<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 333-30564
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2 to
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:
Joseph A. Hall, Esq.
Christopher D. Lueking, Esq. Davis Polk & Wardwell
Latham & Watkins 450 Lexington Avenue
Sears Tower, Suite 5800 New York, New York 10017
Chicago, Illinois 60606 (212) 450-4000
(312) 876-7700
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued April 28, 2000
5,000,000 Shares
[LOGO OF CLICK COMMERCE]
COMMON STOCK
-----------
Click Commerce, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We anticipate that the initial public offering price will be between $9 and $11
per share.
-----------
We have been approved 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 5.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Click
Public Commissions Commerce
----------- ------------- -----------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>
Click Commerce, Inc. has granted the underwriters the right to purchase up to
an additional 750,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
DAIN RAUSCHER WESSELS
SALOMON SMITH BARNEY
, 2000
<PAGE>
The front of the gatefold contains the words: "What do premier global
manufacturers have in common?"
The question is followed by a list of industry names with corresponding
graphical images.
. Capital Goods
. Recreational Sports
. Components
. Financing
. Consumer Products
. Telecom
<PAGE>
INSIDE GATEFOLD PAGES
The inside gatefold pages include three pictures of Click Commerce screens,
each showing functionality that is provided by Click Commerce Applications.
Text above the first screen: "They Click with dealers!"
Screen: Dealer screen featuring a hotspotted order form for automotive parts.
Text below the first screen: "Process high margin parts and accessory sales
through personalized business-to-business applications"
Logo: Click Commerce Logo
Text above the second screen: "Click with service centers!"
Screen: Warranty administration screen.
Text below the second screen: "Automate service and warranty processes through
multicurrency, multilingual applications"
Text above the third screen: "Click with consumers!"
Screen: Screen that enables a consumer to order accessories.
Text below the third screen: "Improve brand loyalty by allowing consumers to
locate dealers and order genuine parts and accessories"
Pull-out text box in top right corner of gatefold: "Enterprise Channel
Management for Global Manufacturers"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................ 1
Risk Factors...................... 5
Special Note Regarding Forward-
looking Statements .............. 13
Use of Proceeds................... 14
Dividend Policy................... 14
Capitalization.................... 15
Dilution.......................... 16
Selected Financial Data........... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 18
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business........................... 26
Management......................... 45
Certain Transactions............... 53
Principal Stockholders............. 55
Description of Capital Stock....... 57
Shares Eligible for Future Sale.... 61
Underwriters....................... 63
Legal Matters...................... 65
Experts............................ 65
Change In Independent Accountants.. 66
Additional Information............. 66
Index to Financial Statements...... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock
and seeking offers to buy shares of common stock, only in the jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or any sale of the common stock.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes thereto appearing elsewhere in
this prospectus.
CLICK COMMERCE
We provide business-to-business software products and services that use the
Internet to connect manufacturing companies with their distributors, dealers
and other distribution channel partners. We build, install and maintain
customized "extranets," which provide distribution channel partners with
Internet access to product information and the ability to electronically
transact business over a secure system with the manufacturer and each other. We
derive substantially all of our revenue from the sale to large manufacturing
companies of licenses of our Click Commerce software products, together with
related services for integrating and customizing our software, followed by
maintenance and support of our products. Our products and integration services
create a customized extranet system that enables manufacturers to take
advantage of the speed and power of the Internet to strengthen and broaden
their relationships with their distribution channel partners, as well as their
customers, through real-time, twenty-four hour access to information and the
ability to process transactions.
Although the Internet may alter many historic distribution channels, we
believe that certain products--particularly, complex or specialized
manufactured goods--will continue to require large distribution networks that
provide local sales, service and after-market support. Various global
manufacturers have selected us to integrate their operations with those of
their many distribution channel partners through user-friendly and secure
extranets. Our products permit faster and more accurate transaction processing
and communication than traditional methods such as paper, phone and fax
communications, and reduce the hidden costs of errors and delays in information
delivery. We believe that providing information and transacting business over
the Internet can improve the commercial relationships among a manufacturer and
its distribution channel partners and provide benefits to all participants in
the distribution channel by improving efficiency, financial performance,
customer service and brand loyalty.
We believe that Internet-based business-to-business e-commerce is poised for
rapid growth. In a recent study, Forrester Research predicted that business-to-
business e-commerce will grow from $406 billion in 2000 to $2.7 trillion in
2004, accounting for more than 90% of the dollar value of e-commerce in the
United States by 2003. In another August 1999 Forrester study of manufacturing
companies with extranets already in place, 80% of the study's participants
indicated that they expect to connect to all of their distribution channel
partners through extranets within two years. The study's participants believe
that through their extranets they have already reduced distribution channel
costs by an average of 16% and increased sales by an average of 6%. The
participants anticipate that within two years their extranets will allow them
to reduce distribution channel costs by an average of 32% and increase sales by
an average of 17%. International Data Corporation projects that the worldwide
market for Internet-based applications that facilitate e-commerce will grow
from $1.7 billion in 1999 to $13.2 billion in 2003.
Our Internet-based software products, comprised of the Extranet Manager and
80 applications, automate communication and business processes throughout the
distribution channel and can be personalized to each individual user. Our
applications provide for relevant information such as inventory levels, product
availability, pricing, product promotions and warranty information to be
displayed on the user's computer screen. A user can personalize the information
presented over the extranet, accommodating, for example, the user's language,
time zone and currency preferences. Manufacturers using our software can also
target information to specific distribution channel partners, and can, for
example, target different product promotions to different distributors.
1
<PAGE>
We customize our software products to integrate with many different existing
back-office computer systems, without requiring significant additional
technology expenditures by the manufacturer. In addition, upon completion of a
needs analysis, which typically lasts 4 to 6 weeks, the average length of time
required to customize and implement our extranet system is approximately 120
days, which we believe is significantly faster than the implementation time
required for most competing business-to-business e-commerce software products.
We customize ready-built applications from our inventory of 80 applications;
our competitors custom-build software products or use technology tools,
processes that require substantially more time than our approach.
We currently market all of our software products and services through our
direct sales force, located in several locations in the United States and in
Europe. In addition, we recently have begun to enter into joint marketing
agreements with business consultants and resellers who have expertise in the
industry and existing client contacts. We believe that these relationships will
help increase the market penetration and acceptance of our Click Commerce
software products and services.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................. 5,000,000 shares
Common stock to be outstanding after
this offering....................... 37,281,060 shares
Use of proceeds...................... For working capital and general corporate
purposes.
Nasdaq National Market symbol........ CKCM
</TABLE>
The foregoing information is based on the shares of common stock outstanding
as of March 31, 2000. This information:
. excludes an aggregate of 7,780,842 shares of common stock currently
reserved for issuance under our Stock Option and Stock Award Plan of
which 4,645,000 shares are subject to outstanding options at a weighted
average exercise price of $2.67 per share;
. excludes an aggregate of 500,000 shares of common stock currently
reserved for issuance under our Directors' Stock Option and Stock Award
Plan, 10,000 of which are subject to outstanding options;
. excludes an aggregate of 857,434 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 88,548 shares of common stock issued upon exercise of options
in April 2000 at an exercise price of $0.0025 per share.
. excludes 818,226 shares of common stock issuable upon exercise of
outstanding warrants as of April 20, 2000 at an exercise price of $12.22
per share.
Our executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 61.96% of our outstanding
common stock following the completion of this offering. These stockholders, if
acting together, would be able to control all matters requiring approval by our
stockholders.
2
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Three
months
Year ended December 31, ended
------------------------------------ March 31,
1997 1998 1999 2000
----------- ----------- ----------- -----------
(unaudited)
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue..................... $ 1,322 $ 2,390 $ 9,952 $ 5,124
Cost of revenue............. 379 712 2,669 1,555
----------- ----------- ----------- -----------
Gross profit................ 943 1,678 7,283 3,569
Operating expenses.......... 894 1,757 6,768 4,061
----------- ----------- ----------- -----------
Operating income (loss)..... 49 (79) 515 (492)
Net income (loss)........... 19 (65) 317 (334)
Accretion related to
redeemable preferred stock. -- -- (3,712) (4,113)
Net income (loss) available
to common shareholders..... 19 (65) (3,395) (4,447)
Basic earnings (loss) per
share...................... $ 0.00 $ (0.00) $ (0.14) $ (0.20)
=========== =========== =========== ===========
Diluted earnings (loss) per
share...................... $ 0.00 $ (0.00) $ (0.14) $ (0.20)
=========== =========== =========== ===========
Weighted average shares used
in computing basic earnings
(loss) per share........... 26,400,000 26,400,000 24,371,578 22,431,995
Weighted average shares used
in computing diluted
earnings (loss) per share.. 26,400,000 26,400,000 24,371,578 22,431,995
Pro forma basic loss per
share...................... $ (0.12) $ (0.14)
=========== ===========
Pro forma diluted loss per
share...................... $ (0.12) $ (0.14)
=========== ===========
Shares used in computing pro
forma basic loss per share. 29,245,910 31,997,215
Shares used in computing pro
forma diluted loss per
share...................... 29,245,910 31,997,215
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 2000
----------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------ -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term
investments...................................... $ 3,775 $3,775 $49,275
Working capital................................... 4,443 4,443 49,943
Total assets...................................... 9,786 9,786 55,286
Billings in excess of revenues earned on contracts
in progress...................................... 1,096 1,096 1,096
Capital lease obligations, less current portion... 164 164 164
Convertible participating preferred stock......... 18,426 -- --
Total shareholders' equity (deficit).............. (12,821) 5,605 51,105
</TABLE>
The pro forma balance sheet data give effect to:
. the conversion of all outstanding shares of convertible preferred stock
into 9,565,220 shares of common stock immediately prior to the
consummation of this offering.
The pro forma as adjusted balance sheet data give effect to the above, and:
. the sale of the shares of common stock that we are offering under this
prospectus, at an assumed initial public offering price of $10 per share
(the midpoint of the range set forth on the cover of this preliminary
prospectus), after deducting the underwriting discounts and commissions
and estimated offering expenses.
3
<PAGE>
We were incorporated in Delaware in August 1996 under the name Click
Interactive, Inc. In December 1999, we changed our name to Click Commerce, Inc.
Our principal executive offices are located at 200 East Randolph Drive, Suite
4900, Chicago, Illinois 60601, and our telephone number is (312) 482-9006. Our
corporate Web site is located at www.clickcommerce.com. The information
contained on our Web site is not part of this prospectus. We have applied for
registration of our 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.
Unless otherwise indicated, all information contained in this prospectus:
. assumes that the underwriters' over-allotment option is not exercised;
. reflects the 2-for-1 split of the common and preferred stock effected in
July 1999 and again in December 1999; and
. except as otherwise noted, gives effect to the conversion of all
outstanding shares of convertible preferred stock into 9,565,220 shares
of common stock effective immediately prior to the consummation of this
offering.
4
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risk factors and the
other information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to
any of these risks, and you may lose all or part of your investment. The risks
described below are not the only ones that we face.
Risks Related To Our Business
We have incurred net losses in six of our past nine quarters and we may
experience losses in the future, which could cause the market price of our
stock to decline.
We have incurred net losses in six of our past nine quarters, including the
first quarter of 2000, primarily due to non-cash charges, including
depreciation and amortization, and amortization of deferred stock
compensation. We expect to continue to incur net losses for the near future.
We also expect to incur increasing sales and marketing, research and
development and general and administrative expenses which may result in
operating losses. We do not know when or if we will be profitable in any given
quarter. If we do not become profitable within the timeframe expected by
investors, the market price of our common stock will likely decline. If we do
achieve profitability, we may not sustain or increase profitability in the
future.
We are dependent on the success of the Extranet Manager and Click Commerce
application suite and related services for our success.
To date, substantially all of our revenues have been attributable to sales
of licenses of the Extranet Manager and Click Commerce application suite and
related services, consisting of implementation, integration with a customer's
existing back-office computer systems and maintenance and support of our
software products. In fiscal 1999, 10% of our revenues were attributable to
consulting services for needs analyses, 89% were attributable to the sales of
licenses of our software products and implementation and integration of our
extranet system and 1% were attributable to maintenance and support services.
We currently expect the Extranet Manager and Click Commerce application suite
and related services to account for most of our future revenues. Accordingly,
factors adversely affecting the pricing of or demand for the Extranet Manager
and Click Commerce application suite, such as competition or technological
change, could have a material adverse effect on our business, financial
condition, and operating results. Our future financial performance will
depend, in significant part, on the successful development, introduction and
customer acceptance of new and enhanced versions of the Extranet Manager and
Click Commerce application suite and of new products and services we develop.
We cannot assure you that we will be successful in upgrading and continuing to
market the Extranet Manager and Click Commerce application suite or that we
will successfully develop new products and services or that any new products
and services will achieve market acceptance.
Our business is subject to quarterly fluctuations in operating results
which may negatively impact the price of our common stock.
Our quarterly operating results have varied significantly in the past and
we expect that they will continue to vary significantly from quarter to
quarter in the future. We have difficulty predicting the volume and timing of
contracts, and short delays in closing contracts or implementation of products
can cause our operating results to fall substantially short of anticipated
levels for that quarter. This is in part due to the fact that our products
have a long sales and implementation cycle which makes it difficult to predict
the periods in which we will recognize revenue and may cause operating results
to vary significantly. As 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.
5
<PAGE>
For all of these reasons, in some future quarters or years our operating
results may be below the expectations of investors, which could cause
volatility or a decline in the price of our common stock.
If we are unable to complete a substantial number of sales contracts when
anticipated or experience delays in the process on a project or problems with
satisfying contract terms, we may have to defer or not recognize revenue,
causing our quarterly results to fluctuate and fall below anticipated levels.
Because we recognize revenue using a percentage of contract completed
method, we may not be able to recognize all or a portion of the revenue until
milestones are achieved. If we are unable to complete one or more substantial
anticipated license sales or experience delays in the progress of a project or
product or problems with satisfying contract terms required for revenue
recognition in a particular quarter, we may not be able to recognize revenue
when anticipated, and we would nonetheless recognize marketing and other
expenses, causing our quarterly results to fluctuate and fall below
anticipated levels. This could cause our stock price to decline.
A small number of customers account for a large percentage of our revenue
and accounts receivable.
In the year ended December 31, 1998, four customers accounted for an
aggregate of approximately 81% of our total revenue, Mitsubishi for
approximately 25%, Motorola for approximately 24%, Overseas Partners for
approximately 18%, and Hyundai for approximately 14%. In the year ended
December 31, 1999, three customers accounted for an aggregate of approximately
61% of our total revenue, Motorola for approximately 29%, American Standard
and Trane for approximately 18%, collectively, and Bombardier Capital for
approximately 14%. We may continue to derive a significant portion of our
revenue from a relatively small number of customers in the future.
In addition, a small number of customers account for a large percentage of
our accounts receivable. As of December 31, 1999, five customers accounted for
an aggregate of 85% of our gross trade accounts receivable, American Standard
for approximately 27%, WarrantyCheck.com for approximately 21%, Motorola for
approximately 15%, Brunswick for approximately 12% and Qualcomm for
approximately 10%.
We may not be able to expand overseas successfully.
Our current business plan includes expanding into Europe. To date, we have
limited experience in marketing our solution internationally, and we cannot
predict our success in these international markets. In order to expand
overseas, we have opened a sales office in Munich, Germany. We also have a
sales representative currently located in Amsterdam selling Click Commerce
software products and integration services and we intend to open a sales
office in Amsterdam in the second 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
6
<PAGE>
to hire and retain sufficient numbers of qualified programming personnel, we
may not be able to develop new products and services or improve our existing
products and services in the time frame necessary to execute our business
plan. Our inability to hire qualified programmers could also negatively impact
our ability to customize and implement our extranet system as rapidly as we do
today.
The market for our electronic commerce products and services is new and
evolving and customers may not accept our products.
The market for our products and services is rapidly developing. This market
may not continue to develop and grow, and companies may choose not to use our
products and services and instead develop applications internally or purchase
them from other sources. Companies that have already invested substantial
resources in other methods of conducting business-to-business e-commerce may
be reluctant to adopt a new approach. We expect that we will continue to need
intensive marketing and sales efforts to educate prospective customers about
the uses and benefits of our products and services. Therefore, demand for and
market acceptance of our products and services will be subject to a high level
of uncertainty.
We have recently experienced and currently anticipate rapid growth in our
business, and any inability to manage this growth could harm our business.
In order to execute our business plan, we must grow significantly. The
number of our employees grew from 25 as of January 1, 1999 to 112 as of April
9, 2000. We expect that the number of our employees will continue to increase
for the foreseeable future, in particular with respect to persons engaged in
product development, project management and sales activities. We expect that
we will need to continue to improve our financial and managerial controls and
reporting systems and procedures. We will also need to continue to expand and
maintain close coordination among our technical, finance, sales and marketing
groups. If we are unsuccessful in these efforts, our business and operations
could be adversely affected.
We will not be able to execute our business plan and achieve desired growth
in our business if we cannot increase our direct and indirect sales channels,
which could negatively affect our stock price.
We will need to expand substantially our direct and indirect sales
operations, both domestically and internationally, in order to increase market
awareness and sales of our products and services. Our products and services
require a sophisticated sales effort targeted at several people within our
prospective clients' organizations. Competition for qualified sales personnel
is intense, and we might not be able to hire the quality and number of sales
personnel we are targeting. In addition, we believe that our future success is
dependent upon establishing and maintaining productive relationships with a
variety of distributors, resellers, system integrators and other joint
marketing relationships with third parties. We cannot be sure that we will be
successful in establishing these desired relationships or that these third
parties will devote adequate resources or have the technical and other sales
capabilities to sell our products.
Acquisitions or 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 relationships with parties
who can provide access to those assets, if appropriate opportunities arise.
From time to time we have had discussions and negotiations with companies
regarding our acquiring, investing in or partnering with their businesses,
products, services or technologies, and we regularly engage in these
discussions and negotiations in the ordinary course of our business. We may
not identify suitable acquisition, investment or relationship candidates, or
if we do identify suitable candidates, we may not complete those transactions
on commercially acceptable terms or at all. If we acquire another company, we
could have difficulty in assimilating that company's personnel, operations,
technology and software. In addition, the key personnel of the acquired
company may decide not to work for us. If we make other types of acquisitions,
we could have
7
<PAGE>
difficulty in integrating the acquired products, services or technologies into
our operations. These difficulties could disrupt our ongoing business,
distract our management and employees and increase our expenses. Furthermore,
we may incur indebtedness or issue equity securities to pay for any future
acquisitions. The issuance of equity securities would dilute the ownership
interests of the holders of our common stock.
We face competition and may face future competition.
The market for software products and services that enable business-to-
business e-commerce is new, intensely competitive, highly fragmented and
rapidly changing. There are relatively few barriers to entry in the enterprise
channel management market. We expect competition to persist and intensify,
which could result in our losing market share or lowering our prices.
Some of our competitors have advantages over us.
Some of our existing competitors, as well as potential future competitors,
have longer operating histories in markets related to ours, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than our company. These advantages may allow
them to respond more quickly and effectively to new or emerging technologies
and changes in customer requirements. It may also allow them to engage in more
extensive research and development, undertake farther-reaching marketing
campaigns, adopt more aggressive pricing policies, implement their products
and services more rapidly, and make more attractive offers to potential
employees and other business associates. One or more of these companies could
adopt a different business strategy for achieving profitability which could
allow them to charge fees that are lower than ours, in order to attract
clients. Our competitors custom-build software products or use technology
tools to develop their products; processes that require substantially more
time than our approach. These competitors may reduce the amount of time it
currently takes them to implement the products and services that compete with
ours, eliminating an important advantage that we believe we currently enjoy.
In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products or services to address the needs of our
current and prospective clients.
Our executive officers are critical to our business and these officers may
not remain with us in the future.
Our future success largely depends upon the continued service of our
executive officers. If we lose the services of one or more of our executive
officers, or if one or more of them decide to join a competitor or otherwise
compete directly or indirectly with us, our business, operating results and
financial condition could be harmed. In particular, Michael Ferro, Jr., our
founder, chairman of the board of directors and chief executive officer, would
be extremely difficult to replace.
Many of our executive officers joined us recently and must be integrated
into our organization.
We have recently experienced a period of rapid growth and expansion, which
places significant demands on our managerial, administrative, operational,
financial and other resources. All of the members of our management team,
other than our chief executive officer, have joined Click Commerce since June
1, 1999. It will take some time for these new members of our management team
to be fully integrated into our organization.
If we fail to protect our intellectual property rights or face a claim of
intellectual property infringement by a third party, we could lose our
intellectual property rights or be liable for significant damages.
Our success depends significantly upon our proprietary technology. We have
no patents and no plans to apply for any patents. Unauthorized parties may
copy aspects of our products or services or obtain and use information that we
regard as proprietary. Our means of protecting our proprietary rights may not
be adequate, and our competitors may independently develop similar technology
or duplicate our products or our other intellectual property rights. Our
failure to protect our proprietary rights adequately or our competitors'
successful duplication of our technology could negatively affect our operating
results and cause the price of our common stock to decline.
8
<PAGE>
In addition, we have agreed, and may agree in the future, to indemnify
certain of our customers against claims that our software infringes upon the
intellectual property rights of others. We could incur substantial costs in
defending ourselves and our customers against infringement claims. In the
event of a claim of infringement, we and our customers may be required to
obtain one or more licenses from third parties. We or our customers may be
unable to obtain necessary licenses from third parties at a reasonable cost,
or at all. Defense of any lawsuit or failure to obtain any such required
licenses could harm our business, operating results and financial condition.
Litigation over intellectual property rights could disrupt or otherwise
have a negative impact on our business.
There has been frequent litigation in the computer industry regarding
intellectual property rights. Third parties may make claims of infringement by
us with respect to current or future products, trademarks or other proprietary
rights. These claims could be time-consuming, result in costly litigation,
divert management's attention, cause product or service release delays,
require us to redesign our products or services or require us to enter into
costly royalty or licensing agreements. Any of these effects could have a
material and adverse effect on our financial condition and results of
operations.
If we become subject to product liability litigation, it could be costly
and time consuming to defend.
Since our products are used for company-wide, integral computer
applications with potentially strong impact on our customers' sales of their
products, errors, defects or other performance problems could result in
financial or other damages to our customers. Product liability litigation,
even if we are successful, would be time consuming and costly to defend.
Risks Related To Our Industry
We are highly dependent on the acceptance and effectiveness of the Internet
as a medium for business-to-business commerce.
Our future revenues and the success of a number of our products and
services is dependent in large part on an increase in the use of the Internet
for business-to-business commerce. The failure of the Internet to continue to
develop as a commercial or business medium could harm our business, operating
results and financial condition. The acceptance and use of the Internet for
business-to-business commerce could be limited by a number of factors, such as
the growth and the use of the Internet in general, the threat of illegal
activity that causes performance degradations at unprotected sites across the
Internet, the relative ease of conducting business on the Internet, the
efficiencies and improvements that conducting commerce on the Internet
provides, concerns about transaction security and taxation of transactions on
the Internet.
We depend on the speed and reliability of the Internet.
The recent growth in Internet traffic has caused frequent periods of
decreased performance. If Internet usage continues to grow rapidly, its
infrastructure may not be able to support these demands and its performance
and reliability may decline. Decreased performance at some unprotected
Internet sites has also been attributed to illegal attacks by third parties.
If outages or delays on the Internet occur frequently or increase in
frequency, or businesses are not able to protect themselves adequately from
such illegal attacks, business-to-business e-commerce could grow more slowly
or decline, which may reduce the demand for our software products and
services. The ability of our Click Commerce application suite to satisfy our
customers' needs is ultimately limited by and depends upon the speed and
reliability of the Internet. Consequently, the emergence and growth of the
market for our software products and services depends upon improvements being
made to the entire Internet to alleviate overloading and congestion. If these
improvements are not made, the ability of our customers to benefit from our
Click Commerce products and services will be hindered, and our business,
operating results and financial condition may suffer.
9
<PAGE>
Increased security risks of online commerce may deter future use of our
software products and services.
A fundamental requirement of Internet-based, business-to-business e-
commerce is the secure transmission of confidential information over public
networks. Advances in computer capabilities, new discoveries in the field of
cryptography, or other developments may result in a compromise or a breach of
the security features contained in our software or the algorithms used by our
customers and their business partners to protect content and transactions on
Internet e-commerce marketplaces or proprietary information in our customers'
and their business partners' databases. Anyone who is able to circumvent
security measures could misappropriate proprietary, confidential customer
information or cause interruptions in our customers' and their business
partners' operations. Our customers and their business partners may be
required to incur significant costs to protect against security breaches or to
alleviate problems caused by breaches, reducing the demand for our software
products and services. Further, a well-publicized compromise of security could
deter businesses from using the Internet to conduct transactions that involve
transmitting confidential information. The failure of the security features of
our software to prevent security breaches, or well-publicized security
breaches affecting the Internet in general, could significantly harm our
business, operating results and financial condition.
Internet-related laws could adversely affect our business.
Regulation of the Internet is largely unsettled. The adoption of laws,
regulations or taxes that increase the costs or administrative burdens of
doing business using the Internet could cause companies to seek an alternative
means of transacting business. If the adoption of new Internet laws,
regulations or taxes causes companies to seek alternative methods for
conducting business, the demand for our software products and services could
decrease and our business could be adversely affected.
Risks Related To This Offering
Stock prices of emerging Internet companies have been highly volatile, and
the market for our stock may exhibit volatility as well.
The stock prices of technology companies, particularly Internet-related
software companies such as ours, have been and continue to be extremely
volatile. Fluctuations in our common stock's price may affect our visibility
and credibility in the business-to-business e-commerce 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.
The large number of shares eligible for public sale after this offering
could cause our stock price to decline.
The market price of our common stock could decline as a result of sales of
a large number of shares after this offering or the perception that sales
could occur. These sales also might make it more difficult for us to sell
common stock in the future at a time and at a price that we deem appropriate.
After this offering, we will have an aggregate of 37,281,060 shares
outstanding. If all options currently outstanding to purchase shares of our
common stock are exercised, there will be 42,872,042 shares outstanding. Of
the outstanding shares, the 5,000,000 shares sold in this offering will be
freely tradable, other than shares purchased by our affiliates. The remaining
shares may be sold only pursuant to a registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act. After the closing of this offering, holders of 14,822,512
shares of common stock will be entitled to registration rights with respect to
the registration of their shares under the Securities Act.
As a new investor, you will experience immediate dilution of 86% in the
value of the common stock.
If you purchase shares of our common stock in this offering, you will incur
immediate dilution of 86% in pro forma net tangible book value. If the holders
of outstanding options exercise those options, you will incur further
dilution.
10
<PAGE>
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. If our management uses the proceeds of this
offering ineffectively, this could have a negative effect on our financial
condition, which could cause our stock price to decline.
We may be unable to raise additional financing.
We may need to raise additional funds in the future in order to implement
our business plan, to fund more aggressive marketing programs or to acquire
complementary businesses, technologies or services. Any required additional
financing may be unavailable on terms favorable to us, or at all. If we raise
additional funds by issuing equity securities, you may experience significant
dilution of your ownership interest and these securities may have rights
senior to those of the holders of our common stock. If additional financing is
not available when required or is not available on acceptable terms, we may be
unable to fund our expansion, develop or enhance our products and services,
take advantage of business opportunities or respond to competitive pressures.
We do not plan to pay dividends in the foreseeable future.
We do not anticipate paying cash dividends to the holders of our common
stock in the foreseeable future. Accordingly, investors must rely on sales of
their common stock after price appreciation, which may never occur, as the
only way to realize on their investment. Investors seeking cash dividends
should not purchase our common stock.
A third party's ability to acquire us might be more difficult because of
anti-takeover provisions in our amended and restated certificate of
incorporation and amended and restated bylaws.
We are authorized to issue five million shares of undesignated preferred
stock. Our Board of Directors has the authority to issue the preferred stock
in one or more series and to fix the price, rights, preferences, privileges
and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting a series or the
designation of any series, without any further vote or action by our
stockholders. The issuance of preferred stock could have the effect of
delaying, deferring or preventing a change in control of our company without
further action by our stockholders and may adversely affect the stockholders.
The issuance of preferred stock with voting and conversion rights may
adversely affect the voting power of the holders of our common stock,
including the loss of voting control to others.
Provisions of our certificate of incorporation and bylaws eliminate the
right of stockholders to act by written consent without a meeting, eliminate
the right of stockholders to call a special meeting of stockholders, specify
procedures for nominating directors and submitting proposals for consideration
at stockholder meetings and provide for a staggered Board of Directors, so
that no more than approximately one-third of our directors could be replaced
each year and it would take three successive annual meetings to replace all
directors. These provisions are designed to reduce the vulnerability of our
company to an unsolicited acquisition proposal and, accordingly, could
discourage potential acquisition proposals and delay or prevent a change in
control of our company. These provisions could have the effect of discouraging
others from making tender offers for our common stock and, consequently, may
also inhibit increases in the market price of our common stock that could
11
<PAGE>
result from actual or rumored takeover attempts. These provisions may also
have the effect of preventing changes in the management of our company.
Our officers, directors and affiliated entities will control many corporate
actions.
We anticipate that our executive officers and directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
61.96% of our outstanding common stock following the completion of this
offering. These stockholders, if acting together, would be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions.
12
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "intend," "anticipate,"
"believe," "estimate" and "continue" or similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections of our future results of operations or of
our financial condition or state other forward-looking information. However,
there may be events in the future that we are not able to predict or control.
The factors listed in the sections captioned "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that
the occurrence of the events described in the "Risk Factors" section and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section and elsewhere in this prospectus could have a material
adverse effect on our business, operating results and financial condition.
13
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 5,000,000 shares of
common stock will be approximately $45.5 million, assuming an initial public
offering price of $10 per share (the midpoint of the range set forth on the
cover of this preliminary prospectus) after deducting underwriting discounts
and commissions and estimated offering expenses payable by us. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $52.5 million.
We are conducting this offering primarily to increase our equity capital,
create a public market for our common stock, facilitate future access by us to
public equity markets and increase our visibility in the marketplace. We
intend to use the net proceeds for working capital and general corporate
purposes, including
. approximately $5 to $7 million to expand our international presence;
. approximately $2 to $5 million on business development; and
. approximately $2 to $5 million to improve our product technology through
entering into agreements with technology companies, increasing the number
of our software programming personnel and expanding our training efforts.
We may also use a portion of the net proceeds of this offering to acquire
technology or businesses, or to make strategic investments in businesses, that
are complementary to our business. Currently, we have no specific acquisitions
or strategic investments planned.
Our use of the net proceeds may change depending on market conditions and
other factors beyond our control. Pending such uses, we plan to invest the net
proceeds in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the
foreseeable future. We currently intend to retain all future earnings, if any,
for use in the operation of the business.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. The
pro forma information gives effect to the conversion of all of our outstanding
preferred stock into 9,565,220 shares of common stock immediately prior to the
consummation of this offering. The pro forma as adjusted information reflects
the foregoing as well as our receipt of the net proceeds from the issuance and
sale of the shares of common stock in this offering, assuming an initial
public offering price of $10 per share (the midpoint of the range), after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us.
The outstanding share information:
. excludes an aggregate of 7,780,842 shares of common stock currently
reserved for issuance under our Stock Option and Stock Award Plan, of
which 4,645,000 shares are subject to outstanding options at a weighted
average exercise price of $2.67 per share;
. excludes an aggregate of 500,000 shares of common stock currently
reserved for issuance under our Directors' Stock Option and Stock Award
Plan, 10,000 of which are subject to outstanding options; and
. excludes an aggregate of 857,734 shares of common stock subject to
additional outstanding options at an exercise price of $0.0025 per
share.
. excludes 818,226 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $12.22 per share.
<TABLE>
<CAPTION>
As of March 31, 2000
(unaudited)
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(dollars in thousands, except
per share data)
<S> <C> <C> <C>
Capital lease obligation, less current portion. $ 164 $ 164 $ 164
Series A convertible participating preferred
stock, $0.001 par value, 12,000,000 shares
authorized and 5,217,392 issued and
outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro
forma as adjusted............................. 10,179 -- --
Series B convertible participating preferred
stock, $0.001 par value, 8,000,000 shares
authorized; 4,347,828 shares issued and
outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro
forma as adjusted............................. 8,247 -- --
Shareholders' equity:
Preferred stock, $0.001 par value, 5,000,000
shares authorized, no shares issued and
outstanding, actual, pro forma and pro forma
as adjusted................................. -- -- --
Common stock, $0.001 par value, 75,000,000
shares authorized, 22,627,292 shares issued
and outstanding, actual; 32,192,512 shares
issued and outstanding, pro forma;
37,192,512 shares issued and outstanding,
pro forma as adjusted....................... 23 32 37
Additional paid-in capital................... 3,252 21,669 67,164
Accumulated deficit.......................... (11,795) (11,795) (11,795)
Deferred compensation........................ (4,301) (4,301) (4,301)
-------- -------- --------
Total shareholders' equity (deficit)........... (12,821) 5,605 51,105
-------- -------- --------
Total capitalization........................... $ 5,769 $ 5,769 $ 51,269
======== ======== ========
</TABLE>
15
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
2000, after giving effect to the conversion of all outstanding shares of
convertible preferred stock into 9,565,220 shares of common stock immediately
prior to the consummation of this offering, was approximately $5.6 million, or
$0.17 per share of common stock. Pro forma net tangible book value per share
represents our total assets less total liabilities and intangibles, divided by
the 32,192,512 shares of common stock outstanding after giving effect to these
transactions. Dilution per share to new investors is the difference between
the amount per share paid by purchasers of common stock in this offering and
the pro forma net tangible book value per share of common stock immediately
after completion of this offering. After giving effect to the sale by us of
5,000,000 shares of common stock in this offering, assuming an initial public
offering price of $10 per share (the midpoint of the range set forth on the
cover page of this preliminary prospectus), and after deducting underwriting
discounts and commissions and estimated offering expenses payable by us, our
pro forma net tangible book value as of December 31, 1999 would have been
$51.1 million, or $1.37 per share. This represents an immediate increase in
pro forma net tangible book value to existing stockholders of $1.20 per share.
Assuming an offering price of the midpoint of the range set forth on the cover
of this preliminary prospectus, the offering price of $10 per share
substantially exceeds $1.37 per share, which is the per share value of our
total assets less total liabilities and intangibles after this offering.
Accordingly, new investors who purchase common stock in this offering will
suffer an immediate dilution of their investment of $8.63 per share. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $10.00
Pro forma net tangible book value per share as of December
31, 1999.................................................... $0.17
Increase in pro forma net tangible book value per share
attributable to new investors............................... 1.20
-----
Pro forma net tangible book value per share after this
offering...................................................... 1.37
------
Dilution per share to new investors............................ $ 8.63
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
the number of shares of common stock purchased from us, the total
consideration paid or to be paid, and the average price per share paid or to
be paid by existing stockholders and by new investors, before deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ ------------------- Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 32,192,512 87% $11,004,729 18% $ 0.34
New investors................. 5,000,000 13 50,000,000 82 10.00
---------- --- ----------- ---
Total....................... 37,192,512 100% $61,004,729 100% $ 1.64
========== === =========== === ======
</TABLE>
The table above assumes no exercise of outstanding stock options or
warrants. We have an aggregate of 8,280,842 shares of common stock currently
reserved for issuance under our stock option plans, of which 4,645,000 shares
are subject to outstanding options at a weighted average exercise price of
$2.66 per share. In addition, 857,434 shares are subject to additional
outstanding options at an exercise price of $0.0025 per share. We also have an
aggregate of 818,226 shares of common stock subject to outstanding warrants at
an exercise price of $12.22 per share. To the extent outstanding options are
exercised, there will be further dilution to new investors.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our financial statements and the notes to our financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statements of
operations data for the years ended December 31, 1997, 1998 and 1999, and the
balance sheet data as of December 31, 1998 and 1999, are derived from our
financial statements that have been audited by KPMG LLP, independent auditors,
which are included elsewhere in this prospectus. The statement of operations
data for the period from August 20, 1996 (inception) to December 31, 1996 and
the three months ended March 31, 1999 and 2000 and the balance sheet data as
of December 31, 1996 and 1997 and March 31, 2000 are derived from our
unaudited financial statements which, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of our financial position and results for the
unaudited periods presented. The historical results presented below are not
necessarily indicative of the results to be expected for any future fiscal
year.
