<PAGE>
As filed with the Securities and Exchange Commission on February 16, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Click Commerce, Inc.
(Exact name of registrant as specified in its charter)
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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:
Mark A. Harris, Esq. Joseph A. Hall, Esq. Davis
Christopher D. Lueking, Esq. Polk & Wardwell 450 Lexington
Latham & Watkins Sears Tower, Avenue New York, New York
Suite 5800 Chicago, Illinois 10017 (212) 450-4000
60606 (312) 876-7700
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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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Aggregate Amount of
Securities to be Registered Offering Price(1)(2) Registration Fee(1)
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<S> <C> <C>
Common Stock, par value $.001 per share.... $100,000,000 $26,400
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</TABLE>
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(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the
registration fee.
(2) Includes shares that the Underwriters have the option to purchase from us
solely to cover over-allotments, if any.
---------------
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 said
Section 8(a), may determine.
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<PAGE>
EXPLANATORY NOTE
This registration statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of shares of common stock. The second prospectus relates
to a concurrent public offering outside the United States and Canada of an
aggregate of shares of common stock. The prospectuses for each of
these offerings will be identical with the exception of the alternate front
cover page for the offering outside the United States and Canada. This
alternate page appears in the registration statement immediately following the
back cover page for the offering in the United States and Canada.
<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 February 16, 2000
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 $ and
$ per share.
-----------
We have applied for quotation of our common stock on the Nasdaq National Market
under the symbol "CKCM."
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 4.
-----------
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 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
SALOMON SMITH BARNEY
, 2000
<PAGE>
The front of the gatefold contains the words: "What do these global
manufacturers have in common?"
The question is followed by a list of customer names, sorted by industry
name.
. Capital Goods: Hyundai, Komatsu, Trane
. Recreational Sports: Bombardier, Kawasaki, Mercury Marine, Life Fitness
. Components: Omron, Mitsubishi
. Financing: Bombardier Capital
. Consumer Products: American Standard, Mitsubishi
. Telecom: Ameritech, Motorola, Qualcomm
<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: Hyundai dealer screen featuring a hotspotted order form for automotive
parts.
Text below the first screen: "Increase high margin parts and accessory sales
through personalized B2B applications"
Logo and slogan: Click Commerce Logo, followed by "Frictionless Distribution
Communities for Global Manufacturers"
Text above the second screen: "Click with service centers"
Screen: Hyundai warranty administration screen.
Text below the second screen: "Reducing expenses by automating service and
warranty processes through multicurrency, multilingual applications"
Text above the third screen: "Click with consumers"
Screen: Hyundai screen that enables a consumer to order accessories.
Text below the third screen: "Increasing brand loyalty by allowing consumers to
locate dealers and order genuine parts and accessories"
Pull-out text box in top right corner of gatefold: "Increase financial
performance and brand loyalty"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................ 1
Risk Factors...................... 4
Special Note Regarding Forward-
looking Statements .............. 12
Use of Proceeds................... 13
Dividend Policy................... 13
Capitalization.................... 14
Dilution.......................... 15
Selected Financial Data........... 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 17
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 23
Management....................... 41
Certain Transactions............. 47
Principal Stockholders........... 49
Description of Capital Stock..... 51
Shares Eligible for Future Sale.. 55
Certain Federal Income Tax
Considerations for Non-United
States Holders.................. 57
Underwriters..................... 60
Legal Matters.................... 62
Experts.......................... 62
Additional Information........... 62
Index to Financial Statements.... F-1
</TABLE>
----------------
In this prospectus, "Click Commerce," "we," "us" and "our" refer to Click
Commerce, Inc. 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 incorporated by reference
into this prospectus. We have applied for registration of our trademarks Click
Commerce and Enterprise Channel Management. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.
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, 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.
Unless otherwise indicated, all information contained in this prospectus:
. assumes that the underwriters' over-allotment option is not exercised;
. reflects the 2-for-1 splits of the common and preferred stock effected
in July 1999 and 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.
<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 are a leading provider of business-to-business, or B2B, electronic
commerce enterprise channel management solutions for manufacturing companies.
Our software products and services enable large, global manufacturers to
effectively manage and engage in collaborative B2B 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 their distributors, dealers and other sell-side channel
partners. Our solution enables manufacturers to leverage the speed and power of
the Internet to strengthen and broaden their relationships with their sell-side
channel partners, as well as their customers, through real-time, twenty-four
hour access to transaction capabilities and information about their products
and services.
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. Various large, global manufacturers, such as Motorola,
Trane, American Standard, Bombardier, Mitsubishi, Brunswick, Qualcomm, Kawasaki
and Hyundai, have selected our solution to integrate their operations with
those of their channel partners through user-friendly and secure extranets.
Accessed through readily available Internet browsers, our solution permits
faster and more accurate transaction processing and communication than
traditional methods such as paper, phone and fax communications, and reduces
the hidden costs of errors and delays in information delivery. We believe that
this smooth flow of vital product information produces a cooperative or
community environment -- a "frictionless distribution community"-- among a
manufacturer and its channel partners and benefits all portions of the
distribution channel by improving efficiency, financial performance, customer
service and brand loyalty.
We believe that Internet-based B2B e-commerce is poised for rapid growth. In
a recent study, Forrester Research predicts that B2B 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 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 solution, comprised of the Extranet Manager and 70
applications, automates communication and business processes across the
distribution channel and can be personalized to each individual user. These
applications support a manufacturer's business processes, all the way from pre-
sales through after-market sales and support. Our solution also integrates with
multiple back-end systems, without requiring significant additional technology
expenditures. In addition, our solution can usually be designed and implemented
in approximately 120 days, which we believe is significantly faster than the
implementation time required for most competing B2B e-commerce solutions.
We primarily market our solution through our direct sales force, located
across the United States. In addition, we have established and will continue to
enter into strategic relationships to help increase the market penetration and
acceptance of our Click Commerce software products and related services.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered:
United States offering........... shares
International offering........... shares
-------------
Total.......................... shares
-------------
-------------
Common stock to be outstanding
after this offering............... shares
Use of proceeds.................... For working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................ CKCM
</TABLE>
The foregoing information is based on the shares of common stock outstanding
as of December 31, 1999. This information:
. excludes an aggregate of 4,930,842 shares of common stock currently
reserved for issuance under our Amended and Restated Click Commerce
Stock Option and Stock Award Plan of which 3,573,000 shares are subject
to outstanding options at a weighted average exercise price of $1.38 per
share;
. excludes an aggregate of 945,982 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
. includes 450,000 shares of common stock issued upon exercise of options
in February 2000 at an exercise price of $0.0025 per share.
2
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1997 1998 1999
----------- ----------- -----------
(dollars in thousands, except per
share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue................................... $ 1,322 $ 2,390 $ 9,952
Cost of revenue........................... 379 712 2,669
----------- ----------- -----------
Gross profit.............................. 943 1,678 7,283
Operating expenses........................ 894 1,757 6,704
----------- ----------- -----------
Operating income (loss)................... 49 (79) 579
Net income (loss)......................... 19 (65) 382
Basic earnings (loss) per share........... 0.00 (0.00) 0.01
Diluted earnings (loss) per share.........
Weighted average shares used in computing
basic earnings (loss) per share.......... 28,782,666 28,782,666 25,767,560
Weighted average shares used in computing
diluted earnings (loss) per share........
Pro forma basic earnings per share........ $ 0.01
Shares used in computing pro forma basic
earnings (loss) per share................ 35,332,780
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------
Pro Pro Forma
Actual Forma As Adjusted
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term
investments........................................ $6,304 $6,305
Working capital..................................... 5,019 5,020
Total assets........................................ 9,934 9,935
Billings in excess of revenues earned on contracts
in progress........................................ 2,026 2,026
Capital lease obligations, less current portion..... 84 84
Convertible participating preferred stock........... 10,600 --
Total shareholders' equity (deficit)................ (4,874) 5,727
</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; and
. the issuance of 450,000 shares of common stock upon exercise of options
in February 2000.
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, after deducting the underwriting discounts and commissions
and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
3
<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
Click Commerce is an early-stage company. Our limited operating history
makes it difficult to evaluate our future prospects.
Click Commerce was incorporated in August 1996 and has a limited operating
history. Our limited operating history makes an evaluation of our future
prospects very difficult. We will encounter risks and difficulties frequently
encountered by early-stage companies in new and rapidly evolving markets. Many
of these risks are described in more detail in this "Risk Factors" section. We
may not successfully address any or all of these risks. If we do not
successfully address these risks, our business will be seriously harmed.
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. 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 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.
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 public market analysts and investors,
which could cause volatility or a decline in the price of our common stock.
4
<PAGE>
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.
Our customer base is concentrated and loss of a major customer could harm
our business.
In the year ended December 31, 1998, four customers accounted for an
aggregate of approximately 83% of our total revenue, two for approximately 25%
each, another for approximately 18%, and a fourth customer for approximately
15%. In the year ended December 31, 1999, three customers accounted for an
aggregate of approximately 55% of our total revenue, one for approximately
29%, another for approximately 15% and a third customer for approximately 11%.
We may continue to derive a significant portion of our revenue from a
relatively small number of customers in the future. If a major customer
decided not to use our products, our business, operating results and financial
condition could be harmed. In addition, the adverse publicity that may ensue
could have a damaging effect on our stock price.
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 solution internationally, and we cannot
predict our success in these international markets. In order to expand
overseas, we intend to open a sales office in Europe during the first quarter
of 2000. 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 design and implement our solution as rapidly as we do today.
5
<PAGE>
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 84 as of
December 31, 1999. 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. Our products and services require a
sophisticated sales effort targeted at several people within our prospective
clients' 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
distribution partners, resellers, system integrators and joint marketing
partners. We cannot be sure that we will be successful in attracting desired
partners or that our partners will devote adequate resources or have the
technical and other sales capabilities to sell our products.
Acquisitions or strategic investments 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 strategic partnerships 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 strategic partnership
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.
6
<PAGE>
We face competition and may face future competition from companies with
different business strategies which could cause us to lower our prices or to
lose a significant portion of our market share.
The market for software 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 price reductions, reduced gross margins and loss of market share.
Many of our existing competitors, as well as potential future competitors,
have longer operating histories, 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 solutions more rapidly, and make
more attractive offers to potential employees and strategic partners. 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. These competitors may reduce the
amount of time it currently takes them to implement the solutions 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. See "Business--Competition."
Our executive officers and certain key personnel are critical to our
business and these officers and key personnel may not remain with us in the
future.
Our future success largely depends upon the continued service of our
executive officers and other key personnel. If we lose the services of one or
more of our executive officers or key employees, or if one or more of them
decide to join a competitor or 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 and key personnel 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. From January 1, 1999 to December 31, 1999, we expanded from 25 to 84
employees. Our new employees include a number of key managerial, marketing,
sales, project management and research and development personnel who have not
yet been 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
currently rely on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. We have no patents and no plans to apply for any patents.
Generally, our employees are required to execute confidentiality and
assignment agreements as well as employment agreements containing
confidentiality and assignment provisions, which transfer any rights they may
have in copyrightable works or patentable technologies to us. In addition,
prior to entering into discussions with strategic partners or customers, we
generally require that these parties enter into a non-disclosure agreement. If
these discussions result in a license or other business relationship, we also
generally require that the agreement setting forth the parties'
7
<PAGE>
respective rights and obligations include provisions for the protection of our
intellectual property rights. Our failure to enter into these agreements when
appropriate or our inability to enforce our rights under one or more of these
agreements could jeopardize our ability to protect our intellectual property.
This could materially and adversely affect our business.
We have applied for registration of a number of service marks and
trademarks, including "Click Commerce" and "Enterprise Channel Management" in
the United States, and will seek to register additional service marks and
trademarks, as appropriate. We may be unsuccessful in obtaining the service
marks and trademarks for which we have applied. Despite our efforts to protect
our proprietary rights, 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. Although we are not aware that our products
infringe the patents or other rights of any other inventor or company, we have
not sought any confirmation that this is the case. 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. Although our license agreements
generally contain provisions designed to limit our exposure to product
liability claims, existing or future laws or unfavorable judicial decisions
could negate such limitation of liability provisions. 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 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
8
<PAGE>
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 utilize our Click
Commerce extranet solution 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 market has experienced significant price and volume fluctuations,
and the stock prices of technology companies, particularly Internet-related
software companies, have been and continue to be extremely volatile.
Volatility in the price of our common stock may result from factors outside of
our control and may be unrelated or disproportionate to our operating results.
Fluctuations in our common stock's price may affect our visibility and
credibility in the business-to-business e-commerce solutions 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.
9
<PAGE>
In the past, following periods of volatility in the market price of a
public company's securities, securities class action litigation has often been
instituted against that company. Securities class action litigation could
result in substantial costs and a diversion of our management's attention and
resources.
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 shares outstanding.
If all options currently outstanding to purchase shares of our common stock
are exercised, there will be shares outstanding. Of the
outstanding shares, the 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 14,733,964 shares of common
stock will be entitled to registration rights with respect to the registration
of their shares under the Securities Act, subject to lock-up arrangements. For
additional information regarding these registration rights, please see
"Description of Capital Stock--Registration Rights" and "Shares Eligible for
Future Sale." Each of our directors, executive officers and current
stockholders and optionholders are expected to agree not to offer, sell or
agree to sell, directly or indirectly, or otherwise dispose of any equity
shares without the prior written consent of Morgan Stanley & Co. Incorporated
for a period of 180 days from the date of this prospectus. In addition, each
of our directors and executive officers, all of our current stockholders and
certain of our optionholders have agreed with us not to offer, sell or agree
to sell, directly or indirectly, or otherwise dispose of any equity shares
without our prior written consent for a period of 360 days from the date of
this prospectus. For additional information regarding possible future sales of
our securities, please see "Underwriters" and "Shares Eligible for Future
Sale."
As a new investor, you will experience immediate and substantial dilution
in the value of the common stock.
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value. If
the holders of outstanding options exercise those options, you will incur
further dilution. See "Dilution" for a calculation of the amount of dilution
you will incur.
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 strategic investments in businesses, that are
complementary to our business. Currently, we have no specific acquisitions or
strategic 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.
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.
10
<PAGE>
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.
Provisions of our amended and restated certificate of incorporation and
amended and restated bylaws, as well as provisions of Delaware law, could make
it more difficult for a third party to acquire us, even if doing so might be
beneficial to our stockholders. See "Description of Capital Stock--Anti-
Takeover Effects of Delaware Law and Our Certificate of Incorporation and
Bylaws."
Many corporate actions will be controlled by officers, directors and
affiliated entities regardless of the opposition of other investors or the
desire of other investors to pursue an alternative course of action.
We anticipate that the executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
% 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. See "Principal Stockholders."
11
<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.
12
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock will be approximately $ million, 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 $ 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 proceeds we receive from the offering for working capital
and general corporate purposes, including:
. expanding our sales and marketing activities;
. expanding our international presence;
. expanding our research and development activities; and
. expanding our business development efforts.
We may also use a portion of the net proceeds of this offering to acquire
technology or businesses, or to make strategic investments in businesses, that
are complementary to our business. Currently, we have no specific acquisitions
or strategic investments planned. 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.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999.
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 and the issuance of 450,000 shares
of common stock issued in February 2000 upon exercise of outstanding options
at an exercise price of $0.0025 per share. 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,
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by us.
The outstanding share information:
. excludes an aggregate of 4,930,842 shares of common stock currently
reserved for issuance under our Amended and Restated Click Commerce
Stock Option and Stock Award Plan, of which 3,573,000 shares are subject
to outstanding options at a weighted average exercise price of $1.38 per
share; and
. excludes an aggregate of 945,982 shares of common stock subject to
additional outstanding options at an exercise price of $0.0025 per
share.
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(dollars in thousands, except
per share data)
<S> <C> <C> <C>
Capital lease obligation, less current portion.. $ 84 $ 84 $
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.................................... 5,800 --
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.................................... 4,800 --
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, 22,169,292 shares issued
and outstanding, actual; 32,184,512 shares
issued and outstanding, pro forma;
shares issued and outstanding, pro forma as
adjusted..................................... 22 32
Additional paid-in capital.................... -- 10,591
Accumulated deficit........................... (4,896) (4,896)
------- -------
Total shareholders' equity (deficit)............ (4,874) 5,727
------- -------
Total capitalization............................ $ 5,810 $ 5,811
======= =======
</TABLE>
14
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of December
31, 1999, 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 and the issuance of 450,000 shares
of common stock issued in February 2000 upon exercise of outstanding options
was approximately $5.7 million, or $0.18 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 32,184,512 shares of common stock
outstanding after giving effect to the conversion of all outstanding shares of
convertible preferred stock into 9,565,220 shares of common stock and the
450,000 shares of common stock issued in February 2000 upon exercise of
outstanding options. Net tangible book value 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 shares of common stock in this
offering, 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 $ million, or $ per
share. This represents an immediate increase in pro forma net tangible book
value to existing stockholders of $ per share. The offering price of
$ per share substantially exceeds $ 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 $ per
share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Pro forma net tangible book value per share as of
December 31, 1999...................................... $
Increase in pro forma net tangible book value per share
attributable to new investors..........................
--------
Pro forma net tangible book value per share after this
offering.................................................
--------
Net tangible book value dilution per share to new
investors................................................ $
========
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, 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......... 32,184,512 % $11,001,729 % $0.34
---------- --- ----------- ---
New investors.................
---------- --- ----------- ---
Total....................... 100% $ 100%
========== === =========== ===
</TABLE>
The table above assumes no exercise of outstanding stock options. We have
an aggregate of 4,930,842 shares of common stock currently reserved for
issuance under our stock option plan, of which 3,573,000 shares are subject to
outstanding options at a weighted average exercise price of $1.38 per share.
In addition, 945,982 shares are subject to additional outstanding options at
an exercise price of $0.0025 per share. To the extent outstanding options are
exercised, there will be further dilution to new investors.
15
<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 balance sheet data as of December 31, 1996 and 1997 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
(inception) to Year ended December 31,
December 31, ----------------------------------
1996 1997 1998 1999
-------------- ---------- ---------- ----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue...................... $ 166 $ 1,322 $ 2,390 $ 9,952
Cost of revenue.............. 39 379 712 2,669
------ ---------- ---------- ----------
Gross profit................. 127 943 1,678 7,283
Operating expenses:
Sales and marketing........ -- 174 434 2,811
Research and development... -- -- 149 729
General and administrative. 140 720 987 2,762
Amortization of deferred
stock compensation........ -- -- 187 402
------ ---------- ---------- ----------
Total operating expenses..... 140 894 1,757 6,704
------ ---------- ---------- ----------
Operating income (loss)...... (13) 49 (79) 579
Other income, net............ -- (1) (3) 101
Income tax expense (benefit). -- 29 (17) 298
------ ---------- ---------- ----------
Net income (loss)............ $ (13) $ 19 $ (65) $ 382
====== ========== ========== ==========
Basic earnings (loss) per
share....................... $(0.00) $ 0.00 $ (0.00) $ 0.01
====== ========== ========== ==========
Diluted earnings (loss) per
share.......................
Weighted average shares used
in computing basic earnings
(loss) per share(1)......... -- 28,782,666 28,782,666 25,767,560
Weighted average shares used
in computing diluted
earnings (loss) per share...
Pro forma basic earnings per
share....................... -- $ 0.01
==========
Shares used in computing pro
forma basic earnings (loss)
per share(2)................ -- 35,332,780
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1996 1997 1998 1999
---- ---- ------ -------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term
investments ..................................... $ 13 $271 $ 120 $ 6,304
Working capital................................... (16) (75) (154) 5,019
Total assets...................................... 67 400 1,077 9,934
Billings in excess of revenues earned on contracts
in progress...................................... -- -- 214 2,026
Capital lease obligations, less current portion... -- 15 2 84
Convertible participating preferred stock......... -- -- -- 10,600
Total shareholders' equity (deficit).............. (13) (6) 55 (4,874)
</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 (loss) 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.
16
<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," on page 16, 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," beginning on page 4, and elsewhere in this prospectus.
Overview
Click Commerce is a leading provider of business-to-business electronic
commerce enterprise channel management solutions 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.
The company commenced operations on August 20, 1996. During the period from
our inception until December 1996, we were primarily engaged in developing our
software. We sold and implemented the first Click Commerce Extranet Manager in
the first quarter of 1998. Today, we have implemented our extranet for 20
customers.
Our revenue is derived from sales of licenses of our Click Commerce
solution, comprised of the Extranet Manager and 70 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. 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 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
17
<PAGE>
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 had 25 full-time employees as of December 31, 1998 and 84 full-time
employees as of December 31, 1999. We intend to hire a significant number of
employees in the future, particularly 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 believe that period-to-period comparisons of
operating results should not be relied upon as predictive of future
performance. 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.
Results of Operations
The following table represents selected financial data for the years
indicated as a percentage of total revenue.
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Percentage of Total Revenue:
Revenue............................................. 100.0% 100.0% 100.0%
Cost of revenue..................................... 28.7 29.8 26.8
----- ----- -----
Gross profit........................................ 71.3 70.2 73.2
Operating expenses:
Sales and marketing............................... 13.2 18.2 28.2
Research and development.......................... 0.0 6.2 7.4
General and administrative........................ 54.5 41.3 27.8
Amortization of deferred stock compensation....... 0.0 7.8 4.0
----- ----- -----
Total operating expenses............................ 67.7 73.5 67.4
----- ----- -----
Operating income (loss)............................. 3.7 (3.3) 5.8
Other income (expense).............................. (0.1) (0.1) 1.0
----- ----- -----
Income (loss) before income taxes................... 3.6 (3.4) 6.8
Income tax expense (benefit)........................ 2.2 (0.7) 3.0
----- ----- -----
Net income (loss)................................... 1.4% (2.7)% 3.8%
===== ===== =====
</TABLE>
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 due to (i) an increase in the number of new
customers, (ii) additional sales to existing customers, (iii) an increase in
average contract size and (iv) an increase in the number of applications
offered by the company. We also had increased revenue from our consulting
services and maintenance contracts.
18
<PAGE>
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, including subcontractors,
and increased data processing and overhead costs.
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 and to the
establishment of marketing programs 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. We believe that continued investment in research and development is
critical to attain our strategic 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. In addition, professional service fees and other
general corporate costs increased to support organizational growth. We believe
general and administrative expenses will increase significantly in future
periods, as we expect to add personnel to support our expanding operations,
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 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 $402,000 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 in our
software license revenue due to (i) an increase in the number of new
customers, (ii) an increase in average contract size and (iii) an increase in
the number of applications offered by the company. We also had increased
revenue from our consulting services and maintenance contracts.
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 attributable to increased salary and related
expenses for project management personnel and increased data processing and
overhead costs.
19
<PAGE>
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. The
increase in sales and marketing expenses was primarily attributable to an
increase in the number of sales and marketing employees.
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 increase was
primarily attributable to an increase in our administrative personnel. In
addition, professional service fees and other general corporate costs
increased to support organizational growth.
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 eight 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,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $331 $354 $843 $ 862 $1,534 $1,608 $2,092 $4,717
Cost of revenue......... 71 143 205 293 277 489 689 1,214
---- ---- ---- ----- ------ ------ ------ ------
Gross profit............ 260 211 638 569 1,257 1,119 1,403 3,503
Operating expenses:
Sales and marketing.... 24 75 117 218 214 397 766 1,433
Research and
development........... 23 18 25 83 75 147 175 332
General and
administrative........ 265 183 230 309 283 529 773 1,177
Amortization of
deferred stock
compensation.......... 0 0 0 187 92 92 92 126
---- ---- ---- ----- ------ ------ ------ ------
Total operating
expenses............... 312 276 372 797 664 1,165 1,806 3,068
---- ---- ---- ----- ------ ------ ------ ------
Operating income (loss). (52) (65) 276 (228) 593 (46) (403) 435
Other income (expense).. (2) (2) (1) 2 1 1 54 45
---- ---- ---- ----- ------ ------ ------ ------
Income (loss) before
income taxes........... (54) (67) 265 (226) 594 (45) (349) 480
Income tax expense
(benefit).............. (11) (14) 54 (46) 260 (20) (152) 210
---- ---- ---- ----- ------ ------ ------ ------
Net income (loss)....... $(43) $(53) $211 $(180) $ 334 $ (25) $ (197) $ 270
==== ==== ==== ===== ====== ====== ====== ======
</TABLE>
20
<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,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <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%
Cost of revenue......... 21.5 40.4 24.3 34.0 18.1 30.4 32.9 25.7
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 78.5 59.6 75.7 66.0 82.0 69.6 67.1 74.3
Operating expenses:
Sales and marketing.... 7.3 21.2 13.9 25.3 14.0 24.7 36.6 30.4
Research and
development........... 6.9 5.1 2.9 9.6 4.9 9.1 8.4 7.0
General and
administrative........ 80.0 51.7 27.3 35.8 18.4 32.9 37.0 25.0
Amortization of
deferred stock
compensation.......... 0.0 0.0 0.0 21.7 6.0 5.7 4.4 2.7
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............... 94.2 78.0 44.1 92.4 43.3 72.5 86.4 65.0
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss). (15.7) (18.4) 31.5 (26.4) 38.6 (2.9) (19.3) 9.2
Other income, (expense). (0.6) (0.6) (0.1) 0.2 0.1 0.1 2.6 1.0
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... (16.3) (19.0) 31.4 (26.2) 38.7 (2.8) (16.7) 10.2
Income tax expense
(benefit).............. (3.3) (4.0) 6.4 (5.3) 16.9 (1.2) (7.3) 4.5
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (13.0) (15.0) 25.0 (20.9) 21.8 (1.6) (9.4) 5.7
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Liquidity and Capital Resources
Since inception, our cash requirements have been funded by cash flow from
operations and, to a lesser extent, from equipment financings. At December 31,
1999, we had $6.3 million in cash, cash equivalents and short-term
investments, and $5.0 million in working capital.
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 will continue to increase in the future. In connection with the
relocation of our headquarters, we are planning to incur approximately
$300,000 in leasehold improvements and furniture and equipment purchases.
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
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, which expires on March 25, 2000, to
borrow up to a maximum principal amount of $1.0 million. We plan to renew this
facility prior to its expiration. As of December 31, 1999, 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 strategic
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. Thereafter, we
may find it necessary to obtain additional equity or debt financing. In the
event additional financing is required, we may not be able to raise it on
acceptable terms or at all.
21
<PAGE>
Year 2000 Readiness
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems that accepted only two digit entries needed to be upgraded in
order to accept dates beginning January 1, 2000. To date, we have not
experienced any date related problems with our software. In addition, we have
not been made aware of, nor have we experienced, date related problems with
any third-party software. We have tested our software and our internal systems
for potential problems relating to the leap year that will occur in 2000 and
do not believe that we will experience any date related problems resulting
from leap year dates. In addition, we do not believe that we will incur
material costs in the future because of date related problems.
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
We do not expect the adoption of recently issued accounting pronouncements
to have a significant impact on our results of operations, financial position
or cash flows.
22
<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 are a leading provider of business-to-business, or B2B, electronic
commerce enterprise channel management solutions for manufacturing companies.
Our software products and services enable large, global manufacturers to
effectively manage and engage in collaborative B2B 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 sell-side channel partners include:
. distributors;
. dealers;
. retailers;
. original equipment manufacturers;
. resellers;
. service centers and contractors;
. channel partners' employees; and
. channel partners' customers.
Our solution enables manufacturers to leverage 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 transaction capabilities and information about their products and
services.
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. Various large, global manufacturers, such as Motorola, Trane,
American Standard, Bombardier, Mitsubishi, Brunswick, Qualcomm, Kawasaki and
Hyundai, have selected our solution to integrate their operations with those
of their channel partners through user-friendly and secure extranets. Accessed
through readily available Internet browsers, our solution permits faster and
more accurate transaction processing and communication than traditional
methods such as paper, phone and fax communications, and reduces the hidden
costs of errors and delays in information delivery. We believe that this
smooth flow of vital product information produces a cooperative or community
environment -- a "frictionless distribution community" -- among a manufacturer
and its channel partners and benefits all portions of the distribution channel
by improving efficiency, financial performance, customer service and brand
loyalty.
The Click Commerce solution, comprised of the Extranet Manager and 70
applications, automates communication and business processes across the
distribution channel. The Click Commerce solution is personalized to each
individual user, accommodating, for example, each user's language, time zone
and currency preferences. Manufacturers using our solution can receive and
track orders, provide warranty information and provide product and pricing
information to their channel partners. Our solution is specifically designed
for the Internet and integrates with multiple back-end systems, without
requiring significant additional technology expenditures. We believe that our
solution is especially appealing to large manufacturing companies because it
can usually be designed and implemented in approximately 120 days, which we
believe is significantly faster than the implementation time required for most
competing B2B e-commerce solutions.
23
<PAGE>
We market our products and services through our direct sales force to
large, global manufacturing companies. In addition, we have established and
will continue to enter into relationships with strategic partners to help
increase the market penetration and acceptance of our Click Commerce software
products and related 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. The vast communications platform created by
the Internet is providing businesses with the ability to effectively build
more meaningful relationships with all members of the distribution process.
With this foundation, we believe that Internet-based B2B e-commerce is poised
for rapid growth. In a recent study, Forrester Research predicts that B2B 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 Solutions
Traditional phone, fax and paper-based communications systems are
inherently labor intensive, inefficient and prone to error and limit a
manufacturer's ability to take advantage of revenue increasing opportunities.
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. Although several of the solutions developed
have improved the way enterprises do business, we believe that none has
adequately used the power of the Internet to extend an enterprise to every
member of a business partner network and effectively facilitate B2B e-commerce
in a cost-efficient manner.
Many companies have developed internally or purchased enterprise resource
planning, or ERP, software as a means to better manage their businesses. ERP
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, ERP software systems are expensive and take a
significantly long time to implement.
24
<PAGE>
Electronic data interchange, or EDI, 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 purchase
orders, shipment authorizations, advanced shipment notices and invoices. EDI
is inflexible because it is based on pre-defined, fixed data formats that are
not easily adjusted. EDI systems also typically require the use of expensive
and proprietary communications networks, and EDI software often requires
difficult and time-consuming point-to-point integration. In addition, EDI is
not readily scalable 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 solution 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-end infrastructure. In addition, companies need to
be able to easily exchange information and conduct transactions across the
Internet securely, reliably and in real-time. The solution 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.
The Click Commerce Solution
The Click Commerce solution enables large, global manufacturers to manage
all levels of their sell-side distribution channels and effectively engage in
B2B e-commerce. Our software creates the infrastructure necessary to allow
global enterprises to extend their organizations to any member of a business
partner network. Using our solution, 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 multiple back-end 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 70 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, French, Portuguese, German, Italian, Dutch, Danish,
Norwegian and Swedish, as well as in multiple currency formats. In addition,
following a needs analysis, the Click Commerce solution can usually be
implemented in approximately 120 days, which we believe is significantly
faster than the implementation time required for most competing B2B
e-commerce solutions.
We believe the Click Commerce solution provides our clients with the
following benefits:
Improved Relationships with Channel Partners and Consumers
Our solution helps manufacturers build stronger relationships with their
channel partners by making it easier to exchange information and transact
business with each other. With our solution, even the smallest of channel
partners can effectively maintain a direct relationship with the manufacturer.
In addition, our solution allows manufacturers and their channel partners to
make a direct connection with consumers where one might not have previously
existed. This allows manufacturers to effectively build brand awareness 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.
25
<PAGE>
Rapid Implementation
The Click Commerce solution is designed to be implemented rapidly by
leveraging our customers' existing back-end technology. Following a needs
analysis, our solution can usually be implemented in approximately 120 days,
which we believe is significantly faster than the implementation time required
for most competing B2B e-commerce solutions. This rapid implementation
capability allows our customers to quickly meet the changing competitive
demands resulting from the increased prevalence of the Internet. We intend to
continue to provide our customers with the best B2B e-commerce enterprise
channel management solution 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 solution 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 due to the reduction
in error rates, such as those experienced in paper-based ordering and payment
processes. 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.
Improved Revenue Opportunities
Our solution can help manufacturing companies increase market share by
making them more accessible to channel partners, which facilitates follow-on
sales. We believe that manufacturers 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 with the Click Commerce solution 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 tighter and broader relationships that our solution builds, we believe
that our clients are able to capture a larger portion of these follow-on
sales.
The Click Commerce Growth Strategy
Our objective is to create the leading sell-side B2B e-commerce enterprise
channel management solution that automates 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 we have developed the most comprehensive B2B extranet solution
for the manufacturing sector currently available. By focusing on the complex
needs of large manufacturers, we provide them with significant competitive
advantages 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 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 14 people
dedicated to sales located in Chicago, Illinois; Boston, Massachusetts; Del
Mar, California; Dallas, Texas; and New York, New York. 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
26
<PAGE>
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 plan to open a sales office in Europe during the first quarter of
2000 and will continue to expand our international marketing efforts to
address the range of international markets and applications for our Click
Commerce solution.
Develop Strategic Alliances
We believe that in order to fully leverage our capabilities, rapidly
increase our revenues and enhance our Click Commerce suite of software
applications, we will need to continue to seek alliances with a number of
reputable software vendors, resellers and technology companies. By entering
into these strategic alliances, we will be able not only to leverage the
expertise of our partners, but also to take advantage of our partners' client
base to market our solution. Our current marketing and business development
alliances are with Compaq Computer Corporation and Cap Gemini America, Inc. We
have also entered into a relationship with Actuate, which has developed an
industry-leading component that we incorporate into our reporting
applications. We are currently in discussions with several technology
companies and intend to pursue additional alliances as new technologies and
standards emerge to further improve our software and the rapid implementation
of our solution.
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 solution. 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 B2B e-commerce enterprise channel management solutions. We
develop, implement and support customized extranets, which are secure systems
that use the Internet to connect manufacturers with their sell-side 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 solution 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 back-end 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
70 applications or a supported third-party application, may be enabled by the
Click Commerce Extranet Manager.
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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 network administrators use to control
extranets and set rules for its users. The Click Commerce Application Manager
controls access privileges for Click Commerce applications and any other
systems that are managed by the Click Commerce Access Manager. The Click
Commerce Application Manager allows for various levels of administrative
capability ranging from a corporate system administrator with complete
privileges to a customer administrator with limited privileges.
The Click Commerce Application Manager compiles system logging information
on a real-time basis using an extensive statistical and tracking package.
Additional features that we believe differentiate the Application Manager from
competing software are bulk e-mail, language administration and user
affiliation sorting. The Click Commerce Application Manager also controls
dynamic system entry pages, company news and promotions or other marketing
content.
Click Commerce Access Manager. The Click Commerce Access Manager performs
authorization and authentication and manages every user session from login to
logout. 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 leverages
Microsoft Transaction Server technology enabling maximum "scalability," or the
ability to run on multiple servers. The Click Commerce Access Manager uses
high performance algorithms for user authentication, dynamic page access
authorization and user session management.
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 70 Click Commerce
applications or 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 70 applications designed to provide specific functions to a user
of our Internet-based solution. 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.
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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 (e.g. 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.
. 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.
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. 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 (e.g. Federal Express, 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 back-end 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.
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.
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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 (e.g., marketing, warranty, 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.
Maintenance and Support: Click Client Care
We offer Click Client Care, or C/3/, to extend the life and flexibility of
our clients' extranet solution 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 C/3/
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.
Electronic Publishing: Click Commerce Docs
As part of our overall enterprise channel management solution, 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
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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, or
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
We have 21 customers, including many of the leading names in the capital
goods, recreational sports, telecommunications and electronic components
industries. The following is a list of companies that have either implemented
or are in the process of implementing the Click Commerce solution. 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
. Kawasaki . Ameritech
. Life Fitness . Qualcomm Wireless
. Qualcomm Consumer
Products
Financing Consumer Products Electronic Components
. Bombardier Capital . American Standard . Omron
. Overseas Partners . Mitsubishi Digital . Mitsubishi Electric Automation
. Mitsubishi Display Products
Case Study
The following case study illustrates how one of our customers uses its
Click Commerce solution to manage all levels of its products and services
distribution channel and effectively engages in B2B 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 solution 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.
Solution and Results: High Dealer Adoption and Increased Revenue. Click
Commerce developed and implemented a single enterprise-wide e-commerce
solution 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.
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The Click Commerce Hyundai solution 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.
Technology and Product Architecture
Implementation of Our Solution
We believe that upon implementation, our Internet-based solution allows
manufacturers to maximize efficiency and channel partners to easily interact
with a manufacturer's extranet through the use of an Internet browser. Once
implemented, our solution interacts with a manufacturer's existing back-end
infrastructure and the users of its extranet as follows:
[CHART]
Manufacturer Level
Enterprise Data and Enterprise Applications are the manufacturer's existing
back-end systems used to manage the information needed for day-to-day
operations. Our solution enables the information included in these databases
and systems to be used for e-commerce applications. Using our solution, channel
partners have the capability to access information previously unavailable or
difficult to obtain. Our solution provides standard, protocol independent
platforms that allow both data and applications to work together. For example,
enterprise application integration solutions 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 solution can communicate with either packaged
applications, such as SAP, Oracle and Clarify, or database repositories, such
as DB2, Oracle, IMS and VSAM, that are commonly found in proprietary back-end
systems.
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Repository is a database that stores the details of transaction activity
and all other actions occurring on a manufacturer's extranet. With the
information included in the repository, 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 repository can exist either in
a SQL Server or Oracle format.
Administration is a tool used in every extranet solution 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.
Directory Services uses the industry standard Lightweight Directory Access
Protocol (LDAP) to store information about users that is accessed most
frequently, such as passwords and permissions. The LDAP we currently support
is Microsoft Active Directory.
Channel Partner Level
Channel partners access a Click Commerce enabled extranet through Internet
browsers such as Netscape or Microsoft Internet Explorer. These browsers use
HTTP and SSL, common data transport protocols, which provide secure and
reliable access to the extranet.
Product Architecture
The Click Commerce solution incorporates features and components required
to create, deploy and manage scalable and sophisticated enterprise channel
management solutions. The Technology Kernel Layer, the Services Layer, the
Personalization Layer and the Application Layer comprise the principal
components of the Click Commerce solution. The components work together to
deliver a solution rapidly implemented and personalized to each unique
enterprise environment.
Technology Kernel Layer:
The Technology Kernel Layer manages our services
and applications to deliver a high-performance,
scalable and fault-tolerant solution.
. Microsoft Transaction Server . Provides uniform data transfer
(MTS) across multiple data sources and
pools database connections for
improved performance.
. Microsoft Message Queue (MSMQ) . Manages data transport to
guarantee delivery.
. Extensible Markup Language (XML) . A standard that defines a
universal method for structuring
data. XML message standards allow
us to easily integrate our
solution with other industry
leading technologies.
Services Layer:
The Services Layer regulates our applications' communication
with external repositories, directories and enterprise
applications that provide information to them. This
regulated communication allows our solution to easily
integrate with the applications and technologies preferred
by our clients.
. Management/Configuration . Exists between the Application
Manager and the directory
services repository.
. Session Management . Allows a manufacturer's extranet
to be accessed by multiple users,
utilizing multiple servers and
ensures the continuity of each
user session.
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. Caching . A process used to eliminate
excessive traffic to the
repository by holding frequently
accessed information in servers
closer to the end-user.
. EAI . Allows access to the
manufacturer's data.
. Internationalization . Delivers applications in the
language and currency preferred
by our clients.
. Repository . Allows flexibility for us to
implement either a SQL Server or
Oracle database solution.
Personalization Layer:
The Personalization Layer delivers the targeted content
relevant to each channel partner on a particular extranet.
We define content as the information displayed by our
applications and includes promotions, messages, pricing
levels and products.
. 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 and should
receive the same content.
. Personalization Rules . Written to dynamically determine
if 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.
Application Layer:
The Application Layer is the user interface that displays the
personalized content and enterprise data with the branding and
look and feel required by our clients.
. Active Server Pages (ASP) . Each Click Commerce application
consists of numerous Active
Server Pages that transform input
from back-end systems into
information viewable by a user.
They also transform input from
users into data that the back-end
system can understand and
process.
. ActiveX Data Objects (ADO) . Active Server Pages interface to
back-end systems using ActiveX
Data Objects.
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Research and Development
We have made and will continue to make substantial investments in research
and development through both internal development, technology acquisitions and
strategic partnerships. 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. For a
discussion of risks related to our product development, see "Risk Factors--
Risks Related To Our Business--We are dependent on the success of the Extranet
Manager and Click Commerce application suite and related services for our
success" and "--It is difficult for us to attract and retain qualified
software programmers."
Sales and Marketing
We market our products and services primarily through our direct sales
force. As of December 31, 1999, our direct sales force consisted of 14 sales
professionals located in Chicago, Illinois; Boston, Massachusetts; Del Mar,
California; Dallas, Texas; and New York, New York. 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 solution 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;
. Complex sales/distribution network;
. Recognized brand name;
. Senior management sponsorship for the e-commerce solution; and
. Desire for a rapid implementation of an e-commerce solution.
Once a qualified prospect has been identified, a member of our sales force
contacts an executive of the prospect to sell our Click Commerce solution.
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 solution. 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 B2B e-commerce solution.
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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 solution prototype
so that the customer can visualize the solution in action; and
. Delivering a fixed-fee, fixed-schedule proposal for the implementation
of our solution.
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 solution. We retain all ownership rights
to the prototype of the solution built for a prospect, or limit the prospect's
ability to use the prototype without implementing our solution.
Executing Master Software License and Implementation Agreement
After the needs analysis process is completed, we seek to implement our
solution by entering into a master software license and implementation
agreement. This agreement sets forth our terms for building and installing the
customer's extranet solution 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 solution which is based on factors such as:
. the number and types of applications ordered;
. the amount of time it will take to implement the solution, typically 120
days; and
. the complexity of the overall solution.
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.
Strategic Alliances
To further penetrate the market and to enhance our suite of Click Commerce
applications, we have entered into strategic alliances with software vendors
and resellers and reputable technology companies. We believe that these
strategic alliances will assist us in gaining broad market acceptance of our
solution, as well as expand our marketing, sales and distribution channels.
Our current marketing and business development alliances are with
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Compaq Computer Corporation and Cap Gemini America, Inc. We have entered into
a cross-marketing agreement with Compaq, under which Compaq has begun
marketing to its clients our solution as a component of its Nonstop e-
Business(TM) solution, and we recommend Compaq products to our prospective
clients. Cap Gemini America provides us with management consulting and
information technology services, and also markets and eventually will sell our
solution to its customers. We train members of Compaq's and Cap Gemini
America's sales forces on the essential attributes of our software and our
solution. We have also entered into a relationship with Actuate, which has
developed an industry-leading component that we incorporate into our reporting
applications. We are currently in discussions with several technology
companies and intend to pursue additional alliances as new technologies and
standards emerge to further improve our software and the rapid deployment of
our solution.
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 ERP vendors that directly address e-
commerce solutions, such as IBM, SAP and Oracle; consultants and system
integrators; and independent software vendors, such as Commerce One and
BroadVision.
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 a solution
with existing technology and financial capacity of the vendor. Although we
believe that our solution 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, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers. 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 solution. 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
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
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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. For additional discussion regarding
our intellectual property risk, see "Risk Factors--Risks Related To Our
Business--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" and "--
Litigation over intellectual property rights could disrupt or otherwise have a
negative impact on our business."
Employees
As of December 31, 1999, we had a total of 84 employees, including 22
people in sales and marketing, 14 people in research and development, 35
people in business consulting and project management, and 13 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. We have entered into a client services agreement with
Administaff Companies, Inc. under which Administaff provides us with certain
personnel management services. Under the agreement, we and Administaff are
intended to be co-employers of our employees. See "Risk
39
<PAGE>
Factors--Risks Related to Our Business--It is difficult for us to attract and
retain qualified sales people and software programmers" and "--Our executive
officers and certain key personnel are critical to our business and these
officers and key personnel may not remain with us in the future."
Properties
We currently lease the following facilities: Our corporate headquarters in
Chicago, Illinois and our sales office in Del Mar, California. 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."
40
<PAGE>
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)(2).................
Robert J. Markese....... 47 President
Rebecca S. Maskey....... 51 Senior Vice President, Chief Financial Officer and Treasurer
Wm. Edward Vesely....... 40 Vice President of Marketing
Patricia Plante......... 41 Vice President of Research and Development
Manuel A. Fernandez 53 Director
(1)(3)(4)(5)...........
Dr. Michael Hammer...... 51 Director
Emmanuel A. Kampouris 65 Director
(2)(3)(5)..............
Peter N. Larson 60 Director
(1)(4)(5)..............
Jerry Murdock (1)(3).... 41 Director
Leslie D. Shroyer(2)(4). 55 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee.
(4) Member of the Stock Option Committee.
(5) 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 in 1988. Mr. Ferro also served as President of the Earthwood Care
division of Pettibone Corporation 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. 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
Senior Vice President since September 1999. Prior to joining Click Commerce,
Ms. Maskey served as controller and treasurer for Cowles Media Company from
May 1997 to July 1998. From April 1993 to May 1997, Ms. Maskey served as
senior vice president of finance for Playboy Enterprises, Inc. Ms. Maskey
holds a Bachelor of Science degree in Accounting from the University of
Illinois, an M.B.A. in finance from the University of Chicago.
Wm. Edward Vesely has served as our Vice President of Marketing since July
1999. Prior to joining Click Commerce, Mr. Vesely served as vice president of
marketing for Platinum Technology from 1995 to 1999. From 1993 to 1995, Mr.
Vesely served as director of marketing for Andersen Consulting's Software
Products Group. Mr. Vesely holds bachelor degrees in journalism and computer
science from Northern Illinois University and an M.B.A. in marketing from
DePaul University.
41
<PAGE>
Patricia Plante has served as our Vice President of Research and
Development since November 1999. Prior to joining Click Commerce, Ms. Plante
served as a director of systems and development for Sea-Land Service, Inc.
from October 1995 to October 1999. From January 1980 to October 1995, Ms.
Plante served as a systems and programming developer for Spiegel, Inc. 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. 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
since 1991. Mr. Fernandez serves as chairman of the board of directors of
Gartner Group and is also a director of Brunswick Corporation, Black & Decker
Corporation, US West, Inc., WarrantyCheck.com, Inc., and Net Numbers. 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. 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. and is a
former director of Interleaf, Inc. and Corporate Software, Inc. 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. 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, 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.
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.
Mr. Larson also serves as a director of CIGNA Corporation and Compaq Computer
Corporation 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., which he co-founded in
1995. From 1989 to 1996, Mr. Murdock served as a business consultant to
Warburg, Pincus and also served as the managing general partner of the Aspen
Technology Group, which he founded in 1987. Mr. Murdock also serves as a
director of Quest Software. Mr. Murdock graduated from San Diego State
University with a degree in political science.
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. 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 and a Master's degree in Management Science from the
University of Texas.
42
<PAGE>
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, two of the nominees to the board will be elected for a one-year
term, two 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. Messrs. Larson and Shroyer have been designated as Class I
directors whose terms expire at the 2001 annual meeting of stockholders.
Messrs. Fernandez 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. For additional discussion regarding
the effects of our classified board, see "Description of Capital Stock--Anti-
takeover Effects of Delaware Law and Our Certificate of Incorporation and
Bylaws."
Board Committees
Executive Committee
The executive committee of the Board of Directors consists of Messrs.
Ferro, Jr., 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 Messrs. Murdock,
Kampouris and Fernandez. 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.
Compensation Committee
The compensation committee of the Board of Directors consists of Messrs.
Fernandez, Ferro Jr. and Murdock. The compensation committee makes
recommendations to the Board of Directors concerning salaries and incentive
compensation for our officers and employees.
Stock Option Committee
The stock option committee of the Board of Directors consists of Messrs.
Shroyer, Fernandez and Larson. The stock option committee makes
recommendations to the Board of Directors concerning 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, Fernandez and Kampouris. The governance committee makes
recommendations to the Board of Directors concerning 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.
43
<PAGE>
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. 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.
Option Grants In Last Fiscal Year
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.
<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>
- --------
(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
44
<PAGE>
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 --
</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 $ 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 24 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 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.
45
<PAGE>
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 4,930,842 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 compensation committee to
administer the plan. The 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 (110% if the incentive stock
option is granted to a greater than 10% stockholder of the company);
. 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
the Company);
. 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.
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.
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.
46
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Executive Officers, Directors and Significant Shareholders
In June and July 1999, we issued and sold an aggregate of 5,217,392 shares
of Series A Convertible Participating Preferred Stock, 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. 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, for aggregate consideration of
$5.0 million, to Compaq Computer Corporation. In connection with this
financing, Steve Mahoney, a director 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.
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 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.
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 retained Mr. Shroyer to
provide consulting services to us from time to time on an as-needed basis in
areas including marketing, product development and business development at a
per diem rate of $1,300.
In September 1999, Michael W. Ferro, Jr. sold an aggregate of 434,784
shares of common stock for aggregate consideration of $0.5 million to SI
Venture Associates, L.L.C. and certain partners of SI Venture Associates,
L.L.C., including Manuel A. Fernandez. 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 3,587,405 shares of our common stock for aggregate
consideration of $18,833,875 to a number of investors, including the following
newly elected directors of Click Commerce: Peter N. Larson, Emmanuel A.
Kampouris, Manuel A. Fernandez and Dr. Michael Hammer. Shares were also sold
to our counsel, Latham & Watkins, and to an individual partner of Latham &
Watkins.
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.
47
<PAGE>
Indemnification Agreements
We have entered into indemnification agreements with each of our directors
and some of our executive officers. See "Description of Capital Stock--
Limitation of Liability and Indemnification Matters."
Registration Rights
Some of our stockholders are entitled to have their shares registered by us
for resale. See "Description of Capital Stock--Registration Rights."
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 11, 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 February 11, 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 33,130,494
shares and 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)................ 15,490,835 46.76%
Robert J. Markese...... -- *
Peter N. Larson(2)..... 100,000 *
Emmanuel A. Kampouris.. 171,429 *
Jerry Murdock(3)....... 7,169,773 21.64%
Entities affiliated
with Insight Capital
Partners
527 Madison Avenue
10th Floor
New York, New York
10022
Manuel A. Fernandez(4). 585,013 1.77%
Dr. Michael Hammer..... 190,476 *
Leslie D. Shroyer...... 38,095 *
Compaq Computer
Corporation........... 4,347,828 13.12%
40 Old Bolton Road
Stow, Massachusetts
01775
All directors and
executive officers as
a group (10 persons).. 23,745,621 71.67%
</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 1,871,904 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 4,558,201 shares held by Insight Capital Partners III, L.P.,
1,017,242 shares held by Insight Capital Partners III-Coinvestors, L.P.
and 1,546,711 shares held by Insight Capital Partners (Cayman) III, L.P.
Insight Venture Associates III, L.L.C. is the general partner of each of
Insight Capital Partners III, L.P., Insight Capital Partners III-
Coinvestors, L.P. and Insight Capital Partners (Cayman) III, L.P. Mr.
Murdock, a director of Click Commerce, is a partner of Insight Venture
Associates III, L.L.C. Mr. Murdock disclaims
49
<PAGE>
beneficial ownership of the shares held by Insight Capital Partners III,
L.P., Insight Capital Partners III-Coinvestors, L.P. and Insight Capital
Partners (Cayman) III, L.P., except to the extent of his pecuniary
interests therein arising from his membership interest in Insight Venture
Associates III, L.L.C.
