10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Under Section 13 or 15(d)

of

The Securities Exchange Act of 1934

For the Quarter Ended June 30, 2002

Commission File Number 0-30881

CLICK COMMERCE, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 36-4088644 (I.R.S. Employer
Identification Number)

200 East Randolph Drive, Suite 4900

Chicago, Illinois 60601

(Address of principal executive offices)

(312) 482-9006

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      X       No          

On August 13, 2002, 40,200,758 shares of the registrant’s common stock were issued and outstanding.

CLICK COMMERCE, INC.

INDEX

		Page No.
PART I.    FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at June 30, 2002 (unaudited) and December 31, 2001	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2002 and June 30, 2001 (unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (unaudited)	3
	Notes to Condensed Consolidated Financial Statements (unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
PART II.    OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 2.	Changes in Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Submission of Matters to a Vote of Security Holders	15
Item 5.	Other Information	16
Item 6.	Exhibits and Reports on Form 8-K	16
SIGNATURES		17

PART 1.    FINANCIAL INFORMATION

Item 1.    Financial Statements

CLICK COMMERCE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	June 30, 2002			December 31, 2001
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	27,253		$	40,677
Short-term investments		10,173			—
Trade accounts receivable, net		4,505			6,670
Income taxes receivable		—			158
Other current assets		1,446			2,534
Total current assets		43,377			50,039
Property and equipment, net		3,059			3,934
Other assets		583			721
Total assets	$	47,019		$	54,694
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	795		$	1,096
Billings in excess of revenue earned on contracts in progress		336			443
Deferred revenue		3,975			2,265
Accrued compensation		962			1,686
Accrued expenses and other current liabilities		1,488			2,274
Accrued restructuring		933			950
Current portion of capital lease obligations		822			815
Total current liabilities		9,311			9,529
Capital lease obligations, less current portion		305			727
Total liabilities		9,616			10,256
Shareholders’ equity:
Preferred stock		—			—
Common stock		40			40
Additional paid-in capital		84,997			85,081
Accumulated other comprehensive income—currency translation adjustment		170			125
Deferred compensation		(2,283	)		(3,334	)
Treasury stock		(111	)		—
Accumulated deficit		(45,410	)		(37,474	)
Total shareholders’ equity		37,403			44,438
Total liabilities and shareholders’ equity	$	47,019		$	54,694

See accompanying notes to condensed consolidated financial statements.

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CLICK COMMERCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(dollars in thousands, except per share data)

(unaudited)

	Three months ended June 30,						Six months ended June 30,
	2002			2001			2002			2001
Revenues
Product license	$	753		$	7,392		$	1,316		$	13,798
Service		4,669			6,620			9,443			11,883
Total revenues		5,422			14,012			10,759			25,681
Cost of revenues
Product license		157			481			332			652
Service (exclusive of $17 and $15 for the three months ended June 30, 2002 and 2001, respectively, and $29 and $28 for the six months ended June 30, 2002 and 2001, respectively, reported below as amortization of stock-based compensation)		2,533			3,259			4,583			6,256
Total cost of revenues		2,690			3,740			4,915			6,908
Gross profit		2,732			10,272			5,844			18,773
Operating expenses:
Sales and marketing (exclusive of $360 and $442 for the three months ended June 30, 2002 and 2001, respectively, and $732 and $999 for the six months ended June 30, 2002 and 2001, respectively, reported below as amortization of stock-based compensation)		2,609			7,001			6,596			15,142
Research and development (exclusive of $2 and $4 for the three months ended June 30, 2002 and 2001, respectively, and $5 and $10 for the six months ended June 30, 2002 and 2001, respectively, reported below as amortization of stock-based compensation)		1,320			2,676			2,886			5,283
General and administrative (exclusive of $21 and $87 for the three months ended June 30, 2002 and 2001, respectively, and $45 and $126 for the six months ended June 30, 2002 and 2001, respectively, reported below as amortization of stock-based compensation)		985			2,563			2,677			5,391
Amortization of stock-based compensation		400			548			811			1,163
Restructuring and other charges		1,213			—			1,213			—
Total operating expenses		6,527			12,788			14,183			26,979
Operating loss		(3,795	)		(2,516	)		(8,339	)		(8,206	)
Interest income		245			476			435			1,255
Interest expense		(13	)		(33	)		(32	)		(51	)
Other expense		—			—			—			(100	)
Other income, net		232			443			403			1,103
Loss before income taxes		(3,563	)		(2,073	)		(7,936	)		(7,103	)
Income tax benefit		—			(701	)		—			(2,541	)
Net loss	$	(3,563	)	$	(1,372	)	$	(7,936	)	$	(4,562	)
Basic and diluted loss per share	$	(0.09	)	$	(0.04	)	$	(0.20	)	$	(0.12	)
Weighted average shares outstanding—basic and diluted		40,243,053			38,545,031			40,259,062			38,451,574
Comprehensive loss:
Net loss	$	(3,563	)	$	(1,372	)	$	(7,936	)	$	(4,562	)
Foreign currency translation adjustment		45			71			46			(9	)
Comprehensive loss	$	(3,518	)	$	(1,301	)	$	(7,890	)	$	(4,571	)

See accompanying notes to condensed consolidated financial statements.

2

CLICK COMMERCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

	Six Months ended June 30,
	2002			2001
Cash flows from operating activities:
Net loss	$	(7,936	)	$	(4,562	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of stock-based compensation		811			1,163
Depreciation and amortization		835			554
Provision for doubtful accounts		225			50
Deferred income taxes		—			(2,499	)
Amortization of deferred compensation		123			110
Restructuring and other charges, net of payments		434			—
Changes in operating assets and liabilities:
Trade accounts receivable		1,940			(410	)
Revenue earned on contracts in progress in excess of billings		—			997
Income taxes receivable		145			—
Other current assets		1,088			(107	)
Accounts payable		(400	)		(718	)
Billings in excess of revenues earned on contracts in progress		(106	)		(618	)
Deferred revenue		1,710			2,806
Accrued compensation		(725	)		(533	)
Accrued expenses and other current liabilities		(773	)		(448	)
Other assets		157			(91	)
Net cash used in operating activities		(2,472	)		(4,306	)
Cash flows from investing activities:
Purchases of short-term investments		(10,173	)		—
Purchases of property and equipment		(331	)		(685	)
Net cash used in investing activities		(10,503	)		(685	)
Cash flows from financing activities:
Proceeds from exercise of stock options		32			678
Purchase of treasury stock		(111	)		—
Principal payments under capital lease obligations		(415	)		(401	)
Net cash (used in) provided by financing activities		(494	)		277
Effect of foreign exchange rates on cash and cash equivalents		46			(9	)
Net change in cash and cash equivalents		(13,469	)		(4,714	)
Cash and cash equivalents at beginning of period		40,677			51,318
Cash and cash equivalents at end of period	$	27,253		$	46,595
Supplemental disclosures:
Property and equipment acquired under capital leases	$	—		$	1,742
Interest paid		32			51
Income taxes paid		—			20

See accompanying notes to condensed consolidated financial statements.

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CLICK COMMERCE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(unaudited)

1.    BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements include the accounts of Click Commerce, Inc. and its wholly owned subsidiaries (the “Company”) and reflect all adjustments (which are normal and recurring in nature) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2002. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with the Securities and Exchange Commission’s rules and regulations. The unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K and other documents that have been filed with the Securities and Exchange Commission.

