to any employee during any
calendar year pursuant to subsection 5(c), and the outstanding Stock Awards will
be appropriately adjusted in the type(s) and number of securities and price per
share of stock subject to such outstanding Stock Awards. Such adjustments shall
be made by the Board, the determination of which shall be final, binding and
conclusive. (The
17.
<PAGE>
conversion of any convertible securities of the Company shall not be treated as
a "transaction not involving the receipt of consideration by the Company".)
(b) Change in Control. In the event of: (1) a dissolution, liquidation
or sale of all or substantially all of the assets of the Company; (2) a merger
or consolidation in which the Company is not the surviving corporation; (3) a
reverse merger in which the Company is the surviving corporation but the shares
of the Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) after the Listing Date the acquisition by
any person, entity or group within the meaning of Section 13(d) or 14(d) of the
Exchange Act, or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or any
Affiliate of the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then: (i)
any surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the shareholders in the
transaction described in this subsection 11(b)) for those outstanding under the
Plan, or (ii) in the event any surviving corporation or acquiring corporation
refuses to assume such Stock Awards or to substitute similar stock awards for
those outstanding under the Plan, (A) with respect to Stock Awards held by
persons then performing services as Employees, Directors or Consultants and
subject to any applicable provisions of the California Corporate Securities Law
of 1968 and related regulations relied upon as a condition of issuing securities
pursuant to the Plan, the vesting of such Stock Awards (and, if applicable, the
time during which such Stock Awards may be exercised) shall be accelerated prior
to such event and the Stock Awards terminated if not exercised (if applicable)
after such acceleration and at or prior to such event, and (B) with respect to
any other Stock Awards outstanding under the Plan, such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
(c) Acceleration of Options upon a Change in Control. In the event of
any transaction described in subsection 11(b)(other than a merger or
consolidation for the purpose of a change in domicile) and subject to any
limitation set forth in an Option, with respect to Options held by persons then
performing services as an Employee, Director or Consultant of the Company, the
time at which such portion of the shares of Common Stock issuable under such
Options are first exercisable shall be automatically accelerated immediately
prior to such transaction such that each such Option shall be exercisable for
such number of shares of Common Stock that would have been vested as of the date
one year following the date of the transaction. In the event the terms of an
Option provide for acceleration of vesting due to a transaction described in
subsection 11(b) or a similar transaction, the acceleration provisions of this
subsection 11(c) shall not be applicable to such Option.
18.
<PAGE>
12. Amendment of the Plan and Stock Awards.
(a) Amendment of Plan. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) Contemplated Amendments. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
(e) Amendment of Stock Awards. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.
14. Effective Date of Plan.
The Plan shall become effective upon adoption by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been
19.
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approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
15. Choice of Law.
The law of the State of Delaware shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state's conflict of laws rules.
20.
<PAGE>
Chordiant Software, Inc.
1999 Equity Incentive Plan
Stock Option Agreement
(Incentive and Nonstatutory Stock Options)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, Chordiant Software, Inc. (the "Company") has granted you an
option under its 1999 Equity Incentive Plan (the "Plan") to purchase the number
of shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. Vesting. Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.
2. Number of Shares and Exercise Price. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. Exercise prior to Vesting ("Early Exercise"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as provided in
the Plan, to the extent that the aggregate Fair Market Value (determined at the
time of grant) of the shares of Common Stock with respect to which your option
plus all other incentive stock options you hold are exercisable for the first
time by you during any calendar year (under all plans of the Company and its
Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or
<PAGE>
portions thereof that exceed such limit (according to the order in which they
were granted) shall be treated as nonstatutory stock options.
4. Method of Payment. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of
the exercise price in cash or by check or in any other manner permitted by your
-----------------
Grant Notice, which may include one or more of the following:
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(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
5. Whole Shares. You may exercise your option only for whole shares of
Common Stock.
6. Securities Law Compliance. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also
comply with other applicable laws and regulations governing your option, and you
may not exercise your option if the Company determines that such exercise would
not be in material compliance with such laws and regulations.
7. Term. The term of your option commences on the Date of Grant and
expires upon the earliest of the following:
(a) three (3) months after the termination of your Continuous Service
for any reason other than your Disability or death, provided that if during any
part of such three- (3-) month period your option is not exercisable solely
because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until
<PAGE>
the earlier of the Expiration Date or until it shall have been exercisable for
an aggregate period of three (3) months after the termination of your Continuous
Service;
(b) twelve (12) months after the termination of your Continuous
Service due to your Disability;
(c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;
(d) the Expiration Date indicated in your Grant Notice; or
(e) the day before the tenth (10th) anniversary of the Date of Grant.
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
terminates.
8. Exercise.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company (or a
representative of the underwriter(s)) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of,
<PAGE>
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any shares of Common Stock or other securities of the Company held by you, for a
period of time specified by the underwriter(s) (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Securities Act. You further agree to execute and deliver
such other agreements as may be reasonably requested by the Company and/or the
underwriter(s) that are consistent with the foregoing or that are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your shares of
Common Stock until the end of such period.
9. Transferability. Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. Right of First Refusal. Shares of Common Stock that you acquire upon
exercise of your option are subject to any right of first refusal that may be
described in the Company's bylaws in effect at such time the Company elects to
exercise its right. The Company's right of first refusal shall expire on the
Listing Date.
11. Right of Repurchase. To the extent provided in the Company's bylaws as
amended from time to time, the Company shall have the right to repurchase all or
any part of the shares of Common Stock you acquire pursuant to the exercise of
your option.
12. Option not a Service Contract. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
13. Withholding Obligations.
(a) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or restrictions
of law, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a Fair Market Value,
<PAGE>
determined by the Company as of the date of exercise, not in excess of the
minimum amount of tax required to be withheld by law. If the date of
determination of any tax withholding obligation is deferred to a date later than
the date of exercise of your option, share withholding pursuant to the preceding
sentence shall not be permitted unless you make a proper and timely election
under Section 83(b) of the Code, covering the aggregate number of shares of
Common Stock acquired upon such exercise with respect to which such
determination is otherwise deferred, to accelerate the determination of such tax
withholding obligation to the date of exercise of your option. Notwithstanding
the filing of such election, shares of Common Stock shall be withheld solely
from fully vested shares of Common Stock determined as of the date of exercise
of your option that are otherwise issuable to you upon such exercise. Any
adverse consequences to you arising in connection with such share withholding
procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.
14. Notices. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
15. Governing Plan Document. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.
<PAGE>
EXHIBIT 10.3
Chordiant Software, Inc.
1999 Employee Stock Purchase Plan
Adopted by Board of Directors November 30, 1999
Approved by Stockholders _______________ , _____
Termination Date: None
1. Purpose.
(a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
(c) The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an "employee stock purchase plan,"
as that term is defined in Section 423(b) of the Code.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the United States Internal Revenue Code of 1986, as
amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.
(e) "Company" means Chordiant Software, Inc., a Delaware corporation.
(f) "Director" means a member of the Board.
(g) "Eligible Employee" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
(h) "Employee" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.
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<PAGE>
(i) "Employee Stock Purchase Plan" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.
(j) "Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
(k) "Fair Market Value" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal or such other source as the Board deems reliable.
(l) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.
(m) "Offering" means the grant of Rights to purchase Shares under the Plan
to Eligible Employees.
(n) "Offering Date" means a date selected by the Board for an Offering to
commence.
(o) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(p) "Participant" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.
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<PAGE>
(q) "Plan" means this 1999 Employee Stock Purchase Plan.
(r) "Purchase Date" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.
(s) "Right" means an option to purchase Shares granted pursuant to the
Plan.
(t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(u) "Securities Act" means the United States Securities Act of 1933, as
amended.
(v) "Share" means a share of the common stock of the Company.
3. Administration.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how Rights to purchase Shares shall be
granted and the provisions of each Offering of such Rights (which need not be
identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.
(c) The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the
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<PAGE>
Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
4. Shares Subject to the Plan.
(a) Subject to the provisions of paragraph 13 relating to adjustments
upon changes in securities and to the provisions of subparagraph 4(b) relating
to automatic increases in the share reserve, the Shares that may be sold
pursuant to Rights granted under the Plan initially shall not exceed in the
aggregate Two Million (2,000,000) Shares. If any Right granted under the Plan
shall for any reason terminate without having been exercised, the Shares not
purchased under such Right shall again become available for the Plan.
(b) The aggregate number of Shares that may be sold pursuant to Rights
granted under the Plan as specified in subparagraph 4(a) hereof automatically
shall be increased as follows:
(i) For a period of ten (10) years, on October 1 of each year (the
"Calculation Date"), commencing in 2000, the aggregate number of Shares
specified in subparagraph 4(a) hereof shall be increased by the greater of (1)
that number of Shares equal to two percent (2%) of the Diluted Shares
Outstanding or (2) that number of Shares that have been sold pursuant to Rights
granted under the Plan in the prior 12-month period; provided, however, that
each year the Board, in its discretion, may provide for a smaller increase in
the share reserve.
(ii) For purposes of subparagraph 4(b)(i) hereof, "Diluted Shares
Outstanding" shall mean, as of any date, (1) the number of outstanding Shares on
such Calculation Date, plus (2) the number of Shares issuable upon such
Calculation Date assuming the conversion of all outstanding Preferred Stock and
convertible notes, plus (3) the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the fiscal year, calculated using the treasury stock method.
(iii) Notwithstanding the foregoing, the aggregate number of Shares
that may be sold pursuant to Rights granted under the Plan as specified in
subparagraph 4(a) hereof, as automatically increased, shall not exceed Thirteen
Million (13,000,000) Shares.
(c) The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.
5. Grant of Rights; Offering.
(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an
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<PAGE>
Offering Date or Dates selected by the Board. Each Offering shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all Employees granted Rights to purchase Shares under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 6 through 9, inclusive.
(b) If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an earlier-
granted Right (or a Right with a lower exercise price, if two Rights have
identical grant dates) will be exercised to the fullest possible extent before a
later-granted Right (or a Right with a higher exercise price if two Rights have
identical grant dates) will be exercised.
6. Eligibility.
(a) Rights may be granted only to Employees of the Company or, as the
Board may designated as provided in subparagraph 3(b), to Employees of an
Affiliate. Except as provided in subparagraph 6(b), an Employee shall not be
eligible to be granted Rights under the Plan unless, on the Offering Date, such
Employee has been in the employ of the Company or the Affiliate, as the case may
be, for such continuous period preceding such grant as the Board may require,
but in no event shall the required period of continuous employment be equal to
or greater than two (2) years.
(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:
(i) the date on which such Right is granted shall be the "Offering
Date" of such Right for all purposes, including determination of the exercise
price of such Right;
(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
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(c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of
this subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such Employee.
(d) An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase
Shares of the Company or any Affiliate to accrue at a rate which exceeds twenty
five thousand dollars ($25,000) of the fair market value of such Shares
(determined at the time such Rights are granted) for each calendar year in which
such Rights are outstanding at any time.
(e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
7. Rights; Purchase Price.
(a) On each Offering Date, each Eligible Employee, pursuant to an Offering
made under the Plan, shall be granted the Right to purchase up to the number of
Shares purchasable either:
(i) with a percentage designated by the Board not exceeding fifteen
percent (15%) of such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering; or
(ii) with a maximum dollar amount designated by the Board that, as
the Board determines for a particular Offering, (1) shall be withheld, in whole
or in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(b) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of Shares carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering.
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In addition, in connection with each Offering that contains more than one
Purchase Date, the Board may specify a maximum aggregate amount of Shares which
may be purchased by all Participants on any given Purchase Date under the
Offering. If the aggregate purchase of Shares upon exercise of Rights granted
under the Offering would exceed any such maximum aggregate amount, the Board
shall make a pro rata allocation of the Shares available in as nearly a uniform
manner as shall be practicable and as it shall deem to be equitable.
(d) The purchase price of Shares acquired pursuant to Rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Purchase Date.
8. Participation; Withdrawal; Termination.
(a) An Eligible Employee may become a Participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial institution designated by the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.
(b) At any time during an Offering, a Participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board in the Offering. Upon such withdrawal from the Offering by
a Participant, the Company shall distribute to such Participant all of his or
her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire Shares for the Participant) under the
Offering, without interest unless otherwise specified in the Offering, and such
Participant's interest in that Offering shall be automatically terminated. A
Participant's withdrawal from an Offering will have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
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(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating Employee's employment with the
Company or a designated Affiliate for any reason (subject to any post-employment
participation period required by law) or other lack of eligibility. The Company
shall distribute to such terminated Employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire Shares for the terminated Employee) under the Offering, without
interest unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.
9. Exercise.
(a) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of Shares up to the maximum amount of Shares
permitted pursuant to the terms of the Plan and the applicable Offering, at the
purchase price specified in the Offering. No fractional Shares shall be issued
upon the exercise of Rights granted under the Plan unless specifically provided
for in the Offering.
(b) Unless otherwise specifically provided in the Offering, the amount, if
any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of Shares that is equal to the amount required to purchase
one or more whole Shares on the final Purchase Date of the Offering shall be
distributed in full to the Participant at the end of the Offering, without
interest. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial institution as
provided in subparagraph 8(a), then the distribution shall be made from the
separate account, without interest unless otherwise specified in the Offering.
(c) No Rights granted under the Plan may be exercised to any extent unless
the Shares to be issued upon such exercise under the Plan (including Rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act and the Plan is in material compliance with all applicable
state, foreign and other securities and other laws applicable to the Plan. If on
a Purchase Date in any Offering hereunder the Plan is not so registered or in
such compliance, no Rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the Plan is subject
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to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If, on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no Rights granted under the Plan or any Offering shall be exercised and all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire Shares) shall be distributed to
the Participants, without interest unless otherwise specified in the Offering.
If the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subparagraph 8(a), then the distribution shall be made from the separate
account, without interest unless otherwise specified in the Offering.
10. Covenants of the Company.
(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights unless and until
such authority is obtained.
11. Use of Proceeds from Shares.
Proceeds from the sale of Shares pursuant to Rights granted under the Plan
shall constitute general funds of the Company.
12. Rights as a Stockholder.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, Shares subject to Rights granted under
the Plan unless and until the Participant's Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.
13. Adjustments upon Changes in Securities.
(a) If any change is made in the Shares subject to the Plan, or subject
to any Right, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
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Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of Shares subject to the Plan pursuant to subparagraph 4(a), and the
outstanding Rights will be appropriately adjusted in the class(es), number of
Shares and purchase limits of such outstanding Rights. The Board shall make
such adjustments, and its determination shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a transaction that does not involve the receipt of consideration by
the Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the Shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then: (1)
any surviving or acquiring corporation shall assume Rights outstanding under the
Plan or shall substitute similar rights (including a right to acquire the same
consideration paid to Stockholders in the transaction described in this
subparagraph 13(b)) for those outstanding under the Plan, or (2) in the event
any surviving or acquiring corporation refuses to assume such Rights or to
substitute similar rights for those outstanding under the Plan, then, as
determined by the Board in its sole discretion such Rights may continue in full
force and effect or the Participants' accumulated payroll deductions (exclusive
of any accumulated interest which cannot be applied toward the purchase of
Shares under the terms of the Offering) may be used to purchase Shares
immediately prior to the transaction described above under the ongoing Offering
and the Participants' Rights under the ongoing Offering thereafter terminated.
14. Amendment of the Plan.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:
(i) Increase the amount of Shares reserved for Rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan to the extent such modification requires stockholder approval in order for
the Plan to obtain employee stock purchase plan treatment under Section 423 of
the Code or to comply with the requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
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(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.
(c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.
15. Designation of Beneficiary.
(a) A Participant may file a written designation of a beneficiary who is
to receive any Shares and/or cash, if any, from the Participant's account under
the Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.
(a) The Participant may change such designation of beneficiary at any time
by written notice. In the event of the death of a Participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such Participant's death, the Company shall deliver such Shares and/or cash to
the executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its sole discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. Termination or Suspension of the Plan.
(a) The Board in its discretion may suspend or terminate the Plan at
any time. No Rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
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17. Effective Date of Plan.
The Plan shall become effective as determined by the Board, but no Rights
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board, which date may be prior to the
effective date set by the Board.
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EXHIBIT 10.4
Chordiant Software, Inc.
1999 Non-Employee Directors' Stock Option Plan
Adopted November 30, 1999
Approved By Stockholders _______________, _____
Effective Date: Upon Initial Public Offering
Termination Date: None
1. Purposes.
(a) Eligible Option Recipients. The persons eligible to receive
Options are the Non-Employee Directors of the Company.
(b) Available Options. The purpose of the Plan is to provide a means
by which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to
retain the services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Annual Grant" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.
(c) "Annual Meeting" means the annual meeting of the stockholders of
the Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee Grant" means an Option granted to a member of a
committee of the Board pursuant to subsection 6(c) of the Plan.
(g) "Common Stock" means the common stock of the Company.
(h) "Company" means Chordiant Software, Inc., a Delaware corporation.
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(i) "Consultant" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(j) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(k) "Continuous Service" means that the Optionholder's service with the
Company as a Non-Employee Director is not interrupted or terminated. The
Optionholder's Continuous Service shall be deemed to have terminated if the
Optionholder no longer is a Non-Employee Director. However, merely becoming a
Consultant, for example, will not constitute an interruption of Continuous
Service if the Optionholder still is a Non-Employee Director. The Board, in its
sole discretion, may determine whether Continuous Service shall be considered
interrupted in the case of any leave of absence approved by the Board, including
sick leave, military leave or any other personal leave.
(l) "Director" means a member of the Board of Directors of the Company.
(m) "Disability" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major duties of
that person's position with the Company or an Affiliate of the Company because
of the sickness or injury of the person.
(n) "Employee" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a
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share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or market (or
the exchange or market with the greatest volume of trading in the Common Stock)
on the last market trading day prior to the day of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(q) "Initial Grant" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 6(a) of the Plan.
(r) "IPO Date" means the effective date of the initial public offering
of the Common Stock.
(s) "Non-Employee Director" means a Director who is not an Employee.
(t) "Nonstatutory Stock Option" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(u) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "Option" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(w) "Option Agreement" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(x) "Optionholder" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(y) "Plan" means this Chordiant Software, Inc. 1999 Non-Employee
Directors' Stock Option Plan.
(z) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "Securities Act" means the Securities Act of 1933, as amended.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
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(b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.
(c) Effect of Board's Decision. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock and to the provisions of subsection
4(b) relating to automatic increases in the share reserve, the Common Stock that
may be issued pursuant to Options shall not exceed in the aggregate Seven
Hundred Thousand (700,000) shares of Common Stock.
(b) Automatic Increase to the Share Reserve. The aggregate number of
shares of Common Stock that may be issued pursuant to Options granted under the
Plan as specified in subsection 4(a) hereof automatically shall be increased as
follows:
(i) For a period of ten (10) years, on October 1 of each year
(the "Calculation Date"), commencing in 2000, the aggregate number of shares of
Common Stock specified in subsection 4(a) hereof shall be increased by the
greater of (1) that number of shares of Common Stock equal to one-half of one
percent (0.5%) of the Diluted Shares Outstanding or (2) that number of shares of
Common Stock that have been made subject to Options granted under the Plan in
the prior 12-month period; provided, however, that each year the Board, in its
discretion, may provide for a smaller increase in the share reserve.
(ii) For purposes of subsection 4(b)(i) hereof, "Diluted Shares
Outstanding" shall mean, as of any date, (1) the number of outstanding shares of
Common Stock on such Calculation Date, plus (2) the number of shares of Common
Stock issuable upon such Calculation Date assuming the conversion of all
outstanding Preferred Stock and convertible
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notes, plus (3) the additional number of dilutive Common Stock equivalent shares
outstanding as the result of any options or warrants outstanding during the
fiscal year, calculated using the treasury stock method.
(c) Reversion of Shares to the Share Reserve. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Option shall revert to and again become available for issuance under the Plan.
(d) Source of Shares. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or otherwise.
5. Eligibility.
The Options as set forth in section 6 automatically shall be granted under
the Plan to all Non-Employee Directors.
6. Non-Discretionary Grants.
Without any further action of the Board, each Non-Employee Director shall
be granted the following Options:
(a) Initial Grants.
(i) On the IPO Date, each person who is then a Non-Employee
Director automatically shall be granted an Initial Grant to purchase Twenty-five
Thousand (25,000) shares of Common Stock on the terms and conditions set forth
herein.
(ii) After the IPO Date, each person who is elected or appointed
for the first time to be a Non-Employee Director automatically shall, upon the
date of his or her initial election or appointment to be a Non-Employee Director
by the Board or stockholders of the Company, be granted an Initial Grant to
purchase Twenty-five Thousand (25,000) shares of Common Stock on the terms and
conditions set forth herein.
(b) Annual Grants.
(i) On the day following each Annual Meeting after the IPO Date,
each person who is then a Non-Employee Director automatically shall be granted
an Annual Grant to purchase Seven Thousand Five Hundred (7,500) shares of Common
Stock on the terms and conditions set forth herein.
(ii) If a person is first elected or appointed as a Non-Employee
Director during the 12-month period following the time specified in subsection
6(b)(i) but before the next Annual Meeting, then such person automatically shall
be granted an Annual Grant that is pro rated as to the number of shares and the
vesting schedule. The pro rated number of shares shall be determined by
reducing Seven Thousand Five Hundred (7,500) shares of Common Stock by Six
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Hundred Twenty-five (625) shares of Common Stock for each full month that has
elapsed between the date of the prior Annual Meeting and the date of such
election or appointment. The pro rated shares shall vest monthly after the date
of grant at the rate of Six Hundred Twenty-five (625) shares of Common Stock per
month.
(c) Committee Grants.
(i) On the day following each Annual Meeting after the IPO Date,
each Non-Employee Director who is then a member of a committee of the Board
automatically shall be granted, for each such committee, an Option to purchase
Five Thousand (5,000) shares of Common Stock.
(ii) If a person is first appointed to a committee of the Board
during the 12-month period following the time specified in subsection 6(c)(i)
but before the next Annual Meeting, then such person automatically shall be
granted a Committee Grant that is pro rated as to the number of shares and the
vesting schedule. The pro rated number of shares shall be determined by reducing
Five Thousand (5,000) shares of Common Stock by Four Hundred Sixteen and
7/10/th/ (416.7) shares of Common Stock for each full month that has elapsed
between the date of the prior Annual Meeting and the date of such appointment
(rounded down to the nearest whole share). The pro rated shares shall vest
monthly after the date of grant at the rate of Four Hundred Seventeen (417)
shares of Common Stock per month.
7. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) Exercise. Each Option shall be exercisable immediately.
(c) Exercise Price. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, the
exercise price for an Initial Grant made on the IPO Date shall be the price at
which the Common Stock is first sold to the public in the initial public
offering as specified in the final prospectus. Notwithstanding the foregoing,
an Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) Consideration. The purchase price of stock acquired pursuant to
an Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i)
6
<PAGE>
cash or check, (ii) delivery to the Company of other Common Stock, (ii) deferred
payment or (iv) any other form of legal consideration that may be acceptable to
the Board. The purchase price of Common Stock acquired pursuant to an Option
that is paid by delivery to the Company of other Common Stock acquired, directly
or indirectly from the Company, shall be paid only by shares of the Common Stock
of the Company that have been held for more than six (6) months (or such longer
or shorter period of time required to avoid a charge to earnings for financial
accounting purposes). At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) Transferability. An Option shall not be transferable except (i)
by will or by the laws of descent and distribution and (ii) to the further
extent permitted under the rules for a Form S-8 registration statement under the
Securities Act. The Option shall be exercisable during the lifetime of the
Optionholder only by the Optionholder or a permitted transferee. Notwithstanding
the foregoing, the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(f) Vesting Generally. Options shall vest and become exercisable as
follows:
(i) Initial Grants shall provide for vesting of 1/4th of the
shares one year after the date of the grant and 1/48th of the shares each month
thereafter.
(ii) Annual Grants shall provide for vesting of 1/12th of the
shares each month for 12 months after the date of the grant.
(iii) Committee Grants shall provide for vesting of 1/12th of the
shares each month for 12 months after the date of the grant.
(g) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.
(h) Extension of Termination Date. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would
7
<PAGE>
violate the registration requirements under the Securities Act, then the Option
shall terminate on the earlier of (i) the expiration of the term of the Option
set forth in subsection 7(a) or (ii) the expiration of a period of three (3)
months after the termination of the Optionholder's Continuous Service during
which the exercise of the Option would not be in violation of such registration
requirements.
(i) Disability of Optionholder. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.
(j) Death of Optionholder. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Options, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.
(b) Securities Law Compliance. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
8
<PAGE>
10. Miscellaneous.
(a) Stockholder Rights. No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such Optionholder has satisfied all
requirements for exercise of the Option pursuant to its terms.
(b) No Service Rights. Nothing in the Plan or any instrument executed
or Option granted pursuant thereto shall confer upon any Optionholder any right
to continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(c) Investment Assurances. The Company may require an Optionholder, as
a condition of exercising or acquiring stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act or (iv)
as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(d) Withholding Obligations. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
9
<PAGE>
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the shares of
Common Stock subject to the Plan, or subject to any Option (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of securities subject both to the Plan pursuant to subsection 4(a) and to
the nondiscretionary Options specified in Section 5, and the outstanding Options
will be appropriately adjusted in the class(es) and number of securities and
price per share of Common Stock subject to such outstanding Options. The Board
shall make such adjustments, and its determination shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a transaction "without receipt of consideration" by the
Company.)
(b) Change in Control. In the event of a: (1) a dissolution,
liquidation or sale of all or substantially all of the assets of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Common Stock outstanding immediately preceding
the merger are converted by virtue of the merger into other property, whether in
the form of securities, cash or otherwise; or (4) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Exchange
Act, or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or any Affiliate
of the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then: (i) any surviving
corporation or acquiring corporation shall assume any Options outstanding under
the Plan or shall substitute similar options (including an option to acquire the
same consideration paid to the stockholders in the transaction described in this
subsection 11(b)) for those outstanding under the Plan, or (ii) in the event any
surviving corporation or acquiring corporation refuses to assume such Options or
to substitute similar options for those outstanding under the Plan, (A) with
respect to Options held by persons then performing services as Employees,
Directors or Consultants, the vesting of such Options (and, if applicable, the
time during which such Options may be exercised) shall be accelerated prior to
such event and the Options terminated if not exercised after such acceleration
and at or prior to such event, and (B) with respect to any other Options
outstanding under the Plan, such Options shall be terminated if not exercised
(if applicable) prior to such event.
(c) Acceleration of Vesting. In the event of any transaction described
in subsection 11(b) (other than a merger or consolidation for the purpose of a
change in domicile) and subject to any limitation set forth in an Option, with
respect to Options held by persons then performing services as an Employee,
Director or Consultant of the Company, the vesting of such Options shall be
automatically accelerated immediately prior to such transaction such that each
such Option shall be exercisable for such number of vested shares that would
have been vested as of the date one year following the date of the transaction.
10
<PAGE>
In the event the terms of an Option provide for acceleration of vesting due to a
transaction described in subsection 11(b) or a similar transaction, the
acceleration provisions of this subsection 11(c) shall not be applicable to such
Option.
12. Amendment of the Plan and Options.
(a) Amendment of Plan. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval.
(c) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) Amendment of Options. The Board at any time, and from time to
time, may amend the terms of any one or more Options; provided, however, that
the rights under any Option shall not be impaired by any such amendment unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any
time. No Options may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan
shall not impair rights and obligations under any Option granted while the Plan
is in effect except with the written consent of the Optionholder.
14. Effective Date of Plan.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
11
<PAGE>
15. Choice of Law.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
12
<PAGE>
EXHIBIT 10.5
CUPERTINO CITY CENTER
NET OFFICE LEASE
by and between
CUPERTINO CITY CENTER BUILDINGS,
a California limited partnership,
as Lessor
and
CHORDIANT SOFTWARE, INC.,
a Delaware corporation,
as Lessee
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. SUMMARY OF LEASE PROVISIONS...................................... 1
2. PREMISES DEMISED................................................. 2
3. TERM; OPTION TO EXTEND........................................... 2
4. POSSESSION....................................................... 4
5. RENT............................................................. 5
6. SECURITY DEPOSIT................................................. 5
7. PROJECT TAXES AND OPERATING EXPENSE ADJUSTMENTS.................. 5
8. USE.............................................................. 9
9. COMPLIANCE WITH LAWS............................................. 10
10. ALTERATIONS AND ADDITIONS........................................ 11
11. REPAIRS.......................................................... 12
12. LIENS............................................................ 12
13. ASSIGNMENT AND SUBLETTING........................................ 13
14. HOLD HARMLESS.................................................... 15
15. SUBROGATION...................................................... 16
16. LESSEE'S INSURANCE............................................... 16
17. SERVICES AND UTILITIES........................................... 17
18. RULES AND REGULATIONS............................................ 18
19. HOLDING OVER..................................................... 18
20. ENTRY BY LESSOR.................................................. 18
21. RECONSTRUCTION................................................... 18
22. DEFAULT.......................................................... 19
23. REMEDIES UPON DEFAULT............................................ 20
24. EMINENT DOMAIN................................................... 21
25. OFFSET STATEMENT: MODIFICATIONS FOR LENDER...................... 21
26. PARKING.......................................................... 21
27. AUTHORITY........................................................ 22
28. SURRENDER OF PREMISES............................................ 22
29. LESSOR DEFAULT AND MORTGAGEE PROTECTION.......................... 22
30. RIGHTS RESERVED BY LESSOR........................................ 23
31. EXHIBITS......................................................... 23
32. WAIVER........................................................... 23
33. NOTICES.......................................................... 23
34. JOINT OBLIGATIONS................................................ 23
35. MARGINAL HEADING................................................. 23
36. TIME............................................................. 24
37. SUCCESSORS AND ASSIGNS........................................... 24
38. RECORDATION...................................................... 24
39. QUIET POSSESSION................................................. 24
40. LATE CHARGES; ADDITIONAL RENT AND INTEREST....................... 24
41. PRIOR AGREEMENTS................................................. 24
</TABLE>
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
42. INABILITY TO PERFORM............................................. 24
43. ATTORNEYS' FEES.................................................. 24
44. SALE OF PREMISES BY LESSOR....................................... 25
45. SUBORDINATION/ATTORNMENT......................................... 25
46. NAME............................................................. 25
47. SEVERABILITY..................................................... 25
48. CUMULATIVE REMEDIES.............................................. 25
49. CHOICE OF LAW.................................................... 25
50. SIGNS............................................................ 25
51. GENDER AND NUMBER................................................ 26
52. CONSENTS......................................................... 26
53. BROKERS.......................................................... 26
54. SUBSURFACE AND AIRSPACE.......................................... 26
55. COMMON AREA...................................................... 26
56. LABOR DISPUTES................................................... 26
57. CONDITIONS....................................................... 27
58. LESSEE'S FINANCIAL STATEMENTS.................................... 27
59. LESSOR NOT A TRUSTEE............................................. 27
60. MERGER........................................................... 27
61. NO PARTNERSHIP OR JOINT VENTURE.................................. 27
62. LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS..................... 27
63. PLANS............................................................ 27
64. INTENTIONALLY OMITTED............................................ 27
65. WAIVER OF JURY................................................... 27
66. JOINT PARTICIPATION.............................................. 27
67. COUNTERPARTS..................................................... 27
</TABLE>
<PAGE>
CUPERTINO CITY CENTER
NET OFFICE LEASE
For and in consideration of rentals, covenants, and conditions hereinafter set
forth, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
herein described Premises for the term, at the rental rate specified herein and
subject to and upon all of the terms, covenants and agreements set forth in this
lease ("Lease"):
1. SUMMARY OF LEASE PROVISIONS.
---------------------------
a. Lessee: CHORDIANT SOFTWARE, INC., a Delaware corporation ("Lessee").
------
b. Lessor: CUPERTINO CITY CENTER BUILDINGS, a California limited
------
partnership ("Lessor").
c. Date of Lease (for reference purposes only): June ___, 1998.
-------------------------------------------
d. Premises: That certain office space commonly known as 20400 Stevens
--------
Creek Boulevard, Suites 250 and 400, Cupertino, California, being all
of the fourth (4th) floor and a portion of the second (2nd) floor of
the Building, and shown cross-hatched on the reduced floor plans
attached hereto as Exhibit "A" consisting of approximately thirty-one
thousand seventy-one (31,071) square feet of Rentable Area ("the
Premises"). (ARTICLE 2)
e. Term: Seventy-two (72) months. (ARTICLE 3)
----
f. Commencement Date: July 15, 1998 ("Commencement Date"). (ARTICLE 3)
-----------------
g. Lease Termination: July 14, 2004 ("Expiration Date"), unless sooner
-----------------
terminated pursuant to the terms of this Lease. (ARTICLE 3)
h. Base Rent: (ARTICLE 5)
---------
Base Rent Per Month
Per SF of Rentable
Months Area
--------------------------- --------------------
July 15, 1998-June 30, 1999 $2.17
July 1, 1999-June 30, 2000 $2.6875
July 1, 2000-June 30, 2001 $2.7875
July 1, 2001-June 30, 2002 $2.8875
July 1, 2002-June 30, 2003 $2.9875
July 1, 2003-June 30, 2004 $3.0875
i. Security Deposit: $179,590.38 (based upon $5.78 per square foot of
----------------
Rentable Area in the Premises). (ARTICLE 6)
j. Lessee's Percentage Share: A fraction (expressed as a percentage),
-------------------------
the numerator of which is the Rentable Area of the Premises and the
denominator of which is the Rentable Area of the Building.
(ARTICLE 7)
k. Parking: Non-Exclusive right to use no more than three and one-half
-------
(3.5) unreserved, uncovered spaces per each one thousand (1,000)
square feet of Usable Area in the Premises (rounded to the nearest
whole number) without charge during the Term, subject to the
provisions of Article 26. (ARTICLE 26)
l. Addresses for Notice
--------------------
Lessor: c/o Maxim Property Management
350 Bridge Parkway
Redwood City, California 94065-1517
Attn: Mr. Sanford Diller
Telephone No.: (650) 596-5300
Fax No.: (650) 596-5377
with a concurrent copy to:
c/o Maxim Property Management
350 Bridge Parkway
Redwood City, California 94065-1517
Attn: Ms.Vicki Mullins
Telephone No.: (650) 596-5300
Fax No.: (650) 596-5377
-1-
<PAGE>
and with a concurrent copy to the
Project Management Office at:
20400 Stevens Creek Boulevard, Suite 200
Cupertino, California 95014
Telephone No.: (408) 873-0121
Fax No.: (408) 973-9122
Lessee: Prior to the Commencement Date:
Chordiant Software, Inc.
1810 Embarcadero Road
Palo Alto, California 94303
Attn: Mr. Steven Springsteel
Telephone No.: (650) 493-3800
Fax No.: (650) 493-2215
Following the Commencement Date:
Chordiant Software, Inc.
20400 Stevens Creek Boulevard, Suite 400
Attn: Mr. Steven Springsteel
Cupertino, California 95014
Telephone No.: (408)
Fax No.: (408)
with a concurrent copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 E) Camino Real
Palo Alto, California 94306-2155
Attn: Eric Jensen, Esq.
Telephone No.: (650) 843-5000
Fax No.: (650) 857-0663
m. Broker: Cornish & Carey Commercial as both Lessor's broker and
------
Lessee's broker. (ARTICLE 53)
n. Summary Provisions in General. Parenthetical references in this
-----------------------------
Article 1 to other articles in this Lease are for convenience of
reference, and designate some of the other Lease articles where
applicable provisions are set forth. All of the terms and conditions
of each such referenced article shall be construed to be incorporated
within and made a part of each of the above referred to Summary of
Lease Provisions. If any conflict exists between any Summary of Lease
Provisions as set forth above and the balance of the Lease, then the
latter shall control.
2. PREMISES DEMISED. Lessor does hereby lease to Lessee and Lessee hereby
----------------
leases from Lessor the Premises described in Article 1.d., subject,
nevertheless, to all of the terms and conditions of this Lease. Calculation of
the actual "Rentable Area" of the Premises, Building and Project shall be
performed by Lessor's architect in accordance with Building measurement
standards, which calculation shall be conclusive and binding upon Lessor and
Lessee. Following the determination of the actual Rentable Area of the
Premises, all amounts payable under this Lease based upon the Rentable Area of
the Premises shall be retroactively and prospectively adjusted and the parties
shall within fifteen (15) days following such determination, make such
reconciliation payments or refunds, as are applicable based thereon. The
Premises is approximately as shown as cross-hatched on the floor plans attached
hereto as Exhibit "A." As used in this Lease, the term "Building" shall mean
the building at the address listed in Article 1.d. above in which the Premises
is located. The Building is situated upon the parcel(s) of land shown on
Exhibit "B" attached hereto (collectively, the "Parcel"). The Building and the
'Exterior Common Area" (as defined in Article 55 below) and all other
improvements as now or hereafter located on the Parcel, if any, are herein
sometimes referred to collectively as the "Project".
3. TERM; OPTION TO EXTEND.
----------------------
a. Term. The term of this Lease shall be for the period designated in
----
Article 1.f., commencing on the Commencement Date and ending on the Expiration
Date set forth in Article 1.g., unless sooner terminated or extended pursuant to
this Lease ("Term"). The expiration or sooner termination of the Lease is
hereinafter referred to as "Lease Termination".
b. Option to Extend. Lessee shall have the option to extend the Term for
----------------
a period of five (5) years immediately following the expiration of the initial
Term (the "Extended Term"), on all provisions contained in this Lease (except
for Base Rent and such other terms and conditions as are specifically or by
their operation limited to the initial Term only and except that Lessee shall
have no further right or option to extend the term upon the expiration of the
Extended Term), by giving notice of exercise of the option (the "Option Notice")
to Lessor at least twelve (12) months but not more than fifteen (15) months
before the expiration of the then applicable Term.
Lessor's ability to plan for the orderly transaction of its rental
business, to accommodate the needs of other existing and potential tenants, and
to enjoy the benefits of increasing rentals at such times as Lessor is able to
do so in its sole and absolute discretion, are fundamental elements of Lessor's
willingness to provide Lessee with the
-2-
<PAGE>
option to extend contained herein. Accordingly, Lessee hereby acknowledges that
strict compliance with the notification provisions contained herein, and
Lessee's strict compliance with the time period for such notification contained
herein, are material elements of the bargained for exchange between Lessor and
Lessee and are material elements of Lessee's consideration paid to Lessor in
exchange for the grant of the option. Therefore, Lessee's failure to adhere
strictly and completely to the provisions and time frame contained in this
provision shall render the option automatically null, void and of no further
force or effect, without notice, acknowledgement, or any action of any nature or
sort, required of Lessor. Lessee acknowledges that no other act or notice, other
than the express written notice set forth hereinabove, shall act to put Lessor
on notice of Lessee's intent to extend, and Lessee hereby waives any claims to
the contrary, notwithstanding any other actions of Lessee during the Term of
this Lease or any statements, written or oral, of Lessee to Lessor to the
contrary during the Term of this Lease. Notwithstanding the foregoing, if Lessee
is in default (after the expiration of any applicable period for cure pursuant
to Article 22 below) on the date of giving the Option Notice, the Option Notice
shall be totally ineffective, or if Lessee is in default (after the expiration
of any applicable period for cure pursuant to Article 22 below) on the date the
Extended Term is to commence, in addition to any and all other remedies
available to Lessor under this Lease. at Lessor's election, the exercise of the
option shall be deemed null and void, the Extended Term shall not commence, and
this Lease shall expire at the end of the Term. Further, the option to extend
granted pursuant hereto and this entire Article 3.b. shall be null and void and
of no further force or effect if during the twelve (12) month period prior to
the delivery of the Option Notice, Lessee has incurred two or more late charges
pursuant to Article 40.a. below, due to late payment of Base Rent (regardless of
whether such late payment was subsequently cured).
The option to extend granted pursuant hereto is personal to original Lessee
signatory to this Lease and cannot be assigned, transferred or conveyed to, or
exercised for the benefit of, any other person or entity (voluntarily,
involuntarily. by operation of law or otherwise) including, without limitation,
to any assignee or subtenant permitted under Article 13, other than a "Permitted
Transferee" (as defined in Article 13). All of Lessee's rights under this
Article 3.b. shall terminate upon the expiration of the initial Term or sooner
termination of this Lease.
The parties shall have thirty (30) days after Lessor receives the Option
Notice in which to agree upon the Base Rent to be payable during the Extended
Term. The Base Rent payable during the Extended Term shall be an amount equal
to the then current "Fair Market Rental Value" (defined below) of the Premises
at the time of commencement of the proposed Extended Term. However, in no event
shall the Base Rent during the Extended Term be less than the Base Rent payable
at the expiration of the initial Term. The term "Fair Market Rental Value" of
the Premises as used in this Lease shall mean the then prevailing fair market
rent for the Premises as of the commencement of the Extended Term. In
determining such rate, the parties may consider first class office space
comparable in size and quality to the Premises, if any, located in the vicinity
of the Project and located in the Building and other buildings comparable in
size and quality to the Building in which the Premises is located, and taking
into consideration all other factors normally considered when determining fair
market rental value (including, without limitation, the duration of the Extended
Term and such rental increases as may be appropriate during such period).
Upon determination of the Fair Market Rental Value for the Premises, the
parties shall immediately execute an amendment to this Lease stating the Base
Rent to be paid during the Extended Term. In the event Lessee has retained the
services of a real estate broker to represent Lessee during the negotiations in
connection with the Extended Term, it is expressly understood that Lessor shall
have no obligation for the payment of all or any part of a real estate
commission or other brokerage fee to Lessee's real estate broker in connection
with the Extended Term. Lessee shall be solely responsible for payment of fees
for services rendered to Lessee by such broker in connection with the Extended
Term.
If the parties are unable to agree, in their sole and absolute discretion,
on the Fair Market Rental Value for the Premises within such thirty (30) day
period, then the Fair Market Rental Value for the Extended Term shall be
determined as follows:
a. Following the expiration of such thirty (30) day period, Lessor
and Lessee shall meet and endeavor in good faith to agree upon a licensed
commercial real estate agent with at least seven (7) years full-time experience
as a real estate agent active in leasing of commercial office buildings in the
area of the Premises to appraise and set the Fair Market Rental Value for the
Extended Term. If Lessor and Lessee fad to reach agreement upon such agent
within fifteen (15) days following the expiration of such thirty (30) day
period, then, within fifteen (15) days thereafter, each party, at its own cost
and by giving notice to the other party, shall appoint a licensed commercial
real estate agent with at least seven (7) years full-time experience as a real
estate agent active in leasing of commercial office buildings in the area of the
Premises to appraise and set the Fair Market Rental Value for the Extended Term.
If a party does not appoint an agent within fifteen (15) days after the other
party has given notice of the name of its agent, the single agent appointed
shall be the sole agent and shall set the Fair Market Rental Value for the
Extended Term. If there are two (2) agents appointed by the parties as stated
above, the agents shall meet within ten (10) days after the second agent has
been appointed and attempt to set Fair Market Rental Value for the Extended
Term. If the two (2) agents are unable to agree on such Fair Market Rental
Value within fifteen (15) days after the second agent has been appointed, they
shall, within fifteen (15) days after the last day the two (2) agents were to
have set such Fair Market Rental Value, attempt to select a third agent who
shall be a licensed commercial real estate agent meeting the qualifications
stated above. If the two (2) agents are unable to agree on the third agent
within such twenty (20) day period, either Lessor or Lessee may request the
President of the local chapter of the Society of Industrial and Office Realtors
(SIOR) or a then equivalent organization if SIOR is not then in existence to
select a third agent meeting the qualifications stated in this subsection. Each
of the parties shall bear one-half (1/2) of the cost of appointing the third
agent and of paying the third agent's fee. No agent shall be employed by, or
otherwise be engaged in business with or affiliated with Lessor or Lessee,
except as an independent contractor.
b. Within fifteen (15) days after the selection of the third agent,
a majority of the agents shall set the Fair Market Rental Value for the Extended
Term. If a majority of the agents are unable to set such Fair
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Market Rental Value within the stipulated period of time, each agent shall make
a separate determination of such Fair Market Rental Value and the three (3)
appraisals shall be added together and the total shall be divided by three (3).
The resulting quotient shall be the Fair Market Rental Value for the Premises
for the Extended Term. If, however, the low appraisal and/or high appraisal
is/are more than twenty percent (20%) lower and/or higher than the middle
appraisal, the low appraisal and/or the high appraisal shall be disregarded. If
only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be
added together and their total divided by two (2), and the resulting quotient
shall be Fair Market Rental Value for the Extended Term. If both the low
appraisal and the high appraisal are disregarded as stated in this subsection,
the middle appraisal shall be the Fair Market Rental Value for the Extended
Term.
c. Each agent shall hear, receive and consider such information
as Lessor and I as each care to present regarding the determination of Fair
Market Rental Value for the Extended Term and each agent shall have access to
the information used by each other agent. Upon determination of the Fair Market
Rental Value for the Extended Term, the agents shall immediately notify the
parties hereto in writing of such determination by certified mail, return
receipt requested.
4. POSSESSION.
----------
a. Delay in Possession. The parties acknowledge that the Premises is
-------------------
presently vacant and available for delivery of possession to Lessee. However,
if Lessor, for any reason whatsoever, cannot deliver possession of all or any
part of the Premises to Lessee by the date specified in Article 1.f. above, then
this Lease shall not be void or voidable, nor shall Lessor be liable to Lessee
for any loss or damage resulting therefrom; except, however, that in such event,
the "Commencement Date" for all purposes of this Lease shall be adjusted to be
the date when Lessor delivers possession or such earlier date upon which such
delivery of possession would have occurred but for delay in delivery of
possession of the Premises caused and/or contributed to by Lessee and/or
Lessee's agents, officers, employees, representatives, contractors, servants,
invitees and/or guests (collectively "Lessees Agents"), and the "Expiration
Date" for all purposes of this Lease shall be the date which is the period of
the Term specified in Article 1.e. following such Commencement Date. Lessor
shall be deemed to have delivered possession of the Premises to Lessee on the
date of the execution and delivery of this Lease by Lessor and Lessee.
b. Early Possession. Subject to Article 4.c. below, Lessee shall be
----------------
permitted access to the Premises prior to the Commencement Date and following
the full execution and delivery of this Lease for purposes of construction of
certain improvements to be permanently affixed to the Premises (the "Lessee
Improvements") and installation of Lessee's furnishings, trade fixtures and
equipment. Subject in all events to compliance with the requirements of the
City of Cupertino and other applicable governmental requirements, Lessor hereby
approves the general schematics for the Lessee Improvements prepared by Reel
Grobman, dated as of June 9, 1998, a copy of which has been provided by Lessee
to Lessor prior to the execution of this Lease, and agrees to reasonably approve
the final plans and specifications for the Lessee Improvements when submitted to
the extent consistent with, and logical extensions of, such general schematics,
and otherwise consistent with Building systems. Lessee's construction of the
Lessee Improvements shall be governed by the provisions of this Lease respecting
Lessee's making of Alterations to the Premises including, without limitation,
the requirement set forth in this Lease that Lessor's prior written consent be
obtained for any such Alterations; except, however, that as to the removal of
the Lessee Improvements, the parties agree as follows: Lessor shall specify in
writing at the time of approval of Lessee's plans and specifications for the
Lessee Improvements, which items of the Lessee Improvements shall be required to
be removed by Lessee by the expiration of the Term, provided that Lessee shall
not be required to remove any compartment walls or electrical/mechanical
distribution system. Lessee's occupancy of the Premises prior to the
Commencement Date shall be subject to all the provisions of this Lease other
than Lessee's obligation for payment of Base Rent and Lessee's Percentage Share
of Building Expenses. Said early possession shall not advance the Expiration
Date.
c. Certificates and Licenses. Prior to occupancy, Lessee shall provide
-------------------------
to Lessor the certificate(s) of insurance required by Article 16 and a copy of
all licenses and authorizations that may be required for the lawful operation of
Lessee's business upon the Premises including any City business licenses as may
be required.
d. Condition of Promises on Delivery. Promptly following the execution
---------------------------------
of this Lease, Lessor shall, at Lessor's sole cost, install or cause the
installation of demising walls and any governmentally required corridor, as
required to separately demise the portion of the Premises on the second (2nd)
floor of the Building approximately as shown on Exhibit "A" attached hereto.
Lessee acknowledges that except as specifically otherwise provided in this Lease
and subject to Lessor's representations, warranties and covenants set forth in
this Lease, (i) the lease of the Premises by Lessee pursuant hereto shall be on
in its present "AS IS" condition, in the broadest sense of that term, with all
faults, if any, (ii) neither Lessor nor any employee, representative or agent of
Lessor has made any representation or warranty, express or implied, with respect
to the Premises or any other portion of the Project, and (iii) Lessor shall have
no obligation to improve or alter the Premises or Project for the benefit of
Lessee. Without regard to Lessee's particular use of, or Alterations to, the
Premises, upon the delivery of possession of the Premises to Lessee, the
Building roof, parking lot serving the Project, and HVAC, electrical, plumbing
and lighting systems serving the Premises shall be in good working condition. In
the event it is established within ninety (90) days following delivery of
possession of the Premises that, other than as a result of work necessitated by
Lessee's particular use of, or Alterations to the Premises, the Building roof,
parking lot serving the Project, and/or HVAC, electrical, plumbing and/or
lighting systems serving the Premises were not in good working condition as of
the delivery of possession of the Premises. Lessor shall promptly thereafter
commence and diligently prosecute to completion the work necessary to restore
such system to working order (provided that Lessor shall not be responsible for
any increased costs of performance of such work resulting from Lessee's
particular use (as opposed to mere general office use) of, or Alterations to,
the Premises). Without regard to Lessee's particular use of, or Alterations
(including, without limitation, the Lessee Improvements) to, the Premises, to
Lessor's actual knowledge, as of the delivery of possession, the Premises shall
comply with the all applicable laws (as enforced upon the execution of this
Lease; the parties hereby acknowledging that the foregoing reference to "as
enforced" shall be deemed to relate to changes in the manner of interpretation
and/or enforcement of the requirements of current laws
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<PAGE>
as opposed to a failure of governmental authorities to have identified pre-
existing non-compliance with applicable laws in effect upon the execution of
this Lease) other than any pre-existing non-compliance where compliance work is
not presently required to be performed (as opposed to pre-existing non-
compliance where compliance work is legally mandated even in the absence of
subsequent improvements, alterations or change in use). If it is determined
following the delivery of possession that upon the delivery of possession the
Premises was not in compliance with all applicable laws (as enforced upon the
execution of this Lease) where the correcting compliance work was required to be
performed as of the execution of this Lease (as opposed to pre-existing non-
compliance where compliance work was not legally mandated in the absence of
subsequent improvements, alterations or change in use), then Lessor shall
promptly thereafter commence and diligently prosecute to completion, at Lessor's
expense, the work necessary to cause such compliance (provided that Lessor shall
not be responsible for any increased costs of causing such compliance resulting
from Lessee's particular use (as opposed to mere general office use) of, or
Alterations (including, without limitation, the Lessee Improvements) to, the
Premises).
