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Callidus Software Inc – IPO: ‘424B4’ on 11/20/03

On:  Thursday, 11/20/03, at 12:18pm ET   ·   Accession #:  891618-3-6056   ·   File #:  333-109059

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

11/20/03  Callidus Software Inc             424B4                  1:1.6M                                   Bowne - Palo Alto/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus                                          HTML   1.46M 

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     Filed Pursuant to Rule: 424(b)(4)

Common Stock

          We are selling 5,000,000 shares of our common stock. We have granted the underwriters an option to purchase up to 750,000 additional shares of common stock to cover over-allotments.

      This is the initial public offering of our common stock. Our common stock has been approved for quotation on the Nasdaq National Market under the symbol “CALD.”

       Investing in our common stock involves risks. See “Risk Factors” beginning on page 5.

       Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

      The underwriters expect to deliver the shares to purchasers on or about November 25, 2003.

Citigroup

November 19, 2003

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      You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

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      Until December 14, 2003 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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SUMMARY

      This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully before making an investment decision, including the “Risk Factors” section and the consolidated financial statements and the notes to those statements.

Callidus Software Inc.

      We are a leading provider of Enterprise Incentive Management (EIM) software systems to global companies across multiple industries. Large enterprises use EIM systems to model, administer, analyze and report on incentive compensation, or “pay-for-performance,” plans, which compensate employees and business partners for the achievement of targeted quantitative and qualitative objectives, such as sales quotas, product development milestones and customer satisfaction. We provide a suite of software products that enable companies to access applicable transaction data, allocate compensation credit to appropriate employees and business partners, determine relevant compensation measurements, payment amounts and timing, and accurately report on compensation results. By facilitating effective management of complex pay-for-performance programs, our products allow our customers to increase productivity, improve profitability and achieve competitive advantage. Our product suite is based on our proprietary technology and extensive expertise in pay-for-performance programs and provides the flexibility and scalability required to meet the dynamic EIM requirements of large, complex businesses across multiple industries. Our installed base of over 75 active customers includes industry leaders in the insurance, retail banking, telecommunications, distribution, and manufacturing and technology industries, such as Allstate, J.P. Morgan Chase & Co., AT&T Wireless, DIRECTV and Apple Computer.

Market Opportunity

      While pay-for-performance programs are increasingly recognized as important management tools for companies, the administration of pay-for-performance programs presents complex challenges due to the large numbers of potential payees, compensation transactions, incentive programs and corporate policies involved. For large and complex pay-for-performance programs, these payments can represent millions of separate calculations per pay period, with total payouts ranging from approximately $100 million to over $1 billion annually. Currently, the majority of large businesses administer these programs using manual methods or internally developed solutions that do not adequately address these challenges. Failure to effectively meet these challenges erodes the effectiveness of incentive compensation, impairs management’s ability to adapt pay-for-performance programs to changing corporate objectives and results in costly errors. We believe that large enterprises are increasingly seeking dedicated EIM solutions to manage their pay-for-performance programs and, as a result, that the EIM market represents a substantial new market opportunity. However, the development of the EIM market will depend upon the extent to which large companies determine that the management of pay-for-performance programs warrants the purchase of externally-developed specialized software solutions. As a result, the market for dedicated and specialized EIM systems is currently small, newly emerging and difficult to measure and it may not achieve the growth we anticipate.

The Callidus Solution

      We develop, market, install and support a suite of EIM products to address the complex challenges of pay-for-performance programs for large enterprises. Our software products are designed to be administered using an easily understandable menu of commands, or rules, that allow business users, who are otherwise unfamiliar with computer software programming techniques, to create and manage enterprise incentive compensation plans. We provide a transparent and reliable data resource for enterprises to plan and manage pay-for-performance programs and accurately allocate credit among a wide range of payees. Our product suite allows management to accurately calculate and coordinate the payment of incentive compensation based on a highly flexible and scalable software architecture. In addition, our reporting

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      We Solve Complex Pay-for-Performance Problems. By focusing exclusively on solving the challenges and complexities inherent in pay-for-performance programs, we have developed a suite of EIM products designed to enable timely and accurate planning, calculation and management of variable, salary and management-by-objective (MBO) compensation, as well as dispute resolution, referral tracking and reporting.

      We Address Key Industry-Specific Requirements. We believe that extensive knowledge of our customers’ industry-specific incentive compensation programs and requirements, or domain expertise, is critical to designing a successful EIM system. We apply our domain expertise to build specific functionality into our products to address the key requirements of the insurance, retail banking, telecommunications, distribution, and manufacturing and technology industries.

      We Have Superior Technology. Our products are based on our proprietary rules-based software and run on our grid computing architecture, which enables customers to increase computing performance by harnessing a virtually unlimited number of processors within the enterprise. We believe this technology differentiates our products and offers superior performance, scalability and flexibility in an easy-to-use and reliable system, resulting in a lower total cost of ownership than manual methods and internally developed solutions.

