CHORDIANT SOFTWARE INC
S-1/A, 2000-02-07
PREPACKAGED SOFTWARE
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<PAGE>


 As filed with the Securities and Exchange Commission on February 7, 2000
                                                     Registration No. 333-92187
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                             --------------------

                             AMENDMENT NO. 2
                                      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. Leska, Esq.
             Cooley Godward LLP                              Julie Freese, Esq.
            Five Palo Alto Square                     Brobeck, Phleger & Harrison LLP
             3000 El Camino Real                           Two Embarcadero Place
             Palo Alto, CA 94306                               2200 Geng Road
                                                            Palo Alto, CA 94303
</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. [_]

                             --------------------
    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 FEBRUARY 7, 2000

PRELIMINARY PROSPECTUS

[LOGO OF CHORDIANT SOFTWARE, INC.]


                                4,500,000 Shares

                                  Common Stock

  Chordiant Software, Inc. is offering 4,500,000 shares of its common stock.
This is our initial public offering, and no public market currently exists for
our shares. Our common stock has been approved for quotation on the Nasdaq
National Market under the symbol CHRD. We anticipate that the initial public
offering price will be between $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. Two of
our stockholders, who are identified on page 67, have granted the underwriters
a 30-day option to purchase up to an additional 250,000 shares of our common
stock to cover over-allotments.

                                --------------

Robertson Stephens
                 Dain Rauscher Wessels
                                                      Thomas Weisel Partners LLC

                  The date of this prospectus is        , 2000
<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 it believes
    enables companies to offer their customers 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...............................................  15
Use of Proceeds..........................................................  15
Dividend Policy..........................................................  15
Capitalization...........................................................  16
Dilution.................................................................  17
Selected Consolidated Financial Data.....................................  18
Management's Discussion and Analysis of Financial Condition and Results
  of Operations..........................................................  19
Business.................................................................  28
Management...............................................................  42
Related Party Transactions...............................................  55
Principal Stockholders...................................................  58
Description of Capital Stock.............................................  62
Shares Eligible for Future Sale..........................................  65
Underwriting.............................................................  67
Legal Matters............................................................  69
Experts..................................................................  69
Where You Can Find More Information......................................  70
Index to Financial Statements............................................ F-1
</TABLE>

                             ---------------------

                     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 in this prospectus. This
summary does not contain all the information you should consider before buying
shares in the offering. You should read the entire prospectus carefully. In
this prospectus, the terms Chordiant, we, us, and our refer to Chordiant
Software, Inc. and its wholly owned subsidiary Chordiant International, Inc..

    Except as otherwise indicated, information in this prospectus is based on
the following assumptions:

  .  the conversion of all our outstanding shares of preferred stock and
     convertible debentures into shares of common stock upon the closing of
     this offering;

  .  no exercise of the underwriters' over-allotment options; and

  .  the filing of our amended and restated certificate of incorporation
     before the closing of this offering.

    Chordiant and the Chordiant logo are registered trademarks of Chordiant.
WSOP, CCS-Customer Communications Solution and One Click, One Call, One
Customer are trademarks of Chordiant. This prospectus also includes trademarks
owned by other parties. All other trademarks mentioned are the property of
their owners.

    You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus.

                            Chordiant Software, Inc.

    Chordiant provides e-business infrastructure software that it believes
enables companies to offer their customers personalized marketing, sales
programs, e-business services and customer support across multiple
communication channels. These channels include the internet, e-mail systems,
automated telephony self-service systems, and customer service representatives
in call centers and retail outlets. We believe that companies that use
organization-wide customer information to provide consistent customer support
through all channels of customer contact will be able to compete more
successfully in the rapidly changing internet economy.



    Our Customer Communications Solution, or CCS, software product, is
comprised of a suite of applications. It includes standard business services, a
workflow engine and enterprise integration services supporting network,
telephony, and data management connections. It also connects with existing
databases and computer systems. Our product is licensed to our customers as a
complete e-business infrastructure system. CCS includes a customer service
representative application, a web communications application and an e-mail
communications application. Our software is designed to enable companies to:

  .  develop a comprehensive single view of the customer;

  .  use automated, sophisticated decision making processes;

  .  offer their customers consistent experiences across multiple
     communications channels; and

  .  utilize standard and customizable business services.

    We license our product and provide related services primarily through our
direct sales organization, complemented by the selling and support efforts of
systems integrators. We license our product to multinational market leaders in
business-to-consumer industries. Our customers include Bank One International,
Cable & Wireless Communications, Canadian Tire Acceptance Limited, Chase
Manhattan Mortgage Corporation,

                                       4
<PAGE>

Metropolitan Life Insurance Company, Direct Line Group Services Limited, First
USA Bank, General Motors' OnStar division, KLM Royal Dutch Airlines and Thomas
Cook Global Services.

    Our objective is to continue to provide innovative e-business
infrastructure software that enables a company to offer its customers
personalized interactions across multiple communications channel.

    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 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 before deciding
to purchase shares of our common stock. Any of the following risks could
seriously harm our business and results of operations. As a result, the trading
price of our common stock could decline, and you could lose part or all of your
investment.

                           Risks Related to Chordiant

Because our short operating history makes it difficult to evaluate our
prospects, our future financial performance may disappoint investors and result
in a decline in our stock price.

    You must consider our prospects given the risks, expenses and challenges we
might encounter because we are at an early stage of development in a new and
rapidly evolving market. Until September 1997, we were engaged primarily in the
research and development of our CCS software product. We licensed our first
product in September 1997 and our sales and service organizations are
relatively new and still growing. Due to our short operating history, our
future financial performance is not predictable and may disappoint investors
and result in a decline in our stock price. The revenue and income potential of
our product is unproven.

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

    We incurred net losses of $11.6 million for 1997, $17.4 million for 1998
and $23.1 million for 1999. As of December 31, 1999, we had an accumulated
deficit of $62.6 million. We expect to continue to incur losses on both a
quarterly and annual basis at least through 2000. Moreover, we expect to
continue to incur significant sales and marketing and research and development
expenses and to establish additional sales offices domestically and
internationally, and, as a result, we will need to generate significant
revenues to achieve and maintain profitability. We cannot be certain that we
can sustain this growth or that we will generate sufficient revenues to achieve
profitability.

Our operating results fluctuate significantly and an unanticipated decline in
revenues may disappoint investors and result in a decline in our stock price.

    Our quarterly revenues will depend primarily upon product implementation by
our customers. We have historically recognized most of our license and services
revenue using the percentage-of-completion method using labor hours incurred as
the measure of progress towards completion of implementation of our product and
we expect this practice to continue. Thus, delays in implementation by our
customers will reduce our quarterly revenue. Historically, a substantial
portion of new customer orders have been booked in the third month of the
calendar quarter, with a concentration of these bookings in the last two weeks
of the third month. We expect this trend to continue and, therefore, any
failure or delay in bookings would decrease our quarterly deferred revenue. If
our revenues or operating margins are below the expectations of any securities
analysts that may analyze us, or investors, our stock price is likely to
decline.

We have limited experience with large-scale deployments and if our product does
not successfully operate in a company-wide environment, we may lose sales and
suffer decreased revenues.

    If existing customers have difficulty deploying our product, particularly
in large-scale deployments, it could damage our reputation and reduce our
revenues. Our success requires that our product be highly scalable, or able to
accommodate substantial increases in the number of users. To date, no large-
scale deployment has been operating at any customer site and our product is
currently being used by only a limited number of users. Our product is expected
to be deployed on a variety of computer hardware platforms and to be used in
connection with a number of third-party software applications by personnel who
may have not previously used application software systems or our product. These
deployments present very significant technical challenges, which are difficult
or impossible to predict.

                                       8
<PAGE>


Failure to successfully customize or implement our product for a customer could
prevent recognition of revenues, collection of amounts due or cause legal
claims by the customer.

    If a customer is not able to customize or deploy our product successfully,
the customer may not complete expected product deployment, which would prevent
recognition of revenues and collection of amounts due, and could result in
claims against Chordiant. We have in the past had disputes with customers
concerning product performance. One dispute, from a 1995 consulting agreement,
resulted in a settlement following contractually-required mediation. One, from
a 1997 CCS product license, resulted in a settlement following litigation. In a
letter dated January 25, 2000, Chase Manhattan Mortgage Corporation claimed
that we breached our license and related services agreement with them. Chase
claimed that we failed to meet product specifications and development-related
milestones and requested that we either cure the alleged breaches or, if unable
to do so, refund Chase's past payments. We responded to Chase's letter denying
any breach and believe that the claims are without merit. During the years
ended December 31, 1999 and 1998, we recognized $5.3 million and $1.5 million
of revenue from Chase. At December 31, 1999, $1.7 million of accounts
receivable were outstanding from Chase. This or any customer disputes, with or
without merit, could be costly and time-consuming to defend, reduce our
revenues, and harm our reputation.

Our product has a long sales and implementation cycle, which makes it difficult
to predict our quarterly results and may cause operating results to vary
significantly.

    The period between initial contact with a prospective customer and the
implementation of our product is unpredictable and often lengthy, ranging to
date from three to twenty-four months. Thus, deferred revenue could vary
significantly from quarter to quarter. Any delays in the implementation of our
product could cause reductions in our revenues. The licensing of our CCS
product is often an enterprise-wide decision that generally requires us to
provide a significant level of education to prospective customers about the use
and benefits of our product. The implementation of our products involves
significant commitment of resources and is commonly associated with substantial
implementation efforts that may be performed by us, the customer or third-party
system integrators. Customers generally consider a wide range of issues before
committing to purchase our product, including product benefits, ability to
operate with existing and future computer systems, ability to accommodate
increased transaction volume and product reliability.

Because a small number of customers account for a substantial portion of our
software license revenues, our revenues could decline if we lose a major
customer.

    We derive a significant portion of our software license revenues in each
quarter from a limited number of customers. Loss of a major customer in a
particular quarter could cause a decrease in revenue, deferred revenues and net
income. In 1998, sales to our four largest customers, KLM Royal Dutch Airlines,
Thomas Cook Global Services, Canadian Tire Acceptance Limited and Chase
Manhattan Mortgage Corporation accounted for 36%, 19%, 14% and 12% of our total
net revenues. For the year ended December 31, 1999, revenues from Chase
Manhattan Mortgage Corporation and First USA Bank accounted for 30% and 19% of
our total net revenues. We expect that a limited number of customers will
continue to account for a substantial portion of our revenues. As a result, if
we lose a major customer, if a contract is delayed or cancelled, our revenues
would be adversely affected. In addition, customers that have accounted for
significant revenues in the past may not generate revenues in any future period
causing our failure to obtain new significant customers or additional orders
from existing customers to materially affect our operating results.

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

    Errors may be found from time to time in our new or enhanced products after
commencement of commercial shipments resulting in loss of revenues, decreased
sales, injury to our reputation or increased warranty and repair costs.
Although we conduct extensive product-testing during product development, we
have in the past discovered software errors in our products and as a result
have experienced delays in shipment of products. The latest version of our CCS
product was introduced in October, 1999.

                                       9
<PAGE>


Our failure to maintain strong relationships with system integrators would harm
our ability to market and implement our product and reduce future revenues.

    Failure to establish or maintain relationships with systems integrators
would significantly harm our ability to license our software product. System
integrators install and deploy our product, in addition to those of our
competitors, and perform custom integration of systems and applications. Some
system integrators also engage in joint marketing and sales efforts with us. If
these relationships fail, we will have to devote substantially more resources
to the sales and marketing, implementation and support of our product than we
would otherwise. Our efforts may also not be as effective as those of the
system integrators which could reduce revenues. In many cases, these parties
have extensive relationships with our existing and potential customers and
influence the decisions of these customers. A number of our competitors have
stronger relationships with these system integrators and, as a result, these
system integrators may be more likely to recommend competitors' products and
services.

    In particular, we have established a non-exclusive relationship with
Electronic Data Systems Corporation, or EDS, a large system integrator and one
of our principal stockholders. In each of 1998 and 1999, over 30% of our
revenues were derived from customers for whom Electronic Data Systems has been
engaged to provide system integration services. Deterioration of our
relationship with Electronic Data Systems could have a material adverse effect
on sales of our product.

To date, our sales have been concentrated in the financial services, travel,
automotive and telecommunications markets and if we are unable to continue
sales in these markets or successfully penetrate new markets, our revenues may
decline.

    Sales of our products and services in four markets--financial services,
travel and leisure, automotive and telecommunications--accounted for 98% of
total net revenues in 1998 and 87% of our total net revenues in 1999. We expect
that revenues from these four markets will continue to account for a
substantial portion of our total net revenues in 2000. If we are unable to
successfully increase penetration of our existing markets or achieve sales in
additional markets, or if the overall economic climate of our target markets
deteriorates, our revenues may decline.

Continued negative gross margin in service revenues could adversely impact our
overall gross margin and income.

    Our services revenues have historically had lower gross margins than our
license revenues. As a result, an increase in the percentage of total net
revenues represented by services revenues, or an unexpected decrease in license
revenues, could have a detrimental impact on our overall gross margins. We
anticipate that service revenues will continue to represent over 30% of total
net revenues. To increase services revenues, we must expand our services
organization, successfully recruit and train a sufficient number of qualified
services personnel, and obtain renewals of current maintenance contracts by our
customers. This expansion could further reduce gross margins in our service
revenues.


We depend on technology licensed to us by third parties, and the loss or
inability to maintain these licenses could prevent or delay sales of our
product.

    We license technology from several software providers that is incorporated
in our product. In particular, we license Forte Tool and related Forte products
from Forte Software, a Sun Microsystems, Inc. company. Our license agreement
with Forte expires in September 2001, and can be extended upon agreement of the
parties. We anticipate that we will continue to license technology from Forte
and other third parties in the future. This software may not continue to be
available on commercially reasonable terms, if at all. The loss of the Forte
technology or other technology licenses could result in delays in the license
of our product until equivalent technology, if available, is developed or
identified, licensed and integrated into our product.

                                       10
<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. In the past, while our business has not been materially harmed,
product releases have been delayed as a result of errors in third-party
software and we have incurred expenses in investigating the cause of these
errors.


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

    Customers have access to our computer source code when they license our
product and may alter the source code. Alteration may lead to implementation,
operation and upgrade problems for our customers. This could adversely affect
the market acceptance of our products, and any necessary investigative work and
repairs could cause us to incur significant expenses and delays in
implementation.

If we fail to introduce new versions and releases of our CCS product in a
timely manner customers may license competing products and our revenues may
decline.

    If we are unable to ship or implement enhancements to our CCS product when
planned, or fail to achieve timely market acceptance of these enhancements, we
may suffer lost sales and could fail to achieve anticipated revenues. A
majority of our total revenues have been, and are expected to be, derived from
the license of our CCS product. Our future operating results will depend on the
demand for this product by future customers, including new and enhanced
releases that are subsequently introduced. If our competitors release new
products that are superior to our product in performance or price, or we fail
to enhance our product and introduce new features and functionality in a timely
manner, demand for our product may decline. We have in the past experienced
delays in the planned release dates of new versions of our software product and
upgrades. New versions may not be released on schedule or may contain defects
when released.

If our product does not operate with the hardware and software platforms used
by our customers, customers may license competing products and our revenues
will decline.

    If our product fails to satisfy advancing technological requirements, the
market acceptance of our product could be reduced. We currently serve a
customer base with a wide variety of constantly changing hardware, software
applications and networking platforms. Customer acceptance of our product
depends on many factors such as:

  .  our ability to integrate our product with multiple platforms and
     existing, or legacy systems;

  .  our ability to anticipate and support new standards, especially
     internet standards; and

  .  the integration of additional software modules under development with
     our existing product.

Our reliance on international operations may cause increased operating expenses
and cause our net income to decline.

    In 1998, international revenues were 78% of our total net revenues.
International revenues were 38% of total net revenues in 1999. We expect
international revenues will continue to represent a significant portion of our
total net revenues in future periods.

    We have faced, and will continue to face, risks associated with:

  .  difficulties in managing our widespread operations;

  .  difficulties in hiring qualified local personnel;

  .  seasonal fluctuations in customer orders;

                                       11
<PAGE>

  .  longer accounts receivable collection cycles; and

  .  expenses associated with products used in foreign markets.

Any of these factors could have a significant impact on our ability to deliver
products on a competitive and timely basis and adversely affect our operating
expenses and net income.

    Our international sales are currently U.S. dollar-denominated. As a result,
an increase in the value of the U.S. dollar relative to foreign currencies
could make our products less competitive in international markets. In the
future, we may elect to invoice some of our international customers in local
currencies. Doing so will subject us to fluctuations in exchange rates between
the U.S. dollar and the particular local currency.

International expansion could be difficult and we may not achieve sales growth.

    If we are unable to expand our international operations and sales, and
build relationships with third parties outside the United States on a timely
basis, we may not achieve anticipated sales growth. We have expanded, and
intend to continue expanding, our international operations and enter additional
international markets. In October 1997, we opened an office in London, England
and in January, 2000 we opened an office in the Netherlands. As of December 31,
1999 we had 40 employees based internationally. To increase our international
sales opportunities, we will need to further develop our international sales,
professional services and support organizations, and we will need to form
additional relationships with system integration partners worldwide.

                                 Industry Risks

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

    Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share, any one of which could reduce our
future revenues. The market for our product is intensely competitive, evolving
and subject to rapid technological change. The intensity of competition is
expected to increase in the future. Our current competitors include:

    .Internal information technology departments. In-house information
technology departments of potential customers have developed or may develop
systems that provide some or all of the functionality of our product. We expect
that internally developed application integration and process automation
efforts will continue to be a significant source of competition.

    .Point application vendors. We compete with providers of stand-alone point
solutions for web-based customer relationship management and traditional
client/server-based, call-center service customer and salesforce automation
solution providers.

    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

                                       12
<PAGE>


agreements with any of our key personnel. We have experienced significant
turnover in our key personnel in the recent past.

    In particular our ability to increase our sales will depend on our ability
to recruit, train and retain top quality sales people who are able to target
prospective customers' senior management, and who can productively generate and
service large accounts. There is a shortage of sales personnel and competition
for qualified personnel is intense, particularly in Silicon Valley.


If we are unable to protect our intellectual property we may lose a valuable
asset or incur costly litigation to protect our rights.

    Our success and ability to compete depend upon our proprietary technology.
We rely on trademark, trade secret and copyright laws to protect our
intellectual property. We have no patents or patent applications. We ship
source code to our customers and third-party integrators are given access to
it. Despite our efforts to protect our intellectual property, a third party
could copy or 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.

    We may have to litigate to enforce our intellectual property rights, to
protect our trade secrets or know-how or to determine their scope, validity or
enforceability. Enforcing or defending our proprietary technology is expensive,
could cause the diversion of our resources and may not prove successful. Our
protective measures may prove inadequate to protect our proprietary rights. If
we are unable to protect our intellectual property, we may lose a valuable
asset or incur costly litigation to protect our rights.

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

    We expect that software product developers and providers of e-business
software will increasingly be subject to infringement claims as the number of
products and competitors in our industry grows and the functionality of
products overlaps. Any claims, with or without merit, could be costly and time-
consuming to defend, divert our management's attention, or cause product
delays. We have no patents or patent applications that we could use defensively
against any company bringing such a claim. If our product was found to infringe
a third party's proprietary rights, we could be required to enter into royalty
or licensing agreements to be able to sell our product. Royalty and licensing
agreements, if required, may not be available on terms acceptable to us or at
all.

                                 Offering Risks

We have discretion to the use of the proceeds from this offering.

    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 but will use the proceeds for additional working
capital and other general corporate purposes.

Our directors and executive officers will retain significant control over
Chordiant after the offering, which may lead to conflicts with other
stockholders over corporate governance.

    Following the completion of this offering, our directors, executive
officers, and holders of 5% or more of our outstanding common stock will
beneficially own approximately 79.9% of our outstanding common stock. These
stockholders, acting together, will be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and significant corporate transactions, such as mergers or other
business combination transactions. This control may delay or prevent a third
party from acquiring or merging with us.






                                       13
<PAGE>

Our stock price may be volatile because our shares have not been publicly
traded before, and, as a result, you may lose all or a part of your investment.

    The market price of our common stock may fluctuate significantly in
response to factors including the following, most of which are beyond our
control:

  .  variations in our quarterly operating results;

  .  changes in market valuations of similar companies; and

  .  departures of key personnel.

    Before this offering, you could not buy or sell our common stock publicly.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay.

    An active public market for our common stock may not develop or be
sustained after the offering. We negotiated and determined the initial public
offering price with the representatives of the underwriters and this price may
not be indicative of prices that will prevail in the trading market. As a
result you may be unable to sell your shares of common stock at or above the
offering price.


The substantial number of shares that will be eligible for sale in the near
future may cause the market price for our common stock to drop significantly,
even if our business is doing well.

    Sales of a substantial number of shares of our common stock in the public
market following this offering could reduce the market price for our common
stock. The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law, and under
agreements that our stockholders have entered into with the underwriters. These
agreements generally restrict our stockholders from selling shares for a period
of 180 days after the date of this prospectus. The following table indicates
when the shares of our common stock that were outstanding as of December 31,
1999 will be eligible for sale into the public market:

<TABLE>
<CAPTION>
                                                       Eligibility of 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 7,766,158 shares issuable upon exercise of options to
purchase our common stock outstanding as of December 31, 1999, approximately
2,109,283 shares will be vested and eligible for sale 180 days after the
completion of this offering.

