-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IIn8Mnpu2B7bRb1EYH/zSCquPVarkJZNrEypb75BCdU3vMAvgPOYMahFXZCUyZ0H X+O/6ZayIJUCs233n3LF1Q== 0001042134-07-000009.txt : 20070209 0001042134-07-000009.hdr.sgml : 20070209 20070209171731 ACCESSION NUMBER: 0001042134-07-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20070209 DATE AS OF CHANGE: 20070209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHORDIANT SOFTWARE INC CENTRAL INDEX KEY: 0001042134 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 931051328 STATE OF INCORPORATION: DE FISCAL YEAR END: 0906 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-29357 FILM NUMBER: 07599043 BUSINESS ADDRESS: STREET 1: 20400 STEVENS CREEK BLVD STREET 2: SUITE 400 CITY: CUPERTINO STATE: CA ZIP: 95014 BUSINESS PHONE: 4085176100 MAIL ADDRESS: STREET 1: 20400 STEVENS CREEK BLVD STREET 2: SUITE 400 CITY: CUPERTINO STATE: CA ZIP: 95014 10-K 1 d10k.htm FORM 10K Form 10K
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
 
FORM 10-K
 
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
   For the fiscal year ended September 30, 2006
OR
 ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 
   For the transition period from                      to                      
 
Commission File Number: 000-29357
 
 
 
CHORDIANT SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
 
   
Delaware
93-1051328
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
identification No.)
 
20400 Stevens Creek Blvd., Suite 400
Cupertino, California 95014
(Address of principal executive offices, including zip code)
 
(408) 517-6100
(Registrant’s telephone number, including area code)
 
 
 
Securities Registered Pursuant to Section 12(b) of the Act: None
 
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock $.001 Par Value per Share
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  ¨ 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Transition Report on Form 10-K or any amendment to this Form 10-K.    ¨ 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ¨
Accelerated filer  x
Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x 
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of March 31, 2006, the last business day of the registrant’s most recently completed second fiscal quarter: $252,691,824.
 
As of January 31, 2007, there were 79,842,253 shares of the registrant’s common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 None.



Restatements of Consolidated Financial Statements

Restatement relating to stock-based compensation 

In this Form 10-K, Chordiant Software, Inc. (“Chordiant”, “the Company” or “we”) is restating its consolidated balance sheet as of September 30, 2005, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the fiscal periods ended September 30, 2005 and September 30, 2004, and each of the quarters in fiscal year 2005 and the first two quarters in fiscal year 2006. We are also restating the pro forma disclosures for stock-based compensation expense required under Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation,” (SFAS 123) included in Note 13 to our Consolidated Financial Statements. This Form 10-K also reflects the restatement of Selected Consolidated Financial Data for the fiscal year ended September 30, 2005, the nine month period ended September 30, 2004, and the fiscal years ended December 31, 2003 and December 31, 2002 in Item 6 of this Form 10-K.

Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q affected by the restatements have not been amended and should not be relied on.

Our decision to restate our consolidated financial statements was based on facts obtained by management and the results of an independent review into our stock option accounting that was conducted by the Audit Committee of the Board of Directors.

In July 2006, the Company’s Board of Directors initiated a review of the Company’s historical stock option grant practices and appointed the Audit Committee to oversee the investigation. The Audit Committee’s review focused on processes used to establish the option exercise prices and to obtain required approvals of stock option grants and the related measurement dates used for financial reporting purposes. The Audit Committee and its legal advisors reviewed the Company’s historical stock option grants and related accounting including an assessment and review of the Company’s accounting policies, internal records, supporting documentation and email communications, as well as interviews with current and former employees and current and former members of the Company’s executive management and Board of Directors.

The Audit Committee determined that, pursuant to the requirements of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), the correct measurement dates for a number of stock option grants made by Chordiant during the period 2000 to 2006 (“Review Period”) differ from the measurement dates previously used to account for such option grants. The Audit Committee identified errors related to the determination of the measurement dates for grants of options where the price of the Company’s stock on the selected grant date was lower than the price on the actual grant date which would permit recipients to exercise these options at a lower exercise price. Under these circumstances, the Company should have recorded deferred stock compensation expense, which subsequently should have been amortized as stock compensation expense over the vesting period of the stock options.

On November 26, 2006, the Board of Directors, upon the recommendation of the Audit Committee and management, after considering the quantitative and qualitative analysis prepared by management relating to these errors, concluded that the Company should restate certain of its historical financial statements. To correct the accounting errors, our Annual Report on Form 10-K for the year ended September 30, 2006 and our Quarterly Report on Form 10-Q for the three months ended June 30, 2006, includes restated consolidated and condensed consolidated financial statements and selected consolidated financial data for the years ended December 31, 2002 and 2003, the nine-month period ended September 30, 2004, the fiscal year ended September 30, 2005, and the quarters ended December 31, 2005 and March 31, 2006.

The Company also recorded adjustments related to payroll withholding tax for certain options formerly classified as incentive stock option (ISO) grants under Internal Revenue Service regulations. These options were determined to have been granted with an exercise price below the fair market value of our stock on the actual grant date and therefore do not qualify for ISO treatment. The disqualification of ISO classification and the resulting conversion to non-qualified status results in additional payroll withholding tax obligations on the exercise of these options.

There was no income tax benefit associated with the increase to the stock-based compensation expense as the Company has had a full valuation allowance for the deferred tax assets for the periods being restated.

To the extent stock options have been exercised, the Company has pursued and continues to pursue the recovery of the price difference between the original and revised measurement dates from certain former officers.

The Company is recording approximately $8.3 million of additional pre-tax, non-cash stock-based compensation expense and associated withholding taxes for the fiscal periods 2000 through 2006. The impact of recognizing stock-based compensation expense and associated withholding taxes resulting from the investigation of past stock option grants is as follows (dollars in thousands):



 
 
 
Fiscal Period
    
Additional Compensation
Expense
  
 
2000
 
$
474
  
 
2001
    
2,082
  
 
2002
    
2,715
  
 
2003
    
1,529
  
 
Adjustment to accumulated deficit as of December 31, 2003
    
6,800
  
           
 
2004
    
928
  
 
2005
    
325
  
 
2006 and thereafter
    
208
  
 
Total
  
$
8,261
  
           

For more information regarding the investigation and findings relating to stock option practices and the restatement, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Restatement of Consolidated Financial Statements,” and Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” in Item 8. For more information regarding the investigation and findings relating to stock option practices and the restatement and our remedial measures, see Item 9A, “Controls and Procedures.”

Previously Disclosed Restatement of Financial Statements Reported in our 2005 Form 10-K 

In the course of preparing the 2005 financial results for the year ended September 30, 2005, the Company and its independent registered public accounting firm, BDO Seidman, LLP, identified certain errors in the Company’s 2005 interim financial statements for the quarters ended December 31, 2004, March 31, 2005, and June 30, 2005. On December 6, 2005, management concluded that the Company should restate the Company’s interim financial statements for the quarters ended December 31, 2004, March 31, 2005, and June 30, 2005 due to such errors. On December 6, 2005, senior management of the Company met with the Audit Committee of the Board of Directors of the Company to discuss management’s conclusion. The Audit Committee concurred with management’s conclusion. These errors are more fully described in Note 19 to the Consolidated Financial Statements contained in the Annual Report on Form 10-K filed with the SEC on December 9, 2005.

Previously Disclosed Change in Year End and Prior Restatement of Financial Statements Reported in our 2004 Form 10-K
 
On December 29, 2004, the Board of Directors of Chordiant approved a change in Chordiant’s fiscal year end from December 31st to September 30th. In the course of preparing the 2004 financial results for the new fiscal year ended September 30, 2004, the Company identified certain errors relating to expense and revenue timing, the valuation of a guarantee, prepaid account balances, estimates used to compute stock offering costs, warrant valuations and stock based compensation in the interim financial statements for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004. Due to the aggregate number of errors identified in the previously issued interim financial statements and the relative percentages represented by those errors in the quarters, management concluded that the interim financial statements for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004 should be restated. The Audit Committee of the Board of Directors concurred with management’s conclusion. As a result, Chordiant filed a Transition Report on Form 10-K/T for the transition period from January 1, 2004 to September 30, 2004 to reflect the change in fiscal year and the related restatement for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004.

All financial information contained in this fiscal 2006 Annual Report on Form 10-K gives effect to these prior restatements.



 
ANNUAL REPORT ON FORM 10-K
 
INDEX

 
2
   
Item 1
5
Item 1A
14
Item 1B.
23
Item 2.
23
Item 3.
23
Item 4.
25
 
 
  
 
  
Item 5.
26
Item 6.
27
Item 7.
30
Item 7A.
61
Item 8.
62
Item 9.
111
Item 9A.
111
 
 
  
 
  
Item 10.
117
Item 11.
120
Item 12.
126
Item 13.
129
Item 14.
130
 
 
  
 
  
Item 15.
132
 
    
 
138





 
FORWARD-LOOKING INFORMATION
 
Except for the historical information contained herein, this Annual Report contains certain information that is forward-looking in nature. This information is based on our current expectations, assumptions, estimates and projections about our business and our industry, and involves known and unknown risks, uncertainties and other factors that may cause our or our industry’s results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in, or contemplated by the forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “should,” “estimate,” “predict,” “guidance,” “potential,” “continue” or the negative of such terms or other similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors more fully described under the caption “Risk Factors” and those discussed elsewhere in this document. These and many other factors could affect the future financial and operating results of Chordiant. Chordiant undertakes no obligation to update any forward-looking statement to reflect events after the date of this report.

ITEM 1. BUSINESS

Overview

Chordiant is an enterprise software company that delivers products that improve the customer front-office processes for the global banking, insurance, and telecommunications markets. Chordiant provides companies in these markets with innovative solutions that help them more effectively manage their customer interactions.

In the market we offer an enterprise system that utilizes predictive decisioning, analytical modeling, and strategy formulation in real-time for decision management and execution at the point of sale. This capability enables organizations to improve the accuracy of marketing offers for retention, up-selling, cross selling, and modeling risk scenarios such as customer churn and likelihood of default on payments.

We believe our solutions add business value and return-on-investment for our customers by reducing operational costs, and increasing employee productivity. These improvements are realized by automating key business processes and supporting organizational decision-making associated with the servicing, selling, marketing and fulfillment of customer requests across the enterprise. We offer solutions to our clients that include software applications, business processes, tools and services that will integrate their customer information and corporate systems to produce a real-time view of customers across multiple business channels. Our solutions offer businesses additional flexibility to create and set their policies and processes to control the quality of servicing, fulfillment and marketing to their customers.

On December 21, 2004, we acquired KiQ Limited, a privately held United Kingdom software company (“KiQ”), for an aggregate purchase price of approximately $20 million, which was comprised of $9.7 million in cash, $9.4 million in our common stock and approximately $0.9 million in associated transaction costs. Through this transaction, we acquired a decision management system that advances the state of analytics by exploiting the power of predictive data mining, analytical modeling, and strategy formulation into real-time decision management and execution. Products and patent-pending technology acquired by us in this transaction enable organizations to significantly increase the accuracy of marketing offers for retention, up-selling, cross selling, and to model risk scenarios such as customer churn and likelihood to default on payments. With the addition of KiQ’s products and patent-pending technology we are able to deliver a range of applications for real-time recommendation, retention, risk management and recruitment.

As a result of the transaction, Chordiant added new customers primarily in financial services and telecommunications industries. A total of 20 KiQ employees, including two founders and 15 engineering and technical staff, joined us as employees in December 2004.

Product Solutions

Our products are designed for global enterprises seeking to optimize their customer experiences through effective decision analysis, marketing, selling and servicing efforts. We have designed our products to integrate customer information from different data sources and systems of record, automate business processes based on a customer’s specific profile and requests, and provide uniform service and information to customers across multiple communication channels. Our products are designed to enable companies to deliver appropriate recommendations (also known as “next best action”), services, offers and information to a targeted customer at the time of customer need while complying with relevant business policy and industry regulatory requirements.


Our solutions are designed to address the enterprise requirements of global consumer companies serving millions of customers across multiple business channels integrating multiple lines of business. The solution suite is typically licensed as an integrated set of software products that include one or more vertical market applications running on top of a common layer of foundation technology and supporting tools. Chordiant’s software is based on open systems software standards that are widely adopted by our industry and capable of deployment throughout an enterprise’s information technology infrastructure. Chordiant software is built to be highly scalable and adaptable to a customer’s specific business requirements or technology infrastructure.

Products and Solutions

Our solutions are designed to address a variety of business needs within our three target vertical markets of banking, insurance, and telecommunications:

·  
Call Center and Customer Service Desktop (Call Center Advisor - Browser Edition): This product is a web browser-based guided desktop for the effective management of customer contacts, service requests, and customer case history in the call center channel. The desktop is integrated with leading computer telephony integration products, working with our own queue based work management to deliver ‘universal queues’ to the enterprise. This product is used by customer services professionals across all our target markets. It is designed to meet the high volume transaction and business processes common in enterprise contact centers. The desktop also acts as a delivery channel for our decision management and marketing products together with the other business applications that Chordiant sells.

·  
Marketing Director: We provide applications for driving unified, personalized marketing campaigns and response management across multiple media types and multiple channels including email, web, phone, and mobile messaging (MMS/SMS). These products are used by marketing professionals across all our target markets to segment and target prospects and customers and deliver to them effective marketing campaigns. The Marketing Director suite of products integrates with our Decision Management products to provide an integrated campaign management system.

·  
Recommendation Advisor: An application which provides flexible lead collection and routing in a common guided selling desktop, integrated with marketing campaigns and product fulfillment. Predictive and adaptive analytics guide staff toward best offers and “next best action” in the context of inbound or outbound customer interactions. This product is used by sales and service professionals across our target markets to manage leads and deliver highly effective sales messages.

·  
Credit Card Disputes, Charge-backs and Fraud: These modular applications are designed to automate and optimize customer and mid-office functions associated with credit card dispute handling and fraud investigation and recovery. The products use Chordiant technology to implement the dispute and chargeback regulatory requirements of credit card associations to assist organizations in managing their compliance of these complex regulations. This application is used by customer service professionals in the credit card segment of banking to drive more cost effective, compliant handling of disputes and fraud cases.

·  
Teller: A guided desktop product and supporting financial transaction components for retail bank tellers/cashiers or other cash-based desktop applications. This product is used in the banking and lending sectors by customer-facing staff in bank branches or stores to effectively process cash and related financial transactions on behalf of the customer. The solution utilizes the Chordiant Enterprise Platform (described below) in providing company-wide case management, customer history, and work management between front office and back office operations.

·  
Wholesale Lending Point of Sale (POS): A product which offers loan quoting and origination for indirect lending channels. This product is used in the lending and banking sectors by third party and captive brokers to effectively sell, process, and fulfill various lending products. It utilizes the Chordiant Enterprise Platform to provide the necessary scale, and it is designed to integrate with existing banking systems.

·  
Lending: Products which provide a common process-driven lending infrastructure and services across an organization to increase efficiency of loan originations, quoting, account opening and loan risk assessment and management such as required by Basel II. Our lending products are used in banking and lending by a variety of users and desktop applications.

·  
Insurance: Products which provide a common process-driven insurance infrastructure and services across an organization to increase efficiency of case management, claims processing, quoting, and risk management. Our insurance products are used in the insurance sector by a variety of users and desktop applications.

·  
Collections: This product is currently in development. This product is designed to deliver automation and operational efficiency to debt recovery and collections professionals. The first generally available release, consisting of core collections functions, is expected in the third fiscal quarter of 2007. The product is designed to make extensive use of the Chordiant decision management technology to deliver real time decisioning.


Technology

Chordiant applications share a common technology platform and set of development and configuration tools. Chordiant technology is built to scale to tens of thousands of users and integrate seamlessly into our customer’s IT infrastructure. Chordiant technology is generally built based on standards as defined in Java 2 Enterprise Edition (J2EE). Chordiant technology works alongside third party J2EE Application Servers, such as those from International Business Machines Corporation (IBM) and BEA Systems Inc.

Chordiant technology is based on a service oriented architecture (SOA). This architecture provides a framework for large or growing businesses to provide multi-channel interaction and process orchestration across multiple lines of business. The framework (also known as Chordiant Enterprise Platform) provides a pre-integrated environment that supports the business applications required by these large scale organizations. With predictive decisioning built-in, organizations can utilize Chordiant technology to obtain customer behavioral insight and use this to drive the most appropriate business processes, guiding staff through the best tasks to increase responsiveness, reduce errors, shorten cycle times, and present the most relevant offers to customers in each interaction.

·  
Enterprise Platform: Foundation Server, Café, and Tools Platform: Consisting of a family of services with enterprise-wide process orchestration and case management at its core, the Chordiant Enterprise Platform product family provides a common, highly scalable base platform for all Chordiant solutions. The product family incorporates industry standards such as J2EE, model driven development, AJAX high performance thin client desktops, Java Server Faces (JSF), and enterprise open source technologies including Hibernate, and Apache Trinidad. The products are supported by process development and administration tools that use the Eclipse integrated development environment.

The Enterprise Platform incorporates module ‘servers’ to deliver additional functionality as needed including business rules, decision management, telephony integration, connectivity to systems of record and interaction channel management. These allow organizations to implement only those functions that are required for their particular business requirement without interfering with future project requirements.

·  
Decisioning: Consisting of flexible services and tools for adaptive decisioning, predictive decisioning, and rules, our Decisioning product family allows organizations to effectively drive application behavior based on industry or organizational models and logic. This capability allows business users advanced control over business priorities, and enables the business to refine offer and service management in real-time. Decision management is a suite of products and comprises:

• Chordiant Data Preparation Director—Chordiant Data Preparation Director allows non-IT users to combine, manipulate and aggregate customer data using an easy to use visual interface.

• Chordiant Predictive Analytics Director—Chordiant Predictive Analytics Director provides marketing professionals functionality which enables in-depth analysis of significant amounts of customer information using data-mining and predictive analytical capabilities.
 
• Chordiant Strategy Director—Chordiant Strategy Director allows users to design customer interaction strategies and marketing offers based on decisions and rules that reflect customer behavior, preferences, legislation, corporate policies and desired business outcomes. The resulting decision logic is executed in our campaign management solution for outbound communication or executed in real-time in multiple channels of communication.
 
• Chordiant Decision Monitor—Chordiant Decision Monitor provides management with insight into business results, measures data analysis effectiveness, and allows an organization to learn from current and future data models. It is a software module in which decisions are automatically logged and stored in a monitoring database together with the relevant data as well as subsequent customer information and behavior. This module can be integrated and analyzed by third party business intelligence tools.
 
• Chordiant Deployment Manager—Chordiant Deployment Manager provides the administrative function to prepare available data in the operational environment and implement the decision logic into production campaigns, business processes and applications.
 
• Chordiant Real-Time Decisioning Services—Chordiant Real-Time Decisioning Server generates a decisioning service that can be hosted in industry-standard application servers.
 
• Chordiant Database Decisioning Services—The Chordiant Database Decisioning Server provides an application for datamining, analysis, and modeling to create the optimal decision logic and the appropriate decisions outcomes.


Chordiant Mesh Collaboration

Announced in fiscal year 2006, Chordiant Mesh is a collaborative development network where customers, partners, and Chordiant staff can work together on solutions to respond to customer initiatives. Chordiant Mesh is a development infrastructure layer that allows the organizations to collaborate on a wide variety of solutions, components, and tools. By applying principles from open source projects to a member-driven high-end ecosystem, Chordiant Mesh facilitates far greater collaboration, agility, speed to market, transparency, and quality than customers are accustomed to receiving from high-end enterprise software providers.

Key benefits of Chordiant Mesh are:

·  
A fabric for the maintenance of infrastructure level code and reduction of customization and cost of ownership.
·  
A set of tools and methodologies for building applications collaboratively with Chordiant and its partners.
·  
Enables and enhances the IT systems “grid” to better support high value SOA − based applications;
·  
Enhancement of the ability of IT departments to provide support, control and flexibility.
·  
By leveraging open-source development models, Chordiant can take code revisions submitted by community members − customers, partners and Chordiant itself − and allow these to be incorporated into its products when appropriate.

The collaborative development approach enables Chordiant to be in closer collaboration with its enterprise customers.

Strategic Direction
 
The Company is focused on solving problems for our global accounts through helping them improve the quality of the customer experience they deliver in the banking, insurance, and telecommunications industries. Chordiant anticipates that it will increasingly deliver business-focused applications based on an open and adaptable core information technology (“IT”) infrastructure that provides high levels of business agility and fast return on investment for enterprises by allowing rapid changes to their IT systems. Within the markets above, Chordiant will continue to develop domain-level solutions for these markets, focusing on the most mission-critical business processes facing our customers.

Customers
 
We target global brand leaders in our core markets. Our customers include: ING, Canada, Inc., HSBC Technology and Services (USA), Inc., Capital One Services, Inc., O2 (UK) Limited, Time Warner Cable, Inc., Covad Communication Company, 21st Century Insurance, T-Mobile, Lloyds TSB Bank plc, Bank of Ireland Group, The Royal Bank of Scotland plc, Metropolitan Life Insurance Company, Signal Iduna, Deutsche Bank AG, Canadian Tire Financial Services, Canadian Imperial Bank of Commerce, Halifax plc, British Telecommunications plc, Connecticut General Life Insurance Company, Citibank Credit Services Inc. (USA), and Sky Subscribers Services Limited. As we deploy new applications, we anticipate that a certain percentage of these and new customers will adopt these new applications and expand their investment in Chordiant products. For the year ended September 30, 2006, Citicorp Credit Services Inc. (USA) accounted for 12% of our total revenues.

Technology

Chordiant’s solutions and core technology are implemented using industry standard software that includes J2EE, XML, and Web Services. This industry standard set of development specifications leverages the strengths of the Java programming language to enable software applications that are easier to develop, configure and integrate with legacy and third-party information technology systems.
 
Chordiant’s architecture leverages J2EE and Web Services extensively to provide a services oriented architecture for use by Chordiant applications and other systems. The business services and related business components use a data persistence foundation with built-in support for Oracle and DB2 databases as well as IBM WebSphere MQ messaging. Generally, our software is easily integrated with other data sources, including those built on the Java Connector Architecture (JCA).
 
Chordiant’s web browser technology delivers consistent self-service and agent-driven customer interaction processes using a rich web-based application platform that provides desktop interface behavior in a browser-based technology with high performance, low maintenance costs, and flexibility to meet the differing demands of a diverse user population.
 
Certain of our products use technology modules from third-party technology providers including IBM, BEA Systems, Sun Microsystems, Ingenieria de Software Bancario, S.L. (ISBAN) and certain other non-public entities. Our enterprise platform solutions support industry standard J2EE application servers including IBM WebSphere and BEA WebLogic. Our server software runs on UNIX server platforms from Sun Microsystems, IBM and Linux.


Sales and Marketing
 
We license our solutions and sell services primarily through a direct sales organization that is complemented by selling and support efforts through business alliance partners such as IBM, Tata Consulting, and Accenture, systems integrators and technology vendors. Our market focus is the business-to-consumer segment of the economy with a targeted effort on leading consumer focused industries and companies using multiple channels as the means of conducting business and serving customers.
 
The sales process generally ranges from six to twenty four months depending on the level of knowledge that prospective customers need about the use and benefits of our solutions and the involvement of systems integrators. During the sales process, we typically approach the senior management teams of the business and information technology departments of a prospective customer’s organization. We utilize sales teams consisting of sales and technical professionals who work with our systems integration partners to create company specific proposals, presentations and proof of concept demonstrations that address the needs of the business and its technology requirements.
 
Our corporate offices are located in Cupertino, California, and we maintain an applications development center in Bedford, New Hampshire. In Europe, we have offices in the greater metropolitan areas of London, Madrid, Amsterdam, Frankfurt, and Munich. We have sales and support personnel in various additional locations in North America and Europe.

Our Services
 
We offer a comprehensive set of customer services including professional consulting services and product support and training services. We believe that providing high quality customer service is critical to achieving rapid product implementation and customer success.
 
Professional Services
 
We provide implementation consulting and customer support services to licensed customers through our worldwide professional services organization. Our professional services consulting teams often assist customers and systems integrator partners in the design and implementation of our software solutions.
 
Our professional services organization deploys consultants as part of the project team alongside systems integration partners and members of the customer’s internal team to provide subject matter expertise, technical knowledge, business engineering, project guidance and quality assessments during the entire solution lifecycle. In the design stage, we provide a variety of professional services that help determine a customer’s business processes and the technical requirements of the solutions implementation. In the implementation stage, we use a delivery methodology to assist customers and integration partners in planning and managing the implementation. Typically, systems integrators, supported by our consultants, provide overall program management and coordinate the implementation of our products with a customer’s existing communications, applications, databases and transaction systems. In the final phases of an implementation, the systems integrators provide deployment services to enable a customer’s internal team to implement the system, train internal users and provide first-level end-user support.
 
Although our primary strategy is to leverage our strategic systems integration partners for implementations, our internal professional services organization is often integral in implementing our enterprise platform software solutions for our customers. We believe that our consulting services enhance the use and administration of our software solutions, facilitate the implementation of our solutions and result in sharing best business practices with client and systems integrator project teams. In addition to implementing our software, our professional services organization works closely with our internal research and development organization to enhance existing software solutions.

In addition to our internal professional services organization, in calendar 2006, we renewed for one year our agreement with Ness Technologies Inc., Ness Global Services, Inc. and Ness Technologies India, Ltd. (collectively, “Ness”), that we originally entered into in 2003. Ness provides our customers with technical product support, a sustaining engineering function, product testing services, and product development services through their global technical resources and operations center in Bangalore, India. Ness is an independent contracting company with global technical resources. The agreement with Ness may be extended for additional one year terms at our discretion. Our agreement with Ness enables them, at our direction, to attract, train, assimilate and retain sufficient highly qualified personnel to perform technical support and certain sustaining engineering functions.

Educational Services
 
We provide educational services to train and enable our systems integrators and customers to use our products and technologies. 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 products as well as business issues and processes. Training courses can be provided on-site for a custom session for a fee and through classroom and lab instruction. In addition, we provide certification programs for our partners and customers.


Customer Support
 
We provide our customers with unspecified support and maintenance services including telephone support, web-based support and updates to our products and documentation. We believe that providing a high level of technical support is critical to customer satisfaction. We also offer training programs to our customers and other companies with which we have relationships to accelerate the implementation and adoption of our solutions by the users within a company. Fees for our training services are typically charged separately from our software license, maintenance and consulting fees.

Our customers have a choice of support and maintenance options depending on the level of service desired. Our technical support services are available to clients by telephone, over the web, by e-mail and on-site. Additionally, we provide unspecified product enhancement releases to all customers as part of our support and maintenance contracts. We use a customer service automation system to track each customer inquiry until it is resolved. We also make use of our website and a secured customer forum to provide product information and technical support information worldwide 24 hours a day, seven days a week.
 
Strategic Partnerships

Establishing partnerships and alliances with third parties that provide additional services and resources for implementing our solutions to enhance our sales and service organizations’ productivity is an important element of our strategy. These relationships and alliances fall into the following categories:
 
Consulting and System Integration 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. We have established relationships and trained professionals at a number of systems integrators including: Accenture, IBM Global Services, Ness Technologies, Tata Consultancy Services and Business Services, and InfoGain. We plan to expand these relationships to increase our capacity to license and implement our products. We believe that expanding our relationships with systems integrators and independent consulting firms will enable us to gain a greater share of our target markets.
 
Technology Partnerships.  We make extensive use of industry platforms and embrace a number of core technologies in our solution offerings. We have formed partnerships with vendors of software and hardware technology platforms. We currently maintain technology relationships with vendors such as Avaya/Lucent, Alcatel/Genesys, BEA Systems, Cisco Systems, IBM, Oracle, ISBAN and Sun Microsystems. Many of these companies voluntarily provide us with early releases of new technology platforms, education related to those platforms and limited access to their technical resources to facilitate adoption of their technology.

Product Development
 
We have made substantial investments in research and development through internal development, acquisitions and technology licensing. Our product development efforts are focused on extending our enterprise software solutions, application components, industry specific processes and business process functionality, and continued integration of industry-specific transaction systems and services. Our product development organization is responsible for new software products, product architecture, core technologies, product testing, quality assurance and enabling the compatibility of our products with third-party hardware and software platforms.
 
Our product development resources are organized into a number of development teams including:
 
·  
Foundational Server, Tools, Mesh, Fulfillment, and Release Management;
 
·  
Decision Management Products;
 
·  
Card and Banking Applications;

·  
Collections Applications;
 
·  
Marketing Applications;
 
·  
Product Design, Architecture, and Documentation; and
 
·  
Product Test and Quality.
 
Our product development teams have experience in enterprise and distributed computing, J2EE and object oriented development, data management, process and workflow engineering, transaction system interfaces, Internet and Web-Services technologies. Our research and development expenditures were $25.9 million and $20.3 million for the years ended September 30, 2006 and September 30, 2005, respectively.


Competition
 
The market for our products is competitive, rapidly evolving, and can be affected by new product introductions and other market activities of industry participants. The competitive landscape is quickly evolving to address the need for enterprise-wide integration of IT assets and the convergence of customer interaction applications, back-office systems and business processes. The most significant competition we face is from customers’ internal development efforts, custom system integration, as well as other software providers that offer integration and development platforms.

Internal Development
 
Many of our customers and potential customers have in the past attempted to develop customer service, call center, customer relationship management and new front-office systems in-house or with the help of systems integrators. Internal information technology departments have staffed projects to build their own systems utilizing a variety of tools. In some cases, such internal development projects have been successful in satisfying the needs of an organization. The cost of internal development and total cost-of-ownership has risen to become a primary concern of the business and management. We expect that internal development will continue to be a significant source of competition.

Custom System Integration Projects
 
Another source of competition results from systems integrators engaged to build a custom development application. The introduction of a systems integrator typically increases the likelihood of success for the customer. The competitive factors in this area require that we demonstrate to the customer the cost savings and advantages of configurable, upgradeable and commercially supported software products developed by a dedicated professional software organization.
 
We frequently rely on system consulting and systems integration firms for implementation and other global services, as well as recommendations of our products during the evaluation stage of the purchase process. Many of these third parties have similar and often more established relationships with our competitors. We cannot assure that these third parties, many of whom have significantly greater resources than us, will not market software products in competition with us.
 
Application Software Competitors
 
As discussed, our primary competition is from internal development at our customers and potential customers. However, other competitors include providers of traditional, first-generation customer relationship management, enterprise resources planning, call center, marketing automation software and sales force automation software. These vendors include, among others, companies such as: Oracle Software, Pegasystems, Inc., Unica, SSA Global Technologies, Fidelity Systems, S1 Corporation, and Amdocs.
 
Some of these companies have longer operating histories, greater financial, marketing and other resources, greater name recognition in other markets and a larger base of customers than we do. In addition, some companies have well-established relationships with our current and potential customers. As a result, these competitors may be able to devote greater resources to the development, promotion and sale of their products than we can.
 
We believe that we compete favorably in the industries we serve based on the following competitive advantages: process-driven solutions for servicing and selling; real-time and transactional processes; real-time decision management and vertical processes implemented in a multi-channel architecture. The technology advantages include: Chordiant architecture providing an open services oriented architecture providing for integration with multiple legacy systems, third-party applications and communication channels and advanced browser based application environment for high volume call center, mid-office and branch operations.

There is no one competitor, nor are there a small number of competitors that are dominant in our market. There are many factors that may increase competition in the enterprise customer relationship management market, including (i) entry of new competitors, (ii) mergers and alliances among existing competitors, (iii) consolidation in the software industry and (iv) technological changes or changes in the use of the Internet. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially and adversely affect our business, operating results and financial condition. Recent continuing consolidation in the software industry during 2006 may indicate that we will face new competitors in the future. Within the year Oracle completed an acquisition of i-flex Solutions Ltd., a banking software maker headquartered in Mumbai, India. In 2005 Oracle had purchased a 43% stake in the company. Also in 2006, International Business Machines (IBM) acquired Webify, a provider of middleware to companies primarily in the insurance industry. In addition, in September 2005, IBM had acquired DWL, a provider of middleware to companies in the banking, insurance, retail and telecommunications industries. In January 2006, Oracle acquired Siebel Systems, Inc., a maker of customer relationship management software products. While we do not believe that either i-flex Solutions, DWL, or Webify have been significant competitors of Chordiant in the past, the acquisition of these companies by Oracle and IBM may indicate that we will face increased competition from significantly larger and more established entities in the future.


We cannot assure that we will be able to compete successfully against current and future competitors or that the competitive pressure faced by us will not materially and adversely affect our business, operating results and financial condition.
 
Intellectual Property and Proprietary Rights
 
Our success is in part dependent upon our ability to develop and protect proprietary technology and intellectual proprietary rights. We rely primarily on a combination of contractual provisions, confidentiality procedures, patents pending, trade secrets, and copyright and trademark laws to protect our intellectual property and proprietary rights.
 
We license our products 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 products, documentation and other written materials under trade secret and copyright laws. Due to rapid technological change, we believe factors such as the technological and creative skills of our personnel, new product developments and enhancements to our existing products 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 products. Costs associated with integrated technology provided by third parties historically accounts for approximately 2% to 5% of total license revenues. The third party software may not continue to be available on commercially reasonable terms or at all. If we cannot maintain licenses to key third party software, shipments of our products could be delayed until equivalent software is developed or licensed and integrated into our products. Moreover, although we are generally indemnified against claims if 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 or 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 products 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 products is difficult and expensive litigation may be necessary in the future to enforce our intellectual property rights.
 
Third parties may claim, and have claimed, that we have infringed, or currently infringe, 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, are 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, license a substitute technology or redesign to avoid infringement, our business would be harmed.

The Company does not currently hold any patents but has certain patents pending.

Employees
 
As of September 30, 2006, we employed 325 full time employees. Of that total, 87 were primarily engaged in product development, engineering or systems engineering, 93 were engaged in sales and marketing, 83 were engaged in professional services and 62 were engaged in operational, financial and administrative functions.
 
None of our employees are represented by a labor union and we have never experienced a work stoppage. We believe that our relations with our employees are good. We believe our future success will depend in part on our continued ability to recruit and retain highly skilled technical, finance, management and marketing personnel.
 
Financial Information About Geographic Areas
 
For a detailed description of our sales by geographic region, we incorporate by reference the information in Note 15 to our consolidated financial statements contained in Item 8 of this Form 10-K. Although the Company’s revenues are not considered seasonal, our international operations do experience a slow down in the summer months. For information relating to the risks attendant to our foreign operations, we incorporate by reference the information under the headings “—Risk Factors—If we fail to adequately address the difficulties of managing our international operations, our revenues and operating expenses will be adversely affected” and “—Risk Factors—Fluctuations in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets and could negatively affect our operating results and cash flows.”


Backlog

For a detailed discussion of backlog, we incorporate by reference the information in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading Financial Trends, Backlog.

Available Information
 
We were incorporated in California in March 1991 and were reincorporated in Delaware in October 1997.
 
We maintain a site on the world-wide web at www.chordiant.com; however, information found on our website is not incorporated by reference into this Annual Report on Form 10-K. We make available free of charge on or through our website our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.



The matters relating to the Audit Committee of the Board’s review of our historical stock option granting practices and the restatement of our consolidated financial statements have required us to incur substantial expenses, have resulted in litigation, and may result in additional litigation and future government enforcement actions.

On July 24, 2006, the Company announced that the Audit Committee of the Company’s Board of Directors, with the assistance of independent legal counsel, was conducting a review of our stock option practices covering the time from the Company’s initial public offering in 2000 through June 2006. As described in the Explanatory Note immediately preceding Part I, Item 1, and in Note 3 “Restatement of Previously Issued Consolidated Financial Statements” in Notes to Consolidated Financial Statements in the Form 10-K, the Audit Committee reached a conclusion that incorrect measurement dates were used for financial accounting purposes for stock option grants in certain prior periods. As a result, the Company has recorded additional non-cash stock-based compensation expense, and related tax effects, related to certain stock option grants, and the Company has restated certain previously filed financial statements included in the Form 10-K.

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

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

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

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

We may be subject to further investigation by the SEC or litigation by private parties in connection with the restatement of our interim financial statements for the fiscal quarters ended March 31, 2004, June 30, 2004, September 30, 2004, December 31, 2004, March 31, 2005, June 30, 2005, December 31, 2005, and March 31, 2006 and the fiscal years ended 2001, 2002, 2003, 2005 and nine months ended September 30, 2004.
 
In March 2005, we concluded that our interim financial statements for the fiscal quarters ended March 31, June 30, and September 30, 2004 should no longer be relied upon because of various errors in such financial statements. We restated those financial statements, which were reported in our 2004 Transition Report on Form 10-K/T filed with the SEC on March 29, 2005. Additionally, in the course of preparing our 2005 financial results for the year ended September 30, 2005, the Company and its independent registered public accounting firm, BDO Seidman, LLP, identified certain errors in the Company’s 2005 interim financial statements for the quarters ended December 31, 2004, March 31, 2005, and June 30, 2005 and management concluded that as a result of these errors, the Company should restate the Company’s interim financial statements for these quarters. These errors are more fully described in Note 19 to the Consolidated Financial Statements contained in our Annual Report on Form 10-K filed with the SEC on December 9, 2005. On November 26, 2006, the Board of Directors, upon the recommendation of the Audit Committee and management concluded that Chordiant would restate its historical financial statements for the years ended December 31, 2001, 2002 and 2003, the nine-month period ended September 30, 2004, the fiscal year ended September 30, 2005, and the quarters ended December 31, 2005 and March 31, 2006. These errors are more fully described in Note 3 to the Consolidated Financial Statements contained in this Annual Report.

Section 408 of the Sarbanes-Oxley Act of 2002 (SOX) requires that the SEC review a public company’s filings no less frequently than once every 3 years. The SEC’s staff in the Division of Corporation Finance in Washington D.C. has reviewed the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2005 and has commented on the annual report to which the Company has provided written responses. The SEC may begin an investigation or we may be subject to private litigation, which could require significant management and financial resources which could otherwise be devoted to the operation of our business. If we are subject to an SEC investigation or civil litigation, we could be required to pay penalties or damages or have other remedies imposed upon us. In addition, we could become the target of expensive securities litigation related to other matters in the future. Any SEC investigation or litigation could adversely affect our business, results of operations, financial position or cash flows.


Historically, we have not been profitable and we may continue to incur losses, which may raise vendor viability concerns thereby making it more difficult to close license transactions with new and existing customers.
 
We incurred losses of $16.0 million and $19.9 million for the years ended September 30, 2006 and 2005, respectively. As of September 30, 2006, we had an accumulated deficit of $232.9 million. We may continue to incur losses and cannot be certain that we can generate sufficient revenues to achieve profitability. Continued losses may leave many customers reluctant to enter into new large value license transactions without some assurance that we will operate profitably. If we fail to enter into new large value license transactions due to lack of vendor profitability and or viability concerns, our revenues will decline, which could further adversely affect our operating results.

Because a small number of customers account for a substantial portion of our revenues, the loss of a significant customer could cause a substantial decline in our revenues.
 
We derive a significant portion of our license and service revenues from a limited number of customers. The loss of a major customer could cause a decrease in revenues and net income. For the year ended September 30, 2006, Citicorp Credit Services accounted for 12% of our total revenue. While our customer concentration has fluctuated, we expect that a limited number of customers will continue to account for a substantial portion of our revenues. As a result, if we lose a major customer, or if a contract is delayed or cancelled or we do not contract with new major customers, our revenues and net loss 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.
 
If we fail to adequately address the difficulties of managing our international operations, our revenues and operating expenses will be adversely affected.
 
For the year ended September 30, 2006, international revenues were $37.5 million or approximately 38% of our total revenues. While North American revenues have increased recently as a percentage of our overall revenues, international revenues will continue to represent a significant portion of our total revenues in future periods. We have faced, and will continue to face, difficulties in managing international operations which include:
 
• Difficulties in hiring qualified local personnel;
 
• Seasonal fluctuations in customer orders;
 
• Longer accounts receivable collection cycles;
 
• Expenses associated with licensing products and servicing customers in foreign markets;
 
• Economic downturns and political uncertainty in international economies; and
 
• Expectations of European economic growth that is lower than for the US.
 
Any of these factors could have a significant impact on our ability to license products on a competitive and timely basis and could adversely affect our operating expenses and net income. Additionally we closed our only French office in the first fiscal quarter of 2007. The absence of a business office in France may harm our ability to attract and retain customers in that country.

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


A significant portion of our sales and operating expenses result from transactions outside of the United States, often in foreign currencies. These currencies include the United Kingdom Pound Sterling, the Euro and the Canadian Dollar. Our international sales comprised 38% of our total sales for the year ended September 30, 2006. Our international sales comprised 50% of our total sales for the year ended September 30, 2005. Our future operating results will continue to be subject to fluctuations in foreign currency rates, especially if international sales grow as a percentage of our total sales, and we may be negatively impacted by fluctuations in foreign currency rates in the future. For the year ended September 30, 2006, we had an unrealized foreign currency translation gain of approximately $1.2 million.
 
Geopolitical concerns could make the closing of license transactions with new and existing customers difficult.
 
Our revenues will decrease in fiscal year 2007 or beyond if we are unable to enter into new large-scale license transactions with new and existing customers. The current state of world affairs and geopolitical concerns have left many customers reluctant to enter into new large value license transactions without some assurance that the economy both in the customer’s home country and worldwide will have some economic and political stability. Geopolitical instability will continue to make closing large license transactions difficult. In addition, we cannot predict what effect the U.S. military presence overseas or potential or actual political or military conflict have had or are continuing to have on our existing and prospective customers’ decision-making process with respect to licensing or implementing enterprise-level products such as ours. Our ability to enter into new large license transactions also directly affects our ability to create additional consulting services and maintenance revenues, on which we also depend.
 
Competition in our markets is intense and could reduce our sales and prevent us from achieving profitability.
 
Increased competition in our markets could result in price reductions for our products and services, reduced gross margins and loss of market share, any one of which could reduce our future revenues. The market for our products is intensely competitive, evolving and subject to rapid technological change. Historically, our primary competition has been from internal development, custom systems integration projects and application software competitors. In particular, we compete with:
 
• Internal information technology departments: in-house information technology departments of potential customers have developed or may develop systems that provide some or all of the functionality of our products. We expect that internally developed application integration and process automation efforts will continue to be a significant source of competition.
 
• Custom systems integration projects: we compete with large systems integrators who may develop custom solutions for specific companies which may reduce the likelihood that they would purchase our products and services.
 
• Point application vendors: we compete with providers of stand-alone point solutions for web-based customer relationship management and traditional client/server-based, call-center service customer and sales-force automation solution providers.

In addition, recent continuing consolidation in the software industry during 2006 may indicate that we will face new competitors in the future. Within the year Oracle completed an acquisition of i-flex Solutions Ltd., a banking software maker headquartered in Mumbai, India. In 2005 Oracle had purchased a 43% stake in the company. Also in 2006, IBM acquired Webify, a provider of middleware to companies primarily in the insurance industry. In addition, in September 2005, IBM had acquired DWL, a provider of middleware to companies in the banking, insurance, retail and telecommunications industries. In January 2006, Oracle acquired Siebel Systems, Inc., a maker of customer relationship management software products. Siebel Systems, Inc. was a competitor of ours. While we do not believe that either i-flex Solutions, DWL or Webify have been significant competitors of Chordiant in the past, the acquisition of these companies by Oracle and IBM may indicate that we will face increased competition from significantly larger and more established entities in the future.

Many of our competitors have greater resources and broader customer relationships than we do. In addition, many of these competitors have extensive knowledge of our industry. Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to offer a single solution and to increase the ability of their products to address customer needs.
 
We may experience a shortfall in revenue, earnings, cash flow or otherwise fail to meet public market expectations, which could materially and adversely affect our business and the market price of our common stock.
 
Our revenues and operating results may fluctuate significantly because of a number of factors, many of which are outside of our control. Some of these factors include:
 
• Size and timing of individual license transactions;
 



• Delay or deferral of customer implementations of our products and subsequent impact on revenues;
 
• Lengthening of our sales cycle;
 
• Potential additional deterioration and changes in domestic and foreign markets and economies;
 
• Success in expanding our global services organization, direct sales force and indirect distribution channels;
 
• Timing of new product introductions and product enhancements;
 
• Appropriate mix of products licensed and services sold;
 
• Levels of international transactions;
 
• Activities of and acquisitions by competitors;

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

If our stockholders approve our proposed reverse stock split, our stock price may be adversely affected.
 
On February 15, 2007, our stockholders will consider at a special meeting whether to approve a reverse split of our outstanding shares of common stock by a ratio of two and one-half (2.5) to 1 (the “Reverse Split”). If approved and our Board of Directors proceed to effect the Reverse Split, our stock price may decline back to pre-Reverse Stock split levels. If the Reverse Split is effected and the per share price of our common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Reverse Split.

Our operating results and cash flows fluctuate significantly and delays in delivery or implementation of our products or changes in the payment terms with customers may cause unanticipated declines in revenues or cash flow, which could disappoint investors and result in a decline in our stock price.
 
Our quarterly revenues depend primarily upon product implementation by our customers. We have historically recognized a significant portion of our license and services revenue through the percentage-of-completion method, using labor hours incurred as the measure of progress towards completion of implementation of our products and we expect this practice to continue. The percentage of completion accounting method requires ongoing estimates of progress of complicated and frequently changing technology projects. Documenting the measure of progress towards completion of implementation is subject to potential errors and changes in estimates. As a result, even minor errors or minor changes in estimates may lead to significant changes in accounting results which may be revised in later quarters due to subsequent information and events. Thus, delays or changes in customer business goals or direction when implementing our software may negatively impact our quarterly revenue. Additionally, we may increasingly enter into term, subscription or transaction based licensing transactions that would cause us to recognize license revenue for such transactions over a longer period of time than we have historically experienced for our perpetual licenses. In addition, a significant portion of new customer orders have been booked in the third month of each calendar quarter, with many of these bookings occurring in the last two weeks of the third month. We expect this trend to continue and, therefore, any failure or delay in bookings would decrease our quarterly revenue and cash flows. The terms and conditions of individual license agreements with customers vary from transaction to transaction. Historically, the Company has been able to obtain prepayments for product in some cases. Other transactions link payment to the delivery or acceptance of products. In particular, we have deferred the recognition of all revenue from the license order from Citicorp Credit Services, Inc. that we received in December of 2006 pending our completion and delivery of a collections application that was one of the required elements under that license order. We currently anticipate that we will deliver the collections application in the third fiscal quarter of 2007 but any delay in our development or delivery of that application could result in a significant delay in our ability to recognize revenue from that license and may cause an unanticipated shortfall in our revenue. If we are unable to negotiate prepayments of fees our cash flows and financial ratios with respect to accounts receivable would be negatively impacted. If our revenues, operating margins or cash flows are below the expectations of the investment community, our stock price is likely to decline.


If we fail to maintain and expand our relationships with systems integrators and other business partners, our ability to develop, market, sell, and support our products may be adversely affected.
 
Our development, marketing and distribution strategies rely on our ability to form and maintain long-term strategic relationships with systems integrators, in particular, our existing business alliance partners, IBM, and Accenture. These business relationships often consist of joint marketing programs, technology partnerships and resale and distribution arrangements. Although most aspects of these relationships are contractual in nature, many important aspects of these relationships depend on the continued cooperation between the parties. Divergence in strategy, change in focus, competitive product offerings or potential contract defaults may interfere with our ability to develop, market, sell, or support our products, which in turn could harm our business. If either IBM or Accenture were to terminate their agreements with us or our relationship were to deteriorate, it could have a material adverse effect on our business, financial condition and results of operations. In many cases, these parties have extensive relationships with our existing and potential customers and influence the decisions of these customers. A number of our competitors have stronger relationships with IBM and Accenture and, as a result, these systems integrators may be more likely to recommend competitors’ products and services. In addition, in September 2005, IBM had acquired DWL, a provider of middleware to companies in the banking, insurance, retail and telecommunications industries. In 2006, IBM acquired Webify, a provider of middleware to companies primarily in the insurance industry. While we do not believe that either DWL or Webify had been a direct competitor of Chordiant in the past, IBM’s acquisition of DWL and Webify may indicate that IBM will become a competitor of ours in the future. While the Company currently has good relationship with IBM, this relationship and the Company’s strategic relationship agreement with IBM may be harmed if the Company increasingly finds itself competing with IBM. Our relationships with systems integrators and their willingness to recommend our products to their customers could be harmed if the Company were to be subject to a take over attempt from a competitor of such systems integrators.

If systems integrators fail to properly implement our software, our business, reputation and financial results may be harmed.
 
We are increasingly relying on systems integrators to implement our products, and this trend may continue. As a result, we have less quality control over the implementation of our software with respect to these transactions and are more reliant on the ability of our systems integrators to correctly implement our software. If these systems integrators fail to properly implement our software, our business, reputation and financial results may be harmed.
 
Our primary products have a long sales and implementation cycle, which makes it difficult to predict our quarterly results and may cause our operating results to vary significantly.
 
The period between initial contact with a prospective customer and the implementation of our products is unpredictable and often lengthy, ranging from three to twenty-four months. Thus, revenue and cash receipts could vary significantly from quarter to quarter. Any delays in the implementation of our products could cause reductions in our revenues. The licensing of our products is often an enterprise-wide decision that generally requires us to provide a significant level of education to prospective customers about the use and benefits of our products. The implementation of our products involves significant commitment of technical and financial resources and is commonly associated with substantial implementation efforts that may be performed by us, by the customer or by third-party systems integrators. If we underestimate the resources required to meet the expectations we have set with a customer when we set prices, then we may lose money on that customer engagement. If this happens with a large customer engagement, then this could have a material adverse effect on our financial results. Customers generally consider a wide range of issues before committing to purchase our products, including product benefits, ability to operate with existing and future computer systems, vendor financial stability and longevity, ability to accommodate increased transaction volume and product reliability.
 
If we do not improve our internal control over financial reporting, investors could lose confidence in our financial reporting and customers may delay purchasing decisions, which would harm our business and the market price of our common stock.
 
Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business could be harmed. We are a complex company with complex accounting issues and thus subject to related risks of errors in financial reporting which may cause problems in corporate governance, the costs of which may outweigh the costs of the underlying errors themselves. For example, the Audit Committee of the Company’s Board of Directors, with the assistance of outside legal counsel, conducted a review of our stock option practices covering the time from the Company’s initial public offering in 2000 through September 2006. The Audit Committee reached a conclusion that incorrect measurement dates were used for financial accounting purposes for stock option grants in certain prior periods. As a result, the Company has recorded additional non-cash stock-based compensation expense, and related tax effects, related to stock option grants and concluded that a material weakness surrounding the control activities relating to the stock option grants existed at September 30, 2006. To correct these accounting errors, we restated the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended September 30, 2006 and our Quarterly Report on Form 10-Q for the three months ended June 30, 2006. As a result of this need to restate financial statements, management and the Audit Committee determined that material weaknesses in our internal control over financial reporting existed. These material weaknesses have contributed to increased expenses and efforts required for our financial reporting.



If we are not successful in implementing effective internal controls over financial reporting, customers may delay purchasing decisions or we may lose customers, create investor uncertainty, face litigation and the market price of our common stock may decline. For more information, please refer to the discussion under the heading “Item 9A. Controls and Procedures” in this Annual Report on Form 10-K.
 
If we are not able to successfully manage our partner operations in India, our operations and financial results may be adversely affected.
 
In fiscal year 2003, we entered into an agreement with Ness Technologies Inc., Ness Global Services, Inc. and Ness Technologies India, Ltd. (collectively, “Ness”), an independent contracting company with global technical resources and an operations center in Bangalore, India and operations in other locations. The agreement provides for Ness, at our direction, to attract, train, assimilate and retain sufficient highly qualified personnel to perform staffing for consulting projects, technical support, product test and certain sustaining engineering functions. As of September 30, 2006, we use the services of approximately 126 consultants through Ness. In addition, as a result of the reduction in our workforce that took place in July 2005, and the reduction in our workforce that took place in October 2006, by approximately 10% in each instance, we are now more dependent on Ness. The expansion of this agreement is an important component of our strategy to address the business needs of our customers and manage our expenses. The success of this operation will depend on our ability and Ness’s ability to attract, train, assimilate and retain highly qualified personnel in the required periods. A disruption of our relationship with Ness could adversely affect our operations. Failure to effectively manage the organization and operations will harm our business and financial results.
 
We have incurred and may continue to incur, in future periods, significant stock-based compensation charges related to certain stock options and stock awards, which may adversely affect our reported financial results.
 
On October 1, 2005, we adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors including employee stock options, restricted stock awards and employee stock purchases related to the ESPP based on estimated fair values. For the year ended September 30, 2006, we recorded $4.7 million of compensation expense associated with these awards. Although the effect from the adoption of SFAS 123(R) is expected to continue to have a material impact on the Company’s results of operations, future changes to various assumptions used to determine the fair value of awards issued, or the amount and type of equity awards granted create uncertainty as to the amount of future stock-based compensation expense.
 
If our products do not operate effectively in a company-wide environment, we may lose sales and suffer decreased revenues.
 
If existing customers have difficulty deploying our products or choose not to fully deploy our products, it could damage our reputation and reduce revenues. Our success requires that our products be highly scalable, and able to accommodate substantial increases in the number of users. Our products are expected to be deployed on a variety of computer software and hardware platforms and to be used in connection with a number of third-party software applications by personnel who may not have previously used application software systems or our products. These deployments present very significant technical challenges, which are difficult or impossible to predict. If these deployments do not succeed, we may lose future sales opportunities and suffer decreased revenues. If we underestimate the resources required to meet the expectations we have set with a customer when we set prices, then we may lose money on that customer engagement. If this happens with a large customer engagement then this could have a material adverse effect on our financial results.
 
Defects in our products could diminish demand for our products and result in decreased revenues, decreased market acceptance and injury to our reputation.
 
Errors may be found from time-to-time in our new, acquired or enhanced products. Any significant software errors in our products may result in decreased revenues, decreased sales, and injury to our reputation and/or increased warranty and repair costs. Although we conduct extensive product testing during product development, we have in the past discovered software errors in our products as well as in third-party products, and as a result have experienced delays in the shipment of our new products.
 
Because competition for qualified personnel is intense, we may not be able to retain or recruit personnel, which could impact the development and sales of our products.
 
If we are unable to hire or retain qualified personnel, or if newly hired personnel fail to develop the necessary skills or fail to reach expected levels of productivity, our ability to develop and market our products will be weakened. Our success depends largely on the continued contributions of our key management, finance, engineering, sales and marketing and professional services personnel. In particular, we have recently had significant turnover of our executives as well as in our in our sales,


marketing and finance organizations and many key positions are held by people who are new to the Company or to their roles. If these people are unable to quickly become familiar with the issues they face in their roles or are not well suited to their new roles, then this could result in the Company having problems in executing its strategy or in reporting its financial results. Because of the dependency on a small number of large deals, we are uniquely dependent upon the talents and relationships of a few executives and have no guarantee of their retention. Changes in key sales management could affect our ability to maintain existing customer relationships or to close pending transactions. We have been targeted by recruitment agencies seeking to hire our key management, finance, engineering, sales and marketing and professional services personnel. In addition, in July 2005 and again in October of 2006, we reduced the size of our workforce by approximately 10% in each instance, which may have a negative effect on our ability to attract and retain qualified personnel.

To date, our sales have been concentrated in the financial services, telecommunications and retail markets, and if we are unable to continue sales in these markets or successfully penetrate new markets, our revenues may decline.
 
Sales of our products and services in three large markets—financial services, telecommunications and retail markets accounted for approximately 89 % and 87 % of our total revenues for the year ended September 30, 2006 and 2005, respectively. We expect that revenues from these three markets will continue to account for a substantial portion of our total revenues for the foreseeable future. If we are unable to successfully increase penetration of our existing markets or achieve sales in additional markets, or if the overall economic climate of our target markets deteriorates, our revenues may decline.
 
Low gross margin in services revenues could adversely impact our overall gross margin and income.
 
Our services revenues have had lower gross margins than our license revenues. Service revenues comprised 58% and 62% of our total revenues for the year ended September 30, 2006 and 2005, respectively. Gross margin on service revenues was 46% and 42% for the year ended September 30, 2006 and 2005, respectively. License revenues comprised 42% and 38% of our total revenues for the years ended September 30, 2006 and 2005, respectively. Gross margins on license revenues were 96% and 97% for the years ended September 30, 2006 and 2005, respectively.
 
As a result, an increase in the percentage of total revenues represented by services revenues, or an unexpected decrease in license revenues, could have a detrimental impact on our overall gross margins. To increase services revenues, we would expand our services organization, successfully recruit and train a sufficient number of qualified services personnel, enter into new implementation projects and obtain renewals of current maintenance contracts by our customers. This expansion could further reduce gross margins in our services revenues.
 
We may not have the workforce necessary to support our platform of products if demand for our products substantially increased, and, if we need to rebuild our workforce in the future, we may not be able to recruit personnel in a timely manner, which could negatively impact the development and sales of our products.
 
In July 2005 and again in October of 2006, we reduced the size of our workforce by approximately 10% in each instance. In the event that demand for our products increases, we may need to rebuild our workforce or increase outsourced functions to companies based in foreign jurisdictions and we may be unable to hire, train or retain qualified personnel in a timely manner, which may weaken our ability to market our products in a timely manner, negatively impacting our operations. Our success depends largely on ensuring that we have adequate personnel to support our platform of products as well as the continued contributions of our key management, finance, engineering, sales and marketing and professional services personnel.
 
If we fail to introduce new versions and releases of functional and scalable products in a timely manner, customers may license competing products and our revenues may decline.
 
If we are unable to ship or implement enhancements to our products when planned, or fail to achieve timely market acceptance of these enhancements, we may suffer lost sales and could fail to achieve anticipated revenues. We have in the past, and expect in the future, to derive a significant portion of our total revenues from the license of our primary product suite. Our future operating results will depend on the demand for the product suite by future customers, including new and enhanced releases that are subsequently introduced. If our competitors release new products that are superior to our products in performance or price, or if we fail to enhance our products or introduce new features and functionality in a timely manner, demand for our products may decline. We have in the past experienced delays in the planned release dates of new versions of our software products and upgrades. New versions of our products may not be released on schedule or may contain defects when released.
 
We depend on technology licensed to us by third parties, and the loss or inability to maintain these licenses could prevent or delay sales of our products.

We license from several software providers technologies that are incorporated into our products. We anticipate that we will continue to license technology from third parties in the future. This software may not continue to be available on


commercially reasonable terms, if at all. While currently we are not materially dependent on any single third party for such licenses, the loss of the technology licenses could result in delays in the license of our products until equivalent technology is developed or identified, licensed and integrated into our products. Even if substitute technologies are available, there can be no guarantee that we will be able to license these technologies on commercially reasonable terms, if at all.

Defects in third party products associated with our products could impair our products’ functionality and injure our reputation.
 
The effective implementation of our products depends upon the successful operation of third-party products in conjunction with our products. Any undetected defects in these third-party products could prevent the implementation or impair the functionality of our products, delay new product introductions or injure our reputation. In the past, while our business has not been materially harmed, product releases have been delayed as a result of errors in third-party software and we have incurred significant expenses fixing and investigating the cause of these errors.
 
Our customers and systems integration partners may have the ability to alter our source code and resulting inappropriate alterations could adversely affect the performance of our products, cause injury to our reputation and increase operating expenses.
 
Customers and systems integration partners may have access to the computer source code for certain elements of our products and may alter the source code. Alteration of our source code may lead to implementation, operation, technical support and upgrade problems for our customers. This could adversely affect the market acceptance of our products, and any necessary investigative work and repairs could cause us to incur significant expenses and delays in implementation.
 
If our products do not operate with the hardware and software platforms used by our customers, our customers may license competing products and our revenues will decline.
 
If our products fail to satisfy advancing technological requirements of our customers and potential customers, the market acceptance of these products could be reduced. We currently serve a customer base with a wide variety of constantly changing hardware, software applications and networking platforms. Customer acceptance of our products depends on many factors such as:

 
•
Our ability to integrate our products with multiple platforms and existing or legacy systems; and,
 
 
•
Our ability to anticipate and support new standards, especially Internet and enterprise Java standards.
 
Our failure to successfully integrate with future acquired or merged companies and technologies could prevent us from operating efficiently.
 
Our business strategy includes pursuing opportunities to grow our business, both through internal growth and through merger, acquisition and technology and other asset transactions. To implement this strategy, we may be involved in merger and acquisition activity and additional technology and asset purchase transactions. Merger and acquisition transactions are motivated by many factors, including, among others, our desire to grow our business, acquire skilled personnel, obtain new technologies and expand and enhance our product offerings. Growth through mergers and acquisitions has several identifiable risks, including difficulties associated with successfully integrating distinct businesses into new organizations, the substantial management time devoted to integrating personnel, technology and entire companies, the possibility that we might not be successful in retaining the employees, undisclosed liabilities, the failure to realize anticipated benefits (such as cost savings and synergies) and issues related to integrating acquired technology, merged/acquired companies or content into our products (such as unanticipated expenses). Realization of any of these risks in connection with any technology transaction or asset purchase we have entered into, or may enter into, could have a material adverse effect on our business, operating results and financial condition.
 
If we become subject to intellectual property infringement claims, including patent infringement claims, these claims could be costly and time-consuming to defend, divert management’s attention, cause product delays and have an adverse effect on our revenues and net income.
 
We expect that software product developers and providers of software in markets similar to our target markets will increasingly be subject to infringement claims as the number of products and competitors in our industry grows and the
functionality of products overlap. Any claims, with or without merit, could be costly and time-consuming to defend, divert our management’s attention or cause product delays. If any of our products were found to infringe a third party’s proprietary rights, we could be required to enter into royalty or licensing agreements to be able to sell our products. Royalty and licensing agreements, if required, may not be available on terms acceptable to us or at all.


In particular, if we were sued for patent infringement by a patent holding company, one which has acquired large numbers of patents solely for the purpose of bringing suit against alleged infringers rather than practicing the patents, it may be costly to defend such suit. We have received a letter from one such patent holding company alleging that our products may infringe their one or more of their patents. If any of our products were found to infringe such patent, the patent holder could seek an injunction to enjoin our use of the infringing product. If we were not able to remove or replace the infringing portions of software with non-infringing software, and were no longer able to license some or all of our software products, such an injunction would have an extremely detrimental effect on our business. If we were required to settle such claim, it could be extremely costly. A patent infringement claim could have a material adverse effect on our business, operating results and financial condition.
 
The application of percentage of completion and completed contract accounting to our business is complex and may result in delays in the reporting of our financial results and revenue not being recognized as we expect.
 
Although we attempt to use standardized license agreements designed to meet current revenue recognition criteria under generally accepted accounting principles, we must often negotiate and revise terms and conditions of these standardized agreements, particularly in multi-product transactions. At the time of entering into a transaction, we assess whether any services included within the arrangement require us to perform significant implementation or customization essential to the functionality of our products. For contracts involving significant implementation or customization essential to the functionality of our products, we recognize the license and professional consulting services revenues using the percentage-of-completion method using labor hours incurred as the measure of progress towards completion. The application of the percentage of completion method of accounting is complex and involves judgments and estimates, which may change significantly based on customer requirements. This complexity combined with changing customer requirements could result in delays in the proper determination of our percentage of completion estimates and revenue not being recognized as we expect.
 
We have also entered into co-development projects with our customers to jointly develop new vertical applications, often over the course of a year or longer. In such cases we may only be able to recognize revenue upon delivery of the new application. The accounting treatment for these co-development projects could result in delays in the recognition of revenue. The failure to successfully complete these projects to the satisfaction of the customer could have a material adverse effect on our business, operating results and financial condition.
 
Changes in our revenue recognition model could result in short term declines to revenue.
 
Historically, a high percentage of license revenues have been accounted for on the percentage of completion method of accounting or recognized as revenue upon the delivery of product. If we were to modify future contracts with customers, or to enter into new types of transactions accounted for on a subscription or term basis, revenues might be recognized over a longer period of time. The impact of this change would make revenue recognition more predictable over the long term, but it might also result in a short term reduction of revenue as the new transactions took effect.

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




 
On August 8, 2006, we received a comment letter from the staff of the Division of Corporation Finance of the SEC. Additional questions were received in comment letter dated October 27, 2006 and January 25, 2007. The comments from the staff were issued with respect to its review of our Form 10-K for the year ended September 30, 2005, our Forms 10-Q for the quarterly periods ended December 31, 2005 and March 31, 2006 and Forms 8-K filed on February 9 and May 4, 2006. The staff’s letters included comments relating the application of, and disclosures relating to, the percentage of completion method of accounting; the accounting for post-contract customer support; the accounting for arrangements that include a subscription element; and the presentation of non-GAAP operating results appearing in press releases.

On August 17, 2006 and November 13, 2006, we responded to the staff’s comments and included supplemental analyses and information requested by the staff. On January 27, 2007, we received a third comment letter from the Division of Corporation Finance of the SEC. In this most recent set of comments, the staff is requesting additional clarifications of our November 13, 2006 responses. As of the date of the filing of this Form 10-K, we are in the process of responding to this latest set of comments.


Our headquarters are located in offices that are approximately 25,000 square feet in Cupertino, California pursuant to an office lease expiring in December 2008. We also lease office space in Mahwah New Jersey and Bedford, New Hampshire. Outside of the United States, we have offices in the greater metropolitan areas of London, Madrid, Amsterdam, Frankfurt and Munich. Subsequent to September 30, 2006, we relocated our London office, closed our French office, and believe our existing facilities meet our current needs and that we will be able to obtain additional commercial space as needed.
 

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

In August 2001, all of the IPO Lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. In July 2002, we joined in a global motion to dismiss the IPO Lawsuits filed by all of the Issuers (among others). In October 2002, the Court entered an order dismissing the Individuals from the IPO Cases without prejudice, pursuant to an agreement tolling the statute of limitations with respect to the Individuals. In February 2003, the court issued a decision denying the motion to dismiss the Section 11 claims against Chordiant and almost all of the other Issuers and denying the motion to dismiss the Section 10(b) claims against Chordiant and many of the Issuers.

In June 2003, Issuers and plaintiffs reached a tentative settlement agreement that would, among other things, result in the dismissal with prejudice of all claims against the Issuers and Individuals in the IPO Lawsuits, and the assignment to plaintiffs of certain potential claims that the Issuers may have against the underwriters. The tentative settlement also provides that, in the event
that plaintiffs ultimately recover less than a guaranteed sum of $1 billion from the IPO underwriters, plaintiffs would be entitled to payment by each participating Issuer’s insurer of a pro rata share of any shortfall in the plaintiffs’ guaranteed recovery. In September 2003, in connection with the possible settlement, those Individuals who had entered tolling agreements with plaintiffs (described above) agreed to extend those agreements so that they would not expire prior to any settlement being finalized. In June 2004, Chordiant and almost all of the other Issuers entered into a formal settlement agreement with the plaintiffs. On February 15, 2005, the Court issued a decision certifying a class action for settlement purposes, and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. On August 31, 2005, the Court reaffirmed class certification and preliminary approval of the modified settlement in a comprehensive Order, and directed that Notice of the settlement be published and mailed to class members beginning November 15, 2005. On February 24, 2006, the Court dismissed litigation filed against certain underwriters in connection with the claims to be assigned to the plaintiffs under the settlement. On April 24, 2006, the Court held a Final Fairness Hearing to determine whether to grant final approval of the settlement. On December 5, 2006, the Second Circuit Court of Appeals vacated the lower Court's earlier decision certifying as class actions the six IPO Lawsuits designated as "focus cases." The Court has ordered a stay of all proceedings in all of the IPO Lawsuits pending the outcome of Plaintiffs' rehearing petition to the Second Circuit. Accordingly, the Court's decision on final approval of the settlement remains pending.


If this settlement is not finalized as proposed, then this action may divert the efforts and attention of our management and, if determined adversely to us, could have a material impact on our business, results of operations, financial condition or cash flows.

On August 1, 2006, a stockholder derivative complaint was filed in the United States District Court for the Northern District of California by Jesse Brown under the caption Brown v. Kelly, et al. Case No. C06-04671 JW (N.D. Cal.).  On September 13, 2006, a second stockholder derivative complaint was filed in the United States District Court for the Northern District of California by Louis Suba under the caption Suba v. Kelly et al., Case No. C06-05603 JW (N.D. Cal.).  Both complaints were brought purportedly on behalf of the Company against certain current and former officers and directors.   On November 27, 2006, the court entered an order consolidating these actions and requiring the plaintiffs to file a consolidated complaint.  The consolidated complaint was filed on January 11, 2007.  The consolidated complaint alleges, among other things, that the named officers and directors: (a) breached their fiduciary duties as they colluded with each other to backdate stock options, (b) violated section 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder through their alleged actions, and (c) were unjustly enriched by their receipt and retention of such stock options.  The Company's response to the complaint is due on February 28, 2007. 

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

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




On August 1, 2006, our Annual Meeting of Stockholders was held in Cupertino, California. Of the 79,616,230 shares outstanding and entitled to vote as of the record date of June 15, 2006, 70,010,495 shares were present or represented by proxy at the meeting. At the meeting, stockholders were asked to vote with respect to (i) the election of two Class III directors to hold office until the 2009 Annual Meeting of Stockholders or until such time as their respective successors are elected and qualified and the election to re-designate one Class III director to Class II to hold office for the remaining Class II term until the 2008 Annual Meeting of Stockholders and (ii) the ratification of the selection of BDO Seidman, LLP as our independent registered public accounting firm for our fiscal year ending September 30, 2006.

The following nominees were elected as class III directors, each to hold office until the 2009 Annual Meeting of Stockholders or until such time as their respective successors are elected and qualified, by the vote set forth below:

 
Nominee
 
Votes For
  
Withheld
  
Broker Non-Votes
 
 
Samual T. Spadafora (1)
  
66,311,843
  
3,698,652
  
0
 
 
William J. Raduchel
  
67,926,871
  
2,083,624
  
0
 
                 
 
(1) On November 30, 2006 Mr. Spadafora resigned from the Board of Directors

The following nominee was re-designated from a class III director to a class II to hold office for the remaining class II term until the 2008 Annual Meeting of Stockholders or until such time as their respective successors are elected and qualified, by the vote set forth below:

 
Nominee
 
Votes For
  
Withheld
  
Broker Non-Votes
 
 
David A. Weymouth
  
67,833,889
  
2,176,606
  
0
 

 In addition to the directors elected above, David R. Springett, Steven R. Springsteel, Charles E. Hoffman and Richard G. Stevens continued to serve as directors after the annual meeting.
 
The selection of BDO Seidman, LLP as our independent registered public accounting firm for our fiscal year ended September 30, 2006 was ratified by the vote set forth below:
 
 
Votes For
  
Votes Against
  
Abstentions
  
Broker Non-Votes
 
 
69,859,087
  
133,075
  
18,333
  
0
 
 
The Company has changed the date of the 2007 annual meeting of stockholders which was previously scheduled to be held on or about March 1, 2007. The Company expects to hold the 2007 annual meeting of stockholders on April 24, 2007.


 

Our common stock is traded on the Nasdaq National Market under the symbol “CHRD.” The following table shows, for the periods indicated, the high and low per share sales prices of our common stock, as reported by the NASDAQ National Market. The prices appearing in the tables below reflect over-the-counter market quotations, which reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. 
 
 
 
High
 
Low
 
 
Year Ended September 30, 2006
 
 
 
 
 
 
 
First Quarter (October 1 - December 31)
$
3.00
 
$
2.49
 
 
Second Quarter (January 1 - March 31)
$
3.53
 
$
2.56
 
 
Third Quarter (April 1 - June 30)
$
3.60
 
$
2.86
 
 
Fourth Quarter (July 1 - September 30)
$
3.20
 
$
2.29
 
 
Year Ended September 30, 2005
    
 
 
 
 
 
First Quarter (October 1 - December 31)
$
3.50
 
$
1.78
 
 
Second Quarter (January 1 - March 31)
$
2.35
 
$
1.64
 
 
Third Quarter (April 1 - June 30)
$
2.16
 
$
1.38
 
 
Fourth Quarter (July 1 - September 30)
$
3.00
 
$
2.15
 

As of January 31, 2007, there were approximately 246 holders of record of our common stock who together held approximately 3,804,797 shares of our common stock. The remainder of our shares outstanding is held by brokers and other institutions on behalf of stockholders. We have never paid or declared any cash dividends. We currently expect to retain working capital for use in the operation and expansion of our business and therefore do not anticipate paying any cash dividends.
 
In response to the SEC’s adoption of Rule 10b5-1 under the Securities Exchange Act of 1934, we approved amendments to our insider trading policy on July 20, 2001 to permit our directors, executive officers and certain key employees to enter into trading plans or arrangements for systematic trading in our securities. We have been advised that certain of our directors, officers and key employees have entered into trading plans for selling shares in our securities. As of September 30, 2006, the directors and executive officers who have entered into trading plans include Samuel T. Spadafora who has since retired as an executive officer and resigned as a member of the Board and James D. St. Jean. We anticipate that, as permitted by Rule 10b5-1 and our insider trading policy, some or all of our directors, executive officers and employees may establish trading plans at some date in the future.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
For information relating to securities authorized for issuance under our equity compensation plans, please refer to the information under the heading, “Employee Benefit Plans” in Item 8, Footnote 13 of this Form 10-K.
 
Recent Sales of Unregistered Securities

On August 12, 2002, we entered into an agreement with IBM to market our products and services to customers. We issued a fully vested and exercisable warrant to purchase up to 0.2 million shares of common stock. The exercise price was set at $2.25 per share. The warrant was valued at $0.1 million based on the Black-Scholes model using the following assumptions: volatility: 105%, risk-free interest rate: 3.22% and fair market value of our common stock at the grant date: $0.84. The value of the warrant was recorded as a prepaid expense and was offset against revenue during 2003 upon the completion of an IBM revenue generating transaction. On September 20, 2006, IBM exercised the warrants in a cashless transaction resulting in 48,075 of Chordiant shares being issued to IBM.

The shares were issued under the exemption from registration under the Securities Act of 1933 (the”Act”) set forth in Section 4(2) of the Act




The consolidated balance sheet as of September 30, 2005 and the consolidated statements of operations for the fiscal year ended September 30, 2005 and the nine months ended September 30, 2004 have been restated as set forth in this 2006 Form 10-K. We derived the selected data for the nine months ended September 30, 2004 and years ended September 30, 2005 and 2006 from our audited restated consolidated financial statements and notes thereto appearing in this Form 10-K. The consolidated statements of operations data for the years ended December 31, 2002 and 2003 and the consolidated balance sheet date as of September 30, 2004, December 31, 2003 and 2002 have been restated to conform to the restated consolidated financial statements included in this Form 10-K and are presented herein on an unaudited basis. The data for the consolidated financial statements for the nine months ended September 30, 2004 and years ended December 31, 2003 and 2002 have been restated to reflect the impact of stock-based compensation adjustments described below, but such restated data have not been audited and are derived from the books and records of the Company. The diluted net loss per share computation excludes potentially dilutive shares of common stock (restricted stock, options and warrants to purchase common stock), since their effect would be anti-dilutive. See the notes to our Consolidated Financial Statements for a detailed explanation of the determination of the shares used to compute basic and diluted net loss per share. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes thereto included in Item 8 of this Form 10-K to fully understand factors that may affect the comparability of the information presented below. The information presented in the following tables has been adjusted to reflect the restatement of the Company’s financial results, which is more fully described in the “Explanatory Note” preceding Part 1, Item 1 and in Note 3 “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements in this Form 10-K.

The Company has not amended its previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by this restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Annual Report on Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon.

 
Years Ended September 30,
  
Nine Months Ended September 30,
  
Years Ended December 31,
   
2006
      
2005
      
2004
      
2003
      
2002
  
           
Restated(1)
      
Restated(1)
      
Restated(1)(2)
      
Restated(1)(2)
  
 
(amounts in thousands, except per share data)
Consolidated Statement of Operations Data:
 
                          
 
  
 
  
 
Revenues
$
97,536
 
  
$
83,725
 
  
$
61,023
    
$
68,266
 
  
$
73,851
 
Net loss
 
(16,001
)
  
 
(19,865
)
  
 
(1,371
)
    
(17,932
)
  
 
(35,036
)
Net loss per share—basic and diluted
$
(0.21
)
  
$
(0.27
)
  
$
(0.02
)
  
$
(0.30
)
  
$
(0.64
)
Weighted average shares used in computing basic and diluted net loss per share
 
77,682
 
  
 
74,449
 
  
 
69,761
      
59,353
 
  
 
55,055
 
                                       
 
Years Ended September 30,
  
Years Ended December 31,
   
2006
      
2005
      
2004
      
2003
      
2002
  
           
Restated(1)
      
Restated(1)
      
Restated(1)(2)
      
Restated(1)(2)
  
 
(amounts in thousands, except per share data)
Consolidated Balance Sheet Data:
                                      
Cash and cash equivalents
$
45,278
 
  
$
38,546
 
  
$
55,748
    
$
36,218
 
  
$
30,731
 
Working capital
 
22,323
 
  
 
23,733
 
  
 
46,296
    
 
19,480
 
  
 
20,569
 
Total assets
 
111,503
 
  
 
107,250
 
  
 
115,340
    
 
83,811
 
  
 
90,759
 
Current and long term portion of capital lease obligations
 
95
 
  
 
309
 
  
 
508
    
 
—
 
  
 
—
 
Short-term and long-term borrowings
 
—
 
  
 
—
 
  
 
—
    
 
—
 
  
 
1,250
 
Short-term and long-term deferred revenue
 
29,505
 
  
 
26,197
 
  
 
20,581
    
 
18,396
 
  
 
18,594
 
Stockholders’ equity
$
57,225
 
  
$
65,157
 
  
$
75,912
    
$
48,350
 
  
$
50,811
 

(1) See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments 



 
Years Ended September 30,
  
Nine Months Ended September 30
 
2005 (1)
  
2004 (1)
   
As
previously
reported
      
Adjustment
      
Restated
      
As
previously
reported
      
Adjustment
      
Restated
  
 
(amounts in thousands, except per share data)
Consolidated Statement of Operations Data:
                    
 
  
 
                  
 
Revenues
$
83,725
 
  
$
—
    
$
83,725
 
  
$
61,023
    
$
—
    
$
61,023
 
Net loss
 
(19,540
)
  
 
(325
)
    
(19,865
)
  
 
(443
)
  
 
(928
)
  
 
(1,371
)
Net loss per share—basic and diluted
$
(0.26
)
  
$
(0.01
)
  
$
(0.27
)
  
$
(0.01
)
  
$
(0.01
)
  
$
(0.02
)
Weighted average shares used in computing basic and diluted net loss per share
 
74,449
 
  
 
—
      
74,449
 
  
 
69,761
    
 
—
    
 
69,761
 
                                               
 
September 30,
 
2005 (1)
  
2004 (1)
   
As
previously
reported
      
Adjustment
      
Restated
      
As
previously
reported
      
Adjustment
      
Restated
  
 
(amounts in thousands, except per share data)
Consolidated Balance Sheet Data:
                                              
Cash and cash equivalents
$
38,546
 
  
$
—
    
$
38,546
 
  
$
55,748
    
$
—
    
$
55,748
 
Working capital
 
24,133
 
  
 
(400
)
  
 
23,733
 
  
 
46,560
    
 
(264
)
  
 
46,296
 
Total assets
 
107,250
 
  
 
—
    
 
107,250
 
  
 
115,340
    
 
—
    
 
115,340
 
Current and long term portion of capital lease obligations
 
309
 
  
 
—
    
 
309
 
  
 
508
    
 
—
    
 
508
 
Short-term and long-term borrowings
 
—
 
  
 
—
    
 
—
 
  
 
—
    
 
—
    
 
—
 
Short-term and long-term deferred revenue
 
26,197
 
  
 
—
    
 
26,197
 
  
 
20,581
    
 
—
    
 
20,581
 
Stockholders’ equity
$
65,557
 
  
$
(400
)
  
$
65,157
 
  
$
76,176
    
$
(264
)
  
$
75,912
 

(1) See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments.




   
Years ended December 31,
   
2003 (1) (2)
  
2002 (1) (2)
     
As
previously reported
      
Adjustment
      
Restated
      
As
previously reported
      
Adjustment
      
Restated
  
   
(amounts in thousands, except per share data)
Consolidated Statement of Operations Data:
                      
 
  
 
                  
 
Revenues
  
$
68,266
 
  
$
—
    
$
68,266
 
  
$
73,851
    
$
—
    
$
73,851
 
Net loss
  
 
(16,403
)
  
 
(1,529
)
  
 
(17,932
)
  
 
(32,321
)
  
 
(2,715
)
  
 
(35,036
)
Net loss per share—basic and diluted
  
$
(0.28
)
  
$
(0.02
)
  
$
(0.30
)
  
$
(0.59
)
  
$
(0.05
)
  
$
(0.64
)
Weighted average shares used in computing basic and diluted net loss per share
  
 
59,353
 
  
 
—
    
 
59,353
 
  
 
55,055
    
 
—
    
 
55,055
 
                                                 
   
December 31,
   
2003 (1) (2)
  
2002 (1) (2)
     
As
previously
reported
      
Adjustment
      
Restated
      
As
previously
reported
      
Adjustment
      
Restated
  
   
(amounts in thousands, except per share data)
Consolidated Balance Sheet Data:
                                                
Cash and cash equivalents
  
$
36,218
 
  
$
—
    
$
36,218
 
  
$
30,731
    
$
—
    
$
30,731
 
Working capital
  
 
19,576
 
  
 
(96
)
  
 
19,480
 
  
 
20,569
    
 
—
    
 
20,569
 
Total assets
  
 
83,811
 
  
 
—
    
 
83,811
 
  
 
90,759
    
 
—
    
 
90,759
 
Short-term and long-term borrowings
  
 
—
 
  
 
—
    
 
—
 
  
 
1,250
    
 
—
    
 
1,250
 
Short-term and long-term deferred revenue
  
 
18,396
 
  
 
—
    
 
18,396
 
  
 
18,594
    
 
—
    
 
18,594
 
Stockholders’ equity
  
$
48,446
 
  
$
(96
)
  
$
48,350
 
  
$
50,811
    
$
—
    
$
50,811
 

(1)  
See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments.

(2)  
The unaudited consolidated statements of operations data for the fiscal years ended December 31, 2003 and 2002, and the unaudited consolidated balance sheet data as of September 30, 2004, December 31, 2003 and 2002 have been revised to reflect adjustments related to the restatement described below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Restatement of Consolidated Financial Statements” and Note 3 of the Notes to the Consolidated Financial Statements. The cumulative after tax impact of all restatement adjustments related to years prior to 2002 totaled $2.6 million and these amounts are reflected in the restated stockholders’ equity at December 31, 2001. The impact on previously reported net loss of these adjustments was a decrease of $2.1 million and $0.5 million or 4.9% and 1.3% for the fiscal years 2001 and 2000, respectively. The impact on previously reported basic and diluted loss per share of these adjustments was an increase in loss per share of ($0.04) and ($0.01) for fiscal years 2001 and 2000, respectively

No dividends have been paid or declared since our inception. Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets,” and ceased amortizing goodwill balances. Effective October 1, 2005, the Company adopted SFAS No. 123R as more fully described in Note 1 to the Consolidated Financial Statements contained in this Annual Report.
 


ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Safe Harbor

The following discussion and analysis contains forward-looking statements. These statements are based on our current expectations, assumptions, estimates and projections about our business and our industry, and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s results, levels of activity, performance or achievement to be materially different from any future results, levels of activity, performance or achievements expressed or implied in or contemplated by the forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “should,” “estimate,” “predict,” “guidance,” “potential,” “continue” or the negative of such terms or other similar expressions, identify forward-looking statements. Our actual results and the timing of events may differ significantly from those discussed in the forward-looking statements as a result of various factors, including but not limited to, those discussed in Item 1 of this Form 10-K under the caption “Risk Factors” and those discussed elsewhere in this Annual Report and in our other filings with the Securities and Exchange Commission. Chordiant undertakes no obligation to update any forward-looking statement to reflect events after the date of this report.
 
Restatement of Consolidated Financial Statements and Related Proceedings

The following information has been adjusted to reflect the restatement of the Company’s financial results, which is more fully described in the “Explanatory Note” immediately preceding Part I, Item 1 and in Note 3, “Restatement of Consolidated Financial Statements” in Notes to Consolidated Financial Statements of this Form 10-K. The impact of the restatements on the Company’s results of operations resulted in an increase in stock-based compensation expenses and associated payroll tax expense of $2.1 million, $2.7 million, $1.5 million for the twelve months ended December 31, 2001, 2002, 2003, respectively, $0.9 million for the nine months ended September 30, 2004, $0.3 million for the twelve months ended 2005, and $0.2 million for the twelve months ended 2006.

Executive Overview
 
As an enterprise software vendor, we generate substantially all of our revenues from the financial services, telecommunications, and retail industries. Our customers typically fund purchases of our software and services out of their lines of business and information technology budgets. As a result, our revenues are heavily influenced by our customers’ long-term business outlook and willingness to invest in new enterprise information systems and business applications.
 
Beginning in late calendar 2000, the financial services and telecommunications industries entered into a steep and long economic downturn, with industry sales dropping from late 2000 through the first part of 2003. Over the past several years, our customers have focused on controlling costs and reducing risk, including constraining information technology and lines of business expenditures and requiring more favorable pricing terms from their suppliers and pursuing consolidation within their own industries. As a result of this downturn, our license fee revenues declined 19% in fiscal 2003.
 
Beginning in the latter part of 2003, economic conditions began to show signs of improvement, which were reflected in increases in various economic indicators such as productivity, labor statistics and consumer confidence. This trend has continued through our fiscal year 2006 and appears to have had a favorable impact, specifically in information technology spending. For the year ended September 30, 2006 and 2005 and the nine months ended September 30, 2004, we were able to grow total revenues on a year over year basis.

Software Industry Consolidation and Possible Increased Competition

The software industry in general is continuing to undergo a period of consolidation, and there has been recent consolidation in sectors of the software industry in which we operate. During 2006, Oracle completed the acquisition of i-flex Solutions Ltd., a banking software maker headquartered in Mumbai, India, acquired Siebel Systems, Inc., a maker of customer relationship management software products and acquired Portal Software, a provider of billing and revenue management solutions for the communications and media industry. Also, during 2006, IBM acquired Webify, a provider of middleware to companies primarily in the insurance industry.

In September 2005, IBM acquired DWL, a provider of middleware to companies in the banking, insurance, retail and telecommunications industries. In September 2005, SSA Global Technologies acquired Epiphany, Inc., a maker of customer relationship management software products. While we do not believe that these acquired companies are direct competitors of Chordiant, the acquisition activity of these large corporations of software providers to the industries we target may indicate that we will face increased competition from significantly larger and more established entities in the future.


Stock-based Compensation Expense
 
On October 1, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors related to employee stock options (“employee stock purchases”) based on estimated fair values. Stock-based compensation expense recognized under SFAS 123(R) for the year ended September 30, 2006 was $4.7 million which consisted of stock-based compensation expense related to employee stock options of $2.7 million and stock-based compensation expense related to restricted stock awards of $2.0 million.
 
Upon adoption of SFAS 123(R), we began estimating the value of employee stock options on the date of grant using the Black-Scholes model. Prior to the adoption of SFAS 123(R), the value of each employee stock option was estimated on the date of grant using the Black-Scholes model for the purpose of the pro forma financial information in accordance with SFAS 123. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The use of a Black-Scholes model requires the use of extensive actual employee exercise behavior data and the use of a number of complex assumptions including expected volatility, risk-free interest rates, expected lives and expected dividend yields. The weighted-average estimated value of employee stock options granted during the twelve months ended September 30, 2006 was $1.99 per share using the Black-Scholes model with the following weighted-average assumptions:

   
For the twelve months ended September 30,
  
For the nine
months ended September 30,
  
     
2006
      
2005
      
2004
    
 
Expected lives in years
 
3.9
 
  
 
2.6
 
    
2.6
 
  
 
Risk free interest rates
 
4.8
%
  
 
3.3
%
    
2.8
%
  
 
Volatility
 
88
%
  
 
98
%
    
85
%
  
 
Dividend yield
 
0
%
  
 
0
%
    
0
%
  
 
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model with the weighted average assumptions for volatility, expected term and risk-free rate. With the adoption of SFAS 123(R) on October 1, 2005, we used the trinomial lattice valuation technique to determine the assumptions used in the Black-Scholes model. The trinomial lattice valuation technique was used to provide a better estimate of fair values and meet the fair value objectives of SFAS 123( R). The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free interest rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. The expected volatility rate is based on the historical volatility of our stock price.

As stock-based compensation expense recognized in the consolidated statement of operations for fiscal year 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

If factors change and we employ different assumptions in the application of SFAS 123(R) in future periods, the compensation expense that we record under SFAS 123(R) may differ significantly from what we have recorded in the current period. The estimated value of a stock option is most sensitive to the volatility assumption. Based on the September 30, 2006 variables, it is estimated that a change of 10% in either the volatility, expected life or interest rate assumption would result in a corresponding 7%, 4% or 1% change in the estimated value of the option being valued using the Black-Scholes model.

Financial Trends
 
Backlog. An increasingly material portion of our revenues has been derived from large orders, as major customers deployed our products. As of September 30, 2006 and 2005, we had approximately $36 million and $33 million, respectively, in backlog, which we define as contractual commitments by our customers through purchase orders or contracts. Backlog is comprised of:

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

• deferred revenue from customer support contracts;



• consulting service orders representing the unbilled remaining balances of consulting contracts not yet completed or delivered, plus deferred consulting revenue; and

• education orders for services not yet completed or delivered.

Backlog is not necessarily indicative of revenues to be recognized in a specified future period and except for items included in non-current deferred revenue, backlog is generally recognizable as revenue within a twelve-month period. There are many factors that would impact Chordiant’s conversion of backlog as recognizable revenue, such as Chordiant’s progress in completing projects for its customers, Chordiant’s customers meeting anticipated schedules for customer-dependent deliverables and customers increasing the scope or duration of a contract causing license revenue to be deferred for a longer period of time.
 
Chordiant provides no assurances that any portion of its backlog will be recognized as revenue during any fiscal year or at all or that its backlog will be recognized as revenues in any given period. In addition, it is possible that customers from whom we expect to derive revenue from backlog will default and as a result we may not be able to recognize expected revenue from backlog.

Product Development. Chordiant has entered into several product co-development arrangements with its customers. These projects relate to software products that were in various stages of development prior to the consummation of the individual arrangements. Upon the completion of the software, the Company intends to license these products to other customers. License revenue relating to these arrangements will be deferred until the delivery of the final products, provided all other requirements of SOP 97-2 are met. Expenses associated with these co-development arrangements are expensed as incurred as they are considered to be research and development costs that do not qualify for capitalization or deferral. The accounting for these transactions differs from the percentage of completion method or completed contract method, as expenses are recognized in the period incurred and no revenue is recognized until the final product is delivered. As of September 30, 2006, license fees aggregating approximately $2.6 million associated with these arrangements had been deferred. We expect that research and development costs will increase as the volume of co-development activities increase.
 
Gross margins. Management focuses on license and service gross margin in evaluating our financial condition and operating performance. Gross margins on license revenues were 96%, 97%, and 94% for twelve months ended September 30, 2006, 2005, and 2004, respectively. The changes in gross margins are primarily related to the amortization expense associated with capitalized software development costs pertaining to a banking product. We expect license gross margin on current products to range from 95% to 97% in the foreseeable future. The margin will fluctuate with the mix of products sold. Historically, the enterprise solution products have higher associated third party royalty expense than the marketing solution products and decision management products. The banking product that was completed during the year ended September 30, 2005 also has higher royalties than other products.
 
Gross margins on service revenues were 46%, 42%, and 40% for the twelve months ended September 30, 2006, 2005, and 2004, respectively. The increase in gross margins from 2005 and 2004 is primarily due to improved service utilization rates in the U.S. In addition, margins increased as a result of the company switching to lower cost third party service providers and an increase in higher margin post-contract customer support revenues.
 
Service revenues. Service revenues as a percentage of total revenues were 58%, 62%, and 59% for the twelve months ended September 30, 2006, 2005, and 2004, respectively. We expect that service revenues will represent between 50% and 60% of our total revenues in the foreseeable future.
 
Revenues from international customers versus North America revenues. For all periods presented, revenues were principally derived from customer accounts in North America and Europe. For the twelve months ended September 30, 2006, 2005, and 2004, international revenues were $37.5 million, $42.0 million, and $45.3 million or approximately 38%, 50%, and 56% of our total revenues, respectively. We believe international revenues will continue to represent a significant portion of our total revenues in future periods. International revenues were negatively impacted for the fiscal year ended September 30, 2006, as compared to fiscal year ended September 30, 2005, as both the British Pound and the Euro decreased in average value by less than 1% and approximately 3%, respectively, as compared to the U.S. Dollar.
 
For the twelve months ended September 30, 2006, 2005, and 2004, North America revenues were $60.0 million, $41.7 million, and $30.2 million or approximately 62%, 50%, and 44%% of our total revenues, respectively. As the U.S. economy has strengthened, we have seen an increase in North America revenues. Large customers have become more willing to invest in new enterprise infrastructure projects. We believe North America revenues will continue to represent an increasing portion of our total revenues in the future.
 


Acquisition of KiQ Limited. On December 21, 2004, we acquired KiQ Limited, a privately-held United Kingdom software company with branch offices in the Netherlands (“KiQ”), specializing in the development and sales of decision management systems. The year ended September 30, 2005 includes the revenue and expense of KiQ from the acquisition date, December 21, 2004, through the end of the fiscal year, September 20, 2005. The year ended September 30, 2006 includes the revenues and expenses of KiQ for the entire fiscal year. The acquisition resulted in an increase to our headcount of approximately 20 employees as of the acquisition date. The majority of these individuals are in the Cost of Service and Research and Development areas, accordingly personnel costs are now higher in these categories for the years ended September 30, 2005 and 2006. KiQ operations have been integrated into the financial operations and the decision management products are actively being marketed to customers across all regions.

Costs related to compliance with the Sarbanes-Oxley Act of 2002. Significant professional services are included in general and administrative costs relating with efforts to comply with the Sarbanes-Oxley Act of 2002. For the year ended September 30, 2006 and 2005, these costs were $1.8 million, and $4.5 million, respectively. We expect these costs to continue for the year ended September 30, 2007. While these costs are expected to decline as compared to the costs incurred for the year ended September 30, 2006, the level and timing of the decline is uncertain.

Costs related to stock option investigation. Significant professional services are included in general and administrative costs associated with the Company’s stock option investigation which is more fully described in the “Explanatory Note” immediately preceding Part I, Item 1 and in Note 3, “Restatement of Previously Issued Consolidated Financial Statements” in Notes to Consolidated Financial Statements of this Form 10-K. For the year ended September 30, 2006, these costs were $1.2 million. We expect these costs to continue through the first half of fiscal year 2007. In the first quarter of fiscal 2007, we incurred aggregate costs of $1.0 million.

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

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

The Company estimates that it will record pre-tax cash restructuring charges, in the first quarter of fiscal year 2007 of approximately $1.9 to $2.1 million for severance costs, between $4.0 million to $4.8 million for exiting excess facilities, and $0.1 million for other charges. The facilities are subject to operating leases expiring thru 2010. The Company anticipates that between $5.2 million to $6.2 million of the charge will result in cash expenditures of which the majority will be severance paid in cash during the first quarter of fiscal year 2007.

 In July 2005, we undertook an approximate 10% reduction in our workforce. In connection with this action, we incurred a one-time cash charge of approximately $1.0 million in the fourth quarter ended September 30, 2005 for severance benefits.

Past results may not be indicative of future performance. We believe that period-to-period comparisons of our operating results should not be relied upon as indicative of future performance. Our prospects must be considered given the risks, expenses and difficulties frequently encountered by companies in early stages of development, particularly companies in new and rapidly evolving businesses. There can be no assurance we will be successful in addressing these risks and difficulties. Moreover, we may not achieve or maintain profitability in the future.
 
Critical Accounting Estimates
 
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
 
On an on-going basis, we evaluate the estimates, including those related to our allowance for doubtful accounts, valuation of stock-based compensation, valuation of goodwill and intangible assets, valuation of deferred tax assets, restructuring costs, contingencies, vendor specific objective evidence (“VSOE”) of fair value in multiple element arrangements and the estimates associated with the percentage-of-completion method of accounting for certain of our revenue contracts. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



We believe the following critical accounting judgments and estimates are used in the preparation of our consolidated financial statements:
 
• Revenue recognition, including estimating the total estimated time required to complete sales arrangements involving significant implementation or customization essential to the functionality of our products;
 
• Estimating valuation allowances and accrued liabilities, specifically the allowance for doubtful accounts, and assessment of the probability of the outcome of our current litigation;

• Stock-based compensation expense;

• Accounting for income taxes;

• Valuation of long-lived and intangible assets and goodwill;
 
• Restructuring costs; and
 
• Determining functional currencies for the purposes of consolidating our international operations.
 
Revenue recognition. We derive revenues from licenses of our software and related services, which include assistance in implementation, customization and integration, post-contract customer support, training and consulting. The amount and timing of our revenue is difficult to predict and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter and could result in increased operating losses. The accounting rules related to revenue recognition are complex and are affected by interpretation of the rules and an understanding of industry practices, both of which are subject to change. Consequently, the revenue recognition accounting rules require management to make significant estimates based on judgments.
 
Software license revenue is recognized in accordance with Statement of Position No. 97-2 “Software Revenue Recognition,” as amended by Statement of Position No. 98-9 “Software Revenue Recognition with Respect to Certain Arrangements” (collectively “SOP 97-2”).
 
For arrangements with multiple elements, we recognize revenue for services and post-contract customer support based upon VSOE of fair value of the respective elements. VSOE of fair value for the services element is based upon the standard hourly rates we charge for the services when such services are sold separately. The VSOE of fair value for annual post-contract customer support is generally established with the contractual future renewal rates included in the contracts when the renewal rate is substantive and consistent with the fees when support services are sold separately. When contracts contain multiple elements and VSOE of fair value exists for all undelivered elements, we account for the delivered elements, principally the license portion, based upon the “residual method” as prescribed by SOP 97-2. In multiple element transactions where VSOE is not established for an undelivered element, we recognize revenue upon the establishment of VSOE for that element or when the element is delivered.

At the time we enter into a transaction, we assess whether any services included within the arrangement require us to perform significant implementation or customization essential to the functionality of our products.
 
For contracts for products that do not involve significant implementation or customization essential to the product functionality, we recognize license revenues when there is persuasive evidence of an arrangement, the fee is fixed or determinable, collection of the fee is probable and delivery has occurred as prescribed by SOP No. 97-2.
 
For contracts that involve significant implementation or customization essential to the functionality of our products, we recognize the license and professional consulting services revenue using either the percentage-of-completion method or the completed contract method as prescribed by Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Product-Type Contracts” (“SOP 81-1”).
 
The percentage-of-completion method is applied when we have the ability to make reasonable dependable estimates of the total effort required for completion using labor hours incurred as the measure of progress towards completion. The progress toward completion is measured based on the “go-live” date. We define the “go-live” date as the date the essential product functionality has been delivered or the application enters into a production environment or the point at which no significant additional Chordiant supplied professional service resources are required. Estimates are subject to revisions as the contract progresses to completion. We account for the changes as changes in accounting estimates when the information becomes known. Information impacting estimates obtained after the balance sheet date but before the issuance of the financial statements is used to update the estimates. Provisions for estimated contract losses, if any, are recognized in the period in which the loss becomes


probable and can be reasonably estimated. When we sell additional licenses related to the original licensing agreement, revenue is recognized upon delivery if the project has reached the go-live date, or if the project has not reached the go-live date, revenue is recognized under the percentage-of-completion method. We classify revenues from these arrangements as license and service revenues based upon the estimated fair value of each element using the residual method.
 
The completed contract method is applied when we are unable to obtain reasonable dependable estimates of the total effort required for completion. Under the completed contract method, all revenue and related costs of revenue are deferred and recognized upon completion.
 
For product co-development arrangements relating to software products in development prior to the consummation of the individual arrangements, where the Company retains the intellectual property being developed, and intends to sell the resulting products to other customers, license revenue is deferred until the delivery of the final product, provided all other requirements of SOP 97-2 are met. Expenses associated with these co-development arrangements are accounted for under SFAS 86 and are normally expensed as incurred as they are considered to be research and development costs that do not qualify for capitalization or deferral.

Revenue from subscription or term license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period. Revenue from subscription or term license agreements, which include software, but exclude rights to unspecified future products or maintenance, is recognized upon delivery of the software if all conditions of recognizing revenue have been met including that the related agreement is non-cancelable, non-refundable and provided on an unsupported basis.
 
In situations in which we are obligated to provide unspecified additional software products in the future, we recognize revenue as a subscription ratably over the term of the subscription period.
 
Revenues generated from fees charged to customers for providing transaction processing are recognized as revenue in the same period as the related transactions occur.
 
We recognize revenue for post-contract customer support ratably over the support period which ranges from one to three years.

Our training and consulting services revenues are recognized as such services are performed on an hourly or daily basis for time and material contracts. For consulting services arrangements with a fixed fee, we recognize revenue on the proportional performance method.
  
For all sales we use either a signed license agreement or a binding purchase order where we have a master license agreement as evidence of an arrangement. Sales through our third party systems integrators are evidenced by a master agreement governing the relationship together with binding purchase orders or order forms on a transaction-by-transaction basis. Revenues from reseller arrangements are recognized on the “sell-through” method, when the reseller reports to us the sale of our software products to end-users. Our agreements with customers and resellers do not contain product return rights.

We assess collectibility based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. We generally do not request collateral from our customers. If we determine that the collection of a fee is not probable, we defer the fee and recognize revenue at the time collection becomes probable, which is generally upon the receipt of cash. If a transaction includes extended payment terms, we recognized revenue as the payments become due and payable.
 
Allowance for doubtful accounts. We must make estimates of the uncollectability of our accounts receivables. We specifically analyze accounts receivable and analyze historical bad debts, customer concentrations, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Generally, we require no collateral from our customers. Our gross accounts receivable balance was $19.1 million with an allowance for doubtful accounts of $0.1 million as of September 30, 2006. Our gross accounts receivable balance was $19.2 million with an allowance for doubtful accounts of $0.2 million as of September 30, 2005. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required. To date bad debts have not been material and have been within management’s expectations.

Stock-based Compensation Expense. Upon adoption of SFAS 123(R) on October 1, 2005, we began estimating the value of employee stock options on the date of grant using the Black-Scholes model. Prior to the adoption of SFAS 123(R), the value of each employee stock option was estimated on the date of grant using the Black-Scholes model for the purpose of the pro forma financial disclosure in accordance with SFAS 123. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex


and subjective variables. These variables include, but are not limited to the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The expected volatility is based on the historical volatility of our stock.
 
With the adoption of SFAS 123(R) on October 1, 2005, we used the trinomial lattice valuation technique to determine the assumptions used in the Black-Scholes model. The trinomial lattice valuation technique was used to provide better estimates of fair values and meet the fair value objectives of SFAS 123(R).
 
In connection with the Company’s restatement of its consolidated financial statements, the Company has applied judgment in choosing whether to revise measurement dates for prior options grants. Information regarding the restatement, including ranges of possible additional stock-based compensation expense if other measurement dates had been selected for certain grants, is set forth in Note 3-“Restatement of Previously Issued Consolidated Financial Statements” in the Notes to Consolidated Financial Statements of this Form 10-K.

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

We have recorded a valuation allowance equal to 100% of the deferred tax assets as of September 30, 2006, due to uncertainties related to our ability to utilize our net deferred tax assets, primarily consisting of certain net operating losses carried forward and research and development tax credits. Deferred tax assets have been fully reserved for in all periods presented.
 
Valuation of long-lived and intangible assets and goodwill. We assess the impairment of identifiable intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Furthermore, we assess the impairment of goodwill annually. Factors we consider important which could trigger an impairment review include the following:
 
• Significant underperformance relative to expected historical or projected future operating results;
 
• Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

• Significant negative industry or economic trends;

• Significant decline in our stock price for a sustained period;
 
• Market capitalization declines relative to net book value; and
 
• A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
 
When one or more of the above indicators of impairment occurs we estimate the value of long-lived assets and intangible assets to determine whether there is impairment. We measure any impairment based on the projected discounted cash flow method, which requires us to make several estimates including the estimated cash flows associated with the asset, the period over which these cash flows will be generated and a discount rate commensurate with the risk inherent in our current business model. These estimates are subjective and if we made different estimates, it could materially impact the estimated fair value of these assets and the conclusions we reached regarding an impairment. To date, we have not identified any triggering events which would require us to perform this analysis.
 
We are required to perform an impairment review of our goodwill balance on at least an annual basis. This impairment review involves a two-step process as follows:
 
Step 1—We compare the fair value of our reporting units to the carrying value, including goodwill, of each of those units. For each reporting unit where the carrying value, including goodwill, exceeds the unit’s fair value, we proceed on to Step 2. If a unit’s fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary.



Step 2—We perform an allocation of the fair value of the reporting unit to our identifiable tangible and non-goodwill intangible assets and liabilities. This derives an implied fair value for the reporting unit’s goodwill. We then compare the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of its goodwill, an impairment charge would be recognized for the excess.
 
We determined that we have one reporting unit. We completed a goodwill impairment review for the period including September 30, 2006 and 2005 and performed Step 1 of the goodwill impairment analysis required by Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” and concluded that goodwill was not impaired as of September 30, 2006 and 2005 using the methodology described above. Accordingly, Step 2 was not performed. We will continue to test for impairment on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying amount.

Restructuring costs. During fiscal years 2005, 2003, and the nine months ended September 30, 2004, we implemented cost-reduction plans as part of our continued effort to streamline our operations to reduce ongoing operating expenses. In October 2006, we implemented a restructuring plan intended to align our resources and cost structure. These plans resulted in restructuring charges related to, among others, the consolidation of excess facilities. These charges relate to facilities and portions of facilities we no longer utilize and either seek to terminate early or sublease. Lease termination costs and brokerage fees for the abandoned facilities were estimated for the remaining lease obligations and were offset by estimated sublease income. Estimates related to sublease costs and income are based on assumptions regarding the period required to locate and contract with suitable sub-lessees and sublease rates which can be achieved using market trend information analyses provided by a commercial real estate brokerage retained by us. Each reporting period we review these estimates and to the extent that these assumptions change due to new agreements with landlords, new subleases with tenants, or changes in the market, the ultimate restructuring expenses for these abandoned facilities could vary by material amounts.

Determining functional currencies for the purpose of consolidation. We have several foreign subsidiaries that together account for a significant portion of our revenues, expenses, assets and liabilities.
 
In preparing our consolidated financial statements, we are required to translate the financial statements of the foreign subsidiaries from the currency in which they keep their accounting records, generally the local currency, into United States dollars. This process results in exchange gains and losses which, under the relevant accounting guidance are either included within the statement of operations or as a separate part of our net equity under the caption “accumulated other comprehensive income (loss).” Under the relevant accounting guidance, the treatment of these translation gains or losses is dependent upon management’s determination of the functional currency of each subsidiary. The functional currency is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary conducts a majority of its transactions, including billings, financing, payroll and other expenditures would be considered the functional currency but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered.

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

Based on our assessment of the factors discussed above, we consider the relevant subsidiary’s local currency to be the functional currency for each of our international subsidiaries. Accordingly, foreign currency translation gains and loses are included as part of accumulated other comprehensive income within our balance sheet for all periods presented.
 
The magnitude of these gains or losses is dependent upon movements in the exchange rates of the foreign currencies in which we transact business against the United States dollar. These currencies include the United Kingdom Pound Sterling, the Euro and the Canadian Dollar. Any future translation gains or losses could be significantly higher than those reported in previous periods. At September 30, 2006, approximately $14.6 million of our cash and cash equivalents were held by our subsidiaries outside of the United States.
 
Prior to June 30, 2005, the settlement of accumulated intercompany loans and advances was not planned or anticipated. Loans and advances made subsequent to this date are anticipated as cash balances may need to be transferred between entities. Exchange gains or losses on these intercompany balances are reflected in the statement of operations.


 
Recent Accounting Pronouncements

In December 2006, the Financial Accounting Standards Board (FASB) issued Staff Position (FSP) EITF 00-19-2, “Accounting for Registration Payment Arrangements.” This FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, “Accounting for Contingencies.” The guidance is effective for fiscal years beginning December 15, 2006. The Company has evaluated the new pronouncement and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 provides guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The guidance is applicable for fiscal years ending after November 15, 2006. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, (“SFAS 157”) “Fair Value Measurement.” SFAS 157 defines fair value, establishes a framework for measuring fair value, and also expands disclosures about fair value measurements. The SFAS 157 is effective for periods beginning after November 15, 2007. The Company is currently evaluating the effects of implementing this new standard.

In September 2006, the FASB issued SFAS No. 158, (“SFAS 158”) “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132R.” SFAS 158 requires an entity to recognize in its statement of financial position an asset for a defined benefit postretirement plan’s overfunded status or a liability for a plan’s under funded status. The requirement to recognize the funded status of a defined postretirement plan and the disclosure requirements are effective for fiscal years ending after December 31, 2006. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in its financial statements the impact of a tax position based on the technical merits of the position. This interpretation is effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings; accordingly, the Company expects to adopt this standard in its fiscal year commencing October 1, 2007. The Company is currently evaluating the effects of implementing this new standard.

In March 2006, the FASB Emerging Issues Task Force issued Issue 06-3 (EITF 06-3), “How Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement.” A tentative consensus was reached that a company should disclose its accounting policy (i.e., gross or net presentation) regarding presentation of taxes within the scope of EITF 06-3. If taxes are significant, a company should disclose the amount of such taxes for each period for which an income statement is presented. The guidance is effective for periods beginning after December 15, 2006. The Company presents sales net of sales taxes in its consolidated statement of operations and does not anticipate changing its policy as a result of EITF 06-3.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140”, which is effective for fiscal years beginning after September 15, 2006. This statement was issued to simplify the accounting for servicing rights and to reduce the volatility that results from using different measurement attributes. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140”, which is effective for fiscal years beginning after September 15, 2006. The statement was issued to clarify the application of FASB Statement No. 133 to beneficial interests in securitized financial assets and to improve the consistency of accounting for similar financial instruments, regardless of the form of the instruments. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In November 2005, the FASB issued Staff Position (“FSP”) FAS123(R)-3, “Transition Election to Accounting for the Tax Effects of Share-Based Payment Awards.” This FSP requires an entity to follow either the transition guidance for the additional-paid-in-capital pool as prescribed in SFAS No. 123(R), or the alternative transition method as described in the FSP. An entity that


adopts SFAS No. 123(R) using the modified prospective application may make a one-time election to adopt the transition method described in this FSP. An entity may take up to one year from the later of its initial adoption of SFAS No. 123(R) or the effective date of this FSP to evaluate its available transition alternatives and make its one-time election. This FSP became effective in November 2005. The Company has elected the alternative transition method as described in the FSP.

In November 2005, the FASB issued FSP FAS115-1/124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” which addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statements No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.
 
In June 2005, the FASB issued SFAS No. 154 (“SFAS 154”), “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. The Company does not believe adoption of SFAS 154 will have a material effect on our consolidated financial position, results of operations or cash flows.
 
In March 2005, the FASB issued Financial Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143.” FIN 47 requires asset retirement obligations to be recorded when a legal obligation exists even though the timing and/or method of the settlement of such obligations is conditional on a future event. FIN 47 is effective for fiscal years beginning after December 15, 2005. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.
 
In December 2004, the FASB issued FSP No. FSP 109-2 (“FSP 109-2”), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004.” FSP 109-2 provides guidance under FASB Statement No. 109 (“SFAS 109”), “Accounting for Income Taxes,” with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on enterprises’ income tax expense and deferred tax liability. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed
time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109. FSP 109-2 is effective for fiscal years after December 15, 2005. The Company has evaluated the impact of the repatriation provisions and has determined that it will not have a material impact on its consolidated financial statements.



Results of Operations

On December 29, 2004, Chordiant’s Board of Directors approved a change in the Company’s fiscal year end from December 31 to September 30. The nine-month results reported by the Company relate to the transitional period ended September 30, 2004. The financial information for the twelve months ended September 30, 2004 is unaudited and is presented for comparative purposes.
 
The following table sets forth, in dollars (in thousands) and as a percentage of total revenues, consolidated statements of operations data for the periods indicated. This information, except for the year ended September 30, 2004, has been derived from the consolidated financial statements included elsewhere in this Annual Report.

   
Years Ended September 30,
  
Nine Months Ended
September 30, 2004
   
2006
  
2005
  
2004
  
       
(Restated) (1)
  
(Restated) (1)
  
(Restated) (1)
                               
(Unaudited)
              
Statements of Operations Data:
 
 
 
 
  
 
 
  
 
 
 
  
 
 
  
 
 
 
  
 
 
  
 
 
 
  
 
 
Revenues:
 
 
 
 
  
 
 
  
 
 
 
  
 
 
  
 
 
 
  
 
 
  
 
 
 
  
 
 
License
 
$
40,514
 
  
42
%
  
$
31,678
 
  
38
%
  
$
32,909
 
  
41
%
  
$
23,661
 
  
39
%
Service
 
 
57,022
 
  
58
 
  
 
52,047
 
  
62
 
  
 
47,714
 
  
59
 
  
 
37,362
 
  
61
 
Total revenues
 
 
97,536
 
  
100
 
  
 
83,725
 
  
100
 
  
 
80,623
 
  
100
 
  
 
61,023
 
  
100
 
Cost of revenues:
 
 
  
 
    
 
  
 
  
 
    
 
  
 
  
 
    
 
  
 
  
 
    
 
License
 
 
1,690
 
  
2
 
  
 
1,079
 
  
1
 
  
 
1,836
 
  
2
 
  
 
1,262
 
  
2
 
Service
 
 
30,566
 
  
31
 
  
 
30,155
 
  
36
 
  
 
28,617
 
  
36
 
  
 
21,630
 
  
35
 
Amortization of intangible assets
 
 
1,211
 
  
1
 
  
 
1,068
 
  
2
 
  
 
1,838
 
  
2
 
  
 
1,044
 
  
2
 
Total cost of revenues
 
 
33,467
 
  
34
 
  
 
32,302
 
  
39
 
  
 
32,291
 
  
40
 
  
 
23,936
 
  
39
 
Gross profit
 
 
64,069
 
  
66
 
  
 
51,423
 
  
61
 
  
 
48,332
 
  
60
 
  
 
37,087
 
  
61
 
Operating expenses:
 
 
  
 
    
 
  
 
  
 
    
 
  
 
  
 
    
 
  
 
  
 
    
 
Sales and marketing
 
 
33,616
 
  
34
 
  
 
29,561
 
  
36
 
  
 
24,395
 
  
30
 
  
 
17,825
 
  
29
 
Research and development
 
 
25,858
 
  
27
 
  
 
20,272
 
  
24
 
  
 
18,569
 
  
23
 
  
 
13,160
 
  
22
 
General and administrative
 
 
20,445
 
  
21
 
  
 
18,549
 
  
22
 
  
 
9,293
 
  
12
 
  
 
7,099
 
  
12
 
Amortization of intangible assets
 
 
—
 
  
—
 
  
 
117
 
  
—
 
  
 
222
 
  
—
 
  
 
126
 
  
—
 
Restructuring expense
 
 
—
 
  
—
 
  
 
1,052
 
  
1
 
  
 
1,200
 
  
2
 
  
 
172
 
  
—
 
Purchased in-process research and development
 
 
—
 
  
—
 
  
 
1,940
 
  
2
 
  
 
—
 
  
—
 
  
 
—
 
  
—
 
Total operating expenses
 
 
79,919
 
  
82
 
  
 
71,491
 
  
85
 
  
 
53,679
 
  
67
 
  
 
38,382
 
  
63
 
Loss from operations
 
 
(15,850
)
  
(16
)
  
 
(20,068
)
  
(24
)
  
 
(5,347
)
  
(7
)
  
 
(1,295
)
  
(2
)
Interest income, net
 
 
1,120
 
  
1
 
  
 
755
 
  
1
 
  
 
515
 
  
1
 
  
 
498
 
  
1
 
Other expense, net
 
 
(627
)
  
—
    
 
(103
)
  
—
 
  
 
9
 
  
—
 
  
 
(132
)
  
—
 
Loss before income taxes
 
 
(15,357
)
  
(15
)
  
 
(19,416
)
  
(23
)
  
 
(4,823
)
  
(6
)
  
 
(929
)
  
(1
) 
Provision for income taxes
 
 
644
 
  
1
 
  
 
449
 
  
1
 
  
 
899
 
  
1
 
  
 
442
 
  
1
 
Net loss
 
$
(16,001
)
  
(16
)%
  
$
(19,865
)
  
(24
)%
  
$
(5,722
)
  
(7
)%
  
$
(1,371
)
  
(2
)%

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments.

Comparison of the Year Ended September 30, 2006 to the Year Ended September 30, 2005

Revenues
 
License Revenue. Total license revenue increased $8.8 million, or 28%, to $40.5 million for the year ended September 30, 2006 compared to $31.7 million for the year ended September 30, 2005. License revenues for enterprise solutions increased $5.8 million, or 23%, to $30.4 million for the year ended September 30, 2006 compared to $24.6 million for the year ended September 30, 2005. This increase was primarily due to an increase in value of the average customer transaction. License


revenues for marketing solutions increased $3.9 million, or 161%, to $6.4 million for the year ended September 30, 2006 compared to $2.5 million for the year ended September 30, 2005. License revenues for decision management solutions relate to the products acquired in the KiQ transaction. License revenues for decision manager decreased $0.8 million, or 19% to 3.8 million for the year ended September 30, 2006 compared to $4.6 million for year ended September 30, 2005.
 
