UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No.
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Preliminary
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Confidential,
for Use of the Commission Only (as permitted by Rule
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Definitive
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Definitive
Additional Materials
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Soliciting
Material Pursuant to Rule §240.14a-12
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Chordiant
Software, Inc.
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(Name
of Registrant as Specified In Its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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unit price or other underlying value of transaction computed pursuant
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SEC
1913 (04-05)
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Persons
who are to respond to the collection of information -
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contained
in this form are not required to respond unless the
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form
displays a currently valid OMB control number.
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box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
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previously. Identify the previous filing by registration statement
number,
or the Form or Schedule and the date of its filing.
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Amount
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Form,
Schedule or Registration Statement No.:
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Filing
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Date
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20400
Stevens Creek Boulevard, Suite 400
Cupertino,
California 95014
______________________
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held On April 24, 2007
______________________
Dear
Stockholder:
You
are cordially invited to attend the Annual Meeting of Stockholders
of
Chordiant Software, Inc.,
a
Delaware corporation. The meeting will be held on April 24, 2007 at 1:00 p.m.
local time at our corporate headquarters located at 20400 Stevens Creek
Boulevard, Suite 400, Cupertino, California 95014, for the following
purposes:
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1.
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To
elect two (2) directors to hold office until the 2010 Annual Meeting
of
Stockholders;
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2.
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To
ratify the selection of BDO Seidman, LLP as Chordiant’s independent
registered public accounting firm for its fiscal year ending September
30,
2007;
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3.
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To
approve an amendment to Chordiant’s 2005 Equity Incentive Plan to increase
the aggregate number of shares of Common Stock authorized for issuance
under that plan by 1,600,000 shares;
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4.
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To
approve Chordiant’s Amended and Restated 1999 Non-Employee Directors’
Option Plan; and
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5.
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To
conduct any other business properly brought before the
meeting.
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These
items of business are more fully described in the Proxy Statement accompanying
this Notice.
The
record date for the Annual Meeting is March 1, 2007. Only stockholders of record
at the close of business on that date may vote at the meeting or any adjournment
thereof.
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By
Order of the Board of Directors
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Derek
P. Witte
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Vice
President, General Counsel and
Secretary
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Cupertino,
California
March
16, 2007
You
are cordially invited to attend the meeting in person. Whether or not you expect
to attend the meeting, please complete, date, sign and return the enclosed
proxy, or vote over the telephone or the Internet as instructed in these
materials, as promptly as possible in order to ensure your representation at
the
meeting. A return envelope (which is postage prepaid if mailed in the United
States) is enclosed for your convenience. Even if you have voted by proxy,
you
may still vote in person if you attend the meeting. Please note, however, that
if your shares are held of record by a broker, bank or other nominee and you
wish to vote at the meeting, you must obtain a proxy issued in your name from
that record holder.
1
20400
Stevens Creek Boulevard, Suite 400
Cupertino,
California 95014
________________________
PROXY
STATEMENT
FOR
THE 2007 ANNUAL MEETING OF STOCKHOLDERS
APRIL
24, 2007
________________________
QUESTIONS
AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why
am I receiving these materials?
We
sent you this proxy statement and the enclosed proxy card because the Board
of
Directors of Chordiant Software, Inc. (referred to as “Chordiant”
or “we”
or “us”)
is soliciting your proxy to vote at the 2007 Annual Meeting of Stockholders.
You
are invited to attend the annual meeting to vote on the proposals described
in
this proxy statement. However, you do not need to attend the meeting to vote
your shares. Instead, you may simply complete, sign and return the enclosed
proxy card, or follow the instructions below to submit your proxy over the
telephone or on the Internet.
We
intend to mail this proxy statement and accompanying proxy card on or about
March 16, 2007 to all stockholders of record entitled to vote at the annual
meeting.
Who
can vote at the annual meeting?
Only
stockholders of record at the close of business on March 1, 2007 will be
entitled to vote at the annual meeting. On this record date, there were
32,469,788 shares of common stock outstanding and entitled to vote.
Stockholder
of Record: Shares Registered in Your Name
If
on March 1, 2007 your shares were registered directly in your name with our
transfer agent, Computershare, then you are a stockholder of record. As a
stockholder of record, you may vote in person at the meeting or vote by proxy.
Whether or not you plan to attend the meeting, we urge you to fill out and
return the enclosed proxy card or vote by proxy over the telephone or on the
Internet as instructed below to ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or Bank
If
on March 1, 2007 your shares were held, not in your name but rather in an
account at a brokerage firm, bank, dealer, or other similar organization, then
you are the beneficial owner of shares held in “street name” and these proxy
materials are being forwarded to you by that organization. The organization
holding your account is considered to be the stockholder of record for purposes
of voting at the annual meeting. As a beneficial owner, you have the right
to
direct your broker or other agent on how to vote the shares in your account.
You
are also invited to attend the annual meeting. However, since you are not the
stockholder of record, you may not vote your shares in person at the meeting
unless you request and obtain a valid proxy from your broker or other
agent.
There
are four matters scheduled for a vote:
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Election
of two (2) directors to hold office until the 2010 Annual Meeting
of
Stockholders;
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Ratification
of BDO Seidman, LLP as our independent registered public accounting
firm
for our fiscal year ending September 30, 2007;
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Amendment
of our 2005 Equity Incentive Plan to increase the aggregate number
of
shares of Common Stock authorized for issuance under that plan by
1,600,000 shares; and
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Approval
of our Amended and Restated 1999 Non-Employee Directors’ Option
Plan.
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What
are the recommendations of Chordiant’s Board of Directors on the matters
scheduled for a vote?
The
Board of Directors unanimously recommends that the stockholders vote FOR the
election of the nominees for two (2) directors to hold office until the 2010
Annual Meeting of Stockholders, FOR the ratification of the selection of BDO
Seidman, LLP as Chordiant’s independent registered public accounting firm for
its fiscal year ending September 30, 2007, FOR the amendment of our 2005 Equity
Incentive Plan to increase the aggregate number of shares of Common Stock
authorized for issuance under that plan by 1,600,000 shares, and FOR our Amended
and Restated 1999 Non-Employee’s Directors’ Option Plan.
How
do I vote?
You
may either vote “For” all the nominees to the Board of Directors or you may
withhold your vote for any nominee you specify. For each of the other matters
to
be voted on, you may vote “For” or “Against” or abstain from voting. The
procedures for voting are fairly simple:
Stockholder
of Record: Shares Registered in Your Name
If
you are a stockholder of record, you may vote in person at the annual meeting,
vote by proxy using the enclosed proxy card, vote by proxy over the telephone,
or vote by proxy on the Internet. Whether or not you plan to attend the meeting,
we urge you to vote by proxy to ensure your vote is counted. You may still
attend the meeting and vote in person if you have already voted by
proxy.
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To
vote in person, come to the annual meeting and we will give you a
ballot
when you arrive.
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To
vote using the proxy card, simply complete, sign and date the enclosed
proxy card and return it promptly in the envelope provided. If you
return
your signed proxy card to us before the annual meeting, we will vote
your
shares as you direct.
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To
vote over the telephone, please refer to the phone number printed
on the
enclosed proxy card. You will be asked to provide the company number
and
control number from the enclosed proxy card. Your vote must be received
by
11:59 P.M. Eastern Time on April 23, 2007 to be
counted.
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To
vote on the Internet, go to
http://www.proxyvote.com
to complete an electronic proxy card. You will be asked to provide
the
company number and control number from the enclosed proxy card. Your
vote
must be received by 11:59 P.M. Eastern Time on April 23, 2007 to
be
counted.
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Beneficial
Owner: Shares Registered in the Name of Broker or Bank
If
you are a beneficial owner of shares registered in the name of your broker,
bank, or other agent, you should have received a proxy card and voting
instructions with these proxy materials from that organization rather than
from
us. Simply complete and mail the proxy card to ensure that your vote is counted.
Alternatively, you may vote by telephone or over the Internet as instructed
by
your broker or bank. To vote in person at the annual meeting, you must obtain
a
valid proxy from your broker, bank, or other agent. Follow the instructions
from
your broker or bank included with these proxy materials, or contact your broker
or bank to request a proxy form.
How
many votes do I have?
On
each matter to be voted upon, you have one vote for each share of common stock
you own as of March 1, 2007.
What
if I return a proxy card but do not make specific choices?
If
you return a signed and dated proxy card without marking any voting selections,
your shares will be voted “For” the election of the two (2) nominees for
director, “For” the ratification of BDO Seidman, LLP as independent registered
public accounting firm for the fiscal year ending September 30, 2007, “For” the
amendment of our 2005 Equity Incentive Plan to increase the aggregate number
of
shares of Common Stock authorized for issuance under that plan by 1,600,000
shares, and “For” our Amended and Restated 1999 Non-Employee’s Directors’ Option
Plan.
If
any other matter is properly presented at the meeting, your proxy (one of the
individuals named on your proxy card) will vote your shares using his or her
best judgment.
Who
is paying for this proxy solicitation?
We
will pay for the entire cost of soliciting proxies. In addition to these mailed
proxy materials, our directors, employees and The Altman Group may also solicit
proxies in person, by telephone, or by other means of communication. Directors
and employees will not be paid any additional compensation for soliciting
proxies and The Altman Group will be paid its customary fee of approximately
$5,000 plus out-of-pocket expenses if it solicits proxies. We may also reimburse
brokerage firms, banks and other agents for the cost of forwarding proxy
materials to beneficial owners.
What
does it mean if I receive more than one proxy card?
If
you receive more than one proxy card, your shares are registered in more than
one name or are registered in different accounts. Please complete, sign and
return
each
proxy card to ensure that all of your shares are voted.
Can
I change my vote after submitting my proxy?
Yes.
You can revoke your proxy at any time before the final vote at the meeting.
If
you are a record holder of your shares, you may revoke your proxy in any one
of
three ways:
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You
may submit another properly completed proxy card with a later
date.
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You
may send a written notice via certified or registered mail that you
are
revoking your proxy to our Corporate Secretary, Derek P. Witte, at
20400
Stevens Creek Boulevard, Suite 400, Cupertino, California
95014.
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You
may attend the annual meeting and vote in person. Simply attending
the
meeting will not, by itself, revoke your
proxy.
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If
your shares are held by your broker or bank as a nominee or agent, you should
follow the instructions provided by your broker or bank.
When
are stockholder proposals due for the 2008 annual meeting of
stockholders?
Our
Bylaws require that for a stockholder proposal to be considered for inclusion
in
the proxy materials for next year’s annual meeting of the stockholders, it must
be delivered to the our Corporate Secretary not later than the close of business
on the one hundred twentieth (120
th)
day nor earlier than the close of business on the one hundred eightieth
(180
th)
day prior to the first anniversary of the preceding year’s annual meeting.
However, if the date of the annual meeting is advanced more than thirty (30)
days prior to or delayed by more than thirty (30) days after the anniversary
of
the preceding year’s annual meeting, the stockholder proposal must be received
not later than the close of business on the one hundred twentieth
(120
th)
day and not earlier than the close of business on the one hundred eightieth
(180
th)
day prior to such annual meeting, or the tenth (10
th)
day following the day on which the public announcement of the date of such
meeting is first made.
If
you intend to present a proposal at our 2008 annual meeting of stockholders
but
do not intend for the proposal to be included in next year’s proxy materials, or
if you wish to nominate a director for election to our Board of Directors at
our
2008 annual meeting, your proposal must be submitted in writing to our Corporate
Secretary, Derek P. Witte, at our principal executive offices no earlier than
October 27, 2007 and no later than December 24, 2007. You are also advised
to
review our Bylaws, which contain additional requirements about advance notice
of
stockholder proposals and director nominations.
If
you wish to submit a stockholder proposal to be considered for inclusion in
next
year’s proxy materials, your proposal must be submitted in writing no later than
November 21, 2007 to our Corporate Secretary, Derek P. Witte, at 20400 Stevens
Creek Boulevard, Suite 400, Cupertino, California 95014. The proposal will
need
to comply with SEC regulations under Rule 14a-8 of the Securities Exchange
Act
of 1934 regarding the inclusion of stockholder proposals in company-sponsored
proxy materials.
3
How
are votes counted?
Votes
will be counted by the inspector of election appointed for the meeting, who
will
separately count “For” and “Withhold” and, with respect to proposals other than
the election of directors, “Against” votes, abstentions and broker non-votes.
Abstentions will be counted towards the vote total for each proposal, and will
have the same effect as “Against” votes. Broker non-votes have no effect and
will not be counted towards the vote total for any proposal.
If
your shares are held by your broker as your nominee (that is, in “street name”),
you will need to obtain a proxy form from the institution that holds your shares
and follow the instructions included on that form regarding how to instruct
your
broker to vote your shares. If you do not give instructions to your broker,
your
broker can vote your shares with respect to “discretionary” items, but not with
respect to “non-discretionary” items. Discretionary items are proposals
considered routine under the rules of the New York Stock Exchange (“NYSE”) on
which your broker may vote shares held in street name in the absence of your
voting instructions. On non-discretionary items for which you do not give your
broker instructions, the shares will be treated as broker
non-votes.
How
many votes are needed to approve each proposal?
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For
the election of directors, the two (2) nominees receiving the most
“For”
votes (among votes properly cast in person or by proxy) will be elected.
Only votes “For” or “Withheld” will affect the outcome.
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The
affirmative vote of the holders of a majority of the shares present
in
person or represented by proxy and entitled to vote at the annual
meeting
will be required to ratify the selection of BDO Seidman, LLP. Abstentions
will be counted toward the tabulation of votes cast on proposals
presented
to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted
for any
purpose in determining whether this matter has been
approved.
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The
affirmative vote of the holders of a majority of the shares present
in
person or represented by proxy and entitled to vote at the annual
meeting
will be required to approve the amendment of our 2005 Equity Incentive
Plan to increase the aggregate number of shares of Common Stock authorized
for issuance under that plan by 1,600,000 shares. Abstentions will
be
counted toward the tabulation of votes cast on proposals presented
to the
stockholders and will have the same effect as negative votes. Broker
non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been
approved.
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The
affirmative vote of the holders of a majority of the shares present
in
person or represented by proxy and entitled to vote at the annual
meeting
will be required to approve our Amended and Restated 1999 Non-Employee’s
Directors’ Option Plan. Abstentions will be counted toward the tabulation
of votes cast on proposals presented to the stockholders and will
have the
same effect as negative votes. Broker non-votes are counted towards
a
quorum, but are not counted for any purpose in determining whether
this
matter has been approved.
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What
is the quorum requirement?
A
quorum of stockholders is necessary to hold a valid meeting. A quorum will
be
present if at least a majority of the outstanding shares entitled to vote are
represented by stockholders present at the meeting or by proxy. On the record
date, there were 32,469,788 shares outstanding and entitled to vote. Thus,
16,234,895 shares must be represented by stockholders present at the meeting
or
by proxy to have a quorum.
Your
shares will be counted towards the quorum only if you submit a valid proxy
vote
(or one is submitted on your behalf by your broker bank or other nominee) or
vote in person at the meeting. Abstentions and broker non-votes will be counted
towards the quorum requirement. If there is no quorum, a majority of the votes
present at the meeting may adjourn the meeting to another date.
How
can I find out the results of the voting at the annual
meeting?
Preliminary
voting results will be announced at the annual meeting. Final voting results
will be published in our annual report on Form 10-K for fiscal
2007.
4
PROPOSAL
1
ELECTION
OF DIRECTORS
Our
Board of Directors (the “Board”)
is divided into three classes. Each class consists, as nearly as possible,
of
one-third of the total number of directors, and each class has a three-year
term. Vacancies on the Board may be filled only by persons elected by a majority
of the remaining directors. A director elected by the Board to fill a vacancy
in
a class shall serve for the remainder of the full term of that class, and until
the director’s successor is elected and qualified. This includes vacancies
created by an increase in the number of directors.
The
Board presently has six (6) seats, of which all are currently filled. There
are
two (2) directors whose term of office expires in 2007 and are nominated to
be
elected to three-year terms. One (1) nominee for election to this class, David
R. Springett, is a director of ours who was previously elected by the
stockholders. One (1) nominee for election to this class, Charles E. Hoffman,
was elected by our Board to fill a vacancy. Mr. Hoffman was recommended to
the
Nominating and Corporate Governance Committee for consideration by the former
chairman of the Board who was also an executive officer. The Nominating and
Corporate Governance Committee then recommended to the Board the election of
Mr.
Hoffman to serve as a director until the 2007 annual meeting. If elected at
the
annual meeting, each of the nominees would serve until the 2010 annual meeting,
until his successor is elected and has qualified, or until the director’s death,
resignation or removal. It is our policy to encourage directors and nominees
for
directors to attend the annual meeting, and they may attend telephonically.
Except for Mr. Springsteel, none of our directors attended the 2006 annual
meeting of stockholders.
The
following is a brief biography of each nominee and each director whose term
will
continue after the annual meeting.
Nominees
for Election for Three-year Terms Expiring at the 2010 Annual
Meeting
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.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED
NOMINEE.
Directors
Continuing in Office Until the 2008 Annual Meeting
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.
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.
Directors
Continuing in Office Until the 2009 Annual Meeting
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.
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
Bachelors degree in French and a Masters of Business Administration from
University of London.
Executive
Officers of the Registrant
Our
executive officers are: Steven R. Springsteel, chairman of the board of
directors, president, and chief executive officer; Peter S. Norman, vice
president, chief financial officer, and Principal Accounting Officer; Derek
P.
Witte, vice president, general counsel, secretary, and chief compliance officer,
James D. St. Jean, vice president of worldwide engineering; Frank J. Florence,
chief marketing officer; and Prashant K. Karnik, vice president and general
manager, professional services.
Below
is a brief biography of each of our executive officers, except Mr. Springsteel.
Biographical information regarding Mr. Springsteel can be found above in the
section titled, “Directors Continuing in Office Until the 2008 Annual
Meeting.”
5
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.
Independence
of the Board of Directors
As
required under the Nasdaq Stock Market (“Nasdaq”) listing standards, a majority
of the members of a listed company’s board of directors must qualify as
“independent,” as affirmatively determined by the board of directors. The Board
consults with our legal counsel to ensure that the Board’s determinations are
consistent with all relevant securities and other laws and regulations regarding
the definition of “independent,” including those set forth in pertinent listing
standards of the Nasdaq, as in effect from time to time.
Consistent
with these considerations, after review of all relevant transactions or
relationships between each director, or any of his or her family members, and
us, our senior management and our independent auditors, the Board affirmatively
has determined that all of our directors are independent directors within the
meaning of the applicable Nasdaq listing standards, except for Steven
Springsteel, our chairman, president, and chief executive officer.
Information
Regarding the Board of Directors and its Committees
In
April 2004, the Board of Directors documented our governance practices by
adopting Corporate Governance Guidelines to assure that the Board will have
the
necessary authority and practices in place to review and evaluate our business
operations as needed and to make decisions that are independent of our
management. The guidelines are also intended to align the interests of directors
and management with those of our stockholders. The Corporate Governance
Guidelines set forth the practices the Board will follow with respect to board
composition and selection, director orientation and education, director
compensation, board meetings, board committees, board access to management,
and
succession planning. The Corporate Governance Guidelines were adopted by the
Board to, among other things, reflect changes to the Nasdaq listing standards
and Securities and Exchange Commission rules adopted to implement provisions
of
the Sarbanes-Oxley Act of 2002. The Corporate Governance Guidelines, as well
as
the charters for Audit, Compensation, Nominating and Corporate Governance and
Strategic Planning Committees of the Board, may be viewed on the worldwide
web
at http://chrd.client.shareholder.com/documents.cfm.
As
required under Nasdaq listing standards, our independent directors meet in
regularly scheduled executive sessions at which only independent directors
are
present. Executive sessions have been chaired by David Springett, the Board’s
lead independent director.
Meetings
of the Board of Directors
During
fiscal 2006, the Board met ten times. All directors attended at least 80% of
the
aggregate of the meetings of the Board and of the committees on which they
served, held during the period for which they were a director or committee
member, respectively.
Committees
During
the year, the Board Committees were the Audit Committee, the Compensation
Committee, the Nominating and Corporate Governance Committee, and the Strategic
Planning Committee. The charters of the Audit Committee, Compensation Committee,
Nominating and Corporate Governance Committees and the Strategic Planning
Committee, as well as additional information about our Corporate Governance
Policies and Practices, are available on our website at
http://chrd.client.shareholder.com/documents.cfm. Such charters and additional
information shall not constitute “soliciting material,” shall not be deemed
“filed” with the Securities and Exchange Commission and is not to be
incorporated by reference into any other company filings under the Securities
Act of 1933 or the Exchange Act of 1934, except to the extent we specifically
incorporate such charters and additional information by reference
therein.
6
Audit
Committee
During
fiscal 2006, the Audit Committee held fifteen meetings. At the beginning of
fiscal 2006, the Audit Committee consisted of David Weymouth, David Springett,
and Steven Springsteel (Chair). In January 2006, Mr. Springsteel resigned from
the Audit Committee, William Raduchel joined the Audit Committee, and Mr.
Weymouth was appointed Chairman. In March 2006, the Audit Committee was
reconstituted, and Richard Stevens joined the Audit Committee as Chairman,
and
Mr. Weymouth and Mr. Springett remained as members. They remain members of
the
Committee today.
The
Audit Committee of the Board oversees our corporate accounting and financial
reporting process, including:
| · |
approving
the engagement of the independent auditors and evaluating the performance
of and assessing the qualifications of the independent
auditors;
|
| · |
conferring
with management and the independent auditors regarding the effectiveness
of internal controls over financial reporting;
and
|
| · |
establishing
procedures, as required under applicable law, for the receipt, retention
and treatment of complaints received by us regarding accounting,
internal
accounting controls or auditing matters and the confidential and
anonymous
submission by employees of concerns regarding questionable accounting
or
auditing matters.
|
The
Board of Directors annually reviews the Nasdaq listing standards definition
of
independence for Audit Committee members and has determined that during the
2006
fiscal year all members of our Audit Committee were independent (as independence
is currently defined in Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq listing
standards) and that all current members of our Audit Committee are independent.
Upon his appointment to the Audit Committee in January 2004, the Board of
Directors determined that Mr. Springsteel qualified as an “audit committee
financial expert,” as defined in applicable Securities and Exchange Commission
(“SEC”) rules. The Board made a qualitative assessment of Mr. Springsteel’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. Following Mr. Springsteel’s resignation from the Audit
Committee, and upon Dr. Raduchel’s appointment to the Audit Committee, the Board
determined that Dr. Raduchel qualified as an “audit committee financial expert.”
Upon Mr. Stevens’ appointment to the Audit Committee, the Board determined that
Mr. Stevens qualified as an “audit committee financial expert.” Our Audit
Committee charter can be found on the worldwide web at
http://chrd.client.shareholder.com/documents.cfm.
Compensation
Committee
During
fiscal 2006, the Compensation Committee met eleven times. During fiscal 2006,
the Compensation Committee consisted of William. Raduchel (Chair), Charles
Hoffman and David Springett, and they remain members of the Committee today.
All
members of our Compensation Committee are independent (as independence is
currently defined in Rule 4200(a)(15) of the Nasdaq listing standards). Our
Compensation Committee charter can be found on the worldwide web at http://chrd.client.shareholder.com/documents.cfm.
The
Compensation Committee of the Board oversees our overall compensation strategy
and policies, including:
| · |
reviewing
and approving, or recommending to the Board for approval, individual
performance goals which shall support our corporate performance goals
and
objectives relevant to the compensation of our executive officers
and
other senior management;
|
| · |
recommending
and approving the terms of a plan for vice presidents (excluding
executive
officers) pursuant to which the chief executive officer may determine
the
compensation to be paid to such
officers;
|
| · |
establishing
policies with respect to equity compensation
arrangements;
|
| · |
reviewing
compensation practices and trends relating to our industry to assess
the
propriety, adequacy and competitiveness of our executive compensation
programs;
|
| · |
reviewing
and approving, or recommending to the Board for approval, the terms
of any
employment agreements, severance agreements, change-of-control protections
and any other compensatory arrangements for our executive officers
and
other senior management;
|
| · |
reviewing,
determining and recommending to the Board for approval the compensation
to
be paid to our non-employee Directors for service on the Board and
its
committees;
|
| · |
recommending
to the Board the adoption, amendment and termination of our stock
option
plans, employee stock purchase plans, executive bonus plans and similar
programs; and
|
| · |
administering
our stock option plans, employee stock purchase plans, executive
bonus
plans and similar programs.
|
Nominating
and Corporate Governance Committee
During
fiscal 2006, the Nominating and Corporate Governance Committee met twice. During
fiscal 2006, the Nominating and Corporate Governance Committee consisted of
Charles Hoffman (Chair) and David Springett, and they remain members of the
Committee today. Both members of the Nominating and Corporate Governance
Committee are independent (as independence is currently defined in Rule
4200(a)(15) of the Nasdaq listing standards). Our Nominating and Corporate
Governance Committee charter can be found on the worldwide web at
http://chrd.client.shareholder.com/documents.cfm.