Certain prior year amounts have been reclassified to conform to the 2002 presentation.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue and Cost Recognition

The Company recognizes product license revenue from licensing the rights to use its software. To date, substantially all product licenses have been on a perpetual basis. The Company generates service revenues from integrating its software, performing needs analyses for customers and through the sale of maintenance and training services. The Company recognizes revenue in accordance with Statement of Position (“SOP”) No. 97-2 “Software Revenue Recognition” as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions.” For those contracts that either do not contain a services component or that have services which are not essential to the functionality of any other element of the contract, software license revenue is recognized upon delivery of the Company’s software provided that the fee is fixed and determinable, persuasive evidence of an arrangement exists and collection of the resulting receivable is considered probable. Revenue from service contracts is typically recognized as the services are performed. The revenue to be recognized from multiple-element software contracts is based on the fair value of each element. The Company records deferred revenue on software contracts for which it has billed or collected amounts, but for which the requirements for revenue recognition have not been met.

Revenue from contracts in which the Company’s services are essential to the functionality of the other elements of the contract is recognized using the percentage-of-completion method under contract accounting as services are performed or output milestones are reached, as the Company delivers, customizes and installs the software. The percentage completed is measured either by the percentage of labor hours incurred to date in relation to estimated total labor hours or in consideration of achievement of certain output milestones, depending on the specific nature of each contract. For arrangements in which percentage-of-completion accounting is used, the Company records 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 earned on contracts in progress at the end of any given period.

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Revenue from contracts recognized under the percentage-of-completion method are presented as product revenue to the extent that the underlying milestones are related to software deliveries. To the extent that hours of input are used as the basis for percentage completed or that contract milestones relate to software customization or other professional services, revenues are presented as service revenues.

Maintenance service is sold separately under contracts that are renewable annually and is provided only to customers who purchase maintenance. The Company recognizes maintenance service revenue ratably over the contract period, generally one year. Maintenance fees are generally billed annually in advance and are recorded as deferred revenue. As part of the sales process, the Company may perform a needs analysis for the potential customer on a fixed fee basis. Revenue from needs analyses is recognized as the work is performed. Training revenue is recognized as the services are provided.

Cost of product license revenue includes production and shipping expenses which are expensed as incurred, as well as costs of licensing third party software incorporated into the Company’s products. These third party license costs are expensed as the products are delivered. Cost of service revenue includes salaries and related expenses for professional services and technical support personnel who provide development, customization and installation services to customers, as well as an allocation of data processing and overhead costs, which are expensed as incurred.

Reimbursement of Out-of-Pocket Expenses

Effective January 1, 2002, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 01-14, which addresses income statement characterization of reimbursements received for “out-of-pocket” expenses incurred. This EITF requires entities to characterize the reimbursement of out-of-pocket expenses from their customers as revenue, rather than as a reduction of the related expense in the income statement in certain circumstances. Comparative financial statements for prior periods must conform to this presentation. Although adoption of this EITF Issue effects income statement presentation, it does not impact the Company’s earnings or earnings per share. The Company has classified out-of-pocket expenses billed to its customers as service revenue. The current and prior year effect on revenue and the gross margin percentage was not significant.

3. STOCK-BASED COMPENSATION

Prior to its initial public offering, the Company granted certain stock options at exercise prices less than their deemed fair value; accordingly, the Company recorded deferred compensation of $4,636. Such deferred compensation is amortized on a straight-line basis over the vesting period of each individual award, resulting in $91 and $239 of stock-based compensation expense for the three months ended June 30, 2002 and 2001, respectively, and $193 and $545 for the six months ended June 30, 2002 and 2001, respectively.

In April 2000, the Company issued a warrant to Accenture Ltd (“Accenture”) to purchase up to 818,226 shares of common stock at $12.22 per share. The warrant vests contingently upon the achievement of certain milestones, primarily the generation of license revenue for the Company, and expires on April 20, 2004. The warrant contains a significant cash penalty for Accenture’s failure to meet the agreed revenue target by the expiration date, and, accordingly, the fair value of the warrant was measured at the date of grant in accordance with EITF Issue No. 96-18 and Statement of Financial Accounting Standards No. 123, resulting in a fair value of approximately $5,000, which was determined using the Black-Scholes option-pricing model. This amount is being amortized to expense on a straight-line basis over the vesting period of the warrant. The Company recognized amortization expense of $309 for each of the three months ended June 30, 2002 and 2001, respectively, and $618 for each of the six months ended June 30, 2001 and 2002, respectively.

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4. RESTRUCTURING

In the quarter ended June 30, 2002, the Company determined that its cost structure continued to exceed the level suggested by a re-assessment of its current near-term revenue opportunities. The Company continues to experience longer sales cycles and higher executive level review and participation in approval processes on capital projects, particularly for technology and e-commerce projects. As a result, the Company developed a plan to reduce its cost structure to a level in line with current revenue opportunities. This restructuring plan resulted in an $821 restructuring charge in the quarter ended June 30, 2002. Included in this restructuring charge were costs associated with the termination of the employment of 51 employees across all areas of the Company. The Company notified all of these employees of their termination of employment on or prior to June 30, 2002, with all such terminations taking effect on or prior to August 2, 2002. The resulting employee severance and related costs are presented below. The facilities related costs represent the remaining lease payments for closing four region offices.

In conjunction with the restructuring, the Company recorded a $451 asset impairment charge. The write-down of assets, primarily computer equipment under capital leases, was a direct result of the recent staffing reductions. The fair value of the equipment included in the write-down was deemed to be $0. The Company has no foreseeable use for such assets. Those assets are held under leases which require the Company to either purchase the equipment at the then fair market value at the end of the lease term or return the equipment to the lessors. The Company intends to return these assets to the lessors upon expiration of the current lease terms.

As of June 30, 2002, the majority of the Company’s restructuring accrual related to employee severance, benefits and related costs. Due to extended severance arrangements with certain employees, payments against the restructuring charge will be made through the quarter ending March 31, 2003. In the quarter ended June 30, 2002, the Company adjusted the restructuring accrual for items that were recorded as part of the restructuring charge taken in the third quarter of 2001, primarily for excess subcontractor notice-of-termination costs and employee benefit costs. The following table contains the significant components of the restructuring charge and current period activity relating to those components.

	Accrual at March 31, 2002		Additional restructuring charges		Adjustment to previous accrual			Cash payments			Balance at June 30, 2002
Employee severance, benefits and related costs	$	594	$	720	$	(59	)	$	(464	)	$	791
Facilities related costs		23		42		—			(11	)		54
Other		37		59		—			(8	)		88
Total	$	654	$	821	$	(59	)	$	(483	)	$	933

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Click Commerce, Inc. (the “Company”) is a provider of Partner Portal software products and integration services that connect large and middle market companies with their distribution channel partners. The Company’s software products and integration services enable companies to effectively manage and engage in collaborative business-to-business electronic commerce throughout all levels of their sell-side channels and processes. The Company develops, implements and supports private marketplaces, which are secure systems that use the Internet to communicate between companies with all participants in the network or chain of distribution who have a password and an Internet browser.

The Company commenced operations on August 20, 1996. During the period from inception until early 1998, the Company was primarily engaged in developing software for the Relationship Manager (formerly referred to as the Extranet Manager). In 1996 and 1997, the Company was also engaged in developing Internet Web sites and providing related consulting services. The Company implemented the first Click Commerce Relationship Manager in the second quarter of 1997.