5. RENT. Lessee agrees to pay to Lessor as rental for the Premises, without
----
offset, deduction, prior notice or demand (except as may be otherwise expressly
provided in this Lease), the monthly Base Rent designated in Article 1.h. Base
Rent shall be payable monthly in advance on or before the first day of each
calendar month during the Term, except that Base Rent for the first full
calendar month during the Term shall be paid upon the execution of this Lease,
and if the Commencement Date is other than the first day of a calendar month,
Base Rent for the initial partial calendar month during the Term shall be
prorated and paid upon the Commencement Date. Base Rent for any period during
the Term which is for less than one (1) month shall be prorated based upon a
thirty (30) day month. Base Rent and all other amounts owing to Lessor pursuant
to this shall be paid to Lessor in lawful money of the United States of America
which shall be legal tender at the time of payment, at the office of the
Project, or to such other person or at such other place as Lessor may from time
to time designate in writing.
6. SECURITY DEPOSIT. Upon Lessee's execution of this Lease, Lessee shall
----------------
deposit with Lessor the sum set forth in Article 1.i. as the security deposit
("Security Deposit"). The Security Deposit shall be held by Lessor as security
for the faithful performance by Lessee of all the terms, covenants and
conditions of this Lease to be kept and performed by Lessee during the Term. If
Lessee defaults with respect to any provision of this Lease, including, but not
limited to the provisions relating to the payment of Rentals or relating to the
condition of the Premises at Lease Termination, Lessor may (but shall not be
required to) use, apply or retain all or any part of the Security Deposit for
the payment of any Rental or any other sum in default, or for the payment of any
amount which Lessor may spend or become obligated to spend by reason of Lessee's
default, or to compensate Lessor for any other loss or damage which Lessor may
suffer by mason of Lessee's default. If any portion of the Security Deposit is
so used or applied, Lessee shall within five (5) days after written demand
therefor, deposit cash with Lessor in an amount sufficient to restore the
Security Deposit to its original amount and Lessee's failure to do so shall be a
material breach of this Lease. Lessor shall not be required to keep the
Security Deposit separate from its general funds, and Lessee shall not be
entitled to interest on the Security Deposit. Lessor is not a trustee of the
Security Deposit and may use it in ordinary business, transfer it or assign it,
or use it in any combination of such ways. Any remaining portion of the
Security Deposit shall be returned to Lessee (or, at Lessor's option, to the
last assignee of Lessee's interest hereunder) within two (2) weeks after Lease
Termination and vacation of the Premises by Lessee or its last assignee;
provided, however if any portion of the Security Deposit is to be applied to
repair damages to the Premises caused by Lessee or Lessee's Agents or to clean
the Premises, then the balance of the Security Deposit shall be returned to
Lessee (or, at Lessor's option to the last assignee of Lessee's interests
hereunder) no later than thirty (30) days from the date Lessor receives
possession of the Premises. Lessee shall not transfer or encumber the Security
Deposit nor shall Lessor be bound by Lessee's attempt to do so. If Lessor's
interest in this Lease is terminated, Lessor may transfer the Security Deposit
to Lessor's successor in interest, and upon such transfer, Lessor shall be
released from any liability to Lessee with respect to the Security Deposit and
Lessee shall look only to the transferee for any return of the Security Deposit
to which Lessee may be entitled.
7. PROJECT TAXES AND OPERATING EXPENSE ADJUSTMENTS.
-----------------------------------------------
a. Intentionally omitted.
b. Building Taxes and Building Operating Expenses. Lessee shall pay to
----------------------------------------------
Lessor, as additional rent and without deduction or offset, Lessee's percentage
share set forth in Article 1.j. ("Lessee's Percentage Share") of the amount of
annual "Building Taxes' and "Building Operating Expenses" (as such terms are
defined below). Building Taxes and Building Operating Expenses are collectively
referred to herein as "Building Expenses". Lessee's Percentage Share shall be
determined by dividing the Rentable Area of the Premises by the total Rentable
Area in the Building. Lessee's Percentage Share shall be subject to an
equitable adjustment upon a condemnation, sale by Lessor of part of the
Building, reconstruction after damage or destruction or expansion or reduction
of the areas within the Building. Lessee's Percentage Share of Building
Expenses shall be payable during the Term in equal monthly installments on the
first day of each month in advance, without deduction, offset or prior demand.
At any time during the Term, Lessor may give Lessee notice of Lessor's
estimate of the Building Expenses for the current calendar year. An amount
equal to one twelfth (1/12) of Lessee's Percentage Share of the estimated
Building Expenses shall be payable monthly by Lessee as aforesaid, commencing on
the first day of the calendar month following thirty (30) days written notice
and continuing until receipt of any notice of adjustment from Lessor given
pursuant to this paragraph. Until notice of the estimated Building Expenses for
a subsequent calendar year is delivered to Lessee, Lessee shall continue to pay
its Percentage Sham of Building Expenses on the basis of the prior year's
estimate. Lessor may at any time during the Term adjust estimates of the
Building Expenses to reflect current expenditures and following Lessor's written
notice to Lessee of such revised estimate, subsequent payments by Lessee shall
be based upon such revised estimate.
If the Commencement Date is on a date other than the first day of a
calendar year, the amount of the Building Expenses payable by Lessee in such
calendar year shall be prorated based upon a fraction, the numerator of
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which is the number of days from the Commencement Date to the end of the
calendar year in which the Commencement Date falls, and the denominator of which
is three hundred sixty (360).
Within one hundred twenty (120) days after the end of each calendar year
during the Term or as soon thereafter as practicable, Lessor will furnish to
Lessee a statement("Lessor's Statement") setting forth in reasonable detail the
actual Building Expenses paid or incurred by Lessor during the preceding year,
and thereupon within ten (10) days an adjustment will be made by Lessee's
payment to Lessor or credit to Lessee by Lessor against the Building Expenses
next becoming due from Lessee, as, the case may require, to the end that Lessor
shall receive the entire amount of Lessee's Percentage Share of Building
Expenses for such calendar year and no more. If based on Lessor's Statement a
payment from Lessee is required, Lessee shall not have the right to withhold or
defer such payment pending a review of Lessor's books and records pursuant to
the following paragraph or the resolution of any dispute relating to Building
Expenses; provided that Lessee may make such payment under protest and the
making of such payment pursuant hereto shall not limit Lessee's right to review
such books and records as hereinafter provided. If the Expiration Date is on a
day other than the last day of a calendar year, the amount of Building Expenses
payable by Lessee for the calendar year in which Lease Termination falls shall
be prorated on the basis which the number of days from the commencement of such
calendar year to and including such Expiration Date bears to three hundred sixty
(360). The termination of this Lease shall not affect the obligations of Lessor
and Lessee pursuant to this Article 7.
Within sixty (60) days after Lessee receives a statement of actual Building
Expenses paid or incurred for a calendar year, Lessee shall have the right, upon
written demand and reasonable notice, to inspect Lessor's books and records
relating to such Building Expenses for the calendar year covered by Lessor's
Statement for the purpose of verifying the amount set forth in such Statement.
Such inspection shall be made during Lessor's normal business hours, at the
place where such books and records are customarily maintained by Lessor. In no
event may any such inspection be performed by a person or entity being
compensated on a contingency fee basis or based upon a sham of any refund
obtained by Lessee. Information obtained by such inspection shall be kept in
the strictest confidence by Lessee. Unless Lessee asserts in writing a specific
error within ninety (90) days following Lessee's receipt of Lessor's Statement,
the amounts set forth in Lessor's Statement shall be conclusively deemed correct
and binding on Lessee.
(i) Operating Expense. As used in this Lease, "Building Operating
-----------------
Expenses" means all of the Building Service Expenses and an allocable portion of
the Project Expenses as follows:
(A) Building Service Expenses. Building Operating Expenses
-------------------------
shall include all costs of operation, maintenance, repair (which for purposes of
this Lease shall be deemed to include, without limitation, replacement as and
when deemed appropriate by Lessor) and management of the Building and Building
Common Area (defined in Article 55), hereinafter collectively referred to as
"Building Service Expenses, " as determined by Lessor's standard accounting
practices. Building Service Expenses as used herein shall include, but not be
limited to, all sums expended in connection with all general maintenance,
repairs, painting, cleaning, sweeping and janitorial services; maintenance and
repair of signs, indoor plants, and atriums; trash removal; sewage; electricity,
gas, water and any other utilities (including any Temporary or permanent utility
surcharge or other exaction whether now or hereafter imposed); maintenance and
repair of any rim protection systems. elevator systems, lighting systems, storm
drainage systems, heating, ventilation and air conditioning systems and other
utility and/or mechanical systems; any governmental imposition or surcharge
imposed upon Lessor with respect to the Building or assessed against the
Building; all costs and expenses pertaining to a security alarm system or other
security services or measures for the Building, if Lessor deems necessary in
Lessor's sole business judgment; materials; supplies; tools; depreciation on
maintenance and operating machinery and equipment (if owned) and rental paid for
such machinery and equipment (if rented); service agreements on equipment;
maintenance. and repair of the roof (including repair of leaks and resurfacing)
and the exterior surfaces of all improvements (including painting); non-
structural maintenance and repair of structural parts (including repair of leaks
and resurfacing) and the exterior surfaces of all improvements (including
painting); window cleaning, elevator or escalator services; materials handling;
fees for licenses and permits relating to the Building; the cost of complying
with rules, regulations and orders of governmental authorities; Building office
rent or rental value; accounting and legal fees; the cost of contesting the
validity or applicability of any governmental enactment which may affect
Building Service Expenses; personnel to implement such services, including, if
Lessor deems necessary, the cost of security guards and valet attendants; public
liability, environmental impairment, property damage and fire and extended
coverage insurance on the Building (in such amounts and providing such coverage
as determined in Lessor's sole discretion and which may include, without
limitation, liability, all risk property, lessor's risk liability, war risk,
vandalism, malicious mischief, boiler and machinery, rental income, earthquake,
flood and worker's compensation insurance); compensation and fringe benefits
payable to all persons employed by Lessor in connection with the operation,
maintenance, repair and management of the Building; and a management fee equal
to five percent (5%) of gross receipts from the Building (including, without
limitation, all rentals and parking receipts from Building tenants and/or
visitors). Lessor may cause any or all of said services to be provided by an
independent contractor or contractors, or they may be rendered by Lessor. It is
the intent of the parties hereto that Building Service Expenses shall include
every cost paid or incurred by Lessor in connection with the operation,
maintenance, repair and management of the Building, and the specific examples of
Building Service Expenses stated in this Article 7 are in no way intended to,
and shall not, limit the costs comprising Building Service Expenses, nor shall
such examples be deemed to obligate Lessor to incur such costs or to provide
such services or to take such actions, except as may be expressly required of
Lessor in other portions of this Lease, or except as Lessor, in its sole
discretion, may elect. The maintenance of the Building shall be at the sole
discretion of Lessor and all costs incurred by Lessor in good faith shall be
deemed conclusively binding on Lessee. If less than one hundred percent (100%)
of the Rentable Area of the Building is occupied during any calendar year, then
in calculating Building Service Expenses for such year, the components of
Building Service Expenses which vary based upon occupancy level shall be
adjusted to equal Lessor's reasonable estimate of the amount of such Building
Service Expenses had one hundred percent (100%) of the total Rentable Area of
the Building been occupied during the entirety of such year. Notwithstanding
anything to the contrary contained in this Lease, in no event shall Building
Service Expenses include (1) any costs relating to the
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structural repairs to maintain the structural integrity of the Building
(including, without limitation, the structural repairs to the structural
elements of the exterior walls, roof, columns, footings and floor slab of the
Building), (2) costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements to other tenant's leased
premises within the Building or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant leasable space within the Building,
(3) costs in order to market space to potential tenants, leasing commissions,
and attorneys' fees in connection with the negotiation and preparation of
letters, deal memos, letters of intent, leases, subleases and/or assignments or
other costs in connection with lease, sublease and/or assignment negotiations
with present or prospective tenants or other occupants of the Building, (4)
costs incurred for restoration following condemnation to the extent reimbursed
by condemnation award or for repair of damage to the Building to the extent
reimbursed by insurance proceeds (provided that insurance deductibles and
uninsured casualty damage up to $100,000.00 per occurrence shall be included in
Building Service Expenses), (5) reserves for future expenses beyond anticipated
expenses for the current year, (6) ground lease rental on any underlying ground
lease or interest, principal, points and/or fees on debts or amortization on any
mortgage or mortgages or any other debt instrument encumbering the Building, or
(7) to the extent any employee of Lessor spends only a portion of his or her
time working with respect to the Building (as opposed to full time work with
respect to the Building), a prorated amount of such employee's wages, salaries
and compensation based upon the portion of time spent by such employee with
respect to the projects other than the Building. In addition, if any capital
expenditure otherwise includable in Building Service Expenses costs more than
fifty cents ($0.50) per square foot of Rentable Area in the Building, then such
capital expenditure shall be amortized over the useful life of the applicable
item as reasonably determined by Lessor, and Building Service Expenses shall not
include the entire cost of such expenditure in the year incurred, but shall
include annual amortization of such expenditure during each year of such useful
life.
(B) Project Expenses. Building Operating Expenses shall include
----------------
the Buildings equitable share of all direct costs of operation, maintenance,
repair and management of the Project (as opposed to expenses relating solely to
the Building or any other particular building within the Project) and/or the
Exterior Common Area, determined by Lessor's standard accounting practices
(collectively, "Project Expenses"). Such costs shall be allocated by Lessor
between the Building containing the Premises and the other buildings located
within the Project from time to time, in such manner as Lessor reasonably
determines in good faith. Project Expenses as used herein shall include, but not
be limited to, all sums expended in connection with all general maintenance,
repairs, resurfacing, painting, restriping, cleaning, sweeping, and janitorial
services; maintenance and repair of sidewalks, curbs, signs and other Exterior
Common Areas; maintenance and repair of sprinkler systems, planting, and
landscaping; trash removal; sewage; electricity, gas, water and any other
utilities (including any Temporary or permanent utility surcharge or other
exaction whether now or hereafter imposed); maintenance and repair of
directional signs and other markers and bumpers; maintenance and repair of any
fire protection systems, elevator systems, lighting systems, storm drainage
systems and other utility systems; any governmental imposition or surcharge
imposed upon Lessor or assessed against the Exterior Common Area or the Project;
materials; supplies, tools; depreciation on maintenance and operating machinery
and equipment (if owned) and rental paid for such machinery and equipment (if
rented); service agreements on equipment; maintenance and repair of parking
areas and parking structures, if any; non-structural maintenance and repair of
structural parts (including foundations and floor slabs); elevator services, if
applicable; material handling; fees for licenses and permits relating to the
Exterior Common Area; the cost of complying with rules, regulation and orders of
governmental authorities; accounting and legal fees; the cost of contesting the
validity or applicability of any governmental enactment which may affect Project
Expenses; personnel to implement such services, including if Lessor deems
necessarily, the cost of security guards and valet attendants; all annual
assessments and special assessments levied or charged against the Project and/or
Lessor pertaining to the Project by the Cupertino City Center Owner's
Association pursuant to the "CC&R's" (as hereinafter defined); public liability,
environmental impairments, property, damage and fire and extended coverage
insurance on Exterior Common Area (in such amounts and providing such coverage
as determined in Lessor's sole discretion and which may include, without
limitation, liability, all risk property, lessor's risk liability, war risk,
vandalism, malicious mischief, sprinkler leakage, boiler and machinery, parking
income, earthquake, flood and worker's compensation insurance), compensation and
fringe benefits payable to all persons employed by Lessor in connection with the
operation, maintenance, repair and management of the Exterior Common Area; and a
management fee equal to five percent (5%) of gross receipts from the Project
(exclusive of amounts collected from tenants of any building within the Project
under their respective leases). Lessor may cause any or all of said services to
be provided by an independent contractor or contractors, or they may be rendered
by Lessor. It is the intent of the parties hereto that Project Expenses shall
include every cost paid or incurred by Lessor in connection with the operation,
maintenance, repair and management of the Exterior Common Area, and the specific
examples of Project Expenses stated in this Article 7 are in no way intended to,
and shall not limit the costs comprising Project Expenses, nor shall such
examples be deemed to obligate Lessor to incur such costs or to provide such
services or to take such actions except as Lessor may be expressly required in
other portions of this Lease, or except as Lessor, in its sole discretion, may
elect. The maintenance of the Exterior Common Areas shall be at the sole
discretion of Lessor and all costs incurred by Lessor in good faith shall be
deemed conclusively binding on Lessee. If less than one hundred percent (100%)
of the Rentable Area of the Project is occupied during any calendar year, then
in calculating Project Expenses for such year, the components of Project
Expenses which vary based upon occupancy level shall be adjusted to equal
Lessor's reasonable estimate of the amount of such Project Expenses had one
hundred percent (100%) of the total Rentable Area of the Project been occupied
during the entirety of such year. Notwithstanding anything to the contrary
contained in this Lease, in no event shall Project Expenses include (1) any
costs relating to the structural repairs to maintain the structural integrity of
the Project, (2) costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements to other tenant's leased
premises within the Project or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant leasable space within the Project,
(3) costs in order to market space to potential tenants, leasing commissions,
and attorneys' fees in connection with the negotiation and preparation of
letters, deal memos, letters of intent, leases, subleases and/or assignments or
other costs in connection with lease, sublease and/or assignment negotiations
with present or prospective tenants or other occupants of the Project, (4) costs
incurred for restoration following condemnation to the extent reimbursed by
condemnation award or for repair of damage to the Project to the extent
reimbursed by insurance proceeds (provided that insurance deductibles and
uninsured casualty damage up to
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<PAGE>
$100,000.00 per occurrence shall be included in Project Expenses), (5) reserves
for future expenses beyond anticipated expenses for the current yen, (6) ground
lease rental on any underlying ground lease or interest, principal, points
and/or fees on debts or amortization on any mortgage or mortgages or any other
debt instrument encumbering the Project, or (7) to the extent any employee of
Lessor spends only a portion of his or her time working with respect to the
Project (as opposed to full time work with respect to the Project), a prorated
amount of such employee's wages, salaries and compensation based upon the
portion of time spent by such employee with respect to the projects other than
the Project. In addition, if any capital expenditure otherwise includable in
Project Expenses costs more than fifty cents ($0.50) per square foot of Rentable
Area in the Project, then such capital expenditure shall be amortized over the
useful life of the applicable item as reasonably determined by Lessor, and
Project Expenses shall not include the entire cost of such expenditure in the
year incurred, but shall include annual amortization of such expenditure during
each year of such useful life.
(ii) Project Taxes. "Building Taxes" as used in this Lease
-------------
shall mean those items of "Project Taxes" (as hereinafter defined) which relate
solely to the Building, plus an equitable share of Project Taxes which relate to
the land underlying the Project, to the Exterior Common Areas and/or to the
Project as a whole (as opposed to Project Taxes relating solely to the Building
or any other particular building within the Project), which equitable share
shall be allocated by Lessor between the Building and the other buildings
located within the Project from time to time, in such manner as Lessor
reasonably determines in good faith. The term "Project Taxes' as used in this
Lease shall collectively mean (to the extent any of the following are not paid
by Lessee pursuant to Article 7.c. below) all: real estate taxes and general or
assessments (including, but not limited to, assessments for public improvements
or benefits); personal property taxes; taxes based on vehicles utilizing parking
areas on the Parcel; taxes computed or based on rental income (including without
limitation any municipal business tax but excluding federal, state and municipal
net income taxes); Environmental Surcharges; excise taxes; gross receipts taxes;
sales and/or use taxes; employee taxes; water and sewer taxes, levies,
assessments and other charges in the nature of taxes or assessments (including,
but not limited to, assessments for public improvements or benefit); and all
other governmental, quasi-governmental or special district impositions of any
kind and nature whatsoever, regardless of whether now customary or within the
contemplation of the parties hereto and regardless of whether resulting from
increased rate and/or valuation, or whether extraordinary or ordinary, general
or special, unforeseen or foreseen, or similar or dissimilar to any of the
foregoing which during the Lease Term are laid, levied, assessed or imposed upon
Lessor and/or become a lien upon or chargeable against the Project or the
Premises, Building, Common Area and/or Parcel under or by virtue of any present
or future laws, statutes, ordinances, regulations, or other requirements of any
governmental authority or quasi-governmental authority or special district
having the direct or indirect power to tax or levy assessments whatsoever. The
term 'Environmental Surcharges" shall include any and all expenses, taxes,
charges or penalties imposed by the Federal Department of Energy, Federal
Environmental Protection Agency, the Federal Clean Air Act, or any regulations
promulgated thereunder, or imposed by any other local, state or federal
governmental agency or entity now or hereafter vested with the power to impose
taxes, assessments or other types of surcharges as a means of controlling or
abating environmental pollution or the use of energy in regard to the use,
operation or occupancy of the Project including the Premises, Building, Common
Area and/or Parcel. The term "Project Taxes" shall include (to the extent the
same are not paid by Lessee pursuant to Article 7.c. below), without limitation:
the cost to Lessor of contesting the amount or validity or applicability of any
Project Taxes described above, and all taxes, assessments, levies, fees,
impositions or charges levied, imposed, assessed, measured, or based in any
manner whatsoever upon or with respect to the use, possession, occupancy,
leasing, operation or management of the Project (including, without limitation,
the Premises, Building, Common Area and/or Parcel) or in lieu of or equivalent
to any Project Taxes set forth in this Article 7.b.(ii). In no event shall
Project Taxes include Lessor's net income, succession, transfer, gift,
franchise, estate, or inheritance taxes.
If at any time during the Term, Project Taxes are under-assessed by the
taxing authorities so that they are not computed on a fully-completed and
occupied basis in accordance with the then applicable taxing authority of the
governmental entities having jurisdiction, Lessor shall have the right, but not
the obligation, to adjust Project Taxes to reflect the amount that Project Taxes
would be if the Project were assessed on a fully-completed and occupied basis,
as determined in Lessor's reasonable discretion, and such adjusted amount shall
be allocated to the Project in accordance with the terms of this Lease.
c. Other Taxes. Lessee shall pay the following:
-----------
(i) Lessee shall pay (or reimburse Lessor as additional rent if
Lessor is assessed), before delinquency, any and all taxes levied or assessed,
and which become payable for or in connection with any period during the Term,
upon all of the following (collectively, "Leasehold Improvements and Personal
Property"): Lessee's Leasehold Improvements, the Lessee Improvements, equipment,
furniture, furnishings, fixtures, merchandise, inventory, machinery, appliances
and other personal property located in the Premises; except only that which has
been paid for by Lessor and is the standard of the Building. Lessee hereby
acknowledges receipt of a copy of a schedule setting forth the improvements
comprising the standard of the Building. If any or all of the Leasehold
Improvements and Personal Property are assessed and taxed with the Project,
Lessee shall pay to Lessor such taxes within ten (10) days after delivery to
Lessee by Lessor of a statement in writing setting forth the amount applicable
to the Leasehold Improvements and Personal Property. If the Leasehold
Improvements and Personal Property are not separately assessed on the tax
statement or bill, Lessor's good faith determination of the amount of such taxes
applicable to the Leasehold Improvements and Personal Property shall be a
conclusive determination of Lessee's obligation to pay such amount as so
determined by Lessor.
(ii) Lessee shall pay (or reimburse Lessor if Lessor is
assessed, as additional rent), prior to delinquency or within ten (10) days
after receipt of a statement thereof, any and all other taxes, levies,
assessments, or surcharges payable by Lessor or Lessee and relating to this
lease, the Premises or Lessee's activities in the Premises (other than Lessor's
net income, succession, transfer, gift, franchise, estate, or inheritance
taxes), whether or not now customary or within the contemplation of the parties
hereto, now in force or which may hereafter become effective, including but not
limited to taxes: (1) upon, allocable to, or measured by the area of the
Premises or on the Rentals payable hereunder, including without limitation any
gross income, gross receipts, excise, or other tax
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levied by the state, any political subdivision thereof, city or federal
government with respect to the receipt of such Rentals; (2) upon or with respect
to the use, possession, occupancy, leasing, operation and management of the
Premises or any portion thereof; (3) upon this transaction or any document to
which Lessee is a party creating or transferring an interest or an estate in the
Premises; or (4) imposed as a means of controlling or abating environmental
pollution or the use of energy, including, without limitation, any parking
taxes, levies or charges or vehicular regulations imposed by any governmental
agency. Lessee shall also pay, prior to delinquency, all privilege, sales,
excise, use, business, occupation, or other taxes, assessments, license fees, or
charges levied, assessed, or imposed upon Lessee's business operations conducted
at the Premises. If any such taxes are payable by Lessor and it shall not be
lawful for Lessee to reimburse Lessor for such taxes, then the Rentals payable
hereunder shall be increased to net Lessor the net Rental after imposition of
any such tax upon Lessor as would have been payable to Lessor prior to the
imposition of any such tax.
(iii) Any payments made by Lessee directly to the applicable
taxing authority pursuant to this subsection 7.c. shall be made prior to the
applicable delinquency date for such payment, and Lessee shall deliver evidence
of such payment to Lessor within fifteen (15) days thereafter.
8. USE.
---
a. In no event shall Lessee use or permit the use of the Premises for any
purpose other than general office use (which may include, subject to compliance
with applicable laws and governmental requirements, use of the Premises for non-
destructive, research and development purposes and for other incidental lawful
uses, all not involving Hazardous Materials (other than "Standard Office
Hazardous Materials" as hereinafter defined), and all in a manner consistent
with operation within a first-class general office use building, so as not to
exceed the capacity of the mechanical and utility systems serving, and/or the
floor load capacity of, the Premises or interfere with the use or occupancy of
any other occupant of the Building). Lessor and Lessee hereby acknowledge and
agree that the foregoing use restriction is an absolute prohibition against a
change in use of the Premises as contemplated under California Civil Code
Section 1997.230. Lessee shall not do or permit to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire or other insurance upon the Building or the
Project or any of its contents, or cause cancellation of any insurance policy
covering the Building or the Project or any part thereof or any of its contents.
Lessee shall not, without prior consent of Lessor, bring into the Building or
the Premises or use or incorporate in the Premises any apparatus, equipment or
supplies that may cause substantial noise, odor, or vibration or overload the
Premises or the Building or any of its utility or elevator systems or jeopardize
the structural integrity of the Building or any part thereof. Lessee and
Lessee's Agents shall not use, store, or dispose of any "Hazardous Materials"
(defined below) on any portion of the Project, except, however, that nothing
contained in this Lease shall be deemed to prohibit Lessee's use of customary
general office supplies typically used in an office area in the ordinary course
of business. such as copier toner, liquid paper, glue and ink, for use in the
manner for which they were designed, in such amounts and in a manner as is
normal for first-class general office use but containing substances technically
constituting Hazardous Materials under this Lease (collectively, "Standard
Office Hazardous Materials"). Without limiting the generality of the foregoing,
Lessee shall not (either with or without negligence) cause or permit the escape,
disposal or release of any Hazardous Materials in, on or below the Premises or
Any other portion of the Project. If any lender or governmental agency shall
ever require testing to ascertain whether or not them has been any release or
other use of Hazardous Materials at the Premises during the Term of this Lease,
then the reasonable costs thereof shall be reimbursed by Lessee to Lessor upon
demand as additional rent. In addition, Lessee shall execute such affidavits,
representations and certifications as may be reasonably required by Lessor from
time to time concerning Lessee's best knowledge and belief regarding the
presence of Hazardous Materials at the Premises. Lessee shall indemnify, defend
with counsel acceptable to Lessor, and hold Lessor and Lessor's employees,
agents, partners, officers, directors and shareholders harmless from and against
any and all claims, actions, suits, proceedings. orders, judgment, losses,
costs, damages, liabilities. penalties, or expenses (including, without
limitation, attorneys' fees) arising in connection with the breach of the
obligations described in any of the previous four sentences and the obligations
of Lessee pursuant hereto and under the previous four sentences shall survive
the Lease Termination. As used in this paragraph, "Hazardous Materials" means
any chemical, substance or material which has been determined or is hereafter
determined by any federal, state, or local governmental authority to be capable
of posing risk of injury to health or safety, including, without limitation,
petroleum, asbestos, polychlorinated biphenyls, radioactive materials, radon
gas, and/or biologically and/or chemically active materials. Without limiting
the generality of the foregoing. the definition of "Hazardous Materials" shall
include those definitions found in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et seq., the
-- ---
Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S)(S) 6901 et seq.,
-- ---
the Hazardous Materials Transportation Authorization Act, 49 U.S.C. (S)(S) 5101
et seq., the National Environmental Policy Act, 42 U.S.C. (S)(S) 4321 et seq.,
- -- --- -- ---
the Clean Water Act, 33 U.S.C. (S)(S) 1251 et seq., the Clean Air Act, 42 U.S.C.
-- ---
(S)(S) 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et
-- --- --
seq., the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq., the
- --- -- ---
Occupational Safety and Health Act, 29 U.S.C. (S)(S) 651 et seq., Division 20 of
-- ---
the California Health and Safety Code commencing at Section 24000, Division 7 of
the California Water Code commencing at Section 13000, each as amended from time
to time, and all similar federal, state and local statutes and ordinances and
all rules, regulations or policies promulgated thereunder. Lessee shall not do
or permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or the Project or injure or annoy them or use or allow the Premises to
be used for any improper, immoral, unlawful or objectionable purpose, nor shall
Lessee cause, maintain or permit any nuisance in, on or about the Promises.
Lessee shall not commit or suffer to be committed any waste in or upon the
Premises.
Lessor shall promptly notify Lessee of any Hazardous Materials actually known
by Lessor (without duty of investigation or imputation of knowledge) to exist in
or about the Premises or other portions of the Project at levels in violation of
applicable laws or which otherwise pose a material risk of having a material and
adverse affect upon the operation of Lessee's business from the Premises
(including, without limitation, access to and/or use of the Premises and parking
areas serving the Project). If requested by I as within thirty (30) days
following the execution of this Lease, Lessor shall promptly provide to Lessee
copies of any Hazardous Materials reports or other
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<PAGE>
environmental reports respecting the Project then existing in Lessor's
possession, which reports shall be maintained by Lessee in strict confidence.
Notwithstanding anything to the contrary contained herein, Lessee shall not be
responsible (either directly or as an item of Building Service Expenses or as an
item of Project Expenses) for costs related to the testing, remediation and/or
presence of Hazardous Materials on or about the Premises or Project except to
the extent caused to be present thereon or thereabout by Lessee, any subtenant
of Lessee and/or any of their respective employees, agents, representatives,
contractors and/or invitees.
b. Effect of Use Restriction. Lessor and Lessee hereby acknowledge and
-------------------------
agree that the use restriction set forth in subsection 8.a. above shall be
deemed reasonable in all respects and under all circumstances. Lessor and
Lessee further acknowledge and agree that, notwithstanding any provision of this
Lease to the contrary, (i) in the event Lessee requests Lessor's consent to a
proposed assignment of this Lease or subletting of the Premises, Lessor shall be
deemed reasonable in withholding its consent to such assignment or subletting if
the proposed assignee or subtenant desires to use the Premises for any purpose
other than as expressly provided in subsection 8.a. above, and (ii) in the event
of a default by Lessee under the Lease, the enforcement of the use restriction
set forth in subsection 8.a. above shall be deemed reasonable for purposes of
computing the rental loss that could be or could have been reasonably avoided by
Lessor pursuant to California Civil Code Section 1951.2 and in connection with
the exercise of Lessor's remedies under California Civil Code Section 1951.4.
Notwithstanding the preceding to the contrary, if Lessor withholds its
consent to an assignment of the Lease or subletting of the Premises based upon
the desire of the proposed assignee or subtenant to use the Premises for any
purpose other than as expressly provided in subsection 8.a. above, or if Lessee
is in default under this Lease, then, prior to commencing or pursuing any claim
or defense against Lessor based upon the unreasonableness of the use restriction
set forth in subsection 8.a. above, Lessee shall provide Lessor with written
notice (by certified mail, postage prepaid and return receipt requested) setting
forth Lessee's objections to the enforcement of the use restriction in such
instance, the basis upon which Lessee intends to demonstrate that the
enforcement of such use restriction would be unreasonable in such instance, and
the use(s) which Lessee believes Lessor should allow Lessee or its proposed
assignee or subtenant, as the case may be, to make of the Premises. Within
thirty (30) days of Lessor's receipt of Lessee's written notice of objection,
Lessor shall provide Lessee with written notice of Lessor's election to either
(A) enforce the use restriction set forth in subsection 8.a. above, or (B)
permit a change in the use of the Premises, provided that such proposed use
shall in no event (1) require the use, storage or disposal of Hazardous
Materials on or about the Premises or the Project, (2) increase or affect any
fire or other insurance covering the Building or the Project, (3) interfere with
the rights of other tenants of the Building or Project, including, without
limitation, any exclusive use rights of such tenants, (4) be in violation of
applicable federal, state or local laws, rules, regulations, codes or
ordinances, or (5) require Lessor to construct or install, or to provide any
allowance for the construction or installation of, any tenant improvements in
the Premises. Notwithstanding the preceding to the contrary, in no event shall
Lessor have any obligation to allow a change in the use of the premises, it
being expressly understood by the parties that the use restriction set forth in
subsection 8.a. above is an absolute prohibition against a change in use of the
Premises. In the event Lessor fails to provide Lessee with written notice of its
election to either enforce the use restriction or allow a change in use of the
Premises within said thirty (30) day period, Lessor shall be deemed to have
elected to enforce the use restriction. In the event Lessor elects or is deemed
to have elected to enforce the use restriction as provided hereinabove, Lessee
shall have the right to pursue such valid claims or defenses against Lessor as
may be permitted under California Civil Code section 1997.040 and which Lessee
is able to prove.
9. COMPLIANCE WITH LAW. Lessee shall not use the Premises or permit anything to
-------------------
be done in or about the Premises which will in any way conflict with or violate
any law, statute, ordinance, order or governmental rule or regulation or
requirement of duly constituted public authorities or quasi-public authorities
now in force or which may hereafter be enacted or promulgated. Lessee shall, at
its sole cost and expense, promptly comply with all laws, statutes, ordinances,
orders and governmental or quasi-governmental rules, regulations or requirements
now in force or which may hereafter be in force and with all recorded documents
which relate to or affect the condition, use or occupancy of the Premises,
including, without limitation. that certain Declaration of Covenants,
Conditions and Restrictions and Grant of Easements for Cupertino City Center,
recorded October 9, 1995, Series No. 8554457 of the Official Records of Santa
Clara County, California, as amended by First Amendment to Declaration of
Covenants, Conditions and Restrictions and Grant of Easements for Cupertino City
Center recorded September 12, 1987, Series No. 9417820 of the Official Records
of Santa Clara County, California (as amended, the "CC&R's "). and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Lessee's improvements, acts or use or occupancy of the Premises.
The judgment of any court of competent jurisdiction or the admission of Lessee
in any action against Lessee, whether Lessor be a party thereto or not, that
Lessee has violated any law, statute, ordinance, or governmental or quasi-
governmental rule, regulation or requirement, shall be conclusive of that fact
as between the Lessor and Lessee. Lessee shall obtain, prior to taking
possession of the Premises, all permits, licenses, or other authorizations for
the lawful operation of its business at the Premises. Lessee shall indemnify,
defend with counsel acceptable to Lessor and hold Lessor and Lessor's employees,
agents, partners, officers, directors and shareholders harmless from and against
any claim, action, suit, proceeding, order, judgment, liability. penalty or
expense (including, without limitation, attorneys' fees) arising out of the
failure of Lessee to comply with any applicable law, statute, ordinance, order,
rule, regulation, requirement or recorded document. Lessee acknowledges that
Lessee has independently investigated and is satisfied that the Premises are
suitable for Lessee's intended use and that neither Lessor nor any of its
agents, employees, representatives or contractors has made any representation or
warranty as to whether the Building and/or Premises meets applicable
governmental and quasi-governmental requirements for such intended use (except
as may be specifically otherwise provided in this Lease).
Lessor and Lessee acknowledge that, in accordance with the provisions of the
Americans with Disabilities Act of 1990 (the "ADA"), responsibility for
compliance with the terms and conditions of Title III of the ADA may be
allocated as between Lessor and Lessee. In this regard and notwithstanding
anything to the contrary contained in the Lease, Lessor and Lessee agree that
the responsibility for compliance with the ADA (including, without limitation,
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the removal of architectural and communications barriers and the provision of
auxiliary aids and services to the extent required) shall be allocated as
follows: (i) Lessee shall be responsible for compliance with the provisions of
Title I of the ADA, and of Title II and Title III of the ADA as Titles II and
III relate to any construction, renovations, alterations and repairs made within
the Premises if such construction, renovations, alterations and repairs are made
by Lessee, at its expense without the assistance of Lessor; (ii) Lessor shall be
responsible for compliance with the provisions of Title II and III of the ADA
for all construction, renovations, alterations and repairs which Lessor is
required, under this Lease, to make within the Premises, whether (pursuant to
the relevant provisions of the Lease) at Lessor's or Lessee's expense; and (iii)
Lessor shall be responsible for compliance with the provisions of Title III of
the ADA for all exterior and interior areas of the Building not included within
the Premises except to the extent such compliance is necessitated as a result of
Lessee's particular use of, or alterations to, the Premises. Lessor agrees to
indemnify, defend and hold Lessor harmless from and against any claims, damages,
costs and liabilities arising out of Lessor's failure, or alleged failure, as
the case may be, to comply with the ADA, to the extent such compliance has been
allocated to Lessor herein, which indemnification obligation shall survive the
expiration or termination of this Lease if the Lease has not been terminated by
reason of a default by Lessee. Lessee agrees to indemnify, defend and hold
Lessor harmless from and against any claims, damages, costs and liabilities
arising out of Lessee's failure, or alleged failure, as the case may be, to
comply with the ADA to the extent such compliance has been allocated to Lessee
herein, which indemnification obligation shall survive the expiration or
termination of this Lease. Lessor and Lessee each agree that the allocation of
responsibility for ADA compliance shall not require Lessor or Lessee to
supervise, monitor or otherwise review the compliance activities of the other
with respect to its assumed responsibilities for ADA compliance as set forth in
this Article 9. Lessor shall, in complying with the ADA (to the extent such
compliance has been allocated to Lessor herein), be entitled to rely upon
representations made to, or information given to Lessor by Lessee in regard to
Lessee's use of the Premises, Lessee's employees, and other matters pertinent to
compliance with the ADA. The indemnity of Lessee set forth above shall apply as
to any liability arising against Lessor by reason of any misrepresentations or
misinformation given by Lessee to Lessor. The allocation of responsibility for
ADA compliance between Lessor and Lessee, and the obligations of Lessor and
Lessee established by such allocations, shall supersede any other provisions of
the Lease that may contradict or otherwise differ from the requirements of this
Article 9; except, however, that in the event of any conflict between the
provisions of Article 4.d. above and the provisions of this Article 9, the
provisions of Article 4.d. above shall control.
10. ALTERATIONS AND ADDITIONS.
-------------------------
a. Lessee's Alterations. Lessee shall not make or suffer to be made any
--------------------
alterations, additions, changes or improvements (collectively, "Alterations") to
or of the Premises, or any part thereof without Lessor's prior written consent,
which consent shall not, except as otherwise expressly provided in the Lease, be
unreasonably withheld; except, however, that Lessee mar, without Lessor's prior
consent but upon at least fifteen (15) days prior written notice to Lessor, make
interior, non-structural Alterations to the Premises costing less than Ten
Thousand Dollars ($10,000.00) per work of Alterations and not (1) requiring the
demolition of any existing improvements or (2) affecting the mechanical or
utility systems serving the Premises or the exterior appearance of the Building.
Lessor may impose, as a condition to the aforesaid consent, such requirements as
Lessor may deem necessary in its sole reasonable discretion, including without
limitation: the manner in which the work is done; a right of approval of the
contractor by whom the work is to be performed; the times during which such work
is to be accomplished; the requirement that Lessee post a payment and
performance bond (or its equivalent) in an amount equal to one and one-half
times any and all estimated Alterations costs and otherwise in form satisfactory
to Lessor to insure Lessor against any liability for mechanics' and
materialmen's liens and to insure completion of the work; the requirement that
Lessee reimburse Lessor, as additional rent, for Lessor's reasonable costs
incurred in reviewing any proposed Alterations, whether or not Lessor's consent
is granted; and the requirement that at Lease Termination, either (i) Lessee, at
its expense, will remove any and all such Alterations installed by Lessee and
shall, at its cost, promptly repair all damages to the Project caused by such
removal, or (ii) the Alterations made by Lessee shall remain with the Premises,
be a part of the realty, and belong to Lessor. If Lessor consents to any
Alterations to the Premises by Lessee, the same shall be made by Lessee at
Lessee's sole cost and expense in accordance with plans and specifications
approved by Lessor. Any such Alterations made by Lessee shall be performed in
accordance with all applicable laws, ordinances and codes and in a first class
workmanlike manner, and shall not weaken or impair the structural strength or
lessen the value of the Building, shall not invalidate, diminish, or adversely
affect any warranty applicable to the Building or any other improvements located
within the Project, including any equipment therein, and shall be performed in a
manner causing Lessor and Lessor's agents and other tenants of the Building the
least interference and inconvenience practicable under the circumstances. In
making any such Alterations, Lessee shall, at Lessee's sole cost and expense:
(i) File for and secure any necessary permits or approvals from all
governmental departments or authorities having jurisdiction, and any utility
company having an interest therein,
(ii) Notify Lessor in writing at least fifteen (15) days prior to the
commencement of work on any Alteration, so that Lessor can post and record
appropriate notices of non-responsibility, and
(iii) Provide Lessor with copies of all drawings and specifications prior to
commencement of construction of any Alterations, and provide Lessor with "as
built" plans and specifications (on CAD diskette if available) following
completion of such Alterations.
In no event shall Lessee make or suffer to be made any Alteration to the
mechanical or utility systems of the Building, to the Common Area or the
structural portions of the Building or any part thereof without Lessor's prior
written consent, which consent may be withheld in Lessor's sole discretion.
b. Removal. Upon Lease Termination, Lessee shall, upon written demand by
-------
Lessor at Lessee's sole cost and expense, forthwith and with all due diligence
remove any Alterations made by Lessee, which is then designated
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by Lessor to be removed (provided that Lessor has, at the time of Lessee's
making of such Alterations, notified Lessee that such removal may be required)
and Lessee shall, forthwith and with all due diligence at its sole cost and
expense, repair any damage to the Project caused by such removal. Lessee shall
also, upon Lease Termination, remove Lessee's movable equipment, furnishings,
trade fixtures and other personal property (excluding any Alterations made by
Lessee not specifically designated by Lessor to be removed). provided that
Lessee shall, forthwith and with all due diligence at its sole cost and expense,
repair any damages to the Project caused by such removal. Unless Lessor elects
to have Lam remove any such Alterations, all such Alterations except for movable
furniture and trade fixtures of Lessee not affixed to the Premises, shall become
the property of Lessor upon Lease Termination (without any payment therefor) and
remain upon and be surrendered with the Premises.
c. Alterations Required by Law. Subject to Article 4.d. above, Lessee shall
---------------------------
pay to Lessor as additional rent, the cost of any structural or non-structural
alteration, addition or change to the Building and/or at Lessor's election,
shall promptly make, at Lessee's sole expense and in accordance with the
provisions of subsection 10.a. above, any structural or non-structural
alteration, addition or change to the Premises required to comply with laws,
regulations, ordinances or orders of any public agencies, whether now existing
or hereinafter promulgated, where such alterations, additions or changes am
required by reason of: Lessee's or Lessee's Agents' acts; Lessee's use or change
of use to the Premises; alterations or improvements to the Premises made by or
for Lessee; or Lessee's application for any permit or governmental approval.
d. Lessor's Improvements. All fixtures, improvements or equipment which are
---------------------
installed, constructed on or attached to the Premises, or any part of the
Project by Lessor at its expense shall be a part of the realty and belong to
Lessor.
11. REPAIRS.
-------
a. By Lessee. Subject to the express provisions of this Lease, by taking
---------
possession of the Premises, Lessee shall be deemed to have accepted the Premises
as being in good and sanitary order, condition and repair and to have accepted
the Premises in their condition existing as of the date of such possession,
subject to all applicable laws, covenants, conditions, restrictions, easements,
and other matters of public record and the Rules and Regulations from time to
time promulgated by Lessor governing the use of any portion of the Project.
Lessee shall at Lessee's sole cost and expense, keep every pan of the Premises
in good condition and repair, damage thereto from causes beyond the control of
Lessee (and riot caused by any act or omission of Lessee or Lessee's Agents) and
ordinary wear and tear excepted. If Lessee fails to maintain the Premises as
required by this Lease, Lessor may give Lessee notice to do such acts as are
reasonably required to so maintain the Premises and if Lessee fails to commence
such work immediately in an emergency or where immediate action is required to
protect the Premises or any portion of the Project, or within ten (10) days
after such notice is given under other circumstances, and diligently prosecute
it to completion, then Lessor or Lessor's agents, in addition to all of the
rights and remedies available hereunder or by law and without waiving any
alternative remedies, shall have the right to enter the Premises and to do such
acts and expend such funds at the expense of Lessee as are reasonably required
to perform such work. Any amount so expended by Lessor shall be paid by Lessee
to Lessor as additional rent, upon demand. With respect to any work performed by
Lessor pursuant to this Article 11.a., Lessor shall be liable to Lessee only for
physical damage caused to Lessee's personal property located within the Premises
to the extent such damage is caused by Lessor's active negligence or willful
misconduct and is not covered by the insurance required to be maintained by
Lessee pursuant to this Lease. In no event shall Lessor have any liability to
Lessee for any other damages, or for any inconvenience or interference with the
use of the Premises by Lessee, or for any consequential damages, including lost
profits, as a result of performing any such work. Except as specifically
provided in this Lease, Lessor shall have no obligation whatsoever to alter,
remodel, improve, repair, decorate or paint the Premises or any pan thereof and
the parties hereto affirm that Lessor has made no representations or warranties,
express or implied, to Lessee respecting the condition of the Premises or any
part of the Project except as specifically set forth in this Lease.
b. By Lessor. The costs of repairs and maintenance which are the
---------
obligation Lessor under this Lease or which Lessor elects to perform under this
Lease except such repairs and maintenance which are the responsibility of Lessee
hereunder, shall be an Operating Expense, subject to the express provisions of
Article 7 above limiting the inclusion of certain costs in Operating Expenses.
Lessor shall repair and maintain the structural portions of the Building,
including the basic plumbing, air conditioning, heating and electrical systems
installed or furnished by Lessor, unless such maintenance or repairs are caused
in part or in whole by the act, neglect, fault or omission of any duty by Lessee
or Lessee's Agents, in which case Lessor shall pay to Lessor the reasonable cost
of such maintenance or repairs as additional rent. Lessor shall not be liable
for any failure to make any such repairs or to perform any maintenance for which
Lessor is responsible as provided above unless Lessor fails to commence such
work for a period of more than thirty (30) days after written notice of the need
of such repairs or maintenance is given to Lessor by Lessee and the failure is
due solely to causes within Lessor's reasonable control. Except as provided in
Article 21 of this Lease, there shall be no statement of Rentals, and in any
event them shall be no liability of Lessor by reason of any injury to or
interference with Lessee's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Project or in or to
fixtures, appurtenances and equipment therein. Lessee waives the benefits of any
statute now or hereafter in effect (including, without limitation, the
provisions of subsection 1 of Section 1932, Section 1941 and Section 1942 of the
California Civil Code and any similar or dissimilar law, statute or ordinance
now or hereafter in effect) which would otherwise afford Lessee the right to
make repairs at Lessor's expense (or to deduct the cost of such repairs from
Rentals due hereunder) or to terminate this Lease because of Lessor's failure to
keep the Premises in good and sanitary order.