<TABLE>
<CAPTION>
Period from
August 20,
1996 Three Months ended
(inception) to Year ended December 31, March 31,
December 31, --------------------------------- ------------------------
1996 1997 1998 1999 1999 2000
-------------- ---------- ---------- ---------- ----------- -----------
(unaudited) (unaudited) (unaudited)
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 166 $ 1,322 $ 2,390 $ 9,952 $ 1,534 $ 5,124
Cost of revenue......... 39 379 712 2,669 277 1,555
---------- ---------- ---------- ---------- ---------- ----------
Gross profit............ 127 943 1,678 7,283 1,257 3,569
Operating expenses:
Sales and marketing... -- 174 434 2,810 214 1,649
Research and
development.......... -- -- 149 729 75 896
General and
administrative
(exclusive of $187
and $467 in years
ended December 31,
1998 and 1999, and
$92 and $270 in the
three months ended
March 31, 1999 and
2000 reported below
as amortization of
deferred stock
compensation)........ 140 720 987 2,762 283 1,246
Amortization of
deferred stock
compensation......... -- -- 187 467 92 270
---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 140 894 1,757 6,768 664 4,061
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss). (13) 49 (79) 515 593 (492)
Other expense (income),
net.................... -- 1 3 (100) (1) (17)
Income tax expense
(benefit).............. -- 29 (17) 298 260 (141)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... (13) 19 (65) 317 334 (334)
Accretion related to
redeemable preferred
stock.................. -- -- -- (3,712) -- (4,113)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)
available to common
shareholders........... $ (13) $ 19 $ (65) $ (3,395) $ 334 $ (4,447)
========== ========== ========== ========== ========== ==========
Basic earnings (loss)
per share.............. $ (0.00) $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
========== ========== ========== ========== ========== ==========
Diluted earnings (loss)
per share.............. $ (0.00) $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
========== ========== ========== ========== ========== ==========
Weighted average shares
used in computing basic
earnings (loss) per
share(1)............... 26,400,000 26,400,000 26,400,000 24,371,578 26,400,000 22,431,995
Weighted average shares
used in computing
diluted earnings (loss)
per share.............. 26,400,000 26,400,000 26,400,000 24,371,578 29,868,108 22,431,995
Pro forma basic (loss)
per share.............. $ (0.12) $ (0.14)
========== ==========
Pro forma diluted (loss)
per share.............. $ (0.12) $ (0.14)
========== ==========
Shares used in computing
pro forma basic
earnings per share(2).. 29,245,910 31,997,215
Shares used in computing
pro forma diluted
earnings
per share(2)........... 29,245,910 31,997,215
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------- As of March 31,
1996 1997 1998 1999 2000
----- ----- ------ ------- ---------------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents and short-
term investments ...... $ 13 $ 271 $ 120 $ 6,304 $ 3,775
Working capital......... (16) (75) (154) 5,019 4,443
Total assets............ 67 400 1,077 9,934 9,786
Billings in excess of
revenues earned on
contracts in progress.. -- -- 214 2,026 1,096
Capital lease
obligations, less
current portion........ -- 15 2 84 164
Convertible
participating preferred
stock.................. -- -- -- 14,312 18,426
Total shareholders'
equity (deficit)....... (13) (6) 55 (8,586) (12,821)
</TABLE>
- -------
(1) See Note 10 of Notes to Financial Statements for an explanation of the
determination of the number of shares used to compute basic and diluted
earnings (loss) per share.
(2) Shares used in computing pro forma basic and diluted earnings per share
include the shares used in computing basic and diluted earnings (loss) per
share adjusted for the conversion of our convertible preferred stock to
common stock, as if the conversion occurred at the date of original
issuance.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of the financial
condition and results of operations of Click Commerce in conjunction with
"Selected Financial Data" and Click Commerce's financial statements and
related notes appearing elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this prospectus.
Overview
Click Commerce provides business-to-business electronic commerce enterprise
channel management software products and integration services for
manufacturing companies. Our software products and services automate all forms
of communication and business processes across the distribution channel,
allowing manufacturers to leverage the power of the Internet to provide their
channel partners real-time access to products, services and information.
We commenced operations on August 20, 1996. During the period from our
inception until early 1998, we were primarily engaged in developing our
software for the Extranet Manager. In 1996 and 1997, before we had developed
the Extranet Manager, we engaged in developing Internet Web sites and
providing related consulting services. We sold and implemented the first Click
Commerce Extranet Manager in the first quarter of 1998. Through March 31,
2000, we have implemented our extranet for 22 customers.
Our revenue is derived from sales of licenses of our Click Commerce
software, comprised of the Extranet Manager and 80 applications, needs
analyses and maintenance and support. We generally license our software on a
perpetual basis. Revenue from the sale of software licenses is recognized on a
percentage completion basis as services are performed to customize and install
the software under fixed price contracts. The percentage completed is measured
by the percentage of labor hours incurred to date in relation to estimated
total labor hours for each contract of sale. 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 represents the amortization over the related service period of
the difference between the exercise price of options
18
<PAGE>
granted and the estimated fair market value of the underlying common stock on
the date of grant. We have incurred deferred compensation charges of $270,000
for the year ended December 31, 1999 and $65,000 for the three months ended
March 31, 2000. Such charges will reduce future earnings or increase future
losses by the following annual amounts: 2000, $1.1 million; 2001, $1.1
million; 2002, $1.1 million; 2003, $1.1 million; and 2004, $160,000.
In April 2000, the Company issued a warrant to a strategic alliance partner
to purchase up to 818,226 shares of common stock at $12.22 per share. The
warrant vests contingently upon the achievement of certain milestones,
primarily the generation of license revenue for the Company, and expires on
April 20, 2004. The warrant contains a significant economic disincentive for
non-performance, and, accordingly, the fair value of the warrant was measured
at the date of grant in accordance with Emerging Issues Task Force Issue No.
96-18, resulting in a fair value of approximately $5.0 million, which will be
amortized to sales and marketing expense over four years from the date of
issuance.
We had 25 full-time employees as of December 31, 1998 and 112 full-time
employees as of April 19, 2000. We intend to hire approximately an additional
75 to 100 employees in fiscal 2000, and intend to focus our recruiting efforts
in the area of sales and marketing and project management. We will also hire a
number of business consultants who perform needs analyses. This expansion will
continue to place significant demands on our management and operational
resources. To manage this rapid growth and increased demand, we must invest in
and implement scalable operational systems, procedures and controls. We must
also be able to recruit qualified candidates to manage our expanding
operations. We expect future expansion to continue to challenge our ability to
hire, train, manage and retain our employees.
Our limited operating history makes the prediction of future operating
results very difficult. We sold and implemented the first Click Commerce
Extranet Manager in the first quarter of 1998. We believe that period-to-
period comparisons of operating results should not be relied upon as
predictive of future performance because the substantial increase in revenues
in recent periods may not be sustainable. Our prospects must be considered in
light of the risks, expenses and difficulties encountered by companies at an
early stage of development, particularly companies in new and rapidly evolving
markets. We may not be successful in addressing such risks and difficulties.
Although we have experienced significant percentage growth in revenues in
recent periods, we believe that prior growth rates may not be sustainable or
indicative of future operating results.
Results of Operations
The following table represents selected financial data for the years
indicated as a percentage of total revenue.
<TABLE>
<CAPTION>
Three Months
Year ended ended
December 31, March 31,
-------------------- --------------
1997 1998 1999 1999 2000
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Percentage of Total Revenue:
Revenue................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......................... 28.7 29.8 26.8 18.1 30.3
----- ----- ----- ------ ------
Gross profit............................ 71.3 70.2 73.2 81.9 69.7
Operating expenses:
Sales and marketing................... 13.2 18.2 28.2 14.0 32.2
Research and development.............. 0.0 6.2 7.3 4.9 17.5
General and administrative (exclusive
of amortization of deferred stock
compensation reported below)......... 54.5 41.3 27.8 18.4 24.3
Amortization of deferred stock
compensation......................... 0.0 7.8 4.7 6.0 5.3
----- ----- ----- ------ ------
Total operating expenses................ 67.7 73.5 68.0 43.3 79.3
----- ----- ----- ------ ------
Operating income (loss)................. 3.7 (3.3) 5.2 38.7 (9.6)
Other income (expense).................. (0.1) (0.1) 1.0 .1 .3
----- ----- ----- ------ ------
Income (loss) before income taxes....... 3.6 (3.4) 6.2 38.7 (9.3)
Income tax expense (benefit)............ 2.2 (0.7) 3.0 16.9 (2.8)
----- ----- ----- ------ ------
Net income (loss)....................... 1.4% (2.7)% 3.2% 21.8% (6.5)%
===== ===== ===== ====== ======
</TABLE>
19
<PAGE>
Comparison of the three months ended March 31, 2000 to the three months
ended March 31, 1999
Revenue
Total revenue increased to $5.1 million for the three months ended March
31, 2000 from $1.5 million for the three months ended March 31, 1999. This
increase of $3.6 million, or 234%, was primarily attributable to an increase
in license fees of $3.3 million and an increase in consulting services of
approximately $300,000.
Cost of Revenue
Cost of revenue increased approximately $1.3 million, or 461%, to $1.6
million for the three months ended March 31, 2000 from $277,000 for the three
months ended March 31, 1999. This increase was primarily attributable to
increased salaries, fees and related expenses for project management personnel
of $1.2 million.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by
approximately $1.4 million, or 670%, to $1.6 million for the three months
ended March 31, 2000 from $214,000 for the three months ended March 31, 1999.
The increase in sales and marketing expenses is primarily attributable to an
increase in the number of sales and marketing employees from eleven at March
31, 1999 to thirty-seven at March 31, 2000 resulting in an increase of
approximately $1.2 million in compensation and related expenses. We expect
these expenses to significantly increase as we expand our sales and marketing
efforts, including opening additional sales offices in Europe.
Research and Development. Research and development expenses increased
$821,000 or 1095% to $896,000 for the three month period ended March 31, 2000,
compared to the prior year three month period. This increase is primarily
attributable to an increase in the number of product development personnel
resulting in $777,000 of additional compensation, fees and related expenses.
To date, all software development costs have been expensed as incurred.
General and Administrative. General and administrative expenses increased
by approximately $963,000, or 340%, to $1.2 million for the three months ended
March 31, 2000 from $283,000 for the three months ended March 31, 1999. This
increase is primarily attributable to an increase in our management and other
administrative personnel from four at March 31, 1999 to twelve at March 31,
2000. The addition of eight employees resulted in additional costs of
approximately $530,000 in compensation and related expenses. We also incurred
additional expenses of $117,000 related to professional and consulting fees,
and $56,000 of additional bad debt reserve. We believe general and
administrative expenses will increase significantly in future periods, as we
expect to add personnel to support our expanding operations and incur
additional costs related to the growth of our business.
Amortization of Deferred Stock Compensation. We have recorded deferred
compensation for the difference between the exercise price of some stock
option grants and the deemed fair value of our common stock at the time of
those grants. The amount was amortized over the vesting periods of the
applicable options, resulting in expense of $92,000 and $270,000 during the
three months ended March 31, 1999 and March 31, 2000, respectively.
Comparison of year ended December 31, 1999 to year ended December 31, 1998
Revenue
Total revenue increased to $10.0 million for the year ended December 31,
1999 from $2.4 million for the year ended December 31, 1998. This increase of
approximately $7.6 million, or 316%, was primarily due to an increase in our
software license revenue based upon:
. an increase in the number of new customers from seven to fourteen;
. an increase in average contract size from approximately $450,000 to
approximately $1.1 million;
. an increase in the number of applications offered by us from
approximately 35 at December 31, 1998 to seventy at December 31, 1999.
20
<PAGE>
. additional sales to existing customers;
We also had increased revenue from our consulting services and maintenance
contracts.
Cost of Revenue
Cost of revenue increased approximately $2.0 million, or 275%, to $2.7
million for the year ended December 31, 1999 from $712,000 for the year ended
December 31, 1998. This increase was attributable to increased salary and
related expenses for project management personnel, which increased from
approximately $627,000 in fiscal 1998 to approximately $2.5 million in fiscal
1999
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by
approximately $2.4 million, or 547%, to $2.8 million for the year ended
December 31, 1999 from $435,000 for the year ended December 31, 1998. The
increase in sales and marketing expenses is primarily attributable to an
increase in the number of sales and marketing employees from eight at the end
of fiscal 1998 to twenty-two at the end of fiscal 1999, and to the
establishment of marketing programs in fiscal 1999. The increase in the number
of sales and marketing employees resulted in approximately $1.7 million in
compensation and related expenses. In addition, the establishment of marketing
programs resulted in an increase in spending from $26,000 in fiscal 1998 to
approximately $590,000 in fiscal 1999. We expect these expenses to
significantly increase as we expand our sales and marketing efforts, including
opening offices in Europe.
Research and Development. Research and development expenses increased by
approximately $580,000, or 388%, to $729,000 for the year ended December 31,
1999 from $149,000 for the year ended December 31, 1998. This increase is
attributable to the increase in the number of product development, quality
assurance and documentation personnel to support our product development
efforts from three at the end of fiscal 1998 to fourteen at the end of fiscal
1999. We believe that continued investment in research and development is
critical to attain our 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 from three at the end of fiscal 1998 to thirteen at
the end of fiscal 1999. This ten person increase resulted in additional costs
of approximately $1.5 million in compensation and related expenses, including
travel and recruiting costs. We believe general and administrative expenses
will increase significantly in future periods, as we expect to add personnel
to support our expanding operations and incur additional costs related to the
growth of our business.
Amortization of Deferred Stock Compensation. We have recorded deferred
compensation for the difference between the exercise price of some stock
option grants and the deemed fair value of our common stock at the time of
such grants. We amortized this amount over the vesting periods of the
applicable options, resulting in amortization expense of $467,000 for the year
ended December 31, 1999 compared to $187,000 for the year ended December 31,
1998.
Other Income (Expense)
For the year ended December 31, 1999, we earned $100,000 in other income,
net, an increase of $103,000 from the year ended December 31, 1998. This
increase was due to an increase in interest income of $105,000, partially
offset by an increase of $2,000 in other expense.
Comparison of year ended December 31, 1998 to year ended December 31, 1997
Revenue
Total revenue increased to $2.4 million for the year ended December 31,
1998 from $1.3 million for the
21
<PAGE>
year ended December 31, 1997. This increase of approximately $1.1 million, or
81%, was primarily due to an increase of $628,000 in consulting services to
perform needs analyses and $400,000 in software license revenue. In 1997,
license fees were earned from contracts to develop the Extranet Manager, which
was first implemented in the first quarter, 1998.
Cost of Revenue
Cost of revenue increased by approximately $333,000, or 88%, to $712,000
for the year ended December 31, 1998 from $379,000 for the year ended December
31, 1997. This increase was primarily attributable to increased salary and
related expenses for project management personnel, which increased from
approximately $329,000 in fiscal 1997 to approximately $627,000 in fiscal
1998.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by
approximately $261,000, or 150%, to $435,000 million for the year ended
December 31, 1998 from $174,000 for the year ended December 31, 1997. This
increase was primarily attributable to increases in compensation and related
costs of $188,000 and $55,000 of additional occupancy costs.
Research and Development. Research and development expenses increased by
$149,000 to $149,000 for the year ended December 31, 1998. Product development
costs in 1997 were directly related to customer contracts and classified as
cost of revenue.
General and Administrative. General and administrative expenses increased
by approximately $267,000, or 37%, to $987,000 for the year ended December 31,
1998 from $720,000 for the year ended December 31, 1997. This was primarily
attributable to an increase of approximately $245,000 in overhead and other
general corporate costs.
Amortization of Deferred Compensation Expense. We have recorded deferred
compensation for the difference between the exercise price of certain stock
option grants and the deemed fair value of our common stock at the time of
such grants. We amortized this amount over the vesting periods of the
applicable options, resulting in amortization expense of $187,000 for the year
ended December 31, 1998. There was no amortization expense in 1997.
Quarterly Results of Operations
The following table presents our unaudited quarterly operating results for
each of the last nine quarters, both in absolute dollars and as a percentage
of our total revenue for each quarter. This information has been derived from
our unaudited financial statements. The unaudited financial statements have
been prepared on the same basis as the audited financial statements contained
in this prospectus and include all adjustments, consisting only of normal
recurring adjustments that we consider necessary for a fair presentation of
such information. You should read this information in conjunction with our
annual audited financial statements and related notes appearing elsewhere in
this prospectus. You should not draw any conclusions about our future results
from the results of operations for any quarter.
22
<PAGE>
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $331 $354 $843 $ 862 $1,534 $1,608 $2,092 $4,717 $5,124
Cost of revenue......... 71 143 205 293 277 489 689 1,214 1,555
---- ---- ---- ----- ------ ------ ------ ------ ------
Gross profit............ 260 211 638 569 1,257 1,119 1,403 3,503 3,569
Operating expenses:
Sales and marketing.... 24 75 117 218 214 397 766 1,433 1,649
Research and
development........... 23 18 25 83 75 147 175 332 896
General and
administrative
(exclusive of
amortization of
deferred stock
compensation reported
below)................ 265 183 230 309 283 529 773 1,177 1,246
Amortization of
deferred stock
compensation.......... -- -- -- 187 92 294 16 64 270
---- ---- ---- ----- ------ ------ ------ ------ ------
Total operating
expenses............... 312 276 372 797 664 1,367 1,730 3,006 4,061
---- ---- ---- ----- ------ ------ ------ ------ ------
Operating income (loss). (52) (65) 276 (228) 593 (248) (327) 497 (492)
Other income (expense).. (2) (2) (1) 2 1 1 54 45 17
---- ---- ---- ----- ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (54) (67) 265 (226) 594 (247) (273) 542 (475)
Income tax expense
(benefit).............. (11) (14) 54 (46) 260 (20) (152) 210 (141)
---- ---- ---- ----- ------ ------ ------ ------ ------
Net income (loss)....... $(43) $(53) $211 $(180) $ 334 $ (227) $ (121) $ 332 $ (334)
==== ==== ==== ===== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
As a Percentage of Total Revenue
----------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 21.5 40.4 24.3 34.0 18.1 30.4 32.9 25.7 30.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 78.5 59.6 75.7 66.0 81.9 69.6 67.1 74.3 69.7
Operating expenses:
Sales and marketing.... 7.3 21.2 13.9 25.3 14.0 24.7 36.6 30.4 32.2
Research and
development........... 6.9 5.1 2.9 9.6 4.9 9.1 8.4 7.0 17.5
General and
administrative
(exclusive of
amortization of
deferred stock
compensation reported
below)................ 80.0 51.7 27.3 35.8 18.4 32.9 37.0 25.0 24.3
Amortization of
deferred stock
compensation.......... -- -- -- 21.7 6.0 18.3 0.7 1.4 5.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............... 94.2 78.0 44.1 92.4 43.3 85.0 82.7 63.7 79.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss). (15.7) (18.4) 31.5 (26.4) 38.6 (15.4) (15.6) 10.5 (9.6)
Other income, (expense). (0.6) (0.6) (0.1) 0.2 0.1 0.1 2.6 0.9 0.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... (16.3) (19.0) 31.4 (26.2) 38.7 (15.3) (13.0) 11.5 (9.3)
Income tax expense
(benefit).............. (3.3) (4.0) 6.4 (5.3) 16.9 (1.2) (7.3) 4.4 (2.8)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (13.0) (15.0) 25.0 (20.9) 21.8 (14.1) (5.7) 7.0 (6.5)
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Liquidity and Capital Resources
For the three months ended March 31, we financed our operations from a
portion of the cash generated from the sale of preferred stock in June and
July, 1999. Through December 31, 1999, our cash requirements were funded by
cash flow from operations and, to a lesser extent, from equipment financings.
At March 31, 2000, we had $3.8 million in cash, cash equivalents and short-
term investments.
Cash used by operating activities was $2.1 million for the three months
ended March 31, 2000 and cash provided by operating activities was $200,000
for the three months ended March 31, 1999. The $2.1 million of cash used by
operating activities consists primarily of a $1.5 million use of cash
resulting from an increase in
23
<PAGE>
revenues on contracts in excess of billings, a $930,000 decrease in billings
on contracts in excess of revenues and $593,000 of expenses incurred in
connection with the initial public offering. These uses were partially offset
by a $617,000 increase in accrued compensation and liabilities and a decrease
in trade accounts receivable of $409,000. Net cash provided by operating
activities was approximately $357,000 in fiscal 1997, approximately $8,000 in
fiscal 1998 and approximately $2.1 million in fiscal 1999.
Net cash provided by investing activities was $2.5 million for the three
months ended March 31, 2000, and net cash used for investing activities was
$34,000 for the three months ended March 31, 1999. Cash provided for the
current period reflects the maturity of a short-term investment of $2.9
million, partially offset by the purchase of property and equipment of
approximately $455,000. Net cash used in investing activities was
approximately $3.4 million in fiscal 1999, approximately $141,000 in fiscal
1998, and approximately $100,000 in fiscal 1997. Cash used in investing
activities reflects purchases of short-term investments of $2.9 million and
purchases of property and equipment in each period. Capital expenditures were
approximately $482,000 in fiscal 1999, approximately $139,000 in fiscal 1998,
and approximately $49,000 in fiscal 1997. Our capital expenditures consisted
of purchases of operating resources to manage our operations, including
computer hardware and software, office furniture and equipment and leasehold
improvements. We expect that our capital expenditures will continue to
increase in the future. In connection with the expansion of our headquarters,
we are planning to incur approximately [$500,000] in leasehold improvements
and furniture and equipment purchases.
Net cash used in financing activities was approximately $664,000 and $5,000
for the three months ended March 31, 2000 and March 31, 1999, respectively.
Net cash from financing activities was approximately $4.6 million for the year
ended December 31, 1999, primarily reflecting net cash proceeds from sales of
convertible preferred stock of $10.6 million partially offset by redemption of
common stock of $6.0 million. Net cash used in financing activities was
$21,000 in 1998 and $50,000 in 1997. In April 1999, we entered into a new
revolving credit facility to borrow up to a maximum principal amount of $1.0
million. In March 2000, we renewed and increased borrowing amounts under this
facility to $3.0 million. As of March 31, 2000, we had not borrowed under this
facility. In January 2000, we obtained a letter of credit under this facility
totaling $500,000 to secure a new office lease. This letter of credit is
renewable annually and declines by $100,000 on the second, third and fourth
anniversaries of the lease and then declines to $38,130 on the fifth
anniversary until the lease expires in August 2005.
[We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for
the foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses will constitute a material use of our
cash resources.] In addition, we may use cash resources to fund 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. We have adequate
cash available to fund our operations for the next twelve months without the
proceeds from this offering, although we would be required to reduce or delay
our current expansion plans. We have no current plans to raise additional
equity during the next twelve months, although such plans are subject to
business and market conditions. Thereafter, we may find it necessary to obtain
additional equity or debt financing, although we do not currently foresee a
need for additional cash resources for long-term needs. In the event
additional financing is required, we may not be able to raise it on acceptable
terms or at all.
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and market our products and
services in the United States; however we intend to begin marketing and
selling our products and services in Europe. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic
24
<PAGE>
conditions in foreign markets. Substantially all of our sales are currently
made in U.S. dollars; a strengthening of the dollar could make our products
and services less competitive in foreign markets. Our interest income is
sensitive to changes in the general level of U.S. interest rates, particularly
since the majority of our investments are in short-term instruments. Due to
the short-term nature of our investments, we believe that there is no material
risk exposure. Therefore, no quantitative tabular disclosures are required.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133, which is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a
comprehensive standard for the recognition and measurement of derivative
instruments and hedging activities. This pronouncement will require us to
recognize derivatives on our balance sheet at fair value. Changes in the fair
values of derivatives that qualify as cash flow hedges will be recognized in
other comprehensive income until the hedged item is recognized in earnings.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements
that was amended by SAB No. 101A, which is effective no later than our second
quarter of fiscal 2000.
We do not expect the adoption of these recently issued accounting
pronouncements to have a significant impact on our results of operations,
financial position or cash flows.
25
<PAGE>
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in
such forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."
Overview
We provide business-to-business software products and integration services
that use the Internet to connect manufacturing companies with their
distribution channel partners. Our software products and services enable
manufacturers to effectively manage and engage in collaborative business-to-
business e-commerce throughout their distribution channels. We develop,
implement and support customized "extranets," which are secure systems that
use the Internet to connect manufacturers with all participants in the chain
of distribution who have a password and an Internet browser. These channel
partners include:
. distributors;
. dealers;
. retailers;
. original equipment manufacturers;
. resellers;
. service centers and contractors;
. channel partners' employees; and
. channel partners' customers.
By providing an easy way for channel partners to communicate and transact
business, our software products enable manufacturers to take advantage of the
speed and power of the Internet to strengthen and broaden their relationships
with their channel partners, as well as their customers, through real-time,
twenty-four hour access to information and ability to process transactions.
Manufacturers provide sales, service and after-market support for
manufactured goods through complex distribution channels. While the Internet
may alter many historic distribution channels, we believe that certain
products -- particularly complex or specialized manufactured goods -- will
continue to require regional and/or local sales, service and after-market
support. Accessed through readily available Internet browsers, our software
products permits faster and more accurate transaction processing and
communication than traditional methods such as paper, phone and fax
communications, because information need not be transcribed by employees. Our
software products reduces the hidden costs of errors and delays in information
delivery by reducing the need for human involvement. We believe that providing
information and transacting business over the Internet can improve the
commercial relationships among a manufacturer and its distribution channel
partners and provide benefits to all participants in the distribution channel
by improving efficiency, financial performance, customer service and brand
loyalty.
The Click Commerce extranet system, comprised of the Extranet Manager and
80 applications, automates communication and business processes across the
distribution channel. The Click Commerce extranet system is personalized to
each individual user, accommodating, for example, each user's language, time
zone and currency preferences. Manufacturers using our software products can
receive and track orders, provide warranty information and provide product and
pricing information to their channel partners. Our extranet system is
specifically designed for the Internet and integrates with existing back-
office computer systems, without requiring significant additional technology
expenditures. We believe that our extranet system is especially appealing to
manufacturing companies because the average length of time it takes us to
design and implement our extranet system is approximately 120 days, which we
believe is significantly faster than the implementation time required for most
competing business-to-business e-commerce products.
26
<PAGE>
We currently market all of our products and services through our direct
sales force primarily to large, global manufacturing companies, typically with
revenues in excess of $1 billion or divisions with revenues in excess of $500
million, and that have large distribution networks. In addition, we recently
have begun to enter into joint marketing agreements with business consultants
and resellers who have expertise in the industry and existing client contacts.
We believe that these relationships will help increase the market penetration
and acceptance of our Click Commerce software products and integration
services.
Industry Background
Growth of the Internet and Business-to-Business Electronic Commerce
The emergence of the Internet is changing the way businesses and consumers
communicate and transact business. We believe that Internet-based business-to-
business e-commerce is poised for rapid growth. In a recent study, Forrester
Research predicts that business-to-business e-commerce will grow from $406
billion in 2000 to $2.7 trillion in 2004, accounting for more than 90% of the
dollar value of e-commerce in the United States by 2003. In another Forrester
study of manufacturing companies with extranets already in place, 80% of the
study's participants indicated that they expect to connect to all of their
channel partners through extranets within two years. The study's participants
believe that they have already reduced channel support costs by an average of
16% and increased sales by an average of 6% through their extranets. The
participants anticipate that within two years their extranets will allow them
to reduce channel support costs by an average of 32% and increase sales by an
average of 17%. International Data Corporation estimates that the worldwide
market for Internet-based applications that facilitate e-commerce will grow
from $1.7 billion in 1999 to $13.2 billion in 2003.
Limitations of Existing Enterprise Channel Management Solutions
Traditional phone, fax and paper-based communications systems are
inherently labor intensive, inefficient and prone to error. Manufacturers must
allocate significant resources and time to the manual entry of information
from faxed or phoned-in purchase orders and the manual processing of paper
checks, invoices and shipping notices. Further, the large volume of paper
generated by these transactions and the mass of information to be sorted and
processed frequently results in hidden costs such as errors and delays in
information delivery. Change is also difficult to implement on a timely basis
without incurring significant costs. For example, if a manufacturer produces a
paper-based catalog, it cannot quickly or inexpensively inform customers of
changes in product offerings, availability or pricing. In addition, the
manufacturer and members of its distribution network have limited capability
to track orders, inventory, warranties and other information or to compile
useful databases using paper-based or semi-automated processes. Using these
standard forms of communication, manufacturers and their business partners are
unable to exchange information on a real-time basis, and as a result,
potential customers do not have easy access to the information needed to
transact business with the manufacturer or its channel partners. Manufacturers
may also be unable to tap into new revenue streams that exist due to
restraints imposed by differences in language and time zone, barriers that
traditional methods cannot easily overcome.
Companies have worked to develop technologies and software to overcome the
problems and limitations presented by traditional forms of communication and
processes to transact business. Many companies have developed internally or
purchased enterprise resource planning software as a means to better manage
their businesses. Enterprise resource planning software systems are used for
identifying and planning a company's resources needed to fill customer orders.
These systems, however, have not traditionally been Web-enabled and were not
originally designed to communicate outside of an enterprise, and therefore do
not provide real-time communication with business partners. In addition,
enterprise resource planning software systems are expensive and take a
significantly long time to implement, typically anywhere from 12 to 24 months
depending on the complexity of the system and the size of the company.
Electronic data interchange attempted to solve the problem of facilitating
real-time communication by providing a means for the paperless exchange of
documents between a company and its customers, such as purchase orders,
shipment authorizations, advanced shipment notices and invoices. Electronic
data interchange is
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inflexible because it is based on pre-defined, fixed data formats that are not
easily adjusted. Electronic data interchange systems also typically require
the use of expensive and proprietary communications networks, and electronic
data interchange software often requires difficult and time-consuming point-
to-point integration. In addition, electronic data interchange is not readily
"scalable," or able to run on multiple servers to accommodate a larger number
of users, for large numbers of small business partners, and because
information is stored and sent at specific time intervals, known as batched
processes, it lacks real-time data exchange capability.
We believe that the 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-office computer systems. In addition, companies
need to be able to easily exchange information and conduct transactions across
the Internet securely, reliably and in real-time. The 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.
Click Commerce Products and Services
The Click Commerce products and integration services enable large, global
manufacturers to manage their distribution channels and effectively engage in
business-to-business e-commerce by providing for the exchange of information
and ability to transact business on a real-time basis. Our software creates
the infrastructure necessary to allow global enterprises to extend their
organizations to any member of a business partner network. Using our products
that are customized to the manufacturer's specific requirements, dealers,
distributors, retailers, original equipment manufacturers, resellers, service
centers and contractors, each of their respective employees, and all of their
customers can be connected and can engage in collaborative commerce.
Businesses using our software have the ability to securely deliver information
and transact business on a real-time basis, across multiple languages, time
zones or currencies, twenty-four hours a day, seven days a week.
Our software is specifically designed for the Internet and can be readily
integrated with existing back-office computer systems without requiring
significant additional expenditures. Click Commerce software is not dependent
upon every member of a business partner network using the same technologies.
We are able to meet the unique and diverse needs of our clients through
multiple applications and features. We offer 80 applications in the following
categories:
. marketing,
. financing,
. catalog,
. order,
. inventory,
. accounting,
. training,
. service,
. warranty, and
. reporting.
In addition, our customers can add applications to their existing systems
as their businesses expand and needs change. All of our applications are
available in multiple languages, such as:
. English,
. Spanish,
. French,
. Portuguese,
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. German,
. Italian,
. Dutch,
. Danish,
. Norwegian,
. Swedish,
as well as in multiple currency formats. In addition, following a 4 to 6 week
needs analysis, we can usually implement our extranet system in approximately
120 days, which we believe is significantly faster than the implementation
time required for most competing business-to-business e-commerce products.
We believe that Click Commerce software products and integration services
provide our clients with the following benefits:
Improved Relationships with Channel Partners and Consumers
Our software products help manufacturers build stronger relationships with
their channel partners by making it easier to exchange information and
transact business with each other. With our extranet system, even the smallest
of channel partners can effectively maintain a direct relationship with the
manufacturer. In addition, our extranet system is capable of allowing
manufacturers and their channel partners to make a direct connection with
consumers where one might not have previously existed by providing consumers
with direct access to the extranet. This allows manufacturers to effectively
build brand awareness and brand loyalty and potentially target consumers with
ancillary sales such as parts, accessories and financing. We believe that the
ease with which channel partners can securely transact business and exchange
information with the manufacturer quickly translates into a significant
competitive advantage for our customers.
Rapid Implementation
The Click Commerce extranet system is designed to be implemented rapidly by
leveraging our customers' existing back-office computer systems. Following a 4
to 6 week needs analysis, we can usually implement our solution in
approximately 120 days, which we believe is significantly faster than the
implementation time required for most competing business-to-business
e-commerce products. We customize ready-built applications from our inventory
of 80 applications; our competitors custom-build software products or use
technology tools, processes that require substantially more time than our
approach. This rapid implementation capability allows our customers to quickly
meet the changing competitive demands resulting from the increased prevalence
of the Internet. We strive to provide our customers with the best business-to-
business e-commerce enterprise channel management systems in place in the
shortest period of time.
Improved Efficiency and Reduced Operating Cost
The direct connection with channel partners and the automation of multiple
processes afforded by our software products enables our customers to reduce
personnel costs in areas such as call centers, regional offices, sales support
and administration. Transaction costs should also be lowered by the reduced
need for manual entry of information from faxed and phoned-in purchase orders
and manual processing of paper checks, invoices and shipping notices. In
addition, error rates should be reduced by the reduction in human involvement.
The fact that our customers can communicate and transact business in real-time
with their channel partners may also allow them to reduce the time it takes
them to fulfill orders and to maintain lower inventories.
Improved Revenue Opportunities
Our products and services can help manufacturing companies increase market
share by making them more accessible to channel partners, which facilitates
follow-on sales. We believe, based on reports from
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manufacturers, that companies often lose sales to competitors not because of
pricing, quality or availability, but due to the fact that it may be more
convenient for the channel partner to do business with a competitor. The
greater reach and broader access manufacturers have to new and existing
customers using our extranet also enables manufacturers to conduct focused
marketing and promotional campaigns, as well as targeted add-on sales, such as
repair, maintenance and other value-added services. Because of the closer
relationships through improved communications that our extranet builds, we
believe that our customers are able to capture a larger portion of these
follow-on sales.
The Click Commerce Growth Strategy
Our objective is to create the most comprehensive business-to-business e-
commerce enterprise channel management software products that automate the
business processes between a manufacturer and its channel partners. Key
elements of our strategy to achieve this objective include:
Target Large, Global Manufacturers
We believe, based on the number and breadth of applications we offer, we
have developed the most comprehensive business-to-business extranet software
products and integration services for the manufacturing sector currently
available. By focusing on the complex needs of large manufacturers, we provide
them with significant competitive advantages, such as improved efficiency,
financial performance, customer service and brand loyalty, through effectively
managing their complex distribution networks. We specifically target divisions
of these large manufacturers. Once we have sold to a division, there are
numerous opportunities to sell to other divisions within the organization. We
believe that this provides us with significant leverage in our sales model. We
intend to continue to primarily target large, multi-national corporations and
to benefit from our first-mover advantage with many of these organizations.
Expand Sales Efforts to Drive Market Penetration
All of the revenue recognized in fiscal 1999 was generated by our original
sales force, consisting of three individuals. We currently have 27 people
dedicated to sales located in Chicago, Illinois; Boston, Massachusetts; Del
Mar and San Francisco, California; Atlanta, Georgia; Detroit, Michigan;
Dallas, Texas; New York, New York; Munich, Germany and Amsterdam, Holland. We
believe that a tremendous opportunity exists to both sell to new clients and
to sell additional applications and features to our existing customer base. To
complement our direct sales efforts, we use methods such as telemarketing,
direct mail campaigns, Web site marketing and speaking engagements to build
market awareness of our brand name and our products. We believe that by
increasing the size of our sales force, we can target a broader base of
potential clients and further develop relationships within our existing client
base.
Expand International Presence
We plan to aggressively pursue a global strategy that leverages our
products' strength as well as our existing customer relationships with
multinational corporations. We believe there exist significant international
opportunities for our software and services due to the distribution channel
complexity that arises from multicurrency and multilingual business
environments. We also believe that the multi-national focus of our existing
customer base will provide us with a strong foothold in the international
market. We have sales and telemarketing representatives currently located in
Munich and Amsterdam selling Click Commerce software products and services. We
currently have a sales office open in Munich, Germany and plan to open a sales
office in Amsterdam in May 2000 and will continue to expand our international
marketing efforts to address the range of international markets and
applications for our Click Commerce software products and integration
services.
Develop Joint Marketing and Business Development Relationships
We believe that in order to fully take advantage of our capabilities,
rapidly increase our revenues and enhance our Click Commerce suite of software
applications, we will need to continue to seek to enter into
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agreements with a number of business consultants and resellers that provide
for joint marketing of our products. By entering into these relationships, we
intend not only to take advantage of the expertise of these business
associates but also to market our products and services to their client base.
In addition, we have entered into agreements with technology companies to
provide components for our software products and we intend to pursue
additional relationships as new technologies and standards emerge to further
improve our software and the rapid implementation of our extranet system.
Provide Supplementary Value-Added Services For Our Extranet Customers
We plan to introduce new products and service offerings in areas such as
electronic publishing, content management, community management, system
outsourcing and auction services to complement the overall enterprise channel
management extranet system. With the introduction of these new products and
services, we intend to expand sales to existing customers and strengthen our
recurring revenue model. We also believe that these new product and service
offerings will increase brand loyalty among our clients.
Click Commerce Products and Services
The Click Commerce Suite
The Click Commerce suite is an extranet-based application suite that forms
the backbone of our business-to-business e-commerce enterprise channel
management system. We develop, implement and support customized extranets,
which are secure systems that use the Internet to connect manufacturers with
their channel partners, which include distributors, dealers, retailers,
original equipment manufacturers, resellers, service centers and contractors,
their respective employees, and finally, their customers. The Click Commerce
extranet system is comprised of the Click Commerce Extranet Manager and the
Click Commerce Applications.
The Click Commerce Extranet Manager
To power the applications and effectively integrate them with a client's
existing internal computer systems, the Click Commerce Extranet Manager
controls access to our customers' sites, manages sessions and administrative
tasks, and ensures that users see information targeted to their location, job
function and language. The Click Commerce Extranet Manager allows each
department or division of a manufacturing company to control its own content
on the extranet, so it is faster and easier for businesses to keep information
current and relevant. In addition, extranet applications, whether one of our
80 applications or a supported third-party application, may be enabled by the
Click Commerce Extranet Manager.
The Click Commerce Extranet Manager is comprised of the following
components:
Click Commerce Application Manager. The Click Commerce Application
Manager is the graphical interface that our customers' network administrators
use to control access privileges for Click Commerce applications. Using the
Application Manager, an administrator can define pages on the extranet a user
may view and what transactions or operations a user may execute. The
Application Manager is also used to define what level of information a user
may view. For example, a corporate manager might have access to view company
wide open orders, but a branch office employee would be limited to viewing
branch orders. Finally, Click Commerce applications often use special
attributes to make decisions on what content to show to a user. The
Application Manager allows an administrator to assign and modify these
attributes associated with a user.
The Click Commerce Application Manager compiles system logging information
on a real-time basis using an extensive statistical and tracking package.