Service Revenue. Total service revenue, which include reimbursement of out-of-pocket expenses, increased $5.0 million, or 10%, to $57.0 million for the year ended September 30, 2006 compared to $52.0 million for the year ended September 30, 2005. This increase is primarily related to a $2.3 million increase in support and maintenance revenue, a $2.1 million increase in training revenue and a $0.5 million increase in consulting revenue. Service revenue associated with enterprise solution products decreased less than $0.5 million, or 1%, to $39.9 million for the year ended September 30, 2006 compared to $40.4 million for the year ended September 30, 2005. Service revenues associated with marketing solution products increased $3.3 million, or 34%, to $13.0 million for the year ended September 30, 2006 compared to $9.7 million for the year ended September 30, 2005. Service revenues associated with decision management solution products relate to the products acquired in the KiQ transaction. Service revenues associated with decision management increased $2.2 million or 114% to $4.1 million for the year ended September 30, 2006 compared to $1.9 million for the year ended September 30, 2005.
 
Reimbursement of out-of-pocket expenses (which are included in total service revenues) decreased $0.2 million, or 4%, to $3.3 million for the year ended September 30, 2006 compared to $3.5 million for the year ended September 30, 2005.
 
Cost of revenues
 
License. Cost of license revenues includes third-party software royalties and amortization of capitalized software development costs. Royalty expenses can vary depending upon the mix of products sold within the period. The capitalized software development costs pertain to a banking product that was completed and available for general release in August 2005. Annual amortization expense associated with this product is $0.9 million. Amortization of these costs is expected through 2008.

Cost of license revenues increased $0.6 million, or 57%, to $1.7 million for the year ended September 30, 2006 compared to $1.1 million for the year ended September 30, 2005. This increase is primarily related to the fiscal year 2006 including a full year of amortization related to the banking product versus the prior year which included only 1.5 months of amortization. These costs resulted in license gross margins of approximately 96% and 97% for the years ended September 30, 2006 and 2005, respectively.
 
Service. Cost of service revenues consists primarily of personnel, third-party consulting, facility and travel costs incurred to provide consulting implementation and integration, consulting customization, training, post-contract customer support services. Cost of service revenues increased $0.4 million, or 1%, to $30.6 million for the year ended September 30, 2006 compared to $30.2 million for the year ended September 30, 2005. This increase in costs is primarily due to increases in personnel related costs of $0.7 million related to an increase in headcount, facility and information technology costs of $0.6 million, third party support and maintenance costs of $0.3 million offset by a decrease in third party consulting costs of $1.5 million. These costs resulted in service gross margins of approximately 46% and 42% for the years ended September 30, 2006 and 2005, respectively.
 
Amortization of intangible assets (included in cost of revenues). Amortization of intangible assets cost consists primarily of the amortization of amounts paid for developed technologies, customer lists and trade-names resulting from business acquisitions.  Amortization of intangible assets was $1.2 million for the year ended September 30, 2006 compared to $1.1 million for the year ended September 30, 2005. The amortization expense in the year ended September 30, 2006 is solely related to $6.1 million of intangible assets associated with the acquisition of KiQ in December 2004. We expect to continue to amortize these assets through December 2009.

Operating Expenses
 
Sales and marketing. Sales and marketing expenses is composed primarily of costs associated with selling, promoting and advertising our products, product demonstrations and customer sales calls. These costs consist primarily of employee salaries, commissions and bonuses, benefits, facilities, travel expenses and promotional and advertising expenses. Sales and marketing expenses increased $4.0 million, or 14%, to $33.6 million for the year ended September 30, 2006 compared to $29.6 million for the year ended September 30, 2005. The $4.0 million increase in these expenses was mainly attributable to an increase of $2.7 million in personnel related expenses, $1.0 million in sales events, and $0.3 million increase in legal contract and personnel costs.

Research and development. Research and development expenses is composed primarily of costs associated with the development of new products, enhancements of existing products and quality assurance activities. These costs consist primarily of employee salaries and benefits, facilities, the cost of software and development tools and equipment and consulting costs, including costs for offshore consultants. Research and development expenses increased $5.6 million, or 27%, to $25.9 million for the year ended September 30, 2006 compared to $20.3 million for the year ended September 30, 2005. This increase was driven by two large co-development projects; one in North America and one in the United Kingdom. The United Kingdom project was completed in September 2006 and the North America project is expected to be completed in the second half of 2007. This $5.6


million increase in costs was primarily composed of $6.6 million in consulting expenses related to our outsourcing of technical support and certain sustaining engineering functions and $0.4 million in travel costs which were offset by decreases of $1.1 million in personnel costs and $0.3 million in information technology costs.
 
General and administrative. General and administrative expenses is composed primarily of costs associated with our executive and administrative personnel (e.g. the CEO, legal and finance personnel). These costs consist primarily of employee salaries, bonuses, stock compensation expense, benefits, facilities, consulting costs, including costs for Sarbanes-Oxley Act of 2002 (SOX) consultants and stock option investigation professional services.

General and administrative expenses increased $1.9 million, or 10%, to $20.4 million for the year ended September 30, 2006 compared to $18.5 million for the year ended September 30, 2005. The increase in costs is primarily due to increases of $3.4 million for personnel costs, $0.7 million for severance costs associated with two senior executives, offset by a reduction of $2.3 million in professional services as consultants. The increase in personnel costs and decrease in professional services was driven by the replacement of accounting consultants with permanent employees. The decrease in professional services was also due to a decrease in SOX consulting fees of $2.7 million which was offset by stock option investigation professional fees of $1.2 million during the year. We do not expect to experience the same level of decrease in SOX costs in 2007 that we did in 2006. We expect the costs associated with the stock option investigation to continue in the first half of 2007.
 
Amortization of intangible assets (included in operating expenses). There was no amortization of intangible assets included in operating costs for 2006. All intangible assets attributable to operating expenses were fully amortized in 2005. Amortization of intangible assets included in operating expenses was $0.1 million for the year ended September 30, 2005. These intangible assets are the result of the Prime Response acquisition in March 2001.
 
Purchased in-process research and development. In-process research and development expense represents acquired technology that, on the date of acquisition, had not achieved technological feasibility and did not have an alternative future use, based on the state of development. Because the product under development may not achieve commercial viability, the amount of acquired in-process research and development was immediately expensed. The nature of the efforts required to develop the purchased in-process research and development into a commercially viable product principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the product can be produced to meet its designed specifications, including functions, features and technical performance requirements. There was no purchased in-process research and development expense for the year ended September 30, 2006. For the year ended September 30, 2005, we recorded an expense of $1.9 million related to acquired in-process technology attributable to the acquisition of KiQ.

Restructuring expenses. In July 2005, we announced a reduction in workforce and incurred a one-time cash charge of approximately $1.1 million in the year ended September 30, 2005. During the year ended September 30, 2004, we announced plans to reallocate staff between our North American and European operations to better support our growth in North America, and an associated restructuring expense was recorded. Please refer to Note 7 to the Consolidated Financial Statements, “Restructuring.”

Stock-based compensation (included in individual operating expense and cost of revenue categories). The following table sets forth our stock-based compensation expense in terms of absolute dollars and functional breakdown for the years ended September 30, 2006 and 2005 (in thousands):

   
Years Ended September 30,
  
 
 
2006
 
2005
 
   
 
 
(Restated) (1)
  
 
Stock-based compensation expense: 
            
 
Cost of revenues 
$
248
 
$
690
 
 
Sales and marketing 
 
2,327
 
 
986
 
 
Research and development 
 
332
 
 
843
 
 
General and administrative 
 
1,788
 
 
512
 
 
Total stock-based compensation expense 
$
4,695
 
$
3,031
 

(1)  
- See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments.

For the year ended September 30, 2006, the aggregate stock-based compensation cost included in cost of revenues and in operating expenses was $4.7 million which is a combination of $2.7 million related to stock options and $2.0 million associated with restricted stock awards. Included in the restricted stock award compensation expense of $2.0 million is $1.2 million associated with the amortization of restricted stock awards attributable to the KiQ acquisition in December 2004. Amortization of deferred stock-based compensation attributable to the acquisition of KiQ will be expensed through June 2007.



For the year ended September 30, 2005, the aggregate stock-based compensation cost included in cost of revenues and in operating expenses was $3.0 million which was a combination of a $0.4 million benefit related to stock options and $3.4 million expense associated with restricted stock awards. Included in the restricted stock award compensation expense of $3.4 million is $2.7 million associated with the amortization of restricted stock awards attributable to the KIQ acquisition.
 
Interest income, net. Interest income, net, consists primarily of interest income generated from our cash and cash equivalents, offset by interest expense incurred in connection with our capital leases and letters of credit. Interest income, net, increased to approximately $1.1 million for the year ended September 30, 2006 from $0.8 million for the year ended September 30, 2005. This increase is primarily due to improved interest rates related to interest-bearing cash and cash equivalents accounts and a higher average cash balance during 2006 versus 2005.

Other expense, net. These gains and losses are primarily associated with foreign currency transaction gains or losses and re-measurement of our short-term intercompany balances between the U.S. and our foreign denominated subsidiaries. Other expense resulted in a net loss of $0.6 million for the year ended September 30, 2006 as compared to a net loss of $0.1 million for the same period in the prior year. The change is primarily attributable to currency exchange gains and losses recognized during the years ended September 30, 2006 and 2005. These gains and losses are primarily associated with our U.S. dollar account balances held in Europe and the U.S. dollar’s fluctuations in value against the Euro and U.K. Pound Sterling.
 
Provision for income taxes. Our provisions for income taxes were $0.6 million and $0.4 million for the years ended September 30, 2006 and 2005, respectively. The provisions were attributable to taxes on earnings from our foreign subsidiaries and certain state income taxes.
 
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.

Comparison of the Year Ended September 30, 2005 to the Year Ended September 30, 2004
 
Revenues
 
License Revenue. Total license revenue decreased $1.2 million, or 4%, to $31.7 million for the year ended September 30, 2005 compared to $32.9 million for the year ended September 30, 2004. License revenues for enterprise solutions decreased $2.2 million, or 8%, to $24.6 million for the year ended September 30, 2005 compared to $26.8 million for the year ended September 30, 2004. This decrease was primarily due to the timing of revenues recognized under the percentage-of-completion method of accounting. The timing and amount of revenue recognized is influenced by the progress of work performed relative to the project length of customer contracts and the dollar value of such contracts. License revenues for marketing solutions decreased $3.6 million, or 60%, to $2.5 million for the year ended September 30, 2005 compared to $6.1 million for the year ended September 30, 2004. License revenues for decision management solutions relate to the products acquired in the KiQ transaction and were $4.6 million for year ended September 30, 2005.
 
Service Revenue. Total service revenues, which include reimbursement of out-of-pocket expenses, increased $4.3 million, or 9%, to $52.0 million for the year ended September 30, 2005 compared to $47.7 million for the year ended September 30, 2004. Service revenues associated with enterprise solution products increased $4.0 million, or 12%, to $40.2 million for the year ended September 30, 2005 compared to $36.2 million for the year ended September 30, 2004. This increase was due to a continuation in large customer implementations as well as maintenance, support and consulting revenues associated with license agreements entered into in current and prior periods. Service revenues associated with marketing solution products decreased $1.9 million, or 16%, to $9.7 million for the year ended September 30, 2005 compared to $11.6 million for the year ended September 30, 2004. Service revenues associated with decision management solution products relate to the products acquired in the KiQ transaction and were $1.9 million for the year ended September 30, 2005.
 
Reimbursement of out-of-pocket expenses (which are included in total service revenues) increased $0.6 million, or 22%, to $3.5 million for the year ended September 30, 2005 compared to $2.8 million for the year ended September 30, 2004. This increase is primarily due to the higher number of third party consultants and employees working on projects.

Cost of revenues
 
License. Cost of license revenues decreased $0.7 million, or 41%, to $1.1 million for the year ended September 30, 2005 compared to $1.8 million for the year ended September 30, 2004. These costs resulted in license gross margins of approximately 97% and 94% for the year ended September 30, 2005 and 2004, respectively. The license gross margin for the year ended September 30, 2005 is higher than in the recent past due to lower royalties payable associated with the mix of products sold. The number of product components subject to the payment of royalties in the past declined during the year ended September 30, 2005.


Revenues derived from the sale of KiQ products are also not subject to significant royalties.
 
Service. Cost of service revenues increased $1.4 million, or 5%, to $30.2 million for the year ended September 30, 2005 compared to $28.6 million for the year ended September 30, 2004. These costs resulted in service gross margins of approximately 42% and 40% for the years ended September 30, 2005 and 2004, respectively.
 
Amortization of intangible assets (included in cost of revenues). Amortization of intangible assets was $1.1 million for the year ended September 30, 2005 compared to $1.8 million for the year ended September 30, 2004. The amortization expense in the year ended September 30, 2004 primarily related to intangibles associated with the acquisition of OnDemand in April 2002. Intangibles associated with the acquisitions of certain assets from ActionPoint and ASP Outfitter in May 2001 became fully amortized during calendar 2004. On December 21, 2004, we recorded, and began to amortize, aggregate additions of $6.1 million of intangible assets related to the acquisition of KiQ. Amortization of intangible assets attributable to the acquisition of KiQ will be expensed through December 2009. In addition, beginning in the quarter ended September 30, 2005, quarterly amortization expense increased $0.2 million relating to an internally developed banking product that was completed and available for general release. These costs are being amortized over a three-year period.
 
Operating Expenses
 
Sales and marketing. Sales and marketing expenses increased $5.2 million, or 21%, to $29.6 million for the year ended September 30, 2005 compared to $24.4 million for the year ended September 30, 2004. The $5.2 million increase in these expenses was mainly attributable to an increase of $3.9 million in personnel related expenses and an $0.8 million increase in travel costs due to a higher number of sales representatives. Recruiting fees also increased $0.3 million over the prior period.
 
Research and development. Research and development expenses increased $1.7 million, or 9%, to $20.3 million for the year ended September 30, 2005 compared to $18.6 million for the year ended September 30, 2004. This $1.7 million increase was mainly attributable to an increase of approximately $1.9 million in research and development consulting expenses related to our outsourcing of technical support and certain sustaining engineering functions. Personnel costs also increased $0.6 million, in part due to the addition of KiQ employees. Offsetting these increases was an increase to the capitalization of internal salary and fringe benefit costs of approximately $0.8 million associated with the development of a banking product. The development of this product was completed in July 2005 and no additional costs are expected to be capitalized.
 
General and administrative. General and administrative expenses increased $9.2 million, or 100%, to $18.5 million for the year ended September 30, 2005 compared to $9.3 million for the year ended September 30, 2004. The increase in these expenses was mainly attributable to an increase of $5.1 million in consulting related expenses associated with efforts to comply with SOX and fill vacant accounting positions. Professional service fees also increased $1.9 million primarily due to the accounting and legal fees associated with SOX, additional procedures required in conjunction with the material weaknesses identified at June 30, 2004 and September 30, 2004 and additional fees related to the restatement of our prior year results. Higher costs associated with efforts to comply with SOX continued for the first quarter of fiscal year 2006. In conjunction with new hires in the accounting and finance areas, personnel related costs and recruiting fees increased $1.0 million and $0.5 million, respectively. Due to the higher general and administrative headcounts, the allocation of common costs and facilities costs to the department also increased by $0.6 million.

Amortization of intangible assets (included in operating expenses). Amortization of intangible assets included in operating expenses was $0.1 million for the year ended September 30, 2005 compared to $0.2 million for the year ended September 30, 2004. Amortization expense classified in operating expenses for these periods is mainly attributable to the acquisition of Prime Response in March 2001. These intangibles were fully amortized as of September 30, 2005.

Purchased in-process research and development. In-process research and development expense represents acquired technology that, on the date of acquisition, had not achieved technological feasibility and did not have an alternative future use, based on the state of development. Because the product under development may not achieve commercial viability, the amount of acquired in-process research and development was immediately expensed. The nature of the efforts required to develop the purchased in-process research and development into a commercially viable product principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the product can be produced to meet its designed specifications, including functions, features and technical performance requirements. For the year ended September 30, 2005, we recorded an expense of $1.9 million related to acquired in-process technology attributable to the acquisition of KiQ. There was no purchased in-process research and development expense for the year ended September 30, 2004.

Restructuring expenses. In July 2005, we announced a reduction in workforce and incurred a one-time cash charge of approximately $1.1 million in the year ended September 30, 2005. During the year ended September 30, 2004, we announced plans to reallocate staff between our North American and European operations to better support our growth in North America, and an associated restructuring expense was recorded. Please refer to Note 7 to the Consolidated Financial Statements, “Restructuring.”



Stock-based compensation (included in individual operating expense and cost of revenue categories). The following table sets fourth our stock-based compensation expense in terms of absolute dollars and functional breakdown for the twelve months ended September 30, 2005 and 2004 (in thousands):
 
The related functional breakdown of total stock-based compensation is outlined below (in thousands):

 
 
 
Year Ended
September 30,
2005
 
Year Ended
September 30,
2004
 
   
(Restated) (1)
 
(Restated) (1)
 
 
Stock-based compensation expense: 
            
 
Cost of revenues 
$
690
 
$
825
 
 
Sales and marketing 
 
986
 
 
887
 
 
Research and development 
 
843
 
 
1,175
 
 
General and administrative 
 
512
 
 
1,218
 
 
Total stock-based compensation expense 
$
3,031
 
$
4,105
 

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments.

For the year ended September 30, 2005, the aggregate stock-based compensation cost included in cost of revenues and in operating expenses was $3.0 million which was a combination of a $0.4 million benefit related to stock options and $3.4 million expense associated with restricted stock awards. Included in the restricted stock award compensation expense of $3.4 million is $2.7 million associated with the amortization of restricted stock awards attributable to the KiQ acquisition which occurred in December 2004. The $0.4 million benefit is partially due to the decrease in our stock price during the period which affects the variable accounting calculation to which some restricted stock and outstanding stock options are subject. Also included in these costs for the year ended September 30, 2005 were charges associated with the issuance of 450,000 shares of restricted stock to certain officers of the Company. Amortization of deferred stock-based compensation attributable to the acquisition of KiQ will be expensed through June 2007.

Interest income, net. Interest income, net, consists primarily of interest income generated from our cash, cash equivalents and short-term investments, offset by interest expense incurred in connection with outstanding borrowings and letters of credit. Interest income, net, increased to approximately $0.8 million for the year ended September 30, 2005 from $0.5 million for the year ended September 30, 2004. This increase is primarily due to improved interest rates related to interest-bearing cash, cash equivalents and short-term investment accounts.
 
Other expense, net. Realized foreign currency gains and losses and other non-operating income and expenses resulted in a net loss of $0.1 million for the year ended September 30, 2005 as compared to net income of less than $0.1 million for the same period in the prior year. The change is primarily attributable to currency exchange gains and losses recognized during the years ended September 30, 2005 and 2004. These gains and losses are primarily associated with our U.S. dollar account balances held in Europe and the U.S. dollar’s fluctuations in value against the Euro and U.K. Pound Sterling.
 
Provision for income taxes. Our provisions for income taxes were $0.4 million and $0.9 million for the years ended September 30, 2005 and 2004, respectively. The provisions were attributable to taxes on earnings from our foreign subsidiaries and certain state income taxes.

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.


Quarterly Financial Information

The following table presents the Company’s condensed consolidated balance sheets (unaudited, in thousands):

 
  
September 30, 2006
      
June 30, 2006
  
ASSETS
        
 
    
Current assets:
        
 
    
Cash and cash equivalents
$
45,278
    
$
42,664
  
Restricted cash
 
185
    
 
175
  
Accounts receivable
 
19,025
    
 
22,233
  
Prepaid expenses and other current assets
 
5,210
    
 
4,864
  
Total current assets
 
69,698
    
 
69,936
  
Restricted cash
 
334
    
 
341
  
Property and equipment, net
 
2,630
    
 
2,607
  
Goodwill
 
32,044
    
 
32,044
  
Intangible assets, net
 
3,937
    
 
4,239
  
Other assets
 
2,860
    
 
2,789
  
Total assets
$
111,503
    
$
111,956
  
 
 
      
 
 
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
      
 
    
Current liabilities:
 
      
 
    
Accounts payable
$
7,665
    
$
7,787
  
Accrued expenses
 
15,706
    
 
13,781
  
Deferred revenue
 
23,909
    
 
21,060
  
Current portion of capital lease obligations
 
95
    
 
150
  
Total current liabilities
 
47,375
    
 
42,778
  
Deferred revenue—long-term
 
5,596
    
 
3,976
  
Restructuring costs, net of current portion
 
1,239
    
 
1,331
  
Other long-term liabilities
 
68
    
 
75
  
Total liabilities
 
54,278
    
 
48,160
  
 
 
      
 
    
 
 
      
 
    
Stockholders’ equity:
 
      
 
    
Preferred stock
 
—
    
 
—
 
Common stock
 
80
    
 
79
  
Additional paid-in capital and deferred compensation
  
286,392
      
284,908
  
Accumulated deficit
  
(232,943
)
    
(224,579
)
Accumulated other comprehensive income
  
3,696
      
3,388
  
Total stockholders’ equity
  
57,225
      
63,796
)
Total liabilities and stockholders’ equity
$
111,503
    
$
111,956
  



The following tables presents the effects of the stock-based compensation adjustments made to the Company’s previously reported condensed consolidated balance sheets (unaudited, in thousands):

 
March 31, 2006
  
December 31, 2005
 
  
As
Previously
Reported
      
Adjustments
(1)
      
Restated
      
As
Previously
Reported
      
Adjustments
(1)
      
Restated
  
ASSETS
        
 
      
 
              
 
      
 
    
Current assets:
        
 
      
 
              
 
      
 
    
Cash and cash equivalents
$
43,287
    
$
—
    
$
43,287
    
$
41,466
    
$
—
    
$
41,466
  
Restricted cash
 
461
    
 
—
    
 
461
    
 
486
    
 
—
    
 
486
  
Accounts receivable
 
16,464
    
 
—
    
 
16,464
    
 
19,184
    
 
—
    
 
19,184
  
Prepaid expenses and other current assets
 
4,788
    
 
—
    
 
4,788
    
 
5,290
    
 
—
    
 
5,290
  
Total current assets
 
65,000
    
 
—
    
 
65,000
    
 
66,426
    
 
—
    
 
66,426
  
Restricted cash
 
394
    
 
—
    
 
394
    
 
365
    
 
—
    
 
365
  
Property and equipment, net
 
2,446
    
 
—
    
 
2,446
    
 
2,312
    
 
—
    
 
2,312
  
Goodwill
 
31,907
    
 
—
    
 
31,907
    
 
31,907
    
 
—
    
 
31,907
  
Intangible assets, net
 
4,542
    
 
—
    
 
4,542
    
 
4,845
    
 
—
    
 
4,845
  
Other assets
 
3,039
    
 
—
    
 
3,039
    
 
3,306
    
 
—
    
 
3,306
  
Total assets
$
107,328
    
$
—
    
$
107,328
    
$
109,161
    
$
—
    
$
109,161
  
 
 
      
 
 
    
 
      
 
      
 
 
    
 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
      
 
      
 
      
 
      
 
      
 
    
Current liabilities:
 
      
 
      
 
      
 
      
 
      
 
    
Accounts payable
$
4,567
    
$
—
    
$
4,567
    
$
3,555
    
$
—
    
$
3,555
  
Accrued expenses
 
10,765
    
 
428
      
11,193
    
 
11,500
    
 
411
    
 
11,911
  
Deferred revenue
 
22,743
    
 
—
    
 
22,743
    
 
27,017
    
 
—
    
 
27,017
  
Current portion of capital lease obligations
 
204
    
 
—
    
 
204
    
 
217
    
 
—
    
 
217
  
Total current liabilities
 
38,279
    
 
428
      
38,707
      
42,289
      
411
    
 
42,700
  
Deferred revenue—long-term
 
2,985
    
 
—
    
 
2,985
    
 
445
    
 
—
    
 
445
  
Restructuring costs, net of current portion
 
1,428
    
 
—
    
 
1,428
    
 
1,539
    
 
—
    
 
1,539
  
Other long-term liabilities
 
121
    
 
—
    
 
121
    
 
40
    
 
—
    
 
40
  
Total liabilities
 
42,813
    
 
428
      
43,241
      
44,313
      
411
    
 
44,724
  
 
 
      
 
      
 
      
 
      
 
      
 
    
 
 
      
 
      
 
      
 
      
 
      
 
    
Stockholders’ equity:
 
      
 
      
 
      
 
      
 
      
 
    
Preferred stock
 
—
    
 
—
    
 
—
    
 
—
    
 
—
    
 
—
  
Common stock
 
79
    
 
—
    
 
79
    
 
79
    
 
—
    
 
79
  
Additional paid-in capital and deferred compensation
  
274,754
      
7,734
      
282,488
      
273,165
      
7,697
      
280,862
  
Accumulated deficit
  
(212,735
)
    
(8,162
)
    
(220,897
)
    
(210,587
)
    
(8,108
)
    
(218,695
)
Accumulated other comprehensive income
  
2,417
      
—
      
2,417
      
2,191
      
—
      
2,191
  
Total stockholders’ equity
  
64,515
      
(428
)
    
64,087
      
64,848
      
(411
)
    
64,437
  
Total liabilities and stockholders’ equity
$
107,328
    
$
—
    
$
107,328
    
$
109,161
    
$
—
    
$
109,161
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments




 
September 30, 2005
  
June 30, 2005
 
  
As
Previously
Reported
      
Adjustments
(1)
      
Restated
      
As
Previously
Reported
      
Adjustments
(1)
      
Restated
  
ASSETS
        
 
      
 
              
 
      
 
    
Current assets:
        
 
      
 
              
 
      
 
    
Cash and cash equivalents
$
38,546
    
$
—
    
$
38,546
    
$
32,739
    
$
—
    
$
32,739
  
Marketable securities
  
—
      
—
      
—
      
4,100
              
4,100
  
Restricted cash
 
1,982
    
 
—
    
 
1,982
    
 
1,785
    
 
—
    
 
1,785
  
Accounts receivable
 
18,979
    
 
—
    
 
18,979
    
 
23,719
    
 
—
    
 
23,719
  
Prepaid expenses and other current assets
 
4,345
    
 
—
    
 
4,345
    
 
4,463
    
 
—
    
 
4,463
  
Total current assets
 
63,852
    
 
—
    
 
63,852
    
 
66,806
    
 
—
    
 
66,806
  
Restricted cash
 
365
    
 
—
    
 
365
    
 
559
    
 
—
    
 
559
  
Property and equipment, net
 
2,479
    
 
—
    
 
2,479
    
 
2,790
    
 
—
    
 
2,790
  
Goodwill
 
31,907
    
 
—
    
 
31,907
    
 
31,978
    
 
—
    
 
31,978
  
Intangible assets, net
 
5,148
    
 
—
    
 
5,148
    
 
5,451
    
 
—
    
 
5,451
  
Other assets
 
3,499
    
 
—
    
 
3,499
    
 
3,525
    
 
—
    
 
3,525
  
Total assets
$
107,250
    
$
—
    
$
107,250
    
$
111,109
    
$
—
    
$
111,109
  
 
 
      
 
 
    
 
      
 
      
 
 
    
 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
      
 
      
 
      
 
      
 
      
 
    
Current liabilities:
 
      
 
      
 
      
 
      
 
      
 
    
Accounts payable
$
4,554
    
$
—
    
$
4,554
    
$
5,000
    
$
—
    
$
5,000
  
Accrued expenses
 
8,902
    
 
400
    
 
9,302
    
 
9,277
    
 
273
    
 
9,550
  
Deferred revenue
 
26,050
    
 
—
    
 
26,050
    
 
25,166
    
 
—
    
 
25,166
  
Current portion of capital lease obligations
 
213
    
 
—
    
 
213
    
 
209
    
 
—
    
 
209
  
Total current liabilities
 
39,719
    
 
400
      
40,119
      
39,652
      
273
    
 
39,925
  
Deferred revenue—long-term
 
147
    
 
—
    
 
147
    
 
301
    
 
—
    
 
301
  
Restructuring costs, net of current portion
 
1,731
    
 
—
    
 
1,731
    
 
2,316
    
 
—
    
 
2,316
  
Other long-term liabilities
 
96
    
 
—
    
 
96
    
 
150
    
 
—
    
 
150
  
Total liabilities
 
41,693
    
 
400
      
42,093
      
42,419
      
273
    
 
42,692
  
 
 
      
 
      
 
      
 
      
 
      
 
    
 
 
      
 
      
 
      
 
      
 
      
 
    
Stockholders’ equity:
 
      
 
      
 
      
 
      
 
      
 
    
Preferred stock
 
—
    
 
—
    
 
—
    
 
—
    
 
—
    
 
—
  
Common stock
 
78
    
 
—
    
 
78
    
 
77
    
 
—
    
 
77
  
Additional paid-in capital and deferred compensation
  
273,824
      
7,653
      
281,477
      
269,475
      
7,669
      
277,144
  
Deferred stock-based compensation
  
(1,940
)
    
—
      
(1,940
)
    
—
      
—
      
—
  
Accumulated deficit
  
(208,889
)
    
(8,053
)
    
(216,942
)
    
(203,437
)
    
(7,942
)
    
(211,379
)
Accumulated other comprehensive income
  
2,484
              
2,484
      
2,575
      
—
      
2,575
  
Total stockholders’ equity
  
65,557
      
(400
)
    
65,157
      
68,690
      
(273
)
    
68,417
  
Total liabilities and stockholders’ equity
$
107,250
    
$
—
    
$
107,250
    
$
111,109
    
$
—
    
$
111,109
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments



 
March 31, 2005
  
December 31, 2004
 
  
As
Previously
Reported
      
Adjustments
(1)
      
Restated
      
As
Previously
Reported
      
Adjustments
(1)
      
Restated
  
ASSETS
        
 
      
 
              
 
      
 
    
Current assets:
        
 
      
 
              
 
      
 
    
Cash and cash equivalents
$
35,325
    
$
—
    
$
35,325
    
$
47,287
    
$
—
    
$
47,287
  
Marketable securities
  
4,000
              
4,000
      
4,000
              
4,000
  
Restricted cash
 
1,782
    
 
—
    
 
1,782
    
 
1,780
    
 
—
    
 
1,780
  
Accounts receivable
 
15,849
    
 
—
    
 
15,849
    
 
17,928
    
 
—
    
 
17,928
  
Prepaid expenses and other current assets
 
3,578
    
 
—
    
 
3,578
    
 
3,841
    
 
—
    
 
3,841
  
Total current assets
 
60,534
    
 
—
    
 
60,534
    
 
74,836
    
 
—
    
 
74,836
  
Restricted cash
 
558
    
 
—
    
 
558
    
 
558
    
 
—
    
 
558
  
Property and equipment, net
 
2,867
    
 
—
    
 
2,867
    
 
3,172
    
 
—
    
 
3,172
  
Goodwill
 
32,028
    
 
—
    
 
32,028
    
 
32,028
    
 
—
    
 
32,028
  
Intangible assets, net
 
5,754
    
 
—
    
 
5,754
    
 
6,178
    
 
—
    
 
6,178
  
Other assets
 
3,093
    
 
—
    
 
3,093
    
 
2,419
    
 
—
    
 
2,419
  
Total assets
$
104,834
    
$
—
    
$
104,834
    
$
119,191
    
$
—
    
$
119,191
  
 
 
      
 
 
    
 
      
 
      
 
 
    
 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
      
 
      
 
      
 
      
 
      
 
    
Current liabilities:
 
      
 
      
 
      
 
      
 
      
 
    
Accounts payable
$
4,899
    
$
—
    
$
4,899
    
$
6,656
    
$
—
    
$
6,656
  
Accrued expenses
 
9,656
    
 
269
    
 
9,925
    
 
13,981
    
 
265
    
 
14,246
  
Deferred revenue
 
17,040
    
 
—
    
 
17,040
    
 
18,582
    
 
—
    
 
18,582
  
Current portion of capital lease obligations
 
205
    
 
—
    
 
205
    
 
201
    
 
—
    
 
201
  
Total current liabilities
 
31,800
    
 
269
      
32,069
      
39,420
      
265
    
 
39,685
  
Deferred revenue—long-term
 
947
    
 
—
    
 
947
    
 
1,622
    
 
—
    
 
1,622
  
Other long-term liabilities
 
204
    
 
—
    
 
204
    
 
257
    
 
—
    
 
257
  
Total liabilities
 
32,951
    
 
269
      
33,220
      
41,299
      
265
    
 
41,564
  
 
 
      
 
      
 
      
 
      
 
      
 
    
 
 
      
 
      
 
      
 
      
 
      
 
    
Stockholders’ equity:
 
      
 
      
 
      
 
      
 
      
 
    
Preferred stock
 
—
    
 
—
    
 
—
    
 
—
    
 
—
    
 
—
  
Common stock
 
77
    
 
—
    
 
77
    
 
77
    
 
—
    
 
77
  
Additional paid-in capital and deferred compensation
  
268,614
      
7,629
      
276,243
      
267,629
      
7,549
      
275,178
  
Accumulated deficit
  
(199,971
)
    
(7,898
)
    
(207,869
)
    
(193,541
)
    
(7,814
)
    
(201,355
)
Accumulated other comprehensive income
  
3,163
      
—
      
3,163
      
3,727
      
—
      
3,727
  
Total stockholders’ equity
  
71,883
      
(269
)
    
71,614
      
77,892
      
(265
)
    
77,627
  
Total liabilities and stockholders’ equity
$
104,834
    
$
—
    
$
104,834
    
$
119,191
    
$
—
    
$
119,191
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments



As a result of the restatement, the trends and variance analysis previously disclosed in Forms 10-Q have only been impacted by changes in stock-based compensation and related payroll tax expense. Such changes to the quarters appearing in the tables below are not so significant as to change the trends previously disclosed in the respective management discussions and analyses. The increase in net loss for each of the six quarterly periods restated ranges from 1% to 3%. Our Form 10-Q for June 30, 2006 has been filed simultaneously with this Form 10-K and also includes restated results. See management discussion and analysis contained in our Form 10-Q for the nine month period ended June 30, 2006 which reflects the restated quarterly and nine month comparative results and provides additional detail.

Quarterly Trends

Revenues

License Revenue. License revenues can vary significantly from quarter to quarter depending upon the underlying terms of the license agreements. The quarters ended March 31, 2006 and June 30, 2006 contained $5.0 million and $2.5 million in term licenses, respectively. These term licenses were non-cancelable, non-refundable and were provided on an unsupported basis; accordingly, revenue was recognized in full upon delivery of the software as there were no undelivered elements.

The timing of revenues recognized under the percentage-of-completion method of accounting is also influenced by the progress of work performed relative to the project length of customer contracts and the dollar value of such contracts.

Service Revenue. Total service revenue includes consulting, training, customer support and reimbursement of out-of-pocket expenses. These revenues can also vary significantly from quarter to quarter depending upon the timing of customer purchases.

Cost of revenues

License. Cost of license revenues includes third-party software royalties and amortization of capitalized software development costs. Royalty expenses can vary depending upon the mix of products sold within the period. The capitalized software development costs pertain to a banking product that was completed and available for general release in August 2005. Accordingly the cost of revenues associated with licenses increased beginning with the quarter ended September 30, 2005 as the amortization of the capitalized costs began.

Service. The cost of service revenues fluctuates with internal headcount, the use of third party consultants used on certain customer engagements, and the pass through charges associated with out-of-pocket expenses.

Amortization of intangible assets (included in cost of revenues). The $0.1 million of amortization expense in the quarter ended December 31, 2004 primarily relates to intangibles associated with the acquisition of OnDemand in April 2002. These intangible became fully amortized in the quarter ended March 31, 2005. On December 21, 2004, we recorded, and began to amortize, aggregate additions of $6.1 million of intangible assets related to the acquisition of KiQ. The $0.3 million of amortization expense per quarter beginning with the March 31, 2005 quarter relates to these KiQ intangibles. The amortization expense for the amortization of intangible assets attributable to the acquisition of KiQ will be expensed through December 2009.

Operating Expenses

Sales and marketing. Changes in sales and marketing expenses from quarter to quarter are primarily driven by changes in headcount, changes in stock-based compensation and the timing of periodic sales and customer events. For the sequential quarters ending June 30, 2005 aggregate costs were between $7.2 and $7.3 million per quarter. Additions to headcount and severance payments increased payroll related costs by approximately $0.1 million, $0.2 million and $0.2 million per quarter for each of the next three sequential quarters ending March 31, 2006. For the same three sequential quarters, stock-based compensation expense also increased (decreased) by $0.2 million, $0.3 million and ($0.1) million. For the March 31, 2006 quarter, these changes combined with the $0.4 million cost of the annual sales event resulted in $8.8 million in total costs for the quarter. Headcount declined in the June 30, 2006 quarter and no sales or customer events took place, resulting in $8.0 million of costs for the quarter. During the quarter ended September 30, 2006, $0.5 million of costs associated with a customer event, combined with $0.3 million of increases in marketing spending resulted in $8.7 million of costs for the quarter.

Research and development. Changes in research and development expenses from quarter to quarter are primarily driven by changes in headcount and changes to the level of consulting services contracted by the Company. Research and development costs were $4.9 million for the quarter ended December 31, 2004. For the next three sequential quarters, total research and development costs increased (decreased) by $0.4 million, $0.1 million and ($0.7) million. These changes were primarily due to headcount fluctuations, with the $0.7 million decrease being associated with the 2005 restructuring. Research and development costs remained between $4.7 million and $4.5 million for the next two quarters ending September 30, 2005 and December 31, 2005, respectively. Beginning with the quarter ended March 31, 2006 consulting costs and interdepartmental transfers of costs


associated with co-development product increased total research and development spending. These increases of $1.3 million and $1.9 million for the quarters ended March 31, 2006 and June 30, 2005, respectively, brought total research and development spending to $7.8 million for the quarter ended June 30, 2006. One of the co-development products was completed during the quarter ended September 30, 2006 and total research and development expense declined by $0.1 million to $7.7 million for the quarter ended September 30, 2006.

General and administrative. Changes in general and administrative expenses from quarter to quarter are primarily driven by consulting and audit fees, increases in headcount associated with converting consultants to permanent employee status and severance payments made to former employees. During the quarter ended March 31, 2005 audit and other consulting fees increased approximately $0.8 million from the prior quarter. These increases related to the change in the Company’s fiscal year end and the restatement of fiscal 2004 results. Audit and other consulting fees declined $0.4 million during the quarter ended June 30, 2005 resulting in $4.7 million of total costs for the period. Total general and administrative costs remained at this level for three quarters. During the quarter ended March 31, 2006, audit and other consulting costs declined $0.8 million from the prior quarter, reflecting the completion of the year end audit and associated SOX procedures. This decrease was offset by $0.6 million in severance payments, an approximate $0.4 million increase in payroll costs relating to headcount increases and a $0.1 million increase to stock-based compensation. There were no significant severance payments in the quarter ended June 30, 2006 and total general and administrative costs declined to $4.8 million. For the quarter ended September 30, 2006, audit and other consulting fees increased $1.2 million from the June quarter reflecting the activity associated with the stock option investigation and the normal year end audit of the financial statements. This increase was partially offset by a $0.2 million decline in stock-based compensation expense.

Amortization of intangible assets (included in operating expenses). Amortization expense was less than $0.1 million for the quarters ended December 31, 2004 and March 31, 2005. The associated intangible assets became fully amortized in the quarter ended March 31, 2005.

Purchased in-process research and development. In-process research and development expense represents acquired technology that, on the date of acquisition, had not achieved technological feasibility and did not have an alternative future use, based on the state of development. Because the product under development may not achieve commercial viability, the amount of acquired in-process research and development was immediately expensed. The nature of the efforts required to develop the purchased in-process research and development into a commercially viable product principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the product can be produced to meet its designed specifications, including functions, features and technical performance requirements. For the quarter ended December 31, 2004, we recorded an expense of $1.9 million related to acquired in-process technology attributable to the acquisition of KiQ. There was no purchased in-process research and development expense for any other quarters presented in the tables below..

Restructuring expenses. During the quarter ended September 30, 2004, we announced plans to reallocate staff between our North American and European operations in order to better support our growth in North America, and an associated restructuring expense was recorded. As the earned portions of severed employee retention bonuses were paid, adjustments to the previously recorded estimates were necessary. These adjustments resulted in a $0.1 million benefit in the quarter ended December 31, 2004 and a less than $0.1 million expense in the quarter ended March 31, 2005. In July 2005, we announced a reduction in workforce and incurred a one-time cash charge of approximately $1.1 million in the quarter ended September 30, 2005. There was no restructuring expenses in the other quarters presented in the tables below.

Interest income, net. Interest income, net was $.02 million in the quarters ended December 31, 2004 and March 31, 2005, then declined to $0.1 million in the quarter ended June 30, 2005. This decline was primarily due to a reduction in cash balances associated with the $9.8 million used to acquire KiQ in December of 2004. Interest income, net increased to $0.2 million for the quarters ended September 30, 2005 and December 31, 2005 and then to $0.3 million for quarters thereafter. This increase was primarily due to increases in interest rates and higher average cash balances, as the Company’s operating and financing activities generated cash during this period.

Other expense, net. These gains and losses are primarily associated with foreign currency transaction gains or losses and re-measurement of our short-term intercompany balances between the U.S. and our foreign denominated subsidiaries. Gains and losses are also associated with our U.S. dollar account balances held in Europe and the U.S. dollar’s fluctuations in value against the Euro and U.K. Pound Sterling.

Provision for income taxes. . Our provisions for income taxes were between $0.1million and $0.2 million for each of the quarters presented in the table below. The provisions were attributable to taxes on earnings from our foreign subsidiaries and certain state income taxes.

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.


The following tables set forth a summary of the Company’s quarterly financial information for each of the four quarters in the years ended September 30, 2006 and 2005 (unaudited, in thousands, except per share data):

Year ended September 30, 2006:

 
Quarter -Ended
  
 
September 30,
2006
  
June 30,
2006
  
March 31,
2006
  
December 31,
2005
  
                   
(Restated)(1)
      
(Restated)(1)
    
Revenues:
                                
License
$
7,925
    
$
10,257
    
$
13,206
    
$
9,126
    
Service
  
13,754
      
16,769
      
13,067
      
13,432
    
Total revenues
  
21,679
      
27,026
      
26,273
      
22,558
    
Cost of net revenues:
                                
License
  
331
      
398
      
518
      
443
    
Service (2)
  
7,349
      
8,965
      
7,867
      
6,385
    
Amortization of intangible assets
  
302
      
303
      
303
      
303
    
Cost of revenues
 
7,982
      
9,666
      
8,688
      
7,131
    
Gross profit
 
13,697
      
17,360
      
17,585
      
15,427
    
Operating expenses:
                                
Sales and marketing (2)
  
8,739
      
7,976
      
8,761
      
8,140
    
Research and development (2)
  
7,699
      
7,780
      
5,862
      
4,517
    
General and administrative (2)
  
5,640
      
4,842
      
5,244
      
4,719
    
Total operating expense
  
22,078
      
20,598
      
19,867
      
17,376
    
Loss from operations
  
(8,381
)
    
(3,238
)
    
(2,282
)
    
(1,949
)
  
Interest income, net
  
311
      
329
      
281
      
199
    
Other income (expense), net
  
(91
)
    
(623
)
    
(31
)
    
118
    
Net loss before income taxes
  
(8,161
)
    
(3,532
)
  
 
(2,032
)
    
(1,632
)
  
Provision for income taxes
  
203
      
150
      
170
      
121
    
Net loss
$
(8,364
)
  
$
(3,682
)
  
$
(2,202
)
  
$
(1,753
)
  
Net loss per share—basic and diluted
$
(0.11
)
  
$
(0.05
)
  
$
(0.03
)
  
$
(0.02
)
  
Weighted average shares used in computing basic and diluted net loss per share
  
78,669
      
78,035
      
77,228
      
76,824
    

(1)-See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
72
    
$
92
    
$
58
    
$
26
    
Sales and marketing
  
421
      
571
      
613
      
722
    
Research and development
  
80
      
124
      
69
      
59
    
General and administrative
  
430
      
669
      
396
      
293
    
Total stock-based compensation expense
$
1,003
    
$
1,456
    
$
1,136
    
$
1,100
    




Year ended September 30, 2005:

 
Quarter -Ended
  
 
September 30,
2005
  
June 30,
2005
  
March 31,
2005
  
December 31,
2004
  
   
(Restated)(1)
      
(Restated)(1)
      
(Restated)(1)
      
(Restated)(1)
    
Revenues:
                                
License
$
6,649
    
$
9,228
    
$
6,959
    
$
8,842
    
Service
  
14,607
      
12,393
      
12,212
      
12,835
    
Total revenues
  
21,256
      
21,621
      
19,171
      
21,677
    
Cost of net revenues:
                                
License
  
377
      
337
      
198
      
166
    
Service (2)
  
7,698
      
7,311
      
7,622
      
7,523
    
Amortization of intangible assets
  
303
      
303
      
331
      
131
    
Cost of revenues
 
8,378
      
7,951
      
8,151
      
7,820
    
Gross profit
 
12,878
      
13,670
      
11,020
      
13,857
    
Operating expenses:
                                
Sales and marketing (2)
  
7,882
      
7,275
      
7,179
      
7,226
    
Research and development (2)
  
4,670
      
5,421
      
5,312
      
4,868
    
General and administrative (2)
  
4,742
      
4,679
      
5,197
      
3,933
    
Amortization of intangible assets
  
—
      
—
      
93
      
24
    
Restructuring expense
  
1,149
      
—
      
26
      
(123
)
  
Purchased in-process research and development
  
—
      
—
      
—
      
1,940
    
Total operating expense
  
18,443
      
17,375
      
17,807
      
17,868
    
Loss from operations
  
(5,565
)
    
(3,705
)
    
(6,787
)
    
(4,011
)
  
Interest income, net
  
216
      
147
      
182
      
210
    
Other income (expense), net
  
(58
)
    
186
      
166
      
(397
)
  
Net loss before income taxes
  
(5,407
)
    
(3,372
)
  
 
(6,439
)
    
(4,198
)
  
Provision for income taxes
  
156
      
138
      
75
      
80
    
Net loss
$
(5,563
)
  
$
(3,510
)
  
$
(6,514
)
  
$
(4,278
)
  
Net loss per share—basic and diluted
$
(0.07
)
  
$
(0.05
)
  
$
(0.09
)
  
$
(0.06
)
  
Weighted average shares used in computing basic and diluted net loss per share
  
77,886
      
75,080
      
74,745
      
72,223
    

(1)-See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
222
    
$
176
    
$
273
    
$
19
    
Sales and marketing
  
460
      
222
      
300
      
10
    
Research and development
  
274
      
227
      
330
      
3
    
General and administrative
  
215
      
114
      
166
      
20
    
Total stock-based compensation expense
$
1,171
    
$
739
    
$
1,069
    
$
52
    



The following tables present the effects of adjustments made to the Company’s previously reported quarterly financial information as of September 30, 2006 (unaudited, in thousand, except per share data):

   
Three Months Ended March 31, 2006
  
Three Months Ended December 31, 2005
   
As
Reported
      
Adjustment
(1)
      
Restated
      
As
Reported
      
Adjustment
(1)
      
Restated
  
Revenues:
                                              
License
$
13,206
    
$
—
    
$
13,206
    
$
9,126
    
$
—
    
$
9,126
  
Service
  
13,067
      
—
      
13,067
      
13,432
      
—
      
13,432
  
Total revenues
  
26,273
      
—
      
26,273
      
22,558
      
—
      
22,558
  
Cost of net revenues:
                                              
License
  
518
      
—
      
518
      
443
      
—
      
443
  
Service (2)
  
7,864
      
3
      
7,867
      
6,384
      
1
      
6,385
  
Amortization of intangible assets
  
303
      
—
      
303
      
303
      
—
      
303
  
Cost of revenues
 
8,685
    
 
3
    
 
8,688
    
 
7,130
    
 
1
    
 
7,131
  
Gross profit
 
17,588
      
(3
)
    
17,585
      
15,428
      
(1
)
    
15,427
  
Operating expenses:
                                              
Sales and marketing (2)
  
8,732
      
29
      
8,761
      
8,104
      
36
      
8,140
  
Research and development (2)
  
5,859
      
3
      
5,862
      
4,514
      
3
      
4,517
  
General and administrative (2)
  
5,225
      
19
      
5,244
      
4,704
      
15
      
4,719
  
Total operating expense
  
19,816
      
51
      
19,867
      
17,322
      
54
      
17,376
  
Loss from operations
  
(2,228
)
    
(54
)
    
(2,282
)
    
(1,894
)
    
(55
)
    
(1,949
)
Interest income, net
  
281
      
—
      
281
      
199
      
—
      
199
  
Other income (expense), net
  
(31
)
    
—
      
(31
)
    
118
      
—
      
118
  
Net loss before income taxes
  
(1,978
)
    
(54
)
    
(2,032
)
    
(1,577
)
    
(55
)
    
(1,632
)
Provision for income taxes
  
170
      
—
      
170
      
121
      
—
      
121
  
Net loss
$
(2,148
)
  
$
(54
)
  
$
(2,202
)
  
$
(1,698
)
  
$
(55
)
  
$
(1,753
)
Net loss per share—basic and diluted
$
(0.03
)
  
$
—
    
$
(0.03
)
  
$
(0.02
)
  
$
—
   
$
(0.02
)
Weighted average shares used in computing basic and diluted net loss per share
  
77,228
      
—
      
77,228
      
76,824
      
—
      
76,824
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
56
    
$
2
    
$
58
    
$
25
    
$
1
    
$
26
  
Sales and marketing
  
593
      
20
      
613
      
693
      
29
      
722
  
Research and development
  
67
      
2
      
69
      
57
      
2
      
59
  
General and administrative
  
383
      
13
      
396
      
281
      
12
      
293
  
Total stock-based compensation expense
$
1,099
    
$
37
    
$
1,136
    
$
1,056
    
$
44
    
$
1,100
  



The following tables present the effects of adjustments made to the Company’s previously reported quarterly financial information as of September 30, 2005 (unaudited, in thousand, except per share data):

   
Three Months Ended September 30, 2005
  
Three Months Ended June 30, 2005
   
As
Reported
      
Adjustment
(1)
      
Restated
      
As
Reported
      
Adjustment
(1)
      
Restated
  
Revenues:
                                              
License
$
6,649
    
$
—
    
$
6,649
    
$
9,228
    
$
—
    
$
9,228
  
Service
  
14,607
      
—
      
14,607
      
12,393
      
—
      
12,393
  
Total revenues
  
21,256
      
—
      
21,256
    
$
21,621
      
—
      
21,621
  
Cost of net revenues:
                                              
License
  
377
      
—
      
377
      
337
      
—
      
337
  
Service (2)
  
7,677
      
21
      
7,698
      
7,300
      
11
      
7,311
  
Amortization of intangible assets
  
303
      
—
      
303
      
303
      
—
      
303
  
Cost of revenues
 
8,357
    
 
21
    
 
8,378
    
 
7,940
    
 
11
    
 
7,951
  
Gross profit
 
12,899
    
 
(21
)
  
 
12,878
    
 
13,681
    
 
(11
)
  
 
13,670
  
Operating expenses:
                                              
Sales and marketing (2)
  
7,838
      
44
      
7,882
      
7,262
      
13
      
7,275
  
Research and development (2)
  
4,644
      
26
      
4,670
      
5,408
      
13
      
5,421
  
General and administrative (2)
  
4,722
      
20
      
4,742
      
4,672
      
7
      
4,679
  
Amortization of intangible assets
  
—
      
—
      
—
      
—
      
—
      
—
  
Restructuring expense
  
1,149
      
—
      
1,149
      
—
      
—
      
—
  
Purchased in-process research and development
  
—
      
—
      
—
      
—
      
—
      
—
  
Total operating expense
  
18,353
      
90
      
18,443
      
17,342
      
33
      
17,375
  
Loss from operations
  
(5,454
)
    
(111
)
    
(5,565
)
    
(3,661
)
    
(44
)
    
(3,705
)
Interest income, net
  
216
      
—
      
216
      
147
      
—
      
147
  
Other income (expense), net
  
(58
)
    
—
      
(58
)
    
186
      
—
      
186
  
Net loss before income taxes
  
(5,296
)
    
(111
)
    
(5,407
)
    
(3,328
)
    
(44
)
    
(3,372
)
Provision for income taxes
  
156
      
—
      
156
      
138
              
138
  
Net loss
$
(5,452
)
  
$
(111
)
  
$
(5,563
)
  
$
(3,466
)
  
$
(44
)
  
$
(3,510
)
Net loss per share—basic and diluted
$
(0.07
)
  
$
—
    
$
(0.07
)
  
$
(0.05
)
  
$
—
    
$
(0.05
)
Weighted average shares used in computing basic and diluted net loss per share
  
77,886
      
—
      
77,886
      
75,080
      
—
      
75,080
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
225
    
$
(3
)
  
$
222
    
$
166
    
$
10
    
$
176
  
Sales and marketing
  
466
      
(6
)
    
460
      
210
      
12
      
222
  
Research and development
  
278
      
(4
)
    
274
      
215
      
12
      
227
  
General and administrative
  
218
      
(3
)
    
215
      
108
      
6
      
114
  
Total stock-based compensation expense
$
1,187
    
$
(16
)
  
$
1,171
    
$
699
    
$
40
    
$
739
  



   
Three Months Ended March 31, 2005
  
Three Months Ended December 31, 2004
   
As
Reported
      
Adjustment
(1)
      
Restated
      
As
Reported
      
Adjustment
(1)
      
Restated
  
Revenues:
                                              
License
$
6,959
    
$
—
    
$
6,959
    
$
8,842
    
$
—
    
$
8,842
  
Service
  
12,212
      
—
      
12,212
      
12,835
      
—
      
12,835
  
Total revenues
  
19,171
      
—
      
19,171
    
$
21,677
      
—
      
21,677
  
Cost of net revenues:
                                              
License
  
198
      
—
      
198
      
166
      
—
      
166
  
Service (2)
  
7,601
      
21
      
7,622
      
7,492
      
31
      
7,523
  
Amortization of intangible assets
  
331
      
—
      
331
      
131
      
—
      
131
  
Cost of revenues
 
8,130
    
 
21
    
 
8,151
    
 
7,789
    
 
31
    
 
7,820
  
Gross profit
 
11,041
    
 
(21
)
  
 
11,020
    
 
13,888
    
 
(31
)
  
 
13,857
  
Operating expenses:
                                              
Sales and marketing (2)
  
7,155
      
24
      
7,179
      
7,209
      
17
      
7,226
  
Research and development (2)
  
5,286
      
26
      
5,312
      
4,863
      
5
      
4,868
  
General and administrative (2)
  
5,184
      
13
      
5,197
      
3,900
      
33
      
3,933
  
Amortization of intangible assets
  
93
      
—
      
93
      
24
      
—
      
24
  
Restructuring expense
  
26
      
—
      
26
      
(123
)
    
—
      
(123
)
Purchased in-process research and development
  
—
      
—
      
—
      
1,940
      
—
      
1,940
  
Total operating expense
  
17,744
      
63
      
17,807
      
17,813
      
55
      
17,868
  
Loss from operations
  
(6,703
)
    
(84
)
    
(6,787
)
    
(3,925
)
    
(86
)
    
(4,011
)
Interest income, net
  
182
      
—
      
182
      
210
      
—
      
210
  
Other income (expense), net
  
166
      
—
      
166
      
(397
)
    
—
      
(397
)
Net loss before income taxes
  
(6,355
)
    
(84
)
    
(6,439
)
    
(4,112
)
    
(86
)
    
(4,198
)
Provision for income taxes
  
75
      
—
      
75
      
80
      
—
      
80
  
Net loss
$
(6,430
)
  
$
(84
)
  
$
(6,514
)
  
$
(4,192
)
  
$
(86
)
  
$
(4,278
)
Net loss per share—basic and diluted
$
(0.09
)
  
$
—
    
$
(0.09
)
  
$
(0.06
)
  
$
—
    
$
(0.06
)
Weighted average shares used in computing basic and diluted net loss per share
  
74,745
      
—
      
74,745
      
72,223
      
—
      
72,223
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
253
    
$
20
    
$
273
    
$
(11
)
  
$
30
    
$
19
  
Sales and marketing
  
277
      
23
      
300
      
(6
)
    
16
      
10
  
Research and development
  
305
      
25
      
330
      
(2
)
    
5
      
3
  
General and administrative
  
154
      
12
      
166
      
(12
)
    
32
      
20
  
Total stock-based compensation expense
$
989
    
$
80
    
$
1,069
    
$
(31
)
  
$
83
    
$
52
  



Liquidity and Capital Resources

Historically, we have not been profitable and we have financed our activities through the issuance of our common stock. Our cash, cash equivalents, restricted cash and long-term restricted cash consist principally of money market accounts and certificates of deposit and totaled $45.8 million and $40.9 million at September 30, 2006 and September 30, 2005, respectively, an increase of $4.9 million.
 
Operating Activities

Cash provided by operating activities was $3.2 million during the year ended September 30, 2006, which consisted primarily of our net loss of $16.0 million adjusted for non-cash items (depreciation, amortization, non-cash stock-based compensation expense, provision for doubtful accounts, loss on disposal of assets and other non-cash charges) aggregating approximately $8.2 million and the net cash inflow effect from changes in assets and liabilities of approximately $11.0 million. This net cash inflow was primarily caused by an increase in liability balances for accrued expenses and other liabilities of $6.1 million, accounts payable of $3.0 million and deferred revenue of $2.8 million offset by cash outflows related to an increase in prepaid expenses of $1.0 million. The increase in accrued expenses, other liabilities and accounts payable is primarily due to the timing of when the payments were made for these liabilities. The increase in deferred revenue was primarily due to an increase in license revenue backlog for the year.

Cash used in operating activities was $9.0 million during the year ended September 30, 2005, which consisted primarily of our net loss of $19.9 million adjusted for non-cash items (primarily the write off of in-process research and development costs associated with the KiQ acquisition, depreciation, amortization, non-cash stock-based compensation expense and other non-cash charges) aggregating approximately $7.9 million and the net cash inflow effect from changes in assets and liabilities of approximately $3.1 million. This net cash inflow was primarily caused by an increase in revenue and the collection of accounts receivable, offset by the payment of accounts payable and accrued expenses, and additions to prepaid expenses and other assets. The increase in deferred revenue is primarily attributable to two significant license agreements signed in the three month period ended June 30, 2005. These agreements are being accounted for under the percentage of completion method of accounting.

For the nine months ended September 30, 2004, the $4.4 million use of cash consisted primarily of our net loss of $1.4 million adjusted for non-cash items (primarily depreciation, amortization, non-cash stock-based compensation expense and other non-cash charges) of approximately $2.5 million and the net cash outflow effect from changes in assets and liabilities of approximately $5.5 million. This net cash outflow was caused primarily by $8.1 million increase in accounts receivable, which was caused in part by a new financial information system conversion during the third quarter. This conversion delayed normal accounts receivable collection efforts, resulting in higher balances due from customers.

Investing Activities

Cash used in investing activities during the year ended September 30, 2006 was less than $0.1 million. The cash used primarily related to the purchase of $1.7 million of property and equipment and the capitalization of $0.3 million of software development costs associated with the porting an existing product to a new platform. This use of cash was offset by the release of $1.9 million of restricted cash during the period.

Cash used in investing activities during the year ended September 30, 2005 was $8.8 million. This use of cash primarily related to the $9.8 million in funds used to acquire KiQ, $2.2 million in funds used to complete development of an acquired banking product offset by the $4.0 million in net proceeds from the sale of marketable securities. Property and equipment purchases also consumed $0.7 million of cash during the period.

Cash used in investing activities during the nine months ended September 30, 2004 was $4.8 million. This use of cash related to the $4.0 million purchase of marketable securities and $0.8 million in property and equipment additions.

Financing Activities

Financing activities were a source of cash in the amounts of $2.0 million, $1.0 million, and $28.7 million for the year ended September 30, 2006 and 2005 and nine months ended September 30, 2004, respectively.

For the year ended September 30, 2006, the amount relates to $2.2 million in proceeds from stock option exercises, offset by payments of $0.2 million on capital lease obligations.

For the year ended September 30, 2005, the amount relates to $1.2 million in proceeds from stock option exercises, offset by payments of $0.2 million on capital lease obligations. During the year ended September 30, 2005, we suspended our Employee Stock Purchase Plan (“ESPP”). Historically, proceeds to us from the ESPP have been significant. During the nine months ended


September 30, 2004, this source of financing provided proceeds to the company in the amount of $1.5 million. We have not yet determined if and when the ESPP will be reinstated and, accordingly, we do not anticipate that we will receive proceeds from the ESPP in the near term.

During the nine months ended September 30, 2004, the cash provided by financing activities primarily resulted from: (i) net proceeds of approximately $24.8 million, net of issuance costs of approximately $0.2 million, from the sale of 4,854,368 shares of our common stock at $5.15 per share; (ii) proceeds of approximately $1.5 million from the issuance of common stock as part of the employee stock purchase plan; and (iii) proceeds of approximately $2.4 million from the exercise of employee stock options.

Revolving line of credit

 
Our revolving line of credit with Comerica Bank was amended and restated on March 8, 2006 and was extended to March 7, 2008. The terms of the agreement include a $5.0 million line of credit and require us to (i) maintain at least a $5.0 million cash balance in Comerica Bank accounts, (ii) maintain a minimum quick ratio of 2.00 to 1.00, and (iii)  subordinate any debt issuances subsequent to the effective date of the agreement, and to comply with certain other covenants. All assets of the Company have been pledged as collateral on the credit facility. The Company failed to timely file its periodic report on Form 10-K for the year ended September 30, 2006 and on Form 10-Q for the quarter ended June 30, 2006. The line of credit agreement was amended in August 2006, November 2006, and December 2006 to extend the deadline related to the filing of its periodic reports to February 20, 2007.

The revolving line of credit contains a provision of up to $5.0 million for issuances of standby commercial letters of credit. As of September 30, 2006, we had utilized $1.2 million of the standby commercial letter of credit limit of which $0.7 million serves as collateral for computer equipment leases for Ness. The revolving line of credit also contains a provision for a sub-limit of up to $3.0 million for issuances of foreign exchange forward contracts. As of September 30, 2006, we had not entered into any foreign exchange forward contracts. Pursuant to the amendment in March 2006, we are required to secure our standby commercial letters of credit and foreign exchange forward contracts as of March 7, 2008. If these have not been secured to Comerica Bank’s satisfaction, our cash and cash equivalent balances held by Comerica Bank automatically secure such obligations to the extent of the then continuing or outstanding and undrawn letters of credit or foreign exchange contracts.
 
Borrowings under the revolving line of credit bear interest at the lending bank’s prime rate. Except for the standby commercial letters of credit, as of September 30, 2006, there was no outstanding balance on our revolving line of credit.

Prior to the March 2006 amendment, advances were available on a non-formula basis up to $2.0 million (non-formula portion); however, if advances exceeded $2.0 million, then subsequent advances could not exceed 80% of eligible accounts receivable balances, and the bank would hold a security interest in those accounts receivable. As of March 2006, advances are available on a non-formula basis up to $5.0 million.

Contractual Obligations and Off Balance Sheet Arrangements

We have entered into an agreement with Ness, effective December 15, 2003, wherein Ness will provide our customers with technical product support, a sustaining engineering function, product testing services, and product development services (collectively, the “Services”). The agreement had an initial term of three years and was extended for an additional one year term. Under the terms of the agreement, we pay for services rendered on a monthly fee basis, including the requirement to reimburse Ness for approved out-of-pocket expenses. In addition, upon our approval or at our direction, Ness may procure equipment to be used in performance of the Services, either through leasing arrangements or direct cash purchases, for which we are obligated under the agreement to reimburse them. In connection with the procurement of equipment, Ness has entered into a 36 month equipment lease agreement with IBM India and, in connection with the lease agreement we have issued a standby letter of credit in the amount of $0.7 million in guarantee of Ness financial commitments under the lease. Management believes that the likelihood of the performance of the guarantee being called is remote.

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


Future payments due under lease obligations as of September 30, 2006 are as follows (in thousands):

 
 
Capital
Leases
  
Operating
Leases
  
 
Fiscal Year Ended September 30:
 
  
 
 
  
 
 
2007
$
97
 
$
3,712
 
 
2008
 
—
 
 
3,318
 
 
2009
 
—
 
 
2,582
 
 
2010 
 
—
 
 
2,009
 
 
2011 
 
—
 
 
1,068
 
 
Thereafter 
 
—
 
 
1,208
 
 
Total minimum payments
$
97
 
$
13,897
 

Our existing cash and cash equivalents balances may decline in future periods. However, we believe that the effects of our strategic actions implemented to improve revenue as well as to control costs will be adequate to generate sufficient cash flows from operations, which, when combined with existing cash balances, we anticipate will be sufficient to meet our working capital and operating resource expenditure requirements for the near term. In early 2007 we received $20.0 million associated with a customer license arrangement. If the global economy weakens, cash balances could be unfavorably impacted.

We anticipate that operating expenses will continue to be a material use of our cash resources. We may continue to utilize cash resources to fund acquisitions or investments in other businesses, technologies or product lines. In the long-term, we may require additional funds to support our working capital and operating expense requirements or for other purposes, and may seek to raise these additional funds through public or private debt or equity financings. There can be no assurance that this additional financing will be available, or if available, will be on reasonable terms. Failure to generate sufficient revenues or to control spending could adversely affect our ability to achieve our business objectives.
 
Indemnification

As permitted under Delaware law, we have agreements whereby we indemnify our officers, directors and certain employees for certain events or occurrences while the employee, officer or director is, or was serving, at our request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a Director and Officer insurance policy that limits our exposure and may enable us to recover a portion of any future amounts paid. Future payments may be required to defend current and former directors in the derivative class action lawsuits described in Note 11. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of September 30, 2006.
 
We enter into standard indemnification agreements in our ordinary course of business. Pursuant to these agreements, we agree to indemnify, defend, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners or customers, in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification agreements is generally perpetual after execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. We believe the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of September 30, 2006.
 
We enter into arrangements with our business partners, whereby the business partners agree to provide services as subcontractors for our implementations. We may, at our discretion and in the ordinary course of business, subcontract the performance of any of our services. Accordingly, we enter into standard indemnification agreements with our customers, whereby we indemnify them for other acts, such as personal property damage by our subcontractors. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have general and umbrella insurance policies that may enable us to recover a portion of any amounts paid. We have not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of September 30, 2006.
 
When, as part of an acquisition, we acquire all of the stock or all of the assets and liabilities of a company, we may assume the liability for certain events or occurrences that took place prior to the date of acquisition. The maximum potential amount of future payments, if any, we could be required to make for such obligations is undeterminable at this time. Accordingly, we have no amounts recorded for these contingent liabilities as of September 30, 2006.
 


We warrant that our software products will perform in all material respects in accordance with our standard published specifications and documentation in effect at the time of delivery of the licensed products to the customer for a specified period of time. Additionally, we warrant that our maintenance and consulting services will be performed consistently with generally accepted industry standards. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history, however, we have not incurred significant expense under our product or services warranties to date. As a result, we believe the estimated fair value on these warranties is minimal. Accordingly, we have no amounts recorded for these contingent liabilities as of September 30, 2006.




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

The following table presents the amounts of restricted cash that are subject to interest rate risk by year of expected maturity and average interest rates as of September 30, 2006 (in thousands):
 
 
 
September 30,
2006
  
Fair
Value
 
 
Restricted cash in short-term investments
$
185
    
$
185
 
 
Average interest rates
 
2.96
%
  
 
  
 
 
The following table presents the amounts of restricted cash that are subject to interest rate risk by year of expected maturity and average interest rates as of September 30, 2005 (in thousands)

 
 
September 30,
2005
  
Fair
Value
 
 
Restricted cash in short-term investments
$
1,982
    
$
1,982
 
 
Average interest rates
 
0.70
%
  
 
  
 

Interest Rate Risk. Our exposure to market rate risk for changes in interest rates relates primarily to our money market accounts. We invest our excess cash in money market accounts and certificates-of-deposits less than one year in maturity.
 
Foreign Currency Risk. A significant portion of our sales and operating expenses result from transactions outside of the United States, often in foreign currencies. These currencies include the United Kingdom Pound Sterling, the Euro and Canadian Dollars. International revenues from our foreign subsidiaries accounted for approximately 38% of total revenues for the year ended September 30, 2006. International sales are made mostly from our foreign sales subsidiaries in their respective countries and are typically denominated in the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency.
 
Additionally, two of our foreign subsidiaries hold cash equivalent investments in currencies other than their respective local currencies. Such holdings increase our exposure to foreign exchange rate fluctuations. As exchange rates vary, the holdings may magnify foreign currency exchange rate fluctuations or upon translation or adversely impact overall expected profitability through foreign currency losses incurred upon the sale or maturity of the investments. At September 30, 2006, approximately $14.6 million of our cash and cash equivalents were held by our subsidiaries outside of the United States.
 
Our international business is subject to risks, including, but not limited to changing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility when compared to the United States. Accordingly, our future results could be materially adversely impacted by changes in these or other factors.




Index to Consolidated Financial Statements
 
Chordiant Software, Inc. and Subsidiaries: Consolidated Financial Statements for the Year Ended September 30, 2006 and 2005, and for the Nine Months Ended September 30, 2004.
 
 
 
Consolidated Financial Statements:
 
63
64
65
66
67
68
69
 
  
Financial Statement Schedule:
  
132

All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.



To The Board of Directors and Stockholders of Chordiant Software, Inc.:
 
We have audited the accompanying consolidated balance sheets of Chordiant Software, Inc. (the “Company”) as of September 30, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years then ended. We have also audited the financial statement schedule listed in the Index at Item 15(a) as of and for the years ended September 30, 2006 and 2005. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chordiant Software, Inc. at September 30, 2006 and 2005, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States.
 
Also, in our opinion, the financial statement schedule as of and for the years ended September 30, 2006 and 2005, presents fairly in all material respects the information set forth therein.

As discussed in Note 3 to the Consolidated Financial Statements, the consolidated financial statements and financial statement schedule as of and for the year ended September 30, 2005, have been restated.

As discussed in Note 2 to the Consolidated Financial Statements, effective October 1, 2005, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Chordiant Software, Inc.’s internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 9, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of internal control over financial reporting and an adverse opinion on the effectiveness of internal control over financial reporting due to the existence of material weaknesses.
 
/s/ BDO Seidman, LLP
 
San Jose, California
February 9, 2007


 
To the Board of Directors and Stockholders of Chordiant Software, Inc.:
 
In our opinion, the consolidated Statements of Operations, Stockholders’ Equity and Comprehensive Loss and Cash Flows of Chordiant Software, Inc. present fairly, in all material respects, the results of their operations and their cash flows for the nine-month period ended September 30, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the nine-month period ended September 30, 2004 listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.
 
As discussed in Note 3 to the consolidated financial statements, the Company has restated its 2004 consolidated financial statements and financial statement schedule.

/s/ PricewaterhouseCoopers LLP
 
San Jose, California
March 18, 2005, except for the restatement described in Note 3 to the consolidated financial statements, as to which the date is February 8, 2007.



 
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
 
 
September 30,
2006
  
September 30,
2005
 
 
 
  
 
  
 
(restated) (1)
 
ASSETS
                
Current assets:
 
 
  
 
  
 
  
 
Cash and cash equivalents
 
$
45,278
 
  
$
38,546
 
Restricted cash
 
 
185
 
  
 
1,982
 
Accounts receivable, net, including $142 and $263 due from related parties at September 30, 2006 and 2005, respectively
 
 
19,025
 
  
 
18,979
 
Prepaid expenses and other current assets
 
 
5,210
 
  
 
4,345
 
Total current assets
 
 
69,698
 
  
 
63,852
 
Restricted cash
 
 
334
 
  
 
365
 
Property and equipment, net
 
 
2,630
 
  
 
2,479
 
Goodwill
 
 
32,044
 
  
 
31,907
 
Intangible assets, net
 
 
3,937
 
  
 
5,148
 
Other assets
 
 
2,860
 
  
 
3,499
 
Total assets
 
$
111,503
 
  
$
107,250
 
 
 
 
 
 
  
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
  
 
  
 
  
 
Current liabilities:
 
 
  
 
  
 
  
 
Accounts payable, including $132 and nil to related parties at September 30, 2006 and 2005 respectively
 
$
7,665
 
  
$
4,554
 
Accrued expenses
 
 
15,706
 
  
 
9,302
 
Deferred revenue, including related party balances of $112 and $370 at September 30, 2006 and 2005, respectively
 
 
23,909
 
  
 
26,050
 
Current portion of capital lease obligations
 
 
95
 
  
 
213
 
Total current liabilities
 
 
47,375
 
  
 
40,119
 
Deferred revenue—long-term
 
 
5,596
 
  
 
147
 
Restructuring costs, net of current portion
 
 
1,239
 
  
 
1,731
 
Other long-term liabilities
 
 
68
 
  
 
96
 
Total liabilities
 
 
54,278
 
  
 
42,093
 
 
 
 
 
 
  
 
 
 
Commitments and contingencies (Notes 7, 10 and 11)
 
 
  
 
  
 
  
 
 
 
 
 
 
  
 
 
 
Stockholders’ equity:
 
 
  
 
  
 
  
 
Preferred stock, $0.001 par value; 51,000 shares authorized; none issued and outstanding at September 30, 2006 and 2005
 
 
—
 
  
 
—
 
Common stock, $0.001 par value; 300,000 shares authorized; 80,075 and 78,488 shares issued and outstanding at September 30, 2006 and 2005, respectively
 
 
80
 
  
 
78
 
Additional paid-in capital
 
 
286,392
 
  
 
281,649
 
Deferred stock-based compensation
 
 
—
    
 
(2,112
)
Accumulated deficit
 
 
(232,943
)
  
 
(216,942
)
Accumulated other comprehensive income
 
 
3,696
 
  
 
2,484
 
Total stockholders’ equity
 
 
57,225
 
  
 
65,157
 
Total liabilities and stockholders’ equity
 
$
111,503
 
  
$
107,250
 

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

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


 
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 
 
Year Ended
September 30,
2006
  
Year Ended
September 30,
2005
  
Nine Months
Ended
September 30,
2004
             
(restated)(1)
      
(restated)(1)
  
Revenues:
 
 
          
 
  
 
  
 
License, including related party items aggregating nil, $5,612, and nil for year ended September 30, 2006 and 2005, and nine months ended September 30, 2004, respectively
 
$
40,514
 
  
$
31,678
 
  
$
23,661
 
Service, including related party items aggregating $663, $2,443, and nil for years ended September 30, 2006 and 2005, and nine months ended September 30, 2004, respectively
 
 
57,022
 
  
 
52,047
 
  
 
37,362
 
Total revenues
 
 
97,536
 
  
 
83,725
 
  
 
61,023
 
Cost of revenues:
 
 
  
 
  
 
  
 
  
 
  
 
License
 
 
1,690
 
  
 
1,079
 
  
 
1,262
 
Service, including related party items aggregating $669, nil, and nil for the years ended September 30, 2006 and 2005, and nine months ended September 30, 2004, respectively
 
 
30,566
 
  
 
30,155
 
  
 
21,630
 
Amortization of intangible assets
 
 
1,211
 
  
 
1,068
 
  
 
1,044
 
Total cost of revenues
 
 
33,467
 
  
 
32,302
 
  
 
23,936
 
Gross profit
 
 
64,069
 
  
 
51,423
 
  
 
37,087
 
Operating expenses:
 
 
  
 
  
 
  
 
  
 
  
 
Sales and marketing
 
 
33,616
 
  
 
29,561
 
  
 
17,825
 
Research and development
 
 
25,858
 
  
 
20,272
 
  
 
13,160
 
General and administrative
 
 
20,445
 
  
 
18,549
 
  
 
7,099
 
Amortization of intangible assets
 
 
—
 
  
 
117
 
  
 
126
 
Restructuring expense
 
 
—
 
  
 
1,052
 
  
 
172
 
Purchased in-process research and development
 
 
—
 
  
 
1,940
 
  
 
—
 
Total operating expenses
 
 
79,919
 
  
 
71,491
 
  
 
38,382
 
Loss from operations
 
 
(15,850
)
  
 
(20,068
)
  
 
(1,295
)
Interest income, net
 
 
1,120
 
  
 
755
 
  
 
498
 
Other expense, net
 
 
(627
)
  
 
(103
)
  
 
(132
)
Loss before income taxes
 
 
(15,357
)
  
 
(19,416
)
  
 
(929
)
Provision for income taxes
 
 
644
 
  
 
449
 
  
 
442
 
Net loss
 
$
(16,001
)
  
$
(19,865
)
  
$
(1,371
)
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
Net loss per share—basic and diluted
 
$
(0.21
)
  
$
(0.27
)
  
$
(0.02
)
Weighted average shares used in computing basic and diluted net loss per share
 
 
77,682
 
  
 
74,449
 
  
 
69,761
 

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

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



 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
(in thousands)
(restated) (1)

   
Common Stock
  
Additional
Paid-in
Capital
  
Deferred
Stock-Based
Compensation
  
Accumulated
Deficit
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Total
Stockholders’
Equity
  
Comprehensive
(Loss)
Shares
  
Amount
Balance at December 31, 2003- as previously reported
 
 
64,763
 
  
$
65
 
  
$
235,911
 
  
$
(1,665
) 
  
$
(188,906
)
  
$
3,041
 
  
$
48,446
    
 
 
 
Restatement adjustments to opening stockholders’ equity
    
—
      
—
      
7,512
      
(808
) 
    
(6,800
)
    
—
      
(96
)
        
Balance at December 31, 2003- restated
    
64,763
 
  
 
65
      
243,423
      
(2,473
) 
    
(195,706
)
    
3,041
      
48,350
          
Exercise of stock options
 
 
1,150
 
  
 
1
 
  
 
2,414
 
  
 
—
 
    
—
    
 
—
 
  
 
2,415
 
  
 
 
 
Amortization of unearned compensation
 
 
—
 
  
 
—
 
  
 
—
 
  
 
(311
) 
    
—
    
 
—
 
  
 
(311
)
  
 
 
 
Amortization of restricted stock
 
 
—
 
  
 
—
 
  
 
—
 
  
 
87
 
    
—
    
 
—
 
  
 
87
 
  
 
 
 
Change in grantee status
 
 
—
 
  
 
—
 
  
 
362
 
  
 
—
 
    
—
    
 
—
 
  
 
362
 
  
 
 
 
Cancellation of restricted stock
 
 
(234
)
  
 
(1
)
  
 
(409
)
  
 
409
 
    
—
    
 
—
 
  
 
(1
)
  
 
 
 
Issuance of restricted stock
 
 
3
 
  
 
—
 
  
 
17
 
  
 
—
 
    
—
    
 
—
 
  
 
17
 
  
 
 
 
Unearned compensation on variable options
 
 
—
 
  
 
—
 
  
 
(1,901
)
  
 
1,901
 
    
—
    
 
—
 
  
 
—
 
  
 
 
 
Issuance of common stock for Employee Stock Purchase Plan
 
 
2,000
 
  
 
2
 
  
 
1,546
 
  
 
—
 
    
—
    
 
—
 
  
 
1,548
 
  
 
 
 
Issuance of common stock, net of offering costs
 
 
4,854
 
  
 
5
 
  
 
24,809
 
  
 
—
 
    
—
    
 
—
 
  
 
24,814
 
  
 
 
 
Warrants issued to customer
 
 
—
 
  
 
—
 
  
 
(46
)
  
 
—
 
    
—
    
 
—
 
  
 
(46
)
  
 
 
 
Unearned compensation on stock options-restatement
    
—
 
  
 
—
      
313
      
(313
)
    
—
    
 
—
      
—
 
        
Net loss
 
 
—
 
  
 
—
 
  
 
—
 
  
 
—
 
    
(1,371
)
  
 
—
 
  
 
(1,371
)
  
$
(1,371
)
Foreign currency translation gain
 
 
—
 
  
 
—
 
  
 
—
 
  
 
—
 
    
—
    
 
48
 
  
 
48
 
  
 
48
 
Comprehensive loss
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
    
 
    
 
 
 
  
 
 
 
  
$
(1,323
)
Balance at September 30, 2004- restated
 
 
72,536
 
  
 
72
 
  
 
270,528
 
  
 
(700
) 
    
(197,077
)
  
 
3,089
 
  
 
75,912
 
  
 
 
 
Exercise of stock options
 
 
1,246
 
  
 
1
 
  
 
1,511
 
  
 
—
 
    
—
    
 
—
 
  
 
1,512
 
  
 
 
 
Amortization of unearned compensation related to acquisitions
 
 
—
 
  
 
—
 
  
 
—
 
  
 
2,729
 
    
—
    
 
—
 
  
 
2,729
 
  
 
 
 
Amortization of unearned compensation
 
 
—
 
  
 
—
 
  
 
—
 
  
 
(348
)
    
—
    
 
—
 
  
 
(348
)
  
 
 
 
Amortization of restricted stock
 
 
—
 
  
 
—
 
  
 
—
 
  
 
650
 
    
—
    
 
—
 
  
 
650
 
  
 
 
 
Cancellation of restricted stock
 
 
(96
)
  
 
—
 
  
 
(221
)
  
 
221
 
    
—
    
 
—
 
  
 
—
 
  
 
 
 
Unearned compensation on variable options
 
 
—
 
  
 
—
 
  
 
(411
)
  
 
411
 
    
—
    
 
—
 
  
 
—
 
  
 
 
 
Issuance of restricted stock
 
 
450
 
  
 
1
 
  
 
951
 
  
 
(952
)
    
—
    
 
—
 
  
 
—
 
  
 
 
 
Issuance of common stock, net of offering costs, and restricted stock related to acquisitions
 
 
4,352
 
  
 
4
 
  
 
9,303
 
  
 
(4,123
) 
    
—
    
 
—
 
  
 
5,184
 
  
 
 
 
Warrants issued to customer
 
 
—
 
  
 
—
 
  
 
(12
)
  
 
—
 
    
—
    
 
—
 
  
 
(12
)
  
 
 
 
Net loss
 
 
—
 
  
 
—
 
  
 
—
 
  
 
—
 
    
(19,865
)
  
 
—
 
  
 
(19,865
)
  
$
(19,865
)
Foreign currency translation loss
 
 
—
 
  
 
—
 
  
 
—
 
  
 
—
 
    
—
    
 
(605
)
  
 
(605
)
  
 
(605
)
Comprehensive loss
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
    
 
    
 
 
 
  
 
 
 
  
$
(20,470
)
Balance at September 30, 2005- restated
 
 
78,488
 
    
78
 
    
281,649
 
    
(2,112
)
    
(216,942
)
    
2,484
 
    
65,157
 
  
 
 
 
Exercise of stock options and warrants
 
 
1,282
 
  
 
2
 
  
 
2,024
 
  
 
—
 
    
—
    
 
—
 
  
 
2,026
 
  
 
 
 
Amortization of unearned compensation related to acquisitions
 
 
—
 
  
 
—
 
  
 
756
    
 
—
 
    
—
    
 
—
 
  
 
756
 
  
 
 
 
Amortization of unearned compensation
    
—
 
  
 
—
      
3,475
      
—
      
—
    
 
—
      
3,475
          
Amortization of restricted stock
 
 
—
 
  
 
—
 
  
 
463
    
 
—
 
    
—
    
 
—
 
  
 
463
 
  
 
 
 
Cancellation of restricted stock
 
 
(20
)
  
 
—
 
  
 
—
    
 
—
 
    
—
    
 
—
 
  
 
—
 
  
 
 
 
Issuance of restricted stock
 
 
325
 
  
 
—
 
  
 
—
 
  
 
—
 
    
—
    
 
—
 
  
 
—
 
  
 
 
 
Issuance of common stock, net of offering costs, and restricted stock related to acquisitions
 
 
—
 
  
 
—
 
  
 
137
 
  
 
—
 
    
—
    
 
—
 
  
 
137
 
  
 
 
 
Reclassification of deferred compensation due to adoption of SFAS 123R
 
 
—
 
  
 
—
 
  
 
(2,112
)
  
 
2,112
      
—
    
 
—
      
—
          
Net loss
 
 
—
 
  
 
—
 
  
 
—
 
  
 
—
 
    
(16,001
)
  
 
—
 
  
 
(16,001
)
  
$
(16,001
)
Foreign currency translation gain
 
 
—
 
  
 
—
 
  
 
—
 
  
 
—
 
    
—
    
 
1,212
 
  
 
1,212
    
 
1,212
  
Comprehensive loss
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
    
 
    
 
 
 
  
 
 
 
  
$
(14,789
)
Balance at September 30, 2006
    
80,075
    
$
80
    
$
286,392
    
$
—
    
$
(232,943
)
  
$
3,696
    
$
57,225
          

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments
The accompanying notes are an integral part of these consolidated financial statements.


 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
Year Ended
September 30,
2006
    
Year Ended
September 30,
2005
    
Nine Months
Ended
September 30,
2004
 
 
 
  
 
  
(restated)(1)
 
  
(restated)(1)
 
Cash flows from operating activities:
                  
Net loss
 
$
(16,001
)
  
$
(19,865
)
  
$
(1,371
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
  
 
  
 
  
 
  
 
  
 
Depreciation and amortization
 
 
1,238
 
  
 
1,382
 
  
 
1,199
 
Purchased in-process research and development
 
 
—
 
  
 
1,940
 
  
 
—
 
Amortization of intangibles and capitalized software
 
 
2,111
 
  
 
1,335
 
  
 
1,170
 
Non-cash stock-based compensation expense
 
 
4,695
 
  
 
3,031
 
  
 
80
  
Provision (reversal) for doubtful accounts
 
 
(9
)
  
 
103
 
  
 
22
 
Warrants issued to customers
 
 
—
 
  
 
(12
)
  
 
(46
)
Loss on disposal of assets
 
 
40
 
  
 
27
 
  
 
—
 
Other non-cash charges
 
 
140
 
  
 
29
 
  
 
21
 
Changes in assets and liabilities:
 
 
  
 
  
 
  
 
  
 
  
 
Accounts receivable
 
 
292
 
  
 
1,479
 
  
 
(8,137
)
Prepaid expenses and other current assets
 
 
(1,028
)
  
 
(988
)
  
 
(378
)
Other assets
 
 
(136
)
  
 
250
 
  
 
(393
)
Accounts payable
 
 
3,004
 
  
 
(3,893
)
  
 
2,456
 
Accrued expenses and other long term liabilities
 
 
6,106
 
  
 
743
 
  
 
(1,144
)
Deferred revenue
 
 
2,793
 
  
 
5,489
 
  
 
2,088
 
Net cash provided by (used in) operating activities
 
 
3,245
    
 
(8,950
)
  
 
(4,433
)
Cash flows from investing activities:
 
 
  
 
  
 
  
 
  
 
  
 
Property and equipment purchases
 
 
(1,694
)
  
 
(726
)
  
 
(804
)
Capitalized product development costs
 
 
(250
)
  
 
(2,226
)
  
 
—
 
Proceeds from disposal of property and equipment
 
 
11
 
  
 
—
 
  
 
—
 
Cash used for acquisitions, net
 
 
—
    
 
(9,800
)
  
 
—
 
Proceeds from release of restricted cash
 
 
1,893
    
 
(12
)
  
 
(9
)
Purchases of marketable securities available for sale and short term investments
 
 
—
    
 
(100
)
  
 
(4,000
)
Proceeds from maturities of short term investments
 
 
—
 
  
 
4,100
 
  
 
—
 
Net cash used for investing activities
 
 
(40
)
  
 
(8,764
)
  
 
(4,813
)
Cash flows from financing activities:
 
 
  
 
  
 
  
 
  
 
  
 
Proceeds from issuance of common stock, net
 
 
—
 
  
 
—
 
  
 
24,814
 
Proceeds from exercise of stock options
 
 
2,250
 
  
 
1,210
 
  
 
2,415
 
Proceeds from issuance of common stock for Employee Stock Purchase Plan
 
 
—
 
  
 
—
 
  
 
1,548
 
Payment on capital leases
 
 
(213
)
  
 
(199
)
  
 
(40
)
Net cash provided by financing activities
 
 
2,037
 
  
 
1,011
 
  
 
28,737
 
Effect of exchange rate changes
 
 
1,490
    
 
(499
)
  
 
39
 
Net increase (decrease) in cash and cash equivalents
 
 
6,732
    
 
(17,202
)
  
 
19,530
 
Cash and cash equivalents at beginning of period
 
 
38,546
 
  
 
55,748
 
  
 
36,218
 
Cash and cash equivalents at end of period
 
$
45,278
 
  
$
38,546
 
  
$
55,748
 
Supplemental cash flow information:
 
 
  
 
  
 
  
 
  
 
  
 
Cash paid for interest
 
$
17
 
  
$
29
 
  
$
6
 
Cash paid for taxes
 
$
360
 
  
$
478
 
  
$
195
 
 
 
 
  
 
  
 
  
 
  
 
  
 
Supplemental non-cash investing and financing activities:
                        
Compensation expense relating to issuance of common stock to employees
 
$
4,695
 
  
$
3,031
 
  
$
80
  
Receivable related to issuance of stock options
 
$
77
 
  
$
302
 
  
$
—
 
Fair value of assets acquired in acquisition, excluding acquired intangible assets
 
$
—
 
  
$
1,134
 
  
$
—
 
Liabilities assumed in acquisitions
 
$
—
 
  
$
477
 
  
$
—
 
Issuance of common stock in connection with acquisition
 
$
—
 
  
$
9,307
 
  
$
—
 
Purchase of assets under capital lease obligations
 
$
—
 
  
$
—
 
  
$
549
 
Cashless exercise of stock warrants
  
$
450
    
$
—
    
$
—
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments
The accompanying notes are an integral part of these consolidated financial statements.


 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—THE COMPANY

Chordiant Software, Inc. (“the Company”, “Chordiant”, or “we”) is an enterprise software vendor that offers software solutions for global business-to-consumer companies that seek to improve the quality of their customer interactions and to reduce costs through increased employee productivity and process efficiencies. We concentrate on serving global customers in retail financial services, communications and other consumer direct industries. We were incorporated in California in March 1991 and reincorporated in Delaware in October 1997.

We deliver a complete customer solution that includes software applications and tools and services that enable businesses to integrate their customer information and corporate systems so that they can have an accurate, real-time view of their customers across multiple forms of customer interaction.

We believe our solutions offer flexibility to businesses to set business policies and processes to control the quality of servicing, fulfillment and marketing to their customers. Our solutions enable companies to control and change their business policies and processes. We believe that we are leaders in providing business process driven solutions for customer management.

Our software solutions and architecture are based on leading industry standards that are widely adopted by business customers in the industries we serve. We believe these solutions are capable of being the foundation for contemporary distributed computing environments required by global business-to-consumer enterprises.

We have incurred cumulative losses and negative cash flows from operating activities since inception. As of September 30, 2006 we had an accumulated deficit of approximately $232.9 million. For the year ended September 30, 2006, we incurred a net loss of approximately $16.0 million and positive cash flows from operations of approximately $3.2 million.
 
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Change in Year End

On December 29, 2004, Chordiant Software’s Board of Directors approved a change in the Company’s fiscal year end from December 31 to September 30. The nine month results reported by the Company relate to the transitional period ended September 30, 2004.
 
Principles of consolidation

The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
 
Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

On an on-going basis, we evaluate the estimates, including those related to our allowance for doubtful accounts, valuation of goodwill and intangible assets, valuation of deferred tax assets, restructuring costs, contingencies, vendor specific evidence of fair value in multiple element arrangements and the estimates associated with the percentage-of-completion method of accounting for certain of our revenue contracts. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

In connection with the Company’s restatement of its consolidated financial statements, the Company has applied judgment in choosing whether to revise measurement dates for prior options grants. Information regarding the restatement, including ranges of possible additional stock-based compensation expense if other measurement dates had been selected for certain grants, is set forth in the “Explanatory Note: immediately preceding Part 1, Item 1 and Note 3-“Restatement of Previously Issued Consolidated Financial Statements” in Notes to Consolidated Financial Statements of this Form 10-K.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Reclassifications

Certain reclassifications have been made to the prior year consolidated financial statements to conform to the current year’s presentation.

Cash, cash equivalents and marketable securities

Cash equivalents consist of highly liquid instruments purchased with an original maturity of three months or less. The Company invests primarily in money market funds as these investments are subject to minimal credit and market risks.

Historically the Company’s marketable securities have been classified as available-for-sale. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” available-for-sale securities are carried at fair value with unrealized gains and losses included as a separate component of stockholder’s equity, net of any tax effect. Realized gains and losses and declines in value judged by management to be other than temporary on these investments are included in interest income and expense when held. The Company periodically evaluates these investments for other-than-temporary impairment. For the purposes of computing realized gains and losses, cost is identified on a specific identification basis. As of September 30, 2006 and 2005, there were no marketable securities held by the Company.
 
Restricted cash

At September 30, 2006 and 2005, interest bearing certificates of deposit were classified as restricted cash. These deposits serve as collateral for letters of credit securing certain lease obligations and post-contract customer support obligations. On December 31, 2005, $1.5 million of restricted cash that served as a security deposit on a post-contract customer support transaction was released as the underlying contract requirement expired. For the year ended September 30, 2006, $0.3 million of restricted cash for letters of credit related to lease obligations was released in accordance with the requirements of the lease agreement.

Fair value of financial instruments

Our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and borrowings are carried at cost, which approximates fair value because of the short-term nature of these instruments. The reported amount of borrowings approximates fair value because of the market value interest rates that these debts bear.
 
During the years ended September 30, 2006 and 2005 and the nine months ended September 30, 2004, we did not enter into any foreign currency forward exchange contracts.
 
Revenue recognition
 
We derive revenues from licenses of our software and related services, which include assistance in implementation, customization and integration, post-contract customer support, training and consulting. All revenue amounts are presented net of sales taxes in the Company’s condensed consolidated statements of operations. The amount and timing of our revenue is difficult to predict and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from period to period and could result in additional operating losses. The accounting rules related to revenue recognition are complex and are affected by interpretation of the rules and an understanding of industry practices, both of which are subject to change. Consequently, the revenue recognition accounting rules require management to make significant estimates based on judgment.
 
Software license revenue is recognized in accordance with Statement of Position No. 97-2 “Software Revenue Recognition,” as amended by Statement of Position No. 98-9 “Software Revenue Recognition with Respect to Certain Arrangements” (collectively “SOP 97-2”).
 
For arrangements with multiple elements, we recognize revenue for services and post-contract customer support based upon vendor specific objective evidence (“VSOE”) of fair value of the respective elements. VSOE of fair value for the services element is based upon the standard hourly rates we charge for the services when such services are sold separately. The VSOE of fair value for annual post-contract customer support is generally established with the contractual future renewal rates included in the contracts when the renewal rate is substantive and consistent with the fees when support services are sold separately. When contracts contain multiple elements and VSOE of fair value exists for all undelivered elements, we account for the delivered elements, principally the license portion, based upon the “residual method” as prescribed by SOP 97-2. In multiple element transactions where VSOE is not established for an undelivered element, we recognize revenue upon the establishment of VSOE


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

for that element or when the element is delivered.

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

The percentage-of-completion method is applied when we have the ability to make reasonable dependable estimates of the total effort required for completion using labor hours incurred as the measure of progress towards completion. The progress toward completion is measured based on the “go-live” date. We define the “go-live” date as the date the essential product functionality has been delivered or the application enters into a production environment or the point at which no significant additional Chordiant supplied professional service resources are required. Estimates are subject to revisions as the contract progresses to completion. We account for the changes in estimates when the information becomes known. Information impacting estimates obtained after the balance sheet date but before the issuance of the financial statements is used to update the estimates. Provisions for estimated contract losses are recognized in the period in which the loss becomes probable and can be reasonably estimated. When we sell additional licenses related to the original licensing agreement, revenue is recognized upon delivery if the project has reached the go-live date status, or if the project has not reached the go-live date status, revenue is recognized under the percentage-of-completion method. We classify revenues from these arrangements as license and service revenues based upon the estimated fair value of each element using the residual method.
 
The completed contract method is applied when we are unable to determine reasonable dependable estimates of the total effort required for completion. Under the completed contract method, all revenue and related costs of revenue are deferred and recognized upon completion.
 
For product co-development arrangements relating to software products in development prior to the consummation of the individual arrangements, where the Company retains the intellectual property being developed, and intends to sell the resulting products to other customers, license revenue is deferred until the delivery of the final product, provided all other requirements of SOP 97-2 are met. Expenses associated with these co-development arrangements are accounted for under SFAS 86 and are normally expensed as incurred as they are considered to be research and development costs that do not qualify for capitalization or deferral.

Revenue from subscription or term license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period. Revenue from subscription or term license agreements, which include software, but exclude rights to unspecified future products or maintenance, is recognized upon delivery of the software if all conditions of recognizing revenue have been met including that the related agreement is non-cancelable, non-refundable and provided on an unsupported basis.
 
In situations in which we are obligated to provide unspecified additional software products in the future, we recognize revenue as a subscription ratably over the term of the subscription period.
 
Revenues generated from fees charged to customers for providing transaction processing are recognized as revenue in the same period as the related transactions occur.
 
We recognize revenue for post-contract customer support ratably over the support periods which have historically ranged from one to three years.
 
Our training and consulting services revenues are recognized as such services are performed on an hourly or daily basis for time and material contracts. For consulting services arrangements with a fixed fee, we recognize revenue on the proportional performance method.
 


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

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

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

Stock-based compensation

On October 1, 2005, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock awards and employee stock purchases related to the Employee Stock Purchase Plan (“ESPP”) based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting using the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”), which provided supplemental implementation guidance for SFAS 123(R). We have applied the provisions of SAB 107 in the adoption of SFAS 123(R).

We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of October 1, 2005, the first day of the Company’s fiscal year 2006. The consolidated financial statements for the year ended September 30, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the condensed consolidated statement of operations. Prior to the adoption of SFAS 123(R), we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, when the exercise price of the Company’s fixed stock options granted to employees and directors was equal to the fair market value of the underlying stock at the date of grant, no stock-based compensation was required to be recognized under APB 25.

Stock-based compensation expense recognized during the period under SFAS 123(R) is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s consolidated statement of operations for the year ended September 30, 2006 includes: (i) compensation expense for share-based payment awards granted prior to, but not yet vested as of September 30, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123, and (ii) compensation expense for the share-based payment awards granted subsequent to September 30, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), we changed our method of expense attribution from the vested graded to the straight-line method. Compensation expense for all share-based payment awards granted on or prior to September 30, 2005 will continue to be recognized using the vested graded method of expense attribution while compensation expense for all share-based payment awards granted subsequent to September 30, 2005 will be recognized using the straight-line method of expense attribution. As stock-based compensation expense recognized in the consolidated statement of operations for the year ended 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the pro forma disclosures required under SFAS 123 for the periods prior to fiscal 2006, we accounted for forfeitures as they occurred. See Note 13.

Upon adoption of SFAS 123(R), the Company has continued to utilize the Black-Scholes option-pricing model (“Black-Scholes model”) which was previously used for the Company’s pro forma disclosures required under SFAS 123. For additional information, see Note 13. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

the awards, and actual and projected employee stock option exercise behaviors. Because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with SFAS 123(R) and SAB 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. Stock-based compensation expense recognized under SFAS 123(R) for the year ended 2006 was $4.7 million, which consisted of stock-based compensation expense of $2.7 million related to employee stock options and $2.0 million related to restricted stock awards, respectively.

The effect of the adoption of FAS 123(R) on October 1, 2005, resulted in an increase of $1.9 million in the loss from operations, loss before income taxes and net loss, an increase of $0.02 net loss per share, for the year ended September 30, 2006, compared to the continued application of APB 25 as used in the comparable prior year period. Our reported basic and diluted net loss per share was $0.21 for the year ended September 30, 2006. We have not recognized, and do not expect to recognize in the near future, any tax benefit related to employee stock-based compensation expense due to the full valuation allowance of our net deferred tax assets and our operating loss carryforwards. In addition, the adoption of FAS 123(R) did not affect our cash flows from operations or cash flows from financing activities. No stock-based compensation expense has been capitalized as part of the cost of an asset as of September 30, 2006.

Under APB 25, stock-based compensation expense of $3.0 million (restated) and $0.4 million (restated) for the period ended September 30, 2005 and nine months ended September 30, 2004 was recorded as stock-based compensation expense in the consolidated statement of operations related to variable options, options granted with exercise prices below fair market value, and restricted stock awards. Previously, the compensation expense under APB 25 on variable options was re-measured at the end of each operating period until the options were exercised, forfeited or expired. Under SFAS 123(R), these options are now expensed based on the fair value approach for unvested shares as of September 30, 2005. The restricted stock awards continue to be expensed under FAS 123(R) using a vested graded expense attribution consistent with the prior period.

There was no stock-based compensation expense related to the ESPP recognized during the year ended September 30, 2006 and 2005. See Note 13 for additional information.
 
Concentrations of credit risk

Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, restricted cash and accounts receivable. At September 30, 2006 and 2005, we have invested excess funds in money market accounts. We have cash equivalents and investments with various high quality institutions domestically and internationally.

Our accounts receivable are derived from sales to customers located in North America, Europe, and elsewhere in the world. We perform ongoing credit evaluations of our customers’ financial condition and, generally, require no collateral from our customers. We maintain an allowance for doubtful accounts when deemed necessary. The Company estimates its allowance for doubtful accounts by analyzing accounts receivable for specific risk accounts as well as providing for a general allowance amount based on historical bad debt and sales return percentages. The estimate considers historical bad debts, customer concentrations, customer credit-worthiness and current economic trends. To date, bad debts have not been material and have been within management expectations. The following table summarizes the revenues from customers that accounted for 10% or more of total revenues:
 
 
 
Year Ended September 30,
2006 
  
Year Ended
September 30,
2005
  
Nine Months
Ended
September 30,
2004
  
 
Citicorp Credit Services, Inc.
12
%
  
*
    
*
    
 
Capital One Services, Inc.
*
    
18
%
  
*
 
  
 
Barclays Bank, Plc.
*
    
*
    
11
%
  
 
Canadian Imperial Bank of Commerce
*
    
*
    
10
%
  
 
Time Warner Cable
*
    
*
    
11
%
  
 
 
 
 
    
 
    
 
  
* Represents less than 10% of total revenues.

At September 30, 2006, IBM and Cash America International, Inc. accounted for approximately 26% and 14% of our accounts receivable, respectively. At September 30, 2005, Capital One, Wachovia and HSBC accounted for approximately 18%, 17% and 10% of our accounts receivable, respectively.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Accounts receivable

Accounts receivable, net, consists of the following (in thousands):
 
   
September 30,
    
   
2006
    
2005
    
 
Accounts receivable, net:
                
 
Accounts receivable
$
19,108
    
$
19,193
 
  
 
Less allowance for doubtful accounts
 
(83
)
    
(214
)
  
   
$
19,025
    
$
18,979
 
  
 
Research and Development

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

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

During the quarter ended September 30, 2006, technological feasibility to port an existing product to a new platform was established through the completion of a detailed program design. Costs aggregating $0.3 million associated with this product have been capitalized and included in Other Assets as of September 30, 2006. This product was not available for general release as of September 30, 2006, accordingly the costs capitalized have not been amortized.

During the quarter ended September 30, 2004, technological feasibility for an acquired banking product was established through the completion of a detailed program design. Costs aggregating $2.7 million associated with this product have been capitalized and included in Other Assets as of September 30, 2005. During the quarter ended September 30, 2005, the product became available for general release and, accordingly, the costs capitalized commenced to be amortized. The capitalized costs are being amortized using the straight-line method over the remaining estimated economic life of the product which is 36 months. For the years ended September 30, 2006 and 2005, amortization expense related to this product was $1.1 million and $0.2 million, respectively.

With respect to research and development associated with acquisitions, the value attributable to in-process research and development is charged to expense in the period we complete the acquisition (See Note 5).

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 economic life of the asset or the lease term. Purchased internal-use software consists primarily of amounts paid for perpetual licenses to third party software applications, which are amortized over their estimated useful life, generally three years. Depreciation and amortization expense was approximately $1.2 million, $1.4 million and $1.2 million for the years ended September 30, 2006 and 2005, and the nine months ended September 30, 2004, respectively.
 
Property and equipment included approximately $0.5 million of assets under capital leases at September 30, 2006 and 2005, respectively. Accumulated amortization under these leases at September 30, 2006 and 2005 was $0.5 million and $0.3 million, respectively.
 


 CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

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

 
 
September 30,
 
 
2006
  
2005
 
Property and equipment, net:
 
 
  
 
 
 
Computer hardware (useful lives of 3 years)
$
3,313
 
  
$
9,216
 
 
Purchased internal-use software (useful lives of 3 years)
 
2,254
 
  
 
2,336
 
 
Furniture and equipment (useful lives of 3 to 7 years)
 
1,043
 
  
 
1,508
 
 
Computer equipment and software under capital leases (useful lives of 3 years)
 
549
 
  
 
549
 
 
Leasehold improvements (shorter of 7 years or the term of the lease)
 
2,729
 
  
 
2,855
 
 
 
 
9,888
 
  
 
16,464
 
 
Accumulated depreciation and amortization
 
(7,258
)
  
 
(13,985
)
 
 
$
2,630
 
  
$
2,479
 

Goodwill

In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which was effective for fiscal years beginning after December 15, 2001. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. As of January 1, 2002, we adopted SFAS 142 and have ceased to amortize goodwill.

We determined that we have one reporting unit. We are required to perform an impairment review of our goodwill balance on at least an annual basis. This impairment review involves a two-step process as follows:
 
Step 1—We compare the fair value of our reporting units to the carrying value, including goodwill, of each of those units. For each reporting unit where the carrying value, including goodwill, exceeds the unit’s fair value, we proceed on to Step 2. If a unit’s fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary.

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

We performed the annual goodwill impairment test as of September 30, 2006 and 2005, and concluded that no impairment charge for goodwill was required at September 30, 2006 and 2005 using the methodology described above. Accordingly, Step 2 was not performed. We will continue to test for impairment on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying amount.
 
Intangible assets

Purchased technology and other identifiable intangible assets are carried at cost less accumulated amortization. The Company amortizes other identifiable intangibles on a straight-line basis over their estimated useful lives. The range of estimated useful lives on the Company’s identifiable intangibles is one and one half to five years (See Note 6). Acquired in-process technology is expensed in the period of acquisition.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

We account for finite-lived intangibles and long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Under this standard, the Company reviews finite-lived intangibles or long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors which are considered important that could trigger an impairment include, but are not limited to, the following:
 
• Significant underperformance relative to expected historical or projected future operating results;
 
• Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
 
• Significant negative industry or economic trends;
 
• Significant decline in our stock price for a sustained period;
 
• Market capitalization declines relative to net book value; and
 
• A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

Based upon the existence of one or more of the above indicators of impairment, we measure impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model.

Royalties
 
We have certain royalty commitments associated with the shipment and licensing of certain products or components of products. Royalty expense is generally based on a percentage of the underlying revenue and subject to minimum and maximum amounts. Royalty expense was approximately $1.5 million, $1.5 million, and $1.3 million for the years ended September 30, 2006 and 2005 and the nine months ended September 30, 2004, respectively. With respect to a licensed banking product, the Company obtained exclusive, irrevocable worldwide rights to the product. Under the terms of the agreement, if the Company did not achieve agreed upon annual minimum royalty targets, the licensor had the ability to cancel the exclusivity rights. During the year ended September 30, 2006, the minimum targets were not met and the rights to distribute the product are no longer exclusive.
 
Accrued expenses
 
Accrued expenses consist of the following (in thousands):
 
   
 
September 30,
  
   
 
2006 
 
2005
  
   
 
 
  
 
As
Previously
Reported
 
  
Adjustment
    
Restated (1)
  
 
Accrued expenses:
                          
 
Accrued payroll, payroll taxes and related expenses
  
$
7,627
 
$
4,089
 
$
400
  
$
4,489
  
 
Accrued restructuring expenses, current portion (Note 7)
 
 
655
 
 
1,235
 
 
—
  
 
1,235
  
 
Accrued third party consulting fees
    
1,491
    
522
    
—
    
522
  
 
Accrued income, sales and other taxes
    
2,545
    
1,156
    
—
    
1,156
  
 
Accrued professional fees
    
1,630
    
729
    
—
    
729
  
 
Other accrued liabilities
 
 
1,758
 
 
1,171
 
 
—
  
 
1,171
  
   
 
$
15,706
 
$
8,902
 
$
400
  
$
9,302
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Advertising costs
 
Advertising costs are charged to sales and marketing expense as incurred. Advertising costs for the year ended September 30, 2006 and 2005 and nine months ended September 30, 2004 totaled approximately $0.2 million, $0.2 million, and $0.1 million, respectively.

Foreign currency translation
 
The functional currency of our foreign entities is their respective 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. The related unrealized gains and losses from foreign currency translation are recorded in Accumulated other comprehensive income (loss) as a separate component of stockholders’ equity. Net gains and losses resulting from foreign exchange transactions are included in Other income, net and have not been significant for all periods presented.
 
Income taxes
 
Income taxes are accounted for using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

Net loss per share
 
Basic and diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period excluding common stock subject to repurchase. The calculation of diluted net loss per share excludes potential common shares as their effect is anti-dilutive. Potential common shares consist of common shares issuable upon the exercise of stock options, warrants (using the treasury stock method) and common shares subject to repurchase by us.
 
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except for per share data):

 
 
 
Year ended
September 30,
 
  
Nine months
 ended
September 30,
2004
  
 
 
 
2006
 
  
2005
 
    
           
(restated) (1)
    
(restated) (1)
    
 
Net loss available to common stockholders
 
$
(16,001
)
  
$
(19,865
)
  
$
(1,371
)
  
                 
 
      
 
  
 
Weighted average common stock outstanding
 
 
78,690
 
    
76,369
 
    
70,585
 
  
 
Common stock subject to repurchase
 
 
(1,008
)
  
 
(1,920
)
  
 
(824
)
  
                 
 
      
 
  
 
Denominator for basic and diluted calculation
 
 
77,682
 
  
 
74,449
 
  
 
69,761
 
  
                 
 
      
 
  
 
Net loss per share—basic and diluted
 
 $
(0.21
)
  
 $
(0.27
)
  
$
(0.02
)
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

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

   
September 30,
  
 
 
2006
  
2005
  
2004
 
 
Warrants outstanding
862
  
1,662
  
1,662
 
 
Employee stock options
10,263
  
8,462
  
9,506
 
 
Restricted stock
1,008
  
1,920
  
824
 
 
 
12,133
  
12,044
  
11,992
 

NOTE 3— RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

The Company is restating its consolidated balance sheet as of September 30, 2005, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the fiscal periods ended September 30, 2005 and September 30, 2004, and each of the quarters in fiscal year 2005 and first two quarters of 2006.

Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q affected by the restatements have not been amended and should not be relied on.

In July 2006, the Company’s Board of Directors initiated a review of the Company’s historical stock option grant practices and appointed the Audit Committee to oversee the investigation. The Audit Committee’s review focused on processes used to establish the option exercise prices and to obtain required approvals of stock option grants and the related measurement dates used for financial reporting purposes. The Audit Committee and its legal advisors reviewed the Company’s historical stock option grants and related accounting including an assessment and review of the Company’s accounting policies, internal records, supporting documentation and email communications, as well as interviews with current and former employees and current and former members of the Company’s executive management and Board of Directors.

The Audit Committee determined that, pursuant to the requirements of APB 25, the correct measurement dates for a number of stock option grants made by Chordiant during the period 2000 to 2006 differ from the measurement dates used to account for such option grants. The Audit Committee identified errors related to the determination of the measurement dates for grants of options where the price of the Company’s stock on the selected grant date was lower than the price on the actual grant date which would permit recipients to exercise these options at a lower strike price. Under these circumstances, the Company should have recorded deferred stock compensation expense, which subsequently should have been amortized as stock compensation expense over the vesting period of the stock options.

The Audit Committee found:

·  
There was a lack of oversight in the issuance and administration of the Company’s stock options.
·  
There was poor record keeping in connection with the authorization and issuance of stock options.
·  
Stock options were granted for which the Company can not provide evidence of authorization consistent with the terms of the applicable option plan and Board of Directors resolutions.
·  
In some cases, the Company issued stock options having exercise prices that were not consistent with the requirements of the applicable option plan.
·  
There is evidence to suggest that in some cases the dates used to establish the exercise prices for certain options were intentionally and selectively chosen based on dates on which the closing prices of the Company’s stock were lower than on the dates on which the options may have been actually granted.
·  
There is inconclusive evidence that on one occasion in 2002, a former employee changed the date on documentation relating to the exercise of a stock option by means of a promissory note to reflect an earlier exercise date. There is also inconclusive evidence that certain other option exercises in 2001 by means of promissory notes may have been memorialized with dates preceding the actual exercise dates.
·  
With respect to certain individuals, there was insufficient evidence to support a definitive conclusion that they appreciated the accounting or disclosure issues associated with the Company’s stock option practices, or knowingly participated in actions intended to mislead or deceive the Company’s auditors.

On November 26, 2006, the Board of Directors, upon the recommendation of the Audit Committee and management, after considering the quantitative and qualitative analysis prepared by management relating to these issues, concluded that the


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Company should restate certain of its historical financial statements. To correct the accounting errors, our Annual Report on Form 10-K for the year ended September 30, 2006 and our Quarterly Report on Form 10-Q for the three months ended June 30, 2006, includes restated consolidated and condensed consolidated financial statements and selected consolidated financial data for the years ended December 31, 2002 and 2003, the nine-month period ended September 30, 2004, the fiscal year ended September 30, 2005, and the quarters ended December 31, 2005 and March 31, 2006.

The Company also recorded adjustments related to payroll withholding tax for certain options formerly classified as Incentive Stock Option (ISO) grants under Internal Revenue Service regulations. These options were determined to have been granted with an exercise price below the fair market value of our stock on the actual grant date and therefore do not qualify for ISO treatment. The disqualification of ISO classification and the resulting conversion to non-qualified status results in additional payroll withholding tax obligations on the exercise of these options.

To the extent stock options have been exercised, the Company has also taken certain financial remediation measures to recover the price difference between the original and revised measurement dates.

The Company is recording approximately $8.3 million of additional pre-tax, non-cash stock-based compensation expense and associated withholding taxes for the fiscal periods 2000 through 2006.

In addition, as a result of the errors in determining measurement dates, certain options were determined to have been granted at an exercise price below the fair market value of our stock on the actual grant date. These discounted options vesting subsequent to December 2004 result in nonqualified deferred compensation for purposes of Section 409A of the Internal Revenue Code, and holders are subject to an excise tax on the value of the options in the period in which they vest. We have yet to determine whether we will either implement a plan to assist the affected employees for the amount of this tax, adjust the terms of the original option grant, or adjust the terms of the original option grant and pay the affected employees an amount to compensate such employees for this lost benefit. As such, no expense has been recorded in the Consolidated Financial Statements in the adjustments discussed above in connection with this matter.

From the date of the Company’s initial public offering in February 2000 through September 30, 2006 stock options were granted on approximately 327 individual dates. Based upon the test work performed, errors were noted on approximately 68 of these days impacting more than 1,300 stock option issuances.

Approximately 65% of the errors noted during the review (aggregating approximately $6.2 million before considering the impact of employee terminations and forfeitures) relate to four annual stock option grants to employees recorded in the years 2000, 2001, 2003 and 2004. On these dates grants were made to the majority of the Company’s employees as a part of the annual “refresh” or “evergreen” stock option granting process. In each case, it was found that the Company had treated option grants to multiple employees as effective prior to the date upon which it had determined the exact number of options that would be granted to each individual employee. Because changes were made to the listing of employees receiving grants, the measurement date for the awards should have been delayed until the listing of awards was determined and approved with finality. To determine the corrected measurement date the Company used the date of the final internal email approval that reconciled to the actual option grants recorded, or if such emails did not reconcile, or if additional changes were made to the allocation of options to recipients, the Company used the date our third party stock option service provider entered the data into the stock option database. As such, judgment was necessary to determine the date the listing was determined with finality. It is estimated that the range between the high and low of such accounting estimates is approximately $0.5 million (unaudited) for these items.

Approximately 10% of the errors (aggregating approximately $0.9 million before considering the impact of employee terminations and forfeitures) relate to activity on 20 different dates. In these instances, the date on the written documentation supporting the option grants was inconsistent with the measurement dates initially recorded by the Company. During fiscal periods 2000 through 2006, the Board of Directors had delegated the authority to approve certain stock option grants to non-executive officers to the CEO of the Company. The method of documenting such activity routinely resulted in documents being signed or approved via email after the indicated dates of the grants. Because the terms of these stock options either were not known or were subject to change by those empowered to approve the grants, the correct measurement date for the awards was the date the written or electronic documentation was completed. To determine the corrected measurement dates, the Company used the dates of Board meetings, the dates that unanimous written consents were returned or approved, or the date that the appropriate email approvals were obtained from the CEO. Because these dates are not subject to judgment, no significant estimates were necessary for these items.