12. LIENS. Lessee shall keep the Premises and every portion of the Project
-----
free from any and all mechanics', materialmen's and other liens, and claims
thereof, arising out of any work performed, materials furnished or obligations
incurred by or for Lessee. Lessee shall indemnify and defend with counsel
acceptable to Lessor and hold Lessor harmless from and against any liens,
demands, claims, actions, suits, proceedings, orders, losses, costs, damages,
liabilities, penalties, expenses, judgments or encumbrances (including without
limitation, attorneys' fees)
-12-
<PAGE>
arising out of any work or services performed or materials furnished by or at
the direction of Lessee or Lessee's Agents or any contractor employed by Lessee
with respect to the Premises. Should any claims of lien relating to work
performed, materials furnished or obligations incurred by Lessee be filed
against, or any action be commenced affecting the Premises, any part of the
Project, and/or Lessee's interest therein Lessee shall give Lessor notice of
such lien or action within three (3) business days after Lessee receives notice
of the filing of the lien or the commencement of the action. If Lessee does not,
within twenty (20) days following the imposition of any such lien, cause such
lien to be released of record by payment or posting of a proper bond, Lessor
shall have, in addition to all other remedies provided herein and by law, the
right, but not the obligation, to cause the Sam to be released by such means as
it shall deem proper, including by payment of the claim giving rise to such lien
or by posting a proper bond, or by requiring Lessee to post for Lessor's benefit
a bond, surety, or cash amount equal to one and one-half (1-1/2) times the
amount of lien and sufficient to release the Premises and Project from the lien.
All sums paid by Lessor pursuant to this Article 12 and all expenses incurred by
it in connection therewith including attorneys' fees and costs shall be payable
to Lessor by Lessee as additional rent on demand.
13. ASSIGNMENT AND SUMMING.
----------------------
a. Prohibitions in General. Lessee shall not (whether voluntarily,
-----------------------
involuntarily, or by operation of law) assign this Lease or allow all or any
part of the Premises to be sublet, without Lessor's prior written consent in
each instance, which consent shall not be unreasonably withheld, subject,
nevertheless, to the provisions of this Article 13. Notwithstanding anything to
the contrary contained herein, Lessor shall have the right without Lessor's
prior consent and without being subject to Article 13.e. or 13.g. below, but
upon not less than fifteen (15) days prior written notice to Lessor, (i) to
assign this Lease or sublet the Premises to any entity (A) controlling,
controlled by or having fifty percent (50%) or more common control with Lessee,
or (B) resulting from a merger or consolidation with Lessee or acquiring
substantially all of the assets and/or substantially all of the stock of Lessee;
provided that any such entity shall have a tangible net worth no less than the
greater of Lessee's tangible net worth as of the execution of this Lease or the
time of such proposed assignment or subletting, and shall assume the obligations
and liabilities of Lessee under this Lease, and no such assignment or sublease
shall in any manner release Lessee from its primary liability under this Lease;
and/or (ii) to allow any person or company which is a client or customer of
Lessee or which is providing service to Lessee or one of Lessee's clients, to
occupy certain portions of the Premises for the permitted use under this Lease
and otherwise subject to the other provisions of this Lease, without such
occupancy being deemed an assignment or subleasing as long as no new demising
walls are constructed to accomplish such occupancy and as long as such
relationship was not created as a subterfuge to avoid the consent requirements
and other applicable provisions of this Article 13, provided that no such
occupancy shall in any manner release Lessee for its primary liability for its
obligations under this Lease. For all purposes of this Lease, a "Permitted
Transferee" shall mean an assignee or subtenant of Lessee under an assignment or
subletting which is permitted without Lessor's prior consent pursuant to clause
(i) above. Except for an allowed assignment or subletting or occupancy pursuant
to the foregoing provisions of this Article 13.a., Lessee shall not (whether
voluntarily, involuntarily, or by operation of law) (1) allow all or any part of
the Premises to be occupied or used by any person or entity other than Lessee,
(2) transfer any right appurtenant to this Lease or the Premises, (3) mortgage,
hypothecate or encumber the Lease or Lessee's interest in the Lease or Premises
(or otherwise use the Lease as a security device) in any manner; provided that
Lessee may encumber and grant security interests in its personal property
located at, but not permanently affixed to, the Premises, on terms and
conditions which shall be subject to Lessor's reasonable approval and Lessor
hereby agrees to execute a Subordination Agreement using Lessor's standard form
(a copy of which the parties acknowledge to have previously been delivered to
Lessee), for the benefit of any personal property lender to Lessee,
subordinating any lien or interest which Lessor may have in such personal
property on the terms and conditions set forth in such agreement; or (4) permit
any person to assume or succeed to any interest whatsoever in this Lease,
without Lessor's prior written consent in each instance, which consent may be
withheld in Lessor's sole and absolute discretion.
Any assignment, sublease, hypothecation, encumbrance, or transfer
(collectively "Transfer") without Lessor's consent shall constitute a default by
Lessee and shall be voidable. Lessor's consent to any one Transfer shall not
constitute a waiver of the provisions of this Article 13 as to any subsequent
Transfer nor a consent to any subsequent Transfer. The provisions of this
subsection 13.a. expressly apply to all heirs, successors, sublessees, assigns
and transferees of Lessee. If Lessor consents to a proposed Transfer, such
Transfer shall be valid and the transferee shall have the right to take
possession of the Premises only if the Assumption Agreement described in
subsection 13.c. below is executed and delivered to Lessor, Lessee has paid the
costs and fees described in subsection 13.i. below, and an executed counterpart
of the assignment, sublease or other document evidencing the Transfer is
delivered to Lessor and such transfer document contains the same terms and
conditions as stated in Lessee's notice given to Lessor pursuant to subsection
13.d. below, except for any such modifications Lessor has consented to in
writing. The acceptance of Rentals by Lessor from any person or entity other
than Lessee shall not be deemed to be a waiver by Lessor of any provision of
this Lease or to be a consent to any Transfer.
b. Collection of Rent. Lessee irrevocably assigns to Lessor, as security
------------------
for Lessee's obligations under this Lease, all rent not otherwise payable to
Lessor by reason of any Transfer of all or any pan of the Premises or this
Lease. Lessor, as assignee of Lessee, or a receiver for Lessee appointed on
Lessor's application, may collect such rent and apply it toward Lessee's
obligations under this Lease; provided, however, that until the occurrence of
any default by Lessee or except as provided by the provisions of subsection
13.i. below, Lessee shall have the right to collect such rent.
c. Assumption Agreement. As a condition to Lessor's consent to any
--------------------
Transfer of Lessee's interest in this Lease or the Premises, Lessee and Lessee's
assignee, sublessee, encumbrancer, hypothecate, or transferee (collectively
"Transferee"), shall execute a written Assumption Agreement, in a form
reasonably approved by Lessor, which Agreement shall include a provision that
Lessee's Transferee shall expressly assume all obligations of Lessee under this
Lease, and shall be and remain jointly and severally liable with Lessee for the
performance of all conditions, covenants, and obligations under this Lease from
the effective date of the Transfer of Lessee's interest in this Lease (except
that as to a subletting, such Assumption Agreement shall relate only to
performance of Lessee's
-13-
<PAGE>
non-rent payment obligations under this Lease relating to the portion of the
Premises subleased). In no event shall Lessor have any obligation to materially
amend or modify this Lease in connection with any proposed Transfer, including,
without limitation, amending or modifying the use restriction set forth in
subsection 8.a. above.
d. Request for Transfer. Lessee shall give Lessor at least thirty (30)
--------------------
days prior written notice of any desired Transfer and of the proposed terms of
such Transfer, including but not limited to: the name and legal composition of
the proposed Transferee; a reasonably detached financial statement the proposed
Transferee prepared in accordance with standard accounting principles within one
year prior to the proposed effective date of the Transfer reviewed by the
Transferee's certified public accountants and certified by the Transferee as
being true and correct; the nature of the proposed Transferee's business to be
carried on in the Premises; the payment to be made or other consideration to be
given on account of the Transfer; and other such pertinent information as may be
reasonably requested by Lessor, all in sufficient detail to enable Lessor to
evaluate the proposed Transfer and the prospective Transferee. Lessee's notice
shall not be deemed to have been served or given until such time as Lessee has
provided Lessor with all information specified above and all additional
information requested by Lessor pursuant to this subsection 13.d. Lessee shall
immediately notify Lessor of any modification to the proposed terms of such
Transfer.
e. No Bonus Value. It is the intent of the parties hereto that this Lease
--------------
confer upon Lessee only the right to use and occupy the Premises, and to
exercise such other rights as are conferred upon Lessee by this Lease. The
parties agree that this Lease is not intended to have a bonus value, nor to
serve as a vehicle whereby Lessee may profit by a future Transfer of this Lease
or the right to use or occupy the Premises as a result of any favorable terms
contained herein or any future changes in the market for leased space. It is the
intent of the parties that any such bonus value that may attach to this Lease
shall be and remain the exclusive property of Lessor. Accordingly, it shall be
presumptively reasonable for Lessor to require, as a condition to its consent
that any and all rent to be paid by a Transferee. including, but not limited to,
any rent in excess of the Rentals to be paid under this Lease (prorated in the
event that a sublease is of less than the entire Premises), net of Lessee's
reasonable out-of-pocket costs incurred for brokerage commissions, attorneys'
fees and any Alterations to the Premises specifically in connection with such
Transfer, shall be paid by Lessee directly to Lessor at the time and place
specified in this Lease. For the purposes of this Article 13, the term "rent"
shall include any consideration of any kind received, or to be received, by
Lessee from a Transferee, if such sums am related to Lessee's interest in this
Lease or in the Premises, including, but not limited to, key money, bonus money,
and payments (in excess of the fair market value thereof) for Lessee's assets,
fixtures, trade fixtures, inventory, accounts, goodwill, equipment, furniture,
general intangibles, and any capital stock or other equity ownership interest of
Lessee.
f. Standards for Consent. Without otherwise limiting the criteria upon
---------------------
which Lessor may withhold its consent to any proposed Transfer, the parties
hereby agree that it shall be deemed presumptively reasonable for Lessor to
withhold its consent to a proposed Transfer if:
(i) The proposed Transferee's net worth (according to generally
accepted accounting principles) is not sufficient in Lessor's good faith
business judgment given the obligations to be performed by the proposed
Transferee pursuant to the proposed Transfer;
(ii) The proposed Transferee's use of the Premises is inconsistent
with the permitted use of the Premises set forth in this Lease or the proposed
Transferee is of a character or reputation which is not consistent with the
quality of the Building or Project;
(iii) As to a Transfer of less than all of the Premises, the space to
be Transferred is not regular in shape with appropriate means of ingress and
egress suitable for normal leasing purposes;
(iv) The proposed Transferee is a governmental agency or
instrumentality thereof or a person or entity (or an affiliate thereof)
currently leasing or occupying space within the Project (provided that Lessor
has sufficient available space within the Project to accommodate the space needs
of such current tenant or occupant) or with whom Lessor is then negotiating for
the lease or occupancy of space within the Project;
(v) The proposed Transfer will result in more than a reasonable and
safe number of occupants per floor within the space proposed to be Transferred
or will result in insufficient parking for the Building; or
(vi) The rent proposed to be payable by the proposed Transferee will
be less (on a per square foot of Rentable Area basis) than the then applicable
fair market rental for the space proposed to be Transferred.
g. Right of Recapture. In addition to and without limitation upon, the
------------------
other rights of Lessor in the event of a proposed Transfer by Lessee pursuant to
this Article 13, in the event of a proposed Transfer by Lessee, Lessor may elect
(by written notice delivered to Lessee within thirty (30) days following
Lessee's submission to Lessor of all information required pursuant to subsection
13.d. above) to terminate this Lease effective as of the date Lessee proposes to
enter into such Transfer (or in the case of a proposed Transfer of less than all
of the Premises, terminate this Lease as to the portion of the Premises proposed
to be Transferred as of the date of such proposed Transfer); provided that
Lessee shall have the right to nullify such an election to terminate by Lessor
pursuant hereto by withdrawing such request for a proposed Transfer within
fifteen (15) days following Lessee's receipt of such termination notice from
Lessor. Except as expressly provided in the immediately preceding sentence,
nothing contained in this Article shall be deemed to nullify Lessor's right to
elect to terminate this Lease in accordance with this subsection 13.g.
including, but not limited to, Lessor's failure to exercise the right to
terminate this Lease with respect to any previous Transfer. Further, Lessee
understands and acknowledges that Lessor's option to terminate this Lease rather
than approve a proposed Transfer is a material inducement for Lessor's agreeing
to lease the
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<PAGE>
Premises to Lessee upon the terms and conditions herein set forth and is deemed
a reasonable limitation upon Lessee's right to enter into a Transfer.
h. Corporations and Partnerships. If Lessee is a partnership, a withdrawal
-----------------------------
or substitution (whether voluntary, involuntary, or by operation of law and
whether occurring at one time or over a period of time) of any partner(s) owning
fifty percent (50%) or mom of the partnership, any assignment(s) of fifty
percent (50%) or more (cumulatively) of any interest in the capital or profits
of the partnership, or the dissolution of the partnership shall be deemed a
Transfer of this Lease. Subject to the provisions of Article 13.a. above, if
Lessee is a corporation, limited liability company or other entity, any
dissolution, merger, consolidation or other reorganization of Lessee, any sale
or transfer (or cumulative sales or transfers) of the capital stock of or equity
interests in Lessee in excess of twenty-five percent (25%) or any sale (or
cumulative sales) of more than fifty percent (50%) of the value of the assets of
Lessee shall be deemed a Transfer of this Lease. This subsection 13.h. shall not
apply to corporations the capital stock of which is publicly traded.
i. Attorneys' Fees and Costs. Lessee shall pay, as additional rent,
-------------------------
Lessor's actual costs and attorneys' fees incurred for reviewing, investigating,
processing and/or documenting any requested Transfer, whether or not Lessor's
consent is granted.
j. Miscellaneous. Regardless of Lessor's consent, no Transfer shall
-------------
release of Lessee's obligations under this Lease or alter the primary liability
of Lessee to pay the Rentals and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of Rentals by Lessor from any
other person shall not be deemed to be a waiver by Lessor of any provision
hereof. Upon default by any assignee of Lessee or any successor of Lessee in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee or
successor. Lessor may consent to subsequent assignments or subletting of this
Lease or amendments or modifications to this Lease with any assignee of Lessee,
without notifying Lessee, or any successor of Lessee , and without obtaining its
or their consent thereto and such action shall not relieve Lessee of liability
under this Lease.
k. Reasonable Provisions. Lessee acknowledges that, but for Lessee's
---------------------
identity, financial condition and ability to perform the obligations of Lessee
under the Lease, Lessor would not have entered into this Lease nor demised the
Premises in the manner set forth in this Lease, and that in entering into this
Lease. Lessor has relied specifically on Lessee's identity, financial condition.
responsibility and capability of performing the obligations of Lessee under the
Lease. Lessee acknowledges that Lessor's rights under this Article 13, including
the right to terminate this Lease or withhold consent to certain Transfers in
Lessor's sole and absolute discretion, are reasonable, agreed upon and bargained
for rights of Lessor and that the Rentals set forth in the Lease have taken into
consideration such rights. Lessee expressly agrees that the provisions of this
Article 13 are not unreasonable standards or conditions for purposes of Section
1951.4(b)(2) of the California Civil Code, as amended from time to time, under
the Federal Bankruptcy Code or for any other purpose.
14. HOLD HARMLESS. Lessee shall to the fullest extent permitted by law,
-------------
indemnify, defend with counsel acceptable to Lessor, and hold Lessor and
Lessor's employees, agents, partners, officers, directors and shareholders
harmless from and against any and all claims, damages, losses, liabilities,
penalties, judgments, and costs and expenses (including, without limitation.
attorneys' fees) and any suit, action or proceeding brought pursuant thereto
(collectively, "Claims"), including, without limitation, Claims for property
damage, or personal injury including death, arising out of (i) Lessee's use of
the Premises or any part thereof, or any activity, work or other thing done in
or about the Premises, (ii) any activity, work or other thing done, permitted in
or about the Premises, or any part thereof, (iii) any breach or default in the
performance of any obligation on Lessee's part to be performed under the terms
of this Lease, (including, without limitation, a failure to maintain insurance
as provided in Article 16), or (iv) any act or negligence of the Lessee or
Lessee's Agents; provided, however, that Lessee shall not be required to
indemnify Lessor pursuant hereto to the extent of any Claims (1) arising as a
result of Lessor's default under this Lease, or the negligence or willful
misconduct of Lessor or any of Lessor's employees, agents or contractors, and
(2) not covered by the insurance required to be maintained by Lessee pursuant to
Article 16 below.
The indemnity herein shall extend to the costs and expenses incurred by
Lessor for administrative expenses, consultant fees, expert costs, investigation
expenses and costs incurred in settling indemnified claims, whether such costs
occurred before or after any litigation is commenced. The obligations of Lessee
pursuant to this Article 14 and elsewhere in this Lease with respect to
indemnification of Lessor shall survive the Lease Termination and shall continue
in effect until any and all claims, actions or causes of action with respect to
any of the matters indemnified against are fully and finally barred by the
applicable statute of limitations. In no event shall any of insurance provisions
set forth in Article 16 of this Lease be construed as any limitation on the
scope of indemnification set forth herein.
As a material part of the consideration to Lessor, as between Lessee and
Lessor, Lessee hereby assumes all risk of damage or loss to property or injury
or death to person in, upon or about all portions of the Project from any cause
except as hereinafter stated. Lessor or its agents shall not be liable for any
damage or loss to property entrusted to Lessor's employees nor for loss or
damage to any property of Lessee or Lessee's Agents by theft or otherwise, nor
for any injury or death to Lessee or any of Lessee's Agents or for damage or
loss to persons or property of Lessee or any of Lessee's Agents resulting from
any accident, casualty or condition occurring in or about any portion of the
Project, or to any equipment, appliances or fixtures of Lessee or any of
Lessee's Agents therein. Lessee's assumption of risk and the exculpation of
Lessor pursuant hereto is unqualified with the single exception that it shall
not apply to the portion of any claim, damage or loss to the extent arising out
of the negligence or willful misconduct of Lessor or any of Lessor's employees,
agents or contractors, and which is not covered by the insurance required to be
maintained by Lessee pursuant to Article 16 below. Lessor or its agents shall
not be liable for interference with the light or other incorporeal
hereditaments, nor shall Lessor be liable for any latent defect in the Premises
or in the Building. Notwithstanding any other provision of this Lease, in no
vent shall Lessor have
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<PAGE>
any liability for loss of business (including, without limitation, lost profits)
by Lessee. Lessee shall give prompt written notice to Lessor in case of fire or
accidents in the Premises or in the Building or of defects therein or in the
fixtures or equipment.
If, by reason of any act or omission of Lessee or Lessee's Agents, Lessor
is made a party defendant to any litigation concerning this Lease or any part of
the Project or otherwise, Lessee shall indemnify, defend with counsel acceptable
to Lessor, and hold Lessor harmless from any liability and damages incurred by
(or threatened against) Lessor as a party defendant, including without
limitation all damages, costs and expenses, including attorneys' fees.
15. SUBROGATION. Lessor releases Lessee and Lessee's officers, directors,
-----------
agents, employees, partners and shareholders from any and all claims or demands
for damages, loss, expense or injury arising out of any perils to the extent
covered by insurance carried by Lessor, or that are due to the negligence of
Lessee or Lessee's officers, directors, agents, employees, partners and
shareholders and regardless of cost or origin, to the extent such waiver is
permitted by Lessor's insurers and does not prejudice the insurance required to
be carried by Lessor under this Lease. Lessee releases Lessor and Lessor's
officers, directors, agents, employees, partners and shareholders from any and
all claims or demands for damages, loss, expense or injury arising out of any
perils which are insured against under any insurance carried by Lessee, whether
due to the negligence of Lessor or its officers, directors, agents, employees,
partners and shareholders and regardless of cost or origin, to the extent such
waiver is permitted by Lessee's insurers and does not prejudice the insurance
required to be carried by Lessee under this Lease.
16. LESSEE'S INSURANCE.
------------------
a. Lessee shall, at Lessee's expense, obtain and keep in force during the
Term a policy of commercial general liability insurance, including the broad
form endorsement, insuring Lessor and Lessee against any liability arising out
of the ownership, use, occupancy, maintenance, repair or improvement of the
Premises and all areas appurtenant thereto. Such insurance shall provide single
limit liability coverage of not less than Three Million Dollars ($3,000,000.00)
per occurrence for bodily injury or death and property damage. Such insurance
shall name Lessor and, at Lessor's request, Lessor's mortgagee, each as an
additional insured, and shall provide that Lessor and any such mortgagee,
although an additional insured, may recover for any loss suffered by Lessor or
Lessor's agents by reason of Lessee's or Lessee's Agent's negligence. All such
insurance shall be primary and noncontributing with respect to any insurance
maintained by Lessor and shall specifically insure Lessee's performance of the
indemnity and hold harmless agreements contained in Article 14 above although
Lessee's obligations pursuant to Article 14 shall not be limited to the amount
of any insurance required of or carried by Lessee under this Article 16 and
Lessee is responsible for ensuring that the amount of liability insurance
carried by Lessee is sufficient for Lessee's purposes. Lessee may carry said
insurance under a blanket policy provided that such policy conforms with the
requirements specified in this Article and the coverage afforded Lessor is not
diminished thereby.
b. Lessee acknowledges and agrees that insurance coverage carried by
Lessor will not cover Lessee's property within the Premises or within the
Building. Lessee shall, at Lessee's expense, obtain and keep in force during the
Term a policy of "All Risk" property insurance, including without limitation,
coverage for earthquake and flood; broiler and machinery (if applicable),
sprinkler damage; vandalism; malicious mischief, and demolition, increased cost
of construction and contingent liability from changes in building laws on all
leasehold improvements installed in the Premises by Law at its expense (if any),
and on all equipment, trade fixtures, inventory, fixtures and personal property
located on or in the Premises, including improvements or fixtures hereinafter
constructed or installed on the Premises. Such insurance shall be in an amount
equal to the full replacement cost of the aggregate of the foregoing and shall
provide coverage comparable to the coverage in the Standard ISO All Risk form,
when such form is supplemented with the coverage required above.
c. If Lessee fails to procure and maintain any insurance required to be
procured and maintained by Lessee pursuant to this Lease, Lessor may, but shall
not be required to, procure and maintain all or any portion of the same, at the
expense of Lessee after providing Lessee no less than ten (10) days written
notice of its intent to purchase such coverage. Lessor's election pursuant to
this subsection 16.c. to procure and maintain all or any portion of the
insurance which Lessee fails to procure and maintain is acknowledged by Lessee
to be for Lessor's sole benefit. Lessee acknowledges that any insurance procured
and maintained by Lessor pursuant to this subsection 16.c. may not be sufficient
to adequately protect Lessee. Any personal property insurance procured and
maintained by Lessor for Lessee's equipment, trade fixtures, inventory, fixtures
and personal property located on or in the Premises, including improvements or
fixtures hereinafter constructed or installed on the Premises, may not
sufficiently cover the replacement cost thereof. Any insurance procured and
maintained by Lessor pursuant to this subsection 16.c. may provide for less
coverage than is required to be maintained by Lessee pursuant to this Lease.
Lessee acknowledges and agrees that Lessee is and shall remain solely
responsible for procuring insurance sufficient for Lessee's purposes,
notwithstanding the fact that Lessor has procured or maintained any insurance
pursuant to this subsection 16.c. Any insurance required to be maintained by
Lessee hereunder shall be in companies with a security rating of A or better,
and a financial size category rating of X or better, in the then most recently
published "Best's Insurance Guide". Prior to occupancy of the Premises (and
thereafter annually with respect to renewals, not later than thirty (30) days
prior to expiration of then existing policies), Lessee shall deliver to Lessor
copies of the policies of insurance required to be kept by Lessee hereunder, or
certificates evidencing the existence and amount of such insurance, with
evidence satisfactory to Lessor of payment of premiums. No policy shall be
cancelable or subject to reduction of coverage except after thirty (30) days
prior written notice to Lessor.
d. Not more frequently than once every year, Lessee shall increase the
amounts of insurance as follows: (i) as recommended by Lessor's insurance broker
provided that the amount of insurance recommended by such broker shall not
exceed the amount customarily required of tenants in comparable projects located
within Cupertino, California, or (ii) as required by Lessor's lender. Any limits
set forth in this Lease on the amount or type of coverage required by Lessee's
insurance shall not limit the liability of Lessee under this Lease.
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<PAGE>
e. As an item of Building Service Expenses, Lessor hereby agrees to
maintain in effect during the Term of this Lease (i) a policy or policies of
"all risk" insurance (or its then equivalent coverage) in an amount not less
than ninety percent (90%) of the full replacement cost of the Building
(exclusive of footings, foundations and excavation), (ii) a policy of commercial
general liability insurance, including the broad form endorsement, insuring
Lessor against any liability arising out of the ownership, use, occupancy,
maintenance, repair or improvement of the Project, with coverage of not less
than Three Million Dollars ($3,000,000.00) combined single limit per occurrence
for bodily injury or death and property damage, and (iii) such other insurance
coverages in such other amounts as Lessor determines to be appropriate.
Insurance maintained by Lessor may be maintained under so-called blanket,
umbrella and/or excess liability policies of insurance.
17. SERVICES AND UTILITIES. Subject to the rules and regulations of the
----------------------
Building of which the Premises are a pan, Lessor agrees to furnish to the
Premises during the hours of 7:00 a.m. to 6:00 p.m., Monday through Friday,
other than recognized Building holidays (collectively, "Building Hours"),
heating and air-conditioning service which is required in Lessor's good faith
judgment for the comfortable use and occupation of the Premises, and at all
times electricity for normal lighting, water and elevator service which am
required in Lessor's good faith judgment for the comfortable use and occupation
of the Premises. During recognized business days for the Building, and subject
to the reasonable rules and regulations of the Building and Project. Lessor
shall furnish to the Premises and the Common Areas, janitorial service, window
washing, fluorescent tube replacement and toilet supplies; provided, however,
Lessor shall not be required to provide janitorial services for any portion of
the Premises to the extent required as a result of the preparation or
consumption of food or beverages (provided that nothing in this paragraph shall
be construed as a consent by Lessor to the preparation or consumption of such
food or beverages unless otherwise expressly provided elsewhere in this Lease).
Lessor shall also maintain and keep lighted during such hours and after-hours
(at levels sufficient for after-hours usage) the common stairs, common entries
and toilet rooms in the Building. Lessor shall not be liable for, and Lessee
shall not be entitled to, any reduction of Rentals by reason of Lessor's failure
to furnish any of the foregoing when such failure is caused by casualty, Act of
God, accident, breakage, repairs, strikes, lockouts or other labor disturbances
or labor disputes of any character, or by any other cause, similar or
dissimilar, beyond the reasonable control of Lessor. Lessor shall not be liable
under any circumstances for injury to or death of or loss or damage to persons
or property or damage to Lessee's business, however occurring, through or in
connection with or incidental to failure to furnish any of the foregoing.
Wherever heat generating machines or equipment are used in the Premises which
affect the Temperature otherwise maintained by the air conditioning system,
Lessor reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation and the cost
of operation and maintenance thereof, shall be paid by Lessee to Lessor upon
demand by Lessor as additional rent. The costs of all utilities and services
furnished by Lessor to Lessee pursuant to this Article 17 which am not specified
as being reimbursed or paid directly by Lessee shall be included as items of
Building Operating Expenses.
Lessee will not, without the prior written consent of Lessor, use or
permit the use of any apparatus or device in or upon the Premises (including,
but without limitation thereto, machines using in excess of 120 volts), which
will in any way increase the amount of gas, electricity or water usually
furnished or supplied for the use of the Premises as general office space
(which, as to electricity consumption, the parties hereby agree to mean not more
than three (3) watts per square foot of usable area on a demand load basis); nor
will Lessee connect or permit connection of any apparatus or device for the
purpose of using gas, electric current or water with electric current, gas or
water supply lines, except for electricity through existing electrical outlets
in the Premises. If Lessee requires water or electric current in excess of that
usually furnished or supplied for the use of the Premises as general office
space (including, without limitation, as a result of use at times other than
during Building Hours), Lessee shall first procure the written consent of Lessor
to the use thereof (which consent may be granted or withheld in Lessor's sole
and absolute discretion, except that no such consent shall be required for mere
operation by Lessee during times other than Building Hours) and Lessor may cause
a water or gas meter or electric current meter to be installed in the Premises
so as to measure the amount of water, gas and electric current consumed for any
such use. The cost of any such meters and of installation, maintenance and
repair thereof shall be paid for by the Lessee and Lessee agrees to pay to
Lessor, as additional rent, promptly upon demand therefor by Lessor for all such
water, gas and electric current consumed as shown by said meters, at the rates
charged for such services by the local public utility furnishing the same, plus
any additional expense incurred in keeping account of the water, gas and
electric current so consumed. If a separate meter is not installed, such excess
cost for such water, gas and electric current will be conclusively established
by an estimate made by a utility company or electrical engineer selected by
Lessor.
Lessor hereby represents that the Project is presently serviced by an
emergency back-up generator intended to provide electrical service to the
Building in the event of power failure, which Lessor hereby represents and
warrants to Lessor's actual knowledge to be in good operating condition;
provided that Lessor makes no representation whether such back-up generator
shall be sufficient for Lessee's needs in the event of a power failure. Any
connection by Lessee of Lessee's critical electrical systems to such emergency
back-up generator shall be subject to Lessor's reasonable approval (including,
without limitation, as to manner of connection and capacity of systems within
the Premises required to be serviced by such generator).
If requested by Lessee at least one (1) business day in advance, heating,
ventilation and air conditioning ("HVAC") service shall be provided to the
Premises other than during Building Hours (for a minimum period of three (3)
consecutive hours at a time, except for after-hours HVAC service immediately
following Building Hours, at which time the minimum period shall be one (1)
hour), provided that Lessee shall pay to Lessor for each such hour of HVAC
service during non-Building Hours, the then prevailing charge by Lessor for such
service (which shall equal Lessor's determination in Lessor's sole business
judgment of the actual cost of providing such non-Building Hours HVAC service,
including, without limitation, a reasonable administrative charge), which is
presently Twenty-Five Dollars ($25.00) per hour per zone (the parties hereby
acknowledge that there are two (2) zones for purposes hereof per each floor of
the Building). Amounts payable by Lessee hereunder shall be paid as additional
rent within thirty (30) days following Lessee's receipt of Lessor's billing
therefor.
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<PAGE>
18. RULES AND REGULATIONS. Lessee shall faithfully observe and comply with the
---------------------
rules and regulations that Lessor shall from time to time promulgate for the
Building and the Project. Lessor reserves the right from time to time to make
all reasonable modifications to said rules and regulations. The additions and
modifications to these rules and regulations shall be binding upon Lessee upon
delivery of a copy of them to Lessee. Lessor shall not be responsible to Lessee
for the non-performance of any said rules by any other tenants or occupants. The
current "Rules and Regulations" are attached hereto as Exhibit He". In the event
of a conflict between the specific provisions of this Lease and such Rules and
Regulations, the specific provisions of this Lease shall prevail.
19. HOLDING OVER. If Lessee remains in possession of the Premises or any part
------------
thereof after Lease Termination, with the express written consent of Lessor,
such occupancy shall be a tenancy from month to month at a Base Rent in the
amount of one hundred fifty percent (130%) of the Base Rent in effect
immediately preceding such Lease Termination, plus all other rental charges
payable hereunder, and upon all the terms hereof applicable to a month to month
tenancy. In such case, either party may thereafter terminate this Lease at any
time upon giving not less than thirty (30) days written notice to the other
party. For any possession of the Premises after the Lease Termination without
Lessor's consent, Lessee shall be liable for all detriment proximately caused by
Lessee's possession, including without limitation, attorneys' fees, costs and
expenses, claims of any succeeding tenant founded on Lessee's failure to vacate
and for payment to Lessor of Base Rent in an amount equal to the greater of (a)
one hundred fifty percent (150%) of the Base Rent in effect immediately
preceding such Lease Termination, or (b) the fair market rental value for the
Base Rent for the Premises, together with such other Rentals provided in this
Lease to the date Lessee actually vacates the Premises, and such other remedies
as are provided by law, in equity or under this Lease, including without
limitation punitive damages recoverable under California Code of Civil Procedure
Section 1174.
20. ENTRY BY LESSOR. Lessor reserves and shall at any and all reasonable times
---------------
have the right to enter the Premises, inspect the same, supply janitorial
service and any other service to be provided by Lessor to Lessee hereunder, to
submit said Premises to prospective purchasers, mortgagees, lenders or tenants,
to post notices of non-responsibility, and to alter, improve or repair the
Premises and any portion of the Building that Lessor may deem necessary or
desirable, without any statement of Rentals, and may for such purposes erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, provided that the entrance to the
Premises shall not be unreasonably blocked thereby, and further provided that
the business of the Lessee shall not be interfered with unreasonably. In no
event shall Lessor have any liability to Lessee for, and Lessee hereby waives
any claim for, damages or for any injury or inconvenience to or interference
with Lessee's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other damage or loss occasioned thereby. For each of the
aforesaid purposes, Lessor shall at all times have and retain a key with which
to unlock all of the doors in, upon and about the Premises, excluding Lessee's
vaults, safes and files, and Lessor shall have the right to use any and all
means which Lessor may deem proper to open said doors in an emergency in order
to obtain entry to the Premises, without liability to Lessee except for any
failure to exercise due care for Lessee's property under the circumstances of
each entry. Any entry to the Premises obtained by Lessor by any of said means or
otherwise shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction
of Lessee from the Premises or any portion thereof. If Lessee has removed
substantially all of Lessee's property from the Premises, Lessor may, without
statement of Rentals, enter the Premises for alteration, renovation or
decoration during the last thirty (30) days of the Term. With respect to any
entry by Lessor into the Premises, Lessor shall be liable to Lessee solely for
physical damage caused to Lessee's personal property located within the Premises
to the extent such damage is caused by Lessor's active negligence or willful
misconduct and which is not covered by the insurance required to be maintained
by Lessee pursuant to this Lease, and only with respect to an entry in an non-
emergency situation.
21. RECONSTRUCTION. If the Premises are damaged and rendered substantially
--------------
untenantable, or if the Building is damaged (regardless of damage to the
Premises) or destroyed, Lessor may, within ninety (90) days after the casualty,
notify Lessee of Lessor's election not to repair, in which event this Lease
shall terminate at the expiration of the ninetieth (90th) day. If Lessor elects
to repair the damage or destruction, this Lease shall remain in effect and the
then current Base Rent and Lessee's Percentage Share of Building Expenses shall
be proportionately reduced during the period of repair. The reduction shall be
based upon the extent to which the making of repairs interferes with Lessee's
business conducted in the Premises, as reasonably determined by Lessor. All
other Rentals due hereunder shall continue unaffected, and Lessee shall have no
claim against Lessor for compensation for inconvenience or loss of business
during any period of repair or reconstruction. Lessee shall continue the
operation of its business on the Premises during any period of reconstruction or
repair to the extent reasonably practicable from the standpoint of prudent
business management. Upon Lessor's election to repair, Lessor shall diligently
repair the damage to the extent of insurance proceeds available to Lessor.
Lessor shall not be required to repair or replace, whether injured or damaged by
fire or other cause, any item required to be insured by Lessee under this Lease
including Lessee's fixtures, equipment, merchandise, personal property,
inventory, panels, decoration, furniture, railings, floor covering, partitions
or any other improvements, alterations, additions, or property made or installed
by Lessee to the Premises, and Lessee shall be obligated to promptly rebuild or
restore the same to the same condition as they were in immediately before the
casualty. Lessee hereby waives all claims for loss or damage to the foregoing.
Lessee waives any rights to terminate this Lease if the Premises are damaged or
destroyed, including without limitation any rights pursuant to the provisions of
Subdivision 2 of Section 1932 and Subdivision 4 of Section 1933 of the Civil
Code of California, as amended from time to time, and the provisions of any
similar law hereinafter enacted. If the Lease is terminated by Lessor pursuant
to this Article 21, the unused balance of the Security Deposit and any Rentals
unearned as of the effective date of termination shall be refunded to Lessee.
Lessee shall pay to Lessor any Rentals or other charges due Lessor under the
Lease, prorated as of the effective date of termination. Notwithstanding
anything to the contrary in the foregoing, if the damage is due to the fault or
neglect of Lessee, or Lessee's Agents, them shall be no statement of Base Rent
or any other Rentals.
Notwithstanding the foregoing, if less than thirty-three percent (33%) of
the Rentable Area of the Building is damaged from an insured casualty and the
insurance proceeds actually available to Lessor for reconstruction (net of costs
to recover such proceeds and after all claimants thereto including lienholders
have been satisfied or waive
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<PAGE>
their respective claims) ("Net Insurance Proceeds") are sufficient to completely
restore the Building, Lessor agrees to make such reparations and continue this
Lease in effect. If, upon damage of less than thirty-three percent (33%) of the
Rentable Area of the Building there are not sufficient insurance proceeds
actually available to allow Lessor to completely restore the Building, Lessor
shall not be obligated to repair the Building and the provisions of the first
paragraph of this Article shall control.
Lessee shall not be entitled to any compensation or damages from Lessor
for loss of the use of the whole or any part of the Premises, or for any damage
to Lessee's business, or any inconvenience or annoyance occasioned by such
damage, or by any repair, reconstruction or restoration by Lessor, or by any
failure of Lessor to make any repairs, reconstruction or restoration under this
Article or any other provision of this Lease. However, notwithstanding anything
to the contrary contained in this Lease, in the event of material casualty
damage to the Premises not resulting in termination of this Lease, Lessor shall
deliver written notice to Lessee within ninety (90) days following such casualty
damage or occurrence setting forth Lessor's good faith estimate of the time
required for completion of repair and/or restoration of the Premises, and if
such estimated time exceeds two hundred seventy (270) days from the occurrence
of the casualty, Lessee may elect to terminate this Lease by written notice to
Lessor within fifteen (15) days following Lessee's receipt of such notice. In
addition, if such repair is not substantially completed so as to permit Lessee's
resumption of business from the Premises without material interference from any
uncompleted repair work within two hundred seventy (270) days from the
occurrence of the casualty (or such longer period as may have been estimated in
Lessor's written notice to Lessee pursuant hereto), then Lessee shall have the
right to terminate this Lease upon thirty (30) days prior written notice to
Lessor (provided that if such repair work is so substantially completed prior to
the expiration of such thirty (30) day period, then Lessee's election to
terminate shall be nullified and this Lease shall continue in full force and
effect).
22. DEFAULT. The occurrence of any one or mom of the following events shall
-------
constitute a material default and breach of this Lease by Lessee:
a. Lessee's failure to pay when due Base Rent or any other Rentals or
other sums payable hereunder where such failure is not cured within five (5)
days following Lessor's delivery of written notice thereof (which notice shall
be in lieu of, and not in addition to, any notice required under applicable
laws, including, without limitation, notices required under California Code of
Civil Procedure Section 1161 or any similar or successor statute);
b. Intentionally omitted;
c. Commencement, and continuation for at least thirty (30) days, of any
case, action, or proceeding by, against, or concerning Lessee, or any guarantor
of Lessee's obligations under this Lease ("Guarantor"), under any federal or
state bankruptcy, insolvency, or other debtor's relief law, including without
limitation, (i) a case under Title 11 of the United States Code concerning
Lessee, or a Guarantor, whether under Chapter 7, 11, or 13 of such Title or
under any other Chapter, or (ii) a case, action, or proceeding seeking Lessee's
or a Guarantor's financial reorganization or an arrangement with any of Lessee's
or a Guarantor's creditors;
d. Voluntary or involuntary appointment of a receiver, trustee, keeper,
or other person who takes possession for more than thirty (30) days of
substantially all of Lessee's or a Guarantor's assets, or of any asset used in
Lessee's business on the Premises, regardless of whether such appointment is as
a result of insolvency or any other cause;
e. Execution of an assignment for the benefit of creditors of
substantially all assets of Lessee or a Guarantor available by law for the
satisfaction of judgment creditors;
f. Commencement of proceedings for winding up or dissolving (whether
voluntary or involuntary) the entity of Lessee or a Guarantor, if Lessee or such
Guarantor is a corporation, partnership, limited liability company or other
entity;
g. Levy of a writ of attachment or execution on Lessee's interest under
this Lease, if such writ continues for a period of ten (10) days;
h. Any Transfer or attempted Transfer of this Lease by Lessee contrary to
the provisions of Article 13 above;
i. With respect to any report that Lessee is required to submit
hereunder, the willful submission by Lessee of a report which Lessee knows to be
materially inaccurate;
j. The use or occupancy of the Premises for any use or purpose not
specifically allowed by the terms of this Lease; or
k. Breach by Lessee of any term, covenant, condition, warranty, or
provision contained in this Lease or of any other obligation owing or due to
Lessor other than as described in subsections 22.a., b., c., d., e., f., g., h.,
i. or j, of this Article 22, where such failure shall continue for the period
specified in this Lease or if no such period is specified, for a period of
thirty (30) days after written notice thereof by Lessor to Lessee; provided,
however, that if the nature of Lessee's default is such that more than thirty
(30) days are reasonably required for its cure, Lessee shall not be deemed to be
in default if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion; provided that any such
notice from Lessor shall be in lieu of, and not in addition to, any notice
required under applicable laws, including, without limitation, notices required
under California Code of Civil Procedure Section 1161 or any similar or
successor statute.
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<PAGE>
23. REMEDIES UPON DEFAULT. Upon any default or breach by Lessee which is not
---------------------
cured within any applicable period for cure provided for in Article 22 above, at
any time thereafter, with or without notice or demand, and without limiting
Lessor in the exercise of any right or remedy which Lessor may have hereunder or
otherwise at law or in equity by reason of such default or breach Lessor may do
the following:
a. Termination of Lease. Lessor may terminate this Lease or Lessee's right
--------------------
to possession of the Premises by notice to Lessee or any other lawful means, in
which case this Lease shall terminate and Lessee shall immediately surrender
possession of the Premises to Lessor. In such event Lessor shall be entitled to
recover from Lessee:
(i) The worth at the time of award of the unpaid Rentals which had been
earned at the time of termination;
(ii) The worth at the time of award of the amount by which the unpaid
Rentals which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided;
(iii) The worth at the time of award (computed by discounting at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent) of the amount by which the unpaid Rentals for the balance of
the Term after the time of award exceeds the amount of such rental loss that
Lessee proves could be reasonably avoided; and
(iv) Any other amounts necessary to compensate Lessor for detriment
proximately caused by the default by Lessee or which in the ordinary course of
events would likely result, including without limitation the reasonable costs
and expenses incurred by Lessor for:
(A) Retaking possession of the Premises;
(B) Cleaning and making repairs and alterations (including
installation of leasehold improvements, whether or not the same shall be funded
by a reduction of rent, direct payment or otherwise) necessary to return the
Premises to good condition and preparing the Premises for reletting;
(C) Removing, transporting, and storing any of Lessee's property
left at the Premises (although Lessor shall have no obligation to remove,
transport, or store any of the property);
(D) Reletting the Premises, including without limitation, brokerage
commissions, advertising costs, and attorneys' fees;
(E) Attorneys' fees, expert witness fees and court costs,
(F) Any unamortized real estate brokerage commissions paid in
connection with this Lease; and
(G) Costs of carrying the Premises, such as repairs, maintenance,
taxes and insurance premiums. utilities and security precautions, if any.
The "worth at the time of award" of the amounts referred to in Articles
23.a.(i) and 23.a.(ii) is computed by allowing interest at an annual rate equal
to the greater of: ten percent (10%); or five percent (5%) plus the rate
established by the Federal Reserve Bank of San Francisco, as of the 25th day of
the month immediately preceding the default by Lessee, on advances to member
banks under Section 13 and 13(a) of the Federal Reserve Act, as not in effect or
hereafter from time to time amended (the "Stipulated Rate"). The computation of
the amount of rental loss that could be or could have been reasonably avoided by
Lessor pursuant to California Civil Code section 1951.2 shall take into account
the use restrictions set forth in Article 8.a. above except to the extent that
Lessee proves that under all circumstances the enforcement of the use
restriction would be unreasonable.
b. Continuation of Lease. Lessor may continue this Lease in full force and
---------------------
effect, and the Lease shall continue in effect as long as Lessor does not
terminate Lessee's right to possession, and Lessor shall have the right to
enforce all rights and remedies under this Lease including the right to collect
all Rentals when due. During the period Lessee is in default, Lessor can enter
the Premises and relet them, or any part of them, to third parties for Lessee's
account. Lessee shall be liable immediately to Lessor for all costs Lessor
incurs in reletting the Premises, including without limitation, those items
outlined in subsections a.(i) through a.(iv) of this Article 23, and other like
costs. Reletting can be for a period shorter or longer than the remaining Term.
Lessee shall pay to Lessor all Rentals due under this Lease on the date the
Rentals am due, less the rent Lessor receives from any reletting. The use
restriction provided in Article 8.a. above shall apply to Lessor's remedies
under California Civil Code section 1951.4 except to the extent that Lessee
proves that under all circumstances enforcement of the use restriction would be
unreasonable.
c. Other Remedies. Lessor may pursue any other remedy now or hereafter
--------------
available to Lessor under the laws or judicial decisions of the State in which
the Premises are located.
d. General. The following shall apply to Lessor's remedies:
-------
(i) No entry upon or taking of possession of the Premises or any part
thereof by Lessor, nor any letting or subletting thereof by Lessor for Lessee,
nor any appointment of a receiver, nor any other act of Lessor, whether
acceptance of keys to the Premises or otherwise, shall constitute or be
construed as an election by Lessor to
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<PAGE>
terminate this Lease or Lessee's right to possession of the Premises unless a
written notice of such election be given to Lessee by Lessor.
(ii) If Lessor elects to terminate this Lease or Lessee's right to
possession hereunder, Lessee shall surrender and vacate the Premises in broom-
clean condition, and Lessor may re-enter and take possession of the Premises and
may eject all parties in possession or eject some and not others or eject none.
Any personal property of or under the control of Lessee remaining on the
Premises at the time of such re-entry may be considered and treated by Lessor as
abandoned.
24. EMINENT DOMAIN. If more than twenty-five percent (25%) of the area of the
--------------
Premises is taken or appropriated for any public or quasi-public use under the
power of eminent domain, or conveyed in lieu thereof, either party hereto shall
have the right, at its option, to terminate this Lease by written notice to the
other party given within ten (10) days of the date of such taking, appropriation
or conveyance, and Lessor shall be entitled to any and all income, rent, award,
or any interest therein whatsoever which may be paid or made (the "Award") in
connection with such public or quasi-public use or purpose, and Lessee shall
have no claim against Lessor for (and hereby assigns to Lessor any claim which
Lessee may have for) the value of any unexpired Term of this Lease. If any part
of the Building or the Project other than the Premises may be so taken,
appropriated or conveyed, Lessor shall have the right at its option to terminate
this Lease. and in any such event Lessor shall be entitled to the entire Award
whether or not this Lease is terminated. If this Lease is terminated as provided
above: (i) the termination shall be effective as of the date upon which title to
the Premises, the Building, the Project, or a portion thereof, passes to and
vests in the condemnor or the effective date of any order for possession if
issued prior to the date title vests in the condemnor; (ii) Lessor shall refund
to Lessee any prepaid but unearned Rentals and the unused balance of the
Security Deposit; and (iii) Lessee shall pay to Lessor any Rentals or other
charges due Lessor under the Lease, prorated as of the date of taking.
If less than twenty-five percent (25%) of the Premises is so taken,
appropriated or conveyed, or more than twenty-five percent (25%) thereof is so
taken, appropriated or conveyed and neither party elects to terminate as herein
provided, (i) Lessor shall be entitled to the entirety of the Award, and Lessee
shall be entitled to make a claim for any separate award attributable to any
taking of Lessee's trade fixtures so long as any such award to Lessee does not
reduce the amount of the Award available to Lessor; and (ii) the Rental
thereafter to be paid hereunder for the Premises shall be reduced in the same
ratio that the percentage of the area of the Premises so taken, appropriated or
conveyed bears to the total area of the Premises immediately prior to the
taking, appropriation or conveyance. In addition, if any Rentable Area in the
Building containing the Premises is so taken, appropriated or conveyed and this
Lease is not terminated by Lessor, Lessee's Percentage Share of Building
Expenses shall be adjusted pursuant to Article 7.
Notwithstanding this Article 24 above, upon a temporary taking of all or
any portion of the Premises, the Lease shall remain in effect and Lessee shall
continue to pay and be liable for all Rentals under this Lease. Upon such
temporary taking, Lessee shall be entitled to any Award for the Temporary use of
the portion of the Premises taken which is attributable to the period prior to
the date of Lease Termination, and Lessor shall be entitled to any portion of
the Award for such use attributable to the period after Lease Termination. As
used in this paragraph, a temporary taking shall mean a taking for a period of
one year or less and does not include a taking which is to last for an
indefinite period and/or which will terminate only upon the happening of a
specified event unless it can be determined at the time of the taking when such
event will occur.
25. OFFSET STATEMENT: MODIFICATIONS FOR LENDER. Lessee shall at any time and
-------------------------------------------
from time to time within ten (10) days following request from Lessor execute,
acknowledge and deliver to Lessor a statement in writing, (i) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease as so modified is
in full force and effect), (ii) acknowledging that there are not, to Lessee's
knowledge, any uncured defaults on the part of the Lessor hereunder, or
specifying such defaults if any am claimed, (iii) certifying the date Lessee
entered into occupancy of the Premises and that Lessee is open and conducting
business at the Premises, (iv) certifying the date to which Rentals and other
charges are paid in advance, if any, (v) evidencing the status of this Lease as
may be required either by a lender making a loan affecting or a purchaser of the
Premises, or pan of the Project from Lessor, (vi) certifying that all
improvements to be constructed on the Premises by Lessor are substantially
completed (if applicable), except for any punch list items which do not prevent
Lessee from using the Premises for its intended use, and (vii) certifying such
other matters relating to this Lease and/or the Premises as may be requested by
Lessor or a lender making a loan to Lessor or a purchaser of the Premises, or
any part of the Project from Lessor. Any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the Project,
or any interest therein. Lessee shall, within ten (10) days following request
of Lessor, deliver such other documents including Lessee's financial statements
as are reasonably requested in connection with the sale of, or loan to be
secured by, any portion of the Project, or any interest therein; provided that
for so long as Lessee is a corporation whose stock is traded on a public
exchange, delivery of Lessee's annual 10-K as supplemented by an subsequent 10-Q
filings with the SEC shall be sufficient to satisfy Lessee's requirement for
delivery of financial statements pursuant hereto.
