<PAGE>
As filed with the Securities and Exchange Commission on January 19, 2000
Registration No. 333-92187
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
AMENDMENT NO. 1
TO
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. Richard C. Leslea, 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(3)
- ----------------------------------------------------------------------------------------------
</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.
(3) Previously paid. --------------------
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 JANUARY 19, 2000
PRELIMINARY PROSPECTUS
[LOGO OF CHORDIANT SOFTWARE, INC.]
4,500,000 Shares
Common Stock
Chordiant Software, Inc. is offering 4,500,000 shares of its common stock.
This is our initial public offering, and no public market currently exists for
our shares. We have applied to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "CHRD." 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 , 2000
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
The inside front cover graphic for Chordiant will be a single page (not
gate folded):
On the top center of the inside front cover there will be the Chordiant
logo. Below the logo the page will read e-Business Infrastructure Software.
In the middle of the page the following graphic will appear:
The graphic is circular in shape with two layers. The inside layer contains
images of 3 men and women who are on the telephone and working with
computers. Five words are written (equal distant apart) inside the outside
circular layer: FAX, INTERNET, PHONE, EMAIL, INTERACTIVE TV. The outer
layer has a shadow of a woman on the bottom left of the outer circle and a
vertical view of 3 skyscrapers. Eight words are written in oval blocks
(equal distant apart) inside the outer layer of the circle: CUSTOMER
DATABASE, SALES, MARKETING, CUSTOMER SERVICE, FIELD SERVICE, PRODUCT
OFFERING, BILLING, FULFILLMENT.
At the bottom of the page the inside front cover will read:
Chordiant provides e-business infrastructure software that enables
companies to offer their customers highly personalized marketing, sales
programs, e-business services, and customer support across multiple
communication channels.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 18
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 22
Business................................................................. 31
Management............................................................... 45
Certain Transactions..................................................... 58
Principal Stockholders................................................... 61
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 67
Underwriting............................................................. 69
Legal Matters............................................................ 71
Experts.................................................................. 71
Where You Can Find More Information...................................... 72
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
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.
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.
In this prospectus, "Chordiant," "we," "us," and "our" refer to Chordiant
Software, Inc. and its wholly owned subsidiary.
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.
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 all channels of customer contact will be able to compete more
successfully in the rapidly changing internet economy.
Customers are placing increasing value on convenient access to products,
information and services. We believe that to be successful in the next
generation of online commerce, commonly referred to as e-business, companies
will need to focus on the customer in developing their business practices. To
attract and retain customers, we believe that companies must develop and
execute a new set of online strategies that provide customers with relevant and
targeted experiences each time interactions take place with the company.
Our product provides an e-business solution that is focused on the
customer, 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. It includes standard business services, a
workflow engine and enterprise integration services
4
<PAGE>
supporting network, telephony, and data management interfaces and interfaces
with existing databases and computer systems. 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 include multinational market leading
business-to-consumer companies such as Bank One International, Cable & Wireless
Communications, Canadian Tire Acceptance Limited, Chase Manhattan Mortgage
Corporation, Metropolitan Life Insurance Company, Direct Line Group Services
Limited, First USA Bank, General Motors' OnStar division, KLM Royal Dutch
Airlines and Thomas Cook Global Services.
Our objective is to continue to provide 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.
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
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.. 34,818,295 shares
Use of proceeds..................................... General corporate
purposes, including
working capital and
capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.............. CHRD
</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 December 31, 1999, and excludes:
. 7,773,658 shares subject to options outstanding as of December 31,
1999, at a weighted average exercise price of $1.82 per share
. 898,276 additional shares that we could issue under our equity
incentive stock option plan;
. 700,000 shares that we could issue under our non-employee directors'
stock option plan; and
. 2,000,000 shares that we could issue under our employee stock purchase
plan.
6
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenues:
License......................................... $ 1,142 $ 4,360 $ 8,007
Service......................................... 1,766 8,105 9,581
-------- -------- --------
Total net revenues.......................... 2,908 12,465 17,588
Cost of net revenues............................. 1,535 9,372 14,749
-------- -------- --------
Gross profit .................................... 1,373 3,093 2,839
Loss from operations............................. (11,923) (17,880) (22,351)
Net loss......................................... $(11,593) $(17,440) $(23,137)
======== ======== ========
Net loss per share:
Basic and diluted............................... $ (2.31) $ (3.44) $ (4.34)
======== ======== ========
Weighted average shares......................... 5,009 5,075 5,327
======== ======== ========
Pro forma net loss per share (unaudited):
Basic and diluted............................... $ (0.93)
========
Weighted average shares......................... 24,805
========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Actual Pro Forma As Adjusted
-------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................... $ 6,719 $ 6,719 $43,284
Working capital............................... 1,833 1,833 38,398
Total assets.................................. 22,086 22,086 58,651
Borrowings.................................... 13,225 3,225 3,225
Deferred revenues............................. 10,196 10,196 10,196
Mandatorily redeemable convertible preferred
stock....................................... 51,609 -- --
Stockholders' equity (deficit)................ (57,782) 3,827 40,392
</TABLE>
See note 2 of notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing per
share data.
The pro forma consolidated balance sheet data reflects the conversion of
outstanding shares of preferred stock and convertible debt that will be
effective upon the closing of this offering. The as adjusted balance sheet data
reflects the net proceeds from the sale by us of shares of common stock in this
offering at an assumed initial public offering price of $9.00 per share, after
deducting underwriting discounts and commissions and offering expenses, and our
estimated offering expenses.
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. 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 investors and result
in a decline in our stock price.
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. Due to our short operating history, our
future financial performance is not predictable and may disappoint investors
and result in a decline in our stock price. 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.
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. Continued losses may result in a decline in our stock price
and make it difficult to obtain future financing for our business. We incurred
net losses of $11.6 million for 1997, $17.4 million for 1998 and $23.1 million
for 1999. As of December 31, 1999, we had an accumulated deficit of $62.6
million. Moreover, we expect to continue to incur significant sales and
marketing and research and development expenses and to establish additional
sales offices domestically and internationally, and, as a result, we will need
to generate significant revenues to achieve and maintain profitability. We
cannot be certain that we can sustain this growth or that we will generate
sufficient revenues to achieve profitability.
Our operating results fluctuate significantly and an unanticipated decline in
revenues may disappoint investors and result in a decline in our stock price.
Our quarterly revenues will depend primarily upon product implementation by
our customers. 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.
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. 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
8
<PAGE>
historically recognized most of our license and services revenue using the
percentage-of-completion method using labor hours incurred as the measure of
progress towards completion of implementation of our product and we expect this
practice to continue. Thus, delays in implementation by our customers will
reduce our quarterly revenue. Historically, a substantial portion of new
customer orders have been booked in the third month of the calendar quarter,
with a concentration of these bookings in the last two weeks of the third
month. We expect this trend to continue and, therefore, any failure or delay in
bookings would decrease our quarterly deferred revenue.
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.
If existing customers have difficulty deploying our product or for any
other reason are not satisfied with our product, it could damage our reputation
and reduce 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 deployments. To
date, no large-scale deployment has been operating at any customer site and our
product is currently being used by only a limited number of users. Our product
is expected to be deployed on a variety of computer hardware platforms and to
be used in connection with a number of third-party software applications by
personnel who may have not previously used application software systems or our
product. 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. 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.
Our product has a long sales and implementation cycle, which makes it difficult
to predict our quarterly results and may cause operating results to vary
significantly.
The period between initial contact with a prospective customer and the
implementation of our product is often lengthy, ranging to date from three to
twenty-four months. The range is unpredictable and difficult to manage. Thus
deferred revenue could vary significantly from quarter to quarter. Any delays
in the implementation of our product could cause reductions in our revenues.
The licensing of our CCS product is often an enterprise-wide decision that
generally requires us to provide a significant level of education to
prospective customers 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. This approval process is often long and is unpredictable.
Because a small number of customers account for a substantial portion of our
software license revenues, our revenues could decline if we lose a major
customer.
We derive a significant portion of our software license revenues in each
quarter from a limited number of customers. Loss of a major customer in a
particular quarter could cause a decrease in revenue, deferred revenues and net
income. In 1998, sales to our four largest customers, KLM Royal Dutch Airlines,
Thomas Cook Global Services, Canadian Tire Acceptance Limited and Chase
Manhattan Mortgage Corporation accounted for 36%, 19%, 14% and 12% of our total
net revenues. For the year ended December 31, 1999,
9
<PAGE>
revenues from Chase Manhattan Mortgage Corporation and First USA Bank accounted
for 30% and 19% of our total net revenues. We expect that a limited number of
customers will continue to account for a substantial portion of our revenues
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.
Errors may be found from time to time in our new or enhanced products after
commencement of commercial shipments 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.
Complex software products like ours may contain undetected errors or defects
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 introduced in October, 1999.
Our revenues will likely decline if we do not develop and maintain
relationships with system integrators.
Failure to establish or maintain relationships with systems integrators
would significantly harm our ability to license our software product. System
integrators install and deploy our product, in addition to those of our
competitors, and perform custom integration of systems and applications. Some
system integrators also engage in joint marketing and sales efforts with us. If
these relationships fail, we will have to devote substantially more resources
to the sales and marketing, implementation and support of our product than we
would otherwise. Our efforts may also not be as effective as those of the
system integrators, 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 customers.
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 sales of our product.
We may suffer revenue declines if sufficient system integrator implementation
teams are not available.
If the number of installations of our product exceeds our access to the
installation and support 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. 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. In addition, we cannot control the level and quality of service provided
by our current and future implementation partners.
10
<PAGE>
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.
If we are unable to successfully increase penetration of our existing
markets or achieve sales in additional markets, or if the overall economic
climate of our target markets deteriorates, our revenues may decline. Sales of
our products and services in four markets--financial services, travel and
leisure, automotive and telecommunications--accounted for 98% of total net
revenues in 1998 and 87% of our total net revenues in 1999. We expect that
revenues from these four markets will continue to account for a substantial
portion of our total net revenues in 2000. 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.
Continued negative gross margin in service revenues could adversely impact our
overall gross margin and income.
Our services revenues have historically had lower gross margins than our
license revenues. As a result, an increase in the percentage of total net
revenues represented by services revenues, or an unexpected decrease in license
revenues, could have a detrimental impact on our overall gross margins. We
anticipate that service revenues will continue to represent 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. This expansion could further reduce gross margins in our service
revenues.
If we do not successfully hire additional qualified personnel and integrate
them successfully, our net income 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. These demands could divert management from
revenue generating activities and lead to higher administrative expenses. From
September 30, 1997 to December 31, 1999, we expanded from 70 to 144 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 resources.
We depend on technology licensed to us by third parties, and the loss or
inability to maintain these licenses could result in increased costs for, or
delay sales of, our products.
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. 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.
11
<PAGE>
Defects in third party products associated with our CCS product could impair
our CCS products' functionality and injure our reputation.
The effective implementation of our products depends upon the successful
operation of third-party products in conjunction with our products. Any
undetected errors in these products could prevent the implementation or impair
the functionality of our product, delay new product introductions 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. These 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 customers may license competing products and our revenues may
decline.
If we are unable to ship or implement enhancements to our CCS product when
planned, or fail to achieve timely market acceptance of these enhancements, we
may suffer lost sales and could fail to achieve anticipated revenues. The
introduction of enhancements to our CCS product may also cause customers to
defer orders for existing versions, reducing revenues. A majority of our total
revenues have been, and are expected to be, derived from the license of our CCS
product. Our future operating results will depend on the demand for this
product by future customers, including new and enhanced releases that are
subsequently introduced. If our competitors release new products that are
superior to our product in performance or price, or we fail to enhance our
product and introduce new features and functionality in a timely manner, demand
for our product may decline. We 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.
If our product does not operate with the hardware and software platforms used
by our customers, customers may license competing products and our revenues
will decline.
If our product fails to satisfy advancing technological requirements, the
market acceptance of our product could be reduced. We currently serve a
customer base with a wide variety of constantly changing hardware, software
applications and networking platforms. Customer acceptance of our product
depends on many factors such as:
. our ability to integrate our product with multiple platforms and
existing, or legacy systems;
. our ability to anticipate and support new standards, especially
internet standards; and
. the integration of additional software modules under development with
our existing product.
Our reliance on international operations may cause increased operating expenses
and cause our net income to decline.
A significant portion of our revenues have been from the license of our
product and related services outside the United States. We have faced, and will
continue to face, risks associated with:
. difficulties in managing our operations across disparate geographic
areas;
12
<PAGE>
. difficulties in hiring qualified local personnel;
. seasonal fluctuations in customer orders;
. longer accounts receivable collection cycles; and
. expenses associated with localizing products for foreign markets.
Any of these factors could have a significant impact on our ability to deliver
products on a competitive and timely basis and adversely affect our operating
expenses and net income.
In 1998, international revenues were 78% of our total net revenues.
International revenues were 38% of total net revenues in 1999. We expect
international revenues will continue to represent a significant portion of our
total net revenues in future periods.
Our international sales are currently U.S. dollar-denominated. As a result,
an increase in the value of the U.S. dollar relative to foreign currencies
could make our products less competitive in international markets. In the
future, we may elect to invoice some of our international customers in local
currencies. Doing so will subject us to fluctuations in exchange rates between
the U.S. dollar and the particular local currency.
International expansion could be difficult and we may not achieve sales growth.
If we are unable to expand our international operations and sales, and
build relationships with third parties outside the United States on a timely
basis, we may not achieve anticipated sales growth. 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. We have expanded, and intend to continue
expanding, our international operations and enter additional international
markets. In October 1997, we opened an office in London, England and in
January, 2000 we opened an office in the Netherlands. As of December 31, 1999
we had 40 employees based internationally. To increase our international sales
opportunities, we will need to further develop our international sales,
professional services and support organizations, and we will need to form
additional relationships with system integration partners worldwide.
Industry Risks
Competition in our markets is intense and comes from custom-developed products
and vendors of single application 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.
Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share, any one of which could reduce our
future revenues. The market for our product is intensely competitive, evolving
and subject to rapid technological change. The intensity of competition is
expected to increase in the future. Our current competitors include:
Internal 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
is 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 customized
systems may be reluctant to adopt a new approach that may replace, limit or
compete with their existing systems. We expect that we will
13
<PAGE>
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.
Because competition for qualified personnel is intense, we may not be able to
retain or recruit personnel, which could impact the development and sales of
our product.
If we are unable to hire or retain qualified personnel, or if newly hired
personnel fail to develop the necessary skills or to reach expected levels of
productivity, our ability to develop and market our product will be weakened.
Our success depends largely on the continued contributions of our key
management, engineering, sales and marketing and professional services
personnel, including Samuel T. Spadafora, our chairman, president and chief
executive officer. Except for our chief executive officer, we do not have
employment agreements with any of our key personnel. We have experienced
significant turnover in our key personnel in the recent past. 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 become subject to product liability litigation, it could be costly and
time consuming to defend.
Product liability litigation against us, even if it were unsuccessful,
would be time consuming and costly to defend and could damage our reputation.
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. 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 for 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
14
<PAGE>
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 the same 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 net
income.
We expect that software product developers and providers of e-business
software will increasingly be subject to infringement claims as the number of
products and competitors in our industry grows and the functionality of
products overlaps. Any claims, with or without merit, could be costly and time-
consuming to defend, divert our management's attention, or cause product
delays. 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 the internet does not continue to develop as a commercial marketplace, we
may experience reduced demand for our product.
Slower growth of the internet may reduce the demand for our product. Growth
in sales of our product and services depends upon the continued and increased
use of the internet as a medium for commerce and communication. Although both
the number of users and traffic on the internet is growing rapidly, such rapid
growth is a recent phenomenon and may not continue or may not continue at such
a rapid rate.
If the internet is unable to reliably support the demands of widespread
electronic commerce, we may experience reduced demand for our product.
Decreased use of the internet for electronic commerce due to, among other
reasons, reliability concerns or security issues may reduce the demand for our
product. The infrastructure of the internet may not be able to support the
demands placed on it by increased usage and bandwidth requirements. 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 weaken the internet's use as a
commercial medium. If the internet infrastructure does not develop sufficiently
to address these concerns, it may not continue to develop as a commercial
marketplace, and our sales may decrease.
15
<PAGE>
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" 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.
Our charter documents, and Delaware law, may inhibit a takeover or change in
our control and this may reduce the market price of our shares.
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. This may depress the value of our stock. Restrictive 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 preferred stock that could be issued by our
board of directors to increase the number of outstanding shares and
thwart a takeover attempt;
. limitations on the ability of stockholders to call special meetings of
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, as a result, you may lose all or a part of your investment.
The market price of our common stock may fluctuate significantly in
response to factors, including the following, most of which are beyond our
control:
. variations in our quarterly operating results;
. changes in market valuations of similar companies; and
. departures of key personnel.
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.
16
<PAGE>
The cost of possible securities class action litigation could increase our
expenses and damage our reputation with prospective and existing customers.
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 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.
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
shares for a period of 180 days after the date of this prospectus. However,
FleetBoston Robertson Stephens Inc. may 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 30,318,295 shares of our
common stock that were outstanding as of December 31, 1999, after giving effect
to the conversion of all outstanding shares of preferred stock and convertible
debt 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.... 24,355,140
At various times after 180 days after date
of this prospectus....................... 5,963,155
</TABLE>
Additionally, of the 7,773,658 shares issuable upon exercise of options to
purchase our common stock outstanding as of December 31, 1999, approximately
3,679,565 shares will be vested and eligible for sale 180 days after the
completion of this offering.
17
<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.
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. As of December
31, 1999, the outstanding balance of our lines of credit was $2.4 million. We
have not yet determined our expected use of the remaining portion of these
proceeds, but we currently estimate that we will incur at least $32.6 million
in operating expenses during the next 12 months as we increase our investments
in our business. These operating expenses will be partially offset by the
degree to which we continue to receive revenues from the ongoing licensing of
our product.
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.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to:
. the conversion of all of our outstanding shares of preferred stock
and convertible debentures into shares of common stock upon the
closing of this offering;
. no exercise of the underwriters' over-allotment options;
. the filing of our amended and restated certificate of incorporation
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 December 31, 1999
--------------------------------
Pro Forma
Actual Pro forma As Adjusted
-------- --------- -----------
(in thousands)
(unaudited)
<S> <C> <C> <C>
Long-term borrowings......................... $ 10,617 $ 617 $ 617
-------- -------- --------
Mandatorily redeemable convertible preferred
stock: 25,027,985 shares authorized,
22,412,194 shares issued and outstanding,
actual; no issued and outstanding, pro forma
and pro forma as adjusted................... 51,609 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, 51,000,000 shares
authorized; no shares issued and
outstanding
Common stock: 300,000,000 shares
authorized, 5,906,101 shares issued and
outstanding, actual; 30,318,295 shares
issued and outstanding, pro forma; and
34,818,295 shares issued and outstanding,
pro forma as adjusted..................... 6 30 35
Additional paid-in capital................. 14,652 76,237 112,797
Note Receivable from stockholder........... (406) (406) (406)
Unearned compensation...................... (9,470) (9,470) (9,470)
Accumulated deficit........................ (62,564) (62,564) (62,564)
-------- -------- --------
Total stockholders' equity (deficit)...... (57,782) 3,827 40,392
-------- -------- --------
Total capitalization...................... $ 4,444 $ 4,444 $ 41,009
======== ======== ========
</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 upon the
number of shares outstanding as of December 31, 1999, and excludes:
. 7,773,658 shares subject to options outstanding as of December 31, 1999
at a weighted average exercise price of $1.82 per share
. 898,276 additional shares that we could issue under our equity
incentive stock option plan;
. 700,000 shares that we could issue under our non-employee directors'
stock option plan; and
. 2,000,000 additional shares that we could issue under our employee
stock purchase plan.
Of the total shares outstanding, 161,384 shares are subject to our right of
repurchase as of December 31, 1999. Please read the above information in
conjunction with "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.
19
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock, on December 31,
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 $3.8 million, or approximately $0.13 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 December 31, 1999 would have been approximately $40.4
million or $1.16 per share. This represents an immediate decrease in net
tangible book value of $7.84 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 December 31,
1999......................................................... $0.13
Increase per share attributable to new investors............... 1.03
-----
Pro forma net tangible book value after this offering.......... 1.16
-----
Dilution per share to new investors............................ $7.84
=====
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
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......... 30,318,295 87.1% $58,143,845 58.9% $1.92
New investors................. 4,500,000 12.9% 40,500,000 41.1% 9.00
---------- ---- ----------- ----
Total....................... 34,818,295 100% $98,643,845 100%
========== ==== =========== ====
</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. 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 30,068,295, or approximately 86.4% of the total number of
shares of our common stock outstanding; and
. the number of shares held by new investors will increase to 4,750,000,
or approximately 13.6% of the total number of our common stock
outstanding after this offering.
20
<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, 1997, 1998 and
1999, and the consolidated balance sheet data as of December 31, 1998 and 1999,
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, 1995 and 1996, and the consolidated balance sheet
data as of December 31, 1995, 1996 and 1997, are derived from audited financial
statements not included in this prospectus. The historical results are not
necessarily indicative of results to be expected for future periods.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenues:
License...................... $ -- $ -- $ 1,142 $ 4,360 $ 8,007
Service...................... 7,328 2,312 1,766 8,105 9,581
------- ------- -------- -------- --------
Total net revenues....... 7,328 2,312 2,908 12,465 17,588
------- ------- -------- -------- --------
Cost of net revenues:
License...................... -- -- 73 425 397
Service...................... 5,634 2,353 1,462 8,947 14,352
------- ------- -------- -------- --------
Total cost of net
revenues............... 5,634 2,353 1,535 9,372 14,749
------- ------- -------- -------- --------
Gross profit (loss)........... 1,694 (41) 1,373 3,093 2,839
------- ------- -------- -------- --------
Operating expenses:
Sales and marketing.......... 780 1,140 5,142 12,580 13,368
Research and development..... 2,741 4,598 6,240 5,858 6,494
General and administrative... 1,019 1,860 1,416 2,046 2,668
Stock-based compensation..... -- 3 498 489 2,660
------- ------- -------- -------- --------
Total operating
expenses............... 4,540 7,601 13,296 20,973 25,190
------- ------- -------- -------- --------
Loss from operations.......... (2,846) (7,642) (11,923) (17,880) (22,351)
Interest expense.............. -- (55) (112) (121) (1,067)
Other income (expense), net... (44) 135 442 561 281
------- ------- -------- -------- --------
Net loss...................... $(2,890) $(7,562) $(11,593) $(17,440) $(23,137)
======= ======= ======== ======== ========
Net loss per share:
Basic and diluted............ $ (0.58) $ (1.51) $ (2.31) $ (3.44) $ (4.34)
======= ======= ======== ======== ========
Weighted average shares...... 5,000 5,002 5,009 5,075 5,327
======= ======= ======== ======== ========
Proforma net loss per share:
Basic and diluted............ $ (0.93)
========
Weighted average shares...... 24,805
========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents..... $ 2,053 $ 2,678 $ 18,916 $ 1,713 $ 6,719
Working capital (deficit)..... (852) (1,368) 7,767 (10,162) 1,833
Total assets.................. 6,113 7,282 21,360 11,521 22,086
Borrowings.................... 483 1,045 1,268 1,687 13,225
Deferred revenues............. 1,950 4,179 4,402 5,719 10,196
Mandatorily redeemable
convertible preferred
stock....................... 2,014 9,047 28,949 28,949 51,609
Stockholders' equity
(deficit)................... (2,024) (9,586) (20,682) (37,604) (57,782)
</TABLE>
21
<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 the 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 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.
22
<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 54% in 1999. To help ensure the success of early product deployments
by customers, in early 1998 we began establishing a significant service
organization. The organization assists customers, and third parties such as
system integrators, in the design and implementation of our product. Since
service revenues have a lower gross margin than license revenues, this service
activity resulted in reduced overall gross margins. In addition, in the fourth
quarter of 1998 and through 1999, we engaged third parties to provide services
to customers, 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 over 30% of total revenues.
We sell our product through our direct sales force, and augment our sales
efforts through relationships with system integrators, application service
providers and technology vendors. Our revenues, to date, have been derived from
customer accounts in the United States, United Kingdom, Netherlands, Canada and
South Africa. In October 1997, we opened an office in London, England and in
January, 2000 we opened an office in the Netherlands. In 1998, international
revenues were $9.7 million or approximately 78% of our total net revenues and
in 1999, international revenues were $6.6 million or approximately 38% of our
total revenues. We believe international revenues will continue to represent a
significant portion of our total revenues in future periods.