      Our objective is to extend our leadership position in the EIM market for large businesses. To achieve this goal we are pursuing the following strategies:

      Capitalize on Our Technological Leadership. We intend to leverage our six years of experience in the EIM market and our technological leadership by continuing to invest in research and development to expand our product line and increase our products’ functionality, and thereby to capitalize on the EIM market opportunity.

      Continue Our Industry-Specific Focus and Develop Additional Referenceable Accounts. Our domain expertise enables our products to offer industry-specific advantages in functionality, implementation and deployment for our five key markets and allows us to achieve greater efficiency and effectiveness in our sales, marketing and product development efforts. We intend to add industry leaders as customers in each of our key markets and to leverage these referenceable accounts to increase penetration of these markets.

      Increase the Industry-Specific Modeling and Analytic Capabilities of Our Products. We are developing new products and product enhancements to provide customers with more extensive industry-specific modeling and analytic capabilities required in increasingly competitive marketplaces.

      Continue to Build Loyalty Through Superior Customer Care. As we grow our installed base, we intend to increase our investment in customer care to further strengthen customer loyalty and referenceability.

Company Information

      We were incorporated in Delaware as TallyUp Software Inc. in 1996 and changed our name to Callidus Software Inc. in 1997. Our principal executive offices are located at 160 West Santa Clara Street, Suite 1500, San Jose, California 95113 and our telephone number is (408) 808-6400. Our website address is http://www.callidussoftware.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.

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THE OFFERING

      The number of shares to be outstanding after the offering is based on 17,488,261 shares outstanding on September 30, 2003 and excludes:

      Unless otherwise noted, this prospectus:

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SUMMARY CONSOLIDATED FINANCIAL DATA

      The following table sets forth a summary of our consolidated financial data for the periods presented. This summary consolidated financial data should be read together with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes contained elsewhere in this prospectus. The consolidated balance sheet data is set forth as of September 30, 2003 both on an actual basis and on an as adjusted basis to reflect our receipt of the estimated net proceeds from the sale of shares of common stock by us in this offering at the initial public offering price of $14.00 per share. See “Use of Proceeds” and “Capitalization.”

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RISK FACTORS

      An investment in our common stock involves a high degree of risk. You should consider the risks described below carefully and all of the information contained in this prospectus before deciding whether to purchase our common stock. If any of the adverse events described in the following risk factors actually occurs, our business, financial condition and results of operations may suffer significantly. As a result, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock.

Risks Related to Our Business

We have a history of losses, and we cannot assure you that we will achieve or sustain profitability. If we fail to do so, our stock price may decline.

      We incurred net losses of $25.4 million for 2000, $20.8 million for 2001 and $19.1 million for 2002. Taking account of the $2.6 million of stock-based compensation we recorded in the first nine months of 2003, we recorded net income of approximately $171,000 in the nine months ended September 30, 2003. After this offering, we expect to significantly increase our expenses in the near term in order to expand our business. In addition, based on stock options granted through September 30, 2003, we expect to amortize an aggregate of $1.9 million and $5.9 million of deferred stock-based compensation in the three months ending December 31, 2003 and in 2004, respectively. We expect that these increased operating expenses and amortization charges will result in a net loss for the quarter and year ending December 31, 2003. In addition, these increased expenses and charges will adversely affect our future operating results and may result in or contribute to net losses in future periods. We cannot assure you that we will be able to achieve or sustain profitability on a quarterly or annual basis. Our results of operations will be harmed if our revenues do not increase at a rate equal to or greater than increases in our expenses or if our revenues are insufficient for us to achieve or sustain profitability. If we are not able to achieve or sustain profitability, our stock price may decline and we may require additional financing, which may not be available.

Our quarterly revenues and operating results can be difficult to predict and can fluctuate substantially, which may harm our results of operations.

      Our revenues, particularly our license revenues, are difficult to forecast and are likely to fluctuate significantly from quarter to quarter due to a number of factors, many of which are outside of our control. These factors include:

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      In addition, we make assumptions and estimates as to the timing and amount of future revenues in budgeting our future operating costs and capital expenditures. Specifically, our sales personnel monitor the status of all proposals, including the estimated closing date and potential dollar amount of such transactions. We aggregate these estimates periodically to generate our sales forecasts and then evaluate the forecasts to identify trends in our business. Because our costs are relatively fixed in the short term and a substantial portion of our license revenue contracts are completed in the latter part of a quarter, we may be unable to reduce our expenses to avoid or minimize the negative impact on our quarterly results of operations if our estimates prove inaccurate and our anticipated revenues are not realized. As a result, our quarterly results of operations could be worse than anticipated, which could adversely affect our stock price.

Our quarterly license revenues are dependent on a relatively small number of transactions involving sales of our products to new customers, and any delay or failure in closing one or more of these transactions could adversely affect our results of operations.

