Exhibit 99.3
CHORDIANT SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On January 8, 2001, Chordiant entered into a merger agreement (the "Merger
Agreement") to acquire Prime Response in a transaction to be accounted for as a
purchase under U.S. generally accepted accounting principles. Under the terms
of the Merger Agreement, all issued and outstanding shares of Prime Response
will be exchanged for 12,289,242 shares of Chordiant's common stock with a
value of approximately $34.8 million. In addition, based on an exchange ratio
of approximately 0.60 share of Chordiant common stock for every share of Prime
Response common stock, all of Prime Response's outstanding options will be
converted into options to purchase 1,367,464 shares of Chordiant's common stock
and all of Prime Response's outstanding warrants will be converted into
warrants to purchase 1,306,551 shares of Chordiant's common stock. The fair
value of the options and warrants of approximately $3.2 million and $3.5
million, respectively, was determined using the Black-Scholes option pricing
model and is included as a component of the purchase price. In accordance with
Financial Accounting Standards Board Interpretation No. 44 ("FIN 44"),
Accounting for Certain Transactions Involving Stock Compensation--an
interpretation of APB 25, unvested stock options granted by Chordiant in
exchange for options held by Prime Response will be considered part of the
purchase price. However, to the extent that service will be required subsequent
to the date of the acquisition in order to vest in the replacement options, a
portion of the intrinsic value of the unvested options will be deducted from
the fair value of the options issued and allocated to unearned stock-based
compensation. The amount allocated to unearned compensation will be based on
the portion of the intrinsic value of the replacement options at the
acquisition date related to future vesting periods and will be recognized as
compensation expense over the remaining service period. Chordiant also
anticipates incurring approximately $3.0 million in acquisition related
expenses, which consist primarily of financial advisory, accounting and legal
fees and $4.0 million in integration and restructuring costs. The purchase
price will be allocated to the assets acquired, including tangible and
intangible assets, and liabilities assumed based upon the fair value of such
assets and liabilities on the date of acquisition.
On July 19, 2000, Chordiant and White Spider Software, Inc. ("White Spider")
entered into a stock purchase agreement (the "Agreement") accounted for as a
purchase under U.S. generally accepted accounting principles. Under the terms
of the Agreement, Chordiant issued 349,954 shares of common stock valued at
approximately $5.9 million in exchange for the 4,728,290 shares of White Spider
common stock outstanding as of the date of the acquisition. In addition,
employee options to purchase approximately 1,710,000 shares of White Spider
common stock were assumed by Chordiant and became options to purchase 126,562
shares of Chordiant common stock. The fair value of the options of
approximately $2.1 million was determined using the Black-Scholes option
pricing model and is included as a component of the purchase price in
accordance with FIN 44. Chordiant also incurred $200,000 in transaction costs.
The purchase price was allocated to the assets acquired, including tangible and
intangible assets, and liabilities assumed based upon the fair value of such
assets and liabilities on the date of acquisition.
The Unaudited Pro Forma Combined Condensed Balance Sheet and Statements of
Operations are not necessarily indicative of the operating results that would
have been achieved had the transactions been in effect as of the beginning of
the periods presented and should not be construed as being representative of
future operating results. The historical financial statements of Chordiant,
White Spider and Prime Response are included elsewhere in this joint proxy
statement/prospectus and the Unaudited Pro Forma Combined Condensed Financial
Information presented herein should be read in conjunction with those financial
statements and related notes.