Approximately 7% of the errors (aggregating approximately $0.6 million before considering the impact of employee terminations and forfeitures) relate to activity on 23 different dates. In these cases the underlying differences relate to the definition of fair market value as defined under the stock option plans of the Company. For example, the 1999 Equity Incentive


Plan defined fair market value as the closing price of Chordiant’s stock on the day prior to the date of grant. These errors relate to the inconsistent use of the “day of” price versus the “day prior” price used to determine the exercise price of the options as stipulated by the plan documents. To determine the corrected measurement dates, the Company applied the appropriate definitions as stipulated in the underlying plan documents. As such, no accounting estimates were required for these items.

Approximately 7% of the errors (aggregating approximately $0.6 million before considering the impact of employee terminations and forfeitures) relate to three grants awarded to members of senior management. In two of these instances, the underlying compensation plans were in the process of being negotiated over periods spanning several weeks. The measurement date initially recorded by the Company was a date at, or near, the beginning of the negotiation process. Because the stock options were a part of the respective compensation package, the measurement date for the awards should have been delayed until the respective compensation agreements were determined and approved with finality. In the third instance, the grant was not ratified by the Board of Directors until a later date than the date initially recorded as the measurement date. To determine the corrected measurement dates, the Company used documents that evidenced the appropriate level of review, or if not available, the date our third party stock option service provider entered the data into the stock option database. As such, judgment was necessary to determine the date these grants were approved with finality. It is estimated that the range between the high and low of such accounting estimates is less than $0.1 million (unaudited) for these items.

The remainder of the errors (aggregating approximately $1.1 million before considering the impact of employee terminations and forfeitures) included the inconsistent treatment of option dating for newly hired employees, the finalization and documentation of discretionary awards, options granted to non-employee consultants not being expensed, and new hires being placed on a leave of absence at the hire date. The types of estimates necessary to arrive at the corrected measurement dates were similar to those noted above.

As a result of the above errors and adjustments, we have restated our financial statements for the years ended December 31, 2001, 2002 and 2003, the nine-month period ended September 30, 2004, the fiscal year ended September 30, 2005, and the quarters ended December 31, 2005 and March 31, 2006.

The expenses arising from the investigation, the restatement and related activities are recorded in the periods incurred. The aggregate cost of external legal, accounting and auditing costs incurred through September 30, 2006 was approximately $1.2 million and at December 31, 2006 the cumulative costs were estimated to be $2.2 million.

The impact of the restatement on the consolidated statements of operations is $0.2 million for 2006 and thereafter. For other periods the impact is as follows (in thousands):

   
Total
effect at
September 30,
2005
      
Year ended
September 30,
2005
      
Nine
months
ended
September 30,
2004
      
Total effect at
December 31,
2003
  
Net loss, as previously reported
        
$
(19,540
)
  
$
(443
)
        
Additional compensation expense resulting from improper measurement dates for stock option grants
$
(7,652
)
    
(187
)
    
(761
)
    
(6,704
)
Payroll tax related effects
  
(401
)
    
(138
)
    
(167
)
    
(96
)
Total increase to net loss
$
(8,053
)
    
(325
)
    
(928
)
  
$
(6,800
)
Net loss, as restated
        
$
(19,865
)
  
$
(1,371
)
        
                               
                               
   
Year ended
December 31, 2003
      
Year ended
December 31,
2002
      
Year ended
December 31,
2001
      
Year ended
December 31,
2000
  
Additional compensation expense resulting from improper measurement dates for stock option grants
$
(1,433
)
  
$
(2,715
)
  
$
(2,082
)
  
$
(474
)
Payroll tax related effects
  
(96
)
    
—
      
—
      
—
  
Total increase to net loss
$
(1,529
)
  
$
(2,715
)
  
$
(2,082
)
  
$
(474
)
                               
                               



CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 
The following table presents the effects of the stock-based compensation and related payroll tax adjustments made to the Company’s previously reported consolidated balance sheet as of September 30, 2005 (in thousands, except share amounts):

 
September 30, 2005
  
 
  
As
Previously
Reported
      
Adjustments
      
Restated
    
ASSETS
        
 
      
 
      
Current assets:
        
 
      
 
      
Cash and cash equivalents
$
38,546
    
$
—
    
$
38,546
    
Restricted cash
 
1,982
    
 
—
    
 
1,982
    
Accounts receivable
 
18,979
    
 
—
    
 
18,979
    
Prepaid expenses and other current assets
 
4,345
    
 
—
    
 
4,345
    
Total current assets
 
63,852
    
 
—
    
 
63,852
    
Restricted cash
 
365
    
 
—
    
 
365
    
Property and equipment, net
 
2,479
    
 
—
    
 
2,479
    
Goodwill
 
31,907
    
 
—
    
 
31,907
    
Intangible assets, net
 
5,148
    
 
—
    
 
5,148
    
Other assets
 
3,499
    
 
—
    
 
3,499
    
Total assets
$
107,250
    
$
—
    
$
107,250
    
 
 
      
 
 
    
 
      
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
      
 
      
 
      
Current liabilities:
 
      
 
      
 
      
Accounts payable
$
4,554
    
$
—
    
$
4,554
    
Accrued expenses
 
8,902
    
 
400
    
 
9,302
    
Deferred revenue
 
26,050
    
 
—
    
 
26,050
    
Current portion of capital lease obligations
 
213
    
 
—
    
 
213
    
Total current liabilities
 
39,719
    
 
400
    
 
40,119
    
Deferred revenue—long-term
 
147
    
 
—
    
 
147
    
Restructuring costs, net of current portion
 
1,731
    
 
—
    
 
1,731
    
Other long-term liabilities
 
96
    
 
—
    
 
96
    
Total liabilities
 
41,693
    
 
400
    
 
42,093
    
 
 
 
    
 
      
 
 
    
 
 
      
 
      
 
      
Stockholders’ equity:
 
 
    
 
      
 
 
    
Preferred stock, $0.001 par value; 51,000 shares authorized; none issued and outstanding at September 30, 2005
 
—
    
 
—
    
 
—
    
Common stock, $0.001 par value; 300,000 shares authorized; 78,488 and outstanding at September 30, 2005
 
78
    
 
—
    
 
78
    
Additional paid-in capital and deferred compensation
  
273,824
      
7,825
      
281,649
    
Deferred stock-based compensation
  
(1,940
)
    
(172
)
    
(2,112
)
  
Accumulated deficit
  
(208,889
)
    
(8,053
)
    
(216,942
)
  
Accumulated other comprehensive income
  
2,484
      
—
      
2,484
    
Total stockholders’ equity
  
65,557
      
(400
)
    
65,157
    
Total liabilities and stockholders’ equity
$
107,250
    
$
—
    
$
107,250
    



CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

 
The following table presents the effects of the stock-based compensation and related payroll tax adjustments made to the Company’s previously reported consolidated statement of operations for the year ended September 30, 2005 and the nine months ended September 30, 2004 (in thousands, except share amounts):

 
Year Ended September 30, 2005
  
Nine Months Ended September 30, 2004
   
As
Previously Reported
    
 
Adjustments
    
 
Restated
      
As
Previously Reported
    
 
Adjustments
    
 
Restated
  
 
                                
 
            
Revenues:
                                
 
      
 
    
License
$
31,678
    
$
—
    
$
31,678
    
$
23,661
    
$
—
    
$
23,661
  
Service
 
52,047
    
 
—
    
 
52,047
    
 
37,362
    
 
—
    
 
37,362
  
Total revenues
 
83,725
    
 
—
    
 
83,725
    
 
61,023
    
 
—
    
 
61,023
  
Cost of revenues:
 
      
 
      
 
      
 
      
 
      
 
    
License
 
1,079
    
 
—
    
 
1,079
    
 
1,262
    
 
—
    
 
1,262
  
Service
 
30,071
    
 
84
    
 
30,155
    
 
21,435
    
 
195
    
 
21,630
  
Amortization of intangible assets
 
1,068
    
 
—
    
 
1,068
    
 
1,044
    
 
—
    
 
1,044
  
Total cost of revenues
 
32,218
    
 
84
    
 
32,302
    
 
23,741
    
 
195
    
 
23,936
  
Gross profit
 
51,507
    
 
(84
)
  
 
51,423
    
 
37,282
    
 
(195
)
  
 
37,087
  
Operating expenses:
 
      
 
      
 
      
 
      
 
      
 
    
Sales and marketing
 
29,463
    
 
98
    
 
29,561
    
 
17,724
    
 
101
    
 
17,825
  
Research and development
 
20,202
    
 
70
    
 
20,272
    
 
13,149
    
 
11
    
 
13,160
  
General and administrative
 
18,476
    
 
73
    
 
18,549
    
 
6,478
    
 
621
    
 
7,099
  
Amortization of intangible assets
 
117
    
 
—
    
 
117
    
 
126
    
 
—
    
 
126
  
Restructuring expense
 
1,052
    
 
—
    
 
1,052
    
 
172
    
 
—
    
 
172
  
Purchased in-process research and development
 
1,940
    
 
—
    
 
1,940
    
 
—
    
 
—
    
 
—
  
Total operating expenses
 
71,250
    
 
241
    
 
71,491
    
 
37,649
    
 
733
    
 
38,382
  
Loss from operations
 
(19,743
)
  
 
(325
)
  
 
(20,068
)
  
 
(367
)
  
 
(928
)
  
 
(1,295
)
Interest income, net
 
755
    
 
—
    
 
755
    
 
498
    
 
—
    
 
498
  
Other expense, net
 
(103
)
  
 
—
    
 
(103
)
  
 
(132
)
  
 
—
    
 
(132
)
Net loss before income taxes
 
(19,091
)
  
 
(325
)
  
 
(19,416
)
  
 
(1
)
  
 
(928
)
  
 
(929
)
Provision for income taxes
 
449
    
 
—
    
 
449
    
 
442
    
 
—
    
 
442
  
Net loss
$
(19,540
)
  
$
(325
)
  
$
(19,865
)
  
$
(443
)
  
$
(928
)
  
$
(1,371
)
                           
 
              
 
  
Net loss per share— basic and diluted
$
(0.26
)
  
$
(0.01
)
  
$
(0.27
)
  
$
(0.01
)
  
$
(.01
)
  
$
(0.02
)
Weighted average shares used in computing basic and diluted loss per share
 
74,449
    
 
—
    
 
74,449
    
 
69,761
    
 
—
    
 
69,761
  




CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The restatement did not impact our net cash flows from operating, investing, or financing activities. However, certain items within net cash provided by operating activities were affected by the restatement adjustments. The following table presents the effects of the stock-based compensation and related payroll tax adjustments made to the Company’s previously reported consolidated statement of cash flows for the year ended September 30, 2005 and nine months ended September 30, 2004 (in thousands):

 
Year Ended September 30, 2005
  
Nine Months Ended September 30, 2004
 
  
As
Previously
Reported
    
 
Adjustments
    
 
Restated
      
As
Previously
Reported
    
 
Adjustments
    
 
Restated
  
Cash flows from operating activities:
                                              
Net loss
$
(19,540
)
  
$
(325
)
  
$
(19,865
)
  
$
(443
)
  
$
(928
)
  
$
(1,371
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
  
 
          
 
  
 
  
 
  
 
          
 
  
 
Depreciation and amortization
 
1,382
 
    
—
    
 
1,382
 
  
 
1,199
 
    
—
    
 
1,199
 
Purchased in-process research and development
 
1,940
 
    
—
    
 
1,940
 
  
 
—
 
    
—
    
 
—
 
Amortization of intangibles and capitalized software
 
1,335
 
    
—
    
 
1,335
 
  
 
1,170
 
    
—
    
 
1,170
 
Non-cash stock-based compensation expense (benefit)
 
2,844
 
    
187
    
 
3,031
 
  
 
(681
)
    
761
    
 
80
  
Provision for doubtful accounts
 
103
 
    
—
    
 
103
 
  
 
22
 
    
—
    
 
22
 
Warrants issued to customers
 
(12
)
    
—
    
 
(12
)
  
 
(46
)
    
—
    
 
(46
)
Loss on disposal of assets
 
27
 
    
—
    
 
27
 
  
 
—
 
    
—
    
 
—
 
Other non-cash charges
 
29
 
          
 
29
 
  
 
21
 
          
 
21
 
Changes in assets and liabilities:
 
  
 
          
 
  
 
  
 
  
 
          
 
  
 
Accounts receivable
 
1,479
 
    
—
    
 
1,479
 
  
 
(8,137
)
    
—
    
 
(8,137
)
Prepaid expenses and other current assets
 
(988
)
    
—
    
 
(988
)
  
 
(378
)
    
—
    
 
(378
)
Other assets
 
250
 
    
—
    
 
250
 
  
 
(393
)
    
—
    
 
(393
)
Accounts payable
 
(3,893
)
    
—
    
 
(3,893
)
  
 
2,456
 
    
—
    
 
2,456
 
Accrued expenses
 
605
 
    
138
    
 
743
 
  
 
(1,311
)
    
167
    
 
(1,144
)
Deferred revenue
 
5,489
 
    
—
    
 
5,489
 
  
 
2,088
 
    
—
    
 
2,088
 
Net cash used in operating activities
 
(8,950
)
    
—
    
 
(8,950
)
  
 
(4,433
)
    
—
    
 
(4,433
)
Cash flows from investing activities:
 
  
 
          
 
  
 
  
 
  
 
          
 
  
 
Property and equipment purchases
 
(726
)
    
—
    
 
(726
)
  
 
(804
)
    
—
    
 
(804
)
Capitalized product development costs
 
(2,226
)
    
—
    
 
(2,226
)
  
 
—
 
    
—
    
 
—
 
Cash used for acquisitions, net
 
(9,800
)
    
—
    
 
(9,800
)
  
 
—
 
    
—
    
 
—
 
Proceeds from release of restricted cash
 
(12
)
    
—
    
 
(12
)
  
 
(9
)
    
—
    
 
(9
)
Purchases of marketable securities available for sale and short-term investments
 
(100
)
    
—
    
 
(100
)
  
 
(4,000
)
    
—
    
 
(4,000
)
Proceeds from maturities of short-term investments
 
4,100
 
    
—
    
 
4,100
 
  
 
—
 
    
—
    
 
—
 
Net cash used for investing activities
 
(8,764
)
    
—
    
 
(8,764
)
  
 
(4,813
)
    
—
    
 
(4,813
)
Cash flows from financing activities:
 
  
 
    
—
    
 
  
 
  
 
  
 
    
—
    
 
  
 
Proceeds from issuance of common stock, net
 
—
 
    
—
    
 
—
 
  
 
24,814
 
    
—
    
 
24,814
 
Proceeds from exercise of stock options
 
1,210
 
    
—
    
 
1,210
 
  
 
2,415
 
    
—
    
 
2,415
 
Proceeds from issuance of common stock for Employee Stock Purchase Plan
 
—
 
    
—
    
 
—
 
  
 
1,548
 
    
—
    
 
1,548
 
Payment on capital leases
 
(199
)
    
—
    
 
(199
)
  
 
(40
)
    
—
    
 
(40
)
Net cash provided by financing activities
 
1,011
 
    
—
    
 
1,011
 
  
 
28,737
 
    
—
    
 
28,737
 
Effect of exchange rate changes
 
(499
)
    
—
    
 
(499
)
  
 
39
 
    
—
    
 
39
 
Net increase (decrease) in cash and cash equivalents
 
(17,202
)
    
—
    
 
(17,202
)
  
 
19,530
 
    
—
    
 
19,530
 
Cash and cash equivalents at beginning of period
 
55,748
 
    
—
    
 
55,748
 
  
 
36,218
 
    
—
    
 
36,218
 
Cash and cash equivalents at end of period
$
38,546
 
  
$
—
    
$
38,546
 
  
$
55,748
 
  
$
—
    
$
55,748
 
                                               
Supplemental cash flow information:
 
  
 
          
 
  
 
  
 
  
 
          
 
  
 
Cash paid for interest
$
29
 
    
$
—
    
$
29
 
  
$
6
 
    
$
—
    
$
6
 
Cash paid for taxes
$
478
 
    
$
—
    
$
478
 
  
$
195
 
    
$
—
    
$
195
 
                                               
Supplemental non-cash investing and financing activities:
 
  
 
          
 
  
 
  
 
  
 
          
 
  
 
Compensation expense (benefit) relating to issuance of common stock to employees
$
2,844
 
    
$
187
    
$
3,031
 
  
$
(681
)
    
$
761
    
$
80
  
Receivable related to issuance of stock options
$
302
 
    
$
—
    
$
302
 
  
$
—
 
    
$
—
    
$
—
 
Fair value of assets acquired in acquisition, excluding acquired intangible assets
$
1,134
 
  
$
 
—
    
$
1,134
 
  
$
—
 
  
$
 
—
    
$
—
 
Liabilities assumed in acquisitions
$
477
 
  
$
—
    
$
477
 
  
$
—
 
  
$
—
    
$
—
 
Issuance of common stock in connection with acquisition
$
9,307
 
  
$
—
    
$
9,307
 
  
$
—
 
  
$
—
    
$
—
 
Purchase of assets under capital lease obligations
$
—
 
  
$
—
    
$
—
 
  
$
549
 
  
$
—
    
$
549
 
                                               


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

NOTE 4—RECENT ACCOUNTING PRONOUNCEMENTS

In December 2006, the Financial Accounting Standards Board (FASB) issued Staff Position (FSP) EITF 00-19-2, “Accounting for Registration Payment Arrangements.” This FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, “Accounting for Contingencies.” The guidance is effective for fiscal years beginning December 15, 2006. The Company has evaluated the new pronouncement and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 provides guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The guidance is applicable for fiscal years ending after November 15, 2006. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, (“SFAS 157”) “Fair Value Measurement.” SFAS 157 defines fair value, establishes a framework for measuring fair value, and also expands disclosures about fair value measurements. The SFAS 157 is effective for periods beginning after November 15, 2007. The Company is currently evaluating the effects of implementing this new standard.

In September 2006, the FASB issued SFAS No. 158, (“SFAS 158”) “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132R.” SFAS 158 requires an entity to recognize in its statement of financial position an asset for a defined benefit postretirement plan’s over funded status or a liability for a plan’s under funded status. The requirement to recognize the funded status of a defined postretirement plan and the disclosure requirements are effective for fiscal years ending after December 31, 2006. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in its financial statements the impact of a tax position based on the technical merits of the position. This interpretation is effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings; accordingly, the Company expects to adopt this standard in its fiscal year commencing October 1, 2007. The Company is currently evaluating the effects of implementing this new standard.

In March 2006, the FASB Emerging Issues Task Force issued Issue 06-3 (EITF 06-3), “How Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement.” A tentative consensus was reached that a company should disclose its accounting policy (i.e., gross or net presentation) regarding presentation of taxes within the scope of EITF 06-3. If taxes are significant, a company should disclose the amount of such taxes for each period for which an income statement is presented. The guidance is effective for periods beginning after December 15, 2006. The Company presents sales net of sales taxes in its consolidated statement of operations and does not anticipate changing its policy as a result of EITF 06-3.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140”, which is effective for fiscal years beginning after September 15, 2006. This statement was issued to simplify the accounting for servicing rights and to reduce the volatility that results from using different measurement attributes. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140”, which is effective for fiscal years beginning after September 15, 2006. The statement was issued to clarify the application of FASB Statement No. 133 to beneficial interests in securitized financial assets and to improve the consistency of accounting for similar financial instruments, regardless of the form of the instruments. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

In November 2005, the FASB issued FSP FAS123(R)-3, “Transition Election to Accounting for the Tax Effects of Share-Based Payment Awards.” This FSP requires an entity to follow either the transition guidance for the additional-paid-in-capital pool as prescribed in SFAS No. 123(R), or the alternative transition method as described in the FSP. An entity that adopts SFAS No. 123(R) using the modified prospective application may make a one-time election to adopt the transition method described in this FSP. An entity may take up to one year from the later of its initial adoption of SFAS No. 123(R) or the effective date of this FSP to evaluate its available transition alternatives and make its one-time election. This FSP became effective in November 2005. The Company has elected the alternative transition method as described in the FSP.

In November 2005, the FASB issued FSP FAS115-1/124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” which addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statements No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” The Company has evaluated the new statement and have determined that it will not have a significant impact on the determination or reporting of our financial results.
 
In June 2005, the FASB issued SFAS No. 154 (“SFAS 154”), “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. The Company does not believe adoption of SFAS 154 will have a material effect on our consolidated financial position, results of operations or cash flows.
 
In March 2005, the FASB issued Financial Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143.” FIN 47 requires asset retirement obligations to be recorded when a legal obligation exists even though the timing and/or method of the settlement of such obligations is conditional on a future event. FIN 47 is effective for fiscal years beginning after December 15, 2005. The Company has evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of our financial results.
 
In December 2004, the FASB issued FSP No. FSP 109-2 (“FSP 109-2”), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004.” FSP 109-2 provides guidance under FASB Statement No. 109 (“SFAS 109”), “Accounting for Income Taxes,” with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on enterprises’ income tax expense and deferred tax liability. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109. FSP 109-2 is effective for fiscal years after December 15, 2005. The Company has evaluated the impact of the repatriation provisions and has determined that it will not have a material impact on its consolidated financial statements.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

NOTE 5—ACQUISITIONS
 
Acquisition of KiQ
 
On December 21, 2004, we acquired KiQ Limited, a privately held United Kingdom software company with a branch office in the Netherlands (“KiQ”). KiQ specializes in the development and sale of decision management systems. The aggregate purchase price was approximately $20.0 million, which was comprised of $9.8 million in cash, 4,352,084 shares of our common stock valued at $9.3 million and approximately $0.9 million in associated transaction costs. Through this transaction we acquired decision management system products and technology. The investment value of this synergy related to its product offerings contributed to a purchase price that was in excess of the fair value of the net assets acquired and liabilities assumed, which resulted in the recognition of goodwill. The acquisition has been accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their fair values as of December 21, 2004.
 
The table below summarizes the total purchase price for the acquisition (in thousands, except share and per share data):

 
Acquisition date
  
December 21, 2004
  
 
 
  
 
  
 
 
Shares issued
  
 
4,352,084
 
 
Average per share value used to value the share consideration
  
 $
2.17
 
 
Purchase price:
  
 
  
 
 
Value of shares issued
  
 $
9,444
 
 
Cash in consideration of cancelled options
  
 
1,049
 
 
Cash
  
 
8,604
 
 
Direct acquisition costs
  
 
885
 
 
Total purchase price
  
$
19,982
  
 
During the year ended September 30, 2005, the direct acquisition costs were adjusted by less than $0.1 million. During the year ended September 30, 2006, we adjusted goodwill by $0.1 million to properly value the share consideration. This adjustment has been reflected in the total purchase price as of September 30, 2006. For reporting purposes, the value of 2,387,805 shares issued was determined based on the weighted average value of our stock’s market price, two days before, the day of, and two days after the date the terms of the acquisition were agreed upon and announced. The value of the remaining 1,964,279 shares issued to the principal sellers of KiQ was determined using the closing price of the day prior to the closing of the acquisition which is consistent with the method the Company used for other stock-based compensation awards.

The total purchase price has been allocated to the fair value of assets acquired and liabilities assumed as follows (in thousands):
 
 
Fair value of tangible assets acquired and liabilities assumed (net)
$
657
 
 
In-process research and development
 
1,940
 
 
Deferred compensation
 
4,123
 
 
Developed technology
 
4,530
 
 
Customer list
 
1,150
 
 
Tradename
 
410
 
 
Goodwill
 
7,172
 
 
Total purchase price
$
19,982
 

Assets acquired principally include cash and cash equivalents, accounts receivable, fixed assets and other assets. Liabilities assumed principally include accounts payable and accrued expenses. The excess of the purchase price over the identified tangible
and intangible assets was recorded as goodwill and amounted to approximately $7.0 million. In accordance with SFAS 142 the goodwill will not be amortized but instead tested for impairment in accordance with the provisions of SFAS 142 at least annually and more frequently upon the occurrence of certain events. For income tax purposes, the Company does not believe the goodwill balances will be deductible.


 CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The value of the purchased in-process research and development was determined by estimating the projected net cash flows related to products under development, based upon our estimates of costs to complete the development of the technology, and the future revenue to be earned upon commercialization of the related products. The estimated stage of completion (expressed as a percentage of completion) was calculated and then applied to the net cash flow for these products. A discount rate of 25% was then applied to the projected cash flows associated with the in-process research and development to determine the net present value. KiQ’s in-process research and development efforts consisted of developing a new product module based on an improved architecture to allow for more power, functionality, improved performance, as well as enhancing the product’s scalability and increasing automation to existing modules. Also included were development efforts to complete a new user interface and various optimized data preparation projects. The estimated state of completion for all projects was approximately 80%. In accordance with application of SFAS 141, the value attributed to in-process research and development was charged to expense in the period we completed the acquisition.
 
The two principals of KiQ, in addition to other employees of KiQ, have remained our employees. We issued 1,964,279 shares of our common stock to the two principal sellers, which we are allowed to buy back from them at a price of $.001 per share if their employment is terminated under certain circumstances. Our right to repurchase these shares diminishes on a monthly basis in accordance with a 30 month vesting schedule which began on the acquisition date. We are recognizing approximately $4.1 million deferred compensation as stock-based compensation expense over the period of the vesting schedule. As of September 30, 2006, the unamortized balance of deferred stock-based compensation was approximately $0.2 million.
 
The value of the developed technology was determined by estimating the projected net cash flows related to products which are or anticipated to be commercialized based on this technology, less any estimated cost to complete commercialization. A discount rate of 20% was then applied to the projected cash flows associated with the developed, core technology to determine the net present value. We are amortizing the intangible asset related to the developed, core technology over a period of five years. The value of the customer list was determined by estimating the projected net cash flows associated with existing customers and applying estimated attrition rates for these customers of from 5% to 95% over future periods. A discount rate of 22.5% was then applied to the projected cash flows associated with the customer relationships to determine the net present value. The value of the trade-name was determined by estimating what the projected net cash flows associated with royalties derived from licensing KiQ’s trade name would be over future periods if a third party were using the name. A discount rate of 22.5% was then applied to the projected cash flows associated with the trade-name to determine the net present value. We are amortizing the intangible assets related to the customer list and tradename over a period of five years.
 
The operating results of KiQ have been included in the consolidated financial statements since the acquisition date. The following unaudited pro forma condensed consolidated financial information reflects the results of operations for the year ended September 30, 2005 and nine months ended September 30, 2004 as if the acquisition of KiQ had occurred on October 1, 2003, after giving effect to purchase accounting adjustments. The purchased in-process research and development expense of $1.9 million has not been included in the pro forma results of operations for the year ended September 30, 2005 because it is considered a non-recurring charge. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place at the beginning of each period, and may not be indicative of future operating results (in thousands, except per share data):
 
 
 
Year Ended
September 30,
2005
   
Nine Months
Ended
September 30,
2004
 
  
   
Restated (1)
    
Restated (1)
    
 
 
(Unaudited)
 
  
 
Pro forma adjusted total revenue
$
84,619
 
  
$
64,159
 
  
 
Pro forma adjusted net loss
$
(18,408
)
  
$
(2,342
)
  
 
Pro forma adjusted net loss per share—basic and diluted
$
(0.24
)
  
$
(0.03
)
  
 
Pro forma weighted average shares—basic and diluted
 
75,154
 
  
 
74,113
 
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

NOTE 6—GOODWILL AND INTANGIBLE ASSETS
 
On January 1, 2002, we adopted SFAS 142, which requires goodwill to be tested for impairment under certain circumstances and adjusted when impaired. It also requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. We ceased amortizing goodwill totaling approximately $20.7 million as of the beginning of fiscal 2002.

For the year ended September 30, 2006, we adjusted goodwill by $0.1 million to properly value the share consideration for the year ended September 30, 2006. Our purchase of KiQ in December 2004 increased our goodwill by $7.2 million to $32.0 million at September 30, 2005. During the year ended September 30, 2005, the Company reduced its goodwill by $0.1 million related to direct acquisition costs and working capital adjustments.
 
The components of intangible assets, excluding goodwill, are as follows (in thousands):
 
 
September 30, 2006
  
September 30, 2005
 
 
Gross
Carrying
Amount
  
Accumulated
Amortization
    
Net
Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization
    
Net
Carrying
Amount
 
Intangible assets:
 
 
 
 
  
 
 
 
 
 
 
  
 
 
Developed technologies
$
6,904
 
$
(3,972
)
  
$
2,932
 
$
6,904
 
$
(3,075
)
  
$
3,829
 
Purchased technologies
 
7,162
 
 
(7,162
)
  
 
—
 
 
7,162
 
 
(7,162
)
  
 
—
 
Customer list and trade-names
 
2,732
 
 
(1,727
)
  
 
1,005
 
 
2,732
 
 
(1,413
)
  
 
1,319
 
 
$
16,798
 
$
(12,861
)
  
$
3,937
 
$
16,798
 
$
(11,650
)
  
$
5,148
 
 
All of our acquired intangible assets, excluding goodwill, are subject to amortization and are carried at cost less accumulated amortization. Amortization is computed over their estimated useful lives which are as follows: Developed technologies—one and one half to five years; purchased technologies—three years; trade-names—three to five years; customer list—three to five years. Aggregate amortization expense for intangible assets totaled $1.2 million, $1.2 million, and $1.2 million for the years ended September 30, 2006 and 2005 and the nine months ended September 30, 2004. We expect amortization expense on acquired intangible assets to be $1.2 million in fiscal 2007, $1.2 million in fiscal 2008, $1.2 million in fiscal 2009, $0.3 million in fiscal 2010.
 


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

NOTE 7—RESTRUCTURING
 
Restructuring Costs

Through September 30, 2005, the Company has approved certain restructuring plans to, among other things, reduce its workforce and consolidate facilities. Restructuring and asset impairment charges have been taken to align our cost structure with changing market conditions and to create a more efficient organization. Our restructuring charges have been comprised primarily of: (i) severance and benefit termination costs related to the reductions in workforce; and (ii) lease termination costs and costs associated with permanently vacating certain facilities. We account for each of these costs in accordance with SFAS No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities,” or previous guidance under EITF 94-3.
 
Retroactive application of SFAS 146 to periods prior to January 1, 2003 was prohibited and, accordingly, the accrual relating to facilities approved under a plan prior to the effective date of SFAS 146 continues to be accounted for in accordance with the guidance of EITF 94-3. The accrual for such facilities does not reflect any adjustments relating to the estimated net present value of cash flows associated with the facilities.
 
For each of the periods presented herein, restructuring charges consist solely of:
 
• Severance and Termination Benefits—These costs represent severance and payroll taxes related to restructuring plans.

• Excess Facilities—These costs represent future minimum lease payments related to excess and abandoned space under lease, net of estimated sublease income.
 

As of September 30, 2006, the total restructuring accrual of $1.9 million consisted of the following (in thousands):
 
 
 
Current
 
Non-Current
 
Total  
 
 
Severance and Termination
$
32
 
$
—
 
$
32
 
 
Excess Facilities
 
623
 
 
1,239
 
 
1,862
 
 
Total
$
655
 
$
1,239
 
$
1,894
 

As of September 30, 2006 and 2005, $0.7 million and $1.2 million related to the restructuring reserve are included in the accrued expenses line item on the balance sheet, respectively. The allocation between current portion and long term portion is based on current lease agreements expiring in 2011. Attempts to exit the facilities earlier than 2011 have not proven to be economically feasible; therefore, as of September 30, 2006, those net lease payments due in more than one year, previously classified as current liabilities, have been reclassified to long term liabilities.
 
Included in the facilities reserve is a note payable associated with the buyout of an office lease located in New York City. The amount of the note payable is $0.2 million and it is payable through quarterly installments through June 2011. We expect to pay the excess facilities amounts related to restructured or abandoned leased space net of estimated sublease income as follows (in thousands):
 
 
  
Total future
minimum
payments, net
 
  
 
 
Fiscal Year Ended September 30:
  
 
  
 
 
2007
$
623
        
 
2008
 
359
 
    
 
 
2009
 
365
 
    
 
 
2010 
 
372
 
    
 
 
2011 
 
143
 
    
 
 
Total
$
1,862
        
 


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Year Ended September 30, 2005 Restructuring
 
In May 2005, the Company appointed a task force to improve profitability and control expenses. The goal of the task force was to create a better alignment of functions within the Company, to make full utilization of the Company’s India development center, to develop a closer relationship between the Company’s field operations and customers, to review the sales and implementation models, as well adjust as the organization model to flatten management levels, to review the Company’s product line, and to enhance the Company’s business model for profitability and operating leverage. This work resulted in an approximate 10% reduction in the Company’s workforce, and in July 2005 affected employees were notified. In connection with this action, the Company incurred a one-time restructuring charge of $1.1 million in the fourth quarter ended September 30, 2005 for severance and termination benefits.
 
The following table summarizes the activity related to the September 30, 2005 restructuring plan (in thousands):
 
 
 
Severance
and Termination
Benefits 
 
    
 
  
 
Reserve balance at September 30, 2004 
$
—
 
      
 
  
 
Total charge
 
1,149
 
      
 
  
 
Cash paid
 
(680
)
          
 
Reserve balance at September 30, 2005
$
469
 
          
 
Non-Cash
 
1
            
 
Cash paid
  
(438
)
          
 
Reserve balance at September 30, 2006
$
32
 
      
 
  
 
Nine Months Ended September 30, 2004 and Prior Restructurings
 
During the nine months ended September 30, 2004, we announced plans to reallocate staff between our North American and European operations in order to better support our growth in North America. As part of this restructuring plan, we recorded a workforce reduction expense of $0.2 million relating to severance and benefits.
 
Prior to fiscal year 2004, based upon our continued evaluation of economic conditions in the information technology industry and our expectations regarding revenue levels, we restructured several areas of the Company to reduce expenses and improve our revenue per employee. These restructuring programs included a worldwide workforce reduction, and consolidation of excess facilities and certain business functions. We believe that these reductions and realignments have resulted and will continue
to result in a more responsive management structure. As part of these restructuring programs, we recorded workforce reduction expenses relating to severance and benefits of approximately $2.0 million and $3.8 million for years ended December 31, 2003 and 2002, respectively. In addition to these costs, we accrued lease costs related to excess facilities of $0.2 million and $2.8 million during the years ended December 31, 2003 and 2002 respectively, pertaining to the consolidation of excess facilities associated with lease terminations and non-cancelable lease costs. This expense is net of estimated sub-lease income based on current comparable rates for leases in the respective markets. If facilities rental rates decrease in these markets or if it takes longer than expected to sublease these facilities, the maximum amount by which the actual loss could exceed the original estimate is approximately $1.2 million.
 
The following table summarizes the activity related to the restructuring plans initiated prior to fiscal year 2004 (in thousands):


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

 
 
Facilities  
 
  
Severance
and Termination
Benefits
 
  
Total  
 
  
 
Reserve balance at September 30, 2004
$
2,781
 
  
$
587
 
  
$
3,368
 
  
 
Provision adjustment (1) 
  
—
 
    
(96
) 
    
(96
) 
  
 
Non-cash 
  
—
 
    
6
 
    
6
 
  
 
Cash paid
  
(284
) 
    
(497
) 
    
(781
) 
  
 
Reserve balance at September 30, 2005  
$
2,497
 
  
$
—
 
  
$
2,497
 
  
 
Non-cash 
 
(298
)
  
 
—
    
 
(298
)
  
 
Cash paid
  
(337
)
    
—
      
(337
)
  
 
Reserve balance at September 30, 2006 
$
1,862
 
  
$
—
 
  
$
1,862
 
  
 
 
 
 
 
  
 
 
 
  
 
 
 
  
(1)  Provision adjustments relate to changes in estimates.

Ness Technologies
 
As part of the fiscal year 2003 restructuring, we entered into an agreement with Ness Technologies Inc., Ness Global Services, Inc. and Ness Technologies India, Ltd. (collectively, “Ness”), effective December 15, 2003, pursuant to which Ness will provide our customers with technical product support through a worldwide help desk facility, a sustaining engineering function that serves as the interface between technical product support and our internal engineering organization, product testing services and product development services (collectively, the “Services”). The agreement had an initial term of three years. Chordiant and Ness have agreed to extend the agreement until December 14, 2007. Under the terms of the agreement, we pay for services rendered on a monthly fee basis, including the requirement to reimburse Ness for approved out-of-pocket expenses. The agreement may be terminated for convenience by the Company, subject to the payment of a termination fee. The maximum termination fee was initially equal to three months of certain fees, declining to zero after 30 months. On June 16, 2004, March 15, 2005, January 30, 2006, and May 30, 2006, the Company further expanded its agreement with Ness whereby Ness is providing certain additional technical and consulting services. The additional agreements can be cancelled at the option of the Company without the payment of a termination fee. The remaining minimum purchase commitments under these agreements, if Chordiant was to cancel the contracts, were approximately $1.2 million at September 30, 2006. In addition to service agreements, we have also guaranteed certain equipment lease obligations of Ness (See Notes 9 and 10).
 
NOTE 8—RELATED PARTY TRANSACTIONS
 
In August 2005, the Company entered into a service provider agreement with Infogain. Samuel T. Spadafora, one of our former directors and executive officers, is a director of Infogain. Mr. Spadafora terminated his relationship with the Company in November 2006. Pursuant to the service provider agreement, revenue from Infogain was $0.4 million and less than $0.1 million for the years ended September 30, 2006 and 2005, respectively. Cost of goods for services provided to Infogain was $.7 million and zero for the years ended September 30, 2006 and 2005 respectively. Accounts receivable was less than $0.1 million and less than $0.1 million as of September 30, 2006 and 2005, respectively. Payments and corresponding accounts payable to Infogain were $1.1 million and less than $0.1 million for years ended September 30, 2006 and 2005, respectively.
 
In January 2005, Charles E. Hoffman became a director of the Company. Mr. Hoffman is the President and Chief Executive Officer of Covad Communications Group, Inc. (“Covad”), a customer of ours. Pursuant to a software license and services agreement, revenue from Covad was $0.2 million and $1.1 million for the years ended September 30, 2006 and 2005, respectively. Accounts receivable was $0.1 million and approximately zero as of September 30, 2006 and 2005, respectively. Deferred revenue was $0.1 million and $0.1 million as of September 30, 2006 and 2005, respectively.

In January 2005, David A. Weymouth became a director of the Company. Through June 2005 Mr. Weymouth was the Corporate Responsibility Director of Barclay’s Group, a customer of ours. Pursuant to software license agreements, software maintenance agreements, and professional services agreements, revenue from Barclay’s Group was approximately $7.0 million for the year ended September 30, 2005. Accounts receivable was $0.3 million as of September 30, 2005. Deferred revenue as of September 30, 2005 was $0.3 million as of September 30, 2005.

Mr. Weymouth terminated his relationship with Barclay’s Group and became an associate with Deloitte & Touche LLP, a prior provider of tax services to the Company. Payments made to Deloitte and Touche LLP, were $0.1 million and $0.6 million for the years ended September 30, 2006 and 2005, respectively.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

NOTE 9—BORROWINGS

 
Our revolving line of credit with Comerica Bank was amended and restated on March 8, 2006 and was extended to March 7, 2008. The terms of the agreement include a $5.0 million line of credit and require us to maintain (i) at least a $5.0 million cash balance in Comerica Bank accounts, (ii) a minimum quick ratio of 2.00 to 1.00, and (iii)  subordinate any debt issuances subsequent to the effective date of the agreement, and certain other covenants. All assets of the Company have been pledged as collateral on the credit facility. The Company failed to timely file its periodic report on Form 10-K for the year ended September 30, 2006 and on Form 10-Q for the quarter ended June 30, 2006. The line of credit agreement was amended in August 2006, November 2006, and December 2006 to extend the deadline related to the filing of its periodic reports to February 20, 2007.

The revolving line of credit contains a provision for a sub-limit of up to $5.0 million for issuances of standby commercial letters of credit. As of September 30, 2006, we had utilized $1.2 million of the standby commercial letter of credit limit of which $0.7 million serves as collateral for computer equipment leases for Ness (see Notes 7 and 10). The revolving line of credit also contains a provision for a sub-limit of up to $3.0 million for issuances of foreign exchange forward contracts. As of September 30, 2006, we had not entered into any foreign exchange forward contracts. Pursuant to the amendment in March 2006, we are required to secure our standby commercial letters of credit and foreign exchange forward contracts as of March 7, 2008. If these have not been secured to Comerica Bank’s satisfaction, our cash and cash equivalent balances held by Comerica Bank automatically secure such obligations to the extent of the then continuing or outstanding and undrawn letters of credit or foreign exchange contracts.
 
Borrowings under the revolving line of credit bear interest at the lending bank’s prime rate. Except for the standby commercial letters of credit, as of September 30, 2006, there was no outstanding balance on our revolving line of credit.

Prior to the March 2006 amendment, advances were available on a non-formula basis up to $2.0 million (non-formula portion); however, if advances exceeded $2.0 million, then subsequent advances could not exceed 80% of eligible accounts receivable balances, and the bank would hold a security interest in those accounts receivable. As of March 2006, advances are available on a non-formula basis up to $5.0 million.

NOTE 10—COMMITMENTS AND CONTINGENCIES
 
We lease our facilities and some equipment under non-cancelable operating leases that expire on various dates through July 2013. Rent expense is recognized on a straight line basis over the lease term. In addition, the Company has entered into non-cancelable capital leases having expiration dates through 2007. Future minimum lease payments as of September 30, 2006 are as follows (in thousands):

 
 
Capital
Leases
  
Operating
Leases
  
 
Fiscal Year Ended September 30:
 
  
 
 
  
 
 
2007
$
97
 
$
3,712
 
 
2008
 
—
 
 
3,318
 
 
2009
 
—
 
 
2,582
 
 
2010 
 
—
 
 
2,009
 
 
2011 
 
—
 
 
1,068
 
 
Thereafter 
 
—
 
 
1,208
 
 
Total minimum payments
$
97
 
$
13,897
 
 
Less: amount representing interest
  
(2
)
      
 
Present value of minimum lease payments
  
95
        
 
Less: current portion of capital lease obligations
  
(95
)
      
 
Capital lease obligations, non-current
$
—
        
               

Operating lease payments in the table above include approximately $3.1 million for operating lease commitments for facilities that are included in restructuring charges. As of September 30, 2006, the Company does not have any sublease income contractually committed for future periods relating to facilities under operating leases. See Note 7, Restructuring Charges, for a further discussion.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 
Rent expense for the year ended September 30, 2006 and 2005 and the nine months ended September 30, 2004 totaled $2.5 million, $2.7 million, and $1.9 million, respectively. Certain operating leases included in the table above are part of our restructuring activities and lease payments on such leases are charged against the restructuring accrual.
 
In conjunction with our agreement with Ness (see Notes 7 and 9), Ness may procure equipment to be used in performance of the certain services, either through leasing arrangements or direct cash purchases, for which we are obligated under the agreement to reimburse them. In connection with the procurement of equipment, Ness has entered into a 36 month equipment lease agreement with IBM India and, in connection with the lease agreement we have issued a standby letter of credit in the amount of $0.7 million in guarantee of Ness’ financial commitments under the lease. Over the term of the lease, our obligation to reimburse Ness is approximately equal to the amount of the guarantee.
 
We have evaluated the obligation under the standby letter of credit and, pursuant to the requirements as set forth under FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” a less than $0.1 million and a $0.1 million liability equal to the estimated fair value of the guarantee was recorded at September 30, 2006 and 2005, respectively.

Indemnification

As permitted under Delaware law, we have agreements whereby we indemnify our officers, directors and certain employees for certain events or occurrences while the employee, officer or director is, or was serving, at our request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a Director and Officer insurance policy that limits our exposure and may enable us to recover a portion of any future amounts paid. Future payments may be required to defend current and former directors in the derivative class action lawsuits described in Note 11. As a
result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of September 30, 2006.

We enter into standard indemnification agreements in our ordinary course of business. Pursuant to these agreements, we agree to indemnify, defend, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners or customers, in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification agreements is generally perpetual after execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. We believe the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of September 30, 2006.
 
We enter into arrangements with our business partners, whereby the business partners agree to provide services as subcontractors for our implementations. We may, at our discretion and in the ordinary course of business, subcontract the performance of any of our services. Accordingly, we enter into standard indemnification agreements with our customers, whereby we indemnify them for other acts, such as personal property damage by our subcontractors. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have general and umbrella insurance policies that may enable us to recover a portion of any amounts paid. We have not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of September 30, 2006.
 
When, as part of an acquisition, we acquire all of the stock or all of the assets and liabilities of a company, we may assume the liability for certain events or occurrences that took place prior to the date of acquisition. The maximum potential amount of future payments, if any, we could be required to make for such obligations is undeterminable at this time. Accordingly, we have no amounts recorded for these contingent liabilities as of September 30, 2006.
 
We warrant that our software products will perform in all material respects in accordance with our standard published specifications and documentation in effect at the time of delivery of the licensed products to the customer for a specified period of time. Additionally, we warrant that our maintenance and consulting services will be performed consistently with generally accepted industry standards. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history, however, we have not incurred significant expense under our product or services warranties to date. As a result, we believe the estimated fair value on these warranties is minimal. Accordingly, we have no amounts recorded for these contingent liabilities as of September 30, 2006.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

NOTE 11—LITIGATION

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

In August 2001, all of the IPO Lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. In July 2002, we joined in a global motion to dismiss the IPO Lawsuits filed by all of the Issuers (among others). In October 2002, the Court entered an order dismissing the Individuals from the IPO Cases without prejudice, pursuant to an agreement tolling the statute of limitations with respect to the Individuals. In February 2003, the court issued a decision denying the motion to dismiss the Section 11 claims against Chordiant and almost all of the other Issuers and denying the motion to dismiss the Section 10(b) claims against Chordiant and many of the Issuers.

In June 2003, Issuers and plaintiffs reached a tentative settlement agreement that would, among other things, result in the dismissal with prejudice of all claims against the Issuers and Individuals in the IPO Lawsuits, and the assignment to plaintiffs of certain potential claims that the Issuers may have against the underwriters. The tentative settlement also provides that, in the event that plaintiffs ultimately recover less than a guaranteed sum of $1 billion from the IPO underwriters, plaintiffs would be entitled to payment by each participating Issuer’s insurer of a pro rata share of any shortfall in the plaintiffs’ guaranteed recovery. In September 2003, in connection with the possible settlement, those Individuals who had entered tolling agreements with plaintiffs (described above) agreed to extend those agreements so that they would not expire prior to any settlement being finalized. In June 2004, Chordiant and almost all of the other Issuers entered into a formal settlement agreement with the plaintiffs. On February 15, 2005, the Court issued a decision certifying a class action for settlement purposes, and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. On August 31, 2005, the Court reaffirmed class certification and preliminary approval of the modified settlement in a comprehensive Order, and directed that Notice of the settlement be published and mailed to class members beginning November 15, 2005. On February 24, 2006, the Court dismissed litigation filed against certain underwriters in connection with the claims to be assigned to the plaintiffs under the settlement. On April 24, 2006, the Court held a Final Fairness Hearing to determine whether to grant final approval of the settlement. On December 5, 2006, the Second Circuit Court of Appeals vacated the lower Court's earlier decision certifying as class actions the six IPO Lawsuits designated as "focus cases." The Court has ordered a stay of all proceedings in all of the IPO Lawsuits pending the outcome of Plaintiffs' rehearing petition to the Second Circuit. Accordingly, the Court's decision on final approval of the settlement remains pending.

If this settlement is not finalized as proposed, then this action may divert the efforts and attention of our management and, if determined adversely to us, could have a material impact on our business, results of operations, financial condition or cash flows.

On August 1, 2006, a stockholder derivative complaint was filed in the United States District Court for the Northern District of California by Jesse Brown under the caption Brown v. Kelly, et al. Case No. C06-04671 JW (N.D. Cal.).  On September 13, 2006, a second stockholder derivative complaint was filed in the United States District Court for the Northern District of California by Louis Suba under the caption Suba v. Kelly et al., Case No. C06-05603 JW (N.D. Cal.).  Both complaints were brought purportedly on behalf of the Company against certain current and former officers and directors.   On November 27, 2006, the court entered an order consolidating these actions and requiring the plaintiffs to file a consolidated complaint.  The consolidated complaint was filed on January 11, 2007.  The consolidated complaint alleges, among other things, that the named officers and directors: (a) breached their fiduciary duties as they colluded with each other to backdate stock options, (b) violated section 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder through their alleged actions, and (c) were unjustly enriched by their receipt and retention of such stock options.  The Company's response to the complaint is due on February 28, 2007. 


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

In September 2006, the Company received a letter from Acacia Technologies Group, a patent holding company, suggesting that the Company may be infringing on two patents, designated by United States Patent Numbers 5,537,590 and 5,701,400, which are held by one of their patent licensing and enforcement subsidiaries. The Company is currently reviewing the validity of these patents and whether the Company’s products may infringe upon them. The Company has not formed a view of whether the Company may have liability for infringement of these patents. Any related claims, whether or not they have merit, could be costly and time-consuming to defend, divert our management’s attention or cause product delays. If any of our products were found to infringe such patents, the patent holder could seek an injunction to enjoin our use of the infringing product. If we were required to settle such a claim, it could have a material impact on our business, results of operations, financial condition or cash flows.
 
We are also subject to various other claims and legal actions arising in the ordinary course of business. The ultimate disposition of these various other claims and legal actions is not expected to have a material effect on our business, financial condition, results of operations or cash flows. However, litigation is subject to inherent uncertainties. See Note 16 with respect to subsequent events.

NOTE 12—INCOME TAXES
 
The components of loss before income taxes are as follows (in thousands):
 
   
Year ended September 30,
    
Nine months
 ended
September 30,
2004
    
 
  
2006
    
2005
 
 
           
(restated)(1)
  
(restated)(1)
  
 
United States
$
(16,759
)
  
$
(19,766
)
  
$
(14,376
)
  
 
Foreign
 
1,402
  
 
 
350
      
13,447
 
  
 
 
$
(15,357
)
 
$
(19,416
)
  
$
(929
)
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

Our provision for income taxes was $0.6 million, $0.4 million and $0.4 million for the years ended September 30, 2006 and 2005 and the nine months ended September 30, 2004, respectively. The increase in the provision for the year ended September 30, 2006 when compared to the year ended September 30, 2005 is due to a combination of increases in both state tax expense and foreign income tax expense. The decrease in the provision for the year ended September 20, 2005 when compared to the nine months ended September 30, 2004 is due to a decrease in state tax expense resulting from a greater portion of state earnings being taxed in jurisdictions with lower taxes.

Deferred tax assets consist of the following (in thousands):
 
     
September 30,
      
       
2006
        
2005
      
               
(restated)(1)
    
 
Net Operating loss carryforwards
  
$
67,691
      
$
66,046
      
 
Accrued expenses and provisions
    
3,731
        
1,814
      
 
Tax Credit carryforwards
    
5,422
        
5,422
      
 
Deferred revenue
 
 
9,302
        
6,857
 
    
 
Stock-based Compensation
    
544
        
1,005
      
 
Depreciation and amortization
 
 
2,227
        
2,206
 
    
 
Gross deferred tax assets
 
 
88,917
        
83,350
 
    
 
Deferred tax valuation allowance
 
 
(88,917
)
      
(83,350
)
    
 
Net deferred tax assets
 
$
—
 
    
$
—
 
    

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The valuation allowance increased by $5.6 million for the year ended September 30, 2006 and increased by $19.7 million for the year ended September 30, 2005.

We provide a valuation allowance for deferred tax assets when it is more likely than not that the net deferred tax assets will not be realized. Based on a number of factors, including the lack of a history of profits, future projected taxable income and the fact that the market in which we compete is intensely competitive and characterized by rapidly changing technology, we believe that there is sufficient uncertainty regarding the realization of deferred tax assets such that a full valuation allowance has been provided. At September 30, 2006, we had approximately $161.1 million and $10.2 million of net operating loss carryforwards for federal and state purposes, respectively, and net operating loss carryforwards of approximately $35.8 million in the United Kingdom. Approximately $36.4 million of the net operating loss carryforwards, representing net operating loss carryforwards acquired through our acquisition of Prime Response, are subject to change in control limitations, and, if utilized beyond such limitations will reduce goodwill and intangibles recorded at the date of acquisition before reducing the tax provision. Approximately $1.0 million of the net operating loss carryforwards are related to stock option deductions which, if utilized, will be accounted for as an addition to equity rather than as a reduction of the provision for income taxes. These carryforwards are available to offset future federal and state taxable income and begin to expire in 2010 and 2006, respectively. At September 30, 2006, there are approximately $3.1 million of federal credits that begin to expire in 2010. At September 30, 2006, there were also California state credits of approximately $3.5 million that do not expire.

Under the Tax Reform Act of 1986, the amounts of and the benefit from net operating losses that can be carried forward may be impaired or limited in certain circumstances. Under Section 382 of the Internal Revenue Code (IRC), as amended, a cumulative stock ownership change of more than 50% over a three-year period can cause such limitations. During fiscal year 2006, the Company performed an analysis of its historical ownership changes and concluded that four such changes have occurred since inception. As a result of the IRC Section 382 study, approximately $2.7 of the $161.1 million of net operating loss carryforwards at September 30, 2006 will expire unutilized.
 
The provision for income taxes differs from the amount computed by applying the statutory federal income tax as follows (in thousands):

 
 
 
Year ended
September 30,
 
  
Nine months
 ended
September 30,
2004
 
  
 
 
 
2006
 
  
2005
 
  
 
  
             
(restated)(1)
  
(restated)(1)
  
 
Book loss
 
$
(15,357
)
  
$
(19,416
)
  
$
(929
)
  
 
Federal tax statutory rate
 
$
(5,375
)
  
$
(6,796
)
  
$
(325
)
  
 
State
 
 
267
 
    
215
      
110
 
  
 
Stock-based compensation
 
 
1,643
 
  
 
1,062
 
  
 
141
    
 
In process R&D
 
 
—
 
  
 
679
 
  
 
—
    
 
Other
 
 
—
 
  
 
—
 
  
 
53
    
 
Foreign Tax
 
 
377
 
  
 
234
 
  
 
295
 
  
 
Valuation allowance
 
 
3,732
 
  
 
5,055
 
  
 
168
    
 
Provision for income taxes
 
$
644
 
  
$
449
 
  
$
442
 
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

NOTE 13—EMPLOYEE BENEFIT PLANS

Common Stock and Restricted Stock Awards

In February 2006, the Board of Directors approved a grant of 125,000 shares of our restricted stock to Samuel Spadafora, Chairman of the Board. These shares vest as follows:

 
Grant Date
  
Number of shares
  
Vesting Schedule
  
 
February 2006
  
125,000
  
April 1 2006 - 20,000 Shares
  
         
July 1, 2006 - 20,000 Shares
  
         
October 1, 2006 - 20,000 Shares
  
         
January 1, 2007 - 20,000 Shares
  
         
April 1, 2007 - 20,000 Shares
  
         
October 1, 2007 - 25,000 Shares
  

In November 2006, Mr. Spadafora entered into a separation agreement with the Company. See Note 16-Subsequent Events. Based upon the separation agreement, the shares ceased to vest at the separation date. At the date of Mr. Spadafora’s termination 65,000 shares were cancelled.
 
In June 2005, we granted 125,000 shares of our restricted stock to Stephen Kelly, our chief executive officer, and 125,000 shares to Robert Mullen, our president of worldwide field operations. These shares vested on April 1, 2006.

In August 2005, the Board of Directors approved grants of 200,000 shares of our restricted stock to Robert Mullen for August 2005, April 2006 and April 2007. These shares vested as follows:

 
Grant Date
  
Number of shares
  
Vesting Schedule
  
 
August 2005
  
200,000
  
October 2005 - 66,666 Shares
  
         
October 2006 - 66,667 Shares
  
         
October 2007 - 66,667 Shares
  
 
April 2006
  
200,000
  
April 2007 - 66,666 Shares
  
         
April 2008 - 66,667 Shares
  
         
April 2009 - 66,667 Shares
 
 
April 2007
  
200,000
  
April 2008 - 66,666 Shares
  
         
April 2009 - 66,667 Shares
  
         
April 2010 - 66,667 Shares
 

In August 2006, Mr. Mullen entered into a separation agreement with the Company, whereby he continued as an employee until December 31, 2006 at which time vesting of his shares ceased. At the date of Mr. Mullen’s separation, 133,333 shares had vested and 466,667 shares were cancelled.

In January 2004, we sold 4,854,368 shares of our common stock to Acqua Wellington Opportunity I Limited for an aggregate purchase price of approximately $25.0 million, which was used for working capital and other general corporate purposes.

There were no repurchases of our common stock during the years ended September 30, 2006 and 2005. Cancellations of issued but unvested shares of restricted stock were approximately 20,000, 96,000 and 235,000 shares during the years ended September 30, 2006 and 2005 and the nine months ended September 30, 2004, respectively.

2005 Equity Incentive Plan

The 2005 Equity Incentive Plan (“2005 Plan”) was approved at the annual meeting on September 27, 2005. The 2005 Plan replaces the 1999 Equity Incentive Plan (the “1999 Plan”) and provides for the grant of incentive stock options, nonstatutory stock options, stock purchase awards, restricted stock awards, and other forms of equity compensation (collectively, the “stock awards”). The option price shall not be less than the fair market value of the shares on the date of grant and no portion may be exercised beyond ten years from that date. However, during the stock option review, it was discovered that some options granted had the option price less than the fair market value of the shares on the date of grant. Under the 2005 Plan, stock options generally vest over a period of four years in equal monthly installments with 25% of the shares vesting after one year, and the remainder


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

vesting in equal monthly installments over the remaining three years. Stock option grant agreements allow for the early exercise of options granted to employees. Exercised but unvested shares are subject to repurchase by us at the initial exercise price. Beginning September 27, 2005, no additional stock awards will be granted under the 1999 Plan. Shares remaining available for issuance pursuant to the exercise of options or settlement of stock awards under the 1999 Plan of approximately 1.2 million shares were added to the share reserve of the 2005 Plan and, as of September 27, 2005, became available for issuance pursuant to stock awards granted under the 2005 Plan. All outstanding stock awards granted under the 1999 Plan will remain subject to the terms of the 1999 Plan, except that the Board may elect to extend one or more of the features of the 2005 Plan to stock awards granted under the 1999 Plan. Any shares subject to outstanding stock awards granted under the 1999 Plan that expire or terminate for any reason prior to exercise or settlement shall be added to the share reserve of the 2005 Plan and become available for issuance pursuant to stock awards granted under the 2005 Plan. The 2005 Plan increases the number of shares available for issuance by 5.5 million shares of common stock from an aggregate total of approximately 1.2 million shares available under the 1999 Plan as of September 27, 2005, resulting in an aggregate of approximately 6.7 million shares available for future grant and issuance under the 2005 Plan. As of September 30, 2006, there were approximately 4.9 million shares reserved for future issuance and approximately 7.0 million options that were outstanding under the 2005 Plan. In January 2007, the Board amended the plan to increase the number of shares reserved for future issuance by 4.0 million shares. This amendment will be submitted to the stockholders for their approval at the 2007 annual meeting of stockholders.
 
2000 Nonstatutory Equity Incentive Plan

In March 2000, the Board adopted the 2000 Nonstatutory Equity Incentive Plan (the “2000 Plan”). Stockholder approval of this plan is not required and has not been obtained by us. The 2000 Plan was in effect as of June 30, 2003. In April 2002 and October 2002, the Board approved increases to the number of shares reserved under the 2000 Plan from 0.9 million shares to 2.4 million shares and then to 4.4 million shares, also without stockholder approval as such approval was not required by the 2000 Plan or by applicable law. The 2000 Plan does not have a termination date, and will continue indefinitely until suspended or terminated by the Board. The 2000 Plan provides for the grant of nonstatutory stock options and the issuance of restricted stock and stock bonuses to our employees (other than officers, directors, or beneficial owners of ten percent (10%) or more of our common stock and consultants who meet certain eligibility requirements. In January 2007, the Board amended the 2000 Plan to reduce the number of shares available for future issuance to zero. No additional stock options will be granted under the 2000 Nonstatutory Equity Incentive Plan.

As of September 30, 2006, there were approximately 1.8 million shares subject to outstanding stock option grants, zero shares of unvested restricted stock, and approximately 0.5 million shares available for future grant and issuance (plus any shares that might be returned to the 2000 Plan in the future as a result of cancellations or expirations of granted options and the repurchase of unvested restricted stock and stock bonuses). The terms and price of nonstatutory stock options granted under the 2000 Plan are determined by the Board (or a committee of the Board) and are set forth in each optionee’s option agreement. The exercise price of nonstatutory stock options granted under the 2000 Plan has been 100% of the fair market value on the date of grant, and the term of the options has been ten years. Generally, stock options under the 2000 Plan vest over a period of four years in equal monthly installments with 25% of the shares vesting after one year, and the remainder vesting in equal monthly installments over the remaining three years. In the future, stock options may have the same or different vesting terms as determined by the Board (or a committee of the Board). The Board (or a committee of the Board) sets the terms of stock bonuses and rights to purchase restricted stock.

1999 Equity Incentive 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. The option price shall not be less than the fair market value of the shares on the date of grant and 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 us at the initial exercise price. As of September 27, 2005, approximately 1.2 million available shares under the 1999 Plan were added to the share reserve of the 2005 Plan. No additional stock options will be granted under the 1999 Plan subsequent to September 27, 2005. Any shares subject to outstanding stock awards granted under the 1999 Plan that expire or terminate for any reason prior to the exercise or settlement are added to the share reserve of the 2005 Plan and become available for issuance under the 2005 Plan.


CHORDIANT SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

1999 Non-Employee Director Option Plan

The 1999 Non-Employee Director Stock Option Plan (“Director Plan”) was adopted by the Board of Directors and became 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 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 our 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, for each committee they serve on, on the day after each annual meeting of the stockholders. As of September 30, 2006, approximately 1.1 million shares of common stock have been reserved for issuance and 0.4 million are outstanding under the Director Plan. The amount reserved under the 1999 Director Plan automatically increases on October 1st of each year by the greater of (1) 0.5% outstanding shares on such date or (2) the number of shares subject to stock awards made under the Director Plan during the prior twelve month period. This automatic increase is subject to reduction by the Board of Directors. Under the terms of the director plan, option prices may not be less than the fair market value of the shares on the date of grant and no portion may be exercised beyond ten years from that date. In January 2007, the Board amended and restated the Director Plan to decrease the number of shares reserved for future issuance to 0.75 million shares and to eliminate the automatic increase provision. The adoption of the amended and restated Director plan will be submitted to the stockholders for their approval at the 2007 annual meeting of stockholders.


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

 
 
      
Options Outstanding
  
 
 
Shares Available
for Grant
    
Shares
    
Weighted Average
Exercise Price
  
 
Balance at September 30, 2003
4,340
    
9,458
    
$
2.01
  
 
Options granted
(2,108
)
  
2,108
      
4.19
  
 
Restricted stock granted
(3
)
  
—
      
—
  
 
Options exercised
—
    
(1,150
)
    
1.80
  
 
Cancellation of unvested restricted stock
235
    
—
      
—
  
 
Options cancelled
905
    
(905
)
    
2.78
  
 
Options cancelled from expired plans
—
    
(5
)
    
—
  
 
Balance at September 30, 2004
3,369
    
9,506
      
2.45
  
 
Authorized
5,660
    
—
      
—
  
 
Options granted
(2,084
)
  
2,084
      
2.08
  
 
Restricted stock granted
(450
)
  
—
      
—
  
 
Options exercised
—
    
(1,246
)
    
1.21
  
 
Cancellation of unvested restricted stock
95
    
—
      
—
  
 
Options cancelled
1,855
    
(1,855
)
    
3.60
  
 
Options cancelled from expired plans
(326
)
  
(28
)
    
—
  
 
Balance at September 30, 2005
8,119
    
8,461
      
2.28
  
 
Authorized
305
    
—
      
—
  
 
Options granted
(3,762
)
  
3,762
      
3.05
  
 
Restricted stock granted
(325
)
  
—
      
—
  
 
Options exercised
—
    
(1,234
)
    
1.64
  
 
Cancellation of unvested restricted stock
446
    
—
      
—
  
 
Options cancelled
1,770
    
(1,770
)
    
2.98
  
 
Balance at September 30, 2006
6,553
    
9,219
    
$
2.53
  



CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The following table summarizes information about stock options outstanding and exercisable at September 30, 2006 (in thousands, except exercise prices and contractual life data):

   
Options Outstanding
  
Options Vested
 
Range of
Exercise Prices
  
Number
Outstanding
  
Weighted
Average
Remaining
Contractual
Life (Years)
  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
Closing
Price at
09/30/2006
of $3.07
  
Number
Exercisable
  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
Closing
Price at
09/30/2006
of $3.07
 
$ 0.14-$ 0.88
 
1,006
 
3.43
 
$
.65
 
$
2,434
 
1,003
 
$
0.65
 
$
2,426
 
$ 0.90-$ 1.30
 
1,113
 
6.35
 
 
1.02
 
 
2,285
 
1,016
 
 
1.02
 
 
2,084
 
$ 1.33-$ 1.70
 
1,004
 
7.55
 
 
1.62
 
 
1,455
 
692
 
 
1.61
 
 
1,020
 
$ 1.80-$ 2.58
 
924
 
6.68
 
 
2.13
 
 
866
 
633
 
 
2.03
 
 
658
 
$ 2.59-$ 2.97
 
976
 
7.18
 
 
2.73
 
 
332
 
605
 
 
2.76
 
 
185
 
$ 2.99-$ 3.03
 
1,154
 
9.22
 
 
3.00
 
 
87
 
219
 
 
3.00
 
 
16
 
$ 3.05-$ 3.19
 
1,252
 
9.24
 
 
3.17
 
 
1
 
203
 
 
3.17
 
 
—
 
$ 3.22-$ 4.17
  
1,337
  
8.08
    
3.84
    
—
  
715
    
4.08
    
—
  
$ 4.21-$ 18.00
  
453
  
6.06
    
5.90
    
—
  
402
    
6.04
    
—
  
$ 0.14-$ 18.00
 
9,219
 
7.27
 
$
2.53
 
$
7,460
 
5,488
 
$
2.26
 
$
6,389
 

The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of $3.07 as of September 30, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options vested and exercisable as of September 30, 2006 was approximately 4.2 million. As of September 30, 2006, approximately 5.5 million outstanding options were vested and exercisable, and the weighted average exercise price was $2.26. The total intrinsic value of options exercised during the year ended September 30, 2006 was $1.8 million. The fair value of options vested was $5.0 million for the year ended September 30, 2006. As of September 30, 2006, total unrecognized compensation costs related to non-vested stock options was $4.2 million, which is expected to be recognized as expense over a weighted-average period of approximately 1.4 years.

We had 1.0 million unvested restricted stock awards as of September 30, 2006, which were excluded from the preceding tables. The total fair value of the unvested restricted stock awards at grant date was $2.4 million. The aggregate intrinsic value of the unvested restricted stock awards at September 30, 2006 was $3.1 million. During the year ended September 30, 2006, approximately 1.2 million shares vested related to restricted stock awards, respectively. There were approximately 0.3 million shares of restricted stock awarded during the year ended September 30, 2006. The weighted average fair value at grant date of the unvested restricted stock awards was $2.39 as of September 30, 2006. As of September 30, 2006, total unrecognized compensation costs related to unvested restricted stock awards was $0.9 million which is expected to be recognized as expense over a weighted average period of approximately one year.
 
We settle stock option exercises and restricted stock awards with newly issued common shares.
 
Valuation and Expense Information under SFAS 123(R)
 
On October 1, 2005, we adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors including employee stock options, restricted stock awards and employee stock purchases related to the ESPP based on estimated fair values. The following table summarizes stock-based compensation expense related to employee stock options and restricted stock awards for years ended September 30, 2006 and 2005, and nine months ended September 30, 2004, which was allocated as follows (in thousands):  


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

   
Year Ended September 30,
  
Nine Months
Ended
September 30,
2004
(under APB 25)
    
   
2006
(under SFAS
123(R))
  
2005
(under SFAS
123 /
APB 25)
      
       
(restated)(1)
  
(restated)(1)
    
 
Stock-based compensation expense:
 
 
 
 
 
    
 
Cost of revenues
$
248
 
$
690
 
$
85
 
  
 
Sales and marketing
 
2,327
 
 
986
 
 
44
    
 
Research and development
 
332
 
 
843
 
 
5
    
 
General and administrative
 
1,788
 
 
512
 
 
270
    
 
Total stock-based compensation expense
$
4,695
 
$
3,031
 
$
404
    

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

The table below reflects net loss and basic and diluted net loss per share as if the fair value recognition provision of SFAS 123 had been applied for the year ended September 30, 2005, and the nine months ended 2004 (in thousands except per-share amounts):

       
Year Ended
September 30,
2005
      
Nine Months
Ended September 30, 2004
  
       
(restated)(1)
      
(restated)(1)
  
 
Net loss
  
$
(19,865
)
  
$
(1,371
)
 
Add: Stock-based compensation included in reported net loss
    
3,031
      
404
  
 
Less: Stock-based compensation expense determined under fair value method
  
 
(5,988
)
  
 
(3,294
)
 
Net loss—pro forma
  
$
(22,822
)
  
$
(4,261
)
 
Basic and diluted net loss per share—as reported
  
$
(0.27
)
  
$
(0.02
)
 
Basic and diluted net loss per share—pro forma
  
$
(0.31
)
  
$
(0.06
)
 
Weighted average shares
  
 
74,449
 
  
 
69,761
 

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

Prior to the adoption of SFAS 123(R), the value of each employee stock option was estimated on the date of grant using the Black-Scholes model for the purpose of the pro forma financial disclosures in accordance with SFAS 123.  The weighted-average estimated fair value of stock options granted for the year ended September 30, 2006, 2005, and 2004 was $1.99, $1.19 and $2.27 per share, respectively, using the Black-Scholes model with the following weighted-average assumptions:
 
 
  
2006
  
2005
  
2004
  
 
Expected lives in years
 
3.9
 
  
 
2.6
 
  
 
2.6
 
  
 
Risk free interest rates
 
4.8
%
  
 
3.3
%
  
 
2.8
%
  
 
Volatility
 
88
%
  
 
98
%
  
 
85
%
  
 
Dividend yield
 
0
%
  
 
0
%
  
 
0
%
  

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model with the weighted-average assumptions for volatility, expected term, and risk free interest rate. With the adoption of SFAS 123(R) on October 1, 2005, we used the trinomial lattice valuation technique to determine the assumptions used in the Black-Scholes model. The trinomial lattice valuation technique was used to provide a better estimate of fair values and meet the fair value objectives of SFAS 123(R). The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

of grant. The expected volatility is based on the historical volatility of our stock price.. The estimated value of a stock option is most sensitive to the volatility assumption. Based on the September 30, 2006 variables, it is estimated that a change of 10% in either the volatility, expected life or interest rate assumption would result in a corresponding 7%, 4% or 1% change in the estimated value of the option being valued using the Black-Scholes model.
 
As stock-based compensation expense recognized in the consolidated statement of operations for the years ended September 30, 2006 and 2005 and nine months ended September 30, 2004 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Our estimated forfeiture rate for the year ended September 30, 2006 was based on our historical forfeiture experience. In the pro forma disclosures required under SFAS 123 for the period prior to fiscal 2006 including the year ended September 30, 2005 and 2004, we accounted for forfeitures as they occurred. For options granted prior to October 1, 2005 and valued in accordance with FAS 123, the expected life and expected volatility of the stock options were based upon historical data.
 
Accuracy of Fair Value Estimates
 
We use third-party analyses to assist in developing the assumptions based on a trinomial lattice valuation technique used in the Black-Scholes model. We are responsible for determining the assumptions used in estimating the fair value of share-based payment awards.
 
Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the Company’s employee stock options and restricted stock awards. Although the fair value of employee stock options and restricted stock awards is determined in accordance with SFAS 123(R) and SAB 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

401(k) Savings Plan
 
We sponsor a 401(k) Savings Plan (the “Plan”) for our full-time employees in the United States. Under the Plan, each participant may elect to contribute up to 15% of their pre-tax compensation. The Plan allows Chordiant to match up to 50% the employee contributions. Chordiant has matched up to 25% of the employee contributions, except for the period from April 2003 to April 2004 when Chordiant suspended its match. Employee contributions are fully vested, whereas vesting in Chordiant’s matching contributions occurs at a rate of 33.3% per year of employment. Our contributions to the 401(k) Plan totaled approximately $0.4 million, $0.4 million, and $0.1 million for the year ended September 30, 2006 and 2005 and nine months ended September 30, 2004, respectively.

Defined Contribution Plan
 
We also sponsor a defined contribution pension plan for the employees of our United Kingdom sales office. Under the pension plan, employees of the United Kingdom sales office may elect to contribute up to 15% of their pre-tax compensation. Our contributions to the pension plan are based on matching of employee contributions up to 5% and totaled approximately $0.5 million, $0.7 million, and $0.6 million for the year ended September 30, 2006 and 2005 and nine months ended September 30, 2004, respectively.

1999 Employee Stock Purchase Plan

The 1999 Employee Stock Purchase Plan (“ESPP”) was adopted by the Board of Directors and became effective on February 14, 2000, the date of our initial public offering. Eligible employees may have up to 15% of their earnings withheld to be used to purchase shares of our Common Stock at 85% of the lower of the fair market value of the Common Stock on the commencement date of each nine-month offering period or the specified purchase date. The amount reserved under the 1999 ESPP automatically increases on October 1st of each year by the greater of (1) 2% outstanding shares on such date or (2) the number of shares subject to stock awards made under this plan during the prior twelve month period. However, the automatic


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

increase is subject to reduction by the Board of Directors. Notwithstanding the foregoing, the aggregate number of shares that may be sold under the 1999 ESPP shall not exceed 13 million shares. There were no purchases of common stock under the ESPP for the year ended September 2006 and 2005, as the plan is currently suspended. As of September 30, 2006, approximately 3.6 millions shares are available for future issuances under this plan. In January 2007, the Board amended the 1999 ESPP to reduce the number of shares available for future issuance to 1,000,000.

NOTE 14—WARRANTS
 
On August 12, 2002, we entered into an agreement with IBM to market our products and services to customers. We issued a fully vested and exercisable warrant to purchase up to 0.2 million shares of common stock. The exercise price was set at $2.25 per share. The warrant was valued at $0.1 million based on the Black-Scholes model using the following assumptions: volatility: 105%, risk-free interest rate: 3.22% and fair market value of our common stock at the grant date: $0.84. The value of the warrant was recorded as a prepaid expense and was offset against revenue during 2003 upon the completion of an IBM revenue generating transaction. On September 20, 2006, IBM exercised the warrants in a cashless transaction resulting in 48,075 of Chordiant shares being issued to IBM.
 
In September 2001, we issued a warrant to Accenture plc to purchase up to 0.6 million shares of common stock at $7.05 per share. The warrants expired on September 4, 2006.

In conjunction with the Prime Response, Inc. acquisition in 2001, we assumed warrants to purchase up to 1.0 million shares of common stock issued to Accenture plc and General Atlantic Partners. The warrants were included as part of the purchase price of Prime Response, Inc. at the date of acquisition. These warrants expired in December 2006.

NOTE 15—SEGMENT INFORMATION
 
Our chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by desegregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. Accordingly, we have concluded that we have one reportable segment.
 
The following table summarizes license revenues by product emphasis (in thousands):

 
 
Year ended September 30
  
Nine months
ended
September 30,
2004
  
 
  
2006
  
2005
 
  
 
License revenue  
            
 
Enterprise solutions 
$
30,351
 
$
24,587
 
$
19,807
  
 
Marketing solutions  
 
6,396
 
 
2,450
 
 
3,854
  
 
Decision management solutions 
  
3,767
    
4,641
    
—
  
 
Total
$
40,514
 
$
31,678
 
$
23,661
  

The following table summarizes service revenues by product emphasis consisting of consulting assistance and implementation, customization and integration, training, certain reimbursable out-of-pocket expense and post-contract customer support (in thousands):

 
 
Year ended September 30
 
Nine months
ended
September 30,
2004
  
 
  
2006
 
2005
 
  
 
Service Revenue  
            
 
Enterprise solutions 
$
39,911
 
$
40,441
 
$
29,322
  
 
Marketing solutions  
 
12,996
 
 
9,680
 
 
8,040
  
 
Decision management solutions 
  
4,115
    
1,926
    
—
  
 
Total
$
57,022
 
$
52,047
 
$
37,362
  



CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

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

 
 
Year ended September 30,
 
Nine months
ended
September 30,
2004
  
 
 
2006
 
2005
 
  
               
 
North America
$
60,008
 
$
41,697
 
$
29,016
  
 
Europe 
 
37,528
 
 
41,939
 
 
31,927
  
 
Rest of World
  
—
    
89
    
80
  
 
Total
$
97,536
 
$
83,725
 
$
61,023
  

Contained within the results for Europe are revenues from the United Kingdom of $16.1 million, $22.5 million, and $31.9 million for the years ended September 30, 2006 and 2005, and the nine months ended September 30, 2004.

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 (in thousands):
 
 
 
September 30,
  
 
 
2006
 
2005
 
2004
  
               
 
North America
$
1,844
 
$
1,579
 
$
2,034
  
 
Europe 
 
786
 
 
900
 
 
1,203
  
 
Total
$
2,630
 
$
2,479
 
$
3,237
  

NOTE 16—SUBSEQUENT EVENTS

Delinquent SEC Filings

Subsequent to September 30, 2006, the Company failed to file certain required reports with the SEC on a timely basis. As a result, the NASDAQ Listing Qualifications Department notified us that we were not in compliance with the requirements of NASDAQ Marketplace Rule 431(c)(14) and began delisting proceedings. We appealed this delisting proceeding and received a written notification from the staff of The NASDAQ Stock Market stating that the NASDAQ Listing Qualifications Panel has granted the Company’s request for continued listing on the NASDAQ Stock Market, subject to the condition that the Company shall file its Form 10-Q for the quarter ended June 30, 2006, and any required restatements and its Form 10-K for the fiscal year ended September 30, 2006 and any required restatements, by February 12, 2007.

Status of SEC Review

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

Company Reorganization

On October 25, 2006, the Company initiated a restructuring plan intended to align its resources and cost structure with expected future revenues. The restructuring plan included a balancing of services resources worldwide, an elimination of duplicative functions internationally, and a shift in the U.S. field organization toward a focus on domain-based sales and pre-sales teams.

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


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The Company estimates that it will record pre-tax cash restructuring charges, in the first quarter of fiscal year 2007 of approximately $6.0 million to $7.0 million in the aggregate, consisting of approximately $1.9 to $2.1 million for severance costs, between $4.0 million to $4.8 million for exiting excess facilities, and $0.1 million for other charges. The facilities are subject to operating leases expiring thru 2010. Included in the excess facilities charge of $4.8 million is an estimated offset of $0.4 million for sublease rental income. As of January 2007, the Company has not yet identified a sublease tenant for the facility. As part of consolidating excess facilities, the Company entered into a new lease in the United Kingdom for a 5 year term with expected lease payments of $1.8 million over the life of the lease. The Company anticipates that between $5.2 million to $6.2 million of the aggregate restructuring charge will result in cash expenditures of which the majority will be severance paid in cash during the second quarter of fiscal year 2007.

Departure of Chairman of the Board

On November 30, 2006, the Company’s Board of Directors accepted the resignation of Samuel Spadafora, as Chairman of the Board and his retirement as the Chief Strategy Officer of the Company. The Board of Directors appointed Steven R. Springsteel, the Company's President and Chief Executive Officer, as the Chairman of the Board.

Reverse Stock Split

On December 13, 2006, the Company announced that the Board of Directors had approved a reverse stock split of common stock such that each outstanding two and a half shares of common stock would be combined into and become one share and that it will seek stockholder approval of the reverse stock split at a special meeting of stockholders on February 15, 2007.


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

NOTE 17—QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share data)
 
The following tables set forth a summary of the Company’s quarterly financial information for each of the four quarters ended September 30, 2006 and 2005 (in thousands, except per share data):

Year ended September 30, 2006:

 
Quarter -Ended
  
 
September 30,
2006
  
June 30,
2006
  
March 31,
2006
  
December 31,
2005
  
                   
(Restated)(1)
      
(Restated)(1)
    
Revenues:
                                
License
$
7,925
    
$
10,257
    
$
13,206
    
$
9,126
    
Service
  
13,754
      
16,769
      
13,067
      
13,432
    
Total revenues
  
21,679
      
27,026
      
26,273
      
22,558
    
Cost of net revenues:
                                
License
  
331
      
398
      
518
      
443
    
Service (2)
  
7,349
      
8,965
      
7,867
      
6,385
    
Amortization of intangible assets
  
302
      
303
      
303
      
303
    
Cost of revenues
 
7,982
      
9,666
      
8,688
      
7,131
    
Gross profit
 
13,697
      
17,360
      
17,585
      
15,427
    
Operating expenses:
                                
Sales and marketing (2)
  
8,739
      
7,976
      
8,761
      
8,140
    
Research and development (2)
  
7,699
      
7,780
      
5,862
      
4,517
    
General and administrative (2)
  
5,640
      
4,842
      
5,244
      
4,719
    
Total operating expense
  
22,078
      
20,598
      
19,867
      
17,376
    
Loss from operations
  
(8,381
)
    
(3,238
)
    
(2,282
)
    
(1,949
)
  
Interest income, net
  
311
      
329
      
281
      
199
    
Other income (expense), net
  
(91
)
    
(623
)
    
(31
)
    
118
    
Net loss before income taxes
  
(8,161
)
    
(3,532
)
  
 
(2,032
)
    
(1,632
)
  
Provision for income taxes
  
203
      
150
      
170
      
121
    
Net loss
$
(8,364
)
  
$
(3,682
)
  
$
(2,202
)
  
$
(1,753
)
  
Net loss per share—basic and diluted
$
(0.11
)
  
$
(0.05
)
  
$
(0.03
)
  
$
(0.02
)
  
Weighted average shares used in computing basic and diluted net loss per share
  
78,669
      
78,035
      
77,228
      
76,824
    

(1)-See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
72
    
$
92
    
$
58
    
$
26
    
Sales and marketing
  
421
      
571
      
613
      
722
    
Research and development
  
80
      
124
      
69
      
59
    
General and administrative
  
430
      
669
      
396
      
293
    
Total stock-based compensation expense
$
1,003
    
$
1,456
    
$
1,136
    
$
1,100
    



CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Year ended September 30, 2005:

 
Quarter -Ended
  
 
September 30,
2005
  
June 30,
2005
  
March 31,
2005
  
December 31,
2004
  
   
(Restated)(1)
      
(Restated)(1)
      
(Restated)(1)
      
(Restated)(1)
    
Revenues:
                                
License
$
6,649
    
$
9,228
    
$
6,959
    
$
8,842
    
Service
  
14,607
      
12,393
      
12,212
      
12,835
    
Total revenues
  
21,256
      
21,621
      
19,171
      
21,677
    
Cost of net revenues:
                                
License
  
377
      
338
      
198
      
166
    
Service (2)
  
7,698
      
7,312
      
7,622
      
7,523
    
Amortization of intangible assets
  
303
      
303
      
331
      
131
    
Cost of revenues
 
8,378
      
7,953
      
8,151
      
7,820
    
Gross profit
 
12,878
      
13,668
      
11,020
      
13,857
    
Operating expenses:
                                
Sales and marketing (2)
  
7,882
      
7,274
      
7,179
      
7,226
    
Research and development (2)
  
4,670
      
5,422
      
5,312
      
4,868
    
General and administrative (2)
  
4,742
      
4,677
      
5,197
      
3,933
    
Amortization of intangible assets
  
—
      
—
      
93
      
24
    
Restructuring expense
  
1,149
      
—
      
26
      
(123
)
  
Purchased in-process research and development
  
—
      
—
      
—
      
1,940
    
Total operating expense
  
18,443
      
17,373
      
17,807
      
17,868
    
Loss from operations
  
(5,565
)
    
(3,705
)
    
(6,787
)
    
(4,011
)
  
Interest income, net
  
216
      
147
      
182
      
210
    
Other income (expense), net
  
(58
)
    
186
      
166
      
(397
)
  
Net loss before income taxes
  
(5,407
)
    
(3,372
)
  
 
(6,439
)
    
(4,198
)
  
Provision for income taxes
  
156
      
138
      
75
      
80
    
Net loss
$
(5,563
)
  
$
(3,510
)
  
$
(6,514
)
  
$
(4,278
)
  
Net loss per share—basic and diluted
$
(0.07
)
  
$
(0.05
)
  
$
(0.09
)
  
$
(0.06
)
  
Weighted average shares used in computing basic and diluted net loss per share
  
77,886
      
75,080
      
74,745
      
72,223
    

(1)-See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
222
    
$
176
    
$
273
    
$
19
    
Sales and marketing
  
460
      
222
      
300
      
10
    
Research and development
  
274
      
227
      
330
      
3
    
General and administrative
  
215
      
114
      
166
      
20
    
Total stock-based compensation expense
$
1,171
    
$
739
    
$
1,069
    
$
52
    


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The following tables present the effects of adjustments made to the Company’s previously reported quarterly financial information as of September 30, 2006:

   
Three Months Ended March 31, 2006
  
Three Months Ended December 31, 2005
   
As
Reported
      
Adjustment
(1)
      
Restated
      
As
Reported
      
Adjustment
(1)
      
Restated
  
Revenues:
                                              
License
$
13,206
    
$
—
    
$
13,206
    
$
9,126
    
$
—
    
$
9,126
  
Service
  
13,067
      
—
      
13,067
      
13,432
      
—
      
13,432
  
Total revenues
  
26,273
      
—
      
26,273
      
22,558
      
—
      
22,558
  
Cost of net revenues:
                                              
License
  
518
      
—
      
518
      
443
      
—
      
443
  
Service (2)
  
7,864
      
3
      
7,867
      
6,384
      
1
      
6,385
  
Amortization of intangible assets
  
303
      
—
      
303
      
303
      
—
      
303
  
Cost of revenues
 
8,685
    
 
3
    
 
8,688
    
 
7,130
    
 
1
    
 
7,131
  
Gross profit
 
17,588
      
(3
)
    
17,585
      
15,428
      
(1
)
    
15,427
  
Operating expenses:
                                              
Sales and marketing (2)
  
8,732
      
29
      
8,761
      
8,104
      
36
      
8,140
  
Research and development (2)
  
5,859
      
3
      
5,862
      
4,514
      
3
      
4,517
  
General and administrative (2)
  
5,225
      
19
      
5,244
      
4,704
      
15
      
4,719
  
Total operating expense
  
19,816
      
51
      
19,867
      
17,322
      
54
      
17,376
  
Loss from operations
  
(2,228
)
    
(54
)
    
(2,282
)
    
(1,894
)
    
(55
)
    
(1,949
)
Interest income, net
  
281
      
—
      
281
      
199
      
—
      
199
  
Other income (expense), net
  
(31
)
    
—
      
(31
)
    
118
      
—
      
118
  
Net loss before income taxes
  
(1,978
)
    
(54
)
    
(2,032
)
    
(1,577
)
    
(55
)
    
(1,632
)
Provision for income taxes
  
170
      
—
      
170
      
121
      
—
      
121
  
Net loss
$
(2,148
)
  
$
(54
)
  
$
(2,202
)
  
$
(1,698
)
  
$
(55
)
  
$
(1,753
)
Net loss per share—basic and diluted
$
(0.03
)
  
$
—
    
$
(0.03
)
  
$
(0.02
)
  
$
—
   
$
(0.02
)
Weighted average shares used in computing basic and diluted net loss per share
  
77,228
      
—
      
77,228
      
76,824
      
—
      
76,824
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
56
    
$
2
    
$
58
    
$
25
    
$
1
    
$
26
  
Sales and marketing
  
593
      
20
      
613
      
693
      
29
      
722
  
Research and development
  
67
      
2
      
69
      
57
      
2
      
59
  
General and administrative
  
383
      
13
      
396
      
281
      
12
      
293
  
Total stock-based compensation expense
$
1,099
    
$
37
    
$
1,136
    
$
1,056
    
$
44
    
$
1,100
  


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The following tables present the effects of adjustments made to the Company’s previously reported quarterly financial information as of September 30, 2005:

   
Three Months Ended September 30, 2005
  
Three Months Ended June 30, 2005
   
As
Reported
      
Adjustment
(1)
      
Restated
      
As
Reported
      
Adjustment
(1)
      
Restated
  
Revenues:
                                              
License
$
6,649
    
$
—
    
$
6,649
    
$
9,228
    
$
—
    
$
9,228
  
Service
  
14,607
      
—
      
14,607
      
12,393
      
—
      
12,393
  
Total revenues
  
21,256
      
—
      
21,256
    
$
21,621
      
—
      
21,621
  
Cost of net revenues:
                                              
License
  
377
      
—
      
377
      
337
      
—
      
337
  
Service (2)
  
7,677
      
21
      
7,698
      
7,300
      
11
      
7,311
  
Amortization of intangible assets
  
303
      
—
      
303
      
303
      
—
      
303
  
Cost of revenues
 
8,357
    
 
21
    
 
8,378
    
 
7,940
    
 
11
    
 
7,951
  
Gross profit
 
12,899
    
 
(21
)
  
 
12,878
    
 
13,681
    
 
(11
)
  
 
13,670
  
Operating expenses:
                                              
Sales and marketing (2)
  
7,838
      
44
      
7,882
      
7,262
      
13
      
7,275
  
Research and development (2)
  
4,644
      
26
      
4,670
      
5,408
      
13
      
5,421
  
General and administrative (2)
  
4,722
      
20
      
4,742
      
4,672
      
7
      
4,679
  
Amortization of intangible assets
  
—
      
—
      
—
      
—
      
—
      
—
  
Restructuring expense
  
1,149
      
—
      
1,149
      
—
      
—
      
—
  
Purchased in-process research and development
  
—
      
—
      
—
      
—
      
—
      
—
  
Total operating expense
  
18,353
      
90
      
18,443
      
17,342
      
33
      
17,375
  
Loss from operations
  
(5,454
)
    
(111
)
    
(5,565
)
    
(3,661
)
    
(44
)
    
(3,705
)
Interest income, net
  
216
      
—
      
216
      
147
      
—
      
147
  
Other income (expense), net
  
(58
)
    
—
      
(58
)
    
186
      
—
      
186
  
Net loss before income taxes
  
(5,296
)
    
(111
)
    
(5,407
)
    
(3,328
)
    
(44
)
    
(3,372
)
Provision for income taxes
  
156
      
—
      
156
      
138
              
138
  
Net loss
$
(5,452
)
  
$
(111
)
  
$
(5,563
)
  
$
(3,466
)
  
$
(44
)
  
$
(3,510
)
Net loss per share—basic and diluted
$
(0.07
)
  
$
—
    
$
(0.07
)
  
$
(0.05
)
  
$
—
    
$
(0.05
)
Weighted average shares used in computing basic and diluted net loss per share
  
77,886
      
—
      
77,886
      
75,080
      
—
      
75,080
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
225
    
$
(3
)
  
$
222
    
$
166
    
$
10
    
$
176
  
Sales and marketing
  
466
      
(6
)
    
460
      
210
      
12
      
222
  
Research and development
  
278
      
(4
)
    
274
      
215
      
12
      
227
  
General and administrative
  
218
      
(3
)
    
215
      
108
      
6
      
114
  
Total stock-based compensation expense
$
1,187
    
$
(16
)
  
$
1,171
    
$
699
    
$
40
    
$
739
  


CHORDIANT SOFTWARE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

   
Three Months Ended March 31, 2005
  
Three Months Ended December 31, 2004
   
As
Reported
      
Adjustment
(1)
      
Restated
      
As
Reported
      
Adjustment
(1)
      
Restated
  
Revenues:
                                              
License
$
6,959
    
$
—
    
$
6,959
    
$
8,842
    
$
—
    
$
8,842
  
Service
  
12,212
      
—
      
12,212
      
12,835
      
—
      
12,835
  
Total revenues
  
19,171
      
—
      
19,171
    
$
21,677
      
—
      
21,677
  
Cost of net revenues:
                                              
License
  
198
      
—
      
198
      
166
      
—
      
166
  
Service (2)
  
7,601
      
21
      
7,622
      
7,492
      
31
      
7,523
  
Amortization of intangible assets
  
331
      
—
      
331
      
131
      
—
      
131
  
Cost of revenues
 
8,130
    
 
21
    
 
8,151
    
 
7,789
    
 
31
    
 
7,820
  
Gross profit
 
11,041
    
 
(21
)
  
 
11,020
    
 
13,888
    
 
(31
)
  
 
13,857
  
Operating expenses:
                                              
Sales and marketing (2)
  
7,155
      
24
      
7,179
      
7,209
      
17
      
7,226
  
Research and development (2)
  
5,286
      
26
      
5,312
      
4,863
      
5
      
4,868
  
General and administrative (2)
  
5,184
      
13
      
5,197
      
3,900
      
33
      
3,933
  
Amortization of intangible assets
  
93
      
—
      
93
      
24
      
—
      
24
  
Restructuring expense
  
26
      
—
      
26
      
(123
)
    
—
      
(123
)
Purchased in-process research and development
  
—
      
—
      
—
      
1,940
      
—
      
1,940
  
Total operating expense
  
17,744
      
63
      
17,807
      
17,813
      
55
      
17,868
  
Loss from operations
  
(6,703
)
    
(84
)
    
(6,787
)
    
(3,925
)
    
(86
)
    
(4,011
)
Interest income, net
  
182
      
—
      
182
      
210
      
—
      
210
  
Other income (expense), net
  
166
      
—
      
166
      
(397
)
    
—
      
(397
)
Net loss before income taxes
  
(6,355
)
    
(84
)
    
(6,439
)
    
(4,112
)
    
(86
)
    
(4,198
)
Provision for income taxes
  
75
      
—
      
75
      
80
      
—
      
80
  
Net loss
$
(6,430
)
  
$
(84
)
  
$
(6,514
)
  
$
(4,192
)
  
$
(86
)
  
$
(4,278
)
Net loss per share—basic and diluted
$
(0.09
)
  
$
—
    
$
(0.09
)
  
$
(0.06
)
  
$
—
    
$
(0.06
)
Weighted average shares used in computing basic and diluted net loss per share
  
74,745
      
—
      
74,745
      
72,223
      
—
      
72,223
  

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments

(2)-Includes stock-based compensation expense, which was allocated as follows:
Cost of revenues
$
253
    
$
20
    
$
273
    
$
(11
)
  
$
30
    
$
19
  
Sales and marketing
  
277
      
23
      
300
      
(6
)
    
16
      
10
  
Research and development
  
305
      
25
      
330
      
(2
)
    
5
      
3
  
General and administrative
  
154
      
12
      
166
      
(12
)
    
32
      
20
  
Total stock-based compensation expense
$
989
    
$
80
    
$
1,069
    
$
(31
)
  
$
83
    
$
52
  




ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
 

Background Findings and Restatement

As discussed in the Explanatory Note preceding Part 1, Item 1 and Note 3 in the Notes to the Consolidated Financial Statements of this Form 10-K, the Company is restating certain of its previously filed financial statements.

In July 2006, the Company’s Board of Directors initiated a review of the Company’s historical stock option grant practices and appointed the Audit Committee to oversee the investigation. The Audit Committee’s review focused on processes used to establish the option exercise prices and to obtain required approvals of stock option grants and the related measurement dates used for financial reporting purposes. The Audit Committee and its advisors reviewed the Company’s historical stock option grants and related accounting including an assessment and review of the Company’s accounting policies, internal records, supporting documentation and email communications, as well as interviews with current and former employees and current and former members of the Company’s executive management and Board of Directors.

Although the Audit Committee did not find sufficient evidence to definitively support a conclusion that anyone acted with the requisite intent to commit an illegal act or an act of fraud, based on review of the facts surrounding stock option grants to officers, directors and employees during the Review Period, we have determined that the measurement dates used in the accounting for certain stock options granted during the Review Period required correction. The Audit Committee found:

·  
There was a lack of oversight in the issuance and administration of the Company’s stock options.
·  
There was poor record keeping in connection with the authorization and issuance of stock options.
·  
Stock options were granted for which the Company can not provide evidence of authorization consistent with the terms of the applicable option plan and Board of Directors resolutions.
·  
In some cases, the Company issued stock options having exercise prices that were not consistent with the requirements of the applicable option plan.
·  
There is evidence to suggest that in some cases the dates used to establish the exercise prices for certain options were intentionally and selectively chosen based on dates on which the closing prices of the Company’s stock were lower than on the dates on which the options may have been actually granted.
·  
There is inconclusive evidence that on one occasion in 2002, a former employee changed the date on documentation relating to the exercise of a stock option by means of a promissory note to reflect an earlier exercise date. There is also inconclusive evidence that certain other option exercises in 2001 by means of promissory notes may have been memorialized with dates preceding the actual exercise dates.
·  
With respect to certain individuals, there was insufficient evidence to support a definitive conclusion that they appreciated the accounting or disclosure issues associated with the Company’s stock option practices, or knowingly participated in actions intended to mislead or deceive the Company’s auditors.


Evaluation of Disclosure Controls and Procedures
 
We conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (Disclosure Controls) as of September 30, 2006, the end of the period covered by this Form 10-K. The controls evaluation was conducted under the supervision and with the participation of management, including our CEO and CFO. Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (SEC’s) rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our quarterly evaluation of Disclosure Controls includes an evaluation of some components of our internal control over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis for purposes of providing the management report which is set forth below.

The evaluation of our Disclosure Controls included a review of the controls’ objectives and design, the company’s implementation of the controls and the effect of the controls on the information generated for use in this Form 10-K. In the course of the controls evaluation, we sought to identify any past instances of data errors, control problems or acts of fraud and sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning the effectiveness of the Disclosure Controls can be reported in our periodic reports on Form 10-Q and Form 10-K. Many of the components of our


Disclosure Controls are also evaluated on an ongoing basis by our finance organization. The goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Our intent is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.

Based upon the controls evaluation, our CEO and CFO have concluded that as of September 30, 2006, the end of the period covered by this Form 10-K, our Disclosure Controls were not effective due to the material weaknesses described in Management’s Report on Internal Control Over Financial Reporting below.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2006 based on the guidelines established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with established policies or procedures may deteriorate.

A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. In connection with the Company’s assessment of the effectiveness of internal control over financial reporting, the Company has identified the following material weaknesses that existed as of September 30, 2006:
 
Control activities relating to stock option grants:

In connection with the restatement discussed above, we recorded $8.3 million of additional pre-tax non-cash stock based compensation expense and associated withholding tax exposure related to stock option grants that occurred in the fiscal periods 2000 thru 2006. The Company did not maintain effective control over the granting of stock options and its accounting for its non-cash stock-based compensation and related financial statement disclosures, since the method by which the Company originally valued certain common stock and amortized deferred stock-based compensation for such common stock were determined to be incorrect. Our current management has determined that a majority of the control deficiency relates to the finalization of granting stock options. This control deficiency resulted in adjustments to the Company’s fiscal year 2006 annual and interim financial statements. Further, this control deficiency could result in material misstatements to the Company’s annual or interim financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

Control activities relating to the training of the sales force and the communication of issues impacting revenue recognition to the finance department

In conjunction with a license transaction consummated during the year ended September 30, 2006, management became aware of a verbal agreement relating to the provision of professional services that was communicated to a customer via a member of the sales organization. The financial statement impact of this verbal arrangement was determined to be not material to the financial statements at September 30, 2006 and was deemed to be isolated in nature; however, it indicated a need to improve the level of training that the sales staff should receive to ensure that the sales staff fully understand that verbal arrangements are strictly prohibited by Company policy and that any contract addendums should be communicated to the finance department. As a result, the Company determined that it did not maintain effective control over the training of the sales force and the communication of issues impacting revenue recognition to the finance department. This control deficiency did not result in adjustments to the Company’s fiscal year 2006 annual or interim financial statements. However, this control deficiency could result in material misstatements to the Company’s annual or interim financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

Changes in Internal Control over Financial Reporting:

As of the date of this filing, in response to the identification of the material weakness relating to stock options described above, management has initiated the following corrective actions:



·  
The Company has hired a dedicated Stock Plan Administrator with nine years of experience in managing stock option programs and who is a Certified Equity Professional. The Company has given first level responsibility for option administration to this Stock Plan Administrator who reports to the Vice President and Corporate Treasurer.
 
·  
As a further safeguard against selective dating or granting of stock options, the Board, at its August 2, 2006 meeting, directed that (i) all future stock option grants to officers had to be granted only on the third trading day after the quarterly release of earnings and (ii) that all options to non-officers had to be granted effective on the first trading day of a month where the authorization for the grant took place on or before that date.
 
·  
The Compensation Committee is provided a report on the same date that the Chief Executive Officer, pursuant to the delegated authority, grants to any employee any equity awards, which report includes the optionee’s name, size of award and exercise price.

·  
Steps have been taken to ensure that grant authorizations be documented and retained.

·  
Limitations have been placed on the use of unanimous written consents for option grants.

·  
Procedures have been improved to ensure that option grants conform to the requirements of the applicable equity plans.

·  
Training will be provided for those involved in the process on accounting issues.

As of the date of this filing, in part in response to the identification of the material weakness relating to the training of the sales force and the communication of issues described above, management has initiated the following corrective actions:

·  
Mandatory training covering the relevant issues will be provided for the sales department staff.

·  
In conjunction with the September 30, 2006 financial statements, upon the identification of the verbal agreement, updated written representations were obtained from the sales staff relating to the complete communication of details to the finance department.

·  
The professional services organization no longer reports to a sales executive, but rather directly to the CEO.

·  
The executive responsible for the professional services organization is now responsible for approving the terms of any professional services provided to customers.

Changes in Internal Control over Financial Reporting - Remediation of Material Weaknesses Identified in 2005

Our Form 10-K for the year ended September 30, 2005 identified three material weaknesses which have since been remediated. The material weakness related to the stock option grants discussed above also existed at September 30, 2005 and was not yet fully remediated at September 30, 2006. The design and operating effectiveness of the controls implemented were tested and determined to be effective, and management has concluded that these material weaknesses were remediated as of September 30, 2006. These items were as follows:

Stock-based Compensation - This issue related to the amortization method used to calculate expense associated with certain shares of restricted stock associated with an acquisition that was consummated in December of 2004. Our remediation during 2006 focused on a process to consistently account for these shares of stock in conformity with the accounting policies established by the Company in the past.

Statement of Cash Flows - Our remediation during 2006 focused on the implementation of a review process to identify the proper classification of items and ensure that such items were properly reflected in the consolidated statements of cash flows in accordance with generally accepted accounting principles.

Staffing Levels in the Finance Department - During 2006 the Company has improved the staffing of its finance department through external hiring and the conversion of certain consultants to full time employee status. A majority of these new employees have now been with the Company for several consecutive quarters and achieved efficiencies in their areas of responsibility.

Based on the results of this evaluation, our management has concluded that our internal control over financial reporting was not effective as of September 30, 2006 due to the material weaknesses relating to stock options and the training and communication issues with the sales staff. We reviewed the results of management’s assessment with the Audit Committee of Chordiant’s Board of Directors.


 
BDO Seidman, LLP, our independent registered public accounting firm, audited management’s assessment and independently assessed the effectiveness of our internal control over financial reporting as of September 30, 2006. BDO Seidman, LLP has issued an attestation report on management’s assessment, which is included in Item 9A of this Annual Report on Form 10-K.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To The Board of Directors and Stockholders of Chordiant Software, Inc.:
 
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Chordiant Software, Inc. did not maintain effective internal control over financial reporting as of September 30, 2006, because of the effects of the material weakness identified in management’s assessment, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Chordiant Software, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment.

·  
In connection with the restatement of the Company’s consolidated financial statements, the Company recorded $8.3 million of additional pre-tax non-cash stock based compensations expense and associated withholding tax exposure related to stock option grants that occurred in the fiscal periods 2000 thru 2006. The Company did not maintain effective control over the granting of stock options and its accounting for its non-cash stock-based compensation and related financial statement disclosures, since the method by which the Company originally valued certain common stock and amortized deferred stock-based compensation for such common stock were determined to be incorrect. The Company’s current management has determined that a majority of the control deficiency relates to the finalization of granting stock options. This control deficiency resulted in adjustments to the Company’s fiscal year 2006 annual and interim financial statements. Further, this control deficiency could result in material misstatements to the Company’s annual or interim financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

·  
In conjunction with a license transaction consummated during the year ended September 30, 2006, management became aware of a verbal agreement relating to the provision of professional services that was communicated to a customer via a member of the sales organization. The financial statement impact of this verbal arrangement was determined to be not material to the financial statements at September 30, 2006 and was deemed to be isolated in nature; however, it indicated a need to improve the level of training that the sales staff should receive to ensure that the sales staff fully understand that verbal arrangements are strictly prohibited by Company policy and that any contract addendums should be communicated to the finance department. As a result, the Company determined that it did not maintain effective control over the training of the sales force and the communication of issues impacting revenue recognition to the finance department. This control deficiency did not result in adjustments to the Company’s fiscal year 2006 annual or interim financial statements. However, this control deficiency could result in material misstatements to the Company’s annual or interim financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.



These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of Chordiant Software, Inc.’s consolidated financial statements as of and for the year ended September 30, 2006, and this report does not affect our report dated February 9, 2007 on those financial statements.
 
In our opinion, management’s assessment that Chordiant Software, Inc. did not maintain effective internal control over financial reporting as of September 30, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, because of the effects of the material weaknesses described above on the achievement of the objectives of the control criteria, Chordiant Software, Inc. has not maintained effective internal control over financial reporting as of September 30, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We do not express an opinion or any other form of assurance on management’s statements regarding corrective action taken by the Company after September 30, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Chordiant Software, Inc. as of September 30, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years then ended, and our report dated February 9, 2007 expressed an unqualified opinion thereon.
 
/s/ BDO Seidman, LLP
 
San Jose, California
February 9, 2007




ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our current directors and executive officers and the positions held by them are as follows:
 
Name
  
Age
  
Position
         
Steven R. Springsteel
  
49
  
Chairman of the Board, President, and Chief Executive Officer
         
Peter S. Norman
  
49
  
Vice President, Chief Financial Officer and Principal Accounting Officer
         
Derek P. Witte
  
50
  
Vice President, General Counsel, Secretary and Chief Compliance Officer
         
James D. St. Jean
  
40
  
Vice President of Worldwide Engineering
 
      
 
Frank J. Florence
  
53
  
Chief Marketing Officer
         
Prashant K. (PK) Karnik
  
51
  
Vice President and General Manager, Professional Services
         
William J. Raduchel, Ph.D.
  
60
  
Director
         
Charles E. Hoffman
  
58
  
Director
 
      
 
David R. Springett, Ph.D.
  
71
  
Director
 
      
 
Richard G. Stevens
  
60
  
Director
 
      
 
David A. Weymouth
  
51
  
Director

Steven R. Springsteel, age 49, has been a director of ours since January 2004 and has been the chairman of the board of directors since November 30, 2006. He has been our president and chief executive officer since February 2006. From January 2003 to September 2005, he served as senior vice president of finance and administration and chief financial officer of Verity, Inc., a public intellectual capital management software company, and from September 2005 to December 2005, its president and chief financial officer, at which point Verity was purchased by Autonomy Corporation, plc. From November 2001 to January 2003, Mr. Springsteel served as the chief operating officer and chief financial officer of Sagent Technology, Inc., a public business intelligence software company, whose assets were acquired by Group 1 Software, Inc. in 2003. From October 2000 to November 2001, Mr. Springsteel served as the chief operating officer and chief financial officer of NOCpulse, a software company (subsequently sold to Red Hat). From November 1996 to October 2000, Mr. Springsteel served as our executive vice president and chief financial officer. Mr. Springsteel holds a Bachelor of Arts degree in Business Administration from Cleveland State University.

Peter S. Norman, age 49, has served as our vice president and, chief financial officer and principal accounting officer since March 2006. From March 2005 to March 2006, he served as our vice president and corporate controller. From August 2004 to March 2005 he served as our director of finance. Prior to joining Chordiant, Mr. Norman spent twelve years in the audit practice of KPMG Peat Marwick LLP most recently as a senior manager. He also served in several senior financial and operational positions with several private companies. Mr. Norman holds a Bachelor of Science Degree, cum laude, from Humboldt State University with a major in accounting. He is a Certified Public Accountant (CPA), a member of the American Institute of Certified Public Accountants, and a member of the California State Society of Certified Public Accountants.

Derek P. Witte, age 50, has served as our vice president, general counsel, secretary and chief compliance officer since November 2005. From February, 2003 to November, 2005, Mr. Witte served as general counsel and secretary for the Silicon Valley Bank and its holding company, SVB Financial Group, a financial services company. From March, 2001 until June, 2002, Mr. Witte served as vice president and general counsel for Tellme Networks, a privately-held voice recognition software company. From 1990 until 2001, Mr. Witte was with Symantec Corporation, first as their general counsel and later as their senior vice president of worldwide operations. Prior to his corporate technology experience, Mr. Witte practiced law with Heller Ehrman White & McAuliffe in Palo Alto, California and Brobeck, Phleger & Harrison, in San Francisco. Mr. Witte earned a bachelor’s degree with honors in economics from the University of California, Berkeley and a law degree from the University’s School of Law (Boalt Hall).

James D. St. Jean, age 40, has served as our vice president of worldwide engineering since July 2005 and has been an employee of ours since 2000 when we acquired White Spider, a knowledge management solutions company he founded. From 2000 to July 2005, Mr. St. Jean served in several management positions, including vice president of applications and vice


president of design and architecture. From 1997 to 1999, he was vice president and chief architect of Vantive Corporation, a public customer relationship management company. Prior to that, he was one of the founders of Innovative Computer Concepts (ICC), a field service management solutions company. At ICC he served in several management positions including director of development and vice president of development. ICC was acquired by Vantive in 1997. Before that time, Mr. St. Jean served in various development, development management and project management roles with Raytheon Corporation and Lockheed Corporation. Mr. St. Jean holds a Bachelor of Science degree in Computer Science from the University of New Hampshire.

Frank J. Florence, age 53, has served as our chief marketing officer since May 2006. From 2003 to 2006, he served as senior vice president, marketing and corporate development, for Dorado Corporation, a solution provider for the mortgage industry. From 2002 to 2003, he served as senior vice president, marketing, for InStranet, a sales, marketing and service application provider. From 2000 to 2002, he served in several management positions for Interwoven, a public enterprise content management company, including senior vice president, business units, corporate development and vice president and general manager. From 1997 to 2000, he served as president and chief executive officer of SmartDB, an ERP integration software platform company. Mr. Florence earned a bachelor of arts (summa cum laude) and a masters of business administration from the University of Santa Clara, California.

Prashant K. (PK) Karnik, age 51, has served as our vice president and general manager, professional services, since August 2006. From 2005 to 2006, he served as the senior vice president of professional services Dorado, a solution provider for the mortgage industry. From 2003 to 2005, he served as the chief executive officer of Datanautics (formerly Accrue Software), a global web analytics company.  From 2001 to 2003, he served as the chief operating officer of Accrue Software, a global web analytics company. From 1999 to 2001, he served as the vice president of professional services at Aspect Communications, a major CRM vendor. For over a decade prior to that, he held senior management positions within Hewlett Packard’s global services organization. PK has a Bachelor’s Degree in Mechanical Engineering from NIT India, a MS in Industrial Engineering from Rutgers University and a masters of business administration from Southern New Hampshire University.

William J. Raduchel, Ph.D. age 60, has been a director of ours since February 2003, and previously served as a director of ours between August 1998 and May 2001. Since February 2005, he has served as a director of Blackboard Inc., a public company that provides enterprise software and services to the education industry. From March 2004 until June 2006, he served as the chairman and, from May 2004 to February 2006, chief executive officer of Ruckus Network, a digital entertainment network for students at colleges and universities over the university network. Since December 2005, Dr. Raduchel has served as a director of Silicon Image, Inc., a semiconductor company and previously to that was a strategic advisor to that company from April 2003. From August 2006 he has been a director of Opera Software, a Norwegian public company. From September 1999 through January 2001, he was chief technology officer of AOL becoming chief technology officer of AOL Time Warner (now known as Time Warner Inc.) at that time, a position he held through 2002. Dr. Raduchel received his undergraduate degree in economics from Michigan State University, and earned his A.M. and Ph.D. degrees in economics at Harvard University.

Charles E. Hoffman, age 58, has been a director of ours since January 2005. Since June 2001, Mr. Hoffman has served as the president, chief executive officer, and a director of Covad Communications Group, Inc., a public internet communications and services company. From January 1998 to June 2001, Mr. Hoffman served as president and chief executive officer of Rogers Wireless, Inc., a Canadian communications and media company. Mr. Hoffman holds a Bachelor of Science degree and a masters of business administration from the University of Missouri — St. Louis.

David R. Springett, Ph.D., age 71, has been a director of ours since January 2000. Dr. Springett has served as president of the Community College Foundation, an educational foundation, since February 1994. Dr. Springett also held various positions during his 26-year career with Xerox Corporation, retiring in 1992 as Vice President of Strategic Marketing. He is a board member of the California Vehicle Foundation and the California State Commission on Welfare Reform and Training. Dr. Springett holds degrees from the Royal Military College of Canada, the University of Toronto, Queen’s University and Harvard University.

Richard G. Stevens, age 60, has been a director of ours since March 2006. Mr. Stevens is the founder and managing director of Hunter Stevens, LLC, a professional services firm that Mr. Stevens founded in 1995. Prior to founding Hunter Stevens, Mr. Stevens served as a partner with both Ernst & Young LLP and Coopers & Lybrand LLP, both of which are public accounting firms. Mr. Stevens had served as the chairman of the audit committee of Verity, Inc., a software firm based in Sunnyvale, CA and at Pain Therapeutics, Inc., a bio-science company in South San Francisco. Mr. Stevens holds a Bachelor of Science degree with honors from the University of San Francisco, and is a licensed certified public accountant (CPA) in the state of California and a Certified Fraud Examiner.

David A. Weymouth, age 51, has been a director of ours since January 2005. Since July 2005, Mr. Weymouth has acted as an independent consultant, including as an associate in the U.K with Deloitte & Touche LLP, a firm providing audit, tax, consulting and corporate finance services. From January 2005 to June 2005, Mr. Weymouth served as corporate responsibility director for Barclay’s Group, a U.K.-based financial services company. From February 2000 until December 2004, Mr. Weymouth served as the group chief information officer for Barclay’s Group. Prior to February 2000, Mr. Weymouth held a


number of senior positions with Barclay’s Group, including managing director of service provision for retail and corporate banking and chief operating officer of Corporate Banking. Mr. Weymouth holds a Bachelor degree in French and a masters of business administration from University of London.

The Audit Committee
 
Chordiant has a separately-designated standing audit committee (the “Audit Committee”). Three independent directors comprise the Audit Committee. They are Richard G. Stevens, David R. Springett, and David A. Weymouth. The Board of Directors (the “Board”) has determined that Mr.Stevens qualifies as an “audit committee financial expert,” and qualifies as independent, as defined in applicable SEC and NASDAQ rules. The Board made a qualitative assessment of Mr. Steven’s level of knowledge and experience based on a number of factors, including his formal education and experience as a chief financial officer for public reporting companies.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934 (the “1934 Act”) requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
 
To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company, during the fiscal year ended September 30, 2006, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with.

Code of Business Conduct and Ethics
 
The Company has adopted the Chordiant Code of Business Conduct and Ethics (the “Code”), which applies to all directors, officers and employees. The Code is available on our website at http://chrd.client.shareholder.com/documents.cfm. If the Company makes any substantive amendments to the Code or grants any waiver from a provision of the Code to any director or executive officer, the Company will promptly disclose the nature of the amendment or waiver on its website at the address provided above.
 