                                       14
<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 these terms or other comparable
terminology. These statements are only predictions and involve known and
unknown risks and uncertainties including the risks outlined under the section
entitled Risk Factors. These risks may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by forward-looking statements.

    Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform to actual results,
unless required by law.

                                USE OF PROCEEDS

    We estimate that the net proceeds to us from the sale of 4,500,000 shares
of our common stock in this offering are approximately $36.6 million,
approximately $40.1 million if the underwriters' over-allotment options are
exercised in full. This assumes an initial public offering price of $9.00 per
share and the deduction of underwriting discounts and commissions and estimated
offering expenses.

    We intend to use the net proceeds from the sale of shares in this offering
for additional working capital and other general corporate purposes, including
the payment of our outstanding bank lines of credit. As of December 31, 1999,
the outstanding balance of our lines of credit was $2.4 million. We have not
yet determined our expected use of the remaining portion of these proceeds, but
we currently estimate that we will incur at least $32.6 million in operating
expenses during the next twelve months as we increase our investments in our
business. These operating expenses will be partially offset by revenues
received from the licensing of our product.

    The amounts and timing of expenditures will vary depending on factors
including the amount of cash generated by our operations, competitive and
technological developments and the rate of growth, if any, of our business. We
will retain broad discretion in the allocation of our net proceeds from the
sale of shares in this offering. Pending the uses described above, we will
invest the net proceeds of this offering in short term interest bearing,
investment-grade securities. We cannot predict whether the proceeds will be
invested to yield a favorable return. We believe that our available cash,
together with our net proceeds of this offering, will be sufficient to meet our
capital requirements for at least the next twelve months.

    We will not receive any proceeds from the sale of shares by the selling
stockholders in the over-allotment portion of this offering.

                                DIVIDEND POLICY

    We have never declared or paid dividends on our capital stock. We do not
anticipate paying any cash dividends . We currently intend to retain our
earnings, if any, for the development of our business.

                                       15
<PAGE>

                                 CAPITALIZATION

    The following table provides our capitalization as of December 31, 1999:

  .  on an actual basis;

  .  on a pro forma basis after giving effect to:

    .  the conversion of all of our outstanding shares of preferred stock
       and convertible debentures into shares of common stock upon the
       closing of this offering;

    .  no exercise of the underwriters' over-allotment options;

    .  the filing of our amended and restated certificate of incorporation
       before the closing of this offering; and

    .  a 1 for 2 reverse stock split.

  .  on the same pro forma basis as described above, as adjusted to give
     effect to the sale of shares of common stock in this offering at an
     assumed initial public offering price of $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 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 the section entitled 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.

                                       16
<PAGE>

                                    DILUTION

    As of December 31, 1999, we had a pro forma net tangible book value of $3.8
million, or $0.13 per share.

    Pro forma net tangible book deficit per share is equal to:

  .  our total tangible assets minus total liabilities, divided by

  .  the number of outstanding shares of our common stock,

    If we assume we have sold 4,500,000 shares of common stock in this offering
at an offering price of $9.00 per share, and we deduct the underwriting
discounts and commissions and the estimated related expenses, our net tangible
book value as of December 31, 1999 would have been $40.4 million, or $1.16 per
share. This is an immediate increase in net tangible book value of $1.03 per
share to existing stockholders and an immediate dilution of $7.84 per share to
new investors. The following table illustrates this per share 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, as of December 31, 1999, on the pro forma
basis described above, the differences between the number of shares of common
stock purchased from us, the total consideration paid and the average price per
share paid by existing stockholders and by the new investors purchasing shares
in this offering. We used an assumed initial public offering price of $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>

    If we issue additional shares of common stock in the future, purchasers of
common stock in this offering may experience further dilution.

    The above 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
dilution to new investors.

    If the underwriters exercise their over-allotment options in full, the
following will occur:

  .  the number of shares of common stock held by existing stockholders will
     decrease to 30,068,295, or 86.4% of the total number of shares of our
     common stock outstanding; and

  .  the number of shares held by new investors will increase to 4,750,000,
     or 13.6% of the total number of our common stock outstanding.

                                       17
<PAGE>

                     SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data are from our
consolidated financial statements. The following data are from our audited
consolidated financial statements presented elsewhere in this prospectus:

   .  consolidated statements of operations for 1997, 1998 and 1999; and

   .  consolidated balance sheets at December 31, 1998 and 1999.

    The following data are from our audited combined financial statements not
included in this prospectus:

   .  consolidated statements of operations for 1995 and 1996; and

   .  consolidated balance sheets at December 31, 1995, 1996 and 1997.

    When you read this selected consolidated financial data, it is important
that you also read the consolidated financial statements and related notes
included in this prospectus, as well as the section of this prospectus
entitled Management's Discussion and Analysis of Financial Condition and
Results of Operations. The historical results are not necessarily indicative
of the operating results to be expected in the future.

    Our financial history is not an indication of future financial
performance.

<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>

                                      18
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Overview

    Chordiant provides e-business infrastructure software that it believes
enables companies to offer their customers personalized marketing, sales
programs, e-business services and customer support across multiple
communication channels. Our product, Customer Communications Solution, or CCS,
is a suite of applications designed to integrate customer information from
different data sources, automate business processes dependent on a customer's
specific profile and request, and provide consistent service to customers
across communications channels including the internet, telephone, e-mail and
branch offices.

    Chordiant was incorporated in California in March 1991 and was
reincorporated in Delaware in October 1997. Before 1997, we were primarily
engaged in custom consulting services. We released the first version of our CCS
product in September 1997. With the release of this product, we accelerated the
development of our sales and marketing organizations.

    We derive revenues primarily from licenses of our CCS product and from
related services, which include implementation, consulting, customization and
integration, post-contract customer support and training. Our product is
typically licensed directly to customers for a perpetual term, with pricing
based on the number of servers and the number of users.

    On contracts involving significant implementation or customization
essential to the functioning of our product, license and service revenues are
recognized using the percentage-of-completion method using labor hours worked
as the measure of progress towards completion. We classify revenues from these
arrangements as license and services revenues based upon the estimated fair
value of each element. Provisions for estimated contract losses are recognized
in the period in which the loss becomes probable and can be reasonably
estimated. We expect that a majority of our license and service revenues will
be recognized using this percentage-of-completion methodology.

    On contracts that do not involve significant implementation or
customization essential to the functioning of our product, license revenues are
recognized when there is persuasive evidence of an arrangement for a fixed and
determinable fee that is probable of collection and when delivery has occurred.
For arrangements with multiple elements, we recognize revenues for the
delivered elements based upon the residual contract value as prescribed by
Statement of Position No. 98-9, entitled Modification of SOP No. 97-2 with
Respect to Certain Transactions.

    Service revenues from consulting and training services are recognized as
such services are performed. Service revenues from post-contract customer
support are recognized over the contractual support term, generally one year.

    In the future, we expect to derive revenues from contracts that provide for
implementation services at a fixed hourly rate. On other contracts we expect to
derive revenues from the licensing of the installed product on a per
transaction basis. In connection with these types of arrangements, we will
recognize the fair value of the implementation services as the services are
delivered and will recognize license fees on a monthly basis at the contractual
rate.

    We bill customers pursuant to contract terms. Amounts billed to customers
in excess of revenues recognized are recorded as deferred revenues.

    Service revenues as a percentage of total revenues were 61% in 1997, 65% in
1998 and 54% in 1999. To help ensure the success of early product deployments
by customers, in early 1998 we began establishing a significant service
organization. The organization assists customers, and third parties such as
system integrators,

                                       19
<PAGE>


in the design and implementation of our product. Since service revenues have a
lower gross margin than license revenues, this service activity resulted in
reduced overall gross margins. In addition, in the fourth quarter of 1998 and
through 1999, we engaged third parties to provide services to customers, who
then billed us for their services. As a result of using third party resources,
revenues from these contracts generated very small gross margins. As a result
of expansion of our service organization and use of system integrators that
bill our customers directly for services, we believe that our use of third
party service providers will decline substantially in future periods. We expect
that service revenue will continue to represent over 30% of total revenues.

    We sell our product through our direct sales force, and augment our sales
efforts through relationships with system integrators, application service
providers and technology vendors. Our revenues to date have been derived from
customer accounts in the United States, United Kingdom, Netherlands, Canada and
South Africa. In October 1997, we opened an office in London, England and in
January, 2000 we opened an office in the Netherlands. In 1998, international
revenues were $9.7 million or approximately 78% of our total net revenues and
in 1999, international revenues were $6.6 million or approximately 38% of our
total revenues. We believe international revenues will continue to represent a
significant portion of our total revenues in future periods.

    A small number of customers account for a significant portion of our total
revenues. As a result, the loss or delay of individual orders or delays in the
product implementations for a customer can have a large impact on our revenues.
In 1997, revenues from Pagenet and Visa accounted for 53% and 28% of our total
net revenues. In 1998, revenues from KLM Royal Dutch Airlines, Thomas Cook
Global Services, Canadian Tire Acceptance Limited and Chase Manhattan Mortgage
Corporation accounted for 36%, 19%, 14% and 12% of our total net revenues. In
1999, revenues from Chase Manhattan Mortgage Corporation and First USA
accounted for 30% and 19% of our total net revenues. We expect that revenues
from a small number of customers will continue to account for a majority of our
total net revenues in the future as historical implementations are completed
and replaced with new projects from new and existing customers.

    Since our inception, we have incurred substantial research and development
costs and have invested heavily in the expansion of our product development,
sales, marketing and professional services organizations. This was done to
build an infrastructure to support our long-term growth strategy. The number of
our full-time employees increased from 70 as of September 30, 1997 to 144 as of
December 31, 1999, representing an increase of 206%. Generally as a result of
start-up costs, development and increasing sales and marketing expenses, we
have incurred net losses in each quarter since our inception and, as of
December 31, 1999, had an accumulated deficit of $62.6 million. We anticipate
that our operating expenses will continue to increase as we expand our product
development, sales and marketing and professional services organization. We
expect to incur net losses 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 given the risks, expenses and
difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving businesses.
There can be no assurance we will be successful in addressing these risks and
difficulties. In addition, although we have experienced revenue growth
recently, this trend may not continue. In addition, we may not achieve or
maintain profitability in the future.

                                       20
<PAGE>

Results of Operations

    The following tables provide the consolidated statement of operations data
for each of the years ended December 31, 1997, 1998 and 1999, as well as the
percentage of our total net revenues represented by each item. This information
has been derived from the consolidated financial statements included in this
prospectus.

<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>


                                       21
<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 1997 to 1998 increase in
service revenues was due to consulting work performed in connection with
several large customer implementations. The revenue increase in 1999 was
primarily due to a continuation in large customer implementations as well as
maintenance, support and consulting revenues associated with license agreements
signed in earlier periods.

Cost of Net Revenues

    License. Cost of license revenues consist primarily of royalty payments to
third parties for technology incorporated in our product. We began paying
royalties in 1997.

    Service. Cost of service revenues consist primarily of salaries, facility
costs and payments to third-party consultants incurred in providing customer
support, training and implementation services. Cost of service revenue was $1.5
million in 1997, $8.9 million in 1998 and $14.4 million in 1999. Our cost of
service revenue increased significantly in 1998 compared to 1997 due to our use
of a third-party service provider to provide implementation services to our
customers and our hiring of additional service personnel. During the year ended
December 31, 1999, we hired a number of additional service personnel in
anticipation of supporting a larger customer base in future periods. These
increased investment efforts to meet anticipated customer demand resulted in
negative gross margins from service revenues for the years ended December 31,
1998 and 1999. We expect that the cost of services revenues will continue to
increase in dollar amount as we continue to expand our professional services
organization to meet anticipated customer demand.

Operating Expenses

    Sales and marketing. Sales and marketing expenses consist of salaries,
commissions, field office expenses, travel and entertainment, promotional
expenses and facility costs. Sales and marketing expenses increased from $5.1
million in 1997 to $12.6 million in 1998, and were $13.4 million in 1999. The
increase in these expenses for 1998 compared to 1997 was attributable to
increases of $5.2 million in personnel expenses, $1.6 million in allocated
depreciation and overhead costs, and $600,000 in marketing and advertising
costs. The increase of $788,000 for 1999 compared to 1998 was attributable to
$1.4 million increase in personnel expenses, offset by a decrease in $612,000
of advertising cost. We expect that sales and marketing expenses will continue
to increase in dollar amounts as we continue to expand our sales and marketing
efforts, establish additional U.S. and international sales offices and increase
promotional activities.

    Research and development. Research and development expenses include costs
associated with the development and enhancement of our product, quality
assurance activities and allocated facility costs. These costs consist
primarily of employee salaries, benefits and the cost of consulting resources
that supplement our internal development team. Due to the relatively short time
between the date our products achieve technological feasibility and the date
they become generally available to customers, costs subject to capitalization
under SFAS No. 86 have been immaterial and have been expensed as incurred.
Research and development expenses decreased from $6.2 million in 1997 to
$5.9 million in 1998, and were $6.5 million 1999. The decrease in these
expenses for 1998 compared to 1997 was attributable to personnel related
expenses. The increase in these expenses for 1999 compared to 1998 was
attributable to an increase of $350,000 in personnel expenses and an increase
of $250,000 in general and administrative costs. We anticipate that we will
continue to devote

                                       22
<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.

    From January 1, 2000 through February 7, 2000, we granted stock options to
purchase an aggregate of 285,500 shares of common stock at a weighted-average
exercise price of $8.37 per share. In connection with the grant of these stock
options Chordiant recognized unearned compensation totalling $179,000, which
will be amortized over the four year vesting period of the stock options.

Interest and Other Income (Expense), and Interest Expense

    Interest and other income (expense), net, and interest expense consists of
interest income generated from our cash, cash equivalents and short-term
investments, interest expense incurred in connection with outstanding
borrowings and other non-operating income and expenses. Interest and other
income (expense), net of interest expense increased from $330,000 in 1997 to
$440,000 in 1998, and was $(786,000) in 1999. The increase in these expenses
for 1998 compared to 1997 was attributable to increased interest income. The
losses for 1999 compared to 1998 was attributable to an increase in borrowings,
resulting in increased interest expense.

Provision for Income Taxes

    We have incurred operating losses for all periods since our inception. Our
deferred tax assets primarily consist of net operating loss carryforwards,
nondeductible allowances and research and development tax credits. We have
recorded a valuation allowance for the full amount of our net deferred tax
assets, as the future realization of the tax benefit is not considered by
management to be more-likely-than-not.

    As of December 31, 1998, we had net operating loss carryforwards for
federal tax purposes of approximately $25.7 million and for state tax purposes
of approximately $13.0 million. As of December 31, 1999, we had net operating
loss carryforward for federal tax purposes of approximately $48.0 million and
for state tax purposes of approximately $23.7 million. These federal and state
tax loss carryforwards are available to reduce future taxable income. The
federal tax loss carryforwards expire beginning in 2011 and the state tax loss
carryforwards expire beginning in 2001. Under the provisions of the Internal
Revenue Code, substantial changes in our ownership may limit the amount of net
operating loss carryforwards that could be used in the future to offset taxable
income.

                                       23
<PAGE>

Quarterly Results of Operations

    The following table provides unaudited consolidated statement of operations
data for the eight quarters in the period ended December 31, 1999, as well as
that data expressed as a percentage of our total net revenues for the periods
indicated. This data has been derived from unaudited consolidated financial
statements that have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the information.

<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>

                                       24
<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 large variations in
operating results from quarter to quarter. While a large portion of our license
revenues each quarter is recognized from deferred revenues on a percentage of
completion basis, our quarterly performance will depend upon entering into new
contracts to generate revenues for both current and future quarters. New
contracts will likely not result in revenues during the quarter in which the
contract was signed, and we may not be able to accurately predict when revenues
from these contracts will be recognized. Our future operating results will
depend on factors including the following:

  .  delays in our ability to recognize revenues due to decisions by our
     customers to postpone software delivery or implementation;

  .  size and timing of customer orders and product and service delivery
     schedules;

  .  length of our sales cycle;

  .  the success of our international operations;

  .  success in maintaining and enhancing existing relationships and
     developing new relationships with system integrators;

  .  the level of utilization of our own professional services organization
     and third-party service providers; and

  .  timing of our development and release of new and enhanced products.

    We believe that period-to-period comparisons of our results of operations
are not necessarily meaningful and should not be relied upon as indications of
future performance. It is likely that in some future quarter our operating
results will be below the expectations of public market analysts, if any, and
investors. If this happens, the price of our common stock would likely decline.

Liquidity and Capital Resources

    Since inception, we have financed our operations primarily through private
sales of common and preferred stock, with net proceeds totaling $51.6 million,
and through the sale of $10.0 million in convertible debentures. As of December
31, 1999, we had $6.7 million in cash and cash equivalents, and $1.8 million in
working capital with $13.2 million of outstanding debt. Of the outstanding
debt, $10.0 million is in the form of convertible debentures that will convert
into 2 million shares of our common stock on the closing of this offering. We
intend to repay our outstanding bank line of credit following the closing of
this offering.

    Net cash used in operating activities was $3.1 million in 1997 and $14.6
million in 1998 and $27.6 million for 1999. Net cash used in investing
activities was $744,000 in 1997, $3.1 million in 1998 and $1.9 million for
1999. Investing activities consist primarily of purchases of property and
equipment and net proceeds from transactions involving our short-term
investments. Net cash generated from financing activities was $20.1 million in
1997, $448,000 in 1998 and $34.5 million in 1999. Net cash generated from
financing activities consists primarily of net proceeds from the issuance of
preferred stock.

    As of December 31, 1999, we had two lines of credit with a bank permitting
us to borrow up to an aggregate of $5.0 million. Borrowings under the accounts
receivable line of credit bear interest at the lending bank's prime rate of
8.50% as of December 31, 1999, and are limited to 80% of eligible accounts
receivable. Borrowings under the equipment loan bear interest at the lending
bank's prime rate plus 0.25%. Our assets secure borrowings under both lines of
credit. The lines of credit require us to maintain a minimum quick ratio of
1.25 to 1.00, a minimum liquidity ratio of 1.25 to 1.00, and a minimum capital
base of $4,000,000 through December 31, 1999 and $7,000,000 thereafter. As of
December 31, 1999, we were in compliance with our financial covenants and we
had borrowed $2.4 million against the lines of credit.

                                       25
<PAGE>


    Payments under non-cancelable operating lease agreements for facilities and
other equipment expire on various dates through 2004, resulting in aggregate
lease expenses ranging from $799,000 to $1.7 million per year. We finance the
acquisition of property and equipment, primarily computer hardware and software
for our increasing employee base, as well as for our management information
systems, primarily through non-cancelable leases. We project capital
expenditures of $1.7 million in 2000 for computer hardware and software
applications.

    We expect to continue to experience growth in our operating expenses. We
anticipate that operating expenses and planned capital expenditures will
continue to be a material use of our cash resources. In addition, we may
utilize cash resources to fund acquisitions or investments in other businesses,
technologies or product lines. We believe that available cash and cash
equivalents and the net proceeds from the sale of the common stock in this
offering will be sufficient to meet our working capital and operating expense
requirements for at least the next 12 months. After that period, we may require
additional funds to support our working capital and operating expense
requirements or for other purposes and may seek to raise these additional funds
through public or private debt or equity financings. There can be no assurance
that this additional financing will be available, or if available, will be on
reasonable terms.

Recently Issued Accounting Pronouncements

    In June 1998, SFAS No. 133 , entitled Accounting for Derivative Instruments
and Hedging Activities was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we
do not currently hold any derivative instruments and do not engage in hedging
activities, we expect the adoption of SFAS No. 133 will not have a material
impact on our financial position. In July 1999, SFAS No. 137, entitled
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133 was issued. We will be required to
adopt SFAS No. 133 in 2000.

Qualitative and Quantitative Disclosures About Market Risk

    We are developing products in the United States and currently market our
product in North America, Europe and Africa. Our financial results could be
affected by factors including changes in foreign currency exchange rates or
weak economic conditions in foreign markets. Since all sales are currently made
in U.S. dollars, a strengthening of the dollar could make our product less
competitive in foreign markets. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since the majority of
our investments are in short-term instruments. Due to the short-term nature of
our investments, we believe that there is no material risk exposure. Therefore,
no quantitative tabular disclosures have been provided.

Year 2000 Readiness

    The year 2000 issue refers generally to the problems that some software may
have in determining the correct century for the year. For example, software
with date-sensitive functions that is not year 2000 compliant may not be able
to distinguish whether 00 means 1900 or 2000, which may result in failures or
the creation of erroneous results.

    We designed our product to be year 2000 compliant when configured and used
properly, and provided that the underlying operating system of the host machine
and any other software used with or in the host machine or our product are year
2000 compliant. However, we have not completely tested older versions of our
product for year 2000 compliance. We continue to respond to customer questions
about prior versions of our product on a case-by-case basis.

    We have defined year 2000 compliant as the ability to:

  .  correctly handle date information needed for the December 31, 1999 to
     January 1, 2000 date change;

                                       26
<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 of
     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. We are not aware of
any year 2000 problems with respect to our product caused by the recent
commencement of year 2000.

    Litigation about year 2000 compliance issues could be significant, and we
are aware of potential lawsuits against other software vendors. Because of the
unprecedented nature of this litigation, it is uncertain whether or to what
extent we may be affected by it. Congress recently passed a law that is
intended to limit liability for some failures to achieve year 2000 compliance.
There can be no assurance that this law will provide us with any protection.