The Company’s revenue is derived from sales of licenses of its software, comprised of the Relationship Manager and a portfolio of applications, as well as from needs analyses, professional services, training, maintenance and support and out-of-pocket expenses billed to its customers. The Company’s software is generally licensed on a perpetual basis.

Operating expenses are classified into four general categories: sales and marketing, research and development, general and administrative and amortization of stock-based 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 until March 31, 2002 an allocation of project management overhead related to internal projects which were eliminated at the end of the first quarter of 2002. Amortization of stock-based compensation represents the amortization over the related service period of the difference between the exercise price of options granted and the deemed fair market value of the underlying common stock on the date of grant, as well as amortization of the warrant issued in connection with a joint marketing agreement with Accenture Ltd (“Accenture”).

In April 2000, the Company issued a warrant to Accenture to purchase up to 818,226 shares of common stock at an exercise price of $12.22 per share. The warrant vests contingently upon the achievement of certain milestones, primarily the generation of license revenue for the Company, and expires on April 20, 2004. The warrant contains a significant cash penalty for Accenture’s failure to meet the agreed revenue target by the expiration date, and, accordingly, the fair value of the warrant was determined on the date of grant in accordance with Emerging Issues Task Force Issue No. 96-18 and Statement of Financial Accounting Standards No. 123 to be approximately $5.0 million, which was determined using the Black-Scholes option pricing model. This amount is included in additional paid-in capital and is being amortized to expense over the vesting period of the warrants. For the six months ended June 30, 2002, the Company recognized $0.6 million in amortization expense. The Company expects to recognize future amortization expense of $0.6 million for the remainder of 2002, $1.2 million in 2003 and $0.4 million in 2004.

The Company believes that period-to-period comparisons of operating results should not be relied upon as predictive of future performance. The Company’s 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, rapidly evolving markets. The Company may not be successful in addressing such risks and difficulties.

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Results of Operations

The following table sets forth selected unaudited financial data for the periods indicated in dollars and as a percentage of total revenue.

	Three Months Ended June 30,										Six Months Ended June 30,
	2002					2001					2002					2002
	in 000’s			% of Revenue		in 000’s			% of Revenue		in 000’s			% of Revenue		in 000’s			% of Revenue
Revenues
Product license	$	753		13.9	%	$	7,392		52.8	%	$	1,316		12.2	%	$	13,798		53.7	%
Service		4,669		86.1			6,620		47.3			9,443		87.8			11,883		46.3
Total revenues		5,422		100.0			14,012		100.0			10,759		100.0			25,681		100.0
Cost of revenues
Product license		157		2.9			481		3.4			332		3.1			652		2.5
Service (a)		2,533		46.7			3,259		23.3			4,583		42.6			6,256		24.4
Total cost of revenues		2,690		49.6			3,740		26.7			4,915		45.7			6,908		26.9
Gross profit		2,732		50.4			10,272		73.3			5,844		54.3			18,773		73.1
Operating expenses:
Sales and marketing (a)		2,609		48.1			7,001		50.0			6,596		61.3			15,142		59.0
Research and development (a)		1,320		24.4			2,676		19.1			2,886		26.8			5,283		20.6
General and administrative (a)		985		18.2			2,563		18.3			2,677		24.9			5,391		21.0
Amortization of stock-based compensation		400		7.4			548		3.9			811		7.5			1,163		4.5
Restructuring and other charges		1,213		22.4			—		—			1,213		11.3			—		—
Total operating expenses	$	6,527		120.4	%	$	12,788		91.3	%	$	14,183		131.8	%	$	26,979		105.1	%
Operating loss	$	(3,795	)	(70.0	)%	$	(2,516	)	(18.0	)%	$	(8,339	)	(77.5	)%	$	(8,206	)	(32.0	)%

(a) Exclusive of amortization of stock-based compensation presented as a separate caption.

Comparison of the three months ended June 30, 2002 to the three months ended June 30, 2001

Revenue

Total revenue decreased approximately $8.6 million, or 61.3%, to $5.4 million for the three months ended June 30, 2002 from $14.0 million for the three months ended June 30, 2001. Product license revenue, comprised of revenue from separate product-only agreements and from multi-element agreements accounted for under a percentage completed basis using milestones that specifically relate to product deliveries, decreased by $6.6 million, or 89.9%, as a result of a decrease in the number of new contracts and the average selling price of the current quarter’s contracts due to the economic slowdown and significant decline in information technology spending. Service revenue, comprising fees related to time and materials service contracts, maintenance, training and needs analyses, reimbursement of out-of-pocket expenses, as well as multi-element agreements accounted for under a percentage completed basis using hours of input or milestones that specifically relate to integration and customization services, decreased by $2.0 million, or 29.5%, over the prior year quarter. This decrease was due to a combined $2.7 million decrease in revenue primarily from needs analyses, contract addenda and from

8

revenue recognized as service revenue under multi-element contracts. This service revenue decrease was offset by a $0.7 million increase in maintenance and support services. Service revenue from time and materials contracts remained flat. In any period, service revenue from time and materials contracts is dependent, among other things, on license transactions closed during the current and preceding quarters and customer decisions regarding implementations of licensed software.

Cost of Revenue

Total cost of revenue decreased approximately $1.1 million, or 28.1%, to $2.7 million for the three months ended June 30, 2002 compared to $3.7 million for the three months ended June 30, 2001. This cost of revenue decrease is primarily a result of lower third party contractor costs and employee compensation and related costs due to a reduction in project management personnel. Cost of product revenue decreased by $0.3 million or 67% due to lower royalty fees for licensed third party software that is embedded in the Company’s products or incorporated in the Company’s product offerings arising from lower product sales, as well as lower amortization of product packaging and other product costs. Gross profit margins decreased to 50.4% for the three months ended June 30, 2002, compared to 73.3% for the three months ended June 30, 2001. The gross margin decrease is due to a decrease in product revenue as a percentage of total revenue as well as lower margins on both product and services revenue. The decrease in service margins is due to the classification of all project management overhead in cost of services rather than general and administrative expenses as a result of eliminating internal projects in the current quarter and lower average hourly rates. Product margins are lower due to lower product revenues against which comparable product-related costs are amortized.

Operating Expenses

Sales and Marketing.    Sales and marketing expenses decreased by approximately $4.4 million, or 62.7%, to $2.6 million for the three months ended June 30, 2002 from $7.0 million for the three months ended June 30, 2001. The decrease in sales and marketing expense was primarily attributable to lower employee compensation and related costs due to a reduction in personnel and from lower discretionary marketing spending.

Research and Development.    Research and development expenses decreased by approximately $1.4 million, or 50.7%, to $1.3 million for the three months ended June 30, 2002, compared to $1.4 million for the comparable prior year three-month period. This decrease was primarily attributable to lower third party contractor costs. To date, all software development costs have been expensed as incurred.

General and Administrative.    General and administrative expenses decreased by approximately $1.6 million, or 61.6%, to $1.0 million for the three months ended June 30, 2002 from $2.6 million for the three months ended June 30, 2001. This decrease was primarily attributable to lower employee compensation and related costs due to a reduction in administrative personnel and lower overhead costs.

Amortization of stock-based compensation.    Prior to its initial public offering, the Company granted certain stock options at exercise prices less than their deemed fair value; accordingly, the Company recorded deferred compensation of $4.6 million. Such deferred compensation is being amortized over the vesting periods of the applicable options, resulting in expense of $0.1 million and $0.2 million for the three months ended June 30, 2002 and 2001, respectively. Additionally, the $5.0 million fair value of the warrant issued to Accenture in April 2000 is being amortized over the vesting period of the warrant. Accordingly, $0.3 million of amortization expense was recognized during each of the three months ended June 30, 2002 and 2001, respectively.