ITEM 11.  EXECUTIVE COMPENSATION

The following table shows for the twelve months ended September 30, 2006, September 30, 2005 and September 30, 2004 compensation awarded or paid to, or earned by, our chief executive officer and our other most highly compensated executive officers at September 30, 2006 (the “Named Executive Officers”):
 
   
Annual Compensation
  
Long Term Compensation Awards
      
Name and Principal Position
  
Year
  
Salary
($)
  
Bonus
($)
  
Restricted
Stock
Awards
($)
  
Securities
Underlying
Options
(#)
  
All Other
Compensation
($)
  
                           
Steven R. Springsteel (1)
  
2006
  
330,800
  
62,370
  
—
  
1,000,000
  
3,750
(2)
Chairman of the Board, Chief Executive
 
2005
  
—
  
—
 
—
  
12,500
  
 —
  
Officer and President
  
2004
  
—
  
—
 
—
  
37,500
  
 —
  
                           
Peter S. Norman (3)
  
2006
  
220,319
  
62,408
  
—
  
125,000
  
4,660
(4)
Vice President and Chief Financial Officer
  
2005
  
175,282
  
83,018
  
—
  
55,000
  
4,406
(5)
   
2004
  
22,229
  
—
  
—
  
20,000
  
302
(6)
                           
James D. St. Jean (7)
  
2006
  
241,200
  
69,210
  
—
  
50,000
  
5,254
(8)
Vice President, Worldwide Engineering
  
2005
  
220,405
  
12,638
  
—
  
100,000
  
3,620
(9)
   
2004
  
180,306
  
23,871
  
—
  
26,250
  
1,753
(10)
                           
Derek P. Witte (11)
  
2006
  
264,999
  
26,046
  
—
  
300,000
  
13,623
(12)
Vice President and General Counsel
  
2005
  
—
  
—
 
—
  
—
  
 —
  
   
2004
  
—
  
—
 
—
  
—
  
 —
  
                           
Samuel T. Spadafora (13)
  
2006
  
251,200
  
—
  
398,750
(24)
—
  
7,701
(14)
Chairman of the Board and Chief Strategy
 
2005
 
250,000
  
25,000 
 
—
  
—
  
8,429
(26)
 Officer
  
2004
 
232,787
  
12,500 
 
—
  
40,000
  
5,470
(27)
 
  
 
 
 
  
 
 
 
  
 
  
 
  
Stephen P. Kelly (15) 
  
2006
 
187,554
  
160,885
 
—
  
—
  
225,996
(16)
Chief Executive Officer 
  
2005
 
385,590
  
19,580
 
226,750
  
—
  
 31,306
(17)
 
  
2004
 
351,791
  
79,702
 
—
  
75,000
  
 29,825
(28)
 
  
 
 
 
  
 
 
 
  
 
  
 
  
Robert U. Mullen (18) 
  
2006
 
351,208
  
347,813
  
658,000
(25)
—
  
4,552
(19)
President, Worldwide Field Operations
  
2005
 
740,241
  
239,563
 
692,250
(25)
—
  
 4,040
(20)
   
2004
 
878,804
  
45,000 
 
—
  
50,000
  
 527
  
 
  
 
 
 
  
 
 
 
  
 
  
 
  
George A. De Urioste (21)
  
2006
  
175,600
  
176,319
  
—
  
200,000
  
151,989
(22)
Chief Financial Officer and Chief
 
2005
 
250,192
  
43,653 
 
—
  
750,000
  
3,343
(23)
Operating Officer
  
2004
  
—
  
—
 
—
  
—
  
 —
  
                           

(1)
 
Mr. Springsteel commenced working as our chief executive officer on February 1, 2006. Prior to that date, he was a member of our Board of Directors and the options issued to him in 2005 and 2004 were under the 1999 Directors’ Plan.
     
(2)
 
Includes $3,750 paid in 401(k) matching contributions.
 
 
 
(3)
 
Mr. Norman commenced his position as Chief Financial Officer on March, 2006. He began working for the Company on August 5, 2004. The amounts presented are based on these dates.
     
(4)
 
Includes $3,750 paid in 401(k) matching contributions and $910 for group-term life insurance.



     
(5)
 
Includes $4,406 paid in 401(k) matching contributions.
     
(6)
 
Includes $302 paid in 401(k) matching contributions.
     
(7)
 
Mr. St. Jean commenced his position as vice president of Worldwide Engineering in July of 2005.
     
(8)
 
Includes $4,506 paid in 401(k) matching contributions and $748 for group-term life insurance.
     
(9)
 
Includes $3,620 paid in 401(k) matching contributions.
     
(10)
 
Includes $1,753 paid in 401(k) matching contributions.
     
(11)
 
Mr. Witte commenced his position as Vice President and General Counsel on November 3, 2005.
     
(12)
 
Includes $3,977 paid in 401(k) matching contributions, $1,680 for group-term life insurance, $1,692 for executive medical check-up, and $6,274 Mr. Witte was paid for his consultant services to the Company prior to his start date.
     
(13)
  
Mr. Spadafora resigned as a director and our chief strategy officer effective November 30, 2006.
     
(14)
  
Includes $4,719 paid in 410(k) matching contributions, $1,000 paid by us for tax preparation fees, and $1,982 for executive medical check-up.
     
(15)
  
Mr. Kelly resigned as our chief executive officer effective February 1, 2006 but remained an employee until May 2, 2006.
     
(16)
  
Mr. Kelly’s compensation was paid in Great Britain Pound Sterling and such amounts were converted from pounds (£) to dollars ($) using the Company's month-end conversion rates. Includes $208,219 in severance and $17,777 paid by us to Mr. Kelly’s individual pension plan.
     
(17)
  
Consists of $31,306 pension plan matching contributions paid by us to Mr. Kelly’s individual pension plan.
     
(18)
  
Mr. Mullen resigned as our president, worldwide field operations, effective August 8, 2006 but remained an employee through December 31, 2006.
     
(19)
  
Includes $3,750 paid in 401(k) matching contributions and $802 paid for group-term life insurance.
     
(20)
  
Includes $540 for group-term life insurance and $3,500 in 401(k) matching contributions.
     
(21)
  
Mr. de Urioste resigned as our chief operating officer and chief financial officer effective March 8, 2006 but remained an employee until March 31, 2006.
     
(22)
  
Includes $6,156 paid in 401(k) matching contributions and $145,833 paid out in severance.
     
(23)
  
Includes $999 for group-term life insurance and $2,344 in 401(k) matching contributions.
     
(24)
  
On September 30, 2006, Mr. Spadafora held restricted stock awards for 85,000 unvested shares of the Company’s common stock with an aggregate market value of $260,950 based on a $3.07 fair market value on that date.
     
   
The following table represents the fiscal year 2006 restricted stock award granted with the respective vesting schedule:
     
     
Grant Date
  
Number of shares
  
Vesting Schedule
  
     
February 2006
  
125,000
  
April 1 2006 - 20,000 Shares
  
             
July 1, 2006 - 20,000 Shares
  
             
October 1, 2006 - 20,000 Shares
  
             
January 1, 2007 - 20,000 Shares
  
             
April 1, 2007 - 20,000 Shares
  
             
October 1, 2007 - 25,000 Shares
  



(25)
  
On September 30, 2006, Mr. Mullen held restricted stock awards for 333,334 unvested shares of the Company’s common stock with an aggregate market value of $1,023,335 based on a $3.07 fair market value on that date.
     
   
The following table represents the fiscal year 2006 and 2005 restricted stock awards granted with the respective vesting schedule:
     
     
Grant Date
  
Number of shares
  
Vesting Schedule
  
     
August 2005
  
200,000
  
October 2005 - 66,666 Shares
  
             
October 2006 - 66,667 Shares
  
             
October 2007 - 66,667 Shares
  
     
April 2006
  
200,000
  
April 2007 - 66,666 Shares
  
             
April 2008 - 66,667 Shares
  
             
April 2009 - 66,667 Shares
  
     
(26)
  
Includes $1,000 paid by the Company for tax preparation fees, $3,564 for group-term life insurance and $3,865 in 401(k) matching contributions.
     
(27)
  
Includes $3,564 for group-term life insurance and $1,906 in 401(k) matching contributions.
     
(28)
  
Consists of $29,825 of pension plan matching contributions paid by us to Mr. Kelly’s individual pension plan.
     

Stock Option Grants and Exercises

We grant options to our executive officers under the 2005 Equity Incentive Plan (the “Incentive Plan”). As of September 30, 2006, options to purchase a total of 6,916,065 shares were outstanding under the Incentive Plan and options to purchase 4,957,986 shares remained available for grant under the Incentive Plan.

The following tables show for the fiscal year ended September 30, 2006, certain information regarding options granted to, exercised by, and held at year-end by, the Named Executive Officers:


Option Grants in the Fiscal Year Ended September 30, 2006
   
Individual Grants
                
   
Number of
Securities
Underlying
Options
Granted
  
% of Total Options
Granted to
Employees in
Twelve Months
Ended
September 30,
  
Exercise
Price
  
Expiration
  
Potential Realizable
Value at Assumed
Annual Rates of Stock Price
Appreciation for
Option Term (1) 
Name
  
(2) (#)
  
2006 (3)
  
(4)($/Sh)
  
Date
  
5%($)
  
10%($)
Steven R. Springsteel
 
1,000,000
    
27.4
%
  
$
3.19
  
02/01/2016
  
$
2,006,174
  
$
5,084,038
Peter S. Norman
  
70,000
    
1.9
%
    
2.99
  
01/17/2016
    
131,628
    
333,570
   
55,000
    
1.5
%
    
3.36
  
03/08/2016
    
116,220
    
294,524
James J. St. Jean
 
50,000
    
1.4
%
    
3.19
  
02/01/2016
    
100,309
    
254,202
Derek P. Witte
  
300,000
    
8.2
%
    
2.65
  
11/03/2015
    
499,971
    
1,267,025
Samuel T. Spadafora (5)
 
—
    
—
      
—
  
—
    
—
    
—
Stephen P. Kelly (6)
  
—
    
—
      
—
  
—
    
—
    
—
Robert U. Mullen (7)
  
—
    
—
      
—
  
—
    
—
    
—
George A. de Urioste (8) 
  
200,000
(9)
  
5.5
%
  
$
3.19
  
02/01/2016
  
$
401,235
  
$
1,016,808
                                   

(1)
  
The potential realizable value information 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 promulgated by the SEC and does not represent our prediction of our future stock price performance.
     
(2)
 
Each of the options has a ten-year term, subject to earlier termination if the option holder’s service with us ceases.
     
(3)
 
Percentages shown are based on an aggregate of options granted to our employees under our stock option plans during the period from October 1, 2005 through September 30, 2006.
     



(4)
 
The exercise price of each option is equal to the fair market value of our common stock as valued by the Board 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 date of exercise, or through a cashless exercise procedure involving a same-day sale of the purchased shares.
     
(5)
 
Mr. Spadafora resigned as a director and our chief strategy officer effective November 30, 2006.
     
(6)
  
Mr. Kelly resigned as our chief executive officer effective February 1, 2006 but remained an employee until May 2, 2006.
     
(7)
  
Mr. Mullen resigned as our president, worldwide field operations, effective August 8, 2006 but remained an employee through December 31, 2006.
     
(8)
  
Mr. de Urioste resigned as our chief operating officer and chief financial officer effective March 8, 2006 but remained an employee until March 31, 2006.
     
(9)
  
In February 2006 Mr. de Urioste received a grant of 200,000 options. As of March 31, 2006, 4,166 stock options from this grant had vested, all of which have been exercised. His options which were unvested as of March 31, 2006 have expired.


Aggregated Option Exercises in the Fiscal Year Ended September 30, 2006
and September 30, 2006 Option Values
Name
  
Shares
Acquired on
Exercise (#)
  
Value Realized
(1)($)
  
Number of Securities
Underlying Unexercised Options at
September 30, 2006 (#)
  
Value of Unexercised
In-the-Money Options at September 30, 2006(2)($)
           
Exercisable
  
Unexercisable
  
Exercisable
  
Unexercisable
Steve R Springsteel 
  
—
  
$
—
  
195,832
  
854,168
  
$
5,125
  
$
—
Peter S. Norman
  
—
    
—
  
93,541
  
106,459
    
85,983
    
4,667
James D. St. Jean
  
—
    
—
  
299,046
  
42,709
    
342,522
    
—
Derek P. Witte
  
—
    
—
  
83,332
  
216,688
    
34,999
    
91,001
Samuel T. Spadafora (3)
  
100,000
    
207,000
  
980,919
  
—
    
1,863,675
    
—
Stephen P. Kelly (4) 
  
—
    
—
  
330,905
  
—
    
312,568
    
—
Robert U. Mullen (5)
  
—
    
—
  
532,000
  
—
    
687,612
    
—
George A. de Urioste (6) 
  
404,165
  
$
447,960
  
—
  
—
  
$
—
  
$
—
                         

(1)
  
Based on the fair market value of our common stock on the exercise date, minus the exercise price, multiplied by the number of shares exercised.
     
(2)
  
Based on $3.07, the fair market value of our common stock as of September 29, 2006, minus the exercise price, multiplied by the number of shares underlying the unexercised options.
     
(3)
  
Mr. Spadafora resigned as a director, as our chief strategy officer and as an employee on November 30, 2006.
     
(4)
  
Mr. Kelly resigned as our chief executive officer effective February 1, 2006 but remained an employee until May 2, 2006.
     
(5)
  
Mr. Mullen resigned as our president, worldwide field operations, effective August 1, 2006 but remained an employee until December 31, 2006.
     
(6)
  
Mr. de Urioste resigned as our chief operating officer and chief financial officer effective March 8, 2006 but remained an employee until March 31, 2006.
     



EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

Employment Agreements

Effective February 1, 2006, we entered into an offer letter with Mr. Springsteel pursuant to which he became our president and chief executive officer. Mr. Springsteel will be paid an annual base salary of $495,000. Mr. Springsteel received a grant of an option to purchase 1,000,000 shares of our common stock. The option is subject to a four-year vesting schedule (1/48 th per month). Mr. Springsteel received bonuses of $62,370 under our 2006 Executive Bonus Plan for the 2006 fiscal year. Mr. Springsteel is eligible for all standard employee benefits, including four weeks paid vacation and medical and dental coverage and a term life insurance policy in the amount of $1,000,000 (with premiums paid by us). For purposes of benefits, he was given service credit for his prior tenure with us.

In the event of the consummation of a “change in control” (as defined in the offer letter), we will accelerate the vesting of any equity compensation that he has been granted as of the effective date of the change in control such that the equity compensation shall be fully vested for an additional twelve (12) month period as of the effective date of the change in control. Notwithstanding the foregoing, the option to purchase one million shares of common stock granted as of February 1, 2006 will vest 100% as of the effective date of the change in control.

Either we or Mr. Springsteel may terminate his employment relationship at any time with or without “cause” (as defined in the offer letter) on advance notice. If we terminate his employment without cause at any time, or Mr. Springsteel resigns his employment for “good reason” (as defined in the offer letter) at any time, then: (i) we will make severance payments to Mr. Springsteel in the form of monthly payments in the amount of one hundred thousand dollars ($100,000) per month for ten (10) months following the termination date, and (ii) the vesting of any equity compensation that he has been granted through the last day of his employment will automatically accelerate such that the shares subject to each grant that would have vested had he remained employed for one year beyond the termination date will be fully vested for such additional one year period as of the termination date. Such acceleration shall be in addition to any accelerated vesting he previously received upon the consummation of a change of control (if any). If he resigns without good reason or his employment is terminated for cause, all compensation and benefits will cease immediately, and he will receive no further compensation or benefits from us. We agreed to directly pay Mr. Springsteel’s legal fees associated with entering into the offer letter, up to $15,000, upon receiving invoices for such services.

In the event that the payments and benefits provided for in the offer letter constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), would be subject to the excise tax imposed by Section 4999 of the Code, we are obligated to pay such excise tax provided that the maximum amount of the excise tax gross - up payment which we shall be obligated to pay shall be $1,500,000.

Effective February 1, 2006, we entered into a separation agreement with Stephen Kelly. Under the terms of that agreement, Mr. Kelly resigned as our chief executive officer but was entitled to continue as an employee of ours, but not as an officer, until May 2, 2006. Mr. Kelly resigned from the Board of Directors on August 1, 2006. We agreed to pay Mr. Kelly severance payments equal to his base salary of $400,000 for twelve months following the date of termination, subject to standard payroll deductions and withholdings. Additionally, Mr. Kelly received his bonus for the first two quarters of fiscal 2006 under the 2006 Executive Bonus Plan in the amount of $70,107. Pursuant to the terms of his employment agreement, Mr. Kelly received accelerated vesting of 50% of the unvested options held by him on May 2, 2006, which resulted in acceleration of 20,139 options. Additionally, we agreed to reimburse Mr. Kelly for up to $7,000 for outplacement and legal services upon receipt of invoices for such services.

Effective March 8, 2006, we entered into a separation agreement with George de Urioste. Under the terms of that agreement, Mr. de Urioste resigned as our chief operating officer and chief financial officer but was entitled to continue as an employee of ours, but not as an officer, until March 31, 2006 under the current terms of his employment. We agreed to pay Mr. de Urioste severance in the amount of $145,833, payable over five months following the date of termination, subject to standard payroll deductions and withholdings. For five months thereafter, we agreed to reimburse Mr. de Urioste for premium payments sufficient to continue his group health insurance coverage at the level in effect as of the date of termination.

Effective August 1, 2006, we entered into a separation agreement with Robert Mullen. Under the terms of that agreement, Mr. Mullen resigned as our president, worldwide field operations, but was entitled to continue as an employee of ours, but not as an officer, until December 31, 2006. We agreed to pay Mr. Mullen severance in the amount of $29,167 per month, subject to standard payroll deductions and withholdings, until the earlier of June 30, 2007 or the date Mr. Mullen commences employment with another company. Additionally, Mr. Mullen received his bonus of $134,630 for the June quarter and $80,583 for the September quarter of 2006 under the 2006 Executive Bonus Plan and under the Chordiant Fiscal Year 2006 Special Profitability Bonus for President, Worldwide Field Operations. Additionally, he will be entitled to a bonus for the December quarter of calendar 2006 based on a quarterly target of $125,000. The bonus for the December quarter will be determined under the same terms and conditions as the 2006 Executive Bonus Plan provided that there will be a 200% cap on the amount that can be paid. Following termination of his employment with the Company until June 30, 2007, we agreed to reimburse Mr. Mullen for premium payments sufficient to continue his group health insurance coverage at the level in effect as of the date of termination. His right to such payments shall cease on the date that he becomes eligible for group health insurance benefits through a new employer.

Effective November 30, 2006, we entered into a separation agreement with Samuel T. Spadafora. Under the terms of that agreement, Mr. Spadafora resigned as a director, as our chief strategy officer and as an employee, effective immediately. We agreed to pay Mr. Spadafora severance in the amount of $125,000, subject to standard payroll deductions and withholdings. We agreed to extend the post-termination exercise period applicable to Mr. Spadafora’s outstanding options to the later of (i) the original expiration of the post-termination exercise period of the options (as set forth in the applicable stock option agreements) or (ii) the last day of the 30-day period measured from the first day that the options can be exercised in compliance with applicable securities laws (e.g., the 30th day following the date on which our Registration Statement on Form S-8 is “re-activated”), but in no event later than the expiration of the ten year term of the options. In all other respects, the options will continue to be governed by the terms and conditions of the options and the governing plan documents. Mr. Spadafora will be entitled to reimbursement of the premiums for health insurance for himself and his dependents through May 30, 2009. 

Change of Control Agreements

We have entered into Change of Control Agreements with Peter S. Norman, James D. St. Jean and Derek P. Witte (each an “Executive”). We may in the future enter into these agreements with other executives of ours. The agreement with Mr. Norman provides that if he is terminated either without “cause,” as defined in the agreements, or voluntarily leaves employment for “good reason,” as defined in the agreements, within 90 days prior to a “change of control,” as defined in the agreements, or 12 months following a change of control, then he will receive, among other benefits, the following: (1) payment of his salary for a period of 12 months, (2) payment of his annual bonus, (3) continuation of our health and life insurance policies for one year, (4) so long as not prohibited by law, automatic extension of 60 months to repay any promissory note, loan or other indebtedness to us, and (5) with respect to options and restricted stock, accelerated vesting of a number of shares equal to the greater of (a) 50% of the then-unvested shares, or (b) 12 months’ worth of vesting. The agreements with Messrs. Witte and St. Jean provide generally that if the Executive is terminated either without “cause,” as defined in the agreements, or voluntarily leaves employment for “good reason,” as defined in the agreements, within 90 days prior to a “change of control,” as defined in the agreements, or 12 months following a change of control, then the Executive will receive, among other benefits, the following: (1) payment of the Executive’s salary for a period of 6 months in the case of Mr. St. Jean and 12 months in the case of Mr. Witte, (2) payment of the Executive’s annual bonus, (3) continuation of our health and life insurance policies for six months in the case of Mr. St. Jean and 12 months in the case of Mr. Witte, and (4) with respect to options and restricted stock, accelerated vesting of a number of shares equal to the lesser of (a) 50% of the then-unvested shares, or (b) 12 months’ worth of vesting. These agreements also obligate us to make additional payments to the executive in the event the benefits result in the recipient having to pay certain excise taxes.

The offer letter we entered into with Mr. Springsteel contains terms regarding a change of control. In the event of the consummation of a “change in control,” as defined in the offer letter, we will accelerate the vesting of any equity compensation that he has been granted as of the effective date of the change in control such that the equity compensation shall be fully vested for an additional twelve (12) month period as of the effective date of the change in control. Notwithstanding the foregoing, the option to purchase one million shares of common stock granted as of February 1, 2006 will vest 100% as of the effective date of the change in control.

Compensation of Directors

Non-employee directors receive cash compensation from us for their services as members of the Board or for attendance at committee meetings as follows: Directors receive a quarterly retainer of $7,500 for service as a member of the Board (subject to attendance at three out of four regularly scheduled meetings). Directors also receive $1,500 per meeting of the Audit Committee, not to exceed $6,000 per quarter, and $1,500 per meeting of the Nominating and Corporate Governance Committee, not to exceed $3,000 per quarter. Chairs of the Compensation Committee, Nominating and Corporate Governance Committee, and Strategy Committee each receive $2,000 per quarter. The Chair of the Audit Committee receives $3,000 per quarter. The Lead Independent Director receives $2,000 per quarter and, for a special assignment for the period January through September 2005, $1,500 per meeting not to exceed $6,000 per quarter. Effective October 1, 2006, the Board eliminated the limit on quarterly attendance fees for Committee meetings. Other committees do not carry separate cash compensation. Directors are also eligible for reimbursement for expenses incurred in connection with attendance at Board meetings in accordance with our policy.

Each non-employee director receives stock option grants under the 1999 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”) (only non-employee directors of ours or of an affiliate of ours are eligible to receive options under the Directors’ Plan). Options granted under the Directors’ Plan are non-discretionary and are intended by us not to qualify as incentive stock options.

Under the Directors’ Plan, each non-employee director is automatically entitled to receive an initial option to purchase 25,000 shares of our common stock. Pursuant to the terms of the Directors’ Plan, initial grants to purchase 25,000 shares of our common stock were made to those non-employee directors serving on the Board on February 14, 2000, the effective date of our initial public offering. Each director elected or appointed subsequent to February 14, 2000 has received or will receive an initial option to purchase 25,000 shares of our common stock on the date of such non-employee director’s election or appointment to the


Board. These option grants are immediately exercisable with 1/3rd of the shares vesting on the anniversary of the grant date and 1/36th of the shares initially granted vesting each month thereafter that the director serves on the Board, such that all shares are fully vested over three years.

In addition, on the day after each of our annual meetings of stockholders, each person who is then a non-employee director is automatically granted an annual option to purchase 7,500 shares of our common stock. These annual option grants are immediately exercisable, with the shares vesting in equal monthly installments over a year period measured from the date of grant. If a non-employee director is appointed to the Board between annual meetings, the annual option is prorated to reflect the amount of time to be served until the next annual meeting.

Finally, on the day after each of our annual meetings, each non-employee director who is then serving on a Board committee will automatically receive, pursuant to the terms of the Directors’ Plan, an option to purchase 5,000 shares of our common stock. The option is exercisable immediately and vests monthly over the year period measured from the date of grant. If the non-employee director is appointed to a committee after the annual meeting, the option is prorated according to the time to be served until the next annual meeting.

The exercise price of options granted under the Directors’ Plan is the fair market value of our common stock on the date of the grant, as determined by the closing price reported on the Nasdaq National Market for the date of grant. Each option grant made pursuant to the Directors’ Plan has a term of ten years. However, the time in which an option granted under the Directors’ Plan may be exercised ends three months from the date the optionee’s service with us is terminated, with the exception of termination resulting from death or disability of the optionee, in which case the option terminates 18 months following such optionee’s death and 12 months following such optionee’s disability. In no event, however, may an option be exercised after its term expires. In addition, in the event of a dissolution, liquidation, sale of 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 or the acquisition by any
person, entity or group of the beneficial ownership of our securities representing at least 50% of the combined voting power permitted to vote in the election of directors, then those unvested options issued under the Directors’ Plan held by optionees then performing services as an employee or director of, or consultant to, us are accelerated by one year.


During fiscal year 2006, the Compensation Committee consisted of Messrs. Raduchel, Hoffman and Springett. None of the Company’s 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 or compensation committee.




ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
EQUITY COMPENSATION PLAN INFORMATION (1)

The following table provides certain information with respect to all of our equity compensation plans in effect as of September 30, 2006:

             
Plan Category
  
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants,
and rights(a)
  
Weighted-average
exercise price of
outstanding
options, warrants
and rights ($/sh)(b)
  
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))(#)(c)
             
Equity compensation plans approved by security holders
  
7,323,565
  
$
2.68
  
9,655,060 (2)
Equity compensation plans not approved by security holders
  
1,833,574
  
$
1.98
  
455,814
Total
  
9,157,139
  
$
2.54
  
10,110,874
             
 
(1)  
Upon our acquisition of Prime Response, Inc. and White Spider Software, Inc. in 2001 and 2000, respectively, we assumed outstanding options of Prime Response and White Spider such that these options became exercisable for an aggregate of 768,560 shares of our common stock at a weighted-average exercise price of $9.21 per share. As of September 30, 2006, 61,749 options of Prime Response, Inc. and White Spider Software, Inc are still outstanding with a weighted-average exercise price of $1.09. The option plans governing these options terminated other than with respect to the outstanding options, and no options will be granted in the future pursuant to these plans. These plans were not approved by our stockholders, as no approval was required and the plans were not assumed by us. The shares referenced in this note are not included in any of the numbers set forth in the table.

(2)  
Included in the 9,655,060 shares available for future issuance under approved equity compensation plans as of September 30, 2006 are 3,557,896 shares related to the Employee Stock Purchase Plan.

The amount reserved under the 1999 Directors’ Plan automatically increases on October 1st of each year by the greater of (1) 0.5% outstanding shares on such date or (2) the number of shares subject to stock awards made under this plan during the prior twelve month period. However, the automatic increase is subject to reduction by the Board of Directors. In January of 2007 the Board of Directors approved a proposal to have the stockholders approve an amendment to the 1999 Directors Plan so that there will no longer be automatic annual increases to the 1999 Directors’ Plan. The amount reserved under the 1999 Employee Stock Purchase Plan automatically increases on October 1st of each year by the greater of (1) 2% outstanding shares on such date or (2) the number of shares subject to stock awards made under this plan during the prior twelve month period. However, the automatic increase is subject to reduction by the Board of Directors.

In March of 2000 the Board adopted our 2000 Nonstatutory Equity Incentive Plan (the “2000 Plan”). Stockholder approval of this plan has not been obtained. The 2000 Plan was in effect as of December 31, 2001. In April of 2002, the Board approved an increase to the number of shares reserved under the 2000 Plan from 900,000 shares to 2,400,000 shares, also without stockholder approval as such approval was not required by the 2000 Plan or by applicable law. The 2000 Plan does not have a termination date, and will continue indefinitely until suspended or terminated by the Board. The 2000 Plan provides for the grant of nonstatutory stock options and the issuance of restricted stock and stock bonuses to our employees (other than officers, directors, or beneficial owners of ten percent (10%) or more of our common stock) and consultants who meet certain eligibility requirements. The terms and price of nonstatutory stock options granted under the 2000 Plan are determined by the Board (or a committee of the Board) and are set forth in each optionee’s option agreement. The Board (or a committee of the Board) sets the terms of stock bonuses and rights to purchase restricted stock. In January 2007, the Board amended the 2000 Plan to reduce the number of shares available for future issuance to zero. No additional stock options will be granted under the 2000 Nonstatutory Equity Incentive Plan.
 


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth certain information regarding the ownership of our common stock as of December 31, 2006 by: (i) each director and nominee for director; (ii) each of the executive officers named in the Summary Compensation Table; and (iii) all of our executive officers and directors as a group. In addition, the table sets forth certain information regarding the ownership of our common stock by all those known by us to be beneficial owners of more than five percent of our common stock as of the dates noted below.
 
 
 
 
 
Beneficial Ownership(1)
 
Beneficial Owner
 
 
 
Number of
Shares
 
Percent of
Total
 
 
 
  
 
 
 
 
 
 Five Percent Stockholders:
 
 
 
 
 
 
 
             
 
Paul Orlin LLC
 
 
  
 
 
  
 
(as of 9/30/06)
 
 
 
 
 
7,120,975
 
 
8.9
%
666 5th Avenue, 34th floor
 
 
 
 
 
  
 
 
  
 
New York, NY 10103
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
Institutional Venture Management X, LLC
 
 
 
 
 
  
 
 
  
 
(as of 5/15/06)
 
 
 
 
 
4,500,000
 
 
5.6
%
3000 Sand Hill Road, Building 2, Suite 290
 
 
 
 
 
  
 
 
  
 
Menlo Park, CA 94025
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
Directors, Nominees and Executive Officers:
 
 
 
 
 
  
 
 
  
 
Steven R. Springsteel
          
319,999
(2)
 
*
 
Peter S. Norman
 
 
 
 
 
82,255
(3)
  
*
  
Derek P. Witte
          
124,999
(4)
  
*
  
James D St. Jean
         
419,995
(5)
  
*
  
William J. Raduchel
 
 
 
 
 
141,406
(6) 
 
*
  
Charles E. Hoffman
         
43,610
(7)
  
*
  
David R. Springett
          
126,250
(8)
  
*
  
Richard G. Stevens
 
 
 
 
 
6,250
(9)
 
*
 
David A. Weymouth
 
 
 
 
 
38,610
(10)
 
*
 
Samuel T. Spadafora (11)
 
 
 
 
 
1,457,118
(12)
 
1.8
%
Stephen P. Kelly (13)
 
 
 
 
 
957,092
(14)
 
1.2
%
Robert U. Mullen (15)
 
 
 
 
 
1,191,258
(16)
 
1.5
%
George A. de Urioste (17)
 
 
 
 
 
—
 
 
—
  
All executive officers and directors as a group (15 persons)
 
 
 
 
 
4,908,842
  
 
6.2
%
 
 
 
 
 
 
 
 
 
 
 

*
  
Less than one percent. 
 
(1)
  
This table is based upon information supplied by our executive officers, directors and principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission (the “SEC”). Unless otherwise indicated in the footnotes to this table, and subject to community property laws were applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 80,108,920 shares outstanding on December 31, 2006 adjusted as required by rules promulgated by the SEC.



     
(2)
 
Consists of (a) 10,000 shares, (b) 10,000 shares held by two of Mr. Springsteel’s children, and (c) 299,999 shares issuable upon the exercise of outstanding options that are exercisable within sixty days of December 31, 2006.
     
(3)
 
Consists of 82,255 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(4)
  
Consists of 124,999 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(5)
  
Consists of (a) 161,757 shares acquired as part of our purchase of White Spider, Inc. which includes 17,318 shares held by his spouse, and (b) 240,920 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(6)
 
Consists of (a) 60,156 shares and (b) 81,250 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(7)
 
Consists of 43,610 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(8)
 
Consists of 126,250 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(9)
  
Consists of 6,250 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(10)
 
Consists of 38,610 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(11)
  
Mr. Spadafora resigned as a director and as our chief strategy officer, effective November 30, 2006.
     
(12)
 
Consists of (a) 483,977 shares held by the Samuel T. and Cheryl M. Spadafora 1992 Family Trust and (b) 973,141 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(13)
  
Mr. Kelly resigned as our chief executive officer effective February 1, 2006 but remained an employee through May 2, 2006.
     
(14)
  
Consists of (a) 388,364 shares, (b) 237,823 shares held by Mr. Kelly’s spouse and (c) 330,905 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(15)
  
Mr. Mullen resigned as our president, worldwide field operations, effective August 8, 2006 but remained an employee through December 31, 2006.
     
(16)
  
Consists of (a) 667,592 shares and (b) 523,666 shares issuable upon the exercise of outstanding options that are exercisable within sixty (60) days of December 31, 2006.
     
(17)
  
Mr. de Urioste resigned as our chief operating officer and chief financial officer effective March 8, 2006 but remained an employee through March 31, 2006.
 
We know of no arrangements, the operation of which may at a subsequent date result in the change of control of Chordiant.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In August 2005, the Company entered into a service provider agreement with Infogain. Samuel T. Spadafora, one of our former directors and executive officers, is a director of Infogain. Mr. Spadafora terminated his relationship with the Company in November 2006. Pursuant to the service provider agreement, revenue from Infogain was $0.4 million and less than $0.1 million for the years ended September 30, 2006 and 2005, respectively. Cost of services provided to Infogain was $.7 million and zero for the years ended September 30, 2006 and 2005 respectively. Accounts receivable was less than $0.1 million and less than $0.1 million as of September 30, 2006 and 2005, respectively. Payments and corresponding accounts payable to Infogain were $1.1 million and less than $0.1 million for years ended September 30, 2006 and 2005, respectively.
 
In January 2005, Charles E. Hoffman became a director of the Company. Mr. Hoffman is the President and Chief Executive Officer of Covad Communications Group, Inc. (“Covad”), a customer of ours. Pursuant to a software license and services agreement, revenue from Covad was $0.2 million and $1.1 million for the years ended September 30, 2006 and 2005, respectively. Accounts receivable was $0.1 million and approximately zero as of September 30, 2006 and 2005, respectively. Deferred revenue was $0.1 million and $0.1 million as of September 30, 2006 and 2005, respectively.

In January 2005, David A. Weymouth became a director of the Company. Through June 2005 Mr. Weymouth was the Corporate Responsibility Director of Barclay’s Group, a customer of ours. Pursuant to software license agreements, software maintenance agreements, and professional services agreements, revenue from Barclay’s Group was approximately $7.0 million for the year ended September 30, 2005. Accounts receivable was $0.3 million as of September 30, 2005. Deferred revenue as of September 30, 2005 was $0.3 million as of September 30, 2005.

Mr. Weymouth terminated his relationship with Barclay’s Group and became an associate with Deloitte & Touche LLP, a prior provider of tax services to the Company. Payments made to Deloitte and Touche LLP, were $0.1 million and $0.6 million for the years ended September 30, 2006 and 2005, respectively.

We have entered 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.

Except for our service provider agreement with Infogain, all transactions between us and our officers, directors and principal stockholders must be approved by a committee of independent and disinterested directors.

We do not have any formal policy concerning the direct or indirect pecuniary interest of any of our officers, directors, security holders or affiliates in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. We will not enter into any such transactions unless approved by a majority of the entire Board, not including any interested director.




ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

BDO Seidman, LLP. The following table represents aggregate fees for professional services billed (including estimated final billing for fiscal 2006 audit fees) to Chordiant for services rendered for the years ended September 30, 2006 and 2005 by BDO Seidman, LLP, Chordiant’s independent registered public accounting firm since July 2005. BDO Seidman, LLP did not render any services to Chordiant prior to that date.
 
 
 
Year Ended
September 30,
2006 
 
Year Ended
September 30,
2005 
 
Audit Fees
 
 
 
 
 
Aggregate fees for professional services rendered for the audits of the consolidated financial statements of the Company, reviews of our interim financial statements, statutory and subsidiary audits, consents, income tax compliance procedures, internal control over financial reporting, and assistance with review of documents filed with the SEC:
 
$
1,710,000
 
$
1,257,292
 
 
 
 
 
 
 
 
 
Audit-Related Fees
 
 
  
 
 
  
 
Aggregate fees for assurance and related services including benefit plan audits and consultation on acquisitions:
 
 
—
 
 
—
 
 
 
 
 
 
 
 
 
Tax Fees
 
 
  
 
 
  
 
Aggregate fees for tax services rendered for tax return preparation, tax-payment planning services, tax audits and appeals, tax services for employee benefit plans and requests for rulings or technical advice:
 
 
13,500
 
 
—
 
 
 
 
 
 
 
 
 
All Other Fees
 
 
—
 
 
—
 
Total
 
$
1,723,500
 
$
1,257,292
 

PricewaterhouseCoopers LLP. The following table represents aggregate fees for professional services billed to Chordiant for services rendered for the interim periods during the year ended September 30, 2005, by PricewaterhouseCoopers LLP, Chordiant’s principal accountant until May 2005.
 
 
 
Year Ended
September 30,
2005 
 
  
 
Audit Fees
 
 
 
  
 
Aggregate fees for professional services rendered for the audits of the consolidated financial statements of the Company, statutory and subsidiary audits, consents, income tax provision procedures, and assistance with review of documents filed with the SEC:
 
$
310,000
 
    
 
 
 
 
 
 
    
 
Audit-Related Fees
 
 
  
 
    
 
Aggregate fees for assurance and related services including benefit plan audits and consultation on acquisitions:
 
 
—
 
    
 
 
 
 
 
 
    
 
Tax Fees
 
 
  
 
    
 
Aggregate fees for tax services rendered for tax return preparation, tax-payment planning services, tax audits and appeals, tax services for employee benefit plans and requests for rulings or technical advice:
 
 
10,681
 
    
 
 
 
 
 
 
    
 
All Other Fees
 
 
1,125
 
    
 
Total
 
$
321,806
 
    
 
 
Pre-Approval of Services
 
Before the independent accountant is engaged by the Company or its subsidiaries to render audit or non-audit services, the Audit Committee must pre-approve the engagement. Audit Committee pre-approval of audit and non-audit services will not be required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the Audit Committee regarding the Company’s engagement of the independent accountant, provided the policies and procedures are


detailed as to the particular service, the Audit Committee is informed of each service provided and such policies and procedures do not include delegation of the Audit Committee’s responsibilities under the Exchange Act to the Company’s management. The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grant pre-approvals, provided such approvals are presented to the Audit Committee at a subsequent meeting. If the Audit Committee elects to establish pre-approval policies and procedures regarding non-audit services, the Audit Committee must be informed of each non-audit service provided by the independent auditor. The Audit Committee pre-approval of non-audit services (other than review and attest services) also will not be required if such services fall within available exceptions established by the SEC. As such, the engagement of BDO Seidman, LLP and PricewaterhouseCoopers LLP to render 100% of the services described in the categories above was approved by the Audit Committee in advance of the rendering of those services.
 
The Audit Committee has determined tax compliance services by BDO Seidman, LLP referred to in the table above under “All other Fees” is compatible with maintaining the accountant’s independence and these services have been pre-approved. We have also retained Deloitte & Touche LLP until January 2006 to provide us with tax services. Starting in February 2006, we retained Armanino McKenna LLP to provide tax services.


 

(a)
 
1.  Index to Financial Statements
 
Please see the accompanying Index to Consolidated Financial Statements, which appears on page 62 of this report. The Report of Independent Registered Public Accounting Firm, Financial Statements and Notes to Financial Statements which are listed in the Index to Financial Statements and which appear beginning on page 69 of this report are included in Item 8 above.
 
 
Schedule II—Valuation and Qualifying Accounts for the years ended September 30, 2006 and 2005 and the nine months ended September 30, 2004 are as follows (in thousands):
 
 
 
Balance at
Beginning
of Period
  
Charged to
Expenses
    
Deductions
    
Balance at
End of Period
 
Allowance for doubtful accounts
 
 
 
 
 
  
 
 
  
 
 
2006
  
$
214
  
$
(9
)
  
$
(122
)
  
$
83
  
2005
 
$
111
 
$
103
 
  
$
—
 
  
$
214
 
2004
 
$
133
 
$
—
 
  
$
(22
)
  
$
111
 
Deferred tax asset valuation allowance
 
 
  
 
 
  
 
  
 
  
 
  
 
  
 
2006
 
$
83,350
 
$
5,567
 
  
$
—
 
  
$
88,917
 
2005 (restated)(1)
 
$
63,615
 
$
19,735
 
  
$
—
 
  
$
83,350
 
2004 (restated)(1)
 
$
68,087
 
$
(4,472
)
  
$
—
 
  
$
63,615
 

(1) - See Note 3 - “Restatement of Previously Issued Consolidated Financial Statements” to our Consolidated Financial Statements for a discussion of these adjustments.

Schedules not listed have been omitted because the information required to be set forth therein is not applicable or is included in the Financial Statements or notes thereto.
 
3. Exhibits
 
The following exhibits are filed as part of, or incorporated by reference into, this Report on Form 10-K:
  
Exhibit
Number
  
Description of Document
     
2.1
  
Stock Purchase Agreement, dated July 19, 2000, between Chordiant Software, Inc., White Spider Software, Inc. and the Sellers of capital stock of White Spider Software, Inc. (filed as Exhibit 99.1 with Chordiant’s Current Report on Form 8-K (No. 000-29357) filed on August 3, 2000 and incorporated herein by reference).
   
 
2.2
  
Agreement and Plan of Merger and Reorganization, dated as of January 8, 2001, by and among Chordiant Software, Inc., Puccini Acquisition Corp. and Prime Response, Inc. (included as Annex A to the joint proxy statement/prospectus filed with Amendment No. 1 to Chordiant’s Registration Statement on Form S-4 (No. 333-54856) filed on February 26, 2001 and incorporated herein by reference).
     
2.3
  
Agreement and Plan of Merger and Reorganization, dated as of March 28, 2002, by and among Chordiant Software, Inc., OnDemand Acquisition Corp. and OnDemand, Inc. (filed as Exhibit 2.1 to Chordiant’s Current Report on Form 8-K filed on April 12, 2002 and incorporated herein by reference).
     
2.4
  
Share Purchase Agreement, dated December 8, 2004, between Chordiant Software International, Inc. and the persons named therein (filed as Exhibit 2.4 to Chordiant’s Current Report on Form 8-K dated December 24, 2004 and filed on December 27, 2004 and incorporated herein by reference). (1)




Exhibit
Number
  
Description of Document
     
2.5
  
Deed of Trust, dated December 8, 2004, between Chordiant Software International, Inc. and KiQ Limited (filed as Exhibit 2.5 to Chordiant’s Current Report on Form 8-K dated December 24, 2004 and filed on December 27, 2004 and incorporated herein by reference).
   
 
3.1
  
Amended and Restated Certificate of Incorporation of Chordiant Software, Inc. (filed as Exhibit 3.1 with Chordiant’s Registration Statement on Form S-1 (No. 333-92187) filed on December 6, 1999 and incorporated herein by reference).
   
 
3.2
  
Amended and Restated Bylaws of Chordiant Software, Inc. (filed as Exhibit 3.2 with Chordiant’s Current Report on Form 8-K filed on February 2, 2006 and incorporated herein by reference).
   
 
4.1
  
Specimen Common Stock Certificate (filed as Exhibit 4.2 with Amendment No. 2 to Chordiant’s Registration Statement on Form S-1 (No. 333-92187) filed on February 7, 2000 and incorporated herein by reference).
   
 
4.2
  
Warrant agreement, dated August 12, 2002, by and between Chordiant Software, Inc. and International Business Machines Corporation (“IBM”) (filed as Exhibit 4.5 to Chordiant’s Quarterly Report on Form 10-Q filed on May 15, 2003 and incorporated herein by reference).
   
 
4.3
  
Registration Rights Agreement, dated January 22, 2004, by and between Chordiant Software, Inc., and Acqua Wellington Opportunity I Limited (filed as Exhibit 4.5 to Chordiant’s Current Report on Form 8-K filed on January 26, 2004 and incorporated herein by reference)
   
 
4.4
  
Warrant, dated February 28, 1999, issued to GAP Coinvestment Partners II, L.P. (filed as Exhibit 10.19 with Prime Response’s Registration Statement on Form S-1 (No. 333-92461) filed on December 10, 1999 and incorporated herein by reference).
   
 
4.5
  
Warrant, dated December 9, 1999, issued to General Atlantic Partners 52, L.P. (filed as Exhibit 10.20 with Prime Response’s Registration Statement on Form S-1 (No. 333-92461) filed on December 10, 1999 and incorporated herein by reference).
   
 
4.6
  
Warrant, dated December 9, 1999, issued to Accenture (Formerly known as Andersen Consulting), L.P. (filed as Exhibit 10.25 with Prime Response’s Registration Statement on Form S-1 (No. 333-92461) filed on December 10, 1999 and incorporated herein by reference).
   
 
4.7
  
Warrant, dated December 9, 1999, issued to Accenture (Formerly known as Andersen Consulting), L.P. (filed as Exhibit 10.26 with Prime Response’s Registration Statement on Form S-1 (No. 333-92461) filed on December 10, 1999 and incorporated herein by reference).
   
 
4.8
  
Warrant, dated December 9, 1999, issued to Accenture (Formerly known as Andersen Consulting), L.P. (filed as Exhibit 10.27 with Prime Response’s Registration Statement on Form S-1 (No. 333-92461) filed on December 10, 1999 and incorporated herein by reference).
   
 
4.9
  
Warrant, dated September 4, 2001, issued to Accenture plc (filed as Exhibit 4.9 to Chordiant’s Annual Report on Form 10-K/T on March 29, 2005 and incorporated herein by reference).
   
 
10.1*
  
1999 Equity Incentive Plan and Form of Stock Option Agreement (filed as Exhibit 10.2 with Chordiant’s Registration Statement on Form S-1 (No. 333-92187) filed on December 6, 1999 and incorporated herein by reference).
   
 
10.2*
  
1999 Employee Stock Purchase Plan (filed as Exhibit 10.3 with Chordiant’s Registration Statement on Form S-1 (No. 333-92187) filed on December 6, 1999 and incorporated herein by reference).
   
 
10.3*
  
1999 Non-Employee Directors’ Plan as amended and restated (filed as Exhibit 10.3 to Chordiant’s Quarterly Report on Form 10-Q, filed on May 10, 2004 and incorporated herein by reference).
 
  
 



Exhibit
Number
  
Description of Document
 
    
10.4*
  
Form of Stock Option Agreement of 1999 Non-Employee Directors’ Plan (filed as Exhibit 10.4 with Amendment No. 1 to Chordiant’s Registration Statement on Form S-1 (No. 333-92187) filed on January 19, 2000 and incorporated herein by reference).
   
 
10.5*
  
2000 Nonstatutory Equity Incentive Plan (filed as Exhibit 99.2 with Chordiant’s S-8 Registration Statement (No. 333-42844) filed on August 2, 2000 and incorporated herein by reference).
     
10.6
  
Cupertino City Center Net Office Lease, dated June 19, 1998, by and between Cupertino City Center Buildings, as Lessor, and Chordiant Software, Inc., as Lessee (filed as Exhibit 10.5 with Amendment No. 1 to Chordiant’s Registration Statement on Form S-1 (No. 333-92187) filed on January 19, 2000 and incorporated herein by reference).
   
 
10.7*
  
Employment Letter Agreement of Samuel T. Spadafora dated April 24, 1998, by Chordiant Software, Inc. and agreed to and accepted by Samuel T. Spadafora (filed as Exhibit 10.8 with Amendment No. 1 to Chordiant’s Registration Statement on Form S-1 (No. 333-92187) filed on January 19, 2000 and incorporated herein by reference).
   
 
10.8
  
Amended and Restated Loan and Security Agreement dated August 31, 2000, by and between Chordiant Software, Inc. and Imperial Bank (filed as Exhibit 10.14 to Chordiant’s Quarterly Report on Form 10-Q filed on May 15, 2002 and incorporated herein by reference).
   
 
10.9
  
First Amendment to Amended and Restated Loan and Security Agreement, dated October 19, 2001, by and between Chordiant Software, Inc. and Comerica Bank-California, successor in interest to Imperial Bank (filed as Exhibit 10.15 to Chordiant’s Quarterly Report on Form 10-Q filed on May 15, 2002 and incorporated herein by reference).
   
 
10.10*
  
Change of Control Agreement, dated April 27, 2001, by and between Chordiant Software, Inc. and Stephen P. Kelly (filed as Exhibit 10.16 to Chordiant’s Quarterly Report on Form 10-Q filed on May 15, 2002 and incorporated herein by reference).
   
 
10.11*
  
Change of Control Agreement, dated September 10, 2001, by and between Chordiant Software, Inc. and Samuel T. Spadafora (filed as Exhibit 10.17 to Chordiant’s Quarterly Report on Form 10-Q filed on May 15, 2002 and incorporated herein by reference).
   
 
10.12*
  
Separation Agreement, dated October 20, 2003, by and between Chordiant Software, Inc. and Steve G. Vogel (filed as Exhibit 10.11 to Chordiant’s amended Annual Report on Form 10-K/A filed on March 30, 2004 and incorporated herein by reference).
   
 
10.13*
  
Form of Indemnification Agreement, by and between Chordiant Software, Inc. and certain officers and directors of Chordiant Software, Inc. (filed as Exhibit 10.20 to Chordiant’s Quarterly Report on Form 10-Q filed on May 15, 2002 and incorporated herein by reference).
   
 
10.14*
  
Employment Letter, dated November 14, 2002, between Chordiant Software, Inc. and Stephen P. Kelly (filed as Exhibit 10.24 to Chordiant’s Quarterly Report on Form 10-Q filed on November 14, 2002 and incorporated herein by reference).
   
 
10.15*
  
Amendment to Change of Control Agreement dated January 10, 2003, by and between Chordiant Software, Inc. and Stephen P. Kelly (filed as Exhibit 10.26 to Chordiant’s Annual Report on Form 10-K filed on March 28, 2003 and incorporated herein by reference).
     
10.16*
  
Amendment to Change of Control Agreement dated February 27, 2004, by and between Chordiant Software, Inc. and Samuel T. Spadafora (filed as Exhibit 10.19 to Chordiant’s Annual Report on Form 10-K filed on March 8, 2004 and incorporated herein by reference).
     



Exhibit
Number
  
Description of Document
     
10.17
  
Second Amendment to Amended and Restated Loan and Security Agreement by and between Chordiant Software, Inc. and Comerica Bank-California, successor in interest to Imperial Bank, dated March 28, 2003 (filed as Exhibit 10.30 to Chordiant’s Quarterly Report on Form 10-Q filed on August 14, 2003 and incorporated herein by reference).
 
    
10.18
  
First amendment to Cupertino City Center Net Office Lease, dated December 10, 2003, by and between Cupertino City Center Buildings, as Lessor, and Chordiant Software, Inc., as Lessee (filed as Exhibit 10.22 to Chordiant’s Annual Report on Form 10-K filed on March 8, 2004 and incorporated herein by reference).
     
10.19
  
Purchase Agreement by and between Chordiant and Acqua Wellington Opportunity I Limited, dated January 22, 2004 (filed as Exhibit 99.1 to Amendment No. 1 to Chordiant’s Registration Statement on Form S-3/A filed on March 30, 2004 and incorporated herein by reference).
     
10.20*
  
Offer letter dated November 16, 2004 to George A. de Urioste (filed as Exhibit 99.1 to Chordiant’s Current Report on Form 8-K filed on February 2, 2005 and incorporated herein by reference).
   
 
10.21*
  
Change of Control Agreement dated January 31, 2005 by and between Chordiant Software, Inc. and George A. de Urioste.
   
 
10.22*
  
Terms of employment for Robert U. Mullen as of March 31, 2004.
   
 
10.23*
  
Change of Control Agreement dated April 24, 2003 by and between Chordiant Software, Inc. and Robert U. Mullen.
   
 
10.24*
  
Separation Agreement, dated August 16, 2004, by and between Chordiant Software, Inc. and Michael J. Shannahan.
   
 
10.25*
  
Form of Director Agreement by and between Chordiant Software, Inc. and certain officers and directors of Chordiant Software, Inc.
   
 
10.26*
  
Compromise Agreement by and between Chordiant Software International Limited and Allen Swann dated October 28th 2004.
   
 
10.27
  
Master Services Agreement By and Between Chordiant Software, Inc. and Ness Technologies, Inc., Ness Global Services, Inc. and Ness Technologies India Ltd., dated December 15, 2003 (the “Ness Agreement”), as amended (filed as Exhibit 10.33 to Chordiant’s Quarterly Report on Form 10-Q filed on August 9, 2005).
   
 
10.28
  
A description of certain compensation arrangements between Chordiant Software, Inc. and its executive officers (incorporated by reference from Item 1.01 of the Form 8-K of Chordiant Software, Inc. filed with the SEC on June 8, 2005).
   
 
10.29*
  
Offer Letter dated October 17, 2005 for Derek P. Witte (filed as Exhibit 99.1 to Chordiant’s Current Report on Form 8-K filed on October 26, 2005 and incorporated herein by reference).
     
10.30*
  
Change of Control Agreement dated October 20, 2005 by and between Chordiant Software, Inc. and Derek P. Witte (filed as Exhibit 99.2 to Chordiant’s Current Report on Form 8-K filed on October 26, 2005 and incorporated herein by reference).
   
 
10.31*
  
2005 Equity Incentive Plan (filed as Appendix A to Chordiant’s Definitive Proxy Statement on Schedule 14A filed on August 24, 2005 and incorporated herein by reference).
     
10.32*
  
A description of certain compensation arrangements between Chordiant Software, Inc. its executive officers (incorporated by reference from Item 1.01 of the Form 8-K of Chordiant Software, Inc. filed with the SEC on February 2, 2006).
     



Exhibit
Number
  
Description of Document
     
10.33*
  
Offer Letter dated January 31, 2006 for Steven R. Springsteel (filed as Exhibit 10.1 to Chordiant’s Current Report on Form 8-K filed on February 2, 2006 and incorporated herein by reference).
     
10.34*
  
Form of Stock Option Agreement for Steven R. Springsteel (filed as Exhibit 10.2 to Chordiant’s Current Report on Form 8-K filed on February 2, 2006 and incorporated herein by reference).
     
10.35*
  
Amendment dated August 29, 2005 to April 24, 1998 Letter Agreement by and between Chordiant Software, Inc. and Samuel Spadafora (filed as Exhibit 10.1 to Chordiant’s Quarterly Report on Form 10-Q filed on February 9, 2006 and incorporated herein by reference).
     
10.36*
  
Board Member Agreement dated March 7, 2006 for Richard Stevens (filed as Exhibit 10.2 to Chordiant’s Current Report on Form 8-K filed on March 10, 2006 and incorporated herein by reference).
     
10.37
  
Second Amended and Restated Loan and Security Agreement by and between Chordiant Software, Inc. and Comerica Bank-California, successor in interest to Imperial Bank, dated March 8, 2006 (filed as Exhibit 10.1 to Chordiant’s Quarterly Report on Form 10-Q filed on May 4, 2006 and incorporated herein by reference).
     
10.38*
  
Separation Agreement dated March 1, 2006, by and between Chordiant Software, Inc. and Stephen Kelly (filed as Exhibit 10.4 to Chordiant’s Quarterly Report on Form 10-Q filed on May 4, 2006 and incorporated herein by reference).
     
10.39*
  
Separation Agreement dated March 8, 2006, by and between Chordiant Software, Inc. and George A. de Urioste (filed as Exhibit 10.5 to Chordiant’s Quarterly Report on Form 10-Q filed on May 4, 2006 and incorporated herein by reference).
     
10.40*
  
Separation Agreement dated August 8, 2006, by and between Chordiant Software, Inc. and Robert Mullen (filed as Exhibit 10.1 to Chordiant’s Current Report on Form 8-K filed on August 11, 2006 and incorporated herein by reference).
     
10.41
  
Addendum A to Ness Agreement dated September 11, 2006 to Master Services Agreement dated December 13, 2003 by and between Chordiant Software, Inc. and Ness USA, Inc.
     
10.42
  
Order Form Agreement dated September 28, 2006 by and between Chordiant Software, Inc. and International Business Machines Corporation (confidential treatment has been requested).
     
10.43+
  
Software License and Services Agreement dated September 28, 2006 by and between Chordiant Software, Inc. and Connecticut General Life Insurance Company.
     
10.44
  
Master Agreement for Subcontracted Services dated June 14, 2002 by and between Chordiant Software, Inc. and International Business Machines Corporation.
     
10.45
  
Amendment Number One dated May 31, 2005 to the Master Agreement for Subcontracted Services dated June 14, 2006 by and between Chordiant Software, Inc. and International Business Machines Corporation.
     
10.46
  
Amendment Number Two dated October 12, 2006 to the Master Agreement for Subcontracted Services dated June 14, 2006 by and between Chordiant Software, Inc. and International Business Machines Corporation.
     
10.47+
  
Statement of Work dated September 28, 2006 by and between Chordiant Software, Inc. and International Business Machines Corporation.
     
10.48*
  
Separation Agreement dated November 30, 2006, by and between Chordiant Software, Inc. and Samuel Spadafora (filed as Exhibit 99.2 to Chordiant’s Current Report on Form 8-K filed on November 30, 2006 and incorporated herein by reference).
     
10.49+
  
Master Software License and Support Agreement dated March 21, 2006 by and between Chordiant Software, Inc. and Citicorp Credit Services, Inc. (USA).
     
10.50
  
Master Professional Services Agreement dated May 7, 2006 by and between Chordiant Software, Inc. and Citicorp Credit Services, Inc. (USA).
     



Exhibit
Number
  
Description of Document
     
10.51+
  
License Schedule #5 dated December 8, 2006 to the Master Software License and Support Agreement dated March 21, 2006 by and between Chordiant Software and Citicorp Credit Services, Inc. (USA).
     
10.52
  
Amendment No. 1 to the Master Software License and Support Agreement dated March 21, 2006 by and between Chordiant Software and Citicorp Credit Services, Inc. (USA).
     
10.53
  
Order Form Agreement dated December 19, 2006 by and between Chordiant Software International GmbH and IBM Deustchland GmbH.
     
10.54
  
Software License and Services Agreement dated December 19, 2006 by and between Chordiant Software International GmbH and Deutsche Angestellten Krankenkasse.
     
18.1
  
Preferability letter from BDO Seidman, LLP, Independent Registered Public Accounting Firm (filed as Exhibit 18.1 to Chordiant’s Annual Report on Form 10-K filed on December 9, 2005 and incorporated herein by reference).
     
23.1
  
Consent of BDO Seidman, LLP, Independent Registered Public Accounting Firm.
 
    
23.2
  
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
   
 
21.1
  
Subsidiaries of Chordiant Software, Inc. (filed as Exhibit 10.21 to Chordiant’s Quarterly Report on Form 10-Q filed on May 16, 2005 and incorporated herein by reference).
   
 
24.1
  
Power of Attorney (included on the signature pages hereto).
   
 
31.1
  
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
   
 
31.2
  
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
   
 
32.1
  
Certification required by Rule 13a-14(a) or Rule 15d-14(a) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
     
*  Management contract or compensatory plan or arrangement.

+ Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

(1)  Chordiant has omitted Schedules 2-4 and 709 to the Share Purchase Agreement pursuant to Item 601(b)(2) of Regulation S-K. A brief description of the omitted schedules is contained in Exhibit 2.4. Chordiant hereby undertakes to provide the SEC with copies of the omitted schedules upon request.



 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report on Form 10-K to be signed on our behalf by the undersigned, thereunto duly authorized, in the City of Cupertino, State of California, on February 9, 2007.

 
CHORDIANT SOFTWARE, INC
 
 
 
 
 
 
By:
/s/ STEVEN R. SPRINGSTEEL
 
 
 
Steven R. Springsteel
Chairman, President, and CEO
 

  
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints STEVEN R. SPRINGSTEEL and PETER S. NORMAN, and each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report on Form 10-K has been signed by the following persons on behalf of the Registrant and of the capacities and on the dates indicated.
 
Signature
  
Title
  
Date
 
  
 
  
 
/s/ STEVEN R. SPRINGSTEEL
  
Chairman, President, and Chief Executive Officer
  
February 9, 2007
Steven R. Springsteel
      
 
 
  
 
  
 
/s/ PETER S. NORMAN
  
Chief Financial Officer and Principal Accounting
  
February 9, 2007
Peter S. Norman
  
Officer
  
 
 
  
 
  
 
/s/ RICHARD G. STEVENS
  
Director
  
February 9, 2007
Richard G. Stevens
      
 
 
  
 
    
/s/ DAVID R. SPRINGETT
  
Director
  
February 9, 2007
David R. Springett
  
 
    
 
  
 
  
 
/s/ WILLIAM J. RADUCHEL
  
Director
  
February 9, 2007
William J. Raduchel
  
 
  
 
 
  
 
  
 
/s/ DAVID A. WEYMOUTH
  
Director
  
February 9, 2007
David A. Weymouth
  
 
  
 
 
  
 
  
 
/s/ CHARLES E. HOFFMAN
  
Director
  
February 9, 2007
Charles E. Hoffman
  
 
  
 
 

 EX-10.41 2 ex1041.htm ADDENDUM A TO NESS AGREEMENT Addendum A to Ness Agreement
 
Exhibit 10.41
 


ADDENDUM “A”

TO MASTER SERVICES AGREEMENT


This agreement between Ness USA, Inc. (“NESS”) (formerly Ness Global Services, Inc. or “NGS”), located at 160 Technology Drive, Canonsburg, PA 15317 (“NESS”) and Chordiant Software, Inc., located at 20400 Stevens Creek Blvd. Cupertino, CA  95014 (“COMPANY”) is an Addendum (the “Addendum”) to the Master Services Agreement executed on December 15, 2003 (the “Agreement”) between NGS and COMPANY.

WHEREAS, subsequent to the execution of the Agreement, NGS changed it corporate name to Ness USA, Inc.; and

WHEREAS the parties hereto wish to extend the term of the Agreement, which otherwise would expire by its own terms on December 14, 2006.

Accordingly, in consideration of the promises and covenants set forth below, the parties agree as follows, intending to be legally bound:


1.  
The term of the Agreement shall be extended through and including December 14, 2007.


2.  
“Ness USA, Inc.” shall take the place of “Ness Global Services, Inc.” throughout the Agreement in all respects.

3.  
With the exception of the foregoing changes, the terms and conditions of the Agreement shall remain in full force and effect.




IN WITNESS WHEREOF, the parties have executed this Addendum, intending to be legally bound, as of the day and year written above.


Accepted by:                  Accepted by: 



_/s/ Rocco Cozza______________________          ___/s/ Kelly Hicks __________________
Name: Rocco Cozza                 Name: Kelly Hicks
Title: Corporate Counsel                Title: VP Worldwide Field Operations

Date: ___September 11, 2006___________          Date: ___ September 11, 2006______

For: Ness USA, Inc.              For: Chordiant Software, Inc.
(f/k/a Ness Global Services, Inc.) 
 EX-10.42 3 ex1042.htm IBM ORDER FORM FOR CIGNA IBM Order Form for CIGNA
 
Exhibit 10.42
Chordiant Software, Inc.
 
 
Order Form
 
 
By the terms of this Order Form, Chordiant Software, Inc. (“Chordiant”) agrees to license its software to CIGNA Corporation (“CIGNA”), a customer of International Business Machines, Inc. (“IBM”) in accordance with the terms of the Software License and Services Agreement (the “License Agreement”) dated September 28, 2006 between Chordiant and CIGNA. In consideration of Chordiant entering into such License Agreement, IBM will pay Chordiant in the amounts and on the terms set forth below in this Order Form.
 
 
Customer Name:  CIGNA Corporation
 

A: SOFTWARE LICENSE

Designated Center:

Hardware: IBM
Operating System: AIX
Customer Application: Contact Center Architecture
Customer Relational Database (Marketing product Software): UDB
Geographic Location: North America
Licensed End-User: CIGNA


Software Product(s)
Quantity
License Type (i.e. Named User/Client, Server, Developer)
URN’s (no. of)
License Fee
       
Chordiant Call Center Browser Edition
4,000
Concurrent Users
  
       
Chordiant Foundation Server
86
CPU
 
- Application Components
      
- Business Process Server
      
- Security Server
      
- CTI Server
      
- Persistence Server
      
- Request Server
      
- JDBC Connector
      
- Chordiant Connector for WebSphere MQ
      
- Chordiant Interaction Controller
      
       
Chordiant Tools Bundle
30
Developers
  
- Chordiant Business Process Designer
      
- Chordiant Café Developer Environment
      
       
Subtotal
    
$ 8,537,360
       




Chordiant Rules Server
86
CPU
$262,370
       
Chordiant Rules Designer
10
Designers
$200,270
       
Subtotal
    
$462,640

 
License Fee:         $9,000,000
 

B. ANNUAL SUPPORT FEE(S)

Initial Annual Support and Maintenance Fee     $1,000,000

At IBM’s option, after expiration of the initial Support period and each subsequent renewal period, IBM may acquire an additional one year of Support services for the Software licensed under this Order Form, for an annual support fee of $1,000,000. For any Support renewal period, IBM cannot refuse to acquire an additional year of Support services unless CIGNA has given them prior written approval to do so, which IBM will send to Chordiant at least thirty days prior to the expiration of the then current term of Support.

Support.

Standard support services will be provided for the Software so long as the Annual Support and Maintenance Fees have been paid. The fee for each renewal period will be due and payable by IBM in full Net 60 days from receipt by IBM of an accurate invoice, which will be based on the issuance to Chordiant by IBM of an electronic purchase order.

For a minimum period of five (5) years commencing from the date of Delivery of the Software listed above, Chordiant will make Maintenance Services available for the Software listed above.

Payment Terms

The License fee and the first year’s Annual Support and Maintenance fee (Total = $10,000,000) are due and payable by IBM from receipt by IBM of an accurate invoice, which will be based on the issuance to Chordiant by IBM of an electronic purchase order, on the following dates:

Payment Date
Amount
   
Date of execution
$5,000,000
January 31, 2007
$2,500,000
March 31, 2007
$2,500,000

Future Option Pricing.

The parties agree that IBM shall have the option to license additional quantities of the Software Products listed within this Order Form from Chordiant at the following quantities and License Fees for a period of 5 years from execution of this agreement:



Software Product(s)
Quantity
License Type (i.e. Named User/Client, Server, Developer)
URN’s (no. of)
Chordiant Call Center Browser Edition
500
Concurrent Users
Chordiant Foundation Server
8
CPU


Total One-Time License Fee:        $1,125,000
 
The initial annual support and maintenance fee for each bundle of 500 additional CCABE Concurrent Users and 8 additional CPUs for Chordiant Foundation Server will be $125,000. At IBM’s option, after expiration of the initial Support period and each subsequent renewal period, IBM may acquire an additional one year of Support services for an annual support fee of $125,000.

Any subsequent license based on options detailed above shall be set forth in a subsequent Order Form(s).

Miscellaneous. 

Additionally, the parties agree that:

(i)  
Chordiant warrants for a period of 180 days from the delivery date that the Software, as delivered by Chordiant, will substantially perform the functions described in the associated Documentation in all material respects when operated on the application server on which the Documentation states the Software can operate. Provided that IBM gives Chordiant written notice of a breach of the foregoing warranty during the warranty period, Chordiant shall correct any reproducible errors that cause the breach of the warranty in accordance with its technical support policies, or if Chordiant is unable to make the Software operate as warranted, Customer shall be entitled to terminate the Software license, and Chordiant shall refund the License Fees paid for the applicable Software license to IBM.
(ii)  
Chordiant warrants the diskettes/CD disks media to be free of defects in materials and workmanship for thirty (30) days from the delivery date. Chordiant shall replace defective media.
(iii)  
Except for the remedy provided in clause (i) above, all fees due under this Order Form shall be non-cancelable and the sum paid non-refundable.
(iv)  
IBM shall have no right, title or interest to the software licenses described in this Order Form.
(v)  
As specified on this Order Form, Chordiant shall deliver to IBM, one copy of the Software media and Documentation (CD-ROM or bound, whichever is generally available) (“Master Copy”) for each Software license specified above for use at the Designated Center. IBM shall be responsible for installation of the Software. Software is deemed accepted upon delivery to IBM.



Chordiant Software Inc.    International Business machines
Corporation:

/s/ Steven R. Springsteel    /s/ Randy N. Henning    
Signature      Signature

Steven R. Springsteel        Randy N. Henning    
Print Name          Print Name

President and CEO     Enterprise Software Relationship Manager  
Print Title       Print Title

 
Date: September 28, 2006     Date: September 28, 2006

Chordiant Software, Inc.        
/s/ Peter S. Norman    
Signature      
 
Peter S. Norman     
Print Name      
 
CFO      
Print Title      

 
Date: September 28, 2006       
 
 
 EX-10.43 4 ex1043.htm CIGNA SOFTWARE LICENSE AND SERVICES AGREEMENT CIGNA Software License and Services Agreement

Exhibit 10.43
 
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
 
CON-001453-CIGNA-2006
 
SOFTWARE LICENSE AND SERVICES AGREEMENT
 
This Software License And Services Agreement (this “Agreement”) is made as of September 28, 2006 (the “Effective Date”) by and between Connecticut General Life Insurance Company, a Connecticut corporation having a place of business at 900 Cottage Grove Road, Bloomfield, Connecticut 06152 (“Customer”), and Chordiant Software, Inc., a Delaware corporation having its principal place of business at 20400 Stevens Creek Blvd., Suite 400, Cupertino, CA 95014 (“Chordiant”). The terms of this Agreement shall apply to each Software license granted by Chordiant under this Agreement, which shall be identified on the Order Form.
 
1. Definitions.
 
(a)  “CIGNA Entities” means (i) Customer and Customer subsidiaries, divisions and affiliates, as well as any divested or spun off Customer entities or divisions, (ii) business partners, members, suppliers or customers of the entities set forth in (i) and (iii) healthcare providers; provided that all individual users of such partners, members, suppliers, customers and healthcare providers shall be considered users for purposes of counting the Number of Concurrent Users.
 
(b)  “CIGNA Agent” means International Business Machines Corporation or such other third party service provider or providers designated by Customer.
 
(c)  “Number of Concurrent Users” means the peak sum of simultaneous users at any given time within a twelve (12) month period.
 
(d)  “Delivery Date” means the date on which Chordiant delivers the Software to Customer or its designee, or if no delivery is necessary, the Effective Date set forth above or on the relevant Order Form.
 
(e)  “Designated Contact” means the contact person or group designated by Customer who shall coordinate all Support requests to Chordiant.
 
(f)  “Documentation” means all documentation, technical manuals, operator and user guides and manuals, flow diagrams, file descriptions and other written information describing the functions, operational characteristics and specifications of the Software or other technology, or explaining how to install, use, maintain or support the Software or other technology. Documentation is provided in CD-ROM or bound form, whichever is generally available.
 
(g)  “Error” means a reproducible error, defect or problem in the Supported Program or Documentation which causes the Supported Program not to operate substantially in accordance with the Documentation
 
(h)  “License Fee” means the license fee(s) payable by Customer or CIGNA Agent pursuant to Section 8 and as set forth in any particular Order Form. 
 
(i)  “Order Form” means the document in hard copy form by which Customer orders Software licenses, and which is agreed to by the parties, or which is agreed to between Chordiant and a CIGNA Agent (and where the licensed Software is listed on Schedule A hereto). The Order Form shall reference the Effective Date and be governed by the terms of this Agreement.
 
(j)  “Resolution” means a modification or workaround to the Supported Program and/or Documentation provided by Chordiant to Customer that resolves an Error without additional cost to Customer or adverse impact to the CIGNA Entities.
 
(k)  “Services” means work performed by Chordiant for Customer pursuant to a Statement of Work agreed to by the parties under this Agreement.
 
(l)  “Software” means the software referenced in a particular Order Form in object code form, which consists of proprietary Chordiant software, and Third Party Software and Open Source Code Software embedded therein, and the media, Documentation and any Updates thereto. Additionally, the Customer shall be provided with certain source code elements of the proprietary Chordiant software pursuant to Section 2.6 and may be provided with the entire source code of the proprietary Chordiant software from the Source Code escrow pursuant to Section 2.7, if appropriate. 
 
(m)  “Support” means ongoing maintenance and support services provided by Chordiant and/or CIGNA pursuant to the terms of this Agreement as set forth on Exhibit A hereto, and, if more favorable to Customer, Chordiant’s current support policies. In any event, Chordiant shall be responsible for providing Minor Release Updates, Major Release Updates and Patch Updates as part of Support (and at no additional charge) under its contract with IBM and/or this Agreement.
 
(n)  “Supported Program” or “Supported Software” shall mean, at any given time, the then-current release and the two immediately preceding point releases from the current release of the Software in use by any of the CIGNA Entities. For example, if the most current release is 5.5, Chordiant must support 5.3, 5.4 and 5.5 or if the most current release is 6.1, then Chordiant must support 5.9, 6.0 and 6.1 (and once the current release is 6.2, then support 6.0, 6.1 and 6.2).
 
(o)  “Support Fee” means the support fee(s) payable by Customer or a CIGNA Agent pursuant to Section 3, if any, and as set forth in any particular Order Form. During the term of Chordiant’s services contract with IBM, IBM will pay Chordiant the Support Fee directly and Chordiant shall provide Support through IBM. In the event that the contract between IBM and Customer or the services agreement between IBM and Chordiant terminates, then Chordiant shall provide Support at fees consistent with the fees charged to IBM by Chordiant during the term of the CIGNA and IBM services agreement. Upon Customer’s request (subject to Customer having obtained IBM’s consent), Chordiant shall make such pricing information available to Customer; provided that such Support Fee may be increased from the previous year’s Support Fee by the lesser of 5% or the actual increase in the Consumer Price Index (CPI) for the previous twelve (12) month period as published by the Wall Street Journal.
 
(p)  “Support Hours” means the support hours specified on Schedule A for either the Standard Support period or the Premier Support period, as specified on the particular Order Form.
 
(q)  “Support Period” means the period during which Customer is entitled to receive Support on a Supported Program, which shall be a period of twelve (12) months beginning from the Delivery Date or, if applicable, twelve (12) months from the expiration of the preceding Support Period unless otherwise agreed in writing by the parties.
 
(r)  “Supported Environment” means the application server or servers on which the Documentation states the Software can operate.
 
(s)  “Third Party Software” means the software of Sun Microsystems, Corticon Technologies, Inc., Desiderata Software and Flux Corporation which is embedded in the Software and any other third party software embedded in the Software.
 
(t)  “Update” means any new release, version, enhancement, update, correction, patch, bug-fix or other modifications (regardless of how characterized) to the Software that are distributed, designed, developed or created by or for Chordiant, but excluding any Customizations or Additions. Chordiant shall provide such Major Release Updates, Minor Release Updates and Patch Updates to Customer and/or a CIGNA Agent at no additional fee at the same time as Chordiant provides them to other users or licensees of the Software as and when developed for general release. Additional Documentation is provided for Major Release Updates and Minor Release Updates. Such additional Documentation shall contain a description of any Open Source Code Software contained in the Update.
 
(i) “Major Release Update” shall mean any subsequent release of the Software that is a numbered release (ie, Chordiant 5 Foundation, or Chordiant 6 Foundation).
 
(ii) “Minor Release Update” shall mean any subsequent release of the Software that is a dot-, numbered release (ie, Chordiant 5.1 Foundation). All Minor Release Updates shall be included in the next Major Release Update.
 
(iii) “Patch Update” shall mean any subsequent release of the Software that is a dot-, dot- numbered release (ie, Chordiant 5.1.1 Foundation) and is typically a patch. All Patch Updates shall be included in the next Minor Release Update.
 

2. Software License.
 
2.1 Rights Granted.
 
(a) Chordiant hereby grants to the CIGNA Entities a worldwide, irrevocable, perpetual, non-exclusive, fully-paid, royalty-free, license to reproduce, use, modify, enhance, perform, display, distribute and sublicense to CIGNA Entities and/or CIGNA Agents, directly and indirectly, through one or more tiers of sublicensees, and make derivative works of the Software listed on Schedule A hereto (and any amendments to Schedule A and any Order Forms subsequently entered into between Customer and Chordiant) for use in connection with the business operations of the CIGNA Entities.
 


(b) The license granted in this Section 2.1 includes the object code version of the licensed Software (including all Third Party Software) and includes all Updates of the Software to be provided to Customer promptly upon release. Additionally, the license includes certain source code elements of the proprietary Chordiant software pursuant to Section 2.6 and may include the entire source code of the proprietary Chordiant software from the Source Code escrow pursuant to Section 2.7, if appropriate.
 
(c) Customer shall have the right to make such copies of the Software as Customer deems reasonably necessary, including for back-up, testing, disaster recovery, development or archival purposes. All titles, trademarks and copyright or other restricted rights notices shall be reproduced in any such copies.
 
(d) Customer shall have the right to allow third parties to use the Software for the operations of the CIGNA Entities (for example, third parties involved with disaster recovery, the integration of the Software with the systems of CIGNA Entities, development and production), so long as Customer is responsible for use of the Software is in accordance with the terms of this Agreement (unless the third party has a direct agreement with Chordiant in which case CIGNA shall not be responsible and Chordiant shall look to its agreement with such third party).
 
(e) Notwithstanding anything contrary in this Agreement, the CIGNA Entities and their agents, contractors and third party service providers (and their affiliates and subcontractors), wherever located, may access, use, modify, enhance, create derivatives works of and install the Software solely for the benefit of the business operations of the CIGNA Entities. The Software may be installed at the locations, facilities and systems owned or leased by the CIGNA Entities and their agents, contractors and third party service providers (and their affiliates and subcontractors) solely for the benefit of the business operations of the CIGNA Entities.
 
2.2  Restrictions
 
(a) Chordiant has obtained the right for the CIGNA Entities to use any Sun Microsystems, Inc. software or any other third party software that is embedded in the Software in connection with any use of the Software as contemplated by Section 2.1.
 
(b) Customer agrees not to engineer, disassemble, de-compile, or any other attempt to derive source code from the Software for which source code was not provided pursuant to Section 2.6 or from the Third Party Software, except to the extent required to obtain interoperability with either independently created software or as specified by law.
 
(c) Chordiant and its suppliers shall retain all title, copyright and other proprietary rights in the Software. Customer does not acquire any rights, express or implied, in the Software, other than those specified in this Agreement. Customer agrees that it shall not publish any results of benchmark tests run on the Software, other than for the internal use of the CIGNA Entities.
 
2.3 Transfer. 
 



 
(a) Customer may use the Software on any Supported Environment available as of the Effective Date or thereafter without the payment of an additional license fee so long as Customer’s usage of the Software does not exceed the scope of the license it acquired for use.
 
  (b) If Customer divests part of its business or an Affiliate ceases to be an Affiliate (in each instance the “Former Business”), Customer may sublicense use of the Software, assign a designated number of licenses to that Former Business or provide services to such Former Business with respect to the use of the Software to the Former Business; provided that the continued use of the Software by or for the Former Business shall be considered a part of the underlying license for the purpose of counting the Number of Concurrent Users and the number of CPUs in use.
 
2.4 Verification. At Chordiant’s written request, not more frequently than annually, Customer shall furnish Chordiant with a signed certification verifying that the Software is being used pursuant to the provisions of this Agreement and applicable Order Form. Chordiant (or Chordiant’s designee) may audit Customer's use of the Software. Any such audit shall be conducted at Chordiant’s cost and expense during regular business hours at Customer's facilities and shall not unreasonably interfere with Customer's business activities. Chordiant agrees that its employees shall comply with Customer’s reasonable security and confidentiality requirements during the audit. If an audit reveals that Customer has underpaid fees to Chordiant, Customer shall be invoiced directly for such underpaid fees based on the rates set forth in the applicable Order Form. Payment of such underpaid fees shall be Chordiant’s sole and exclusive remedy in the event of an underpayment by Customer.

2.5 Customizations and Additions. Modifications, enhancements and derivatives works of the Software, including certain software objects applicable to the business of the CIGNA Entities, are referred to herein as “Customizations”. Additions, bolt-ons or other software that interacts or interfaces with the Software are referred to herein as “Additions”. Any Customizations made by Customer either directly or through their third parties other than Chordiant shall be owned by Customer (“Customer Customizations”). All right, title and interest to any Customizations made by Chordiant on behalf of Customer or CIGNA Agents, either directly or indirectly (“Chordiant Customizations”), shall be owned by Chordiant. Chordiant hereby grants Customer a license to such Chordiant Customizations on the same terms and conditions as those set forth in Section 2 pertaining to the originally licensed Software, and such Chordiant Customizations shall be considered licensed Software under this Agreement. Any Additions shall be owned by Customer, and Chordiant hereby assigns all rights, title and interests to such Additions to Customer. To the extent that Customer desires to have Chordiant incorporate such Customer Customizations or Additions (collectively, “Customer Specific Objects”) into Chordiant’s Software (and Chordiant agrees, in its sole discretion, to incorporate such Customer Specific Objects), Customer shall promptly deliver to Chordiant the source and object code versions (including documentation) of such Customer Specific Objects, and any updates or modifications thereto, and hereby grants Chordiant a perpetual, irrevocable, worldwide, fully-paid, royalty-free, non-exclusive, license to reproduce, modify, use, perform, display, distribute and sublicense, directly and indirectly, through one or more tiers of sublicensees, such Customer Specific Objects (provided that any use by Chordiant shall be on an “as-is” basis” at Chordiant’s sole risk, with no obligation on the part of Customer to maintain or support).
 



 
2.6 Additional Software Restrictions. 
 
(a) Customer acknowledges that any Software licensed under this Agreement shall primarily be in object code format. However, Customer acknowledges that certain licensed Software may include source code based files. Customer acknowledges that the Software, its structure, organization and any human-readable versions of a software program (“Source Code”) constitute valuable trade secrets that belong to Chordiant and/or its suppliers.
 
(b) To the extent that Chordiant includes such Source Code within its Software, such Source Code shall be deemed licensed Software under the terms of this Agreement and the Order Form. Customer may modify the Source Code in accordance with Section 2.5 and as Customer otherwise deems necessary or useful in support of Customer’s authorized use of the Software.
 
(c) Customer agrees that it shall only disclose the Source Code to authorized employees of CIGNA Entities and authorized third parties and contractors of CIGNA Entities who (i) require access thereto for a purpose authorized by this Agreement, and (ii) are subject to confidentiality obligations to protect third party confidential information.
 
(d) Customer shall use the same degree of care is to prevent the unauthorized use, dissemination, or publication of the source code (i.e., human readable) of the Software (the “Source Code”) and the Software as Customer uses to protect its own confidential information of a like nature, but in no event shall the safeguards for protecting such Source Code, and the Software be less than a reasonably prudent business would exercise under similar circumstances. Customer shall take prompt and appropriate action in an effort to prevent unauthorized use or disclosure of such Source Code and the Software, including, without limitation, storing such Source Code only on secure central processing units or networks and requiring passwords and other reasonable physical controls on access to such Source Code.
 
2.7 Source Code Escrow. Within 30 days of the Effective Date Chordiant shall take such steps as are necessary to enable Customer to obtain the Source Code that it not been provided under the terms of the Escrow Agreement between Chordiant and Iron Mountain Intellectual Property Management, Inc., as successor-in-interest to Source File LLC, as Escrow Agent, a copy of which has been provided to Customer, in the event that Chordiant undergoes a change of control, assigns all or part of this Agreement, enters into a voluntary or involuntary receivership arrangement, bankruptcy or other insolvency proceedings, or otherwise ceases to be in business or ceases to maintain or otherwise support the Software for Customer. Chordiant shall not cancel said agreement during the term of this Agreement without the prior written consent of Customer. In the event that during the term of this Agreement the Source Code is changed, Chordiant shall provide updated Source Code and any supporting documentation to the Escrow Agent. Customer's use of the Source Code is limited to support and maintenance of the Software and is otherwise subject to the terms of this Agreement. Customer acknowledges that the Software Source Code does not include the source code for the Third Party Software.
 



 
3. Maintenance and Support Services.
 
3.1 Maintenance and Support Services. If annual Support services are purchased by IBM on behalf of Customer, then such Support services shall be provided by Chordiant (through IBM) to Customer pursuant to the terms of Chordiant’s services agreement with IBM (which shall at a minimum include the services and obligations set forth in this Agreement). If annual Support services are purchased directly by Customer, then such Support services shall be provided by Chordiant to Customer under the terms of this Agreement or, if more favorable to Customer, Chordiant’s support policies in effect on the date Support is ordered by Customer. For as long as Customer or a CIGNA Agent notifies Chordiant that it wishes to purchase Support, Chordiant shall offer to provide such Support. Notwithstanding the foregoing, Chordiant shall provide Support under its agreement with IBM for Customer for as long as the services agreement between Chordiant and IBM is in place (or such longer period as support has been paid for by IBM), and IBM has paid the then current Support Fee. If, during the term of Customer’s services agreement with IBM, IBM has not paid any undisputed Support Fees within 60 days after the commencement of the then current renewal Support Period, then Chordiant shall notify Customer in writing of such failure. If Chordiant does not receive payment of the then current undisputed Support Fee within 30 days following receipt of notice to Customer, from either Customer or IBM, then Chordiant, in its sole discretion, may either terminate the provision of Support hereunder or agree with Customer to continue to provide Support. Support is intended to ensure that the Software operates in accordance with its Documentation on an ongoing basis.
 
3.2 Update Policy. Additionally, as part of Support, Chordiant shall provide Customer with Updates, if and when such Updates made available by Chordiant.
 
3.3 Reinstatement. Once Support has been terminated in writing by Customer for a particular Supported Program, it can be reinstated only if Customer pays a fee equal to the Support Fees that would have been payable for the period of time during which Support was terminated for such Supported Program. All Support provided to IBM under the services agreement shall count as if Customer had obtained the Support itself (and no break in support shall have occurred).
 
4. Consulting Services.
 
4.1 Consulting Services. In the event that Chordiant provides Services directly for Customer, Chordiant shall provide Services in accordance with a Statement of Work to be mutually agreed to by Chordiant and Customer. Chordiant shall charge Customer for Services performed pursuant to this Agreement on a time and materials basis at the rates set forth in the applicable Statement of Work. If a dollar limit is stated in the applicable Statement of Work for time and materials Services, the limit shall be deemed an estimate for Customer’s budgeting and Chordiant’s resource scheduling purposes; after the limit is expended, Chordiant shall continue to provide the Services on a time and materials basis, if requested by the Customer or as otherwise agreed to by the parties. Customer shall reimburse Chordiant for pre-approved actual, reasonable travel and lodging expenses incurred in conjunction with the provision of Services in accordance with Chordiant’s or Customer’s internal travel policy, as agreed upon by the parties.
 



 
4.2 Representative. Chordiant shall designate a Chordiant employee to oversee and direct Chordiant’s Services (the “Chordiant Project Manager”). Chordiant’s Project Manager shall work at the direction of the Customer project manager. Customer’s project manager shall be completely responsible for the management and direction of the Customer project. Chordiant may subcontract any portion of the work to be performed under the Agreement.

4.3 Customer’s Duties.
 
At no cost, Customer shall provide Chordiant with (a) adequate access to Customer’s facility to perform all work required under this Agreement; (b) all necessary safety training regarding Customer’s facility, and (c) reasonable onsite facilities, including secure storage space, a designated work area with adequate heat and lighting, and access to any needed telephone lines, communication facilities or other equipment.
 
4B. Intellectual Property Rights.
 
4B.1 Rights to Developments. 

a. With regard to any Customizations or Additions developed by Chordiant for Customer or CIGNA Agents, either directly or indirectly, the provisions of Section 2.5 shall apply.

b. With regard to other deliverables or work product developed or provided by Chordiant for Customer or CIGNA Agents, either directly or indirectly, subject to paragraph a above,

i. to the extent that any of Chordiant’s pre-existing intellectual property rights (“Chordiant IP”) are embedded in any deliverable developed or provided by Chordiant to Customer or CIGNA Agents or in any CIGNA owned or licensed intellectual property (other than the Software), Chordiant hereby grants to Customer an unlimited, worldwide, perpetual, irrevocable, fully paid-up, nonexclusive, unlimited license to use and sublicense, and to permit third parties to use, the Chordiant Intellectual Property that is incorporated or embedded in any such deliverable or intellectual property for so long as such Chordiant IP remains embedded or incorporated in such deliverable or intellectual property and is not separately commercially exploited by Customer.

ii. Chordiant shall own all modifications and enhancements to, and derivatives of, Chordiant IP that are developed by Chordiant during the provision of any Services (collectively, “Chordiant New Intellectual Property”). Chordiant hereby grants to Customer an unlimited, worldwide, perpetual, irrevocable, fully paid-up license to use (and allow Customer’s agents and third parties to use) any Chordiant New Intellectual Property.

iii. Subject to the foregoing ownership and assignment rights set forth in this Section 4B.1, which take precedent over this subparagraph iii, Customer shall own, and Chordiant hereby perpetually assigns to Customer, all rights, title and interests in work product that are developed or provided by Supplier in connection with the provision of any Supplier Services.



c. Notwithstanding the foregoing, nothing in this Section 4B.1 shall expand the original scope of license of the Software set forth in Section 2 above.

d. Chordiant shall enter into an agreement with IBM that is consistent with and effectuate the terms of this Section 4B.1 and that shall not create any broader rights; provided that Chordiant may agree to assign all right, title and interest in work product or deliverables which are modifications and enhancements to, or derivative works of, IBM’s pre-existing intellectual property.

4B.2 Chordiant’s Duties.
 
All current and future employees and agents of and consultants to Chordiant with access to or involved in the performance of Services have executed and delivered or shall execute and deliver to Chordiant a proprietary rights agreement with Chordiant substantially consistent with the form attached as Exhibit C hereto pursuant to which such employee or consultant agrees to confidentiality and intellectual property assignment terms sufficient to enable Chordiant to meet its obligations to Customer under this Agreement.
 
5. Term and Termination.
 
5.1 Term. This Agreement shall be terminated under this Section 5 (“Term and Termination”) or as otherwise specified in the applicable Order Form. Notwithstanding any termination of this Agreement, all software licenses are irrevocable and perpetual.
 
5.2 Termination by Customer. Customer may terminate any Software license at any time; however, termination shall not relieve Customer’s obligations specified in Section 5.4 (“Effect of Termination”).
 
5.3 Termination by Chordiant. Chordiant may terminate this Agreement upon written notice if Customer materially breaches this Agreement and fails to correct the breach within 30 days following written notice specifying the breach; provided that any license previously licensed hereunder shall remain in effect during the term provided for in the license grant, and Section 2 shall survive termination of the Agreement in addition to the provisions of Section 5.4 for the duration of such term.
 
5.4 Effect of Termination. Termination of this Agreement or any license shall not limit either party from pursuing other remedies available to it, including injunctive relief, nor shall such termination relieve Customer’s obligation to pay all fees that have accrued under any Order Form or Statement of Work. The parties’ rights and obligations under Sections 2.2 and 2.6 (“Restrictions”), 5 (“Term and Termination”), 6 (“Indemnity, Warranties, Remedies”), 7 (“Limitation of Liability”), 8 (“Payment Provisions”), 9 (“Confidentiality”) and 10 (“Miscellaneous”) shall survive termination. Except for termination pursuant to Section 5.3, upon termination, Customer shall cease using, and shall return or destroy as directed by Chordiant, all copies of the Software and Documentation.
 



 
6. Indemnity, Warranties, Remedies
 
6.1 Infringement Indemnity. Chordiant shall defend and indemnify the CIGNA Entities against a third party claim arising from (a) the Software (including Updates and any Contract Property) the Documentation or the Services infringing any third party’s intellectual property rights provided that: (i) Customer promptly notifies Chordiant in writing of the claim; (ii) Chordiant has sole control of the defense and all related settlement negotiations (provided that Customer may participate in the defense at its own cost); and (iii) Customer provides Chordiant with the assistance, information and authority necessary to perform Chordiant’s obligations under this Section 6, (b) any third party software embedded in the Software and (c) and any use by Chordiant or third parties under the license granted to Chordiant under Section 2.5 Chordiant shall have no liability for any claim of infringement based on use of a superseded or altered release of Software if Chordiant notified Customer that the infringement would have been avoided by the use of a current unaltered release of the Software which Chordiant makes available to Customer and Chordiant pays the cost of implementing the new release.
 
If a third party claim results in preventing Customer from using the Software or if Chordiant, in its reasonable opinion, believes that the Software is likely to be held as infringing, Chordiant shall have the option, at its expense, to (i) modify the Software to be non-infringing, or (ii) obtain for Customer a license to continue using the Software. If it is not commercially reasonable to perform either of the above options, then Chordiant may terminate the license for infringing Software and refund the License Fees paid for the applicable Software license.
 
6.2 Warranties and Disclaimers.
 
(a) Software Warranty. For each Supported Software license that Customer acquires, Chordiant warrants for a period of 180 days from the Delivery Date that the Software, as delivered by Chordiant to Customer, or CIGNA’s Agent, shall substantially perform the functions described in the associated Documentation in all material respects when operated in the Supported Environment.  Provided that Customer gives Chordiant written notice of a breach of the foregoing warranty during the warranty period, Chordiant shall correct any reproducible Errors that cause the breach of the warranty in accordance with its technical support policies, or if Chordiant is unable to make the Software operate as warranted, Customer shall be entitled to terminate the Software license and recover the fees paid to Chordiant for the Software license.
 
(b) Media Warranty. Chordiant warrants the diskettes/CD disks media to be free of defects in materials and workmanship for thirty (30) days from the Delivery Date. Chordiant shall replace defective media.
 
(c) Services Warranty. Chordiant warrants that any Support or consulting services provided hereunder shall be performed in a professional and workmanlike manner in accordance with generally accepted industry practices. This warranty is valid for a period of 30 days from performance.
 
(d) Additional Warranties.
 



 
(i) Each party hereby represents and warrants to the other that (i) it has all requisite corporate power and authority (or if a party is not a corporation, such party represents and warrants that it has sufficient power and authority under its organizational documents or agreements) to enter into this Agreement and to carry out the transactions contemplated hereby, (ii) the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate (or, as applicable, other entity) action on the part of such party, (iii) this Agreement has been duly executed and delivered by such party and (assuming the due authorization, execution, and delivery hereof by the other party) is a valid and binding obligation of such party and enforceable against it in accordance with its provisions, and (iv) its entry into this Agreement does not violate or constitute a breach of any agreement to which it is a party or otherwise bound.
 
(ii) Chordiant represents and warrants to Customer that (i) Chordiant has all necessary rights, title, licenses, permissions, and approvals required to grant the rights and licenses to the Software (including Third Party Software embedded therein) as set forth in this Agreement and (ii) Chordiant has not received any written notice or claim, and is not otherwise aware, that the Software (including any third party software embedded therein), or the use thereof as contemplated by this Agreement, infringes on or misappropriates, or would infringe on or misappropriate, the copyright, patent, trademark, trade secret, or other intellectual property or other proprietary rights of any third party.
 
(iii) Chordiant represents and warrants to Customer that in performing its obligations and exercising its rights under this Agreement, Chordiant shall comply (and shall require all of its personnel and agents involved in Chordiant’s performance under this Agreement to comply) with all applicable laws, rules, regulations, and other governmental requirements relating to or affecting this Agreement or the work to be performed by Chordiant hereunder, and that Chordiant shall obtain and maintain all permits, licenses, and consents required in connection therewith.
 
(iv) Except for the functions and features expressly disclosed in the Documentation, Chordiant represents and warrants to Customer that the Software (including Third Party Software embedded therein do not contain, and Chordiant shall not insert into the Software (including Third Party Software embedded therein) any lock, dongle, clock, timer, counter, hardware key, copy protection feature, replication device, “virus” or “worm,” as those terms are commonly used in the computer industry, or other software code that may (a) lock, disable, or erase the Software (including Third Party Software embedded therein), or any other software, programs, or data of Customer or its respective customers or suppliers, (b) limit or prevent full use of or copying of the Software (including Third Party Software embedded therein) as permitted under this Agreement, (c) harm or otherwise interfere with Customer’ servers or data processing hardware (including terminals, auxiliary storage, and communication and peripheral devices), or (d) require action or intervention by Chordiant or any other person to allow use of the Software (including Third Party Software embedded therein) as permitted under this Agreement.
 
(v) Except as set forth on Exhibit B hereto, Chordiant represents and warrants to Customer that neither the Software (including Third Party Software embedded therein) provided by Chordiant to Customer under this Agreement contain any freeware, computer code, or other items or materials that are
 


subject to the GNU General Public License or any other open source license agreement (collectively, “Open Source Code Software”).
 
(vi) Chordiant represents and warrants that the Updates will be consistent with the Documentation provided and shall not reduce the functionality existing within the licensed Software. Chordiant will not seek to remove or materially reduce functionality from an Update by repacking such Updates as ‘new products’ such as to require Customer to acquire such Updates for additional license fees or cost beyond payment of the Support Fees in accordance with the terms of this Agreement and the applicable Order Form.
 
(e) DISCLAIMER OF WARRANTIES. Except as specifically provided herein, each party disclaims all warranties, whether express, implied or statutory, including all implied warranties of merchantability and fitness for a particular purpose. In addition, Chordiant does not warrant that the software shall operate in combinations other than as specified in the Documentation or that the operation of the Software shall be uninterrupted or error-free.
 
7. Limitation of Liability.
 
In no event shall either party or its suppliers be liable for any special, indirect or consequential loss or damage arising out of or in any way relating to this Agreement, including, but not limited to, economic loss, loss of profits, loss of opportunity, even if such party has been advised of the possibility of such damages. The limitation of liability provided in this section shall apply even if the warranties provided in Section 6 fail of their essential purpose. Except for any breach of Section 2 or Section 9, each party’s liability for damages hereunder shall in no event exceed the sum of the greater of $20,000,000 and the amount of fees paid and payable under this Agreement.
 
Notwithstanding the foregoing, nothing in this Agreement shall operate to exclude or restrict either party’s liability for: (i) death or personal injury resulting solely from the negligence of the defaulting party; (ii) breach of any applicable legislation; (iii) the fraud or willful default of the defaulting party; and (iv) the indemnification and third party consent obligations.
 
The provisions of this Agreement allocate the risks between Chordiant and Customer. Chordiant’s pricing reflects this allocation of risk and the limitation of liability specified herein.
 
8. Payment Provisions.
 
8.1 Invoicing. All license fees shall be due upon the date of the applicable Order Form or Statement of Work and payable 30 days from receipt of an invoice and paid without deductions based on any Taxes and, except as set forth in this Agreement, shall be non-refundable and non-cancelable (without limitation on CIGNA’s right to bring a damages claim against Chordiant). Payments for the renewal of annual Support shall be due and payable within 30 days of the date of support renewal. All fees shall be paid by IBM for the license and support during the term of the services agreement between CIGNA and IBM and all claims by Chordiant for fees arising during such period shall be between Chordiant and IBM.



8.2 Payments. The parties hereby acknowledge and agree that all payments to be made by Customer hereunder shall be made by Customer and/or CIGNA Agent on behalf of Customer, as further stated an the applicable Order Form or Statement of Work. Chordiant shall bill all amounts due and payable by Customer hereunder to Customer or through CIGNA Agent, as the case may be. All payments made by Customer and/or by CIGNA Agent on behalf of Customer shall be in U.S. Dollars and directed to:
 
Chordiant Software Inc.
P.O. Box [*]
San Jose, CA [*]
 
Or wire to:
 
Comerica Bank
Chordiant Software, Inc.
Account#: [*]
Routing #: [*]
 
Notwithstanding the foregoing, if Customer or CIGNA Agent and Chordiant agree or have agreed upon a different method for making payment, they may utilize such method when making payment to Chordiant. Customer may, at any time upon prior written notice to Chordiant, make payment of any and all amounts due and payable hereunder directly to Chordiant.
 
8.3 Taxes. The fees in this Agreement or the applicable Order Form or Statement of Work do not include services or sales taxes on the fees charges to Customer hereunder. Chordiant is required to pay all other taxes, including property, excise, import or export, import, government fees or other taxes based on the licenses granted or services provided under this Agreement. This Section does not apply to taxes based on Chordiant revenue or income.
 
8.4 Disputes Invoices. Customer may withhold payments for any item(s) on Customer's invoice that Customer reasonably disputes in good faith.  Customer shall provide to Chordiant written notice of its intention to withhold payment, including the reason(s) for Customer's reasonable dispute of the invoice (the “Dispute Notice”).  Following receipt of the Dispute Notice, Chordiant shall review the invoice in question and, if appropriate, send Customer a corrected invoice.  If Chordiant does not agree with Customer's reasons for withholding payment or, if sent, the corrected invoice does not resolve the dispute to Customer's satisfaction, then either party shall notify in writing the other party of the fact that the dispute continues (the “Response Notice”).
 
The parties shall use commercially reasonably efforts to resolve or settle the dispute within thirty days from the date of the Response Notice. During such thirty day period, executives of both companies shall first meet in person to negotiate in good faith a resolution or settlement of the dispute. Pending settlement or resolution of the issue(s), Customer's non-payment of these items shall not constitute default by Customer, and shall not entitle Chordiant to suspend or delay its furnishing of the Support or performance of services for a period of six (6) months from the date of the Response Notice; provided that Customer pays all undisputed invoices in accordance with the provisions of Section 8.1.   After expiration of such
 


six month period, Customer shall pay Chordiant 50% of the amount of the disputed invoice. If not, Chordiant may suspend its furnishing of Support or performance of services covered by the disputed item(s). If so, Chordiant will not suspend its furnishing of Support or the performance of services covered by the disputed item(s) for another six month period. After the expiration of the second six month period, Customer shall pay Chordiant the remaining 50% of the amount of the disputed invoice. If not, Chordiant may suspend its furnishing of Support or performance of services covered by the disputed item(s). If, once the dispute is resolved, it is determined that Customer did not owe Chordiant all or any portion of the amounts it paid under this paragraph, Chordiant shall reimburse Customer for such payments.
 
9. Confidentiality.
 
By virtue of this Agreement, the parties may have access to information that is confidential to one another (“Confidential Information”). Confidential Information shall include but not be limited to the Software (including Source Code), Chordiant services, the terms and pricing under this Agreement, and all information clearly identified as confidential or which is self-evidently of a confidential nature.

A party’s Confidential Information shall not include information that: (a) is or becomes a part of the public domain through no act or omission of the other party; (b) was in the other party’s lawful possession prior to the disclosure and had not been obtained by the other party either directly or indirectly from the disclosing party; (c) is lawfully disclosed to the other party by a third party without restriction on disclosure; or (d) is independently developed by the other party.

The parties agree to hold each other’s Confidential Information in confidence during the term of this Agreement and for a period of five years after termination of this Agreement (except for Chordiant’s Software which shall remain confidential in perpetuity). The parties agree, unless required by law, not to make each other’s Confidential Information available in any form to any third party for any purpose other than the implementation of this Agreement. Each party agrees to take all reasonable steps to ensure that Confidential Information is not disclosed or distributed by its employees or agents in violation of the terms of this Agreement.
 
Each party agrees that its obligations and covenants are necessary and reasonable in order to protect the party disclosing Confidential Information. Each party acknowledges that its breach of its obligations would cause irreparable harm to the other party for which monetary damages would be inadequate and hereby agrees that the other party shall be entitled to seek injunctive relief under this Agreement in addition to any other remedies that may be available at law, in equity or otherwise.
 
Immediately upon termination of this Agreement, Chordiant shall return all of Customer’s Confidential Information.
 
10. Miscellaneous.
 
10.1 Export Administration. Each party agrees to comply with all relevant export laws and regulations of the United States, the United Kingdom and any other applicable country (“Export Laws”) to assure that neither the Software nor any direct product thereof are (i) exported, directly or indirectly, in violation of
 


Export Laws; or (ii) are used for any purposes prohibited by the Export Laws, including, without limitation, nuclear, chemical, or biological weapons proliferation.
 
10.2 Conflict of Interest. Chordiant agrees that during the term of this Agreement, it shall not provide services or contract to provide services to any third party that would prevent it from providing Software or performing Services under this Agreement for Customer, except with the prior written consent of Customer.
 
10.3 Insurance. Chordiant shall carry and maintain at its own cost, with companies that are rated a minimum of “A-“ in Best’s Insurance Guide or are otherwise reasonably acceptable to Customer, all necessary insurance (which shall include as a minimum the requirements set forth below) during the term of this Agreement, for damages caused or contributed to by Chordiant, and insuring Customer against claims which may arise out of or result from Chordiant’s performance or failure to perform hereunder, including: (i) statutory worker’s compensation in accordance with applicable laws, (ii) employer’s liability insurance in an amount of not less than $500,000 per occurrence, (iii) commercial general liability, including bodily injury, property damage, owners and contractors protective liability, products and completed operations liability and contractual liability, with a combined single limit of not less than $1,000,000, (iv) automotive liability covering all vehicles owned, non-owned, hired and leased with a combined single limit for bodily injury and property damage of not less than $1,000,000, (v) professional liability and errors and omissions insurance in an amount of not less than $5,000,000 per claim. Chordiant, if requested by Customer, shall provide Customer with certificates of insurance and copies of the policies of insurance reflecting the coverage and amounts set forth in this Section. Chordiant’s certificates of insurance shall contain a provision that the coverage afforded under the policy(s) shall not be cancelled without thirty (30) days prior written notice to Customer.
 
10.4 Notices. All notices under this Agreement shall be in writing and deemed to have been given when mailed by first class. Notices shall be sent to the addresses set forth at the beginning of this Agreement or such other address as either party may specify in writing. If notice is sent to Chordiant, it shall be sent to the attention of Chordiant’s Chief Financial Officer and Chordiant’s General Counsel.
 
10.5 Force Majeure. Neither party shall be liable hereunder by reason of any failure or delay in the performance of its obligations hereunder (except for the payment of money) on account of acts of God, war, unforeseeable governmental action, earthquakes, or other similar cause which is beyond the reasonable control of such party.
 
10.6 Assignment. This Agreement is binding upon all successors and assigns of the parties. Chordiant shall not assign or subcontract all or any part of its rights or obligations hereunder except in the case of operation of law, merger, consolidate or sale of all or substantially all of its assets, without the written consent of Customer. Customer may assign or delegate its rights under this Agreement.
 
10.7 Waiver and Severability. The failure of a party to require performance by the other party of any provision hereof shall not affect the right to require performance at any time thereafter; nor shall the waiver by either party of a breach of any provision hereof be taken or held to be a waiver of the provision itself. If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions
 


of this Agreement shall remain in full force and the invalid or unenforceable provision shall be changed and interpreted to best accomplish the provision within the limits of the law.
 
10.8 Governing Law and Jurisdiction. This Agreement shall be governed in accordance with the laws of the State of New York, without regard to any conflicts of law principles, as if this Agreement were executed in and fully performed within the State of New York. The parties agree that the United Nations Convention on Contracts for the International Sale of Goods is specifically excluded from application to this Agreement.
 
10.9 No Agency. Nothing contained herein shall be construed as creating any agency, partnership or other form of joint enterprise between the parties.
 
10.10 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be considered an original, but all of which together shall constitute one and the same instrument.
 
10.11 Customer Reference. Chordiant may not refer to Customer as a customer in sales presentations, marketing vehicles and activities, without Customer’s prior written consent.
 
10.12 Entire Agreement. This Agreement, the Order Form(s), together with any exhibits, completely and exclusively state the agreement of the parties. In the event of any conflict between the terms of this Agreement and any exhibit hereto, the terms of this Agreement shall control. In the event of any conflict between the terms of this Agreement and any purchase order or Order Form, the individualized terms of such purchase order or Order Form shall control, but any pre-printed terms on Customer’s purchase order shall be of no effect. This Agreement supersedes, and its terms govern, all prior proposals, agreements or other communications between the parties, oral or written, regarding the subject matter of this Agreement. This Agreement shall not be modified except by a subsequently dated written amendment signed by the parties, and any “pre-printed” terms on a Customer purchase order or other document purporting to supplement the provisions hereof shall be void.
 


In Witness Whereof, the parties hereto have caused this Agreement to be executed by their duly authorized representatives.
 


Chordiant Software, Inc.            Connecticut General
    Life Insurance Company:

/s/ Steven R. Springsteel            /s/ Debra A. Christie    
Signature                  Signature

Steven R. Springsteel                Debra A. Christie   
Print Name                  Print Name

President and CEO           AVP     
Print Title                  Print Title

September 28, 2006             September 28, 2006    
Date               Date


Schedule A
 
By the terms of this Schedule A, Chordiant Software, Inc. (“Chordiant”) agrees to license its software to Connecticut General Life Insurance Company (“CIGNA”) in accordance with the terms of the Software License and Services Agreement (the “License Agreement”) dated September 28, 2006 between Chordiant and CIGNA.
 

SOFTWARE LICENSE


Customer Application: Contact Center Architecture

Software Product(s)
Quantity
License Type (i.e. Named User/Client, Server, Developer)
URN’s (no. of)
     
Chordiant Call Center Browser Edition
4,000*
Concurrent Users
     
Chordiant Foundation Server
86*
CPU
- Application Components
    
- Business Process Server
    
- Security Server
    
- CTI Server
    
- Persistence Server
    
- Request Server
    
- JDBC Connector
    
- Chordiant Connector for WebSphere MQ
    
- Chordiant Interaction Controller
    
     
Chordiant Tools Bundle
30
Developers
- Chordiant Business Process Designer
    
- Chordiant Café Developer Environment
    
     
Chordiant Rules Designer
10
Designers
     
Chordiant Rules Server
86*
 CPU
 

*This Schedule A shall be amended to reflect increases to the licenses for the Number of Concurrent Users ordered by Customer or CIGNA Agents. Each time the Number of Concurrent Users increases by 500, the number of CPUs increases by 8.

*In the event that the contract between IBM and Customer terminates, then Chordiant shall increase the Number of Users and number of CPUs as requested by Customer at fees consistent with the fees charged to IBM by Chordiant during the term of the CIGNA and IBM services agreement. Upon Customer’s request (subject to Customer having obtained IBM’s consent), Chordiant shall make such pricing information available to Customer.


Exhibit A - General Support Terms
 
1. Technical Support 

Annual Support services ordered by Customer shall be provided under Chordiant’s Support policies and pricing in effect on the date Support is ordered and shall be effective upon shipment (or upon Order Form Effective Date for products not requiring shipment).

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

Scope of Support. The primary objective of Chordiant Product Support is to assist Customer in maintaining and/or regaining an operational state. The secondary objective of Product Support is to provide in due course the correction of any underlying Errors.

Product Support shall include the following:

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

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

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

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

Exceptions. Chordiant shall have no responsibility to fix any Errors arising out of or related to the following causes:
a.  
any modifications or enhancements made by the Customer to the Software or the application specific environment, unless such modifications or enhancements are specifically approved in writing by Chordiant Product Support; this includes but is not limited to;
- location of binaries
- scripts provided by Chordiant
- any application specific object (e.g., table, view, index, trigger)
- any application specific operating system permissions or role privileges



b.  
Any modification or combination of the Software (in whole or in part), including without limitation any portions of the Software code or Source Code customized by the customer that is not part of the unmodified Software delivered by Chordiant or for which Chordiant has not received and acknowledged receipt of the source code and agreed to Support.
c.  
Use of the Software in an environment other than a Supported Environment.
d.  
Accident; electrical or electromagnetic stress; neglect; misuse; failure or fluctuation of electric power, failure of media not furnished by Chordiant; operation of the Software with other media and hardware, software or telecommunication equipment or software; or causes other than ordinary use.

2. Customer Responsibilities 

Customer agrees to:
(i) Provide Chordiant with remote access to Customer’s Supported Software during the term of this Agreement via an electronic link; and
(ii) Provide any reasonable assistance that Chordiant may require from the Designated Contacts and other appropriate Customer representatives (e.g. network administrator, as the case may be) to enable Chordiant to provide Customer with Support; and
(iii) Establish and maintain the conditions of the Supported Environment in compliance with Chordiant Certified Matrix and Technical Stack developed for the installed release or any environmental operating ranges specified by the manufacturers of the components of the Designated Center. Any deviation from this Support Environment voids all Resolutions within the timeframe set forth in Exhibit A.

The Customer agrees to designate appropriately qualified and trained personnel to be the Designated Contacts, and only those individuals shall request Support services. The Customer agrees endeavor to adequately train and obtain “Chordiant certification” for, and forward to Chordiant the names and contact details of the Designated Support Contacts.

The Customer agrees to notify Chordiant Product Support promptly of any malfunction of the Supported Software.

The Customer agrees to provide Chordiant with access to and use of such of the Customer’s information and facilities reasonably necessary to service the Supported Software including, but not limited to, an accurate description of the Designated Center and the current Supported Environment, the problem being reported, the transactions and any error messages, along with screenshots and log files.

The Customer agrees to install the Current Release as soon as reasonably practicable, and in any event within the timeframe set out in Chordiant’s release policy in effect on the date Support is ordered.



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

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




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

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



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

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

 


Exhibit B - Open Source Software


[*]










EXHIBIT C






Form Non-Disclosure and Assignment Agreement


EXHIBIT C

Form Non-Disclosure and Assignment Agreement

 
THIS NON-DISCLOSURE AND ASSIGNMENT AGREEMENT (this “Agreement”), dated as of this ____ day of ____________, 200__, is entered into by and between Chordiant Software, Inc. (“Chordiant”) and [insert Chordiant employee or contractor full name]
 

 
 
W I T N E S S E T H:
 
 
WHEREAS, my full name is [insert Chordiant employee or contractor full name] and I am employed by or acting as a consultant to Chordiant;
 
 
WHEREAS, IBM provides certain services (the “Services”) to Connecticut General Life Insurance Company, its affiliates and certain other entities designated by Connecticut General Life Insurance Company (collectively, “CIGNA”) under that certain Master Services Agreement by and between CIGNA and IBM, dated as of September 28, 2006 (the “MSA”);
 
 
WHEREAS, Chordiant provides certain services to IBM under that certain Statement of Work by and between Chordiant and IBM dated as of September 28, 2006 (the “SOW”) on behalf of CIGNA;
 
 
WHEREAS, Chordiant provides licenses and rights to CIGNA pursuant to a certain agreement between Chordiant and CIGNA dated as of September 28, 2006 (the “CIGNA Agreement”);
 
 
WHEREAS, CIGNA possesses certain Confidential Information (as defined below) relating to its business processes, products and technology;
 
 
WHEREAS, I understand and agree that I will have access to such Confidential Information during my [employment] [consultancy] with Chordiant; and
 
 
NOW THEREFORE, in consideration for and as a condition to my assignment to the CIGNA account, I agree to be bound by the terms set forth herein.
 

 
1.  
Definition of Confidential Information. As used herein, “Confidential Information” shall mean any and all materials, information, processes, methodologies, tools, software programs, code, intellectual property and other data, technical or non-technical, whether written, electronic, graphic or oral,
 


furnished or disclosed by CIGNA or on CIGNA’s behalf to you (by IBM or otherwise), either directly or indirectly, with the exception only of the following: (a) information that is now in the public domain or subsequently enters the public domain through no fault or act of the receiving party; (b) information that is presently known or becomes known to the receiving party from its own independent source as evidenced by the receiving party; (c) information that the receiving party receives from any third party not under any obligation to CIGNA to keep such information confidential; (d) information that is independently developed by the receiving party as proven by the receiving party’s written records; and (e) as otherwise allowed in the SOW and the MSA.
 
2.  
Non-Disclosure Obligations. I hereby understand and agree:
 
(a)  
To use the same care and discretion to avoid disclosure, publication or dissemination of Confidential Information as I use with respect to Chordiant’s own similar information that it does not wish to disclose, publish or disseminate and use Confidential Information solely to the extent required to fulfill Chordiant’s obligations under the SOW and IBM’s obligations or exercise IBM’s rights under the MSA.
 
(b)  
Not to deliver to or disclose or otherwise make available to anyone any Confidential Information except as authorized in the SOW and the MSA.
 
(c)  
Except as otherwise expressly stated in this Agreement, not to disclose the existence of this Agreement, any of the activities which may take place pursuant to this Agreement, the relationship formed, if any, under this Agreement or the other party’s interest in the subject matter to which this Agreement relates, to anyone except those employees of Chordiant, CIGNA and IBM with a need to know unless authorized in the SOW and the MSA.
 
(d)  
That Confidential Information delivered by CIGNA (or by IBM, on CIGNA’s behalf), and all copyright, patent, and other proprietary rights therein, shall remain property of CIGNA or its direct and indirect subsidiaries and affiliates, as the case may be, at all times.
 
(e)  
Nothing contained herein shall be construed as: (i) granting to me any right, title or interest in or to, or any license under, any patent or patent application, now or subsequently owned by CIGNA or IBM or their respective designees; and (ii) granting to me any right, title or interest in or to, or any license under Confidential Information provided by CIGNA (or by IBM, on CIGNA’s behalf).
 
(f)  
Upon Chordiant’s completion of Services to IBM and CIGNA, or IBM’s completion of Services to CIGNA, or upon CIGNA or IBM’s earlier request: (i) I shall immediately cease using the Confidential Information; and (ii) return Confidential Information (including all copies and
 


summaries thereof) to CIGNA (or IBM, on CIGNA’s behalf), or, at the CIGNA’s option, destroy the same promptly after a written or oral demand. Upon CIGNA or IBM’s request, I shall certify to the requesting party in writing that I have complied with my obligations under this paragraph.
 
3.  
Assignment Obligations. I hereby understand and agree:
 
(a)  
That during the course of my employment, I may work on and be a part of the development of technology, processes, methodologies, and other work product for CIGNA (or IBM, on CIGNA’s behalf). In accordance with the provisions of the SOW and the CIGNA Agreement, I hereby assign to Chordiant any technology, processes, methodologies, and other work product developed by me and such technology, processes, methodologies, and other work product which shall become the sole and absolute property of Chordiant to enable Chordiant to meet its obligations under the SOW and the CIGNA Agreement and for IBM to meet its obligations to CIGNA under the MSA.
 
(b)  
That any and all inventions, improvements, discoveries, technologies, processes, methodologies, and other work product developed or discovered by me as a result [of my employment at] [or consultancy with] Chordiant shall be fully disclosed to Chordiant (or IBM, on CIGNA’s behalf, as required by the MSA), and in accordance with the provisions of the SOW I hereby assign the same to Chordiant, and the same shall become the sole and absolute property of Chordiant to enable Chordiant to meet its obligations under the SOW and the CIGNA Agreement and for IBM to meet its obligations to CIGNA under the MSA. Upon the request of IBM or CIGNA, I shall execute, acknowledge, and deliver such assignments and other documents as Chordiant, IBM or CIGNA may consider necessary or appropriate to vest all rights, titles, and interests in Chordiant to enable Chordiant to meet its obligations under the SOW and the CIGNA Agreement and to enable IBM to meet its obligations to CIGNA under the MSA.
 
4.  
Remedies. I hereby understand and agree:
 
(a)  
That unauthorized use or disclosure of Confidential Information may likely result in substantial monetary and other damages to CIGNA (or IBM, on CIGNA’s behalf) and their respective direct and indirect subsidiaries and affiliates and will subject me to disciplinary action, including termination of employment, and civil and criminal legal proceedings.
 
