<PAGE>
As filed with the Securities and Exchange Commission on March 28, 2000
Registration No. 333-30564
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 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)
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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
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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 March 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 applied for quotation of our common stock on the Nasdaq National Market
under the symbol "CKCM."
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 4.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Click
Public Commissions Commerce
----------- ------------- -----------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>
Click Commerce, Inc. has granted the underwriters the right to purchase up to
an additional 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 these global
manufacturers have in common?"
The question is followed by a list of customer names, sorted by industry
name.
. Capital Goods: Hyundai, Komatsu, Trane
. Recreational Sports: Bombardier, Kawasaki, Mercury Marine, Life Fitness
. Components: Mitsubishi
. Financing: Bombardier Capital
. Consumer Products: American Standard, Mitsubishi
. Telecom: Motorola, Qualcomm
<PAGE>
INSIDE GATEFOLD PAGES
The inside gatefold pages include three pictures of Click Commerce screens,
each showing functionality that is provided by Click Commerce Applications.
Text above the first screen: "They Click with dealers"
Screen: Hyundai dealer screen featuring a hotspotted order form for automotive
parts.
Text below the first screen: "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: Hyundai 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: Hyundai 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......................... 24
Management....................... 43
Certain Transactions............. 49
Principal Stockholders........... 51
Description of Capital Stock..... 53
Shares Eligible for Future Sale.. 57
Underwriters..................... 59
Legal Matters.................... 61
Experts.......................... 61
Additional Information........... 61
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 are a leading provider of 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 solution 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. Global manufacturers
including Motorola, Trane, American Standard, Bombardier, Mitsubishi, Qualcomm,
Kawasaki and Hyundai 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 solution, comprised of the Extranet Manager and 80
applications, automates communication and business processes throughout the
distribution channel and can be personalized to each individual user. Our
solution provides 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, our software products can
usually be customized and implemented in 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 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
solution.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................. 5,000,000 shares
Common stock to be outstanding after
this offering....................... 37,184,512 shares
Use of proceeds...................... For working capital and general corporate
purposes.
Proposed Nasdaq National Market
symbol.............................. CKCM
</TABLE>
The foregoing information is based on the shares of common stock outstanding
as of December 31, 1999. This information:
. excludes an aggregate of 4,930,842 shares of common stock currently
reserved for issuance under our Stock Option and Stock Award Plan of
which 4,539,000 shares are subject to outstanding options at a weighted
average exercise price of $2.45 per share;
. excludes an aggregate of 500,000 shares of common stock currently
reserved for issuance under our Directors' Stock Option and Stock Award
Plan, none of which is subject to outstanding options;
. excludes an aggregate of 945,982 shares of common stock subject to
additional outstanding options at an exercise price of $0.0025 per
share;
. includes conversion of all outstanding shares of preferred stock
immediately prior to the consummation of this offering into 9,565,220
shares of our common stock; and
. includes 450,000 shares of common stock issued upon exercise of options
in February 2000 at an exercise price of $0.0025 per share.
2
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1997 1998 1999
----------- ----------- -----------
(dollars in thousands, except per
share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue................................... $ 1,322 $ 2,390 $ 9,952
Cost of revenue........................... 379 712 2,669
----------- ----------- -----------
Gross profit.............................. 943 1,678 7,283
Operating expenses........................ 894 1,757 6,704
----------- ----------- -----------
Operating income (loss)................... 49 (79) 579
Net income (loss)......................... 19 (65) 382
Basic and diluted earnings (loss) per
share.................................... $ 0.00 $ (0.00) $ 0.01
=========== =========== ===========
Weighted average shares used in computing
basic earnings (loss) per share.......... 28,782,666 28,782,666 26,754,244
Weighted average shares used in computing
diluted earnings (loss) per share........ 28,782,666 28,782,666 27,771,262
Pro forma basic and diluted earnings per
share.................................... $ 0.01
===========
Shares used in computing pro forma basic
earnings per share....................... 31,628,576
Shares used in computing pro forma diluted
earnings per share....................... 32,645,594
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------
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........................................ $6,304 $6,305 51,805
Working capital..................................... 5,019 5,020 50,520
Total assets........................................ 9,934 9,935 55,435
Billings in excess of revenues earned on contracts
in progress........................................ 2,026 2,026 2,026
Capital lease obligations, less current portion..... 84 84 84
Convertible participating preferred stock........... 10,600 -- --
Total shareholders' equity (deficit)................ (4,874) 5,727 51,227
</TABLE>
The pro forma balance sheet data give effect to:
. the conversion of all outstanding shares of convertible preferred stock
into 9,565,220 shares of common stock immediately prior to the
consummation of this offering; and
. the issuance of 450,000 shares of common stock upon exercise of options
in February 2000.
The pro forma as adjusted balance sheet data give effect to the above, and:
. the sale of the shares of common stock that we are offering under this
prospectus, 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
Click Commerce is an early-stage company. Our limited operating history
makes it difficult to evaluate our future prospects.
Click Commerce was incorporated in August 1996 and has a limited operating
history. We sold and implemented the first Extranet Manager in the first
quarter of 1998. In 1998 and 1999, we had revenues of approximately $2,390,000
and $9,952,000, respectively. Our limited operating history makes an
evaluation of our future prospects very difficult. We will encounter risks and
difficulties frequently encountered by early-stage companies in new and
rapidly evolving markets. Many of these risks are described in more detail in
this "Risk Factors" section. We may not successfully address any or all of
these risks. If we do not successfully address these risks, our business will
be seriously harmed.
We are dependent on the success of the Extranet Manager and Click Commerce
application suite and related services for our success.
To date, substantially all of our revenues have been attributable to sales
of licenses of the Extranet Manager and Click Commerce application suite and
related services, 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
solution 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 a sales representative currently located in Amsterdam
selling the Click Commerce solution and we intend to open sales offices in
Munich and Amsterdam in April 2000. Our plans to expand internationally are
subject to risks, including:
. the impact of economic fluctuations in economies outside of the United
States;
. greater difficulty in accounts receivable collection and longer
collection periods;
. unexpected changes in regulatory requirements, tariffs and other trade
barriers;
. difficulties and costs of staffing and managing foreign operations due
to distance, as well as language and cultural differences; and
. political instability, currency exchange fluctuations and potentially
adverse tax consequences.
We cannot predict whether the expansion of our business internationally will
be successful. The results of our efforts may prove not to have been worth the
associated expense and opportunity cost.
It is difficult for us to attract and retain qualified software
programmers.
Our future growth depends on the ability of our software programmers to
develop new products and improve existing products. Our ability to develop new
products and services and enhance our existing products and services will
depend on our ability to recruit and retain top quality software programmers.
There is a shortage of the programming personnel we need, and competition for
qualified programmers is intense. If we are unable to hire and retain
sufficient numbers of qualified programming personnel, we may not be able to
develop new products and services or improve our existing products and
services in the time frame necessary to execute our business plan. Our
inability to hire qualified programmers could also negatively impact our
ability to customize and implement our solution as rapidly as we do today.
6
<PAGE>
The market for our electronic commerce products and services is new and
evolving and customers may not accept our products.
The market for our products and services is rapidly developing. This market
may not continue to develop and grow, and companies may choose not to use our
products and services and instead develop applications internally or purchase
them from other sources. Companies that have already invested substantial
resources in other methods of conducting business-to-business e-commerce may
be reluctant to adopt a new approach. We expect that we will continue to need
intensive marketing and sales efforts to educate prospective customers about
the uses and benefits of our products and services. Therefore, demand for and
market acceptance of our products and services will be subject to a high level
of uncertainty.
We have recently experienced and currently anticipate rapid growth in our
business, and any inability to manage this growth could harm our business.
In order to execute our business plan, we must grow significantly. The
number of our employees grew from 25 as of January 1, 1999 to 84 as of
December 31, 1999. We expect that the number of our employees will continue to
increase for the foreseeable future, in particular with respect to persons
engaged in product development, project management and sales activities. We
expect that we will need to continue to improve our financial and managerial
controls and reporting systems and procedures. We will also need to continue
to expand and maintain close coordination among our technical, finance, sales
and marketing groups. If we are unsuccessful in these efforts, our business
and operations could be adversely affected.
We will not be able to execute our business plan and achieve desired growth
in our business if we cannot increase our direct and indirect sales channels,
which could negatively affect our stock price.
We will need to expand substantially our direct and indirect sales
operations, both domestically and internationally, in order to increase market
awareness and sales of our products 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 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.
7
<PAGE>
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 solutions
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. These competitors
may reduce the amount of time it currently takes them to implement the
solutions that compete with ours, eliminating an important advantage that we
believe we currently enjoy. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves
or with third parties to increase the ability of their products or services to
address the needs of our current and prospective clients.
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 37,184,512 shares
outstanding. If all options currently outstanding to purchase shares of our
common stock are exercised, there will be 42,669,494 shares outstanding. Of
the outstanding shares, the shares sold in this offering will be freely
tradable, other than shares purchased by our affiliates. The remaining shares
may be sold only pursuant to a registration statement under the Securities Act
or an exemption from the registration requirements of the Securities Act.
After the closing of this offering, holders of 14,733,964 shares of common
stock will be entitled to registration rights with respect to the registration
of their shares under the Securities Act.
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
64% 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 proceeds for working capital and general corporate purposes,
including:
. expanding our sales and marketing activities;
. expanding our international presence;
. expanding our research and development activities; and
. expanding our business development efforts.
We may also use a portion of the net proceeds of this offering to acquire
technology or businesses, or to make strategic investments in businesses, that
are complementary to our business. Currently, we have no specific acquisitions
or strategic investments planned.
We have not yet determined the amount of net proceeds to be used
specifically for any of the foregoing purposes. Accordingly, our management
will have significant flexibility in applying the net proceeds of the
offering. 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 December 31, 1999.
The pro forma information gives effect to the conversion of all of our
outstanding preferred stock into 9,565,220 shares of common stock immediately
prior to the consummation of this offering and the issuance of 450,000 shares
of common stock issued in February 2000 upon exercise of outstanding options
at an exercise price of $0.0025 per share. The pro forma as adjusted
information reflects the foregoing as well as our receipt of the net proceeds
from the issuance and sale of the shares of common stock in this offering,
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 4,930,842 shares of common stock currently
reserved for issuance under our Stock Option and Stock Award Plan, of
which 4,539,000 shares are subject to outstanding options at a weighted
average exercise price of $2.45 per share;
. excludes an aggregate of 500,000 shares of common stock currently
reserved for issuance under our Directors' Stock Option and Stock Award
Plan, none of which is subject to outstanding options; and
. excludes an aggregate of 945,982 shares of common stock subject to
additional outstanding options at an exercise price of $0.0025 per
share.
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(dollars in thousands, except
per share data)
<S> <C> <C> <C>
Capital lease obligation, less current portion.. $ 84 $ 84 $ 84
Series A convertible participating preferred
stock, $0.001 par value, 12,000,000 shares
authorized and 5,217,392 issued and
outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro forma
as adjusted.................................... 5,800 -- --
Series B convertible participating preferred
stock, $0.001 par value, 8,000,000 shares
authorized; 4,347,828 shares issued and
outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro forma
as adjusted.................................... 4,800 -- --
Shareholders' equity:
Preferred stock, $0.001 par value, 5,000,000
shares authorized, no shares issued and
outstanding, actual, pro forma and pro forma
as adjusted.................................. -- -- --
Common stock, $0.001 par value, 75,000,000
shares authorized, 22,169,292 shares issued
and outstanding, actual; 32,184,512 shares
issued and outstanding, pro forma; 37,184,512
shares issued and outstanding, pro forma as
adjusted..................................... 22 32 37
Additional paid-in capital.................... -- 10,591 56,086
Accumulated deficit........................... (4,896) (4,896) (4,896)
------- ------- -------
Total shareholders' equity (deficit)............ (4,874) 5,727 51,227
------- ------- -------
Total capitalization............................ $ 5,810 $ 5,811 $51,311
======= ======= =======
</TABLE>
15
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of December
31, 1999, after giving effect to the conversion of all outstanding shares of
convertible preferred stock into 9,565,220 shares of common stock immediately
prior to the consummation of this offering and the issuance of 450,000 shares
of common stock issued in February 2000 upon exercise of outstanding options,
was approximately $5.7 million, or $0.18 per share of common stock. Pro forma
net tangible book value per share represents our total assets less total
liabilities and intangibles, divided by the 32,184,512 shares of common stock
outstanding after giving effect to 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 $51.2 million, or
$1.38 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 $1.38 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 $8.62 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.................................................... $0.18
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...................................................... 1.38
------
Dilution per share to new investors............................ $ 8.62
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the number of shares of common stock purchased from us, the total
consideration paid or to be paid, and the average price per share paid or to
be paid by existing stockholders and by new investors, before deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ ------------------- Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 32,184,512 87% $11,001,729 18% $ 0.34
New investors................. 5,000,000 13 50,000,000 82 10.00
---------- --- ----------- ---
Total....................... 37,184,512 100% $61,001,729 100% $ 1.64
========== === =========== === ======
</TABLE>
The table above assumes no exercise of outstanding stock options. We have
an aggregate of 5,430,842 shares of common stock currently reserved for
issuance under our stock option plans, of which 4,539,000 shares are subject
to outstanding options at a weighted average exercise price of $2.45 per
share. In addition, 945,982 shares are subject to additional outstanding
options at an exercise price of $0.0025 per share. To the extent outstanding
options are exercised, there will be further dilution to new investors.
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 balance sheet data as of December 31, 1996 and 1997 are derived from our
unaudited financial statements which, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of our financial position and results for the
unaudited periods presented. The historical results presented below are not
necessarily indicative of the results to be expected for any future fiscal
year.
<TABLE>
<CAPTION>
Period from
August 20,
1996
(inception) to Year ended December 31,
December 31, ----------------------------------
1996 1997 1998 1999
-------------- ---------- ---------- ----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue...................... $ 166 $ 1,322 $ 2,390 $ 9,952
Cost of revenue.............. 39 379 712 2,669
---------- ---------- ---------- ----------
Gross profit................. 127 943 1,678 7,283
Operating expenses:
Sales and marketing........ -- 174 434 2,811
Research and development... -- -- 149 729
General and administrative
(exclusive of $187 and
$402 in 1998 and 1999,
reported below as
amortization of deferred
stock compensation)....... 140 720 987 2,762
Amortization of deferred
stock compensation........ -- -- 187 402
---------- ---------- ---------- ----------
Total operating expenses..... 140 894 1,757 6,704
---------- ---------- ---------- ----------
Operating income (loss)...... (13) 49 (79) 579
Other income, net............ -- (1) (3) 101
Income tax expense (benefit). -- 29 (17) 298
---------- ---------- ---------- ----------
Net income (loss)............ $ (13) $ 19 $ (65) $ 382
========== ========== ========== ==========
Basic and diluted earnings
(loss) per share............ $(0.00) $ 0.00 $ (0.00) $ 0.01
========== ========== ========== ==========
Weighted average shares used
in computing basic earnings
(loss) per share(1)......... 28,782,666 28,782,666 28,782,666 26,754,244
Weighted average shares used
in computing diluted
earnings (loss) per share... 28,782,666 28,782,666 28,782,666 27,771,262
Pro forma basic and diluted
earnings per share.......... $ 0.01
==========
Shares used in computing pro
forma basic earnings per
share(2).................... 31,628,576
Shares used in computing pro
forma diluted earnings
per share(2)................ 32,645,594
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1996 1997 1998 1999
---- ---- ------ -------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term
investments ..................................... $ 13 $271 $ 120 $ 6,304
Working capital................................... (16) (75) (154) 5,019
Total assets...................................... 67 400 1,077 9,934
Billings in excess of revenues earned on contracts
in progress...................................... -- -- 214 2,026
Capital lease obligations, less current portion... -- 15 2 84
Convertible participating preferred stock......... -- -- -- 10,600
Total shareholders' equity (deficit).............. (13) (6) 55 (4,874)
</TABLE>
- --------
(1) See Note 10 of Notes to Financial Statements for an explanation of the
determination of the number of shares used to compute basic and diluted
earnings (loss) per share.