      Our quarterly license revenues are dependent upon a relatively small number of transactions involving sales of our products to new customers, and to date recurring license revenues from existing customers have not comprised a substantial part of our revenues. As such, even minor variations in the rate and timing of conversion of our sales prospects into revenues could result in our failure to meet revenue objectives in future periods. In addition, based upon the terms of our customer contracts, we recognize the bulk of our license revenues for a given sale either at the time we enter into the agreement and deliver the product, or over the period in which we perform any services that are essential to the functionality of the product. Unexpected changes in contractual terms late in the negotiation process or changes in the mix of contracts we enter into could therefore materially and adversely affect our license revenues in a quarter. Delays or reductions in the amount of customers’ purchases would adversely affect our revenues, results of operations and financial condition and could cause our stock price to decline.

Our products have long sales cycles, which make it difficult to plan our expenses and forecast our results.

      The sales cycles for our products are generally between six and nine months for the majority of our sales, and in some cases can be a year or longer. It is therefore difficult to predict the quarter in which a particular sale will occur and to plan our expenditures accordingly. The period between our initial contact with a potential customer and its purchase of our products and services is relatively long due to several factors, including:

      The delay or failure to complete sales in a particular quarter would reduce our revenues in that quarter, as well as any subsequent quarters over which revenues for the sale would likely be recognized. If

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Managing large-scale deployments of our products requires substantial technical implementation and support by us or third-party service providers. Failure to meet these requirements could cause a decline or delay in recognition of our revenues and an increase in our expenses.

      Our customers may require large, enterprise-wide deployments of our products, which require a substantial degree of technical implementation and support. It may be difficult for us to manage the timeliness of these deployments and the allocation of personnel and resources by us or our customers. Failure to successfully manage this process could harm our reputation and cause us to lose existing customers, face potential customer disputes or limit the number of new customers that purchase our products, which could adversely affect our revenues and increase our technical support and litigation costs.

      Our software license customers have the option to receive implementation, maintenance, training and consulting services from our internal professional services organization or from outside consulting organizations. If we are unable to expand our internal professional services organization to keep pace with sales, we will be required to increase our use of third-party service providers to help meet our implementation and service obligations. If we require a greater number of third-party service providers than we currently have available, we will be required to negotiate additional arrangements, which may result in lower gross margins for maintenance or service revenues.

      If a customer selects a third-party implementation service provider and such implementation services are not provided successfully and in a timely manner, our customers may experience increased costs and errors, which may result in customer dissatisfaction and costly remediation and litigation, any of which could adversely impact our operating results and financial condition.

Our success depends upon our ability to develop new products and enhance our existing products. Failure to successfully introduce new or enhanced products to the market may adversely affect our operating results.

      The enterprise application software market is characterized by:

      To keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance, we must enhance and improve existing products and we must also continue to introduce new products and services. Accelerated product introductions and short product life cycles require high levels of expenditures for research and development that could adversely affect our operating results. Further, any new products we develop may not be introduced in a timely manner and may not achieve the broad market acceptance necessary to generate significant revenues. If we are unable to successfully develop new products or enhance and improve our existing products or if we fail to position and/or price our products to meet market demand, our business and operating results will be adversely affected.

A substantial majority of our revenues are derived from TrueComp and related products and services and a decline in sales of these products and services could adversely affect our operating results and financial condition.

      We derive a substantial majority of our revenues from TrueComp and related products and services, and revenues from these products and services are expected to continue to account for a substantial majority of our revenues for the foreseeable future. Because we generally sell licenses to our products on a perpetual basis and deliver new versions and enhancements to customers who purchase maintenance contracts, our future license revenues are substantially dependent on sales to new customers. In addition,

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Errors in our products could affect our reputation, result in significant costs to us and impair our ability to sell our products.

      Our products are complex and, accordingly, they may contain errors, or “bugs,” that could be detected at any point in their product life cycle. Errors in our products could materially and adversely affect our reputation, result in significant costs to us and impair our ability to sell our products in the future. Customers relying on our products to calculate and pay incentive compensation may have a greater sensitivity to product errors and security vulnerabilities than customers for software products in general. The costs incurred in correcting any product errors may be substantial and would adversely affect our operating margins. While we plan to continually test our products for errors and work with customers through our customer support services organization to identify and correct bugs, errors in our products may be found in the future.

      Because our customers depend on our software for their critical business functions, any interruptions could result in:

      While our software license agreements typically contain limitations and disclaimers that purport to limit our liability for damages for errors in our software, such limitations and disclaimers may not be enforced by a court or other tribunal or otherwise effectively protect us from such claims.

If we do not compete effectively with companies selling EIM software, our revenues may not grow and could decline.

      We have experienced, and expect to continue to experience, intense competition from a number of software companies. We compete principally with vendors of EIM software, such as Centive, Motiva (which was recently acquired by Siebel Systems) and Synygy, vendors of enterprise resource planning software, such as Oracle, PeopleSoft and SAP, and vendors of customer relationship management software, such as Siebel Systems. Our competitors may announce new products, services or enhancements that better meet the needs of customers or changing industry standards. Increased competition may cause price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, results of operations and financial condition.