Additional features that we believe differentiate the Application Manager from
competing software are bulk e-mail, language administration and user
affiliation sorting. Click Commerce allows e-mail to be targeted to groups of
users based on the user's roles, company affiliations and other attributes.
The Click Commerce Application Manager also controls dynamic system entry
pages, company news and promotions or other marketing content.
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Language administration consists of creating language definitions, for
example Spanish, and creating specific translations for the "reference
phrases," for example "Numero" for "Customer Number," that are shown when one
of the Click Commerce pages is generated. Our software allows language phrases
and translations to be managed by an administrator using the Click Commerce
Application Manager. Application specific phrases are not embedded into
resource files or executables. They can be changed at anytime and new
languages may be added as required.
Click Commerce Access Manager. The Click Commerce Access Manager performs
authorization and authentication and manages every user session from login to
logout. Session management software on the web server allows a user to log
into a site and be tracked across numerous requests. At login Click Commerce
verifies the user's credentials. If the user is valid, a record is created in
the session manager software component and the new "session" is given a unique
identifier. This identifier is sent back to the user's browser via a "cookie."
For each visit of the user, the Access Manager verifies that the session
identifier, sent from the browser, matches a valid managed session. If the
session is no longer valid, due, for example, to inactivity of the user for a
period of time, the user having logged off, or the user having never logged
onto the system, access is denied. Each application can store information that
is related to this session in variables that are stored in memory between
subsequent page requests. Applications can also check if the user identified
by the session can perform certain actions. The Click Commerce Access Manager
controls access to Click Commerce applications and third party applications
without having to modify them. External authentication resources can also be
utilized to gain access to the extranet.
The Click Commerce Access Manager is extremely efficient. It takes
advantage of Microsoft Transaction Server technology enabling maximum
"scalability," or the ability to run on multiple servers. Microsoft
Transaction Server is Microsoft's technology that allows objects to be pooled
for multiple applications. This limits the number of specific instances of an
object needed and improves scalability of an application. When an application
asks to use a particular object, Microsoft Transaction Server may use an
object already instantiated by another application which is not being used at
the current time.
Objects are pieces of software functionality encapsulated to allow for
reuse. They are also referred to as components. An object presents a set of
functions that are usable by other applications. Microsoft's object
architecture is called ActiveX, or COM. Since our extranet uses ActiveX
objects to encapsulate functionality, third-party or customer developers can
quickly reuse our business logic. We build all objects to execute within the
Microsoft Transaction Server environment. Thus, objects in our extranet are
pooled by Microsoft Transaction Server. The Access Manager is an example of a
Click Commerce system that uses other Click Commerce objects to perform its
primary task, which is checking for authorization to a location on the
extranet, thus taking advantage of the capabilities of Microsoft Transaction
Server. The Click Commerce Access Manager uses high performance algorithms for
user authentication, dynamic page access authorization and user session
management. Dynamic page access authorization refers to the idea that every
page in the Click Commerce application suite is generated at the time of the
request. This allows the content and operations to be customized for the user
viewing the page. In Click Commerce, a user is authorized to see specific
sections on the extranet. The Access Manager controls access to these dynamic
pages and authorizes requests to these pages.
Click Commerce Resource Library. The Click Commerce Resource Library is
the component of the Click Commerce Extranet Manager that truly differentiates
Click Commerce software from typical system management software. It is an open
object software library that empowers either the 80 Click Commerce
applications or 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.
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The Click Commerce Applications
We offer 80 applications designed to provide specific functions to a user
of our Internet-based extranet system. These applications support a
manufacturer's business processes, all the way from pre-sales through after-
market sales and support. Our applications can be purchased in packages or
individually to accommodate each of our client's unique business requirements.
In addition, our applications can be modified and enhanced as our clients'
businesses grow and needs change. Below is a representative sample of some of
our most widely used applications and the specific function each application
provides.
Marketing Applications: Our marketing applications target promotions and
marketing messages to users and communities. We currently offer sixteen
applications in our marketing package, including:
. Promotions Manager: Allows manufacturers to upload promotional materials
that can be targeted toward specific users--by geography or role.
Promotions can run on a continuous or periodic basis.
. Lead Management: Allows manufacturers to push sales leads down to the
dealership/sales level. The dealer/salesperson then uses the extranet to
report on the status of the lead. Reports are available to the
manufacturer to determine channel partner utilization and responsiveness
to the extranet system.
. Literature Fulfillment: Allows the user to obtain relevant sales
information "at a glance," such as competitive analyses, benefits,
prices, options, schematics, dimensions and other pertinent information.
Manufacturers using this application avoid the expense of distributing
literature.
Financing Applications: Our financing applications allow channel partners
and their customers to arrange financing for product purchases. We
currently offer six applications in our financing package, including:
. Closed-End Financing: Allows users, for example consumers and dealers,
to apply for closed-end financing packages online. Loan approval is
communicated online in real-time.
. Revolving Credit Application: Allows manufacturers that offer "branded"
credit cards through their own lending arm or through external
institutions to allow consumers to apply for credit online. Credit line
approval is provided online and in real-time. As consumers visit the
manufacturer's Web site for information on products, they can obtain
pre-approval for purchases at the manufacturer's dealers/distributors.
The branded card is a key component of a brand loyalty program and may
be tied to other loyalty programs.
. Forms Module: Creates on-line forms for purchase financing by buyers of
vehicles, houses and other state and county-regulated transactions in
the dealership environment. The key benefit of this application is the
ability to offer and maintain correct forms for each locality as
regulations change over time. This technology tracks the legal
requirements and keeps the contract forms continually up-to-date with
appropriate wording and disclaimers.
Catalog: Our catalog applications allow channel partners and their
customers to view and select products online and allow manufacturers to set
and change pricing levels for different purchasers. We currently offer
seven applications in our catalog package, including:
. Product Catalog: An online catalog with pictures and descriptions of
products, pricing and automatic links to a virtual shopping cart.
Variable organization and search capability allow adaptation to a wide
variety of uses.
. 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.
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Order Management: These applications allow channel partners and their
customers to purchase products and services and obtain real-time
information regarding order status. We currently offer eleven applications
in our order management package, including:
. Shopping Cart and Checkout: Provides users with a virtual shopping cart
that displays items, quantity and other pertinent information. The
application includes a check-out procedure with options for sales tax
calculation, choice of shipping methods, and display of shipping costs
and method of payment.
. Automatic Replenishment: Based on customers' order history, selected
users receive notification of replenishment orders on a regular basis,
along with suggested orders for items that are often ordered. This
feature eliminates the need for users to monitor items that are commonly
ordered.
. Order/Ship Status: Allows the user to search current and past purchases
and displays the order shipping status with links back to the related
invoices when the account status package is purchased. Ship status
allows the querying of a shipper's site, such as Federal Express or UPS,
for shipment information without leaving the manufacturer's extranet.
Inventory Management: These applications allow channel partners to check a
manufacturer's inventory availability. We currently offer five applications
in our inventory management package, including:
. Inventory Availability: Allows a user to query inventory availability.
Searches can be made by partial part number, description, and other
delimiters if supported by existing back-office computer systems. The
searches return the availability for the quantity requested and the
price for a selected number of items.
. Inventory Locator: Allows the dealer or consumer to search a dealer's
inventory for items that match specific criteria, such as a product
model or vehicle identification number, within a geographic range. The
dealer or consumer can then purchase or transfer the selected items.
. Unit Transfer: Relates to the inventory locator application; once a
dealer has located a particular product/model within the manufacturer's
partner network, a request for transfer can be made electronically. Both
dealers then approve the transfer via the extranet, providing valuable
information to the manufacturer.
Accounting: These applications are an accounts receivable interface that
provide information regarding account status and invoice history. We
currently offer five applications in our accounting package, including:
. Account Status: Allows the dealer/reseller to view its current and past
months' account status to obtain current information about its credit
line with the manufacturer.
. Invoice Lookup: Allows for the search of invoices by month, date, part
number and other criteria, with links back to the invoice details.
. Electronic Funds Transfer: Allows the user to enter and maintain
electronic funds transfer routing and authorization information that is
used by the seller's fulfillment system. Electronic funds transfer can
also be enabled via a button on the shopping cart or a button on the
invoice display page which allows the customer to match an invoice to a
payment.
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, for example marketing, warranty and service, are
performing.
. Web Activity: Allows a manufacturer to track visitor activity on their
Web site or a related dealer site. Helps the manufacturer determine
"click through" traffic patterns, and then reorganize the site and
integrate promotions to affect performance.
Maintenance and Support: Click Client Care
We offer Click Client Care to extend the life and flexibility of our
clients' extranet through technical expertise, product support services, and
ongoing communications. We provide, depending upon our client's needs, a
dedicated extranet and voice support line which supplies our clients with
access to our team of knowledgeable extranet specialists twenty-four hours a
day, seven days a week. Our customer care specialists, or Click Client Care
specialists, work closely with our developers so that our clients are assured
of receiving the latest, most accurate product information. We also offer our
clients maintenance services and periodically provide them with updates to
ensure that they have the most robust and up-to-date extranet capabilities.
Future Services - Electronic Publishing: Click Commerce Docs
As part of our overall enterprise channel management product offerings, we
intend to develop a new service in order to assist clients in the
transformation of existing documents into electronic information that can be
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delivered to traditional audiences using Web browsers, wireless devices, and
non-traditional media. This service will enable our clients to transform their
existing document collection into Internet-enabled information. Click Commerce
Docs will transform documents from formats such as hard copy, microfilm, video
and audio, and electronic, into a versatile Internet-enabled asset. We will
use extensible markup language, (XML) to architect the information. We expect
that our clients will use Click Commerce Docs to convert documents such as
owners' manuals, service manuals and installation guides.
Customers
Our customers include many of the well-known names in the capital goods,
recreational sports, telecommunications and electronic components industries.
The following are all of the companies that have either implemented or are in
the process of implementing a Click Commerce extranet system since our
inception. We do not intend the identification of these customers to imply
that these customers are actively endorsing or promoting our products.
Capital Goods Recreational Sports Telecommunications
. Hyundai . Mercury Marine . Motorola CGISS
. Trane . Marine Power Europe . Motorola iDEN
. Komatsu . Bombardier Recreation . Motorola PCS
. Delphi Automotive Systems
. Kawasaki . Ameritech
. Life Fitness . Qualcomm Wireless
. Qualcomm Consumer
Products
Financing Consumer Products Electronic Components
. Bombardier Capital . American Standard
. Mitsubishi Digital . Mitsubishi Electric
Automation
. Mitsubishi Display Products
. Emerson Electric
. Black & Decker
Of the above named customers, Ameritech, Mitsubishi Electric Automation and
Hyundai had extranet systems implemented in 1998 and Mercury Marine,
Bombardier Recreation, Life Fitness, Motorola CGISS, Motorola PCS, Qualcomm
Wireless, Qualcomm Consumer Products, Mitsubishi Digital and Mitsubishi
Display Products had extranet systems implemented in 1999. The majority of the
revenue derived from contracts with these customers was recognized in 1998 and
1999, respectively, the years in which their extranet systems were installed
and implemented. Unless we enter into additional contracts with these
customers, we do not expect to derive significant revenue from them in the
future.
Case Study
The following case study illustrates how one of our customers uses a Click
Commerce extranet to manage its products and services distribution channel and
effectively engage in business-to-business e-commerce:
Hyundai Motor America
Challenge: In order to increase sales of its replacement parts, Hyundai
Motor America, the U.S. division of the tenth largest automaker in the world,
needed a single enterprise-wide e-commerce 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.
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Solution and Results: High Dealer Adoption and Increased Revenue. Click
Commerce developed and implemented a single enterprise-wide e-commerce extranet
system that can be used by all of Hyundai's channel partners, regardless of
location. Through Hyundai's Click Commerce powered extranet, dealers and
distributors now view Hyundai's electronic catalog and place orders. Consumers
and independent repair shops log on to Hyundai's Web site, which interfaces
with the extranet, to obtain parts information and place orders with dealers.
We completed implementation of the Hyundai parts extranet in February 1999.
Today, nearly 50% of Hyundai's dealers have enrolled as a member of the
extranet, and approximately 1,000 independent repair shops have agreed to use
the extranet through a Hyundai dealer.
Hyundai has reported to us that use of our extranet has led to increased
sales because it provides easily accessible, up-to-date and accurate
information. Instead of using outdated catalogs and price lists, Hyundai's
dealers simply look up parts in the new Internet-based electronic parts catalog
by the vehicle identification number. Hyundai's channel partners, whether they
are dealers, independent repair shop employees or consumers, can now place
orders and check inventory at their convenience, twenty-four hours a day and in
the language of their preference.
We recognized the majority of the revenue derived from our contract with
Hyundai in 1998, the year in which most of work on implementing the extranet
took place. Unless we enter into additional contracts with Hyundai for
additional products and/or services, the revenue we will recognize for
maintenance and support services in the future will be immaterial compared to
the revenue recognized in 1998.
Technology and Product Architecture
Implementation of Our Extranet Manager and Applications
We believe that upon implementation, our Internet-based products allow
manufacturers to maximize efficiency and channel partners to easily interact
with a manufacturer's extranet through the use of an Internet browser. Once
implemented, our products interact with a manufacturer's existing back-office
computer systems and the users of its extranet as follows:
[CHART]
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Manufacturer Level
Enterprise Data and Enterprise Applications are the manufacturer's existing
back-office computer systems used to manage the information needed for day-to-
day operations. Our software products enable the information included in these
databases and systems to be used for e-commerce applications. Using our
software products, channel partners have access to information previously
unavailable or difficult to obtain. Our software products provide standard,
protocol independent platforms that allow both data and applications to work
together. For example, enterprise application integration systems can retrieve
inventory status for a part number on a real-time basis and transfer that
information to the Click Commerce order and product catalog applications for
display on our customer's extranet.
Click Commerce can connect either to the enterprise data directly or
through the enterprise applications. Our products can communicate with either
packaged applications, such as SAP, Oracle and Clarify, or other databases,
such as DB2, Oracle, IMS and VSAM, that are commonly found in proprietary
existing back-office computer systems.
Database stores the details of transaction activity and all other actions
occurring on a manufacturer's extranet. With the information included in the
database, a manufacturer can measure the effectiveness of its extranet and use
that data to market to specific channel partners. This information can help
the manufacturer increase the usage and promote e-commerce activity on its
extranet. A database can exist either in a SQL Server or Oracle format.
Administration is a tool used in every extranet system to manage the user
community. This tool assigns attributes to all extranet users so that a
manufacturer and its channel partners can personalize content by user. For
example, a manufacturer can set different prices and discounts for each of its
dealers.
Directory Services is a database that contains our personalization
information and is used for high-speed access to information. It uses the
industry standard Lightweight Directory Access Protocol (LDAP) to store
information about users that is accessed most frequently, such as passwords
and permissions.
Channel Partner Level
Channel partners access a Click Commerce enabled extranet through Internet
browsers such as Netscape or Microsoft Internet Explorer. These browsers use
Hypertext Transfer Protocol (HTTP) and a Secure Socket Layer (SSL), common
data transport protocols, which provide secure and reliable access to the
extranet.
Product Architecture
The Technology Kernel Layer, the Services Layer, the Personalization Layer
and the Application Layer comprise the principal components of Click Commerce
software. The components work together to deliver a product that can be
rapidly implemented and personalized to each unique enterprise environment.
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Technology Kernel Layer:
The Technology Kernel Layer represents the
technology our extranet is built upon and uses to
deliver customized systems which can expand to meet
new demands by users. The following are the main
components of our technology kernel layer.
. Microsoft Transaction Server
(MTS) . Pools database connections for
improved performance.
. Microsoft Message Queue (MSMQ) . Manages data transport to
guarantee delivery.
. Extensible Markup Language (XML)
(to be introduced in the second . Passes information between
quarter of 2000) application layers within the
Click Commerce suite of
applications. XML message
standards, which will be included
in an upgrade of our software in
the second quarter of 2000, allow
us to easily integrate our
products with other industry
leading technologies.
Services Layer:
The Services Layer regulates our applications' communication
with external databases, directories and enterprise
applications that provide information to them. This allows
our products to easily integrate with the applications and
technologies preferred by our clients, to expand capacity of
an extranet, and to limit the effects of hardware failures.
Major services provided by the Services Layer are described
below:
. Management/Configuration
. Provides access by applications
to information stored in
directory services database.
. Session Management . Maintains information on each
user who logs into the system.
. Database Traffic Management . Eliminates excessive traffic to
(to be introduced in the second the database by holding
quarter of 2000) frequently accessed information
in servers closer to the end-
user.
. Enterprise Application . Allows access by a Click Commerce
Integration application to the manufacturer's
data residing in the
manufacturer's existing back-
office computer system.
. Internationalization . Delivers applications in the
language and currency preferred
by our clients.
. Provides a location to store all
. Database transaction information, such as
purchase orders and
confirmations, between Click
Commerce applications and
information stores, such as
Enterprise Applications.
Personalization Layer:
The Personalization Layer enables applications to deliver
content targeted for each channel partner and user of the
extranet. We define content as any information displayed by
an application, including promotions, news alerts,
messages, pricing levels, and products. Content
personalization consists of the following:
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. Access Control . Ensures that users have the
appropriate permissions to view
the site and the applications
within the site.
. Groups and Communities
. Establishes criteria that
identify users that have similar
characteristics, for example job
functions or authority levels,
and should receive the same
content.
. Personalization Rules . Determine whether specific
content should be displayed to
the active user of the extranet.
. Alerts . Notifies or alerts the user to a
pre-defined event, such as an
inventory status change, by
sending special messages.
Application Layer:
The Application Layer contains the customer's applications and
is the user interface that displays the personalized content
and enterprise information with the branding and look and feel
required by our clients. Each application is made up of two
major pieces.
. Active Server Pages . Transform input from back-office
computer systems into information
viewable by a user, and input
from users into data that the
back-office computer system can
understand and process.
Microsoft's ASP scripting
language is used to generate the
branded look and feel and
implement any unique software
processes required by a specific
customer.
. Business Objects . Perform common business
processes. Based on Microsoft's
ActiveX architecture, business
objects encapsulate and implement
in software Click Commerce's
experience with complex channels
and business process automation.
Research and Development
We have made and will continue to make substantial investments in research
and development through internal development, technology acquisitions and
strategic relationships. In fiscal 1998 and 1999, we spent approximately
$149,000 and $729,000, respectively on research and development. Product
development costs in 1997 were directly related to customer contracts and
classified as cost of revenue. Our research and development staff is
responsible for enhancing our existing products and services and expanding our
product line and services offered. Our current product development activities
focus on product enhancements to the customized applications and the Extranet
Manager and the integration of external services and partner technology.
Sales and Marketing
We market our products and services primarily through our direct sales
force. As of April 19, 2000, our direct sales force consisted of 27 sales
professionals located in Chicago, Illinois; Boston, Massachusetts; Del Mar and
San Francisco, California; Dallas, Texas; Atlanta, Georgia; Detroit, Michigan;
New York, New York; Munich, Germany; and Amsterdam, Holland. 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
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e-commerce enterprise channel management products and services in the shortest
period of time. To complement our direct sales efforts, we also use methods
such as telemarketing, direct mail campaigns, Web site marketing and speaking
engagements to build market awareness of Click Commerce and our products and
to generate leads for potential customers. We also have successfully
implemented a "viral" selling model whereby divisions of large companies
become references for other divisions, as well as other companies in similar
industries. For example, our first Brunswick customer, Mercury Marine Europe,
resulted in follow-on business with other Brunswick divisions, Mercury Marine
(North America) and Life Fitness.
Identifying Prospective Clients
We strive to identify "qualified prospects," who are potential customers
that meet a majority of the following criteria:
. Large manufacturer with over $1 billion in revenues or a division of a
large manufacturer with over $500 million in revenues;
. 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 software
products and services. Typically, our sales person will set up an onsite visit
at the prospect's offices so that we can demonstrate our product capabilities,
and business decision-makers can learn more about the benefits of our software
products and services. Following this meeting, we conduct a series of
technical and business reviews with various personnel of the potential
customer. The goal of these initial sales activities is to encourage the
prospect to retain us to provide a "needs analysis" of our business-to-
business e-commerce software products and services.
Needs Analysis
Our needs analysis process consists of:
. Assessing a prospect's e-commerce needs through objective analysis;
. Performing back-end systems analysis;
. Interviewing channel partners of prospect to determine their needs;
. Identifying functionality for initial rollout that will generate a high
rate of return on the customer's investment and is easy to implement;
. Creating an e-commerce enterprise channel management product prototype
so that the customer can visualize the extranet in action; and
. Delivering a fixed-fee, fixed-schedule proposal for the implementation
of our extranet.
The needs analysis typically takes four to six weeks to complete. Once the
needs analysis proposal has been presented, the prospect makes the decision
whether to invest in our e-commerce product. We retain all ownership rights to
the prototype of the extranet built for a prospect, or limit the prospect's
ability to use the prototype without implementing our extranet.
Executing Master Software License and Implementation Agreement
After the needs analysis process is completed, we seek to implement our
product by entering into a master software license and implementation
agreement. This agreement sets forth our terms for building and installing
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the customer's extranet and generally grants to the customer a non-exclusive,
perpetual, nontransferable right and license to use our software. The
agreement typically provides that we retain title to the licensed software,
although modifications to the software or customizations made for a particular
client may be owned by that client, or may be subject to restrictions on sale
to or use by competitors of that client. The agreement includes a fixed price
for our extranet which is based on factors such as:
. the number and types of applications ordered;
. the amount of time it will take to implement the extranet, typically 120
days; and
. the complexity of the overall extranet system.
Executing Maintenance and Support Agreement
In connection with each master software license and implementation
agreement, we typically enter into a one year maintenance and support
agreement for Click Client Care that is renewable for each successive year by
the parties. We charge a set fee for this service. The agreement provides that
we will:
. correct or repair any failure, malfunction, defect or nonconformity in
the licensed software;
. provide commercially available updates (excluding implementation
services) to the licensed software; and
. maintain a help-line that customers can call with problems with the
software.
Marketing and Technology Business Relationships
To further penetrate the market for our products and services, we have
begun to enter into joint marketing agreements with business consultants,
resellers and system integrators. We believe that these relationships will
assist us in gaining broad market acceptance of our products and services, as
well as expand our marketing, sales and distribution channels. In April 2000,
we entered into an agreement with Andersen Consulting, LLP, which provides for
the joint marketing and promotion of our products and services and Andersen
Consulting's services. Each party has the right to designate pricing and
payment terms of its products and services sold to customers introduced by the
other party.
To incentivize Andersen Consulting, we have issued to them a warrant to
purchase up to 818,226 shares of our common stock at an exercise price of
$12.22 per share. The vesting of this warrant is conditional upon the
achievement of agreed upon milestones relating to the generation of revenues
for us in connection with qualified customer introductions by Andersen
Consulting. The warrant also contains a significant economic disincentive for
Andersen's nonperformance. The warrant may not be exercised prior to the first
anniversary or after the fourth anniversary of the date of issuance. In
addition, in April 2000 AC Ventures B.V., an affiliate of Andersen Consulting,
purchased from Michael W. Ferro, Jr., his father, Michael Ferro, Sr., his
sister, Maria Morris, and four other stockholders an aggregate of 818,226
shares of our common stock at a price of $12.22 per share, for aggregate
consideration of $10 million.
In addition to our relationship with Andersen Consulting, we have entered
into joint marketing agreements with a major hardware and software vendor and
systems integrator and with an information technology consulting firm. We have
not yet obtained any revenues as a result of these early-stage relationships.
However, we anticipate that the marketing of our products and services by
these companies to their large customer bases will lead to future sales for
us. To achieve this goal, we have begun to train members of their sales forces
on the essential attributes of our software products and integration services.
To further enhance our suite of Click Commerce applications, we have also
entered into agreements with technology companies to provide components for
our software products. We intend to pursue additional relationships as new
technologies and standards emerge to further improve our software and the
rapid implementation of our products.
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Competition
The market for our products is intensely competitive, subject to rapid
technological change and is significantly affected by new product
introductions and other market activities of industry participants. There are
relatively few barriers to entry in the enterprise channel management market
and we expect competition to persist and intensify in the future. We currently
have four primary sources of competition: in-house development teams of our
potential clients; large software and enterprise resource planning vendors
that directly address e-commerce products and services, such as IBM, SAP and
Oracle; consultants and system integrators; and independent software vendors,
such as Commerce One and BroadVision. In the past twelve months, when
competing for customers, we have directly competed with approximately ten
providers of alternative products and services, including IBM, BroadVision,
Andersen Consulting, Haht Technologies, IXL and Razorfish. The number and
nature of competitors and the competition we will experience is likely to
change substantially in the future.
We believe that the principal competitive factors affecting our market
include speed of implementation, price, knowledge of the manufacturing
industry and channel market, core technology, ability to implement a solution
with existing technology and financial capacity of the vendor. Although we
believe that our products and services currently competes favorably with
respect to most of these factors, our market is relatively new and is evolving
rapidly. We may not be able to maintain our competitive position against
current and potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other resources.
Many of our competitors have longer operating histories in related markets,
significantly greater financial, technical, marketing and other resources,
significantly greater name recognition and a larger installed base of
customers in related markets. Moreover, a number of our competitors,
particularly major business software companies, have well-established
relationships with our current and potential customers as well as with
independent systems consultants and other vendors and service providers. In
addition, these competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products,
than we can.
Such competition could materially and adversely affect our ability to
obtain revenues from either license or maintenance and service fees from new
or existing customers on terms favorable to us. Further, competitive pressures
may require us to reduce the price of our products and services. In either
case, our business, operating results and financial condition would be
materially and adversely affected. There can be no assurance that we will be
able to compete successfully with existing or new competitors or that
competition will not have a material adverse effect on our business, financial
condition and operating results.
Proprietary Rights and Licensing
Our success and ability to compete is affected by our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely primarily on a
combination of copyright, trade secret and trademark laws, confidentiality and
nondisclosure procedures, contractual provisions and other similar measures to
protect our proprietary information. For example, we license rather than sell
our software to customers and require licensees to enter into license
agreements that impose certain restrictions on licensees' ability to utilize
the software. Modifications to the software or customizations made for a
particular client may be owned by that client. We have one registered
trademark and two pending trademark applications in the United States. We seek
to protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. We do not patent our products
because we believe patents would provide little long-term protection as the
technology used is constantly changing and improving. As part of our
confidentiality procedures, we enter into nondisclosure agreements with
certain of our employees, directors, contractors, consultants, corporate
partners, customers and prospective customers. We also typically enter into
license agreements with respect to our technology, documentation and other
proprietary information. These legal protections, however, afford only limited
protection for our technology. Due to rapid technological change, we believe
that factors such as the technological and creative skills of our personnel,
new product developments and enhancements to existing products are more
important than the various legal protections of our technology to establishing
and maintaining a technology leadership position.
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Despite our best efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology that we consider proprietary and third parties may attempt to
develop similar technology independently. Policing unauthorized use of our
products is difficult, particularly because the global nature of the Internet
makes it difficult to control the ultimate destination or security of software
or other data transmitted. While we are unable to determine the extent to
which piracy of our software exists, we expect software piracy to be a
persistent problem. In addition, effective protection of proprietary rights
may be unavailable or limited in certain countries. The laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. Overall, the protection of our proprietary rights
may not be adequate and our competitors may independently develop similar
technology.
We are not aware that our products, trademarks, copyrights or other
proprietary rights infringe the proprietary rights of third parties, however
we have not reviewed existing patents and patent applications in order to
determine whether grounds exist for an infringement claim against us. Third
parties may assert infringement claims against us in the future with respect
to current or future products. Further, we expect that software product
developers will increasingly be subject to infringement claims as the number
of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. From time
to time, we hire or retain employees or consultants who have worked for
independent software vendors or other companies developing products similar to
those offered by us. Those prior employers may claim that our products are
based on their products and that we have misappropriated their intellectual
property. Any claims of that variety, with or without merit, could cause a
significant diversion of management attention, result in costly and protracted
litigation, cause product shipment delays or require us to enter into royalty
or licensing agreements. Those royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all, which would have a
material adverse effect on our business.
Employees
As of April 19, 2000, we had a total of 112 employees, including 33 people
in sales and marketing, 10 people in research and development, 52 people in
business consulting and project management, and 17 people in administration,
legal, finance and business development. None of our employees is represented
by a labor union, and we consider our relations with our employees to be good.
In order to provide benefits to our employees in a cost-effective manner, we
have entered into a client services agreement with Administaff Companies, Inc.
under which Administaff provides us with certain personnel management
services, such as payroll, medical and dental insurance and the administration
of our 401(k) plan. Under the agreement, we and Administaff are intended to be
co-employers of all of our employees. Co-employment is necessary for
Administaff to administer payroll and sponsor and maintain benefit plans.
Properties
We currently lease the following facilities: Our corporate headquarters in
Chicago, Illinois and our sales offices in Del Mar, California and Munich,
Germany. We are contingently liable on a lease for the portion of our former
corporate headquarters that we have subleased.
Legal Proceedings
We are not a party to any material legal proceedings.
Corporate History
We were originally incorporated in 1996 as "Click Interactive, Inc." We
changed our name in December 1999 to "Click Commerce, Inc."
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MANAGEMENT
The following table sets forth, as of February 11, 2000, the name, age and
position of each of our directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael W. Ferro, Jr. 33 Chief Executive Officer, Chairman of the Board of Directors
(2)....................
Robert J. Markese....... 47 President
Rebecca S. Maskey....... 51 Executive Vice President, Chief Financial Officer and Treasurer
Randy Gray.............. 52 Executive Vice President of Business Development and Managing
Director of International Operations
Mark A. Harris.......... 43 Senior Vice President of Strategic Development and Chief Legal Officer
Wm. Edward Vesely....... 40 Senior Vice President of Marketing and E-Services
Patricia Plante......... 42 Senior Vice President of Product Development and Integration Services
Manuel A. Fernandez (1). 53 Director
Dr. Michael Hammer 51 Director
(2)(4).................
Emmanuel A. Kampouris
(2)(3)................. 65 Director
Peter N. Larson (1)(4).. 60 Director
Jerry Murdock (1)....... 41 Director
Leslie D. Shroyer 55 Director
(1)(2)(4)..............
Edwina D. Woodbury (3).. 48 Director
Gregg G. Hartemayer (3). 47 Director
</TABLE>
- --------
(1) Member of the Human Resources and Compensation Committee.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee.
(4) Member of the Governance Committee.
Michael W. Ferro, Jr. began to develop the product underlying Click
Commerce in 1994, founded Click Commerce in 1996 and has served as Chief
Executive Officer and Chairman of the Board of Directors since the company's
inception. Mr. Ferro has had 15 years of experience in manufacturing and
technology development. Prior to founding Click Commerce, Mr. Ferro founded
Chem-Roof, a provider of chemical treatment to cedar roofs, in 1988. Mr. Ferro
also served as President of the Earthwood Care division of Pettibone
Corporation, a multinational equipment manufacturer, from 1992 to 1994 after
the sale of Chem-Roof to Pettibone in 1992. Mr. Ferro is also the founder and
chairman of the board of directors of WarrantyCheck.com, Inc., an Internet
consumer portal for warranty registration and information. Mr. Ferro holds a
Bachelor of Science degree in psychology from the University of Illinois.
Robert J. Markese has served as our President since November 1999 after
serving as Executive Vice President since June 1999. Prior to joining Click
Commerce, Mr. Markese served as president of North American operations for
Systems Software Associates, an international provider of enterprise resource
planning (ERP) software and services based in Chicago, from April 1998 to May
1999. He served as vice president of North American operations from March 1997
to April 1998 and vice president of the Midwestern region from May 1995 to
March 1997. He began working for Systems Software Associates in 1991 as a
sales manager for major accounts. Prior to his employment with Systems
Software Associates, Mr. Markese worked for XL/Datacomp and Xerox Computer
Services. Mr. Markese holds a Bachelor of Science degree in Business
Administration from Lewis University.
Rebecca S. Maskey has served as our Chief Financial Officer, Treasurer and
Executive Vice President since March 2000. From September 1999 to March 2000,
Ms. Maskey served as our Chief Financial Officer, Treasurer and Senior Vice
President. Prior to joining Click Commerce, Ms. Maskey served as controller
and treasurer for Cowles Media Company, a publishing and information services
company, from May 1997 to July 1998. From
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April 1993 to May 1997, Ms. Maskey served as senior vice president of finance
for Playboy Enterprises, Inc., an international media and entertainment
company. Ms. Maskey holds a Bachelor of Science degree in Accounting from the
University of Illinois, and an M.B.A. in finance from the University of
Chicago.
Randy Gray has served as our Executive Vice President of Business
Development and Managing Director of International Operations since March
2000. Prior to joining Click Commerce, Mr. Gray served as president of Mercury
Precision Global Parts and Accessories, a division of Mercury Marine and part
of the Brunswick Corporation, from 1998 to 2000. The Brunswick Corporation
manufactures consumer products for active recreation. From 1993 to 1998, Mr.
Gray served as a vice president and managing director for Europe, Africa and
Middle East operations at Mercury Marine. Prior to his employment with Mercury
Marine, Mr. Gray worked for Pettibone Corporation, IH Corporation, a
manufacturer of transportation vehicles and provider of financial services and
Marathon Oil Company, an oil refiner and distributor. Mr. Gray holds a Master
of Science degree in economics and statistics from North Carolina State
University.
Mark A. Harris has served on a part-time basis as our Senior Vice President
of Strategic Development and Chief Legal Officer since April 1, 2000. He also
has served part-time as vice president--strategic planning and general counsel
of Prairie Comm, Inc., a designer and marketer of integrated circuits for
cellular phone handsets, since April 1, 2000. Prior to joining Click Commerce,
Mr. Harris was a partner with Latham & Watkins, our outside counsel, where he
practiced law since 1982. Mr. Harris earned a Bachelor of Arts degree from
Saint Louis University and a J.D. from Northwestern University School of Law.
Wm. Edward Vesely has served as our Senior Vice President of Marketing and
E-Services since March 2000. From July 1999 to March 2000, Mr. Vesely served
as our Vice President of Marketing. Prior to joining Click Commerce, Mr.
Vesely served as vice president of marketing for Platinum Technology, a
software developer and distributor, from 1995 to 1999. From 1993 to 1995, Mr.
Vesely served as director of marketing for Andersen Consulting's Software
Products Group which provides consulting services to companies regarding
software products. Mr. Vesely holds bachelor degrees in journalism and
computer science from Northern Illinois University and an M.B.A. in marketing
from DePaul University.
Patricia Plante has served as our Senior Vice President of Product
Development and Integration Services since March 2000. From November 1999 to
March 2000, Ms. Plante served as our Vice President of Research and
Development. Prior to joining Click Commerce, Ms. Plante served as a director
of systems and development for Sea-Land Service, Inc., a provider of global
shipping, from October 1995 to October 1999. From January 1980 to October
1995, Ms. Plante served as a systems and programming developer for Spiegel,
Inc., a retailer and direct marketer of apparel. Ms. Plante holds a Bachelor
of Science degree in computer science from Northern Illinois University and an
M.B.A. from the University of Chicago.
Manuel A. Fernandez has served as a director since February 14, 2000. Mr.
Fernandez is currently a managing partner of SI Venture Associates, L.L.C., a
private equity and venture capital fund, and has held this position since its
inception in 1998. Prior to his present position, he served as president and
chief executive officer of Gartner Group, a business technology consulting
firm, since 1991. Mr. Fernandez serves as chairman of the board of directors
of Gartner Group and is also a director of Brunswick Corporation, a
manufacturer of consumer products for active recreation, Black & Decker
Corporation, a producer of power tools, power tool accessories and residential
security hardware, US West, Inc., a broadband and communications service
provider and WarrantyCheck.com, Inc., an Internet consumer portal for warranty
registration and information. Mr. Fernandez holds a bachelors degree in
electrical engineering from the University of Florida and completed post
graduate work in solid state engineering at the University of Florida and in
business administration at The Florida Institute of Technology.
Dr. Michael Hammer has served as a director since February 14, 2000. Dr.
Hammer founded Hammer and Company, Inc., a business consulting and education
company, in 1982 and currently serves as president. Dr. Hammer was formerly an
associate professor in the department of electrical engineering and computer
science at the Massachusetts Institute of Technology. Dr. Hammer also serves
as a director of HOW2HQ.com, Inc., a provider of Internet-based software that
automates post-purchase customer care processes, and is a former
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director of Interleaf, Inc., a developer and marketer of software products and
services and Corporate Software, Inc., a software development company. Dr.
Hammer holds a Master's degree in electrical engineering, a Ph.D. in computer
science and a Bachelor of Science degree in mathematics from the Massachusetts
Institute of Technology.
Emmanuel A. Kampouris has served as a director since February 14, 2000.
From 1989 to 1999, Mr. Kampouris served as the president and chief executive
officer of American Standard Companies Inc., a provider of air conditioning,
bathroom and kitchen fixtures, automotive braking and control systems and
medical diagnostic products. He also served as chairman of the company's board
since 1993. Mr. Kampouris serves on the board of the U.S. Chamber of Commerce.
He also serves as a director of Horizon Blue Cross and Blue Shield, a provider
of healthcare coverage, the National Endowment for Democracy and the Oxford
University Council for the School of Management Studies. Mr. Kampouris holds a
Master's degree in law from Oxford University and received a degree in ceramic
technology from North Staffordshire College of Technology in England.
Peter N. Larson has served as a director since February 14, 2000. Mr.
Larson is the chairman and chief executive officer of Brunswick Corporation, a
manufacturer of consumer products for active recreation. He has held these
positions since 1995. From 1991 to 1995, Mr. Larson was worldwide chairman of
Johnson & Johnson's Consumer and Personal Care Group and a member of the
Johnson & Johnson board of directors and executive committee. Johnson &
Johnson manufactures and sells a broad range of products in the health care
field. Mr. Larson also serves as a director of CIGNA Corporation, an employee
benefits company and Compaq Computer Corporation, a designer, developer,
manufacturer and marketer of hardware, software and services and is chairman
of the New York Stock Exchange Listed Company Advisory Committee, the
International Relations Committee and the Marketing Task Force of the U.S.