(2) Shares used in computing pro forma basic and diluted earnings 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 is a leading provider of business-to-business electronic
commerce enterprise channel management solutions for manufacturing companies.
Our software products and services automate all forms of communication and
business processes across the distribution channel, allowing manufacturers to
leverage the power of the Internet to provide their channel partners real-time
access to products, services and information.
We commenced operations on August 20, 1996. During the period from our
inception until December 1996, we were primarily engaged in developing our
software. We sold and implemented the first Click Commerce Extranet Manager in
the first quarter of 1998. Today, we have implemented our extranet for 20
customers.
Our revenue is derived from sales of licenses of our Click Commerce
solution, comprised of the Extranet Manager and 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 granted and the estimated
fair market value of the underlying common stock on the date of grant.
18
<PAGE>
We had 25 full-time employees as of December 31, 1998 and 106 full-time
employees as of March 27, 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. Our prospects must be considered in light of
the risks, expenses and difficulties encountered by companies at an early
stage of development, particularly companies in new and rapidly evolving
markets. We may not be successful in addressing such risks and difficulties.
Although we have experienced significant percentage growth in revenues in
recent periods, we believe that prior growth rates may not be sustainable or
indicative of future operating results.
Results of Operations
The following table represents selected financial data for the years
indicated as a percentage of total revenue.
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Percentage of Total Revenue:
Revenue............................................ 100.0% 100.0% 100.0%
Cost of revenue.................................... 28.7 29.8 26.8
----- ----- -----
Gross profit....................................... 71.3 70.2 73.2
Operating expenses:
Sales and marketing.............................. 13.2 18.2 28.2
Research and development......................... 0.0 6.2 7.4
General and administrative (exclusive of
amortization of deferred stock compensation
reported below)................................. 54.5 41.3 27.8
Amortization of deferred stock compensation...... 0.0 7.8 4.0
----- ----- -----
Total operating expenses........................... 67.7 73.5 67.4
----- ----- -----
Operating income (loss)............................ 3.7 (3.3) 5.8
Other income (expense)............................. (0.1) (0.1) 1.0
----- ----- -----
Income (loss) before income taxes.................. 3.6 (3.4) 6.8
Income tax expense (benefit)....................... 2.2 (0.7) 3.0
----- ----- -----
Net income (loss).................................. 1.4% (2.7)% 3.8%
===== ===== =====
</TABLE>
Comparison of year ended December 31, 1999 to year ended December 31, 1998
Revenue
Total revenue increased to $10.0 million for the year ended December 31,
1999 from $2.4 million for the year ended December 31, 1998. This increase of
approximately $7.6 million, or 316%, was primarily due to an increase in our
software license revenue based upon:
. an increase in the number of new customers;
. additional sales to existing customers;
. an increase in average contract size; and
. an increase in the number of applications offered by us.
We also had increased revenue from our consulting services and maintenance
contracts.
19
<PAGE>
Cost of Revenue
Cost of revenue increased approximately $2.0 million, or 275%, to $2.7
million for the year ended December 31, 1999 from $712,000 for the year ended
December 31, 1998. This increase was attributable to increased salary and
related expenses for project management personnel, 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, which 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. We believe general and administrative expenses will
increase significantly in future periods, as we expect to add personnel to
support our expanding operations, incur additional costs related to the growth
of our business.
Amortization of Deferred Stock Compensation. We have recorded deferred
compensation for the difference between the exercise price of 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 $402,000 for the year
ended December 31, 1999 compared to $187,000 for the year ended December 31,
1998.
Other Income (Expense)
For the year ended December 31, 1999, we earned $100,000 in other income,
net, an increase of $103,000 from the year ended December 31, 1998. This
increase was due to an increase in interest income of $105,000, partially
offset by an increase of $2,000 in other expense.
Comparison of year ended December 31, 1998 to year ended December 31, 1997
Revenue
Total revenue increased to $2.4 million for the year ended December 31,
1998 from $1.3 million for the year ended December 31, 1997. This increase of
approximately $1.1 million, or 81%, was primarily due to an increase in our
software license revenue based upon:
. an increase in the number of new customers;
. an increase in average contract size; and
. an increase in the number of applications offered by us.
We also had increased revenue from our consulting services and maintenance
contracts.
20
<PAGE>
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 an increase in salary and the related
costs of $158,000.
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 eight quarters, both in absolute dollars and as a percentage
of our total revenue for each quarter. This information has been derived from
our unaudited financial statements. The unaudited financial statements have
been prepared on the same basis as the audited financial statements contained
in this prospectus and include all adjustments, consisting only of normal
recurring adjustments that we consider necessary for a fair presentation of
such information. You should read this information in conjunction with our
annual audited financial statements and related notes appearing elsewhere in
this prospectus. You should not draw any conclusions about our future results
from the results of operations for any quarter.
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $331 $354 $843 $ 862 $1,534 $1,608 $2,092 $4,717
Cost of revenue......... 71 143 205 293 277 489 689 1,214
---- ---- ---- ----- ------ ------ ------ ------
Gross profit............ 260 211 638 569 1,257 1,119 1,403 3,503
Operating expenses:
Sales and marketing.... 24 75 117 218 214 397 766 1,433
Research and
development........... 23 18 25 83 75 147 175 332
General and
administrative
(exclusive of
amortization of
deferred stock
compensation reported
below)................ 265 183 230 309 283 529 773 1,177
Amortization of
deferred stock
compensation.......... -- -- -- 187 92 294 16 --
---- ---- ---- ----- ------ ------ ------ ------
Total operating
expenses............... 312 276 372 797 664 1,367 1,730 2,942
---- ---- ---- ----- ------ ------ ------ ------
Operating income (loss). (52) (65) 276 (228) 593 (248) (327) 561
Other income (expense).. (2) (2) (1) 2 1 1 54 45
---- ---- ---- ----- ------ ------ ------ ------
Income (loss) before
income taxes........... (54) (67) 265 (226) 594 (247) (273) 606
Income tax expense
(benefit).............. (11) (14) 54 (46) 260 (20) (152) 210
---- ---- ---- ----- ------ ------ ------ ------
Net income (loss)....... $(43) $(53) $211 $(180) $ 334 $ (227) $ (121) $ 396
==== ==== ==== ===== ====== ====== ====== ======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
As a Percentage of Total Revenue
-------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 21.5 40.4 24.3 34.0 18.1 30.4 32.9 25.7
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 78.5 59.6 75.7 66.0 82.0 69.6 67.1 74.3
Operating expenses:
Sales and marketing.... 7.3 21.2 13.9 25.3 14.0 24.7 36.6 30.4
Research and
development........... 6.9 5.1 2.9 9.6 4.9 9.1 8.4 7.0
General and
administrative
(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
Amortization of
deferred stock
compensation.......... -- -- -- 21.7 6.0 18.3 0.7 --
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............... 94.2 78.0 44.1 92.4 43.3 85.0 82.7 62.4
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss). (15.7) (18.4) 31.5 (26.4) 38.6 (15.4) (15.6) 11.9
Other income, (expense). (0.6) (0.6) (0.1) 0.2 0.1 0.1 2.6 0.9
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... (16.3) (19.0) 31.4 (26.2) 38.7 (15.3) (13.0) 12.8
Income tax expense
(benefit).............. (3.3) (4.0) 6.4 (5.3) 16.9 (1.2) (7.3) 4.4
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (13.0) (15.0) 25.0 (20.9) 21.8 (14.1) (5.7) 8.4
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Liquidity and Capital Resources
Since inception, our cash requirements have been funded by cash flow from
operations and, to a lesser extent, from equipment financings. At December 31,
1999, we had $6.3 million in cash, cash equivalents and short-term
investments, and $5.0 million in working capital.
Net cash 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 used in investing activities was approximately $3.4 million in
fiscal 1999, approximately $141,000 in fiscal 1998, and approximately $100,000
in fiscal 1997. Cash used in investing activities reflects purchases of short-
term investments of $2.9 million and purchases of property and equipment in
each period. Capital expenditures were approximately $482,000 in fiscal 1999,
approximately $139,000 in fiscal 1998, and approximately $49,000 in fiscal
1997. Our capital expenditures consisted of purchases of operating resources
to manage our operations, including computer hardware and software, office
furniture and equipment and leasehold improvements. We expect that our capital
expenditures will continue to increase in the future. In connection with the
relocation of our headquarters, we are planning to incur approximately
$300,000 in leasehold improvements and furniture and equipment purchases.
Net cash from financing activities was approximately $4.6 million for the
year ended December 31, 1999, primarily reflecting net cash proceeds from
sales of convertible preferred stock of $10.6 million partially offset by
redemption of common stock of $6.0 million. Net cash used in financing
activities was $21,000 in 1998 and $50,000 in 1997. In April 1999, we entered
into a new revolving credit facility 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 December 31, 1999, we had
not borrowed under this facility. In January 2000, we obtained a letter of
credit under this facility totaling $500,000 to secure a new office lease.
This letter of credit is renewable annually and declines by $100,000 on the
second, third and fourth anniversaries of the lease and then declines to
$38,130 on the fifth anniversary until the lease expires in August 2005.
We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for
the foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses will constitute a material use of our
cash resources. In addition, we may use cash resources to fund strategic
investments in complementary businesses or technologies. We believe
22
<PAGE>
that the net proceeds from the sale of common stock in this offering, together
with our existing working capital immediately prior to this offering and our
revolving promissory note, will be sufficient to meet our working capital and
operating expenditure requirements for at least the next twelve months. We
have adequate cash available to fund our operations for the next twelve months
without the proceeds from this offering, although we would be required to
reduce or delay our current expansion plans. We have no current plans to raise
additional equity during the next twelve months, although such plans are
subject to business and market conditions. Thereafter, we may find it
necessary to obtain additional equity or debt financing, although we do not
currently foresee a need for additional cash resources for long-term needs. In
the event additional financing is required, we may not be able to raise it on
acceptable terms or at all.
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and market our products and
services in the United States; however we intend to begin marketing and
selling our products and services in Europe. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Substantially
all of our sales are currently made in U.S. dollars; a strengthening of the
dollar could make our products and services less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the short-term nature of our investments, we
believe that there is no material risk exposure. Therefore, no quantitative
tabular disclosures are required.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133, which is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a
comprehensive standard for the recognition and measurement of derivative
instruments and hedging activities. This pronouncement will require us to
recognize derivatives on our balance sheet at fair value. Changes in the fair
values of derivatives that qualify as cash flow hedges will be recognized in
other comprehensive income until the hedged item is recognized in earnings.
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.
23
<PAGE>
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in
such forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."
Overview
We are a leading provider of business-to-business software products and
integration services that use the Internet to connect manufacturing companies
with their distribution channel partners. Our software products and services
enable large, global 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 solution enables 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 solution
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 solution 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 solution, comprised of the Extranet Manager and 80
applications, automates communication and business processes across the
distribution channel. The Click Commerce solution is personalized to each
individual user, accommodating, for example, each user's language, time zone
and currency preferences. Manufacturers using our solution can receive and
track orders, provide warranty information and provide product and pricing
information to their channel partners. Our solution is specifically designed
for the Internet and integrates with existing back-office computer systems,
without requiring significant additional technology expenditures. We believe
that our solution is especially appealing to large manufacturing companies
24
<PAGE>
because it can usually be designed and implemented in approximately 120 days,
which we believe is significantly faster than the implementation time required
for most competing business-to-business e-commerce solutions.
We currently market all of our products and services through our direct
sales force primarily to large, global manufacturing companies. 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 solution.
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. Our customers'
experiences have demonstrated that these traditional phone, fax and paper-
based communications systems limit a manufacturer's ability to take advantage
of revenue increasing opportunities. Manufacturers must allocate significant
resources and time to the manual entry of information from faxed or phoned-in
purchase orders and the manual processing of paper checks, invoices and
shipping notices. Further, the large volume of paper generated by these
transactions and the mass of information to be sorted and processed frequently
results in hidden costs such as errors and delays in information delivery.
Change is also difficult to implement on a timely basis without incurring
significant costs. For example, if a manufacturer produces a paper-based
catalog, it cannot quickly or inexpensively inform customers of changes in
product offerings, availability or pricing. In addition, the manufacturer and
members of its distribution network have limited capability to track orders,
inventory, warranties and other information or to compile useful databases
using paper-based or semi-automated processes. Using these standard forms of
communication, manufacturers and their business partners are unable to
exchange information on a real-time basis, and as a result, potential
customers do not have easy access to the information needed to transact
business with the manufacturer or its channel partners. Manufacturers may also
be unable to tap into new revenue streams that exist due to restraints imposed
by differences in language and time zone, barriers that traditional methods
cannot easily overcome.
Companies have worked to develop technologies and software to overcome the
problems and limitations presented by traditional forms of communication and
processes to transact business. 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.
25
<PAGE>
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 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.
The Click Commerce Solution
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. 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,
26
<PAGE>
. Portuguese,
. German,
. Italian,
. Dutch,
. Danish,
. Norwegian,
. Swedish,
as well as in multiple currency formats. In addition, following a 4 to 6 week
needs analysis, we can usually implement our solution in approximately 120
days, which we believe is significantly faster than the implementation time
required for most competing business-to-business e-commerce solutions.
We believe that the Click Commerce solution provides our clients with the
following benefits:
Improved Relationships with Channel Partners and Consumers
Our solution helps manufacturers build stronger relationships with their
channel partners by making it easier to exchange information and transact
business with each other. With our solution, even the smallest of channel
partners can effectively maintain a direct relationship with the manufacturer.
In addition, our solution allows manufacturers and their channel partners to
make a direct connection with consumers where one might not have previously
existed. This allows manufacturers to effectively build brand awareness and
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 solution 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 solutions. 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 solution in place in the
shortest period of time.
Improved Efficiency and Reduced Operating Cost
The direct connection with channel partners and the automation of multiple
processes afforded by our 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
27
<PAGE>
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 leading business-to-business e-commerce
enterprise channel management solution that automates the business processes
between a manufacturer and its channel partners. Key elements of our strategy
to achieve this objective include:
Target Large, Global Manufacturers
We believe, based on the number and breadth of applications we offer, we
have developed the most comprehensive business-to-business extranet solution
for the manufacturing sector currently available. By focusing on the complex
needs of large manufacturers, we provide them with significant competitive
advantages, such as the benefits described above, 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 15 people
dedicated to sales located in Chicago, Illinois; Boston, Massachusetts; Del
Mar, California; Atlanta, Georgia; Detroit, Michigan; Dallas, Texas; New York,
New York; 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
plan to open sales offices in both of these locations in April 2000 and will
continue to expand our international marketing efforts to address the range of
international markets and applications for our Click Commerce solution.
