EX-99.3 5 dex993.txt UNAUDITED PRO FORMA FINANCIAL INFORMATION 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. 157 1 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. 158 2 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. 159 3 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. 160 4 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. 161 5 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. 162 6 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. 163 7