(b)  
That the unauthorized use or disclosure of Confidential Information may give rise to irreparable injury to CIGNA (or IBM, on CIGNA’s behalf) and acknowledge that remedies other than injunctive relief may not be
 


adequate. Accordingly, IBM and CIGNA and their respective direct and indirect subsidiaries and affiliates have the right to seek equitable and injunctive relief to prevent the unauthorized disclosure of Confidential Information.
 
5.  
Miscellaneous. I hereby understand and agree:
 
(a)  
This Agreement embodies the entire understanding between the parties as to the subject matter of this Agreement and supersedes and replaces any and all prior understandings, arrangements and agreements whether oral or written relating to the Confidential Information. The terms of this Agreement shall not be amended or modified except in writing signed by each of Chordiant and me.
 
(b)  
The provisions of this Agreement shall survive the expiration or termination of the MSA and the SOW for a period of seven (7) years.
 
(c)  
This Agreement is a personal, indivisible, nontransferable agreement and may not be assigned or transferred, in whole or in part, by either party.
 
(d)  
CIGNA shall be an intended third party beneficiary of this Agreement but only as to individuals who are no longer employed by Chordiant or retained as a consultant by Chordiant.
 
(e)  
This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York, without respect to its rules on the conflict of laws.
 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as set forth below.
 
CHORDIANT SOFTWARE, INC.
[insert Chordiant employee or contractor full name]
   
   
By:      
By:      
   
Name:      
Name:      
   
Title:      
Title:      
   
Date:      
Date:      
   

EX-10.44 5 ex1044.htm IBM MASTER AGREEMENT FOR SUBCONTRACTED SERVICES IBM Master Agreement for Subcontracted Services
 
Exhibit 10.44
Subcontractor Agreement #4902A2003
Master Agreement for Subcontracted Services
IBM as Prime Contractor

This Master Agreement for Subcontracted Services (called the “Subcontractor Agreement”) governs the terms under which Chordiant Software, Inc. (“Chordiant”) as a subcontractor will supply International Business Machines Corporation (“IBM”) as a prime contractor with Programs and/or Services as described within this Subcontractor Agreement. This Subcontractor Agreement is an associated contract between the Parties as contemplated by the Chordiant/IBM Master Relationship Agreement (“MRA”). This Subcontractor Agreement, however, is an independent agreement between the Parties and does not therefore incorporate terms and conditions contained within the MRA by reference.

Each Party understands that Chordiant’s obligation to provide Programs or Services under this Subcontractor Agreement is contingent upon the execution of the relevant prime contract by a Customer and IBM.

This Subcontractor Agreement is written in English and signed with the understanding that the Parties are bound by its terms. The Parties will distribute copies of this Subcontractor Agreement to their respective Subsidiaries as required. These Subsidiaries will acknowledge acceptance of these terms through a Transaction Document which incorporates this Subcontractor Agreement by reference.

1. Definitions

Combined Offering is the combination of Programs and/or Services provided by the Parties in a prime contract with a Customer containing all or a portion of the Core Competencies described in Exhibits 1 and 2 herein.

Customer is the entity who awards the prime contract for Products and Services described in the Combined Offering.

Deliverables means those Programs, Services and Materials which Chordiant prepares for or provides to IBM as prime contractor (“Prime”) or to the Customer directly, as authorized by IBM in a Transaction Document.

Enterprise is any legal entity (such as a corporation) and the subsidiaries it owns by more than 50 percent.

Euro Ready means that the Products and Materials provided under this Subcontractor Agreement when used in accordance with their associated documentation, and if specified in a particular Statement of Work as being Euro Ready, are capable of correctly processing, providing and/or receiving data in the Economic Monetary Union or Euro denomination, provided that all products (for example, hardware, software, and firmware) used with the hardware provided under this Subcontractor Agreement properly and accurately exchange such data with it. 

 
 
 


Harmful Code shall mean machine-readable instructions and data, including the original and all whole or partial copies, designed to intentionally disrupt a Program’s operations or intentionally destroy or damage a Program or data contained therein.

Inventions shall mean ideas, designs, concepts, techniques, inventions, discoveries or improvements, whether or not patentable, conceived or reduced to practice solely by one or more employees (and/or subcontractors) of one Party ("Sole Invention") or jointly by one or more employees (and/or subcontractors) of one Party with one or more employees (and/or subcontractors) of the other Party ("Joint Invention") as a result of activities under this Subcontractor Agreement.

Materials are literary works or other works of authorship (such as programs, program listings, documentation, reports, drawings and similar works) that Chordiant may deliver to IBM or to a Customer as part of a Service. The term “Materials” does not include Programs.
 
Party shall mean either IBM or Chordiant and Parties shall mean both IBM and Chordiant.

Program means Chordiant’s commercially available software and documentation required to install, support, use, and maintain it. The term does not include Materials.

Service is performance of a task such as project management, engineering, programming, consultation, education, training, installation, maintenance, site preparation, facilities management or operations support, or use of a resource (such as an informational database or a network and associated enhanced communication and support) that Chordiant makes available to IBM or to the Customer as authorized by IBM in a Transaction Document.

Specified Operating Environment is the IBM or third party equipment and Programs with which a Program is designed to operate, as described in the Program’s documentation.

Subsidiary is an entity that is owned or controlled directly or indirectly (by more than 50% of its voting stock, or if not voting stock, decision-making power) by Chordiant or IBM.


2. Subcontractor Agreement Structure

A. Transaction Documents.

The following are examples of Transaction Documents, with examples of the information they may contain:
1.  
Statements of Work (as described in Section 2.B. herein);
2.  
Documents signed by local country Subsidiaries of the Parties acknowledging their agreement to be bound by the terms of this Subcontractor Agreement and incorporating the terms of this Subcontractor Agreement by reference;
3.  
Change Orders (changes to the Statement of Work);

 
 
 


4.  
Invoices (item, quantity, price, and amount due);

B. Statements of Work

This Subcontractor Agreement contemplates the execution of a Master Statement of Work and future execution of one or more Statements of Work for Programs or Services to be provided by Chordiant to IBM as Prime or to Customers in connection with the Combined Offering. The Statement of Work shall specify the information outlined below:

1.  
A reference to this Subcontractor Agreement;
2.  
A description, in reasonable detail, of the Services to be performed by Chordiant, including a description of any associated Deliverables that may be delivered; These descriptions may include:
·  
License supplements (quantity ordered, estimated shipment date, and other terms referenced in Exhibit 3);
·  
Exhibits (eligible Programs by category, discounts schedules, and available contract periods);
3.  
Contact names, addresses and telephone numbers;
4.  
If applicable, a description of expenses to be reimbursed by IBM, including the basis for such reimbursement;
5.  
The maximum total expenditure authorized for such Statement of Work, which is understood to mean:
a.  
a dollar amount or time limit beyond which Chordiant may not invoice IBM for Services under a specific Statement of Work; and
b.  
a dollar amount or time limit beyond which Chordiant is not required to expend effort or provide Services under a specific Statement of Work without IBM’s prior written consent;
6.  
Estimated commencement and completion dates;
7.  
Inspection, test, acceptance or completion criteria, if applicable;
8.  
Shipping and invoicing instructions; and
9.  
Signatures of each Party’s respective authorized representatives.


C. Proposals. 

From time to time, IBM will be requested to submit a proposal to the Customer describing the details of the solution that IBM will provide to the Customer. As part of the proposal preparation, IBM and Chordiant will enter into a Statement of Work detailing Chordiant’s responsibilities under the proposed engagement. The Parties agree that the Statement of Work will only be effective in the event the Customer executes a contract to acquire the Combined Offering from IBM, and IBM issues a purchase order signifying authorization for Chordiant to provide Programs and/or Services to IBM or the Customer with respect to the Combined Offering.


 
 
 

D. Conflicting Terms. 

If there is a conflict among the terms of the various documents, the order of precedence will be: 1) the terms of a Change Order; 2) the terms of a Statement of Work or other Transaction Document; 3) the terms of the Master Statement of Work; and 4) this Subcontractor Agreement.


3. Responsibilities of the Parties

A. Mutual Responsibilities

The Parties agree that under this Subcontractor Agreement:

1.  
each is an independent contractor, and that each is responsible for the supervision, direction and control of its respective personnel;
2.  
neither may represent or act on behalf of the other, unless otherwise agreed to in writing;
3.  
neither grants the other the right to use its trademarks, trade names, service marks or other designation in any promotion or publication, without prior written consent;
4.  
neither will disclose the terms of this Subcontractor Agreement, unless both Parties agree in writing to do so, or unless required by law;
5.  
each is free to enter into similar agreements with others and to market its products and services to anyone;
6.  
each will comply with the laws and regulations (such as import and export restrictions) applicable to this Subcontractor Agreement;
7.  
all information exchanged is non-confidential, unless such information is deemed to be confidential pursuant to the terms of the Agreement for Exchange of Confidential Information (AECI). If either Party requires the exchange of confidential information, it will be made under the AECI signed by the Parties on March 27, 2002; and
8. each grants the other only the licenses specified. No other licenses (including licenses under patents) are granted.


B. Chordiant’s Other Responsibilities

Chordiant will:

1.  
supply IBM with the Programs and/or Services specified in a Transaction Document if the Customer executes a prime contract with IBM;
2.  
provide as requested to IBM and the Customer information which describes such terms as warranty, and licenses to Programs and Materials that will be delivered by Chordiant under a Statement of Work;
3.  
not deal directly with the Customer on matters that directly relate to the prime contract with the Customer unless otherwise authorized by IBM in a Transaction Document.
4.  
to notify IBM of any recurring charges that may apply beyond the duration of the prime contract and of IBM’s obligation to pay Chordiant, if any, for such recurring charges.

 
 
 



C. IBM’s Other Responsibilities

IBM agrees:

1.  
that the Programs and/or Services provided under this Subcontractor Agreement are not purchased for its own use or for remarketing (other than to the Customer). If it is required to deliver Programs and Services to another contractor for ultimate delivery to the Customer, it will ensure that:
a.  
its obligations under this Subcontractor Agreement (including those within the AECI) are met; and
b.  
no rights are granted to that contractor, other than to deliver the Programs or Services on its behalf;
2.  
that the licensing of Programs or the acquisition of Services relates solely to this Subcontractor Agreement and may not be used to determine attainment, discounts, or payments to it under any other agreement between the Parties;
3.  
as applicable, to provide the Customer with a copy of the relevant Chordiant customer agreement as per Section 6.A., and statement of warranty upon transfer of the Programs and Materials, to the extent such customer agreements, licenses and statements of warranty are provided by Chordiant to IBM;
4.  
to notify the Customer of any recurring charges that may apply beyond the duration of the prime contract and of the Customer’s obligation to pay Chordiant, if any for such recurring charges; and
5.  
for non-Chordiant equipment or third party equipment that Chordiant supplies that is not warranted by Chordiant or the third party, to inform the Customer, in writing, that Chordiant or the third party does not warrant it.
6.  
Notify Chordiant of the (1) the planned date of submission of a proposal to a Customer; (2) acceptance of IBM’s proposal by the Customer; and (3) the final installation site of the Products.


4. Delivery

Chordiant will deliver the Programs and Services in accordance with the delivery schedule provided in a Statement of Work or a Transaction Document. Delivery may be made by Chordiant directly or through a Subsidiary. If there are any problems with such delivery schedule, Chordiant will notify IBM within ten (10) working days after the problem becomes apparent, unless otherwise specified in a Transaction Document.

Chordiant will pay normal transportation charges for the Programs it ships.


 
 
 


5. Prices, Payment to the Subcontractor

The prices for the Programs and Services shall be as specified in a Statement of Work and/or Transaction Document. Chordiant may revise its prices within seven days prior to the planned date of submission of IBM's proposal to the Customer by written notice to IBM. IBM may price the Programs and Services to the Customer at whatever price it deems appropriate.

Invoices shall reference the applicable Statement of Work, this Subcontractor Agreement, any relevant Transaction Document, and purchase order number applicable to the Programs and/or Services specified in the Invoice. Payment to Chordiant will be set forth in the applicable Statement of Work and/or any relevant Transaction Document.

Payment of invoices will not be deemed acceptance of Programs, but rather such Programs will be subject to inspection, test, acceptance or rejection in accordance with the acceptance or completion criteria as specified in the relevant Statement of Work.

IBM agrees to provide Chordiant with valid reseller exemption documentation for each applicable taxing jurisdiction. Otherwise, Chordiant shall be entitled to charge all applicable state and local taxes or duties. IBM shall promptly notify Chordiant if such documentation is revoked or modified. IBM shall be liable for any claims or assessments that result from any taxing jurisdiction refusing to recognize its exemption.


6. Programs

A. License. 

Programs are owned or licensed by Chordiant or one of its Subsidiaries or a Chordiant supplier and are copyrighted and licensed (not sold) to IBM or to the Customer. Chordiant license terms for the Programs as set forth in Exhibit 3 attached hereto will be provided directly to the Customer by IBM or Chordiant at IBM’s request. IBM is not a party to such license and is not liable to the Customer or Chordiant for any breach of its terms. To the extent that the Customer requires any modification or clarification to the Chordiant license terms, Chordiant agrees to negotiate in good faith directly with the Customer. Chordiant may, as required, amend the Program license terms contained in Exhibit 3 with at least thirty days prior written notice to IBM, except that Chordiant may not amend the terms contained in Exhibit 3 Section 5. Indemnity, Warranties, Remedies without IBM’s prior written consent, which consent shall not be unreasonably withheld. Chordiant may grant license rights to IBM in addition to those set forth elsewhere in this Subcontractor Agreement for the purpose of performing services under the Customer contract; such rights will be in accordance with the terms of the applicable Statement of Work.


 
 
 

B. Warranty

For each Program, Chordiant will, as applicable and if necessary as agreed between the Customer and Chordiant, specify any amendments or supplements to the terms contained in Exhibit 3, such as changes to the warranty period, in a Transaction Document.
If IBM determines that a Program needs to be Euro Ready for a specific Customer engagement, the Parties agree to negotiate the terms related to such Euro Ready warranty for that Customer at that time.

Chordiant warrants that Programs do not knowingly contain Harmful Code.

For each Program, Chordiant warrants for a period specified in Exhibit 3 or for a greater period, if any, as specified in a Transaction Document, from the date of delivery to the Customer that the Program as delivered by Chordiant, will substantially perform the functions described in the user guides and manuals for installation and use of the Program in all material respects when operated in the Specified Operating Environment. Provided that Customer or IBM gives Chordiant written notice of a breach of the foregoing warranty during the warranty period, Chordiant shall, as IBM’s and Customer’s sole and exclusive remedy, correct any reproducible errors that cause the breach of warranty in accordance with its technical support policies, or if Chordiant is unable to make the Program operate as warranted, Customer shall be entitled to terminate the Program license and Chordiant shall refund fees paid by IBM for the Program.

If Chordiant provides any Customer with a warranty more favorable than the foregoing warranty, the terms of the more favorable warranty will apply to IBM to the extent that IBM is acting on behalf of such Customer. Chordiant shall be deemed to have satisfied its warranty remedy obligations by providing such warranty remedy to EITHER IBM or the Customer.


7. Services

A. Materials

1.  
During a project, Chordiant may deliver Materials to IBM or the Customer, as specified in a Statement of Work.
2.  
The Statement of Work will specify if Materials are applicable to the project. If any such Materials are applicable, the applicable Statement of Work shall identify them as being either "Type I Materials,” "Type II Materials," “Type III Materials,” or otherwise as both Parties may agree. If not specified, Materials shall be deemed to be Type I Materials.

 
a.
Type I Materials are those created in performance of a Statement of Work in which IBM or (at IBM’s request) the Customer will have all right, title and interest (including ownership of copyright). Chordiant will retain one copy of the Materials. IBM grants to Chordiant: 1) an irrevocable, nonexclusive, worldwide, paid-up right to use, execute, reproduce, display, perform, distribute (internally

 
 
 

and externally) copies of, and prepare derivative works based on Type I Materials and 2) the right to authorize others to do any of the foregoing.

b.  
Type II Materials are those created in performance of a Statement of Work or otherwise (such as those that preexist the project) in which Chordiant or third parties have all right, title, and interest (including ownership of copyright). Chordiant will deliver one copy of the specified Type II Materials to IBM. Chordiant grants to IBM or (at IBM’s request) authorizes IBM to grant the Customer an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform, and distribute within the Customer’s Enterprise copies of Type II Materials. In the event IBM terminates this Subcontractor Agreement or a Statement of Work, then Chordiant agrees to grant and hereby grants IBM the same license granted above to the Customer and authorizes the creation of derivative works to enable IBM to complete, or have completed, Chordiant’s obligations to IBM.

c.  
Type III Materials are those created in performance of a Statement of Work in which Chordiant will have all right, title and interest (including ownership of copyright). IBM will retain one copy of the Materials. Chordiant grants to IBM: 1) an irrevocable, nonexclusive, worldwide, paid-up right to use, execute, reproduce, display, perform, distribute (internally and externally) copies of, and prepare derivative works based on Type III Materials and 2) the right to authorize others to do any of the foregoing.

The classifications and license rights described above are independent of any rights associated with Inventions as described in and pursuant to Section 8 below (Inventions).

3.  
Each Party agrees to reproduce the copyright notice and any other notice or legend of ownership on any copies made under the licenses granted in this Section. IBM agrees that it will require a Customer to reproduce the copyright notice and any other notice or legend of ownership on any copies of Type II or III licensed Materials.

4.  
IBM hereby consents to Chordiant accessing and using IBM's programs licensed to the Customer for purposes of Chordiant performing its obligations under a Statement of Work, without Customer or Chordiant being required to acquire additional licenses or incur a fee from IBM. Chordiant hereby consents to IBM accessing and using Chordiant's Programs licensed to the Customer for purposes of IBM fulfilling its obligations under a Statement of Work and under the contract between IBM and the Customer, without the Customer or IBM being required to acquire additional licenses or incurring a fee from Chordiant. In no event shall Chordiant’s or IBM’s permitted access, as the case may be, of the other Party’s program(s) as described herein, increase or otherwise change the scope or other limitation contained within the applicable Customer license.

Subject to the express limitations contained within Section 7.A.4 herein, in the event IBM provides Services (including but not limited to Services for purposes of demonstration,

 
 
 

evaluation, installation, implementation, customization, development, consulting, systems integration, outsourcing, and/or hosting Services for Customers) to Chordiant’s licensees, Chordiant authorizes IBM to run and use Chordiant’s Programs for the sole permitted purpose of providing such Services to Chordiant’s licensees. In addition, amd subject to the express terms and limitations of an applicable Chordiant license, neither IBM nor the Customer will be required to pay Chordiant any fees or additional license charges to transfer applicable Chordiant licenses to an IBM or third party computer system which is of like configuration as the computer system for which the particular Programs were licensed. Upon expiration or termination of the agreement to provide IBM’s Services to a Chordiant licensee, IBM’s right to use the Customer license to a Program to provide Services to such licensee will end.

5.  
The Parties agree that unless otherwise agreed to in a Statement of Work, derivative works of Chordiant’s Programs shall belong to Chordiant, irrespective of which Party made the derivative work. If Chordiant does not intend to make the derivative work available as part of its commercially available Program(s), then Chordiant grants to IBM or (at IBM’s request) to the Customer the license to use, execute, modify, and distribute such derivative work within the Customer’s enterprise. In the event Chordiant chooses to include the derivative work as part of the next release of the respective Program, the warranties associated with the license terms described in Exhibit 3 apply.


B. Warranty

Chordiant warrants that it will perform the Services using reasonable care and skill, and according to its current description (including any completion criteria) contained in a Statement of Work or other Transaction Document. To the extent that IBM determines that the Materials need to be Euro Ready for a specific Customer engagement, the Parties agree to negotiate the terms of such Euro Ready warranty for such Materials at that time.

IBM agrees that it must report any deficiencies of the Services to Chordiant in writing within ninety (90) days of performance of the Services in order to receive any warranty remedy.

Chordiant does not warrant uninterrupted or error-free operation of any Deliverable or Service. THE WARRANTY PROVIDED HEREIN IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF ANY KIND EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OR CONDITIONS OF NONINFRINGEMENT, NONINTERFERENCE, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 

FOR ANY BREACH OF THE AFOREMENTIONED WARRANTY, IBM’S EXCLUSIVE REMEDY, AND CHORDIANT’S ENTIRE LIABILITY, SHALL BE THE REPERFORMANCE OF THE SERVICES. IF CHORDIANT IS UNABLE TO REPERFORM THE SERVICES AS WARRANTED, IBM SHALL BE ENTITLED TO RECOVER THE FEES PAID TO CHORDIANT FOR THE DEFICIENT SERVICES.

 
 
 


8. Inventions

Inventions will be treated as follows:

1.  Sole Inventions and all patent applications filed therefor and all patents issued thereon, shall be the sole and exclusive property of the inventing Party subject to a non-exclusive, worldwide, irrevocable, nontransferable and fully paid-up license to the other Party which is hereby granted to make, have made, use, have used, lease, offer for sale, sell, import and/or otherwise transfer any product and to practice and have practiced any method.

2. The inventing Party shall identify all countries in which it will seek patent protection for each Sole Invention. The inventing Party authorizes the other Party to act as its agent in obtaining patent protection for the Invention in countries where the inventing Party does not seek patent protection and will, at the other Party's expense, assist in the filing of patent applications on such Inventions and have required documents signed. Such patents shall be the sole property of the inventing Party subject to the license herein granted in Section 8.1.
 

 
 
3.  All Joint Inventions shall be jointly owned, title to all patents issued thereon shall be joint, all expenses (including those related to preparation, prosecution and maintenance) shall be jointly shared (except as provided below), and each Party shall have the right to non-exclusively license third parties thereunder without accounting to the other Party. Where one Party elects not to share equally in the expenses for a Joint Invention, the other Party shall have the right to seek or maintain such protection for such Joint Invention at its own expense, and shall have full control over its preparation, prosecution and maintenance, even though title to any issuing patent will be held jointly.
 

4. Each Party grants the other only the licenses and rights expressly specified in this Subcontractor Agreement and Statements of Work hereunder. Except as may be provided in other written agreements between the Parties, no other licenses or rights (including, without limitation, licenses or rights under patents, trademarks or copyrights) are granted either directly or indirectly, by implication, estoppel or otherwise under this Subcontractor Agreement.

9. Patent and Copyright Indemnification

If a third party claims that a Deliverable that Chordiant provides to IBM or to the Customer infringes that third party’s patent or copyrights, or misappropriates that third party’s trade secrets, regardless of whether that third party had made such claim against IBM or a Customer which has been provided a Deliverable that is the basis of the infringement or misappropriation claim, Chordiant will defend IBM or its Customer against that claim at Chordiant’s expense and shall pay all costs, damages, and attorney's fees that a court finally awards, or that are included in a settlement approved by Chordiant, provided that IBM or its Customer (as applicable):     
1.  
promptly notifies Chordiant in writing of the claim;

 
 
 


2.  
allows Chordiant to control and cooperates with Chordiant in the defense and any related settlement negotiations, provided that any such settlement does not adversely affect IBM.

If such a claim is or is likely to be made, Chordiant will, at its own expense, exercise the following remedies in any order selected by Chordiant: (i) obtain for IBM and the Customer the right to continue to use, sell and license the Deliverables consistent with this Subcontractor Agreement; (ii) modify Deliverables so they are non-infringing and in compliance with this Agreement; (iii) replace the affected Deliverables with non-infringing ones that comply with this Subcontractor Agreement; or if after attempting to exercise (i), (ii) and (iii), none of these are commercially reasonable, then it shall accept the return of infringing Deliverable(s) and refund any amount paid for such infringing Deliverable(s).  Chordiant may accept the first of remedies (i), (ii) or (iii), in whichever order it may select, that it may obtain and need not pursue the others.

This is Chordiant’s entire obligation and IBM’s and the Customer’s sole remedy regarding any claim of patent or copyright infringement or trade secret misappropriation. Chordiant’s obligations and responsibilities with respect to the Customer are subject to all the conditions, limitations and restrictions contained in this Section 9, and no terms and conditions in the prime contract between IBM and the Customer can expand Chordiant’s obligations and responsibilities hereunder.

Claims for which Chordiant is not responsible:
1.  
IBM's or the Customer’s modification of a Deliverable, or a Deliverable’s use in other than its Specified Operating Environment when the claim would not have occurred but for such modification or use;
2.  
the combination, operation, or use of a Deliverable with any products not provided by Chordiant as a system, or not in accordance with the Deliverable’s specifications, or the combination, operation or use of a Deliverable with any product, data, business method or apparatus that Chordiant did not provide or specify, when the claim would not have occurred but for such combination, operation or use;
3.  
IBM’s or the Customer’s failure to install a Chordiant-supplied update or upgrade, when the claim would not have occurred but for such failure; or
4.  
infringement by a non-Chordiant Deliverable alone, when the claim would not have occurred but for such non-Chordiant Deliverable.


If a third party claims that a deliverable provided by IBM to IBM’s Customer which includes a Chordiant Deliverable infringes that third party’s patent or copyright, or misappropriates that third party’s trade secrets, IBM will defend Chordiant against that claim at IBM’s expense and shall pay all costs, damages, and attorney's fees that a court finally awards, or that are included in a settlement approved by IBM, provided that Chordiant:

1. promptly notifies IBM in writing of the claim; and

 
 
 


 
2.
allows IBM to control and cooperates with IBM in the defense and any related settlement negotiations, provided that any such settlement does not adversely affect Chordiant;


IBM’s foregoing obligation to defend shall only apply 1) if the IBM deliverable without combination with the Chordiant Deliverable is the sole cause of the infringement claim or 2) the claim is due solely to IBM’s or IBM’s Customer’s failure to install a Chordiant-supplied update or upgrade and IBM’s obligation to defend shall not apply if the combination, operation or use of the Chordiant Deliverable in the IBM deliverable is in accordance with the documentation or specifications for the Chordiant Deliverable or the combination was made with the written approval of Chordiant.


10. Limitation of Liability

Circumstances may arise, where, because of a default or other liability, one of the Parties is entitled to recover damages from the other. In each such instance, regardless of the basis on which damages can be claimed, the following terms apply as the exclusive remedy.

A. Chordiant’s Liability

Chordiant is responsible for:

1.  
applicable Chordiant payments referred to in the Patent and Copyright Indemnification section above;
2.  
bodily injury (including death), and damage to real property and tangible personal property caused by Chordiant Products or Services;
3.  
any damages resulting from a breach of the AECI existing between the Parties; and
4.  
the amount of any other actual loss or damage, up to the greater of:
a.  
$100,000 or
b.  
the charges (if recurring, 12 months’ charges apply) for the Program or Service that is the subject of the claim. This limit also applies to any of Chordiant’s subcontractors or Program developers. It is the maximum for which Chordiant, its subcontractors and its Program developers are collectively responsible.

Items for Which Chordiant is Not Liable

Under no circumstances is Chordiant liable for any of the following:

1.  
third-party claims against IBM for losses or damages (other than those under the first two items listed above);
2.  
loss of or damage to records or data; or
3.  
economic consequential damages (including lost profits or savings) loss of business, revenue, goodwill, or anticipated savings or incidental damages (collectively, “Consequential Damages”), or punitive damages, even if advised that any of these types

 
 
 

of damages may occur; provided, however, notwithstanding the foregoing, Chordiant shall be liable for Consequential Damages associated with Chordiant’s infringement or violation of IBM's intellectual property rights.

B. IBM’s Liability

IBM is responsible for:

1.  
applicable IBM payments referred to in the Patent and Copyright Indemnification section above
2.  
bodily injury (including death), and damage to real property and tangible personal property caused by IBM’s Products or Services;
3.  
any damages resulting from a breach of the AECI existing between the Parties; and
4.  
the amount of any other actual loss or damage, up to the greater of:
a.  
$100,000 or
b.  
the charges (if recurring, 12 months’ charges apply) for the Program or Service that is the subject of the claim. This limit also applies to any of IBM’s subcontractors or program developers. It is the maximum for which IBM, its subcontractors and its program developers are collectively responsible.

Items for Which IBM is Not Liable

Under no circumstances is IBM liable for any of the following:

1.  
third-party claims against Chordiant for losses or damages (other than those under the first item listed above);
2.  
loss of or damage to records or data; or
3.  
economic consequential damages (including lost profits or savings) loss of business, revenue, goodwill, or anticipated savings, or incidental damages (collectively, “Consequential Damages”), or punitive damages, even if advised that any of these types of damages may occur; provided however, notwithstanding the foregoing, IBM shall be liable for Consequential Damages associated with IBM’s infringement or violation of Chordiant’s intellectual property rights.


11. Term and Termination

The term of this Subcontractor Agreement shall be three (3) year(s) from the date hereof. This Subcontractor Agreement may be extended upon conclusion of the term by agreement of the Parties.

Either Party may terminate this Subcontractor Agreement upon a material breach by the other Party. The terminating Party shall give the other Party written notice of the basis for termination and the other Party shall have 30 days in which to cure the default or, if 30 days is deemed inadequate by the breaching Party, the non-breaching Party may mutually agree in writing to an

 
 
 

acceptable cure plan and time period for cure with the other Party. If the default has not been cured within the 30-day period or substantial progress toward a cure has not been made within the mutually agreed to cure period, the non-breaching Party may terminate this Subcontractor Agreement upon a second notice at the end of the 30-day period or the mutually agreed to period, whichever is applicable.

Either Party may terminate this Subcontractor Agreement for convenience upon not less than 60 days prior written notice.

In the event this Subcontractor Agreement terminates any Statements of Work then in effect will continue until all work thereunder is performed, unless such Statement of Work is earlier terminated as provided herein or in the Statement of Work. Unless otherwise provided in a Statement of Work, IBM may terminate a Statement of Work, in whole or in part, providing 30 days’ prior written notice to Chordiant specifying the extent to which the performance of work is terminated and the date upon which such termination becomes effective. Upon notice of termination, Chordiant will stop performance under the applicable Statement of Work, and IBM agrees to pay Chordiant for the actual and reasonable expenses incurred by Chordiant for work in progress up to and including the date of termination, provided Chordiant uses reasonable efforts to mitigate IBM’s liability.

Any terms of this Subcontractor Agreement which by their nature extend beyond its termination remain in effect until fulfilled, and apply to respective successors and assignees.

12. General

A. Assignment 

Neither Party will assign their rights or delegate or subcontract their duties under this Subcontractor Agreement to third parties without the prior written consent of the other Party, such consent not to be withheld unreasonably. However, this Subcontractor Agreement may be assigned by either party in conjunction with the sale of a substantial part of its business utilizing this Subcontractor Agreement. Any unauthorized assignment of this Subcontractor Agreement is void.

B. Force Majeure 

Neither Party will be considered in default or liable for any delay or failure to perform any provision of this Subcontractor Agreement if such delay or failure arises directly or indirectly out of an act of God, acts of the public enemy, freight embargoes, quarantine restrictions, unusually severe weather conditions, insurrection, riot, and other such causes beyond the reasonable control of the Party experiencing the delay or failure to perform (excluding labor disputes affecting a Party and its suppliers, contractors and subcontractors), provided the affected Party notifies the other Party as soon as is reasonably practicable.

 
 
 


C. Limitation of Actions 

Neither Party will bring a legal action under this Subcontractor Agreement more than two years after the cause of action arose unless otherwise provided by local law without the possibility of contractual waiver or limitation.

D. Governing Law 

The Parties consent to the application of the laws of the country in which the transaction is executed and performed, to govern, interpret, and enforce all of each Party’s rights, duties, and obligations arising from, or relating in any manner to, the subject matter of this Subcontractor Agreement, without regard to conflict of law principles. In the United States, this Subcontractor Agreement shall be governed, interpreted and enforced in accordance with the laws of the State of New York. The Parties expressly waive any right to a jury trial regarding disputes arising under or related to this Subcontractor Agreement. The United Nations Convention on Contracts for the International Sale of Goods does not apply.

E. Electronic Commerce

The Parties will conduct transactions via an electronic commerce approach under which the Parties will electronically transmit and receive purchase orders, invoices, and payments. Such electronic communications are acceptable as a signed writing to the extent permissible under applicable law. An identification code (called a “user ID”) contained in an electronic document is sufficient to verify the sendor’s identify and the document’s authenticity. Any conflicting or additional terms, that are preprinted or standard form in nature, of any purchase order, acknowledgment or other ordering document submitted by either Party shall be null and void.

F. Insurance

During the term of this Agreement and any Statement of Work entered into under this Subcontractor Agreement, the Parties shall maintain insurance coverage sufficient to fulfill their respective obligations under this Subcontractor Agreement.

G. Data Privacy

Chordiant agrees to allow IBM and entities within its Enterprise to store and use Chordiant’s contact information, including names, phone numbers, and e-mail addresses, anywhere it does business. Such information will be processed and used in connection with IBM’s business relationship, and may be provided to contractors, Business Partners, and assignees of IBM and entities within its Enterprise for uses consistent with its collective business activities, including communicating with Chordiant (for example, for processing orders, for promotions, and for market research).

 
 
 


H. Severability

In the event that any provision of this Subcontractor Agreement is held to be invalid or unenforceable, the remaining provisions of this Subcontractor Agreement remain in full force and effect. 

I. Survival

Those terms which by their nature extend beyond the terms of this Subcontractor Agreement will remain in effect after the termination of this Subcontractor Agreement until fulfilled, and apply to both of our respective successors and assignees.

J. Territory

The territory for this Subcontractor Agreement shall be limited to North America. Any changes to the territory shall be mutually agreed between the Parties in writing through an amendment to this Subcontractor Agreement. Additional terms applicable to transactions within specific countries are contained in Attachment A - Master Agreement for Subcontracted Services - Country Unique Terms, attached hereto and hereby made part of this agreement by reference.

K. Entire Agreement 

This Subcontractor Agreement and its applicable Attachments and Exhibits are the complete agreement regarding these transactions, and replace any prior oral or written communications between the Parties. If any term in this Subcontractor Agreement is found by competent judicial authority to be unenforceable in any respect, the validity of the remainder of this Subcontractor Agreement will be unaffected, provided that such unenforceability does not materially affect the Parties’ rights under this Subcontractor Agreement. This Subcontractor Agreement may only be amended or modified by a writing signed by both Parties.

By signing below, both Parties agree to the terms of this Subcontractor Agreement. Once signed, any reproduction of this Subcontractor Agreement by any reliable means (for example, photocopy or facsimile) is in all respects equivalent to an original unless prohibited by local law.

International Business Machines Corporation Chordiant Software, Inc.
 

By: ___/s/ Danielle Wexler__________                       By: ___/s/ Steve Vogel_______________
Name: Danielle Wexler                                Name: Steve Vogel
Title: Procurement Alliance Relationship               Title: Chief Financial Officer
Manager  
Date: June 14, 2002                       Date: June 13, 2002


 
 
 



Exhibit 1
Chordiant’s Core Competencies


Description of Combined Offering:
Chordiant 5 - Enterprise Desktop initiative: Chordiant provides a real-time Single Entry & Validation Point for Multiple Products, Channels & Companies. A joint initiative will include the redesign of business processes around Chordiant products, interfaces to existing (or new) legacy systems, and EAI middleware solutions and products. Products will include Chordiant 5 JX products. Customization of web pages, edits, business rules, and workflow procedures are common to accommodate client specific business and product differences. Chordiant software enhancements may be required occasionally. The initiative will include IBM Hardware and Software for the installation and operation.


Programs: 
·  
Chordiant 5 Marketing Director (Online Marketing Director, Mobile Marketing Director, Marketing Optimiser, One Reporting);
·  
Chordiant 5 Selling & Services (Call Center Advisor, Branch Advisor, Web Advisor, Mobile Advisor);
·  
Chordiant 5 Enterprise Platform (Foundation Server, Rules Server, Knowledge Server, Collaboration Server, Connection Server)

Machines: N/A

Services: Chordiant Consulting Services related to Chordiant solutions, including

Business Analyst
Chordiant Technical/Solution Architect
Java Lead Developer
Chordiant CTI, WorkFlow, Rules specialist
Technical Trainer

The core Chordiant Competency is Chordiant Technical Solution Architect with in-depth knowledge of Chordiant software solutions and architecture, with a key focus on Gap Analysis and Quality Assurance of the implementation of the Chordiant software in the overall solution. E-business Specialist and Developers will be required where enhancements to the base software are required. Additional services (for client customization outside the core software) overlap IBM Competencies for e-business and will be utilized for (1) knowledge transfer on initial projects, and (2) staff augmentation.

 
 
 

 Exhibit 2
IBM’s Core Competencies

 
Description of Combined Offering:
Chordiant 5 - Enterprise Desktop initiative: Chordiant provides a real-time Single Entry & Validation Point for Multiple Products, Channels & Companies. A joint initiative will include the redesign of business processes around Chordiant products, interfaces to existing (or new) legacy systems, and EAI middleware solutions and products. Products will include Chordiant 5 JX products. Customization of web pages, edits, business rules, and workflow procedures are common to accommodate client specific business and product differences. Chordiant software enhancements may be required occasionally. The initiative will include IBM Hardware and Software for the installation and operation.

Programs: 
MQ Series
MQSI
MQWorkflow
MQ FSE
CrossWorlds
WebSphere
VA Java

Machines: 
NT
RS/6000
Mainframe

Services: 
Strategy and Change Consulting
E-Business Services
Project Management Office Services
Enterprise Application Integration Services
Testing Services
Performance / Benchmarking Testing
IBM Software Training
IBM Insurance Application Architecture License and Services

 
 
 

ATTACHMENT A
Master Agreement for Subcontracted Services
Country Unique Terms

The terms of this Subcontractor Agreement and any subsequent Statements of Work apply for all countries except that the following terms are country amendments which replace or modify terms for the identified country. All terms which are not changed by these Amendments remain in effect.

1.0 Governing Law

1.1 Section 13.D

The following replaces this section as it applies for those countries identified in bold print below:

Both Chordiant and IBM consent to the application of the laws of the country in which the transaction is performed to govern, interpret, and enforce all of your and IBM’s rights, duties, and obligations arising from, or relating in any manner to, the subject matter of this Subcontractor Agreement, without regard to conflict of law principles. However, the phrase “the laws of the country in which the transaction is performed" is replaced by the following phrases 1) “the laws of Austria” in Albania, Armenia, Azerbeijan, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, Georgia, Hungary, Kazakhstan, Kyrghystan, FYR Macedonia, Moldavia, Poland, Romania, Russia, Slovakia, Slovenia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and FR Yugoslavia; 2) “the laws of the State or Territory in which the transaction is performed” in Australia; 3) “the laws of France” in Algeria, Benin, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo Republic, Djibouti, Democratic Republic of Congo, Equatorial Guinea, French Guiana, French Polynesia, Gabon, Gambia, Guinea, Guinea-Bissau, Ivory Coast, Lebanon, Madagascar, Mali, Mauritania, Mauritius, Mayotte, Morocco, New Caledonia, Niger, Reunion, Senegal, Seychelles, Togo, Tunisia, Vanuatu, and Wallis & Futuna; 4) “the laws in the Province of Ontario” in Canada; 5) “the laws of Finland” in Estonia, Latvia, and Lithuania; 6) “the laws of England” in Angola, Bahrain, Botswana, Burundi, Egypt, Eritrea, Ethiopia, Ghana, Jordan, Kenya, Kuwait, Liberia, Malawi, Malta, Mozambique, Nigeria, Oman, Pakistan, Qatar, Rwanda, Sao Tome, Saudi Arabia, Sierra Leone, Somalia, Tanzania, Uganda, United Arab Emirates, the United Kingdom, West Bank/Gaza, Yemen, Zambia, and Zimbabwe; 7) “the laws of the State of New York, United States of America” in Cambodia,  Laos, the United States of America, and Vietnam; 8) “the laws of the State of New York, United States of America (except when local law requires otherwise”) in the People’s Republic of China; and 9) “the laws of Hong Kong Special Administrative Region of China” in Hong Kong, Macau, and Taiwan.



6.0 NORTH AMERICA

6.1 CANADA

6.1.1 Section 11.A. Limitation of Liability

The following replaces item 2:

damages for bodily injury (including death) and physical harm to real property and tangible personal property caused by Chordiant’s negligence; and

 
 
 


6.1.2 Section 11.B. Limitation of Liability

The following replaces item 2:

damages for bodily injury (including death) and physical harm to real property and tangible personal property caused by IBM’s negligence; and


6.3 UNITED STATES OF AMERICA

6.3.1 Section 6.A. Title

The following replaces the second and third sentences of the first paragraph:

Transfer of title occurs when the Machine is shipped. However, Chordiant reserves a purchase money security interest in the Machine until it receives the amounts due. For a feature, conversion, or upgrade involving the removal of parts which become Chordiant’s property, Chordiant reserves the security interest until it receives the amounts due and the removed parts. 

6.3.2 Section 6.C.  Limitation of Warranty

The following paragraph is added to this Section:

If a Machine is subject to federal or state consumer warranty laws, Chordiant’s statement of limited warranty included with the Machine applies in place of these Machine warranties.


 EX-10.45 6 ex1045.htm AMENDMENT 1 TO IBM MASTER AGREEMENT FOR SUBCONTRACTED SERVICES
 
Exhibit 10.45

AMENDMENT NUMBER ONE TO
MASTER AGREEMENT FOR SUBCONTRACTED SERVICES
IBM AS PRIME CONTRACTOR
# 4902A20003


International Business Machines Corporation (“IBM”) and Chordiant Software, Inc. (“Chordiant”) hereby agree to amend the Master Agreement for Subcontracted Services IBM as Prime Contractor # 4902A20003 between the Parties dated June 14, 2002 (called the “Subcontractor Agreement”), as described below in this amendment agreement (“this Amendment” or “Amendment One”). This Amendment shall be effective June 13, 2005.

Section 11. Term and Termination. 

The first paragraph of Section 11. Term and Termination is deleted in its entirety and replaced with the following:

This Subcontractor Agreement shall remain in effect until June 13, 2008, unless earlier terminated pursuant to the provisions herein. This Subcontractor Agreement may be extended upon conclusion of the term by agreement of the Parties.


To the extent that there is a conflict between the terms of the Subcontractor Agreement and this Amendment, as relates to this Amendment, the terms of this Amendment shall govern. All other terms and conditions of the Subcontractor Agreement shall remain in full force and effect. Once signed, the Parties agree that any reproduction of this Amendment made by reliable means (i.e., photocopy or facsimile) shall be considered an original.
 
IN WITNESS WHEREOF, the Parties, acting through their authorized representatives, have caused this Amendment One to be duly executed and effective as indicated above.

International Business Machines Corporation  Chordiant Software, Inc.



By: ___/s/ Danielle Wexler____________                 By: ___ /s/ Robert Mullen ________
 
Name:  Danielle Wexler                              Name: Robert Mullen
 
Title:  Global Services Procurement Alliances                   Title: President, WW Field Operations
 
Date: May 31, 2005                                    Date:  May 27, 2005


 EX-10.46 7 ex1046.htm AMENDMENT 2 TO IBM AGREEMENT FOR SUBCONTRACTED SERVICES Amendment 2 to IBM Agreement for Subcontracted Services
 
Exhibit 10.46
Subcontractor Agreement #4902S2003
Amendment Number Two to
the Master Agreement for Subcontracted Services
IBM as Prime Contractor
# 4902A2003



International Business Machines Corporation (IBM) and Chordiant Software, Inc ( Chordiant) hereby agree to amend the Master Agreement for Subcontracted Services IBM as Prime Contractor # 4902A2003 between the Parties dated June 14, 2002 ( called the “Subcontractor” Agreement ), as described below in this amendment agreement (“this Amendment “ or “Amendment Two”). This Amendment shall be effective October 4, 2006.

Section 11. Term and Termination.

The first paragraph of Section 11.Term and Termination is deleted in its entirety and replaced with the following:

This subcontractor Agreement shall remain in effect until December 31, 2009,
unless earlier terminated pursuant to the provisions herein. This Subcontractor Agreement may be extended upon conclusion of the term by agreement of the Parties.

To the extent that there is a conflict between the terms of the Subcontractor Agreement, and this Amendment, as relates to this Amendment, the terms of this Amendment shall govern. All other Terms and conditions of the Subcontractor Agreement shall remain in full force and effect. Once signed, the Parties agree that any reproduction of this Amendment made by reliable means ( i.e., photocopy or facsimile) shall be considered an original.



In Witness Whereof, the Parties, acting through their authorized representatives, have caused this Amendment Two to be duly executed and effective as indicated above


International Business Machines Corporation Chordiant Software, Inc.
 

By: ___ /s/ Ray Flynn _______________                   By: __/s/ Kelly Hicks__________
Name: Ray Flynn                                 Name: Kelly Hicks
Title: Procurement Alliance Relationship                    Title: Vice President, Worldwide
Manager                             < font id="TAB2" style="LETTER-SPACING: 9pt">        Field Operations
Date: October 12, 2006                    Date: October 12, 2006





EX-10.47 8 ex1047.htm IBM STATEMENT OF WORK FOR CIGNA IBM Statement of Work for CIGNA
 
Exhibit 10.47
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
 
Master Agreement for Subcontracted Services
Statement of Work
MASS Agreement #4902A20003
SOW #4906AT0073

This Statement of Work ("SOW")#4906AT0073 adopts and incorporates by reference the terms and conditions of the Master Agreement for Subcontracted Services - IBM as Prime # 4902A20003 (the “Agreement” or “MASS”), between International Business Machines Corporation (“IBM” or “Buyer”), and Chordiant Software, Inc. (“Supplier” or “Chordiant”). This SOW is effective beginning on the latest date of signature by both parties and will remain in effect until [*] (the “Initial Term”). Transactions performed under this SOW will be conducted in accordance with and be subject to the terms and conditions of this SOW, the Agreement, and any other applicable attachments or amendments. In the event of any conflict between this SOW, or the Agreement, this SOW will govern and any applicable Work Authorizations (“WAs”). This SOW is not a WA.

Not withstanding anything in the MASS to the contrary, the MASS shall remain in effect with respect to this SOW through the term of this SOW.

1.0  
SCOPE OF WORK
Supplier resources will assist Buyer with the following services for the Call Center Application (CCA) Tower Project for CIGNA Corporation (“CIGNA” or “Customer”):

1.1  
Support of JSF SDK to Enable Portlet Development

Supplier will provide JSF SDK support in Chordiant Foundation which will provide the platform on which to build portlets for the reference CIGNA Architecture. Chordiant will demonstrate JSF/SDK test scenarios in lab environment.
 
Definition of Chordiant JSF SDK
The JSF SDK allows developers to build Java Server Faces user interfaces which connect with Chordiant processes (via the Interaction Controller), and Chordiant business services. JSF SDK pages can be hosted by the existing Chordiant Cafe desktop, or alternative custom desktops. The contents of this JSF SDK are:
-  [*]

The JSF SDK will be used by Buyer, with Supplier’s support, to deliver a Reference Build. The reference build will provide the following:
-  [*]


1.2  
Services Support for CIGNA Development & Build Effort

Supplier will assist Buyer in the following activities of the CIGNA Call Center Application (CCA) Tower Project:
·  
Support the baseline Portlet development by providing [*] hours of architect support to assist with initial JSF SDK implementation, the Reference Architecture outlined above and the Portlet development. (These hours are included in the total hours noted in Section 3.0.)
·  
Assist with the high and low level design of the Chordiant functional solution
·  
Provide guidance and mentoring on how to maximize the value from the Chordiant product
·  
Assist with the high and low level design of Chordiant software integration in the overall architecture
·  
Provide guidance and mentoring on techniques to extend the Chordiant Physical Data Model and the Chordiant Business Object Model
·  
Assist with the extension of the Chordiant Physical Data Model and the Chordiant Business Object Model
·  
Assist with the design and development of Chordiant Business Flows and Chordiant Business Services
·  
Assist with design and development of Chordiant Queue management
·  
Assist with the installation and configuration of the Chordiant solution in the customer environments
·  
Assist with performance testing and tuning the Chordiant solution
·  
Provide Subject Matter Expertise for Information Technology Governance related to managing a Chordiant engagement leveraging Harmony Methodology, Chordiant Product and Chordiant Integration Architecture

2.0  
SUPPLIER ROLES

Supplier will provide consultants for the following type(s) of roles:

o  
Technical Architect
o  
Functional Architect
o  
Consultancy Services Manager
o  
Data Architect
o  
Portal Architect
o  
Application Architect
o  
Business Analyst
o  
Class Modeler
o  
Interaction Flow Designer
o  
Business Services Designer
o  
Performance Tuning Specialist
o  
Infrastructure Architect

3.0  
COMPLETION CRITERIA
Supplier will have fulfilled its obligations under this SOW when anyone of the following first occurs:
·  
IBM has agreed that Supplier has provided the hours as defined in Section 5.0 below in this Statement of Work or
·  
Either party terminates the SOW in accordance with the provisions of the Master Agreement for Subcontractor Services, or IBM terminates the SOW upon thirty days prior written notice.


4.0  
SUPPLIER’S RESPONSIBILITIES
In addition to delivering the Services on schedule, Supplier will:
·  
Participate in progress reviews, as requested by Buyer, to demonstrate Supplier’s performance of its obligations;
·  
As part of Supplier’s importation requirements, provide to Buyer on the commercial invoice:
·  
An invoice description that provides enough detail to verify the effort and time period expended for the month.

5.0  
PAYMENTS
Supplier services will be payable and invoiced to Buyer on a time and materials basis at rates provided in the table below per consultant, plus applicable sales taxes and expenses; total estimated to be [*] for Supplier Services as follows:

Table 1

Positions
Roles
Estimated Hours
Hourly Rates
Technical Architect
Technical Architect
Functional Architect
Performance Tuning Specialist
Data Architect
Portal Architect
Application Architect
Infrastructure Architect
Interaction Flow Designer
Business Services Designer
[*]
$[*]
Consultancy Services Manager
Consultancy Services Manager
[*]
$[*]
Business Analyst
Business Analyst
Class Modeler
[*]
$[*]
Total Estimated Hours
  
[*]
  

  The service fee estimate related for the Supplier Services described under this SOW is intended to be an estimate for Buyer's budgeting and Supplier's resource scheduling purposes; the estimate does not include expenses or taxes. Once fees for services reach this estimate, Supplier will cooperate with Buyer to provide continuing services on a time and materials basis or at Buyer’s direction, stop performing services. In the event that additional services are required, Buyer and Supplier will handle such services through the Change Control Process and such additional services will be mutually agreed to by both parties. All amounts due to Supplier hereunder will be invoiced monthly. All such invoices shall be payable net 45 days for this SOW only. Actual travel and living expenses are in addition to the service fees. Chordiant will be reimbursed for actual expenses incurred and adhere to the IBM expense policy. Chordiant will work with IBM to manage expenses.
  
  All travel and living invoices are at actual cost with no mark-up. (Buyer will reimburse Supplier for the following travel expenses only, provided they are incurred in performance of this SOW and with Buyer’s prior written approval: (i) tolls, parking fees, taxis, buses or auto rentals fees for autos rented from a Buyer designated rental company; (ii) personal automobile use under the applicable automobile allowance plan, excluding normal commutation; (iii) air transportation at the economy, tourist or coach class rate for the most direct route of a scheduled airline; (iv) reasonable lodging charges for the immediate area; (v) reasonable and actual meal expenses; (vi) necessary business calls made on Buyer’s behalf; (vii) reasonable tipping; (viii) reasonable valet and laundry charges if a trip extends beyond four consecutive (4) days. Supplier must submit an invoice listing all travel expenses, and all applicable receipts for lodging, airline travel, rental cars or any other reimbursable expenditure to the Technical Coordinator. Buyer will not reimburse Supplier for personal expenses.)

The rates provided in the above table are only relevant to the SOW. Buyer may request up to an additional 10,000 hours based on the rates in the table above. Any additional hours beyond the table above and 10,000 hours will be billed at the following rates:

Table 2


Positions
Hourly Rates
Technical Architect
$[*]
Consultancy Services Manager
$[*]
Business Analyst
$[*]
Developer
$[*]

For services billed under Table 2, actual travel and living expenses are in addition to the service fees.


6.0  
SUPPLIER SOFTWARE

Buyer and Supplier will enter into an order form regarding the purchase and resale of Supplier Software by Buyer to Customer in the form attached as Exhibit 4-D hereto (the “Order Form”), and Supplier and Customer will enter into a software license agreement in the form attached as Exhibit 4-E hereto (the “End User Agreement”), which End User Agreement contains the terms and conditions, including warranty and indemnification, governing Customer’s use of the Supplier Software.

6.1 Documentation.
 
Following execution of the Order Form and the End User Agreement, Supplier shall deliver to Buyer on behalf of the Customer one copy of the Supplier Software (via CD-Rom or electronic download) and all necessary and reasonable documentation, including user, systems, operating and program manuals for the Supplier Software which Supplier customarily provides to end user licensees of the Supplier Software.

7.0  
ASSET PROTECTION
In the event that assets are loaned to Supplier and there is no separate loan agreement in place between Buyer and Supplier for those assets, Supplier will be responsible for risk of loss and for the return of those assets to Buyer.

8.0  
SUPPLIER SUPPORT SERVICES

The ongoing support and maintenance obligations for the Supplier Software are set forth in Exhibit 1 hereto (the “Service Level Agreement”). So long as Buyer has paid the annual support and maintenance fee under the Order Form, Supplier is then offering support and maintenance services for the Supplier Software and neither Buyer nor Customer has otherwise breached any provision of the End User Agreement, Supplier shall provide the support and maintenance services specified on the Service Level Agreement to Buyer on behalf of Customer. With regard to the provision of support and maintenance services under the Service Level Agreement, for so long as the Service Level Agreement is in effect, Supplier shall comply with Sections 16 (Security), 27 (Audit), 25 (Compliance), 38 (Confidentiality) and 39 (IBM Data). The Service Level Agreement shall survive the termination of this SOW, so long as Buyer has paid the annual support and maintenance fee under the Order Form, Supplier is then offering support and maintenance services for the Supplier Software and neither Buyer nor Customer has otherwise breached any provision of the End User Agreement.

10.0 Buyer's Responsibilities
 
Responsibilities. Attachment A-1
 
Buyer and the IBM team when necessary has the right to interview and approve staffing before supplier personnel are brought onto the project.
 
In addition to Buyer's responsibilities as expressly set forth elsewhere in this SOW or the Base Agreement, Buyer shall be responsible for the following:
 
 
Buyer shall designate one individual to communicate directly with the Supplier Account Executive, to whom all Supplier communications concerning this SOW shall be addressed ( “the Relationship Manager").
 
 
Buyer shall cooperate with Supplier, including by making available timely management decisions, information, approvals and acceptances, as reasonably requested by Supplier so that Supplier may accomplish its obligations and responsibilities hereunder. The Relationship Manager, or his or her designee, will be the principal point of contact for obtaining such decisions, information, approvals and acceptances. Only personnel as expressly so designated by Buyer will be authorized to make commitments on the part of Buyer that amend this SOW.
 

12.0 Communications
All communications between the parties will be carried out through the following designated coordinators. All notices required in writing under this Agreement will be made to the appropriate contact listed below at the following addresses and will be effective upon actual receipt. Notices may be transmitted electronically, by registered or certified mail, or courier. All notices, with the exception of legal notices, may also be provided by facsimile.



Business Coordinators
FOR SUPPLIER
  
FOR BUYER
  
Name
  [*]
Name
  [*]
Title
  Sales Manager
Title
  Partner
Address
  8 Commerce Drive
  Bedford, NH 03110
Address
  55 Main St, 1 Financial Plaza, Hartford, Ct.
Phone
  [*]
Phone
  [*]
Fax
  [*]
Fax
  [*]
E-mail
  [*]
E-mail
  [*]

Legal Coordinators
FOR SUPPLIER
  
FOR BUYER
  
Name
  Derek Witte
Name
  [*]
Title
  General Counsel
Title
  Procurement Solution Advisor
Address
  20400 Stevens Creek Blvd.
  Cupertino, CA 95014
Address
  
Phone
  [*]
Phone
  [*]
Fax
  [*]
Fax
 
E-mail
  [*]
E-mail
  [*]

Technical Coordinators
FOR SUPPLIER
  
FOR BUYER
  
Name
  [*]
Name
  [*]
Title
  Sales Manager
Title
  same as above
Address
  8 Commerce Drive
  Bedford, NH 03110
Address
  
Phone
  [*]
Phone
  
Fax
  [*]
Fax
  
E-mail
  [*]
E-mail
  


13.0 Electronic Commerce

Unless previously submitted by Supplier, in order to initiate electronic transfer of payments associated with this SOW, Supplier will complete the attached form entitled “Authorization for Electronic Funds Transfer” and fax the completed form to Accounts Payable at the number included on the form.

Unless previously submitted by Supplier, in order to initiate electronic transfer of payments associated with this SOW, Supplier will provide the required information in the attachment entitled “Electronic Funds Transfer.”

14.0 Training.
 
Supplier shall be responsible for the training of Supplier Personnel at no additional cost to Buyer. This training includes all new-hire training of all types (including with respect to technical and domain requirements and necessary cultural and communication skills) prior to the point when the Supplier employee is qualified to meet the skill set requirements for his or her respective activities under the Subcontract, including so that such Supplier Personnel has expertise with Supplier’s then-in-effect architecture and technology. Supplier shall provide training necessary to meet all compliance requirements mandated on a country, state, federal or local level for the duties performed in connection with the Supplier’s Supplier Services.
 
Any training required on Supplier Software for Buyer or Customer personnel will be charged at the following rates:
 
Course
# Days
Tuition
per person per course
Chordiant Foundation Server
    
CSF - Technical Developer
[*]
$ [*]
CSF - Technical Developer Sandpit
[*]
$ [*]
CSF - Design
[*]
$ [*]
Business Analyst
[*]
$ [*]
Business Analyst Sandpit
[*]
$ [*]
     
Chordiant Certifications
 
 
Technical Developer (CCTD)
[*]
$ [*]
Business Analyst (CCBA)
[*]
$ [*]

 
Subcontractor shall retain IBM specific training materials and other documentation used in connection with the Subcontractor’s Subcontractor Services in accordance with IBM provided record retention policies and CIGNA’s seven year retention requirement.
 
16.0 Security. 
 
Throughout the Subcontract Term and the Termination Assistance Period, Supplier shall, at no additional cost to Buyer, maintain the security requirements specified in Exhibit 4-C. 
 
17.0 Supplier Personnel Equipment.
 
Except for the IBM Equipment Buyer shall provide pursuant to the Subcontract (including CIGNA Equipment provided by Buyer), Supplier shall provide to Supplier Personnel all standard desktop computer Equipment and Software required to perform the Supplier Services (including standard Microsoft Office products or compatible, functionally equivalent products that are compatible with IBM identified systems, e-mail and LAN/WAN servers). Buyer and Supplier shall agree on the necessary set of application-specific tools, and which items Supplier shall provide and which items Buyer shall provide. Supplier shall provide all office equipment (including PCs), consumables, services and the like required to support Supplier Personnel at Supplier Service Locations.
 
20.0 IBM/CIGNA Facilities

  20.1 Use of IBM/CIGNA Service Locations. The IBM/CIGNA Service Locations shall be made available to Supplier on an “as is, where is” basis. Supplier shall follow any directions of Buyer with respect to the use of such space. Supplier and Supplier Agents shall: (a) keep the IBM/CIGNA Service Locations in good order; (b) not commit or permit waste or damage to such facilities; (c) not use such facilities for any unlawful purpose; and (d) act and comply with all of Buyer’s and CIGNA’s standard policies and procedures, which have been provided to Supplier in writing (for the avoidance of doubt, electronic notification is considered “in writing”), as in effect from time to time, including procedures for the physical security of the IBM/CIGNA Service Locations, including those set forth on Exhibit 3 hereto. Supplier shall be responsible for damage to the IBM/CIGNA Service Locations caused by Supplier or Supplier Agents, subject to reasonable wear and tear. Subcontractor shall not make any improvements or changes involving structural, mechanical or electrical alterations to such space without IBM’s or CIGNA’s prior written consent. Improvements to the IBM/CIGNA Service Locations shall become the property of IBM or CIGNA (as applicable). When the IBM/CIGNA Service Locations are no longer required for performance of the Subcontractor Services, Subcontractor shall return the IBM/CIGNA Service Locations to IBM or CIGNA in substantially the same condition as when Subcontractor began use of the facilities, subject to reasonable wear and tear. Supplier shall permit Buyer of CIGNA and Buyer’s or CIGNA’s designees to enter into those portions of the IBM/CIGNA Service Locations occupied by Supplier’s staff at any time. Except for the IBM/CIGNA Service Locations described in this Subcontract which shall be made available to Supplier, Supplier shall be responsible for providing all other space that is necessary to provide the Supplier Services at Supplier’s own or other facilities. Supplier acknowledges that the location of the IBM/CIGNA Service Locations may change and Supplier shall provide the Supplier Services with respect to any such relocated IBM/CIGNA Service Locations at the same cost, subject to Buyer being financially responsible for Supplier’s incremental expenses for a Buyer-initiated relocation of the Supplier Services to any such relocated IBM/CIGNA Service Location, but Subcontractor shall use commercially reasonable efforts to avoid any significant incremental expenses above the expense estimate set forth in Section 5.0 above and shall notify IBM the of any incremental expense increase and additional Subcontractor Services Charges, if any, for compliance with IBM’s direction to relocate such Subcontractor Services.
 
  20.2 Use of IBM/CIGNA Facility Items. Buyer and CIGNA shall provide reasonable use of IBM/CIGNA Facility Items substantially equivalent to those made available by Buyer or CIGNA to its own personnel who perform similar functions. Supplier may only use the IBM/CIGNA Facility Items for the sole and exclusive purpose of providing the Supplier Services. Any other uses are subject to the prior written approval of Buyer or CIGNA in their discretion. Supplier shall keep and use the IBM/CIGNA Facility Items in a reasonable and efficient manner. Supplier shall not commit waste or damage to the IBM/CIGNA Facility Items or use them for any unlawful purpose or act. Supplier is responsible for any damage to IBM/CIGNA Facility Items resulting from the abuse, misuse, neglect or gross negligence of Supplier (or its subcontractors or other guests) or other failure to comply with its obligations respecting such resources. Supplier shall (and shall cause Supplier Personnel to) review, be knowledgeable of and comply with Buyer’s and CIGNA’s policies and procedures regarding access to and use of the IBM/CIGNA Facility Items which have been provided to Supplier in writing, including procedures for physical and logical security, including those set forth on Exhibit 2 hereto, and shall follow any of Buyer’s reasonable directions with respect to the use of such items.
 
  20.3 No Violation of Laws. Supplier shall: (a) treat, use and maintain the IBM/CIGNA Service Locations in a reasonable manner, but in no event to a lesser standard than it maintains for its own locations; and (b) not commit, and use all reasonable efforts to ensure that no Supplier employees nor Supplier Agents commit, any act in violation of any Laws in such Supplier occupied IBM/CIGNA Service Location or any act in violation of Buyer’s of CIGNA’s insurance policies or in breach of Buyer’s or CIGNA’s obligations under the applicable real estate leases for such Supplier occupied IBM/CIGNA Service Locations, in each case of which Supplier is apprised in writing by Buyer.
 
  22.0 Safety and Security Procedures. 

 
22.1 While at the IBM/CIGNA Service Locations, Supplier’s employees and the Supplier Agents shall comply with Buyer’s and CIGNA’s reasonable requests, rules and regulations regarding personnel and professional conduct (including the wearing of an identification badge and adhering to regulations and general safety practices or procedures), which have been provided to Supplier in writing (for the avoidance of doubt, electronic notification is considered “in writing”), including the regulations set forth in Exhibit 4-C hereto and otherwise conduct themselves in a businesslike and professional manner.
 
 

 
22.2   Except as otherwise designated, at IBM/CIGNA Service Locations, smoking is prohibited inside all buildings operated or occupied by Buyer or CIGNA, including leased offices and at off-site IBM/CIGNA sponsored conferences and meetings.
 
22.3 If operating at a IBM/CIGNA Service Location, Supplier shall be responsible for adhering to all individual IBM and CIGNA Safety, Occupational Health, Environmental and Operational procedures provided to Supplier in writing in a manner timely enough to enable compliance and updated regularly to allow Buyer to ensure their currency and to all local, state, and federal laws and regulations, including Occupational Safety and Health Act (OSHA) and Environmental Protection Agency (EPA).
 
 
22.4 If located at an IBM/CIGNA Service Location, Supplier shall immediately notify Buyer or CIGNA security department (as appropriate) in the event of a fire or other emergency by calling the emergency telephone number. Supplier shall train all employees located at IBM/CIGNA Service Locations to respond to fire, civil defense, bomb threats, evacuations, and other emergencies alarms, based on procedures established by Buyer or CIGNA which have been provided to Supplier in writing (for the avoidance of doubt, electronic notification is considered “in writing”).
 
 

 
22.5 If the Supplier notices any condition at an IBM/CIGNA Service Location that is unsafe, unhealthy, or in any other way could cause an accident, Supplier shall notify Buyer immediately, if correction of the condition shall take more than routine attention, or remedy the condition, if correction of the condition shall take only minimal attention.
 
23.0 Cooperation.
 
To the extent Buyer performs any of the Supplier Services, or retains IBM Third Party Contractors to do so, Supplier shall fully cooperate with and work in good faith with Buyer and IBM Third Party Contractors as reasonably directed by Buyer. Such cooperation may include (subject to Supplier’s reasonable and appropriate security and confidentiality requirements): (a) providing access to any facilities being used to provide the Supplier Services, as necessary for IBM Third Party Contractors to perform the work assigned to them; (b) providing access (remotely or onsite as requested by Buyer) to the Equipment, Software and/or systems used to provide the Supplier Services; (c) reasonable integration activities to ensure compatibility of systems/products/services of the total solution; and (d) providing written requirements, standards, policies or other documentation for the Supplier Services and for the Equipment, Software or systems procured, operated, supported or used by Supplier in connection therewith. The Parties shall cooperate in good faith to ensure smooth performance of the Supplier Services. To that end, there shall be a continuous exchange of information between the Parties with respect to, but not limited to, the Supplier Services, quality control and encountered difficulties. Supplier will provide the cooperation called for in this Section 23.0 on a time and materials basis for services performed at the rates provided in Section 5.0 above, and on the basis of actual cost for expenses incurred. Supplier will inform and discuss any additional work or expenses with Buyer before incurring such cost or expense.
 
24.0 Notification.
 
Supplier shall immediately notify Buyer when it becomes aware that an act or omission of an IBM Third Party Contractor shall cause, or has caused, a problem or delay in providing the Supplier Services, and shall use commercially reasonable efforts to work with Buyer to prevent or circumvent such problem or delay. Supplier and Buyer shall cooperate with each other to resolve differences and conflicts arising between the Supplier Services and other activities undertaken by Buyer or any of the IBM Third Party Contractors. 
 
25.0 COMPLIANCE 
 
25.1 Governmental Approvals. Supplier shall obtain, provide, file and maintain all Governmental Approvals that are necessary for Supplier or Supplier Agents to commence and complete the Supplier’s provision of the Supplier Services. Upon Supplier’s reasonable request, Buyer shall cooperate with and assist Supplier in obtaining any Governmental Approvals, to the extent reasonably possible. Supplier shall have financial responsibility for all fees and taxes associated with obtaining and maintaining all Governmental Approvals.
 
(a) Without limiting Supplier’s obligations under this Section, Supplier shall be responsible for monitoring and properly notifying Buyer of any Governmental Approvals required in connection with providing the Supplier Services from the Offshore Locations.
 
(b) Buyer shall have the right to terminate upon notice to Supplier the relevant portion of any SOW if the foregoing Governmental Approvals are not obtained or provided within the required time frames, and the charges thereafter will be equitably adjusted to reflect such removal.
 
25.2 Compliance with Laws. Supplier (and Supplier’s Affiliates) and Supplier Personnel shall comply with all laws. If Supplier becomes aware of non-compliance with any laws, Supplier shall promptly notify Buyer in writing. Supplier shall provide Buyer with, upon request, data and reports necessary for Buyer to comply with all laws. If Supplier maintains any records required in electronic form, such records and their confidentiality shall comply with all applicable laws. Supplier shall be responsible for any fines and penalties imposed on Supplier resulting from the failure of Supplier, Supplier Personnel to comply with laws.
 
25.3 Compliance with Laws in Offshore Locations. Supplier shall be responsible for monitoring and complying with all laws relating to licensing, import-export, data flows, technology transfers (but excluding tax laws), applicable to its performance of the Supplier Services from the Offshore Locations. All costs relating to the compliance with such laws shall be paid by Supplier, except that conforming changes to IBM/CIGNA systems to receive the Supplier Services shall be handled by Buyer or CIGNA at their own cost unless the change is a part of the Supplier Services under a Statement of Work. Buyer shall provide reasonable assistance to Supplier in connection with such compliance as requested by Supplier.
 
25.4 Compliance with Privacy Regulations. Subcontractor shall comply with: (a) the European Commission Data Protection Directive (95/46/EC) or Data Protection Act 1998 or any implementing or related legislation of any member state in the European Economic Area; (b) the Health Insurance Portability and Accountability Act of 1996; (c) subject to 15.5, the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745); and (d) any other applicable data protection laws or regulations to the extent applicable to Subcontractor’s provision of the Subcontractor Services. Specific provisions relating to HIPAA and data protection laws are set forth in Exhibit 13 hereto.
 
25.6 Interpretation of CIGNA Laws. CIGNA shall have final approval over the interpretation and application, and the appropriate method for complying with any CIGNA Laws (i.e., laws that are specific to CIGNA’s business). Supplier (and Supplier’s Affiliates), Supplier Agents, and Supplier Personnel shall comply with all such CIGNA written directions in this regard.
 
27.0 AUDIT
 
27.1 Books and Records. Supplier shall keep and maintain, in accordance with generally accepted accounting principals and practices, and make available for the inspection, examination and audit by Buyer, its authorized employees, agents or representatives and auditors (“IBM Auditors”), upon reasonable notice, complete and accurate books and records in connection with the Service, as necessary to: (a) demonstrate Supplier’s compliance with its obligations under this Subcontract; (b) verify volumes, charges and resource utilization and payment by Supplier of all license, maintenance and other service fees required in connection with the performance of the Supplier Services in accordance with this Subcontract; (c) comply with all applicable Laws; and (d) verify data security measures, pre-placement checks physical security measures related to this Subcontract. Supplier shall permit and cooperate with any audit conducted by Buyer or IBM Auditors. Upon reasonable notice, but not more than once annually, at the sole expense of Buyer, IBM Auditors shall have the right to inspect and audit Supplier’s books, records, systems and operations related to the Supplier Services.
 
27.2 Facilities and Personnel. Supplier shall provide to IBM’s Auditors access upon request to any facility or part of a facility at which Supplier is providing the Supplier Services, to Supplier Personnel, and to data and records relating to the Supplier Services for the purposes of performing audits and inspections of Buyer and its business to verify the integrity of IBM Data and to examine the systems related to the Supplier Services that process, store, support and transmit that data. The foregoing audit rights shall include audits: (a) of practices and procedures; (b) of systems; (c) of security practices and procedures; (d) of disaster recovery and backup procedures; (e) necessary to enable Buyer to meet applicable Laws; and (f) of any Supplier quality assurance processes. 
 
27.3 Fee Audit.
 
a. Upon Buyer’s request, Supplier shall provide IBM’s Auditors with access to such financial records and supporting documentation to the extent necessary to ascertain the correctness of fees due and payable to Supplier hereunder, as may be requested by Buyer or IBM’s Auditors. Such IBM Auditors may audit any of the charges charged to Buyer to determine if such fees are accurate and in accordance with this Subcontract.
 
b. If it is determined that Supplier has overcharged Buyer, IBM shall notify Supplier of the amount of such overcharge and Supplier shall promptly pay to Buyer the amount of the overcharge, plus interest at the rate of 1.5% per month calculated from the date of receipt by Supplier of the overcharged amount until the date of payment to Buyer.
 
c. In addition to Buyer’s rights set forth in Section (b) above, if any such audit reveals an overcharge to Buyer of 5% or more of the aggregate fees being audited Supplier shall, at Buyer’s option, issue to Buyer a credit against the Service Charges or reimburse Buyer, in either case, for the reasonable cost of such audit, provided such audit is not performed on a contingency fee basis.
 
27.4 Cooperation
 
a. Supplier and Supplier Personnel shall assist and cooperate with Buyer or its designees in connection with audit functions and with regard to examinations by regulatory authorities. Supplier shall provide such assistance as reasonably required to carry out the audits, including: (i) providing use of Supplier locations, facilities and resources, including space, office furnishings (including lockable cabinets), telephone and facsimile services, utilities, office-related equipment and duplicating services; and (ii) installing and operating audit software. For the avoidance of doubt, reasonable audit cooperation is part of the Supplier Services (including participation from accountants and other Supplier finance personnel) and shall not be counted against resource utilization. Any actual and reasonable expenses incurred by Supplier outside ordinary course of business expenses as a result of such audit will be reimbursed to Supplier by Buyer.
 
b. Other than in connection with a sales or use tax audit, Supplier shall notify Buyer promptly by telephone or by email if any governmental or regulatory authority requests an inspection or makes written or oral inquiries of Supplier regarding any aspect of Buyer’s activities pursuant to this Subcontract, so long as such notification does not violate any applicable Laws or breach any obligation of confidentiality to a third party. Unless otherwise required by applicable Laws, Subcontractor shall not allow physical access to any governmental or regulatory authority relating to such activities without giving IBM the right to have a representative present. Supplier and Buyer shall cooperate in resolving any concerns of any governmental or regulatory authority. Supplier shall notify Buyer promptly by telephone or by email if Supplier believes that the actions or inactions of any governmental or regulatory authority, including the issuance or failure to issue any report, permit, or license, may cause a negative impact on Supplier’s ability to perform the Supplier Services.
 
c. At the conclusion of a Buyer audit or examination provided for in this Subcontract or any applicable Statement of Work and prior to issuing the final audit report, Buyer shall conduct, or request its external auditors or examiners to conduct, an exit conference with Supplier to discuss issues identified in the review. Supplier and Buyer shall meet to review each final audit report promptly after the issuance thereof and to mutually agree upon an appropriate and effective manner in which to respond to the deficiencies identified and changes suggested by the audit report.
 
d. If any audit by an auditor designated by Buyer or a regulatory authority results in Supplier being notified that Supplier is not in compliance with the terms of this Subcontract or other required compliance requirements, Supplier shall comply with such terms after having a reasonable opportunity to contest such audit finding should such finding be upheld. Subcontractor shall bear the expense of any such response, and any remedial actions, to the extent that Subcontractor was not in compliance with the terms of this Subcontract or the required compliance requirements.
 
27.5 General Procedures. Notwithstanding the intended breadth of Buyer’s audit rights, Buyer and its internal and external auditors, inspectors, regulators and other representatives shall not be given access to: (i) the proprietary information of other Supplier customers; (ii) Supplier locations that are not related to Buyer or the Supplier Services; or (iii) Supplier’s internal costs, except as to the extent such costs are the basis upon which Buyer is charged. In performing audits, Buyer shall endeavor to avoid unnecessary disruption of Supplier’s operations and unnecessary interference with Supplier’s ability to perform the Supplier Services. The external auditors and inspectors designated by Buyer under this Article 27 to conduct operational and/or financial audits shall not be Supplier Competitors. Buyer’s auditors shall comply with Supplier’s applicable, reasonable security requirements, including, where appropriate, execution of a non-disclosure agreement reasonably acceptable to Supplier.
 
27.6 Record Retention. Until: (a) seven years after expiration or termination of this Subcontract; (b) pending matters relating to this Subcontract (e.g., disputes) are closed; or (c) no longer required to meet Buyer’s records retention policy (as modified from time to time), whichever is later, as notified to Supplier, Supplier shall maintain and provide access upon request to the records, documents and other information required to meet Buyer’s audit rights under this Subcontract.
 
27.7 Legal Discovery. Buyer is required to preserve and produce electronic data in support of its legal discovery obligations, as they may arise, for investigations and/or litigation. As part of the Supplier Services, Supplier shall cooperate with any legal discovery requests made by any IBM Entity, including the dissemination of preservation requests, collection of data, imaging of systems, back-up of electronic information, maintenance, retention and production of any such data. Supplier shall keep detailed records of its efforts to preserve data required for legal discovery. 
 
28.0 Change Control Procedures.  
 
28.1 Buyer and Supplier shall comply with the following Change Control Procedures:
 
a. Change Control Procedures shall provide, at a minimum, that: (A) no Change shall be implemented without written agreement by both Parties, except as may be necessary on a temporary basis to maintain the continuity of the Supplier Services; (B) with respect to all Changes, Buyer and Supplier shall: (I) other than those Changes made on a temporary basis to maintain the continuity of the Supplier Services, schedule Changes so as not to unreasonably interrupt Buyer’s business operations; and (II) monitor the status of Changes against the applicable schedule; (C) with respect to any Change made on a temporary basis to maintain the continuity of the Supplier Services, Supplier shall document and provide to Buyer notification (which may be given orally provided that any oral notice must be confirmed in writing to Buyer within five Business Days) of the Change no later than the next Calendar Day after the Change is made; and (D) Supplier shall update the Change Control Procedures as necessary and shall provide such updated Change Control Procedures to Buyer for its approval.
 
30.0 Pre-Placement Checks
 
30.1 Supplier recognizes Buyer’s desire to maintain a safe and secure working environment for Buyer employees. For purposes of this Subcontract, “Certain Supplier Personnel” means any Supplier Personnel who: (i) are to have behind-the-firewall access to Buyer or CIGNA or their Affiliates’ computer and telecommunications network (e.g., Buyer or CIGNA Equipment, Software or Buyer or CIGNA Data), whether such access is provided through an on-site or remote connection; or (ii) perform certain Software development projects Buyer deems to be highly sensitive to Buyer’s or CIGNA’s business operations.
 
30.2 Supplier shall have administrative responsibility for conducting the background checks. Supplier does not conduct drug testing on its personnel. Buyer may conduct drug testing and background checks itself, at Buyer’s expense, on any Supplier personnel scheduled to work at IBM/CIGNA Service Locations. Supplier will make such personnel available for the drug tests and background checks. Buyer shall have financial responsibility therefore and shall reimburse Supplier for the check and test costs on a Pass-Through Expense basis.
 
30.3 Supplier shall permit and cooperate with Buyer’s audits of Supplier compliance with the background screening stated herein.
 
34.0 Replacement, Qualifications and Retention of Supplier Personnel. 
 
34.1 If Buyer determines in good faith that the continued assignment to Buyer of any particular Supplier Personnel is not in the best interests of Buyer, then Buyer shall give Supplier written notice to that effect requesting that such Supplier Personnel be replaced; provided, however, upon Buyer’s request, Supplier shall immediately reassign any individual from the Buyer account so long as Buyer demonstrates to Supplier the need for such immediate reassignment. Promptly after its receipt of such a request by Buyer, Supplier shall investigate the matters stated in the request and discuss its findings with Buyer. If requested to do so by Buyer, Supplier shall immediately remove the individual in question from performance of the Supplier Services pending completion of Supplier’s investigation and discussions with Buyer. If, following discussions with Supplier, Buyer still in good faith requests replacement of such Supplier Personnel, Supplier shall promptly replace such Supplier Personnel with an individual of suitable ability and qualifications. Nothing in this provision shall operate or be construed to limit Supplier’s responsibility for the acts or omissions of Supplier Personnel.
 
34.2 Supplier shall maintain and conduct procedures for the replacement of Supplier Personnel in such a manner so as to assure an orderly succession for any Supplier Personnel who is replaced. Upon request, after a determination that a Supplier Personnel shall be replaced, Supplier shall make such procedures available to Buyer. The timing for transfer, reassignment or replacement of Supplier Personnel shall be closely coordinated with the requirements for timing and other elements of the Supplier Services so as to maintain continuity in the performance of the Supplier Services.
 
34.3 Supplier shall use its diligent and reasonable efforts to keep the turnover rate of Supplier Personnel to a reasonably low level. If Buyer believes that Supplier Personnel’s turnover rate is excessive and so notifies Supplier, Supplier shall: (i) determine the cause of the excess; (ii) develop a mutually agreed upon plan to minimize turnover; and (iii) meet with Buyer to discuss the implementation and timely impact of the plan. Supplier shall be responsible for replacing personnel who are retiring, or who otherwise leave the Buyer account, with professional personnel.
 
35.0 Subcontractors. 
 
Except for the subcontractors identified on Exhibit 4 hereto (the “Permitted Subcontractors”), Supplier shall not subcontract its material obligations under this Subcontract or any Supplier Services which involve the use of or access to IBM Data without Buyer’s prior written consent. Supplier may use these Permitted Subcontractors in connection with the provision of the Supplier Services subject to the terms of this Subcontract (including the provisions of this Section). Buyer hereby pre-approves those certain subcontracts between Supplier and third party original hardware/equipment manufacturers and original software licensors who perform routine maintenance and support and that do not materially impact a Buyer or Supplier function that is part of the Supplier Services. 
 
35.1 Supplier shall include in its subcontracts as flow-down provisions, provisions substantially similar to those provisions of this Subcontract relating to Buyer facilities, personnel requirements, Buyer’s intellectual property rights, Buyer’s audit rights, confidentiality, representations and warranties. Supplier shall require each of its Affiliates and all Permitted Suppliers to carry insurance at levels customary and appropriate for the types and volumes of Supplier Services being provided by such Affiliates and Permitted Suppliers.
 
35.2 The Change of Control of a Permitted Subcontractor to an IBM Competitor shall in all cases be deemed good cause for the purposes of this Section. Upon any such revocation, Supplier shall, upon Buyer’s request, replace such subcontractor with a new subcontractor, subject to Buyer’s approval of the new subcontractor, the transition plan, and certain material terms of the subcontract reasonably specified by Buyer. Any revocation of the approval of a subcontractor pursuant to this Section shall not excuse Supplier from providing the Supplier Services and meeting the Service Levels; provided that Buyer gives Supplier 30 days’ notice unless a different notice period has been approved or agreed by Buyer.
 
35.3 No subcontracting shall release Supplier from its responsibility for its obligations under this Subcontract. Supplier shall remain responsible for obligations, services and functions performed by subcontractors to the same extent as if these obligations, services and functions were performed by Supplier employees. Supplier shall be Buyer’s sole point of contact. Supplier shall not disclose Buyer or CIGNA Confidential Information to a subcontractor (including an Affiliate of Supplier) until such subcontractor has executed a nondisclosure agreement in a mutually agreed form.
 
35.4 Supplier shall be responsible for all payments to Supplier Agents under contracts between Supplier and Supplier Agents. Supplier shall promptly pay for all services, materials, Equipment and labor used by Supplier or Supplier Agents in providing the Supplier Services and Supplier shall keep Buyer’s premises free of all liens by Supplier or Supplier Agents.
 
35.5 Nothing in this Subcontract shall prevent, and Subcontractor shall not prevent or inhibit (through damages, penalties or otherwise), IBM or any IBM Entity from contracting directly with any of the subcontractors or third party providers used by Subcontractor in connection with the provision of the Subcontractor Services upon the cessation of a Service or expiration or termination of this Subcontract.
 
36.0 REPRESENTATIONS, WARRANTIES AND COVENANTS
 
36.1 By Supplier. Supplier represents, warrants and covenants to Buyer during the Subcontract Term and the Termination Assistance Period that:
 
a It shall render the Supplier Services with promptness and diligence and shall execute them in a workmanlike manner, in accordance with the practices and high professional standards that are the accepted industry norms applicable to the Supplier Services. Supplier represents and covenants that it shall use adequate numbers of qualified individuals with suitable training, education, experience and skill to perform the Supplier Services.
 
b It is now, and shall be during the Subcontract Term and the Termination Assistance Period, an equal opportunity employer complying with all such applicable Laws.
 
c It shall maintain the Equipment and Software for which it is responsible under this Subcontract so that they operate substantially in accordance with their applicable specifications, including: (i) maintaining Equipment in good operating condition, subject to normal wear and tear; (ii) undertaking repairs and preventive maintenance on such Equipment substantially in accordance with the applicable manufacturer’s recommendations; and (iii) performing Software maintenance substantially in accordance with the applicable Supplier’s documentation, recommendations and specifications, in accordance with the provisions of Section 8 above.
 
f It shall perform its responsibilities under this Subcontract in a manner that does not infringe, or constitute an infringement or misappropriation of, the copyright, trademark, trade secret or other proprietary rights of a third party; provided, however, that Supplier shall not have any obligation or liability under this clause (f) if and to the extent any such infringement or misappropriation is caused by: (i) modifications made by Customer, Buyer or IBM Third Party Contractors not specified or authorized (in each case, in writing) by Supplier or Supplier Agents; (ii) IBM/CIGNA’s combination of otherwise non-infringing Supplier’s work product or services with items not furnished or specified by Supplier or Supplier Agents in writing that by sole virtue of such combination, makes the work product, service or item infringing; (iii) a breach of this Subcontract by Buyer; (iv) failure of IBM/CIGNA to use Supplier-provided corrections or modifications that would remedy the non-infringement and that offer equivalent features and functionality; (v) third party Software not provided by Supplier, except to the extent that such infringement or misappropriation arises from the failure of Supplier to obtain the necessary third party Software licenses or Required Consents or to abide by the limitations of the applicable third party Software licenses; (vi) Equipment or Software or other resources provided to Supplier by IBM/CIGNA; or (vii) the distribution, operation or use of Software of Materials for the benefit of a third party outside of the other party’s enterprise.
 
g It has not violated applicable Laws or regulations or Buyer policies (of which Supplier has been given notice) regarding the offering of inducements in connection with this Subcontract. If Supplier does not comply with the foregoing, Buyer shall have the right to terminate this Subcontract for cause without affording Supplier an opportunity to cure.
 
h If any Equipment provided by Subcontractor, including those provided by any Affiliate or third party subcontractor to Subcontractor, directly or indirectly causes any damage or loss to any IBM system or results in the loss of any IBM Data, Subcontractor shall, at no additional charge to IBM, repair or replace affected IBM Equipment.
 
i It shall cooperate with Buyer and shall take commercially reasonable actions and precautions to prevent the introduction and proliferation of Malicious Code into the systems used to provide the Supplier Services or the IBM environment. If Malicious Code is found to have been introduced into the systems used by Supplier to provide the Supplier Services, Supplier shall at no additional charge eliminate the Malicious Code from such systems used by Supplier to provide the Supplier Services and, if the Malicious Code causes a loss of operational efficiency or loss of data, to assist Buyer to the same extent to mitigate and restore those losses with generally accepted data restoration techniques. Without the prior written consent of Buyer, Supplier represents, warrants and covenants that it shall not insert into any Software code that would have the effect of disabling or otherwise shutting down all or a portion of the Supplier Services, and with respect to disabling code that may be part of any Software, that it shall not invoke the disabling code at any time.
 
k It is duly authorized to enter into this Subcontract and to make the commitments set forth in this Subcontract.
 
l Its execution, delivery and performance of this Subcontract does not constitute a violation of any judgment, order, or decree; a material default under any material contract by which it or any of its material assets are bound; or an event that would, with notice or lapse of time, or both, constitute such a default.
 
m Supplier warrants that it will perform the Services using reasonable care and skill, and according to the agreed upon specifications. Buyer agrees that it must report any deficiencies of the Services to Supplier in writing within ninety (90) days of performance of the Services in order to receive the warranty remedy. In such case Supplier will re-perform the Services at no additional charge.
 
n All current and future employees and agents of and consultants to Supplier with access to or involved in the performance of Supplier Services have executed and delivered or shall execute and deliver to Supplier a proprietary rights agreement with Supplier substantially consistent with the form attached as Exhibit 10 hereto pursuant to which such employee or consultant agrees to confidentiality and intellectual property assignment terms sufficient to enable Supplier to meet its obligations to Buyer and Customer under the Subcontract and sufficient to enable Buyer to meet its obligations to Customer under the Prime Contract.
 
37.0 INDEMNIFICATION 
 
37.1 By Supplier. Supplier shall indemnify, defend and hold harmless Buyer and CIGNA and their respective officers, directors, employees, agents, successors and assigns from any and all Losses and threatened Losses arising from or in connection with any of the following:
 
a.  Claims by Governmental Authorities for fines, penalties, financial sanctions or late charges arising from or in connection with Subcontractor’s (or Subcontractor Personnel’s) failure to comply with any laws solely to the extent Subcontractor’s failure to comply with laws constitutes a breach of Subcontractor’s services obligations under the Subcontract or a Statement of Work which services obligation was communicated to Subcontractor by IBM as a written requirement in order to enable IBM to comply with such laws;
 
b.  Supplier’s use or disclosure of information in breach of its confidentiality obligations set forth in this Subcontract;
 
c.  Supplier’s failure to obtain the Required Consents or comply with the terms of any third party consent or underlying agreement;
 
d.  any claim or action initiated by an Affiliate of Supplier or potential or actual agent of Supplier (including Supplier Personnel) asserting rights in connection with this Subcontract;
 
e.  any actual or alleged infringement or misappropriation of the trade secret, copyright or other proprietary rights, alleged to have occurred because of systems or other resources provided by or on behalf of Supplier or Supplier Personnel or based upon performance of the Service; provided, however, that Supplier shall not have any obligation or liability under this clause (h) if and to the extent any such infringement or misappropriation is caused by: (i) modifications made by Buyer, CIGNA, IBM Third Party Contractors or CIGNA Third Party Contractors not specified or authorized (in each case, in writing) by Supplier or Supplier Agents; (ii) Buyer’s or CIGNA’s combination of otherwise non-infringing Supplier’s work product or services with items not furnished or specified by Supplier or Supplier Agents in writing that by sole virtue of such combination, makes the work product, service or item infringing; (iii) a breach of this Subcontract by Buyer; (iv) failure of Buyer or CIGNA to use Supplier-provided corrections or modifications that would remedy the non-infringement and that offer equivalent features and functionality; (v) third party Software not provided by Supplier, except to the extent that such infringement or misappropriation arises from the failure of Supplier to obtain the necessary third party Software licenses or Required Consents or to abide by the limitations of the applicable third party Software licenses; or (vi) Equipment, or Software provided to Supplier by Buyer or CIGNA, neither of which has been authorized or approved by Buyer.
 
f.  any amounts assessed against any IBM Entity, including taxes, penalties and interest, assessed against any IBM Entity, that are the obligation of Supplier under this Subcontract;
 
g.  any claim relating to any violation by Supplier or Supplier Agents or their respective officers, directors, employees, representatives or agents, of any Law or any common law protecting persons or members of protected classes or categories, including laws or regulations prohibiting discrimination or harassment on the basis of a protected characteristic;
 
h.  any claim or action by, on behalf of, or related to, any prospective, then-current or former employees of Supplier or Supplier Agents arising out of hiring practices of Supplier or employment or termination of employment with Supplier, including any claim arising under occupational health and safety, worker’s compensation, ERISA or other applicable Law, except for claims arising out of misrepresentations made by Buyer to Hired Employees, if any, prior to their respective Hire Dates;
 
i.  any claim or action by, on behalf of, or related to, any prospective, then-current or former employees of Supplier or Supplier Agents based on a theory that Buyer is an employer or joint employer of any Supplier or Supplier Agent personnel;
 
j.  any claim or action by, on behalf of, or related to, any third party providing services to Buyer prior to the SOW Effective Date relating to actions of Supplier or Supplier Personnel, including the hiring by Supplier of the third party’s employees;
 
k.  damages for the death or bodily injury of an agent, employee, customer, business invitee or business visitor or other person caused by the tortious conduct of Supplier or Supplier Agents;
 
l.  damages for the damage, loss or destruction of real or tangible personal property caused by the tortious conduct of Supplier or Supplier Agents;
 
m.  any claim or action or other proceeding asserted against Buyer but resulting from an act or omission of Supplier or any Supplier Agent in its capacity as an employer of a person; and
 
n.  any claim in connection with the handling and processing of any and all immigration and employment-related issues and requirements arising in connection with the Supplier Personnel (whether located in the United States or elsewhere).
 
38.0 CONFIDENTIALITY 
 
38.1 IBM or CIGNA Confidential Information. Supplier shall: (a) use the same care and discretion to avoid disclosure, publication or dissemination of IBM or CIGNA Confidential Information as it uses with respect to its own similar information that it does not wish to disclose, publish or disseminate; and (b) use IBM or CIGNA Confidential Information solely to the extent required to fulfill its obligations or exercise its rights under this Subcontract. Supplier shall not disclose, publish, release, transfer or otherwise make available IBM or CIGNA Confidential Information in any form to, or for the use or benefit of, any person or entity without Buyer’s consent. Subject to Section 16.4, Supplier shall, however, be permitted to disclose relevant aspects of the IBM or CIGNA Confidential Information to its officers, directors, agents, professional advisors, Supplier Agents and employees, to the extent that such disclosure is not restricted under this Subcontract or any Governmental Approvals and only to the extent that such disclosure is reasonably necessary for the performance of its duties and obligations, or exercise of its rights, under this Subcontract; provided, however, that all such persons or entities have entered into an agreement containing terms consistent with the terms set forth in this Article and Supplier shall take all reasonable measures to ensure that IBM or CIGNA Confidential Information is not disclosed, published or disseminated in contravention of the provisions of this Subcontract by such officers, directors, agents, professional advisors, Supplier Agents and employees. The obligations in this Section shall not restrict any disclosure pursuant to any law (provided that Supplier shall give prompt notice to Buyer and the disclosing IBM Entity of such order). 
 
38.2 Restricted Materials. Subcontractor hereby acknowledges and agrees that the following items, whether in paper or electronic form, are IBM or CIGNA Confidential Information: all IBM or CIGNA financial, pricing, and costs of or relating to IBM or CIGNA or suppliers or customers of IBM, CIGNA and their Affiliates, all marketing and business plans and forecasts of IBM or CIGNA, any information related to consumer goods in development or discovery, IBM protocols, case report forms, data management plans, data listings, statistical analyses results, minutes, notes, or recollections of contents of meetings or strategy discussions relating to IBM’s or CIGNA’s business operations, personally identifiable information and policy and procedure manuals (excluding any pre-existing Subcontractor Confidential Information) (collectively, “Restricted Materials”). Subcontractor shall treat all Restricted Materials as strictly confidential and: (a) shall use the Restricted Materials only to the extent necessary to perform its obligations or exercise its rights under this Subcontract; (b) shall provide access to such Restricted Materials only to those Subcontractor Personnel who have a need to know in connection with Subcontractor’s performance of its obligations or exercise of its rights under this Subcontract; and (c) shall use the same care and discretion to avoid disclosure, publication or dissemination of Restricted Materials as it uses with respect to its own similar information that it does not wish to disclose, publish or disseminate. Other IBM or CIGNA Confidential Information not expressly listed in this Section may be considered Restricted Materials of IBM or CIGNA and should be treated as such by Subcontractor upon written notice from IBM.
 
38.3 Supplier Confidential Information. Buyer shall: (a) use the same care and discretion to avoid disclosure, publication or dissemination of Supplier Confidential Information as it uses with respect to its own similar information that it does not wish to disclose, publish or disseminate; and (b) use Supplier Confidential Information solely to the extent required to fulfill its obligations or exercise its rights under this Subcontract. Buyer shall not disclose, publish, release, transfer or otherwise make available Supplier Confidential Information in any form to, or for the use or benefit of, any person or entity without Supplier’s consent. Buyer shall, however, be permitted to disclose relevant aspects of the Supplier Confidential Information to its officers, directors, agents, professional advisors, contractors, subcontractors and employees and to the officers, directors, agents, professional advisors, contractors, subcontractors and employees of the IBM Entities, to the extent that such disclosure is not restricted under this Subcontract or any Governmental Approvals and only to the extent that such disclosure is reasonably necessary for the performance of its duties and obligations, or exercise of its rights, under this Subcontract; provided, however, that Buyer shall take all reasonable measures to ensure that Supplier Confidential Information of Supplier is not disclosed, published or disseminated in contravention of the provisions of this Subcontract by such officers, directors, agents, professional advisors, contractors, subcontractors and employees. The obligations in this Section shall not restrict any disclosure pursuant to any Law (provided that the recipient shall give prompt notice to Supplier of such order).
 
38.4 Exceptions. The obligations mentioned under Section 38.1, Section 38.2 and Section 38.3 do not apply if, and to the extent that the receiving party is able to prove that: (a) it previously had such knowledge and information without obligation of confidentiality; (b) such knowledge and information was or becomes part of the public domain, publicly available or public knowledge through no fault of the receiving party; (c) it has received such knowledge and information from a third party, the disclosure to such third party without constituting a breach of the confidentiality undertaking hereunder; or (d) it independently developed such knowledge or information without use of or access to the disclosing party’s confidential information, as demonstrated by reasonable supporting evidence.
 
38.5 No Copies. The receiving party (nor any person or entity to whom the receiving party has a right to disclose the Confidential Information of the disclosing Party under this Article 29) shall not make copies of Confidential Information, in whole or in part, obtained from the disclosing party, except as necessary to perform its obligations under this Subcontract.
 
38.6 Ownership of Confidential Information. For the avoidance of doubt, all IBM or CIGNA Confidential Information (including Restricted Materials) is the property of Buyer or CIGNA, respectively. For the avoidance of doubt, all Supplier Confidential Information is the property of Supplier.
 
38.7 Confidential Agreement. This Subcontract is a confidential agreement between Supplier and Buyer. In no event may this Subcontract be reproduced or copies shown to any third parties by either Buyer or Supplier without the prior written consent of the other Party, except as may be necessary by reason of legal, accounting or regulatory requirements of Supplier or Buyer, as the case may be, or to obtain legal, accounting or other advice in connection with this Subcontract, in which event Supplier and Buyer agree to exercise reasonable diligence in limiting such disclosure to the minimum necessary under the particular circumstances and cause anyone to whom such Party provides this Subcontract to keep it confidential in accordance with the provisions of this Subcontract. Neither Party is permitted to issue any press release, distribute any advertising, or make any public announcement concerning this Subcontract or its business relationship with the other Party without the other Party’s prior written consent. The obligations in this Section 38.7 shall not restrict any disclosure of required pursuant to any Law; provided that: (a) each Party shall give reasonable and prompt advance notice of such disclosure requirement to the other and give the other reasonable opportunity to object to and contest such disclosure; and (b) each Party shall use reasonable efforts to secure confidential treatment of any such information that is required to be disclosed.
 
38.8 Disclosure. Notwithstanding the confidentiality, non-disclosure and proprietary rights provisions of this Subcontract, Supplier acknowledges and agrees that Buyer and Supplier has the right to file a copy of, and/or disclose, all or part of this Subcontract and related documents and information, including performance reports and fees and invoicing, as may be required or requested by its regulators and auditors.
 
38.9 Unauthorized Acts. Without limiting the rights of the IBM Entities in respect of a breach of this Section 38, Supplier shall: (a) promptly notify Buyer of any unauthorized possession, use or knowledge, or attempt thereof, of the Buyer or CIGNA Confidential Information by any person or entity that may become known to Supplier; (b) promptly furnish to Buyer full details of the unauthorized possession, use or knowledge, or attempt thereof, and assist Buyer in investigating or preventing the recurrence of any unauthorized possession, use or knowledge, or attempt thereof, of IBM or CIGNA Confidential Information; (c) cooperate with Buyer in any litigation and investigation against third parties deemed necessary by Buyer to protect the proprietary rights of Buyer; and (d) promptly use its diligent and reasonable efforts to prevent a recurrence of any such unauthorized possession, use or knowledge, or attempt thereof, of IBM or CIGNA Confidential Information. Without limiting the rights of the Supplier in respect of a breach of this Section 38, Buyer shall: (a) promptly notify Supplier of any unauthorized possession, use or knowledge, or attempt thereof, of the Supplier Confidential Information by any person or entity that may become known to Buyer or CIGNA; (b) promptly furnish to Supplier full details of the unauthorized possession, use or knowledge, or attempt thereof, and assist Supplier in investigating or preventing the recurrence of any unauthorized possession, use or knowledge, or attempt thereof, of Supplier Confidential Information; (c) cooperate with Supplier in any litigation and investigation against third parties deemed necessary by Supplier to protect the proprietary rights of Supplier; and (d) promptly use its diligent and reasonable efforts to prevent a recurrence of any such unauthorized possession, use or knowledge, or attempt thereof, of Supplier Confidential Information.
 
38.10 Injunctive Relief. Supplier acknowledges that, in the event of any breach of the provisions of this Section 38, Buyer may suffer damages that are not easily determinable, and shall be entitled to seek equitable relief, including an injunction or an order for specific performance, in addition to all other remedies available to Buyer at law or in equity. Buyer acknowledges that, in the event of any breach of the provisions of this Section 38, Supplier may suffer damages that are not easily determinable, and shall be entitled to seek equitable relief, including an injunction or an order for specific performance, in addition to all other remedies available to Supplier at law or in equity. 
 
38.11 Shared Service Location. If: (a) Supplier provides the Supplier Services to Buyer from a Shared Environment; and (b) any part of the business of Supplier or any such third party is now or is in the future competitive with Buyer’s or CIGNA’s business as specified through IBM’s or CIGNA’s Competitors, then Supplier shall develop a process, subject to Buyer’s approval, to restrict access in any such Shared Environment to IBM or CIGNA Confidential Information so that Supplier’s employees or Supplier Agents providing services to such IBM or CIGNA Competitors do not have access to IBM or CIGNA Confidential Information.
 
38.12 Attorney Client Privileged Documents. Supplier recognizes that it may obtain access to client documents, data and databases created by and for Buyer or CIGNA and associated communications related thereto which are confidential attorney work product or subject to the attorney-client privilege. Supplier shall not reveal to any third parties any such data or information: (a) marked with the words “attorney-client privilege” or “attorney work product” or words of similar import; or (b) designated by Buyer to Supplier as being subject to the attorney-client privilege or confidential attorney work product (such marked and designated data or information, collectively, “Privileged Work Product”). Supplier shall safeguard to prevent the unintentional disclosure of Privileged Work Product to third parties. The only Supplier Personnel who may have access to Privileged Work Product shall be those for whom such access is necessary for the purpose of providing Supplier Services to Buyer as provided in this Subcontract. Supplier recognizes that Privileged Work Product has been prepared in anticipation of litigation and that Supplier is performing the Supplier Services in respect of the Privileged Work Product as an agent of Buyer, and that all matters related thereto and protected from disclosure by Rule 26 of the United States Federal Rules of Civil Procedure (or any similar law in other local jurisdictions). Should Supplier ever be notified of any judicial or other proceeding seeking to obtain access to Privileged Work Product, Supplier shall: (i) immediately notify Buyer; (ii) take such reasonable actions at Buyer’s expense as may be specified by Buyer to resist providing such access; and (iii) if such access cannot be resisted, then only permit access to the extent required by law. 
 
38.13 Review. Buyer reserves the right to review Supplier’s policies and procedures used to maintain the security and confidentiality of Personal Information, including auditing Supplier concerning such policies and procedures. The provisions of this Section, are in addition to, and shall not be construed to limit any other confidentiality obligations under this Subcontract. Any exclusion from the definition of IBM or CIGNA Confidential Information contained in this Subcontract shall not apply to Personal Information.
 
38.14 Survival. The Parties’ obligations of non-disclosure and confidentiality shall survive the expiration or termination of this Subcontract for a period of seven years.
 
39.0 IBM DATA 
 
39.1 Ownership of IBM or CIGNA Data. All IBM or CIGNA Data is, or shall be, and shall remain the property of IBM or CIGNA (as appropriate), as the case may be, and shall be deemed IBM or CIGNA Confidential Information. Without IBM’s approval (in its sole discretion), IBM or CIGNA Data shall not be: (a) used by Supplier other than is necessary for Supplier’s performance under this Subcontract and solely in connection with providing the Supplier Services and the performance of Supplier’s obligations under this Subcontract; (b) disclosed, sold, assigned, leased or otherwise disposed of or provided to third parties by Supplier except as directed by Buyer; or (c) commercially exploited by or on behalf of Supplier. Supplier shall not possess or assert liens or other rights in or to IBM Data.
 
39.2 IBM Access to IBM Data. Buyer shall have unrestricted access (subject to Supplier’s reasonable security precautions) to, and the right to review and retain the entirety of, all computer or other files containing IBM or CIGNA Data in the possession or under the control of Supplier or Supplier Agents. At no time shall any of such files or other materials or information be stored or held in a form or manner not reasonably accessible to Buyer. Except as specifically set forth in this Subcontract, Supplier shall have no implied right to access any data files, directories of files, or other IBM or CIGNA Confidential Information and shall access and/or use such files and IBM or CIGNA Confidential Information only as and to the extent necessary to perform the Supplier Services that are the subject of this Subcontract or the Statements of Work. Upon the request of IBM, Subcontractor shall confirm that, to the best of its knowledge, all files and other information provided to IBM or its designee are complete and that no material element, amount, or other fraction of such files containing IBM or CIGNA Data or other information that constitutes IBM or CIGNA Data to which IBM may request access or review has been deleted, withheld, disguised or encoded in a manner inconsistent with the purpose and intent of providing full and complete access to IBM or CIGNA Data to IBM or its designee as contemplated by this Subcontract. 
 
39.5 Return of Data. Upon request by Buyer at any time during the Subcontract Term and upon the cessation of a Service or expiration or termination of this Subcontract (or at the end of the Termination Assistance Period if directed by Buyer), Supplier shall: (a) promptly return to Buyer, in the format and on the media requested by Buyer, all or any part of the IBM or CIGNA Data; and (b) erase or destroy all or any part of the IBM or CIGNA Data in Supplier’s possession, in each case to the extent so requested by Buyer. Any archival tapes containing IBM or CIGNA Data shall be used by Supplier solely for back-up purposes.
 
39.6 Data Safeguards.
 
a Supplier shall establish and maintain safeguards against the destruction, loss, or alteration of IBM or CIGNA Data in the possession of Supplier in accordance with Exhibit 4-C. 
 
b Supplier shall implement a data security plan designed to impose security on all parts of Supplier’s organization that are exposed to, or have access to, Buyer or to IBM or CIGNA Data. Such plan shall at a minimum be as protective as required by this Subcontract, including Exhibit 4-C hereto. In addition, Supplier shall at all times comply with all statutory and regulatory requirements.
 
c Supplier shall maintain the security procedures that are required by this Subcontract, including Exhibit 4-C hereto.
 
40.0 PROPRIETARY RIGHTS
 
Definitions.
 
The following definitions shall apply to the defined terms used in this Section 40.
 
“IBM Intellectual Property” means Intellectual Property of IBM existing as of the commencement of this service engagement or subsequently developed by IBM or its subcontractors other than Supplier outside the scope of this SOW.
 
“Intellectual Property” means all present and future right title and interest whatsoever whether legal or beneficial anywhere in the world in any copyright and in any registered designs, unregistered design rights, trade marks (whether or not registered), goodwill, rights or protections equivalent or similar to copyright (including all moral rights), topography rights, patents, petty patents, utility models, database rights, data, know-how, trade secrets, research and development information, preparatory designs, design standards specifications, computer software (including all source code object code in relation thereto) calculations, formulae, confidential information, designations and rights under any international convention for protection of any of the foregoing and any licenses applications or consents (respectively) granted applied for or given in respect of any of the foregoing.
 
“Supplier Intellectual Property” means Intellectual Property of Supplier existing as of the commencement of this service engagement or subsequently developed by Supplier outside the scope of this SOW.
 
“Supplier Software” means all commercially licensed Supplier proprietary Software programs licensed to Customer under the Order Form and End-User Agreement.
 
40.1 Limited License Grant to IBM Technology. Buyer hereby grants to Supplier (and, to the extent necessary for Supplier to provide the Supplier Services, to Supplier Agents designated by Supplier that sign a written agreement with Supplier with terms consistent with the applicable terms contained herein) a world-wide, non-exclusive, non-transferable, limited, license during the Subcontract Term to Use the IBM proprietary Software programs (including any CIGNA proprietary Software programs that CIGNA has licensed to Buyer) and related documentation that is identified as such in the applicable Subcontract that may be delivered by Buyer to Supplier in connection with Supplier’s performance of the Supplier Services (the “Licensed IBM Technology”), such Use to be made solely in connection with Supplier’s performance of the Supplier Services in accordance with the provisions of this Subcontract. 
 
40.2 Conditions on Supplier License Rights to IBM Technology.
 
q Except for the license rights in and to the Licensed IBM Technology granted under Section 40.1, no license or other right in or to any of the Licensed IBM Technology is granted by implication, estoppel or otherwise by Buyer to Supplier. Buyer shall own, and Supplier hereby perpetually assigns to Buyer all right, title and interest in and to the Licensed IBM Technology, including all right, title and interest in and to any modifications, enhancements or derivative works of or based on the Licensed IBM Technology (except as set forth in Section 40.5).
 
r Except as expressly provided in Section 40.1 with respect to Supplier Agents, Supplier may not sublicense, assign, lease or otherwise transfer, distribute or exploit any of the Licensed IBM Technology or any of the license rights granted to it under Section 40.1, to any Affiliate of Supplier or to any third party, whether directly, indirectly or by operation of law, including by merger, stock transfer, or otherwise.
 
s Supplier shall not reverse engineer, decompile, disassemble, modify or enhance any of the Licensed IBM Technology or any part thereof or otherwise attempt to create any derivative works of any of the Licensed IBM Technology or any part thereof except as required in connection with Supplier’ s performance of the Supplier Services.
 
t Supplier shall adhere to all of the operational and security rules, procedures and guidelines that are instituted from time to time by Buyer and communicated to Supplier on a timely basis in connection with the exercise by Supplier of its right to access remotely certain of the Licensed IBM Technology.
 
u All Licensed IBM Technology constitutes IBM or CIGNA Confidential Information and valuable trade secrets of Buyer. As such, Supplier shall keep all Licensed IBM Technology confidential in accordance with the provisions of Section 38.
 
v Supplier’s license rights in and to the Licensed IBM Technology shall terminate automatically upon the cessation of a Service or expiration or earlier termination of the Subcontract Term. Promptly after the cessation of a Service or expiration or earlier termination of the Subcontract Term (or partial termination to the extent the Licensed IBM Technology, or parts thereof, are no longer required to perform the Supplier Services), or as otherwise requested by Buyer, Supplier shall deliver to Buyer or destroy any and all devices, records, data, computer disks and tapes, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, Equipment, other documents or tangible property of any type comprising or containing any Licensed IBM Technology and any and all copies and reproductions of any of the aforementioned items in the possession or control of Supplier. An Executive of Supplier shall provide Buyer with written certification that all devices, records, data, computer disks and tapes, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, Equipment, other documents or tangible property of any type comprising or containing any Licensed IBM Technology and any and all copies and reproductions thereof have been destroyed or deleted from Supplier’s, Supplier’s employees’, subcontractors, and Supplier’s Agents’ electronic storage devices.
 
40.3 IBM Intellectual Property. All worldwide right, title and interest in and to all IBM Intellectual Property, together with any and all intellectual property rights inherent in any of the IBM Intellectual Property and appurtenant thereto including all patent rights, copyrights, trademarks, know-how and trade secrets, shall belong exclusively to Buyer perpetually.
 
40.4 Supplier Intellectual Property.
 
a All worldwide right, title and interest in and to all Supplier Intellectual Property, together with any and all intellectual property rights inherent in any of the Supplier Intellectual Property and appurtenant thereto including all patent rights, copyrights, trademarks, know-how and trade secrets, shall belong exclusively to Supplier perpetually.
 
b. Supplier hereby grants to Customer a worldwide, perpetual, irrevocable, fully paid-up, nonexclusive, unlimited license to Use and sublicense, and to permit third parties to Use, the Supplier Intellectual Property (exclusive of Supplier Software) that is incorporated or embedded in any Customer New Intellectual Property for so long as such Supplier Intellectual Property remains embedded or incorporated in such Customer New Intellectual Property and is not separately commercially exploited by Customer. If any software (exclusive of Supplier Software) is included in the Supplier Intellectual Property, then such software shall be licensed to Customer as set forth in this Section 40.4(c) in both object code and source code format. The rights and licenses granted in this Section 40.4(c) are to all Customer Entities, both current and future, and to the extent part of such operations are sold or divested, such rights and licenses shall extend to such sold or divested part or entity. Upon Customer’s request, Subcontractor shall deliver to Customer a copy of the Subcontractor Intellectual Property (exclusive of Supplier Software) in object code and source code format. Source code to Supplier Intellectual Property constitutes Subcontractor Confidential Information and valuable trade secrets of Supplier. As such, Customer shall keep all such source code confidential in accordance with the provisions of Article 38.
 
c. Notwithstanding the provisions of paragraph b of this Section 40.4 above, any Subcontractor Intellectual Property that is sold or licensed on a commercial basis by Subcontractor (including without limitation the Supplier Software) shall not be licensed to Buyer or Customer except under the terms of a separate license agreement (which may or may not include a license to source code). For the sake of clarification, Supplier has licensed Supplier Software to the Customer under the terms and conditions of the Order Form and End-User Agreement. No Supplier Software has been licensed to Buyer.
 
40.5 New Intellectual Property. 
 
a. IBM New Intellectual Property. Buyer owns, and Supplier hereby perpetually assigns to Buyer, all rights, title and interests in all modifications and enhancements to, and derivatives of, IBM Intellectual Property (collectively, “IBM New Intellectual Property”). 
 
b. Supplier New Intellectual Property. Supplier shall own all modifications and enhancements to, and derivatives of, Supplier Intellectual Property (exclusive of Supplier Software) that are developed by Supplier during the provision of any Supplier Services (collectively, “Supplier New Intellectual Property”). Supplier hereby grants to Customer an unlimited, worldwide, fully paid-up license to Use (and allow Customer’s agents and third parties to Use) any Supplier New Intellectual Property, subject to Buyer’s ownership of IBM Data and IBM or CIGNA Confidential Information contained therein. Supplier shall own all modifications and enhancements to, and derivatives of, Supplier Software that are developed by Supplier during the provision of any Supplier Services. Supplier hereby grants to Customer a license to Use the New Supplier Software to the same extent as the Customer is permitted to Use the Supplier Software under the terms and conditions of the End-User Agreement.
 
c. Customer New Intellectual Property. Unless expressly stated otherwise in Subcontract and except for modifications and enhancements to, and derivatives of, IBM Intellectual Property, Supplier Intellectual Property or Supplier Software, Customer owns, and Supplier hereby perpetually assigns to Customer, all rights, title and interests in work product that are developed or provided by Supplier in connection with the provision of any Supplier Services, including any Deliverables (including related documentation necessary to use and support the Deliverables and work product embedded in the Deliverables) whether developed or provided in connection with Subcontract (collectively, “Customer New Intellectual Property”).
 
40.6 Deliverables.
 
Supplier shall not introduce any third party-owned or licensed components in Deliverables without obtaining Customer’s prior written approval in each instance. To the extent Customer approves of such introduction, prior to such introduction Supplier shall obtain the right to grant Customer, without additional charge, a perpetual, irrevocable, fully-paid up, non-exclusive license to Use such third party components as part of the Deliverables, and to sublicense such rights to other entities for the purpose of providing services similar to the Supplier Services to Customer. To the extent Supplier is unable to obtain the rights described in this Section 40.6, Supplier shall notify Customer in writing of its inability to grant Customer such a license and of the cost and viability of other components that can perform the requisite functions and with respect to which Supplier has the ability to grant such a license. This notice shall contain the third party Supplier’s proposed terms and conditions, if any, for making the components available to Customer after expiration, upon any partial or whole termination of this Subcontract, or upon cessation of Supplier Services. Supplier may introduce such components in Deliverables only with Customer’s prior written approval. 
 
All reports, processes, methodologies, deliverables, plans, information, materials, data, drawings, inventions, suggestions, computer Software, renditions, mock-ups, prototypes or other works provided by Subcontractor as a deliverable or otherwise under this Subcontract that do not constitute Deliverables shall be licensed by Subcontractor to Customer in accordance with Section 40.4.
 
40.8 Pre-Existing IP. Subcontractor must identify and obtain Buyer’s prior written approval for the use of any pre-existing Subcontractor Intellectual Property that shall be embedded in IBM New Intellectual Property or Customer New Intellectual Property prior to the development of any such IBM New Intellectual Property or Customer Intellectual Property.
 