If in connection with obtaining financing for all or any portion of the
Project, any lender shall request modifications of this Lease as a condition to
Lessor obtaining such financing, Lessee will not unreasonably withhold, delay
or condition its consent thereto, provided that such modifications do not
increase the financial obligations of Lessee hereunder or materially and
adversely affect the leasehold interest hereby created or Lessee's rights
hereunder.
26. PARKING. Lessee shall have the right to use the number of non-exclusive
-------
parking spaces located within the Project as designated in Article 1.k. without
charge during the Term, except, however, notwithstanding anything to the
contrary contained in this Lease, if a charge, fee, tax or other imposition is
assessed against Lessor or the Project by applicable governmental authorities
based upon use of parking space at the Project or is required by applicable
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governmental authorities to be assessed by Lessor upon users of parking spaces
at the Project, then Lessee shall pay its equitable share of such charge, fee,
tax or other imposition to Lessor monthly in advance as additional rent. Use of
all parking spaces shall be subject to reasonable rules and regulations
established by Lessor which may be altered at any time and from time to time
during the Term. The location of all parking spaces may be designated from time
to time by Lessor. Neither Lessee nor Lessee's Agents shall at any time use
more parking spaces than the number so allocated to Lessee or park or permit the
parking of their vehicles in any portion of the Parcel not designated by Lessor
as a non-exclusive parking area. Lessee and Lessee's Agents shall not have the
exclusive right to use any specific parking space, except as expressly stated in
this Article 26. Lessor shall designate a number of stalls (which shall be at
least such number as Lessor determines in the exercise of its business judgment
to provide reasonable parking for visitors to the Building and the adjacent
"Building 4") in the underground parking garage serving the Project as "visitor
parking".
Notwithstanding the number of parking spaces designated for Lessee's non-
exclusive use, in the event by reason of any rule, regulation, order, law.
statute or ordinance of any governmental or quasi-governmental authority
relating to or affecting parking on the Parcel, or any cause beyond Lessor's
reasonable control, Lessor is required to reduce the number of parking spaces on
the Parcel, Lessor shall have the right to proportionately reduce the number of
Lessee's parking spaces and the non-exclusive parking spaces of other tenants of
the Building. Lessor reserves the right in its reasonable discretion: to
determine whether parking facilities are becoming overcrowded and in such event
to re-allocate parking spaces on a pro rata basis among Lessee and other tenants
of the Project; to have any vehicles owned by Lessee or Lessee's Agents which
are parked in violation of the provisions of this Article 26 or Lessor's rules
and regulations relating to parking, towed away at Lessee's cost, after having
given Lessee reasonable notice. In the event Lessor elects or is required by
any law to limit or control parking on the Parcel, by validation of parking
tickets or any other method, Lessee agrees to participate in such validation or
other program under such reasonable rules and regulations as are from time to
time established by Lessor. Lessor shall have the right to close all or any
portion of the parking areas at reasonable times for any purpose, including,
without limitation, the prevention of a dedication thereof, or the accrual of
rights in any person or the public therein. Employees of Lessee shall be
required to park in areas designated for employee parking, if any. The parking
area shall not be used by Lessee or Lessee's Agents for any purpose other than
the parking of motor vehicles and the ingress and egress of pedestrians and
motor vehicles.
27. AUTHORITY. If Lessee is a corporation, partnership, limited liability
---------
company or other entity, each individual executing this Lease on behalf of said
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the by-laws of said corporation or on behalf of said partnership in accordance
with the partnership agreement of such partnership or otherwise on behalf of
said entity in accordance with the organizational documents governing such
entity, and that this Lease is binding upon said entity in accordance with its
terms. If Lessee is a corporation or other entity, Lessee shall, upon execution
of this Lease, deliver to Lessor a certified copy of a resolution of the Board
of Directors of said corporation or other evidence of organizational approval
authorizing or ratifying the execution of this Lease. If Lessee fails to
deliver such resolution or other evidence to Lessor upon execution of this
Lease, Lessor shall not be deemed to have waived its right to require delivery
of such resolution or other evidence, and at any time during the Term Lessor may
request Lessee to deliver the same, and Lessee agrees it shall thereafter
promptly deliver such resolution or other evidence to Lessor. If Lessee is a
corporation or other entity, Lessee hereby represents, warrants, and covenants
that (i) Lessee is a valid and existing corporation or other entity; (ii) Lessee
is qualified to do business in California; (iii) all fees and all franchise and
corporate taxes of Lessee are paid to date, and will be paid when due; (iv) all
required forms and reports will be filed when due; and (v) the signers of this
Lease are properly authorized to execute this Lease on behalf of Lessee and to
bind Lessee hereto.
28. SURRENDER OF PREMISES.
---------------------
a. Condition of Premises. Lessee shall, upon Lease Termination, surrender
---------------------
the Premises in the condition required pursuant to subsection 10.b. above, and
otherwise in broom clean, trash free, and in the same condition as received and
with approved Alterations (unless required to be removed at the time of approval
of such Alterations pursuant to this Lease), reasonable wear and tear, and
casualties and condemnation excepted. By written notice to Lessee, Lessor may
elect to cause Lessee to remove from the Premises or cause to be removed, at
Lessee's expense, any logos, signs, notices, advertisements or displays placed
on the Premises by Lessee. If the Premises is not so surrendered as required by
this Article 28, Lessee shall indemnify, defend and hold harmless Lessor from
and against any loss or liability resulting from Lessee's failure to comply with
the provisions of this Article 28, including, without limitation, any claims
made by any succeeding tenant or losses to Lessor due to lost opportunities to
lease to succeeding tenants, and the obligations of Lessee pursuant hereto shall
survive the Lease Termination.
b. Removal of Personal Property. Lessee shall remove all its personal
----------------------------
property from the Premises upon Lease Termination, and shall immediately repair
all damage to the Premises, Building and Common Area caused by such removal. Any
personal property remaining on the Premises after Lease expiration or sooner
termination may be packed, transported, and stored at a public warehouse at
Lessee's expense. If after Lease Termination and, within ten (10) days after
written demand by Lessor, Lessee fails to remove Lessee's personal property or,
if removed by Lessor, fails to pay the removal expenses, the personal property
may be deemed abandoned property by Lessor and may be disposed of as Lessor deem
appropriate. Lessee shall repair any damage to the Premises caused by or in
connection with the removal of any personal property, including without
limitation, the floor and patch and paint the walls, when required by Lessor, to
Lessor's reasonable satisfaction, all at Lessee's sole cost and expense. The
provisions of this Article 29 shall survive Lease Termination.
29. LESSOR DEFAULT AND MORTGAGEE PROTECTION. Lessor shall not be in default
---------------------------------------
under this Lease unless Lessee shall have given Lessor written notice of the
breach, and, within thirty (30) days after notice, Lessor has not cured the
breach or, if the breach is such that it cannot reasonably be cured under the
circumstances within thirty (30) days, has not commenced diligently to prosecute
the cure to completion. The liability of Lessor
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<PAGE>
pursuant to this Lease shall be limited to Lessor's interest in the Building and
any money judgment obtained by Lessee based upon Lessor's breach of this Lease
or otherwise relating to this Lease or the Premises, shall be satisfied only out
of the proceeds of the sale or disposition of Lessor's interest in the Building
(whether by Lessor or by execution of judgment). Lessee agrees that the
obligations of Lessor under this Lease do not constitute personal obligations of
the individual partners, whether general or limited, members, directors,
officers or shareholders of Lessor, and Lessee shall not seek recourse against
the individual partners, members, directors, officers or shareholders of Lessor
or any of their personal assets for satisfaction of any liability with respect
to this Lease. Upon any default by Lessor under this Lease, Lessee shall give
notice by registered mail to any beneficiary or mortgagee of a deed of trust or
mortgage encumbering the Premises, and/or any portion of the Project, whose
address shall have been furnished to it, and shall offer such beneficiary or
mortgagee a reasonable opportunity to cure the default, including time to obtain
possession of the Premises, and/or Project, or any portion thereof, by power of
sale or judicial foreclosure, if such should prove necessary to effect a cure.
30. RIGHTS RESERVED BY LESSOR. Lessor reserves the right from time to time,
-------------------------
without abatement of Rentals and without limiting Lessor's other rights under
this Lease: (i) to install, use, maintain, repair and replace pipes, ducts,
conduits, wires and appurtenant meters and equipment for service to other parts
of the Project above the ceiling surfaces, below the floor surfaces, within the
walls and in the central core areas, and to relocate any pipes, ducts, conduits,
wires and appurtenant meters and equipment included in the Premises which am
located in the Premises or located elsewhere outside the Premises, and to expand
any building within the Project; (ii) to designate other land outside the
current boundaries of the Project be a part of the Project, in which event the
Parcel shall be deemed to include such additional land, and the Common Areas
shall be deemed to include Common Areas upon such additional land; (iii) to add
additional buildings and/or other improvements (including, without limitation,
additional parking structures or extension of existing parking structures) to
the Project, which may be located on land added to the Project pursuant to
clause (ii) above; (iv) to make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscape areas and walkways; (v) to close
Temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (vi) to use the Common
Areas while engaged in making additional improvements, repairs or alterations to
the Building or the Project, or any portion thereof, (vii) to grant the right to
the use of the Exterior Common Area to the occupants of other improvements
located on the Parcel; (viii) to designate the name, address, or other
designation of the Building and/or Project, without notice or liability to
Lessee; (ix) to close entrances, doors, corridors, elevators, escalators or
other Building facilities or Temporarily abate their operation: (x) to change or
revise the business hours of the Building; and (xi) to do and perform such other
acts and make such other changes in, to or with respect to the Common Areas, the
Building or any other portion of the Project as Lessor deems to be appropriate
in the exercise of its reasonable business judgment.
31. EXHIBITS. Exhibits and riders, if any, signed by the Lessor and the Lessee
--------
and endorsed on or affixed to this Lease are a part hereof.
32. WAIVER. No covenant, term or condition in this Lease or the breach thereof
------
shall be deemed waived, except by written consent of the party against whom the
waiver is claimed. Any waiver of the breach of any covenant, term or condition
herein shall not be deemed to be a waiver of any preceding or succeeding breach
of the same or any other covenant, term or condition. Acceptance by Lessor of
any performance by Lessee after the time the same shall have become due shall
not constitute a waiver by Lessor of the breach or default of any covenant, term
or condition unless otherwise expressly agreed to by Lessor in writing. The
acceptance by Lessor of any sum less than that which is required to be paid by
Lessee shall be deemed to have been received only on account of the obligation
for which it is paid (or for which it is allocated by Lessor, in Lessor's
absolute discretion, if Lessee does not designate the obligation as to which the
payment should be credited), and shall not be deemed an accord and satisfaction
notwithstanding any provisions to the contrary written on any check or contained
in a letter of transmittal. Lessor's efforts to mitigate damages caused by any
default by Lessee shall not constitute a waiver of Lessor's right to recover
damages for any default by Lessee. No custom or practice which may arise between
the parties hereto in the administration of the terms hereof shall be construed
as a waiver or diminution of Lessor's right to demand performance by Lessee in
strict accordance with the terms of this Lease.
33. NOTICES. All notices, consents and demands which may or are to be required
-------
or permitted to be given by either party to the other hereunder shall be in
writing. All notices, consents and demands by Lessor to Lessee shall be
personally delivered, sent by overnight courier providing receipt of delivery
(such as Federal Express), or sent by United States Certified Mail, postage
prepaid return receipt requested, addressed to Lessee as designated in Article
1.1., or to such other place as Lessee may from time to time designate in a
notice to Lessor pursuant to this Article 33. All notices and demands by Lessee
to Lessor shall be personally delivered, sent by overnight courier providing
receipt of delivery (such as Federal Express) or sent by United States Certified
Mail, postage prepaid return receipt requested (provided that a copy of any such
notice or demand so sent by United States Certified Mail shall be concurrently
sent by Lessee to Lessor by facsimile transmission), addressed to Lessor as
designated in Article 1.1., or to such other person or place as Lessor may from
time to time designate in a notice to Lessee pursuant to this Article 33.
Notices sent by overnight courier shall be deemed delivered upon the next
business day following deposit with such overnight courier for next business day
delivery. Mailed notices shall be deemed delivered two (2) business days after
deposit in the United States mail as required by this Article 33.
34. JOINT OBLIGATION. If Lessee consists of more than one person or entity, the
----------------
obligations of each Lessee under this Lease shall be joint and several.
35. MARGINAL HEADING. The captions of paragraphs and articles of this Lease am
----------------
not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
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36. TIME. Time is of the essence of this Lease and each and all of its
----
provisions in which performance is a factor except as to the delivery of
possession of the Premises to Lessee.
37. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained,
----------------------
subject to the provisions of Article 13, apply to and bind the heirs,
successors, executors, administrators, legal representatives and assigns of the
parties hereto.
38. RECORDATION. This Lease shall not be recorded. Upon request by either
-----------
party, the parties shall execute and acknowledge a short form of this Lease for
recording in form reasonably approved by both parties, which may be recorded in
the Official Records of Santa Clara County, California, at the election and cost
of the requesting party. The provisions of this Lease shall control, however, in
regard to any omissions from such short form of lease, or in respect to any
provisions hereof which may be in conflict, with such short form of lease. In
the event either party so records such short form of lease, upon the expiration
of the Term of this Lease or earlier termination of this Lease, Lessee shall
execute and, if Lessee was the party who recorded the short form of lease, cause
to be recorded in the Official Records of Santa Clara County, California, at
Lessee's sole cost, a quitclaim deed in such form as is reasonably requested by
Lessor.
39. QUIET POSSESSION. Upon Lessee paying the Rentals reserved hereunder and
----------------
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire Term, subject to all the provisions of
this Lease and subject to any ground or underlying leases, mortgages or deeds of
trust now or hereafter affecting the Premises or the Building and the rights
reserved by Lessor hereunder.
40. LATE CHARGES; ADDITIONAL RENT AND INTEREST.
------------------------------------------
a. Late Charges. Lessee acknowledges that late payment by Lessee to Lessor
------------
of Rentals or other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which are impracticable or
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any mortgage or trust deed covering the Premises or any
part of the Project. Accordingly, if any installment of Rentals or any other sum
due from Lessee is not received by Lessor or Lessor's designee within three (3)
business days after the due date, then Lessee shall pay to Lessor, in each case,
a late charge equal to five percent (5%) of such overdue amount. The Parties
agree that such late charge represents a fair and reasonable estimate of the
cost that Lessor will incur by reason of late payment by Lessee. Acceptance of
any late charges by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of its other rights and remedies under this Lease.
b. Rentals, Additional Rent and Interest. All taxes, charges, costs,
-------------------------------------
expenses, and other amounts which Lessee is required to pay hereunder, including
without limitation Lessee's Percentage Share of Building Expenses and all
interest and charges (including late charges) that may accrue thereon upon
Lessee's failure to pay the same and all damages, costs and expenses which
Lessor may incur by reason of any default by Lessee shall be deemed to be
additional rent hereunder. Upon nonpayment by Lessee of any additional rent,
Lessor shall have all the rights and remedies with respect thereto as Lessor has
for the nonpayment of Base Rent. The term "Rentals" as used in this Lease is
Base Rent and all additional rent. Any payment due from Lessee to Lessor
(including but not limited to Base Rent and all additional rent) which is not
paid within three (3) business days of when due shall bear interest from the
date when due until paid, at an annual rate equal to the maximum rate that
Lessor is allowed to contract for by law. Payment of such interest shall not
excuse or cure any default by Lessee. In addition, Lessee shall pay all costs
and attorneys' fees incurred by Lessor in collection of such amounts. All
Rentals and other moneys due under this Lease shall survive the Lease
Termination. Interest on Rentals past due as provided herein shall be in
addition to the late charges levied pursuant to 40.a. above. All Rentals shall
be paid to Lessor, in lawful money of the United States of America which shall
be legal tender at the time of payment, at the address of Lessor as provided
herein, or to such other person or at such other place as Lessor may from time
to time designate in writing. If at any time during the Term Lessee pays any
Rentals by check which is returned for insufficient funds, Lessor shall have the
right, in addition to any other rights or remedies Lessor may have hereunder, to
require that Rentals thereafter be paid in cash or by cashier's or certified
check.
41. PRIOR AGREEMENTS. This Lease contains all of the agreements of the parties
----------------
hereto with respect to the Premises, this Lease or any matter covered or
mentioned in this Lease, and no prior agreements or understanding pertaining to
any such matters shall be effective for any purpose. No provision of this Lease
may be amended or added to except by an agreement in writing signed by the
parties hereto or their respective successors in interest. This Lease shall not
be effective or binding on Lessor until fully executed by Lessor.
42. INABILITY TO PERFORM. This Lease and the obligations of the Lessee
--------------------
hereunder shall not be affected or impaired because the Lessor is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, Acts of God,
or any other cause, similar or dissimilar, beyond the reasonable control of the
Lessor.
43. ATTORNEYS' FEES. If either party to this agreement shall bring an action to
---------------
interpret or enforce this agreement or for any relief against the other,
including, but not limited to, declaratory relief or a proceeding in
arbitration, the losing party shall pay to the prevailing party a reasonable sum
for attorney's fees, expert witness and other costs incurred in such action or
proceeding. Additionally, the prevailing party shall be entitled to all
additional attorney's fees and costs incurred in enforcing and collecting any
such judgment or award. Any judgment or order entered in such action shall
contain a specific provision providing for the recovery of attorney's and costs
incurred in enforcing such award or judgment.
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44. SALE OF PREMISES BY LESSOR. Upon a sale or conveyance by the Lessor herein
--------------------------
named (and in case of any subsequent transfers or conveyances, the then grantor)
of Lessor's interest in the Building, other than a transfer for security
purposes only, the Lessor herein named (and in case of any subsequent transfers
or conveyances, the then grantor) shall be relieved, from and after the date of
such transfer, of all obligations and liabilities accruing thereafter on the
part of Lessor, provided that any funds in the hands of Lessor or the then
grantor at the time of transfer and in which Lessee has an interest, less any
deductions permitted by law or this Lease, shall be delivered to Lessor's
successor. Following such sale or conveyance by Lessor or the then grantor,
Lessee agrees to look solely to the responsibility of the successor-in-interest
of Lessor in and to this Lease for matters relating to the period from and after
the sale or conveyance. This Lease shall not be affected by any such sale or
conveyance and Lessee agrees to attorn to the purchaser or assignee.
45. SUBORDINATION/ATTORNMENT. This Lease shall automatically be subject and
------------------------
subordinate to all ground or underlying leases which now exist or may hereafter
be executed affecting any portion of the Project and to the lien of any
mortgages or deeds of trust (including all advances thereunder, renewals,
replacements. modifications, supplements, consolidations, and extensions
thereof) in any amount or amounts whatsoever now or hereafter placed on or
against any portion of the Project, or on or against Lessor's interest or estate
therein, or on or against any ground or underlying lease, without the necessity
of the execution and delivery of any further instruments on the part of Lessee
to effectuate such subordination. Lessee covenants and agrees to execute and
deliver upon demand and without charge therefor, such further instruments
evidencing the subordination of this Lease to such ground or underlying leases
and/or to the lien of any such mortgages or deeds of trusts as may be required
by Lessor or a lender making a loan affecting the Project; provided that such
mortgagee or beneficiary under such mortgage or deed of trust or lessor under
such ground or underlying lease agrees in writing that so long as Lessee is not
in default under this Lease, this Lease shall not be terminated in the event of
any foreclosure or termination of any ground or underlying lease. Failure of
Lessee to execute such instruments evidencing subordination of this Lease shall
constitute a default by Lessee under this Lease. If any mortgagee, beneficiary
or lessor elects to have this Lease prior to the lien of its mortgage, dead of
trust or lease, and shall give written notice thereof to Lessee, this Lease
shall be deemed prior to such mortgage, deed of trust or lease, whether this
Lease is dated prior or subsequent to the date of said mortgage, deed of trust,
or lease or the date of the recording thereof.
If any proceedings are brought to terminate any ground or underlying leases
or for foreclosure, or upon the exercise of the power of sale, under any
mortgage or deed of trust covering any portion of the Project, Lessee shall
attorn to the lessor or purchaser upon any such termination, foreclosure or sale
and recognize such lessor or purchaser as the Lessor under this Lease. So long
as Lessee is not in default hereunder and attorns as required above, this Lease
shall remain in full force and effect for the full term hereof after any such
termination, foreclosure or sale.
Notwithstanding anything to the contrary contained in the foregoing, Lessor
shall use commercially reasonable efforts (i) to obtain from any future
mortgagee or trust deed beneficiary under a mortgage or deed of trust hereafter
encumbering the Project or Building to which this Lease is subordinated, non-
disturbance protection for Lessee (which shall be deemed to include an election
by such mortgagee or beneficiary allow its lien to be subordinate to this Lease)
on commercially reasonable terms, and (ii) to obtain from any existing mortgagee
or trust deed beneficiary under a mortgage or deed of trust encumbering the
Project or Building as of the execution of this Lease, non-disturbance
protection for Lessee (which shall be deemed to include an election by such
mortgagee or beneficiary to subordinate its lien to this Lease) on commercially
reasonable terms within thirty (30) days following the execution of this Lease.
46. NAME. Lessee shall not use any name, picture or representation of the
----
Building or Project for any purpose other than as an address of the business to
be conducted by the Lessee in the Premises.
47. SEVERABILITY. Any provision of this Lease which proves to be invalid, void
------------
or illegal shall in no way affect, impair or invalidate any other provision of
this Lease and all such other provisions shall remain in full force and effect;
however, if Lessee's obligation to pay the Rentals is determined to be invalid
or unenforceable, this Lease shall terminate at the option of Lessor.
48. CUMULATIVE REMEDIES. Except has otherwise expressly provided in this Lease,
-------------------
no remedy or election hereunder shall be deemed exclusive but shall, wherever
possible, be cumulative with all other remedies at law or in equity.
49. CHOICE OF LAW. This Lease shall be governed by the laws of the State of
-------------
California.
50. SIGNS. Lessee shall not inscribe, paint, affix or place any sign, awning,
-----
canopy, advertising matter, decoration or lettering upon any portion of the
Premises, including, without limitation, any exterior door, window or wall,
without Lessor's prior written consent, which shall not be unreasonably
withheld. Subject in all events to the requirements of the City of Cupertino and
other applicable governmental requirements and any other restrictions of record
or to which the Project is subject, Lessee shall be entitled to Building
standard identification of Lessee upon the common Building lobby directory board
sign to be installed by Lessor in the Building lobby. In addition, subject to
the provisions of Article 10 above, Lessee shall have the right, at Lessee's
sole cost, to install first-class signage identifying Lessee on the Premises
entry doors. The parties acknowledge that there is presently no monument signage
available for the Building along Stevens Creek Boulevard. If monument signage
along Stevens Creek Boulevard is hereafter approved for the Building by the City
of Cupertino and any other required applicable governmental authorities, then
Lessee shall be entitled to identification on a pro rata share of such monument
signage, subject to compliance with applicable governmental requirements. The
exact location, size, materials, coloring and lettering of all Lessee signage
(including, without limitation, any such future monument signage) shall be
subject to Lessor's prior written approval.
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51. GENDER AND NUMBER. Wherever the context so requires, each gender shall
-----------------
include any other gender, and the singular number shall include the plural and
vice-versa.
52. CONSENTS. Whenever the consent of Lessor is required herein, the giving or
--------
withholding of such consent in any one or any number of instances shall not
limit or waive the need for such consent in any other or future instances. Any
consent given by Lessor shall not be binding upon Lessor unless in writing and
signed by Lessor or Lessor's agents. Notwithstanding any other provision of this
Lease, where Lessee is required to obtain the consent of Lessor to do any act,
or to refrain from the performance of any act, Lessee agrees that if Lessee is
in default (after the expiration of any applicable period for cure pursuant to
Article 22 above) with respect to any material term, condition, covenant or
provision of this Lease, then Lessor shall be deemed to have acted reasonably in
withholding its consent if said consent is, in fact, withheld.
53. BROKER. Lessor shall be responsible, pursuant to separate written
------
agreement, for the payment of the commission in connection with this Lease owing
to the brokers designated in Article 1.m. above. Lessor warrants that it has had
no dealing with any real estate broker or agents in connection with the
negotiation of this Lease excepting only the broker or agent designated in
Article 1.m., and that it knows of no other real estate broker or agent who is
entitled to or can claim a commission in connection with this Lease. Lessor
agrees to indemnify, defend and hold Lessee harmless from and against any and
all claims, demands, losses, liabilities, lawsuits, judgments, and costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) with respect to any alleged leasing commission or equivalent
compensation alleged to be owing on account of Lessor's dealings with any such
other real estate broker or agent. Lessee warrants that it has had no dealing
with any real estate broker or agents in connection with the negotiation of this
Lease excepting only the broker or agent designated in Article 1.m., and that it
knows of no other real estate broker or agent who is entitled to or can claim a
commission in connection with this Lease. Lessee agrees to indemnify, defend and
hold Lessor harmless from and against any and all claims, demands, losses,
liabilities, lawsuits, judgments, and costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) with respect to any alleged
leasing commission or equivalent compensation alleged to be owing on account of
Lessee's dealings with any such other real estate broker or agent.
54. SUBSURFACE AND AIRSPACE. This Lease confers on Lessee no rights either with
-----------------------
respect to the subsurface of the Parcel or with regard to airspace above the top
of the Building or above any paved or landscaped areas on the Parcel or Common
Area and Lessor expressly reserves the right to use such subsurface and airspace
areas, including without limitation the right to perform construction work
thereon and in regard thereto. Any diminution or shutting off of light, air or
view by any structure which may be erected by Lessor on those portions of the
Parcel, Common Area and/or Building reserved by Lessor shall in no way affect
this Lease or impose any liability on Lessor. Lessor shall have the exclusive
right to use all or any portion of the roof, side and rear walls of the Premises
and Building for any purpose. Lessee shall have no right whatsoever to the
exterior of the exterior walls or the roof of the Premises or any portion of the
Project outside the Premises except as provided in Article 55 of this Lease.
55. COMMON AREA. For purposes of the Lease, "Common Area" shall collectively
-----------
mean the following:
a. Exterior Common Area. That portion of the Parcel other than the land
--------------------
comprising the property, and all facilities and improvements on such portion for
the non-exclusive use of Lessee in common with other authorized users,
including, but not limited to, vehicle parking areas, driveways, sidewalks,
landscaped areas, and the facilities and improvements necessary for the
operation thereof (the "Exterior Common Area"); and
b. Building Common Area. That portion of the Building in which the
--------------------
Premises are located, and all of the facilities therein, set aside by Lessor for
the non-exclusive use of Lessee in common with other authorized users,
including, but not limited to, entrances, lobbies, halls, atriums, corridors,
toilets and lavatories, passenger elevators and service areas (the "Building
Common Area").
Subject to the limitations and restrictions contained in this Lease, and
the Rules and Regulations, Lessor grants to Lessee and Lessee's Agents the
nonexclusive right to use the Common Area in common with Lessor, Lessor's agent,
other occupants of the Building and Project, other authorized users and their
agents, subject to the provisions of this Lease. The right to use the Common
Area shall terminate upon Lease Termination.
56. LABOR DISPUTES. If Lessee becomes involved in or is the object of a labor
--------------
dispute which subjects the Premises or any part of the Project to any picketing,
work stoppage, or other concerted activity which in the reasonable opinion of
Lessor is in any manner detrimental to the operation of any part of the Project,
or its tenants. Lessor shall have the right to require Lessee, at Lessee's own
expense and within a reasonable period of time specified by Lessor, to use
Lessee's best efforts to either resolve such labor dispute or terminate or
control any such picketing, work stoppage or other concerted activity to the
extent necessary to eliminate any interference with the operation of the
Projector its tenants. To the extent such labor dispute interferes with the
performance of Lessor's duties hereunder, Lessor shall be excused from the
performance of such duties and Lessee hereby waives any and all claims against
Lessor for damages or losses in regard to such duties. If Lessee fails to use
its best efforts to so resolve such dispute or terminate or control such
picketing, work stoppage or other concerted activity within the period of time
specified by Lessor, then Lessee shall be in default under this Lease. Nothing
contained in this Article 56 shall be construed as placing Lessor in an
employer-employee relationship with any of Lessee's employees or with any other
employees who may be involved in such labor dispute. Lessee shall indemnify,
defend and hold harmless Lessor from and against any and all liability
(including, without limitation, attorneys' fees and expenses) arising from any
labor dispute in which Lessee is involved and which affects any part of the
Project.
-26-
<PAGE>
57. CONDITIONS. All agreements by Lessee contained in this Lease, whether
----------
expressed as covenants or conditions, shall be construed to be both covenants
and conditions, conferring upon Lessor, upon breach thereof, the right to
terminate this Lease.
58. LESSEE'S FINANCIAL STATE. Lessee hereby warrants that all financial
statements delivered by Lessee to Lessor prior to the execution of this Lease by
Lessee, or that shall be delivered in accordance with the terms hereof, are or
shall be at the time delivered true, correct, and complete, and prepared in
accordance with generally accepted accounting principles. Lessee acknowledges
and agrees that Lessor is relying on such financial statements in accepting this
Lease, and that a breach of Lessee's warranty as to such financial statements
shall constitute a default by Lessee.
59. LESSOR NOT A TRUSTEE. Lessor shall not be deemed to be a trustee of any
--------------------
funds paid to Lessor by Lessee (or held by Lessor for Lessee) pursuant to this
Lease. Lessor shall not be required to keep any such funds separate from
Lessor's general funds or segregated from any funds paid to Lessor by (or held
by Lessor for) other tenants of the Building. Any funds held by Lessor pursuant
to this Lease shall not bear interest.
60. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
------
mutual cancellation thereof, shall not work a merger, and shall, at the option
of the Lessor, terminate all or any existing subleases or subtenancies, or may,
at the option of Lessor, operate as an assignment to it of any or all such
subleases or subtenancies.
61. NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Lease shall be construed
-------------------------------
as creating a partnership or joint venture between Lessor, Lessee, or any other
party, or cause Lessor to be responsible for the debts or obligations of Lessee
or any other party.
62. LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS. Except as otherwise expressly
--------------------------------------------
provided herein, if Lessee fails at any time to make any payment or perform any
other act on its part to be made or performed under this Lease, then upon ten
(10) days written notice to Lessee (provided that no such notice shall be
required in the event of an emergency), Lessor may, but shall not be obligated
to, and without waiving or releasing Lessee from any obligation under this
Lease, make such payment or perform such other act to the extent that Lessor may
deem desirable, and in connection therewith, pay expenses and employ counsel.
All sums so paid by Lessor and all penalties, interest and costs in connection
therewith shall be due and payable by Lessee to Lessor as additional rent upon
demand.
63. PLANS. Lessee acknowledges that any plan of the Project which may have been
-----
displayed or furnished to Lessee or which may be a part of Exhibit "A" or
Exhibit "B" is tentative; Lessor may from time to time change the shape, size,
location, number, and extent of the improvements shown on any such plan and
eliminate or add any improvements to the Project, in Lessor's sole discretion.
64. INTENTIONALLY OMITTED.
---------------------
65. WAIVER OF JURY. LESSOR AND LESSEE HEREBY WAIVE THEIR RESPECTIVE RIGHT TO
--------------
TRIAL BY JURY ON ANY CAUSE OF ACTION, CLAIM, COUNTER-CLAIM OR CROSS-COMPLAINT IN
ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LESSOR AGAINST LESSEE OR
LESSEE AGAINST LESSOR ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE.
66. JOINT PARTICIPATION. Lessor and Lessee hereby acknowledge that both parties
-------------------
have been represented by counsel in connection with this Lease and that both
parties have participated in the negotiation and drafting of all of the terms
and provisions hereof. By reason of this joint participation, no term or
provision of this Lease will be construed against either party as the "drafter"
thereof, which terms and provisions shall include, without limitation, Article
14 hereof.
67. COUNTERPARTS. This Lease may be executed in any number of counterparts,
------------
each of which shall be deemed to be an original, but any number of which, taken
together, shall be deemed to constitute one and the same instrument.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE LESSOR
BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTIONS
RELATING THERETO.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Lease as of the
date first written above.
<TABLE>
<CAPTION>
LESSOR: LESSEE:
<S> <C>
CUPERTINO CITY CENTER BUILDINGS, CHORDIANT SOFTWARE, INC.,
a California limited partnership a Delaware corporation
By: SUNSET RIDGE DEVELOPMENT CO., INC By: /s/ Steven R. Springsteel
a California corporation, its general partner
By: PROM MANAGEMENT GROUP, INC., Print Name: Steven R. Springsteel
a California corporation, dba Maxim
Property Management, agent for owner Its: EVP/CFO
By: /s/ Vicki R. Mullins Date: June 11, 1998
Print Name: Vicki R. Mullins By:________________________________
Its: EVP and CFO Print Name:________________________
Date: 6/19, 1998 Its:_______________________________
Date: ___________________, 1998
</TABLE>
-28-
<PAGE>
EXHIBIT "A"
FLOOR PLAN OF THE PREMISES
--------------------------
[FLOOR PLAN OF PREMISES APPEARS HERE]
<PAGE>
EXHIBIT "B"
DEPICTION OF THE PROJECT
------------------------
[MAP APPEARS HERE]
<PAGE>
EXHIBIT "C"
-----------
RULES AND REGULATIONS
---------------------
1. No sign, placard, picture, advertisement, name or notice &hall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building without prior written consent of Lessor. Lessor shall
have the right to remove any such sign, placard, picture, advertisement, name or
notice without notice to and at the expense of Lessee. All approved signs or
lettering on doors shall be printed, painted, affixed or inscribed at the
expense of Lessee by a person approved of by Lessor. Lessee shall not place
anything or allow anything to be placed near the glass of any exterior window,
door, partition or wall which may appear unsightly from outside the Premises.
Lessee shall not, without prior written consent of Lessor cover or otherwise
sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by Lessee or used by Lessee for any purpose other than
for ingress or egress from its Premises.
3. Lessor will furnish Lessee, free of charge, with two keys to each door lock
in the Premises. Lessor may make a reasonable charge for any additional keys.
Lessee shall return all keys issued for the Premises. Lessee shall pay to Lessor
the costs of re-keying the Premises if 0 keys are not returned. Without Lessor's
prior approval and otherwise complying with the provisions of this Lease
governing the making of Alterations, Lessee shall not alter any lock or install
any new or additional locks or any bolts on any doors or windows of the
Premises.
4. The Common Area toilet rooms, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of this
rule shall be borne by the Lessee who, or whose agents, officers, employees,
contractors, servants, invitees or guests shall have caused it.
5. Lessee shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof. Lessor shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought into
the Building and also the time and manner of moving the saw in and out of the
Building. Safes and other heavy objects shall, if considered necessary by
Lessor, stand on supports of such thickness as is necessary to properly
distribute the weight. Lessor will not be responsible for loss of or damage to
any such safe or property from any cause and all damage done to the Building by
moving or maintaining any such safe or other property shall be repaired at the
expense of Lessee.
6. No furniture, freight or equipment of any kind (other than small items
customarily transported in passenger elevators in first-class office buildings)
shall be brought into the Building without prior notice to Lessor and all moving
of the same into or out of the Building shall be done at such time and in such
manner as Lessor shall designate. Unless otherwise agreed to in writing by
Lessor, any such movement of furniture, freight, or equipment shall be made
during non-business hours for the Building.
7. Lessee shall have the right to use the loading facilities provided at the
Building, if any, in common with the other tenants. All Lessee deliveries of
bulk items shall be through the Building loading facilities, if any. Freight
elevator(s) will be available for use by all tenants in the Building, subject to
such reasonable scheduling as Lessor, in its discretion, deems appropriate.
Lessor shall have the right at its sole discretion to prohibit Lessee's delivery
through the main lobbies.
8. Lessee shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Lessor or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be in or kept in or about the Premises or Building
(other than "seeing-eye" dogs or other animals providing assistance to disabled
persons).
9. The Premises will not be used for lodging, storage of merchandise, washing
clothes, or manufacturing of any kind, nor shall the Premises be used for any
improper, immoral or objectionable purpose. No cooking will be done or permitted
on the Premises without Lessor's consent, except the use by Lessee of
Underwriters Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages shall be permitted, and the use of a microwave
oven for employees use will be permitted, provided that such equipment and use
is in accordance with all applicable federal, state, county and city laws,
codes, ordinances, rules and regulations.
10. Lessee shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material. or any method of
heating or air conditioning other than supplied by Lessor (unless otherwise
approved by Lessor in the course of approval of Lessee Improvements and/or
Lessee Alterations).
11. Lessor shall approve in writing the method of attachment of any objects
affixed to walls, ceilings or doors. Lessor will direct electricians as to where
and how telephone and telegraph wires are to be introduced. No boring or cutting
for the wires will be allowed without the consent of Lessor. The location of
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the approval of Lessor. Lessee shall not install any wiring above
the ceiling tiles that does not comply with the fire codes. Any such wiring
shall be removed immediately at the expense of Lessee. Lessee will not affix any
floor covering to the floor of the Premises in any manner except as approved by
Lessor.
12. All cleaning and janitorial services for the Building and the Premises will
be provided exclusively through Lessor, and except with the written consent of
Lessor, no person or persons other than those approved by Lessor will be
employed by Lam or permitted to enter the Building for the purpose of cleaning
the sum.
13. Lessee will store all its trash and garbage within its Premises or in other
facilities provided by Lessor. Lessee will not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash
PAGE 1
<PAGE>
and garbage disposal. All garbage and refuse disposal is to be made in
accordance with directions issued from time to time by Lessor.
14. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 7:00 a.m. the following day, access to the Building, or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly identified.
Lessor shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of invasion,
mob, not, public excitement or other commotion, Lessor reserves the right to
prevent access to the Building during the continuance of the same by closing the
doors or otherwise, for the safety of the tenants and protection of the Building
and of property in the Building.
15. Lessee will not waste electricity, water or air conditioning and agrees to
cooperate fully with Lessor to assure the most effective operation of the
Building's heating and air conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Lessee has actual notice, and
will refrain from attempting to adjust controls. Lessee will keep corridor doors
closed, and shall keep all window coverings pulled down.
16. Lessor reserves the right to exclude or expel from the Building any person
who, in the judgment of Lessor, is intoxicated or under the influence of liquor
or drugs, or who shall in any manner do any act in violation of any of the rules
and regulations of the Building.
17. Except for Lessee's own use, no vending machine or machines of any
description shall be installed, maintained or operated upon the Premises without
the written consent of Lessor.
18. Lessor shall have the right, exercisable without notice and without
liability to Lessee to change the name and street address of the Building or the
Project.
19. Lessee shall not disturb, solicit or canvass any occupant of the Building
or Project and shall cooperate to prevent the same.
20. Lessor shall have the right to control and operate the public portions of
the Buildings and the public facilities, and heating and air conditioning, as
well as facilities furnished for the common use of the tenants, in such manner
as it deems best for the benefit of the tenants generally.
21. All entrance doors in the Premises shall be left locked when the Premises
am not in use and all doors opening to public corridors shall be kept closed
except for normal ingress or egress from the Premises.
22. Without the written consent of Lessor, Lessee shall not use the name of the
Building or Project in connection with or in promoting or advertising the
business of Lessee except at Lessee's address.
23. Lessee shall place pads under all desk chairs, or have carpet coasters to
protect chairs.
24. The current "Building Hours" are between 7:00 a.m. to 6:00 p.m. on
weekdays, Monday through Friday, except generally recognized Building holidays.
25. Lessee will not install any radio or television antenna, loudspeaker,
satellite dishes or other devices on the roof(s) or exterior walls of the
Building or the Project. Lessee will not interfere with radio or television
broadcasting or reception from or in the Project or elsewhere. If Lessee desires
telegraphic, telephonic, burglar alarm, satellite dishes, antennae or similar
services, it will first obtain Lessor's approval, and comply with, Lessor's
reasonable rules and requirements applicable to such services, which may include
(without limitation) separate licensing by, and fees paid to, Lessor.
26. Lessee agrees to comply with all safety, fire protection and evacuation
procedures and regulations established by Lessor or any governmental agency.
27. Lessee assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage. which includes keeping doors locked and other
means of entry to the Premises closed.
28. Lessor may prohibit smoking in the Building and/or any other portion of the
Project and may require Lessee and any of its employees, agents, clients,
customers, invitees and guests who desire to smoke, to smoke within designated
smoking areas within the Project, if any such smoking areas are provided.
29. Lessee's requirements will be attended to by Lessor only upon appropriate
application to Lessor's management office for the Project by an authorized
individual of Lessee. Employees of Lessor will not perform any work or do
anything outside of their regular duties unless under special instructions from
Law, and no employee of Lessor will admit any person (Lam or otherwise) to any
office without specific instructions from Lessor.
30. In the event of any conflict between these Rules and Regulations and the
Lease of which they are a part, the other provisions of the Lease shall prevail.
Lessor may waive any one or more of these Rules and Regulations for the benefit
of Lessee or any other tenant, but no such waiver by Lessor will be construed as
a waiver of such Rules and Regulations in favor of Lessee or any other tenant,
nor prevent Lessor from thereafter enforcing any such Rules and Regulations
against any or all of the tenants of the Project.
PAGE 2
<PAGE>
EXHIBIT 10.6
FORTE SOFTWARE, INC.
VALUE-ADDED RESELLER (VAR) LICENSE AND SERVICES AGREEMENT
VAR CHORDIANT SOFTWARE, INC
____________________________________________________________________________
Address 20400 Stevens Creek Blvd., Ste. 400
________________________________________________________________________
City Cupertino State CA Zip 95014
______________________________________ _____________________ ____________
This Value-Added Reseller (VAR) License and Services Agreement (the "Agreement")
is between Forte Software, Inc., a Delaware corporation located at 1800 Harrison
Street, Oakland, California, 94612 ("Forte"), and the company set forth above,
including any wholly or majority owned subsidiaries (the "VAR") for the purpose
of setting forth the terms and conditions upon which Forte shall grant to the
VAR a license to use and Sublicense the Products listed in Exhibit A attached
hereto. This Agreement shall supersede and replace the Value-Added Reseller
License and Services Agreement dated September 19, 1996 (and all other
agreements and understandings between the parties), which superseded the
Value-Added Reseller License and Services Agreement dated February 1, 1995.
The Effective Date of this Agreement is the last date set forth below.
FORTE: VAR:
FORTE SOFTWARE, INC. CHORDIANT SOFTWARE, INC.
Signature: /s/ Bob L. Corey Signature: /s/ Steven R. Springsteel
Name: Bob L. Corey Name: Steven R. Springsteel
Title: Senior Vice President Title: EVP/CFO
Date: October 30, 1998 Date: October 29, 1998
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
TERMS AND CONDITIONS
Forte and the VAR hereby agree that the following terms and conditions will
apply to each license granted and to all services provided by Forte under this
Agreement.
1. DEFINITIONS
1.1 "Cumulative Sublicense Fees" shall mean the total Sublicense fees,
including Full Use Sublicense Fees, accrued to Forte beginning upon the
Effective Date hereto for Products Sublicensed under this Agreement.
1.2 "Delivery Partners" shall mean a system integrator or other party
engaged to provide services to a Sublicensee or VAR with respect to VAR
Applications.
1.3 "Designated Developer" shall mean a person within the VAR designated by
VAR to develop applications with the Product.
1.4 "Distributors" shall mean Delivery Partners or other third parties
appointed by the VAR to market and grant Sublicenses of the VAR Application as
further set forth in Section 3.1(h) hereto.
1.5 "Documentation" shall mean the user manuals and operator instructions
furnished by Forte in conjunction with the Products.
1.6 "Effective Date" shall mean the date so specified on the signature page
of this Agreement or on the applicable Order Form, Sublicense report, or other
document.
1.7 "Order Form" shall mean Forte's standard form by which the VAR may
order licenses and services for VAR's use under this Agreement. Such Order Form
is attached hereto as Exhibit B.
1.8 "Price List" shall mean Forte's then-current price list for the country
in which a Product license or service is to be used.
1.9 "Product" or "Products" shall mean the computer software program(s)
owned or distributed by Forte for which the VAR is granted a license pursuant to
this Agreement and as further set forth in Exhibit A, whether in printed or
machine readable form and includes Updates (defined in Section 1.16). Forte
agrees that Exhibit A may be amended from time to time by the parties to include
other software Products not currently listed on Exhibit A that Forte licenses to
its customers generally.
1.10 "Runtime Users" shall mean the maximum number of logged-in persons
within a Sublicensee that may use the VAR Application at any one time.
1.11 "Standard Technical Support" shall mean Product technical support
services provided under Forte's policies in effect on the date such services are
ordered.
1.12 "Sublicense" shall mean a nonexclusive, nontransferable right granted
by the VAR or Distributor to use a VAR Application for the Sublicensee's own
internal business purposes and not for any further distribution.
1.13 "Sublicensee" shall mean a third party who is granted a Sublicense by
the VAR or a Distributor.
1.14 "Support Fees" shall mean the fees payable annually for Standard
Technical Support.
1.15 "Supported License" shall mean a Product license for which VAR has a
current order for annual Standard Technical Support.
1.16 "Updates" shall mean updated versions of the Products and Documentation
which encompass logical improvements, extensions and other changes to the
Products which are generally made available to Product licensees who are current
in their payment of Support Fees. Updates shall be governed by the terms of this
Agreement.
1.17 "VAR Application" shall mean the VAR's software program containing
modifiable Product code. A VAR Application shall be developed by the VAR through
use of the Products as further set forth in Section 2.1 hereto. The VAR shall
provide a description of each VAR Application using the form attached as Exhibit
C, and each VAR Application shall be approved in writing by Forte prior to
Sublicensing which approval will not be unreasonably withheld. Forte agrees that
future approved VAR Applications shall be governed by the terms of this
Agreement. Forte hereby approves VAR's CCS Application as described in Exhibit C
attached hereto. Notwithstanding any provision to the contrary in this
Agreement, nothing stated in this Agreement shall preclude VAR from developing
any VAR software program through the use of any third party product.
1.18 "VAR Price List" shall mean the VAR's then-current standard product
list and fee schedule. The VAR shall attach hereto as Exhibit D the initial VAR
Price List which includes the VAR Application. The VAR agrees to notify Forte of
all updates and revisions to such VAR Price List.
2. VAR LICENSE AND SERVICES
2.1 VAR Development License
(a) Fees. In consideration for the license described in (b) below, VAR shall pay
Forte the VAR license fee set forth on Exhibit A. Additional Designated
Developer and other
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
licenses may be obtained for the applicable fees set forth in Exhibit A.
(b) License Grant. Forte grants to VAR a nonexclusive, worldwide,
nontransferable and nonassignable (except as otherwise specified herein)
license to use the Documentation and the Products listed on Exhibit A only
for the following purposes:
(i) to market and Sublicense to Sublicensees worldwide (subject to Section
7.8) VAR Application Development Systems (as defined in Exhibit A) and
the right to Sublicense such rights through multiple tiers of
distribution, each for the purposes described below. In connection with
its license pursuant to this clause, VAR shall limit access to such
Products to the number of Designated Developers indicated on the
applicable Order Form.
(ii) to develop or prototype the VAR Application;
(iii) to demonstrate the VAR Application to potential Sublicenses;
(iv) to provide training and technical support to employees and Sublicensees
solely in conjunction with the VAR Application; and
(v) in connection with providing consulting services and/or providing or
modifying VAR Applications to Sublicensees and potential Sublicensees.
In addition to the temporary Sublicenses specified in Section 3.1(c), VAR may
make up to five (5) copies of the Products for demonstration and training
purposes, may make a reasonable number of copies of the Products for archival or
backup purposes. Except as necessary to exercise its license rights or as
otherwise permitted hereunder no other copies shall be made without Forte's
prior written consent. Documentation may be obtained from Forte for the fees
specified in the Price List. All titles, trademarks, and copyright and
restricted rights notices shall be reproduced in such copies. All copies of the
Product(s) and Documentation are subject to the terms of this Agreement.
(c) Limitations on Use. VAR shall not use or duplicate the Products (including
the Documentation) for any purpose other than as specified in the Agreement, or
make the Products available to unauthorized third parties. VAR shall not (i) use
the Products for its internal data processing or for processing customer data;
(ii) except as noted in Exhibit A Section 4(d) rent, or timeshare the Products;
(iii) market the Products by interactive cable or remote processing services or
otherwise distribute the Products other than as specified in this Agreement;
(iv) publish or describe to any third party the results of any benchmark tests
run on the Products without Forte's prior written consent provided, however,
that VAR may publish benchmark tests and comparisons limited in scope to the VAR
Application's features; functionality and performance, so long as such benchmark
tests and comparisons do not directly disclose the functionality, features or
performance of any Product (including without limitation memory utilization,
response time, transaction throughput, relative performance/functionality on
different hardware and/or operating system platforms), or (v) cause or permit
the reverse engineering, disassembly, decompilation, or otherwise attempt to
derive source code of the Products. Transfer of a Product outside the United
States for VAR Application development or support shall be permitted only with
Forte's prior written consent, which shall not be unreasonably withheld, and is
subject to VARs payment of Forte's then current international fee uplift.