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CHORDIANT SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 2000
(amounts in thousands)
Prime Pro Forma Pro Forma
Chordiant Response Adjustments Combined
--------- --------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents...... $ 41,465 $ 27,139 $ $ 68,604
Short-term investments......... 26,203 -- 26,203
Accounts receivable--third
parties, net.................. 19,423 10,616 (207)(9) 29,832
Accounts receivable--related
parties....................... 1,057 -- 207 (9) 1,264
Other current assets........... 7,149 3,046 10,195
-------- --------- --------
Total current assets......... 95,297 40,801 136,098
Property and equipment, net...... 5,050 3,390 8,440
Intangible assets, net........... 4,585 5,220 12,105 (4) 21,910
Other assets..................... 2,516 1,671 4,187
-------- --------- --------
Total assets................. $107,448 $ 51,082 $170,635
======== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Borrowings..................... $ 595 $ -- $ $ 595
Accounts payable............... 5,081 5,154 10,235
Accrued expenses............... 8,163 6,299 7,000 (2) 21,462
Accrued interest income........ -- 176 176
Deferred revenue--third
parties....................... 17,441 6,312 (3,118)(3) 20,635
Deferred revenue--related
parties....................... 3,488 -- 3,488
Capital lease obligations...... -- 78 78
-------- --------- --------
Total current liabilities.... 34,768 18,019 56,669
Accrued interest income, non
current......................... -- 1,222 1,222
Deferred revenue--third parties.. 8,013 -- 8,013
Deferred revenue--related
parties......................... 1,103 -- 1,103
Other liabilities................ 244 -- 244
-------- --------- --------
Total liabilities............ 44,128 19,241 67,251
-------- --------- --------
Stockholders' equity:
Common stock................... 41 205 (205)(5) 53
12 (1)
Additional paid-in capital..... 170,386 155,355 (155,355)(5) 211,924
34,782 (1)
3,241 (1)
3,515 (1)
Notes receivable from
stockholders.................. (1,799) (2,545) 2,545 (5) (1,799)
Treasury stock................. -- (4,273) 4,273 (5) --
Unearned compensation.......... (7,290) (1,997) 1,997 (5) (7,290)
Accumulated deficit............ (97,920) (114,965) 114,965 (5) (99,406)
(1,486)(4)
Accumulated other comprehensive
income (loss)................. (98) 61 (61)(5) (98)
-------- --------- --------
Total stockholders' equity... 63,320 31,841 103,384
-------- --------- --------
Total liabilities and
stockholders' equity........ $107,448 $ 51,082 $170,635
======== ========= ========
See accompanying notes to Unaudited Pro Forma Combined Condensed
Financial Information for explanation of Pro Forma adjustments.
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CHORDIANT SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(amounts in thousands, except per share amounts)
Chordiant
------------------------------------------------ Historical
Historical Historical Pro Forma Pro Forma Prime Pro Forma Pro Forma
Chordiant White Spider Adjustments Chordiant Response Adjustments Combined
---------- ------------ ----------- --------- ---------- ----------- ---------
Net revenues:
License--third
parties............... $ 10,728 $ -- $ $ 10,728 $ 15,750 $ (736)(6) $ 25,742
License--related
parties............... 6,168 -- 6,168 -- 736 (6) 6,904
Service--third
parties............... 3,980 281 (245)(9) 4,016 9,906 13,958
Service--related
parties............... 12,813 -- 12,813 -- 12,813
Applications hosting... -- -- -- 3,207 3,207
-------- ----- -------- -------- ---------
Total net revenues... 33,689 281 33,725 28,863 62,624
-------- ----- -------- -------- ---------
Cost of revenues:
License--third
parties............... 873 -- 873 79 952
License--related
parties............... 39 -- 39 -- 39
Service--third
parties............... 15,878 109 (245)(9) 15,742 8,046 23,788
Service--related
parties............... 1,632 -- 1,632 -- 1,632
Application hosting.... -- -- -- 3,314 3,314
Non-cash compensation
expense............... 2,040 56 255 (10) 2,351 116 2,467
-------- ----- -------- -------- ---------
Total cost of
revenues............ 20,462 165 20,637 11,555 32,192
-------- ----- -------- -------- ---------
Gross profit............ 13,227 116 13,088 17,308 30,432
-------- ----- -------- -------- ---------
Operating expenses:
Sales and marketing:
Non-cash compensation
expense............. 1,488 16 72 (10) 1,304 2,701 4,205
Other sales and
marketing........... 22,422 33 21,455 26,301 48,756
Research and
development:
Non-cash compensation
expense............. 2,039 45 2,084 126 2,210
Other research and
development......... 14,437 114 14,551 10,464 25,015
Purchased in-process
research and
development......... 4,234 -- 4,234 -- 4,234
General and
administration:
Non-cash compensation
expense............. 689 -- 689 119 808
Other general and
administration...... 5,493 50 5,543 7,002 12,545
Amortization of
intangible assets..... 802 -- 1,795 (11) 2,597 -- 4,035 (7) 6,632
-------- ----- -------- -------- ---------
Total operating
expenses............ 51,604 258 53,657 46,713 104,405
-------- ----- -------- -------- ---------
Loss from operations.... (38,377) (142) (40,569) (29,405) (73,973)
Interest income
(expense).............. (269) (1) (270) 1,736 1,466
Interest and other
income, net............ 3,290 -- 3,290 5 3,295
-------- ----- -------- -------- ---------
Loss before income
taxes.................. (35,356) (143) (37,549) (27,664) (68,212)
Provision for income
taxes.................. -- -- -- (74) (74)
-------- ----- -------- -------- ---------
Net loss................ (35,356) (143) (37,549) (27,590) (68,138)
Preferred stock dividend
and BCF................ -- -- -- (41,234) (41,234)
-------- ----- -------- -------- ---------
Net loss attributable to
common stockholders.... $(35,356) $(143) $(37,549) $(68,824) $(110,372)
======== ===== ======== ======== =========
Pro forma net loss per
share:
Basic and diluted...... $ (1.05) $ (2.39)
Shares used to compute
pro forma net loss per
share basic and
diluted................ 33,690 12,480 (8) 46,170
See accompanying notes to Unaudited Pro Forma Combined Condensed
Financial Information for explanation of Pro Forma adjustments.