A 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. In 1999, revenues from Chase Manhattan Mortgage Corporation and First
USA accounted for 30% and 19% of our total net revenues. We expect that
revenues from a limited number of customers will continue to account for a
majority 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 144 as of
December 31, 1999, representing an increase of 206%. Generally as a result of
start-up costs, development and increasing sales and marketing expenses, we
have incurred net losses in each quarter since inception and, as of December
31, 1999, had an accumulated deficit of $62.6 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.
23
<PAGE>
Results of Operations
The following tables set forth consolidated statement of operations data
for each of the years ended December 31, 1997, 1998 and 1999, as well as the
percentage of our total net revenues represented by each item. This information
has been derived from the consolidated financial statements included in this
prospectus. You should read this information in conjunction with our annual
audited consolidated financial statements and related notes appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenues:
License....................................... $ 1,142 $ 4,360 $ 8,007
Service....................................... 1,766 8,105 9,581
-------- -------- --------
Total net revenues........................ 2,908 12,465 17,588
-------- -------- --------
Cost of net revenues:
License....................................... 73 425 397
Service....................................... 1,462 8,947 14,352
-------- -------- --------
Total cost of net revenues................ 1,535 9,372 14,749
-------- -------- --------
Gross profit................................... 1,373 3,093 2,839
-------- -------- --------
Operating expenses:
Sales and marketing........................... 5,142 12,580 13,368
Research and development...................... 6,240 5,858 6,494
General and administrative.................... 1,416 2,046 2,668
Stock-based compensation...................... 498 489 2,660
-------- -------- --------
Total operating expenses.................. 13,296 20,973 25,190
-------- -------- --------
Loss from operations........................... (11,923) (17,880) (22,351)
Interest expense.............................. (112) (121) (1,067)
Other income (expense), net................... 442 561 281
-------- -------- --------
Net loss....................................... $(11,593) $(17,440) $(23,137)
======== ======== ========
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
As a Percentage of Total Net Revenues:
Net revenues:
License....................................... 39 % 35 % 46 %
Service....................................... 61 65 54
-------- -------- --------
Total net revenues........................ 100 100 100
-------- -------- --------
Cost of net revenues:
License....................................... 3 3 2
Service....................................... 50 72 82
-------- -------- --------
Total cost of net revenues................ 53 75 84
-------- -------- --------
Gross profit................................... 47 25 16
-------- -------- --------
Operating expenses:
Sales and marketing........................... 177 101 76
Research and development...................... 214 47 37
General and administrative.................... 49 16 15
Stock-based compensation...................... 17 4 15
-------- -------- --------
Total operating expenses.................. 457 168 143
-------- -------- --------
Loss from operations........................... (410) (143) (127)
Interest expense.............................. (4) (1) (6)
Other income (expense), net................... 15 4 1
-------- -------- --------
Net loss....................................... (399)% (140)% (132)%
======== ======== ========
</TABLE>
24
<PAGE>
Net Revenues
License. License revenues consist of licenses of our CCS software. License
revenues increased from $1.1 million in 1997 to $4.4 million in 1998 to $8.0
million in 1999 due to the growth in the number of product implementations by
new customers and higher average transaction size. Our average transaction size
has increased due to deployments by our customers to larger numbers of users.
Service. Service revenues consist of consulting assistance and
implementation, customization and integration, and post-contract customer
support and training. Service revenues increased from $1.8 million in 1997 to
$8.1 million in 1998 to $9.6 million in 1999. The 1998 increase in service
revenues was due to consulting work performed in connection with several large
customer implementations. The revenue increase in 1999 was primarily due to an
increase in service revenues versus the prior period resulting primarily from a
continuation in large customer implementations as well as maintenance, support
and consulting revenues associated with license agreements signed in earlier
periods.
Cost of Net Revenues
License. Cost of license revenues consist primarily of royalty payments to
third parties for technology incorporated in our product. We began 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 revenue was $1.5
million in 1997, $8.9 million in 1998 and $14.4 million in 1999. Our cost of
service revenue increased significantly in 1998 compared to 1997 due to our use
of a third-party service provider to provide implementation services to our
customers and our hiring of additional service personnel. During the year ended
December 31, 1999, we hired a number of additional service personnel in
anticipation of supporting a larger customer base in future periods. These
increased investment efforts to meet anticipated customer demand resulted in
negative gross margins from service revenues for the years ended December 31,
1998 and 1999. We expect that the cost of services revenues will continue to
increase in dollar amount as we continue to expand our professional services
organization to meet anticipated customer demand.
Operating Expenses
Sales and marketing. Sales and marketing expenses consist of salaries,
commissions, field office expenses, travel and entertainment, promotional
expenses and facility costs. Sales and marketing expenses increased from $5.1
million in 1997 to $12.6 million in 1998, and were $13.4 million in 1999. The
increase in these expenses for 1998 compared to 1997 was attributable to
increases of $5.2 million in personnel expenses, $1.6 million in allocated
depreciation and overhead costs, and $600,000 in marketing and advertising
costs. The increase of $788,000 for 1999 compared to 1998 was attributable to
$1.4 million increase in personnel expenses, offset by a decrease in $612,000
of advertising cost. We expect that sales and marketing expenses will continue
to increase in dollar amounts as we continue to expand our sales and marketing
efforts, establish additional U.S. and international sales offices and increase
promotional activities.
Research and development. Research and development expenses include costs
associated with the development and enhancement of our product, quality
assurance activities and allocated facility costs. These costs consist
primarily of employee salaries, benefits and the cost of consulting resources
that supplement our internal development team. Due to the relatively short time
between the date our products achieve technological feasibility and the date
they become generally available to customers, costs subject to capitalization
under SFAS No. 86 have been immaterial and have been expensed as incurred.
Research and development expenses decreased from $6.2 million in 1997 to
$5.9 million in 1998, and were $6.5 million 1999. The decrease in these
expenses for 1998 compared to 1997 was attributable to personnel related
expenses. The increase in these expenses for 1999 compared to 1998 was
attributable to an increase of $350,000 in personnel expenses and an increase
of $250,000 in general and administrative costs. We anticipate that we will
continue to devote
25
<PAGE>
substantial resources to research and development and that these expenses will
continue to increase in dollar amounts.
General and administrative. General and administrative expenses consist of
salaries for administrative, executive and finance personnel, recruiting costs,
information systems costs, professional service fees and allocated facility
costs. These expenses increased from $1.4 million in 1997, to $2.0 million in
1998 and were $2.7 million in 1999. The increase in these expenses for 1998
compared to 1997 was attributable to increases in $100,000 in professional
service fees and $500,000 in facility costs due to the move of our corporate
offices to a larger facility in support of our growing business. The increase
in these expenses for 1999 compared to 1998 was attributable to increases of
personnel expenses. This increase was primarily the result of additional
finance, executive and information services and an increase in outside
contractor expenses associated with increased recruiting efforts and expanded
human resources programs. We believe that our general and administrative
expenses will continue to increase in dollar amounts as a result of our growing
operations and the additional expenses associated with operating as a public
company.
Amortization of stock-based compensation. Amortization of stock-based
compensation includes the amortization of unearned employee stock-based
compensation and expenses for stock granted to consultants in exchange for
services. Employee stock-based compensation expense is amortized over a four-
year vesting schedule using the multiple option approach. In connection with
the grant of some employee stock options, we recorded aggregate unearned stock-
based compensation expense of $11.3 million in 1999. Stock-based compensation
included in operating expenses totalled $498,000 in 1997, $489,000 in 1998 and
$2.7 million in 1999.
Interest and Other Income (Expense), and Interest Expense
Interest and other income (expense), net, and interest expense consists of
interest income generated from our cash, cash equivalents and short-term
investments, interest expense incurred in connection with outstanding
borrowings and other non-operating income and expenses. Interest and other
income (expense), net of interest expense increased from $330,000 in 1997 to
$440,000 in 1998, and was $(786,000) in 1999. The increase in these expenses
for 1998 compared to 1997 was attributable to increased interest income. The
losses for 1999 compared to 1998 was attributable to increase in borrowings,
resulting in increased interest expense.
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 December 31, 1999, we had net operating
loss carryforward for federal tax purposes of approximately $48.0 million and
for state tax purposes of approximately $23.7 million. These federal and state
tax loss carryforwards are available to reduce future taxable income. The
federal tax loss carryforwards expire beginning in 2011 and the state tax loss
carryforwards expire beginning in 2001. Under the provisions of the Internal
Revenue Code, substantial changes in our ownership may limit the amount of net
operating loss carryforwards that could be utilized annually in the future to
offset taxable income.
26
<PAGE>
Quarterly Results of Operations
The following table sets forth unaudited consolidated statement of
operations data for the eight quarters in the period ended December 31, 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.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(in thousands)
(unaudited)
<S> <C> <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 $ 2,682
Service................ 596 1,018 1,731 4,760 2,702 2,050 2,170 2,659
------- ------- ------- ------- ------- ------- ------- -------
Total net
revenues......... 849 1,973 3,157 6,486 4,471 3,721 4,055 5,341
------- ------- ------- ------- ------- ------- ------- -------
Cost of net revenues:
License................ -- -- 288 137 7 38 173 179
Service................ 694 1,183 2,227 4,843 3,313 3,050 3,402 4,587
------- ------- ------- ------- ------- ------- ------- -------
Total cost of net
revenues......... 694 1,183 2,515 4,980 3,320 3,088 3,575 4,766
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 155 790 642 1,506 1,151 633 480 575
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 2,236 3,197 3,084 4,063 2,959 3,315 3,283 3,811
Research and
development.......... 1,456 1,281 1,406 1,715 1,632 1,671 1,487 1,704
General and
administrative....... 364 460 528 694 578 633 701 756
Stock-based
compensation......... 4 33 237 215 268 294 202 1,896
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 4,060 4,971 5,255 6,687 5,437 5,913 5,673 8,167
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (3,905) (4,181) (4,613) (5,181) (4,286) (5,280) (5,193) (7,592)
Interest expense....... (27) (26) (31) (37) (67) (324) (356) (320)
Other income (expense),
net.................. 224 169 102 66 16 16 38 211
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(3,708) $(4,038) $(4,542) $(5,152) $(4,337) $(5,588) $(5,511) $(7,701)
======= ======= ======= ======= ======= ======= ======= =======
As a Percentage of Total
Net Revenues:
Net revenues:
License................ 30 % 48 % 45 % 27 % 40 % 45 % 46 % 50 %
Service................ 70 52 55 73 60 55 54 50
------- ------- ------- ------- ------- ------- ------- -------
Total net
revenues......... 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- -------
Cost of net revenues:
License................ -- -- 9 2 0 1 4 3
Service................ 82 60 71 75 74 82 84 86
------- ------- ------- ------- ------- ------- ------- -------
Total cost of net
revenues......... 82 60 80 77 74 83 88 89
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 18 40 20 23 26 17 12 11
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 263 162 97 63 66 89 81 71
Research and
development.......... 171 65 45 26 37 45 37 32
General and
administrative....... 43 23 16 11 13 17 17 14
Stock-based
compensation......... 1 2 8 3 6 8 5 36
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 478 252 166 103 122 159 140 153
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (460) (212) (146) (80) (96) (142) (128) (142)
Interest expense....... (3) (2) (1) -- (1) (9) (9) (6)
Other income (expense),
net.................. 26 9 3 1 0 1 1 4
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ (437)% (205)% (144)% (79)% (97)% (150)% (136)% (144)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE>
We have a limited operating history, which makes it difficult to predict
future operating results. We intend to continue to invest significantly in our
professional services organization, sales and marketing, and research and
development, and expect to incur net losses for the foreseeable future. Our
operating expenses are relatively fixed and a delay in the recognition of
revenues from one or more license transactions could cause significant
variations in operating results from quarter to quarter. 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. 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;
. the success of our international operations;
. success in maintaining and enhancing existing relationships and
developing new relationships with system integrators;
. the level of utilization of our own professional services organization
and third-party service providers; and
. timing of our development and release of new and enhanced products.
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 $51.6 million,
and through the sale of $10.0 million in convertible debentures. As of December
31, 1999, we had $6.7 million in cash and cash equivalents, and $1.8 million in
working capital with $13.2 million of outstanding debt. Of 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 $3.1 million in 1997 and $14.6
million in 1998, and $27.6 million for 1999. Net cash used in investing
activities was $744,000 in 1997, $3.1 million in 1998 and $1.9 million for
1999. Investing activities consist primarily of purchases of property and
equipment and net proceeds from transactions involving our short-term
investments. Net cash generated from financing activities was $20.1 million in
1997, $448,000 in 1998 and $34.5 million in 1999. Net cash generated from
financing activities consists primarily of net proceeds from the issuance of
preferred stock.
As of December 31, 1999, we had two lines of credit with a bank permitting
us to borrow up to an aggregate of $5.0 million. Borrowings under the accounts
receivable line of credit bear interest at the lending bank's prime rate of
8.50% as of December 31, 1999, and are limited to 80% of eligible accounts
receivable. Borrowings under the equipment loan bear interest at the lending
bank's prime rate plus 0.25%. Our assets secure borrowings under both lines of
credit. The lines of credit require us to meet certain financial tests and to
comply with certain other covenants. As of December 31, 1999, we were in
compliance with our financial covenants and we had borrowed $2.4 million
against the lines of credit.
28
<PAGE>
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 $799,000 to $1.7 million per year. We
finance the acquisition of property and equipment, primarily computer hardware
and software for our increasing employee base as well as for our management
information systems, primarily through non-cancelable leases. We project
capital expenditures of $1.7 million in 2000 for computer hardware and software
applications.
We expect to continue to experience 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.
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;
29
<PAGE>
. 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 continue to assess our non-information technology systems. 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 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 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.
Year 2000 issues affecting our business, if not adequately addressed by us,
our third-party vendors or suppliers or our customers, could have a number of
negative consequences. These include:
. claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our product and services
to function properly, and any resulting settlements or judgments; and
. material disruption to our business.
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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 the internet, telephone, e-mail and
branch offices. Our product is designed to enable companies to increase the
lifetime value of their customers by empowering high value interactions that we
believe will 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, Direct Line Group
Services Limited, First USA Bank, General Motors' OnStar division, KLM Royal
Dutch Airlines, Metropolitan Life Insurance Company and Thomas Cook Global
Services.
Industry Background
The internet is large, pervasive, and rapidly growing. The internet has
emerged as a major platform for communication, providing new, highly efficient
channels through which companies can engage in commerce and interact directly
with customers. International Data Corporation forecasts that commerce
conducted over the internet will grow from $50 billion in 1998 to $1.3 trillion
by 2003.
First generation electronic commerce companies generally offered a wider
selection of products at lower prices than traditional businesses and measured
success primarily by the number of web site visitors. These online businesses
focused primarily on gaining new customers and focused less on ways to deliver
high levels of customer service to retain existing customers. The internet has
created a new set of retail challenges, including price standardization,
product commoditization, decreased customer loyalty and high customer
acquisition and retention costs. As a result many of these early online
businesses struggled to continue their rapid growth without delivering
consistent high quality customer service across the broad array of
communications channels that were created by the convergence of traditional and
internet-based communications channels.
Today, we believe customers are placing increasing value on convenient
access to information, products and services. To be successful in the next
generation of online commerce, commonly referred to as e-business, we believe
companies must take an approach to attract and retain valuable customers that
is primarily focused on the customer. To attract customers, companies must
focus on developing and executing a new set of strategies that provide users
with personalized experiences when they first contact the company. Companies
must be more responsive to customer needs and focus on delivering superior
customer service and satisfaction to differentiate themselves from their
competitors. Companies must work to retain their customers by providing
relevant and targeted experiences each time interactions take place. Moreover,
companies must recognize that every customer interaction provides an
opportunity to sell additional, and more valuable, products and services, 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, we believe that existing and established
customer communication channels have not become less significant. Specifically,
to remain competitive, we believe that companies must provide consistent high
quality customer service across all communication channels including the
internet, e-mail systems and automated telephony self-service systems as well
as call center, branch and retail outlet contact points. Companies that use
organization-wide customer information to provide consistent customer services
through interactions across multiple channels and contact points will be able
to compete more successfully in the rapidly changing internet economy.
There are many challenges to implementing what we refer to as a customer-
centric approach for e-business. These challenges include providing customers
access to information and functionality that
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traditionally resides within complex back-end systems, integrating and managing
disparate systems and generating relevant processes in real time. Successful
integration of these systems and the creation of a comprehensive single view of
the customer will allow companies to control routing and prompting of
appropriate responses to the customer in an automated and dynamic process.
Many existing product technologies do not meet the new requirements of e-
business. Client/server technologies for sales force automation, call centers
and field service management were originally designed for departmental
functions and use by employees rather than customers. The growth of the
internet has given rise to a wide range of new products focused on a specific
channel of customer contact such as web self-service, e-mail response, and
marketing automation. These single function web-based products are not likely
to completely replace existing means of handling customer service and commerce.
For instance, many companies continue to rely heavily on telephone-based
customer service representatives and are struggling to integrate web and e-mail
products with the telephone. Companies have responded to the lack of
integration among existing products by attempting to design and build their own
e-business software applications. The cost and time to custom build these new
systems can be prohibitive, and the expertise required to design and integrate
the systems are often beyond the capabilities of most companies. Additionally,
most commercially-available and custom-built systems do not have the
flexibility to integrate existing and anticipated technologies or to allow
customization in order to keep up with a constantly changing Internet economy.
We believe that companies need a flexible, integrated e-business
infrastructure solution that supports all channels of customer contact with a
comprehensive single view of the customer and consistent business services.
Today, customer data must be accessed from multiple data sources, existing
applications and transaction systems to respond to customer inquiries according
to company specific business rules. Unlike traditional customer profiles, a
comprehensive single view of the customer must be updated real time for each
customer contact and reflect the customer's contact history and other relevant
information. A complete customer focused e-business solution improves the
ability to attract, engage and retain customers on a personalized basis and
understand their needs and preferences to provide consistent interactions with
customers through any communication channel.
Solution
We provide e-business infrastructure software that 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 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, existing applications and transaction
systems to build a comprehensive single view of the customer and generate the
appropriate response at time of contact. A bank, for example, might use our
product to integrate information about a customer contained in internal
databases such as credit card, mortgage and savings account historical
transaction systems, web logs and e-mail management systems, as well as
external databases such as national credit check services. By integrating this
information, the bank has a more comprehensive understanding of the customer's
ability to repay a loan and the value of that customer's relationship with the
bank.
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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. We believe that companies that
implement customized business services will 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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. 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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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, existing systems and data management services. The CCS product is
illustrated and summarized below:
[Graphic: Depicts the components of the Chordiant product including the
following:
. Customer-Facing Applications
-Customer Service Application
-Web Communications Application
-E-mail Communications Application
. Management Applications
-Business Management
-Operations Management
-Case Management
. E-business Infrastructure
-Business Services
-Workflow Engine
. Customers' IT Systems
-Telephony Systems
-Internal Databases
-External Data Sources
-Existing Applications
-Third-Party Applications]
Customer-Facing Applications
CCS can be licensed with one or more customer-facing applications. All
customer-facing applications share common access to the business services and
workflow capabilities in our e-business infrastructure. All customer
interactions through these applications are logged in a comprehensive case
management system. In addition, companies can also choose to integrate their
existing customer-facing applications into our 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 December 31, 1999, each of which has purchased $500,000 or more
of product during the last two years.
. Bank One International
. Cable & Wireless Communications
. Canadian Tire Acceptance Limited
. Chase Manhattan Mortgage Corporation
. Direct Line Group Services Limited
. First USA Bank
. General Motors' OnStar division
. KLM Royal Dutch Airlines
. Metropolitan Life Insurance Company
. Thomas Cook Global Services
. Total System Services, Inc.
. Ventura
The following are examples of how selected customers are using our product.
None of these customers are actively endorsing or promoting our product.
Bank One International
Bank One International Credit Card, a subsidiary of Bank One Corporation, a
U.S. bank, selected our product to provide its e-business and customer
interaction software to support its European credit card operation.
Bank One International's web site allows customers to apply online for a
credit card and existing customers to access account details, view and print
statements, examine recent transactions and conduct online payment of card
balances. Our product facilitates the provision of these services by helping
the customer to get the service they require via their preferred channel, and
enables Bank One International to build relationships that will enhance
customer retention.
With the requirement to add the promotion of its products and services 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.
Our product's ability to provide Bank One International's customers with
consistent personalized service, whether through the internet, telephone, e-
mail, or other communications methods, was key to meeting both current and
future customer service requirements. With our product, Bank One International
will have the flexibility to automate its business processes once, and then
adapt the product to meet the requirements of alternative delivery channels.
Bank One International chose our product for its ability to link front and
back-end operations and integrate with Bank One International's outsourced
processing system.
First USA Bank
First USA Bank, a leading issuer of Visa credit cards, has selected
Chordiant software to provide the technology for its next-generation customer
retention system. Marketing services advisors in key customer
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centers serving First USA's card members will use the Chordiant system. CCS is
being deployed at an initial location and is scheduled for roll-out to two
additional customer centers.
Total System Services, Inc.
Total System Services, Inc. is one of the leading information technology
processors of data and transactions for issuers of credit cards. Total Systems'
systems offer online accounting, data processing, electronic commerce services,
portfolio management, account acquisition, credit evaluation, risk management
and customer service.
Until now, integrating customer-facing applications with back-end data,
transaction systems and business processes required extensive custom
development. Total Systems developed TSeclipseSM, a new customer interaction
application that enables financial services companies to deliver personalized
service using unique business processes. TSeclipse, is based on our product, a
suite of applications and business processes, to provide a single view of the
customer at every point of contact.
TSeclipse is aimed at banks and private-label credit card issuers that need
to provide faster, more efficient, and more personalized interactions for their
consumers by delivering one-to-one service through call centers, 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 traveler assistance
services. CCS is the core platform that Thomas Cook uses to provide a range of
business processes enabling Global Services business to improve customer
relationships.
Operational since July 1998, the center offers travelers a range of
services. With a single telephone call to the service center from anywhere in
the world. Thomas Cook customers have access to a range of travel services.
Technology
We design and build our product to provide an e-business infrastructure for
customer interaction applications. Using a software methodology based on a
flexible, object oriented, multi-tiered architecture, our product combines
advanced distributed object technology with a new approach to workflow
capabilities called workflow sequenced object processing, or WSOP. WSOP
provides a unique application development capability we call P3 Active. P3
Active was developed to deliver an enhanced level of personalization with every
customer interaction experience based on distributed information and processing
of business logic.
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 focused 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 twenty-four 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, London, England and Amsterdam, the
Netherlands. 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 $6.5 million in 1999.
Competition
The market for our product is new and rapidly evolving, and is highly
competitive. The competitive landscape is rapidly evolving to address the
convergence of e-business services and customer interaction
41
<PAGE>
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.
Enterprise Application Vendors
We anticipate competitive offerings and consolidation from several major
enterprise software developers, such as Oracle, PeopleSoft, IBM and SAP. To
date Oracle has announced and began delivery of modules to compete in various
areas of the traditional customer relationship management market and PeopleSoft
has purchased Vantive. We expect enterprise resource planning software vendors
to acquire and integrate point solutions as they approach different segments of
the e-business and customer relationship management markets.
Other Potential Competitiors
The telephony market for equipment and software is in the midst of a major
transition from proprietary systems to open software applications running on
commodity hardware. Recent software acquisitions announced by traditional
telephony vendors, such as Lucent Technologies Inc.'s purchase of Mosaix, Inc.
and Nortel Networks Corporations' purchase of Clarify are examples of the
desire to move from hardware platforms into software applications. Examples of
companies providing middleware in support of computer and telephony integration
are Genesys Telecommunications Laboratories, Inc. and Geotel Communications
Corporation (recently purchased by Cisco Systems). Providers of client/server
and mainframe call center systems include Pegasystems for financial services
and IMA and Quintas for outsourcers and call centers. These companies have not
historically provided e-business infrastructure and customer management
applications but may in the future.
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<PAGE>
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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<PAGE>
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 December 31, 1999, we employed 144 full-time employees. Of that
total, 36 were primarily engaged in product development, engineering or systems
engineering, 37 were engaged in sales and marketing, 41 were engaged in
professional services and 30 were engaged in operational, financial and
administrative functions.
None of our employees is represented by a labor union and we have never
experienced a work stoppage. We believe that our relations with our employees
are good.
Facilities
Our headquarters are located in approximately 31,000 square feet in
Cupertino, California, occupied under an office lease expiring in July 2004. We
also lease office space in Mahwah, New Jersey; Irving, Texas; Chicago,
Illinois; London, England and Amsterdam, the Netherlands.
Legal Proceedings
We are not a party to any material legal proceedings. We may be subject to
various claims and legal actions arising in the ordinary course of business.
44
<PAGE>
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
Robert S. McKinney......................... 56 Director
William Raduchel(1)........................ 52 Director
Carol L. Realini........................... 45 Director
David R. Springett(1)...................... 55 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 degree 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.