    We have completed an assessment of our material internal information
technology systems, including our own software products and third-party
technology. We continue to assess our non-information technology systems. To
the extent that we are unable to test the technology provided by third-party
vendors, we are seeking assurances from these vendors that their systems are
year 2000 compliant. We are not aware of any material operational issues or
costs associated with preparing our internal information technology and non-
information technology systems for year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or
defects in the technology used in our internal information technology and non-
information technology systems.

    We do not have any information concerning the year 2000 compliance status
of our customers. Our current or future customers may incur significant
expenses to achieve year 2000 compliance. If our customers are not year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our product and services. As a result, our business could be
harmed.

    We have funded our year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
year 2000 compliance that could harm our business.

    Year 2000 issues affecting our business, if not adequately addressed by us,
our third-party vendors or suppliers or our customers, could have a number of
negative consequences. These include:

  .  claims from our customers asserting liability, including liability for
     breach of warranties related to the failure of our product and services
     to function properly, and any resulting settlements or judgments; and

  .  material disruption to our business.

                                       27
<PAGE>

                                    BUSINESS

Overview

    Chordiant provides e-business infrastructure software that it believes
enables companies to offer their customers personalized marketing, sales
programs, e-business services and customer support across multiple
communication channels. Our product, Customer Communications Solution, or CCS,
is a suite of applications designed to integrate customer information from
disparate data sources, automate business processes dependent on a customer's
specific profile and request, and provide consistent service to customers
across communications channels including the internet, telephone, e-mail and
branch offices. Our product is designed to enable companies to increase the
value of their customers by facilitating interactions between customers and
companies that we believe will help retain customers, grow revenues and
increase profits. Our customers include multinational market leading business-
to-consumer companies such as Bank One International, Cable & Wireless
Communications, Canadian Tire Acceptance Limited, Chase Manhattan Mortgage
Corporation, Direct Line Group Services Limited, First USA Bank, General
Motors' OnStar division, KLM Royal Dutch Airlines, Metropolitan Life Insurance
Company and Thomas Cook Global Services.

Industry Background

    The internet is large, pervasive, and rapidly growing. The internet has
emerged as a major platform for communication, providing new, highly efficient
channels through which companies can engage in commerce and interact directly
with customers. International Data Corporation forecasts that commerce
conducted over the internet will grow from $50 billion in 1998 to $1.3 trillion
by 2003.

    First generation electronic commerce companies generally offered a wider
selection of products at lower prices than traditional businesses and measured
success primarily by the number of web site visitors. These online businesses
focused primarily on gaining new customers and focused less on ways to deliver
high levels of customer service to retain existing customers. The internet has
created a new set of retail challenges, including price standardization,
product commoditization, decreased customer loyalty and high customer
acquisition and retention costs. As a result many of these early online
businesses struggled to continue their rapid growth without delivering
consistent high quality customer service across the broad array of
communications channels that were created by the convergence of traditional and
internet-based communications channels.

    Today, we believe customers are placing increasing value on convenient
access to information, products and services. To be successful in the next
generation of online commerce, commonly referred to as e-business, we believe
companies must take an approach to attract and retain valuable customers that
is primarily focused on the customer. To attract customers, companies must
focus on developing and executing a new set of strategies that provide users
with personalized experiences when they first contact the company. Companies
must be more responsive to customer needs and focus on delivering superior
customer service and satisfaction to differentiate themselves from their
competitors. Companies must work to retain their customers by providing
relevant and targeted experiences each time interactions take place. Moreover,
companies must recognize that every customer interaction provides an
opportunity to sell additional, and more valuable, products and services, 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 an approach to e-business that is
focused on individual customers. 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 to keep up with a constantly changing Internet economy.

    We believe that companies need a flexible, integrated e-business
infrastructure solution that supports all channels of customer contact with a
comprehensive single view of the customer and consistent business services.
Today, customer data must be accessed from multiple data sources, existing
applications and transaction systems to respond to customer inquiries according
to company specific business rules. Unlike traditional customer profiles, a
comprehensive single view of the customer must be updated real time for each
customer contact and reflect the customer's contact history and other relevant
information. A complete customer focused e-business solution improves the
ability to attract, engage and retain customers on a personalized basis and
understand their needs and preferences to provide consistent interactions with
customers through any communication channel.

Solution

    We provide e-business infrastructure software that we believe enables
companies to offer their customers personalized marketing, sales programs, e-
business services and customer support across multiple communication channels.
We have designed our product to integrate customer information from different
data sources, generate business processes dependent on a customer's specific
profile and request, and provide uniform service and data to customers across
multiple communications channels. Our product is designed to enable companies
to deliver appropriate offers and information to a targeted customer at the
time of customer need. We believe that companies that use our product can
increase the value of their customers through improved retention rates and
linked selling opportunities that result from a personalized customer
interaction.

    Key benefits of our solution include:

    Comprehensive single view of the customer. Companies that have a
comprehensive single view of their customers and distribute that information
throughout the enterprise to the points of customer contact can provide a more
consistent and personalized consumer experience. Our data management technology
helps companies develop a single view of the customer by integrating,
consolidating and managing data derived from external and internal sources. Our
product uses multiple data sources, existing applications and transaction
systems to build a comprehensive single view of the customer and generate the
appropriate response at time of contact. A bank, for example, might use our
product to integrate information about a customer contained in internal
databases such as credit card, mortgage and savings account historical
transaction systems, web logs and e-mail management systems, as well as
external databases such as national credit check services. By integrating this
information, the bank has a more comprehensive understanding of the customer's
ability to repay a loan and the value of that customer's relationship with the
bank.

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<PAGE>


    Automated, sophisticated decision making processes. Workflow-driven
business processes help companies to make automated, yet informed, decisions
about customer inquiries. Our workflow processing system supports customizable
business processes that allow companies to develop business rules that will be
implemented consistently. Our workflow editor is a graphical user interface
application that allows business analysts to customize and automate their
company's unique business rules. Our sophisticated routing engine is designed
to allow companies to instantly determine how to respond to specific customer
inquiries and generate offers appropriate for particular customers. A bank, for
example, could specify that at the time of contact, only customers with a solid
credit card history, an existing home loan, a savings account with a minimum
balance and a clean credit history should receive an attractive auto loan rate
and free online bill payment services.

    Consistent customer experience across multiple channels. Companies that
provide customers with a consistent experience across multiple communication
channels should enjoy greater customer satisfaction because customers are able
to receive the same reliable service and information regardless of how they
choose to contact the company. There is a large and increasing number of
customer communications channels, including web, e-mail, fax, self-service
systems, call centers and retail outlets. Our product implements a common set
of business rules uniformly across systems already existing in different
customer communications channels. A bank, for example, could ensure that a
particular customer receives the same attractive auto loan rate and online bill
payment service promotion, regardless of whether the customer contacts the bank
through the web, e-mail, a customer service call center or in person at a local
branch.

    Standard and customizable business services. We believe that companies that
implement customized business services will realize greater levels of
efficiency, consistency and customer satisfaction. Our product provides a broad
set of standard business objects, or fundamental business functions, that are
common across industries. These standard business objects can be modified to
accommodate specific customer and business processes, policies and transactions
of individual companies. A bank, for example, could customize our business
objects by activating specific financial services objects related to specific
transactions, such as processing auto loans, and alter our standard loan
business processes to bypass an external credit check if the customer has a
clean credit and mortgage history.

Strategy

    Our objective is to continue to provide innovative e-business
infrastructure software that enables companies to offer their customers
personalized marketing, sales programs, e-business services and customer
support across multiple communication channels.

    Key elements of our strategy include:

    Continue technology leadership. The increasing demands for multi-channel
interactive e-business solutions require a product that is adaptable,
extensible and interoperable. To meet these requirements, we intend to continue
to devote substantial resources to the development of new and innovative
product capabilities. Because we have designed our product from the beginning
to utilize the capabilities of the internet, we believe that our product is
more easily adapted to a constantly changing, e-business environment. For
example, is designed to accommodate additional contact points such as personal
digital assistants, cellular telephones and digital television.

    Extend technology and integration alliances. We have sought, secured and
continue to seek, strategic alliances to assist in developing, marketing and
selling our product. This approach is intended to leverage the technology and
resources available to perform application design and development services for
our customers and provide additional marketing and technical expertise in
industry segments. To help ensure that we deliver a comprehensive product to
our customers, we have established strategic relationships with organizations
in four general categories:

  .  computing and network platform vendors;

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<PAGE>

  .  software platform vendors;

  .  application service providers; and

  .  systems integrators.

    Target leading global business-to-consumer companies. We intend to
continue to target the global leaders in our primary business-to-consumer
markets by providing solutions to the financial services, telecommunications,
travel and retail industries, including many internet-only businesses that
compete in these markets. These industries are characterized by commodity-like
products and large numbers of dispersed customers, partners, vendors and
suppliers. We believe that companies in these industries will be early users,
and early beneficiaries, of an integrated system that can deliver
personalized, real-time processes utilizing a comprehensive single view of the
customer.

    Expand worldwide infrastructure. We intend to continue to grow our global
presence by expanding our worldwide field sales, marketing and services
organizations. We plan to continue to expand our international presence by
adding direct sales personnel and increasing our indirect sales channels. In
particular, we plan to expand our European operations from our existing
international headquarters in London, England in early 2000.

    Growth Through Customer References. We plan to achieve additional market
success as our customers become successful in using their e-business
initiatives to increase customer retention and revenues. Our most successful
customers become valuable references for our future sales opportunities. To
ensure that all our customers become Chordiant references, we intend to:

  .  hire and retain expert consultants to assist our customers in
     implementation of our product;

  .  work with experienced and knowledgeable systems integrators to help
     enable our customers to implement large scale deployments successfully;

  .  deliver high quality customer education and training on our product to
     assist our customers to meet and exceed their e-business expectations;
     and

  .  deliver superior customer service to our customers, to help ensure
     their long-term satisfaction and success with our product.

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<PAGE>

Products

    Our software product, Customer Communications Solution, or CCS, is licensed
to our customers as a complete e-business infrastructure system. CCS is
available with the following customer facing applications: a customer service
representative application, a web communications interface application and an
e-mail communications interface application. Regardless of the customer-facing
application chosen, CCS includes business management, operations management and
customer case management capabilities. All applications utilize a standard set
of business services that are customizable and a workflow engine. CCS also
provides interfaces supporting various network protocols, telephone
environments, existing systems and data management services. The CCS product is
illustrated and summarized below:

[Graphic: Depicts the components of the Chordiant product including the
following:
 . Customer-Facing Applications
  -Customer Service Application
  -Web Communications Application
  -E-mail Communications Application
 . Management Applications
  -Business Management
  -Operations Management
  -Case Management
 . E-business Infrastructure
  -Business Services
  -Workflow Engine
 . Customers' IT Systems
  -Telephony Systems
  -Internal Databases
  -External Data Sources
  -Existing Applications
  -Third-Party Applications]

 Customer-Facing Applications

    CCS can be licensed with one or more customer-facing applications. All
customer-facing applications share common access to the business services and
workflow capabilities in our e-business infrastructure. All customer
interactions through these applications are logged in a comprehensive case
management system. In addition, companies can also choose to integrate their
existing customer-facing applications into our product.

    Customer Service Representative Application. The customer service
representative application supports high-volume processing of telephone calls
and enables conversations between customers and representatives. The
application provides the customer service representative with personalized
recommendations, promotions, and sale offers based on a customer's demographic
profile, preferences and history of purchases, inquiries and service incidents.

    Web Communications Application. The web communications interface
application provides companies with web-based functionality including self-
service enhancement features such as context-specific help, inquiry and
escalation through web forms, or buttons that schedule an outbound call from a
customer service representative.

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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 real-time access to data from previous interactions with a
specific customer. Within the application, cases can be prioritized for
purposes of assignment, workload management and reporting. Features of this
capability include:

  .  displays of a workload summary and real-time selection of case views;

  .  automatic display of customer history for viewing, editing, tracking
     and routing;

  .  case history analysis; and

  .  work assignment and procedures for dealing with customers that need
     additional assistance by more experienced or more specialized service
     representatives.

E-business Infrastructure

    The e-business infrastructure manages information and workflow between the
customer-facing and management applications and applicable back-end systems.
The infrastructure contains a workflow system with hundreds of standard
business objects providing fundamental business services. We provide companies
with a standard set of business services that contains functionality usable
across industries. A company or system integrator can customize these services
and define specific functions and rules according to the specialized needs of
their business processes and customer profiles. Workflow rules can be
processed in real time based on a customer's profile and request. Because
business processes are automated by our workflow system, customer service
representatives are available to manage customer relationships. Companies can
also incorporate third-party applications into our infrastructure and allow
our business services and applications to respond automatically to changes in
these third-party applications and systems.

Interfaces and coordination with back-end systems

    CCS provides interfaces supporting various network protocols, telephony
environments, existing computer systems and data management services, allowing
connection of our product to a company's existing information technology
software. Our data management services enable companies to create a
comprehensive single view of the customer from multiple data sources and
update these sources in real time. The data management services can be
customized to connect with third-party applications and systems to enable
access to financial transactions, order processing, billing, payment and other
financial and business services. This flexibility allows application
developers to build and deploy applications that can access and manage
multiple types of data through a single interface.

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<PAGE>

Customers and Case Studies

    We target multinational market leaders in business-to-consumer industries,
particularly companies in the financial services, telecommunications, travel
and leisure and automotive industries. In the future, we plan to expand into
the retail, direct merchandise and utilities industries. Below is a list of our
customers as of December 31, 1999, each of which has purchased $500,000 or more
of product during the last two years.

  .  Bank One International

  .  Cable & Wireless Communications

  .  Canadian Tire Acceptance Limited

  .  Chase Manhattan Mortgage Corporation

  .  Direct Line Group Services Limited

  .  First USA Bank

  .  General Motors' OnStar division

  .  KLM Royal Dutch Airlines

  .  Metropolitan Life Insurance Company

  .  Thomas Cook Global Services

  .  Total System Services, Inc.

  .  Ventura

    A small number of customers account for a significant portion of our total
revenues. As a result, the loss or delay of individual orders or delays in the
product implementations for a customer can have a large impact on our revenues.
In 1997, revenues from Pagenet and VISA accounted for 53% and 28% of our total
net revenues. In 1998, revenues from KLM Royal Dutch Airlines, Thomas Cook
Global Services, Canadian Tire Acceptance Limited and Chase Manhattan Mortgage
Corporation accounted for 36%, 19%, 14% and 12% of our total net revenues. In
1999, revenues from Chase Manhattan Mortgage Corporation and First USA
accounted for 30% and 19% of our total net revenues. We expect that revenues
from a small number of customers will continue to account for a majority of our
total net revenues in the future as historical implementations are completed
and replaced with new projects from new and existing customers.

    The following are examples of how selected customers are using our product.
None of these customers are actively endorsing or promoting our product.

 Bank One International

    Bank One International Credit Card, a subsidiary of Bank One Corporation, a
U.S. bank, selected our product to provide its e-business and customer
interaction software to support its European credit card operation.

    Bank One International's web site allows customers to apply online for a
credit card and existing customers to access account details, view and print
statements, examine recent transactions and conduct online payment of card
balances. Our product facilitates the provision of these services by helping
the customer to get the service they require through their preferred channel,
and enables Bank One International to build relationships that will enhance
customer retention.

    With the requirement to add the promotion of its products and services 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.

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    Our product's ability to provide Bank One International's customers with
consistent personalized service, whether through the internet, telephone, e-
mail, or other communications methods, was key to meeting both current and
future customer service requirements. With our product, Bank One International
will have the flexibility to automate its business processes once, and then
adapt the product to meet the requirements of alternative delivery channels.
Bank One International chose our product for its ability to link front and
back-end operations and integrate with Bank One International's outsourced
processing system.

 First USA Bank

    First USA Bank, a leading issuer of Visa credit cards, has selected
Chordiant software to provide the technology for its next-generation customer
retention system. Marketing services advisors in key customer centers serving
First USA's card members will use the Chordiant system. CCS is being deployed
at an initial location and is scheduled for roll-out to two additional customer
centers.

 Total System Services, Inc.

    Total System Services, Inc. is one of the leading information technology
processors of data and transactions for issuers of credit cards. Total Systems'
systems offer online accounting, data processing, electronic commerce services,
portfolio management, account acquisition, credit evaluation, risk management
and customer service.

    Until now, integrating customer-facing applications with back-end data,
transaction systems and business processes required extensive custom
development. Total Systems developed TSeclipseSM, a new customer interaction
application that enables financial services companies to deliver personalized
service using unique business processes. TSeclipse, is based on our product, a
suite of applications and business processes, to provide a single view of the
customer at every point of contact.

    TSeclipse is aimed at banks and private-label credit card issuers that need
to provide faster, more efficient, and more personalized interactions for their
consumers by delivering one-to-one service through call centers, through e-
mail, and other customer contact methods. CCS was chosen because it provides a
complete customer interaction solution, including real-time changes to business
processes, and its support of multiple channels, such as the Web, and other e-
business environments.

 Thomas Cook Global Services

    Chordiant's product has assisted Thomas Cook in launching its new Global
Services business, a worldwide service center providing traveler assistance
services. CCS is the core platform that Thomas Cook uses to provide a range of
business processes enabling Global Services business to improve customer
relationships.

    Operational since July 1998, the center offers travelers a range of
services. With a single telephone call to the service center from anywhere in
the world, Thomas Cook customers have access to a range of travel services.

Technology

    We design and build our product to provide an e-business infrastructure for
customer interaction applications. Using a software methodology based on a
flexible, object oriented, multi-tiered architecture, our product combines
advanced distributed object technology with a new approach to workflow
capabilities called workflow sequenced object processing, or WSOP. WSOP
provides a unique application development capability we call P3 Active. P3
Active was developed to deliver an enhanced level of personalization with every
customer interaction experience based on distributed information and processing
of business logic.

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<PAGE>

    Our product is designed to handle multiple data sources, real-time
transaction systems and a large number of transactions. Our product
architecture supports a multi-tier e-business application environment for
deployment of web browser applications and desktop applications and also
extends application and business services to web, e-mail, fax, self-service
telephone systems, call centers, direct mail and retail outlets. The core
technologies that we have developed include:

  .  multi-channel integration capabilities;

  .  workflow engine for all queuing, routing, scheduling and applying
     business rules; and

  .  persistent data management for integrating multiple real-time data
     sources.

    Our product is based on open system standards and is designed to be
scalable and integrate with the enterprise, various information technology
systems, networks and telephony systems. Our architecture is designed to
utilize the capabilities of the Internet. Unlike a web-enabled client/server
architecture, where the application and user interface reside on the client
system, our product's multi-tier distributed object architecture provides the
means to distribute discrete objects for each customer contact point and to
deploy the application logic, business services and data management
appropriately to all parts of the system. This allows for increased
scalability, reliability and security. The web application, which operates
outside a company's security system, or firewall, is open to the public through
standard network protocols and security. The customer service representative
application is typically used within the company's information technology
infrastructure behind the firewall and is closed to public access. Our server
software runs on both UNIX server platforms and Windows NT servers and can be
configured for multiple servers.

    Our product architecture complies with software industry standards for
building large systems for performance on both network applications and
internet applications. For example, our product uses Java for application
development and customization and Hypertext Transfer Protocol for internet
access. Adherence to these industry standards provides compatibility with many
existing applications. We develop our client software in Java, and we use Sun
Microsystems' Forte Tool and C++ programming languages for the enterprise
server programs and management of data. The distributed object architecture is
based on industry standard interfaces at the object and communications level;
Java and HTML for application development; and XML, CORBA, IIOP and Forte
services for data management and transaction services.

Sales and Marketing

    We license our product and sell services primarily through our direct sales
organization, complemented by the selling and support efforts of system
integrators, application service providers and technology vendors. Our market
focus is in the business-to-consumer segment of the economy with a targeted
effort on leading consumer focused companies and companies using the internet
as the means of conducting business and serving customers. We target our sales
and marketing efforts, together with our product design efforts, on industries
such as retail banking, consumer financial services, telecommunications, travel
and leisure, automotive and direct merchandisers and retailers.

    The sales process generally ranges from three to twenty-four months
depending on the level of education that prospective customers need about the
use and benefits of our products and the involvement of system integrators.
During our sales process, we typically approach senior executive management
teams including the senior marketing officer, chief information officer and
chief executive officer of our potential customers. We utilize sales teams
consisting of sales and technical professionals who work with our strategic
partners to create organization-specific proposals, presentations and
demonstrations that address the specific needs of each potential customer.

    We have sales offices in the greater metropolitan areas of Dallas, Chicago
and New York, and in Cupertino, California, London, England and Amsterdam, the
Netherlands. Technical sales consultants who provide pre-sales support to
potential customers on product information and deployment capabilities

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<PAGE>

complement our direct sales professionals. We plan to significantly expand the
size of our direct sales organization and to establish additional sales offices
domestically and internationally.

    We focus our marketing efforts on educating potential customers, generating
new sales opportunities and creating awareness of our product. We conduct a
variety of marketing programs to educate our target market, including seminars,
trade shows, press relations and industry analyst programs.