Develop Strategic Relationships
We believe that in order to fully take advantage of our capabilities,
rapidly increase our revenues and enhance our Click Commerce suite of software
applications, we will need to continue to seek to enter into agreements with a
number of business consultants and resellers that provide for joint marketing
of our solution. By entering into these relationships, we intend not only to
take advantage of the expertise of these business
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associates but also to market our solution to their client base. Our current
marketing agreements are with Compaq Computer Corporation and Cap Gemini
America, Inc. We have also entered into a letter of intent with Andersen
Consulting to execute a more extensive definitive joint marketing agreement.
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 solution.
Provide Supplementary Value-Added Services For Our Extranet Customers
We plan to introduce new products and service offerings in areas such as
electronic publishing, content management, community management, system
outsourcing and auction services to complement the overall enterprise channel
management extranet solution. With the introduction of these new products and
services, we intend to expand sales to existing customers and strengthen our
recurring revenue model. We also believe that these new product and service
offerings will increase brand loyalty among our clients.
Click Commerce Products and Services
The Click Commerce Suite
The Click Commerce suite is an extranet-based application suite that forms
the backbone of our business-to-business e-commerce enterprise channel
management solutions. We develop, implement and support customized extranets,
which are secure systems that use the Internet to connect manufacturers with
their channel partners, which include distributors, dealers, retailers,
original equipment manufacturers, resellers, service centers and contractors,
their respective employees, and finally, their customers. The Click Commerce
solution is comprised of the Click Commerce Extranet Manager and the Click
Commerce Applications.
The Click Commerce Extranet Manager
To power the applications and effectively integrate them with a client's
existing 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
companywide 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. Although competitors provide bulk email capabilities,
Click Commerce allows email to be targeted to groups of users based
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on the user's roles, company affiliations and other attributes. The Click
Commerce Application Manager also controls dynamic system entry pages, company
news and promotions or other marketing content.
Language administration consists of creating language definitions (e.g.
Spanish) and creating specific translations for the "reference phrases" (e.g.
Numero for "Customer Number") that are shown when one of the Click Commerce
pages is generated. Click 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 isn't 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 (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 dynamically generated at the time of the
request (each page is an Active Server Page (ASP) script). 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.
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The objects in the Click Commerce Resource Library are the core building
blocks for any extranet. They allow dynamic customization and provide the
information infrastructure to build an easy-to-use global extranet.
The Click Commerce Applications
We offer 80 applications designed to provide specific functions to a user
of our Internet-based solution. These applications support a manufacturer's
business processes, all the way from pre-sales through after-market sales and
support. Our applications can be purchased in packages or individually to
accommodate each of our client's unique business requirements. In addition,
our applications can be modified and enhanced as our clients' businesses grow
and needs change. Below is a representative sample of some of our most widely
used applications and the specific function each application provides.
Marketing Applications: Our marketing applications target promotions and
marketing messages to users and communities. We currently offer sixteen
applications in our marketing package, including:
. Promotions Manager: Allows manufacturers to upload promotional materials
that can be targeted toward specific users--by geography or role.
Promotions can run on a continuous or periodic basis.
. Lead Management: Allows manufacturers to push sales leads down to the
dealership/sales level. The dealer/salesperson then uses the extranet to
report on the status of the lead. Reports are available to the
manufacturer to determine channel partner utilization and responsiveness
to the extranet system.
. Literature Fulfillment: Allows the user to obtain relevant sales
information "at a glance," such as competitive analyses, benefits,
prices, options, schematics, dimensions and other pertinent information.
Manufacturers using this application avoid the expense of distributing
literature.
Financing Applications: Our financing applications allow channel partners
and their customers to arrange financing for product purchases. We
currently offer six applications in our financing package, including:
. Closed-End Financing: Allows users (e.g. consumers and dealers) to apply
for closed-end financing packages online. Loan approval is communicated
online in real-time.
. Revolving Credit Application: Allows manufacturers that offer "branded"
credit cards through their own lending arm or through external
institutions to allow consumers to apply for credit online. Credit line
approval is provided online and in real-time. As consumers visit the
manufacturer's Web site for information on products, they can obtain
pre-approval for purchases at the manufacturer's dealers/distributors.
The branded card is a key component of a brand loyalty program and may
be tied to other loyalty programs.
. Forms Module: Creates on-line forms for purchase financing by buyers of
vehicles, houses and other state and county-regulated transactions in
the dealership environment. The key benefit of this application is the
ability to offer and maintain correct forms for each locality as
regulations change over time. This technology tracks the legal
requirements and keeps the contract forms continually up-to-date with
appropriate wording and disclaimers.
Catalog: Our catalog applications allow channel partners and their
customers to view and select products online and allow manufacturers to set
and change pricing levels for different purchasers. We currently offer
seven applications in our catalog package, including:
. Product Catalog: An online catalog with pictures and descriptions of
products, pricing and automatic links to a virtual shopping cart.
Variable organization and search capability allow adaptation to a wide
variety of uses.
. Internet Price Management: Enables channel partners to establish pricing
for parts and equipment that is sold over the Internet to independent
dealers or consumers. Manufacturers can establish price by retail,
wholesale, independent dealer account, product category, order volume
and shipping method.
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. Price Query: Validates part numbers and retrieves price and availability
information. When required, superseding part and obsolescence
information is displayed.
Order Management: These applications allow channel partners and their
customers to purchase products and services and obtain real-time
information regarding order status. We currently offer eleven applications
in our order management package, including:
. Shopping Cart and Checkout: Provides users with a virtual shopping cart
that displays items, quantity and other pertinent information. The
application includes a check-out procedure with options for sales tax
calculation, choice of shipping methods, and display of shipping costs
and method of payment.
. Automatic Replenishment: Based on customers' order history, selected
users receive notification of replenishment orders on a regular basis,
along with suggested orders for items that are often ordered. This
feature eliminates the need for users to monitor items that are commonly
ordered.
. Order/Ship Status: Allows the user to search current and past purchases
and displays the order shipping status with links back to the related
invoices when the account status package is purchased. Ship status
allows the querying of a shipper's site (e.g. Federal Express, UPS) for
shipment information without leaving the manufacturer's extranet.
Inventory Management: These applications allow channel partners to check a
manufacturer's inventory availability. We currently offer five applications
in our inventory management package, including:
. Inventory Availability: Allows a user to query inventory availability.
Searches can be made by partial part number, description, and other
delimiters if supported by 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.
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. Course Catalog: An online catalog with pictures, descriptions, pricing,
scheduling data, indicators that denote "open or closed" classes and
automatic links to the shopping cart.
. Online Modules and Testing: Allows the manufacturer to present the user
with training and testing materials.
Service: These applications present field service personnel with vital
information that they can access at any time, from anywhere with an
Internet connection. We currently offer eight applications in our service
package, including:
. Technical Bulletins: Allows the user to obtain relevant product
information "at a glance"--technical bulletins, campaign bulletins, shop
manuals, schematics, dimensions and other information. This application
reduces costs associated with distributing paper manuals.
. Service Scheduler: Allows dealers to post service specials and schedules
on the manufacturer's public or protected access Web site. Consumers use
these tools to locate service specialists, query service prices and
schedule service appointments directly with dealers. The manufacturer is
also notified and can monitor specials and other information.
. Repair Status: Allows for the querying by serial number of items sent to
the manufacturer for repair. It lists arrival date, repair status and
shipping date with a link to ship status if available.
Warranty: These applications support claims processing, return
authorization, and replacement orders to make the costly post-sales
processes of our clients more efficient. These applications also automate
various warranty functions and encourage customers and channel partners to
register for and extend warranties because of the convenience of the
system. We currently offer seven applications in our warranty package,
including:
. Warranty Registration: Allows a channel partner or consumer to register
a purchase with the manufacturer for warranty.
. Return Authorization: Allows channel partners to obtain authorizations
to return products to the manufacturer for warranty service, replacement
or return.
. Repair and Replacement Order: Allows channel partners to place an order
with the manufacturer for repair or replacement of parts or products.
This application is often used when a channel partner is not authorized
to perform warranty work.
Reporting: These applications allow manufacturers and channel partners to
improve their extranet performance. We currently offer two applications in
our reporting package, including:
. Scorecards: Allows a manufacturer to measure key business indicators and
metrics that determine how various functions across the manufacturing
value chain (e.g., marketing, warranty, service) are performing.
. Web Activity: Allows a manufacturer to track visitor activity on their
Web site or a related dealer site. Helps the manufacturer determine
"click through" traffic patterns, and then reorganize the site and
integrate promotions to affect performance.
Maintenance and Support: Click Client Care
We offer Click Client Care to extend the life and flexibility of our
clients' extranet solution through technical expertise, product support
services, and ongoing communications. We provide, depending upon our client's
needs, a dedicated extranet and voice support line which supplies our clients
with access to our team of knowledgeable extranet specialists twenty-four
hours a day, seven days a week. Our customer care specialists, or 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.
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Future Services - Electronic Publishing: Click Commerce Docs
As part of our overall enterprise channel management solution, we intend to
develop a new service in order to assist clients in the transformation of
existing documents into electronic information that can be delivered to
traditional audiences using Web browsers, wireless devices, and non-
traditional media. This service will enable 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 the companies that have either implemented or are in the
process of implementing the Click Commerce solution. We do not intend the
identification of these customers to imply that these customers are actively
endorsing or promoting our products.
Capital Goods Recreational Sports Telecommunications
. Hyundai . Mercury Marine . Motorola CGISS
. Trane . Marine Power Europe . Motorola iDEN
. Komatsu . Bombardier Recreation . Motorola PCS
. Delphi Automotive Systems
. Kawasaki . Ameritech
. Life Fitness . Qualcomm Wireless
. Qualcomm Consumer
Products
Financing Consumer Products Electronic Components
. Bombardier Capital . American Standard . Omron
. Mitsubishi Digital . Mitsubishi Electric Automation
. Mitsubishi Display Products
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.
Solution and Results: High Dealer Adoption and Increased Revenue. Click
Commerce developed and implemented a single enterprise-wide e-commerce
solution that can be used by all of Hyundai's channel partners,
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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 solution has led to
increased sales because it provides easily accessible, up-to-date and accurate
information. Instead of using outdated catalogs and price lists, Hyundai's
dealers simply look up parts in the new Internet-based electronic parts catalog
by the vehicle identification number. Hyundai's channel partners, whether they
are dealers, independent repair shop employees or consumers, can now place
orders and check inventory at their convenience, twenty-four hours a day and in
the language of their preference.
Technology and Product Architecture
Implementation of Our 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]
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
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example, enterprise application integration solutions can retrieve inventory
status for a part number on a real-time basis and transfer that information to
the Click Commerce order and product catalog applications for display on our
customer's extranet.
Click Commerce can connect either to the enterprise data directly or
through the enterprise applications. Our products can communicate with either
packaged applications, such as SAP, Oracle and Clarify, or database
repositories, such as DB2, Oracle, IMS and VSAM, that are commonly found in
proprietary existing back-office computer systems.
Repository is a database that stores the details of transaction activity
and all other actions occurring on a manufacturer's extranet. With the
information included in the repository, a manufacturer can measure the
effectiveness of its extranet and use that data to market to specific channel
partners. This information can help the manufacturer increase the usage and
promote e-commerce activity on its extranet. A repository can exist either in
a SQL Server or Oracle format.
Administration is a tool used in every extranet solution to manage the user
community. This tool assigns attributes to all extranet users so that a
manufacturer and its channel partners can personalize content by user. For
example, a manufacturer can set different prices and discounts for each of its
dealers.
Directory Services 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. The Lightweight Directory Access Protocol we currently
support is Microsoft Active Directory.
Channel Partner Level
Channel partners access a Click Commerce enabled extranet through Internet
browsers such as Netscape or Microsoft Internet Explorer. These browsers use
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 the Click
Commerce solution. The components work together to deliver a solution 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 solutions which can expand to meet new
demands by users. The following are the main
components of our technology kernel layer.
. Microsoft Transaction Server . Provides uniform data transfer
(MTS) across multiple data sources and
pools database connections for
improved performance.
. Microsoft Message Queue (MSMQ) . Manages data transport to
guarantee delivery.
. Extensible Markup Language (XML) . Passes information between
(to be introduced in the second application layers within the
quarter of 2000) Click Commerce suite of
applications. XML message
standards, which will be included
in an upgrade of our solution in
the second quarter of 2000, allow
us to easily integrate our
solution with other industry
leading technologies.
Services Layer:
The Services Layer regulates our applications' communication
with external repositories, directories and enterprise
applications that provide information to them. This allows
our solution 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 repository.
. Session Management
. Maintains information on each
user who logs into the system.
. Caching
. Eliminates excessive traffic to
(to be introduced in the second the repository 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.
. Repository
. Provides a location to store all
transaction information, such as
purchase orders and
confirmations, between Click
Commerce applications and
information stores, such as
Enterprise Applications.
Personalization Layer:
The Personalization Layer enables applications to deliver
content targeted for each channel partner and user of the
extranet. We define content as any information displayed by
an application, including promotions, news alerts,
messages, pricing levels, and products. Content
personalization consists of the following:
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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, e.g. 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 March 27, 2000, our direct sales force consisted of 15 sales
professionals located in Chicago, Illinois; Boston, Massachusetts; Del Mar,
California; Dallas, Texas; Atlanta, Georgia; Detroit, Michigan; New York, New
York; 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 e-commerce enterprise channel management
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solution in the shortest period of time. To complement our direct sales
efforts, we also use methods such as telemarketing, direct mail campaigns, Web
site marketing and speaking engagements to build market awareness of Click
Commerce and our products and to generate leads for potential customers. We
also have successfully implemented a "viral" selling model whereby divisions
of large companies become references for other divisions, as well as other
companies in similar industries. For example, our first Brunswick customer,
Mercury Marine Europe, resulted in follow-on business with other Brunswick
divisions, Mercury Marine (North America) and Life Fitness.
Identifying Prospective Clients
We strive to identify "qualified prospects," who are potential customers
that meet a majority of the following criteria:
. Large manufacturer with over $1 billion in revenues or a division of a
large manufacturer with over $500 million in revenues;
. Complex sales/distribution network;
. Recognized brand name;
. Senior management sponsorship for the e-commerce solution; and
. Desire for a rapid implementation of an e-commerce solution.
Once a qualified prospect has been identified, a member of our sales force
contacts an executive of the prospect to sell our Click Commerce solution.
Typically, our sales person will set up an onsite visit at the prospect's
offices so that we can demonstrate our product capabilities, and business
decision-makers can learn more about the benefits of our solution. Following
this meeting, we conduct a series of technical and business reviews with
various personnel of the potential customer. The goal of these initial sales
activities is to encourage the prospect to retain us to provide a "needs
analysis" of our business-to-business e-commerce solution.
Needs Analysis
Our needs analysis process consists of:
. Assessing a prospect's e-commerce needs through objective analysis;
. Performing back-end systems analysis;
. Interviewing channel partners of prospect to determine their needs;
. Identifying functionality for initial rollout that will generate a high
rate of return on the customer's investment and is easy to implement;
. Creating an e-commerce enterprise channel management solution prototype
so that the customer can visualize the solution in action; and
. Delivering a fixed-fee, fixed-schedule proposal for the implementation
of our solution.