Robert S. McKinney has been a director of Chordiant since January, 2000.
Mr. McKinney has served as president of Information Management Consulting, a
consulting firm, since September, 1998 and is acting chief information officer
of Metropolitan Life Insurance Company's Individual Business and Client
Services business units, Mr. McKinney was chief information officer of Tenneco,
an automotive parts manufacturing company, from March, 1996 to September, 1998
and chief information officer of PaineWebber, an investment banking firm, from
February, 1990 to February, 1996. Mr. McKinney received a masters degree in
management and industrial engineering from Columbia University and a B.S. in
mechanical engineering from the U.S.M.M.S.(Kings Point).
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<PAGE>
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, vice
president, corporate planning and development and chief Information officer
from July 1991 to January 1998 and chief financial officer. Mr. Raduchel
received his B.A. from Michigan State University in 1966 and his A.M. and Ph.D.
from Harvard University in 1968 and 1972. He is a director of MIH Limited and
OpenTV, Inc. and two private companies.
Carol L. Realini was a founder of Chordiant and has been a director since
our inception in March 1991. Ms. Realini has served as president, chief
executive officer and chairman of Xokidz.com, Inc. since November 1999. From
May 1997 to November 1999, she served as our chairman. From May 1997 until June
1998, Ms. Realini served as our president and chief executive officer. From
January 1990 until May 1997, Ms. Realini served as president, chief executive
officer and chairman of J. Frank Consulting, Inc., a consulting services firm
and the predecessor company to Chordiant. From June 1988 to January 1990,
Ms. Realini served as vice president of sales and marketing of Legato Systems,
Inc. Ms. Realini received her B.A. with honors in mathematics from University
of California, Santa Cruz and her masters degree from California State
University, San Jose.
David R. Springett, Ph.D. has been a director of Chordiant since January,
2000. Dr. Springett has served as president of the Community College
Foundation, an educational foundation since February 1994. Dr. Springett was
also president of Strategic Marketing Associates, a marketing company from
January 1992 to January 1994 and held various positions with Xerox Corporation,
a photocopy and computer equipment company, from May 1963 to May 1991,
including vice-president strategic marketing and director European marketing.
He is a board member of the California Vehicle Foundation and the California
State Commission on Welfare Reform and Training. Dr. Springett has received
degrees from the Royal Military College of Canada, the University of Toronto,
Queen's University and Harvard University.
Joseph F. Tumminaro, our chief technology officer and a director, and Carol
L. Realini, a director, are married to each other. There are no other family
relationships among any of our directors and executive officers.
Board Committees
The board of directors has established an audit committee and a
compensation committee. The audit committee consists of Oliver D. Curme,
William Raduchel and David R. Springett. 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 our 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
47
<PAGE>
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.
Compensation Committee Interlocks And Insider Participation
None of our executive officers serve as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
Individuals and investment entities affiliated with Ms. Gould and Mr. Curme
have purchased shares of our preferred stock. See "Certain Transactions." For a
further description of interlocking transactions, see "Certain Transactions."
Board Composition
We have authorized nine directors. Upon the closing of this offering and 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, Joseph F.
Tumminaro and David R. Springett. Our class III directors will be Mitchell E.
Kertzman, William Raduchel and Robert S. McKinney.
At each annual meeting of stockholders after the initial classification,
the successors to directors whose terms will then expire will be elected to
serve from the time of election and qualification until the third annual
meeting following election. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of one-third of the
directors. This classification of the board of directors may have the effect of
delaying or preventing changes in control or management of Chordiant.
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<PAGE>
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 $100,000.
Summary Compensation Table(1)(2)
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------ ------------
Securities
Salary Underlying
Name and Principal Position Year ($) Bonus ($) Options (#)
--------------------------- ---- -------- --------- ------------
<S> <C> <C> <C> <C>
Samuel T. Spadafora.................... 1999 $250,000 $312,500 --
President and Chief Executive Officer
Steven R. Springsteel.................. 1999 $183,912 $ 93,672 100,000
Chief Financial Officer
Donald J. Morrison..................... 1999 $190,836 $122,645(3) 87,500
Senior Vice President, Worldwide Sales
and Marketing
Joseph F. Tumminaro.................... 1999 $162,083 $ 51,077 --
Chief Technology Officer
John Palmer(4)......................... 1999 $175,734 $ 46,750 --
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) None of the named officers had any other annual compensation, was granted
any restricted stock award, long term incentive plan payout or received any
other compensation.
(3) Includes commissions of $50,658.
(4) In August 1999, Mr. Palmer resigned as our executive vice president,
engineering and is no longer an officer of Chordiant.
Option Grants in Fiscal Year 1999
The following table 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 $9.00 per share;
. assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
. subtracting from that result the aggregate option exercise price.
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<PAGE>
The initial public offering price may be higher than the estimated fair
market value on the date of grant, and the potential realizable value of the
option grants could be significantly higher than the numbers shown in the table
if future stock prices were projected to the end of the option term by applying
the same annual rates of stock price appreciation to the initial public
offering price.
The shares listed in the following table under "Number of Securities
Underlying Options Granted" vest in a series of equal monthly installments over
the four years following the vesting start date. Our stock option plans allow
for the early exercise of options granted to employees. All options exercised
early are subject to repurchase by Chordiant at the original exercise price,
upon the optionee's cessation of service prior to the vesting of the shares.
Each of the options has a ten-year term, subject to earlier termination if the
optionee's service with us ceases. See "--Employee Stock Plans" for a
description of other terms of these options.
Percentages shown under "% of Total Options Granted to Employees in Fiscal
Year" are based on an aggregate of 3,381,513 options granted to our employees
under our equity incentive plans during the period from January 1, 1999 through
December 31, 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Potential Realizable
Number of Value at Assumed
Securities % of Annual Rates of Stock
Underlying Total Options Price Appreciation
Options Granted to Exercise For Option Term
Granted Employees in Price Expiration ---------------------
Name (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
---- ---------- ------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Samuel T. Spadafora..... -- -- -- -- -- --
Steven R. Springsteel... 50,000 1.5 2.90 03/19/09 588,003 1,022,184
50,000 1.5 4.00 11/16/09 533,003 967,184
Donald J. Morrison...... 37,500 1.1 2.90 03/19/09 441,002 766,638
50,000 1.5 4.00 11/16/09 533,003 967,184
Joseph F. Tumminaro..... -- -- -- -- -- --
John Palmer............. -- -- -- -- -- --
</TABLE>
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 Fiscal Year End" are based on an assumed initial public
offering price of $9.00, without taking into account any taxes that may be
payable in connection with the transaction, multiplied by the number of shares
underlying the option, less the exercise price payable for these shares. Our
stock option plans allow for the early exercise of options granted to
employees. All options exercised early are subject to repurchase by Chordiant
at the original exercise price, upon the optionee's cessation of service prior
to the vesting of the shares.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares Fiscal Year End (#) Fiscal Year End ($)
Acquired on Value ------------------------ -------------------------
Name Exercise (#) Realized ($) Vested Unvested Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Samuel T. Spadafora..... 45,000 376,413 903,825 861,175 $14,756,654 --
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............. -- -- 188,046 -- $ 1,572,065 --
</TABLE>
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<PAGE>
Employee Stock Plans
1999 Equity Incentive Plan.
Our board adopted our 1999 equity incentive plan on November 30, 1999. Our
stockholders approved the plan in January, 2000. 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.
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, other taxes
on the difference between the exercise price and the fair market value
on the exercise date.
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<PAGE>
. 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 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.
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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.
Stock Awards Granted. As of December 31, 1999, we had issued 1,040,504
shares upon the exercise of options under the incentive plan; options to
purchase 7,773,658 shares at a weighted average exercise price of $1.82 per
share were outstanding; and 898,276 shares remained available for future grant.
As of December 31, 1999, the board had not granted any stock bonuses or
restricted stock under the incentive plan.
Plan Termination. The incentive plan will terminate in 2009 unless the
board terminates it sooner.
1999 Non-Employee Directors' Stock Option Plan.
Our board adopted the 1999 non-employee directors' stock option plan on
November 30, 1999. Our stockholders approved the plan in January, 2000. 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.
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<PAGE>
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
adjusted based on the time actually served by the director.
. Finally, on the day after each of our annual meetings of the
stockholders, starting with the annual meeting in 2001, each non-
employee director who is serving on a board committee will
automatically receive a committee 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.
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<PAGE>
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. Our stockholders approved the plan in January, 2000.
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.
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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.
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.
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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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<PAGE>
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. Option information is as of December 31, 1999.
<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)........ 473,345 -- -- -- --
Donald J. Morrison(3) .. 607,859 -- -- -- --
Joseph F. Tumminaro(4)
...................... 5,018,422 -- -- -- --
Steven Sherman(5) ...... 400,000 -- -- -- --
Stephen Kelley(6)....... 350,000
John Palmer(7) ......... 188,046 -- -- -- --
Mitchell Kertzman....... 88,825 -- -- -- --
William Raduchel........ 87,500 -- -- -- --
Carol Realini(4) ....... 5,018,422 -- -- -- --
Entities Affiliated with
Directors
Entities affiliated with
Foundation
Capital(8)............ -- 588,235 195,312 -- 52,631
Battery Ventures III,
LP(9)................. -- -- 195,312 -- 26,316
Other 5% Stockholders
Entities affiliated with
Charter Growth
Capital(10)........... -- -- -- 2,000,000 --
First Plaza Trust(11)... -- -- -- -- 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.(12).............. -- 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 10,000 shares held by a
family trust, and 1,765,150 shares subject to outstanding options, of
which 861,325 shares are fully vested.
(2) Includes shares held by Mr. Springsteel's children and 463,345 shares
subject to outstanding options, of which 211,245 shares are fully vested.
(3) Includes shares held by trusts for the benefit of Mr. Morrison's children
and 592,859 shares subject to outstanding options, of which 266,866 shares
are fully vested.
(4) The common stock held by 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; 26,026 shares subject to outstanding
options held by Mr. Tumminaro, of which 23,868 shares are fully vested;
and 22,396 shares subject to outstanding options held by Ms. Realini, of
which 21,802 shares are fully vested.
(5) Includes 100,000 shares of common stock held by Mr. Sherman, all of which
are subject to a right of repurchase in favor of Chordiant in the event
Mr. Sherman terminates his services as an employee. This right of
repurchase lapses according to a vesting schedule. Also includes 300,000
shares subject to an outstanding option, none of which are vested.
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(6) Includes 350,000 shares subject to outstanding options, of which 99,999
shares are vested.
(7) Includes 188,046 shares subject to outstanding options, all of which
shares are fully vested. In August 1999, Mr. Palmer resigned as our
executive vice president, engineering and is no longer an officer of
Chordiant.
(8) Kathryn C. Gould, one of our directors, is a managing member of Foundation
Capital Management, LLC, which is the general partner and managing member
of Foundation Capital, LP and Foundation Capital Entrepreneurs Fund LLC.
(9) Oliver D. Curme, one of our directors, is a general partner of, Battery
Partners III LP, which is the sole general partner of Battery Ventures
III, LP.
(10) Consists of a convertible debenture held by Charter Growth Capital, L.P.
convertible into 560,000 shares of Series D preferred stock, a convertible
debenture held by CGC Investors, L.P. convertible into 35,000 shares of
Series D preferred stock, and a convertible debenture held by Charter
Growth Capital Co-Investment Fund, L.P. convertible into 1,405,000 shares
of Series D preferred stock. The conversion price of the debentures is
$5.00 per share. The debentures were purchased in April 1999.
(11) The Chase Manhattan Bank acts as the trustee for First Plaza Group Trust,
a trust 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 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.
(12) Includes 130,625 shares of Series B Preferred Stock held by HWH Investment
PTE, Ltd., 522,500 shares of Series B and 195,312 shares of Series C
Preferred Stock held by Vertex Asia Ltd., and 522,500 shares of Series B,
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. 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, we 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.
Options granted to our directors, executive officers and key employees are
immediately exercisable as to both vested an unvested shares, with unvested
shares being subject to a right of repurchase in our favor in the event of
termination of employment prior to vesting of all shares. The following
individuals have elected to pay
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the exercise price for certain of their outstanding options pursuant to full
recourse promissory notes secured by the common stock underlying the options.
The notes bear interest at 5.74% to 5.88% per year, and interest payments on
the notes are due and payable annually on the anniversary date of the note.
Unpaid principal and interest on the notes are due and payable immediately upon
termination of the participant's employment with us, or two years after the
date of the promissory note. As of January 19, 2000, the original and
outstanding aggregate principal amounts of the promissory notes executed by
each executive officer in favor of Chordiant are set forth below.
<TABLE>
<CAPTION>
Aggregate
Original and
Outstanding
Executive Officer Note Amount
----------------- ------------
<S> <C>
Samuel T. Spadafora............................................ $276,800
Steven R. Springsteel ......................................... $197,723
Donald J. Morrison............................................. $ 68,906
Steven Sherman................................................. $400,000
</TABLE>
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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 1999, and as adjusted to
reflect the sale of our common stock offered by this prospectus, by:
. each of the individuals listed 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 December 31, 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
30,318,295 shares of common stock outstanding as of December 31, 1999, after
giving effect to the conversion of all outstanding shares of preferred stock
and convertible debentures into common stock upon the closing of the offering
and 34,818,295 shares of common stock outstanding immediately following
completion of the offering. This table assumes no exercise of the underwriters'
over-allotment options. Unless otherwise indicated, the address of each of the
individuals named below is: c/o Chordiant Software, Inc., 20400 Stevens Creek
Blvd, Suite 400, Cupertino, California 95014.
<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 5.64 1,810,150 4.95
Steven R. Springsteel(2)....... 473,343 1.54 473,343 1.34
Donald J. Morrison(3).......... 607,858 1.97 607,858 1.72
Joseph F. Tumminaro(4)......... 5,018,422 16.53 5,043,422 14.45
Steven Sherman(5).............. 400,000 1.31 400,000 1.14
Stephen Kelly(6)............... 350,000 1.14 350,000 1.00
John Palmer(7)................. 188,046 0.62 316,031 0.54
Oliver D. Curme(8)............. 2,501,263 8.25 2,526,263 7.26
Kathryn C. Gould(9)............ 3,115,813 10.28 34,843,242 9.02
Mitchell Kertzman(10).......... 88,825 0.29 113,825 0.33
Robert S. McKinney(11)......... 0 0.00 25,000 0.07
William Raduchel(12)........... 87,500 0.29 112,500 0.32
David R. Springett(13)......... 0 0.00 25,000 0.07
Carol L. Realini(4)............ 5,018,422 16.53 5,043,422 14.45
All Directors and Officers as a
group(14).................... 14,641,223 42.81 14,816,223 38.11
Five Percent Stockholders:
First Plaza Group Trust(15).... 3,947,368 13.02 3,947,368 11.34
The Chase Manhattan Bank
3 Chase Metrotech Center
7th Floor
Brooklyn, NY 11245
</TABLE>
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<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(16)................. 3,115,813 10.28 3,115,813 9.02
70 Willow Road
Suite 200
Menlo Park, CA 94025
Orchid & Co., nominee for T. Rowe
Price Threshold Fund III, L.P.... 2,605,065 8.59 2,605,065 7.48
100 East Pratt Street
Baltimore, MD 21202
Battery Ventures III, L.P.......... 2,501,263 8.25 2,501,263 7.26
20 William Street
Suite 200
Wellesley, MA 02481
Electronic Data Systems
Corporation...................... 2,421,875 7.99 2,421,875 6.96
5400 Legacy Drive
Plano, TX 75024
Norwest Venture Partners VI,
LP(17)........................... 2,321,202 7.66 2,321,472 6.67
245 Lytton Avenue
Suite 250
Palo Alto, CA 94301
Entities affiliated with Charter
Growth Capital(18)............... 2,000,000 6.60 2,000,000 5.74
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Entities affiliated with Vertex
Investment II(19)................ 1,697,828 5.60 1,697,828 4.88
Three Lagoon Drive
Suite 220
Redwood City, CA 94065
</TABLE>
- --------
(1) Includes shares held by Mr. Spadafora's children, 10,000 shares held by a
family trust and 1,765,150 shares subject to an outstanding option, of
which 861,325 shares are vested.
(2) Includes shares held by Mr. Springsteel's children and 463,345 shares
subject to outstanding options, of which 211,245 shares are vested.
(3) Includes shares held by trusts for the benefit of Mr. Morrison's children
and 592,859 shares subject to outstanding options, of which 266,866 shares
are vested.
(4) The common stock held by both Mr. Tumminaro and Ms. Realini includes
4,970,000 shares held by a family trust and trusts for the benefit of Mr.
Tumminaro and Ms. Realini children; 26,026 shares subject to outstanding
options held by Mr. Tumminaro, of which 23,868 shares are fully vested;
22,396 shares subject to outstanding options held by Ms. Realini, of which
21,802 shares are fully vested; and 25,000 shares subject to an
outstanding option granted to Ms. Realini upon completion of the offering,
none of which 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.
(5) Includes 100,000 shares of common stock held by Mr. Sherman, all of which
are subject to a right of repurchase in favor of Chordiant in the event
Mr. Sherman terminates his services as an employee. This right of
repurchase lapses according to a vesting schedule. 300,000 shares are
subject to an outstanding option, none of which are vested.
(6) Includes 350,000 shares subject to outstanding options, of which 99,999
shares are vested.
(7) Includes 188,046 shares subject to outstanding options, all of which
shares are fully vested. In August 1999, Mr. Palmer resigned as our
executive vice president, engineering and is no longer an officer of
Chordiant.
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<PAGE>
(8) Includes 25,000 shares subject to an outstanding option granted to Mr.
Curme upon completion of the offering, none of which are vested. Mr.
Curme is a general partner of Battery Ventures III, L.P, which is the
sole general partner of Battery Ventures III LP. Mr. Curme disclaims
beneficial ownership of the shares held by these entities except to the
extent of his proportionate partnership interest in these entities.
(9) Includes 25,000 shares subject to an outstanding option granted to Ms.
Gould upon completion of the offering, none of which are vested. Ms.
Gould is a managing member of Foundation Capital Management, LLC, which
is the general partner and managing member of Foundation Capital, LP and
Foundation Capital Entrepreneurs Fund LLC. She disclaims beneficial
ownership of the shares held by the entities 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 62,917
shares are vested and; and 25,000 shares subject to an outstanding option
granted to Mr. Kertzman upon completion of the offering, none of which
are vested.
(11) Includes 25,000 shares subject to an outstanding option granted upon
completion of the offering, none of which are vested.
(12) Includes 87,500 shares subject to an outstanding option, of which 29,166
shares are vested.
(13) Includes 25,000 shares subject to an outstanding option granted upon
completion of the offering, none of which are vested.
(14) Includes shares described in the notes above, as applicable.
(15) The Chase Manhattan Bank acts as the trustee for First Plaza Group Trust.
These shares may be deemed to be owned beneficially by GMIMCo, a wholly
owned subsidiary of GM. 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.
(16) 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.
(17) The sole general partner of Norwest Venture Partners VI, LP is Itasca VC
Partners VI, LLP, whose managing partner is George Still and whose
managing administrative partner is John 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.
(18) Includes a convertible debenture held by Charter Growth Capital, L.P.
convertible into 560,000 shares of Series D preferred stock, a
convertible debenture held by CGC Investors, L.P. convertible into
35,000 shares of Series D preferred stock, and a convertible debenture
held by Charter Growth Capital Co-Investment Fund, L.P. convertible into
1,405,000 shares of Series D preferred stock.
(19) 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, and 51,000,000 shares of preferred stock. There were 30,318,295 shares
of our common stock outstanding as of December 31, 1999, held of record by 114
stockholders, after giving effect to the conversion of our preferred stock and
convertible debentures into common stock.
Common Stock
The holders of our common stock are 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 September 28,
2000 or 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.
Charter and Bylaw Protections
Our amended and restated certificate of incorporation provides that any
action required or permitted to be taken by our stockholders must be effected
at a duly called annual or special meeting of stockholders and may not be
effected by any consent in writing. In addition, our amended and restated
bylaws provide that special meetings of our stockholders may be called only by
the chairman of the board of directors, the chief executive officer or the
board of directors 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. Furthermore, our amended and restated certificate requires the
advance notice of stockholders' nominations for the election of directors and
business brought before a meeting of stockholders.
Our amended and restated certificate specifies that our board of directors
will be classified into three classes of directors. Under Delaware law,
directors of a corporation with a classified board may be removed only for
cause unless the corporation's certificate of incorporation provides otherwise.
Our amended and restated certificate does not provide otherwise. In addition,
the amended and restated certificate specifies that the authorized number of
directors may be changed only by resolution of the board of directors and 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. Our 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.
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.
These provisions contained in our 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
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<PAGE>
premium for their shares over then current prices. They may also limit the
ability of stockholders to remove our current management or approve
transactions that stockholders may 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 BankBoston, 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
34,818,295 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options after December 31,
1999. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless these shares are purchased by 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
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 shares of our common
stock. This restriction will be applicable until 180 days after the effective
date of this prospectus. Transfers or dispositions can be made sooner in
certain circumstances or with the prior written consent of FleetBoston
Robertson Stephens Inc.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of our public offering, a person who has beneficially owned shares of
our common stock for at least one year, including any 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.
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<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, such 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 Exchange Act, 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.
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.
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<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated, and Thomas
Weisel Partners LLC, have each agreed with us and the selling stockholders,
subject to the terms and conditions of the underwriting agreement, to purchase
from us the number of shares of common stock 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>
FleetBoston Robertson Stephens Inc..........................
Dain Rauscher Incorporated..................................
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 to
purchase up to 425,000 additional shares of common stock at the initial public
offering price per share. Certain stockholders have also granted to the
underwriters an option to purchase up to 250,000 additional shares of common
stock at the initial public offering price per share. Each option is
exercisable for 30 days after the date of this prospectus. 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 offered by this prospectus. We will be obligated,
pursuant to the 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
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<PAGE>
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. Our officers, directors and stockholders have agreed,
for a period of 180 days after the date of this prospectus, that, subject to
exceptions, they will not offer to sell, otherwise dispose of any shares of
common stock or any securities convertible into shares of common stock owned as
of the date of this prospectus or, with certain exceptions, thereafter acquired
by such holders without the prior written consent of FleetBoston Robertson
Stephens Inc. However, FleetBoston Robertson Stephens Inc. may 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 FleetBoston 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, or otherwise dispose of 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,
(3)the issuance of options under existing stock option and incentive
plans, and
(4)the issuance of up to 3,400,000 shares as a result of future
acquisitions.
Listing. We have applied for quotation on the Nasdaq National Market under
the symbol "CHRD."
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, and our present state of development.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Exchange 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. 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.
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
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<PAGE>
reclaim the selling concession otherwise accruing to an underwriter or
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.
Internet Distribution. A limited number of shares will be made available to
the customers of E*TRADE Securities, Inc. E*TRADE Securities will make a copy
of the prospectus in electronic format available on its web site located at
www.etrade.com. E*TRADE will accept conditional offers to purchase shares from
all of its customers that complete and pass an online eligibility profile. In
the event that the demand for shares from the customers of E*TRADE exceeds the
number of shares allocated to it, E*TRADE will use a random allocation
methodology to distribute shares in even lots of 100 shares per customer. There
are no plans to direct shares to particular internet purchasers.
Directed share program. At our request, the underwriters have reserved up
to 225,000 shares of common stock to be issued by Chordiant and offered 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.
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, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999, included in
this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
71
<PAGE>
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. The
documents that we file electronically with the Commission will be available on
the Commission's web site.
72
<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 2 to the
consolidated financial statements has not been consummated at January 18, 2000.