      Many of our competitors and potential competitors have significantly greater financial, technical, marketing, service and other resources than we have. Many of these companies also have a larger installed base of users, have longer operating histories or have greater name recognition than we have. Some of our competitors’ products may be more effective than our products at performing particular EIM system functions or may be more customized for particular customer needs in a given market. Even if our competitors provide products with more limited EIM system functionality than our products, these products may incorporate other capabilities, such as recording and accounting for transactions, customer orders or inventory management data. A product that performs these functions, as well as some of the functions of our software solutions, may be appealing to some customers because it would reduce the

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      Our products must be integrated with software provided by a number of our existing or potential competitors. These competitors could alter their products in ways that inhibit integration with our products, or they could deny or delay access by us to advance software releases, which would restrict our ability to adapt our products to facilitate integration with these new releases and could result in lost sales opportunities.

If we are required to change our pricing models to compete successfully, our margins and operating results will be adversely affected.

      The intensely competitive market in which we do business may require us to reduce our prices. If our competitors offer deep discounts on certain products or services in an effort to recapture or gain market share or to sell other software or hardware products, we may be required to lower prices or offer other favorable terms to compete successfully. Any such changes would be likely to reduce our margins and could adversely affect our operating results. Some of our competitors may bundle software products that compete with ours for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, limit the prices that we can charge for our products. If we cannot offset price reductions with a corresponding increase in the number of sales or with lower spending, then the reduced revenues resulting from lower prices would adversely affect our margins and operating results.

Potential customers that outsource their technology projects offshore may come to expect lower rates for professional services than we are able to provide profitably, which could impair our ability to win customers and achieve profitability.

      Many of our potential customers have begun to outsource technology projects offshore to take advantage of lower labor costs, and we believe that this trend will continue. Due to the lower labor costs in some countries, these customers may demand lower hourly rates for the professional services we provide, which may erode our margins for our maintenance and service revenues or result in lost business.

Our maintenance and service revenues produce substantially lower gross margins than our license revenues, and an increase in service revenues relative to license revenues would harm our overall gross margins.

      Our maintenance and service revenues, which include fees for consulting, implementation, maintenance and training, were 46% of our revenues for the nine months ended September 30, 2003 and 63% of our revenues for 2002. Our maintenance and service revenues have substantially lower gross margins than our license revenues. An increase in the percentage of total revenues represented by maintenance and service revenues would adversely affect our overall gross margins.

      Maintenance and service revenues as a percentage of total revenues have varied significantly from quarter to quarter due to fluctuations in licensing revenues, economic changes, change in the average selling prices for our products and services, our customers’ acceptance of our products and our sales force execution. In addition, the volume and profitability of services can depend in large part upon:

      Any erosion of our margins for our maintenance and service revenues, or any adverse changes in the mix of our license versus maintenance and service revenues would adversely affect our operating results.

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We will not be able to maintain our sales growth if we do not attract, train or retain qualified sales personnel.

      We depend on our direct sales force for most of our sales and have made significant expenditures in recent years to expand our sales force. Our future success will depend in part upon the continued expansion and increased productivity of our sales force. To the extent we experience attrition in our direct sales force, we will need to hire replacements. We face intense competition for sales personnel in the software industry, and we cannot be sure that we will be successful in hiring, training or retaining these personnel in accordance with our plans. Even if we hire and train a sufficient number of sales personnel, we cannot be sure that we will generate enough additional revenues to exceed the cost of the new personnel. If we fail to successfully maintain and expand our sales force, our future sales will be adversely affected.

We may lose sales opportunities and our business may be harmed if we do not successfully develop and maintain strategic relationships to implement and sell our products.

      We have relationships with third-party consulting firms, systems integrators and software vendors. These third parties may provide us with customer referrals, cooperate with us in marketing our products and provide our customers with systems implementation services or overall program management. However, we do not have formal agreements governing our ongoing relationship with certain of these third-party providers and the agreements we do have generally do not include obligations with respect to generating sales opportunities or cooperating on future business. Should any of these third parties go out of business or choose not to work with us, we may be forced to increase the development of those capabilities internally, incurring significant expense and adversely affecting our operating margins. Any of our third-party providers may offer products of other companies, including products that compete with our products. We could lose sales opportunities if we fail to work effectively with these parties or they choose not to work with us.

Acquisitions and investments present many risks, and we may not realize the anticipated financial and strategic goals for any such transactions.

      We may in the future acquire or make investments in complementary companies, products, services and technologies. Such acquisitions and investments involve a number of risks, including:

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      These factors could have a material adverse effect on our business, results of operations and financial condition or cash flows, particularly in the case of a larger acquisition or multiple acquisitions in a short period of time. From time to time, we may enter into negotiations for acquisitions or investments that are not ultimately consummated. Such negotiations could result in significant diversion of management time, as well as out-of-pocket costs.