The needs analysis typically takes four to six weeks to complete. Once the
needs analysis proposal has been presented, the prospect makes the decision
whether to invest in our e-commerce solution. We retain all ownership rights
to the prototype of the solution built for a prospect, or limit the prospect's
ability to use the prototype without implementing our solution.
Executing Master Software License and Implementation Agreement
After the needs analysis process is completed, we seek to implement our
solution by entering into a master software license and implementation
agreement. This agreement sets forth our terms for building and installing the
customer's extranet solution and generally grants to the customer a non-
exclusive, perpetual, nontransferable
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right and license to use our software. The agreement typically provides that
we retain title to the licensed software, although modifications to the
software or customizations made for a particular client may be owned by that
client, or may be subject to restrictions on sale to or use by competitors of
that client. The agreement includes a fixed price for our solution which is
based on factors such as:
. the number and types of applications ordered;
. the amount of time it will take to implement the solution, typically 120
days; and
. the complexity of the overall solution.
Executing Maintenance and Support Agreement
In connection with each master software license and implementation
agreement, we typically enter into a one year maintenance and support
agreement for Click Client Care that is renewable for each successive year by
the parties. We charge a set fee for this service. The agreement provides that
we will:
. correct or repair any failure, malfunction, defect or nonconformity in
the licensed software;
. provide commercially available updates (excluding implementation
services) to the licensed software; and
. maintain a help-line that customers can call with problems with the
software.
Marketing and Technology Business Relationships
To further penetrate the market for our solution, we have begun to enter
into joint marketing agreements with business consultants and resellers. We
believe that these relationships will assist us in gaining broad market
acceptance of our solution, as well as expand our marketing, sales and
distribution channels. We currently have agreements with Compaq Computer
Corporation and Cap Gemini America, Inc. We have entered into a cross-
marketing agreement with Compaq, under which Compaq has begun marketing to its
clients our solution as a component of its Nonstop e-Business(TM) solution,
and we recommend Compaq products to our prospective clients. Cap Gemini
America provides us with management consulting and information technology
services, and also markets and eventually will sell our solution to its
customers. We train members of Compaq's and Cap Gemini America's sales forces
on the essential attributes of our software products and integration services.
These early stage agreements do not contain specific pricing terms or
financial commitments. Pricing and revenue sharing terms will be agreed upon
in the event that we obtain revenue through these relationships.
We have also entered into a letter of intent with Andersen Consulting to
execute a definitive agreement that will provide for cross-marketing of each
other's products and services, as well as Andersen's consulting services to
us. We expect this agreement to include specific targets and to require
dedicated personnel and financial commitments. The letter of intent provides
that upon execution of a definitive agreement, we will issue warrants for 2%
of our common stock to Andersen Consulting. The warrants would vest only upon
our achievement of agreed upon revenue targets as a result of this
relationship. The warrants would also contain mutually agreeable penalty
provisions in the event that we do not receive revenue as a result of the
agreement. In addition, the letter of intent with Andersen Consulting provides
that, upon execution of a definitive agreement, Andersen will purchase from
some of our existing stockholders 2% of our outstanding common stock at a
purchase price of $10 million dollars. We will not receive any proceeds from
the sale of these shares of our common stock.
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 solution.
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<PAGE>
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 solutions, 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 solution currently competes favorably with respect to most of
these factors, our market is relatively new and is evolving rapidly. We may
not be able to maintain our competitive position against current and potential
competitors, especially those with significantly greater financial, marketing,
service, support, technical and other resources.
Many of our competitors have longer operating histories 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 solution. In either case, our
business, operating results and financial condition would be materially and
adversely affected. There can be no assurance that we will be able to compete
successfully with existing or new competitors or that competition will not
have a material adverse effect on our business, financial condition and
operating results.
Proprietary Rights and Licensing
Our success and ability to compete is affected by our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely primarily on a
combination of copyright, trade secret and trademark laws, confidentiality and
nondisclosure procedures, contractual provisions and other similar measures to
protect our proprietary information. For example, we license rather than sell
our software to customers and require licensees to enter into license
agreements that impose 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 March 27, 2000, we had a total of 106 employees, including 28 people
in sales and marketing, 11 people in research and development, 52 people in
business consulting and project management, and 15 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 office in Del Mar, California. We are
contingently liable on a lease for the portion of our former corporate
headquarters that we have subleased.
Legal Proceedings
We are not a party to any material legal proceedings.
Corporate History
We were originally incorporated in 1996 as "Click Interactive, Inc." We
changed our name in December 1999 to "Click Commerce, Inc."
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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
Wm. Edward Vesely....... 40 Senior Vice President of Marketing and E-Services
Patricia Plante......... 42 Senior Vice President of Product Development and Integration Services
Manuel A. Fernandez 53 Director
(1)(3).................
Dr. Michael 51 Director
Hammer(2)(4)...........
Emmanuel A. Kampouris
(2)(3)................. 65 Director
Peter N. Larson (1)(4).. 60 Director
Jerry Murdock (1)(3).... 41 Director
Leslie D. 55 Director
Shroyer(1)(2)(4).......
</TABLE>
- --------
(1) Member of the Human Resource 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 in 1988. Mr. Ferro also served as President of the Earthwood Care
division of Pettibone Corporation from 1992 to 1994 after the sale of Chem-
Roof to Pettibone in 1992. Mr. Ferro is also the founder and chairman of the
board of directors of WarrantyCheck.com, Inc. Mr. Ferro holds a Bachelor of
Science degree in psychology from the University of Illinois.
Robert J. Markese has served as our President since November 1999 after
serving as Executive Vice President since June 1999. Prior to joining Click
Commerce, Mr. Markese served as president of North American operations for
Systems Software Associates, an international provider of enterprise resource
planning (ERP) software and services based in Chicago, from April 1998 to May
1999. He served as vice president of North American operations from March 1997
to April 1998 and vice president of the Midwestern region from May 1995 to
March 1997. He began working for Systems Software Associates in 1991 as a
sales manager for major accounts. Prior to his employment with Systems
Software Associates, Mr. Markese worked for XL/Datacomp and Xerox Computer
Services. Mr. Markese holds a Bachelor of Science degree in Business
Administration from Lewis University.
Rebecca S. Maskey has served as our Chief Financial Officer, Treasurer and
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 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. From 1993 to 1998, Mr. Gray
served as a vice president and managing director
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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 and Marathon Oil Company. Mr. Gray holds a Master of Science
degree in economics and statistics from North Carolina State University.
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 from 1995
to 1999. From 1993 to 1995, Mr. Vesely served as director of marketing for
Andersen Consulting's Software Products Group. Mr. Vesely holds bachelor
degrees in journalism and computer science from Northern Illinois University
and an M.B.A. in marketing from DePaul University.
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, Black &
Decker Corporation, US West, Inc., WarrantyCheck.com, Inc., and Net Numbers.
Mr. Fernandez holds a bachelors degree in electrical engineering from the
University of Florida and completed post graduate work in solid state
engineering at the University of Florida and in business administration at The
Florida Institute of Technology.
Dr. Michael Hammer has served as a director since February 14, 2000. Dr.
Hammer founded Hammer and Company, Inc., in 1982 and currently serves as
president. Dr. Hammer was formerly an associate professor in the department of
electrical engineering and computer science at the Massachusetts Institute of
Technology. Dr. Hammer also serves as a director of HOW2HQ.com, Inc. and is a
former director of Interleaf, Inc. and Corporate Software, Inc. Dr. Hammer
holds a Master's degree in electrical engineering, a Ph.D. in computer science
and a Bachelor of Science degree in mathematics from the Massachusetts
Institute of Technology.
Emmanuel A. Kampouris has served as a director since February 14, 2000.
From 1989 to 1999, Mr. Kampouris served as the president and chief executive
officer of American Standard Companies Inc., 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, 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 recreational products. He has held these positions since 1995.
From 1991 to 1995, Mr. Larson was worldwide chairman of Johnson & Johnson's
Consumer and Personal Care Group and a member of the Johnson & Johnson board
of directors and executive committee. Mr. Larson also serves as a director of
CIGNA Corporation and Compaq Computer Corporation and is chairman of the New
York Stock Exchange Listed Company Advisory Committee, the International
Relations Committee and the Marketing Task Force of the U.S. Olympic
Committee. Mr. Larson earned a Bachelor of Science degree from Oregon State
University and a J.D. from Seton Hall University. Mr. Larson serves as a
director at the designation of Compaq Computer Corporation pursuant to the
terms of the Series B preferred stock, which will convert into common stock
upon the closing of this offering.
Jerry Murdock has served as a director since June 1999. Mr. Murdock is a
partner of Insight Venture Associates III, L.L.C., which he co-founded in
1995. 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
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Aspen Technology Group, was retained by Warburg Pincus, a global private
equity investment firm. Mr. Murdock also serves as a director of Quest
Software. 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 Parners 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. To date, we have not paid Mr.
Shroyer any fees in connection with these consulting services. 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 and a Master's degree in Management
Science from the University of Texas.
Classified Board
Following this offering, our Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. As
a result, a portion of our Board of Directors will be elected each year. To
implement the classified structure, effective as of the consummation of the
offering, two of the nominees to the board will be elected for a one-year
term, two will be elected for a two-year term and three will be elected for a
three-year term. After these initial terms, directors will be elected for
three-year terms. Messrs. Larson and Shroyer have been designated as Class I
directors whose terms expire at the 2001 annual meeting of stockholders.
Messrs. Fernandez and Murdock have been designated as Class II directors whose
terms expire at the 2002 annual meeting of stockholders. Messrs. Ferro, Hammer
and Kampouris have been designated Class III directors whose terms expire at
the 2003 annual meeting of stockholders.
Board Committees
Executive Committee
The executive committee of the Board of Directors consists of Messrs.
Ferro, Jr., 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 Messrs. Murdock
(chairman), Kampouris and Fernandez. The audit committee reviews our financial
statements and accounting practices, makes recommendations to the Board of
Directors regarding the selection of independent auditors and reviews the
results and scope of our annual audit and other services provided by our
independent auditors.
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, 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
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<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. Directors who make an effective election may defer receipt of
all or a portion of these shares of common stock. All directors are also
reimbursed for their reasonable out-of-pocket expenses incurred while serving
on the Board of Directors or any committees.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our only other executive officer whose
combined salary and bonus exceeded $100,000 in fiscal 1999, collectively
referred to below as the Named Executive Officers, for services rendered in
all capacities to us during fiscal 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Awards
Compensation (Option Awards)
----------------- ---------------
Number of
Securities
Underlying Other
Salary Bonus Options Compensation(1)
-------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Michael W. Ferro, Jr.,
Chairman of the Board and
Chief Executive Officer..... $201,923 $131,288 -- $1,815
Robert J. Markese, President. $144,231 -- 1,140,000 $1,706
</TABLE>
- --------
(1) Includes cost of term life insurance and long-term disability insurance.
Option Grants In Last Fiscal Year
<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.
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<PAGE>
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 24 months
following the cessation of his employment.
Robert J. Markese. We are a party to an employment agreement with Robert J.
Markese, dated June 1, 1999. The term of the agreement is three years and
seven months. Under the agreement we are obligated to pay Mr. Markese an
annual salary of $250,000 plus annual discretionary bonuses. Mr. Markese has
also been granted an option to purchase 1,140,000 shares of our common stock
at an exercise price of $1.15 per share. One-third of these options vest on
December 31, 2000, one-third vest on December 31, 2001 and one-third vest on
December 31, 2002. In the event of any additional public offering of our
common stock prior to December 31, 2000, 10% of Mr. Markese's options will
vest, and Mr. Markese may require us to register the resale of shares issuable
upon the exercise of such options in that public offering. In the event Mr.
Markese's employment is terminated without cause, he would continue to receive
his salary for twelve months or until December 31, 2002, whichever is shorter,
and employee benefits until December 31, 2002, and he would receive the earned
portion of any discretionary bonuses and retain all options that are vested or
that would vest within twelve months of the termination date in the absence of
termination. Mr. Markese has agreed not to compete with us for a period of
twenty-four months following the cessation of his employment.
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,
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<PAGE>
officers, directors and consultants. The plan provides for the issuance of up
to 4,930,842 shares of our common stock. However, the maximum number of shares
that may be granted to any individual in a calendar year is 1,000,000. The
plan is intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Internal Revenue Code.
Our board of directors has authorized the compensation committee to
administer the plan. The compensation committee interprets the plan, selects
the recipients of awards and determines:
. the number of shares of common stock covered by options and the dates
upon which the options become exercisable;
. the exercise price of options, provided, however, that the option price
shall not be less than 100% of the fair market value of the share as
determined by the compensation committee (110% if the incentive stock
option is granted to a greater than 10% stockholder of the company);
. the duration of options, provided, however, that the term of each
incentive stock option shall not exceed ten years (or five years if the
incentive stock option is granted to a greater than 10% stockholder of
the Company);
. the designation of options as incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code or non-statutory
stock options; and
. the award of stock appreciation rights in tandem with options.
If there is a change in the corporate structure of the company, the board
of directors may in its discretion make adjustments necessary to prevent
accretion or dilution in the number and kind of shares authorized by the plan
or, with respect to outstanding options, adjustments in the number and kind of
shares thereunder and in the option exercise price.
Options granted under the plan will be immediately exercisable in the event
of a change of control. A change in control will occur when (1) a person,
entity or group other than an individual who is a stockholder of Click
Commerce as of the effective date of the offering acquires beneficial
ownership of 35% of the outstanding shares entitled to vote in elections of
directors, or (2) Click Commerce consummates a merger or consolidation, or a
sale or disposition of all or substantially all of its assets, other than with
or to an affiliated company. An "affiliated company" means a company with
respect to which the majority of the total members of its board of directors
were selected by persons or entities who are stockholders of Click Commerce as
of the effective date of the offering.
Under certain circumstances, the committee may grant reload rights which
entitle a director or an employee who holds options to receive a new option to
purchase shares of our common stock upon exercise of the original option. No
reload option will have reload rights.
Click Commerce, Inc. Directors' Stock Option and Stock Award Plan
The Click Commerce, Inc. Directors' Stock Option and Stock Award Plan
provides for the grant of non-qualified stock options and stock awards to non-
employee directors. The plan provides for the issuance of up to 500,000 shares
of our common stock. If there is a change in the corporate structure of the
company, the administrative committee may in its discretion make adjustments
necessary to prevent accretion or dilution in the number and kind of shares
authorized by the plan or, with respect to outstanding options, adjustments in
the number and kind of shares thereunder and in the option exercise price.
401(k) Plan
Under our client services arrangement with Administaff of Texas, Inc., both
we and Administaff are intended to be co-employers of our employees.
Accordingly, our employees participate in the Administaff 401(k) plan to
provide them with retirement benefits and with a means to save for their
retirement. The 401(k) plan is intended to be a tax-qualified plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended.
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<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.
In July 1999, we redeemed and retired 5,217,392 shares of our common stock
for $6.0 million. Such common shares were redeemed from 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.
Michael W. Ferro, Jr., our founder, chief executive officer and chairman,
is also the founder and majority stockholder of WarrantyCheck.com, Inc. In
addition, Leslie D. Shroyer and Manuel A. Fernandez, each currently a director
of Click Commerce, serve as directors of WarrantyCheck.com. WarrantyCheck.com
has paid us an aggregate of approximately $263,000 for a needs analysis and
for consulting services provided by us. These consulting services were
completed during the fourth quarter of 1999. Messrs. Shroyer and Fernandez
were not directors of Click Commerce in 1999.