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CHORDIANT SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
(for the year ended December 31, 2000)
NOTE 1--BASIS OF PRESENTATION:
On July 19, 2000, Chordiant completed its acquisition of all the outstanding
capital stock of White Spider. The White Spider acquisition was accounted for
using the purchase method of accounting and, accordingly, the net assets and
results of operations of White Spider have been included in the financial
statements of Chordiant since the acquisition date.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
proposed acquisition of Prime Response as if it occurred on December 31, 2000
and combines the consolidated balance sheet of Chordiant as of December 31,
2000 and the consolidated balance sheet of Prime Response as of December 31,
2000. The Unaudited Pro Forma Combined Condensed Statement of Operations for
the year ended December 31, 2000 gives effect to the Prime Response acquisition
as if it had occurred on January 1, 2000 and presents the Unaudited Pro Forma
Combined Condensed Statement of Operations of Chordiant for the year ended
December 31, 2000 combined with the consolidated statement of operations of
Prime Response for the year ended December 31, 2000. The Unaudited Pro Forma
Combined Condensed Statement of Operations of Chordiant includes the historical
results of operations of Chordiant for the year ended December 31, 2000
combined with the unaudited results of operations of White Spider for the
period from January 1, 2000 to July 18, 2000 as if the White Spider acquisition
occurred on January 1, 2000.
The Unaudited Pro Forma Combined Condensed Financial Information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
transactions had been consummated at the dates indicated, nor is it necessarily
indicative of the future operating results or the financial position of the
combined companies.
NOTE 2--PURCHASE PRICE ALLOCATION:
The Unaudited Pro Forma Combined Condensed Financial Information reflects a
total purchase price for the Prime Response acquisition of approximately $44.5
million. The purchase price consists of 12,289,242 common shares valued at
approximately $34.8 million, 1,367,464 options to purchase common shares of
Chordiant at a weighted average exercise price of $11.94 per common share
valued at approximately $3.2 million, 1,306,551 warrants to purchase common
shares of Chordiant at a weighted exercise price of $14.14 per common share
valued at approximately $3.5 million, and approximately $3.0 million in
transaction costs. The value of Chordiant's common stock was based on a per
share value of approximately $2.83 measured as the average fair market value of
Chordiant's outstanding common stock from January 4, 2001 through January 10,
2001, two trading days before, the day of, and two days after the Merger
Agreement was signed.
The purchase price will be allocated to the assets acquired, including
tangibles and intangible assets, and liabilities assumed based upon the fair
value of such assets and liabilities on the date of acquisition. A valuation of
the intangible assets acquired is being conducted by an independent third-party
appraisal company and is expected to be completed prior to closing. In
addition, management is in the process of assessing and formulating its
integration plans, which are expected to include employee separations and
elimination of duplicate facilities. The finalization of these plans could
result in a material change to the estimate of accrued Prime Response-related
restructuring charges. While the exact amount of the restructuring costs is not
known, management believes that the costs could range between $3.0 million and
$5.0 million.
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CHORDIANT SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION--(Continued)
The purchase price has been preliminary allocated as follows (in thousands):
Fair value of net tangible assets acquired and liabilities
assumed.......................................................... $30,959
In-process research and development............................... 1,486
Purchased technology.............................................. 4,515
Workforce in place................................................ 2,740
Tradenames........................................................ 982
Goodwill.......................................................... 3,867
-------
$44,549
=======
The tangible assets consist primarily of cash and cash equivalents, account
receivable, prepaid and other current assets and property and equipment. The
liabilities assumed consist primarily of accounts payable, accrued expenses and
deferred revenue.
Prime Response is currently developing new products that qualify as in-
process research and development. For the purposes of determining which
projects qualified as in-process research and development, technological
feasibility is defined as being equivalent to completion of design verification
testing, when the design is finalized and ready for pilot testing.
As of the date of this joint proxy statement/prospectus, Prime Response's
in-process research and development efforts consisted of three projects for
which the estimated state of completion is 47%, 21% and 79%, respectively. The
applications from these in-process projects will be integrated into Prime
Response products over the next several quarters. The efforts required to
complete these projects include the completion of all planning, designing and
testing activities that are necessary to establish that the product can be
produced to meet its design requirements, including functions, features and
technical performance requirements.