    Our marketing organization serves an integral role in acquiring, organizing
and prioritizing customer and industry feedback to help provide product
direction to our development organization. We also have a detailed product
management process that surveys customers and identifies market needs to help
predict and prioritize future customer requirements.

Strategic Relationships

    To enhance the productivity of our sales and service organizations, we have
established relationships with systems integrators, complementary technology
providers and alternative service providers.

 System integrators

    We have established relationships with a number of leading system
integrators including EDS. We plan to expand these relationships to increase
our capacity to sell and implement our products. We have trained a significant
number of consultants in these organizations for the implementation and support
of our products. We believe that expanding our relationships with systems
integrators and independent consulting firms will enable us to gain a greater
share of emerging markets more rapidly.

 Application service providers

    Application service providers provide an additional channel of delivery for
e-business services and customer interaction applications. A hosted application
model may improve time-to-market, reduce the implementation risk and the
internal resources required while facilitating the deployment to the client. We
have recently entered into an application service provider relationship with
Total Systems Services, Inc., an outsourcer for retail banking credit and
consumer finance processing. Total Systems is expected to deliver our
application and integrate their processing and data services with our e-
business services and workflow. The resulting business model is intended to
provide clients with transaction pricing for an immediately available solution
hosted by Total Systems. We expect to continue to expand our relationships with
other application service providers.

 Complementary technology providers

    We design our products to be based on industry standards and technologies,
and to support a number of key software platforms. We have relationships with:

  . Sun Microsystems for development of business services and client
      applications,

  . IBM Software for IBM Visual Age tool support,

  .  Forte Software, a division of Sun Microsystems, for enterprise data and
     transaction management services, and

  . Oracle and Sybase, Inc., providers of industry-standard relational
      databases.

Professional Services and Customer Support

    We offer a broad range of customer services including professional
consulting services and product support and training services. We believe that
providing a high level of customer service is critical to achievement of rapid
product implementation, customer success and continued revenues growth.

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 Professional Services

    Our professional service consulting teams assist our customer and system
integrator partners in the design and implementation of our product. Our
professional services organization deploys consultants as part of the project
team alongside system integration partners and members of the client's internal
team to provide the technical knowledge, business engineering, project guidance
and quality assessments during the project. In the design stage, we provide a
variety of professional services that help determine customer's business
objectives and the technical requirements of the application implementation. In
the implementation stage, we utilize our delivery methodology to assist
customers and integration partners in planning and managing the implementation.
System integrators, supported by our consultants, manage the overall project
and implement the product with a customer's existing communications,
applications, databases and transaction systems. In the final phases of an
implementation the system integrators provide education and training to enable
a customer's internal team to deploy the new system, train internal users and
assume control over ongoing support.

    Our methodology includes:

  .  user requirements and needs analysis;

  .  business engineering consultation;

  .  architectural analysis and performance planning;

  .  project management support services;

  .  engineering support for development and deployment; and

  .  technical support for software integration and communications
     integration.

 Customer Support Services

    Our customers have a choice of support and maintenance options depending on
the level of service desired. Our technical support is available to clients by
telephone, over the web and by e-mail. We maintain a technical support hotline
staffed by engineers from 8:00 a.m. to 9:00 p.m., eastern time, Monday through
Friday, from our corporate headquarters in Cupertino, California and local
support during business hours for European customers from London, England. An
optional premium service is available providing technical support 24 hours a
day, seven days a week. Additionally, we provide product enhancement releases
to all customers as part of their support and maintenance contract. We use a
customer service automation system to track each customer inquiry until it is
resolved. We also make use of our web site and a secured customer forum to
provide product information and technical support information worldwide 24
hours a day, seven days a week.

 Educational Services

    We provide educational services to train and enable our system integrators
and customers to use our product. We offer a comprehensive series of training
modules to provide the knowledge and skills to successfully deploy, use and
maintain our products. These training courses focus on the technical aspects of
our product as well as business issues and processes. A complete set of modules
covering business engineering, project management and development engineering
are available. Training courses can be provided on-site for a custom session at
a fee and are regularly scheduled through classroom and lab instruction at our
Cupertino, California corporate headquarters, and at our London, England
offices for European system integrators and customers.

Product Development

    We have made substantial investments in research and development through
internal development and technology licensing. Our product development efforts
are focused on extending our e-business services, application functionality,
self-service and web-based collaboration functionality, and continued
integration of key industry-specific transaction systems and services.

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    Our product development resources are organized into a number of
development teams including:


  .  system services and workflow development,

  .  business services and application design,

  .  tools and Internet development,

  .  enterprise integration,

  .  documentation,

  .  quality assurances and

  .  release management. Our software and internet applications teams have
     extensive experience in object oriented development, data management,
     workflow engineering, Java programming and Internet deployment.

    Our research and development expenditures were $6.2 million in 1997, $5.9
million in 1998 and $6.5 million in 1999.

Competition

    The market for our product is new and rapidly evolving, and is highly
competitive. The competitive landscape is rapidly evolving to address the
convergence of e-business services and customer interaction applications. To
realize the potential of this convergence, companies must be able to offer
personalized marketing and sales and extend e-business services to all points
of customer contact. This must be done through an integrated system and
customer data model tailored by each company to meet its specific customer
requirements.

    We face three main sources of competition:

  . custom-built solutions;

  .  vendors with help desk, field service, call center or sales force
     automation products, and

  .  vendors of enterprise resource planning products.

    There is no one competitor, nor is there a small number of competitors,
that are dominant in our market.

 Custom-Built Solutions

    Corporate customer systems supporting branch and call centers have
historically been custom-built by professional services organizations or
internally developed. Custom development has the inherent limitation of being
a high cost alternative because it relies on building the entire solution from
scratch and the resulting configuration is difficult to upgrade to take
advantage of new requirements and channels of communication such as the
internet. We expect that internal development will continue to be a
significant source of competition.

 Stand-alone Solution Vendors

    We compete with providers of stand-alone solutions for Web-based customer
relationship management, such as Silknet, and Webline and providers of stand-
alone e-mail response capabilities, such as Kana, Mustang Software and
Brightware. We also compete against traditional client/server-based, call-
center service customer and salesforce automation solutions, such as Siebel
Systems, Vantive, Clarify and Pegasystems. Most point application providers
started with a single application focus, such as service, salesforce
automation or help desks, and then added additional modules addressing other
needs, such as e-mail, field service or quality tracking. Although these
vendors have started to pursue the enterprise-wide opportunity of providing e-
business

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services to all points of customer contact, their lack of multichannel
integration, real-time data models for integration of multiple data sources and
lack of personalization capability and their client/server architecture are
limitations.

 Enterprise Application Vendors

    We anticipate competitive offerings and consolidation from several major
enterprise software developers, such as Oracle, PeopleSoft, IBM and SAP. To
date Oracle has announced and began delivery of modules to compete in various
areas of the traditional customer relationship management market and PeopleSoft
has purchased Vantive. We expect enterprise resource planning software vendors
to acquire and integrate point solutions as they approach different segments of
the e-business and customer relationship management markets.

 Other Potential Competitiors

    The telephony market for equipment and software is in the midst of a major
transition from proprietary systems to open software applications running on
commodity hardware. Recent software acquisitions announced by traditional
telephony vendors, such as Lucent Technologies Inc.'s purchase of Mosaix, Inc.
and Nortel Networks Corporations' purchase of Clarify are examples of the
desire to move from hardware platforms into software applications. Examples of
companies providing middleware in support of computer and telephony integration
are Genesys Telecommunications Laboratories, Inc. and Geotel Communications
Corporation, recently purchased by Cisco Systems. Providers of client/server
and mainframe call center systems include Pegasystems for financial services
and IMA and Quintas for outsourcers and call centers. These companies have not
historically provided e-business infrastructure and customer management
applications but may in the future.

    We believe that the principal competitive factors in our market include:

  .  the breadth and depth of solutions;

  .  product quality and performance;

  .  relationships with system integrators;

  .  the ability to implement solutions;

  .  establishment of a significant base of reference customers;

  .  the ability of products to operate with multiple software applications;

  .  customer service; and

  .  product price.

Although we believe that our product competes favorably with these factors, our
market is relatively new and is evolving rapidly. We may not be able to
maintain our competitive position against current and potential competitors,
especially those with significantly greater financial and personnel resources.

Intellectual Property and Propriety Rights

    Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights. We rely primarily
on a combination of contractual provisions, confidentiality procedures, trade
secrets, and copyright and trademark laws to accomplish these goals.

    We license our product through non-exclusive license agreements that impose
restrictions on customers' ability to utilize the software. In addition, we
seek to avoid disclosure of our trade secrets, including requiring employees,
customers and others with access to our proprietary information to execute
confidentiality agreements with us and restricting access to our source code.
We also seek to protect our rights in our product,

                                       40
<PAGE>

documentation and other written materials under trade secret and copyright
laws. Due to rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments
and enhancements to our existing product are more important than the various
legal protections of our technology to establishing and maintaining a
technology leadership position.

    We integrate third-party software into our product. This third-party
software may not continue to be available on commercially reasonable terms. In
particular, we license Forte Tool and related Forte products from Forte
Software, a Sun Microsystems company. The license agreement expires in
September 2001, and can be extended upon agreement of the parties. If we cannot
maintain licenses to the Forte products or other key third-party software,
shipments of our product could be delayed until equivalent software could be
developed or licensed and integrated into our product. Moreover, although we
are generally indemnified against claims that technology licensed from third
parties infringes the intellectual property and proprietary rights of others,
this indemnification is not always available for all types of intellectual
property and proprietary rights and in some cases the scope of this
indemnification is limited. There can be no assurance that infringement or
invalidity claims arising from the incorporation of third-party technology, and
claims for indemnification from our customers resulting from these claims, will
not be asserted or prosecuted against us. These claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources in addition to potential product redevelopment costs and
delays.

    Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or reverse engineer
aspects of our product or to obtain and use information that we regard as
proprietary. There can be no assurance that we will be able to protect our
proprietary rights against unauthorized third-party copying or use. Use by
others of our proprietary rights could materially harm our business.
Furthermore, policing the unauthorized use of our product is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.

    It is also possible that third parties will claim that we have infringed
their current or future products. We expect that software developers will
increasingly be subject to infringement claims as the number of products in
different industry segments overlap. Any claims, with or without merit, could
be time-consuming, result in costly litigation, prevent product shipment, cause
delays, or require us to enter into royalty or licensing agreements, any of
which could harm our business. Patent litigation in particular has complex
technical issues and inherent uncertainties. If an infringement claim against
us was successful and we could not obtain a license on acceptable terms or
license a substitute technology or redesign to avoid infringement, our business
would be harmed.

Employees

    As of December 31, 1999, we employed 144 full-time employees. Of that
total, 36 were primarily engaged in product development, engineering or systems
engineering, 37 were engaged in sales and marketing, 41 were engaged in
professional services and 30 were engaged in operational, financial and
administrative functions.

    None of our employees is represented by a labor union and we have never
experienced a work stoppage. We believe that our relations with our employees
are good.

Facilities

    Our headquarters are located in approximately 31,000 square feet in
Cupertino, California, occupied under an office lease expiring in July 2004. We
also lease office space in Mahwah, New Jersey; Irving, Texas; Chicago,
Illinois; London, England and Amsterdam, the Netherlands.

Legal Proceedings

    We are not a party to any material legal proceedings. We may be subject to
various claims and legal actions arising in the ordinary course of business.

                                       41
<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............................  45 Director
 Kathryn C. Gould...........................  49 Director
 Mitchell E. Kertzman.......................  50 Director
 Robert S. McKinney.........................  56 Director
 William Raduchel...........................  52 Director
 Carol L. Realini...........................  45 Director
 David R. Springett.........................  55 Director
</TABLE>

    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.

                                       42
<PAGE>

    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, both of which are
publishing software companies. Mr. Sherman received his B.A. in mathematics and
computer science from Emory University in 1979 and an M.B.A. from San Jose
State University in 1991. Mr. Sherman has served on the board of Marin
Research, Inc., a private project management software company, since September
1999.

    Stephen Kelly has served as our senior vice president of Europe, Middle
East and Africa operations since October 1998. From October 1997 to September
1998, Mr. Kelly served as our vice president of Europe, Middle East and Africa
operations. From 1987 to 1998, Mr. Kelly worked in various sales, alliances and
marketing roles at Oracle Corporation's United Kingdom operations, most
recently as director of Europe, Middle East and Africa alliances and industry
groups. Mr. Kelly received his B.A. with honors in business administration and
accounting from the University of Bath, in England.

    Oliver D. Curme has been a director of Chordiant since July, 1996. Mr.
Curme has served as a general partner of several entities 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
that firm since December 1995. Since 1989, Ms. Gould has been a general partner
of Merrill, Pickard, Anderson & Eyre, a venture capital firm. Ms. Gould also
serves as a director of Documentum, Inc., a publicly held web-based software
application developer. Ms. Gould also serves as a director of Interwoven, a
publicly held software provider. Ms. Gould received a B.Sc. in physics from the
University of Toronto and an M.B.A. from the University of Chicago.

    Mitchell E. Kertzman has been a director of Chordiant since February, 1997.
Mr. Kertzman has served as president, chief executive officer and a director of
Liberate Technologies, a public internet access software company since November
1998. Before joining Liberate, Mr. Kertzman was a member of the board of
directors of Sybase, a database company, from February 1995 until November
1998. He has served as chairman of Sybase's board of directors since July 1997.
Between February 1998 and August 1998, he also served as co-chief executive
officer of Sybase. From July 1996 until February 1997 Mr. Kertzman served as
chief executive officer of Sybase and from July 1996 until July 1997 he also
served as president of Sybase. Between February 1995 and July 1996, Mr.
Kertzman served as an executive vice president of Sybase. In February 1995,
Sybase merged with Powersoft Corporation, a provider of application development
tools. Mr. Kertzman had served as chief executive officer and a director of
Powersoft since he founded it in 1974. Mr. Kertzman has also served as a
director of CNET, a internet content company since 1997.

    Robert S. McKinney has been a director of Chordiant since January, 2000.
Mr. McKinney has served as president of Information Management Consulting, a
consulting firm, since September, 1998 and is acting chief information officer
of Metropolitan Life Insurance Company's individual business and client
services business units, Mr. McKinney was chief information officer of Tenneco,
an automotive parts manufacturing company, from March, 1996 to September, 1998
and chief information officer of PaineWebber, an investment banking firm, from
February, 1990 to February, 1996. Mr. McKinney received a masters degree in
management and industrial engineering from Columbia University and a B.S. in
mechanical engineering from the U.S.M.M.S.(Kings Point).

                                       43
<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 makes recommendations to the board
of directors about the selection of independent auditors, reviews the results
and scope of the audit and other services provided by our independent auditors
and reviews and evaluates our audit and control functions.

    The compensation committee makes recommendations regarding our 1999 equity
incentive plan and concerning salaries and incentive compensation for our
employees and consultants.

    The membership of the audit and compensation commttee is described below:

<TABLE>
<CAPTION>
     Audit                         Compensation
     -----                         ------------
     <S>                           <C>
     Oliver D. Curme               Kathryn C. Gould
     William Raduchel              Mitchell Kertzman
     David R. Springsteel
</TABLE>

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,

                                       44
<PAGE>

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 a director on the
effective date, or on a director's election or appointment to the board, if
later. Directors will be granted an option to purchase up to 7,500 shares of
our common stock on the day after each annual meeting of stockholders after the
effective date of this offering. Also, directors who serve as committee members
will be granted an option to purchase up to 5,000 shares of our common stock on
the day after each of our annual meetings of stockholders. The exercise price
of each option will be the fair market value of a share of our common stock on
the date of grant of the option.

Compensation Committee Interlocks And Insider Participation

    None of our executive officers serve as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
Individuals and investment entities affiliated with Ms. Gould and Mr. Curme
have purchased shares of our preferred stock. See Related Party Transactions.
For a further description of interlocking transactions, see Related Party
Transactions.

Board Composition

    We have authorized nine directors. Upon the closing of this offering and as
provided by the terms of our amended and restated certificate of incorporation,
the terms of office of the board of directors will be divided into three
classes. As a result, a portion of our board of directors will be elected each
year. The division of the three classes, their election dates and the directors
in each class are as follows:

<TABLE>
   <S>            <C>                                       <C>
    Class of
     director               Date of election                 Directors in class
   ----------     -------------------------------------     --------------------
       I          first annual meeting of stockholders      Oliver D. Curme
                                                            Kathryn C. Gould
                                                            Carol L. Realini

       II         second annual meeting of stockholders     Samuel T. Spadafora
                                                            Joseph F. Tumminaro
                                                            David R. Springett

      III         third annual meeting of stockholders      Mitchell E. Kertzman
                                                            William Raduchel
                                                            Robert S. McKinney
</TABLE>

    At each annual meeting of stockholders after the initial classification,
the successors to directors whose terms will then expire will be elected to
serve from the time of election and qualification until the third annual
meeting following election. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of one-third of the
directors. This classification of the board of directors may have the effect of
delaying or preventing changes in control or management of Chordiant.

                                       45
<PAGE>

Executive Compensation

    The following table provides information concerning compensation for
services performed during the year ended December 31, 1999 by our chief
executive officer and our most highly compensated executive officers whose
salary and bonus for the last year exceeded $100,000. As required by the rules
of the Securities and Exchange Commission, the compensation described in the
table excludes medical, group life insurance or other benefits that are
available generally to all salaried employees of Chordiant and other
perquisites and personal benefits received that do not exceed the lesser of
$50,000 or 10% of any officer's salary and bonus disclosed in this table. None
of the officers named below had any other annual compensation, was granted any
restricted stock award, long term incentive plan payout or received any other
compensation.

                        Summary Compensation Table

<TABLE>
<CAPTION>
                                                                    Long-Term
                                                                   Compensation
                                             ------------------    ------------
                                                   Annual
                                                Compensation          Awards
                                             ------------------    ------------
                                                                    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(1)     87,500
 Senior Vice President, Worldwide Sales
   and Marketing
Joseph F. Tumminaro.................... 1999 $162,083 $ 51,077            --
 Chief Technology Officer
John Palmer(2)......................... 1999 $175,734 $ 46,750            --
 Former Executive Vice President,
   Engineering
</TABLE>
- --------


(1) Includes commissions of $50,658.

(2) In August 1999, Mr. Palmer resigned as our executive vice president,
    engineering and is no longer an officer of Chordiant.

 Option Grants in Fiscal Year 1999

    The following table 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 as prescribed by the rules of the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by:

  .  multiplying the number of shares of common stock subject to a given
     option by the assumed initial public offering price of $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.

                                       46
<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 option holder's cessation of service before to the vesting of the
shares. Each of the options has a ten-year term, subject to earlier termination
if the option holder's service with us ceases. See Employee Stock Plans for a
description of other terms of these options.

    Percentages shown under % of Total Options Granted to Employees in Fiscal
Year are based on an aggregate of 3,381,513 options granted to our employees
under our equity incentive plans during the period from January 1, 1999 through
December 31, 1999.

                       Option Grants in Last Fiscal Year

<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 provides the number and value of securities underlying
unexercised options that are held by each of the individuals listed on the
previous page as of December 31, 1999.

    Amounts shown under the columns Value Realized and Value of Unexercised In-
the-Money Options at Fiscal Year End are based on an assumed initial public
offering price of $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 option holder's cessation of service
before 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>


                                       47
<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 on December 31, 1999. The incentive plan is an
amendment and restatement of our 1997 equity incentive plan.

    Administration. The board administers the incentive plan unless it
delegates administration to a committee. The board or this committee has the
authority to construe, interpret and amend the incentive plan 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 the 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. The board also may
grant nonstatutory stock options, stock bonuses and restricted stock purchase
awards to our employees, directors and consultants.

  .  A stock option is a contractual right to purchase a specified number of
     our shares at a specified price, called the exercise price, for a
     specified period of time.

  .  An incentive stock option is a stock option that has met the
     requirements of Section 422 of the Internal Revenue Code. This type of
     option is free from regular tax at both the date of grant and the date
     of exercise. However, the difference between the fair market value on
     date of exercise and the exercise price is an item of alternative
     minimum tax unless there is a disqualifying disposition in the year of
     exercise. If two holding period tests are met--two years between grant
     date and sale date and one year between exercise date and sale date--
     all profit on the sale of our shares acquired by exercising the
     incentive stock option is long-term capital gain income. However, if
     either of the holding periods is not met, there has been a
     disqualifying disposition, and a portion of any profit will be taxed at
     ordinary income rates.

  .  A nonstatutory stock option is a stock option not meeting the Internal
     Revenue Code criteria for qualifying incentive stock options and,
     therefore, triggering a tax upon exercise. This type of option requires
     payment of state and federal income tax and, if applicable, other taxes
     on the difference between the exercise price and the fair market value
     on the exercise date.

                                       48
<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 is a grant of our shares at no cost to the recipient in
     consideration for past services performed.

    The board may not grant an incentive stock option to any person who, at the
time of the grant, owns or is deemed to own stock possessing more than 10% of
our total combined voting power or the total combined voting power of an
affiliate of ours, unless the exercise price is at least 110% of the fair
market value of the stock on the grant date and the option term is five years
or less.

    Limits on Option Grants. There are limits on the number of shares that the
board may grant under an option.

  .  Section 162(m) of the Internal Revenue Code, 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), to
     prevent options granted under the incentive plan from being included in
     compensation, the board may not grant options under the incentive plan
     to an employee covering an aggregate of more than 5 million shares in
     any calendar year.

