CALLIDUS SOFTWARE INC
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<TYPE>EX-10.26
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<FILENAME>aug2704_ex1026.htm
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<P align="right"><strong><font size="2">Exhibit 10.26
</font></strong></P>
<P align="center"><FONT size="2" face="serif">[CALLIDUS SOFTWARE LETTERHEAD]</FONT>
</P>
<P>
  <FONT size="2" face="serif">August 24, 2004 </FONT>
</P>
<P>
  <FONT size="2" face="serif">Mr. Daniel Welch<br>
  6038 White Haven Court<br>
  San Jose,
  CA 95138 </FONT>
</P>
<P>
  <FONT size="2" face="serif">Dear Dan: </FONT>
</P>
<P>
  <FONT size="2" face="serif">This letter is to confirm our agreement (the &#147;</FONT><font size="2"><B><FONT face="serif">Agreement</FONT></B><FONT face="serif">&#148;)
  with respect to your separation from Callidus Software Inc. (the &#147;<B>Company</B>&#148;).
  To ensure that there are no ambiguities, this Agreement explains in detail
  both your rights and obligations and those of the Company upon termination
  of your employment.</FONT></font>
</P>
<P>
  <FONT size="2" face="serif">Your employment with the Company and its subsidiaries will terminate on September 30, 2004 (&#147;<B>Termination Date</B>&#148;).
  You will be paid your regular base salary until your Termination Date, and
  any vacation pay that has accrued through your Termination Date, minus any
  applicable withholding taxes. If you sign the attached Release of Claims (the &#147;<B>Release</B>&#148;)
  and agree to be subject to the Trading Restrictions (as defined below), the
  Company agrees to pay you $115,951.34, (representing the equivalent of six
  months of base pay and six months of your applicable COBRA payments), minus
  applicable withholding taxes, on or before September 30, 2004, you will be
  provided with one month of Executive Service outplacement services through
  Right Management Consultants beginning September 1, 2004, and you will be allowed
  to keep your currently assigned computer, the Dell Latitude SN 69GXG31 (the &#147;<B>Severance Benefits</B>&#148;).
  The Severance Benefits will be in lieu of any amounts that would otherwise
  be due to you under any other agreement, plan or policy or applicable law in
  connection with your termination of employment.</FONT>
</P>
<P>
  <FONT size="2" face="serif">If you are contributing to the Company&#146;s 401(k)
  Plan, your contributions will cease upon your Termination Date. You will continue
  to have life insurance coverage through the Company until your Termination
  Date, upon which  date, such coverage will cease. Furthermore, vesting on stock
  options that have been granted to you will cease upon your Termination Date.
  You will have the number of days from your Termination Date specified in the
  applicable option agreement to  exercise any vested options. In consideration
  of the additional benefits to be provided to you in accordance with this Agreement
  and the Release, you agree that you will remain subject to the terms of the
  Company&#146;s insider trading policy and
blackout period as if you remained an executive officer of the Company, and that
  as such you agree not to enter into any purchase or sale of the Company&#146;s
  stock or any of the other transactions described in Section 4 of the Company&#146;s
insider trading policy from September
1, 2004 (or such earlier date as the Company may next impose trading restrictions
on employees) until
  two full business days after the Company has completed its third quarter earnings
  call (expected to occur towards the end of October 2004) (the &#147;<B>Trading
  Restrictions</B>&#148;),
  upon which time the Trading Restrictions shall cease and be of no further force
  or effect. For your reference, we have
  enclosed a copy of the Company's current insider trading policy. By
  signing below you acknowledge that the Company will be permitted to instruct
  its transfer agent not to process any transaction executed in violation of
  the Trading Restrictions. Should you need assistance or have any questions
  with respect to the option exercise process, please contact Virginia Sajor
  at (408) 808-6597. For questions relating to the