Life Fitness and Mercury Marine, subsidiaries of Brunswick Corporation,
paid us approximately $1.0 million for services rendered by us in fiscal 1999.
Peter N. Larson, a current director of Click Commerce, is the chairman and
chief executive officer of Brunswick Corporation. Mr. Larson was not a
director of Click Commerce in 1999.
American Standard Companies Inc., together with its subsidiary, Trane
Company, paid us an aggregate of approximately $1.8 million for services
rendered by us in fiscal 1999. Emmanuel A. Kampouris, a current director of
Click Commerce, was the chairman, president and chief executive officer of
American Standard Companies Inc. until December 1999. Mr. Kampouris was not a
director of Click Commerce in 1999.
Motorola, Inc. paid us an aggregate of approximately $2.9 million for
services rendered by us in fiscal 1999. Leslie D. Shroyer, a current director
of Click Commerce, was a senior vice president and the chief information
officer of Motorola, Inc. until January 2000. Mr. Shroyer was not a director
of Click Commerce in 1999. In addition, we have retained Mr. Shroyer to
provide consulting services to us from time to time on an as-needed basis in
areas including marketing, product development and business development at a
per diem rate of $1,300.
In September 1999, Michael W. Ferro, Jr. sold an aggregate of 434,784
shares of common stock for aggregate consideration of $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 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 the following newly elected directors of Click Commerce:
Peter N. Larson, Emmanuel A. Kampouris, Manuel A. Fernandez
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<PAGE>
and Dr. Michael Hammer. Shares were also sold to our counsel, Latham &
Watkins, and to an individual partner of Latham & Watkins. The value of these
shares at the midpoint of the filing range would be $35,874,050.
In March 2000, we entered into a letter of intent with Andersen Consulting
to execute definitive agreements that will provide for cross-marketing of each
other's products and services. The letter of intent provides that, upon
execution of a definitive agreement, Andersen will purchase from some of our
existing stockholders, substantially all of whom are officers and directors,
2% of our outstanding common stock. We would not receive any of the proceeds
from the sale of these shares of our common stock.
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 February 11, 2000, and as adjusted to
reflect the conversion of all preferred stock into common stock immediately
prior to the completion of this offering and sale of the shares of common
stock offered by this prospectus, by:
. each person, or group of affiliated persons, who is known by us to
beneficially own 5% or more of our common stock;
. each of our directors and Named Executive Officers; and
. all of our directors and executive officers as a group.
Share ownership in each case includes shares issuable upon exercise of
outstanding options that are exercisable within 60 days of February 11, 2000.
Beneficial ownership is determined in accordance with the rules of the SEC and
includes voting and investment power with respect to shares. Unless otherwise
indicated, the persons named in the table below have sole voting and sole
investment control with respect to all shares beneficially owned. Percentage
of ownership is calculated according to SEC Rule 13d-3(d)(1). Percentage
ownership calculations before and after this offering are based on 33,130,494
shares and 38,130,494 shares, respectively, of common stock outstanding.
Unless otherwise indicated, the address for all executive officers and
directors is c/o Click Commerce, Inc., 200 East Randolph Drive, Suite 4900,
Chicago, Illinois 60601.
<TABLE>
<CAPTION>
Percentage of Common Stock
Beneficially Owned (1)
Name of Beneficial Number of Shares --------------------------------------
Owner Beneficially Owned Before the Offering After the Offering
- ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C>
Michael W. Ferro,
Jr.(1)................ 15,490,835 46.76% 40.63%
Robert J. Markese...... -- * *
Peter N. Larson(2)..... 100,000 * *
Emmanuel A. Kampouris.. 171,429 * *
Jerry Murdock(3)....... 7,169,773 21.64% 18.80%
Entities affiliated
with Insight Capital
Partners
527 Madison Avenue
10th Floor
New York, New York
10022
Manuel A. Fernandez(4). 585,013 1.77% 1.53%
Dr. Michael Hammer..... 190,476 * *
Leslie D. Shroyer...... 38,095 * *
Compaq Computer
Corporation........... 4,347,828 13.12% 11.40%
40 Old Bolton Road
Stow, Massachusetts
01775
All directors and
executive officers as
a group (10 persons).. 23,745,621 71.67% 62.27%
</TABLE>
- --------
*Less than 1% of total.
(1) David Stone and Michael W. Ferro, Sr., Suzi Ferro Clegg and Maria Morris,
Michael W. Ferro, Jr.'s father and two sisters, have issued to Mr. Ferro,
Jr. their proxy to vote the 1,871,904 shares of our common stock owned by
them until expiration of the 360 day lock-up to which they are subject.
(2) Includes 6,000 shares held by Dana E. Larson and 6,000 shares held by
Maryle A. Larson. Mr. Larson disclaims beneficial ownership of the shares
held by Dana E. Larson and Maryle A. Larson.
(3) Includes 4,558,201 shares held by Insight Capital Partners III, L.P.,
1,017,242 shares held by Insight Capital Partners III-Coinvestors, L.P.
and 1,546,711 shares held by Insight Capital Partners (Cayman) III, L.P.
Insight Venture Associates III, L.L.C. is the general partner of each of
Insight Capital Partners III, L.P., Insight Capital Partners III-
Coinvestors, L.P. and Insight Capital Partners (Cayman) III, L.P. Mr.
Murdock, a director of Click Commerce, is a partner of Insight Venture
Associates III, L.L.C. Mr. Murdock disclaims
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<PAGE>
beneficial ownership of the shares held by Insight Capital Partners III,
L.P., Insight Capital Partners III-Coinvestors, L.P. and Insight Capital
Partners (Cayman) III, L.P., except to the extent of his pecuniary
interests therein arising from his membership interest in Insight Venture
Associates III, L.L.C.
(4) Includes 525,467 shares held by S.I. Venture Associates, L.L.C. Mr.
Fernandez, a director of Click Commerce, is a managing partner of S.I.
Venture Associates, L.L.C. Mr. Fernandez disclaims beneficial ownership of
the shares held by S.I. Venture Associates, L.L.C., except to the extent
of his pecuniary interests therein arising from his membership interest in
S.I. Venture Associates, L.L.C.
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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 December 31, 1999, assuming the conversion of all outstanding
preferred stock into common stock prior to the consummation of this offering
and the issuance of 450,000 shares of common stock upon exercise of options in
February 2000, 32,184,512 shares of our common stock were outstanding and held
of record by 16 stockholders. After this offering, 37,184,512 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.
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
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<PAGE>
stockholder attained status as an interested stockholder with the approval of
the board of directors or unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to exceptions, an "interested stockholder" is a person
who, together with affiliates and associates, owns, or within three years did
own, 15% or more of a corporation's voting stock. This statute could prohibit
or delay the accomplishment of mergers or other takeover or change in control
attempts with respect to our company and, accordingly, may discourage attempts
to acquire us.
In addition, a number of provisions of the Certificate and Bylaws, which
provisions will be in effect upon the closing of this offering and are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
our stockholders.
Board of Directors Vacancies; Classified Board. Following this offering,
our Board of Directors will be divided into three classes, each of whose
members will serve for a staggered three-year term. The Certificate also
authorizes our Board of Directors to fill vacant directorships or increase the
size of the Board of Directors. These provisions may deter a stockholder from
removing incumbent directors and simultaneously gaining control of the Board
of Directors by filling the vacancies created by removal with its own
nominees.
Stockholder Action; Special Meeting of Stockholders. The Certificate
provides that stockholders may not take action by written consent, but only at
a duly called annual or special meeting of stockholders. The Certificate
further provides that special meetings of stockholders of our company may be
called only by the Chairman of the Board of Directors or a majority of the
Board of Directors or by a committee of the Board of Directors which has been
duly designated by the Board of Directors and whose powers and authority, as
provided in a resolution of the Board of Directors or in the Bylaws of the
company, include the power to call such meetings.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to the secretary at our principal executive offices not less than
120 days prior to the first anniversary of the date the corporation's proxy
statement was released to security holders in connection with the preceding
year's annual meeting of stockholders; provided, that if no annual meeting of
stockholders was held in the previous year or the date of the annual meeting
of stockholders has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, a proposal
shall be received by the corporation no later than ten days following the day
on which notice of the date of the meeting was mailed or public announcement
of the date of the meeting was made, whichever comes first. In the case of a
special meeting of stockholders, notice by the stockholder, to be timely, must
be so received not more than 90 days nor later than the later of (1) 60 days
prior to the special meeting of stockholders or (2) the close of business on
the 10th day following the date on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the board of
directors to be elected at such meeting. The Bylaws also specify requirements
as to the form and content of a stockholder's notice. These provisions may
preclude stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an annual meeting of
stockholders.
Authorized But Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of our company by means
of a proxy contest, tender offer, merger or otherwise.
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<PAGE>
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. We
have provisions in our certificate and bylaws that require a super-majority
vote of the stockholders to amend, revise or repeal provisions that may have
an anti-takeover effect.
Registration Rights
Following this offering, holders of 9,565,220 shares of our common stock
will have certain rights to register the sales of those shares under the
Securities Act. Subject to some limitations, these registration rights
include:
. an unlimited number of piggyback registration rights that require us to
register sales of a requesting holder's shares when we undertake a
public offering, subject to the discretion of the managing underwriter
of the offering to decrease the amount that holders may register;
. two demand registration rights that holders may exercise no sooner than
180 days after our initial public offering, which require us to register
sales of a holder's shares, subject to the discretion of our Board of
Directors to delay the registration; and
. registration rights that holders may exercise no more than twice during
any consecutive 12 month period to require us to register sales of
shares on Form S-3, a short form of registration statement permitted to
be used by some companies, which holders may exercise following the time
we first qualify for the use of this form of registration with the SEC
if they request registration of the sale of shares representing no less
than 2% of the then outstanding shares of common stock.
Holders of an additional 4,295,188 shares of common stock are entitled to
an unlimited number of piggyback registration rights as well as the right to
participate, on a pro rata basis, in any underwritten secondary offering of
our common stock that would constitute an exception to the 360-day lock-up
period following this offering, subject to reductions in the discretion of the
managing underwriter of such offering or the Board of Directors.
A holder of an aggregate of 873,556 shares and options to acquire shares of
common stock may require us to register the resale of such shares in a non-
underwritten offering on Form S-3 following the time we first qualify for the
use of this form, which we expect to qualify for after the first anniversary
of this offering.
In connection with his employment agreement, in the event of an additional
public offering prior to December 31, 2000, Robert J. Markese may require us
to register the resale of shares issuable upon the exercise of up to 10% of
his 1,140,000 options in that public offering.
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions.
All holders of our common stock prior to this offering have agreed with us
not to sell any of their shares during the 360-day period following this
offering and are expected to agree with Morgan Stanley & Co. Incorporated not
to sell any of these shares during the 180-day period following this offering.
Our Board of Directors, in its discretion, may waive this 360-day lock-up
period. Any decision by our Board of Directors to waive the lock-up
restrictions would depend on a number of factors, including market conditions,
the performance of our common stock in the market and our financial condition
at that time.
Limitation of Liability and Indemnification Matters
The Certificate includes provisions to (1) eliminate the personal liability
of our Directors for monetary damages resulting from breaches of their
fiduciary duty to the extent permitted by the DGCL and (2) indemnify our
Directors and officers to the fullest extent permitted by the DGCL, including
circumstances in which indemnification is otherwise discretionary.
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<PAGE>
We have entered into agreements to indemnify each of our directors and some
of our executive officers, in addition to the indemnification provided for in
the Bylaws. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and officers. Our Bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions, regardless of whether the
DGCL would permit indemnification.
Transfer Agent And Registrar
Upon the closing of this offering, the transfer agent and registrar for our
common stock will be Harris Trust and Savings Bank.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Effect of Sales of Shares
Prior to this offering, no public market existed for our common stock, and
we can make no prediction as to the effect, if any, that sales of shares of
common stock or the availability of shares of our common stock for sale will
have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market, or the perception that sales occur, could adversely affect the market
price of our common stock and could impair our future ability to raise capital
through an offering of our equity securities.
Sale of Restricted Shares
On completion of this offering, we will have an aggregate of 37,184,512
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
32,184,512 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................ 32,184,512 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 371,845 shares upon completion of this
offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale, subject to the
restrictions specified in Rule 144.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years is entitled to sell such
shares under Rule 144(k) without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Persons
deemed to be affiliates must always sell pursuant to Rule 144, even after the
applicable holding periods have been satisfied.
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<PAGE>
Lock-Up Agreements
We, all of our directors and officers, all of our current stockholders and
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
4,295,188 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 4,539,000
shares of our common stock were outstanding. An additional 891,842 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.
58
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Dain Rauscher Incorporated and 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 $ .
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have applied for quotation of the common stock on the Nasdaq National
Market under the symbol "CKCM."
59
<PAGE>
Each of Click Commerce and the officers, directors, stockholders and
optionholders of Click Commerce has agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it
will not during the period ending 180 days after the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, the economic consequences of ownership of common stock
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
The restrictions described in the immediately preceding paragraph do not
apply to:
. the sale of shares to the underwriters;
. the issuance of shares under our employee stock option or stock purchase
plans;
. the grant by us of employee stock options; or
. the issuance of common stock in connection with the transactions
described in this prospectus.
In addition, each of our directors, executive officers and current
stockholders and certain of our optionholders have agreed with us that they
will not offer, sell or agree to sell, directly or indirectly, or otherwise
dispose of any shares of common stock without our prior written consent for a
lock-up period of 360 days from the date of this prospectus.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares of common stock offered in this offering
under a directed share program for some of our business associates. These
persons are expected to purchase, in the aggregate, not more than five percent
of the common stock offered in the offering. The number of shares available
for sale to the general public in the offering will be reduced to the extent
these persons purchase reserved shares. Any reserved shares not so purchased
will be offered to the general public on the same basis as the other shares
offered by this prospectus.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-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
60
<PAGE>
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, and an individual partner of Latham & Watkins owns 9,524 shares
of our common stock.
EXPERTS
Our financial statements and the related financial statement schedule as of
December 31, 1998 and 1999, and for each of the years in the three-year period
ended December 31, 1999 have been included herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in auditing and accounting.
CHANGE IN INDEPENDENT ACCOUNTANTS
Our financial statements for the year ended December 31, 1998 were
previously audited by PricewaterhouseCoopers LLP, certified public
accountants. We made the determination to change accountants to KPMG LLP in
connection with our decision to offer shares of our common stock to the
public. The decision to change accountants was approved by our Board of
Directors. PricewaterhouseCoopers LLP and we mutually agreed to terminate our
relationship on December 10, 1999. PricewaterhouseCoopers LLP's report on our
financial statements for the fiscal year ended December 31, 1998 contained no
adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. There were no
disagreements at any time between us and PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
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
61
<PAGE>
contract or any other document are not necessarily complete. If a contract or
a document has been filed as an exhibit to the registration statement, we
refer you to the copy of the contract or document that has been filed. Each
statement in this prospectus relating to a contract or a document filed as an
exhibit is qualified in all respects by the filed exhibit. The registration
statement, including exhibits and schedules thereto, may be inspected without
charge at the SEC's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from such office after payment of fees
prescribed by the SEC. Please call the SEC at 1-800-732-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement, are also available to you on the SEC's
Web site located at www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and in
accordance therewith will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
common stock for the quotation on the Nasdaq National Market, reports, proxy
and information statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
62
<PAGE>
CLICK COMMERCE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Shareholders' Equity (Deficit)............................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Click Commerce, Inc.:
We have audited the accompanying balance sheets of Click Commerce, Inc. as
of December 31, 1998 and 1999, and the related statements of operations,
shareholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Click Commerce, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois February 7, 2000, except as to Note 13,
which is as of February 14, 2000
F-2
<PAGE>
CLICK COMMERCE, INC.
BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
December 31, Pro Forma
---------------------- December 31,
1998 1999 1999
---------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 66,850 $3,335,674 $3,336,799
Short-term investments.................. 53,210 2,968,198
Trade accounts receivable, less
allowance for doubtful accounts of
$20,744 and $53,794 in 1998 and 1999... 490,597 1,539,665
Revenue earned on contracts in progress
in excess of billings.................. 136,957 894,107
Other current assets.................... 20,435 129,699
Deferred income taxes................... 79,781 242,379
---------- ----------
Total current assets.................. 847,830 9,109,722
Property and equipment, net............. 189,865 700,323
Other assets............................ 39,102 123,788
---------- ----------
Total assets.......................... $1,076,797 $9,933,833
========== ==========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable........................ $ 224,656 $ 644,170
Billings in excess of revenues earned on
contracts in progress.................. 214,268 2,025,809
Deferred revenue........................ 184,084 389,799
Accrued compensation.................... 182,898 712,382
Accrued expenses and other current
liabilities............................ 34,986 233,751
Income taxes payable.................... 145,149 39,092
Current portion of capital lease
obligations............................ 15,727 45,454
---------- ----------
Total current liabilities............. 1,001,768 4,090,457
Capital lease obligations, less current
portion.................................. 2,121 83,706
Deferred income taxes..................... 17,529 33,249
---------- ----------
Total liabilities..................... 1,021,418 4,207,412
Series A Convertible Participating
Preferred Stock, $0.001 par value,
12,000,000 shares authorized; minimum
aggregate liquidation preference of
$6,000,000 in 1999; 5,217,392 shares
issued and outstanding in 1999........... -- 5,800,000 --
Series B Convertible Participating
Preferred Stock, $0.001 par value,
8,000,000 shares authorized; minimum
aggregate liquidation preference of
$5,000,000 in 1999; 4,347,828 shares
issued and outstanding in 1999........... -- 4,800,000 --
Shareholders' equity (deficit):
Preferred stock, $0.001 par value,
5,000,000 shares authorized, no shares
issued and outstanding................. -- -- --
Common stock, $0.001 par value,
75,000,000 shares authorized;
26,400,000, 22,169,292, and 32,184,512
shares issued and outstanding in 1998,
1999 and pro forma 1999 ............... 26,400 22,169 32,184
Additional paid-in capital.............. 623,967 -- 10,591,110
Deferred compensation................... (509,559) -- --
Accumulated deficit..................... (85,429) (4,895,748) (4,895,748)
---------- ---------- ----------
Total shareholders' equity (deficit).. 55,379 (4,873,579) 5,727,546
---------- ---------- ----------
Total liabilities and shareholders'
equity (deficit)....................... $1,076,797 $9,933,833
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenue.................................... $1,321,684 $2,390,340 $9,952,109
Cost of revenue............................ 378,989 711,963 2,669,551
---------- ---------- ----------
Gross profit............................... 942,695 1,678,377 7,282,558
Operating expenses:
Sales and marketing...................... 174,347 434,510 2,810,477
Research and development................. -- 149,235 728,823
General and administrative (exclusive of
$187,401 and $402,298 in 1998 and 1999,
reported below as amortization of
deferred stock compensation) ........... 719,850 986,630 2,761,706
Amortization of deferred stock
compensation............................ -- 187,401 402,298
---------- ---------- ----------
Total operating expenses............... 894,197 1,757,776 6,703,304
---------- ---------- ----------
Operating income (loss).................... 48,498 (79,399) 579,254
Interest income............................ 5,510 8,370 113,186
Interest expense........................... (5,893) (8,977) (6,639)
Other expense.............................. (256) (1,881) (6,256)
---------- ---------- ----------
Other income (expense)..................... (639) (2,488) 100,291
---------- ---------- ----------
Income (loss) before income taxes.......... 47,859 (81,887) 679,545
Income tax expense (benefit)............... 28,721 (16,670) 297,571
---------- ---------- ----------
Net income (loss).......................... $ 19,138 $ (65,217) $ 381,974
========== ========== ==========
Basic and diluted earnings (loss) per
share..................................... $ 0.00 $ (0.00) $ 0.01
========== ========== ==========
Weighted average shares outstanding:
Basic.................................... 28,782,666 28,782,666 26,754,244
Diluted.................................. 28,782,666 28,782,666 27,771,262
Pro forma basic and diluted earnings per
share..................................... $ 0.01
==========
Pro forma weighted average shares
outstanding:
Basic.................................... 31,628,576
Diluted.................................. 32,645,594
</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 $ -- $ -- $ (39,350) $ (12,950)
Net income.............. -- -- -- 19,138 19,138
---------- ------- -------- -------- ----------- -----------
Balance at December 31,
1997................... 26,400,000 26,400 -- -- (20,212) 6,188
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) (85,429) 55,379
Amortization of deferred
stock compensation, net
of income tax benefit
of $156,695............ -- -- (156,695) 402,298 -- 245,603
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) (802,490) -- (5,192,293) (6,000,000)
Net income.............. -- -- -- -- 381,974 381,974
---------- ------- -------- -------- ----------- -----------
Balance at December 31,
1999................... 22,169,292 $22,169 $ -- $ -- $(4,895,748) $(4,873,579)
========== ======= ======== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CLICK COMMERCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1997 1998 1999
-------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 19,138 $ (65,217) $ 381,974
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Amortization of deferred stock
compensation............................ -- 187,401 402,298
Depreciation and amortization............ 23,621 42,814 103,315
Provision for doubtful accounts.......... 20,744 -- 33,050
Deferred income taxes.................... -- (60,707) (146,879)
Loss on disposal of property and
equipment............................... 256 1,881 6,256
Changes in operating assets and
liabilities:
Trade accounts receivable.............. (8,403) (473,065) (1,082,118)
Revenue earned on contracts in progress
in excess of billings................. -- (136,957) (757,150)
Other current assets................... (4,686) (11,487) (109,264)
Accounts payable....................... 84,501 122,475 419,514
Billings in excess of revenues earned
on contracts in progress.............. -- 214,268 1,811,541
Deferred revenue....................... -- 184,084 205,715
Accrued compensation................... 184,732 (11,500) 529,484
Accrued expenses and other current
liabilities........................... 19,745 (1,744) 198,764
Income taxes payable................... 28,175 43,981 178,247
Other assets........................... (10,734) (28,369) (87,700)
-------- --------- -----------
Net cash provided by operating
activities.......................... 357,089 7,858 2,087,047
Cash flows from investing activities:
Purchases of property and equipment........ (49,412) (138,936) (481,617)
Proceeds from sale of property and
equipment................................. -- 250 4,199
Net purchases of short-term investments.... (50,461) (2,749) (2,914,988)
-------- --------- -----------
Net cash used in investing
activities.......................... (99,873) (141,435) (3,392,406)
Cash flows from financing activities:
Common stock redemption.................... -- -- (6,000,000)
Proceeds from issuance of preferred stock,
net of issuance costs..................... -- -- 10,600,000
Proceeds from exercise of stock options.... -- -- 2,468
Principal payments under capital lease
obligations............................... (13,827) (20,358) (28,285)
Payments under other borrowings, net....... (35,772) (205) --
-------- --------- -----------
Net cash provided by (used in)
financing activities................ (49,599) (20,563) 4,574,183
-------- --------- -----------
Net change in cash and cash equivalents...... 207,617 (154,140) 3,268,824
Cash and cash equivalents at beginning of
year........................................ 13,373 220,990 66,850
-------- --------- -----------
Cash and cash equivalents at end of year..... $220,990 $ 66,850 $ 3,335,674
======== ========= ===========
Supplemental disclosures:
Property and equipment acquired under
capital leases............................ $ 15,041 $ 6,526 $ 139,599
Interest paid.............................. 5 8,977 6,639
Income taxes paid.......................... -- 1,599 266,202
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of Business
Click Commerce, Inc. (the "Company") is based in Chicago, Illinois and is a
provider of enterprise channel management solutions for large, global
manufacturing companies with complex or specialized dealer, distributor and
supplier networks. The Company provides software products and services that
enable large, global manufacturing companies to effectively manage and engage
in collaborative business-to-business 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.
Pursuant to Staff Accounting Bulletin (SAB) No. 98, common stock and common
stock equivalents issued for nominal consideration, prior to the anticipated
effective date of an initial public offering, are required to be included in
the calculation of basic and diluted earnings per share as if they were
outstanding for all periods presented. The Company considers the grants of
2,382,666 options for common stock at an exercise price of $0.0025, net of
cancelled options, to be grants for nominal consideration.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases
F-8
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Financial Instruments
The reported amounts of the Company's financial instruments, which include
short-term investments, trade accounts receivable, accounts payable, accrued
compensation, accrued expenses and income taxes payable, approximate their
fair values due to the contractual maturities and short-term nature of these
instruments.
Stock-Based Compensation
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The provisions of SFAS No. 123 allow companies to either
expense the estimated fair value of stock options or follow the intrinsic
value method set forth in Accounting Principles Board Opinion No. 25 (Opinion
25) "Accounting for Stock Issued to Employees," and disclose the pro forma
effects on net income had the fair value of the options been expensed. As
such, compensation expense would be recorded only if the fair value of the
underlying stock exceeded the exercise price on the grant date. The Company
applies Opinion 25 in accounting for its stock option plan and, accordingly,
no compensation cost has been recognized on stock options for which the
exercise price equaled the fair value at the date of grant.
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 Pro Forma Balance Sheet
Upon an initial public offering of the Company's common stock, the shares
of Series A and Series B Convertible Participating Preferred Stock will be
converted into 9,565,220 shares of common stock. In addition, 450,000 shares
of common stock were issued in February 2000 upon exercise of options at an
exercise price of $0.0025 per share. These transactions have been reflected in
the unaudited pro forma balance sheet as of December 31, 1999.
F-9
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 $68,557 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).
The holders of preferred stock shall be entitled to receive, when and if
declared by the Board of Directors, dividends in the same amount per share as
would be payable on the number of shares of common stock into which the
preferred stock is then convertible, payable in preference and priority to
payment of any cash dividend on common stock.
Shares of preferred stock are entitled to a number of votes on any matter
put before the shareholders of the Company equal to the number of shares of
common stock into which they are convertible. In addition, the holders of the
preferred stock are also entitled to vote separately as a class with respect
to those matters required to be submitted to a class pursuant to the terms of
the Certificate of Incorporation or by law.
Upon any liquidation, dissolution or winding up of the Company, holders of
preferred stock shall be first entitled, before any distribution or payment to
holders of common stock, to a minimum amount of $1.15 per share, and shall be
entitled to participate in further distributions with a priority equal to that
of the holders of common stock. At December 31, 1999, the holders of preferred
stock would be entitled to a minimum aggregate amount of $11,000,000 in the
event of a liquidation.
8. Employee Stock Option and Stock Award Plan
In October 1998, the Company's Board of Directors adopted the Click
Commerce, Inc. Stock Option and Stock Award Plan ("the Plan"), pursuant to
which the Board may grant stock options and stock appreciation rights to
officers and key employees. The Plan authorizes grants of options to purchase
up to 4,497,508 shares of
F-13
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 income (loss) would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Net income (loss):
As reported......................................... $(65,217) $381,974
Pro forma........................................... (122,962) 276,862
Basic and diluted earnings (loss) per share:
As reported......................................... (0.00) 0.01
Pro forma........................................... (0.00) 0.01
</TABLE>
For purposes of calculating the pro forma compensation cost consistent with
SFAS No. 123, the fair value of each stock option grant is estimated on the
date of grant using the Black-Scholes option-pricing model. The per share
weighted-average fair value of stock options granted during 1998 and 1999 was
$0.15 and $0.25, respectively, using the following weighted-average
assumptions (excluding a volatility assumption): expected dividend yield of
0%, risk-free interest rate of 5%, and expected life of 5 years.
The following table summarizes information about fixed stock options
outstanding as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------------------ -------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Fixed Options Shares Prices Shares Prices
------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.. -- -- 3,104,000 $0.0255
Granted........................... 3,104,000 $0.0255 3,276,000 1.0405
Exercised......................... -- -- (986,684) 0.0025
Cancelled......................... -- -- (771,334) 0.4759
--------- ---------
Outstanding at end of year........ 3,104,000 $0.0255 4,621,982 $0.6749
========= =========
Options exercisable at end of
year............................. 204,000 $0.0025 1,405,982 $0.0107
========= =========
</TABLE>
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 $187,401 and $402,298
in 1998 and 1999, respectively.
9. Credit Facility
As of December 31, 1999, the Company has a $1,000,000 credit facility with
a commercial bank for the purpose of financing working capital. The term of
the agreement is one year expiring on March 25, 2000. The Company plans to
renew this facility prior to its expiration. Interest is due in monthly
installments and accrues at the prime rate. Borrowings are collateralized by
compensating balances deposited at the bank and by substantially all of the
Company's tangible assets. No balance was outstanding under the 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>
Years ended December 31,
------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income (loss)...................... $ 19,138 $ (65,217) $ 381,974
Denominator:
Weighted average shares outstanding--
basic................................. 28,782,666 28,782,666 26,754,244
Effect of stock options using the
treasury stock method................. -- -- 1,017,018
----------- ----------- -----------
Weighted average shares outstanding--
diluted............................... 28,782,666 28,782,666 27,771,262
----------- ----------- -----------
Basic and diluted earnings (loss) per
share................................. $ 0.00 $ (0.00) $ 0.01
Pro forma adjustment to reflect assumed
conversion of Convertible
Participating Preferred Stock......... 4,874,332
Shares used in computing pro forma
basic earnings per share.............. 31,628,576
Shares used in computing pro forma
diluted earnings per share............ 32,645,594
Pro forma basic and diluted earnings
per share............................. $ 0.01
</TABLE>
For the year ended December 31, 1998, 288,000 potentially dilutive stock
options were excluded from the loss per share calculation 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.
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.
F-16
<PAGE>
CLICK COMMERCE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 and slogan: Click Commerce Logo.
<PAGE>
Logo: 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 fees 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 and options for 450,000 were exercised in February 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. In
addition, effective October 1999, 433,334 options were forfeited upon
termination of employment with the registrant.
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.
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.
4.2 Amended and Restated Stockholders and Rights Agreement
(previously filed).
5.1 Opinion of Latham & Watkins.
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 25, 1999, between Click
Interactive, Inc. and American National Bank and Trust Company
of Chicago (previously filed).
10.7 Loan and Security Agreement, dated March 25, 1999, between
Click Interactive, Inc. and American National Bank and Trust
Company of Chicago (previously filed).
10.8 Letter of Intent with Andersen Consulting
16.1 Change In Certifying Accountants (previously filed).
23.1 Consent of KPMG LLP.
23.2 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (previously filed).
27.1 Financial Data Schedule.
</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 March 28, 2000.
Click Commerce, Inc.