40.9 Enforceability.
 
a. During the Subcontract Term and any time thereafter, Supplier shall assist Buyer or its designee, at Buyer’s expense, in every reasonable way to secure all of Buyer’s worldwide perpetual ownership rights, title and interest in IBM Intellectual Property and IBM New Intellectual Property (and all licenses to Supplier Intellectual Property granted to pursuant to this Article 40) in any and all countries, including the disclosure to Buyer of all pertinent information and data with respect thereto, the execution of all applications, registrations, filings, specifications, oaths, assignments and all other instruments which Buyer shall deem necessary or appropriate to: (a) apply for and obtain such rights, title and interest and to assign and convey to Buyer, its successors, assigns and nominees the sole and exclusive rights, title and interests worldwide perpetually in and to the IBM Intellectual Property and IBM New Intellectual Property; and (b) obtain such license rights as set forth in this Article 40 in and to Supplier Intellectual Property. Supplier further agrees that its obligation to execute or cause to be executed any such instrument or papers shall continue after the cessation of a Service or expiration or termination of the Subcontract Term. If testimony or information relative to any of said matters or related to any interference or litigation is requested by Buyer either during the Subcontract Term or following its expiration or termination or the cessation of a Service, Supplier agrees to give all information and testimony and do all things reasonably requested that Supplier may lawfully do, at Buyer’s sole expense. Without limiting the foregoing, Supplier, at Buyer’s request, agrees to execute such assignments and confirmations of: (i) assignment of all rights, title and interests in and to the IBM Intellectual Property and the IBM New Intellectual Property; and (ii) license rights as set forth in this Article 40 in and to Supplier Intellectual Property, each of (i) and (ii) in form acceptable to Buyer. If Buyer is unable because of Supplier’ s unavailability, refusal, dissolution or for any other reason to secure a signature by or on behalf of Supplier to apply for or to pursue any application, registration, filing or other instrument for any United States, Indian or foreign intellectual property rights covering the IBM Intellectual Property and the IBM New Intellectual Property, then Supplier hereby irrevocably designates and appoints Buyer and its duly authorized officers and agents as Supplier’s agent and attorney in fact, to act for and on Supplier’ s behalf and stead to execute and file any such application, registration, filing or other instrument, and to do all other lawfully permitted acts to further the prosecution and issuance of such intellectual property rights, with the same legal force and effect as if executed by Supplier. 
 
b. During the Subcontract Term and any time thereafter, Supplier shall assist Customer or its designee, at Customer’s expense, in every reasonable way to secure all of Buyer’s worldwide perpetual ownership rights, title and interest in Customer New Intellectual Property (and all licenses to Supplier New Intellectual Property granted to pursuant to this Article 40) in any and all countries, including the disclosure to Customer of all pertinent information and data with respect thereto, the execution of all applications, registrations, filings, specifications, oaths, assignments and all other instruments which Customer shall deem necessary or appropriate to: (a) apply for and obtain such rights, title and interest and to assign and convey to Buyer, its successors, assigns and nominees the sole and exclusive rights, title and interests worldwide perpetually in and to the Customer New Intellectual Property; and (b) obtain such license rights as set forth in this Article 40 in and to Supplier New Intellectual Property. Supplier further agrees that its obligation to execute or cause to be executed any such instrument or papers shall continue after the cessation of a Service or expiration or termination of the Subcontract Term. If testimony or information relative to any of said matters or related to any interference or litigation is requested by Customer either during the Subcontract Term or following its expiration or termination or the cessation of a Service, Supplier agrees to give all information and testimony and do all things reasonably requested that Supplier may lawfully do, at Customer’s sole expense. Without limiting the foregoing, Supplier, at Buyer’s request, agrees to execute such assignments and confirmations of: (i) assignment of all rights, title and interests in and to the Customer New Intellectual Property; and (ii) license rights as set forth in this Article 40 in and to Supplier New Intellectual Property, each of (i) and (ii) in form acceptable to Buyer. If Buyer is unable because of Supplier’ s unavailability, refusal, dissolution or for any other reason to secure a signature by or on behalf of Supplier to apply for or to pursue any application, registration, filing or other instrument for any United States, Indian or foreign intellectual property rights covering the Customer New Intellectual Property, then Supplier hereby irrevocably designates and appoints Customer and its duly authorized officers and agents as Supplier’s agent and attorney in fact, to act for and on Supplier’ s behalf and stead to execute and file any such application, registration, filing or other instrument, and to do all other lawfully permitted acts to further the prosecution and issuance of such intellectual property rights, with the same legal force and effect as if executed by Supplier.
 
40.10 General Intellectual Property Provisions.
 
aa Copyright Legends. The Parties agree to reproduce copyright legends which appear on any portion of the Intellectual Property which may be owned by third parties.
 
bb No Implied Licenses. Except as expressly specified in this Subcontract, nothing in this Subcontract shall be deemed to grant to one Party, by implication, estoppel or otherwise, license rights, ownership rights or any other intellectual property rights in any Intellectual Property owned by the other Party or any Affiliate of the other Party.
 
cc Residuals. Nothing in this Subcontract shall: (i) restrict either Party from using ideas, concepts or know-how relating to the Supplier Services that are retained in the memories of such Party’s employees or representatives after performing the obligations of such Party under this Subcontract; or (ii) preclude or limit Supplier from providing services and/or developing Software or materials for itself or other clients, irrespective of the possible similarity of such materials that might be delivered to Buyer under this Subcontract, except to the extent that the exercise of any of the foregoing infringes upon a patent or trademark of a Party or its Affiliates. Except as described above, this Section 40.10 shall not be deemed to limit either Party’s obligations under this Subcontract with respect to the disclosure or use of Confidential Information.
 
43.0 Insurance.
 
43.1 Supplier shall, and shall cause Supplier Agents to, throughout the Term and the Termination Assistance Period, maintain in full force and effect from a third party that is rated “A” or “A-” in Best’s Insurance Guide, or otherwise acceptable to Buyer, the following insurance coverage for its worldwide operations:  
 
tt Supplier agrees to maintain a policy of workers’ compensation insurance (as required by the applicable state statute) on its employees. Such policy shall provide statutory limits and contain Employer’s Liability coverage in an amount not less than $5,000,000 per occurrence. To the extent reasonably obtainable, Supplier agrees to have its workers’ compensation insurance policy amended to waive the insurors rights of subrogation against Buyer for recovery of claims paid under Supplier’s policy.
 
uu Automobile liability covering all vehicles owned, non-owned, hired and leased in an amount not less than $1,000,000.00 per claim (combined single limit for bodily injury and property damage).
 
vv Commercial general liability insuring against bodily injury, property damage, contractors’ completed operations and contractual liability (covering Supplier’s indemnification obligations contained herein) with a combined single limit of not less than $5,000,000.00 per claim.
 
ww Professional liability and errors and omissions insurance in an amount not less than $5,000,000.00 per claim and in the aggregate.
 
xx Umbrella coverage (including commercial general liability coverage) of not less than $20,000,000.00 over the coverages shown above.
 
yy Fidelity coverage in the amount of $5,000,000.00 to cover fraudulent or dishonest acts by an employee of Supplier. Buyer shall be named as a loss payee in respect to the Services performed for Buyer.
 
43.2 Inspection. Supplier shall allow Buyer or CIGNA or their representatives or property insurance company representatives, at any time with reasonable advance notice, to inspect, test or examine fire protection and security Equipment, systems and procedures at the IBM or CIGNA Service Location.
 
43.3 Certificates. Supplier shall furnish Buyer with certificates of insurance evidencing the above coverages and endeavoring to notify Buyer 30 days in advance in writing of cancellation. Such certificates or policies shall be in a form and underwritten by a carrier and/or placed through a broker satisfactory to Buyer. Except for the Workers’ Compensation, Professional Liability and Employer’s Liability policies, all policies of insurance shall name Buyer as an additional insured where allowed by local country law. Each policy shall contain a provision that no act or omission of Supplier shall affect or limit the obligation of the insurer to pay Buyer the amount of any loss sustained. Insurance carried on a claims made basis shall be carried for a 60 day after the Term and the Termination Assistance Period to cover all claims.
 
43.4 Use of Proceeds. Proceeds received by Supplier from any claims under the insurance policy referenced in this Article shall be used to rapidly affect necessary repairs or replacement or to reimburse the affected CIGNA Entities.
 
43.5 Waiver of Subrogation. The insurance coverages under this Section 43 with respect to premises liability and only for liability arising out of Supplier’s negligence on such premises, shall be primary, and non-contributing with respect to any other insurance or self insurance which may be maintained by Buyer.
 
43.6 Risk of Loss. Supplier shall be responsible for risk of loss of, and damage to, Equipment, Software or other materials in its possession or under its control , except to the extent such loss or damage is caused by Buyer or CIGNA.
 
Section 44.0 Further Assurances.
 
44.1 Each party agrees to execute documents and provide such information and cooperation as reasonably requested by a party to effectuate the grant of rights hereunder including any documents, information or cooperation reasonably necessary to effectuate the intent of the parties herein.
 

 
 
 



ACCEPTED AND AGREED TO:
  
ACCEPTED AND AGREED TO:
IBM
  
Chordiant Software, Inc.
By: /s/ Dan Reinhard
  
By: /s/ Kelly Hicks
Buyer Signature Date
September 28, 2006
  
Supplier Signature Date September 28, 2006
Dan Reinhard
  
Kelly Hicks
Printed Name
  
Printed Name
Procurement Solutions Advisor/ Client Services Procurement
  
VP, Worldwide Sales Operations
Title & Organization
  
Title & Organization
     
Buyer Address:
2455 South Road
Poughkeepsie, NY 12601
 
Supplier Address:
20400 Stevens Creek Blvd.
Cupertino, CA 95014
USA
 






 
 
 

EXHIBIT 1 - Service Level Agreement
 

1.  INTRODUCTION
 
The Service Level Agreements defined in this schedule are associated with the steady-state management of the Call Center Application.
 
1.1  The Service Levels set forth herein shall be effective upon production implementation of the application.
 
1.2  The primary objective of Chordiant Product Support is to assist IBM in maintaining and/or regaining an operational state by commercially reasonable efforts. The secondary objective of Product Support is to provide in due course the correction of any underlying Errors.
 
Chordiant shall make available to Customer Support in the form of access via e-mail, web and telephone (telephone access during the Support Hours only) in English to the Designated Contacts and/or via the support website for technical information, technical advice and technical consultation regarding Customer’s use of the Supported Software.

Product Support will include the following:

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

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

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

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

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

2. IBM Responsibilities 

IBM agrees to:
(i) Provide Chordiant with remote access to the Supported Software during the term of this Agreement via an electronic link; and
(ii) Provide any reasonable assistance that Chordiant may require from the Designated Contacts and other appropriate Customer representatives (e.g. network administrator, as the case may be) to enable Chordiant to provide IBM with Support; and
(iii) Establish and maintain the conditions of the Supported Environment in compliance with Chordiant Certified Matrix and Technical Stack developed for the installed release or any environmental operating ranges specified by the manufacturers of the components of the Designated Center. Any deviation from this Supported Environment voids all Resolutions within the timeframe set forth below unless agreed to by Chordiant in writing.

IBM agrees to designate two (2) appropriately qualified and trained personnel to be the Designated Contacts, and only those individuals shall request Support services. IBM agrees endeavor to adequately train and obtain “Chordiant certification” for, and forward to Chordiant the names and contact details of the Designated Support Contacts. IBM shall provide Chordiant with access to IBM’s personnel and its equipment during Support Hours. This access must include the ability to dial-in from Chordiant facilities to the equipment on which the Supported Programs are operating and to obtain the same access to the equipment as those of IBM’s employees having the highest privilege or clearance level.

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

IBM agrees to notify Chordiant Product Support promptly of any malfunction of the Supported Software.

IBM agrees to provide Chordiant with access to and use of such of the Customer’s information and facilities reasonably necessary to service the Supported Software including, but not limited to, an accurate description of the Designated Center and the current Supported Environment, the problem being reported, the transactions and any error messages, along with screenshots and log files.

IBM agrees to install the Current Release as soon as reasonably practicable, or as stated in the CIGNA SLSA which requires IBM to stay current to N-2. If CIGNA requires IBM to not maintain N-2 IBM will work with Chordiant to purchase extended maintenance support and assess the impact to the SLA below in accordance with the change control process.

 
Problem Management Requirements
 
Severity Level
Response
Escalation & Communication
Resolution
Severity 1
[*] mins
[*] hr during Business Hours
[*] hrs off-hours
[*] hours [*] % of the time
 
IBM must provide 24x7 contact information.
Severity 2
[*] Business Hour
[*] hrs during Business Hours
[*] hrs off-hours
[*] hours [*] % of the time
Severity 3
[*] business hrs
[*] business day
[*] days [*] % of the time
Measurement Process
See Text Below
Measurement Calculation
See Text Below
Measurement Frequency
-  Daily
-  Weekly
Monthly (current + 12 month rolling)
Service Level Weighting
TBD% for each severity category and response/escalation/resolution criteria
Measurement Period Start Date
Two weeks after the Implementation Date
Service Level Effective Date
The first day of the month following 30 days of measurement.
Continuous Improvement Applies
No
Scope of Requirements
These Program Management Requirements apply only to Chordiant Foundation as originally delivered (including subsequently delivered Updates). These Requirements shall not apply to any customizations, modifications or derivative works of Chordiant Foundation.

4.  
Supplier will name an SLA Manager as initial contact person responsible for assisting IBM with meeting Problem Management SLA’s during 8:30 AM to 5:30 PM Eastern Time on Business Days. SLA Manager will provide 7 x 24 coverage model and contact/name and numbers.
 
5.  
Once IBM identifies Chordiant Foundation as the cause of an outage, IBM will notify SLA Manager who will provide Supplier staff to resolve product issues based on the following:
 
a.  
Severity 1: Supplier provides staff to resolve problem on 7X24 basis until resolution or IBM agrees problem is not caused by Supplier product.
 
b.  
Severity 2 and 3: Supplier provides staff to resolve problem on 5 X 8 basis until resolution or IBM agrees problem is not caused by Supplier product.
 
6.  
If Supplier causes IBM to miss a CIGNA Service Level which causes IBM to pay a Service Level Credit, Supplier will refund IBM the percentage of the Annual Maintenance Charge set forth below during the following fiscal quarter:
 
a.  
Supplier’s monthly amount at risk is [*] % of the Annual Maintenance Charges paid by IBM
 
b.  
Supplier’s penalty exposure will be limited to no more than one occurrence per month.
 
c.  
IBM will have no more then one month from the end of the fiscal quarter of a missed CIGNA Service Level to request that Supplier refund a percentage of the Annual Maintenance Charge.
 

7.  
Root Cause Analysis. The Root Cause Analysis shall be completed for all Severity 1 issues and for other severity levels upon IBM’s request. If Supplier product is identified as a contributor to a Severity 1 issue, Supplier SLA Manager will participate in the Root Cause Analysis and assist IBM with documenting the following:
 
§  
What happened?
§  
Why did it happen?
§  
What was done to correct the problem?
§  
What was the business impact?
§  
What's being done to prevent recurrence?

Supplier shall make commercially reasonable efforts to determine the exact root cause for all Severity 1 issues. The root cause analysis shall be completed and available to CIGNA within 5 business days after completion of a workaround or fix.

Supplier shall perform a post evaluation for all Severity 1 issues. The post evaluation shall determine if preventative measures can be enacted to avoid the outage in the future. The post evaluation shall contain a detailed description of the scope and scale of work, the estimated costs and estimated timeframe for implementing the preventive measures.

8.  
DEFINITIONS
 
a.  
“Availability”: The aggregate number of hours in any month during which each defined and supported system to be measured for the Service Level is actually available, excluding Scheduled Hours of Operational Downtime.
 
b.  
“Business Days”: means Monday through Friday, excluding CIGNA designated holidays during which time the Call Centers are not in operation.
 
c.  
“Business Hours”: shall mean (whether capitalized or not) the hours of operation as defined on Eastern Time.
 
d.  
“CCA Application”: is defined as the desktop plus the call center interaction history plus Chordiant Foundation.
 
e.  
Normal System Hours of Operation” shall mean 24 x 7 (excluding Scheduled Maintenance and other mutually agreed periods).
 
f.  
“Prime Shift”: shall mean 06:00 to 22:00 Eastern Time on Business Days.
 
g.  
“Reporting Prime Shift” shall mean 07:00 to 22:00 Eastern Time on Business Days.
 
h.  
“Problem Resolution Hours of operation”: Unless specifically stated, Vendor shall work to resolve reported or identified problems on the following work schedule:
 
i.  
Severity 1: 7x24
 
ii.  
Severity 2, 3, 4: Monday through Friday, 7:00 AM to 6:00 PM local time excluding CIGNA holidays, except in cases of Network Data where the operations is to be staffed 24x7
 
iii.  
Service Requests: Monday through Friday, 8:00 AM to 5:00 PM local time excluding CIGNA holidays
 
i.  
“Resolve or Resolution”: To correct an Incident or Problem for which Supplier is responsible with either a permanent solution or an interim work around solution. Supplier may, with IBM’s approval, defer the implementation of a Resolution to a mutually agreed time (e.g. implementation of a new software fix or release) beyond the Service Level Agreement.
 
j.  
Severity Definitions
 
Severity Level
Definition
Severity 1 (Highest Impact)
 
Service impacts to an ENTIRE facility, business unit, or system
• A critical system service or critical path process, or an entire network or application is disrupted and is impacting the business.
• Timely resolution is essential to minimize financial loss or missed sales.
• An entire business unit is down or a network or major system is down and is impacting the business.
• When a problem occurs that has the potential for impacting a process or business function at a later time, and requires immediate resolution and/or assistance from another support group.
Severity 2 (High Impact)
 
Service impact to a PORTION of a business unit, or facility;
 
Or Entire team/business unit is missing a PORTION of a critical component or application
• A system service, network, or application is available, but with severe restrictions that impact the ability of a portion of a business unit to complete their work.
• Bypass or work-around is available, and work is continuing with significant inconvenience.
• Timely resolution is essential to avoid financial loss or missed sales.
• When a problem occurs that has the potential for impacting a process or business function at a later time, and requires immediate resolution and/or assistance from another group.
Severity 3
 
(Moderate Impact) An INDIVIDUAL or small group of individuals is unable to perform job functions.
• Unable to perform non-critical business functions.
• No significant impact to revenue or sales.
Severity 4 (Low Impact)
 
An INDIVIDUAL is able to perform job functions with a work around or some minor inconvenience.
• Problem has a low business impact, if any.
• A minor impact to an individual.


 


 
 
 

EXHIBIT 2

On Premises Guidelines
Supplier will ensure that Supplier Personnel assigned to work on Buyer’s or Buyer’s Customer’s premises will comply with this Section.

2.1 Access to Premises
For Supplier Personnel assigned to work on Buyer’s or Buyer’s Customer’s premises, Supplier will:
1.  
to the extent permitted by local law, conduct a preemployment criminal background check, which must be completed prior to placement at Buyer’s or Buyer’s Customer’s premises, covering the counties in which the person was employed or resided for the past seven years (or longer as required by State legislation), and inform Buyer of any negative findings;
2.  
maintain a current and complete list of the persons' names and social security numbers;
3.  
obtain for each person a valid identification badge from Buyer and ensure that it is displayed in order to gain access to and at all times while on Buyer’s premises (it is Buyer's policy to deactivate any such badge if not used for one month);
4.  
maintain a signed acknowledgment that each person will comply with Buyer’s On Premises Guidelines;
5.  
ensure that each person with regular access to Buyer's and Buyer’s Customer’s premises complies with all parking restrictions and with vehicle registration requirements if any;
6.  
inform Buyer if a former employee of Buyer will be assigned work under this Agreement, such assignment subject to Buyer approval;
7.  
at Buyer's request, remove a person from Buyer’s or Buyer’s Customer’s premises and not reassign such person to work on Buyer's or Buyer’s Customer’s premises (Buyer is not required to provide a reason for such request); and
8.  
notify Buyer immediately upon completion or termination of any assignment and return Buyer’s identification badge. Upon Buyer’s request, Supplier will provide documentation to verify compliance with this Subsection.

2.2 General Business Activity Restrictions
Supplier will ensure that Supplier Personnel assigned to work on Buyer’s or Buyer’s Customer’s premises:
1.  
will not conduct any non-Buyer related business activities (such as interviews, hirings, dismissals or personal solicitations) on Buyer's or Buyer’s Customer’s premises;
2.  
will not conduct Supplier's Personnel training on Buyer’s or Buyer’s Customer’s premises, except for on-the-job training;
3.  
will not attempt to participate in Buyer or Customer benefit plans or activities;
4.  
will not send or receive mail unrelated to Buyer or Customer through Buyer's or Customer’s mail systems; and
5.  
will not sell, advertise or market any products or distribute printed, written or graphic materials on Buyer's or Buyer’s Customer’s premises without Buyer's written permission.

2.3 Buyer’s Safety and Security Guidelines
Supplier will ensure that Supplier Personnel assigned to work on Buyer’s or Buyer’s Customer’s premises:
1.  
do not bring weapons of any kind onto Buyer's or Buyer’s Customer’s premises;
2.  
do not manufacture, sell, distribute, possess, use or be under the influence of controlled substances (for nonmedical reasons) or alcoholic beverages while on Buyer's or Buyer’s Customer’s premises;
3.  
do not have in their possession hazardous materials of any kind on Buyer's or Buyer’s Customer’s premises without Buyer's authorization;
4.  
acknowledge that all persons, property, and vehicles entering or leaving Buyer's or Buyer’s Customer’s premises are subject to search; and
5.  
remain in authorized areas only (limited to the work locations, cafeterias, rest rooms and, in the event of a medical emergency, Buyer's or Buyer’s Customer’s medical facilities). Supplier will promptly notify Buyer of any accident or security incidents involving loss of or misuse or damage to Buyer's or Buyer’s Customer’s intellectual or physical assets, physical altercations, assaults, or harassment and will provide Buyer with a copy of any accident or incident report involving the
6.  
above. Supplier must coordinate with Buyer or Buyer’s Customer access to Buyer’s or Buyer’s Customer’s premises during non-regular working hours.

2.4 Asset Control
In the event Supplier Personnel have access to information, information assets, supplies or other property, including property owned by third parties but provided to Supplier Personnel by Buyer ("Buyer Assets"), Supplier Personnel:
1.  
will not remove Buyer Assets from Buyer's or Buyer’s Customer’s premises without Buyer's authorization;
2.  
will use Buyer Assets only for purposes of this Agreement and reimburse Buyer for any unauthorized use;
3.  
will only connect with, interact with or use programs, tools or routines that Buyer agrees are needed to provide Services;
4.  
will not share or disclose user identifiers, passwords, cipher keys or computer dial port telephone numbers; and
5.  
in the event the Buyer Assets are confidential, will not copy, disclose or leave such assets unsecured or unattended. Buyer may periodically audit Supplier's data residing on Buyer's information assets.
2.5 Supervision of Supplier's Personnel
Supplier will provide continual supervision of its Personnel provided under this Agreement, at no additional cost to Buyer. Supplier's supervisor shall have full supervisory authority over all day-to-day employment relationship decisions relating to Supplier’s Personnel, including those decisions relating to: wages, hours, terms and conditions of employment, hiring, discipline, performance evaluations, termination, counseling and scheduling. Supplier's supervisors responsible for each work location will be responsible to know that work location’s planned holiday (and other closing) schedules and the impacts that all such schedules have on Supplier's Personnel. Supplier will conduct orientation sessions with its Personnel before placement on an assignment with Buyer, during which orientation such Personnel will be told the identity and contact information of their supervisor. Supplier will, from time to time, ensure that all of its Personnel working under this Agreement continue to be aware of this information.Electronic Funds Transfer
Certificate of Originality


 
 
 

EXHIBIT 3 Service Locations

IBM/CIGNA Service Locations: The following locations are identified as authorized IBM/CIGNA service locations.


CIGNA Service Locations for CCA
 
Site Address
[*]
[*]
[*]



 
 
 

EXHIBIT 4 - Permitted Subcontractors

Ness

[*]

[*]

 
  
 
 
  
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  EXHIBIT 4-C
 
 

 
 
  Security and Data Safeguards
 
 
  
 

       
       


 
 
 


 
  Exhibit 4-C
 
 
  Security and Data Safeguards
 

 
 
Introduction
 
 
Vendor shall provide security controls and safeguards, and shall follow security procedures, at all Vendor Service Locations and in connection with all Systems and Services (whether dedicated or shared) that at a minimum comply with the requirements set forth in this Exhibit 4-C and the General CIGNA Policies set forth in Exhibit 4-C-1, as such requirements are more specifically defined in the Detailed CIGNA Policies set forth in Exhibit 4-C-2, unless, with respect to a specific SOW, different or additional requirements are set forth in such SOW. In the event that the specific security requirements are not set forth in the Detailed CIGNA Policies, then the Parties shall use this Exhibit 4-C and the General CIGNA Policies to establish Vendor’s obligations.
 
 

 
 
CIGNA may update the ISCD from time to time upon notice to Vendor and, subject to the Change Control Procedure, Vendor shall implement and comply with the updated ISCD, subject to the following:
 
 

 
 
1. In a dedicated or shared environment, Vendor shall bear the cost of any changes that are any one or more of the following:
 
 
 
 
 
(a) evolutionary changes related to security specific issues, such as upgrades, new releases and versions of existing technology or safeguards (e.g., updating anti-virus software, security patches);
 
 

 
 
(b) changes that are a direct result of changes mandated by Vendor regulation or Vendor Law; and
 
 

 
 
(c) changes consistent with generally accepted changes made by other companies in the healthcare industry: (i) if implemented by Vendor and given to its customers at no additional charge or; (ii) which changes shall be chargeable to CIGNA; provided, however, such charge shall be: (A) equitably reduced to reflect any leverage that Vendor may gain by providing such changes to multiple Vendor customers in the healthcare industry; and (B) paid from monies extracted from a fund that CIGNA shall, as of the MSA Effective Date, establish, fund and govern and which Vendor shall manage (the “Security Mitigation Fund”). Any such changes will be discussed by the Parties and made pursuant to the Change Control Procedure.
 
 

 
 
2.  In the event that CIGNA makes a change to the ISCD that would require Vendor to make a change to a shared environment and such change is unique to CIGNA (and not generally implemented by other companies), then Vendor shall: (a) provide a proposal to CIGNA identifying the costs and implications of the change, and upon CIGNA approval, make the change, or (b) upon notice to CIGNA, not make the change but advise CIGNA of the costs of moving to a dedicated environment, or (c) if CIGNA does not wish to move to a dedicated environment, Vendor shall provide a proposal to identify the costs to implement safeguards and practices that mitigate CIGNA’s security concerns, and upon approval by CIGNA, implement such safeguards and practices. 
 
 

 
 
3. Vendor shall obtain CIGNA’s review and comment prior to the implementation of any changes in a shared environment that would materially degrade the level of security safeguards and practices provided to CIGNA. If Vendor were to implement any change that materially degrades the level of security safeguards and practices provided to CIGNA, Vendor will reverse such change and continue to provide Services in accordance with applicable Service Levels. Vendor may propose, however, for CIGNA’s review and approval, alternatives which would not require the reversal of such change, but shall allow Vendor to continue to provide Services in accordance with applicable Service Levels. If CIGNA does not approve any alternative, Vendor shall reverse the change and continue to provide Services in accordance with the Service Levels. Except as provided in paragraph 2 above, the costs of all changes in a shared environment shall be borne by Vendor.
 
 

 
 
Definitions
 
 
“External User” shall mean any user that is a CIGNA customer that accesses CIGNA’s systems .
 
 
“Information Security Controls Document or “ISCD” shall mean this Exhibit and the General CIGNA Policies Exhibit 4-C-1) and Detailed CIGNA Policies (Exhibit 4-C-2), unless, with respect to a specific SOW, different or additional requirements that are set forth in such SOW. The Information Security Controls Document shall be deemed CIGNA’s Confidential Information under the Agreement.
 
 
“Vendor Network” shall mean the system under Vendor’s or Vendor agents’ control that transmits any data, voice and/or video alone or in combination or is otherwise used to provide the Services, either within Vendor or between Vendor and CIGNA, including the network operating system in the Vendor client and server machines, the cables connecting them and all supporting hardware including without limitation bridges, routers and switches.
 
 
“CIGNA Network” shall mean the system under CIGNA’s or its contractor’s control that transmits any data, voice and/or video alone or in combination that are within the scope of the Services, either within CIGNA or between CIGNA and the Vendor Controlled Router as defined in Schedule K (Business Continuity) of the applicable Statement of Work, including the network operating system in the CIGNA client and server machines, the cables connecting them and all supporting hardware including without limitation bridges, routers and switches.
 
 
“Remediate” shall mean to alleviate the security issues so that they are no longer a threat (and if not feasible to completely remove the threat, to minimize the threat to a level acceptable to CIGNA, with CIGNA using reasonable discretion), however, it shall not mean alleviating the effects resulting from the security issue.
 
 

 
 
Capitalized terms used herein without specific definition shall have the respective meanings given to them in the Agreement.
 

3. CIGNA Data

3.1 Data Safeguards.

3.1.1 Vendor shall establish and maintain safeguards against the destruction, loss, or alteration of CIGNA Data in the possession of, used or viewed by Vendor that are no less rigorous than those set forth in the ISCD. If the ISCD does not cover certain security control, safeguards or procedures, then Vendor shall implement, comply with and follow controls, safeguards and procedures that are consistent with current generally accepted controls, safeguards and procedures in the healthcare industry. Vendor personnel shall not attempt to access, and shall not allow access to, CIGNA Data to which it is not entitled or that is not required for the performance of the Services by Vendor personnel. Vendor shall institute systems security measures to guard against the unauthorized access, alteration, destruction or loss of CIGNA Data.

3.1.2 Vendor shall Remediate and resolve security issues, at Vendor’s expense (provided it shall be at CIGNA’s expense if and to the extent the issue was caused by CIGNA (i.e., CIGNA is at fault)), identified at Vendor Service Locations or in connection with the Systems or Services located at Vendor Service Locations or managed or controlled by Vendor. This extends to any CIGNA approved Service Locations contracted by Vendor. As part of the Services and at a minimum on an annual basis, Vendor shall (at CIGNA’s request and at Vendor’s cost, except as provided in clause (y) immediately below), provide a report regarding security controls across all of the Services, such report to be carried out by an independent third party appointed by Vendor and approved by CIGNA. The scope of work performed by such third party: (a) shall be valued at the lesser of: (i) Vendor’s actual, out-of-pocket costs to contract for the performance of such work; and (ii) $75,000; provided, however, that: (x) if Vendor’s actual, out-of-pocket cost on an annual basis is less than $75,000, CIGNA shall receive a credit for the difference between such cost and $75,000; and (y) if the Parties mutually agree to scope(s) of work valued in the aggregate at an amount greater than $75,000, CIGNA shall be financially responsible for the difference between such greater amount and $75,000; and (b) shall measure (through identification and testing of controls) against the Information Security Control Document and the terms of the report shall be determined by Vendor.. If CIGNA is dissatisfied by such reports, CIGNA may, at any time, but no more than twice in any consecutive 12 calendar months, carry out or have carried out a security audit of the Services at CIGNA’s cost, the scope and terms of the report to be agreed between the Parties and upon Vendor receiving appropriate assurances that any of the Vendor Confidential Information shall not be compromised. CIGNA's ability to perform security audits shall not be limited by CIGNA business processing that occurs on non-dedicated (i.e. shared) vendor devices, or by work areas that are not dedicated and isolated to CIGNA business.
 
3.1.3 Vendor shall deploy a network and host-based, real-time intrusion detection system and vulnerability assessment process that is consistent with the ISCD. Vendor shall actively monitor these systems and processes for activities that indicate attempts at breaking the security of the services provided and follow notification procedures identified in the Security Incident Service Level set forth in the applicable Statement of Work or Exhibit 2,if any, of the MSA. Along with the deployment of these controls, Vendor shall adopt and follow Vendor’s operational procedures ( or as otherwise agreed to and described in the procedures manual) to disable the source of any perceived attack, Remediate vulnerabilities and escalate to Vendor and CIGNA security groups for follow-up action. For purposes of clarity, “vulnerability assessment process” means a process that tests for known vulnerabilities and produces an evaluation of findings against such vulnerabilities.

3.1.4 CIGNA reserves the right to review Vendor’s policies and procedures used to maintain the security and confidentiality of personal information, including auditing Vendor concerning such policies and procedures.

3.1.5 Vendor must maintain security controls that have been attested to CIGNA in CIGNA’s Service Provider questionnaires and/or during CIGNA standard Service Provider audits to the level as attested. Vendor must report any changes to the control environment immediately to CIGNA.

3.1.6  Design, implementation and integration of all Services shall be consistent with the Information Security Control Document, unless otherwise set forth in the applicable SOW. Connectivity and infrastructure used to provide access to CIGNA systems and/or CIGNA data must meet applicable security controls (encryption, access controls, etc) as defined in the Information Security Controls Document.

3.1.6.1. Design, (All) User Access. Password composition and management policies must comply with or exceed those in the Information Securities Control Document.

·  
Role Based Access Controls (RBAC) authorization models must be utilized for access to information resources as documented in the Information Securities Control Document.

·  
Ongoing administration and lifecycle management must be in accordance with the Information Security Control Document.

3.1.6.2. Design, Internal User Access.
·  
Reasonable effort shall be made to integrate with CIGNA internal authentication and authorization mechanisms. Integration with CIGNA's Enterprise Security Framework is required (TIM/TAM/FIM), where those services can be reasonably expected to fill architecture requirements

3.1.6.3 Design, External User Access.
 
·  
All external users must be provided with a one time ID and ‘PIN’ for initial access authentication and authorization; for which the PIN is randomly generated and sent via out-of-band mechanisms such as U.S./International mail (communication via E-mail is NOT an accepted method).
 
·  
Support requirements for browsers that support 128 bit encryption in communications to CIGNA end-users.
 
3.1.6.4 Virtualization, Co-location.

·  
Data repositories used to store user information must not be hosted on shared systems that do not meet the requirements of the Information Security Controls Document.

3.1.6.5 Off - Shore Information Protection.

The following agreements augment but do not exclude other provisions in the MSA or a SOW:

·  
Vendor shall not store any CIGNA data classified by CIGNA as Restricted or Highly Sensitive outside of the continental United States except as outlined in the Information Security Controls Document. In support of the Vendor Service Locations outside the United States, Vendor shall ensure the following controls implemented:

(a) If offshore facility is NOT controlled by Vendor, and employees in the facility are NOT employed by Vendor, then the Vendor shall provide a physically isolated, network isolated area for customer service representatives (CSR) handling CIGNA calls;

(b) CIGNA provided and CIGNA managed desktop lockdown software (currently Verdasys Digital Guardian) shall be installed on all Vendor PC’s accessing CIGNA data classified by CIGNA as Restricted or Highly Sensitive. The software policy shall be managed by CIGNA or it’s vendor, and shall be configured to monitor and/or restrict a workstation user’s ability to move, print or upload CIGNA information.

(c) Vendor CSR’s servicing CIGNA shall perform their duties only from within the approved vendor facility,
 
(d) Workstation IDs , antivirus, and personal firewalls must be deployed, managed, and actively audited as outlined in the Information Security Controls Document;

(e) User level audit logging of CIGNA/CSR activity must be enabled, and available to CIGNA upon request. Retention periods must meet CIP policy (90 day raw logs, 6 year incident/activity reporting). Audit logging shall be performed for those activities specified in the Information Security Controls Document.

3.2 Backup Security. CIGNA shall have the right to establish additional Data backups (as a supplement to any of Vendor’s obligations under a SOW) for any Data and to keep backup copies of this Data in CIGNA’s possession. Should CIGNA choose to exercise its rights under this Section 3.2, related expenses shall be borne by CIGNA.

3.3 Media. No media on which CIGNA Data is stored may be used or re-used to store data of any other customer of Vendor or to deliver data to a third party, including another Vendor customer, unless Vendor first implements procedures described in the Detailed CIGNA Policies.

3.4 Breach of Security. In the event Vendor or Vendor Agents discovers or is notified of a breach or potential breach of security controls relating to the CIGNA Data, Systems or Infrastructure under Vendor’s or Vendor Agent’s control, Vendor shall immediately (a) notify the CIGNA Engagement Manager and CIGNA Security Incident Response Team (CSIRT) of such breach or potential breach and (b) if the applicable CIGNA Data was in the possession of Vendor or Vendor Agents at the time of such breach or potential breach, Vendor shall (i) investigate and Remediate the breach or potential breach and (ii) provide CIGNA with assurance satisfactory to CIGNA that such breach or potential breach shall not recur.

 
 
4.0 Security Management
 
 
Vendor shall:
 
 
provide an Vendor Information Security Advisor (or ISA) as focal point with responsibility for day-to-day security management who is a security subject matter expert;
 
 
in conjunction with CIGNA, review security policies and procedures that impact the Vendor software and vendor equipment for effectiveness, and recommend improvements, including control improvements;
 
 
review changes requested by CIGNA to its security policies and standards and advise CIGNA whether or not such changes can be implemented, if Vendor does not implement the changes requested by CIGNA, Vendor shall implement mitigating controls approved by CIGNA, and such change shall be handled in accordance with the Change Control Procedures;
 
 
communicate the security procedures to Vendor Personnel accessing CIGNA applications and/or network (for example, login procedures, password requirements, use of anti virus programs, and data and equipment security procedures); and
 
 
notify CIGNA of any condition discovered or known by Vendor that is likely to affect negatively the confidentiality, integrity, or availability of CIGNA’s information, CIGNA’s ability to use an Vendor provided application or Vendor’s ability to access CIGNA data.
 
 
CIGNA shall:
 
 
provide a CIGNA security subject matter expert focal point individual with responsibility for day-to-day security management;
 
 
communicate the security procedures to CIGNA end users (for example, login procedures, password requirements, use of anti virus programs, data and equipment security procedures);
 
 
in conjunction with Vendor, review security policies and procedures for effectiveness and recommend improvements; and
 
 
notify Vendor of changes CIGNA plans to make to its security policies and standards and the changes to be implemented by Vendor.
 

 
 
5.0 Physical Security
 
 
Vendor shall, to the level or standard specified in the Information Security Controls Document:
 
 
provide physical security controls at Vendor Service Locations;
 
 
restrict access to data processing areas for which Vendor has security responsibility to authorized personnel only as defined in the Information Security Controls Document;
 
 
conduct periodic reviews of the data processing areas for which Vendor has security responsibility including reviews of access logs for unusual occurrences and perform follow-up activities in accordance with the procedures specified in the Information Security Controls Document;
 
 
protect Vendor Network devices on Vendor's premises from any unauthorized access;
 
 
protect printed output from unauthorized access or removal while under Vendor's control;
 
 
provide secure storage for removable storage media under Vendor's control;
 
 
resolve discrepancies discovered during the annual removable storage media audit and inform and obtain acceptance from CIGNA on the resolution;
 
 
implement controls as set forth in the ISCD (and if not set forth therein consistent with current generally accepted practices in the healthcare industry) that are designed to eliminate residual information on removable storage media before disposal or reuse outside of CIGNA;
 
 
during the Transition Period, with CIGNA's assistance, perform a baseline inventory of removable storage media (for example, tapes, disks) for which Vendor has security responsibility.
 
 
CIGNA shall protect LAN servers and infrastructure devices on CIGNA premises from unauthorized physical access.
 
 

 
 
6.0 Network Infrastructure Security
 
 
Vendor shall for equipment under its control:
 
 
control the network operating system security and administrative user IDs;
 
 
provide and maintain current virus avoidance, detection, and elimination software for supported servers in conjunction with the ISCD standards utilizing Vendor approved packages. Virus protection software shall have an automated mechanism for updating the virus definitions, implementing current definitions within 8 hours of issuance by vendor (unless security risk mandates faster deployment);
 
 
perform audits of media (for example, diskettes) and Vendor End User equipment potentially affected by a virus;
 
 
monitor virus protection software alerts, follow notification procedures identified in the Security Incident Service Level set forth in the applicable Statement of Work or Exhibit 2, if any, of the MSA, respond to virus attacks and initiate corrective action to eradicate viruses as detected; and
 
 
remove and/or render inoperable unneeded services.
 
 

 
 
7.0 Data Network
 
 
Vendor shall:
 
 
use Change Control Procedures to control changes to Vendor managed devices used to connect the Vendor network to the CIGNA network. Changes to hardware and/or software must be planned in advance, communicated to CIGNA in advance, and thoroughly tested before being placed into production. Back-out and restoration must be part of the plan and sufficient time must be allocated for restoration to be accomplished;
 
 
validate that access to CIGNA systems is limited to authorized Vendor Personnel, including Vendor agents CIGNA approved Subcontractors, utilizing security controls as described in the Information Security Controls Document;
 
 
encrypt traffic traveling across the Vendor network to CIGNA (and visa versa) network as specified in the Information Security Controls Document
 
 
CIGNA shall provide security to only allow authorized users to access services hosted at Vendor Service Locations.
 

 
 
 

EXHIBIT 4-C-1
 
GENERAL CIGNA POLICIES
 
Vendor shall perform an annual risk assessment across all Services under the MSA intended to identify information resources that require protection. Assessment shall be based upon a mutually agreeable assessment plan, to understand and document risks from security failures that may cause loss of confidentiality, integrity, or availability. Risk assessments shall document the potential adverse impact to CIGNA's operations, and assets. This risk assessment shall be conducted by a team composed of appropriate representatives from Vendor and CIGNA and other personnel associated with the activities subject to assessment. Vendor shall identify resolutions to address issues or risks identified from this assessment within a reasonable timeframe and Vendor shall prepare a proposal in accordance with the Change Control Procedure to Remediate such issues or risks; provided, however, that if the assessment reveals required Remediation due to Vendor nonperformance of its obligations under Exhibit 4-C or the MSA, then such Remediation shall be at Vendor’s expense. The Parties will work together in good faith to approve and implement the proposal prior to any regulatory or legally mandated deadlines.  
 
The sensitivity of a resource, and therefore the level of security controls required, depends upon the sensitivity of the data retained by or accessible through the information resource, as defined in the Detailed CIGNA Policies. CIGNA, as the data owner is the authority on any data classification assignments and the approver for access.

Vendor shall utilize the procedures described in the ISCD (whether or not included in the Procedures Manual) to ensure that the release of data is to only authorized users and is accompanied with proper instructions regarding appropriate use, protection, disposal and removal from premise.

Any CIGNA information classified as proprietary, restricted, or highly sensitive is to be isolated at rest from any other customer’s data. This information is required to be encrypted if the information can be accessed by Parties not working on the CIGNA account as set forth in the Detailed CIGNA Policies. All tape backups must contain only CIGNA information. Tapes and tape backups transported from Vendor Service Locations or located at sites other than Vendor Service Locations must be encrypted. All other storage media must maintain an isolation of CIGNA's information from other customer’s information and/or access, including portable media

CIGNA retains all rights to audit facilities, applications, systems and transports where CIGNA information resides or is transported. Audit times and frequency are at the discretion of CIGNA. Entry and exit logs to facilities that have CIGNA information classified as proprietary, restricted, or highly sensitive must be made available on request.

All privileged access to CIGNA information must be logged and reviewed on a quarterly basis. This would include, but not limited to, all DBA, System Administrator and support personnel access to information. All logs so generated are to be protected to ensure integrity and non-repudiation.

All external facing systems containing CIGNA information are required to pass quarterly penetration testing by third party. All internal systems are required to pass a vulnerability scan quarterly. Vendor will perform necessary measures to address non-compliance or vulerability issues (e.g., resulting from scans) and follow notification procedures identified in the Security Compliance/Vulnerabilty Issue Service Level set forth in the applicable Statement of Work or Exhibit 2, if any, of the MSA.

All security software used by vendor must stay within the software vendor’s definition of currently supported software with all relevant security patches applied.

With the exception of virus protection software, Vendor will implement current signatures/rules for security components within 2 weeks of issuance by security component vendor (unless security risk mandates faster deployment).

Vendor will consider failure of any security hardware or software component (e.g., network intrusion detection failure, virus protection software stoppage, etc.) as a high (Severity 1) alert and follow notification procedures identified in the Security Incident Service Level set forth in the applicable Statement of Work or Exhibit 2, if any, of the MSA.

Vendor will support mechanism for CIGNA to access alert data (e.g., from virus protection, intrusion detection, etc.) at near real time.

Any remote access via either a shared or public network to a device processing CIGNA information requires a dual factor authentication method.

Vendor shall notify and CIGNA must approve all infrastructure and facility changes that impact CIGNA's risk profile including: moving to new facility or changing network configuration.

All systems and designs must implement a Role Based Access Control (RBAC) authorization model that leverages CIGNA definitions and roles where possible. This would include fine grain authorization within the application. This information must be kept current and available in documented form for review and/or audit.

All Design must include, test and validate safeguards addressing the following data protections:
·  
Controls to support necessary access requirement
·  
Protection of data in transit and at rest
·  
Mechanisms and methods to audit systems and configurations
·  
Leverage CIGNA current security framework such as TAM, TIM, and FIM.
·  
Mutual authentication with authorization between application components

Vendor must ensure data protection follows a “Defense in Depth” philosophy. Security services which provide optimal Availability, Confidentiality, Integrity and Non-Repudiation should be implemented based upon agreed upon risk evaluation

Only production equipment shall run in the production environment. Test, development, staging, and training must be physically or virtually separated (segmented) from the production environment. The production environment must be monitored to insure only Production systems are in the Production environment.

Vendor shall not use production data (real data) outside of the production environment.

Vendor sites/locations must pass a CIGNA External Service Provider review before hosting or processing CIGNA information.

All system designs must be documented with security controls identified. These designs must pass CIP approval before construction.

 
 
 


 

 

 

 
EXHIBIT 10
 






Form Non-Disclosure and Assignment Agreement

 
 
 

EXHIBIT 10

Form Non-Disclosure and Assignment Agreement

 
THIS NON-DISCLOSURE AND ASSIGNMENT AGREEMENT (this “Agreement”), dated as of this ____ day of ____________, 200__, is entered into by and between Chordiant Software, Inc. (“Chordiant”) and [insert Chordiant employee or contractor full name]
 

 
 
W I T N E S S E T H:
 
 
WHEREAS, my full name is [insert Chordiant employee or contractor full name] and I am employed by or acting as a consultant to Chordiant;
 
 
WHEREAS, IBM provides certain services (the “Services”) to Connecticut General Life Insurance Company, its affiliates and certain other entities designated by Connecticut General Life Insurance Company (collectively, “CIGNA”) under that certain Master Services Agreement by and between CIGNA and IBM, dated as of September 28, 2006 (the “MSA”);
 
 
WHEREAS, Chordiant provides certain services to IBM under that certain Statement of Work by and between Chordiant and IBM dated as of September 28, 2006 (the “SOW”) on behalf of CIGNA;
 
 
WHEREAS, Chordiant provides licenses and rights to CIGNA pursuant to a certain agreement between Chordiant and CIGNA dated as of September 28, 2006 (the “CIGNA Agreement”);
 
 
WHEREAS, CIGNA possesses certain Confidential Information (as defined below) relating to its business processes, products and technology;
 
 
WHEREAS, I understand and agree that I will have access to such Confidential Information during my [employment] [consultancy] with Chordiant; and
 
 
NOW THEREFORE, in consideration for and as a condition to my assignment to the CIGNA account, I agree to be bound by the terms set forth herein.
 

 
1.  
Definition of Confidential Information. As used herein, “Confidential Information” shall mean any and all materials, information, processes, methodologies, tools, software programs, code, intellectual property and other data, technical or non-technical, whether written, electronic, graphic or oral, furnished or disclosed by CIGNA or on CIGNA’s behalf to you (by IBM or otherwise), either directly or indirectly, with the exception only of the following: (a) information that is now in the public domain or subsequently enters the public domain through no fault or act of the receiving party; (b) information that is presently known or becomes known to the receiving party from its own independent source as evidenced by the receiving party; (c) information that the receiving party receives from any third party not under any obligation to CIGNA to keep such information confidential; (d) information that is independently developed by the receiving party as proven by the receiving party’s written records; and (e) as otherwise allowed in the SOW and the MSA.
 
2.  
Non-Disclosure Obligations. I hereby understand and agree:
 
(a)  
To use the same care and discretion to avoid disclosure, publication or dissemination of Confidential Information as I use with respect to Chordiant’s own similar information that it does not wish to disclose, publish or disseminate and use Confidential Information solely to the extent required to fulfill Chordiant’s obligations under the SOW and IBM’s obligations or exercise IBM’s rights under the MSA.
 
(b)  
Not to deliver to or disclose or otherwise make available to anyone any Confidential Information except as authorized in the SOW and the MSA.
 
(c)  
Except as otherwise expressly stated in this Agreement, not to disclose the existence of this Agreement, any of the activities which may take place pursuant to this Agreement, the relationship formed, if any, under this Agreement or the other party’s interest in the subject matter to which this Agreement relates, to anyone except those employees of Chordiant, CIGNA and IBM with a need to know unless authorized in the SOW and the MSA.
 
(d)  
That Confidential Information delivered by CIGNA (or by IBM, on CIGNA’s behalf), and all copyright, patent, and other proprietary rights therein, shall remain property of CIGNA or its direct and indirect subsidiaries and affiliates, as the case may be, at all times.
 
(e)  
Nothing contained herein shall be construed as: (i) granting to me any right, title or interest in or to, or any license under, any patent or patent application, now or subsequently owned by CIGNA or IBM or their respective designees; and (ii) granting to me any right, title or interest in or to, or any license under Confidential Information provided by CIGNA (or by IBM, on CIGNA’s behalf).
 
(f)  
Upon Chordiant’s completion of Services to IBM and CIGNA, or IBM’s completion of Services to CIGNA, or upon CIGNA or IBM’s earlier request: (i) I shall immediately cease using the Confidential Information; and (ii) return Confidential Information (including all copies and summaries thereof) to CIGNA (or IBM, on CIGNA’s behalf), or, at the CIGNA’s option, destroy the same promptly after a written or oral demand. Upon CIGNA or IBM’s request, I shall certify to the requesting party in writing that I have complied with my obligations under this paragraph.
 
3.  
Assignment Obligations. I hereby understand and agree:
 
(a)  
That during the course of my employment, I may work on and be a part of the development of technology, processes, methodologies, and other work product for CIGNA (or IBM, on CIGNA’s behalf). In accordance with the provisions of the SOW and the CIGNA Agreement, I hereby assign to Chordiant any technology, processes, methodologies, and other work product developed by me and such technology, processes, methodologies, and other work product which shall become the sole and absolute property of Chordiant to enable Chordiant to meet its obligations under the SOW and the CIGNA Agreement and for IBM to meet its obligations to CIGNA under the MSA.
 
(b)  
That any and all inventions, improvements, discoveries, technologies, processes, methodologies, and other work product developed or discovered by me as a result [of my employment at] [or consultancy with] Chordiant shall be fully disclosed to Chordiant (or IBM, on CIGNA’s behalf, as required by the MSA), and in accordance with the provisions of the SOW I hereby assign the same to Chordiant, CIGNA and IBM, respectively, and the same shall become the sole and absolute property of Chordiant to enable Chordiant to meet its obligations under the SOW and the CIGNA Agreement and for IBM to meet its obligations to CIGNA under the MSA. Upon the request of IBM or CIGNA, I shall execute, acknowledge, and deliver such assignments and other documents as Chordiant, IBM or CIGNA may consider necessary or appropriate to vest all rights, titles, and interests therein to enable Chordiant to meet its obligations under the SOW and the CIGNA Agreement and to enable IBM to meet its obligations to CIGNA under the MSA.
 
4.  
Remedies. I hereby understand and agree:
 
(a)  
That unauthorized use or disclosure of Confidential Information may likely result in substantial monetary and other damages to CIGNA (or IBM, on CIGNA’s behalf) and their respective direct and indirect subsidiaries and affiliates and will subject me to disciplinary action, including termination of employment, and civil and criminal legal proceedings.
 
(b)  
That the unauthorized use or disclosure of Confidential Information may give rise to irreparable injury to CIGNA (or IBM, on CIGNA’s behalf) and acknowledge that remedies other than injunctive relief may not be adequate. Accordingly, IBM and CIGNA and their respective direct and indirect subsidiaries and affiliates have the right to seek equitable and injunctive relief to prevent the unauthorized disclosure of Confidential Information.
 
5.  
Miscellaneous. I hereby understand and agree:
 
(a)  
This Agreement embodies the entire understanding between the parties as to the subject matter of this Agreement and supersedes and replaces any and all prior understandings, arrangements and agreements whether oral or written relating to the Confidential Information. The terms of this Agreement shall not be amended or modified except in writing signed by each of Chordiant and me.
 
(b)  
The provisions of this Agreement shall survive the expiration or termination of the MSA and the SOW for a period of seven (7) years.
 
(c)  
This Agreement is a personal, indivisible, nontransferable agreement and may not be assigned or transferred, in whole or in part, by either party.
 
(d)  
CIGNA shall be an intended third party beneficiary of this Agreement but only as to individuals who are no longer employed by Chordiant or retained as a consultant by Chordiant.
 
(e)  
This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York, without respect to its rules on the conflict of laws.
 
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
 

 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as set forth below.

CHORDIANT SOFTWARE, INC.
[insert Chordiant employee or contractor full name]
   
   
By:      
By:      
   
Name:      
Name:      
   
Title:      
Title:      
   
Date:      
Date:      
   


 
 
 









EXHIBIT 13






Data Privacy Provisions




This Exhibit 13 - Data Privacy Provisions, consists of the following, attached two parts: (a) Exhibit 13A regarding CIGNA’s Business Associate Addendum; and (b) Exhibit 13B regarding European Union Data Privacy.

 
 
 

EXHIBIT 13A


BUSINESS ASSOCIATE ADDENDUM


I.  
INTRODUCTION.

The Parties acknowledge that the Services may involve the use or disclosure of Protected Health Information, as this term is defined in this Addendum. Accordingly, the Parties agree to the terms in this Addendum to comply with the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Privacy Rule and Security Standards as those terms are defined in this Addendum.
 
II.  
DEFINITIONS

For purposes of this Addendum, terms defined herein shall supersede similarly defined terms in the MSA . Terms used in this Addendum shall have the same meaning as those terms in the HIPAA Privacy Rule and Security Standards, currently defined, in relevant part, as follows:

“Protected Health Information” shall mean Individually Identifiable Health Information transmitted or maintained in any form or medium that Vendor creates or receives from or on behalf of CIGNA in the course of fulfilling its obligations under the MSA (which, for clarification, includes this Addendum). "Protected Health Information" shall not include: (i) education records covered by the Family Educational Rights and Privacy Act, as amended, 20 U.S.C. §1232g; (ii) records described in 20 U.S.C. §1232g(a)(4)(B)(iv); and (iii) employment records held by CIGNA in its role as employer.
 
“Designated Record Set” shall mean a group of records maintained by or for CIGNA that is: (i) the medical records and billing records about individuals maintained by or for CIGNA; (ii) the enrollment, payment, claims adjudication, and case or medical management record systems maintained by or for a health plan; or (iii) used, in whole or in part, by or for CIGNA to make decisions about individuals. As used herein, the term “Record” means any item, collection, or grouping of information that includes Protected Health Information and is maintained, collected, used, or disseminated by or for CIGNA.

“Electronic Media” shall mean: (1) electronic storage media including memory devices in computers (hard drives) and any removable/transportable digital memory medium, such as magnetic tape or disk, optical disk, or digital memory card; or (2) transmission media used to exchange information already in electronic storage media. Transmission media include, for example, the internet (wide-open), extranet (using internet technology to link a business with information accessible only to collaborating parties), leased lines, dial-up lines, private networks, and the physical movement of removable/transportable electronic storage media. Certain transmissions, including paper, via facsimile, and of voice, via telephone, are not considered to be transmissions via electronic media, because the information being exchanged did not exist in electronic form before transmission.

“Electronic Protected Health Information” shall mean Protected Health Information that is transmitted by or maintained in Electronic Media.

“Individually Identifiable Health Information” shall mean information that is a subset of health information, including demographic information collected from an individual, and

(i)  
is created or received by a health care provider, health plan, employer, or health care clearinghouse; and

(ii)  
relates to the past, present, or future physical or mental health or condition of an individual; the provision of health care to an individual; or the past, present or future payment for the provision of health care to an individual; and (a) identifies the individual, or (b) with respect to which there is a reasonable basis to believe the information can be used to identify the individual; and

(iii)  
relates to identifiable non-health information including but not limited to an individual’s address, phone number and/or Social Security number.

“Privacy Rule” shall mean the Standards for Privacy of Individually Identifiable Health Information at 45 CFR Part 160 and Part 164, Subparts A and E.

“Secretary” shall mean the Secretary of the Department of Health and Human Services.

“Security Incident” means the attempted or successful unauthorized access, use, disclosure, modification, or destruction of information or interference with system operations in an information system.

“Security Standards” shall mean the HIPAA Security Standards, 45 C.F.R.. Parts 160 and 164

III.  
OBLIGATIONS OF VENDOR

Section 1. Use and Disclosure of Protected Health Information.
 
Vendor may use and disclose Protected Health Information only to carry out the obligations of Vendor set forth in the MSA (which, for clarification, includes this Addendum) or as required by law, subject to the provisions set forth in this Addendum. Vendor shall neither use nor disclose Protected Health Information for the purpose of creating de-identified information that will be used for any purpose other than as directed by CIGNA to carry out the obligations of Vendor set forth in the MSA (which, for clarification, includes this Addendum) or as required by law.

Section 2. Safeguards Against Misuse of Information.
 
Vendor agrees that it will implement safeguards to prevent the use or disclosure of Protected Health Information in any manner other than pursuant to the terms and conditions of the MSA (which, for clarification, includes this Addendum). Vendor shall implement administrative, physical and technical safeguards that protect the confidentiality, integrity, and availability of the Electronic Protected Health Information that it creates, receives, maintains, or transmits on behalf of CIGNA, as required by the Security Standards.
 
Section 3. Reporting of Uses and Disclosures of Protected Health Information and Security Incidents.
 
Upon becoming aware of a use or disclosure of Protected Health Information in violation of this Addendum, Vendor shall promptly report such use or disclosure to CIGNA. Vendor shall promptly report to CIGNA any Security Incident of which it becomes aware.

Section 4. Agreements with Third Parties.
 
Vendor shall contractually require that any agent or subcontractor of Vendor to whom Vendor provides Protected Health Information that is received from CIGNA, or created or received by Vendor on behalf of CIGNA, agrees to be bound by terms and conditions that will allow Vendor (including any agent or subcontractor) to comply with the terms of this Addendum with respect to such Protected Health Information. Vendor warrants and represents that in the event of a disclosure of Protected Health Information to any third party, the information disclosed shall be no more than the minimum necessary for the intended purpose. Vendor shall contractually require that any agent or subcontractor of Vendor to whom Vendor provides Electronic Protected Health Information agrees to implement reasonable and appropriate safeguards to protect such information.
 

Section 5. Access to Information.
 
In the event Vendor maintains Protected Health Information in a Designated Record Set, Vendor shall, within five (5) business days of receipt of a request from CIGNA, provide to CIGNA Protected Health Information in Vendor’s possession that is required for CIGNA to respond to an individual’s request for access to Protected Health Information made pursuant to 45 C.F.R. § 164.524 or other applicable law. In the event any individual requests access to Protected Health Information directly from Vendor, whether or not Vendor is in possession of Protected Health Information, Vendor may not approve or deny access to the Protected Health Information requested. Rather, Vendor shall, within two (2) business days, forward such request to CIGNA.

Section 6. Availability of Protected Health Information for Amendment.
 
In the event Vendor maintains Protected Health Information in a Designated Record Set, Vendor shall, within five (5) business days of receipt of a request from CIGNA, provide to CIGNA Protected Health Information in Vendor’s possession that is required for CIGNA to respond to an individual’s request to amend Protected Health Information made pursuant to 45 C.F.R. § 164.526 or other applicable law. If the request is approved, Vendor shall incorporate any such amendments to the Protected Health Information as required by 45 C.F.R. §164.526 or other applicable law. In the event that the request for the amendment of Protected Health Information is made directly to the Vendor, whether or not Vendor is in possession of Protected Health Information, Vendor may not approve or deny the requested amendment. Rather, Vendor shall, within two (2) business days forward such request to CIGNA.

Section 7. Accounting of Disclosures.
 
Vendor agrees to document such disclosures of Protected Health Information and information related to such disclosures as would be required for CIGNA to respond to a request by an individual for an accounting of disclosures of Protected Health Information in accordance with 45 CFR § 164.528 or other applicable law. Vendor shall, within ten (10) business days of receipt of a request from CIGNA, provide to CIGNA such information as is in Vendor’s possession and is required for CIGNA to respond to a request for an accounting made in accordance with 45 C.F.R. 164.528 or other applicable law. In the event the request for an accounting is delivered directly to Vendor, Vendor shall, within two (2) business days, forward such request to CIGNA. It shall be CIGNA’s responsibility to prepare and deliver any such accounting requested.

Section 8. Availability of Books and Records.
 
Vendor hereby agrees to make its applicable internal practices, books and records, including policies and procedure, available to the Secretary for purposes of determining CIGNA’s and Vendor’s compliance with the Privacy Rule and Security Standards. The practices, books and records subject to this Section are those practices, books and records that relate to the use and disclosure of Protected Health Information that is created by Vendor on behalf of CIGNA, received by Vendor from CIGNA, or received by Vendor from a third party on behalf of CIGNA.

IV.  
TERMINATION

a. Upon termination of the MSA, Vendor’s obligations hereunder shall terminate when all of the Protected Health Information provided by CIGNA to Vendor, or created or received by Vendor on behalf of CIGNA, is destroyed or returned to CIGNA, or, if it is infeasible to return or destroy Protected Health Information, protections are extended to such information, in accordance with the termination provisions in this Section.
 
b. If Vendor has committed a material breach of the MSA (which, for clarification, includes this Addendum) pertaining to the use or disclosure of PHI, CIGNA shall either:
 
1. Provide an opportunity for Vendor to cure the breach or end the violation and terminate the MSA if Vendor does not cure the breach or end the violation within a time period reasonably specified by CIGNA; or
 
2. Immediately terminate the MSA if CIGNA determines cure is not possible.
 
c. Effect of Termination.
 
1. Except as provided in paragraph (2) of this section, upon termination of the MSA or SOW, for any reason, Vendor shall return or destroy all Protected Health Information received from CIGNA, or created or received by Vendor on behalf of CIGNA that relate to the terminated portion of Services. This provision shall apply to Protected Health Information that is in the possession of subcontractors or agents of Vendor. Vendor shall retain no copies of the Protected Health Information.
 
2. In the event that Vendor objectively demonstrates to CIGNA’s reasonable satisfaction that returning or destroying the Protected Health Information is infeasible, Vendor shall extend the protections of this Addendum to such Protected Health Information and limit further uses and disclosures of such Protected Health Information to those purposes that make the return or destruction infeasible, for so long as Vendor maintains such Protected Health Information.
 

 
V.  
MISCELLANEOUS

Section 1. Regulatory References. A reference in this Addendum to a section in the HIPAA Privacy Rule or Security Standards means the section as in effect or as amended.

Section 2. Amendment. In the event that state or federal law or regulation, or an arbitration or judicial interpretation of same, or any regulatory or enforcement action should explicitly or otherwise require that this Addendum be changed, altered or modified, then the CIGNA shall notify Vendor and provide such required amendment, and the CIGNA and Vendor shall continue to perform Services under the MSA as modified, subject to Change Control Procedures.

Section 3. Survival. The respective rights and obligations of Vendor under Section III(c)(2) (Effect of Termination), , Section IV(3) (Regulatory References) and Section IV(5) (Survival) of this Addendum shall survive the termination of the MSA or SOW.

VI.  
EFFECT OF ADDENDUM

Notwithstanding anything to the contrary in the MSA, to the extent that this Addendum conflicts with the terms of the MSA relating to Protected Health Information, the terms of this Addendum shall take precedence.

 
 
 

 

EXHIBIT 13B

EUROPEAN UNION DATA PRIVACY


1.  
DATA PROTECTION FOR PERSONAL DATA PROCESSED IN THE EUROPEAN ECONOMIC AREA
 
1.1  
With respect to any CIGNA Data that is “personal data” (as defined in the EU Data Privacy Directive, which is in turn defined below) and is processed within, or transferred out of, the European Union or the European Economic Area (“CIGNA Personal Data”), the Parties shall each comply with their respective obligations under the European Union Data Protection Directive (Directive 95/46/EC) (the “EU Data Protection Directive”), the laws of each member state of the European Union that implement the EU Data Protection Directive or any related or similar Laws of any member state of the European Union or the European Economic Area (collectively, and as any of the same may be amended or replaced from time to time, the “European Data Protection Laws”). Both Parties shall take the necessary precautions to avoid acts that place the other Party in breach of its obligations under the European Data Protection Laws and nothing in the MSA shall be deemed to prevent any Party from taking the steps it reasonably deems necessary to comply with the European Data Protection Laws.
 
1.2  
The Parties acknowledge that, as between CIGNA and Vendor and Permitted Subcontractors:
 
(a)  
CIGNA alone shall determine the purposes for which and the manner in which CIGNA Personal Data is, or is to be, processed by Vendor or Permitted Subcontractors in the performance of the Services;
 
(b)  
CIGNA shall be the data “controller” (as defined in the EU Data Protection Directive) in respect of all CIGNA Personal Data processed by Vendor or Permitted Subcontractors for purposes of the European Data Protection Laws; and
 
(c)  
Vendor shall be the “data processor” (as defined in the EU Data Protection Directive) in respect of CIGNA Personal Data processed by Vendor or Permitted Subcontractors for purposes of the European Data Protection Laws.
 
1.3  
Without limiting the generality of Section 1.1 above, Vendor shall, and shall cause any Permitted Subcontractors to, promptly comply with any written request by CIGNA to (at Vendor's cost and expense except as set forth in subsection (a) as CIGNA's cost): 
 
(a)  
correct or delete inaccurate CIGNA Personal Data processed by Vendor or Vendor Agents to the extent the inaccuracy was caused by Vendor or Permitted Subcontractors (otherwise CIGNA shall be responsible for the correction or deletion);
 
(b)  
provide to CIGNA a copy of CIGNA Personal Data processed by Vendor relating to a “Data Subject” (as defined in the EU Data Protection Directive) that is stored in any form of retrieval or storage facilities in the possession or control of Vendor or Permitted Subcontractors;
 
(c)  
provide reasonable information to CIGNA about Vendor’s or Permitted Subcontractors' processing of CIGNA Personal Data;
 
(d)  
assist in respect of any request or notice, or any anticipated request or notice, by or on behalf of any “Data Subject” (as defined in the EU Data Protection Directive) in respect of CIGNA Personal Data processed by Vendor or Permitted Subcontractors; and
 
(e)  
otherwise provide reasonable assistance to CIGNA as necessary to allow CIGNA to comply with the EU Data Protection Directive.
 
1.4  
Without limiting the generality of Section 1.1 above, Vendor shall not, and shall cause Permitted Subcontractors not to (without CIGNA's prior written authorization):
 
(a)  
use CIGNA Personal Data for Vendor’s or any Permitted Subcontractor’s own purposes, including marketing purposes and for any other purpose other than performing the Services;
 
(b)  
transfer any of CIGNA Personal Data to third parties or across any country’s border which is not reasonably required for the performance of the Services; or
 
(c)  
carry out the processing by automatic means of any CIGNA Personal Data for the purpose of evaluating matters about a “Data Subject” (as defined in the EU Data Protection Directive) that constitutes the sole basis for any decision that significantly affects such Data Subjects.
 
1.5  
Without limiting the generality of Section 1.1 above, Vendor shall, and shall cause Permitted Subcontractors to:
 
(a)  
(i) promptly notify CIGNA if any complaints are received about the processing of CIGNA Personal Data processed by Vendor or Permitted Subcontractors from third parties; (ii) not make any admissions or take any action which may be prejudicial to the defense or settlement of any such complaint; and (iii) provide to CIGNA such reasonable assistance as it may require in connection with such complaint;
 
(b)  
in the event that Vendor, or a Permitted Subcontractor, acquires, on behalf of CIGNA, any CIGNA Personal Data from “Data Subjects” (as defined in the EU Data Protection Directive) as part of the Services, give such individuals a data protection notice describing the intended use of such CIGNA Personal Data, in a form provided by CIGNA.
 
1.6  
Without limiting the generality of Section 1.1 above, with respect to CIGNA Personal Data that is processed by Vendor or Permitted Subcontractors within the European Union or European Economic Area, Vendor shall, and shall cause Permitted Subcontractors to:
 
(a)  
take technical and organizational security measures, in accordance with the requirements of the MSA and this Exhibit, to safeguard against unauthorized and unlawful processing of CIGNA Personal Data processed by Vendor or Permitted Subcontractors and against accidental loss or destruction of, or damage to, CIGNA Personal Data processed by Vendor or Permitted Subcontractors;
 
(b)  
only process CIGNA Personal Data in accordance with written instructions given by to Vendor by CIGNA and as set out in the MSA;
 
(c)  
taking reasonable steps to ensure the reliability of those Vendor Personnel that have access to CIGNA Personal Data; and
 
(d)  
provide all of Vendor Personnel involved in processing CIGNA Personal Data with reasonably adequate training in the care and handling of Personal Data.
 
1.7  
CIGNA hereby instructs Vendor to take such steps as are necessary to the performance of Vendor’s obligations under this Exhibit.
 
2.  
DATA PROTECTION FOR PERSONAL DATA PROCESSED 
 
2.1  
CIGNA and Vendor each covenant that each of them shall provide the other prompt notice of any inquiry, notice of violation, notice of enforcement action, or other similar notice received from the European Union or European government agency with respect to the compliance of CIGNA and/or Vendor with the EU Data Protection Directive with respect to the performance of CIGNA and/or Vendor under the MSA.
 
2.2  
Vendor covenants that at all times during the MSA Term and during any Termination Assistance Period that:
 
(a)  
Vendor shall, and shall cause Permitted Subcontractors to: (i) provide processing of CIGNA Personal Data (including operations that are necessary to support or accomplish the processing) in accordance with the MSA; and (ii) not transfer any of CIGNA Personal Data to third parties or across any country’s border which is not specified in the MSA for the processing of CIGNA Personal Data unless CIGNA has given consent to relocate the processing elsewhere (which consent shall be in CIGNA's sole discretion);
 
(b)  
Vendor shall not, and shall cause Permitted Subcontractors not to, otherwise through any act or omission cause CIGNA Personal Data to be transferred to third parties or across any country’s border which is not specified in the MSA for the processing of CIGNA Personal Data unless CIGNA has given consent for Vendor to relocate the processing elsewhere (which consent shall be in CIGNA’s sole discretion);
 
(c)  
the covenants in subsections (a) and (b) are not intended to restrict Vendor from accomplishing the following from a location that is outside the United States, European Union and/or European Economic Area and otherwise authorized under this Agreement: (i) its own internal processing (e.g., the preparation and transmission of invoices); or (ii) providing Services which do not involve the processing of CIGNA Personal Data (such as engineering services, consulting services, software development services that do not involve tests involving the processing of CIGNA Personal Data); and
 
(d)  
if Vendor or a Permitted Subcontractor breaches the covenants set out in subsections (a) and (b), then in addition to any other remedies to which CIGNA might be entitled under the MSA or at law or in equity, Vendor shall, after notice from CIGNA, at its own expense promptly accomplish all actions necessary to have the data returned so as to be in compliance with subsections (a) and (b).
 



 EX-10.49 9 ex1049.htm CITICORP SOFTWARE LICENSE AND SERVICES AGREEMENT Citicorp Software License and Services Agreement
Exhibit 10.49
 
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

MASTER
SOFTWARE LICENSE & SUPPORT AGREEMENT


Commencement Date:
February 1, 2006

Party:
LICENSOR
LICENSEE
Name:
Chordiant Software, Inc.
Citicorp Credit Services, Inc. (USA)
Address:
20400 Stevens Creek Blvd.
Cupertino, CA 95014
14000 Citi Cards Way
Jacksonville, FL 32258
State of Incorporation:
Delaware
Delaware
 

IN CONSIDERATION of the mutual covenants and undertakings contained herein, and intending to be legally bound, Licensor and Licensee (as designated above) agree as follows.

1.  
DEFINITIONS

1.1 Specific Words or Phrases. For purposes of this Agreement, each word or phrase listed below shall have the meaning designated. Other words or phrases used in this Agreement may be defined in the context in which they are used, and shall have the respective meaning there designated.

[*]

“Affiliate” means and includes any entity that directly or indirectly controls, is controlled by, or is under common control with Licensee, where “control” means the ownership of, or the power to vote, at least twenty percent (20%) of the voting stock, shares or interests of such entity. An entity that otherwise qualifies under this definition will be included within the meaning of “Affiliate” even though it qualifies after the execution of this Agreement.

“Agreement” means the terms of this Master Software License & Support Agreement (sometimes referred to as “Master Agreement”), together with the appendices and other exhibits attached hereto or incorporated herein by reference; provided, however, that for each particular License Schedule, reference to “Agreement” shall be construed solely as a reference to the agreement that arises as a result of the execution of the License Schedule, which agreement shall be a two party agreement between Licensor and the specific entity (either the entity designated above as “Licensee” or an Affiliate) that executes the License Schedule.

“Defect” means a defect, failure, malfunction, or nonconformity in the Software that prevents the Software from operating in accordance with [*].

“Deliver” and “Delivered” and “Delivery” mean delivery of the Software by Licensor to the Delivery Site specified in the applicable License Schedule.

“Documentation” means all documents and materials (in any language, format or medium) that are normally supplied by Licensor to its commercial licensees to aid in the use and operation of the Software, and all modifications to such documents or materials that are made by or on behalf of Licensor from time to time (provided such modifications do not diminish the performance or operational capabilities of the Software), including: (i) functional, technical, design and performance specifications and (ii) installation, configuration, administration, operation and maintenance procedures and instructions, and (iii) training guides and user manuals.

"Intellectual Property Rights" means all trade secrets, patents and patent applications, trade marks (whether registered or unregistered and including any goodwill acquired in such trade marks), service marks, trade names, business names, internet domain names, e-mail address names, copyrights (including rights in computer software), moral rights, database rights, design rights, rights in know-how, rights in confidential information, rights in inventions (whether patentable or not) and all other intellectual property and proprietary rights (whether registered or unregistered, and any application for the foregoing), and all other equivalent or similar rights which may subsist anywhere in the world.

“License” means a license to use the Software granted pursuant to the terms and conditions of a License Schedule.

"Licensee" means, for the general purposes of the Master Agreement, the entity designated above as “Licensee”. However, for the particular purposes of any agreement that arises as a result of a License Schedule, reference to “Licensee” shall be construed solely as a reference to the specific entity (either the entity designated above as “Licensee” or an Affiliate) that executes the License Schedule.

“License Schedule” means a transactional document that is submitted pursuant to this Master Agreement by either the entity designated above as “Licensee” or any Affiliate, and describes the Software and services to be provided by Licensor to such Licensee / Affiliate.

“Maintenance Services” consists of the support and maintenance services to be provided by Licensor in accordance with the requirements set forth or referenced in Section 11 and Appendix B.

“Party” means either the “Licensor” or “Licensee”, individually as the context so requires; and “Parties” means the “Licensor” and “Licensee”, collectively.

“Personnel” means and includes a Party’s or an Affiliate’s directors, officers, employees, agents, auditors, consultants and subcontractors.

"Software" means the computer programs made available to Licensee and the Affiliates by Licensor under this Master Agreement, including any customizations, enhancements, updates, upgrades, releases, Defect corrections, and other modifications thereto provided to Licensee by Licensor, together with the related Documentation.

“Source Code” means and includes human-readable computer programming code, associated procedural code, listings, flow charts, logic diagrams, software tools, executables, libraries, scripts and related and supporting documentation corresponding to the Software and all subsequent versions (including assembly, linkage and other utilities), suitable and sufficient to enable a person possessing reasonable skill and expertise in computer software and information technology (i) to build, load, and operate a machine-executable object code version of the Software that is equivalent to the latest version of the Software furnished by Licensor, and (ii) to maintain, support, modify, improve and enhance the Software.

"Specifications" means and includes: (i) the standard published specifications for the Software (including both Licensor's proprietary software and all third-party software that is embedded into, or otherwise furnished by Licensor with the Software); and (ii) any additional written description of the functional, technical, design and performance characteristics of the Software attached to or referenced in a License Schedule.

1.2 Common Words. The following words shall be interpreted as designated: (i) “or” connotes any combination of all or any of the items listed; (ii) where “including” is used to refer to an example or begins a list of items, such example or items shall not be exclusive; and, (iii) “specified” requires that an express statement is contained in the relevant document.

2.
TERM AND TERMINATION

2.1 Term. This Master Agreement shall commence as of the Commencement Date designated above, and shall continue in effect thereafter unless superceded or otherwise terminated by agreement of the Parties. Each License Schedule shall only become effective when duly signed on behalf of the Parties to be bound thereby, and shall continue in effect through the earlier of: (i) the expiration date for the Licenses granted thereunder, or (ii) the date of termination specified by either Party in accordance with the provisions hereof. For the avoidance of doubt, the termination of the Master Agreement shall not result in the termination of any License Schedule, each License Schedule being terminable only in accordance with its own provisions.

2.2 Termination for Cause. If either Party breaches a material obligation under a License Schedule and fails to cure such breach within thirty (30) days from the date it receives from the non-breaching Party a notice of the breach and a demand for cure, then the non-breaching Party may thereafter terminate the applicable License Schedule immediately on notice. Notice of termination for any License Schedule shall not be construed to be notice of termination for any other License Schedule.

2.3 Orderly Transfer. Upon the termination of a License Schedule for any reason whatsoever (including a default by either Party), Licensor will provide such information, cooperation and assistance to Licensee, as Licensee may reasonably request, to assure an orderly return or transfer to Licensee or Licensee’s designee of all proprietary data (and related records and files) and materials of Licensee in their then current condition. Upon termination of a License Schedule by Licensor pursuant to Section 2.2, and except as otherwise provided herein or in such License Schedule, Licensee will return all copies of the Software under such License Schedule to Licensor or destroy all copies of the Software under such License Schedule and, if requested by Licensor, provide Licensor with a certificate signed by a duly authorized representative of Licensee attesting to such destruction with thirty (30) days of the effective date of termination.

2.4 Retention of Archival Copy. If Licensee’s right to use any Software is terminated for any reason whatsoever, then Licensee shall nevertheless be entitled to retain copies of the Software and Documentation for archival purposes and to satisfy Licensee’s obligations under all applicable laws.

3 GRANTING OF SOFTWARE LICENSES

3.1  Obligation to License. This Master Agreement does not by itself commit Licensee or any Affiliate to license any software from Licensor. Rather, this Master Agreement merely sets forth the terms and conditions that will govern the licensing of Licensor’s Software (as listed in Licensor’s then current price list) to Licensee or an Affiliate as a result of the execution of a License Schedule by Licensor and Licensee or an Affiliate.

3.2  License Schedule. License Schedules may be entered under this Master Agreement by either the entity designated above as “Licensee” or any Affiliate. The entity that executes a License Schedule with Licensor shall be considered the “Licensee” for all purposes of the License Schedule; and the License Schedule shall be considered a two party agreement between Licensor and such entity. Each License Schedule shall be substantially in the form of Appendix A, shall incorporate by reference the provisions of this Master Agreement as though such provisions were set forth therein in their entirety, and shall set forth: (i) a description of the Software to be licensed, (ii) the fees to be paid by Licensee for the Software License and the related Maintenance Services, and, (iii) such additional terms and conditions as may be mutually agreed upon by Licensor and the respective “Licensee”. Each License Schedule shall be deemed to incorporate the applicable Specifications for the Software that are in effect on the date the License Schedule is executed by the “Licensee”. In no event shall any shrinkwrap or any clickwrap (or other electronic agreement) constitute a License Schedule or binding agreement hereunder, even if a user or authorized officer of Licensee or an Affiliate purports to have affirmatively accepted such terms.

3.3 Changes to License Schedule. Reserved

3.4 Divested Entities.  If control of an entity, or a division or department within an entity, that is included within the definition of “Licensee” or an “Affiliate” is sold or otherwise transferred to one or more unrelated third parties, such entity, division or department (“Divested Entity”) shall nevertheless continue to have a right to acquire Software licenses pursuant to this Master Agreement (exclusive of any pricing or discount terms for the purchase of additional licenses set forth on a License Schedule) for [*] after the effective date of such transfer at a price no greater than the prices set forth in Licensor’s then current published product price list or such other price as is negotiated between Licensor and the Divested Entity.

3.5 Evaluation License. Reserved.

4. DELIVERY AND INSTALLATION

4.1 Delivery and Installation. Licensor will Deliver the Software and Documentation to the Delivery location, on or before the Delivery date, as specified in the applicable License Schedule or as otherwise agreed to by the Parties and confirmed in writing. If a Delivery date is not specified on the License Schedule, then the scheduled Delivery date shall be the date that is mutually agreed to by the Parties and confirmed in writing. Licensee is responsible for the Software installation. .
 
4.2 Installation by Licensee. If Licensee is responsible for installing the Software, then Licensor will provide written instructions and such other assistance as Licensee may reasonably require to complete the installation at mutually agreed upon time and materials rates; provided that such assistance is not already provided as part of Maintenance Services.

5. [*]

6. SCOPE OF LICENSE

6.1  Proprietary Rights to Software. As between Licensor and Licensee, Licensor shall be deemed to own the Intellectual Property Rights in or to the Software; and nothing contained in this Agreement shall be construed to convey any Intellectual Property Rights in or to the Software to Licensee (or to any party claiming through Licensee) other than the license rights expressly set forth in this Master Agreement and in the applicable License Schedule.
 
6.2  Type of License. Each License granted by Licensor pursuant to this Agreement shall be a fully paid up, non-exclusive, irrevocable, perpetual (except as set forth in Section 2 above) [*] license to use the Software in the furtherance of Licensee’s or its Affiliates’ business purposes, subject only to such use restrictions as may be specifically set forth on the applicable License Schedule, including without limitation geographic restrictions and restrictions on the number or location of the computers or the users. Unless otherwise expressly set forth on the applicable License Schedule, each License shall also entitle authorized users (as designated in Section 6.3) to access and use the Software, or applications developed using the Software, in connection with, through or on any associated or interconnected networks (including internet or intranet) without payment of any additional fees.

6.3  Authorized Users. Unless otherwise specifically set forth on the applicable License Schedule, each License granted pursuant to this Master Agreement shall include the right for Licensee to permit the Software to be used by or on behalf of: (i) Affiliates (ii) third parties engaged by Licensee to conduct all or any portion of Licensee's or an Affiliate’s information processing, programming, network services, disaster, back up, or recovery services, and (ii) consultants and clients of Licensee or an Affiliate, provided that such usage by consultants and clients must be considered part of the business of Licensee or an Affiliate . Licensee will be fully responsible for all acts and omissions of its third parties, consultants and clients regarding the Software. If Software was acquired, or is being used by or on behalf of a Divested Entity, so that the Divested Entity is the “Licensee” from an operating perspective (whether the acquisition occurred prior or subsequent to the change in status), then the Divested Entity will continue to enjoy its status as the Licensee for up to [*] after its change of status, provided (i) the Divested Entity is the legal entity that submitted the applicable License Schedule or received an assignment thereof, or (ii) the legal entity assuming control of the Divested Entity agrees in writing to be bound by the terms and conditions of the License.

6.4 Installation Transfers. If a License is subject to restrictions on the number or locations of the computer on which the Software may be installed, Licensee shall nevertheless be entitled (at no additional charge) to transfer the Software (subject to such use restrictions): (i) from one computer to another; (ii) from one installation site to another [*]. Licensee will provide Licensor with notice following any such transfer.

6.5 Reproductions. Licensee may reproduce the Software as Licensee may reasonably deem necessary to satisfy the requirements of Licensee and its Affiliates within the scope of the applicable License (including reproducing the Software for backup and archival purposes). All reproductions shall include any copyright or other proprietary notices contained on the originals.

6.6  Substitute Equipment and Parallel/Transition Processing. Each License includes (at no additional charge) the right to install and use the Software on temporary substitute or back-up equipment. If Licensee (i) relocates the installation site, (ii) acquires additional equipment (including replacement equipment), (iii) acquires an entity or business that Licensee elects to transition to the use of the Software, or (iv) divests an entity or business that has been using the Software, Licensee will be entitled (at no additional charge) to use a duplicate copy of the Software to conduct parallel and transition processing during the time required (up to [*] months) to accomplish and facilitate such relocation, transition, acquisition or divestiture.

6.7 Disaster Recovery. Each License includes the right (at no additional charge) to have the Software tested periodically for viability at any Licensee location or at a location of a third-party engaged by Licensee to provide disaster recovery, contingency or business continuity services for Licensee. If a third party performs such tests, Licensee will require such third party to be bound by written agreement to treat the Software as confidential information. Licensee will also be entitled to make and keep copies of Software and its Documentation at a separate facility for backup (including hot back up), archival and emergency purposes.

6.8  Replacement Version of Software. If Licensee changes or upgrades the operating system, or replaces or modifies the equipment on which Licensee operates the Software, then Licensor will (at no additional charge) provide to Licensee a version of the Software compatible with such changed operating system, or replaced or modified equipment provided that (i) Licensor has developed as of the Commencement Date and is then currently maintaining, such a version that is substantially similar to the version originally licensed as to features, functionality and price, (ii) Licensee is then entitled to receive Maintenance Services, and (iii) in using such additional version of the Software, Licensee does not exceed the scope of its license with Licensor (i.e., the aggregate number of CPU and user licenses used on all versions of the Software in the aggregate does not exceed the total number of CPU and user licenses originally licensed by Licensee.)
 
6.9 Restrictions. Except to the extent authorized or permitted in this Agreement or by applicable law without the possibility of contractual waiver, Licensee shall not: (i) copy, transfer or distribute the Software (electronically or otherwise); (ii) reverse assemble, reverse engineer, reverse compile, or otherwise translate the Software; or (iii) sublicense or assign the license for the Software.

7. SOURCE CODE

7.1 Escrow Arrangement. If Source Code for the Software is not being Delivered to Licensee directly by Licensor as part of the License, then (at Licensee’s request) within ten (10) days of the execution of the License Schedule for such Software, Licensor will deposit a current copy of the Source Code with an independent and qualified escrow agent acceptable to Licensee. Throughout the term of the License, Licensor will keep the Source Code complete and current by Delivering to the escrow agent any and all changes to the Source Code for all related modifications, within thirty (30) days after the modifications are made available to Licensee. The escrow agent will maintain the Source Code pursuant to an escrow agreement in a form and with terms acceptable to Licensee. Licensor shall ensure that the Escrow Agent is obligated to notify Licensee in writing promptly upon receipt of the deposit of such Source Code, or, where such Source Code has already been deposited pursuant to a pre-existing source code escrow arrangement, upon receipt of notice from the Licensor that Licensee is now a beneficiary of such escrow arrangement, in each case indicating in such notice to Licensee that such Source Code has been deposited as required. The escrow agreement shall designate Licensee as a third party beneficiary, and entitle Licensee to inspect, test and review the Source Code promptly upon request. The escrow agreement shall also require the escrow agent to release and Deliver the Source Code to Licensee upon certification from Licensee that any one of the following circumstances has occurred.
 
7.1.1  
Licensor (i) files a voluntary petition in bankruptcy, (ii) makes a general assignment for the benefit of its creditors, (iii) suffers or permits the appointment of a trustee or receiver for its business assets, (iv) becomes subject to any proceeding under any bankruptcy or insolvency law which is either consented to by Licensor or is not dismissed within sixty (60) days, (v) initiates actions to wind up or liquidate its business voluntarily or otherwise, (vi) ceases doing business in the ordinary course, or (vii) suffers, permits or initiates the occurrence of anything analogous to any of the events described in this Subsection under the laws of any applicable jurisdiction.

7.1.2  
[*]

7.1.3  
[*]

7.1.4
Licensor refuses or becomes unable to provide maintenance and support services to Licensee at any time while Licensee is continuing to use the Software in accordance with the provisions of the License granted pursuant to this Agreement, provided that Licensee is not in default of any material obligation assumed under this Agreement.

A copy of the fully executed escrow agreement shall be attached to this Agreement or the applicable License Schedule as Exhibit 1.

7.2 License. If Source Code for Software is Delivered to Licensee (either directly by Licensor or by an escrow agent in fulfillment of its obligations under an applicable escrow agreement), then the Source Code will be subject to the License for the applicable Software. Each such License shall entitle Licensee to use and modify the Source Code and the Software, as reasonably necessary, in order to: (i) integrate the Software with Licensee’s other systems and programs; (ii) cause the Software to comply with changes in applicable laws, regulations, industry standards or market practice; (iii) enable the Software to remain current with technological innovations; and (iv) enable the Software to fulfill Licensee’s business purposes within the scope of the License granted pursuant to the terms and condition of this Agreement. Any modified versions of the Software resulting from Licensee’s use of the Source Code shall be subject to all the terms and conditions of this Agreement; provided, however, that if Licensee obtains the right to use the Source Code pursuant to Section 7.1, then Licensor shall have no rights, title or interest in or to any modifications made to the Software or the Source Code by or on behalf of Licensee, and all Intellectual Property Rights in and to any such modifications shall vest exclusively in Licensee.

8. DOCUMENTATION AND TRAINING

8.1  
Documentation. On or before the date the Software is Delivered, Licensor will (at no additional charge) Deliver to Licensee at least one (1) electronic and one (1) printed form copy of all generally available Documentation for the Software. The Documentation shall be sufficient to enable Licensee’s Personnel to use and to understand the use and operation of the Software, and shall conform to generally accepted industry standards for the use, operation and internal operating logic of software. Throughout the warranty period or the term of any maintenance service agreement, Licensor will provide copies of any revisions, improvements, enhancements, modifications and updates to the Documentation, at no additional cost. Licensee may make a reasonable number of copies of the Documentation for Licensee’s use, provided Licensee reproduces copyright notices and any other legends of ownership on each copy. 

8.2  
Training.  Reserved

9. FEES AND PAYMENT TERMS

9.1  Fees and Discounts. The License fees and all other charges to be paid by Licensee for the Software or services provided by Licensor pursuant to this Agreement shall be set forth on the applicable License Schedule.

9.2  Pricing Adjustments. During the term of this Master Agreement, Licensor will not increase its list prices for Maintenance Services provided to Licensee or an Affiliate by more than the lesser of: (i) the amount by which Licensor increased the comparable fees or charges for its other commercial customers; (ii) five percent (5%) for each twelve (12) month period; and (iii) the percentage rate of increase in the CPI (all items) for Urban Wage Earners and Clerical Workers from the preceding calendar year as determined by the United States Bureau of Labor Statistics.

9.3 Taxes. Licensor may invoice Licensee for sales and use taxes properly levied against or upon (i) the furnishing of the Software and any related services to Licensee by Licensor pursuant to this Agreement, or (ii) the use thereof by Licensee. However, Licensee shall not be obligated to pay any penalties, interest, or late charges imposed as a result of Licensor's failure to remit such taxes to the taxing authority on a timely basis. In addition, if Licensor fails to provide Licensee with timely notice of any tax audit that could result in an increase in the amount of sales or use taxes assessed hereunder, then Licensee shall not be required to pay any additional taxes assessed as a result of such audit. Licensor shall be solely responsible for the payment of all other taxes, including personal property taxes, franchise taxes, corporate excise or corporate privilege, property or license taxes, all taxes relating to Licensor’s Personnel, and all taxes based on the net income or gross revenues of Licensor.

9.4 Reimbursable Expenses. To the extent applicable, Licensor will only be reimbursed for expenses that are reasonable, warranted and cost effective, and that have been approved in advance by Licensee. For each item of expense for which reimbursement is requested, Licensor will submit substantiating documentation in accordance with Licensee’s policies. All approved business expenses and pass-through charges will be reimbursed at cost (as actually incurred), without mark-up.

9.5 Terms of Payment. No amount arising under this Agreement shall be due from Licensee prior to Licensee’s receipt of a fully executed copy of this Agreement and the applicable License Schedule, and Licensee’s receipt of an invoice: (i) referencing this Agreement and the applicable License Schedule; (ii) separately itemizing the charges for the Software, services or other items covered therein, and setting forth, in reasonable detail, the basis for the charges; and (iii) including, in the case of any reimbursable expenses or other charges (including taxes), receipts or other documentation acceptable to Licensee. Unless otherwise specified on a License Schedule, Licensor may invoice Licensee for the License fee on the date the Software has been Delivered by Licensor. Licensor may invoice Licensee for the Maintenance Service fees for the initial Maintenance Service term on the date the Software has been Delivered by Licensor. Maintenance Service fees for renewal terms may be invoiced not more than sixty (60) days prior to the effective date of renewal. Such Maintenance Service fees shall be set forth on a License Schedule as a percentage of the net License fees paid by Licensee thereunder. Licensor may invoice Licensee for any other charges payable under this Agreement after the occurrence of the event giving rise to the payment obligation underlying the invoice. All invoices shall be submitted to Licensee at the billing address designated on the applicable License Schedule. Each properly and accurately prepared invoice shall be payable within [*] days after its receipt by Licensee. Licensee will not be liable for interest or other late fees on past due invoices. Licensor specifically covenants that it will not use any methods of electronic repossession for any reason. All payments made by Customer shall be in U.S. Dollars and directed to:

Chordiant Software Inc.
[*]
San Jose, CA 95161-[*]

Or wire to:
Comerica Bank
Chordiant Software, Inc.
Account#: [*]
Routing #: [*]

9.6 Disputed Invoices. Licensee may withhold payments for any item(s) on Licensor's invoice that Licensee reasonably disputes in good faith.  Licensee shall provide to Licensor written notice of its intention to withhold payment, including the reason(s) for Licensee's reasonable dispute of the invoice (the “Dispute Notice”).  Following receipt of the Dispute Notice, Licensor shall review the invoice in question and, if appropriate, send Licensee a corrected invoice.  If Licensor does not agree with Licensee's reasons for withholding payment or, if sent, the corrected invoice does not resolve the dispute to Licensee's satisfaction, then either party shall notify in writing the other party of the fact that the dispute continues (the “Response Notice”).

The parties shall use commercially reasonably efforts to resolve or settle the dispute within ninety (90) days from the date of the Response Notice. Within thirty (30) days from the date of receipt of the Response Notice, executives of both companies shall first meet in person to negotiate in good faith a resolution or settlement of the dispute. Licensor’s executive(s) shall be at the President or CEO level, and Licensee’s executive(s) shall be either the CIO of Citigroup N.A. Consumer Group or senior executive(s) designated by such person.

Pending settlement or resolution of the issue(s), Licensee's non-payment of these items shall not constitute default by Licensee, and shall not entitle Licensor to suspend or delay its furnishing of the Software or performance of services for a period of [*] from the end of the ninety (90) day period of executive conferences; provided that Licensee continues to pay all undisputed invoices in accordance with the provisions of Section 9.5.   After expiration of such [*] period, Licensor may suspend its furnishing of Software or performance of services covered by the disputed item(s).
 
9.7 Transaction Information. For three years after an invoice has been paid, Licensor will maintain and (upon Licensee's reasonable request) will make available the records necessary to substantiate the correctness of such invoice. In addition, if requested by Licensee, Licensor shall make available to Licensee detailed transactional information related to products and services that have been acquired by Licensee and the Affiliates under this Agreement. The transactional information will be provided by Licensor in an electronic data format specified by Licensee provided such format is supported by Licensor and will include: (i) standard invoice and product attributes contained in Licensor’s systems, and (ii) sufficient details to allow Licensee and its Affiliates to link the invoice and product attributes to invoice payment.

10. REPRESENTATIONS AND WARRANTIES

10.1 Authority and Non-Infringement. Licensor represents and warrants that Licensor has all rights and authority required to enter into this Agreement and each License Schedule, and to provide the Software and perform the services contemplated by this Agreement, free from all liens, claims, encumbrances, security interests and other restrictions. Subject to the applicable terms and conditions of this Agreement and the applicable License Schedule, Licensee and Affiliates will be entitled to use and enjoy the benefit of all Software and services without adverse interruption or disturbance by Licensor or any entity asserting a claim under or through Licensor. Licensor further represents and warrants that the services, Software and all other materials of whatsoever nature furnished under this Agreement, and the use thereof by Licensee or the Affiliates in accordance with the terms and conditions of this Agreement, will not infringe (whether directly, contributorily, by inducement or otherwise), misappropriate or violate the Intellectual Property Rights of any third party, or violate the laws, regulations or orders of any governmental or judicial authority. The sole and exclusive remedy for a breach of the warranty against infringement contained in this Section 10.1 is infringement indemnity set forth in Section 14.

10.2  Personal Dealing and Non-Subornation. Licensor warrants that no officer, director, employee of Licensee, or any of their immediate family members, (i) has received or will receive anything of value of any kind from Licensor or its Personnel in connection with this Agreement, or (ii) has a business relationship of any kind with Licensor or its Personnel. Licensor further warrants that Licensor has not and will not make (or offer to make) any payments to, or confer (or offer to confer) any benefit upon, any employee, agent or fiduciary of any third party, with the intent to influence the conduct of such employee, agent or fiduciary in any manner relating to the subject of this Agreement.

10.3 Conformity to Specifications. Licensor warrants that at the time of Delivery, and thereafter throughout the applicable warranty period, the Software will conform to [*]. If not specified by the Parties on the License Schedule, the warranty period for purposes of Software performance shall be the ninety (90) days period commencing from the date that the Software is Delivered In addition, the warranty period for the Software will be extended by the aggregate time Licensee is unable to effectively use the Software during the specified warranty period as a result of a Defect. If Licensor receives notice of a Software Defect during the warranty period, then Licensor will (at no additional charge) correct the Defect. If (through no fault of Licensee) Licensor is unable or unwilling to correct a Defect that has been identified by Licensee during the warranty period, then Licensee may terminate the applicable License Schedule (in whole or in part) upon notice to Licensor, without financial liability or obligation (for the portion terminated).
 
10.4 Documentation. Licensor represents and warrants that the Documentation provided by Licensor will fully and accurately reflect the functionality of the applicable Software.

10.5 Standard of Service. Licensor warrants that all services provided by Licensor pursuant to this Agreement will be performed in a timely and professional manner, in conformity with standards generally accepted in the Software industry, by qualified and skilled individuals. If Licensor fails to provide the services as warranted and Licensee so notifies Licensor within thirty (30) days after the date Licensor declares the services to have been completed, then Licensor will re-perform the services at no additional charge. Licensor further warrants that its Personnel will provide services with a minimal amount of interference to Licensee’s normal business operations and subject to Licensee’s security and work place policies and procedures.

10.6 Disabling Devices. Licensor represents and warrants that prior to Delivering the Software to Licensee, Licensor will test the Software and the media on which it is to be Delivered with a current version of a leading anti-virus application in efforts to detect, and if so detected, to eliminate, any computer code (sometimes referred to as “viruses” or “worms”) designed to damage, disrupt, disable, harm, or otherwise impede in any manner, the orderly operation of the Software or any other software, data files, firmware, hardware, computer system or network. Licensor further represents and warrants that the Software (and all other software Delivered or installed by Licensor) shall not contain any computer code or any other procedures, routines or mechanisms designed by Licensor (or its Personnel or licensors) to: (i) disrupt, disable, harm or impair in any way the Software’s (or any other software’s) orderly operation based on the elapsing of a period of time, exceeding an authorized number of copies, advancement to a particular date or other numeral (sometimes referred to as “time bombs”, “time locks”, or “drop dead” devices); (ii) cause the Software to damage or corrupt any of Licensee’s, its Affiliates’, or their respective customers’ data, storage media, programs, equipment or communications, or otherwise interfere with Licensee’s or its Affiliates’ operations, or (iii) permit Licensor, its Personnel, its licensors or any other third party, to access the Software (or any other software or Licensee’s or its Affiliates’ computer systems) for any reason (sometimes referred to as “traps”, “access codes” or “trap door” devices). Licensor will not unilaterally (i.e., without appropriate judicial order) remove, deinstall, repossess, modify, delete, damage, deactivate, disable, or interfere with the Software for any reason (including a dispute relating to this Agreement).

10.7 Availability of Maintenance. Reserved.

10.8 Favorable Provisions. Reserved.

10.9 Disclaimer. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT OR ESTABLISHED BY APPLICABLE LAW AS RIGHTS THAT CAN NOT BE WAIVED OR LIMITED BY CONTRACT, LICENSOR DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN ADDITION, LICENSOR DOES NOT WARRANT THAT THE SOFTWARE WILL OPERATE IN COMBINATIONS OTHER THAN AS SPECIFIED IN (i) THE DOCUMENTATION, (ii) THE SPECIFICATIONS, OR (iii) THE LICENSE SCHEDULE, OR THAT THE OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE OR MEETS LICENSEE’S REQUIREMENTS.

11. MAINTENANCE SERVICES

For a minimum period of [*] years commencing from the date of Delivery of the Software, Licensor will make Maintenance Services available for the Software on terms at least as comprehensive as those set forth in Appendix B. The initial annual period for Maintenance Services shall commence on the date of Delivery of the Software. Except as may other be provided for in a License Schedule, the fee for annual Maintenance Services is due and payable upon the Delivery of the Software. Beginning on the first anniversary of the date of the Delivery of the Software, such Maintenance Services shall be provided on an automatic, annual renewable term basis, at Licensee’s election and subject to Licensee’s payment of the applicable Maintenance Services fee. Licensee will be entitled to terminate the Maintenance Services at any time, for its convenience, by providing Licensor with no less than ninety (90) days prior notice of termination; and in the event of such termination, Licensee shall be entitled to recover any unused portion of the pre-paid Maintenance Service fees, pro rated on a fiscal calendar quarterly basis. For the avoidance of doubt, nothing contained in this Section shall be construed to restrict Licensee’s right to access and use the Source Code pursuant to Subsection 7.1.4 in the event that Licensor refuses or becomes unable to provide maintenance and support services to Licensee for the Software during or after the [*] year period specified above.


12. CONFIDENTIAL INFORMATION

12.1 Licensor’s Confidential Information. Licensor’s “Confidential Information” means and refers to the Software, Documentation, and all other materials furnished by Licensor that are expressly identified or marked by Licensor as “confidential” at the time of their Delivery to Licensee.

12.2 Licensee’s “Confidential Information”. Licensee’s “Confidential Information” means and refers to all tangible or intangible information and materials, in any form or medium (and without regard to whether the information or materials are owned by Licensee or by a third party), whether furnished or disclosed to Licensor by Licensee or an Affiliate, or otherwise obtained, accessed or observed by Licensor from Licensee or an Affiliate, that satisfies at least one of the following criteria:

12.2.1  
Information or materials related to Licensee’s, an Affiliates’, or any of their respective customer’s business, trade secrets, customers (including identities, characteristics and activities), business plans, strategies, forecasts or forecast assumptions, operations, methods of doing business, records, finances, assets, technology (including software, data bases, data processing or communications networking systems), data or information or materials that reveal research, technology, practices, procedures, processes, methodologies, know how, or other systems or controls by which Licensee’s or an Affiliate’s products, services, applications and methods of operations or doing business are developed, conducted or operated, and all information or materials derived therefrom or based thereon;
12.2.2  
Information or materials designated or identified as confidential by Licensee or an Affiliate, whether by letter or by an appropriate proprietary stamp or legend, prior to or at the time such information or materials are disclosed by Licensee or an Affiliate to Licensor;
12.2.3  
Information disclosed orally or visually, or written or other form of tangible information or materials without an appropriate letter, proprietary stamp or legend, if it would be apparent to a reasonable person, familiar with Licensee’s (or the Affiliates’) business and the industry in which it operates, that such information or materials are of a confidential or proprietary nature; or,
12.2.4
Any non-public, personal, financial or identifying information of an individual, including Licensee’s or an Affiliate’s customers or employees (“Nonpublic Personal Information”).

12.3 Duty of Care. The Party receiving (“Receiving Party”) Confidential Information of the other Party (“Disclosing Party”) will exercise at least the same degree of care with respect to the Disclosing Party’s Confidential Information that the Receiving Party exercises to protect its own Confidential Information; and, at a minimum, the Receiving Party will maintain adequate security measures to safeguard the Disclosing Party’s Confidential Information from unauthorized disclosure, access, use and misappropriation. Without limiting the generality of the foregoing, the Receiving Party will only use or reproduce the Disclosing Party’s Confidential Information to the extent necessary to enable the Receiving Party to fulfill its obligations under this Agreement, or in the case of Licensee, to exercise its rights as contemplated by this Agreement. In addition, the Receiving Party will disclose the Disclosing Party’s Confidential Information only to those of the Receiving Party’s (or in the case of Licensee, also to its Affiliates’) Personnel who have a “need to know” such Confidential Information (and only to the extent necessary) in order to fulfill the purposes contemplated by the Agreement. Prior to disclosing Licensee’s Confidential Information to any of its Personnel, Licensor will ensure that each of its Personnel who will be providing services for Licensee is bound by a written non-disclosure agreement with terms and conditions no less restrictive than those set forth herein. If the Receiving Party becomes aware of any threatened or actual unauthorized access to, use or disclosure of, or any inability to account for, the Disclosing Party’s Confidential Information, the Receiving Party will promptly notify the Disclosing Party thereof and will assist the Disclosing Party with its efforts to terminate such access, to curtail such threatened or actual unauthorized use or disclosure, or to recover such information or materials. The Receiving Party will be liable to the Disclosing Party for any non-compliance by its agents or contractors to the same extent it would be liable for non-compliance by its employees.

12.4 Exclusions. The obligations of confidentiality assumed under this Agreement shall not apply to the extent the Receiving Party can demonstrate, by clear and convincing evidence, that such information:

12.4.1  
is or has become generally available to the public, without any breach by the Receiving Party of the provisions of this Agreement or any other applicable agreement between the Parties; 
12.4.2  
was rightfully in the possession of the Receiving Party, without confidentiality restrictions, prior to such Party’s receipt pursuant to this Agreement;
12.4.3  
was rightfully acquired by the Receiving Party from a third party who was entitled to disclose such information, without confidentiality or proprietary restrictions;
12.4.4  
was independently developed by the Receiving Party without using or referring to the Disclosing Party’s Confidential Information; or,
12.4.5  
is subject to a written agreement pursuant to which the Disclosing Party authorized the Receiving Party to disclose the subject information.

12.5 Legally Required Disclosures. The obligations of confidentiality assumed under this Agreement shall not apply to the extent that the Receiving Party is required to disclose the Disclosing Party’s Confidential Information under any applicable law, regulation or an order from a court, regulatory agency or other governmental authority having competent jurisdiction, provided that the Receiving Party:

12.5.1  
promptly notifies the Disclosing Party of the order in order to provide the Disclosing Party an opportunity to seek a protective order;
12.5.2  
provides the Disclosing Party with reasonable cooperation in its efforts to resist the disclosure, upon reasonable request by the Disclosing Party and at the Disclosing Party’s expense; and,
12.5.3  
disclose only the portion of the Disclosing Party’s Confidential Information that is required to be disclosed under such law, regulation or order.

12.6 Nonpublic Personal Information. Notwithstanding any other provision of this Agreement, to the extent Nonpublic Personal Information is, either intentionally or unintention-ally, disclosed to or otherwise obtained by Licensor in connection with the matters contemplated by this Agreement, Licensor will keep such Nonpublic Personal Information strictly confidential and strictly limit its use of such information to the purposes contemplated by this Agreement. Licensor agrees that Licensee shall have the right to conduct a review of the procedures used by Licensor to maintain the confidentiality of such Nonpublic Personal Information.

12.7 Accounting for Confidential Information. Except as otherwise expressly provided in this Agreement, upon the request of the Disclosing Party at any time after the termination of this Agreement, the Receiving Party will return (or purge its systems and files of, and suitably account for) all tangible Confidential Information supplied to, or otherwise obtained by, the Receiving Party in connection with this Agreement. The Receiving Party will certify in writing that it has fully complied with its obligations under this Section within seven (7) days after its receipt of a request by the Disclosing Party for such a certification. For the avoidance of doubt, this Section 12.7 shall not be construed (i) to require Licensee to return the Software or (ii) to limit either Party’s right to seek relief from damages that are caused by the other Party’s default.

13. PUBLICITY

Licensor will not disclose the identity of Licensee as a customer of Licensor or the existence, nature or terms of this Master Agreement or any License Schedule, without the prior written consent of Licensee, which Licensee may withhold in its sole discretion; except as required by applicable law or regulation. Neither Party will use the other Party’s proprietary indicia, trademarks, service marks, trade names, logos, symbols or brand names (collectively “Marks”), or otherwise refer to or identify the other Party in advertising, publicity releases, or promotional or marketing publications or correspondence to third parties without, in each case, securing the prior written consent of the other Party.

14. INDEMNITY

14.1  Infringement Indemnity. Licensor will defend, hold harmless and indemnify Licensee, its Affiliates, and their Personnel (collectively the “Indemnitees”) from and against any and all losses, claims, liabilities, costs and expenses (including taxes, fees, fines, penalties, interest, reasonable expenses of investigation and attorneys' fees and disbursements) as incurred (collectively "Damages") arising out of, or relating to a claim by a third party that the Software or any other materials of any nature furnished by Licensor to Licensee (or that the use thereof) infringes (whether directly, contributorily, by inducement or otherwise), misappropriates or violates such third party's Intellectual Property Rights. Licensor’s indemnity obligation under this Section shall not extend to claims based on: (i) an unauthorized modification of the Software made by an Indemnitee where the Software would not be infringing without such modification, (ii) customized portions of the Software designed in accordance with written specifications provided by Licensee where the Software would not be infringing without such customized portions or (iii) Licensee’s continued use of allegedly infringing Software where Licensor has provided Licensee with an updated, non-infringing, equally suitable, functionally equivalent and compatible version of the Software.

14.2 General Indemnity. Licensor will defend, hold harmless and indemnify the Indemnitees from and against any and all third-party claims for Damages arising out of or relating to Licensor’s breach of the obligations assumed under, or the representations or warranties provided in, (a) Section 10.6 or (b) Section 12 of this Agreement.

14.3 Indemnification Procedures. If an Indemnitee seeks indemnification under this Agreement, the Indemnitee will: (i) give prompt notice to Licensor concerning the existence of the indemnifiable event; (ii) grant authority to Licensor to defend or settle any related action or claim; and, (iii) provide, at Licensor’s expense, such information, cooperation and assistance to Licensor as may be reasonably necessary for Licensor to defend or settle the claim or action. An Indemnitee’s failure to give prompt notice shall not constitute a waiver of the Indemnitee’s right to indemnification and shall affect Licensor’s indemnification obligations only to the extent that Licensor’s rights are materially prejudiced by such failure or delay. Notwithstanding anything to the contrary set forth herein, (i) an Indemnitee may participate, at its own expense, in any defense and settlement directly or through counsel of its choice, and (ii) Licensor will not enter into any settlement agreement on terms that would diminish the rights provided to the Indemnitee or increase the obligations assumed by the Indemnitee under this Agreement, without the prior written consent of the Indemnitee. If Licensor elects not to defend any claim as is required under this Agreement, the Indemnitee will have the right to defend or settle the claim as it may deem appropriate, at the cost and expense of Licensor, and Licensor will promptly reimburse the Indemnitee for all costs, expenses, settlement amounts and other Damages.

14.4 Mitigation of Damages. If any Software becomes, or (in Licensor's opinion) is likely to become, the subject of any such third party claim, then Licensor (at its sole cost and expense) may either: (i) procure the right for the Indemnitee to continue using the Software as contemplated hereunder; (ii) modify the Software to render it non-infringing (provided such modification does not materially degrade the Software’s functionality); or (iii) replace the Software with equally suitable, functionally equivalent, compatible, non-infringing Software. If none of the foregoing are commercially practicable despite Licensor using all reasonable efforts and if Licensee is not permitted to continue using the Software, then Licensee shall be entitled to recover from Licensor the following. If Licensee is prohibited from using the Software [*] then Licensee shall be entitled to recover an amount equal to a pro-rated portion of the License fees paid for the Software, [*] (with the pro-rated portion equal to the remaining book value based on a straight line five (5) year basis).

14.5 Notification of 3rd Party Claims. Licensor will promptly notify Licensee concerning any threat, warning, claim or action against Licensor or its customers or suppliers of which Licensor has knowledge, that could have an adverse impact on Licensee's use of any Software provided or made available to Licensee pursuant to this Agreement.

15. INSURANCE REQUIREMENTS

15.1 Required Coverage. During the term of this Agreement and for so long as any License Schedule has not yet been completed or terminated, Licensor will maintain, at its own expense, insurance coverage with limits of no less than those set forth below, and with insurers with a minimum A.M. Best Financial Strength rating of “A- (Excellent)” and Financial Size rating of “X”, or equivalent ratings from other valid rating agencies and under forms of policies satisfactory to Licensee.

15.1.1  
Professional Liability Insurance (“Errors and Omissions”) in the minimum amount of $2,000,000 per occurrence, covering losses from any act, errors, omissions, negligence, breach of contract and/or misrepresentations related to Licensor’s obligations under this Agreement. This insurance shall be maintained for a period of at least two (2) years after completion of all License Schedules.
15.1.2  
Fidelity/Crime Insurance in the minimum amount of $2,000,000 per occurrence providing coverage for any loss sustained by Licensee or an Affiliate as a result of any dishonest act by Licensor’s officers, employees, agents or subcontractors (whether acting alone or in collusion with others), including but not limited to theft, forgery, alteration, or transfer of funds (electronically or otherwise). Such insurance must cover (i) property of the Licensor; (ii) property of others, which the Licensor holds in its care, custody and control; and (iii) property of others for which the Licensor is legally liable.
15.1.3  
Commercial General Liability including broad form contractual liability and personal injury endorsement, providing coverage against liability for bodily injury, death, and property damages in the minimum amount of $1,000,000 per occurrence and no less than $2,000,000 annual aggregate.
15.1.4  
Automobile Liability in the minimum amount of $1,000,000 Combined Single Limit (“CSL”) per occurrence for bodily injury and property damage (covering owned, non-owned and hired vehicles).
15.1.5  
Workers Compensation insurance covering Licensor’s employees pursuant to applicable state laws and at the statutory limits required for each such state, and Employers Liability coverage in the minimum amount of $1,000,000 per loss.
15.1.6  
Umbrella/Excess Liability providing excess liability coverage in the minimum amount of $5,000,000 per occurrence, to supplement the primary coverage limits for Commercial General Liability, Automobile Liability and Employers Liability provided under the policies listed above.

15.2  Certificates of Insurance. Licensor will Deliver Certificates of Insurance to Licensee prior to the execution of this Agreement. Said certificate shall indicate that policies providing coverage and limits of insurance are in full force and effect. Each Certificate shall provide that no less than thirty (30) days notice will be given in writing to Licensee prior to cancellation, termination, or material alteration of any one of the policies. At least ten (10) days before the expiration of an insurance policy required hereunder, Licensor will Deliver to Licensee a certificate of insurance attesting to the renewal of such insurance. In addition, each policy required pursuant to Subsections 15.1.3, 15.1.4, 15.1.5 (Employers Liability only) and 15.1.6 shall name Licensee, Affiliates and assignees as additional insureds. Each policy required pursuant to Subsection 15.1.2 shall name Licensee, Affiliates and assignees as loss payees. Licensee’s acceptance of Delivery of a Certificate of Insurance that does not conform to the requirements of this Section shall not relieve Licensor of its obligation to provide insurance conforming to the requirements hereof.

15.3 No Limitation. The requirements set forth above as to types, limits and approval of insurance coverage to be maintained by Licensor will not in any manner limit the liabilities and obligations assumed by Licensor under this Agreement.

16. LIMITATION OF LIABILITY

EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED IN THIS SECTION, NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY (OR TO ANY PERSON OR ENTITY CLAIMING THROUGH THE OTHER PARTY) FOR LOST PROFITS OR FOR SPECIAL, INCIDENTAL, INDIRECT, CONSEQUENTIAL OR EXEMPLARY DAMAGES ARISING OUT OF OR IN ANY MANNER CONNECTED WITH THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, REGARDLESS OF THE FORM OF ACTION AND WHETHER OR NOT SUCH PARTY HAS BEEN INFORMED OF, OR OTHERWISE MIGHT HAVE ANTICIPATED, THE POSSIBILITY OF SUCH DAMAGES.  NEITHER PARTY SHALL BE LIABLE FOR ANY (i) DIRECT DAMAGES IN EXCESS OF THE TOTAL AMOUNT OF FEES PAID TO LICENSOR UNDER THIS AGREEMENT OR (ii) DAMAGES ARISING FROM CLAIMS FOR WHICH EITHER PARTY HAS AGREED TO INDEMNIFY THE OTHER PARTY PURSUANT TO SECTION 14.2(b) IN EXCESS OF THE TOTAL AMOUNT OF FEES PAID TO LICENSOR UNDER THIS AGREEMENT. THE LIMITATIONS OF LIABILITY SET FORTH IN THIS AGREEMENT SHALL NOT APPLY TO DAMAGES, (i) RESULTING FROM THE GROSS NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT OF A PARTY OR ITS PERSONNEL, (ii) STEMMING FROM PERSONAL INJURY, DEATH, OR PROPERTY DAMAGE CAUSED BY A PARTY OR ITS PERSONNEL, OR (iii) ARISING FROM CLAIMS FOR WHICH EITHER PARTY HAS AGREED TO INDEMNIFY THE OTHER PARTY PURSUANT TO SECTIONS 14.1 or 14.2(a) ABOVE, OR (iv) ARISING FROM EITHER PARTY’S BREACH OF ITS OBLIGATIONS SET FORTH IN SECTIONS 10.6 AND 12 HEREIN.

17.  SUBCONTRACTORS

Licensor will not use a subcontractor to perform Licensor’s obligations under this Agreement without obtaining Licensee’s prior written approval, which will not be unreasonably withheld or delayed. Licensee’s approval of a subcontractor shall not constitute a waiver of any rights Licensee may have based on Licensor’s representations and warranties. Licensor will be fully responsible for all acts and omissions of its subcontractors. Nothing in this Agreement shall be construed to create any contractual relationship between Licensee and any subcontractor, nor any obligation on the part of Licensee, to pay or to ensure the payment of any money due any subcontractor.


