<PAGE>
As filed with the Securities and Exchange Commission on June 6, 2000
Registration No. 333-30564
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 3 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
Click Commerce, Inc.
(Exact name of registrant as specified in its charter)
--------------
Delaware 7371 36-4088644
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
200 East Randolph Drive, Suite 4900 Chicago, Illinois 60601 (312) 482-9006
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Michael W. Ferro, Jr.
Chief Executive Officer
Click Commerce, Inc.
200 East Randolph Drive, Suite 4900
Chicago, Illinois 60601
(312) 482-9006
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
Joseph A. Hall, Esq.
Christopher D. Lueking, Esq. Davis Polk & Wardwell
Latham & Watkins 450 Lexington Avenue
Sears Tower, Suite 5800 New York, New York 10017
Chicago, Illinois 60606 (212) 450-4000
(312) 876-7700
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
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--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued June 6, 2000
5,000,000 Shares
[LOGO OF CLICK COMMERCE]
COMMON STOCK
-----------
Click Commerce, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We anticipate that the initial public offering price will be between $9 and $11
per share.
-----------
Our common stock has been approved for quotation on the Nasdaq National Market
under the symbol "CKCM."
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 5.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Click
Public Commissions Commerce
----------- ------------- -----------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>
Click Commerce, Inc. has granted the underwriters the right to purchase up to
an additional 750,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
DAIN RAUSCHER WESSELS
LEHMAN BROTHERS
, 2000
<PAGE>
The front of the gatefold contains the words: "What do premier global
manufacturers have in common?"
The question is followed by a list of industry names with corresponding
graphical images.
. Capital Goods
. Recreational Sports
. Components
. Financing
. Consumer Products
. Telecom
<PAGE>
INSIDE GATEFOLD PAGES
The inside gatefold pages include three pictures of Click Commerce screens,
each showing functionality that is provided by Click Commerce Applications.
Text above the first screen: "They Click with dealers!"
Screen: Dealer screen featuring a hotspotted order form for automotive parts.
Text below the first screen: "Process high margin parts and accessory sales
through personalized business-to-business applications"
Logo: Click Commerce Logo
Text above the second screen: "Click with service centers!"
Screen: Warranty administration screen.
Text below the second screen: "Automate service and warranty processes through
multicurrency, multilingual applications"
Text above the third screen: "Click with consumers!"
Screen: Screen that enables a consumer to order accessories.
Text below the third screen: "Improve brand loyalty by allowing consumers to
locate dealers and order genuine parts and accessories"
Pull-out text box in top right corner of gatefold: "Enterprise Channel
Management for Global Manufacturers"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................ 1
Risk Factors...................... 5
Special Note Regarding Forward-
looking Statements .............. 13
Use of Proceeds................... 14
Dividend Policy................... 14
Capitalization.................... 15
Dilution.......................... 16
Selected Financial Data........... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 19
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business........................... 28
Management......................... 49
Certain Transactions............... 57
Principal Stockholders............. 59
Description of Capital Stock....... 61
Shares Eligible for Future Sale.... 65
Underwriters....................... 67
Legal Matters...................... 69
Experts............................ 69
Change In Independent Accountants.. 69
Additional Information............. 70
Index to Financial Statements...... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock
and seeking offers to buy shares of common stock, only in the jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or any sale of the common stock.
Until , 2000 (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.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes thereto appearing elsewhere in
this prospectus.
CLICK COMMERCE
We provide business-to-business software products and services that use the
Internet to connect manufacturing companies with their distributors, dealers
and other distribution channel partners. We build, install and maintain
customized "extranets," which provide distribution channel partners with
Internet access to product information and the ability to electronically
transact business over a secure system with the manufacturer and each other. We
derive substantially all of our revenue from the sale to large manufacturing
companies of licenses of our Click Commerce software products, together with
related services for integrating and customizing our software, followed by
maintenance and support of our products. Our products and integration services
create a customized extranet system that enables manufacturers to take
advantage of the speed and power of the Internet to strengthen and broaden
their relationships with their distribution channel partners, as well as their
customers, through real-time, twenty-four hour access to information and the
ability to process transactions.
Although the Internet may alter many historic distribution channels, we
believe that certain products--particularly, complex or specialized
manufactured goods--will continue to require large distribution networks that
provide local sales, service and after-market support. Various global
manufacturers have selected us to integrate their operations with those of
their many distribution channel partners through user-friendly and secure
extranets. Our products permit faster and more accurate transaction processing
and communication than traditional methods such as paper, phone and fax
communications, and reduce the hidden costs of errors and delays in information
delivery. We believe that providing information and transacting business over
the Internet can improve the commercial relationships among a manufacturer and
its distribution channel partners and provide benefits to all participants in
the distribution channel by improving efficiency, financial performance,
customer service and brand loyalty.
We believe that Internet-based business-to-business e-commerce is poised for
rapid growth. In a recent study, Forrester Research predicted that business-to-
business e-commerce will grow from $406 billion in 2000 to $2.7 trillion in
2004, accounting for more than 90% of the dollar value of e-commerce in the
United States by 2003. In another August 1999 Forrester study of manufacturing
companies with extranets already in place, 80% of the study's participants
indicated that they expect to connect to all of their distribution channel
partners through extranets within two years. The study's participants believe
that through their extranets they have already reduced distribution channel
costs by an average of 16% and increased sales by an average of 6%. The
participants anticipate that within two years their extranets will allow them
to reduce distribution channel costs by an average of 32% and increase sales by
an average of 17%. International Data Corporation projects that the worldwide
market for Internet-based applications that facilitate e-commerce will grow
from $1.7 billion in 1999 to $13.2 billion in 2003.
Our Internet-based software products, comprised of the Extranet Manager and
80 applications, automate communication and business processes throughout the
distribution channel and can be personalized to each individual user. Our
applications provide for relevant information such as inventory levels, product
availability, pricing, product promotions and warranty information to be
displayed on the user's computer screen. A user can personalize the information
presented over the extranet, accommodating, for example, the user's language,
time zone and currency preferences. Manufacturers using our software can also
target information to specific distribution channel partners, and can, for
example, target different product promotions to different distributors.
1
<PAGE>
We customize our software products to integrate with many different existing
back-office computer systems, without requiring significant additional
technology expenditures by the manufacturer. In addition, upon completion of a
needs analysis, which typically lasts 4 to 6 weeks, the average length of time
required to customize and implement our extranet system is approximately 120
days. We customize ready-built applications from our inventory of 80
applications. Our competitors custom-build software products or use technology
tools, processes that we believe require substantially more time than our
approach.
We are currently working on standardizing our software products so that they
may be sold separately from our integration services. This will allow
customization and implementation services to be provided by us or by other
companies, such as business consultants and system integrators.
We currently market all of our software products and services through our
direct sales force, located in several locations in the United States and in
Europe. In addition, we recently have begun to enter into joint marketing
agreements with business consultants and resellers who have expertise in the
industry and existing client contacts. These business consultants and system
integrators will also provide customization and integration services in
connection with our software product sales once we have packaged our software.
We believe that these relationships will help increase the market penetration
and acceptance of our Click Commerce software products and services.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................. 5,000,000 shares
Common stock to be outstanding after
this offering....................... 37,281,450 shares
Use of proceeds...................... For working capital and general corporate
purposes.
Nasdaq National Market symbol........ CKCM
</TABLE>
The foregoing information is based on the shares of common stock outstanding
as of April 30, 2000. This information:
. excludes an aggregate of 7,772,842 shares of common stock currently
reserved for issuance under our Stock Option and Stock Award Plan of
which 4,756,000 shares are subject to outstanding options at a weighted
average exercise price of $2.88 per share;
. excludes an aggregate of 500,000 shares of common stock currently
reserved for issuance under our Directors' Stock Option and Stock Award
Plan, none of which are subject to outstanding options;
. excludes an aggregate of 857,044 shares of common stock subject to
additional outstanding options at an exercise price of $0.0025 per
share;
. includes conversion of all outstanding shares of preferred stock
immediately prior to the consummation of this offering into 9,565,220
shares of our common stock; and
. excludes 818,226 shares of common stock issuable upon exercise of
outstanding warrants as of April 20, 2000 at an exercise price of $12.22
per share.
Our executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 63.71% of our outstanding
common stock following the completion of this offering. These stockholders, if
acting together, would be able to control all matters requiring approval by our
stockholders.
2
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Three
months
Year ended December 31, ended
------------------------------------ March 31,
1997 1998 1999 2000
----------- ----------- ----------- -----------
(unaudited)
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue.................... $ 1,322 $ 2,390 $ 9,952 $ 5,124
Cost of revenue............ 379 712 2,669 1,555
----------- ----------- ----------- -----------
Gross profit............... 943 1,678 7,283 3,569
Operating expenses......... 894 1,757 6,768 4,061
----------- ----------- ----------- -----------
Operating income (loss).... 49 (79) 515 (492)
Net income (loss).......... 19 (65) 317 (334)
Accretion related to
redeemable preferred
stock..................... -- -- (3,712) (4,113)
Net income (loss) available
to common shareholders.... 19 (65) (3,395) (4,447)
Basic earnings (loss) per
share..................... $ 0.00 $ (0.00) $ (0.14) $ (0.20)
=========== =========== =========== ===========
Diluted earnings (loss) per
share..................... $ 0.00 $ (0.00) $ (0.14) $ (0.20)
=========== =========== =========== ===========
Weighted average shares
used in computing basic
earnings (loss) per share. 26,400,000 26,400,000 24,371,578 22,431,995
Weighted average shares
used in computing diluted
earnings (loss) per share. 26,400,000 26,400,000 24,371,578 22,431,995
Pro forma basic earnings
(loss) per share.......... $ 0.01 $ (0.01)
=========== ===========
Pro forma diluted earnings
(loss) per share.......... $ 0.01 $ (0.01)
=========== ===========
Net income (loss) used in
computing pro forma basic
and diluted earnings per
share..................... $ 317 $ (334)
Shares used in computing
pro forma basic loss per
share..................... 29,245,910 31,997,215
Shares used in computing
pro forma diluted loss per
share..................... 33,206,994 31,997,215
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 2000
----------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------ -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term
investments...................................... $ 3,775 $3,775 $49,275
Working capital................................... 4,443 4,443 49,943
Total assets...................................... 9,786 9,786 55,286
Billings in excess of revenues earned on contracts
in progress...................................... 1,096 1,096 1,096
Capital lease obligations, less current portion... 164 164 164
Convertible participating preferred stock......... 18,426 -- --
Total shareholders' equity (deficit).............. (12,821) 5,605 51,105
</TABLE>
The pro forma balance sheet data give effect to:
. the conversion of all outstanding shares of convertible preferred stock
into 9,565,220 shares of common stock immediately prior to the
consummation of this offering.
3
<PAGE>
The pro forma as adjusted balance sheet data give effect to the above, and:
. the sale of the shares of common stock that we are offering under this
prospectus, at an assumed initial public offering price of $10 per share
(the midpoint of the range set forth on the cover of this preliminary
prospectus), after deducting the underwriting discounts and commissions
and estimated offering expenses.
We were incorporated in Delaware in August 1996 under the name Click
Interactive, Inc. In December 1999, we changed our name to Click Commerce, Inc.
Our principal executive offices are located at 200 East Randolph Drive, Suite
4900, Chicago, Illinois 60601, and our telephone number is (312) 482-9006. Our
corporate Web site is located at www.clickcommerce.com. The information
contained on our Web site is not part of this prospectus. We have applied for
registration of our trademark Click Commerce. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.
Unless otherwise indicated, all information contained in this prospectus:
. assumes that the underwriters' over-allotment option is not exercised;
. reflects the 2-for-1 split of the common and preferred stock effected in
July 1999 and again in December 1999; and
. except as otherwise noted, gives effect to the conversion of all
outstanding shares of convertible preferred stock into 9,565,220 shares
of common stock effective immediately prior to the consummation of this
offering.
4
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree of
risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you may lose all or part of your investment. The risks
described below are not the only ones that we face.
Risks Related To Our Business
We have incurred net losses in six of our past nine quarters and we may
experience losses in the future, which could cause the market price of our
stock to decline.
We have incurred net losses in six of our past nine quarters, including the
first quarter of 2000, primarily due to non-cash charges, including
depreciation and amortization, and amortization of deferred stock compensation.
We expect to continue to incur net losses for the near future. We also expect
to incur increasing sales and marketing, research and development and general
and administrative expenses which may result in operating losses. We do not
know when or if we will be profitable in any given quarter. If we do not become
profitable within the timeframe expected by investors, the market price of our
common stock will likely decline. If we do achieve profitability, we may not
sustain or increase profitability in the future.
We are dependent on the success of the Extranet Manager and Click Commerce
application suite and related services for our success.
To date, substantially all of our revenues have been attributable to sales
of licenses of the Extranet Manager and Click Commerce application suite and
related services, consisting of implementation, integration with a customer's
existing back-office computer systems and maintenance and support of our
software products. In fiscal 1999, 10% of our revenues were attributable to
consulting services for needs analyses, 89% were attributable to the sales of
licenses of our software products and implementation and integration of our
extranet system and 1% were attributable to maintenance and support services.
We currently expect the Extranet Manager and Click Commerce application suite
and related services to account for most of our future revenues. Accordingly,
factors adversely affecting the pricing of or demand for the Extranet Manager
and Click Commerce application suite, such as competition or technological
change, could have a material adverse effect on our business, financial
condition, and operating results. Our future financial performance will depend,
in significant part, on the successful development, introduction and customer
acceptance of new and enhanced versions of the Extranet Manager and Click
Commerce application suite and of new products and services we develop. We
cannot assure you that we will be successful in upgrading and continuing to
market the Extranet Manager and Click Commerce application suite or that we
will successfully develop new products and services or that any new products
and services will achieve market acceptance.
Our business is subject to quarterly fluctuations in operating results which
may negatively impact the price of our common stock.
Our quarterly operating results have varied significantly in the past and we
expect that they will continue to vary significantly from quarter to quarter in
the future. We have difficulty predicting the volume and timing of contracts,
and short delays in closing contracts or implementation of products can cause
our operating results to fall substantially short of anticipated levels for
that quarter. This is in part due to the fact that our products have a long
sales and implementation cycle which makes it difficult to predict the periods
in which we will recognize revenue and may cause operating results to vary
significantly. As our products become more standardized and we begin selling
our software products separately from our integration services, the volatility
of our revenues may increase. As a result of these and other factors, we
believe that period-to-period comparisons of our historical results of
operations are not necessarily meaningful and are not a good predictor of our
future performance. We may not be successful in generating recurring revenue
streams to offset the above effects.
5
<PAGE>
In addition, we may incur expenses in order to develop products and service
offerings ancillary to our existing line of products and services. These
expenses may affect our earnings and may result in losses in particular
quarterly or annual periods.
For all of these reasons, in some future quarters or years our operating
results may be below the expectations of investors, which could cause
volatility or a decline in the price of our common stock.
If we are unable to complete a substantial number of sales contracts when
anticipated or experience delays in the process on a project or problems with
satisfying contract terms, we may have to defer or not recognize revenue,
causing our quarterly results to fluctuate and fall below anticipated levels.
Because we recognize revenue using a percentage of contract completed
method, we may not be able to recognize all or a portion of the revenue until
milestones are achieved. If we are unable to complete one or more substantial
anticipated license sales or experience delays in the progress of a project or
product or problems with satisfying contract terms required for revenue
recognition in a particular quarter, we may not be able to recognize revenue
when anticipated, and we would nonetheless recognize marketing and other
expenses, causing our quarterly results to fluctuate and fall below
anticipated levels. This could cause our stock price to decline.
If our relationships with system integrators and business consultants
terminate, we may lose important sales and marketing opportunities.
We have recently established relationships with system integrators and
business consultants. We expect that these relationships, though not
exclusive, will expose our software to many potential customers to which we
may not otherwise have access. If our relationships with any of these
organizations do not develop as we expect or are terminated, or any of these
organizations begin promoting the products of our competitors instead of our
products, we might lose important opportunities, including sales and marketing
opportunities, and our business may suffer.
We will be increasingly reliant on our relationships with system
integrators and business consultants.
We intend to increasingly sell our software products separately from our
integration services. If the third parties who implement our software products
for our customers do so ineffectively, our reputation and our business may be
harmed.
A small number of customers account for a large percentage of our revenue
and accounts receivable.
In the year ended December 31, 1998, four customers accounted for an
aggregate of approximately 81% of our total revenue, Mitsubishi for
approximately 25%, Motorola for approximately 24%, Overseas Partners for
approximately 18%, and Hyundai for approximately 14%. In the year ended
December 31, 1999, three customers accounted for an aggregate of approximately
61% of our total revenue, Motorola for approximately 29%, American Standard
and Trane for approximately 18%, collectively, and Bombardier Capital for
approximately 14%. We may continue to derive a significant portion of our
revenue from a relatively small number of customers in the future.
In addition, a small number of customers account for a large percentage of
our accounts receivable. As of December 31, 1999, five customers accounted for
an aggregate of 85% of our gross trade accounts receivable, American Standard
for approximately 27%, WarrantyCheck.com for approximately 21%, Motorola for
approximately 15%, Brunswick for approximately 12% and Qualcomm for
approximately 10%.
We may not be able to expand overseas successfully.
Our current business plan includes expanding into Europe. To date, we have
limited experience in marketing our products and services internationally, and
we cannot predict our success in these international markets. In
6
<PAGE>
order to expand overseas, we have opened a sales office in Munich and in
Amsterdam. Our plans to expand internationally are subject to risks, including:
. the impact of economic fluctuations in economies outside of the United
States;
. greater difficulty in accounts receivable collection and longer
collection periods;
. unexpected changes in regulatory requirements, tariffs and other trade
barriers;
. difficulties and costs of staffing and managing foreign operations due
to distance, as well as language and cultural differences; and
. political instability, currency exchange fluctuations and potentially
adverse tax consequences.
We cannot predict whether the expansion of our business internationally will be
successful. The results of our efforts may prove not to have been worth the
associated expense and opportunity cost.
It is difficult for us to attract and retain qualified software programmers.
Our future growth depends on the ability of our software programmers to
develop new products and improve existing products. Our ability to develop new
products and services and enhance our existing products and services will
depend on our ability to recruit and retain top quality software programmers.
There is a shortage of the programming personnel we need, and competition for
qualified programmers is intense. If we are unable to hire and retain
sufficient numbers of qualified programming personnel, we may not be able to
develop new products and services or improve our existing products and services
in the time frame necessary to execute our business plan. Our inability to hire
qualified programmers could also negatively impact our ability to customize and
implement our extranet system as rapidly as we do today.
The market for our electronic commerce products and services is new and
evolving and customers may not accept our products.
The market for our products and services is rapidly developing. This market
may not continue to develop and grow, and companies may choose not to use our
products and services and instead develop applications internally or purchase
them from other sources. Companies that have already invested substantial
resources in other methods of conducting business-to-business e-commerce may be
reluctant to adopt a new approach. We expect that we will continue to need
intensive marketing and sales efforts to educate prospective customers about
the uses and benefits of our products and services. Therefore, demand for and
market acceptance of our products and services will be subject to a high level
of uncertainty.
We have recently experienced and currently anticipate rapid growth in our
business, and any inability to manage this growth could harm our business.
In order to execute our business plan, we must grow significantly. The
number of our employees grew from 25 as of January 1, 1999 to 131 as of May 31,
2000. We expect that the number of our employees will continue to increase for
the foreseeable future, in particular with respect to persons engaged in
product development, project management and sales activities. We expect that we
will need to continue to improve our financial and managerial controls and
reporting systems and procedures. We will also need to continue to expand and
maintain close coordination among our technical, finance, sales and marketing
groups. If we are unsuccessful in these efforts, our business and operations
could be adversely affected.
We will not be able to execute our business plan and achieve desired growth
in our business if we cannot increase our direct and indirect sales channels,
which could negatively affect our stock price.
We will need to expand substantially our direct and indirect sales
operations, both domestically and internationally, in order to increase market
awareness and sales of our products and services. Our products and services
require a sophisticated sales effort targeted at several people within our
prospective clients'
7
<PAGE>
organizations. Competition for qualified sales personnel is intense, and we
might not be able to hire the quality and number of sales personnel we are
targeting. In addition, we believe that our future success is dependent upon
establishing and maintaining productive relationships with a variety of
distributors, resellers, system integrators and other joint marketing
relationships with third parties. We cannot be sure that we will be successful
in establishing these desired relationships or that these third parties will
devote adequate resources or have the technical and other sales capabilities to
sell our products.
Acquisitions or investments in other technology companies may disrupt or
otherwise have a negative impact on our business and dilute stockholder value.
We may acquire or make investments in complementary businesses,
technologies, services or products, or enter into relationships with parties
who can provide access to those assets, if appropriate opportunities arise.
From time to time we have had discussions and negotiations with companies
regarding our acquiring, investing in or partnering with their businesses,
products, services or technologies, and we regularly engage in these
discussions and negotiations in the ordinary course of our business. We may not
identify suitable acquisition, investment or relationship candidates, or if we
do identify suitable candidates, we may not complete those transactions on
commercially acceptable terms or at all. If we acquire another company, we
could have difficulty in assimilating that company's personnel, operations,
technology and software. In addition, the key personnel of the acquired company
may decide not to work for us. If we make other types of acquisitions, we could
have difficulty in integrating the acquired products, services or technologies
into our operations. These difficulties could disrupt our ongoing business,
distract our management and employees and increase our expenses. Furthermore,
we may incur indebtedness or issue equity securities to pay for any future
acquisitions. The issuance of equity securities would dilute the ownership
interests of the holders of our common stock.
We face competition and may face future competition.
The market for software products and services that enable business-to-
business e-commerce is new, intensely competitive, highly fragmented and
rapidly changing. There are relatively few barriers to entry in the enterprise
channel management market. We expect competition to persist and intensify,
which could result in our losing market share or lowering our prices.
Some of our competitors have advantages over us.
Some of our existing competitors, as well as potential future competitors,
have longer operating histories in markets related to ours, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than our company. These advantages may allow
them to respond more quickly and effectively to new or emerging technologies
and changes in customer requirements. It may also allow them to engage in more
extensive research and development, undertake farther-reaching marketing
campaigns, adopt more aggressive pricing policies, implement their products and
services more rapidly, and make more attractive offers to potential employees
and other business associates. One or more of these companies could adopt a
different business strategy for achieving profitability which could allow them
to charge fees that are lower than ours, in order to attract clients. Our
competitors custom-build software products or use technology tools to develop
their products; processes that we believe require substantially more time than
our approach. These competitors may reduce the amount of time it currently
takes them to implement the products and services that compete with ours,
eliminating an important advantage that we believe we currently enjoy. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the ability of their products or services to address the needs of our current
and prospective clients.
Our executive officers are critical to our business and these officers may
not remain with us in the future.
Our future success largely depends upon the continued service of our
executive officers. If we lose the services of one or more of our executive
officers, or if one or more of them decide to join a competitor or
8
<PAGE>
otherwise compete directly or indirectly with us, our business, operating
results and financial condition could be harmed. In particular, Michael Ferro,
Jr., our founder, chairman of the board of directors and chief executive
officer, would be extremely difficult to replace.
Many of our executive officers joined us recently and must be integrated
into our organization.
We have recently experienced a period of rapid growth and expansion, which
places significant demands on our managerial, administrative, operational,
financial and other resources. All of the members of our management team, other
than our chief executive officer, have joined Click Commerce since June 1,
1999. It will take some time for these new members of our management team to be
fully integrated into our organization.
If we fail to protect our intellectual property rights or face a claim of
intellectual property infringement by a third party, we could lose our
intellectual property rights or be liable for significant damages.
Our success depends significantly upon our proprietary technology. We have
no patents and no plans to apply for any patents. Unauthorized parties may copy
aspects of our products or services or obtain and use information that we
regard as proprietary. Our means of protecting our proprietary rights may not
be adequate, and our competitors may independently develop similar technology
or duplicate our products or our other intellectual property rights. Our
failure to protect our proprietary rights adequately or our competitors'
successful duplication of our technology could negatively affect our operating
results and cause the price of our common stock to decline.
In addition, we have agreed, and may agree in the future, to indemnify
certain of our customers against claims that our software infringes upon the
intellectual property rights of others. We could incur substantial costs in
defending ourselves and our customers against infringement claims. In the event
of a claim of infringement, we and our customers may be required to obtain one
or more licenses from third parties. We or our customers may be unable to
obtain necessary licenses from third parties at a reasonable cost, or at all.
Defense of any lawsuit or failure to obtain any such required licenses could
harm our business, operating results and financial condition.
Litigation over intellectual property rights could disrupt or otherwise have
a negative impact on our business.
There has been frequent litigation in the computer industry regarding
intellectual property rights. Third parties may make claims of infringement by
us with respect to current or future products, trademarks or other proprietary
rights. These claims could be time-consuming, result in costly litigation,
divert management's attention, cause product or service release delays, require
us to redesign our products or services or require us to enter into costly
royalty or licensing agreements. Any of these effects could have a material and
adverse effect on our financial condition and results of operations.
If we become subject to product liability litigation, it could be costly and
time consuming to defend.
Since our products are used for company-wide, integral computer applications
with potentially strong impact on our customers' sales of their products,
errors, defects or other performance problems could result in financial or
other damages to our customers. Product liability litigation, even if we are
successful, would be time consuming and costly to defend.
Risks Related To Our Industry
We are highly dependent on the acceptance and effectiveness of the Internet
as a medium for business-to-business commerce.
Our future revenues and the success of a number of our products and services
is dependent in large part on an increase in the use of the Internet for
business-to-business commerce. The failure of the Internet to continue to
develop as a commercial or business medium could harm our business, operating
results and financial
9
<PAGE>
condition. The acceptance and use of the Internet for business-to-business
commerce could be limited by a number of factors, such as the growth and the
use of the Internet in general, the threat of illegal activity that causes
performance degradations at unprotected sites across the Internet, the relative
ease of conducting business on the Internet, the efficiencies and improvements
that conducting commerce on the Internet provides, concerns about transaction
security and taxation of transactions on the Internet.
We depend on the speed and reliability of the Internet.
The recent growth in Internet traffic has caused frequent periods of
decreased performance. If Internet usage continues to grow rapidly, its
infrastructure may not be able to support these demands and its performance and
reliability may decline. Decreased performance at some unprotected Internet
sites has also been attributed to illegal attacks by third parties. If outages
or delays on the Internet occur frequently or increase in frequency, or
businesses are not able to protect themselves adequately from such illegal
attacks, business-to-business e-commerce could grow more slowly or decline,
which may reduce the demand for our software products and services. The ability
of our Click Commerce application suite to satisfy our customers' needs is
ultimately limited by and depends upon the speed and reliability of the
Internet. Consequently, the emergence and growth of the market for our software
products and services depends upon improvements being made to the entire
Internet to alleviate overloading and congestion. If these improvements are not
made, the ability of our customers to benefit from our Click Commerce products
and services will be hindered, and our business, operating results and
financial condition may suffer.
Increased security risks of online commerce may deter future use of our
software products and services.
A fundamental requirement of Internet-based, business-to-business e-commerce
is the secure transmission of confidential information over public networks.