Olympic Committee. Mr. Larson earned a Bachelor of Science degree from Oregon
State University and a J.D. from Seton Hall University.
Jerry Murdock has served as a director since June 1999. Mr. Murdock is a
partner of Insight Venture Associates III, L.L.C., a private equity investment
firm, which he co-founded in 1995. In 1987, Mr. Murdock founded the Aspen
Technology Group, a technology consulting firm. From 1989 to 1996, Mr.
Murdock, as the managing general partner of the Aspen Technology Group, was
retained by Warburg Pincus, a global private equity investment firm. Mr.
Murdock also serves as a director of Quest Software, a company that delivers
information and application availability products that enable performance and
reliability of e-business, packaged and custom applications. Mr. Murdock
graduated from San Diego State University with a degree in political science.
Mr. Murdock serves as a director at the designation of Insight Capital
Partners pursuant to the terms of the Series A preferred stock, which will
convert into common stock upon the closing of this offering.
Leslie D. Shroyer has served as a director since February 14, 2000 and
currently provides consulting services to us. From October 1997 through
January 2000, Mr. Shroyer served as senior vice president and chief
information officer of Motorola, Inc., a provider of integrated communications
solutions and embedded electronic solutions. From 1994 to 1997, Mr. Shroyer
served as corporate vice president and general manager of the Wireless Data
Systems division and the Internet Software Products division of Motorola, Inc.
Mr. Shroyer is also a director of WarrantyCheck.com, Inc. Mr. Shroyer holds a
Bachelor of Science in Engineering Science and a Master's degree in Management
Science from the University of Texas.
Edwina D. Woodbury has served as a director since March 31, 2000. Since
July 1999, Ms. Woodbury has served as President of The Chapel Hill Press,
Inc., a specialty publishing concern. From July 1997 to December 1998, Ms.
Woodbury served as an executive vice president of global business process
redesign of Avon Products, Inc., the world's largest direct seller of beauty
and related products. In November 1993, Ms. Woodbury was named senior vice
president and chief financial officer of Avon and in July 1996, she assumed
additional responsibilities as chief financial and administrative officer. Ms.
Woodbury also serves on the Board of Directors of the Tandy Corporation, a
retailer of consumer electronics. Ms. Woodbury earned a Bachelor of Science
degree from the University of North Carolina at Chapel Hill.
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<PAGE>
Gregg G. Hartemayer has served as a director since March 31, 2000. Since
1998, Mr. Hartemayer has been a global managing partner of Andersen
Consulting, LLP, a worldwide consulting firm. Mr. Hartemayer was a managing
partner in Andersen Consulting's Consumer Products Group from 1996 to 1998 and
managing partner in St. Louis and Kansas City from 1991 to 1995. Mr.
Hartemayer has been a partner with Andersen Consulting since 1986. Mr.
Hartemayer joined Andersen Consulting in 1976. Mr. Hartemayer earned a
Bachelor of Science degree and an M.B.A. from The University of Michigan.
Classified Board
Following this offering, our Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. As
a result, a portion of our Board of Directors will be elected each year. To
implement the classified structure, effective as of the consummation of the
offering, three of the nominees to the board will be elected for a one-year
term, three will be elected for a two-year term and three will be elected for
a three-year term. After these initial terms, directors will be elected for
three-year terms. Ms. Woodbury and Messrs. Larson and Shroyer have been
designated as Class I directors whose terms expire at the 2001 annual meeting
of stockholders. Messrs. Fernandez, Hartemayer and Murdock have been
designated as Class II directors whose terms expire at the 2002 annual meeting
of stockholders. Messrs. Ferro, Hammer and Kampouris have been designated
Class III directors whose terms expire at the 2003 annual meeting of
stockholders.
Board Committees
Executive Committee
The executive committee of the Board of Directors consists of Messrs.
Ferro, Jr. (chairman), Hammer, Kampouris and Shroyer. The executive committee
has authority to exercise all powers and authority of the Board of Directors,
other than matters that require the approval of a majority of the members of
the Board of Directors.
Audit Committee
The audit committee of the Board of Directors consists of Ms. Woodbury
(chairman), and Messrs. Kampouris and Hartemayer. The audit committee reviews
our financial statements and accounting practices, makes recommendations to
the Board of Directors regarding the selection of independent auditors and
reviews the results and scope of our annual audit and other services provided
by our independent auditors.
Human Resources and Compensation Committee
The human resources and compensation committee of the Board of Directors
consists of Messrs. Fernandez (chairman), Larson, Murdock and Shroyer. The
human resources and compensation committee makes recommendations to the Board
of Directors concerning salaries and incentive compensation for our officers
and employees and stock option grants for our officers and employees and
administers our employee benefit plan.
Governance Committee
The governance committee of the Board of Directors consists of Messrs.
Larson (chairman), Hammer and Shroyer. The governance committee makes
recommendations to the Board of Directors concerning nomination of directors,
Board of Directors composition, matters concerning the functioning of the
Board of Directors and internal corporate governance matters.
Director Compensation
The Click Commerce, Inc. Directors' Stock Option and Stock Award Plan
provides for the grant of non-qualified stock options and stock awards to non-
employee directors. The plan provides for the issuance of up to 500,000 shares
of our common stock. If there is a change in the corporate structure of the
company, the
48
<PAGE>
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.
As of the effective date of the offering, each non-employee director will
automatically be granted a stock option to purchase 10,000 shares of our
common stock. Beginning in 2000, at each annual stockholders' meeting non-
employee directors will automatically be granted an option to purchase 10,000
shares of our common stock. Individuals who become directors at times other
than the date of the annual stockholders' meeting will be automatically
granted an option for the number of shares of common stock equal to 10,000
times a fraction, the numerator of which is the number of days the individual
will serve until the next annual meeting and the denominator of which is 365.
The option exercise price of these automatic grants will be equal to the fair
market value on the automatic grant date, which for options granted on the
effective date of the offering will be equal to the offering price. Such
options are not exercisable for six months and expire at the earlier of (1)
termination of the director for cause, (2) one year after death, and (3) ten
years from the date of grant. Non-employee directors of Click Commerce will
also receive an automatic grant each year of shares of our common stock equal
in value to $25,000, based on the fair market value of the common stock on the
date of grant. A non-employee director who serves as the chairman of the audit
committee will also receive an additional automatic grant each year of shares
of our common stock equal in value to $10,000, based on the fair market value
of the common stock on the date of the grant. Non-employee directors who serve
as the chairman of the human resources and compensation committee and the
governance committee will each receive an additional automatic grant each year
of shares of our common stock equal in value to $5,000, based on the fair
market value of the common stock on the date of the grant. Directors who make
an effective election may defer receipt of all or a portion of these shares of
common stock. All directors are also reimbursed for their reasonable out-of-
pocket expenses incurred while serving on the Board of Directors or any
committees.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our only other executive officer whose
combined salary and bonus exceeded $100,000 in fiscal 1999, collectively
referred to below as the Named Executive Officers, for services rendered in
all capacities to us during fiscal 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Awards
Compensation (Option Awards)
----------------- ---------------
Number of
Securities
Underlying Other
Salary Bonus Options Compensation(1)
-------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Michael W. Ferro, Jr.,
Chairman of the Board and
Chief Executive Officer..... $201,923 $131,288 -- $1,815
Robert J. Markese, President. $144,231 -- 1,140,000 $1,706
</TABLE>
- --------
(1) Includes cost of term life insurance and long-term disability insurance.
49
<PAGE>
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term(1)
----------------------------------------- ------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees
Options in Fiscal Exercise Expiration
Name Granted(1) Year Price Date 5% 10%
---- ---------- ---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Ferro, Jr.... -- -- -- -- -- --
Robert J. Markese....... 1,140,000 34.9% 1.15 6/1/09 $2,135,481 $3,400,396
</TABLE>
The following table sets forth information regarding stock options granted
to each of the Named Executive Officers during fiscal 1999. We have not
granted any stock appreciation rights.
- --------
(1) Potential realizable values are net of exercise price before taxes, and
are based on the assumption that our common stock appreciates at the
annual rate shown compounded annually from the date of grant until the
expiration of the ten-year term. These numbers are calculated based on SEC
requirements and do not reflect our projection or estimate of future stock
price growth.
Option Exercises and Fiscal Year-End Option Values
The following table sets forth information concerning stock option
exercises in fiscal 1999 and the number and value of unexercised options held
by each of the Named Executive Officers at December 31, 1999.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In
Unexercised Options At the-Money Options at
December 31, December 31,
Shares 1999 1999(1)
Acquired Value ----------------------------------------------------------
Name on Exercise Realized Vested Unvested Vested Unvested
---- ----------- -------- -------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Ferro, Jr.... -- -- -- -- -- --
Robert J. Markese....... -- -- -- 1,140,000 -- $10,089,000
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $10 per share, less the
applicable exercise price per share, multiplied by the number of
underlying shares.
Executive Bonus Program
We have adopted a bonus program pursuant to which all officers and full-
time employees are eligible for annual cash bonuses based on Click Commerce
achieving certain financial targets and individual personal performance.
Employment Agreements with Management
Michael W. Ferro, Jr. We are a party to an amended and restated employment
agreement with Michael W. Ferro, Jr., dated July 9, 1999. The initial term of
the agreement is until December 31, 2002 and will automatically be extended
for successive one-year terms, unless Mr. Ferro or we provide at least thirty
days prior notice of termination. Under the agreement we are obligated to pay
Mr. Ferro an annual salary of $250,000 plus annual discretionary bonuses. In
the event Mr. Ferro's employment is terminated without cause, he would
continue to receive his salary and employee benefits for twenty-four months
after termination, and he would receive the earned portion of any
discretionary bonuses. Mr. Ferro has agreed to assign to us all inventions
currently used by us and related to our business as currently conducted in the
manner now used and all inventions conceived by Mr. Ferro during the term of
this agreement to the extent that such inventions are related to our business.
Mr. Ferro has agreed not to compete with us for a period of twenty-four months
following the cessation of his employment.
Robert J. Markese. We are a party to an employment agreement with Robert J.
Markese, dated June 1, 1999. The term of the agreement is three years and
seven months. Under the agreement we are obligated to pay Mr.
50
<PAGE>
Markese an annual salary of $250,000 plus annual discretionary bonuses. Mr.
Markese has also been granted an option to purchase 1,140,000 shares of our
common stock at an exercise price of $1.15 per share. One-third of these
options vest on December 31, 2000, one-third vest on December 31, 2001 and
one-third vest on December 31, 2002. In the event of any additional public
offering of our common stock prior to December 31, 2000, 10% of Mr. Markese's
options will vest, and Mr. Markese may require us to register the resale of
shares issuable upon the exercise of such options in that public offering. In
the event Mr. Markese's employment is terminated without cause, he would
continue to receive his salary for twelve months or until December 31, 2002,
whichever is shorter, and employee benefits until December 31, 2002, and he
would receive the earned portion of any discretionary bonuses and retain all
options that are vested or that would vest within twelve months of the
termination date in the absence of termination. Mr. Markese has agreed not to
compete with us for a period of twenty-four months following the cessation of
his employment.
Consulting Agreement
Leslie D. Shroyer. We are a party to a consulting agreement with Leslie D.
Shroyer, dated April 1, 2000. The term of the agreement is indefinite. Either
party may terminate Mr. Shroyer's engagement by providing written notice of
such termination. We have granted Mr. Shroyer an option to purchase 10,000
shares of our common stock at an exercise price of $5.25 per share. One-tenth
of these options vest on the last day of each month in which Mr. Shroyer
continues to provide services to us. In the event of Mr. Shroyer's voluntary
termination of his services or our termination of Mr. Shroyer's services for
cause, all rights to purchase shares of common stock under the option, whether
or not vested, shall be forfeited. Mr. Shroyer has agreed to assign to us all
inventions conceived by him during the term of this agreement. Mr. Shroyer has
agreed not to compete with us for a period of twenty-four months following the
cessation of his services.
Employee Benefit Plans
Amended and Restated Click Commerce, Inc. Stock Option and Stock Award Plan
The Click Commerce, Inc. Stock Option and Stock Award Plan was originally
adopted by our board of directors and approved by our stockholders on October
19, 1998. In February 2000, we amended and restated the stock plan. The
Amended and Restated Click Commerce, Inc. Stock Option and Stock Award Plan
provides for the award of incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code, non-statutory stock options, and
stock appreciation rights to our executive and key management employees,
officers, directors and consultants. The plan provides for the issuance of up
to 7,780,842 shares of our common stock. However, the maximum number of shares
that may be granted to any individual in a calendar year is 1,000,000. The
plan is intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Internal Revenue Code.
Our board of directors has authorized the human resources and compensation
committee to administer the plan. The human resources and compensation
committee interprets the plan, selects the recipients of awards and
determines:
. the number of shares of common stock covered by options and the dates
upon which the options become exercisable;
. the exercise price of options, provided, however, that the option price
shall not be less than 100% of the fair market value of the share as
determined by the compensation committee (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.
51
<PAGE>
If there is a change in the corporate structure of the company, the board
of directors may in its discretion make adjustments necessary to prevent
accretion or dilution in the number and kind of shares authorized by the plan
or, with respect to outstanding options, adjustments in the number and kind of
shares thereunder and in the option exercise price.
Options granted under the plan will be immediately exercisable in the event
of a change of control. A change in control will occur when (1) a person,
entity or group other than an individual who is a stockholder of Click
Commerce as of the effective date of the offering acquires beneficial
ownership of 35% of the outstanding shares entitled to vote in elections of
directors, or (2) Click Commerce consummates a merger or consolidation, or a
sale or disposition of all or substantially all of its assets, other than with
or to an affiliated company. An "affiliated company" means a company with
respect to which the majority of the total members of its board of directors
were selected by persons or entities who are stockholders of Click Commerce as
of the effective date of the offering.
Under certain circumstances, the committee may grant reload rights which
entitle a director or an employee who holds options to receive a new option to
purchase shares of our common stock upon exercise of the original option. No
reload option will have reload rights.
Click Commerce, Inc. Directors' Stock Option and Stock Award Plan
The Click Commerce, Inc. Directors' Stock Option and Stock Award Plan
provides for the grant of non-qualified stock options and stock awards to non-
employee directors. The plan provides for the issuance of up to 500,000 shares
of our common stock. If there is a change in the corporate structure of the
company, the administrative committee may in its discretion make adjustments
necessary to prevent accretion or dilution in the number and kind of shares
authorized by the plan or, with respect to outstanding options, adjustments in
the number and kind of shares thereunder and in the option exercise price.
401(k) Plan
Under our client services arrangement with Administaff of Texas, Inc., both
we and Administaff are intended to be co-employers of our employees.
Accordingly, our employees participate in the Administaff 401(k) plan to
provide them with retirement benefits and with a means to save for their
retirement. The 401(k) plan is intended to be a tax-qualified plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended.
52
<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 at a price of $1.15 per
share, for aggregate consideration of $6.0 million, to Insight Capital
Partners III, L.P., Insight Capital Partners III-Coinvestors, L.P. and Insight
Capital Partners (Cayman) III, L.P. Upon conversion of the preferred stock
into shares of common stock, the value of these shares at the midpoint of the
filing range would be $52,173,920. In connection with this financing, Jerry
Murdock, a partner of Insight Venture Associates III, L.L.C., the general
partner of Insight Capital Partners III, L.P., Insight Capital Partners III-
Coinvestors, L.P. and Insight Capital Partners (Cayman) III, L.P., was elected
a director of Click Commerce.
In July 1999, we issued and sold an aggregate of 4,347,828 shares of Series
B Convertible Participating Preferred Stock at a price of $1.15 per share, for
aggregate consideration of $5.0 million, to Compaq Computer Corporation. Upon
conversion of the preferred stock into shares of common stock, the value of
these shares at the midpoint of the filing range would be $43,478,280. In
connection with this financing, Steve Mahoney, vice president of professional
services for Europe, Middle East and African operations of Compaq Computer
Corporation, became a director of Click Commerce, although he no longer serves
as a director. Peter Larson, also a director of Compaq Computer Corporation,
became a director of Click Commerce in February 2000.
Transactions with Michael W. Ferro, Jr. and others
In July 1999, we redeemed and retired 5,217,392 shares of our common stock
for $6.0 million. Such common shares were redeemed on a pro rata basis from
our stockholders, substantially all of whom were officers and directors, in
conjunction with the issuance of Series A and B convertible preferred stock to
new investors.
In September 1999, Michael W. Ferro, Jr. sold an aggregate of 434,784
shares of common stock for aggregate consideration of $500,000 to SI Venture
Associates, L.L.C. and certain partners of SI Venture Associates, L.L.C.,
including Manuel A. Fernandez. The value of theses shares at the midpoint of
the filing range would be $4,347,840. Mr. Fernandez was elected a director of
Click Commerce in February 2000.
In January 2000, Michael W. Ferro, Jr., his father, Michael Ferro, Sr., and
his sisters, Suzi Ferro Clegg and Maria Morris, together with several other
stockholders, sold an aggregate of 3,587,405 shares of our common stock at a
price of $5.25 per share, for aggregate consideration of $18,833,875 to a
number of investors, including Emerson Electric Co. and the following newly
elected directors of Click Commerce: Peter N. Larson, Emmanuel A. Kampouris,
Manuel A. Fernandez, Leslie D. Shroyer and Dr. Michael Hammer. Shares were
also sold to our counsel, Latham & Watkins. The value of these shares at the
midpoint of the filing range would be $35,874,050.
In April 2000, we entered into an agreement with Andersen Consulting, LLP,
which provides for the joint marketing and promotion of our products and
services and Andersen Consulting's services. To incentivize Andersen
Consulting, we have issued to them a warrant to purchase up to 818,226 shares
of our common stock at an exercise price of $12.22 per share. In addition, AC
Ventures B.V., an affiliate of Andersen Consulting, purchased from Michael W.
Ferro, Jr., his father, Michael Ferro, Sr., and his sister, Maria Morris, and
four other stockholders, an aggregate of 818,226 shares of our common stock at
a price of $12.22 per share, for aggregate consideration of $10 million.
In April 2000, Michael W. Ferro, Jr., his father, Michael Ferro, Sr., and
his sister, Maria Morris, together with four other stockholders, sold 245,469
shares of our common stock at a price of $12.22 per share, for aggregate
consideration of $2,999,631 to Equistar Chemicals, LP and DCT LLC.
Michael W. Ferro, Jr., our founder, chief executive officer and chairman,
is also the founder and majority stockholder of WarrantyCheck.com, Inc. In
addition, Leslie D. Shroyer and Manuel A. Fernandez, each currently a director
of Click Commerce, serve as directors of WarrantyCheck.com. WarrantyCheck.com
has paid us an
53
<PAGE>
aggregate of approximately $263,000 for a needs analysis and for consulting
services provided by us. These consulting services were completed during the
fourth quarter of 1999. Messrs. Shroyer and Fernandez were not directors of
Click Commerce in 1999.
Other Transactions with Executive Officers, Directors and Significant
Shareholders
Life Fitness and Mercury Marine, subsidiaries of Brunswick Corporation,
paid us approximately $1.0 million for services rendered by us in fiscal 1999.
Peter N. Larson, a current director of Click Commerce, is the chairman and
chief executive officer of Brunswick Corporation. Mr. Larson was not a
director of Click Commerce in 1999.
American Standard Companies Inc., together with its subsidiary, Trane
Company, paid us an aggregate of approximately $1.8 million for services
rendered by us in fiscal 1999. Emmanuel A. Kampouris, a current director of
Click Commerce, was the chairman, president and chief executive officer of
American Standard Companies Inc. until December 1999. Mr. Kampouris was not a
director of Click Commerce in 1999.
Motorola, Inc. paid us an aggregate of approximately $2.9 million for
services rendered by us in fiscal 1999. Leslie D. Shroyer, a current director
of Click Commerce, was a senior vice president and the chief information
officer of Motorola, Inc. until January 2000. Mr. Shroyer was not a director
of Click Commerce in 1999. In addition, we have entered into a consulting
agreement with Mr. Shroyer to provide consulting services to us in areas
including marketing, product development and business development. As
compensation for his services, we have granted to Mr. Shroyer 10,000 options
to purchase shares of our common stock at an exercise price of $5.25 per
share. The options will vest in equal monthly increments over a ten month
period.
Mark A. Harris, our chief legal officer, was formerly a partner of Latham &
Watkins, which acts as outside counsel to Click Commerce.
We believe that each of the transactions described above was entered into
on terms no less favorable to us than could have been obtained with non-
affiliated parties. If any conflicts of interest with any such entities arise
in the future we anticipate that the non-interested members of our Board of
Directors will pass on the appropriateness of any particular matter.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors
and some of our executive officers.
Registration Rights
Some of our stockholders are entitled to have their shares registered by us
for resale.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of April 28, 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 April 28, 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 33,379,825
shares and 38,379,825 shares, respectively, of common stock outstanding.
Unless otherwise indicated, the address for all executive officers and
directors is c/o Click Commerce, Inc., 200 East Randolph Drive, Suite 4900,
Chicago, Illinois 60601.
<TABLE>
<CAPTION>
Percentage of Common Stock
Beneficially Owned (1)
Name of Beneficial Number of Shares --------------------------------------
Owner Beneficially Owned Before the Offering After the Offering
- ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C>
Michael W. Ferro,
Jr.(1)................ 14,622,321 43.81% 38.10%
Robert J. Markese...... -- -- --
Peter N. Larson(2)..... 100,000 * *
Emmanuel A. Kampouris.. 171,429 * *
Jerry Murdock(3)....... 7,169,773 21.48% 18.68%
Entities affiliated
with Insight Capital
Partners
527 Madison Avenue
10th Floor
New York, New York
10022
Manuel A. Fernandez(4). 585,013 1.75% 1.52%
Dr. Michael Hammer..... 190,476 * *
Leslie D. Shroyer...... 38,095 * *
Edwina D. Woodbury..... -- -- --
Gregg G. Hartemayer(5). 818,226 2.45% 2.13%
Compaq Computer
Corporation........... 4,347,828 13.03% 11.33%
40 Old Bolton Road
Stow, Massachusetts
01775
All directors and
executive officers as
a group (15 persons).. 23,780,094 71.24% 61.96%
</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 1,796,337 shares of our common stock owned by
them until expiration of the 360 day lock-up to which they are subject.
(2) Includes 6,000 shares held by Dana E. Larson and 6,000 shares held by
Maryle A. Larson. Mr. Larson disclaims beneficial ownership of the shares
held by Dana E. Larson and Maryle A. Larson.
(3) Includes 4,491,827 shares held by Insight Capital Partners III, L.P.,
1,004,820 shares held by Insight Capital Partners III-Coinvestors, L.P.,
1,530,269 shares held by Insight Capital Partners (Cayman) III, L.P. and
95,238 shares held by WI Software Investors L.L.C. Insight Venture
Associates III, L.L.C. is the general partner of each of Insight Capital
Partners III, L.P., Insight Capital Partners III-Coinvestors, L.P.,
Insight Capital Partners (Cayman) III, L.P. and WI Software Investors
L.L.C. Mr. Murdock, a director of Click
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<PAGE>
Commerce, is a partner of Insight Venture Associates III, L.L.C. Mr.
Murdock disclaims beneficial ownership of the shares held by Insight
Capital Partners III, L.P., Insight Capital Partners III-Coinvestors, L.P.,
Insight Capital Partners (Cayman) III, L.P. and WI Software Investors
L.L.C., 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 Fund II, LP. Mr. Fernandez, a
director of Click Commerce, is a managing partner of S.I. Venture Fund II,
LP. Mr. Fernandez disclaims beneficial ownership of the shares held by
S.I. Venture Fund II, LP, except to the extent of his pecuniary interests
therein arising from his membership interest in S.I. Venture Fund II, LP.
(5) Includes 818,226 shares held by AC Ventures B.V., an affiliate of Andersen
Consulting, LLP. Mr. Hartemayer, a director of Click Commerce, is a
partner of Andersen Consulting. Mr. Hartemayer disclaims beneficial
ownership of the shares of common stock held by Andersen Consulting,
except to the extent of his pecuniary interests therein arising from his
partnership interest in Andersen Consulting.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and related provisions of
our amended and restated certificate of incorporation as it will be in effect
upon the closing of this offering, or certificate, and amended and restated
bylaws as they will be in effect upon the closing of this offering, or bylaws,
are summaries of these documents and are qualified by reference to the
certificate and the bylaws. Copies of these documents have been filed with the
SEC as exhibits to our registration statement, of which this prospectus is a
part. The descriptions of the common stock and preferred stock reflect changes
to our capital structure that will occur upon the closing of this offering.
Upon the closing of the offering, the authorized capital stock of Click
Commerce will consist of 75,000,000 shares of common stock, $.001 par value
per share, and 5,000,000 shares of preferred stock, $.001 par value per share.
All of our convertible preferred stock outstanding prior to the offering will
convert automatically to common stock upon the closing of this offering.
Common Stock
As of March 31, 2000, assuming the conversion of all outstanding preferred
stock into common stock prior to the consummation of this offering and the
issuance of 88,548 shares of common stock upon exercise of options in April
2000, 32,273,060 shares of our common stock were outstanding and held of
record by 48 stockholders. After this offering, 37,281,060 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.
In connection with our alliance with Andersen Consulting, we issued to
Andersen Consulting a warrant to purchase up to 818,226 shares of common stock
at an exercise price of $12.22 per share. The warrant expires in April 20,
2004. The warrant generally vests and becomes exercisable as to the shares
upon the achievement of agreed upon milestones relating to the generation of
revenues for us from qualified customer introductions by Andersen Consulting.
The warrant contains a significant economic disincentive for nonperformance.
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Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and
Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, as amended, or DGCL. Subject to a number of exceptions,
Section 203 of the DGCL prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
status as an interested stockholder with the approval of the board of
directors or unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to exceptions, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or
more of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to our company and, accordingly, may discourage attempts to acquire
us.
In addition, a number of provisions of the Certificate and Bylaws, which
provisions will be in effect upon the closing of this offering and are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
our stockholders.
Board of Directors Vacancies; Classified Board. Following this offering,
our Board of Directors will be divided into three classes, each of whose
members will serve for a staggered three-year term. The Certificate also
authorizes our Board of Directors to fill vacant directorships or increase the
size of the Board of Directors. These provisions may deter a stockholder from
removing incumbent directors and simultaneously gaining control of the Board
of Directors by filling the vacancies created by removal with its own
nominees.
Stockholder Action; Special Meeting of Stockholders. The Certificate
provides that stockholders may not take action by written consent, but only at
a duly called annual or special meeting of stockholders. The Certificate
further provides that special meetings of stockholders of our company may be
called only by the Chairman of the Board of Directors or a majority of the
Board of Directors or by a committee of the Board of Directors which has been
duly designated by the Board of Directors and whose powers and authority, as
provided in a resolution of the Board of Directors or in the Bylaws of the
company, include the power to call such meetings.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to the secretary at our principal executive offices not less than
120 days prior to the first anniversary of the date the corporation's proxy
statement was released to security holders in connection with the preceding
year's annual meeting of stockholders; provided, that if no annual meeting of
stockholders was held in the previous year or the date of the annual meeting
of stockholders has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, a proposal
shall be received by the corporation no later than ten days following the day
on which notice of the date of the meeting was mailed or public announcement
of the date of the meeting was made, whichever comes first. In the case of a
special meeting of stockholders, notice by the stockholder, to be timely, 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
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public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued and
unreserved common stock and preferred stock could render more difficult or
discourage an attempt to obtain control of our company by means of a proxy
contest, tender offer, merger or otherwise.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. We
have provisions in our certificate and bylaws that require a super-majority
vote of the stockholders to amend, revise or repeal provisions that may have
an anti-takeover effect.
Registration Rights
Following this offering, holders of 9,565,220 shares of our common stock
will have certain rights to register the sales of those shares under the
Securities Act. Subject to some limitations, these registration rights
include:
. an unlimited number of piggyback registration rights that require us to
register sales of a requesting holder's shares when we undertake a
public offering, subject to the discretion of the managing underwriter
of the offering to decrease the amount that holders may register;
. two demand registration rights that holders may exercise no sooner than
180 days after our initial public offering, which require us to register
sales of a holder's shares, subject to the discretion of our Board of
Directors to delay the registration; and
. registration rights that holders may exercise no more than twice during
any consecutive 12 month period to require us to register sales of
shares on Form S-3, a short form of registration statement permitted to
be used by some companies, which holders may exercise following the time
we first qualify for the use of this form of registration with the SEC
if they request registration of the sale of shares representing no less
than 2% of the then outstanding shares of common stock.
Holders of an additional 4,383,736 shares of common stock are entitled to
an unlimited number of piggyback registration rights as well as the right to
participate, on a pro rata basis, in any underwritten secondary offering of
our common stock that would constitute an exception to the 360-day lock-up
period following this offering, subject to reductions in the discretion of the
managing underwriter of such offering or the Board of Directors.
A holder of an aggregate of 824,579 shares and options to acquire shares of
common stock may require us to register the resale of such shares in a non-
underwritten offering on Form S-3 following the time we first qualify for the
use of this form, which we expect to qualify for after the first anniversary
of this offering.
In connection with his employment agreement, in the event of an additional
public offering prior to December 31, 2000, Robert J. Markese may require us
to register the resale of shares issuable upon the exercise of up to 10% of
his 1,140,000 options in that public offering.
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions.
All holders of our common stock prior to this offering have agreed with us
not to sell any of their shares during the 360-day period following this
offering and are expected to agree with Morgan Stanley & Co. Incorporated not
to sell any of these shares during the 180-day period following this offering.
Our Board of Directors, in its discretion, may waive this 360-day lock-up
period. Any decision by our Board of Directors to waive the lock-up
restrictions would depend on a number of factors, including market conditions,
the performance of our common stock in the market and our financial condition
at that time.
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Limitation of Liability and Indemnification Matters
The Certificate includes provisions to (1) eliminate the personal liability
of our Directors for monetary damages resulting from breaches of their
fiduciary duty to the extent permitted by the DGCL and (2) indemnify our
Directors and officers to the fullest extent permitted by the DGCL, including
circumstances in which indemnification is otherwise discretionary.
We have entered into agreements to indemnify each of our directors and some
of our executive officers, in addition to the indemnification provided for in
the Bylaws. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and officers. Our Bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions, regardless of
whether the DGCL would permit indemnification.
Transfer Agent And Registrar
Upon the closing of this offering, the transfer agent and registrar for our
common stock will be Harris Trust and Savings Bank.
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SHARES ELIGIBLE FOR FUTURE SALE
Effect of Sales of Shares
Prior to this offering, no public market existed for our common stock, and
we can make no prediction as to the effect, if any, that sales of shares of
common stock or the availability of shares of our common stock for sale will
have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market, or the perception that sales occur, could adversely affect the market
price of our common stock and could impair our future ability to raise capital
through an offering of our equity securities.
Sale of Restricted Shares
On completion of this offering, we will have an aggregate of 37,281,060
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these
outstanding shares, the 5,000,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by our "affiliates," as that term is defined
in Rule 144 under the Securities Act, generally only may be sold in compliance
with the limitations of Rule 144 described below. All of the remaining
32,281,060 shares of common stock that will be outstanding after this offering
will be "restricted securities," as that term is defined under Rule 144.
Restricted securities may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rule 144, including
Rule 144(k) or Rule 701 under the Securities Act, which rules are summarized
below. Taking into account the lock-up agreements described below and the
provisions of Rules 144, 144(k) and 701, additional shares will be available
for sale in the public market as follows:
<TABLE>
<CAPTION>
Days after Date Approximate Shares
of this Prospectus Eligible for Future Sale Comment
------------------ ------------------------ -------
<C> <C> <S>
Freely tradable shares
On Effectiveness........ 5,000,000 sold in offering
360 days................ 32,281,060 Lock-ups released; shares
salable under Rule 144,
144(k) or 701
</TABLE>
Rule 144
In general, under Rule 144 as currently in effect, commencing 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which is
expected to be approximately 372,811 shares upon completion of this
offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale, subject to the
restrictions specified in Rule 144.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years is entitled to sell such
shares under Rule 144(k) without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Persons
deemed to be affiliates must always sell pursuant to Rule 144, even after the
applicable holding periods have been satisfied.
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Lock-Up Agreements
We, all of our directors and officers, all of our current stockholders and
optionholders 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.
We have no agreement with Morgan Stanley for a waiver of this restriction.
However, Morgan Stanley may, in its discretion, release it. In some cases
underwriters agree to waive lock-up restrictions when a company's stock has
performed well and market conditions are favorable. Any decision by Morgan
Stanley to waive the lock-up restrictions would depend on a number of factors,
including market conditions, the performance of our common stock in the market
and our financial condition at that time.
In addition, each of our directors and executive officers, current
stockholders and optionholders have agreed with us that they will not offer,
sell or agree to sell, directly or indirectly, or otherwise dispose of any
shares of common stock without our prior written consent for a lock-up period
of 360 days from the date of this prospectus. Our prior written consent for
sale of such shares shall be deemed given in the event that we approve a
registered secondary offering of shares during the lock-up period, in which
such stockholders would have a pro rata participation right. Holders of
4,383,736 shares of our common stock are entitled to an unlimited number of
piggyback registration rights as well as the right to participate, on a pro
rata basis, in any underwritten secondary offering of our common stock that
would constitute an exception to the 360-day lock-up period following this
offering, subject to reductions in the discretion of the managing underwriter
of such offering or the Board of Directors.
Rule 701
Any of our employees or advisors who purchases shares from us in connection
with a compensatory stock plan or other written agreement is entitled to rely
on the resale provisions of Rule 701, which permits nonaffiliates to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after
the date of this prospectus. 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 4,645,000
shares of our common stock were outstanding. An additional 3,135,842 shares of
common stock were available for future option grants under our stock option
plans. We intend to file a registration statement on Form S-8 under the
Securities Act to register shares of common stock issued or reserved for
issuance under our stock option plan and shares issued or issuable upon
exercise of other options within 180 days after the date of the prospectus,
thus permitting the resale of such shares by nonaffiliates in the public
market without restriction under the Securities Act.
Registration Rights
On completion of this offering, some holders of shares of outstanding
common stock will have demand registration rights with respect to their shares
of common stock (subject to the 360-day lock-up arrangements described above)
to require us to register their shares of common stock under the Securities
Act, and they will have specified rights to participate in any future
registration of our securities, subject to the discretion of the managing
underwriter of the offering to decrease the amount that holders may register.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Dain Rauscher Incorporated and Salomon
Smith Barney Inc. are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to them, severally, the number of shares
indicated below.
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...............................
Dain Rauscher Incorporated......................................
Salomon Smith Barney Inc........................................
---------
Total......................................................... 5,000,000
=========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus
are subject to the approval of certain legal matters by their counsel and to
other conditions. The underwriters are obligated to take and pay for all of
the shares of common stock offered by this prospectus, if any such shares are
taken. However, the underwriters are not required to take or pay for the
shares covered by the underwriters' over-allotment option described below.
The per share price of any shares sold by the underwriters will be the
public offering price listed on the cover page of this prospectus, in United
States dollars, less an amount not greater than the per share amount of the
concession to dealers described below.
The underwriters propose initially to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to certain dealers at a price that represents
a concession not in excess of $ a share. Any underwriter may allow, and such
dealers may reallow, a concession not in excess of $ a share to other
underwriters or to certain dealers. After the initial offering of the shares
of common stock, the offering price and other selling terms may from time to
time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 750,000
additional shares of common stock at the public offering price listed on the
cover page of this prospectus, less underwriting discounts and commissions.
The underwriters may exercise the option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of shares of
common stock offered by this prospectus. To the extent the option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase about the same percentage of the additional shares of
common stock as the number listed next to the underwriter's name in the
preceding table bears to the total number of shares of common stock listed
next to the names of all underwriters in the preceding table. If the
underwriters' option is exercised in full, the total price to public would be
$, the total underwriting discounts and commissions would be $ and the total
proceeds to Click Commerce would be $ .
We have advised the underwriters that the estimated expenses of the
offering, in addition to underwriting discounts and commissions, are
approximately $1,000,000. The underwriters have agreed to reimburse certain of
our expenses.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-
allotment option. The underwriting discounts and commissions will be
determined by negotiations between us and the representatives. Among the
factors to be considered in determining the discounts and commissions
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will be the size of the offering, the nature of the security offered and the
discounts and commissions charged in comparable transactions.
<TABLE>
<CAPTION>
Per Share Total
------------------------- -------------------------
No Exercise Full Exercise No Exercise Full Exercise
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us.... $ $ $ $
Other amounts considered to
be underwriting
compensation by the NASD.. $ $
</TABLE>
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have been approved 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 5%, or 250,000 shares of common stock offered in
this offering under a directed share program for some of our business
associates. These persons are expected to purchase, in the aggregate, not more
than five percent of the common stock offered in the offering. The number of
shares available for sale to the general public in the offering will be
reduced to the extent these persons purchase reserved shares. Any reserved
shares not so purchased will be offered to the general public on the same
basis as the other shares offered by this prospectus.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-
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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.
An executive officer of an affiliate of Salomon Smith Barney Inc., one of
the underwriters in this offering, purchased 95,238 shares of common stock at
a price of $5.25 per share in February 2000. The aggregate difference between
the purchase price per share of those shares and the public offering price per
share in this offering is deemed to be underwriting compensation pursuant to
the regulations of the National Association of Securities Dealers, Inc. Under
the NASD's regulations these shares may not be sold, transferred, assigned,
pledged or hypothecated for a period of one year from the date of this
prospectus.