The
Nominating and Corporate Governance Committee of the Board is responsible
for:
| · |
identifying,
evaluating, reviewing and recommending qualified candidates to serve
as
directors of Chordiant (consistent with criteria approved by the
Board);
|
| · |
making
recommendations to the Board regarding the chairmanship and membership
of
each committee; and reviewing and assessing Chordiant’s corporate
governance principles.
|
The
Board will determine the appropriate characteristics, skills and experience
for
the Board as a whole and for its individual members. The Board considers
recommendations for nominees from the Nominating and Corporate Governance
Committee, which is responsible for identifying, reviewing, and evaluating
candidates in accordance with the criteria set forth below. In selecting
candidates and existing directors for service on the Board, the minimum general
criteria set forth below will be considered; specific additional criteria may
be
added with respect to specific searches. An acceptable candidate may not fully
satisfy all of the criteria, but is expected to satisfy nearly all of
them.
7
The
Board believes that candidates for director should have certain minimum
qualifications, including being able to read and understand basic financial
statements and having the highest personal integrity and ethics. In considering
candidates recommended by the Nominating and Corporate Governance Committee,
the
Board intends to consider
such factors as possessing relevant expertise upon which to be able to offer
advice and guidance to management, having sufficient time to devote to our
affairs, demonstrated excellence in his or her field, having the ability to
exercise sound business judgment and having the commitment to rigorously
represent the long-term interests of our stockholders. However, the Board
retains the right to modify these qualifications from time to time. Candidates
for director nominees are reviewed in the context of the current composition
of
the Board, our operating requirements and the long-term interests of
stockholders. In conducting this assessment, the Board considers, skills,
experience and such other factors as it deems appropriate given the current
needs of the Board and Chordiant, to maintain a balance of knowledge, experience
and capability. In the case of incumbent directors whose terms of office are
set
to expire, the Board reviews such directors’ overall service to Chordiant during
their term, including the number of meetings attended, level of participation,
quality of performance, and any other relationships and transactions that might
impair such directors’ independence. In the case of new director candidates, the
Board also determines whether the nominee is independent for purposes of Nasdaq
listing standards.
The
Nominating and Corporate Governance Committee uses its network of contacts
to
compile a list of potential candidates, but may also engage, if it deems
appropriate, a professional search firm. The committee conducts any appropriate
and necessary inquiries into the backgrounds and qualifications of possible
candidates after considering the function and needs of the Board. The committee
meets to discuss and consider such candidates’ qualifications and then selects a
nominee for recommendation to the Board. To date, the Nominating and Corporate
Governance Committee has not paid a fee to any third party to assist in the
process of identifying or evaluating director candidates. In fiscal 2006, the
Nominating and Corporate Governance Committee did not reject a timely director
nominee from a stockholder or stockholders holding more than 5% of our voting
stock.
The
Nominating and Corporate Governance Committee will consider director candidates
recommended by stockholders. The Committee does not intend to alter the manner
in which it evaluates candidates, including the minimum criteria set forth
above, based on whether the candidate was recommended by a stockholder or not.
Stockholders who wish to recommend individuals for consideration by the
Nominating and Corporate Governance Committee to become nominees for election
to
the Board may do so by delivering a written recommendation via certified or
registered mail to the Nominating and Corporate Governance Committee at the
following address: Chordiant Software, Inc. at 20400 Stevens Creek Boulevard,
Suite 400, Cupertino, CA 95014, Attention: Derek P. Witte, Corporate Secretary,
not more than six months nor less than four months prior to any meeting at
which
directors are to be elected. Submissions must include the full name of the
proposed nominee, a description of the proposed nominee’s business experience
for at least the previous five years, complete biographical information, a
description of the proposed nominee’s qualifications as a director and a
representation that the nominating stockholder is a beneficial or record owner
of Chordiant’s stock. Any such submission must be accompanied by the written
consent of the proposed nominee to be named as a nominee and to serve as a
director if elected.
Strategic
Planning Committee
During
fiscal 2006, the Strategic Planning Committee held four meetings. The Strategic
Planning Committee was formed in January 2004 and during fiscal 2006 consisted
f
Samuel T. Spadafora (Chair), David Springett, David Weymouth, and William
Raduchel. On November 30, 2006, Mr. Spadafora resigned from the Board of
Directors and the Strategic Planning Committee. During fiscal 2006, a majority
of the directors on our Strategic Planning Committee were independent (as
independence is currently defined in Rule 4200(a)(15) of the Nasdaq listing
standards). Our Strategic Planning Committee charter can be found on the
worldwide web at http://chrd.client.shareholder.com/documents.cfm.
The
Strategic Planning Committee of the Board is responsible for:
| · |
serving
as representatives of the Board to review with the chief executive
officer, president and other management of Chordiant, our long-range
financial and strategic objectives;
|
| · |
reviewing
with our chief executive officer, president and other management,
material
changes to our strategic direction, including acquisitions, joint
ventures
or dispositions of businesses and capital assets and the financing
of such
transactions;
|
| · |
reviewing
and assessing periodically the adequacy of the committee’s charter,
including the committee’s role and responsibilities as outlined in the
charter, and shall recommend any proposed changes to the Board for
its
consideration; and
|
| · |
undertaking
from time to time such additional activities within the scope of
the
committee’s primary functions as assigned by the
Board.
|
In
January of 2007, the Board of Directors voted to abolish the Strategic Planning
Committee and to replace it with special sessions of the full Board to be called
from time to time at the discretion of the Chief Executive Officer.
Stockholder
Communications with the Board of Directors
The
Board has adopted a formal process by which stockholders may communicate with
the Board. This information is available on our website on the worldwide web
at
http://chrd.client.shareholder.com/documents.cfm.
Code
of Business Conduct and Ethics
We
have adopted the Chordiant Code of Business Conduct and Ethics (the “Code”),
which applies to all officers, directors and employees. The Code is available
on
our website at http://chrd.client.shareholder.com/documents.cfm . If we make
any
substantive amendments to the Code or grant any waiver from a provision of
the
Code to any executive officer, we will promptly disclose the nature of the
amendment or waiver on our website.
8
REPORT
OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Communications
with Management and Independent Accountants
The
Audit Committee has reviewed and discussed our audited financial statements
with
management. In addition, the Audit Committee has discussed with BDO Seidman,
LLP, our independent accountants, the matters required to be discussed by
Statement of Auditing Standards No. 61, “Communications With Audit Committees”
which includes, among other items, matters related to the conduct of the audit
of our financial statements. The Audit Committee also has received written
disclosures and the letter from BDO Seidman, LLP required by the Independence
Standards Board Standard No. 1, which relates to the accountant’s independence
from us and our related entities, and has discussed their independence from
us,
including whether BDO Seidman, LLP’s provision of non-audit services was
compatible with that independence.
Committee
Member Independence
The
Audit Committee is comprised of three non-employee, independent directors (as
independence is defined in NASD Rule 4200(a)(15) of the Nasdaq Stock Market
listing standards). The Audit Committee does have a “financial expert” as
defined in applicable SEC rules.
Based
on the Audit Committee’s discussion with management and BDO Seidman, LLP, and
the Audit Committee’s review of the representation of management and the report
of the BDO Seidman, LLP to the Audit Committee, the then constituted Audit
Committee recommended that the Board include the audited consolidated financial
statements in our Annual Report on Form 10-K for the twelve months ended
September 30, 2006 filed with the Securities and Exchange Commission filed
on
February 9, 2007.
|
|
Audit
Committee
|
|
|
|
|
|
Richard
G. Stevens
|
|
|
David
R. Springett
|
|
|
David
A. Weymouth
|
The
material in this report is not “soliciting material,” is not deemed “filed” with
the SEC, and is not to be incorporated by reference into any filing of the
Company under the 1933 or 1934 Act.
9
PROPOSAL
2
RATIFICATION
OF SELECTION OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
The
Audit Committee of the Board has selected BDO Seidman, LLP as our independent
auditors for the fiscal year ending September 30, 2007 and has further directed
that the selection of independent auditors for ratification by the stockholders
be submitted at the Annual Meeting. Representatives of BDO Seidman, LLP are
expected to be present at the Annual Meeting. They will have an opportunity
to
make a statement if they so desire and will be available to respond to
appropriate questions.
Neither
our Bylaws nor other governing documents or law require stockholder ratification
of the selection of BDO Seidman, LLP as our independent auditors. However,
the
Audit Committee of the Board is submitting the selection of BDO Seidman, LLP
to
the stockholders for ratification as a matter of good corporate practice. If
the
stockholders fail to ratify the selection, the Audit Committee of the Board
will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee of the Board in its discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in our best interests and the best
interests of our stockholders.
The
affirmative vote of the holders of a majority of the shares present in person
or
represented by proxy and entitled to vote at the annual meeting will be required
to ratify the selection of BDO Seidman, LLP. Abstentions will be counted toward
the tabulation of votes cast on proposals presented to the stockholders and
will
have the same effect as negative votes. Broker non-votes are counted towards
a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
Engagement
of BDO Seidman, LLP
As
previously reported in a current report of Form 8-K on July 1, 2005, we engaged
BDO Seidman, LLP as our independent registered public accounting firm, effective
July 1, 2005.
During
our two most recently completed fiscal years prior to our engagement of BDO
Seidman LLP, which ended December 31, 2003 and September 30, 2004, and through
the subsequent interim period, neither we nor anyone on our behalf consulted
BDO
Seidman, LLP regarding either (i) the application of accounting principles
to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on our financial statements, nor has BDO Seidman,
LLP provided to us a written report or oral advice regarding such principles
or
audit opinion; or (ii) any matter that was either the subject of a disagreement
(as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions
thereto) or a reportable event (as described in Item 304(a) (1)(v) of Regulation
S-K).
Resignation
of PricewaterhouseCoopers LLP
On
May 18, 2005, PricewaterhouseCoopers LLP informed us that PricewaterhouseCoopers
LLP declined to stand for reelection as our independent registered public
accounting firm. This event was disclosed in our Form 8-K filed on May 24,
2005.
The
reports of PricewaterhouseCoopers LLP on our consolidated financial statements
for the nine months ended September 30, 2004 and the year ended December 31,
2003 did not contain any adverse opinion, or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. During the nine months ended September 30, 2004, the year ended
December 31, 2003 and through May 18, 2005, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers
LLP
would have caused them to make reference thereto in their report on the
financial statements for such periods. During the nine months ended September
30, 2004, the year ended December 31, 2003 and through May 18, 2005, other
than
as previously disclosed in our Form 10-K/T for the period ending September
30,
2004 and Forms 10-Q for the periods ending December 31, 2004 and March 31,
2005
and as described below, there were no “reportable events” requiring disclosure
pursuant to paragraphs (a) (1) (v) of Section 304 of Regulation S-K. The term
“reportable event” means any of the items listed in paragraphs (a) (1) (v)
(A)-(D) of Section 304 of Regulation S-K.
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.
10
|
|
|
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
|
|
Before
the independent registered public accounting firm is engaged by us or our
subsidiaries to render audit or non-audit services, the Audit Committee shall
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 our 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 our 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 “Tax 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.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL
2.
11
PROPOSAL
3
APPROVAL
OF AMENDMENT TO CHORDIANT’S 2005 EQUITY INCENTIVE PLAN
Chordiant’s
stockholders are being asked to approve the amendment of Chordiant’s 2005 Equity
Incentive Plan (the “2005 Plan”) to increase the number of shares authorized and
reserved for issuance under the 2005 Plan by an additional 1,600,000 shares
of
common stock.
The
table below summarizes the share reserve/allocation under all of Chordiant’s
equity incentive plans as of September 30, 2006:
|
Shares Available
for Grant
|
Shares
Outstanding
|
||||||||||
|
Number
of
Shares
(1)
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
|
||||||||
|
2005
Equity Incentive Plan (1)
|
1,983,194
|
2,766,426
|
$
|
6.62
|
7.18
years
|
||||||
|
2000
Nonstatutory Equity Incentive Plan
|
182,326
|
733,430
|
$
|
4.96
|
7.51
years
|
||||||
|
1999
Non-Employee Director’s Stock Option Plan
|
455,671
|
163,000
|
$
|
8.00
|
8.21
years
|
||||||
|
1999
Equity Incentive Plan
|
Chordiant
no longer grants equity awards under this plan
|
||||||||||
|
(1)
|
Shares
outstanding includes shares outstanding that were granted under the
1999
Equity Incentive Plan
|
||||||||||
General
In
July 2005 the Board adopted our 2005 Equity Incentive Plan (the “2005
Plan”).
The stockholders approved the adoption of the 2005 Plan on September 27, 2005.
The 2005 Plan replaced our 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 plan provides that
the option price shall not be less than the fair market value of the shares
on
the date of grant and that no portion may be exercised beyond ten years from
that date. Under the 2005 Plan, stock options vest over a period that is limited
to five years, but are typically granted with a four-year vesting period.
Beginning September 27, 2005, no additional stock awards will be granted under
the 1999 Plan. Shares remaining available for grant pursuant to the exercise
of
options or settlement of stock awards under the 1999 Plan of 496,603 shares
were
added to the share reserve of the 2005 Plan and, as of September 27, 2005,
became available for grant 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 grant
pursuant to stock awards granted under the 2005 Plan. The 2005 Plan increased
the number of shares available for grant by 2,200,000 shares of common stock
from an aggregate total of 496,603 shares available under the 1999 Plan as
of
September 27, 2005, resulting in an aggregate of approximately 2,696,603 shares
available for grant under the 2005 Plan. As of September 30, 2006, there were
approximately 2.0 million shares available for grant and approximately 2.8
million shares that were outstanding under the 2005 Plan. Assuming approval
of
the proposed amendment to the 2005 Plan, the number of shares available for
issuance will increase by 1,600,000 shares of common stock, resulting in an
aggregate of approximately 3.6 million shares available for grant under the
2005
Plan.
In
March 2000 the Board adopted our 2000 Nonstatutory Equity Incentive Plan (the
“2000
Plan”).
Stockholder approval of this plan was not required and has not been obtained.
The 2000 Plan was in effect as of June 30, 2003. In April 2002 and October
2002,
the Board approved an increase to the number of shares reserved under the 2000
Plan from 360,000 shares to 960,000 shares, and then to 1,760,000 shares, also
without stockholder approval as such approval is not required by the 2000 Plan
or by applicable law. As of September 30, 2006, there were approximately 0.7
million shares outstanding and approximately 0.2 million shares available for
grant (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). In January 2007, the Board
amended the 2000 Plan to reduce the number of shares available for future
issuance to zero. No additional stock awards will be granted under the 2000
Plan. 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 plan provides that the exercise price of nonstatutory stock
options granted under the 2000 Plan be 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
November 1999 the Board adopted our 1999 Non-Employee Directors’ Stock Option
Plan (the “1999
Directors’ Plan”),
which was approved by our stockholders in December 1999. The 1999 Directors’
Plan became effective on February 14, 2000. In April 2002 the Board amended
the
1999 Directors’ Plan, which was approved by our stockholders in May 2002. The
1999 Directors’ Plan provides for the automatic grant of a nonstatutory option
to purchase 10,000 shares of Common Stock to each new non-employee director
who
becomes a director after the date of our initial public offering on the date
that such person becomes a director. Each current and future non-employee
director will automatically be granted an additional nonstatutory option to
purchase 3,000 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 2, 000
shares on the day after each of our annual meetings of the stockholders. Under
the terms of the plan, option prices 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. As of September 30, 2006, 0.5 million shares were
available for grant and approximately 0.2 million shares were outstanding under
the Directors’ 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. On October
1, 2006, the aggregate number of shares available for grant was automatically
increased by 165,014 shares. Accordingly, as of December 31, 2006, approximately
0.6 million shares were available for grant and approximately 0.2 million shares
were outstanding, under the Director Plan. If the stockholders approve Proposal
4 below, (1) the number of shares available for issuance will decrease by
approximately 320,685 shares of common stock, resulting in an aggregate of
approximately 300,000 shares available for grant under the 1999 Directors’ Plan
and (2) there will no longer be automatic annual increases to the 1999
Directors’ Plan.
In
November 1999 the Board adopted the 1999 Plan, which was approved by our
stockholders in December 1999. The 1999 Plan became effective on February 14,
2000, the date of our initial public offering. The 1999 Plan provides for the
grant to employees of incentive stock options within the meaning of Section
422
of the Internal Revenue Code of 1986 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 496,603
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.
12
In
November 1999 the Board adopted our 1999 Employee Stock Purchas Plan (the
“1999
ESPP”),
which was approved by our stockholders in December 1999. The 1999 ESPP became
effective on February 14, 2000. Eligible employees can 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. As of
September 30, 2006, 1,422,800 shares of common stock are available for grant
under the plan. The amount reserved under the 1999 ESPP automatically increases
on October 1st of each year by the greater of (1) 2% of the 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. Notwithstanding the foregoing,
the aggregate number of shares that may be sold under the 1999 ESPP shall not
exceed 5,200,000 shares. On October 1, 2006, the aggregate number of shares
available for grant was automatically increased by 660,054 shares. There were
no
purchases of common stock under the ESPP for the year ended September 2006
and
2005, or the quarter ended December 31, 2006, as the plan is currently
suspended. Accordingly, as of December 31, 2006, approximately 2,082,854 shares
were available for grant under this plan. In January 2007, the Board amended
the
1999 ESPP to reduce the number of shares available for grant to
400,000.
General
Chordiant
believes that an employee equity compensation program is a necessary and
powerful incentive and retention tool that benefits all of its stockholders.
We
believe equity compensation gives employees and directors a stake in our future
success and view it as a vital component of our ability to offer competitive
compensation packages within a highly aggressive industry. As of September
30,
2006, there were approximately 2.0 million shares available for grant under
the
2005 Plan. The Board believes the current number of shares available for grant
is insufficient and will seriously harm our ability to attract and retain
qualified employees and directors. The amendment to the 2005 Plan is designed
to
assist us in recruiting, motivating and retaining talented employees and
directors who will help us to continue achieving our business goals, including
creating long-term value for stockholders.
In
order to facilitate approval of this proposal and address stockholder concerns
regarding the number of options we intend to grant in a given year, in
connection with the adoption of the 2005 Plan, the Board committed to the
stockholders that through the 2008 fiscal year it would not grant in a fiscal
year a number of shares subject to equity awards to employees (whether under
the
2005 Plan or other plans not approved by stockholders) greater than the average
“burn rate” for equity awards by companies in the software and services industry
(as stated by Institutional Shareholder Services), which is 5.44% of the number
of shares of our common stock that we believe will be outstanding at the
end
of
the same fiscal year. For purposes of calculating the number of shares granted
in a year, stock purchase awards, restricted stock awards, restricted stock
unit
awards, performance stock awards and other stock awards with respect to which
the strike price is less than 100% of the fair market value will count as
equivalent to (i) 1.5 option shares if our annual stock price volatility is
53%
or higher, (ii) two option shares if our annual stock price volatility is
between 25% and 52%, and (iii) four option shares if our annual stock price
volatility is less than 25%. Volatility is calculated pursuant to guidelines
specified by Institutional Shareholder Services.
In
this Proposal 3, you are requested to approve the amendment to the 2005 Plan
to
increase the aggregate number of shares available for future issuance by
1,600,000, resulting in an aggregate of 3,583,194 shares available for grant
under the 2005 Plan as of September 30, 2006. The affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
and entitled to vote at the annual meeting will be required to approve the
adoption of the 2005 Plan. Abstentions will be counted toward the tabulation
of
votes cast on proposals presented to the stockholders and will have the same
effect as negative votes. Broker non-votes are counted towards a quorum, but
are
not counted for any purpose in determining whether this matter has been
approved.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL
3.
The
terms and provisions of the 2005 Plan are summarized below. This summary,
however, does not purport to be a complete description of the 2005 Plan. The
2005 Plan has been filed with the SEC as an attachment to this proxy statement
and may be accessed from the SEC’s website at www.sec.gov. The following summary
is qualified in its entirety by reference to the complete text of the 2005
Plan.
Any stockholder that wishes to obtain a copy of the actual plan document may
do
so by written request to our Corporate Secretary at 20400 Stevens Creek
Boulevard, Suite 400, Cupertino, California 95014.
The
following is a summary of the material features of the 2005 Plan:
General
The
2005 Plan provides for the grant of incentive stock options, nonstatutory stock
options, stock purchase awards, restricted stock awards, restricted stock unit
awards, stock appreciation rights, performance stock awards, performance cash
awards, and other forms of equity compensation (collectively, the “stock
awards”). To date, we have granted no stock awards under the 2005
Plan.
Incentive
stock options granted under the 2005 Plan are intended to qualify as “incentive
stock options” within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the “Code”). Nonstatutory stock options granted under the 2005
Plan are not intended to qualify as incentive stock options under the Code.
See
“Federal Income Tax Information” for a discussion of the tax treatment of
awards.
Purpose
The
Board adopted the 2005 Plan to provide a means by which employees, directors
and
consultants of Chordiant and its affiliates may be given an opportunity to
purchase stock in Chordiant, to assist in retaining the services of such
persons, to secure and retain the services of persons capable of filling such
positions and to provide incentives for such persons to exert maximum efforts
for the success of Chordiant and its affiliates.
As
of September 30, 2006, approximately 325 employees are eligible to participate
in the 2005 Plan. Directors and consultants of Chordiant and its affiliates
are
also eligible to participate in the 2005 Plan.
Administration
The
Board administers the 2005 Plan. Subject to the provisions of the 2005 Plan,
the
Board has the power to construe and interpret the 2005 Plan and to determine
the
persons to whom and the dates on which awards will be granted, the number of
shares of common stock to be subject to each award, the time or times during
the
term of each award within which all or a portion of such award may be exercised,
the exercise price, the type of consideration and other terms of the award.
The
Board also has the authority to settle all controversies, accelerate vesting
of
stock awards, suspend or terminate the 2005 Plan, to amend the 2005 Plan, to
submit any amendment for stockholder approval, to amend the 2005 Plan with
regard to Incentive Stock Options, to amend any stock awards, and to adopt
procedures or sub-plans for non-U.S. participants.
The
Board has the power to delegate administration of the 2005 Plan to a committee
composed of not fewer than two members of the Board. In the discretion of the
Board, a committee may consist solely of two or more outside directors in
accordance with Section 162(m) of the Code or solely of two or more non-employee
directors in accordance with Rule 16b-3 of the Exchange Act. As used herein
with
respect to the 2005 Plan, the “Board” refers to any committee the Board appoints
as well as to our Board itself.
13
The
regulations under Section 162(m) of the Code require that the directors who
serve as members of the committee must be “outside directors.” The 2005 Plan
provides that, in the Board’s discretion, directors serving on the committee may
be “outside directors” within the meaning of Section 162(m). This limitation
would exclude from the committee directors who are (i) current employees of
Chordiant or an affiliate, (ii) former employees of Chordiant or an affiliate
receiving compensation for past services (other than benefits under a
tax-qualified pension plan), (iii) current and former officers of Chordiant
or
an affiliate, (iv) directors currently receiving direct or indirect remuneration
from Chordiant or an affiliate in any capacity (other than as a director) and
(v) any other person who is otherwise not considered an “outside director” for
purposes of Section 162(m).
The
Board also has the power to delegate to one or more of our officers the
authority to do one or both of the following: (i) designate employees who are
not officers to be recipients of stock awards and the terms thereof, and (ii)
determine the number of shares of common stock to be subject to such stock
awards granted to such employees; provided, however, that the Board shall
specify the total number of shares of common stock that may be subject to the
stock awards granted by such officer and that such officer may not grant a
stock
award to himself or herself.
In
the event of a decline in the value of our common stock, the Board does not
have
the authority to reprice any outstanding stock awards under the 2005 Plan or
cancel and re-grant any outstanding stock awards under the 2005 Plan, unless
Chordiant’s stockholders have approved such an action within twelve (12) months
prior to such an event.