Advances in computer capabilities, new discoveries in the field of
cryptography, or other developments may result in a compromise or a breach of
the security features contained in our software or the algorithms used by our
customers and their business partners to protect content and transactions on
Internet e-commerce marketplaces or proprietary information in our customers'
and their business partners' databases. Anyone who is able to circumvent
security measures could misappropriate proprietary, confidential customer
information or cause interruptions in our customers' and their business
partners' operations. Our customers and their business partners may be required
to incur significant costs to protect against security breaches or to alleviate
problems caused by breaches, reducing the demand for our software products and
services. Further, a well-publicized compromise of security could deter
businesses from using the Internet to conduct transactions that involve
transmitting confidential information. The failure of the security features of
our software to prevent security breaches, or well-publicized security breaches
affecting the Internet in general, could significantly harm our business,
operating results and financial condition.
Internet-related laws could adversely affect our business.
Regulation of the Internet is largely unsettled. The adoption of laws,
regulations or taxes that increase the costs or administrative burdens of doing
business using the Internet could cause companies to seek an alternative means
of transacting business. If the adoption of new Internet laws, regulations or
taxes causes companies to seek alternative methods for conducting business, the
demand for our software products and services could decrease and our business
could be adversely affected.
Risks Related To This Offering
Stock prices of emerging Internet companies have been highly volatile, and
the market for our stock may exhibit volatility as well.
The stock prices of technology companies, particularly Internet-related
software companies such as ours, have been and continue to be extremely
volatile. Fluctuations in our common stock's price may affect our visibility
and credibility in the business-to-business e-commerce market. In the event of
broad fluctuations in the market price of our common stock, you may be unable
to resell your shares at or above the offering price.
10
<PAGE>
The large number of shares eligible for public sale after this offering
could cause our stock price to decline.
The market price of our common stock could decline as a result of sales of a
large number of shares after this offering or the perception that sales could
occur. These sales also might make it more difficult for us to sell common
stock in the future at a time and at a price that we deem appropriate. After
this offering, we will have an aggregate of 37,281,450 shares outstanding. If
all options and warrants currently outstanding to purchase shares of our common
stock are exercised, there will be 43,712,720 shares outstanding. Of the
outstanding shares, the 5,000,000 shares sold in this offering will be freely
tradable, other than shares purchased by our affiliates. The remaining shares
may be sold only pursuant to a registration statement under the Securities Act
or an exemption from the registration requirements of the Securities Act. After
the closing of this offering, holders of 32,761,639 shares of common stock will
be entitled to registration rights with respect to the registration of their
shares under the Securities Act.
As a new investor, you will experience immediate dilution of 86% in the
value of the common stock.
If you purchase shares of our common stock in this offering, you will incur
immediate dilution of 86% in pro forma net tangible book value. If the holders
of outstanding options exercise those options, you will incur further dilution.
Our management will have broad discretion in using the proceeds from this
offering and therefore investors will be relying on the judgment of our
management to invest those funds effectively.
We are conducting this offering primarily to increase our equity capital,
create a public market for our common stock and facilitate access by us to
public equity markets. We intend to use the proceeds we receive from the
offering for working capital and general corporate purposes. We may use a
portion of the net proceeds of this offering to acquire technology or
businesses, or make investments in businesses, that are complementary to our
business. Currently, we have no specific acquisitions or investments planned.
Accordingly, our management will retain broad discretion with respect to the
expenditure of proceeds. Investors will be relying on the judgment of our
management regarding the application of the proceeds of this offering. If our
management uses the proceeds of this offering ineffectively, this could have a
negative effect on our financial condition, which could cause our stock price
to decline.
We may be unable to raise additional financing.
We may need to raise additional funds in the future in order to implement
our business plan, to fund more aggressive marketing programs or to acquire
complementary businesses, technologies or services. Any required additional
financing may be unavailable on terms favorable to us, or at all. If we raise
additional funds by issuing equity securities, you may experience significant
dilution of your ownership interest and these securities may have rights senior
to those of the holders of our common stock. If additional financing is not
available when required or is not available on acceptable terms, we may be
unable to fund our expansion, develop or enhance our products and services,
take advantage of business opportunities or respond to competitive pressures.
We do not plan to pay dividends in the foreseeable future.
We do not anticipate paying cash dividends to the holders of our common
stock in the foreseeable future. Accordingly, investors must rely on sales of
their common stock after price appreciation, which may never occur, as the only
way to realize on their investment. Investors seeking cash dividends should not
purchase our common stock.
A third party's ability to acquire us might be more difficult because of
anti-takeover provisions in our amended and restated certificate of
incorporation and amended and restated bylaws.
We are authorized to issue five million shares of undesignated preferred
stock. Our Board of Directors has the authority to issue the preferred stock in
one or more series and to fix the price, rights, preferences, privileges
11
<PAGE>
and restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation
of any series, without any further vote or action by our stockholders. The
issuance of preferred stock could have the effect of delaying, deferring or
preventing a change in control of our company without further action by our
stockholders and may adversely affect the stockholders. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of our common stock, including the loss of voting
control to others.
Provisions of our certificate of incorporation and bylaws eliminate the
right of stockholders to act by written consent without a meeting, eliminate
the right of stockholders to call a special meeting of stockholders, specify
procedures for nominating directors and submitting proposals for consideration
at stockholder meetings and provide for a staggered Board of Directors, so that
no more than approximately one-third of our directors could be replaced each
year and it would take three successive annual meetings to replace all
directors. These provisions are designed to reduce the vulnerability of our
company to an unsolicited acquisition proposal and, accordingly, could
discourage potential acquisition proposals and delay or prevent a change in
control of our company. These provisions could have the effect of discouraging
others from making tender offers for our common stock and, consequently, may
also inhibit increases in the market price of our common stock that could
result from actual or rumored takeover attempts. These provisions may also have
the effect of preventing changes in the management of our company.
Our officers, directors and affiliated entities will control many corporate
actions.
We anticipate that our executive officers and directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
63.71% of our outstanding common stock following the completion of this
offering. These stockholders, if acting together, would be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions.
12
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "intend," "anticipate,"
"believe," "estimate" and "continue" or similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections of our future results of operations or of
our financial condition or state other forward-looking information. However,
there may be events in the future that we are not able to predict or control.
The factors listed in the sections captioned "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that
the occurrence of the events described in the "Risk Factors" section and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section and elsewhere in this prospectus could have a material
adverse effect on our business, operating results and financial condition.
13
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 5,000,000 shares of
common stock will be approximately $45.5 million, assuming an initial public
offering price of $10 per share (the midpoint of the range set forth on the
cover of this preliminary prospectus) after deducting underwriting discounts
and commissions and estimated offering expenses payable by us. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $52.5 million.
We are conducting this offering primarily to increase our equity capital,
create a public market for our common stock, facilitate future access by us to
public equity markets and increase our visibility in the marketplace. We intend
to use the net proceeds for working capital and general corporate purposes,
including
. approximately $5 to $7 million to expand our international presence;
. approximately $2 to $5 million on business development; and
. approximately $2 to $5 million to improve our product technology through
entering into agreements with technology companies, increasing the number
of our software programming personnel and expanding our training efforts.
We may also use a portion of the net proceeds of this offering to acquire
technology or businesses, or to make investments in businesses, that are
complementary to our business. Currently, we have no specific acquisitions or
investments planned.
Our use of the net proceeds may change depending on market conditions and
other factors beyond our control. Pending such uses, we plan to invest the net
proceeds in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, for use in
the operation of the business.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. The
pro forma information gives effect to the conversion of all of our outstanding
preferred stock into 9,565,220 shares of common stock immediately prior to the
consummation of this offering. The pro forma as adjusted information reflects
the foregoing as well as our receipt of the net proceeds from the issuance and
sale of the shares of common stock in this offering, assuming an initial public
offering price of $10 per share (the midpoint of the range), after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by us.
The outstanding share information:
. excludes an aggregate of 7,772,842 shares of common stock currently
reserved for issuance under our Stock Option and Stock Award Plan, of
which 4,756,000 shares are subject to outstanding options at a weighted
average exercise price of $2.88 per share;
. excludes an aggregate of 500,000 shares of common stock currently
reserved for issuance under our Directors' Stock Option and Stock Award
Plan, none of which are subject to outstanding options;
. excludes an aggregate of 857,044 shares of common stock currently
subject to additional outstanding options at an exercise price of
$0.0025 per share;
. excludes 88,938 shares of common stock issued upon exercise of options
in April 2000 at an exercise price of $0.0025 per share; and
. excludes 818,226 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $12.22 per share issued in
April 2000.
<TABLE>
<CAPTION>
As of March 31, 2000
(unaudited)
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(dollars in thousands, except
per share data)
<S> <C> <C> <C>
Capital lease obligation, less current portion. $ 164 $ 164 $ 164
Series A convertible participating preferred
stock, $0.001 par value, 12,000,000 shares
authorized and 5,217,392 issued and
outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro
forma as adjusted............................. 10,179 -- --
Series B convertible participating preferred
stock, $0.001 par value, 8,000,000 shares
authorized; 4,347,828 shares issued and
outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro
forma as adjusted............................. 8,247 -- --
Shareholders' equity:
Preferred stock, $0.001 par value, 5,000,000
shares authorized, no shares issued and
outstanding, actual, pro forma and pro forma
as adjusted................................. -- -- --
Common stock, $0.001 par value, 75,000,000
shares authorized, 22,627,292 shares issued
and outstanding, actual; 32,192,512 shares
issued and outstanding, pro forma;
37,192,512 shares issued and outstanding,
pro forma as adjusted....................... 23 32 37
Additional paid-in capital................... 3,252 21,669 67,164
Accumulated deficit.......................... (11,795) (11,795) (11,795)
Deferred compensation........................ (4,301) (4,301) (4,301)
-------- -------- --------
Total shareholders' equity (deficit)........... (12,821) 5,605 51,105
-------- -------- --------
Total capitalization........................... $ 5,769 $ 5,769 $ 51,269
======== ======== ========
</TABLE>
15
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
2000, after giving effect to the conversion of all outstanding shares of
convertible preferred stock into 9,565,220 shares of common stock immediately
prior to the consummation of this offering, was approximately $5.6 million, or
$0.17 per share of common stock. Pro forma net tangible book value per share
represents our total assets less total liabilities and intangibles, divided by
the 32,192,512 shares of common stock outstanding after giving effect to the
conversion. Dilution per share to new investors is the difference between the
amount per share paid by purchasers of common stock in this offering and the
pro forma net tangible book value per share of common stock immediately after
completion of this offering. After giving effect to the sale by us of 5,000,000
shares of common stock in this offering, assuming an initial public offering
price of $10 per share (the midpoint of the range set forth on the cover page
of this preliminary prospectus), and after deducting underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value as of December 31, 1999 would have been $51.1 million, or
$1.37 per share. This represents an immediate increase in pro forma net
tangible book value to existing stockholders of $1.20 per share. Assuming an
offering price of the midpoint of the range set forth on the cover of this
preliminary prospectus, the offering price of $10 per share substantially
exceeds $1.37 per share, which is the per share value of our total assets less
total liabilities and intangibles after this offering. Accordingly, new
investors who purchase common stock in this offering will suffer an immediate
dilution of their investment of $8.63 per share. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $10.00
Pro forma net tangible book value per share as of December
31, 1999.................................................... $0.17
Increase in pro forma net tangible book value per share
attributable to new investors............................... 1.20
-----
Pro forma net tangible book value per share after this
offering...................................................... 1.37
------
Dilution per share to new investors............................ $ 8.63
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
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 new investors, before deducting the underwriting
discounts and commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ ------------------- Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 32,192,512 87% $11,004,729 18% $ 0.34
New investors................. 5,000,000 13 50,000,000 82 10.00
---------- --- ----------- ---
Total....................... 37,192,512 100% $61,004,729 100% $ 1.64
========== === =========== === ======
</TABLE>
The table above assumes no exercise of outstanding stock options or
warrants. We have an aggregate of 8,272,842 shares of common stock currently
reserved for issuance under our stock option plans, of which 4,756,000 shares
are subject to outstanding options at a weighted average exercise price of
$2.88 per share. In addition, 857,044 shares currently are subject to
additional outstanding options at an exercise price of $0.0025 per share. As of
April 2000, we also have an aggregate of 818,226 shares of common stock subject
to outstanding warrants at an exercise price of $12.22 per share. To the extent
outstanding options are exercised, there will be further dilution to new
investors.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our financial statements and the notes to our financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statements of
operations data for the years ended December 31, 1997, 1998 and 1999, and the
balance sheet data as of December 31, 1998 and 1999, are derived from our
financial statements that have been audited by KPMG LLP, independent auditors,
which are included elsewhere in this prospectus. The statement of operations
data for the period from August 20, 1996 (inception) to December 31, 1996 and
the three months ended March 31, 1999 and 2000 and the balance sheet data as
of December 31, 1996 and 1997 and March 31, 2000 are derived from our
unaudited financial statements which, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of our financial position and results for the
unaudited periods presented. The historical results presented below are not
necessarily indicative of the results to be expected for any future fiscal
year.
<TABLE>
<CAPTION>
Period from
August 20,
1996 Three Months ended
(inception) to Year ended December 31, March 31,
December 31, --------------------------------- ------------------------
1996 1997 1998 1999 1999 2000
-------------- ---------- ---------- ---------- ----------- -----------
(unaudited) (unaudited) (unaudited)
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 166 $ 1,322 $ 2,390 $ 9,952 $ 1,534 $ 5,124
Cost of revenue
(exclusive of $1 for
the year ended December
31, 1999 and $1 and $4
for the three months
ended March 31, 1999
and 2000, respectively,
reported below as
amortization of
deferred stock
compensation).......... 39 379 712 2,669 277 1,555
---------- ---------- ---------- ---------- ---------- ----------
Gross profit............ 127 943 1,678 7,283 1,257 3,569
Operating expenses:
Sales and marketing
(exclusive of $29 for
the year ended
December 31, 1999 and
$29 and $101 for the
three months ended
March 31, 1999 and
2000, respectively,
reported below as
amortization of
deferred stock
compensation)......... -- 174 434 2,810 214 1,649
Research and
development (exclusive
of $410 for the year
ended December 31,
1999 and $8 and $23
for the three months
ended March 31, 1999
and 2000,
respectively, reported
below as amortization
of deferred stock
compensation)......... -- -- 149 729 75 896
General and
administrative
(exclusive of $187 and
$27 for the years
ended December 31,
1998 and 1999,
respectively, and $27
and $142 for the three
months ended March 31,
1999 and 2000,
respectively, reported
below as amortization
of deferred stock
compensation)......... 140 720 987 2,762 283 1,246
Amortization of
deferred stock
compensation.......... -- -- 187 467 92 270
---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 140 894 1,757 6,768 664 4,061
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss). (13) 49 (79) 515 593 (492)
Other expense (income),
net.................... -- 1 3 (100) (1) (17)
Income tax expense
(benefit).............. -- 29 (17) 298 260 (141)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... (13) 19 (65) 317 334 (334)
Accretion related to
redeemable preferred
stock.................. -- -- -- (3,712) -- (4,113)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)
available to common
shareholders........... $ (13) $ 19 $ (65) $ (3,395) $ 334 $ (4,447)
========== ========== ========== ========== ========== ==========
Basic earnings (loss)
per share.............. $ (0.00) $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
---------- ---------- ---------- ---------- ---------- ----------
Diluted earnings (loss)
per share.............. $ (0.00) $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
========== ========== ========== ========== ========== ==========
Weighted average shares
used in computing basic
earnings (loss) per
share(1)............... 26,400,000 26,400,000 26,400,000 24,371,578 26,400,000 22,431,995
Weighted average shares
used in computing
diluted earnings (loss)
per share.............. 26,400,000 26,400,000 26,400,000 24,371,578 29,868,108 22,431,995
Pro forma basic earnings
(loss) per share....... $ 0.01 $ (0.01)
========== ==========
Pro forma diluted
earnings (loss) per
share.................. $ 0.01 $ (0.01)
========== ==========
Net income (loss) used
in computing pro forma
basic and diluted
earnings per share..... $ 317 $ (334)
Shares used in computing
pro forma basic
earnings per share(2).. 29,245,910 31,997,215
Shares used in computing
pro forma diluted
earnings
per share(2)........... 33,206,994 31,997,215
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------- As of March 31,
1996 1997 1998 1999 2000
----- ----- ------ ------- ---------------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents and short-
term investments ...... $ 13 $ 271 $ 120 $ 6,304 $ 3,775
Working capital......... (16) (75) (154) 5,019 4,443
Total assets............ 67 400 1,077 9,934 9,786
Billings in excess of
revenues earned on
contracts in progress.. -- -- 214 2,026 1,096
Capital lease
obligations, less
current portion........ -- 15 2 84 164
Convertible
participating preferred
stock.................. -- -- -- 14,312 18,426
Total shareholders'
equity (deficit)....... (13) (6) 55 (8,586) (12,821)
</TABLE>
--------
(1) See Note 10 of Notes to Financial Statements for an explanation of the
determination of the number of shares used to compute basic and diluted
earnings (loss) per share.
(2) Shares used in computing pro forma basic and diluted earnings per share
include the shares used in computing basic and diluted earnings (loss) per
share adjusted for the conversion of our convertible preferred stock to
common stock, as if the conversion occurred at the date of original
issuance.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of the financial
condition and results of operations of Click Commerce in conjunction with
"Selected Financial Data" and Click Commerce's financial statements and
related notes appearing elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this prospectus.
Overview
Click Commerce provides business-to-business electronic commerce enterprise
channel management software products and integration services for
manufacturing companies. Our software products and services automate all forms
of communication and business processes across the distribution channel,
allowing manufacturers to leverage the power of the Internet to provide their
channel partners real-time access to products, services and information.
We commenced operations on August 20, 1996. During the period from our
inception until early 1998, we were primarily engaged in developing our
software for the Extranet Manager. In 1996 and 1997, we were also engaged in
developing Internet Web sites and providing related consulting services. We
implemented the first Click Commerce Extranet Manager in the second quarter of
1997. Through March 31, 2000, we have implemented extranets for 22 customers.
Our revenue is derived from sales of licenses of our Click Commerce
software, comprised of the Extranet Manager and 80 applications, needs
analyses and maintenance and support. We generally license our software on a
perpetual basis. Revenue from the sale of software licenses is recognized on a
percentage completion basis as services are performed to customize and install
the software under fixed price contracts. The percentage completed is measured
by the percentage of labor hours incurred to date in relation to estimated
total labor hours for each contract of sale. As our products become more
standardized and we provide less customization service in the future, on some
of our contracts we may measure the percentage completed as various milestones
are reached. When we begin selling our software products separately from our
integration services, we may recognize software license revenue on some
contracts upon shipment of our software, provided that the fee is fixed and
determinable, persuasive evidence of an arrangement exists and collection of
the resulting receivable is considered probable. We will continue to recognize
revenue on our service contracts on a percentage completion basis. License
fees are billed as various milestones are reached during the contract,
typically upon signing, at initial testing, and upon completion of the
installation. Maintenance service, which includes the right to receive product
upgrades on a when-and-if available basis, is sold separately under contracts
that are renewable annually. We anticipate that we will sell maintenance
service to most, but not all customers. We recognize maintenance service
revenue ratably over the contract period, typically one year. Maintenance fees
are generally billed annually in advance. As part of the sales process we
perform a needs analysis for the potential customer on a fixed fee basis.
Revenue from needs analyses is recognized as the work is performed.
We record cash receipts from customers and billed amounts due from
customers in excess of recognized revenue as billings in excess of revenues
earned on contracts in progress. The timing and amount of cash receipts from
customers can vary significantly depending on specific contract terms and can
therefore have a significant impact on the amount of billings in excess of
revenues at the end of any given period.
Cost of revenue includes salaries and related expenses for our project
management and technical support personnel who provide customization and
installation services to our customers and an allocation of business
consulting personnel salaries and data processing and overhead costs.
Our operating expenses are classified into four general categories: sales
and marketing, research and development, general and administrative and
amortization of deferred stock compensation. Sales and marketing
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expenses consist primarily of salaries and other related costs for sales and
marketing personnel, sales commissions, travel, public relations and marketing
materials. Research and development expenses consist primarily of personnel
costs to support product development. General and administrative expenses
consist primarily of salaries and other related costs for executive
management, finance and administrative employees, legal and accounting
services and facilities-related expenses. Amortization of deferred stock
compensation represents the amortization over the related service period of
the difference between the exercise price of options granted and the estimated
fair market value of the underlying common stock on the date of grant. We have
amortized deferred compensation charges of $467,000 for the year ended
December 31, 1999 and $270,000 for the three months ended March 31, 2000. Such
charges will reduce future earnings or increase future losses by the following
annual amounts: 2000, $1.8 million; 2001, $1.1 million; 2002, $0.9 million;
2003, $0.7 million; 2004, $112,000; and 2005, $32,000.
In April 2000, the Company issued a warrant to Andersen Consulting, LLP to
purchase up to 818,226 shares of common stock at $12.22 per share. The warrant
vests contingently upon the achievement of certain milestones, primarily the
generation of license revenue for the Company, and expires on April 20, 2004.
The warrant contains a significant cash penalty for Andersen's failure to meet
the agreed revenue target by the expiration date, and, accordingly, the fair
value of the warrant was measured at the date of grant in accordance with
Emerging Issues Task Force Issue No. 96-18, resulting in a fair value of
approximately $5.0 million. The fair value of the warrant was determined using
the Black-Scholes pricing model, assuming a risk free interest rate of 6.0%, a
volatility factor of 1.00 and an estimated fair value at the time of grant of
$9.00 per common share. This amount will be included in additional paid-in
capital and will be amortized to sales and marketing expense over the vesting
period of the warrants. We will recognize amortization expense of $824,000 in
2000, $1,236,000 in 2001, $1,236,000 in 2002, $1,236,000 in 2003 and $412,000
in 2004.
We had 25 full-time employees as of December 31, 1998 and 131 full-time
employees as of May 31, 2000. We intend to hire approximately an additional 75
to 100 employees in fiscal 2000, and intend to focus our recruiting efforts in
the area of sales and marketing and project management. We will also hire a
number of business consultants who perform needs analyses. This expansion will
continue to place significant demands on our management and operational
resources. To manage this rapid growth and increased demand, we must invest in
and implement scalable operational systems, procedures and controls. We must
also be able to recruit qualified candidates to manage our expanding
operations. We expect future expansion to continue to challenge our ability to
hire, train, manage and retain our employees.
Our limited operating history makes the prediction of future operating
results very difficult. We sold and implemented the first Click Commerce
Extranet Manager in the second quarter of 1997. We believe that period-to-
period comparisons of operating results should not be relied upon as
predictive of future performance because the substantial increase in revenues
in recent periods may not be sustainable. Our prospects must be considered in
light of the risks, expenses and difficulties encountered by companies at an
early stage of development, particularly companies in new and rapidly evolving
markets. We may not be successful in addressing such risks and difficulties.
Although we have experienced significant percentage growth in revenues in
recent periods, we believe that prior growth rates may not be sustainable or
indicative of future operating results.
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Results of Operations
The following table represents selected financial data for the years
indicated as a percentage of total revenue.
<TABLE>
<CAPTION>
Three Months
Year ended December 31, ended March 31,
-------------------------- ----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Percentage of Total Revenue:
Revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue (exclusive of
amortization of deferred stock
compensation reported below)... 28.7 29.8 26.8 18.1 30.3
------- ------- ------- ------- -------
Gross profit.................... 71.3 70.2 73.2 81.9 69.7
Operating expenses:
Sales and marketing (exclusive
of amortization of deferred
stock compensation reported
below)....................... 13.2 18.2 28.2 14.0 32.2
Research and development
(exclusive of amortization of
deferred stock compensation
reported below) ............. 0.0 6.2 7.3 4.9 17.5
General and administrative
(exclusive of amortization of
deferred stock compensation
reported below).............. 54.5 41.3 27.8 18.4 24.3
Amortization of deferred stock
compensation................. 0.0 7.8 4.7 6.0 5.3
------- ------- ------- ------- -------
Total operating expenses........ 67.7 73.5 68.0 43.3 79.3
------- ------- ------- ------- -------
Operating income (loss)......... 3.7 (3.3) 5.2 38.7 (9.6)
Other income (expense).......... (0.1) (0.1) 1.0 0.1 0.3
------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... 3.6 (3.4) 6.2 38.7 (9.3)
Income tax expense (benefit).... 2.2 (0.7) 3.0 16.9 (2.8)
------- ------- ------- ------- -------
Net income (loss)............... 1.4% (2.7)% 3.2% 21.8% (6.5)%
======= ======= ======= ======= =======
</TABLE>
Comparison of the three months ended March 31, 2000 to the three months
ended March 31, 1999
Revenue
Total revenue increased to $5.1 million for the three months ended March
31, 2000 from $1.5 million for the three months ended March 31, 1999. This
increase of $3.6 million, or 234%, was primarily attributable to an increase
in license fees of $3.3 million and an increase in consulting services of
approximately $300,000.
Cost of Revenue
Cost of revenue increased approximately $1.3 million, or 461%, to $1.6
million for the three months ended March 31, 2000 from $277,000 for the three
months ended March 31, 1999. This increase was primarily attributable to an
increase in the number of project management personnel from fourteen at March
31, 1999 to fifty at March 31, 2000 resulting in an increase of approximately
$1.2 million in compensation and related expenses.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by
approximately $1.4 million, or 670%, to $1.6 million for the three months
ended March 31, 2000 from $214,000 for the three months ended March 31, 1999.
The increase in sales and marketing expenses is primarily attributable to an
increase in the number of sales and marketing employees from eleven at March
31, 1999 to thirty-seven at March 31, 2000 resulting in an increase of
approximately $1.2 million in compensation and related expenses. We expect
these expenses to significantly increase as we expand our sales and marketing
efforts, including opening additional sales offices in Europe.
Research and Development. Research and development expenses increased
$821,000 or 1095% to $896,000 for the three month period ended March 31, 2000,
compared to the prior year three month period. This increase
21
<PAGE>
is primarily attributable to an increase in the number of product development
personnel from five at March 31, 1999 to eleven at March 31, 2000 resulting in
$777,000 of additional compensation, fees and related expenses. To date, all
software development costs have been expensed as incurred.
General and Administrative. General and administrative expenses increased by
approximately $963,000, or 340%, to $1.2 million for the three months ended
March 31, 2000 from $283,000 for the three months ended March 31, 1999. This
increase is primarily attributable to an increase in our management and other
administrative personnel from four at March 31, 1999 to twelve at March 31,
2000. The addition of eight employees resulted in additional costs of
approximately $530,000 in compensation and related expenses. We also incurred
additional expenses of $117,000 related to professional and consulting fees,
and $56,000 of additional bad debt reserve. We believe general and
administrative expenses will increase significantly in future periods, as we
expect to add personnel to support our expanding operations and incur
additional costs related to the growth of our business.
Amortization of Deferred Stock Compensation. We have recorded deferred
compensation for the difference between the exercise price of some stock option
grants and the deemed fair value of our common stock at the time of those
grants. Deferred stock compensation is being amortized over the vesting periods
of the applicable options, resulting in expense of $92,000 and $270,000 during
the three months ended March 31, 1999 and March 31, 2000, respectively.
Comparison of year ended December 31, 1999 to year ended December 31, 1998
Revenue
Total revenue increased to $10.0 million for the year ended December 31,
1999 from $2.4 million for the year ended December 31, 1998. This increase of
approximately $7.6 million, or 316%, was primarily due to an increase in our
software license revenue based upon:
. an increase in the number of new customers from seven to fourteen;
. an increase in average contract size from approximately $450,000 to
approximately $1.1 million;
. an increase in the number of applications offered by us from
approximately 35 at December 31, 1998 to 70 at December 31, 1999.
. additional sales to existing customers;
We also had increased revenue from our consulting services and maintenance
contracts.