Pricing of the Offering
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between Click Commerce and the U.S. representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of Click Commerce and its industry in general, sales, earnings and
certain other financial operating information of Click Commerce in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of Click Commerce. The estimated
initial public offering price range set forth on the cover page of this
preliminary prospectus is subject to change as a result of market conditions
and other factors.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed on
for us by Latham & Watkins, Chicago, Illinois. Certain legal matters in
connection with the offering will be passed on for the underwriters by Davis
Polk & Wardwell, New York, New York. Latham & Watkins owns 9,524 shares of our
common stock. Mark A. Harris, a former partner of Latham & Watkins, became our
chief legal officer as of April 1, 2000.
EXPERTS
Our financial statements and the related financial statement schedule as of
December 31, 1998 and 1999, and for each of the years in the three-year period
ended December 31, 1999 have been included herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in auditing and accounting.
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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.
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.
66
<PAGE>
CLICK COMMERCE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Shareholders' Equity (Deficit)............................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Click Commerce, Inc.:
We have audited the accompanying balance sheets of Click Commerce, Inc. as
of December 31, 1998 and 1999, and the related statements of operations,
shareholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Click Commerce, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois February 7, 2000, except as to Note 13,
which is as of February 14, 2000
F-2
<PAGE>
CLICK COMMERCE, INC.
BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
December 31, Pro Forma
----------------------- March 31, March 31,
1998 1999 2000 2000
---------- ----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 66,850 $ 3,335,674 $ 3,718,584
Short-term investments.. 53,210 2,968,198 56,456
Trade accounts
receivable, less
allowance for doubtful
accounts of $20,744,
$53,794, and $110,156
at 1998, 1999 and 2000,
respectively........... 490,597 1,539,665 1,073,915
Revenue earned on
contracts in progress
in excess of billings.. 136,957 894,107 2,379,900
Other current assets.... 20,435 129,699 918,124
Deferred income taxes... 79,781 242,379 242,379
---------- ----------- ------------
Total current assets.. 847,830 9,109,722 8,389,358
Property and equipment,
net.................... 189,865 700,323 1,193,593
Other assets............ 39,102 123,788 202,556
---------- ----------- ------------
Total assets.......... $1,076,797 $ 9,933,833 $ 9,785,507
========== =========== ============
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable........ $ 224,656 $ 644,170 $ 1,225,588
Billings in excess of
revenues earned on
contracts in progress.. 214,268 2,025,809 1,095,975
Deferred revenue........ 184,084 389,799 30,319
Accrued compensation.... 182,898 712,382 1,098,977
Accrued expenses and
other current
liabilities............ 34,986 233,751 426,730
Income taxes payable.... 145,149 39,092 --
Current portion of
capital lease
obligations............ 15,727 45,454 68,739
---------- ----------- ------------
Total current
liabilities.......... 1,001,768 4,090,457 3,946,328
Capital lease obligations,
less current portion..... 2,121 83,706 164,176
Other liabilities......... -- -- 37,018
Deferred income taxes..... 17,529 33,249 33,249
---------- ----------- ------------
Total liabilities..... 1,021,418 4,207,412 4,180,771
Series A Convertible
Participating Preferred
Stock, $0.001 par value,
12,000,000 shares
authorized; minimum
aggregate liquidation
preference of $6,000,000
in 1999 and 2000;
5,217,392 shares issued
and outstanding in 1999
and 2000................. -- 7,905,596 10,179,103 --
Series B Convertible
Participating Preferred
Stock, $0.001 par value,
8,000,000 shares
authorized; minimum
aggregate liquidation
preference of $5,000,000
in 1999 and 2000;
4,347,828 shares issued
and outstanding in 1999
and 2000................. -- 6,406,454 8,246,724 --
Shareholders' equity
(deficit):
Preferred stock, $0.001
par value, 5,000,000
shares authorized, no
shares issued and
outstanding............ -- -- --
Common stock, $0.001 par
value, 75,000,000
shares authorized;
26,400,000, 22,169,292,
22,627,292 and
32,192,512 shares
issued and outstanding
in 1998, 1999, 2000 and
pro forma 2000,
respectively........... 26,400 22,169 22,628 32,193
Additional paid-in
capital................ 623,967 -- 3,252,438 21,668,700
Deferred compensation... (509,559) (1,259,805) (4,300,851) (4,300,851)
Accumulated deficit..... (85,429) (7,347,993) (11,795,306) (11,795,306)
---------- ----------- ------------ -----------
Total shareholders'
equity (deficit)..... 55,379 (8,585,629) (12,821,091) 5,604,736
---------- ----------- ------------ -----------
Total liabilities and
shareholders' equity
(deficit).............. $1,076,797 $ 9,933,833 $ 9,785,507
========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended
Year ended December 31, March 31,
----------------------------------- -----------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $1,321,684 $2,390,340 $ 9,952,109 $1,534,394 $ 5,123,548
Cost of revenue......... 378,989 711,963 2,669,551 277,335 1,554,709
---------- ---------- ----------- ---------- -----------
Gross profit............ 942,695 1,678,377 7,282,558 1,257,059 3,568,839
Operating expenses:
Sales and marketing... 174,347 434,510 2,810,477 214,321 1,648,365
Research and
development.......... -- 149,235 728,823 75,200 896,254
General and
administrative....... 719,850 986,630 2,761,712 282,948 1,245,689
Amortization of
deferred stock
compensation......... -- 187,401 466,891 92,012 270,204
---------- ---------- ----------- ---------- -----------
Total operating
expenses........... 894,197 1,757,776 6,767,903 664,481 4,060,512
---------- ---------- ----------- ---------- -----------
Operating income (loss). 48,498 (79,399) 514,655 592,578 (491,673)
Interest income......... 5,510 8,370 113,186 1,269 20,190
Interest expense........ (5,893) (8,977) (6,639) -- (3,018)
Other expense........... (256) (1,881) (6,256) -- --
---------- ---------- ----------- ---------- -----------
Other income (expense).. (639) (2,488) 100,291 1,269 17,172
---------- ---------- ----------- ---------- -----------
Income (loss) before
income taxes........... 47,859 (81,887) 614,946 593,847 (474,501)
Income tax expense
(benefit).............. 28,721 (16,670) 297,571 260,000 $ (140,979)
---------- ---------- ----------- ---------- -----------
Net income (loss)....... 19,138 (65,217) 317,375 333,847 (333,522)
Accretion related to
redeemable preferred
stock.................. -- -- (3,712,050) -- (4,113,791)
---------- ---------- ----------- ---------- -----------
Net income (loss)
available to common
shareholders........... $ 19,138 $ (65,217) $(3,394,675) $ 333,847 $(4,447,313)
========== ========== =========== ========== ===========
Basic earnings (loss)
per share.............. $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
========== ========== =========== ========== ===========
Diluted earnings (loss)
per share.............. $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
========== ========== =========== ========== ===========
Pro forma basic loss per
share.................. $ (0.12) $ (0.14)
=========== ===========
Pro forma diluted loss
per share.............. $ (0.12) $ (0.14)
=========== ===========
Weighted average shares
outstanding:
Basic................. 26,400,000 26,400,000 24,371,578 26,400,000 22,431,995
Diluted............... 26,400,000 26,400,000 24,371,578 29,868,108 22,431,995
Pro forma weighted
average shares
outstanding:
Basic................. 29,245,910 31,997,215
Diluted............... 29,245,910 31,997,215
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
------------------- paid-in Deferred Accumulated
Shares Amount capital compensation deficit Total
---------- ------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 26,400,000 $26,400 $ -- $ -- $ (39,347) $ (12,947)
Net income.............. -- -- -- 19,138 19,138
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1997................... 26,400,000 26,400 -- -- (20,209) 6,191
Deferred compensation
from stock option
grants................. -- -- 696,960 (696,960) -- --
Amortization of deferred
stock compensation, net
of income tax benefit
of $72,993 ............ -- -- (72,993) 187,401 -- 114,408
Net loss................ -- -- -- -- (65,217) (65,217)
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1998................... 26,400,000 26,400 623,967 (509,559) (85,426) 55,382
Deferred compensation
from stock option
grants................. -- -- 1,324,401 (1,324,401) -- --
Amortization of deferred
stock compensation, net
of income tax benefit
of $156,695............ -- -- (156,695) 466,894 -- 310,199
Deferred compensation
related to cancelled
options................ -- -- (107,261) 107,261 -- --
Issuance of common stock
upon exercise of stock
options, including
related tax benefit.... 986,684 986 442,479 -- -- 443,465
Redemption of common
stock.................. (5,217,392) (5,217) (2,126,891) -- (3,867,892) (6,000,000)
Accretion related to
redeemable preferred
stock.................. -- -- -- -- (3,712,050) (3,712,050)
Net income.............. -- -- -- -- 317,375 317,375
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1999................... 22,169,292 $22,169 -- (1,259,805) (7,347,993) (8,585,629)
Deferred compensation
from stock option
grants (unaudited)..... -- -- 3,311,250 (3,311,250) -- --
Amortization of deferred
stock compensation, net
of income tax benefit
of $62,479 (unaudited). -- -- (62,479) 270,204 -- 207,725
Issuance of common stock
upon exercise of stock
options, including
related tax benefit
(unaudited)............ 458,000 459 3,667 -- -- 4,126
Accretion related to
redeemable preferred
stock (unaudited)...... -- -- -- -- (4,113,791) (4,113,791)
Net loss (unaudited).... -- -- -- -- (333,522) (333,522)
---------- ------- ---------- ----------- ------------ ------------
Balance at March 31,
2000 (unaudited)....... 22,627,292 $22,628 $3,252,438 $(4,300,851) $(11,795,306) $(12,821,091)
========== ======= ========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months ended
Year ended December 31, March 31,
-------------------------------- -----------------------
1997 1998 1999 1999 2000
-------- --------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $ 19,138 $ (65,217) $ 317,375 $ 333,847 $ (333,522)
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Amortization of
deferred stock
compensation.......... -- 187,401 466,891 92,012 270,204
Depreciation and
amortization.......... 23,621 42,814 103,315 14,602 77,940
Provision for doubtful
accounts.............. 20,744 -- 33,050 -- 56,362
Deferred income taxes.. -- (60,707) (146,879) -- (131,237)
Loss on disposal of
property and
equipment............. 256 1,881 6,256 -- --
Changes in operating
assets and
liabilities:
Trade accounts
receivable........... (8,403) (473,065) (1,082,118) (489,950) 409,388
Revenue earned on
contracts in progress
in excess of
billings............. -- (136,957) (757,150) 99,865 (1,485,793)
Other current assets.. (4,686) (11,487) (109,264) 18,343 696,267
Accounts payable...... 84,501 122,475 419,514 8,835 581,418
Billings in excess of
revenues earned on
contracts in
progress............. -- 214,268 1,811,541 221,927 (929,834)
Deferred revenue...... -- 184,084 205,715 2,012 (359,480)
Accrued compensation.. 184,732 (11,500) 529,484 (170,876) 386,595
Accrued expenses and
other current
liabilities.......... 19,745 (1,744) 198,764 (5,285) 229,997
Income taxes payable.. 28,175 43,981 178,247 82,548 62,492
Other assets.......... (10,734) (28,369) (87,700) -- (78,768)
-------- --------- ----------- --------- -----------
Net cash provided by
(used in) operating
activities.......... 357,089 7,858 2,087,041 207,880 (2,065,489)
Cash flows from
investing activities:
Purchases of property
and equipment......... (49,412) (138,936) (481,611) (33,128) (454,757)
Proceeds from sale of
property and
equipment............. -- 250 4,199 -- --
Net
purchases/(maturity)
of short-term
investments........... (50,461) (2,749) (2,914,988) (579) 2,911,742
-------- --------- ----------- --------- -----------
Net cash provided by
(used in) investing
activities.......... (99,873) (141,435) (3,392,400) (33,707) 2,456,985
Cash flows from
financing activities:
Common stock
redemption............ -- -- (6,000,000) -- --
Proceeds from issuance
of preferred stock,
net of issuance costs. -- -- 10,600,000 -- --
Proceeds from exercise
of stock options...... -- -- 2,468 -- 4,126
Principal payments
under capital lease
obligations........... (13,827) (20,358) (28,285) (5,155) (12,712)
Payments under other
borrowings, net....... (35,772) (205) -- -- --
-------- --------- ----------- --------- -----------
Net cash provided by
(used in) financing
activities.......... (49,599) (20,563) 4,574,183 (5,155) (8,596)
-------- --------- ----------- --------- -----------
Net change in cash and
cash equivalents....... 207,617 (154,140) 3,268,824 169,018 382,910
Cash and cash
equivalents at
beginning of year...... 13,373 220,990 66,850 66,850 3,335,674
-------- --------- ----------- --------- -----------
Cash and cash
equivalents at end of
year................... $220,990 $ 66,850 $ 3,335,674 $ 235,868 $ 3,718,584
======== ========= =========== ========= ===========
Supplemental
disclosures:
Property and equipment
acquired under capital
leases................ $ 15,041 $ 6,526 $ 139,599 -- --
Interest paid.......... 5 8,977 6,639 $ 698 3,018
Income taxes paid...... -- 1,599 266,202 177,000 52,750
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of Business
Click Commerce, Inc. (the "Company") is based in Chicago, Illinois and is a
provider of enterprise channel management solutions for large, global
manufacturing companies with complex or specialized dealer, distributor and
supplier networks. The Company provides software products and services that
enable large, global manufacturing companies to effectively manage and engage
in collaborative business-to-business electronic commerce throughout all
levels of their product and services distribution channel.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents and Short-term Investments
Cash equivalents are short-term, highly liquid investments with original
maturity dates of three months or less. Cash equivalents are carried at cost,
which approximates fair market value. Short-term investments are classified as
held-to-maturity and are recorded at cost. As of December 31, 1998, short-term
investments consisted of a certificate of deposit in the amount of $53,210 due
to mature in October 1999. As of December 31, 1999, short-term investments
consisted of a certificate of deposit in the amount of $55,696 due to mature
in October 2000 and a $3,000,000 par value U.S. Government agency discount
note due to mature in January 2000.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization calculated on a straight-line basis over the useful lives of the
assets.
Equipment, furniture and fixtures are depreciated over five to seven years
and computer software is amortized over three years. Equipment held under
capital leases is amortized on a straight-line basis over the shorter of the
lease term or the estimated useful life of the asset.
When property and equipment are retired or otherwise disposed, the cost and
related accumulated depreciation are removed from the account, and any gain or
loss is included in other income. Amounts expended for maintenance and repairs
are charged to expense.
Long-lived Assets
The Company reviews the carrying values of its long-lived assets for
impairment whenever events or changes in circumstances indicate that such
carrying values may not be recoverable. In assessing impairment, the Company
determines whether the undiscounted future cash flows to be derived from the
related asset over the remaining life will be sufficient to recover the
carrying value. In the event such cash flows are not expected to be sufficient
to recover the carrying value of the asset, the impairment to be recognized is
measured by the amount by which the carrying value exceeds the fair value of
the asset.
Revenue and Cost Recognition
Revenues from fixed-price contracts are recognized using the percentage-of-
completion method as services are performed to develop, customize and install
the Company's software products. The percentage completed is
F-7
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
measured by the percentage of labor hours incurred to date in relation to
estimated total labor hours for each contract. Management considers labor
hours to be the best available measure of progress on these contracts.
Revenue from maintenance service is recognized ratably over the term of the
contract. Maintenance fees billed in advance of providing the related service
are included in deferred revenue. As part of the sales process, the Company
performs a needs analysis for the potential customer on a fixed fee basis.
Revenue from needs analyses is recognized as the work is performed.
Cost of revenue includes salaries and related expenses for project
management and technical support personnel who provide development,
customization and installation services to customers and an allocation of
business consulting personnel salaries and data processing and overhead costs.
Changes in job performance, job conditions and estimated profitability,
including those arising from contract penalty provisions and final contract
settlements, may result in revisions to costs and income and are recognized in
the period in which they are determined.
Software Development
Costs associated with the planning and designing phase of software
development, including coding and testing activities necessary to establish
technological feasibility of computer software products to be licensed or
otherwise marketed, are classified as research and development costs, and are
charged to costs and expenses as incurred. Once technological feasibility has
been determined, costs incurred in the construction phase of software
development, including coding, testing, and product quality assurance, are
capitalized. To date the period between technological feasibility and general
availability has been short and costs qualifying for capitalization have been
insignificant. For the years ended December 31, 1997, 1998 and 1999, no
software development costs were capitalized.
Under the provisions of Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, certain
costs associated with software developed or obtained for internal use are
capitalized and amortized over the useful life. No such costs were capitalized
during the years ended December 31, 1997, 1998 and 1999.
Earnings per Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 requires the calculation and presentation of basic and diluted earnings
per share. Basic earnings per share is calculated based on the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated based on the weighted average number of common shares outstanding
and the dilutive effect of stock options and other common stock equivalents
using the treasury stock method. Dilutive securities are excluded from the
diluted earnings per share calculation if their effect is anti-dilutive.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-8
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Financial Instruments
The reported amounts of the Company's financial instruments, which include
short-term investments, trade accounts receivable, accounts payable, accrued
compensation, accrued expenses and income taxes payable, approximate their
fair values due to the contractual maturities and short-term nature of these
instruments.
Stock-Based Compensation
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The provisions of SFAS No. 123 allow companies to either
expense the estimated fair value of stock options or follow the intrinsic
value method set forth in Accounting Principles Board Opinion No. 25 (Opinion
25) "Accounting for Stock Issued to Employees," and disclose the pro forma
effects on net income had the fair value of the options been expensed. As
such, compensation expense would be recorded only if the fair value of the
underlying stock exceeded the exercise price on the grant date. The Company
applies Opinion 25 in accounting for its stock option plan and, accordingly,
no compensation cost has been recognized on stock options for which the
exercise price equaled the fair value at the date of grant. With respect to
stock options granted at exercise prices less than fair value, the Company
recorded deferred stock based compensation. Such deferred stock based
compensation is amortized on a straight-line basis over the vesting period of
each individual award.
Segment Reporting
The Company operates in a single segment and will evaluate additional
segment disclosure requirements as it expands its operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133, which is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000.
SFAS No. 133 establishes a comprehensive standard for the recognition and
measurement of derivative instruments and hedging activities. This
pronouncement will require the Company to recognize derivatives on its balance
sheet at fair value. Changes in the fair values of derivatives that qualify as
cash flow hedges will be recognized in other comprehensive income until the
hedged item is recognized in earnings.
In December 1999, the Securities and Exchange Commission issued SAB No.
101, Revenue Recognition in Financial Statements that was amended by SAB No.
101A, which is effective no later than the second quarter of fiscal 2000.
The Company does not expect the adoption of these recently issued
accounting pronouncements to have a significant impact on the Company's
results of operations, financial position or cash flows.
Unaudited Interim Financial Information
The unaudited interim financial information as of March 31, 2000 and for
the three months ended March 31, 1999 and 2000 has been prepared on a basis
consistent with the audited financial statements. In management's opinion,
such information reflects all adjustments which are of a normal recurring
nature and which are necessary to present fairly the results of the periods
presented. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results of operations to be expected for
the year ending December 31, 2000.
F-9
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Unaudited Pro Forma Balance Sheet
Upon an initial public offering of the Company's common stock, the shares
of Series A and Series B Convertible Participating Preferred Stock will be
converted into 9,565,220 shares of common stock. This transaction has been
reflected in the unaudited pro forma balance sheet as of March 31, 2000.
3. Concentrations of Credit Risk
During the year ended December 31, 1997, three customers accounted for an
aggregate of 88% of the Company's total revenue, one for approximately 37%,
another for approximately 30% and a third for approximately 21%. During the
year ended December 31, 1998, four customers accounted for an aggregate of 81%
of the Company's total revenue, one for approximately 25%, another for
approximately 24%, a third for approximately 18%, and a fourth customer for
approximately 14%. During the year ended December 31, 1999, three customers
accounted for an aggregate of 61% of the Company's total revenue, one for
approximately 29%, another for approximately 18%, and a third customer for
approximately 14%.
As of December 31, 1998, four customers accounted for 97% of the Company's
gross trade accounts receivable, one for approximately 38%, another for
approximately 31%, another for approximately 18% and a fourth customer for
approximately 10%. As of December 31, 1999, five customers accounted for an
aggregate of 85% of the Company's gross trade accounts receivable, one for
approximately 27%, another for approximately 21%, another for approximately
15%, another for approximately 12% and a fifth customer for approximately 10%.
4. Property and Equipment
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
-------- ---------
<S> <C> <C>
Equipment, furniture and fixtures.................... $203,582 $ 613,898
Leased equipment..................................... 56,038 195,637
Computer software.................................... 4,606 63,416
-------- ---------
264,226 872,951
Less accumulated depreciation and amortization....... (74,361) (172,628)
-------- ---------
Net property and equipment........................... $189,865 $ 700,323
======== =========
</TABLE>
Accumulated amortization related to capitalized leased equipment was
$39,165 and $68,577 as of December 31, 1998 and 1999, respectively.
F-10
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Lease Commitments
The Company is obligated as lessee under certain noncancelable operating
leases for equipment and office space, and is also obligated to pay insurance,
maintenance and other executory costs associated with the leases. Rent expense
(including insurance, maintenance and other executory costs) was $86,885,
$195,521 and $354,598 during 1997, 1998 and 1999, respectively. Future minimum
payments under lease obligations with initial or remaining terms in excess of
one year are as follows as of December 31, 1999:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------- --------
<S> <C> <C>
2000................................................. $ 547,555 $ 56,537
2001................................................. 578,600 54,326
2002................................................. 595,936 37,054
2003................................................. 613,804 --
2004................................................. 260,880 --
Thereafter........................................... -- --
---------- --------
Total minimum lease payments......................... $2,596,775 147,917
==========
Less amount representing interest.................... (18,757)
--------
Subtotal............................................. 129,160
Less current portion of capital lease obligations.... (45,454)
--------
Capital lease obligations, less current portion...... $ 83,706
========
</TABLE>
In January 2000, the Company entered into an operating lease agreement for
office space in another office complex. The lease term begins in February 2000
and ends in August 2005. The agreement stipulates the Company will not make
monthly payments for the first five months, and subsequently will pay a base
amount, and additional amounts for taxes and operating expenses ranging from
$69,150 to $81,600 per month for the term of the lease.
In February 2000, the Company entered into an agreement to sublease a
portion of its existing leased premises to another company for the entire
amount the Company is obligated to pay for such portion under its present
agreement.
6. Income Taxes
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
-------- --------- --------
<S> <C> <C> <C>
Year ended December 31, 1997:
U.S. Federal.............................. $ 23,296 $ -- $ 23,296
State..................................... 5,425 -- 5,425
Year ended December 31, 1998:
U.S. Federal.............................. 35,557 (48,709) (13,152)
State..................................... 8,480 (11,998) (3,518)
Year ended December 31, 1999:
U.S. Federal.............................. 364,109 (118,597) 245,512
State..................................... 80,341 (28,282) 52,059
</TABLE>
F-11
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The income tax expense (benefit) differs from the amounts computed by
applying the U.S. Federal income tax rate of 34% to income (loss) before taxes
as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)..... $16,272 $(27,842) $231,045
Increase (reduction) in income taxes resulting
from:
Non-deductible expenses, primarily meals and
entertainment.............................. 8,868 13,494 32,167
State income taxes, net of Federal income
tax benefit................................ 3,581 (2,322) 34,359
------- -------- --------
$28,721 $(16,670) $297,571
======= ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1998 and 1999 are presented below:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to allowance
for doubtful accounts............................. $ 8,080 $ 20,953
Accrued compensation expense....................... -- 71,405
Deferred revenue................................... 71,701 150,021
-------- --------
Total gross deferred tax assets.................. 79,781 242,379
Deferred tax liabilities principally due to tax over
book depreciation................................... (17,529) (33,249)
-------- --------
Net deferred tax assets.......................... $ 62,252 $209,130
======== ========
</TABLE>
The income tax benefit for tax deductions relating to the exercise of
nonqualified stock options in excess of the tax benefit on the amount
reflected as amortization of deferred stock compensation has been credited to
additional paid-in capital.
In assessing the realizablility of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management believes that it is more likely than not that the Company will
realize the benefits of deferred tax assets for which an allowance has not
been established.
7. Capital Stock
Stock Splits
On December 31, 1997, the Company's Board of Directors approved a 660-for-1
split of common shares in the form of a stock dividend. On July 27, 1999, the
Board approved a 2-for-1 split of common and preferred shares in the form of a
stock dividend. On December 10, 1999, the Board approved a 2-for-1 split of
common and preferred shares in the form of a stock dividend. All common and
preferred share and per share amounts, unless indicated otherwise, have been
adjusted for the effect of these splits.
F-12
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Redemption of Common Stock
In July 1999, the Company redeemed and retired 5,217,392 shares of common
stock for $6,000,000. Such common shares were redeemed from shareholders in
conjunction with the issuance of Series A and B Convertible Participating
Preferred Stock to new investors.
Preferred Stock
In June and July 1999, the Company sold 5,217,392 shares of Series A
Convertible Participating Preferred Stock, par value $.001, at $1.15 per
share. Gross proceeds to the Company were $6,000,000.
In July 1999, the Company sold 4,347,828 shares of Series B Convertible
Participating Preferred Stock, par value $.001, at $1.15 per share. Gross
proceeds to the Company were $5,000,000.
As described in the Company's amended and restated Certificate of
Incorporation, each share of Series A and Series B Convertible Participating
Preferred Stock ("preferred stock") is convertible at the shareholder's option
into such number of shares of common stock as determined by a conversion
factor, as defined in the Certificate of Incorporation (as of December 31,
1999, the conversion of preferred stock to common stock is on a one-for-one
basis).
The preferred stock will automatically convert upon the closing of a
qualified public offering of the Company's common stock. The Company has
reserved 9,565,220 shares of its common stock for issuance upon conversion of
the preferred stock.
At the written request of the holders of a majority of the outstanding
shares of preferred stock, the Company will redeem a specified percentage of
shares for ten day periods commencing June 11, 2004 and 2005. The number of
shares redeemed on each date shall not exceed fifty percent of the total
preferred shares then outstanding. The price per share to be paid to the
preferred shareholders shall be equal to the greater of the fair market value
of common stock or the amount to which the holder would be entitled in the
event of a liquidation (minimum of $1.15 per share).
Accretion related to redeemable preferred stock has been recognized on a
straight-line basis, calculated from the dates of issuance through the
redemption dates based on the estimated fair market value of common stock
($5.25 as of December 31, 1999 and $9 as of March 31, 2000).
The holders of preferred stock shall be entitled to receive, when and if
declared by the Board of Directors, dividends in the same amount per share as
would be payable on the number of shares of common stock into which the
preferred stock is then convertible, payable in preference and priority to
payment of any cash dividend on common stock.
Shares of preferred stock are entitled to a number of votes on any matter
put before the shareholders of the Company equal to the number of shares of
common stock into which they are convertible. In addition, the holders of the
preferred stock are also entitled to vote separately as a class with respect
to those matters required to be submitted to a class pursuant to the terms of
the Certificate of Incorporation or by law.
Upon any liquidation, dissolution or winding up of the Company, holders of
preferred stock shall be first entitled, before any distribution or payment to
holders of common stock, to a minimum amount of $1.15 per share, and shall be
entitled to participate in further distributions with a priority equal to that
of the holders of common stock. At December 31, 1999, the holders of preferred
stock would be entitled to a minimum aggregate amount of $11,000,000 in the
event of a liquidation.
F-13
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Employee Stock Option and Stock Award Plan
In October 1998, the Company's Board of Directors adopted the Click
Commerce, Inc. Stock Option and Stock Award Plan ("the Plan"), pursuant to
which the Board may grant stock options and stock appreciation rights to
officers and key employees. The Plan authorizes grants of options to purchase
up to 4,497,508 shares of authorized common stock (see Note 13). Stock options
are granted at an exercise price equal to the stock's fair value at the date
of grant. All stock options have ten year terms and generally vest over three
to five years from the date of grant. At December 31, 1999, there were
1,271,508 additional shares reserved for grant under the Plan. In addition,
stock options outstanding as of December 31, 1999 include options to purchase
up to 1,395,982 shares of common stock, which have been granted under option
agreements outside of the Plan.
The Company applies Opinion 25 in accounting for its Plan and, accordingly,
no compensation cost has been recognized on stock options for which the
exercise price equaled the fair value at the date of grant. Had the Company
determined compensation cost based on the fair value at the grant date for
stock options under
SFAS No. 123, the Company's net loss available to common shareholders would
have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1999
-------- -----------
<S> <C> <C>
Net loss available to common shareholders:
As reported..................................... $(65,217) $(3,394,675)
Pro forma....................................... (122,962) (3,499,787)
Basic and diluted loss per share:
As reported..................................... (0.00) (0.14)
Pro forma....................................... (0.00) (0.14)
</TABLE>
For purposes of calculating the pro forma compensation cost consistent with
SFAS No. 123, the fair value of each stock option grant is estimated on the
date of grant using the Black-Scholes option-pricing model. The per share
weighted-average fair value of stock options granted during 1998 and 1999 was
$0.15 and $0.25, respectively, using the following weighted-average
assumptions (excluding a volatility assumption): expected dividend yield of
0%, risk-free interest rate of 5%, and expected life of 5 years.
The following table summarizes information about fixed stock options
outstanding as of December 31, 1998 and 1999 and March 31, 2000:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1999 March 31, 2000
------------------ ------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Fixed Options Shares Prices Shares Prices Shares Price
------------- --------- -------- --------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- -- 3,104,000 $0.0255 4,621,982 $0.6749
Granted................. 3,104,000 $0.0255 3,276,000 1.0408 1,355,500 $6.0525
Exercised............... -- -- (986,684) 0.0025 (458,000) $0.0090
Cancelled............... -- -- (771,334) 0.4759 (25,000) $1.1500
--------- --------- ---------
Outstanding at end of
year................... 3,104,000 $0.0255 4,621,982 $0.6749 5,494,482 $2.0549
========= ========= =========
Options exercisable at
end of year............ 204,000 $0.0025 1,405,982 $0.0107 1,095,982 $0.6833
========= ========= =========
</TABLE>
F-14
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about fixed stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------
Weighted
Average Weighted
Remaining Average Weighted
Exercise Number of Contractual Exercise Number of Average
Prices Shares Life Price Shares Prices
-------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.0025 1,395,982 8.72 years $0.0025 1,395,982 $0.0025
0.2500 280,000 8.88 0.2500 -- --
0.3750 468,000 9.05 0.3750 -- --
1.1500 2,473,000 9.57 1.1500 10,000 1.1500
5.2500 5,000 9.90 5.2500 -- --
--------- ---------
4,621,982 9.16 $0.6749 1,405,982 $0.0107
========= =========
</TABLE>
In 1998, the Company's Board of Directors approved consulting and
employment agreements to retain the services of a former director and a former
officer. These individuals were granted options to purchase a total of
2,816,000 shares of common stock at an exercise price of $0.0025 per share.
The term of the options was 10 years from the date of grant. Of these options,
1,540,000 were granted to a nonemployee and this grant was not governed by
Opinion 25. Deferred compensation of $381,000 was calculated at the date of
grant using the Black-Scholes option-pricing model and the following
assumptions: expected dividend yield of 0%, risk-free interest rate of 5%,
expected life of 5 years, and volatility of 50%.
The Company was recognizing compensation expense ratably over the service
period specified in the agreements; however, the services of both of these
individuals were terminated during 1999. Therefore, the compensation expense
pertaining to the unvested and cancelled options of $107,261 was restored to
additional paid-in capital during 1999. Prior to termination of these
services, the Company recognized compensation expense of approximately
$187,000 and $402,000 in 1998 and 1999, respectively.
The Company recorded approximately $1,324,000 and $3,311,000 of unearned
stock-based compensation in the year ended December 31, 1999 and in the three
months ended March 31, 2000, respectively. Of these amounts, approximately
$65,000, $65,000 and $270,000 was amortized in the year ended December 31,
1999 and in the three months ended March 31, 1999 and 2000, respectively.
Amortization of deferred stock compensation is excluded from cost and
expense categories and is reflected as a separate category within operating
expenses in the statements of operations. The amounts excluded from the cost
and expense categories are as follows:
<TABLE>
<CAPTION>
Three months
ended March
Year-ended December 31,
31 (unaudited)
-------------------- --------------
1997 1998 1999 1999 2000
---- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Cost of revenue............................. -- -- 1,000 1,000 4,000
Sales and marketing......................... -- -- 29,000 29,000 101,000
Research and development.................... -- -- 410,000 8,000 23,000
General and administrative.................. -- 187,000 27,000 27,000 142,000
</TABLE>
9. Credit Facility
As of December 31, 1999, the Company has a $1,000,000 credit facility with
a commercial bank for the purpose of financing working capital. The term of
the agreement is one year expiring on March 25, 2000. The Company plans to
renew this facility prior to its expiration. Interest is due in monthly
installments and accrues at the prime rate. Borrowings are collateralized by
compensating balances deposited at the bank and by substantially all of the
Company's tangible assets. No balance was outstanding under the credit
facility as of December 31, 1999. In January 2000, the Company obtained a
letter of credit under this facility totaling $500,000 to secure a new office
lease. This letter of credit is renewable annually and declines by $100,000 on
the second, third and fourth anniversaries of the lease and then declines to
$38,130 on the fifth anniversary until the lease expires in August 2005.
F-15
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
3 Months ended March
Years ended December 31, 31,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)
available to common
shareholders........... $ 19,138 $ (65,217) $(3,394,675) $ 333,847 $(4,447,713)
Denominator:
Weighted average shares
outstanding--basic..... 26,400,000 26,400,000 24,371,578 26,400,000 22,431,995
Effect of stock options
using the treasury
stock method........... -- -- -- 3,468,108 --
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding--diluted... 26,400,000 26,400,000 24,371,578 29,868,108 22,431,995
----------- ----------- ----------- ----------- -----------
Basic earnings (loss)
per share.............. $ 0.00 $ (0.00) $ (0.14) $ 0.01 $ (0.20)
Diluted earnings (loss)
per share.............. 0.00 (0.00) $ (0.14) $ 0.01 $ (0.20)
Pro forma adjustments to
reflect assumed
conversion of
Convertible
Participating Preferred
Stock:
Series A.............. 2,777,845 5,217,392
Series B.............. 2,096,487 4,347,828
Shares used in computing
pro forma basic and
diluted earnings per
share.................. 29,245,910 31,997,215
Pro forma basic loss per
share.................. $ (0.12) $ (0.14)
Pro forma diluted loss
per share.............. $ (0.12) $ (0.14)
</TABLE>
The pro forma adjustments to reflect the assumed conversion of Convertible
Participating Redeemable Preferred Stock is computed based upon 4,347,828 and
869,564 shares of Series A outstanding from June 17, 1999 and July 9, 1999
respectively, and 4,347,828 shares of Series B outstanding from July 9, 1999,
assuming conversion to common stock on those dates on a one-for-one basis.
For the years ended December 31, 1998 and 1999 and the three months ended
March 31, 2000, 810,179, 3,961,084, and 4,341,485, respectively, of
potentially dilutive stock options were excluded from the loss per share
calculations because their effect was antidilutive.
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.
F-16
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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-17
<PAGE>
Text above a graphic: "80 Business-to-Business Applications!"
Graphic: A diagram featuring 80 Click Commerce Applications, color-coded by
function.
Logo: Click Commerce Logo.
<PAGE>
[CLICK COMMERCE LOGO]
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale
of the Common Stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
Amount to
Be Paid
----------
<S> <C>
SEC registration fee.......................................... $ 26,400
NASD filing fee............................................... 10,500
Nasdaq National Market listing fee............................ 95,000
Legal fees and expenses....................................... 325,000
Accounting fees and expenses.................................. 325,000
Printing and engraving........................................ 200,000
Blue sky fees and expenses (including legal fees)............. 10,000
Transfer agent fees........................................... 1,000
Miscellaneous................................................. 7,100
----------
Total..................................................... $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Our Amended and Restated Certificate of Incorporation in effect as of the
date hereof (the "Certificate") provides that, except to the extent prohibited
by the Delaware General Corporation Law, as amended (the "DGCL"), the
Registrant's directors shall not be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as
directors of the Registrant. Under the DGCL, the directors have a fiduciary
duty to the Registrant which is not eliminated by this provision of the
Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the
DGCL for breach of the director's duty of loyalty to the Registrant, for acts
or omissions which are found by a court of competent jurisdiction to be not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by the DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws.
The Registrant may obtain liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out
of their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any
other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that the
Registrant may fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative)
by reason of the fact that such person is or was a director or officer of the
Registrant, or is or was serving at the request of the Registrant as a
director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's
II-1
<PAGE>
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the registrant has issued unregistered
securities to a limited number of persons as described below:
1. In June and July 1999, the registrant issued and sold an aggregate of
5,217,392 shares of Series A Convertible Participating Preferred Stock,
adjusted for stock splits, at a price of $1.15 per share, for aggregate
consideration of $6 million to Insight Capital Partners III, L.P., Insight
Capital Partners III--Coinvestors, L.P. and Insight Capital Partners
(Cayman) III, L.P. All of the outstanding shares of Series A Convertible
Participating Preferred Stock convert into shares of common stock on a one-
for-one basis immediately prior to the consummation of this offering; and
2. In July 1999, the registrant issued and sold an aggregate of
4,347,828 shares of Series B Convertible Participating Preferred Stock,
adjusted for stock splits, at a price of $1.15 per share, for aggregate
consideration of $5 million, to Compaq Computer Corporation. All of the
outstanding shares of Series B Convertible Participating Preferred Stock
convert into shares of common stock on a one-for-one basis immediately
prior to the consummation of this offering.
3. From August 20, 1996 to March 27, 2000, the registrant granted
4,539,000 options to purchase shares of common stock to employees under the
registrant's Amended and Restated Stock Option and Stock Award Plan at a
weighted average exercise price of $2.45 per share.
4. In September 1998, the registrant granted 1,540,000 options to
purchase shares of common stock to a former consultant at an exercise price
of $0.0025 per share. Options for 666,444 shares were exercised in July
1999, options for 450,000 were exercised in February 2000 and options for
48,977 shares were exercised in April 2000.