/s/ Michael W. Ferro, Jr.
By: _________________________________
Name: Michael W. Ferro, Jr.
Title: Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons
in the capacities indicated as of March 28, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael W. Ferro, Jr. Chief Executive Officer and March 28, 2000
____________________________________ Chairman of the Board of
Michael W. Ferro, Jr. Directors (Principal
Executive Officer)
* Senior Vice President, Chief March 28, 2000
____________________________________ Financial Officer and
Rebecca S. Maskey Treasurer (Principal
Financial and Accounting
Officer)
* Director March 28, 2000
____________________________________
Peter N. Larson
* Director March 28, 2000
____________________________________
Emmanuel A. Kampouris
* Director March 28, 2000
____________________________________
Jerry Murdock
* Director March 28, 2000
____________________________________
Dr. Michael Hammer
* Director March 28, 2000
____________________________________
Manuel A. Fernandez
* Director March 28, 2000
____________________________________
Leslie D. Shroyer
</TABLE>
/s/ Michael W. Ferro, Jr.
*By: _____________________
Michael W. Ferro, Jr.
Attorney-in-Fact
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Click Commerce, Inc.:
Under date of February 7, 2000, except as to note 13 to the financial
statements, which is as of February 14, 2000, we reported on the balance
sheets of Click Commerce, Inc. as of December 31, 1998 and 1999, and the
related statements of operations, shareholders' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1999.
In connection with our audits of the aforementioned financial statements, we
also audited the related financial statement Schedule II. This financial
statement schedule is the responsibility of Click Commerce, Inc.'s management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Chicago, Illinois
February 7, 2000, except as to
note 13 to the financial statements,
which is as of February 14, 2000
S-1
<PAGE>
SCHEDULE II
CLICK COMMERCE, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Bad
Allowance for Doubtful Beginning Debt Write- Ending
Accounts Balance Expense Offs Balance
---------------------- --------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1997................ $ -- $22,094 $(1,350) $20,744
Year ended December 31, 1998................ 20,744 -- -- 20,744
Year ended December 31, 1999................ 20,744 33,050 -- 53,794
</TABLE>
S-2
<PAGE>
____________ Shares
CLICK COMMERCE, INC.
COMMON STOCK, PAR VALUE $.001
UNDERWRITING AGREEMENT
_______________, 2000
<PAGE>
_____________, 2000
Morgan Stanley & Co. Incorporated
Dain Rauscher Incorporated
Salomon Smith Barney Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Click Commerce, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters") ________________ shares of its Common Stock, par value $.001
(the "Firm Shares").
<PAGE>
The Company also proposes to issue and sell to the several Underwriters not
more than an additional __________ shares of its Common Stock, par value $.001
(the "Additional Shares") if and to the extent that you, as Managers of the
Offering, shall have determined to exercise, on behalf of the Underwriters, the
right to purchase such shares of common stock granted to the Underwriters in
Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares." The shares of Common Stock, par value
$.001 of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement as amended at the time it becomes effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended
(the "Securities Act"), is hereinafter referred to as the "Registration
Statement"; the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus." If the Company has filed an
abbreviated registration statement to register additional shares of Common Stock
pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.
Morgan Stanley & Co. Incorporated ("Morgan Stanley") has agreed to reserve
a portion of the Shares to be purchased by it under this Agreement for sale to
the Company's business associates and other parties related to the Company
(collectively, "Participants"), as set forth in the Prospectus under the heading
"Underwriters" (the "Directed Share Program"). The Shares to be sold by Morgan
Stanley and its affiliates pursuant to the Directed Share Program are
hereinafter referred to as the "Directed Shares." Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the business day on
which this Agreement is
2
<PAGE>
executed will be offered to the public by the Underwriters as set forth in the
Prospectus.
1. Representations and Warranties. The Company represents and warrants to
and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
3
<PAGE>
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole; all of the issued shares
of capital stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned directly
by the Company, free and clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and non-
assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the certificate of incorporation or by-laws of
the Company or any agreement or other instrument binding upon the Company or any
of its subsidiaries that is material to the Company and its subsidiaries, taken
as a whole, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of the
Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth
4
<PAGE>
in the Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(m) The Company is not, and after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus will not be, required to register as an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities
5
<PAGE>
to third parties) which would, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(p) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(q) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and
its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (ii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its subsidiaries, except in each case as described in the
Prospectus.
(r) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries, in each
case except as described in the Prospectus.
(s) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received
6
<PAGE>
any notice of infringement of or conflict with asserted rights of others
with respect to any of the foregoing.
(t) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in the Prospectus, or,
to the knowledge of the Company, is imminent; and the Company is not aware
of any existing, threatened or imminent labor disturbance by the employees
of any of its principal suppliers, manufacturers or contractors that could
have a material adverse affect on the Company and its subsidiaries, taken
as a whole.
(u) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any of its subsidiaries has been
refused any insurance coverage sought or applied for; and neither the
company nor any of its subsidiaries has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a
material adverse affect on the Company and its subsidiaries, taken as a
whole, except as described in the Prospectus.
(v) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse affect on the Company and its
subsidiaries, taken as a whole, except as described in the Prospectus.
(w) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
7
<PAGE>
(x) Except as described in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement), the Company has not sold, issued or distributed any shares of
Common Stock during the six-month period preceding the date hereof,
including any sales pursuant to Rule 144A or Regulation D or S under the
Securities Act, other than shares issued pursuant to employee benefit
plans, qualified stock option plans or other employee compensation plans or
pursuant to outstanding options, rights or warrants.
(y) Neither the Company nor any affiliate of the Company has offered
or sold any securities that would be integrated with the public offering of
Firm Shares contemplated by this Agreement (the terms "affiliate" and
"integrated" being used as used in Regulation D under the Securities Act).
(z) The Registration Statement, the Prospectus and any preliminary
prospectus comply in all material respects, and any amendments or
supplements thereto will comply in all material respects, with any
applicable laws or regulations of any jurisdiction in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable,
is distributed in connection with the Directed Share Program.
(aa) No consent, approval, authorization, order of, or qualification
with any governmental body or agency, other than those obtained, is
required in connection with the offering of the Directed Shares in any
jurisdiction where the Directed Shares are being offered.
(bb) The Company has not offered, or caused Morgan Stanley or its
affiliates to offer, Shares to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type
of business with the Company, or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its products.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell to
the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its names at U.S.$_____ a share ("Purchase Price").
8
<PAGE>
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to __________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees 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 the Prospectus, (i) 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 (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder or (B) the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
U.S.$_____ a share
9
<PAGE>
(the "Public Offering Price") and to certain dealers selected by you at a price
that represents a concession not in excess of U.S.$____ a share under the Public
Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of U.S.$____ a share, to any Underwriter or
to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made to the
Company in Federal or other funds immediately available in New York City against
delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ____________, 2000, or at
such other time on the same or such other date, not later than _________, 2000,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described in
Section 2 or at such other time on the same or on such other date, in any event
not later than _______, 2000, as shall be designated in writing by you. The time
and date of such payment are hereinafter referred to as the "Option Closing
Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [_______] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
10
<PAGE>
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
11
<PAGE>
(c) The Underwriters shall have received on the Closing Date an
opinion of Latham & Watkins, outside counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
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(ii) each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly by the Company,
free and clear of all liens, encumbrances, equities or claims;
(vi) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a
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whole, or, to the best of such counsel's knowledge, any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Business--Proprietary Rights and Licensing," "Business--Legal
Proceedings," "Management--Employment Agreements with Management,"
"Management--Employee Benefit Plans," "Certain Transactions,"
"Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriters" and (B) in the Registration Statement in Items 14 and
15, in each case insofar as such statements constitute summaries of
the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(x) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required;
(xi) the Company is not, and after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus will not be, required to register as an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended;
(xii) the Company and its subsidiaries (A) are in compliance
with any and all applicable Environmental Laws, (B) have received all
permits, licenses or other approvals required of
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them under applicable Environmental Laws to conduct their respective
businesses and (C) are in compliance with all terms and conditions of
any such permit, license or approval, except where such noncompliance
with Environmental Laws, failure to receive required permits, licenses
or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole; and
(xiii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no reason
to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not
express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no reason to
believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 5(c)(vi),
5(c)(vii), 5(c)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and 5(c)(xiii) above.
With respect to Section 5(c)(xiii) above, Latham & Watkins and
Davis Polk & Wardwell may state that their opinion and belief are
based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents
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thereof, but are without independent check or verification, except as
specified.
The opinion of Latham & Watkins described in Section 5(c) above
shall be rendered to the Underwriters at the request of the Company
and shall so state therein.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from KPMG LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus, and in accountants' review reports to underwriters pursuant
to Statement on Standards for Attestation Engagements 8 with respect to the
section of the Prospectus captioned "Management's Discussion and Analysis
of Financial Condition and Results of Operations"; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
(f) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing
Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the
Additional Shares.
6. Covenants of the Company. In further consideration of the agreements of
the Underwriters herein contained, the Company covenants with each Underwriter
as follows:
(a) To furnish to you, without charge, 7 signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
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succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by
an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending June 30, 2001 that satisfies the provisions of Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder.
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(f) To place stop transfer orders on any Directed Shares that have
been sold to Participants subject to the three month restriction on sale,
transfer, assignment, pledge or hypothecation imposed by NASD Regulation,
Inc. under its Interpretative Material 2110-1 on free-riding and
withholding to the extent necessary to ensure compliance with the three
month restrictions.
(g) To comply with all applicable securities and other laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
(h) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and the reasonable fees
and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the
National Association of Securities Dealers, Inc., (v) all fees and expenses
in connection with the preparation and filing of the registration statement
on Form 8-A relating to the Common Stock and all costs and expenses
incident to listing the Shares on the Nasdaq National Market, (vi) the cost
of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs
and expenses of the Company relating to investor presentations on any "road
show" undertaken in connection with the marketing of the offering of the
Shares,
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including, without limitation, expenses associated with the production of
road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of
the Company, travel and lodging expenses of the representatives and
officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show, (ix) all expenses in
connection with any offer and sale of the Shares outside of the United
States, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with offers and sales outside of
the United States, (x) all fees and disbursements of counsel incurred by
the Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program, and (xi) all
other costs and expenses incident to the performance of the obligations of
the Company hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this
Section, Section 7 entitled "Indemnity and Contribution," and the last
paragraph of Section 9 below, the Underwriters will pay all of their costs
and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
7. Indemnity and Contribution. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
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Statement and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Underwriter,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to Section 7(a) or 7(b), such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 7(a), and by the Company, in the case of
parties indemnified pursuant to Section 7(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall
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not have reimbursed the indemnified party in accordance with such request prior
to the date of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) To the extent the indemnification provided for in Section 7(a) or 7(b)
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying party
under such paragraph, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 7(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 7(d)(i) above but also the relative
fault of the Company on the one hand and of the Underwriters on the other hand
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other hand in connection with the offering of the
Shares shall be deemed to be in the same respective proportions as the net
proceeds from the offering of the Shares (before deducting expenses) received by
the Company and the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate Public Offering Price of the Shares. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this Section
7 are several in proportion to the respective number of Shares they have
purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable
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considerations referred to in Section 7(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages that such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Section 7 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified party at law or in
equity.
(f) The indemnity and contribution provisions contained in this Section 7
and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.
8. Directed Share Program Indemnification. (a) The Company agrees to
indemnify and hold harmless Morgan Stanley and its affiliates and each person,
if any, who controls Morgan Stanley and its affiliates within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
("Morgan Stanley Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in any material prepared by or with the
consent of the Company for distribution to Participants in connection with the
Directed Share Program or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) caused by the failure of any Participant
to pay for and accept delivery of Directed Shares that the Participant agreed to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program, other than losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of Morgan Stanley Entities.
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(b) In case any proceeding (including any governmental investigation) shall
be instituted involving any Morgan Stanley Entity in respect of which indemnity
may be sought pursuant to Section 8(a), the Morgan Stanley Entity seeking
indemnity shall promptly notify the Company in writing and the Company, upon
request of the Morgan Stanley Entity, shall retain counsel reasonably
satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity
and any others the Company may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Morgan Stanley Entity unless (i) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. The
Company shall not, in respect of the legal expenses of the Morgan Stanley
Entities in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Morgan Stanley Entities. Any such
separate firm for the Morgan Stanley Entities shall be designated in writing by
Morgan Stanley. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Company agrees to
indemnify the Morgan Stanley Entities from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time a Morgan Stanley Entity shall have requested the Company to
reimburse it for fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, the Company agrees that it shall be liable
for any settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by the Company
of the aforesaid request and (ii) the Company shall not have reimbursed the
Morgan Stanley Entity in accordance with such request prior to the date of such
settlement. The Company shall not, without the prior written consent of Morgan
Stanley, effect any settlement of any pending or threatened proceeding in
respect of which any Morgan Stanley Entity is or could have been a party and
indemnity could have been sought hereunder by such Morgan Stanley Entity, unless
such settlement includes an unconditional release of the Morgan Stanley Entities
from all liability on claims that are the subject matter of such proceeding.
(c) To the extent the indemnification provided for in Section 8(a) is
unavailable to a Morgan Stanley Entity or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then the Company in lieu of
indemnifying the Morgan Stanley Entity thereunder, shall contribute to the
amount paid or payable by the Morgan Stanley Entity as a result of such losses,
claims,
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damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Morgan Stanley
Entities on the other hand from the offering of the Directed Shares or (ii) if
the allocation provided by clause 8(c)(i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(c)(i) above but also the relative fault of the
Company on the one hand and of the Morgan Stanley Entities on the other hand in
connection with any statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Morgan Stanley Entities on the other hand in connection with the
offering of the Directed Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Directed Shares (before
deducting expenses) and the total underwriting discounts and commissions
received by the Morgan Stanley Entities for the Directed Shares, bear to the
aggregate Public Offering Price of the Directed Shares. If the loss, claim,
damage or liability is caused by an untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact, the
relative fault of the Company on the one hand and the Morgan Stanley Entities on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement or the omission or alleged omission
relates to information supplied by the Company or by the Morgan Stanley Entities
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(d) The Company and the Morgan Stanley Entities agree that it would not be
just or equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation (even if the Morgan Stanley Entities were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 8(c). The amount
paid or payable by the Morgan Stanley Entities as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by the Morgan Stanley
Entities in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Morgan Stanley Entity shall
be required to contribute any amount in excess of the amount by which the total
price at which the Directed Shares distributed to the public were offered to the
public exceeds the amount of any damages that such Morgan Stanley Entity has
otherwise been required to pay. The remedies provided for in this Section 8 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
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(e) The indemnity and contribution provisions contained in this Section 8
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Morgan Stanley Entity or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Directed Shares.
9. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such
25
<PAGE>
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any non-
defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter
or Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in two or more counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
13. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
CLICK COMMERCE, INC.
26
<PAGE>
By:
----------------------------
Name:
Title:
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
DAIN RAUSCHER INCORPORATED
SALOMON SMITH BARNEY INC.
Acting severally on behalf of themselves and the
several Underwriters named in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
----------------------------------------------------------------------
Name:
Title:
27
<PAGE>
SCHEDULE I
Underwriter Number of Firm Shares
To Be Purchased
Morgan Stanley & Co. Incorporated........
Dain Rauscher Incorporated...............
Salomon Smith Barney Inc.................