2.2. Development License Support
Subject to VAR's payment of the Support Fees set forth on Exhibit A, and so long
as Forte continues to offer similar support services to its other Product
licensees, Forte will provide annual Standard Technical Support to VAR as
follows:
(a) Telephone Support. Forte will provide telephone consultation at Forte's
service location, to assist VAR in identifying, verifying and resolving problems
in the use and operation of the Product. Telephone assistance services shall be
limited to those VAR personnel indicated on the applicable Order Form, which may
be amended from time to time by VAR upon written notice to Forte.
(b) Problem Resolution. Forte will respond to problem reports concerning the
Products submitted by VAR to Forte, using the form provided by Forte where
possible, including backup material substantiating the Product problem. Upon
proper notification of a failure of the Product to perform correctly, which
failure can be reproduced at Forte's facility or via remote access to VAR's
facility, Forte shall use reasonable efforts to correct the failure and to
provide VAR with correcting Product, a work-around or other solution to the
problem.
Standard Technical Support services will be provided in accordance with the
sections entitled "Types of Assistance Offered" and "How Forte Resolves Your
Call" of the Forte Technical Support Users Guide ("Support Guide"), attached
hereto as Exhibit F or policies that are substantially similar thereto. In the
event of a conflict of inconsistency between this Section 2.2 and the Support
Guide, Section 2.2 shall govern.
(c) Updates. Forte will provide VAR with Updates. For a minimum of 12 months
after the introduction of a new generally available release, Forte will use
reasonable efforts to provide Standard Technical Support for the previous
release of the Product.
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(d) Renewal. Forte will notify the VAR at least 30 days before the annual
support period is scheduled to expire. Fees for annual support are due annually
in advance. Such fees will be those in effect at the beginning of the period for
which the fees are paid. Annual support will terminate unless the VAR renews for
the next year under Forte's then current policies by providing Forte with a
purchase order and/or payment of the next year's fees prior to the expiration
date.
(e) Re-Instatement. VAR may reinstate lapsed support services only upon payment
of the back Support Fees specified in the Price List, plus current year's
Support Fees.
2.3 Consulting and Training Services
Forte will provide on-site consulting services ordered by VAR at Forte's
then-standard consulting rates under the terms and conditions of this Agreement
and any relevant work order; provided, however, that Forte will consider
offering Chordiant a discount on consulting orders of $100,000 or more (such
consulting services to be used within six months of purchase). Scheduled service
dates will be agreed upon mutually, subject to availability of Forte personnel.
Forte's daily consulting rate is based on an eight-hour workday. VAR shall
reimburse Forte for actual, reasonable travel and out-of-pocket expenses
incurred in performing such services. VAR may also order training from Forte
(scheduled classes at Forte's facilities or on-site) at Forte's then-standard
rates under this Agreement. All consulting and training services must be
utilized by VAR within six (6) months following the date ordered by VAR.
Unless otherwise agreed by the parties in writing, Forte consulting services
will be limited to transferring knowledge to and mentoring VAR's staff on "best
practices" concerning the Products, and reviewing and providing input on VAR's
design and implementation of applications developed and deployed using the
Products. Development and deployment of applications will remain at all times
under VAR's control and direction. Ultimate responsibility for development and
deployment of such applications is with VAR, and Forte will not be liable to VAR
or any third party for any delay in completion or non-completion of any
application.
2.4 Ownership and Rights to Developments
(a) Products and Documentation. VAR acquires only the right to use the Products
and Documentation, and does not acquire any rights of ownership. All right,
title, and interest in and to the Products and Documentation, including without
limitation all intellectual property rights therein, shall at all times remain
with Forte and its licensors.
(b) VAR Application. Exclusive of Product, the VAR Application and all other
software that VAR develops (or has developed by a third party), and all changes
or modifications thereto, will remain the sole and exclusive property of VAR.
Exclusive of Product, Forte shall have no interest or acquire any rights in the
VAR Application or other software or in such changes or modifications. Except as
may otherwise be agreed to in writing by the parties under Section 2(d)(i),
Forte irrevocably assigns to VAR all right, title and interest worldwide in and
to any changes or modifications to the VAR Application (exclusive of Product)
and all applicable intellectual property rights related to the VAR Application
(exclusive of Product), including without limitation, copyrights, trademarks,
trade secrets, patents, moral rights, contract and licensing rights.
Notwithstanding the foregoing and as a condition of this Agreement and in
consideration for the licenses granted herein, VAR agrees that it shall not
sublicense or otherwise distribute the VAR Application (containing any Product)
after termination or expiration of this Agreement. Nothing in this Agreement
shall restrict in any way the license by VAR, or require license or other
payments to Forte with respect to products or applications which are not VAR
Applications, or require VAR or any other party to license VAR Applications or
Products.
(c) Developments. Any ideas, know-how, or techniques concerning the Products or
their use which may be developed, conceived or reduced to practice by Forte in
the course of providing services under this Agreement, including without
limitation any enhancements or modifications made to the Products (collectively,
"Developments"), shall be the exclusive property of Forte. Forte may in its sole
discretion develop, use, market, and license any Developments. Forte may create
items similar or related to the VAR Developments or other products which are
developed by Forte for VAR provided such items are independently developed
without use of VAR's Confidential Information or trade secrets. Forte shall not
be required to disclose information concerning any Developments which Forte
deems to be proprietary and confidential. Any ideas, know-how, or techniques
concerning the VAR Applications or Products or their use which may be developed,
conceived or reduced to practice by VAR, including without limitation any
enhancements or modifications made to the VAR Applications (collectively, "VAR
Developments"), shall be the exclusive property of VAR. VAR may in its sole
discretion develop, use, market, and license any VAR Developments. VAR may
create items similar or related to the Products or Developments or other
materials developed by Forte for VAR provided such items are independently
developed without use of Forte's confidential information or trade secrets. VAR
shall not be required to disclose to Forte any information concerning any VAR
Developments.
(d) Custom Work Product. Notwithstanding subsection (c) above, if consulting
services rendered by Forte will by
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mutual written agreement include the design or development of the VAR
Application, other software, documentation, or other intellectual property
specific to VAR's needs ("Custom Work Product"), then (i) the parties must agree
in writing in each instance on the ownership rights in or to such Custom Work
Product prior to Forte's commencement of such services or (ii) if no such
agreement is reached, VAR shall have sole and exclusive ownership of the Custom
Work Product. Under this subsection (ii), Forte irrevocably assigns to VAR all
right, title and interest worldwide in and to the Custom Work Product and all
applicable intellectual property rights related to the Custom Work Product,
including without limitation, copyrights, trademarks, trade secrets, patents,
moral rights, contract and licensing rights. Forte shall have the right to
create items similar or related to Custom Work Product provided such items are
independently developed without use of VAR's Confidential Information or trade
secrets. Notwithstanding any other provision to the contrary, for any consulting
services Forte provides to VAR which result in Custom Work Product that is
exclusively owned by VAR under subsection (ii) above, Forte shall not be
precluded from using Residuals (defined below) from such Custom Work Product.
"Residuals" shall mean ideas, concepts and understandings related to the Custom
Work Product which would be retained in the memory of an ordinary employee not
intent on appropriating such Custom Work Product when performing such services.
Notwithstanding the parties' agreement that VAR shall own any particular Custom
Work Product, any Developments and any proprietary software or other items
previously developed and/or owned by Forte and included in the Custom Work
Product shall remain the exclusive property of Forte. Forte hereby grants to VAR
a non-exclusive, perpetual, worldwide, fully paid-up license to copy, modify,
Sublicense, distribute and use solely for VAR's exercise of rights granted under
this Agreement all Developments and other Forte-owned items included in the
Custom Work Product. All copies of any Custom Work Product which is wholly or
partially owned by Forte shall include Forte's copyright notice and may not be
provided to third parties without Forte's prior written consent.
3. SUBLICENSING
3.1 Terms and Conditions
(a) Right to Sublicense. Forte hereby grants VAR a nonexclusive, nontransferable
and nonassignable (except as expressly provided in this Agreement) license to
market and Sublicense to Sublicensees worldwide (subject to Section 7.8) and the
right to Sublicense such rights through multiple types of distribution (e.g.,
system integrators) (i) the Products as an integral part of the VAR Application,
(ii) the Core System Products (as defined in Exhibit A) for use with
applications other than the VAR Application (a "Full Use License"), provided
that a Sublicensee has also received a license to a VAR Application and provided
that a Forte Regional Sales Manager has reviewed and approved all quotations for
any Products above and beyond a Forte Core System prior to being presented to
the proposed Sublicensee. Each Sublicense shall be granted solely through a
written Sublicense agreement which shall include terms substantially similar to
those set forth on Exhibit E hereto. In the event of any Full Use License, Forte
shall promptly ship such Products and Documentation directly to the applicable
Sublicensee as identified on the Order Form. At Forte's request, VAR shall
provide Forte with a copy of VAR's standard Sublicense agreement. VAR may only
Sublicense those Products which VAR has previously licensed from Forte.
(b) Sublicense Fees. VAR shall pay Forte the Sublicense fee set forth on Exhibit
A. Sublicense fees shall be due and payable with each applicable Sublicense
report.
(c) Temporary Sublicenses. VAR and its Distributors shall be entitled to grant
temporary Sublicenses of the VAR Application or Full Use Licenses at no charge,
for evaluation/pilot purposes only, with no Sublicense fees owed to Forte as
long as a maximum of twenty (20) such temporary Sublicenses are in effect at any
one time. The term of each such temporary Sublicense shall be for a period not
to exceed ninety (90) days. VAR shall terminate or pay to Forte the applicable
Sublicense fees for perpetual Sublicenses for any temporary Sublicenses
outstanding in excess of ninety (90) days.
(d) Sublicensee Use. VAR is granted the Sublicensing rights described herein on
the understanding that, except for a Full Use License or where such a
restriction is not permitted by applicable law, Sublicensees will be permitted
use of the Products only in connection with the VAR Application. VAR shall use
reasonable commercial efforts to enforce the terms of its Sublicense agreements
to the extent that they relate to the Products. If VAR is aware that a
Sublicensee without a Full Use License is using a Product beyond the limited
functionality set forth in the VAR Application Sublicense agreement (for
example, use of any Product for development purposes outside of the scope of the
VAR Application), VAR or Distributor shall immediately notify the Sublicensee of
such unauthorized use. If the Sublicensee fails to discontinue such unauthorized
use following notification, VAR or Distributor shall at VAR's option either
terminate the sublicense, or forward to Forte one hundred percent (100%) of the
applicable then current Product full use license fee.
(e) Sublicensing Practices. At all times during this Agreement VAR shall: (i)
avoid deceptive, misleading, illegal, or unethical practices that may be
detrimental to Forte or to the Products; (ii) not make any representations,
warranties, or guarantees to Sublicensees concerning the Product that are
inconsistent with or in addition to those made in this Agreement and (iii)
comply with all
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applicable laws and regulations with respect to the VAR Application and related
services rendered by VAR.
(f) Sublicense Reports. Within forty-five (45) days of the last day of each
quarter, VAR shall send Forte a report detailing for the quarter:
(i) for each VAR Application or Product for a Full Use License shipped
during the prior quarter, Sublicensee name and address, date of shipment,
whether the Sublicense is temporary for evaluation purposes, and total
Sublicense fees due to Forte;
(ii) for each grant of additional rights to use a VAR Application
previously shipped, a description of such additional rights, and a description
of the applicable Sublicense fees and Support Fees due Forte for such grant; and
the Distributor agreements executed during the prior month, including names and
addresses of the Distributors.
With each sublicense report, VAR shall simultaneously provide Forte with payment
of all fees required under such report. VAR shall require its Distributors to
report the information in clause (i) above to VAR on a quarterly basis and will
include it in the report for the quarter in which VAR received the information.
VAR hereby agrees that the information obtained by Forte pursuant to clause (i)
above, with the prior written consent of the VAR Sales Director, may be used by
Forte for the sole purpose of contacting such new Sublicensee to address any
opportunities outside of the VAR Application solution. Such information shall be
deemed to be Confidential Information as defined in Section 7.1 of this
Agreement. The VAR shall be eligible for compensation on sales by Forte of Full
Use Licenses above and beyond a Full Use Core System License to such customers,
in accordance with the then-current `reverse royalty' or similar program
maintained by Forte.
(g) Sublicensee Documentation. VAR shall be responsible for providing
documentation for Sublicensees. VAR shall have the right to incorporate portions
of the Documentation into the VAR's documentation subject to the provisions of
Section 7.4 of the Agreement at no additional charge to VAR. Forte shall provide
VAR with electronic copies of all current documentation, in the form of CDs or
such other means as reasonably requested by VAR.
(h) Distributors. VAR may appoint Distributors to market and Sublicense the
VAR Application under the terms of the Agreement. If a Distributor desires to
make any Product-specific modifications to the VAR Application requiring the
Product, it must do so pursuant to a development license unless such Distributor
already has an appropriate license acquired directly from Forte or other third
party. Each Distributor's agreement with VAR shall allow it to market and
Sublicense the VAR Application only in accordance with the Sublicensing
provisions of this Agreement. Forte shall be deemed a third party beneficiary of
the portions of the Agreement between VAR and such Distributor that relate to
the Products. VAR agrees to use all reasonable efforts to enforce its
Distributor agreements and to inform Forte immediately of any known material
breach thereof related to the Products.
(i) VAR Audit. VAR shall maintain adequate books and records in connection
with its activity under this Agreement, which shall include but not be limited
to executed Sublicense agreements. Forte may at its expense, retain an
independent third party to audit the relevant accounting books and records of
VAR regarding shipment of VAR Applications or Products to ensure compliance with
the terms of this Agreement. If an audit reveals that VAR has underpaid fees to
Forte; VAR shall promptly pay such fees. Any such audit shall be conducted
during regular business hours at VAR's offices and shall not interfere
unreasonably with VAR's business activities. If the underpaid fees are in excess
of five percent (5%) of the total fees previously paid and then payable from
VAR, then VAR shall pay Forte's reasonable costs of conducting the audit. Audits
shall be made no more than once annually. In addition, each Sublicensee and
Distributor agreement shall permit VAR to conduct a similar audit of VARs
Sublicensees and/or Distributors. VAR shall, upon reasonable evidence that an
audit of a Sublicensee or Distributor is warranted, conduct such audit..
(j) Indemnification. VAR agrees to use reasonable commercial efforts to
enforce the terms of its Sublicense and Distributor agreements required by this
Agreement to the extent that they relate to the Products and to inform Forte of
any known material breach of such Forte-related terms. VAR will defend and
indemnify Forte against: (i) all direct damages to Forte arising from any use by
VAR, its Distributors or its Sublicensees of any product not provided by Forte
but used in combination with the Products if such claim would have been avoided
by the exclusive use of the Products; and (ii) all direct damages suffered by
Forte as a result of VAR's failure to include or reasonably enforce the required
contractual terms set forth herein in each Sublicense and Distributor agreement,
provided that: (i) Forte promptly notifies VAR in writing of the claim; (ii) VAR
has sole control of the defense and all related settlement negotiations; and
(iii) Forte provides VAR with the assistance, information, and authority
necessary to perform the above; reasonable out-of-pocket expenses incurred by
Forte in providing such assistance will be reimbursed by VAR.
(k) Federal Government Sublicenses. The Products and Documentation are
commercial computer software and documentation developed exclusively at private
expense, and in all respects are proprietary data belonging solely to Forte.
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Pursuant to DFARS 227.7202 or FAR 12.212, as applicable, the Government's right
to use, reproduce or disclose the Products and Documentation acquired under this
Agreement is subject to the restrictions of this Agreement.
(l) Inherently Dangerous Applications. The Products are not specifically
developed, or licensed for use in any nuclear, aviation, mass transit, or
medical application or in any other inherently dangerous applications. VAR
agrees to notify each Sublicensee of this limitation. VAR agrees, and each
Sublicensee shall agree, that Forte shall not be liable for any claims or
damages arising from VAR's or a Sublicensee's use of the Products for such
applications. If VAR fails to notify Sublicensee of the limitations specified
above, VAR agrees to indemnify and hold Forte harmless from any claims for
losses, costs, damages, or liability arising out of or in connection with the
use of the Products in such applications.
(m) Notwithstanding Section 1.12 and Items 2 and 3 of Exhibit E and any
other provision in this Agreement, VAR or Distributor shall have the right to
allow a Sublicensee to transfer or assign a Sublicense granted by VAR or
Distributor hereunder, upon written notice to VAR and such transferee/assignee
agrees to be bound by the terms and conditions of the applicable Sublicense
Agreement.
3.2 Sublicense Technical Support
In consideration for the right to provide technical support services to its
Sublicensees, the VAR agrees to pay Forte the applicable annual technical
support services fee set forth in Exhibit A. Forte shall not be required to
provide any assistance needed to install the VAR Application at Sublicensee
sites. Forte shall not be required to provide any Product technical support,
training and consulting to Sublicensees or Distributors. The VAR shall
continuously maintain Standard Technical Support services from Forte during the
period during which VAR provides technical support services to any Sublicensees.
Any questions from the VAR's Sublicensees or Distributors regarding VAR
Applications will be referred by Forte to the VAR.
3.3 Consulting and Training Services
A Sublicensee may contract directly with Forte for consulting and training
services at Forte's then-current rates. VAR shall have no right to market and/or
sell Forte consulting and training services, but may order Forte consulting and
training to be performed on behalf of a Sublicensee and/or Distributor
hereunder. Forte agrees that VAR may order Forte consulting and training
services under the terms of this Agreement and that no additional agreements
(subcontract or otherwise) would be required by Forte to be perform such
services for VAR or on behalf of VAR for a Sublicensee or Distributor.
4. INVOICING, PAYMENT & TAXES
(a) Payment Terms. Invoices for payment of fees shall be payable in U.S.
dollars on the Effective Date of the Order Form or Sublicense Report, as
applicable. All payment obligations identified on executed Order Forms and
Sublicense Reports (as calculated in accordance with Exhibit A) are
noncancellable and, upon payment, are nonrefundable. VAR will provide Forte with
a written purchase order for licenses and support at the time of execution of an
Order Form or submission to Forte of a Sublicense Report, as applicable. Other
applicable fees shall be payable when invoiced. All fees shall be deemed overdue
if they remain unpaid 30 days after the quarterly report date. If the VAR's
procedures require that an invoice be submitted against a purchase order before
payment can be made, the VAR will be responsible for issuing such purchase order
30 days before the payment due date. All overdue amounts shall become interest
at the rate of one and one-half percent (1-1/2%) per month or the maximum legal
rate, if less, however, nothing herein shall limit Forte's right to terminate
this Agreement as set forth herein.
(b) Taxes. The fees listed in this Agreement do not include taxes. The VAR
shall pay or reimburse Forte for all sales, use, excise, personal property,
value-added, or other applicable taxes, duties or assessments based on the
licenses granted or the services provided under this Agreement or on the VAR's
use of the Products, except that the VAR shall have no responsibility for income
taxes imposed on Forte.
5. TERM AND TERMINATION
5.1 Term
This Agreement shall commence on the Effective Date hereto and shall be valid
for a period of three (3) years. Each Sublicense granted under this Agreement
shall continue in perpetuity unless terminated as provided in Paragraph 5.2
below.
5.2 Termination
Upon written notice to Forte, VAR may terminate this Agreement and any license
herein at any time. Upon written notice to VAR, Forte may terminate this
Agreement and any license granted herein if VAR materially breaches this
Agreement and fails to correct the breach within thirty (30) days following
written notice from Forte specifying the breach. Notwithstanding the previous
sentence, if the material breach is of such a nature that it cannot be
reasonably be corrected within such 30 days, Forte agrees not to terminate the
Agreement or any license granted herein, provided VAR uses all reasonable
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and good faith efforts to cure such breach in a timely manner, but not to exceed
90 days from written notice specifying the breach. Forte agrees that it may not
terminate any license that was granted hereunder to a Sublicensee, provided the
license to such Sublicensee was granted in accordance with the terms herein when
licensed and such Sublicensee is not in material breach of the Sublicense
Agreement.
5.3 Effect of Termination
(a) Upon expiration or termination of this Agreement, all VAR's right to
market, Sublicense, and use the Products as set forth in this Agreement shall
cease, and Forte may declare all sums owed hereunder immediately due and
payable. VAR also agrees that it shall not sublicense or otherwise distribute
the VAR Application (which contains any Product or any portion thereof) after
expiration or termination of this Agreement.
(b) Unless the expiration or termination of this Agreement is due to a
material breach by VAR, VAR may continue using a single copy of the most recent
release of the Products then in VAR's possession solely for the purpose of
continuing technical support for Sublicenses granted prior to termination. Such
continued use of the Products shall be subject to all the provisions of this
Agreement, including, without limitation, payment of the Support Fees specified
herein.
(c) The termination of this Agreement or any license acquired hereunder
shall not limit either party from pursuing any other remedies available to it
including injunctive relief, nor shall such termination relieve VAR's obligation
to pay all fees that have accrued or that VAR has agreed to pay under any Order
Form or other similar ordering document under this Agreement. The parties'
rights and obligations under Sections 2.1(c), 2.4, 3.1(d),(e),(f) and (h)
through (m), and Sections 4, 5, 6, and 7 shall survive termination of this
Agreement.
5.4 Return of Products upon Termination
Except as provided in Section 5.3(b) above, upon expiration or termination of a
license hereunder, VAR shall: (i) cease using the applicable Products; and (ii)
represent in writing to Forte within one month after termination that VAR has
destroyed or has returned to Forte the Products, Documentation and all copies
except for a reasonable number of archived copies. This requirement applies to
copies and storage in all forms, partial and complete, in all types of media and
computer memory, and whether or not modified or merged into other materials.
6. WARRANTIES, REMEDIES, LIMITATION OF LIABILITY
6.1 Infringement Indemnity
(a) Forte will defend and indemnify VAR against all costs (including
reasonable attorneys fees and Sublicense fees attributable to Sublicenses for
which VAR was required to refund license fees to the applicable Sublicensee due
to such infringement,) arising from a claim that Products furnished and used
within the scope of this Agreement infringe a copyright, patent, trademark, or
other intellectual property right provided that: (i) VAR promptly notifies Forte
in writing of the claim; (ii) Forte has sole control of the defense and all
related settlement negotiations; and (iii) VAR provides Forte with the
assistance, information, and authority necessary to perform the above;
reasonable out-of-pocket expenses incurred by VAR in providing such assistance
will be reimbursed by Forte.
(b) Forte shall have no liability for any claim of infringement to the
extent based on: (i) use of a superseded or altered release of a Product if such
infringement would have been avoided by the use of a current unaltered release
of the Product that Forte provides to VAR; or (ii) the combination, operation,
or use of any Products furnished under this Agreement with programs or data not
furnished by Forte if such infringement would have been avoided by the use of
the Products without such programs or data.
(c) In the event the Products are held or are believed by Forte to
infringe, Forte shall have the option, at its expense, to: (i) modify the
Products to be non-infringing; (ii) obtain for VAR a license to continue using
the Products; (iii) substitute the Products with other software reasonably
suitable to VAR; or if (i) - (iii) are not commercially reasonable for Forte,
(iv) terminate the license for the infringing Products and refund the license
fees paid for those Products. This Section 6.1 states Forte's entire liability
for infringement.
6.2 Product Warranty
Except as stated below, for each Supported License Forte warrants that each
Product will perform the functions described in the associated Documentation
when operated on the specified platform for a period of 30 days from the date of
shipment of such Product to VAR.
Forte further warrants that the Products will fully comply with the following
millennium compliance statement when configured and used according to the
Documentation. The definition of compliance is the ability to:
1. correctly handle date information before, during and after 1 January
2000 accepting date input, providing date output and performing calculation
on dates;
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2. function according to the Documentation, during and after 1 January
2000 without changes in operation resulting from the advent of the new
century;
3. where appropriate, respond to two digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined and
predetermined manner;
4. store and provide output of date information in ways that are
unambiguous as to century;
5. manage the leap year occurring in the year 2000, following the
quad-centennial rule.
Forte does not warrant that each Product will meet VAR's requirements, that the
Products will operate in the combinations which VAR may select for use or with
all non-Forte software used by VAR, that the operation of each Product will be
uninterrupted or error-free, or that all Product errors will be corrected. Forte
will undertake to correct any reported error condition in accordance with its
then-current Standard Technical Support policies and the terms of this
Agreement, with the terms of this Agreement to prevail in the event of any
conflict. Forte shall have no obligation to undertake correction of errors
caused by VAR modifications to the Product. VAR's sole and exclusive remedy for
Product nonconformity shall be recovery of the license fees paid to Forte for
such non-conforming Product.
As an accommodation to VAR, Forte may supply VAR with (i) preproduction releases
of Products labeled "Alpha," "Beta" or otherwise, which are not suitable for
production use or for development of the VAR Application, or (ii) shareware
items such as "Fshare" containing code developed by Forte and/or its customers
and partners. Notwithstanding anything to the contrary in this Agreement, such
preproduction releases and shareware are provided to VAR "as is" without
warranty of any kind, express or implied, and neither party will be responsible
to the other for any losses, claims or damages of whatever nature arising out of
VAR's use of such items. Forte shall identify at the time of release of any such
preproduction or shareware releases what type of support, if any, is provided by
Forte. Unless stated otherwise, however, no support shall be provided by Forte
for such releases. Standard Technical Support does not include support or
updating of shareware items. VAR will promptly report any error condition
discovered in a preproduction release, and provide Forte with appropriate test
data if necessary to resolve problems encountered by VAR with a preproduction
release.
6.3 Media Warranty
Forte warrants all media delivered to VAR to be free of defects in materials and
workmanship under normal use for 90 days from the Effective Date. Replacement of
media without charge is VAR's sole and exclusive remedy in the event of a media
defect.
6.4 Services Warranty
Forte warrants that its Standard Technical Support, consulting and other
services will be of a professional quality conforming to generally accepted
industry standards and practices. This warranty shall be valid for 90 days from
completion of service. For any breach of the above warranty, VAR's exclusive
remedy and Forte's entire liability shall be: (i) the re-performance of the
services; or (ii) if Forte is unable to perform the services as warranted,
recovery of the fees paid to Forte for such deficient services.
6.6 Limitations of Warranties
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
6.7 Limitation of Liability
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR LOSS OF PROFITS, REVENUE (EXCEPT AS
ALLOWABLE AND DETERMINED TO BE A DIRECT DAMAGE) OR PRODUCT USE, OR LOSS OR
INACCURACY OF DATA, AND IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
INDIRECT INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES INCURRED BY EITHER PARTY
OR ANY THIRD PARTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. EXCEPT WITH RESPECT TO SECTIONS 6.1, 3.1(j) AND TO THE EXTENT
LOSS OF PROFITS AND/OR REVENUE ARE ALLOWABLE AND DETERMINED TO BE DIRECT DAMAGES
DUE TO THE OTHER PARTIES UNATHORIZED COPYING OR DISTRIBUTION OF THE PRODUCT OR
VAR APPLICATION EITHER PARTY'S LIABILITY FOR DAMAGES HEREUNDER, WHETHER IN AN
ACTION IN CONTRACT OR TORT OR BASED ON A WARRANTY, SHALL IN NO EVENT EXCEED THE
AMOUNT OF FEES PAID BY VAR UNDER THIS AGREEMENT FOR THE RELEVANT LICENSE OR
SERVICE.
The provisions of this Section 6 allocate the risks under this Agreement between
Forte and VAR. Forte's pricing reflects this allocation of risk and the
limitation of liability specified herein.
7. GENERAL TERMS
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
7.1 Nondisclosure
By virtue of this Agreement, the parties may have access to information that is
confidential to one another ("Confidential Information"). Confidential
Information shall be limited to the Products and the VAR Application,
information related thereto, all other information clearly marked as
confidential, and other items as agreed by the parties in writing.
A party's Confidential Information shall not include information which (i) is or
becomes a part of the public domain through no act or omission of the other
party; or (ii) was in the other party's lawful possession prior to the
disclosure and had not been obtained by the other party either directly or
indirectly from the disclosing party; or (iii) is lawfully disclosed to the
other party by a third party without restriction on disclosure, or (iv) is
independently developed by the other party.
The parties agree, both during the term of this Agreement and for a period of
five (5) years after termination hereof, to hold each other's Confidential
Information in confidence. The parties agree not to make each other's
Confidential Information available in any form to any third party or to use each
other's Confidential Information for any purpose other than the implementation
of this Agreement. Each party agrees to take all reasonable steps to ensure that
Confidential Information is not disclosed or distributed by its employees or
agents in violation of the provisions of this Agreement.
7.2 Governing Law and Jurisdiction
This Agreement shall be governed and construed under the laws of the State of
California, as applied to agreements executed and performed entirely in
California by California residents. In no event shall this Agreement be governed
by the United Nations Convention on Contracts for the International Sale of
Goods. In any legal action relating to this Agreement each party agrees (i) to
the exercise of jurisdiction over it by a state or federal court in San
Francisco or Alameda County, California; and (ii) that if a party brings the
action, it shall be instituted in one of the courts specified in subparagraph
(i) above.
7.3 Copyrights
VAR acknowledges that the Products and Documentation are proprietary to Forte
and protected by copyright, patent and/or trade secret laws. VAR agrees to
include without alteration, in all copies and reproductions of the Products,
Documentation and VAR Application, reproductions of Forte's restricted rights
notices, copyright notices and other proprietary legends. A copyright notice in
a Product does not, by itself, constitute evidence of publication or public
disclosure.
7.4 Marks
All trademarks, service marks, trade names or logos identifying the Products or
Forte's business (the "Marks") are the exclusive property of Forte or its
licensors. VAR will not take any action that jeopardizes Forte's or its
licensors' proprietary rights or acquire any right in the Marks except as
specifically set forth below. VAR will not register, directly or indirectly, any
trademark, service mark, trade name, copyright, company name or other
proprietary or commercial right which is identical or confusingly similar to the
Marks or which constitute a translation of a Mark into another language. VAR
will use the Marks exclusively to identify the Products and shall not use the
Marks in combination with any trademarks, service marks, or logos of VAR which
would create confusion as to the ownership or identity of the Marks (e.g.
"ForteCCS"). Any such use of the Marks will clearly identify Forte or its
licensors as the owner of the Marks and conform to Forte's then current
trademark and logo guidelines which Forte agrees to supply to VAR at VARS
request. At Forte's request, VAR will deliver to Forte a sample of all
advertisements or promotional materials bearing a Mark. If Forte notifies VAR
that the use of the Mark is inappropriate, in its reasonable judgment, VAR will
not publish or otherwise disseminate the advertisement or promotional materials
until they have been modified to Forte's reasonable satisfaction. VAR will
immediately notify Forte if VAR learns of any potential infringement of the
Marks by a Sublicensee. Forte will determine the steps to be taken under these
circumstances. In connection with any such potential infringement of or by the
Marks, VAR will (a) provide Forte, at Forte's expense, with the assistance that
Forte may reasonably request and (b) not take steps that would prejudice Forte's
rights in the Marks without Forte's prior approval.
7.5 Relationship between Parties
In all matters relating to this Agreement, the VAR will act as an independent
contractor. The relationship between Forte and the VAR is that of
licenser/licensee. Neither party will represent that it has any authority to
assume or create any obligation, express or implied, on behalf of the party, nor
to represent the other party capacity.
7.6 Notice
All notices relating to this Agreement shall be in writing and delivered by
overnight delivery service or first class prepaid mail with return receipt
requested to the address of such party specified above to the attention of its
Chief Financial Officer or such other address specified by such other party in
accordance with this Section.
7.7 Severability/Waiver
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
In the event any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain in full
force and effect. The waiver by either party of any default or breach of this
Agreement shall not constitute a waiver of any other or subsequent default or
breach.
7.8 Export Administration; U.S. Government Rights
VAR agrees to comply fully with all relevant laws, regulations and orders of the
United States and other countries to which the Products or VAR Application are
shipped, the U.S. Department of Commerce, and other U.S. and applicable non-U.S.
agencies to assure that all Products, Developments and Custom Work Product and
related media are not exported in violation of the laws of the United States and
other applicable countries.
7.9 Non-assignability and Binding Effect
Notwithstanding Section 2.1(b) or any other provision hereof, the Agreement,
Product and Documentation licenses granted herein may be transferred or assigned
by VAR upon written notice to Forte to (a) any entity that is either directly or
indirectly controlled by VAR ("control" for purposes of this Agreement shall
mean ownership of at least 51% of the voting capital stock of a corporation, or
51% of the voting equity of any non-corporate entity), or (b) the surviving
entity of a merger, acquisition or reorganization of all or substantially all of
VAR's assets, capital stock or other equity, so long as such proposed transferee
or assignee agrees in writing to be bound by the terms and conditions of this
Agreement. Except as provided above, any attempted assignment of the rights or
delegation of the obligations under this Agreement shall be void without the
prior written consent of the non-assigning or non-delegating party. In the case
of any permitted assignment or transfer of or under this Agreement, this
Agreement or the relevant provisions shall be binding upon, and inure to the
benefit of, the successors, executors, heirs, representatives, administrators
and assigns of the parties hereto.
7.10 Force Majeure
Neither party shall be liable to the other for its failure to perform any of its
obligations under this Agreement or any Exhibit, during any period in which such
performance is delayed because rendered impracticable or impossible due to
circumstances beyond its reasonable control, provided that the party
experiencing the delay promptly notifies the other of the delay.
7.11 Remedies
The parties stipulate that the legal remedies of any party in the event of any
default or threatened default by the other party in the performance of or
compliance with any of the terms of this Agreement are not and shall not be
adequate, and that such terms may be specifically enforced by a decree for
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms of this Agreement or otherwise. Except
as specifically provided in this Agreement, no remedies in this Agreement are
exclusive of any other remedies but shall be cumulative and shall include all
remedies available hereunder or under any other written agreement or in law or
equity, including rights of offset.
7.12 Entire Agreement
This Agreement constitutes the complete agreement between the parties and
supersedes all previous agreements or representations, written or oral, with
respect to the Products and services specified herein. This Agreement may not be
modified or amended except in a writing signed by a duly authorized
representative of each party.
It is expressly agreed that any term and conditions of the VAR's purchase order
shall be superseded by the terms and conditions of this Agreement. This
Agreement shall also supersede the terms of any unsigned license agreement
included in a package for Forte-furnished software.
7.13 Escrow
Forte represents that it has deposited with an escrow agent copies of the source
code and reasonable technical documentation for all the most recent versions of
the Products licensed under the Agreement, pursuant to a Technology Escrow
Agreement with such escrow agent, a copy of which has been provided to VAR. Upon
VAR's execution of the instrument enrolling VAR as a party to the Technology
Escrow Agreement attached as Exhibit G, VAR shall be entitled to receive a copy
of the escrowed source code and documentation from the escrow agent in the event
Forte becomes insolvent, is a party to a bankruptcy filing, ceases business
operations generally or ceases to make available maintenance or support services
for the then-current version of the licensed Product. Forte shall pay all
relevant escrow fees to the escrow agent. In the event VAR receives the escrowed
source code and documentation, VAR shall have the royalty-free, nonexclusive,
perpetual right to use such source code solely for use in maintaining and
supporting the licensed Products under the terms of this Agreement. All such
source code, as delivered or modified, shall constitute Confidential Information
of Forte for purposes of Section 7.1 of the Agreement, and VAR shall not
disclose the source code or its modifications to others or permit others to copy
the source code or modifications thereof. Forte shall update the deposited
material within thirty (30) days after each major update to the licensed
Product. Forte
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
acknowledges VAR's right to request and receive verification from
the escrow agent (and/or Forte) confirmation that Forte has deposited source
materials as obligated under this paragraph.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Exhibit A
---------
Forte Software, Inc.
-------------------
VAR Fees and Royalties
----------------------
1. VAR License Fee. The parties agree that this Agreement supersedes the
previous VAR agreement between the parties regarding distribution of the VAR
Application. Forte acknowledges that VAR has previously paid all VAR license
fees owed under such previous agreement. In consideration for payment of such
license fees, the license to VAR pursuant to Section 2.1 is with respect to the
following Products and components:
Products
--------
Forte Application Environment
Forte Express
Forte WebEnterprise (previously known as WebSDK)
Components
----------
5 Designated Developers
Unlimited Client Environments
Unlimited Server Environments
Unlimited RDMBS Development Interfaces
1 Shared Repository
1 Documentation Set of Forte (both Hardcopy and CD ROM)
2. Additional Designated Developer and Other License Fees. The fee for
------------------------------------------------------
each additional Designated Developer license is [*]. Other items may be licensed
for the fees set forth in the Price List.
3. Support Fees. Annual Support Fees for the license pursuant to Section
2.1 shall equal [*] of Forte's then-current Core System (as defined below) list
price [*].
Annual Support Fees for Products or license components not listed in Section 1
above shall be the [*] multiplied by the then-current list price of the item
acquired.
4. Sublicense Fees. Upon shipment of the VAR Application or invoicing of a
Sublicensee for the license of the VAR Application, whichever occurs first, VAR
agrees to pay Forte a Sublicense fee (due as described in the Agreement) as
follows:
a. Standard VAR Application Sublicenses. For each Standard
VAR Application Sublicense (defined below) VAR agrees to pay Forte a Sublicense
fee equal to:
i) [*] of VAR's net license revenue from such Sublicense if the
Sublicensee does not purchase a Full Use License (as defined in Section 3.1) for
a Core System (as defined below) from Forte or VAR; or
ii) [*] of VAR's net license revenue from such Sublicense if the
Sublicensee purchases a Full Use Core System license (plus first year
maintenance and support) directly from Forte or VAR prior to or simultaneously
and in connection with the VAR Application license (i.e., a then-current Forte
customer who does not buy a Core System license in connection with the VAR
Application would not trigger this clause).
b. Extended VAR Application Sublicenses. For each Extended VAR
Application Sublicense (defined below) the following terms shall apply:
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
i) VAR shall pay Forte a Sublicense fee equal to [*] of VAR's
net license revenue from such Sublicense, subject to paragraph iv below
regarding Enterprise Customers;
ii) the Sublicensee will be also be required to purchase at a
minimum, one Full Use License for a Core System from Forte or VAR, which Forte
agrees to provide at its then-current local list price, plus first year
maintenance and support. This Full Use License is not required if the
Sublicensee or a Delivery Partner has already acquired at least one Full Use
License for a Core System and has unassigned Designated Developer seats
sufficient for the applicable project. If the Sublicensee or Delivery Partner
has already acquired a Core System license, but all Designated Developer seats
have been assigned, the Sublicensee shall only be required to purchase
additional Designated Developer licenses sufficient for the applicable project.
Additional Designated Developer licenses, if needed, can be purchased by the
Sublicensee, VAR and/or the Delivery Partner. If the Delivery Partner has a
re-usable development license arrangement with Forte, additional development
licenses could be obtained for the re-use fee due under that Delivery Partner's
agreement with Forte. However, unless otherwise agreed by Forte and such
Delivery Partner, such reusable development licenses are "project specific" and
may not be used for non-VAR Application development. All additional Designated
Developer licenses require the purchase of first year maintenance and support
from Forte.
iii) VAR shall not be required to obtain rights to include in
the VAR Application and VAR Application-related functionality created by
Sublicensees or their Delivery Partners, nor shall the Sublicensee be required
to purchase Full Use and/or Runtime licenses to utilize any such new VAR
Application-related functionality. Runtime licenses would, however, be required
for a Sublicensee's deployment of functionality outside the scope of the VAR
Application.
iv) in the event VAR or a Distributor grants an Extended VAR
Application Sublicense to any Enterprise Customer (defined below) during the
initial three year term of this Agreement, Forte shall not be entitled to any
Sublicense fees in connection with such VAR Application licenses; provided,
however, that VAR shall remain liable to Forte for annual Technical Support fees
for such Sublicenses on the terms set forth in Section 6 below as if such
Sublicense fees had been paid to Forte. At the request of VAR, Forte shall
provide information regarding a customer to indicate whether such customer is an
Enterprise Customer.
c. VAR Application Development System. For each Sublicense
of a VAR Application Development System (defined below) VAR agrees to pay Forte
a Sublicense fee [*] of VAR's net license revenue from such Sublicense. Each VAR
Application Development System Sublicense will expressly state that it does not
include a license to use the Products for development, and that Product licenses
are available directly from Forte.
d. Transaction-based or Account-based Sublicenses. For the
initial three years of this Agreement, VAR shall have the right to enter into
"Variable Fee" VAR Application Sublicenses under which VAR receives a recurring
royalty from the Sublicensee based on the number of accounts or transactions
serviced by the VAR Application. Such Variable Fee Sublicenses will have a
maximum term of four years. Forte will receive a Sublicense fee equal to [*] of
cash license fee collected from each such Variable Fee Sublicense for the entire
term of each such Variable Fee Sublicense. On or before the expiration of such
three year term, both companies will evaluate and discuss in good faith the
appropriate revenue sharing and other terms for Variable Fee Sublicenses from
then forward.
e. Pre-paid Sublicense Fees. Forte acknowledges and agrees that
VAR currently has a pre-paid Sublicense fee balance of [*], which may be
applied dollar for dollar solely against Sublicense fees due Forte hereunder on
Sublicenses of the VAR Application, but not Core Systems.
5. Definitions.
a. "Standard VAR Application" means the current shipping standard
release of the VAR Application which permits the performance of up to 90
person-days of initial development using the Products. Development performed
without the Products (such as using the VAR Application Workflow editor,
Non-Product generated scripts and tools, C++ programming language or any Java
Software Development Environment) are not counted in the 90 days.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
b. "Extended VAR Application" means the current shipping standard
release of the VAR Application where more than 90 person-days of initial
development using the Products will be performed. Development performed without
the Products (such as using the VAR Application Workflow editor, Non-Product
generated scripts and tools, C++ programming language or any Java Software
Development Environment) is not counted in the 90 days.
c. "VAR Application Development System" means a VAR Application
licensed by VAR to its customers, global system integrator partners, and/or
Delivery Partners, for end user development, training, demonstration, and/or
vertical application development activities. Product Sublicenses pursuant to
Section 3.1 are not deemed licenses of the VAR Application Development System.
d. "Net license revenue" for Standard VAR Application, Extended
VAR Application, and VAR Application Development System transactions means the
net license fee amount invoiced to the applicable Sublicensee net of product
returns and credits. For Variable Fee Sublicenses, it shall mean VAR's net cash
receipts from the applicable Sublicensee.
e. A "Core System" shall mean 1 Client Environment, 5 Designated
Developers for the Forte Application Environment, 10 Runtime Users, 1 Server
Environment, 1 Development Server, 1 RDBMS Interface, 1 Shared Repository, 1
Documentation Set on both hard-copy and CD-ROM, and 5 student days of training.
f. "Enterprise Customer" is defined as a Forte customer which,
simultaneously with or prior to Sublicensing the VAR Application from VAR, has
obtained Full-Use Product licenses from Forte either (A) under a "site license"
allowing use of unlimited quantities of Product licenses by such customer, or
(B) in a single transaction following December 31, 1996 which included such
customer's payment of at least [*] of recognizable license revenue to Forte
and on which Forte and VAR worked together leading up to such single
transaction. Up to once annually, VAR shall have the right to engage an
independent accountant to audit the accounting books and records of Forte to
verify whether a customer is an Enterprise Customer.
6. Full Use Licenses.
a. For each Full Use License, VAR shall pay to Forte a "Full Use
Sublicense Fee" equal to Forte's then-current Core System list price in the
country or countries in which the Full Use Sublicense will be used. The current
Forte Price List is attached hereto as Exhibit I. Full Use Sublicense Fees are
due net 30 days from the Shipment Date of the applicable Core System Product. If
VAR issues a written Full Use Sublicense quote and such quote is accepted by the
applicable Sublicensee, for a period of ninety (90) days after the date of
submission of the quote to the Sublicensee, the Full Use Sublicense Fee payable
by VAR with respect to the Products identified in the quote shall be based on
the Forte Price List in effect on such date.
b. VAR is free to determine unilaterally the Full Use Sublicense
Fees; provided that all Full Use Sublicenses shall otherwise comply with Forte's
then current internal pricing and configuration guidelines.
c. Forte shall not be required to provide primary technical support
to Sublicensees receiving a Full Use Sublicense in accordance with Section 3.2
of the Agreement with respect to use of the VAR Application; provided, however,
that if such Sublicensee uses the Core System outside the scope of the VAR
Application, such Sublicensee will be required to obtain and pay for technical
support directly from Forte pursuant to a separate Support Agreement between
Forte and the Sublicensee. VAR shall refer all support inquiries on projects
outside the scope of the VAR Application to Forte.
7. Technical Support for Sublicenses. On September 1 of each year during the
---------------------------------
term of this Agreement VAR shall pay Forte an annual technical support services
fee [*] of the then current Cumulative Sublicense Fees (including Full Use
Sublicense Fees) paid or owed by VAR attributable to all actively supported
Sublicensees that have acquired annual technical support services for the VAR
Application as of such date.
8. VAR/MCI Agreement. VAR acknowledges that on or around December 31, 1997 it
-----------------
entered into an agreement with MCI Systemhouse ("MCI Agreement"). Within two
months from the Effective Date of this Agreement, VAR agrees to allow Forte's
counsel the one-time right to review (on VAR's premises) those portions of the
MCI Agreement that are potentially relevant to the Products. Thereafter and for
the term of this Agreement, VAR agrees
- ----------
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
to allow Forte's counsel the right to review the "pre-payment" provisions of the
MCI Agreement. Forte agrees that the MCI Agreement is VAR Confidential
Information.
9. Joint Marketing and Seminars. The parties agree to engage in joint marketing
----------------------------
activities and to conduct joint seminars for prospective customers, pursuant to
a program to be mutually defined and implemented by the parties.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Exhibit C
---------
VAR Application Description
---------------------------
The VAR Application is VAR's CCS product, as described below.
I. CHORDIANT CCS PRODUCT DESCRIPTION
Chordiant CCS - Customer Communications Solution(TM) - integrates customer
communications points and customer facing applications with legacy databases,
the web server, email/fax systems, telephony systems and existing business
critical applications to create an enterprise-wide solutions serving multiple
business units and customer types.
Chordiant CCS(TM) includes a set of applications, business services, distributed
workflow engine called "Workflow Sequencing Object Processing - WSOP(TM)", and
system services, interfaces and data management. The Chordiant CCS(TM) 1.4 and
1.5 releases are packaged and delivered as a system which includes the Chordiant
CCS ChorApps(TM), Chordiant CCS ChorObjects(TM), and Chordiant CCS
ChorServices(TM). The ChorObjects(TM) and ChorServices(TM) are also referenced
as the Chordiant CCS Foundation System.
Chordiant CCS ChorApps(TM) (Applications) consist of the customer facing
applications, business management applications, operational management
applications, system administration and a variety of self-serve applications
designed for integration with web sites and telephony devices. Chordiant CCS(TM)
applications are dynamically created at time of customer inquiry and transaction
based on the customer profile and request; applicable customer and business
processes; together with the supporting business services and customer data. The
dynamic ability to create applications is called P3 Active(TM) and is a result
of technology provided by the Chordiant CCS Workflow Sequencing Object
Processing(TM) (WSOP(TM)) system.
Chordiant CCS(TM) applications are role-based and cover all the functionality
required by the CR (Customer Representative) for customer information, service,
marketing and selling functions; the Business Analyst/Management for defining
and managing business processes, workflows and transactions; Marketing
Management for management of campaigns, offerings and customer information; and
the call center Operational Management for data maintenance, center operations,
human resource scheduling, and system administration. Chordiant applications are
workflow driven and are built from the hundreds of business services and objects
provided in Chordiant CCS(TM), along with third party services provided by
Chordiant's customers, system integration partners and technology partners.
Chordiant CCS ChorObjects(TM) (Business Services, Objects and Workflow system)
contains the business objects integrating your best customer and business
practices together with the WSOP(TM) system, workflow components, workflow
management, a workflow editor and management functions. This layer provides the
rich set of business objects that are common across industries which when
attributed and data enabled for a particular company reflect the company's
specific customer and business processes, policies and transactions.
Chordiant CCS ChorServices(TM) provides the business services to create the IT
infrastructure for Chordiant CCS(TM) and to provide connectivity to telephony
systems, internet, data networks, data base systems and transaction systems.
ChorServices(TM) provides the services enabling customer communications; data
access, management and routing; access and data interfaces to enterprise legacy
and transaction systems and the ability to create customer interfaces into
third-party applications and systems to enable financial transactions, order
processing, billing, payment and other financial and business services. The
ChorServices(TM) commonly integrate and communicate with a customer's telephony
equipment, web servers, other application servers, legacy systems and
transactional applications systems.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Exhibit E
---------
Sublicense Agreement Required Provisions
----------------------------------------
Each Sublicense agreement shall refrain from making any warranty on Forte's
behalf, and shall include, at a minimum, contractual provisions which:
1) Except for a Full Use License or where such a restriction is not
permitted by applicable law, prohibit use of the Products except in
connection with the Sublicensee's use of the VAR Application.
2) Prohibit duplication (beyond the number of licensed copies) of the
Products except for temporary transfer in the event of CPU malfunction
and a reasonable number of backup or archival copies.
3) Prohibit timesharing, except for transaction-based or account-based
Sublicenses as permitted under Section 4(d) of Exhibit A; or rental of
the Products.
4) Prohibit reverse engineering, disassembly, decompilation, or other
attempt to derive source code of the Products, except and as to the
extent permitted by applicable law.
5) Prevent title from passing to the Sublicensee.
6) To the extent legally possible, disclaim Forte's liability for any
indirect, incidental, or consequential damages arising from the use of
the Products.
7) Require the Sublicensee, at the termination of the Sublicense, to
discontinue use and destroy or return to the VAR the Products,
Documentation and all archival or other copies of the Product except
for a reasonable number of archival copies.