(4) Includes 525,467 shares held by S.I. Venture Associates, L.L.C. Mr.
Fernandez, a director of Click Commerce, is a managing partner of S.I.
Venture Associates, L.L.C. Mr. Fernandez disclaims beneficial ownership of
the shares held by S.I. Venture Associates, L.L.C., except to the extent
of his pecuniary interests therein arising from his membership interest in
S.I. Venture Associates, L.L.C.
50
<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 December 31, 1999, assuming the conversion of all outstanding
preferred stock into common stock prior to the consummation of this offering
and the issuance of 450,000 shares of common stock upon exercise of options in
February 2000, 32,184,512 shares of our common stock were outstanding and held
of record by 16 stockholders. After this offering, 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.
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
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. See "--Anti-Takeover Effects of Delaware Law
and our Certificate of Incorporation and Bylaws."
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
51
<PAGE>
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, 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.
52
<PAGE>
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 4,295,188 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 873,556 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.
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions. Please see
"Shares Eligible for Future Sale."
The holders of all of these shares of our common stock 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.
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.
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<PAGE>
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.
54
<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 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 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 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. Subject to 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........ sold in offering
Shares salable under Rule
90 days................. 144
180 days................ Underwriters' lock-up
released; shares salable
under Rule 144, 144(k) or
701
Shares held for less than
Thereafter.............. a year
</TABLE>
In addition, each of our directors, executive officers and current
stockholders and certain 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.
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 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.
55
<PAGE>
Lock-Up Agreements
We, our directors, officers, all of our current stockholders holding shares
in the aggregate, together with all of our optionholders holding options to
purchase shares of common stock, are expected to agree 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. In addition, each of our directors and executive officers, current
stockholders and certain 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.
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. As of the date of this prospectus, the holders of
options exercisable into approximately shares of common stock will be eligible
to sell their shares on the expiration of the 180-day lock-up period, or
subject in some cases to vesting of options.
Stock Options
As of the date of this prospectus, options to purchase a total of 4,518,982
shares of our common stock were outstanding. An additional 1,357,842 shares of
common stock were available for future option grants under our stock option
plan. 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.
See "Description of Capital Stock--Registration Rights."
56
<PAGE>
CERTAIN FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS
This is a general discussion of certain United States federal tax
consequences of the acquisition, ownership, and disposition of our common
stock by a holder that, for U.S. federal income tax purposes, is not a U.S.
person as we define that term below. A holder of our common stock who is not a
U.S. person is a non-U.S. holder. We assume in this discussion that you will
hold our common stock issued pursuant to the offering as a capital asset
(generally, property held for investment). We do not discuss all aspects of
U.S. federal taxation that may be important to you in light of your individual
investment circumstances, such as special tax rules that would apply to you,
for example, if you are a dealer in securities, financial institution, bank,
insurance company, tax-exempt organization, partnership, or owner of more than
5% of our common stock. Our discussion is based on current provisions of the
Internal Revenue Code of 1986, as amended, Treasury regulations, judicial
opinions, published positions of the U.S. Internal Revenue Service and other
applicable authorities, all as in effect currently and all of which are
subject to differing interpretations or change, possibly with retroactive
effect. We have not sought, and will not seek, any ruling from the IRS or
opinion of counsel with respect to the tax consequences discussed in this
prospectus, and there can be no assurance that the IRS will not take a
position contrary to the tax consequences discussed below or that any position
taken by the IRS would not be sustained. We urge you to consult your tax
advisor about the U.S. federal tax consequences of acquiring, holding, and
disposing of our common stock, as well as any tax consequences that may arise
under the laws of any foreign, state, local, or other taxing jurisdiction.
For purposes of this discussion, a U.S. person means any one of the
following:
. a citizen or resident of the U.S.;
. a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of
the U.S.;
. an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; and
. a trust, the administration of which is subject to the primary
supervision of a U.S. court and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust.
Dividends
Dividends paid to a non-U.S. holder will generally be subject to
withholding of U.S. federal income tax at the rate of 30%. If, however, the
dividend is effectively connected with the conduct of a trade or business of
the U.S. by the non-U.S. holder, and an Internal Revenue Service Form W-8 ECI,
stating that the dividends are so connected, is filed with us, the dividend
will be subject to U.S. federal income tax imposed on net income on the same
basis that applies to U.S. persons generally, and, for corporate holders under
certain circumstances, the branch profits tax. Non-U.S. holders should consult
any applicable income tax treaties that may provide for a reduction of, or
exemption from, withholding taxes. For purposes of determining whether tax is
to be withheld at a reduced rate as specified by a treaty, we generally will
presume that dividends we pay on or before December 31, 2000, to an address in
a foreign country are paid to a resident of that country.
Under new Treasury regulations, which in general apply to dividends that we
pay after December 31, 2000, to obtain a reduced rate of withholding under a
treaty, a non-U.S. holder generally will be required to provide an Internal
Revenue Service Form W-8 BEN, certifying that non-U.S. holder's entitlement to
treaty benefits. These regulations also provide special rules to determine
whether, for purposes of applying a treaty, dividends that we pay a non-U.S.
holder that is an entity should be treated as paid to holders of interests in
that entity.
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<PAGE>
Gain on disposition
A non-U.S. holder will generally not be subject to United States federal
income tax, including by way of withholding, on gain recognized on a sale or
other disposition of our common stock unless any one of the following is true:
. the gain is effectively connected with the conduct of a trade or
business in the U.S. by the non-U.S. holder;
. the non-U.S. holder is a nonresident alien individual present in the
U.S. for 183 or more days in the taxable year of the disposition and
certain other requirements are met;
. the non-U.S. holder is subject to tax pursuant to provisions of the U.S.
federal income tax law applicable to certain U.S. expatriates; and
. we are or have been during certain periods a "United States real
property holding corporation" for U.S. federal income tax purposes.
We do not believe we are or will become a United States real property
holding corporation. Even if we are or become a United States real property
holding corporation, a non-U.S. holder will generally not be subject to U.S.
federal income tax on gain recognized on a sale or other disposition of our
common stock provided that:
. the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding common
stock; and
. our common stock is and continues to be regularly traded on an
established securities market for U.S. federal income tax purposes.
Common stock will generally be considered regularly traded on an
established securities market for this purpose in any year in which it is
listed on the Nasdaq National Market.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder will be subject to the U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax, but will generally not be subject to withholding. Non-U.S.
holders should consult any applicable income tax treaties that may provide for
different rules.
United States federal estate taxes
Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the U.S., as specially defined for U.S. federal
estate tax purposes, on the date of that person's death will be included in
his or her estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
Information reporting and backup withholding
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that
we withheld on those dividends. This information may also be made available to
the tax authorities of a county in which the non-U.S. holder resides.
Under current U.S. treasury regulations, U.S. information reporting
requirements and backup withholding tax will generally not apply to dividends
that we pay on our common stock to a non-U.S. holder at an address outside the
U.S. Payments of the proceeds of a sale or other taxable disposition of our
common stock by a U.S. office of a broker are subject to both backup
withholding at a rate of 31% and information reporting, unless the holder
certifies as to its non-U.S. holder status under penalties of perjury or
otherwise establishes an exemption. Information reporting requirements, but
not backup withholding tax, will also apply to payments of the proceeds
58
<PAGE>
of a sale or other taxable disposition of our common stock by foreign offices
of U.S. brokers or foreign brokers with certain types of relationships to the
U.S. unless the broker has documentary evidence in its records that the holder
is a non-U.S. holder and certain other conditions are met or the holder
otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS.
The U.S. Treasury Department has promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
those regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify reliance standards. The final regulations are generally
effective for payments made after December 31, 2000, subject to transition
rules.
59
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the U. S. underwriters named
below, for whom Morgan Stanley & Co. Incorporated, Dain Rauscher Incorporated
and Salomon Smith Barney Inc. are acting as U.S. representatives and the
international underwriters named below, for whom Morgan Stanley & Co.
International Limited, Dain Rauscher Incorporated and Salomon Brothers
International Limited are acting as international 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>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................
Dain Rauscher Incorporated....................................
Salomon Smith Barney Inc......................................
------
Subtotal....................................................
------
International Underwriters:
Morgan Stanley & Co. International Limited....................
Dain Rauscher Incorporated....................................
Salomon Brothers International Limited........................
Subtotal....................................................
------
Total.......................................................
======
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively
referred to as the "underwriters" and the "representatives," respectively. 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.
In the agreement between U.S. and international underwriters, sales may be
made between U.S. underwriters and international underwriters of any number of
shares as may be mutually agreed. 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 U.S. underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of additional
shares of common stock at the public offering price listed on the cover page
of this prospectus, less underwriting discounts and commissions. The U.S.
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
U.S.
60
<PAGE>
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 U.S. underwriter's name in the preceding table bears
to the total number of shares of common stock listed next to the names of all
U.S. underwriters in the preceding table. If the U.S. 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 $ .
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.
We have applied for quotation of the common stock on the Nasdaq National
Market under the symbol "CKCM."
Each of Click Commerce and the officers, directors, stockholders and
optionholders of Click Commerce has 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 certain 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 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-
61
<PAGE>
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, 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.
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, and an individual partner of Latham & Watkins owns 9,524 shares
of our common stock.
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 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.
62
<PAGE>
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. Upon approval of the
common stock for the quotation on the Nasdaq National Market, reports, proxy
and information statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
63
<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
---------------------- December 31,
1998 1999 1999
---------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 66,850 $3,335,674 $3,336,799
Short-term investments.................. 53,210 2,968,198
Trade accounts receivable, less
allowance for doubtful accounts of
$20,744 and $53,794 in 1998 and 1999... 490,597 1,539,665
Revenue earned on contracts in progress
in excess of billings.................. 136,957 894,107
Other current assets.................... 20,435 129,699
Deferred income taxes................... 79,781 242,379
---------- ----------
Total current assets.................. 847,830 9,109,722
Property and equipment, net............. 189,865 700,323
Other assets............................ 39,102 123,788
---------- ----------
Total assets.......................... $1,076,797 $9,933,833
========== ==========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable........................ $ 224,656 $ 644,170
Billings in excess of revenues earned on
contracts in progress.................. 214,268 2,025,809
Deferred revenue........................ 184,084 389,799
Accrued compensation.................... 182,898 712,382
Accrued expenses and other current
liabilities............................ 34,986 233,751
Income taxes payable.................... 145,149 39,092
Current portion of capital lease
obligations............................ 15,727 45,454
---------- ----------
Total current liabilities............. 1,001,768 4,090,457
Capital lease obligations, less current
portion.................................. 2,121 83,706
Deferred income taxes..................... 17,529 33,249
---------- ----------
Total liabilities..................... 1,021,418 4,207,412
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; 5,217,392 shares
issued and outstanding in 1999........... -- 5,800,000 --
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; 4,347,828 shares
issued and outstanding in 1999........... -- 4,800,000 --
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;
6,600,000, 22,169,292, and 32,184,512
shares issued and outstanding in 1998,
1999 and pro forma 1999 ............... 6,600 22,169 32,184
Additional paid-in capital.............. 623,967 -- 10,591,110
Deferred compensation................... (509,559) -- --
Accumulated deficit..................... (65,629) (4,895,748) (4,895,748)
---------- ---------- ----------
Total shareholders' equity (deficit).. 55,379 (4,873,579) 5,727,546
---------- ---------- ----------
Total liabilities and shareholders'
equity (deficit)....................... $1,076,797 $9,933,833
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenue.................................... $1,321,684 $2,390,340 $9,952,109
Cost of revenue............................ 378,989 711,963 2,669,551
---------- ---------- ----------
Gross profit............................... 942,695 1,678,377 7,282,558
Operating expenses:
Sales and marketing...................... 174,347 434,510 2,810,477
Research and development................. -- 149,235 728,823
General and administrative............... 719,850 986,630 2,761,706
Amortization of deferred stock
compensation............................ -- 187,401 402,298
---------- ---------- ----------
Total operating expenses............... 894,197 1,757,776 6,703,304
---------- ---------- ----------
Operating income (loss).................... 48,498 (79,399) 579,254
Interest income............................ 5,510 8,370 113,186
Interest expense........................... (5,893) (8,977) (6,639)
Other expense.............................. (256) (1,881) (6,256)
---------- ---------- ----------
Other income (expense)..................... (639) (2,488) 100,291
---------- ---------- ----------
Income (loss) before income taxes.......... 47,859 (81,887) 679,545
Income tax expense (benefit)............... 28,721 (16,670) 297,571
---------- ---------- ----------
Net income (loss).......................... $ 19,138 $ (65,217) $ 381,974
========== ========== ==========
Earnings (loss) per share:
Basic.................................... 0.00 (0.00) 0.01
Diluted..................................
Weighted average shares outstanding:
Basic.................................... 28,782,666 28,782,666 25,767,560
Diluted..................................
</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................... 10,000 $ 10 $ 90 $ -- $ (13,050) $ (12,950)
660-for-1 stock split... 6,590,000 6,590 (90) -- (6,500) --
Net income.............. -- -- -- 19,138 19,138
---------- ------- -------- -------- ----------- -----------
Balance at December 31,
1997................... 6,600,000 6,600 -- -- (412) 6,188
Deferred compensation
from stock option
grants................. -- -- 696,960 (696,960) -- --
Amortization of deferred
stock compensation..... -- -- (72,993) 187,401 -- 114,408
Net loss................ -- -- -- -- (65,217) (65,217)
---------- ------- -------- -------- ----------- -----------
Balance at December 31,
1998................... 6,600,000 6,600 623,967 (509,559) (65,629) 55,379
Amortization of deferred
stock compensation, net
of income taxes........ -- -- (156,695) 402,298 -- 245,603
Deferred compensation
related to forfeited
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
2-for-1 stock split..... 6,600,000 6,600 -- -- (6,600) --
2-for-1 stock split..... 13,200,000 13,200 -- -- (13,200) --
Redemption of common
stock.................. (5,217,392) (5,217) (802,490) -- (5,192,293) (6,000,000)
Net income.............. -- -- -- -- 381,974 381,974
---------- ------- -------- -------- ----------- -----------
Balance at December 31,
1999................... 22,169,292 $22,169 $ -- $ -- $(4,895,748) $(4,873,579)
========== ======= ======== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1997 1998 1999
-------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 19,138 $ (65,217) $ 381,974
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Amortization of deferred stock
compensation............................ -- 187,401 402,298
Depreciation and amortization............ 23,621 42,814 103,315
Provision for doubtful accounts.......... 20,744 -- 33,050
Deferred income taxes.................... -- (60,707) (146,879)
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)
Revenue earned on contracts in progress
in excess of billings................. -- (136,957) (757,150)
Other current assets................... (4,686) (11,487) (109,264)
Accounts payable....................... 84,501 122,475 419,514
Billings in excess of revenues earned
on contracts in progress.............. -- 214,268 1,811,541
Deferred revenue....................... -- 184,084 205,715
Accrued compensation................... 184,732 (11,500) 529,484
Accrued expenses and other current
liabilities........................... 19,745 (1,744) 198,764
Income taxes payable................... 28,175 43,981 178,247
Other assets........................... (10,734) (28,369) (87,700)
-------- --------- -----------
Net cash provided by operating
activities.......................... 357,089 7,858 2,087,047
Cash flows from investing activities:
Purchases of property and equipment........ (49,412) (138,936) (481,617)
Proceeds from sale of property and
equipment................................. -- 250 4,199
Net purchases of short-term investments.... (50,461) (2,749) (2,914,988)
-------- --------- -----------
Net cash used in investing
activities.......................... (99,873) (141,435) (3,392,406)
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
Principal payments under capital lease
obligations............................... (13,827) (20,358) (28,285)
Payments under other borrowings, net....... (35,772) (205) --
-------- --------- -----------
Net cash provided by (used in)
financing activities................ (49,599) (20,563) 4,574,183
-------- --------- -----------
Net change in cash and cash equivalents...... 207,617 (154,140) 3,268,824
Cash and cash equivalents at beginning of
year........................................ 13,373 220,990 66,850
-------- --------- -----------
Cash and cash equivalents at end of year..... $220,990 $ 66,850 $ 3,335,674
======== ========= ===========
Supplemental disclosures:
Property and equipment acquired under
capital leases............................ $ 15,041 $ 6,526 $ 139,599
Interest paid.............................. 5 8,977 6,639
Income taxes paid.......................... -- 1,599 266,202
</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, or B2B, 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.
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 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.
F-7
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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.
Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and common
stock equivalents issued for nominal consideration, prior to the anticipated
effective date of an initial public offering, are required to be included in
the calculation of basic and diluted earnings per share as if they were
outstanding for all periods presented. The Company considers the grants of
2,382,666 options for common stock at an exercise price of $0.0025, net of
cancelled options, to be grants for nominal consideration.
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.
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.
F-8
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Segment Reporting
The Company operates in a single segment and will evaluate additional
segment disclosure requirements as it expands its operations.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.
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. In addition, 450,000 shares
of common stock were issued in February 2000 upon exercise of options at an
exercise price of $0.0025 per share. These transactions have been reflected in
the unaudited pro forma balance sheet as of December 31, 1999.
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 83%
of the Company's total revenue, two for approximately 25% each, another for
approximately 18%, and a fourth customer for approximately 15%. During the
year ended December 31, 1999, three customers accounted for an aggregate of
55% of the Company's total revenue, one for approximately 29%, another for
approximately 15%, and a third customer for approximately 11%.
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 $68,557 as of December 31, 1998 and 1999, respectively.
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.
F-9
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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-10
<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..................... 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/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.
Redemption of Common Stock
In July 1999, the Company redeemed and retired 5,217,392 shares of common
stock for $6,000,000.
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.
F-11
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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).
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.
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
F-12
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Company determined compensation cost based on the fair value at the grant date
for stock options under
SFAS No. 123, the Company's net income (loss) would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Net income (loss):
As reported......................................... $(65,217) $381,974
Pro forma........................................... (122,962) 276,862
Earnings (loss) per share:
As reported......................................... (0.00) 0.01
Pro forma........................................... (0.00) 0.01
</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:
<TABLE>
<CAPTION>
1998 1999
------------------ -------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Fixed Options Shares Prices Shares Prices
------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.. -- -- 3,104,000 $0.0255
Granted........................... 3,104,000 $0.0255 3,276,000 1.0405
Exercised......................... -- -- (986,684) 0.0025
Cancelled......................... -- -- (771,334) 0.4759
--------- ---------
Outstanding at end of year........ 3,104,000 $0.0255 4,621,982 $0.6749
========= =========
Options exercisable at end of
year............................. 204,000 $0.0025 1,405,982 $0.0107
========= =========
</TABLE>
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
F-13
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
years from the date of grant. 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 forfeited 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
$187,401 and $402,298 in 1998 and 1999, 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 line of credit
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.
10. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income (loss)...................... $ 19,138 $ (65,217) $ 381,974
Denominator:
Weighted average shares outstanding--
basic................................. 28,782,666 28,782,666 25,767,560
Effect of stock options using the
treasury stock method.................
----------- ----------- -----------
Weighted average shares outstanding--
diluted...............................
----------- ----------- -----------
Earnings (loss) per share..............
Basic.................................. 0.00 (0.00) 0.01
Diluted................................
Pro Forma:
Pro forma adjustment to reflect assumed
conversion of Convertible
Participating Preferred Stock......... 9,565,220
Shares used in computing pro forma
basic earnings per share.............. 35,332,780
Shares used in computing pro forma
diluted earnings per share............
Pro forma basic earnings per share..... 0.01
Pro forma diluted earnings per share...
</TABLE>
For the year ended December 31, 1998, 3,104,000 potentially dilutive stock
options were excluded from the loss per share calculation because their effect
was antidilutive.
F-14
<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.
F-15
<PAGE>
Text above a graphic: "70 B2B Applications"
Graphic: A diagram featuring 70 Click Commerce Applications, color-coded by
function.
Logo and slogan: Click Commerce Logo, followed by "Frictionless Distribution
Communities for Global Manufacturers."
<PAGE>
Logo: Click Commerce Logo
<PAGE>
[International Cover]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 February 16, 2000
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 $ and
$ per share.
-----------
We have applied for quotation of our common stock on the Nasdaq National Market
under the symbol "CKCM."
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 4.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Click Commerce
-------- ------------- --------------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>
Click Commerce, Inc. has granted the underwriters the right to purchase up to
an additional 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. International Limited expects to deliver the shares to
purchasers on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
DAIN RAUSCHER WESSELS
SALOMON SMITH BARNEY INTERNATIONAL
, 2000
<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 fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
Amount to
Be Paid
---------
<S> <C>
SEC registration fee............................................ $
NASD filing fee.................................................
Nasdaq National Market listing fee.............................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Printing and engraving.......................................... *
Blue sky fees and expenses (including legal fees)............... *
Transfer agent fees............................................. *
Miscellaneous................................................... *
-------
Total....................................................... *
=======
</TABLE>
- --------
* To be provided by amendment.
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 for 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, 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, 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.
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.
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.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2 Form of Restated Certificate of Incorporation to be in effect
upon the closing of this offering.
3.3 Amended and Restated Bylaws.
3.4 Form of Restated Bylaws to be in effect upon the closing of
this offering.
*4.1 Specimen Common Stock certificate.
4.2 Amended and Restated Stockholders and Rights Agreement.
*5.1 Opinion of Latham & Watkins.
10.1 Amended and Restated Click Commerce, Inc. Stock Option and
Stock Award Plan.
10.2 Click Commerce, Inc. Directors' Stock Option and Stock Award
Plan.
10.3 Amended and Restated Employment Agreement with Michael W.
Ferro, Jr.
10.4 Amended and Restated Employment Agreement with Robert J.
Markese.
10.5 Form of Indemnification Agreement entered into between Click
Commerce, Inc. and its directors and executive officers.
10.6 Promissory Note, dated March 25, 1999, between Click
Interactive, Inc. and American National Bank and Trust Company
of Chicago.
10.7 Loan and Security Agreement, dated March 25, 1999, between
Click Interactive, Inc. and American National Bank and Trust
Company of Chicago.
16.1 Change In Certifying Accountants.
23.1 Consent of KPMG LLP.
*23.2 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (included on the signature page to this
filing).
*27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
(b) Financial Statement Schedules.
Independent Auditors' Report on Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
II-3
<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.
II-4
<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 February 16, 2000.
Click Commerce, Inc.
/s/ Michael W. Ferro, Jr.
By: _________________________________
Name: Michael W. Ferro, Jr.
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael W. Ferro, Jr. and Rebecca S. Maskey,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this registration statement (and any
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, for the offering which this Registration Statement
relates), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement and power of attorney have been signed by
the following persons in the capacities indicated as of February 16, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael W. Ferro, Jr. Chief Executive Officer and February 16, 2000
____________________________________ Chairman of the Board of
Michael W. Ferro, Jr. Directors (Principal
Executive Officer)
/s/ Rebecca S. Maskey Senior Vice President, Chief February 16, 2000
____________________________________ Financial Officer and
Rebecca S. Maskey Treasurer (Principal
Financial and Accounting
Officer)
/s/ Peter N. Larson Director February 16, 2000
____________________________________
Peter N. Larson
/s/ Emmanuel A. Kampouris Director February 16, 2000
____________________________________
Emmanuel A. Kampouris
/s/ Jerry Murdock Director February 16, 2000
____________________________________
Jerry Murdock
/s/ Dr. Michael Hammer Director February 16, 2000
____________________________________
Dr. Michael Hammer
/s/ Manuel A. Fernandez Director February 16, 2000
____________________________________
Manuel A. Fernandez
/s/ Leslie D. Shroyer Director February 16, 2000
____________________________________
Leslie D. Shroyer
</TABLE>
II-5
<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
S-1
<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
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CLICK INTERACTIVE, INC.
Click Interactive, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware. hereby certifies that:
A. The Certificate of Incorporation was filed with the Secretary of
State of the State of Delaware on August 20, 1996. A Certificate of Amendment of
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on March 3, 1998 and an Amended and Restated Certificate of
incorporation was filed with the Secretary of State of the State of Delaware on
June 11, 1999. This Amended and Restated Certificate of Incorporation has been
duly adopted by the Corporation in accordance with Sections 228, 242 and 245 of
the General Corporation Law of Delaware.
B. The text of the Certificate of Incorporation of the Corporation
is hereby amended and restated to read in its entirety as follows:
ARTICLE FIRST
The name of the Corporation is CLICK INTERACTIVE, INC.
ARTICLE SECOND
The address of the registered office of the Corporation, in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle, 19805. The name of the registered agent of the Corporation at such
address is Corporation Service Company.
ARTICLE THIRD
The nature of the business of the Corporation and the purposes to be
conducted and promoted by the Corporation are as follows:
(a) To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State
of Delaware.
(b) To do any and all of the acts herein set forth or implied and
such other acts as are incidental or conducive to the attainment
of the objects and purposes of the Corporation; and to do any and
all such acts either as principal or in the capacity of agent,
broker contractor or otherwise.
<PAGE>
(c) To conduct its business. promote its purposes and carry on its
operations in any and all of its branches and maintain offices
both within and without the State of Delaware, in any and, all
states of the United States of America. in the District of
Columbia, in foreign countries, and in any or all commonwealths,
territories, dependencies. colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign
countries.
The foregoing provisions of this Article Third shall be construed both
as purposes and powers and each as an independent purpose and power. The
foregoing enumeration of specific purposes and powers shall not be held to limit
or restrict in any manner the purposes and powers of the Corporation, and the
purposes and powers herein specified shall, except when otherwise provided in
this Article Third. be in no way limited or restricted by reference to, or
inference from. the terms of any provision of this or any other Article of this
Amended and Restated Certificate of Incorporation; provided however, that the
Corporation Shall not conduct any business, promote any purpose, or exercise any
power or privilege within or without the State of Delaware which, under the laws
thereof, the Corporation may not lawfully conduct, promote, or exercise.
ARTICLE FOURTH
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 20.000,000 of which (a) 3,000,000
shares shall be designated as Series A Convertible Participating Preferred
Stock. par value $.001 per share (the "Series A Preferred Stock"), (b) 2,000,000
shares shall be designated as Series B Convertible Participating Preferred
Stock, par value $.001 per share (the "Series B Preferred Stock"), and (c)
15,000,000 shares shall be designated as Common Stock, par value $.001 per share
(the "Common Stock").
The voting powers, designations, preferences, privileges and relative,
participating. optional or other special rights, and the qualifications,
limitations or restrictions of each class of capital stock of the Corporation
shall be as provided in this Article Fourth.
A. SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK
--------------------------------------------------
1. Election of Directors; Voting.
-----------------------------
(a) Election of Directors. The holders of a majority of the outstanding
---------------------
shares of Series A Preferred Stock shall voting a separately as a separate
class, be entitled to elect one (1) Director (the "Series A Director Designee").
The election of the Series A Director Designee by the holders of the Series A
Preferred Stock shall occur (i) at the annual meeting of holders of capital
stock, (ii) at any special meeting of holders of capital stock, (iii) at any
special meeting of holders of Series A Preferred Stock called by holders of a
majority of the outstanding shares of Series A Preferred Stock or (iv) by the
written consent of holders of the outstanding shares of Series A Preferred
Stock. If at any time when at least 20% of the shares of Series A Preferred
Stock initially issued remain outstanding a Series A Director Designee should
cease to be a Director for any reason, the vacancy shall only be filled by the
vote or written consent of the holders of the outstanding share of Series A
Preferred Stock, voting separately as a separate class, in the manner and on the
basis specified above.
2
<PAGE>
(b) Voting Generally. The holder Of each share of Series A Preferred
----------------
Stock shall be entitled to notice of any stockholders" meeting in accordance
with the by-laws of the Corporation and shall vote with holders of the Common
Stock, voting together as single class, upon all matters submitted to a vote of
stockholders. The holder of each share of Series A Preferred Stock shall be
entitled to the number of votes equal to the largest number of full shares of
Common Stock into which each share of Series A Preferred Stock could be
converted pursuant to Section A-4 hereof on the record date for the vote or the
written consent of stockholders, if applicable. In addition, the holders of the
Series A Preferred Stock shall also be entitled to vote separately as a class
with respect to those matters required to be submitted to a class or series vote
pursuant to the terms hereof (including, without limitation, Section A.6) or by
law. Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares of Common
Stock into which shares of Series A Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half rounded
upward to one).
2. Dividends. The holders of the Series A Preferred Stock shall be entitled
---------
to receive dividends only if the Board of Directors of the Corporation shall
declare a dividend payable upon outstanding shares of the Common Stock, in which
event the holders of the Series A Preferred Stock shall be entitled to receive
the same amount of dividends per share of the Series A Preferred Stock as such
holders would have been entitled had the Series A Preferred Stock been fully
converted into shares of Common Stock pursuant to the provisions of Section A.4
hereof as of the record date for the determination of holders of shares of the
Common Stock entitled to receive such dividend.
3. Liquidation and Other Extraordinary Transactions.
------------------------------------------------
(a) Liquidation Preference. Upon (i) any liquidation. dissolution or
----------------------
winding up of the Corporation and its subsidiaries, whether voluntary or
involuntary (a "Liquidation Event"), or (ii) (w) a merger or consolidation of
the Corporation with or into another corporation (with respect to which less
than a majority of the outstanding voting power of such surviving corporation is
held by stockholders of the Corporation immediately prior to such event), (x)
the sale or transfer of all or substantially all of the properties and assets of
the Corporation and its subsidiaries, (y) any transaction or series of related
transactions the effect of which is that a party (or group of affiliated
parties) to such transaction or transactions that did not beneficially own a
majority of the voting power of the outstanding shares of capital stock of the
Corporation immediately prior to such transaction or transactions beneficially
owns at least a majority of such voting power immediately aft such transaction
or transactions or (z) the redemption or repurchase of shares of capital stock
representing a majority of the voting power of the outstanding shares of capital
stock of the Corporation (each an "Extraordinary Transaction"). each holder of
outstanding shares of Series A Preferred Stock shall be entitled to be paid out
of the assets of the Corporation available for distribution to stockholders,
whether such assets are capital, surplus or earnings, before payment of any
dividend pursuant to Section A.2, B.2 or C,2:
(i) Before any amount shall be paid or distributed to the holders of
Common Stock or of any other stock ranking on liquidation junior to the
Series A Preferred Stock.
3
<PAGE>
an amount in cash equal to $4.60 per share (appropriately adjusted for any
stock split, stock dividend, recapitalization and the like) (the "Senior
Series A Liquidation Amount"); provided, however, that if a Liquidation
-------- -------
Event or one or more Extraordinary Transactions occur and the holders; of
Series A Preferred Stock would, if the aggregate proceeds were distributed
pursuant to Section A.3(a)(ii) below without payment of the Senior Series A
Liquidation Amount, receive an amount equal to or in excess of $9.20 per
share (appropriately adjusted for any stock split, Stock dividend,
recapitalization and the like), then, the holders of Series A Preferred
Stock shall not be entitled to receive any Senior Series A Liquidation
Amount hereunder; provided, further that the Senior Series A Liquidation
-------- -------
Amount shall be paid to the holders of Series A Preferred Stock
simultaneously, and on a pari-passu basis, with the payment of the Senior
Series B Liquidation Amount (as defined below) payable to the holders of
Series B Preferred Stock in accordance with Section B.3(a)(i) below; and
provided, further that if, upon Liquidation Event or Extraordinary
-------- -------
Transaction, the amounts payable with respect to the Senior Series A
Liquidation Amount and the Senior Series B Liquidation Amount are not paid
in full, the holders of the Series A Preferred Stock and the holders of the
Series B Preferred Stock shall share ratably in any distribution of assets
in Proportion to the full respective preferential amounts to which they are
entitled; and
(ii) after the payment of the Senior Series A Liquidation Amount and
the Senior Series B Liquidation Amount. if any. any assets remaining
available for distribution shall be distributed ratably among the holders
of the Common Stock, the Series A Preferred Stock and the Series B
Preferred Stock based upon the number of shares of Common Stock (i) then
held by each holder of Common Stock immediately prior to the occurrence of
any such Liquidation Event or Extraordinary Transaction, (ii) issuable upon
conversion of the shares of Series A Preferred Stock held by a holder of
Series A Preferred Stock pursuant to Section A.4 immediately prior to am
occurrence of any such Liquidation Event or Extraordinary Transaction and
(iii) issuable upon conversion of the shares of Series B Preferred Stock
held by a holder of Series B Preferred Stock pursuant to Section BA
immediately prior to the occurrence of any Such Liquidation Event or
Extraordinary Transaction (the "Residual Series A Liquidation Amount" and,
together with the Senior Series A Liquidation Amount, the "Total Series A
Liquidation Amount").
(b) Conversion Rights Not Impaired. Nothing in this Section A.3 shall with
------------------------------
respect to any Liquidation Event or Extraordinary Transaction in any way limit
the right of the holders of the Series A Preferred Stock to elect to have the
provisions of Section A.4 or Section A.5. as applicable, govern such-Liquidation
Event or Extraordinary Transaction.
(c) Non-Cash Consideration. Notwithstanding the provisions of Section
----------------------
A.3(a), in connection with any Extraordinary Transaction, the holders of Series
A Preferred Stock shall, on the effective date of such Extraordinary
Transaction, be paid by the Corporation the Senior Series A Liquidation Amount
in cash sold to the extent that cash is paid in such Extraordinary Transaction
and then (or alternatively if no cash payments are involved. as applicable), in
such other consideration (valued as provided below) as is delivered in such
Extraordinary Transaction
4
<PAGE>
in an amount equal to the Senior Series A Liquidation Amount. The Residual
Series A Liquidation Amount shall, be paid in the same combination of cash and
other consideration as remains payable to pay to the holders of the Common Stock
and the holders entitled to the Residual Series A Liquidation Amount and the
Residual Series B Liquidation Amount (after payment of Senior Series A
Liquidation Amount and the Senior Series B Amount, if any) based upon the number
of shares of Common Stock (i) then held by each holder of Common Stock
immediately prior to the occurrence of any such Liquidation Event or
Extraordinary Transaction, (ii) issuable upon conversion of the share of Series
A Preferred Stock held by a holder of Series A Preferred Stock pursuant to
Section A.4 immediately prior to the occurrence of any such Liquidation Event or
Extraordinary Transaction and (iii) issuable upon conversion of the shares of
Series B Preferred Stock held by a holder of Series B Preferred Stock pursuant
to Section B.4 immediately prior to the occurrence of any such Liquidation Event
or Extraordinary Transaction.
Any securities or other consideration to be delivered to the holders
of the Series A Preferred Stock upon any Extraordinary Transaction shall, be
valued as provided or established in such Extraordinary Transaction and, if and
only if, no such value is provided or established in such Extraordinary
Transaction as follows: (i) if traded on a nationally recognized securities
exchange or inter-dealer quotation system. the value shall be deemed to be the
average of the closing prices of the securities on such exchange or system over
the 30-day period ending three (3) business days prior to the closing; (ii) if
traded over-the-counter. the value shall be deemed to be the average of the
closing bid prices over the 30-day period ending (3) business days prior to the
closing; and (iii) if there is no active public market, the value shall be the
fair market value thereof, as mutually determined in good faith by the Board of
Directors of the Corporation and the holders of not less than a majority of the
outstanding shares of Series A Preferred Stock, provided that if the Corporation
and such holders are unable to reach agreement, then by independent appraisal by
a mutually agreed to investment broker, the fees of which will be paid by the
Corporation.
(d) Surrender of Certificates. On the effective date of any Extraordinary
-------------------------
Transaction, the Corporation shall pay all cash and other consideration to which
the holders of Series A Preferred Stock shall be entitled under this Section
A.3. Upon receipt of such payment, each holder of shares of Series A Preferred
Stock shall, surrender the certificate or certificates representing such shares,
duly assigned or endorsed for transfer to the Corporation (or accompanied by
duly executed stock powers relating thereto), at the principal executive office
of the Corporation or the office of the transfer agent for the Corporation, or
shall notify the Corporation or any transfer agent that such certificates have
been lost, stolen or destroyed and shall execute an affidavit or agreement
reasonably satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith (an "Affidavit of Loss"), and each
surrendered certificate shall be canceled and retired.
(e) Notice. Prior to the occurrence of any Liquidation Event or
------
Extraordinary Transaction, the Corporation will furnish each holder of Series A
Preferred Stock notice in accordance with Section A.$ hereof. together with a
certificate prepared by the chief financial officer of the Corporation
describing in detail the facts of such Liquidation Event or Extraordinary
Transaction, stating in reasonable detail the amount(s) per share of Series A
5
<PAGE>
Preferred Stock each holder of Series A Preferred would receive pursuant to the
provisions of Section A.3(a) hereof and stating in reasonable detail the facts
upon which such amount was determined and, in connection with any Extraordinary
Transaction, describing in reasonable detail all other material terms of such
Extraordinary Transaction, including without limitation the consideration to be
delivered in connection with such Extraordinary Transaction. the valuation of
the corporation at the, time of such Extraordinary Transaction and the
identities of the parties to the Extraordinary Transaction.
4. Conversion. The holders of the Series A Preferred Stock shall have the
----------
following conversion rights:
(a) Conversion Upon Election of Holders. Each holder of shares of Series A
-----------------------------------
Preferred Stock shall be entitled at any time, upon the written election of such
holder without the payment of any additional consideration, to convert such
holder"s shares of Series A Preferred Stock then held by such holder into a
number of shares of Common Stock computed by multiplying the number of shares of
Series A Preferred Stock to be converted by $4.60 and dividing the result by the
Series A Conversion Price then in effect. The initial "Series A Conversion
Price" shall be $4.60 subject to adjustment from time to time as provided in
Section A.5 hereof. If any share of Series A Preferred Stock is converted at a
time when there are any declared but unpaid dividends or other amounts due on or
in respect of such shares, such dividends and other amounts shall be paid in
full in cash by the Corporation in connection with such conversion.
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
--------------------
automatically be converted, without the payment of any additional consideration,
into the number of shares of Common Stock into which such shares are convertible
as computed according to the formula set forth in Section A.4(a) hereof at the
then effective Series A Conversion Price upon (i) the written election of the
holders of not less than a majority of the Series A Preferred Stock or (ii) the
closing of an written public offering an a firm commitment basis by a nationally
recognized investment banking (organization or organizations, pursuant to an
effective registration statement under the Securities Act covering the offer and
sale of shares of the Corporation"s Common Stock (A) in which the proceeds
received by the Corporation (after deduction of underwriter discounts and
commissions) equal or exceed $20,000,000, (B) with respect to which such Common
Stock is listed for trading on either the New York Stock Exchange or the NASDAQ
National Market and (C) either (1) at a price per share of Common Stock, after
underwriter discounts and commissions, of not less than $9.20 per share
(appropriately adjusted for any stock split, stock dividend, combination,
recapitalization and the like) or (2) the pre-money market value of the
Corporation"s Common Stock based upon the initial offering price. is equal to or
in excess of $100.000,000 (a "QPO" or a "Qualified Public Offering"); provided
that if a closing of a QPO occurs. all outstanding shares of Series A Preferred
Stock shall be to have been converted into shares of Common Stock Immediately
prior to such closing.
If the holders of shares of Series A Preferred Stock are required to
convert the outstanding shares of Series A Preferred Stock pursuant to this
Section AA(b) at a time when
6
<PAGE>
there are any declared but unpaid dividends or other amounts due on or in
respect of such shares, such dividends and other amounts shall be paid in full
in cash by the Corporation in connection with such conversion.
(c) Procedure for Voluntary Conversion. Upon election to convert pursuant
----------------------------------
to Sections A-4(a) or A.40), the relevant holder of Series A Preferred Stock
shall surrender the certificate or certificates representing the Series A
Preferred Stock being converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto), at
the principal executive office of the Corporation or the offices of the transfer
agent for the Series A Preferred Stock or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series A Preferred Stock by the
Corporation, or shall deliver an Affidavit of Loss with respect to such
certificates. The issuance by the Corporation of Common Stock upon a conversion
of Series A Preferred Stock upon election to convert pursuant to Sections A.4(a)
or A.4(b) hereof shall be effective as of the surrender of the certificate or
certificates for the Series A Preferred Stock to be converted. duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto), or as of the delivery of an Affidavit of Loss. Upon
surrender of a certificate representing Series A Preferred Stock for conversion,
or delivery of an Affidavit of Loss, the Corporation shall issue and send by
hand delivery, by courier or by first class mail (postage prepaid) to the holder
thereof or to such holder"s designee. at the address designated by such holder,
certificates for the number of shares of Common Stock to which such holder shall
be entitled upon conversion plus a cash payment in the mount of any declared but
unpaid dividends and other amounts as by Sections A.4(a) or A.4(b) in respect of
the shares of Series A Preferred Stock. Notwithstanding the foregoing, in the
event of an automatic conversion pursuant to Section A.4(b) upon the election of
the holders of not less than a majority of Series A Preferred Stock the
outstanding shares of Series A Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent and all rights with respect to the Series A Preferred Stock shall
terminate, except any of the rights of the holders thereof upon surrender of
their certificate or certificates therefor or delivery of an Affidavit of Loss
thereof to receive certification for the number of shares of Common Stock into
which such shares of Series A Preferred Stock has been convened plus all
declared but unpaid dividends and other amounts as contemplated by Section
A.4(b). The issuance of certificates for Common Stock upon conversion of Series
A Preferred Stock will be made without charge to the holders of such shares for
any issuance tax in respect thereof or other costs incurred by the Corporation
in connection with such conversion and the related issuance of such stock.
(d) Procedure for Automatic Conversion on QPO. As of, and in all cases
-----------------------------------------
subject to, the closing of a QPO (the "Automatic Conversion Date"), all
outstanding shares of Series A Preferred Stock "shall be converted automatically
into shares of Common Stock as set forth in Section A.4(b) hereof and without
any further action by the holders of such shares and whether or not the
certificates representing such shares of Series A Preferred Stock are
surrendered to the Corporation or its transfer agent; provided, however, that
-------- -------
all holders of Series A Preferred Stock shall be given prior written notice of
the occurrence of a QPO in accordance with Section A.8
7
<PAGE>
hereof. On the Automatic Conversion Date, all rights with respect to the Series
A Preferred Stock so converted shall terminate, except any of the rights of the
holders thereof upon surrender of their certificate or certificates therefor or
delivery of an Affidavit of Loss thereof to receive certificates for the number
of shares of Common Stock into which such Series A Preferred Stock has been
converted plus all declared but unpaid dividends and other amounts as
contemplated by Section A.6(b). If so required by the Corporation. certificates
surrendered for conversion shall, be endorsed or accompanied by a written
instrument or Instruments of transfer, in form satisfactory to ft Corporation,
duly executed by the registered holder or by his, her or its attorney duly
authorized in writing. Upon surrender of such certificates or Affidavit of Loss
the Corporation shall issue and deliver to such holder, promptly (and in any
event in such time as is sufficient to enable such holder to participate in such
QPO) at such office and in its name as shown on aid surrendered certificate or
certificates. a certificate or certificates for the number of shares of Common
Stock into which the shares of the Series A Preferred Stock surrendered are
convertible on the Automatic Conversion Date and shall pay all declared but
unpaid dividends and other amounts as contemplated by Section A.4(b) in respect
of the shares of Series A Preferred Stock which are converted.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series A Preferred Stock such number of in shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series A Preferred Stock, the
Corporation will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
(f) No Closing of Transfer Books. The Corporation shall not close its
----------------------------
books against the transfer of shares of Series A Preferred Stock in any manner
which would interfere with the timely conversion of any shares of Series A
Preferred Stock.
5. Adjustments to Conversion Price. The Series A Conversion Price in effect
-------------------------------
from time to time shall be subject to adjustment, as follows:
(a) Dividends of Stock Splits. If the number of shares of Common Stock
--------------------------
outstanding at any time after the date hereof is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, on the date such payment is made or such change is
effective, the Series A Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of any shares
of Series A Preferred Stock shall be increased in proportion to such increase of
outstanding shares of Common Stock.
(b) Reverse Stock Splits. If the number of shares of Common Stock
--------------------
outstanding at any time after the date hereof is decreased by a combination or
reverse split of the outstanding shares of Common Stock, then, on the effective
date of such combination or reverse split, the
8
<PAGE>
Series A Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of any shares of Series A
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares of Common Stock.
(e) Sale of Common Stock. In the event the Corporation shall at any time,
--------------------
or from time to time, issue, sell or exchange any shares of Common Stock
(including shares held In the Corporation"s treasury but excluding (i) shares of
Common Stock Issued upon conversion of the Series A Preferred Stock or Series B
Preferred Stock, (ii) shares of Common Stock issued to employees, directors and
consultants of the Corporation (pursuant to the exercise of options or
otherwise) pursuant to stock and option plans approved by the Board of Directors
and (iii) shares of Common Stock to be issued in connection with strategic
acquisitions approved by a majority of the members of the Board of Directors,
which majority shall include the Series A Director Designee and the Series B
Director Designee (as defined below) (the "Excluded Shares")), for a
consideration per share (the "Purchase Price") less than the Series A Conversion
Price in effect immediately prior to the issuance, sale or exchange of such
shares (any such issuance, sale or exchange hereinafter referred to as a "Series
A Dilutive Transaction") then, and thereafter successively upon the consummation
of any Series A Dilutive Transaction, the Series A Conversion Price in effect
immediately prior to the issuance, sale or exchange of such shares shall
forthwith be reduced to an amount determined by multiplying the Series A
Conversion Price by a fraction:
(i) the numerator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or exercise
of any outstanding Series A Preferred Stock and Series B Preferred Stock,
options, warrants. rights or any other convertible securities), plus (Y)
the number of shares of Common Stock which the net aggregate consideration
received by the Corporation for the total number of such additional shares
of Common Stock so issued in the Series A Dilutive Transaction would
purchase at the Series A Conversion Price (prior to such adjustment), and
(ii) the denominator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such additional share of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or exercise
of any outstanding Series A Preferred Stock and Series B Preferred Stock,
options, warrants, rights or any other Convertible securities), plus (Y)
the number of such additional shares of Common Stock so issued in the
Series A Dilutive Transaction.
(d) Sale of Options, Rights or Convertible Securities. In the event the
-------------------------------------------------
Corporation shall at any time or from time to time, issue options, warrants or
rights to for shares of Common Stock. or issue any securities convertible into
or exchangeable for shares of Common Stock (other than any options or warrants
for Excluded Shares), for a Purchase Price (determined by dividing the Series A
Net Aggregate Consideration (as determined below) by the aggregate number of
shares of Common Stock that would be issued if all such options, warrants,
rights or
9
<PAGE>
convertible securities were exercised or convened to the fullest extent
permitted by their terms) less than the Series A Conversion Price in effect
immediately prior to the issuance of such options, warrants or rights or
convertible or exchangeable securities, the Series A Conversion Price in effect
immediately prior to the issuance of such options, warrants or rights or
securities shall be forthwith reduced to an amount determined by multiplying the
Series A Conversion Price by a fraction:
(i) the numerator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such options, warrants or rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Series A Preferred Stock and
Series B Preferred Stock. options, warrants, rights or any other
convertible securities), plus (Y) the number of shares of Common Stock
which the total amount of consideration received by the Corporation for the
issuance of such options. warrants, rights or convertible securities plus
the minimum, amount set forth in the terms of such security as payable to
the Corporation upon the exercise or conversion thereof (the "Series A Net
Aggregate Consideration) would purchase at the Series A Conversion Price
(prior to such adjustment), and
(ii) the denominator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of suck options, warrants, rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Series A Preferred Stock and
Series B Preferred Stock. options. warrants, rights or any other
convertible securities), plus (Y) the aggregate number of shares of Common
Stock that would be issued it all such options, warrants, rights or
convertible securities were exercised or converted.
(e) Expiration or Change in Price. If the consideration per share provided
-----------------------------
for in any options or rights to subscribe for shares of Common Stock or any
securities exchangeable for or convertible into shares of Common Stock, changes
at any time, the Series A Conversion Price in effect at the time of such change
shall be readjusted to the Series A Conversion Price which would have been in
effect at such time had such options or convertible securities provided for such
changed consideration per share (determined as provided in Section A.5(d)
hereof), at the time initially granted, issued or sold; provided that such
--------
adjustment of the Series A Conversion Price will be made only as and to the
extent that the Series A Conversion Price effective upon such adjustment remains
less than or equal to the Series A Conversion Price that would be in effect if
such options, rights or securities had not been issued. No adjustment of the
Series A Conversion Price shall be made under this Section A.5 upon the
issuance: of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been. made upon
the issuance of such warrants, options or other rights or if no adjustment was
required at the time of issuance. Any adjustment of the Series A Conversion
Price shall be disregarded if, as, and when the rights to acquire shares of
Common Stock upon exercise or conversion of the warrants,
10
<PAGE>
options, rights or convertible securities which gave rise to such adjustment
expire or are canceled without having been exercised, so that the Series A
Conversion Price effective immediately upon such cancellation or expiration
shall be equal to the Series A Conversion Price in effect at the time of the
issuance of the expired or canceled warrants, options, rights or convertible
securities, with such additional adjustments as would have been made to that
Series A Conversion Price had the expired or canceled warrants, options, rights
or convertible securities not been issued.
(f) Other Adjustments. In the event the Corporation shall make or issue,
-----------------
or fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion. retained such securities receivable by them as aforesaid
during such period, giving application to all adjustments called for during such
period under this Section A.5 as applied to such distributed securities.
(g) Reorganization, Etc., If the Common Stock issuable upon the conversion
---------------------
Of the Series A preferred stock shall be changed into the same or different
number of shares of any class or classes of stock whether by reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section A.5), then and in each such event the
holder of each share of Series A Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change, by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted immediately prior
to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(h) Mergers and Other Reorganizations. Unless such transaction is an
----------------------------------
Extraordinary Transaction and holders of a majority of the outstanding share of
Series A Preferred Stock have elected in writing to have the liquidation
provisions of Section A.3(a) or the conversion provisions of Section A.4(a)
apply to such transaction if at any time or from time to time there shall be a
capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section A.5) or a merger or consolidation of the Corporation with or into
another corporation or the sale of all, or substantially all of the
Corporation"s properties and assets to any other person, then, as a part of and
as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares of stock or
other securities or property of the Corporation or of the successor Corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such capital
capitalization.
11
<PAGE>
merger, consolidation, or sale. In any such case, appropriate
provisions shall be made with respect to the rights of the holders of the Series
A Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 5 (including without limitation
provisions for adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Series A Preferred Stock) shall thereafter be
applicable, a nearly as may be, with respect to any shares of stock. securities
or assets to be deliverable thereafter upon the conversion of the Series A
Preferred Stock.
The holders of a majority of am outstanding shares of Series A
Preferred Stock shall, upon the occurrence of a capital reorganization, merger
or consolidation of the Corporation or the sale of all or substantially all its
assets and properties which constitute an Extraordinary Transaction have the
option of electing treatment of their shares of Series A Preferred Stock under
either this Section A.5(b), Section A.4(a) or Section A.3 hereof.