  .  In addition, an employee may not receive incentive stock options that
     exceed the $100,000 per year limitation provide in Section 422(d) of
     the Internal Revenue Code. In calculating the $100,000 per year
     limitation, we determine the aggregate number of shares under all
     incentive stock options granted to that employee that will become
     exercisable for the first time during a calendar year. For this
     purpose, we include incentive stock options granted under the incentive
     plan as well as under any other stock plans that 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 after the date of grant, the board may offer
option holders the opportunity to replace their outstanding higher-priced
options with new lower-priced options. To the extent required by Section 162(m)
of the Internal Revenue Code, the repriced option is considered to be canceled
and a new option granted, but both options will be counted against the Section
162(m) limit discussed above.

    The maximum option term is 10 years. The board may provide for exercise
periods of any length in individual option grants. However, generally an option
terminates three months after the option holder's service to 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 option holder may designate a
beneficiary to exercise either type of option following the option holder's
death. If the option holder does not designate a beneficiary, the option
holder's option rights will pass by will or by the laws of descent and
distribution.

    Terms of Other Stock Awards. The board determines the purchase price of
other stock awards. However, the board may award stock bonuses in consideration
of past services without a purchase payment. Shares that we sell or award under
the incentive plan may, but need not be, restricted and subject to a repurchase
option in our favor based on with a vesting schedule that the board determines.
The board, however, may accelerate the vesting of the restricted stock.

                                       49
<PAGE>


    Other Provisions. Transactions not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend, and stock
split, may change the class and number of shares subject to the incentive plan
and to outstanding awards. In that event, the board will appropriately adjust
the incentive plan for the class and the maximum number of shares subject to
the incentive plan, to the cap on the number of shares available for incentive
stock options, and to the Section 162(m) limit. It also will adjust outstanding
awards for the class, number of shares and price per share subject to the
awards.

    If a change in control happens, the surviving entity may either assume or
replace outstanding awards under the incentive plan. If this does not occur,
then generally the vesting and exercisability of the awards will accelerate,
and unexercised awards will terminate immediately before the event. A change in
control includes the following:

  .  A dissolution, liquidation or sale of all or substantially all of our
     assets.

  .  A merger or consolidation in which we are not the surviving
     corporation.

  .  A reverse merger in which we are the surviving corporation but the
     shares of our common stock outstanding immediately preceding the merger
     are converted by virtue of the merger into other property.

  .  After this initial public offering, generally the acquisition by any
     person, entity or group of the beneficial ownership of our securities
     representing at least 50% of the combined voting power 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 on December 31, 1999. The
directors' plan provides for the automatic grant to our non-employee directors
of options to purchase shares of our common stock.

    Share Reserve. We have reserved a total of 700,000 shares of our common
stock for issuance under the directors' plan. On October 1 of each year for 10
years, starting on October 1, 2000, the share reserve will automatically be
increased by a number of shares equal to the greater of:

  .  0.5% of our outstanding shares on a fully-diluted basis, or

  .  that number of shares subject to options granted under the directors'
     plan during the prior 12-month period.

    However, the automatic increase is subject to reduction by the board. If an
option holder does not purchase the shares subject to their option before the
option expires or otherwise terminates, the shares that are not purchased again
become available for issuance under the directors' plan.

                                       50
<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 after the date of
     the prospectus as a non-employee director will automatically receive an
     initial option for 25,000 shares. The initial option is exercisable
     immediately but will vest at the rate of 25% of the shares on the first
     anniversary of the grant date and monthly 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 option for 7,500
     shares. The annual option is exercisable immediately but will vest
     monthly over the next year. If the non-employee director is appointed
     to the board after the annual meeting, the annual option will be
     adjusted based on the time actually served by the director.

  .  Finally, on the day after each of our annual meetings of the
     stockholders, starting with the annual meeting in 2001, each non-
     employee director who is serving on a board committee will
     automatically receive a committee option for 5,000 shares. The
     committee option is exercisable immediately but will vest monthly over
     the next year. If the non-employee director is appointed to the
     committee after the annual meeting, the committee option will be pro
     rated.

    As long as the option holder continues to serve with us, whether in the
capacity of a director, an employee or a consultant, the option will continue
to vest and be exercisable during its term. When the option holder's service
terminates, we will have the right to repurchase any unvested shares at the
original exercise price, without interest.

    Option Terms. Options have an exercise price equal to 100% of the fair
market value of our common stock on the grant date. The option term is 10 years
but it terminates three months after the option holder's service terminates. If
this termination is due to the option holder's disability, the post-termination
exercise period is extended to 12 months. If this termination is due to the
option holder's death or if the option holder dies within three months after
their service terminates, the post-termination exercise period is extended to
18 months following death.

    The option holder may transfer the option by gift to immediate family or
for estate-planning purposes. The option holder also may designate a
beneficiary to exercise the option following the option holder's death.
Otherwise, the option exercise rights will pass by the option holder's will or
by the laws of descent and distribution.

    Other Provisions. Transactions not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend, and stock
split, may change the class and number of shares subject to the directors' plan
and to outstanding options. In that event, the board will appropriately adjust
the directors' plan for the class and the maximum number of shares subject to
the directors' plan and to the automatic option grants. It also will adjust
outstanding options for the class, number of shares and price per share subject
to the options.

                                       51
<PAGE>


    If a change in control happens, the surviving entity may either assume or
replace outstanding options under the directors' plan. If this does not occur,
then generally the vesting of the options will accelerate, and unexercised
options will terminate immediately before the event. A change in control
includes the following:

  .  A dissolution, liquidation or sale of all or substantially all of our
     assets.

  .  A merger or consolidation in which we are not the surviving
     corporation.

  .  A reverse merger in which we are the surviving corporation but the
     shares of our common stock outstanding immediately preceding the merger
     are converted by virtue of the merger into other property.

  .  Generally the acquisition by any person, entity or group of the
     beneficial ownership of our securities representing at least 50% of the
     combined voting power 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. We have not issued any options under the
directors' plan.

    Plan Termination. The directors' plan has no set termination date.

 1999 Employee Stock Purchase Plan

    Our board adopted the 1999 employee stock purchase plan on November 30,
1999. Our stockholders approved the plan on December 31, 1999.

    Administration. The board administers the purchase plan unless it delegates
administration to a committee. The board or this committee has the authority to
construe, interpret and amend the purchase plan 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.

                                       52
<PAGE>


    The first offering will begin on the effective date of this offering, and
we will offer shares registered on a Form S-8 registration statement. The fair
market value of the shares on the first date of this offering will be the price
per share at which our shares are first sold to the public as specified in the
final prospectus for this offering. Otherwise, fair market value generally
means the closing sales price, rounded up where necessary to the nearest whole
cent, for these shares, or the closing bid, if no sales were reported, as
quoted on the Nasdaq National Market on the last trading day before the
relevant determination date, as reported in The Wall Street Journal.

    The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:

  .  85% of the fair market value of a share on the day they began
     participating in the purchase plan; or

  .  85% of the fair market value of a share on the purchase date.

    Participating employees may authorize payroll deductions of up to 15% of
their compensation for the purchase of stock under the purchase plan. Employees
may end their participation in the offering before a purchase period ends.
Their participation ends automatically on termination of their employment.

    Other Provisions. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established
by us or by our affiliates, if any, do not permit the employee's rights to
purchase our stock to accrue at a rate which exceeds $25,000 of fair market
value of our stock for each calendar year in which the purchase rights are
outstanding.

    Upon a change in control, the board may provide that the successor
corporation either will assume or replace outstanding purchase rights.
Alternatively, the board may shorten the ongoing offering period and provide
that our stock will be purchased for the participants immediately before the
change in control.

    Shares Issued. The purchase plan will not be effective until the effective
date of this initial public offering of our stock. Therefore, as of the date of
this prospectus, no shares of common stock have been purchased under the
purchase plan.

    Plan Termination. The purchase plan has no set termination date.

401(k) Plan

    We have established the Chordiant corporation retirement savings plan
effective January 1, 1996. The 401(k) plan is intended to qualify under Section
401 of the Code so that contributions by employees or by Chordiant, and income
earned, are not taxable until withdrawn and so that contributions by us will be
deductible by us when made. The 401(k) plan provides that each participant may
reduce their pre-tax gross compensation by up to 15% (up to a statutorily
prescribed annual limit of $10,000 in 1999) and have that amount contributed to
the 401(k) plan. Employees become eligible to participate in the 401(k) plan
upon commencement of their employment with Chordiant. Participants are fully
vested in all amounts they contribute under the 401(k) plan and in the earnings
on the contributed amounts.

    In addition to the employee salary deferrals described above, the 401(k)
plan requires us to make contributions under the 401(k) plan on behalf of the
participants. These contributions include a matching contribution of up to
$1,500 per year of salary deferred contributions made by each participant. The
employer contributions to the 401(k) plan each year will be divided among
participants in the ratio that each participant's compensation bears to the
compensation of all participants. Participants become vested in matching
contributions and employer contributions according to a graded vesting schedule
under which they become fully vested after five years of service with
Chordiant.

                                       53
<PAGE>

    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.

                                      54
<PAGE>


                        RELATED PARTY TRANSACTIONS

    The following is a description of transactions since January 1, 1997, to
which we have been a party, in which the amount involved in the transaction
exceeds $60,000, and in which any of our directors, executive officers or
holders of more than 5% of the capital stock had or will have a direct or
indirect material interest, other than compensation arrangements that are
described under "Management."

    The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts and as of
the date listed below. Option information is as of December 31, 1999.

<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 Kelly(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
MCI Systemhouse
  Corp.(12).............              --         --  2,421,875        --            --
Norwest Venture Partners
  VI LP.................              --  2,073,529    195,312        --        52,631
Orchid/T. Rowe Threshold
  III...................              --    470,588    351,562        --       263,158
Vertex Investment II
  Ltd.(13)..............              --  1,175,625    390,624        --       131,579

  Price per share.......  $0.04 to $4.00      $1.70      $2.56          (9)      $3.80
  Date(s) of purchase...         various     6/1997    12/1997          (9)     9/1999
</TABLE>
- --------

 (1) Consists of:

    .shares held by Mr. Spadafora's children,

    .10,000 shares held by a family trust and

    .1,765,150 shares subject to outstanding options, of which 861,325 shares
    are fully vested.

 (2) Consists of:

    .shares held by Mr. Springsteel's children and

    .463,345 shares subject to outstanding options, of which 211,245 shares are
    fully vested.

 (3) Consists of:

    .shares held by trusts for the benefit of Mr. Morrison's children and

    .592,859 shares subject to outstanding options, of which 266,866 shares are
    fully vested.

 (4) The common stock held by Mr. Tumminaro and Ms. Realini consists of:

  .  4,970,000 shares held in a family trust and trusts for the benefit of
     Mr. Tumminaro and Ms. Realini's children

                                       55
<PAGE>


  .  26,026 shares subject to outstanding options held by Mr. Tumminaro, of
     which 23,868 shares are fully vested and

  .  22,396 shares subject to outstanding options held by Ms. Realini, of
     which 21,802 shares are fully vested.

 (5) Consists of:

  .  100,000 shares of common stock held by Mr. Sherman, all of which are
     subject to a right of repurchase in favor of Chordiant if Mr. Sherman
     terminates his services as an employee and

  .  300,000 shares subject to an outstanding option, none of which are
     vested.

 (6) Consists of 350,000 shares subject to outstanding options, of which
     99,999 shares are vested.

 (7) Consists of 188,046 shares subject to outstanding options, all of which
     shares are fully vested. In August 1999, Mr. Palmer resigned as our
     executive vice president, engineering and is no longer an officer of
     Chordiant.
 (8) Kathryn C. Gould, one of our directors, is a managing member of
     Foundation Capital Management, LLC, which is the general partner and
     managing member of Foundation Capital, LP and Foundation Capital
     Entrepreneurs Fund LLC.
 (9) Oliver D. Curme, one of our directors, is a general partner of, Battery
     Partners III LP, which is the sole general partner of Battery Ventures
     III, LP.

(10) Consists of:

  .  a convertible debenture held by Charter Growth Capital, L.P.
     convertible into 560,000 shares of Series D preferred stock,

  .  a convertible debenture held by CGC Investors, L.P. convertible into
     35,000 shares of Series D preferred stock,

  .  and a convertible debenture held by Charter Growth Capital
     Co-Investment Fund, L.P. convertible into 1,405,000 shares of Series D
     preferred stock.
    The conversion price of the debentures is $5.00 per share. The debentures
    were purchased in April 1999.

(11) The Chase Manhattan Bank acts as the trustee for First Plaza Group Trust,
     a trust for the benefit of employee benefit plans of General Motors
     Corporation. These shares may be considered to be owned beneficially by
     General Motors Investment Management Corporation, a wholly owned
     subsidiary of General Motors. General Motors Investment Management is
     serving as the trust's investment manager for these shares and in that
     capacity it has the sole power to direct the trustee 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) MCI Systemhouse was acquired by Electronic Data Systems Corporation in
     April 1999.

(13) Consists of:

  .  130,625 shares of series B preferred stock held by HWH Investment PTE,
     Ltd.,

  .  522,500 shares of series B preferred stock and 195,312 shares of series
     C preferred stock held by Vertex Asia Ltd., and

  .  522,500 shares of series B preferred stock, 195,312 shares of series C
     preferred stock and 131,579 shares of series E preferred stock held by
     Vertex Investments II Ltd.

    Chordiant and the preferred stockholders described above have entered into
an agreement giving preferred stockholders and holders of our convertible
debentures registration rights for their shares of common stock following this
offering. Upon the completion of this offering, all shares of our outstanding
preferred stock and convertible debentures will be automatically converted
into an equal number of shares of common stock.

    We intend to enter into indemnification agreements with our directors and
officers for the indemnification of and advancement of expenses to these
persons to the full extent permitted by law. We also intend to execute these
agreements with our future directors and officers.

    As described in the table above, in December 1997 we issued to MCI
Systemhouse Corp. shares of our series C preferred stock. At that time we also
entered into a license agreement for our product, under which

                                      56
<PAGE>


MCI Systemhouse prepaid $6 million of license fees. In April 1999 MCI
Systemhouse was acquired by Electronic Data Systems Corporation and the shares
of our stock held by MCI Systemhouse were transferred to Electronic Data
Systems. MCI's right to distribute and license our software, including the
prepayment arrangement, was still in effect at the time of Electronic Data
Systems' acquisition of MCI.

    Prior to the acquisition by Electronic Data Systems of MCI Systemhouse, in
July 1998, we entered into an unrelated license agreement with Electronic Data
Systems that allows Electronic Data Systems to license Chordiant's product and
services for its internal use and to sublicense our product to its customers.
The license under the agreement is worldwide and non-exclusive and Chordiant
provides to Electronic Data Systems under the agreement warranties concerning
the product and indemnification for infringement. Electronic Data Systems paid
Chordiant $1,325,000 under this license agreement in 1998 and in 1999 paid
$607,000 and offset under the MCI Systemhouse prepayment $6 million of amounts
otherwise due Chordiant.

    Carol Realini entered into a separation agreement with Chordiant dated
December 9, 1998 terminating her employment with us as president and chief
executive officer effective December 31, 1998. From January 1, 1999 until
January 1, 2000, we continued to pay Ms. Realini's base salary and car
allowance. Her option to purchase 20,373 shares of common stock was fully
vested as of November 30, 1998. Her second option to purchase 2,023 shares of
common stock shall continue to vest while she serves as a member of our board
of directors.

    John Palmer entered into a separation agreement with Chordiant dated August
23, 1999 terminating his employment with us as executive vice president,
engineering effective August 26, 1999. From his separation date until February
26, 2000, we have agreed to pay Mr. Palmer's base salary. Mr. Palmer is not
eligible for further vesting of his options after August 26, 1999, but has the
right to exercise the options that are vested for a period of up to ninety days
after February 26, 2000.

    Options granted to our directors, executive officers and employees are
immediately exercisable for both vested an unvested shares, with unvested
shares being subject to a right of repurchase in our favor if termination of
employment occurs before the vesting of all the shares. The following
individuals have elected to pay the exercise price for some of their
outstanding options with full recourse promissory notes secured by the common
stock underlying the options. The notes bear interest at 5.74% to 5.88% per
year, and interest payments on the notes are due and payable annually on the
anniversary date of the note. Unpaid principal and interest on the notes are
due and payable immediately upon termination of the participant's employment
with us, or two years after the date of the promissory note. As of February 7,
2000, the original and outstanding aggregate principal amounts of the
promissory notes executed by each executive officer in favor of Chordiant are
listed below.

<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.

                                       57
<PAGE>

                             PRINCIPAL STOCKHOLDERS

    The following table provides information about the beneficial ownership of
our common stock as of December 31, 1999, and as adjusted to reflect the sale
of our common stock offered by this prospectus, by:

  .  each of the individuals listed in the Summary Compensation Table;

  .  each of our directors;

  .  each person (or group of 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 calculated based upon the rules of the Securities
and Exchange Commission. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, shares of common stock
subject to options held by that person that are currently exercisable or
exercisable within 60 days of December 31, 1999 are considered outstanding.
These shares, however, are not considered outstanding for the purposes of
computing the percentage ownership of any other person. Except as indicated in
the footnotes to this table or as a result of applicable community property
laws, each stockholder named in the table has sole voting and investment power
to the shares shown as beneficially owned by them.

    Applicable percentage ownership in the following table is based on
30,318,295 shares of common stock outstanding as of December 31, 1999, after
giving effect to the conversion of all outstanding shares of preferred stock
and convertible debentures into common stock upon the closing of the offering
and 34,818,295 shares of common stock outstanding immediately following
completion of the offering. This table assumes no exercise of the underwriters'
over-allotment options. Unless otherwise indicated, the address of each of the
individuals named below is: c/o Chordiant Software, Inc., 20400 Stevens Creek
Blvd, Suite 400, Cupertino, California 95014.

<TABLE>
<CAPTION>
                                  Beneficial Ownership   Beneficial Ownership
                                  Before 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       188,046     0.54
Oliver D. Curme(8).............   2,501,263     8.25     2,526,263     7.26
Kathryn C. Gould(9)............   3,115,813    10.28     3,140,813     9.02
Mitchell Kertzman(10)..........      88,825     0.29       113,825     0.33
Robert S. McKinney(11).........           0     0.00        25,000     0.07
William Raduchel(12)...........      87,500     0.29       112,500     0.32
David R. Springett(13).........           0     0.00        25,000     0.07
Carol L. Realini(4)............   5,018,422    16.53     5,043,422    14.45
All directors and officers as a
  group(14)....................  14,641,223    42.81    14,816,223    38.11

Five Percent Stockholders:
First Plaza Group Trust(15)....   3,947,368    13.02     3,947,368    11.34
  The Chase Manhattan Bank
  3 Chase Metrotech Center
  7th Floor
  Brooklyn, NY 11245
</TABLE>

                                       58
<PAGE>

<TABLE>
<CAPTION>
                                     Beneficial Ownership  Beneficial Ownership
                                      Before 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)...........................  2,321,472     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) Consists of:

   .  shares held by Mr. Spadafora's children,

   .  10,000 shares held by a family trust and

   .  1,765,150 shares subject to an outstanding option, of which 861,325
      shares are vested.

 (2) Consists of:

   .  shares held by Mr. Springsteel's children and

   .  463,345 shares subject to outstanding options, of which 211,245 shares
      are vested.

 (3) Consists of:

   .  shares held by trusts for the benefit of Mr. Morrison's children and

   .  592,859 shares subject to outstanding options, of which 266,866 shares
      are vested.

 (4) The common stock held by Mr. Tumminaro and Ms. Realini consists of:

   .  4,970,000 shares held by a family trust and trusts for the benefit of
      Mr. Tumminaro and Ms. Realini children

   .  26,026 shares subject to outstanding options held by Mr. Tumminaro, of
      which 23,868 shares are fully vested

   .  22,396 shares subject to outstanding options held by Ms. Realini, of
      which 21,802 shares are fully vested and

   .  25,000 shares subject to an outstanding option that will be
      automatically granted to Ms. Realini upon completion of the offering,
      none of which are vested.     -

    A trust for the benefit of the family of Mr. Tumminaro and Ms. Realini and
    a trust for the benefit of the children of Mr. Tumminaro and Ms. Realini
    have granted an option to the underwriters to purchase up to aggregate of
    250,000 shares of common stock to cover over-allotments.


                                      59
<PAGE>


 (5) Consists of:

   .  100,000 shares of common stock held by Mr. Sherman, all of which are
      subject to a right of repurchase in favor of Chordiant if Mr. Sherman
      terminates his services as an employee

   .  300,000 shares are subject to an outstanding option, none of which are
      vested.

 (6) Consists of 350,000 shares subject to outstanding options, of which
     99,999 shares are vested.

 (7) Consists of 188,046 shares subject to outstanding options, all of which
     shares are fully vested. In August 1999, Mr. Palmer resigned as our
     executive vice president, engineering and is no longer an officer of
     Chordiant.

 (8) Consists of 25,000 shares subject to an outstanding option that will be
     automatically granted to Mr. Curme upon completion of the offering, none
     of which are vested. Mr. Curme is a general partner of Battery Ventures
     III, L.P, which is the sole general partner of Battery Ventures III LP.
     Mr. Curme disclaims beneficial ownership of the shares held by these
     entities except to the extent of his proportionate partnership interest
     in these entities.