Cost of Revenue
Cost of revenue increased approximately $2.0 million, or 275%, to $2.7
million for the year ended December 31, 1999 from $712,000 for the year ended
December 31, 1998. This increase was attributable to increased salary and
related expenses for project management personnel, which increased from
approximately $627,000 in fiscal 1998 to approximately $2.5 million in fiscal
1999
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by approximately
$2.4 million, or 547%, to $2.8 million for the year ended December 31, 1999
from $435,000 for the year ended December 31, 1998. The increase in sales and
marketing expenses is primarily attributable to an increase in the number of
sales and marketing employees from eight at the end of fiscal 1998 to twenty-
two at the end of fiscal 1999, and to the establishment of marketing programs
in fiscal 1999. The increase in the number of sales and marketing employees
resulted in approximately $1.7 million in compensation and related expenses. In
addition, the establishment of marketing programs resulted in an increase in
spending from $26,000 in fiscal 1998 to
22
<PAGE>
approximately $590,000 in fiscal 1999. We expect these expenses to
significantly increase as we expand our sales and marketing efforts, including
opening offices in Europe.
Research and Development. Research and development expenses increased by
approximately $580,000, or 388%, to $729,000 for the year ended December 31,
1999 from $149,000 for the year ended December 31, 1998. This increase is
attributable to the increase in the number of product development, quality
assurance and documentation personnel to support our product development
efforts from three at the end of fiscal 1998 to fourteen at the end of fiscal
1999. We believe that continued investment in research and development is
critical to attain our objectives, and, as a result, we expect research and
development expenses to increase significantly in future periods. To date, all
software development costs have been expensed in the period incurred.
General and Administrative. General and administrative expenses increased
by approximately $1.8 million, or 180%, to $2.8 million for the year ended
December 31, 1999 from $1.0 million for the year ended December 31, 1998. This
increase is primarily attributable to an increase in our management and other
administrative personnel from three at the end of fiscal 1998 to thirteen at
the end of fiscal 1999. This ten person increase resulted in additional costs
of approximately $1.5 million in compensation and related expenses, including
travel and recruiting costs. We believe general and administrative expenses
will increase significantly in future periods, as we expect to add personnel
to support our expanding operations and incur additional costs related to the
growth of our business.
Amortization of Deferred Stock Compensation. We have recorded deferred
compensation for the difference between the exercise price of some stock
option grants and the deemed fair value of our common stock at the time of
such grants. Deferred stock compensation is being amortized over the vesting
periods of the applicable options, resulting in amortization expense of
$467,000 for the year ended December 31, 1999 compared to $187,000 for the
year ended December 31, 1998.
Other Income (Expense)
For the year ended December 31, 1999, we earned $100,000 in other income,
net, an increase of $103,000 from the year ended December 31, 1998. This
increase was due to an increase in interest income of $105,000, partially
offset by an increase of $2,000 in other expense.
Comparison of year ended December 31, 1998 to year ended December 31, 1997
Revenue
Total revenue increased to $2.4 million for the year ended December 31,
1998 from $1.3 million for the year ended December 31, 1997. This increase of
approximately $1.1 million, or 81%, was primarily due to an increase of
$628,000 in consulting services to perform needs analyses and $400,000 in
software license revenue. In 1997, license fees were earned from contracts to
develop the Extranet Manager, which was first implemented in the second
quarter of 1997.
Cost of Revenue
Cost of revenue increased by approximately $333,000, or 88%, to $712,000
for the year ended December 31, 1998 from $379,000 for the year ended December
31, 1997. This increase was primarily attributable to increased salary and
related expenses for project management personnel, which increased from
approximately $329,000 in fiscal 1997 to approximately $627,000 in fiscal
1998.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by
approximately $261,000, or 150%, to $435,000 million for the year ended
December 31, 1998 from $174,000 for the year ended December 31, 1997. This
increase was primarily attributable to increases in compensation and related
costs of $188,000 and $55,000 of additional occupancy costs.
23
<PAGE>
Research and Development. Research and development expenses increased by
$149,000 to $149,000 for the year ended December 31, 1998. Product development
costs in 1997 were directly related to customer contracts and classified as
cost of revenue.
General and Administrative. General and administrative expenses increased by
approximately $267,000, or 37%, to $987,000 for the year ended December 31,
1998 from $720,000 for the year ended December 31, 1997. This was primarily
attributable to an increase of approximately $245,000 in overhead and other
general corporate costs.
Amortization of Deferred Compensation Expense. We have recorded deferred
compensation for the difference between the exercise price of certain stock
option grants and the deemed fair value of our common stock at the time of such
grants. We amortized this amount over the vesting periods of the applicable
options, resulting in amortization expense of $187,000 for the year ended
December 31, 1998. There was no amortization expense in 1997.
Quarterly Results of Operations
The following table presents our unaudited quarterly operating results for
each of the last nine quarters, both in absolute dollars and as a percentage of
our total revenue for each quarter. This information has been derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on the same basis as the audited financial statements contained in
this prospectus and include all adjustments, consisting only of normal
recurring adjustments that we consider necessary for a fair presentation of
such information. You should read this information in conjunction with our
annual audited financial statements and related notes appearing elsewhere in
this prospectus. You should not draw any conclusions about our future results
from the results of operations for any quarter.
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $331 $354 $843 $ 862 $1,534 $1,608 $2,092 $4,717 $5,124
Cost of revenue
(exclusive of
amortization of
deferred stock
compensation reported
below)................. 71 143 205 293 277 489 689 1,214 1,555
---- ---- ---- ----- ------ ------ ------ ------ ------
Gross profit............ 260 211 638 569 1,257 1,119 1,403 3,503 3,569
Operating expenses:
Sales and marketing
(exclusive of
amortization of
deferred stock
compensation reported
below)................ 24 75 117 218 214 397 766 1,433 1,649
Research and
development (exclusive
of amortization of
deferred stock
compensation reported
below)................ 23 18 25 83 75 147 175 332 896
General and
administrative
(exclusive of
amortization of
deferred stock
compensation reported
below)................ 265 183 230 309 283 529 773 1,177 1,246
Amortization of
deferred stock
compensation.......... -- -- -- 187 92 294 16 64 270
---- ---- ---- ----- ------ ------ ------ ------ ------
Total operating
expenses............... 312 276 372 797 664 1,367 1,730 3,006 4,061
---- ---- ---- ----- ------ ------ ------ ------ ------
Operating income (loss). (52) (65) 266 (228) 593 (248) (327) 497 (492)
Other income (expense).. (2) (2) (1) 2 1 1 54 45 17
---- ---- ---- ----- ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (54) (67) 265 (226) 594 (247) (273) 542 (475)
Income tax expense
(benefit).............. (11) (14) 54 (46) 260 (20) (152) 210 (141)
---- ---- ---- ----- ------ ------ ------ ------ ------
Net income (loss)....... $(43) $(53) $211 $(180) $ 334 $ (227) $ (121) $ 332 $ (334)
==== ==== ==== ===== ====== ====== ====== ====== ======
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
As a Percentage of Total Revenue
----------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue
(exclusive of
amortization of
deferred stock
compensation reported
below)................. 21.5 40.4 24.3 34.0 18.1 30.4 32.9 25.7 30.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 78.5 59.6 75.7 66.0 81.9 69.6 67.1 74.3 69.7
Operating expenses:
Sales and marketing
(exclusive of
amortization of
deferred stock
compensation reported
below)................ 7.3 21.2 13.9 25.3 14.0 24.7 36.6 30.4 32.2
Research and
development (exclusive
of amortization of
deferred stock
compensation reported
below)................ 6.9 5.1 2.9 9.6 4.9 9.1 8.4 7.0 17.5
General and
administrative
(exclusive of
amortization of
deferred stock
compensation reported
below)................ 80.0 51.7 27.3 35.8 18.4 32.9 37.0 25.0 24.3
Amortization of
deferred stock
compensation.......... -- -- -- 21.7 6.0 18.3 0.7 1.4 5.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............... 94.2 78.0 44.1 92.4 43.3 85.0 82.7 63.7 79.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss). (15.7) (18.4) 31.5 (26.4) 38.6 (15.4) (15.6) 10.5 (9.6)
Other income, (expense). (0.6) (0.6) (0.1) 0.2 0.1 0.1 2.6 0.9 0.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... (16.3) (19.0) 31.4 (26.2) 38.7 (15.3) (13.0) 11.5 (9.3)
Income tax expense
(benefit).............. (3.3) (4.0) 6.4 (5.3) 16.9 (1.2) (7.3) 4.4 (2.8)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (13.0) (15.0) 25.0 (20.9) 21.8 (14.1) (5.7) 7.0 (6.5)
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Liquidity and Capital Resources
For the three months ended March 31, 2000, we financed our operations from a
portion of the cash generated from the sale of preferred stock in June and
July, 1999. Through December 31, 1999, our cash requirements were funded by
cash flow from operations and, to a lesser extent, from equipment financings.
At March 31, 2000, we had $3.8 million in cash, cash equivalents and short-term
investments.
Cash used by operating activities was $2.1 million for the three months
ended March 31, 2000 and cash provided by operating activities was $200,000 for
the three months ended March 31, 1999. The $2.1 million of cash used by
operating activities consists primarily of a $1.5 million use of cash resulting
from an increase in revenues on contracts in excess of billings, a $930,000
decrease in billings on contracts in excess of revenues and $593,000 of
expenses incurred in connection with the initial public offering. These uses
were partially offset by a $617,000 increase in accrued compensation and
liabilities and a decrease in trade accounts receivable of $409,000. Net cash
provided by operating activities was approximately $357,000 in fiscal 1997,
approximately $8,000 in fiscal 1998 and approximately $2.1 million in fiscal
1999.
Net cash provided by investing activities was $2.5 million for the three
months ended March 31, 2000, and net cash used for investing activities was
$34,000 for the three months ended March 31, 1999. Cash provided for the
current period reflects the maturity of a short-term investment of $2.9
million, partially offset by the purchase of property and equipment of
approximately $455,000. Net cash used in investing activities was approximately
$3.4 million in fiscal 1999, approximately $141,000 in fiscal 1998, and
approximately $100,000 in fiscal 1997. Cash used in investing activities
reflects purchases of short-term investments of $2.9 million and purchases of
property and equipment in each period. Capital expenditures were approximately
$482,000 in fiscal 1999, approximately $139,000 in fiscal 1998, and
approximately $49,000 in fiscal 1997. Our capital expenditures consisted of
purchases of operating resources to manage our operations, including computer
hardware and software, office furniture and equipment and leasehold
improvements. We expect that our capital expenditures
25
<PAGE>
will continue to increase in the future. In connection with the expansion of
our headquarters, we are planning to incur approximately $1,000,000 in
leasehold improvements and furniture and equipment purchases.
Net cash used in financing activities was approximately $8,000 and $5,000
for the three months ended March 31, 2000 and March 31, 1999, respectively. Net
cash from financing activities was approximately $4.6 million for the year
ended December 31, 1999, primarily reflecting net cash proceeds from sales of
convertible preferred stock of $10.6 million partially offset by the redemption
of common stock of $6.0 million. Net cash used in financing activities was
$21,000 in 1998 and $50,000 in 1997. In April 1999, we entered into a new
revolving credit facility to borrow up to a maximum principal amount of $1.0
million. In March 2000, we renewed and increased borrowing amounts under this
facility to $3.0 million. As of March 31, 2000, we had not borrowed under this
facility. In January 2000, we obtained a letter of credit under this facility
totaling $500,000 to secure a new office lease. This letter of credit is
renewable annually and declines by $100,000 on the second, third and fourth
anniversaries of the lease and then declines to $38,130 on the fifth
anniversary until the lease expires in August 2005.
We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses will constitute a material use of our
cash resources. In addition, we may use cash resources to fund investments in
complementary businesses or technologies. We believe that the net proceeds from
the sale of common stock in this offering, together with our existing working
capital immediately prior to this offering and our revolving promissory note,
will be sufficient to meet our working capital and operating expenditure
requirements for at least the next twelve months. We have adequate cash
available to fund our operations for the next twelve months without the
proceeds from this offering, although we would be required to reduce or delay
our current expansion plans. We have no current plans to raise additional
equity during the next twelve months, although such plans are subject to
business and market conditions. Thereafter, we may find it necessary to obtain
additional equity or debt financing, although we do not currently foresee a
need for additional cash resources for long-term needs. In the event additional
financing is required, we may not be able to raise it on acceptable terms or at
all.
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and market our products and
services in the United States; however we intend to begin marketing and selling
our products and services in Europe. As a result, our financial results could
be affected by factors such as changes in foreign currency exchange rates or
weak economic conditions in foreign markets. Substantially all of our sales are
currently made in U.S. dollars; a strengthening of the dollar could make our
products and services less competitive in foreign markets. Our interest income
is sensitive to changes in the general level of U.S. interest rates,
particularly since the majority of our investments are in short-term
instruments. Due to the short-term nature of our investments, we believe that
there is no material risk exposure. Therefore, no quantitative tabular
disclosures are required.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133, which is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a
comprehensive standard for the recognition and measurement of derivative
instruments and hedging activities. This pronouncement will require us to
recognize derivatives on our balance sheet at fair value. Changes in the fair
values of derivatives that qualify as cash flow hedges will be recognized in
other comprehensive income until the hedged item is recognized in earnings.
26
<PAGE>
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements
that was amended by SAB No. 101A, which is effective no later than our second
quarter of fiscal 2000.
We do not expect the adoption of these recently issued accounting
pronouncements to have a significant impact on our results of operations,
financial position or cash flows.
27
<PAGE>
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in
such forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."
Overview
We provide business-to-business software products and integration services
that use the Internet to connect manufacturing companies with their
distribution channel partners. Our software products and services enable
manufacturers to effectively manage and engage in collaborative business-to-
business e-commerce throughout their distribution channels. We develop,
implement and support customized "extranets," which are secure systems that use
the Internet to connect manufacturers with all participants in the chain of
distribution who have a password and an Internet browser. These channel
partners include:
. distributors;
. dealers;
. retailers;
. original equipment manufacturers;
. resellers;
. service centers and contractors;
. channel partners' employees; and
. channel partners' customers.
By providing an easy way for channel partners to communicate and transact
business, our software products enable manufacturers to take advantage of the
speed and power of the Internet to strengthen and broaden their relationships
with their channel partners, as well as their customers, through real-time,
twenty-four hour access to information and ability to process transactions.
Manufacturers provide sales, service and after-market support for
manufactured goods through complex distribution channels. While the Internet
may alter many historic distribution channels, we believe that certain products
-- particularly complex or specialized manufactured goods -- will continue to
require regional and/or local sales, service and after-market support. Accessed
through readily available Internet browsers, our software products permit
faster and more accurate transaction processing and communication than
traditional methods such as paper, phone and fax communications, because
information need not be transcribed by employees. Our software products reduce
the hidden costs of errors and delays in information delivery by reducing the
need for human involvement. We believe that providing information and
transacting business over the Internet can improve the commercial relationships
among a manufacturer and its distribution channel partners and provide benefits
to all participants in the distribution channel by improving efficiency,
financial performance, customer service and brand loyalty.
The Click Commerce extranet system, comprised of the Extranet Manager and 80
applications, automates communication and business processes across the
distribution channel. The Click Commerce extranet system is personalized to
each individual user, accommodating, for example, each user's language, time
zone and currency preferences. Manufacturers using our software products can
receive and track orders, provide warranty information and provide product and
pricing information to their channel partners. Our extranet system is
specifically designed for the Internet and integrates with existing back-office
computer systems, without requiring significant additional technology
expenditures. We believe that our extranet system is especially appealing to
manufacturing companies because the average length of time it takes to design
and implement our extranet system is approximately 120 days.
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We currently market all of our products and services through our direct
sales force primarily to large, global manufacturing companies, typically with
revenues in excess of $1 billion or divisions with revenues in excess of $500
million, and that have large distribution networks. In addition, we recently
have begun to enter into joint marketing agreements with business consultants
and resellers who have expertise in the industry and existing client contacts.
We believe that these relationships will help increase the market penetration
and acceptance of our Click Commerce software products and integration
services.
Industry Background
Growth of the Internet and Business-to-Business Electronic Commerce
The emergence of the Internet is changing the way businesses and consumers
communicate and transact business. We believe that Internet-based business-to-
business e-commerce is poised for rapid growth. In a recent study, Forrester
Research predicts that business-to-business e-commerce will grow from $406
billion in 2000 to $2.7 trillion in 2004, accounting for more than 90% of the
dollar value of e-commerce in the United States by 2003. In another Forrester
study of manufacturing companies with extranets already in place, 80% of the
study's participants indicated that they expect to connect to all of their
channel partners through extranets within two years. The study's participants
believe that they have already reduced channel support costs by an average of
16% and increased sales by an average of 6% through their extranets. The
participants anticipate that within two years their extranets will allow them
to reduce channel support costs by an average of 32% and increase sales by an
average of 17%. International Data Corporation estimates that the worldwide
market for Internet-based applications that facilitate e-commerce will grow
from $1.7 billion in 1999 to $13.2 billion in 2003.
Limitations of Existing Enterprise Channel Management Products and Services
Traditional phone, fax and paper-based communications systems are inherently
labor intensive, inefficient and prone to error. Manufacturers must allocate
significant resources and time to the manual entry of information from faxed or
phoned-in purchase orders and the manual processing of paper checks, invoices
and shipping notices. Further, the large volume of paper generated by these
transactions and the mass of information to be sorted and processed frequently
results in hidden costs such as errors and delays in information delivery.
Change is also difficult to implement on a timely basis without incurring
significant costs. For example, if a manufacturer produces a paper-based
catalog, it cannot quickly or inexpensively inform customers of changes in
product offerings, availability or pricing. In addition, the manufacturer and
members of its distribution network have limited capability to track orders,
inventory, warranties and other information or to compile useful databases
using paper-based or semi-automated processes. Using these standard forms of
communication, manufacturers and their business partners are unable to exchange
information on a real-time basis, and as a result, potential customers do not
have easy access to the information needed to transact business with the
manufacturer or its channel partners. Manufacturers may also be unable to tap
into new revenue streams that exist due to restraints imposed by differences in
language and time zone, barriers that traditional methods cannot easily
overcome.
Companies have worked to develop technologies and software to overcome the
problems and limitations presented by traditional forms of communication and
processes to transact business. Many companies have developed internally or
purchased enterprise resource planning software as a means to better manage
their businesses. Enterprise resource planning software systems are used for
identifying and planning a company's resources needed to fill customer orders.
These systems, however, have not traditionally been Web-enabled and were not
originally designed to communicate outside of an enterprise, and therefore do
not provide real-time communication with business partners. In addition,
enterprise resource planning software systems are expensive and take a
significantly long time to implement, typically anywhere from 12 to 24 months
depending on the complexity of the system and the size of the company.
Electronic data interchange attempted to solve the problem of facilitating
real-time communication by providing a means for the paperless exchange of
documents between a company and its customers, such as
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purchase orders, shipment authorizations, advanced shipment notices and
invoices. Electronic data interchange is inflexible because it is based on pre-
defined, fixed data formats that are not easily adjusted. Electronic data
interchange systems also typically require the use of expensive and proprietary
communications networks, and electronic data interchange software often
requires difficult and time-consuming point-to-point integration. In addition,
electronic data interchange is not readily "scalable," or able to run on
multiple servers to accommodate a larger number of users, for large numbers of
small business partners, and because information is stored and sent at specific
time intervals, known as batched processes, it lacks real-time data exchange
capability.
We believe that the e-commerce system that manufacturers, and businesses in
general, require is one that allows them to conduct commerce through a
communications network that integrates all aspects of the distribution channel
and takes advantage of existing back-office computer systems. In addition,
companies need to be able to easily exchange information and conduct
transactions across the Internet securely, reliably and in real-time. The e-
commerce system must be flexible enough to meet the unique business process
requirements of large, multi-national organizations with complex distribution
channels and must be highly scalable and rapidly deployable.
Click Commerce Products and Services
The Click Commerce products and integration services enable large, global
manufacturers to manage their distribution channels and effectively engage in
business-to-business e-commerce by providing for the exchange of information
and ability to transact business on a real-time basis. Our software creates the
infrastructure necessary to allow global enterprises to extend their
organizations to any member of a business partner network. Using our products
that are customized to the manufacturer's specific requirements, dealers,
distributors, retailers, original equipment manufacturers, resellers, service
centers and contractors, each of their respective employees, and all of their
customers can be connected and can engage in collaborative commerce. Businesses
using our software have the ability to securely deliver information and
transact business on a real-time basis, across multiple languages, time zones
or currencies, twenty-four hours a day, seven days a week.
Our software is specifically designed for the Internet and can be readily
integrated with existing back-office computer systems without requiring
significant additional expenditures. Click Commerce software is not dependent
upon every member of a business partner network using the same technologies. We
are able to meet the unique and diverse needs of our clients through multiple
applications and features. We offer 80 applications in the following
categories:
. marketing,
. financing,
. catalog,
. order,
. inventory,
. accounting,
. training,
. service,
. warranty, and
. reporting.
In addition, our customers can add applications to their existing systems as
their businesses expand and needs change. All of our applications are available
in multiple languages, such as:
. English,
. Spanish,
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. French,
. Portuguese,
. German,
. Italian,
. Dutch,
. Danish,
. Norwegian,
. Swedish,
as well as in multiple currency formats. In addition, following a 4 to 6 week
needs analysis, we can usually implement our extranet system in approximately
120 days.
We believe that Click Commerce software products and integration services
provide our clients with the following benefits:
Improved Relationships with Channel Partners and Consumers
Our software products help manufacturers build stronger relationships with
their channel partners by making it easier to exchange information and transact
business with each other. With our extranet system, even the smallest of
channel partners can effectively maintain a direct relationship with the
manufacturer. In addition, our extranet system is capable of allowing
manufacturers and their channel partners to make a direct connection with
consumers where one might not have previously existed by providing consumers
with direct access to the extranet. This allows manufacturers to effectively
build brand awareness and brand loyalty and potentially target consumers with
ancillary sales such as parts, accessories and financing. We believe that the
ease with which channel partners can securely transact business and exchange
information with the manufacturer quickly translates into a significant
competitive advantage for our customers.
Rapid Implementation
The Click Commerce extranet system is designed to be implemented rapidly by
leveraging our customers' existing back-office computer systems. Following a 4
to 6 week needs analysis, we can usually implement our extranet system in
approximately 120 days. We customize ready-built applications from our
inventory of 80 applications. Our competitors custom-build software products or
use technology tools, processes that we believe require substantially more time
than our approach. This rapid implementation capability allows our customers to
quickly meet the changing competitive demands resulting from the increased
prevalence of the Internet. We strive to provide our customers with the best
business-to-business e-commerce enterprise channel management systems in place
in the shortest period of time.
Improved Efficiency and Reduced Operating Cost
The direct connection with channel partners and the automation of multiple
processes afforded by our software products enables our customers to reduce
personnel costs in areas such as call centers, regional offices, sales support
and administration. Transaction costs should also be lowered by the reduced
need for manual entry of information from faxed and phoned-in purchase orders
and manual processing of paper checks, invoices and shipping notices. In
addition, error rates should be reduced by the reduction in human involvement.
The fact that our customers can communicate and transact business in real-time
with their channel partners may also allow them to reduce the time it takes
them to fulfill orders and to maintain lower inventories.
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Improved Revenue Opportunities
Our products and services can help manufacturing companies increase market
share by making them more accessible to channel partners, which facilitates
follow-on sales. We believe, based on reports from manufacturers, that
companies often lose sales to competitors not because of pricing, quality or
availability, but due to the fact that it may be more convenient for the
channel partner to do business with a competitor. The greater reach and broader
access manufacturers have to new and existing customers using our extranet also
enables manufacturers to conduct focused marketing and promotional campaigns,
as well as targeted add-on sales, such as repair, maintenance and other value-
added services. Because of the closer relationships through improved
communications that our extranet builds, we believe that our customers are able
to capture a larger portion of these follow-on sales.
The Click Commerce Growth Strategy
Our objective is to create the most comprehensive business-to-business e-
commerce enterprise channel management software products that automate the
business processes between a manufacturer and its channel partners. Key
elements of our strategy to achieve this objective include:
Target Large, Global Manufacturers
We believe, based on the number and breadth of applications we offer, we
have developed the most comprehensive business-to-business extranet software
products and integration services for the manufacturing sector currently
available. By focusing on the complex needs of large manufacturers, we provide
them with significant competitive advantages, such as improved efficiency,
financial performance, customer service and brand loyalty, through effectively
managing their complex distribution networks. We specifically target divisions
of these large manufacturers. Once we have sold to a division, there are
numerous opportunities to sell to other divisions within the organization. We
believe that this provides us with significant leverage in our sales model. We
intend to continue to primarily target large, multi-national corporations and
to benefit from our first-mover advantage with many of these organizations.
Expand Sales Efforts to Drive Market Penetration
All of the revenue recognized in fiscal 1999 was generated by our original
sales force, consisting of three individuals. We currently have 27 people
dedicated to sales located in Chicago, Illinois; Boston, Massachusetts; Del Mar
and San Francisco, California; Atlanta, Georgia; Detroit, Michigan; Dallas,
Texas; New York, New York; Munich, Germany and Amsterdam, Holland. We believe
that a tremendous opportunity exists to both sell to new clients and to sell
additional applications and features to our existing customer base. To
complement our direct sales efforts, we use methods such as telemarketing,
direct mail campaigns, Web site marketing and speaking engagements to build
market awareness of our brand name and our products. We believe that by
increasing the size of our sales force, we can target a broader base of
potential clients and further develop relationships within our existing client
base.
Expand International Presence
We plan to aggressively pursue a global strategy that leverages our
products' strength as well as our existing customer relationships with
multinational corporations. We believe there exist significant international
opportunities for our software and services due to the distribution channel
complexity that arises from multicurrency and multilingual business
environments. We also believe that the multi-national focus of our existing
customer base will provide us with a strong foothold in the international
market. We have sales and telemarketing representatives currently located in
Munich and Amsterdam selling Click Commerce software products and services. We
currently have sales offices open in Munich and Amsterdam and will continue to
expand our international marketing efforts to address the range of
international markets and applications for our Click Commerce software products
and integration services.
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Develop Joint Marketing and Business Development Relationships
We believe that in order to fully take advantage of our capabilities,
rapidly increase our revenues and enhance our Click Commerce suite of software
applications, we will need to continue to seek to enter into agreements with a
number of business consultants and resellers that provide for joint marketing
of our products. By entering into these relationships, we intend not only to
take advantage of the expertise of these business associates but also to market
our products and services to their client base. We also intend to standardize
and package our software products so that they may be sold separately from our
integration services by business consultants and system integrators. In
addition, we have entered into agreements with technology companies to provide
components for our software products and we intend to pursue additional
relationships as new technologies and standards emerge to further improve our
software and the rapid implementation of our extranet system.
Provide Supplementary Value-Added Services For Our Extranet Customers
We plan to introduce new products and service offerings in areas such as
electronic publishing, content management, community management, system
outsourcing and auction services to complement the overall enterprise channel
management extranet system. With the introduction of these new products and
services, we intend to expand sales to existing customers and strengthen our
recurring revenue model. We also believe that these new product and service
offerings will increase brand loyalty among our clients.
Click Commerce Products and Services
The Click Commerce Suite
The Click Commerce suite is an extranet-based application suite that forms
the backbone of our business-to-business e-commerce enterprise channel
management system. We develop, implement and support customized extranets,
which are secure systems that use the Internet to connect manufacturers with
their channel partners, which include distributors, dealers, retailers,
original equipment manufacturers, resellers, service centers and contractors,
their respective employees, and finally, their customers. The Click Commerce
extranet system is comprised of the Click Commerce Extranet Manager and the
Click Commerce Applications.