      The consideration paid in connection with an investment or acquisition also affects our financial results. If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash, including proceeds of this offering, to consummate any acquisition. To the extent we issue shares of stock or other rights to purchase stock, including options or other rights, existing stockholders may be diluted and earnings per share may decrease. In addition, acquisitions may result in the incurrence of debt, large one-time write-offs (such as of acquired in-process research and development costs) and restructuring charges. They may also result in goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges.

For our business to succeed, we need to attract, train and retain qualified employees and manage our employee base effectively. Failure to do so may adversely affect our operating results.

      Our success depends on our ability to hire, train and retain qualified employees and to manage our employee base effectively. Competition for qualified personnel is intense, particularly in the San Francisco Bay area where our headquarters are located, and the high cost of living increases our recruiting and compensation costs. We cannot assure you that we will be successful in hiring, training or retaining qualified personnel. If we are unable to do so, our business and operating results will be adversely affected.

We have recently experienced changes in our senior management team and the loss of key personnel or any inability of these personnel to perform in their new roles could adversely affect our business.

      In September 2002, we hired Ronald J. Fior as our Chief Financial Officer and in June 2003, we hired Bertram W. Rankin as our Senior Vice President of Worldwide Marketing. Prior to joining Callidus, Mr. Fior served as Chief Financial Officer of Remedy Corporation from 1998 until its acquisition by Peregrine Systems in 2001. As a result of Peregrine’s subsequent financial restatements and bankruptcy case, Mr. Fior and the former officers and directors of Remedy have become involved in litigation both as plaintiffs against the former board and management of Peregrine for fraud and as defendants against former Remedy stockholders in relation to the sale of Remedy to Peregrine. While these cases do not allege any impropriety with respect to Remedy’s financial statements and Mr. Fior believes the litigation pending against him is without merit, these matters could nonetheless require significant amounts of Mr. Fior’s attention, which could distract him from his responsibilities with Callidus. In addition, we continue to recruit senior management personnel to support our growing operations. Our success will depend to a significant extent on our ability to assimilate these changes in our leadership team and to retain the services of our executive officers, including Reed D. Taussig, our President and Chief Executive Officer, and our other key employees. If we lose the services of one or more of our executives or key employees, if we fail to successfully assimilate our recent changes in our management team or if one or more of our executives or key employees decides to join a competitor or otherwise compete directly or indirectly with us, this could harm our business and could affect our ability to successfully implement our business plan.

If we fail to adequately protect our proprietary rights and intellectual property, we may lose valuable assets, experience reduced revenues and incur costly litigation to protect our rights.

      We rely on a combination of copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights in our products and services. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and

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      We enter into confidentiality or license agreements with our employees and consultants and with the customers and corporations with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation, whether successful or unsuccessful, could result in substantial costs and diversion of management resources, either of which could seriously harm our business.

Our results of operations may be adversely affected if we are subject to a protracted infringement claim or one that results in a significant damage award.

      From time to time, we receive claims that our products or business infringe or misappropriate the intellectual property of third parties. Our competitors or other third parties may challenge the validity or scope of our intellectual property rights. We believe that software developers will be increasingly subject to claims of infringement as the functionality of products in our market overlaps. A claim may also be made relating to technology that we acquire or license from third parties. If we were subject to a claim of infringement, regardless of the merit of the claim or our defenses, the claim could:

      We may also be required to indemnify our customers and third-party systems integrators for third-party products that are incorporated into our products and that infringe the intellectual property rights of others. Although many of these third parties are obligated to indemnify us if their products infringe the rights of others, this indemnification may not be adequate.

      In addition, from time to time there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. We use a limited amount of open source software in our products and may use more open source software in the future. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Any of this litigation could be costly for us to defend, have a negative effect on our results of operations and financial condition or require us to devote additional research and development resources to change our products.

We depend on technology of third parties licensed to us for our TruePerformance product, our rules engine and the analytics and web viewer functionality for our products and the loss or inability to maintain these licenses or errors in such software could result in increased costs or delayed sales of our products.

      We distribute our TruePerformance product under license from Cézanne Software, the developer of the product. In addition, we license technology from several software providers for our rules engine, analytics and web viewer. We anticipate that we will continue to license technology from third parties in the future. This software may not continue to be available on commercially reasonable terms, if at all.

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Our revenues might be harmed by resistance to adoption of our software by information technology departments.

      Some potential customers may have already made a substantial investment in other third-party or internally developed software designed to model, administer, analyze and report on pay-for-performance programs. These companies may be reluctant to abandon these investments in favor of our software. In addition, information technology departments of potential customers may resist purchasing our software solutions for a variety of other reasons, particularly the potential displacement of their historical role in creating and running software and concerns that packaged software products are not sufficiently customizable for their enterprises. If the market for our products does not grow for any of these reasons, our revenues may be harmed.

Our inability to manage growth could affect our business adversely and harm our ability to sustain profitability.

      To support our growth plans, we need to expand our existing management, operational, financial, human resources, customer service and management information systems and controls. This expansion will require significant capital expenditures and may divert our financial resources from other projects such as the development of new products or product upgrades. We may be unable to expand these systems and to manage our growth successfully, and this inability would adversely affect our business.