Stock
Subject to the 2005 Plan
If
stockholders approve this Proposal 3, an aggregate of approximately 3,583,194
shares of common stock will be available for grant under the 2005 Plan as of
September 30, 2006. If options granted under the 2005 Plan and previously
granted under the 1999 Plan expire or otherwise terminate without being
exercised, the shares of common stock not acquired pursuant to such options
will
again become available for issuance under the 2005 Plan. If shares of common
stock are not issued because such shares instead are used to satisfy an
applicable tax withholding requirement or other obligation to Chordiant in
connection with the exercise of an option, then such shares will again be
available for issuance under the 2005 Plan. In addition, if the exercise price
of any option is satisfied by the tender of shares of common stock to us
(whether by actual delivery or attestation) only the number of shares of common
stock issued, net of any shares so tendered, will be deemed issued to the
participant. If we reacquire unvested stock issued under the 2005 Plan, or
the
stock award is settled in cash, the reacquired stock will become available
again
for reissuance under the 2005 Plan.
If
stockholders approve this Proposal 3, the maximum number of shares that may
be
granted under the 2005 Plan pursuant to the exercise of incentive stock options
is 7,081,786.
Eligibility
Incentive
stock options may be granted under the 2005 Plan only to employees (including
officers) of Chordiant and its affiliates. Employees (including officers),
directors, and consultants of both Chordiant and its affiliates are eligible
to
receive all other types of awards under the 2005 Plan.
No
incentive stock option may be granted under the 2005 Plan to any person who,
at
the time of the grant, owns (or is deemed to own) stock possessing more than
10%
of the total combined voting power of Chordiant or any affiliate of Chordiant,
unless the exercise price is at least 110% of the fair market value of the
stock
subject to the option on the date of grant and the term of the option does
not
exceed five years from the date of grant. In addition, the aggregate fair market
value, determined at the time of grant, of the shares of common stock with
respect to which incentive stock options are exercisable for the first time
by a
participant during any calendar year (under the 2005 Plan and all other such
plans of Chordiant and its affiliates) may not exceed $100,000.
No
employee may be granted stock options and stock appreciation rights under the
2005 Plan exercisable for more than 2,000,000 shares of common stock during
any
calendar year (“Section 162(m) Limitation”).
Terms
of Options
The
following is a description of the permissible terms of options under the 2005
Plan. Individual option grants may be more restrictive as to any or all of
the
permissible terms described below.
Exercise
Price; Payment. The
exercise price of incentive stock options may not be less than 100% of the
fair
market value of the stock subject to the option on the date of the grant and,
in
some cases (see “Eligibility” above), may not be less than 110% of such fair
market value. The exercise price of nonstatutory stock options may not be less
than 100% of the fair market value of the stock on the date of grant. At
December 29, 2006, the closing price of our common stock as reported on the
Nasdaq National Market System was $9.26 per share.
The
exercise price of options granted under the 2005 Plan must be paid in cash
at
the time the option is exercised, or, at the discretion of the Board, (i) by
delivery of other common stock of Chordiant owned by the participant for at
least six months (or such other period of time required to avoid a charge in
earnings for financial accounting purposes), (ii) pursuant to a deferred payment
arrangement; (iii) pursuant to a net exercise arrangement; or (iv) in any other
form of legal consideration acceptable to the Board.
Option
Exercise.
Options granted under the 2005 Plan may become exercisable in cumulative
increments (“vest”) as determined by the Board. Shares covered by currently
outstanding options under the 1999 Plan typically vest at the rate of 1/4th
on
the first anniversary of the date the option holder commenced providing services
to us and 1/48th per month thereafter, such that all shares are vested on the
fourth anniversary of the date the option holder commenced providing services
to
us, provided that vesting only continues during the participant’s employment by,
or service as a director or consultant to, Chordiant or an affiliate
(collectively, “service”), after the first year of employment. Shares covered by
options granted in the future under the 2005 Plan may be subject to different
vesting terms. The Board has the power to accelerate the time during which
an
option may vest or be exercised. To the extent provided by the terms of an
option, a participant may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such option by a cash payment upon
exercise, by authorizing us to withhold a portion of the stock otherwise
issuable to the participant, by delivering already-owned our common stock or
by
a combination of these means.
Term.
The maximum term of options under the 2005 Plan is 10 years, except that in
certain cases (see “Eligibility”) the maximum term is 5 years.
Termination
of Service.
Options under the 2005 Plan generally terminate 3 months after termination
of
the participant’s service unless (i) such termination is due to the
participant’s disability in which case the option may, but need not, provide
that it may be exercised (to the extent the option was exercisable at the time
of the termination of service) at any time before the earlier of 12 months
from
the date such termination or the expiration of the option; (ii) the participant
dies before the participant’s service has terminated, in which case the option
may, but need not, provide that it may be exercised (to the extent the option
was exercisable at the time of the participant’s death) at any time before the
earlier of 18 months from the date of the participant’s death or the expiration
of the option, by the person or persons to whom the rights to such option pass
by will or by the laws of descent and distribution; or (iii) the option by
its
terms specifically provides otherwise. A participant may designate a beneficiary
who may exercise the option following the participant’s death. Individual option
grants by their terms may provide for exercise within a longer period of time
following termination of service.
14
A
participant’s option agreement may provide that if the exercise of the option
following the termination of the participant’s service would be prohibited
because the issuance of stock would violate the registration requirements under
the Securities Act, then the option will terminate on the earlier of (i) the
expiration of the term of the option or (ii) three months after the termination
of the participant’s service during which the exercise of the option would not
be in violation of such registration requirements.
Except
as explicitly provided otherwise in a participant’s option agreement, in the
event that a participant’s service is terminated for cause, the option will
terminate upon the termination date of such participant’s service, and the
participant will be prohibited from exercising his or her option.
Restrictions
on Transfer.
The Board has the authority to determine the limitations on transferability
of
options. Generally, the following restrictions apply: (i) participant may not
transfer an option otherwise than by will or by the laws of descent and
distribution; and (ii) during the lifetime of the participant, only the
participant may exercise an option.
Terms
of Stock Purchase Awards
Payment.
Our Board determines the purchase price under a stock purchase award agreement.
The purchase price may be paid either (i) in cash; (ii) by past or future
services to Chordiant or an affiliate; or (iii) in any other form of legal
consideration acceptable to the Board.
Vesting.
Shares of common stock acquired under a stock purchase award agreement may
be
subject to vesting in accordance with a schedule determined by the
Board.
Termination
of Service.
In
the event that a participant’s service terminates, Chordiant may repurchase any
or all of the unvested shares of common stock held by the
participant.
Restrictions
on Transfer.
Rights under a stock purchase award agreement may be transferred as may be
expressly authorized by the terms of the applicable stock purchase award
agreement.
Terms
of Restricted Stock Awards
Payment.
A
restricted stock award may be awarded in consideration for (i) past or future
services rendered to Chordiant or an affiliate or (ii) any other form of legal
consideration acceptable to the Board.
Vesting.
Shares of common stock acquired under a restricted stock award agreement may
be
subject to vesting in accordance with a schedule determined by the
Board.
Termination
of Service.
In
the event that a participant’s service terminates, Chordiant may receive via a
forfeiture condition any or all of the unvested shares of common stock held
by
the participant.
Restrictions
on Transfer.
Rights under a restricted stock award agreement may be transferred as may be
expressly authorized by the terms of the applicable restricted stock award
agreement.
Terms
of Restricted Stock Unit Awards
Consideration.
The purchase price, if any, for stock unit awards may be paid in any form of
legal consideration acceptable to the Board.
Settlement
of Awards.
A
stock unit award may be settled by the delivery of shares of our common stock,
in cash, or by any combination of these means or in any other form of
consideration as determined by the Board.
Vesting
and Additional Restrictions.
Stock unit awards vest at the rate specified in the stock unit award agreement
as determined by the Board. At the time of grant, the Board may also impose
additional restrictions or conditions that delay the delivery of stock or cash
subject to the stock unit award after vesting.
Dividend
Equivalents.
Dividend equivalent rights may be credited with respect to shares covered by
a
stock unit award. We do not anticipate paying cash dividends on our common
stock
for the foreseeable future, however.
Termination
of Service.
Except as otherwise provided in the applicable award agreement, stock units
that
have not vested will be forfeited upon the participant’s termination of
service.
Terms
of Stock Appreciation Rights
Exercise. Each
stock appreciation right is denominated in shares of common stock equivalents.
Upon exercise of a stock appreciation right, we will pay the participant an
amount equal to the excess of (i) the aggregate fair market value of our common
stock on the date of exercise, over (ii) the strike price determined by the
Board on the date of grant.
Settlement
of Awards. The
appreciation distribution upon exercise of a stock appreciation right may be
paid in cash, shares of our common stock, or any other form of consideration
determined by the Board.
Vesting.
Stock appreciation rights vest and become exercisable at the rate specified
in
the stock appreciation right agreement as determined by the Board.
Termination
of Service.
Upon termination of a participant’s service, the participant generally may
exercise any vested stock appreciation right for three months (or such longer
or
shorter period specified in the stock appreciation right agreement) after the
date such service relationship ends. In no event may a stock appreciation right
be exercised beyond the expiration of its term. However, except as explicitly
provided otherwise in a participant’s stock appreciation right agreement, in the
event that a participant’s service is terminated for cause, the stock
appreciation right shall terminate upon the termination date of such
participant’s service, and the participant will be prohibited from exercising
his or her stock appreciation right.
Terms
of Performance-Based Awards
General.
The 2005 Plan allows the Board to issue performance stock awards and performance
cash awards (together, the “performance-based awards”) that qualify as
performance-based compensation that is not subject to the income tax
deductibility limitations imposed by Section 162(m) of the Code, if the issuance
of such stock or cash is approved by the Compensation Committee and the grant,
vesting, or exercise of one or more stock awards and the delivery of such cash
is tied solely to the attainment of certain performance goals during a designed
performance period.
15
Performance
Goals.
In
granting a performance-based award, the Board will set a period of time (a
“performance period”) over which the attainment of one or more goals
(“performance goals”) will be measured for the purpose of determining whether
the award recipient has a vested right in or to such award. Within the time
period prescribed by Section 162(m) of the Code (typically before the 90th
day
of a performance period), the Board will establish the performance goals, based
upon one or more pre-established criteria (“performance criteria”) enumerated in
the 2005 Plan and described below. As soon as administratively practicable
following the end of the performance period, the Board will certify (in writing)
whether the performance goals have been satisfied.
To
assure that the compensation attributable to one or more performance awards
will
qualify as performance-based compensation that will not be subject to the
$1,000,000 limitation on the income tax deductibility of the compensation paid
per covered executive officer imposed under Section 162(m) of the Code, the
Board has the authority to structure one or more of these awards so that stock
or cash will be issued or paid pursuant to the award upon the achievement of
certain pre-established performance goals. Such goals may be based on any one
of, or a combination of, the following performance criteria: (i) earnings per
share; (ii) earnings before interest, taxes and depreciation; (iii) earnings
before interest, taxes, depreciation and amortization; (iv) total stockholder
return; (v) return on equity; (vi) return on assets, investment, or capital
employed; (vii) operating margin; (viii) gross margin; (ix) operating income;
(x) net income (before or after taxes); (xi) net operating income; (xii) net
operating income after tax; (xiii) pre-tax profit; (xiv) operating cash flow;
(xv) sales or revenue targets; (xvi) increases in revenue or product revenue;
(xvii) expenses and cost reduction goals; (xviii) improvement in or attainment
of working capital levels; (xix) economic value added (or an equivalent metric);
(xx) market share; (xxi) cash flow; (xxii) cash flow per share; (xxiii) share
price performance; (xxiv) debt reduction; (xxv) implementation or completion
of
projects or processes; (xxvi) customer satisfaction; (xxvii) stockholders’
equity; and (xxviii) other measures of performance selected by the
Board.
At
the time of the grant of any performance-based award, the Board is authorized
to
determine whether, when calculating the attainment of performance goals: (i)
to
exclude restructuring and/or other nonrecurring charges; (ii) to exclude
exchange rate effects, as applicable, for non-U.S. dollar denominated net sales
and operating earnings; (iii) to exclude the effects of changes to generally
accepted accounting standards required by the Financial Accounting Standards
Board; (iv) to exclude the effects of any statutory adjustments to corporate
tax
rates; and (v) to exclude the effects of any “extraordinary items” as determined
under generally accepted accounting principles. In addition, the Board retains
the discretion to reduce or eliminate the compensation or economic benefit
due
upon attainment of Performance Goals.
Compensation
attributable to performance-based stock awards under the 2005 Plan will qualify
as performance-based compensation, provided that: (i) the award is granted
by a
compensation committee comprised solely of “outside directors,” (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while
the
outcome is substantially uncertain, (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied.
Annual
Limitation.
The maximum benefit to be received by a participant in any calendar year
attributable to performance stock awards may not exceed the value of 1,200,000
shares of common stock. The maximum benefit to be received by a participant
in
any calendar year attributable to performance cash awards may not exceed
$3,000,000.
Terms
of Other Stock Awards
The
Board may grant other stock awards based in whole or in part by reference to
the
value of our common stock. Subject to the provisions of the 2005 Plan, the
Board
has the authority to determine the persons to whom and the dates on which such
other equity awards will be granted, the number of shares of our common stock
(or cash equivalents) to be subject to each award, and other terms and
conditions of such awards. Such awards may be granted either alone or in
addition to other stock awards granted under the 2005 Plan.
Adjustment
Provisions
Transactions
not involving receipt of consideration by Chordiant, such as a merger,
consolidation, reorganization, stock dividend, or stock split, may change the
type(s), class(es) and number of shares of common stock subject to the 2005
Plan
and outstanding awards. In that event, the 2005 Plan will be appropriately
adjusted as to the type(s), class(es) and the maximum number of shares of common
stock subject to the 2005 Plan, the Section 162(m) Limitation, and the maximum
number of shares a participant can receive under a performance-based stock
award. Further, outstanding awards will be adjusted as to the type(s),
class(es), number of shares and price per share of common stock subject to
such
awards.
Effect
of Certain Corporate Transactions and a Change in Control
In
the event of (i) the sale or other disposition of all or substantially all
of
the assets of Chordiant, (ii) the sale or other disposition of at least 90%
of
the outstanding securities of Chordiant, or (iii) certain specified types of
merger, consolidation or similar transactions (collectively, “corporate
transaction”), any surviving or acquiring corporation may continue or assume
awards outstanding under the 2005 Plan or may substitute similar awards. If
any
surviving or acquiring corporation does not assume such awards or to substitute
similar awards, then with respect to awards held by participants whose service
with us or an affiliate has not terminated as of the effective date of the
corporate transaction, the vesting of such awards (and, if applicable, the
time
during which such awards may be exercised) will be accelerated in full, subject
to certain limitations, and the awards will terminate if not exercised (if
applicable) at or prior to such effective date.
Subject
to certain exceptions, in the event a person becomes the owner of Chordiant’s
securities representing more than 50% of the combined voting power of
Chordiant’s then outstanding securities other than by virtue of a merger,
consolidation or similar transaction (a “change in control”), each outstanding
stock award (other than a performance stock award) will become immediately
vested in that number of shares that would have been vested as of a date twelve
months following the date of the change in control. Following the acceleration
described in this paragraph, any unvested shares of common stock remaining
subject to a stock award shall vest in equal installments over a vesting period
that is twelve months shorter than the vesting period immediately prior to
the
change in control. If the vesting of a stock award is accelerated pursuant
to a
corporate transaction as described in the immediately preceding paragraph,
acceleration on a change of control will not occur.
The
acceleration of a stock award in the event of a corporate transaction or a
change in control event may be viewed as an anti-takeover provision, which
may
have the effect of discouraging a proposal to acquire or otherwise obtain
control of Chordiant.
Duration,
Amendment and Termination
The
Board may suspend or terminate the 2005 Plan without stockholder approval or
ratification at any time or from time to time. Unless sooner terminated, the
2005 Plan will terminate on July 19, 2015.
The
Board may also amend the 2005 Plan at any time or from time to time. However,
no
amendment will be effective unless approved by our stockholders within 12 months
before or after its adoption by the Board if the amendment would (i) modify
the
requirements as to eligibility for participation (to the extent such
modification requires stockholder approval in order for the 2005 Plan to satisfy
Section 422 of the Code, if applicable, or Rule 16b-3 of the Exchange Act);
(ii)
increase the number of shares reserved for issuance upon exercise of awards;
(iii) change any other provision of the 2005 Plan in any other way if such
modification requires stockholder approval in order to comply with Rule 16b-3
of
the Exchange Act or satisfy the requirements of Section 422 of the Code or
any
securities exchange listing requirements; (iv) reprice any outstanding stock
awards under the 2005 Plan, or (v) cancel and re-grant any outstanding stock
awards under the 2005 Plan. The Board may submit any other amendment to the
2005
Plan for stockholder approval, including, but not limited to, amendments
intended to satisfy the requirements of Section 162(m) of the Code regarding
the
exclusion of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
16
Federal
Income Tax Information
Incentive
Stock Options.
Incentive stock options under the 2005 Plan are intended to be eligible for
the
favorable federal income tax treatment accorded “incentive stock options” under
the Code.
There
generally are no federal income tax consequences to the participant or Chordiant
by reason of the grant or exercise of an incentive stock option. However, the
exercise of an incentive stock option may increase the participant’s alternative
minimum tax liability, if any.
If
a participant holds stock acquired through exercise of an incentive stock option
for more than two years from the date on which the option is granted and more
than one year from the date on which the shares are transferred to the
participant upon exercise of the option, any gain or loss on a disposition
of
such stock will be a long-term capital gain or loss.
Generally,
if the participant disposes of the stock before the expiration of either of
these holding periods (a “disqualifying disposition”), then at the time of
disposition the participant will realize taxable ordinary income equal to the
lesser of (i) the excess of the stock’s fair market value on the date of
exercise over the exercise price, or (ii) the participant’s actual gain, if any,
on the purchase and sale. The participant’s additional gain or any loss upon the
disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on whether the stock was held for more than
one year.
To
the extent the participant recognizes ordinary income by reason of a
disqualifying disposition, Chordiant will generally be entitled (subject to
the
requirement of reasonableness, the provisions of Section 162(m) of the Code
and
the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition
occurs.
Nonstatutory
Stock Options, Stock Purchase Awards and Restricted Stock
Awards.
Nonstatutory stock options, stock purchase awards and restricted stock awards
granted under the 2005 Plan generally have the following federal income tax
consequences.
There
are no tax consequences to the participant or Chordiant by reason of the grant.
Upon acquisition of the stock, the participant normally will recognize taxable
ordinary income equal to the excess, if any, of the stock’s fair market value on
the acquisition date over the purchase price. However, to the extent the stock
is subject to certain types of vesting restrictions, the taxable event will
be
delayed until the vesting restrictions lapse unless the participant elects
to be
taxed on receipt of the stock. With respect to employees, we are generally
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, we will generally be entitled to
a
business expense deduction equal to the taxable ordinary income realized by
the
participant.
Upon
disposition of the stock, the participant will recognize a capital gain or
loss
equal to the difference between the selling price and the sum of the amount
paid
for such stock plus any amount recognized as ordinary income upon acquisition
(or vesting) of the stock. Such gain or loss will be long-term or short-term
depending on whether the stock was held for more than one year. Slightly
different rules may apply to participants who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Stock
Appreciation Rights.
No
taxable income is realized upon the receipt of a stock appreciation right,
but
upon exercise of the stock appreciation right the fair market value of the
shares (or cash in lieu of shares) received must be treated as compensation
taxable as ordinary income to the participant in the year of such exercise.
Generally, with respect to employees, we are required to withhold from the
payment made on exercise of the stock appreciation right or from regular wages
or supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, Section 162(m) of the Code and
the
satisfaction of a reporting obligation, we will be entitled to a business
expense deduction equal to the taxable ordinary income recognized by the
participant.
Stock
Unit Awards.
No
taxable income is recognized upon receipt of a stock unit award. The participant
will recognize ordinary income in the year in which the vested shares subject
to
that unit are actually issued to the participant in an amount equal to the
fair
market value of the shares on the date of issuance. The participant and we
will
be required to satisfy certain tax withholding requirements applicable to such
income. Subject to the requirement of reasonableness, Section 162(m) of the
Code
and the satisfaction of a tax reporting obligation, we will be entitled to
an
income tax deduction equal to the amount of ordinary income recognized by the
participant at the time the shares are issued. In general, the deduction will
be
allowed for the taxable year in which such ordinary income is recognized by
the
participant.
Potential
Limitation on Company Deductions. Section
162(m) of the Code denies a deduction to any publicly held corporation for
compensation paid to certain “covered employees” in a taxable year to the extent
that compensation to such covered employee exceeds $1 million. It is possible
that compensation attributable to awards, when combined with all other types
of
compensation received by a covered employee from Chordiant, may cause this
limitation to be exceeded in any particular year.
Certain
kinds of compensation, including qualified “performance-based compensation,” are
disregarded for purposes of the deduction limitation. In accordance with
Treasury Regulations issued under Section 162(m), compensation attributable
to
stock options and stock appreciation rights will qualify as performance-based
compensation if the award is granted by a compensation committee comprised
solely of “outside directors” and either (i) the plan contains a per-employee
limitation on the number of shares for which such awards may be granted during
a
specified period, the per-employee limitation is approved by the stockholders,
and the exercise price of the award is no less than the fair market value of
the
stock on the date of grant, or (ii) the award is granted (or exercisable) only
upon the achievement (as certified in writing by the compensation committee)
of
an objective performance goal established in writing by the compensation
committee while the outcome is substantially uncertain, and the award is
approved by stockholders.
All
other stock awards will qualify as performance-based compensation under the
Treasury Regulations only if (i) the award is granted by a compensation
committee comprised solely of “outside directors,” (ii) the award is granted (or
exercisable) only upon the achievement of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain, (iii) the compensation committee certifies in writing
prior to the granting (or exercisability) of the award that the performance
goal
has been satisfied and (iv) prior to the granting (or exercisability) of the
award, stockholders have approved the material terms of the award (including
the
class of employees eligible for such award, the business criteria on which
the
performance goal is based, and the maximum amount — or formula used to calculate
the amount — payable upon attainment of the performance goal).
17
PROPOSAL
4
APPROVAL
OF OUR AMENDED AND RESTATED 1999 NON-EMPLOYEE DIRECTORS’ OPTION
PLAN
Chordiant’s
stockholders are being asked to approve Chordiant’s Amended and Restated 1999
Non-Employee Directors’ Option Plan (the “Directors’ Plan”) to decrease the
number of shares authorized and reserved for issuance under the Directors’ Plan
by 320,685 shares of common stock, to establish that the fair market value
of
the exercise price of stock available for purchase under each option shall
be
100% of the closing price of the common stock on the date of grant and to
eliminate the automatic increase in the number of shares available for issuance
under that plan on October 1 of each year.
Chordiant
believes that it has an ample supply of shares available for issuance under
the
Director’s Plan for the foreseeable future and does not believe that it is
necessary to retain the automatic increase provision.
Subject
to stockholder approval, the Amended and Restated 1999 Non-Employee Directors’
Stock Option Plan will include the following changes to the 1999 Non-Employee
Directors’ Stock Option Plan, as amended:
| · |
Decrease
the number of shares available for issuance by 320,685 shares of
common
stock from an aggregate total of 620,685 shares available under the
Directors’ Plan, available as of December 31, 2006 (plus any shares that
might in the future be returned to that plan as a result of the
reacquisition of unvested shares, or as a result of cancellations
or
expirations of options), resulting in an aggregate of approximately
300,000 shares available for grant under the Directors’
Plan;
|
| · |
Establish
that the fair market value of the exercise price of stock available
for
purchase under each option shall be 100% of the closing price of
the
common stock on the NASDAQ Stock Market on the date of grant;
and
|
| · |
Eliminate
the automatic increase provision.
|
Stockholders
are requested in this Proposal 4 to approve the amendment to the Directors’
Plan. The affirmative vote of the holders of a majority of shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the amendment to the Directors’ Plan. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as votes against the proposal. Broker
non-votes are counted towards the quorum, but will not be counted for any
purpose in determining whether this matter has been approved.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL
4.
The
terms and provisions of the Directors’ Plan are summarized below. This summary,
however, does not purport to be a complete description of the Directors’ Plan.
The Directors’ Plan has been filed with the SEC as an attachment to this proxy
statement and may be accessed from the SEC’s website at www.sec.gov. The
following summary is qualified in its entirety by reference to the complete
text
of the Directors’ Plan. Any stockholder that wishes to obtain a copy of the
actual plan document may do so by written request to our Corporate Secretary
at
20400 Stevens Creek Boulevard, Suite 400, Cupertino, California
95014.