The Click Commerce Extranet Manager
To power the applications and effectively integrate them with a client's
existing internal computer systems, the Click Commerce Extranet Manager
controls access to our customers' sites, manages sessions and administrative
tasks, and ensures that users see information targeted to their location, job
function and language. The Click Commerce Extranet Manager allows each
department or division of a manufacturing company to control its own content on
the extranet, so it is faster and easier for businesses to keep information
current and relevant. In addition, extranet applications, whether one of our 80
applications or a supported third-party application, may be enabled by the
Click Commerce Extranet Manager.
The Click Commerce Extranet Manager is comprised of the following
components:
Click Commerce Application Manager. The Click Commerce Application Manager
is the graphical interface that our customers' network administrators use to
control access privileges for Click Commerce applications. Using the
Application Manager, an administrator can define pages on the extranet a user
may view and what transactions or operations a user may execute. The
Application Manager is also used to define what level of information a user may
view. For example, a corporate manager might have access to view company wide
open orders, but a branch office employee would be limited to viewing branch
orders. Finally, Click Commerce applications often use special attributes to
make decisions on what content to show to a user. The Application Manager
allows an administrator to assign and modify these attributes associated with a
user.
The Click Commerce Application Manager compiles system logging information
on a real-time basis using an extensive statistical and tracking package.
Additional features of the Click Commerce Application Manager
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are bulk e-mail, language administration and user affiliation sorting. Click
Commerce allows e-mail to be targeted to groups of users based on the user's
roles, company affiliations and other attributes. The Click Commerce
Application Manager also controls dynamic system entry pages, company news and
promotions or other marketing content.
Language administration consists of creating language definitions, for
example Spanish, and creating specific translations for the "reference
phrases," for example "Numero" for "Customer Number," that are shown when one
of the Click Commerce pages is generated. Our software allows language phrases
and translations to be managed by an administrator using the Click Commerce
Application Manager. Application specific phrases are not embedded into
resource files or executables. They can be changed at anytime and new languages
may be added as required.
Click Commerce Access Manager. The Click Commerce Access Manager performs
authorization and authentication and manages every user session from login to
logout. Session management software on the web server allows a user to log into
a site and be tracked across numerous requests. At login Click Commerce
verifies the user's credentials. If the user is valid, a record is created in
the session manager software component and the new "session" is given a unique
identifier. This identifier is sent back to the user's browser via a "cookie."
For each visit of the user, the Access Manager verifies that the session
identifier, sent from the browser, matches a valid managed session. If the
session is no longer valid, due, for example, to inactivity of the user for a
period of time, the user having logged off, or the user having never logged
onto the system, access is denied. Each application can store information that
is related to this session in variables that are stored in memory between
subsequent page requests. Applications can also check if the user identified by
the session can perform certain actions. The Click Commerce Access Manager
controls access to Click Commerce applications and third party applications
without having to modify them. External authentication resources can also be
utilized to gain access to the extranet.
The Click Commerce Access Manager is extremely efficient. It takes advantage
of Microsoft Transaction Server technology enabling maximum "scalability," or
the ability to run on multiple servers. Microsoft Transaction Server is
Microsoft's technology that allows objects to be pooled for multiple
applications. This limits the number of specific instances of an object needed
and improves scalability of an application. When an application asks to use a
particular object, Microsoft Transaction Server may use an object already
instantiated by another application which is not being used at the current
time.
Objects are pieces of software functionality encapsulated to allow for
reuse. They are also referred to as components. An object presents a set of
functions that are usable by other applications. Microsoft's object
architecture is called ActiveX, or COM. Since our extranet uses ActiveX objects
to encapsulate functionality, third-party or customer developers can quickly
reuse our business logic. We build all objects to execute within the Microsoft
Transaction Server environment. Thus, objects in our extranet are pooled by
Microsoft Transaction Server. The Access Manager is an example of a Click
Commerce system that uses other Click Commerce objects to perform its primary
task, which is checking for authorization to a location on the extranet, thus
taking advantage of the capabilities of Microsoft Transaction Server. The Click
Commerce Access Manager uses high performance algorithms for user
authentication, dynamic page access authorization and user session management.
Dynamic page access authorization refers to the idea that every page in the
Click Commerce application suite is generated at the time of the request. This
allows the content and operations to be customized for the user viewing the
page. In Click Commerce, a user is authorized to see specific sections on the
extranet. The Access Manager controls access to these dynamic pages and
authorizes requests to these pages.
Click Commerce Resource Library. The Click Commerce Resource Library is the
component of the Click Commerce Extranet Manager that truly differentiates
Click Commerce software from typical system management software. It is an open
object software library that empowers either the 80 Click Commerce applications
or
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supported third-party applications with critical information for building a
global extranet. Objects enable real-time language translations, cryptography,
usage logging, system and user attributes and information retrieval, and error
handling. They then use these resources to provide an easier experience for the
user reducing typing by automatically displaying user attributes such as phone,
address and customer numbers.
The objects in the Click Commerce Resource Library are the core building
blocks for any extranet. They allow dynamic customization and provide the
information infrastructure to build an easy-to-use global extranet.
The Click Commerce Applications
We offer 80 applications designed to provide specific functions to a user of
our Internet-based extranet system. These applications support a manufacturer's
business processes, all the way from pre-sales through after-market sales and
support. Our applications can be purchased in packages or individually to
accommodate each of our client's unique business requirements. In addition, our
applications can be modified and enhanced as our clients' businesses grow and
needs change. Below is a representative sample of some of our most widely used
applications and the specific function each application provides.
Marketing Applications: Our marketing applications target promotions and
marketing messages to users and communities. We currently offer sixteen
applications in our marketing package, including:
. Promotions Manager: Allows manufacturers to upload promotional materials
that can be targeted toward specific users--by geography or role.
Promotions can run on a continuous or periodic basis.
. Lead Management: Allows manufacturers to push sales leads down to the
dealership/sales level. The dealer/salesperson then uses the extranet to
report on the status of the lead. Reports are available to the
manufacturer to determine channel partner utilization and responsiveness
to the extranet system.
. Literature Fulfillment: Allows the user to obtain relevant sales
information "at a glance," such as competitive analyses, benefits,
prices, options, schematics, dimensions and other pertinent information.
Manufacturers using this application avoid the expense of distributing
literature.
Financing Applications: Our financing applications allow channel partners
and their customers to arrange financing for product purchases. We
currently offer six applications in our financing package, including:
. Closed-End Financing: Allows users, for example consumers and dealers,
to apply for closed-end financing packages online. Loan approval is
communicated online in real-time.
. Revolving Credit Application: Allows manufacturers that offer "branded"
credit cards through their own lending arm or through external
institutions to allow consumers to apply for credit online. Credit line
approval is provided online and in real-time. As consumers visit the
manufacturer's Web site for information on products, they can obtain
pre-approval for purchases at the manufacturer's dealers/distributors.
The branded card is a key component of a brand loyalty program and may
be tied to other loyalty programs.
. Forms Module: Creates on-line forms for purchase financing by buyers of
vehicles, houses and other state and county-regulated transactions in
the dealership environment. The key benefit of this application is the
ability to offer and maintain correct forms for each locality as
regulations change over time. This technology tracks the legal
requirements and keeps the contract forms continually up-to-date with
appropriate wording and disclaimers.
Catalog: Our catalog applications allow channel partners and their
customers to view and select products online and allow manufacturers to set
and change pricing levels for different purchasers. We currently offer
seven applications in our catalog package, including:
. Product Catalog: An online catalog with pictures and descriptions of
products, pricing and automatic links to a virtual shopping cart.
Variable organization and search capability allow adaptation to a wide
variety of uses.
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. Internet Price Management: Enables channel partners to establish pricing
for parts and equipment that is sold over the Internet to independent
dealers or consumers. Manufacturers can establish price by retail,
wholesale, independent dealer account, product category, order volume
and shipping method.
. Price Query: Validates part numbers and retrieves price and availability
information. When required, superseding part and obsolescence
information is displayed.
Order Management: These applications allow channel partners and their
customers to purchase products and services and obtain real-time
information regarding order status. We currently offer eleven applications
in our order management package, including:
. Shopping Cart and Checkout: Provides users with a virtual shopping cart
that displays items, quantity and other pertinent information. The
application includes a check-out procedure with options for sales tax
calculation, choice of shipping methods, and display of shipping costs
and method of payment.
. Automatic Replenishment: Based on customers' order history, selected
users receive notification of replenishment orders on a regular basis,
along with suggested orders for items that are often ordered. This
feature eliminates the need for users to monitor items that are commonly
ordered.
. Order/Ship Status: Allows the user to search current and past purchases
and displays the order shipping status with links back to the related
invoices when the account status package is purchased. Ship status
allows the querying of a shipper's site, such as Federal Express or UPS,
for shipment information without leaving the manufacturer's extranet.
Inventory Management: These applications allow channel partners to check a
manufacturer's inventory availability. We currently offer five applications
in our inventory management package, including:
. Inventory Availability: Allows a user to query inventory availability.
Searches can be made by partial part number, description, and other
delimiters if supported by existing back-office computer systems. The
searches return the availability for the quantity requested and the
price for a selected number of items.
. Inventory Locator: Allows the dealer or consumer to search a dealer's
inventory for items that match specific criteria, such as a product
model or vehicle identification number, within a geographic range. The
dealer or consumer can then purchase or transfer the selected items.
. Unit Transfer: Relates to the inventory locator application; once a
dealer has located a particular product/model within the manufacturer's
partner network, a request for transfer can be made electronically. Both
dealers then approve the transfer via the extranet, providing valuable
information to the manufacturer.
Accounting: These applications are an accounts receivable interface that
provide information regarding account status and invoice history. We
currently offer five applications in our accounting package, including:
. Account Status: Allows the dealer/reseller to view its current and past
months' account status to obtain current information about its credit
line with the manufacturer.
. Invoice Lookup: Allows for the search of invoices by month, date, part
number and other criteria, with links back to the invoice details.
. Electronic Funds Transfer: Allows the user to enter and maintain
electronic funds transfer routing and authorization information that is
used by the seller's fulfillment system. Electronic funds transfer can
also be enabled via a button on the shopping cart or a button on the
invoice display page which allows the customer to match an invoice to a
payment.
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Training: These applications simplify the training registration and
implementation process. They allow customers to rapidly educate their staff
on product developments and infrastructure changes. We currently offer the
following applications in our training package:
. Registration and Scheduling: Allows the manufacturer to post training
course schedules and allows channel partners to schedule and pay for
training, check course status, change reservations and withdraw from
scheduled courses.
. Course Catalog: An online catalog with pictures, descriptions, pricing,
scheduling data, indicators that denote "open or closed" classes and
automatic links to the shopping cart.
. Online Modules and Testing: Allows the manufacturer to present the user
with training and testing materials.
Service: These applications present field service personnel with vital
information that they can access at any time, from anywhere with an
Internet connection. We currently offer eight applications in our service
package, including:
. Technical Bulletins: Allows the user to obtain relevant product
information "at a glance"--technical bulletins, campaign bulletins, shop
manuals, schematics, dimensions and other information. This application
reduces costs associated with distributing paper manuals.
. Service Scheduler: Allows dealers to post service specials and schedules
on the manufacturer's public or protected access Web site. Consumers use
these tools to locate service specialists, query service prices and
schedule service appointments directly with dealers. The manufacturer is
also notified and can monitor specials and other information.
. Repair Status: Allows for the querying by serial number of items sent to
the manufacturer for repair. It lists arrival date, repair status and
shipping date with a link to ship status if available.
Warranty: These applications support claims processing, return
authorization, and replacement orders to make the costly post-sales
processes of our clients more efficient. These applications also automate
various warranty functions and encourage customers and channel partners to
register for and extend warranties because of the convenience of the
system. We currently offer seven applications in our warranty package,
including:
. Warranty Registration: Allows a channel partner or consumer to register
a purchase with the manufacturer for warranty.
. Return Authorization: Allows channel partners to obtain authorizations
to return products to the manufacturer for warranty service, replacement
or return.
. Repair and Replacement Order: Allows channel partners to place an order
with the manufacturer for repair or replacement of parts or products.
This application is often used when a channel partner is not authorized
to perform warranty work.
Reporting: These applications allow manufacturers and channel partners to
improve their extranet performance. We currently offer two applications in
our reporting package, including:
. Scorecards: Allows a manufacturer to measure key business indicators and
metrics that determine how various functions across the manufacturing
value chain, for example marketing, warranty and service, are
performing.
. Web Activity: Allows a manufacturer to track visitor activity on their
Web site or a related dealer site. Helps the manufacturer determine
"click through" traffic patterns, and then reorganize the site and
integrate promotions to affect performance.
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Maintenance and Support: Click Client Care
We offer Click Client Care to extend the life and flexibility of our
clients' extranet through technical expertise, product support services, and
ongoing communications. We provide, depending upon our client's needs, a
dedicated extranet and voice support line which supplies our clients with
access to our team of knowledgeable extranet specialists twenty-four hours a
day, seven days a week. Our customer care specialists, or Click Client Care
specialists, work closely with our developers so that our clients are assured
of receiving the latest, most accurate product information. We also offer our
clients maintenance services and periodically provide them with updates to
ensure that they have the most robust and up-to-date extranet capabilities.
Future Services - Electronic Publishing: Click Commerce Docs
As part of our overall enterprise channel management product offerings, we
intend to develop a new service in order to assist clients in the
transformation of existing documents into electronic information that can be
delivered to traditional audiences using Web browsers, wireless devices, and
non-traditional media. This service will enable our clients to transform their
existing document collection into Internet-enabled information. Click Commerce
Docs will transform documents from formats such as hard copy, microfilm, video
and audio, and electronic, into a versatile Internet-enabled asset. We will use
extensible markup language, (XML) to architect the information. We expect that
our clients will use Click Commerce Docs to convert documents such as owners'
manuals, service manuals and installation guides.
Customers
Our customers include many of the well-known names in the capital goods,
recreational sports, telecommunications and electronic components industries.
The following are all of the companies that have either implemented or are in
the process of implementing a Click Commerce extranet system since our
inception. We do not intend the identification of these customers to imply that
these customers are actively endorsing or promoting our products.
Capital Goods Recreational Sports Telecommunications
. Hyundai . Mercury Marine . Motorola CGISS
. Trane . Marine Power Europe . Motorola iDEN
. Komatsu . Bombardier Recreation . Motorola PCS
. Delphi Automotive Systems
. Kawasaki . Ameritech
. Life Fitness . Qualcomm Wireless
. Qualcomm Consumer
Products
Financing Consumer Products Electronic Components
. Bombardier Capital . American Standard . Mitsubishi Electric
. Mitsubishi Digital Automation
. Mitsubishi Display Products. Emerson Electric
. Black & Decker
Of the above named customers, Marine Power Europe had an extranet system
implemented in 1997, Ameritech, Mitsubishi Electric Automation and Hyundai had
extranet systems implemented in 1998 and Mercury Marine, Bombardier Recreation,
Life Fitness, Motorola CGISS, Motorola PCS, Qualcomm Wireless, Qualcomm
Consumer Products, Mitsubishi Digital and Mitsubishi Display Products had
extranet systems implemented in 1999. The majority of the revenue derived from
contracts with these customers was recognized in 1998 and 1999, respectively,
the years in which their extranet systems were installed and implemented.
Unless we enter into additional contracts with these customers, we do not
expect to derive significant revenue from them in the future.
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Case Study
The following case study illustrates how one of our customers uses a Click
Commerce extranet to manage its products and services distribution channel and
effectively engage in business-to-business e-commerce:
Hyundai Motor America
Challenge: In order to increase sales of its replacement parts, Hyundai
Motor America, the U.S. division of the tenth largest automaker in the world,
needed a single enterprise-wide e-commerce system that could be easily accessed
by all of its employees and channel partners--dealers, distributors,
independent auto repair shops and consumers. When warranties expired on Hyundai
cars, the car manufacturers lost contact with their customers. If customers
required service on their cars subsequent to the expiration of their
warranties, they often went to an independent auto repair shop or mechanic who
may not have necessarily used genuine Hyundai replacement parts. In order to
generate higher replacement part revenue and increase customer retention,
Hyundai needed to find a way of marketing directly to independent repair
facilities and consumers. It also needed to communicate more efficiently with
its nearly 500 dealers nationwide, 60% of whom were still consulting
outdated paper catalogs or microfiche systems for parts information, and then
placing orders by phone or fax or through a third-party satellite network.
Extranet System and Results: High Dealer Adoption and Increased Revenue.
Click Commerce developed and implemented a single enterprise-wide e-commerce
extranet system that can be used by all of Hyundai's channel partners,
regardless of location. Through Hyundai's Click Commerce powered extranet,
dealers and distributors now view Hyundai's electronic catalog and place
orders. Consumers and independent repair shops log on to Hyundai's Web site,
which interfaces with the extranet, to obtain parts information and place
orders with dealers. We completed implementation of the Hyundai parts extranet
in February 1999. Today, nearly 50% of Hyundai's dealers have enrolled as a
member of the extranet, and approximately 1,000 independent repair shops have
agreed to use the extranet through a Hyundai dealer.
Hyundai has reported to us that use of our extranet has led to increased
sales because it provides easily accessible, up-to-date and accurate
information. Instead of using outdated catalogs and price lists, Hyundai's
dealers simply look up parts in the new Internet-based electronic parts catalog
by the vehicle identification number. Hyundai's channel partners, whether they
are dealers, independent repair shop employees or consumers, can now place
orders and check inventory at their convenience, twenty-four hours a day and in
the language of their preference.
We recognized the majority of the revenue derived from our contract with
Hyundai in 1998, the year in which most of work on implementing the extranet
took place. Unless we enter into additional contracts with Hyundai for
additional products and/or services, the revenue we will recognize for
maintenance and support services in the future will be immaterial compared to
the revenue recognized in 1998.
Technology and Product Architecture
Implementation of Our Extranet Manager and Applications
We believe that upon implementation, our Internet-based products allow
manufacturers to maximize efficiency and channel partners to easily interact
with a manufacturer's extranet through the use of an Internet
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browser. Once implemented, our products interact with a manufacturer's existing
back-office computer systems and the users of its extranet as follows:
[CHART]
Manufacturer Level
Enterprise Data and Enterprise Applications are the manufacturer's existing
back-office computer systems used to manage the information needed for day-to-
day operations. Our software products enable the information included in these
databases and systems to be used for e-commerce applications. Using our
software products, channel partners have access to information previously
unavailable or difficult to obtain. Our software products provide standard,
protocol independent platforms that allow both data and applications to work
together. For example, enterprise application integration systems can retrieve
inventory status for a part number on a real-time basis and transfer that
information to the Click Commerce order and product catalog applications for
display on our customer's extranet.
Click Commerce can connect either to the enterprise data directly or through
the enterprise applications. Our products can communicate with either packaged
applications, such as SAP, Oracle and Clarify, or other databases, such as DB2,
Oracle, IMS and VSAM, that are commonly found in proprietary existing back-
office computer systems.
Database stores the details of transaction activity and all other actions
occurring on a manufacturer's extranet. With the information included in the
database, a manufacturer can measure the effectiveness of its extranet and use
that data to market to specific channel partners. This information can help the
manufacturer increase the usage and promote e-commerce activity on its
extranet. A database can exist either in a SQL Server or Oracle format.
Administration is a tool used in every extranet system to manage the user
community. This tool assigns attributes to all extranet users so that a
manufacturer and its channel partners can personalize content by user. For
example, a manufacturer can set different prices and discounts for each of its
dealers.
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Directory Services is a database that contains our personalization
information and is used for high-speed access to information. It uses the
industry standard Lightweight Directory Access Protocol to store information
about users that is accessed most frequently, such as passwords and
permissions.
Channel Partner Level
Channel partners access a Click Commerce enabled extranet through Internet
browsers such as Netscape or Microsoft Internet Explorer. These browsers use
Hypertext Transfer Protocol, HTTP, and a Secure Socket Layer, common data
transport protocols, which provide secure and reliable access to the extranet.
Product Architecture
The Technology Kernel Layer, the Services Layer, the Personalization Layer
and the Application Layer comprise the principal components of Click Commerce
software. The components work together to deliver a product that can be
rapidly implemented and personalized to each unique enterprise environment.
Technology Kernel Layer:
The Technology Kernel Layer represents the technology
our extranet is built upon and uses to deliver
customized systems which can expand to meet new demands
by users. The following are the main components of our
technology kernel layer.
. Pools database connections for
. Microsoft Transaction Server improved performance.
. Manages data transport to
. Microsoft Message Queue guarantee delivery.
Extensible Markup Language,or. . Passes information between
XML application layers within the
Click Commerce suite of
applications. XML message
standards allow us to easily
integrate our products with other
industry leading technologies.
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Services Layer:
The Services Layer regulates our applications' communication
with external databases, directories and enterprise applications
that provide information to them. This allows our products to
easily integrate with the applications and technologies
preferred by our clients, to expand capacity of an extranet, and
to limit the effects of hardware failures. Major services
provided by the Services Layer are described below:
. Management/Configuration . Provides access by applications
to information stored in
directory services database.
. Session Management . Maintains information on each
user who logs into the system.
. Database Traffic Management . Eliminates excessive traffic to
the database by holding
frequently accessed information
in servers closer to the end-
user.
. Enterprise Application . Allows access by a Click Commerce
Integration application to the manufacturer's
data residing in the
manufacturer's existing back-
office computer system.
. Internationalization . Delivers applications in the
language and currency preferred
by our clients.
. Database . Provides a location to store all
transaction information, such as
purchase orders and
confirmations, between Click
Commerce applications and
information stores, such as
Enterprise Applications.
Personalization Layer:
The Personalization Layer enables applications to deliver
content targeted for each channel partner and user of the
extranet. We define content as any information displayed
by an application, including promotions, news alerts,
messages, pricing levels, and products. Content
personalization consists of the following:
. Access Control . Ensures that users have the
appropriate permissions to view
the site and the applications
within the site.
. Groups and Communities . Establishes criteria that
identify users that have similar
characteristics, for example job
functions or authority levels,
and should receive the same
content.
. Personalization Rules . Determine whether specific
content should be displayed to
the active user of the extranet.
. Alerts . Notifies or alerts the user to a
pre-defined event, such as an
inventory status change, by
sending special messages.
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Application Layer:
The Application Layer contains the customer's applications and
is the user interface that displays the personalized content
and enterprise information with the branding and look and feel
required by our clients. Each application is made up of two
major pieces.
. Active Server Pages . Transform input from back-office
computer systems into information
viewable by a user, and input
from users into data that the
back-office computer system can
understand and process.
Microsoft's ASP scripting
language is used to generate the
branded look and feel and
implement any unique software
processes required by a specific
customer.
. Business Objects . Perform common business
processes. Based on Microsoft's
ActiveX architecture, business
objects encapsulate and implement
in software Click Commerce's
experience with complex channels
and business process automation.
Research and Development
We have made and will continue to make substantial investments in research
and development through internal development, technology acquisitions and
joint marketing and business development relationships. In fiscal 1998 and
1999, we spent approximately $149,000 and $729,000, respectively, on research
and development. Product development costs in 1997 were directly related to
customer contracts and classified as cost of revenue. Our research and
development staff is responsible for enhancing our existing products and
services and expanding our product line and services offered. Our current
product development activities focus on product enhancements to the customized
applications and the Extranet Manager and the integration of external services
and partner technology.
Sales and Marketing
We market our products and services primarily through our direct sales
force. As of May 31, 2000, our direct sales force consisted of 26 sales
professionals located in Chicago, Illinois; Boston, Massachusetts; Del Mar and
San Francisco, California; Dallas, Texas; Atlanta, Georgia; Detroit, Michigan;
New York, New York; Munich, Germany; and Amsterdam, Netherlands. Our sales
force is assisted throughout the sales process by a team consisting of a Click
Commerce business consultant, a project manager and a creative developer. This
team oversees the project from start to finish and is responsible for ensuring
that its client receives the best e-commerce enterprise channel management
products and services in the shortest period of time. To complement our direct
sales efforts, we also use methods such as telemarketing, direct mail
campaigns, Web site marketing and speaking engagements to build market
awareness of Click Commerce and our products and to generate leads for
potential customers. We also have successfully implemented a "viral" selling
model whereby divisions of large companies become references for other
divisions, as well as other companies in similar industries. For example, our
first Brunswick customer, Mercury Marine Europe, resulted in follow-on
business with other Brunswick divisions, Mercury Marine (North America) and
Life Fitness.
Identifying Prospective Clients
We strive to identify "qualified prospects," who are potential customers
that meet a majority of the following criteria:
. Large manufacturer with over $1 billion in revenues or a division of a
large manufacturer with over $500 million in revenues;
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. Complex sales/distribution network;
. Recognized brand name;
. Senior management sponsorship for the e-commerce system; and
. Desire for a rapid implementation of an e-commerce system.
Once a qualified prospect has been identified, a member of our sales force
contacts an executive of the prospect to sell our Click Commerce software
products and services. Typically, our sales person will set up an onsite visit
at the prospect's offices so that we can demonstrate our product capabilities,
and business decision-makers can learn more about the benefits of our software
products and services. Following this meeting, we conduct a series of technical
and business reviews with various personnel of the potential customer. The goal
of these initial sales activities is to encourage the prospect to retain us to
provide a "needs analysis" of our business-to-business e-commerce software
products and services.
Needs Analysis
Our needs analysis process consists of:
. Assessing a prospect's e-commerce needs through objective analysis;
. Performing back-end systems analysis;
. Interviewing channel partners of prospect to determine their needs;
. Identifying functionality for initial rollout that will generate a high
rate of return on the customer's investment and is easy to implement;
. Creating an e-commerce enterprise channel management product prototype
so that the customer can visualize the extranet in action; and
. Delivering a fixed-fee, fixed-schedule proposal for the implementation
of our extranet.
The needs analysis typically takes four to six weeks to complete. Once the
needs analysis proposal has been presented, the prospect makes the decision
whether to invest in our e-commerce product. We retain all ownership rights to
the prototype of the extranet built for a prospect, or limit the prospect's
ability to use the prototype without implementing our extranet.
Executing Master Software License and Implementation Agreement
After the needs analysis process is completed, we seek to implement our
product by entering into a master software license and implementation
agreement. This agreement sets forth our terms for building and installing the
customer's extranet and generally grants to the customer a non-exclusive,
perpetual, nontransferable right and license to use our software. The agreement
typically provides that we retain title to the licensed software, although
modifications to the software or customizations made for a particular client
may be owned by that client, or may be subject to restrictions on sale to or
use by competitors of that client. The agreement includes a fixed price for our
extranet which is based on factors such as:
. the number and types of applications ordered;
. the amount of time it will take to implement the extranet, typically 120
days; and
. the complexity of the overall extranet system.
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Executing Maintenance and Support Agreement
In connection with each master software license and implementation
agreement, we typically enter into a one year maintenance and support agreement
for Click Client Care that is renewable for each successive year by the
parties. We charge a set fee for this service. The agreement provides that we
will:
. correct or repair any failure, malfunction, defect or nonconformity in
the licensed software;
. provide commercially available updates, excluding implementation
services, to the licensed software; and
. maintain a help-line that customers can call with problems with the
software.