The estimated value of the acquired in-process research and development was
computed using a discounted cash flow analysis rate of 35% on the anticipated
income stream of the related product revenues. The discounted cash flow
analysis was based on management's forecast of future revenues, cost of
revenues, and operating expenses related to the products and technologies
purchased from Prime Response. The value of in-process research and development
has been further reduced by the estimated value of core technology and will be
expensed in the period the transaction is consummated. The calculation of value
will be adjusted to reflect only the value creation efforts of Prime Response
prior to the closing of the acquisition.
The estimates used in valuing in-process research and development were based
upon assumptions believed to be reasonable but which are inherently uncertain
and unpredictable. Prime Response's assumptions may be incomplete and
inaccurate, and Chordiant cannot be sure that unanticipated events and
circumstances will not occur that affect the values of in-process research and
development efforts. Accordingly, actual results may vary from projected
results. Any such variances may result in a material adverse effect on
Chordiant's financial condition and results of operations.
The value allocated to the assembled workforce is attributable to the Prime
Response workforce in place after the acquisition which eliminates the need to
hire new replacement employees. The value was determined by estimating the cost
involved in assembling a new workforce including costs of salaries, benefits,
training and recruiting.
The excess of purchase price over tangible and intangible assets acquired
and liabilities assumed was recorded as goodwill.
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CHORDIANT SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION--(Continued)
Based on the timing of the closing of the transaction, the finalization of
the integration plans and other factors, the pro forma adjustments may differ
materially from those presented in this pro forma financial information. A
change in the pro forma adjustments would result in a reallocation of the
purchase price affecting the value assigned to purchased in-process research
and development and long-term assets. The income statement effect of these
changes will depend on the nature and amount of the assets or liabilities
adjusted. Two examples on how the pro forma combined condensed financial
statements may be affected are as follows:
. A $500,000 increase in the preliminary allocation to in-process research
and development would result in a reallocation of the purchase price
resulting in a $500,000 decrease in long-term assets, a corresponding
$166,667 decrease to the annual amortization charge and an increase of
$500,000 to the immediate charge for in-process research and development.
. A $500,000 increase in the accrued restructuring charges would result in
a $500,000 increase in long-term assets and a corresponding $166,667
increase to the annual amortization charge.
NOTE 3--UNAUDITED PRO FORMA COMBINED CONDENSED NET LOSS PER SHARE:
The shares used in computing net loss per share for the year ended
December 31, 2000 is based upon Chordiant's historical weighted average common
shares outstanding together with the shares issued in the White Spider and
Prime Response acquisitions as if such shares were issued on January 1, 2000.
Common stock issuable upon the exercise of stock options and warrants and the
conversion of convertible debentures have not been included, as they are anti-
dilutive.
NOTE 4--PURCHASE ADJUSTMENTS:
The following adjustments were applied to the pro forma combined condensed
financial information:
(1) To reflect the issuance of shares and options for the acquisition of
Prime Response by Chordiant as if the acquisition occurred on December
31, 2000.
(2) To record the accrual of estimated costs resulting from the
acquisition including merger, integration and restructuring costs. It
is anticipated that Chordiant will incur charges related to the
business combination with Prime Response currently estimated to be
$7.0 million of which $4.0 million relates to integration and
restructuring costs and $3.0 million relates principally to financial
advisory, accounting and legal fees. Actual amounts ultimately
incurred could differ from estimated amounts.
(3) To adjust the deferred revenue balance to the fair value of the
remaining services to be provided by Prime Response under contractual
terms.
(4) To record intangible assets acquired at estimated fair values.
(5) To eliminate Prime Response historical stockholders' equity.
(6) To reclassify related parties transactions to conform with Chordiant's
presentation of related parties transactions.
(7) To record the amortization expense associated with intangible assets
over their estimated useful life of three years as if the acquisition
had occurred on January 1, 2000.
(8) Pro forma weighted average number of shares include common stock
issued by Chordiant to acquire White Spider and Prime Response as if
the acquisitions had occurred on January 1, 2000.
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CHORDIANT SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION--(Continued)
(9) To eliminate intercompany transactions.
(10) To record amortization of unearned compensation resulting from the
unvested options issued by Chordiant to acquire White Spider over the
remaining vesting period as if the White Spider acquisition had
occurred on January 1, 2000. Unvested options granted by Chordiant in
exchange for outstanding unvested options held by employees of White
Spider were included in the calculation of the purchase price of White
Spider. To the extent that services are required after the
consummation date in order to vest in the replacement options, a
portion of the unvested options' intrinsic value was allocated to
unearned stock based compensation and is amortized over the remaining
vesting period as if the acquisition of White Spider had occurred on
January 1, 2000.
(11) To record the amortization expense associated with intangible assets
resulting from the White Spider acquisition over their estimated life
of three years as if the White Spider acquisition had occurred on
January 1, 2000.
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