 (9) Consists of 25,000 shares subject to an outstanding option that will be
     automatically granted to Ms. Gould upon completion of the offering, none
     of which are vested. Ms. Gould is a managing member of Foundation Capital
     Management, LLC, which is the general partner and managing member of
     Foundation Capital, LP and Foundation Capital Entrepreneurs Fund LLC. She
     disclaims beneficial ownership of the shares held by the entities
     affiliated with Foundation Capital, except to the extent of her financial
     interest in these entities.

(10) Consists of:

   .  88,825 shares subject to an outstanding option, of which 62,917 shares
      are vested and

   .  25,000 shares subject to an outstanding option that will be
      automatically granted to Mr. Kertzman upon completion of the offering,
      none of which are vested.

(11) Consists of 25,000 shares subject to an outstanding option that will be
     automatically granted upon completion of the offering, none of which are
     vested.

(12) Consists of 87,500 shares subject to an outstanding option, of which
     29,166 shares are vested.

(13) Consists of 25,000 shares subject to an outstanding option that will be
     automatically granted upon completion of the offering, none of which are
     vested.

(14) Includes shares described in the notes above, as applicable.

(15) The Chase Manhattan Bank acts as the trustee for First Plaza Group Trust.
     These shares may be considered to be owned beneficially by General Motors
     Investment Management, a wholly owned subsidiary of General Motors.
     General Motors Investment Management is serving as the trust's investment
     manager for these shares and in that capacity it has the sole power to
     direct the trustee about the voting and disposition of these shares.
     Because of the trustee's limited role, beneficial ownership of the shares
     by the trustee is disclaimed.

(16) Consists of:

   .  260,724 shares held by Foundation Capital Entrepreneurs LLC and

   .  2,802,458 shares held by Foundation Capital LP.

    Foundation Capital Management, LLC is the managing member of Foundation
    Capital Entrepreneurs Fund, LLC and is the general partner of Foundation
    Capital, LP. Ms. Gould is a director of Chordiant and disclaims beneficial
    ownership of the shares held by these Foundation Capital entities, except
    to the extent of her financial interest as a member of Foundation Capital
    Management, LLC.

(17) The sole general partner of Norwest Venture Partners VI, LP is Itasca VC
     Partners VI, LLP, whose managing partner is George Still and whose
     managing administrative partner is John Whaley. All voting and investment
     power 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.

                                      60
<PAGE>


(18) Consists of:

   .  a convertible debenture held by Charter Growth Capital, L.P.
      convertible into 560,000 shares of series D preferred stock,

   .  a convertible debenture held by CGC Investors, L.P. convertible into
      35,000 shares of series D preferred stock and

   .  a convertible debenture held by Charter Growth Capital Co-Investment
      Fund, L.P. convertible into 1,405,000 shares of series D preferred
      stock.

(19) Consists of:

   .  130,625 shares held by HWH Investment PTE, Ltd.,

   .  717,812 shares held by Vertex Asia Ltd., and

   .  849,391 shares held by Vertex Investments II Ltd.

                                       61
<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 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 dividends as may be declared by the board of
directors out of funds legally available in proportion to their stockholdings.
If we liquidate, dissolve or wind up, holders of common stock are entitled to
share in proportion to their stockholdings in all assets remaining after
payment of liabilities and the liquidation preferences of any outstanding
shares of preferred stock. Holders of common stock have no preemptive,
conversion, or subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.

Preferred Stock

    Under our amended and restated certificate of incorporation, our board has
the authority, without further action by stockholders, to issue up to
51,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges, qualifications and restrictions granted to or
imposed upon preferred stock, including dividend rights, conversion rights,
voting rights, rights and terms of redemption, liquidation preference and
sinking fund terms, any or all of which may be greater than the rights of the
common stock. The issuance of preferred stock could reduce the voting power of
holders of common stock and reduce the likelihood that the holders of common
stock will receive dividend payments and payments upon liquidation. This
issuance could have the effect of decreasing the market price of the common
stock. The issuance of preferred stock could also have the effect of delaying,
deterring or preventing a change in control of Chordiant. We have no present
plans to issue any shares of preferred stock.

Registration Rights

    Upon completion of this offering and subject to contractual limitations,
the holders of 24,412,193 shares of common stock will be entitled to rights to
register these shares under the Securities Act. If we propose to register any
of our securities under the Securities Act, either for our own account or for
the account of other securityholders, the holders of these shares will be
entitled to notice of the registration and will be entitled to include, at our
expense, their shares of common stock. The holders of these shares may also
require us, at our expense and on not more than two occasions at any time
beginning on the later of September 28, 2000 or six months from the date of the
closing of this offering, to file a registration statement under the Securities
Act for their shares of common stock, and we will be required to use our best
efforts to effect the registration. Further, the holders may require us, at our
expense, to register their shares on Form S-3 when this form becomes available
to us. These rights terminate six years after the effective date of this
offering.

Delaware Anti-Takeover Law

    Statutory Business Combination Provision. We are subject to Section 203 of
the Delaware General Corporation Law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years following the date
that the stockholder became an interested stockholder unless:

  .  before that date, the board of directors approved either the business
     combination or the transaction that resulted in the stockholder
     becoming an interested stockholder;

                                       62
<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; or

  .  on or after that date, the business combination is approved by the
     board of directors and authorized at a meeting of stockholders, by the
     vote of at least two-thirds of the outstanding voting stock that is not
     owned by the interested stockholder.

    In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.

  Section 203 defines business combination to include:

  .  any merger involving the corporation and the interested stockholder;

  .  any sale or other transfer involving the interested stockholder of 10%
     or more of the assets of the corporation;

  .  any transaction that results in the issuance or transfer by the
     corporation of any stock of the corporation to the interested
     stockholder; or

  .  the receipt by the interested stockholder of the benefit of any loans,
     or other financial benefits provided by or through the corporation.

Charter and Bylaw Protections

    Our amended and restated certificate of incorporation provides that any
action required or permitted to be taken by our stockholders must be effected
at a duly called annual or special meeting of stockholders and may not be
effected by any consent in writing. In addition, our amended and restated
bylaws provide that special meetings of our stockholders may be called only by
the chairman of the board of directors, the chief executive officer or the
board of directors by a resolution adopted by a majority of the total number of
authorized directors, or by the holders of 50% of our outstanding voting stock.
Furthermore, our amended and restated certificate requires the advance notice
of stockholders' nominations for the election of directors and business brought
before a meeting of stockholders.

    Our amended and restated certificate specifies that our board of directors
will be classified into three classes of directors. Under Delaware law,
directors of a corporation with a classified board may be removed only for
cause unless the corporation's certificate of incorporation provides otherwise.
Our amended and restated certificate does not provide otherwise. In addition,
the amended and restated certificate specifies that the authorized number of
directors may be changed only by resolution of the board of directors and
excludes cumulative voting for directors. Under cumulative voting, a minority
stockholder holding a sufficient percentage of a class of shares may be able to
ensure the election of one or more directors. Our amended and restated
certificate provides that a majority of the directors in office, even if less
than a quorum, are entitled to fill vacancies created by resignation, death,
disqualification, removal or by an increase in the size of the board.

    Some provisions of our amended and restated certificate may only be amended
with the approval of 66 2/3% of our outstanding voting stock and our amended
and restated bylaws may be amended only by the board or by the approval of 66
2/3% of our outstanding voting stock.

    These provisions contained in our amended and restated certificate and our
amended and restated bylaws could delay or discourage some types of
transactions involving an actual or potential change in control of Chordiant or
its management, which includes transactions in which stockholders might
otherwise receive a

                                       63
<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 consider to be in their best interests and,
therefore, could adversely affect the price of our common stock.

Transfer Agent And Registrar

    The transfer agent and registrar for our common stock is BankBoston, N.A.
Its telephone number is (781) 575-3120.

                                       64
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

    Before this offering, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could reduce our price. Since, other than the shares offered in this offering,
no shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of large
amounts of our common stock in the public market after these restrictions lapse
could reduce our stock's market price and our ability to raise equity capital.

    Upon completion of this offering, we will have outstanding an aggregate of
34,818,295 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options after December 31,
1999. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless these shares are purchased by affiliates. The remaining 30,094,801
shares of common stock are restricted securities. Restricted securities may be
sold in the public market only if registered or if they qualify for an
exemption from registration described below under Rules 144, 144(k) or 701
under the Securities Act.

    As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be
available for sale in the public market as follows:

  .  no shares will be eligible for sale before 180 days from the date the
     registration statement of which this prospectus is a part is declared
     effective;

  .  24,109,283 shares will be eligible for sale upon the expiration of the
     lock-up agreements described below 180 days after the date this
     offering is declared effective;

  .  5,963,155 shares will be eligible for sale at various times after the
     expiration of the lock-up agreements described below 180 days after the
     date this offering is declared effective; and

  .  2,109,283 shares will be eligible for sale upon the exercise of vested
     options 180 days after the date this offering is declared effective.

Lock-Up Agreements

    Our officers, directors, and stockholders have agreed, subject to some
exclusions, not to transfer or dispose of any shares of our common stock or any
securities convertible into shares of our common stock. This restriction will
be applicable until 180 days after the date this offering is declared
effective. Transfers can be made sooner in certain circumstances or with the
prior written consent of FleetBoston Robertson Stephens Inc.

Rule 144

    In general, under Rule 144 as currently in effect, beginning 90 days after
the date of our public offering, a person who has beneficially owned shares of
our common stock for at least one year, including any 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 weeks preceding the filing of a notice
     on Form 144 for the sale.

    Sales under Rule 144 are also subject to other requirements concerning the
manner of sale, notice filing and the availability of current public
information about Chordiant.

Rule 144(k)

    Under Rule 144(k), a person who is not a director, executive officer or
owner of ten percent or more of our stock and was not at any time during the 90
days preceding a sale, and who has beneficially owned the

                                       65
<PAGE>


shares proposed to be sold for at least two years, including the holding period
of any prior owner other than a director, executive officer or 10% stockholder,
is entitled to sell these shares without complying with the manner of sale,
notice filing, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, these shares may be sold immediately upon the
completion of this offering.

Rule 701

    In general, under Rule 701, any Chordiant employee, director, officer,
consultant or advisor who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of the offering is entitled to resell these shares 90 days after
the effective date of our initial public offering in reliance on Rule 144,
without having to comply with some restrictions, including the holding period,
contained in Rule 144.

    The Securities and Exchanges Commission has indicated that Rule 701 will
apply to stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired upon
exercise of these options, including exercises after the date of this
prospectus. Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than
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 will be entitled to rights for the registration of their shares
under the Securities Act. Registration of their shares under the Securities Act
would result in the shares becoming freely tradable without restriction under
the Securities Act, except for shares purchased by affiliates, immediately upon
the effectiveness of this offering.

Stock Options

    After this offering, we intend to file a registration statement under the
Securities Act covering the shares of common stock reserved for issuance under
our 1999 equity incentive plan, the 1999 employee stock purchase plan and the
1999 non-employee directors stock option plan. The registration statement is
expected to be filed and become effective as soon as practicable after the
closing of this offering. Shares registered under the registration statements
will, subject to Rule 144 volume limitations applicable to affiliates and
contractual limitations, be available for sale in the open market, immediately
after the effective date of that registration statement.

                                       66
<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 listed 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.................................
                                                                   ---------
     Total....................................................     4,500,000
                                                                   =========
</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 of $    per share and to dealers at that price less a concession
of not more than $    per share, of which $    may be allowed to other dealers.
After the initial public offering, these prices may be reduced by the
representatives. This reduction will not change the amount of proceeds to be
received by us or the selling stockholders. The common stock is offered by the
underwriters subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.

    The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

    Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
115 filed public offerings of equity securities, of which 82 have been
completed, and has acted as an underwriter in an additional 56 public offerings
of equity securities in which it has not acted as a lead or co-manager. Thomas
Weisel Partners does not have any material relationship with us or any of our
officers, directors or other controlling persons, except for its contractual
relationship with us 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 $    per share.
Additionally, a principal stockholder and a family trust for the benefit of the
family of Carol Realini and Joseph Tumminaro, each a director and founder of
Chordiant, and an educational trust for the benefit of the children of Mr.
Tumminaro and Ms. Realini have granted to the underwriters an option to
purchase up to 250,000 additional shares of common stock at $     per share.
Each option is exercisable for 30 days after the date of this prospectus. If
the underwriters exercise either option, each of the underwriters will be
required to purchase the same percentage of additional shares that the number
of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the total number of shares offered.

    If purchased, these additional shares will be sold by the underwriters on
the same terms as those offered by this prospectus. If our option is exercised
we will be required to sell the shares the underwriters choose to purchase
under the option. If the selling stockholders' option is exercised they will be
required to sell the

                                       67
<PAGE>


shares the underwriters choose to purchase under the option. The underwriters
are obligated to exercise the selling stockholders' option in full before
exercising their option with us. The underwriters may exercise these options
only to cover over-allotments made 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, including indemnity
against liabilities under the Securities Act and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.

    Lock-up Agreements. Our officers, directors and stockholders have agreed,
for a period of 180 days after the date of this prospectus, that, subject to
exceptions, they will not offer to sell or, otherwise transfer any shares of
common stock or any securities convertible into shares of common stock owned as
of the date of this prospectus or, with some exceptions, acquired by them after
the date of this prospectus without the prior written consent of FleetBoston
Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc. may
release all or 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 before the
expiration of the lock-up period other than through this offering.

    Future Sales. We have agreed that until 180 days after the date of this
prospectus, we will not, subject to some exceptions, without the prior written
consent of FleetBoston Robertson Stephens Inc.:

  .  consent to the transfer of any shares of our common stock held by our
     stockholders before the expiration of the lock-up period; or

  .  issue, sell or otherwise transfer any shares of our common stock, or
     any securities convertible into our common stock other than

    (1)the sale of shares in this offering,

    (2)the issuance of common stock upon the exercise of outstanding
        options,

    (3)the issuance of options under existing stock option and incentive
        plans, and

    (4)the issuance of up to 3,400,000 shares as a result of future
        acquisitions.

    Listing. Our common stock has been approved for quotation on the Nasdaq
National Market under the symbol CHRD.

    No Prior Public Market. Before this offering, there was no public market
for our common stock. Consequently, the initial public offering price for the
common stock offered in this prospectus will be determined through negotiations
between us and the representatives. We will determine the initial offering
price based on factors including:

  .  prevailing market conditions,

  .  our financial information,

  .  market valuations of other companies that we and the representatives
     believe to be comparable to ours,

  .  estimates of our business potential, and

  .  our present state of development.

    Stabilization. The representatives have advised us that the underwriters
may engage in transactions, including:

  .  stabilizing bids,


                                       68
<PAGE>


  .  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 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 cover a position
where the underwriter has sold shares it did not yet own, incurred by the
underwriters in connection with this offering. A penalty bid is an arrangement
permitting the representatives to reclaim the selling concession otherwise
payable to an underwriter in connection with this offering if the common stock
originally sold by the underwriter is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter.

    Internet Distribution. The representatives have advised us that a limited
number of shares will be made available to the customers of E*TRADE Securities,
Inc. E*TRADE Securities will make a copy of the prospectus in electronic format
available on its web site located at www.etrade.com. E*TRADE will accept
conditional offers to purchase shares from all of its customers that complete
and pass an online eligibility profile. If demand for shares from the customers
of E*TRADE exceeds the number of shares allocated to it, E*TRADE will use a
random allocation methodology to distribute shares in even lots of 100 shares
per customer. The representatives have advised us that there are no plans to
direct shares to particular internet purchasers.

    Directed share program. At our request, the underwriters have reserved up
to 225,000 shares of common stock at the initial public offering price, to
directors, officers, employees, business associates and related persons of
Chordiant. The number of shares of common stock available for sale to the
general public will be reduced to the extent these persons purchase the
reserved shares. Any reserved shares that are not purchased by the identified
persons will be offered by the underwriters to the general public on the same
basis as the other shares offered by this prospectus. We have agreed to
indemnify the underwriters against liabilities and expenses, including
liabilities under the Securities Act of 1933 in connection with the sales of
these shares.

                                 LEGAL MATTERS

    The validity of the issuance of the common stock offered by this prospectus
will be passed upon for us by Cooley Godward LLP, Palo Alto, California. Other
specified legal matters in connection with this offering will be passed upon
for the underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.

                                    EXPERTS

    The consolidated financial statements as of December 31, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999, included in
this prospectus, have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.

                                       69
<PAGE>

                      WHERE YOU CAN FIND MORE INFORMATION


    We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 for the registration of the common stock offered by this
prospectus. This prospectus, which forms a part of the registration statement,
does not contain all the information included in the registration statement,
parts of which are contained in exhibits to the registration statement as
permitted by the Securities and Exchange Commission rules and regulations. For
further information about us and our common stock, you should refer to the
registration statement.

    The registration statement can be inspected and copied at the Securities
and Exchange Commission's following locations:

<TABLE>
   <C>                          <C>                      <S>
   Public Reference Room Office New York Regional Office     Chicago Regional
      450 Fifth Street, N.W.    Seven World Trade Center     Citicorp Center
      Washington, D.C. 20549           Suite 1300        500 West Madison Street
                                   New York, NY 10048           Suite 1400
                                                          Chicago, IL 60661-2511
</TABLE>

In addition, the registration statement is publicly available through the
Securities and Exchange Commission's site on the Internet's world wide web,
located at http://www.sec.gov.

    We will also file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may
obtain copies of the documents that we file electronically with the Securities
and Exchange Commission through the Securities and Exchange Commission's
website located at http://www.sec.gov. You can also request copies of these
documents, for a copying fee, by writing to the Securities and Exchange
Commission.

                                       70
<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 February 7, 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.("Chordiant"), at December 31, 1998 and 1999 and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted
accounting principles. These consolidated financial statements are the
responsibility of the Chordiant's management; our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

  PricewaterhouseCoopers LLP

  San Jose, California

  January 18, 2000, except
  for Note 14 which is as of
  February 7, 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. ("Chordiant"), formerly J. Frank Consulting, Inc.
and J. Frank & Associates, Inc., was incorporated in California in March 1991
and reincorporated in Delaware by merging into Chordiant Delaware, Inc., a
wholly-owned Delaware subsidiary, in October 1997. At that time, Chordiant
Delaware, Inc. changed its name to Chordiant Software, Inc. Chordiant provides
e-business infrastructure software for customer interaction applications.
Chordiant's product helps enable companies to offer their customers
personalized marketing, sales programs, e-business services and customer
support across multiple channels of communication.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 Principles of consolidation

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

 Use of estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

 Cash, cash equivalents and short-term investments

    Chordiant considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 1998 and 1999, $1,477 and $6,087 of money market account balances,
commercial paper and municipal bonds, the fair value of which approximates
cost, are included in cash and cash equivalents. The gross unrealized gains and
losses were not significant in the periods presented.

    Chordiant classifies its short-term investment securities as "available-
for-sale." At December 31, 1998 and 1999, the fair value of these securities,
comprised primarily of medium-term notes, approximates cost, and the gross
unrealized gains and losses were not significant. These securities mature
within one year.

 Fair value of financial instruments

    Chordiant's financial instruments, including cash and cash equivalents,
accounts receivable, deposits, accounts payable and borrowings are carried at
cost, which approximates fair value because of the short-term nature of those
instruments.

 Property and equipment

    Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of assets which
range from three to seven years. Amortization of leasehold improvements is
calculated using the straight-line method over the shorter of the estimated
economic

                                      F-7
<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.

 Prepaid licenses-related parties

    Prepaid licenses-related parties totalling $6 million was received from a
stockholder in 1997. The intention of this cash advance was that the amount
would be applied against future revenue contracts, to the extent that any such
contracts are entered. During 1999, Chordiant delivered licenses to the
stockholder and reduced the prepaid licenses-related parties account. Chordiant
recognized this revenue in accordance with its revenue recognition accounting
policy.

 Impairment of long-lived assets

    Chordiant evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards "SFAS No. 121", "Accounting
for Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed
of." SFAS No. 121 requires recognition of impairment of long-lived assets if
the net book value of such assets exceeds the estimated future undiscounted
cash flows attributable to such assets.

 Revenue recognition

    Chordiant derives revenues from licenses of its software and related
services, which include assistance in implementation, customization and
integration, post-contract customer support, training and consulting.

    On contracts involving significant implementation or customization
essential to the functionality of the Chordiant's product, license and service
revenues are recognized using the percentage-of-completion method using labor
hours incurred as the measure of progress towards completion. Chordiant
classifies revenues from these arrangements as license and services revenues,
based upon the estimated fair value of each element. Provisions for estimated
contract losses are recognized in the period in which the loss becomes probable
and can be reasonably estimated.

    On contracts that do not involve significant implementation or
customization essential to the functionality of Chordiant's product, license
fees are recognized when there is persuasive evidence of an arrangement for a
fixed and determinable fee that is probable of collection and when delivery has
occurred. For arrangements with multiple elements, Chordiant recognizes revenue
for services and post-contract customer support based upon vendor specific
objective evidence (VSOE), VSOE for the services element is based upon the
standard hourly rates it charges for services and based upon the complexity of
the services and experience of the professional performing the services and
such services are separately priced in the contract, VSOE for annual post-
contract customer support is established with the stated future renewal rates
included in the contracts. Chordiant recognizes revenue for the license portion
of a multiple element arrangement based upon the residual contract value as
prescribed by Statement of Position No. 98-9, "Modification of SoP No. 97-2
with Respect to Certain Transactions."