Marketing and Technology Business Relationships
To further penetrate the market for our products and services, we have begun
to enter into joint marketing agreements with business consultants, resellers
and system integrators. We believe that these relationships will assist us in
gaining broad market acceptance of our products and services, as well as expand
our marketing, sales and distribution channels. In April 2000, we entered into
a non-exclusive agreement with Andersen Consulting, LLP, which provides for the
joint marketing and promotion of our products and services and Andersen
Consulting's services. Each party has the right to designate pricing and
payment terms of its products and services sold to customers introduced by the
other party. We anticipate that Andersen Consulting, and possibly other systems
integrators and business consultants, will increasingly provide the integration
and implementation services related to our software, and our revenue will
increasingly be derived from sales of licenses of our software.
To incentivize Andersen Consulting, we have issued to them a warrant to
purchase up to 818,226 shares of our common stock at an exercise price of
$12.22 per share. The vesting of this warrant is conditional upon the
achievement of agreed upon milestones relating to the generation of revenues
for us in connection with customer introductions by Andersen Consulting. The
warrant also contains a significant cash penalty payment from Andersen
Consulting for its failure to meet the agreed revenue target by the expiration
date. The warrant may not be exercised prior to the first anniversary or after
the fourth anniversary of the date of issuance. In addition, in April 2000 AC
Ventures B.V., an affiliate of Andersen Consulting, purchased from Michael W.
Ferro, Jr., his father, Michael Ferro, Sr., his sister, Maria Morris, and four
other stockholders an aggregate of 818,226 shares of our common stock at a
price of $12.22 per share, for aggregate consideration of $10 million.
In addition to our relationship with Andersen Consulting, we have entered
into joint marketing agreements with Compaq Computer Corporation and Cap Gemini
America, Inc. Under our agreements with Compaq, we recommend Compaq products to
our prospective clients and Compaq markets our products and services to its
clients as a component of its Nonstop e-Business(TM) e-commerce package. Our
agreements with Compaq contemplate that we will sell our software products and
services to Compaq at a discount for resale to its customers. We have also
agreed to negotiate additional discounts or special pricing on a case-by-case
basis for major customer project opportunities. Our current agreements with
Compaq terminate in July 2001.
Cap Gemini America has agreed to jointly implement our software products
with us and provide related consulting services. The agreement does not provide
pricing terms and contemplates that revenue sharing arrangements will be agreed
upon on a case-by-case basis. Our agreement with Cap Gemini America terminates
in February 2002. We are negotiating with Cap Gemini America to enter into a
more extensive joint marketing agreement similar to our Andersen Consulting
agreement. If such an agreement is reached, we expect to issue warrants to
purchase common stock to Cap Gemini America on terms that are similar to the
Andersen Consulting warrants, including the number of warrants, conditions to
exercise, the existence of a performance penalty payment, and the exercise
period and price.
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We have not yet obtained any revenues as a result of these relationships.
However, we anticipate that the joint marketing of our products and services to
the large customer bases of these companies will lead to future sales for us.
To achieve this goal, we have begun to train members of these companies' sales
forces on the features, functionality and value of our software products and
integration services.
To further enhance our suite of Click Commerce applications, we have also
entered into agreements with technology companies to provide components for our
software products. We intend to pursue additional relationships as new
technologies and standards emerge to further improve our software and the rapid
implementation of our products.
Competition
The market for our products is intensely competitive, subject to rapid
technological change and is significantly affected by new product introductions
and other market activities of industry participants. There are relatively few
barriers to entry in the enterprise channel management market and we expect
competition to persist and intensify in the future. We currently have four
primary sources of competition: in-house development teams of our potential
clients; large software and enterprise resource planning vendors that directly
address e-commerce products and services, such as IBM, SAP and Oracle;
consultants and system integrators; and independent software vendors, such as
Commerce One and BroadVision. In the past twelve months, when competing for
customers, we have directly competed with approximately ten providers of
alternative products and services, including IBM, BroadVision, Andersen
Consulting, Haht Technologies, IXL and Razorfish. We recently entered into a
non-exclusive agreement with Andersen Consulting whereby each party will
jointly market and promote each other's products and services. Although we
expect this agreement to reduce the amount of competition there might otherwise
have been between us and Andersen Consulting, we may in the future compete with
them. The number and nature of competitors and the competition we will
experience are likely to change substantially in the future.
We believe that the principal competitive factors affecting our market
include speed of implementation, price, knowledge of the manufacturing industry
and channel market, core technology, ability to implement an e-commerce system
with existing technology and financial capacity of the vendor. Although we
believe that our products and services currently competes favorably with
respect to most of these factors, our market is relatively new and is evolving
rapidly. We may not be able to maintain our competitive position against
current and potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other resources.
Many of our competitors have longer operating histories in related markets,
significantly greater financial, technical, marketing and other resources,
significantly greater name recognition and a larger installed base of customers
in related markets. Moreover, a number of our competitors, particularly major
business software companies, have well-established relationships with our
current and potential customers as well as with independent systems consultants
and other vendors and service providers. In addition, these competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products, than we can.
Such competition could materially and adversely affect our ability to obtain
revenues from either license or maintenance and service fees from new or
existing customers on terms favorable to us. Further, competitive pressures may
require us to reduce the price of our products and services. In either case,
our business, operating results and financial condition would be materially and
adversely affected. There can be no assurance that we will be able to compete
successfully with existing or new competitors or that competition will not have
a material adverse effect on our business, financial condition and operating
results.
Proprietary Rights and Licensing
Our success and ability to compete is affected by our ability to develop and
maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely primarily on a
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combination of copyright, trade secret and trademark laws, confidentiality and
nondisclosure procedures, contractual provisions and other similar measures to
protect our proprietary information. For example, we license rather than sell
our software to customers and require licensees to enter into license
agreements that impose certain restrictions on licensees' ability to utilize
the software. Modifications to the software or customizations made for a
particular client may be owned by that client. We have one registered trademark
and two pending trademark applications in the United States. We seek to protect
our source code for our software, documentation and other written materials
under trade secret and copyright laws. We do not patent our products because we
believe patents would provide little long-term protection as the technology
used is constantly changing and improving. As part of our confidentiality
procedures, we enter into nondisclosure agreements with certain of our
employees, directors, contractors, consultants, corporate partners, customers
and prospective customers. We also typically enter into license agreements with
respect to our technology, documentation and other proprietary information.
These legal protections, however, afford only limited protection for our
technology. Due to rapid technological change, we believe that factors such as
the technological and creative skills of our personnel, new product
developments and enhancements to existing products are more important than the
various legal protections of our technology to establishing and maintaining a
technology leadership position.
Despite our best efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology that we consider proprietary and third parties may attempt to
develop similar technology independently. Policing unauthorized use of our
products is difficult, particularly because the global nature of the Internet
makes it difficult to control the ultimate destination or security of software
or other data transmitted. While we are unable to determine the extent to which
piracy of our software exists, we expect software piracy to be a persistent
problem. In addition, effective protection of proprietary rights may be
unavailable or limited in certain countries. The laws of some foreign countries
do not protect our proprietary rights to the same extent as do the laws of the
United States. Overall, the protection of our proprietary rights may not be
adequate and our competitors may independently develop similar technology.
We are not aware that our products, trademarks, copyrights or other
proprietary rights infringe the proprietary rights of third parties, however we
have not reviewed existing patents and patent applications in order to
determine whether grounds exist for an infringement claim against us. Third
parties may assert infringement claims against us in the future with respect to
current or future products. Further, we expect that software product developers
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and the functionality of products
in different industry segments overlaps. From time to time, we hire or retain
employees or consultants who have worked for independent software vendors or
other companies developing products similar to those offered by us. Those prior
employers may claim that our products are based on their products and that we
have misappropriated their intellectual property. Any claims of that variety,
with or without merit, could cause a significant diversion of management
attention, result in costly and protracted litigation, cause product shipment
delays or require us to enter into royalty or licensing agreements. Those
royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which would have a material adverse effect on our
business.
Employees
As of May 31, 2000, we had a total of 131 employees, including 39 people in
sales and marketing, 12 people in research and development, 59 people in
business consulting and project management, and 21 people in administration,
legal, finance and business development. None of our employees is represented
by a labor union, and we consider our relations with our employees to be good.
In order to provide benefits to our employees in a cost-effective manner, we
have entered into a client services agreement with Administaff Companies, Inc.
under which Administaff provides us with certain personnel management services,
such as payroll, medical and dental insurance and the administration of our
401(k) plan. Under the agreement, we and Administaff are intended to be co-
employers of all of our employees. Co-employment is necessary for Administaff
to administer payroll and sponsor and maintain benefit plans.
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Properties
We currently lease the following facilities: Our corporate headquarters in
Chicago, Illinois and our sales offices in Del Mar, California, Munich, Germany
and Amsterdam, Netherlands. We are contingently liable on a lease for the
portion of our former corporate headquarters that we have subleased.
Legal Proceedings
We are not a party to any material legal proceedings.
Corporate History
We were originally incorporated in 1996 as "Click Interactive, Inc." We
changed our name in December 1999 to "Click Commerce, Inc."
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MANAGEMENT
The following table sets forth, as of February 11, 2000, the name, age and
position of each of our directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael W. Ferro, Jr. 33 Chief Executive Officer, Chairman of the Board of Directors
(1)....................
Robert J. Markese....... 47 President
Rebecca S. Maskey....... 51 Executive Vice President, Chief Financial Officer and Treasurer
Randy A. Gray........... 52 Executive Vice President of Business Development and Managing
Director of International Operations
Mark A. Harris.......... 43 Senior Vice President of Strategic Development and Chief Legal Officer
Wm. Edward Vesely....... 40 Senior Vice President of Marketing and E-Services
Patricia Plante......... 42 Senior Vice President of Product Development and Integration Services
Manuel A. Fernandez 53 Director
(2)....................
Dr. Michael Hammer 51 Director
(1)(4).................
Emmanuel A. Kampouris
(1)(3)................. 65 Director
Peter N. Larson (2)(4).. 60 Director
Jerry Murdock (2)....... 41 Director
Leslie D. Shroyer 55 Director
(1)(2)(4)..............
Edwina D. Woodbury (3).. 48 Director
Gregg G. Hartemayer 47 Director
(3)....................
</TABLE>
--------
(1) Member of the Executive Committee.
(2) Member of the Human Resources and Compensation Committee.
(3) Member of the Audit Committee.
(4) Member of the Governance Committee.
Michael W. Ferro, Jr. began to develop the product underlying Click
Commerce in 1994, founded Click Commerce in 1996 and has served as Chief
Executive Officer and Chairman of the Board of Directors since the company's
inception. Mr. Ferro has had 15 years of experience in manufacturing and
technology development. Prior to founding Click Commerce, Mr. Ferro founded
Chem-Roof, a provider of chemical treatment to cedar roofs, in 1988. Mr. Ferro
also served as President of the Earthwood Care division of Pettibone
Corporation, a multinational equipment manufacturer, from 1992 to 1994 after
the sale of Chem-Roof to Pettibone in 1992. Mr. Ferro is also the founder and
chairman of the board of directors of WarrantyCheck.com, Inc., an Internet
consumer portal for warranty registration and information. Mr. Ferro holds a
Bachelor of Science degree in psychology from the University of Illinois.
Robert J. Markese has served as our President since November 1999 after
serving as Executive Vice President since June 1999. Prior to joining Click
Commerce, Mr. Markese served as president of North American operations for
Systems Software Associates, an international provider of enterprise resource
planning (ERP) software and services based in Chicago, from April 1998 to May
1999. He served as vice president of North American operations from March 1997
to April 1998 and vice president of the Midwestern region from May 1995 to
March 1997. He began working for Systems Software Associates in 1991 as a
sales manager for major accounts. Prior to his employment with Systems
Software Associates, Mr. Markese worked for XL/Datacomp and Xerox Computer
Services. Mr. Markese holds a Bachelor of Science degree in Business
Administration from Lewis University.
Rebecca S. Maskey has served as our Chief Financial Officer, Treasurer and
Executive Vice President since March 2000. From September 1999 to March 2000,
Ms. Maskey served as our Chief Financial Officer, Treasurer and Senior Vice
President. Prior to joining Click Commerce, Ms. Maskey served as controller
and treasurer for Cowles Media Company, a publishing and information services
company, from May 1997 to July 1998. From
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April 1993 to May 1997, Ms. Maskey served as senior vice president of finance
for Playboy Enterprises, Inc., an international media and entertainment
company. Ms. Maskey holds a Bachelor of Science degree in Accounting from the
University of Illinois, and an M.B.A. in finance from the University of
Chicago.
Randy A. Gray has served as our Executive Vice President of Business
Development and Managing Director of International Operations since March 2000.
Prior to joining Click Commerce, Mr. Gray served as president of Mercury
Precision Global Parts and Accessories, a division of Mercury Marine and part
of the Brunswick Corporation, from 1998 to 2000. The Brunswick Corporation
manufactures consumer products for active recreation. From 1993 to 1998, Mr.
Gray served as a vice president and managing director for Europe, Africa and
Middle East operations at Mercury Marine. Prior to his employment with Mercury
Marine, Mr. Gray worked for Pettibone Corporation, IH Corporation, a
manufacturer of transportation vehicles and provider of financial services, and
Marathon Oil Company, an oil refiner and distributor. Mr. Gray holds a Master
of Science degree in economics and statistics from North Carolina State
University.
Mark A. Harris has served on a part-time basis as our Senior Vice President
of Strategic Development and Chief Legal Officer since April 1, 2000. He also
has served part-time as vice president--strategic planning and general counsel
of PrairieComm, Inc., a designer and marketer of integrated circuits for
cellular phone handsets, since April 1, 2000. Prior to joining Click Commerce,
Mr. Harris was a partner with Latham & Watkins, our outside counsel, where he
practiced law since 1982. Mr. Harris earned a Bachelor of Arts degree from
Saint Louis University and a J.D. from Northwestern University School of Law.
Wm. Edward Vesely has served as our Senior Vice President of Marketing and
E-Services since March 2000. From July 1999 to March 2000, Mr. Vesely served as
our Vice President of Marketing. Prior to joining Click Commerce, Mr. Vesely
served as vice president of marketing for Platinum Technology, a software
developer and distributor, from 1995 to 1999. From 1993 to 1995, Mr. Vesely
served as director of marketing for Andersen Consulting's Software Products
Group which provides consulting services to companies regarding software
products. Mr. Vesely holds bachelor degrees in journalism and computer science
from Northern Illinois University and an M.B.A. in marketing from DePaul
University.
Patricia Plante has served as our Senior Vice President of Product
Development and Integration Services since March 2000. From November 1999 to
March 2000, Ms. Plante served as our Vice President of Research and
Development. Prior to joining Click Commerce, Ms. Plante served as a director
of systems and development for Sea-Land Service, Inc., a provider of global
shipping, from October 1995 to October 1999. From January 1980 to October 1995,
Ms. Plante served as a systems and programming developer for Spiegel, Inc., a
retailer and direct marketer of apparel. Ms. Plante holds a Bachelor of Science
degree in computer science from Northern Illinois University and an M.B.A. from
the University of Chicago.
Manuel A. Fernandez has served as a director since February 14, 2000. Mr.
Fernandez is currently a managing partner of SI Venture Associates, L.L.C., a
private equity and venture capital fund, and has held this position since its
inception in 1998. Prior to his present position, he served as president and
chief executive officer of Gartner Group, a business technology consulting
firm, since 1991. Mr. Fernandez serves as chairman of the board of directors of
Gartner Group and is also a director of Brunswick Corporation, a manufacturer
of consumer products for active recreation, Black & Decker Corporation, a
producer of power tools, power tool accessories and residential security
hardware, US West, Inc., a broadband and communications service provider and
WarrantyCheck.com, Inc., an Internet consumer portal for warranty registration
and information. Mr. Fernandez holds a bachelors degree in electrical
engineering from the University of Florida and completed post graduate work in
solid state engineering at the University of Florida and in business
administration at The Florida Institute of Technology.
Dr. Michael Hammer has served as a director since February 14, 2000. Dr.
Hammer founded Hammer and Company, Inc., a business consulting and education
company, in 1982 and currently serves as president. Dr. Hammer was formerly an
associate professor in the department of electrical engineering and computer
science at the Massachusetts Institute of Technology. Dr. Hammer also serves as
a director of HOW2HQ.com, Inc., a
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provider of Internet-based software that automates post-purchase customer care
processes, and is a former director of Interleaf, Inc., a developer and
marketer of software products and services and Corporate Software, Inc., a
software development company. Dr. Hammer holds a Master's degree in electrical
engineering, a Ph.D. in computer science and a Bachelor of Science degree in
mathematics from the Massachusetts Institute of Technology.
Emmanuel A. Kampouris has served as a director since February 14, 2000. From
1989 to 1999, Mr. Kampouris served as the president and chief executive officer
of American Standard Companies Inc., a provider of air conditioning, bathroom
and kitchen fixtures, automotive braking and control systems and medical
diagnostic products. He also served as chairman of the company's board since
1993. Mr. Kampouris serves on the board of the U.S. Chamber of Commerce. He
also serves as a director of Horizon Blue Cross and Blue Shield, a provider of
healthcare coverage, the National Endowment for Democracy and the Oxford
University Council for the School of Management Studies. Mr. Kampouris holds a
Master's degree in law from Oxford University and received a degree in ceramic
technology from North Staffordshire College of Technology in England.
Peter N. Larson has served as a director since February 14, 2000. Mr. Larson
is the chairman and chief executive officer of Brunswick Corporation, a
manufacturer of consumer products for active recreation. He has held these
positions since 1995. From 1991 to 1995, Mr. Larson was worldwide chairman of
Johnson & Johnson's Consumer and Personal Care Group and a member of the
Johnson & Johnson board of directors and executive committee. Johnson & Johnson
manufactures and sells a broad range of products in the health care field. Mr.
Larson also serves as a director of CIGNA Corporation, an employee benefits
company, and Compaq Computer Corporation, a designer, developer, manufacturer
and marketer of hardware, software and services, and is chairman of the New
York Stock Exchange Listed Company Advisory Committee, the International
Relations Committee and the Marketing Task Force of the U.S. Olympic Committee.
Mr. Larson earned a Bachelor of Science degree from Oregon State University and
a J.D. from Seton Hall University.
Jerry Murdock has served as a director since June 1999. Mr. Murdock is a
partner of Insight Venture Associates III, L.L.C., a private equity investment
firm, which he co-founded in 1995. In 1987, Mr. Murdock founded the Aspen
Technology Group, a technology consulting firm. From 1989 to 1996, Mr. Murdock,
as the managing general partner of the Aspen Technology Group, was retained by
Warburg Pincus, a global private equity investment firm. Mr. Murdock also
serves as a director of Quest Software, a company that delivers information and
application availability products that enable performance and reliability of e-
business, packaged and custom applications. Mr. Murdock graduated from San
Diego State University with a degree in political science. Mr. Murdock serves
as a director at the designation of Insight Capital Partners pursuant to the
terms of the Series A preferred stock, which will convert into common stock
upon the closing of this offering.
Leslie D. Shroyer has served as a director since February 14, 2000 and
currently provides consulting services to us. From October 1997 through January
2000, Mr. Shroyer served as senior vice president and chief information officer
of Motorola, Inc., a provider of integrated communications systems and embedded
electronic systems. From 1994 to 1997, Mr. Shroyer served as corporate vice
president and general manager of the Wireless Data Systems division and the
Internet Software Products division of Motorola, Inc. Mr. Shroyer is also a
director of WarrantyCheck.com, Inc. Mr. Shroyer holds a Bachelor of Science in
Engineering Science and a Master's degree in Management Science from the
University of Texas.
Edwina D. Woodbury has served as a director since March 31, 2000. Since July
1999, Ms. Woodbury has served as President of The Chapel Hill Press, Inc., a
specialty publishing concern. From July 1997 to December 1998, Ms. Woodbury
served as an executive vice president of global business process redesign of
Avon Products, Inc., the world's largest direct seller of beauty and related
products. In November 1993, Ms. Woodbury was named senior vice president and
chief financial officer of Avon and in July 1996, she assumed additional
responsibilities as chief financial and administrative officer. Ms. Woodbury
also serves on the Board of Directors of the Tandy Corporation, a retailer of
consumer electronics. Ms. Woodbury earned a Bachelor of Science degree from the
University of North Carolina at Chapel Hill.
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Gregg G. Hartemayer has served as a director since March 31, 2000. Since
1998, Mr. Hartemayer has been a global managing partner of Andersen Consulting,
LLP, a worldwide consulting firm. Mr. Hartemayer was a managing partner in
Andersen Consulting's Consumer Products Group from 1996 to 1998 and managing
partner in St. Louis and Kansas City from 1991 to 1995. Mr. Hartemayer has been
a partner with Andersen Consulting since 1986. Mr. Hartemayer joined Andersen
Consulting in 1976. Mr. Hartemayer earned a Bachelor of Science degree and an
M.B.A. from The University of Michigan.
Classified Board
Following this offering, our Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. As a
result, a portion of our Board of Directors will be elected each year. To
implement the classified structure, effective as of the consummation of the
offering, three of the nominees to the board will be elected for a one-year
term, three will be elected for a two-year term and three will be elected for a
three-year term. After these initial terms, directors will be elected for
three-year terms. Ms. Woodbury and Messrs. Larson and Shroyer have been
designated as Class I directors whose terms expire at the 2001 annual meeting
of stockholders. Messrs. Fernandez, Hartemayer and Murdock have been designated
as Class II directors whose terms expire at the 2002 annual meeting of
stockholders. Messrs. Ferro, Hammer and Kampouris have been designated Class
III directors whose terms expire at the 2003 annual meeting of stockholders.
Board Committees
Executive Committee
The executive committee of the Board of Directors consists of Messrs. Ferro,
Jr. (chairman), Hammer, Kampouris and Shroyer. The executive committee has
authority to exercise all powers and authority of the Board of Directors, other
than matters that require the approval of a majority of the members of the
Board of Directors.
Audit Committee
The audit committee of the Board of Directors consists of Ms. Woodbury
(chairman), and Messrs. Kampouris and Hartemayer. The audit committee reviews
our financial statements and accounting practices, makes recommendations to the
Board of Directors regarding the selection of independent auditors and reviews
the results and scope of our annual audit and other services provided by our
independent auditors.
Human Resources and Compensation Committee
The human resources and compensation committee of the Board of Directors
consists of Messrs. Fernandez (chairman), Larson, Murdock and Shroyer. The
human resources and compensation committee makes recommendations to the Board
of Directors concerning salaries and incentive compensation for our officers
and employees and stock option grants for our officers and employees and
administers our employee benefit plan.
Governance Committee
The governance committee of the Board of Directors consists of Messrs.
Larson (chairman), Hammer and Shroyer. The governance committee makes
recommendations to the Board of Directors concerning nomination of directors,
Board of Directors composition, matters concerning the functioning of the Board
of Directors and internal corporate governance matters.
Director Compensation
The Click Commerce, Inc. Directors' Stock Option and Stock Award Plan
provides for the grant of non-qualified stock options and stock awards to non-
employee directors. The plan provides for the issuance of up to 500,000 shares
of our common stock. If there is a change in the corporate structure of the
company, the administrative committee may in its discretion make adjustments
necessary to prevent accretion or dilution in the number and kind of shares
authorized by the plan or, with respect to outstanding options, adjustments in
the number and kind of shares thereunder and in the option exercise price.
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As of the effective date of the offering, each non-employee director will
automatically be granted a stock option to purchase 10,000 shares of our common
stock. Beginning in 2000, at each annual stockholders' meeting non-employee
directors will automatically be granted an option to purchase 10,000 shares of
our common stock. Individuals who become directors at times other than the date
of the annual stockholders' meeting will be automatically granted an option for
the number of shares of common stock equal to 10,000 times a fraction, the
numerator of which is the number of days the individual will serve until the
next annual meeting and the denominator of which is 365. The option exercise
price of these automatic grants will be equal to the fair market value on the
automatic grant date, which for options granted on the effective date of the
offering will be equal to the offering price. Such options are not exercisable
for six months and expire at the earlier of (1) termination of the director for
cause, (2) one year after death, and (3) ten years from the date of grant. Non-
employee directors of Click Commerce will also receive an automatic grant each
year of shares of our common stock equal in value to $25,000, based on the fair
market value of the common stock on the date of grant. A non-employee director
who serves as the chairman of the audit committee will also receive an
additional automatic grant each year of shares of our common stock equal in
value to $10,000, based on the fair market value of the common stock on the
date of the grant. Non-employee directors who serve as the chairman of the
human resources and compensation committee and the governance committee will
each receive an additional automatic grant each year of shares of our common
stock equal in value to $5,000, based on the fair market value of the common
stock on the date of the grant. Directors who make an effective election may
defer receipt of all or a portion of these shares of common stock. All
directors are also reimbursed for their reasonable out-of-pocket expenses
incurred while serving on the Board of Directors or any committees.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our only other executive officer whose
combined salary and bonus exceeded $100,000 in fiscal 1999, collectively
referred to below as the Named Executive Officers, for services rendered in all
capacities to us during fiscal 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Awards
Compensation (Option Awards)
----------------- ---------------
Number of
Securities
Underlying Other
Salary Bonus Options Compensation(1)
-------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Michael W. Ferro, Jr.,
Chairman of the Board and
Chief Executive Officer..... $201,923 $131,288 -- $1,815
Robert J. Markese, President. $144,231 -- 1,140,000 $1,706
</TABLE>
--------
(1) Includes cost of term life insurance and long-term disability insurance.
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<PAGE>
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term(1)
----------------------------------------- ------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees
Options in Fiscal Exercise Expiration
Name Granted(1) Year Price Date 5% 10%
---- ---------- ---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Ferro, Jr.... -- -- -- -- -- --
Robert J. Markese....... 1,140,000 34.9% 1.15 6/1/09 $2,135,481 $3,400,396
</TABLE>
The following table sets forth information regarding stock options granted
to each of the Named Executive Officers during fiscal 1999. We have not granted
any stock appreciation rights.
--------
(1) Potential realizable values are net of exercise price before taxes, and are
based on the assumption that our common stock appreciates at the annual
rate shown compounded annually from the date of grant until the expiration
of the ten-year term. These numbers are calculated based on SEC
requirements and do not reflect our projection or estimate of future stock
price growth.
Option Exercises and Fiscal Year-End Option Values
The following table sets forth information concerning stock option exercises
in fiscal 1999 and the number and value of unexercised options held by each of
the Named Executive Officers at December 31, 1999.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In
Unexercised Options At the-Money Options at
December 31, December 31,
Shares 1999 1999(1)
Acquired Value ----------------------------------------------------------
Name on Exercise Realized Vested Unvested Vested Unvested
---- ----------- -------- -------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Ferro, Jr.... -- -- -- -- -- --
Robert J. Markese....... -- -- -- 1,140,000 -- $10,089,000
</TABLE>
--------
(1) There was no public trading market for the common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $10 per share, less the applicable
exercise price per share, multiplied by the number of underlying shares.
Executive Bonus Program
We have adopted a bonus program pursuant to which all officers and full-time
employees are eligible for annual cash bonuses based on Click Commerce
achieving certain financial targets and individual personal performance.
Employment Agreements with Management
Michael W. Ferro, Jr. We are a party to an amended and restated employment
agreement with Michael W. Ferro, Jr., dated July 9, 1999. The initial term of
the agreement is until December 31, 2002 and will automatically be extended for
successive one-year terms, unless Mr. Ferro or we provide at least thirty days
prior notice of termination. Under the agreement we are obligated to pay Mr.