Mergers of or other strategic transactions by our competitors could weaken our competitive position or reduce our revenues.

      If one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. For example, Siebel Systems recently announced that it has acquired Motiva, which may result in substantial new investment by Siebel Systems in products that compete with ours. Our competitors may also establish or strengthen cooperative relationships with our current or future systems integrators, third-party compensation consulting firms or other parties with whom we have relationships, thereby limiting our ability to promote our products and limiting the number of consultants available to implement our software. Disruptions in our business caused by these events could reduce our revenues.

If we are required or elect to account for employee stock option and employee stock purchase plans using the fair value method, it could significantly increase our net loss and net loss per share.

      There has been ongoing public debate about whether employee stock option and employee stock purchase plans shares should be treated as a compensation expense and, if so, how to properly value such compensation. If we elect or are required to record an expense for our stock-based compensation plans using the fair value method, we could have significant additional compensation expense. For example, if we had historically accounted for stock-based compensation plans using the fair value method prescribed in Financial Accounting Standards Board Statement 123 as amended by Statement 148, in 2002 we would have recorded approximately $547,000 in additional expenses, and our basic and diluted loss per share would have been increased by $0.40 per share. Although we are not currently required to record any compensation expense using the fair value method in connection with option grants that have an exercise

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We may expand our international sales efforts but do not have substantial experience in international markets, and may not achieve the expected results.

      We may expand our international operations, and any such expansion would require substantial financial resources and a significant amount of attention from our management. International operations involve a variety of risks, particularly:

      We have limited experience in marketing, selling and supporting our products and services abroad. If we invest substantial time and resources in order to grow our international operations and are unable to do so successfully and in a timely manner, our business and operating results could be seriously harmed.

Natural disasters or other incidents may disrupt our business.

      Our business communications, infrastructure and facilities are vulnerable to damage from human error, physical or electronic security breaches, power loss and other utility failures, fire, earthquake, flood, sabotage, vandalism and similar events. Although the source code for our software products is held by escrow agents outside of the San Francisco Bay area, our internal-use software and back-up are both located in the San Francisco Bay area. If a natural or man-made disaster were to hit this area, we may lose all of our internal-use software data. Despite precautions, a natural disaster or other incident could result in interruptions in our service or significant damage to our infrastructure. In addition, failure of any of our telecommunications providers could result in interruptions in our services and disruption of our business operations. Any of the foregoing could impact our provision of services and fulfillment of product orders, and our ability to process product orders and invoices and otherwise timely conduct our business operations.

Risks Related to the Securities Markets and Ownership of our Common Stock

Because some existing stockholders will together beneficially own 75% of our outstanding stock after this offering, the voting power of other stockholders, including purchasers in this offering, will be effectively limited.

      After this offering, it is anticipated that, based on share ownership as of September 30, 2003 (including shares issuable upon exercise of outstanding options and warrants exercisable within 60 days of September 30, 2003), our officers, directors, major stockholders and their affiliates will beneficially own or control, directly or indirectly, 18,352,979 shares of common stock, which in the aggregate will represent approximately 75% of the outstanding shares of common stock (or 72% if the underwriters’ over-allotment option is exercised in full). As a result, if some of these persons or entities act together, they will have the ability to control all matters submitted to our stockholders for approval, including the election and removal of directors, amendments to our certificate of incorporation and bylaws and the approval of any business

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A substantial number of shares will be eligible for sale in the near future, which could cause our common stock price to decline significantly.

      Additional sales of our common stock in the public market after this offering, or the perception that such sales could occur, could cause the market price of our common stock to decline. Upon completion of this offering, we will have 22,488,261 shares of common stock outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options or warrants. See “Summary — The Offering” for a detailed discussion of shares included and excluded from this number. The 5,000,000 shares to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933. Substantially all of our existing stockholders are subject to lock-up agreements with the underwriters that restrict their ability to transfer their stock for 180 days from the date of this prospectus. For a description of these agreements, see “Underwriting.” After the lock-up agreements expire, an aggregate of approximately 17,488,261 additional shares will be eligible for sale in the public market, subject in most cases to the limitations of either Rule 144 or Rule 701 under the Securities Act. See “Shares Eligible for Future Sale.”

      In addition, Citigroup, on behalf of the underwriters, may in its sole discretion, at any time without notice, release all or any portion of the shares subject to the lock-up agreements, which would result in more shares being available for sale in the public market at earlier dates. Sales of common stock by existing stockholders in the public market, the availability of these shares for sale, our issuance of securities or the perception that any of these events might occur could materially and adversely affect the market price of our common stock.

There has been no prior public market for our common stock. Our stock price is likely to be volatile and could decline following this offering, resulting in a substantial loss on your investment.