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, 1998
and 1999 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles. These consolidated financial
statements are the responsibility of the 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
January 18, 2000
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
------------------ December 31,
1998 1999 1999
-------- -------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............ $ 1,713 $ 6,719
Short-term investments............... 1,051 2,000
Accounts receivable--third parties,
net................................ 5,287 7,233
Accounts receivable--related
parties............................ 102 1,211
Other current assets................. 274 1,775
-------- --------
Total current assets.............. 8,427 18,938
Property and equipment, net............ 2,866 2,580
Other assets........................... 228 568
-------- --------
$ 11,521 $ 22,086
======== ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Borrowings........................... $ 776 $ 2,608 $ 2,608
Accounts payable--related parties.... 206 -- --
Accounts payable--third parties...... 4,346 2,101 2,101
Accrued expenses..................... 2,115 2,493 2,493
Prepaid licenses--related parties.... 6,000 -- --
Deferred revenue..................... 5,146 9,903 9,903
-------- -------- --------
Total current liabilities......... 18,589 17,105 17,105
Borrowings, long-term.................. 911 10,617 617
Deferred revenue....................... 573 293 293
Other liabilities...................... 103 244 244
-------- -------- --------
20,176 28,259 18,259
-------- -------- --------
Mandatorily Redeemable Convertible
Preferred Stock, $0.001 par value;
25,027,985 shares authorized,
16,449,038 and 22,412,194 shares
issued and outstanding; no shares
issued and outstanding pro forma..... 28,949 51,609 --
-------- -------- --------
Commitments and contingencies (Notes 6
and 8)
Stockholders' Equity (Deficit):
Preferred Stock, $0.001 par value;
51,000,000 shares authorized; no
shares issued and outstanding...... -- -- --
Common Stock, $0.001 par value;
300,000,000 shares authorized;
5,218,973 and 5,906,101 shares
issued and outstanding; 30,318,295
shares issued and outstanding pro
forma.............................. 5 6 30
Additional paid-in capital........... 2,820 14,652 76,237
Note receivable from stockholder..... -- (406) (406)
Unearned compensation................ (1,002) (9,470) (9,470)
Accumulated deficit.................. (39,427) (62,564) (62,564)
-------- -------- --------
Total stockholders' equity
(deficit)....................... (37,604) (57,782) 3,827
-------- -------- --------
$ 11,521 $ 22,086 $ 22,086
======== ======== ========
</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>
Year Ended December 31,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Net revenues:
License--third parties...................... $ 1,142 $ 4,360 $ 5,938
License--related parties.................... -- -- 2,069
Service--third parties...................... 1,677 8,013 9,007
Service--related parties.................... 89 92 574
--------- --------- ----------
Total net revenues...................... 2,908 12,465 17,588
--------- --------- ----------
Cost of net revenues:
License--third parties...................... 73 425 263
License--related parties.................... -- -- 134
Service--third parties...................... 1,388 8,846 13,999
Service--related parties.................... 74 101 353
--------- --------- ----------
Total cost of net revenues.............. 1,535 9,372 14,749
--------- --------- ----------
Gross profit (loss).......................... 1,373 3,093 2,839
--------- --------- ----------
Operating expenses:
Sales and marketing......................... 5,142 12,580 13,368
Research and development.................... 6,240 5,858 6,494
General and administrative.................. 1,416 2,046 2,668
Stock-based compensation.................... 498 489 2,660
--------- --------- ----------
Total operating expenses................ 13,296 20,973 25,190
--------- --------- ----------
Loss from operations......................... (11,923) (17,880) (22,351)
Interest expense............................. (112) (121) (1,067)
Other income (expense), net.................. 442 561 281
--------- --------- ----------
Net loss..................................... $ (11,593) $ (17,440) $ (23,137)
========= ========= ==========
Net loss per share:
Basic and diluted........................... $ (2.31) $ (3.44) $ (4.34)
========= ========= ==========
Weighted average shares..................... 5,008,623 5,074,533 5,326,831
========= ========= ==========
Pro forma net loss per share (unaudited):
Basic and diluted........................... $ (0.93)
==========
Weighted average shares..................... 24,805,221
==========
</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>
Note
Common Stock Additional Receivable Total
----------------- Paid-in from Unearned Accumulated Stockholders'
Shares Amount Capital Stockholder Compensation Deficit Deficit
--------- ------ ---------- ----------- ------------ ----------- -------------
<S> <C> <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.............. 712,703 1 745 (406) -- -- 340
Repurchase of Common
Stock................ (25,575) -- (41) -- -- -- (41)
Unearned compensation.. -- -- 11,274 -- (11,274) -- --
Amortization of
unearned
compensation......... -- -- -- -- 2,660 -- 2,660
Stock option
cancellations........ -- -- (146) -- 146 -- --
Net loss............... -- -- -- -- -- (23,137) (23,137)
--------- --- ------- ----- -------- -------- --------
Balance at December 31,
1999.................. 5,906,101 $ 6 $14,652 $(406) $ (9,470) $(62,564) $(57,782)
========= === ======= ===== ======== ======== ========
</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>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(11,593) $(17,440) $(23,137)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 913 521 1,276
Stock-based compensation....................... 498 489 2,660
Provision for doubtful accounts................ 569 17 470
Changes in assets and liabilities:
Accounts receivable--third parties............ 467 (4,963) (2,416)
Accounts receivable--related parties.......... (117) 15 (1,109)
Other current assets.......................... 1,074 311 (1,501)
Other assets.................................. (2) (181) (340)
Accounts payable--third parties............... 37 3,936 (2,245)
Accounts payable--related parties............. 206 -- (206)
Accrued expenses.............................. (1,417) 1,308 378
Prepaid licenses--related parties............. 6,000 -- --
Deferred revenue.............................. 223 1,317 (1,523)
Other liabilities............................. -- 103 141
-------- -------- --------
Net cash used in operating activities....... (3,142) (14,567) (27,552)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment............. (744) (2,033) (990)
Purchases of short-term investments............. -- (9,558) (2,800)
Proceeds from sales and maturities of short-term
investments.................................... -- 8,507 1,851
-------- -------- --------
Net cash used in investing activities....... (744) (3,084) (1,939)
-------- -------- --------
Cash flows from financing activities:
Issuance of Mandatorily Redeemable Convertible
Preferred Stock, net........................... 19,902 -- 22,660
Exercise of stock options....................... 4 56 340
Repurchase of Common Stock...................... (5) (27) (41)
Proceeds from borrowings........................ 558 781 14,627
Repayment of borrowings......................... (335) (362) (3,089)
-------- -------- --------
Net cash provided by financing activities... 20,124 448 34,497
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 16,238 (17,203) 5,006
Cash and cash equivalents at beginning of
period.......................................... 2,678 18,916 1,713
-------- -------- --------
Cash and cash equivalents at end of period....... $ 18,916 $ 1,713 $ 6,719
======== ======== ========
Supplemental cash flow information:
Cash paid for interest.......................... $ 112 $ 112 $ 1,062
======== ======== ========
Cash paid for income taxes...................... $ -- $ -- $ --
======== ======== ========
Supplemental non-cash activities:
Common Stock issued for stockholder note........ $ -- $ -- $ 406
======== ======== ========
</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, 1998 and 1999, $1,477 and $6,087, 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 and 1999, the fair value of these securities,
comprised primarily of medium-term notes, approximates cost, and the gross
unrealized gains and losses were not significant. These securities mature
within one year.
Fair value of financial instruments
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
F-7
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
life of the asset or the lease term. Purchased internal-use software consists
primarily of amounts paid for perpetual licenses to third party software
applications which are amortized over their estimated useful life, generally
three years.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards "SFAS No. 121", "Accounting
for Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed
of." SFAS No. 121 requires recognition of impairment of long-lived assets 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."
Revenues from reseller arrangements are recognized when reported by the
reseller upon re-licensing of the Company's software to end users. The
Company's agreements with its customers and resellers do not contain product
return rights.
Other service revenues from consulting and training services are recognized
as such services are performed. Service revenues from post-contract customer
support are recognized ratably over the support period, generally one year.
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.
F-8
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
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.
The following table summarizes the revenues from customers, all of which
were third parties, in excess of 10% of total net revenues:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Company A..................................................... 28% -- --
Company B..................................................... -- 12% 30%
Company C..................................................... -- -- 19%
Company D..................................................... 53% -- --
Company E..................................................... -- 14% --
Company F..................................................... -- 36% --
Company G..................................................... -- 19% --
</TABLE>
At December 31, 1998, Companies B and F accounted for 21% and 26%,
respectively, of accounts receivable, net. At December 31, 1999, companies B
and C accounted for 24% and 8%, respectively, of accounts receivable, net.
Research and development
Research and development costs are expensed as incurred in accordance with
Statement of Financial Accounting Standards No. 2, "Accounting for Research and
Development Costs."
Software development costs
Costs incurred in the research and development of new products and
enhancements to existing products are charged to expense as incurred until the
technological feasibility of the product or enhancement has been established
through the development of a working model. After establishing technological
feasibility, additional development costs incurred through the date the product
is available for general release would be capitalized and amortized over the
estimated product life. No costs have been capitalized to date, as the effect
on the financial statements for all periods presented is immaterial.
Advertising costs
Advertising costs are expensed as incurred in accordance with Statement of
Position No. 93-7, "Reporting on Advertising Costs." Advertising costs for the
years ended December 31, 1997, 1998 and 1999 totaled $1,316, $1,955 and $1,340,
respectively.
F-9
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
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.
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' deficit.
Foreign currency transaction gains and losses are included in the determination
of net income or loss. During the years ended December 31, 1997, 1998 and 1999,
net foreign currency transaction gains or losses were immaterial.
Income taxes
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in 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.
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
Convertible Preferred Stock will be increased to 51,000,000. All share
information included in these consolidated financial statements have been
retroactively adjusted to reflect their recapitalization.
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.
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
F-10
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
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>
Year Ended December 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net loss..................................... $ (11,593) $ (17,440) $ (23,137)
--------- --------- ---------
Weighted average Common shares............... 5,008,623 5,074,533 5,391,265
Weighted average unvested
Common shares subject to repurchase........ -- -- (64,434)
--------- --------- ---------
Denominator for basic and diluted
calculation................................ 5,008,623 5,074,533 5,326,831
--------- --------- ---------
Net loss per share--basic and diluted........ $ (2.31) $ (3.44) $ (4.34)
========= ========= =========
</TABLE>
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>
Year Ended December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average effect of antidilutive
securities:
Mandatorily Redeemable Convertible
Preferred Stock.......................... 10,008,307 16,449,038 17,998,938
Convertible debt........................... -- -- 1,479,452
Employee stock options..................... 506,603 1,908,598 6,201,931
Common shares subject to repurchase........ -- -- 64,434
---------- ---------- ----------
10,514,910 18,357,636 25,744,755
========== ========== ==========
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999, is
computed using the weighted average number of common shares outstanding,
including the assumed conversion of 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, 1999, 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
19,478,390 for the year ended December 31, 1999. The calculation of pro forma
diluted net loss per share excludes other potential common shares as the effect
is anti-dilutive. Pro forma potential common shares are comprised of Common
Stock subject to repurchase and incremental Common Stock issuable upon the
exercise of stock options.
F-11
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
Pro forma liabilities and stockholders' equity (unaudited)
Effective upon the closing of 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
22,412,194 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 December 31, 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
a single operating segment.
Foreign revenues are based on the country in which the customer is located.
The following is a summary of total net revenues by geographic area:
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
United States......................................... $2,719 $ 2,729 $10,974
United Kingdom........................................ 189 3,441 3,973
Canada................................................ -- 1,724 642
Netherlands........................................... -- 4,500 1,653
Other................................................. -- 71 346
------ ------- -------
$2,908 $12,465 $17,588
====== ======= =======
</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,
-------------
1998 1999
------ ------
<S> <C> <C>
United States.................................................. $2,587 $2,350
United Kingdom................................................. 279 230
------ ------
$2,866 $2,580
====== ======
</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.
F-12
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("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 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,
----------------
1998 1999
------- -------
<S> <C> <C>
Accounts receivable--third parties, net:
Accounts receivable....................................... $ 5,541 $ 7,957
Allowance for doubtful accounts........................... (254) (724)
------- -------
$ 5,287 $ 7,233
======= =======
Property and equipment, net:
Computer hardware......................................... $ 3,190 $ 3,907
Purchased internal-use software........................... 895 1,082
Furniture and equipment................................... 983 1,036
Leasehold improvements.................................... 500 533
------- -------
5,568 6,558
Accumulated depreciation and amortization................. (2,702) (3,978)
------- -------
$ 2,866 $ 2,580
======= =======
Accrued expenses:
Accrued payroll and related expenses...................... $ 1,799 $ 1,753
Other accrued liabilities................................. 316 740
------- -------
$ 2,115 $ 2,493
======= =======
</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 from third
parties during the year ended December 31, 1997.
F-13
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
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 payable and prepaid licenses from these related parties are separately
disclosed in the consolidated statements of operations and cash flows and in
the consolidated balance sheet.
NOTE 6--BORROWINGS:
Bank credit facility
At December 31, 1999, the Company maintained a credit facility with a bank
consisting of three equipment loans in the aggregate amount of $2,351. As of
December 31, 1999, the Company had borrowed $910 under these loans. The loans
accrue interest at the bank's prime rate plus 0.25% (8.5% at December 31,
1999). The loans mature in June 2000, March 2000 and December 2000,
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, 1999, 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 and an equipment loan in the amount of $1,000. 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 December 31, 1999, and mature in January
2002. As of December 31, 1999, the Company had borrowed $2,376 against the
lines of credit of which $1,485 is payable on demand.
Convertible debt
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
2,000,000 shares of the Company's Series D Mandatorily Redeemable Convertible
Preferred Stock at a conversion rate of $5.00 per share.
The aggregate future payments under the bank credit facilities and
convertible debt financing arrangement are as follows:
<TABLE>
<CAPTION>
December 31,
Year Ending December 31, 1999
------------------------ ------------
<S> <C>
1999............................................................ $ 2,621
2000............................................................ 591
2001............................................................ 74
2002............................................................ --
2003............................................................ --
2004............................................................ 10,000
-------
13,286
Less discount................................................... (61)
Less Current Portion (net of discount).......................... (2,608)
-------
Long Term Portion (net of discount)............................. $10,617
=======
</TABLE>
F-14
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
NOTE 7--INCOME TAXES:
No provision for income taxes has been recorded for any period presented as
the Company has incurred net operating losses for tax purposes.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
-------- -------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 9,483 $17,700
Accrued expenses and provisions........................... 3,588 3,700
Tax credit carryforwards.................................. 864 1,100
-------- -------
Gross deferred tax assets................................. 13,935 22,500
Deferred tax valuation allowance.......................... (13,935) (22,500)
-------- -------
Net deferred tax assets................................... $ -- $ --
======== =======
</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 December 31, 1999, the Company had approximately $47,989 and $23,702 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 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, 1999, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000............................................................. $1,687
2001............................................................. 1,629
2002............................................................. 1,512
2003............................................................. 1,555
2004............................................................. 799
Thereafter....................................................... --
------
$7,182
======
</TABLE>
F-15
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
Rent expense for the years ended December 31, 1997, 1998 and 1999 totaled
$559, $1,036 and $1,438, 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 Redemption
Outstanding Amount at
--------------------- ---------------
December 31, December 31,
Shares --------------------- ---------------
Authorized 1998 1999 1998 1999
---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Series A....................... 6,838,905 6,838,905 6,838,905 $ 9,000 $ 9,000
Series B....................... 5,410,917 5,410,917 5,410,917 9,199 9,199
Series C....................... 4,199,216 4,199,216 4,199,216 10,750 10,750
Series D....................... 2,000,000 -- -- -- --
Series E....................... 6,578,947 -- 5,963,156 -- 22,660
---------- ---------- ---------- ------- -------
25,027,985 16,449,038 22,412,194 $28,949 $51,609
========== ========== ========== ======= =======
</TABLE>
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 and
$0.38, 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 24,412,194 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 and $3.80, respectively, plus any
declared but
F-16
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
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.
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 and on or after September
28, 2003, for Series E 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 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 1997, 1998 and 1999, the Company repurchased 23,280, 30,395, and
25,575, respectively, shares of Common Stock at original issuance prices for a
total repurchase price of $5, $27, and $41, respectively. The shares were
retired upon repurchase.
NOTE 11--STOCK OPTION PLAN:
In November 1999, the 1999 Equity Incentive Plan (the "Plan") was adopted
by the Board of Directors and amends the Company's 1997 Equity Plan. The 1999
Plan provides for the grant to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for grants to employees, directors and consultants of nonstatutory
stock options and stock
F-17
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
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 of (2) the number of shares subject to
stock awards made under the 1999 Plan during the prior twelve month period.
However, the automatic increase is subject to reduction by the Board of
Directors. The 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 period. 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
December 31, 1999, 161,384 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, 1998 and 1999, 500,000, 189,108 and 0 options were
granted under the Bonus Plan with exercise prices ranging from $0.07 to $0.32
per share. The shares subject to the Bonus Plan shall not exceed 750,000.
The following table summarizes option activity under the Company's stock-
based compensation plans:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1997 1998 1999
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............. 774,187 $0.12 2,217,653 $0.21 5,980,581 $ 0.60
Granted................. 1,619,762 0.25 4,435,474 0.74 3,392,550 3.66
Cancelled............... (144,658) 0.13 (435,911) 0.32 (886,770) 1.06
Exercised............... (31,638) 0.14 (236,635) 0.26 (712,703) 1.28
--------- --------- ---------
Outstanding at end of
period................ 2,217,653 0.21 5,980,581 0.60 7,773,658 1.82
--------- --------- ---------
Options exercisable at
end of period......... 517,545 1,284,044 2,672,112
--------- --------- ---------
Weighted average minimum
value of options
granted during the
period................ $0.06 $0.16 $ 0.79
===== ===== ======
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding at Options Exercisable
December 31, 1999 at December 31, 1999
------------------------------ --------------------
Weighted Weighted
Weighted Average Average
Range of Number Average Exercise Number Exercise
Exercise Prices Outstanding Remaining Price Exercisable Price
--------------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.08-0.14 1,170,332 7.03 $0.20 863,635 $0.20
$0.30-0.40 7,359 7.95 0.40 7,359 0.40
$0.64 2,886,815 8.36 0.64 1,432,236 0.64
$0.90-1.50 666,813 8.79 1.18 204,443 1.15
$2.90 727,607 9.21 2.90 123,577 2.90
$3.10-4.00 2,314,732 9.82 3.99 40,862 3.99
--------- ---------
7,773,658 2,672,112
========= =========
</TABLE>
F-18
<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, 1998 and 1999, the Company
recorded unearned compensation expense of approximately $498, $1,500 and
$11,274 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, and $2,660, was included in operating
expenses as stock-based compensation in the years ended December 31, 1997 1998
and 1999, respectively.
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>
Year Ended December 31,
-----------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C> <C>
Net Loss:
As reported............................. $(11,593) $(17,440) $(23,137)
Pro forma............................... $(11,643) $(17,746) $(23,944)
Basic and diluted net loss per share:
As reported............................. $ (2.31) $ (3.44) $ (4.34)
Pro forma............................... $ (2.32) $ (3.50) $ (4.49)
</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>
Year Ended
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected lives in years.................................... 4.6 4.6 4.6
Risk free interest rates................................... 6.2% 6.2% 5.5%
Dividend yield............................................. 0.0% 0.0% 0.0%
Volatility................................................. 0.0% 0.0% 0.0%
</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:
401(k) Savings Plan
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 $66, $99,
and $155 for the years ended December 31, 1997, 1998 and 1999, respectively.
Defined Contribution Plan
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
F-19
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
United Kingdom sales office may elect to contribute 5% of their pre-tax
compensation. The Company's contributions to the Pension Plan totaled $0, $62,
and $123 for the years ended December 31, 1997, 1998, and 1999, respectively.
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.
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.
F-20
<PAGE>
CHORDIANT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share data)
NOTE 14--SUBSEQUENT EVENTS:
Stock Option Grants
From January 1, 2000 through January 18, 2000, the Company granted stock
options to purchase an aggregate of 178,500 shares of Common Stock at a
weighted average exercise price of $8.00 per share.
Stock Option Exercises
From January 1, 2000 through January 18, 2000, the Company issued 1,376,537
shares of Common Stock in connection with employee stock option exercises. Cash
proceeds received by the Company from such exercises totaled $189.
Additionally, the Company received notes receivable from stockholders totaling
$588 in connection with such exercises.
F-21
<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 December 31, 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.(1)
3.2 Amended and Restated Bylaws of the Registrant.(1)
3.3 Amended and Restated Certificate of Incorporation of the
Registrant.(1)
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.(1)
5.1* Opinion of Cooley Godward llp.
10.1 Form of Indemnification Agreement.(1)
10.2 1999 Equity Incentive Plan and form of stock option agreement.(1)
10.3 1999 Employee Stock Purchase Plan.(1)
10.4 1999 Non-Employee Directors' Plan and form of stock option agreement.
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(2) Forte Software, Inc. Value-Added ReSeller (VAR) License and Services
Agreement, dated October 29, 1998.(1)
10.7(2) Software License Agreement between Electronic Data Systems Corporation
and the Registrant, dated July 11, 1998.(1)
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.
10.11 Form of Promissory Note executed by each of Samuel T. Spadafora,
Steven R. Springsteel, Donald J. Morrison and Steven Sherman in favor
of the Registrant.
10.12 Form of Stock Pledge Agreement between the Registrant and each of
Samuel T. Spadafora, Steven R. Springsteel, Donald J. Morrison and
Steven Sherman.
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).(1)
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Filed previously.
(2) 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 Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cupertino, State of California, on January 19, 2000.
CHORDIANT SOFTWARE, INC.
By: /s/ Steven R. Springsteel
----------------------------------
Steven R. Springsteel
Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Samuel T. Spadafora and Steven R.
Springsteel, and each of them, his or her true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him
or her and in his or her name, place and stead, in any and all capacities, to
(i) act on, sign and file with the Securities and Exchange Commission any and
all amendments (including post-effective amendments) to this Registration
Statement together with all schedules and exhibits thereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, together with all schedules and exhibits thereto, (ii) act
on, sign and file such certificates, instruments, agreements and other
documents as may be necessary or appropriate in connection therewith, (iii) act
on and file any supplement to any prospectus included in this registration
statement or any such amendment or any subsequent Registration Statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended and (iv)
take any and all actions which may be necessary or appropriate to be done, as
fully for all intents and purposes as he or she might or could do in person,
hereby approving, ratifying and confirming all that such agent, proxy and
attorney-in-fact or any of his substitutes may lawfully do or cause to be done
by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the 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>
* President, Chief Executive January 19, 2000
____________________________________ Officer (Principal Executive
Samuel T. Spadafora Officer) and Chairman
/s/ Steven R. Springsteel Executive Vice President and January 19, 2000
____________________________________ Chief Financial Officer
Steven R. Springsteel (Principal Financial and
Accounting Officer),
Secretary
* Chief Technical Officer and January 19, 2000
____________________________________ Director
Joseph F. Tumminaro
* Director January 19, 2000
____________________________________
Oliver D. Curme
* Director January 19, 2000
____________________________________
Kathryn C. Gould
* Director January 19, 2000
____________________________________
Mitchell Kertzman
Director
____________________________________
Robert S. McKinney
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director January 19, 2000
____________________________________
William Raduchel
* Director January 19, 2000
____________________________________
Carol L. Realini
Director
____________________________________
David R. Springett
</TABLE>
*By: /s/ Steven R. Springsteel
-----------------------------
Steven R. Springsteel
Attorney-in-Fact
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.(1)
3.2 Amended and Restated Bylaws of the Registrant.(1)
3.3 Amended and Restated Certificate of Incorporation of the
Registrant.(1)
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.(1)
5.1* Opinion of Cooley Godward llp.
10.1 Form of Indemnification Agreement.(1)
10.2 1999 Equity Incentive Plan and form of stock option agreement.(1)
10.3 1999 Employee Stock Purchase Plan.(1)
10.4 1999 Non-Employee Directors' Plan and form of stock option agreement.
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(2) Forte Software, Inc. Value-Added ReSeller (VAR) License and Services
Agreement, dated October 29, 1998.(1)
10.7(2) Software License Agreement between Electronic Data Systems Corporation
and the Registrant, dated July 11, 1998.(1)
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.
10.11 Form or Promissory Note executed by each of Samuel T. Spadafora,
Steven R. Springsteel, Donald J. Morrison and Steven Sherman executed
in favor of the Registrant.
10.12 Form of Stock Pledge Agreement between the Registrant and each of
Samuel T. Spadafora, Steven R. Springsteel, Donald J. Morrison and
Steven Sherman.
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).(1)
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Filed previously.
(2) Confidential treatment requested.
* To be filed by amendment.
<PAGE>
Underwriting Agreement
[_______], 2000
BancBoston Robertson Stephens Inc.
Dain Rauscher Wessels
Thomas Weisel Partners LLC
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
Introductory. Chordiant Software, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Shares")
- ----------
of its Common Stock, par value $0.001 per share (the "Common Shares"). In
addition, the Company has granted to the Underwriters an option to purchase up
to an additional [____] Common Shares (the "Company Option Shares") and the
stockholders of the Company named in Schedule B (collectively, the "Selling
----------
Stockholders") have granted to the Underwriters an option to purchase up to an
additional [____] Common Shares (the "Selling Stockholder Option Shares" and,
together with the Company Option Shares, the "Option Shares"), each Selling
Stockholder selling up to the amount set forth opposite such Selling
Stockholder's name in Schedule B. The Firm Shares and, if and to the extent
----------
such options are exercised, the Option Shares are collectively called the
"Shares". BancBoston Robertson Stephens Inc., Dain Rauscher Wessels and Thomas
Weisel Partners LLC have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-92187), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Securities Act"), including any information
deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A
or Rule 434 under the Securities Act, is called the "Registration Statement".