___________________...................... _________________________
Total............................... _________________________
_________________________
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
____________, 2000
Morgan Stanley & Co. Incorporated
Dain Rauscher Incorporated
Salomon Smith Barney Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") proposes to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Click Commerce, Inc., a Delaware corporation (the "Company")
providing for the public offering (the "Public Offering") by the several
Underwriters, including Morgan Stanley (the "Underwriters") of ___ shares (the
"Shares") of the Common Stock, par value $.001 of the Company (the "Common
Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any
<PAGE>
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 (2) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) the sale of any Shares to the Underwriters
pursuant to the Underwriting Agreement or (b) transactions relating to shares of
Common Stock or other securities acquired in open market transactions after the
completion of the Public Offering. In addition, the undersigned agrees that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 180 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
----------------------------------------
Name
----------------------------------------
Address
2
<PAGE>
Exhibit 4.1
Number ____ CLICK COMMERCE, INC. *______ Shares
A Delaware Corporation Common Stock
THIS CERTIFIES THAT _______ is the record holder of ___________ (_____)
shares of Common Stock of Click Commerce, Inc. (the "Corporation"), transferable
only on the share register of the Corporation by the holder, in person or by
such holder's duly authorized attorney, upon surrender of this Certificate
properly endorsed or assigned.
This Certificate and the shares represented hereby shall be held subject to
all of the provisions of the Certificate of Incorporation and the Bylaws of said
Corporation and any amendments thereto, a copy of each of which is on file at
the office of the Corporation and made a part hereof as fully as though the
provisions of said Certificate of Incorporation and Bylaws were imprinted in
full on this Certificate, to all of which the holder of this Certificate, by
acceptance hereof, assents and agrees to be bound.
The Corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences or rights.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers this ____ day of _______, _____.
__________________________________ ____________________________________
____________________, Secretary ______________________, President
<PAGE>
FOR VALUE RECEIVED, THE UNDERSIGNED HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO
_______________________________________________ SHARES REPRESENTED BY THE WITHIN
CERTIFICATE AND DOES HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
____________________________ ATTORNEY TO TRANSFER THE SAID SHARES ON THE SHARE
REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES.
DATED ____________, _____
______________________________
(Signature)
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), 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 ACT.
<PAGE>
Exhibit 5.1
[LETTERHEAD OF LATHAM & WATKINS]
March 28, 2000
Click Commerce, Inc.
200 East Randolph Drive, Suite 4900
Chicago, Illinois 60601
Ladies and Gentlemen:
This opinion is rendered in connection with the filing by Click
Commerce, Inc., a Delaware corporation (the "Company"), of its Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
with respect to the offer and sale by the Company (the "Offering") of up to
five million seven hundred fifty thousand (5,750,000) shares of the Company's
common stock, par value $.001 per share (the "Common Stock"), and any subsequent
registration statement the Company may hereafter file with the Commission
pursuant to Rule 462(b) under the Act to register additional shares of the
Company's common stock, par value $.001 per share, in connection with the
Offering (such additional shares, together with the Common Stock, the "Shares").
We have acted as special counsel to the Company in connection with the
preparation of the Registration Statement.
In our capacity as such counsel, we are familiar with the proceedings
taken and proposed to be taken by the Company in connection with the
authorization, issuance, and sale of the Shares, and for the purposes of this
opinion, have assumed such proceedings will be timely and properly completed in
the manner presently proposed. In addition, we have made such legal and factual
examinations and inquiries, including an examination of originals (or copies
certified or otherwise identified to our satisfaction as being true
reproductions of originals) of such documents, corporate records and other
instruments, and have obtained from officers of the Company and agents thereof
such certificates and other representations and assurances, as we have deemed
necessary or appropriate for the purpose of this opinion.
<PAGE>
Click Commerce, Inc.
March 28, 2000
Page 2
In such examinations, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
legal capacity of natural persons executing such documents and the authenticity
and conformity to original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only
of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction or, in the case of Delaware, any other laws, or
as to any matters of municipal law or the laws of any local agencies within any
state.
Subject to the foregoing and the other qualifications set forth
herein, it is our opinion that, as of the date hereof, based on the foregoing
and the proceedings to be taken by the Company as referred to above, the Shares
have been duly authorized, and upon issuance, delivery and payment therefore in
the manner described in the Registration Statement, such Shares will be validly
issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the references to our firm contained under the
heading "Legal Matters" of the prospectus included therein, and to the
incorporation by reference of this opinion and consent into a registration
statement filed with the Commission pursuant to Rule 462(b) under the Act
relating to the Offering.
Very truly yours,
LATHAM & WATKINS
<PAGE>
Exhibit 10.8
March 24, 2000
Michael W. Ferro Jr.
Click Commerce, Inc.
919 North Michigan Avenue
37th Floor
Chicago, Illinois 60611
RE: Long Term Business Relationship
Dear Mr. Ferro:
Andersen Consulting LLP ("Andersen Consulting") is pleased to enter into this
letter agreement relating to a future long term business relationship between
Andersen Consulting and Click Commerce, Inc. ("Click"). This letter will
confirm our agreement to negotiate further mutually acceptable arrangements
("Arrangements"), including the pursuit of the additional business objectives
more specifically discussed below.
The Arrangements contemplated in this letter shall be subject to (1) Andersen
Consulting obtaining all internal Andersen Consulting and Andersen Worldwide
approvals (if necessary) for the Arrangements, (3) Click obtaining all corporate
and shareholder approvals and consents required for the Arrangements, and (3)
the execution of various definitive agreements ("Definitive Agreements")
mutually agreeable to the parties (such Definitive Agreements to be on terms
consistent with this letter).
These Arrangements have five components: (1) a "marketing alliance component",
whereby we will seek mutual and independent success in the marketplace (the
"Alliance"); (2) an "initial equity component", whereby Andersen Consulting (or
an affiliate) will purchase common stock of Click (the "Equity Investment"); (3)
a "solution launch assessment", whereby Andersen Consulting and Click will
jointly assess the capabilities of Click and its products, and the parties will
agree upon a joint marketing strategy and various project related initiatives
(the "Assessment"), (4) a project based engagement by Click of Andersen
Consulting for the performance of certain project based consulting activities as
agreed by the parties, and (5) a "warrant component", whereby Andersen
Consulting (or an affiliate) will receive warrants to purchase Click common
stock, with the vesting of such warrants contingent upon Andersen Consulting (or
its affiliates or third parties agreed to by the parties acting on Andersen
Consulting's behalf) satisfying certain Click revenue targets (the "Warrant
Arrangement").
This letter describes the broad terms of these elements to ensure both
organizations have a common understanding. We each agree to enter into good
faith negotiations to finalize the specific terms of the contemplated future
agreements and to take all necessary steps to obtain the necessary board,
management and shareholder approvals, as the case may be.
1
<PAGE>
COMPONENT #1: THE MARKETING ALLIANCE
Click and Andersen Consulting are entering into a "Marketing Alliance" to
achieve mutual and independent success in the marketplace through the promotion
of Click products and related services and Andersen Consulting services. This
Marketing Alliance shall be based on the following basic principles:
. We will jointly 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 named accounts.
. Each party will promptly evaluate which of its existing customers and
prospects may provide marketing opportunities for the products and services
of the other party. The parties will thereafter exchange such information and
begin appropriate marketing activities.
. Each party will provide for active management for its participation and each
party will promptly designate an executive sponsor and a team leader for this
relationship.
. The parties will jointly manage the Marketing Alliance, but the parties will
remain independent, and neither party shall have the right to speak for, or
enter into binding legal commitments on behalf of, the other party.
. The parties will mutually agree on each party's use of the other's name,
logos and other intellectual property in marketing activities.
. Each party will identify one highly qualified account for initial joint
marketing activities. Any revenue generated for Click from the Andersen
Consulting account shall be considered as satisfying a portion of the revenue
targets under the Warrant Arrangement.
. As of the date of the joint marketing alliance agreement and continuing
during the term of the joint marketing alliance agreement, Click shall
designate Andersen Consulting as a "Click Preferred Systems Integrator" on a
global basis, and except for its strategic alliances existing prior to the
date hereof, Click shall not designate more than one other Click Preferred
Systems Integrator. The joint marketing alliance agreement shall define the
meaning of a Click Preferred Systems Integrator and describe the marketing
activities of Click associated with such a designation. Except for certain
marketing activities as provided in the joint marketing alliance agreement,
Click shall not be precluded from working with any other systems integrator
in any manner.
The parties will enter into a further joint marketing alliance agreement that
will contain more detailed terms and conditions as agreed to by the parties.
COMPONENT #2: ANDERSEN CONSULTING'S EQUITY INVESTMENT IN CLICK
Andersen Consulting (or an affiliate) will purchase shares of Click common stock
for $10 million in cash, with the number of shares acquired equaling a 2%
interest in Click, post-investment, on a fully diluted basis (i.e., after the
exercise of all warrants and preferred stock) at a valuation of $500 million.
Andersen Consulting will purchase the common stock from certain existing
stockholders of Click. Andersen Consulting (or an affiliate) shall have the
right to introduce a qualified senior executive of Andersen Consulting (or an
affiliate) for consideration by Click as a nominee to the board of directors of
Click, subject to Click's chief executive officer approving the qualifications
of such member.
The stock purchase will be pursuant to a stock purchase agreement in form and
substance mutually satisfactory to the parties. Andersen Consulting shall
become a party to the existing Click stockholders'
2
<PAGE>
agreement (which includes certain registration rights for Andersen Consulting).
The shares so purchased may be subsequently transferred only in compliance with
applicable laws, rules and regulations, the purchase agreement and the
applicable provisions of the Click stockholders' agreement.
COMPONENT #3: SOLUTION LAUNCH ASSESSMENT
On or about May 15, 2000, Andersen Consulting and Click will jointly commence
the Assessment. Andersen Consulting will dedicate a team of personnel to the
Assessment for approximately six weeks. The team is contemplated to include one
alliance executive, two managers and two consultants, with individual
participation as agreed by the parties. Click shall pay Andersen Consulting's
reasonable out-of-pocket expenses, but no professional services fees for the
services performed for conducting the Assessment.. The Assessment work would be
specified in mutually agreed arrangement letters and covered by a mutually
agreed consulting services agreement (the "CSA").
COMPONENT #4: PROJECT BASED ARRANGEMENT
Click and Andersen Consulting will enter into additional arrangement letters
under the CSA for the provision of additional services that Click requests to
implement the Assessment. Andersen Consulting will bill Click, and Click will
pay, for these services at 75% of Andersen Consulting's standard rates. The CSA
will have a term of three years (the "CSA Term"). The parties will work
together to determine the specific nature of these services. While the parties
have discussed a team composition of approximately ten appropriately skilled
Andersen Consulting personnel for approximately six months, the final term and
composition of the team will be as agreed by the parties. Click agrees that
during the CSA Term, no potential competitor of Andersen Consulting shall be
paid more in fees for consulting services associated with Click's internal
infrastructure than Andersen Consulting. "Click's internal infrastructure" as
referenced in the proceeding sentence shall be further defined by the parties in
the CSA.
COMPONENT #5: WARRANT ARRANGEMENT
At the time of the Equity Investment and commencement of the Marketing Alliance,
Click shall grant, pursuant to a mutually-agreed Warrant Agreement, to Andersen
Consulting (or an affiliate) warrants to purchase a number of shares of common
stock of Click equivalent to the number of shares purchased by Andersen
Consulting (or an affiliate) in the Equity Investment. The warrants shall have
an exercise price equal to the price per share paid by Andersen Consulting (or
an affiliate) in the Equity Investment. The warrants shall vest based on the
recognition by Click of certain revenue levels from clients acquired based on
the activities of Andersen Consulting (i.e., each $4 million of aggregate Click
revenue will vest 10% of such warrants, with an aggregate target of $40 million
over the three years following the granting of the warrants). A mutually
agreeable penalty shall apply in the event Andersen Consulting fails to generate
any revenue which shall decrease proportionally as the warrants vest. The
revenue shall be deemed recognized based upon the amount of fees indicated to be
received by Click in executed contracts.
DISCLOSURE OF ARRANGEMENTS
Prior to the closing of the stock purchase, and except as provided in this
paragraph, Click may not use Andersen Consulting's name, logo or other
intellectual property in any communication, release or otherwise without the
prior written consent of Andersen Consulting. Following the closing of the
stock purchase, Click may only use Andersen Consulting's name, logo or other
intellectual property as provided in the joint marketing alliance. Click may
disclose its business relationship with Andersen Consulting, this letter and any
associated contracts only to the extent appropriate or required under applicable
3
<PAGE>
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 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.
MISCELLANEOUS
In the event that either party should become liable to the other in conducting
the activities contemplated in this letter, neither party will be liable to the
other for any indirect, special, incidental, consequential, exemplary or
punitive damages or for any form of damages other than direct damages.
Prior to entering into any of the Definitive Agreements contemplated by items
(1) through (5) above, this letter shall terminate upon written notice (1) from
Click to Andersen Consulting that Click will not be able to obtain all corporate
and shareholder approvals or consents required for the Arrangements, (2) from
Andersen Consulting to Click that Andersen Consulting will not be able to obtain
all internal Andersen Consulting and Andersen Worldwide approvals required for
the Arrangements, (3) from either party to the other that, after good faith
negotiations, the notifying party does not anticipate the execution of any of
the Definitive Agreements, or (4) by either party of the occurrence of a
material adverse change in the affairs of Click. This letter shall also
terminate on April 30, 2000 (or such later date mutually agreed by the parties)
if no Definitive Agreement has been entered into by such date.
This letter shall be governed by and construed in accordance with the laws of
Illinois, without giving effect to conflict of law rules.
Nothing contained in this letter is intended to confer on any party other than
the parties hereto any rights, benefits or remedies of any kind or character
whatsoever and no person shall be deemed a third-party beneficiary under or by
reason of this letter.
Click acknowledges that Andersen Consulting LLP is a partnership formed under
the laws of the State of Illinois. Click expressly agrees that Click shall look
solely to Andersen Consulting LLP and its property for satisfaction of any claim
under this letter and that no partner of Andersen Consulting shall be personally
liable for any obligation of Andersen Consulting under this letter or any
Definitive Agreement and no recourse may be had against any such partner's
private property in order to satisfy any of the obligations of Andersen
Consulting under this letter or any Definitive Agreement.
4
<PAGE>
Please indicate your agreement with the foregoing terms by signing this letter
where indicated and returning it to Roy K. Phelan.
Very truly yours,
ANDERSEN CONSULTING LLP
By /s/ Roy K. Phelan
---------------------------
Title Partner
---------------------------
Date 3/24/00
---------------------------
ACKNOWLEDGED AND ACCEPTED:
CLICK COMMERCE, INC.
By ___________________________
Title ___________________________
Date ___________________________
5
<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
March 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
10,600,000
0
<COMMON> 22,169
<OTHER-SE> (4,895,748)
<TOTAL-LIABILITY-AND-EQUITY> 9,933,833
<SALES> 0
<TOTAL-REVENUES> 9,952,109
<CGS> 0
<TOTAL-COSTS> 9,372,855
<OTHER-EXPENSES> 6,256
<LOSS-PROVISION> 33,050
<INTEREST-EXPENSE> 6,639
<INCOME-PRETAX> 679,545
<INCOME-TAX> 297,571
<INCOME-CONTINUING> 381,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 381,974
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