(i) Special Adjustment For Certain Issuances. Notwithstanding the
----------------------------------------
provisions of Section A.5(c) or (4) hereof. in the event that the Corporation
shall at any time on or before June 11, 2000, issue in excess of 672,377 shares
of Common Stock to employees, directors or consultants of the Corporation
(pursuant to the exercise of options or otherwise) (any such issuance
hereinafter referred to as a "Special Dilutive Issuance"), then, and thereafter
successively upon the consummation of any such Special Dilutive Issuance, the
Series A Conversion Price in effect immediately prior to such issuance of such
shares shall be forthwith appropriately reduced, subject to Section A-5(e)
hereof, so that the holders of Series A Preferred Stock shall maintain the same
percentage ownership interest in the Corporation immediately following such
Special Dilutive Issuance as such holders maintained immediately prior to such
Special Dilutive Issuance.
(j) Calculations. All calculations under this Section A.5 shall be made to
------------
the nearest cent or to the nearest one hundredth (1/100) of a share, as the case
may be.
(k) Certificate. Upon the occurrence of each adjustment or readjustment
-----------
pursuant to this Section A.5, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the term hereof and
prepare and furnish to each holder of Series A Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
written request at any time of any holder of Series A Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Series A Conversion Price before
and after such adjustment or readjustment and (iii) the number of shares of
Common Stock and the amount. if any, of other property which at the time would
be received upon the conversion of such holder"s shares of Series A Preferred
Stock.
6. Redemption.
----------
(a) Redemption Upon Request. At any time during the ten business day
-----------------------
period commencing June 11, 2004, the holders of not less than a majority of the
outstanding shares of Series A Preferred Stock shall have the right to require
the Corporation to redeem up to fifty percent (50%) of the outstanding shares of
Series A Preferred Stock held by all holders of Series
12
<PAGE>
A Preferred Stock at the Series A Redemption Price. The foregoing election shall
be made by such holders giving the Corporation and each of the other holders of
Series A Preferred Stock not less than thirty (30) days prior written notice,
setting forth the date for such redemption, which redemption date shall be no
earlier than sixty (60) days, and no later than ninety (90) days, after the
expiration of such 30-day notice period, and the percentage of such shares to be
redeemed. At any time during the ten business day period commencing June 11,
2005, the holders of not less than a majority of the outstanding shares of
Series A Preferred Stock shall have the right to require the Corporation to
redeem up to fifty percent (50%) of the outstanding shares of Series A Preferred
Stock held by all holders of Series A Preferred Stock at the Series A Redemption
Price. The foregoing election shall be made by such holders giving the
Corporation and each of the other holders of Series A Preferred Stock not less
than thirty (30) days prior written notice, setting forth the date for such
redemption, which redemption date shall be no earlier than sixty (60) days after
the expiration of such 30-day notice period. The Corporation shall promptly
notify the holders of Series B Preferred Stock of its receipt of any election to
redeem pursuant to this Section A.6(a).
(b) Redemption Date and Price. Upon the election of the holders of not
-------------------------
less than a majority of the outstanding Series A Preferred Stock to cause the
Corporation to redeem Series A Preferred Stock pursuant to Section A.6(a), each
holder of Series A Preferred Stock shall be deemed to have elected to cause the
shares held by such holder to be so redeemed. Any date upon which a redemption
is to occur in accordance with A.6(a) shall be referred to as a "Series A
Redemption Date" and, together with a Series B Redemption Date (as defined
below), as a "Redemption Date," provided, that if pursuant to Section B.6(a),
holders of Series B Preferred Stock provide notice of their election to redeem,
then the Corporation shall adjust the Series A Redemption Date, if necessary,
such that it falls on the same date as the Series B Redemption Date and shall so
notify the Redeeming Stockholders (as defined below) of such adjustment. The
"Series A Redemption Price" for each share of Series A Preferred Stock redeemed
on a Series A Redemption Date hereunder shall be equal to the greater of (i) the
Senior Series A Liquidation, Amount or (ii) the Fair Market Value (as defined in
Section A.6(f) below) of each share of Common Stock. The Series A Redemption
Price shall be payable in cash in immediately available funds to the respective
holders on the Series A Redemption Date (subject to Section A.3(c)). Until the
aggregate Series A Redemption Price has been paid for all shares of Series A
Preferred Stock being redeemed or acquired: (A) no dividend whatsoever shall be
paid or declared, and no distribution shall be made, on any capital stock of the
Corporation and (B) no shares of capital stock of the Corporation (other than in
accordance with this Section A.6) shall be purchased, redeemed or acquired by
the Corporation and monies shall be paid into or set aside or made available for
a sinking fund for the purchase, redemption or acquisition thereof.
(c) Redemption Prohibited. If, at a Redemption Date, the Corporation is
---------------------
prohibited under Section 160 of the General Corporation Law of the State of
Delaware from redeeming all shares of Series A Preferred Stock and Series B
Preferred Stock for which redemption is required hereunder, then it shall redeem
such shares on a pro-rata basis among the holders of Series A Preferred Stock
and Series B Preferred Stock in proportion to the full respective redemption
amounts to which they am entitled hereunder to the extent possible and shall
redeem the remaining shares to be redeemed as soon as the Corporation is not
prohibited from redeeming
13
<PAGE>
some or all of such shares under Section 160 of the General Corporation Law of
the State of Delaware, subject to the last paragraph of Section A.7. Any shares
of Series A Preferred Stock not shall remain outstanding and entitled to all of
the rights and preferences provided in this Article Fourth. The Corporation
shall take such action as shall be necessary or appropriate to review and
promptly remove any impediment to its ability to redeem Series A Preferred Stock
under the circumstances contemplated by this Section A.6(c). In the event that
the Corporation fails for any reason to redeem shares for which redemption is
required pursuant to this Section A.6, including without limitation due to a
prohibition of such redemption under the General Corporation Law of the State of
Delaware, then during the period from the Series A Redemption Date through the
date on which such shares are redeemed, the Series A Redemption Price of such
shares plus additional dividends that accumulate in respect of such shares under
Section A.5(d) shall bear interest at a rate equal to the greater of (A) twelve
percent (12%) per annum or (B) the prime rate then in effect at Chase Manhattan
Bank, with such interest to accrue daily in arrears and to be compounded
annually.
(d) Dividend After Redemption Date. From and after a Series A Redemption
------------------------------
Date. no shares of Series A Preferred Stock subject to redemption shall be
entitled to dividends, if any, as contemplated by Section A.2; provided,
--------
however, that in the event that shares of Series A Preferred Stock are unable to
- -------
be redeemed and continue to be outstanding in accordance with Section A.6(c),
such shares shall continue to be entitled to dividends and interest thereon as
provided in Sections A.2 and A.6(c) until the date on which such shares are
actually redeemed by the Corporation.
(e) Surrender of Certificates. Upon receipt of the Series A Redemption
-------------------------
Price by certified check or wire transfer, each holder of Shares of Series A
Preferred Stock to be redeemed shall surrender the certificate or certificates
representing such shares to the Corporation, duly assigned or endorsed for
transfer (or accompanied by duly executed stock powers relating thereto), or
Affidavit of Loss with respect to such certificates at the principal executive
office of the Corporation or the office of the transfer agent for the Series A
Preferred Stock or such office or offices in the continental United States of an
agent for redemption as may from time to time be designated by notice to the
holders of Series A Preferred Stock, and each surrendered certificate shall be
canceled and retired; provided, however, that if the Corporation is prohibited
-------- -------
from redeeming all shares of Series A Preferred Stock as provided in Section
A.6(c) or such redemption is a partial redemption of the shares of Series A
Preferred Stock held by a holder, the holder shall not be required to surrender
said certificate(s) to the Corporation until said holder has received a new
stock certificate for those shares of Series A Preferred Stock not so redeemed.
(f) Determination of Fair Market Value. For purposes of this Section A.6,
----------------------------------
the "Fair Market Value" of any share of Common Stock of the Corporation shall be
determined as follows: (i) within five (5) days after written notice from the
holders of not less than a majority of the outstanding shares of Series A
Preferred Stock (the "Redeeming Stockholders"; provided, however, that if the
-------- -------
holders of not less than a majority of the outstanding shares of Series B
Preferred Stock shall have also provided notice of their election to redeem in
accordance with Section B.6(a) hereof, "Redeeming Stockholders" shall be deemed
to include such holders) of their election to redeem is delivered to the
Corporation in accordance with Section A.6(a) hereof,
14
<PAGE>
each of the Corporation and the Redeeming Stockholders, as a group, shall submit
their good faith estimate of such Fair Market Value; (ii) to the extent that the
Fair Market Value estimates of the Corporation and the Redeeming Stockholders
differ, the Corporation and the Redeeming Stockholders shall engage, for an
additional 5-day period, in good faith negotiations to reach agreement (if
possible) on the Fair Market Value; and (iii) if the Corporation and the
Redeeming Stockholders fail to reach agreement at the end of the foregoing 5-day
period, the Fair Market Value shall be determined by appraisal as set forth
below.
In the event Fair Market Value is to be determined by appraisal, the
Corporation and the Redeeming Stockholders shall. initially negotiate in good
faith to select a mutually agreeable appraiser to determine Fair Market Value
with such determination to be binding on all concerned. If the Corporation and
the Redeeming Stockholders shall fail to agree on the selection of such
appraiser within live (5) days following the expiration of the 5-day period
specified in the preceding paragraph, then the Corporation shall select one
independent appraiser and the Redeeming Stockholders shall, select another
independent appraiser and such appraisers shall promptly designate a third
independent appraiser. Each of the three appraisers shall provide a
determination of the Fair Market Value within twenty (20) days of the
appointment of the third appraiser. The Fair Market Value under such
circumstances shall be an amount equal to the average of the amounts determined
by the appraisers. within such twenty (20) day period; provided that in the
event that the highest appraisal is 15% higher than the middle appraisal or the
lowest appraisal is 15% lower than the middle appraisal, the appraisal that is
15% higher or 15% lower, or both, as the case may be, shall be disregarded in
calculating the Fair Market Value. In the event that the two original
appraisers agree upon the final appraiser within ten (10) days following their
selection by the Corporation and the Redeeming Stockholders. then the final
appraiser shall be appointed by the American Arbitration Association. The
determination of Fair Market Value shall be conclusive, final and binding on all
parties hereto and shall be enforceable in any court having any jurisdiction
over a proceeding brought to seek enforcement. All fees and expenses incurred
in connection with an appraisal under this Section A.6(f) shall be borne equally
by the Corporation and the Redeeming Stockholders. Fair Market Value shall be
determined on the basis of the following assumptions: (i) on a "fully diluted"
basis (such dilution to be determined in accordance with generally accepted
accounting principles consistently applied) as if the Series A Preferred Stock
and the Series B Preferred Stock was converted and the Common Stock acquired
upon such conversion was sold as part of a sale of an of the capital stock of
the Corporation; (ii) as though all outstanding securities which are then
convertible into, exercisable for or exchangeable into shares of Common Stock of
the Corporation (including. without limitation, vested options and warrants) had
been converted into, exercised for or exchanged into Common Stock of the
Corporation and any amounts payable upon such conversion, exercise or exchange
paid to the Corporation; (iii) without any reduction to value for lack of
control or the inherent lack of liquidity of non-public minority interests; and
(iv) giving full effect to the earnings history and prospects of the
Corporation.
7. Covenants.
---------
So long as at least 20% of the originally issued shares of Series A
Preferred Stock remain outstanding, the Corporation shall not, without first
having obtained the affirmative vote
15
<PAGE>
or written consent of the holders of not less than a majority of the outstanding
shares of Series A Preferred Stock;
(a) take any action or enter into any agreement to authorize, sell or
issue any shares of Sales A Preferred Stock, any equity securities or bonds,
certificates of indebtedness, debentures or other securities convertible into or
exchangeable for equity securities of the Corporation which is senior to, or on
a parity basis with (other than the Strategic Partner Shares pursuant to Section
1.5 of the Stock Purchase Agreement, dated as of June 17, 1999, by and among the
Corporation and the Investors named therein (the "Series A Stock Purchase
Agreement"), the Series A Preferred Stock as to dividend rights, liquidation
preferences, conversion rights, participation rights, redemptions, or with
respect to the distribution of assets or other amounts in connection with a
liquidation, dissolution or winding up of the Corporation or an Extraordinary
Transaction;
(b) directly or indirectly, through subsidiaries or otherwise, redeem,
purchase or otherwise acquire for consideration any shares of its Common Stock
or any other class of its capital stock, except for (i) the redemption of the
Series A Preferred Stock and Series B Preferred Stock pursuant to and as
provided in this Amended and Restated Certificate of Incorporation, (ii) the
repurchase of shares of Common Stock at the original purchase price thereof from
employees, directors or consultants of the Corporation, other than shares of
Common Stock owned by Michael W. Ferro, Jr., Richard Weingarten, and John T.
Barber, II, pursuant to agreements under which the Corporation has the option or
obligation to repurchase such shares upon the occurrence of certain events,
including termination of employment and (iii) the redemption of shares of Common
Stock from the: stockholders of the Corporation in accordance with Section 1.6
of the Series A Stock Purchase: Agreement; or
(c) declare or pay any dividends or make any distributions of cash,
property or securities of the Corporation with respect to any shares of its
Common Stock or any other class of its capital stock (other than dividends
payable by the Corporation solely in shares of Common Stock).
8. Notice.
------
(a) Liquidation Events, Extraordinary Transactions, Etc. In the event (i)
---------------------------------------------------
the Corporation establishes a record date to determine the holders of any class
of securities who are entitled to receive any dividend or other distribution or
who are entitled to vote at a meeting (or by written consent) in connection with
any of the transactions identified in clause (H) hereof, or (H) any Liquidation
Event (as defined in Section A.3). any Extraordinary Transaction (as defined in
Section A.3) or a Qualified Public Offering (as defined in Section A.4) or other
public offering becomes reasonably likely to occur, the Corporation shall mail
or cause to be mailed by first class mail (postage prepaid) to each holder of
Series A Preferred Stock at least sixty (60) days prior to such record date
specified therein or the expected effective date of any such transaction, a
notice specifying (A) the date of such record date for the purpose of such
dividend or distribution or meeting or consent and a description of such
dividend or distribution or the action to be taken at such meeting or by such
consent, (B) the date on which any such Liquidation Event, Extraordinary
Transaction or Qualified Public Offering or other Public offering is
16
<PAGE>
expected to become effective, and (C) the date on which the books of the
Corporation shall close or a record shall be taken with respect to any such
event.
(b) Waiver of Notice. The holder or holders of a majority of the
----------------
outstanding shares of Series A Preferred Stock may, at any time upon written
notice to the Corporation, waive any notice provisions specified herein for the
benefit of such holders.
(c) General. In the event that the Corporation provides any notice,
-------
report or statement to any holder of Common Stock. the Corporation shall at the
same time provide a copy of any such notice, report or statement to each holder
of outstanding shares of Series A Preferred Stock.
9. No Reissuance of Series A Preferred Stock. No share or shares of Series A
-----------------------------------------
Preferred Stock acquired by the Corporation by reason of redemption. purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled,. retired and eliminated from the shares which the Corporation shall be
authorized to issue.
10. Waiver. The holder or holders of not less than a majority of the
------
outstanding shares of Series A Preferred Stock may, at any time upon written
notice to the Corporation, waive any provisions specified herein for the benefit
of such holders.
11. Contractual Rights of Holders. The various provisions set forth herein for
-----------------------------
the benefit of the holders of the Series A Preferred Stock shall be deemed
contract rights enforceable by them, including without limitation, one or more
actions for specific performance.
B. SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
--------------------------------------------------
1. Election of Directors; Voting.
-----------------------------
(a) Election of Directors. The holders of a majority of the outstanding
---------------------
shares of Series B Preferred Stock shall, voting separately as a separate class,
be entitled to elect one (1) Director (the "Series B Director Designee"). The
election of the Series B Director Designee by the holders of the Series B
Preferred Stock shall occur (i) at the annual meeting of holders of capital
stock, (ii) at any special meeting of holders of capital stock, (iii) at any
special meeting of holders of Series B Preferred Stock called by holders of a
majority of the outstanding shares of Series B Preferred Stock or (iv) by the
written consent of holders of the outstanding shares of Series B Preferred
Stock. If at any time when at least 20% of the shares of Series B Preferred
Stock initially issued remain outstanding the Series B Director Designee should
cease to be a Director for any reason, the vacancy shall only be filled by the
vote or written consent of the holders of the outstanding shares of Series B
Preferred Stock, voting separately as a separate class, in the manner and on the
basis specified above.
(b) Voting Generally. The holder of each share of Series B Preferred
----------------
Stock shall be entitled to notice of any stockholders" meeting in accordance
with the by-laws of the Corporation and shall vote with holders of the Common
Stock,. voting together as single class, upon all matters submitted to a vote of
stockholders. The holders of each share of Series B Preferred
17
<PAGE>
Stock shall be entitled to the number of votes equal to the largest number of
full shares of Common Stock into which each share of Series B Preferred Stock
could be converted pursuant to Section B.4 hereof on the record date for the
vote or for written consent of stockholders, if applicable. In addition, the
holders of the Series B Preferred Stock shall also be entitled to vote
separately as a class with respect, to those matters required to be submitted to
a class or series vote pursuant to the terms hereof (including, without
limitation, Section B.6) or by law. Fractional votes shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares of Common Stock into which shares of Series B
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half rounded upward to one).
2. Dividends. The holders of the Series B Preferred Stock shall be entitled
---------
to receive dividends only if the Board of Directors of the Corporation shall
declare a dividend payable upon outstanding shares of the Common Stock. in which
event the holders of the Series B Preferred Stock shall be entitled to receive
the same amount of dividends per share of the Series B Preferred Stock as such
holders would have been entitled had the Series B Preferred Stock been fully
converted into shares of Common Stock pursuant to the provisions of Section B.4
hereof as of the record date for the determination of holders of shares of the
Common Stock entitled to receive such dividend.
3. Liquidation and Other Extraordinary Transactions.
------------------------------------------------
(a) Liquidation Preference. Upon any Liquidation Event or Extraordinary
----------------------
Transaction, each holder of outstanding shares of Series B Preferred Stock shall
be entitled to be paid out of the assets of the Corporation available for
distribution to stockholders, whether such amounts are capital, surplus or
earnings, before payment of any dividend pursuant to Section A.2, B.2 or C.2:
(i) Before any amount shall be paid or distributed to the holders
of Common Stock or of any other stock ranking on liquidation junior to the
Series B preferred Stock, an amount in cash equal to $4.60 per share
(appropriately adjusted for any stock split, stock dividend,
recapitalization and the like) (the "Senior Series B Liquidation Amount");
provided, however, that if a Liquidation Event or one or more Extraordinary
-------- -------
Transactions occur and the holders of Series B Preferred Stock would, if
the aggregate proceeds were distributed pursuant to Section B.3(a)(ii)
below without payment of the Senior Liquidation Amount, receive an amount
equal to or in excess of $9.20 per share (appropriately adjusted for any
stock split, stock dividend, recapitalization and the like) then, the
holders of Series B Preferred Stock shall not be entitled to receive any
Senior Series B Liquidation Amount hereunder, provided, further that the
-------
Senior Series B Liquidation Amount shall be paid to the holders of Series B
Preferred Stock simultaneously, and on a pari-passu basis, with the payment
of the Senior Series A Liquidation Amount payable to the holders of Series
A Preferred Stock in accordance with Section A.3(a)(i) above; and provided
--------
further that if, upon, any Liquidation Event or Extraordinary Transaction,
-------
the amounts payable with respect: to the Senior Series A Liquidation Amount
and the Senior Series B Liquidation Amount are not paid in full, the
18
<PAGE>
holders of the Series A Preferred Stock and the holders of the Series B
Preferred Stock shall share ratably in any distribution of assets in
proportion to the full respective preferential amounts to which they are
entitled; and
(ii) after the payment of the Senior Series A Liquidation Amount and
the Senior Series B Liquidation Amount, if any, any assets remaining
available for distribution shall be distributed ratably among the holders
of the Common Stock, the Series A Preferred Stock and the Series B
Preferred Stock based upon the number of shares of Common Stock (i) then
held by each holder of Common Stock immediately prior to the occurrence of
any such Liquidation Event or Extraordinary Transaction, (ii) issuable upon
conversion of the shares of Series A Preferred Stock held by a holder of
Series A Preferred Stock pursuant to Section A.4 immediately prior to the
occurrence of any such Liquidation Event or Extraordinary Transaction and
(ii) issuable upon conversion of the shares of Series A Preferred Stock
held by a holder of Series B Preferred Stock pursuant to Section B.4
immediately prior to the occurrence of any such Liquidation Event or
Extraordinary Transaction (the "Residual Series B Liquidation Amount" and,
together with the Senior Series B Liquidation Amount, the "Total Series B
Liquidation Amount").
(b) Conversion Rights Not Impaired. Nothing in this Section B.3 shall
------------------------------
with respect to any Liquidation Event or Extraordinary Transaction in any way
limit the right of the holders of the Series B Preferred Stock to elect to have
the provisions of Section B.4 or Section B.5, as applicable, govern such
Liquidation Event or Extraordinary Transaction.
(c) Non-Cash Consideration. Notwithstanding the provisions of Section
----------------------
B.3(a), in connection with any Extraordinary Transaction, the holders of Series
B Preferred Stock shall, on the effective date of such Extraordinary
Transaction, be paid by the Corporation the Senior Series B Liquidation Amount
in cash solely to the extent that cash is paid in such Extraordinary Transaction
and then (or alternatively if no cash payments are involved, as applicable), in
such other consideration (valued as provided below) as is delivered in such
Extraordinary Transaction in an amount equal to the Senior Series B Liquidation
Amount. The Residual Series B Liquidation Amount shall be paid in the same
combination of cash and other consideration as payable to pay to the holders of
the Common Stock and the holders entitled to the Residual Series A Liquidation
Amount and the Residual Series B Liquidation Amount (after payment of the Senior
Series A Liquidation Amount and the Senior Series B Liquidation Amount, if any)
based upon the number of shares of Common Stock (i) then held by each holder of
Common Stock immediately prior to the occurrence of any such Liquidation Event
or Extraordinary Transaction, and (ii) issuable upon conversion of the shares of
Series A Preferred Stock held by a holder of Series A Preferred Stock pursuant
to Section A.4 immediately prior to the occurrence of any such Liquidation Event
or Extraordinary Transaction and (iii) issuable upon conversion of the shares of
Series B Preferred Stock held by a holder of Series B Preferred Stock pursuant
to Section B.4 immediately prior to the occurrence of any such Liquidation Event
or Extraordinary Transaction.
19
<PAGE>
Any securities or other consideration to be delivered to the holders
of the Series B Preferred Stock upon any Extraordinary Transaction shall be
valued as provided or established in such Extraordinary Transaction and, if and
only if, no such value is provided or established in such Extraordinary
Transaction as follows: (i) if traded on a nationally recognized securities
exchange or inter-dealer quotation system, the value shall be deemed to be the
average of the closing prices of the securities on such exchange or system over
the 30-day period ending three (3) business days prior to the closing; (ii) if
traded over-the-counter, the value shall be deemed to be the average of the
closing bid prices over the 30-day period ending three (3) business days prior
to the closing; and (iii) if there is no active public market, the value shall
be the fair market value thereof, as mutually determined in good faith by the
Board of Directors of the Corporation and the holders of not less than a
majority of the outstanding shares of Series B Preferred Stock, provided that if
the Corporation and such holders are unable to reach agreement, then by
independent appraisal by a mutually agreed to investment broker, the fees of
which will be paid by the Corporation.
(d) Surrender of Certificates. On the effective date of any Extraordinary
-------------------------
Transaction, the Corporation shall pay all cash and other consideration to which
the holders of Series B Preferred Stock shall be entitled under this Section
B.3. Upon receipt of such payment, each holder of share of Series B Preferred
Stock shall surrender the certificate or certificates representing such shares,
duly assigned or endorsed for transfer to the Corporation (or accompanied by
duly executed stock powers relating thereto), at the principal executive office
of the Corporation or the offices of the transfer agent for the Corporation. or
shall notify the Corporation or any transfer agent that such certificates have
been lost, stolen or destroyed and shall execute an Affidavit of Loss, and each
surrendered certificate shall be canceled and retired.
(e) Notice. Prior to the occurrence of any Liquidation Event or
------
Extraordinary Transaction. the Corporation will furnish each holder of Series B
Preferred Stock notice in accordance with Section B.8 hereof, together with a
certificate prepared by the chief financial officer of the Corporation
describing in detail the facts of such Liquidation Event or Extraordinary
Transaction, stating in reasonable detail the amount(s) per share of Series B
Preferred Stock each holder of Series B Preferred Stock would receive pursuant
to the provisions of Section B.3(a) hereof and stating in reasonable detail the
facts upon which such amount was determined and, in connection with any
Extraordinary Transaction, describing in reasonable detail all material terms of
such Extraordinary Transaction, including without limitation the consideration
to be delivered in connection with such Extraordinary Transaction, the
evaluation of the Corporation at the time of such Transaction and the identities
of the parties to the Extraordinary Transaction.
4. Conversion. The holders of the Series B Preferred Stock shall have the
----------
following conversion rights:
(a) Conversion Upon Election of Holders. Each holder of shares of Series
-----------------------------------
B Preferred Stock shall be entitled at any time, upon the written election of
such holder without the payment of any additional consideration, to convert such
holder's shares of Series B Preferred Stock then held by such holder into a
number of shares of Common Stock computed by
20
<PAGE>
multiplying the number of shares of Series B Preferred Stock to be converted by
$4.60 and dividing the result by the Series B Conversion Price then in effect.
The initial "Series B Conversion Price" shall be $4.60 subject to adjustment
from time to time as provided in Section B.5 hereof. If any share of Series B
Preferred Stock is converted at a time when there are any declared but unpaid
dividends or other amounts due on or in respect of such shares, such dividends
and other amounts shall be paid in full in cash by the Corporation in connection
with such conversion.
(b) Automatic Conversion. Each share of Series B Preferred Stock shall
--------------------
automatically be converted, without the payment of any additional consideration,
into the number of shares of Common Stock into which such shares are convertible
as computed according to the formula set forth in Section B.4(a) hereof at the
then effective Series B Conversion Price upon (i) the written election of the
holders of not less than a majority of the Series B Preferred Stock or (ii) the
closing of a QPO; provided that if a closing of a QPO occurs, all outstanding
--------
shares of Series B Preferred Stock shall be deemed to have been converted into
shares of Common Stock immediately prior to such closing.
If the holders of shares of Series B Preferred Stock are required to
convert the outstanding shares of Series B Preferred Stock pursuant to this
Section B.4(b) at a time when there are any declared but unpaid dividends or
other amounts due on or in respect of such shares, such dividends and other
amounts shall be paid in full in cash by the Corporation in connection with such
conversion.
(c) Procedure for Voluntary Conversion. Upon election to convert pursuant
----------------------------------
to Sections B.4(a) or B.4(b), the relevant holder of Series B Preferred Stock
shall surrender the certificate or certificates representing the Series B
Preferred Stock being converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto), at
the principal executive office of the Corporation or the offices of the transfer
agent for the Series B Preferred Stock or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series B Preferred Stock by the
Corporation, or shall deliver an Affidavit of Loss with respect to such
certificates. The issuance by the Corporation of Common Stock B 9.4(b) hereof
shall be effective as of the surrender of the certificate or certificates of the
Series B Preferred Stock to be converted, duly assigned or endorsed for transfer
to the Corporation (or accompanied by duly executed stock powers relating
thereto), or as of the delivery of an Affidavit of Loss. Upon surrender of a
certificate representing Series B Preferred Stock for conversion, or delivery of
an Affidavit of Loss, the Corporation shall issue and send by hand delivery, by
courier or by first class mail (postage prepaid) to the holder thereof or to
such holder"s designee, at the address designated by such holder, certificates
for the number of shares of Common Stock to which such holder shall be entitled
upon conversion plus a cash payment in the amount of any declared but unpaid
dividends and other amounts as contemplated by Sections B.4(a) or B.4(b) in
respect of the shares of Series B Preferred Stock. Notwithstanding the
foregoing, in the event of an automatic conversion pursuant, to Section B.4(b)
upon the election of the holders of not less than a majority of Series B
Preferred Stock the outstanding shares of Series B Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or
21
<PAGE>
not the certificate representing such shares are surrendered to the Corporation
or its transfer agent and all rights with respect to the Series B Preferred
Stock shall terminate, except any of the rights of the holders thereof upon
surrender of their certificate or certificates thereof or delivery of an
Affidavit of Loss thereof to receive certificates for the number of shares of
Common Stock into which such shares of Series B Preferred Stock has been
converted plus all declared but unpaid dividends and other amounts as
contemplated by Section B.4(b). The issuance of certificates for Common Stock
upon conversion of Series B Preferred Stock will be made without charge to the
holders of such shares for any issuance tax in respect thereof or other costs
incurred by the Corporation in connection with such conversion and the related
issuance of such stock.
(d) Procedure for Automatic Conversion on QPO. As of the Automatic
-----------------------------------------
Conversion Date, all outstanding shares of Series B Preferred Stock shall be
converted into shares of Common Stock as set forth in Section B.4(b) hereof and
without any further action by the holders of such shares and whether or not the
certificates of such shares of Series B Preferred Stock are surrendered to the
Corporation or its transfer agent; provided, however, that all holders of Series
-------- -------
B Preferred Stock shall be given prior written notice of the occurrence of a QPO
in accordance with Section B.8 hereof. On the Automatic Conversion Date, all
rights with respect to the. Series B Preferred Stock so converted shall
terminate, except any of the rights of the holders thereof upon surrender of
their certificate or certificates therefor or delivery of an Affidavit of Loss
thereof to receive certificates for the number of shares of Common Stock into
which such Series B Preferred Stock has been converted plus all declared but
unpaid dividends and other amounts as contemplated by Section B.4. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written consent or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his, her or its attorney duly authorized in writing. Upon surrender of the
certificates or Affidavit of Loss the Corporation shall issue and deliver to
such holder, promptly (and in any event in such time as is sufficient to enable
such holder to participate in such QPO) at such office and in its name as shown
on such surrendered certificate or certificates, a certificate or certificates
for the number of shares of Common Stock into which the shares of the Series B
Preferred Stock surrendered are convertible on the Automatic Conversion Date and
shall pay all declared but unpaid dividends and other amounts as contemplated by
Section B.4(b) in respect of the shares of Series B Preferred Stock which are
converted.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series B Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series B Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series B Preferred Stock, the
Corporation will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
22
<PAGE>
(f) No Closing of Transfer Books. The Corporation shall not close its
----------------------------
books against the transfer of shares of Series A Preferred Stock in any manner
which would interfere with the timely conversion of any shares of Series A
Preferred Stock.
5. Adjustments to Conversion Price. The Series B Conversion Price in effect,
-------------------------------
from time to time shall, be subject to adjustment, as follows:
(a) Dividends and Stock Splits. If the number of shares of Common Stock
--------------------------
outstanding at any time after the date hereof is increased by a stock dividend
payable in shares of Common Stock or by subdivision or split-up of shares of
Common Stock, then, on the date such payment is made or such change is
effective, the Series B Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of any shares
of Series B Preferred Stock shall be increased in proportion to such increase of
outstanding shares of Common Stock.
(b) Reverse Stock Splits. If the number of shares of Common Stock
--------------------
outstanding at any time after the date hereof is decreased by a combination or
reverse split of outstanding shares of Common Stock, then, on the effective date
of such combination or reverse split, the Series B Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of any A of Series B Preferred Stock shall be decreased in proportion
to such decrease in outstanding shares of Common Stock.
(c) Sale of Common Stock. In the event the Corporation shall, at any
--------------------
time, or from time to time, issue, sell or exclude any shares of Common Stock
(including shares held in the Corporation"s treasury but excluding the Excluded
Shares), for a Purchase Price less than the Series B Conversion Price in effect
immediately prior to the issuance, sale or exchange of such shares (any such
issuance, sale or exchange hereinafter referred to as a "Series B Dilutive
Transaction"), then, and thereafter successively upon the consummation of any
Series B Dilutive Transaction, the Series B Conversion Price in effect
immediately prior to the issuance, sale or exchange of such shares shall
forthwith be reduced to an amount determined by multiplying the Series B
Conversion Price by a fraction:
(i) the numerator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or exercise
of any outstanding Series A Preferred Stock and Series B Preferred Stock,
options. warrants, rights or any other convertible securities), plus (Y)
the number of shares of Common Stock which the net aggregate consideration
received by the Corporation for the total number of such additional shares
of Common Stock so issued in the Series B Dilutive Transaction would
purchase at the Series B Conversion Price (prior to such adjustment), and
(ii) the denominator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or exercise
of any outstanding Series A Preferred Stock
23
<PAGE>
and Series B Preferred Stock, options, warrants, rights or any other
convertible securities), plus (Y) the number of such additional shares of
Common Stock so issued in the Series B Dilutive Transaction.
(d) Sale of Options, Rights or Convertible Securities. In the event the
-------------------------------------------------
Corporation shall at any time or from time to time, issue options, warrants or
rights to subscribe for shares of Common Stock, or issue any securities
convertible into or cable for shares of Common Stock (other than any options or
warrants for Excluded Shares), for a Purchase Price (determined by dividing the
Series B Net Aggregate Consideration (as determined below) by the aggregate
number of shares of Common Stock that would be issued if all such options,
warrants, rights or convertible securities were exercised or converted to the
fullest extent permitted by their terms) less than the Series B Conversion Price
in effect immediately prior to the issuance of such options, warrants or rights
or convertible or exchangeable securities, the Series B Conversion Price in
effect Immediately prior to the issuance of such options. warrants or rights or
securities shall be forthwith reduced to an amount determined by multiplying the
Series B Conversion Price by a fraction:
(i) the numerator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such options, warrants or rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Series A Preferred Stock and
Series B Preferred Stock, options, warrants, rights or any other
convertible securities), plus (Y) the number of shares of Common Stock
which the total amount of consideration received by the Corporation for the
issuance of such options, warrants, rights or convertible securities plus
the minimum amount set forth in the terms of such security as payable to
the Corporation upon the exercise or conversion thereof (the Series B Net
Aggregate Consideration") would purchase at the Series B Conversion Price
(prior to such adjustment), and .
(ii) the denominator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such options, warrants, rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Series A Preferred Stock and
Series B Preferred Stock, options, warrants, rights or any other
convertible securities), plus (Y) the aggregate number of shares of Common
Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted.
(e) Expiration or Change in Price. If the consideration per share
-----------------------------
provided for in any options or rights to subscribe for shares of Common Stock or
any securities exchangeable for or convertible into shares of Common Stock,
changes at any time, the Series B Conversion Price in effect at the time of such
change shall be readjusted to the Series B Conversion Price which would have be
in effect at such time had such options or convertible securities provided for
such changed consideration per share (determined as provided in Section B.5(d)
hereof), at the time initially granted, issued or sold; provided, that such
--------
adjustment of the Series B Conversion Price
24
<PAGE>
will be made only as and to the extent that the Series B Conversion Price
effective upon such adjustment remains less than or equal to the Series H
Conversion Price that would be in effect if such options, rights or securities
had not been. issued. No adjustment of the Series B Conversion Price shall be
made under this Section B.5 upon the issuance of any additional shares of Common
Stock which are issued pursuant to the exercise of any warrants, options or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if an adjustment
shall previously have been made upon the issuance of such warrants, options or
other rights or if no adjustment was required at the time of issuance. Any
adjustment of the Series B Conversion Price shall be disregarded if, as, and
when the rights to acquire shares of Common Stock upon exercise or conversion of
the warrants, options, rights or convertible securities which gave rise to such
adjustment expire or are canceled without having been exercised, so that the
Series B Conversion Price effective immediately upon such cancellation or
expiration shall be equal to the Series B Conversion Price in effect at the time
of the issuance of the expired or canceled warrants, options, rights or
convertible securities, with such additional adjustments as would have been made
to that Series B Conversion Price had the expired or canceled warrants, options,
rights or convertible securities not been issued.
(f) Other Adjustments. In the event the Corporation shall make or issue,
-----------------
or fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series B
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series B Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, giving application to all adjustments called for during such
period under this Section B.5 as applied to such distributed securities.
(g) Reorganization, Etc. If the Common Stock issuable upon the conversion
-------------------
of the Series B Preferred Stock shall be changed into the same or different
number of shares of any class; or classes of stock, whether by reclassification
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation or sale
of assets provided for elsewhere in this Section B.5), then and in each such
event the holder of each share of Series B Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification or other change, by holders of the number of shares of Common
Stock into which such shares of Series B Preferred Stock might have been
converted immediately prior to such reorganization, or change, all subject to
further adjustment as provided herein.
(h) Mergers and Other Reorganizations. Unless such transaction is an
---------------------------------
Extraordinary Transaction and holders of a majority of the Outstanding shares of
Series B Preferred Stock have elected in writing to have the liquidation
provisions of Section B.3(a) or the conversion provisions of Section B.4(a)
apply to such transaction, if at any time or from time to time there
25
<PAGE>
shall be a capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section B.5) or a merger or consolidation of the Corporation with or into
another corporation or the sale of all or substantially all of the Corporation's
properties and assets to any other person, then, as a part of and as a condition
to the effectiveness of such reorganization, merger, consolidation or sale,
lawful and adequate provision shall be made so that the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series B Preferred Stock the number of shares of stock or other securities or
property of the Corporation or of the successor Corporation resulting from such
merger or consolidation or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization, merger,
or sale. In any such case, appropriate provisions shall be made with respect to
the rights of the holders of the Series B Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 5 (including without limitation provisions for adjustment of the
Conversion Price and the number of shares purchasable upon conversion of the
Series B Preferred Stock) shall thereafter be applicable; as nearly as may be,
with respect to any shares of stock securities or assets to be deliverable
thereafter upon the conversion of the Series B Preferred Stock.
The holders of a majority of the outstanding shares of Series B
Preferred Stock shall, upon the occurrence of a capital reorganization, merger
or consolidation of the Corporation or the sale of all or substantially all its
assets and properties which constitute an Extraordinary Transaction have the
option of electing treatment of shares of Series B Preferred Stock under either
this Section B.5(h), Section B.4(a) or Section B.3 hereof.
(i) Special Adjustment For Certain Issuances. Notwithstanding the
----------------------------------------
provisions of Section B.5(c) or (d) hereof, in the event that the Corporation
shall at any time on or before June 11, 2000, consummate a Special Dilutive
Issuance, then, and thereafter successively upon the consummation of any such
Special Dilutive Issuance, the Series B Conversion Price in effect immediately
prior to such issuance of such shares shall be forthwith appropriately reduced,
subject to Section B.5(e) hereof, so that the holders of Series B Preferred
Stock shall maintain the same percentage ownership interest in the Corporation
immediately following such Special Dilutive Issuance as such holders maintained
immediately prior to such Special Dilutive Issuance.
(j) Calculations. All calculations under this Section B.5 shall be made
------------
to the nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
(k) Certificate. Upon the occurrence of each adjustment or readjustment
-----------
pursuant to this Section B.5, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series B Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjust or readjustment is based. The Corporation shall, upon
written request at any time of any holder of Series B Preferred, furnish or
cause to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Series B Conversion Price before and
after such adjustment or readjustment and (iii) the number of shares
26
<PAGE>
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of such holder's shares of Series B
Preferred Stock.
6. Redemption.
----------
(a) Redemption Upon Request. At any time during the ten business day
-----------------------
period commencing June 11, 2004, the holders of not less than a majority of the
outstanding shares of Series B Preferred Stock shall have the right to require
the Corporation to redeem up to fifty percent (50%) of the outstanding shares of
Series B Preferred Stock held by all holders of Series B Preferred Stock at the
Series B Redemption Price. The foregoing election shall be made by such holders
giving the Corporation and each of the other holders of Series B Preferred Stock
not less than thirty (30) days prior written notice, setting forth the date for
such redemption, which redemption date shall be no earlier than sixty (60) days,
and no later than ninety (90) days, after the expiration of such 30-day notice
period, and the percentage of such shares to be redeemed. At any time during the
ten business day period commencing June 11, 2005, the holders of not less than a
majority of the outstanding shares of Series B Preferred Stock shall have the
right to require the Corporation to redeem, up to fifty percent (50%) of the
outstanding shares of Series B Preferred Stock held by any holders of Series B
Preferred Stock at the Series B Redemption Price. The foregoing election shall
be made by such holders giving the Corporation and each of the other holders of
Series B Preferred Stock not less thirty (30) days prior written notice, setting
forth the date for such redemption, which redemption date shall be no earlier
than sixty (60) days after the expiration of such 30-day notice period. The
Corporation shall promptly notify the holders of Series A Preferred Stock of its
receipt of any election to redeem pursuant to this Section B.6(a).
(b) Redemption Date and Price. Upon the election of the holders of not
-------------------------
less than a majority of the outstanding Series B Preferred Stock to cause the
Corporation to redeem Series B Preferred Stock pursuant to Section B.6(a), each
holder of Series B Preferred Stock shall be deemed to have elected to cause the
shares held by such holder to be so redeemed. Any date upon which a redemption
is to occur in accordance with Section B.6(a) shall be referred to as a "Series
B Redemption Date" and, together with a Series A Redemption Date, as a
"Redemption Date," provided, that if pursuant to Section A.6(a), holders of
Series A Preferred Stock provide notice of their election to redeem, then the
Corporation shall adjust the Series B Redemption Date, if necessary, such that
it falls on the same date as the Series A Redemption Date and shall so notify
the Redeeming Stockholders (as defined below) of such adjustment. The "Series B
Redemption Price" for each share of Series B Preferred Stock redeemed on a
Series B Redemption Date hereunder shall be equal to the greater of (i) the
Senior Series B Liquidation Amount or (ii) the Fair Market Value (as defined in
Section B.6(f) below) of each share of Common Stock. The Series B Redemption
Price shall be payable in cash in immediately available funds to the respective
holders on the Series B Redemption Date (subject to Section B.5(c)). Until the
aggregate Series B Redemption Price has been paid for all shares of Series B
Preferred Stock being redeemed or acquired: (A) no dividend whatsoever shall be
paid or declared, and no distribution shall be made, on any capital stock of the
Corporation and (B) no shares of capital stock of the Corporation (other than in
accordance with this Section B.6) shall
27
<PAGE>
be purchased, redeemed or acquired by the Corporation and no monies shall be
paid into or set aside or made available for a sinking fund for the purchase,
redemption or acquisition thereof.
(c) Redemption Prohibited. If, at a Redemption Date, the Corporation is
---------------------
prohibited under Section 160 of the General Corporation Law of the State of
Delaware from redeeming all shares of Series A Preferred Stock and Series B
Preferred Stock for which redemption is required hereunder, then it shall redeem
such shares on a pro-rata basis among the holders of Series A Preferred Stock
and Series B Preferred Stock in proportion to the full respective redemption
amounts to which they are entitled hereunder to the extent possible and shall,
redeem the remaining shares to be redeemed as soon as the Corporation is not
prohibited from redeeming some or all of such shares under Section 160 of the
General Corporation Law of the State of Delaware, subject to the last paragraph
of Section B.7. Any shares of Series B Preferred Stock not redeemed shall remain
outstanding and entitled to all of the rights and preferences provided in this
Article Fourth. The Corporation shall take such action as shall be necessary or
appropriate to review and promptly remove any impediment to its ability to
redeem Series B Preferred Stock under the circumstances contemplated by this
Section B.6(c). In the event that the Corporation fails for any reason to redeem
shares for which redemption is required pursuant to this Section B.6, including
without limitation due to a prohibition of the redemption under the General
Corporation Law of the State of Delaware, then during the period from the Series
B Redemption Date through the date on which the shares are redeemed, the Series
B Redemption Price of such shares plus additional dividends that accumulate in
respect of such shares under Section B.5(d) shall bear interest at a rate equal
to the greater of (A) twelve percent (12%) per annum or (B) the prime rate then
in effect at Chase Manhattan Bank, with such interest to accrue daily in arrears
and to be compounded annually.
(d) Dividend After Redemption Date. From and after a Series B Redemption
------------------------------
Date, no shares of Series B Preferred Stock subject to redemption shall be
entitled to dividends, if any, as contemplated by Section B.2; provided,
--------
however, that in the event that shares of Series B Preferred Stock are unable to
- -------
be redeemed and continue to be outstanding in accordance with Section B.6(c),
such shares shall continue to be entitled to dividends and interest thereon as
provided in Sections B.2 ad B.6(c) until the date on which such shares are
actually redeemed by the Corporation.
(e) Surrender of Certificates. Upon receipt of the Redemption Price by
-------------------------
certified check or wire transfer, each holder of shares of Series B Preferred
Stock to be redeemed shall surrender the certificate or certificates
representing such shares to the Corporation, duly assigned or endorsed for
transfer (or accompanied by duly executed stock powers relating thereto), or
.Affidavit of Loss with respect to such certificates at the principal executive
office of the Corporation or the office of the transfer agent for the Series B
Preferred Stock or such office or offices in the continental United States of an
agent for redemption as may from time to time be designated by notice to the
holders of Series B Preferred Stock, and each surrendered certificate shall be
canceled and retired; provided, however, that if the Corporation is prohibited
-------- -------
from redeeming all shares of Series B Preferred Stock as provided in Section
B.6(c) or such redemption is a partial redemption of the shares of Series B
Preferred Stock held by a holder, the
28
<PAGE>
holder shall not be required to surrender said certificate(s) to the Corporation
until said holder has received a new stock certificate for those shares of
Series B Preferred Stock not so redeemed.
(f) Determination of Fair Market Value. For purposes of this Section B.6.
----------------------------------
the Fair Market Value of any share of Common Stock of the Corporation shall be
determined as follows: (i) within five (5) days after written notice from the
holders of not less than a majority of the outstanding shares of Series B
Preferred Stock (the "Redeeming Stockholders"; provided, however, that if the
-------- -------
holders of not less than a majority of the outstanding shares of Series A
preferred Stock shall have also provided notice of their election to redeem in
accordance with Section A.6(a) hereof, "Redeeming Stockholders" shall be deemed
to include such holders) of their election to redeem is delivered to the
Corporation in accordance with Section B.6(a) hereof, each of the Corporation
and the Redeeming Stockholders, as a group, shall submit their good faith
estimate of such Fair Market Value; (ii) to the extent that the Fair Market
Value estimates of the Corporation and the Redeeming Stockholders differ, the
Corporation and the Redeeming Stockholders shall engage, for an additional 5-day
period, in good faith negotiations to reach agreement (if possible) on the Fair
Market Value; and (iii) if the Corporation and the Redeeming Stockholders fail
to reach agreement at the end of the foregoing 5-day period, the Fair Market
Value shall be determined by appraisal as set forth below.
In the event Fair Market Value is to be determined by appraisal, the
Corporation and the Redeeming Stockholders shall initially negotiate in good
faith to select a mutually agreeable appraiser to determine Fair Market Value
with such determination to be binding an all concerned. If the Corporation and
the Redeeming Stockholders shall fail to agree on the selection of such
appraiser within five (5) days following the expiration of the 5-day period
specified in the preceding paragraph, then the Corporation shall select one
independent appraiser and the Redeeming Stockholders shall select another
independent appraiser and such appraiser shall promptly designate a third
independent appraiser. Each of the three appraisers shall provide a
determination of the Fair Market Value within twenty (20) days of the
appointment of the third appraiser. The Fair Market Value under such
circumstances shall be an amount equal to the average of the amounts determined
by the appraisers within such twenty (20) day period; provided that in the event
that the highest appraisal is 15% higher than the middle appraisal or the lowest
appraisal is 15% lower than the middle appraisal, the appraisal that is 15%
higher or 15% lower, or both, as the case may be, shall be disregarded in
calculating the Fair Market Value, in the event that the two original appraisers
cannot agree upon the final appraiser within ten (10) days following their
selection by the Corporation and the Redeeming Stockholders, then the final
appraiser shall be appointed by the American Arbitration Association. The
determination of Fair Market Value shall be conclusive, final and binding on all
parties, hereto and shall be enforceable in any court having any jurisdiction
over a proceeding brought to seek enforcement. All fees and expenses incurred
in connection with an appraisal under this Section B.6(f) shall be borne equally
by the Corporation and the Redeeming Stockholders. Fair Market Value shall be
determined on the basis of the following assumptions: (i) an a "fully diluted"
basis (such dilution to be determined in accordance with generally accepted
accounting principles consistently applied) as if the Series A Preferred Stock
and Series B Preferred Stock was converted and the Common Stock acquired upon
such conversion was sold as part of a sale of all of the capital Stock of the
Corporation; (ii) as though all outstanding securities which are
29
<PAGE>
then convertible into, exercisable for or exchangeable into shares of Common
Stock of the Corporation (including, without limitation, vested options and
warrants) had been converted into, exercised for or exchanged into Common Stock
of the Corporation and any amounts payable upon such conversion, exercise or
exchange paid to the Corporation; (iii) without any reduction in value for lack
of control or the inherent lack of liquidity of non-public, minority interests;
and (iv) giving full effect to the earnings history and prospects of the
Corporation.
7. Covenants.
So long as at least 20% of the originally issued shares of Series B
Preferred Stock remain outstanding, the Corporation shall not, without first
having obtained the affirmative vote or written consent of the holders of not
less than a majority of the outstanding shares of Series B Preferred Stock:
(a) take any action or enter into any agreement to authorize, sell or
issue any shares of Series B Preferred Stock, any equity securities or bonds,
certificates of indebtedness, debentures or other securities convertible into or
exchangeable for equity securities of the Corporation which is senior to, or an
a parity basis with (other than additional shares of Series A Preferred Stock in
accordance with the Series A Stock Purchase Agreement), the Series B Preferred
Stock as to dividend rights, liquidation preferences, conversion rights,
participation rights, redemptions, or with respect to the distribution of assets
or other amounts in connection with a liquidation, dissolution or winding up of
the Corporation or an Extraordinary Transaction;
(b) directly or indirectly, through subsidiaries or otherwise, redeem,
purchase or otherwise acquire for consideration any shares of its Common Stock
or any other class of its capital stock, except for (i) the redemption of the
Series A Preferred Stock and Series B Preferred Stock pursuant to and as
provided in this Amended and Restated Certificate of Incorporation, (ii) the
repurchase of shares of Common Stock at the original purchase price thereof from
employees, directors or consultants of the Corporation, other than shares of
Common Stock owned by Michael W. Ferro, Jr., Richard Weingarten, and John T.
Garber, II, pursuant to agreements under which the Corporation has the option or
obligation to repurchase such shares upon the occurrence of certain events,
including termination of employment and (iii) the redemption of shares of Common
Stock from the stockholders of the Corporation in accordance with Section 1.6 of
the Series A Stock Purchase Agreement; or
(c) declare or pay any dividends or make any distributions of cash,.
property or securities of the Corporation with respect to any shares of its
Common Stock or any other class of its capital stock (other than dividends
payable by the Corporation solely in shares of Common Stock).