Restructuring.    In the quarter ended June 30, 2002, the Company determined that it was necessary to lower its overall cost structure to more closely align it with expected revenues. As a result, the Company recorded a $0.8 million restructuring charge primarily related to severance and other benefit costs for 51 employees terminated as part of the restructuring plan and a $0.45 million asset write-down for excess equipment. The asset write-down was recorded to adjust the carrying value of excess equipment to its deemed fair value of $0 as these

9

excess assets are leased under capital leases with fair market value buy out provisions at the end of the related lease terms. The restructuring charge also included the costs of closing four regional offices. These actions are expected to save approximately $6 million on an annual basis. The Company also reversed into income approximately $59,000 of excess severance accruals originally recorded as part of the restructuring charge taken in the quarter ended September 30, 2001. The current quarter restructuring eliminated 32% of operating costs in the second quarter and is expected to result in a further 25% reduction in the quarter ending September 30, 2002.

Income tax expense.    The Company recorded an income tax benefit of $0.7 million for the three months ended June 30, 2001. For the three months ended June 30, 2002, the Company’s earnings did not include an income tax benefit, as a full tax valuation allowance against deferred tax assets generated from the Company’s net loss for the three months ended June 30, 2002 was recorded. In the fourth quarter of 2001, the Company established a valuation allowance for deferred tax assets that were previously generated. Although future taxable income of the Company may be sufficient to utilize a substantial amount of the Company’s net operating loss carryforwards and to realize its deferred tax assets, management has concluded that the realization of the Company’s deferred tax assets did not meet the “more likely than not” criteria under SFAS No. 109.

Comparison of the six months ended June 30, 2002 to the six months ended June 30, 2001

Revenue

Total revenue decreased approximately $14.9 million, or 58.1%, to $10.8 million for the six months ended June 30, 2002 from $25.7 million for the six months ended June 30, 2001. Product license revenue, comprised of revenue from separate product-only agreements and from multi-element agreements accounted for under a percentage completed basis using milestones that specifically relate to product deliveries, decreased by $12.5 million, or 90.5%, as a result of a decrease in the number of new contracts and the average selling price of the 2002 contracts due to the economic slowdown and significant decline in information technology spending. Service revenue, comprised of fees related to time and materials service contracts, maintenance, training and needs analyses, reimbursement of out-of-pocket expenses, as well as multi-element agreements accounted for under a percentage completed basis using hours of input or milestones that specifically relate to integration and customization services, decreased by $2.4 million, or 20.5%, over the prior year quarter. This decrease was due to a combined $3.9 million decrease in revenue primarily from needs analyses, contract addenda and from revenue recognized as service revenue under multi-element contracts. This service revenue decrease was offset by a $1.5 million increase in maintenance and support services.

Cost of Revenue

Total cost of revenue decreased approximately $2.0 million, or 28.9%, to $4.9 million for the six months ended June 30, 2002 compared to $6.9 million for the six months ended June 30, 2001. This cost of revenue decrease is primarily a result of lower third party contractor costs and employee compensation and related costs due to a reduction in project management personnel. Cost of product revenue decreased by $0.3 million or 49% due to lower royalty fees for licensed third party software that is embedded in the Company’s products or incorporated in the Company’s product offerings arising from lower product sales, as well as lower amortization of product packaging and other costs. Gross profit margins decreased to 54.3% for the six months ended June 30, 2002, compared to 73.1% for the six months ended June 30, 2001. The gross margin decrease is due to a decrease in product revenue as a percentage of total revenue as well as lower margins on both product and services revenue. The decrease in service margins is due to the classification of all project management overhead in cost of services rather than general and administrative expenses as a result of eliminating internal projects in the current quarter and lower average hourly rates. Product margins are lower due to lower product revenues against which comparable product-related costs are amortized.

Operating Expenses

Sales and Marketing.    Sales and marketing expenses decreased by approximately $8.5 million, or 56.4%, to $6.6 million for the six months ended June 30, 2002 from $15.1 million for the six months ended June 30,

10

2001. The decrease in sales and marketing expense was primarily attributable to lower employee compensation and related costs due to a reduction in personnel and discretionary marketing spending.

Research and Development.    Research and development expenses decreased by approximately $2.4 million, or 45.4%, to $2.9 million for the six months ended June 30, 2002, compared to $5.3 million for the prior year six-month period. This decrease was primarily attributable to lower third party contractor costs. To date, all software development costs have been expensed as incurred.

General and Administrative.    General and administrative expenses decreased by approximately $2.7 million, or 50.3%, to $2.7 million for the six months ended June 30, 2002 from $5.4 million for the six months ended June 30, 2001. This decrease was primarily attributable to lower employee compensation and related costs due to a reduction in administrative personnel and lower overhead costs.

Amortization of stock-based compensation.    Prior to its initial public offering, the Company granted certain stock options at exercise prices less than their deemed fair value; accordingly, the Company recorded deferred compensation of $4.6 million. Such deferred compensation is being amortized over the vesting periods of the applicable options, resulting in expense of $0.2 million and $0.5 million for the six months ended June 30, 2002 and 2001, respectively. Additionally, the $5.0 million fair value of the warrant issued to Accenture in April 2000 is being amortized over the vesting period of the warrant. Accordingly, $0.6 million of amortization expense was recognized during each of the six months ended June 30, 2002 and 2001, respectively.

Restructuring.    In the quarter ended June 30, 2002, the Company determined that it was necessary to lower its overall cost structure to more closely align it with expected revenues. As a result the Company recorded a $0.8 million restructuring charge primarily related to severance and other benefit costs for 51 employees terminated as part of the restructuring plan and a $0.45 million asset write-down for excess equipment. The asset write-down was recorded to adjust the carrying value of excess equipment to its deemed fair value of $0 as these excess assets are leased under capital leases with fair market value buy out provisions at the end of the related lease terms. The restructuring charge also included the costs of closing four regional offices. These actions are expected to save approximately $6 million on an annual basis. The Company also reversed into income approximately $59,000 of excess severance accruals originally recorded as part of the restructuring charge taken in the quarter ended September 30, 2001.

Income tax expense.    The Company recorded an income tax benefit of $2.5 million for the six months ended June 30, 2001. For the six months ended June 30, 2002, the Company’s earnings did not include an income tax benefit, as a full tax valuation allowance against deferred tax assets generated from the Company’s net loss for the six months ended June 30, 2002 was recorded. In the fourth quarter of 2001, the Company established a valuation allowance for deferred tax assets that were previously generated. Although future taxable income of the Company may be sufficient to utilize a substantial amount of the Company’s net operating loss carryforwards and to realize its deferred tax assets, management has concluded that the realization of the Company’s deferred tax assets did not meet the “more likely than not” criteria under SFAS No. 109.

Liquidity and Capital Resources

At June 30, 2002, the Company had $37.4 million of cash, cash equivalents and short-term investments, consisting primarily of proceeds from its initial public offering. Net cash used in operating activities was $2.5 million and $4.3 million for the six months ended June 30, 2002 and 2001, respectively. The $2.5 million of cash used in the current six month period primarily consisted of a loss before amortization of stock-based compensation and depreciation and amortization totaling approximately $6.3 million offset by an increase in provision for doubtful accounts of $0.2 million, an increase in deferred revenue of approximately $1.7 million and a decrease in accounts receivable of $1.9 million.