18.  ASSIGNMENT

Either party may, with notice to the other party, assign this Agreement or any of its rights or interests hereunder, or delegate any of its obligations hereunder, to (i) an Affiliate, (ii) the assigning party's successor pursuant to a merger, reorganization, consolidation or sale, or (iii) an entity that acquires all or substantially all of that portion of the assigning party’s assets or business. Except as otherwise provided above, neither Party may assign this Agreement nor any of its rights or interests hereunder, nor delegate any obligation to be performed hereunder, without the prior written consent of the other Party. Any attempted assignment or delegation in contravention of this Section shall be null and void, and of no force or effect. This Agreement shall be binding upon, and shall inure to the benefit of, the legal successors and permitted assigns of the Parties.

19. NOTICES

Any notice, demand or other communication (collectively “notice”) required or permitted under this Agreement shall be made in writing and shall be deemed to have been duly given (i) when Delivered personally to the representative(s) designated to receive notices for the intended recipient, or (ii) when mailed by certified mail (return receipt requested) or sent by overnight courier to the representative(s) designated to receive notices for the intended recipient at the address set forth in the introductory paragraph of this Master Agreement or in the applicable License Schedule, as appropriate. Notices concerning the Master Agreement shall be given to the person who signed the Master Agreement on behalf of the intended recipient. Notices concerning a License Schedule shall be given to the person designated on, or (if no designation is made) the person signing, the License Schedule on behalf of the intended recipient. Any notice from Licensor that either (i) relates to the Master Agreement, or (ii) alleges Licensee committed a material breach shall also be sent to Licensee’s General Counsel’s Office, to the attention of the managing attorney responsible for intellectual property and technology. Either Party may change its address(es) or representative(s) for receiving notices upon notice to the other.

20.
COMPLIANCE WITH LAW
   
20.1  General. In performing its obligations under this Agreement, Licensor will comply, and will cause its Personnel to comply, with the requirements of all applicable laws, ordinances, regulations, codes and executive orders.

20.2  Export Controls. Without limiting the generality of Section 20.1, each Party specifically agrees to comply, and will cause its Personnel to comply, with the requirements of all applicable export laws and regulations, including but not limited to the U.S. Export Administration Regulations. Unless authorized by U.S. regulation or Export License, neither Party will export nor reexport, directly or indirectly, any software or technology received from the other party, or allow the direct product thereof to be exported or reexported, directly or indirectly, to (a) any country in Country Group E:2 of the Export Administration Regulations of the Department of Commerce (see http://www.bxa.doc.gov) or any other country subject to sanctions administered by the Office of Foreign Assets Control (see http://www.treas.gov/ofac/); or (b) any non-civil (i.e. military) end-users or for any non-civil end-uses in any country in Country Group D:1 of the Export Administration Regulations, as revised from time to time. Each Party understands that countries other than the U.S. may restrict the import or use of strong encryption products and may restrict exports, and each Party agrees that it shall be solely responsible for compliance with any such import or use restriction.

20.3 Rights in Bankruptcy. All rights and licenses granted under or pursuant to any section of this Agreement are, and shall be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, 11 U.S.C. § 101 et seq., licenses of rights to "intellectual property" as defined under Section 101(35A) of the Bankruptcy Code; and Software is, and shall be deemed to be, "embodiment[s]" of "intellectual property" for purposes of same. Licensee shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code or equivalent legislation in any other jurisdiction. Without limiting the generality of the foregoing, Licensor acknowledges that the rights and license granted to Licensee pursuant to this Agreement shall not be affected by Licensor's rejection of this Agreement in bankruptcy, and shall continue subject to the terms and conditions of this Agreement.

21.  CHOICE OF LAW, JURISDICTION AND WAIVER OF JURY TRIAL

21.1  Governing Law. The substantive laws of the State of New York shall in all respects govern this Agreement as though this Agreement was entered into, and was to be entirely performed within, the State of New York. The Parties expressly disclaim the applicability of, and waive any rights based upon, the Uniform Computer Information Transactions Act or the United Nations Convention on the Sale of Goods. For the avoidance of doubt, nothing stated in this Agreement will prejudice or limit the rights or remedies of either Party to enforce any award or decree under the laws of any jurisdiction where property or assets of the other Party may be located.

21.2  Jurisdiction. All claims or disputes arising out of or in connection with this Agreement shall be heard exclusively by any of the federal or state court(s) of competent jurisdiction located in the Borough of Manhattan, New York City, NY, USA. To that end, each Party irrevocably consents to the exclusive jurisdiction of, and venue in, such court(s), and waives any, (i) objection it may have to any proceedings brought in any such court, (ii) claim that the proceedings have been brought in an inconvenient forum, and (iii) right to object (with respect to such proceedings) that such court does not have jurisdiction over such Party. Without limiting the generality of the foregoing, Licensor specifically and irrevocably consents to personal and subject matter jurisdiction for such claims or disputes in the federal or state courts sitting in New York City, NY, USA, and to the service of process in connection with any such claim or dispute by the mailing thereof by registered or certified mail, postage prepaid to Licensor, at the address for notice set forth in, or designated pursuant to, this Agreement.

21.3 WAIVER OF JURY TRIAL. LICENSOR AND LICENSEE HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING OR LITIGATION BROUGHT AGAINST THE OTHER WITH RESPECT TO THIS AGREEMENT OR VENDOR'S PERFORMANCE OF SERVICES.

22.  REMEDIES

22.1 Equitable Relief. Licensor and Licensee each acknowledge that the failure to perform their respective duties under Sections 12 or 13 may cause the other Party to suffer irreparable injury for which such injured Party will not have an adequate remedy available at law. Accordingly, the injured Party may seek to obtain injunctive or other equitable relief to prevent or curtail any such breach, threatened or actual, without posting a bond or security and without prejudice to such other rights as may be available under this Agreement or under applicable law. For purposes of this Agreement, "equitable relief" means and includes those remedies traditionally and historically granted by courts of equity, including without limitation, injunction, attachment, declaratory relief, lis pendens, receivership and replevin.

22.2 Recovery of Fees. If Licensee terminates a License Schedule pursuant to Section 5.2 or Section 10.3, then Licensee will be entitled to recover from Licensor [*]. Upon Licensee’s receipt of such amounts, Licensee will return to Licensor the affected Software.

22.3 Cumulative Remedies and Off Sets. Except as otherwise expressly provided in this Agreement, all remedies in this Agreement are cumulative and in addition to (not in lieu of) any other remedies available to a Party at law or in equity. In the event of a claim by Licensee for loss or damages for which Licensor is responsible, Licensee shall be entitled to adjust the amounts claimed against future or outstanding payments due, or which may become due, to Licensor.

23. WAIVER

No course of dealing, failure by either Party to require the strict performance of any obligation assumed by the other hereunder, or failure by either Party to exercise any right or remedy to which it is entitled, shall constitute a waiver or cause a diminution of the obligations or rights provided under this Agreement. No provision of this Agreement shall be deemed to have been waived by any act or knowledge of either Party, but only by a written instrument signed by a duly authorized representative of the Party to be bound thereby. Waiver by either Party of any default shall not constitute a waiver of any other or subsequent default.

24. FORCE MAJEURE

A Party will be excused from a delay in performing, or a failure to perform, its obligations under this Agreement to the extent such delay or failure is caused by the occurrence of any contingency beyond the reasonable control, and without any fault, of such Party. In such event, the performance times shall be extended for a period of time equivalent to the time lost because of the excusable delay. However, if an excusable delay continues more than sixty (60) days, the Party not relying on the excusable delay may, at its option, terminate the affected License Schedule(s) in whole or in part, upon notice to the other Party. In order to avail itself of the relief provided in this Section for an excusable delay, the Party must act with due diligence to remedy the cause of, or to mitigate or overcome, such delay or failure. For purposes of this Section, the phrase “due diligence” shall, at a minimum, require Licensor to maintain a contingency plan (and provide evidence of its current and periodic testing if requested by Licensee) for the continuation of business so that despite any disruption in Licensor’s ability to fulfill its service obligations from any particular location or through the efforts of any particular individuals, Licensor will be able to fulfil its service obligations from an alternative/backup location.

25.
LICENSEE’S POLICIES AND PROCEDURES

25.1 General. Licensor will ensure: (i) that its Personnel comply with the corporate policies promulgated by Licensee or an Affiliate that are designed to adhere to applicable laws and regulations, and with the security and work place policies and procedures in effect for any facility of Licensee or an Affiliate where services are performed (including Information Security Standards and any supplementary practices or procedures provided by Licensee to Licensor), and (ii) that all services are performed in a manner that will minimize any interference with Licensee’s normal business operations.

25.2 Equipment and Network Security. If access to Licensee’s or an Affiliate’s computer systems, other equipment or personal property (“Licensee’s Systems”) is required in order for Licensor to fulfill its services obligations to Licensee, then Licensee shall determine the nature and extent of such access. If Licensee or an Affiliate provides Licensor with remote access to Licensee’s Systems, then any and all information relating to such remote access shall be considered Licensee’s Confidential Information and shall be subject to the obligations of confidentiality set forth in Section 12 above. In addition, any and all access to Licensee’s Systems shall be subject to the following.

25.2.1
Licensee’s Systems shall be used solely to perform services for Licensee, and shall not be used for any purpose other than the legitimate business purposes of Licensee.
25.2.2  
Access to Licensee’s Systems shall be restricted to Licensor’s Personnel who need access in order for Licensor to fulfill its obligations under this Agreement; and no access rights will be transferred to any other individuals without the prior written consent of Licensee.
25.2.3  
Licensor will ensure that its Personnel do not attempt to break, bypass or circumvent Licensee’s or an Affiliate’s security systems, or attempt to obtain access to any hardware, programs or data beyond the scope of the access granted by Licensee in writing.
25.2.4
Without limiting any of its other rights, Licensee reserves (for itself and its Affiliates) the rights to restrict and monitor the use of Licensee’s Systems, and to access, seize, copy and disclose any information, data or files developed, processed, transmitted, displayed, reproduced or otherwise accessed in conjunction with such use. Licensee or an Affiliate may exercise its rights reserved hereunder: (i) to verify the performance of services; (ii) to assure compliance by Licensor’s Personnel with Licensee’s or an Affiliate’s policies and procedures; (iii) to investigate conduct that may be illegal or may adversely affect Licensee, an Affiliate or its or their employees; or (iv) to prevent inappropriate or excessive personal use of Licensee’s Systems. Licensor will advise its Personnel concerning Licensee’s rights hereunder.
 
25.3 Removal of Licensor’s Personnel. If any of Licensor’s Personnel fails to comply with any applicable laws, ordinances, regulations, codes, or with Licensee’s security or work place policies and procedures (whether or not specified herein), or fails (in Licensee’s sole determination) to perform assignments in a professional and competent manner, then Licensor will bar such individual from performing any services for Licensee immediately upon receiving a request from Licensee.

25.4 Diversity Initiative. Licensor acknowledges that Licensee has implemented a Supplier Diversity Program which, among other initiatives, encourages the use of minority and women-owned (“Diverse Suppliers”) businesses as suppliers and subcontractors to the fullest extent possible consistent with the efficient performance of its business strategies. To assist Licensee in complying with these goals, if Licensor currently provides any reports tracking its use of Diverse Suppliers in the provision of products, goods or services, to any other of its customers, then Licensor will provide (at no additional cost to Licensee) copies of such reports, whenever they are prepared and updated, to Licensee. Licensee shall keep and treat such reports in accordance with the Licensee’s confidentiality obligations herein. These reports should be forwarded to the attention of the Citigroup Supplier Diversity Program, 333 West 34th Street, New York, NY 10001, attention Director, Supplier Diversity Program.

26. CONSTRUCTION

26.1 Inconsistencies. In the event of any inconsistency between the provisions of this Master Agreement and any License Schedule, the provisions of the License Schedule shall govern for purposes of such License Schedule. The provisions of this Master Agreement and the applicable License Schedule shall supersede the provisions of any shrink-wrap, clickwrap or other license provisions included with the Software.

26.2 Modification. The terms, conditions, covenants and other provisions of this Agreement may hereafter be modified, amended, supplemented or otherwise changed only by a written instrument (excluding e-mail or similar electronic transmissions) that specifically purports to do so and is physically executed by a duly authorized representative of each Party.

26.3 Severability. If a court of competent jurisdiction declares any provision of this Agreement to be invalid, unlawful or unenforceable as drafted, the Parties intend that such provision be amended and construed in a manner designed to effectuate the purposes of the provision to the fullest extent permitted by law. If such provision can not be so amended and construed, it shall be severed, and the remaining provisions shall remain unimpaired and in full force and effect to the fullest extent permitted by law.

26.4 Survival. The provisions of this Agreement that, by their nature and content, must survive the completion, rescission, termination or expiration of this Agreement in order to achieve the fundamental purposes of this Agreement, shall so survive and continue to bind the Parties. Without limiting the generality of the forgoing, the Parties specifically acknowledge that the following provisions shall survive and continue to bind the Parties: Subsection 2.3, entitled “Orderly Transfer”; Subsection 2.4, entitled “Retention of Archival Copy”; Section 6, entitled “Scope of License” (to the extent applicable); Section 7, entitled “Source Code”; Subsection 10.1, entitled “Authority and Non-Infringement”; Subsection 10.6, entitled “Disabling Devices”; Section 12, entitled “Confidential Information”; Section 13, entitled “Publicity”, Subsection 14, entitled “Indemnity”; Section 16, entitled “Limitation of Liability”; Section 18, entitled “Assignment”; Section 21, entitled “Choice of Law and Jurisdiction”; and Section 22, entitled “Remedies”.

26.5 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original.

27. AUDITED FINANCIAL STATEMENTS

Upon Licensee’s request, Licensor will provide a completed audited statement of the financial condition of Licensor’s organization, including (i) audited year-end results for the three (3) previous years, including revenues, expenses, net income, total assets, liabilities and footnotes; and (ii) the most recent financial interim statement.

28. COMPLETE UNDERSTANDING

This Agreement (together with the schedules, exhibits, and other appendices attached hereto or specifically incorporated herein by reference) constitutes the complete understanding of the Parties, and supersedes all prior or contemporaneous agreements, discussions, negotiations, promises, proposals, representations, and understandings (whether written or oral) between the Parties, with regard to the subject matter hereof. Licensor specifically acknowledges and agrees that it did not enter into this Agreement in reliance upon any agreement, promise, representation, or understanding made by or on behalf of Licensee that is not contained herein.

IN WITNESS WHEREOF, the Parties hereto, through their duly authorized officers, have executed this Master Software License and Support Agreement as of the Commencement Date designated above.

LICENSOR:
  
LICENSEE:
         
By:
/s/ Robert Mullen
  
By:
/s/ Mitchell J. Habib
         
Name:
Robert Mullen
  
Name:
Mitchell J. Habib
         
Title:
President
  
Title:
CIO/ Card Technologies
         
Date:
March 21, 2006
  
Date:
March 20, 2006


APPENDIX A
LICENSE SCHEDULE 

License Schedule #:
  
Effective Date:
  


THIS LICENSE SCHEDULE is entered as of the Effective Date designated above, by and between Licensor and the Licensee designated below. The Parties hereto acknowledge that they are entering into this License Schedule pursuant to the provisions of the Master Software License and Support Agreement dated as of __________________, between Licensor and CITIGROUP ENTITY THAT SIGNED MASTER. The Parties further acknowledge and agree that the provisions of the Master Software License and Support Agreement shall apply to this License Schedule as though such provisions were set forth herein in their entirety.
 
 
LICENSOR
LICENSEE
Name:
    
Address:
    
State of Incorporation:
    


Software (Itemize)
List Price
Discount %
License Fee
       
       
       
       

Third-Party Software (Itemize)
Owner
   
   

Delivery Site:
  
Delivery Date:
  
 
Installation Site:
  
Installation Date:
  
 
Billing Address
  

Installation Fees:
$
  
 
Training Fees:
$
  
 
Development Fees:
$
  
 
Implementation Fees:
$
  
 
Maintenance Fees:
$
  
Payment Cycle (select one):
Annually
  
   
Quarterly
  
Maintenance Term:
    
Monthly
  



CPU and/or number of MIPS and MIPS environment:
  
 
[*]
  
 
Warranty Period:
  

Source Code Provided Directly to Licensee:
Yes
No
 
Deposited with Escrow Agent:
Yes
No
 
Name of Escrow Agent:
  
 
Address of Escrow Agent:
  

Additional Terms and Conditions:
 
 

Specifications: Attached as Annex 1 to this License Schedule

Allowed Combinations: Attached as Annex 2 to this Licensee Schedule

[*]
[*]
[*]
Escrow Agreement (attached as Exhibit 1 to this License Schedule, if applicable)


IN WITNESS WHEREOF, the Parties hereto, through their duly authorized officers, have executed this License Schedule to the Master Software License and Support Agreement as of the Effective Date designated above.


LICENSOR:
  
LICENSEE:
         
By:
    
By:
  
         
Name:
    
Name:
  
         
Title:
    
Title:
  
 
(type or print)
      
Date:
    
Date:
  



 APPENDIX B
MAINTENANCE SERVICES ADDENDUM

Commencement Date:
  

Party:
LICENSOR
LICENSEE
Name:
    

THIS MAINTENANCE SERVICES ADDENDUM is attached to and made a part of Master Software License and Support Agreement entered into as of the Commencement Date designated above, by and between the Parties designated above.

1. DEFINITIONS

For purposes of this Maintenance Services Addendum, each word or phrase listed below has the meaning designated. Each word or phrase defined in the Master Software License and Support Agreement shall (unless otherwise specified herein) have the meaning there designated. Other words or phrases used herein may be defined in the context in which they are used, and shall have the respective meanings there designated.

“Priority One Defect” means a Defect that, in the reasonable judgment of Licensee, renders the Software inoperable or is causing a serious adverse impact to Licensee’s business operations.

“Priority Two Defect” means a Defect that materially impairs the Software’s performance of one or more facilities or functions detailed in the Specification, with the consequence that Licensee’s business can be performed but in a restricted or inefficient manner.

“Priority Three Defect” means a Defect that does not significantly effect Licensee’s current day to day business operations; but the performance or efficiency of Licensee’s business operations might improve if such Defect were to be corrected.

“Production Period” means (i) the total number of hours per calendar month for which Maintenance Services are provided for the applicable Software, (ii) less any time expended by Licensor to correct a problem with the Software for which Licensor is not responsible as a part of Maintenance Services.

“Supported Environment” for any Chordiant Marketing product(s) Software means the configurations of hardware and RDBMS (relational database) platforms and releases of the Software on which the Documentation states the Software can run and for which Chordiant provides Support. Supported Environment for any other Chordiant product Software means the hardware and operating system platform on which the Documentation states the Software can run and for which Chordiant provides Support.

“Update” means and includes the modifications or revisions made to the Software (i) to improve upon or repair existing features and operations within the Software, (ii) to ensure compatibility with new releases of existing systems (including hardware, operating systems and middleware) and external services through standardized interfaces, or (iii) to comply with applicable laws, regulations, industry standards or market practice.

2. MAINTENANCE SERVICE

2.1 Problem Resolution. Licensor will provide problem resolution for Defects in accordance with the service priorities and effort standards provided in Section 4 below. For the avoidance of doubt, the problem resolution provided by Licensor must correct the Defect for the version of Software being used by Licensee. Licensor shall not be deemed to have satisfied its obligation to resolve Defects by requiring Licensee to move to a new version of the Software.

2.2 Notification of Known Defects. Licensor will notify Licensee concerning all known Defects in the Software or Documentation, as such Defects become known or are reported to Licensor. Licensor will promptly correct any such Defects, or develop a work-around, patch or other fix, and furnish Licensee with such correction, work-around, patch or other fix as soon as practicable.

2.3 Remote Access. At Licensee’s request, Licensor will provide remote technical assistance and consultation for (i) general help in the use and operation of the Software during Licensee’s normal business hours, and (ii) reporting of Priority One or Two Defects, 24 hours per day, seven days per week.

2.4 Updates. Licensor will make available to Licensee (at no additional cost) all Updates for the Software, along with materials describing the purpose and function of the Updates, if and when such Updates are made generally available to Licensor’s customers who receive support and maintenance services. Licensor will ensure that Updates containing new features or enhancements to existing features are synchronised with the previous version. Such Updates shall not degrade the performance, functioning or operation of the Software. [*] Licensee is responsible for installing the Update, and Licensor will provide written instructions as are reasonably required to complete the installation. After an Update has been incorporated into the Software and accepted by Licensee, the Update shall be considered part of the Software for all purposes hereunder. Licensor will not install or attach any Updates or any other modification to the Software (electronically or otherwise), without first obtaining Licensee’s approval.

2.5 Technological Improvements. Licensor will develop and make available to Licensee through Updates, if and when such Updates are made generally available to Licensor’s customers who receive support and maintenance services, all modifications and revisions required to enable the Software to operate in compliance with any applicable law, and in conjunction with any new releases of the computer equipment, operating systems or middleware used by Licensee, provided that the Software formerly operated on the third party equipment, systems or middleware being replaced.

2.6 Documentation. Licensor will provide modified Documentation to correspond to changes made to the Software, within thirty (30) days of such changes.

2.7 Continuing Repairs. The Software shall not be considered to have been repaired or restored to satisfactory operating condition, if within eight (8) hours from the time such Software is turned over to Licensee as being in fully operable condition, the Software requires additional remedial maintenance.

2.8  Maintenance Log and Reports. Licensor will maintain a maintenance log setting forth, in reasonable detail, all remedial maintenance and all other services performed on the Software; and Licensor will make such log available to Licensee, upon request. Each entry in the log must be acknowledged by the initials of a designated Licensee representative. In addition, upon request of Licensee, Licensor will provide Licensee with a written report summarizing for the reporting period: (i) all Maintenance Services provide by Licensor, (ii) all other services provided by Licensor, (iii) the actual on-site response time of Licensor’s Personnel to each Licensee request for Maintenance Services, (iv) the duration of each Software Defect, (v) the time expended on-site by Licensor until the Software was restored to proper operating condition, (vi) the “root cause” of each Defect corrected by Licensor, and (vii) corrective actions taken by Licensor to prevent the reoccurrence of a Defect.



3. TERM OF MAINTENANCE SERVICES 

At Licensee’s election and subject to Licensee’s payment of the applicable Maintenance Services fee, Licensor will make Maintenance Services available for the Software for a minimum period of [*] years commencing from the initial date of Delivery of the Software.

4. PRIORITY RESPONSE FOR SOFTWARE DEFECTS

Each reported Defect will be classified by Licensee as a Priority One, Priority Two or Priority Three Defect. Licensor will respond to Licensee’s request for support in a manner appropriate for the Priority of Defect specified by Licensee as follows.

4.1  Priority One Defect. Licensor will initiate diagnostic and remedial measures within one (1) hour of Licensee’s telephonic, electronic or other notification of a Priority One Defect. Once Licensor has commenced corrective measures, Licensor will work continuously and diligently until the Defect has been remedied. Licensor will periodically advise Licensee concerning Licensor’s progress.

4.2  Priority Two Defect. Licensor will initiate diagnostic and remedial measures within four (4) hours of Licensee’s telephonic, electronic or other notification of a Priority Two Defect. Once Licensor has commenced corrective measures, Licensor will complete all such corrections as soon as reasonably practicable. Licensor will periodically advise Licensee concerning Licensor’s progress. 

4.3  Priority Three Defect. For Priority Three Defects, Licensor will endeavor to correct the Defect and furnish a remedy no later than the next Update.

4.4  Normal Support Hours. Licensee shall report all problems to the closest support center. Licensor reserves the right to alter the location(s) of its support centers, and shall inform the Licensee in writing should this occur. Licensor provides Maintenance Services from the following support centers during their respective normal business hours as set out below:


EMEA 08:30 - 17:30 UK Time {Greenwich Mean Time (GMT) or British Summer Time (BST), as applicable}
Americas 08:30 - 17:30 Pacific Std Time (i.e. 16:30 - 01:30 UK Time, subject to time changes)
Asia/Pacific 08:30 - 17:30 Melbourne, Australia (i.e.23:30 - 08:30 UK Time, subject to time changes)

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

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

Extended 24-hour Support (available for Priority One calls on Chordiant’s Platform and Foundation Software only)

In respect of “Standard Support” and “Premier Support” for Platform and Foundation software products only, Chordiant extends support hours to 24 hours per day, seven days a week, for Priority One calls only. Outside the normal regional support hours, Chordiant will decide if the Priority One case continues to be handled by the local regional support center, or if the Priority One call will “follow the sun” to another support center and will, if required, initiate a page to 24-hour on-call Maintenance Services engineers.

5. LICENSEE’S RESPONSIBILITIES

5.1 Licensee agrees to:

(i)  Provide Licensor with remote access to Software during the term of this Agreement via an electronic link; and
(ii)  Provide any reasonable assistance that Licensor may require from the Designated Contacts and other appropriate Customer representatives (e.g. network administrator, as the case may be) to enable Licensor to provide Licensee with Maintenance Services; and
(iii)  Establish and maintain the conditions of the Supported Environment in compliance with Chordiant Certified Matrix and Technical Stack developed for the installed release or any environmental operating ranges specified by the manufacturers of the components of the Designated Center. Any deviation from this Support Environment voids all resolutions described in Section 4 above within the timeframe set forth below.

5.2 In the event that Licensee fails to comply with the above and this necessitates on-site attendance and/or the provision of additional Maintenance Services, Licensee agrees to pay Licensor for any time and expenses associated with such services at Licensor’s then-current time and materials services rates.

5.3 Licensee agrees to designate appropriately qualified and trained personnel to be the Designated Contacts, and only those individuals shall request Support services. Licensee agrees endeavor to adequately train and obtain “Chordiant certification” for, and forward to Licensor the names and contact details of the Designated Support Contacts.

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

5.5 Licensee agrees to notify Licensor’s Maintenance Services staff promptly of any malfunction of the Supported Software.

5.6 Licensee agrees to provide Licensor with access to and use of such of the Customer’s information and facilities reasonably necessary to service the Supported Software including, but not limited to, an accurate description of the Designated Center and the current Supported Environment, the problem being reported, the transactions and any error messages, along with screenshots and log files.

5.7 Licensor shall have no responsibility to fix any Defects arising out of or related to the following causes:

A.  
any modifications or enhancements made by the Licensee to the Software or the application specific environment, unless such modifications or enhancements are specifically approved in writing by Licensor Product Support; this includes but is not limited to;

- location of binaries
- scripts provided by Licensor
- any application specific object (e.g., table, view, index, trigger)
- any application specific operating system permissions or role privileges

B.  
Any modification or combination of the Software (in whole or in part), including without limitation any portions of the Software code or Source Code customized by the customer that is not part of the unmodified Software Delivered by Licensor or for which Licensor has not received and acknowledged receipt of the source code and agreed to Support.

C.  
Use of the Software in an environment other than a Supported Environment.
D.  
Accident; electrical or electromagnetic stress; neglect; misuse; failure or fluctuation of electric power, failure of media not furnished by Licensor; operation of the Software with other media and hardware, software or telecommunication equipment or software; or causes other than ordinary use.

6.    [*]




 EX-10.50 10 ex1050.htm CITICORP PROFESSIONAL SERVICES AGREEMENT Citicorp Professional Services Agreement
 
Exhibit 10.50
MASTER
PROFESSIONAL SERVICES AGREEMENT


Commencement Date:
April 3, 2006


Party:
CONTRACTOR
CLIENT
Name:
Chordiant Software, Inc.
Citicorp Credit Services, Inc. (USA)
Address:
20400 Stevens Creek Blvd.
Cupertino, CA 95014
14000 Citi Cards Way
Jacksonville, FL 32258
State of Incorporation:
Delaware
Delaware


IN CONSIDERATION of the mutual covenants and undertakings contained herein, and intending to be legally bound, Contractor and Client (as designated above) agree as follows.

1.  DEFINITIONS

1.1 Specific Words or Phrases. For purposes of this Agreement, each word or phrase listed below shall have the meaning designated. Other words or phrases used in this Agreement may be defined in the context in which they are used, and shall have the respective meaning there designated.

“Acceptance Criteria” means the applicable Specifications and Documentation, together with such other test data, test conditions and exception conditions as may be specifically set forth or incorporated by reference in the Work Order.

“Affiliate” means and includes any entity that directly or indirectly controls, is controlled by, or is under common control with Client, where “control” means the ownership of, or the power to vote, at least twenty percent (20%) of the voting stock, shares or interests of an entity. An entity that otherwise qualifies under this definition will be included within the meaning of “Affiliate” even though it qualifies after the execution of this Agreement.

“Agreement” means the terms of this Master Professional Services Agreement (sometimes referred to as “Master Agreement”), together with the appendices and other exhibits attached hereto or incorporated herein by reference; provided, however, that for each particular Work Order, reference to “Agreement” shall be construed solely as a reference to the agreement that arises as a result of the execution of the Work Order, which agreement shall be a two party agreement between Contractor and the specific entity (either the entity designated above as “Client” or an Affiliate) that executes the Work Order.

“Client” means, for the general purposes of the Master Agreement, the entity designated above as “Client”. However, for the particular purposes of any agreement that arises as a result of a Work Order, reference to “Client” shall be construed solely as a reference to the specific entity (either the entity designated above as “Client” or an Affiliate) that executes the Work Order.

“Contractor” means the entity designated above as “Contractor”.

“Defect” means a defect, failure, malfunction, or nonconformity in a Deliverable that prevents the Deliverable from operating in accordance with the applicable Acceptance Criteria.

“Deliverable(s)” means and includes the item(s) described on the applicable Work Order that is to be developed or prepared by Contractor and furnished to Client.

"Intellectual Property Rights" means all trade secrets, patents and patent applications, trade marks (whether registered or unregistered and including any goodwill acquired in such trade marks), service marks, trade names, business names, internet domain names, e-mail address names, copyrights (including rights in computer software), moral rights, database rights, design rights, rights in know-how, rights in confidential information, rights in inventions (whether patentable or not) and all other intellectual property and proprietary rights (whether registered or unregistered, and any application for the foregoing), and all other equivalent or similar rights which may subsist anywhere in the world.

“Party” means either Contractor or Client, individually as the context so requires; and “Parties” means Contractor and Client, collectively.

“Personnel” means and includes a Party’s or an Affiliate’s directors, officers, employees, agents, auditors, consultants, and subcontractors.

“Project ” means the particular project described on a Work Order.

“Services” means the services described on a Work Order that are to be furnished by Contractor to Client.

"Specifications" means and includes the description of functional, technical, design and performance characteristics of the Deliverables agreed to by the Parties (including any requirements or characteristics specified in, or incorporated by reference into the applicable Work Order), and all modifications to the foregoing that are made from time to time by written agreement of the Parties.

“Work Order” means a transactional document (which may be entitled “Work Order”, “Statement of Work”, or “Project Schedule” and in all such cases is intended to be considered a “Work Order” for all purposes under this Agreement) that is entered into pursuant to this Master Agreement by and between Contractor and either the entity designated above as “Client” or an Affiliate and describes the Services or Deliverables to be provided by Contractor to such Client / Affiliate.

1.2 Common Words. The following words shall be interpreted as designated: (i) “or” connotes any combination of all or any of the items listed; (ii) where “including” is used to refer to an example or begins a list of items, such example or items shall not be exclusive; and, (iii) “specified” requires that an express statement is contained in the relevant document.

2.
TERM AND TERMINATION

2.1 Master Agreement. This Master Agreement shall commence as of the Commencement Date designated above, and shall continue in effect thereafter, unless superceded or otherwise terminated by agreement of the Parties. For the avoidance of doubt, termination of the Master Agreement shall not result in the termination of any Work Order, each Work Order being terminable only in accordance with its own provisions.

2.2  Work Orders. A Work Order shall become effective only when duly signed on behalf of the Parties to be bound thereby, and shall continue in effect through the earlier of: (i) the date the Services have been satisfactorily completed or the Deliverables have been accepted and all applicable warranty and license periods have expired or otherwise terminated, or (ii) the date of termination specified by either Party in accordance with the following conditions.

2.2.1  
Client may terminate any Work Order with or without cause, at any time in its sole discretion, upon five (5) days prior written notice to Contractor. In the event Client terminates a Work Order without cause, Client will pay Contractor the reasonable value for: (i) Services properly performed by Contractor prior to the effective date of termination, (ii) services performed by Contractor pursuant to Section 2.3, and, (iii) reimbursable expenses incurred by Contractor pursuant to Section 9.4.
 
2.2.2  
Contractor may only terminate a Work Order if Client defaults in any material obligation and fails to cure the default within thirty (30) days after Client has received Contractor’s notice of the default.

For the avoidance of doubt, notice of termination for any Work Order shall not be construed to be notice of termination for any other Work Order.

2.3 Orderly Transfer. Upon the termination of a Work Order for any reason whatsoever (including a default by either Party), Contractor will provide such information, cooperation and assistance to Client, as Client may reasonably request, to assure an orderly return or transfer to Client or Client’s designee of all proprietary data (and related records and files) and materials of Client, and all Work Product for which payment has been or is made, in their then current condition.

2.4 Retention of Archival Copy. If Client’s right to use any software provided by Contractor or any other Contractor Materials is terminated for any reason whatsoever, then Client shall nevertheless be entitled to retain copies of such software, Contractor Materials, and related documentation for archival purposes and to satisfy Client’s obligations under all applicable laws.

3.  PROJECT IMPLEMENTATION

3.1 Provision of Services and Deliverables. This Master Agreement does not by itself commit Client or any Affiliates to purchase any services or products. Rather, this Master Agreement merely sets forth the terms and conditions that will govern the provision of Services or Deliverables to Client or an Affiliate as a result of the execution of a Work Order by Contractor and Client or the Affiliate.

3.2  Work Orders. Work Orders may be entered into with Contractor under this Master Agreement by either the entity designated above as “Client” or any Affiliate. The entity that executes a Work Order with Contractor shall be considered the “Client” for all purposes of the Work Order; and the Work Order shall be considered a two party agreement between Contractor and such entity. Each Work Order shall be substantially in the form of Appendix A, shall incorporate by reference the provisions of this Master Agreement as though such provisions were set forth therein in their entirety, and shall set forth: (i) a description of the Services or Deliverables to be furnished by Contractor, (ii) the fees to be paid by Client for the Services or Deliverables, (iii) the applicable Acceptance Criteria, (iv) the name of the project manager for Client and the name of the project manager for Contractor, and, (v) such additional terms and conditions as may be mutually agreed upon by Contractor and the respective Client.

4. RELATION OF PARTIES

4.1 Client and Affiliates. Contractor acknowledges that Client and each of the Affiliates may use or benefit from the use of any Services performed, or Deliverables prepared and furnished, by Contractor as part of a Project.

4.2 Project Managers and Status Reports. For each Project, each Party will designate a suitably qualified project manager who will represent such Party and be responsible for assigning, scheduling and supervising such Party’s Personnel. During a Project, Contractor’s project manager will provide Client's project manager with status reports (at intervals determined by Client). Status reports may contain the following: (i) a summary of the current status of the Project (including specific progress made since the immediately preceding status report); (ii) a summary of the status of, or progress made on, all problems identified in previous status reports (and not previously reported as corrected); (iii) a summary of any problems identified since the preceding status report and any recommended remedial action; and, (iv) the amount of any anticipated delay in the completion of any milestone beyond the applicable date specified in the Work Order, the cause of such delay and any recommended remedial action.

4.3 Independent Contractor. Contractor will perform all Services as an independent contractor. Neither this Agreement nor Contractor’s performance of Services shall create an association, partnership, joint venture, or relationship of principal and agent, master and servant, or employer and employee, between Client and Contractor; and neither Party will have the right, power or authority (whether expressed or implied) to enter into or assume any duty or obligation on behalf of the other Party.

4.4 Contractor’s Personnel. Contractor will (if requested by Client at any time before or during any Project) furnish information substantiating the qualifications of any individual who Contractor intends to assign, or has assigned, to a Project. Client will be entitled to review such information in order to confirm the qualifications. After an individual has been assigned to a Project, Contractor will not reassign such individual in connection with any assignment other than the Project without the prior written consent of Client, which shall not be unreasonable withheld. In addition, Contractor will assign its Personnel to Projects in a manner that minimizes disruptions caused by the need for reorientation. Contractor further warrants that Contractor’s Personnel will not hold themselves out as employees or agents of Client, nor seek to be treated as employees of Client for any purpose, including claims of entitlement to fringe benefits provided by Client, or for disability income, social security taxes or benefits, Federal unemployment compensation taxes, State unemployment insurance benefits or Federal income tax withholding at source. Contractor will file all applicable tax returns for all of its Personnel assigned hereunder in a manner consistent with its status as an independent contractor of services; and Contractor will make all required payments and deposits of taxes in a timely manner. 

4.5 Replacement of Contractor Personnel. Any individual who is assigned by Contractor to a Project may be temporarily replaced by Contractor if such individual does not report to work due to illness, accident or other events outside of Contractor’s control. Upon written notice to Contractor, Client shall be entitled to require Contractor to replace any individual who is assigned by Contractor to a Project and bar such individual from performing any Services for Client if Client determines in its reasonable discretion that the individual is unacceptable for any reason, including if the individual (i) is not compatible with Client employees connected with the Project, (ii) fails to comply with any applicable laws, ordinances, regulations, codes, or with Client’s security or work place policies or procedures (whether or not specified herein), or (iii) fails (in Client’s sole determination) to perform assignments in a professional and competent manner. Contractor further agrees to bar any such individual from performing any Services for Client immediately upon it becoming aware of such noncompliance.  If one of Contractor’s Personnel is removed from a Project either by Contractor or for cause at the request of Client, then Contractor will (at its expense) provide the training and orientation required to enable the replacement Personnel to perform as required. All replacement Personnel must be acceptable to Client in the sole exercise of Client’s discretion.


5.
CLIENT’S POLICIES AND PROCEDURES

5.1 General. Contractor will ensure (i) that its Personnel comply with the corporate policies promulgated by Client or an Affiliate that are designed to adhere to applicable laws and regulations, and with the security and work place policies and procedures in effect for any facility of Client or an Affiliate where the Services are performed (including Information Security Standards and any supplementary practices or procedures provided by Client to Contractor), and (ii) that all Services are performed in a manner that will minimize any interference with Client’s or an Affiliate’s normal business operations.

5.2  Equipment and Network Security. If access to Client’s or an Affiliate’s computer systems, other equipment or personal property (“Client’s Systems”) is required in order for Contractor to fulfill its obligations to Client, then Client shall determine the nature and extent of such access. If Client or an Affiliate provides Contractor with remote access to Client’s Systems, then any and all information relating to such remote access shall be considered Client’s Confidential Information and shall be subject to the obligations of confidentiality set forth in Section 12 below. In addition, any and all access to Client’s Systems shall be subject to the following.

5.2.1
Client’s Systems shall be used solely to perform Services for Client, and shall not be used for any purpose other than the legitimate business purposes of Client.
5.2.2  
Access to Client’s Systems shall be restricted to Contractor’s Personnel who need access in order for Contractor to fulfill its obligations under this Agreement; and no access rights will be transferred to any other individuals without the prior written consent of Client.
5.2.3  
Contractor will ensure that its Personnel do not attempt to break Client’s or an Affiliate’s security systems, or attempt to obtain access to any programs or data beyond the scope of the access granted by Client in writing.
5.2.4
Without limiting any of its other rights, Client reserves (for itself and its Affiliates) the rights to restrict and monitor the use of Client’s Systems, and to access, seize, copy and disclose any information, data or files developed, processed, transmitted, displayed, reproduced or otherwise accessed in conjunction with such use. Client or an Affiliate may exercise its rights reserved hereunder: (i) to verify the performance of Services or the quality of Deliverables; (ii) to assure compliance by Contractor’s Personnel with Client’s or the Affiliate’s policies and procedures; (iii) to investigate conduct that may be illegal or may adversely affect Client, an Affiliate or its or their employees; or (iv) to prevent inappropriate or excessive personal use of Client’s Systems. Contractor will advise its Personnel concerning the rights reserved hereunder.

5.3 Drug Abuse Policy. Contractor will ensure that its Personnel who are assigned to perform Services at Client’s facilities comply with Client’s Drug Abuse Policy and that its Personnel do not sell, distribute, manufacture, process, possess, use or become under the influence of illegal drugs or illicit narcotics (non-prescriptive medication). The phrases “illegal drugs” and “illegal narcotics” shall have the meaning applied by the state or country in which the business is conducted. Based on the nature or scope of the assignment, Client may require Contractor’s Personnel to be tested (at Client's direction but at Contractor’s expense) for illegal drugs or illegal narcotics as a condition to performing Services for Client. If an individual refuses to submit to the test or the individual’s test results are positive, such individual will not be permitted to perform any Services for Client.

5.4 Fingerprinting. Contractor will not assign, or retain on assignment, any person to provide Services for Client that Contractor knows or has reason to believe has a criminal background. Based on the nature or scope of the assignment, Client may require Contractor’s Personnel to be fingerprinted and to pass successfully a criminal background check (at Contractor’s expense) as a condition for performing Services for Client.

5.5 Working Hours. Contractor’s Personnel will observe the working hours, work rules and holiday schedule of Client when working on Client’s facilities, unless otherwise directed or agreed by Client. The adherence by Contractor’s Personnel to such working hours, work rules and holiday schedules shall not justify any failure by Contractor to comply with agreed upon schedules and deadlines. Contractor acknowledges that Client’s normal, professional workday consists of eight (8) working hours, exclusive of time required for personal breaks and meals.

5.6  Diversity Initiative. Licensor acknowledges that Licensee has implemented a Supplier Diversity Program which, among other initiatives, encourages the use of minority and women-owned (“Diverse Suppliers”) businesses as suppliers and subcontractors to the fullest extent possible consistent with the efficient performance of its business strategies. To assist Licensee in complying with these goals, if Licensor currently provides any reports tracking its use of Diverse Suppliers in the provision of products, goods or services, to any other of its customers, then Licensor will provide (at no additional cost to Licensee) copies of such reports, whenever they are prepared and updated, to Licensee. Licensee shall keep and treat such reports in accordance with the Licensee’s confidentiality obligations herein. These reports should be forwarded to the attention of the Citigroup Supplier Diversity Program, 333 West 34th Street, New York, NY 10001, attention Director, Supplier Diversity Program.

6.  ACCEPTANCE

6.1 Applicability. The provisions of this Section 6 shall only apply to Services and/or Deliverables that Contractor has agreed to provide and/or develop on a fixed-cost basis, unless otherwise specified by the Parties on the Work Order.

6.2 Acceptance Test. After a Deliverable has been furnished to Client, Client will be entitled to test the Deliverable to determine if it operates in accordance with, and otherwise conforms to, the Acceptance Criteria. Contractor will provide (at no additional cost to Client) such assistance as Client may reasonably require to conduct the acceptance test. If the period or procedures for the acceptance test are not specified on the Work Order, then (i) Client will have ninety (90) days from the date the Deliverable is received by Client to conduct the test, and (ii) Client may use its own internal test procedures. No Deliverable shall be deemed to have been accepted unless Client notifies Contractor that the Deliverable has successfully passed the acceptance test. Acceptance of a Deliverable shall not be deemed to constitute a waiver by Client of any rights it may have based on Contractor’s warranties.

6.3 Acceptance or Rejection. If Client determines that a Deliverable successfully operates in accordance with, and otherwise conforms to, the Acceptance Criteria, Client will notify Contractor that Client accepts the Deliverable. If Client determines that a Deliverable does not operate in accordance with, or otherwise conform to, the applicable Acceptance Criteria, then Client will provide Contractor with a notice describing the Defect. Contractor will have ten (10) days from the date it receives Client’s notice of Defect to correct (at no additional cost to Client) the Deliverable. If Contractor redelivers a Deliverable, then Client will be entitled to repeat the testing process. If (through no fault of Client) Contractor fails to deliver, within the ten (10) day period, a Deliverable that conforms to the Acceptance Criteria, then Client may reject the Deliverable and terminate the applicable Work Order (in whole or in part) upon notice to Contractor, without financial liability or obligation (for the portion terminated).

6.4 Project Completion. A Project shall be deemed to have been successfully completed only upon Client’s acceptance of all Services or Deliverables. If (through no fault of Client) all of the Services and Deliverables have not been furnished in an acceptable manner by the date set forth as the “Completion Date” on the Work Order, Client may terminate the Work Order (in whole or in part) upon notice to Contractor, without financial liability or obligation (for the portion terminated).

7.
PROPRIETARY RIGHTS

7.1 Work Product. Except as otherwise specifically provided in Sections 7.4, 7.5 and 7.6 below, the phrase “Work Product” shall mean and include the Deliverables, all ideas, concepts, know-how, techniques, inventions, discoveries, improvements, specifications, designs, methods, devices, systems, reports, studies, computer software (in object or source code), programming and other documentation, flow charts, diagrams and all other information or tangible material of any nature whatsoever (in any medium and in any stage of development or completion) relating to the subject matter of this Agreement or the applicable Work Order, that are conceived, designed, practiced, prepared, produced or developed by Contractor or any of its Personnel which is not a derivative work of any Contractor Materials (as such term is defined below) and which is not a derivative work of any Licensed Software (as such term is defined below): (i) during the course of the Project; (ii) based upon knowledge or information learned or gained from Client; or, (iii) resulting from the use of Client’s facilities, Personnel, or materials. To the fullest extent permitted under law, all Work Product shall be the property of Client and shall be deemed to be a “work made for hire” (as defined in Section 101 of Title 17 of the United States Code). Contractor shall keep and maintain adequate and current written records of all Work Products made by Contractor or its Personnel. The records will be in the form of notes, sketches, drawings, or any other format that may be specified by Client, and will be available to and remain the sole property of Client at all times. Contractor will retain ownership of all derivative works of its Contractor Materials and of its Licensed Software; provided however that Client is hereby granted by Contractor a perpetual, worldwide, irrevocable, royalty-free, non-exclusive license to use, execute, distribute, reproduce, display, modify, prepare derivative works of and perform, any Deliverables which are or contain any derivative works of Contractor Materials or of Licensed Software, subject to any of Contractor’s and Client’s rights and obligations under the Master Software License and Support Agreement (the “License Agreement”) between the parties dated as of February 1, 2006. Notwithstanding the foregoing, Contractor’s rights to use derivative works of its Contractor Materials and of its Licensed Software and Client’s right to use Work Product remains subject to each party’s obligations under Section 12 of this Agreement. Notwithstanding anything to the contrary herein, the Parties may specify alternate or different ownership and/or license rights in any applicable Work Order.

7.2 Assignment of Rights to Work Product. To the extent any Work Product is (for any reason whatsoever) determined not to be “work made for hire”, Contractor hereby irrevocably and exclusively assigns, transfers and conveys to Client all Intellectual Property Rights, in and to any and all Work Product. Contractor acknowledges that neither it nor its Personnel will retain any Intellectual Property Rights in the Work Product. Contractor will require each of its Personnel who provide Services or work on Deliverables, or may in any way be involved or responsible or claim to be involved or responsible in the conception, design, practice, preparation, production or development of the Work Product, to be bound by a written Non-Disclosure and Work Product Assignment Agreement in the form attached as Appendix B, or in the form of non-disclosure and work product assignment agreement regularly used by Contractor. Contractor will furnish executed originals of all such agreements to Client prior to commencing any work hereunder. Contractor acknowledges and agrees that: (i) the assignment to Client of the Work Product and the Intellectual Property Rights therein shall extend throughout the world, shall be in perpetuity and shall not lapse for any reason whatsoever, including Client not exercising the rights assigned to it; (ii) the assignment to Client of the Work Product and the Intellectual Property Rights therein shall be an integral part of this Agreement; and, (iii) no amount(s) shall be payable by Client to Contractor for the assignment of the Work Product and the Intellectual Property Rights therein, other than the amount(s) payable by Client to Contractor under the relevant Work Order. If Contractor obtains patent rights on any derivative works to its Contractor Materials or its Licensed Software that constitute all or part of the Deliverables, then Contractor agrees that it will not assert any claim of infringement of such patent rights against Client (or any of Client’s subsidiaries or affiliates), or any of Client’s agents, employees, distributors, resellers, customers and suppliers.

7.3 Legend. Contractor acknowledges that all or part of the Work Product may be copyrighted, trademarked, or patented solely by Client or its designee. Contractor will assist Client, or its designee, at the expense of Client, in every proper way to secure the Intellectual Property Rights in the Work Product and will disclose to Client all pertinent information and data, and execute all applications, specifications, oaths, assignments and all other instruments which Client shall deem necessary in order to obtain and secure the Intellectual Property Rights in and to the Work Product. All items provided to Client, or developed hereunder, or which otherwise qualify as Client’s property, shall be marked as follows: “© (year) by (Legal name of Client or Affiliate). All rights reserved.” Any Work Product that is software will be programmed to display the foregoing legends in the opening screens produced at the initiation of any session in which such software may be accessed by a videographic device, as well as on such reports and print pages.

7.4  Contractor Materials. Client acknowledges that in developing or furnishing a Deliverable (or any other Work Product), or in performing Services, Contractor may utilize pre-existing proprietary methodologies, tools, models, software, procedures, documentation, know-how and processes owned by Contractor (“Contractor Materials”). Client further acknowledges that Contractor may modify or improve the Contractor Materials during the course of a Project. Client agrees that all such modifications or improvements shall be included within the meaning of “Contractor Materials”, unless otherwise specifically agreed by the Parties. If any Contractor Materials are incorporated into a Deliverable or furnished in conjunction with a Deliverable, Contractor will be conclusively deemed to have (at no additional cost) granted to Client and its Affiliates a perpetual, worldwide, irrevocable, royalty-free, non-exclusive license to (i) use, execute, reproduce, display, perform, distribute, and prepare derivative works of the Contractor Materials in conjunction with the use of the Work Product or other Deliverable, and (ii) authorize or sublicense others from time to time to do any or all of the foregoing subject to any of Contractor’s and Client’s rights and obligations under the License Agreement.

7.5 Third Party Intellectual Property. If Contractor intends to develop a Deliverable in a manner that requires Client to use any software or other intellectual property of a third party (“Third Party Materials”) in order to use such Deliverable, then Contractor will (i) provide Client with prior notice, specifying in reasonable detail the nature of the Deliverable’s dependency on the Third Party Materials, and (ii) arrange for Client to obtain (for no additional cost or on such terms as may be acceptable to Client) a perpetual, irrevocable, royalty-free, non-exclusive right and license to use the Third Party Materials in connection with Client’s or an Affiliates’ use of the Deliverable.
 
7.6 License Rights Under Separate Agreement. The Parties specifically acknowledge and agree that the respective rights of the Parties hereto in any of Contractor’s proprietary software, any third party software, and any other intellectual property that Client has licensed (or agrees to license) under the License Agreement (the “Licensed Software”) shall be determined in accordance with the provisions of the License Agreement and shall not be included within the meaning of the phrase “Contractor Materials”, as defined in Section 7.4; provided that the creation of any derivative works of such Licensed Software shall be determined in accordance with the provisions of this Agreement.

7.7 Use of Knowledge Capital. 

7.7.1. In every case, each party will retain the right to all of its ideas, skills, tools, techniques, and processes (“Knowledge Capital”). To the extent that Knowledge Capital of Contractor has been incorporated into or is embedded in the Work Product, Client will have a perpetual, nonexclusive, world-wide, royalty-free right to use, execute, modify, reproduce, display, perform, and prepare derivative works based on such Knowledge Capital, subject to the requirements of Section 12.


7.7.2.  Each party acknowledges and agrees: (i) that the other party has the right to re-use any of its know-how, ideas, concepts, methods, processes, or similar information, however characterized, whether in tangible or intangible form, at any time and without limitation subject to the limitations of Section 12 and the parties respective Intellectual Property Rights, and (ii) that each party retains ownership of any and all of its Intellectual Property Rights that existed prior to the Commencement Date including, but not limited to, all methods, processes, utilities, tools, concepts, designs, reports, programs, and templates.

7.8 Application Development. In the event that the Parties agree to engage in an application development project, they will execute an Application Development Addendum in the form attached hereto as Appendix C.

8.  TRAINING

If a Deliverable requires Client’s Personnel to be trained in order to properly use the Deliverable, Contractor will provide on-site training in the use of such Deliverable for all users designated by Client's project manager, at a time or times and at rates mutually agreed to by the Parties, unless such training is already contemplated within the scope of Services set forth in the Work Order.

9.  
FEES AND PAYMENT TERMS

9.1 Project Fees. The Project fees payable by Client for the Services and Deliverables properly furnished by Contractor pursuant to this Agreement, shall be designated (or determined based on the rates designated) on the applicable Work Order.

9.2 Pricing Adjustments. Subject to any terms to the contrary in any applicable Work Order, unless separately agreed to by the Parties, Contractor will not increase its time and materials rates for Services provided to Client or an Affiliate by more than the lesser of: (i) five percent (5%) for each twelve (12) month period following the first year to which the applicable Work Order pertains; and (ii) the percentage rate of increase in the CPI (all items) for Urban Wage Earners and Clerical Workers from the preceding calendar year as determined by the United States Bureau of Labor Statistics.

9.3 Taxes. Contractor may invoice Client for sales and use taxes properly levied against or upon (i) the furnishing of the Services or Deliverables to Client by Contractor pursuant to this Agreement, or (ii) Client’s use thereof. However, Client shall not be obligated to pay any penalties, interest, or late charges imposed as a result of Contractor's failure to remit such taxes to the taxing authority on a timely basis. In addition, if Contractor fails to provide Client with timely notice of any tax audit that could result in an increase in the amount of sales or use taxes assessed hereunder, then Client shall not be required to pay any additional taxes assessed as a result of such audit. Contractor shall be solely responsible for the payment of all other taxes, including personal property taxes, franchise taxes, corporate excise or corporate privilege, property or license taxes, all taxes relating to Contractor’s Personnel, and all taxes based on the net income or gross revenues of Contractor.

9.4 Reimbursable Expenses. To the extent applicable, Contractor will only be reimbursed for expenses that have been incurred at the request of Client or have been approved in advance by Client’s Project Manager and that are reasonable, warranted and cost effective. For each item of expense for which reimbursement is requested, Contractor will submit substantiating documentation in accordance with Client’s policies. All approved business expenses and pass-through charges will be reimbursed at cost (as actually incurred), without mark-up.

9.5 Non-Reimbursable Fees and Expenses. Contractor acknowledges it is being retained because of its expertise. Accordingly, Contractor will not request payment or reimbursement for time spent educating Contractor’s Personnel, or for any costs or fees associated with training Contractor’s Personnel (including time required for orientation of replacement Personnel). Contractor will not request payment for any charges reflecting duplication of services or costs (including more than one of Contractor’s Personnel attending the same meeting, or conversations among Contractor’s Personnel), unless such duplication is essential for Contractor’s proper performance of its obligations. Contractor will provide Client with details from its time and expense system (currently Databasics). Contractor will not be reimbursed for charges incurred for or by its support staff, for any overhead items, or for the time spent preparing invoices. Nevertheless, in the event that Client requests additional expense report documentation, then an administrative fee, if any, may be charged to the Client.
 
9.6 Terms of Payment. No amount arising under this Agreement shall be due from Client prior to Client’s receipt of a fully executed copy of this Agreement and the applicable Work Order, and Client’s receipt of an invoice: (i) referencing this Agreement and the applicable Work Order; (ii) separately itemizing the charges for the Services, Deliverables or other items covered therein, and setting forth, in reasonable detail, the basis for the charges; and (iii) including, in the case of any reimbursable expenses or other charges (including taxes), receipts or other documentation acceptable to Client. Unless otherwise specified on a Work Order, Contractor may invoice Client monthly for the fees and expenses incurred under the Work Order. All invoices shall be submitted to Client at the billing address designated on the applicable Work Order. Each properly and accurately prepared invoice shall be payable within sixty (60) days after its receipt by Client. Client will not be liable for interest or other late fees on past due invoices. Contractor specifically covenants that it will not use any methods of electronic repossession for any reason. All payments made by Customer shall be in U.S. Dollars and directed to:

Chordiant Software Inc.
P.O. Box 49291
San Jose, CA 95161-9291

Or wire to:
Comerica Bank
Chordiant Software, Inc.
Account#: 1891571372
Routing #: 121137522


9.7 Disputed Invoices. Client may withhold payments for any item(s) on Contractor's invoice that Client reasonably disputes in good faith.  Client shall provide to Contractor written notice of its intention to withhold payment, including the reason(s) for Client's reasonable dispute of the invoice (the “Dispute Notice”).  Following receipt of the Dispute Notice, Contractor shall review the invoice in question and, if appropriate, send Client a corrected invoice.  If Contractor does not agree with Client's reasons for withholding payment or, if sent, the corrected invoice does not resolve the dispute to Client's satisfaction, then either party shall notify in writing the other party of the fact that the dispute continues (the “Response Notice”).

The parties shall use commercially reasonably efforts to resolve or settle the dispute within ninety (90) days from the date of the Response Notice. Within thirty (30) days from the date of receipt of the Response Notice, executives of both companies shall first meet in person to negotiate in good faith a resolution or settlement of the dispute. Contractor’s executive(s) shall be at the President or CEO level, and Client’s executive(s) shall be either the CIO of Citigroup N.A. Consumer Group or senior executive(s) designated by such person.

Pending settlement or resolution of the issue(s), Client's non-payment of these items shall not constitute default by Client, and shall not entitle Contractor to suspend or delay its performance of Services for a period of one (1) year from the end of the ninety (90) day period of executive conferences; provided that Client continues to pay all undisputed invoices in accordance with the provisions of Section 9.6.   After expiration of such one (1) year period, Contractor may suspend its performance of services covered by the disputed item(s).

10. REPRESENTATIONS AND WARRANTIES

10.1  Authority and Non-Infringement. Contractor represents and warrants that Contractor has all rights and authority required to enter into this Agreement and each Work Order, and to perform the Services and furnish the Deliverables contemplated by this Agreement, free from all liens, claims, encumbrances, security interests and other restrictions. Subject to the applicable terms and conditions of this Agreement and the applicable Work Order, Client and Affiliates will be entitled to use and enjoy the benefit of all Services and Deliverables without adverse interruption or disturbance by Contractor or by any entity asserting a claim under or through Contractor. Contractor further represents and warrants that the Services, Deliverables and all other materials of whatsoever nature furnished under this Agreement, and the use thereof by Client or the Affiliates in accordance with the terms and conditions of this Agreement, will not infringe (whether directly, contributorily, by inducement or otherwise), misappropriate or violate the Intellectual Property Rights of any third party, or violate the laws, regulations or orders of any governmental or judicial authority. The sole and exclusive remedy for a breach of the warranty against infringement contained in this Section 10.1 is infringement indemnity set forth in Section 14.

10.2 Personal Dealings and Non-Subornation. Contractor warrants that no officer, director, employee of Client, or any of their immediate family members, (i) has received or will receive anything of value of any kind from Contractor or its Personnel in connection with this Agreement, or (ii) has a business relationship of any kind with Contractor or its Personnel. Contractor further warrants that Contractor has not and will not make (or offer to make) any payments to, or confer (or offer to confer) any benefit upon, any employee, agent or fiduciary of any third party, with the intent to influence the conduct of such employee, agent or fiduciary in any manner relating to the subject of this Agreement.

10.3 Conformity to Specifications. Contractor warrants that at the time of delivery and thereafter throughout the applicable warranty period, each Deliverable will conform to the applicable Acceptance Criteria. If not specified by the Parties on the Work Order, the warranty period for a Deliverable performance shall be the ninety (90) day period commencing from the date Client accepts the Deliverable. In addition, the warranty period for a Deliverable will be extended by the aggregate time Client is unable to effectively use the Deliverable during the specified warranty period as a result of a Defect. If Contractor receives notice of a Deliverable Defect during the warranty period, then Contractor will (at no additional charge) correct the Defect. If Contractor is unable or unwilling to correct a Defect that has been identified by Client during the warranty period, then Client may terminate the applicable Work Order (in whole or in part) upon notice to Contractor, without financial liability or obligation (for the portion terminated).

10.4 Standard of Service. Contractor warrants that the Services will be performed and the Deliverables will be prepared in a timely and professional manner, in conformity with standards generally accepted in the Software industry, by qualified and skilled individuals. If Contractor fails to provide the Services as warranted and Client so notifies Contractor within thirty (30) days after the date Contractor declares the Services to have been completed, then Contractor will re-perform the Services at no additional charge. If Contractor is unable or unwilling to re-perform the Services as warranted, then Client shall be entitled to recover the fees paid to Contractor for the deficient Services.

10.5 Disabling Devices. Contractor represents and warrants that prior to delivering any software to Client, Contractor will test the software and the media on which it is to be delivered with a current version of a leading anti-virus application, in efforts to detect, and if so detected, to eliminate, any computer code (sometimes referred to as “viruses” or “worms”) designed to damage, disrupt, disable, harm, or otherwise impede in any manner, the orderly operation of the software or any other software, data files, firmware, hardware, computer system or network. Contractor further represents and warrants that any software developed, delivered or installed by Contractor shall not contain any computer code or any other procedures, routines or mechanisms designed by Contractor, its Personnel or its licensors to: (i) disrupt, disable, harm or impair in any way such software’s (or any other software’s) orderly operation based on the elapsing of a period of time, exceeding an authorized number of copies, advancement to a particular date or other numeral (sometimes referred to as “time bombs”, “time locks”, or “drop dead” devices); (ii) cause such software to damage or corrupt any of Client’s or its Affiliates’ (or their respective customers’) data, storage media, programs, equipment or communications, or otherwise interfere with Client’s or its Affiliates’ operations, or (iii) permit Contractor, its Personnel, its licensors or any other third party to access such software (or Client’s or its Affiliates’ computer systems) for any reason (sometimes referred to as “traps”, “access codes” or “trap door” devices). Contractor will not unilaterally (i.e., without appropriate judicial order) remove, deinstall, repossess, modify, delete, damage, deactivate, disable, or interfere with the software for any reason (including a dispute relating to this Agreement).

10.6 Favorable Provisions. Reserved.

10.7 Disclaimer. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT OR ESTABLISHED BY APPLICABLE LAW AS RIGHTS THAT CANNOT BE WAIVED OR LIMITED BY CONTRACT, CONTRACTOR DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

11. NON-EXCLUSIVE RIGHTS
   
  Nothing in this Agreement shall preclude or limit Contractor, Client or an Affiliate from independently acquiring or developing competitive products or services for itself or its customers, or from providing competitive products or services to its customers, so long as neither Contractor, Client nor Affiliate breaches the obligations (including the obligations of confidentiality and intellectual property) it has assumed under this Agreement.

12.
CONFIDENTIAL INFORMATION

12.1 Contractor’s Confidential Information. Contractor’s “Confidential Information” means and refers to all materials furnished by Contractor that are expressly identified or marked by Contractor as “confidential”. In the event Contractor intends to supply Confidential Information for use in connection with a Project (for example, as part of a Deliverable), Contractor will provide Client with a written summary of such Confidential Information prior to Contractor’s disclosure thereof to Client.

12.2 Client’s Confidential Information. Client’s “Confidential Information” means and refers to all tangible or intangible information and materials, in any form or medium (and without regard to whether the information or materials are owned by Client or by a third party), whether furnished or disclosed to Contractor by Client or an Affiliate, or otherwise obtained, accessed or observed by Contractor from Client or an Affiliate, that satisfies at least one of the following criteria:

12.2.1
Information or materials related to Client’s, an Affiliates’, or any of their respective customer’s business, trade secrets, customers (including identities, characteristics and activities), business plans, strategies, forecasts or forecast assumptions, operations, methods of doing business, records, finances, assets, technology (including software, data bases, data processing or communications networking systems), data or information or materials that reveal research, technology, practices, procedures, processes, methodologies, know how, or other systems or controls by which Client’s or an Affiliate’s products, services, applications and methods of operations or doing business are developed, conducted or operated, and all information or materials derived therefrom or based thereon;
12.2.2
Information or materials designated or identified as confidential by Client or an Affiliate, whether by letter or by an appropriate proprietary stamp or legend, prior to or at the time such information or materials are disclosed by Client or an Affiliate to Contractor;
12.2.3  
Information disclosed orally or visually, or written or other form of tangible information or materials without an appropriate letter, proprietary stamp or legend, if it would be apparent to a reasonable person, familiar with Client’s (or an Affiliate’s) business and the industry in which it operates, that such information or materials are of a confidential or proprietary nature; or,
12.2.4  
Any non-public, personal, financial or identifying information of an individual, including Client’s or an Affiliate’s customers or employees (“Nonpublic Personal Information”).

12.3 Duty of Care. The Party receiving (“Receiving Party”) Confidential Information of the other Party (“Disclosing Party”) will exercise at least the same degree of care with respect to the Disclosing Party’s Confidential Information that the Receiving Party exercises to protect its own Confidential Information; and, at a minimum, the Receiving Party will maintain adequate security measures to safeguard the Disclosing Party’s Confidential Information from unauthorized disclosure, access, use and misappropriation. Without limiting the generality of the foregoing, the Receiving Party will only use or reproduce the Disclosing Party’s Confidential Information to the extent necessary to enable the Receiving Party to fulfill its obligations under this Agreement, or in the case of Client, to exercise its rights as contemplated by this Agreement. In addition, the Receiving Party will disclose the Disclosing Party’s Confidential Information only to those of the Receiving Party’s (or in the case of Client, also to its Affiliates’) Personnel who have a “need to know” such Confidential Information (and only to the extent necessary) in order to fulfill the purposes contemplated by the Agreement. Prior to disclosing Client’s Confidential Information to any of its Personnel, Contractor will ensure that each of its Personnel who will be working on a Project is bound by a written Non-Disclosure and Work Product Assignment Agreement in the form attached as Appendix B, or in the form of non-disclosure and work product assignment agreement regularly used by Contractor, a copy of which is attached as Appendix B-1. Contractor will furnish executed originals of all such agreements to Client’s project manager (or such other representative as may be designated by the Client) prior to commencing any work hereunder. If the Receiving Party becomes aware of any threatened or actual unauthorized access to, use or disclosure of, or any inability to account for, the Disclosing Party’s Confidential Information, the Receiving Party will promptly notify the Disclosing Party thereof and will assist the Disclosing Party with its efforts to terminate such access, to curtail such threatened or actual unauthorized use or disclosure, or to recover such information or materials. The Receiving Party will be liable to the Disclosing Party for any non-compliance by its agents or contractors to the same extent it would be liable for non-compliance by its employees.

12.4 Removal from Premises. Contractor will not remove or transmit Client’s Confidential Information from Client's premises without, in each case, obtaining Client’s express prior written consent. If any of Client’s Confidential Information must leave Client’s premises (through the mail, magnetic tape, line transmission or any other communication media) in order for Contractor to perform the Services, Contractor will use, and will cause its Personnel to use, the highest degree of care to safeguard such information from intrusion, tampering, theft, loss, and breaches of confidentiality.

12.5 Legends. Neither Party will not remove any copyright or other proprietary notice of confidentiality contained on or included in the other Party’s Confidential Information; and each Party will reproduce any such notice on any reproduction, modification or translation of the other Party’s Confidential Information.

12.6 Exclusions. The obligations of confidentiality assumed under this Agreement shall not apply to the extent the Receiving Party can demonstrate, by clear and convincing evidence, that such information:
 
12.6.1  
is or has become generally known by persons engaged in the technology or financial services industries, without any breach by the Receiving Party of the provisions of this Agreement or any other applicable agreement between the Parties;
12.6.2  
was rightfully in the possession of the Receiving Party, without confidentiality restrictions, prior to such Party’s receipt pursuant to this Agreement;
12.6.3  
was rightfully acquired by the Receiving Party from a third party who was entitled to disclose such information, without confidentiality or proprietary restrictions;
12.6.4  
was independently developed by the Receiving Party without using or referring to the Disclosing Party’s Confidential Information; or,
12.6.5  
is subject to a written agreement pursuant to which the Disclosing Party authorized the Receiving Party to disclose the subject information. 

12.7 Legally Required Disclosures. The obligations of confidentiality assumed under this Agreement shall not apply to the extent that the Receiving Party is required to disclose the Disclosing Party’s Confidential Information under any applicable law, regulation or an order from a court, regulatory agency or other governmental authority having competent jurisdiction, provided that the Receiving Party:

12.7.1  
promptly notifies the Disclosing Party of the order in order to provide the Disclosing Party an opportunity to seek a protective order;
12.7.2  
provides the Disclosing Party with reasonable cooperation in its efforts to resist the disclosure, upon reasonable request by the Disclosing Party and at the Disclosing Party’s expense; and,
12.7.3  
disclose only the portion of the Disclosing Party’s Confidential Information that is required to be disclosed under such law, regulation or order.

12.8 Nonpublic Personal Information. Notwithstanding any other provision of this Agreement, to the extent Nonpublic Personal Information is, either intentionally or unintention-ally, disclosed to or otherwise obtained by Contractor in connection with the matters contemplated by this Agreement, Contractor will keep such Nonpublic Personal Information strictly confidential and strictly limit its use of such information to the purposes contemplated by this Agreement. Contractor agrees that Client shall have the right to conduct a review of the procedures used by Contractor to maintain the confidentiality of such Nonpublic Personal Information.

12.8  Accounting for Confidential Information. Except as otherwise expressly provided in this Agreement, upon the request of the Disclosing Party at any time after the termination of this Agreement, the Receiving Party will return (or purge its systems and files of, and suitably account for) all tangible Confidential Information supplied to, or otherwise obtained by, the Receiving Party in connection with this Agreement. The Receiving Party will certify in writing that it has fully complied with its obligations under this Section within seven (7) days after its receipt of a request from the Disclosing Party for such a certification. For the avoidance of doubt, this Section 12.9 shall not be construed (i) to require Client to return any of Contractor’s Confidential Information that was furnished as part of, or in conjunction with, a Deliverable, or (ii) to limit either Party’s right to seek relief from damages that are caused by the other Party’s default.

12.9 Insider Trading and Tipping Notice. The Contractor acknowledges that the federal securities laws, other applicable local laws, and the Client’s policies and procedures prohibit any person or entity that has received from the client material, nonpublic information about a company, from purchasing or selling securities of that company or from communicating such information to any other person or entity that may sell or purchase such securities.

13.
PUBLICITY

Contractor will not disclose the identity of Client as a customer of Contractor or the existence, nature or terms of this Master Agreement or any Work Orders, without the prior written consent of Client, which Client may withhold in its sole discretion; except as required by applicable law or regulation. Neither Party will use the other Party’s proprietary indicia, trademarks, service marks, trade names, logos, symbols or brand names (collectively “Marks”), or otherwise refer to or identify the other Party in advertising, publicity releases, or promotional or marketing publications or correspondence to third parties without, in each case, securing the prior written consent of the other Party.

14. INDEMNITY

14.1 Infringement Indemnity. Contractor will defend, hold harmless and indemnify Client, its Affiliates and their Personnel (collectively, the “Indemnitees”) from and against any and all losses, claims, liabilities, costs and expenses (including taxes, fees, fines, penalties, interest, reasonable expenses of investigation and attorneys' fees and disbursements) as incurred (collectively "Damages") arising out of, or relating to, a claim by a third party that the Services, Deliverables or any other materials furnished by Contractor to Client (or that the use thereof) infringes (whether directly, contributorily, by inducement or otherwise), misappropriates or violates such third party's Intellectual Property Rights. Contractor’s indemnity obligation under this Section 14.1 shall not extend to claims based on: (i) an unauthorized modification of the Deliverables made by an Client where the Deliverables would not be infringing without such modification, (ii) customized portions of the Deliverables designed in accordance with written specifications provided by Client where the Deliverables would not be infringing but for their adherence to the Specifications provided by Client or (iii) Client’s continued use of allegedly infringing Deliverables where Contractor has provided Client with an updated, non-infringing, equally suitable, functionally equivalent and compatible version of the Deliverables.

14.2 General Indemnity. Contractor will defend, hold harmless and indemnify the Indemnitees from and against all third-party claims for Damages arising out of, or relating to:

14.2.1  
breach of any obligation for which Contractor is responsible as employer or contractor of its Personnel;
14.2.2  
any breach by Contractor (or its Personnel) of the obligations assumed under, or the representations or warranties provided in, Sections 10.5 and 12 of this Agreement;
14.2.3  
any gross negligence or willful misconduct of Contractor or its Personnel; or,
14.2.4  
any act or omission by Contractor that results in personal injury or death, or damage to property.

14.3 Indemnification Procedures. If an Indemnitee seeks indemnification under this Agreement, the Indemnitee will: (i) give prompt notice to Contractor concerning the existence of the indemnifiable event; (ii) grant authority to Contractor to defend or settle any related action or claim; and, (iii) provide, at Contractor’s expense, such information, cooperation and assistance to Contractor as may be reasonably necessary for Contractor to defend or settle the claim or action. The Indemnitee’s failure to give prompt notice shall not constitute a waiver of the Indemnitee’s right to indemnification and shall affect Contractor’s indemnification obligations only to the extent that Contractor’s rights are materially prejudiced by such failure or delay. Notwithstanding anything to the contrary set forth herein, (i) the Indemnitee may participate, at its own expense, in any defense and settlement directly or through counsel of its choice, and (ii) Contractor will not enter into any settlement agreement on terms that would diminish the rights provided to the Indemnitee or increase the obligations assumed by the Indemnitee under this Agreement, without the prior written consent of the Indemnitee. If Contractor elects not to defend any claim, the Indemnitee will have the right to defend or settle the claim as it may deem appropriate, at the cost and expense of Contractor, and Contractor will promptly reimburse the Indemnitee for all costs, expenses, settlement amounts and other Damages.

14.4 Mitigation of Damages. If any Deliverable becomes, or (in Contractor's opinion) is likely to become, the subject of any such third party claim, then Contractor (at its sole cost and expense) may either: (i) procure the right for the Client to continue using the Deliverable as contemplated hereunder; (ii) modify the Deliverable to render it non-infringing (provided such modification does not materially degrade the Deliverable’s functionality); or (iii) replace the Deliverable with equally suitable, functionally equivalent, compatible, non-infringing Deliverable. If none of the foregoing are commercially practicable despite Contractor using all reasonable efforts and if Client is not permitted to continue using the Deliverable, then Client shall be entitled to recover from Contractor the following. If Client is prohibited from using the Deliverable within two years after the date the Deliverable was accepted, then Client shall be entitled to recover an amount equal to all fees paid for services related to the Deliverable. If Client is prohibited from using the Deliverable more than two years after the date the Deliverable was accepted, then Client shall be entitled to recover an amount equal to a pro-rated portion of the fees paid for the Deliverable (with the pro-rated portion equal to the remaining book value based on a straight line five (5) year basis).

14.5 Notification of 3rd Party Claims. Contractor will promptly notify Client concerning any threat, warning, claim or action against Contractor or its customers or suppliers of which Contractor has knowledge, that could have an adverse impact on Client's use of any Deliverable provided or made available to Client pursuant to this Agreement.


15.  
INSURANCE REQUIREMENTS

15.1 Required Coverage. During the term of this Agreement and for so long as any Work Order has not yet been completed or terminated, Contractor will maintain, at its own expense, insurance coverage with limits of no less than those set forth below, and with insurers with a minimum A.M. Best Financial Strength rating of “A- (Excellent)” and Financial Size rating of “X”, or equivalent ratings from other valid rating agencies and under forms of policies satisfactory to Client.

15.1.1  
Professional Liability Insurance (“Errors and Omissions”) in the minimum amount of $2,000,000 per occurrence, covering losses from any act, errors, omissions, negligence, breach of contract and/or misrepresentations related to Contractor’s obligations under this Agreement. This insurance shall be maintained for a period of at least two (2) years after completion of all Work Orders.
15.1.2  
Fidelity/Crime Insurance in the minimum amount of $2,000,000 per occurrence providing coverage for any loss sustained by Client or an Affiliate as a result of any dishonest act by Contractor’s officers, employees, agents or subcontractors (whether acting alone or in collusion with others), including but not limited to theft, forgery, alteration, or transfer of funds (electronically or otherwise). Such insurance must cover (i) property of the Contractor; (ii) property of others, which the Contractor holds in its care, custody and control; and (iii) property of others for which the Contractor is legally liable.
15.1.3  
Commercial General Liability including broad form contractual liability and personal injury endorsement, providing coverage against liability for bodily injury, death, and property damages in the minimum amount of $1,000,000 per occurrence and no less than $2,000,000 annual aggregate.
15.1.4  
Automobile Liability in the minimum amount of $1,000,000 Combined Single Limit (“CSL”) per occurrence for bodily injury and property damage (covering owned, non-owned and hired vehicles).
15.1.5  
Workers Compensation insurance covering Contractor’s employees pursuant to applicable state laws and at the statutory limits required for each such state, and Employers Liability coverage in the minimum amount of $1,000,000 per loss.
15.1.6  
Umbrella/Excess Liability providing excess liability coverage in the minimum amount of $5,000,000 per occurrence, to supplement the primary coverage limits for Commercial General Liability, Automobile Liability and Employers Liability provided under the policies listed above.

15.2  
Certificates of Insurance. Contractor will deliver Certificates of Insurance to Client prior to the execution of the Master Agreement. Said certificate shall indicate that policies providing coverage and limits of insurance are in full force and effect. Each Certificate shall provide that no less than thirty (30) days notice will be given in writing to Client prior to cancellation, termination, or material alteration of any one of the policies. At least ten (10) days before the expiration of an insurance policy required hereunder, Contractor will deliver to Client a certificate of insurance attesting to the renewal of such insurance. In addition, each policy required pursuant to Subsections 15.1.3, 15.1.4, 15.1.5 (Employers Liability only) and 15.1.6 shall name Client, Affiliates and assignees (suggest other parties if necessary) as additional insureds. Each policy required pursuant to Subsection 15.1.2 shall name Client, Affiliates and assignees as loss payees. Client’s acceptance of delivery of a Certificate of Insurance that does not conform to the requirements of this Section shall not relieve Contractor of its obligation to provide insurance conforming to the requirements hereof.

15.3 No Limitation. The requirements set forth above as to types, limits and approval of insurance coverage to be maintained by Contractor will not in any manner limit the liabilities and obligations assumed by Contractor under this Agreement.

16.
LIMITATION OF LIABILITY

EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED IN THIS SECTION, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY (OR TO ANY PERSON OR ENTITY CLAIMING THROUGH THE OTHER PARTY) FOR LOST PROFITS OR FOR SPECIAL, INCIDENTAL, INDIRECT, CONSEQUENTIAL OR EXEMPLARY DAMAGES ARISING OUT OF OR IN ANY MANNER CONNECTED WITH THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, REGARDLESS OF THE FORM OF ACTION AND WHETHER OR NOT SUCH PARTY HAS BEEN INFORMED OF, OR OTHERWISE MIGHT HAVE ANTICIPATED, THE POSSIBILITY OF SUCH DAMAGES. NEITHER PARTY SHALL BE LIABLE FOR ANY (i) DIRECT DAMAGES IN EXCESS OF THE TOTAL AMOUNT OF FEES PAID TO CONTRACTOR UNDER THIS AGREEMENT OR (ii) DAMAGES ARISING FROM CLAIMS FOR WHICH EITHER PARTY HAS AGREED TO INDEMNIFY THE OTHER PARTY PURSUANT TO SECTION 14.2.2 IN EXCESS OF THE TOTAL AMOUNT OF FEES PAID TO CONTRACTOR UNDER THIS AGREEMENT.THE LIMITATIONS OF LIABILITY SET FORTH IN THIS AGREEMENT SHALL NOT APPLY TO DAMAGES, (i) RESULTING FROM THE GROSS NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT OF A PARTY OR ITS PERSONNEL, (ii) STEMMING FROM PERSONAL INJURY, DEATH, OR PROPERTY DAMAGE CAUSED BY A PARTY OR ITS PERSONNEL, (iii) ARISING FROM CLAIMS FOR WHICH EITHER PARTY HAS AGREED TO INDEMNIFY THE OTHER PARTY PURSUANT TO SECTIONS 14.1 OR 14.2 ABOVE, OR (iv) ARISING FROM ANY BREACH BY CONTRACTOR OF ITS OBLIGATIONS SET FORTH IN SECTION 10.5 AND SECTION 12 HEREIN.

17.  SUBCONTRACTORS

Contractor will not use a subcontractor to perform Contractor’s obligations under this Agreement without obtaining Client’s prior written approval, which will not be unreasonably withheld or delayed. Client’s approval of a subcontractor shall not constitute a waiver of any rights Client may have based on Contractor’s representations and warranties. Contractor will be fully responsible for all acts and omissions of its subcontractors. Nothing in this Agreement shall be construed to create any contractual relationship between Client and any subcontractor, nor any obligation on the part of Client, to pay or to ensure the payment of any money due any subcontractor.

18.  ASSIGNMENT

Either party may, with notice to other party, assign this Agreement or any of its rights or interests hereunder, or delegate any of its obligations hereunder, to (i) an Affiliate, (ii) the assigning party’s successor pursuant to a merger, reorganization, consolidation or sale, or (iii) an entity that acquires all or substantially all of that portion of the Party’s assets or business. Except as otherwise provided above, neither Party may assign this Agreement nor any of its rights or interests hereunder, nor delegate any obligation to be performed hereunder, without the prior written consent of the other Party. Any attempted assignment or delegation in contravention of this Section shall be null and void, and of no force or effect. This Agreement shall be binding upon, and shall inure to the benefit of, the legal successors and permitted assigns of the Parties.

19.
NOTICES

Any notice, demand or other communication (collectively “notice”) required or permitted under this Agreement shall be made in writing and shall be deemed to have been duly given (i) when delivered personally to the representative(s) designated to receive notices for the intended recipient, or (ii) when mailed by certified mail (return receipt requested) or sent by overnight courier to the representative(s) designated to receive notices for the intended recipient at the address set forth in the introductory paragraph of this Master Agreement or in the applicable Work Order, as appropriate. Notices concerning the Master Agreement shall be given to the person who signed the Master Agreement on behalf of the intended recipient. Notices concerning a Work Order shall be given to the intended recipient’s then current project manager. Any notice from Contractor that either (i) relates to the Master Agreement, or (ii) alleges Client committed a material breach, shall also be sent to Client’s General Counsel’s Office, to the attention of the managing attorney responsible for intellectual property and technology. Either Party may change its address(es) or representative(s) for receiving notices upon notice to the other.

20.
COMPLIANCE WITH LAW
   
20.1 General. In performing its obligations under this Agreement, Contractor will comply, and will cause its Personnel to comply, with the requirements of all applicable laws, ordinances, regulations, codes and executive orders.

20.2 Export Controls. Without limiting the generality of Section 20.1, each Party specifically agrees to comply, and will cause its Personnel to comply, with the requirements of all applicable export laws and regulations, including but not limited to the U.S. Export Administration Regulations. Unless authorized by U.S. regulation or Export License, neither Party will export nor reexport, directly or indirectly, any software or technology received from the other Party, or allow the direct product thereof to be exported or reexported, directly or indirectly, to (a) any country in Country Group E:2 of the Export Administration Regulations of the Department of Commerce (see http://www.bxa.doc.gov) or any other country subject to sanctions administered by the Office of Foreign Assets Control (see http://www.treas.gov/ofac/); or (b) any non-civil (i.e. military) end-users or for any non-civil end-uses in any country in Country Group D:1 of the Export Administration Regulations, as revised from time to time. Each party understands that countries other than the U.S. may restrict the import or use of strong encryption products and may restrict exports, and each party agrees that it shall be solely responsible for compliance with any such import or use restriction.

21.  CHOICE OF LAW, JURISDICTION AND WAIVER OF JURY TRIAL

21.1  Governing Law. The substantive laws of the State of New York shall in all respects govern this Agreement as though this Agreement was entered into, and was to be entirely performed within, the State of New York. The Parties expressly disclaim the applicability of, and waive any rights based upon, the Uniform Computer Information Transactions Act or the United Nations Convention on the Sale of Goods. For the avoidance of doubt, nothing stated in this Agreement will prejudice or limit the rights or remedies of either Party to enforce any award or decree under the laws of any jurisdiction where property or assets of the other Party may be located. 

21.2 Jurisdiction. All claims or disputes arising out of or in connection with this Agreement shall be heard exclusively by any of the federal or state court(s) of competent jurisdiction located in the Borough of Manhattan, New York City, NY, USA. To that end, each Party irrevocably consents to the exclusive jurisdiction of, and venue in, such court(s), and waives any, (i) objection it may have to any proceedings brought in any such court, (ii) claim that the proceedings have been brought in an inconvenient forum, and (iii) right to object (with respect to such proceedings) that such court does not have jurisdiction over such Party. Without limiting the generality of the forgoing, Contractor specifically and irrevocably consents to personal and subject matter jurisdiction for such claims or disputes in the federal or state court sitting in New York City, NY, USA, and to the service of process in connection with any such claim or dispute by the mailing thereof by registered or certified mail, postage prepaid to Contractor, at the address for notice set forth in, or designated pursuant to, this Agreement.

21.3 WAIVER OF JURY TRIAL. CONTRACTOR AND CLIENT HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING OR LITIGATION BROUGHT AGAINST THE OTHER WITH RESPECT TO THIS AGREEMENT OR CONTRACTOR'S PERFORMANCE OF SERVICES.

22.  REMEDIES

22.1 Equitable Relief. Contractor and Client each acknowledge that the failure to perform their respective duties under Sections 12 or 13 may cause the other Party to suffer irreparable injury for which the injured Party will not have an adequate remedy available at law. Accordingly, the injured Party may seek to obtain injunctive or other equitable relief to prevent or curtail any such breach, threatened or actual, without posting a bond or security and without prejudice to such other rights as may be available under this Agreement or under applicable law. For purposes of this Agreement, "equitable relief" means and includes those remedies traditionally and historically granted by courts of equity, including without limitation, injunction, attachment, declaratory relief, lis pendens, receivership and replevin.

22.2 Recovery of Fees. If Client terminates a Work Order pursuant to Section 6.3 or Section 10.3, then Client will be entitled to recover from Contractor all amounts paid by Client pursuant to the Work Order on account of (i) the defective Deliverable, and (ii) the Services or other products furnished by Contractor to Client in conjunction with such Deliverable, that Client is unable to utilize effectively or completely as a result of Contractor’s failure to fulfill (in a timely manner) its obligation to furnish a conforming Deliverable or to correct the Defect.

22.3 Cumulative Remedies and Off Sets. Except as otherwise expressly provided in this Agreement, all remedies in this Agreement are cumulative and in addition to (not in lieu of) any other remedies available to a Party at law or in equity. In the event of a claim by Client for loss or damages for which Contractor is responsible, Client shall be entitled to adjust the amounts claimed against future or outstanding payments due, or which may become due, to Contractor. 

23. WAIVER

No course of dealing, failure by either Party to require the strict performance of any obligation assumed by the other hereunder, or failure by either Party to exercise any right or remedy to which it is entitled, shall constitute a waiver or cause a diminution of the obligations or rights provided under this Agreement. No provision of this Agreement shall be deemed to have been waived by any act or knowledge of either Party, but only by a written instrument signed by a duly authorized representative of the Party to be bound thereby. Waiver by either Party of any default shall not constitute a waiver of any other or subsequent default.

24.  FORCE MAJEURE

A Party will be excused from a delay in performing, or a failure to perform, its obligations under this Agreement to the extent such delay or failure is caused by the occurrence of any contingency beyond the reasonable control, and without any fault, of such Party. In such event, the performance times shall be extended for a period of time equivalent to the time lost because of the excusable delay. However, if an excusable delay continues more than thirty (30) days, the Party not relying on the excusable delay may, at its option, terminate the affected Work Order(s) in whole or in part, upon notice to the other Party. In order to avail itself of the relief provided in this Section for an excusable delay, the Party must act with due diligence to remedy the cause of, or to mitigate or overcome, such delay or failure. For purposes of this Section, the phrase “due diligence” shall, at a minimum, require Contractor to maintain a contingency plan (and provide evidence of its current and periodic testing if requested by Client) for the continuation of business so that despite any disruption in Contractor’s ability to fulfill its service obligations from any particular location or through the efforts of any particular individuals, Contractor will be able to fulfil its service obligations from an alternative/backup location.

25. SOLICITING FOR HIRE

Neither party will not directly or indirectly solicit any employee of the other party for employment or services while a Work Order is in effect, nor during the twelve (12) month period following the termination of the Work Order. For the purposes of this Section, the advertisement of employment opportunities by a Party in any public forum (including magazines, trade journals, publicly accessible internet sites, classified advertisements, or job fairs open to the public) shall not be considered "solicitation", and the hiring of an individual as a result of his or her response to such a general employment advertisement or in response to his or her unsolicited employment inquiry shall not constitute a breach of this Agreement.

26. CONSTRUCTION

26.1  Inconsistencies. In the event of any inconsistency between the provisions of this Master Agreement and any Work Order, the provisions of the Work Order shall govern for purposes of such Work Order.

26.2  Modification. The terms, conditions, covenants and other provisions of this Agreement may hereafter be modified, amended, supplemented or otherwise changed only by a written instrument (excluding e-mail or similar electronic transmissions) that specifically purports to do so and is physically executed by a duly authorized representative of each Party.

26.3  Severability. If a court of competent jurisdiction declares any provision of this Agreement to be invalid, unlawful or unenforceable as drafted, the Parties intend that such provision be amended and construed in a manner designed to effectuate the purposes of the provision to the fullest extent permitted by law. If such provision cannot be so amended and construed, it shall be severed, and the remaining provisions shall remain unimpaired and in full force and effect to the fullest extent permitted by law.

26.4  Survival. The provisions of this Agreement that, by their nature and content, must survive the completion, rescission, termination or expiration of this Agreement in order to achieve the fundamental purposes of this Agreement (including any licenses expressly granted to Client by Contractor under this Agreement), shall so survive and continue to bind the Parties.

26.5  Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one instrument. 

27.  AUDITED FINANCIAL STATEMENTS

Upon Client’s request, Contractor will provide a completed audited statement of the financial condition of Contractor’s organization, including (i) audited year-end results for the three (3) previous years, including revenues, expenses, net income, total assets, liabilities and footnotes; and (ii) the most recent financial interim statement.
 
28. COMPLETE UNDERSTANDING

This Agreement (together with the schedules, Work Orders, and other appendices attached hereto or specifically incorporated herein by reference) constitutes the complete understanding of the Parties with regard to the subject matter hereof. This Agreement supersedes all prior or contemporaneous agreements, discussions, negotiations, promises, proposals, representations, and understandings (whether written or oral) between the Parties with regard to the subject matter hereof. Contractor specifically acknowledges and agrees that it did not enter into this Agreement in reliance upon any agreement, promise, representation, or understanding made by or on behalf of Client that is not contained herein.

IN WITNESS WHEREOF, the Parties hereto, through their duly authorized officers, have executed this Master Professional Services Agreement as of the Commencement Date designated above.

Chordiant Software, Inc.
 
Citicorp Credit Services, Inc. (USA)
By:
/s/ Kelly Hicks
  
By:
/s/ Mitchell J. Habib
Name:
Kelly Hicks
  
Name:
Mitchell J. Habib
Title:
Vice President, Finance
  
Title:
CIO
Date:
June 6, 2006
  
Date:
June 6, 2006




APPENDIX A
WORK ORDER

Work Order #:
  
Effective Date:
  

THIS WORK ORDER is entered as of the Effective Date designated above, by and between Contractor and the Client designated below. The Parties hereto acknowledge that they are entering into this Work Order pursuant to the provisions of the Master Professional Services Agreement dated as of __________________, between Contractor and CITIGROUP ENTITY THAT SIGNED MASTER.  The Parties further acknowledge and agree that the provisions of the Master Professional Services Agreement shall apply to this Work Order as though such provisions were set forth herein in their entirety.

Party:
CONTRACTOR
CLIENT
Name:
    
Address:
    
State of Incorporation:
    


Project Name:

Commencement Date:
  
Completion Date:
  

Project Managers:
For Contractor
For Client
 
Address:
    
     
Phone:
    
     
e-mail:
    

Description of Services To Be Performed (Add attachment if needed.):
 
 

Description of Deliverables (Add attachment if needed.):
 
 
 

Deliverable Milestones (Add attachment if needed.):
 
 
DATE:
  
 
DATE:
  
 
DATE:
  


Acceptance Criteria (Attach Specifications and other criteria if applicable.)
 
 


Warranty Period:
  

Basis for Determining Fee
 
Time and Material Rates:
  
 
Estimated Total Fees
 
Estimated Total Expenses
  
Estimated Total Cost*
  
The total cost shown above may not be exceeded without the prior written approval of Client. Unless the fee basis is a firm fixed price, Client is under no obligation to spend any minimum amount.
 
Fixed Price Fee:
  

Billing Address:
  

Contractor’s Personnel: 
 
Number of Personnel
Skill Level
Service Location
 
     
     

Additional Terms and Conditions:
 
 
 
Ownership of Deliverables (if different than provided in Section 7):
 
 

IN WITNESS WHEREOF, the Parties hereto, through their duly authorized officers, have executed this Work Order to the Master Professional Services Agreement as of the Effective Date designated above.

Contractor:
 
Client:
By:
    
By:
  
Name:
    
Name:
  
Title:
    
Title:
  
Date:
    
Date:
  

 

 


Appendix B-1
 
CHORDIANT SOFTWARE, INC.
 
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
 
In consideration of my employment or continued employment by CHORDIANT SOFTWARE, INC. (the "Company"), and the compensation now and hereafter paid to me, I hereby agree as follows:




1.  
Nondisclosure
 
1.1  Recognition of Company's Rights; Nondisclosure. At all times during my employment and thereafter, I will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Company's Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with my work for the Company, or unless an officer of the Company expressly authorizes such in writing. I will obtain Company's written approval before publishing or submitting for publication any material (written, verbal, or otherwise) that relates to my work at Company and/or incorporates any Proprietary Information. I hereby assign to the Company any rights I may have or acquire in such Proprietary Information and recognize that all Proprietary Information shall be the sole property of the Company and its assigns.
 
1.2  Proprietary Information. The term "Proprietary Information" shall mean any and all confidential and/or proprietary knowledge, data or information of the Company. By way of illustration but not limitation, "Proprietary Information" includes (a) trade secrets, inventions, mask works, ideas, processes, formulas, source and object codes, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques (hereinafter collectively referred to as "Inventions"); and (b) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers; and (c) information regarding the skills and compensation of other employees of the Company. Notwithstanding the foregoing, it is understood that, at all such times, I am free to use information which is generally known in the trade or industry, which is not gained as result of a breach of this Agreement, and my own, skill, knowledge, know-how and experience to whatever extent and in whichever way I wish.
 
1.3  Third Party Information. I understand, in addition, that the Company has received and in the future will receive from third parties confidential or proprietary information ("Third Party Information") subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in the strictest confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for the Company) or use, except in connection with my work for the Company, Third Party Information unless expressly authorized by an officer of the Company in writing.
 
1.4  No Improper Use of Information of Prior Employers and Others. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person. I will use in the performance of my duties only information which is generally known and used by persons with training and experience comparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company.
 
2.  
Assignment of Inventions.
 
2.1  Proprietary Rights. The term "Proprietary Rights" shall mean all trade secret, patent, copyright, mask work and other intellectual property rights throughout the world.
 
2.2  Prior Inventions. Inventions, if any, patented or unpatented, which I made prior to the commencement of my employment with the Company are excluded from the scope of this Agreement. To preclude any possible uncertainty, I have set forth on Exhibit B (Previous Inventions) attached hereto a complete list of all Inventions that I have, alone or jointly with others, conceived, developed or reduced to practice or caused to be conceived, developed or reduced to practice prior to the commencement of my employment with the Company, that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (collectively referred to as "Prior Inventions"). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Prior Inventions in Exhibit B but am only to disclose a cursory name for each such invention, a listing of the party(ies) to whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. A space is provided on Exhibit B for such purpose. If no such disclosure is attached, I represent that there are no Prior Inventions. If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, Prior Inventions in any Company Inventions without the Company's prior written consent.
 
2.3  Assignment of Inventions. Subject to Sections 2.4, and 2.6, I hereby assign and agree to assign in the future (when any such Inventions or Proprietary Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to the Company all my right, title and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of my employment with the Company. Inventions assigned to the Company, or to a third party as directed by the Company pursuant to this Section 2, are hereinafter referred to as "Company Inventions."
 
2.4  Nonassignable Inventions. This Agreement does not apply to an Invention which qualifies fully as a nonassignable Invention under Section 2870 of the California Labor Code (hereinafter "Section 2870"). I have reviewed the notification on Exhibit A (Limited Exclusion Notification) and agree that my signature acknowledges receipt of the notification.
 
2.5  Obligation to Keep Company Informed. During the period of my employment and for six (6) months after termination of my employment with the Company, I will promptly disclose to the Company fully and in writing all Inventions authored, conceived or reduced to practice by me, either alone or jointly with others. In addition, I will promptly disclose to the Company all patent applications filed by me or on my behalf within a year after termination of employment. At the time of each such disclosure, I will advise the Company in writing of any Inventions that I believe fully qualify for protection under Section 2870; and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief. The Company will keep in confidence and will not use for any purpose or disclose to third parties without my consent any confidential information disclosed in writing to the Company pursuant to this Agreement relating to Inventions that qualify fully for protection under the provisions of Section 2870. I will preserve the confidentiality of any Invention that does not fully qualify for protection under Section 2870.
 
                    2.6  Government or Third Party. I also agree to assign all my right, title and interest in and to any particular Company Invention to a third party, including without limitation the United States, as directed by the Company.
 
2.7  Works for Hire. I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by copyright are "works made for hire," pursuant to United States Copyright Act (17 U.S.C., Section 101).
 
2.8  Enforcement of Proprietary Rights. I will assist the Company in every proper way to obtain, and from time to time enforce, United States and foreign Proprietary Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. In addition, I will execute, verify and deliver assignments of such Proprietary Rights to the Company or its designee. My obligation to assist the Company with respect to Proprietary Rights relating to such Company Inventions in any and all countries shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate after my termination for the time actually spent by me at the Company's request on such assistance.
 
In the event the Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the actions specified in the preceding paragraph, I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Company.
 
3.  
Records. I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that may be required by the Company) of all Proprietary Information developed by me and all Inventions made by me during the period of my employment at the Company, which records shall be available to and remain the sole property of the Company at all times.
 
4.  
Additional Activities. I agree that during the period of my employment by the Company I will not, without the Company's express written consent, engage in any employment or business activity which is competitive with, or would otherwise conflict with, my employment by the Company. I agree further that for the period of my employment by the Company and for one (l) year after the date of termination of my employment with the Company I will not induce any employee of the Company to leave the employ of the Company. I agree further that for the period of my employment with the Company and for one (1) year after the date of termination of my employment with the Company, I will not solicit the business of any client or customer of the Company (other than on behalf of the Company).
 
5.  No Conflicting Obligation. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith.
 
6.  Return of Company Documents. When I leave the employ of the Company, I will deliver to the Company any and all drawings, notes, memoranda, specifications, devices, formulas, and documents, together with all copies thereof, and any other material containing or disclosing any Company Inventions, Third Party Information or Proprietary Information of the Company. I further agree that any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, I will cooperate with the Company in completing and signing the Company's termination statement.
 
7.  Legal and Equitable Remedies. Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.
 
8.  Notices. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three (3) days after the date of mailing.
 
9.  Notification of New Employer. In the event that I leave the employ of the Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement.
 
10.  General Provisions.
 
10.1  Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of the State of California, as such laws are applied to agreements entered into and to be performed entirely within California between California residents. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in Santa Clara County, California for any lawsuit filed there against me by Company arising from or related to this Agreement.
 
10.2  Severability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.
 
10.3  Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.
 
10.4  Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee.
 
10.5  Employment. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company's right to terminate my employment at any time, with or without cause.
 
10.6  Waiver. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement.
 
10.7  Entire Agreement. The obligations pursuant to Sections 1 and 2 of this Agreement shall apply to any time during which I was previously employed, or am in the future employed, by the Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
 
This Agreement shall be effective as of the first day of my employment with the Company, namely: _______________, 20__.
 
I have read this Agreement carefully and understand its terms. I have completely filled out Exhibit B to this Agreement.
 
Dated: ___________
 
(Signature)
 
(Printed Name)
 
Accepted and Agreed To:
 
CHORDIANT SOFTWARE, INC.
 
By:
 
Title:
 
(Address)
 
 
 
Dated: _______
 

 

Exhibit A
 
LIMITED EXCLUSION NOTIFICATION
 
This is to notify you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either:
 
1.  Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company;
 
2.  Result from any work performed by you for the Company.
 
To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
 
This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.
 
I acknowledge receipt of a copy of this notification.
 
By: 
 (Printed Name of Employee)
 
Date: 
Witnessed by:
 
 
(Printed Name of Representative)

 


Exhibit B
 
TO:  CHORDIANT SOFTWARE, INC.
 
FROM:     
 
DATE:     
 
SUBJECT: Previous Inventions
 
1. Except as listed in Section 2 below, the following is a complete list of all inventions or improvements relevant to the subject matter of my employment by CHORDIANT SOFTWARE, INC. (the "Company") that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:
 
For Check Boxes:
 
1. Double-click on Check Box
2. Click on “Checked” in Default Value, click OK 
3. If you want to remove a check mark:
double-click on the Check Box
click on “Unchecked” in Default Value
click OK
 
Delete this Hidden Text after you follow the instructions. 
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No inventions or improvements.
 
See below:
 
 
 
 
 
 
 
 
Additional sheets attached.
 
2. Due to a prior confidentiality agreement, I cannot complete the disclosure under Section 1 above with respect to inventions or improvements generally listed below, the proprietary rights and duty of confidentiality with respect to which I owe to the following party(ies):
 
Invention or Improvement Party(ies)  Relationship
 
1.      
 
2.      
 
3.      
 
 
Additional sheets attached.
 


APPENDIX C
RESERVED



Addendum #1

APPLICATION DEVELOPMENT ADDENDUM

Application Name:
Collections
Effective Date:
April 3, 2006

THIS APPLICATION DEVELOPMENT ADDENDUM #1 is entered as of the Effective Date designated above, by and between Contractor and the Client designated below. The Parties hereto acknowledge that they are entering into this Addendum pursuant to the provisions of the Master Professional Services Agreement dated as of April 3, 2006, between Contractor and Citicorp Credit Services, Inc. (USA).  The Parties further acknowledge and agree that except as otherwise provided below the provisions of the Master Professional Services Agreement and the meanings of capitalized terms to the extent set forth therein shall apply to this Addendum as though such provisions were set forth herein in their entirety.

Party:
CONTRACTOR
CLIENT
Name:
Chordiant Software, Inc.
Citicorp Credit Services, Inc. (USA)
Address:
20400 Stevens Creek Blvd.
Cupertino, CA 95014
14000 Citi Cards Way
Jacksonville, FL 32258
State of Incorporation:
Delaware
Delaware


Application Name: Collections
(the “Application”)

Client Specific Intellectual Property Rights:
(“Client Specific IPR”)

·  
Specific Analytics and Rules previously developed and/or to be developed by Client
·  
Unique Processes that are not Industry Standard previously developed and/or to be developed by Client

The parties acknowledge that the Application is under software development by Contractor as of the date of this Addendum under the Agreement between the Parties dated April 3, 2006, and that Client is a cooperative and contributing party to such Application software development (the “Project”). The parties acknowledge that the Application developed hereunder will contain both generic elements and Client-specific elements. It is the Parties’ intention that Contractor will be able to market, distribute and sell the generic elements of the Application as a comprehensive application product to its other customers. It is also the parties’ intention that the proprietary elements of Client’s Application channel including without limitation Client Specific IPR will not be incorporated into the Application product distributed by Contractor. With the exception of Client Specific IPR, all Application software will solely owned by Contractor. 

With respect to the development and ownership of the Application, the following terms shall apply in lieu of Sections 7.1, 7.2, 7.3 and 7.4 of the Master Professional Services Agreement:

1. Application Work Product. The phrase “Application Work Product” shall mean and include the Deliverables, all ideas, concepts, know-how, techniques, inventions, discoveries, improvements, specifications, designs, methods, devices, systems, reports, studies, computer software (in object or source code), programming and other documentation, flow charts, diagrams and all other information or tangible material of any nature whatsoever (in any medium and in any stage of development or completion) relating to the subject matter of this Addendum or the applicable Work Order (if any), that are conceived, designed, practiced, prepared, produced or developed by Contractor or any of its Personnel during the course of the Project; provided however that the Client Specific IPR shall not be part of the Application Work Product. To the fullest extent permitted under law, all Application Work Product shall be the property of Contractor. To the extent Client has participated in the development of the Application Work Product, Client hereby irrevocably and exclusively assigns, transfers and conveys to Contractor all Intellectual Property Rights in and to any and all Application Work Product, exclusive of the Client Specific IPR. Client Specific IPR is not included in the definition of Application Work Product. Client will retain ownership of all Client Specific IPR.

2. Client License. Contractor hereby grants and will be conclusively deemed to have (at no additional cost) granted to Client and its Affiliates a perpetual, worldwide, irrevocable, royalty-free, non-exclusive license under the Master Software License and Support Agreement between the parties dated as of February 1, 2006 (the “License Agreement”) to use, execute, display and perform the Application only in conjunction with the other software licensed by Contractor under the License Agreement, subject to any of Contractor’s rights or Client’s obligations under the License Agreement.

To the extent that there is any conflict between the terms of this Addendum and the terms of the Master Professional Services Agreement, the terms of this Addendum shall control.
 

IN WITNESS WHEREOF, the Parties hereto, through their duly authorized officers, have executed this Addendum to the Master Professional Services Agreement as of the Effective Date designated above.

Contractor:
 
Client:
By:
/s/ Kelly Hicks
  
By:
/s/ Mitchell J. Habib
Name:
Kelly Hicks
  
Name:
Mitchell J. Habib
Title:
Vice President, Finance
  
Title:
CIO
Date:
June 6, 2006
  
Date:
June 6, 2006




 

 EX-10.51 11 ex1051.htm CITICORP LICENSE SCHEDULE #5 Citicorp License Schedule #5
Exhibit 10.51
 
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
 
LICENSE SCHEDULE 

License Schedule #:
5
Effective Date:
Oct. 23, 2006

THIS LICENSE SCHEDULE is entered as of the Effective Date designated above, by and between Licensor and the Licensee designated below. The Parties hereto acknowledge that they are entering into this License Schedule pursuant to the provisions of the Master Software License and Support Agreement dated as of February 1, 2006, between Licensor and Citicorp Credit Services, Inc. (USA). The Parties further acknowledge and agree that the provisions of the Master Software License and Support Agreement (“Agreement”) shall apply to this License Schedule as though such provisions were set forth herein in their entirety.
 
 
LICENSOR
LICENSEE
Name:
Chordiant Software, Inc.
Citicorp Credit Services, Inc. (USA)
Address:
20400 Stevens Creek Blvd.
Suite 400
Cupertino, CA 95014
14000 Citi Cards Way
Jacksonville, FL 32258
State of Incorporation:
Delaware
Delaware

Software (Itemize)
List Price
Discount %
License Fee
Perpetual License
    
$20,000,000
Chordiant Order Form #5 attached hereto and incorporated herein by reference
      
Source Code delivered pursuant to Order Form #5 does not include the third party source code listed on Appendix A hereto.
      

Third-Party Software (Itemize)
Owner
IBM Websphere
CCSI (USA)
Oracle
CCSI (USA)

Delivery Site:
Citicorp Credit Services, Inc. (USA)
Delivery Date:
NA
 
                14000 Citi Cards Way
               Jacksonville, FL 32258
Billing Address
Citicorp Credit Services, Inc. (USA)
 
14000 Citi Cards Way
Jacksonville, FL 32258
Installation Fees:
$
NA
 
Training Fees:
$
NA
 
Development Fees:
$
NA
 
Implementation Fees:
$
NA
 
Maintenance Fees:
$
See Order Schedule #5
Payment Cycle:
Annually
  
 
      
Maintenance Term:
See Order Schedule #5
      
CPU and/or number of MIPS and MIPS environment:
Sun Solaris
 
Acceptance Test Period:
NA
 
Warranty Period:
90 days from the date of delivery of the Software

Source Code Provided Directly to Licensee:
Yes X
No
 
Deposited with Escrow Agent:
Yes X
No
 
Name of Escrow Agent: Iron Mountain Intellectual Property Management, Inc.
  
 
Address of Escrow Agent:
 

Additional Terms and Conditions:
1.  In the case of any conflict between this License Schedule and Chordiant Order Form #5, the terms of Chordiant Order Form #5 shall prevail. (See additional terms and conditions in Chordiant Order Form #5.)
2.  Notwithstanding Section 7.1 of the Agreement, in addition to Delivering Licensee the Source Code of the Software, Licensor also shall escrow the Software as indicated above in accordance with Section 7.1 of the Agreement.
 
Term: Perpetual
Specifications: No Additional Specifications

Allowed Combinations: Not required

Acceptance Criteria: NA

Configuration: NA

Disaster Recovery Plan: NA

Escrow Agreement:

IN WITNESS WHEREOF, the Parties hereto, through their duly authorized officers, have executed this License Schedule to the Master Software License and Support Agreement as of the Effective Date designated above.

Chordiant Software, Inc.:
  
Citicorp Credit Services, Inc. (USA):
         
By:
/s/ Steven Springsteel
  
By:
/s/ Mark D. Torkos
         
Name:
Steven Springsteel
  
Name:
Mark Torkos
         
Title:
President & CEO
  
Title:
CIO
 
(type or print)
      
Date: __12/7/06____________________ Date: _____________12/8/06_______



Chordiant Software, Inc.:
  
     
By:
/s/ Peter Norman
  
     
Name:
Peter Norman
  
     
Title:
CFO
  
 
(type or print)
  
     
 Date:  12/7/06  
 



Appendix A - Undelivered Third Party Source Code

[*]


Order Form No. 5
 
Contract Information
 
 
Customer Name:   Citicorp Credit Services, Inc. (USA) (“CCSI (USA)”)
 
 
Purchase Order Number:
 
 
Customer Location:   [*]
 
 
Customer Telephone Number:  [*]
 
 
Designated Support Contact:  [*] 
 
 
Contact’s E-Mail Address:  [*]
 
 
Agreement Name and Date: Master Software License and Support Agreement dated February 1, 2006 by and between Citicorp Credit Services, Inc. (USA) and Chordiant Software, Inc. (“Agreement”)
 
This Order Form (“Order Form”) is placed in accordance with and shall be governed by the terms of the Agreement specified above. Customer hereby orders the Software licenses for use as follows:

A: SOFTWARE LICENSE

Designated Center:

Hardware:   Sun Microsystems
Operating System:  Sun Solaris
Relationship Database:  Oracle
Customer Application:   Citicorp Credit Services, Inc. (USA) (“CCSI (USA)”)
Application Server:  IBM Websphere
Channel Usage:   North American Contact-Center, Internet, Portal, ATM, IVR
Branch.
 



1. Server Environment

Software Product(s)
Qty
License Type (i.e. Named User/Client, Server, Developer)
URN’s (no. of)
·  Chordiant 5 Foundation Server:
Application Components
Business Process Server
Security Server
Persistence Server 
Foundation Server
JDBC Connector for Oracle
CTI Server
CAFÉ Server
Connector to MQ
CCSI (USA) Enterprise
Source Code*
CPU
·  Chordiant 5 Development Tools:
Tools Platform
Process Developer
CAFÉ Development Environment
CCSI (USA) Enterprise
Developers
Recommendation Advisor
CCSI(USA)
Enterprise
Source Code*
Concurrent Users
Chordiant 5 Lead Management module
CCSI(USA)
Enterprise
Source Code*
Module
Chordiant 5 Basel II
CCSI(USA)
Enterprise
Source Code*
Module
Fraud Recoveries
CCSI (USA)
Enterprise
Source Code*
Module
Chargeback & Disputes
CCSI (USA) Enterprise
Source Code*
Module
License Fee
  
[*]



2. Decision/Marketing Environment

Software Product(s)
Quantity
License Type (i.e. User/Client, Server, Developer), URN’s (no. of)
Chordiant Marketing Director
CCSI (USA) Enterprise
Source Code*
URN
On-line Marketing Director
CCSI (USA) Enterprise
Source Code*
URN
Predictive Analytics Director
CCSI (USA) Enterprise
Source Code*
Developers
Strategy Director
CCSI (USA) Enterprise
Source Code*
Developers
Real-Time Decision Server
CCSI (USA) Enterprise
Source Code*
URN
Database Decision Server
CCSI (USA) Enterprise
Source Code*
URN
Decision Monitor
CCSI (USA) Enterprise
Source Code*
Developers
Decision Monitor Universe
CCSI (USA)
Enterprise
Source Code*
URN
Data Preparation Director
CCSI (USA) Enterprise
Source Code*
Developers
Interaction Services
CCSI (USA)
Enterprise
Source Code*
URN
Adaptive Decisioning Services
CCSI (USA)
Enterprise
Source Code*
URN
License Fee
  
[*]




3. Reporting Environment

Software Product(s)
Quantity
License Type URN’s (no. of)
License Fee
Chordiant OneReporting Report Library (assets only) ***
CCSI (USA) Enterprise
CPU
[*]
       
License Fee
    
[*]

4. Rules Environment

Software Product(s)
Quantity
License Type (i.e. User/Client, Server, Developer), URN’s (no. of)
License Fee
Rules Server
CCSI (USA) Enterprise
CPU
[*]
Rules Designer
[*]
Developers
[*]
       
License Fee
    
[*]

5. Desktop Environment

Software Product(s)
Quantity
License Type (i.e. User/Client, Server, Developer), URN’s (no. of)
License Fee
Chordiant 5 Call Center Advisor Browser Edition
1000
Source Code*
Concurrent Users
[*]
Chordiant 5 Teller
100
Source Code*
Concurrent Users
[*]
License Fee
    
[*]

6. Collections

Software Product(s)
Quantity
License Type (i.e. User/Client, Server, Developer), URN’s (no. of)
License Fee
Chordiant Collections v1.0**
CCSI (USA) Enterprise
Source Code*
CPU
$1,200,000
License Fee
    
$1,200,000

7. Financial Environment (Retail Banking)

Software Product(s)
Quantity
License Type (i.e. User/Client, Server, Developer), URN’s (no. of)
License Fee
Chordiant 5 Lending (to include lending and mortgage assets/templates)***
CCSI(USA)
Enterprise
Source Code*
Module
[*]
Chordiant 5 Financial Services
CCSI(USA)
Enterprise
Source Code*
4 CPU
[*]
License Fee
    
[*]

* Excludes source code of Third Party Software itemized on the License Schedule No.5.
** Generally available (GA) delivery of the Chordiant Collections 1.0 software product with the product specifications described on Exhibit A hereto is anticipated to occur in the second calendar quarter of 2007.
*** This license is limited to the software product initially delivered and is not supported.

7. Total License Fees (subject to Section 9.5 of the Agreement, due and payable upon execution of the Order Form):      $20,000,000
 
8. Additional Licenses. CCSI (USA) may purchase additional licenses for the Software Products listed below at the respective quantities and license fee indicated.
 
CCSI (USA)’s Purchase table valid until September 2012

Software Product(s)
Quantity
License Type (i.e. User/Client, Server, Developer), URN’s (no. of)
License Fee
Chordiant 5 Call Center Advisor Browser Edition
500
Concurrent Users
$325,000
Chordiant 5 Teller
100
Concurrent User
$30,000

Subject to the note below, CCSI (USA) agrees that if it deploys any software which is a functional substitute for Chordiant 5 Call Center Advisor Browser Edition or Chordiant 5 Teller then CCSI (USA) will pay Chordiant the same license fees for such functional substitute as would have been applicable to a corresponding deployment of Chordiant 5 Call Center Advisor Browser Edition or Chordiant 5 Teller and the users of such functional substitute shall be considered Concurrent Users (as such term is defined below).

For purposes of this Order Form, the term “functional substitute” shall be defined as being an equivalent product with like functionality and technical maturity or, in the case of the Chordiant Call Center Advisor Browser Edition, a product which otherwise allows CCSI (USA)’s employees and contractors the ability to access the functionality of the Software Products licensed hereunder on an Enterprise basis. In the event that Chordiant 5 Call Center Advisor Browser Edition or Chordiant 5 Teller becomes functionally or technically obsolete, Chordiant will have 90 days to resolve the deficiency. If Chordiant is unable to do so, CCSI (USA) shall have the option of deploying a substitute without penalty, without payment to Chordiant and the users of such functional substitute shall not be considered concurrent users.

Note: If the total license fees paid by CCSI (USA) or its affiliates (under this Order Form #5 and any subsequent Order Form under the Agreement entered into after the date of execution of this Order Form #5) equal or exceed $50,000,000 at any time before the end of the year 2012, then the Chordiant 5 Call Center Advisor Browser Edition and Chordiant 5 Teller will be considered enterprise (unlimited Concurrent Users) for CCSI (USA). CCSI(USA)’s obligation set forth in the two paragraphs immediately above this Note to pay Chordiant license fees for CCSI(USA)’s deployment of functional substitutes shall cease to apply when the total license fees paid to Chordiant by CCSI(USA) reach $50,000,000.


B: ANNUAL SUPPORT FEE(S) ON SOFTWARE LICENSE
 
1. Annual Support Fees for the software license identified in Section A above are:
Premium Support
a. First 12 months of Premium Support services shall be provided at no cost.

b. During the second 12 month period, the Premium Support services shall be calculated at an annual rate equal to $ 240 x Number of Concurrent Users on the Counting Date (as defined below). Notwithstanding the foregoing, the fee for Premium Support services shall not exceed $20,000,000 per annum.