8) Require the Sublicensee to comply fully with all relevant export laws
and regulations of the United States and of other countries in which
the Products will be used to assure that neither the Products, not any
direct product thereof, are exported, directly or indirectly, in
violation of United States or other applicable law.
9) Allow VAR to audit the Sublicensees use of the VAR Application and
the Products.
10) Allow VAR to comply with Section 3.1 (l) of this Agreement.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
ADDENDUM A to
VALUE-ADDED RESELLER LICENSE AND SERVICES AGREEMENT
BETWEEN
CHORDIANT SOFTWARE, INC.
AND
Forte Software, Inc.
This Addendum A shall amend the Value-Added Reseller License and Services
Agreement dated October 30, 1998 ("Agreement") between Chordiant Software, Inc.
("VAR") and Forte Software, Inc. ("Forte") as of the Effective Date indicated
below. Other than the amendments listed below, the terms and conditions of the
Agreement remain unchanged and in full force and effect. In the event of any
conflict between the Agreement and this Addendum A, the latter shall govern.
Capitalized terms herein shall have the same meaning as in the Agreement, unless
otherwise indicated.
1. Forte hereby grants VAR the one time right to Sublicense, under the terms
herein and under the Agreement, up to 20 Full Use Designated Developer Licenses
of the Core System Products to Electronic Data Systems ("EDS" including EDS'
subsidiary, Centrobe) for General Motors internal use. VAR shall pay Forte a
Sublicense fee equal to Forte's then-current list price, [*], plus initial year
Support Fees for such Sublicense.
2. VAR shall also have the ongoing right during the term of the Agreement to
grant Sublicenses for additional Full Use Designated Developers Licenses of the
Core System Products. For each such Sublicense, VAR shall pay Forte a
Sublicense fee equal to Forte's then-current list price, plus initial year
Support Fees.
The parties have executed this Addendum A as of February 22, 1999 (the
"Effective Date").
Executed by VAR Executed by Forte Software, Inc.
Signature: /s/ Steven R. Springsteel Signature: /s/ Sayed Darwish
Name: Steven R. Springsteel Name: Sayed Darwish
(Please Print) (Please Print)
Title: EVA/CFO Title: VP, General Counsel
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
ADDENDUM B to
VALUE-ADDED RESELLER LICENSE AND SERVICES AGREEMENT
BETWEEN
CHORDIANT SOFTWARE, INC.
AND
Forte Software, Inc.
This Addendum B shall amend the Value-Added Reseller License and Services
Agreement dated October 30, 1998 ("Agreement") between Chordiant Software, Inc.
("VAR") and Forte Software, Inc. ("Forte") as of the Effective Date indicated
below. Other than the amendments listed below, the terms and conditions of the
Agreement remain unchanged and in full force and effect. In the event of any
conflict between the Agreement and this Addendum B, the latter shall govern.
Capitalized terms herein shall have the same meaning as in the Agreement, unless
otherwise indicated.
1. VAR shall pay a nonrefundable license fee of [*], payable ninety (90) days
from the Effective Date of this Addendum B. Upon execution of this Addendum,
such payment obligation is noncancelable. In consideration for such payment, the
Sublicense fee rates and royalties specified in Exhibit A under the Agreement
shall be adjusted as follows:
A. In Section 4(a)(i), [*] is reduced to [*].
B. In Section 4(a)(ii), [*] is reduced to [*].
C. In Section 4(b)(i), [*] is reduced to [*].
D. In Section 4 (c), [*] is reduced to [*].
E. In Section 4 (d), [*] is reduced to [*].
2. VAR shall pay a nonrefundable pre-paid license fee of [*], payable thirty
(30) days from the Effective Date of this Addendum B. Upon execution of this
Addendum, such payment obligation is noncancelable. In consideration for such
pre-paid license fee, Forte shall waive the next [*] of Sublicense fees
(i.e. credit VAR for any type of license fees otherwise due to Forte under the
initial 3 year term of the Agreement for Products that VAR is currently
permitted to Sublicense, but not Support Fees or fees for services) that would
otherwise be due under the Agreement and Sublicense fee schedule, as amended in
Section 1 above.
The Effective Date of this Addendum B is March 1, 1999 (the "Effective Date").
Executed by VAR Executed by Forte Software, Inc.
Signature: /s/ Steven R. Springsteel Signature: /s/ Marty Sprinzen
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Name: Steven R. Springsteel Name: Marty Sprinzen
(Please Print) (Please Print)
Title: EVP/CFO Title: President and CEO
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.7
SOFTWARE LICENSE AGREEMENT
BETWEEN
ELECTRONIC DATA SYSTEMS CORPORATION
AND
CHORDIANT SOFTWARE, INC.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
TABLE OF CONTENTS
FOR
SOFTWARE LICENSE AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I. AGREEMENT, TERM, AND DEFINITIONS
1.1 Agreement and Term........................................................ 1
1.2 Certain Definitions....................................................... 1
ARTICLE II. PURCHASE ORDERS
2.1 Preparation of Purchase Orders............................................ 2
2.2 Issuance and Acceptance of Purchase Orders................................ 2
2.3 Purchase Order Alterations................................................ 3
2.4 Evaluation Purchase Orders................................................ 3
2.5 Cancellation of Purchase Orders........................................... 4
ARTICLE III. PROVISION OF LICENSED SOFTWARE AND SERVICES
3.1 General................................................................... 4
3.2 Transportation of Licensed Software....................................... 5
3.3 Risk of Loss.............................................................. 5
3.4 Installation of Licensed Software......................................... 5
3.5 Right to Cancel for Delays................................................ 5
3.6 Resale of Products by EDS................................................. 5
3.7 Time and Materials Services............................................... 6
3.8 Services in General....................................................... 7
3.9 Ownership of Intellectual Property Rights................................. 8
3.10 Use of Existing Materials................................................. 9
3.11 Further Acts.............................................................. 10
3.12 Time of Performance....................................................... 10
3.13 EDS Business Practices.................................................... 10
3.14 Education Services........................................................ 10
3.15 Development Services...................................................... 10
ARTICLE IV. PROVISION OF LICENSED SOFTWARE
4.1 Acceptance of Licensed Software........................................... 10
4.2 Grant of License.......................................................... 11
4.3 Transfer of Licensed Software............................................. 13
4.4 Ownership of Licensed Software and Modifications.......................... 13
4.5 Proprietary Markings...................................................... 14
4.6 Duplication of Documentation.............................................. 14
4.7 Non-Disclosure............................................................ 14
4.8 Licensed Software Support Services........................................ 14
4.9 Licensed Software Support Services Options................................ 17
4.10 Provision of Source Code.................................................. 18
4.11 Acquisition of Third Party Software....................................... 18
4.12 Software from an Authorized Third Party................................... 19
4.13 Software Audit............................................................ 19
ARTICLE V. WARRANTIES, INDEMNITIES, AND LIABILITIES
5.1 Warranty.................................................................. 19
5.2 Proprietary Rights Indemnification........................................ 20
5.3 Cross Indemnification..................................................... 21
</TABLE>
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<TABLE>
<S> <C>
5.4 Limitation of Liability................................................... 22
5.5 Insurance................................................................. 22
5.6 Survival of Article V..................................................... 22
ARTICLE VI. PAYMENTS TO SUPPLIER
6.1 Charges, Prices, and Fees for Licensed Software and Services.............. 23
6.2 Modifications to Charges.................................................. 23
6.3 Auto Payment.............................................................. 23
6.4 Payment Through Invoicing................................................. 24
6.5 Taxes..................................................................... 24
ARTICLE VII. TERMINATION
7.1 Termination for Cause..................................................... 25
7.2 Termination for Insolvency or Bankruptcy.................................. 26
7.3 Termination for Non-Payment............................................... 26
7.4 Termination of Software License........................................... 26
7.5 Rights Upon Termination................................................... 26
ARTICLE VIII. MISCELLANEOUS
8.1 Binding Nature, Assignment, and Subcontracting............................ 26
8.2 Counterparts.............................................................. 27
8.3 Headings.................................................................. 27
8.4 Authorized Agency......................................................... 27
8.5 Relationship of Parties................................................... 28
8.6 Confidentiality........................................................... 28
8.7 Media Releases............................................................ 28
8.8 Dispute Resolution........................................................ 28
8.9 Electronic Communications................................................. 29
8.10 Proposals and Special Projects............................................ 29
8.11 Governmental Customers.................................................... 29
8.12 International Business.................................................... 29
8.13 Compliance with Laws...................................................... 29
8.14 Labor..................................................................... 30
8.15 Export.................................................................... 30
8.16 Notices................................................................... 30
8.17 Force Majeure............................................................. 30
8.18 Severability.............................................................. 31
8.19 Waiver.................................................................... 31
8.20 Remedies.................................................................. 31
8.21 Survival of Terms......................................................... 31
8.22 Nonexclusive Market and Purchase Rights................................... 31
8.23 GOVERNING LAW............................................................. 31
8.24 Entire Agreement.......................................................... 32
</TABLE>
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<PAGE>
LIST OF EXHIBITS
EXHIBIT A
EDS BUSINESS PRACTICES
- ----------------------
EXHIBIT B
CHARGES, PRICES, AND FEES
- -------------------------
EXHIBIT C
THIRD PARTY SYSTEM ACCESS AGREEMENT
- -----------------------------------
EXHIBIT D
EDUCATION SERVICES
- ------------------
EXHIBIT E
DEVELOPMENT SERVICES
- --------------------
EXHIBIT F
RESELLER ACCESS AUTHORIZATION
- -----------------------------
EXHIBIT G
THIRD PARTY LETTER AGREEMENT
- ----------------------------
EXHIBIT H
END USER SOFTWARE LICENSE AGREEMENT
- -----------------------------------
iii
<PAGE>
SOFTWARE LICENSE AGREEMENT
--------------------------
THIS SOFTWARE LICENSE AGREEMENT (the "Agreement"), dated July 11, 1998 (the
"Effective Date"), is between CHORDIANT SOFTWARE, INC., a Delaware corporation
("Chordiant"), and ELECTRONIC DATA SYSTEMS CORPORATION, a Delaware corporation
("EDS").
W I T N E S S E T H:
WHEREAS, EDS desires to have the right to license computer software
programs and to obtain services from Chordiant for EDS' Centrobe business or
successor organizations as designated by EDS from time to time; and
WHEREAS, Chordiant is willing to provide computer software programs and
services to EDS in accordance with the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration received and to be received, Chordiant and EDS agree as
follows:
ARTICLE I. AGREEMENT, TERM, AND DEFINITIONS
--------------------------------------------
1.1 Agreement and Term. The parties agree that the terms and conditions of
------------------
this Agreement apply to Chordiant's provision of computer software programs
and services to EDS for EDS' Centrobe customers. The term of this
Agreement commences on the Effective Date and the Agreement shall continue
to be in effect until terminated by either party as set forth in this
Agreement.
1.2 Certain Definitions. The following definitions apply to this Agreement:
-------------------
(a) "Affiliate" means any entity controlling, controlled by or under
common control with either party. For purposes of this Agreement,
control means operational control in which the controlling entity has
either (i) fifty one percent (51%) or more of the equity interest, or
(ii) the maximum percentage of the equity interest allowed by local
law, based on the entity's location or state of incorporation, as
applicable, whichever is less.
(b) "Applicable Specifications" means the functional, performance,
operational, compatibility, and other specifications or
characteristics of a Product described in applicable Documentation and
such other specifications or characteristics of a Product agreed upon
in writing by the parties.
(c) "Documentation" means user guides, operating manuals, education
materials, product descriptions and specifications, technical manuals,
supporting materials, and other information provided, or to be
provided, by Chordiant to EDS relating to the Products or used in
conjunction with the Services, whether distributed in print, magnetic,
electronic, or video format, in effect as of the date (i) a Product is
shipped to or is accepted by EDS, as applicable, or (ii) the Service
is provided to EDS.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
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(d) "Employee" means those employees, agents, subcontractors, consultants,
and representatives of Chordiant provided or to be provided by
Chordiant to perform Services pursuant to this Agreement.
(e) "Licensed Software" means computer programs in object code (including
micro code) provided or to be provided by Chordiant pursuant to this
Agreement. The definition of Licensed Software also includes any
enhancements, translations, modifications, updates, releases, or other
changes to Licensed Software which are provided or to be provided as
part of Chordiant's performance of warranty Service obligations or
pre-paid support Services pursuant to this Agreement.
(f) "Products" means, individually or collectively as appropriate,
Licensed Software, Documentation, and Work Products (as later defined
in this Agreement), provided or to be provided by Chordiant pursuant
to this Agreement.
(g) "Services" includes, but is not limited to, installation, education,
acceptance testing, support, development, warranty, and time and
materials services, provided or to be provided by Chordiant pursuant
to this Agreement.
(h) "Site" means geographically contiguous buildings, each of which, in
whole or in part, is occupied or accessed by EDS or a customer of EDS.
"Geographically contiguous" means adjacent tracts or parcels of real
property separated, if at all, only by publicly dedicated rights of
way or private easements.
(i) "Source Code" means the instructions regarding the Licensed Software
expressed in the high-level technical and specialized programming
language in which the programmer wrote the software program.
(j) "Warranty Period" means the period specified in Section 5.1(e) of this
Agreement during which Chordiant is obligated to perform its warranty
obligations.
ARTICLE II. PURCHASE ORDERS
----------------------------
2.1 Preparation of Purchase Orders. Chordiant agrees that computer software
------------------------------
programs and services which Chordiant generally makes available to other
customers shall be made available to EDS under the terms and conditions of
this Agreement. EDS may reasonably request non-confidential information
about computer software programs and services in order to prepare purchase
orders and Chordiant shall promptly provide to EDS, at no charge,
sufficiently detailed non-confidential information which is responsive to
EDS' request. From time to time and/or at EDS' request, Chordiant shall
provide written information to EDS about computer software programs and
services, and new releases, versions or options related thereto, available
or to be available from Chordiant.
2.2 Issuance and Acceptance of Purchase Orders. References in this Section
------------------------------------------
to purchase orders also apply to alterations to Purchase Orders (as later
defined in this Section). The following governs the issuance and
acceptance of purchase orders under this Agreement:
(a) EDS may issue to Chordiant written purchase orders identifying the
Licensed Software and Services EDS desires to obtain from Chordiant.
Each purchase order may include
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
2
<PAGE>
other terms and conditions applicable to the Licensed Software and
Services ordered; such other terms shall be consistent with the terms
and conditions of this Agreement, or shall be necessary to place a
purchase order, such as billing and shipping information, required
delivery dates, installation locations, and Charges (as later defined
in this Agreement).
(b) Chordiant shall promptly accept purchase orders by providing to EDS a
written or an oral acceptance of such purchase order, or by commencing
performance pursuant to such purchase order. Chordiant shall accept
purchase orders which do not establish new or conflicting terms and
conditions from those set forth in this Agreement. Chordiant shall
also accept purchase orders incorporating terms and conditions which
have been separately agreed upon in writing by the parties.
Notwithstanding the forgoing, Chordiant shall have the right to reject
purchase orders for Services due to an inability to meet the delivery
or commencement dates set forth in such purchase orders by promptly
providing written notice to EDS of such inability and alternative
dates that can be met by Chordiant.
(c) Chordiant may reject a purchase order which does not meet the
conditions described in subsection (b) above by promptly providing to
EDS a written explanation of the reasons for such rejection. Chordiant
shall accept an alteration to the originally issued purchase order if
such alteration remedies the items set forth in Chordiant's written
rejection.
Purchase orders accepted in accordance with this Section are referred to as
"Purchase Orders." EDS shall have no responsibility or liability for
Licensed Software or Services provided without a Purchase Order so long as
EDS returns such Licensed Software to Chordiant, at Chordiant's expense.
2.3 Purchase Order Alterations. EDS may issue an alteration to a Purchase
--------------------------
Order in order to, without limitation, (i) change a location for delivery,
(ii) reasonably modify the quantity or type of Licensed Software and
Services to be delivered or performed, (iii) implement any reasonable
change or modification as required by or permitted in this Agreement, (iv)
correct typographical or clerical errors, or (v) order Licensed Software or
Services which are of superior quality, or are enhancements to or are new
releases or new options of the Licensed Software or Services set forth in
the Purchase Order. Notwithstanding the forgoing, Chordiant shall have the
right to reject purchase order alterations for Services due to an inability
to meet the delivery or commencement dates if such inability is caused by
such alteration, by promptly providing written notice to EDS of such
inability and alternative dates that can be met by Chordiant
2.4 Evaluation Purchase Orders. EDS may issue a purchase order to Chordiant for
--------------------------
Product evaluation by EDS in accordance with the following:
(a) The evaluation period shall not exceed thirty (30) days (the
"Evaluation Period") unless otherwise agreed upon by the parties in
writing.
(b) During the Evaluation Period, the Products shall be used by EDS in a
non-production environment.
(c) Chordiant shall provide the Products listed in the evaluation Purchase
Order to EDS and shall pay all related transportation costs.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
3
<PAGE>
(d) Licensed Software provided pursuant to an evaluation Purchase Order
shall be protected by EDS in accordance with the non-disclosure
requirements specified in this Agreement which are applicable to
Licensed Software.
(e) EDS and Chordiant must mutually agree to Services required during the
Evaluation Period, EDS shall pay Chordiant for such Services as per
the Charges listed in Exhibit B of this Agreement, or as mutually
agreed by the parties. If no agreement is reached as to the amount of
Services required then Chordiant may reject such Evaluation Purchase
Order.
(f) At the conclusion of the Evaluation Period, EDS shall have the option
of: (i) acquiring such Products pursuant to this Agreement, (ii)
returning such Products to Chordiant at EDS' expense without
obligation to Chordiant, and (iii) destroying all copies of such
Products.
(h) Products which Chordiant and EDS agree to be the subject of beta
testing by EDS shall be subject to a separate agreement between the
parties containing applicable beta test terms and conditions.
2.5 Cancellation of Purchase Orders. Except as otherwise agreed upon by the
-------------------------------
parties, EDS may cancel all or a portion of a Purchase Order relating to
Product(s), without charge or penalty up to ten (10) calendar days prior to
the scheduled delivery date of the affected Product(s). In the event EDS
cancels a Purchase Order or any portion thereof within ten (10) calendar
days of the scheduled delivery date, as Chordiant's sole and exclusive
remedy and EDS' sole liability, EDS shall reimburse Chordiant the direct,
verifiable, non-recoverable expenses incurred by Chordiant as a result of
such cancellation. Purchase Orders, or portions thereof, for Services may
be canceled as specified in the applicable sections of this Agreement.
ARTICLE III. PROVISION OF LICENSED SOFTWARE AND SERVICES
---------------------------------------------------------
3.1 General. EDS is entitled to obtain Licensed Software and Services for
-------
the benefit of and use by Affiliates of EDS if such use is on behalf of
EDS' Centrobe business. Such Affiliates and their respective employees are
entitled to use the Licensed Software and Services in accordance with this
Agreement and have and are entitled to all rights, benefits, and
protections granted to EDS pursuant to this Agreement with respect to such
Licensed Software and Services. However, an Affiliate of EDS shall only be
entitled to obtain Licensed Software and Services directly from Chordiant
pursuant to this Agreement if EDS so provides written notice to Chordiant.
EDS is responsible for compliance by its Affiliates with the terms and
conditions set forth in this Agreement. EDS and its Affiliates have the
right to transfer (pursuant to Section 4.3 "Transfer of Licensed
Software"), or remarket the Licensed Software and Services to third
parties.
3.2 Transportation of Licensed Software. Chordiant shall deliver Licensed
-----------------------------------
Software to EDS on the delivery date set forth in the applicable Purchase
Order or as otherwise agreed upon by the parties. Charges for
transportation of Licensed Software shall be paid by Chordiant. The method
and mode of all transportation shall be those selected by Chordiant.
3.3 Risk of Loss. All risk of loss of, or damage to, Licensed Software
------------
shall be borne by Chordiant until receipt of delivery of such Licensed
Software by EDS. Chordiant agrees to insure Licensed Software until
receipt of delivery of such Licensed Software by EDS. If loss to or damage
of
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
4
<PAGE>
Licensed Software occurs prior to receipt of delivery by EDS, Chordiant
shall immediately provide a replacement item or, if Licensed Software is
not immediately replaceable, Chordiant shall give EDS highest priority for
the provision of replacement Licensed Software.
3.4 Installation of Licensed Software. If installation is set forth in
---------------------------------
the governing Purchase Order or is included in the Charge for Licensed
Software, Chordiant shall install Licensed Software in good working order
at the designated location on or before the installation date set forth in
the applicable Purchase Order or as otherwise agreed upon by the parties.
Installation Services shall include performance of Chordiant's usual and
customary diagnostic tests to determine the operational status of the
Licensed Software. Chordiant shall inform EDS of any education Services
which are included with installation, and such education may be performed
at a time mutually agreed upon by Chordiant and EDS.
3.5 Right to Cancel for Delays. In the event of a delay in delivery of
--------------------------
all or any portion of Licensed Software listed on a Purchase Order or
Licensed Software listed on a series of Purchase Orders which relate to a
specific project or request for proposal (the Licensed Software listed on
such series of Purchase Orders referred to as "Related Licensed Software"),
or in the event of a delay in the performance of Services which is not
excused in this Agreement, EDS may cancel without charge all or any portion
of the Licensed Software, Related Licensed Software or Services for which
delivery or performance has been so delayed. If, in EDS' opinion, the
delivered Licensed Software or Related Licensed Software are not operable
without the remaining undelivered Licensed Software or Related Licensed
Software, EDS may, at Chordiant's expense, return any delivered Licensed
Software or Related Licensed Software to Chordiant. EDS shall not be
liable for any expenses incurred by Chordiant for canceled, undelivered, or
returned Licensed Software or Related Licensed Software. EDS shall receive
a refund of all amounts paid to Chordiant with respect to the canceled
and/or returned Licensed Software, Related Licensed Software and Services.
3.6 Resale of Products by EDS. During the term of this Agreement, EDS may
-------------------------
promote and resell Product licenses, in conjunction with EDS providing
systems integration, outsourcing or facilities management services to a
customer of EDS ("ITS Customer"), in accordance with the following terms
and conditions:
(a) Charges for Purchase Orders identified for resale of Product licenses
shall be as set forth in Exhibit B.
(b) For a Purchase Order not identified as subject to Auto Payment as
defined in Section 6.3, Chordiant may invoice EDS for resale products
upon delivery and payment will be made in accordance with the
provisions of Section 6.4, Payment Through Invoicing.
(c) Chordiant shall extend the same warranties and indemnifications, with
respect to Products resold by EDS hereunder, as Chordiant extends to
other end user customers.
(d) The term of agreements, warranties and indemnities extended by
Chordiant to an ITS Customer shall commence upon delivery of a Product
to an ITS Customer and the ITS Customer shall be governed by
Chordiant's then current End User Software License Agreement, which
may be changed by Chordiant from time to time but is substantially
similar to Exhibit H, from the delivery date to such ITS Customer. EDS
shall not resell Product without first obtaining an End User Software
License Agreement signed by Chordiant and ITS Customer.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
5
<PAGE>
(e) Chordiant shall make available to ITS Customers all training,
technical support and other services related to the Products that are
currently generally available or that may be generally available by
Chordiant to other end user customers.
(f) During the term that EDS is providing services to an ITS Customer, EDS
shall have authorized access to Licensed Software acquired under this
Section 3.6, in accordance with the provisions of Exhibit F, titled
"Reseller Access Authorization".
3.7 Time and Materials Services. If available from Chordiant, EDS may
---------------------------
obtain on a time and materials basis from Chordiant consulting, development
and other Services (excluding support Services which are provided pursuant
to other sections of this Agreement) agreed upon by the parties in
accordance with the terms and conditions set forth below.
(a) EDS may reasonably request on a purchase order the number and skill
levels of Employees to perform Services.
(b) During the course of performance of Services, EDS may request
replacement of an Employee or a proposed Employee. In such event,
Chordiant shall use best efforts to provide, within five (5) working
days of receipt of such request from EDS, a substitute Employee of
sufficient skill, knowledge, and training to perform the applicable
Services. If, after use of best efforts, Chordiant is unable to
provide such substitute Employee, EDS may, at its sole option, retain
the Services of said unacceptable Employee until such time as
Chordiant provides an acceptable substitute Employee. If, within the
first thirty (30) days after an Employee's commencement of Services,
EDS notifies Chordiant (i) such Employee's level of performance is
unacceptable, (ii) such Employee has failed to perform as required, or
(iii) such Employee, in EDS' sole opinion, lacks the skill, knowledge
or training to perform at the required level, then EDS shall not be
required to pay for Services provided by such Employee during such
period and Chordiant shall refund to EDS all amounts paid for such
Employee's Services; however, EDS shall pay for any Work Product
created by said Employee which EDS continues to use after the
replacement of said Employee and if EDS decides to retain the services
of said Employee because no acceptable substitute has been made
available, then EDS shall pay for any services performed after the
date of notice to Chordiant at a discounted rate mutually agreed to by
the parties. If EDS requests replacement of an Employee for the above-
referenced reasons after such thirty (30) day time period, or at any
time for a reason other than the reasons indicated above, EDS shall
not be required to pay for, and shall be entitled to a refund of, any
sums paid to Chordiant for such Employee's Services after the date of
EDS' requested replacement of such Employee.
(c) Chordiant shall not replace, without EDS' consent (which shall not be
unreasonably withheld or delayed), an Employee then currently
performing Services, for which the Employee is uniquely qualified,
this includes but is not limited to: (i) EDS has provided training to
said Employee to enable them to perform the Service, or (ii) EDS
specifically requested and Chordiant agreed to provide said Employee
to perform the Service; until the governing Purchase Order expires or
is terminated; however, Chordiant may replace, without EDS' consent,
an Employee for reasons relating to the Employee's termination with
Chordiant, promotion, demotion, illness, death, or causes beyond
Chordiant's control.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
6
<PAGE>
(d) EDS shall reimburse Chordiant for reasonable expenses incurred by
Employees in the performance of Services (if requested by EDS or
requested by Chordiant in advance and approved by EDS) which are
related to travel, lodging, and meals; such expenses shall be
reimbursed in accordance with EDS' guidelines for its own employees.
(e) Chordiant shall establish and shall retain, for a period of three (3)
years following the performance of time and materials Services,
records which adequately substantiate the applicability and accuracy
of Charges for such Services and related expenses to EDS. Upon
receipt of thirty (30) days advance notice from EDS, Chordiant shall
produce such records for audit by EDS subject to the confidentiality
provisions of this Agreement.
(f) Purchase Orders for Services provided or to be provided under this
Section may be canceled at any time without charge or penalty, upon
five (5) business days advance written notice to Chordiant, provided
that EDS shall pay for Services already performed prior to the
effective date of such notice.
3.8 Services in General. In connection with the performance of any
-------------------
Services pursuant to this Agreement:
(a) Unless a specific number of Employees is set forth in the governing
Purchase Order, Chordiant warrants it will provide sufficient
Employees to complete the Services ordered within the applicable time
frames established pursuant to this Agreement or as set forth in such
Purchase Order; however, it shall be considered an excused delay if
EDS changes the technical specifications associated with such
Services, then EDS and Chordiant shall set new time frames based upon
such changed technical specifications.
(b) Chordiant warrants that Employees shall have sufficient skill,
knowledge, and training to perform Services and that the Services
shall be performed in a professional and workmanlike manner.
(c) Employees performing Services in the United States must be United
States citizens or lawfully admitted in the United States for
permanent residence or lawfully admitted in the United States holding
a visa authorizing the performance of Services on behalf of Chordiant.
(d) Chordiant warrants that all Employees utilized by Chordiant in
performing Services are under a written obligation to Chordiant
requiring Employee: (i) to maintain the confidentiality of information
of Chordiant's customers, and (ii) if such Employee is not a full-time
employee whose work is considered a "work for hire" under Section 101
of the United States Copyright Code, to assign all of Employee's
right, title, and interest to Chordiant in and to any Work Product
which is developed, prepared, conceived, made, or suggested by such
Employee while providing Services on behalf of Chordiant.
(e) Chordiant shall require Employees providing Services at an EDS
location to comply with applicable EDS security and safety regulations
and policies.
(f) Chordiant shall provide for and pay the compensation of Employees and
shall pay all taxes, contributions, and benefits (such as, but not
limited to, workers' compensation benefits) which an employer is
required to pay relating to the employment of employees. EDS shall not
be liable to Chordiant or to any Employee for Chordiant's failure to
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
7
<PAGE>
perform its compensation, benefit, or tax obligations. Chordiant
shall indemnify, defend and hold EDS harmless from and against all
such taxes, contributions and benefits and will comply with all
associated governmental regulations, including the filing of all
necessary reports and returns.
(g) Chordiant shall allow EDS or its designated third party to conduct a
background investigation and drug screening ("Investigation"), in
accordance with applicable law, of any Employee performing Services
in the United States, Canada and Mexico if EDS intends to provide
the Employee with unescorted access to an EDS location. If an
Employee declines such Investigation, the parties agree such
Employee will not be allowed unescorted access to an EDS location;
furthermore, Chordiant will contact other Employees with suitable
training to see if they will agree to such Investigation. It will
not be a breach of this Agreement if Chordiant has used reasonable
efforts to request such Investigation of all suitable Employees and
Chordiant is unable to supply a suitable Employee willing to undergo
such Investigation. In connection with such Investigation EDS shall
provide to Chordiant a standard form authorizing the Investigation
and Chordiant shall promptly secure the completion of such form by
the Employee. Any and all information obtained in connection with an
Investigation of any Employee or acquired or made known during such
Investigation shall be deemed confidential and shall not be revealed
to persons without a bona fide need to know. If, after reviewing the
results of an Investigation, EDS elects not to accept an Employee
for performance of Services under this Agreement, Chordiant agrees
to not utilize such Employee in the performance of Services. EDS
shall waive the Investigation for an Employee if Chordiant provides
EDS with written confirmation that: (i) Chordiant has conducted a
background and drug screening investigation of such Employee with
satisfactory results, or (ii) the Employee has been employed with
Chordiant for at least five (5) years in good standing.
3.9 Ownership of Intellectual Property Rights. (a) For purposes of this
-----------------------------------------
Agreement, the following definitions apply:
(i) "Work Product(s)" means (in any form including Source Code) any and
all processes, methods, formulas, manufacturing techniques, mask
works, reports, programs, manuals, software, flowcharts and systems
and any improvements, enhancements, or modifications to any of the
foregoing, which are developed, prepared, conceived, or made by any
Employee or by Chordiant as part of, in connection with, or in
relationship to the performance of Services (except in connection
with Chordiant's performance of warranty Service obligations or
pre-paid support Services) pursuant to this Agreement. Work Products
also means all such developments as are originated or conceived
during the term of this Agreement but are completed or reduced to
practice thereafter.
(ii) "Existing Materials" means any confidential or proprietary materials
which belong to third parties or in which Chordiant has a
pre-existing intellectual property interest.
(iii) "Ownership Rights" includes: (A) all rights, title and interests,
and all United States and foreign intellectual property rights such
as, but not limited to, patent, trade secret, and copyright; (B) the
right to use, duplicate, and disclose Work Products and Work Product
data, in whole or in part, in any manner and for any purpose and to
authorize others to do so; (C) the exclusive right to prepare
derivative works of Work Products and of any portion thereof, with
full rights to authorize others to do the same; (D) the right to
exploit Work Product, whether or not for profit; (E) the right to
use, market or take any other
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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measures without attribution to another party; (F) the right to
register ownership interest in a Work Product without contest or
assertion of a competing ownership interest in such Work Product by
another party; and, (G) all "moral rights" in and to Work Products.
(b) Chordiant shall disclose promptly and cause Employees to disclose
promptly in writing to EDS all Work Products; as to each such
disclosure, such Employee and/or Chordiant shall specifically describe
to EDS the features or concepts considered new or different.
(c) It is the intent of the parties that EDS shall have all Ownership
Rights in and to Work Products; however, if Chordiant desires
ownership in Work Product, it must be mutually agreed upon in writing
by the parties. In order to accomplish such intent, Chordiant (i)
shall make and shall ensure that each Employee makes, without
reservation, a non-terminable, irrevocable assignment to EDS of any
and all Ownership Rights that Employees and/or Chordiant may have in
or to such Work Product or any tangible media embodying such Work
Product, and (ii) shall provide to EDS and shall ensure that each
Employee provides such assignment prior to or concurrently with the
provision of the affected Work Product to EDS. If Chordiant and/or
Employees have any termination rights under law, then upon exercise of
such termination rights, Chordiant shall automatically grant and
Chordiant shall ensure that Employee grants, and EDS shall have an
irrevocable, royalty-free, paid-up, worldwide, perpetual license to
use the Work Product in the same manner, and for the same purposes as
EDS did and was entitled to do prior to such termination. Except as
necessary to perform Services or as agreed upon by the parties in a
supplemental agreement entered into in accordance with this Agreement,
Chordiant and Employees shall not exercise any Ownership Rights in and
to the Work Product, and hereby waive and agree not to assert any or
all "moral rights" in and to the Work Product, even after the
termination or expiration of this Agreement.
Unless otherwise agreed by the parties, EDS shall have no Ownership
Rights with respect to any underlying ideas or concepts provided by
Chordiant during the performance of Services.
3.10 Use of Existing Materials. To the extent that Work Product(s) under
-------------------------
development may incorporate or require the use of Existing Materials, or to
the extent Chordiant intends, in its performance of Services, to utilize
any such Existing Materials (except as such are utilized by Chordiant in
the performance of warranty Service obligations or pre-paid support
Services), Chordiant shall: (i) notify EDS of such intent prior to
commencement of performance of Services; (ii) identify to EDS the ownership
of such Existing Materials; (iii) describe the use to which Chordiant
intends to put such Existing Materials; and (iv) explain Chordiant's
ability to proceed with performance of the Services without the use of such
Existing Materials. EDS may require that Chordiant perform Services without
the use of such Existing Materials. If any such Existing Material is owned
by a third party and/or is used in the performance of Services, Chordiant
warrants that it has acquired all licenses and authorizations necessary to
utilize the Existing Material in the manner and for the purpose intended by
Chordiant in its actual use of such Existing Material in the performance of
Services. To the extent that Existing Materials are incorporated in Work
Products, Chordiant grants to EDS and its Affiliates a royalty-free,
irrevocable, worldwide, non-exclusive, perpetual right to use, modify and
prepare derivative
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
9
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works of such Existing Materials and to use and display such Existing
Materials, with full rights to authorize others to do the same but only to
the extent required to utilize the Work Product in accordance with the
Ownership Rights granted in this Agreement, unless otherwise agreed to in
writing by the parties for specific Work Product(s).
3.11 Further Acts. During and subsequent to the term of this Agreement,
------------
Chordiant shall do, or cause to be done, all such further acts and shall
execute, acknowledge, and deliver, or cause to be executed, acknowledged,
and delivered, any and all further documentation or assignments as EDS may
reasonably require to evidence or perfect EDS' right to use, or Ownership
Rights in, as the case may be, Licensed Software or Work Products.
3.12 Time of Performance. Time is expressly made of the essence with respect to
-------------------
each and every term and provision of this Article.
3.13 EDS Business Practices. Chordiant shall comply with the EDS Business
----------------------
Practices set forth in Exhibit A.
3.14 Education Services. Education Services (as later defined) provided or to be
------------------
provided by Chordiant pursuant to this Agreement shall also be subject to
the terms and conditions set forth in Exhibit E.
3.15 Development Services. Development Services provided or to be provided by
--------------------
Chordiant pursuant to this Agreement shall also be subject to the terms and
conditions set forth in Exhibit F unless otherwise agreed to in writing by
the parties.
ARTICLE IV. PROVISION OF LICENSED SOFTWARE
-------------------------------------------
4.1 Acceptance of Licensed Software. EDS shall accept delivered copy(ies) of
-------------------------------
the Licensed Software on the date (the "Acceptance Date") when necessary
Documentation has been received and (i) the Licensed Software performs in
accordance with and/or conforms to its Applicable Specifications, (ii) the
Licensed Software is used in a production environment, or (iii) on the
ninetieth (90th) day after receipt of the Licensed Software by EDS,
whichever occurs first. If, within such ninety (90) day period, EDS
determines that the Licensed Software does not so perform and/or conform,
EDS shall so notify Chordiant in writing and Chordiant shall have thirty
(30) days from receipt of such notice to correct any non-conforming and/or
non-performing features. If, after such thirty (30) day cure period, EDS
determines that such Licensed Software still fails to perform in accordance
with and/or conform to its Applicable Specifications, EDS may return the
Licensed Software and related Documentation to Chordiant, at Chordiant's
expense and without liability to Chordiant, and any amounts paid by EDS for
the Licensed Software and Documentation shall be refunded by Chordiant to
EDS. Acceptance of Licensed Software does not waive any warranty rights
provided in this Agreement for the Licensed Software.
4.2 Grant of License. For each item of Licensed Software received by EDS,
----------------
Chordiant grants EDS and EDS has a worldwide, nonexclusive, irrevocable
(except as provided in this Agreement), perpetual license to use, execute,
store, and display the object code version of the Licensed Software, on
behalf of EDS' Centrobe business and customers of EDS' Centrobe business (a
"License") in accordance with the terms and conditions of this Agreement.
All Licenses shall be deemed to be a Site Software License.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(a) A "Site Software License" permits EDS to use the Licensed Software at
the Site designated in the Purchase Order and to copy the Licensed
Software as necessary for dissemination at the Site and for archival,
maintenance, disaster recovery testing, or back-up purposes.
Notwithstanding the foregoing, the Licensed Software may be used at
other than the designated Site, if (i) the designated Site cannot be
used, (ii) the designated Site is replaced or changed by EDS, or (iii)
EDS provides Chordiant with prior written notice. If EDS desires to
run parallel operations in the process of conducting a disaster
recovery test or transferring operations from one Site to another
Site, EDS may operate the Licensed Software at two (2) Sites for the
period of time reasonably necessary to complete the disaster recovery
test or transfer.
(b) "Runtime Client Licenses" (seats) are not restricted to the Site,
i.e., can be located anywhere in the World interfacing with a Site
Software License, but distribution is limited to the number of Runtime
Client Licenses actually ordered on the applicable Purchase Order.
(c) Any License granted under this Agreement permits EDS to (i) use
Licensed Software for its corporate purposes including, but not
limited to, providing services to or processing data of customers of
EDS' Centrobe business, providing remote access to the Licensed
Software, and performing disaster recovery, disaster testing, and
backup as EDS deems necessary, and (ii) use, copy and modify Licensed
Software and Documentation for the purpose of creating and using
training materials relating to the Licensed Software, which training
materials may include flow diagrams, system operation schematics, or
screen prints from operation of the Licensed Software. Access to and
use of the Licensed Software by customers of EDS shall be considered
authorized use under this Section so long as such use is in
conjunction with EDS' provision of services to, or EDS' processing the
data of, such customers, and so long as any such customers are bound
by obligations of confidentiality.
(d) Unless the Third Party Letter Agreement, attached as Exhibit G has
been executed, any License granted under this Agreement which includes
the right to use the Forte Software, Inc. ("Forte") software embedded
therein pursuant to the agreement between Chordiant and Forte shall be
deemed to include the following provisions:
(i) A provision which restricts use of the Licensed software to a
maximum number of users and/or nodes and/or servers, specified
geographic location, designated call center and computer/operating
system configuration for EDS' own internal business purposes only.
(ii) A provision which prohibits transfer or duplication of the Software
except for temporary transfer in the event of a computer
malfunction and a reasonable number of backup or archival copies.
All titles, trademarks and copyright and restricted rights notices
shall be reproduced in such copies.
(iii) A provision which prohibits assignment, timesharing or rental of
the Licensed Software.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
(iv) A provision which prohibits any use of the software outside the
scope of the Licensed Software.
(v) A provision which prohibits causing or permitting the reverse
engineering, disassembly, decompilation or any other attempt to
derive Source Code of the Licensed Software, except as and to the
extent permitted under applicable law.
(vi) A provision which prohibits title to the Software from passing to
EDS.
(vii) A provision disclaiming Chordiant's suppliers' liability for any
damages, whether direct, indirect, incidental or consequential.
(viii) A provision which requires EDS, at termination of the Sublicense,
to discontinue use and return or destroy all copies of the
Software and Documentation.
(ix) A provision which restricts publication of any results of
benchmark tests run on the Licensed Software.
(x) A provision which requires EDS to comply fully with all relevant
export laws and regulations of the United States, to ensure that
neither the Licensed Software, nor any direct product thereof, is
exported, directly or indirectly, in violation of United States
or other applicable law.
(xi) A provision which allows Chordiant, at Chordiant's expense, to
audit EDS' use of the Licensed Software. If the audit reveals
that EDS has underpaid fees to Chordiant, EDS shall be invoiced
directly for such underpaid fees based on the Chordiant Price
List in effect at the time the audit is completed. If the
underpaid fees are in excess of five percent (5%), then EDS shall
pay Chordiant's reasonable costs of conducting the audit.
(xii) A provision which states that the Licensed Software is not
specially developed, or licensed for use in any nuclear,
aviation, mass transit or medical application or in any other
inherently dangerous application; that EDS agrees that Chordiant
and its suppliers shall not be liable for any claims or damages
arising from EDS' use of the Licensed Software for such
applications; and that EDS agrees to indemnify and hold Chordiant
and its suppliers harmless from any claims for losses, costs,
damages or liability arising out of or in connection with the use
of the Licensed Software in such applications.
(xiii) A provision that Forte is a third party beneficiary of the
portions of this Agreement relating to any Forte software.
In the event of any conflict between the terms of this Section
4.2(d) and any other section of this Agreement, this Section 4.2(d)
shall control.
(e) Restrictions on Use. EDS agrees not to translate the Licensed
Software into another computer language, in whole or in part. Except
as provided in this Agreement, EDS shall not make copies or make
media translations of the Products, in whole or in part, without
Chordiant's prior written approval. EDS agrees that if, for any
reason, it comes into possession of any Source Code outside the
terms of this Agreement, or portion thereof,
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
for any Chordiant product, it will immediately deliver all copies of
such Source Code to Chordiant. EDS shall not rent, electronically
distribute or timeshare the Licensed Software or distribute the
Licensed Software by interactive cable or remote processing services
or otherwise distribute the Licensed Software other than as
specified in this Agreement. EDS acknowledges Chordiant's claim that
the Licensed Software contains trade secrets that belong to
Chordiant and its suppliers. Except as permitted under the Section
of the Agreement titled "Provision of Source Code", EDS shall not
disassemble, de-compile, or reverse engineer the Licensed Software.
Nothing contained in this Agreement shall be interpreted so as to
exclude or prejudice the rights (if any) of EDS or any End User
under the European Directive 91/250 on the Legal Protection of
Computer Programs (14 May 1991, OJ 1991 (122/42) as implemented in
the relevant jurisdiction) with respect to the Licensed Software.
The governing License also includes the right to use the Source Code
version of Licensed Software in accordance with the terms and conditions of
the Section of this Agreement titled "Provision of Source Code."
4.3 Transfer of Licensed Software. During the performance or upon termination
-----------------------------
of a contract with an EDS customer or upon any transfer of equipment
incorporating Licensed Software to a third party (such customers and third
parties referred to as "Transferee"), (i) EDS may sublicense the applicable
Licensed Software to such Transferee pursuant to terms and conditions
similar to those contained in this Article (excluding the right to
sublicense or assign), (ii) the applicable License (excluding the right to
sublicense or assign) may be assigned to such Transferee, or (iii) upon
request by EDS, the Licensed Software will be licensed directly by
Chordiant to such Transferee in accordance with the terms and conditions of
Chordiant's standard software license agreement or as agreed upon by
Chordiant and Transferee. Any assignment or sublicensing of Licensed
Software in accordance with this Section shall be at no additional charge
to EDS or Transferee, and EDS shall have no further liability or
responsibility with respect to Licensed Software under (ii) or (iii) above.
4.4 Ownership of Licensed Software and Modifications. The Licensed Software
------------------------------------------------
shall be and remain the property of Chordiant or third parties which have
granted Chordiant the right to license the Licensed Software and EDS shall
have no rights or interests therein except as set forth in this Agreement.
EDS shall be entitled to modify the Licensed Software and to develop
software interfacing with the Licensed Software. All modifications of and
interfaces to the Licensed Software developed by EDS shall be and remain
the property of EDS, and Chordiant and its Employees shall have no rights
or interests therein. Except in connection with Chordiant's performance of
warranty Service obligations or pre-paid support Services, all
modifications of and interfaces to the Licensed Software developed at EDS'
expense by Chordiant and its Employees shall be considered Work Product and
EDS shall have rights in such Work Product as established in the Section
titled "Ownership of Intellectual Property Rights" elsewhere in this
Agreement.
Upon payment of the development software license fees set forth in the
then-current price list (reduced by any applicable discounts), EDS shall
have a non-exclusive license to use the development software at one (1)
development center per development license for the sole purpose of
providing development, customization and integration services for EDS
Customers who have already entered into a Chordiant End User Software
License Agreement or an EDS customer agreement. All such modifications of
the Licensed Software developed by EDS shall be and remain the property of
EDS.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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Chordiant will provide support Services for modifications owned by EDS on a
case-by-case basis under terms mutually agreed to in writing by the
parties.
4.5 Proprietary Markings. EDS shall not remove or destroy any proprietary
--------------------
markings or proprietary legends placed upon or contained within the
Licensed Software.
4.6 Duplication of Documentation. EDS may duplicate Licensed Software
----------------------------
Documentation, at no additional charge, for EDS' use or for use by a
customer of EDS in connection with the provision of Licensed Software so
long as all required proprietary markings are retained on all duplicated
copies.
4.7 Non-Disclosure. For the longer of, (i) the term of a License, or (ii) for
--------------
as long a EDS retains backup copies of the Licensed Software associated
with said License, and for two (2) years after, EDS will treat the Licensed
Software with the same degree of care and confidentiality which EDS
provides for similar information belonging to EDS which EDS does not wish
disclosed to the public, but not less than reasonable care. This provision
shall not apply to Licensed Software, or any portion thereof, which is (i)
already known by EDS without an obligation of confidentiality, (ii)
publicly known or becomes publicly known through no unauthorized act of
EDS, (iii) rightfully received from a third party without obligation of
confidentiality, (iv) disclosed without similar restrictions by Chordiant
to a third party, (v) approved by Chordiant for disclosure, or (vi)
required to be disclosed pursuant to a requirement of a governmental agency
or law so long as EDS provides Chordiant with timely prior written notice
of such requirement. It will not be a violation of this Section if (A) EDS
provides access to and the use of the Licensed Software to third parties
providing services to EDS so long as EDS secures execution by such third
parties of a confidentiality agreement as would normally be required by
EDS, or (B) EDS independently develops software which is similar to
Licensed Software, so long as such independent development is substantiated
by written documentation.
4.8 Licensed Software Support Services. The support Services set forth below
----------------------------------
for the Licensed Software shall be provided by Chordiant to EDS during the
Warranty Period at no charge to EDS. Thereafter, such support Services
shall be provided by Chordiant, upon EDS' request, for either a fixed or
open-ended term, at the applicable Charges set forth in Exhibit B, upon the
terms contained in the next Section. EDS may discontinue such support
Services at any time by providing thirty (30) days' advance written notice
to Chordiant. If such support Services were provided by Chordiant for an
open-ended term, EDS shall promptly receive a refund of pre-paid support
Charges which reflects the amount for discontinued support Services after
the effective date of the notice.
(a) Chordiant shall promptly notify EDS of any defects, errors or
malfunctions ("Defects") in the Licensed Software or Documentation of
which Chordiant becomes aware from any source and shall promptly
provide to EDS modified versions of Licensed Software or Documentation
which incorporate corrections of any Defects ("Corrections").
Chordiant shall also provide to EDS all operational and support
assistance necessary to cause Licensed Software to perform in
accordance with its Applicable Specifications and remedial support
designed to provide a by-pass or temporary fix to a Defect until the
Defect can be permanently corrected. Chordiant shall use its best
efforts to respond to requests from EDS for Licensed Software support
in a manner and time frame which are reasonably responsive considering
the nature and severity of the Defect which gave rise to such request.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(b) Chordiant shall provide to EDS all changes to Licensed Software
developed by Chordiant which are generally made available to other
customers of Chordiant. Such changes could be designated as an Update
or Enhancement as follows:
(i) Chordiant shall provide to EDS any improvement or update to the
Licensed Software which is denoted by Chordiant by a change to
the tenths digit to the right of the decimal point in the then-
current version number of the Licensed Software [x.(x)] (an
"Update"). EDS shall have the option to implement any Update and
any failure by EDS to so implement shall not affect EDS' right to
continue to receive support and maintenance Services; provided
that all applicable support Service fees have been paid.
(ii) Chordiant shall provide to EDS any improvement or update to the
Licensed Software which is denoted by Chordiant by a change to
the digit to the left of the decimal point in the then-current
version number of the Licensed Software [(x).x] (an
"Enhancement"). EDS shall have the option to implement any
Enhancement; however, EDS' only has the right to continue to
receive support Services if it is on the most current Enhancement
or the one just prior to such most current Enhancement; provided
that all applicable support Service fees have been paid. If EDS
stops support Services and is not operating on the most current
Enhancement or the one just prior to such most current
Enhancement, and wishes to resume support Services, EDS must
bring its support Service payments current and install the most
current Enhancement; i.e., EDS did not pay support Services for
three (3) years and the Licensed Software EDS is running is
version 2.0, but the current version is 7.0, EDS would have to
pay for those prior three (3) years plus the current year and
implement Enhancements required to be bring such Licensed
Software to version 7.0. The ability to bring support Services
current is contingent on Chordiant still offering support
Services for such Licensed Software.