5. In October 1998, the registrant granted 1,276,000 options to purchase
shares of common stock to a former employee at an exercise price of $0.0025
per share. Options for 320,240 shares were exercised in July 1999 and
options for 39,571 shares were exercised in April 2000. In addition,
effective October 1999, 433,334 options were forfeited upon termination of
employment with the registrant.
6. In April 2000, the registrant issued to Andersen Consulting, LLP a
warrant to purchase up to 818,226 shares of common stock at an exercise
price of $12.22 per share.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the registrant believes
that each transaction was exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof and
Regulation D promulgated thereunder or Rule 701.
The recipients of securities in each of the foregoing transactions
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the instruments representing such
securities issued in such transactions.
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 (previously filed).
3.1 Amended and Restated Certificate of Incorporation (previously
filed).
3.2 Form of Restated Certificate of Incorporation to be in effect
upon the closing of this offering (previously filed).
3.3 Amended and Restated Bylaws (previously filed).
3.4 Form of Restated Bylaws to be in effect upon the closing of
this offering (previously filed).
4.1 Specimen Common Stock certificate (previously filed).
4.2 Amended and Restated Stockholders and Rights Agreement
(previously filed).
5.1 Opinion of Latham & Watkins (previously filed).
10.1 Amended and Restated Click Commerce, Inc. Stock Option and
Stock Award Plan (previously filed).
10.2 Click Commerce, Inc. Directors' Stock Option and Stock Award
Plan (previously filed).
10.3 Amended and Restated Employment Agreement with Michael W.
Ferro, Jr. (previously filed).
10.4 Amended and Restated Employment Agreement with Robert J.
Markese (previously filed).
10.5 Form of Indemnification Agreement entered into between Click
Commerce, Inc. and its directors and executive officers
(previously filed).
10.6 Promissory Note, dated March 31, 2000, between Click
Interactive, Inc. and American National Bank and Trust Company
of Chicago.
10.7 Loan and Security Agreement, dated March 31, 2000, between
Click Interactive, Inc. and American National Bank and Trust
Company of Chicago.
10.8 Strategic Alliance Agreement with Andersen Consulting, LLP.
10.9 Warrant dated April 20, 2000 issued to Andersen Consulting,
LLP.
10.10 Consulting Agreement with Leslie D. Shroyer.
10.11 Option Agreement with Leslie D. Shroyer.
16.1 Change In Certifying Accountants (previously filed).
23.1 Consent of KPMG LLP.
23.2 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (included on the signature page to this
filing).
27.1 Financial Data Schedule.
</TABLE>
(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 April 28, 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 to 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 has been signed by the following persons
in the capacities indicated as of April 28, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael W. Ferro, Jr. Chief Executive Officer and April 28, 2000
____________________________________ Chairman of the Board of
Michael W. Ferro, Jr. Directors (Principal
Executive Officer)
* Senior Vice President, Chief April 28, 2000
____________________________________ Financial Officer and
Rebecca S. Maskey Treasurer (Principal
Financial and Accounting
Officer)
* Director April 28, 2000
____________________________________
Peter N. Larson
* Director April 28, 2000
____________________________________
Emmanuel A. Kampouris
* Director April 28, 2000
____________________________________
Jerry Murdock
* Director April 28, 2000
____________________________________
Dr. Michael Hammer
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director April 28, 2000
____________________________________
Manuel A. Fernandez
/s/ Edwina D. Woodbury Director April 28, 2000
____________________________________
Edwina D. Woodbury
/s/ Gregg G. Hartemayer Director April 28, 2000
____________________________________
Gregg G. Hartemayer
* Director April 28, 2000
____________________________________
Leslie D. Shroyer
</TABLE>
/s/ Michael W. Ferro, Jr.
*By: __________________________
Michael W. Ferro, Jr.
Attorney-in-Fact
II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Click Commerce, Inc.:
Under date of February 7, 2000, except as to note 13 to the financial
statements, which is as of February 14, 2000, we reported on the balance
sheets of Click Commerce, Inc. as of December 31, 1998 and 1999, and the
related statements of operations, shareholders' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1999.
In connection with our audits of the aforementioned financial statements, we
also audited the related financial statement Schedule II. This financial
statement schedule is the responsibility of Click Commerce, Inc.'s management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Chicago, Illinois
February 7, 2000, except as to
note 13 to the financial statements,
which is as of February 14, 2000
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 10.6
American National Bank
and Trust Company of Chicago
================================================================================
PROMISSORY NOTE (SECURED)
================================================================================
$3,000,000.00 Chicago, Illinois March 31, 2000
Due: March 31, 2001
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 Three Million and 00/100 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 31, 2001.
This Note restates and replaces a Promissory Note (Secured) in the
principal amount of $2,000,000.00, dated November 23, 1999 executed by Borrower
in favor of Bank (the "Prior Note") and is not a repayment or novation of the
Prior Note.
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 rate of interest announced from time to time by Bank or its parent
as its prime rate of interest, which is not necessarily the lowest rate charged
to its customer (the "Prime Rate") (computed on the basis of a 360-day year and
actual days elapsed); provided, however, that in the event 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 change from
time to time when and as the Prime Rate changes.
Accrued interest shall be payable by Borrower to Bank on the same day of
each month, and at maturity, commencing with the last day of April, 2000, or as
billed by Bank to Borrower, at 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 due and payable on
demand.
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 Borrower, 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.
<PAGE>
Borrower agrees to deliver to Bank immediately upon Bank's demand, such
additional collateral as Bank may request from time to time should the value of
the Collateral (in Bank's sole and exclusive opinion) decline, deteriorate,
depreciate or become impaired, or should Bank deem itself insecure for any
reason whatsoever, including without limitation a change in the financial
condition of Borrower or any party liable with respect to Borrower's
Liabilities, and does hereby grant to Bank a continuing security interest in
such other collateral, which shall be deemed to be a part of the Collateral.
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 or any additional
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.
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; (1) 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 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 only 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.
<PAGE>
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, nonpayment, 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 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.
Borrower:
Address: 919 North Michigan Avenue Click Commerce, Inc. f/k/a Click
Chicago, Illinois 60611 Interactive, Inc.
By: /s/ Rebecca Maskey
------------------------------------
Rebecca Maskey
------------------------------------
Printed Name Title
Tax I.D. Number: 36-4088644
David M. Torres/101009
<PAGE>
Exhibit 10.7
American National Bank
and Trust Company of Chicago
LOAN AND SECURITY AGREEMENT
(All Assets With Advance Rate)
THIS LOAN AGREEMENT (this "Agreement"), dated as of the 31st day of March,
2000, 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 Commerce, Inc.
f/k/a Click Interactive, Inc. ("Borrower"), a corporation with its principal
place of business at 919 North 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,
<PAGE>
assessments, charges, liens, claims or encumbrances upon and/or relating to
the "Collateral" (as hereinafter defined), Borrower's Liabilities,
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).
2
<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.
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.
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
3
<PAGE>
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 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 Agreement and/or the Other
Agreements, 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
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
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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) ______________________________________________________________________
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:
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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.
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
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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 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
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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
collectibility 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 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.
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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 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
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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 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 agreements
subordinating their claims against Borrower therefor to the payment of
Borrower's Liabilities.
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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 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 a firm of
independent certified public accountants selected by Borrower and acceptable to
Bank; (b) as soon as available but not later than 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 by Borrower for
such period; (c) a schedule of accounts receivable by the 15th day 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.
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.
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 other 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 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
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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 alien 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.
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
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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 reapply 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 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
13
<PAGE>
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 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,
14
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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 anytime 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 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
15
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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.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year specified at the beginning hereof.
BORROWER:
Click Commerce, Inc. f/k/a Click Interactive, Inc.
By: /s/ Rebecca Maskey
-----------------------------------
Rebecca Maskey CFO
-----------------------------------
Printed Name Title
Accepted this 31st day of March, 2000, at Bank's principal place of
business in the City of Chicago, State of Illinois.
BANK
American National Bank and Trust Company of Chicago
By: /s/
-----------------------------------
-----------------------------------
Printed Name Title
16
<PAGE>
EXHIBIT 10.8
STRATEGIC ALLIANCE AGREEMENT
This Strategic Alliance Agreement ("Strategic Alliance" or "Agreement")
is made and entered into as of the 20th day of April, 2000, by and between Click
Commerce, Inc., a Delaware corporation ("Click") and Andersen Consulting, LLP,
an Illinois Limited Liability Partnership ("Andersen Consulting") on behalf of
and for the benefit of all entities throughout the world comprising the Andersen
Consulting worldwide organization (i.e., any Andersen Consulting entity having a
Member Firm Interfirm Agreement with Andersen Worldwide or any successor entity
to Andersen Worldwide, or any other entity controlling, controlled by or under
common control with such an entity or a partner of Andersen Worldwide or any
successor entity) (the "AC Affiliates").
RECITALS:
---------
WHEREAS, Andersen Consulting has developed a substantial reputation and
goodwill in the field of providing consulting services under the ANDERSEN
CONSULTING service mark (together with its logos and other intellectual property
relating thereto, the "Andersen Consulting Mark");
WHEREAS, Click has developed a substantial reputation and goodwill in
the field of computer software solutions and related consulting services under
the CLICK, CLICK COMMERCE and CLICK INTERACTIVE trademarks and service marks and
is pursuing protection of the trademark ENTERPRISE CHANNEL MANAGEMENT (together
with its logos and other intellectual property relating thereto, the "Click
Marks").
WHEREAS, Andersen Consulting and Click believe that by working together
to jointly enhance their products and services offering in the e-commerce area
they will be able to achieve mutual and independent success in the marketplace
as a result of promoting Click's products and services and Andersen Consulting's
services to their respective clients. It is therefore the desire of Andersen
Consulting and Click to work together in a strategic alliance to jointly market
Click's products and services and Andersen Consulting's services.
Now, therefore, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Click and Andersen Consulting hereby agree as follows:
ARTICLE I - PURPOSE
-------------------
1.1 Strategic Alliance Business Goals. The purpose of this Strategic
---------------------------------
Alliance is to achieve mutual and independent success in the marketplace through
the promotion of Click products and services and Andersen Consulting services.
In this regard, it is the intention of Andersen Consulting and Click to work
together to achieve the following joint business goals: (i) market and sell
Click products and services to Designated Customers (as defined herein), (ii)
market and sell Andersen Consulting services to Designated Customers and Click
accounts; and
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(iii) design and develop mutually agreeable marketing materials, such as white
papers, industry and product analyses and other similar collateral materials,
and develop and implement mutually agreeable marketing strategies tailored to
the needs of the Designated Customers. It is the intention of the parties hereto
that with respect to any third party that is determined to be a Designated
Customer pursuant to the terms of this Agreement, all Click software, products
and services provided to such Designated Customer, by either of Andersen
Consulting or Click, either independently or in conjunction with another party,
shall be provided pursuant to this Agreement (except as otherwise specified in
this Agreement).
1.2 Designated Customers. "Designated Customer" means an AC Entity (as
--------------------
defined below) or any other third party that (A) is introduced to Click by
Andersen Consulting, AC Affiliates or other parties reasonably agreed to by
Andersen Consulting and Click (Andersen Consulting together with such AC
Affiliates and other entities, the "AC Entities") or (B) is introduced to
Andersen Consulting by Click, and, in either case, as to which personnel of the
AC Entities play a material role, and the AC Entities provide a reasonable level
of assistance, in the marketing efforts related to such party's decision to
purchase or license software, goods or services from Click. Andersen Consulting
shall notify Click that the introduced party would constitute a Designated
Customer if a sale or license shall be consummated. If Click disagrees with such
designation, Click shall notify Andersen Consulting within ten (10) days after
delivery of the designation notice by Andersen Consulting. Click may indicate
its disagreement with such designation only if Click or any other party with
which Click has engaged in joint marketing activities (a "Click Marketing
Partner") has had material contact with the prospect which is the subject of the
designation in the 180 days prior to receipt of the designation notice and begun
material marketing activities. The parties shall diligently pursue the
consummation of a Qualifying Order with each Designated Customer, and Click
shall negotiate in good faith a Qualifying Order with such Designated Customer.
The parties agree to negotiate in good faith to resolve any disputes with
respect to the designation of Designated Customers in a manner that reflects the
relative contribution of the parties..
1.3 Exclusions from the Strategic Alliance. The parties specifically
--------------------------------------
intend to exclude from the parties' efforts hereunder all marketing efforts made
by Click pursuant to strategic alliance or system integration agreements between
Click and third parties identified by Click to Andersen Consulting in writing
which is acknowledged by Andersen Consulting prior to the date hereof and one
additional Click Preferred Systems Integrator.
1.4 Non-United States Matters. In some cases, specific implementation
-------------------------
of this relationship in countries other than the United States will need to be
reflected in local country addendum added to this Agreement from time to time,
executed by the AC Affiliate in the country and an entity representing Click.
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ARTICLE II - OPERATION OF THE STRATEGIC ALLIANCE
------------------------------------------------
2.1 Management of the Relationship. The parties will each designate an
------------------------------
executive sponsor to participate on a Management Committee who will be
responsible for the coordination of all activities between Click and Andersen
Consulting, the facilitation of information flow between the two companies and
the coordination of joint marketing and sales opportunities. The
responsibilities of each party in this Strategic Alliance will be determined by
this Agreement and the Management Committee. All decisions by the Management
Committee with respect to Designated Customers and otherwise with respect to the
operation of the Strategic Alliance must be unanimously approved by both members
of the Management Committee. Andersen Consulting hereby designates Roy Phelan as
its executive sponsor and Click hereby designates Randy A. Gray as its executive
sponsor. Either party may replace its executive sponsor, provided that such
successor shall be reasonably acceptable to the other party and at a similar
level of responsibility within such party's organization.
2.2 Meetings of the Management Committee. Meetings of the Management
------------------------------------
Committee may be conducted in person or by teleconferencing and shall be with
such frequency as the parties may agree upon. The location of meetings conducted
in person shall be as nearly evenly distributed as is practicable between the
home offices of Andersen Consulting and Click. Each party shall be responsible
for its own travel expenses in attending meetings of the Management Committee.
2.3 Development of Business Plans and Budgets. The Management
-----------------------------------------
Committee may review any written business plans and financial budgets that are
prepared by either party with respect to any marketing project which the parties
agree to undertake or develop jointly. Each party will use its diligent and
reasonable efforts to develop or implement each project in accordance with the
agreed upon business plan and budget.
2.4 Pricing and Payment Terms to Designated Customers. Each party
-------------------------------------------------
shall have the right to designate pricing and payment terms in accordance with
its own business practices to all of its own accounts and the pricing and terms
of each party's products and services directly sold by that party to Designated
Customers. On a case-by-case basis, the Management Committee will have the
ability to request that the parties modify their pricing to Designated Customers
when appropriate in light of the competition for similar products and services
and taking into account the value received by the Designated Customer associated
with the products and services provided by this Strategic Alliance.
2.5 Independent Contractors. Nothing contained in this Agreement shall
-----------------------
be construed as creating a relationship between Andersen Consulting and Click
other than that of independent contractors. The parties are independent
contractors and neither party shall have any liability for the acts or omissions
of the other party or the other party's clients or employees. Each party shall
not be deemed an employee or agent of the other party or of any other company
affiliated with the other party. Accordingly, each party shall have no right,
power or authority to act, and shall not act, in any way in the name of the
other party or its affiliated companies. As
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independent contractors, each party shall pay its own taxes and maintain its own
requisite insurance. The parties shall cooperate in good faith to minimize such
tax liabilities to the extent legally permissible and to incorporate provisions
to recover such taxes into underlying contracts with Designated Customers.
Neither party is responsible to any end user (including, but not limited to,
Designated Customers) for the quality of services or products provided by the
other party. Nothing contained herein is intended to constitute or create a
joint venture or partnership relationship between Click and Andersen Consulting.
Each party is solely responsible for establishing the prices for its own
products and services. Except as otherwise provided in this Agreement or the
agreements contemplated herein, each party shall be responsible for its own
costs and expenses associated with its performance of this Agreement. The
parties shall not, during the term of this Agreement, use the terms "joint
venturer," "co-venturer," "partner," "marketing partner," "partnership,"
"affiliate," or similar terms to describe the relationship between the parties
under this Agreement. Any inadvertent use of such terms is not intended by the
parties either to describe in any manner the relationship of the parties under
this Agreement, or expressly or impliedly to create a legal partnership or joint
venture, or any responsibility by one party for the actions of the other.
ARTICLE III - RESPONSIBILITIES OF THE PARTIES
3.1 Responsibilities of Click. Click shall have primary
-------------------------
responsibility for the following matters:
(a) Evaluating its existing customers and prospects to determine
which may provide marketing opportunities for Andersen
Consulting's services.
(b) Identifying highly qualified accounts as potential Andersen
Consulting customers. Click's first proposed customer shall be
disclosed to Andersen Consulting upon execution of this
Agreement, but shall not be considered a Designated Customer.
(c) Providing Andersen Consulting with reasonably sufficient
marketing materials for Click's products and services so that
Andersen Consulting may effectively perform its obligations
under this Agreement.
(d) Providing Andersen Consulting with a commercially reasonable
level of marketing and sales assistance consistent with
standard software industry practices, including but not
limited to: responding to phone calls from prospective
clients, providing proposal assistance, and providing tutorial
assistance.
(e) Providing Andersen Consulting with a commercially reasonable
level of support similar to that provided to Click personnel
in connection with Click's marketing efforts, including
answering technical questions, and where mutually agreed by
the joint project team leaders, supplying experts to support
detailed technical presentations and meetings.
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(f) Providing Andersen Consulting with a commercially reasonable
level of support similar to that provided to Click personnel
in connection with Click's system integration efforts,
including supplying, at no cost to Andersen Consulting,
documentation and dedicated telephone technical support
sufficient for Andersen Consulting to perform its role as a
system integrator.
(g) In the event Andersen Consulting elects to execute an
engagement to provide a Designated Customer with front-line
client support, Click shall treat Andersen Consulting
personnel in the same manner, and provide to them the same
commercially reasonable level of support, that Click would be
obligated to provide to employees of such Designated Customer
under the support and maintenance agreement between Click and
such Designated Customer (which may include telephone
technical support) during normal Click's business hours and
shall not impose an additional cost on Andersen Consulting
related to such services.
(h) Providing software maintenance, technical support, software
warranty and training services, to Designated Customers at
fees not to exceed Click's standard fees. Click agrees to
extend to each Designated Customer the same basic warranties
and indemnifications with respect to Click's software, goods
and services that Click generally extends to its clients;
provided, however, that Click shall not provide any warranties
or indemnifications with respect to any other software, goods
or services provided by Andersen Consulting or any other
entity. The terms of Click's warranties shall commence upon
delivery of the applicable product(s) to the Designated
Customer; provided, however, that upon Andersen Consulting's
prior written request, warranty coverage shall be extended for
a further period (not to exceed 90 days following installation
of the Click software, unless otherwise agreed by the parties)
as if the warranty commencement date did not occur until
installation and acceptance of the applicable product by the
Designated Customer. In such cases, Andersen Consulting shall
advise Click when the imputed warranty commencement date
commences.
(i) Other responsibilities as determined by the Management
Committee, from time to time.
3.2 Responsibilities of Andersen Consulting. Andersen Consulting
---------------------------------------
shall have primary responsibility for the following matters:
(a) Forming a dedicated team of Andersen Consulting consultants
whose objective will be to develop new business for Click
products and services based on the concept of an Enterprise
Channel Management offering.
(b) Evaluating its existing customers and prospects to determine
which may provide marketing opportunities for Click's products
and services.
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(c) Identifying highly qualified accounts as Designated Customers.
Andersen Consulting's first proposed Designated Customer shall
be disclosed to Click upon execution of this Agreement.
(d) Designing and developing non-customer specific marketing
materials, such as white papers, industry and products
analyses and other similar collateral materials to support the
joint marketing of Click products and services and Andersen
Consulting services under this Strategic Alliance Agreement.
(e) Providing Click with reasonably sufficient marketing materials
for Andersen Consulting's services so that Click may
effectively perform its obligations under this Agreement.
(f) Providing Designated Customers access to Andersen Consulting's
solution centers or other facilities as jointly agreed by the
account team leaders to be necessary or desirable to best
fulfill the functions and effectuate the purposes and goals of
this Strategic Alliance and subject to Andersen Consulting's
then-current policies regarding access to such solution
centers and facilities.
(g) Other responsibilities as determined by the Management
Committee, from time to time.
3.3 Joint Responsibilities of Click and Andersen Consulting. Click
-------------------------------------------------------
and Andersen Consulting shall have joint responsibility for the following
matters:
(a) Develop specific objectives, targets and plans for business
development for the benefit of both parties, including joint
support for marketing, investments, target segments and
specific Designated Customers or other accounts.
(b) To jointly develop an account strategy and plan with respect
to each of the Designated Customers, including the manner of
handling marketing to, and the management of, each Designated
Customer.
(c) To develop an appropriate strategy for maintaining, upgrading,
updating and supporting all of the software, goods and
services provided to Designated Customers.
(d) To prepare mutually acceptable written budgets estimating the
cost of implementing any agreed upon marketing effort to an
identified Designated Customer.
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(e) To provide training to marketing personnel for each of
Andersen Consulting and Click to enable each party to
effectively promote each other's products and services to
Designated Customers and other accounts.
(f) Andersen Consulting and Click will coordinate marketing
activity related to this Agreement on a regular basis. Such
marketing coordination may include:
- An initial joint marketing planning meeting
- Follow-up planning meetings every 3 months
- Monthly opportunity status reporting
(g) To create mutually acceptable website links on terms and
conditions agreed to by the parties.
3.4 Andersen Consulting's Appointment as "Click Preferred Systems
-------------------------------------------------------------
Integrator". During the term of this Agreement, Andersen Consulting shall be
- ----------
designated by Click as a "Click Preferred Systems Integrator" on a global basis
and shall promote Andersen Consulting as such where appropriate. Click shall
specify Andersen Consulting as a Click Preferred Systems Integrator on all Click
marketing materials which contain a listing of multiple systems integrators
recommended or preferred by Click. Andersen Consulting may also use this term on
any promotional or marketing materials it creates to market its services. During
the term of this Agreement, Click shall not designate more than one other "Click
Preferred Systems Integrator" or other equivalent designation (other than those
preferred systems integrators identified by Click to Andersen Consulting in
writing and acknowledged and agreed to by the Company prior to the date hereof)
and shall not appoint any systems integrator a status superior to that granted
to Andersen Consulting under this Agreement. This Agreement shall not preclude
Click from working or contracting with any other systems integrator.
3.5 Project-Based Consulting Services Arrangements. During the
----------------------------------------------
three year term of the Consulting Agreement (as defined below), Andersen
Consulting and Click shall mutually agree to Andersen Consulting separately
providing consulting services to Click under additional arrangement letters to
be attached from time to time to a consulting agreement agreed to by the parties
(the "Consulting Agreement").
3.6 Use or Recommendation of Competitors. Neither party will be
------------------------------------
restricted from: (i) recommending and marketing services or products which may
be competitive with the services or products of the other party if the
recommending or marketing party reasonably determines that such services or
products will better meet the needs of an entity; or (ii) subject to the terms
of this Agreement, entering into alliance or marketing arrangements with any
third party.
3.7 Compensation for Sales. Click does not have, and will not
----------------------
establish, an incentive compensation system for its sales personnel that reduces
the basis on which incentives are paid
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for sales of Click products and services to Designated Customers as compared to
sales to other Click customers.
3.8 Training of Andersen Consulting Personnel. Click will provide, at
-----------------------------------------
no cost to Andersen Consulting, up to sixteen (16) (i.e., four (4) per calendar
quarter) day-long training sessions on the use, installation and integration of
Click products for up to 10 Andersen Consulting personnel. If requested by
Andersen Consulting, and subject to available Click resources, Click shall
provide, and Andersen Consulting shall pay at 75% of Click's then current
standard rates for, additional requested training sessions. Andersen Consulting
shall be responsible for all costs of its personnel attending such sessions
(including any travel, lodging or similar expenses). Time spent by Andersen
Consulting personnel in such training sessions shall not be credited towards any
Andersen Consulting obligations under this Agreement or otherwise be chargeable
to Click as consulting services.
ARTICLE IV - COSTS AND PURSUING DESIGNATED CUSTOMERS
----------------------------------------------------
4.1 Costs. In consideration of the mutual benefits anticipated from
-----
successful efforts hereunder, each party shall bear its own respective costs,
expenses, risks and liabilities arising out of performance under the Strategic
Alliance, including, but not limited to the operations of this Strategic
Alliance and marketing to Designated Customers and other accounts (but excluding
any services provided by Andersen Consulting to Click pursuant to a separate
agreement). Each party may re-coup specified costs related to specific projects
for Designated Customers as approved by the Management Committee.
4.2 Pursuing Designated Customers.
-----------------------------
(a) With respect to each Designated Customer, the Management Committee
will decide whether the parties will proceed to (1) jointly propose according to
a teaming or prime/sub relationship or (2) jointly propose as two concurrent but
separate contractors. If the prime/subcontract relationship is pursued, the
Management Committee will also determine (i) which party will take the lead as
the prime contractor and which will perform as a subcontractor and (ii) the
scope of services to be provided by each party should a contract be awarded. The
parties agree to exert commercially reasonable efforts to cause each Designated
Customer to award a contract to the party designated as the prime contractor
(the "Prime") and to accept the party designated as the subcontractor (the
"Subcontractor") or to award separate contracts to each of Andersen Consulting
and Click, as applicable.
(b) The Prime shall consult with the Subcontractor but shall (i)
decide, in its reasonable discretion, the final form and content
of the Strategic Alliance's proposal to the Designated Customer
and (ii) retain final control of all post-award activities as
prime contractor, including but not limited to, program
management, technical direction and client liaison.
8
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(c) The Subcontractor shall (i) timely prepare and submit to the Prime
the substantive content of the Subcontractor's proposal; and (ii)
furnish appropriately qualified personnel, information and
materials as necessary, and shall devote substantial efforts to
assist the Prime in developing and preparing the proposal.
(d) If a contract is awarded to the Prime during the term of this
Agreement, the Prime and Subcontractor shall enter into a
subcontract for such work. The parties' obligations under this
subparagraph are conditioned on the client's approval, if
required, of the Subcontractor's participation as a subcontractor
and of the terms and conditions of the subcontract and agreement
by the parties as to the terms and conditions of the subcontract.
The parties agree that the subcontract shall include, but not be
limited to, the scope of work agreed to by the parties.
4.3 Audit. Not more frequently than once annually, Andersen Consulting
-----
may audit, or engage an independent certified public accountant to audit, the
books and records of Click related to the fees credited to Andersen Consulting
under the performance warrant to purchase Click common stock issued to Andersen
Consulting by Click on the date hereof (the "Warrant")-. Andersen Consulting
shall pay for the cost of such certified public accountant unless the inspection
reveals that Click under reported the fees credited to Andersen Consulting by
more than ten percent (10%) of the revenues actually remitted. In such case, the
Click shall pay all reasonable costs of the certified public accountant.
ARTICLE V - LICENSE AND OWNERSHIP OF
------------------------------------
INTELLECTUAL PROPERTY RIGHTS
----------------------------
5.1 Use of Marks in this Strategic Alliance. Andersen Consulting may
---------------------------------------
use the Click Marks as agreed by Click prior to such use, and Click may use the
Andersen Consulting Marks as agreed by Andersen Consulting prior to such use,
and, in each case, only in the manner agreed to by the consenting party. Except
as provided in the prior sentence or as otherwise agreed by the parties, neither
party shall use the other party's trademarks or service marks without the prior
written consent of the other party.
5.2 Use of Click Marks. Subject to the terms and conditions of this
------------------
Agreement, following the consent of Click with regard to Click Marks as
contemplated by Section 5.1 (each a "Click Disclosure Agreement"), Click hereby
grants to Andersen Consulting a license to use the Click Marks solely as
provided in the Click Disclosure Agreement in connection with promoting Click's
software, goods and services pursuant to this Agreement. Andersen Consulting
agrees to use the Click Marks solely in the form provided to Andersen Consulting
by Click, and otherwise in accordance with Section 5.1 hereof and Click's
then-current trademark use policies, as well as any written instructions given
by Click. Andersen Consulting recognizes and acknowledges that the Click Marks
represent valuable goodwill and must be used only in connection with goods and
services of the highest quality. Andersen Consulting agrees that with regard to
its use of the Click Marks, that it shall not act in any manner which would be
reasonably expected to impair or reduce their value, or use them in connection
with any products
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or services which are or could be inconsistent with the image and goodwill
represented by the Click Marks. Andersen Consulting agrees that the Strategic
Alliance's use, or its use of the Click Marks shall inure to the benefit of
Click. Ownership of the Click Marks shall always be held by Click, and Click
shall not at any time challenge, contest or call into question the validity, or
Click's rights in, the Click Marks or any registration thereof. Andersen
Consulting agrees that the scope of the foregoing license does not permit
Andersen Consulting to use Click's intellectual property other than in
connection with the performance of its responsibilities pursuant to this
Agreement.
5.3 Use of Andersen Consulting Mark. Subject to the terms and
-------------------------------
conditions of this Agreement, following the consent of Andersen Consulting with
regard to Andersen Consulting Marks as contemplated by Section 5.1 (the
"Andersen Consulting Disclosure Agreement"), Andersen Consulting hereby grants
to Click a license to use the Andersen Consulting Mark solely as provided in the
Andersen Consulting Disclosure Agreement, in connection with promoting Andersen
Consulting's services pursuant to this Agreement. Click agrees to use the
Andersen Consulting Marks solely in the form provided to Click by Andersen
Consulting in accordance with Section 5.1 hereof and Andersen Consulting's
then-current trademark use policies, as well as any written instructions given
by Andersen Consulting as to use of the Andersen Consulting Mark. Click
recognizes and acknowledges that the Andersen Consulting Marks represent
valuable goodwill and must be used only in connection with services of the
highest quality. Click agrees that with regard to its use of the Andersen
Consulting Marks, that it shall not act in any manner which would be reasonably
expected to impair or reduce the value of any of the Andersen Consulting Mark,
or use the Andersen Consulting Mark in connection with any products or services
which are or could be inconsistent with the image and goodwill represented by
the Andersen Consulting Mark. Click agrees that the Strategic Alliance's use, or
its use of the Andersen Consulting Mark shall inure to the benefit of Andersen
Consulting. Ownership of the Andersen Consulting Marks shall always be held by
Andersen Consulting, and Click shall not at any time challenge, contest or call
into question the validity, or Andersen Consulting's rights in, the Andersen
Consulting Mark or any registration thereof. Click agrees that the scope of the
foregoing license does not permit Click to use Andersen Consulting's
intellectual property other than in connection with the performance of its
responsibilities pursuant to this Agreement.
5.4 Intellectual Property Rights.
----------------------------
(a) Each party will retain ownership of any assets or materials they
bring to this Agreement, such as software, designs, methodology
and knowledge capital. Unless otherwise agreed to, the parties
will each directly license their own materials to the Designated
Customer. Intellectual property rights and licenses with respect
to software developed by Andersen Consulting for Click in
connection with Click products shall be covered by separate
agreements between the parties and such Designated Customers.
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(b) Notwithstanding anything to the contrary herein, the provisions of
this Section 5.4(b) relate solely to the development of certain
items, including, but not limited to, high level software
interface designs, high level product offering customization
information, documentation, marketing collateral, workplans and
training materials (collectively, "Materials") to be used in
connection with this Strategic Alliance during the joint marketing
and/or the engagement process with prospective clients. Materials
shall not include any items or deliverables developed for or
licensed to a party by the other under a separate contractual
arrangement. As between the parties, the ownership and
intellectual property rights to the Materials will fall into the
following three categories:
(i) Click Developed and Owned: All Materials developed by
Click's personnel and any software and product offering
related items (such as training, documentation and
marketing collateral) upon which Click contributes
materially (financial or otherwise) to the development of
will be considered to be owned by Click. If such Materials
contain Confidential Information of Andersen Consulting,
the applicable portions of such Materials will be
designated as such and will be distributed subject to the
terms of a proprietary information agreement agreed to by
Andersen Consulting.
(ii) Andersen Consulting Developed and Owned: Any Materials
developed by Andersen Consulting or a sales prospect with
minimal assistance from Click personnel or minimal
financial contribution by Click will be owned by Andersen
Consulting. If such Materials contain Confidential
Information of Click, the applicable portions of such
Materials will be designated as such and will be
distributed subject to the terms of a proprietary
information agreement agreed to by Click.
(iii) Jointly Developed: Ownership rights to Materials jointly
developed by Click and Andersen Consulting will be jointly
shared by the parties. Neither party shall have any
obligation to account to the other for its use of any
jointly owned Materials; provided, however, that neither
party shall license or provide access to such jointly
owned Materials to a competitor of either Andersen
Consulting or Click, or create an alliance involving any
such jointly owned Materials with such a competitor,
without the prior written agreement of the other party.
(f) The parties will cooperate with each other and execute such other
documents as may be appropriate to achieve the objectives of this
Section. Notwithstanding the above provisions of this Section
regarding ownership, each party shall have a license to use
Materials owned by the other party (as provided for in this
Section) as necessary to fulfill the purposes of this Agreement.
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(g) Subject to each party's confidentiality obligations, each party
reserves the right to use any skills, knowledge or techniques used
or acquired while providing services to or for a prospective
client, provided such skills, knowledge or techniques are not
owned by the other party.
5.5 Limited Marketing License. Subject to the terms and conditions of
-------------------------
this Agreement, Click hereby grants to the AC Entities a
worldwide, non-exclusive, non-transferable, paid-up license to
market, promote, use, install, copy, reproduce, and display, on an
as-needed basis, Click's software and product offering, and on a
case-by-case basis with the prior consent of Click, to develop
enhancements, modifications, and derivative works of such software
and product offering during the term of this Agreement for the
following purposes: marketing, promoting and demonstrating the
software and product offerings in exhibits, in all present and
future Andersen Consulting facilities, and to potential sales
prospects; developing and demonstrating implementation methodology
and application programs utilizing the Click's software and
product offerings; training Andersen Consulting personnel; and in
conjunction with providing products and services to clients of
Click and Andersen Consulting.
5.6 Licenses for Embedded Software. Click will be solely responsible
------------------------------
for obtaining any and all rights necessary to allow Andersen
Consulting to market, in accordance with this Agreement, any third
party components contained in Click's software and/or product
offering, including responsibility for any administrative or
financial arrangements in relation to such third party components.
5.7 Non-Solicitation of Employees. For the period of this Agreement
-----------------------------
and for one (1) year after any termination or expiration hereof, neither party
shall directly, or indirectly through any other individual, person or entity
owned or controlled by any of them, solicit for employment or employ any
"Employee" of the other party. For purposes of this Section 5.7, "Employee"
shall mean and include all persons employed by a party in relation to the
performance of any services related to this Agreement. However, either party
shall have the right to hire any Employee who, without other solicitation
targeted to such Employee, responds to employment advertising in the newspapers,
trade publications, website or other public commercial media or any unsolicited
walk-in candidates not related to this Agreement. The parties expressly
acknowledge the materiality of this covenant.
ARTICLE VI - TERM AND TERMINATION
---------------------------------
6.1 Initial Term. Unless otherwise terminated as hereinafter set
------------
forth, this Agreement shall be effective as of the date of execution by both
parties and continue in force for a period of three (3) years to and including
____, 2003 (the "Initial Term").
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6.2 Additional Terms. Unless terminated by either party by written
----------------
notice served thirty (30) days prior to the expiration of the Initial Term or
any additional term, the term of this Agreement will be extended for successive
one year periods.
6.3 Termination Upon Default. If either party defaults at any time in
------------------------
the performance of its material obligations hereunder, and such default is not
cured within thirty (30) days after written notice thereof is given to the
defaulting party by the non-defaulting party, the non-defaulting party shall
have the right to terminate this Agreement by giving written notice of
termination to the defaulting party that this Agreement is terminated effective
fifteen (15) days after the date upon which the notice of termination is given.
Notwithstanding the foregoing sentence, either party may terminate this
Agreement immediately upon written notice to the other party in the event such
other party breaches its confidentiality obligations or the intellectual
property licensing provisions of this Agreement.
6.4 Click Change of Control. Upon a Click Change of Control, Andersen
-----------------------
Consulting shall have the right to terminate this Agreement by giving written
notice of termination to Click that this Agreement is terminated effective
fifteen (15) days after the date upon which the notice of termination is given.
"Click Change of Control" shall mean the occurrence of any of the following with
regard to Click: (A) the sale, lease, transfer, conveyance, or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of Click to any "person"
or "group" (as such terms are used in Section 13(d) and Section 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or any
successor provisions), (B) the adoption of a plan relating to the liquidation or
dissolution of Click, (C) the consummation of a transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" or "group" (as defined above) becomes the "beneficial owner" (as
defined in Rule 13d-3 and 13d-5 of the Exchange Act), directly or indirectly, of
more of than 35% of the voting power of Click (excluding from the definition of
"person" the individuals or entities owning common stock of Click on the date of
issuance of this Warrant), (D) the consummation of a transaction (including,
without limitation, any merger or consolidation) the result of which is that any
"person" or "group" (as defined above) which is, or includes, an AC Competitor
becomes the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 of the
Exchange Act), directly or indirectly, of more of than 20% of the voting power
of Click (excluding from the definition of "person" the individuals or entities
owning common stock of Click on the date of issuance of this Warrant), or (E)
the first date on which a majority of the members of the Board of Directors of
Click are not "Continuing Directors". "Continuing Directors" means, as of the
date of determination, any member of the Board of Directors of Click who (x) was
a member of the Board of Directors on the date prior to the transaction or
series of transactions resulting in the Click Change of Control or (y) was
nominated for election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of such Board of
Directors at the time of such nomination or election. Click shall provide prompt
written notice to Andersen Consulting of any Click Change of Control.