Any registration statement filed by the Company pursuant to Rule 462(b) under
the Securities Act is called the "Rule 462(b) Registration Statement", and from
and after the date and time of filing of the Rule 462(b) Registration Statement
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however, if
the Company has, with the consent of
<PAGE>
BancBoston Robertson Stephens Inc., elected to rely upon Rule 434 under the
Securities Act, the term "Prospectus" shall mean the Company's prospectus
subject to completion (each, a "preliminary prospectus") dated [___] (such
preliminary prospectus is called the "Rule 434 preliminary prospectus"),
together with the applicable term sheet (the "Term Sheet") prepared and filed by
the Company with the Commission under Rules 434 and 424(b) under the Securities
Act and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or the Term Sheet, or any amendments or supplements
to any of the foregoing, shall include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company and each of the Selling Stockholders severally, and not
jointly, hereby confirm their respective agreements with the Underwriters as
follows:
Section 1. Representations and Warranties.
A. Representations and Warranties of the Company.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information furnished to the
Company in writing by the Representatives expressly for use therein. There are
no contracts or other documents required to be described in the Prospectus or to
be filed as exhibits to the Registration Statement which have not been described
or filed as required.
2
<PAGE>
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each Representative one complete conformed copy of the Registration
Statement and of each consent and certificate of experts filed as a part
thereof, and conformed copies of the Registration Statement (without exhibits)
and preliminary prospectuses and the Prospectus, as amended or supplemented, in
such quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
and contribution hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Shares To Be Sold by the Company. The Shares to
be purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) Authorization of the Shares To Be Sold by the Selling Stockholders.
The Common Shares to be purchased by the Underwriters from the Selling
Stockholders, when issued, were validly issued, fully paid and nonassessable.
(g) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(h) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries have not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or
any of its subsidiaries on any class of capital stock or repurchase or
redemption by the Company or any of its subsidiaries of any class of capital
stock.
(i) Independent Accountants. PricewaterhouseCoopers LLP, who have
expressed their opinion with respect to the consolidated financial statements
(which term as used in this Agreement includes the related notes thereto) and
supporting schedules filed with the
3
<PAGE>
Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as required
by the Securities Act.
(j) Preparation of the Financial Statements. The consolidated financial
statements filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial position of
the Company and its subsidiaries as of and at the dates indicated and the
results of their operations and cash flows for the periods specified. The
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein. Such financial statements and
supporting schedules have been prepared in conformity with generally accepted
accounting principles as applied in the United States applied on a consistent
basis throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Summary--Summary Consolidated
Financial Data", "Selected Consolidated Financial Data" and "Capitalization"
fairly present the information set forth therein on a basis consistent with that
of the audited financial statements contained in the Registration Statement.
(k) Company's Accounting System. The Company and its subsidiaries
maintain a system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(l) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
Chordiant Software International, Inc. The Company has no significant subsidiary
as defined in Regulation S-X under the Act.
(m) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction in
which it is organized with full corporate power and authority to own its
properties and conduct its business as described in the Prospectus, and is duly
qualified to do business as a foreign corporation, and is in good standing under
the laws of each jurisdiction which requires such qualification, except where
the absence to register would not have a Material Adverse Effect.
(n) Capitalization of Subsidiaries. All the outstanding shares of capital
stock of each of the Company's subsidiaries have been duly and validly
authorized and issued and are fully paid and nonassessable, and, except as
otherwise set forth in the Prospectus, all outstanding shares of capital stock
of each such subsidiary are owned by the Company directly, free and clear of any
security interests, claims, liens or encumbrances.
(o) No Prohibition on Subsidiaries from Paying Dividends or Making Other
Distributions. No subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the
4
<PAGE>
Company or from transferring any of such subsidiary's property or assets to the
Company, except as described in or contemplated by the Prospectus.
(p) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been issued in compliance with
federal and state securities laws. None of the outstanding Common Shares were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or any of its subsidiaries other than those described in the Prospectus.
The description of the Company's stock option, stock bonus and other stock plans
or arrangements, and the options or other rights granted thereunder, set forth
in the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(q) Stock Exchange Listing. The Shares have been approved for inclusion
on the Nasdaq National Market, subject only to official notice of issuance.
(r) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated hereby and in the Prospectus, (ii)
by the National Association of Securities Dealers, LLC and (iii) by the laws of
Canada, or any other foreign jurisdiction.
(s) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any such
subsidiary, (ii) the terms of any material indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other material agreement,
obligation, condition, covenant or instrument to which the Company or any such
subsidiary is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any such subsidiary of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any such subsidiary or any of its or their
properties.
(t) No Defaults or Violations. Neither the Company nor any of its
subsidiaries is in violation or default of (i) any provision of its charter or
by-laws, (ii) the terms of any indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its property
is subject or (iii) any statute, law, rule, regulation, judgment, order or
decree of any
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court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or any such subsidiary or
any of its properties, except any such violation or default which would not,
singly or in the aggregate, result in a Material Adverse Change except as
otherwise disclosed in the Prospectus.
(u) No Actions, Suits or Proceedings. Except to the extent described in
the Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries or its or their property is pending or, to the
knowledge of the Company, threatened that (i) could reasonably be expected to
have a Material Adverse Effect on the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to result in a Material Adverse Effect.
(v) All Necessary Permits, Etc. Except to the extent described in the
Prospectus, the Company and its subsidiaries possess such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor any of its subsidiaries has received any
notice of proceedings relating to the revocation or modification of, or non-
compliance with, any such certificate, authorization or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
could result in a Material Adverse Change.
(w) Title to Properties. Except to the extent described in the
Prospectus, the Company and its subsidiaries have good and marketable title to
all the properties and assets reflected as owned in the financial statements
referred to in Section 1(i) above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere with
the use made or proposed to be made of such property by the Company or any of
its subsidiaries. The real property, improvements, equipment and personal
property held under lease by the Company or any of its subsidiaries are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
any such subsidiary.
(x) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns or have
properly requested extensions thereof and have paid all taxes required to be
paid by any of them, and, if due and payable, any related or similar assessment,
fine or penalty levied against any of them. The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company or
its subsidiaries has not been finally determined. The Company is not aware of
any tax deficiency that has been or might be asserted or threatened against the
Company that could result in a Material Adverse Change.
(y) Intellectual Property Rights. The Company and its subsidiaries own or
possess adequate rights to use all patents, patent rights or licenses,
inventions, collaborative research agreements, trade secrets, know-how,
trademarks, service marks, trade names and copyrights which are necessary to
conduct its businesses as described in the Registration Statement and
Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service
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marks, trade names or copyrights would not result in a Material Adverse Change
that is not otherwise disclosed in the Prospectus; the Company has not received
any notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a Material Adverse Change. To the knowledge of the Company, there is no
claim being made against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company and its
subsidiaries do not, in the conduct of their business as now or proposed to be
conducted as described in the Prospectus, infringe or conflict with any right or
patent of any third party, or any discovery, invention, product or process which
is the subject of a patent application filed by any third party, known to the
Company or any of its subsidiaries, which such infringement or conflict is
reasonably likely to result in a Material Adverse Change.
(z) Year 2000 Preparedness. There are no issues related to the Company's
or any of its subsidiaries' preparedness for the Year 2000 that (i) are of a
character required to be described or referred to in the Registration Statement
or Prospectus by the Securities Act which have not been accurately described in
the Registration Statement or Prospectus or (ii) might reasonably be expected to
result in any Material Adverse Change or that might materially affect their
properties, assets or rights. All internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related products
and each Constituent Component (as defined below) of those products of the
Company and each of its subsidiaries fully comply with Year 2000 Qualification
Requirements. "Year 2000 Qualifications Requirements" means that the internal
computer systems and each Constituent Component (as defined below) of those
systems and all computer-related products and each Constituent Component (as
defined below) of those products of the Company and each of its subsidiaries (i)
have been reviewed to confirm that they store, process (including sorting and
performing mathematical operations, calculations and computations), input and
output data containing date and information correctly regardless of whether the
date contains dates and times before, on or after January 1, 2000, (ii) have
been designated to ensure date and time entry recognition and calculations, and
date data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (iv) accurately process any date rollover, and (v) accept and respond to
two-digit year date input in a manner that resolves any ambiguities as to the
century. "Constituent Component" means all software (including operating
systems, programs, packages and utilities), firmware, hardware, networking
components, and peripherals provided as part of the configuration. The Company
has inquired of material vendors as to their preparedness for the Year 2000 and
has disclosed in the Registration Statement or Prospectus any issues that might
reasonably be expected to result in any Material Adverse Change.
(aa) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the Shares to be sold by it.
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(bb) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of payment
for the Shares will not be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment Company Act and
will conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(cc) Insurance. The Company and its subsidiaries are insured with policies
in such amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for their businesses including, but not
limited to, policies covering real and personal property owned or leased by the
Company and any of its subsidiaries against theft, damage, destruction, acts of
vandalism and earthquakes, general liability and Directors and Officers
liability. The Company has no reason to believe that it or any of its
subsidiaries will not be able (i) to renew its existing insurance coverage as
and when such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not result in a Material Adverse Change.
Neither the Company nor any of its subsidiaries have been denied any insurance
coverage which it has sought or for which it has applied.
(dd) Labor Matters. To the Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, resellers, subcontractors,
authorized dealers or international distributors that might be expected to
result in a Material Adverse Change.
(ee) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(ff) Lock-Up Agreements. Each officer and director of the Company and each
beneficial owner of one or more percent of the outstanding issued share capital
of the Company has executed an agreement substantially in the form attached
hereto as Exhibit A (the "Lock-up Agreements"). The Company has provided to
---------
counsel for the Underwriters a complete and accurate list of all securityholders
of the Company and the number and type of securities held by each
securityholder. The Company has provided to counsel for the Underwriters true,
accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants and agrees
that it will not release any of its officers, directors or other securityholders
from any Lock-up Agreements currently existing or hereafter effected without the
prior written consent of BancBoston Robertson Stephens Inc.
(gg) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or its subsidiaries or any
other person required to be described in the Prospectus which have not been
described as required.
(hh) No Unlawful Contributions or Other Payments. Neither the Company nor
its subsidiaries nor, to the Company's knowledge, any employee or agent of the
Company or its subsidiaries, has made any contribution or other payment to any
official of, or candidate for, any federal, state or foreign office in violation
of any law or of the character required to be disclosed in the Prospectus.
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<PAGE>
(ii) Environmental Laws. (i) The Company is in compliance with all rules,
laws and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et
--
seq.), or otherwise designated as a contaminated site under applicable state
- ---
or local law.
(jj) ERISA Compliance. The Company and any "employee benefit plan" (as
defined under the Employee Retirement Income Security Act of 1974, as amended,
and the regulations and published interpretations thereunder (collectively,
"ERISA")) established or maintained by the Company, any of its subsidiaries or
their "ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA. "ERISA Affiliate" means, with respect to the Company or any
of its subsidiaries, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended,
and the regulations and published interpretations thereunder (the "Code") of
which the Company or any such subsidiaries is a member. No "reportable event"
(as defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the Company,
any of its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, any of its subsidiaries or any
of their ERISA Affiliates, if such "employee benefit plan" were terminated,
would have any "amount of unfunded benefit liabilities" (as defined under
ERISA). Neither the Company nor any of its subsidiaries nor any of their ERISA
Affiliates has incurred or reasonably expects to incur any liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal from, any
"employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code.
Each "employee benefit plan" established or maintained by the Company, any of
its subsidiaries or any of their ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or failure to act, which would cause the loss of
such qualification.
(kk) Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. Representations and Warranties of the Selling Stockholders.
Each Selling Stockholder represents, warrants and covenants to each
Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification and contribution
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
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<PAGE>
(b) The Custody Agreement. The Custody Agreement signed by such Selling
Stockholder and [___], as custodian (the "Custodian"), relating to the deposit
of the Shares to be sold by such Selling Stockholder (the "Custody Agreement")
has been duly authorized, executed and delivered by such Selling Stockholder and
is a valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification and contribution
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the rights and remedies of creditors
or by general equitable principles. Each Selling Stockholder agrees that the
Shares to be sold by such Selling Stockholder on deposit with the Custodian is
subject to the interests of the Underwriters, that the arrangements made for
such custody are to that extent irrevocable, and that the obligations of such
Selling Stockholder hereunder shall not be terminated, except as provided in
this Agreement or in the Custody Agreement, by any act of the Selling
Stockholder, by operation of law, by death or incapacity of such Selling
Stockholder or by the occurrence of any other event. If such Selling Stockholder
should die or become incapacitated, or in any other event should occur, before
the delivery of the Shares to be sold by such Selling Stockholder hereunder, the
documents evidencing the Shares to be sold by such Selling Stockholder then on
deposit with the Custodian shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death, incapacity or
other event had not occurred, regardless of whether or not the Custodian shall
have received notice thereof.
(c) Title to Shares to be Sold. Such Selling Stockholder is the lawful
owner of the Shares to be sold by such Selling Stockholder hereunder and upon
sale and delivery of, and payment for, such Shares, as provided herein, such
Selling Stockholder will convey good and marketable title to such Shares, free
and clear of all liens, encumbrances, equities and claims whatsoever.
(d) All Authorizations Obtained. Such Selling Stockholder has, and on the
First Closing Date and the Second Closing Date (as defined below) will have,
good and valid title to all of the Company Shares which may be sold by such
Selling Stockholder pursuant to this Agreement on such date and the legal right
and power, and all authorizations and approvals required by law and under its
trust agreement to enter into this Agreement and its Custody Agreement to sell,
transfer and deliver all of the Shares which may be sold by such Selling
Stockholder pursuant to this Agreement and to comply with its other obligations
hereunder and thereunder.
(e) No Further Consents, Authorization or Approvals. No consent,
approval, authorization or order of any court or governmental agency or body is
required for the consummation by such Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained under the Securities
Act and such as may be required under the federal and provincial securities laws
of Canada or the blue sky laws or any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters and such other
approvals as have been obtained.
(f) Non-Contravention. Neither the sale of the Securities being sold by
such Selling Stockholder nor the consummation of any other of the transactions
herein contemplated by such Selling Stockholder or the fulfillment of the terms
hereof by such Selling Stockholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the terms of any material
indenture or other material agreement or instrument to which such Selling
Stockholder is party or bound, any judgment, order or decree applicable to such
Selling Stockholder or any
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<PAGE>
court or regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over such Selling Stockholder.
(g) No Registration or Other Similar Rights. Such Selling Stockholder
does not have any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement, except for
such rights as are described in the Prospectus under "Shares Eligible for Future
Sale".
(h) No Preemptive, Co-sale or other Rights. Such Selling Stockholder does
not have, or has waived prior to the date hereof, any preemptive right, co-sale
right or right of first refusal or other similar right to purchase any of the
Shares that are to be sold by the Company or any of the other Selling
Stockholders to the Underwriters pursuant to this Agreement; and such Selling
Stockholder does not own any warrants, options or similar rights to acquire, and
does not have any right or arrangement to acquire, any capital stock, right,
warrants, options or other securities from the Company, other than those
described in the Registration Statement and the Prospectus.
(i) Disclosure Made by Such Selling Stockholder in the Prospectus. All
information furnished by or on behalf of such Selling Stockholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date and the Second Closing Date (as defined below) will be, true,
correct, and complete in all material respects, and does not, and on the First
Closing Date and the Second Closing Date will not, contain any untrue statement
of a material fact or omit to state any material fact necessary to make such
information not misleading. Such Selling Stockholder confirms as accurate the
number of shares of Company Shares set forth opposite such Selling Stockholder's
name in the Prospectus under the caption "Principal and Selling Stockholders"
(both prior to and after giving effect to the sale of the Shares).
(j) No Price Stabilization or Manipulation. Such Selling Stockholder has
not taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
(k) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the sale by the Selling Stockholders
of the Shares to be sold by such Selling Stockholder.
(l) Distribution of Offering Materials by the Selling Stockholders. The
Selling Stockholders have not distributed and will not distribute, prior to the
later of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Shares, any offering material in connection
with the offering and sale of the Shares by such Selling Stockholder other than
a preliminary prospectus, the Prospectus or the Registration Statement.
(m) Confirmation of Company Representations and Warranties. Such Selling
Stockholder has no reason to believe, without having made any independent
investigation except as may be described herein, that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct in any material respect, is familiar with the Registration Statement and
the Prospectus and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement or the Prospectus which
has
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<PAGE>
had or may result in a Material Adverse Change on the condition, financial or
otherwise, or on the earnings, business, operation or prospects, whether or not
arising from transactions in the ordinary course of business of the Company and
its subsidiaries, considered as one entity, and is not prompted to sell the
Shares to be sold by such Selling Stockholder by any information concerning the
Company which is not set forth in the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
Section 2. Purchase, Sale and Delivery of the Shares.
(a) The Firm Shares. Upon the terms herein set forth, the Company agrees
to issue and sell to the several Underwriters the Firm Shares. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on Schedule A. The purchase price per
----------
Firm Share to be paid by the several Underwriters to the Company shall be $[___]
per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Cooley
Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306 (or
at such other place as may be agreed upon among the Representatives and the
Company), (i) on the third (3rd) full business day following the first day that
Shares are traded, (ii) if this Agreement is executed and delivered after 1:30
P.M., San Francisco time, the fourth (4th) full business day following the day
that this Agreement is executed and delivered or (iii) at such other time and
date not later that seven (7) full business days following the first day that
Shares are traded as the Representatives and the Company may determine (or at
such time and date to which payment and delivery shall have been postponed
pursuant to Section 8 hereof), such time and date of payment and delivery being
herein called the "Closing Date;" provided, however, that if the Company has not
made available to the Representatives copies of the Prospectus within the time
provided in Section 2(f) and 3(e) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, (i) the Selling
Stockholders hereby grant an option (the "Selling Stockholders Option") to the
several Underwriters to purchase, severally and not jointly, up to an aggregate
of [___] Option Shares from the Selling Stockholders and (ii) the Company hereby
grants an option (the "Company Option") to the several Underwriters to purchase
up to an aggregate of [___] Option Shares from the Company, in each case at the
purchase price per share to be paid by the Underwriters for the Firm Shares. The
options granted hereunder are for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Shares.
The options granted hereunder may be exercised in whole or in part, at any time
upon notice by the Representatives to the Company or, as applicable, the Selling
Stockholders (with a copy to the Company), which notice may be given at any time
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<PAGE>
within 30 days from the date of this Agreement, provided, however, that the
Selling Stockholders' Option shall be exercised in full prior to, or
concurrently with, any exercise of the Company Option. The time and date of
delivery of the Option Shares, if subsequent to the First Closing Date, is
called the "Second Closing Date" and shall be determined by the Representatives
and shall not be earlier than three nor later than five full business days after
delivery of such notice of exercise. If any Selling Stockholder Option Shares
are to be purchased, (i) each Underwriter agrees, severally and not jointly, to
purchase the number of Selling Stockholder Option Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Selling Stockholder Option
Shares to be purchased as the number of Firm Shares set forth on Schedule A
----------
opposite the name of such Underwriter bears to the total number of Firm Shares
and (ii) each Selling Stockholder agrees, severally and not jointly, to sell the
number of Selling Stockholder Option Shares (subject to such adjustments to
eliminate the fractional shares as the Representatives may determine) that bears
the same proportion to the total number of Selling Stockholder Option Shares to
be sold as the number of Selling Stockholder Option Shares set forth in Schedule
B opposite the name of such Selling Stockholder bears to the total number of
Selling Stockholder Option Shares. If any Company Option Shares are to be
purchased, (i) each Underwriter agrees, severally and not jointly, to purchase
the number of Company Option Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Company Option Shares to be purchased as the
number of Firm Shares set forth on Schedule A opposite the name of such
----------
Underwriter bears to the total number of Firm Shares and (ii) the Company agrees
to sell the Company Option Shares to the Underwriters as aforesaid. The
Representatives may cancel any of the options at any time prior to its
expiration by giving written notice of such cancellation to the Company or, as
applicable the Selling Stockholders (with a copy to the Company).
(d) Public Offering of the Shares. The Representatives hereby advise the
Company and the Selling Stockholders that the Underwriters intend to offer for
sale to the public, as described in the Prospectus, their respective portions of
the Shares as soon after this Agreement has been executed and the Registration
Statement has been declared effective as the Representatives, in their sole
judgment, have determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Firm Shares to be sold by the
Company shall be made at the First Closing Date (and, for any Company Option
Shares to be sold at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Company. Payment for the Selling
Stockholder Option Shares to be sold by the Selling Stockholders shall be made
at the Second Closing Date (or, if applicable, at the First Closing Date) by
wire transfer of immediately available funds to the order of the Custodian.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
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Each Selling Stockholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Selling Stockholder Option Shares to be sold by such
Selling Stockholder to the several Underwriters, or otherwise in connection with
the performance of such Selling Stockholder's obligations hereunder and (ii) the
Custodian is authorized to deduct for such payment any such amounts from the
proceeds to such Selling Stockholder hereunder and to hold such amounts for the
account of such Selling Stockholder with the Custodian under the Custody
Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered a credit representing the Firm Shares to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company and the
Selling Stockholders shall also deliver, or cause to be delivered a credit
representing the number of Option Shares pursuant to the exercise of, as
applicable, the Selling Stockholder Option and the Company Option to an account
or accounts at The Depository Trust Company as designated by the Representatives
for the accounts of the Representatives and the several Underwriters, at the
First Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Firm Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
Section 3. Covenants of the Company and the Selling Stockholders.
The Company further covenants and agrees with each Underwriter as
follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any post-
effective amendment thereto shall
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have become effective, (ii) of receipt of any comments from the Commission,
(iii) of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information
and (iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the use of the Prospectus or of
the institution of any proceedings for that purpose. The Company will use its
best efforts to prevent the issuance of any such stop order preventing or
suspending the use of the Prospectus and to obtain as soon as possible the
lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act,
and the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Representatives or counsel for the Underwriters, it becomes necessary to
amend or supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission, and furnish at its own expense to the
Underwriters and to dealers, an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
reasonably request.
(f) Insurance. The Company shall obtain Directors and Officers liability
insurance in the minimum amount of $10 million which shall apply to the offering
contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the
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Company will, after written notice from you advising the Company to the effect
set forth above, forthwith prepare, consult with you concerning the substance of
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication or
event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its own
expense, a registrar and transfer agent for the Common Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending the date of the end of the first quarter ending one year following the
effective date that satisfies the provisions of Section 11(a) of the Securities
Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company will
not, without the prior written consent of BancBoston Robertson Stephens Inc.,
for a period of 180 days following the date of the Prospectus, offer, sell or
contract to sell, or otherwise dispose of or enter into any transaction which is
designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan, stock purchase
plan or dividend reinvestment plan of the Company in effect at the date of the
Prospectus and described in the Prospectus so long as recipients thereof enter
into a lock-up agreement substantially in the form attached as Exhibit A
covering the period of 180 days from the date that the Registration Statement is
declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares, (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as
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available, copies of any report or communication of the Company mailed generally
to holders of its capital stock.
(n) Exchange Act Compliance. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.
B. Covenants of the Selling Stockholders.
Each Selling Stockholder further covenants and agrees with each
Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Stockholder will not, during the Lock-Up Period, make a disposition of
Securities (as defined in Exhibit A hereto) now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or shareholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, (iii) with respect to dispositions of Common Shares
acquired on the open market or (iv) with the prior written consent of BancBoston
Robertson Stephens Inc. The foregoing restriction has been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a disposition of Securities during the Lock-Up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representatives
prior to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States Person).
(c) Notification of Untrue Statements, etc. If, at any time prior to the
date on which the distribution of the Shares as contemplated herein and in the
Prospectus has been completed, as determined by the Representatives, such
Selling Stockholder has knowledge of the occurrence of any event as a result of
which the Prospectus or the Registration Statement, in each case as then amended
or supplemented, would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, such Selling
Stockholder will promptly notify the Company and the Representatives.
Section 4. Conditions of the Obligations of the Underwriters.