The
following is a summary of the material features of the Directors’
Pan:
General
The
Directors’ Plan provides for the automatic grant of nonstatutory stock options.
Options granted under the Directors’ Plan are not intended to qualify as
“incentive stock options” within the meaning of Section 422 of the Code. See
“Federal
Income Tax Information”
for a discussion of the tax treatment of nonstatutory stock options.
Purpose
The
Board adopted the Directors’ Plan to provide a means by which our non-employee
directors may be given an opportunity to purchase our stock, to assist in
retaining the services of such persons, to secure and retain the services of
persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for our success. Five of our current directors
are eligible to participate in the Directors’ Plan.
Administration
The
Board administers the Directors’ Plan. The Board has the power to construe and
interpret the Directors’ Plan but not to determine the persons to whom or the
dates on which options will be granted, the number of shares to be subject
to
each option, the time or times during the term of each option within which
all
or a portion of such option may be exercised, the exercise price, the type
of
consideration or the other terms of the option except that the Board may
determine other provisions of the options to the extent not specified in the
Directors’ Plan.
Stock
Subject to the Directors’ Plan
If
stockholders approve this Proposal 4, an aggregate of 300,000 shares of common
stock will be available for grant and 163,000 will be outstanding, under the
Directors’ Plan as of December 31, 2006. If options granted under the Directors’
Plan expire or otherwise terminate without being exercised, the shares of common
stock not acquired pursuant to such options again become available for issuance
under the Directors’ Plan. If we reacquire unvested stock issued under the
Directors’ Plan, the reacquired stock will not again become available for
reissuance under the Directors’ Plan.
Eligibility
The
Directors’ Plan provides that options may be granted only to our non-employee
directors. A “non-employee director” is defined in the Directors’ Plan as a
director of ours who is not otherwise an employee of or consultant to us or
any
affiliate of ours.
Non-Discretionary
Grant of Options
The
Directors’ Plan provides for the automatic grant of a nonstatutory option to
purchase 10,000 shares of Common Stock to each new non-employee director who
becomes a director after the date of our initial public offering on the date
that such person becomes a director. The vesting of initial grants shall be
such
that 1
/
3
rd
of
the shares of our common stock subject to the option vest after one year, and
the remaining shares subject to the option vest in equal monthly installments
over the following two years. Each current and future non-employee director
will
automatically be granted an additional nonstatutory option to purchase 3,000
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 2,000 shares on the day after each
of
our annual meetings of the stockholders. The vesting of annual grants and
committee grants shall be such that 1
/
12
th
of
the shares of our common stock subject to the option vest after each month
for
twelve months after the date of grant. Under the terms of the plan, option
prices 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.
Terms
of Options
The
following is a description of the terms of options under the Directors’ Plan.
Individual option grants may not be more restrictive as to the terms described
below.
18
The
exercise price of options granted under the Directors’ Plan must be paid in cash
or by check at the time the option is exercised or (i) by delivery of other
shares of our common stock, (ii) pursuant to a deferred payment arrangement
or
(iii) in any other form of legal consideration acceptable to the
Board.
Option
Exercise.
Options granted under the Directors’ Plan vest in accordance with the Directors’
Plan during the optionholder’s service as a director of ours and during any
subsequent service of the optionholder. The Board has the power to accelerate
the time during which an option may vest or be exercised.
Term.
The term of options under the Directors’ Plan is 10 years. Options under the
Directors’ Plan generally terminate on the earlier of three months after
termination of the optionholder’s service or the expiration of the term of the
option unless (i) such termination is due to the optionholder’s disability, in
which case the option may be exercised (to the extent the option was exercisable
at the time of the termination of service) at any time within 12 months of
such
termination; or (ii) the optionholder dies before the optionholder’s service has
terminated, or within three months after termination of such service, in which
case the option may be exercised (to the extent the option was exercisable
at
the time of the optionholder’s death) within 18 months of the optionholder’s
death by the person or persons to whom the rights to such option pass by will
or
by the laws of descent and distribution. An optionholder may designate a
beneficiary who may exercise the option following the optionholder’s
death.
The
option term is extended in the event that exercise of the option within these
periods is prohibited. An optionholder’s option agreement provides that if the
exercise of the option following the termination of the optionholder’s service
would be prohibited because the issuance of stock would violate the registration
requirements under the Securities Act, then the option will terminate on the
earlier of (i) the expiration of the term of the option or (ii) three months
after the termination of the optionholder’s service during which the exercise of
the option would not be in violation of such registration
requirements.
Other
Provisions.
The option agreement may contain such other terms, provisions and conditions
not
inconsistent with the Directors’ Plan as determined by the Board.
Restrictions
on Transfer
Options
are non-transferable except by will or the laws of descent and to the further
extent permitted under the rules of a Form S-8 Registration Statement under
the
Securities Act.
Adjustment
Provisions
Transactions
not involving our receipt of consideration, such as a merger, consolidation,
reorganization, stock dividend, or stock split, may change the type(s),
class(es) and number of shares of common stock subject to the Directors’ Plan
and outstanding options. In that event, the Directors’ Plan will be
appropriately adjusted as to the type(s), class(es) and the maximum number
of
shares of common stock subject to the Directors’ Plan, and outstanding options
will be adjusted as to the type(s), class(es), number of shares and price per
share of common stock subject to such options.
Effect
of Certain Corporate Events
The
Directors’ Plan provides that, in the event of a dissolution, liquidation or
sale of substantially all of our assets, specified types of merger, or other
corporate reorganization, any surviving corporation may either assume options
outstanding under the Directors’ Plan or substitute similar options for those
outstanding under the Directors’ Plan. If any surviving corporation does not
assume options outstanding under the Directors’ Plan, or to substitute similar
options, then, with respect to optionholders whose service has not terminated,
the vesting and the time during which such options may be exercised will be
accelerated. An outstanding option will terminate if the optionholder does
not
exercise it before a change in control.
The
acceleration of an option in the event of an acquisition or similar corporate
event may be viewed as an anti-takeover provision, which may have the effect
of
discouraging a proposal to acquire or otherwise obtain control of
us.
Duration,
Amendment and Termination
The
Board may suspend or terminate the Directors’ Plan without stockholder approval
or ratification at any time or from time to time.
The
Board may also amend the Directors’ Plan at any time or from time to time.
However, no amendment will be effective unless approved by our stockholders
within 12 months before or after its adoption by the Board if the amendment
would change any provision of the Directors’ Plan in any other way if such
modification requires stockholder approval in order to comply with Rule 16b-3
of
the Exchange Act or satisfy the requirements of any securities exchange listing
requirements. The Board may submit any other amendment to the Directors’ Plan
for stockholder approval.
Federal
Income Tax Information
Nonstatutory
Stock Options, Restricted Stock Purchase Awards and Stock
Bonuses.
Nonstatutory stock options under the Directors’ Plan generally have the
following federal income tax consequences.
There
are no tax consequences to the participant or to us by reason of the grant.
Upon
acquisition of the stock, the participant normally will recognize taxable
ordinary income equal to the excess, if any, of the stock’s fair market value on
the acquisition date over the purchase price. However, to the extent the stock
is subject to certain types of vesting restrictions, the taxable event will
be
delayed until the vesting restrictions lapse unless the participant elects
to be
taxed on receipt of the stock. With respect to employees, we is generally
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, we will generally be entitled to
a
business expense deduction equal to the taxable ordinary income realized by
the
participant.
Upon
disposition of the stock, the participant will recognize a capital gain or
loss
equal to the difference between the selling price and the sum of the amount
paid
for such stock plus any amount recognized as ordinary income upon acquisition
(or vesting) of the stock. Such gain or loss will be long-term or short-term
depending on whether the stock was held for more than one year. Slightly
different rules may apply to participants who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange
Act.
19
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
|
2,929,426
|
$
|
6.70
|
3,862,024
|
(2)
|
||||||
|
Equity
compensation plans not approved by security holders
|
733,429
|
$
|
4.95
|
182,325
|
|||||||
|
Total
|
3,662,855
|
$
|
6.35
|
4,044,349
|
|||||||
|
(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 307,424 shares of our common stock at a weighted-average
exercise price of $23.03 per share. As of September 30, 2006, 24,699
options of Prime Response, Inc. and White Spider Software, Inc
are still
outstanding with a weighted-average exercise price of $2.73. 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 3,862,024 shares available for future issuance under approved
equity compensation plans as of September 30, 2006 are 1,422,800
shares
related to the Employee Stock Purchase
Plan.
|
||||||||||
Information
Regarding Stock Awards Granted During Fiscal 2006
The
following table presents certain information with respect to stock awards
granted under the 2005 Plan during the 2006 fiscal year to (A) the officers
listed in the Summary Compensation Table below, (B) all executive officers
as a
group, (C) all current directors who are not executive officers as a group;
and
(D) all employees, including current officers who are not executive officers,
as
a group. Other than Mr. Springsteel, no person received five percent or more
of
the options granted during fiscal 2006. For information concerning stock awards
granted to our directors under our 1999 Non-Employee Directors’ Stock Option
Plan, see “Compensation of Directors and Executive Officers — Compensation of
Directors” below.
|
Shares
Covered by
|
||||||
|
Restricted
Stock
|
Shares
Covered by
|
|||||
|
Awards
Granted
|
Options
Granted
|
|||||
|
During
the 2006
|
During
the 2006
|
|||||
|
Fiscal
Year
|
Fiscal
Year (1)
|
|||||
|
Steven
R. Springsteel, Chairman of the Board, President, and Chief Executive
Officer
|
—
|
|
400,000
|
|||
|
Peter
S. Norman, Vice President, Chief Financial Officer, and Principal
Accounting Officer
|
—
|
50,000
|
||||
|
Derek
P. Witte, Vice President, General Counsel, Secretary, and Chief Compliance
Officer
|
—
|
120,000
|
(2)
|
|||
|
James
D. St. Jean, Vice President of Worldwide Engineering
|
—
|
20,000
|
||||
|
Samuel
T. Spadafora, Chairman of the Board and Chief Strategy Officer (3)
|
50,000
|
(4)
|
—
|
|||
|
Stephen
P. Kelly, Chief Executive Officer (5)
|
—
|
—
|
||||
|
Robert
U. Mullen, President Worldwide Field Operations (6)
|
80,000
|
(7)
|
—
|
|||
|
George
A. de Urioste, Chief Operating Officer and Chief Financial Officer
(8)
|
—
|
80,000
|
(9)
|
|||
|
All
current executive officers as a group
|
—
|
|
709,995
|
|||
|
All
current directors who are not executive officers as a group
|
—
|
|
47,000
|
|||
|
All
employees who are not executive officers as a group
|
—
|
|
747,394
|
|||
____________________
|
(1)
|
Unless
otherwise noted below, all option grants vest in equal month increments
over a four year period.
|
|
|
(2)
|
This
option grant vests in equal monthly increments over a three year
period.
|
|
|
(3)
|
Mr.
Spadafora resigned as a director and our chief strategy officer effective
November 30, 2006.
|
|
|
(4)
|
In
February 2006, Mr. Spadafora received an award of 50,000 shares of
restricted stock, with 8,000 shares vesting on each of April 1, 2006,
July
1, 2006, October 1, 2006, January 1, 2007, April 1, 2007 and 10,000
shares
vesting on October 1, 2007. Pursuant to the terms of his separation
agreement, 24,000 were issued and 26,000 shares were
cancelled.
|
|
|
(5)
|
Mr.
Kelly resigned as our chief executive officer effective February
1, 2006
but remained an employee until May 2, 2006.
|
|
|
(6)
|
Mr.
Mullen resigned as our president worldwide field operations effective
August 8, 2006 but remained an employee until December 31,
2006.
|
|
|
(7)
|
In
April 2006 Mr. Mullen received an award of 80,000 shares of restricted
stock, with 26,666 shares vesting in April 2007, 26,666 shares vesting
in
April 2008 and 26,668 shares vesting in April 2009. None of these
shares
had vested as of December 31, 2006, when he ceased to be an employee,
and
were cancelled.
|
|
|
(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 an award of 80,000 options.
As of
March 31, 2006, 1,666 shares from this option grant had vested, all
of
which have been exercised. His options which were unvested as of
March 31,
2006 have been cancelled.
|
20
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the ownership of our
common stock as of February 28, 2007 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 12/31/06)
|
|
|
|
|
|
2,951,590
|
|
|
9.1
|
%
|
|
666
5th
Avenue, 34th
floor
|
|
|
|
|
|
|
|
|
||
|
New
York, NY 10103
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional
Venture Management X, LLC
|
|
|
|
|
|
|
|
|
||
|
(as
of 5/15/06)
|
|
|
|
|
|
1,800,000
|
|
|
5.5
|
%
|
|
3000
Sand Hill Road, Building 2, Suite 290
|
|
|
|
|
|
|
|
|
||
|
Menlo
Park, CA 94025
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors,
Nominees and Executive Officers:
|
|
|
|
|
|
|
|
|
||
|
Steven
R. Springsteel
|
161,330
|
(2)
|
|
*
|
|
|||||
|
Peter
S. Norman
|
|
|
|
|
|
48,872
|
(3)
|
*
|
||
|
Derek
P. Witte
|
60,830
|
(4)
|
*
|
|||||||
|
James
D St. Jean
|
191,399
|
(5)
|
*
|
|||||||
|
William
J. Raduchel
|
|
|
|
|
|
62,062
|
(6)
|
|
*
|
|
|
Charles
E. Hoffman
|
24,000
|
(7)
|
*
|
|||||||
|
David
R. Springett
|
56,000
|
(8)
|
*
|
|||||||
|
Richard
G. Stevens
|
|
|
|
|
|
15,000
|
(9)
|
|
*
|
|
|
David
A. Weymouth
|
|
|
|
|
|
22,000
|
(10)
|
|
*
|
|
|
Samuel
T. Spadafora (11)
|
|
|
|
|
|
562,842
|
(12)
|
|
1.7
|
%
|
|
Stephen
P. Kelly (13)
|
|
|
|
|
|
378,314
|
(14)
|
|
1.1
|
%
|
|
Robert
U. Mullen (15)
|
|
|
|
|
|
1,077,057
|
(16)
|
|
3.3
|
%
|
|
George
A. de Urioste (17)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
All
executive officers and directors as a group (15 persons)
|
|
|
|
|
|
2,666,041
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
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 where 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 32,321,811 shares outstanding on February
28,
2007 adjusted as required by rules promulgated by the
SEC.
|
|
|
(2)
|
|
Consists
of (a) 4,000 shares, (b) 4,000 shares held by two of Mr. Springsteel’s
children, and (c) 153,330 shares issuable upon the exercise of outstanding
options that are exercisable within sixty days of February 28,
2007.
|
|
(3)
|
|
Consists
of 48,872 shares issuable upon the exercise of outstanding options
that
are exercisable within sixty (60) days of February 28,
2007.
|
|
(4)
|
Consists
of 60,830 shares issuable upon the exercise of outstanding options
that
are exercisable within sixty (60) days of February 28,
2007.
|
|
|
(5)
|
Consists
of (a) 64,702 shares acquired as part of our purchase of White Spider,
Inc. which includes 6,927 shares held by his spouse, and (b) 126,697
shares issuable upon the exercise of outstanding options that are
exercisable within sixty (60) days of February 28,
2007.
|
|
|
(6)
|
|
Consists
of (a) 24,062 shares and (b) 36,000 shares issuable upon the exercise
of
outstanding options that are exercisable within sixty (60) days of
February 28, 2007.
|
|
(7)
|
|
Consists
of 24,000 shares issuable upon the exercise of outstanding options
that
are exercisable within sixty (60) days of February 28,
2007.
|
21
|
(8)
|
|
Consists
of 56,000 shares issuable upon the exercise of outstanding options
that
are exercisable within sixty (60) days of February 28,
2007.
|
|
(9)
|
Consists
of 15,000 shares issuable upon the exercise of outstanding options
that
are exercisable within sixty (60) days of February 28,
2007.
|
|
|
(10)
|
|
Consists
of 22,000 shares issuable upon the exercise of outstanding options
that
are exercisable within sixty (60) days of February 28,
2007.
|
|
(11)
|
Mr.
Spadafora resigned as a director and as our chief strategy officer,
effective November 30, 2006.
|
|
|
(12)
|
|
Consists
of (a) 457,849 shares held by the Samuel T. and Cheryl M. Spadafora
1992
Family Trust and (b) 104,993 shares issuable upon the exercise of
outstanding options that are exercisable within sixty (60) days of
February 28, 2007.
|
|
(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) 150,825 shares, (b) 95,129 shares held by Mr. Kelly’s spouse and
(c) 132,360 shares issuable upon the exercise of outstanding options
that
are exercisable within sixty (60) days of February 28,
2007.
|
|
|
(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) 1,015,591 shares and (b) 61,466 shares issuable upon the exercise
of outstanding options that are exercisable within sixty (60) days
of
February 28, 2007.
|
|
|
(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.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 (the “1934 Act”) requires our
directors and executive officers, and persons who own more than ten percent
of a
registered class of our 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 ours. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file.
To
our knowledge, based solely on a review of the copies of such reports furnished
to us, 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.
22
COMPENSATION
OF DIRECTORS AND EXECUTIVE OFFICERS
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 10,000 shares of our common stock.
Pursuant to the terms of the Directors’ Plan, initial grants to purchase 10,000
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 10,000 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 3,000 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 2,000 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.
23
Compensation
of Executive Officers
Summary
Compensation Table
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
|
—
|
400,000
|
3,750
|
(2)
|
||||||
|
Chairman
of the Board, Chief Executive
|
2005
|
—
|
—
|
|
—
|
5,000
|
—
|
||||||
|
Officer
and President
|
2004
|
—
|
—
|
|
—
|
15,000
|
—
|
||||||
|
Peter
S. Norman (3)
|
2006
|
220,319
|
62,408
|
—
|
50,000
|
4,660
|
(4)
|
||||||
|
Vice
President and Chief Financial Officer
|
2005
|
175,282
|
83,018
|
—
|
22,000
|
4,406
|
(5)
|
||||||
|
2004
|
22,229
|
—
|
—
|
8,000
|
302
|
(6)
|
|||||||
|
James
D. St. Jean (7)
|
2006
|
241,200
|
69,210
|
—
|
20,000
|
5,254
|
(8)
|
||||||
|
Vice
President, Worldwide Engineering
|
2005
|
220,405
|
12,638
|
—
|
40,000
|
3,620
|
(9)
|
||||||
|
2004
|
180,306
|
23,871
|
—
|
10,500
|
1,753
|
(10)
|
|||||||
|
Derek
P. Witte (11)
|
2006
|
264,889
|
26,046
|
—
|
120,000
|
13,623
|
(12)
|
||||||
|
Vice
President and General Counsel
|
2005
|
—
|
—
|
|
—
|
—
|
—
|
||||||
|
2004
|
—
|
—
|
|
—
|
—
|
—
|
|||||||
|
Samuel
T. Spadafora (13)
|
2006
|
251,200
|
—
|
398,750
|
(24)
|
—
|
10,881
|
(14)
|
|||||
|
Chairman
of the Board and Chief Strategy
|
2005
|
|
250,000
|
25,000
|
|
—
|
—
|
8,429
|
(26)
|
||||
|
Officer
|
2004
|
|
232,787
|
12,500
|
|
—
|
16,000
|
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
|
|
—
|
30,000
|
29,825
|
(28)
|
||||
|
|
|
|
|
|
|
|
|
|
|||||
|
Robert
U. Mullen (18)
|
2006
|
|
351,200
|
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
|
|
—
|
20,000
|
527
|
||||||
|
|
|
|
|
|
|
|
|
|
|||||
|
George
A. De Urioste (21)
|
2006
|
175,600
|
176,396
|
—
|
80,000
|
151,989
|
(22)
|
||||||
|
Chief
Financial Officer and Chief
|
2005
|
|
250,192
|
43,653
|
|
—
|
300,000
|
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.
|
24
|
(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, $3,180 in group-term
life
insurance, $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 in
severance pay.
|
|||||||
|
(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
34,000
unvested shares of the Company’s common stock with an aggregate market
value of $260,950 based on a $7.68 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
|
50,000
|
April
1 2006 - 8,000 Shares
|
||||||
|
July
1, 2006 - 8,000 Shares
|
||||||||
|
October
1, 2006 - 8,000 Shares
|
||||||||
|
January
1, 2007 - 8,000 Shares
|
||||||||
|
April
1, 2007 - 8,000 Shares
|
||||||||
|
October
1, 2007 - 10,000 Shares
|
||||||||
|
(25)
|
On
September 30, 2006, Mr. Mullen held restricted stock awards for 133,334
unvested shares of the Company’s common stock with an aggregate market
value of $1,023,335 based on a $7.68 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
|
80,000
|
October
2005 - 26,666 Shares
|
||||||
|
October
2006 - 26,667 Shares
|
||||||||
|
October
2007 - 26,667 Shares
|
||||||||
|
April
2006
|
80,000
|
April
2007 - 26,666 Shares
|
||||||
|
April
2008 - 26,667 Shares
|
||||||||
|
April
2009 - 26,667 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 $29,825 of pension plan matching contributions paid by us to Mr.
Kelly’s individual pension plan.
|
|||||||
25
Stock
Option Grants and Exercises
We
grant options to our executive officers under the 2005 Equity Incentive Plan
(the “Incentive Plan”). As of September 30, 2006, options to purchase a total of
2,766,426 shares were outstanding under the Incentive Plan and options to
purchase 1,983,194 shares remained available for grant under the Incentive
Plan.
The
following tables show for the fiscal year ended September 30, 2006, certain
information regarding options granted to, exercised by, and held at year-end
by,
the Named Executive Officers:
|
Option
Grants in the Fiscal Year Ended September 30,
2006
|
|||||||||||||||||
|
Individual
Grants
|
|||||||||||||||||
|
Number
of
Securities
Underlying
Options
Granted
|
%
of Total Options
Granted
to
Employees
in
Twelve
Months
Ended
September
30,
|
Exercise
Price
|
Expiration
|
Potential
Realizable
Value
at Assumed
Annual
Rates of Stock Price
Appreciation
for
Option
Term (1)
|
|||||||||||||
|
Name
|
(2)
(#)
|
2006
(3)
|
(4)($/Sh)
|
Date
|
5%($)
|
10%($)
|
|||||||||||
|
Steven
R. Springsteel
|
|
400,000
|
27.4
|
%
|
$
|
7.98
|
02/01/2016
|
$
|
2,006,074
|
$
|
5,084,038
|
||||||
|
Peter
S. Norman
|
28,000
|
1.9
|
%
|
7.48
|
01/17/2016
|
131,628
|
333,570
|
||||||||||
|
Peter
S. Norman
|
22,000
|
1.5
|
%
|
8.40
|
03/08/2016
|
116,220
|
294,524
|
||||||||||
|
Derek
P. Witte
|
120,000
|
8.2
|
%
|
6.63
|
11/03/2015
|
499,971
|
1,267,025
|
||||||||||
|
James
D. St. Jean
|
20,000
|
1.4
|
%
|
7.98
|
02/01/2016
|
100,309
|
254,202
|
||||||||||
|
Samuel
T. Spadafora (5)
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
Stephen
P. Kelly (6)
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
Robert
U. Mullen (7)
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
George
A. de Urioste (8)
|
80,000
|
(9)
|
5.5
|
%
|
$
|
7.98
|
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 80,000 options.
As of
March 31, 2006, 1,666 stock options from this grant had vested, all
of
which have been exercised. His options which were unvested as of
March 31,
2006 have been cancelled.
|
26
|
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
|
—
|
$
|
—
|
78,332
|
341,667
|
$
|
5,125
|
$
|
—
|
||||||
|
Peter
S. Norman
|
—
|
—
|
37,416
|
42,583
|
85,983
|
4,667
|
|||||||||
|
Derek
P. Witte
|
—
|
—
|
33,332
|
86,668
|
34,999
|
91,001
|
|||||||||
|
James
D. St. Jean
|
—
|
—
|
119,616
|
17,083
|
342,522
|
—
|
|||||||||
|
Samuel
T. Spadafora (3)
|
40,000
|
207,000
|
392,364
|
—
|
1,863,675
|
—
|
|||||||||
|
Stephen
P. Kelly (4)
|
—
|
—
|
132,360
|
—
|
312,568
|
—
|
|||||||||
|
Robert
U. Mullen (5)
|
—
|
—
|
212,799
|
—
|
687,612
|
—
|
|||||||||
|
George
A. de Urioste (6)
|
161,663
|
$
|
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 $7.68, 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.
|
|
27
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 400,000 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
8,056 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.