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6.5 Insolvency. Either party shall have the right to terminate this
----------
Agreement in the event of the insolvency of the other party.
6.6 Effect of Termination.
---------------------
(a) Upon termination or expiration of this Agreement, each party shall
(1) promptly return to the other party or dispose of as mutually
agreed, all advertising materials and other properties, including
all confidential materials, furnished to it by the other party
pursuant to this Agreement, (2) immediately cease holding itself
out, in any manner, as affiliated with the other party, except as
may be provided in any surviving separate agreement, and (3)
discontinue any and all use of trade names and/or trademarks as
provided for under this Agreement, except as necessary for either
party to fulfill its obligations to a Designated Customers and
under proposals issued to sales prospects.
(b) Termination or expiration of this Agreement shall not result in a
diminution or modification of obligations of either party to
provide ongoing services to a client or with respect to the
parties' obligations, if any, relating to any proposals issued
prior to such termination or expiration. Each party may continue
to exercise the rights and licenses granted hereunder to the
extent necessary to allow such party to fulfill its obligations
under agreements with clients or included in any proposal to a
sales prospect that was outstanding at the time of termination or
expiration. Andersen Consulting specifically shall retain the
right to use the Click's software and/or product offerings for as
long as necessary to meet any obligations or services that
Andersen Consulting has undertaken. Andersen Consulting shall also
continue to have the right to use and access Click's software
and/or product offerings to allow Andersen Consulting to fulfill
its obligations to sales prospects to whom a proposal has been
submitted or to clients to whom Click's software and/or product
offerings has been implemented. Solely in support of the
foregoing, Click agrees to provide Andersen Consulting with
continued access to Click's software and product offerings
(including source code and documentation) to enable Andersen
Consulting to meet its obligations to sales prospects and/or to
clients.
(c) In the event of a termination of this Agreement by Andersen
Consulting pursuant to Section 6.3, Andersen Consulting shall
have no obligation to pay any amount otherwise required to be paid
as a result of Andersen Consulting failing to satisfy the revenue
generation requirements provided for in the Warrant.
ARTICLE VIII-COMPLIANCE WITH LAWS AND REGULATIONS
-------------------------------------------------
Both parties agree to comply with all United States laws and
regulations regarding export licenses or the control or regulation of
exportation or re-exportation of materials supplied to each other hereunder.
Both Andersen Consulting and Click further agree to take the required steps
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necessary to satisfy any laws or requirements to declare, file, record or
otherwise render this Agreement valid. Both parties agree not to use all or any
portion of any compensation received hereunder to make or offer a direct or
indirect payment or gift to any employee, officer or representative of any
government or government agency or other instrumentality under circumstances
where the payment or gift would constitute an illegal payment under the laws of
any applicable jurisdiction.
ARTICLE IX - WARRANTIES/INDEMNIFICATION/LIABILITY
--------------------------------------------------
9.1 Warranties.
----------
(a) EXCEPT AS PROVIDED IN PARAGRAPH (b) BELOW, EACH PARTY ACCEPTS THE
OTHER PARTY'S MATERIAL UNDER THIS AGREEMENT "AS IS". NEITHER PARTY
EXTENDS ANY WARRANTIES TO THE OTHER REGARDING THE MATERIAL,
EXPRESSED OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
(b) Each party represents and warrants that:
i) the execution, delivery and performance by it of this
Agreement is within its powers and has been duly authorized
by all necessary action on its part;
ii) this Agreement constitutes a legal, valid and binding
agreement enforceable against it in accordance with its
terms;
iii) the execution, delivery and performance of this Agreement by
such party will not be in violation of any applicable law or
governmental regulation (including, but not limited to, any
applicable immigration laws);
iv) the execution, delivery and performance of this Agreement
does not and will not contravene or conflict with,
constitute a default under, or give rise to any right of
termination, loss of benefit or other adverse action under
any agreement to which it is a party.
9.2 Indemnification.
---------------
(a) Click agrees to indemnify and hold harmless the AC Entities, and
their respective officers, directors, employees, partners,
principles and agents, and Andersen Consulting agrees to indemnify
and hold harmless Click, and its officers, directors, employees,
partners, principles and agents, from and against any and all
amounts payable under any judgment, verdict, court order or
settlement payable to third parties (other than affiliates of the
indemnified party) for death or bodily injury or the damage to or
loss or destruction of any tangible personal property to the
extent arising out of the negligence in the performance of this
Agreement of the indemnifying party.
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(b) Click agrees to defend, indemnify and hold harmless the AC
Entities, and their respective officers, directors, employees,
partners, principles and agents, from any and all liabilities,
damages, costs and expenses, including reasonable attorneys' fees,
incurred as a result of any claim asserted by a third party (other
than affiliates of Click) that any of the Click software or
product offerings, or any enhancement, update, modification or
addition to any Click software or product offering created or
otherwise provided by Click to AC Entities or a Designated
Customer hereunder or any of Click's services provided to a
Designated Customer infringe any copyright, United States
trademark, or any trade secret. Click agrees to promptly notify
Andersen Consulting of any claims of infringement against Click's
services, software or product offerings that may be relevant to
past or future Andersen Consulting engagements or Andersen
Consulting's marketing activities related to Click products or
services of which the executive of Click appointed pursuant to
Section 2.1 has knowledge.
(c) Andersen Consulting agrees to defend, indemnify and hold harmless
Click, and its officers, directors, employees, partners,
principles and agents, from any and all liabilities, damages,
costs and expenses, including reasonable attorneys' fees, incurred
as a result of any claim asserted by a third party (other than
affiliates of Andersen Consulting) that any of Andersen
Consulting's services to a Designated Customer infringe any
copyright, United States trademark or any trade secret. Andersen
Consulting agrees to promptly notify Click of its knowledge of any
claims of infringement against Andersen Consulting as a result of
Andersen Consulting integrating or implementing Click's products
or software and which may be relevant to past or future Click
engagements of which the executive of Andersen Consulting
appointed to pursuant Section 2.1 has knowledge.
(d) If any action, suit, proceeding or investigation is commenced, the
indemnified party shall notify the indemnifying party with
reasonable promptness in writing, including therewith copies of
any papers served; provided, however, that any failure by
indemnified party to notify the indemnifying party shall not
relieve the indemnifying party from its obligations hereunder
unless the indemnifying party has been materially prejudiced by
such delay. Upon receiving any such notification, the indemnifying
party may elect to assume the defense of any such action, suit,
proceeding or investigation. In the event the indemnifying party
fails to assume the defense of any indemnification claim, then
indemnified party shall have the right to retain counsel of its
own choice to represent it, and the indemnifying party shall pay
the reasonable fees, expenses and disbursement of such counsel,
and such counsel shall, to the extent consistent with its
professional responsibilities, cooperate with the indemnifying
party and any counsel designated by the indemnifying party. The
indemnifying party shall be liable for any settlement of any claim
against indemnified party made with the indemnifying party's
written consent, which consent shall not be unreasonably withheld
or delayed. The indemnifying party shall not, without the prior
written
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consent of indemnified party (which consent shall not be
unreasonably withheld or delayed), settle or compromise any
claim, or permit a default or consent to the entry of any
judgment in respect thereof, unless such settlement, compromise
or consent includes, as an unconditional term thereof, the giving
by the claimant to indemnified party of an unconditional and
irrevocable release from any liability in respect of any such
claim (except for claims to the extent they resulted from any
gross negligence or willful misconduct of indemnified party).
9.3 Limitation of Liability.
-----------------------
(a) Except as provided in Section 9.2, each party's entire liability
to the other party, and such other party's sole and exclusive
remedy for damages concerning performance or nonperformance by a
party under or in relation to this Agreement shall be limited to
the payment by a party of actual damages of the other party not
to exceed $100,000.
(b) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
ANY CLAIM BASED UPON ANY THIRD PARTY CLAIM OR FOR ANY INDIRECT,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT
LIMITATION LOSS OF USE, TIME OR DATA, INCONVENIENCE, COMMERCIAL
LOSS, LOST PROFITS OR SAVINGS) TO THE FULL EXTENT SUCH MAY BE
DISCLAIMED BY LAW EVEN IF CLICK OR ANDERSEN CONSULTING HAS BEEN
APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING. No action,
regardless of form, arising out of this Agreement may be brought
by either party more than one (1) year after the cause of action
has accrued.
ARTICLE X - PROPRIETARY AND CONFIDENTIAL INFORMATION
----------------------------------------------------
10.1 During the term of this Agreement, either party may receive
information that the other party regards as confidential and proprietary. The
parties agree that all information which is clearly marked to indicate its
confidential and proprietary status or which is reasonably discernible as the
confidential information of the other party, if disclosed by one party to the
other in written, graphic, recorded, photographic or any machine readable form,
or disclosed orally and reduced to writing within thirty (30) days after
disclosure, shall be considered "Confidential Information" and shall be subject
to the provisions of this Article X.
10.2 A party receiving Confidential Information (the "Receiving
Party") shall hold such information in strict confidence and shall not use,
disclose or duplicate such information except for the purpose of, and to the
extent required for, its performance under this Agreement. The Receiving Party
shall permit access to Confidential Information only to its and its affiliates'
partners, principals, directors, officers, employees, attorneys and auditors
having a need to know such information in order to perform fully this Agreement.
The Receiving Party shall ensure that such individuals are informed of the
confidential and proprietary status of such information and
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<PAGE>
of the restrictions on its use, disclosure and duplication contained in this
Agreement. In no event shall the Receiving Party utilize less than the same
degree of care with respect to the other party's Confidential Information as the
Receiving Party normally utilizes to safeguard and protect its own confidential
and proprietary information, or, in the event that such care is less than a
reasonable degree of care, no less than a reasonable degree of care.
10.3 The restrictions in this Article X shall not apply:
(a) If the Confidential Information is or becomes publicly
available without breach of this Agreement;
(b) If the Confidential Information is already known to the
Receiving Party at the date of disclosure as shown by the
Receiving Party's files and records, or it is rightfully
obtained by the Receiving Party from a third party without
restriction, or is independently developed by the Receiving
Party without reliance thereon;
(c) If the Disclosing Party has previously provided the
Confidential Information to any third party (including client
agencies or bureaus) without restriction; or
(d) To information independently developed by the Receiving Party
without use of the Confidential Information.
10.4 If the Receiving Party receives a subpoena, court order or
other legal process with respect to the Disclosing Party's Confidential
Information, the Receiving Party shall provide prompt notice to the Disclosing
Party and shall thereafter be entitled to comply with such subpoena, court order
or other legal process; provided, however, that the Receiving Party, if
requested by the Disclosing Party, at the Disclosing Party's own expense, shall
take, or allow the Disclosing Party to take, all reasonable legal steps to
oppose such disclosure. Click may disclose its business relationship with
Andersen Consulting, this Agreement, the Warrant and any other agreements
between the parties only to the extent appropriate or required under applicable
securities laws and regulations, provided that Click will use its reasonable
efforts to give Andersen Consulting as much prior written notice of such
disclosure as possible and, to the extent permitted by applicable law or
regulations, Click shall use commercially reasonable efforts to summarize and/or
redact any terms of such business relationship and contracts that are deemed
confidential by Andersen Consulting. Subject to the reasonable approval of
Click's legal counsel, Click will allow Andersen Consulting to participate in
and to assist Click in preparing any documentation necessary to summarize and/or
redact such confidential information from securities filings.
10.5 Nothing in this Agreement shall prohibit or restrict either
party's right to develop, use, or market products and services similar to the
Confidential Information of the other party as long as (a) the Receiving Party
shall not thereby breach this Agreement, and (b) such products and services are
independently developed by the Receiving Party without reliance the Disclosing
Party's Confidential Information.
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<PAGE>
10.6 Each party shall notify the other (a) immediately upon learning
of any unauthorized use, disclosure or duplication of Confidential Information
or (b) before using any Confidential Information without restriction in reliance
on the foregoing. Except as otherwise expressly set forth herein, no license or
other right or property interest under trademark, patent, copyright or other
legal theory is granted, transferred or implied with respect to Confidential
Information furnished by one party to the other pursuant to this Agreement.
10.7 Each party represents and warrants to the other that its
disclosure of any information pursuant to this Agreement shall not constitute an
infringement of any trade secret, trademark, patent, copyright or other
proprietary right of any third party and that it has all necessary and
appropriate legal rights to make such disclosures. Each party acknowledges that
the other party will suffer irreparable injury as a result of any misuse,
disclosure or duplication of its Confidential Information by the other party in
violation of the provisions of this Article X. Accordingly, either party shall
be entitled in such event to seek a preliminary and final injunctive relief
without a requirement to post bond in addition to any other applicable remedies,
including the recovery of damages.
10.8 Upon termination or expiration of this Agreement for any reason,
each party shall, at the option of the other party, immediately return to the
other party or destroy, and certify to the other party the destruction of all
Confidential Information and other documents, materials and properties of the
other party, together with any copies thereof or notes thereon held by each for
the purpose of performing this Agreement. Andersen Consulting and Click may
retain, subject to the terms of this Section, copies of the other party's
Confidential Information required for compliance with its recordkeeping or
quality assurance requirements.
10.9 In the event a party receives a Request for Proposal ("RFP") or
other information from a sales prospect, and such information is disclosed to
the other party to this Agreement, then such RFP and other information will be
considered Confidential Information. The parties agree not to disclose such RFP
and other information to anyone other than their employees who have a need to
know such information for the purposes of this Agreement without the prior
written permission of the disclosing party.
10.10 Except as (a) necessary to fulfill its obligations in relation to
the activities contemplated by this Agreement or (b) provided in Section 10.4
hereof, the parties shall keep the terms of this Agreement confidential.
ARTICLE XI - MISCELLANEOUS
--------------------------
11.1 Amendment. Except as expressly provided herein, neither this
---------
Agreement nor any term hereof may be amended, waived, modified, supplemental,
discharged or terminated other than by a written instrument signed by or on
behalf of all parties to this Agreement.
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11.2 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal substantive laws of the State of Illinois,
without giving effect to principles of conflict of law.
11.3 Notices. All notices, requests and demands, authorizations,
-------
approvals and other communications permitted or required to be given under the
provisions of this Agreement shall be in writing and shall be deemed to have
been given if delivered by hand or sent by, recognized overnight courier
service, certified or registered mail, postage prepaid, return receipt
requested, addressed as follows:
If to Andersen Consulting, to: Andersen Consulting, LLP
Suite 1900
200 Public Square
Cleveland, Ohio 44114
Attention: Roy K. Phelan
Fax: 216-535-6800
With a copy to:
Douglas G. Scrivner
161 Page Mill Road
Palo Alto, California 94304
Facsimile: (650) 842-2956
If to Click, to: Click Commerce, Inc.
Suite 4900
200 East Randolph Street
Chicago, IL 60601
Attention: Randy A. Gray
Fax: (312) 482-8557
Any party to this Agreement may, by notice given in accordance with the
provisions of this Section, designate a new person or address for notices and
other communications to such party. A notice of communication shall be deemed to
have been given as of (i) the date of delivery if hand delivered, (ii) the next
business day after delivery to a recognized overnight courier service if sent by
courier service, or (iii) three (3) business days after the date when placed in
the U.S. Mail, addressed and mailed as provided herein.
11.4 Publicity/Press Releases. Neither party may publicly announce
------------------------
this Agreement and the relationship this Agreement has established between
Andersen Consulting and Click without the mutual written consent of the parties,
which shall not be unreasonably withheld. The parties intend to issue a mutually
agreed upon joint press release describing the nature of the
20
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agreement and announcing the alliance between the parties. Both parties must
approve, in writing, the press release prior to its release.
11.5 Entire Agreement. This Agreement, together with the Exhibits
----------------
hereto, and, with respect to the matters not specifically covered hereunder,
that certain letter agreement between the parties, dated March 24, 2000,
together constitute the full and entire agreement and understanding among the
parties hereto in respect of the subject matter of this Agreement and such
letter agreement and supersede all prior and contemporaneous agreements and
understandings among the parties hereto in connection with such subject matter.
The terms of this Agreement shall not be contradicted, varied, supplemented or
modified by any course of dealing or course of performance between the parties,
trade practices, evidence of prior, contemporaneous or subsequent oral
agreements or discussions between the parties, or other extrinsic evidence of
any nature. No party shall be liable or bound to any other party in any matter
by any warranties, representations or covenants except as specifically set forth
herein.
11.6 Captions. The captions contained in this Agreement are included
--------
only for convenience of reference and do not define, limit, explain or modify
this Agreement or its interpretation, instruction or meaning and are in no way
to be construed as a part of this Agreement.
11.7 Waiver. Any waiver by any party of a breach of any provisions of
------
this Agreement shall not operate as or be construed to be a waiver of any other
breach of that provision or of any breach of any other provision of this
Agreement. The failure of any party to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be construed as a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
the term or any other term of this Agreement.
11.8 Severability. If any of this Agreement shall be determined to be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons and
circumstances. It is the intention of each party to this Agreement that if any
provisions of this Agreement is susceptible to two or more constructions, one of
which would render the provision enforceable and the other or others which would
render the provision unenforceable, then the provision shall have the meaning
which renders it enforceable.
11.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.10 Assignment. No party to this Agreement may sell, assign,
----------
transfer, pledge, hypothecate or otherwise convey any of its rights, or delegate
any of its duties, under this Agreement without the prior written consent of the
other parties hereto, other than by operation of law. Such consent shall not be
unreasonably withheld. Any attempted sale, assignment,
21
<PAGE>
transfer conveyance, or delegation in violation of this Section shall be void
and shall not relieve the party attempting to make such assignment of any
liability hereunder; provided, however, that, subject to Andersen Consulting's
right to terminate this Agreement following a Click Change of Control, nothing
contained in this Section 11.10 (or in Section 11.11 below), shall preclude or
otherwise restrict either party from selling equity or assets of its business to
a third party. Notwithstanding the foregoing, Andersen Consulting shall have the
right to cause this Agreement to be performed, in whole or in part, by an AC
Affiliate.
11.11 Successors and Assigns. All of the terms and provisions of this
----------------------
Agreement by or for the benefit of the parties hereto shall be binding upon and
inure to the benefit of their respective successors, permitted assigns, heirs
and personal representatives (including successive, as well as immediate
successors, assigns, heirs and personal representatives).
11.12 No Third Party Beneficiaries. This Agreement is made for the sole
----------------------------
benefit of the parties hereto and their respective successors, permitted
assigns, heirs and personal representatives and no other person or entity is
intended to or shall have any rights hereunder, whether as a third party
beneficiary by assignment under operation of law or otherwise.
11.13 Insurance. During the term of this Agreement each party shall
---------
maintain insurance coverage of a kind and in an amount that is commercially
reasonable and shall provide to the other party upon request certificates of
insurance coverage and shall promptly notify the other party of the cancellation
of any insurance policy maintained pursuant to this paragraph.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and date first written above.
ANDERSEN CONSULTING, LLP CLICK COMMERCE, INC.
By: ________________________________ By: ________________________________
Title: _____________________________ Title: _____________________________
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<PAGE>
Exhibit 10.9
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR SOLD
PURSUANT TO RULE 144(k), THE COMPLIANCE WITH WHICH IS DETERMINED TO THE
REASONABLE SATISFACTION OF THE COMPANY.
CLICK COMMERCE, INC.
Warrant to Purchase Common Stock
818,226 Shares
April 20, 2000 (the "Date of Issuance")
Click Commerce, Inc. (the "Company"), for value received, hereby certifies
that Andersen Consulting, LLP, or its permitted registered assigns (the
"Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company up to 818,226 shares (as adjusted from time to time
pursuant to the provisions of this Warrant) of Common Stock of the Company, at a
purchase price of $12.222 per share. The shares purchasable upon exercise of
this Warrant and the purchase price per share, as adjusted from time to time
pursuant to the provisions of this Warrant, are sometimes hereinafter referred
to as the "Warrant Stock" and the "Purchase Price," respectively.
1. Exercise.
--------
(a) Vesting. This Warrant shall vest for 10% of the total number of
-------
shares of Warrant Stock for each $4 million of cumulative Qualifying Revenue (as
defined below) under Qualifying Orders (as defined below) placed by Designated
Customers (as defined below) (each such $4 million increment is referred to
herein as a "$4 Million Increment"). Upon a Company Change of Control (as
defined below), the amount of cumulative Qualifying Revenue shall be
automatically increased to the next highest $4 Million Increment regardless of
whether sufficient Qualifying Revenue shall have been generated and a
corresponding amount of Warrant Stock shall vest as of such Company Change of
Control. This Warrant shall be canceled and shall not be exerciseable if, and to
the extent that, any shares of Warrant Stock shall not have vested by the fourth
anniversary of the Date of Issuance as a result of fees received pursuant to
Qualified Orders.
(i) "AC" shall mean Andersen Consulting LLP.
(ii) "AC Affiliate" shall mean and refer to all entities
throughout the world comprising the Andersen Consulting
worldwide
<PAGE>
organization (i.e., any Andersen Consulting entity having a
Member Firm Interfirm Agreement with Andersen Worldwide or
any successor entity to Andersen Worldwide, or any other
entity controlling, controlled by or under common control
with such an entity or a partner of Andersen Worldwide or
any successor entity). At the request of the Company, AC
shall promptly confirm whether any entity is an "AC
Affiliate".
(iii) "AC Competitor" shall mean those entities identified by AC
as competitors of AC Affiliates in a written notice to the
Company which is acknowledged and agreed to by the Company
prior to the Date of Issuance (the "Initial Competitors")
and such additional entities as the parties shall
reasonably agree from time to time compete with an AC
Affiliate in the same manner and to the same extent as the
Initial Competitors.
(iv) "Designated Customer" means an AC Entity or any other third
party that (A) is introduced to the Company by AC, AC
Affiliates or other parties reasonably agreed to by AC and
the Company (AC together with such AC Affiliates and other
entities, the "AC Entities") or (B) is introduced to AC by
the Company, and, in either case, as to which personnel of
the AC Entities play a material role, and the AC Entities
provide a reasonable level of assistance, in the marketing
efforts related to such party's decision to purchase or
license software, software goods or services from the
Company. AC shall notify the Company that the introduced
party would constitute a Designated Customer if a sale or
license shall be consummated. If the Company disagrees with
such designation, the Company shall notify AC within ten
(10) days after delivery of the designation notice by AC.
The Company may indicate its disagreement with such
designation only if the Company or any other party with
which the Company has engaged in joint marketing activities
(a "Click Marketing Partner") has had material contact with
the prospect which is the subject of the designation in the
180 days prior to receipt of the designation notice and
begun material marketing activities. The parties shall
diligently pursue the consummation of a Qualifying Order
with each Designated Customer and the Company shall
negotiate in good faith a Qualifying Order with such
Designated Customer. The parties agree to negotiate in good
faith to resolve any disputes with respect to the
designation of Designated Customers in a manner that
reflects the relative contributions of the parties.
(v) "Expiration Date" means the third anniversary of this
Agreement.
(vi) "Qualifying Order" means a definitive agreement (including
any purchase order and amendments to an agreement or
additional
2
<PAGE>
purchase orders issued under an agreement) for the purchase
or license of software, software goods and/or services from
the Company or a subsidiary entered into on or prior to the
Expiration Date.
(vii) "Qualifying Revenue" shall mean, with respect to each
Qualifying Order, fees (including software licenses and
consulting fees and on-going maintenance and support
services but excluding any taxes (other than taxes based on
the Company's net income), interest or similar charges with
respect to such purchase) determined as follows: (A) upon
execution of the Qualifying Order, 50% of the fees
indicated in the Qualifying Order to be received by the
Company or its subsidiaries (the "Initial Credit") shall
constitute "Qualifying Revenue" and (B) following the
initial recognition by the Company of fees under such
Qualifying Order equal to the Initial Credit, fees
initially recognized by the Company under such Qualifying
Order on or before the fourth anniversary of the Date of
Issuance shall constitute "Qualifying Revenue". Within 30
days following the end of each fiscal quarterly period or
within 10 days prior to the expiration or termination of
this Warrant for the period through such expiration or
termination, the Company shall give notice to the
Registered Holder of the recognition of such fees during
such immediately preceding quarterly period. The Company
shall calculate the recognition of fees pursuant to this
subsection in the same manner which the Company calculates
recognition of its revenue for financial accounting
purposes (which shall be in accordance with generally
accepted accounting procedures consistently applied)
provided that fees recognized for purposes of this
subsection shall not be subject to any subsequent
adjustment or amortization requirement.
(b) Manner of Exercise. Subject to the provisions of Section 1(a)
------------------
above, this Warrant may be exercised by the Registered Holder, in whole or in
part, by surrendering this Warrant, with the notice of exercise and if not
previously executed by the Registered Holder, the stockholder and investor
joinder agreement, appended hereto as Exhibits A and B, respectively, duly
executed by such Registered Holder or by such Registered Holder's duly
authorized attorney, at the principal office of the Company, or at such other
office or agency as the Company may designate, accompanied by payment in full of
the Purchase Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise. The Purchase Price may be paid by cash, check,
wire transfer, by the surrender of promissory notes or other instruments
representing indebtedness of the Company to the Registered Holder or by the
delivery of vested Warrants in a cashless exercise pursuant to Section 2(f)
hereof.
(c) Exercise Dates. This Warrant may be exercised only after the
--------------
earlier of (i) the number of shares of Warrant Stock being acquired have vested
in accordance with Section 1(a) above, or (ii) the closing date of a "Company
Change in Control" transaction with respect to
3
<PAGE>
the Company; provided, however, that this Warrant may not be exercised prior to
the first anniversary of the Date of Issuance. This Warrant may not be exercised
after the fourth anniversary of the Date of Issuance.
(i) "Company Change of Control" shall mean the occurrence of any
of the following with regard to the Company: (A) the sale,
lease, transfer, conveyance, or other disposition (other
than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the
assets of the Company to any "person" or "group" (as such
terms are used in Section 13(d) and Section 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") or any successor provisions), (B) the adoption of a
plan relating to the liquidation or dissolution of the
Company, (C) the consummation of a transaction (including,
without limitation, any merger or consolidation) the result
of which is that any "person" or "group" (as defined above)
becomes the "beneficial owner" (as defined in Rule 13d-3 and
13d-5 of the Exchange Act), directly or indirectly, of more
of than 35% of the voting power of the Company (excluding
from the definition of "person" the individuals or entities
owning common stock of the Company on the date of issuance
of this Warrant), (D) the consummation of a transaction
(including, without limitation, any merger or consolidation)
the result of which is that any "person" or "group" (as
defined above) which is, or includes, an AC Competitor
becomes the "beneficial owner" (as defined in Rule 13d-3 and
13d-5 of the Exchange Act), directly or indirectly, of more
of than 20% of the voting power of the Company (excluding
from the definition of "person" the individuals or entities
owning common stock of the Company on the date of issuance
of this Warrant) or (E) the first date on which a majority
of the members of the Board of Directors of the Company are
not "Continuing Directors" (as defined below).
(ii) "Continuing Directors" means, as of the date of
determination, any member of the Board of Directors of the
Company who (x) was a member of the Board of Directors on
the date prior to the transaction or series of transactions
resulting in the Company Change in Control or (y) was
nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors
who were members of such Board of Directors at the time of
such nomination or election.
(d) Effective Time of Exercise. Each exercise of this Warrant shall
--------------------------
be deemed to have been effected immediately prior to the close of business on
the day on which this Warrant shall have been surrendered to the Company as
provided in Section 1(b) above. At such time, the person or persons in whose
name or names any certificates for Warrant Stock shall be
4
<PAGE>
issuable upon such exercise as provided in Section 1(f) below shall be deemed to
have become the holder or holders of record of the Warrant Stock represented by
such certificates.
(e) Delivery to Holder. Within ten days after the exercise of this
------------------
Warrant, in whole or in part, the Company will cause to be issued in the name
of, and delivered to, the Registered Holder, or as such Registered Holder (upon
payment by such Registered Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of shares of
Warrant Stock to which such Registered Holder shall be
entitled, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in
the aggregate on the face or faces thereof for the number of
shares of Warrant Stock equal (without giving effect to any
adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares
purchased by the Registered Holder upon such exercise.
(f) Net Exercise. In lieu of cash exercising this Warrant, the
------------
Registered Holder may elect to receive shares equal to the value of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with notice of such election, in which
event the Company shall issue to the holder hereof a number of shares of Warrant
Stock computed using the following formula:
Y (A - B)
-----------
X = A
Where
X -- The number of shares of Warrant Stock to be issued to the
Registered Holder.
Y -- The number of shares of Warrant Stock as to which this Warrant is
being exercised.
A -- The fair market value of one share of the Company's Common Stock.
B -- The Exercise Price (as adjusted to the date of such
calculations).
For purposes of this Section 1(f), the fair market value of Common
Stock shall mean the average of the closing sale prices of the Common Stock
quoted on the Nasdaq Stock Market or the average of the high and low prices
reported in the consolidated reporting system if the Common Stock is traded on
any exchange, or the average of the bid and asked prices of the Common Stock on
such other over-the-counter market in which the Common Stock may be traded,
whichever is applicable, for the ten (10) trading days prior to the date of
determination of fair market value (or such shorter period of time during which
such stock was traded over-the-
5
<PAGE>
counter or on such exchange). If the Common Stock is not traded on the over-the-
counter market or on an exchange, the fair market value shall be the price per
share as shall be determined in good faith by the Company's Board of Directors.
The procedure for determination of the fair market value of the Common Stock as
described in this Section 1(f) is referred to as the "Fair Market Value
Procedure".
2. Adjustments.
-----------
(a) Stock Splits and Dividends. If outstanding shares of the
--------------------------
Company's Common Stock shall be subdivided into a greater number of shares or a
dividend in Common Stock shall be paid in respect of Common Stock, the Purchase
Price in effect immediately prior to such subdivision or at the record date of
such dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. As appropriate adjustments are made to the purchase
price payable per share, the aggregate Purchase Price payable for the total
number of Warrant Stock purchasable under the Warrant (as adjusted) shall remain
the same. When any adjustment is required to be made in the Purchase Price, the
number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior to
such adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(b) Reclassification. In case of any reclassification or change of
----------------
the outstanding securities of the Company or of any reorganization of the
Company (or any other corporation the stock or securities of which are at the
time receivable upon the exercise of this Warrant) or any similar corporate
reorganization on or after the date hereof, then and in each such case, as a
condition to such reclassification, change or reorganization, the holder of this
Warrant, upon the exercise hereof at any time after the consummation of such
reclassification, change, reorganization, merger or conveyance, shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities or property to which such holder would have been entitled upon
such consummation if such holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in Section 2(a) and
provided the aggregate Purchase Price payable for the total number of Warrant
Stock purchasable under the Warrant (as adjusted) shall remain the same; and in
each such case, the terms of this Section 2 shall be applicable to the shares of
stock or other securities properly receivable upon the exercise of this Warrant
after such consummation.
(c) Adjustment for Capital Reorganization, Merger or Consolidation.
--------------------------------------------------------------
In case of any capital reorganization of the capital stock of the Company (other
than a combination, reclassification, exchange or subdivision of shares
otherwise provided for in this Section 2), or any merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all the assets of the Company, then, and in each such case, as a condition of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made (and duly
6
<PAGE>
executed documents evidencing the same shall be delivered to the Registered
Holders) so that the Registered Holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the Purchase Price then in effect, the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon exercise of this Warrant would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Warrant had been exercised immediately before such
reorganization, merger, consolidation, sale or transfer, all subject to further
adjustment as provided in this Section 2. The foregoing provisions of this
Section 2(c) shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the Registered Holder hereof
for shares in connection with any such transaction is in a form other than cash
or marketable securities, then the value of such consideration shall be
determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Registered Holder after the
transaction, to the end that the provisions of this Warrant shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant.
(d) Adjustment Certificate. When any adjustment is required to be
----------------------
made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the
Company shall promptly (but in any event within 10 days) mail to the Registered
Holder a certificate setting forth (i) a brief statement of the facts requiring
such adjustment, (ii) the Purchase Price after such adjustment and (iii) the
kind and amount of stock or other securities or property into which this Warrant
shall be exercisable after such adjustment.
(e) Penalty. In the event that the AC Entities do not generate at
-------
least $40 million of Qualifying Revenue prior to the fourth anniversary of the
Date of Issuance, then the Registered Holder shall pay to the Company $700,000
(the "Penalty").
3. Transfers.
---------
(a) Unregistered Security. Each holder of this Warrant acknowledges
---------------------
that this Warrant and the Warrant Stock have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an
effective registration statement under the Securities Act as to this Warrant or
such Warrant Stock and registration or qualification of this Warrant or such
Warrant Stock under any applicable U.S. federal or state securities law then in
effect or (ii) unless the transfer is pursuant to Rule 144(k), compliance with
which has been determined to the reasonable satisfaction of the Company, or an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. Each certificate or other instrument for Warrant
Stock issued upon the exercise of this Warrant shall bear a legend substantially
to the foregoing effect.
7
<PAGE>
(b) Transferability. Subject to the provisions of Section 3(a) hereof
---------------
this Warrant and all rights hereunder are transferable, in whole or in part,
upon surrender of the Warrant with a properly executed assignment (in the form
of Exhibit C hereto) at the principal office of the Company.
(c) Warrant Register. The Company will maintain a register containing
----------------
the names and addresses of the Registered Holders of this Warrant. Until any
transfer of this Warrant is made in the warrant register, the Company may treat
the Registered Holder of this Warrant as the absolute owner hereof for all
purposes; provided, however, that if this Warrant is properly assigned in blank,
the Company may (but shall not be required to) treat the bearer hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary. Any Registered Holder may change such Registered Holder's address as
shown on the warrant register by written notice to the Company requesting such
change.
(d) Market Stand-Off Agreement.
--------------------------
(i) Without the express prior written consent of the Company's
Board of Directors, a Registered Holder shall not, directly
or indirectly, offer, sell, pledge, contract to sell
(including any short sale), grant any option to purchase or
otherwise dispose of this Warrant, any Warrant Stock, or any
Common Stock or other securities of the Company held by it
or enter into any Hedging Transaction (as defined below)
relating to any securities of the Company until 360 days
after the effective date of the registration statement for
the Company's initial public offering (its "IPO"). For
purposes of this Section 3(d), "Hedging Transaction" means
any short sale (whether or not against the box) or any
purchase, sale 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. The limitation of
this Section 3(d) with respect to pledges of Common Stock
shall not apply to a pledge, on or after April 10, 2001, by
a stockholder who acquires Common Stock upon exercise of
options granted as compensation for services if and to the
extent that such pledge serves as security for a loan to the
stockholder to satisfy his income tax liabilities arising
from such exercise; provided, however, that the pledgee of
such security shall enter into a written agreement binding
it to each of the pledgor's obligations hereunder with
respect to such pledged Common Stock.
(ii) Notwithstanding anything to the contrary in any agreement
between any party hereto and the Company, Registered Holder
further agrees that, if the Company's stockholders, prior to
the end of the period set forth in Section 3(d)(i), sell (i)
a material amount of Common Stock on an arm's-length basis
to third parties in one or more private transactions, or
(ii) any Common Stock in a
8
<PAGE>
registered public offering, Registered Holder and other
eligible stockholders of the Company shall be offered the
opportunity to participate in such sale on the same terms
and in an amount proportional to all other stockholders of
the Company based on their respective then-current
percentage fully-diluted ownership of Common Stock. For
example, if eligible stockholders of the Company (including
Investor) could sell an aggregate of 100,000 shares in such
a transaction, and the participating stockholders have an
aggregate 50% fully-diluted ownership interest in the
Company, a participating stockholder with a 10% interest
could sell 20,000 shares [10%/50% x 100,000 = 20,000] in
such transaction. Notwithstanding the general provisions of
the first sentence of this Section 3(d)(ii), any eligible
stockholder's (including Registered Holder's) participation
in any such transaction is subject to (x) such limitations
as may be imposed in good faith by the managing underwriter
of the public offering or (y) possible reduction to permit
such additional participation by parties as shall be
determined by the Company's Board of Directors to be in the
Company's best interests in light of its bona fide business
considerations. Any transaction complying with the first
sentence of this Section 3(d)(ii) shall be automatically
deemed to have been consented to by the Company's Board of
Directors for purposes of Section 3(d)(i). Any Company
stockholder or optionholder that has entered or
subsequently enters into a separate agreement with the
Company that contains a provision equivalent to this
Section 3(d) shall be considered an eligible stockholder of
the Company under this Warrant for purposes of determining
such holder's proportional participation in any
contemplated sale pursuant to this Section 3(d)(ii).
(iii) In addition to the restrictions contained in Section
3(d)(i), in connection with any public offering of the
Company's Common Stock after its IPO, Registered Holder, if
requested in good faith by the Company and the managing
underwriter of the Company's securities, shall further
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 this Warrant,
any Warrant Stock or any Common Stock or other securities
of the Company held by it or enter into any Hedging
Transaction relating to any securities of the Company until
90 days after the effective date of the registration
statement for such public offering or such earlier date as
shall be agreed to by such managing underwriter.
(iv) Registered Holder may distribute a portion of the rights to
purchase Warrant Stock under this Warrant, Warrant Stock or
Common Stock to its equity holders prior to and in
connection with any public offering of Common Stock, but
only if each such
9
<PAGE>
equity holder enters into a written agreement binding it to
Registered Holder's obligations hereunder. The Company's
Board of Directors may also approve similar transfers to
Registered Holder's affiliates and other related parties on
a case by case basis, provided, however, that each such
transferee enters into a written agreement binding it to
Registered Holder's obligations hereunder. Thereafter, each
such distributee shall be deemed to be a Registered Holder
for purposes of this Section 3(d) with respect to the rights
to purchase Warrant Stock under this Warrant or Warrant
Stock so transferred or shares of Common Stock so
distributed.