8. Notice.
------
(a) Liquidation Events, Extraordinary Transactions, Etc. In the event (i)
---------------------------------------------------
the Corporation establishes a record date to determine the holders of any class
of securities who are entitled to receive any dividend or other distribution or
who are entitled to vote at a meeting (or by written consent) in connection with
any of the transactions identified in clause (ii) hereof, or
30
<PAGE>
(ii) any Liquidation Event (as defined in Section B.3), any Extraordinary
Transaction (as defined in Section B.3) or a Qualified Public Offering (as
defined in Section BA) or other public offering becomes reasonably likely to
occur, the Corporation shall mail or cause to be mailed by first: class mail
(postage prepaid) to each holder of Series B Preferred Stock at least sixty (60)
days prior to such record date specified therein or the expected effective date
of any such transaction, a notice specifying (A) the date of such record date
for the purpose of such dividend or distribution or meeting or consent and a
description of such dividend or distribution or the action to be taken at such
meeting or by such consent, (B) the date on which any such Liquidation Event,
Extraordinary Transaction or Qualified Public Offering or other public offering
is expected to become effective, and (C) the date an which the books of the
Corporation shall close or a record shall be taken with respect to any such
event.
(b) Waiver of Notice. The holder or holders of a majority of the
----------------
outstanding shares of Series B Preferred Stock may, at any time upon written
notice to the Corporation, waive any notice provisions specified herein for the
benefit of such holders.
(c) General. In the event that the Corporation provides any notice,
-------
report or statement to any holder of Common Stock, the Corporation shall at the
same time provide a copy of any such notice, report or statement to each holder
of outstanding shares of Series B Preferred Stock.
9. No Reissuance of Series B Preferred Stock. No share or shares of Series B
-----------------------------------------
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
10. Waiver. The holder or holders of not less than a majority of the
------
outstanding shares of Series B Preferred Stock may, at any time upon written
notice to the Corporation, waive any provisions specified herein for the benefit
of such holders.
11. Contractual Rights of Holders. The various provisions set forth herein for
-----------------------------
the benefit of the holders of the Series B Preferred Stock shall be deemed
contract rights enforceable by them including without limitation, one or more
actions for specific performance.
C. COMMON STOCK
------------
1. Voting Power. The holder of each share of Common Stock shall be entitled
------------
to one vote for each such share as determined on the record date for the vote or
consent of shareholders and shall, vote together with the holders of the Series
A Preferred Stock (to the extent provided by the provisions of Part A of this
Article Fourth) and the holders of the Series R Preferred Stock (to the extent
provided by the provisions of Part B of this Article Fourth) as a single class
upon any items submitted to a vote of stockholders, except as otherwise provided
herein.
2. Dividends. The holders of Common Stock shall be entitled to receive
---------
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may
31
<PAGE>
determine in its sole discretion, with holders of Series A Preferred Stock,
Series B Preferred Stock and Common Stock sharing pari passu in such dividends
---- -----
as by Sections A.2 and B2.
3. Liquidation. Upon any Liquidation Event, after the payment or provision
-----------
for payment of all debts and liabilities of the Corporation and all preferential
amounts to which the holders of Series A Preferred Stock and Series D Preferred
Stock, are entitled with respect to the distribution of assets in liquidation,
the holders of Common Stock (and to the extent applicable, Series A Preferred
Stock and Series B Preferred Stock) shall be entitled to share ratably in the
remaining assets of the Corporation available for distribution, with such stock
being considered a single class for this purpose.
ARTICLE FIFTH
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have the concurrent power with the
stockholders to make, alter, amend, change add to or repeal the By-laws of the
Corporation.
ARTICLE SIXTH
The Corporation, to the fullest extent now or hereafter permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented from time to time, shall indemnify any and all
persons whom it shall have power to indemnify from and against any and all of
the expenses, liabilities or other matters referred to in or covered by
applicable law, and the indemnification provided for in this Article Sixth shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-law, agreement, vote of stockholders or distinterested
Directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a Director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Subject to the conditions provided for in the General Corporation Law
of the State of Delaware, as the same exists or may benefit be amended from time
to time, the Corporation may pay in advance expenses incurred by a party seeking
indemnification in connection with the connection with the preparation for or
defense of any action, suit or proceeding.
In addition, in accordance with Section 102(b)(7) of the General
Corporation Law of the State of Delaware, the Corporation does hereby eliminate
the personal liability of a Director of the Corporation to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
Director, provided that such liability of a Director shall not be eliminated (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) for unlawful
payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the Director derived an improper personal benefit. The
determination as to whether a Director has engaged in the conduct described in
(i) through (iv) above shall be made either by the Board of Directors of the
Corporation by a majority vote of a quorum of disinterested Directors or by a
majority vote of the Corporation's stockholders, as determined by the Board of
Directors of the Corporation.
32
<PAGE>
Unless required by law, no reduction or elimination of the indemnity
provisions of this Article Sixth shall be applied retroactively with respect to
any person covered hereunder.
ARTICLE SEVENTH
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in the Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and all
rights conferred upon stockholders herein are granted subject to this
reservation.
[Remainder of Page Intentionally Left Blank]
33
<PAGE>
THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as
of this 7/th/ day of July, 1999.
CLICK INTERACTIVE, INC.
By: /s/ Donal Schmitt
----------------------------------
Donal Schmitt, Vice President
34
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATION INCORPORATION OF
CLICK INTERACTIVE, INC.
CLICK INTERACTIVE, INC., a Delaware corporation (the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY AS FOLLOWS:
I. That the Board of Directors of the Corporation, in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware, by unanimous vote of its members at a meeting duly called has duly
adopted resolutions proposing and declaring advisable a stock split in the
nature of a stock dividend and the increase of the number of shares of common
stock, par value $.001 per share, of the Corporation ("Common Stock"), the
number of shares of Series A Convertible Preferred Stock, par value $0.001 per
share, of the Corporation ("Series A Preferred"), and the number of shares of
Series B Convertible Preferred Stock, par value $0.001 per share, of the
Corporation ("Series B Preferred"), which the Corporation shall be authorized
to issue pursuant to the amendment to the Corporation's Certification of
Incorporation set forth below and that in lieu of a meeting and vote of
stockholders, holders of at least a majority of the outstanding shares of
capital stock entitled to vote thereon, have by written consent authorized and
approved such amendment of the Corporation's Certificate of Incorporation in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
II. Article Fourth of the Corporation's Certificate of Incorporation
is amended to increase the total number of shares of all classes of capital
stock which the Corporation shall have the authority to issue from 20,000,000 to
40,000,000 with a par value of $.001 divided into classes as follows:
30,000,000 shares shall be Common Stock; and
6,000,000 shares shall be Series A Preferred; and
4,000,000 shares shall be Series B Preferred.
<PAGE>
IN WITNESS WHEREOF, Click Interactive, Inc. has caused this
Certificate to be signed by Robert J. Markese, its Executive Vice President and
authorized officer, and David S. Stone, its Secretary, this 20th day of August,
1999.
CLICK INTERACTIVE, INC.
By: /s/ Robert J. Markese
------------------------------------
Robert J. Markese
Executive Vice President
ATTEST:
/s/ David S. Stone
- ------------------------------
David S. Stone, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
CLICK INTERACTIVE, INC.
CLICK INTERACTIVE, INC., a Delaware corporation (the
"Corporation"), organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY AS FOLLOWS:
I. That the Board of Directors of the Corporation, in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware, by unanimous vote of its members at a meeting duly adopted has duly
adopted resolutions proposing and declaring advisable a stock split in the
nature of a stock dividend and the increase of the number of shares of common
stock, par value $.001 per share, of the Corporation ("Common Stock"), the
number of shares of Series A Convertible Preferred Stock, per value $0.001 per
share of the Corporation ("Series A Preferred"), and the number of shares of
Series B Convertible Preferred Stock, par value $0.001 per share, of the
Corporation ("Series B Preferred"), which the Corporation shall be authorized to
issue pursuant to the amendment to the Corporation's Certificate of
Incorporation set forth below and that in lieu of a meeting and vote of
stockholders, holders of at least a majority of the outstanding shares of
capital stock entitled to vote thereon, have by written consent authorized and
approved such amendment of the Corporation's Certificate of Incorporation in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
II. Article Fourth of the Corporation's Certificate of Incorporation
is amended to increase the total number of shares of all classes of capital
stock which the Corporation shall have the authority to issue from 40,000,000 to
80.000,000 divided into classes as follows:
60,000,000 shares shall be Common Stock; and
12,000,000 shares shall be Series A Preferred; and
8,000,000 shares shall be Series B Preferred.
<PAGE>
IN WITNESS WHEREOF, Click Interactive, Inc. has caused this
Certificate to be signed by Michael W. Ferro, Chairman and Chief Executive
Officer and authorized officer, and David S. Stone, its Secretary this 22/nd/
day of December, 1999.
CLICK INTERACTIVE, INC.
By /s/ Michael W. Ferro
---------------------------------
Michael W. Ferro
Chairman and Chief Executive
Officer
ATTEST:
/s/ David S. Stone
- ------------------------------
David S. Stone, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
CLICK INTERACTIVE, INC.
1. At a meeting of the Board of Directors of Click Interactive, Inc. (the
"Corporation") resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of the Corporation, declaring
said amendment to be advisable and forwarding the resolution to the
stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered First so that as follows:
"The name of the Corporation is: Click Commerce, Inc."
2. That thereafter, pursuant to resolution of its Board of Directors, a
written consent of the stockholders of the Corporation was executed in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
3. That such amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
4. That the capital of the Corporation shall not be reduced under or by reason
of such amendment.
IN WITNESS WHEREOF, Click Interactive, Inc. has caused this
certificate to be signed by Robert Markese, its President, and David Stone, its
Secretary, this 22/nd/ day of December, 1999.
By: /s/ Robert J. Markese
---------------------------------
Robert J. Markese, President
ATTEST: /s/ David Stone
-----------------------------
David Stone, Secretary
<PAGE>
EXHIBIT 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
CLICK COMMERCE, INC.
CLICK COMMERCE, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
I. The name of the Corporation is CLICK COMMERCE, INC.
II. The original Certificate of Incorporation of the Corporation was
filed with the Delaware Secretary of State on August 20, 1996 under the name
"Click Interactive, Inc.".
III. The Board of Directors of the Corporation, acting in accordance
with Sections 141(f), 242 and 245 of the General Corporation Law of the State of
Delaware, duly adopted resolutions and declared the advisability of such
resolutions to amend and restate the Certificate of Incorporation of the
Corporation to read in its entirety as follows:
ARTICLE I.
The name of the corporation is CLICK COMMERCE, INC.
ARTICLE II.
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
19805. The name of its registered agent at such address is Corporation Service
Company.
ARTICLE III.
The nature of the business or purpose to be conducted or promoted is
to engage in any lawful act or activity for which a corporation may be organized
under the General Corporation Law of Delaware.
ARTICLE IV.
(a) The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation shall have authority to issue is Eighty
million (80,000,000) shares. The total number of shares of Common Stock which
the Corporation shall have authority to issue is Seventy-Five million
(75,000,000) shares, and the par value of each share of Common Stock is one-
tenth of one cent ($0.001). The total number of shares of Preferred Stock which
the Corporation shall have authority to issue is five million (5,000,000)
shares, and the par value of each share of Preferred Stock is one-tenth of one
cent ($0.001). The Preferred Stock may be issued from time to time, in
<PAGE>
one or more series, each series to be appropriately designated by a
distinguishing letter or title, prior to the issue of any shares thereof.
(b) The Board of Directors is hereby authorized to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions, if any), the redemption
price or prices, the liquidation preferences, any other designations,
preferences and relative, participating, optional or other special rights, and
any qualifications, limitations or restrictions thereof, of any wholly unissued
series of Preferred Stock, and the number of shares constituting any such
unissued series and the designation thereof, or any of them; and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
ARTICLE V.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend and rescind the bylaws of the Corporation.
ARTICLE VI.
Notwithstanding Article V hereof, the bylaws may be rescinded,
altered, amended or repealed in any respect by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66K%) of the outstanding
voting stock of the Corporation, voting together as a single class.
ARTICLE VII.
The Board of Directors shall have that number of Directors set out in
the bylaws of the Corporation as adopted or as set from time to time by a duly
adopted amendment thereto by the Board of Directors or stockholders of the
Corporation acting in accordance with Article VI.
ARTICLE VIII.
The Board of Directors shall be and is divided into three classes,
Class I, Class II and Class III. The number of directors in each class shall be
the whole number contained in the quotient arrived at by dividing the number of
directors by three, and if a fraction is also contained in such quotient then if
such fraction is one-third (1/3) the extra director shall be a member of Class
III and if the fraction is two-thirds (2/3) one of the extra directors shall be
a member of Class III and the other shall be a member of Class II. Each director
shall serve for a term ending on the date of the third annual meeting following
the annual meeting at which such director was elected; provided, however, that
the directors of the Corporation as of the date of filing of this Restated
Certificate of Incorporation are hereby each assigned to a class, and the
directors assigned to Class I shall serve
2
<PAGE>
for a term ending on the date of the first annual meeting next following January
1, 2000, the directors assigned to Class II shall serve for a term ending on the
date of the second annual meeting next following January 1, 2000, and the
directors assigned to Class III shall serve for a term ending on the date of the
third annual meeting next following January 1, 2000.
The members of the present Board of Directors are allocated as
follows:
Peter N. Larson Class I
Leslie D. Shroyer Class I
Manuel A. Fernadez Class II
Jerry Murdock Class II
Dr. Michel Hammer Class III
Michael W. Ferro, Jr. Class III
Emmanuel A. Kampouris Class III
In the event of any increase or decrease in the number of directors,
(a) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term, or his or her prior death, retirement, resignation or removal, and
(b) the newly created or eliminated directorships resulting from such increase
or decrease shall be apportioned by the Board of Directors to such class or
classes as shall, so far as possible bring the number of directors in the
respective classes into conformity with the formula in this Article VIII, as
applied to the new number of directors.
Notwithstanding any of the foregoing provisions of this Article VIII,
each director shall serve until his successor is elected and qualified or until
his death, retirement, resignation or removal. Should a vacancy occur or be
created, the remaining directors (even though less than a quorum) may fill the
vacancy for the full term of the class in which the vacancy occurs or is
created.
ARTICLE IX.
Elections of directors at an annual or special meeting of stockholders
need not be by written ballot unless the bylaws of the Corporation shall so
provide.
ARTICLE X.
No action shall be taken by the stockholders except at an annual or
special meeting of stockholders. The stockholders may not take action by written
consent.
ARTICLE XI.
Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Chairman of the Board of
Directors, or by a majority of the members of
3
<PAGE>
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
Corporation, include the power to call such meetings, but such special meetings
may not be called by any other person or persons; provided, however, that if and
-------- -------
to the extent that any special meeting of stockholders may be called by any
other person or persons specified in any provisions of the Certificate of
Incorporation or any amendment thereto or any certificate filed under Section
151(g) of the Delaware General Corporation Law, then such special meeting may
also be called by the person or persons, in the manner, at the times and for the
purposes so specified.
ARTICLE XII.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation; provided, however, that no
-------- -------
amendment, alteration, change or repeal may be made to Article VI, VII, VIII, X,
XI or this Article XII without the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66K%) of the outstanding voting stock of the
Corporation, voting together as a single class.
ARTICLE XIII.
Each reference in this Certificate of Incorporation to any provision
of the Delaware General Corporation Law refers to the specified provision of the
General Corporation Law of the State of Delaware, as the same now exists or as
it may hereafter be amended or superseded.
ARTICLE XIV.
To the fullest extent permitted by the General Corporation Law of the
State of Delaware, the Corporation shall indemnify and advance indemnification
expenses on behalf of all directors and officers of the Corporation. The
Corporation shall indemnify such other persons as may be required by statute or
by the bylaws of the Corporation. The Corporation may, to the full extent
permitted by Delaware law, purchase and maintain insurance on behalf of any
director or officer, or such other person as may be permitted by statute or the
bylaws of the Corporation, against any liability which may be asserted against
any director, officer or such other person and may enter into contracts
providing for the indemnification of any director, officer or such other person
to the full extent permitted by Delaware law. The liability of directors of the
Corporation (for actions or inactions taken by them as directors) for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law.
If the General Corporation Law of the State of Delaware is hereafter
amended to authorize corporate action further limiting or eliminating the
personal liability of directors, then the liability of the director to the
Corporation shall be limited or eliminated to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended from time to
time. Any repeal or modification of this Article XIV by the stockholders of the
Corporation shall be prospective
4
<PAGE>
only, and shall not adversely affect any limitation on the personal liability of
a director of the Corporation existing at the time of such repeal or
modification.
IV. Thereafter, pursuant to a resolution of the Board of Directors,
this Restated Certificate of Incorporation was duly approved by the holders of
the necessary number of shares of the Company's voting securities in accordance
with the provisions of Section 228, 242 and 245 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Click Commerce, Inc. has caused this certificate
to be signed by its duly authorized officer this ____ day of ________, 2000.
CLICK COMMERCE, INC.
By: ______________________________
Michael W. Ferro, Jr.,
Chief Executive Officer
Attest:
_________________________________
David S. Stone
Secretary
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EXHIBIT 3.3
AMENDED AND RESTATED BY-LAWS
OF
CLICK INTERACTIVE, INC.
(hereinafter called the "Corporation")
ARTICLE I.
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting. Written
notice of the annual meeting stating the place, date and hour of the meeting
shall be given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting.
Section 3. Special Meetings. Special meetings of stockholders shall
be called as provided for by the Certificate of Incorporation. Written notice
of a special meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. Business transacted at all special meetings
shall be confined to the objects stated in the call.
Section 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote
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thereat, present in person or represented by proxy shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
Section 5. Voting. Unless otherwise required by law, the Certificate
of Incorporation or these By-laws (i) any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat and (ii) each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Section 6. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders a complete list
of the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 7. Stock Ledger. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 6 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 8. Notice of Business. At any annual meeting of
stockholders, only such business shall be conducted as shall have been (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the annual meeting by a stockholder who is a stockholder
of record at the time of the giving of the notice provided for in this Section 8
and who shall be entitled to vote at such meeting. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
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offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made, whichever first occurs. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the stockholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and (iv) any material interest
of the stockholder in such business.
Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 8 of this Article II; provided, however,
that nothing in this Section 8 of this Article II shall be deemed to preclude
discussion by any stockholder of any business properly brought before the annual
meeting in accordance with said procedure.
The officer of the Corporation presiding at the annual meeting shall,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 8 of this Article II, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted. Notwithstanding the foregoing provisions of this
Section 8 of this Article II, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Section 8 of this Article II.
ARTICLE III.
DIRECTORS
Section 1. Number of Directors. Subject to the Certificate of
Incorporation, in the absence of the Board of Directors setting a different
number by resolution of the Board of Directors, the number of directors shall be
not less than one nor more than seven. No decrease in the number of directors
shall shorten the term of any incumbent director.
Section 2. Nomination of Directors. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors at the
annual meeting may be made at a meeting of stockholders by or at the direction
of the Board of Directors by any nominating committee or person appointed by the
Board of Directors or by any stockholder of the Corporation entitled to vote for
the election of Directors at the meeting who complies with the notice procedures
set forth in this Article III. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at
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the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the corporation which are beneficially owned by the
person, (iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14-a under the Securities Exchange Act of 1934, as amended, and (v) the
consent of the person to serve as a director of the Corporation, if so elected;
and (b) as to the stockholder giving the notice (i) the name and record address
of stockholder and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as director of the Corporation. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth herein.
The officer of the Corporation presiding at the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 3. Duties and Powers. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-laws directed or required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President or by a majority of the Board of
Directors. Notice thereof stating the place, date and hour of the meeting shall
be given to each director either by mail not less than forty-eight (48) hours
before the date of the meeting, by telephone, electronic facsimile or telegram
on twenty four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 5. Quorum. Except as may be otherwise specifically provided
by law, the Certificate of Incorporation or these By-laws, at all meetings of
the Board of Directors, a
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majority of the entire Board of Directors shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 6. Actions of Board. Unless otherwise provided by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these By-laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 of this
Article III shall constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 9. Compensation. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors and/or a
stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings. Compensation may be in the form
of cash or capital stock of the Corporation.
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Section 10. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV.
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these By-laws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
Section 2. Election. The Board of Directors at its first meeting
held after such annual meeting of stockholders shall elect the officers of the
Corporation, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the
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President or any Vice President and any such officer may, in the name of and on
behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and powers incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
Section 4. Chairman. The Chairman, if present, shall preside at all
meetings of the stockholders and of the Board of Directors. He shall be the
chief executive officer of the Corporation, and as such, shall have general
supervision and direction of the business and affairs of the Corporation,
subject to the control of the Board of Directors and shall see that all orders
and resolutions of the Board of Directors are carried into effect. The Chairman
of the Board of Directors shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-laws
or by the Board of Directors.
Section 5. President and Chief Operating Officer.
(a) President. In the absence or disability of the Chairman, or if
there be none, the President shall preside at all meetings of the stockholders
and the Board of Directors. If there be no Chairman, the President shall be the
chief executive officer of the Corporation. The President shall also perform
such other duties and may exercise such other powers as from time to time may be
assigned to him by these By-laws, the Chairman or by the Board of Directors.
(b) The Chief Operating Officer. The chief operating officer shall be
the principal operating officer of the Company. Subject to the direction and
control of the Board of Directors and the chief executive officer, the chief
operating officer shall be in charge of the administration and operations of the
Company and shall have such other duties as may be prescribed by the Board of
Directors from time to time. In the absence of the chief executive officer and
the President or in the event of their inability or refusal to act, the chief
operating officer shall perform the duties of the chief executive officer, and
when so acting, shall have the powers of and be subject to all the restrictions
upon the chief executive officer.
Section 6. Vice President. At the request of the President or in his
absence or in the event of his inability or refusal to act (and if there be no
Chairman of the Board of Directors), the Vice President or the Vice Presidents
if there is more than one (in the order designated by the Board of Directors)
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. Each
Vice President shall perform such other duties and have such other powers as the
Chairman or the Board of Directors from time to time may prescribe. If there be
no Chairman and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President.
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Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Chairman or the
Board of Directors, under whose supervision he shall be. If the Secretary shall
be unable or shall refuse to cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors, and if there be no
Assistant Secretary, then either the Chairman or the Board of Directors may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and either valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman and the Board of Directors, at
its regular meetings, or when the Chairman or the Board of Directors so
requires, an account of all his transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise
provided in these By-laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Chairman, the Board of Directors, the President, any Vice President, if
there be one, or the Secretary, and in the absence of the Secretary or in the
event of his disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Chairman, the Board of Directors, the President, any
Vice President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act,
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shall perform the duties of the Treasurer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Chairman or the Board of Directors, as
the case may be. The Board of Directors may delegate to any other officer of
the Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
ARTICLE V.
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 3. Lost Certificates. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these By-laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by his attorney lawfully
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constituted in writing and upon the surrender of the certificate therefor, which
shall be canceled before a new certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of -stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI.
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given
personally, by overnight courier or by electronic facsimile transmission,
telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by
law, the Certificate of Incorporation or By-laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of
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the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII.
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify each director and any officer or
other person that the Board of Directors shall designate from time to time 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 (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or
in the Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify each director and any officer or other person that
the Board of Directors shall designate from time to time who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a
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judgment in its favor by reason of the fact that he is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer or other person is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
Section 4. Good Faith Defined. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 of this
Article VIII shall mean any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the Corporation as a director, officer, employee or
agent. The provisions of this Section 4 of this Article VIII shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be.
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Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article VIII. The basis of such indemnification by a court
shall be a determination by such court that indemnification of the director or
officer is proper in the circumstances because he has met the applicable
standards of conduct set forth in Section 1 or Section 2 of this Article VIII,
as the case may be. Neither a contrary determination in the specific case under
Section 3 of this Article VIII nor the absence of any determination thereunder
shall be a defense to such application or create a presumption that the director
or officer seeking indemnification has not met any applicable standard of
conduct. Notice of any application for indemnification pursuant to this Section
5 of this Article VIII shall be given to the Corporation promptly upon the
filing of such application. If successful, in whole or in part, the director or
officer seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, but as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended. The provisions of this Article VIII
shall not be deemed to preclude the indemnification of any person who is not
specified in Section 1 or Section 2 of this Article VIII but whom the
Corporation has the power or obligation to indemnify under the provisions of the
General Corporation Law of the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the provisions of this
Article VIII.
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Section 9. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such indemnification relates to his acts
while serving in any of the foregoing capacities, of such constituent
corporation, as he would have with respect to such constituent corporation if
its separate existence had continued. For purposes of this Article VIII,
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director or officer of the
Corporation which imposes duties on, or involves services by, such director or
officer with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VIII.
Section 10. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Any repeal or modification of this Article VIII by the stockholders of
the Corporation shall not adversely affect any rights to indemnification and
advancement of expenses existing pursuant to this Article VIII with respect to
any acts or omissions occurring prior to such repeal or modification.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 of this
Article VIII), the Corporation shall not be obligated to indemnify any director
or officer in connection with a proceeding (or part thereof) instituted by such
director or officer unless such proceeding was authorized or consented to by the
Board of Directors of the Corporation.
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BOARD RESOLUTIONS
RESOLVED, that the Board of Directors has determined that it is
advisable and in the best interests of the Company that, upon approval by the
holders of at least seventy-five percent (75 %) of the issued and outstanding
shares of common stock of the Company, the Company amend its certificate of
incorporation by adopting the Amended and Restated Certificate of Incorporation
attached hereto as Exhibit A.
---------
FURTHER RESOLVED, that the matter of amending and restating the
certificate of incorporation be submitted for approval by the holders of common
stock, and that a special meeting of stockholders entitled to vote thereon be
called for the consideration of such amendment and restatement, unless such
amendment and restatement is approved by consent of such stockholders in lieu of
meeting.
FURTHER RESOLVED, that upon approval of the proposed amendment and
restatement by holders of at least seventy-five percent (75 %) of the issued and
outstanding shares of common stock, any of the duly elected and acting officers
of the Company (the officer or officers authorized to act pursuant hereto being
hereinafter designated as "Authorized Officers") and the Secretary of the
Company are hereby authorized and directed to execute and file with the
Secretary of State of the State of Delaware the Amended and Restated Certificate
of Incorporation attached hereto as Exhibit A, with such changes thereto as the
---------
officers executing the same shall approve, said approval to be conclusively
evidenced by their execution thereof.
FURTHER RESOLVED, that the Board of Directors has determined that it
is advisable and in the best interests of the Company that the Company amend and
restate its By-laws by adopting the Amended and Restated By-laws attached hereto
as Exhibit B.
---------
FURTHER RESOLVED, that the form of (i) Stock Purchase Agreement (the
"Stock Purchase Agreement") by and among the Company and the Investors named
therein, (ii) Stockholders and Rights Agreement (the "Stockholders Agreement")
by and among the Company, the Investors[, and the Additional Stockholders named
therein], (iii) Redemption Agreement (the "Redemption Agreement") by and among
the Company and the Selling Stockholders named therein, (iv) Director
Indemnification Agreement (the "Director Indemnification Agreement") by and
between the Company and the Indemnitees named therein, and (v) the Founder
Employment Agreement (the "Employment Agreement" and, together with the Stock
Purchase Agreement, the Stockholders Agreement, the Redemption Agreement, and
the Director Indemnification Agreement, the "Transaction Documents" ) by and
between the Company and Michael W. Ferro, Jr., each with such changes thereto as
the Authorized Officer executing the same shall approve, said approval to be
conclusively evidenced by his execution thereof, are hereby adopted and
approved.
FURTHER RESOLVED, that the Authorized Officers be and they hereby are
authorized and directed, in the name of the Company, to execute and deliver the
Transaction Documents (other than the Founder Employment Agreement), and said
Authorized Officers are
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authorized from time to time to execute and deliver, in the name of the Company,
amendments to the Transaction Documents, and all other instruments or documents
necessary to consummate the transactions contemplated by the Transaction
Documents.
FURTHER RESOLVED, that David S. Stone, a Director and the Secretary of
the Company, be and he hereby is authorized and directed, in the name and on
behalf of the Company, to execute and deliver the Founder Employment Agreement.
FURTHER RESOLVED, that at the Initial Closing (as that term is defined
in the Stock Purchase Agreement), once the Amended and Restated Certificate of
Incorporation has been filed, the Company issue to Insight Capital Partners
1,086,957 shares of Series A Convertible Participating Preferred Stock, $0.001
par value per share (the "Series A Preferred Stock"), in consideration of and
after payment by Insight Capital Partners of $4.60 per share to the Company, for
an aggregate consideration of $5,000,002.20, such shares to be, when issued,
validly issued, and when paid for, fully paid and non-assessable.
FURTHER RESOLVED, that, at the Closing, once the Amended and Restated
Certificate of Incorporation has been filed, the Authorized Officers and the
Secretary or Assistant Secretary are hereby authorized and directed to execute
and deliver to Insight Capital Partners, only after payment by Insight Capital
Partners of $4.60 per share to the Company, for an aggregate consideration of
$5,000,002.20, a share certificate evidencing its ownership of Series A
Preferred Stock.
FURTHER RESOLVED, that, as of the Closing, once the Amended and
Restated Certificate of Incorporation has been filed, the Company hereby
reserves that number of shares of Common Stock required for issuance to the
Investors upon conversion of all of the Series A Preferred Stock issued to the
Investors into Common Stock, and that the number of shares of Common Stock so
reserved be increased or decreased in accordance with the provisions of the
Amended and Restated Certificate of Incorporation.
FURTHER RESOLVED, that, upon approval by holders of at least a
majority of the issued and outstanding shares of common stock of the Company,
the Company be, and it hereby is, authorized to increase from 500,000 to
1,500,000 the number of authorized shares of Common Stock reserved for
distribution under the Corporation's Stock Option Plan.
FURTHER RESOLVED, that, subject to the Initial Closing and effective
upon the first day following the Initial Closing, the number of authorized
directors of the Company shall be five (5).
FURTHER RESOLVED, that the Authorized Officers be and they hereby are
authorized and directed, for and on behalf of the Company, to execute and
deliver all such other agreements, instruments and other documents to which the
Company is or will be a party, and to do or cause to be done all such other
things, as such officers (or any of them) shall deem necessary or appropriate in
connection with the consummation of the transactions contemplated by these
resolutions and the performance by the Company of its obligations thereunder.
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FURTHER RESOLVED, that the Authorized Officers be and each of them
hereby is authorized and empowered, in the name of the Company, to attest to any
agreement, document or other instrument referred to in these resolutions.
FURTHER RESOLVED, that all lawful actions taken by the officers of the
Company on or before the date hereof in furtherance of the transactions
contemplated by these resolutions be and they hereby are ratified and approved
in all respects.
3
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EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
CLICK COMMERCE, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - OFFICES...............................................................................................1
Section 1. Registered Office...........................................................................1
Section 2. Other Offices...............................................................................1
ARTICLE II - STOCKHOLDERS.........................................................................................1
Section 1. Place of Meetings...........................................................................1
Section 2. Annual Meetings of Stockholders.............................................................1
Section 3. Special Meetings............................................................................1
Section 4. Notice of Stockholders' Meetings............................................................1
Section 5. Manner of Giving Notice; Affidavit of Notice................................................2
Section 6. Quorum......................................................................................2
Section 7. Adjourned Meeting and Notice Thereof........................................................2
Section 8. Voting......................................................................................2
Section 9. Waiver of Notice or Consent By Absent Stockholders..........................................3
Section 10. No Stockholder Action By Written Consent Without a Meeting..................................3
Section 11. Record Date For Stockholder Notice and Voting...............................................3
Section 12. Proxies.....................................................................................3
Section 13. Inspectors of Election; Opening and Closing the Polls.......................................4
Section 14. Nomination and Stockholder Business Bylaw...................................................4
ARTICLE III - DIRECTORS...........................................................................................6
Section 1. Powers......................................................................................6
Section 2. Number and Qualification of Directors.......................................................6
Section 3. Election and Term of Office of Directors....................................................6
Section 4. Vacancies...................................................................................6
Section 5. Place of Meetings and Telephonic Meetings...................................................7
Section 6. Annual Meetings.............................................................................7
Section 7. Other Regular Meetings......................................................................7
Section 8. Special Meetings............................................................................7
Section 9. Quorum......................................................................................8
Section 10. Waiver of Notice............................................................................8
Section 11. Adjournment.................................................................................8
Section 12. Notice of Adjournment.......................................................................8
Section 13. Action Without Meeting......................................................................8
Section 14. Fees and Compensation of Directors..........................................................9
ARTICLE IV - COMMITTEES...........................................................................................9
Section 1. Committees of Directors.....................................................................9
Section 2. Meetings and Action of Committees...........................................................9
ARTICLE V - OFFICERS.............................................................................................10
Section 1. Officers...................................................................................10
Section 2. Election of Officers.......................................................................10
Section 3. Subordinate Officers, Etc..................................................................10
Section 4. Removal and Resignation of Officers........................................................10
Section 5. Vacancies in Office........................................................................10
Section 6. Chairman of the Board......................................................................11
Section 7. President..................................................................................11
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<S> <C>
Section 8. Vice Presidents............................................................................11
Section 9. Secretary..................................................................................11
Section 10. Chief Financial Officer....................................................................11
Section 11. Assistant Secretaries and Assistant Treasurers.............................................12
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS..................................12
Section 1. Indemnification............................................................................12
ARTICLE VII - GENERAL CORPORATE MATTERS..........................................................................13
Section 1. Record Date For Purposes Other Than Notice and Voting......................................13
Section 2. Checks, Drafts, Evidences of Indebtedness..................................................13
Section 3. Corporate Contracts and Instruments, How Executed..........................................13
Section 4. Stock Certificates.........................................................................14
Section 5. Lost Certificates..........................................................................14
Section 6. Representation of Stock of Other Corporations..............................................14
Section 7. Construction and Definitions...............................................................14
Section 8. Fiscal Year................................................................................14
ARTICLE VIII - AMENDMENTS........................................................................................15
Section 1. Amendment..................................................................................15
</TABLE>
ii
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AMENDED AND RESTATED BYLAWS
OF
CLICK COMMERCE, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Click Commerce,
Inc. (hereinafter, called the "corporation") shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held
at any place within or outside the State of Delaware designated by the board of
directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. Annual Meetings of Stockholders. The annual meeting of
stockholders shall be held each year on a date and time designated by the board
of directors. Any previously scheduled annual meeting of the stockholders may
be postponed by resolution of the board of directors upon public notice given
prior to the date previously scheduled for such annual meeting of the
stockholders.
Section 3. Special Meetings. A special meeting of the stockholders may
be called at any time by the chairman of the board of directors, or by a
majority of the 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, include the power to call
such meetings, but such special meetings may not be called by any other person
or persons. Any previously scheduled special meeting of the stockholders may be
postponed by resolution of the board of directors upon public notice given prior
to the date previously scheduled for such special meeting of the stockholders.
Section 4. Notice of Stockholders' Meetings. All notices of meetings
of stockholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall
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specify the place, date and hour of the meeting and in the case of a special
meeting, the general nature of the business to be transacted.
Section 5. Manner of Giving Notice; Affidavit of Notice. If mailed,
notice shall be deemed to have been given when deposited in the mail, postage
prepaid, directed to the stockholder at his address appearing on the books of
the corporation or given by the stockholder to the corporation for the purpose
of notice. An affidavit of the mailing or other means of giving any notice of
any stockholders' meeting shall be executed by the secretary, assistant
secretary or any transfer agent of the corporation giving such notice, and shall
be filed and maintained in the minute book of the corporation.
Section 6. Quorum. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting of stockholders
shall constitute a quorum for the transaction of business. The stockholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. Adjourned Meeting and Notice Thereof. Any stockholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the chairman of the meeting, but in the absence of a
quorum, no other business may be transacted at such meeting, except as provided
in Section 6 of this Article II.
When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than thirty (30) days from the date
set for the original meeting. Notice of any such adjourned meeting, if
required, shall be given to each stockholder of record entitled to vote at the
adjourned meeting in accordance with the provisions of Sections 4 and 5 of this
Article II. At any adjourned meeting the corporation may transact any business
which might have been transacted at the original meeting.
Section 8. Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section 11
of this Article II. Such vote may be by voice vote or by ballot, at the
discretion of the chairman of the meeting. Any stockholder entitled to vote on
any matter (other than the election of directors) may vote part of the shares in
favor of the proposal and refrain from voting the remaining shares or vote them
against the proposal; but, if the stockholder fails to specify the number of
shares such stockholder is voting affirmatively, it will be conclusively
presumed that the stockholder's approving vote is with respect to all shares
such stockholder is entitled to vote. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on any matter shall be the act of the stockholders, unless the vote of a
greater number or voting by classes is required by the Delaware General
Corporation Law or the certificate of incorporation or the certificate of
determination of preferences as to any preferred stock.
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At a stockholders' meeting involving the election of directors, no
stockholder shall be entitled to cumulate (i.e., cast for any one or more
candidates a number of votes greater than the number of the stockholders
shares). The candidates receiving the highest number of votes, up to the number
of directors to be elected, shall be elected.
Section 9. Waiver of Notice or Consent by Absent Stockholders. The
transactions of any meeting of stockholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business
to be transacted or the purpose of any annual or special meeting of
stockholders. All such waivers, consents or approvals shall be filed with the
corporate records or made part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if such objection is expressly made at the meeting.
Section 10. No Stockholder Action by Written Consent Without a Meeting.
Stockholders may take action only at a regular or special meeting of
stockholders.
Section 11. Record Date for Stockholder Notice and Voting. For purposes
of determining the holders entitled to notice of any meeting or to vote, the
board of directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days prior to the date of any such
meeting, and in such case only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date fixed as aforesaid, except as
otherwise provided in the Delaware General Corporation Law.
If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
Section 12. Proxies. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy, or (ii) written notice of the death or
incapacity of the maker of such proxy is received by the corporation before
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the vote pursuant thereto is counted; provided, however, that no such proxy
shall be valid after the expiration of three (3) years from the date of such
proxy, unless otherwise provided in the proxy.
Section 13. Inspectors of Election; Opening and Closing the Polls. The
board of directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at a meeting.
Section 14. Nomination and Stockholder Business Bylaw.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the board of directors of
the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the corporation's notice of meeting, (b) by or at the direction of the board of
directors or (c) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in this bylaw, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this bylaw.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this bylaw, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the secretary at the principal executive offices of the
corporation not less than the close of business on the 120th calendar day in
advance of 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; provided, however, that if no annual meeting was held in the previous
year or the date of the annual meeting has been changed by more than thirty (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
the close of business on the tenth day 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 no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
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election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to applicable federal securities laws, including, without limitation,
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this bylaw to the contrary, in the event that the number of directors
to be elected to the board of directors of the corporation is increased and
there is no public announcement by the corporation naming all of the nominees
for director or specifying the size of the increased board of directors at least
70 days prior to the first anniversary of the date of the preceding years annual
meeting, a stockholders notice required by this bylaw shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
offices of the corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall be brought before the
meeting pursuant to the corporation's notice of meeting. A stockholder's
nomination of one or more persons for election to the board of directors shall
only be permitted to be made at a special meeting of stockholders if: (i) the
corporation's notice of such meeting specified that directors are to be elected
at such special meeting; (ii) such stockholder was a stockholder of record
entitled to vote at the meeting at the time of giving of notice provided for in
this bylaw; and (iii) if such stockholder complies with the notice procedures
set forth in this bylaw. In the event the corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the board of
directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the corporation's
notice of meeting, if the stockholder's notice required by paragraph (A)(2) of
this bylaw shall be delivered to the secretary at the principal executive
offices of the corporation not earlier than the close of business on the 90th
day prior to such special meeting and not later than the close of business on
the later of the 60th day prior to such special meeting or the 10th day
following the day 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. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
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(C) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this bylaw shall be eligible to serve as directors.
Except as otherwise provided by law, the certificate of incorporation or these
bylaws, the chairman of the meeting shall have the power and authority to
determine the procedures of a meeting of stockholders, including, without
limitation, the authority to determine whether a nomination or any other
business proposed to be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in this bylaw and, if
any proposed nomination or business is not in compliance with this bylaw, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this bylaw. Nothing in this bylaw shall be deemed to affect any rights
(i) of stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of preferred stock, if any, to elect directors under certain
circumstances.
ARTICLE III
DIRECTORS
Section 1. Powers. Subject to the provisions of the Delaware General
Corporation Law and any limitations in the certificate of incorporation and
these bylaws relating to action required to be approved by the stockholders or
by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
Section 2. Number and Qualification of Directors. The number of
directors of the corporation shall be seven (7).
Section 3. Election and Term of Office of Directors. Directors shall
be elected at the annual meeting of the stockholders. Each director, including a
director elected to fill a vacancy, shall serve for a term ending on the date of
the third annual meeting following the annual meeting at which such director was
elected and until a successor has been elected and qualified or the earlier of
his resignation or removal.
Section 4. Vacancies. Vacancies in the board of directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director. Each
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director elected to fill a vacancy shall hold office for the remainder of the
term of the person whom he succeeds, and until a successor has been elected and
qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the case of the death, retirement, resignation or removal of any
director, or if the board of directors by resolution declares vacant the office
of a director who has been declared of unsound mind by an order of court or
convicted of a felony, or if the authorized number of directors be increased, or
if the stockholders fail at any meeting of stockholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
Any director may resign or voluntarily retire upon giving written
notice to the chairman of the board, the president, the secretary or the board
of directors. Such retirement or resignation shall be effective upon the giving
of the notice, unless the notice specifies a later time for its effectiveness.
If such retirement or resignation is effective at a future time, the board of
directors may elect a successor to take office when the retirement or
resignation becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
Section 5. Place of Meetings and Telephonic Meetings. Regular meetings
of the board of directors may be held at any place within or without the State
of Delaware that has been designated from time to time by resolution of the
board. In the absence of such designation, regular meetings shall be held at the
principal executive office of the corporation. Special meetings of the board
shall be held at any place within or without the State of Delaware that has been
designated in the notice of the meeting or, if not stated in the notice or there
is no notice, at the principal executive office of the corporation. Any
meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all directors participating in such meeting
can hear one another, and all such directors shall be deemed to be present in
person at such meeting.
Section 6. Annual Meetings. Immediately following each annual meeting
of stockholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and transaction of
other business. Notice of this meeting shall not be required.
Section 7. Other Regular Meetings. Other regular meetings of the board
of directors shall be held at such time as shall from time to time be determined
by the board of directors. Such regular meetings may be held without notice
provided that notice of any change in the determination of time of such meeting
shall be sent to all of the directors. Notice of a change in the determination
of the time shall be given to each director in the same manner as for special
meetings of the board of directors.
Section 8. Special Meetings. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the chairman
of the board or the president or any vice president or the secretary or any two
directors.
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Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by facsimile, first-class
mail or telegram, charges prepaid, addressed to each director at his or her
address as it is shown upon the records of the corporation. In case such notice
is mailed, it shall be deposited in the United States mail at least four (4)
days prior to the time of the holding of the meeting. In case such notice is
delivered personally, by telephone, facsimile or telegram, it shall be delivered
personally, or by telephone, by facsimile or to the telegraph company at least
twenty-four (24) hours prior to the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated to either the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose of the meeting nor the place if the meeting
is to be held at the principal executive office of the corporation.
Section 9. Quorum. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 10. Waiver of Notice. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director.
Section 11. Adjournment. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and place.
Section 12. Notice of Adjournment. Notice of the time and place of an
adjourned meeting need not be given, unless the meeting is adjourned for more
than twenty-four (24) hours, in which case notice of such time and place shall
be given prior to the time of the adjourned meeting, in the manner specified in
Section 8 of this Article III, to the directors who were not present at the time
of the adjournment.
Section 13. Action Without Meeting. Any action required or permitted to
be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the board.
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Section 14. Fees and Compensation of Directors. Directors and members
of committees may receive such compensation, if any, for their services and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for such services.
ARTICLE IV
COMMITTEES
Section 1. Committees of Directors. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, including an executive committee, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent member at any meeting of the committee. Any such
committee, to the extent provided in the resolution of the board, shall have all
the authority of the board, except with respect to:
(a) the approval of any action which, under the General Corporation
Law of Delaware, also requires the approval of the full board of directors, or
the stockholders of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the stockholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the board of
directors; or
(g) the appointment of any other committees of the board of directors
or the members thereof.
Section 2. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment) and 13 (action without
meetings), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members, except that the time of regular meetings of committees may be
determined by resolution of the board of
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directors as well as the committee, special meetings of committees may also be
called by resolution of the board of directors, and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
ARTICLE V
OFFICERS
Section 1. Officers. The officers of the corporation shall be chosen
by the board of directors and shall include a chairman of the board or
president, or both, a vice president, a secretary and a chief financial officer.
The corporation may also have, at the discretion of the board of directors, a
president, one or more additional vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other officers as may be
held by the same person.
Section 2. Election of Officers. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen annually by the board
of directors, and each shall hold his office until he shall resign or be removed
or otherwise disqualified to serve or his successor shall be appointed in
accordance with the provisions of Section 3 of this Article V. Any number of
officers may be elected and qualified.
Section 3. Subordinate Officers, etc. The board of directors may
appoint, and may empower the chairman of the board to appoint, such other
officers as the business of the corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the bylaws or as the board of directors may from time to time
determine.
Section 4. Removal and Resignation of Officers. Any officer may be
removed, either with or without cause, by the board of directors, at any regular
or special meeting thereof, or, except in case of an officer chosen by the board
of directors, by any officer upon whom such power of removal may be conferred by
the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5. Vacancies in Office. A vacancy in any office because of
death, resignation, removal, disqualification, or any other cause shall be
filled in the manner prescribed in these bylaws for regular appointments to such
office.
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Section 6. Chairman of the Board. The chairman of the board shall be
the chief executive officer of the corporation and shall, subject to the control
of the board of directors, have general supervision, direction and control of
the business and affairs of the corporation.
Section 7. President. The president shall be the chief operating
officer of the corporation and shall exercise and perform such powers and duties
with respect to the administration of the business and affairs of the
corporation as may from time to time be assigned to him by the chairman of the
board or by the board of directors, or as may be prescribed by the bylaws.
Section 8. Vice Presidents. In the absence or disability of the
president, a vice president designated by the board of directors shall perform
all the duties of the president, and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as form
time to time may be prescribed for them respectively by the board of directors
or the bylaws.
Section 9. Secretary. The secretary shall keep or cause to be kept, at
the principal executive office or such other place as the board of directors may
order, a book of minutes of all meetings and actions of directors, committees of
directors and stockholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the names
of those present at directors' and committee meetings, the number of shares
present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a stock
register, or a duplicate register, showing the names of all stockholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required by the bylaws or by
law to be given, and he shall keep the seal of the corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the board of directors or by the bylaws.
Section 10. Chief Financial Officer. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall be open at all reasonable times to inspection by any director.
The chief financial officer shall deposit all monies and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. The chief
financial officer shall disburse the funds of the corporation as may be ordered
by the board of directors, shall render to the chairman of the board and
directors,
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whenever they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
board of directors or the bylaws.
Section 11. Assistant Secretaries and Assistant Treasurers. Any
assistant secretary may perform any act within the power of the secretary, and
any assistant treasurer may perform any act within the power of the chief
financial officer, subject to any limitations which may be imposed in these
bylaws or in board resolutions.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. Indemnification. The corporation shall indemnify, in the
manner and to the full extent permitted by law, any person (or the estate of any
person) who was or is a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is a director
or officer of the corporation, and at the discretion of the board of directors
may indemnify any person (or the estate of any person) who is such a party or
threatened to be made such a party by reason of the fact that such person is or
was an employee or agent of the corporation or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
corporation may, to the full extent permitted by law, purchase and maintain
insurance on behalf of any such person against any liability which may be
asserted against him and may enter into contracts providing for the
indemnification of such person to the full extent permitted by law. To the full
extent permitted by law, the indemnification provided herein shall include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, and, in the manner provided by law, any such expenses may be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit
the right of the corporation to indemnify any other person for any such expenses
to the full extent permitted by law, nor shall it be deemed exclusive of any
other rights to which any person seeking indemnification from the corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
For the purposes of this Article VI, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers so that any
person who is or was a director or officer of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the
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provisions of this Article VI with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director or officer of the corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.
ARTICLE VII
GENERAL CORPORATE MATTERS
Section 1. Record Date for Purposes Other Than Notice and Voting. For
purposes of determining the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which date shall not precede the
date upon which the resolution fixing the record date is adopted by the board of
directors, and which shall not be more than sixty (60) nor less than ten (10)
days prior to any such action, and in such case only stockholders of record on
the date so fixed are entitled to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date fixed as aforesaid, except as otherwise provided in the Delaware
General Corporation Law.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting. In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date which shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
board of directors.
Section 2. Checks, Drafts, Evidences of Indebtedness. All checks,
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corporation shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the board of directors.
Section 3. Corporate Contracts and Instruments, How Executed. The
board of directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; and,
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unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or to any amount.
Section 4. Stock Certificates. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
stockholder when any such shares are fully paid. All certificates shall be
signed in the name of the corporation by the chairman of the board or the
president or vice president and by the chief financial officer, the treasurer or
an assistant treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the stockholder.
Any or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if such person were an officer,
transfer agent or registrar at the date of issue.
Section 5. Lost Certificates. Except as hereinafter in this Section 5
provided, no new stock certificate shall be issued in lieu of an old certificate
unless the latter is surrendered to the corporation and canceled at the same
time. The board of directors may in case any stock certificate or certificate
for any other security is lost, stolen or destroyed, authorize the issuance of a
new certificate in lieu thereof, upon such terms and conditions as the board of
directors may require, including provision for indemnification of the
corporation secured by a bond or other adequate security sufficient to protect
the corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
Section 6. Representation of Stock of Other Corporations. The chairman
of the board, the president, or any vice president, or any other person
authorized by resolution of the board of directors by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all stock of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority herein granted to said
officers to vote or represent on behalf of the corporation any and all stock by
the corporation in any other corporation or corporations may be exercised by any
such officer in person or by any person authorized to do so by proxy duly
executed by said officer.
Section 7. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
Delaware General Corporation Law shall govern the construction of the bylaws.
Without limiting the generality of the foregoing, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
Section 8. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
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ARTICLE VIII
AMENDMENTS
Section 1. Amendment. The bylaws, or any of them, may be rescinded,
altered, amended or repealed, and new bylaws may be made (i) by the board of
directors, by vote of a majority of the number of directors then in office as
directors, acting at any meeting of the board of directors, or (ii) by the
stockholders, by the vote of the holders of sixty-six and two-thirds percent
(662/3%) of the outstanding voting stock of the corporation, at any annual or
special meeting of stockholders, provided that notice of such proposed
amendment, modification, repeal or adoption is given in the notice of the annual
or special meeting; provided, however, that the bylaws can only be amended if
such amendment would not conflict with the certificate of incorporation. Any
bylaw made or altered by the requisite number of stockholders may be altered or
repealed by the board of directors or may be altered or repealed by the
requisite number of stockholders.
* * * *
15
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(a) That I am the duly elected and acting Secretary of Click Commerce,
Inc., a Delaware corporation (the "Corporation"); and
(b) That the foregoing Amended and Restated Bylaws constitute the
Amended and Restated Bylaws of the Corporation, as duly adopted by the Board of
Directors of the Corporation at a meeting duly held on _______ ____, 2000 and as
adopted by the holders of a majority of the Corporation's Common Stock pursuant
to a consent dated as of ______ ____, 2000.
IN WITNESS WHEREOF, I have hereunto subscribed my name as of this __th day
of ________, 2000.