    Revenues from reseller arrangements are recognized when reported by the
reseller upon re-licensing of Chordiant's software to end users. Chordiant's
agreements with its customers and resellers do not contain product return
rights.

    Other service revenues from consulting and training services are recognized
as such services are performed. Service revenues from post-contract customer
support are recognized ratably over the support period, generally one year.

                                      F-8
<PAGE>

                            CHORDIANT SOFTWARE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
            (amounts in thousands, except share and per share data)

    In future periods, Chordiant expects to derive revenues from contracts that
provide for implementation services at a fixed hourly rate. On other contracts
Chordiant expects to derive revenues from the licensing of the installed
product on a per transaction basis. In connection with such arrangements,
Chordiant will recognize the fair value of the implementation services as such
services are delivered and will recognize license fees on a monthly basis at
the contractual rate.

    Chordiant bills customers in accordance with contract terms. Amounts billed
to customers in excess of revenues recognized are recorded as deferred
revenues.

 Concentrations of Credit Risk

    Financial instruments that potentially subject Chordiant to concentrations
of credit risk consist of cash, cash equivalents, short-term investments and
accounts receivable. To date, Chordiant has invested excess funds in money
market accounts, commercial paper, municipal bonds and term notes. Chordiant
deposits cash, cash equivalents and short-term investments with financial
institutions that management believes are credit worthy. Chordiant's accounts
receivable are derived from revenues earned from customers located in the
United States, United Kingdom, Canada, Netherlands and Africa. Chordiant
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. Chordiant maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of all accounts receivable.

    The following table summarizes the revenues from customers, all of which
were third parties, in excess of 10% of total net revenues:

<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% of
accounts receivable, net. At December 31, 1999, companies B and C accounted for
24% and 8% of accounts receivable, net.

 Research and development

    Research and development costs are expensed as incurred in accordance with
Statement of Financial Accounting Standards No. 2, "Accounting for Research and
Development Costs."

 Software development costs

    Costs incurred in the research and development of new products and
enhancements to existing products are charged to expense as incurred until the
technological feasibility of the product or enhancement has been established
through the development of a working model. After establishing technological
feasibility, additional development costs incurred through the date the product
is available for general release would be capitalized and amortized over the
estimated product life. No costs have been capitalized to date, as the effect
on the financial statements for all periods presented is immaterial.

                                      F-9
<PAGE>

                            CHORDIANT SOFTWARE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
            (amounts in thousands, except share and per share data)


 Advertising costs

    Advertising costs are expensed as incurred in accordance with Statement of
Position No. 93-7, "Reporting on Advertising Costs." Advertising costs for the
years ended December 31, 1997, 1998 and 1999 totaled $1,316, $1,955 and $1,340.

 Stock-based costs and expenses

    Chordiant accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Under APB 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of Chordiant's stock and the amount an employee
must pay to acquire the stock.

 Foreign currency translation

    The functional currency of Chordiant's sales office located in the United
Kingdom is its local currency. Foreign currency assets and liabilities are
translated at the current exchange rates at each balance sheet date. Revenues
and expenses are translated at weighted average exchange rates in effect during
the year. Gains and losses resulting from foreign currency translation have not
been material to the financial statements of any period presented. To the
extent these gains or losses are recognized in future periods, such amounts
will be recorded directly into a separate component of stockholders' deficit.
Foreign currency transaction gains and losses are included in the determination
of net income or loss. During the years ended December 31, 1997, 1998 and 1999,
net foreign currency transaction gains or losses were immaterial.

 Income taxes

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

 Recapitalization

    In November 1999, Chordiant's board of directors approved the filing of a
registration statement for an underwritten public offering of Chordiant's
common stock whereupon the authorized number of shares of common stock will be
increased to 300,000,000 and the authorized number of shares of undesignated
convertible preferred stock will be increased to 51,000,000. All share
information included in these consolidated financial statements have been
retroactively adjusted to reflect this recapitalization.

 Reverse Stock Split

    In November 1999, Chordiant's Board of Directors approved a 1-for-2 reverse
stock split of Chordiant's outstanding shares. The reverse stock split is
expected to become effective before the effective date of the initial public
offering. All share and per share information included in these consolidated
financial statements have been retroactively adjusted to reflect this reverse
stock split.

                                      F-10
<PAGE>

                           CHORDIANT SOFTWARE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
            (amounts in thousands, except share and per share data)


 Net loss per share

    Basic net loss per share is computed by dividing the net loss for the
period by the weighted average shares of common stock outstanding during the
period. Diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of common and potential common
shares outstanding during the period. Potential common shares consist of the
incremental number of common shares issuable upon conversion of mandatorily
redeemable convertible preferred stock (using the if-converted method), common
shares issuable upon the exercise of stock options (using the treasury stock
method), common shares issuable upon the assumed conversion of convertible
debt (using the if-converted method) and common shares subject to repurchase
by Chordiant. The calculation of diluted net loss per share excludes potential
common shares if their effect is anti-dilutive.

    The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated:

<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 Chordiant's mandatorily redeemable
convertible preferred stock and the conversion of convertible debt that the
holders have committed to converting, into shares of Chordiant's common stock
effective upon the closing of an initial public offering, as if such
conversions occurred on January 1, 1999, or at the date of original issuance,
if later. The resulting unaudited pro forma adjustment includes an increase in
the weighted average shares used to compute basic and diluted net loss per
share of 19,478,390 for the year ended December 31, 1999. The calculation of
pro forma diluted net loss per share excludes other potential common shares as
the effect is anti-dilutive. Pro forma potential common shares are comprised
of common stock subject to repurchase and incremental common stock issuable
upon the exercise of stock options.

                                     F-11
<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 Chordiant's initial public offering, the
outstanding shares of mandatorily redeemable convertible preferred stock and
the outstanding convertible debt will convert into 22,412,194 and 2,000,000
shares of common stock. Also effective upon the closing of this offering,
Chordiant will be authorized to issue 300,000,000 shares of common stock and
51,000,000 shares of undesignated convertible preferred stock. The pro forma
effects of these transactions are unaudited and have been reflected in the
accompanying pro forma Liabilities and Stockholders' Equity as of December 31,
1999.

 Segment information

    Effective January 1, 1998, Chordiant adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way companies report information about operating segments in financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. In accordance with
the provisions of SFAS No. 131, Chordiant has determined that it operates in a
single operating segment.

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

<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, Chordiant adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS
130 establishes standards for reporting comprehensive income and its components
in financial statements. Comprehensive income includes all changes in equity
during a period from nonowner sources. To date, Chordiant has not had any
material transactions that are required to be reported in comprehensive income
other than its net loss.

                                      F-12
<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 issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including derivative instruments in other
contracts (collectively referred to as derivatives), and for hedging
activities. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivatives Instruments and Hedging Activities--Deferral of Effective Date of
FASB Statement No. 133." SFAS No. 133, as amended by SFAS No. 137, is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000, with
earlier application encouraged. Chordiant does not currently, nor does it
intend in the future, to use derivative instruments and therefore does not
expect that the adoption of SFAS No. 133 will have any impact on its financial
position or results of operations.

NOTE 3--BALANCE SHEET COMPONENTS:

<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, Chordiant and Visa International Services Association entered
into an agreement to jointly perform research and development for a call center
software application. In December 1996, Chordiant received notice from Visa
terminating the agreement. At December 31, 1996, Chordiant had recorded the
total advances received under the agreement of $2,500 as deferred revenue. On
May 29, 1997, Visa and Chordiant completed mediation surrounding the
termination of the agreement and Chordiant agreed to refund Visa $1,700 of the
advances received. The remaining advances totaling $800 were recognized as
service revenue from third parties during the year ended December 31, 1997.

                                      F-13
<PAGE>

                            CHORDIANT SOFTWARE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
            (amounts in thousands, except share and per share data)


NOTE 5--RELATED PARTY TRANSACTIONS:

    Chordiant has entered into agreements with some holders of Chordiant's
mandatorily redeemable convertible preferred stock. These agreements consist
primarily of product licenses and related services. Revenues and related costs
of revenues together with deferred revenues, accounts receivable, accounts
payable and prepaid licenses from these related parties are separately
disclosed in the consolidated statements of operations and cash flows and in
the consolidated balance sheet.

NOTE 6--BORROWINGS:

 Bank credit facility

    At December 31, 1999, Chordiant maintained a credit facility with a bank
consisting of three equipment loans in the aggregate amount of $2,351. As of
December 31, 1999, Chordiant had borrowed $910 under these loans. The loans
accrue interest at the bank's prime rate plus 0.25% (8.5% at December 31,
1999). The loans mature in June 2000, March 2000 and December 2000. The loans
are secured by the assets of Chordiant and include the following material
financial covenants, a minimum quick ratio of 1.25 to 1.00, a minimum liquidity
ratio of 1.50 to 1.00 and a minimum capital base of $4,000,000 through December
31, 1999 and $7,000,000 thereafter. At December 31, 1999, Chordiant was in
compliance with these covenants.

    In January 1999, Chordiant renegotiated its credit facility and entered
into an accounts receivable line of credit arrangement for borrowings of up to
$4,000 and an equipment loan in the amount of $1,000. Chordiant's borrowings
under the accounts receivable line of credit are limited to 80% of eligible
accounts receivable, accrue interest at the bank's prime rate and mature in
January 2000. The borrowings under the equipment loan accrue interest at the
bank's prime rate plus 0.25%, 8.5% at December 31, 1999, and mature in January
2002. As of December 31, 1999, Chordiant had borrowed $2,376 against the lines
of credit of which $1,485 is payable on demand.

 Convertible debt

    In April 1999, Chordiant raised $10,000 through a convertible debt
financing arrangement. The convertible debt bears interest at a rate of 9% per
annum and is payable in April 2004. The holders have the right to accelerate
Chordiant's obligation to repay the convertible debt upon a change in control,
initial public offering of at least $20,000 at a price not less than $10.00 per
share, or a significant transaction, as defined. The convertible debt also
provides the holders the right to convert the debt instrument into 2,000,000
shares of Chordiant's series D mandatorily redeemable convertible preferred
stock at a conversion rate of $5.00 per share.

    The aggregate future payments under the bank credit facilities and
convertible debt financing arrangement are as follows:

<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 Chordiant 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>

    Chordiant provides a valuation allowance for deferred tax assets when it
is more likely than not that some portion or all of the net deferred tax
assets will not be realized. Based on a number of factors, including the lack
of a history of profits and that the market in which Chordiant competes is
intensely competitive and characterized by rapidly changing technology,
management believes that there is sufficient uncertainty regarding the
realization of deferred tax assets that a full valuation allowance has been
provided.

    At December 31, 1998, Chordiant had approximately $25,664 and $12,983 of
net operating loss carryforwards for federal and state purposes. At December
31, 1999, Chordiant had approximately $47,989 and $23,702 of net operating
loss carryforwards for federal and state purposes. These carryforwards are
available to offset future taxable income and expire beginning in 2011 and
2001.

    Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be or limited in certain
circumstances. Events that may cause limitations in the utilization of net
operating losses include, a cumulative stock ownership change of more than 50%
over a three year period and other events. Chordiant has not yet determined
whether or not operating loss benefits are impaired or limited.

NOTE 8--COMMITMENTS AND CONTINGENCIES:

 Leases

    Chordiant leases its facilities and some equipment under noncancelable
operating leases that expire on various dates through 2004. Rent expense is
recognized ratably over the lease term. Future minimum lease payments as of
December 31, 1999, are as follows:

<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>

    Rent expense for the year ended December 31, 1997, 1998 and 1999 totaled
$559, $1,036 and $1,438.

                                     F-15
<PAGE>

                            CHORDIANT SOFTWARE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
            (amounts in thousands, except share and per share data)


 Legal proceedings

    Chordiant is not a party to any material legal proceedings. Chordiant may
be subject to 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 rights,
preferences and restrictions concerning dividends, conversion, liquidation,
voting and redemption as follows:

 Dividends

    The holders of Series A, B, C, D and E are entitled to receive
noncumulative, preferential dividends of $0.1316, $0.17, $0.256, $0.50 and
$0.38 per share per annum when and if declared by the board of directors.

 Conversion

    Each share of series A, B, C, D and E is convertible into one share of
common stock, subject to protection from dilution. For series A, B, and C such
conversion is automatic upon the completion of a public offering of common
stock for which the aggregate proceeds exceed $10 million and the per share
offering price equals or exceeds $4.00. For Series D and E such conversion is
automatic upon the completion of a public offering of common stock for which
the aggregate proceeds exceed $30 million and the per share offering price
equals or exceeds $10.00, when the holders of the majority of the outstanding
series A, B, C, D and E elect to convert such shares into common stock. A total
of 24,412,194 shares of common stock have been reserved for the conversion of
the preferred stock.

 Liquidation

    If any liquidation, dissolution or winding up of Chordiant occurs, series
A, B, C, D and E stockholders are entitled to a per share distribution in
preference to the holders of common stock equal to the original issue price per
share of $1.316, $1.70, $2.56, $5.00 and $3.80 plus any declared but unpaid
dividends. Upon liquidation, the series E stockholders are entitled to receive
their liquidation before and in preference to the holders of series A, B, C and
D. If funds are sufficient to make a complete distribution to the holders of
series A, B, C, D and E as described above, all remaining assets shall be
distributed among the holders of the common and preferred stock in proportion
to their stockholdings until the holders of the series A, B, C, D and E have
received a maximum distribution of $3.40, $3.40, $3.40, $6.64 and $6.64.

                                      F-16
<PAGE>

                            CHORDIANT SOFTWARE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
            (amounts in thousands, except share and per share data)

 Voting

    The holders of series A, B, C, D and E have the right to one vote for each
share of common stock into which the series A, B, C, D and E could be
converted. The holders of series A, B, C, D and E have full voting rights and
powers equal to the voting rights and powers of the holders of common stock.
The consent of more than fifty percent of the holders of series A, B, C, D and
E shares, voting together as a single class, is required for Chordiant to
perform the following:

  . redeem or acquire any shares of series A, B, C, D or E except as
    discussed below;

  . in any twelve month period, repurchase shares of common stock having a
    value in excess of $25 excluding Chordiant's right to repurchase shares
    held by employees, and directors upon termination of employment;

  . create any new class of securities convertible into equity securities of
    Chordiant having preference over the series A, B, C, D and E shares;

  . pay or set aside payment of any dividend or distribution on any share of
    common stock;

  . effect any transaction or series of related transactions in which more
    than fifty percent of the voting power of Chordiant is disposed of;

  . increase or decrease the authorized amount of preferred stock;

  . cause the sale of shares of any additional stock by a subsidiary of
    Chordiant; and

  . consent to any liquidation, dissolution, or winding up of Chordiant.

    The holders of series A, B, C, D and E, voting as a separate class, are
entitled to elect one member to the board of directors. The holders of common
stock, voting as a separate class, are entitled to elect one member to the
board of directors. The holders of common and preferred stock, voting together
as a class on an as-if converted basis, shall be entitled to elect all
remaining members of the board of directors.

 Redemption

    On or after June 17, 2001 for Series A and B, on or after December 31, 2001
for Series C, on or after April 6, 2003 for Series D and on or after September
28, 2003, for Series E Chordiant is required, at the written request of holders
of not less than sixty percent of the then outstanding series A, B, C, D or E
preferred stock to redeem such holders' outstanding shares of series A, B, C, D
or E preferred stock for cash at the original issue price plus declared and
unpaid dividends in three annual installments beginning no earlier than one
full year following the date of the redemption request.

NOTE 10--COMMON STOCK:

    During 1997, 1998 and 1999, Chordiant repurchased 23,280, 30,395, and
25,575 shares of common stock at original issuance prices for a total
repurchase price of $5, $27, and $41. The shares were retired upon repurchase.

NOTE 11--STOCK OPTION PLAN:

    In November 1999, the 1999 equity incentive plan was adopted by the board
of directors and amends Chordiant's 1997 equity plan. The 1999 plan provides
for the grant to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986 and for grants to employees,
directors and consultants of nonstatutory stock options and stock purchase
rights. Unless terminated sooner, the 1999 plan will terminate automatically in
2009. A total of 9,712,500 shares of common stock have been reserved

                                      F-17
<PAGE>

                            CHORDIANT SOFTWARE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
            (amounts in thousands, except share and per share data)

for issuance under the 1999 plan. The amount reserved under the plan will
automatically increase at the end of each year by the greater of (1) 5% of
outstanding shares on that date and (2) the number of shares subject to stock
awards made under the 1999 plan during the prior twelve month period. However,
the automatic increase is subject to reduction by the board of directors. The
1999 plan is administered by the board of directors or a committee that this
board delegated this power and provides generally that the option price shall
not be less than the fair market value of the shares on the date of grant and
that no portion may be exercised beyond ten years from that date. Under the
1999 plan, stock options vest over a period that is limited to five years, but
are typically granted with a four year vesting period. Each option outstanding
under the 1999 plan may be exercised in whole or in part at any time. Exercised
but unvested shares are subject to repurchase by Chordiant at the initial
exercise price. At December 31, 1999, 161,384 shares were subject to
repurchase.

    During 1997, the Company implemented the bonus and salary conversion plan.
The bonus plan provides a means by which selected employees may elect to forego
cash bonuses in exchange for fully vested options to purchase shares of
Chordiant's common stock. During the years ended December 31, 1997, 1998 and
1999, 500,000, 189,108 and 0 options were granted under the bonus plan with
exercise prices ranging from $0.07 to $0.32 per share. The shares subject to
the bonus plan can not exceed 750,000.

    The following table summarizes option activity under Chordiant's stock-
based compensation plans:

<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, Chordiant recorded
unearned compensation expense of approximately $498, $1,500 and $11,274 related
to the issuance of stock options. These expenses are being amortized over a
period of four years from the date of issuance using the "multiple option"
approach prescribed by FASB Interpretation No. 28, "Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Reward Plans.
Amortization of unearned compensation expense related to these options of
approximately $498, $489, and $2,660, was included in operating expenses as
stock-based compensation in the years ended December 31, 1997 1998 and 1999.

    Had compensation cost for Chordiant's stock-based compensation awards been
determined based on the minimum value at the grant dates as prescribed by SFAS
No. 123, Chordiant's net loss would have been as follows:

<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
Chordiant becomes a public entity will include an expected volatility factor in
addition to the other factors described in the table above and because
additional option grants are expected to be made each year, the above pro forma
disclosures are not representative of the pro forma effects of option grants on
reported results for future years.

NOTE 12--EMPLOYEE BENEFIT PLANS:

 401(k) Savings Plan

    Chordiant sponsors a 401(k) Savings Plan. Under the 401(k) plan, employees
may elect to contribute up to 15% of their pre-tax compensation. Chordiant's
contributions to the 401(k) plan totaled $66, $99, and $155 for the years ended
December 31, 1997, 1998 and 1999.

 Defined Contribution Plan

    Chordiant also sponsors a defined contribution pension plan for the
employees of Chordiant's sales office in the United Kingdom. Under the pension
plan, each employee of the United Kingdom sales office may elect to contribute
5% of their pre-tax compensation. Chordiant's contributions to the pension plan
totaled $0, $62, and $123 for the years ended December 31, 1997, 1998, and
1999.

                                      F-19
<PAGE>

                            CHORDIANT SOFTWARE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
            (amounts in thousands, except share and per share data)


 1999 Employee Stock Purchase Plan

    In November 1999, the 1999 employee stock purchase plan was adopted by the
board of directors and will be submitted to the stockholders for their approval
before the date of Chordiant's initial public offering, to become effective on
the date of the initial public offering. The purchase plan permits participants
to purchase common stock through payroll deductions. A total of 2,000,000
shares of common stock have been reserved for issuance under to the purchase
plan. The amount reserved under the plan will automatically increase at the end
of each year by the greater of (1) 2% outstanding shares on such date and (2)
the number of shares subject to stock awards made under the purchase plan
during the prior twelve month period. However, the automatic increase is
subject to reduction by the board of directors.

 1999 Non-Employees Director Option Plan

    In November 1999, the 1999 director option plan was adopted by the board of
directors and will be submitted to the stockholders for their approval before
the date of Chordiant's initial public offering, to become effective on the
date of the initial public offering. The director plan provides for the
automatic grant of a nonstatutory option to purchase 25,000 shares of common
stock to each new non-employee director who becomes a director after the date
of Chordiant's initial public offering on the date that such person becomes a
director. Each current and future non-employee director will automatically be
granted an additional nonstatutory option to purchase 7,500 shares on the day
after each of Chordiant's annual meetings of the stockholders. Each director
who is a member of a board committee will automatically be granted an
additional nonstatutory option to purchase 5,000 shares on the day after each
of Chordiant's annual meetings of the stockholders. A total of 700,000 shares
of common stock have been reserved for issuance under the director plan. The
amount reserved under the plan will automatically increase each year by the
greater of (1) 0.5% outstanding shares on such date and (2) the number of
shares subject to stock awards made under the director plan during the prior
twelve month period. However, the automatic increase is subject to reduction by
the board of directors.

