Sample Business Contracts

Promissory Note - Callidus Software Inc. and Daniel P. Welch

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$37,500.00                                         San Jose, California

                                                   December 31, 1998

      FOR VALUE RECEIVED, Daniel P. Welch promises to pay to Callidus Software
Inc., a Delaware corporation (the "Company"), or order, the principal sum of
thirty seven thousand five hundred dollars ($37,500.00), together with interest
on the unpaid principal hereof from the date hereof at the rate of four and
fifty-two one hundredths percent (4.52%) per annum, compounded annually.

      Principal and interest shall be due and payable on December 31, 2003.
Payment of principal and interest shall be made in lawful money of the United
States of America. Payment will be applied first towards unpaid interest and
then towards unpaid principal. The undersigned may at any time prepay all or any
portion of the principal or interest owing hereunder.

      This Note is subject to the terms of the Amended and Restated Stock Option
Agreement -- Early Exercise, dated as of December 18, 1998. This Note is secured
in part by a pledge of the Company's Common Stock under the terms of a Security
Agreement of even date herewith and is subject to all the provisions thereof.

      The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default. The holder of this Note hereby waives presentment,
notice of non-payment, notice of dishonor, protest, demand and diligence.

      In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, or the undersigned shall be in default
under the terms of the Security Agreement attached hereto as Exhibit A, this
Note shall be automatically accelerated, and the whole unpaid balance on this
Note of principal and accrued interest shall be immediately due and payable.

      Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the

                                                   /s/ Daniel Welch
                                    EXHIBIT A

                               SECURITY AGREEMENT

      This Security Agreement is made as of December 31, 1998 between Callidus
Software Inc., a Delaware corporation ("Pledgee"), and Daniel P. Welch


      Pursuant to Pledgor's election to exercise his option to purchase shares
of the Pledgee's Common Stock under the Amended and Restated Stock Option
Agreement--Early Exercise dated December 18, 1998 (the "Option Agreement"),
between Pledgor and Pledgee under Pledgee's 1997 Stock Option Plan, and
Pledgor's election under the terms of the Option Agreement to pay for such
shares in part with his promissory note (the "Note"), Pledgor has purchased
150,000 shares of Pledgee's Common Stock (the "Shares") at a price of $0.25 per
share, for a total purchase price of $37,500.00, of which $37,500.00 was in the
form of the Note.

      NOW, THEREFORE, it is agreed as follows:

      1.    Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as, the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.

      The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option
Agreement, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.

      2.    Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:

            a.    Payment of Indebtedness. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.

            b.    Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
            c.    Margin Regulations. In the event that Pledgee's Common Stock
is now or later becomes margin-listed by the Federal Reserve Board and Pledgee
is classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees
to cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.

      3.    Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged

      4.    Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.

      5.    Options and Rights. In the event that, during the term of this
pledge, subscription options or other rights or options shall be issued in
connection with the pledged Shares, such rights and options shall be the
property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.

      6.    Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:

            a.    Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more;

            b.    Pledgor fails to perform any of the covenants set forth in the
Option Agreement or contained in this Security Agreement for a period of 10 days
after written notice thereof from Pledgee; or

            c.    Pledgor ceases to be an employee, director or consultant of
the Company.

      In the case of an event of Default, as set forth above, the principal and
all accrued interest under the Note shall become immediately due and payable in
full. Pledgee shall thereafter be entitled to pursue its remedies under the
California Commercial Code.

      7.    Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.

      8.    Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.

      9.    Term. The within pledge of the Shares shall continue until the
payment of all indebtedness secured hereby, at which time the remaining pledged
stock shall be promptly delivered to Pledgor, subject to the provisions for
prior release of a portion of the Collateral as provided in paragraph 7 above.

      10.   Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.

      11.   Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.

      12.   Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.

      13.   Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.

      14.   Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

      "PLEDGOR"                     /s/ Daniel Welch

                                    Daniel P. Welch
                                    Print Name

           Address:                 13 San Joaquin Court
                                    Novato, CA 94947

      "PLEDGEE"                     Callidus Software Inc.,
                                    a Delaware corporation

                                    /s/ Michael Tidd

                                    Michael Tidd
                                    Print Name

                                    VP Finance + CFO

      "PLEDGEHOLDER"                /s/ Andrew Swett
                                    Secretary of
                                    Callidus Software Inc.