Ferro an annual salary of $250,000 plus annual discretionary bonuses. In the
event Mr. Ferro's employment is terminated without cause, he would continue to
receive his salary and employee benefits for twenty-four months after
termination, and he would receive the earned portion of any discretionary
bonuses. Mr. Ferro has agreed to assign to us all inventions currently used by
us and related to our business as currently conducted in the manner now used
and all inventions conceived by Mr. Ferro during the term of this agreement to
the extent that such inventions are related to our business. Mr. Ferro has
agreed not to compete with us for a period of twenty-four months following the
cessation of his employment.
Robert J. Markese. We are a party to an employment agreement with Robert J.
Markese, dated June 1, 1999. The term of the agreement is three years and seven
months. Under the agreement we are obligated to pay
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Mr. Markese an annual salary of $250,000 plus annual discretionary bonuses. Mr.
Markese has also been granted an option to purchase 1,140,000 shares of our
common stock at an exercise price of $1.15 per share. One-third of these
options vest on December 31, 2000, one-third vest on December 31, 2001 and one-
third vest on December 31, 2002. In the event of any additional public offering
of our common stock prior to December 31, 2000, 10% of Mr. Markese's options
will vest, and Mr. Markese may require us to register the resale of shares
issuable upon the exercise of such options in that public offering. In the
event Mr. Markese's employment is terminated without cause, he would continue
to receive his salary for twelve months or until December 31, 2002, whichever
is shorter, and employee benefits until December 31, 2002, and he would receive
the earned portion of any discretionary bonuses and retain all options that are
vested or that would vest within twelve months of the termination date in the
absence of termination. Mr. Markese has agreed not to compete with us for a
period of twenty-four months following the cessation of his employment.
Consulting Agreement
Leslie D. Shroyer. We are a party to a consulting agreement with Leslie D.
Shroyer, dated April 1, 2000. The term of the agreement is indefinite. Either
party may terminate Mr. Shroyer's engagement by providing written notice of
such termination. We have granted Mr. Shroyer an option to purchase 10,000
shares of our common stock at an exercise price of $5.25 per share. The options
vested on the date of the grant. In the event of Mr. Shroyer's voluntary
termination of his services or our termination of Mr. Shroyer's services for
cause, all rights to purchase shares of common stock under the option, whether
or not vested, shall be forfeited. Mr. Shroyer has agreed to assign to us all
inventions conceived by him during the term of this agreement. Mr. Shroyer has
agreed not to compete with us for a period of twenty-four months following the
cessation of his services.
Employee Benefit Plans
Amended and Restated Click Commerce, Inc. Stock Option and Stock Award Plan
The Click Commerce, Inc. Stock Option and Stock Award Plan was originally
adopted by our board of directors and approved by our stockholders on October
19, 1998. In February 2000, we amended and restated the stock plan. The Amended
and Restated Click Commerce, Inc. Stock Option and Stock Award Plan provides
for the award of incentive stock options intended to qualify under Section 422
of the Internal Revenue Code, non-statutory stock options, and stock
appreciation rights to our executive and key management employees, officers,
directors and consultants. The plan provides for the issuance of up to
7,780,842 shares of our common stock. However, the maximum number of shares
that may be granted to any individual in a calendar year is 1,000,000. The plan
is intended to qualify as "performance-based compensation" within the meaning
of Section 162(m) of the Internal Revenue Code.
Our board of directors has authorized the human resources and compensation
committee to administer the plan. The human resources and compensation
committee interprets the plan, selects the recipients of awards and determines:
. the number of shares of common stock covered by options and the dates
upon which the options become exercisable;
. the exercise price of options, provided, however, that the option price
shall not be less than 100% of the fair market value of the share as
determined by the compensation committee, or 110% if the incentive stock
option is granted to a greater than 10% stockholder of Click Commerce;
. the duration of options, provided, however, that the term of each
incentive stock option shall not exceed ten years or five years if the
incentive stock option is granted to a greater than 10% stockholder of
Click Commerce;
. the designation of options as incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code or non-statutory
stock options; and
. the award of stock appreciation rights in tandem with options.
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If there is a change in the corporate structure of the company, the board of
directors may in its discretion make adjustments necessary to prevent accretion
or dilution in the number and kind of shares authorized by the plan or, with
respect to outstanding options, adjustments in the number and kind of shares
thereunder and in the option exercise price.
Options granted under the plan will be immediately exercisable in the event
of a change of control. A change in control will occur when (1) a person,
entity or group other than an individual who is a stockholder of Click Commerce
as of the effective date of the offering acquires beneficial ownership of 35%
of the outstanding shares entitled to vote in elections of directors, or (2)
Click Commerce consummates a merger or consolidation, or a sale or disposition
of all or substantially all of its assets, other than with or to an affiliated
company. An "affiliated company" means a company with respect to which the
majority of the total members of its board of directors were selected by
persons or entities who are stockholders of Click Commerce as of the effective
date of the offering.
Under certain circumstances, the committee may grant reload rights which
entitle a director or an employee who holds options to receive a new option to
purchase shares of our common stock upon exercise of the original option. No
reload option will have reload rights.
Click Commerce, Inc. Directors' Stock Option and Stock Award Plan
The Click Commerce, Inc. Directors' Stock Option and Stock Award Plan
provides for the grant of non-qualified stock options and stock awards to non-
employee directors. The plan provides for the issuance of up to 500,000 shares
of our common stock. If there is a change in the corporate structure of the
company, the administrative committee may in its discretion make adjustments
necessary to prevent accretion or dilution in the number and kind of shares
authorized by the plan or, with respect to outstanding options, adjustments in
the number and kind of shares thereunder and in the option exercise price.
401(k) Plan
Under our client services arrangement with Administaff of Texas, Inc., both
we and Administaff are intended to be co-employers of our employees.
Accordingly, our employees participate in the Administaff 401(k) plan to
provide them with retirement benefits and with a means to save for their
retirement. The 401(k) plan is intended to be a tax-qualified plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended.
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CERTAIN TRANSACTIONS
Transactions with Executive Officers, Directors and Significant Stockholders
In June and July 1999, we issued and sold an aggregate of 5,217,392 shares
of Series A Convertible Participating Preferred Stock at a price of $1.15 per
share, for aggregate consideration of $6.0 million, to Insight Capital
Partners III, L.P., Insight Capital Partners III-Coinvestors, L.P. and Insight
Capital Partners (Cayman) III, L.P. Upon conversion of the preferred stock
into shares of common stock, the value of these shares at the midpoint of the
filing range would be $52,173,920. In connection with this financing, Jerry
Murdock, a partner of Insight Venture Associates III, L.L.C., the general
partner of Insight Capital Partners III, L.P., Insight Capital Partners III-
Coinvestors, L.P. and Insight Capital Partners (Cayman) III, L.P., was elected
a director of Click Commerce.
In July 1999, we issued and sold an aggregate of 4,347,828 shares of Series
B Convertible Participating Preferred Stock at a price of $1.15 per share, for
aggregate consideration of $5.0 million, to Compaq Computer Corporation. Upon
conversion of the preferred stock into shares of common stock, the value of
these shares at the midpoint of the filing range would be $43,478,280. In
connection with this financing, Steve Mahoney, vice president of professional
services for Europe, Middle East and African operations of Compaq Computer
Corporation, became a director of Click Commerce, although he no longer serves
as a director. Peter Larson, also a director of Compaq Computer Corporation,
became a director of Click Commerce in February 2000.
Transactions with Michael W. Ferro, Jr. and others
In July 1999, we redeemed and retired 5,217,392 shares of our common stock
for $6.0 million in conjunction with the issuance of Series A and B
convertible preferred stock to new investors. 2,060,000 of these shares were
redeemed from Mr. Ferro; the remaining 3,157,392 shares were redeemed on a pro
rata basis from our remaining stockholders, substantially all of whom were
officers and directors of Click Commerce.
In September 1999, Michael W. Ferro, Jr. sold an aggregate of 434,784
shares of common stock for aggregate consideration of $500,000 to SI Venture
Associates, L.L.C. and certain partners of SI Venture Associates, L.L.C.,
including Manuel A. Fernandez. These shares were subsequently transferred by
SI Venture Associates, L.L.C. to its affiliate, SI Venture Fund II, L.P. The
value of theses shares at the midpoint of the filing range would be
$4,347,840. Mr. Fernandez was elected a director of Click Commerce in February
2000.
In January 2000, Michael W. Ferro, Jr., his father, Michael Ferro, Sr., and
his sisters, Suzi Ferro Clegg and Maria Morris, together with several other
stockholders, sold an aggregate of 3,587,405 shares of our common stock at a
price of $5.25 per share, for aggregate consideration of $18,833,875 to a
number of investors, including Emerson Electric Co. and the following newly
elected directors of Click Commerce: Peter N. Larson, Emmanuel A. Kampouris,
Manuel A. Fernandez, Leslie D. Shroyer and Dr. Michael Hammer. Shares were
also sold to our counsel, Latham & Watkins. The value of these shares at the
midpoint of the filing range would be $35,874,050.
In April 2000, we entered into an agreement with Andersen Consulting, LLP,
which provides for the joint marketing and promotion of our products and
services and Andersen Consulting's services. To incentivize Andersen
Consulting, we have issued to them a warrant to purchase up to 818,226 shares
of our common stock at an exercise price of $12.22 per share. In addition, AC
Ventures B.V., an affiliate of Andersen Consulting, purchased from Michael W.
Ferro, Jr., his father, Michael Ferro, Sr., his sister, Maria Morris, and four
other stockholders, an aggregate of 818,226 shares of our common stock at a
price of $12.22 per share, for aggregate consideration of $10 million.
In April 2000, Michael W. Ferro, Jr. sold 245,469 shares of our common
stock at a price of $12.22 per share, for aggregate consideration of $3
million to Equistar Chemicals, LP and DCT LLC.
Michael W. Ferro, Jr., our founder, chief executive officer and chairman,
is also the founder and majority stockholder of WarrantyCheck.com, Inc. In
addition, Leslie D. Shroyer and Manuel A. Fernandez, each currently
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a director of Click Commerce, serve as directors of WarrantyCheck.com.
WarrantyCheck.com has paid us an aggregate of approximately $263,000 for a
needs analysis and for consulting services provided by us. These consulting
services were completed during the fourth quarter of 1999. Messrs. Shroyer and
Fernandez were not directors of Click Commerce in 1999.
Other Transactions with Executive Officers, Directors and Significant
Stockholders
Life Fitness and Mercury Marine, subsidiaries of Brunswick Corporation, paid
us approximately $1.0 million for services rendered by us in fiscal 1999. Peter
N. Larson, a current director of Click Commerce, is the chairman and chief
executive officer of Brunswick Corporation. Mr. Larson was not a director of
Click Commerce in 1999.
American Standard Companies Inc., together with its subsidiary, Trane
Company, paid us an aggregate of approximately $1.8 million for services
rendered by us in fiscal 1999. Emmanuel A. Kampouris, a current director of
Click Commerce, was the chairman, president and chief executive officer of
American Standard Companies Inc. until December 1999. Mr. Kampouris was not a
director of Click Commerce in 1999.
Motorola, Inc. paid us an aggregate of approximately $2.9 million for
services rendered by us in fiscal 1999. Leslie D. Shroyer, a current director
of Click Commerce, was a senior vice president and the chief information
officer of Motorola, Inc. until January 2000. Mr. Shroyer was not a director of
Click Commerce in 1999. In addition, we have entered into a consulting
agreement with Mr. Shroyer to provide consulting services to us in areas
including marketing, product development and business development. As
compensation for his services, we have granted to Mr. Shroyer options to
purchase 10,000 shares of our common stock at an exercise price of $5.25 per
share. The options vested on the date of the grant.
Mark A. Harris, our chief legal officer, was formerly a partner of Latham &
Watkins, which acts as outside counsel to Click Commerce.
We believe that each of the transactions described above was entered into on
terms no less favorable to us than could have been obtained with non-affiliated
parties. If any conflicts of interest with any such entities arise in the
future we anticipate that the non-interested members of our Board of Directors
will pass on the appropriateness of any particular matter.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors
and some of our executive officers.
Registration Rights
Some of our stockholders are entitled to have their shares registered by us
for resale.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of May 30, 2000, and as adjusted to reflect
the conversion of all preferred stock into common stock immediately prior to
the completion of this offering and sale of the shares of common stock offered
by this prospectus, by:
. each person, or group of affiliated persons, who is known by us to
beneficially own 5% or more of our common stock;
. each of our directors and Named Executive Officers; and
. all of our directors and executive officers as a group.
Share ownership in each case includes shares issuable upon exercise of
outstanding options that are exercisable within 60 days of May 30, 2000.
Beneficial ownership is determined in accordance with the rules of the SEC and
includes voting and investment power with respect to shares. Unless otherwise
indicated, the persons named in the table below have sole voting and sole
investment control with respect to all shares beneficially owned. Percentage of
ownership is calculated according to SEC Rule 13d-3(d)(1). Percentage ownership
calculations before and after this offering are based on 32,281,450 shares and
37,281,450 shares, respectively, of common stock outstanding. Unless otherwise
indicated, the address for all executive officers and directors is c/o Click
Commerce, Inc., 200 East Randolph Drive, Suite 4900, Chicago, Illinois 60601.
<TABLE>
<CAPTION>
Percentage of Common Stock
Beneficially Owned (1)
Name of Beneficial Number of Shares --------------------------------------
Owner Beneficially Owned Before the Offering After the Offering
------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C>
Michael W. Ferro,
Jr.(1)................ 14,622,321 45.30% 39.22%
Robert J. Markese...... -- -- --
Peter N. Larson(2)..... 100,000 * *
Emmanuel A. Kampouris.. 171,429 * *
Jerry Murdock(3)....... 7,169,773 22.21% 19.23%
Entities affiliated
with Insight Capital
Partners
527 Madison Avenue
10th Floor
New York, New York
10022
Manuel A. Fernandez(4). 550,227 1.70% 1.48%
Dr. Michael Hammer..... 190,476 * *
Leslie D. Shroyer(5)... 48,095 * *
Edwina D. Woodbury..... -- -- --
Gregg G. Hartemayer(6). 818,226 2.53% 2.19%
Compaq Computer
Corporation........... 4,347,828 13.47% 11.66%
40 Old Bolton Road
Stow, Massachusetts
01775
All directors and
executive officers as
a group
(15 persons)(7)....... 23,831,977 73.55% 63.71%
</TABLE>
--------
*Less than 1% of total.
(1) David Stone and Michael W. Ferro, Sr., Suzi Ferro Clegg and Maria Morris,
Michael W. Ferro, Jr.'s father and two sisters, have issued to Mr. Ferro,
Jr. their proxy to vote the 1,773,665 shares of our common stock owned by
them until expiration of the 360 day lock-up to which they are subject.
(2) Includes 6,000 shares held by Dana E. Larson and 6,000 shares held by
Maryle A. Larson. Mr. Larson disclaims beneficial ownership of the shares
held by Dana E. Larson and Maryle A. Larson.
(3) Includes 4,491,827 shares held by Insight Capital Partners III, L.P.,
1,004,820 shares held by Insight Capital Partners III-Coinvestors, L.P.,
1,530,269 shares held by Insight Capital Partners (Cayman) III, L.P. and
95,238 shares held by WI Software Investors L.L.C. Insight Venture
Associates III, L.L.C. is the general
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<PAGE>
partner of each of Insight Capital Partners III, L.P., Insight Capital
Partners III-Coinvestors, L.P., Insight Capital Partners (Cayman) III, L.P.
and WI Software Investors L.L.C. Mr. Murdock, a director of Click Commerce,
is a partner of Insight Venture Associates III, L.L.C. Mr. Murdock disclaims
beneficial ownership of the shares held by Insight Capital Partners III,
L.P., Insight Capital Partners III-Coinvestors, L.P., Insight Capital
Partners (Cayman) III, L.P. and WI Software Investors LLC, except to the
extent of his pecuniary interests therein arising from his membership
interest in Insight Venture Associates III, LLC.
(4) Includes 490,681 shares held by S.I. Venture Fund II, LP. Mr. Fernandez, a
director of Click Commerce, is a managing partner of S.I. Venture Fund II,
LP. Mr. Fernandez disclaims beneficial ownership of the shares held by S.I.
Venture Fund II, LP, except to the extent of his pecuniary interests
therein arising from his membership interest in S.I. Venture Fund II, LP.
(5) Includes 10,000 shares subject to option exercise within 60 days of May 30,
2000.
(6) Includes 818,226 shares held by AC Ventures B.V., an affiliate of Andersen
Consulting, LLP. Mr. Hartemayer, a director of Click Commerce, is a partner
of Andersen Consulting. Mr. Hartemayer disclaims beneficial ownership of
the shares of our common stock held by Andersen Consulting, except to the
extent of his pecuniary interests therein arising from his partnership
interest in Andersen Consulting.
(7) Includes 123,335 shares subject to option exercise within 60 days of May
30, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and related provisions of our
amended and restated certificate of incorporation as it will be in effect upon
the closing of this offering, or certificate, and amended and restated bylaws
as they will be in effect upon the closing of this offering, or bylaws, are
summaries of these documents and are qualified by reference to the certificate
and the bylaws. Copies of these documents have been filed with the SEC as
exhibits to our registration statement, of which this prospectus is a part. The
descriptions of the common stock and preferred stock reflect changes to our
capital structure that will occur upon the closing of this offering.
Upon the closing of the offering, the authorized capital stock of Click
Commerce will consist of 75,000,000 shares of common stock, $.001 par value per
share, and 5,000,000 shares of preferred stock, $.001 par value per share. All
of our convertible preferred stock outstanding prior to the offering will
convert automatically to common stock upon the closing of this offering.
Common Stock
As of March 31, 2000, assuming the conversion of all outstanding preferred
stock into common stock prior to the consummation of this offering and the
issuance of 88,938 shares of common stock upon exercise of options in April
2000, 32,281,450 shares of our common stock were outstanding and held of record
by 51 stockholders. After this offering, 37,281,450 shares will be outstanding.
Concurrently with the completion of this offering, each outstanding share of
our preferred stock will be exchanged for and converted into one share of our
common stock. The following description of rights assumes this conversion.
In connection with our alliance with Andersen Consulting, we issued to
Andersen Consulting a warrant to purchase up to 818,226 shares of common stock
at an exercise price of $12.22 per share. The warrant expires on April 20,
2004. The warrant generally vests and becomes exercisable as to the shares upon
the achievement of agreed upon milestones relating to the generation of
revenues for us from customer introductions by Andersen Consulting. The warrant
contains a significant cash penalty for Andersen's failure to meet the agreed
revenue target by the expiration date.
We are currently negotiating with Cap Gemini America to enter into a more
extensive joint marketing agreement similar to our Andersen Consulting
agreement. If such an agreement is reached, we expect to issue warrants to
purchase common stock to Cap Gemini America on terms that are similar to the
Andersen Consulting warrants, including the number of warrants, conditions to
exercise, the existence of a performance penalty payment, and the exercise
period and price.
Holders of common stock are entitled to one vote per share on all matters on
which the holders of common stock are entitled to vote and do not have any
cumulative voting rights. Holders of common stock have no preemptive,
conversion, redemption or sinking fund rights. Holders of common stock are
entitled to receive dividends as may from time to time be declared by our Board
of Directors out of funds legally available therefor. We have never paid or
declared any cash dividends on our common stock or other securities and do not
anticipate paying cash dividends in the foreseeable future. In the event of a
liquidation, dissolution or winding up of Click Commerce, holders of common
stock are entitled to share equally and ratably in the assets of Click
Commerce, if any, remaining after the payment of all our liabilities and the
liquidation preference of any then outstanding class or series of preferred
stock. The outstanding shares of common stock are, and the shares of common
stock offered by us in this offering when issued will be, fully paid and
nonassessable. The rights, preferences and privileges of holders of common
stock are subject to any series of preferred stock that we may issue in the
future, as described below.
Preferred Stock
Upon the closing of this offering, our Board of Directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 5,000,000 shares of preferred stock in one or more
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<PAGE>
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of any series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption including sinking fund provisions,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of any series. The issuance of
preferred stock by our Board of Directors could adversely affect the rights of
holders of common stock. Immediately after this offering there will be no
shares of preferred stock outstanding, and we have no present plans to issue
any shares of preferred stock.
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and
Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, as amended, or DGCL. Subject to a number of exceptions,
Section 203 of the DGCL prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
status as an interested stockholder with the approval of the board of directors
or unless the business combination is approved in a prescribed manner. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to our company and, accordingly, may discourage attempts to acquire us.
In addition, a number of provisions of the Certificate and Bylaws, which
provisions will be in effect upon the closing of this offering and are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by our
stockholders.
Board of Directors Vacancies; Classified Board. Following this offering, our
Board of Directors will be divided into three classes, each of whose members
will serve for a staggered three-year term. The Certificate also authorizes our
Board of Directors to fill vacant directorships or increase the size of the
Board of Directors. These provisions may deter a stockholder from removing
incumbent directors and simultaneously gaining control of the Board of
Directors by filling the vacancies created by removal with its own nominees.
Stockholder Action; Special Meeting of Stockholders. The Certificate
provides that stockholders may not take action by written consent, but only at
a duly called annual or special meeting of stockholders. The Certificate
further provides that special meetings of stockholders of our company may be
called only by the Chairman of the Board of Directors or a majority of the
Board of Directors or by a committee of the Board of Directors which has been
duly designated by the Board of Directors and whose powers and authority, as
provided in a resolution of the Board of Directors or in the Bylaws of the
company, include the power to call such meetings.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to the secretary at our principal executive offices not less than 120
days prior to the first anniversary of the date the corporation's proxy
statement was released to security holders in connection with the preceding
year's annual meeting of stockholders; provided, that if no annual meeting of
stockholders was held in the previous year or the date of the annual meeting of
stockholders has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, a proposal
shall be received by the corporation no later than ten days following the day
on which notice of the date of the meeting was mailed or public announcement of
the date of the meeting was made, whichever comes first. In the case of a
special meeting of stockholders, notice by the stockholder, to be timely,
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<PAGE>
must be so received not more than 90 days nor later than the later of (1) 60
days prior to the special meeting of stockholders or (2) the close of business
on the 10th day following the date on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the board of
directors to be elected at such meeting. The Bylaws also specify requirements
as to the form and content of a stockholder's notice. These provisions may
preclude stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an annual meeting of
stockholders.
Authorized But Unissued Shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval, subject to limitations imposed by the Nasdaq National Market. These
additional shares may be utilized for a variety of corporate purposes,
including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of our company by means of
a proxy contest, tender offer, merger or otherwise.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. We
have provisions in our certificate and bylaws that require a super-majority
vote of the stockholders to amend, revise or repeal provisions that may have an
anti-takeover effect.
Registration Rights
Following this offering, holders of 9,565,220 shares of our common stock
will have certain rights to register the sales of those shares under the
Securities Act. Subject to some limitations, these registration rights include:
. an unlimited number of piggyback registration rights that require us to
register sales of a requesting holder's shares when we undertake a
public offering, subject to the discretion of the managing underwriter
of the offering to decrease the amount that holders may register;
. two demand registration rights that holders may exercise no sooner than
180 days after our initial public offering, which require us to register
sales of a holder's shares, subject to the discretion of our Board of
Directors to delay the registration; and
. registration rights that holders may exercise no more than twice during
any consecutive 12 month period to require us to register sales of
shares on Form S-3, a short form of registration statement permitted to
be used by some companies, which holders may exercise following the time
we first qualify for the use of this form of registration with the SEC
if they request registration of the sale of shares representing no less
than 2% of the then outstanding shares of common stock.
Holders of an additional 22,708,230 shares of common stock are entitled to
an unlimited number of piggyback registration rights as well as the right to
participate, on a pro rata basis, in any underwritten secondary offering of our
common stock that would constitute an exception to the 360-day lock-up period
following this offering, subject to reductions in the discretion of the
managing underwriter of such offering or the Board of Directors.
A holder of an aggregate of 824,579 shares and options to acquire shares of
common stock may require us to register the resale of such shares in a non-
underwritten offering on Form S-3 following the time we first qualify for the
use of this form, which we expect to qualify for after the first anniversary of
this offering.
In connection with his employment agreement, in the event of an additional
public offering prior to December 31, 2000, Robert J. Markese may require us to
register the resale of shares issuable upon the exercise of up to 10% of his
1,140,000 options in that public offering.
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<PAGE>
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions.
All holders of our common stock prior to this offering have agreed with us
not to sell any of their shares during the 360-day period following this
offering and are expected to agree with Morgan Stanley & Co. Incorporated not
to sell any of these shares during the 180-day period following this offering.
Our Board of Directors, in its discretion, may waive this 360-day lock-up
period. Any decision by our Board of Directors to waive the lock-up
restrictions would depend on a number of factors, including market conditions,
the performance of our common stock in the market and our financial condition
at that time.
Limitation of Liability and Indemnification Matters
The Certificate includes provisions to (1) eliminate the personal liability
of our Directors for monetary damages resulting from breaches of their
fiduciary duty to the extent permitted by the DGCL and (2) indemnify our
Directors and officers to the fullest extent permitted by the DGCL, including
circumstances in which indemnification is otherwise discretionary.
We have entered into agreements to indemnify each of our directors and some
of our executive officers, in addition to the indemnification provided for in
the Bylaws. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and officers. Our Bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions, regardless of whether the
DGCL would permit indemnification.
Transfer Agent And Registrar
Upon the closing of this offering, the transfer agent and registrar for our
common stock will be Harris Trust and Savings Bank.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Effect of Sales of Shares
Prior to this offering, no public market existed for our common stock, and
we can make no prediction as to the effect, if any, that sales of shares of
common stock or the availability of shares of our common stock for sale will
have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market, or the perception that sales occur, could adversely affect the market
price of our common stock and could impair our future ability to raise capital
through an offering of our equity securities.
Sale of Restricted Shares
On completion of this offering, we will have an aggregate of 37,281,450
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these
outstanding shares, the 5,000,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by our "affiliates," as that term is defined
in Rule 144 under the Securities Act, generally only may be sold in compliance
with the limitations of Rule 144 described below. All of the remaining
32,281,450 shares of common stock that will be outstanding after this offering
will be "restricted securities," as that term is defined under Rule 144.
Restricted securities may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rule 144, including
Rule 144(k) or Rule 701 under the Securities Act, which rules are summarized
below. Taking into account the lock-up agreements described below and the
provisions of Rules 144, 144(k) and 701, additional shares will be available
for sale in the public market as follows:
<TABLE>
<CAPTION>
Days after Date Approximate Shares
of this Prospectus Eligible for Future Sale Comment
------------------ ------------------------ -------
<C> <C> <S>
Freely tradable shares
On Effectiveness........ 5,000,000 sold in offering
360 days................ 32,281,450 Lock-ups released; shares
salable under Rule 144,
144(k) or 701
</TABLE>
Rule 144
In general, under Rule 144 as currently in effect, commencing 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which is
expected to be approximately 372,815 shares upon completion of this
offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale, subject to the
restrictions specified in Rule 144.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years is entitled to sell such
shares under Rule 144(k) without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Persons
deemed to be affiliates must always sell pursuant to Rule 144, even after the
applicable holding periods have been satisfied.
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<PAGE>
Lock-Up Agreements
We, all of our directors and officers, all of our current stockholders and
substantially all of our optionholders have agreed that they will not offer,
sell or agree to sell, directly or indirectly, or otherwise dispose of any
shares of common stock without the prior written consent of Morgan Stanley &
Co. Incorporated for a lock-up period of 180 days from the date of this
prospectus.