28
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.
We
provide certain benefits to our executive officers to enhance the continuity
and
retention of our management team. These benefits are:
| · |
Executive
physical at the Palo Alto Medical Clinic (west coast) or Massachusetts
General Hospital (east coast). Benefit is to be as prescribed by
the
attending physician and estimated to be $2,000 per person per
year.
|
| · |
Tax
advice and/or financial planning assistance to $1,000 per person
per
year.
|
| · |
A
life insurance policy payable in the amount of $1,000,000 to the
executive’s designated beneficiary with the premium paid by
us.
|
Messrs.
Springsteel, Norman, St. Jean and Witte are participating executives in these
benefits programs.
REPORT
OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE
COMPENSATION
Report
of Compensation Committee
Purpose
of the Compensation Committee
The
Compensation Committee, composed entirely of independent, non-employee
directors, administers the Company’s executive compensation policies. The
Committee reviews and recommends for approval to the Board of Directors all
executive base and bonus compensation the plan by which bonuses in excess of
the
targets established by the Board of Directors may be paid, and long-term
stock-based incentive compensation.
Composition
of Compensation Committee
During
fiscal 2006, the Committee was comprised of the following directors: William
Raduchel, Charles Hoffman and David Springett. Mr. Springett has been on the
Committee since April 18, 2002; Dr. Raduchel has been on the Committee since
April 17, 2003 and became the Chairman of the Committee on September 21, 2005;
and Mr. Hoffman has been on the Committee since September 21, 2005. From January
28, 2004 to September 21, 2005, the Committee was comprised of the following
directors: Dr. Raduchel, Mr. Springett and Steven Springsteel, who was replaced
by Charles E. Hoffman on September 21, 2005.
Compensation
Consultant
The
Company’s human resources department supports the Committee in its work. In
fiscal year 2006, the Company engaged Compensia, a compensation consultant,
to
provide guidance on the Company’s proposed 2006 compensation strategy. In
addition, the Committee has the authority under its charter to engage the
services of outside advisors to assist the Committee. In fiscal 2006, the
Committee engaged Hewitt Associates LLC, as an independent outside compensation
consultant, to advise the Committee on all matters related to chief executive
officer and other executive compensation. The independent compensation
consultant does not advise our management, and receives no compensation from
the
Company other than on behalf of the Committee.
Objectives
of the Compensation Program
The
objectives of the compensation program established by the Compensation Committee
are: (1) to attract and retain high-quality executives, (2) to tie executive
compensation directly to our business and performance objectives and (3) to
reward outstanding individual performance that contributes to our long-term
success.
Elements
of Compensation
Each
executive officer’s compensation package is comprised of three elements: (1)
base compensation, (2) bonus compensation, and (3) long-term stock-based
incentive compensation, which ties executive compensation directly to the
Company’s growth and stockholder value.
Base
Compensation.
Base salary is the fixed portion of executive pay and compensates individuals
for expected day-to-day performance. The Committee meets at least annually
to
review and approve each executive officer’s salary for the ensuing year. When
reviewing base salaries, the Committee considers the following factors:
competitive pay practices (which is the primary determinant of the range within
which individual salaries are set), levels of responsibility, individual
performance against goals and prior experience. The committee does not use
any
formulas or specific rules to reach its conclusions but makes an overall
subjective determination considering all factors. The Company competes in very
competitive labor markets to obtain the talent it needs to be successful and
has
to pay what is required to secure that talent.
The
Committee obtained information regarding competitive compensation ranges for
calendar 2006 from the Radford High Technology Survey that relates to companies
with $50.0 million to $199.9 million in revenues (the “Radford Survey”) to
evaluate the compensation paid to the Company’s executive officers in relation
to similarly situated companies.
Bonus
Compensation.
In the second quarter of fiscal 2006, the fiscal 2006 Bonus Plan (the “2006
Bonus Plan”) for executive officers, upon the recommendation of the Committee,
was approved by the Board of Directors. The 2006 Bonus Plan established a target
bonus level for each executive officer equal to a certain percentage of his
base
salary, which ranged from 30% to 80%, except for Mr. Mullen, the former
President of Worldwide Operations, who had a bonus target of $500,000. A portion
of the target bonus was payable quarterly depending upon whether the Company
met
certain financial benchmarks established by the Board. The benchmarks were
revenue, pro forma operating income, and net cash from operations, except in
the
case of Robert Mullen, where the financial benchmarks were revenue and net
cash
from operations.
Upon
the recommendation of the Committee, the Board awarded spot bonuses to certain
executive officers, including the former chief financial officer, in the amounts
set forth above in recognition of their individual efforts.
The
Committee believes that the total cash compensation paid to the Company’s
executive officers in fiscal 2006, as reflected in the Summary Compensation
table above, was required to retain the persons with the skills necessary to
run
the Company’s business.
29
Long-Term
Incentive Compensation.
The Board, upon the recommendation of the Committee, approves long-term
compensation awards to the Company’s executive officers who are required to file
Section 16(b) reports in the form of stock options and restricted stock awards,
but the Committee has delegated within policy option grants to others to the
CEO. Equity-based compensation may more closely align the interests of executive
officers with those of stockholders by providing an incentive to manage the
Company with a focus on long-term strategic objectives set by the Board of
Directors relating to growth and stockholder value. Stock option grants and
restricted stock awards are determined by taking into account each executive
officer’s performance and responsibility level, a comparison with comparable
awards to individuals in similar positions in the industry, each executive
officer’s current level of equity participation and the Company’s operating
performance. However, the Compensation Committee does not strictly adhere to
these factors in all cases and may vary grants made to each executive officer
as
the particular circumstances warrant. Exercise prices for options are set at
the
fair market value of the Company common stock on the date of grant. Options
typically vest monthly over a three to four year period.
The
vesting schedule for restricted stock grants made to former executive officers
during the last fiscal year consisted of periodic vesting over a term of twenty
months to four years provided that the executive officer continued his or her
employment with the Company. Accordingly, the grants had value only to the
extent the executive officer remained in the Company’s employ. The Committee
reexamines long-term compensation levels annually.
2006
Chief Executive Officer Compensation
The
compensation for the Company’s chief executive is determined through a process
similar to that discussed above for the Company’s other executive officers.
During the first four months of fiscal 2006, the Company’s chief executive
officer was Stephen Kelly, who resigned as the Company’s chief executive officer
in February 2006 but remained an employee of the Company until May
2006.
Mr.
Kelly’s base salary for fiscal 2006 as chief executive officer was $400,000.
This amount put Mr. Kelly in approximately the 50th percentile of the relevant
Radford Survey data. Mr. Kelly also received an aggregate bonus of $157,432
in
June and July 2006 under the terms of his severance arrangement as described
above under the heading “Bonus Compensation.”
Effective
February 1, 2006, Steven Springsteel became our president and chief executive
officer. Mr. Springsteel’s base salary for fiscal 2006 was $495,000. This amount
put Mr. Springsteel between the 75th
and 90th percentiles of the relevant Radford Survey data. Mr. Springsteel also
received a grant of an option to purchase 400,000 shares of our common stock.
Mr. Springsteel received bonuses of $62,370 under our 2006 Executive Bonus
Plan
for the 2006 fiscal year as described above under the heading “Bonus
Compensation.”. The compensation of Mr. Springsteel was negotiated in a
competitive environment, and in the belief of the Committee, the terms were
the
minimum sufficient to attract Mr. Springsteel to join the Company in his current
role.
Limitations
on Deduction of Compensation Paid to Certain Executive
Officers
Section
162(m) of the Internal Revenue Code (the “Code”) limits us to a deduction for
federal income tax purposes of no more than $1 million of compensation paid
to
certain named executive officers in a taxable year. Compensation above $1
million may be deducted if it is “performance-based compensation” within the
meaning of the Code. In 2005, the Board of Directors adopted and stockholders
approved our 2005 Equity Incentive Plan which allows awards under that plan
to
qualify as “performance-based compensation” so long as certain criteria are met.
The Board of Directors continues to reserve the flexibility and authority to
make decisions that are in the best interest of us and our stockholders, even
if
those decisions do not result in full deductibility under Section 162(m) of
the
Code.
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|
Compensation
Committee
|
|
|
|
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William
J. Raduchel
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|
|
David
R. Springett
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Charles
E. Hoffman
|
The
material in this report is not “soliciting material,” is not deemed “filed” with
the SEC, and is not to be incorporated by reference into any of our filings
under the 1933 Act or 1934 Act, whether made before or after the date hereof
and
irrespective of any general incorporation language contained in such
filing.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None
of our executive officers serve as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our Board or compensation committee.
PERFORMANCE
MEASUREMENT COMPARISON (1)
The
following graph shows the five-year cumulative total stockholder return of
an
investment of $100 in cash on September 30, 2001 for:
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(i)
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Our
common stock;
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||
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(ii)
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The
Nasdaq Stock Market (U.S.) Index;
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||
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(iii)
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The
Standard & Poor’s Application Software
Index.
|
Historic
stock price performance is not necessarily indicative of future stock price
performance. All values assume reinvestment of the full amount of all dividends
and are calculated as of September 30 of each year.
30
____________________
|
(1)
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|
This
Section is not “soliciting material,” is not deemed “filed” with the SEC
and is not to be incorporated by reference in any of our filings
under the
1933 Act or the 1934 Act whether made before or after the date
hereof and
irrespective of any general incorporation language in any such
filing.
|
31
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 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.
In
July 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.
In
February and April 2006, we granted restricted stock to Stephen P. Kelly
and
Robert U. Mullen, both executive officers of ours.
In
June and August 2005, we granted restricted stock to Stephen P. Kelly and
Robert
U. Mullen, both executive officers of ours.
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.
32
DELIVERY
OF THIS PROXY STATEMENT
The
SEC has adopted rules that permit companies and intermediaries (e.g., brokers)
to satisfy the delivery requirements for proxy statements and annual reports
with respect to two or more stockholders sharing the same address by delivering
a single proxy statement addressed to those stockholders. This process, which
is
commonly referred to as “householding,” potentially means extra convenience for
stockholders and cost savings for companies.
This
year, a number of brokers with account holders who are our stockholders will
be
“householding” our proxy materials. A single proxy statement will be delivered
to multiple stockholders sharing an address unless contrary instructions
have
been received from the affected stockholders. Once you have received notice
from
your broker that they will be “householding” communications to your address,
“householding” will continue until you are notified otherwise or until you
revoke your consent. If, at any time, you no longer wish to participate in
“householding” and would prefer to receive a separate proxy statement and annual
report, please notify your broker, direct your written request to Director
of
Investor Relations, Chordiant Software, Inc., 20400 Stevens Creek Boulevard,
Suite 400, Cupertino, CA 95014, or contact Steve Polcyn, Director of Investor
Relations at 408-517-6100. Stockholders who currently receive multiple copies
of
the proxy statement at their address and would like to request “householding” of
their communications should contact their broker.
OTHER
MATTERS
The
Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best
judgment.
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By
Order of the Board of Directors
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 |
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Derek
P. Witte
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Vice
President, General Counsel and
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Secretary
|
March
16, 2007
A
copy of our Annual Report to the Securities and Exchange Commission on Form
10-K
for the fiscal year ended September 30, 2006 (excluding the information included
in this proxy statement) accompanies this Proxy Statement. Further copies
are
also available without charge upon written request to: Director of Investor
Relations, Chordiant Software, Inc., 20400 Stevens Creek Blvd., Suite 400,
Cupertino, CA 95014. Copies may also be obtained without charge through the
SEC’s Website at http://www.sec.gov.
33
APPENDIX
A
CHORDIANT
SOFTWARE, INC.
2005
EQUITY INCENTIVE PLAN, AS AMENDED
APPROVED
BY BOARD ON: JULY 20, 2005
APPROVED
BY STOCKHOLDERS: SEPTEMBER 27, 2005
AMENDED
BY BOARD ON: JANUARY 24, 2007
[APPROVED
BY STOCKHOLDERS: APRIL __, 2007]
TERMINATION
DATE: JULY 19, 2015
1. GENERAL.
(a)
Successor and Continuation of Prior Plan.
The Plan is intended as the successor to and continuation of the Chordiant
Software, Inc. 1999 Equity Incentive Plan (the “
Prior Plan”).
Following the Effective Date of this Plan, no additional stock awards shall
be
granted under the Prior Plan. Any shares remaining available for issuance
pursuant to the exercise of options or settlement of stock awards under the
Prior Plan shall be added to the share reserve of this Plan and available
for
issuance pursuant to Stock Awards granted hereunder. All outstanding stock
awards granted under the Prior Plan shall remain subject to the terms of
the
Prior Plan, except that the Board may elect to extend one or more of the
features of the Plan to stock awards granted under the Prior Plan. Any shares
subject to outstanding stock awards granted under the Prior Plan that expire
or
terminate for any reason prior to exercise or settlement shall be added to
the
share reserve of this Plan and become available for issuance pursuant to
Stock
Awards granted hereunder. All Stock Awards granted subsequent to the Effective
Date of this Plan shall be subject to the terms of this Plan.
(b)
Eligible Stock Award Recipients.
The persons eligible to receive Awards are Employees, Directors and
Consultants.
(c)
Available Stock Awards.
The Plan provides for the grant of the following Stock Awards: (i) Incentive
Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Purchase Awards,
(iv) Restricted Stock Awards, (v) Stock Appreciation Rights, (vi) Restricted
Stock Unit Awards, and (vii) Other Stock Awards.
(d)
General Purpose.
The Company, by means of the Plan, seeks to secure and retain the services
of
the group of persons eligible to receive Awards as set forth in Section 1(a),
to
provide incentives for such persons to exert maximum efforts for the success
of
the Company and any Affiliate and to provide a means by which such eligible
recipients may be given an opportunity to benefit from increases in value
of the
Common Stock through the granting of Stock Awards.
2. DEFINITIONS.
As
used in the Plan, the following definitions shall apply to the capitalized
terms
indicated below:
(a)“Affiliate”
means, at the time of determination, any “parent” or “subsidiary” as such terms
are defined in Rule 405 of the Securities Act. The Board shall have the
authority to determine the time or times at which “parent” or “subsidiary”
status is determined within the foregoing definition.
(b)“Award”
means a Stock Award or a Performance Cash Award.
(c)“Board”
means the Board of Directors of the Company.
(d)“Capitalization
Adjustment”
has the meaning ascribed to that term in Section 11(a).
(e)“Cause”
means with respect to a Participant, the occurrence of any of the following:
(i)
such Participant’s commission of any felony or any crime involving fraud,
dishonesty or moral turpitude under the laws of the United States or any
state
thereof; (ii) such Participant’s attempted commission of, or participation in, a
fraud or act of dishonesty against the Company; (iii) such Participant’s
intentional, material violation of any contract or agreement between the
Participant and the Company or of any statutory duty owed to the Company;
(iv) such Participant’s unauthorized use or disclosure of the
Company’s confidential information or trade secrets; or (v) such Participant’s
gross misconduct. The determination that a termination of the Participant’s
Continuous Service is either for Cause or without Cause shall be made by
the
Company in its sole discretion. Any determination by the Company that the
Continuous Service of a Participant was terminated by reason of dismissal
without Cause for the purposes of outstanding Awards held by such Participant
shall have no effect upon any determination of the rights or obligations
of the
Company or such Participant for any other purpose.
(f)“Change
in Control”
means the occurrence, in a single transaction or in a series of related
transactions, of any one or more of the following events:
(i)
any Exchange Act Person becomes the Owner, directly or indirectly, of securities
of the Company representing more than fifty percent (50%) of the combined
voting
power of the Company’s then outstanding securities other than by virtue of a
merger, consolidation or similar transaction. Notwithstanding the foregoing,
a
Change in Control shall not be deemed to occur (A) on account of the acquisition
of securities of the Company by an investor, any affiliate thereof or any
other
Exchange Act Person from the Company in a transaction or series of related
transactions the primary purpose of which is to obtain financing for the
Company
through the issuance of equity securities or (B) solely because the level
of
Ownership held by any Exchange Act Person (the “
Subject Person”)
exceeds the designated percentage threshold of the outstanding voting securities
as a result of a repurchase or other acquisition of voting securities by
the
Company reducing the number of shares outstanding, provided that if a Change
in
Control would occur (but for the operation of this sentence) as a result
of the
acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any additional voting
securities that, assuming the repurchase or other acquisition had not occurred,
increases the percentage of the then outstanding voting securities Owned
by the
Subject Person over the designated percentage threshold, then a Change in
Control shall be deemed to occur;
(ii)
there is consummated a merger, consolidation or similar transaction involving
(directly or indirectly) the Company and, immediately after the consummation
of
such merger, consolidation or similar transaction, the stockholders of the
Company immediately prior thereto do not Own, directly or indirectly, either
(A)
outstanding voting securities representing more than fifty percent (50%)
of the
combined outstanding voting power of the surviving Entity in such merger,
consolidation or similar transaction or (B) more than fifty percent (50%)
of the
combined outstanding voting power of the parent of the surviving Entity in
such
merger, consolidation or similar transaction, in each case in substantially
the
same proportions as their Ownership of the outstanding voting securities
of the
Company immediately prior to such transaction;
(iii)
the stockholders of the Company approve or the Board approves a plan of complete
dissolution or liquidation of the Company, or a complete dissolution or
liquidation of the Company shall otherwise occur;
34
(iv)
there is consummated a sale, lease, exclusive license or other disposition
of
all or substantially all of the consolidated assets of the Company and its
Subsidiaries, other than a sale, lease, license or other disposition of all
or
substantially all of the consolidated assets of the Company and its Subsidiaries
to an Entity, more than fifty percent (50%) of the combined voting power
of the
voting securities of which are Owned by stockholders of the Company in
substantially the same proportions as their Ownership of the outstanding
voting
securities of the Company immediately prior to such sale, lease, license
or
other disposition; or
(v)
individuals who, on the date this Plan is adopted by the Board, are members
of
the Board (the“Incumbent
Board”)
cease for any reason to constitute at least a majority of the members of
the
Board;
provided, however
,
that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members
of
the Incumbent Board then still in office, such new member shall, for purposes
of
this Plan, be considered as a member of the Incumbent Board.
The
term Change in Control shall not include a sale of assets, merger or other
transaction effected exclusively for the purpose of changing the domicile
of the
Company.
Notwithstanding
the foregoing or any other provision of this Plan, the definition of Change
in
Control (or any analogous term) in an individual written agreement between
the
Company or any Affiliate and the Participant shall supersede the foregoing
definition with respect to Awards subject to such agreement;
provided, however
,
that if no definition of Change in Control or any analogous term is set forth
in
such an individual written agreement, the foregoing definition shall
apply.
(g)“Code”
means the Internal Revenue Code of 1986, as amended.
(h)“Committee”
means a committee of one (1) or more Directors to whom authority has been
delegated by the Board in accordance with Section 3(c).
(i)“Common
Stock”
means the common stock of the Company.
(j)“Company”
means Chordiant Software, Inc., a Delaware corporation.
(k)“Consultant”
means any person, including an advisor, who is (i) engaged by the Company
or an
Affiliate to render consulting or advisory services and is compensated for
such
services, or (ii) serving as a member of the board of directors of an Affiliate
and is compensated for such services. However, service solely as a Director,
or
payment of a fee for such service, shall not cause a Director to be considered
a
“Consultant” for purposes of the Plan.
(l)“Continuous
Service”
means that the Participant’s service with the Company or an Affiliate, whether
as an Employee, Director or Consultant, is not interrupted or terminated.
A
change in the capacity in which the Participant renders service to the Company
or an Affiliate as an Employee, Consultant or Director or a change in the
entity
for which the Participant renders such service, provided that there is no
interruption or termination of the Participant’s service with the Company or an
Affiliate, shall not terminate a Participant’s Continuous Service. For example,
a change in status from an employee of the Company to a consultant to an
Affiliate or to a Director shall not constitute an interruption of Continuous
Service. To the extent permitted by law, the Board or the chief executive
officer of the Company, in that party’s sole discretion, may determine whether
Continuous Service shall be considered interrupted in the case of any leave
of
absence approved by that party, including sick leave, military leave or any
other personal leave. Notwithstanding the foregoing, a leave of absence shall
be
treated as Continuous Service for purposes of vesting in a Stock Award only
to
such extent as may be provided in the Company’s leave of absence policy, in the
written terms of any leave of absence agreement or policy applicable to the
Participant, or as otherwise required by law.
(m)“Corporate
Transaction”
means the occurrence, in a single transaction or in a series of related
transactions, of any one or more of the following events:
(i)
a
sale or other disposition of all or substantially all, as determined by the
Board in its sole discretion, of the consolidated assets of the Company and
its
Subsidiaries;
(ii)
a
sale or other disposition of at least ninety percent (90%)
of
the outstanding securities of the Company;
(iii)
the consummation of a merger, consolidation or similar transaction following
which the Company is not the surviving corporation; or
(iv)
the consummation of a merger, consolidation or similar transaction following
which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger, consolidation
or
similar transaction into other property, whether in the form of securities,
cash
or otherwise.
(n)“Covered
Employee”
shall have the meaning provided in Section 162(m)(3) of the Code and the
regulations promulgated thereunder.
(o)“Director”
means a member of the Board.
(p)“Disability”
means the permanent and total disability of a person within the meaning of
Section 22(e)(3) of the Code.
(q)“Effective
Date”
means the effective date of this Plan document, which is the date that this
Plan
is first approved by the Company’s stockholders.
(r)“Employee”
means any person employed by the Company or an Affiliate. However, service
solely as a Director, or payment of a fee for such services, shall not cause
a
Director to be considered an “Employee” for purposes of the Plan.
(s)“Entity”
means a corporation, partnership, limited liability company or other
entity.
(t)“Exchange
Act”
means the Securities Exchange Act of 1934, as amended.
(u)“Exchange
Act Person”
means any natural person, Entity or “group” (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), except that “Exchange Act Person” shall not
include (i) the Company or any Subsidiary of the Company, (ii) any employee
benefit plan of the Company or any Subsidiary of the Company or any trustee
or
other fiduciary holding securities under an employee benefit plan of the
Company
or any Subsidiary of the Company, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, (iv) an Entity Owned,
directly or indirectly, by the stockholders of the Company in substantially
the
same proportions as their Ownership of stock of the Company; or (v) any natural
person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the
Exchange Act) that, as of the Effective Date of the Plan as set forth in
Section
13, is the Owner, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power of
the
Company’s then outstanding securities.
(v)“Fair
Market Value”
means, as of any date, the value of the Common Stock determined as
follows:
35
(i)
If
the Common Stock is listed on any established stock exchange or traded on
the
Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value
of a
share of Common Stock shall be the closing sales price for such stock (or
the
closing bid, if no sales were reported) as quoted on such exchange or market
(or
the exchange or market with the greatest volume of trading in the Common
Stock)
on the date of determination, as reported in
The Wall Street Journal
or
such other source as the Board deems reliable. Unless otherwise provided
by the
Board, if there is no closing sales price (or closing bid if no sales were
reported) for the Common Stock on the date of determination, then the Fair
Market Value shall be the closing selling price (or closing bid if no sales
were
reported) on the last preceding date for which such quotation
exists.
(ii)
In
the absence of such markets for the Common Stock, the Fair Market Value shall
be
determined by the Board in good faith.
(w)“Incentive
Stock Option”
means an Option intended to qualify as an “incentive stock option” within the
meaning of Section 422 of the Code and the regulations promulgated
thereunder.
(x)“Non-Employee
Director”
means a Director who either (i) is not a current employee or officer of the
Company or an Affiliate, does not receive compensation, either directly or
indirectly, from the Company or an Affiliate for services rendered as a
consultant or in any capacity other than as a Director (except for an amount
as
to which disclosure would not be required under Item 404(a) of Regulation
S-K
promulgated pursuant to the Securities Act (“Regulation
S-K”
)), does not possess an interest in any other transaction for which disclosure
would be required under Item 404(a) of Regulation S-K, and is not engaged
in a
business relationship for which disclosure would be required pursuant to
Item
404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee
director” for purposes of Rule 16b-3.
(y)“Nonstatutory
Stock Option”
means any Option other than an Incentive Stock Option.
(z)“Officer”
means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.
(aa)“Option”
means an Incentive Stock Option or a Nonstatutory Stock Option to purchase
shares of Common Stock granted pursuant to the Plan.
(bb)“Option
Agreement”
means a written agreement between the Company and an Optionholder evidencing
the
terms and conditions of an Option grant. Each Option Agreement shall be subject
to the terms and conditions of the Plan.