________________________________
David S. Stone
Secretary
16
<PAGE>
EXHIBIT 4.2
AMENDED AND RESTATED STOCKHOLDERS AND RIGHTS AGREEMENT
By and Among
Click Interactive, Inc.
The Stockholders, as defined herein
and
The Investors, as defined herein
Dated as of July 9, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS.............................................................. 2
Section 1.1 Construction of Terms............................................ 2
Section 1.2 Number of Shares of Stock........................................ 2
Section 1.3 Defined Terms.................................................... 2
ARTICLE II RESTRICTIONS ON TRANSFER: RIGHTS OF ErRST REFUSAL; CO-SALE RIGHTS........ 4
Section 2.1 Restrictions on Transfer......................................... 4
Section 2.2 Right of First Refusal........................................... 5
Section 2.3 Co-Sale Option................................................... 7
Section 2.4 Change in Control................................................ 8
Section 2.5 Sales to Competitors............................................. 9
Section 2.6 Prohibited Transfers............................................. 9
ARTICLE III RIGHTS TO PURCHASE....................................................... 9
Section 3.1 Right to Participate in Certain Sales of Additional Securities... 9
Section 3.2 Assignment of Rights............................................. 10
ARTICLE IV REGISTRATION RIGHTS...................................................... 10
Section 4.1 Optional Registrations........................................... 10
Section 4.2 Required Registrations........................................... 11
Section 4.3 Further Obligations of the Company............................... 13
Section 4.4 Indemnification; Contribution.................................... 15
Section 4.5 Rule 144 and Rule 144A Requirements.............................. 17
Section 4.6 Transferability of Registration Rights........................... 17
Section 4.7 Rights Which May Be Granted to Subsequent Investors.............. 17
ARTICLE V MARKET STAND-OFF AGREEMENT............................................... 18
ARTICLE VI ELECTION OF DIRECTORS; ACTIONS REQUIRING BOARD APPROVAL.................. 18
Section 6.1 Board Composition................................................ 18
Section 6.2 Committees of the Board.......................................... 19
Section 6.3 Actions Requiring Board Approval................................. 19
Section 6.4 Assignment....................................................... 21
ARTICLE VII GENERAL.................................................................. 21
Section 7.1 Amendments, Waivers and Consents................................. 21
Section 7.2 Legend on Securities............................................. 22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 7.3 Governing Law.................................................... 22
Section 7.4 Section Headings................................................. 22
Section 7.5 Counterparts..................................................... 23
Section 7.6 Notices and Demands.............................................. 23
Section 7.7 Dispute Resolution............................................... 23
Section 7.8 Remedies; Severability........................................... 24
Section 7.9 Integration...................................................... 25
Section 7.10 Adjustment....................................................... 25
Section 7.11 Term............................................................. 25
</TABLE>
EXHIBITS
Exhibit A - Form of Stockholder Joinder Agreement
Exhibit B - Form of Investor Joinder Agreement
ii
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AND RIGHTS AGREEMENT
------------------------------------------------------
THIS AMENDED AND RESTATED STOCKHOLDERS AND RIGHTS AGREEMENT is made as of
this 9th day of July, 1999 by and among Click Interactive, Inc., a Delaware
corporation (together with any successor thereto, the "Company"), Michael W.
Ferro, Jr. (the "Founder"), Robert K. Markese (the "Management Stockholder"),
the investors identified on the signature pages hereto as the Series A Investors
(each, a "Series A Investor" and, collectively, the "Series A Investors"), the
investor identified on the signature pages hereto as the Series B Investor (the
"Series B Investor" and, together with the Series A Investors, the "Investors"),
for purposes of Article IV hereof, Robert K. Markese and any other stockholder,
warrantholder or optionholder who from time to time becomes a party to this
Agreement by execution of a Joinder Agreement in substantially the form attached
hereto as Exhibit A (collectively, the "Additional Stockholders"). The Founder
----------
and the Additional Stockholders are herein referred to collectively as the
"Stockholders" and individually as a "Stockholder."
WHEREAS, the Founder holds shares of the Company's Common Stock (as defined
herein);
WHEREAS, the Company and the Series A Investors have entered into a Stock
Purchase Agreement, dated as of June 17, 1999 (the "Series A Purchase
Agreement"), pursuant to which, among other things, the Series A Investors have
purchased, and have agreed to purchase additional shares of the Company's Series
A Convertible Participating Preferred Stock, $.001 par value per share (the
"Series A Preferred Stock") and a Stockholders and Rights Agreement dated as of
June 17, 1999 (the "Prior Stockholders Agreement");
WHEREAS, the Company and the Series B Investor has entered into a Stock
Purchase Agreement, dated as of the date hereof (the "Series B Purchase
Agreement"), pursuant to which, among other things, the Series B Investor has
agreed to purchase shares of the Company's Series B Convertible Participating
Preferred Stock, $.001 par value per share (the "Series B Preferred Stock" and,
together with the Series A Preferred Stock, the "Preferred Stock");
WHEREAS, the execution and delivery of this Agreement, which is intended to
amend and restate the Prior Stockholders Agreement, is a condition precedent to
the transactions contemplated by the Series B Purchase Agreement; and
WHEREAS, the Company desires to grant to the Series A Investors, the Series
B Investor, the Founder and the Management Stockholder the rights contained
herein, and the parties hereto desire to agree upon the terms upon which the
outstanding securities of the Company, now or hereafter outstanding and held by
them, will be held, transferred and voted, in order to fulfill such condition.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
<PAGE>
ARTICLE I DEFINITIONS
- --------- -----------
Section 1.1 Construction of Terms. As used herein, the masculine, feminine
----------- ---------------------
or neuter gender, and the singular or plural number, shall be deemed to be or to
include the other genders or number, as the case may be, whenever the context so
indicates or requires.
Section 1.2 Number of Shares of Stock. Whenever any provision of this
----------- -------------------------
Agreement calls for any calculation based on a number of shares of Common Stock
held by the Founder or an Investor, the number of shares deemed to be held by
the Founder or an Investor shall be the total number of shares of Common Stock
then owned by the Founder or such Investor, plus the total number of shares of
Common Stock issuable upon conversion of any Preferred Stock or other
convertible securities or exercise of any vested options, warrants or
subscription rights then owned by the Founder or such Investor.
Section 1.3 Defined Terms. The following capitalized terms, as used in this
----------- -------------
Agreement, shall have the meanings set forth below.
An "Affiliate" of any Person means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with the first mentioned Person. A Person shall be deemed to
control another Person if such first Person possesses directly or indirectly the
power to direct, or cause the direction of, the management and policies of the
second Person, whether through the ownership of voting securities, by contract
or otherwise.
"Amended Charter" means the Company's Amended and Restated Certificate of
Incorporation in effect as of the date hereof.
"Board of Directors" means the Board of Directors of the Company,
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, $.001 par value per share, of the
Company and any other shares of stock issued or issuable with respect thereto
(whether by way of a stock dividend or stock split or in exchange for or in
replacement of or upon conversion of such shares or otherwise in connection with
a combination of shares, recapitalization, merger, consolidation or other
corporate reorganization).
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and the rules and regulations promulgated thereunder.
"Indebtedness" means with respect m any Person, (i) any liability,
contingent or otherwise, of such Person (A) for borrowed money (whether or not
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof), (B) evidenced by a note, debenture or similar instrument
(including a purchase money obligation) given in connection with the acquisition
of any property or assets, (C) for any letter of credit or performance bond in
favor of such Person, (D) for the payment of money relating to a capitalized
lease obligation, or (E) any liability, contingent or otherwise (excluding trade
payables to trade creditors in the ordinary course of business), of such Person
to any other Person for any purchase price
2
<PAGE>
associated with any acquisition of assets, business or otherwise (including any
deferred purchase price, assumption of Indebtedness, noncompetition payments or
other forms of consideration); (ii) any liability of others of the kind
described in the preceding clause (i), which the Person has guaranteed or which
is otherwise its legal liability, contingent or otherwise; and (iii) any and all
deferrals, renewals, extensions or refinancing of, or amendments, modifications
of supplements to, any liability of the kind described in any of the preceding
clauses (i) or (ii).
"Liens" means any interest in, or claim against, property relating to an
obligation owed to, or claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract, and
including but not limited to any security interest lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes, any rights of first refusal, charges, claims,
liabilities, limitations, conditions, restrictions or other adverse claims.
"Person" means an individual, a corporation, an association, a partnership,
a limited liability company, an estate, a trust, and any other entity or
organization, governmental or otherwise.
"Purchaser Group" means, collectively, the Founder and the Investors.
"Qualified Public Offering" means the Company's first underwritten public
offering on a firm commitment basis by a nationally recognized investment
banking organization or organizations, pursuant to an effective registration
statement under the Securities Act covering the offer and sale of shares of the
Company's Common Stock (i) in which the proceeds received by the Company (after
deduction of underwriter discounts and commissions) equal or exceed $20,000,000,
(ii) with respect to which such Common Stock is listed for trading on either the
New York Stock Exchange or the Nasdaq National Market and (iii) either (A) at a
price per share of Common Stock, after underwriter discounts and commissions, of
not less than $9.20 per share (appropriately adjusted for any stock split, stock
dividend, combination, recapitalization and the like), or (B) the pre-money
market value of the Company's Common Stock based upon the initial offering price
is equal to or in excess of $100,000,000.
"Registrable Securities" means (i) any shares of Common Stock held by an
Investor, (ii) any shares of Common Stock subject to acquisition by an Investor
upon conversion of the shares of Preferred Stock (it being understood that if an
Investor owns Preferred Stock, the Investor may exercise its registration rights
hereunder by converting the shares to be sold under the relevant registration
statement into Common Stock as of the closing of the relevant offering and shall
not be required to cause such Preferred Stock to be converted to Common Stock
until and unless such closing occurs) (iii) any shares of Common Stock issuable
pursuant to the exercise of any vested warrants, options or other securities
convertible into Common Stock held by an Investor and (iv) any securities issued
and issuable with respect to any such shares described in clauses (i) or (ii)
above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization; provided, however, that notwithstanding anything to the contrary
-------- -------
contained herein, "Registrable Securities" shall, for purposes of Section 4.1
only, include shares of Common Stock held by the Founder and the Management
Stockholder, including shares of Common Stock issuable pursuant to the exercise
of any vested warrants, options or other securities convertible into Common
Stock held
3
<PAGE>
by such individuals and shall not include at any time securities (i) sold in a
registered sale pursuant to an effective registration statement under the
Securities Act, (ii) sold to the public pursuant to Rule 144 under the
Securities Act or (iii) which could then be sold in their entirety pursuant to
Rule 144(k) under the Securities Act without limitation or restriction.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and the rules and regulations promulgated thereunder.
"Subsidiary" means any corporation more than 50% of the outstanding voting
securities of which, or any partnership, joint venture or other entity more than
50% of the total equity interest of which, is directly or indirectly owned by
the Company or any other entity otherwise controlled by or under common control
with the Company.
"Transfer" means any direct or indirect transfer, donation, sale,
assignment, pledge, hypothecation, grant of a security interest in or other
disposal or attempted disposal of all or any portion of a security or of any
rights. "Transferred" means the accomplishment of a Transfer, and "Transferee"
means the recipient of a Transfer.
ARTICLE II RESTRICTIONS ON TRANSFER: RIGHTS OF FIRST REFUSAL; CO-SALE RIGHTS
- ---------- -----------------------------------------------------------------
Section 2.1 Restrictions on Transfer. Each Stockholder and Investor agrees
----------- ------------------------
that he, she or it will not Transfer all or any portion of the shares of capital
stock of the Company now owned or hereafter acquired by him, her or it, except
in connection with, and strictly in compliance with the conditions of, any of
the following:
(a) Transfers effected pursuant to Sections 2.2, 2.3 or 2.4 hereof and
which are made strictly in accordance with the procedures set forth therein;
(b) Transfers by such Stockholder or Investor to his or her spouse,
children, parents or grandchildren or to a trust of which he or she is the
settlor and a trustee for the benefit of his or her spouse, children, parents,
grandchildren or charitable foundations, provided that the Transferee of any
Stockholders shall have executed a Joinder Agreement in the form of Exhibit A
---------
attached hereto and the Transferee of any Investor shall have executed a Joinder
Agreement in the form of Exhibit B attached hereto;
---------
(c) Transfers upon the death of such Stockholder or Investor to his or
her heirs, executors or administrators or to a trust under his or her will or
Transfers between such Stockholder or Investor and his or her guardian or
conservator, provided that the Transferee of any Stockholder shall have executed
a Joinder Agreement in the form of Exhibit A attached hereto and the Transferee
---------
of any Investor shall have executed a Joinder Agreement in the form of Exhibit B
---------
attached hereto;
(d) Transfers by such Investor (i) among its Affiliates; (ii) to any
current or retired partner, member or employee of such Investor or a general
partner or managing member of such Investor; (iii) to a liquidating trust
established for the benefit of any current or retired partners or members of
such Investor; or (iv) to any investment fund or other entity controlled or
4
<PAGE>
managed by an Affiliate of such Investor, provided that, in each case, the
--------
Transferee shall have executed a Joinder Agreement in the form of Exhibit B
---------
attached hereto;
(e) Transfers by the Founder to the Company pursuant to, and strictly
in accordance with, the terms of Section 1.6 of the Series A Purchase Agreement;
and
(f) Transfers by the Series B Investor in connection with a merger or
combination or sale of substantial assets of the Series B Investor with or into
or to any other entity, provided that the Transferee shall have executed a
--------
Joinder Agreement in the form of Exhibit B attached hereto.
---------
Any permitted Transferee described in the preceding clauses (b), (c), (d)
or (f) shall be referred to herein as a "Permitted Transferee." Notwithstanding
anything to the contrary in this Agreement or any failure to execute a Joinder
Agreement as contemplated hereby, Permitted Transferees shall take any shares so
Transferred subject to all provisions of this Agreement as if such shares were
still held by the transferor, whether or not they so agree with the transferor
and/or the Company. Without limitation of the foregoing, in connection with any
otherwise permitted Transfer of shares of capital stock that are restricted
shares and are subject to any stock restriction agreement, any Transferee of any
such shares shall agree in writing to be bound by the terms of any such stock
restriction or similar agreement, including, without limitation, any repurchase
or similar right contained therein.
Section 2.2 Right of First Refusal. In the event that any Stockholder or
----------- ----------------------
Investor or any of their Permitted Transferees (a "Transferring Stockholder")
desires to Transfer all or any portion of the shares of capital stock of the
Company held by such Transferring Stockholder, other than (i) to a Permitted
Transferee or pursuant to Section 2.1 hereof, or (ii) a Transfer of shares by
the Founder which constitutes a Change in Control (as hereinafter defined) which
is subject to Section 2.4 hereof, such Transferring Stockholder may, subject to
the provisions of Section 2.3 hereof, if applicable, Transfer such shares only
pursuant to and in accordance with the following provisions of this Section 2.2:
(a) Such Transferring Stockholder shall deliver written notice (the
"Offer Notice") to the Company and to the Purchaser Group of its desire to sell
all or a portion of its capital stock and shall otherwise comply with the
provisions of this Section 2.2. The Offer Notice shall specify (i) the number of
shares that the Transferring Stockholder desires to sell (the "Offered Shares"),
(ii) the consideration per share that the Transferring Stockholder desires to be
paid for the Offered Shares and (iii) all other material terms and conditions
pursuant to which the Transferring Stockholder desires to sell the Offered
Shares. The Transferring Stockholder's Offer Notice shall constitute an
irrevocable offer to sell all such shares to the Company and the Purchaser Group
on the basis described below at a purchase price equal to the price contained
in, and on the same terms as set forth in, the Offer Notice.
(b) The Company and the Purchaser Group shall have the right (the
"Right of First Refusal") to accept the offer to purchase the Offered Shares for
the consideration per share and on the terms and conditions specified in the
Offer Notice in the order of priority described below.
5
<PAGE>
(i) The Company shall have the first right to accept the offer to
purchase all or any portion of the Offered Shares for the consideration per
share and on the terms and conditions specified in the Offer Notice. To
exercise its Right of First Refusal, the Company shall, within twenty (20)
days of receipt of the Offer Notice, communicate in writing such election
to the Transferring Stockholder (with copies to the Purchaser Group). Such
written election to purchase shall constitute a valid, legally binding and
enforceable agreement for the sale and purchase of the Offered Shares.
(ii) In the event the Company does not exercise its Right of First
Refusal with respect to all of the Offered Shares, the Company shall notify
the Transferring Stockholder and the Purchaser Group in writing of such
fact (such notice, the "Subsequent Offer Notice"). Each member of the
Purchaser Group shall then have the right to accept the offer to purchase
up to that number of remaining Offered Shares as shall be equal to the
product obtained by multiplying (X) the total number of remaining Offered
Shares by (Y) a fraction, the numerator of which is the total number of
shares of Common Stock owned by such member on the date of the Subsequent
Offer Notice (as determined in accordance with Section 1.2 hereof) and the
denominator of which is the total number of shares of Common Stock then
held by the Purchaser Group as a whole on the date of the Subsequent Offer
Notice (as determined in accordance with Section 1.2 hereof), subject to
increase as hereinafter provided. The number of shares that each such
member is entitled to purchase under this Section 2.2 shall be referred to
as a "ROFR Fraction." In the event any such member does not wish to
purchase its ROFR Fraction, then all other members who so elect shall have
the right to accept the offer to purchase, on a pro rata basis with all who
so elect (as hereinafter provided), any ROFR Fraction not purchased by such
member. Each such other member's pro rata share shall be equal to the
product obtained by multiplying (X) the ROFR Fraction of the member
electing not to purchase shares under this Section 2.2 by (Y) a fraction,
the numerator of which is the total number of shares of Common Stock owned
by each such other member on the date of the Subsequent Offer Notice (as
determined in accordance with Section 1.2 hereof) and the denominator of
which is the total number of shares of Common Stock then held by the
Purchaser Group, excluding the shares then held by the member electing not
to purchase its ROFR Fraction. Each member of the Purchaser Group shall
have the right to accept the Proposed Transaction by giving notice of such
acceptance to the Company within twenty (20) days after receipt of the
Subsequent Offer Notice, which notice shall indicate the maximum number of
shares subject thereto which such member is willing to purchase in the
event fewer than all members of the Purchaser Group elect to purchase their
ROFR Fractions. In the event that the price set forth in the Offer Notice
is stated in consideration other than cash or cash equivalents, the Board
of Directors of the Company may determine the fair market value of such
consideration, reasonably and in good faith, and the Purchaser Group may
exercise their Right of First Refusal by payment of such fair market value
in cash or cash equivalents. The Company shall notify the Transferring
Stockholder and the Purchaser Group promptly following any lapse of the
Right of First Refusal without acceptance thereof or any rejection of the
Right of First Refusal.
The closing for any purchase of shares by the Purchaser Group hereunder
shall take place within thirty (30) days after the expiration of the twenty (20)
day period following the receipt of the Subsequent Offer Notice by the Purchaser
Group.
6
<PAGE>
In the event that the Company and the Purchaser Group do not elect to
exercise the Right of First Refusal with respect to all of the Offered Shares,
the Transferring Stockholder may sell the remaining Offered Shares to a Person
(a "Proposed Transferee") on terms and conditions not less favorable to the
Transferring Stockholder than those set forth in the Offer Notice. If the
Transferring Stockholder's Transfer to the Proposed Transferee is not
consummated in accordance with the terms and conditions contained in the Offer
Notice within the later of (i) ninety (90) days after the expiration of the
later of the Purchaser Group's Right of First Refusal and the Co-Sale Option set
forth in Section 2.3, if applicable, and (ii) the satisfaction of all
governmental approval or filing requirements, the proposed sale of the Offered
Shares to the Proposed Transferee shall be deemed to lapse, and any Transfers of
Offered Shares shall be deemed to be in violation of the provisions of this
Agreement unless the Company and the Purchaser Group are once again afforded the
Right of First Refusal provided for herein with respect to such Offered Shares.
Section 2.3 Co-Sale Option. In the event that the Founder wishes to sell
----------- --------------
all or a portion of his shares of capital stock of the Company pursuant to
Section 2.2 hereof in a transaction involving aggregate net proceeds in excess
of $1,000,000 which does not constitute a Change in Control, and the Rights of
First Refusal are not exercised with respect to all of the Offered Shares
proposed to be so sold, the Founder may Transfer such Offered Shares only
pursuant to add in accordance with the following provisions of this Section 2.3:
(a) The Investors shall have the right to participate in the sale of
such Offered Shares on the terms and conditions herein stated (the "Co-Sale
Option"), which right shall be exercisable upon written notice (the "Acceptance
Notice") to the Founder within twenty (20) days after the Founder notifies the
Investors in writing that the Company and the Purchaser Group have not elected
to exercise their Rights of First Refusal with respect to all of such Offered
Shares. The Acceptance Notice shall indicate the maximum number of shares of
capital stock that each Investor wishes to sell (including the number of shares
it would sell if one or more Investors do not elect to participate in the sale)
on the terms and conditions stated in the Offer Notice.
(b) Each Investor shall have the right to exercise its Co-Sale Option
and sell a portion of its capital stock which is equal to or less than the
product obtained by multiplying (i) the total number of Offered Shares that were
proposed to be sold by the Founder pursuant to Section 2.2 (less any shares
being purchased pursuant to a Right of First Refusal) by (ii) a fraction, the
numerator of which is the total number of shares of Common Stock held by such
Investor on the date of the Acceptance Notice (as determined in accordance with
Section 1.2 hereof) and the denominator of which is the total number of shares
of Common Stock then held by the Founder plus the total number of shares then
deemed to be held by the Investors desiring to participate on the date of the
Acceptance Notice (as determined in accordance with Section 1.2 hereof). To the
extent that one or more Investors elect to not exercise their Co-Sale Option,
then the rights of the other Investors (who exercise their Co-Sale Option) to
sell shares pursuant to their Co-Sale Option shall be increased proportionately
by the full amount of shares which the non-electing Investors were entitled to
sell pursuant to this Section 2.3.
(c) Within ten (10) days after the date by which the Investors were
first required to notify the Founder of their intent to exercise their Co-Sale
Option, the Founder shall
7
<PAGE>
notify each participating Investor of the number of shares held by such Investor
that will be included in the sale and the date on which such sale will be
consummated, which shall be no later than the later of (i) ninety (90) days
after the date by which the Investors were required to notify the Founder of
their intent to exercise the Co-Sale Option and (ii) the satisfaction of any
governmental approval or filing requirements, if any.
(d) Each Investor participating in a sale under this Section 2.3 may
effect its participation in such sale hereunder by delivery to the Proposed
Transferee, or to the Founder for delivery to the Proposed Transferee, of one or
more instruments or certificates, properly endorsed for transfer, representing
the shares of capital stock it elects to sell therein, provided that no such
Investor shall be required to make any representations or warranties or provide
any indemnities in connection therewith other than with respect to its ownership
of the shares of capital stock being conveyed. At the time of consummation of
the sale, the Proposed Transferee shall remit directly to each such Investor
that portion of the net sale proceeds to which each such Investor is entitled by
reason of its participation therein (less any adjustments due to the conversion
of any convertible securities or the exercise of any exercisable securities).
(e) So long as the Proposed Transferee is neither a party, nor an
Affiliate of a party, to this Agreement, such Proposed Transferee shall take the
shares so Transferred free and clear of any further restrictions of this Article
II. In the event that the sale is not consummated within the period required by
subsection (c) hereof or the Proposed Transferee fails to timely remit to each
Investor its portion of the sale proceeds, such sale shall be deemed to lapse,
and any Transfers of shares of capital stock pursuant to such sale shall be
deemed to be in violation of the provisions of this Agreement unless the Founder
once again complies with the provisions of Sections 2.2 and/or 2.3 hereof with
respect to such Offered Shares.
Section 2.4 Change in Control.
----------- -----------------
(a) If the Founder determines to sell or exchange (in a business
combination or otherwise) in one or a series of bona fide arms-length
transactions to an unaffiliated third party all of the shares held by him and,
in connection with such transaction or transactions, the implied equity value of
the Company, on a fully-diluted basis, shall be no less than $125,000,000 (a
"Change in Control"), then upon thirty (30) days written notice from the Founder
to the Stockholders and the Investors, winch notice shall specify all material
terms and conditions, including the consideration to be received, of such
proposed Change in Control, each other Stockholder and each Investor shall be
obligated to, and shall (i) sell, Transfer and deliver or cause to be sold,
Transferred and delivered, to such third party, all of its or his shares in the
same Change in Control transaction at the closing thereof (and will deliver
certificates for all of its or his shares at the closing, free and clear of all
claims, liens and encumbrances), and each such Stockholder and Investor shall
receive the same consideration per share of Common Stock upon such sale as to be
received by the Founder and (ii) if stockholder approval of the transaction is
required, vote its or his shares in favor thereof.
(b) The provisions of this Section 2.4 shall not apply to any Transfer
(i) pursuant to a Qualified Public Offering, or (ii) to a Permitted Transferee
pursuant to Section 2.1 hereof; provided, however, that any such Permitted
-------- -------
Transferee shall be subject to and bound by
8
<PAGE>
the terms of this Section 2.4. A Change in Control transaction subject to this
Section 2.4 shall not be subject to the provisions of Section 2.2 or 2.3.
Section 2.5 Sales to Competitors. Each Stockholder and Investor hereby
----------- --------------------
agrees not to directly or indirectly Transfer any shares of Common Stock or
other securities of the Company or options in respect thereof to any Person
whose activities, products or services are competitive with activities, products
or services of the Company as reasonably determined by the Board of Directors,
as of the date of the proposed Transfer; provided, that the foregoing shall not
--------
restrict public sales registered under the Securities Act or pursuant to
Rule 144 thereunder unless the relevant transferor has knowledge that the buyer
or buyers are such competitors. The Company may impose stop transfer
instructions with its transfer agent in order to enforce the foregoing covenant.
Section 2.6 Prohibited Transfers. If any Transfer is made or attempted
----------- --------------------
contrary to the provisions of this Agreement, such purported Transfer shall be
void ab initio; the Company, the Investors and the Stockholders shall have, in
addition to any other legal or equitable remedies which they may have, the right
to enforce the provisions of this Agreement by actions for specific performance
(to the extent permitted by law); and the Company shall have the right to refuse
to recognize any Transferee as one of its stockholders for any purpose. Without
limitation to the foregoing, each of the Investors and the Stockholders further
agrees that the provisions of Section 7.8 shall apply in the event of any
violation or threatened violation of this Agreement.
ARTICLE III RIGHTS TO PURCHASE
- ----------- ------------------
Section 3.1 Right to Participate in Certain Sales of Additional
----------- ---------------------------------------------------
Securities. The Company agrees that it will not sell or issue any shares of
- ----------
capital stock of the Company, or other securities convertible into or
exchangeable for capital stock of the Company, or options, warrants or rights
carrying any rights to purchase capital stock of the Company unless the Company
first submits written notice to the Purchaser Group identifying the terms of the
proposed sale (including price, number or aggregate principal mount of
securities and all other material terms), and offers to each member of the
Purchaser Group the opportunity to purchase its Pro Rata Allotment (as
hereinafter defined) of the securities (subject to increase for over-allotment
if any member of the Purchaser Group does not fully exercise its rights) on
terms and conditions, including price, not less favorable than those on which
the Company proposes to sell such securities to a third party or parties. The
Company's offer to the Purchaser Group shall remain open and irrevocable for a
period of thirty (30) days during which time each member of the Purchaser Group
may accept such offer by written notice to the Company Setting forth the maximum
number of shares or other securities to be purchased by any such member,
including the number of shares or securities which such member would purchase if
other members of the Purchaser Group do not elect to purchase, with the rights
of electing members to purchase such additional shares or securities to be based
on the relative holdings of shares of Common Stock of such electing members (as
determined in accordance with Section 1.2 hereof). Any securities so offered
which are not purchased by the Purchaser Group pursuant to such offer may be
sold by the Company, but only on the terms and conditions set forth in the
initial offer to the Purchaser Group, at any time within 120 days following the
termination of the above-referenced 30-day period. For purposes of this Section
3.1, the "Pro Rata Allotment" of securities for each member of the Purchaser
Group shall be based on the ratio (as determined in accordance with Section 1.2
9
<PAGE>
hereof) which the shares of Common Stock held by it bears to all of the then
issued and outstanding shares of Common Stock, calculated on a fully-diluted
basis, as of the date of such written offer.
Notwithstanding the foregoing, the right to purchase shall be inapplicable
with respect to any issuance by the Company of (i) shares of Common Stock or
options to purchase shares of Common Stock to its employees, directors and
consultants pursuant to stock and option plans approved by the Board of
Directors (including the Series A Investor Nominee and the Series B Investor
Nominee), (ii) Common Stock upon conversion of the Preferred Stock, (iii)
securities as a result of any stock split, stock dividend, reclassification or
reorganization of the Company's Common Stock, and (iv) shares of Common Stock to
be issued in connection with strategic acquisitions approved by a majority of
the members of the Board of Directors (subject to any required consent of a
Series A Investor Nominee (as hereinafter defined) or Series B Investor Nominee
(as hereinafter defined) pursuant to Section 6.3(i) hereof).
Section 3.2 Assignment of Rights. The rights of the Purchaser Group set
----------- --------------------
forth in this Article III are transferable to each Transferee of shares of
capital stock of the Company hereunder. Each such subsequent holder of such
shares must consent in writing to be bound by the terms and conditions of this
Agreement in order to acquire the rights granted hereunder.
ARTICLE IV REGISTRATION RIGHTS
- ---------- -------------------
Section 4.1 Optional Registrations. If at any time or times after the
----------- ----------------------
date hereof the Company shall seek to register any shares of its Common Stock
under the Securities Act for sale to the public (except with respect to
registration statements on Form S-4, S-8 or another form not available for
registering the Registrable Securities for sale to the public), the Company will
promptly give written notice thereof to all holders of Registrable Securities
(the "Holders") and the Founder and, with respect only to the initial public
offering of the Company, the Management Stockholder (collectively referred to
herein as the "Other Holders"). If within thirty (30) days after their receipt
of such notice one or more Holders or Other Holders request the inclusion of
some or all of the Registrable Securities owned by them in such registration,
the Company will use its best efforts to effect the registration under the
Securities Act of such Registrable Securities. In the case of the registration
of shares of capital stock by the Company in connection with any underwritten
public offering, if the underwriter(s) determines that marketing factors require
a limitation on the number of Registrable Securities to be offered, subject to
the following sentence, the Company shall not be required to register
Registrable Securities of the Holders or Other Holders in excess of the amount,
if any, of shares of the capital stock which the principal underwriter of such
underwritten offering shall reasonably and in good faith agree to include in
such offering in addition to any amount to be registered for the account of the
Company. If any limitation of the number of shares of Registrable Securities to
be registered by the Holders or Other Holders is required pursuant to this
Section 4.1, the number of shares to be excluded shall be determined in the
following sequence: (i) first, securities held by any Persons not having any
contractual, incidental "piggyback" rights, (ii) second, securities held by any
Persons (other than the Holders or Other Holders) having contractual, incidental
"piggyback" rights pursuant to an agreement which is not this Agreement and
(iii) third, Registrable Securities sought to be included by the Holders or
Other Holders under this Section 4.1 as determined on a pro rata basis (based
upon the respective holdings of securities by such
10
<PAGE>
Holders or Other Holders); provided, however, that the Registrable Securities
-------- -------
sought to be included by the Holders shall not be excluded hereunder unless and
until they have received net proceeds from the sale of Registrable Securities
equal to or in excess of the aggregate purchase price paid by such Holders under
the Series A Purchase Agreement and Series B Purchase Agreement, as applicable;
provided, further, however, that (i) Registrable Securities held by the Founder
- -------- ------- -------
in the Company's initial public offering shall be reduced on an equal basis with
Registrable Securities held by the Holders and (ii) the Management Stockholder
shall be subject to any cutbacks determined by the managing underwriter for such
initial public offering.
Section 4.2 Required Registrations.
----------- ----------------------
(a) Demand Registration. At any time that is six (6) months after the
-------------------
initial public offering of Common Stock by the Company pursuant to an effective
registration statement under the Securities Act, (i) on not more than two (2)
occasions, the Holders of at least 20% of the Series A Preferred Stock then
issued and outstanding may request that the Company register under the
Securities Act all or a portion of the Registrable Securities held by such
Holders having an aggregate value of at least $7,500,000 (based on the then
current market price) and (ii) on not more than two (2) occasions, the Holders
of at least 20% of the Series B Preferred Stock then issued and outstanding may
request that the Company register under the Securities Act all or a portion of
the Registrable Securities held by such Holders having an aggregate value of at
least $7,500,000 (based on the then current market price).
(b) Form S-3. After the Company's initial public offering of Common
--------
Stock registered under the Securities Act, the Company shall use its best
efforts to qualify and remain qualified to register securities on Form S-3 (or
any successor form) under the Securities Act. So long as the Company is
qualified to register securities on Form S-3 (or any successor form), the
Holders of Series A Preferred Stock and the Holders of Series B Preferred Stock,
each acting independently, shall have the right to request, on not more than two
(2) occasions in any consecutive twelve (12) month period, registration on Form
S-3 (or any successor form) for the Registrable Securities held by such
requesting Holders representing no less than 2% of the Company's then
outstanding shares of Common Stock, including registrations for the sale of such
Registrable Securities on a delayed or continuous basis pursuant to Rule 415
under the Securities Act. Such requests shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such shares by such Holder.
(c) Registration Requirements. Following a request pursuant to Section
-------------------------
4.2(a) or (b) above, the Company will notify all of the other Holders of
Registrable Securities and such Holders shall then have thirty (30) days to
notify the Company of their desire to participate in the registration.
Thereupon, the Company will use its reasonable best efforts to cause such of the
Registrable Securities as may be requested by such Holders to be registered
under the Securities Act in accordance with the terms of this Section 4.2. If
the request for registration contemplates an underwritten public offering, the
Company shall state such in the written notice and in such event the right of
any Person to participate in such registration shall be conditioned upon their
participation in such underwritten public offering and the inclusion of their
securities in the underwritten public offering to the extent provided herein.
11
<PAGE>
(d) Underwritten Offering. If a requested registration involves an
---------------------
underwritten public offering and the managing underwriter of such offering
determines in good faith that the number of securities sought to be offered
should be limited due to market conditions, then the number of securities to be
included in such underwritten public offering shall be reduced to a number
deemed satisfactory by such managing underwriter, provided that the shares to be
excluded shall be determined in the following sequence: (i) first, securities
held by any Persons not having any contractual, incidental "piggyback" fights,
(ii) second, securities held by any other Persons (other than the Holders)
having contractual, incidental "piggy back" rights, (iii) third, Registrable
Securities of Holders who did not make the original request for registration and
(iv) fourth, Registrable Securities of Holders who requested such registration.
If there is a reduction of the number of Registrable Securities pursuant to
clauses (iii) or (iv) such reduction shall be made on a pro rata basis (based
upon the aggregate number of shares of Registrable Securities held by each such
Holder). With respect to a request for registration pursuant to Section 4.2(a)
or (b) which is for an underwritten public offering, the managing underwriter
shall be chosen by the Board of Directors of the Company, subject to the consent
of a majority-in-interest of the Holders of Registrable Securities requesting
such registration, which consent will not be unreasonably withheld. If the
managing underwriter has not limited the number of Registrable Securities or
other securities to be underwritten, the Company may include securities for its
own account in such registration if the managing underwriter so agrees and if
the number of Registrable Securities and other securities which would otherwise
have been included in such registration and underwriting will not thereby be
limited.
(e) Postponement. The Company may postpone the filing of any
------------
registration statement required hereunder for a reasonable period of time, not
to exceed one hundred and twenty (120) days in the aggregate during any twelve-
month period, if the Company has been advised by legal counsel that such filing
would require a special audit or the disclosure of material nonpublic
information or a material impending transaction or other matter and the
Company's Board of Directors determines reasonably and in good faith that such
disclosure would be inappropriate or inadvisable. The Company may not cause any
other registration of securities for sale for its own account (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule under the Securities Act
is applicable) to become effective within one hundred eighty (180) days
following the effective date of any registration required pursuant to this
Article IV or such lesser period as may be consented to by the managing
underwriter. The Company shall not be required to cause a registration statement
requested pursuant to this Article IV to become effective prior to ninety (90)
days following the effective date of a registration statement initiated by the
Company (or 180 days in the case of the Company's initial public offering of
Common Stock), if the request for registration has been received by the Company
subsequent to the giving of written notice by the Company, made in good faith,
to Holders entitled to request demand registrations under this Article IV that
the Company is commencing to prepare a Company-initiated registration statement
(other than a registration effected solely to implement an employee benefit plan
or a transaction to which Rule 145 or any other similar rule under the
Securities Act is applicable); provided, however, that the Company shall use its
-------- -------
best efforts to achieve such effectiveness promptly following such period. A
registration will not count as a requested registration under Section 4.2(a)
hereof until the registration statement relating to such registration has been
declared effective by the Commission at the request of the initiating Holders;
provided, however, that if a majority-in-interest of the participating Holders
- -------- -------
of Registrable Securities shall request, in
12
<PAGE>
writing, that the Company withdraw a registration statement which has been filed
under Section 4.2(a) hereof but not yet been declared effective, a majority-in-
interest of such Holders may thereafter request the Company to reinstate such
registration statement, if permitted under the Securities Act, or to file
another registration statement, in accordance with the procedures set forth
herein, in which case, the incremental fees and expenses incurred by the Company
in connection with such reinstatement or filing shall be borne by the Holders.
Section 4.3 Further Obligations of the Company. Whenever the Company is
----------- ----------------------------------
required hereunder to register any Registrable Securities, it agrees that it
shall also do the following:
(a) Pay all expenses of such registrations and offerings (exclusive of
underwriting discounts and commissions) and the reasonable fees and expenses
(not to exceed $20,000) of not more than one independent counsel for the Holders
(selected by a majority-in-interest of the Holders who participate in the
registration) in connection with any registrations hereunder;
(b) Use its reasonable best efforts to prepare and file with the
Commission a registration statement and such amendments and supplements to said
registration statement and the prospectus used in connection therewith as may be
necessary to keep said registration statement effective until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto (but for no more than 180 days or such other lesser period
until all such Registrable Securities have been sold) and to comply with the
provisions of the Securities Act with respect to the sale of securities covered
by said registration statement for such period;
(c) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such Holder may reasonably request
to facilitate the public offering of its Registrable Securities;
(d) Enter into any reasonable underwriting agreement required by the
proposed underwriter, if any, in such form and containing such terms as are
customary; provided, however, that no Holder shall be required to make any
-------- -------
representations or warranties other than with respect to its title to the
Registrable Securities and with respect to any written information provided by
the Holder to the Company, and if the underwriter requires that representations
or warranties be made and that indemnification be provided, the Company shall
make all such representations and warranties and provide all such indemnities,
including, without limitation, in respect of the Company's business, operations
and financial information and the disclosures relating thereto in the
prospectus;
(e) Use its best efforts to register or qualify the securities covered
by said registration statement under the securities or "blue sky" laws of such
jurisdictions as any selling Holder may reasonably request; provided, that the
--------
Company shall not be required to register or qualify the securities in any
jurisdictions in which such registration or qualification would require it to
qualify to do business therein;
13
<PAGE>
(f) Immediately notify each selling Holder, at any time when a
prospectus relating to his, her or its Registrable Securities is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed or quoted;
(h) Otherwise use its best efforts to comply with the securities laws
of the United States and other applicable jurisdiction and all applicable rules
and regulations of the Commission and comparable governmental agencies in other
applicable jurisdictions and make generally available to its holders, in each
case as soon as practicable, but not later than 45 days after the close of the
period covered thereby, an earnings statement of the Company which will satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any comparable successor provisions);
(i) Make available to each selling Holder and any attorney, accountant
or other agent or representative retained by any such Holder all financial and
other records, pertinent corporate documents and properties of the Company as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information so requested in connection with such registration
statement subject, in each case, to such confidentiality agreements as the
Company shall reasonably request;
(j) Furnish to each selling Holder a signed counterpart, addressed to
such Holder, if and to the extent permitted by applicable professional
standards, a "comfort" letter signed by the independent public accountants who
have certified the Company's financial statements included in the registration
statement, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountants' letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration) in accountants' letters delivered to the underwriters in
underwritten public offerings of securities; and
(k) Otherwise cooperate with the underwriter or underwriters, the
Commission and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any Registrable Securities under this Article IV.
Section 4.4 Indemnification; Contribution.
----------- -----------------------------
(a) Incident to any registration of any Registrable Securities under
the Securities Act pursuant to this Agreement, the Company will indemnify and
hold harmless each
14
<PAGE>
underwriter, each Holder or Other Holder who offers or sells any such
Registrable Securities in connection with such registration statement (including
its partners (including partners of partners and stockholders of any such
partners), and directors, officers, employees and agents of any of them (a
"Selling Holder"), and each person who controls any of them within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act (a
"Controlling Person")), from and against any and all losses, claims, damages,
expenses and liabilities, joint or several (including any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, as the same
are incurred), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based on (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement
(including any related preliminary or definitive prospectus, or any amendment or
supplement to such registration statement or prospectus), (ii) any omission or
alleged omission to state in such document a material fact required to be stated
in it or necessary to make the statements in it not misleading, or (iii) any
violation by the Company of the Securities Act, any state securities or "blue
sky" laws or any rule or regulation thereunder in connection with such
registration; provided, however, that the Company will not be liable to the
-------- -------
extent that such loss, claim, damage, expense or liability arises from and is
based on an untrue statement or omission or alleged untrue statement or omission
made in reliance on and in conformity with information furnished in writing to
the Company by such underwriter, Selling Holder or Controlling Person expressly
for use in such registration statement. With respect to such untrue statement
or omission or alleged untrue statement or omission in the information furnished
in writing to the Company by such Selling Holder expressly for use in such
registration statement, such Selling Holder will indemnify and hold harmless
each underwriter, the Company (including its directors, officers, employees and
agents), each other Holder (including its partners (including partners of
partners and stockholders of such partners) and directors, officers, employees
and agents of any of them, and each person who controls any of them within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act),
from and against any and all losses, claims, damages, expenses and liabilities,
joint or several, to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise to the same extent provided in the
immediately preceding sentence; provided, however, that no Selling Holder shall
-------- -------
be required to indemnify any Person against any liability arising from any
untrue or misleading statement or omission contained in any preliminary
prospectus if such deficiency is corrected in the final prospectus or for any
liability which arises out of the failure of any Person to deliver a prospectus
as required by the Securities Act. In no event, however, shall the liability of
a Selling Holder for indemnification under this Section 4.4(a) exceed the lesser
of (i) such Selling Holder's pro rata share of the total of such losses, claims,
damages or liabilities or (ii) the proceeds received by such Selling Holder from
its sale of Registrable Securities under such registration statement.
(b) If the indemnification provided for in Section 4.4(a) above for
any reason is held by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
4.4, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the
15
<PAGE>
relative benefits received by the Company, the other Selling Holders and the
underwriters from the offering of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company, the
other Selling Holders and the underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations; provided,
however, that in the event of a registration statement filed in response to a
demand under Section 4.2 and in which the Company does not register any shares
of capital stock, the proportion of contribution by the Company, the other
Selling Holders and the underwriters shall in all cases be governed by clause
(ii) above. The relative benefits received by the Company, the Selling Holders
and the underwriters shall be deemed to be in the same respective proportions
that the net proceeds from the offering (before deducting expenses) received by
the Company and the Selling Holders and the underwriting discount received by
the underwriters, in each case as set forth in the table on the cover page of
the applicable prospectus, bear to the aggregate public offering price of the
Registrable Securities. The relative fault of the Company, the Selling Holders
and the underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Holders or the underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, the Selling Holders, and the underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 4.4(b) were
determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In no event, however, shall a
Selling Holder be required to contribute any amount under this Section 4.4(b) in
excess of the lesser of (i) such Selling Holder's pro rata share of the total of
such losses, claims, damages or liabilities or (ii) the proceeds received by
such Selling Holder from its sale of Registrable Securities under such
registration statement. No person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(c) The amount paid by an indemnifying party), or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 4.4 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim, payable as the same are incurred. The indemnification and
contribution provided for in this Section 4.4 will remain in full force and
effect regardless of any investigation made by or on behalf of the indemnified
parties or any officer, director, employee, agent or controlling person of the
indemnified parties. No indemnifying party, in the defense of any such claim or
litigation, shall enter into a consent of entry of any judgment or enter into a
settlement without the consent of the indemnified party, which consent will not
be unreasonably withheld.
Section 4.5 Rule 144 and Rule 144A Requirements. In the event that the
----------- -----------------------------------
Company becomes subject to Section 13 or Section 15(d) of the Exchange Act, the
Company shall use its best efforts to take all action as may be required as a
condition to the availability of Rule 144 or Rule 144A under the Securities Act
(or any successor or similar exemptive rules hereafter in
16
<PAGE>
effect). The Company shall furnish to any Holder, within 15 days of a written
request, a written statement executed by the Company as to the steps it has
taken to comply with the current public information requirement of Rule 144 or
Rule 144A or such successor rules. After the occurrence of the first
underwritten public offering of Common Stock pursuant to an offering registered
under the Securities Act on Form S-1 or Form SB-1 (or any comparable successor
forms), the Company shall use its reasonable best efforts to facilitate and
expedite transfers of Registrable Securities pursuant to Rule 144 under the
Securities Act, which efforts shall include timely notice to its transfer agent
to expedite such transfers of Registrable Securities.
Section 4.6 Transferability of Registration Rights. The registration
----------- --------------------------------------
rights set forth in this Agreement are transferable (i) subject to Sections 2.1
and 2.2 hereof, to each Transferee of Registrable Securities who receives at
least 50,000 shares of Registrable Securities (appropriately adjusted for any
stock split, stock dividend, combination, recapitalization and the like) or (ii)
to any Permitted Transferee. Each subsequent holder of Registrable Securities
must consent in writing to be bound by the terms and conditions of this
Agreement in order to acquire the rights granted pursuant to this Agreement.
Section 4.7 Rights Which May Be Granted to Subsequent Investors. Other
----------- ---------------------------------------------------
than permitted transferees of Registrable Securities under Section 4.6 hereof,
the Company shall not, without the prior written consent of the holders of not
less than a majority of the outstanding Registrable Securities, (i) permit
purchasers of the Company's securities to become a party to this Agreement or
(ii) grant any other registration rights to any third parties other than
subordinate piggyback registration rights.
ARTICLE V MARKET STAND-OFF AGREEMENT. In connection with any public offering
- --------- --------------------------
by the Company of its Common Stock, each of the Stockholders, the Investors and
the Management Stockholder if requested in good faith by the Company and the
managing underwriter of the Company's securities, shall agree not to, directly
or indirectly, offer, sell, pledge, contract to sell (including any short sale),
grant any option to purchase or otherwise dispose of any securities of the
Company held by him, her or it (except for any securities sold pursuant to such
registration statement) or enter into any Hedging Transaction (as defined below)
relating to any securities of the Company for a period not to exceed 90 days (or
180 days in the case of the Company's initial public offering) following the
effective date of the applicable registration statement as agreed to by such
parties. For purposes of this Article V, "Hedging Transaction" means any short
sale (whether or not against the box) or any purchase, sate or grant of any
right (including without limitation, any put or call option) with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from the Company's
Common Stock.
ARTICLE VI ELECTION OF DIRECTORS; ACTIONS REQUIRING BOARD APPROVAL.
- ---------- -------------------------------------------------------
Section 6.1 Board Composition.
----------- -----------------
(a) Subject to Section 6.1(b) hereof, each Investor and each
Stockholder (including any Permitted Transferees) agrees to vote all of his, her
or its shares of the Company's capital stock having voting power (and any other
shares over which it exercises voting control)
17
<PAGE>
in connection with the election of directors of the Company and to take such
other actions as are necessary so as to fix the number of members of the Board
of Directors at five (5) and to elect and continue in Office as directors the
following:
(i) three (3) individuals nominated by the Founder (so long as
he owns at least 30% of the issued and outstanding shares of capital stock
of the Company) and thereafter by the Stockholders holding not less than a
majority of the outstanding shares of Common Stock then held by the
Stockholders, at least one of whom shall be the Chief Executive Officer of
the Company and another of whom shall not be employed by, or be an
Affiliate of, the Company, any Investor or any Stockholder, which
individuals shall initially be the Founder, Randy Gray and Michael W.
Ferro, Sr.; and
(ii) one (1) individual nominated by the holders of not less
than a majority of the outstanding shares of Series A Preferred Stock, who
shall initially be Jerry Murdock (the "Series A Investor Nominee"); and
(iii) one (1) individual nominated by the holders of not less
than a majority of the outstanding shares of Series B Preferred Stock, who
shall initially be Steve Mahoney (the "Series B Investor Nominee").
(b) The Company will ensure that meetings of the Board of Directors
are held at least four (4) times each year at intervals of not more than four
(4) months. The Company shall reimburse each Director for his or her reasonable
travel and other reasonable expenses incurred in connection with attending
meetings of the Board of Directors or otherwise in connection with his or her
service as a member of the Board of Directors. The Amended Charter and By-laws
of the Company will provide for exculpation and indemnification of the Directors
and limitations on the liability of the Directors to the fullest extent
permitted under applicable state law, and the Company shall obtain and maintain
reasonable and customary directors' and officers' liability insurance coverage
of at least $3,000,000 and otherwise, on terms reasonably satisfactory to the
Investors.
Section 6.2 Committees of the Board. The Company and each Investor and
----------- -----------------------
Stockholder agree to take such action necessary to establish and maintain an
Audit Committee and a Compensation Committee of the Board of Directors. The
Company and each Investor and Stockholder agree that (i) the Audit Committee
shall be charged with reviewing the Company's financial statements and
accounting practices and (ii) the Compensation Committee shall make all
determinations regarding salary, bonus and other compensation of the officers
and employees of the Company and the determination of any options, restricted
stock or other equity compensation to be granted to employees, officers,
directors, consultants, advisors or independent contractors, at prices
determined in good faith by the Compensation Committee, and otherwise on such
terms as the Compensation Committee shall determine. The composition of each
such committee shall consist of three (3) Directors, one (1) of whom will be the
Series A Investor Nominee and one (1) of whom will be the Series B Investor
Nominee. Each of the Compensation and Audit Committees shall act by majority
resolution of their members.