We have no agreement with Morgan Stanley & Co. Incorporated for a waiver of
this restriction. However, Morgan Stanley & Co. Incorporated may, in its
discretion, release it. In some cases underwriters agree to waive lock-up
restrictions when a company's stock has performed well and market conditions
are favorable. Any decision by Morgan Stanley & Co. Incorporated to waive the
lock-up restrictions would depend on a number of factors, including market
conditions, the performance of our common stock in the market and our financial
condition at that time.
In addition, each of our directors, executive officers and current
stockholders and substantially all of our optionholders have agreed with us
that they will not offer, sell or agree to sell, directly or indirectly, or
otherwise dispose of any shares of common stock without our prior written
consent for a lock-up period of 360 days from the date of this prospectus. Our
prior written consent for sale of such shares shall be deemed given in the
event that we approve a registered secondary offering of shares during the
lock-up period, in which such stockholders would have a pro rata participation
right. Holders of 22,708,230 shares of our common stock are entitled to an
unlimited number of piggyback registration rights as well as the right to
participate, on a pro rata basis, in any underwritten secondary offering of our
common stock that would constitute an exception to the 360-day lock-up period
following this offering, subject to reductions in the discretion of the
managing underwriter of such offering or the Board of Directors.
Rule 701
Any of our employees or advisors who purchases shares from us in connection
with a compensatory stock plan or other written agreement is entitled to rely
on the resale provisions of Rule 701, which permits nonaffiliates to sell their
Rule 701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the date
of this prospectus.
Stock Options
As of the date of this prospectus, options to purchase a total of 5,613,044
shares of our common stock are outstanding. An additional 3,516,842 shares of
common stock were available for future option grants under our stock option
plans. We intend to file a registration statement on Form S-8 under the
Securities Act to register shares of common stock issued or reserved for
issuance under our stock option plan and shares issued or issuable upon
exercise of other options within 180 days after the date of the prospectus,
thus permitting the resale of such shares by nonaffiliates in the public market
without restriction under the Securities Act.
Registration Rights
On completion of this offering, some holders of shares of outstanding common
stock will have demand registration rights with respect to their shares of
common stock (subject to the 360-day lock-up arrangements described above) to
require us to register their shares of common stock under the Securities Act,
and they will have specified rights to participate in any future registration
of our securities, subject to the discretion of the managing underwriter of the
offering to decrease the amount that holders may register.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Dain Rauscher Incorporated and Lehman
Brothers Inc. are acting as representatives, have severally agreed to purchase,
and we have agreed to sell to them, severally, the number of shares indicated
below.
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...............................
Dain Rauscher Incorporated......................................
Lehman Brothers Inc. ...........................................
---------
Total......................................................... 5,000,000
=========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus
are subject to the approval of certain legal matters by their counsel and to
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered by this prospectus, if any such shares are
taken. However, the underwriters are not required to take or pay for the shares
covered by the underwriters' over-allotment option described below.
The per share price of any shares sold by the underwriters will be the
public offering price listed on the cover page of this prospectus, in United
States dollars, less an amount not greater than the per share amount of the
concession to dealers described below.
The underwriters propose initially to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to certain dealers at a price that represents
a concession not in excess of $ a share. Any underwriter may allow, and such
dealers may reallow, a concession not in excess of $ a share to other
underwriters or to certain dealers. After the initial offering of the shares of
common stock, the offering price and other selling terms may from time to time
be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 750,000
additional shares of common stock at the public offering price listed on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise the option solely for the purpose of covering over-
allotments, if any, made in connection with the offering of shares of common
stock offered by this prospectus. To the extent the option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
about the same percentage of the additional shares of common stock as the
number listed next to the underwriter's name in the preceding table bears to
the total number of shares of common stock listed next to the names of all
underwriters in the preceding table. If the underwriters' option is exercised
in full, the total price to public would be $, the total underwriting discounts
and commissions would be $ and the total proceeds to Click Commerce would be $
.
We have advised the underwriters that the estimated expenses of the
offering, in addition to underwriting discounts and commissions, are
approximately $1,000,000.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option. The underwriting discounts and commissions will be determined by
negotiations between us and the representatives. Among the factors to be
considered in determining the discounts and commissions will be the size of the
offering, the nature of the security offered and the discounts and commissions
charged in comparable transactions.
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<PAGE>
<TABLE>
<CAPTION>
Per Share Total
------------------------- -------------------------
No Exercise Full Exercise No Exercise Full Exercise
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us.... $ $ $ $
Other amounts considered to
be underwriting
compensation by the NASD.. $ $
</TABLE>
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "CKCM."
We, our officers, directors and stockholders and substantially all of our
optionholders have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, it will not during
the period ending 180 days after the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, the economic consequences of ownership of common stock
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
The restrictions described in the immediately preceding paragraph do not
apply to:
. the sale of shares to the underwriters;
. the issuance of shares under our employee stock option or stock purchase
plans;
. the grant by us of employee stock options; or
. the issuance of common stock in connection with the transactions
described in this prospectus.
In addition, each of our directors, executive officers and current
stockholders and substantially all of our optionholders have agreed with us
that they will not offer, sell or agree to sell, directly or indirectly, or
otherwise dispose of any shares of common stock without our prior written
consent for a lock-up period of 360 days from the date of this prospectus.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5%, or 250,000 shares of common stock offered in
this offering under a directed share program for some of our business
associates. These persons are expected to purchase, in the aggregate, not more
than five percent of the common stock offered in the offering. The number of
shares available for sale to the general public in the offering will be reduced
to the extent these persons purchase reserved shares. Any reserved shares not
so purchased will be offered to the general public on the same basis as the
other shares offered by this prospectus.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with this offering, creating a short position in the common stock
for the underwriters' account. In addition, to cover over-allotments or to
stabilize the price of the common stock, the underwriters may bid for,
68
<PAGE>
and purchase, shares of common stock in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an
underwriter or dealer for distributing the common stock in the offering, if the
syndicate repurchases previously distributed common stock in transactions to
cover syndicate short positions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the
common stock above independent market levels. The underwriters are not required
to engage in these activities, and may end any of these activities at any time.
From time to time, the underwriters or their affiliates may provide
investment and commercial banking services to Click Commerce.
An executive officer of an affiliate of Salomon Smith Barney Inc., which may
be one of the underwriters in this offering, purchased 95,238 shares of common
stock at a price of $5.25 per share in February 2000. If Salomon Smith Barney
participates as an underwriter, the aggregate difference between the purchase
price per share of those shares and the public offering price per share in this
offering will be deemed to be underwriting compensation pursuant to the
regulations of the National Association of Securities Dealers, Inc. Under the
NASD's regulations these shares may not be sold, transferred, assigned, pledged
or hypothecated for a period of one year from the date of this prospectus.
Pricing of the Offering
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between Click Commerce and the U.S. representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of Click Commerce and its industry in general, sales, earnings and
certain other financial operating information of Click Commerce in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of Click Commerce. The estimated initial public
offering price range set forth on the cover page of this preliminary prospectus
is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed on
for us by Latham & Watkins, Chicago, Illinois. Certain legal matters in
connection with the offering will be passed on for the underwriters by Davis
Polk & Wardwell, New York, New York. Latham & Watkins owns 9,524 shares of our
common stock. Mark A. Harris, a former partner of Latham & Watkins, became our
chief legal officer as of April 1, 2000.
EXPERTS
Our financial statements and the related financial statement schedule as of
December 31, 1998 and 1999, and for each of the years in the three-year period
ended December 31, 1999 have been included herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in auditing and accounting.
CHANGE IN INDEPENDENT ACCOUNTANTS
Our financial statements for the year ended December 31, 1998 were
previously audited by PricewaterhouseCoopers LLP, certified public accountants.
We made the determination to change accountants to KPMG LLP in connection with
our decision to offer shares of our common stock to the public. The decision to
change accountants was approved by our Board of Directors.
PricewaterhouseCoopers LLP and we mutually agreed to terminate our relationship
on December 10, 1999. PricewaterhouseCoopers LLP's report on our financial
statements for the fiscal year ended December 31, 1998 contained no adverse
opinion or disclaimer of
69
<PAGE>
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles. There were no disagreements at any time between us and
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to Click Commerce and the common stock, we refer you to the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus concerning the
contents of any contract or any other document are not necessarily complete. If
a contract or a document has been filed as an exhibit to the registration
statement, we refer you to the copy of the contract or document that has been
filed. Each statement in this prospectus relating to a contract or a document
filed as an exhibit is qualified in all respects by the filed exhibit. The
registration statement, including exhibits and schedules thereto, may be
inspected without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from such office after
payment of fees prescribed by the SEC. Please call the SEC at 1-800-732-0330
for further information on the operation of the public reference rooms. Our SEC
filings, including the registration statement, are also available to you on the
SEC's Web site located at www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and in
accordance therewith will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission.
70
<PAGE>
CLICK COMMERCE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Shareholders' Equity (Deficit)............................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Click Commerce, Inc.:
We have audited the accompanying balance sheets of Click Commerce, Inc. as
of December 31, 1998 and 1999, and the related statements of operations,
shareholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Click Commerce, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois February 7, 2000, except as to Note 13,
which is as of February 14, 2000
F-2
<PAGE>
CLICK COMMERCE, INC.
BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
December 31, Pro Forma
----------------------- March 31, March 31,
1998 1999 2000 2000
---------- ----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 66,850 $ 3,335,674 $ 3,718,584
Short-term investments.. 53,210 2,968,198 56,456
Trade accounts
receivable, less
allowance for doubtful
accounts of $20,744,
$53,794, and $110,156
at 1998, 1999 and 2000,
respectively........... 490,597 1,539,665 1,073,915
Revenue earned on
contracts in progress
in excess of billings.. 136,957 894,107 2,379,900
Other current assets.... 20,435 129,699 918,124
Deferred income taxes... 79,781 242,379 242,379
---------- ----------- ------------
Total current assets.. 847,830 9,109,722 8,389,358
Property and equipment,
net.................... 189,865 700,323 1,193,593
Other assets............ 39,102 123,788 202,556
---------- ----------- ------------
Total assets.......... $1,076,797 $ 9,933,833 $ 9,785,507
========== =========== ============
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable........ $ 224,656 $ 644,170 $ 1,225,588
Billings in excess of
revenues earned on
contracts in progress.. 214,268 2,025,809 1,095,975
Deferred revenue........ 184,084 389,799 30,319
Accrued compensation.... 182,898 712,382 1,098,977
Accrued expenses and
other current
liabilities............ 34,986 233,751 426,730
Income taxes payable.... 145,149 39,092 --
Current portion of
capital lease
obligations............ 15,727 45,454 68,739
---------- ----------- ------------
Total current
liabilities.......... 1,001,768 4,090,457 3,946,328
Capital lease obligations,
less current portion..... 2,121 83,706 164,176
Other liabilities......... -- -- 37,018
Deferred income taxes..... 17,529 33,249 33,249
---------- ----------- ------------
Total liabilities..... 1,021,418 4,207,412 4,180,771
Series A Convertible
Participating Preferred
Stock, $0.001 par value,
12,000,000 shares
authorized; minimum
aggregate liquidation
preference of $6,000,000
in 1999 and 2000;
5,217,392 shares issued
and outstanding in 1999
and 2000................. -- 7,905,596 10,179,103 --
Series B Convertible
Participating Preferred
Stock, $0.001 par value,
8,000,000 shares
authorized; minimum
aggregate liquidation
preference of $5,000,000
in 1999 and 2000;
4,347,828 shares issued
and outstanding in 1999
and 2000................. -- 6,406,454 8,246,724 --
Shareholders' equity
(deficit):
Preferred stock, $0.001
par value, 5,000,000
shares authorized, no
shares issued and
outstanding............ -- -- --
Common stock, $0.001 par
value, 75,000,000
shares authorized;
26,400,000, 22,169,292,
22,627,292 and
32,192,512 shares
issued and outstanding
in 1998, 1999, 2000 and
pro forma 2000,
respectively........... 26,400 22,169 22,628 32,193
Additional paid-in
capital................ 623,967 -- 3,252,438 21,668,700
Deferred compensation... (509,559) (1,259,805) (4,300,851) (4,300,851)
Accumulated deficit..... (85,429) (7,347,993) (11,795,306) (11,795,306)
---------- ----------- ------------ -----------
Total shareholders'
equity (deficit)..... 55,379 (8,585,629) (12,821,091) 5,604,736
---------- ----------- ------------ -----------
Total liabilities and
shareholders' equity
(deficit).............. $1,076,797 $ 9,933,833 $ 9,785,507
========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended
Year ended December 31, March 31,
----------------------------------- -----------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $1,321,684 $2,390,340 $ 9,952,109 $1,534,394 $ 5,123,548
Cost of revenue
(exclusive of $1,000
for the year ended
December 31, 1999 and
$1,000 and $4,000 for
the three months ended
March 31, 1999 and
2000, respectively,
reported below as
amortization of
deferred stock
compensation).......... 378,989 711,963 2,669,551 277,335 1,554,709
---------- ---------- ----------- ---------- -----------
Gross profit............ 942,695 1,678,377 7,282,558 1,257,059 3,568,839
Operating expenses:
Sales and marketing
(exclusive of $29,000
for the year ended
December 31, 1999 and
$29,000 and $101,000
for the three months
ended March 31, 1999
and 2000,
respectively,
reported below as
amortization of
deferred stock
compensation)......... 174,347 434,510 2,810,477 214,321 1,648,365
Research and
development
(exclusive of
$410,000 for the year
ended December 31,
1999 and $8,000 and
$23,000 for the three
months ended March
31, 1999 and 2000,
respectively,
reported below as
amortization of
deferred stock
compensation)......... -- 149,235 728,823 75,200 896,254
General and
administrative
(exclusive of
$187,000 and $27,000
for the years ended
December 31, 1998 and
1999, respectively,
and $27,000 and
$142,000 for the
three months ended
March 31, 1999 and
2000, respectively,
reported below as
amortization of
deferred stock
compensation)......... 719,850 986,630 2,761,712 282,948 1,245,689
Amortization of
deferred stock
compensation.......... -- 187,401 466,891 92,012 270,204
---------- ---------- ----------- ---------- -----------
Total operating
expenses............ 894,197 1,757,776 6,767,903 664,481 4,060,512
---------- ---------- ----------- ---------- -----------
Operating income
(loss).............. 48,498 (79,399) 514,655 592,578 (491,673)
Interest income......... 5,510 8,370 113,186 1,269 20,190
Interest expense........ (5,893) (8,977) (6,639) -- (3,018)
Other expense........... (256) (1,881) (6,256) -- --
---------- ---------- ----------- ---------- -----------
Other income (expense).. (639) (2,488) 100,291 1,269 17,172
---------- ---------- ----------- ---------- -----------
Income (loss) before
income taxes........... 47,859 (81,887) 614,946 593,847 (474,501)
Income tax expense
(benefit).............. 28,721 (16,670) 297,571 260,000 (140,979)
---------- ---------- ----------- ---------- -----------
Net income (loss)....... 19,138 (65,217) 317,375 333,847 (333,522)
Accretion related to
redeemable preferred
stock.................. -- -- (3,712,050) -- (4,113,791)
---------- ---------- ----------- ---------- -----------
Net income (loss)
available to common
shareholders........... $ 19,138 $ (65,217) $(3,394,675) $ 333,847 $(4,447,313)
========== ========== =========== ========== ===========
Basic earnings (loss)
per share............. $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
========== ========== =========== ========== ===========
Diluted earnings (loss)
per share.............. $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
========== ========== =========== ========== ===========
Pro forma basic earnings
(loss) per share....... $ 0.01 $ (0.01)
=========== ===========
Pro forma diluted
earnings (loss) per
share.................. $ 0.01 $ (0.01)
=========== ===========
Weighted average shares
outstanding:
Basic.................. 26,400,000 26,400,000 24,371,578 26,400,000 22,431,995
Diluted................ 26,400,000 26,400,000 24,371,578 29,868,108 22,431,995
Pro forma weighted
average shares
outstanding:
Basic.................. 29,245,910 31,997,215
Diluted................ 33,206,994 31,997,215
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
------------------- paid-in Deferred Accumulated
Shares Amount capital compensation deficit Total
---------- ------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 26,400,000 $26,400 $ -- $ -- $ (39,347) $ (12,947)
Net income.............. -- -- -- 19,138 19,138
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1997................... 26,400,000 26,400 -- -- (20,209) 6,191
Deferred compensation
from stock option
grants................. -- -- 696,960 (696,960) -- --
Amortization of deferred
stock compensation, net
of income tax benefit
of $72,993 ............ -- -- (72,993) 187,401 -- 114,408
Net loss................ -- -- -- -- (65,217) (65,217)
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1998................... 26,400,000 26,400 623,967 (509,559) (85,426) 55,382
Deferred compensation
from stock option
grants................. -- -- 1,324,401 (1,324,401) -- --
Amortization of deferred
stock compensation, net
of income tax benefit
of $156,695............ -- -- (156,695) 466,894 -- 310,199
Deferred compensation
related to cancelled
options................ -- -- (107,261) 107,261 -- --
Issuance of common stock
upon exercise of stock
options, including
related tax benefit.... 986,684 986 442,479 -- -- 443,465
Redemption of common
stock.................. (5,217,392) (5,217) (2,126,891) -- (3,867,892) (6,000,000)
Accretion related to
redeemable preferred
stock.................. -- -- -- -- (3,712,050) (3,712,050)
Net income.............. -- -- -- -- 317,375 317,375
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1999................... 22,169,292 $22,169 -- (1,259,805) (7,347,993) (8,585,629)
Deferred compensation
from stock option
grants (unaudited)..... -- -- 3,311,250 (3,311,250) -- --
Amortization of deferred
stock compensation, net
of income tax benefit
of $62,479 (unaudited). -- -- (62,479) 270,204 -- 207,725
Issuance of common stock
upon exercise of stock
options, including
related tax benefit
(unaudited)............ 458,000 459 3,667 -- -- 4,126
Accretion related to
redeemable preferred
stock (unaudited)...... -- -- -- -- (4,113,791) (4,113,791)
Net loss (unaudited).... -- -- -- -- (333,522) (333,522)
---------- ------- ---------- ----------- ------------ ------------
Balance at March 31,
2000 (unaudited)....... 22,627,292 $22,628 $3,252,438 $(4,300,851) $(11,795,306) $(12,821,091)
========== ======= ========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months ended
Year ended December 31, March 31,
-------------------------------- -----------------------
1997 1998 1999 1999 2000
-------- --------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $ 19,138 $ (65,217) $ 317,375 $ 333,847 $ (333,522)
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Amortization of
deferred stock
compensation.......... -- 187,401 466,891 92,012 270,204
Depreciation and
amortization.......... 23,621 42,814 103,315 14,602 77,940
Provision for doubtful
accounts.............. 20,744 -- 33,050 -- 56,362
Deferred income taxes.. -- (60,707) (146,879) -- (131,237)
Loss on disposal of
property and
equipment............. 256 1,881 6,256 -- --
Changes in operating
assets and
liabilities:
Trade accounts
receivable........... (8,403) (473,065) (1,082,118) (489,950) 409,388
Revenue earned on
contracts in progress
in excess of
billings............. -- (136,957) (757,150) 99,865 (1,485,793)
Other current assets.. (4,686) (11,487) (109,264) 18,343 (696,267)
Accounts payable...... 84,501 122,475 419,514 8,835 581,418
Billings in excess of
revenues earned on
contracts in
progress............. -- 214,268 1,811,541 221,927 (929,834)
Deferred revenue...... -- 184,084 205,715 2,012 (359,480)
Accrued compensation.. 184,732 (11,500) 529,484 (170,876) 386,595
Accrued expenses and
other current
liabilities.......... 19,745 (1,744) 198,764 (5,285) 229,997
Income taxes payable.. 28,175 43,981 178,247 82,548 (62,492)
Other assets.......... (10,734) (28,369) (87,700) -- (78,768)
-------- --------- ----------- --------- -----------
Net cash provided by
(used in) operating
activities.......... 357,089 7,858 2,087,041 207,880 (2,065,489)
Cash flows from
investing activities:
Purchases of property
and equipment......... (49,412) (138,936) (481,611) (33,128) (454,757)
Proceeds from sale of
property and
equipment............. -- 250 4,199 -- --
Net
purchases/(maturity)
of short-term
investments........... (50,461) (2,749) (2,914,988) (579) 2,911,742
-------- --------- ----------- --------- -----------
Net cash provided by
(used in) investing
activities.......... (99,873) (141,435) (3,392,400) (33,707) 2,456,985
Cash flows from
financing activities:
Common stock
redemption............ -- -- (6,000,000) -- --
Proceeds from issuance
of preferred stock,
net of issuance costs. -- -- 10,600,000 -- --
Proceeds from exercise
of stock options...... -- -- 2,468 -- 4,126
Principal payments
under capital lease
obligations........... (13,827) (20,358) (28,285) (5,155) (12,712)
Payments under other
borrowings, net....... (35,772) (205) -- -- --
-------- --------- ----------- --------- -----------
Net cash provided by
(used in) financing
activities.......... (49,599) (20,563) 4,574,183 (5,155) (8,586)
-------- --------- ----------- --------- -----------
Net change in cash and
cash equivalents....... 207,617 (154,140) 3,268,824 169,018 382,910
Cash and cash
equivalents at
beginning of year...... 13,373 220,990 66,850 66,850 3,335,674
-------- --------- ----------- --------- -----------
Cash and cash
equivalents at end of
year................... $220,990 $ 66,850 $ 3,335,674 $ 235,868 $ 3,718,584
======== ========= =========== ========= ===========
Supplemental
disclosures:
Property and equipment
acquired under capital
leases................ $ 15,041 $ 6,526 $ 139,599 -- --
Interest paid.......... 5 8,977 6,639 $ 698 3,018
Income taxes paid...... -- 1,599 266,202 177,000 52,750
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of Business
Click Commerce, Inc. (the "Company") is based in Chicago, Illinois and is a
provider of enterprise channel management solutions for large, global
manufacturing companies with complex or specialized dealer, distributor and
supplier networks. The Company provides software products and services that
enable large, global manufacturing companies to effectively manage and engage
in collaborative business-to-business electronic commerce throughout all levels
of their product and services distribution channel.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents and Short-term Investments
Cash equivalents are short-term, highly liquid investments with original
maturity dates of three months or less. Cash equivalents are carried at cost,
which approximates fair market value. Short-term investments are classified as
held-to-maturity and are recorded at cost. As of December 31, 1998, short-term
investments consisted of a certificate of deposit in the amount of $53,210 due
to mature in October 1999. As of December 31, 1999, short-term investments
consisted of a certificate of deposit in the amount of $55,696 due to mature in
October 2000 and a $3,000,000 par value U.S. Government agency discount note
due to mature in January 2000.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization calculated on a straight-line basis over the useful lives of the
assets.
Equipment, furniture and fixtures are depreciated over five to seven years
and computer software is amortized over three years. Equipment held under
capital leases is amortized on a straight-line basis over the shorter of the
lease term or the estimated useful life of the asset.
When property and equipment are retired or otherwise disposed, the cost and
related accumulated depreciation are removed from the account, and any gain or
loss is included in other income. Amounts expended for maintenance and repairs
are charged to expense.
Long-lived Assets
The Company reviews the carrying values of its long-lived assets for
impairment whenever events or changes in circumstances indicate that such
carrying values may not be recoverable. In assessing impairment, the Company
determines whether the undiscounted future cash flows to be derived from the
related asset over the remaining life will be sufficient to recover the
carrying value. In the event such cash flows are not expected to be sufficient
to recover the carrying value of the asset, the impairment to be recognized is
measured by the amount by which the carrying value exceeds the fair value of
the asset.
Revenue and Cost Recognition
Revenues from fixed-price contracts are recognized using the percentage-of-
completion method as services are performed to develop, customize and install
the Company's software products. The percentage completed is
F-7
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
measured by the percentage of labor hours incurred to date in relation to
estimated total labor hours for each contract. Management considers labor hours
to be the best available measure of progress on these contracts.
Revenue from maintenance service is recognized ratably over the term of the
contract. Maintenance fees billed in advance of providing the related service
are included in deferred revenue. As part of the sales process, the Company
performs a needs analysis for the potential customer on a fixed fee basis.
Revenue from needs analyses is recognized as the work is performed.
Cost of revenue includes salaries and related expenses for project
management and technical support personnel who provide development,
customization and installation services to customers and an allocation of
business consulting personnel salaries and data processing and overhead costs.
Changes in job performance, job conditions and estimated profitability,
including those arising from contract penalty provisions and final contract
settlements, may result in revisions to costs and income and are recognized in
the period in which they are determined.
Software Development
Costs associated with the planning and designing phase of software
development, including coding and testing activities necessary to establish
technological feasibility of computer software products to be licensed or
otherwise marketed, are classified as research and development costs, and are
charged to costs and expenses as incurred. Once technological feasibility has
been determined, costs incurred in the construction phase of software
development, including coding, testing, and product quality assurance, are
capitalized. To date the period between technological feasibility and general
availability has been short and costs qualifying for capitalization have been
insignificant. For the years ended December 31, 1997, 1998 and 1999, no
software development costs were capitalized.
Under the provisions of Statement of Position 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, certain costs
associated with software developed or obtained for internal use are capitalized
and amortized over the useful life. No such costs were capitalized during the
years ended December 31, 1997, 1998 and 1999.
Earnings per Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 requires the calculation and presentation of basic and diluted earnings per
share. Basic earnings per share is calculated based on the weighted average
number of common shares outstanding. Diluted earnings per share is calculated
based on the weighted average number of common shares outstanding and the
dilutive effect of stock options and other common stock equivalents using the
treasury stock method. Dilutive securities are excluded from the diluted
earnings per share calculation if their effect is anti-dilutive.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-8
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Financial Instruments
The reported amounts of the Company's financial instruments, which include
short-term investments, trade accounts receivable, accounts payable, accrued
compensation, accrued expenses and income taxes payable, approximate their fair
values due to the contractual maturities and short-term nature of these
instruments.
Stock-Based Compensation
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The provisions of SFAS No. 123 allow companies to either expense
the estimated fair value of stock options or follow the intrinsic value method
set forth in Accounting Principles Board Opinion No. 25 (Opinion 25)
"Accounting for Stock Issued to Employees," and disclose the pro forma effects
on net income had the fair value of the options been expensed. As such,
compensation expense would be recorded only if the fair value of the underlying
stock exceeded the exercise price on the grant date. The Company applies
Opinion 25 in accounting for its stock option plan and, accordingly, no
compensation cost has been recognized on stock options for which the exercise
price equaled the fair value at the date of grant. With respect to stock
options granted at exercise prices less than fair value, the Company recorded
deferred stock based compensation. Such deferred stock based compensation is
amortized on a straight-line basis over the vesting period of each individual
award.
Segment Reporting
The Company operates in a single segment and will evaluate additional
segment disclosure requirements as it expands its operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133, which is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS
No. 133 establishes a comprehensive standard for the recognition and
measurement of derivative instruments and hedging activities. This
pronouncement will require the Company to recognize derivatives on its balance
sheet at fair value. Changes in the fair values of derivatives that qualify as
cash flow hedges will be recognized in other comprehensive income until the
hedged item is recognized in earnings.
In December 1999, the Securities and Exchange Commission issued SAB No. 101,
Revenue Recognition in Financial Statements that was amended by SAB No. 101A,
which is effective no later than the second quarter of fiscal 2000.
The Company does not expect the adoption of these recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.