  insider trading policy, please contact me at 408-808-6470.</font></P>
<P>
  <FONT size="2" face="serif">Any additional equipment such as your Blackberry, phone card, etc. should be returned to the Company. Any outstanding business expenses that you have incurred up to your Termination Date, </FONT>
</P>

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<P>
  <FONT size="2" face="serif">but have not submitted, must be submitted within 60 days of your Termination Date to Patricia Ducote in Accounting. For your convenience, an expense form has been enclosed with this packet. </FONT>
</P>
<P>
  <FONT size="2" face="serif">As you are aware, your obligations under the Employment,
  Confidential Information and Invention Assignment Agreement (&#147;Employee Inventions Agreement&#148;)
  will remain in effect following the Termination Date in accordance with the
  terms of that agreement. For your reference, we have enclosed a copy of your
  Employee Inventions Agreement. </FONT>
</P>
<P>
  <FONT size="2" face="serif">As referred to earlier, the Company is prepared to offer you additional benefits to which you would otherwise not be entitled in exchange for (i) an agreement to be bound by the Trading Restrictions discussed in this Agreement and
(ii) signing the attached Release. Specifically, in exchange for the foregoing (i) and (ii), the Company is prepared to offer you a lump sum payment for the equivalent of six months of your current base salary and six months of your COBRA payments,
less deductions and withholdings that are authorized or required by law. If you wish to accept such additional benefits in consideration for the Release and your agreement to be subject to the Trading Restrictions, your signature below and on the
enclosed Release will reflect your agreement.</FONT>
</P>
<P>
  <FONT size="2" face="serif">In accordance with the Older Workers Benefit Protection Act, you have up to 21 days from the date of this Agreement to accept its terms. By signing this Agreement and the attached Release, you acknowledge that you fully understand
the terms of this agreement and the Release. Should you have any questions in respect of the foregoing, you are advised to seek legal counsel for advice. Once you execute this Agreement and the Release, you will have an additional seven (7) days in
which to revoke the Release. To revoke your acceptance, you must deliver to me a written statement of revocation, in which case you will not receive the Severance Benefits. </FONT>
</P>
<P>
  <FONT size="2" face="serif">We wish you the best of success in your future
endeavors.</FONT></P>
<P><FONT size="2" face="serif">Sincerely, </FONT></P>
<P><FONT size="2" face="serif">/s/ Ronald J. Fior </FONT>
</P>
<P>
  <FONT size="2" face="serif">Ron J. Fior<br>
  </FONT><FONT size=2 face="serif">Vice President &amp; Chief Financial Officer<br>
  Callidus
  Software Inc. </FONT>
</P>
<P>
  <FONT size="2" face="serif">Encl. </FONT>
</P>
<div align="right">
  <TABLE width="50%" border=0 cellspacing=0 cellpadding=0>
    <TR>
      <TD colspan=2><font size="2" face="serif">Accepted and agreed on August
      24, 2004:</font></TD>
    </TR>
    <TR>
      <TD width="5%">&nbsp;</TD>
      <TD width="95%">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="5%"><FONT size="2" face="serif">By:</FONT></TD>
      <TD align="left" width="95%"><FONT size="2" face="serif">/s/ Daniel Welch</FONT></TD>
    </TR>
    <TR>
      <TD width="5%">&nbsp;</TD>
      <TD width="95%"><HR align="left" width="50%" size=1 noshade></TD>
    </TR>
    <TR>
      <TD width="5%">&nbsp;</TD>
      <TD width="95%"><FONT size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Daniel Welch</FONT></TD>
    </TR>
  </TABLE>
  <font size="2"><br>
  <br>
  </font>
</div>
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<P align="center">
  <font size="2"><B><I><FONT face="serif">RELEASE OF CLAIMS </FONT></I></B>
  </font></P>
<P>
  <FONT size=2 face="serif">I, Daniel Welch, expressly agree and consent to the
  termination of my employment on September 30, 2004 in exchange for the benefits
  described in
  the letter agreement between Callidus Software (the &#147;<strong>Company</strong>&#148;)
  and me dated as of August 19, 2004 (the &#147;<strong>Letter
  Agreement</strong>&#148;).