(cc)“Optionholder”
means a person to whom an Option is granted pursuant to the Plan or, if
permitted under the terms of this Plan, such other person who holds an
outstanding Option.
(dd)“Other
Stock Award”
means an award based in whole or in part by reference to the Common Stock
which
is granted pursuant to the terms and conditions of Section 7(e).
(ee)“Other
Stock Award Agreement”
means a written agreement between the Company and a holder of an Other Stock
Award evidencing the terms and conditions of an Other Stock Award grant.
Each
Other Stock Award Agreement shall be subject to the terms and conditions
of the
Plan.
(ff)“Outside
Director”
means a Director who either (i) is not a current employee of the Company
or an
“affiliated corporation” (within the meaning of Treasury Regulations promulgated
under Section 162(m) of the Code), is not a former employee of the Company
or an
“affiliated corporation” who receives compensation for prior services (other
than benefits under a tax-qualified retirement plan) during the taxable year,
has not been an officer of the Company or an “affiliated corporation,” and does
not receive remuneration from the Company or an “affiliated corporation,” either
directly or indirectly, in any capacity other than as a Director, or (ii)
is
otherwise considered an “outside director” for purposes of Section 162(m) of the
Code.
(gg)“Own,”
“Owned,” “Owner,” “Ownership”
A
person or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner”
of, or to have acquired “Ownership” of securities if such person or Entity,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares voting power, which includes the
power
to vote or to direct the voting, with respect to such securities.
(hh)“Participant”
means a person to whom an Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Stock Award.
(ii)“Performance
Cash Award”
means an award of cash granted pursuant to the terms and conditions of Section
7(e)(ii).
(jj)“Performance
Criteria”
means the one or more criteria that the Board shall select for purposes of
establishing the Performance Goals for a Performance Period. The Performance
Criteria that shall be used to establish such Performance Goals may be based
on
any one of, or combination of, the following: (i) earnings per share; (ii)
earnings before interest, taxes and depreciation; (iii) earnings before
interest, taxes, depreciation and amortization; (iv) total stockholder return;
(v) return on equity; (vi) return on assets, investment, or capital employed;
(vii) operating margin; (viii) gross margin; (ix) operating income; (x) net
income (before or after taxes); (xi) net operating income; (xii) net operating
income after tax; (xiii) pre-tax profit; (xiv) operating cash flow; (xv)
sales or revenue targets; (xvi) increases in revenue or product revenue;
(xvii)
expenses and cost reduction goals; (xviii) improvement in or attainment of
working capital levels; (xix) economic value added (or an equivalent metric);
(xx) market share; (xxi) cash flow; (xxii) cash flow per share; (xxiii) share
price performance; (xxiv) debt reduction; (xxv) implementation or completion
of
projects or processes; (xxvi) customer satisfaction; (xxvii); stockholders’
equity; and (xxviii) other measures of performance selected by the Board.
Partial achievement of the specified criteria may result in the payment or
vesting corresponding to the degree of achievement as specified in the Stock
Award Agreement or the written terms of a Performance Cash Award. The Board
shall, in its sole discretion, define the manner of calculating the Performance
Criteria it selects to use for such Performance Period.
(kk)“Performance
Goals”
means, for a Performance Period, the one or more goals established by the
Board
for the Performance Period based upon the Performance Criteria. Performance
Goals may be based on a Company-wide basis, with respect to one or more business
units, divisions, Affiliates, or business segments, and in either absolute
terms
or relative to the performance of one or more comparable companies or a relevant
index. At the time of the grant of any Award, the Board is authorized to
determine whether, when calculating the attainment of Performance Goals for
a
Performance Period: (i) to exclude restructuring and/or other nonrecurring
charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S.
dollar denominated net sales and operating earnings; (iii) to exclude the
effects of changes to generally accepted accounting standards required by
the
Financial Accounting Standards Board; (iv) to exclude the effects of any
statutory adjustments to corporate tax rates; and (v) to exclude the effects
of
any “extraordinary items” as determined under generally accepted accounting
principles. In addition, the Board retains the discretion to reduce or eliminate
the compensation or economic benefit due upon attainment of Performance
Goals.
(ll)“Performance
Period”
means the period of time selected by the Board over which the attainment
of one
or more Performance Goals will be measured for the purpose of determining
a
Participant’s right to and the payment of a Stock Award or a Performance Cash
Award. Performance Periods may be of varying and overlapping duration, at
the
sole discretion of the Board.
(mm)“Performance
Stock Award”
means a Stock Award granted under the terms and conditions of Section
7(e)(i).
36
(nn)“Plan”
means this Chordiant Software, Inc. 2005 Equity Incentive Plan.
(oo)“Restricted
Stock Award”
means an award of shares of Common Stock which is granted pursuant to the
terms
and conditions of Section 7(b).
(pp)“Restricted
Stock Award Agreement”
means a written agreement between the Company and a holder of a Restricted
Stock
Award evidencing the terms and conditions of a Restricted Stock Award grant.
Each Restricted Stock Award Agreement shall be subject to the terms and
conditions of the Plan.
(qq)“Restricted
Stock Unit Award”
means a right to receive shares of Common Stock which is granted pursuant
to the
terms and conditions of Section 7(c).
(rr)“Restricted
Stock Unit Award Agreement”
means a written agreement between the Company and a holder of a Restricted
Stock
Unit Award evidencing the terms and conditions of a Restricted Stock Unit
Award
grant. Each Restricted Stock Unit Award Agreement shall be subject to the
terms
and conditions of the Plan.
(ss)“Rule
16b-3”
means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule
16b-3, as in effect from time to time.
(tt)“Securities
Act”
means the Securities Act of 1933, as amended.
(uu)“Stock
Appreciation Right”
means a right to receive the appreciation on Common Stock that is granted
pursuant to the terms and conditions of Section 7(d).
(vv)“Stock
Appreciation Right Agreement”
means a written agreement between the Company and a holder of a Stock
Appreciation Right evidencing the terms and conditions of a Stock Appreciation
Right grant. Each Stock Appreciation Right Agreement shall be subject to
the
terms and conditions of the Plan.
(ww)“Stock
Award”
means any right granted under the Plan, including an Incentive Stock Option,
a
Nonstatutory Stock Option, a Stock Purchase Award, a Restricted Stock Award,
a
Stock Appreciation Right, a Restricted Stock Unit Award, a Performance Stock
Award or any Other Stock Award.
(xx)“Stock
Award Agreement”
means a written agreement between the Company and a Participant evidencing
the
terms and conditions of a Stock Award grant. Each Stock Award Agreement shall
be
subject to the terms and conditions of the Plan.
(yy)“Stock
Purchase Award”
means an award of shares of Common Stock which is granted pursuant to the
terms
and conditions of Section 7(a).
(zz)“Stock
Purchase Award Agreement”
means a written agreement between the Company and a holder of a Stock Purchase
Award evidencing the terms and conditions of a Stock Purchase Award grant.
Each
Stock Purchase Award Agreement shall be subject to the terms and conditions
of
the Plan.
(aaa)“Subsidiary”
means, with respect to the Company, (i) any corporation of which more than
fifty
percent (50%) of the outstanding capital stock having ordinary voting power
to
elect a majority of the board of directors of such corporation (irrespective
of
whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, Owned by the Company,
and
(ii) any partnership in which the Company has a direct or indirect interest
(whether in the form of voting or participation in profits or capital
contribution) of more than fifty percent (50%).
(bbb)“Ten
Percent Stockholder”
means a person who Owns (or is deemed to Own pursuant to Section 424(d) of
the
Code) stock possessing more than ten percent (10%) of the total combined
voting
power of all classes of stock of the Company or any Affiliate.
3. ADMINISTRATION.
(a)
Administration by Board.
The Board shall administer the Plan unless and until the Board delegates
administration of the Plan to a Committee or Committees, as provided in Section
3(c).
(b)
Powers of Board.
The Board shall have the power, subject to, and within the limitations of,
the
express provisions of the Plan:
(i)
To
determine from time to time (A) which of the persons eligible under the Plan
shall be granted Awards; (B) when and how each Award shall be granted; (C)
what
type or combination of types of Award shall be granted; (D) the provisions
of
each Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive cash or Common Stock pursuant
to a
Stock Award; and (E) the number of shares of Common Stock with respect to
which
a Stock Award shall be granted to each such person.
(ii)
To
construe and interpret the Plan and Awards granted under it, and to establish,
amend and revoke rules and regulations for its administration. The Board,
in the
exercise of this power, may correct any defect, omission or inconsistency
in the
Plan or in any Stock Award Agreement or in the written terms of a Performance
Cash Award, in a manner and to the extent it shall deem necessary or expedient
to make the Plan or Award fully effective.
(iii)
To
settle all controversies regarding the Plan and Awards granted under
it.
(iv)
To
accelerate the time at which a Stock Award may first be exercised or the
time
during which an Award or any part thereof will vest in accordance with the
Plan,
notwithstanding the provisions in the Award stating the time at which it
may
first be exercised or the time during which it will vest.
(v)
To
suspend or terminate the Plan at any time. Suspension or termination of the
Plan
shall not impair rights and obligations under any Stock Award granted while
the
Plan is in effect except with the written consent of the affected
Participant.
(vi)
To
amend the Plan, subject to the limitations, if any, of applicable law. However,
except as provided in Section 11(a) relating to Capitalization Adjustments,
no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary to satisfy applicable law
or
applicable exchange listing requirements. Rights under any Award granted
before
amendment of the Plan shall not be impaired by any amendment of the Plan
unless
(i) the Company requests the consent of the affected Participant, and (ii)
such
Participant consents in writing.
(vii)
To
submit any amendment to the Plan for stockholder approval, including, but
not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to Covered Employees.
(viii)
To
amend the Plan in any respect the Board deems necessary or advisable to provide
eligible Employees with the maximum benefits provided or to be provided under
the provisions of the Code and the regulations promulgated thereunder relating
to Incentive Stock Options or to bring the Plan or Incentive Stock Options
granted under it into compliance therewith.
37
(ix)
To
amend the terms of any one or more Awards or stock awards granted under the
Prior Plan, including, but not limited to, amendments to provide terms more
favorable than previously provided in the Award Agreement, subject to any
specified limits in the Plan that are not subject to Board
discretion;
provided, however,
that the rights under any Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the affected Participant,
and
(ii) such Participant consents in writing.
(x)
Generally, to exercise such powers and to perform such acts as the Board
deems
necessary or expedient to promote the best interests of the Company and that
are
not in conflict with the provisions of the Plan or Awards.
(xi)
To
adopt such procedures and sub-plans as are necessary or appropriate to permit
participation in the Plan by Employees, Directors or Consultants who are
foreign
nationals or employed outside the United States.
(c)
Delegation to Committee.
(i)
General.
The Board may delegate some or all of the administration of the Plan to a
Committee or Committees. If administration of the Plan is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board that have been delegated
to the Committee, including the power to delegate to a subcommittee of the
Committee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to
the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time
to
time by the Board. The Board may retain the authority to concurrently administer
the Plan with the Committee and may, at any time, revest in the Board some
or
all of the powers previously delegated.
(ii)
Section 162(m) and Rule 16b-3 Compliance.
In
the sole discretion of the Board, the Committee may consist solely of two
or
more Outside Directors, in accordance with Section 162(m) of the Code, or
solely
of two or more Non-Employee Directors, in accordance with Rule 16b-3. In
addition, the Board or the Committee, in its sole discretion, may (A) delegate
to a Committee of Directors who need not be Outside Directors the authority
to
grant Awards to eligible persons who are either (I) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award, or (II) not persons with respect
to whom
the Company wishes to comply with Section 162(m) of the Code, or (B) delegate
to
a Committee of Directors who need not be Non-Employee Directors the authority
to
grant Stock Awards to eligible persons who are not then subject to Section
16 of
the Exchange Act.
(d)
Delegation to an Officer.
The Board may delegate to one or more Officers the authority to do one or
both
of the following (i) designate Employees who are not Officers to be recipients
of Awards and the terms thereof, and (ii) determine the number of shares
of
Common Stock to be subject to such Stock Awards granted to such
Employees;
provided, however,
that the Board resolutions regarding such delegation shall specify the total
number of shares of Common Stock that may be subject to the Stock Awards
granted
by such Officer and that such Officer may not grant a Stock Award to himself
or
herself. Notwithstanding anything to the contrary in this Section 3(d), the
Board may not delegate to an Officer authority to determine the Fair Market
Value of the Common Stock pursuant to Section 2(v)(ii) above.
(e)
Effect of Board’s Decision.
All determinations, interpretations and constructions made by the Board in
good
faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.
(f)
Cancellation and Re-Grant of Stock Awards.
Neither the Board nor any Committee shall have the authority to: (i) reprice
any
outstanding Stock Awards under the Plan, or (ii) cancel and re-grant any
outstanding Stock Awards under the Plan, unless the stockholders of the Company
have approved such an action within twelve (12) months prior to such an
event.
4. SHARES
SUBJECT TO THE PLAN.
(a)
Share Reserve.
Subject to the provisions of Section 11(a) relating to Capitalization
Adjustments, the number of shares of Common Stock that may be issued pursuant
to
Stock Awards shall not exceed, in the aggregate, 7,081,786 (seven million
eighty
one thousand seven hundred and eight six) shares of Common Stock. Such number
of
shares reserved for issuance consists of (i) the number of shares remaining
available for issuance under the Prior Plan, including shares subject to
outstanding stock awards under the Prior Plan, and (ii) two million two hundred
ten thousand (2,210,000) shares previously approved by the stockholders and
(iii) an additional one million six hundred thousand (1,600,000) shares to
be
approved by the stockholders at the 2007 Annual Meeting. Shares may be issued
in
connection with a merger or acquisition as permitted by NASD Rule
4350(i)(1)(A)(iii) or, if applicable, NYSE Listed Company Manual Section
303A.08
and such issuance shall not reduce the number of shares available for issuance
under the Plan.
(b)
Reversion of Shares to the Share Reserve.
If any (i) Stock Award shall for any reason expire or otherwise terminate,
in
whole or in part, without having been exercised in full, (ii) shares of Common
Stock issued to a Participant pursuant to a Stock Award (including the Stock
Awards transferred from the Prior Plan on the Effective Date of this Plan)
are
forfeited to or repurchased by the Company, including any repurchase or
forfeiture caused by the failure to meet a contingency or condition required
for
the vesting of such shares, or (iii) Stock Award is settled in cash, then
the
shares of Common Stock not issued under such Stock Award, or forfeited to
or
repurchased by the Company, shall revert to and again become available for
issuance under the Plan. If any shares subject to a Stock Award are not
delivered to a Participant because the Stock Award is exercised through a
reduction of shares subject to the Stock Award (
i.e.
,
“net exercised”) or an appreciation distribution in respect of a Stock
Appreciation Right is paid in shares of Common Stock, the number of subject
to
the Stock Award that are not delivered to the Participant shall remain available
for subsequent issuance under the Plan. If any shares subject to a Stock
Award
are not delivered to a Participant because such shares are withheld in
satisfaction of the withholding of taxes incurred in connection with the
exercise of an Option, Stock Appreciation Right, or the issuance of shares
under
a Stock Purchase Award, Restricted Stock Award, Restricted Stock Unit Award,
or
Other Stock Award, the number of shares that are not delivered to the
Participant shall remain available for subsequent issuance under the Plan.
If
the exercise price of any Stock Award is satisfied by tendering shares of
Common
Stock held by the Participant (either by actual delivery or attestation),
then
the number of shares so tendered shall remain available for subsequent issuance
under the Plan.
(c)
Incentive Stock Option Limit.
Notwithstanding anything to the contrary in this Section 4(b), subject to
the
provisions of Section 11(a) relating to Capitalization Adjustments the aggregate
maximum number of shares of Common Stock that may be issued pursuant to the
exercise of Incentive Stock Options shall be 7,081,786 (seven million eighty
one
thousand seven hundred and eight six) shares of Common Stock.
(d)
Source of Shares.
The stock issuable under the Plan shall be shares of authorized but unissued
or
reacquired Common Stock, including shares repurchased by the
Company.
5. ELIGIBILITY.
(a)
Eligibility for Specific Stock Awards.
Incentive Stock Options may be granted only to Employees. Stock Awards other
than Incentive Stock Options may be granted to Employees, Directors and
Consultants.
38
(b)
Ten Percent Stockholders.
A
Ten Percent Stockholder shall not be granted an Incentive Stock Option unless
the exercise price of such Option is at least one hundred ten percent (110%)
of
the Fair Market Value of the Common Stock on the date of grant and the Option
is
not exercisable after the expiration of five (5) years from the date of
grant.
(c)
Section 162(m) Limitation on Annual Grants.
Subject to the provisions of Section 11(a) relating to Capitalization
Adjustments, at such time as the Company may be subject to the applicable
provisions of Section 162(m) of the Code, no Employee shall be eligible to
be
granted during any calendar year Stock Awards whose value is determined by
reference to an increase over an exercise or strike price of at least one
hundred percent (100%) of the Fair Market Value of the Common Stock on the
date
the Stock Award is granted covering more than two million (2,000,000) shares
of
Common Stock.
(d)
Consultants.
A
Consultant shall not be eligible for the grant of a Stock Award if, at the
time
of grant, a Form S-8 Registration Statement under the Securities Act
(“Form
S-8”
)
is not available to register either the offer or the sale of the Company’s
securities to such Consultant because of the nature of the services that
the
Consultant is providing to the Company, because the Consultant is not a natural
person, or because of any other rule governing the use of Form S-8.
6. OPTION
PROVISIONS.
Each
Option shall be in such form and shall contain such terms and conditions
as the
Board shall deem appropriate. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant,
and,
if certificates are issued, a separate certificate or certificates shall
be
issued for shares of Common Stock purchased on exercise of each type of Option.
If an Option is not specifically designated as an Incentive Stock Option,
then
the Option shall be a Nonstatutory Stock Option. The provisions of separate
Options need not be identical;
provided, however
,
that each Option Agreement shall include (through incorporation of provisions
hereof by reference in the Option Agreement or otherwise) the substance of
each
of the following provisions:
(a)
Term.
Subject to the provisions of Section 5(b), no Option shall be exercisable
after
the expiration of ten (10) years from the date of its grant or such shorter
period specified in the Option Agreement.
(b)
Exercise Price of an Incentive Stock Option.
Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders,
the exercise price of each Incentive Stock Option shall be not less than
one
hundred percent (100%) of the Fair Market Value of the Common Stock subject
to
the Option on the date the Option is granted. Notwithstanding the foregoing,
an
Incentive Stock Option may be granted with an exercise price lower than that
set
forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner consistent with
the
provisions of Section 424(a) of the Code.
(c)
Exercise Price of a Nonstatutory Stock Option.
The exercise price of each Nonstatutory Stock Option shall be not less than
one
hundred percent (100%) of the Fair Market Value of the Common Stock subject
to
the Option on the date the Option is granted. Notwithstanding the foregoing,
a
Nonstatutory Stock Option may be granted with an exercise price lower than
one
hundred percent (100%) of the Fair Market Value of the Common Stock if such
Option is granted pursuant to an assumption or substitution for another option
in a manner consistent with the provisions of Section 424(a) of the
Code.
(d)
Consideration.
The purchase price of Common Stock acquired pursuant to the exercise of an
Option shall be paid, to the extent permitted by applicable law and as
determined by the Board in its sole discretion, by any combination of the
methods of payment set forth below. The Board shall have the authority to
grant
Options that do not permit all of the following methods of payment (or otherwise
restrict the ability to use certain methods) and to grant Options that require
the consent of the Company to utilize a particular method of payment. The
methods of payment permitted by this Section 6(d) are:
(i)
by
cash or check;
(ii)
bank draft or money order payable to the Company;
(iii)
pursuant to a program developed under Regulation T as promulgated by the
Federal
Reserve Board that, prior to the issuance of Common Stock, results in either
the
receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to pay the aggregate exercise price to the Company from the
sales
proceeds;
(iv)
by
delivery to the Company (either by actual delivery or attestation) of shares
of
Common Stock;
(v)
by
a “net exercise” arrangement pursuant to which the Company will reduce the
number of shares of Common Stock issued upon exercise by the largest whole
number of shares with a Fair Market Value that does not exceed the aggregate
exercise price;
provided, however,
that the Company shall accept a cash or other payment from the Participant
to
the extent of any remaining balance of the aggregate exercise price not
satisfied by such reduction in the number of whole shares to be
issued;
provided, further,
that shares of Common Stock will no longer be outstanding under an Option
and
will not be exercisable thereafter to the extent that (A) shares are used
to pay
the exercise price pursuant to the “net exercise,” (B) shares are delivered to
the Participant as a result of such exercise, and (C) shares are withheld
to
satisfy tax withholding obligations; or
(vi)
in
any other form of legal consideration that may be acceptable to the
Board.
(e)
Transferability of Options.
The Board may, in its sole discretion, impose such limitations on the
transferability of Options as the Board shall determine. In the absence of
such
a determination by the Board to the contrary, the following restrictions
on the
transferability of Options shall apply:
(i)
Restrictions on Transfer.
An
Option shall not be transferable except by will or by the laws of descent
and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder; provided, however, that the Board may, in its sole
discretion, permit transfer of the Option in a manner consistent with applicable
tax and securities laws upon the Optionholder’s request.
(ii)
Domestic Relations Orders.
Notwithstanding the foregoing, an Option may be transferred pursuant to a
domestic relations order.
(iii)
Beneficiary Designation.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form provided by or otherwise satisfactory to
the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f)
Vesting Generally.
The total number of shares of Common Stock subject to an Option may vest
and
therefore become exercisable in periodic installments that may or may not
be
equal. The Option may be subject to such other terms and conditions on the
time
or times when it may or may not be exercised (which may be based on the
satisfaction of Performance Goals or other criteria) as the Board may deem
appropriate. The vesting provisions of individual Options may vary. The
provisions of this Section 6(f) are subject to any Option provisions governing
the minimum number of shares of Common Stock as to which an Option may be
exercised.
(g)
Termination of Continuous Service.
In
the event that an Optionholder’s Continuous Service terminates (other than for
Cause or upon the Optionholder’s
39
death
or Disability), the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise such Option as of the date
of
termination of Continuous Service) but only within such period of time ending
on
the earlier of (i) the date three (3) months following the termination of
the
Optionholder’s Continuous Service (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as
set
forth in the Option Agreement. If, after termination of Continuous Service,
the
Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall
terminate.
(h)
Extension of Termination Date.
An
Optionholder’s Option Agreement may provide that if the exercise of the Option
following the termination of the Optionholder’s Continuous Service (other than
for Cause or upon the Optionholder’s death or Disability) would be prohibited at
any time solely because the issuance of shares of Common Stock would violate
the
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of a period of three (3) months
after the termination of the Optionholder’s Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements, or (ii) the expiration of the term of the Option as set forth
in
the Option Agreement.
(i)
Disability of Optionholder.
In
the event that an Optionholder’s Continuous Service terminates as a result of
the Optionholder’s Disability, the Optionholder may exercise his or her Option
(to the extent that the Optionholder was entitled to exercise such Option
as of
the date of termination of Continuous Service), but only within such period
of
time ending on the earlier of (i) the date twelve (12) months following such
termination of Continuous Service (or such longer or shorter period specified
in
the Option Agreement), or (ii) the expiration of the term of the Option as
set
forth in the Option Agreement. If, after termination of Continuous Service,
the
Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall
terminate.
(j)
Death of Optionholder.
In
the event that (i) an Optionholder’s Continuous Service terminates as a result
of the Optionholder’s death, or (ii) the Optionholder dies within the period (if
any) specified in the Option Agreement after the termination of the
Optionholder’s Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise
such
Option as of the date of death) by the Optionholder’s estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by
a
person designated to exercise the option upon the Optionholder’s death, but only
within the period ending on the earlier of (i) the date eighteen (18) months
following the date of death (or such longer or shorter period specified in
the
Option Agreement), or (ii) the expiration of the term of such Option as set
forth in the Option Agreement. If, after the Optionholder’s death, the Option is
not exercised within the time specified herein or in the Option Agreement
(as
applicable), the Option shall terminate.
(k)
Termination for Cause.
Except as explicitly provided otherwise in an Optionholder’s Option Agreement,
in the event that an Optionholder’s Continuous Service is terminated for Cause,
the Option shall terminate upon the termination date of such Optionholder’s
Continuous Service, and the Optionholder shall be prohibited from exercising
his
or her Option from and after the time of such termination of Continuous
Service.
7. PROVISIONS
OF STOCK AWARDS OTHER THAN OPTIONS.
(a)
Stock Purchase Awards.