Section 6.3 Actions Requiring Board Approval. The Company (which term
----------- --------------------------------
shall be deemed to include, for purposes of this Section 6.3, all Subsidiaries
of the Company existing as
18
<PAGE>
of, and formed after, the date of this Agreement) shall not, without first
having obtained the affirmative vote or written consent of a majority of the
members of the Board of Directors, which majority shall include the Series A
Investor Nominee and the Series B Investor Nominee:
(a) amend, alter, repeal or waive any provision of, or add any
provision to, the Amended Charter or the Company's By-laws (other than in
connection with a QPO or the merger or acquisition of the Company approved by a
majority of the members of the Board of Directors, subject to any consent of the
Series A Investor Nominee and Series B Investor Nominee pursuant to this Section
6.3);
(b) recapitalize or reclassify any class or series of its capital
stock;
(c) take any action or enter into any agreement to authorize, sell or
issue any equity securities other than at fair market value or options, warrants
or other securities convertible into or exchangeable for equity securities of
the Company; provided, however, that the Company may issue shares of Common
-------- -------
Stock or options to purchase shares of Common Stock to employees, directors and
consultants of the Company pursuant to stock and option plans approved by the
Compensation Committee;
(d) directly or indirectly, through subsidiaries or otherwise, redeem,
purchase or otherwise acquire for consideration any shares of its Common Stock
or any other class of its capital stock, except for (i) the redemption of the
Preferred Stock pursuant to and as provided in the Amended Charter, (ii) the
repurchase of shares of Common Stock at the original purchase price thereof from
employees, directors or consultants of the Company, other than shares of Common
Stock owned by Michael W. Ferro, Jr., Richard Weingarten and John T. Garber, II,
pursuant to agreements under which the Company has the option or obligation to
repurchase such shares upon the occurrence of certain events, including
termination of employment and (iii) the redemption of shares of Common Stock
from the Founder and the certain additional stockholders of the Company in
accordance with Section 1.6 of the Series A Purchase Agreement;
(e) declare or pay any dividends or make any distributions of cash,
property or securities of the Company with respect to any shares of its Common
Stock or any other class of its capital stock (other than dividends payable by
the Company solely in shares of Common Stock);
(f) liquidate, dissolve or wind up the Company or sell, lease, convey,
exchange, transfer or otherwise dispose of the assets of the Company outside the
ordinary course of business or facilitate the sale of all or a majority of the
outstanding capital stock of the Company (whether in one or a series of related
transactions), other than a Change in Control transaction in which the Founder
exercises his rights under Section 2.4 hereof and in connection with such
transaction the equity value of the Company, on a fully-diluted basis, shall be
no less than $125,000,000;
(g) merge or consolidate with any other corporation, other than a
Change in Control transaction in which the Founder exercises his rights under
Section 2.4 hereof and in
19
<PAGE>
connection with such transaction the equity value of the Company, on a fully -
diluted basis, shall be no less than $125,000,000;
(h) effect any transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the Company is disposed of,
in connection with such transaction the equity value of the Company, on a fully-
diluted basis, shall be no less than $125,000,000;
(i) acquire any other corporation or business concern whether by
acquisition of assets, capital stock or otherwise, and whether in consideration
of the payment of cash, the issuance of capital stock or otherwise, or make any
investment in another business entity or any joint venture or similar
arrangement in one transaction or a series of related transactions (A) in which
the value of any such transaction or transactions exceeds $2,000,000 or (B) if
the activities performed by such corporation or business concern are unrelated
to those performed by the Corporation;
(j) increase the size of the Board of Directors to more than five (5);
(k) make any expenditures in excess of $500,000 which were not
otherwise included in the Company's annual operating budget presented to the
Board of Directors;
(l) make any change in the Company's independent certified public
accountants or change, adopt or modify any accounting method or policy or tax
policy (other than as required under generally accepted accounting principles);
(m) make any material change in the strategic direction or nature of
the Company's business as carried out on the date of this Agreement except to
the extent contemplated in the Company's draft business plan dated November 30,
1998 as updated and revised from time to time as approved by a majority of the
Board of Directors (including the Series A Investor Nominee and the Series B
Investor Nominee);
(n) incur, create, assume, become or be liable in any manner with
respect to, any long-term Indebtedness for money borrowed, except (i)
Indebtedness incurred in the normal course of the Company's business, including
for working capital needs, improvements and expansion so long as such
Indebtedness does not exceed $250,000 at any one time or (ii) Indebtedness
incurred for purchase money obligations and capitalized lease obligations, so
long as: (x) the pertinent assets are acquired for use in the ordinary course of
the Company's business, (y) the Indebtedness secured thereby does not exceed the
fair market value of such assets and (z) the aggregate mount of such
Indebtedness does not exceed $250,000 at any one time;
(o) pledge or grant a security interest in any of its assets
(including any leasehold interests in property used by the Company) or ownership
interests now or hereafter owned, other than as collateral for Indebtedness
permitted under Section 6.3(n) above; and
(p) amend any employment agreement with the Founder or change the
compensation paid thereunder in any material respect.
20
<PAGE>
Section 6.4 Assignment. Each Investor and each Stockholder agrees, as a
----------- ----------
condition to any Transfer of his, her or its shares, to cause the Transferee to
agree to the provisions of this Article VI, whereupon such Transferee shall be
subject to the provisions hereof.
ARTICLE VII GENERAL
- ----------- -------
Section 7.1 Amendments, Waivers and Consents. For the purposes of this
----------- --------------------------------
Agreement, no course of dealing between or among any of the parties hereto and
no delay on the part of any party hereto in exercising any rights hereunder
shall operate as a waiver of the rights hereof. This Agreement may not be
amended or modified or any provision hereof waived without the joint written
consent of the Company, the Stockholders holding not less than a majority of the
outstanding shares of Common Stock then held by the Stockholders and the holders
of not less than a majority of the outstanding shares of Series A Preferred
Stock and the holders of not less than a majority of the outstanding shares of
Series B Preferred Stock, each voting separately as a class, provided, that any
party may waive any provision hereof intended for its benefit by written
consent; and provided, further, that (i) the provisions contained in Article II
-------- -------
may be amended, modified or waived by the written consent of the Company, the
Founder, the holders of not less than a majority of the outstanding shares of
Series A Preferred Stock and the holders of not less than a majority of the
outstanding shares of Series B Preferred Stock, each voting separately as a
class, provided that any such amendment, modification or waiver that
disproportionately and adversely affects any Stockholder shall require the prior
written consent of such Stockholder, (ii) the provisions contained in Article
III may be amended, modified or waived by the written consent of the Company,
the Founder, the holders of not less than a minority of the outstanding shares
of Series A Preferred Stock and the holders of not less than a majority of the
outstanding shares of Series B Preferred Stock, each voting separately as a
class, and (iii) the provisions contained in Article IV and Section 6.3 may be
amended, modified or waived by the written consent of the Company, the holders
of not less than a majority of the outstanding shares of Series A Preferred
Stock and the holders of not less than a majority of the outstanding shares of
Series B Preferred Stock, each voting separately as a class.
Section 7.2 Legend on Securities. The Company, each of the Investors and
----------- --------------------
each of the Stockholders acknowledge and agree that a legend in substantially
the following form shall be typed on each certificate evidencing any of the
securities issued hereunder held at any time by an Investor or a Stockholder:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT
(1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH
IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A
STOCKHOLDERS AND RIGHTS AGREEMENT DATED AS OF JULY 9, 1999,
21
<PAGE>
INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY
OF THIS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
Section 7.3 Governing Law. This Agreement shall be deemed to be a contract
----------- -------------
made under, and shall be construed in accordance with, the laws of The State of
Delaware, without giving effect to conflict of laws principles thereof.
Section 7.4 Section Headings. The descriptive headings in this Agreement
----------- ----------------
have been inserted for convenience only and shall not be deemed to limit or
otherwise affect the construction of any provision thereof or hereof.
Section 7.5 Counterparts. This Agreement may be executed simultaneously in
----------- ------------
any number of counterparts, each of which when so executed and delivered shall
be taken to be an original; but such counterparts shall together constitute but
one and the same document. This Agreement may be executed and delivered by
exchange of facsimile copies showing the signatures of the parties hereto, and
those signatures need not be affixed to the same copy. The facsimile copies
showing the signatures of the parties will constitute originally signed copies
of the same agreement requiring no further execution.
Section 7.6 Notices and Demands. Any notice or demand which is required or
----------- -------------------
provided to be given under this Agreement shall be deemed to have been
sufficiently given and received for all purposes when delivered by hand,
telecopy, telex or other method of facsimile, or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt
requested, or two days after being sent by overnight delivery providing receipt
of delivery, to the following addresses: if to the Company or the Founder, at
the addresses set forth on the signature pages hereto, or at any other address
designated by the Company or the Founder, respectively, to the Investors and the
other parties hereto in writing; if to the Investors, at the address set forth
on the signature pages hereto or at any other address designated by an Investor
to the Company in writing; and if to any other Stockholder, at the mailing
address for notice as set forth in the books and records of the Company.
Section 7.7 Dispute Resolution.
----------- ------------------
(a) All disputes, claims, or controversies arising out of or relating
to this Agreement or any other agreement executed and delivered pursuant to this
Agreement or the negotiation, validity or performance hereof and thereof or the
transactions contemplated hereby and thereby that are not resolved by mutual
agreement shall be resolved solely and exclusively by binding arbitration to be
conducted in accordance with this Section 7.7. The arbitration shall be held in
New York, New York before a single arbitrator (who shall possess experience in
corporate transaction litigation) and shall be conducted in accordance with the
rules and regulations for large complex litigation promulgated by but not under
the auspices of the American Arbitration Association (the "AAA"), unless
specifically modified herein.
The parties covenant and agree that the arbitration shall commence within
one hundred eighty (180) days of the date on which a written demand for
arbitration is filed by any party
22
<PAGE>
hereto. In connection with the arbitration proceeding, the arbitrator shall have
the power to order the production of documents by each party and any third-party
witnesses. In addition, each party may take up to three depositions as of right,
and the arbitrator may in his or her discretion allow additional depositions
upon good cause shown by the moving party. However, the arbitrator shall not
have the power to order the answering of interrogatories or the response to
requests for admission. In connection with any arbitration, each party shall
provide to the other, no later than seven (7) business days before the date of
the arbitration, the identity of all persons that may testify at the arbitration
and a copy of all documents that may be introduced at the arbitration or
considered or used by a party's witness or expert. The arbitrator's decision and
award shall be made and delivered as soon as possible, but in no event later
than six (6) months of the selection of the arbitrator. The arbitrator's
decision shall set forth a reasoned basis for any award of damages or finding of
liability. The arbitrator shall not have power to award damages in excess of
actual compensatory damages and shall not multiply actual damages or award
punitive damages or any other damages that are specifically excluded under this
Agreement, and each party hereby irrevocably waives any claim to such damages.
The parties covenant and agree that they will participate in the
arbitration in good faith and that they will share equally its costs, except as
otherwise provided herein. The arbitrator may in his or her discretion assess
costs and expenses (including the reasonable legal fees and expenses of the
prevailing party) against any party to a proceeding. Any party unsuccessfully
refusing to comply with an order of the arbitrators shall be liable for costs
and expenses, including attorneys' fees, incurred by the other party in
enforcing the award. This Section 7.7 applies equally to requests for
temporary, preliminary or permanent injunctive relief, except that in the case
of temporary or preliminary injunctive relief any party may proceed in court
without prior arbitration for the limited purpose of avoiding immediate and
irreparable harm. The provisions of this Section 7.7 shall be enforceable in
any court of competent jurisdiction.
The parties shall bear their own attorneys' fees, costs and expenses in
connection with the arbitration. The parties will share equally in the fees and
expenses charged by the arbitrator.
(b) Each of the parties hereto irrevocably and unconditionally
consents to the provisions of this Section 7.7 to resolve all disputes, claims
or controversies arising out of or relating to this Agreement or any other
agreement executed and delivered pursuant to this Agreement or the negotiation,
validity or performance hereof and thereof or the transactions contemplated
hereby and thereby and further consents to the jurisdiction of the courts of the
State of New York for the purposes of enforcing the arbitration provisions of
Section 7.7(a) hereof. Each party further irrevocably waives any objection to
proceeding in the manner set forth in this Section 7.7 based upon lack of
personal jurisdiction or to the laying of venue and further irrevocably and
unconditionally waives and agrees not to make a claim in any court that
arbitration conducted in accordance with this Section 7.7 has been brought in an
inconvenient forum. Each of the parties hereto hereby consents to service of
process by registered mail at the address to which notices are to be given. Each
of the parties hereto agrees that its or his submission to jurisdiction and its
or his consent to service of process by mail is made for the express benefit of
the other parties hereto.
Section 7.8 Remedies; Severability. Notwithstanding Section 7.7 hereof, is
----------- ----------------------
specifically understood and agreed that any breach of the provisions of this
Agreement by any
23
<PAGE>
Person subject hereto may result in irreparable injury to the other parties
hereto, that the remedy at law alone may be an inadequate remedy for such
breach, and that, in addition to any other remedies which they may have, such
other parties may enforce their respective rights by actions for specific
performance (to the extent permitted by law). The Company may refuse to
recognize any unauthorized transferee as one of its stockholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invali date the remainder of such provision
or the other provisions of this Agreement.
Section 7.9 Integration. This Agreement, including the exhibits, documents
----------- -----------
and instruments referred to herein, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including, without
limitation, the letter of intent between the Company and the Series A Investors,
dated May 6, 1999 and the letter of intent dated June 16, 1999 between the
Company and the Series B Investor. The Company and the Management Stockholder
agree that Article IV of this Agreement shall constitute the entire agreement,
and supercede all other prior agreements and understandings, both written and
oral, with respect to the subject matter thereof, including the Employment
Agreement dated as of June 1, 1999 between the Company and the Management
Stockholder.
Section 7.10 Adjustment. All references to share amounts and prices herein
------------ ----------
shall be equitably adjusted to reflect any stock split, combination,
reorganization, recapitalization, reclassification, stock distribution, stock
dividend or similar event affecting the capital stock of the Company.
Section 7.11 Term. The provisions contained in Articles II, III and VI
------------ ----
will remain in effect only until the closing by the Company of a Qualified
Public Offering. The remaining provisions will survive after a Qualified Public
Offering.
[SIGNATURE PAGE FOLLOWS]
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Stockholders and Rights Agreement as of the date first above written.
COMPANY:
CLICK INTERACTIVE, INC.
By: /s/ Michael W. Ferro
------------------------------------
Michael W. Ferro, Jr., President
Address:
919 North Michigan Avenue
Chicago, Illinois 60611
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Stockholders and Rights Agreement as of the date first above written.
FOUNDER:
By: /s/ Michael W. Ferro
----------------------------------
Michael W. Ferro, Jr., President
Address:
2816 Osprey Cove Place, #101
Kissimee, FL 34746
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Stockholders and Rights Agreement as of the date first above written.
SERIES A INVESTORS:
------------------
INSIGHT CAPITAL PARTNERS III, L.P.
By: Insight Venture Associates III,
L.L.C., its general partner
By: /s/ Jerry Murdock
-----------------------------
Name: Jerry Murdock
Title: Partner
INSIGHT CAPITAL PARTNERS III
--COINVESTORS, L.P.
By: Insight Venture Associates III,
L.L.C., its general partner
By: /s/ Jerry Murdock
-----------------------------
Name: Jerry Murdock
Title: Partner
INSIGHT CAPITAL PARTNERS
(CAYMAN) III, L.P.
By: Insight Venture Associates III,
L.L.C., its general partner
By: /s/ Jerry Murdock
-----------------------------
Name: Jerry Murdock
Title: Partner
Address for Investors:
c/o Insight Capital Partners
122 East 42nd Street, Suite 2400
New York, New York 10168
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Stockholders and Rights Agreement as of the date first above written.
SERIES B INVESTOR:
-----------------
COMPAQ COMPUTER CORPORATION
By: /s/ Stephen Mahoney
-----------------------------
Address: 40 Old Bolton Road
Stow, Massachusetts 01775
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Stockholders and Rights Agreement as of the date first above written.
MANAGEMENT STOCKHOLDER:
By: /s/ Robert J. Markese
---------------------------------
Robert J. Markese
155 North Montclair Avenue
Glen Ellyn, IL 60137
<PAGE>
EXHIBIT A
Form of Stockholder Joinder Agreement
-------------------------------------
The undersigned hereby agrees, effective as of the date hereof, to become a
party to that certain Amended and restated Stockholders and Rights Agreement
(the "Agreement") dated as of July ___, 1999 by and among Click Interactive,
Inc. (the "Company") and the other parties named therein and for all purposes of
the Agreement, the undersigned shall be included within the term Stockholder
(each as defined in the Agreement), The address and facsimile number to which
notices may be sent to the undersigned is as follows:
________________________________________________________________________________
Facsimile No._________________.
________________________________________
[NAME OF UNDERSIGNED]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Stockholders and Rights Agreement as of the date first above written.
SERIES A INVESTORS:
------------------
INSIGHT CAPITAL PARTNERS III, L.P.
By: Insight Venture Associates III,
L.L.C., its general partner
By: /s/ Jerry Murdock
-----------------------------
Name: Jerry Murdock
Title: Partner
INSIGHT CAPITAL PARTNERS III
--COINVESTORS, L.P.
By: Insight Venture Associates III,
L.L.C., its general partner
By: /s/ Jerry Murdock
-----------------------------
Name: Jerry Murdock
Title: Partner
INSIGHT CAPITAL PARTNERS
(CAYMAN) III, L.P.
By: Insight Venture Associates III,
L.L.C., its general partner
By: /s/ Jerry Murdock
-----------------------------
Name: Jerry Murdock
Title: Partner
Address for Investors:
c/o Insight Capital Partners
122 East 42nd Street, Suite 2400
New York, New York 10168
<PAGE>
EXHIBIT 10.1
CLICK COMMERCE, INC.
STOCK OPTION AND STOCK AWARD PLAN
Click Commerce, Inc., a Delaware corporation (formerly known as "Click
Interactive, Inc.") (the "Company"), hereby amends and restates its stock option
plan formerly known as the Click Interactive, Inc. Stock Option and Stock Award
Plan (the "Plan"). The Plan, as amended and restated, shall be effective as of
the date of its adoption by the Board of Directors of the Company (the "Board"),
subject to the approval of the Company's stockholders on or before the first
anniversary of the date of its adoption by the Board. Upon approval by the
Board, awards may be made as provided herein, subject to such subsequent
stockholder approval.
1. Purposes.
The Company desires to attract and retain the best available employees,
officers, directors and consultants for itself and its Subsidiaries and to
encourage the highest level of performance by such individuals in order to serve
the best interests of the Company and its stockholders. The Plan is expected to
contribute to the attainment of these objectives by offering eligible
individuals the opportunity to acquire stock ownership interests in the Company,
and to thereby provide them with incentives to put forth maximum efforts for the
success of the Company and its Subsidiaries. The term "Subsidiary" as used
herein means each corporation which meets the definition of "subsidiary
corporation" contained in Section 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Form of Awards.
Stock options awarded under the Plan may be either incentive stock options
meeting the requirements of Section 422 of the Code ("ISOs") or options that do
not meet the requirements of Section 422 of the Code ("NSOs"). Unless otherwise
indicated, references in the Plan to "Options" shall include both ISOs and NSOs.
The Committee may also award stock appreciation rights ("SARs") in tandem with
any Option awarded hereunder. An Option (or a portion thereof) that is not
designated as an ISO, or that does not satisfy all of the requirements of
Section 422 of the Code, and any Option granted to an individual who is not an
employee or officer of the Company or a Subsidiary, shall be a NSO.
3. Maximum Shares Available.
The maximum aggregate number of shares ("Shares") of the Company's common
stock, $.001 par value per share ("Common Stock") for which Options may be
awarded under the Plan is 4,930,842, subject to adjustment pursuant to Section
11. Shares of Common Stock issued pursuant to the Plan may be either authorized
but unissued shares of Common Stock or issued shares of Common Stock reacquired
by the Company. In the event that any Option under the Plan expires unexercised
or is terminated, surrendered or canceled without being exercised in whole or in
part for any reason (other than cancellation as a result of the exercise of a
tandem SAR), then the shares of Common Stock covered by such Option may, at the
discretion of the Committee (as defined below), be made available for subsequent
awards under the Plan, upon such terms as the Committee may determine.
<PAGE>
4. Administration.
(a) Committee. The Plan shall be administered by a committee (the
"Committee") consisting of two or more members of the Board, each of whom is a
"disinterested person" as such term is defined in Rule 16b-3(c)(2)(i) of the
General Rules and Regulations promulgated under the Securities and Exchange Act
of 1934 (the "Act") (and, in addition, with respect to any grant of an Option or
SAR, or the determination of conditions and restrictions intended to make the
grant or award subject thereto constitute "performance-based compensation"
within the meaning of Section 162(m)(4)(C) of the Code, such grant, award or
determination is made by a Committee consisting of two or more "outside
directors" as such term is defined in Treasury Regulation Section 1.162-
27(e)(3)), and who shall be appointed by, and may be removed by, such Board.
(b) Powers of Committee. Subject to the express provisions of the Plan,
the Committee shall have the power and authority (i) to grant Options and to
determine the exercise price of each such Option, the term of each such Option,
the number of shares of Common Stock to be covered by each such Option and the
vesting standards applicable to each such Option; (ii) to establish performance
goals to be achieved within such performance periods and using such measures as
it may select; (iii) to waive any condition or restriction applicable to an
Option and accelerate the exercisability thereof; (iv) to designate Options as
ISOs or NSOs; (v) to award SARs in tandem with such Options and (vi) to
determine the employees, officers, directors and consultants to whom, and the
time or times at which, Options and SARs shall be granted.
(c) Delegation. The Committee may delegate to one or more of its members
or to any other person or persons such ministerial duties as it may deem
advisable. The Committee may also employ attorneys, consultants, accountants or
other professional advisors and shall be entitled to rely upon the advice,
opinions or valuations of any such advisors.
(d) Interpretations. The Committee shall have sole discretionary authority
to interpret the terms of the Plan, to adopt and revise rules, regulations and
policies to administer the Plan and to make any factual determinations which it
believes to be necessary or advisable for the administration of the Plan. All
actions taken and interpretations and determinations made by the Committee in
good faith shall be final and binding upon the Company, all Optionees (as
defined in Section 5) who have received awards under the Plan and all other
interested persons.
(e) Liability; Indemnification. No member of the Committee, nor any
individual to whom ministerial duties have been delegated, shall be personally
liable for any action, interpretation or determination made with respect to the
Plan or awards made thereunder, and each member of the Committee shall be fully
indemnified and protected by the Company with respect to any liability he or she
may incur with respect to any such action, interpretation or determination, to
the extent permitted by applicable law and to the extent provided in the
Company's Certificate of Incorporation and Bylaws, as amended from time to time.
2
<PAGE>
5. Eligibility.
Options and SARs may be granted to executive and key management employees,
officers, directors and consultants of the Company and its Subsidiaries;
provided, however, that ISOs may not be granted to any individual who is not an
employee of the Company or its Subsidiaries. In determining the individuals to
whom Options and SARs shall be granted ("Optionees") and the number of shares to
be covered by each Option and SAR, the Committee shall take into account the
nature of the services rendered by such individuals, their present and potential
contribution to the success of the Company and its Subsidiaries and such other
factors as the Committee in its sole discretion shall deem relevant.
6. Terms and Conditions of Options.
(a) Grant of Options. Options shall be granted in such form and upon such
terms and conditions as the Committee shall from time to time determine. Each
award of Options shall be evidenced by a written agreement, executed by the
Optionee and the Company, and containing such restrictions, terms and
conditions, if any, as the Committee may require (the "Option Agreement"). In
the event of any conflict between an Option Agreement and the Plan, the terms of
the Plan shall govern. The date on which the Option is granted to an Optionee,
as set forth in the Option Agreement, is referred to herein as the "Grant Date."
The maximum number of shares with respect to which Options and SARs may be
granted during any calendar year to any Optionee is 1,000,000.
(b) Option Price. Subject to the provisions of Section 7(a) with respect
to 10% stockholders of the Company, the price at which a Share may be purchased
pursuant to the exercise of an Option shall be determined by the Committee at
the Grant Date; provided, however, that the Option Price shall not be less than
100% of the Fair Market Value of a Share subject to such Option on the Grant
Date. Subject to the provisions of Section 11, for all purposes of the Plan the
"Fair Market Value" of a Share as of any date means the fair market value of the
Share as determined by the Committee in its sole discretion, or pursuant to a
formula it establishes from time to time which utilizes the market price of
Common Stock.
(c) Term of Options. The term of each Option granted under the Plan shall
be established by the Committee at the Grant Date. Except as otherwise provided
in Section 7(a) with respect to 10% percent stockholders of the Company, the
term of each ISO shall not exceed ten years from the Grant Date.
(d) Exercise of Options. Each Option shall be exercisable, either in whole or in
part, at such time or times as shall be determined by the Committee at the Grant
Date of the Option; provided, however, that no Option shall be exercisable after
the expiration date of the Option. The Committee may establish performance goals
to be achieved within such time periods and using such measures as the Committee
may select in its sole discretion as a condition to the exercise of an Option.
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<PAGE>
Options granted under the Plan shall be immediately exercisable in the
event of a Change in Control. "Change in Control" shall occur when, (A) a
person, entity or group other than an individual who is a stockholder of the
Company as of the date of the Company's initial public offering ("Existing
Stockholders") acquires beneficial ownership of 35% of the outstanding shares
entitled to vote in elections of directors ("voting shares"), or (B) the Company
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 Existing Stockholders.
Options may be exercised by an Optionee (after the Option becomes
exercisable and prior to the expiration date of the Option) by giving written
notice to the Secretary of the Company stating the number of shares of Common
Stock with respect to which the Option is being exercised and tendering payment
therefor. Payment for the shares of Common Stock issuable upon exercise of the
Option shall be made in full in cash or, if the Committee, in its sole
discretion, permits, in shares of Common Stock (valued at Fair Market Value on
the date of exercise). As soon as reasonably practicable following such
exercise, a certificate representing the shares of Common Stock purchased,
registered in the name of the Optionee, shall be delivered to the Optionee.
(e) Reload Rights. The Committee may grant reload rights which entitle the
Optionee to receive a new Option ("Reload Option") to purchase shares upon the
Optionee's exercise of an Option ("Underlying Option") by delivery or
attestation of shares of Common Stock in payment of the Option Price. However,
no Reload Option shall be granted unless (i) a sufficient number of shares
remain authorized and not issued or subject to purchase under outstanding
Options granted under the Plan; (ii) the Optionee is a Director or Employee on
the date of exercise of the Underlying Option; (iii) the exercise of the
Underlying Option is for the purchase of a number of shares of Common Stock at
least equal to the lesser of 25% of the total number of shares subject to
purchase or 100% of the shares with respect to which the Underlying Option is
then exercisable; (iv) the Grant Date of the Reload Option would be at least one
year before the Expiration Date of the Underlying Option; and (v) the Fair
Market Value of one share of the Underlying Option on the Exercise Date is
greater than or equal to the Option Price of the Underlying Option. Each Reload
Option shall entitle the Optionee to purchase a number of shares equal to the
sum of the number of shares used to pay the Option Price of the Underlying
Option and the number of shares delivered or withheld in payment of the tax
withholding amount pursuant to Section 13(a). Each Reload Option shall have the
same Expiration Date as the Underlying Option. No reload Option shall have
Reload Rights.
(f) Cancellation of SARs. Upon exercise of all or a portion of an Option,
the related SARs, if any, shall be canceled with respect to an equal number of
shares of Common Stock.
7. Special Rules Applicable to ISOs.
(a) 10% Stockholders. Notwithstanding any other provisions of this Plan to
the contrary, an individual may not receive an ISO under the Plan if such
individual, on the Date of Grant, owns (after application of the rules contained
in Section 424(d) of the Code) stock
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<PAGE>
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its Subsidiaries, unless (i) the Option Price for such
ISO is at least 110% of the Fair Market Value of the Common Stock subject to
such ISO on the Date of Grant and (ii) such ISO is not exercisable after the
date five years from its Date of Grant.
(b) Limitation on Grants. The aggregate Fair Market Value (determined with
respect to each ISO at the time such ISO is granted) of the shares of Common
Stock with respect to which ISOs are exercisable for the first time by an
Optionee during any calendar year (under this Plan or any other plan of the
Company or a Subsidiary) shall not exceed $100,000. Any portion of an Option
which exceeds this annual limit shall be a NSO.
(c) Limitations on Time of Grant. No grant of an ISO shall be made under
this Plan more than ten years after the date of adoption of the Plan by the
Board.
8. Stock Appreciation Rights.
-------------------------
(a) Grants of SARs. SARs may be awarded by the Committee in connection
with any Option granted under the Plan, either on the Date of Grant of the
Option or thereafter at any time prior to the exercise, termination or
expiration of the Option. SARs shall be subject to such terms and conditions not
inconsistent with the other provisions of this Plan as the Committee shall
determine.
(b) Exercise of SARs. An SAR shall be exercisable only to the extent that
the related Option is exercisable and shall be exercisable only for such period
as the Committee may determine (which period may expire prior to the expiration
date of the related Option). Upon the exercise of all or a portion of an SAR,
the related Option shall be canceled with respect to an equal number of shares
of Common Stock. An SAR shall entitle the Optionee to surrender to the Company
unexercised the related Option, or any portion thereof, and to receive from the
Company in exchange therefor that number of shares of Common Stock having an
aggregate Fair Market Value equal to (A) the excess of (i) the Fair Market Value
of one Share as of the date the SAR is exercised over (ii) the Option Price per
Share specified in such Option, multiplied by (B) the number of shares of Common
Stock subject to the Option, or portion thereof, which is surrendered. Cash
shall be delivered in lieu of any fractional shares.
(c) Settlement of SARs. As soon as is reasonably practicable after the
exercise of a SAR, the Company shall (i) issue, in the name of the Optionee,
Shares representing the total number of full shares of Common Stock to which the
Optionee is entitled pursuant to Section 8(b) hereof and cash in an amount equal
to the Fair Market Value, as of the date of exercise, of any resulting
fractional shares of Common Stock, or (ii) if the Committee causes the Company
to elect to settle all or part of its obligations arising out of the exercise of
the SAR in cash pursuant to Section 8(d), deliver to the Optionee an amount in
cash equal to the Fair Market Value, as of the date of exercise, of the shares
of Common Stock it would otherwise be obligated to deliver.
(d) Cash Settlement. The Committee, in its discretion, may cause the
Company to settle all or any part of its obligation arising out of the exercise
of a SAR by the payment of cash
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<PAGE>
in lieu of all or part of the shares of Common Stock it would otherwise be
obligated to deliver in an amount equal to the Fair Market Value of such shares
on the date of exercise.
9. Transferability of Options.
--------------------------
No ISO or related SAR may be transferred, assigned, pledged or hypothecated
(whether by operation of law or otherwise), except as provided by will, the
applicable laws of descent and distribution or pursuant to a qualified domestic
relations order (as defined in Section 414(p) of the Code), and no ISO or
related SAR shall be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of an
ISO or related SAR not specifically permitted herein shall be null and void and
without effect. An ISO or SAR may be exercised only by the Optionee during his
or her lifetime and, following the Optionee's death, may be exercised only as
provided in Section 10(c).
An Optionee may transfer all or part of a NSO or related SAR to the
Optionee's spouse, child or children, grandchild or grandchildren, or to a trust
for the benefit of any of the foregoing; provided that the transferee thereof
shall hold such NSO or SAR subject to all of the conditions and restrictions
contained herein and otherwise applicable to the NSO or related SAR, and that,
as a condition to such transfer, the Company may require the transferee to agree
in writing (in a form acceptable to the Company) that the transfer is subject to
such conditions and restrictions.
10. Effect of Termination of Employment or Service on Options and SARs.
-------------------------------------------------------------------
(a) Termination of Employment or Service. In the event that an Optionee's
employment or service as a non-employee director or consultant with the Company
or a Subsidiary shall be terminated (for reasons other than death or disability)
or in the event such Optionee shall resign from employment or service as a non-
employee director or consultant, exercisable Options and SARs held by such
Optionee may not be exercised after the date the employment or service
terminates except to the extent the Committee (either at the Date of Grant or
thereafter) permits exercise after such date but, in any case, no later than 90
days after such employment or services ended unless, in the case of an NSO, the
exercise period is extended by the Committee. In no event, however, may an
Option or SAR be exercised after the expiration date of the Option as designated
by the Committee pursuant to Section 6(c).
(b) Disability. In the event that an Optionee's employment or service as a
non-employee director or consultant with the Company or one of its Subsidiaries
shall be terminated as a result of the disability of the Optionee (within the
meaning of Section 22(e)(3) of the Code), Options and/or SARs that the Optionee
was entitled to exercise on the date his or her employment or service with the
Company or Subsidiaries terminated may be exercised at any time during the first
twelve months after such Optionee terminated employment or ceased serving as a
non-employee director or consultant, unless, in the case an NSO, the exercise
period is extended by the Committee. In no event, however, may the Option and/or
SAR be exercised after the expiration date of the Option as designated by the
Committee pursuant to Section 6(c).
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<PAGE>
(c) Death. If an Optionee shall die while employed by or serving as a non-
employee director or consultant of the Company or one of its Subsidiaries,
Options and SARs that the Optionee was entitled to exercise on the date
immediately preceding his or her date of death may be exercised by the
Optionee's estate or by the person who acquires the right to exercise such
Option and/or SAR on his or her death by bequest or inheritance. Such exercise
may occur at any time within one year after the date of the Optionee's death,
unless, in the case of an NSO, the exercise period is extended by the Committee.
In no event, however, may the Option and/or SAR be exercised after the
expiration date of the Option as designated by the Committee pursuant to Section
6(c).
(d) Nonexercisable Options and SARs. Options and SARs that have not yet
become exercisable by the Optionee shall terminate immediately upon the
Optionee's termination of employment or cessation of service as a non-employee
director or consultant with the Company and its Subsidiaries for any reason
whatsoever.
11. Adjustment upon Changes in Capitalization.
-----------------------------------------
Subject to the following provisions of this Section 11, in the event of any
change in the outstanding shares of Common Stock by reason of any share
dividend, split, recapitalization, merger, consolidation, combination, exchange
of shares or other similar corporate change, the aggregate number and kind of
shares of Common Stock reserved for issuance under the Plan or subject to
Options outstanding or to be granted under the Plan shall be proportionately
adjusted so that the value of each Option shall not be changed, and the terms of
any outstanding Option may be adjusted by the Committee in such manner as it
deems equitable; provided, however, that in no event shall the Option Price for
a Share be adjusted below the par value of such Share, nor shall any fraction of
a Share be issued upon the exercise of an Option.
12. Amendment and Termination of Plan.
---------------------------------
Subject to any approval of the stockholders of the Company that may be
required (or, in the opinion of the Committee, appropriate ) under law, the
Committee may at any time amend, suspend or terminate the Plan. No amendment,
suspension or termination of the Plan shall materially and adversely alter or
impair any Option or SAR previously granted under the Plan without the consent
of the holder thereof.
13. Miscellaneous.
-------------
(a) Tax Withholding. Whenever an Optionee recognizes income with respect
to an Option or SAR under the Plan, the Company shall have the right to deduct
from all payments under this Plan amounts sufficient to satisfy all withholding
tax requirements, or to require Optionees or their beneficiaries or legal
representatives to remit to the Company an amount sufficient to satisfy those
withholding tax requirements. The Committee may, in its discretion, permit an
Optionee to satisfy his or her tax withholding obligation either by (i)
surrendering shares owned by the Optionee or (ii) having the Company withhold
from shares otherwise deliverable to the Optionee. Shares of Common Stock
surrendered or withheld shall be valued at their Fair Market Value as of the
date on which income is required to be recognized for income
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<PAGE>
tax purposes. In the case of an award of ISOs, the foregoing right shall be
deemed to be provided to the Optionee at the time of such award. If shares are
surrendered by or withheld for an Optionee who is subject to Section 16 of the
Act, the foregoing shall be accomplished in a manner consistent with Rule 16b-
3(e) thereunder.
(b) Successors. The obligations of the Company under the Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to substantially all of the
assets and business of the Company. The Company shall make appropriate provision
for the preservation of Optionees' rights under the Plan in any agreement or
plan which it may enter into or adopt to effect any such merger, consolidation,
reorganization or transfer of assets.
(c) No Right to Employment. Nothing in the Plan or in any Option Agreement
entered into pursuant to Section 6(a), nor the grant of any Option, shall confer
upon any individual any right to continue in the employ of the Company or a
Subsidiary or to be entitled to any remuneration or benefits not set forth in
the Plan or such Option Agreement or interfere with or limit the right of the
Company or a Subsidiary to modify the terms of or terminate such individual's
employment at any time.
(d) Notices. Notices required or permitted to be made under the Plan shall
be sufficiently made if sent by registered or certified mail addressed (i) to
the Optionee at the Optionee's address as set forth in the books and records of
the Company or its Subsidiaries, or (ii) to the Company or the Committee at the
principal office of the Company.
(e) Severability. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
(f) Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the State of Delaware.
(g) Term of Plan. Unless earlier terminated pursuant to Section 12, the
Plan shall terminate on the tenth anniversary of the date of its original
adoption by the Board.
8
<PAGE>
CLICK COMMERCE, INC.
DIRECTORS' STOCK OPTION AND STOCK AWARD PLAN
1. PREAMBLE.
Click Commerce, Inc., a Delaware corporation (the "Company"), hereby
establishes the Click Commerce, Inc. Directors' Stock Option and Stock Award
Plan (the "Plan") to provide automatic grants of non-qualified stock options and
the payment of non-employee directors' retainers and meeting fees in common
stock of the Company ("Common Stock"), from and after the Company's initial
public offering of Common Stock. The Plan is intended to promote the long-term
growth and financial success of the Company by attracting and retaining non-
employee directors of outstanding ability and assisting the Company in promoting
a greater identity of interest between the Company's non-employee directors and
its stockholders.
2. DEFINITIONS.
2.01 "Award" means an Option or an award of Common Stock.
2.02 "Board" or "Board of Directors" means the board of directors of the
Company.
2.03 "Committee" means the Board of Directors or a committee appointed by
the Board to administer the Plan. Once appointed, the Committee shall continue
to serve until otherwise directed by the Board of Directors.
2.04 "Common Stock" means the common stock of the Company, $0.001 par
value.
2.05 "Company" means Click Commerce, Inc., a Delaware corporation, and any
successor thereto.
2.06 "Director" means a member of the Board who is not otherwise an
employee of the Company and, after the Company registers shares of Common Stock
under either the Securities Act of 1933, as amended, or the Exchange Act.
2.07 "Effective Date" means the effective date of the Company's
underwritten initial public offering of Common Stock.
2.08 "Exchange Act" means the Securities Exchange Act of 1934, as it
exists now or from time to time may hereafter be amended.
2.09 "Fair Market Value" means for the relevant day:
<PAGE>
(a) If shares of Common Stock are listed or admitted to unlisted trading
privileges on any national or regional securities exchange, the average between
the high and low sales prices reported, on the composite tape of that exchange
(provided that, if the shares are listed or admitted on more than one exchange,
then on the exchange designated by the Board from time to time) on the day Fair
Market Value is to be determined;
(b) If the Common Stock is not listed or admitted to unlisted trading
privileges as provided in paragraph (a), and if sales prices for shares of
Common Stock are reported by the Nasdaq Stock Market ("Nasdaq"), then the
average of the high and low sales price for Common Stock reported as of the
close of business on the day Fair Market Value is to be determined, or if Common
Stock is not traded on that day, the next preceding day on which such stock was
traded; or
(c) If trading of the Common Stock is not reported by the Nasdaq or on a
stock exchange, Fair Market Value will be determined by the Committee in its
discretion based upon the best available data.
2.10 "Option" means the right of a Participant to purchase a specified
number of shares of Common Stock, subject to the terms and conditions of the
Plan.
2.11 "Option Date" means the date upon which an Option is awarded to a
Participant under the Plan.
2.12 "Option Price" means the price per share at which an Option may be
exercised.
2.13 "Participant" means an individual to whom an Option has been granted
under the Plan.
2.14 "Plan" means the Click Commerce, Inc. Directors' Stock Option and
Stock Award Plan, as set forth herein and as from time to time amended.
2.15 "Subsidiary" means any corporation or other entity of which the
majority voting power or equity interest is owned directly or indirectly by the
Company.
2.16 Rules of Construction.
(a) Governing Law. The construction and operation of this Plan are
governed by the laws of the State of Delaware.
(b) Headings. All headings in this Plan are for reference only and are not
to be utilized in construing the Plan.
(c) Gender. Unless clearly appropriate, all nouns of whatever gender refer
to persons of either gender.
2
<PAGE>
(d) Singular and Plural. Unless clearly inappropriate, singular terms
refer also to the plural and vice versa.
(e) Severability. If any provision of this Plan is determined to be
illegal or invalid for any reason, the remaining provisions shall continue in
full force and effect and shall be construed and enforced as if the illegal or
invalid provision did not exist, unless the continuance of the Plan in such
circumstances is not consistent with its purposes.
3. STOCK SUBJECT TO THE PLAN.
Except as otherwise provided in Section 10, the aggregate number of shares
of Common Stock that may be issued, or subject to Options granted under this
Plan, may not exceed 500,000 shares of Common Stock. Reserved shares may be
either authorized but unissued shares or shares reacquired by the Company and
held in its treasury, in the Board's discretion. If any Options hereunder shall
terminate or expire, as to any number of shares, new Options or shares may
thereafter be awarded with respect to such shares.
4. ADMINISTRATION.
The Plan shall be administered by the Committee. In addition to any other
powers set forth in this Plan, the Committee has the exclusive authority:
(a) to construe and interpret the Plan, and to remedy any ambiguities or
inconsistencies therein;
(b) to establish, amend and rescind appropriate rules and regulations
relating to the Plan;
(c) generally, to administer the Plan, and to take all such steps and make
all such determinations in connection with the Plan and the Awards granted
thereunder as it may deem necessary or advisable;
(d) to determine, on an individual basis, or generally from time to time,
the form in which payment on an Option exercise under Section 7, or tax
withholding under Section 13, will be made; and
(e) to take any action necessary, including amendment of the Plan or any
Award, as required in order for a transaction to qualify for pooling of interest
accounting treatment.
Notwithstanding the foregoing, to the extent necessary to satisfy Rule 16b-
3 under the Exchange Act, action otherwise within the authority of the Committee
shall be taken by the full Board.
3
<PAGE>
5. DIRECTOR STOCK OPTIONS.
(a) Each Director shall be granted (i) if he is a Director on the
Effective Date, an Option to purchase 10,000 shares of Common Stock at an Option
Price equal to the per share initial offering price; (ii) if he is a Director on
the date of an annual meeting of the Company's stockholders, an Option to
purchase 10,000 shares of Common Stock at an Option Price equal to the Fair
Market Value on such date; and (iii) on the date he first becomes a Director (if
other than at an annual meeting of the Company's stockholders) an Option to
purchase a number of shares of Common Stock equal to 10,000 multiplied by a
fraction, the numerator of which is the number of days such individual will
serve until the date that will be the next annual meeting of the Company's
stockholders (as determined by the Committee) and the denominator of which is
365 at an Option Price equal to the Fair Market Value on such date.
(b) An Option shall be granted hereunder only if as of each Option Date
the Director (i) is not otherwise an employee of the Company or any Subsidiary,
and (ii) has served on the Board continuously since the commencement of his or
her term.
(c) In the event that the number of shares of Common Stock available for
grant under the Plan is insufficient to make all automatic grants required to be
made on a given date, then the Options granted to Directors entitled to a grant
on such date shall share ratably in the number of shares available for grant
under the Plan.
6. OPTION PERIOD.
An Option may not be exercised until six months after the Option Date.
Each Option will expire as of the earliest of:
(a) the date the Participant's membership on the Board is terminated for
cause, as determined by the Committee;
(b) the date one year after the Participant's death; or
(c) ten years from the Option Date.
7. MANNER OF EXERCISE OF OPTIONS.
To exercise an Option in whole or in part, a Participant (or, after his
death, his executor or administrator) must give written notice to the Committee,
stating the number of shares with respect to which he intends to exercise the
Option. The Company will issue the shares with respect to which the Option is
exercised upon payment in full of the Option Price. The Option Price may be paid
(i) in cash, (ii) in shares of Common Stock having an aggregate Fair Market
Value, as determined on the date of delivery, equal to the Option Price, or
(iii) by delivery of irrevocable instructions to a broker designated by
4
<PAGE>
the Company to promptly deliver to the Company the amount of sale
or loan proceeds necessary to pay for all Common Stock acquired through such
exercise and any tax withholding obligations resulting from such exercise.
8. DIRECTOR STOCK AWARDS
In lieu of any retainer or meeting fees payable in cash to a Director from
and after the Effective Date of the Plan, each Director shall receive, on the
payment date thereof, a number of shares of Common Stock with a Fair Market
Value equal to the retainer or meeting fees. The value of annual stock awards to
each Director under the Plan shall initially be $25,000, subject to review and
revision by the Committee at any time in its sole discretion.
9. DEFERRAL OF STOCK AWARD
(a) A Director may elect to defer the ownership of the shares of Common
Stock otherwise issuable pursuant to Section 8. Any such election shall be in
writing in the form prescribed by the Committee.
(b) An election to defer pursuant to (a) above with respect to shares of
Common Stock issuable in a calendar year must be made prior to December 31st of
the preceding year. Notwithstanding the foregoing, for the calendar year in
which the Effective Date occurs, any election must be filed no later than 30
days after the Effective Date and shall be effective for shares issuable after
the election is made.
(c) At the time of deferral, a Director may select the date for the
issuance of the deferred shares. If a Director does not select a date for the
issuance of deferred shares, the deferred shares will be issued upon termination
of his service as a Director.
10. ADJUSTMENTS TO REFLECT CHANGES IN CAPITAL STRUCTURE
Subject to the following provisions of this Section 10, in the event of any
change in the outstanding shares of Common Stock by reason of any share
dividend, split, recapitalization, merger, consolidation, combination, exchange
of shares or other similar corporate change, the aggregate number and kind of
shares of Common Stock reserved for issuance under the Plan or subject to
Options outstanding or to be granted under the Plan shall be proportionately
adjusted so that the value of each Option shall not be changed, and the terms of
any outstanding Option may be adjusted by the Committee in such manner as it
deems equitable; provided, however, that in no event shall the Option price for
a share be adjusted below the par value of such share, nor shall any fraction of
a share be issued upon the exercise of an Option.
5
<PAGE>
11. NON-TRANSFERABILITY OF OPTIONS.
The Options granted under the Plan are not transferable, voluntarily or
involuntarily, other than by will or the laws of descent and distribution.
During a Participant's lifetime, his Options may be exercised only by him.
12. RIGHTS AS STOCKHOLDER.
A Participant has no rights whatsoever as a stockholder with respect to any
shares covered by an Option until the date of the issuance of a stock
certificate for the shares. No Common Stock may be delivered upon the exercise
of any Option until full payment has been made and all income tax withholding
requirements thereon, if any, have been satisfied.
13. WITHHOLDING TAX.
The Company shall have the right to withhold in cash or shares of Common
Stock with respect to any payments made to Directors under the Plan any taxes
required by law to be withheld because of such payments. Any withholding of
shares shall be made in a manner consistent with Rule 16b-3 under the Exchange
Act
14. AMENDMENT OF THE PLAN.
The Committee may from time to time amend or revise the terms of this Plan
in whole or in part and may without limitation, adopt any amendment deemed
necessary; provided, however, that unless, necessary to comply with any pooling
of interest requirements, no change in any award previously granted to a
Director may be made that would impair the rights of the Director without the
Director's consent. All amendments shall be in writing and consented to by a
majority of the members of the Committee.
15. CONDITIONS UPON ISSUANCE OF SHARES.
The exercise of any Option and the issuance and delivery of such shares of
Common Stock pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares of Common Stock may then be listed. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to (i) represent and warrant at the time of any such
exercise that the Common Stock is being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the
6
<PAGE>
aforementioned relevant provisions of law; and (ii) enter into a lock-up or
similar agreement with respect to such shares, prohibiting, for up to 360 days
in the case of the initial public offering or 90 days in the case of any other
offering, the disposition of such shares.
16. TERMINATION OF THE PLAN.
The Committee may terminate the Plan at any time with respect to any shares
that have not been issued and are not then subject to Options. Termination of
the Plan will not affect the rights and obligations of any Participant with
respect to Options or shares of Common Stock, awarded before termination.
7
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement"), is made
and entered into as of this 9TH day of July, 1999, by and between Click
Interactive, Inc., a Delaware corporation (the "Corporation") and Michael W.
Ferro, Jr., an individual residing in the State of Florida (the "Executive").
RECITALS
WHEREAS, the Executive is the founder of the Corporation;
WHEREAS, the Corporation is engaged in the Business (as defined below);
WHEREAS, the Corporation has and desires to continue to employ Executive as
the Chairman of the Board, Chief Executive Officer and President of the
Corporation;
WHEREAS, the Executive desires to continue to be employed by the
Corporation at the salary and benefits provided for herein;
WHEREAS, the Executive acknowledges and understands that during the course
of his employment, the Executive has and will become familiar with certain
confidential information of the Corporation related to the Corporation's
Business; and
WHEREAS, the Corporation and the Executive desire to protect such
confidential information from disclosure to third parties or use of such
information to the detriment of the Corporation.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements hereinafter set forth, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Corporation hereby agrees to employ the Executive,
and the Executive hereby accepts such employment, as the Chairman of the Board,
Chief Executive Officer and President of the Corporation.
2. Term. The term of this Agreement shall commence on June 1, 1999 and
shall continue until December 31, 2002 (the "Term"), unless earlier terminated
pursuant to Section 12 of this Agreement. This Agreement shall automatically
renew for additional annual periods unless either party hereto provides at least
thirty (30) days prior notice of termination to the other party.
3. Duties.
(a) The Executive shall have such responsibilities as may be as determined
by the Board of Directors of the Corporation in accordance with the Amended and
Restated By-Laws of
<PAGE>
the Corporation in effect from time to time, provided that such duties shall at
all times be consistent with the duties normally performed by the Chairman and
Chief Executive Officer of companies engaged in businesses similar to the
Business of the Corporation. The Executive agrees to devote a substantial
portion of his business time, attention and energies to the diligent performance
of his duties hereunder and will not, during the Term hereof, engage in, accept
employment from, or provide services to any other person, firm, corporation,
governmental agency or other entity that engages in, any activities which, in
the opinion of the Board of Directors, would materially conflict with or detract
from the Executive's reasonable performance of such duties; provided, however,
that nothing herein shall restrict the Executive from providing services to
WarrantyCheck.com, Inc. ("WarrantyCheck") and its successors and assigns,
including without limitation, as Chairman, Chief Executive Officer and President
with respect to WarrantyCheck as long as such services do not regularly involve
more than ten (10) business hours per week; provided, further, that if such
involvement regularly exceeds ten (10) business hours per week after the first
twelve months of the Term, the procedures set forth in Section 3(b) may be
instituted by a majority of the disinterested members of the Corporation's Board
of Directors (the "Disinterested Directors"); provided, further, that the
Executive shall not become an employee of WarrantyCheck without the prior
written consent of a majority of the Disinterested Directors; and provided,
further, that the Executive shall be permitted hereunder (i) to serve on the
board of directors of any other corporation or trade associations with the
consent of the Corporation's Board of Directors, (ii) to engage in any
charitable activities and community affairs, and (iii) to participate in or
assist with the creation or management of any other start-up, developmental or
new venture or business (a "New Venture") that does not compete with the
Business (as defined below) of the Corporation as a non-employee director,
provided that with respect to such New Venture, the Executive receives the prior
consent of the Disinterested Directors in connection therewith and such
participation or assistance with such New Ventures does not, individually or in
the aggregate, materially interfere with the Executive's performance of his
obligations and duties hereunder; provided, however, that the foregoing consent
of the Disinterested Directors shall not be required in connection with a
passive investment in a business unrelated to the Business (as hereinafter
defined).