Unaudited Interim Financial Information
The unaudited interim financial information as of March 31, 2000 and for the
three months ended March 31, 1999 and 2000 has been prepared on a basis
consistent with the audited financial statements. In management's opinion, such
information reflects all adjustments which are of a normal recurring nature and
which are necessary to present fairly the results of the periods presented. The
results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results of operations to be expected for the year
ending December 31, 2000.
F-9
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Unaudited Pro Forma Balance Sheet
Upon an initial public offering of the Company's common stock, the shares of
Series A and Series B Convertible Participating Preferred Stock will be
converted into 9,565,220 shares of common stock. This transaction has been
reflected in the unaudited pro forma balance sheet as of March 31, 2000.
3. Concentrations of Credit Risk
During the year ended December 31, 1997, three customers accounted for an
aggregate of 88% of the Company's total revenue, one for approximately 37%,
another for approximately 30% and a third for approximately 21%. During the
year ended December 31, 1998, four customers accounted for an aggregate of 81%
of the Company's total revenue, one for approximately 25%, another for
approximately 24%, a third for approximately 18%, and a fourth customer for
approximately 14%. During the year ended December 31, 1999, three customers
accounted for an aggregate of 61% of the Company's total revenue, one for
approximately 29%, another for approximately 18%, and a third customer for
approximately 14%.
As of December 31, 1998, four customers accounted for 97% of the Company's
gross trade accounts receivable, one for approximately 38%, another for
approximately 31%, another for approximately 18% and a fourth customer for
approximately 10%. As of December 31, 1999, five customers accounted for an
aggregate of 85% of the Company's gross trade accounts receivable, one for
approximately 27%, another for approximately 21%, another for approximately
15%, another for approximately 12% and a fifth customer for approximately 10%.
4. Property and Equipment
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
-------- ---------
<S> <C> <C>
Equipment, furniture and fixtures.................... $203,582 $ 613,898
Leased equipment..................................... 56,038 195,637
Computer software.................................... 4,606 63,416
-------- ---------
264,226 872,951
Less accumulated depreciation and amortization....... (74,361) (172,628)
-------- ---------
Net property and equipment........................... $189,865 $ 700,323
======== =========
</TABLE>
Accumulated amortization related to capitalized leased equipment was $39,165
and $68,577 as of December 31, 1998 and 1999, respectively.
F-10
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Lease Commitments
The Company is obligated as lessee under certain noncancelable operating
leases for equipment and office space, and is also obligated to pay insurance,
maintenance and other executory costs associated with the leases. Rent expense
(including insurance, maintenance and other executory costs) was $86,885,
$195,521 and $354,598 during 1997, 1998 and 1999, respectively. Future minimum
payments under lease obligations with initial or remaining terms in excess of
one year are as follows as of December 31, 1999:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------- --------
<S> <C> <C>
2000................................................. $ 547,555 $ 56,537
2001................................................. 578,600 54,326
2002................................................. 595,936 37,054
2003................................................. 613,804 --
2004................................................. 260,880 --
Thereafter........................................... -- --
---------- --------
Total minimum lease payments......................... $2,596,775 147,917
==========
Less amount representing interest.................... (18,757)
--------
Subtotal............................................. 129,160
Less current portion of capital lease obligations.... (45,454)
--------
Capital lease obligations, less current portion...... $ 83,706
========
</TABLE>
In January 2000, the Company entered into an operating lease agreement for
office space in another office complex. The lease term begins in February 2000
and ends in August 2005. The agreement stipulates the Company will not make
monthly payments for the first five months, and subsequently will pay a base
amount, and additional amounts for taxes and operating expenses ranging from
$69,150 to $81,600 per month for the term of the lease.
In February 2000, the Company entered into an agreement to sublease a
portion of its existing leased premises to another company for the entire
amount the Company is obligated to pay for such portion under its present
agreement.
6. Income Taxes
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
-------- --------- --------
<S> <C> <C> <C>
Year ended December 31, 1997:
U.S. Federal.............................. $ 23,296 $ -- $ 23,296
State..................................... 5,425 -- 5,425
Year ended December 31, 1998:
U.S. Federal.............................. 35,557 (48,709) (13,152)
State..................................... 8,480 (11,998) (3,518)
Year ended December 31, 1999:
U.S. Federal.............................. 364,109 (118,597) 245,512
State..................................... 80,341 (28,282) 52,059
</TABLE>
F-11
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The income tax expense (benefit) differs from the amounts computed by
applying the U.S. Federal income tax rate of 34% to income (loss) before taxes
as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)..... $16,272 $(27,842) $231,045
Increase (reduction) in income taxes resulting
from:
Non-deductible expenses, primarily meals and
entertainment.............................. 8,868 13,494 32,167
State income taxes, net of Federal income
tax benefit................................ 3,581 (2,322) 34,359
------- -------- --------
$28,721 $(16,670) $297,571
======= ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1998 and 1999 are presented below:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to allowance
for doubtful accounts............................. $ 8,080 $ 20,953
Accrued compensation expense....................... -- 71,405
Deferred revenue................................... 71,701 150,021
-------- --------
Total gross deferred tax assets.................. 79,781 242,379
Deferred tax liabilities principally due to tax over
book depreciation................................... (17,529) (33,249)
-------- --------
Net deferred tax assets.......................... $ 62,252 $209,130
======== ========
</TABLE>
The income tax benefit for tax deductions relating to the exercise of
nonqualified stock options in excess of the tax benefit on the amount reflected
as amortization of deferred stock compensation has been credited to additional
paid-in capital.
In assessing the realizablility of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets are deductible, management
believes that it is more likely than not that the Company will realize the
benefits of deferred tax assets for which an allowance has not been
established.
7. Capital Stock
Stock Splits
On December 31, 1997, the Company's Board of Directors approved a 660-for-1
split of common shares in the form of a stock dividend. On July 27, 1999, the
Board approved a 2-for-1 split of common and preferred shares in the form of a
stock dividend. On December 10, 1999, the Board approved a 2-for-1 split of
common and preferred shares in the form of a stock dividend. All common and
preferred share and per share amounts, unless indicated otherwise, have been
adjusted for the effect of these splits.
F-12
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Redemption of Common Stock
In July 1999, the Company redeemed and retired 5,217,392 shares of common
stock for $6,000,000. Such common shares were redeemed from shareholders in
conjunction with the issuance of Series A and B Convertible Participating
Preferred Stock to new investors.
Preferred Stock
In June and July 1999, the Company sold 5,217,392 shares of Series A
Convertible Participating Preferred Stock, par value $.001, at $1.15 per share.
Gross proceeds to the Company were $6,000,000.
In July 1999, the Company sold 4,347,828 shares of Series B Convertible
Participating Preferred Stock, par value $.001, at $1.15 per share. Gross
proceeds to the Company were $5,000,000.
As described in the Company's amended and restated Certificate of
Incorporation, each share of Series A and Series B Convertible Participating
Preferred Stock ("preferred stock") is convertible at the shareholder's option
into such number of shares of common stock as determined by a conversion
factor, as defined in the Certificate of Incorporation (as of December 31,
1999, the conversion of preferred stock to common stock is on a one-for-one
basis).
The preferred stock will automatically convert upon the closing of a
qualified public offering of the Company's common stock. The Company has
reserved 9,565,220 shares of its common stock for issuance upon conversion of
the preferred stock.
At the written request of the holders of a majority of the outstanding
shares of preferred stock, the Company will redeem for cash a specified
percentage of shares for ten day periods commencing June 11, 2004 and 2005. The
number of shares redeemed on each date shall not exceed fifty percent of the
total preferred shares then outstanding. The price per share to be paid to the
preferred shareholders shall be equal to the greater of the fair market value
of common stock or the amount to which the holder would be entitled in the
event of a liquidation (minimum of $1.15 per share).
Accretion related to redeemable preferred stock has been recognized on a
straight-line basis, calculated from the dates of issuance through the
redemption dates for cash based on the estimated fair market value of common
stock (aggregate amount of $50,217,405 or $5.25 per share as of December 31,
1999 and aggregate amount of $86,086,980 or $9.00 per share as of March 31,
2000).
The holders of preferred stock shall be entitled to receive, when and if
declared by the Board of Directors, dividends in the same amount per share as
would be payable on the number of shares of common stock into which the
preferred stock is then convertible, payable in preference and priority to
payment of any cash dividend on common stock.
Shares of preferred stock are entitled to a number of votes on any matter
put before the shareholders of the Company equal to the number of shares of
common stock into which they are convertible. In addition, the holders of the
preferred stock are also entitled to vote separately as a class with respect to
those matters required to be submitted to a class pursuant to the terms of the
Certificate of Incorporation or by law.
Upon any liquidation, dissolution or winding up of the Company, holders of
preferred stock shall be first entitled, before any distribution or payment to
holders of common stock, to a minimum amount of $1.15 per share, and shall be
entitled to participate in further distributions with a priority equal to that
of the holders of common stock. At December 31, 1999, the holders of preferred
stock would be entitled to a minimum aggregate amount of $11,000,000 in the
event of a liquidation.
F-13
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Employee Stock Option and Stock Award Plan
In October 1998, the Company's Board of Directors adopted the Click
Commerce, Inc. Stock Option and Stock Award Plan ("the Plan"), pursuant to
which the Board may grant stock options and stock appreciation rights to
officers and key employees. The Plan authorizes grants of options to purchase
up to 4,497,508 shares of authorized common stock (see Note 13). Stock options
are granted at an exercise price equal to the stock's fair value at the date of
grant. All stock options have ten year terms and generally vest over three to
five years from the date of grant. At December 31, 1999, there were 1,271,508
additional shares reserved for grant under the Plan. In addition, stock options
outstanding as of December 31, 1999 include options to purchase up to 1,395,982
shares of common stock, which have been granted under option agreements outside
of the Plan.
The Company applies Opinion 25 in accounting for its Plan and, accordingly,
no compensation cost has been recognized on stock options for which the
exercise price equaled the fair value at the date of grant. Had the Company
determined compensation cost based on the fair value at the grant date for
stock options under
SFAS No. 123, the Company's net loss available to common shareholders would
have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1999
-------- -----------
<S> <C> <C>
Net loss available to common shareholders:
As reported..................................... $(65,217) $(3,394,675)
Pro forma....................................... (122,962) (3,499,787)
Basic and diluted loss per share:
As reported..................................... (0.00) (0.14)
Pro forma....................................... (0.00) (0.14)
</TABLE>
For purposes of calculating the pro forma compensation cost consistent with
SFAS No. 123, the fair value of each stock option grant is estimated on the
date of grant using the Black-Scholes option-pricing model. The per share
weighted-average fair value of stock options granted during 1998 and 1999 was
$0.15 and $0.25, respectively, using the following weighted-average assumptions
(excluding a volatility assumption): expected dividend yield of 0%, risk-free
interest rate of 5%, and expected life of 5 years.
The following table summarizes information about fixed stock options
outstanding as of December 31, 1998 and 1999 and March 31, 2000:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1999 March 31, 2000
------------------ ------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Fixed Options Shares Prices Shares Prices Shares Price
------------- --------- -------- --------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- -- 3,104,000 $0.0255 4,621,982 $0.6749
Granted................. 3,104,000 $0.0255 3,276,000 1.0408 1,355,500 6.0525
Exercised............... -- -- (986,684) 0.0025 (458,000) 0.0090
Cancelled............... -- -- (771,334) 0.4759 (25,000) 1.1500
--------- --------- ---------
Outstanding at end of
year................... 3,104,000 $0.0255 4,621,982 $0.6749 5,494,482 2.0549
========= ========= =========
Options exercisable at
end of year............ 204,000 $0.0025 1,405,982 $0.0107 1,095,982 $0.6833
========= ========= =========
</TABLE>
F-14
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about fixed stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------
Weighted
Average Weighted
Remaining Average Weighted
Exercise Number of Contractual Exercise Number of Average
Prices Shares Life Price Shares Prices
-------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.0025 1,395,982 8.72 years $0.0025 1,395,982 $0.0025
0.2500 280,000 8.88 0.2500 -- --
0.3750 468,000 9.05 0.3750 -- --
1.1500 2,473,000 9.57 1.1500 10,000 1.1500
5.2500 5,000 9.90 5.2500 -- --
--------- ---------
4,621,982 9.16 $0.6749 1,405,982 $0.0107
========= =========
</TABLE>
In 1998, the Company's Board of Directors approved consulting and employment
agreements to retain the services of a former director and a former officer.
These individuals were granted options to purchase a total of 2,816,000 shares
of common stock at an exercise price of $0.0025 per share. The term of the
options was 10 years from the date of grant. Of these options, 1,540,000 were
granted to a nonemployee and this grant was not governed by Opinion 25.
Deferred compensation of $381,000 was calculated at the date of grant using the
Black-Scholes option-pricing model and the following assumptions: expected
dividend yield of 0%, risk-free interest rate of 5%, expected life of 5 years,
and volatility of 50%.
The Company was recognizing compensation expense ratably over the service
period specified in the agreements; however, the services of both of these
individuals were terminated during 1999. Therefore, the compensation expense
pertaining to the unvested and cancelled options of $107,261 was restored to
additional paid-in capital during 1999. Prior to termination of these services,
the Company recognized compensation expense of approximately $187,000 and
$402,000 in 1998 and 1999, respectively.
The Company recorded approximately $1,324,000 and $3,311,000 of unearned
stock-based compensation in the year ended December 31, 1999 and in the three
months ended March 31, 2000, respectively. Of these amounts, approximately
$65,000, $65,000 and $270,000 was amortized in the year ended December 31, 1999
and in the three months ended March 31, 1999 and 2000, respectively.
9. Credit Facility
As of December 31, 1999, the Company has a $1,000,000 credit facility with a
commercial bank for the purpose of financing working capital. The term of the
agreement is one year expiring on March 25, 2000. The Company plans to renew
this facility prior to its expiration. Interest is due in monthly installments
and accrues at the prime rate. Borrowings are collateralized by compensating
balances deposited at the bank and by substantially all of the Company's
tangible assets. No balance was outstanding under the credit facility as of
December 31, 1999. In January 2000, the Company obtained a letter of credit
under this facility totaling $500,000 to secure a new office lease. This letter
of credit is renewable annually and declines by $100,000 on the second, third
and fourth anniversaries of the lease and then declines to $38,130 on the fifth
anniversary until the lease expires in August 2005.
F-15
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
3 Months ended March
Years ended December 31, 31,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)
available to common
shareholders......... $ 19,138 $ (65,217) $(3,394,675) $ 333,847 $(4,447,313)
Denominator:
Weighted average
shares outstanding--
basic................ 26,400,000 26,400,000 24,371,578 26,400,000 22,431,995
Effect of stock
options using the
treasury stock
method............... -- -- -- 3,468,108 --
----------- ----------- ----------- ----------- -----------
Weighted average
shares outstanding--
diluted.............. 26,400,000 26,400,000 24,371,578 29,868,108 22,431,995
----------- ----------- ----------- ----------- -----------
Basic earnings (loss)
per share.............. $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
Diluted earnings (loss)
per share.............. 0.00 (0.00) $ (0.14) $ 0.01 $ (0.20)
Pro forma adjustment to
add back accretion for
assumed conversion of
Convertible
Participating Preferred
Stock.................. 3,712,050 4,113,791
Net income (loss) used
in computing pro forma
basic and diluted
earnings per share..... 317,375 (333,522)
Pro forma adjustments to
reflect assumed
conversion of
Convertible
Participating Preferred
Stock:
Series A.............. 2,777,845 5,217,392
Series B.............. 2,096,487 4,347,828
Shares used in computing
pro forma basic
earnings
per share.............. 29,245,910 31,997,215
Shares used in computing
pro forma diluted
earnings per share..... 33,206,994 31,997,215
Pro forma basic earnings
(loss) per share....... $ 0.01 $ (0.01)
Pro forma diluted
earnings (loss)
per share.............. $ 0.01 $ (0.01)
</TABLE>
The pro forma adjustments to reflect the assumed conversion of Convertible
Participating Redeemable Preferred Stock is computed based upon 4,347,828 and
869,564 shares of Series A outstanding from June 17, 1999 and July 9, 1999
respectively, and 4,347,828 shares of Series B outstanding from July 9, 1999,
assuming conversion to common stock on those dates on a one-for-one basis.
For the years ended December 31, 1998 and 1999 and the three months ended
March 31, 2000, 810,179, 3,961,084, and 4,341,485, respectively, of potentially
dilutive stock options were excluded from the loss per share calculations
because their effect was antidilutive.
F-16
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. Retirement Savings Plan
The Company's employees participate in the Administaff of Texas, Inc. 401(k)
plan (the"Plan") that covers substantially all employees. The Plan provides for
discretionary contributions by the Company based on a percentage of participant
compensation, subject to limitations imposed by applicable government
regulations. Amounts contributed to the Plan by the Company in 1997, 1998, and
1999 were $6,399, $17,487, and $32,612, respectively.
12. Related-party transactions
Michael W. Ferro, Jr., the Company's founder and chief executive officer, is
also the founder and majority stockholder of WarantyCheck.com, Inc. Revenue
from WarrantyCheck.com for the year ended December 31, 1999 was approximately
$263,000, which was included in trade accounts receivable as of December 31,
1999 and paid in January 2000.
An individual who is the corporate secretary and a stockholder of the
Company is associated with a law firm that has rendered various legal services
to the Company. For the years ended December 31, 1997, 1998 and 1999, the
Company incurred expenses of approximately $2,000, $13,000 and $114,000,
respectively.
The Company leases an apartment, which is used for corporate purposes, from
an individual who was a director of the Company from June 1999 until February
2000. For the year ended December 31, 1999, the Company made rent payments to
the former director of approximately $15,000.
13. Subsequent Event
On February 14, 2000, the Board of Directors approved an amendment and
restatement of the Company's Certificate of Incorporation to increase the
number of shares of authorized common stock to 75,000,000 and authorize a new
class of preferred stock, 5,000,000 shares, $0.001 par value. Such amended and
restated Certificate of Incorporation will be effective upon the closing of the
Company's initial public offering. The amended number of authorized shares of
common stock and the new class of preferred stock have been reflected on the
accompanying balance sheets.
On February 14, 2000, the Board adopted the Amended and Restated Click
Commerce, Inc. Stock Option and Stock Award Plan (the "Amended Plan"). The
Amended Plan provides for the issuance of up to 4,930,842 shares of common
stock (increased from 4,497,508 shares) to key management employees, officers,
directors and consultants. The Board also adopted the Click Commerce, Inc.
Director's Stock Option and Stock Award Plan (the "Director's Plan"). The
Director's Plan provides for the issuance of up to 500,000 shares of common
stock to non-employee directors.
In April 2000, the Company issued a warrant to Andersen Consulting, LLP to
purchase up to 818,226 shares of common stock at $12.22 per share. The warrant
vests contingently upon the achievement of certain milestones, primarily the
generation of license revenue for the Company, and expires on April 20, 2004.
The warrant contains a significant cash penalty from Andersen Consulting for
its failure to meet the agreed revenue target by the expiration date, and,
accordingly, the fair value of the warrant was measured at the date of grant in
accordance with Emerging Issues Task Force Issue No. 96-18, resulting in a fair
value of approximately $5.0 million. The fair value of the warrant was
determined using the Black-Scholes pricing model, assuming a risk free interest
rate of 6.0%, a volatility factor of 1.00 and an estimated fair value at the
time of grant of $9.00 per common share. This amount will be included in
additional paid-in capital and will be amortized to sales and marketing expense
over the vesting period of the warrants. We will recognize amortization expense
of $824,000 in 2000, $1,236,000 in 2001, $1,236,000 in 2002, $1,236,000 in 2003
and $412,000 in 2004.
F-17
<PAGE>
Text above a graphic: "80 Business-to-Business Applications!"
Graphic: A diagram featuring 80 Click Commerce Applications, color-coded by
function.
Logo: Click Commerce Logo.
<PAGE>
[CLICK COMMERCE LOGO]
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
the Common Stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
Amount to
Be Paid
----------
<S> <C>
SEC registration fee.......................................... $ 26,400
NASD filing fee............................................... 10,500
Nasdaq National Market listing fee............................ 95,000
Legal fees and expenses....................................... 325,000
Accounting fees and expenses.................................. 325,000
Printing and engraving........................................ 200,000
Blue sky fees and expenses (including legal fees)............. 10,000
Transfer agent fees........................................... 1,000
Miscellaneous................................................. 7,100
----------
Total..................................................... $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Our Amended and Restated Certificate of Incorporation in effect as of the
date hereof (the "Certificate") provides that, except to the extent prohibited
by the Delaware General Corporation Law, as amended (the "DGCL"), the
Registrant's directors shall not be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the Registrant. Under the DGCL, the directors have a fiduciary duty to the
Registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by the DGCL.
This provision also does not affect the directors' responsibilities under any
other laws, such as the Federal securities laws. The Registrant may obtain
liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that the
Registrant may fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative)
by reason of the fact that such person is or was a director or officer of the
Registrant, or is or was serving at the request of the Registrant as a director
or officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's
II-1
<PAGE>
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the registrant has issued unregistered
securities to a limited number of persons as described below:
1. In June and July 1999, the registrant issued and sold an aggregate of
5,217,392 shares of Series A Convertible Participating Preferred Stock,
adjusted for stock splits, at a price of $1.15 per share, for aggregate
consideration of $6 million to Insight Capital Partners III, L.P., Insight
Capital Partners III--Coinvestors, L.P. and Insight Capital Partners
(Cayman) III, L.P. All of the outstanding shares of Series A Convertible
Participating Preferred Stock convert into shares of common stock on a one-
for-one basis immediately prior to the consummation of this offering; and
2. In July 1999, the registrant issued and sold an aggregate of
4,347,828 shares of Series B Convertible Participating Preferred Stock,
adjusted for stock splits, at a price of $1.15 per share, for aggregate
consideration of $5 million, to Compaq Computer Corporation. All of the
outstanding shares of Series B Convertible Participating Preferred Stock
convert into shares of common stock on a one-for-one basis immediately
prior to the consummation of this offering.
3. From August 20, 1996 to May 31, 2000, the registrant granted
4,756,000 options to purchase shares of common stock to employees under the
registrant's Amended and Restated Stock Option and Stock Award Plan at a
weighted average exercise price of $2.88 per share.
4. In September 1998, the registrant granted 1,540,000 options to
purchase shares of common stock to a former consultant at an exercise price
of $0.0025 per share. Options for 666,444 shares were exercised in July
1999, options for 450,000 were exercised in February 2000 and options for
49,367 shares were exercised in April 2000.
5. In October 1998, the registrant granted 1,276,000 options to purchase
shares of common stock to a former employee at an exercise price of $0.0025
per share. Options for 320,240 shares were exercised in July 1999 and
options for 39,571 shares were exercised in April 2000. In addition,
effective October 1999, 433,334 options were forfeited upon termination of
employment with the registrant.
6. In April 2000, the registrant issued to Andersen Consulting, LLP a
warrant to purchase up to 818,226 shares of common stock at an exercise
price of $12.22 per share.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the registrant believes
that each transaction was exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof and
Regulation D promulgated thereunder or Rule 701.
The recipients of securities in each of the foregoing transactions
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the instruments representing such
securities issued in such transactions.
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<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement (previously filed).
3.1 Amended and Restated Certificate of Incorporation (previously
filed).
3.2 Form of Restated Certificate of Incorporation to be in effect
upon the closing of this offering (previously filed).
3.3 Amended and Restated Bylaws (previously filed).
3.4 Form of Restated Bylaws to be in effect upon the closing of
this offering (previously filed).
4.1 Specimen Common Stock certificate (previously filed).
4.2 Amended and Restated Stockholders and Rights Agreement
(previously filed).
5.1 Opinion of Latham & Watkins (previously filed).
10.1 Amended and Restated Click Commerce, Inc. Stock Option and
Stock Award Plan (previously filed).
10.2 Click Commerce, Inc. Directors' Stock Option and Stock Award
Plan (previously filed).
10.3 Amended and Restated Employment Agreement with Michael W.
Ferro, Jr. (previously filed).
10.4 Amended and Restated Employment Agreement with Robert J.
Markese (previously filed).
10.5 Form of Indemnification Agreement entered into between Click
Commerce, Inc. and its directors and executive officers
(previously filed).
10.6 Promissory Note, dated March 31, 2000, between Click Commerce,
Inc. and American National Bank and Trust Company of Chicago
(previously filed).
10.7 Loan and Security Agreement, dated March 31, 2000, between
Click Commerce, Inc. and American National Bank and Trust
Company of Chicago (previously filed).
10.8 Strategic Alliance Agreement with Andersen Consulting, LLP
(previously filed).
10.9 Warrant dated April 20, 2000 issued to Andersen Consulting,
LLP (previously filed).
10.10 Consulting Agreement with Leslie D. Shroyer.
10.11 Option Agreement with Leslie D. Shroyer.
16.1 Change In Certifying Accountants (previously filed).
23.1 Consent of KPMG LLP.
23.2 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (previously filed).
27.1 Financial Data Schedule (previously filed).
</TABLE>
(b) Financial Statement Schedules.
Independent Auditors' Report on Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
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<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424 (b)(1) or
(4), or 497(h) under the Securities Act of 1933, shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, Click
Commerce, Inc. has duly caused this registration statement to be signed on its
behalf by the undersigned, who is duly authorized to do so, in the City of
Chicago, Illinois, as of June 6, 2000.
Click Commerce, Inc.
/s/ Michael W. Ferro, Jr.
By: _________________________________
Name: Michael W. Ferro, Jr.
Title: Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons
in the capacities indicated as of June 6, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael W. Ferro, Jr. Chief Executive Officer and June 6, 2000
____________________________________ Chairman of the Board of
Michael W. Ferro, Jr. Directors (Principal
Executive Officer)
* Senior Vice President, Chief June 6, 2000
____________________________________ Financial Officer and
Rebecca S. Maskey Treasurer (Principal
Financial and Accounting
Officer)
* Director June 6, 2000
____________________________________
Peter N. Larson
* Director June 6, 2000
____________________________________
Emmanuel A. Kampouris
* Director June 6, 2000
____________________________________
Jerry Murdock
* Director June 6, 2000
____________________________________
Dr. Michael Hammer
* Director June 6, 2000
____________________________________
Manuel A. Fernandez
* Director June 6, 2000
____________________________________
Edwina D. Woodbury
* Director June 6, 2000
____________________________________
Gregg G. Hartemayer
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director June 6, 2000
____________________________________
Leslie D. Shroyer
</TABLE>
/s/ Michael W. Ferro, Jr.
*By: __________________________
Michael W. Ferro, Jr.
Attorney-in-Fact
II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Click Commerce, Inc.:
Under date of February 7, 2000, except as to note 13 to the financial
statements, which is as of February 14, 2000, we reported on the balance
sheets of Click Commerce, Inc. as of December 31, 1998 and 1999, and the
related statements of operations, shareholders' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1999.
In connection with our audits of the aforementioned financial statements, we
also audited the related financial statement Schedule II. This financial
statement schedule is the responsibility of Click Commerce, Inc.'s management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Chicago, Illinois
February 7, 2000, except as to
note 13 to the financial statements,
which is as of February 14, 2000
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<PAGE>
SCHEDULE II
CLICK COMMERCE, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Bad
Allowance for Doubtful Beginning Debt Write- Ending
Accounts Balance Expense Offs Balance
---------------------- --------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1997................ $ -- $22,094 $(1,350) $20,744
Year ended December 31, 1998................ 20,744 -- -- 20,744
Year ended December 31, 1999................ 20,744 33,050 -- 53,794
</TABLE>
S-2