NOTE 13--LICENSE AGREEMENT:

    During 1996, Chordiant entered into a value-added reseller license and
services agreement with Forte Software, Inc. Under this agreement, Chordiant
may acquire full-use product licenses for assignment to one or more third-party
end-users and pay Forte Software, Inc. the license fees due upon delivery of
the product licenses. The amounts payable to Forte Software, Inc. total 75% of
the license fees charged to the end-user by Chordiant and are recognized as a
cost of net revenues.

    During 1997, following the re-negotiation of a product license agreement
with a third-party end-user, Forte Software, Inc. forgave some amounts due from
Chordiant under the value-added reseller license and services agreement.
Chordiant recognized $333 in other income during 1997.

NOTE 14--SUBSEQUENT EVENTS:

 Stock Option Grants

    From January 1, 2000 through February 7, 2000, Chordiant granted stock
options to purchase an aggregate of 285,500 shares of common stock at a
weighted average exercise price of $8.37 per share. In connection with the
grant of these stock options Chordiant recognized unearned compensation
totalling $179, which will be amortized over the four year vesting period of
the stock options.

                                      F-20
<PAGE>

                            CHORDIANT SOFTWARE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
            (amounts in thousands, except share and per share data)


 Stock Option Exercises

    From January 1, 2000 through February 7, 2000, Chordiant issued 1,432,465
shares of common stock in connection with employee stock option exercises. Cash
proceeds received by Chordiant from the exercises totaled $636. Additionally,
Chordiant received notes receivable from stockholders totaling $ 588 in
connection with such exercises.

                                      F-21
<PAGE>




                       [LOGO OF CHORDIANT SOFTWARE, INC.]
<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 FEBRUARY 7, 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. Two of
our stockholders, who are identified on page 67, have granted the underwriters
a 30-day option to purchase up to an additional 250,000 shares of our common
stock to cover over-allotments.

                                --------------

Robertson Stephens International
                 Dain Rauscher Wessels
                                                      Thomas Weisel Partners LLC

                  The date of this prospectus is        , 2000
<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. and BancBoston
     Robertson Stephens International Limited.................
   Dain Rauscher Incorporated.................................
   Thomas Weisel Partners LLC.................................
                                                                   ---------
     Total....................................................     4,500,000
                                                                   =========
</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.

    Over-allotment Options. We have granted to the underwriters an option date
of to purchase up to 425,000 additional shares of common stock at the initial
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 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 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.

                                       69
<PAGE>

    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
        warrants and 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 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.


                                       70
<PAGE>

    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. Other
specified legal matters in connection with this offering will be passed upon
for the underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.

                                    EXPERTS

    The consolidated financial statements as of December 31, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999, included in
this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.

                                       71
<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. 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 to our stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability:

  .  for any breach of duty of loyalty to us or to our stockholders;

  .  for acts or omissions not in good faith or that involve intentional
     misconduct or a knowing violation of law;

  .  under Section 174 of the Delaware General Corporation Law; or

  .  for any transaction from which the director derived an improper
     personal benefit.

    Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers, and may indemnify our
other, officers and employees and agents, to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of parties that are being indemnified.

    We intend to enter into indemnification agreements with each of our
directors and officers. These agreements will require us to indemnify each
director and officer for expenses, including attorneys' fees, judgments, fines
and settlement amounts, incurred by any of these persons in any action or
proceeding arising out of that person's services as our director or officer,
any subsidiary of ours or any other company or enterprise to which the person
provides services at our request.

    The underwriting agreement, Exhibit 1.1, will provide for indemnification
by the underwriters of Chordiant, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.

                                      II-1
<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 our common stock to employees,
consultants and directors under to our 1999 equity incentive plan. Of these
stock options, 1,731,702 shares have been canceled without being exercised,
816,829 shares have been exercised, 142,981 shares of which have been
repurchased and 7,824,162 shares remain outstanding.

  (2) In April 1991, we issued a total of 5,000,000 shares of common stock to
two purchasers at $0.044 per share, for a total purchase price of $220,000.

  (3) In June 1996, we issued a total of 6,838,905 shares of series A preferred
stock to five purchasers at $1.316 per share, for a total purchase price of
$9,000,000. Shares of series A preferred stock are convertible into shares of
common stock at the rate of one share of common stock for each share of series
A preferred stock owned.

  (5) In June 1997, we issued a total of 5,410,917 shares of series B preferred
stock to thirteen purchasers at $1.70 per share, for a total purchase price of
$9,198,564. Shares of series B preferred stock are convertible into shares of
common stock at the rate of one share of common stock for each share of series
B preferred stock owned.

  (6) In December 1997, we issued a total of 4,199,216 shares of series C
preferred stock to twelve purchasers at $2.56 per share, for a total purchase
price of $10,750,000. Shares of series C preferred stock are convertible into
shares of common stock at the rate of one share of common stock for each share
of series C preferred stock owned.

  (7) In April 1999, we issued $10,000,000 of convertible subordinated debt,
which is convertible into 2,000,000 shares of series D preferred stock at $5.00
per share, to three 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 a total of 5,963,155 shares of series E
preferred stock to thirteen purchasers at $3.80 per share, for a total purchase
price of $22,660,000. Shares of series E preferred stock are convertible into
shares of common stock at the rate of one share of common stock for each share
of series E preferred stock owned.

    The sales and issuances of securities described in paragraph (1) were
exempt from registration under the Securities Act by virtue of Rule 701 of the
Securities Act in that they were offered and sold either through a written
compensatory benefit plan or through a written contract relating to
compensation, as provided by Rule 701.

    The sales and issuances of securities described in paragraphs (2) or
through (8) were exempt from registration under the Securities Act by virtue of
Rule 4(2) or Regulation D of the Securities Act. With respect to the grant of
stock options described in paragraph (1), an exemption from registration was
unnecessary in that none of the transactions involved a "sale" of securities as
this term is used in Section 2(3) of the Securities Act.

    Appropriate legends are affixed to the stock certificates issued in the
transactions described in paragraphs (1) through (8). Similar legends were
imposed in connection with any subsequent sales of any of these securities. All
recipients either received adequate information about Chordiant or had access,
through employment or other relationships, to such information.

                                      II-2
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Document
 -------                         -----------------------
 <C>     <S>
  1.1    Form of Underwriting Agreement.(1)

  3.1    Amended and Restated Certificate of Incorporation of the Registrant to
         be effective following the closing of this offering.(1)

  3.2    Amended and Restated Bylaws of the Registrant.(1)
  3.3    Amended and Restated Certificate of Incorporation of the
         Registrant.(1)

  3.4    Amendment to Certificate of Incorporation of the Registrant.

  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.(1)

 10.5    Cupertino City Center Net Office Lease by and between Cupertino City
         Center Buildings, as Lessor, and the Registrant, as Lessee, dated June
         11, 1998.(1)

 10.6(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.(1)

 10.9    Severance Agreement of Carol Realini, dated December 9, 1998.(1)

 10.10   Severance Agreement of John Palmer, dated August 23, 1999.(1)

 10.11   Form of Promissory Note executed by each of Samuel T. Spadafora,
         Steven R. Springsteel, Donald J. Morrison and Steven Sherman in favor
         of the Registrant.(1)

 10.12   Form of Stock Pledge Agreement between the Registrant and each of
         Samuel T. Spadafora, Steven R. Springsteel, Donald J. Morrison and
         Steven Sherman.(1)

 21.1    Subsidiaries of the Registrant.(1)

 23.1    Consent of PricewaterhouseCoopers LLP.

 23.2    Consent of Cooley Godward LLP (included in Exhibit 5.1).

 24.1    Power of Attorney (included in signature page).(1)

 27.1    Financial Data Schedule.(1)
</TABLE>
- --------
(1) Filed previously.

(2)  Confidential treatment requested as to certain portions of this exhibit.
     Omitted portions have been filed separately with the Securities and
     Exchange Commission.

ITEM 17. UNDERTAKINGS

    The undersigned Registrant hereby undertakes:

      (1) That for purposes of determining any liability under the
  Securities Act, the information omitted from the form of this prospectus
  filed as part of this Registration Statement in reliance upon

                                      II-3
<PAGE>

  Rule 430A and contained in a form of prospectus filed by the Registrant
  pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
  be deemed to be part of this Registration Statement as of the time it was
  declared effective.

      (2) That for purposes of determining any liability under the
  Securities Act, each post-effective amendment that contains a form of
  prospectus shall be deemed to be a new registration statement relating to
  the securities offered therein, and the offering of the securities at that
  time shall be deemed to be the initial bona fide offering thereof.

      (3) Insofar as indemnification for liabilities arising under the
  Securities Act may be permitted to directors, officers and controlling
  persons of the Registrant pursuant to the provisions referenced in Item 14
  of this Registration Statement or otherwise, the Registrant has been
  advised that in the opinion of the Securities and Exchange Commission this
  indemnification is against public policy as expressed in the Securities
  Act and is, therefore, unenforceable. In the event that a claim for
  indemnification against these liabilities (other than the payment by the
  Registrant of expenses incurred or paid by a director, officer, or
  controlling person of the Registrant in the successful defense of any
  action, suit or proceeding) is asserted by a director, officer, or
  controlling person in connection with the securities being registered, the
  Registrant will, unless in the opinion of its counsel the matter has been
  settled by controlling precedent, submit to a court of appropriate
  jurisdiction the question of whether the indemnification by it is against
  public policy as expressed in the Securities Act of 1933, and will be
  governed by the final adjudication of this issue.

      (4) To provide to the Underwriters at the closing specified in the
  Underwriting Agreement certificates in the denomination and registered in
  the names required by the Underwriters to permit prompt delivery to each
  purchaser.

                                      II-4
<PAGE>

                                   SIGNATURES

    Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cupertino, State of California, on February 7, 2000.

                                          CHORDIANT SOFTWARE, INC.

                                          By:  /s/ Steven R. Springsteel
                                             ----------------------------------
                                               Steven R. Springsteel
                                              Chief Financial Officer

    KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Samuel T. Spadafora and Steven R.
Springsteel, and each of them, his or her true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him
or her and in his or her name, place and stead, in any and all capacities, to
(i) act on, sign and file with the Securities and Exchange Commission any and
all amendments (including post-effective amendments) to this registration
statement together with all schedules and exhibits thereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, together with all schedules and exhibits thereto, (ii) act
on, sign and file such certificates, instruments, agreements and other
documents as may be necessary or appropriate in connection therewith, (iii) act
on and file any supplement to any prospectus included in this registration
statement or any such amendment or any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended and (iv)
take any and all actions which may be necessary or appropriate to be done, as
fully for all intents and purposes as he or she might or could do in person,
hereby approving, ratifying and confirming all that such agent, proxy and
attorney-in-fact or any of his substitutes may lawfully do or cause to be done
by virtue thereof.

    In accordance with the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following
persons in the capacities and on these dates stated:

<TABLE>
<CAPTION>
             Signature                           Title                    Date
             ---------                           -----                    ----

<S>                                  <C>                           <C>
                 *                   President, Chief Executive     February 7, 2000
____________________________________ Officer (Principal Executive
        Samuel T. Spadafora          Officer) and Chairman

    /s/ Steven R. Springsteel        Executive Vice President and   February 7, 2000
____________________________________ Chief Financial Officer
       Steven R. Springsteel         (Principal Financial and
                                     Accounting Officer),
                                     Secretary

                 *                   Chief Technical Officer and    February 7, 2000
____________________________________ Director
        Joseph F. Tumminaro

                 *                   Director                       February 7, 2000
____________________________________
          Oliver D. Curme
                 *                   Director                       February 7, 2000
____________________________________
          Kathryn C. Gould

                 *                   Director                       February 7, 2000
____________________________________
         Mitchell Kertzman
                 *                   Director                       February 7, 2000
____________________________________
         Robert S. McKinney
</TABLE>

                                      II-5
<PAGE>

<TABLE>
<CAPTION>
             Signature                           Title                    Date
             ---------                           -----                    ----

<S>                                  <C>                           <C>
                 *                   Director                       February 7, 2000
____________________________________
          William Raduchel

                 *                   Director                       February 7, 2000
____________________________________
          Carol L. Realini
                 *                   Director                       February 7, 2000
____________________________________
         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.(1)

  3.1    Amended and Restated Certificate of Incorporation of the Registrant to
         be effective following the closing of this offering.(1)

  3.2    Amended and Restated Bylaws of the Registrant.(1)

  3.3    Amended and Restated Certificate of Incorporation of the
         Registrant.(1)

  3.4    Amendment to Certificate of Incorporation of the Registrant.

  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.(1)

 10.5    Cupertino City Center Net Office Lease by and between Cupertino City
         Center Buildings, as Lessor, and the Registrant, as Lessee, dated June
         11, 1998.(1)

 10.6(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.(1)

 10.9    Severance Agreement of Carol Realini, dated December 9, 1998.(1)

 10.10   Severance Agreement of John Palmer, dated August 23, 1999.(1)

 10.11   Form or Promissory Note executed by each of Samuel T. Spadafora,
         Steven R. Springsteel, Donald J. Morrison and Steven Sherman executed
         in favor of the Registrant.(1)

 10.12   Form of Stock Pledge Agreement between the Registrant and each of
         Samuel T. Spadafora, Steven R. Springsteel, Donald J. Morrison and
         Steven Sherman.(1)

 21.1    Subsidiaries of the Registrant.(1)

 23.1    Consent of PricewaterhouseCoopers LLP.

 23.2    Consent of Cooley Godward LLP (included in Exhibit 5.1).

 24.1    Power of Attorney (included in signature page).(1)

 27.1    Financial Data Schedule.(1)
</TABLE>
- --------
(1) Filed previously.

(2)  Confidential treatment requested as to certain portions of this exhibit.
     Omitted portions have been filed separately with the Securities and
     Exchange Commission.

<PAGE>

                                                                     EXHIBIT 3.4

                           CERTIFICATE OF AMENDMENT
                                    OF THE
                             AMENDED AND RESTATED
                         CERTIFICATE OF INCORPORATION
                                      OF
                           CHORDIANT SOFTWARE, INC.

     CHORDIANT SOFTWARE, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the state of Delaware, does hereby
certify:

     FIRST: The name of the corporation is Chordiant Software, Inc. The
corporation was originally incorporated under the name Chordiant Acquisition
Corporation.

     SECOND: The Board of Directors of the corporation, acting in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware, adopted resolutions to amend the Amended and Restated Certificate
of Incorporation of the corporation by: (i) deleting the first paragraph of
Article IV and substituting therefor a new first paragraph of Article IV in the
following form

          "This corporation is authorized to issue two classes of stock to be
     designated, respectively, "Preferred Stock" and "Common Stock". The total
     number of shares which the Corporation is authorized to issue is three
     hundred fifty one million (351,000,000). Three hundred million
     (300,000,000) shares shall be Common Stock (the "Common Stock"), and fifty
     one million (51,000,000) shall be Preferred Stock (the "Preferred Stock").
     The Common Stock shall have a par value of one-tenth of one cent ($0.001)
     per share and the Preferred Stock shall have a par value of one-tenth of
     one cent ($0.001) per share. Upon the filing of this Certificate of
     Amendment, each outstanding share of Common Stock shall be combined into
     0.5 shares of Common Stock (the "Stock Combination"). No fractional shares
     of Common Stock shall be issued in connection with the Stock Combination,
     and no certificates for any such fractional shares shall be issued. In lieu
     of such fractional shares, any holder of Company Common Stock who would
     otherwise be entitled to receive a fraction of a share of Common Stock
     (after aggregating all fractional shares of Common Stock issuable to such
     holder) shall, upon surrender of such holder's Stock Combination(s), be
     paid in cash the dollar amount (rounded to the nearest whole cent), without
     interest, determined by multiplying such fraction by the fair market value,
     as determined by the Board of Directors, of a share of Common Stock on the
     date of the filing of this Certificate of Amendment."

          and (ii) deleting the first paragraph of Section D.2.a. of Article IV
  and substituting therefor the following:

          "Right to Convert; Initial Conversion Price.

                    a.   Each holder of Series Preferred may, at any time,
convert any or all of such Series Preferred shares into fully-paid and
nonassessable shares of Common Stock at the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price or the Series E Conversion Price, as applicable. Each share of
Series
<PAGE>

A Preferred shall be convertible into the number of shares of Common Stock that
results from dividing the Series A Conversion Price in effect at the time of
conversion for Series A Preferred into $0.658 for each share of Series A
Preferred being converted; the initial Series A Conversion Price shall be $1.316
per share of Common Stock. The Series A Conversion Price shall be subject to
adjustment from time to time in certain instances as hereinafter provided. Each
share of Series B Preferred shall be convertible into the number of shares of
Common Stock that results from dividing the Series B Conversion Price in effect
at the time of conversion for Series B Preferred into $0.85 for each share of
Series B Preferred being converted; the initial Series B Conversion Price shall
be $1.70 per share of Common Stock. The Series B Conversion Price shall be
subject to adjustment from time to time in certain instances as hereinafter
provided. Each share of Series C Preferred shall be convertible into the number
of shares of Common Stock that results from dividing the Series C Conversion
Price in effect at the time of conversion for Series C Preferred into $1.28 for
each share of Series C Preferred being converted; the initial Series C
Conversion Price shall be $2.56 per share of Common Stock. The Series C
Conversion Price shall be subject to adjustment from time to time in certain
instances as hereinafter provided. Each share of Series D Preferred shall be
convertible into the number of shares of Common Stock that results from dividing
the Series D Conversion Price in effect at the time of conversion for Series D
Preferred into $2.50 for each share of Series D Preferred being converted; the
initial Series D Conversion Price shall be $5.00 per share of Common Stock. The
Series D Conversion Price shall be subject to adjustment from time to time in
certain instances as hereinafter provided. Each share of Series E Preferred
shall be convertible into the number of shares of Common Stock that results from
dividing the Series E Conversion Price in effect at the time of conversion for
Series E Preferred into $1.90 for each share of Series E Preferred being
converted; the initial Series E Conversion Price shall be $3.80 per share of
Common Stock. The Series E Conversion Price shall be subject to adjustment from
time to time in certain instances as hereinafter provided. No adjustments with
respect to conversion shall be made on account of any dividends that may be
declared but unpaid on the Series Preferred surrendered for conversion, but no
dividends shall thereafter be paid on the Common Stock unless such unpaid
dividends have first been paid to the Series Preferred holders entitled to
payment at the time of conversion of the Series Preferred. The foregoing
paragraph reflects adjustments to the conversion ratios of each series of
Preferred Stock as a result of the Stock Combination and no further adjustment
shall be made as a result of such event."

     FIFTH: Thereafter, pursuant to a resolution of the Board of Directors, this
Certificate of Amendment was submitted to the stockholders of the corporation
for their approval and was duly adopted in accordance with the provision of
Section 242 of the General Corporation Law of the State of Delaware.

     IN WITNESS WHEREOF, Chordiant Software, Inc. has caused this Certificate of
Amendment to be signed by its Chairman and Chief Executive Officer and attested
to by its Secretary this 3rd day of February, 2000.

                                      2.

<PAGE>

                                         CHORDIANT SOFTWARE, INC.

                                         /s/ SAMUEL T. SPADAFORA
                                         ____________________________________
                                         Samuel T. Spadafora
                                         Chairman and Chief Executive Officer

ATTEST:

/s/ STEVEN R. SPRINGSTEEL
_______________________________
Steven R. Springsteel
Secretary

<PAGE>

                                                                     EXHIBIT 4.2

CSI

THIS CERTIFICATE IS TRANSFERABLE IN
BOSTON, MA OR NEW YORK, NY

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

CUSIP 170404 10 7
SEE REVERSE FOR
CERTAIN ABBREVIATIONS



THIS CERTIFIES THAT

is the record holder of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $0.001 PAR VALUE PER
SHARE, OF

CHORDIANT SOFTWARE, INC.

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate, properly
endorsed.

          This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar. WITNESS the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers. Dated:

CORPORATE SECRETARY

PRESIDENT AND CHIEF EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE



                                     page 1
<PAGE>

The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM
TEN ENT
JT TEN

 . as tenants in common
 . as tenants by the entireties
 . as joint tenants with right of
   survivorship and not as tenants
   in common

UNIF GIFT MIN ACTD                      Custodian
                          (Minor)                       (Cust)
                                        under Uniform Gifts to Minors
                                                      Act
          (State)
Additional abbreviations may also be used though not in the above list.

        FOR VALUE RECEIVED,
               hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE



(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)


Shares


of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises. Dated

NOTICE:

                                    Page 1
<PAGE>

THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.


Signature(s) Guaranteed:

THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.

                                    Page 2

<PAGE>

                                                                     EXHIBIT 5.1

                                                   [COOLEY GODWARD LETTERHEAD]


February 7, 2000


Chordiant Software, Inc.
20400 Stevens Creek Boulevard, Suite 400
Cupertino, CA 95014

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection
with the filing by Chordiant Software, Inc. (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") covering an underwritten public offering
of up to four million nine hundred twenty-five thousand (4,925,000) shares of
Common Stock to be sold by the Company (the "Common Stock").

In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Articles of Incorporation and Bylaws, as currently in effect, and the
originals or copies certified to our satisfaction of such records, documents,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below; and (ii)
assumed that the shares of Common Stock will be sold by the Underwriters at a
price established by the Pricing Committee of the Board of Directors of the
Company.

On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and non-
assessable.

We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included on the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.

Very truly yours,

Cooley Godward LLP


By:  /s/ Eric C. Jensen
    ---------------------------
    Eric C. Jensen

<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, except for Note 14 which is as of
February 7, 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

February 7, 2000


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