(b) If the Executive's involvement in WarrantyCheck regularly exceeds ten
(10) business hours per week and the Disinterested Directors reasonably believe
that such involvement materially interferes with the Executive's performance of
his obligations and duties hereunder to the Corporation, the Disinterested
Directors shall provide written notice of such belief to the Executive. Promptly
after receipt of such notice, the Executive and the Disinterested Directors
shall meet to discuss the Executive's involvement with WarrantyCheck. If after
such discussion, such members of the Board determine, in their sole discretion,
that Executive's involvement in WarrantyCheck materially interferes with
Executive's performance of his obligations and duties hereunder, then the
Executive shall decide either to (i) resign as CEO and/or President (but not
Chairman) of WarrantyCheck and otherwise reduce his involvement with
WarrantyCheck to a level that is satisfactory to the Disinterested Directors or
(ii) resign as an employee (but not Chairman) of the Corporation. Upon such a
decision, the Executive and the Disinterested Directors shall mutually agree to
an appropriate transition plan and schedule to promptly effect such decision,
which shall, to the extent possible, minimize the adverse impact thereof on the
affected business.
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(c) If the Executive resigns under Section 3(b)(ii) above, this Agreement
shall terminate, other than Sections 7, 8 and 9, and the provisions of Section
11(e) shall apply.
4. Compensation.
(a) Base Salary. During the Term of this Agreement, the Executive shall
receive compensation at the annual rate of $250,000 payable in equal monthly
installments or as otherwise agreed to by the parties. The annual amount of
salary payments to the Executive during the Term of this Agreement shall be
referred to herein as the "Annual Salary."
(b) Annual Incentive Bonus. During the Term of this Agreement, the
Executive shall participate in an annual bonus program to be adopted by the
Corporation providing the Executive with the opportunity to earn an annual cash
bonus equal to up to 50 % of the Executive's Annual Salary (the "Annual
Incentive Bonus"). The Annual Incentive Bonus shall be based upon the
achievement of specified organizational and personal management objectives to be
agreed upon by the Executive and the Board of Directors ("Annual Incentive Bonus
Objectives"). The Annual Incentive Bonus Objectives will be set forth in writing
on a quarterly basis. The Annual Incentive Bonus shall be earned on a quarterly
basis based solely upon performance as measured against the applicable Annual
Incentive Bonus Objectives and shall be paid on an annual basis, if, and only
if, earned. Except as provided in Section 11(d) to the contrary, any Annual
Incentive Bonus earned by the Executive shall become payable in accordance with
the terms of the Annual Incentive Bonus program notwithstanding the subsequent
termination of the Executive's employment with the Corporation.
5. Benefits.
(a) Standard Benefits. During the Term of this Agreement, the Corporation
agrees to provide to the Executive such benefits as are provided generally to
other senior executive officers of the Corporation, including, without
limitation, any health, disability, dental, severance benefits, insurance,
defined contribution plan, deferred compensation, profit-sharing, pension, or
other employee benefit policies, programs (including child day-care) or plans
which the Corporation offers generally to senior executives (collectively, the
"Employee Benefits"). Executive shall be entitled to four (4) weeks of vacation
during each twelve (12) month period hereunder, and the Executive may accrue or
carryover any unused vacation from any calendar year to any following calendar
year. Executive also shall be entitled to participate in other compensation
programs that the Corporation may make available to other senior executive
officers from time to time, and nothing herein shall restrict or otherwise
prevent the Executive from participating in any stock option or other equity-
based compensation plan of the Corporation.
(b) Additional Benefits. In addition to the foregoing, during the Term of
this Agreement, the Executive, as the Chief Executive Officer, shall be entitled
to the following additional benefits not generally available to senior executive
officers of the Corporation (the "Additional Benefits"):
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(i) Housing Allowance. To facilitate the Executive's extensive
-----------------
travel commitment from his Florida residence, the Corporation
shall maintain appropriate living accommodation for the
Executive in the Chicago, Illinois metropolitan area at an
initial monthly cost of not more than $5,000.00.
(ii) Club Memberships. To facilitate the Executive's extensive
----------------
marketing, entertainment and client relations duties, the
Corporation shall maintain, and pay all dues, assessments and
initiation fees related to, one (1) membership in one (1)
business club located in the Chicago metropolitan area.
(iii) Automobile Allowance. The Corporation shall also maintain an
--------------------
appropriate automobile used by the Executive in connection with
various business responsibilities. The Corporation shall pay
all expenses of operation the automobile, including gas, oil,
liability and casualty coverage, repairs and maintenance. The
Executive shall maintain appropriate usage of records.
(iv) Insurance. In lieu of an individual program, the
---------
Corporation shall pay the Executive additional annual cash
compensation equal to the premiums on (i) a term life insurance
policy of the Executive's choice in the face amount of
$2,000,000 and (ii) a long-term disability insurance policy
which shall pay to the Executive at least 60% of his annual
compensation. The program shall be in addition to any group
policies provided by the Corporation.
6. Expenses. During the Term of this Agreement, the Executive shall be
reimbursed by the Corporation for all reasonable, ordinary and necessary out-of-
pocket expenses for travel, lodging, meals, entertainment expenses, or any other
similar expenses incurred by the Executive in performing services for the
Corporation. The Executive shall use his reasonable best efforts to
substantiate and document such expenditures as required by the Code.
7. Non-Disclosure of Confidential Information.
(a) The Executive will not during, or for a period of three (3) years
after termination of, this Agreement, in any form or manner, directly or
indirectly, divulge, disclose or communicate to any person, entity, firm,
corporation or any other third party, or for the benefit of any competitor of
the Corporation, any Confidential Information (as hereinafter defined).
(b) For the purposes of this Agreement, the term "Confidential Information"
shall mean, but shall not be limited to, any technical or non-technical data,
formulae, patterns, compilations, programs, devices, methods, techniques,
drawings, designs, processes, procedures, improvements, models or manuals of the
Corporation or which are licensed by the Corporation or written lists of actual
or potential customers or suppliers of the Corporation, and any information
regarding the Corporation's marketing, sales or dealer network, which is not
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available to the public through legitimate origins. The Corporation and the
Executive acknowledge and agree that such Confidential Information is extremely
valuable to the Corporation and shall be deemed to be a "trade secret." In the
event that any part of the Confidential information becomes available to the
public (other than by the breach of this Agreement by the Executive, that part
of the Confidential Information shall no longer be deemed Confidential
Information for the purposes of this Agreement.
(c) Upon termination of this Agreement for any reason, the Executive will
promptly deliver to the Corporation all drawings, blueprints, manuals, reports,
programs, or any other documents, including all copies in any form or media
which contains Confidential Information.
(d) Notwithstanding anything to the contrary in this Section 7, nothing shall
restrict the Executive from disclosing Confidential Information which he
determines in his reasonable judgment is reasonable or necessary in connection
with the performance of his business activities on behalf of the Corporation.
(e) Notwithstanding anything to the contrary in this Section 7, the
Corporation acknowledges and agrees that (i) the Executive has or will obtain,
or will be exposed to, Confidential Information that is or will be retained in
his unaided memory ("Residual Information") and (ii) the Executive may utilize
his Residual Information in connection with his services to, and involvement
with, WarrantyCheck or any New Venture; provided, however, that nothing in this
Section 7(e) shall (x) authorize any third party to infringe, use or claim a
license under any patent, copyright or trademark of the Corporation, or (y)
restrict the operation of Sections 8 and 9 hereof.
8. Covenant-Not-To-Compete.
(a) The Executive will not during, or for a period of two (2) years after
termination of, the term of this Agreement, in any form or manner, directly or
indirectly, on his own behalf of in combination with others, become an employee,
general partner, stockholder, officer, director, principal, agent, independent
contractor or trustee (except as a holder of securities of a corporation whose
securities are publicly-traded and which is subject to the reporting
requirements of the Securities Exchange Act of 1934, and then only to the extent
of owning not more than 2% of the issued and outstanding securities of such
corporation), or provide services similar to those provided to the Corporation
for any business that provides goods or services substantially similar to those
provided as part of the Business of the Corporation or any business which
renders implementation services or sells products that compete with the Business
of the Corporation within North America, South America, Europe, Asia or
Australia. For purposes of this Agreement, the "Business" of the Corporation
shall mean providing business to business electronic commerce extranet software
and services to Global 1000 companies.
(b) Notwithstanding anything to the contrary in Section 8(a), nothing herein
shall be construed to prevent or restrict in any way the Executive (i) from
providing services to, or participating in any capacity in, WarrantyCheck, (ii)
providing services to, or participating in any non-employee capacity in, any New
Venture that has not been formed for the purpose of providing goods or services
that would compete with the Business or (iii) becoming an indirect
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investor through a mutual, venture capital or other similar investment fund
which is in the business of investing money, even if such entities shall invest
in a business that competes with the Business.
(c) Notwithstanding the provisions of Section 8(b), if the Disinterested
Directors reasonably believe that the business operations or affairs of the
Corporation, WarrantyCheck or any New Venture have changed or evolved to the
point that the Corporation has or will become in the near future in direct
competition with either WarrantyCheck or any New Venture, and, as a result, a
material, long-term conflict of interest would thereafter exist if the Executive
should continue in both his role as Chairman, CEO and/or President of the
Corporation and his then-current role with such competing business, the
Disinterested Directors shall provide written notice of such belief to the
Executive. Promptly after receipt of such notice, the Executive and the
Disinterested Directors shall meet to discuss the actual or potential conflict
of interest. If after such discussion, the Disinterested Directors determine,
in their sole discretion, that a material conflict of interest can only be
avoided by a change in the Executive's provision of services or participation in
the Corporation or the competing business, then the Executive shall either (i)
resign as an officer and director of, and otherwise terminate his active
involvement with, the competing business, (ii) resign as an officer and director
of the Corporation and, if the competing business is in or will be in direct
competition with the Business and not solely in competition with new activities
of the Corporation that are outside the scope of the Business, terminate his
active involvement with the competing business, or (iii) reduce his activities
on behalf of the competing business to a level, or modify such activities in
such manner, that is satisfactory to the Disinterested Directors. Upon such a
decision, the Executive and the Disinterested Directors shall mutually agree to
an appropriate transition plan and schedule to promptly effect such decision,
which shall, to the extent possible, minimize the adverse impact thereof on the
affected business(es). A resignation under Section 8(c)(ii) shall be deemed to
be a voluntary resignation by the Executive under Section 11(e).
9. Covenant Not to Solicit.
(a) Covenant Not to Solicit Employees. During Executive's employment by the
---------------------------------
Corporation and for a period of two (2) years following termination or cessation
of Executive's employment pursuant to this Agreement, Executive agrees and
covenants that he will not employ, solicit or endeavor to entice away from the
Corporation, any employees of the Corporation to work for or with Executive, or
any competitor of the Business of the Corporation, nor will Executive otherwise
attempt to interfere (to the Corporation's detriment) in the relationship
between the Corporation and any such employees; provided, however, that nothing
herein shall prevent or restrict the Executive from soliciting or contacting any
employee of the Corporation for or on behalf of WarrantyCheck, provided further,
however, that the Executive will not, and will not cause WarrantyCheck to,
employ any Employee of the Corporation without the prior consent of the
Disinterested Directors.
(b) Covenant Not to Solicit Customers. During Executive's employment pursuant
---------------------------------
to this Agreement and for a period of two (2) years following termination or
cessation of Executive's employment, Executive agrees and covenants that he will
not solicit any Customers
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of the Corporation, for the purpose of competing with the Business of the
Corporation. For purposes of this Agreement, a "Customer" of the Corporation
shall mean and refer to (i) each person that has received services or purchased
products from the Corporation during the last two (2) years of Executive's
employment hereunder and (ii) each person or entity formally solicited by
Executive on behalf of the Corporation to provide services or purchase products
during the last two (2) years of Executive's employment hereunder. The parties
hereto acknowledge and agree that the solicitation of Customers by the Executive
on behalf of WarrantyCheck shall not be construed to constitute the solicitation
"for the purpose of competing with the Business of the Corporation."
10. Equitable Remedies. In the event that the Executive materially
breaches the terms contained in Sections 7, 8 or 9 of this Agreement, said
breach may result in immediate and irreparable harm to the business and goodwill
of the Corporation, as to which damages and remedies at law for such breach may
be inadequate. The Corporation shall therefore be entitled to apply for and
may, upon proper demonstration, receive from any court of competent jurisdiction
an injunction to restrain any violation of this Agreement and for such further
relief as the court may deem just and proper.
11. Termination of Employment.
(a) Termination by Corporation of Executive for Cause. The Corporation
shall have the right to terminate the Executive's employment at any time for
"cause." For purposes hereof, "cause" shall mean that the Executive has:
(i) been convicted of, or plead nolo contendere to, a felony or crime
involving moral turpitude; or
(ii) committed a material act of personal dishonesty or fraud involving
personal profit in connection with the Executive's employment by the
Corporation; or
(iii) committed a material breach of any material covenant, provision,
term, condition, understanding or undertaking set forth in this
Agreement, including, without limitation, the provisions contained in
Sections 7, 8 and 9 hereof, which breach shall be continuing and
shall not have been cured, if capable of being cured, within fifteen
(15) days following written notice to the Executive of such breach.
If the Corporation shall terminate the Executive's employment pursuant to this
Section 11(a), the Corporation shall be obligated to pay to the Executive only
the Annual Salary then in effect and the Employee Benefits payable to the
Executive pursuant to this Agreement, accrued up to and including the date on
which the Executive's employment is so terminated. Thereafter, the Corporation
shall have no further obligation whatsoever to the Executive.
(b) Termination by Corporation of Executive Because of Executive's
Disability, Injury or Illness. The Corporation shall have the right to terminate
the Executive's employment if the Executive is rendered permanently unable to
perform the duties assigned to him by the Corporation because of the Executive's
disability, injury or illness (as such terms may be defined
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under the applicable disability plan covering the Executive); provided, however,
that in the event of such disability, injury or illness, the Executive will be
deemed unable to perform such duties only if the Executive has been unable to
perform such duties on a regular weekly basis for a total of six (6) months in
any consecutive twelve (12) month period and, in the opinion of the competent
medical advisors to the Company, it is unlikely that such disability will be
reversed in the following 36 months. If the Corporation shall terminate the
Executive's employment pursuant to this Section 11(b), the Corporation shall be
obligated only (i) to pay to the Executive the Annual Salary then in effect
payable to the Executive pursuant to this Agreement, accrued up to and including
the date on which the Executive's employment is so terminated, and (ii) to
provide Employee Benefits to the Executive to the extent the Executive remains
eligible to continue to participate in such employee benefits pursuant to the
terms and conditions of such policies, programs or plans. Notwithstanding
anything to the contrary in this Agreement, the Employer's obligations to make
payments to the Executive, following the termination of this Agreement, shall be
reduced by any amounts actually paid to the Executive pursuant to any group
disability insurance payments received by the Executive pursuant to the Employee
Benefits. This Section 11(b) shall be the sole method of termination of the
Executive's employment hereunder with respect to any alleged breach under
Section 11(a)(iii) that is directly or indirectly related to or caused by any
disability, injury or illness of the Executive.
(c) Termination by Corporation as a Result of Executive's Death. The
obligations of the Corporation to the Executive under this Agreement (except as
provided in this Section 11(c)) shall automatically terminate upon the
Executive's death and the Corporation shall then be obligated only to pay to the
Executive's estate the Annual Salary then in effect for the next twelve (12)
months. Any payments due to the Executive shall be paid to the Executive's
estate or his designated heirs.
(d) Termination of Executive for Any Other Reason. The Corporation shall have
the right to terminate the Executive's employment for any other reason upon
thirty (30) days prior written notice to the Executive. In the event of a
termination of the Executive's employment for any reason other than the reasons
set forth in Sections 11(a), 11(b) or 11(c) hereof or the expiration of the Term
of this Agreement, the Corporation shall be obligated only (i) to provide
twenty-four (24) months severance in equal semi-weekly installments or otherwise
as agreed to by the parties, (ii) to provide the Employee Benefits, if any and
to the extent the Executive remains eligible to participate in such Employee
Benefits pursuant to the terms and conditions of such policies, programs or
plans, for twenty-four (24) months, and (iii) to pay the Executive the earned
portion of the Annual Incentive Bonus as provided in Section 4(b) hereof;
provided, however, that (x) any severance or other benefits payable under this
Section 1l(d) shall terminate upon delivery of written notice to the Executive
reasonably establishing the factual basis for the Corporation's claim of a
material violation of the Executive's material covenants under Sections 7, 8 and
9 hereof and (y) the amounts payable hereunder shall be reduced by the amounts
actually paid to the Executive from subsequent employment arrangements during
the period that payments are made to the Executive pursuant to this Section
11(d).
(e) Termination by Executive. At any time beginning twelve (12) months from
the date hereof, the Executive may resign and terminate his employment by the
Corporation for any
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reason whatsoever upon ninety (90) days prior written notice to the Corporation.
Upon such a resignation, the Corporation shall be obligated only to pay to the
Executive the Annual Salary then in effect payable to the Executive pursuant to
this Agreement, accrued up to and including the effective date of such
resignation.
12. Entire Agreement. This Agreement contains the entire agreement
between the parties and shall not be modified except in writing by the parties
hereto. Furthermore, the parties hereto specifically acknowledge and agree that
this agreement supersedes all prior employment agreements between the Executive
and the Corporation.
13. Severability. If any phrase, clause or provision of this Agreement is
declared invalid or unenforceable by a court of competent jurisdiction, such
phrase, clause or provision shall be deemed severed from this Agreement, but
will not affect any other provisions of this Agreement, which shall otherwise
remain in full force and effect.
14. Notices. Any notice, request or other communication required to be
given pursuant to the provisions hereof shall be in writing and shall be deemed
to have been given when delivered in person, on the next business day after
being delivered to a nationally-recognized overnight courier service (for such
next-day delivery) or five (5) days after being deposited in the United States
mail, certified or registered, postage prepaid, return receipt requested and
addressed to the other party at its or his last known address. Notices to the
Corporation shall be given to the Board of Directors at the Corporation's
executive headquarters, with a copy to Seyfarth, Shaw, Fairweather & Geraldson,
55 East Monroe, Suite 4200, Chicago, Illinois 60603, attention: David S. Stone,
Esq., facsimile number 312-269-8869; notices to the Executive shall be given to
him both at his home address and at any office he may have at the Corporation's
executive headquarters, with a copy to Latham & Watkins, Suite 5800, Sears
Tower, Chicago, IL 60606, attention: Mark A. Harris, facsimile number 312-993-
9767. The address of any party may be changed by notice in writing to the other
party duly served in accordance herewith.
15. Waiver. The waiver by the Corporation or the Executive of any breach
of any term or condition of this Agreement shall not be deemed to constitute the
waiver of any other breach of the same or any other term or condition hereof.
16. Increases. All dollar amounts referred to in Section 5(b)(i)
hereunder shall be subject to increase, no less frequently than annually, by the
applicable Consumer Price Index.
17. Attorneys Fees. The Corporation shall pay the fees and expenses of
Executive's outside legal counsel, accountants, and other advisors in connection
with the negotiation and review of this Agreement.
18. Changes in Location. Should the Corporation relocate its executive
headquarters, appropriate adjustments to the Executive's compensation, housing
and commuting arrangements will be mutually agreed between the Executive and the
Corporation.
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19. Governing Law. This Agreement and the enforcement hereof shall be
governed and controlled in all respects by the internal laws, and not the laws
of conflict, of the State of Illinois.
20. Assignment of Inventions. As the founder of the Corporation, the
Executive has developed or may develop in the future certain material of a
proprietary nature, including, but not limited to, ideas, inventions,
discoveries, improvements, developments, designs, methods, systems, computer
programs, trade secrets or any other intellectual property whether or not
patentable or copyrightable, specifically including, but not limited to,
copyright and mask works, formulae, compositions, products, processes,
apparatus, and new uses of existing materials or machines (hereafter
collectively called "Inventions"). Executive agrees not to assert any rights
to, and expressly assigns to the Corporation, as the Corporation's exclusive
property, (a) all Inventions currently used by the Corporation as of the date of
this Agreement and related to the Business as currently conducted in the manner
now so used and (b) all Inventions conceived by Executive, alone or with others
during the term of this Agreement to the extent that such Inventions are related
to the Company's Business. To the fullest extent permitted by law, such
Inventions will be deemed works made for hire. Executive agrees to assist the
Corporation, at Corporation's expense, to obtain patents or copyrights on any
protectable ideas and inventions, to obtain trademarks, to exploit other
developments, and to execute all documents necessary to obtain such patents,
trademarks, or other developments in the name of the Corporation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CLICK INTERACTIVE, INC.
By: /s/ Donal Schmitt
---------------------------------
Authorized Officer
EXECUTIVE
/s/ Michael W. Ferro
-------------------------------
Michael W. Ferro, Jr.
Address: 2816 Osprey Cove Pl., #101
Kissimee, Florida 34746
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EXHIBIT 10.4
-1-
AMENDED AND RESTATED
--------------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of this
1st day of June, 1999 is amended and restated with respect to Section 4(e)
hereof as of the 13th day of January, 2000, by and between Click Commerce, Inc.,
a Delaware corporation formerly known as Click Interactive, Inc. ("Corporation")
and Robert J. Markese, an individual residing _____________________ (the
"Executive").
RECITALS
WHEREAS, the Corporation is engaged in the development, sale and
distribution of interactive computer applications and internet related products
and services involved in business to business electronic commerce;
WHEREAS, the Corporation desires to employ Executive as an Executive Vice
President of the Corporation;
WHEREAS, the Executive desires to be employed by the Corporation at the
salary and benefits provided for herein;
WHEREAS, the Executive acknowledges and understands that during the course
of his employment, the Executive will become familiar with certain confidential
information of the Corporation which is exceptionally valuable to the
Corporation and vital to the success of the Corporation's business; and
WHEREAS, the Corporation and the Executive desire to protect such
confidential information from disclosure to third parties or use of such
information to the detriment of the Corporation.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Corporation hereby agrees to employ the Executive,
and the Executive hereby accepts such employment, as an Executive Vice President
of the Corporation.
2. Term. The term of this Agreement shall commence on June 1, 1999 and
<PAGE>
-2-
shall continue until December 31, 2002 (the "Term"), unless earlier terminated
pursuant to Section 12 of this Agreement.
3. Duties. The duties of the Executive shall have general responsibility
for all sales, marketing and operating activities of the Corporation, including
day-to-day operations with profit and loss responsibility and such other
responsibilities as may be as determined by the Chief Executive Officer of the
Corporation in accordance with the By-Laws of the Corporation in effect from
time to time, provided that such duties shall at all times be consistent with
the duties normally performed by Executive Vice Presidents of companies engaged
in businesses similar to the business of the Corporation with similar
responsibilities and reporting to the Chief Executive Officer of the
Corporation. The Executive agrees to devote all of his business time, attention
and energies to the diligent performance of his duties hereunder and will not,
during the Term hereof, engage in, accept employment from, or provide services
to any other person, firm, corporation, governmental agency or other entity that
engages in, any activities which, in the opinion of the Board of Directors,
would conflict with or detract from the Executive's capable performance of such
duties.
4. Compensation.
(a) Base Salary. During the Term of this Agreement, the Executive shall
receive compensation at the annual rate of $250,000 payable in equal monthly
installments or as otherwise agreed to by the parties. The annual amount of
salary payments to the Executive during the Term of this Agreement shall be
referred to herein as the "Annual Salary."
(b) Annual Incentive Bonus. During the Term of this Agreement, the
Executive shall participate in an annual bonus program to be adopted by the
Corporation providing the Executive with the opportunity to earn an annual cash
bonus equal to up to 50% of the Executive's Annual Salary (the "Annual Incentive
Bonus"). The Annual Incentive Bonus shall be based upon the achievement of
specified organizational and personal management objectives to be agreed upon by
the Executive and the Corporation ("Annual Incentive Bonus Objectives"). The
Annual Incentive Bonus Objectives will be set forth in writing on a quarterly
basis. The Annual Incentive Bonus shall be earned on a quarterly basis based
solely upon performance as measured against the applicable Annual Incentive
Bonus Objectives and shall be paid on an annual basis, if, and only if, earned.
(c) Special Year 2000 Performance Bonuses.
(i) In the event that the Corporation recognizes gross revenues in
the period commencing on January 1, 2000 through and including June 30,
2000 in an amount equal to or greater than $15,000,000, then the Executive
shall be entitled to receive a special performance bonus equal to $50,000.
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(ii) In addition to special performance bonus provided under
Section 4(c)(i) above, in the event that the Corporation recognizes gross
revenues in the period commencing on January 1, 2000 through and including
December 31, 2000 in an amount equal to or greater than $30,000,000, then
the Executive shall be entitled to receive a special performance bonus
equal to $50,000.
(d) Stock Option Grant. The Corporation shall grant to the Executive
options to purchase an aggregate of 285,000 shares of common stock, par value
$0.001 per share ("Common Stock"), of the Corporation, at an exercise price of
$4.60 per share ("Options"),which Options shall be restricted and non-
transferable and shall vest in accordance with the schedule set forth below.
The term of the Options shall be for a period of ten (10) years following the
date of the grant of the Options hereunder and the Options shall be subject to
such other terms and conditions as are determined by the Board of Directors.
The Executive shall not be entitled to any rights with respect to the shares of
Common Stock underlying the Options, including the right to vote or receive
dividends or distributions with respect to any of the shares of Common Stock
underlying the Options. To the extent that the Executive is employed by the
Corporation as of each of the respective dates set forth below, the Options
shall vest in the Executive:
(i) 95,000 of the Options shall vest on December 31, 2000; and
(ii) 95,000 of the Options shall vest on December 31, 2001; and
(iii) 95,000 of the Options shall vest on December 31, 2002.
(e) Acceleration of Option Vesting. In the event of a Change in Control
(as hereinafter defined) of the Corporation prior to the termination or
expiration of this Agreement, notwithstanding the vesting schedule set forth in
Section 4(d) hereof, all of the unvested Options shall immediately vest. For
purposes of this Agreement, a "Change in Control" shall mean (i) a sale to a
third party of at least a majority of the outstanding shares of Common Stock,
(ii) a sale of substantially all of the assets of the Corporation, or (iii) a
merger or other consolidation with an unrelated third party following which the
ability to elect a majority of the members of the Board of Directors or a
majority of the voting power of the surviving corporation is not held by the
holders of Common Stock prior to such transaction. In addition, in the event of
the Corporation's initial Qualified Public Offering (as defined the
Corporation's Amended and Restated Certificate of Incorporation) or any other
subsequent public offering of the Corporation's Common Stock (collectively, a
"Public Offering") prior to December 31, 2000, notwithstanding the vesting
schedule set forth in Section 4(d) hereof, options equal to the number of shares
included in the Public Offering, but in no event exceeding 10% of the shares of
Common Stock issuable pursuant to the Options, shall accelerate and vest as of
the closing of the Public Offering in order to permit the Executive to
participate in such Public Offering.
<PAGE>
-4-
5. Benefits. During the Term of this Agreement, the Corporation agrees
to provide to the Executive such benefits as are provided generally to other
senior executives of the Corporation from time to time, including, without
limitation, any health, disability, dental, severance benefits, insurance,
defined contribution plan, deferred compensation, profit-sharing, pension, or
other employee benefit policies, programs (including child day-care) or plans
which the Corporation offers generally to senior executives (collectively, the
"Employee Benefits"). Executive shall be entitled to four (4) weeks of vacation
during each twelve (12) month period hereunder, provided, however, that
Executive shall be entitled to accrue or carryover unused vacation from one (1)
calendar year only to the next calendar year. Executive also shall be entitled
to participate in other compensation programs that the Corporation may make
available from time to time.
6. Expenses. During the Term of this Agreement, the Executive shall be
reimbursed by the Corporation for all reasonable, ordinary and necessary out-of-
pocket expenses for travel, lodging, meals, entertainment expenses, or any other
similar expenses incurred by the Executive in performing services for the
Corporation to the extent that such expenditures meet the requirements of the
Internal Revenue Code of 1986, as amended (the "Code"), for deductibility by the
Corporation for federal income tax purposes and are substantiated and documented
by the Executive as required by the Code.
7. Non-Disclosure of Confidential Information.
(a) The Executive will not during, or for a period of five (5) years after
termination of, this Agreement, in any form or manner, directly or indirectly,
divulge, disclose or communicate to any person, entity, firm, corporation or any
other third party, or utilize for the Executive's personal benefit or for the
benefit of any competitor of the Corporation, any Confidential Information (as
hereinafter defined).
(b) For the purposes of this Agreement, the term "Confidential
Information" shall mean, but shall not be limited to, any technical or non-
technical data, formulae, patterns, compilations, programs, devices, methods,
techniques, drawings, designs, processes, procedures, improvements, models or
manuals of the Corporation or which are licensed by the Corporation, any
financial data or lists of actual or potential customers or suppliers of the
Corporation, and any information regarding the Corporation's marketing, sales or
dealer network, which is not generally known to the public through legitimate
origins. The Corporation and the Executive acknowledge and agree that such
Confidential Information is extremely valuable to the Corporation and shall be
deemed to be a "trade secret." In the event that any part of the Confidential
Information becomes generally known to the public through legitimate origins
(other than by the breach of this Agreement by the Executive or by
misappropriation), that part of the Confidential Information shall no longer be
deemed
<PAGE>
-5-
Confidential Information for the purposes of this Agreement, but the Executive
shall continue to be bound by the terms of this Agreement as to all other
Confidential Information.
(c) Upon termination of this Agreement for any reason, the Executive will
promptly deliver to the Corporation all correspondence, drawings, blueprints,
manuals, letters, notes, notebooks, reports, programs, plans, proposals,
financial documents, or any other documents, including all copies in any form or
media, concerning the Corporation's customers, dealer network, marketing
strategies, products or processes and/or which contains Confidential
Information.
8. Covenant-Not-To-Compete. The Executive will not during, or for a
period of two (2) years after termination of, this Agreement, in any form or
manner, directly or indirectly, on his own behalf or in combination with others,
become interested in (as an individual, partner, stockholder, director, officer,
principal, agent, independent contractor, employee, trustee, lender of money or
in any other relation or capacity whatsoever, except as a holder of securities
of a corporation whose securities are publicly traded and which is subject to
the reporting requirements of the Securities Exchange Act of 1934, and then only
to the extent of owning not more than two percent (2%) of the issued and
outstanding securities of such corporation), or provide services similar to
those provided to the Corporation for, any business which renders implementation
services or sells products, or proposes to render services or sell products,
that compete with the Business of the Corporation within the United States,
Western Europe or Australia. For purposes of this Agreement, the "Business" of
the Corporation shall mean providing business to business electronic commerce
solutions to Global 1000 companies.
9. Covenant Not to Solicit.
(a) Covenant Not to Solicit Employees. During Executive's employment by
the Corporation and for a period of two (2) years following termination or
cessation of Executive's employment pursuant to this Agreement, Executive agrees
and covenants that he will not, for any reason, directly or indirectly, employ,
solicit or endeavor to entice away from the Corporation or any of its affiliates
(whether for his own benefit or on behalf of another person or entity), or
facilitate the solicitation, employment or enticement of, any employees of
Corporation to work for Executive, any affiliate of Executive or any competitor
of Corporation, nor will Executive otherwise attempt to interfere (to the
Corporation's detriment) in the relationship between the Corporation or any of
its affiliates and any such employees.
(b) Covenant Not to Solicit Customers. During Executive's employment
pursuant to this Agreement and for a period of two (2) years following
termination or cessation of Executive's employment, Executive agrees and
covenants that he will not directly
<PAGE>
-6-
or indirectly in any form or manner, contact, solicit, or facilitate the
contacting or solicitation of any Customers of the Corporation, for the purpose
of competing with the Business of the Corporation. For purposes of this
Agreement, a "Customer" of the Corporation shall mean and refer to (i) each
person that has received services or purchased products from the Corporation or
any of its affiliates during the period of Executive's employment hereunder and
(ii) each person or entity formally solicited by the Corporation to provide
services or purchase products during the period of Executive's employment
hereunder.
10. Equitable Remedies. In the event that the Executive breaches any of
the terms contained in Sections 7, 8 or 9 of this Agreement, the Executive
stipulates that said breach will result in immediate and irreparable harm to the
business and goodwill of the Corporation and that damages, if any, and remedies
at law for such breach would be inadequate. The Corporation shall therefore be
entitled to apply for and receive from any court of competent jurisdiction an
injunction to restrain any violation of this Agreement and for such further
relief as the court may deem just and proper, and the Executive shall, in
addition, pay to the Corporation, following judgment or other final
determination by such court, the Corporation's costs and expenses in enforcing
such terms (including court costs and reasonable attorneys' fees).
11. Continuing Obligation. The obligations, duties and liabilities of
the Executive pursuant to Sections 7, 8 and 9 of this Agreement are continuing,
absolute and unconditional and shall remain in full force and effect as provided
therein despite any termination of this Agreement for any reason whatsoever,
including, without limitation, the expiration of the Term of this Agreement.
12. Termination of Employment.
(a) Termination by Corporation of Executive for Cause. The Corporation
shall have the right to terminate the Executive's employment at any time for
"cause." For purposes hereof, "cause" shall mean that the Executive has:
(i) been convicted of, or plead nolo contendere to, a felony or crime
involving moral turpitude; or
(ii) committed an act of personal dishonesty or fraud involving personal
profit in connection with the Executive's employment by the
Corporation; or
(iii) committed a breach of any material covenant, provision, term,
condition, understanding or undertaking set forth in this Agreement,
including, without limitation, the provisions contained in Sections
7, 8 and 9 hereof; or
(iv) committed an act which the Board of Directors of the Corporation has
found to
<PAGE>
-7-
have involved willful misconduct or negligence on the part of the
Executive; or
(v) exhibited documented habitual absenteeism or been unable or
repeatedly failed to perform any reasonable or customary task
typically required in connection with the Executive's employment and
position with the Corporation or its subsidiaries.
If the Corporation shall terminate the Executive's employment pursuant to this
Section 12(a), the Executive shall forfeit all rights with respect to the
Options (whether or not vested) granted to the Executive pursuant to Section
4(d). In addition, the Corporation shall be obligated to pay to the Executive
the Annual Salary then in effect and the Employee Benefits payable to the
Executive pursuant to this Agreement, accrued up to and including the date on
which the Executive's employment is so terminated. Thereafter, the Corporation
shall have no further obligation whatsoever to the Executive.
(b) Termination by Corporation of Executive Because of Executive's
Disability, Injury or Illness. The Corporation shall have the right to
terminate the Executive's employment if the Executive is unable to perform the
duties assigned to him by the Corporation because of the Executive's disability,
injury or illness (as such terms may be defined under the applicable disability
plan covering the Executive); provided, however, that in the event of such
disability, injury or illness, the Executive's inability to perform such duties
must have existed for a total of six (6) months in any consecutive twelve (12)
month period before such termination can be made effective. If the Corporation
shall terminate the Executive's employment pursuant to this Section 12(b), the
Corporation shall be obligated (i) to pay to the Executive the Annual Salary
then in effect payable to the Executive pursuant to this Agreement, accrued up
to and including the date on which the Executive's employment is so terminated,
and (ii) to provide Employee Benefits to the extent the Executive remains
eligible to continue to participate in such Employee Benefits pursuant to the
terms and conditions of such policies, programs or plans. Notwithstanding
anything to the contrary in this Agreement, the Corporation's obligations to
make payments to the Executive shall be reduced by any amounts actually paid to
the Executive pursuant to any disability insurance payments received by the
Executive pursuant to the Employee Benefits or otherwise. In the event of a
termination of the Executive's employment pursuant to this Section 12(b), the
Executive shall be entitled to retain all Options vested pursuant to Section
4(d) hereof as of the date of termination.
(c) Termination by Corporation as a Result of Executive's Death. The
obligations of the Corporation to the Executive under this Agreement (except as
provided in this Section 12(c)) shall automatically terminate upon the
Executive's death and the Corporation shall then only be obligated to pay to the
Executive's estate the Annual Salary then in effect and the Employee Benefits
payable to the Executive pursuant to this Agreement, accrued up to and including
the date on which the Corporation's obligation to the Executive is so
terminated.
<PAGE>
-8-
Thereafter, the Corporation shall have no further obligation whatsoever to the
Executive. In the event of a termination of the Executive's employment pursuant
to this Section 12(c), the Executive shall be entitled to retain all Options
vested pursuant to Section 4(d) hereof as of the date of termination. In the
event of the Executive's death, any payments due to the Executive shall be paid
to the Executive's estate.
(d) Termination of Executive for Any Other Reason. The Corporation shall
have the right to terminate the Executive's employment for any other reason upon
thirty (30) days prior written notice to the Executive. In the event of a
termination of the Executive's employment for any reason other than the reasons
set forth in Sections 12(a), 12(b) or 12(c) hereof, (i) the Corporation shall be
obligated to provide twelve (12) months severance or the balance of this
Agreement, whichever is shorter, in equal semi-weekly installments or otherwise
as agreed to by the parties, (ii) the Corporation shall be obligated to provide
the Employee Benefits, if any and to the extent the Executive remains eligible
to participate in such Employee Benefits pursuant to the terms and conditions of
such policies, programs or plans, for the remaining period of the Term (but in
no event shall the total amount payable to the Executive hereunder be in excess
of the Executive's then current Annual Salary, plus amounts payable pursuant to
Section 12(d)(iii) below), (iii) the Corporation shall be obligated to pay the
Executive the earned portion of the Annual Incentive Bonus and Special Year 2000
Performance Bonus as provided in Section 4(b) hereof, and (iv) the Executive
shall be entitled to retain all Options vested pursuant to Section 4(d) hereof
as of the date of termination and shall be entitled to retain such additional
Options that would otherwise vest as within the twelve (12) month period
immediately following such termination date. Thereafter, the Corporation shall
have no further obligation whatsoever to the Executive.
(e) Termination by Executive. The Executive may resign and terminate his
employment by the Corporation for any reason whatsoever upon thirty (30) days
prior written notice to the Corporation. Thereafter, the Corporation shall have
no obligation to the Executive, except for those obligations provided as a
matter of federal or state law. In the event of a termination of the Executive's
employment pursuant to this Section 12(e), the Executive shall be entitled to
retain all Options vested pursuant to Section 4(d) hereof as of the date of
termination
13. Capacity. The Executive hereby represents and warrants that, in
entering into this Agreement, he is not in violation of any contract or
agreement, whether written or oral, with any other person, firm, partnership,
corporation or other entity to which he is a party or by which he is bound and
will not violate or interfere with the rights of any other person, firm,
partnership, corporation or other entity. In the event that such a violation or
interference does occur, or is alleged to occur, notwithstanding the
representation and warranty made hereunder, the Executive shall indemnify the
Corporation from and against any and all manner of expenses and liabilities
incurred by the Corporation or any affiliated company of the Corporation in
connection with such violation or interference or alleged violation or
interference.
<PAGE>
-9-
14. Entire Agreement. This Agreement contains the entire agreement
between the parties and shall not be modified except in writing by the parties
hereto. Furthermore, the parties hereto specifically acknowledge and agree that
this agreement supersedes all prior agreements between the Executive, the
Corporation and its officers, directors, and agents, if any and in whatever
capacity so entered into, whether written or oral, and all such prior
agreements, whether written or oral, shall be of no further force or effect from
and after the date hereof.
15. Severability. If any phrase, clause or provision of this Agreement
is declared invalid or unenforceable by a court of competent jurisdiction, such
phrase, clause or provision shall be deemed severed from this Agreement, but
will not affect any other provisions of this Agreement, which shall otherwise
remain in full force and effect. If any restriction or limitation in this
Agreement is deemed to be unreasonable, onerous and unduly restrictive by a
court of competent jurisdiction, it shall not be stricken in its entirety and
held totally void and unenforceable, but shall remain effective to the maximum
extent permissible within reasonable bounds.
16. Notices. Any notice, request or other communication required to be
given pursuant to the provisions hereof shall be in writing and shall be deemed
to have been given when delivered in person, on the next business day after
being delivered to a nationally-recognized overnight courier service (for such
next-day delivery) or five (5) days after being deposited in the United States
mail, certified or registered, postage prepaid, return receipt requested and
addressed to the other party at its or his last known address. The address of
any party may be changed by notice in writing to the other party duly served in
accordance herewith.
17. Waiver. The waiver by the Corporation or the Executive of any breach
of any term or condition of this Agreement shall not be deemed to constitute the
waiver of any other breach of the same or any other term or condition hereof.
18. Governing Law. This Agreement and the enforcement hereof shall be
governed and controlled in all respects by the internal laws, and not the laws
of conflict, of the State of Illinois.
19. Registration Rights. The Corporation shall use its reasonable best
efforts to extend registration rights to the Executive to register for sale up
to 10% of the shares of Common Stock held by the Executive (or which may be
acquired pursuant to the exercise of vested and exercisable options to purchase
Common Stock), (a) if registration rights are granted to selling stockholders of
the Corporation in a Public Offering of the Corporation, and (b) subject to (i)
cutbacks determined by the managing underwriter of such offering and (ii) the
consent and approval of unaffiliated third party investors in the Corporation.
20. Assignment of Inventions. The Executive shall disclose promptly in
writing to a designated representative of the Corporation all material of a
proprietary nature, including, but not limited to, ideas, inventions,
discoveries, improvements, developments, designs, methods,
<PAGE>
-10-
systems, computer programs, trade secrets or any other intellectual property
whether or not patentable or copyrightable, specifically including, but not
limited to, copyright and mask works, formulae, compositions, products,
processes, apparatus, and new uses of existing materials or machines (hereafter
collectively called "Inventions") made, conceived or first reduced to practice
by the Executive solely or jointly with others while employed by the
Corporation. The Corporation shall be the owner of all property rights in any
such Inventions, including, but not limited to, rights arising from the
obtaining of letters of patent or copyright in respect thereof, which shall be
vested in the Corporation. The Executive will at the Corporation's request
execute any and all assignment, patent or copyright forms and the like, deemed
reasonably necessary by the Corporation, and will assist in drafting of any
description or specification of the Inventions as may be required by the
Corporation to protect the Corporation's rights in and to the Inventions,
including, but not limited to, application(s) for letters of patent. The
Corporation's rights hereunder shall not be limited to this country but shall
extend to any country in the world and shall attach to each Invention
notwithstanding that it is perfected, improved, reduced to specific form or used
after termination the Executive's employment. The Executive agrees to lend such
assistance as he may be able, at the Corporation's request without charge in
connection with any proceedings relating to such letters of patent, trade
secrets, copyright or application thereof, as may be determined by the
Corporation to be reasonably necessary. In such case the Corporation will
reimburse expenses which the Executive may reasonably incur in assisting the
Corporation to obtain, assert, defend and protect such letters of patent, trade
secrets, copyright or other protection.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CLICK COMMERCE, INC.
By_______________________
Michael W. Ferro, Jr.,
Chairmen and Chief Executive Officer
EXECUTIVE
________________________
Robert J. Markese
Address:________________________
________________________
<PAGE>
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
This Agreement is made as of the _______ day of _____________ 2000, by and
between Click Commerce, Inc., a Delaware corporation (the "Company"), and the
undersigned prospective [Officer/Director] of the Company, ___________________
(the "Indemnitee"), with reference to the following facts:
Recitals
--------
The Indemnitee is willing, under certain circumstances, to serve as an
[Officer/Director] of the Company. The Indemnitee has indicated that he does
not regard the indemnities available under the Company's Bylaws as adequate to
protect him against the risks associated with his service to the Company. In
this connection, the Company and the Indemnitee now agree that they should enter
into this Indemnification Agreement in order to provide greater protection to
Indemnitee against such risks of service to the Company.
Section 145 of the General Corporation Law of the State of Delaware, under
which Law the Company is organized, empowers corporations to indemnify a person
serving as a director, officer, employee or agent of the Company and a person
who serves at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, and said Section 145 and the Bylaws of the Company specify that the
indemnification set forth in said Section 145 and in the Bylaws, respectively,
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any Bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
Agreement
---------
In order to induce the Indemnitee to serve as a[n] [Officer/Director] of
the Company and in consideration of his continued service, the Company hereby
agrees, as of the date first set forth above, to indemnify the Indemnitee as
follows:
1. Indemnity. The Company will indemnify the Indemnitee, his executors,
administrators or assigns, for any Expenses (as defined below) which the
Indemnitee is or becomes legally obligated to pay in connection with any
Proceeding. As used in this Agreement the term "Proceeding" shall include any
threatened, pending or completed claim, action, suit or proceeding, whether
brought by or in the right of the Company or otherwise and whether of a civil,
criminal, administrative or investigative nature, in which the Indemnitee may be
or may have been involved as a party or otherwise, by reason of the fact that
Indemnitee is or was, or has agreed to become, a director or officer of the
Company, by reason of any actual or alleged error or misstatement or misleading
statement made or suffered by the Indemnitee, by reason of any action taken by
him or of any inaction on his part while acting as such director or officer, or
by reason of the fact that he was serving at the request of the Company as a
director, trustee, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise; provided,
that in each such case Indemnitee acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, in the case of a criminal proceeding, in addition had no
reasonable cause to believe that his conduct was unlawful. As used in this
Agreement, the term "other enterprise" shall include
<PAGE>
(without limitation) employee benefit plans and administrative committees
thereof, and the term "fines" shall include (without limitation) any excise tax
assessed with respect to any employee benefit plan.
2. Expenses. As used in this Agreement, the term "Expenses" shall
include (without limitation) damages, judgments, fines, penalties, settlements
and costs, attorneys' fees and disbursements and costs of attachment or similar
bonds, investigations, and any expenses of establishing a right to
indemnification under this Agreement.
3. Enforcement. If a claim or request under this Agreement is not paid
by the Company, or on its behalf, within thirty days after a written claim or
request has been received by the Company, the Indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim or request and if successful in whole or in part, the Indemnitee shall be
entitled to be paid also the Expenses of prosecuting such suit. The Company
shall have the right to recoup from the Indemnitee the amount of any item or
items of Expenses theretofore paid by the Company pursuant to this Agreement, to
the extent such Expenses are not reasonable in nature or amounts; provided,
however, that the Company shall have the burden of proving such Expenses to be
unreasonable. The burden of proving that the Indemnitee is not entitled to
indemnification for any other reason shall be upon the Company.
4. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
5. Exclusions. The Company shall not be liable under this Agreement to
pay any Expenses in connection with any claim made against the Indemnitee:
(a) to the extent that payment is actually made to the Indemnitee
under a valid, enforceable and collectible insurance policy;
(b) to the extent that the Indemnitee is indemnified and actually
paid otherwise than pursuant to this Agreement;
(c) in connection with a judicial action by or in the right of the
Company, in respect of any claim, issue or matter as to which the Indemnitee
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Company unless and only to the extent that any
court in which such action was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, the Indemnitee is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper;
(d) if it is proved by final judgment in a court of law or other
final adjudication to have been based upon or attributable to the Indemnitee's
in fact having gained any personal profit or advantage to which he was not
legally entitled;
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<PAGE>
(e) for a disgorgement of profits made from the purchase and sale by
the Indemnitee of securities pursuant to Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any state
statutory law or common law;
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the foregoing,
the Indemnitee shall be protected under this Agreement as to any claims upon
which suit may be brought against him by reason of any alleged dishonesty on his
part, unless a judgment or other final adjudication thereof adverse to the
Indemnitee shall establish that he committed (i) acts of active and deliberate
dishonesty, (ii) with actual dishonest purpose and intent, (iii) which acts were
material to the cause of action so adjudicated; or
(g) for any judgment, fine or penalty which the Company is prohibited
by applicable law from paying as indemnity or for any other reason.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against any and all Expenses incurred in
connection therewith.
7. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify the Indemnitee for the portion of such Expenses to
which the Indemnitee is entitled.
8. Advance of Expenses. Expenses incurred by the Indemnitee in
connection with any Proceeding, except the amount of any settlement, shall be
paid by the Company in advance upon request of the Indemnitee that the Company
pay such Expenses. The Indemnitee hereby undertakes to repay to the Company the
amount of any Expenses theretofore paid by the Company to the extent that it is
ultimately determined that such Expenses were not reasonable or that the
Indemnitee is not entitled to indemnification.
9. Approval of Expenses. No Expenses for which indemnity shall be sought
under this Agreement, other than those in respect of judgments and verdicts
actually rendered, shall be incurred without the prior consent of the Company,
which consent shall not be unreasonably withheld.
10. Notice of Claim. The Indemnitee, as a condition precedent to his
right to be indemnified under this Agreement, shall give to the Company notice
in writing as soon as practicable of any claim made against him for which
indemnity will or could be sought under this Agreement. Notice to the Company
shall be given at its principal office and shall be directed to the Corporate
Secretary (or such other address as the Company shall designate in writing to
the Indemnitee); notice shall be deemed received if sent by prepaid mail
properly addressed, the date of such notice being the date postmarked. In
addition, the Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within the Indemnitee's power.
3
<PAGE>
11. Exception to Right of Indemnification. Notwithstanding any other
provision of this Agreement, the Indemnitee shall not be entitled to
indemnification under this Agreement with respect to any Proceeding brought by
the Indemnitee, or any claim thereon, unless (a) the bringing of such Proceeding
or making of such claim shall have been approved by the Board of Directors of
the Company or (b) such Proceeding is being brought by the Indemnitee to assert,
interpret or enforce the Indemnitee's rights under this Agreement.
12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one instrument.
13. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Certificate of Incorporation or
Bylaws of the Company and amendments thereto or under law.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with Delaware law, without regard to the conflicts of law provisions
thereof.
15. Saving Clause. Wherever there is conflict between any provision of
this Agreement and any applicable present or future statute, law or regulation
contrary to which the Company and the Indemnitee have no legal right to
contract, the latter shall prevail, but in such event the affected provisions of
this Agreement shall be curtailed and restricted only to the extent necessary to
bring them within applicable legal requirements.
16. Coverage. The provisions of this Agreement shall apply with respect
to the Indemnitee's service as a prospective [Officer/Director] of the Company
prior to the date of this Agreement and with respect to all periods of such
service after the date of this Agreement, even though the Indemnitee may have
ceased to be a[n] [Officer/Director] of the Company.
(Signature Page Follows)
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
CLICK COMMERCE, INC.
By___________________________________
Authorized Officer
"INDEMNITEE"
_____________________________________
Name:
5
<PAGE>
EXHIBIT 10.6
- --------------------------------------------------------------------------------
PROMISSORY NOTE (SECURED)
- --------------------------------------------------------------------------------
$1,000,000.00
Chicago, Illinois March 25, 1999
Due March 25, 2000
FOR VALUE RECEIVED, the undersigned (jointly and severally if more
than one) ("Borrower"), promises to pay to the order of AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO ("Bank"), at its principal place of business in
Chicago, Illinois or such other place as Bank may designate from time to time
hereafter, the principal sum of ONE MILLION AND NO/00 DOLLARS, or such lesser
principal sum as may then be owed by Borrower to Bank hereunder, which sum shall
be due and payable on March 25, 2000.
Borrower's obligations and liabilities to Bank under this Note, and
all other obligations and liabilities of Borrower to Bank (including without
limitation all debts, claims and indebtedness) whether primary, secondary,
direct, contingent, fixed or otherwise, including those evidenced in rate
hedging agreements designed to protect the Borrower from the fluctuation of
interest rates, heretofore, now and/or from time to time hereafter owing, due or
payable, however evidenced, created, incurred, acquired or owing and however
arising, whether under this Note, any agreement, instrument or document
heretofore, now or from time to time hereafter executed and delivered to Bank by
or on behalf of Borrower, or by oral agreement or operation of law or otherwise
shall be defined and referred to herein as "Borrower's Liabilities."