4. No Impairment. The Company will not, by amendment of its charter
-------------
or through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
5. Termination. This Warrant (and the right to purchase securities
-----------
upon exercise hereof) shall terminate at 5:00 p.m. Central Time on the fourth
anniversary of the Date of Issuance. Following a Company Change in Control, the
Registered Holder shall have the right to terminate this Warrant upon written
notice to the Company given within 6 months of the Company Change of Control
and, as of the date of termination specified in such notice, this Warrant shall
terminate and be of no force and effect. Prior to the date of termination
specified in such notice, the Registered Holder shall have the right to exercise
this Warrant with respect to the Warrant Stock vested prior to the date of
termination.
6. Representations and Warranties. Except as set forth on Schedule
------------------------------
6, the Company hereby represents and warrants to Registered Holder as follows:
(a) Organization; Corporate Power. The Company is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of
Delaware. The Company will have at the date of issuance of this Warrant ("Date
of Issuance") all requisite legal and corporate power to execute and deliver
this Warrant, to sell and issue the Warrant Stock upon exercise hereof in
accordance with the terms set forth herein, and to carry out and perform its
obligations under the terms of this Warrant.
(b) Authorization. All corporate action on the part of the
-------------
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Warrant by the Company, the
authorization, sale, issuance and delivery of the Warrant Stock and the
performance of all of the Company's obligations under this Warrant has been
taken or will be taken prior to the Date of Issuance. This Warrant, when
executed and delivered by the Company, shall constitute a valid and binding
obligations of the Company enforceable against the Company in accordance with
its terms. The shares of Common Stock issuable upon conversion of the Warrant
have been duly and validly reserved and, when issued in compliance with the
provisions of this Warrant, will be validly issued, fully paid and
nonassessable, and such
10
<PAGE>
Common Stock will be free of any liens or encumbrances other than those created
by or imposed upon the holders thereof through no action of the Company;
provided, however, that the Warrant Stock may be subject to restrictions on
transfer under this Warrant and under state and/or federal securities laws. The
Warrant Stock is not subject to any preemptive rights or rights of first
refusal.
7. Notices of Certain Transactions.
-------------------------------
(a) If the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of stock of any class
or any other securities, or to receive any other right, or
(b) Upon the earlier of the Company approving, entering into an
agreement for or consummating any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company, any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the surviving entity and which does not result in any reclassification or
change in the outstanding securities issuable upon exercise of this Warrant), or
any transfer of all or substantially all of the assets of the Company (but in
any event not less than 10 days prior to a Company Change of Control), or
(c) Upon the earlier of the Company approving, entering into an
agreement for or consummating of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
(d) then, and in each such case, the Company will cause to be
delivered by reputable overnight courier to the Registered Holder of this
Warrant a notice specifying, as the case may be, (i) the date on which a record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, or
(ii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Warrant Stock (or such other stock or securities at the time
deliverable upon such reorganization, reclassification, consolidation, merger,
transfer, dissolution, liquidation or winding-up) are to be determined (but in
any event such notice shall be sent not less than 10 days prior to a Company
Change of Control), Such notice shall be sent at least ten days prior to the
record date or effective date for the event specified in such notice.
11
<PAGE>
8. Reservation of Stock. The Company will at all times reserve and keep
--------------------
available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
--------------------
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 3
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Warrant Stock called for on the
face or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case or loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Notices. Any notice required or permitted by this Warrant shall be in
-------
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service or confirmed facsimile, or 48 hours
after being deposited in the regular mail as certified or registered mail
(airmail if sent internationally) with postage prepaid, addressed (a) if to the
Registered Holder, to the address of the Registered Holder most recently
furnished in writing to the Company and (b) if to the Company, to the address
set forth below or subsequently modified by written notice to the Registered
Holder.
12. No Rights as Stockholder. Until the exercise of this Warrant, the
------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
13. No Fractional Shares. No fractional shares of Warrant Stock will be
--------------------
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Warrant Stock on the date of exercise, as determined pursuant to the Fair Market
Value Procedures.
14. Amendment or Waiver. Any term of this Warrant may be amended or waived
-------------------
only by an instrument in writing signed by the party against which enforcement
of the amendment or waiver is sought.
12
<PAGE>
15. Headings. The headings in this Warrant are for purposes of reference
--------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
16. Governing Law. This Warrant shall be governed, construed and
-------------
interpreted in accordance with the laws of the State of Illinois, without giving
effect to principles of conflicts of law.
17. Severability. If one or more provisions of this Warrant are held to be
------------
unenforceable under applicable law, such provision shall be excluded from this
Warrant and the balance of the Warrant shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms.
CLICK COMMERCE, INC.
By: /s/ Michael W. Ferro, Jr.
-------------------------------
Michael W. Ferro, Jr.
Title: Chief Executive Officer
Address: 200 East Randolph Street
49th Floor
Chicago, IL 60601
Fax Number: (312) 482-8557
13
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
CLICK COMMERCE, INC.
Dated: __________________
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder, the
securities of Click Commerce, Inc., as provided for therein, and tenders
herewith either (a) payment of the exercise price in full in the form of cash or
a certified or official bank check in same-day funds in the amount of
$____________________ for _________ such securities or (b) shares of common
stock of Click Commerce, Inc. pursuant to Section 1(f) of the Warrant.
Please issue a certificate or certificates for such securities in the
name of, and pay any cash for any fractional share to (please print name,
address and social security number):
Name:
Address:
Signature:
Note: The above signature should correspond exactly with the name on the
first page of this Warrant or with the name of the assignee appearing
in the assignment form below.
If said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder
rounded up to the next higher whole number of shares.
<PAGE>
EXHIBIT B
Form of Stockholder and Investor Joinder Agreement
--------------------------------------------------
Undersigned hereby agrees, effective as of April 20th, 2000, to become
a party to that certain Amended and Restated Stockholders and Rights Agreement
(the "Agreement"), dated as of July 9, 1999, by and among Click Commerce Inc.
(formerly known as Click Interactive, Inc.) and the other parties named therein,
and for all purposes of the Agreement, undersigned shall be included within the
term "Investor" and "Stockholder" (each as defined in the Agreement). The
address and facsimile number to which notices may be sent to undersigned is as
set forth below:
AC Ventures B.V
By:__________________________________
Name:________________________________
Title:_______________________________
Address: c/o Anderson Consulting, LLP
1661 Page Mill Road
Palo Alto, California 94304
Fax:
<PAGE>
EXHIBIT C
ASSIGNMENT FORM
FOR VALUE RECEIVED, _____________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant with respect to the number of shares of Warrant Stock covered
thereby set forth below, to:
Name of Assignee Address/Fax Number No. of Shares
Dated:_________________ Signature: ___________________
Witness: __________________________
<PAGE>
EXHIBIT 10.10
CONSULTING AND NON-COMPETITION AGREEMENT
----------------------------------------
THIS CONSULTING, AND NON-COMPETITION AGREEMENT (this "Agreement"), dated as
of April 1, 2000 between CLICK COMMERCE, INC., a Delaware corporation (the
"Company"), and Les Shroyer (the "Consultant").
WHEREAS, Consultant has valuable knowledge regarding the Company's industry
and business;
WHEREAS, the Company desires to retain the Consultant to obtain the benefit
of Consultant's service and allegiance, and the Consultant desires to accept
such retention, upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual premises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Consulting Relationship. The Company hereby engages the Consultant as a
-----------------------
consultant, and the Consultant agrees to accept such engagement, upon the terms
and conditions set forth herein. The Company and Consultant do hereby
acknowledge that the relationship between Company and Consultant shall be solely
that of an independent contractor and that Consultant shall not be treated as an
employee for any purpose.
2. Consulting Period. The term of this Agreement hereunder shall commence on
-----------------
the date hereof and continue until terminated as provided herein (the
"Consulting Period"). It is anticipated that Consultant shall spend
approximately 100 days during calendar year 2000 performing consulting services
for the Company.
3. Consulting Services. Consultant shall provide services in the following
areas:
(a) market requirements and product definition decisions (feature and
functionaility strategy),
(b) product architecture and application definition;
(c) marketing message development for enterprise clients;
(d) business development for strategic relationships with systems
integrators and vendors with whom the Company must integrate; and
other related matters as may reasonably be requested by the Company from
time to time during the Consulting Period.
4. Other Activities. During the Consulting Period, the Consultant may engage
----------------
in any other business or professional activities, either on a full-time or part-
time basis, so long as such activities, either singly or in the aggregate, do
not interfere with the proper performance of his duties and responsibilities to
the Company or violate the provisions of Sections 7 or 9 hereof.
<PAGE>
5. Compensation and Other Terms of Engagement.
-------------------------------------------
(a) Compensation. In consideration of the performance of his services for
------------
the Company as required hereunder, during the Consulting Period, Consultant
shall be granted options to purchase 10,000 shares of common stock, par value
$0.001 per share, of the Company at an exercise price of $5.25 per share, which
options will be granted pursuant to, and be subject to vesting in accordance
with, the terms and conditions of the Click Commerce, Inc. Stock Option Plan and
the stock option agreement attached hereto as Exhibit A. Consultant shall
---------
receive no other compensation for his services hereunder.
(b) Taxes. Consultant shall be responsible for all taxes, including self-
-----
employment taxes due on payments made under this agreement.
(c) Business Expenses. The Company shall reimburse the Consultant for
-----------------
expenses (including, without limitation, travel and accommodations at the level,
class and manner provided to senior executive employees of the Company), which
the Consultant may from time to time reasonably incur on behalf of, and at the
request of the Company in the performance of services under this Agreement;
provided, however, that the Consultant shall be required to account to the
Company for such expenses in the manner prescribed by the Company. In
determining expenses reasonably incurred in the performance of his duties, the
Consultant shall be reimbursed consistent with the Company's policy on
reimbursement as applied to its senior executives.
6. Termination of Agreement. Either party may terminate Consultant's
------------------------
engagement hereunder at any time and for any reason by providing the other party
written notice of such termination.
7. Records and Confidential Data.
-----------------------------
(a) Acknowledgement of Confidential Information. The Consultant
-------------------------------------------
acknowledges that in connection with the performance of services as a consultant
pursuant to the terms of this Agreement the Company will make available to the
Consultant, or the Consultant will have access to, certain Confidential
Information (as defined below) of the Company and its affiliates. The Consultant
acknowledges and agrees that any and all Confidential Information learned or
obtained by the Consultant while engaged as a consultant to the Company or
otherwise whether developed by the Consultant alone or in conjunction with
others or otherwise, shall be and is the property of the Company and its
affiliates.
(b) Obligations Relating to Confidential Information. The Confidential
------------------------------------------------
Information will be kept confidential by the Consultant, will not be used in any
manner which is detrimental to the Company, will not be used other than in
connection with the Consultant's discharge of his duties hereunder, and will be
safeguarded by the Consultant from unauthorized disclosure.
(c) Return of Confidential Information. Following the termination of this
----------------------------------
Agreement, as soon as possible after the Company's written request, the
Consultant will return to the Company all written Confidential Information which
has been provided to the Consultant and the Consultant will destroy all copies
of any analyses, compilations, studies or other documents
2
<PAGE>
prepared by the Consultant or for the Consultant's use containing or reflecting
any Confidential Information.
(d) Confidential Information Defined. For the purposes of this Agreement,
--------------------------------
"Confidential Information" shall mean all confidential and proprietary
information of the Company, and its affiliates, including, without limitation,
the Company's marketing strategies, pricing policies or characteristics,
customers and customer information, product or product specifications, designs,
manufacturing processes, manufacturing costs, cost of materials, customer lists,
business or business prospects, plans, proposals, codes, marketing studies,
research, reports, investigations, or other information of similar character.
For purposes of this Agreement, the Confidential Information shall not include
and the Consultant's obligations under this Section 7 shall not extend to (i)
information which is generally available to the public, (ii) information
obtained by the Consultant from third persons not under agreement to maintain
the confidentiality of the same, (iii) information which is required to be
disclosed by law or legal process and (iv) information independently developed
by the Consultant without breach of this Agreement.
(e) Construction. Any reference to the Company in this Section 7 shall
------------
apply to the Company and/or its subsidiaries, as context requires. For the
purposes of this Agreement, with respect to the Company "subsidiaries" means any
entity in which the Company directly or indirectly owns an equity interest or
any interests convertible into an equity interest.
(f) Survival. This Section 7 shall survive the termination of this
--------
Agreement.
8. Assignment of Inventions.
------------------------
(a) Definition of Inventions. "Inventions" mean discoveries, developments,
------------------------
concepts, ideas, methods, designs, improvements, inventions, formulas,
processes, techniques, programs, know-how and data, whether or not patentable or
registerable under copyright or similar statutes, except any of the foregoing
that (i) is not related to the business of the Company or its affiliates, (ii)
does not involve the use of any equipment, supplies, facility or Confidential
Information of the Company, (iii) was developed entirely on the Consultant's own
time, and (iv) does not result from any work performed by the Consultant for the
Company.
(b) Assignment. The Consultant agrees to and hereby does assign to the
----------
Company, without further consideration, all of his right, title and interest in
any and all Inventions he may make during the term hereof.
(c) Duty to Disclose and Assist. The Consultant agrees to promptly
---------------------------
disclose in writing all Inventions to the Company, and to provide (without cost
or expenses to Consultant) all assistance reasonably requested by the Company in
the preservation of the Company's interests in the Inventions including
obtaining patents in any country throughout the world. Such services will be
without additional compensation.
(d) Ownership of Copyrights. The Consultant agrees that any work prepared
-----------------------
for the Company which is eligible for United States copyright protection or
protection under the Universal Copyright Convention, the Berne Copyright
Convention and/or the Buenos Aires
3
<PAGE>
Copyright Convention shall be a work made for hire and ownership of all
copyrights (including all renewals and extensions) therein shall vest in the
Company. If any such work is deemed not to be a work made for hire for any
reason, the Consultant hereby grants, transfers and assigns all right, title and
interest in such work and all copyrights in such work and all renewals and
extensions thereof to the Company, and agrees to provide all assistance
reasonably requested by the Company in the establishment, preservation and
enforcement of the Company's copyright in such work, such assistance to be
provided at the Company's expense but without any additional compensation to the
Consultant. The Consultant hereby agrees to and does hereby waive the
enforcement of all moral rights with respect to the work developed or produced
hereunder, including without limitation any and all rights of identification of
authorship and any and all rights of approval, restriction or limitation on use
or subsequent modifications.
(e) Litigation. The Consultant agrees to render assistance and cooperation
----------
to the Company at its request regarding any matter, dispute or controversy with
which the Company may become involved and of which the Consultant has or may
have reason to have knowledge, information or expertise. Such services will be
for reasonable compensation and subject to Consultant's reasonable availability.
(f) Construction. Any reference to the Company in this Section 8 shall
------------
apply to the Company and/or its subsidiaries, as context requires. For the
purposes of this Agreement, with respect to the Company "subsidiaries" means any
entity in which the Company directly or indirectly owns an equity interest or
any interests convertible into an equity interest.
(g) Survival. This Section 8 shall survive the termination of this
--------
Agreement.
9. Covenants Not to Compete.
------------------------
(a) Non-disclosure of Confidential Information and Trade Secrets.
------------------------------------------------------------
Consultant covenants and agrees that during the Consulting Period and
thereafter, except as may be required in performance of Consultant's services to
the Company, Consultant shall not disclose any Confidential Information. This
covenant is not intended to, and does not limit in any way Consultant's duties
and obligations to the Company under statutory and common law not to disclose or
make personal use of the Company's Confidential Information or trade secrets.
(b) Non-Interference with Customer Accounts. Consultant covenants and
---------------------------------------
agrees that during the Consulting Period and for a period of two (2) years
thereafter, Consultant shall not directly or indirectly, personally or on behalf
of any other person, business, corporation, or entity, contact or do business
with any customer of the Company with respect to any product, business or
activity which is competitive with any product business or activity of the
Company (a "Competitive Activity"). With regard to the Consultant's post-
Consulting Period obligations, this covenant applies to those customers and the
related entities of the customers to which the Company sold its products, parts
or services during the twelve-month period prior to the termination of the
Consulting Period, and those prospective customers with which the Company
actively pursued sales during the twelve-month period prior to such termination
(c) Non-Competition. Subject to such matters and activities as may be
---------------
approved by the Board of Directors of the Company in writing, Consultant
covenants and agrees that during
4
<PAGE>
the Consulting Period and for a period of two (2) years thereafter, Consultant
shall not directly or indirectly own an interest in, operate, join, control,
advise, consult to, work for, serve as a director of, have a financial interest,
or participate in any corporation, partnership, proprietorship, firm,
association, person, or other entity that engages (or engaged) in any
Competitive Activity at the time of termination of the Consulting Period and/or
during the six month period prior thereto. This Covenant (as defined below)
applies in any country, territory or jurisdiction in which the Company is doing
business or making an active effort to do business at the time that this
Agreement is terminated. This Covenant does not prohibit the mere passive
ownership of less than one percent (1%) of the outstanding stock of any publicly
traded corporation as long as Consultant is not otherwise in violation of this
Covenant.
(d) No Diversion. Consultant shall not divert or attempt to divert or
------------
take advantage of or attempt to take advantage of any actual or potential
business or opportunities of the Company or its subsidiaries, affiliates,
distributors or representatives, which Consultant became aware of as the result
of his engagement by the Company.
(e) Non-Recruitment. Consultant agrees that the Company has invested
---------------
substantial time and effort in assembling its present workforce. Accordingly,
Consultant covenants and agrees that during his employment and for a period of
two (2) years following the termination of his employment, Consultant shall not
hire away, nor directly or indirectly entice or solicit or seek to induce or
influence any of the Company's employees to leave their employment.
(f) Remedies. Consultant acknowledges that should he violate any of the
--------
covenants contained in paragraphs 7, 8, 9(a), (b), (c), (d) and (e) above
(collectively "Covenants"), it will be difficult to determine the resulting
damages to the Company and, in addition to any other remedies it may have, the
Company shall be entitled to temporary injunctive relief without being required
to post a bond and permanent injunctive relief without the necessity of proving
actual damage. The Company may elect to seek one or more of these remedies at
its sole discretion on a case by case basis. Failure to seek any or all remedies
in one case does not restrict the Company from seeking any remedies in another
situation. Such action by the Company shall not constitute a waiver of any of
its rights.
(g) Severability and Modification of Any Unenforceable Covenant. It is the
-----------------------------------------------------------
parties' intent that each of the Covenants be read and interpreted with every
reasonable inference given to its enforceability. However, it is also the
parties' intent that if any term, provision or condition of the Covenants is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the provisions thereof shall remain in full force and effect
and shall in no way be affected, impaired or invalidated. Finally, it is also
the parties' intent that if a court should determine any of the Covenants are
unenforceable because of over breadth, then the court shall modify said covenant
so as to make it reasonable and enforceable under the prevailing circumstances.
(h) Tolling. In the event of the breach by Consultant of any Covenant the
-------
running of the period of restriction shall be automatically tolled and suspended
for the amount of time that the breach continues, and shall automatically
recommence when the breach is remedied so that the Company shall receive the
benefit of Consultant's compliance with the Covenants.
5
<PAGE>
(i) No Other Defenses. Consultant agrees that the Covenants shall be
enforced independently of any other obligations between the parties, and that
the existence of any other claim or defense shall not affect the enforceability
of the Covenants or the remedies provided herein. This Agreement shall be in
addition to and shall not replace any other restrictive covenant Agreement that
Consultant may currently have with the Company or any related entity or may
hereinafter enter into with the Company or any related entity.
(j) No Assignment. This Agreement and the rights and duties hereunder are
-------------
personal to the Consultant and shall not be assigned, delegated, transferred,
pledged or sold by the Consultant without the prior written consent of the
Company. The Consultant hereby acknowledges and agrees that the Company may
assign, delegate, transfer, pledge or sell this Agreement and the rights and
duties hereunder (a) to an affiliate of the Company or (b) to any third party in
connection with (i) the sale of all or substantially all of the assets of the
Company or (ii) a merger or consolidation involving the Company. This Agreement
shall inure to the benefit of and be enforceable by the parties hereto, and
their respective heirs, personal representatives, successors and assigns.
(k) Survival. This Section 9 shall survive the termination of this
--------
Agreement.
10. Indemnification
---------------
(a) Trade Secrets and Other Protected Information. Consultant hereby
---------------------------------------------
indemnifies and shall hold harmless (including reasonable attorneys' fees) the
Company (hereinafter referred to as "Indemnified Party") against all liability
to third parties (other than liability solely the fault of the Indemnified
Party) arising from or in connection with the violation of any third party's
trade secrets, information, trademarks, copyright or patent rights in connection
with the performance of the consulting services under this Agreement.
(b) Personal Injury and Property Damage Indemnification. Each party shall
---------------------------------------------------
defend, indemnify, and hold the other (Indemnified Party) harmless from and
against any and all claims, losses, damages, judgments, costs, and expenses
(including attorney's fees) which the Indemnified Party may suffer or incur
arising out of or in connection with injuries to persons (including death) or
loss of, or damage to, property, occasioned by negligence, unlawful act, or
willful misconduct of the Indemnifying Party provided the other party promptly
notifies the Indemnifying Party in writing of the claim and permits the
Indemnifying Party to control the direction of the litigation and selection of
counsel. The Indemnifying Party also reserves the right to control any
settlement.
(c) Duration of Indemnification. Obligations to indemnify any Indemnified
---------------------------
Party will survive the expiration or termination of this Agreement by either
party for any reason. Either party may, as its option, conduct the defense in
any third party action arising as described herein and the Indemnified Party
agrees to cooperate with such defense to the fullest extent possible.
6
<PAGE>
11. Miscellaneous Provisions.
-------------------------
(a) Notices. All notices, offers or other communications required or
-------
permitted to be given pursuant to this Agreement shall be in writing and shall
be considered as properly given or made (i) if delivered personally or (ii)
after the expiration of five days from the date upon which such notice was
mailed from within the United States by certified mail, return receipt
requested, postage prepaid, (iii) upon receipt by prepaid telegram or facsimile
transmission (with written confirmation of receipt) or (iv) after the expiration
of the second business day following deposit with documented overnight delivery
service. All notices given or made pursuant hereto shall be so given or made to
the parties at the following addresses:
If to the Consultant:
[____________________]
__________________________
__________________________
If to the Company:
Click Commerce, Inc.
200 East Randolph Street, 49th Floor
Chicago, IL 60601
Attention: Justin Dearborn, General Counsel
The address of any party hereto may be changed by a notice in writing given in
accordance with the provisions hereof.
(b) Severability. If any provision of this Agreement is held by a court of
------------
competent jurisdiction to be invalid, illegal or unenforceable, such provision
shall be severed and enforced to the extent possible or modified in such a way
as to make it enforceable, and the invalidity, illegality or unenforceability
thereof shall not affect the validity, legality or enforceability of the
remaining provisions of this Agreement.
(c) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Illinois applicable to contracts
executed in and to be performed entirely within that state, except with respect
to matters of law concerning the internal corporate affairs of any corporate
entity which is a party to or the subject of this Agreement, and as to those
matters, the law of the jurisdiction under which the respective entity derives
its powers shall govern.
(d) WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE, RELEASE AND RELINQUISH
--------------------
ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTIONS
TO ENFORCE AN ARBITRATOR'S DECISION PURSUANT TO SECTION 10(J) OF THIS AGREEMENT.
(e) Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be an original, but all of which shall constitute one and the same
instrument.
7
<PAGE>
(f) Entire Understanding. This Agreement, including all Recitals hereto
--------------------
which are incorporated herein by this reference, together with the other
agreements and documents being executed and delivered concurrently herewith by
the Consultant, the Company and certain of its affiliates, constitute the entire
understanding among all of the parties hereto and supersedes any prior
understandings and agreements, written or oral, among them respecting the
subject matter within.
(g) Limitation on Liabilities. If the Consultant is awarded any damages as
-------------------------
compensation for any breach related to this Agreement or a breach of any
covenant contained in this Agreement (whether express or implied by either law
or fact), such damages shall be limited to contractual damages and shall exclude
(i) punitive damages and (ii) consequential and/or incidental damages (e.g.,
lost profits and other indirect or speculative damages).
(h) Pronouns and Headings. As used herein, all pronouns shall include the
---------------------
masculine, feminine, neuter, singular and plural thereof wherever the context
and facts require such construction. The headings, titles and subtitles herein
are inserted for convenience of reference only and are to be ignored in any
construction of the provisions hereof.
(i) Amendments. Except as set forth in Sections 9(e) and 10(b) above, this
----------
Agreement shall not be changed or amended unless in writing and signed by both
the Consultant and the Board.
(j) Arbitration. Notwithstanding anything herein to the contrary, in the
-----------
event that there shall be a dispute among the parties arising out of or relating
to this Agreement, or the breach thereof, the parties agree that such dispute
shall be resolved by final and binding arbitration in the State of Illinois,
City of Chicago administered by the American Arbitration Association (the
"AAA"), in accordance with AAA's Commercial Arbitration Rules, to which shall be
added the provisions of the Federal Rules of Civil Procedure relating to the
Production of Evidence, and the parties agree that the arbitrators may impose
sanctions in their discretion to enforce compliance with discovery and other
obligations. Such arbitration shall be presided over by a single arbitrator. If
the Consultant, on the one hand, and the Company, on the other hand, do not
agree on the arbitrator within fifteen (15) days after a party requests
arbitration, the arbitrator shall be selected by the Company and the Consultant
from a list of five (5) potential arbitrators provided by AAA. Such list shall
be provided within ten (10) days of the request of any party for arbitration.
The party requesting arbitration shall delete one name from the list. The other
party shall delete one name from the list. This process shall then be repeated
in the same order, and the last remaining person on the list shall be the
arbitrator. This selection process shall take place within the two (2) business
days following both parties' receipt of the list of five (5) potential
arbitrators. Hearings in the arbitration proceedings shall commence within
twenty (20) days of the selection of the arbitrator or as soon thereafter as the
arbitrator is available. The arbitrator shall deliver his or her opinion within
twenty (20) days after the completion of the arbitration hearings. The
arbitrator's decision shall be final and binding upon the parties, and may be
entered and enforced in any court of competent jurisdiction by either of the
parties. The arbitrator shall have the power to grant temporary, preliminary and
permanent relief, including without limitation, injunctive relief and specific
performance. Unless otherwise ordered by the arbitrator, the arbitrator's fees
and expenses shall be shared equally by the parties.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
CLICK COMMERCE, INC.
By: /s/ Michael Ferro, Jr.
------------------------------------
Name:
Title:
CONSULTANT:
/s/ Les Shroyer
-------------------------
Les Shroyer
9
<PAGE>
EXHIBIT 10.11
CLICK COMMERCE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, is made as of April 1, 2000 (the "Grant
-------------
Date") between Click Commerce, Inc., a Delaware corporation (the "Company"), and
Les Shroyer (the "Optionee").
- -----------
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Optionee with the opportunity
to purchase shares of its common stock, $.001 par value per share (the "Common
Stock"), in accordance with the terms of the Click Commerce, Inc. Stock Option
Plan (the "Plan"):
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements hereinafter contained, the parties hereto mutually covenant and
agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee an option
---------------
(the "Option") to purchase all or any part of an aggregate of 10,000 shares of
Common Stock on the terms and conditions hereinafter set forth. The Option is
not intended to qualify as an "Incentive Stock Option" within the meaning of
Section 422(b) of the Internal Revenue Code ("code").
2. Purchase Price. The per share purchase price of the shares of Common
--------------
Stock issuable upon exercise of the Option shall be $5.25.
3. Term. Except as provided in Section 6, the term of the Option shall be
----
for a period of ten (10) years from the Grant Date.
4. Vesting.
-------
(a) Subject to the forfeiture provisions of Section 6, the Optionee shall
become vested in one-tenth (1/10th) the Option granted hereunder as of the
last day of each month in which the Optionee continues to provide services to
the Company as a consultant.
(b) Notwithstanding anything contained in the Plan to the contrary, upon a
Change of Control (as defined in the Plan), the Option shall continue to vest
according to the vesting schedule set forth in paragraph (a), and no
acceleration of vesting shall occur in the option. In the event of a merger or
consolidation of the Company constituting a Change of Control, in connection
with such transaction the Company may exchange the Option for options to acquire
shares of capital stock of the successor company pursuant to such merger or
consolidation on a basis consistent with the merger consideration paid to
stockholders of the Company.
5. Exercise. Subject to the forfeiture provisions of Section 6, the
--------
Optionee shall be entitled to exercise the Option (i) to the extent vested, in
the event the Company files a registration statement with the Securities and
Exchange Commission with respect to an offering of securities by the Company
that would qualify as a "Qualified IPO" (as defined below), or (ii) to the
extent vested, in the event of a Change in Control within the meaning of Section
6 of the Plan. The determination of a Qualified IPO or a Change in Control shall
be made by the "Committee" (as defined in Section 4 of the Plan) in accordance
with the terms of the Plan. Notwithstanding the foregoing, the Option shall not
be exercisable after the expiration date of the Option. A "Qualified IPO" shall
mean the first sale of shares of Common Stock pursuant to an underwritten public
offering of shares of Common Stock registered under the Securities Act of 1933
as amended, provided that following consummation of such offering, either (A) at
least 20% of the shares of Common Stock are held other than by individuals who
are officers or directors of the Company or persons or entities who are
stockholders of the Company as of June 1, 1997, or (B) the gross proceeds
received by the Company in connection with such offering equal or exceed
$20,000,000.
6. Termination of Option on Certain Events. The Option term and the
---------------------------------------
Optionee's rights hereunder shall terminate on the date of Optionee's service as
a consultant with the Company is terminated ("Termination Date"), subject to the
following:
<PAGE>
(a) Death or Permanent Disability. If Optionee's services as a consultant
-----------------------------
are terminated by the Company due to Optionee's death or "permanent disability"
(as hereinafter defined), the Optionee shall forfeit any right to purchase
shares of Common Stock under the Option to the extent not vested as of the date
of termination of employment. The Option, to the extent vested, may thereafter
be exercised by the Optionee or Optionee's executor, administrator or other
personal or legal representative, as applicable for a period of 90 days
following Optionee's termination. "Permanent disability" shall mean that the
Committee has determined that the Optionee is unable to perform the Optionee's
customary duties by reason of illness or other physical or mental incapacity or
disability, and such condition or disability continues or is reasonably expected
to continue for life and for such reason the Optionee's services have been
terminated.
(b) Involuntary Termination Other Than For Cause. In the event of the
--------------------------------------------
Optionee's services are terminated without "cause" (as defined below), the
Optionee shall forfeit any nonvested right to purchase shares of Common Stock
under the Option as of the date of termination of employment. The Option, to
the extent vested, may thereafter be exercised by the Optionee or, if the
Optionee dies during the remainder of the Option's term, by the Optionee's
executor, administrator or other personal or legal representative, as applicable
for a period of 90 days following Optionee's termination.
(c) Voluntary Termination and Termination for Cause. All of Optionee's
-----------------------------------------------
rights hereunder shall terminate upon the Optionee's voluntary termination of
services or the Company's written or oral notice to the Optionee that the
Optionee's services are being terminated for "cause" (as hereinafter defined),
and all rights to purchase shares of Common Stock under the Option (whether or
not vested according to the schedule of Section 4) shall be forfeited. The
Company shall have "cause" to terminate Optionee's services on the basis of (i)
Optionee's willful misconduct or gross negligence in connection with the
performance of Optionee's responsibilities and duties for the Company, (ii) an
act by Optionee of fraud, misappropriation or dishonesty that results in or is
intended to result in Optionee's personal enrichment at the expense of the
Company or any of its customers, vendors or suppliers, (iii) Optionee's
commission of any act that constitutes a felony, (iv) Optionee's commission of
any other crime or offense that involves the property, business relationships or
employees of the Company, or (v) the breach by Optionee of any obligation of
confidentiality under any written agreement with the Company or any obligation
to the Company imposed or imputed by applicable law.
7. Nontransferability. The Option shall not be transferable otherwise
------------------
than by will or the laws of descent and distribution to the extent provided in
Section 5 and 6, and the Option may be exercised, during the lifetime of the
Optionee, only by the Optionee. Without limiting the generality of the
foregoing, the Option may not be assigned, transferred (except as provided
above), pledged or hypothecated in any way, shall not be assignable by operation
of law, and shall not be subject to execution, attachment or similar process,
and any attempt to do so shall be void.
8. Method of Exercising Option.
---------------------------
(a) Subject to the terms and conditions of this Agreement, the Option may
be exercised by written notice by registered or certified mail, return receipt
requested, addressed to the Company at its offices at the address for notices
set forth in Section 10. Such notice shall state that the Option is being
exercised thereby and the number of shares of Common Stock in respect of which
it is being exercised. It shall be signed by the person or persons so
exercising the Option and shall be accompanied by payment in full of the Option
price for such shares of Common Stock (i) in cash, (ii) in shares of Common
Stock held by the Optionee for a period of six months to be valued at the Fair
Market Value (as defined in Section 6(b) of the Plan) thereof on the date of
such exercise, (iii) with a combination of the foregoing, or (iv) by other means
authorized by the Committee. If the tender of shares of Common Stock as payment
of the Option price would result in the issuance of fractional shares of Common
Stock, the Company shall instead return the balance in cash or by check to the
Optionee. If the Option is exercised by any person or persons other than the
Optionee under Section 6(a), the notice shall be accompanied by appropriate
proof of the right of such person or persons to exercise the Option. The
Company shall issue, in the name of the person or persons exercising the Option,
and deliver a certificate or certificates representing such shares as soon as
practicable after notice and payment shall be received.
(b) The Option may be exercised in accordance with Section 5 and the terms
of the Plan with respect to any whole number of shares included therein, but in
no event may an Option be exercised as to less than one hundred (100) shares at
any one time, or the remaining shares covered by the Option if less than two
hundred (200).
<PAGE>
(c) The Optionee shall have no rights of a stockholder with respect to
shares of Common Stock to be acquired by the exercise of the Option until the
date of issuance of a certificate or certificates representing such shares.
Except as otherwise expressly provided in the Plan, no adjustment shall be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is issued. All shares of Common Stock purchased upon the
exercise of the Option as provided herein shall be fully paid and non-
assessable.
(d) If at any time the Company is required to withhold tax on ordinary
income recognized by the Optionee with respect to the shares received under the
Option, the amount required to be withheld shall be provided to the Company by
the Optionee. Such amount shall be paid in due course by the Company to the
applicable taxing authorities as income taxes withheld.
9. General. The Company shall during the term of the Option reserve and
-------
keep available such number of shares of Common Stock as will be sufficient to
satisfy the requirements of this Agreement, shall pay all original issue taxes,
if any, with respect to the issuance of shares of Common Stock hereunder and all
other fees and expenses necessarily incurred by the Company in connection
herewith, and shall, from time to time, use its best efforts to comply with all
laws and regulations which, in the opinion of counsel for the Company, shall be
applicable hereto.
10. Notices. Each notice relating to this Agreement shall be in writing
-------
and shall be sufficiently given if sent by registered or certified mail, or by
nationally recognized overnight delivery service, postage or charges prepaid, to
the address as hereinafter provided. Any such notice or communication given by
mail shall be deemed to have been given two business days after the date so
mailed, and such notice or communication given by overnight delivery service
shall be deemed to have been given one business day after the date so sent. Each
notice to the Company shall be addressed to it at its offices at 919 North
Michigan Avenue, 37th Floor, Chicago, Illinois 60611 (Attention: Rebecca
Maskey). Each notice to the Optionee or other person or persons then entitled
to exercise the Option shall be addressed to the Optionee or such other person
or persons at the Optionee's last known address.
11. Incorporation of the Plan. Notwithstanding the terms and conditions
-------------------------
contained herein, this Agreement shall be subject to and governed by all the
terms and conditions of the Plan. A copy of the Plan has been delivered to the
Optionee and is hereby incorporated by reference. In the event of any
discrepancy or inconsistency between the terms and conditions of this Agreement
and of the Plan, the terms and conditions of the Plan shall control.
12. Continuance of Involvement with the Company. The granting of the
-------------------------------------------
Option is in consideration of the Optionee's continuing as a consultant to the
Company or any subsidiary; provided, that nothing in this Agreement shall confer
upon the Optionee the right to continue a consultant to the Company or in the
employ of the Company or any subsidiary or affect the right of the Company or
any subsidiary to terminate the Optionee's consulting arrangement or employment
at any time in the sole discretion of the Company or any subsidiary, with or
without cause.
13. Interpretation. The interpretation and construction of any terms or
--------------
conditions of the Plan, or of this Agreement or other matters related to the
Plan by the Committee shall be final and conclusive.
14. Enforceability. This Agreement shall be binding upon the Optionee and
--------------
such Optionee estate, personal representative and beneficiaries.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and the Optionee has executed
this Agreement all as of the day and year first above written.
CLICK COMMERCE, INC.
By: /s/ Becky Maskey
------------------------------
Its: CFO
------------------------------
OPTIONEE:
<PAGE>
/s/ Les Shroyer
------------------------------
Les Shroyer
<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
April 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,335,674
<SECURITIES> 2,968,198
<RECEIVABLES> 1,593,459
<ALLOWANCES> 53,794
<INVENTORY> 0
<CURRENT-ASSETS> 9,109,722
<PP&E> 872,951
<DEPRECIATION> 172,628
<TOTAL-ASSETS> 9,933,833
<CURRENT-LIABILITIES> 4,090,457
<BONDS> 0
14,312,050
0
<COMMON> 22,169
<OTHER-SE> (8,607,798)
<TOTAL-LIABILITY-AND-EQUITY> 9,933,833
<SALES> 0
<TOTAL-REVENUES> 9,952,109
<CGS> 0
<TOTAL-COSTS> 9,437,454
<OTHER-EXPENSES> 6,256
<LOSS-PROVISION> 33,050
<INTEREST-EXPENSE> 6,639
<INCOME-PRETAX> 614,946
<INCOME-TAX> 297,571
<INCOME-CONTINUING> 317,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,394,675)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