Net cash used by investing activities was $10.5 million for the six months ended June 30, 2002, consisting primarily of a $10.2 million investment of short-term investments. During the six months ended June 30, 2002, the Company also purchased $0.3 million of property and equipment.

11

Net cash used in financing activities was approximately $0.5 million for the six months ended June 30, 2002. The cash used during the current year period reflects $0.4 million in capital lease payments and $0.1 million for the purchase of treasury stock.

On March 31, 2002, the Company renewed its $3.0 million revolving credit facility. In January 2000, the Company obtained a letter of credit under this facility totaling $0.5 million to secure a new office lease. This letter of credit is renewable annually and declines by $0.1 million on the first, 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. Accordingly, the letter of credit has declined to $0.3 million.

The Company may use cash resources to fund investments in complementary businesses or technologies. The Company believes that working capital will be sufficient to meet its working capital and operating expenditure requirements for at least the next twelve months. The Company has no current plans to raise additional equity during the next twelve months, although such plans are subject to business and market conditions. Thereafter, the Company may find it necessary to obtain additional equity or debt financing, although the Company does not currently foresee a need for additional cash resources for long-term needs. In the event additional financing is required, the Company may not be able to raise it on acceptable terms or at all.

In May 2002, the Company announced that its Board of Directors had authorized the repurchase of up to $5.0 million of its common stock in the open market. These shares may be purchased pursuant to Rule 10b-18 under the Securities Exchange Act of 1934 from time to time in the public market or through privately negotiated transactions. The timing and amount of any repurchase will be at the discretion of the Company’s management. As of June 30, 2002, the Company had repurchased 128,820 shares of its common stock at an average purchase price of $0.86 per share and at an aggregate cost of $110,760.

On June 7, 2002, the Company received a letter from Nasdaq informing the Company that, for the prior 30 consecutive trading days, the price of its common stock had closed below the minimum $1.00 per share requirement for continued listing in the Nasdaq National Market. In addition, the letter notified the Company that if the minimum bid price of the common stock had not closed above $1.00 for at least 10 consecutive trading days before September 5, 2002, the common stock would be delisted from the Nasdaq National Market, pending any appeals to Nasdaq the Company may have. The Company’s Board of Directors has determined that the continued listing of the common stock on the Nasdaq National Market is in the best interests of the Company’s stockholders. If the common stock was delisted from the Nasdaq National Market, the Board of Directors believes that the liquidity in the trading market for the common stock would be significantly decreased, which would likely reduce the trading price and increase the transaction costs of trading shares of the common stock. Accordingly, the Company filed a definitive proxy statement with the Securities and Exchange Commission on August 7, 2002 soliciting proxies from holders of the Company’s common stock to authorize a reverse stock split of the Company’s common stock. The purpose of the reverse stock split is to increase the market price of the common stock. The Board of Directors intends to effect a reverse stock split only if the Board believes that a decrease in the number of shares outstanding is likely to improve the trading price for the common stock and improve the likelihood that the Company will be allowed to maintain the common stock’s listing on the Nasdaq National Market. The reverse stock split will be effectuated at a ratio ranging from 1-for-2 to 1-for-5, as determined in the Board’s sole discretion. In addition to pursuing a reverse stock split to avoid delisting of its common stock by the Nasdaq Stock Market, the Company will continue to evaluate strategic alternatives, including opportunities to strategically grow the business, enter into strategic relationships or enter into business combinations.

Recent Accounting Pronouncements

In June 2001, the FASB issued Statement No. 143, “Accounting for Asset Retirement Obligations.” This statement requires that the fair value of a liability for legal obligations associated with the retirement of tangible long-lived assets be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Such legal obligations include obligations a party is required to settle as a result of an existing or enacted law, statute, or ordinance, or written or oral contract. These associated asset retirement costs are capitalized as

12

part of the carrying amount of the long-lived asset. This statement is effective for fiscal years beginning after June 15, 2002. The Company does not expect that the adoption of this statement will have a material impact on the Company.

In July 2002, the FASB issued statement No. 146. “Accounting for Costs Associated with Exit or Disposal Activities.” This statement will require the recording of exit or disposal costs when they are incurred and can be measured at fair value. A liability is incurred when an event obligates a company to transfer or use assets (i.e., when an event leaves the company little or no discretion to avoid transferring or using assets in the future). These costs will be subsequently adjusted for changes in estimated cash flows. This statement is effective for exit or disposal activities initiated after December 31, 2002. This statement does not impact the treatment of liabilities for exit and disposal costs previously recorded prior to adoption. The Company does not expect that the adoption of this statement will have a material impact on the Company.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended:

Statements in this Form 10-Q that are not historical facts and refer to the Company’s future prospects are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by words such as “expect,” “anticipate,” “intend,” “believe,” “hope,” “assume,” “estimate” and other similar words and expressions. The statements are subject to risks and uncertainties and actual results may differ materially from those indicated by these forward-looking statements as a result of various factors, including but not limited to, the ability of the Company to execute on its plan to enter into strategic alliances with system integrators and business consultants, the extent of customer acceptance and utilization of the Company’s channel management solutions, the impact of competitive products and services, the Company’s ability to manage growth and to develop new and enhanced versions of its products and services, the effect of economic and business conditions, the volume and timing of customer contracts, the Company’s ability to expand overseas, changes in technology, deployment delays or errors associated with the Company’s products and the Company’s ability to protect its intellectual property rights. For a discussion of these and other risk factors that could affect the Company’s business, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, which is on file with the Securities and Exchange Commission.

Item 3.     Qualitative and Quantitative Disclosures About Market Risk

The following discusses the Company’s exposure to market risk related to changes in foreign currency exchange rates and interest rates. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in Part I of the Company’s Annual Report on Form 10-K under “Risk Factors.”

    Foreign Currency Exchange Rate Risk

To date, predominately all of the Company’s recognized revenues have been denominated in U.S. dollars and primarily from customers in the United States and the exposure to foreign currency exchange rate changes has been immaterial. The Company expects, however, that future product license and professional services revenues may also be derived from international markets and may be denominated in the currency of the applicable market. As a result, operating results may become subject to significant fluctuations based upon changes in the exchange rates of certain currencies in relation to the U.S. dollar. Furthermore, to the extent the Company engages in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make the Company’s products less competitive in international markets. Although the Company will continue to monitor its exposure to currency fluctuations, and, when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, there is no assurance that exchange rate fluctuations will not adversely affect financial results in the future.

13

    Interest Rate Risk

As of June 30, 2002, the Company had cash and cash equivalents of $27.3 million. Declines in interest rates will reduce interest income from short-term investments. Based upon the balance of cash and cash equivalents at June 30, 2002, a change in interest rates of 0.5% would cause a corresponding change in annual interest income of approximately $0.1 million. At June 30, 2002, the Company also had $10.2 million in short-term investments, consisting primarily of short-term bond funds, with an average maturity of three years. A portion of these investments are in fixed rate securities. The fair value of the Company’s fixed rate investments may be adversely impacted by a rise in interest rates.

14

PART II. OTHER INFORMATION

Item 1.     Legal Proceedings

There have been no material developments to litigation involving the Company.