  I understand that these are benefits for which I am not eligible unless I elect
  to sign this Release of Claims (the &#147;<B>Release</B>&#148;) and agree to
  be subject to the Trading Restrictions described in the Letter Agreement. I
  understand that the Company is prepared to offer me the Severance Benefits
  (as defined in the Letter Agreement) in return for my agreement with the
  terms of this Release and the Letter Agreement. </FONT>
</P>
<P>
  <FONT size=2 face="serif">In consideration of these benefits, I, on behalf of myself and my spouse, dependents, assigns, heirs, executors and administrators, hereby fully and completely release, waive and forever discharge the Company, its past,
present and future affiliates, subsidiaries, agents, officers, directors, stockholders, employees, attorneys, insurers, successors, assigns and other representatives from any and all claims, of any and every kind, nature and character, known or
unknown, foreseen or unforeseen, based on any act or omission occurring prior to September 30, 2004, the date of my signing this Release, including but not limited to any claims arising out of my offer of employment, my employment or termination of
my employment with the Company, this Release, the Letter Agreement or my right to purchase, or the actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty,
breach of duty under applicable state corporate law, and securities fraud under any state or federal law. The matters released also include, but are not limited to, any claims under federal, state or local laws, including claims arising under, Title
VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Civil Rights Act of 1991, the Employee Retirement and Income Security Act of 1974, the Americans with Disabilities Act, </FONT><font size="2"><FONT face="serif">or the Age
Discrimination in Employment Act</FONT><FONT face="serif">, each as amended
to date, and any common law, tort, contract or statutory claims, and any claims
for attorneys&#146; fees and costs. For the avoidance of doubt, nothing contained
in the foregoing shall be deemed to limit my rights to receive unemployment or workers compensation, nor shall any of my rights as a vested beneficiary under the Company 401(k) plan be limited by the foregoing. Moreover, nothing in this release
shall remove my right to indemnification by the Company for my actions or omissions during the period which were in the course and scope of my employment as an executive officer of the Company under the terms of the Company&#146;s current directors
and officers insurance policy, my Indemnification Agreement with the Company dated August 26, 2003, or Article 10 of the Company&#146;s
Amended and Restated Certificate of Incorporation, which rights to insurance
and indemnification shall be limited and terminated only in accordance with the
terms of such policy, agreement or document. </FONT></font>
</P>
<P>
  <FONT size=2 face="serif">I represent that I am over the age of 40. </FONT>
</P>
<P>
  <FONT size=2 face="serif">I understand and agree that this Release extinguishes all claims, whether known or unknown, foreseen or unforeseen, except for those claims expressly described above. I expressly waive any rights or benefits under Section
1542 of the California Civil Code, or any equivalent statute. California Civil Code Section 1542 provides as follows:</FONT>
</P>
<blockquote>
  <p>
    <font size="2"><B><FONT face="serif">&#147;A general release does not extend
      to claims which the creditor does not know or suspect to exist in his favor
      at the time of executing the release, which if known by him must have materially
      affected his settlement with the debtor.&#148; </FONT></B>
    </font></p>
</blockquote>
<P>
  <FONT size=2 face="serif">I fully understand that, if any fact with respect to any matter covered by this Release is found hereafter to be other than or different from the facts now believed by me to be true, I expressly accept and assume that this
Release shall be and remain effective, notwithstanding such difference in the facts.</FONT>
</P>
<P>
  <FONT size=2 face="serif">I agree not to file any claim, charge, action or complaint concerning any matter referred to in this Release. If I have previously filed any claims, I agree to take all steps necessary to cause them to be withdrawn without
delay. The Company agrees to and does fully and completely release, discharge and waive any and all claims, charges, causes of actions or complaints of whatever kind which the Company has or may have against me by reason of any event, matter, cause
or thing related to my employment or the termination thereof which has occurred prior to the </FONT>
</P>

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<P>
  <FONT size=2 face="serif">execution of this agreement except any claims, charges, causes of actions or complaints of whatever kind which are founded upon or relate to allegations of fraud, intentional or willful misconduct or other criminal conduct
while employed at the Company for which the Company, under applicable law, may not indemnify me in any action, suit or proceeding brought or threatened by a third party directly or in the right of the Company. Notwithstanding the foregoing, the
Company does not waive any rights to which it may be entitled to seek to enforce the Letter Agreement. </FONT>
</P>
<P>
  <FONT size=2 face="serif">I further acknowledge that during my employment,
  I may have obtained confidential, proprietary and trade secret information,
  including information relating to the Company&#146;s financial condition, results
  of operations, products, plans, designs and other valuable confidential information.