2. Definitions

The Number of Concurrent Users is defined as the maximum number of individuals using Chordiant 5 Call Center Advisor Browser Edition or Chordiant 5 Teller to access a Chordiant 5 server product at any one time.

3. Reporting

CCSI (USA) will inform Chordiant Software Inc. of the peak Number of the Concurrent Users on the second Monday in September of each year (the “Counting Date”) not more than thirty (30) days after the Counting Date. For each support period, Chordiant will invoice CCSI (USA) following receipt from CCSI (USA) of the report stating the Number of Concurrent Users on the Counting Date.

Not more frequently than annually, Chordiant may audit CCSI (USA)’s use of the Software. If an audit reveals, or CCSI (USA) reports to Chordiant, that the Number of Concurrent Users in production by CCSI (USA) on the Counting Date exceeds the Number of Concurrent Users licensed by CCSI (USA) on the Counting Date, then CCSI (USA) shall be invoiced directly for such unpaid licenses based on CCSI (USA)’s Purchase table listed above.

4. Renewal of Support: At CCSI (USA)’s option, on the second anniversary of the execution of this License Schedule, and on each subsequent anniversary date, CCSI (USA) may acquire an additional one year of Premium Support services for the Software licensed under this Order Form, for an annual support fee calculated as the higher of 4% of the License fees paid or $240 x Number of Concurrent Users on the Counting Date. The Concurrent User support fee (initially $240 per user) shall not increase from the previous year’s per user Support Fee by more than the lesser of 5% or the actual increase in the Consumer Price Index (CPI) for the previous twelve (12) month period as published by the Wall Street Journal. Notwithstanding the foregoing, the fee for Premium Support services shall not exceed $20,000,000 per annum.

C: MISCELLANEOUS
1.  
As specified on this Order Form, Chordiant shall deliver to the CCSI (USA) Location, one copy of the Software media and Documentation (electronically, or CD-ROM or bound, whichever is generally available and at CCSI (USA) discretion) (“Master Copy”) for each Software license specified above for use at the Designated Center. CCSI (USA) shall have the right to make up to a reasonable number of copies of the Software, including Documentation, for each License Type of the Software, and CCSI (USA) shall be responsible for installation of the Software. All fees due under this Order Form shall be due and payable upon the dates set forth in this Order Form, and shall be non-cancelable and the sum paid non-refundable.
2.  
No acceptance period shall apply to the Software. The Software is deemed accepted upon delivery.


Chordiant Software Inc.    Citicorp Credit Services, Inc. (USA)

      
Signature       Signature

Steven Springsteel       
Print Name       Print Name

President & CEO      
Print Title           Print Title   

   
 
Date                    Date   
 
 

 
Chordiant Software Inc.     

    
Signature      

Peter Norman       
Print Name   

CFO       
Print Title      
 
 
 
Date        
 


 

 
 
Exhibit A
 
 
Chordiant Collections 1.0
 
 
Product Specifications
 
 

 
[*]
 EX-10.52 12 ex1052.htm AMENDMENT 1 TO CITICORP SOFTWARE LICENSE AND SERVICES AGREEMENT Amendment 1 to Citicorp Software License and Services Agreement
Exhibit 10.52

 
AMENDMENT NO. 1
TO
MASTER SOFTWARE LICENSE & SUPPORT AGREEMENT


This Amendment No.1 (this “Amendment”) to the Master Software License & Support Agreement (the “Agreement”) dated February 1, 2006 by and between Chordiant Software, Inc. (“Licensor”) and Citicorp Credit Services, Inc. (USA) (“Licensee”) is made as of December 8, 2006 by and between Licensor and Licensee.

For good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged by the parties hereto, the parties agree as follows:
 
1. Section 6.2 of the Agreement shall be amended by deleting the first sentence of the paragraph and inserting the following sentence in lieu thereof:
 
“Each License granted by Licensor pursuant to this Agreement shall be a fully paid up, non-exclusive, irrevocable, perpetual (except as set forth in Section 2 above) worldwide license to use, perform, modify, enhance and create derivative works of the Software in the furtherance of Licensee’s or its Affiliates’ business purposes, subject only to such use restrictions as may be specifically set forth on the applicable License Schedule, including without limitation geographic restrictions and restrictions on the number or location of the computers or the users.”
 
2. Section 6.3 of the Agreement shall be amended by deleting the first sentence of the paragraph and inserting the following sentence in lieu thereof:
 
“Unless otherwise specifically set forth on the applicable License Schedule, each License granted pursuant to this Master Agreement shall include, for purposes of performing, modifying, enhancing and creating derivative works of the Software, the right for Licensee to permit the Software to be used by or on behalf of: (i) Affiliates (ii) third parties engaged by Licensee to conduct all or any portion of Licensee's or an Affiliate’s information processing, programming, network services, disaster, back up, or recovery services, and installation and implementation services, whether at a Licensee location, an Affiliate location or at the third party’s own location, and (iii) consultants and clients of Licensee or an Affiliate, provided that such usage by consultants and clients must be considered part of the business of Licensee or an Affiliate and must be subject to the other terms and conditions of this Agreement.”
 
3. Section 7.2 of the Agreement shall be amended by deleting the second sentence of the paragraph and inserting the following sentence in lieu thereof:
 
“Each such License shall entitle Licensee , its Affiliates, third parties engaged by Licensee, consultants and clients of Licensee or an Affiliate (provided such usage by consultants and clients must be considered part of the business of Licensee or an Affiliate and must be subject to the other terms and conditions of this Agreement) to use and modify the Source code and the Software, as reasonably necessary, in order to: (i) integrate the Software with Licensee’s other systems and programs; (ii) cause the Software to comply with changes in applicable laws, regulations, industry standards or market practice; (iii) enable the Software to remain current with technological innovations; and (iv) enable the Software to fulfill Licensee’s business purposes within the scope of the License granted pursuant to the terms and conditions of this Agreement.
 

 
4. All capitalized terms used herein which are not otherwise defined shall have the respective meanings given such terms in the Agreement. All other terms and conditions of the Agreement remain in full force and effect.


 
 
 

In witness whereof, this Amendment has been executed by the duly authorized representatives of the parties.

Citicorp Credit Services, Inc. (USA)   Chordiant Software, Inc.


By: __/s/ Mark D. Torkos_____   By: __/s/ Steven R. Springsteel

Name: _Mark D. Torkos___    Name: Steven R. Springsteel

Title: __CIO_____     T itle: _President and CEO___

Date: __December 8, 2006______   Date: December 7, 2006____

 EX-10.53 13 ex1053.htm IBM ORDER FORM FOR DAK IBM Order Form for DAK Exhibit 10.53
 
Chordiant Software
 
 
Order Form
 
 
By the terms of this Order Form, Chordiant Software International GmbH (“Chordiant”) agrees to license its software to [DAK] (“DAK”), a customer of IBM Deutschland GmbH (“IBM”) in accordance with the terms of the Software License and Services Agreement (the “License Agreement”) dated December __, 2006 between Chordiant and DAK. In consideration of Chordiant entering into such License Agreement, IBM will pay Chordiant in the amounts and on the terms set forth below in this Order Form.
 
 
Customer Name: [DAK, Deutsche Angestellten Krankenkasse]
 

A: SOFTWARE LICENSE

Designated Center:

Hardware:  HP Proliant 
Operating System: SLES 9 (SUSE LINUX ENTERPRISE SERVER, V9)
Customer Application: Contact Center Architecture
Customer Relational Database (Marketing product Software): UDB
Geographic Location: Germany
Licensed End-User: DAK


Software Product(s)
Quantity
License Type (i.e. Named User/Client, Server, Developer)
URN’s (no. of)
License Fee
       
Chordiant Call Center Advisor Browser Edition
20,000
Concurrent Users
  
       
Chordiant Foundation Server
Enterprise
CPU
 
- Application Components
      
- Business Process Server
      
- Security Server
      
- Café Server
      
- CTI Server
      
- Persistence Server
      
- Request Server
      
- JDBC Connector
      
- Chordiant Connector for WebSphere MQ
      
- Chordiant Interaction Controller
      
       
Chordiant Tools Bundle
Enterprise
Developers
  
- Chordiant Business Process Designer
      
- Chordiant Café Developer Environment
      
       
Chordiant Marketing Director
9 Mio
URN
  
       
Chordiant Rules Server
4
CPU
  
       
Chordiant Rules Designers
5
Designers
  
       
License Fee
    
 €11,017,000
plus applicable statutory VAT
      

B. Payment Terms

IBM will issue a purchase order to Chordiant on or before December 19, 2006 for the license fee described above (Total = €11,017,000 + VAT). The license fee is due and payable to Chordiant within 10 days.

Miscellaneous. 

Additionally, the parties agree that:

(i)  
Chordiant warrants for a period of twelve months from the delivery date that the Software, as delivered by Chordiant, will substantially perform the functions described in the associated Documentation in all material respects when operated on the application server on which the Documentation states the Software can operate. Provided that IBM gives Chordiant written notice of a breach of the foregoing warranty during the warranty period, Chordiant shall correct any reproducible errors that cause the breach of the warranty in accordance with its technical support policies, or if Chordiant is unable to make the Software operate as warranted, Customer shall be entitled to terminate the Software license, and Chordiant shall refund the License Fees paid for the applicable Software license to IBM.
(ii)  
Chordiant warrants the diskettes/CD disks media to be free of defects in materials and workmanship for thirty (30) days from the delivery date. Chordiant shall replace defective media.
(iii)  
Except for the remedy provided in clause (i) above, all fees due under this Order Form shall be non-cancelable and the sum paid non-refundable.
(iv)  
IBM shall have no right, title or interest to the software licenses described in this Order Form.
(v)  
As specified on this Order Form, Chordiant shall deliver to IBM, one copy of the Software media and Documentation (CD-ROM or bound, whichever is generally available) (“Master Copy”) for each Software license specified above for use at the Designated Center. IBM shall be responsible for installation of the Software. Software is deemed accepted upon delivery to IBM.

Chordiant Software International GmbH          Customer:


/s/ Juergen Neubauer                 /s/ Andreas Strausfeld   
Signature                     Signature


Juergen Neubauer                 Andreas Strausfeld   
Print Name                  Print Name


            Lieter des Geschaftsbereichs
Geschaftsfuhrer                     IT Services   
Print Title                      Print Title

19 December 2006                    19 Dezember 2006  
Date                   Date


/s/ Peter Norman

Peter Norman
Chief Financial Officer
December 18, 2006

/s/ Steven R. Springsteel

Steven R. Springsteel
President and CEO
December 18, 2006
 EX-10.54 14 ex1054.htm DAK SOFTWARE LICENSE AND SERVICES AGREEMENT DAK Software License and Services Agreement
Exhibit 10.54
SOFTWARE LICENSE AND
SERVICES AGREEMENT
 
 
SOFTWARELIZENZ- UND
SERVICEVERTRAG
This Software License And Services Agreement (“Agreement”) is between
 
DAK, Deutsche Angestellten Krankenkasse
 
having a place of business at
Nagelsweg 27 - 31, 20097 HAMBURG, GERMANY
 
(“Customer”) and Chordiant Software International GmbH, a German corporation, having a place of business at Ganghoferstr. 39, D-80339 Munich, Germany (“Chordiant”). The terms of this Agreement shall apply to each Software license granted by Chordiant under this Agreement, which will be identified on the Order Form. The Effective Date of this Agreement shall be
 
December 19, 2006.
Dieser Softwarelizenz- und Servicvertrag („Vertrag“) wird zwischen
 
DAK, Deutsche Angestellten Krankenkasse
 
mit Sitz an der folgenden Adresse
Nagelsweg 27 - 31, 20097 HAMBURG, DEUTSCHLAND
 
(„Kunde“) und Chordiant Software International GmbH, eine deutsche Gesellschaft mit beschr’nkter Haftung mit ihrem Sitz an der folgenden Adresse: Ganghoferstr. 39, D-80339 München, Deutschland („Chordiant“), abgeschlossen. Die Bedingungen dieses Vertrags gelten für jede Softwarelizenz, die von Chordiant gem’ß diesem Vertrag erteilt wird und die im Bestellformular n’her beschrieben wird. Das Datum des Inkrafttretens dieses Vertrags ist der
19, Dezember 2006.
1. Definitions.
1. Definitionen.
(a) “Affiliate” means enterprises affiliated with the Customer as defined in Section 15 AktG (German Stock Corporation Act).
 
(a) “Verbundenes Unternehmen” ist jedes mit dem Kunden gem’ß § 15 AktG verbundene Unternehmen.
(b) “Delivery Date” means the date on which Chordiant delivers the Software to Customer, or if no delivery is necessary, the Effective Date set forth above or on the relevant Order Form.
(b)  „Lieferdatum“ ist das Datum, an dem Chordiant die Software an den Kunden liefert. Andernfalls, wenn keine Lieferung erforderlich ist, ist das oben genannte Datum des Inkrafttretens dieses Vertrages bzw. das Datum des Bestellformulars maßgeblich.
(c) “Designated Center” means the computer hardware/operating system, customer-specific application, customer-specific relational database(s) (if applicable) and Customer Geographic Location designated on the relevant Order Form.
(c) „Vorgesehenes Zentrum“ ist die Hardware/ das Betriebssystem, die kundenspezifische Anwen-dung, kundenspezifische relationale Datenbank(en) (soweit vorhanden) und der Geografische Standort des Kunden auf dem entsprechenden Bestellformular.

(d) “Designated Contact” means the contact person or group designated by Customer and agreed to by Chordiant who will coordinate all Support requests to Chordiant.
(d) „Vorgesehener Ansprechpartner“ ist der vom Kunden benannte, von Chordiant akzeptierte Ansprechpartner oder die Gruppe der Ansprechpartner, der/die alle Supportwünsche mit Chordiant koordiniert/koordinieren.
(e) “Documentation” means the user guides and manuals for installation and use of the Software. Documentation is provided in CD-ROM or bound form, whichever is generally available.
(e) „Dokumentation“ sind die Benutzerleitf’den und Handbücher zur Installation und Benutzung der Software. Die Dokumentation wird je nach Verfügbarkeit auf CD-ROM oder gebunden zur Verfügung gestellt.
(f) “Error” means a reproducible defect in the Supported Program or Documentation when operated on a Supported Environment which causes the Supported Program not to operate substantially in accordance with the Documentation.
(f) „Fehler“ ist ein reproduzierbarer Mangel des unterstützten Programms oder der Dokumentation bei Betrieb in einer Unterstützten Umgebung, welcher zur Folge hat, dass das Unterstützte Programm im Wesentlichen nicht in Übereinstimmung mit der Dokumentation l’uft.
(g)”IBM” means IBM Deutschland GmbH.
(g) „IBM“ ist die IBM Deutschland GmbH.
(h) "License Fee" means the license fee(s) payable by Customer or IBM pursuant to Section 8 and as set forth in particular Order Form.
(h) "Lizenzgebühr" sind die vom Kunden oder IBM gem’ß Ziffer 8 und dem jeweiligen Bestellformular zu entrichtenden Lizenzgebühr(en).
(i) “Order Form” means the document in hard copy form by which Customer or IBM, on behalf of the customer, orders Software licenses, and which is agreed to by the parties. The Order Form shall reference the Effective Date and be governed by the terms of this Agreement.
(j) “Resolution” means a modification or workaround to the Supported Program and/or Documentation provided by Chordiant to Customer intended to resolve an Error.
(j) „Behebung“ ist eine Ver’nderung oder Überarbeitung des unterstützten Programms und/oder der Dokumentation, die dem Kunden von Chordiant zur Fehlerbehebung zur Verfügung gestellt werden.
(k) “Services” means work performed by Chordiant for Customer pursuant to a Statement of Work agreed to by the Parties under this Agreement.
(k) „Services“ sind von Chordiant ausgeführte Leistungen gem’ß einem zwischen den Parteien nach diesem Vertrag vereinbarten Arbeitsauftrag.

(l) “Software” means the software referenced in a particular Order Form in object code form distributed by Chordiant for which Customer is granted a license pursuant to this Agreement, and the media, Documentation and any Updates thereto.
(l) “Software“ ist die von Chordiant vertriebene Software gem’ß dem jeweiligen Bestellformular in Form des Objektcodes, für die dem Kunden eine Lizenz gem’ß diesem Vertrag erteilt wird, sowie die zugehörigen Datentr’ger, Dokumentationen und Updates.
(m) “Support” means ongoing support provided by Chordiant pursuant to the terms of applicable Support Agreement and Chordiant’s current support policies. “Supported Program” or “Supported Software” shall mean the most recent Update and the immediate preceding Update of the Software used at the Designated Center for which the Customer has paid the then-current Support fee.
(m) „Support“ ist der laufende, von Chordiant gew’hrte Support gem’ß den Bedingungen des anwendbaren Support-Vertrags und Chordiant´s aktuellen Supportvorschriften. „Unterstütztes Programm“ oder „Unterstützte Software“ ist die mit der letzten und der unmittelbar vorhergehenden Aktualisierung (Update) versehene aktuelle Version der Software, die im Vorgesehenen Zentrum verwendet wird und für die der Kunde die zu jenem Zeitpunkt gültige Supportgebühr gezahlt hat.
(n) "Support Fee" means the support fee(s) payable by Customer or IBM pursuant to applicable Support Agreement and as set forth in particular Order Form.
(n) "Supportgebühr" sind die vom Kunden oder IBM gem’ß anwendbaren Support-Vertrag und dem jeweiligen Bestellformular zu entrichtenden Supportgebühr(en).
(o) “Support Hours” means support hours specified on Schedule B, for either the Standard Support period or the Premier Support period, as specified on the particular Order Form.
(o) „Support-Stunden“ sind Supportstunden gem’ß Anhang B, entweder für Standard Support oder für Erweiterten Support gem’ß dem jeweiligen Bestellformular.
(p) “Support Period” means the period during which Customer is entitled to receive Support on a Supported Program, which shall be a period of twelve (12) months beginning from the Delivery Date, or, if applicable, twelve (12) months from the expiration of the preceding Support Period, unless agreed otherwise in writing by the parties.
(p) “Support-Zeitraum“ ist der Zeitraum, in dem der Kunde für ein bestimmtes unterstütztes Programm Support anfordern kann. Dieser Zeitraum erstreckt sich über zwölf (12) Monate ab Lieferdatum, oder, falls zutreffend, zwölf (12) Monate nach Ablauf des vorangegangenen Support-Zeitraums, falls nichts anderes durch die Parteien schriftlich bestimmt wurde.
(q) “Supported Environment” for any Chordiant Marketing product(s) Software means the configurations of hardware and RDBMS (relational database) platforms and releases of the Software on which the Documentation states the Software can run and for which Chordiant provides Support. Supported Environment for any other Chordiant product Software means the hardware and operating system platform for which Chordiant provides Support.
(q) „Unterstützte Umgebung“ für jedes Marketing Software-Produkt von Chordiant ist die Konfiguration der Hardware und RDBMS-Plattformen und sp’ter folgender Software-Versionen, von der die Software gem’ß Dokumentation ablaufen kann und für die Chordiant Support bietet. Die Unterstützte Umgebung für jede andere Software von Chordiant ist die Hardware und Betriebssystemplattform, für welche Chordiant Support bietet.

(r) “Update” means a subsequent release of the Software that Chordiant generally makes available for Supported Software licensees at no additional license fee other than shipping and handling charges. Update shall not include any release, option or future product that Chordiant licenses separately. Chordiant will provide Updates for the Supported Programs as and when developed for general release in Chordiant’s sole discretion.
(r) „Aktualisierung“ ist eine sp’ter folgende Softwareversion, die Chordiant in der Regel unterstützten Softwarelizenznehmern ohne zus’tzliche Lizenzgebühren gegen Erstattung der Transportkosten und Bearbeitungsspesen zur Verfügung stellt. Aktualisierungen umfassen nicht Versionen, Optionen oder zukünftige Produkte, die Chordiant unter einer neuen Lizenz herausbringt. Chordiant stellt Updates für Unterstützte Programme zur Verfügung, wenn Chordiant solche nach alleinigem Ermessen zur allgemeinen Freigabe entwickelt.
(s) "URN" means a "unique reference number" which uniquely identifies (is the key of) the primary entity in a particular Customer database, whether that primary entity represents a customer, prospect, or any other data.
(s) "URN" ist eine "eindeutige Bezugsnummer", welche hinsichtlich der prim’ren Einheit des speziellen Datenbestands des Kunden eindeutig identifiziert, ob es sich dabei um Kundendaten, mögliche Kundendaten oder irgendwelche anderen Daten handelt.
2. Software License.
2. Softwarelizenz.
(a) Rights Granted.
(a)  Übertragene Rechte.
(i) Chordiant grants to Customer a non-exclusive, non-transferable and non-assignable license (except as expressly permitted according to this Agreement) to use the Software as specified on a Order Form under this Agreement, as follows:
(i) Chordiant erteilt dem Kunden eine, soweit nicht ausdrücklich nach diesem Vertrag gestattet, nicht übertrag- und nicht abtretbare einfache Lizenz zur Benutzung der Software, so wie in einem Bestellformular gem’ß diesem Vertrag angegeben, wie folgt:
(1) To use the Software solely for Customer’s operations at the Designated Center consistent with the use limitations specified or referenced in this Agreement, the applicable Order Form and Documentation for such Software. Customer may not re-license, rent or lease the Software or use the Software for third party training, commercial timesharing or service bureau use, except as permitted in clause (2) below;
(1) Der Kunde darf die Software nur für den eigenen Betrieb im Vorgesehenen Zentrum benutzen. Dabei müssen die in diesem Vertrag angegebenen Einsatzbeschr’nkungen, das maßgebliche Bestellformular und die Dokumentation für diese Software beachtet werden. Der Kunde darf die Software nicht weiter lizenzieren, ausleihen oder vermieten, oder die Software zur Schulung von Drittparteien, zum gewerblichen Teilnehmerbetrieb oder für EDV-Dienste außer Haus einsetzen, soweit dies nicht gem’ß der nachfolgenden Ziffer (2) zul’ssig ist;

(2) To use the Software in Application Service Provider (ASP) mode by providing web-enable remote access to the Software for its own external customers who are active within the German community health system; provided that the initial use of the Software in ASP-mode shall be limited to the HEK - Hanseatische Krankenkasse and the Hamburg Münchner Krankenkasse (HMK), and Customer shall provide notice of the use of the Software in ASP-mode for any other customers in the future. Customer may authorize such external customers to have access to the Software for their activities and/or provide services to third parties by using the Software in ASP mode. Any use of the Software in ASP mode is only admissible within the scope of this Agreement and any applicable Order Form. Except as provided according to Sec. 69 c No. 3 Sentence 2 of the German Copyright Code (UrhG) or expressly permitted according to this Agreement Customer shall not assign or transfer the Software license to an external customer;
(2) Der Kunde darf die Software für Application Service Providing (ASP)-Anwendungen über web-basierte Fernzugriffe für eigene, im deutschen Gesundheitswesen t’tige Kunden, nutzen. Vorbehaltlich einer gegenseitigen schriftlichen Vereinbarung der Parteien ist die Nutzung der Software im ASP-Modus derzeit auf die HEK - Hanseatische Krankenkasse und die Hamburg Münchner Krankenkasse (HMK) beschr’nkt. Der Kunde soll Chordiant die zukünftige Nutzung der Software im ASP-Modus für weitere Dritte jeweils mitteilen. Der Kunde darf solchen eigenen Kunden insoweit das Recht auf Zugang zur Software für deren Gesch’ftst’tigkeiten einr’umen und/oder Leistungen an solche Dritte durch Nutzung der Software in ASP-Anwendungen erbringen. Jegliche Nutzung der Software in ASP-Anwendungen ist nur im Rahmen dieses Vertrages und dem zugehörigen Bestellformular zul’ssig. Abgesehen vom Fall des § 69 c Nr. 3 Satz 2 UrhG oder einer ausdrücklichen Erlaubnis nach diesem Vertrag ist jegliche Abtretung oder Übertragung der Softwarelizenz an dritte Kunden unzul’ssig;
(3) To use the Documentation provided with the Software in support of Customers authorized use of the Software;
(3) Der Kunde darf die mit der Software übermittelte Dokumentation zur Unterstützung der rechtm’ßigen Nutzung der Software benützen;
(4) To make a reasonable number of copies for back-up or archival purposes and/or temporarily transfer the Software in the event of a computer malfunction. All titles, trademarks and copyright or other restricted rights notices shall be reproduced in any such copies;
(4) Der Kunde darf eine angemessene Anzahl von Kopien zur Sicherung oder Archivierung und/oder zur tempor’ren Übertragung der Software im Fall des Versagens eines Rechners anfertigen. Alle Rechtsansprüche, Marken und Urheberrechte oder andere einschr’nkende Rechte gelten auch für diese Kopien;

(5) To allow third parties to use the Software for Customer’s operations (for example, third parties involved with disaster recovery, the integration of the Software with the Customer’s systems, development and production), so long as Customer ensures that use of the Software is in accordance with the terms of this Agreement;
(5) Drittparteien dürfen die Software für den Betrieb des Kunden (z.B. zur Wiederbeschaffung von Daten nach Schadensf’llen durch Dritte, Softwareintegration mit Systemen des Kunden, Entwicklung und Produktion) einsetzen, wenn der Kunde sicherstellt, dass die Benutzung der Software nicht gegen die Vertragsbedingungen verstößt;
(ii) Customer shall not copy or use the Software (including the Documentation) except as specified in this Agreement. Customer shall have no right to use any Sun Microsystems, Inc. software or any other third party software that is included within the Software except in connection and within the scope of Customer’s use of Chordiant’s Software product and in connection with any applicable license terms specified in this Agreement, if any. Customer acknowledges and agrees that with respect to any Chordiant Foundation Server Software licensed under this Agreement, that Customer may only interact, process and/or use such Software in conjunction with the specific seats licensed to Customer.
(ii) Der Kunde darf die Software (einschließlich Dokumentation) nur gem’ß diesem Vertrag kopieren oder benutzen. Der Kunde darf Software von Sun Microsystems, Inc. oder jeglichen anderen Drittparteien, die der Software von Chordiant beigefügt ist, nur mit und im Rahmen seiner Nutzung des Softwareprodukts von Chordiant und nur gem’ß den jeweils anwendbaren Lizenzbedingungen, soweit vorhanden und im Zusammenhang mit diesem Vertrag bestimmt, benutzen. Der Kunde erkennt an, dass er in Bezug auf nach diesem Vertrag lizensierte Chordiant Foundation Server Software diese ausschließlich entsprechend der ihm insoweit gew’hrten Anzahl der Lizenzen nutzen darf.
(iii) Customer agrees not to cause or permit the reverse engineering, disassembly, decompilation, or any other attempt to derive source code from the Software, except to the extent required to obtain interoperability with either independently created software or as specified by law.
(iii) Der Kunde erkl’rt sich einverstanden, die Software nicht rückw’rts zu entwickeln, zu disassemblieren, zu dekompilieren bzw. anderweitig zu versuchen, den Quellcode der Software abzuleiten. Dies ist nur in dem Umfang erlaubt, als es zur Überwindung von Problemen bei Nutzung mit unabh’ngig entwickelter Software unerl’sslich ist bzw. vom Gesetz vorgeschrieben wird.

(iv) Chordiant and its suppliers shall retain all title, copyright and other proprietary rights in the Software. Customer does not acquire any rights, express or implied, in the Software, other than those specified in this Agreement. Customer agrees that it will not publish any result of benchmark tests run on the Software.
(iv) Chordiant und seine Zulieferer behalten alle Rechtsansprüche, Urheberrechte oder andere Eigentumsrechte an der Software. Der Kunde erwirbt neben den in diesem Vertrag erw’hnten Rechten keine weiteren ausdrücklichen oder stillschweigenden Rechte an der Software. Der Kunde wird keine Ergebnisse von mit der Software durchgeführten Benchmark-Tests veröffentlichen.
(b) Transfer.
(b) Übertragung.
(i) Customer may transfer a Software license from one Designated Center to another within its organization upon notice to Chordiant without payment of additional license fees.
(i)  Der Kunde darf nach Hinweis an Chordiant ohne zus’tzliche Lizenzgebühren eine Softwarelizenz innerhalb seines Unternehmens von einem Vorgesehenen Zentrum zu einem anderen übertragen.
(ii) In case of an outsourcing of the Datacenter the Customer is entitled to transfer this contract with all rights and responsibilities to the new operator without any additional costs, unless additional charges are due according to the provisions of Exhibit A of this Agreement. 
(ii) Der Kunde ist im Falle einer Ausgliederung (Outsourcing) seines Rechenzentrumsbetriebes berechtigt, diesen Vertrag an den neuen Betreiber unentgeltlich mit allen Rechten und Pflichten zu übertragen, es sei denn, .zus’tzliche Zahlungspflichten ergeben sich aus den Bestimmungen in Anhang A dieses Vertrages.
(iii) Customer may use the Software on any Supported Environment available as of the Effective Date without the payment of an additional license fee, so long as Customer’s usage of the Software does not exceed the scope of the license it acquired for use. Customer is solely responsible for installation of the Software in any Supported Environment.
(iii) Der Kunde darf die Software in jeglicher nach Inkrafttreten dieses Vertrages zur Verfügung stehenden Unterstützten Umgebung ohne Entrichtung zus’tzlicher Lizenzgebühren nutzen, solange die Nutzung der Software durch den Kunden den Umfang der erworbenen Lizenzen nicht überschreitet. Der Kunde ist für die Installation der Software in jeglicher Unterstützten Umgebung allein verantwortlich.

(c) Verification. At Chordiant’s written request, not more frequently than annually, Customer shall furnish Chordiant with a signed certification verifying that the Software is being used pursuant to the provisions of this Agreement and applicable Order Form. Chordiant (or Chordiant’s designee) may audit Customer's use of the Software. Any such audit shall be conducted during regular business hours at Customer's facilities and shall not unreasonably interfere with Customer's business activities. If an audit reveals that Customer has underpaid fees to Chordiant, Customer shall be invoiced directly for such underpaid fees based on the Chordiant Price List in effect at the time the audit is completed. If the underpaid fees are in excess of five percent (5%) of the aggregate license fees paid to Chordiant pursuant to this Agreement, the Customer shall pay Chordiant’s reasonable costs of conducting the audit.
(c) Bestätigung. Auf Chordiant´s schriftlichen Wunsch, aber nicht öfter als einmal pro Jahr, hat der Kunde eine unterzeichnete Bescheinigung vorzulegen, in welcher der Kunde best’tigt, dass die Software gem’ß den Bedingungen dieses Vertrags und des entsprechenden Bestellformulars in Verwendung ist. Chordiant (oder Chordiant´s Beauftragter) darf die Nutzung der Software durch den Kunden überprüfen. Eine solche Überprüfung muss w’hrend der normalen Gesch’ftszeiten in den Einrichtungen des Kunden erfolgen und darf die gesch’ftlichen T’tigkeiten des Kunden nicht auf unangemessene Weise stören. Falls eine Überprüfung ergibt, dass der Kunde Chordiant nicht alle geschuldeten Gebühren gezahlt hat, dürfen dem Kunden die nicht gezahlten Gebühren auf Grundlage von Chordiant´s Preisliste, die zum Zeitpunkt des Abschlusses der Überprüfung gültig ist, unmittelbar in Rechnung gestellt werden. Falls die nicht bezahlten Gebühren fünf Prozent (5 %) der Gesamtsumme der Lizenzgebühren übersteigen, die der Kunde gem’ß diesem Vertrag an Chordiant gezahlt hat, muss der Kunde Chordiant die angemessenen Kosten zahlen, die beim Durchführen der Prüfung entstanden sind.
(d) Modifications. Modifications, enhancements and derivative works of the Software or any other of Chordiant’s pre-existing intellectual property rights, including certain software objects applicable to the business of Customer, are referred to herein as “Customizations.” Additions, bolt-ons or other software that interacts or interfaces with the Software are referred to herein as “Additions.” Any Customizations or Additions made by Customer, either itself or through third parties other than Chordiant, shall be owned by Customer (“Customer Customizations and Additions”). All right, title and interest to any Customizations or Additions provided by Chordiant to Customer, either directly or indirectly (“Chordiant Customizations and Additions”), shall be owned by Chordiant. Chordiant hereby grants to Customer a license to such Chordiant Customizations and Additions on the same terms and conditions as those set forth in Section 2(a) pertaining to the originally licensed Software, and such Chordiant Customizations and Additions shall be considered licensed Software under this Agreement. To the extent that Customer desires to have Chordiant incorporate any Customer Customizations and Additions (collectively, “Customer Specific Objects”) into Chordiant’s Software (and Chordiant agrees, in its sole discretion, to incorporate such Customer Specific Objects), Customer will promptly deliver to Chordiant the source and object code versions (including documentation) of such Customer Specific Objects, and any updates or modifications thereto, and hereby grants Chordiant a perpetual, irrevocable, worldwide, fully-paid, royalty-free, exclusive, transferable license to reproduce, modify, use, perform, display, distribute and sublicense, directly and indirectly, through one or more tiers of sublicenses, such Customer Specific Objects (provided that any use by Chordiant shall be on an “as-is” basis”, with no obligation on the part of Customer to maintain or support such Customer Specific Objects).
(d). Änderungen. Änderungen oder Erweiterungen der Software oder jeglicher sonstiger vorexistierender geistiger oder gewerblicher Schutzrechte, einschließlich bestimmter Softwareobjekte oder abgeleitete Werke, welche für das Gesch’ft des Kunden bestimmt sind, werden nachfolgend als „Kundenspezifische Anpassungen“ bezeichnet. Hinzufügungen, Verbindungen oder andere Software, welche mit Software im Sinne dieses Vertrages interagiert oder Schnittstellen bildet, werden nachfolgend als „Hinzufügungen“ bezeichnet. Jegliche vom Kunden geschaffenen Kundenspezifischen Anpassungen oder Hinzufügungen sind Eigentum des Kunden („Spezifische Anpassungen oder Hinzufügungen des Kunden“). Jegliche von Chordiant geschaffenen Kundenspezifischen Anpassungen oder Hinzufügungen sind Eigentum von Chordiant („Spezifische Anpassungen oder Hinzufügungen von Chordiant“). Chordiant gew’hrt dem Kunden eine Lizenz an diesen Spezifischen Anpassungen oder Hinzufügungen von Chordiant zu den in Ziffer 2 (a) in Bezug auf die ursprünglich lizensierte Software genannten Bedingungen. Diese Spezifischen Anpassungen oder Hinzufügungen von Chordiant werden dann als nach diesem Vertrag lizensierte Software behandelt. In dem Umfang, in dem Chordiant auf Wunsch des Kunden solche Spezifischen Anpassungen oder Hinzufügungen des Kunden in Chordiant´s Software einfügen soll (und Chordiant nach eigenem Ermessen zustimmt, solche Kundenspezifischen Objekte einzufügen), wird der Kunde unverzüglich die Quell- und Objektcode-Versionen (einschließlich Dokumentation) und zugehörige Aktualisierungen und Modifizierungen solcher Spezifischer Anpassungen oder Hinzufügungen des Kunden an Chordiant übermitteln. Der Kunde gew’hrt Chordiant insoweit eine dauerhafte, nicht widerrufliche, weltweite, vollst’ndig bezahlte, gebührenfreie, ausschließliche, übertragbare Lizenz zur mittelbaren oder unmittelbaren Reproduzierung, Modifizierung, Nutzung, Durchführung, Anzeige, Vertrieb und Unterlizenzvergabe über ein ein- oder mehrstufiges Unterlizenzsystem solcher Kundenspezifischer Objekte. Jegliche Nutzung dieser Lizenz durch Chordiant erfolgt ohne irgendeine Verpflichtung des Kunden, diese Spezifischen Anpassungen oder Hinzufügungen des Kunden zu pflegen oder zu unterstützen. 
 
(e) Additional Restrictions on Use of Source Code.
(e) Weitere Einschränkungen beim Einsatz des Quellcodes.
Customer acknowledges that the Software, its structure, organization and any human-readable versions of a software program ("Source Code") constitute valuable trade secrets that belong to Chordiant and/or its suppliers. If expressly stated on an Order Form, Customer may receive a license to use Source Code for certain Chordiant specific Software. Such Source Code Software shall be deemed licensed Software under the terms of this Agreement and the Order Form. Customer agrees not to adapt or translate the Source Code into another computer language, in whole or in part. Customer may modify the Source Code in accordance with Section 2(d) above.
Der Kunde erkennt an, dass die Software, ihre Struktur, Organisation und jegliche von Menschen lesbare Version eines Softwareprogramms ("Quellcode") wertvolle Gesch’ftsgeheimnisse darstellen, die Chordiant und/oder dessen Zulieferern gehören. Falls ausdrücklich im Bestellformular festgehalten, kann der Kunde eine Lizenz für den Gebrauch des Quellcodes für bestimmte Chordiant spezifische Software erwerben. Solche Quellcode Software wird als lizenzierte Software nach den Bedingungen dieses Vertrages und dem Bestellformular angesehen. Der Kunde erkl’rt sich damit einverstanden, den Quellcode, weder ganz noch teilweise, nicht in eine andere Computersprache zu übersetzen oder anzupassen. Der Kunde darf den Quellcode lediglich gem’ß Ziffer 2 (d) ver’ndern.

(i) Customer agrees that it will not disclose all or any portion of the Software's Source Code to any third parties, with the exception of authorized employees ("Authorized Employees") and authorized contractors ("Authorized Contractors") of Customer who (i) require access thereto for a purpose authorized by this Agreement, and (ii) have signed an employee or contractor agreement in which such employee or contractor agrees to protect third party confidential information. Customer agrees that any breach by any Authorized Employees or Authorized Contractors of their obligations under such confidentiality agreements shall also constitute a breach by Customer hereunder.
(i) Der Kunde erkl’rt sich einverstanden, dass er Drittparteien weder den gesamten noch einen Teil des Quellcodes der Software offenbart. Davon ausgenommen sind autorisierte Mitarbeiter („Autorisierte Mitarbeiter“) und autorisierte selbst’ndige Unternehmer („Autorisierte selbst’ndige Unternehmer“) des Kunden, die (i) zu einem in diesem Vertrag als zul’ssig genannten Zweck Zugang zur Software benötigen und (ii) einen Mitarbeiter- oder Unternehmervertrag unterzeichnet haben, in dem diese Mitarbeiter oder selbst’ndigen Unternehmer sich einverstanden erkl’ren, die vertraulichen Informationen der Drittpartei zu schützen. Der Kunde erkennt an, dass jede Pflichtverletzung durch einen Autorisierten Mitarbeiter oder Autorisierten selbst’ndigen Unternehmer im Rahmen dieser Vertr’ge eine Vertragsverletzung durch den Kunden darstellt.
(ii) Customer shall ensure that the same degree of care is used to prevent the unauthorized use, dissemination, or publication of the Software's Source Code and the Software as Customer uses to protect its own confidential information of a like nature, but in no event shall the safeguards for protecting such Source Code be less than a reasonably prudent business would exercise under similar circumstances. Customer shall take prompt and appropriate action to prevent unauthorized use or disclosure of such Source Code and the Software, including, without limitation, storing such Source Code only on secure central processing units or networks and requiring passwords and other reasonable physical controls on access to such Source Code.
(ii) Der Kunde muss sicherstellen, dass er zur Verhinderung des nicht autorisierten Einsatzes, der Verbreitung oder Veröffentlichung des Quellcodes der Software und der Software die gleiche Sorgfalt verwendet, mit der er seine eigenen vertraulichen Informationen ’hnlicher Art schützt. Auf keinen Fall dürfen die Sicherungsmaßnahmen zum Schutz dieses Quellcodes geringer sein als die, welche ein mit angemessener Sorgfalt vorgehendes Unternehmen unter ’hnlichen Umst’nden treffen würde. Der Kunde muss unverzüglich angemessene Maßnahmen ergreifen, um den nicht autorisierten Einsatz oder die nicht genehmigte Offenbarung dieses Quellcodes und der Software zu verhindern. Dazu gehört, ohne darauf beschr’nkt zu sein, die Speicherung dieses Quellcodes nur auf sicheren Zentraleinheiten oder Netzwerken, auf denen der Zugriff auf diesen Quellcode nur mit Passworten oder anderen angemessenen Kontrollmechanismen möglich ist.

(iii) Customer shall instruct Authorized Employees and Authorized Contractors not to copy the Software's Source Code on their own, and not to disclose such Source Code to anyone not authorized to receive it. Customer shall handle, use and store the Software's Source Code solely at the Customer Designated Center. The provisions of this Section are in addition to the confidentiality provisions of Section 9.
(iii) Der Kunde wird die Autorisierten Mitarbeiter und Autorisierten selbst’ndigen Unternehmer dahingehend anweisen, keine eigenen Kopien der Software-Quellcodes anzufertigen und diese Quellcodes keinen nicht autorisierten Dritten offen zu legen. Der Kunde verpflichtet sich, den Software Quellcode nur im Vorgesehenen Zentrum anzuwenden, zu nutzen und zu speichern. Die Bestimmungen dieser Ziffer gelten zus’tzlich zu den Vertraulichkeitsbestimmungen in Ziffer 8.
3. Technical Support.
Chordiant will provide technical Support according to the General Support Terms attached to this Agreement as Exhibit B.
3. Technischer Support.
Chordiant erbringt technischen Support gem’ß den als Anhang B diesem Vertrag beigefügten Allgemeinen Vertragsbedingungen für den Support.
   
4. [Intentionally omitted]
4. [Freibleibend]
   
5. Term and Termination.
5. Laufzeit und Kündigung.
(a) Term. This Agreement and each Software license granted under this Agreement shall continue perpetually unless terminated under this Section 5 (“Term and Termination”) or as otherwise specified in an applicable Order Form (see Exhibit A).
(a)  Laufzeit. Dieser Vertrag und jede erteilte Softwarelizenz gem’ß diesem Vertrag l’uft zeitlich unbegrenzt bis zur Kündigung gem’ß dieser Ziffer 5 („Laufzeit und Kündigung“) bzw. wie anderweitig im jeweiligen Bestellformular (vgl. Anhang A) vorgesehen.
(b) Termination by Customer. Customer may terminate any Software license at any time; however, termination shall not relieve Customer’s obligations specified in Section 5(d) (“Effect of Termination”).
(b) Kündigung durch den Kunden. Der Kunde darf jederzeit jede Softwarelizenz kündigen. Allerdings muss der Kunde weiterhin seine Pflichten gem’ß Ziffer 5(d) erfüllen („Wirkung der Kündigung”).
 
(c) Termination by Chordiant. Chordiant may terminate this Agreement or any license ordered according to this Agreement upon written notice if Customer materially breaches this Agreement and fails to correct the breach within thirty (30) days following written notice specifying the breach.
(c)  Kündigung durch Chordiant. Chordiant darf diesen Vertrag oder jede gem’ß diesem Vertrag bestellte Lizenz schriftlich kündigen, wenn der Kunde in wesentlichen Punkten gegen diesen Vertrag verstößt und diesen Verstoß nicht innerhalb von dreißig (30) Tagen nach der schriftlichen Benachrichtigung über diesen Verstoß korrigiert.

(d) Effect of Termination. Termination of this Agreement or any license shall not limit either party from pursuing other remedies available to it, including injunctive relief, nor shall such termination relieve Customer’s obligation to pay all fees that have accrued or are otherwise owed by Customer under any Purchase Order or Order Form. The parties’ rights and obligations under Sections 2 (a)(ii)-(iv) (“Rights Granted”), 2(d) (“Modifications”), 2(e) (“Additional Restrictions on use of Source code”), 5 (“Term and Termination”), 6 (“Indemnity, Warranties, Remedies”), 7 (“Limitation of Liability”), 8 (“Payment Provisions”), 9 (“Confidentiality”) and 10 (“Miscellaneous”) shall survive termination. Upon termination, Customer shall cease using, and shall return or destroy as directed by Chordiant, all copies of the applicable Software and Documentation.
(d) Wirkung der Kündigung. Die Kündigung dieses Vertrags oder einer Lizenz schließt weder aus, dass die Parteien andere Rechtsmittel nutzen, die diesen Parteien zur Verfügung stehen, einschließlich einstweiliger Verfügungen, noch die Verpflichtung des Kunden, alle Gebühren zu bezahlen, die angefallen sind bzw. die er gem’ß Kaufauftrag bzw. Bestellformular schuldet. Die Rechte und Pflichten der Parteien gem’ß den Ziffern 2 (a)(ii)-(iv) („Übertragene Rechte“), 2 (d) („Änderungen“), 2(e) („Weitere Einschr’nkungen beim Einsatz des Quellcodes“), 5 („Laufzeit und Kündigung“), 6 („Schadloshaltung, Gew’hrleistung, Rechtsmittel”), 7 („Haftungsausschlüsse“), 8 („Zahlungsweise“), 9 („Vertraulichkeit“) und 10 („Verschiedenes“) bleiben auch nach Kündigung wirksam. Nach der Kündigung darf der Kunde die entsprechende Software nicht mehr benutzen und muss alle Kopien der gesamten betreffenden Software und Dokumentation nach Weisung von Chordiant zurückgeben oder zerstören.
6. Indemnity, Warranties, Remedies.
6. Schadloshaltung, Gew’hrleistung, Rechtsmittel.
(a) Infringement Indemnity. Chordiant will defend and indemnify Customer against a third party claim that the Software infringes a U.S. or United Kingdom copyright or patent provided that: (i) Customer notifies Chordiant in writing within ten (10) days of the claim; (ii) Chordiant has sole control of the defense and all related settlement negotiations; and (iii) Customer provides Chordiant with the assistance, information and authority necessary to perform Chordiant’s obligations under this Section 6. Chordiant shall have no liability for any claim of infringement based on use of a superseded or altered release of Software if the infringement would have been avoided by the use of a current unaltered release of the Software which Chordiant makes available to Customer.
(a)  Schadloshaltung bei Rechtsverletzung. Unter den folgenden Voraussetzungen verteidigt Chordiant den Kunden und h’lt den Kunden gegen Ansprüche von Drittparteien schadlos für den Fall, dass die Software ein U.S.-amerikanisches oder aus dem Vereinigten Königreich stammendes Urheberrecht oder Patent verletzt: (i) Der Kunde benachrichtigt Chordiant schriftlich innerhalb von zehn (10) Tagen nach Erhebung des Anspruchs, (ii) Chordiant hat die alleinige Kontrolle über die Verteidigung und die damit verbundenen Vergleichsverhandlungen und (iii) der Kunde unterstützt, informiert und erm’chtigt Chordiant in dem Umfang, dass Chordiant seine Pflichten gem’ß dieser Ziffer 6 („Schadloshaltung, Gew’hrleistung, Rechtsmittel“) erfüllen kann. Chordiant haftet nicht im Fall von Verletzungsansprüchen auf Grundlage überholter oder ge’nderter Softwareversionen, falls die Verletzung durch Verwendung einer aktuellen, unver’nderten, von Chordiant dem Kunden zug’nglich gemachten Softwareversion h’tte vermieden werden können.

If a third party claim results in preventing Customer from using the Software or if Chordiant, in its reasonable opinion, believes that the Software is likely to be held as infringing, Chordiant shall have the option, at its expense, to (i) modify the Software to be non-infringing or (ii) obtain for Customer a license to continue using the Software. If it is not commercially reasonable to perform either of the above options, then Chordiant may terminate the license for the infringing Software and refund the license fees paid for the applicable Software license. This Section 6(a) states Chordiant’s entire liability and Customer’s exclusive remedy for infringement.
Falls der Anspruch einer Drittpartei zum Ausschluss des Kunden von der Nutzung der Software führt oder Chordiant nach vernünftigem Ermessen die Software für rechtsverletzend h’lt, kann Chordiant auf eigene Kosten (i) die Software so ver’ndern, dass sich keine Rechtsverletzung mehr ergibt oder (ii) für den Kunden eine Lizenz erwerben, so dass dieser die Software weiter nutzen kann. Wenn es wirtschaftlich nicht sinnvoll ist, eine der obigen Optionen zu nutzen, kann Chordiant die Lizenz für die rechtsverletzende Software kündigen und die gezahlten Lizenzgebühren für die betreffende Softwarelizenz zurückerstatten. Diese Ziffer 6(a) umfasst die gesamte Haftung durch Chordiant und die ausschließlichen Rechtsmittel, die dem Kunden bei Rechtsverletzungen zur Verfügung stehen.
(b) Warranties and Disclaimers.
(b) Gew’hrleistung und Freizeichnungsklauseln.
 
(i) Software Warranty. For each Supported Software license that Customer acquires, Chordiant warrants for a period of twelve (12) months from the Delivery Date that the Software, as delivered by Chordiant, will substantially perform the functions described in the associated Documentation in all material respects when operated in the Supported Environment. For the avoidance of doubt, the Parties agree that the said requirements are not specifically guaranteed and do not constitute promised qualities unless expressly agreed between the Parties. Chordiant shall, as Customers sole and exclusive remedy, correct any reproducible Errors that cause the breach of the warranty in accordance with its technical support policies, or if Chordiant is unable to make the Software operate as warranted, Customer shall be entitled to terminate the Software license and recover the fees paid to Chordiant for the Software license.
(i) Gew’hrleistung für Software. Für jede Unterstützte Softwarelizenz, die der Kunde erwirbt, gew’hrleistet Chordiant für einen Zeitraum von zwölf (12) Monaten ab Lieferdatum, dass die Software, wie sie von Chordiant an den Kunden geliefert wurde, im Wesentlichen die in der Dokumentation beschriebenen Funktionen in jeder wesentlichen Hinsicht leistet, wenn sie in einer Unterstützten Umgebung betrieben wird. Um Zweifel zu vermeiden, vereinbaren die Parteien, dass die besagten Anforderungen nur dann ausdrücklich garantiert werden und Beschaffenheitsangaben darstellen, wenn dies von den Parteien ausdrücklich vereinbart wurde. Chordiant verpflichtet sich, als einzige und ausschließliche Abhilfe, in Übereinstimmung mit den technischen Support-Bedingungen jeden reproduzierbaren Fehler zu beheben, der zu einer Verletzung der Gew’hrleistung führt. Falls Chordiant nicht in der Lage ist, die gew’hrleistete Funktionsf’higkeit der Software herzustellen, darf der Kunde die Softwarelizenz kündigen und erh’lt die an Chordiant für die Softwarelizenz gezahlten Gebühren erstattet.
   
(ii) Media Warranty. Chordiant warrants the tapes, diskettes or other media to be free of defects in materials and workmanship for thirty (30) days from the Delivery Date. Customer’s sole and exclusive remedy for breach of the media warranty shall be to require Chordiant to replace defective media returned within thirty (30) days of the Delivery Date.
(i)  Gew’hrleistung für Datentr’ger. Chordiant gew’hrleistet, dass B’nder, Disketten oder andere Datentr’ger für die Dauer von dreißig (30) Tagen nach Lieferdatum frei von Material- und Herstellungsm’ngeln sind. Die einzige Abhilfe des Kunden für Verletzung der Gew’hrleistung auf Datentr’gern ist, dass Chordiant die defekten Datentr’ger ersetzen muss, die innerhalb von dreißig (30) Tagen ab Lieferdatum zurückgeschickt werden.
(iii) Services Warranty. Chordiant warrants that any Support or consulting services provided hereunder will be performed in a professional and workmanlike manner in accordance with generally accepted industry practices. This warranty shall be valid for a period of ninety (90) days from performance. Chordiant’s sole and exclusive obligation pursuant to this warranty and Customer’s sole and exclusive remedy for services shall be re-performance of the services, provided Customer gives written notice of a breach of this warranty within the duration of this warranty period.
(ii)  Gew’hrleistung für Support. Chordiant gew’hrleistet, dass alle im Rahmen des Vertrages erbrachten Support- oder Beratungsleistungen, fach- und sachgerecht in Übereinstimmung mit den allgemein in der Branche akzeptierten Verfahren durchgeführt werden. Diese Gew’hrleistung gilt für die Dauer von neunzig (90) Tagen nach Leistung. Chordiant`s einzige und ausschließliche Verpflichtung im Rahmen dieser Gew’hrleistung, und die einzige und ausschließliche dem Kunden zur Verfügung stehende Abhilfe ist die erneute Durchführung der Arbeiten. Die setzt voraus, dass der Kunde innerhalb dieses Gew’hrleistungszeitraumes eine schriftliche Beanstandung der vertragswidrigen Durchführung an Chordiant übermittelt.

(iv) Disclaimer of Warranties. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, CHORDIANT DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS. IN ADDITION, CHORDIANT DOES NOT WARRANT THAT THE SOFTWARE WILL OPERATE IN COMBINATIONS OTHER THAN AS SPECIFIED IN THE DOCUMENTATION OR THAT THE OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE OR MEETS CUSTOMER´S REQUIREMENTS.
(iv) Gew’hrleistungsausschluss. AUSSER DEN IN DIESEM VERTRAG GENANNTEN GEWÄHRLEISTUNGEN LEHNT CHORDIANT ALLE AUSDRÜCKLICHEN, STILLSCHWEI-GENDEN ODER VOM GESETZGEBER VORGESCHRIEBENEN GEWÄHR-LEISTUNGEN AB, EINSCHLIESSLICH ALLER STILLSCHWEIGENDEN GEWÄHRLEISTUNGEN AUF HAN-DELSÜBLICHE QUALITÄT, EIGNUNG FÜR EINEN BESTIMMTEN ZWECK UND NICHTVERLETZUNG DER RECHTE VON DRITTPARTEIEN. CHORDIANT GEWÄHRLEISTET NICHT, DASS DIE SOFTWARE ZUSAMMEN MIT ANDERER ALS IN DER DOKUMENTATION SPEZIFIZIERTER SOFTWARE LÄUFT. CHORDIANT GEWÄHRLEISTET NICHT, DASS DIE SOFTWARE OHNE UNTERBRECHUNGEN ODER FEHLERFREI LÄUFT ODER DIE ANFORDERUNGEN DES KUNDEN ERFÜLLT.
7. Limitation of Liability.
7. Haftungsausschlüsse.
(a) GENERAL. CHORDIANT SHALL ONLY BE LIABLE FOR ANY DAMAGES, IRRESPECTIVE OF THE CAUSE OF ACTION, INCLUDING TORT WHICH (1) ARE CAUSED BY NEGLIGENT VIOLATION OF AN ESSENTIAL CONTRACTUAL OBLIGATION (KARDINALPFLICHT) BY CHORDIANT IN A MANNER JEOPARDIZING THE ACHIEVEMENT OF THE CONTRACTUAL PURPOSE OR (2) ARE CAUSED BY GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF CHORDIANT.
(a)  ALLGEMEINES. CHORDIANT IST NUR FÜR SCHÄDEN VERANTWORTLICH, UNABHÄNGIG VOM RECHTSGRUND EINSCHLIESSLICH UNERLAUBTER HANDLUNGEN, DIE (1) DURCH FAHRLÄSSIGE VERLETZUNG EINER KARDINALPFLICHT DURCH CHORDIANT IN EINER WEISE ENTSTEHEN, DIE EINE ERREICHUNG DES VERTRAGSZWECKS GEFÄHRDET ODER (2) DIE DURCH GROBE FAHRLÄSSIGKEIT ODER VORSÄTZLICHES FEHLVERHALTEN DURCH CHORDIANT VERURSACHT WERDEN.
(b) TYPICAL DAMAGES.
(b) TYPISCHE SCHÄDEN.

(i)  ESSENTIAL OBLIGATIONS. IF CHORDIANT IS HELD LIABLE UNDER SECTION 7 (a) (1) FOR A VIOLATION OF AN ESSENTIAL CONTRACTUAL OBLIGATION WITHOUT GROSS NEGLIGENCE OR WILFUL MISCONDUCT BEING INVOLVED, CHORDIANT´S LIABILITY FOR DAMAGES SHALL BE LIMITED TO THOSE TYPICAL DAMAGES WHICH CHORDIANT COULD REASONABLY FORSEE AT THE TIME WHEN THE ORDER OF THE CUSTUMER WAS ACCPETED, BASED ON THE CIRCUMSTANCES KNOWN TO CHORDIANT AT THAT TIME.
(i) WESENTLICHE VERPFLICHTUNGEN. FALLS CHORDIANT GEMÄSS ZIFFER 7 (a) (1) WEGEN VERSTOSS GEGEN EINE KARDINALPFLICHT OHNE GROBE FAHRLÄSSIGKEIT ODER VORSÄTZLICHE FEHLHANDLUNG HAFTBAR GEMACHT WIRD, BESCHRÄNKT SICH CHORDIANTS HAFTUNG AUF DIE TYPISCHEN SCHÄDEN, DIE CHORDIANT ZUM ZEITPUNKT HÄTTE VORHERSEHEN KÖNNEN, ALS DER KUNDENAUFTRAG ANGENOMMEN WURDE, AUF GRUNDLAGE DER UMSTÄNDE, DIE CHORDIANT ZU JENEM ZEITPUNKT BEKANNT WAREN.
(ii) EMPLOYEES. IF CHORDIANT IS HELD LIABLE FOR GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF EMPLOYEES WHICH ARE NOT MEMBER OF THE BOARD OF DIRECTORS (ORGAN) OR EXECUTIVE EMPLOYEE OF CHORDIANT (LEITENDE ANGESTELLTE) UNDER SECTION 7 (a) (2), CHORDIANT´S LIABILITY FOR DAMAGES SHALL BE LIMITED TO THOSE TYPICAL DAMAGES WHICH CHORDIANT COULD REASONABLY FORSEE AT THE TIME WHEN THE ORDER OF THE CUSTUMER WAS ACCPETED, BASED ON THE CIRCUMSTANCES KNOWN TO CHORDIANT AT THAT TIME.
(ii)  MITARBEITER. FALLS CHORDIANT GEMÄSS ZIFFER 7 (a) (2) AUFGRUND GROBER FAHRLÄSSIGKEIT ODER VORSÄTZLICHER FEHLHANDLUNG DURCH MITARBEITER HAFTBAR GEMACHT WIRD, BEI DENEN ES SICH NICHT UM MITGLIEDER DER GESCHÄFTSFÜHRUNG (ORGAN) ODER LEITENDE ANGESTELLTE VON CHORDIANT HANDELT, BESCHRÄNKT SICH CHORDIANTS HAFTUNG AUF DIE TYPISCHEN SCHÄDEN, DIE CHORDIANT ZU DEM ZEITPUNKT HÄTTE VORHERSEHEN KÖNNEN, ALS DER KUNDENAUFTRAG ANGENOMMEN WURDE, AUF GRUNDLAGE DER UMSTÄNDE, DIE CHORDIANT ZU DIESEM ZEITPUNKT BEKANNT WAREN.
(c) AGGREGATE LIABILITY. IF CHORDIANT IS LIABLE UNDER SECTION 7 (b) CHORDIANT’S AGGREGATE CUMULATIVE LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT (WHETHER ARISING FROM CONTRACT, TORT OR OTHERWISE) FOR DAMAGES SHALL IN NO EVENT EXCEED THE AMOUNT OF FEES PAID BY CUSTOMER UNDER THIS AGREEMENT, AND IF SUCH DAMAGES RESULT FROM CUSTOMER'S USE OF THE SOFTWARE OR SERVICES, SUCH LIABILITY SHALL BE LIMITED TO FEES PAID FOR THE RELEVANT SOFTWARE OR SERVICES GIVING RISE TO THE LIABILITY.
(c)  GESAMTHAFTUNG. FALLS CHORDIANT GEMÄSS ZIFFER 7 (b) HAFTET, ÜBERSTEIGT DIE GESAMTHAFTUNG VON CHORDIANT AUS DIESEM VERTRAG ODER IN VERBINDUNG MIT DIESEM VERTRAG AUF KEINEN FALL (SEI ES AUFGRUND DIESES VERTRAGS, WEGEN UNERLAUBTER HANDLUNGEN ODER ANDERWEITIG) DIE GEBÜHREN, DIE DER KUNDE GEMÄSS DIESEM VERTRAG GEZAHLT HAT. FALLS SOLCHE SCHÄDEN AUS DER BENUTZUNG DER SOFTWARE ODER DES SUPPORTS DURCH DEN KUNDEN ENTSTEHEN, IST DIESE HAFTUNG AUF DIE FÜR DIE ENTSPRECHENDE SOFTWARE ODER DEN SUPPORT BEZAHLTEN GEBÜHREN BESCHRÄNKT, DIE ZUM HAFTUNGSFALL FÜHRTEN.

(i)  ESSENTIAL OBLIGATIONS. IF CHORDIANT IS HELD LIABLE UNDER SECTION 7 (a) (1) FOR A VIOLATION OF AN ESSENTIAL CONTRACTUAL OBLIGATION WITHOUT GROSS NEGLIGENCE OR WILFUL MISCONDUCT BEING INVOLVED, CHORDIANT´S LIABILITY FOR DAMAGES SHALL BE LIMITED TO THOSE TYPICAL DAMAGES WHICH CHORDIANT COULD REASONABLY FORSEE AT THE TIME WHEN THE ORDER OF THE CUSTUMER WAS ACCPETED, BASED ON THE CIRCUMSTANCES KNOWN TO CHORDIANT AT THAT TIME.
(i) WESENTLICHE VERPFLICHTUNGEN. FALLS CHORDIANT GEMÄSS ZIFFER 7 (a) (1) WEGEN VERSTOSS GEGEN EINE KARDINALPFLICHT OHNE GROBE FAHRLÄSSIGKEIT ODER VORSÄTZLICHE FEHLHANDLUNG HAFTBAR GEMACHT WIRD, BESCHRÄNKT SICH CHORDIANTS HAFTUNG AUF DIE TYPISCHEN SCHÄDEN, DIE CHORDIANT ZUM ZEITPUNKT HÄTTE VORHERSEHEN KÖNNEN, ALS DER KUNDENAUFTRAG ANGENOMMEN WURDE, AUF GRUNDLAGE DER UMSTÄNDE, DIE CHORDIANT ZU JENEM ZEITPUNKT BEKANNT WAREN.
(ii) EMPLOYEES. IF CHORDIANT IS HELD LIABLE FOR GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF EMPLOYEES WHICH ARE NOT MEMBER OF THE BOARD OF DIRECTORS (ORGAN) OR EXECUTIVE EMPLOYEE OF CHORDIANT (LEITENDE ANGESTELLTE) UNDER SECTION 7 (a) (2), CHORDIANT´S LIABILITY FOR DAMAGES SHALL BE LIMITED TO THOSE TYPICAL DAMAGES WHICH CHORDIANT COULD REASONABLY FORSEE AT THE TIME WHEN THE ORDER OF THE CUSTUMER WAS ACCPETED, BASED ON THE CIRCUMSTANCES KNOWN TO CHORDIANT AT THAT TIME.
(ii)  MITARBEITER. FALLS CHORDIANT GEMÄSS ZIFFER 7 (a) (2) AUFGRUND GROBER FAHRLÄSSIGKEIT ODER VORSÄTZLICHER FEHLHANDLUNG DURCH MITARBEITER HAFTBAR GEMACHT WIRD, BEI DENEN ES SICH NICHT UM MITGLIEDER DER GESCHÄFTSFÜHRUNG (ORGAN) ODER LEITENDE ANGESTELLTE VON CHORDIANT HANDELT, BESCHRÄNKT SICH CHORDIANTS HAFTUNG AUF DIE TYPISCHEN SCHÄDEN, DIE CHORDIANT ZU DEM ZEITPUNKT HÄTTE VORHERSEHEN KÖNNEN, ALS DER KUNDENAUFTRAG ANGENOMMEN WURDE, AUF GRUNDLAGE DER UMSTÄNDE, DIE CHORDIANT ZU DIESEM ZEITPUNKT BEKANNT WAREN.
(c) AGGREGATE LIABILITY. IF CHORDIANT IS LIABLE UNDER SECTION 7 (b) CHORDIANT’S AGGREGATE CUMULATIVE LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT (WHETHER ARISING FROM CONTRACT, TORT OR OTHERWISE) FOR DAMAGES SHALL IN NO EVENT EXCEED THE AMOUNT OF FEES PAID BY CUSTOMER UNDER THIS AGREEMENT, AND IF SUCH DAMAGES RESULT FROM CUSTOMER'S USE OF THE SOFTWARE OR SERVICES, SUCH LIABILITY SHALL BE LIMITED TO FEES PAID FOR THE RELEVANT SOFTWARE OR SERVICES GIVING RISE TO THE LIABILITY.
(c)  GESAMTHAFTUNG. FALLS CHORDIANT GEMÄSS ZIFFER 7 (b) HAFTET, ÜBERSTEIGT DIE GESAMTHAFTUNG VON CHORDIANT AUS DIESEM VERTRAG ODER IN VERBINDUNG MIT DIESEM VERTRAG AUF KEINEN FALL (SEI ES AUFGRUND DIESES VERTRAGS, WEGEN UNERLAUBTER HANDLUNGEN ODER ANDERWEITIG) DIE GEBÜHREN, DIE DER KUNDE GEMÄSS DIESEM VERTRAG GEZAHLT HAT. FALLS SOLCHE SCHÄDEN AUS DER BENUTZUNG DER SOFTWARE ODER DES SUPPORTS DURCH DEN KUNDEN ENTSTEHEN, IST DIESE HAFTUNG AUF DIE FÜR DIE ENTSPRECHENDE SOFTWARE ODER DEN SUPPORT BEZAHLTEN GEBÜHREN BESCHRÄNKT, DIE ZUM HAFTUNGSFALL FÜHRTEN.

Chordiant Software International GmbH.
Ganghoferstr. 39
D-80339 Munich, Germany
Attn: Accounts Receivable.
(d) Taxes. The fees in this Agreement or the applicable Order Form do not include Taxes. If Chordiant is required to pay sales, use, property, excise, import or export, value-added or similar tax or duty, government fees or other taxes based on the licenses or services granted under this Agreement or on Customer’s use of Software or services (collectively, "Taxes"), then such Taxes shall be billed and paid by Customer. This Section does not apply to taxes based on Chordiant revenue or income.
 
(d)  Steuern. Die in diesem Vertrag oder im maßgeblichen Bestellformular aufgeführten Gebühren beinhalten keine Steuern. Falls Chordiant auf der Grundlage der nach diesem Vertrag geschuldeten Lizenzen oder Leistungen oder aufgrund der Nutzung der Software oder Leistungen durch den Kunden zur Zahlung von Verkaufs-, Gebrauchs-, Eigentums-, Verbrauchs-, Import oder Export oder für den Mehrwert anfallenden oder ’hnlichen Steuern und Zöllen, behördlichen Abgaben oder anderen Steuern (insgesamt, "Steuern") verpflichtet ist, sind diese Steuern dem Kunden zu berechnen und von diesem auszugleichen. Dies gilt nicht für Steuern, welche auf Chordiant´s Umsatz oder Einkommen beruhen.
 
9. Confidentiality.
9. Vertraulichkeit.
By virtue of this Agreement, the parties may have access to information that is confidential to one another ("Confidential Information"). Confidential Information shall include but not be limited to the Software (including Source Code), Chordiant services, the terms and pricing under this Agreement, and all information clearly identified as confidential or which is self-evidently of a confidential nature.
 
 
Aufgrund dieses Vertrags können die Parteien Zugang zu einander vertraulichen Informationen haben ("Vertrauliche Informationen"). Vertrauliche Informationen umfassen, ohne darauf beschränkt zu sein, die Software (einschließlich Quellcode), Chordiants Leistungen, die Bedingungen und Preise gemäß diesem Vertrag and allen Informationen, welche eindeutig als vertraulich gekennzeichnet sind bzw. sich deren Vertraulichkeit ohne weiteres aus sich selbst ergibt.
A party’s Confidential Information shall not include information that: (a) is or becomes a part of the public domain through no act or omission of the other party; (b) was in the other party’s lawful possession prior to the disclosure and had not been obtained by the other party either directly or indirectly from the disclosing party; (c) is lawfully disclosed to the other party by a third party without restriction on disclosure; or (d) is independently developed by the other party.
 
Die Vertraulichen Informationen einer Partei beinhalten nicht Informationen, welche: (a) ohne Vertrauensbruch durch die andere Partei bereits allgemein zugänglich waren; (b) sich vor Offenbarung bereits rechtmäßig im Besitz der anderen Partei befanden und weder direkt noch indirekt von der offenbarenden Partei erworben wurden; (c) von einer Drittpartei der anderen Partei rechtmäßig ohne Einschränkungen offenbart wurden; (d) unabhängig von der anderen Partei entwickelt wurden.

The parties agree to hold each other’s Confidential Information in confidence during the term of this Agreement and for a period of five (5) years after termination of this Agreement (except for Chordiant’s Software and Software services which shall remain confidential indefinitely). The parties agree, unless required by law, not to make each other’s Confidential Information available in any form to any third party for any purpose other than the implementation of this Agreement. Each party agrees to take all reasonable steps to ensure that Confidential Information is not disclosed or distributed by its employees or agents in violation of the terms of this Agreement. The Customer ensures that any third parties having access to Confidential Information within ASP-applications according to Sec. 2 (a) (i) (2) of this Agreement will treat such information strictly confidential in accordance with the provisions of this Agreement.
 
 
 
Die Parteien verpflichten sich, die Vertraulichen Informationen der anderen Vertragspartei während der Laufzeit dieses Vertrages sowie für einen Zeitraum von fünf (5) Jahren nach dessen Beendigung vertraulich zu behandeln. In Bezug auf Chordiant´s Software und Software Leistungen gilt diese Verpflichtung zeitlich unbeschränkt. Soweit nicht aufgrund Gesetzes unbedingt geboten, verpflichten sich die Parteien, die vertraulichen Informationen dritten Parteien in keinerlei Form als für die Durchführung dieses Vertrages notwendig zugänglich zu machen. Die Parteien werden alle angemessenen Maßnahmen ergreifen, um sicherzustellen, dass vertrauliche Informationen nicht unter Verstoß gegen die Bedingungen dieses Vertrages durch Mitarbeiter oder Vertreter offenbart oder verbreitet werden. Der Kunde stellt sicher, dass Dritte, welche gemäß Ziffer 2 (a) (i) (2) dieses Vertrages im Rahmen von ASP-Anwendungen Zugang zu Vertraulichen Informationen erhalten, diese ebenfalls entsprechend den Regelungen dieses Vertrages strikt vertraulich behandeln.
10. Miscellaneous.
10. Verschiedenes.
(a) Export Administration. Customer agrees to comply with all relevant export laws and regulations of the United States, the United Kingdom and any other country (“Export Laws”) to assure that neither the Software nor any direct product thereof are (i) exported, directly or indirectly, in violation of Export Laws; or (ii) are used for any purposes prohibited by the Export Laws, including, without limitation, nuclear, chemical, or biological weapons proliferation.
(a)  Exporte. Der Kunde erkl’rt sich einverstanden, alle geltenden Exportgesetze und -Vorschriften der USA, des Vereinigten Königreiches und aller anderen L’nder („Exportgesetze“) zu befolgen, so dass weder die Software noch ein direkt von der Software abgeleitetes Produkt (i) direkt oder indirekt unter Verletzung der Exportgesetze exportiert wird oder (ii) für irgendwelche Zwecke eingesetzt wird, die von den Exportgesetzen verboten sind. Dazu z’hlt, ohne darauf beschr’nkt zu sein, die Verbreitung von Abc-Waffen.
(b) Notices. All notices under this Agreement shall be in writing and shall be deemed to have been given when mailed by first class. Notices shall be sent to the addresses set forth at the beginning of this Agreement or such other address as either party may specify in writing. If notice is sent to Chordiant, it shall be sent to Chordiant´s Managing Director.
(b) Benachrichtigungen. Alle Benachrichtigungen gem’ß diesem Vertrag müssen schriftlich erfolgen und werden nach Einwurf in den Briefkasten (First Class Mail) als zugestellt betrachtet. Benachrichtigungen sind an die am Vertragsanfang angeführten Adressen oder an jede andere von einer Partei schriftlich angegebene Adresse zu schicken. Falls eine Benachrichtigung an Chordiant geschickt wird, muss sie an den Gesch’ftsführer von Chordiant gerichtet werden.

(c) Force Majeure. Neither party shall be liable hereunder by reason of any failure or delay in the performance of its obligations hereunder (except for the payment of money) on account of strikes, shortages, riots, fires, flood, storm, explosions, acts of God, war, governmental action, labor conditions, earthquakes, power shortages or any other cause which is beyond the reasonable control of such party.
(c)  Höhere Gewalt. Keine Partei ist im Rahmen dieses Vertrags für die Nichterfüllung oder Verzögerung bei Erfüllung ihrer Leistungspflichten haftbar (mit Ausnahme der Zahlung von Geld) aufgrund von Streiks, Güterverknappung, Aufruhr, Br’nden, Überflutungen, Stürmen, Explosionen, höherer Gewalt, Krieg, Maßnahmen der Regierung, Arbeitsbedingungen, Erdbeben, Energieverknappung oder aus anderen Gründen, außerhalb des Einflusses dieser Partei.
(d) Assignment. Neither this Agreement nor any rights or obligations of Customer hereunder may be assigned by Customer in whole or in part without the prior written approval of Chordiant except that Customer may assign this Agreement to any of its Affiliates. Chordiant’s rights and obligations, in whole or in part, under this Agreement may be assigned by Chordiant.
(d) Abtretung. Weder dieser Vertrag noch sich aus dem Vertrag ergebende Rechte oder Pflichten des Kunden können vom Kunden ganz oder teilweise ohne vorherige schriftliche Zustimmung von Chordiant abgetreten werden. Dies gilt jedoch nicht für eine Übernahme dieses Vertrages durch ein mit dem Kunden Verbundenes Unternehmen. Chordiants Rechte und Pflichten aus diesem Vertrag können von Chordiant ganz oder teilweise abgetreten werden.
(e) Waiver. The failure of either party to require performance by the other party of any provision hereof shall not affect the right to require such performance at any time thereafter; nor shall the waiver by either party of a breach of any provision hereof be taken or held to be a waiver of the provision itself.
(e) Verzichtserkl’rung. Das Vers’umnis einer Partei, vertragliche Leistungen von der anderen Partei zu verlangen, beeintr’chtigt nicht das Recht der Partei diese Leistungen zu einem sp’teren Zeitpunkt zu verlangen. Außerdem stellt die Verzichtserkl’rung einer Partei bei Verletzung einer Vertragsklausel keine Verzichtserkl’rung in Bezug auf die eigentliche Klausel dar.
(f) Severability. If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions of this Agreement will remain in full force and the invalid or unenforceable provision will be changed and interpreted to best accomplish the objectives of such unenforceable or intended provision within the limits of law.
(f) Aufhebung. Falls eine Vertragsklausel sich als undurchsetzbar oder als ungültig erweist, wird dadurch nicht der gesamte Vertrag undurchsetzbar oder ungültig. In einem derartigen Fall muss die undurchsetzbare oder als ungültige Klausel so ge’ndert und interpretiert werden, dass der Zielsetzung der nicht durchsetzbaren oder beabsichtigten Klausel innerhalb der Grenzen geltenden Rechts entsprochen werden kann.

(g) Controlling Law and Jurisdiction. This Agreement shall be governed in all respects by the laws of the Federal Republic of Germany. The parties agree that the United Nations Convention on Contracts for the International Sale of Goods is specifically excluded from application to this Agreement. The Regional Court Munich I (Landgericht München I) shall be responsible for all disputes in relation with the Agreement or its validity.
(g) Geltendes Recht und Gerichtsstand. Für diesen Vertrag gelten in jeder Hinsicht die Gesetze der Bundesrepublik Deutschland. Die Parteien erkl’ren sich einverstanden, dass das Übereinkommen der Vereinten Nationen über Vertr’ge über den internationalen Warenverkauf ausdrücklich nicht für diesen Vertrag gilt. Das Landgericht München I ist für alle Rechtsstreitigkeiten in Bezug auf den Vertrag bzw. über seine Gültigkeit zust’ndig.
(h) No Agency. Nothing contained herein shall be construed as creating any agency, partnership or other form of joint enterprise between the parties.
(h) Keine Vertretung. Nichts in diesem Vertrag darf als Schaffung einer Vertretung, Personengesellschaft oder anderen Form eines gemeinsamen Unternehmens zwischen den Parteien ausgelegt werden.
(i) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument.
(i) Duplikate. Dieser Vertrag kann gleichzeitig in zwei oder mehr Duplikaten ausgefertigt werden, wobei jedes Duplikat als Original betrachtet wird und alle Duplikate gemeinsam ein und denselben Vertrag darstellen.
(j) Customer Reference. Chordiant may refer to Customer as a customer in sales presentations, marketing vehicles and activities. Such activities may include, but are not limited to: a press release issued within sixty (60) days of the Effective Date of the Agreement, a Customer user story completed by Chordiant upon implementation of the Software, and a reasonable number of technical or executive level Customer reference calls for Chordiant.
(j) Bezugnahme auf den Kunden. Chordiant darf sich im Rahmen von Verkaufspr’sentationen, Marketingaktionen und -maßnahmen auf den Kunden als solchen beziehen. Diese Maßnahmen dürfen folgendes umfassen, ohne darauf beschr’nkt zu sein: Eine Pressemitteilung innerhalb von sechzig (60) Tagen nach Inkrafttreten des Vertrags, ein Artikel über den Kunden als Nutzer, der von Chordiant nach Einsatz der Software verfasst wird, und eine angemessene Anzahl von Hinweisen auf den Kunden durch technische und leitende Angestellte von Chordiant.
(k) Entire Agreement. This Agreement, Order Form(s) together with any exhibits, completely and exclusively states the agreement of the parties. In the event of any conflict between the terms of this Agreement and any exhibit hereto, the terms of this Agreement shall control. In the event of any conflict between the terms of this Agreement and any Order Form, the individualized terms of such Order Form will control, but any pre-printed terms on Customer’s purchase order will be of no effect. This Agreement supersedes, and its terms govern, all prior proposals, representations, guarantees, conditions, agreements or other communications between the parties, oral or written, regarding the subject matter of this Agreement. This Agreement including this Section 10 (k) shall not be modified except by a subsequently dated written amendment signed by the parties, and any “pre-printed” terms on a Customer purchase order or other document purporting to supplement the provisions hereof shall be void.
(k) Vollst’ndiger Vertrag. Dieser Vertrag zusammen mit dem/n Bestellformular(en) und eventuellen Anlagen repr’sentiert den Vertrag zwischen den Parteien vollst’ndig und ausschließlich. Falls zwischen den Vertragsbedingungen und Anlagen zum Vertrag Widersprüche auftreten, haben die Vertragsbedingungen Vorrang. Falls ein Widerspruch zwischen den Vertragsbedingungen und den Kaufauftr’gen oder Bestellformularen auftritt, haben die einzeln ausgeführten Bedingungen dieser Kaufauftr’ge oder Bestellformulare Vorrang, wobei die vorgedruckten Bedingungen auf dem Kaufauftrag des Kunden allerdings unberücksichtigt bleiben. Dieser Vertrag ersetzt alle vorherigen schriftlichen oder mündlichen Vorschl’ge, Behauptungen, Zusicherungen, Bedingungen, Vertr’ge oder andere Abreden zwischen den Parteien in Hinblick auf den Vertragsgegenstand, und die Bedingungen dieses Vertrags haben Vorrang. Dieser Vertrag einschließlich dieser Ziffer 10 (k) darf nur durch eine schriftliche, sp’tere, von den Parteien unterzeichnete Änderung modifiziert werden. Alle vorgedruckten Bedingungen auf einer Kundenbestellung oder anderen Dokumenten, die angeblich die Klauseln dieses Vertrags erg’nzen, sind hiermit null und nichtig.

(l) Customer can only declare a set-off with uncontested of finally awarded claims and only assert a right of retention in respect of such claim.
(l) Der Kunde kann nur mit einer unbestrittenen oder rechtskr’ftig festgestellten Forderung aufrechnen und Zurückbehaltungsrechte nur aufgrund derartiger Forderungen geltend machen.
(m) English Translation. The parties agree that to the extent there is any conflict in the language of this Agreement between the English and German version, the German version shall control and govern.
(m) Englische Übersetzung. Die Parteien erkl’ren sich einverstanden, dass im Fall von inhaltlichen Unterschieden zwischen der englischen und deutschen Version dieses Vertrags der Inhalt der deutschen Version maßgeblich ist.
In Witness Whereof, the parties hereto have caused this Agreement to be executed by their duly authorized representatives.
Zur Beurkundung dieses Vertrags haben die Vertragsparteien diesen Vertrag von ihren ordnungsgem’ß autorisierten Vertretern unterzeichnen lassen.
 
 
 
 

Chordiant Software International GmbH.:
Customer/ KUNDE.:
 
 
____/s/ Juergen Neubauer____________________
Signature/ Unterschrift
 
 
______/s/ Andreas Strausfeld____________________
Signature/ Unterschrift
 
 
______ Juergen Neubauer____________________
Print Name/ Name in Druckschrift
 
 
____ Andreas Strausfeld_______________________
Print Name/ Name in Druckschrift
 
 
________Geschaftsfurher________________________
Title/ Titel
 
 
Leiter des Geschaftsbereichs
IT Services    
Title/ Titel
 
 
____19 December 2006 _____________________
Date/ Datum
 
 
______19 Dezember 2006 ____________________
Date/ Datum



/s/ Peter Norman

Peter Norman
Chief Financial Officer
December 18, 2006

/s/ Steven R. Springsteel

Steven R. Springsteel
President and CEO
December 18, 2006


Exhibit A
Exhibit A (Software Order)


Contract Information

Customer Name: Purchase Order Number:
Customer Location: Customer Telephone Number:
Designated Support Contact: Contact’s E-Mail Address:

Agreement Name and Date: Software License and Services Agreement dated __________________
This Order Form (“Order Form”) is placed in accordance with and shall be governed by the terms of the Agreement (“Agreement”) specified above. Customer hereby orders the Software licenses for use as follows:

A: SOFTWARE LICENSE

Designated Center:

Hardware:  HP Proliant 
Operating System: SLES 9 (SUSE LINUX ENTERPRISE SERVER, V9)
Customer Application: Contact Center Architecture
Customer Relational Database (Marketing product Software): UDB
Geographic Location: Germany
Licensed end-customer: DAK

Software-License for DAK according to the Agreement between DAK and Chordiant
 
  
 
USERS
License Type (i.e. Named User/Client, Server, Developer)
URN’s (no. of)
Licence Fee
 
Chordiant Call Center Browser Edition
 
20.000
 
Concurrent user
  
Chordiant Foundation Server
Enterprise
CPU
  
- Application Components
      
- Business Process Server
      
- Café Server
      
- Security Server
      
- CTI Server
      
- Persistence Server
      
- Request Server
      
- JDBC Connector
      
- Chordiant Connector for WebSphere MQ
      
- Chordiant Interaction Controller
      
       
Chordiant Tools Bundle
      
- Chordiant Business Process Designer
Enterprise
Developers
  
- Chordiant Café Developer Environment
Enterprise
Developers
  
     
 
Chordiant Rules Server
4
CPU
  
Chordiant Rules Designers
5
Designers
  
       
Chordiant Marketing Director
  
9Mio URN
  
 
 
License Fee net (IBM pricing to DAK; License fee will be paid by IBM)
  
€ 12.700.000,--

Annual Maintenance Fee net (to be paid by DAK)
(at Dak’s option, first payment is due on 1. January. 2010)       € 1.440.000,--

Any Support for the Software listed above will begin on 12/31/06, and will be provided free of charge by Chordiant to DAK through 12/31/09.  Beginning on January 1, 2010, DAK will have the option of purchasing Support from CHRD for an annual fee of €1.440.000 for the software listed above. At DAK’s option, after expiration of the Support Period ending December 31, 2010, and each subsequent renewal period, DAK may acquire an additional one year of Support services for the Software licensed under this Order Form, for an annual Support Fee of €1.440.000, for the period from January 1 to December 31 of each year. 

All prices are subject to applicable statutory VAT.

Support.

Support services will be provided for the Software so long as the annual Support Fees have been paid. The fee for each renewal period will be due and payable by DAK in full net 30 days from receipt by DAK of an accurate invoice.

Additional Licenses

DAK may purchase additional 30.000 user - licenses for Chordiant Call Center Browser Edition. On this basis DAK and CHORDIANT agree to the following conditions:

Additional user licenses must be ordered by a minimum of 10.000 users each. The net price will be:
 
Additional Chordiant Call Center Browser Edition
 
10.000
 
Concurrent user
 
€ 3.330.000,--

Annual Support Fee net
(16 % effective immediately after purchase)         € 532.800,--

The fee for license and Support for each additional order for Concurrent Users will be due and payable by DAK in full net 30 days from receipt by DAK of an accurate invoice. All prices are subject to applicable statutory VAT.


This license may be transferred to another Designated Center in accordance with the terms of the applicable Software License and Services Agreement.


B: Miscellaneous. As specified on this Order Form, Chordiant shall deliver to IBM the number of copies specified above of the Software media and Documentation (CD-ROM or bound, whichever is generally available) (“Master Copy”) for each Software license for use at the Designated Center. Upon delivery of the Software specified above to IBM, the Software shall be deemed accepted by Customer. Chordiant will not be required to deliver any Software to the Customer.


Chordiant Software International GmbH      Customer:


/s/ Juergen Neubauer          /s/ Andreas Strausfeld   
Signature                  Signature


Juergen Neubauer          Andreas Strausfeld   
Print Name              Print Name


Lieter des Geschaftsbereichs
Geschaftsfuhrer              IT Services   
Print Title                  Print Title

19 December 2006             19 Dezember 2006  
Date               Date


/s/ Peter Norman

Peter Norman
Chief Financial Officer
December 18, 2006

/s/ Steven R. Springsteel

Steven R. Springsteel
President and CEO
December 18, 2006


Anhang A
Anhang A (Bestellung Software)


Vertragsinformationen

Kundenname: Bestellnummer:
Kundenstandort: Telefonnummer des Kunden:
Vorgesehener Support Ansprechpartner: E-Mail-Adresse des Ansprechpartners:

Bezeichnung und Datum des Vertrags: Datum des Softwarelizenz- und Servicevertrags ________________
Dieses Bestellformular („Bestellformular“) stimmt mit den Bedingungen des oben genannten Vertrags („Vertrag“) überein. Die Bedingungen des oben genannten Vertrags haben Vorrang. Der Kunde bestellt hiermit die Softwarelizenzen für die folgenden Einsatzbereiche:

A: SOFTWARELIZENZ.

Vorgesehenes Zentrum:

Hardware: HP Proliant 
Betriebssystem: SLES 9 (SUSE LINUX ENTERPRISE SERVER, V9)
Kundenanwendung: Contact Center Architecture
Kundenbeziehungsdatenbank: UDB
Geografischer Standort: Deutschland 
Lizensierter Endkunde: DAK

Software-Lizenz für die DAK gemäß dem Vertrag zwischen der DAK und Chordiant
 
  
 
Anzahl
License Type (i.e. Named User/Client, Server, Developer)
URN’s (no. of)
Lizenzgebühr
 
Chordiant Call Center Browser Edition
 
20.000
 
Concurrent user
  
Chordiant Foundation Server
Enterprise
CPU
  
- Application Components
      
- Business Process Server
      
- Café Server
      
- Security Server
      
- CTI Server
      
- Persistence Server
      
- Request Server
      
- JDBC Connector
      
- Chordiant Connector for WebSphere MQ
      
- Chordiant Interaction Controller
      
       
Chordiant Tools Bundle
      
- Chordiant Business Process Designer
Enterprise
Developers
  
- Chordiant Café Developer Environment
Enterprise
Developers
  
     
 
Chordiant Rules Server
4
CPU
  
Chordiant Rules Designers
5
Designers
  
       
Chordiant Marketing Director
  
9Mio URN
  
 
 
Lizenzgebühr TOTAL netto (gemäß Preisfestsetzung IBM; IIBM bezahlt Lizenzgebühr)
  
€ 12.700.000,--

Software-Support für oben angegebenes Paket jährlich netto (zu entrichten von der DAK)
(entsprechend der Option der DAK; fällig erstmals zum 1. Januar. 2010)   € 1.440.000,--

Der j’hrliche Support für die vorgenannte Software soll am 31. Dezember 2006 beginnen und wird von Chordiant unentgeltlich bis zum 31. Dezember 2009 an die DAK erbracht. Die DAK ist berechtigt, weiteren Support für die vorgenannte Software von Chordiant für den Zeitraum ab 01. Januar - 31. Dezember 2010 zum Preis von netto € 1.440.000,00 zu bestellen. Nach Ablauf des Support-Zeitraums bis einschließlich 31. Dezember 2010 kann die DAK für weitere j’hrliche Verl’ngerungszeitr’ume Support zum Preis von netto € 1.440.000,00 für die gem’ß diesem Bestellformular lizensierte Software bestellen.

Jegliche Gebühren verstehen sich zuzüglich der jeweiligen gesetzlichen Mwst.

Support.

Support-Leistungen werden für die Software für den Zeitraum erbracht, in dem die j’hrlichen Support-Gebühren entrichtet wurden. Die Gebühren für den jeweiligen Verl’ngerungszeitraum sind innerhalb von 30 Tagen nach Erhalt einer ordnungsgem’ßen Rechnung an die DAK f’llig und zahlbar.

Weitere Lizenzen:

Lizenzen für zusätzliche Nutzer können in einer Mindeststückzahl von 10.000 Nutzern bestellt werden. Die Netto-Preise sind wie folgt:
 
Zusätzliche Chordiant Call Center Browser Edition
 
10.000
 
gleichzeitige Nutzer
 
€ 3.330.000,--

Darauf entfallende jährliche Support Gebühr netto
(16 % ;unmittelbar fällig nach Erwerb der Lizenzen)        € 532.800,--

Die Lizenz- und Support-Gebühren jeglicher Bestellung für weitere gleichzeitige Nutzer sind innerhalb von 30 Tagen nach Empfang einer ordnungsgem’ßen Rechnung von der DAK ohne Abzug zu erstatten. Jegliche Gebühren verstehen sich zuzüglich der jeweiligen gesetzlichen Mwst.


Diese Lizenz kann gemäß den Bestimmungen des zugehörigen Softwarelizenz- und Servicevertrages auf ein anderes Vorgesehenes Zentrum übertragen werden.


B: Verschiedenes. Laut diesem Bestellformular liefert Chordiant die oben angegebene Anzahl Kopien auf Softwaredatentr’gern mit Dokumentation (je nach Verfügbarkeit CD-ROM oder gebunden) („Hauptkopie“) an IBM für jede Softwarelizenz, ,um im Vorgesehenen Zentrum des Kunden eingesetzt zu werden. Der Kunde darf für jeden Lizenztyp der Software je eine Kopie der Software einschließlich Dokumentation machen, und der Kunde ist für die Installation der Software verantwortlich. Mit Lieferung der Software an IBM übernimmt der Kunde diese. Eine weitere Lieferung der Software an den Kunden ist nicht erforderlich.


Chordiant Software International GmbH          KUNDE/Customer:


/s/ Juergen Neubauer             /s/ Andreas Strausfeld   
Signature                      Signature


Juergen Neubauer              Andreas Strausfeld   
Print Name                  Print Name


    Lieter des Geschaftsbereichs
Geschaftsfuhrer              IT Services   
Print Title                  Print Title

19 December 2006                 19 Dezember 2006  
Date                   Date



/s/ Peter Norman

Peter Norman
Chief Financial Officer
December 18, 2006

/s/ Steven R. Springsteel

Steven R. Springsteel
President and CEO
December 18, 2006


Exhibit B
General Support Terms:


1. Support Services. Support services will be provided under these terms, Chordiant’s support policies in effect on the date Support is ordered by Customer and the terms of the Agreement. Support services shall be provided from Chordiant’s principal place of business or at other sites that house its support facilities and/or personnel or at the Designated Center, as determined in Chordiant’s sole discretion. Each on-site visit of Chordiant personnel for support purposes requires a corresponding written order of the Customer. If Chordiant is responsible to fix an Error of the Software caused by Chordiant and sends personnel to the Designated Centre to resolve such Error in the Supported Program, Chordiant shall pay Chordiant’s reasonable travel, meals and lodging expenses. In any other cases Customer shall pay such reasonable expenses for on-site visits of Chordiant personnel.

2. Incidental Expenses. For any other on-site services requested by Customer, Customer shall reimburse Chordiant for actual, reasonable travel and out-of-pocket expenses incurred (separate from then-current Support Fees).

3. Reinstatement. Once Support has been terminated by Customer or Chordiant for a particular Supported Program, it can be reinstated only if Chordiant is still offering Support for such Supported Program and Customer pays a fee equal to the Support Fees that would have been payable for the period of time during which Support was terminated for such Supported Program.

4. Supervision and Management. Customer is responsible for undertaking the proper supervision, implementation and management of its use of the Supported Programs, including, but not limited to: (i) assuring proper Supported Environment configuration, Supported Programs installation and operating methods; (ii) following industry standard procedures for the security of data, accuracy of input and output, and back-up plans, including restart and recovery in the event of hardware or software error or malfunction and (iii) the proper supervision and management of the use of the Supported Programs within ASP-applications for third parties according to Sec. 2 (a) (i) (2). Chordiant does not warrant (i) the performance of, or combination of, Software with any third party software, (ii) any implementation of the Software that does not follow Chordiant’s delivery methodology, or (iii) any software or components not supplied by Chordiant.

5. Training. Customer is responsible for proper training of all appropriate personnel or any third parties using the Software according to Sec. 2 (a) (i) (2) within ASP-applications in the operation and use of the Software and associated equipment.

6. Access to Personnel and Equipment. Customer agrees to (i) provide Chordiant with remote access to Customer’s Supported Software during the term of this Agreement via an electronic link, controlled by Customer, via Webex or a comparable software; and (ii) provide any reasonable assistance that Chordiant may require from the Designated Contacts and other appropriate Customer representatives (e.g. network administrator, as the case may be) to enable Chordiant to provide Customer with Support.

7. Support Term. Upon expiration of an existing Support Period for a particular Supported Program, a new Support Period shall automatically begin for a consecutive twelve (12) month term (“Renewal Period”) so long as (i) Customer pays the Support Fee within thirty (30) days of invoice by Chordiant; and (ii) Chordiant is still offering Support on such Supported Program.

8. Annual Support Fees. The initial annual Support Fee shall be stated in the Order Form. Fees for Support are due and payable annually in advance. The annual Support Fee for any Renewal Period shall not be less than the initial annual Support Fee and shall only increase from the previous year’s Support Fee by not more than the average European consumer inflation index Eurostat), but in any case not more than 3%..

9. Scope of Support. Chordiant shall make available to Customer Support in the form of access via e-mail, web and telephone (telephone access during the Support Hours only) in English to the Designated Contacts and/or via the support website for technical information, technical advice and technical consultation regarding Customer’s use of the Supported Software. The primary objective of Chordiant Product Support is to assist Customer in maintaining and/or regaining an operational state by commercially reasonable efforts. The secondary objective of Product Support is to provide in due course the correction of any underlying Errors. Any priority levels and response times shall be governed by Schedule A to these terms.

(a) Scope. Product Support will include the following:

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

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

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

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

(c) Exceptions. Chordiant shall have no responsibility to fix any Errors arising out of or related to the following causes:

a.  
any modifications or enhancements made by the Customer or any third parties using the Software according to Sec. 2 (a) (i) (2) within ASP-applications (“ASP-Customer”) to the Software or the application specific environment, unless such modifications or enhancements are specifically approved in writing by Chordiant Product Support; this includes but is not limited to;
- location of binaries
- scripts provided by Chordiant
- any application specific object (e.g., table, view, index, trigger)
- any application specific operating system permissions or role privileges
b.  
Any modification or combination of the Software (in whole or in part), including without limitation any portions of the Software code or Source Code customized by the Customer or the ASP-Customer that is not part of the unmodified Software delivered by Chordiant or for which Chordiant has not received and acknowledged receipt of the source code and agreed to Support.
c.  
Use of the Software in an environment other than a Supported Environment.
d.  
Accident; electrical or electromagnetic stress; neglect; misuse; failure or fluctuation of electric power, failure of media not furnished by Chordiant; operation of the Software with other media and hardware, software or telecommunication equipment or software; or causes other than ordinary use.

10. Customer Responsibilities 

Customer agrees to:
(i)
Provide Chordiant with remote access to Customer’s Supported Software during the term of this Agreement via an electronic link; and
(ii)
Provide any reasonable assistance that Chordiant may require from the Designated Contacts and other appropriate Customer representatives (e.g. network administrator, as the case may be) to enable Chordiant to provide Customer with Support.
(iii)
Establish and maintain the conditions of the Supported Environment in compliance with Chordiant Certified Matrix and Technical Stack developed for the installed release or any environmental operating ranges specified by the manufacturers of the components of the Designated Center. Any deviation from this Support Environment voids all Resolutions within the timeframe set forth in Exhibit B.

In the event that the Customer fails to comply with the above and this necessitates on-site attendance authorized by the Customer and/or the provision of additional Chordiant Services, Customer agrees to pay Chordiant for any expenses associated with such services at Chordiant’s then-current time and materials services rates.

The Customer agrees to designate appropriately qualified and trained personnel to be the Designated Contacts, and only those individuals shall request Support services. The Customer agrees endeavor to adequately train and obtain “Chordiant certification” for, and forward to Chordiant the names and contact details of the Designated Support Contacts.

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

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

The Customer agrees to notify Chordiant Product Support promptly of any malfunction of the Supported Software.

The Customer agrees to provide Chordiant with access to and use of such of the Customer’s information and facilities reasonably necessary to service the Supported Software including, but not limited to, an accurate description of the Designated Center and the current Supported Environment, the problem being reported, the transactions and any error messages, along with screenshots and log files.

The Customer agrees to install the Current Release within the timeframe set out in Chordiant’s release policy in effect on the date Support is ordered (see the relevant passages at “Chordiant Product Support: Customer Guide to Technical Services”) and in accordance with Chordiant´s end-of-life (EOL) policy.






Schedule A
Priority Levels And Response Times:

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

NORMAL SUPPORT HOURS

Chordiant generally provides Product Support during normal business hours defined as follows
EMEA   0:00 - 24:00 Greenwich Mean Time (GMT)
Americas 17:00 - 01:00 GMT, i.e. 9:00 - 17:00 (PST) or 12:00 - 21:00 (EST)
Asia/Pacific local business hours (Melbourne, Australia)

Notes:

(a)  
PRIO-1 calls are to be placed by phone and followed up with a detailed explanation of the problem via email to the respective regional support center.
(b)  
The Customer may categorize the priority level in accordance with the above definitions when reporting the problem.




Anhang B
Allgemeine Vertragsbedingungen für den Support


1. Support. Der Support erfolgt gem’ß diesen Bedingungen, den entsprechend am Tag der Support-Anforderung durch den Kunden gültigen Support-Vorschriften von Chordiant und den Bedingungen dieses Vertrages. Der Support erfolgt nach beliebigem Ermessen durch Chordiant vom Hauptgesch’ftssitz von Chordiant oder anderen Betriebsst’tten, die über die entsprechenden Supporteinrichtungen und/oder deren Personal verfügen, oder dem Vorgesehenen Zentrum (Designated Center) aus. Jeglicher Vor-Ort-Einsatz von Chordiant-Mitarbeitern setzt einen schriftlichen Auftrag des Kunden voraus. Falls Chordiant verpflichtet ist, einen selbst verursachten Fehler der Software im Unterstützten Programm zu beseitigen und insoweit Mitarbeiter zum Vorgesehenen Zentrum entsendet, tr’gt Chordiant die entstandenen Kosten für Reise, Unterkunft und Verpflegung. In jeglichen anderen F’llen tr’gt der Kunde diese entstandenen angemessenen Kosten für Vor-Ort-Eins’tze von Chordiant-Mitarbeitern.

2. Sonstige Kosten. Für jeden sonstigen Vor-Ort-Service auf Anfrage des Kunden erstattet der Kunde Chordiant alle tats’chlich angefallenen, angemessenen Reisekosten und sonstigen Kosten (zus’tzlich zu den laufenden Support-Gebühren).

3. Wiederaufnahme. Nach Beendigung des Supportvertrages durch den Kunden oder durch Chordiant für ein bestimmtes Unterstütztes Programm, ist eine Wiederaufnahme nur möglich, falls Chordiant immer noch Support für solch ein Unterstütztes Programm anbietet und der Kunde eine Gebühr entsprechend der Höhe der Supportgebühren entrichtet, die in dem Zeitraum angefallen w’re, in dem der Supportvertrag für solch ein Unterstütztes Programm beendet wurde.

4. Überwachung und Management. Der Kunde ist verantwortlich für die ordnungsgem’ße Überwachung und Durchführung und das Gebrauchsmanagement für die Unterstützten Programme, dazu gehört insbesondere, (i) Sicherstellung einer funktionsf’higen Konfiguration für das Unterstützte Umfeld sowie einer funktionsf’higen Installation der Unterstützten Programme und Arbeitsmethoden; (ii) Befolgung der Standardverfahren der Softwareindustrie für Datensicherheit, Richtigkeit von Input und Output, Pl’ne für die Erstellung von Sicherheitskopien, einschließlich eines Neustarts und Wiederherstellung im Falle eines Fehlers in der Hardware oder Software und (iii) die ordnungsgem’ße Überwachung und das Gebrauchsmanagement der Nutzung der Unterstützten Programme durch oder für Dritte gem’ß Ziffer 2 (a) (i) (2) bei ASP-Anwendungen. Chordiant übernimmt keine Gew’hrleistung für (i) die Leistung (Performance), oder Verbindung der Software mit Software eines Dritten, (ii) jegliche Implementierung der Software, die nicht der Liefermethodik von Chordiant folgt, oder (iii) nicht durch Chordiant gelieferter Software oder Bestandteile.

5. Schulung. Der Kunde ist für eine ordentliche Schulung des gesamten entsprechenden Personals bzw. für Dritte, welche die Software gem’ß Ziffer 2 (a) (i) (2) bei ASP-Anwendungen nutzen, mit dem Betrieb und Gebrauch der Software und damit verbundenen Ausrüstungen verantwortlich.

6. Zugriff auf Personal und Ausrüstung. Der Kunde verpflichtet sich (i) Chordiant einen Fernzugriff (Remote Access) auf die Unterstützte Software des Kunden w’hrend der Laufzeit des Vertrages mittels einer vom Kunden kontrollierten elektronischen Verbindung wie Webex oder einer vergleichbaren Software zu ermöglichen; und (ii) angemessenen Unterstützung zu gew’hrleisten, die Chordiant vom Vorgesehenen Ansprechpartner und anderen geeigneten Vertretern des Kunden (z.B. Netzwerkadministrator, falls erforderlich) anfordert, so dass es Chordiant ermöglicht wird, dem Kunden entsprechenden Support zu bieten.

7. Laufzeit des Supports. Mit Ablauf der Laufzeit eines bestehenden Supportvertrages für ein bestimmtes Unterstütztes Programm, beginnt automatisch eine neue Laufzeit für weitere zwölf (12) Monate („Verl’ngerte Laufzeit“), sofern (i) der Kunde innerhalb von dreißig (30) Tagen ab Rechnungsstellung durch Chordiant die Support-Gebühr bezahlt; und (ii) Chordiant immer noch Support für solch ein Unterstütztes Programm anbietet.

8. J’hrliche Support-Gebühren. Die anf’nglichen j’hrlichen Gebühren für den Support werden im Bestellformular festgelegt. Die Support-Gebühren sind j’hrlich f’llig und jeweils im Voraus zahlbar. Die j’hrlichen Support-Gebühren für einen Verl’ngerungszeitraum können nur bis zu der durchschnittlichen europ’ischen Inflationsrate (Eurostat), jedoch maximal um drei Prozent (3%) erhöht werden.


9. Umfang des Supports. Chordiant wird dem Kunden seinen technischen Support mittels E-mail, Internet und Telefon (Telefonzugang nur w’hrend der Support-Zeiten) in englischer Sprache über dessen Vorgesehenen Ansprechpartner zur Verfügung stellen und/oder über die Internetseite des Supports für technische Information und Beratung in Bezug auf den Gebrauch der unterstützen Software durch den Kunden. Das wesentliche Ziel des Supports für Produkte von Chordiant ist es, den Kunden mit wirtschaftlich angemessenen Anstrengungen bei der Aufrechterhaltung und/oder Wiederherstellung des Betriebsstatus zu unterstützen. Das n’chst wichtigste Ziel des Supports ist die unmittelbare Behebung von zugrunde liegenden Fehlern. Jegliche Priorit’tsgrade und Reaktionszeiten richten sich nach Plan A dieser Bedingungen.

(a) Der Support schließt nachfolgendes ein:

(1) Problemverhinderung
 
1.
Mitteilung über die Verfügbarkeit von allgemein zug’nglichen Patch-Dateien und Freigabe von Versionen der Software.

(2) Problemidentifizierung
1. Klarstellung von Chordiant Fehlermeldungen,
2. Unterstützung in der Identifizierung und Überprüfung der Ursachen vermuteter Fehler, und
3. Beratung in der Umgehung identifizierter Fehler (Zurverfügungstellung von Überbrückungen) der unterstützten Software.

(3) Problembehebung
1. Bericht und Suche nach Produktm’ngeln und Erweiterungswünsche.
2. Behebung der M’ngel mittels Überbrückungen, Wartungsfreigaben oder in Ausnahmef’llen Notfall-Patches, und
3. Mitteilung über den Status der Probleme, einschließlich Eskalation, falls erforderlich.

(b) Fehlerbehebung. Chordiant wird bestrebt sein, umgehend auf die Fehlermeldung des Kunden zu reagieren und best’tigt die vom Kunden gemeldeten Fehler in Übereinstimmung mit dem Priorit’tsgrad und Antwortzeiten wie in Plan A angegeben. Chordiant wird jeden Kundenbericht über einen Fehler schriftlich best’tigen und eine Berichtsnummer für das Softwareproblem ausgeben, welche vom Kunden und Chordiant bei jeder Korrespondenz in Bezug auf dieses Problem zu benutzen ist. Chordiant wird wirtschaftlich angemessene Anstrengungen unternehmen, um eine Problemlösung zu beizubringen.

(c) Ausnahmen. Chordiant übernimmt keine Verantwortung für die Beseitigung von Fehlern, die aus folgenden Gründen entstanden sind:

a) Modifikationen oder Erweiterungen durch den Kunden oder Dritte, welche die Software gemäß Ziffer 2 (a) (i) (2) des Software-Lizenz- und Servicevertrages bei ASP-Anwendungen nutzen, an der Software oder dem anwendungsspezifischen Umfeld, es sei denn dass diese Modifikationen bzw. Erweiterungen ausdrücklich schriftlich durch den Support für das Produkt von Chordiant genehmigt wurden, dazu gehören, ohne darauf beschränkt zu sein:
-  
Lokalisation von Binärdateien
-  
von Chordiant zur Verfügung gestellte scripts
-  
jedes anwendungsspezifische Objekt (z.B. Tabelle, Anzeige, Index, Trigger)
-  
anwendungsspezifische Genehmigungen für das Betriebssystem oder Rollenprivilegien
b) Ab’nderung oder Kombination (ganz oder teilweise) der Software, einschließlich, ohne darauf beschr’nkt zu sein, jedes Teil des kundenspezifischen Softwarecodes oder Quellcodes, welcher nicht Bestandteil der nicht modifizierten von Chordiant gelieferten Software ist bzw. für den Chordiant kein Quellcode vorliegt, dessen Erhalt in Übereinstimmung mit dem Support best’tigt wurde.
c) Einsatz der Software in einer Umgebung, die nicht der unterstützten Umgebung entspricht.
d) Unfall; elektrische oder elektromagnetische Überbelastung, Vernachl’ssigung, unsachgem’ße Verwendung, Stromausfall oder -Schwankungen, Ausfall von Datentr’gern, die nicht von Chordiant bereitgestellt wurden, Betrieb der Software mit anderen Datentr’gern und anderer Hardware, Software oder Telekommunikationsschnittstellen, oder alle Ursachen außerhalb des Normalbetriebs.

10. Pflichten des Kunden

Der Kunde verpflichtet sich,
(i)  Chordiant einen Fernzugriff (Remote Access) auf die unterstützte Software des Kunden w’hrend der Laufzeit dieser Vereinbarung mittels einer elektronischen Verbindung zu ermöglichen;
(ii)  jedwede angemessene Unterstützung zu gew’hrleisten, die Chordiant vom Vorgesehenen Ansprechpartner und anderen geeigneten Vertretern des Kunden (z.B. Netzwerkadministrator, falls erforderlich) anfordert, so dass es Chordiant ermöglicht wird, dem Kunden entsprechenden Support zu bieten und
(iii) Die Bedingungen des Unterstützten Umfelds zu errichten und aufrecht zu erhalten, gem’ß der von Chordiant zugelassenen Matrix und den technischen Stacks, die für die installierte Version entwickelt wurden bzw. eines Betriebsbereichs der Umgebung, welcher durch die Hersteller der Komponenten des Vorgesehenen Zentrums (Designated Center) spezifiziert wurde. Jede Abweichung von der Unterstützten Umgebung führt zur Ungültigkeit aller Resolutions (Behebungen) innerhalb des in Anhang B aufgeführten Zeitrahmens.

Im Falle, dass der Kunde die oben genannten Bedingungen nicht einh’lt und ein Support vor Ort und/oder die Bereitstellung zus’tzlicher Dienste durch Chordiant notwendig sind, verpflichtet sich der Kunde zur Erstattung aller Auslagen, wenn diese Dienste durch den Kunden autorisiert wurden, gem’ß den zu diesem Zeitpunkt jeweils gültigen S’tzen von Chordiant für Material- und Zeitaufwand.

Der Kunde verpflichtet sich entsprechend qualifiziertes und geschultes Personal als Vorgesehenen Ansprechpartner zu bestimmen, wobei nur diese Personen entsprechende Supportleistungen anfordern dürfen. Der Kunde wird die Vorgesehenen Ansprechpartner entsprechend schulen, und wird Chordiant die Namen und Kontaktinformationen der Ansprechpartner für den Support mitteilen.

Der Kunde verpflichtet sich, Verfahren zu unterhalten, um die Wiederherstellung verlorener oder abge’nderter Verzeichnisse, Daten oder Programme zu ermöglichen, und der Kunde stimmt zu, dass Chordiant unter keinen Umst’nden für etwaige Folgen haftbar gemacht werden kann, die durch verlorene oder korrumpierte Verzeichnisse, Daten oder Programme entstehen können. Der Kunde tr’gt die alleinige Verantwortlichkeit dafür, dass alle Backup-Verfahren zu seinem eigenen Nutzen ausgeführt werden, um so die Aufrechterhaltung der Datenintegrit’t bei eventuellen Datenverlusten und die Wiederherstellung von Programmen des Kunden zu gew’hrleisten.

Der Kunde stimmt zu, dass er die alleinige Verantwortlichkeit für die Sicherheit seiner vertraulichen und geschützten Informationen tr’gt. Der Kunde wird diese Informationen nicht an Chordiant offen legen, außer im Fall, dass dies für Zwecke der Erbringung der Supportleistung durch Chordiant unumg’nglich ist.

Der Kunde stimmt zu, den Support von Chordiant umgehend über die etwaige Fehlerhaftigkeit der Unterstützten Software zu informieren.

Der Kunde verpflichtet sich, solche Informationen und Einrichtungen Chordiant zugänglich zu machen, die angemessen und notwendig für den Support der Unterstützten Software sind, insbesondere einer genauen Beschreibung des Vorgesehenen Zentrums sowie der aktuellen Unterstützten Umgebung, unter Mitteilung des Problems, der Transaktionen und jeglicher Fehlermeldungen, zusammen mit den entsprechenden Bildschirmausdrucken (Screenshots) und Protokolldateien (log files).

Der Kunde wird aktuelle Versionen der Software entsprechend den aktuell maßgeblichen Chordiant-Richtlinien (siehe die entsprechenden Passagen in „Chordiant Product Support: Customer Guide to Technical Services“) und im Einklang mit der jeweils maßgeblichen Chordiant End-Of-life (EOL) Richtlinie installieren.






Plan A
prioritätsgrad und reaktionszeiten:

 
Prioritätsgrad
 
Definition
Reaktionszeit an
vorgesehenen Ansprechpartner Support
PRIO-1
“Production down” Problem
Sofortige bedeutende Gesch’ftsauswirkung, d.h. kein wesentlicher Nutzen von der unterstützten Software. Die unterstützte Software befindet sich in einem einsatzkritischen Umfeld und funktioniert nicht, sie führt zu einem Nichtfunkionieren des Systems, auf dem die Software installiert wurde bzw. führt zu einer wesentlichen Verschlechterung von dessen Performance. Keine Überbrückung möglich
1 Gesch’ftsstunde
PRIO-2
einsatzkritisches
Problem
Sofortige bedeutende Gesch’ftsauswirkung.
Die unterstützte Software in einem betriebs- oder einsatzkritischen Umfeld befindliche Software funktioniert nicht oder erfüllt nicht wesentliche kritische funktionale, operative oder Performance Spezifikationen.
4 Gesch’ftsstunden
PRIO-3
Schwerwiegendes
Problem
Die Gesch’ftsauswirkung ist hoch, aber nicht weit verbreitet.
Ein Teil der Software funktioniert nicht, dies führt zu einer minderwertigen bzw. schwankenden Performance; trotzdem funktioniert die Software im wesentlichen gem’ß den Spezifikationen.
1 Gesch’ftsstag
PRIO-4
Problem
Die Gesch’ftsauswirkung ist moderat und gering.
Alle Aspekte der Software funktionieren. Die Software funktioniert gem’ß den Spezifikationen.
5 Gesch’ftsstage

NORMALE SUPPORT-ZEITEN

Chordiant bietet generell Produkt-Support zu folgenden Gesch’ftszeiten:
EMEA   0:00 - 24:00 Greenwich Mean Time (GMT)
Americas 17:00 - 01:00 GMT, d.h. 9:00 - 17:00 (PST) or 12:00 - 21:00 (EST)
Asia/Pacific örtliche Gesch’ftszeiten (Melbourne, Australien)

Hinweise:
(c)  
PRIO-1 Anrufe erfolgen telefonisch mit nachfolgender detaillierter Beschreibung des Problems via E-Mail, die an das entsprechende regionale Support Center zu richten ist.
(d)  
Der Kunde wird gebeten, bei der Fehlermeldung den Priorit’tsgrad gem’ß o.g. Schema zu spezifizieren.


EX-23.1 15 ex231.htm CONSENT OF BDO SEIDMAN LLP Consent of BDO Seidman LLP

EXHIBIT 23.1
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Chordiant Software, Inc.
Cupertino, California
 
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-100843, No. 333-83506; No. 333-60156; 333-49032; No. 333-42844; No. 333-34502; No. 333-110743, and No. 333-131057) of Chordiant Software, Inc. of our reports dated February 9, 2007, relating to the consolidated financial statements and financial statement schedule, and to Chordiant Software, Inc’s internal control over financial reporting, appearing in this Annual Report on Form 10-K.
 
/s/ BDO Seidman, LLP
 
San Jose, California
February 9, 2007
EX-23.2 16 ex232.htm CONSENT OF PRICEWATERHOUSECOOPERS LLP Consent of PricewaterhouseCoopers LLP
EXHIBIT 23.2
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-100843, No. 333-83506, No. 333-60156, No. 333-49032, No.333-42844, No. 333-34502, No. 333-110743, and No. 333-131057) of Chordiant Software, Inc. of our report dated March 18, 2005, except for the restatement described in Note 3 to the consolidated financial statements, relating to the financial statements and financial statements schedule, which appears in this Form 10-K.
 
/s/ PricewaterhouseCoopers LLP
 
San Jose, California
February 8, 2007
EX-31.1 17 ex311.htm CERTIFICATION REQUIRED BY RULE 13A-14(A) OR RULE 15D-14(A) Certification required by Rule 13A-14(A) or Rule 15D-14(A)

EXHIBIT 31.1
 
CERTIFICATIONS
 
I, Steven R. Springsteel, certify that:
 
1. I have reviewed this Annual Report on Form 10-K of Chordiant Software, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
 
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
 
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
CHORDIANT SOFTWARE, INC
 
 
 
 
 
 
By:
/s/ STEVEN R. SPRINGSTEEL
 
 
 
Steven R. Springsteel
Chairman, President, and Chief Executive Officer
 

 
Date: February 9, 2007
EX-31.2 18 ex312.htm CERTIFICATION REQUIRED BY RULE 13-14(A) OR RULE 15D-14(A) Certification required by Rule 13-14(A) or Rule 15D-14(A)

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

 
Date: February 9, 2007
EX-32.1 19 ex321.htm CERTIFICATION REQUIRED BY RULE 13A-14(A) OR RULE 15D-14(A) AND SECTION 1350 Certification required by Rule 13A-14(A) or Rule 15D-14(A) and Section 1350
 

EXHIBIT 32.1
 
CERTIFICATION
 
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350), Steven R. Springsteel, Chief Executive Officer of Chordiant Software, Inc. (the “Company”) and Peter S. Norman, Chief Executive Officer and Principal Accounting Officer of the Company, each hereby certifies that, to the best of his knowledge:
 
1. The Company’s Annual Report on Form 10-K for the period ended September 30, 2006, and to which this Certification is attached as Exhibit 32.1 (the “Annual Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, and
 
2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.
 
IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 9th day of February, 2007.

 
/s/ STEVEN R. SPRINGSTEEL
 
 
Steven R. Springsteel, Chairman, President, and
Chief Executive Officer
 
 
 
 
 
/s/ PETER S. NORMAN
 
 
Peter S. Norman, Chief Financial Officer and
Principal Accounting Officer
 

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


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