      Prior to this offering, there has not been a public market for our common stock. An active trading market for our common stock may never develop or be sustained, which could affect your ability to sell your shares and could depress the market price of your shares. In addition, the initial public offering price has been determined through negotiations between us and the representatives of the underwriters and may bear no relationship to the price at which the common stock will trade upon completion of this offering. The stock market in general, and the market for technology-related stocks in particular, has been highly volatile. As a result, the market price of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease in the value of their stock, including decreases unrelated to our operating performance or prospects. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those listed in this “Risk Factors” section of this prospectus and others such as:

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As a new investor, you will incur substantial dilution as a result of this offering.

      The initial public offering price will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock. As a result, investors purchasing common stock in this offering will incur immediate dilution of $10.97 per share, based on the initial public offering price of $14.00 per share, and new investors will own 22% of our outstanding common stock. This dilution is due in large part to earlier investors having generally paid substantially less than the initial public offering price when they purchased their shares. In addition, the exercise of outstanding options and warrants will, and future equity issuances may, result in further dilution to investors. Assuming the exercise in full of all of our outstanding employee stock options and warrants as of September 30, 2003, investors purchasing common stock in this offering would incur immediate dilution of a total of $11.15 per share, based on the initial public offering price of $14.00 per share, and would own 17% of our outstanding common stock. In addition, as a result of this offering, the vesting of an aggregate of 70,500 shares subject to options granted to our Chief Executive Officer, Reed Taussig, and our Senior Vice President, Research and Development, Robert Warfield, will accelerate. These shares may be purchased at a weighted average exercise price of $0.91, and would be worth an aggregate of approximately $987,000, based on the initial public offering price of $14.00 per share. See the section entitled “Dilution” elsewhere in this prospectus.

Because we do not intend to pay dividends, you will not receive funds without selling shares and depending on when you sell your shares, you may lose the entire amount of your investment.

      We have never declared or paid any cash dividends on our capital stock and do not intend to pay cash dividends in the foreseeable future. We intend to invest our future earnings, if any, to fund our growth. Therefore, you will not receive any proceeds in respect of your stock prior to selling it. We also cannot assure you that you will receive a return on your investment when you do sell your shares or that you will not lose the entire amount of your investment.

Our management has broad discretion to determine how to use the funds raised in this offering, and may use them in ways that may not enhance our operating results or the price of our common stock.

      Our management could spend the proceeds from this offering in ways our stockholders may not agree with or that do not yield a favorable return. We plan to use the net proceeds from this offering for general corporate purposes, including working capital, capital expenditures and potential acquisitions of complementary businesses, products and technologies. Until we use the proceeds of this offering, we plan to invest the net proceeds in interest-bearing, investment-grade securities, which may not yield a favorable rate of return. If we do not invest or apply the proceeds of this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline, and we may require additional financing, which may not be available.

We may need to raise additional capital, which may not be available.

      We expect that the net proceeds from this offering, together with our other capital resources, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. After that, we may need to raise additional funds, and we cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we need additional capital and cannot raise it on acceptable terms, we may not be able to:

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      If any of the foregoing consequences occur, our stock price may fall and you may lose some or all of your investment.

Provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company.

      Our certificate of incorporation and bylaws contain provisions that could make it harder for a third party to acquire us without the consent of our board of directors. For example, if a potential acquiror were to make a hostile bid for us, the acquiror would not be able to call a special meeting of stockholders to remove our board of directors or act by written consent without a meeting. In addition, our board of directors has staggered terms, which means that replacing a majority of our directors would require at least two annual meetings. The acquiror would also be required to provide advance notice of its proposal to replace directors at any annual meeting, and will not be able to cumulate votes at a meeting, which will require the acquiror to hold more shares to gain representation on the board of directors than if cumulative voting were permitted.

      Our board of directors also has the ability to issue preferred stock that could significantly dilute the ownership of a hostile acquiror. In addition, Section 203 of the Delaware General Corporation Law limits business combination transactions with 15% stockholders that have not been approved by the board of directors. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation. These provisions may apply even if the offer may be considered beneficial by some stockholders.

      Our board of directors could choose not to negotiate with an acquiror that it did not believe was in our strategic interests. If an acquiror is discouraged from offering to acquire us or prevented from successfully completing a hostile acquisition by these or other measures, you could lose the opportunity to sell your shares at a favorable price.

FORWARD-LOOKING STATEMENTS

      We have made statements under the captions “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” You should specifically consider the numerous risks outlined under “Risk Factors.”

      Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We undertake no obligation to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.

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USE OF PROCEEDS

      We estimate that the net proceeds from the sale of 5,000,000 shares of common stock by us in this offering will be approximately $62.4 million ($72.1 million if the underwriters’ over-allotment option is exercised in full), after deducting underwriting discounts and estimated offering expenses payable by us.