  I agree not to disclose any such confidential information unless required by
  subpoena or court order, and that I will first give the Company written notice
  of such subpoena or court order with reasonable advance notice to permit the
  Company to oppose such subpoena or court order if it chooses to do so. </FONT>
</P>
<P>
  <FONT size=2 face="serif">This Release and the Letter Agreement constitute
  the entire agreement between the Company and me with respect to any matters
  referred to in this Release. This Release and the Letter Agreement supersede
  any and all of the other agreements between the Company and me, except for
  the Employment, Confidential Information and Invention Assignment Agreement
  dated September 14, 1998, the Indemnification Agreement dated August 26, 2003,
  and the Stock Option Agreements dated September 16, 1998, October 12, 1999,
  March 13, 2001, December 23, 2002, August 26, 2003, and February 3, 2004 (collectively,
  the &#147;</FONT><font size="2"><B><FONT face="serif">Other Agreements</FONT></B><FONT face="serif">&#148;),
  all of which have been included in my termination packet and remain in effect
  (except that if the Letter Agreement and this Release conflict with any </FONT><FONT
face="serif">such Other Agreements, the Letter Agreement and this Release shall govern) </FONT><FONT face="serif">and will terminate in accordance with their respective terms. No other consideration, agreements, representations, oral
statements, understandings or course of conduct which are not expressly set forth in this Release or the Letter Agreement should be implied or are binding. I am not relying upon any other agreement, representation, statement, omission, understanding
or course of conduct which is not expressly set forth in this Release or the Letter Agreement. I understand and agree that neither this Release nor the Letter Agreement shall be deemed or construed at any time or for any purposes as an admission of
any liability or wrongdoing by either the Company or me. I also agree that if any provision of this Release, the Letter Agreement or the Other Agreements is deemed invalid, the remaining provisions will still be given full force and effect. The
terms and conditions of this Release and the Letter Agreement will be governed by, interpreted and construed in accordance with the laws of California. </FONT></font>
</P>
<P>
  <FONT size=2 face="serif">I agree that, during the remaining term of my employment with the Company and for a period of twelve (12) months immediately following the termination of my relationship with the Company, I shall not either directly or
indirectly solicit, induce, recruit or encourage any of the Company's employees to leave their employment, take away such employees from the Company, or attempt to so solicit, induce, recruit, encourage or take away employees of the Company, either
for myself or on behalf of any other person or entity. </FONT>
</P>
<P>
  <FONT size=2 face="serif">I agree that I will not impugn the business of the
  Company, including the use of defamatory statements towards the Company, or
  its or its subsidiaries&#146; officers, directors, or former or current employees. I further
acknowledge and agree that inquiries from my future potential employers should be directed to the Company&#146;s human resources department, which shall supply my dates of employment, position held and salary. The Company agrees that it shall not,
and shall not authorize any officer, director, or other employee of the Company to, make negative statements or representations, or otherwise communicate negatively about me, directly or indirectly, in writing, orally, or otherwise, or take any
action which may, directly or indirectly, disparage or be damaging to me or my reputation. Finally, I agree that I will not disclose voluntarily or allow anyone else to disclose either the existence of, reason for, contents of, or the discussions
between myself and the Company about this Release or the Letter Agreement without the Company&#146;s prior written consent, unless required to do so by law. Notwithstanding this provision, I am authorized to disclose this Release and the Letter
Agreement to my spouse, attorneys and tax advisors on a &#147;need to know&#148; basis,
on the condition that they agree with the Company to hold the terms of the Release