Each Stock Purchase Award Agreement shall be in such form and shall contain
such
terms and conditions as the Board shall deem appropriate. To the extent
consistent with the Company’s Bylaws, at the Board’s election, shares of Common
Stock may be (x) held in book entry form subject to the Company’s instructions
until any restrictions relating to the Stock Purchase Award lapse; or
(y) evidenced by a certificate, which certificate shall be held in such
form and manner as determined by the Board. The terms and conditions of Stock
Purchase Award Agreements may change from time to time, and the terms and
conditions of separate Stock Purchase Award Agreements need not be
identical,
provided, however,
that each Stock Purchase Award Agreement shall include (through incorporation
of
the provisions hereof by reference in the Agreement or otherwise) the substance
of each of the following provisions:
(i)
Purchase Price.
At
the time of the grant of a Stock Purchase Award, the Board will determine
the
price to be paid by the Participant for each share subject to the Stock Purchase
Award. To the extent required by applicable law, the price to be paid by
the
Participant for each share of the Stock Purchase Award will not be less than
the
par value of a share of Common Stock.
(ii)
Consideration.
At
the time of the grant of a Stock Purchase Award, the Board will determine
the
consideration permissible for the payment of the purchase price of the Stock
Purchase Award. The purchase price of Common Stock acquired pursuant to the
Stock Purchase Award shall be paid either: (A) in cash or by check at the
time
of purchase, (B) by past or future services actually rendered to the Company
or
an Affiliate, or (C) in any other form of legal consideration that may be
acceptable to the Board in its sole discretion and permissible under applicable
law.
(iii)
Vesting.
Shares of Common Stock acquired under a Stock Purchase Award may be subject
to a
share repurchase right or option in favor of the Company in accordance with
a
vesting schedule to be determined by the Board.
(iv)
Termination of Participant’s Continuous Service.
In
the event that a Participant’s Continuous Service terminates, the Company shall
have the right, but not the obligation, to repurchase or otherwise reacquire,
any or all of the shares of Common Stock held by the Participant that have
not
vested as of the date of termination under the terms of the Stock Purchase
Award
Agreement. At the Board’s election, the price paid for all shares of Common
Stock so repurchased or reacquired by the Company may be at the lesser of:
(A)
the Fair Market Value on the relevant date, or (B) the Participant’s original
cost for such shares. The Company shall not be required to exercise its
repurchase or reacquisition option until at least six (6) months (or such
longer
or shorter period of time necessary to avoid a charge to earnings for financial
accounting purposes) have elapsed following the Participant’s purchase of the
shares of Common Stock acquired pursuant to the Stock Purchase Award unless
otherwise determined by the Board or provided in the Stock Purchase Award
Agreement.
(v)
Transferability.
Rights to purchase or receive shares of Common Stock granted under a Stock
Purchase Award shall be transferable by the Participant only upon such terms
and
conditions as are set forth in the Stock Purchase Award Agreement, as the
Board
shall determine in its sole discretion, and so long as Common Stock awarded
under the Stock Purchase Award remains subject to the terms of the Stock
Purchase Award Agreement.
(b)
Restricted Stock Awards.
Each Restricted Stock Award Agreement shall be in such form and shall contain
such terms and conditions as the Board shall deem appropriate. To the extent
consistent with the Company’s Bylaws, at the Board’s election, shares of Common
Stock may be (x) held in book entry form subject to the Company’s instructions
until any restrictions relating to the Restricted Stock Award lapse; or
(y) evidenced by a certificate, which certificate shall be held in such
form and manner as determined by the Board. The terms and conditions of
Restricted Stock Award Agreements may change from time to time, and the terms
and conditions of separate Restricted Stock Award Agreements need not be
identical,
provided, however
,
that each Restricted Stock Award Agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i)
Consideration.
A
Restricted Stock Award may be awarded in consideration for (A) past or future
services actually rendered to the Company or an Affiliate, or (B) any other
form
of legal consideration that may be acceptable to the Board in its sole
discretion and permissible under applicable law.
(ii)
Vesting.
Shares of Common Stock awarded under the Restricted Stock Award Agreement
may be
subject to forfeiture to the Company in accordance with a vesting schedule
to be
determined by the Board.
(iii)
Termination of Participant’s Continuous Service.
In
the event a Participant’s Continuous Service terminates, the Company may receive
via a forfeiture
40
condition,
any or all of the shares of Common Stock held by the Participant which have
not
vested as of the date of termination of Continuous Service under the terms
of
the Restricted Stock Award Agreement.
(iv)
Transferability.
Rights to acquire shares of Common Stock under the Restricted Stock Award
Agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the Restricted Stock Award Agreement, as the
Board shall determine in its sole discretion, so long as Common Stock awarded
under the Restricted Stock Award Agreement remains subject to the terms of
the
Restricted Stock Award Agreement.
(c)
Restricted Stock Unit Awards.
Each Restricted Stock Unit Award Agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. The
terms
and conditions of Restricted Stock Unit Award Agreements may change from
time to
time, and the terms and conditions of separate Restricted Stock Unit Award
Agreements need not be identical,
provided, however,
that each Restricted Stock Unit Award Agreement shall include (through
incorporation of the provisions hereof by reference in the Agreement or
otherwise) the substance of each of the following provisions:
(i)
Consideration.
At
the time of grant of a Restricted Stock Unit Award, the Board will determine
the
consideration, if any, to be paid by the Participant upon delivery of each
share
of Common Stock subject to the Restricted Stock Unit Award. The consideration
to
be paid (if any) by the Participant for each share of Common Stock subject
to a
Restricted Stock Unit Award may be paid in any form of legal consideration
that
may be acceptable to the Board in its sole discretion and permissible under
applicable law.
(ii)
Vesting.
At
the time of the grant of a Restricted Stock Unit Award, the Board may impose
such restrictions or conditions to the vesting of the Restricted Stock Unit
Award as it, in its sole discretion, deems appropriate.
(iii)
Payment.
A
Restricted Stock Unit Award may be settled by the delivery of shares of Common
Stock, their cash equivalent, any combination thereof or in any other form
of
consideration, as determined by the Board and contained in the Restricted
Stock
Unit Award Agreement.
(iv)
Additional Restrictions.
At
the time of the grant of a Restricted Stock Unit Award, the Board, as it
deems
appropriate, may impose such restrictions or conditions that delay the delivery
of the shares of Common Stock (or their cash equivalent) subject to a Restricted
Stock Unit Award to a time after the vesting of such Restricted Stock Unit
Award.
(v)
Dividend Equivalents.
Dividend equivalents may be credited in respect of shares of Common Stock
covered by a Restricted Stock Unit Award, as determined by the Board and
contained in the Restricted Stock Unit Award Agreement. At the sole discretion
of the Board, such dividend equivalents may be converted into additional
shares
of Common Stock covered by the Restricted Stock Unit Award in such manner
as
determined by the Board. Any additional shares covered by the Restricted
Stock
Unit Award credited by reason of such dividend equivalents will be subject
to
all the terms and conditions of the underlying Restricted Stock Unit Award
Agreement to which they relate.
(vi)
Termination of Participant’s Continuous Service.
Except as otherwise provided in the applicable Restricted Stock Unit Award
Agreement, such portion of the Restricted Stock Unit Award that has not vested
will be forfeited upon the Participant’s termination of Continuous
Service.
(vii)
Compliance with Section 409A of the Code.
Notwithstanding anything to the contrary set forth herein, any Restricted
Stock
Unit Award granted under the Plan that is not exempt from the requirements
of
Section 409A of the Code shall contain such provisions so that such Restricted
Stock Unit Award will comply with the requirements of Section 409A of the
Code.
Such restrictions, if any, shall be determined by the Board and contained
in the
Restricted Stock Unit Award Agreement evidencing such Restricted Stock Unit
Award. For example, such restrictions may include, without limitation, a
requirement that any Common Stock that is to be issued in a year following
the
year in which the Restricted Stock Unit Award vests must be issued in accordance
with a fixed pre-determined schedule.
(d)
Stock Appreciation Rights.
Each Stock Appreciation Right Agreement shall be in such form and shall contain
such terms and conditions as the Board shall deem appropriate. Stock
Appreciation Rights may be granted as stand-alone Stock Awards or in tandem
with
other Stock Awards. The terms and conditions of Stock Appreciation Right
Agreements may change from time to time, and the terms and conditions of
separate Stock Appreciation Right Agreements need not be identical;
provided, however
,
that each Stock Appreciation Right Agreement shall include (through
incorporation of the provisions hereof by reference in the Agreement or
otherwise) the substance of each of the following provisions:
(i)
Term.
No
Stock Appreciation Right shall be exercisable after the expiration of ten
(10)
years from the date of its grant or such shorter period specified in the
Stock
Appreciation Right Agreement.
(ii)
Strike Price.
Each Stock Appreciation Right will be denominated in shares of Common Stock
equivalents. The strike price of each Stock Appreciation Right granted as
a
stand-alone or tandem Stock Award shall not be less than one hundred percent
(100%) of the Fair Market Value of the Common Stock equivalents subject to
the
Stock Appreciation Right on the date of grant.
(iii)
Calculation of Appreciation.
The appreciation distribution payable on the exercise of a Stock Appreciation
Right will be not greater than an amount equal to the excess of (A) the
aggregate Fair Market Value (on the date of the exercise of the Stock
Appreciation Right) of a number of shares of Common Stock equal to the number
of
share of Common Stock equivalents in which the Participant is vested under
such
Stock Appreciation Right, and with respect to which the Participant is
exercising the Stock Appreciation Right on such date, over (B) the strike
price
that will be determined by the Board at the time of grant of the Stock
Appreciation Right.
(iv)
Vesting.
At
the time of the grant of a Stock Appreciation Right, the Board may impose
such
restrictions or conditions to the vesting of such Stock Appreciation Right
as
it, in its sole discretion, deems appropriate.
(v)
Exercise.
To
exercise any outstanding Stock Appreciation Right, the Participant must provide
written notice of exercise to the Company in compliance with the provisions
of
the Stock Appreciation Right Agreement evidencing such Stock Appreciation
Right.
(vi)
Payment.
The appreciation distribution in respect to a Stock Appreciation Right may
be
paid in Common Stock, in cash, in any combination of the two or in any other
form of consideration, as determined by the Board and contained in the Stock
Appreciation Right Agreement evidencing such Stock Appreciation
Right.
(vii)
Termination of Continuous Service.
In
the event that a Participant’s Continuous Service terminates (other than for
Cause), the Participant may exercise his or her Stock Appreciation Right
(to the
extent that the Participant was entitled to exercise such Stock Appreciation
Right as of the date of termination) but only within such period of time
ending
on the earlier of (A) the date three (3) months following the termination
of the
Participant’s Continuous Service (or such longer or shorter period specified in
the Stock Appreciation Right Agreement), or (B) the expiration of the term
of
the Stock Appreciation Right as set forth in the Stock Appreciation Right
Agreement. If, after termination, the Participant does not exercise his or
her
Stock Appreciation Right within the time specified herein or in the Stock
Appreciation Right Agreement (as applicable), the Stock Appreciation Right
shall
terminate.
(viii)
Termination for Cause.
Except as explicitly provided otherwise in an Participant’s Stock Appreciation
Right Agreement, in the event that a
41
Participant’s
Continuous Service is terminated for Cause, the Stock Appreciation Right
shall
terminate upon the termination date of such Participant’s Continuous Service,
and the Participant shall be prohibited from exercising his or her Stock
Appreciation Right from and after the time of such termination of Continuous
Service.
(ix)
Compliance with Section 409A of the Code.
Notwithstanding anything to the contrary set forth herein, any Stock
Appreciation Rights granted under the Plan that are not exempt from the
requirements of Section 409A of the Code shall contain such provisions so
that
such Stock Appreciation Rights will comply with the requirements of Section
409A
of the Code. Such restrictions, if any, shall be determined by the Board
and
contained in the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right. For example, such restrictions may include, without
limitation, a requirement that a Stock Appreciation Right that is to be paid
wholly or partly in cash must be exercised and paid in accordance with a
fixed
pre-determined schedule.
(e)
Performance Awards.
(i)
Performance Stock Awards.
A
Performance Stock Award is a Stock Award that may be granted, may vest, or
may
be exercised based upon the attainment during a Performance Period of certain
Performance Goals. A Performance Stock Award may, but need not, require the
completion of a specified period of Continuous Service. The length of any
Performance Period, the Performance Goals to be achieved during the Performance
Period, and the measure of whether and to what degree such Performance Goals
have been attained shall be conclusively determined by the Committee in its
sole
discretion. The maximum benefit to be received by any Participant in any
calendar year attributable to Stock Awards described in this Section 7(e)
shall
not exceed the value of one million two hundred thousand (1,200,000) shares
of
Common Stock.
(ii)
Performance Cash Awards.
A
Performance Cash Award is a cash award that may be granted upon the attainment
during a Performance Period of certain Performance Goals. A Performance Cash
Award may also require the completion of a specified period of Continuous
Service. The length of any Performance Period, the Performance Goals to be
achieved during the Performance Period, and the measure of whether and to
what
degree such Performance Goals have been attained shall be conclusively
determined by the Committee in its sole discretion. The maximum benefit to
be
received by any Participant in any calendar year attributable to cash awards
described in this Section 7(e) shall not exceed three million dollars
($3,000,000).
(f)
Other Stock Awards.
Other forms of Stock Awards valued in whole or in part by reference to, or
otherwise based on, Common Stock may be granted either alone or in addition
to
Stock Awards provided for under Section 6 and the preceding provisions of
this
Section 7. Subject to the provisions of the Plan, the Board shall have sole
and
complete authority to determine the persons to whom and the time or times
at
which such Other Stock Awards will be granted, the number of shares of Common
Stock (or the cash equivalent thereof) to be granted pursuant to such Other
Stock Awards and all other terms and conditions of such Other Stock
Awards.
8. COVENANTS
OF THE COMPANY.
(a)
Availability of Shares.
During the terms of the Stock Awards, the Company shall keep available at
all
times the number of shares of Common Stock required to satisfy such Stock
Awards.
(b)
Securities Law Compliance.
The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to grant
Stock Awards and to issue and sell shares of Common Stock upon exercise of
the
Stock Awards;
provided, however,
that this undertaking shall not require the Company to register under the
Securities Act the Plan, any Stock Award or any Common Stock issued or issuable
pursuant to any such Stock Award. If, after reasonable efforts, the Company
is
unable to obtain from any such regulatory commission or agency the authority
that counsel for the Company deems necessary for the lawful issuance and
sale of
Common Stock under the Plan, the Company shall be relieved from any liability
for failure to issue and sell Common Stock upon exercise of such Stock Awards
unless and until such authority is obtained.
9. USE
OF PROCEEDS FROM SALES OF COMMON STOCK.
Proceeds
from the sale of shares of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a)
Corporate Action Constituting Grant of Stock Awards.
Corporate action constituting an offer by the Company of Common Stock to
any
Participant under the terms of a Stock Award shall be deemed completed as
of the
date of such corporate action, unless otherwise determined by the Board,
regardless of when the instrument, certificate, or letter evidencing the
Stock
Award is actually received or accepted by the Participant.
(b)
Stockholder Rights.
No
Participant shall be deemed to be the holder of, or to have any of the rights
of
a holder with respect to, any shares of Common Stock subject to such Stock
Award
unless and until such Participant has satisfied all requirements for exercise
of
the Stock Award pursuant to its terms.
(c)
No Employment or Other Service Rights.
Nothing in the Plan, any Stock Award Agreement or other instrument executed
thereunder or in connection with any Award granted pursuant to the Plan shall
confer upon any Participant any right to continue to serve the Company or
an
Affiliate in the capacity in effect at the time the Stock Award was granted
or
shall affect the right of the Company or an Affiliate to terminate (i) the
employment of an Employee with or without notice and with or without cause,
(ii)
the service of a Consultant pursuant to the terms of such Consultant’s agreement
with the Company or an Affiliate, or (iii) the service of a Director pursuant
to
the Bylaws of the Company or an Affiliate, and any applicable provisions
of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.
(d)
Incentive Stock Option $100,000 Limitation.
To
the extent that the aggregate Fair Market Value (determined at the time of
grant) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionholder during any calendar year
(under all plans of the Company and any Affiliates) exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof that exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options, notwithstanding any contrary provision of the
applicable Option Agreement(s).
(e)
Investment Assurances.
The Company may require a Participant, as a condition of exercising or acquiring
Common Stock under any Stock Award, (i) to give written assurances satisfactory
to the Company as to the Participant’s knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising
the Stock Award; and (ii) to give written assurances satisfactory to the
Company
stating that the Participant is acquiring Common Stock subject to the Stock
Award for the Participant’s own account and not with any present intention of
selling or otherwise distributing the Common Stock. The foregoing requirements,
and any assurances given pursuant to such requirements, shall be inoperative
if
(x) the issuance of the shares upon the exercise or acquisition of Common
Stock
under the Stock Award has been registered under a then currently effective
registration statement under the Securities Act, or (y) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company,
place
legends on stock certificates issued
42
under
the Plan as such counsel deems necessary or appropriate in order to comply
with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the Common Stock.
(f)
Withholding Obligations.
To
the extent provided by the terms of a Stock Award Agreement, the Company
may, in
its sole discretion, satisfy any federal, state or local tax withholding
obligation relating to a Stock Award by any of the following means (in addition
to the Company’s right to withhold from any compensation paid to the Participant
by the Company) or by a combination of such means: (i) causing the Participant
to tender a cash payment; (ii) withholding shares of Common Stock
from the shares of Common Stock issued or otherwise issuable to the Participant
in connection with the Stock Award; or (iii) by such other method as may
be set
forth in the Stock Award Agreement.
(g)
Electronic Delivery.
Any reference herein to a “written” agreement or document shall include any
agreement or document delivered electronically or posted on the Company’s
intranet.
11. ADJUSTMENTS
UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.
(a)
Capitalization Adjustments.
If any change is made in, or other events occur with respect to, the Common
Stock subject to the Plan or subject to any Stock Award after the Effective
Date
without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration
by the
Company (each a “
Capitalization Adjustment”)),
the Board shall appropriately adjust: (i) the class(es) and maximum number
of
securities subject to the Plan pursuant to Section 4(a), (ii) the class(es)
and
maximum number of securities that may be issued pursuant to the exercise
of
Incentive Stock Options pursuant to Section 4(c), (iii) the class(es) and
maximum number of securities that may be awarded to any person pursuant to
Section 5(c) and 7(e)(i) , and (iv) the class(es) and number of securities
and
price per share of stock subject to outstanding Stock Awards. The Board shall
make such adjustments, and its determination shall be final, binding and
conclusive. (Notwithstanding the foregoing, the conversion of any convertible
securities of the Company shall not be treated as a transaction “without receipt
of consideration” by the Company.)
(b)
Dissolution or Liquidation.
In the event of a dissolution or liquidation of the Company, all outstanding
Stock Awards (other than Stock Awards consisting of vested and outstanding
shares of Common Stock not subject to the Company’s right of repurchase) shall
terminate immediately prior to the completion of such dissolution or
liquidation, and the shares of Common Stock subject to the Company’s repurchase
option may be repurchased by the Company notwithstanding the fact that the
holder of such Stock Award is providing Continuous Service,
provided, however,
that the Board may, in its sole discretion, cause some or all Stock Awards
to
become fully vested, exercisable and/or no longer subject to repurchase or
forfeiture (to the extent such Stock Awards have not previously expired or
terminated) before the dissolution or liquidation is completed but contingent
on
its completion.
(c)
Corporate Transaction.
The following provisions shall apply to Stock Awards in the event of a Corporate
Transaction unless otherwise provided in the instrument evidencing the Stock
Award or any other written agreement between the Company or any Affiliate
and
the holder of the Stock Award or unless otherwise expressly provided by the
Board at the time of grant of a Stock Award.
(i)
Stock Awards May Be Assumed.
In
the event of a Corporate Transaction, any surviving corporation or acquiring
corporation (or the surviving or acquiring corporation’s parent company) may
assume or continue any or all Stock Awards outstanding under the Plan or
may
substitute similar stock awards for Stock Awards outstanding under the Plan
(including but not limited to, awards to acquire the same consideration paid
to
the stockholders of the Company pursuant to the Corporate Transaction), and
any
reacquisition or repurchase rights held by the Company in respect of Common
Stock issued pursuant to Stock Awards may be assigned by the Company to the
successor of the Company (or the successor’s parent company, if any), in
connection with such Corporate Transaction. A surviving corporation or acquiring
corporation (or its parent) may choose to assume or continue only a portion
of a
Stock Award or substitute a similar stock award for only a portion of a Stock
Award. The terms of any assumption, continuation or substitution shall be
set by
the Board in accordance with the provisions of Section 3.
(ii)
Stock Awards Held by Current Participants.
In
the event of a Corporate Transaction in which the surviving corporation or
acquiring corporation (or its parent company) does not assume or continue
such
outstanding Stock Awards or substitute similar stock awards for such outstanding
Stock Awards, then with respect to Stock Awards that have not been assumed,
continued or substituted and that are held by Participants whose Continuous
Service has not terminated prior to the effective time of the Corporate
Transaction (referred to as the “
Current Participants”),
the vesting of such Stock Awards (and, if applicable, the time at which such
Stock Awards may be exercised) shall (contingent upon the effectiveness of
the
Corporate Transaction) be accelerated in full to a date prior to the effective
time of such Corporate Transaction as the Board shall determine (or, if the
Board shall not determine such a date, to the date that is five (5) days
prior
to the effective time of the Corporate Transaction), and such Stock Awards
shall
terminate if not exercised (if applicable) at or prior to the effective time
of
the Corporate Transaction, and any reacquisition or repurchase rights held
by
the Company with respect to such Stock Awards shall lapse (contingent upon
the
effectiveness of the Corporate Transaction).
(iii)
Stock Awards Held by Persons other than Current
Participants.
In
the event of a Corporate Transaction in which the surviving corporation or
acquiring corporation (or its parent company) does not assume or continue
such
outstanding Stock Awards or substitute similar stock awards for such outstanding
Stock Awards, then with respect to Stock Awards that have not been assumed,
continued or substituted and that are held by persons other than Current
Participants, the vesting of such Stock Awards (and, if applicable, the time
at
which such Stock Award may be exercised) shall not be accelerated and such
Stock
Awards (other than a Stock Award consisting of vested and outstanding shares
of
Common Stock not subject to the Company’s right of repurchase) shall terminate
if not exercised (if applicable) prior to the effective time of the Corporate
Transaction;
provided, however,
that any reacquisition or repurchase rights held by the Company with respect
to
such Stock Awards shall not terminate and may continue to be exercised
notwithstanding the Corporate Transaction.
(iv)
Payment for Stock Awards in Lieu of Exercise.
Notwithstanding the foregoing, in the event a Stock Award will terminate
if not
exercised prior to the effective time of a Corporate Transaction, the Board
may
provide, in its sole discretion, that the holder of such Stock Award may
not
exercise such Stock Award but will receive a payment, in such form as may
be
determined by the Board, equal in value to the excess, if any, of (A) the
value
of the property the holder of the Stock Award would have received upon the
exercise of the Stock Award, over (B) any exercise price payable by such
holder
in connection with such exercise.
(d)
Change in Control.
Unless otherwise specified in an applicable Stock Award Agreement, in the
event
of a Change in Control each outstanding Stock Award (other than a Stock Award
that vests solely upon the satisfaction of Performance Goals) that is held
by a
person whose Continuous Service has not terminated prior to the Change in
Control shall become immediately vested in that number of shares that would
have
been vested as of the date that is twelve months following the date of the
Change in Control. This Section 11(d) shall not apply to any Stock Award
the
vesting of which is based solely on the satisfaction of Performance Goals.
Following the acceleration provided in this Section 11(d), any unvested shares
of Common Stock remaining subject to a Stock Award shall vest in equal
installments over a vesting period that is twelve months shorter than the
vesting period immediately prior to the Change in Control. For purposes of
illustration, assume at the time immediately prior to a Change in Control
(i)
the number of unvested shares of Common Stock subject to an option is
seventy-two (72) shares and (ii) such shares are vesting monthly such that
two
(2) shares are vesting each month (over a thirty-six (36) month period).
In such
event, upon a Change in Control (A) twenty-four (24) of such shares will
immediately vest, and (B) the remaining forty-eight (48) unvested shares
of
Common Stock subject to the Stock Award shall continue to vest in equal monthly
installments of two (2) shares per month over the remaining twenty-four (24)
months. In the event that the vesting of a Stock Award is accelerated pursuant
to the terms of Section 11(c), above, the acceleration provisions of this
Section 11(d) shall not be applicable to such Stock Award.