The obligations of the several Underwriters to purchase and pay for
the Shares as provided herein on the First Closing Date and, with respect to the
Option Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders set forth in Section 1 hereof as of the date hereof
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and as of the First Closing Date as though then made and, with respect to the
Option Shares, as of the Second Closing Date as though then made, to the timely
performance by the Company and the Selling Stockholders of their respective
covenants and other obligations hereunder, and to each of the following
additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the National Association of Securities Dealers, LLC. The Registration
Statement shall have become effective prior to the execution of this Agreement,
or at such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Shareholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel; and the
National Association of Securities Dealers, LLC shall have raised no objection
to the fairness and reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
in the condition (financial or otherwise), earnings, operations, business or
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus;
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Cooley Godward LLP, counsel for the Company substantially in the form of
Exhibit B attached hereto, dated the First Closing Date, or the Second Closing
- ---------
Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States, the State of New
York or the State of California or general corporate laws of the State of
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Brobeck,
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Phleger & Harrison LLP, substantially in the form of Exhibit C hereto. The
---------
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(f) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
PricewaterhouseCoopers LLP addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Securities Act and the applicable published Rules and
Regulations and based upon the procedures described in such letter delivered to
you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than four (4) business
days prior to the First Closing Date or the Second Closing Date, as the case may
be, (i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the First Closing Date or the
Second Closing Date, as the case may be, and (ii) setting forth any revisions
and additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. The
Original Letter from PricewaterhouseCoopers LLP shall be addressed to or for the
use of the Underwriters in form and substance satisfactory to the Underwriters
and shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the balance sheet of
the Company as of December 31, 1998 and related statements of operations,
stockholders' equity, and cash flows for the twelve (12) months ended December
31, 1998, (iii) state that PricewaterhouseCoopers LLP has performed the
procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for a
review of interim financial information and providing the report of
PricewaterhouseCoopers LLP as described in SAS 71 on the financial data for each
of the quarters presented in the Prospectus (the "Quarterly Financial
Information"), (iv) state that in the course of such review, nothing came to
their attention that leads them to believe that any material modifications need
to be made to any of the Quarterly Financial Information in order for them to be
in compliance with generally accepted accounting principles consistently applied
across the periods presented, (v) state that PricewaterhouseCoopers LLP has
performed the procedures set out in Statement of Auditing standards No. 86 with
respect to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the Prospectus and (iv) address other
matters agreed upon by PricewaterhouseCoopers LLP and you. In addition, you
shall have received from PricewaterhouseCoopers LLP a letter addressed to the
Company and made available to you for the use of the Underwriters stating that
their review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's financial statements as of December 31, 1999, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(g) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing
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Date or the Second Closing Date, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date
or the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to the First
Closing Date or the Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have
been instituted or are pending or, to the knowledge of the Company,
threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto contained all material information required to be
included therein by the Securities Act and in all material respects
conformed to the requirements of the Securities Act; the Registration
Statement and the Prospectus, and any amendments or supplements
thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
and, since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (a)
any material adverse change in the condition (financial or
otherwise), earnings, operations, business or prospects of the
Company and any of its subsidiaries considered as one enterprise, (b)
any transaction that is material to the Company and any of its
subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any obligation,
direct or contingent, that is material to the Company and any of its
subsidiaries considered as one enterprise, incurred by the Company or
any of its subsidiaries, except obligations incurred in the ordinary
course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company or any of its subsidiaries
that is material to the Company and its subsidiaries considered as
one enterprise, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of
its subsidiaries, or (f) any loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or prospects of the Company and its subsidiaries
considered as one enterprise.
(h) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
---------
Company, and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company.
(i) Opinion of Counsel for the Selling Stockholders. You shall have
received on the First Closing Date and the Second Closing Date, as the case may
be, the following opinion of Cooley Godward, LLP, counsel for the Selling
Stockholders substantially in the form of Exhibit D
---------
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attached hereto, dated as of such Closing Date, addressed to the Underwriters
and with reproduced copies or signed counterparts thereof for each of the
Underwriters.
In rendering such opinion, such counsel may rely as to questions of
law not involving the laws of the United States, the State of New York or the
State of California or the general corporate laws of the State of Delaware upon
opinions of local counsel and as to questions of fact upon representations or
certificates of the Selling Stockholders or officers of the Selling Stockholders
(when the Selling Stockholder is not a natural person), and of governmental
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy of any
material misstatement or inaccuracy in any such opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(j) Selling Stockholders' Certificate. On each of the First Closing Date and
the Second Closing Date, as the case may be, the Representatives shall received
a written certificate executed by each Selling Stockholder, dated as of such
Closing Date, to the effect that:
(i) the representations, warranties and covenants of such Selling Stockholder
set forth in Section 1 of this Agreement are true and correct with the same
force and effect as though expressly made by such Selling Stockholder on and as
of such Closing Date; and
(ii) such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(k) Selling Stockholders' Documents. At least three business days prior to
the date hereof, the Company and the Selling Stockholders shall have furnished
for review by the Representatives copies of the Custody Agreements executed by
each of the Selling Stockholders and such further information, certificates and
documents as the Representatives may reasonably request.
(l) Stock Exchange Listing. The Shares shall have been approved for inclusion
on the Nasdaq National Market, subject only to official notice of issuance.
(m) Compliance with Prospectus Delivery Requirements. The Company shall have
complied with the provisions of Sections 2(g) and 3(e) hereof with respect to
the furnishing of Prospectuses.
(n) Additional Documents. On or before each of the First Closing Date and the
Second Closing Date, as the case may be, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Stockholders at any
time on or prior to the First Closing Date and, with respect to the Option
Shares, at any time prior to the Second Closing Date, which termination shall be
without liability on the part of any party to any other party, except that
Section 5
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(Payment of Expenses), Section 6 (Reimbursement of Underwriters' Expenses),
Section 7 (Indemnification and Contribution) and Section 10 (Representations and
Indemnities to Survive Delivery) shall at all times be effective and shall
survive such termination.
Section 5. Payment of Expenses.
The Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including without limitation (i) all
expenses incident to the issuance and delivery of the Shares (including all
printing and engraving costs), (ii) all fees and expenses of the registrar and
transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Shares to the
Underwriters, (iv) all fees and expenses of the Company's counsel, independent
public or certified public accountants and other advisors, (v) all costs and
expenses incurred in connection with the preparation, printing, filing, shipping
and distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), each preliminary
prospectus and the Prospectus, and all amendments and supplements thereto, (vi)
all filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Shares for offer and sale under the state securities or blue sky laws or the
provincial securities laws of Canada or any other country, and, if requested by
the Representatives, preparing and printing a "Blue Sky Survey", an
"International Blue Sky Survey" or other memorandum, and any supplements
thereto, advising the Underwriters of such qualifications, registrations and
exemptions, (vii) the filing fees incident to, and the reasonable fees and
expenses of counsel for the Underwriters in connection with, the National
Association of Securities Dealers, LLC review and approval of the Underwriters'
participation in the offering and distribution of the Shares, (viii) the fees
and expenses associated with including the Common Shares on the Nasdaq National
Market, (ix) all costs and expenses incident to the preparation and undertaking
of "road show" preparations to be made to prospective investors, and (x) all
other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. Except as provided in this Section 5, Section 6, and
Section 7 hereof, the Underwriters shall pay their own expenses, including the
fees and disbursements of their counsel.
The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Stockholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Shares to be sold by such Selling Stockholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 5 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Stockholders, on the other hand.
Section 6. Reimbursement of Underwriters' Expenses.
If this Agreement is terminated by the Representatives pursuant to
Section 4, Section 7, Section 8, Section 9, or if the sale to the Underwriters
of the Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the
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Company or the Selling Stockholders to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all out-of-
pocket expenses that shall have been reasonably incurred by the Representatives
and the Underwriters in connection with the proposed purchase and the offering
and sale of the Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
Section 7. Indemnification and Contribution.
(a) Indemnification of the Underwriters. The Company and each of the Selling
Stockholders agree severally and not jointly, to indemnify and hold harmless
each Underwriter, its officers and employees, and each person, if any, who
controls any Underwriter within the meaning of the Securities Act and the
Exchange Act against any loss, claim, damage, liability or expense, as incurred,
to which such Underwriter or such controlling person may become subject, under
the Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the Company
or the Selling Stockholders contained herein; or (iv) in whole or in part upon
any failure of the Company or the Selling Stockholders to perform their
respective obligations hereunder or under law; or (v) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Shares or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim, damage,
liability, action or expense arising out of or based upon any matter covered by
clause (i), (ii), (iii) or (iv) above, provided that the Company and the Selling
Stockholders shall not be liable under this clause (v) to the extent that a
court of competent jurisdiction shall have determined by a final judgment that
such loss, claim, damage, liability or action resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such Underwriter
through its bad faith or willful misconduct; and to reimburse each Underwriter
and each such controlling person for any and all expenses (including the fees
and disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company and the Selling Stockholders by the
Representatives expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
23
<PAGE>
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or expense
purchased Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. In no event shall the aggregate liability of any Selling
Stockholder under this Agreement, including for indemnification, contribution,
reimbursement of expenses and breach of any representation or warranty, exceed
the net proceeds received by such Selling Stockholder from the Underwriters in
the offering (before deducting expenses). The indemnity agreement set forth in
this Section 7(a) shall be in addition to any liabilities that the Company and
the Selling Stockholder may otherwise have. Notwithstanding the foregoing, any
amounts to be paid by an indemnifying party shall be offset by any amounts paid
to the indemnified parties pursuant to the insurance described in Section 1(cc).
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Stockholders and each person, if any, who
controls the Company or any Selling Stockholder within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage, liability
or expense, as incurred, to which the Company, or any such director, officer,
Selling Stockholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based upon
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or arises out of or is based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written information
furnished to the Company and the Selling Stockholders by the Representatives
expressly for use therein; and to reimburse the Company, or any such director,
officer, Selling Stockholder or controlling person for any legal and other
expense reasonably incurred by the Company, or any such director, officer, or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The indemnity agreement set forth in this Section 7(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. Each of the Company and each of
the Selling Stockholders hereby acknowledges that the only information that the
Underwriters have furnished to the Company expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) are the statements set forth in the table in the first
paragraph, the second paragraph and the [________] paragraph under the caption
"Underwriting" in the Prospectus; and the Underwriters confirm that such
statements are correct.
24
<PAGE>
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (BancBoston Robertson Stephens Inc. in the case of Section
7(b) and Section 8), representing the indemnified parties who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not be
liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been
25
<PAGE>
sought hereunder by such indemnified party, unless such settlement, compromise
or consent includes (i) an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on one
hand and the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on one hand or the Underwriters
on the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 7(f) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim after taking into account
amounts paid pursuant to the insurance described in Section 1(cc).
Notwithstanding the provisions of this subsection (f), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 7(f) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Notwithstanding the provisions of this subsection (f), no Selling
Stockholder shall be required to contribute any amount in excess of the net
proceeds to such Selling Stockholder from the Underwriters in the offering
(before deducting expenses.
(g) Timing of Any Payments of Indemnification. Any losses, claims, damages,
liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution
26
<PAGE>
under this Section 7 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred, but
in all cases, no later than thirty (30) days of invoice to the indemnifying
party.
(h) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
Section 8. Default of One or More of the Several Underwriters.
If, on the First Closing Date or the Second Closing Date, as the case
may be, any one or more of the several Underwriters shall fail or refuse to
purchase Shares that it or they have agreed to purchase hereunder on such date,
and the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
----------
bears to the aggregate number of Firm Shares set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Shares and the
aggregate number of Shares with respect to which such default occurs exceeds 10%
of the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Shares are not made within 48 hours after such default, this Agreement shall
terminate without liability of any party to any other party except that the
provisions of Section 5 and Section 7 shall at all times be effective and shall
survive such termination. In any such case either the Representatives or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken
27
<PAGE>
under this Section 8 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
Section 9. Termination of this Agreement.
Prior to the First Closing Date, this Agreement may be terminated by
the Representatives by notice given to the Company and the Selling Stockholders
if at any time (i) trading or quotation in any of the Company's securities shall
have been suspended or limited by the Commission or by the Nasdaq Stock Market,
or trading in securities generally on either the Nasdaq Stock Market or the New
York Stock Exchange shall have been suspended or limited, or minimum or maximum
prices shall have been generally established on any of such stock exchanges by
the Commission or the National Association of Securities Dealers, LLC; (ii) a
general banking moratorium shall have been declared by any of federal, New York
or California authorities; (iii) there shall have occurred any outbreak or
escalation of national or international hostilities or any crisis or calamity,
or any change in the United States or international financial markets, or any
substantial change or development involving a prospective change in United
States' or international political, financial or economic conditions, as in the
judgment of the Representatives is material and adverse and makes it
impracticable or inadvisable to market the Common Shares in the manner and on
the terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 9 shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company and the Selling Stockholders shall be
obligated to reimburse the expenses of the Representatives and the Underwriters
pursuant to Sections 5 and 6 hereof, (b) any Underwriter to the Company or the
Selling Stockholders, or (c) of any party hereto to any other party except that
the provisions of Section 7 shall at all times be effective and shall survive
such termination.
Section 10. Representations and Indemnities to Survive Delivery.
The respective indemnities, agreements, representations, warranties
and other statements of the Company, of the Selling Stockholders, of its
officers and of the several Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or the Company or any of its or their
partners, officers or directors or any controlling person, or the Selling
Stockholders, as the case may be, and will survive delivery of and payment for
the Shares sold hereunder and any termination of this Agreement.
Section 11. Notices.
All communications hereunder shall be in writing and shall be mailed,
hand delivered or telecopied and confirmed to the parties hereto as follows:
28
<PAGE>
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
Chordiant Software, Inc.
20400 Stevens Creek Blvd., Suite 400
Cupertino, CA 95014
Facsimile: (408) 517-0270
Attention: Chief Financial Officer
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Eric Jensen, Esq.
If to the Selling Stockholders:
Joseph Tumminaro
Carol Realini
c/o Chordiant Software, Inc.
20400 Stevens Creek Blvd., Suite 400
Cupertino, CA 95014
Facsimile: (408) 517-0270
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Eric Jensen, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 12. Successors.
This Agreement will inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriters pursuant to Section 8
hereof, and to the benefit of the employees, officers and directors and
controlling persons referred to in Section 7, and to their respective
successors, and no other person will have any right or obligation hereunder.
The term "successors" shall not include any purchaser of the Shares as such from
any of the Underwriters merely by reason of such purchase.
29
<PAGE>
Section 13. Partial Unenforceability.
The invalidity or unenforceability of any Section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
Section 14. Governing Law Provisions.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising out
of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of San Francisco or the courts
of the State of California located in the City and County of San Francisco
(collectively, the "Specified Courts"), and each party irrevocably submits to
the exclusive jurisdiction (except for proceedings instituted in regard to the
enforcement of a judgment of any such court (a "Related Judgment"), as to which
such jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum. Each party not located in the United States
irrevocably appoints CT Corporation System, which currently maintains a San
Francisco office at 49 Stevenson Street, San Francisco, California 94105, United
States of America, as its agent to receive service of process or other legal
summons for purposes of any such suit, action or proceeding that may be
instituted in any state or federal court in the City and County of San
Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
Section 15. Failure of One or More of the Selling Stockholders to Sell and
Deliver Common Shares.
If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Selling Stockholder Option Shares to be sold and
delivered by such Selling Stockholders at the First Closing Date or the Second
Closing Date pursuant to this Agreement, then the Underwriters may at their
option, by written notice from the Representatives to the
30
<PAGE>
Company and the Selling Stockholders, either (i) terminate this Agreement
without any liability on the part of any Underwriter or, except as provided in
Sections 5, 6, and 7 hereof, the Company or the Selling Stockholders, (ii)
purchase the shares which the Company and other Selling Stockholders have agreed
to sell and deliver in accordance with the terms hereof, or (iii) the Company
shall be obligated to sell a number of Shares equal to the number of Shares
which such defaulting selling Stockholder(s) agreed but failed or refused to
sell or deliver on such date. If one or more of the Selling Stockholders shall
fail to sell and deliver to the Underwriters the Shares to be sold and delivered
by such Selling Stockholders pursuant to this Agreement at the First Closing
Date or the Second Closing Date, then the Underwriters shall have the right, by
written notice from the Representatives to the Company and the Selling
Stockholders, to postpone the First Closing Date or the Second Closing Date, as
the case may be, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
Section 16. General Provisions.
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in two or more counterparts, each one of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement may not be amended or
modified unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party whom
the condition is meant to benefit. The Table of Contents and the Section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement.
[The remainder of this page has been intentionally left blank.]
31
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
CHORDIANT SOFTWARE, INC.
By:_______________________________
By: Samuel T. Spadafora,
Chairman, President and Chief
Executive Officer
By:_______________________________
Joseph Tumminaro
as trustee for _____________
By:_______________________________
Carol Realini
as trustee for _____________
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
DAIN RAUSCHER WESSELS
THOMAS WEISEL PARTNERS LLC
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
- ----------
By BANCBOSTON ROBERTSON STEPHENS INC.
By:_______________________________
Authorized Signatory
32
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Common
Underwriters Shares To be Purchased
- ------------------------------------------------------------------- ------------------------
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC........................................... [___]
DAIN RAUSCHER WESSELS....................................................... [___]
THOMAS WEISEL PARTNERS LLC.................................................. [___]
Total.................................................................. [___]
</TABLE>
33
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Maximum Number of
Number of Firm Shares Option Shares
Selling Stockholder to be Sold to be Sold
- ---------------------------------------------------- --------------------- ------------------
<S> <C> <C>
[trust]
c/o Chordiant Software, Inc.
20400 Stevens Creek Blvd., Suite 400
Cupertino, CA 95014
Attention: Joseph F. Tumminaro and Carol L. [___] [___]
Realini..................................
[trust]
c/o Chordiant Software, Inc.
20400 Stevens Creek Blvd., Suite 400
Cupertino, CA 95014
Attention: Joseph F. Tumminaro and Carol L. [___] [___]
Realini..................................
Total:......................................... [___] [___]
===================== ==================
</TABLE>
34
<PAGE>
Exhibit A
Lock-Up Agreement
35
<PAGE>
LOCK-UP AGREEMENT
November 17, 1999
BancBoston Robertson Stephens
As Representatives of the Several Underwriters
555 California Street
San Francisco, CA 94104
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the
several underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement (the "Underwriting Agreement") with CHORDIANT SOFTWARE, INC. (the
"Company") providing for the initial public offering (the "Public Offering") by
the Underwriters, including yourselves, of Common Stock of the Company (the
"Common Stock") pursuant to the Company's Registration Statement on Form S-1 to
be filed with the Securities and Exchange Commission on or about December 2,
1999 (the "Registration Statement").
In consideration of the Underwriters' agreement to purchase and make
the Public Offering of the Common Stock, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned hereby
agrees, for a period of 180 days after the effective date of the Registration
Statement (the "Lock-Up Period"), not to offer to sell, contract to sell or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") 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 (collectively, "Securities"),
now owned or hereafter acquired directly by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, (ii) transfers without
consideration, if the undersigned is an individual, to his or her immediate
family or to a trust, the beneficiaries of which are exclusively the undersigned
and/or a member or members of his or her immediate family, either during his or
her lifetime or on death by will or intestacy, (iii) transfers, if the
undersigned is a partnership, limited liability company or corporation, to
limited partners, members of limited liability companies or shareholders of the
undersigned as a distribution, (iv) transfers of Securities acquired in open
market transactions after the effective date of the Registration Statements, (v)
transfers of Securities acquired pursuant to the Company's Employee Stock
Purchase Plan after August 10, 1000, or (vi) with the prior written consent of
BancBoston Robertson Stephens. The transferees described in (i) through (iii)
above will be required to agree in writing to be bound by the terms hereof as a
condition of any such transfer. The foregoing restriction is expressly agreed
to preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-Up Period even if such Securities
would be disposed of by someone other than the undersigned. Such prohibited
hedging or other transactions would include without limitation any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including without limitations any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Notwithstanding the foregoing, this Lock-Up
Agreement does not prohibit the sale of
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shares of the Common Stock by the undersigned to the Underwriters in the Public
Offering or shares of Common Stock acquired in the Public Offering.
Furthermore, the undersigned hereby agrees and consents to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by the undersigned except in compliance with
this Lock-Up Agreement. It is understood that, if the Company notifies you
(with the prior written consent of BancBoston Robertson Stephens) that it does
not intend to proceed with the Public Offering, or if the Underwriting Agreement
(other than the provisions thereof that survive termination) shall terminate or
be terminated prior to payment for and delivery of the securities, the
undersigned shall be released from the obligations of this Lock-Up Agreement.
In the event that the Registration Statement shall not have been declared
effective on or before June 30, 2000 this Lock-Up Agreement shall be of no
further force or effect.
Very truly yours,
___________________________________________
Name:______________________________________
Address:___________________________________
___________________________________
Accepted as of the date first set forth above:
BancBoston Robertson Stephens
As Representatives of the Several Underwriters
BancBoston Robertson Stephens
By: __________________________________________
(authorized signatory)
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Exhibit B
Matters to be Covered in the Opinion of Company Counsel
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware;
(ii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Company and each subsidiary thereof is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction, if any,
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. To
such counsel's knowledge, the Company does not, directly or indirectly, own any
voting security of or equity interest in, or control, any corporation,
association or other entity;
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein, the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
and, to such counsel's knowledge, have not been issued in violation of or,
except as set forth in the Prospectus, subject to, any preemptive right, co-sale
right, registration right, right of first refusal or other similar right;
(v) The Firm Shares or the Option Shares, as the case may be, to be issued
by the Company pursuant to the terms of this Agreement have been duly authorized
and, upon issuance and delivery against payment therefor in accordance with the
terms hereof, will be duly and validly issued and fully paid and nonassessable,
and will not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right;
(vi) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and, assuming due authorization, execution and delivery by the
Underwriters and the Selling Stockholders, is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except as rights to
indemnification and contribution hereunder may be limited by applicable law and
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by general equitable principles;
(viii) The Registration Statement has become effective under the Act and, to
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Securities Act;
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(ix) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares or
the Option Shares have been validly registered under the Securities Act and the
Rules and Regulations of the Exchange Act and the applicable rules and
regulations of the Commission thereunder;
(x) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the consolidated financial statements (including
supporting schedules) and financial data and statistical data derived therefrom
as to which such counsel need express no opinion), as of the effective date of
the Registration Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and Regulations;
(xi) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with Delaware
law;
(xii) The description in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of statutes, insofar as they purport to
describe the provisions of such documents and statutes, fairly present the
information required to be presented by the Securities Act;
(xiii) To such counsel's knowledge, there are no agreements, contracts, leases
or documents to which the Company is a party of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification and contributed obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the Company's
charter or bylaws or (b) to such counsel's knowledge, result in a material
breach or violation of any of the terms and provisions of, or constitute a
default under, any bond, debenture, note or other evidence of indebtedness, or
any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument filed as an exhibit to the Registration
Agreement, or any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any court,
government or governmental agency or body having jurisdiction over the Company,
or over any of its properties or operations;
(xv) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction over
the Company, or over any of its properties or operations is necessary in
connection with the consummation by the Company of the transactions herein
contemplated, except (i) such as have been obtained under the Securities Act,
(ii) such as may be required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters, (iii) such as may be required by the National Association of
Securities Dealers, LLC and (iv) such as may be required under the laws of
Canada, or any other foreign jurisdiction;
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(xvi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its subsidiaries
of a character required to be disclosed in the Registration Statement or the
Prospectus by the Securities Act, other than those described therein;
(xvii) To such counsel's knowledge, the Company is not presently (a) in
material violation of its charter or bylaws, or (b) in material breach of any
applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court or governmental
agency or body having jurisdiction over the Company, or over any of its
properties or operations;
(xviii) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus no holders of Company Shares or other securities of the
Company have registration rights with respect to securities of the Company and,
except as set forth in the Registration Statement and Prospectus, all holders of
securities of the Company having rights known to such counsel to registration of
such shares of Company Shares or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by reason
of lapse of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights;
(xvix) The Company is not and, after giving effect to the offering and the sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended; and
(xx) In addition, such counsel shall state that, in connection with the
preparation of the Registration Statement, such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not independently verified and accordingly are not passing
upon and do not assume any responsibility for the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus (other
than the statements made in the Prospectus under the captions "Description of
Capital Stock" and "Shares Eligible for Resale," insofar as such statements
relate to the Shares and concern legal matters), nothing has come to the
attention of such counsel which has caused them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
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Exhibit C
Matters to be Covered in the Opinion of Underwriters' Counsel
(i) The Firm Shares or the Option Shares, as the case may be have been duly
authorized and, upon issuance and delivery and payment therefore in accordance
with the terms of the Underwriting Agreement, will be validly issued, fully paid
and non-assessable;
(ii) The Registration Statement complied as to form in all material respects
with the requirements of the Act; the Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop order
proceedings with respect thereto have been instituted or threatened or are
pending under the Securities Act;
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares or
the Option Shares have been validly registered under the Securities Act and the
Rules and Regulations of the Exchange Act and the applicable rules and
regulations of the Commission thereunder; and
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company [and the Selling Stockholders].