If EDS is no longer receiving support Services for a specific
Product(s), and Chordiant is considering whether to stop offering
support Services for said Product(s), Chordiant shall notify EDS
they are considering such decision and provide EDS with one (1)
month to become current on support Service payments for such
Product(s). This will allow EDS to either (i) be eligible for
receipt of Source Code through escrow if Chordiant's decision is
in fact to stop providing support Services for said specific
Product(s), or (ii) begin receiving support Services for said
Product(s) at whatever level of support Services Chordiant is
offering at the time.
(c) Chordiant offers two levels of support Services, (i) Standard, which
provides telephone hot-line support twenty-four (24) hours per day,
five (5) days per week; and (ii) Premium, which provides telephone
hot-line support twenty-four (24) hours per day, seven (7) days per
week. The applicable Charges for such support Services are set forth
in Exhibit B.
The severity assigned to a problem will be designated by EDS and will
determine the response time and associated time to fix the problem or
provide a work-around by Chordiant. The priority assigned will be
reviewed by Chordiant for potential re-classification. However, any
such re-classification shall be upon mutual agreement by the parties.
The problem severity levels and associated times follows:
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(i) Severity 1 - Critical. A problem that affects the behavior of
the Licensed Software, software system, or application such
that: 1) an essential marketed product, component, concept, and
or function is missing or cannot be completed, or 2) a user
cannot complete essential operations, or 3) the work in progress
terminates/crashes causing loss of data, with no known work-
around.
Response time - within one (1) hour
Time to fix or provide a work-around - within twenty four (24)
hours of the problem being reported.
(ii) Severity 2 - Serious. A problem that affects the behavior of the
Licensed Software, software system, or application such that: 1)
essential performance and/or functionality may be missing, or
may be degraded, or 2) degradation of system performance and/or
functionality imposes unreasonable constraints on users. These
problems normally prevent the continuation of work in progress.
Response time - within eight (8) hours
Time to fix or provide a work-around - within two (2) working
days of the problem being reported.
(iii) Severity 3 - Problem. A Licensed Software problem that is a user
inconvenience or annoyance and which may represent a loss of
non-essential capability or is not required for essential
operations or functional capability. The problem may adversely
affect the user's accomplishment of an essential operation or
functional capability. Examples of problems in this
classification include, but are not limited to: functions that
do not operate as documented/expected, unanticipated results
from an operation, or functional documentation errors.
Response time - within five (5) working days
Time to fix or provide a work-around - within fifteen (15)
working days of the problem being reported.
(iv) Severity 4 - Minor. A Licensed Software problem that is a user
inconvenience or annoyance and which does not affect an
operational or essential functional capability. This
classification is for problems that generally are annoyances,
non-functional documentation or non-user friendly applications
and/or documentation.
Response time - within fifteen (15) working days
Time to fix or provide a work-around - next product or
documentation release.
(v) Severity 5 - Other. All other problems, errors, defects and
change requests not covered severity categories 1 through 4.
Response time - within thirty (30) working days
Time to fix or provide a work-around - no commitment, to be
determined on a case-by-case basis.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(d) Chordiant shall provide to EDS any revisions to the existing
Documentation developed for the Licensed Software or necessary to
reflect all Corrections, Improvements, or Updates.
(e) Chordiant shall make Licensed Software training available to persons
designated by EDS to the extent agreed upon by the parties.
(f) If the applicable Charge for Licensed Software is payable on a
periodic basis, and such Charge includes provision of support
Services, then if an Event of Default as described in the Section of
this Agreement titled "Provision of Source Code" occurs or an event
described in the Section of this Agreement titled "Termination for
Insolvency or Bankruptcy" occurs and if Chordiant fails to provide the
support Services described above, then EDS' Charge for the affected
Licensed Software shall be immediately reduced to reflect such failure
by subtracting that portion of the Charge allocable to the provision
of support Services.
4.9 Licensed Software Support Services Options. EDS may obtain the support
------------------------------------------
Services described in the previous Section for Licensed Software on a
central site support basis and/or on an individual site support basis. In
the absence of a designation of central or individual site support in a
Purchase Order, such support shall be deemed to be individual site support.
The Charges for each option shall be as set forth in Exhibit B or as
otherwise agreed upon by the parties. Where "central site support" is
requested, support Services shall be provided by Chordiant to and shall be
requested by EDS through a single point of contact identified by EDS on a
Purchase Order. To the extent necessitated by geographic diversity or where
required in order to support multiple time zones, EDS may designate
multiple central site support locations. With respect to central site
support, Chordiant shall provide to EDS one master disk and one copy of all
Documentation relating to each Correction, Improvement, or Update. EDS
shall be entitled to copy the disk and Documentation and distribute the
copies or electronically transmit the copied information to each location
supported by the central site. A designation of central site support shall
not prevent an individual user of Licensed Software from contacting
Chordiant in the event of a Severity 1 call. Where "individual site
support" is requested, support Services shall be provided by Chordiant to
the applicable licensed CPU, Site, or Network, or, in the case of a
Corporate Software License, to a licensed user.
4.10 Provision of Source Code. EDS' ability to utilize adequately Licensed
------------------------
Software will be seriously jeopardized if Chordiant fails to maintain or
support such Licensed Software unless complete Source Code and related
Documentation is made available to EDS for EDS' use in satisfying EDS'
maintenance and support requirements. Therefore, Chordiant agrees that if
an "Event of Default" occurs, then Chordiant will provide to EDS one copy
of the most current version of the Source Code for the affected Licensed
Software and associated Documentation in accordance with the following:
(a) An Event of Default shall be deemed to have occurred if Chordiant: (i)
ceases to market or make available maintenance or support Services for
the Licensed Software during a period in which EDS has a License or
Licenses and is receiving, or is entitled to receive as per Section
4.8 of this Agreement, such maintenance and support for such
License(s) and Chordiant has not promptly cured such failure despite
EDS' demand that Chordiant make available or perform such maintenance
and support, (ii) ceases business operations generally or (iii) has
transferred all or substantially all of its assets or obligations set
forth
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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in this Agreement to a third party which has not assumed all of the
obligations of Chordiant set forth in this Agreement.
(b) Chordiant will promptly and continuously update and supplement the
Source Code as necessary with all revisions, Corrections,
enhancements, and other changes developed for the Licensed Software
and Documentation. Such Source Code shall be in a form suitable for
reproduction and use by computer and photocopy equipment, and shall
consist of a full source language statement of the program or programs
comprising the Licensed Software and complete program maintenance
Documentation which comprise the pre-coding detail design
specifications, and all other material necessary to allow a reasonably
skilled programmer or analyst to maintain and enhance the Licensed
Software without the assistance of Chordiant or reference to any other
materials.
(c) Source Code received under this Section becomes a part of Licensed
Software. The governing License for the Licensed Software includes the
right to use Source Code received under this Section as necessary to
modify, maintain, and update the Licensed Software.
(d) Upon request by EDS, Chordiant will deposit in escrow with an escrow
agent acceptable to EDS and pursuant to a mutually acceptable escrow
agreement supplemental to this Agreement, a copy of the Source Code
which corresponds to the most current version of the Licensed Software
in use by EDS. EDS shall pay all fees of the escrow agent for services
provided. Chordiant's entry into, or failure to enter into, an
agreement with an escrow agent or to deposit the described materials
in escrow shall not relieve Chordiant of its obligations to EDS
described in this Section.
(e) If, as a result of an Event of Default, Chordiant fails to provide
required support Services, then any periodic license fee which EDS is
required to pay under this Agreement for Licensed Software shall be
reduced to reflect such lack of support Services. At such time as
Chordiant commences offering the support Services described in this
Agreement for Licensed Software, EDS may obtain such support Services
as provided for elsewhere in this Agreement.
4.11 Acquisition of Third Party Software. If EDS has acquired software products
-----------------------------------
from a third party and rights to such software products are subsequently
acquired by Chordiant (whether through purchase of the third party in whole
or in part, through purchase of the software products, through acquisition
of the rights to market the software, or through any other means), then EDS
shall have the option of (i) continuing to use the software products under
the original license agreement with such third party at no additional
charge to EDS other than applicable fees identified in such license
agreement, or (ii) using the software products under the terms and
conditions of this Agreement.
4.12 Software from an Authorized Third Party. If EDS acquires Chordiant's
---------------------------------------
software products from a value added reseller, dealer, distributor, or
other Chordiant authorized third party provider or if the Licensed Software
is embedded in software products acquired from a third party, Chordiant
agrees that, at EDS' option, such software products shall be deemed to have
been acquired under this Agreement.
4.13 Software Audit.
--------------
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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Upon sixty (60) days advance notice from Chordiant, and no more often than
once in any twelve (12) month period, Chordiant may audit EDS' use of the
Chordiant Licensed Software solely to verify EDS has not exceeded the
number of Licenses EDS has purchased. Said audit will be conducted by a
third party audit professional selected by Chordiant with the prior written
consent of EDS, during normal business hours, and not disrupt EDS'
business. Chordiant shall be responsible for the fees and costs of such
audit. If EDS has exceeded the number of Licenses it has purchased,
Chordiant's sole and exclusive remedy will be to have EDS purchase the
additional Licenses required to equal actual usage.
ARTICLE V. WARRANTIES, INDEMNITIES, AND LIABILITIES
----------------------------------------------------
5.1 Warranty. Chordiant represents and warrants that:
--------
(a) Chordiant has not and will not enter into agreements or commitments
which are inconsistent with or conflict with the rights granted to EDS
in this Agreement;
(b) No portion of the Products contain, at the time of delivery, any "back
door," "time bomb," "Trojan horse," "worm," "drop dead device,"
"virus," or other computer software routines or hardware components
designed to (i) permit access or use of either the Products or EDS'
computer systems by Chordiant or a third party not authorized by this
Agreement, (ii) disable, damage or erase the Products or data, or
(iii) perform any other such actions;
(c) The Products and the design thereof shall not contain preprogrammed
preventative routines or similar devices which prevent EDS from
exercising the rights set forth in Article IV of this Agreement or
from utilizing the Products for the purpose for which they were
designed;
(d) The media containing each Product shall be new and free from defects
in manufacture, materials, and design. Each Product and its media
shall function properly under ordinary use and operate in conformance
with its Applicable Specifications and Documentation from the date of
receipt until the date thirty (30) days from the applicable Acceptance
Date of such Product;
(e) The Products are, and shall continue to be as long as EDS is receiving
support Services, data, program, and upward compatible with any other
Products available or to be available from Chordiant so that data
files created for a Product can be utilized without adaptation with
other Products and Products will operate with other Products and will
not result in the need for alteration, emulation, or other loss of
efficiency. Chordiant shall provide to EDS at least ninety (90) days
prior written notice to discontinue any Product; and
(f) Neither the performance nor the functionality of the Products will be
affected by any changes to the date format or date calculations within
any part of the Product either before, during or after the year 2000.
During the Warranty Period, Chordiant will provide warranty Service to EDS
at no additional cost and will include all Services or replacement Products
or Product media necessary to enable Chordiant to comply with the
warranties set forth in this Agreement. Chordiant shall pass
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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through to EDS any manufacturers' warranties which Chordiant receives on
the Products and, at EDS' request, Chordiant shall enforce such warranties
on EDS' behalf. Chordiant agrees that EDS shall be entitled to pass through
to Product end users any warranties received from Chordiant for such
Products pursuant to this Agreement.
EXCEPT AS SET FORTH IN THIS AGREEMENT, CHORDIANT EXPRESSLY DISCLAIMS ALL
WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY IN ANY TERRITORY OR
JURISDICTION, RELATING TO THE PRODUCTS, AND FURTHER EXPRESSLY EXCLUDES ANY
WARRANTY FOR NON-INFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE OR
MERCHANTABILITY.
5.2 Proprietary Rights Indemnification.
----------------------------------
Chordiant represents and warrants that as of the Effective Date: no Product
provided under this Agreement is the subject of any litigation
("Litigation"), furthermore, if a Product becomes the subject of Litigation
after the Effective Date Chordiant will immediately notify EDS of such
Litigation. EDS may terminate any License, and receive a full refund of any
amounts paid for such Product after the date legal process regarding such
Litigation has been served on Chordiant. Further; Chordiant represents and
warrants that to Chordiant's knowledge, (i) Chordiant has all right, title,
ownership interest, and/or marketing rights necessary to provide the
Products to EDS, and (ii) as of the Effective Date each License, the
Products and their sale, license, and use hereunder do not and shall not
directly or indirectly violate or infringe upon any copyright, patent,
trade secret, or other proprietary or intellectual property right of any
third party or contribute to such violation or infringement.
(a) Chordiant shall indemnify and hold EDS and Product end users and their
respective successors, officers, directors, employees, and agents
harmless from and against any and all actions, claims, losses,
damages, liabilities, awards, costs, and expenses (including legal
fees) resulting from or arising out of any Litigation, any breach or
claimed breach of the foregoing warranties, or which is based on a
claim that each License, the Products and their sale, license, and use
hereunder do not, and shall not directly or indirectly violate or
infringe upon any copyright, patent, trade secrete, or other
proprietary or intellectual property right of any third party, or
contribute to such violation or infringement ("Infringement"), and
Chordiant shall defend and settle, at its expense, all suits or
proceedings arising therefrom. EDS shall inform Chordiant of any such
suit or proceeding against EDS, shall provide all reasonable
assistance and cooperation, at Chordiant's expense, and shall have the
right to participate in the defense of any such suit or proceeding at
its expense and through counsel of its choosing. Chordiant shall
notify EDS of any actions, claims or suits against Chordiant based on
an alleged Infringement of any party's intellectual property rights in
and to the Products. In the event an injunction is sought or obtained
against use of the Products or in EDS' opinion is likely to be sought
or obtained, Chordiant shall promptly, at its option and expense,
either (A) procure for EDS and Product end users the right to continue
to use the infringing Product as set forth in this Agreement, (B)
replace or modify the infringing Products to make its use non-
infringing while being capable of performing the same function without
degradation of performance. If, after the use of reasonable best
efforts, neither option (A) or (B) is accomplished by Chordiant within
thirty (30) days of the effective date of an injunction then Chordiant
will refund the unamortized portion of the Charges paid to Chordiant
for such Product amortized on a five (5) year straight line basis from
the
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
Acceptance Date of such Product, and any prepaid amounts associated
with the affected Product.
(b) The provisions of the foregoing indemnity shall not apply with respect
to any instances of alleged Infringement based upon or arising out of:
(i) alterations to Products where such alleged Infringement would not
have occurred but for such alteration (except for those alterations
made by Chordiant, third parties retained by Chordiant, or otherwise
made prior to EDS' receipt of said Product); (ii) failure of EDS to
use updated Products that are provided by Chordiant (at no cost to
EDS) and were provided to avoid Infringement; provided such update is
identified in writing as being provided for such purpose; (iii) use of
any Products in connection with or in combination with any equipment,
devices or software which have not been supplied or recommended by
Chordiant, where such alleged Infringement would not have occurred but
for the use of such Products in connection with or in combination with
such equipment, devices or software; or (iv) use of Products in a
manner for which same were neither designed nor contemplated as
reflected in the Documentation. Notwithstanding any other provisions
hereof, the forgoing indemnity shall not apply with respect to any
Infringement based upon EDS activities associated with such infringing
Product after Chordiant has completed performance of its replace,
repair or refund obligations in (a) above.
(c) THE FOREGOING SECTIONS 5.2(a) AND 5.2(b) STATE THE SOLE AND EXCLUSIVE
REMEDY OF EDS AND THE ENTIRE LIABILITY AND OBLIGATION OF CHORDIANT
WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHT OF A THIRD PARTY BY THE PRODUCTS OR ANY
PART THEREOF.
5.3 Cross Indemnification. In the event any act or omission of a party or
---------------------
its employees, servants, agents, or representatives causes or results in
(i) damage to or destruction of property of the other party or third
parties, and/or (ii) death or injury to persons including, but not limited
to, employees or invitees of either party, then such party shall indemnify,
defend, and hold the other party harmless from and against any and all
claims, actions, damages, demands, liabilities, costs, and expenses,
including reasonable attorneys' fees and expenses, resulting therefrom.
The indemnifying party shall pay or reimburse the other party promptly for
all such damage, destruction, death, or injury.
5.4 Limitation of Liability. Neither party shall be liable to the other
-----------------------
pursuant to this Agreement for any amounts representing loss of profits,
loss of business or indirect, consequential, exemplary, or punitive damages
of the other party. The foregoing shall not limit the indemnification,
defense and hold harmless obligations set forth in this Agreement, and
shall not apply to any unauthorized use or disclosure of Chordiant's Source
Code by EDS.
5.5 Insurance. Chordiant shall, at Chordiant's sole expense, maintain the
---------
following insurance:
(a) Commercial General Liability Insurance including contractual
coverage: The limits of this insurance for bodily injury and property
damage combined shall be at least:
Each Occurrence Limit $1,000,000
General Aggregate Limit $2,000,000
Products-Completed Operations Limit $1,000,000
Personal and Advertising injury Limit $1,000,000
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
(b) Business Automobile Liability Insurance: Should the performance of
this Agreement involve the use of automobiles, Chordiant shall provide
comprehensive automobile insurance covering the ownership, operation
and maintenance of all owned, non-owned and hired motor vehicles.
Chordiant shall maintain limits of at least $1,000,000 per occurrence
for bodily injury and property damage combined.
(c) Workers' Compensation Insurance: Such insurance shall provide
coverage in amounts not less than the statutory requirements in the
state where the work is performed, even if such coverage is elective
in that state.
(d) Employers Liability Insurance: Such insurance shall provide limits
of not less than $1,000,000 per occurrence.
The insurance specified in (a) and (b) above shall: (i) name EDS, its
directors, officers, employees and agents as additional insureds, and, (ii)
provide that such insurance is primary coverage with respect to all
insureds and additional insureds.
The above insurance coverages may be obtained through any combination of
primary and excess or umbrella liability insurance. EDS may require higher
limits or other types of insurance coverage(s) as necessary and appropriate
under the applicable purchase order.
Chordiant shall provide at EDS' request certificates evidencing the
coverages, limits and provisions specified above on or before the execution
of the Agreement and thereafter upon the renewal of any of the policies.
Chordiant shall require all insurers to provide EDS with a thirty (30) day
advanced written notice of any cancellation, nonrenewal or material change
in any of the policies maintained in accordance with this Agreement.
5.6 Survival of Article V. The provisions of Sections 5.2, 5.3, 5.4 and 5.6
---------------------
shall survive the term or termination of this Agreement for any reason.
ARTICLE VI. PAYMENTS TO SUPPLIER
---------------------------------
6.1 Charges, Prices, and Fees for Licensed Software and Services. Charges,
------------------------------------------------------------
prices, and fees ("Charges") and discounts, if any, for Licensed Software
and Services shall be determined as set forth in Exhibit B, in a Purchase
Order, or as otherwise agreed upon by the parties, unless modified as set
forth in this Agreement. Upon EDS' reasonable request, Chordiant shall: (i)
provide to EDS current copies of Chordiant's standard published prices, and
(ii) records which substantiate that EDS has received the Charges and
discounts to which EDS is entitled to under this Agreement. In no event
shall Charges exceed Chordiant's then current established charges, prices
and fees. If promotional discounts or programs are extended to other
customers, dealers, or distributors of Chordiant, EDS shall be entitled to
participate in such promotional discounts or programs. All purchases which
utilize any such discounts shall be deemed for all purposes including,
without limitation, for purposes of calculating accumulated purchases and
any discounts hereunder, to have been purchased or licensed under this
Agreement.
6.2 Modifications to Charges. Where a change in an established Charge for
------------------------
Licensed Software or Services is provided for in this Agreement, Chordiant
shall give to EDS at least ninety (90) days' prior written notice of such
change.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(a) Any increase in a Charge shall not occur during the first twelve (12)
months of this Agreement, during the term of the applicable Purchase
Order or during the specified period for performance of Services,
whichever period is longer. Thereafter, any increase in a Charge
shall (i) not occur unless a minimum of twelve (12) months has elapsed
since the effective date of the previously established Charge, and
(ii) not exceed five percent [*] of such Charge.
(b) All purchase orders issued by EDS prior to the end of the required
notice period will be honored at the then current Charges so long as
the scheduled delivery date of the applicable Licensed Software or
Services is within ninety (90) days after the effective date of the
increase.
(c) If Chordiant's established Charge, less any applicable discount or
promotion, on the scheduled delivery date is lower than the
established Charge for such Licensed Software or Service stated in the
applicable Purchase Order, then EDS shall be entitled to obtain such
Licensed Software or Service at such lower Charge, less any applicable
discount or promotion.
6.3 Auto Payment. This Section shall apply to Purchase Orders identified as
------------
being subject to automatic payment by EDS.
(a) Single Payment for Recurring Charges. All Charges which are due and
------------------------------------
payable on a monthly, annual or other periodic basis for Licensed
Software and Services ("Recurring Charges") shall be paid by EDS on
the same date of the month for each month that such Charges are due
(the "Remit Date"). The initial payment for a Recurring Charge shall
be made on the first Remit Date after the Applicable Event provided
that such Applicable Event occurs at least five (5) days prior to the
first Remit Date. An "Applicable Event" is the event set forth in a
Purchase Order that initiates payment of Charges (such as the
installation, receipt, or acceptance of the Licensed Software; or the
commencement or completion of Services). If the Applicable Event
occurs less than five (5) days prior to the first Remit Date, the
initial payment for such Recurring Charge shall be made on the
following Remit Date, and EDS shall not be subject to interest or
penalties as a result of such late payment.
(b) Payment for Other Charges. Except for Recurring Charges, or unless
-------------------------
otherwise agreed to by the parties in writing, all payments due
Chordiant for Licensed Software and Services shall be paid within
thirty (30) days after the date of the Applicable Event.
(c) Invoices Required Under Auto Payment. Chordiant must send EDS an
------------------------------------
invoice to receive payment for any amounts due for any Charges which
are payable and have not been identified on the applicable Purchase
Order which is subject to automatic payment.
(d) Reconciliation. From time to time, at either party's request, the
--------------
other party shall assist with the reconciliation of the payments made
by EDS to Chordiant.
(e) Taxing Jurisdictions. Chordiant shall provide EDS with the list of
--------------------
states and taxing jurisdictions, and their respective registration
numbers where Chordiant is qualified and registered to collect
sales/use taxes in all of the taxing jurisdictions within that state.
If such written notification is not received by EDS from Chordiant,
then EDS shall remit
- ----------
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
the appropriate tax directly to the taxing authority. Chordiant shall
promptly notify EDS of any additional jurisdictions to which Chordiant
may qualify and register to collect sales/use taxes.
6.4 Payment Through Invoicing. This Section applies to Purchase Orders
-------------------------
issued by EDS which are not identified as being subject to automatic
payment or to any invoice received by EDS from Chordiant as permitted by
this Agreement.
(a) Except as otherwise set forth in this Agreement, any undisputed sum
due to Chordiant pursuant to this Agreement shall be payable within
thirty (30) days after receipt by EDS of a correct invoice therefor
from Chordiant. Chordiant shall invoice EDS on or after the
applicable Acceptance Date for the Licensed Software covered by such
invoice. Periodic payments, if any, due to Chordiant pursuant to this
Agreement shall be invoiced at the beginning of the period to which
they apply. Payment for any other Services shall be invoiced as
agreed upon by the parties or, in the absence of an agreement, upon
completion of such Services.
(b) A "correct" invoice shall contain (i) Chordiant's name and invoice
date, (ii) the specific Purchase Order number if applicable, (iii)
description including serial number as applicable, price, and quantity
of the Licensed Software or Services actually delivered or rendered,
(iv) credits (if applicable), (v) name (where applicable), title,
phone number, and complete mailing address of responsible official to
whom payment is to be sent, and (vi) other substantiating
documentation or information as may reasonably be required by EDS from
time to time. A correct invoice must be submitted to the appropriate
invoice address listed on the applicable Purchase Order.
6.5 Taxes.
-----
(a) Unless EDS provides evidence of exemption, EDS shall pay or reimburse
Chordiant, where EDS is liable under applicable tax statute, amounts
equal to taxes which are imposed upon EDS' acquisition of Products or
Services including federal excise taxes, or sales or use taxes;
provided, however, EDS shall not be obligated to pay or reimburse
Chordiant for any taxes attributable to the sale of any Products or
Services which are imposed on or measured by net or gross income,
capital, net worth, franchise, privilege, any other taxes, or
assessments, nor any of the foregoing imposed on or payable by
Chordiant.
(b) Chordiant agrees to reasonably cooperate with EDS in the audit or
minimization of any applicable tax and shall make available to EDS,
and any taxing authority, all information, records, or documents
relating to any audits or assessments attributable to or resulting
from the payment process under this Agreement, and the filing of any
tax returns or the contesting of any tax. In the event Chordiant is in
dispute with such taxing authority, Chordiant reserves the right to
reasonably withhold any such information records or documents during
such dispute period.
EDS shall not be obligated to pay or reimburse Chordiant for additions
to taxes, penalties, interest, fees, or other expenses or costs, if
any, incurred by EDS as a result of, or attributable to, (i)
Chordiant's failure to verify taxability of a purchase, (ii)
Chordiant's failure to correctly calculate or remit taxes in a timely
manner, or (iii) Chordiant's
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
negligence, misconduct or failure to file properly any required
returns or reports, or other required documents.
(c) Upon written notification by EDS and subsequent verification by
Chordiant, Chordiant shall reimburse or credit, as applicable, EDS in
a timely manner, for any and all taxes erroneously paid by EDS.
(d) EDS shall provide Chordiant with, and Chordiant shall accept in good
faith, resale, direct pay, or other exemption certificates, as
applicable. Chordiant agrees to separately identify on the invoice the
taxable and non-taxable purchases, the types of tax and the taxing
authorities.
(e) Where Products are destined or Services are performed internationally,
then at EDS' direction, payment may be made by EDS or its affiliate
(i) in country to the local affiliate, (ii) in the United States, or
(iii) in a country mutually agreed upon by the parties.
(f) If EDS or an affiliate of EDS is required by law to make any deduction
or to withhold from any sum payable hereunder, then the sum payable by
EDS or such affiliate of EDS upon which the deduction is based shall
be paid to Chordiant net of such deduction or withholding. EDS or such
affiliate of EDS shall pay the applicable tax authorities any such
required deduction or withholding.
ARTICLE VII. TERMINATION
-------------------------
7.1 Termination for Cause. Except as provided below by the Section of this
---------------------
Agreement titled "Termination for Non-Payment," in the event that either
party materially or repeatedly defaults in the performance of any of its
duties or obligations set forth in this Agreement, and such default is not
substantially cured within thirty (30) days after written notice is given
to the defaulting party specifying the default, then the party not in
default may, by giving written notice thereof to the defaulting party,
terminate the applicable License or Purchase Order relating to such default
as of a date specified in such notice of termination. Chordiant shall also
have the right to reject any unfilled or future Purchase Orders from the
business unit responsible for such default.
7.2 Termination for Insolvency or Bankruptcy. Either party may terminate this
----------------------------------------
Agreement and any Purchase Order by giving written notice to the other
party in the event any of the following occur and are not resolved in such
party's favor within forty five (45) days of such occurrence date: (i) the
liquidation or insolvency of the other party, (ii) the appointment of a
receiver or similar officer for the other party, (iii) an assignment by the
other party for the benefit of all or substantially all of its creditors,
(iv) entry by the other party into an agreement for the composition,
extension, or readjustment of all or substantially all of its obligations,
or (v) the filing of a meritorious petition in bankruptcy by or against the
other party under any bankruptcy or debtors' law for its relief or
reorganization.
7.3 Termination for Non-Payment. Chordiant may terminate a Purchase Order, or
---------------------------
any portion thereof, or any License granted in connection with such
Purchase Order, if EDS fails to pay when due any undisputed amounts due
pursuant to such Purchase Order and such failure continues for a period of
sixty (60) days after the last day payment is due, so long as Chordiant
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
gives EDS written notice of the expiration date of the aforementioned sixty
(60) day period at least thirty (30) days prior to the expiration date.
7.4 Termination of Software License. EDS may terminate any License for any
-------------------------------
reason by providing written notice to Chordiant. If EDS elects to so
terminate a License, or if a License is terminated pursuant to 7.1 or 7.3
above, EDS shall return to Chordiant or, at EDS' option, destroy, all
copies of the Licensed Software and Documentation in EDS' possession which
are the subject of the terminated License, and an authorized representative
of EDS shall certify such return or destruction. In the event EDS
terminates a License, Chordiant shall credit to EDS a prorated amount of
any prepaid charges for support Services for the Licensed Software.
7.5 Rights Upon Termination. Unless specifically terminated as set forth
-----------------------
in this Article, all Licenses (and EDS' right to use the Licensed Software
in accordance with such Licenses) and Purchase Orders which require
performance or extend beyond the term of this Agreement shall, at EDS'
option, be so performed and extended and shall continue to be subject to
the terms and conditions of this Agreement.
ARTICLE VIII. MISCELLANEOUS
----------------------------
8.1 Binding Nature, Assignment, and Subcontracting. This Agreement shall
----------------------------------------------
be binding on the parties and their respective successors in interest and
assigns. Either party shall have the right to assign this Agreement to its
parent corporation, if applicable; or to any entity into (i) which the
party may be merged or reorganized or (ii) which a controlling interest in
the associated party's capital stock or assets may be sold or assigned
provided, however, that such assignees assume in writing the liabilities,
obligations and responsibilities of the associated party under this
Agreement. If a party hereto assigns the Agreement as set forth above, such
party shall notify the other in writing of the assignment. Except as
provided herein, neither party have the power to assign this Agreement
without the prior written consent of the other party, which consent shall
not be unreasonably withheld or delayed. If either party subcontracts or
delegates any of its duties or obligations of performance in this Agreement
or in a Purchase Order to any third party, such party shall remain fully
responsible for complete performance of all of its obligations set forth in
this Agreement or in such Purchase Order and for any such third party's
compliance with the non-disclosure and confidentiality provisions set forth
in this Agreement.
8.2 Counterparts. This Agreement may be executed in several counterparts,
------------
all of which taken together shall constitute one single agreement between
the parties.
8.3 Headings. The Article and Section headings used in this Agreement are
--------
for reference and convenience only and shall not enter into the
interpretation hereof.
8.4 Authorized Agency. From time to time and at any time, EDS may assume
-----------------
operational responsibility for computer software programs acquired directly
or indirectly from Chordiant by third parties which become customers or
Affiliates, or which are acquired by EDS, after the Effective Date.
(a) With respect to such customers, and immediately upon execution of a
contract between EDS and a customer, the computer software programs
acquired from Chordiant by such customer shall be governed by the
terms and conditions of this Agreement and EDS may use such computer
software programs in accordance with this Agreement at no additional
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
26
<PAGE>
charge to EDS or its customer, provided, however, that such computer
software programs may only be used by EDS on behalf of that customer.
With respect to each such customer, Chordiant, EDS and the customer
shall execute an access agreement authorizing EDS' use of the computer
software programs. Such access agreement shall be in a form
substantially similar to the Third Party System Access Agreement
attached to this Agreement as Exhibit C.
(b) With respect to any such affiliate, and upon Chordiant's receipt of
written notice from EDS and such affiliate, the license or other
agreement governing the use and support of such computer software
programs shall automatically be deemed to have been assigned to EDS,
provided, however, that such assigned license or other agreement shall
be superseded by, and the use and support of the computer software
programs shall be governed by, the terms and conditions of this
Agreement.
(c) With respect to any third party with which EDS either (i) buys,
leases, or otherwise acquires all or a substantial part of the assets
or business of such third party, or (ii) consolidates with or merges
with said third party, the license or other agreement governing the
use and support of such computer software programs shall automatically
be deemed to have been assigned to EDS. At that time, EDS may
supersede such assigned license or other agreement with the terms and
conditions of this Agreement, in which case the use and support of
such computer software programs shall be governed by the terms and
conditions of this Agreement, or EDS may elect to have the assigned
license or other agreement continue to govern the use of such computer
software programs.
8.5 Relationship of Parties. Both parties are performing pursuant to this
-----------------------
Agreement only as an independent contractors. Both parties have the sole
obligation to supervise, manage, contract, direct, procure, perform or
cause to be performed its obligations set forth in this Agreement, except
as otherwise agreed upon by the parties. Nothing set forth in this
Agreement shall be construed to create the relationship of principal and
agent between Chordiant and EDS. Chordiant shall not act or attempt to act
or represent itself, directly or by implication, as an agent of EDS or its
Affiliates or in any manner assume or create, or attempt to assume or
create, any obligation on behalf of, or in the name of, EDS or its
Affiliates.
8.6 Confidentiality. Each party acknowledges that in the course of
---------------
performance of its obligations pursuant to this Agreement, it may obtain
confidential and/or proprietary information of the other party or its
affiliates or customers. "Confidential Information" includes: information
relating to development plans, costs, finances, marketing plans, equipment
configurations, data, access or security codes or procedures utilized or
acquired, business opportunities, names of customers, research, and
development; the terms, conditions and existence of this Agreement; any
information designated as confidential in writing or identified as
confidential at the time of disclosure if such disclosure is verbal or
visual; and any copies of the prior categories or excerpts included in
other materials created by the recipient party. Each party agrees that, for
a period of two (2) years following its receipt of Confidential Information
from the other party or the other party's affiliates or customers, whether
before or after the Effective Date, such recipient party shall use the same
means it uses to protect its own confidential and proprietary information,
but in any event not less than reasonable means to prevent the disclosure
and to protect the confidentiality of the Confidential Information.
Further, the recipient party shall only use the Confidential Information
for purposes of this Agreement, and shall not disclose the Confidential
Information without the prior written consent of the other party. This
provision shall not apply to Confidential Information which is (i) already
known by the recipient party without an
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
27
<PAGE>
obligation of confidentiality, (ii) publicly known or becomes publicly
known through no unauthorized act of the recipient party, (iii) rightfully
received from a third party (other than an affiliate or customer of the
party owning the Confidential Information) without an obligation of
confidentiality, (iv) disclosed without similar restrictions by the owner
of the Confidential Information to a third party (other than an affiliate
or customer of the party owning the Confidential Information), (v) approved
by the party owning the Confidential Information, in writing, for
disclosure, or (vi) required to be disclosed pursuant to a requirement of a
governmental agency or law so long as the recipient party provides the
other party with timely prior written notice of such requirement.
8.7 Media Releases. Except for any announcement intended solely for
--------------
internal distribution by Chordiant or any disclosure required by legal,
accounting, or regulatory requirements beyond the reasonable control of
Chordiant, all media releases, public announcements, or public disclosures
(including, but not limited to, promotional or marketing material) by
Chordiant or its employees or agents relating to this Agreement or its
subject matter, or including the name, trade name, trade mark, or symbol of
EDS or any affiliate of EDS, shall be coordinated with and approved in
writing by EDS prior to the release thereof. Chordiant shall not represent
directly or indirectly that any Licensed Software or Service provided by
Chordiant to EDS has been approved or endorsed by EDS or include the name,
trade name, trade mark, or symbol of EDS or any affiliate of EDS on a list
of Chordiant's customers without EDS' express written consent.
8.8 Dispute Resolution. In the event of any disagreement regarding
------------------
performance under or interpretation of this Agreement and prior to the
commencement of any formal proceedings, the parties shall continue
performance as set forth in this Agreement and shall attempt in good faith
to reach a negotiated resolution by designating a representative of
appropriate authority to resolve the dispute.
8.9 Electronic Communications. If Chordiant and EDS mutually agree, business
-------------------------
communications between the parties, including, but not limited to, purchase
orders, invoices, and payment may be submitted electronically. In such
case, the parties shall mutually agree in writing upon supplemental terms
and conditions, including technical standards, for the electronic exchange
of such items.
8.10 Proposals and Special Projects. EDS may request a written proposal, quote,
------------------------------
or bid from Chordiant for the provision of Licensed Software and/or
Services for a specific EDS project which may be governed by separately
negotiated terms and conditions. In such event, any Licensed Software and
Services obtained for such project shall be deemed for purposes of
calculating accumulated purchases and any discounts set forth in this
Agreement, to have been obtained pursuant to this Agreement.
8.11 Governmental Customers. This Agreement shall apply to the acquisition
----------------------
of Licensed Software or Services for use in or in support of the
performance of, or resale under, a contract with a state, county, or local
governmental entity (a "Governmental Customer"). Chordiant and EDS may
negotiate in good faith a supplemental agreement incorporating required
flow-down provisions or other provisions relating to, applicable to, or
required by such Governmental Customer or the proposed contract between EDS
and such Governmental Customer. All Licensed Software and Services obtained
pursuant to this Section shall be deemed for purposes of calculating
accumulated purchases and any discounts set forth in this Agreement, to
have been obtained pursuant to this Agreement, including purchases made by
EDS in support of the United States
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
28
<PAGE>
Federal Government under a separate contract with Chordiant. EDS shall not
provide Product to the United States Federal Government or any agency
thereof under this Agreement.
8.12 International Business. This Agreement shall apply to the acquisition
----------------------
of Licensed Software and Services for use in or in support of the
performance or remarketing of Licensed Software and Services in countries
outside the United States and its territories. Chordiant and EDS and/or
their respective agents, distributors, or Affiliates authorized to conduct
business in such countries may negotiate in good faith supplemental
agreements incorporating further terms and conditions required by local
law. All Licensed Software and Services obtained pursuant to this Section
shall be deemed for purposes of calculating accumulated purchases and any
discounts set forth in this Agreement, to have been obtained pursuant to
this Agreement.
8.13 Compliance with Laws. In the performance of Services or the provision
--------------------
of Licensed Software pursuant to this Agreement, Both parties shall comply
with the requirements of all applicable laws, ordinances, and regulations
of the United States or any state, country, or other governmental entity.
In particular, the parties agree, as applicable, to comply with the United
States Export Administration Act, Executive Order No. 11246, as amended by
Executive Order No. 11375, the Vietnam Era Veterans Readjustment Assistance
Act of 1974, the Rehabilitation Act of 1973, the Immigration Reform and
Control Act of 1986, the Foreign Corrupt Practices Act, and the Americans
With Disabilities Act. This Section incorporates by reference all
provisions required by such laws, orders, rules, regulations, and
ordinances.
8.14 Labor. Chordiant shall comply with any labor jurisdictions applicable
-----
to Chordiant's performance pursuant to this Agreement and shall cooperate
with EDS in resolving any disputes resulting from any jurisdictional or
labor claims or stoppages. Upon request by Chordiant, EDS shall provide to
Chordiant clarification and guidelines regarding relationships with labor
and Chordiant's responsibilities with respect thereto.
8.15 Export. Neither party shall export any Licensed Software or information
------
protected hereunder by an obligation of confidentiality from the United
States, either directly or indirectly, without first obtaining a license or
clearance as required from the U.S. Department of Commerce or other agency
or department of the United States Government.
8.16 Notices. Wherever one party is required or permitted to give notice to
-------
the other pursuant to this Agreement, such notice shall be deemed given
when delivered in hand, when mailed by registered or certified mail, return
receipt requested, postage prepaid, or when sent by a third party courier
service where receipt is verified by the receiving party's acknowledgment,
and addressed as follows:
In the case of EDS:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Attn: Manager, Contracts Administration
In the case of Chordiant:
CHORDIANT SOFTWARE, INC.
1810 Embarcadero Rd.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
29
<PAGE>
Palo Alto, CA 94303-3308
Attn: Contracts Administrator
Either party may from time to time change its address for notification
purposes by giving the other party written notice of the new address and
the date upon which it will become effective; first class, postage prepaid,
mail shall be acceptable for provision of change of address notices.
8.17 Force Majeure. The term "Force Majeure" shall be defined to include
-------------
fires or other casualties or accidents, acts of God, severe weather
conditions, strikes or labor disputes, war or other violence, or any law,
order, proclamation, regulation, ordinance, demand, or requirement of any
governmental agency.
(a) A party whose performance is prevented, restricted, or interfered with
by reason of a Force Majeure condition shall be excused from such
performance to the extent of such Force Majeure condition so long as
such party provides the other party with prompt written notice
describing the Force Majeure condition and takes all reasonable steps
to avoid or remove such causes of nonperformance and immediately
continues performance whenever and to the extent such causes are
removed.
(b) If, due to a Force Majeure condition, the scheduled time of delivery
or performance is or will be delayed for more than thirty (30) days
after the scheduled date, the party not relying upon the Force Majeure
condition may terminate, without liability to the other party, the
Purchase Order or any portion thereof covering the delayed Products or
Services.
(c) If a Force Majeure condition or other delay by Chordiant causes EDS to
terminate its business relationship with a third party for whom
delayed Products were ordered and EDS has no alternative use for the
Products after using reasonable efforts to relocate or otherwise
utilize the Products, then EDS may terminate the applicable Purchase
Order and Chordiant shall refund to EDS all amounts paid thereunder.
8.18 Severability. If, but only to the extent that, any provision of this
------------
Agreement is declared or found to be illegal, unenforceable, or void, then
both parties shall be relieved of all obligations arising under such
provision, it being the intent and agreement of the parties that this
Agreement shall be deemed amended by modifying such provision to the extent
necessary to make it legal and enforceable while preserving its intent. If
that is not possible, another provision that is legal and enforceable and
achieves the same objective shall be substituted. If the remainder of this
Agreement is not affected by such declaration or finding and is capable of
substantial performance, then the remainder shall be enforced to the extent
permitted by law.
8.19 Waiver. Any waiver of this Agreement or of any covenant, condition, or
------
agreement to be performed by a party under this Agreement shall (i) only be
valid if the waiver is in writing and signed by an authorized
representative of the party against which such waiver is sought to be
enforced, and (ii) apply only to the specific covenant, condition or
agreement to be performed, the specific instance or specific breach thereof
and not to any other instance or breach thereof or subsequent instance or
breach.
8.20 Remedies. Except with respect to remedies that have been identified as
--------
sole and exclusive remedies, all remedies set forth in this Agreement, or
available by law or equity shall be cumulative and not alternative, and may
be enforced concurrently or from time to time.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
30
<PAGE>
8.21 Survival of Terms. Termination or expiration of this Agreement for any
-----------------
reason shall not release either party from any liabilities or
obligations set forth in this Agreement which (i) the parties have
expressly agreed shall survive any such termination or expiration, or (ii)
remain to be performed or by their nature would be intended to be
applicable following any such termination or expiration.
8.22 Nonexclusive Market and Purchase Rights. It is expressly understood and
---------------------------------------
agreed that this Agreement does not grant to Chordiant an exclusive right
to provide to EDS any or all of the Licensed Software and Services and
shall not prevent EDS from developing or acquiring from other suppliers
computer software programs or services similar to the Licensed Software and
Services. Chordiant agrees that acquisitions by EDS pursuant to this
Agreement shall neither restrict the right of EDS to cease acquiring nor
require EDS to continue any level of such acquisitions. Estimates or
forecasts furnished by EDS to Chordiant prior to or during the term of this
Agreement shall not constitute commitments.
8.23 GOVERNING LAW. THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
-------------
AGREEMENT SHALL NOT BE GOVERNED BY THE PROVISIONS OF THE 1980 UNITED
NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.
RATHER THESE RIGHTS AND OBLIGATIONS SHALL BE GOVERNED BY THE LAWS, OTHER
THAN CHOICE OF LAW RULES, OF THE STATE OF TEXAS.
8.24 Entire Agreement. This Agreement constitutes the entire and exclusive
----------------
statement of the agreement between the parties with respect to its subject
matter and there are no oral or written representations, understandings or
agreements relating to this Agreement which are not fully expressed in the
Agreement. This Agreement shall not be amended except by a written
agreement signed by both parties. All exhibits, documents, and schedules
referenced in this Agreement or attached to this Agreement, and each
Purchase Order are an integral part of this Agreement. In the event of any
conflict between the terms and conditions of this Agreement and any such
exhibits, documents, or schedules, the terms of this Agreement shall be
controlling unless otherwise stated or agreed. In the event of a conflict
between the terms and conditions of this Agreement and a Purchase Order
issued in accordance with Article II, the Purchase Order shall be
controlling with respect to those transactions covered by that Purchase
Order. Any other terms or conditions included in any shrink-wrap license
agreements, quotes, invoices, acknowledgments, bills of lading, or other
forms utilized or exchanged by the parties shall not be incorporated in
this Agreement or be binding upon the parties unless the parties expressly
agree in writing or unless otherwise provided for in this Agreement.
IN WITNESS WHEREOF, Chordiant and EDS acknowledge that each of the
provisions of this Agreement were expressly agreed to and have each caused this
Agreement to be signed and delivered by its duly authorized officer or
representative as of the Effective Date.
ELECTRONIC DATA SYSTEMS CORPORATION CHORDIANT SOFTWARE, INC.
By: /s/ Joe B. Dorfmeister By: /s/ Steven R. Springsteel
Printed Name: Joe B. Dorfmeister Printed Name: Steven R. Springsteel
Title: Contract Manager Title: EVP/CFO
Date: 7/23/98 Date: July 24, 1998
Fed. Tax ID #: 93-1051328
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
31
<PAGE>
EXHIBIT A
EDS BUSINESS PRACTICES
----------------------
EDS' suppliers have played a key role in our continuous growth and success.
We sincerely appreciate your support. In order to avoid any conflict of
interest between our suppliers and EDS employees and to keep business
relationships on a professional basis, EDS has established and briefed its
employees on the following business practices. Please review these business
practices carefully and give a copy of this Exhibit to any of your associates
who have a need to know.
1. EDS expects its suppliers to provide a quality product or service for which
they will be fairly paid.
2. In selecting suppliers, EDS will test the market to assure quality of
service and fairness of price.
3. No EDS employee is to ask for anything of value from a supplier. Gifts
from a supplier such as tickets to athletic events, concerts or the
theater, personal travel, or any type of personal item are discouraged by
our business practices.
4. If any EDS employee is offered or accepts an item of value from a supplier,
the employee is to report it to the appropriate EDS management.
5. If any EDS employee engages in any type of unethical behavior such as
requesting anything of value from a supplier, the supplier is requested to
report the incident to the Director of Purchasing or the General Counsel of
EDS.
6. Occasional meals during visits to a supplier's facilities or a customer's
location during which a supplier incurs normal and reasonable marketing
expenses are acceptable. The EDS employee is required to report such meal
expenses to their management.
EDS appreciates your cooperation in complying with these business
practices.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
A-1
<PAGE>
EXHIBIT B
CHARGES, PRICES, AND FEES
-------------------------
LICENSED SOFTWARE and Services:
- ------------------------------
EDS shall be entitled to a [*] discount off Chordiant's then current list
price on all products for a period of one year from the Effective Date, except
that such discount will not apply to licenses for Chordiant CCS Development
Systems for Systems Integrators. The parties shall negotiate in good faith, EDS'
discount commencing on the one (1) year anniversary of the Effective and
thereafter, but in no event shall such negotiated discount be less than [*].
During the period after the one (1) year anniversary but prior to such
negotiated discount being agreed upon, EDS shall be entitled to purchase
Products at a [*] discount.
The Services discount shall be [*] off Chordiant's then current list price;
except EDS shall be entitled to a [*] discount on educational Services.
Chordiant's Product offering and North American list price for such Products,
and Services price list, as of the Effective Date is attached. If Products are
being purchased for international use, a [*] uplift must be added to the
discounted price.
Notes:
1. An initial purchase to support an EDS customer must include one of the
following two Product sets at a minimum: 1) Chordiant CCS Foundation with
Chordiant CCS ChorApps, or 2) Chordiant CCS Development System for system
integrators with Chordiant CCS Reference Applications. Additional purchases
of such Products can be made individually. The two Product sets do not have
to be installed at the same Site, for example, Chordiant CCS Foundation
with Chordiant CCS ChorApps could be installed at Site A and Chordiant CCS
Development System for system integrators with Chordiant CCS Reference
Applications at Site B.
2. The Chordiant CCS Foundation License includes one copy of the Client
Platform, Server Platform, Telephony Platform, Database Platform, and
Electronic Gateways. If additional copies are required they may be
purchased as per this Exhibit B.
3. The Chordiant CCS Development System for system integrators License
includes one copy of the CCS support client, server, telephony, and
database objects and one electronic services facility. The Forte
Development System and tools are not included with the CCS Development
System, they must be purchased from Forte. Notwithstanding any other
provision of this Agreement to the contrary, a license for the Chordiant
CCS Development System for Systems Integrators is for the exclusive use of
EDS, for the sole purpose of performing development work. Any such
development work to be provided to an EDS client who has not previously
licensed Chordiant CCS shall be provided within a period not to exceed
ninety (90) days without the prior written consent of Chordiant Software.
4. The training fees apply to CCS training conducted at Chordiant CCS
University in Palo Alto, California. Students must pay their own travel and
related expenses. Training at any other location will be upon terms
mutually agreed to and signed by the parties.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
B-1
<PAGE>
5. If requested by EDS, Chordiant shall provide to EDS one Chordiant CCS
-------------------
Center of Excellence Demonstration System license at no charge except for
an annual maintenance and support fee of [*] per Center of Excellence.
With Chordiant's consent, additional Chordiant CCS Center of Excellence
Demonstration System licenses will be provided to EDS at no charge except
for an annual maintenance and support fee of [*] per Center of Excellence.
Notwithstanding any other provision of this Agreement to the contrary, a
license for a Chordiant CCS Center of Excellence Demonstration System is
for the exclusive use of EDS, for the sole purpose of demonstrating
Chordiant CCS.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
B-2
<PAGE>
EXHIBIT C
THIRD PARTY SYSTEM ACCESS AGREEMENT
-----------------------------------
AMONG
{CUSTOMER},
CHORDIANT SOFTWARE, INC.