and the Letter Agreement in strictest confidence. I am further authorized to
make appropriate disclosures as required by court order, provided that I notify
the Company in writing of such legal obligations to disclose at least five (5)
business days in advance of any such disclosure.</FONT>
</P>
<P>
  <FONT size=2 face="serif">I understand that the Company is subject to the rules
  and regulations of the Securities and Exchange Commission (the &#147;</FONT><font size="2"><B><FONT face="serif">SEC</FONT></B><FONT face="serif">&#148;)
  and therefore may be required to disclose some or all of the terms of this
  Release and/or the Letter Agreement with the SEC, including by filing this
  Release and the Letter Agreement as an exhibit to one or more reports filed
  with the SEC. </FONT></font>
</P>

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<P>
  <FONT size=2 face="serif">Prior to execution of this Release and the Letter Agreement, I have apprised myself of sufficient relevant information in order that I can intelligently exercise my own judgment. I have had sufficient time to consult legal
counsel and the Company has also given me at least 21 days in which to consider this Release and the Letter Agreement, if I wish. I further acknowledge and agree that this Release and the Letter Agreement are executed voluntarily and with full
knowledge of their legal significance. I also understand and agree that if any suit is brought to enforce the provisions of this Release or the Letter Agreement, the prevailing party shall be entitled to its costs, expenses, and attorneys' fees as
well as any and all other remedies specifically authorized under the law.</FONT>
</P>
<P>
  <FONT size=2 face="serif">I understand that the Company&#146;s failure to insist upon strict adherence to any term of this Release or the Letter Agreement on any occasion shall not be considered a waiver of the Company&#146;s
  rights or deprive the Company of the right to insist on strict adherence to
  that term or any other term hereof or thereof.</FONT>
</P>
<P align="center">
  <font size="2"><B><FONT face="serif">EMPLOYEE'S ACCEPTANCE OF RELEASE </FONT></B>
  </font></P>
<P>
  <font size="2"><B><FONT face="serif">I HAVE CAREFULLY READ AND FULLY UNDERSTAND AND VOLUNTARILY AGREE TO BE SUBJECT TO ALL THE TERMS OF THIS RELEASE IN EXCHANGE FOR THE ADDITIONAL BENEFITS DESCRIBED IN THIS RELEASE AND THE LETTER AGREEMENT TO WHICH I WOULD
OTHERWISE NOT BE ENTITLED.</FONT></B>
  </font></P>
<TABLE width="95%" border=0 cellspacing=0 cellpadding=0>
<TR>
   <TD width="8%" align="left"><FONT size=2 face="serif">Dated: </FONT></TD>
   <TD width="20%" align="center"><font size=2 face="serif">8/24/04</font></TD>
   <TD width="20%" align="left">&nbsp;</TD>
   <TD align="left" width="52%"><FONT size=2 face="serif">/s/ Daniel Welch</FONT></TD>
</TR>
<TR>
   <TD width="8%" align="left">&nbsp;</TD>
   <TD width="20%" align="center"><HR align="left" width="100%" size=1 noshade></TD>
   <TD width="20%" align="left">&nbsp;</TD>
   <TD width="52%" align="left"><HR align="left" width="60%" size=1 noshade></TD>
</TR>
<TR>
   <TD width="8%" align="left">&nbsp;</TD>
   <TD width="20%" align="center">&nbsp;</TD>
   <TD width="20%" align="left">&nbsp;</TD>
   <TD align="left" width="52%"><font size="2"><B><FONT face="serif">Daniel Welch</FONT></B></font></TD>
</TR>
<TR>
   <TD width="8%" align="left">&nbsp;</TD>
   <TD width="20%" align="center">&nbsp;</TD>
   <TD width="20%" align="left">&nbsp;</TD>
   <TD width="52%" align="left">&nbsp;</TD>
</TR>
<TR>
   <TD width="8%" align="left"><FONT size=2 face="serif">Dated: </FONT></TD>
   <TD width="20%" align="center"><font size=2 face="serif">8/24/04</font></TD>
   <TD width="20%" align="left">&nbsp;</TD>
   <TD align="left" width="52%"><FONT size=2 face="serif">/s/ Ronald J. Fior</FONT></TD>
</TR>
<TR>
   <TD width="8%" align="left">&nbsp;</TD>
   <TD width="20%" align="center"><HR align="left" width="100%" size=1 noshade></TD>
   <TD width="20%" align="left">&nbsp;</TD>
   <TD width="52%" align="left"><HR align="left" width="60%" size=1 noshade></TD>
</TR>
<TR>
   <TD width="8%" align="left">&nbsp;</TD>
   <TD width="20%" align="center">&nbsp;</TD>
   <TD width="20%" align="left">&nbsp;</TD>
   <TD width="52%" align="left"><FONT size=2 face="serif">On Behalf of Callidus Software</FONT></TD>
</TR>
</TABLE>
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