Item 2.     Changes in Securities and Use of Proceeds

On June 26, 2000, the Securities and Exchange Commission declared effective the Company’s Registration Statement on Form S-1, File No. 333-30564, relating to the initial public offering of the Company’s common stock, par value $.001 per share. As of June 30, 2002, the Company had spent approximately $15.0 million of the net proceeds for working capital and general corporate purposes. The remaining proceeds are invested in investment grade, interest-bearing securities.

Item 3.     Defaults Upon Senior Securities

Not applicable.

Item 4.     Submission of Matters to a Vote of Security Holders

On May 9, 2002, the Company held its Annual Meeting of Shareholders.

At the meeting, three Class II directors were elected to serve a three-year term that will expire at the 2005 Annual Meeting of Shareholders. The votes cast for each director were as follows:

For election of Andrew J. McKenna

Votes for:         27,060,193

Votes withheld:     229,152

For election of Jerry Murdock

Votes for:         26,778,327

Votes withheld:     511,018

For election of John F. Sandner

Votes for:         27,060,007

Votes withheld:     229,338

The appointment of KPMG LLP as independent auditors of the Company for the fiscal year ended December 31, 2002 was ratified at the meeting with 27,167,570 shares voting in favor, 121,710 shares voting against and 65 shares abstaining.

15

Item 5.    Other Information

Not applicable.

Item 6.    Exhibits and Reports on Form 8-K

(a) Exhibits:

The following exhibits are filed as part of this Form 10-Q.

Exhibit Number	Description
3.3	Amendment to Bylaws of Click Commerce, Inc.
10.16	Employment Agreement between Michael W. Nelson and the Company dated as of August 7, 2002.
99.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

None.

16

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CLICK COMMERCE, INC.
By:	/S/    MICHAEL W. NELSON
	Michael W. Nelson VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

Date: August 14, 2002

17

EX-3.3

                                                                  Exhibit 3.3


                              CLICK COMMERCE, INC.

                             Secretary's Certificate

         The undersigned, David S. Stone, Secretary of Click Commerce, Inc., a
Delaware corporation (the "Company") hereby certify that at a duly constituted
meeting of the Board of Directors of the Company held on July 22, 2002 at which
meeting a quorum was present and voting, the Board of Directors adopted the
following resolutions:

                 WHEREAS, on April 25, 2002, William Conroy resigned as a member
             of the Board of Directors;

                 WHEREAS, as of May 9, 2002, Gregg G. Hartemayer  declined to
             stand for re-election to the Board of Directors and no successor
             was named or appointed;

                 WHEREAS, the Board of Directors desires to remove the
             vacancies created on the Board of Directors and to amend the
             By-laws of the Corporation in order to reduce the number of
             Directors of the Corporation from 11 to nine (9) members;

                 NOW, THEREFORE, BE IT RESOLVED, that Article III,
             Section 2 of the By-laws be, and it hereby is, amended to
             reduce the number of Directors of the Corporation from 11 to
             nine (9).

         IN WITNESS WHEREOF, I have executed this Certificate as of the 7th day
of August, 2002.

Click Commerce, Inc.


By:     /s/ David S. Stone
        -------------------------
        David S. Stone, Secretary

EX-10.16

                                                                   Exhibit 10.16

                              EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of this 7th
day of August, 2002 by and between Click Commerce, Inc., a Delaware corporation
("Corporation"), and Michael W. Nelson, an individual residing 2004 North
Clifton; Unit A; Chicago, IL 60614 (the "Executive").

                                    RECITALS

         WHEREAS, the Corporation is engaged in the development, sale and
distribution of interactive computer applications and internet related products
and services involved in partner relationship management and "sell side"
electronic commerce solutions;

         WHEREAS, the Corporation desires to employ Executive as Vice President,
Chief Financial Officer and Treasurer of the Corporation;

         WHEREAS, the Executive desires to be employed by the Corporation at the
         salary and benefits provided for herein;

         WHEREAS, the Executive acknowledges and understands that during the
course of his employment, the Executive has and will become familiar with
certain confidential information of the Corporation which is exceptionally
valuable to the Corporation and vital to the success of the Corporation's
business; and

         WHEREAS, the Corporation and the Executive desire to protect such
confidential information from disclosure to third parties or use of such
information to the detriment of the Corporation.

                                    AGREEMENT

         NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

     1. Employment. The Corporation hereby agrees to employ the Executive, and
the Executive hereby accepts such employment, as Vice President, Chief Financial
Officer and Treasurer of the Corporation.

     2. Term. The term of this Agreement shall commence as of August 7, 2002 and
shall continue until December 31, 2004 (the "Term"), unless earlier terminated
pursuant to Section 12 of this Agreement.

     3. Duties. The Executive shall have general responsibility for all
financial and accounting activities of the Corporation, and such other
responsibilities as may be determined by

                                      -1-




the Chief Executive Officer of the Corporation or the Board of Directors in
accordance with the By-Laws of the Corporation in effect from time to time,
provided that such duties shall at all times be consistent with the duties
normally performed by Chief Financial Officers and Treasurers of companies
engaged in businesses similar to the business of the Corporation with similar
responsibilities and reporting to the Chief Executive Officer of the
Corporation. The Executive agrees to devote all of his business time, attention
and energies to the diligent performance of his duties hereunder and will not,
during the Term hereof, engage in, accept employment from, or provide services
to any other person, firm, corporation, governmental agency or other entity that
engages in, any activities which, in the opinion of the Board of Directors,
would conflict with or detract from the Executive's capable performance of such
duties; provided, however, that the Executive shall be permitted to attend a
weekend executive management post-graduate education program at a reputable
Chicago area business school, provided, further, that such educational
activities do not materially interfere with or materially detract from the
Executive's performance of his duties and obligations hereunder.

     4.  Compensation.

     (a) Base Salary. During the Term of this Agreement, the Executive shall
receive compensation at the annual rate of $170,000 payable in equal monthly
installments or as otherwise agreed to by the parties. The annual amount of
salary payments to the Executive during the Term of this Agreement shall be
referred to herein as the "Annual Salary."

     (b) Annual Incentive Bonus. During the Term of this Agreement, the
Executive shall participate in an annual bonus program if and as adopted by the
Corporation as determined by the Human Resources and Compensation Committee of
the Board of Directors in its sole discretion.

     (c) Stock Option Grant. The Corporation shall grant to the Executive,
subject to the approval of the Compensation and Human Resources Committee of the
Board of Directors of the Corporation, options to purchase an aggregate of
200,000 shares of common stock, par value $0.001 per share ("Common Stock"), of
the Corporation at an exercise price equal to the fair market value of the
Common Stock (being the average of the high and low price of the Common Stock on
the last trading date prior to the date of this Agreement) on the date of this
Agreement ("Options"), which Options shall be restricted and non-transferable,
as set forth in the Company's Amended and Restated Stock Option and Stock Award
Plan (the "Stock Option Plan") and, to the extent that Executive is employed by
the Corporation on the following vesting dates, the Options shall vest as
follows: 40,000 of the Options shall vest on December 31, 2002, 80,000 of the
Options shall vest on December 31, 2003 and 80,000 of the Options shall vest on
December 31, 2004. The term of the Options shall be for a period of ten (10)
years following the date of the grant of the Options hereunder and the Options
shall be subject to such other terms and conditions not inconsistent with the
terms of this Agreement as are set forth in the Stock Option Agreement, in the
form attached hereto as Exhibit A, to be executed by the Company and

                                      -2-




the Executive, the Stock Option Plan and as determined by the Board of Directors
or any committee thereof. The Options shall be incentive stock options to the
extent permitted by law in each year and, with respect to vested options, shall
be exerciseable for a period of 90 days following termination of employment; and
the remaining options shall be non-qualified stock options ("NQSOs") which shall
be exerciseable for a period of one year following termination of employment.
The Executive shall not be entitled to any rights with respect to the shares of
Common Stock underlying the Options, including the right to vote or receive
dividends or distributions with respect to any of the shares of Common Stock
underlying the Options.