AND
ELECTRONIC DATA SYSTEMS CORPORATION
THIS Third Party System Access Agreement (the "Access Agreement") effective
as of {Effective Date}, is by and among {CUSTOMER LEGAL NAME} ("Customer"),
CHORDIANT SOFTWARE, INC. ("Chordiant") and ELECTRONIC DATA SYSTEMS CORPORATION
("EDS").
W I T N E S S E T H:
WHEREAS, Chordiant owns certain software products (hereinafter referred to
as "Software") more specifically described in the {Chordiant/Customer Agreement
Name}, dated {Chordiant/Customer Agreement Date}, between Customer and Chordiant
(the "License Agreement"); and
WHEREAS, Chordiant and EDS have entered into a {EDS/Chordiant Agreement
Name}, dated {EDS/Chordiant Agreement Date}, pursuant to which EDS may obtain
certain software products and services from Chordiant (the "Master Agreement");
WHEREAS, Customer and EDS have entered into an information technology
services agreement (the "ITS Agreement") pursuant to which EDS will provide data
processing and other services ("Services") requiring that EDS have access to the
Software; and
WHEREAS, the parties desire that EDS undertake appropriate contractual
commitments to assure that the Software will be used only in accordance with and
subject to the terms and conditions of the Master Agreement and this Access
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Customer, Chordiant and EDS hereby
agree as follows:
1. Chordiant hereby grants EDS the right to use, execute, store and display
(collectively "Access") the Software set forth in Attachment 1 to this
Access Agreement for the purpose of performing its obligations pursuant to
the ITS Agreement. The parties agree that EDS' Access of such Software,
and Chordiant's support and maintenance obligations with respect to the
Software, shall be governed by the terms and conditions of the Master
Agreement; provided, however, EDS may Access the Software for the sole and
exclusive purpose of providing Services on behalf of Customer.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
C-1
<PAGE>
2. Customer shall be entitled to all protections under the Master Agreement,
including, but not limited to, proprietary rights indemnification as
defined in the Master Agreement.
3. The parties agree that EDS shall be Customer's agent for payment of any
fees due to Chordiant under the Master Agreement from the date of this
Access Agreement until Chordiant is notified otherwise. In the event of a
conflict between this Access Agreement and the License Agreement, this
Access Agreement will prevail.
4. This Access Agreement shall commence as of the date first set forth above
and shall continue in effect until the earlier of (i) the termination of
the ITS Agreement, (ii) Chordiant's receipt of written notice from EDS that
EDS' need to Access the Software has ceased, or (iii) the termination of
the License Agreement. Upon termination of this Access Agreement, EDS
shall discontinue all use of the Software and; provided that the License
Agreement has not terminated, Customer's continued use of and Chordiant's
support and maintenance obligations with respect to the Software shall be
governed by the terms and conditions of the License Agreement. At such
time, EDS shall have no further liability or responsibility with respect to
such Software.
IN WITNESS WHEREOF, the parties have caused this Access Agreement to be
executed as of the dates indicated.
CHORDIANT SOFTWARE, INC. {CUSTOMER}
By:____________________________ By:_________________________________
Printed Name:________________ Printed Name:________________________
Title:_______________________ Title:_______________________________
Date:__________________________ Date:_______________________________
ELECTRONIC DATA SYSTEMS CORPORATION
By:____________________________
Printed Name:________________
Title:_______________________
Date:__________________________
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
C-2
<PAGE>
EXHIBIT D
EDUCATION SERVICES
------------------
1. Certain Definitions. The following definitions apply to this Exhibit:
-------------------
(a) "EDS Students" means employees of EDS and employees of EDS' customers
or suppliers who receive Education Services and participate as
students.
(b) "Education Services" includes, but is not limited to, student and
instructor training, and time and material services provided or to be
provided by Chordiant pursuant to the Agreement and this Exhibit.
(c) "Location" means the place where Education Services are performed or
are to be performed and/or where Documentation for Education Services
is to be delivered.
2. Supplemental Chordiant Obligations. Chordiant will provide to EDS the
----------------------------------
Education Services specified in each Purchase Order in accordance with the
terms and conditions set forth in this Agreement and this Exhibit and will:
(a) Designate an individual who will be EDS' contact person at Chordiant
during the term of this Agreement and who shall have the authority and
power to make management decisions relating to Education Services on
behalf of Chordiant. Such individual shall provide, at the request of
EDS and within a reasonable period of time, any requested management
decisions. Chordiant may change the contact person upon notice to
EDS.
(b) Provide sufficient class documentation for each EDS Student at no
charge to EDS. EDS Students may retain all such class documentation
after completion of the Educational Services to which such
Documentation applies.
(c) Provide necessary education aids, such as references, films,
overheads, or other similar instructional aids for use with Education
Services.
(d) If Education Services are to occur at an EDS Location, request in
writing in advance, any education or audiovisual materials or
equipment which should be present at the EDS Location for use in
teaching. Such materials or equipment may include, but shall not be
limited to, overhead projectors, film projectors, flip charts, boards
and markers, personal computers for EDS Students' use, etc. ("Training
Aids").
(e) For Education Services which occur at an EDS Location, allow for the
substitution or cancellation of EDS Students at no additional charge.
(f) Provide to EDS, within thirty (30) days of the end of each calendar
quarter, a written report for the previous quarter indicating the
Location, the dates, the aggregated Charges paid by EDS, and the
number of EDS Students in attendance for all Education Services
provided by Chordiant during the previous quarter.
(g) Provide sufficient Employees for each Education Service offering to
maintain a maximum student-to-instructor ratio of twelve (12)
students to one (1) instructor, unless otherwise agreed. In the
provision of "train-the-trainer" Services, Chordiant will
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
D-1
<PAGE>
provide sufficient Employees to maintain a maximum
student-to-instructor ratio of six (6) students to one (1) instructor.
3. Supplemental EDS Obligations. EDS will, at its own cost and expense,
----------------------------
provide classroom facilities and reasonable and necessary Training Aids,
based on availability and discretion, for classes at an EDS Location.
4. Open and Closed Education Services. A Purchase Order shall indicate if a
----------------------------------
course is "open," which means that EDS Students and other commercial
students may attend the course, or "closed," which means the course is only
available to EDS Students. Public classes at Chordiant's Location shall
always be considered open.
5. Charges. Where EDS is paying for Education Services on a flat fee per
-------
class basis, EDS shall not be required to pay any additional sums in the
event of student substitution or the student fails to attend the class
without notice. Where EDS is paying for the Education Services on a flat
fee per student basis, EDS may cancel a Student at no charge to EDS by
providing Chordiant more than seven (7) days advance notice of such
cancellation. EDS shall pay fifty percent (50%) of the student's class fees
if cancellation occurs within seven (7) days of the class date.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
D-2
<PAGE>
EXHIBIT E
DEVELOPMENT SERVICES
--------------------
1. Developed Software. "Developed Software" means computer software programs,
------------------
including Development Documents (as later defined in this Agreement),
developed or to be developed by Chordiant and/or Employees pursuant to this
Agreement. The parties agree that the definition of Work Product(s) shall
be modified to include Developed Software.
2. Provision of Development Services. Chordiant shall perform development
---------------------------------
Services to the extent agreed upon by the parties for a particular EDS
project (the "Project"). With respect to each Project, the parties shall
agree in writing upon supplemental terms and conditions applicable to the
performance of the Project including, for example and without limitation,
(i) a price and milestone payment schedule, (ii) a Project performance
schedule, including the appropriate work steps and phases, (iii) Applicable
Specifications, (iv) functional and detailed design specifications, and (v)
a schedule of those items or tasks to be performed by Chordiant which must
be approved by EDS or performed to the satisfaction of EDS
("Deliverables"). The terms and conditions established for a Project shall
be incorporated in this Agreement, and may be amended upon the mutual
written agreement of the Project Managers (as later defined in this
Agreement). The Section of this Agreement titled "Time and Materials
Services" shall also apply to the Project if the development Services are
performed on a time and materials basis.
3. Project Management. For each Project, Chordiant and EDS shall each
------------------
designate a project manager (the "Project Managers") who shall have the
responsibilities set forth in this Exhibit and as otherwise agreed upon by
the parties. Each Project Manager shall be responsible for providing
timely management decisions as required or requested relating to the
Project. From time to time at the request of the EDS Project Manager, the
Chordiant Project Manager shall provide to the EDS Project Manager a
written report of the status of the Project.
4. Approval of Deliverables. The supplemental Project terms and conditions
------------------------
shall establish time frames for the acceptance process of Deliverables; any
reference to dates or time periods in this Section shall mean the dates
mutually agreed upon by the parties in, or determined in accordance with,
such terms and conditions. The Chordiant Project Manager shall submit each
Deliverable to the EDS Project Manager on or before the specified delivery
date. Within the established time frame, EDS shall approve or disapprove
the Deliverable by providing written notice to Chordiant. EDS shall
describe in any disapproval the ways in which the Deliverable fails to
conform to the established requirements and/or the Applicable
Specifications for the Project or portion thereof; EDS may also suggest
corrections or improvements which may cause the Deliverable to meet such
standard. Chordiant shall resubmit the Deliverable to EDS for approval as
provided in this Section, within the established cure period. EDS may
extend the period of time for resubmission of the Deliverable if Chordiant
submits a written request outlining the specific reasons why Chordiant
cannot comply with the requirements together with
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Chordiant's proposed alternative schedule for resubmission of the
Deliverable. Chordiant may submit draft versions of a Deliverable prior to
the required date for the informal comment of the EDS Project Manager. EDS'
approval of a Deliverable only indicates that EDS has reviewed the
Deliverable and detected no errors or omissions sufficient enough to
warrant the withholding or denial of payment, if any, for such Deliverable.
EDS' approval of a Deliverable does not discharge Chordiant's obligation to
provide a completed Developed Software that as a whole conforms to the
Applicable Specifications.
5. Acceptance Testing Procedures. In connection with each Project, the
-----------------------------
parties shall mutually agree upon appropriate acceptance testing criteria
and procedures for the Developed Software. The applicable acceptance
testing criteria and procedures must be successfully satisfied and
performed prior to EDS' acceptance of the Developed Software. If any
defects or deficiencies are discovered during acceptance testing, EDS shall
so notify Chordiant, and Chordiant shall have thirty (30) days from receipt
of such notice to correct the deficiencies. If necessary, Chordiant and
EDS may mutually agree upon an additional time period in order to continue
acceptance testing of the corrected Developed Software. For purposes of an
item of Developed Software, the term "Acceptance Date" shall mean the date
when the Developed Software successfully satisfies the applicable
acceptance testing criteria. Acceptance of an item of Developed Software
does not waive any warranty rights provided in this Agreement for Developed
Software.
6. Change Orders. By providing written notice to the Chordiant Project
-------------
Manager, EDS may request Chordiant to perform additional work or changes
within the general scope of the Project and Chordiant agrees to perform
such work or changes. If a change causes an increase or decrease in the
price or time required for performance as mutually determined by the
Project Managers, a negotiated adjustment shall be made in the Project
price and/or performance schedule. Changes outside the general scope of
the Project shall be governed by the following Section.
7. Additional Work. By providing written notice to the Chordiant Project
---------------
Manager, EDS may request Chordiant to perform additional Services outside
the general scope of a Project. At its option, Chordiant may submit, at no
charge to EDS, a written proposal for such Services including a price/cost
proposal, expenses related to travel, lodging and meals, a delivery
schedule, and any other information reasonably related to such request.
Within a reasonable time period requested by Chordiant, EDS shall accept or
reject such proposal. If Chordiant chooses not to provide a proposal in
response to EDS' request, Chordiant shall promptly notify EDS.
8. Ownership of Developed Software. EDS shall have Ownership Rights in and to
-------------------------------
all Developed Software, whether completed or partially completed, and all
documents developed or exchanged during or in support of a Project, whether
completed or partially completed (the "Development Documents") as set forth
in the Section titled "Ownership of Intellectual Property Rights" elsewhere
in this Agreement. To the extent that Existing Materials are required in
order to use the Developed Software as contemplated in this
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Agreement, Chordiant shall grant to EDS, its subsidiaries and affiliates
rights as set forth in the Section titled "Use of Existing Materials"
elsewhere in this Agreement.
9. Remedies for Failure to Perform. If Chordiant defaults in the performance
-------------------------------
of a Project EDS may, in its sole discretion, elect to (i) terminate the
Project, return to Chordiant all Development Documents and receive a refund
from Chordiant of all amounts paid to Chordiant with respect to the
Project, (ii) enter into a joint development effort with Chordiant to
complete the Project at no additional charge to EDS, (iii) extend the time
for Chordiant performance at no additional charge to EDS, (iv) continue
development itself or in connection with a third party, and/or (v)
terminate the Project. The foregoing remedies do not constitute exclusive
remedies. In the event EDS elects to continue development efforts itself,
or to continue development efforts with the involvement of a third party,
Chordiant shall provide to EDS all Chordiant proprietary or other
information reasonably required to complete such development. EDS agrees
that any third parties pursuing such development with EDS shall agree to
comply with non-disclosure and confidentiality provisions to protect
Chordiant's information. EDS may use the information as necessary in order
to complete the Project.
10. Rights Upon Project Completion. Upon completion or termination of a
------------------------------
Project for any reason, Chordiant shall provide to EDS all copies of all
Developed Software and Development Documents, whether completed or
partially completed, (except if EDS elects (i) in the previous Section) and
shall return to EDS any and all copies of all information provided by EDS
to Chordiant in connection with the Project. EDS shall be entitled to
obtain maintenance and support Services for Developed Software under the
Sections governing support of Licensed Software.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT F
RESELLER ACCESS AUTHORIZATION
-----------------------------
1. Chordiant hereby grants EDS the right to use, execute, store and display
(collectively "Access") the Licensed Software purchased for resale under
Section 3.6 of this Agreement, for the purpose of performing its service
obligations to the ITS Customer.
2. The ITS Customer shall be entitled to all protections under this Agreement,
including, but not limited to, proprietary rights indemnification.
3. EDS shall Access the Licensed Software in accordance with the terms and
restrictions of this Agreement.
4. Chordiant agrees that EDS shall be the ITS Customer's agent for payment of
any fees due to Chordiant for the Licensed Software from the date the ITS
Customer signs Chordiant End User License Agreement ("Resale Date"), until
Chordiant is notified otherwise.
5. This Reseller Access Authorization shall commence as of the Resale Date and
shall continue in effect until the earlier of (i) Chordiant's receipt of
written notice from EDS that EDS' need to Access the Licensed Software has
ceased, or (ii) the termination of the Chordiant End User License
Agreement. Upon termination of Access, EDS shall discontinue all use of
the Licensed Software. Provided that the End User License Agreement has
not terminated, the ITS Customer's continued use of and Chordiant's support
and maintenance obligations with respect to the Licensed Software shall be
governed by the terms and conditions of the Chordiant End User License
Agreement. At such time, EDS shall have no further liability or
responsibility with respect to such Licensed Software.
6. During the period of EDS' Access, in the event of any conflict between this
Agreement and the Chordiant End User License Agreement with the ITS
Customer, this Agreement will prevail.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT G
THIRD PARTY LETTER AGREEMENT
----------------------------
This letter agreement (the "Agreement") dated ____ is by and between
______("Third Party Provider"), Electronic Data Systems Corporation and its
Affiliates ("EDS"), and Chordiant Software, Inc. and its Affiliates
("Chordiant").
For purposes of this Agreement, "Affiliates" of a party shall mean any
corporation or other legal entity owning, directly or indirectly, ten percent
(10%) or more of the voting capital shares of such party; any corporation or
other legal entity ten percent (10%) or more of the voting capital shares (or
equivalent control) of which is owned, directly or indirectly, by such party, as
applicable; or any corporation or other legal entity ten percent (10%) or more
of the voting capital shares (or equivalent control) of which is owned, directly
or indirectly, by a corporation or other legal entity owning, directly or
indirectly, ten percent (10%) or more of the voting capital shares (or
equivalent control) of such party.
Chordiant and Third Party Provider have entered into an agreement dated ___
("Chordiant Agreement") pursuant to which Chordiant has obtained the right to
use and distribute (description or name of software to be provided) ("Third
Party Software") to licensees of Chordiant's products, provided that Chordiant
includes in all license agreements with such licensees certain terms and
conditions regarding the use of such Third Party Software ("Pass Thru Terms").
EDS and Third Party Provider have entered into an agreement dated ____ (the
"EDS Agreement"), pursuant to which EDS has obtained the rights to use the Third
Party Software.
Third Party Provider hereby authorizes Chordiant to distribute to EDS the Third
Party Software for use with Chordiant's products without a license agreement
containing the Pass Thru Terms, and agrees that Chordiant shall remain obligated
to pay to Third Party Provider any amounts that may be due to Third Party
Provider as a result of such distribution pursuant to the Chordiant Agreement.
EDS and Third Party Provider agree that EDS' use of the Third Party Software
shall be pursuant to the EDS Agreement.
Third Party Provider hereby forever generally and completely releases and
discharges Chordiant, its servants, agents, directors, officers and employees,
and all others, of and from any and all claims and demands of every kind and
nature, in law, equity or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, and in particular of and from all claims
and demands of every kind and nature, known and unknown, suspected and
unsuspected, disclosed and undisclosed, for damages actual and consequential,
past, present and future, arising out of or in any way related to the
Chordiant's distribution of the Third Party Software to EDS. This release,
notwithstanding Section 1542 of the California Civil Code which provides that "a
general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release which if
known by him must have materially affected his settlement with the debtor,"
shall be a full and final release.
The parties by their duly authorized representatives have executed this
Agreement as of the date above.
Chordiant Software, Inc. Electronic Data Systems Corporation
By: _____________________________ By:_____________________________
Name:____________________________ Name: __________________________
Title: __________________________ Title:____________________________
[Third Party Provider]
By: _____________________________
Name:____________________________
Title: __________________________
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT H
END USER SOFTWARE LICENSE AGREEMENT
-----------------------------------
Chordiant will provide EDS with a copy of the End User Software License
Agreement whenever it is revised by Chordiant. EDS will have thirty (30) days to
begin using such revised new End User Software License Agreement from receipt.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.8
April 24, 1998
Sam Spadafora
19188 Crisp Avenue
Saratoga, CA 95070
Re: Employment at Chordiant Software, Inc.
Dear Sam:
Chordiant Software, Inc. (the "Company" or "Chordiant") is pleased to offer you
the position of President and Chief Executive Officer on the terms described
below:
1. As President and CEO of Chordiant, you will work in Palo Alto, California
and perform the duties customarily associated with this position, and such
duties as may be assigned to you by the Company's Board of Directors. Your
start date will be June 1, 1998.
2. Your initial base salary will be $250,000 per year, less standard deductions
and withholdings, paid semi-monthly. Starting in 1999, you will be eligible
for a $200,000 incentive bonus at the discretion of the Board based on
annualized objectives to be established by the Board for your position. As
with all executives, receipt of year-end bonus will be subject to the
achievement of our annual financial plan and individual management
objectives. For 1998, you will be eligible for a $125,000 incentive bonus
based on revised annualized objectives established by the Board after your
employment with the Company commences. You will also receive a $100,000
hiring bonus, less standard deductions and withholdings. This hiring bonus
will be paid in equal payments on the Company's ordinary payroll dates over
a four-month period starting on September 1, 1998, provided that your
employment with the Company does not terminate for any reason.
3. Upon approval by the Board (which approval will be on or about the date your
employment commences with Chordiant), (i) the Company will grant to you a
stock option (the "Stock Option") under the terms of the Company's 1997
Equity Incentive Plan (the "Plan") and (ii) you will be appointed as a
member of the Company's Board of Directors. To the maximum extent possible,
the Stock Option will be an "incentive stock option" (as defined under
Section 422(b) of the Internal Revenue Code of 1986, as amended). The number
of shares subject to the Stock Option shall be 3,615,300, equal to
approximately 7% of the outstanding shares of the Company, including all
outstanding options. The stock option will have an exercise price equal to
the fair market value of Chordiant Common Stock on the date of grant and
will vest over three years, with one-sixth vesting after your first six
months of employment, and five-sixths vesting in equal monthly installments
during the remaining 30 months. In the event of: (a) a sale of substantially
all of the assets of the Company, (b) a merger or consolidation in which the
Company is not the surviving corporation, or (c) the transfer of more than
50% of the voting interests of the Company (each a "Change in Control"),
then you will immediately vest in 50% of the then unvested shares on the
closing date of such Change in Control. Other terms of the stock option will
be consistent with the Company's Plan, this offer letter and the terms of
the Company's standard form of incentive stock option agreement. From time
to time, the Board reviews the
<PAGE>
outstanding option grants for senior Company executives and may issue
additional options in the future at its discretion.
4. The Company will reimburse you for reasonable documented business expenses
pursuant to Company policy. In addition to your salary and incentive
compensation, you will be eligible for the following Company benefits
consistent with Company policy: three weeks of vacation per year, $1,000,000
keyman life insurance, and medical and dental coverage. Dependent medical
and dental coverage is also available, paid in part by the Company and in
part by you, in accordance with Chordiant policy. Details about these
benefits are provided in the Associate Handbook and Summary Plan
Descriptions. Of course, the Company reserves the right to modify your
compensation and benefits from time to time, as it deems necessary.
5. You will be expected to abide by all of the Company's policies and
procedures. As a further condition of your employment, you agree to refrain
from any unauthorized use or disclosure of the Company's proprietary or
confidential information or materials. You also agree to sign and comply
with the Company's Proprietary Information and Inventions Agreement
(attached). By accepting this offer, you are representing that you are not a
party to any agreement or subject to any restrictions (e.g., a non-compete)
with any third party or prior employer that would conflict with or inhibit
your performance of your duties with Chordiant.
6. Either you or the Company may terminate your employment relationship at any
time for any reason whatsoever, with or without cause or advance notice. If
the Company terminates your employment without cause at any time, (i) the
Company will: (a) make severance payments to you in the form of continuation
of your base salary in effect on the termination date for 12 months
following the termination date, payable on the Company's ordinary payroll
dates, subject to standard payroll deductions and withholdings; and (b) if
you elect continued coverage under COBRA, the Company will pay your COBRA
premiums for up to 12 months, provided, however, that the Company's
obligation to make these payments will cease immediately if you become
eligible for other health insurance benefits at the expense of a new
employer; and (ii) the vesting under the Stock Option will be automatically
accelerated so that you will immediately vest in 50% of the then unvested
shares. As a condition to your right to receive any of the payments or
benefits provided above you agree that you shall provide to the Company a
full release and waiver of any claims or rights against the Company or
related parties, in a form acceptable to the Company.
7. If you resign or your employment is terminated for cause, all compensation
and benefits will cease immediately, and you will receive none of the items
listed under items (a) through (d) of paragraph 6 above. For purposes of
this letter agreement, "cause" means misconduct, including: (a) conviction
of any felony or an crime involving moral turpitude or dishonesty; (b)
participation in a fraud or act of dishonesty against the Company; (c)
willful breach of the Company's policies; (d) intentional damage to the
Company's property; (e) material breach of this Agreement or your
Proprietary Information and Inventions Agreement; or (f) conduct by you
that, in the good faith and reasonable determination of the Board,
demonstrates gross unfitness to serve. Physical or mental disability will
not constitute cause.
8. This letter constitutes the complete, final and exclusive embodiment of the
entire agreement between you and Chordiant with respect to the terms and
conditions of your employment. In entering into this agreement, neither
party is relying upon any promise or representation, written or oral, other
than those expressly contained herein, and this agreement supersedes any
other
2
<PAGE>
such promises, representations or agreements. It may not be amended or
modified except in a written agreement signed by you and a duly authorized
Company officer. As required by law, this offer of employment is subject to
proof of your right to work in the United States.
If you choose to accept our offer as described above, please sign below and
return this letter to me by the close of business on May 4, 1998.
I am enthusiastic about the prospect of your leading the Chordiant team, and
look forward to working with you to build an outstanding Company.
Very truly yours,
Chordiant, Inc.
/s/ Kathryn Gould
By: Kathryn Gould
Director
Attachment A - Proprietary Information and Inventions Agreement
Agreed and Accepted:
By: /s/ Sam Spadafora
_________________________
Sam Spadafora
Date: 5/4/98
_______________________
3
<PAGE>
Exhibit 10.9
December 9, 1998
Dear Sam Spadafora:
This letter sets forth the agreement (the "Agreement") that we have reached
concerning my separation from Chordiant Software, Inc. ("Chordiant" or the
"Company"). If these terms are acceptable, please sign where indicated and
return a signed copy of this letter agreement to me.
1. Employment Separation. I will continue as an employee of Chordiant
---------------------
through December 31, 1998 (Termination Date"). During this employment period,
Chordiant will continue to compensate me at my current base salary (including
car allowance) and continue to provide me with my current benefits. Effective as
of the close of business on December 31, 1998, my employment with Chordiant will
terminate and, except as provided herein, all salary, benefits and other
compensation will end. On the Termination Date, Chordiant will pay me all of my
accrued salary, and all accrued but unused vacation, subject to standard payroll
deductions and withholdings.
2. Severance Payments. Beginning on January 1, 1999 or the Effective Date
------------------
(as defined in paragraph 13 below), whichever is later, Chordiant will make
severance payments to me in the form of continuation of the base salary and car
allowance in effect on the Termination Date for a period of twelve (12) months
(the "Severance Period"), payable on the Company's ordinary payroll dates,
subject to standard payroll deductions and withholdings.
3. Health Benefits. To the extent provided by the federal COBRA law or, if
---------------
applicable, state insurance laws, and by the Company's current group health
insurance policies, I will be eligible to continue my group health insurance
benefits at my own expense after the Termination Date. Later, I may be able to
convert to an individual policy through the provider of the Company's health
insurance, if I wish.
4. Equity. I have previously purchased seven million five hundred thousand
------
(7,500,000) shares of Common Stock, currently held in the name of Carol Realini,
Trustee of the Tumminaro Family Trust, dated October 13, 1993; Chordiant has no
repurchase rights in respect of such shares. I have been granted options to
purchase an aggregate of forty thousand seven hundred forty six (40,746) shares
of Common Stock, all of which shares are vested as of November 30, 1998, and
exercisable in accordance with the terms of the applicable stock option
agreements. I have also been granted an option to purchase four thousand forty
five (4,045) shares of Common Stock, none of which shares are vested as of
November 30, 1998. Under the terms of such option grant, the vesting of such
shares will continue to vest for so long as I serve as a member of the Board of
Directors. Under the terms of such option grant, I will be entitled to exercise
all or any portion of any vested shares of the foregoing options at any time on
or prior to the thirtieth (30th) day following the date I cease to be a member
of the Board of Directors.
5. Other Compensation or Benefits. I acknowledge that, except as expressly
------------------------------
provided in this Agreement, I will not receive any additional compensation,
severance or benefits after the Termination Date.
6. Expense Reimbursement. I agree that, within ten (10) business days of
---------------------
the Termination Date, I will submit my final documented expense reimbursement
statement reflecting all business expenses I incurred through the Termination
Date, if any, for which I seek reimbursement. The Company will reimburse I for
these expenses pursuant to its regular business practice.
<PAGE>
7. Return of Company Property. By the Termination Date, I agree to return
--------------------------
to the Company all Company documents (and all copies thereof) and other Company
property that I have had in my possession at any time, including, but not
limited to, Company files, notes, drawings, records, business plans and
forecasts, financial information, specifications, computer-recorded information,
tangible property (including, but not limited to, computers), credit cards,
entry cards, identification badges and keys; and, any materials of any kind that
contain or embody any proprietary or confidential information of the Company
(and all reproductions thereof).
8. Public Announcement. We will mutually agree on the content of a public
-------------------
announcement concerning my separation from Chordiant. Any public comments by
Chordiant or me concerning my separation will be consistent with the content of
the agreed-upon announcement.
9. Proprietary Information Agreement. I hereby confirm that I will abide
---------------------------------
by the Employee Confidentiality Agreement that I entered into with the Company
(attached hereto as Exhibit A).
10. Nondisparagement. I agree not to make any disparaging remarks
----------------
concerning Chordiant, and Chordiant, and its officers and directors, agree not
to make any disparaging remarks about me.
11. Confidentiality. The provisions of this Agreement will be held in
---------------
strictest confidence by me and the Company and will not be publicized or
disclosed in any manner whatsoever; provided, however, that: (a) I may disclose
this Agreement to my immediate family; (b) the parties may disclose this
Agreement in confidence to their respective attorneys, accountants, auditors,
tax preparers, and financial advisors; (c) the Company may disclose this
Agreement as necessary to fulfill standard or legally required corporate
reporting or disclosure requirements; and (d) the parties may disclose this
Agreement insofar as such disclosure may be necessary to enforce its terms or as
otherwise required by law. In particular (and without limitation), I agree not
to discuss this Agreement with any present or former Company employee or
contractor, or third party, except as expressly permitted in this paragraph.
12. Release by Me. In exchange for the severance payments and other
-------------
consideration under this Agreement to which I would not otherwise be entitled
and except as otherwise set forth in this Agreement, I hereby release, acquit
and forever discharge the Company, its parents and subsidiaries, and its and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims, liabilities,
demands, causes of action, costs, expenses, attorneys fees, damages, indemnities
and obligations of every kind and nature, in law, equity, or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed, arising out
of or in any way related to agreements, events, acts or conduct at any time
prior to and including the date this Agreement is signed, including but not
limited to: all such claims and demands directly or indirectly arising out of
or in any way connected with my employment with the Company or the termination
of that employment; claims or demands related to salary, bonuses, commissions,
stock, stock options, or any other ownership interests in the Company, vacation
pay, fringe benefits, expense reimbursements, severance pay, or any other form
of compensation; claims pursuant to any federal, state or local law, statute or
cause of action including, but not limited to, the federal Civil Rights Act of
1964, as amended; the federal Americans with Disabilities Act of 1990; the
California Fair Employment and Housing Act, as amended; tort law; contract law;
wrongful discharge; discrimination; harassment; fraud; defamation; emotional
distress; and breach of the implied covenant of good faith and fair dealing.
Notwithstanding the foregoing, this release specifically excludes claims that I
may have for
<PAGE>
indemnification relating to any act or omission by me within the authorized
course and scope of my employment with the Company; claims that arise out of the
Company's obligations under this Agreement; and claims that arise after the date
I sign this Agreement related to my rights as a shareholder of Choridant or as a
member of the Company's Board of Directors.
13. ADEA Waiver. I acknowledge that I am knowingly and voluntarily waiving
-----------
and releasing any rights I may have under the federal Age Discrimination in
Employment Act of 1967, as amended. I also acknowledge that the consideration
given for the waiver in the above paragraph is in addition to anything of value
to which I was already entitled. I further acknowledge that I have been advised
by this writing, as required by the ADEA that: (a) my waiver and release do not
apply to any claims that may arise after I sign this Agreement; (b) I have been
advised to consult with an attorney prior to executing this Agreement; (c) I
have twenty-one (21) days within which to consider this Agreement (although she
may choose to voluntarily execute this Agreement earlier); (d) I have seven (7)
days following the execution of this Agreement to revoke the Agreement; (e) this
Agreement will not be effective until the date upon which the revocation period
has expired, which will be the eighth day after this Agreement is executed by
me, provided that the Company has also signed the Agreement by that date
("Effective Date").
14. Release by the Company. The Company hereby releases, acquits and
----------------------
forever discharges me and my agents, successors, assigns and affiliates from any
and all claims, liabilities, demands, causes of action, costs, expenses,
attorneys fees, damages, indemnities, and obligations of every kind and nature,
in law, equity, or otherwise, known and unknown, suspected and unsuspected,
disclosed and undisclosed arising out of or in any way related to agreements,
events, acts or conduct at any time prior to and including the date the Company
executes this Agreement, relating to any act or omission by me within the
authorized course and scope of my employment with the Company, with the
exception of any claim arising out of my obligations under this Agreement or my
proprietary information obligations.
15. Section 1542 Waiver. In giving these releases, which includes claims
-------------------
that may be unknown to the parties at present, the Company and I both
acknowledge that each has read and each understands Section 1542 of the
California Civil Code, which reads as follows: "A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor." The Company and I hereby
expressly waive and relinquish all rights and benefits under that section and
any law of any jurisdiction of similar effect with respect to their respective
releases of any claims I may have against the Company or the Company may have
against me.
16. Entire Agreement. We agree that this letter agreement, including
----------------
Exhibit A, contains all of our agreements and understandings and fully
supercedes any prior agreements, promises, warranties, representations or
understandings that we may have had regarding the subject matter of this letter
agreement. It is entered into without reliance on any promise or representation,
written or oral, other than those expressly contained herein. This Agreement may
not be modified or amended except in a writing signed by both me and a duly
authorized officer of the Company. This Agreement will bind the heirs, personal
representatives, successors and assigns of the Company and me, and inure to the
benefit of the Company and me, the parties' heirs, successors and assigns. If
any provision of this Agreement is determined to be invalid or unenforceable, in
whole or in part, this determination will not affect any other provision of this
Agreement and the provision in question will be modified by the court so as to
be rendered enforceable. The laws of the State of California will govern this
letter agreement.
<PAGE>
17. Acknowledgements. We agree that (a) we have had the opportunity to
----------------
consult counsel in regard to this letter agreement, (b) that we have read and
understand the agreement, and (c) that we are entering into this letter
agreement freely and voluntarily and based on our own judgment and not on any
representations or promises, other than those contained in this letter
agreement.
To acknowledge the Company's agreement, please sign on the line provided below
and return the original to me.
Sincerely,
/s/ Carol Realini
Carol Realini
The conditions set forth in this letter agreement are accepted and agreed to:
CHORDIANT SOFTWARE, INC.
By: /s/ Sam Spadafora
Title: President & CEO
Date: 12/10/98
Exhibit A - Employee Confidentiality Agreement
<PAGE>
EXHIBIT 10.10
August 23, 1999
Mr. John Palmer
P.O. Box 8333
Belmont, CA 94002
Dear John:
This letter sets forth the substance of the separation agreement (the
"Agreement") which Chordiant Software, Inc. (the "Company") is offering to you
to aid in your employment transition.
1. Separation. Your last day of work with the Company will be August 26,
1999 (the "Separation Date"). You will be placed on unpaid leave and your
employment will terminate six months following the Separation Date on February
26, 2000.
2. Accrued Salary and Paid Time Off. On the Separation Date, the Company
will pay you all accrued salary, and all accrued and unused vacation earned
through the Separation Date, subject to standard payroll deductions and
withholdings. You are entitled to these payments regardless of whether or not
you sign this Agreement.
3. Severance Benefits. Although the Company has no policy or procedure for
providing severance benefits, the Company will continue your base salary in
effect on the Separation Date for the six (6) month paid leave following the
Separation Date until February 26, 2000. These payments will be made on the
Company's ordinary payroll dates, and will be subject to standard payroll
deductions and withholdings. There will also be no accrual of paid time off or
vacation time during this six-month period and you will not be eligible for
further vesting on any stock options after the Separation Date.
4. Health Insurance. To the extent provided by the federal COBRA law or,
if applicable, state insurance laws, and by the Company's current group health
insurance policies, you will be eligible to continue your group health insurance
benefits at your own expense. Later, you may be able to convert to an individual
policy through the provider of the Company's health insurance, if you wish. If
you elect continued coverage under COBRA, the Company, as part of this
Agreement, will pay your COBRA premiums for coverage through February 26, 2000.
5. Stock Purchase Agreement and Promissory Note. As provided in your stock
option agreements, you will have the right to exercise your vested stock options
for a period up to either thirty (30) days or ninety (90) days of the date of
the termination of your employment on February 26, 2000. To assist you in
exercising your vested options, the Company is prepared to allow you to exercise
your vested options on 376,098 shares of Company common stock with a full-
recourse promissory note for the full exercise price of the options of Fifty-One
Thousand Forty-One Dollars and Thirty-Nine Cents ($51,041.39) on the terms in
the stock purchase
<PAGE>
agreement (and attachments thereto) in the form attached as Exhibit C. If you
wish to exercise all of your options using the promissory note, you must do so
with within thirty (30) days of the date of termination of your employment on
February 26, 2000. The promissory note will bear interest at the lowest rate
permitted by the Internal Revenue Service at which you will not be deemed to
receive imputed income under Section 7872 of the Internal Revenue Code (which,
for August 1999, is 5.36% per year, compounded semi-annually). The interest and
principal payable under the promissory note will not be due until the end of
eighteen months (18) months. The promissory note will be secured by a pledge of
the stock purchased with the stock options which will be placed in escrow with
the Company's legal counsel, Cooley Godward LLP.
6. Other Compensation or Benefits. You acknowledge that, except as
expressly provided in this Agreement, you will not receive any additional
compensation, severance or benefits after the Separation Date.
7. Expense Reimbursements. You agree that, within ten (10) days of the
Separation Date, you will submit your final documented expense reimbursement
statement reflecting all business expenses you incurred through the Separation
Date, if any, for which you seek reimbursement. The Company will reimburse you
for these expenses pursuant to its regular business practice.
8. Return of Company Property. By the Separation Date, you agree to return
to the Company all Company documents (and all copies thereof) and other Company
property that you have had in your possession at any time, including, but not
limited to, Company files, notes, drawings, records, business plans and
forecasts, financial information, specifications, computer-recorded information,
tangible property (including, but not limited to, computers), credit cards,
entry cards, identification badges and keys; and, any materials of any kind that
contain or embody any proprietary or confidential information of the Company
(and all reproductions thereof).
9. Proprietary Information Obligations. You acknowledge your continuing
obligations under your Proprietary Information and Inventions Agreement not to
use or disclose any confidential or proprietary information of the Company
without prior written authorization from a duly authorized representative of the
Company. A copy of your Proprietary Information and Inventions Agreement is
attached hereto as Exhibit C.
10. Confidentiality. The provisions of this Agreement will be held in
strictest confidence by you and the Company and will not be publicized or
disclosed in any manner whatsoever; provided, however, that: (a) you may
disclose this Agreement to your immediate family; (b) the parties may disclose
this Agreement in confidence to their respective attorneys, accountants,
auditors, tax preparers, and financial advisors; (c) the Company may disclose
this Agreement as necessary to fulfill standard or legally required corporate
reporting or disclosure requirements; and (d) the parties may disclose this
Agreement insofar as such disclosure may be necessary to enforce its terms or as
otherwise required by law. In particular, and without limitation, you agree not
to disclose the terms of this Agreement to any current or former Company
employee.
<PAGE>
11. Nondisparagement. Both you and the Company agree not to disparage the
other party, and the other party's officers, directors, employees, shareholders
and agents, in any manner likely to be harmful to them or their business,
business reputation or personal reputation; provided that both you and the
Company will respond accurately and fully to any question, inquiry or request
for information when required by legal process.
12. Release. In partial exchange for the salary continuation, COBRA
payments, Stock Purchase Agreement (including the continuing opportunity to
purchase Company stock with a promissory note) and other consideration under
this Agreement to which you would not otherwise be entitled, you agree to
execute the Employee Agreement and Release attached hereto as Exhibit A. If
requested by the Company, you agree to execute another Employee Agreement and
Release in the form attached as Exhibit A to be effective as of the date of the
termination of your employment.
13. Noninterference. You acknowledge that during your employment with the
Company, you obtained proprietary and confidential information about employees,
independent contractors and consultants, including but not limited to, salary
history, bonuses, performance evaluations and other confidential personnel
information. Accordingly and in further partial exchange for the salary
continuation, COBRA payments, Stock Purchase Agreement (including the continuing
opportunity to purchase Company stock with a promissory note) and other
consideration under this Agreement, you agree that for the period of two years
after the Separation Date, you will not induce any employee, independent
contractor or consultant to terminate their relationship with the Company to
become an employee, independent contractor or consultant for any other company,
person or entity, because you acknowledge that to do so would require you to
draw upon confidential Company information you obtained during your employment
with the Company. In addition, you acknowledge that during your employment with
the Company, you obtained proprietary and confidential information about Company
customers, including but not limited to, customer lists, key customer contacts,
prices and costs, special customer needs and characteristics, billing rates,
profit margins and other customer financial information, and the preferences of
the customer's key decision makers and the most effective approaches to these
key decision makers. You also agree that for two years after the Separation
Date, you will not solicit the business of any client or customer of the Company
on behalf of any other person or entity, because you acknowledge that to do so
would require you to disclose Company proprietary information.
14. Non-Competition. In partial exchange for the salary continuation,
COBRA payments, Stock Purchase Agreement (including the continuing opportunity
to purchase Company stock with a promissory note) and other consideration under
this Agreement to which you would not otherwise be entitled, you agree that you
will not directly or indirectly engage or aid another person or entity (in any
capacity such as a consultant, agent, principal, director, partner, shareholder
or employee) to engage in a business which competes with any business of the
Company for the period of your paid leave and the eighteen-month period of the
promissory note following thereafter. A breach of the foregoing provision will
result in the immediate acceleration of the amounts owed under the promissory
note and repayment by you to the Company of the promissory note, salary
continuation, COBRA payments and other consideration under this Agreement. If
the immediately preceding provisions in this section are determined to be
invalid or unenforceable, in whole or in part, this determination will not
affect any other
<PAGE>
provision of this Agreement and the foregoing provisions will be modified by the
court for such period of time and in such manner so as to be rendered
enforceable.
15. Miscellaneous. This Agreement, including all of its Exhibits,
constitutes the complete, final and exclusive embodiment of the entire agreement
between you and the Company with regard to this subject matter. It is entered
into without reliance on any promise or representation, written or oral, other
than those expressly contained herein, and it supersedes any other such
promises, warranties or representations. This Agreement may not be modified or
amended except in a writing signed by both you and a duly authorized officer of
the Company. This Agreement will bind the heirs, personal representatives,
successors and assigns of both you and the Company, and inure to the benefit of
both you and the Company, their heirs, successors and assigns. If any provision
of this Agreement is determined to be invalid or unenforceable, in whole or in
part, this determination will not affect any other provision of this Agreement
and the provision in question will be modified by the court so as to be rendered
enforceable. This Agreement will be deemed to have been entered into and will be
construed and enforced in accordance with the laws of the State of California as
applied to contracts made and to be performed entirely within California.
If this Agreement is acceptable to you, please sign below and on the attached
Employee Agreement and Release, which is part of this Agreement, and return the
originals of both to me.
I wish you good luck in your future endeavors.
Sincerely,
Chordiant Software, Inc.
By: /s/ Steven R. Springsteel
----------------------------
Steven R. Springsteel
EVP-Chief Financial Officer
Exhibit A - Employee Agreement and Release
Exhibit B - Stock Purchase Agreement
Exhibit C - Proprietary Information and Inventions Agreement
Agreed:
/s/ John Palmer
- ---------------------------
John Palmer
<PAGE>
Exhibit A
EMPLOYMENT AGREEMENT AND RELEASE
I agree to the terms in the foregoing letter Agreement.
Except as otherwise set forth in this Agreement, I hereby release, acquit
and forever discharge the Company, [its parents and subsidiaries, and] its [and
their] officers, directors, agents, servants, employees, attorneys,
shareholders, successors, assigns and affiliates, of and from any and all
claims, liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the execution date of this Agreement,
including but not limited to: all such claims and demands directly or
indirectly arising out of or in any way connected with my employment with the
Company or the termination of that employment; claims or demands related to
salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law, statute, or cause of action including, but not
limited to, the federal Civil Rights Act of 1964, as amended; the federal
Americans with Disabilities Act of 1990; the federal Age Discrimination in
Employment Act of 1967, as amended ("ADEA"); the California Fair Employment and
Housing Act, as amended; tort law; contract law; wrongful discharge;
discrimination; harassment; fraud; defamation; emotional distress; and breach of
the implied covenant of good faith and fair dealing.
I acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the ADEA, as amended. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph hereof
is in addition to anything of value to which I was already entitled. I further
acknowledge that I have been advised by this writing, as required by the ADEA,
that: (a) my waiver and release do not apply to any rights or claims that may
arise after the execution date of this Agreement; (b) I have been advised hereby
that I have the right to consult with an attorney prior to executing this
Agreement; (c) I have twenty-one (21) days to consider this Agreement (although
I may choose to voluntarily execute this Agreement earlier); (d) I have seven
(7) days following the execution of this Agreement by the parties to revoke the
Agreement; and (e) this Agreement will not be effective until the date upon
which the revocation period has expired, which will be the eighth day after this
Agreement is executed by me, provided that the Company has also executed this
Agreement by that date ("Effective Date").
I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS. In giving this release, which includes claims which may be
unknown to me at present, I acknowledge that I have read and understand Section
1542 of the California Civil Code which reads as follows: "A general release
does not extend to claims which the creditor does not know or suspect to exist
in his favor at the time of executing the release, which if known by him must
have materially affected his settlement with the debtor." I hereby expressly
waive and relinquish all rights and benefits under that section and any law of
any jurisdiction of similar effect with respect to my release of any unknown or
unsuspected claims I may have against the Company.
Date: 27-Aug-99 By: /s/ John Palmer
------------------- -----------------------
John Palmer
<PAGE>
Exhibit C
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
<PAGE>
[LOGO] Employee Confidentiality & Invention Agreement
In consideration of my employment or continued employment with J. Frank
Consulting, Inc., a California corporation ("J. Frank"), I agree to the
following:
1. I understand that during the term of my employment with J. Frank, I may
produce, obtain, make known or learn about certain information which has
commercial value in the business in which J. Frank, is engaged and which is
treated by J. Frank as confidential. This information may have been
created, discovered or developed by J. Frank or otherwise received by J.
Frank from third parties subject to a duty to maintain the confidentiality
of such information. All such information is hereinafter called
"Proprietary Information." Proprietary Information includes, but is not
limited to, trade secrets, inventions, (whether patentable or not), ideas,
processes, programs, formulas, materials, substances, technology, research,
know-how, improvements, discoveries, developments, designs, inventions,
techniques, marketing plans, strategies, forecasts, new products,
unpublished financial statements, budgets, projections, prices, costs, and
customer lists.
2. I understand that all Proprietary Information shall be the sole property of
J. Frank and J. Frank shall be the sole owner of all patents, copyrights
and other rights in connection therewith. I hereby assign to J. Frank any
rights I may have or acquire in such Proprietary Information and in any
Proprietary Information that I may make or conceive while working for J.
Frank. I will promptly disclose to J. Frank any Proprietary Information
that is made or conceived or reduced to practice or learned by me, either
alone or jointly with others, during the period of my services to J. Frank
that are related to or useful in the business of J. Frank or result from
tasks assigned me by J. Frank or result from use of premises owned, leased,
or contracted for by J. Frank. At all times, both during the term of my
employment with J. Frank and after its termination, I will keep in
strictest confidence and trust all Proprietary Information, and I will not
use, reproduce or disclose any Proprietary Information without the written
consent of J. Frank, except as may be necessary in the ordinary course of
performing my duties as an employee of J. Frank.
3. I further agree to do all acts necessary, both during and after the
termination of my employment, to assist J. Frank in every proper way to
obtain and enforce patents or copyrights on Proprietary Information in any
and all countries, and to that end I will execute all documents for use in
applying for and obtaining such patents thereon and enforcing same, as J.
Frank may desire, together with any assignments thereof to J. Frank or
persons designated by it. J. Frank shall pay all reasonable expenses
related to such activities.
4. I understand that any provision in this Agreement requiring me to assign my
rights in any invention does not apply to any invention which qualifies
under the provisions of Section 2870 of the California Labor Code, which
states the following:
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in
an invention to his or her employer shall not apply to an invention
that the employee developed entirely on his or her own time without
using the employer's equipment, supplies, facilities, or trade secret
information except for those inventions that either:
<PAGE>
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from
being required to be assigned under subdivision (a), the provision is
against the public policy of this state and is unenforceable.
5. I understand that, in performing my work for J. Frank, I am not to breach
any obligation of confidentiality or duty that I have to any former
employer or other, person. If my work for J. Frank begins to involve an
area of research or any other aspect of J. Frank's business that I believe
would conflict with any obligation of confidentiality that I may have to a
former employer or any other person, I will promptly notify my direct
supervisor or an officer of J. Frank so that any potential conflict can be
avoided or resolved.
6. I understand that nothing contained in this Agreement implies an obligation
on the part of J. Frank to retain my services as an employee for any
specified period of time. I acknowledge and agree that my employment with
J. Frank is at will and may be terminated by J. Frank or me at any time for
any or for no reason.
By signing this Agreement, I acknowledge that I have received a copy of this
Agreement and written notification of the provisions of Labor Code Section 2870.
Name (please print): JOHN C. PALMER Date: Aug 5, 1996
--------------------------- -------------------
Employee Signature: /s/ John C. Palmer
----------------------------
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
------------------------------
(1) Chordiant International, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated November 30, 1999, relating to the consolidated financial
statements of Chordiant Software, Inc., which appears in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
December 6, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-01-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 1,713 21,077
<SECURITIES> 1,051 0
<RECEIVABLES> 5,643 3,017
<ALLOWANCES> 254 284
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,427 24,552
<PP&E> 5,568 6,071
<DEPRECIATION> 2,702 3,657
<TOTAL-ASSETS> 11,521 27,276
<CURRENT-LIABILITIES> 18,589 17,184
<BONDS> 0 0
28,949 51,109
0 0
<COMMON> 5 5
<OTHER-SE> (37,609) (52,212)
<TOTAL-LIABILITY-AND-EQUITY> 11,521 27,276
<SALES> 12,465 12,247
<TOTAL-REVENUES> 12,465 12,247
<CGS> 9,372 9,983
<TOTAL-COSTS> 30,345 27,006
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 121 747
<INCOME-PRETAX> (17,440) (15,436)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (17,440) (15,436)
<EPS-BASIC> (3.44) (2.94)
<EPS-DILUTED> (3.44) (2.94)
</TABLE>