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from Cooley Godward LLP, each dated the date
hereof, and furnished to you in accordance with the provisions of the
Underwriting Agreement. Such opinion appears on its face to be appropriately
responsive to the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, counsel to the Company and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the First Closing
Date or the Second Closing Date, as the case may be, the Registration Statement,
the Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
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Exhibit D
Matters to be Covered in the Opinion of Selling Stockholder Counsel
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, such
Selling Stockholder, enforceable in accordance with its terms, except as rights
to indemnification and contribution thereunder may be limited by applicable law
and except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ii) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, the
Underwriting Agreement and its Custody Agreement will not contravene or conflict
with, result in a breach of, or constitute a default under, the charter or by-
laws, partnership agreement, trust agreement or other organization documents, as
the case may be, of such Selling Stockholder, or, to the best of such counsel's
knowledge, violate, result in a breach of or constitute a default under the
terms of any other agreement or instrument to which such Selling Stockholder is
a party or by which it is bound, or any judgement, order or decree applicable to
such Selling Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) Such Selling Stockholder has all authorizations and approvals required
under its trust agreement to enter into the Underwriting Agreement and its
Custody Agreement, to sell, transfer and deliver all of the Common Shares which
may be sold by such Selling Stockholder under the Underwriting Agreement and to
comply with its other obligations under the Underwriting Agreement and its
Custody Agreement.
(iv) The Custody Agreement of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding agreement of such Selling Stockholder, enforceable in accordance
with its terms, except as rights to indemnification and contribution thereunder
may be limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
(v) Assuming that the Underwriters purchase the Shares which are sold by
such Selling Stockholder pursuant to the Underwriting Agreement for value, in
good faith and without notice of any adverse claims, the delivery of such Shares
pursuant to the Underwriting Agreement will pass good and valid title to such
Shares, free and clear of any security interest, mortgage, pledge, lieu
encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court or
governmental authority or agency, is required for the consummation by such
Selling Stockholder of the transactions contemplated in the Underwriting
Agreement, except as required, (i) under the Securities Act, (ii) applicable
state securities or blue sky laws, (iii) from the National Association of
Securities Dealers, LLC and (iv) under the laws of Canada or any other foreign
jurisdiction.
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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>
CHORDIANT SOFTWARE, INC.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
STOCK OPTION AGREEMENT
(NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Grant Notice ("Grant Notice") and this Stock Option
Agreement, Chordiant Software, Inc. (the "Company") has granted you an option
under its 1999 Non-Employee Directors' Stock Option 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 at 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. 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; and
(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.
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 by one or more of the following:
<PAGE>
(a) 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 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;
<PAGE>
(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; or
(d) the Expiration Date indicated in your Grant Notice.
8. Exercise.
(a) You may exercise your option 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 the exercise of your
option.
9. Transferability.
(a) Your option is not transferable, except (i) by will or by the laws
of descent and distribution, (ii) by instrument to an inter vivos or
testamentary trust, in a form accepted by the Company, in which the option is to
be passed to beneficiaries upon the death of the trustor (settlor) and (iii) by
gift, in a form acceptable to the Company, to any person who is then eligible to
receive such securities, pursuant to the regulations then in place for a Form S-
8 registration statement under the Securities Act, by transfer from you,
including to your "family members." 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.
(b) For purposes of the Form S-8 regulations, the term "family
members" currently means any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and includes adoptive relationships, any person sharing your household (other
than a tenant or employee), a trust in which these persons have more than fifty
percent (50%) of the beneficial interest, a foundation in which these persons
(or you) control the management of the assets, and any other entity in which
these people (or you) own more than fifty percent (50%) of the voting interests.
(c) Your option is exercisable during your life only by you or a
transferee satisfying the above-stated conditions. The right of a transferee to
exercise the transferred portion of your option after termination of your
Continuous Service shall terminate in accordance with your right to exercise
your option as specified in your option. In the event that your Continuous
Service terminates due to your death, your transferee will be treated as a
person who acquired the right to exercise your option by bequest or inheritance.
In addition to the foregoing, the Company may require, as a condition of the
transfer of your option to a trust or by gift, that your transferee enter into
an option transfer agreement provided by, or acceptable to, the Company.
<PAGE>
The terms of your option shall be binding upon your transferees, executors,
administrators, heirs, successors, and assigns.
10. 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 stockholders, 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.
11. 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.
12. 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 10.5
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
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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
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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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<PAGE>
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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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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$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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<PAGE>
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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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)
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<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
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<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:
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(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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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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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.
-25-
<PAGE>
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 showing layout of offices on the fourth and second
floors of 20400 Stevens Creek Blvd. Layout shows location of offices, elevator
shafts, stairways and other service areas. Layout also shows the shape and
orientation of offices and service areas.]
<PAGE>
EXHIBIT "B"
DEPICTION OF THE PROJECT
------------------------
[Map showing location of 20400 Stevens Creek Blvd. in relation to Torre
Ave. and De Anza Blvd. Map also shows location and dimensions of adjacent
properties and dimensions of 20400 Stevens Creek Blvd. Map also shows location,
dimensions and shape of nearby common areas, parks and parking lots.]
<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 10.8
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>
ATTACHMENT A
CHORDIANT SOFTWARE, INC.
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by CHORDIANT
SOFTWARE, INC. (the "Company"), and the compensation now and hereafter paid to
me, I hereby agree as follows:
1. NONDISCLOSURE
1.1 Recognition of Company's Rights; Nondisclosure. At all times during my
employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authorizes such in writing. I will obtain Company's
written approval before publishing or submitting for publication any material
(written, verbal, or otherwise) that relates to my work at Company and/or
incorporates any Proprietary Information. I hereby assign to the Company any
rights I may have or acquire in such Proprietary Information and recognize that
all Proprietary Information shall be the sole property of the Company and its
assigns.
1.2 Proprietary Information. The term "Proprietary Information" shall mean
any and all confidential and/or proprietary knowledge, data or information of
the Company. By way of illustration but not limitation, "Proprietary
Information" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, know-how, improvements, discoveries, developments, designs and
techniques (hereinafter collectively referred to as "Inventions"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry, which
is not gained as result of a breach of this Agreement, and my own, skill,
knowledge, know-how and experience to whatever extent and in whichever way I
wish.
1.3 Third Party Information. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary information ("Third Party Information") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of my employment and
thereafter, I will hold Third Party Information in the strictest confidence and
will not disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.
1.4 No Improper Use of Information of Prior Employers and Others. During my
employment by the Company I will not improperly use or disclose any confidential
information or trade secrets, if any, of any former employer or any other person
to whom I have an obligation of confidentiality, and I will not bring onto the
premises of the Company any unpublished documents or any property belonging to
any former employer or any other person to whom I have an obligation of
confidentiality unless consented to in writing by that former employer or
person. I will use in the performance of my duties only information which is
generally known and used by persons with training and experience comparable to
my own, which is common knowledge in the industry or otherwise legally in the
public domain, or which is otherwise provided or developed by the Company.
2. ASSIGNMENT OF INVENTIONS.
2.1 Proprietary Rights. The term "Proprietary Rights" shall mean all trade
secret, patent, copyright, mask work and other intellectual property rights
throughout the world.
2.2 Prior Inventions. Inventions, if any, patented or unpatented, which I
made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To preclude any possible uncertainty, I have
set forth on Exhibit B (Previous Inventions) attached hereto a
<PAGE>
complete list of all Inventions that I have, alone or jointly with others,
conceived, developed or reduced to practice or caused to be conceived, developed
or reduced to practice prior to the commencement of my employment with the
Company, that I consider to be my property or the property of third parties and
that I wish to have excluded from the scope of this Agreement (collectively
referred to as "Prior Inventions"). If disclosure of any such Prior Invention
would cause me to violate any prior confidentiality agreement, I understand that
I am not to list such Prior Inventions in Exhibit B but am only to disclose a
cursory name for each such invention, a listing of the party(ies) to whom it
belongs and the fact that full disclosure as to such inventions has not been
made for that reason. A space is provided on Exhibit B for such purpose. If no
such disclosure is attached, I represent that there are no Prior Inventions. If,
in the course of my employment with the Company, I incorporate a Prior Invention
into a Company product, process or machine, the Company is hereby granted and
shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide
license (with rights to sublicense through multiple tiers of sublicensees) to
make, have made, modify, use and sell such Prior Invention. Notwithstanding the
foregoing, I agree that I will not incorporate, or permit to be incorporated,
Prior Inventions in any Company Inventions without the Company's prior written
consent.
2.3 Assignment of Inventions. Subject to Sections 2.4, and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my right, title and interest in and to
any and all Inventions (and all Proprietary Rights with respect thereto) whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment with the Company. Inventions assigned
to the Company, or to a third party as directed by the Company pursuant to this
Section 2, are hereinafter referred to as "Company Inventions."
2.4 Nonassignable Inventions. This Agreement does not apply to an Invention
which qualifies fully as a nonassignable Invention under Section 2870 of the
California Labor Code (hereinafter "Section 2870"). I have reviewed the
notification on Exhibit A (Limited Exclusion Notification) and agree that my
signature acknowledges receipt of the notification.
2.5 Obligation to Keep Company Informed. During the period of my employment
and for six (6) months after termination of my employment with the Company, I
will promptly disclose to the Company fully and in writing all Inventions
authored, conceived or reduced to practice by me, either alone or jointly with
others. In addition, I will promptly disclose to the Company all patent
applications filed by me or on my behalf within a year after termination of
employment. At the time of each such disclosure, I will advise the Company in
writing of any Inventions that I believe fully qualify for protection under
Section 2870; and I will at that time provide to the Company in writing all
evidence necessary to substantiate that belief. The Company will keep in
confidence and will not use for any purpose or disclose to third parties without
my consent any confidential information disclosed in writing to the Company
pursuant to this Agreement relating to Inventions that qualify fully for
protection under the provisions of Section 2870. I will preserve the
confidentiality of any Invention that does not fully qualify for protection
under Section 2870.
2.6 Government or Third Party. I also agree to assign all my right, title
and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.
2.7 Works for Hire. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire,"
pursuant to United States Copyright Act (17 U.S.C., Section 101).
2.8 Enforcement of Proprietary Rights. I will assist the Company in every
proper way to obtain, and from time to time enforce, United States and foreign
Proprietary Rights relating to Company Inventions in any and all countries. To
that end I will execute, verify and deliver such documents and perform such
other acts (including appearances as a witness) as the Company may reasonably
request for use in applying for, obtaining, perfecting, evidencing, sustaining
and enforcing such Proprietary Rights and the assignment thereof. In addition, I
will execute, verify and deliver assignments of such Proprietary Rights to the
Company or its designee. My obligation to assist the Company with respect to
Proprietary Rights relating to such Company Inventions in any and all countries
shall continue beyond the termination of my employment, but the Company shall
compensate me at a reasonable rate after my
<PAGE>
termination for the time actually spent by me at the Company's request on such
assistance.
In the event the Company is unable for any reason, after reasonable effort, to
secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and attorney
in fact, which appointment is coupled with an interest, to act for and in my
behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.
3. RECORDS. I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company) of all Proprietary Information developed by me and all Inventions
made by me during the period of my employment at the Company, which records
shall be available to and remain the sole property of the Company at all times.
4. ADDITIONAL ACTIVITIES. I agree that during the period of my employment by
the Company I will not, without the Company's express written consent, engage in
any employment or business activity which is competitive with, or would
otherwise conflict with, my employment by the Company. I agree further that for
the period of my employment by the Company and for one (l) year after the date
of termination of my employment with the Company I will not induce any employee
of the Company to leave the employ of the Company. I agree further that for the
period of my employment with the Company and for one (1) year after the date of
termination of my employment with the Company, I will not solicit the business
of any client or customer of the Company (other than on behalf of the Company).
5. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms
of this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence information acquired by me in confidence or
in trust prior to my employment by the Company. I have not entered into, and I
agree I will not enter into, any agreement either written or oral in conflict
herewith.
6. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will
deliver to the Company any and all drawings, notes, memoranda, specifications,
devices, formulas, and documents, together with all copies thereof, and any
other material containing or disclosing any Company Inventions, Third Party
Information or Proprietary Information of the Company. I further agree that any
property situated on the Company's premises and owned by the Company, including
disks and other storage media, filing cabinets or other work areas, is subject
to inspection by Company personnel at any time with or without notice. Prior to
leaving, I will cooperate with the Company in completing and signing the
Company's termination statement.
7. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.
8. NOTICES. Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as the
party shall specify in writing. Such notice shall be deemed given upon personal
delivery to the appropriate address or if sent by certified or registered mail,
three (3) days after the date of mailing.
9. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.
10. GENERAL PROVISIONS.
10.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will
be governed by and construed according to the laws of the State of California,
as such laws are applied to agreements entered into and to be performed entirely
within California between California residents. I hereby expressly consent to
the personal jurisdiction of the state and federal courts located in Santa Clara
County, California for any lawsuit filed there against me by Company arising
from or related to this Agreement.
<PAGE>
10.2 Severability. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law as it shall then appear.
10.3 Successors and Assigns. This Agreement will be binding upon my heirs,
executors, administrators and other legal representatives and will be for the
benefit of the Company, its successors, and its assigns.
10.4 Survival. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
10.5 Employment. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company's right
to terminate my employment at any time, with or without cause.
10.6 Waiver. No waiver by the Company of any breach of this Agreement shall
be a waiver of any preceding or succeeding breach. No waiver by the Company of
any right under this Agreement shall be construed as a waiver of any other
right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
10.7 Entire Agreement. The obligations pursuant to Sections 1 and 2 of this
Agreement shall apply to any time during which I was previously employed, or am
in the future employed, by the Company as a consultant if no other agreement
governs nondisclosure and assignment of inventions during such period. This
Agreement is the final, complete and exclusive agreement of the parties with
respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the party to be charged. Any subsequent change or changes
in my duties, salary or compensation will not affect the validity or scope of
this Agreement.
This Agreement shall be effective as of the first day of my employment with
the Company, namely: _______________, 19__.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT.
Dated: ___________
_______________________________________
(Signature)
_______________________________________
(Printed Name)
ACCEPTED AND AGREED TO:
CHORDIANT SOFTWARE, INC.
By:____________________________________
Title:_________________________________
_______________________________________
(Address)
_______________________________________
Dated: _______
<PAGE>
EXHIBIT A
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
1. Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company;
2. Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by
a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By:_________________________________
(PRINTED NAME OF EMPLOYEE)
Date:_______________________________
WITNESSED BY:
_______________________________________
(PRINTED NAME OF REPRESENTATIVE)
<PAGE>
EXHIBIT B
TO: CHORDIANT SOFTWARE, INC.
FROM: ________________________
DATE: ________________________
SUBJECT: Previous Inventions
1. Except as listed in Section 2 below, the following is a complete list of all
inventions or improvements relevant to the subject matter of my employment by
CHORDIANT SOFTWARE, INC. (the "Company") that have been made or conceived or
first reduced to practice by me alone or jointly with others prior to my
engagement by the Company:
[_] No inventions or improvements.
[_] See below:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
[_] Additional sheets attached.
2. Due to a prior confidentiality agreement, I cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality with
respect to which I owe to the following party(ies):
<TABLE>
<CAPTION>
Invention or Improvement Party(ies) Relationship
<S> <C> <C>
1. ______________________ _______________ ________________
2. ______________________ _______________ ________________
3. ______________________ _______________ ________________
</TABLE>
[_] Additional sheets attached.
<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 A
EMPLOYEE CONFIDENTIALITY AGREEMENT
<PAGE>
EXHIBIT A
[LOGO] Employee Confidentiality & Invention Agreement
Name: Carol L. Realini Date: 7/20/95
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.
Employee Signature: /s/ Carol L. Realini
----------------------------
<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 B
STOCK PURCHASE AGREEMENT
UNDER THE
CHORDIANT SOFTWARE, INC. EQUITY INCENTIVE PLAN
This Agreement is made by and between Chordiant Software, Inc., a Delaware
corporation (the "Company"), and John Palmer ("Purchaser").
Witnesseth:
Whereas, Purchaser holds vested stock options to purchase Three Hundred
Seventy Five Thousand Thirty Five (376,098) shares of common stock ("Common
Stock") of the Company (the "Option") pursuant to the Company's Equity Incentive
Plan (the "Plan");
Whereas, the Option consists of a Stock Option Grant Notice and a Stock
Option Agreement; and
Whereas, Purchaser desires to exercise the Option on the terms and
conditions contained herein and therefore to enter into this Agreement;
Now, therefore, it is agreed between the parties as follows:
1. Incorporation of Plan and Option by Reference. This Agreement is subject
to all of the terms and conditions as set forth in the Plan and the Option. If
there is a conflict between the terms of this Agreement and/or the Option and
the terms of the Plan, the terms of the Plan shall control. If there is a
conflict between the terms of this Agreement and the terms of the Option, the
terms of the Option shall control. Defined terms not explicitly defined in this
Agreement but defined in the Plan shall have the same definitions as in the
Plan. Defined terms not explicitly defined in this Agreement or the Plan but
defined in the Option shall have the same definitions as in the Option.
2. Purchase and Sale of Common Stock.
(a) Agreement to Purchase and Sell Common Stock. Purchaser hereby
agrees to purchase from the Company, and the Company hereby agrees to sell to
Purchaser, an aggregate of Three Hundred Seventy Six Thousand Ninety Eight
(376,098) shares of Common Stock, for an aggregate purchase price of Fifty One
Thousand Forty One Dollars and Thirty-Nine Cents ($51,041.39), within the time
period permitted under the Option for the purchase of the Common Stock, payable
as follows: a full-recourse promissory note in the form set forth in Attachment
3 (the "Note"), subject to a pledge in the form set forth in Attachment 4 (the
"Pledge Agreement"). The promissory note shall be for a term not to exceed
eighteen months or August 26, 2001, and shall become due and payable immediately
in the event that Purchaser breaches any term of the Separation Agreement letter
between the Company and Purchaser under which this Agreement is established.
<PAGE>
(b) Closing. The closing hereunder, including payment for and delivery
of the Common Stock, shall occur at the offices of the Company immediately
following the execution of this Agreement, or at such other time and place as
the parties may mutually agree; provided, however, that if shareholder approval
of the Plan is required before the Option may be exercised, then the Option may
not be exercised, and the closing shall be delayed, until such shareholder
approval is obtained. If such shareholder approval is not obtained within the
time limit specified in the Plan, then this Agreement shall be null and void.
3. Capitalization Adjustments to Common Stock. In the event of a
"Capitalization Adjustment" affecting the Company's outstanding Common Stock as
a class as designated in the Plan, then any and all new, substituted or
additional securities or other property to which Purchaser is entitled by reason
of Purchaser's ownership of Common Stock shall be immediately subject to the
Pledge Agreement and be included in the word "Common Stock" for all purposes of
the Pledge Agreement with the same force and effect as the shares of the Common
Stock presently subject to the Pledge Agreement, but only to the extent the
Common Stock is, at the time, covered by such Pledge Agreement.
4. Change in Control. In the event of a "Change in Control" as designated
in the Plan, then the Note and Pledge Agreement may be assigned by the Company
to the successor of the Company (or such successor's parent company), if any, in
connection with such Change in Control. To the extent the Pledge Agreement
remains in effect following such Change in Control, it shall apply to the new
capital stock or other property received in exchange for the Common Stock in
consummation of the Change in Control, but only to the extent the Common Stock
was at the time covered by such right.
5. Escrow of Pledged Common Stock. As security for Purchaser's faithful
performance of the terms of this Agreement and to insure the payment of the
Note, Purchaser agrees, at the closing hereunder, to deliver to and deposit with
the Company's legal counsel, Cooley Godward, LLP ("Escrow Agent"), as Escrow
Agent in this transaction, stock assignments duly endorsed (with date and number
of shares blank) in the form attached hereto as an Attachment, together with a
certificate or certificates evidencing all of the Common Stock subject to the
Pledge Agreement; said documents are to be held by the Escrow Agent and
delivered by said Escrow Agent pursuant to the Joint Escrow Instructions of the
Company and Purchaser set forth in an Attachment , attached hereto and
incorporated by this reference, which instructions shall also be delivered to
the Escrow Agent at the closing hereunder.
6. Rights of Purchaser. Subject to the provisions of the Option, Purchaser
shall exercise all rights and privileges of a shareholder of the Company with
respect to the shares deposited in escrow. Purchaser shall be deemed to be the
holder of the shares for purposes of receiving any dividends that may be paid
with respect to such shares and for purposes of exercising any voting rights
relating to such shares.
7. Limitations on Transfer. In addition to any other limitation on transfer
created by applicable securities laws, Purchaser shall not sell, assign,
hypothecate, donate, encumber or otherwise dispose of any interest in the Common
Stock while the Common Stock is in escrow. After any Common Stock has been
released from the escrow, Purchaser shall not sell,
<PAGE>
assign, hypothecate, donate, encumber or otherwise dispose of any interest in
the Common Stock except in compliance with the provisions herein and applicable
securities laws. Furthermore, the Common Stock shall be subject to any right of
first refusal in favor of the Company or its assignees that may be contained in
the Company's Bylaws.
8. Restrictive Legends. All certificates representing the Common Stock
shall have endorsed thereon legends in substantially the following forms (in
addition to any other legend which may be required by other agreements between
the parties hereto):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A PLEDGE
AGREEMENT SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS COMPANY OR THE OFFICES OF COOLEY GODWARD, LLP. ANY
TRANSFER OR ATTEMPTED TRANSFER OF ANY SHARES SUBJECT TO SUCH PLEDGE AGREEMENT IS
VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF THE COMPANY."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS
PROVIDED IN THE BYLAWS OF THE COMPANY."
(d) Any legend required by appropriate blue sky officials.
9. Investment Representations. In connection with the purchase of the
Common Stock, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Common Stock. Purchaser is
acquiring the Common Stock for investment for Purchaser's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Common Stock has not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
<PAGE>
(c) Purchaser further acknowledges and understands that the Common
Stock must be held indefinitely unless the Common Stock is subsequently
registered under the Securities Act or an exemption from such registration is
available. Purchaser further acknowledges and understands that the Company is
under no obligation to register the Common Stock. Purchaser understands that the
certificate evidencing the Common Stock will be imprinted with a legend that
prohibits the transfer of the Common Stock unless the Common Stock is registered
or such registration is not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and 701,
under the Securities Act, as in effect from time to time, which, in substance,
permit limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of issuance of
the securities, such issuance will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
securities exempt under Rule 701 may be sold by Purchaser ninety (90) days
thereafter, subject to the satisfaction of certain of the conditions specified
by Rule 144 and the market stand-off provision described in Purchaser's Stock
Option Agreement.
In the event that the sale of the Common Stock does not qualify under Rule
701 at the time of purchase, then the Common Stock may be resold by Purchaser in
certain limited circumstances subject to the provisions of Rule 144, which
requires, among other things: (i) the availability of certain public information
about the Company and (ii) the resale occurring following the required holding
period under Rule 144 after the Purchaser has purchased, and made full payment
of (within the meaning of Rule 144), the securities to be sold.
(e) Purchaser further understands that at the time Purchaser wishes to
sell the Common Stock there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public current information requirements of Rule 144 or
701, and that, in such event, Purchaser would be precluded from selling the
Common Stock under Rule 144 or 701 even if the minimum holding period
requirement had been satisfied.
(f) Purchaser further warrants and represents that Purchaser has either
(i) preexisting personal or business relationships, with the Company or any of
its officers, directors or controlling persons, or (ii) the capacity to protect
his own interests in connection with the purchase of the Common Stock by virtue
of the business or financial expertise of the Purchaser or of professional
advisors to Purchaser who are unaffiliated with and who are not compensated by
the Company or any of its affiliates, directly or indirectly.
10. Market Stand-Off Agreement. Option Purchaser agrees that the Company
(or a representative of the underwriters) may, in connection with any
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that the Purchaser not sell, dispose of, 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 Purchaser, for
a period of time
<PAGE>
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. Purchaser further agrees 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 Purchaser's Common
Stock until the end of such period.
11. Section 83(b) Election. Purchaser understands that Section 83(a) of the
Code, taxes as ordinary income the difference between the amount paid for the
Common Stock and the fair market value of the Common Stock as of the date any
restrictions on the Common Stock lapse. In this context, "restriction" includes
the right of the Company to foreclose on the Common Stock pursuant to the Pledge
set forth above. Purchaser understands that Purchaser may elect to be taxed at
the time the Common Stock is purchased, rather than when and as the Plede
expires, by filing an election under Section 83(b) (an "83(b) Election") of the
Code with the Internal Revenue Service within thirty (30) days from the date of
purchase. Even if the fair market value of the Common Stock at the time of the
execution of this Agreement equals the amount paid for the Common Stock, the
83(b) Election must be made to avoid income under Section 83(a) in the future.
Purchaser understands that failure to file such an 83(b) Election in a timely
manner may result in adverse tax consequences for Purchaser. Purchaser further
understands that Purchaser must file an additional copy of such 83(b) Election
with his or her federal income tax return for the calendar year in which the
date of this Agreement falls. Purchaser acknowledges that the foregoing is only
a summary of the effect of United States federal income taxation with respect to
purchase of the Common Stock hereunder, and does not purport to be complete.