         (d) Acceleration of Option Vesting. In the event of a Change in Control
(as hereinafter defined) of the Corporation prior to the termination or
expiration of this Agreement, notwithstanding the vesting schedule set forth in
Section 4(c) hereof, all of the unvested Options shall vest coincident with the
Change in Control. For purposes of this Agreement, a "Change in Control" shall
mean (i) a sale to a third party of at least a majority of the outstanding
shares of Common Stock, (ii) a sale of substantially all of the assets of the
Corporation, or (iii) a merger or other consolidation with an unrelated third
party following which the ability to elect a majority of the members of the
Board of Directors or a majority of the voting power of the surviving
corporation is not held by the holders of Common Stock prior to such
transaction.

         5. Benefits. During the Term of this Agreement, the Corporation agrees
to provide to the Executive such benefits as are provided generally to other
senior executives of the Corporation from time to time, including, without
limitation, any health, disability, dental, severance benefits, insurance,
defined contribution plan, deferred compensation, profit-sharing, pension, or
other employee benefit policies, programs (including child day-care) or plans
which the Corporation offers generally to senior executives (collectively, the
"Employee Benefits"). Executive shall be entitled to three (3) weeks of vacation
during each twelve (12) month period hereunder. Pursuant to Corporation policy,
Executive shall not be entitled to accrue or carryover unused vacation from any
calendar year to the next calendar year. Executive shall be entitled to
participate in other compensation programs that the Corporation may make
available from time to time.

         6. Expenses. During the Term of this Agreement, the Executive shall be
reimbursed by the Corporation for all reasonable, ordinary and necessary
out-of-pocket expenses for travel, lodging, meals, entertainment expenses, or
any other similar expenses incurred by the Executive in performing services for
the Corporation to the extent that such expenditures meet the requirements of
the Internal Revenue Code of 1986, as amended (the "Code"), for total or partial
deductibility by the Corporation for federal income tax purposes and are
substantiated and documented by the Executive as required by the Code.

         7. Non-Disclosure of Confidential Information.

         (a) The Executive will not during, or for a period of five (5) years
after termination of, this Agreement, in any form or manner, directly or
indirectly, divulge, disclose or communicate to any person, entity, firm,
corporation or any other third party, or utilize for the

                                      -3-




Executive's personal benefit or for the benefit of any competitor of the
Corporation, any Confidential Information (as hereinafter defined).

         (b) For the purposes of this Agreement, the term "Confidential
Information" shall mean, but shall not be limited to, any technical or
non-technical data, formulae, patterns, compilations, programs, devices,
methods, techniques, drawings, designs, processes, procedures, improvements,
models or manuals of the Corporation or which are licensed by the Corporation,
any financial data or lists of actual or potential customers or suppliers of the
Corporation, and any information regarding the Corporation's marketing, sales or
dealer network, which is not generally known to the public through legitimate
origins. The Corporation and the Executive acknowledge and agree that such
Confidential Information is extremely valuable to the Corporation and shall be
deemed to be a "trade secret." In the event that any part of the Confidential
Information becomes generally known to the public through legitimate origins
(other than by the breach of this Agreement by the Executive or by
misappropriation), that part of the Confidential Information shall no longer be
deemed Confidential Information for the purposes of this Agreement, but the
Executive shall continue to be bound by the terms of this Agreement as to all
other Confidential Information.

         (c) Upon termination of this Agreement for any reason, the Executive
will promptly deliver to the Corporation all correspondence, drawings,
blueprints, manuals, letters, notes, notebooks, reports, programs, plans,
proposals, financial documents, or any other documents, including all copies in
any form or media, concerning the Corporation's customers, dealer network,
marketing strategies, products or processes and/or which contains Confidential
Information.

         8. Covenant-Not-To-Compete. The Executive will not during, or for a
period of two (2) years after termination of, this Agreement, in any form or
manner, directly or indirectly, on his own behalf or in combination with others,
become interested in (as an individual, partner, stockholder, director, officer,
principal, agent, independent contractor, employee, trustee, lender of money or
in any other relation or capacity whatsoever, except as a holder of securities
of a corporation whose securities are publicly traded and which is subject to
the reporting requirements of the Securities Exchange Act of 1934, and then only
to the extent of owning not more than two percent (2%) of the issued and
outstanding securities of such corporation), or provide services similar to
those provided to the Corporation for, any business which renders implementation
services or sells products, or proposes to render services or sell products,
that compete with the Business of the Corporation within the United States,
Western Europe or Australia. For purposes of this Agreement, the "Business" of
the Corporation shall mean providing both partner relationship management and
"sell-side" application software electronic commerce solutions and related
implementation services.

         9. Covenant Not to Solicit.

     (a) Covenant Not to Solicit Employees. During Executive's employment by the
Corporation and for a period of two (2) years following termination or cessation
of Executive's

                                      -4-



employment pursuant to this Agreement, Executive agrees and covenants that he
will not, for any reason, directly or indirectly, employ, solicit or endeavor to
entice away from the Corporation or any of its affiliates (whether for his own
benefit or on behalf of another person or entity), or facilitate the
solicitation, employment or enticement of, any employees of Corporation to work
for Executive, any affiliate of Executive or any competitor of Corporation, nor
will Executive otherwise attempt to interfere (to the Corporation's detriment)
in the relationship between the Corporation or any of its affiliates and any
such employees.

           (b) Covenant Not to Solicit Customers. During Executive's employment
pursuant to this Agreement and for a period of two (2) years following
termination or cessation of Executive's employment, Executive agrees and
covenants that he will not directly or indirectly in any form or manner,
contact, solicit, or facilitate the contacting or solicitation of any Customers
of the Corporation, for the purpose of competing with the Business of the
Corporation. For purposes of this Agreement, a "Customer" of the Corporation
shall mean and refer to (i) each person that has received services or purchased
products from the Corporation or any of its affiliates during the period of
Executive's employment hereunder and (ii) each person or entity formally
solicited by the Corporation to provide services or purchase products during the
period of Executive's employment hereunder.

           10. Equitable Remedies. In the event that the Executive breaches any
of the terms contained in Sections 7, 8 or 9 of this Agreement, the Executive
stipulates that said breach will result in immediate and irreparable harm to the
business and goodwill of the Corporation and that damages, if any, and remedies
at law for such breach would be inadequate. The Corporation shall therefore be
entitled to apply for and receive from any court of competent jurisdiction an
injunction to restrain any violation of this Agreement and for such further
relief as the court may deem just and proper, and the Executive shall, in
addition, pay to the Corporation, following judgment or other final
determination by such court, the Corporation's costs and expenses in enforcing
such terms (including court costs and reasonable attorneys' fees).

           11. Continuing Obligation. The obligations, duties and liabilities of
the Executive pursuant to Sections 7, 8 and 9 of this Agreement are continuing,
absolute and unconditional and shall remain in full force and effect as provided
therein despite any termination of this Agreement for any reason whatsoever,
including, without limitation, the expiration of the Term of this Agreement.