43
(e)
Parachute Payments.
(i)
Except as otherwise provided in a written agreement between the Company and
a
Participant, if the acceleration of the vesting and exercisability of Awards
provided for in Sections 11(c) and 11(d), together with payments and other
benefits of a Participant (collectively, the “
Payment”)
(i) constitute a “parachute payment” within the meaning of Section 280G of the
Code, or any comparable successor provisions, and (ii) but for this Section
11(e) would be subject to the excise tax imposed by Section 4999 of the Code,
or
any comparable successor provisions (the “
Excise Tax”),
then such Payment shall be either (1) provided to such Participant in full,
or
(2) provided to such Participant as to such lesser extent that would result
in
no portion of such Payment being subject to the Excise Tax, whichever of
the
foregoing amounts, when taking into account applicable federal, state, local
and
foreign income and employment taxes, the Excise Tax, and any other applicable
taxes, results in the receipt by such Participant, on an after-tax basis,
of the
greatest amount of the Payment, notwithstanding that all or some portion
of the
Payment may be subject to the Excise Tax.
(ii)
The Company shall appoint a nationally recognized independent accounting
firm
(the“Accountant”)
to make the determinations required hereunder, which accounting firm shall
not
then be serving as accountant or auditor for the individual, entity or group
that effected the Change in Control. The Company shall bear all costs and
expenses with respect to the determinations the Accountant may reasonably
incur
in connection with any calculations contemplated by this Section
11(e).
(iii)
Unless the Company and such Participant otherwise agree in writing, any
determination required under this Section 11(e) shall be made in writing
in good
faith by the Accountant. If a reduction in the Payment is to be made as provided
above, reductions shall occur in the following order unless the Participant
elects in writing a different order (
provided, however,
that such election shall be subject to Company approval if made on or after
the
date that triggers the Payment or a portion thereof):(A) reduction of cash
payments; (B) cancellation of accelerated vesting of Options and other Awards;
and (C) reduction of other benefits paid to the Participant. If acceleration
of
vesting of Awards is to be reduced, such acceleration of vesting shall be
cancelled in the reverse order of date of grant of the Awards (
i.e
.,
the earliest granted Award cancelled last) unless the Participant elects
in
writing a different order for cancellation.
(iv)
For purposes of making the calculations required by this Section 11(e), the
Accountant may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code and other applicable legal authority.
The
Company and the Participant shall furnish to the Accountant such information
and
documents as the Accountant may reasonably request in order to make such
a
determination. The Company shall bear all costs that the Accountant may
reasonably incur in connection with any calculations contemplated by this
Section 11(e).
(v)
If, notwithstanding any reduction described above, the Internal Revenue Service
(the “IRS”)
determines that the Participant is liable for the Excise Tax as a result
of the
Payment, then the Participant shall be obligated to pay back to the Company,
within thirty (30) days after a final IRS determination or, in the event
that
the Participant challenges the final IRS determination, a final judicial
determination, a portion of the Payment (the “
Repayment Amount”).
The Repayment Amount with respect to the Payment shall be the smallest such
amount, if any, as shall be required to be paid to the Company so that the
Participant’s net after-tax proceeds with respect to the Payment (after taking
into account the payment of the Excise Tax and all other applicable taxes
imposed on the Payment) shall be maximized. The Repayment Amount with respect
to
the Payment shall be zero if a Repayment Amount of more than zero would not
result in the Participant’s net after-tax proceeds with respect to the Payment
being maximized. If the Excise Tax is not eliminated pursuant to this paragraph,
the Optionholder shall pay the Excise Tax.
(vi)
Notwithstanding any other provision of this Section 11(e), if (A) there is
a
reduction in the Payment as described above, (B) the IRS later determines
that
the Participant is liable for the Excise Tax, the payment of which would
result
in the maximization of the Participant’s net after-tax proceeds of the Payment
(calculated as if the Payment had not previously been reduced), and (C) the
Participant the Excise Tax, then the Company shall pay or otherwise provide
to
the Participant that portion of the Payment that was reduced pursuant to
this
Section 11(e) contemporaneously or as soon as administratively possible after
the Optionholder pays the Excise Tax so that the Participant’s net after-tax
proceeds with respect to the Payment are maximized.
(vii)
If
the Participant either (A) brings any action to enforce rights pursuant to
this
Section 11(e), or (B) defends any legal challenge to his or her rights under
this Section 11(e), the Participant shall be entitled to recover attorneys’ fees
and costs incurred in connection with such action, regardless of the outcome
of
such action;
provided, however,
that if such action is commenced by the Participant, the court finds that
the
action was brought in good faith.
12. TERMINATION
OR SUSPENSION OF THE PLAN.
(a)
Plan Term.
Unless sooner terminated by the Board pursuant to Section 3, the Plan shall
automatically terminate on the day before the tenth (10th) anniversary of
the
date the Plan is adopted by the Board or approved by the stockholders of
the
Company, whichever is earlier. No Awards may be granted under the Plan while
the
Plan is suspended or after it is terminated.
(b)
No Impairment of Rights.
Termination of the Plan shall not impair rights and obligations under any
Award
granted while the Plan is in effect except with the written consent of the
affected Participant.
13. EFFECTIVE
DATE OF PLAN.
This
Plan shall become effective on the Effective Date.
14. CHOICE
OF LAW.
The
law of the State of California shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to
such
state’s conflict of laws rules.
44
APPENDIX
B
CHORDIANT
SOFTWARE, INC.
AMENDED
AND RESTATED 1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Amended
by the Board of Directors January 24, 2005
Approved
by Stockholders: April , 2007
Effective
Date: Date of Initial Public Offering
Termination
Date: None
1.
PURPOSES.
(a) Eligible
Option Recipients.
The persons eligible to receive Options are the Non-Employee Directors of
the
Company.
(b) Available
Options.
The purpose of the Plan is to provide a means by which Non-Employee Directors
may be given an opportunity to benefit from increases in value of the Common
Stock through the granting of Nonstatutory Stock Options.
(c) General
Purpose.
The Company, by means of the Plan, seeks to retain the services of its
Non-Employee Directors, to secure and retain the services of new Non-Employee
Directors and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its Affiliates.
2.
DEFINITIONS.
(a) "Affiliate" means any parent corporation or
subsidiary corporation of the Company, whether now or hereafter existing,
as
those terms are defined in Sections 424(e) and (f), respectively, of the
Code.
(b) "Annual Grant" means an Option granted annually to
all Non-Employee Directors who meet the specified criteria pursuant to
subsection 6(b) of the Plan.
(c) "Annual Meeting" means the annual meeting of the
stockholders of the Company.
(d) "Board" means the Board of Directors of the
Company.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Committee Grant" means an Option granted to a
member of a committee of the Board pursuant to subsection 6(c) of the
Plan.
(g) "Common Stock" means the common stock of the
Company.
(h) "Company" means Chordiant Software, Inc., a Delaware
corporation.
(i) "Consultant" means any person, including an advisor,
(i) engaged by the Company or an Affiliate to render consulting or advisory
services and who is compensated for such services or (ii) who is a member
of the
Board of Directors of an Affiliate. However, the term "Consultant" shall
not
include either Directors of the Company who are not compensated by the Company
for their services as Directors or Directors of the Company who are merely
paid
a director's fee by the Company for their services as Directors.
(j) "Continuous Service" means that the Optionholder's service with the Company
or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not
be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination
of
the Optionholder's Continuous Service. For example, a change in status from
a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal
leave.
(k) "Director" means a member of the Board of Directors of the
Company.
(l) "Disability" means the inability of a person, in the opinion of a qualified
physician acceptable to the Company, to perform the major duties of that
person's position with the Company or an Affiliate of the Company because
of the
sickness or injury of the person.
(m) "Employee" means any person employed by the Company or an Affiliate.
Mere
service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company
or
an Affiliate.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Fair Market Value" means, as of any date, the value of the Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or traded
on
the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market
Value
of a share of Common Stock shall be the closing sales price for such stock
(or
the closing bid, if no sales were reported) as quoted on such exchange or
market
(or the exchange or market with the greatest volume of trading in the Common
Stock) on the date of grant, or if the date of grant is not a trading day,
then
on the last market trading day prior to the day of grant, as reported in
The
Wall Street Journal or such other source as the Board deems
reliable.
(ii) In the absence of such markets for the Common Stock, the Fair Market
Value
shall be determined in good faith by the Board.
(p) "Initial Grant" means an Option granted to a Non-Employee Director who
meets
the specified criteria pursuant to subsection 6(a) of the Plan.
(q) "IPO Date" means February 14, 2000, the effective date of the initial
public
offering of the Common Stock.
(r) "Non-Employee Director" means a Director who is not an
Employee.
(s) "Nonstatutory Stock Option" means an Option not intended to qualify as
an
incentive stock option within the meaning of Section 422 of the Code and
the
regulations promulgated thereunder.
(t) "Officer" means a person who is an officer of the Company within the
meaning
of Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.
(u) "Option" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(v) "Option Agreement" means a written agreement between the Company and
an
Optionholder evidencing the terms and conditions of an individual Option
grant.
Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(w) "Optionholder" means a person to whom an Option is granted pursuant to
the
Plan or, if applicable, such other person who holds an outstanding
Option.
(x) "Plan" means this Chordiant Software, Inc. 1999 Non-Employee Directors'
Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(z) "Securities Act" means the Securities Act of 1933, as amended.
3.
ADMINISTRATION.
(a)
Administration by Board.
The Board shall administer the Plan. The Board may not delegate administration
of the Plan to a committee.
(b) Powers
of Board.
The Board shall have the power, subject to, and within the limitations of,
the
express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not specified
in
the Plan.
(ii) To construe and interpret the Plan and Options granted under it, and
to
establish, amend and revoke rules and regulations for its administration.
The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to
the
extent it shall deem necessary or expedient to make the Plan fully
effective.
(iii) To amend the Plan or an Option as provided in Section 12.
45
(iv) Generally, to exercise such powers and to perform such acts as the Board
deems necessary or expedient to promote the best interests of the Company
that
are not in conflict with the provisions of the Plan.
(c) Effect
of Board's Decision. All
determinations, interpretations and constructions made by the Board in good
faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.
4.
SHARES SUBJECT TO THE PLAN.
(a) Share
Reserve. Subject
to the provisions of Section 11 relating to adjustments upon changes in the
Common Stock, the Common Stock that may be issued pursuant to Options shall
not
exceed in the aggregate 463,000
(four hundred sixty three thousand) shares
of Common Stock.
(b) Reversion
of Shares to the Share Reserve.
If any Option shall for any reason expire or otherwise terminate, in whole
or in
part, without having been exercised in full, the shares of Common Stock not
acquired under such Option shall revert to and again become available for
issuance under the Plan. If the Company repurchases any unvested shares of
Common Stock issued under an Option, such repurchased shares of Common Stock
shall revert to and again become available for issuance under the
Plan.
(c) Source
of Shares.
The shares of Common Stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5.
ELIGIBILITY.
The
Options as set forth in section 6 automatically shall be granted under the
Plan
to all Non-Employee Directors.
6.
NON-DISCRETIONARY GRANTS.
Without
any further action of the Board, each Non-Employee Director shall be granted
the
following Options:
(a) Initial
Grants.
(i) On the IPO Date, each person who is then a Non-Employee Director
automatically shall be granted an Initial Grant to purchase Ten Thousand
(10,000) shares of Common Stock on the terms and conditions set forth
herein.
(ii) After the IPO Date, each person who is elected or appointed for the
first
time to be a Non-Employee Director automatically shall, upon the date of
his or
her initial election or appointment to be a Non-Employee Director by the
Board
or stockholders of the Company, be granted an Initial Grant to purchase Ten
Thousand (10,000) shares of Common Stock on the terms and conditions set
forth
herein.
(b) Annual
Grants.
(i) On the day following each Annual Meeting after the IPO Date, each person
who
is then a Non-Employee Director automatically shall be granted an Annual
Grant
to purchase Three Thousand (3,000) shares of Common Stock on the terms and
conditions set forth herein.
(ii) If a person is first elected or appointed as a Non-Employee Director
during
the 12-month period following the time specified in subsection 6(b)(i) but
before the next Annual Meeting, then such person automatically shall be granted
an Annual Grant that is pro rated as to the number of shares and the vesting
schedule. The pro rated number of shares shall be determined by reducing
Three
Thousand (3,000) shares of Common Stock by Two Hundred Fifty (250) shares
of
Common Stock for each full month that has elapsed between the date of the
prior
Annual Meeting and the date of such election or appointment. The pro rated
shares shall vest monthly after the date of grant at the rate of Two Hundred
Fifty (250) shares of Common Stock per month.
(c) Committee
Grants.
(i) On the day following each Annual Meeting after the IPO Date, each
Non-Employee Director who is then a member of a committee of the Board
automatically shall be granted, for each such committee, an Option to purchase
Two Thousand (2,000) shares of Common Stock.
(ii) If a person is first appointed to a committee of the Board during the
12-month period following the time specified in subsection 6(c)(i) but before
the next Annual Meeting, then such person automatically shall be granted
a
Committee Grant that is pro rated as to the number of shares and the vesting
schedule. The pro rated number of shares shall be determined by reducing
Two
Thousand (2,000) shares of Common Stock by One Hundred Sixty Six and
2/3rd
(166.67) shares of Common Stock for each full month that has elapsed between
the
date of the prior Annual Meeting and the date of such appointment (rounded
down
to the nearest whole share). The pro rated shares shall vest monthly after
the
date of grant at the rate of One Hundred Sixty Seven (167) shares of Common
Stock per month.
7.
OPTION PROVISIONS.
Each
Option shall be in such form and shall contain such terms and conditions
as
required by the Plan. Each Option shall contain such additional terms and
conditions, not inconsistent with the Plan, as the Board shall deem appropriate.
Each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:
(a) Term.
No
Option shall be exercisable after the expiration of ten (10) years from the
date
it was granted.
(b) Exercise.
Each Option shall be exercisable once it has vested.
(c) Exercise
Price.
The exercise price of each Option shall be one hundred percent (100%) of
the
Fair Market Value of the stock subject to the Option on the date the Option
is
granted. Notwithstanding the foregoing, the exercise price for an Initial
Grant
made on the IPO Date shall be the price at which the Common Stock is first
sold
to the public in the initial public offering as specified in the final
prospectus. Notwithstanding the foregoing, an Option may be granted with
an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the
Code.
(d) Consideration.
The purchase price of stock acquired pursuant to an Option may be paid, to
the
extent permitted by applicable statutes and regulations, in any combination
of
(i) cash or check, (ii) delivery to the Company of other Common Stock, (ii)
deferred payment or (iv) any other form of legal consideration that may be
acceptable to the Board. The purchase price of Common Stock acquired pursuant
to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by
shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge
to
earnings for financial accounting purposes). At any time that the Company
is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred
payment.
In
the case of any deferred payment arrangement, interest shall be compounded
at
least annually and shall be charged at the minimum rate of interest necessary
to
avoid the treatment as interest, under any applicable provisions of the Code,
of
any amounts other than amounts stated to be interest under the deferred payment
arrangement.
(e) Transferability.
An
Option shall not be transferable except (i) by will or by the laws of descent
and distribution and (ii) to the further extent permitted under the rules
for a
Form S-8 registration statement under the Securities Act. The Option shall
be
exercisable during the lifetime of the Optionholder only by the Optionholder
or
a permitted transferee. Notwithstanding the foregoing, the Optionholder may,
by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionholder,
shall thereafter be entitled to exercise the Option.
(f) Vesting
Generally.
Options shall vest and become exercisable as follows:
46
(i) Initial Grants shall provide for vesting of 1/3rd of the shares one year
after the date of the grant and 1/36th of the shares each month
thereafter.
(ii) Annual Grants shall provide for vesting of 1/12th of the shares each
month
for 12 months after the date of the grant.
(iii) Committee Grants shall provide for vesting of 1/12th of the shares
each
month for 12 months after the date of the grant.
(g) Termination
of Continuous Service.
In
the event an Optionholder's Continuous Service terminates (other than upon
the
Optionholder's death or Disability), the Optionholder may exercise his or
her
Option (to the extent that the Optionholder was entitled to exercise it as
of
the date of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the
Optionholder's Continuous Service, or (ii) the expiration of the term of
the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
in
the Option Agreement, the Option shall terminate.
(h)
Extension of Termination Date.
If
the exercise of the Option following the termination of the Optionholder's
Continuous Service (other than upon the Optionholder's death or Disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Securities Act, then the
Option
shall terminate on the earlier of (i) the expiration of the term of the Option
set forth in subsection 7(a) or (ii) the expiration of a period of three
(3)
months after the termination of the Optionholder's Continuous Service during
which the exercise of the Option would not be in violation of such registration
requirements.
(i) Disability
of Optionholder.
In
the event an Optionholder's Continuous Service terminates as a result of
the
Optionholder's Disability, the Optionholder may exercise his or her Option
(to
the extent that the Optionholder was entitled to exercise it as of the date
of
termination), but only within such period of time ending on the earlier of
(i)
the date twelve (12) months following such termination or (ii) the expiration
of
the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within
the
time specified herein, the Option shall terminate.
(j) Death
of Optionholder.
In
the event (i) an Optionholder's Continuous Service terminates as a result
of the
Optionholder's death or (ii) the Optionholder dies within the three-month
period
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death)
by the
Optionholder's estate, by a person who acquired the right to exercise the
Option
by bequest or inheritance or by a person designated to exercise the Option
upon
the Optionholder's death, but only within the period ending on the earlier
of
(1) the date eighteen (18) months following the date of death or (2) the
expiration of the term of such Option as set forth in the Option Agreement.
If,
after death, the Option is not exercised within the time specified herein,
the
Option shall terminate.
8.
COVENANTS OF THE COMPANY.
(a) Availability
of Shares.
During the terms of the Options, the Company shall keep available at all
times
the number of shares of Common Stock required to satisfy such
Options.
(b)
Securities Law Compliance.
The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to grant
Options and to issue and sell shares of Common Stock upon exercise of the
Options; provided, however, that this undertaking shall not require the Company
to register under the Securities Act the Plan, any Option or any stock issued
or
issuable pursuant to any such Option. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and
sale
of stock under the Plan, the Company shall be relieved from any liability
for
failure to issue and sell stock upon exercise of such Options unless and
until
such authority is obtained.
9.
USE OF PROCEEDS FROM STOCK.
Proceeds
from the sale of stock pursuant to Options shall constitute general funds
of the
Company.
10.
MISCELLANEOUS.
(a) Stockholder
Rights.
No
Optionholder shall be deemed to be the holder of, or to have any of the rights
of a holder with respect to, any shares subject to such Option unless and
until
such Optionholder has satisfied all requirements for exercise of the Option
pursuant to its terms.
(b) No
Service Rights.
Nothing in the Plan or any instrument executed or Option granted pursuant
thereto shall confer upon any Optionholder any right to continue to serve
the
Company as a Non-Employee Director or shall affect the right of the Company
or
an Affiliate to terminate (i) the employment of an Employee with or without
notice and with or without cause, (ii) the service of a Consultant pursuant
to
the terms of such Consultant's agreement with the Company or an Affiliate
or
(iii) the service of a Director pursuant to the Bylaws of the Company or
an
Affiliate, and any applicable provisions of the corporate law of the state
in
which the Company or the Affiliate is incorporated, as the case may
be.
(c) Investment
Assurances.
The Company may require an Optionholder, as a condition of exercising or
acquiring stock under any Option, (i) to give written assurances satisfactory
to
the Company as to the Optionholder's knowledge and experience in financial
and
business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising
the Option; and (ii) to give written assurances satisfactory to the Company
stating that the Optionholder is acquiring the stock subject to the Option
for
the Optionholder's own account and not with any present intention of selling
or
otherwise distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (iii) the issuance
of the shares upon the exercise or acquisition of stock under the Option
has
been registered under a then currently effective registration statement under
the Securities Act or (iv) as to any particular requirement, a determination
is
made by counsel for the Company that such requirement need not be met in
the
circumstances under the then applicable securities laws. The Company may,
upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to
comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(d) Withholding
Obligations.
The Optionholder may satisfy any federal, state or local tax withholding
obligation relating to the exercise or acquisition of stock under an Option
by
any of the following means (in addition to the Company's right to withhold
from
any compensation paid to the Optionholder by the Company) or by a combination
of
such means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold shares from the shares of the Common Stock otherwise issuable to
the
Optionholder as a result of the exercise or acquisition of stock under the
Option, provided, however, that no shares of Common Stock are withheld with
a
value exceeding the minimum amount of tax required to be withheld by law;
or
(iii) delivering to the Company owned and unencumbered shares of the Common
Stock.
11.
ADJUSTMENTS UPON CHANGES IN STOCK.
(a) Capitalization
Adjustments.
If
any change is made in the shares of Common Stock subject to the Plan, or
subject
to any Option (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in
the
class(es) and maximum number of securities subject both to the Plan pursuant
to
subsection 4(a) and to the nondiscretionary Options specified in Section
5, and
the outstanding Options will be appropriately adjusted in the class(es) and
number of securities and price per share of Common Stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of
any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) Change
in Control.
In
the event of a: (1) a dissolution, liquidation or sale of all or substantially
all of the assets of the Company; (2) a merger or consolidation in which
the
Company is not the surviving corporation; (3) a reverse merger in which the
Company is the surviving corporation but the shares of the Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; or (4) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any
47
employee
benefit plan, or related trust, sponsored or maintained by the Company or
any
Affiliate of the Company) of the beneficial ownership (within the meaning
of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule)
of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then:
(i)
any surviving corporation or acquiring corporation shall assume any Options
outstanding under the Plan or shall substitute similar options (including
an
option to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(b)) for those outstanding under
the
Plan, or (ii) in the event any surviving corporation or acquiring corporation
refuses to assume such Options or to substitute similar options for those
outstanding under the Plan, (A) with respect to Options held by persons then
performing services as Employees, Directors or Consultants, the vesting of
such
Options (and, if applicable, the time during which such Options may be
exercised) shall be accelerated prior to such event and the Options terminated
if not exercised after such acceleration and at or prior to such event, and
(B)
with respect to any other Options outstanding under the Plan, such Options
shall
be terminated if not exercised (if applicable) prior to such event.
(c) Acceleration
of Vesting.
In
the event of any transaction described in subsection 11(b) (other than a
merger
or consolidation for the purpose of a change in domicile) and subject to
any
limitation set forth in an Option, with respect to Options held by persons
then
performing services as an Employee, Director or Consultant of the Company,
the
vesting of such Options shall be automatically accelerated immediately prior
to
such transaction such that each such Option shall be exercisable for such
number
of vested shares that would have been vested as of the date one year following
the date of the transaction.
In
the event the terms of an Option provide for acceleration of vesting due
to a
transaction described in subsection 11(b) or a similar transaction, the
acceleration provisions of this subsection 11(c) shall not be applicable
to such
Option.
12.
AMENDMENT OF THE PLAN AND OPTIONS.
(a) Amendment
of Plan. The
Board at any time, and from time to time, may amend the Plan. However, except
as
provided in Section 11 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary to satisfy the requirements
of
Rule 16b-3 or any Nasdaq or securities exchange listing
requirements.
(b) Stockholder
Approval.
The Board may, in its sole discretion, submit any other amendment to the
Plan
for stockholder approval.
(c) No
Impairment of Rights.
Rights under any Option granted before amendment of the Plan shall not be
impaired by any amendment of the Plan unless (i) the Company requests the
consent of the Optionholder and (ii) the Optionholder consents in
writing.
(d) Amendment
of Options.
The Board at any time, and from time to time, may amend the terms of any
one or
more Options; provided, however, that the rights under any Option shall not
be
impaired by any such amendment unless (i) the Company requests the consent
of
the Optionholder and (ii) the Optionholder consents in writing.
13.
TERMINATION OR SUSPENSION OF THE PLAN.
(a) Plan
Term. The
Board may suspend or terminate the Plan at any time. No Options may be granted
under the Plan while the Plan is suspended or after it is
terminated.
(b) No
Impairment of Rights.
Suspension or termination of the Plan shall not impair rights and obligations
under any Option granted while the Plan is in effect except with the written
consent of the Optionholder.
14.
EFFECTIVE DATE OF PLAN.
The
Plan become effective on the IPO Date.
15.
CHOICE OF LAW.
All
questions concerning the construction, validity and interpretation of this
Plan
shall be governed by the law of the State of Delaware, without regard to
such
state's conflict of laws rules.
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