The unpaid principal balance of Borrower's Liabilities due hereunder
shall bear interest from the date of disbursement until paid, computed at a
daily rate equal to the daily rate equivalent of 0.0% per annum (computed on the
basis of a 360-day year and actual days elapsed) in excess of the rate of
interest announced or published publicly from time to time by Bank as its prime
or base rate of interest (the "Base Rate"), provided, however, that in the event
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that any of Borrower's Liabilities are not paid when due, the unpaid amount of
Borrower's Liabilities shall bear interest after the due date until paid at a
rate equal to the sum of the rate that would otherwise be in effect plus 3 %.
The rate of interest to be charged by Bank to Borrower shall fluctuate
hereafter from time to time concurrently with, and in an amount equal to, each
increase or decrease in the Base Rate, whichever is applicable.
Accrued interest shall be payable by Borrower to Bank on the same day
of each month, and at maturity, commencing with the 25th day of April, 1999, or
as billed by Bank to Borrower, it Bank's principal place of business, or at such
other place as Bank may designate from time to time hereafter. After maturity,
accrued interest on all of Borrower's Liabilities shall be payable on demand.
<PAGE>
Borrower warrants and represents to Bank that Borrower shall use the
proceeds represented by this Note solely for proper business purposes and
consistently with all applicable laws and statutes.
To secure the prompt payment to Bank of Borrower's Liabilities and the
prompt, full and faithful performance by Borrower of all of the provisions to be
kept, observed or performed by Borrower under this Note and/or any other
agreement, instrument or document heretofore, now and/or from time to time
hereafter delivered by or on behalf of Borrower to Bank, Borrower grants to Bank
a security interest in and to the following property: (a) all of Borrower's now
existing and/or owned and hereafter arising or acquired monies, reserves,
deposits, deposit accounts and interest or dividends thereon, securities, cash,
cash equivalents and other property now or at any time or times hereafter in the
possession or under the control of Bank or its bailee for any purpose; (b)
certain business assets of CLICK INTERACTIVE, INC., a Delaware corporation,
pursuant to Loan and Security Agreement of even date herewith, as amended from
time to time, by and between Borrower and Bank; and (c) all substitutions,
renewals, improvements, accessions or additions thereto, replacements,
offspring, rents, issues, profits, returns, products and proceeds thereof,
including without limitation proceeds of insurance policies insuring the
foregoing collateral (all of the foregoing property is referred to herein
individually and collectively as "Collateral").
Regardless of the adequacy of the Collateral, any deposits or other
sums at any time credited by or payable or due from Bank to Borrower, or any
monies, cash, cash equivalents, securities, instruments, documents or other
assets of Borrower in the possession or control of Bank or its bailee for any
purpose, may be reduced to cash and applied by Bank to or setoff by Bank against
Borrower's Liabilities.
Borrower shall execute and deliver to Bank, at any time upon Bank's
demand, all agreements, instruments, documents and other written matter that
Bank may request, in form and substance acceptable to Bank, to perfect and
maintain perfected Bank's security interest in the Collateral. Borrower agrees
that a carbon, photographic or photostatic copy, or other reproduction, of this
Note or of any financing statement, shall be sufficient as a financing
statement.
Bank may take, and Borrower hereby waives notice of, any action from
time to time that Bank may deem necessary or appropriate to maintain or protect
the Collateral, and Bank's security interest therein, and in particular Bank may
at any time (i) transfer the whole or any part of the Collateral into the name
of the Bank or its nominee, (ii) collect any amounts due on Collateral directly
from persons obligated thereon, (iii) take control of any proceeds and products
of Collateral, and/or (iv) sue or make any compromise or settlement with respect
to any Collateral. Borrower hereby releases Bank from any and all causes of
action or claims which Borrower may now or hereafter have for any asserted loss
or damage to Borrower claimed to be caused by or arising from: (a) Bank's taking
any action permitted by this paragraph; (b) any failure of Bank to protect,
enforce or collect in whole or in part any of the Collateral; and/or (c) any
other act or omission to act on the part of Bank, its officers, agents or
employees, except for willful misconduct.
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<PAGE>
The occurrence of any one of the following events shall constitute a
default by the Borrower ("Event of Default") under this Note: (a) if Borrower
fails to pay any of Borrower's Liabilities when due and payable or declared due
and payable (whether by scheduled maturity, required payment, acceleration,
demand or otherwise); (b) if Borrower or any guarantor of any of Borrower's
Liabilities fails or neglects to perform, keep or observe any term, provision,
condition, covenant, warranty or representation contained in this Note; (c)
occurrence of a default or event of default under any agreement, instrument or
document heretofore, now or at any time hereafter delivered by or on behalf of
Borrower to Bank; (d) occurrence of a default or an event of default under any
agreement, instrument or document heretofore, now or at any time hereafter
delivered to Bank by any guarantor of Borrower's liabilities or by any person or
entity which has granted to Bank a security interest or lien in and to some or
all of such person's or entity's real or personal property to secure the payment
of Borrower's Liabilities; (e) if the Collateral or any other of Borrower's
assets are attached, seized, subjected to a writ, or are levied upon or become
subject to any lien or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors; (f) if a notice of lien,
levy or assessment is filed of record or given to Borrower with respect to all
or any of Borrower's assets by any federal, state or local department or agency;
(g) if Borrower or any guarantor of Borrower's Liabilities becomes insolvent or
generally fails to pay or admits in writing its inability to pay debts as they
become due, if a petition under Title 11 of the United States Code or any
similar law or regulation is filed by or against Borrower or any such guarantor,
if Borrower or any such guarantor shall make an assignment for the benefit of
creditors, if any case or proceeding is filed by or against Borrower or any such
guarantor for its dissolution or liquidation, or if Borrower or any such
guarantor is enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business affairs; (h) the death or
incompetency of Borrower or any guarantor of Borrower's Liabilities, or the
appointment of a conservator for all or any portion of Borrower's assets or the
Collateral; (i) the revocation, termination or cancellation of any guaranty of
Borrower's Liabilities without written consent of Bank; (j) if a contribution
failure occurs with respect to any pension plan maintained by Borrower or any
corporation, trade or business that is, along with Borrower, a member of a
controlled group of corporations or a controlled group of trades or businesses
(as described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or
Section 4001 of the Employee Retirement Income Security Act of 1974, as amended,
"ERISA") sufficient to give rise to a lien under Section 302(f) of ERISA; (k) if
Borrower or any guarantor of Borrower's Liabilities is in default in the payment
of any obligations, indebtedness or other liabilities to any third party and
such default is declared and is not cured within the time, if any, specified
therefor in any agreement governing the same; (l) if any material statement,
report or certificate made or delivered by Borrower, any of Borrower's partners,
officers, employees or agents or any guarantor of Borrower's Liabilities is not
true and correct; or (m) if Bank is reasonably insecure.
Upon the occurrence of an Event of Default, at Bank's option, without
notice by Bank to or demand by Bank of Borrower: (i) all of Borrower's
Liabilities shall be immediately due and payable; (ii) Bank may exercise any one
or more of the rights and remedies accruing to a secured party under the Uniform
Commercial Code of the relevant jurisdiction and any other applicable law upon
default by a debtor; (iii) Bank may enter, with or without process of law and
without breach of the peace, any premises where the Collateral is or may be
located, and may seize or
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<PAGE>
remove the Collateral from said premises and/or remain upon said premises and
use the same for the purpose of collecting, preparing and disposing of the
Collateral; and/or (iv) Bank may sell or otherwise dispose of the Collateral at
public or private sale for cash or credit, provided, however, that Borrower
shall be credited with the net proceeds of any such sale on)) when the same are
actually received by Bank.
Upon an Event of Default, Borrower, immediately upon demand by Bank,
shall assemble the Collateral and make it available to Bank at a place or places
to be designated by Bank which is reasonably convenient to Bank and Borrower.
All of Bank's rights and remedies under this Note are cumulative and
non-exclusive. The acceptance by Bank of any partial payment made hereunder
after the time when any of Borrower's Liabilities become due and payable will
not establish a custom or waive any rights of Bank to enforce prompt payment
hereof. Bank's failure to require strict performance by Borrower of any
provision of this Note shall not waive, affect or diminish any right of Bank
thereafter to demand strict compliance and performance therewith. Any waiver of
an Event of Default hereunder shall not suspend, waive or affect any other Event
of Default hereunder. Borrower and every endorser waive presentment, demand and
protest and notice of presentment, protest, default, non-payment, maturity,
release compromise, settlement, extension or renewal of this Note, and hereby
ratify and confirm whatever Bank may do in this regard. Borrower further waives
any and all notice or demand to which Borrower might be entitled with respect to
this Note by virtue of any applicable statute or law (to the extent permitted by
law).
Borrower agrees to pay, immediately upon demand by Bank, any and all
costs, fees and expenses (including reasonable attorneys' fees, costs and
expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder, and
(ii) in representing Bank in any litigation, contest, suit or dispute, or to
commence, defend or intervene or to take any action with respect to any
litigation, contest, suit or dispute (whether instituted by Bank, Borrower or
any other person) in any way relating to this Note, Borrower's Liabilities or
the Collateral, and to the extent not paid the same shall become part of
Borrower's Liabilities.
This Note shall be deemed to have been submitted by Borrower to Bank
and to have been made at Bank's principal place of business. This Note shall be
governed and controlled by the internal laws of the State of Illinois and not
the law of conflicts.
Advances under this Note may be made by Bank upon oral or written
request of any person authorized to make such requests on behalf of Borrower
("Authorized Person"). Borrower agrees that Bank may act on requests which Bank
in good faith believes to be made by an Authorized Person, regardless of whether
such requests are in fact made by an Authorized Person. Any such advance shall
be conclusively presumed to have been made by Bank to or for the benefit of
Borrower. Borrower does hereby irrevocably confirm, ratify and approve all such
advances by Bank and agrees to indemnify Bank against any and all losses and
expenses (including reasonable attorneys' fees) and shall hold Bank harmless
with respect thereto.
TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER IRREVOCABLY AGREES THAT,
SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL
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<PAGE>
ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR
RELATED TO THIS NOTE SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY
OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS
PARAGRAPH.
BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR
(II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO
THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES
THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
Attn: Donal Schmitt CLICK INTERACTIVE, INC.
919 N. Michigan Avenue a Delaware corporation
Chicago, Illinois 60611
FEIN: 36-4088644
By: /s/ Donal Schmitt
---------------------------------
Its: VP Finance
--------------------------------
/s/ Michael W. Ferro, Jr.
--------------------------------
CEO Click Interactive
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<PAGE>
EXHIBIT 10.7
American National Bank
and Trust Company of Chicago
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LOAN AND SECURITY AGREEMENT
(Accounts Receivable With Advance Rate)
- --------------------------------------------------------------------------------
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), made as of the 25/th/
day of March, 1999, by and between AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO ("Bank"), a national banking association with its principal place of
business at 120 South LaSalle Street, Chicago, Illinois 60603, and CLICK
INTERACTIVE, INC. ("Borrower"), an Illinois corporation with its principal place
of business at 919 N. Michigan Avenue, Chicago, Illinois 60611 has reference to
the following facts and circumstances:
A. Pursuant to Borrower's request, Bank heretofore, now and from time to time
hereafter, has and/or may loan or advance monies, extend credit, and/or extend
other financial accommodations to or for the benefit of Borrower.
B. To secure repayment of the same and all of "Borrower's Liabilities" (as
hereinafter defined), Borrower wishes to provide Bank with a security interest
in and/or collateral assignment of Borrower's assets.
NOW, THEREFORE, in consideration of terms and conditions set forth herein
and of any loans or extensions of credit heretofore, now or hereafter made to or
for the benefit of Borrower by Bank, the parties hereto agree as follows:
1. DEFINITIONS AND TERMS
1.1 When used herein, the words, terms and/or phrases set forth below
shall have the following meanings:
A. "Accounts": all present and future rights of Borrower to payment for
goods sold or leased or for services rendered, which are not evidenced
by instruments or chattel paper, and whether or not they have been
earned by performance.
B. "Borrower's Liabilities": all obligations and liabilities of Borrower
to Bank (including without limitation all debts, claims, indebtedness
and attorneys' fees and expenses as provided for in Paragraph 8.13)
whether primary, secondary, direct, contingent, fixed or otherwise,
including Rate Hedging Obligations (as defined in subparagraph L
herein), heretofore, now and/or from time to time hereafter owing, due
or payable, however evidenced, created, incurred, acquired or owing
and however arising, whether under this Agreement or the "Other
Agreements" (hereinafter defined) or by operation of law or otherwise.
C. "Charges": all national, federal, state, county, city, municipal
and/or other governmental (or any instrumentality, division, agency,
body or department thereof, including without limitation the Pension
Benefit Guaranty Corporation) taxes, levies, assessments, charges,
liens, claims or encumbrances upon and/or relating to the "Collateral"
(as hereinafter defined), Borrower's Liabilities,
<PAGE>
Borrower's business, Borrower's ownership and/or use of any of its
assets, and/or Borrower's income and/or gross receipts.
D. "Collateral": shall have the meaning set forth in Paragraph 3.2.
E. "Indebtedness":' (i) indebtedness for borrowed money or for the
deferred purchase price of property or services; (ii) obligations as
lessee under leases which shall have been or should be, in accordance
with generally accepted accounting principles, recorded as capital
leases; (iii) obligations under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i) or (ii) above; and (iv) liabilities with
respect to unfunded vested benefits under plans covered by Title IV of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and in effect from time to time.
F. "Letter of Credit Obligations": shall mean any and all existing and
future indebtedness, obligations and liabilities of every kind, nature
and character, direct or indirect, absolute or contingent, of the
Borrower to Bank, arising under, pursuant to or in connection with any
letter of credit issued under the Maximum Revolving Facility.
G. "Loans": shall mean collectively any Revolving Loans as defined in
Paragraph 2.5 and Term Loans as defined in Paragraph 2.6.
H. "Maximum Revolving Facility": shall mean the maximum amount of the
Revolving Loans as evidenced by a revolving note(s) which amount Bank
has agreed to consider as a ceiling on the outstanding principal
balance of Revolving Loans (other than Term Loans) to be made by Bank
pursuant to this Agreement.
I. "Obligor": any Person who is and/or may become obligated to Borrower
under or on account of " Accounts. "
J. "Other Agreements": all agreements, instruments and documents,
including without limitation, guaranties, mortgages, deeds of trust,
notes, pledges, powers of attorney, consents, assignments, contracts,
notices, security agreements, leases, subordination agreements,
financing statements and all other written matter heretofore, now
and/or from time to time hereafter executed by and/or on behalf of
Borrower and delivered to Bank.
K. "Persons": any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, entity, party or government
(whether national, federal, state, county, city, municipal or
otherwise, including without limitation, any instrumentality,
division, agency, body or department thereof).
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<PAGE>
L. "Rate Hedging Obligations": shall mean any and all obligations of the
Borrower, whether absolute or contingent and howsoever and whenever
created, arising, evidenced or acquired (including all renewals,
extensions and modifications thereof and substitutions therefor),
under (i) any and all agreements designed to protect the Borrower from
the fluctuations of interest rates, exchange rates or forward rates
applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to: interest rate swap
agreements, dollar-denominated or cross-currency interest rate
exchange agreements, forward currency exchange agreements, interest
rate cap, floor or collar agreements, forward rate currency agreements
or agreements relating to interest rate options, puts and warrants,
and (ii) any and all agreements relating to cancellations, buy backs,
reversals, terminations or assignments of any of the foregoing.
M. "Year 2000 Issues": shall mean anticipated costs, problems and
uncertainties associated with the inability of certain computer
applications to effectively handle data including data on and after
January 1, 2000, as such inability affects the business, operations,
and financial condition of the Borrower and of the Borrower's material
customers, suppliers and vendors.
1.2 Except as otherwise defined in this Agreement or the Other Agreements,
all words, terms and/or phrases used herein and therein shall be defined by the
applicable definition therefor (if any) in the Illinois Uniform Commercial Code.
2. LOANS
2.1 Loans made by Bank to Borrower pursuant to this Agreement shall be
evidenced by notes or other instruments issued or made by Borrower to Bank.
Except as otherwise provided in this Agreement or in any notes executed and
delivered by Borrower to Bank in connection herewith, the principal portion of
Borrower's Liabilities shall be payable by Borrower to Bank on the maturity
date(s) described in any such note(s) or other instruments evidencing Borrower's
Liabilities (as the same may be amended, renewed or replaced) and all costs,
fees and expenses payable hereunder or under the Other Agreements, shall be
payable by Borrower to the Bank on demand, in either case at Bank's principal
place of business or such other place as Bank shall specify in writing to
Borrower.
2.2 All of Borrower's Liabilities shall constitute one obligation secured
by Bank's security interest in the Collateral and by all other security
interests, liens, claims and encumbrances heretofore, now and/or from time to
time hereafter granted by Borrower to Bank.
2.3 Each loan made by Bank to Borrower pursuant to this Agreement or the
Other Agreements shall constitute an automatic warranty and representation by
Borrower to Bank that there does not then exist an "Event of Default" (as
hereinafter defined) or any event or condition, which with notice, lapse of time
and/or the making of such loan would constitute an Event of Default.
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<PAGE>
2.4 This Agreement shall be in effect until all of Borrower's Liabilities
have been paid in full and any and all commitments of Bank to make loans have
terminated.
2.5 Provided that an Event of Default does not then exist or would not
then be created or any event which with notice or lapse of time or both would
constitute an Event of Default does not then exist, Bank shall advance to
Borrower on a revolving credit basis (the "Revolving Loans") up to the lesser of
(i) the Maximum Revolving Facility minus any Letter of Credit Obligations, or
(ii) the "Borrowing Base" minus any Letter of Credit Obligations. As used
herein, "Borrowing Base" shall mean up to 80% ("Advance Rate") of the face
amount (less maximum discounts, credits or allowances which may be taken by or
granted to Obligors in connection therewith) of all then existing "Eligible
Accounts" (as hereinafter defined) that are scheduled on the most recent
schedule of accounts delivered to Bank. Notwithstanding any contrary provision
contained herein, Bank may elect at its option to at any time and upon fourteen
(14) days prior written notice to Borrower change the foregoing method of
calculating the Borrowing Base by reducing the advances against Eligible
Accounts, or to deduct reserves from the Borrowing Base.
2.6 Bank may from time to time advance to Borrower term loans ("Term
Loans") in such amounts and on such terms and conditions as the Bank and
Borrower from time to time may agree in writing.
2.7 Notwithstanding anything contained in this Agreement or the Other
Agreements to the contrary, the principal portion of Borrower's outstanding
liabilities due at any one time under the Revolving Loans shall not exceed the
lesser of: (i) the Maximum Revolving Facility minus the amount of all Letter of
Credit Obligations, or (ii) the Borrowing Base minus the amount of all Letter of
Credit Obligations.
2.8 Bank's commitment to loan shall expire on the earlier of: (i) the date
on which Borrower's Liabilities mature under the terms of any note given by
Borrower to Bank, or (ii) the occurrence of an Event of Default pursuant to
Section 7 hereof.
3. COLLATERAL: GENERAL TERMS
3.1 Borrower grants to Bank a security interest in and to, the following
Borrower's property, wherever located, whether now or hereafter existing, owned,
licensed, leased (to the extent of Borrower's leasehold interest therein),
consigned (to the extent of Borrower's ownership therein), arising and/or
acquired, including without limitation all of Borrower's: (a) Accounts, chattel
paper, tax refunds, contract rights, leases, leasehold interests, letters of
credit, instruments, documents, documents of title, licenses, goodwill,
beneficial interests and general intangibles; (b) all goods whose sale, lease or
other disposition by Borrower have given rise to Accounts and have been returned
to or repossessed or stopped in transit by Borrower; (c) liens, guaranties and
other rights and privileges pertaining to any of the Collateral; (d) monies,
reserves, deposits, deposit accounts and interest or dividends thereon, cash or
cash equivalents; (e) all property now or at any time or times hereafter in the
possession, or under the control of Bank or its bailee; (f) all accessions to
the foregoing, all litigation proceeds pertaining to the foregoing and all
substitutions, renewals, improvements and replacements of and additions to the
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<PAGE>
foregoing; and (g) all books, records and computer records in any way relating
to the Collateral herein described.
3.2 All of the aforesaid property and products and proceeds of the
foregoing in Paragraph 3.1 above, including without limitation, proceeds of
insurance policies insuring the foregoing are herein individually and
collectively called the "Collateral". The terms used herein to identify the
Collateral shall have the same meaning as are assigned to such terms as of the
date hereof in the Illinois Uniform Commercial Code.
3.3 Borrower shall make appropriate entries upon its financial statements
and its books and records disclosing Bank's security interest in the Collateral.
3.4 Borrower shall execute and deliver to Bank, at the request of Bank,
all agreements, instruments and documents ("Supplemental Documentation") that
Bank reasonably may request, in form and substance acceptable to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and to
consummate the transactions contemplated in or by this Agreement and the Other
Agreements. Borrower agrees that a carbon, photographic or photostatic copy, or
other reproduction of this Agreement or of any financing statement, shall be
sufficient to evidence Bank's security interest.
3.5 Bank shall have the right, at any time during Borrower's usual
business hours, to inspect the Collateral and all related records (and the
premises upon which it is located) and to verify the amount and condition of or
any other matter relating to the Collateral.
3.6 Borrower warrants and represents to and covenants with Bank that: (a)
Bank's security interest in the Collateral is now and at all times hereafter
shall be perfected and have a first priority except as expressly agreed to in
writing by the Bank; (b) the offices and/or locations where Borrower keeps the
Collateral are specified at the end of this Paragraph and Borrower shall not
remove such Collateral therefrom except as may occur in the ordinary course of
business, and shall not keep any of such Collateral at any other offices or
locations unless Borrower gives Bank written notice thereof at least thirty (30)
days prior thereto and the same is within the United States of America; and (c)
the addresses specified at the end of this Paragraph include and designate
Borrower's principal executive office, principal place of business and other
offices and places of business and are Borrower's sole offices and places of
business. Borrower, by written notice delivered to Bank at least thirty (30)
days prior thereto, shall advise Bank of Borrower's opening of any new office or
place of business or its closing of any existing office or place of business and
any new office or place of business shall be within the United States of
America. Borrower has places of business at the address shown at the beginning
of this Agreement and at the locations listed below:
1) ____________________________________________________________
2) ____________________________________________________________
3) ____________________________________________________________
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<PAGE>
All of the Collateral currently owned by Borrower and all of the Collateral
hereafter acquired is, or will be held or stored at the locations listed below:
1) The address of the Borrower shown at the beginning of this Agreement;
2) ______________________________________________________________________
3) ______________________________________________________________________
3.7 At the request of Bank, Borrower shall receive, as the sole and
exclusive property of Bank and as trustee for Bank, all monies, checks, notes,
drafts and all other payments for and/or proceeds of Collateral which come into
the possession or under the control of Borrower and immediately upon receipt
thereof, Borrower shall remit the same (or cause the same to be remitted), in
kind, to Bank or at Bank's direction.
3.8 Upon demand or upon an Event of Default, Bank may take control of, in
any manner, and may endorse Borrower's name to any of the items of payment or
proceeds described in Paragraph 3.7 above and, pursuant to the provisions of
this Agreement, Bank shall apply the same to and on account of Borrower's
Liabilities.
3.9 Bank may, at its option, at any time or times hereafter, but shall be
under no obligation to pay, acquire and/or accept an assignment of any security
interest, lien, encumbrance or claim asserted by any Person against the
Collateral.
3.10 Immediately upon Borrower's receipt of that portion of the Collateral
evidenced by an agreement, instrument and/or document ("Special Collateral"),
Borrower shall mark the same to show that such Special Collateral is subject to
a security interest in favor of Bank and shall deliver the original thereof to
Bank, together with appropriate endorsement and/or specific evidence of
assignment (in form and substance acceptable to Bank) thereof to Bank.
3.11 Regardless of the adequacy of any Collateral securing Borrower's
Liabilities hereunder, any deposits or other sums at any time credited by or
payable or due from Bank to Borrower, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Borrower in possession or
control of Bank or its bailee for any purpose may, upon demand or an Event of
Default or event or condition which with notice or lapse of time would
constitute an Event of Default, be reduced to cash and applied by Bank to or
setoff by Bank against Borrower's Liabilities hereunder.
3.12 At the request of Bank, Borrower shall instruct the Obligors of its
Accounts to make payments directly to a lockbox or cash collateral account
maintained by Bank in Borrower's name. All such collections shall be Bank's
property to be applied against Borrower's Liabilities, and not Borrower's
property. Bank may endorse Borrower's name to any of the items of payment or
proceeds described herein.
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4. COLLATERAL: ACCOUNTS
4.1 An "Eligible Account" is an Account of Borrower which meets each of
the following requirements: (a) it arises from the sale or lease of goods, such
goods having been shipped or delivered to the Obligor thereof, or from services
rendered to the Obligor; (b) it is a valid, legally enforceable obligation of
the Obligor thereunder, and is not subject to any offset, counterclaim or other
defense on the part of such Obligor denying liability thereunder in whole or in
part; (c) it is subject to a perfected security interest in favor of Bank and is
not subject to any other lien or security interest whatsoever, except those of
Bank; (d) it is evidenced by an invoice (dated not later than the date of
shipment to the Obligor or performance and having a due date not more than
thirty (30) days after the date of invoice) rendered to such Obligor, and is not
evidenced by any instrument or chattel paper; (e) it is payable in United States
dollars; (f) it is not owing by any Obligor residing, located or having its
principal activities or place of business outside the United States of America
or who is not subject to service of process in the United States of America, (g)
it is not owing by any Obligor involved in any bankruptcy or insolvency
proceeding; (h) it is not owing by any affiliate of Borrower; (i) it is not
unpaid more than ninety (90) days after the date of such invoice; (j) it is not
owing by an Obligor which shall have failed to pay in full any invoice
evidencing any account within ninety (90) days after the date of such invoice,
unless the total invoice amounts of such Obligor which have not been paid within
ninety (90) days of the date represents less than 10% of the total invoice
amounts then outstanding of such Obligor; and (k) it is not an Account as to
which Bank, at any time or times hereafter, determines, in good faith, that the
prospect of payment or performance by the Obligor thereof is or will be
impaired. Notwithstanding the foregoing, Accounts with respect to which the
Account Debtor is the United States of America or any department, agency or
instrumentality thereof, shall not be included as an Eligible Account unless,
with respect to any such Account, Borrower has complied to Bank's satisfaction
with the provisions of the Federal Assignment of Claims Act of 1940, including,
without limitation, executing and delivering to Bank all statements of
assignment and/or notification which are in form and substance acceptable to
Bank and which are deemed necessary by Bank to effectuate the assignment to Bank
of such Accounts. An Account which is at any time an Eligible Account, but
which subsequently fails to meet any of the foregoing requirements, shall
forthwith cease to be an Eligible Account. Bank may in its sole discretion at
any time reduce the percentage set forth in clause (j) above upon seven (7) days
prior notice to Borrower. Borrower, immediately upon demand from Bank, shall
pay to Bank an amount of money equal to the monies advanced by Bank to Borrower
upon an Account that is no longer an Eligible Account. Borrower warrants and
represents to and covenants with Bank that the principal portion of Borrower's
Liabilities represented by Revolving Loans made by Bank to Borrower, pursuant to
Paragraph 2.5 above, shall not exceed the total of the then outstanding amounts
(less maximum discounts, credits and allowances which may be taken by or granted
to Obligors in connection therewith) of all then existing Eligible Accounts
multiplied by the Advance Rate.
4.2 With respect to Accounts, except as otherwise disclosed by Borrower to
Bank in writing, Borrower warrants and represents to Bank that: (a) they are
genuine, are in all respects what they purport to be and are not evidenced by a
judgment; (b) they represent undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in the
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invoices and other documents delivered to Bank with respect thereto; (c) the
amounts shown on any Schedule of Accounts and/or all invoices and statements
delivered to Bank with respect thereto are actually and absolutely owing to
Borrower and are not in any way contingent; (d) no payments have been made or
shall be made thereon except payments immediately delivered to Bank pursuant to
this Agreement; (e) there are no setoffs, counterclaims or disputes existing or
asserted with respect thereto and Borrower has not made any agreement with any
Obligor thereof for any deduction therefrom except a regular discount allowed by
Borrower in the ordinary course of its business for prompt payment; (f) there
are no facts, events or occurrences which in any way impair the validity or
enforcement thereof or tend to reduce the amount payable thereunder, which may
be shown on any schedule of accounts and on all invoices and statements
delivered to Bank with respect thereto; (g) to the best of Borrower's knowledge,
all Obligors have the capacity to contract and are solvent; (h) the services
furnished and/or goods sold or leased giving rise thereto are not subject to any
lien, claim, encumbrance or security interest except that of Bank; (i) Borrower
has no knowledge of any fact or circumstance which would impair the validity or
collectability thereof; (j) to the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Obligor which
might result in any material adverse change in its financial condition; and (k)
Borrower has filed a Notice of Business Activities Report or a Certificate of
Authority or similar report with the appropriate office or department in states
where Account Obligors are located and where such reports are required as a
condition to commencing or maintaining an action in the courts of such states,
or Borrower has demonstrated to Bank's satisfaction that it is exempt from any
such requirements under such state's law.
4.3 Any of Bank's officers, employees or agents shall have the right, at
any time or times hereafter, in Bank's name or in the name of a nominee of Bank,
to verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, facsimile or otherwise and to sign Borrower's name on any
verification of Accounts and notices thereof to Obligors. All costs, fees and
expenses relating thereto incurred by Bank (or for which Bank becomes obligated)
shall be part of Borrower's Liabilities, payable by Borrower to Bank on demand.
4.4 Unless Bank notifies Borrower in writing that Bank suspends any one or
more of the following requirements, Borrower shall: (a) promptly upon Borrower's
learning thereof, inform Bank, in writing, of any material delay in Borrower's
performance of any of its obligations to any Obligor and of any assertion of any
claims, offsets or counterclaims by any Obligor and of any allowances, credits
and/or other monies granted by Borrower to any Obligor; (b) not permit or agree
to any extension, compromise or settlement with respect to Accounts which
constitute, in the aggregate, more than 5% of all Accounts then owing to
Borrower; and (c) keep all goods returned by any Obligor and all goods
repossessed or stopped in transit by Borrower from any Obligor segregated from
other property of Borrower, immediately notify Bank of Borrower's possession of
such goods, and hold the same as trustee for Bank until otherwise directed in
writing by Bank.
4.5 Bank shall have the right, now and at any time or times hereafter, at
its option, without notice thereof to Borrower: (a) to notify any or all
Obligors that the Accounts and Special Collateral have been assigned to Bank and
the Bank has a security interest therein; (b) to direct such Obligors to make
all payments due from them to Borrower upon the Accounts and
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Special Collateral directly to Bank; and (c) to enforce payment of and collect,
by legal proceedings or otherwise, the Accounts and Special Collateral in the
name of Bank and Borrower.
4.6 Borrower, irrevocably, hereby designates, makes, constitutes and
appoints Bank (and all Persons designated by Bank) as Borrower's true and lawful
attorney (and agent-in-fact), with power, upon an Event of Default, or an event
or condition which with notice or lapse of time would constitute an Event of
Default, without notice to Borrower and in Borrower's or Bank's name: (a) to
demand payment of Accounts; (b) to enforce payment of the Accounts by legal
proceedings or otherwise; (c) to exercise all of Borrower's rights and remedies
with respect to the collection of the Accounts; (d) to settle, adjust,
compromise, discharge, release, extend or renew the Accounts; (e) to settle,
adjust or compromise any legal proceedings brought to collect the Accounts; (f)
to sell or assign the Accounts upon such terms, for such amounts and at such
time or times as Bank deems advisable; (g) to prepare, file and sign Borrower's
name on any Notice of Lien, Assignment or Satisfaction of Lien or similar
document in connection with the Accounts and Special Collateral; or (h) to
prepare, file and sign Borrower's name on any Proof of Claim in Bankruptcy or
similar document against any Obligor.
5. WARRANTIES, REPRESENTATIONS AND COVENANTS:
INSURANCE AND TAXES
5.1 Borrower, at its sole cost and expense, shall keep and maintain: (a)
the Collateral insured for the full insurable value against all hazards and
risks ordinarily insured against by other owners or users of such properties in
similar businesses; and (b) business interruption insurance and public liability
and property damage insurance relating to Borrower's ownership and use of its
assets. All such policies of insurance shall be in a form with insurers and in
such amounts as may be satisfactory to Bank. Borrower shall deliver to Bank the
original (or certified) copy of each policy of insurance, or a certificate of
insurance, and evidence of payment of all premiums for each such policy. Such
policies of insurance (except those of public liability) shall contain a
standard form lender's loss payable clause, in form and substance acceptable to
Bank, showing loss payable to Bank, and shall provide that: (i) the insurance
companies will give Bank at least thirty (30) days written notice before any
such policy or policies of insurance shall be altered or canceled; and (ii) no
act or default of Borrower or any other Person shall effect the right of Bank to
recover under such policy or policies of insurance in case of loss or damage.
Borrower hereby directs all insurers under such policies of insurance (except
those of public liability) to pay all proceeds payable thereunder directly to
Bank and hereby authorizes Bank to make, settle, and adjust claims under such
policies of insurance and endorse the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance.
Unless Borrower provides Bank with evidence of the insurance coverage
required by this Agreement, Bank may purchase insurance at Borrower's expense to
protect Bank's interests in the Collateral. This insurance may, but need not,
protect Borrower's interests. The coverage that Bank purchases may not pay any
claim that Borrower makes or any claim that is made against Borrower in
connection with the Collateral. Borrower may later cancel any insurance
purchased by Bank, but only after providing Bank with evidence that Borrower has
obtained insurance as
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required by this Agreement. If Bank purchases insurance for the Collateral,
Borrower will be responsible for the costs of that insurance, including interest
and other charges Bank may impose in connection with the placement of the
insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to Borrower's total
outstanding balance or obligation. The costs of the insurance may be more than
the cost of the insurance Borrower is able to obtain on its own.
5.2 Borrower shall pay promptly, when due, all Charges, and shall not
permit any Charges to arise, or to remain and will promptly discharge the same.
6. WARRANTIES, REPRESENTATIONS AND COVENANTS:
GENERAL
6.1 Borrower warrants and represents to and covenants with Bank that: (a)
Borrower has the right, power and capacity and is duly authorized and empowered
to enter into, execute, deliver and perform this Agreement and Other Agreements;
(b) the execution, delivery and/or performance by Borrower of this Agreement and
Other Agreements shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in Borrower's Articles of Incorporation, By-Laws, Articles
of Partnership, Articles of Organization, Operating Agreement or similar
document, or contained in any agreement, instrument or document to which
Borrower is now or hereafter a party or by which it is or may be bound; (c)
Borrower has and at all times hereafter shall have good, indefeasible and
merchantable title to and ownership of the Collateral, free and clear of all
liens, claims, security interests and encumbrances except those of Bank; (d)
Borrower is now and at all times hereafter, shall be solvent and generally
paying its debts as they mature and Borrower now owns and shall at all times
hereafter own property which, at a fair a valuation, is greater than the sum of
its debts; (e) Borrower is not and will not be during the term hereof in
violation of any applicable federal, state or local statute, regulation or
ordinance that, in any respect materially and adversely affects its business,
property, assets, operations or condition, financial or otherwise; and (f)
Borrower is not in default with respect to any indenture, loan agreement,
mortgage, deed or other similar agreement relating to the borrowing of monies to
which it is a party or by which it is bound.
6.2 Borrower warrants and represents to and covenants with Bank that
Borrower shall not, without Bank's prior written consent thereto: (a) grant a
security interest in or assign any of the Collateral to any Person or permit,
grant, or suffer a lien, claim or encumbrance upon any of the Collateral; (b)
sell or transfer any of the Collateral not in the ordinary course of business;
(c) enter into any transaction not in the ordinary course of business which
materially and adversely affects the Collateral or Borrower's ability to repay
Borrower's Liabilities or Indebtedness; (d) other than as specifically permitted
in or contemplated by this Agreement, encumber, pledge, mortgage, sell, lease or
otherwise dispose of or transfer, whether by sale, merger, consolidation or
otherwise, any of Borrower's assets; and (e) incur Indebtedness except: (i)
unsecured trade debt in the ordinary course of business; (ii) renewals or
extensions of existing Indebtedness and interest thereon; and (iii) Indebtedness
that is unsecured and is to Persons who execute and deliver to Bank in form and
substance acceptable to Bank and its counsel subordination
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agreements subordinating their claims against Borrower therefor to the payment
of Borrower's Liabilities.
6.3 Borrower warrants and represents to and covenants with Bank that
Borrower shall furnish to Bank: (a) as soon as available but not later than
ninety (90) days after the close of each fiscal year of Borrower, financial
statements, which shall include, but not be limited to, balance sheets, income
statements and statements of cash flow of Borrower prepared in accordance with
generally accepted accounting principles, consistently applied, audited by
Borrower and acceptable to Bank; (b) as soon as available but not later than
forty-five (45) days after the end of each quarter hereafter, financial
statements of Borrower certified by Borrower to be prepared in accordance with
generally accepted accounting principles which fairly present the financial
position and results of operations of Borrower for such period; (c) schedule of
accounts payable and accounts receivable by the 15th of every month or otherwise
as Bank may direct; and (d) such other data and information (financial and
otherwise) as Bank, from time to time, may request, including information
satisfactory to, Bank regarding the Borrower's plan for addressing Year 2000
Issues.
6.4 Borrower will maintain its primary depositary relationship with Bank
and will establish such accounts and maintain balances therein with Bank
sufficient to cover the cost of all Bank services provided; provided however,
that nothing herein shall require Borrower to keep and maintain a specific
minimum balance in such account.
6.5 Borrower warrants and represents to and covenants with Bank that
Borrower will take all actions reasonably necessary to assure that the Year 2000
Issues will not have a material adverse effect on the business, operations or
financial condition of the Borrower. Upon the Bank's request, the Borrower will
provide the Bank with a description of its plan to address Year 2000 Issues,
including updates and progress reports. The Borrower will advise the Bank of
any reasonably anticipated material adverse effect on the business, operations
or financial condition of the Borrower as a result of Year 2000 Issues.
7. DEFAULT
7.1 The occurrence of any one of the following events shall constitute a
default by the Borrower ("Event of Default") under this Agreement: (a) if
Borrower fails to pay any of Borrower's Liabilities when due and payable or
declared due and payable (whether by scheduled maturity, required payment,
acceleration, demand or otherwise); (b) if Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant, warranty or
representation contained in this Agreement or any of the Other Agreements; (c)
occurrence of a default or Event of Default under any of the Other Agreements
heretofore, now or at any time hereafter delivered by or on behalf of Borrower
to Bank; (d) occurrence of a default or an Event of Default under any agreement,
instrument or document heretofore, now or at any time hereafter delivered to
Bank by any guarantor of Borrower's Liabilities or by any Person which has
granted to Bank a security interest or lien in such Person's real or personal
property to secure the payment of Borrower's Liabilities; (e) if the Collateral
or any other of Borrower's assets are attached, seized, subjected to a writ, or
are levied upon or become subject to any lien or come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors; (f)
if a
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notice of lien, levy or assessment is filed of record or given to Borrower with
respect to all or any of Borrower's assets by any federal, state, local
department or agency; (g) if Borrower or any guarantor of Borrower's Liabilities
becomes insolvent or generally fails to pay or admits in writing its inability
to pay debts as they become due, if a petition under Title 11 of the United
States Code or any similar law or regulation is filed by or against Borrower or
any such guarantor, if Borrower or any such guarantor shall make an assignment
for the benefit of creditors, if any case or proceeding is filed by or against
Borrower or any such guarantor for its dissolution or liquidation, if Borrower
or any such guarantor is enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its business affairs; (h) the
death or incompetency of Borrower or any guarantor of Borrower's Liabilities, or
the appointment of a conservator for all or any portion of Borrower's assets or
the Collateral; (i) the revocation, termination, or cancellation of any guaranty
of Borrower's Liabilities without written consent of Bank; (j) if a contribution
failure occurs with respect to any pension plan maintained by Borrower or any
corporation, trade or business that is, along with Borrower, a member of a
controlled group of corporations or controlled group of trades or businesses (as
described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or
Section 4001 of ERISA) sufficient to give rise to a lien under Section 302(f) of
ERISA; (k) if Borrower or any guarantor of Borrower's Liabilities is in default
in the payment of any obligations, indebtedness or other liabilities to any
third party and such default is declared and is not cured within the time, if
any, specified therefor in any agreement governing the same; (l) if any material
statement, report or certificate made or delivered by Borrower, any of
Borrower's partners, officers, employees or agents or any guarantor of
Borrower's Liabilities is not true and correct; or (m) if Bank is reasonably
insecure.
7.2 All of Bank's rights and remedies under this Agreement and the Other
Agreements are cumulative and non-exclusive.
7.3 Upon an Event of Default or the occurrence of any one of the events
described in Paragraph 7.1, without notice by Bank to or demand by Bank of
Borrower, Bank shall have no further obligation to and may then forthwith cease
advancing monies or extending credit to or for the benefit of Borrower under
this Agreement and the Other Agreements. Upon an Event of Default, without
notice by Bank to or demand by Bank of Borrower, Borrower's Liabilities shall be
immediately due and payable.
7.4 Upon an Event of Default, Bank, in its sole and absolute discretion,
may exercise any one or more of the rights and remedies accruing to a secured
party under the Uniform Commercial Code of the relevant state and any other
applicable law upon default by a debtor.
7.5 Upon an Event of Default, Borrower, immediately upon demand by Bank,
shall assemble the Collateral and make it available to Bank at a place or places
to be designated by Bank which is reasonably convenient to Bank and Borrower.
Borrower recognizes that in the event Borrower fails to perform, observe or
discharge any of its obligations or liabilities under this Agreement or the
Other Agreements, no remedy of law will provide adequate relief to Bank, and
agrees that Bank shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages.
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7.6 Upon an Event of Default, without notice, demand or legal process of
any kind, Bank may take possession of any or all of the Collateral (in addition
to Collateral of which it already has possession), wherever it may be found, and
for that purpose may pursue the same wherever it may be found, and may enter
into any of Borrower's premises where any of the Collateral may be or is
supposed to be, and search for, take possession of, remove, keep and store any
of the Collateral until the same shall be sold or otherwise disposed of, and
Bank shall have the right to store the same in any of Borrower's premises
without cost to Bank.
7.7 Any notice required to be given by Bank of a sale, lease, or other
disposition of the Collateral or any other intended action by Bank, (i)
deposited in the United States mail, postage prepaid and duly addressed to
Borrower at the address specified at the beginning of this Agreement, or (ii)
sent via certified mail, return receipt requested, or (iii) sent via facsimile,
or (iv) delivered personally, not less than ten (10) days prior to such proposed
action, shall constitute commercially reasonable and fair notice to Borrower.
7.8 Upon an Event of Default, Borrower agrees that Bank may, if Bank deems
it reasonable, postpone or adjourn any such sale of the Collateral from time to
time by an announcement at the time and place of sale or by announcement at the
time and place of such postponed or adjourned sale, without being required to
give a new notice of sale. Borrower agrees that Bank has no obligation to
preserve rights against prior parties to the Collateral. Further, to the extent
permitted by law, Borrower waives and releases any cause of action and claim
against Bank as a result of Bank's possession, collection or sale of the
Collateral, any liability or penalty for failure of Bank to comply with any
requirement imposed on Bank relating to notice of sale, holding of sale or
reporting of sale of the Collateral, and any right of redemption from such sale.
8. GENERAL
8.1 Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank on account of
Borrower's Liabilities and Borrower agrees that Bank shall have the continuing
exclusive right to apply and re-apply any and all such payments in such manner
as Bank may deem advisable, notwithstanding any entry by Bank upon any of its
books and records.
8.2 Borrower covenants, warrants and represents to Bank that all
representations and warranties of Borrower contained in this Agreement and the
Other Agreements shall be true from the time of Borrower's execution of this
Agreement to the end of the original term and each renewal term hereof. All of
Borrower's warranties, representations, undertakings, and covenants contained in
this Agreement or the Other Agreements shall survive the termination or
cancellation of the same.
8.3 The terms and provisions of this Agreement and the Other Agreements
shall supersede any prior agreement or understanding of the parties hereto, and
contain the entire agreement of the parties hereto with respect to the matters
covered herein. This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
Bank. Except for the provisions of Section 2 hereof which shall
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terminate as provided in paragraph 2.8, this Agreement shall continue in full
force and effect so long as any portion or component of Borrower's Liabilities
shall be outstanding. Should a claim ("Recovery Claim") be made upon the Bank at
any time for recovery of any amount received by the Bank in payment of
Borrower's Liabilities (whether received from Borrower or otherwise) and should
the Bank repay all or part of said amount by reason of (1) any judgment, decree
or order of any court or administrative body having jurisdiction over Bank or
any of its property; or (2) any settlement or compromise of any such Recovery
Claim effected by the Bank with the claimant (including Borrower), this
Agreement and the security interests granted Bank hereunder shall continue in
effect with respect to the amount so repaid to the same extent as if such amount
had never originally been received by the Bank, notwithstanding any prior
termination of this Agreement, the return of this Agreement to Borrower, or the
cancellation of any note or other instrument evidencing Borrower's Liabilities.
Borrower may not sell, assign or transfer this Agreement, or the Other
Agreements or any portion thereof.
8.4 Bank's failure to require strict performance by Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of
Bank thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Bank of an Event of Default by Borrower under this
Agreement or the Other Agreements shall not suspend, waive or affect any other
Event of Default by Borrower under this Agreement or the Other Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or the Other Agreements
and no Event of Default by Borrower under this Agreement or the Other Agreements
shall be deemed to have been suspended or waived by Bank unless such suspension
or waiver is by an instrument in writing signed by an officer of Bank and
directed to Borrower specifying such suspension or waiver.
8.5 If any provision of this Agreement or the Other Agreements or the
application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons or circumstances will not be
affected thereby and the provisions of this Agreement and the Other Agreements
shall be severable in any such instance.
8.6 This Agreement and the Other Agreements shall be binding upon and
inure to the benefit of the successors and assigns of Borrower and Bank. This
provision, however, shall not be deemed to modify Paragraph 8.3 hereof.
8.7 Borrower hereby appoints Bank as Borrower's agent and attorney-in-fact
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any agreement, instrument or document which Bank may
reasonably deem necessary or advisable to accomplish the purposes hereof which
appointment is irrevocable and coupled with an interest. All monies paid for
the purposes herein, and all costs, fees and expenses paid or incurred in
connection therewith, shall be part of Borrower's Liabilities, payable by
Borrower to Bank on demand.
8.8 This Agreement, or a carbon, photographic or other reproduction of
this Agreement or of any Uniform Commercial Code financing statement covering
the Collateral or
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any portion thereof, shall be sufficient as a Uniform Commercial Code financing
statement and may be filed as such.
8.9 Except as otherwise provided in the Other Agreements, if any provision
contained in this Agreement is in conflict with, or inconsistent with, any
provision in the Other Agreements, the provision contained in this Agreement
shall govern and control.
8.10 Except as otherwise specifically provided in this Agreement, Borrower
waives any and all notice or demand which Borrower might be entitled to receive
by virtue of any applicable statute or law, and waives presentment, demand and
protest and notice of presentment, protest, default, dishonor, non-payment,
maturity, release, compromise, settlement, extension or renewal of any and all
agreements, instruments or documents at any time held by Bank on which Borrower
may in any way be liable.
8.11 Until Bank is notified by Borrower to the contrary in writing by
registered or certified mail directed to Bank's principal place of business, the
signature upon this Agreement or upon any of the Other Agreements of any
partner, manager, employee or agent of the Borrower, or of any other Person
designated in writing to Bank by any of the foregoing, shall bind Borrower and
be deemed to be the duly authorized act of Borrower,
8.12 This Agreement and the Other Agreements shall be governed and
controlled by the internal laws of the State of Illinois; and not the law of
conflicts.
8.13 If at any time or times hereafter, whether or not Borrower's
Liabilities are outstanding at such time, Bank: (a) employs counsel for advice
or other representation, (i) with respect to the Collateral, this Agreement, the
Other Agreements or the administration of Borrower's Liabilities, (ii) to
represent Bank in any litigation, arbitration, contest, dispute, suit or
proceeding or to commence, defend or intervene or to take any other action in or
with respect to any litigation, arbitration, contest, dispute, suit or
proceeding (whether instituted by Bank, Borrower or any other Person) in any way
or respect relating to the Collateral, this Agreement, the Other Agreements, or
Borrower's affairs, or (iii) to enforce any rights of Bank against Borrower or
any other Person which may be obligated to Bank by virtue of this Agreement or
the Other Agreements, including, without limitation, any Obligor; (b) takes any
action with respect to administration of Borrower's Liabilities or to protect,
collect, sell, liquidate or otherwise dispose of the Collateral; and/or (c)
attempts to or enforces any of Bank's rights or remedies under this Agreement or
the Other Agreements, including, without limitation, Bank's rights or remedies
with respect to the Collateral, the reasonable costs and expenses incurred by
Bank in any manner or way with respect to the foregoing, shall be part of
Borrower's Liabilities, payable by Borrower to Bank on demand.
8.14 BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE
ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT
OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL
SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE
OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
15
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JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS
PARAGRAPH.
8.15 BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE OTHER AGREEMENTS, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (II) ARISING FROM
ANY DISPUTE OR CONTROVERSY ARISING IN CONNECTION WITH OR RELATED TO THIS
AGREEMENT, THE OTHER AGREEMENTS, OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year specified at the beginning hereof.
BORROWER: CLICK INTERACTIVE, INC.,
CLICK INTERACTIVE, INC., a Delaware corporation
a Delaware corporation
By: /s/ Donal Schmitt By: /s/ Michael W. Ferro, Jr.
---------------------------- ----------------------------
Its: VP Finance Its: CEO
---------------------------- ----------------------------
Accepted this 25/th/ day of March, 1999, at Bank's principal place of
business in the City of Chicago, State of Illinois.
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
By: /s/ Steven E. Ward
----------------------------
Its: Vice President
----------------------------
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EXHIBIT 16.1
[LOGO FOR PricewaterhouseCoopers]
PricewaterhouseCoopers LLP
203 North LaSalle Street
Chicago IL 60601-1210
Telephone (312) 701 5500
Facsimile (312) 701 6533
February 14, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We have read the statements made by Click Commerce, Inc. (the "Company") in the
section "Change in Independent Accountants" of their Registration Statement on
Form S-1 (No. 333- ), which we understand will be filed with the Commission,
pursuant to Regulation S-K Item 304. We agree with the statements concerning our
Firm in such Form S-1, except we are not in a position to agree or disagree with
the Company's statements that:
1. The Company engaged KPMG LLP as the Registrant's principal account.
2. The decision to change accounts was approved on December 10, 1999.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Click Commerce, Inc.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG LLP
Chicago, Illinois
February 16, 2000