Purchaser further acknowledges that the Company has directed Purchaser to seek
independent advice regarding the applicable provisions of the Code, the income
tax laws of any municipality, state or foreign country in which Purchaser may
reside, and the tax consequences of Purchaser's death. Purchaser assumes all
responsibility for filing an 83(b) Election and paying all taxes resulting from
such election or the lapse of the restrictions on the Common Stock.
12. Refusal to Transfer. The Company shall not be required (a) to transfer
on its books any shares of Common Stock of the Company which shall have been
transferred in violation of any of the provisions set forth in this Agreement or
(b) to treat as owner of such shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such shares shall have been
so transferred.
13. No Employment Rights. This Agreement is not an employment contract and
nothing in this Agreement shall affect in any manner whatsoever the right or
power of the Company (or a parent or subsidiary of the Company) to terminate
Purchaser's employment for any reason at any time, with or without cause and
with or without notice.
14. Miscellaneous.
(a) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or sent
by telegram or fax
<PAGE>
or upon deposit in the United States Post Office, by registered or certified
mail with postage and fees prepaid, addressed to the other party hereto at such
party's address hereinafter shown below its signature or at such other address
as such party may designate by ten (10) days' advance written notice to the
other party hereto.
(b) Successors and Assigns. This Agreement shall inure to the benefit
of the successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser, Purchaser's successors,
and assigns. The Company may assign its rights under the Pledge hereunder at any
time or from time to time, in whole or in part.
(c) Attorneys' Fees; Specific Performance. Purchaser shall reimburse
the Company for all costs incurred by the Company in enforcing the performance
of, or protecting its rights under, any part of this Agreement, including
reasonable costs of investigation and attorneys' fees. It is the intention of
the parties that the Company, upon foreclosure on the Common Stock under the
Pledge in the event Purchaser is in default under the Note, pursuant to the
terms of this Agreement, shall be entitled to receive the Common Stock, in
specie, in order to have such Common Stock available for future issuance without
dilution of the holdings of other shareholders. Furthermore, it is expressly
agreed between the parties that money damages are inadequate to compensate the
Company for the Common Stock and that the Company shall, upon proper foreclosure
on the Common Stock, be entitled to specific enforcement of its rights to
purchase and receive said Common Stock.
(d) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(e) Further Execution. The parties agree to take all such further
action(s) as may reasonably be necessary to carry out and consummate this
Agreement as soon as practicable, and to take whatever steps may be necessary to
obtain any governmental approval in connection with or otherwise qualify the
issuance of the securities that are the subject of this Agreement.
(f) Independent Counsel. Purchaser acknowledges that this Agreement has
been prepared on behalf of the Company by Cooley Godward llp, counsel to the
Company and that Cooley Godward llp does not represent, and is not acting on
behalf of, Purchaser. Purchaser has been provided with an opportunity to consult
with Purchaser's own counsel with respect to this Agreement.
(g) Entire Agreement; Amendment. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes and merges all prior agreements or understandings, whether written or
oral. This Agreement may not be amended, modified or revoked, in whole or in
part, except by an agreement in writing signed by each of the parties hereto.
<PAGE>
(h) Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument. In witness whereof, the parties hereto
have executed this Agreement as of _____________, 1999.
Chordiant Software, Inc.
By______________________________________________
Title___________________________________________
Address:________________________________________
________________________________________________
Purchaser
________________________________________________
John Palmer
Address:________________________________________
Attachments:
Attachment 1 Stock Assignment Separate from Certificate
Attachment 2 Joint Escrow Instructions
Attachment 3 Promissory Note
Attachment 4 Stock Pledge Agreement
<PAGE>
Attachment 1
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
<PAGE>
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
For Value Received, John Palmer hereby sells, assigns and transfers unto
Chordiant Software, Inc., a Delaware corporation (the "Company"), pursuant to
the Stock Purchase Agreement, dated ______________, 1999, by and between the
undersigned and the Company (the "Agreement"), Three Hundred Seventy Six
Thousand Ninety Eight (376,098) shares of Common Stock of the Company standing
in the undersigned's name on the books of the Company represented by Certificate
No(s). _______________ and does hereby irrevocably constitute and appoint Cooley
Godward, LLP attorney to transfer said Common Stock on the books of the Company
with full power of substitution in the premises. This Assignment may be used
only in accordance with and subject to the terms and conditions of the
Agreement, in connection with the pledge of shares of Common Stock issued to the
undersigned pursuant to the Agreement, and only to the extent that such shares
remain subject to the pledge under the Agreement.
Dated: _______________
John Palmer_______________________________________
<PAGE>
Attachment 2
JOINT ESCROW INSTRUCTIONS
<PAGE>
JOINT ESCROW INSTRUCTIONS
Cooley Godward, LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Dear Sir or Madam:
As Escrow Agent for both Chordiant Software, Inc., a Delaware corporation
("Company"), and the undersigned purchaser of Common Stock of the Company
("Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Stock Purchase Agreement
("Agreement"), dated ___________, 1999 to which a copy of these Joint Escrow
Instructions is attached as Attachment 2, in accordance with the following
instructions:
1. In the event the Company or an assignee shall elect to foreclose on
the Pledge Agreement set forth in the Agreement, the Company or its assignee
will give to Purchaser and you a written notice specifying the number of shares
of Common Stock to be purchased, the purchase price, and the time for a closing
hereunder at the principal office of the Company. Purchaser and the Company
hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of Common Stock to be transferred, to the Company against
the simultaneous delivery to you of the purchase price (which may include
suitable acknowledgment of cancellation of indebtedness) of the number of shares
of Common Stock subject to the being purchased pursuant to the Pledge.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of Common Stock to be held by you hereunder and
any additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as the Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of
the Pledge Agreement, whichever occurs first.
<PAGE>
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Company that the property
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions,
your duties hereunder may be altered, amended, modified or revoked only by a
writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company may
appoint any officer or assistant officer of the Company as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as the Purchaser's attorney-in-fact and agent to the full extent of
your appointment.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
<PAGE>
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and directed to retain in your possession without
liability to anyone all or any part of said securities until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of competent jurisdiction after
the time for appeal has expired and no appeal has been perfected, but you shall
be under no duty whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, including
delivery by express courier or five days after deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid, addressed
to each of the other parties hereunto entitled at the following addresses, or at
such other addresses as a party may designate by ten days' advance written
notice to each of the other parties hereto:
Company: Chordiant Software, Inc.
20400 Stevens Creek Boulevard, Suite 400
Cupertino, CA 95014
Attention: Steve Springsteel, Chief Financial Officer
Purchaser: John Palmer
P. O. Box 8333
Belmont, CA 94002
Escrow Agent: Cooley Godward, LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
15. By signing these Joint Escrow Instructions you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other
experts (including without limitation the firm of Cooley Godward llp) as you may
deem necessary properly to advise you in connection with your obligations
hereunder. You may rely upon the advice of such counsel, and may pay such
counsel reasonable compensation therefor. The Company shall be responsible for
all fees generated by such legal counsel in connection with your obligations
hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Company may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
<PAGE>
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of California, as such laws are applied
by California courts to contracts made and to be performed entirely in
California by residents of that state.
Very truly yours,
Chordiant Software, Inc.
By:______________________________________________
Title:___________________________________________
Purchaser:
_________________________________________________
John Palmer
Escrow Agent:
________________________
<PAGE>
Attachment 3
PROMISSORY NOTE
<PAGE>
$ ______________ Cupertino, California
________, 1999
For Value Received, the undersigned hereby unconditionally promises to pay
to the order of Chordiant Software, Inc., a Delaware corporation (the
"Company"), at 20400 Stevens Creek Boulevard, Suite 400, Cupertino, CA 95014, or
at such other place as the holder hereof may designate in writing, in lawful
money of the United States of America and in immediately available funds, the
principal sum of Fifty-One Thousand Forty-One Dollars and Thirty-Nine Cents
($51,041.39) together with interest accrued from the date hereof on the unpaid
principal at the rate of 5.36% per annum compounded semi-annually, or the
maximum rate permissible by law (which under the laws of the State of California
shall be deemed to be the laws relating to permissible rates of interest on
commercial loans), whichever is less, as follows:
Principal Repayment. The outstanding principal amount hereunder shall be due
and payable on August 26, 2001, unless repayment under this note is accelerated
to the extent permitted by law under the terms of the Stock Purchase Agreement
of even date to which this promissory note is an attachment.
Interest Payments. Interest shall be payable in arrears on the Principal
Repayment Date and shall be calculated on the basis of a 360-day year for the
actual number of days elapsed.
If the undersigned fails to pay any of the principal and accrued interest
when due, the Company, at its sole option, shall have the right to accelerate
this Note, in which event the entire principal balance and all accrued interest
shall become immediately due and payable, and immediately collectible by the
Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Stock Purchase Agreement and Stock Pledge Agreement of even date herewith
between the undersigned and the Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
<PAGE>
The undersigned hereby waives presentment, protest and notice of protest,
demand for payment, notice of dishonor and all other notices or demands in
connection with the delivery, acceptance, performance, default or endorsement of
this Note.
The holder hereof shall be entitled to recover, and the undersigned agrees
to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
Signed___________________________________________
<PAGE>
Attachment 4
STOCK PLEDGE AGREEMENT
<PAGE>
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement ("Pledge Agreement") is made by John Palmer
("Pledgor"), in favor of Chordiant Software, Inc., a Delaware corporation with
its principal place of business at 20400 Stevens Creek Boulevard, Suite 400,
Cupertino, CA 95014 ("Pledgee").
Whereas, Pledgor has concurrently herewith executed that certain Promissory
Note (the "Note") in favor of Pledgee in the amount of Fifty-One Thousand Forty-
One Dollars and Thirty-Nine Cents ($51,041.39) in payment of the purchase price
of Three Hundred Seventy Six Thousand Ninety Eight (376,098) shares of the
Common Stock of Pledgee; and
Whereas, Pledgee is willing to accept the Note from Pledgor, but only upon
the condition, among others, that Pledgor shall have executed and delivered to
Pledgee this Pledge Agreement and the Collateral (as defined below):
Now, Therefore, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and
performance when due (whether by stated maturity, by acceleration or otherwise)
of all indebtedness of Pledgor to Pledgee created under the Note (all such
indebtedness being the "Liabilities"), together with, without limitation, the
prompt payment of all expenses, including, without limitation, reasonable
attorneys' fees and legal expenses, incidental to the collection of the
Liabilities and the enforcement or protection of Pledgee's lien in and to the
collateral pledged hereunder, Pledgor hereby pledges to Pledgee, and grants to
Pledgee, a first priority security interest in all of the following
(collectively, the "Pledged Collateral"):
(a) Three Hundred Seventy Six Thousand Ninety Eight (376,098) shares of
Common Stock of Pledgee represented by Certificates numbered _______________
(the "Pledged Shares"), and all dividends, cash, instruments, and other property
or proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the right
to vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from time to
time acquired by Pledgor in any manner (which additional shares shall be deemed
to be part of the Pledged Shares), and the certificates representing such
additional shares, and all dividends, cash, instruments, and other property or
proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
<PAGE>
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness may be or hereafter becomes unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee in
its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any wise relating to or
affecting the Pledged Collateral, and in connection therewith may deposit or
surrender control of such Pledged Collateral thereunder, accept other property
in exchange for such Pledged Collateral and do and perform such acts and things
as it may deem proper, and any money or property received in exchange for such
Pledged Collateral shall be applied to the indebtedness or thereafter held by it
pursuant to the provisions hereof; (3) insure, process and preserve the Pledged
Collateral; (4) cause the Pledged Collateral to be transferred to its name or to
the name of its nominee; (5) exercise as to such Pledged Collateral all the
rights, powers and remedies of an owner, except that so long as no default
exists under the Note or hereunder Pledgor shall retain all voting rights as to
the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens and
assessments against the Pledged Collateral, and upon the failure of Pledgor to
do so, Pledgee at its option may pay any of them and shall be the sole judge of
the legality or validity thereof and the amount necessary to discharge the same.
4. At the option of Pledgee and without necessity of demand or notice, all
or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (1) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (2) failure to pay any installment of principal or
interest on the Note when due; (3) the levy of any attachment, execution or
other process against the Pledged Collateral; or (4) the insolvency, commission
of an act of bankruptcy, general assignment for the benefit of creditors, filing
of any petition in bankruptcy or for relief under the provisions of Title 11 of
the United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due, whether by
acceleration or otherwise, or upon the happening of any of the events specified
in the last preceding section, Pledgee may then, or at any time thereafter, at
its election, apply, set off, collect or sell in one or more sales, or take such
steps as may be necessary to liquidate and reduce to cash in the hands of
Pledgee in whole or in part, with or without any previous demands or demand of
performance or notice or advertisement, the whole or any part of the Pledged
Collateral in such order as Pledgee may elect, and any such sale may be made
either at public or private sale at its place of business or elsewhere, or at
any broker's board or securities exchange,
<PAGE>
either for cash or upon credit or for future delivery; provided, however, that
if such disposition is at private sale, then the purchase price of the Pledged
Collateral shall be equal to the public market price then in effect, or, if at
the time of sale no public market for the Pledged Collateral exists, then, in
recognition of the fact that the sale of the Pledged Collateral would have to be
registered under the Securities Act of 1933 and that the expenses of such
registration are commercially unreasonable for the type and amount of collateral
pledged hereunder, Pledgee and Pledgor hereby agree that such private sale shall
be at a purchase price mutually agreed to by Pledgee and Pledgor or, if the
parties cannot agree upon a purchase price, then at a purchase price established
by a majority of three independent appraisers knowledgeable of the value of such
collateral, one named by Pledgor within ten (10) days after written request by
the Pledgee to do so, one named by Pledgee within such 10-day period, and the
third named by the two appraisers so selected, with the appraisal to be rendered
by such body within thirty (30) days of the appointment of the third appraiser.
The cost of such appraisal, including all appraiser's fees, shall be charged
against the proceeds of sale as an expense of such sale. Pledgee may be the
purchaser of any or all Pledged Collateral so sold and hold the same thereafter
in its own right free from any claim of Pledgor or right of redemption. Demands
of performance, notices of sale, advertisements and presence of property at sale
are hereby waived, and Pledgee is hereby authorized to sell hereunder any
evidence of debt pledged to it. Any officer or agent of Pledgee may conduct any
sale hereunder.
6. The proceeds of the sale of any of the Pledged Collateral and all sums
received or collected by Pledgee from or on account of such Pledged Collateral
shall be applied by Pledgee to the payment of expenses incurred or paid by
Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine.
Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
Pledgor may have ceased.
9. Pledgee agrees that so long as no default exists under the Note or
hereunder, the Pledged Shares shall, upon the request of Pledgor, be released
from pledge as the indebtedness is paid in full including principal and accrued
interest. Release from pledge, however, shall not
<PAGE>
result in release from the provisions of those certain Stock Purchase Agreement
and Joint Escrow Instructions of even date herewith among the parties to this
Pledge Agreement and the Escrow Agent named therein.
10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be unenforceable
for any reason, it shall be adjusted, if possible, rather than voided in order
to achieve the intent of the parties to the extent possible. In any event, all
other provisions of this Pledge Agreement shall be deemed valid and enforceable
to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in accordance
with, the laws of the State of California as applied to contracts made and
performed entirely within the State of California by residents of such State.
Dated: _______________ Pledgor
__________________________________________________
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 10.11
PROMISSORY NOTE
$______________ Cupertino, CA
Date:____________
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay
to the order of CHORDIANT SOFTWARE, INC., a Delaware corporation (the
"Company"), at 20400 Stevens Creek Boulevard, Suite 400, Cupertino, California
95014, or at such other place as the holder hereof may designate in writing, in
lawful money of the United States of America and in immediately available funds,
the principal sum of _______________ Dollars ($_______________) together with
interest accrued from the date hereof on the unpaid principal at the rate of
_____% per annum, or the maximum rate permissible by law (which under the laws
of the State of California shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less, as
follows:
Principal Repayment. The outstanding principal amount hereunder shall be
[due and payable in full on _______________] [subject to scheduled
amortized repayments on the dates and in the amounts listed below.
Principal Repayment Date Repayment Amount]; and
Interest Payments. Interest shall be payable annually in arrears on each
Principal Repayment Date] and shall be calculated on the basis of a 360-day
year for the actual number of days elapsed;
provided, however, that in the event that the undersigned's employment by or
association with the Company or its Affiliate is terminated for any reason prior
to payment in full of this Note, this Note shall be accelerated and all
remaining unpaid principal and interest shall become due and payable immediately
after such termination.
If the undersigned fails to pay any of the principal and accrued interest
when due, the Company, at its sole option, shall have the right to accelerate
this Note, in which event the entire principal balance and all accrued interest
shall become immediately due and payable, and immediately collectible by the
Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid toward
the satisfaction of this Note shall be applied first to the payment of interest
as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Early Exercise Stock Purchase
1
<PAGE>
Agreement and Stock Pledge Agreement of even date herewith between the
undersigned and the Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of protest,
demand for payment, notice of dishonor and all other notices or demands in
connection with the delivery, acceptance, performance, default or endorsement of
this Note.
The holder hereof shall be entitled to recover, and the undersigned agrees
to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
Signed
-------------------------------------
[Name]
2
<PAGE>
EXHIBIT 10.12
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by
______________________________ ("Pledgor"), in favor of CHORDIANT SOFTWARE,
INC., a Delaware corporation with its principal place of business at 20400
Stevens Creek Boulevard, Suite 400, Cupertino, California 95014 ("Pledgee").
WHEREAS, Pledgor has concurrently herewith executed that certain Promissory
Note (the "Note") in favor of Pledgee in the amount of _______________ Dollars
($_______________) in payment of the purchase price of _______________
(_______________) shares of the Common Stock of Pledgee; and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only upon
the condition, among others, that Pledgor shall have executed and delivered to
Pledgee this Pledge Agreement and the Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and performance
when due (whether by stated maturity, by acceleration or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Note (all such indebtedness
being the "Liabilities"), together with, without limitation, the prompt payment
of all expenses, including, without limitation, reasonable attorneys' fees and
legal expenses, incidental to the collection of the Liabilities and the
enforcement or protection of Pledgee's lien in and to the collateral pledged
hereunder, Pledgor hereby pledges to Pledgee, and grants to Pledgee, a first
priority security interest in all of the following (collectively, the "Pledged
Collateral"):
(a) _______________ (_______________) shares of Common Stock of Pledgee
represented by Certificates numbered _______________ (the "Pledged Shares"), and
all dividends, cash, instruments, and other property or proceeds from time to
time received, receivable, or otherwise distributed in respect of or in exchange
for any or all of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the right to
vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from time to time
acquired by Pledgor in any manner (which additional shares shall be deemed to be
part of the Pledged Shares), and the certificates representing such additional
shares, and all dividends, cash, instruments, and other property or proceeds
from time to time received, receivable, or otherwise distributed in respect of
or in exchange for any or all of such shares.
1
<PAGE>
The term "indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, debts, obligations and Liabilities heretofore,
now or hereafter made, incurred or created, whether voluntary or involuntary and
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether recovery upon such indebtedness may be
or hereafter becomes unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee in
its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any wise relating to or
affecting the Pledged Collateral, and in connection therewith may deposit or
surrender control of such Pledged Collateral thereunder, accept other property
in exchange for such Pledged Collateral and do and perform such acts and things
as it may deem proper, and any money or property received in exchange for such
Pledged Collateral shall be applied to the indebtedness or thereafter held by it
pursuant to the provisions hereof; (3) insure, process and preserve the Pledged
Collateral; (4) cause the Pledged Collateral to be transferred to its name or to
the name of its nominee; (5) exercise as to such Pledged Collateral all the
rights, powers and remedies of an owner, except that so long as no default
exists under the Note or hereunder Pledgor shall retain all voting rights as to
the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens and
assessments against the Pledged Collateral, and upon the failure of Pledgor to
do so, Pledgee at its option may pay any of them and shall be the sole judge of
the legality or validity thereof and the amount necessary to discharge the same.
4. At the option of Pledgee and without necessity of demand or notice, all
or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (1) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (2) failure to pay any installment of principal or
interest on the Note when due; (3) the levy of any attachment, execution or
other process against the Pledged Collateral; or (4) the insolvency, commission
of an act of bankruptcy, general assignment for the benefit of creditors, filing
of any petition in bankruptcy or for relief under the provisions of Title 11 of
the United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due, whether by
acceleration or otherwise, or upon the happening of any of the events specified
in the last preceding section, Pledgee may then, or at any time thereafter, at
its election, apply, set off, collect or sell in one or more sales, or take such
steps as may be necessary to liquidate and reduce to cash in the hands of
Pledgee in whole or in part, with or without any previous demands or demand of
performance or notice or advertisement, the whole or any part of the Pledged
Collateral in such order as Pledgee may elect, and any such sale may be made
either at public or private sale at its place of business or elsewhere, or at
any broker's board or securities exchange, either for cash or upon credit or for
future delivery; provided, however, that if such disposition is
2
<PAGE>
at private sale, then the purchase price of the Pledged Collateral shall be
equal to the public market price then in effect, or, if at the time of sale no
public market for the Pledged Collateral exists, then, in recognition of the
fact that the sale of the Pledged Collateral would have to be registered under
the Securities Act of 1933 and that the expenses of such registration are
commercially unreasonable for the type and amount of collateral pledged
hereunder, Pledgee and Pledgor hereby agree that such private sale shall be at a
purchase price mutually agreed to by Pledgee and Pledgor or, if the parties
cannot agree upon a purchase price, then at a purchase price established by a
majority of three independent appraisers knowledgeable of the value of such
collateral, one named by Pledgor within ten (10) days after written request by
the Pledgee to do so, one named by Pledgee within such 10-day period, and the
third named by the two appraisers so selected, with the appraisal to be rendered
by such body within thirty (30) days of the appointment of the third appraiser.
The cost of such appraisal, including all appraiser's fees, shall be charged
against the proceeds of sale as an expense of such sale. Pledgee may be the
purchaser of any or all Pledged Collateral so sold and hold the same thereafter
in its own right free from any claim of Pledgor or right of redemption. Demands
of performance, notices of sale, advertisements and presence of property at sale
are hereby waived, and Pledgee is hereby authorized to sell hereunder any
evidence of debt pledged to it. Any officer or agent of Pledgee may conduct any
sale hereunder.
6. The proceeds of the sale of any of the Pledged Collateral and all sums
received or collected by Pledgee from or on account of such Pledged Collateral
shall be applied by Pledgee to the payment of expenses incurred or paid by
Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine.
Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
Pledgor may have ceased.
9. Pledgee agrees that so long as no default exists under the Note or
hereunder, the Pledged Shares shall, upon the request of Pledgor, be released
from pledge as the indebtedness is paid. Such releases shall be at the rate of
one share for each _______________ ($_______________) of principal amount of
indebtedness paid. Release from pledge, however, shall not result in release
from the provisions of those certain Joint Escrow Instructions, if any, of
3
<PAGE>
even date herewith among the parties to this Pledge Agreement and the Escrow
Agent named therein.
10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be unenforceable
for any reason, it shall be adjusted, if possible, rather than voided in order
to achieve the intent of the parties to the extent possible. In any event, all
other provisions of this Pledge Agreement shall be deemed valid and enforceable
to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in accordance
with, the laws of the State of California as applied to contracts made and
performed entirely within the State of California by residents of such State.
Dated: _______________ PLEDGOR
---------------------------------------------
Printed Name:
--------------------------------
4
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant State of Incorporation
------------------------------ ----------------------
(1) Chordiant International, Inc. Delaware
<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 January 18, 2000, relating to the consolidated financial
statements of Chordiant Software, Inc., which appears in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 18, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 1,713 6,719
<SECURITIES> 1,051 2,000
<RECEIVABLES> 5,643 9,168
<ALLOWANCES> 254 724
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,427 18,938
<PP&E> 5,568 6,558
<DEPRECIATION> 2,702 3,978
<TOTAL-ASSETS> 11,521 22,086
<CURRENT-LIABILITIES> 18,589 17,105
<BONDS> 0 0
28,949 51,609
0 0
<COMMON> 5 6
<OTHER-SE> (37,609) (57,788)
<TOTAL-LIABILITY-AND-EQUITY> 11,521 22,086
<SALES> 12,465 17,588
<TOTAL-REVENUES> 12,465 17,588
<CGS> 9,372 14,749
<TOTAL-COSTS> 30,345 39,939
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 121 1,067
<INCOME-PRETAX> (17,440) (23,137)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (17,440) (23,137)
<EPS-BASIC> (3.44) (4.34)
<EPS-DILUTED> (3.44) (4.34)
</TABLE>