      The principal purposes of this offering are to obtain additional working capital, establish a public market for our common stock, facilitate our future access to public capital markets and demonstrate increased financial stability to potential customers. We have not undertaken any evaluations or studies regarding specific application of the net proceeds of this offering. While we have not identified specific allocations for applying the net proceeds from this offering, we currently expect to use these proceeds for general corporate purposes, including expansion of our sales and marketing and research and development efforts, working capital, capital expenditures and potential acquisitions of complementary businesses, products and technologies. We have no present commitments or agreements with respect to any acquisition or investment. Pending their application, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities. Our management will retain broad discretion in the allocation of the net proceeds of this offering. The amounts we actually spend will depend on a number of factors, including the amount of our future revenues and other factors described elsewhere in this prospectus.

DIVIDEND POLICY

      We have never declared or paid any cash dividends on our capital stock. We currently expect to retain any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

COMPANY INFORMATION

      We were incorporated in Delaware as TallyUp Software Inc. in 1996 and changed our name to Callidus Software Inc. in 1997. Our principal executive offices are located at 160 West Santa Clara Street, Suite 1500, San Jose, California 95113 and our telephone number is (408) 808-6400. Our website address is http://www.callidussoftware.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part. Unless otherwise indicated, references in this prospectus to “Callidus,” the “Company,” “we,” “our” or “us” refer to Callidus Software Inc. and its subsidiaries.

      Callidus Software®, the Callidus Software logo and TrueComp® are registered trademarks of Callidus Software and TruePerformance^TM, TrueComp Grid^TM, TrueComp Manager^TM, TrueInformation^TM, TrueIntegration^TM, TrueResolution^TM and TrueReferral^TM are unregistered trademarks of Callidus Software. All trademarks, service marks and trade names of other companies that appear in this prospectus are the property of their respective holders.

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CAPITALIZATION

      The following table sets forth our cash and cash equivalents, bank line of credit and capitalization as of September 30, 2003 on an actual basis and as adjusted to reflect our receipt of the estimated net proceeds from the sale of 5,000,000 shares of common stock by us in this offering at the initial public offering price of $14.00 per share, after deducting the underwriting discounts and commissions and estimated offering expenses. This table gives effect to a planned increase in the number of authorized shares of common stock, which will be effected in an amendment to our certificate of incorporation that will be effective upon the consummation of this offering and, in the case of the as adjusted data, the conversion of all of our outstanding shares of preferred stock into common stock effective upon the consummation of this offering. You should read this table along with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

      Shares of common stock to be outstanding after the offering do not include:

      Options to purchase 1,780,396 shares of our common stock at a weighted average exercise price per share of $2.05 are fully vested and exercisable as of September 30, 2003.

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DILUTION

      Our pro forma net tangible book value as of September 30, 2003 was approximately $5.8 million, or approximately $0.33 per share. Pro forma net tangible book value per share represents the amount of our total assets reduced by the amount of our total liabilities and divided by the total number of shares of common stock outstanding, after giving effect to the automatic conversion of our preferred stock into common stock upon consummation of this offering. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to the sale of the 5,000,000 shares of common stock offered by us at the initial public offering price of $14.00 per share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of September 30, 2003 would have been approximately $68.1 million, or $3.03 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $2.70 per share to existing stockholders and an immediate dilution of $10.97 per share to new investors purchasing shares of our common stock at the initial public offering price. The following table illustrates this dilution on a per share basis:

      Dilution is determined by subtracting pro forma net tangible book value per share after the offering from the initial public offering price per share.

      The following table sets forth, on a pro forma basis, as of September 30, 2003, the number of shares of common stock purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by the new investors at the initial public offering price of $14.00 per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

      If the underwriters exercise their over-allotment option in full, the percentage of shares held by existing stockholders will decrease to 75% of the total shares outstanding, and the number of shares held by new investors will increase to 5,750,000, or 25% of the total shares outstanding.

      The foregoing discussion and tables are based upon the number of shares issued and outstanding on September 30, 2003 and assume no exercise of options and warrants outstanding as of September 30, 2003. As of that date, there were 5,297,034 shares of our common stock issuable upon exercise of options outstanding at a weighted average exercise price of $1.95 per share and 843,197 shares of our common stock issuable upon exercise of warrants outstanding at a weighted average exercise price of $3.63 per share. Assuming the exercise in full of all the outstanding options and warrants, as adjusted pro forma net tangible book value as of September 30, 2003 would be $2.85 per share, representing an immediate increase in the net tangible book value of $2.52 per share to our existing stockholders and an immediate decrease in the net tangible book value of $11.15 per share to purchasers of our common shares in this offering.

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SELECTED CONSOLIDATED FINANCIAL DATA

      The selected consolidated financial data set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. We have derived the consolidated statement of operations data for the years ended December 31, 2000, 2001 and 2002 and the nine months ended September 30, 2003 and the consolidated balance sheet data as of December 31, 2001 and 2002 and September 30, 2003 from the audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 1998 and 1999 and the consolidated balance sheet data as of December 31, 1998, 1999 and 2000 were derived from the audited consolidated financial statements that are not included in this prospectus. The consolidated statement of operations data for the nine months ended September 30, 2002 were derived from the unaudited consolidated financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of results to be expected for future periods and interim results are not necessarily indicative of results for the entire year.