           12. Termination of Employment.

           (a) Termination by Corporation of Executive for Cause. The
Corporation shall have the right to terminate the Executive's employment at any
time for "cause." For purposes hereof, "cause" shall mean that the Executive
has:

           (i) been convicted of, or plead nolo contendere to, a felony or crime
               involving moral turpitude; or

                                      -5-




           (ii)  committed an act of personal dishonesty or fraud involving
                 personal profit in connection with the Executive's employment
                 by the Corporation; or

           (iii) committed a breach of any material covenant, provision, term,
                 condition, understanding or undertaking set forth in this
                 Agreement, including, without limitation, the provisions
                 contained in Sections 7, 8 and 9 hereof; or

           (iv)  committed an act which the Board of Directors of the
                 Corporation has found to have involved willful misconduct or
                 gross negligence on the part of the Executive; or

           (v)   exhibited documented habitual absenteeism or been unable or
                 repeatedly failed to perform any reasonable or customary
                 material tasks typically required in connection with the
                 Executive's employment and position with the Corporation or
                 its subsidiaries;

provided, however, that no termination under clause (iii) or (v) of this Section
12(a) shall be effective unless the Executive shall have first received written
notice describing in reasonable detail the basis for the termination and within
15 days following delivery of such notice the Executive shall have failed to
cure such alleged behavior constituting "cause"; provided, further, that this
notice requirement prior to termination shall be applicable only if such
behavior or breach is capable of being cured. If the Corporation shall terminate
the Executive's employment pursuant to this Section 12(a), the Executive shall
forfeit all rights with respect to the Options (whether or not vested) granted
to the Executive pursuant to Section 4(c). In addition, the Corporation shall be
obligated to pay to the Executive the Annual Salary then in effect and the
Employee Benefits payable to the Executive pursuant to this Agreement, accrued
up to and including the date on which the Executive's employment is so
terminated. Thereafter, the Corporation shall have no further obligation
whatsoever to the Executive.

           (b)   Termination by Corporation of Executive Because of Executive's
Disability, Injury or Illness. The Corporation shall have the right to terminate
the Executive's employment if the Executive is unable to perform the duties
assigned to him by the Corporation because of the Executive's disability, injury
or illness (as such terms may be defined under the applicable disability plan
covering the Executive); provided, however, that in the event of such
disability, injury or illness, the Executive's inability to perform such duties
must have existed for (x) the period for eligibility for coverage set forth in
the long-term disability policy maintained by the Corporation, or (y) a total of
six (6) months in any consecutive twelve (12) month period if there is no such
policy in existence, before such termination can be made effective. If the
Corporation shall terminate the Executive's employment pursuant to this
Section 12(b), the Corporation shall be obligated (i) to pay to the Executive
the Annual Salary then in effect payable to the Executive pursuant to this
Agreement, accrued up to and including the date on which the Executive's
employment is so terminated, and (ii) to provide Employee Benefits to the extent
the Executive remains eligible to continue to participate in such Employee
Benefits pursuant to the terms and conditions of such policies, programs or
plans. Notwithstanding

                                      -6-




anything to the contrary in this Agreement, the Corporation's obligations to
make payments to the Executive shall be reduced by any amounts actually paid to
the Executive pursuant to any disability insurance payments received by the
Executive pursuant to the Employee Benefits or otherwise. In the event of a
termination of the Executive's employment pursuant to this Section 12(b), the
Executive shall be entitled to retain all Options vested pursuant to Section
4(c) hereof as of the date of termination.

           (c)   Termination by Corporation as a Result of Executive's Death.
The obligations of the Corporation to the Executive under this Agreement
(except as provided in this Section 12(c)) shall automatically terminate upon
the Executive's death and the Corporation shall then only be obligated to pay
to the Executive's estate the Annual Salary then in effect and the Employee
Benefits payable to the Executive pursuant to this Agreement, accrued up to and
including the date on which the Corporation's obligation to the Executive is so
terminated. Thereafter, the Corporation shall have no further obligation
whatsoever to the Executive. In the event of a termination of the Executive's
employment pursuant to this Section 12(c), the Executive shall be entitled to
retain all Options vested pursuant to Section 4(c) hereof as of the date of
termination. In the event of the Executive's death, any payments due to the
Executive shall be paid to the Executive's estate.

           (d)   Termination of Executive for Any Other Reason. The Corporation
shall have the right to terminate the Executive's employment for any other
reason upon prior written notice to the Executive. In the event of a termination
of the Executive's employment for any reason other than the reasons set forth
in Sections 12(a), 12(b) or 12(c) hereof, (i) the Corporation shall be obligated
to provide twelve (12) months severance or the balance of this Agreement,
whichever is shorter, in equal semi-weekly installments or otherwise as agreed
to by the parties, (ii) the Corporation shall be obligated to provide the
Employee Benefits, at its expense, if and to the extent the Executive remains
eligible to participate in such Employee Benefits pursuant to the terms and
conditions of such policies, programs or plans, for the remaining period of the
Term, or if Executive is not eligible, then the Corporation shall reimburse
Executive for payments for health care coverage provided pursuant to the
Comprehensive Omnibus Budget Reconciliation Act for the remaining period of the
Term, and (iii) the Executive shall be entitled to retain all Options vested
pursuant to Section 4(c) hereof as of the date of termination. Thereafter, the
Corporation shall have no further obligation whatsoever to the Executive.

           (e)   Termination by Executive. The Executive may resign and
terminate his employment by the Corporation for any reason whatsoever upon
thirty (30) days prior written notice to the Corporation. Thereafter, the
Corporation shall have no obligation to the Executive, except for those
obligations provided as a matter of federal or state law. In the event of a
termination of the Executive's employment pursuant to this Section 12(e), the
Executive shall be entitled to retain all Options vested pursuant to Section
4(c) hereof as of the date of termination.

           (f)   Good Reason. If, during the Term of this Agreement, the
Executive resigns for Good Reason (as defined below), (i) the Corporation shall
be obligated to provide twelve (12)

                                      -7-




months severance or the balance of this Agreement, whichever is shorter, in
equal semi-weekly installments or otherwise as agreed to by the parties, (ii)
the Corporation shall be obligated to provide the Employee Benefits, at its
expense, if any and to the extent the Executive remains eligible to participate
in such Employee Benefits pursuant to the terms and conditions of such policies,
programs or plans, for the remaining period of the Term, or if Executive is not
eligible, then the Corporation shall reimburse Executive for payments for health
care coverage provided pursuant to the Comprehensive Omnibus Budget
Reconciliation Act for the remaining period of the Term, and (iii) the Executive
shall be entitled to retain all Options vested pursuant to Section 4(c) hereof
as of the date of termination. Thereafter, the Corporation shall have no further
obligation whatsoever to the Executive. For purposes of this Agreement, "Good
Reason" shall mean a requirement by the Corporation that the Executive report
for the performance of his services hereunder on a regular or permanent basis at
any location or office more than fifty (50) miles from Chicago, Illinois.

           13.  Capacity. The Executive hereby represents and warrants that, in
entering into this Agreement, he is not in violation of any contract or
agreement, whether written or oral, with any other person, firm, partnership,
corporation or other entity to which he is a party or by which he is bound and
will not violate or interfere with the rights of any other person, firm,
partnership, corporation or other entity. In the event that such a violation or
interference does occur, or is alleged to occur, notwithstanding the
representation and warranty made hereunder, the Executive shall indemnify the
Corporation from and against any and all manner of expenses and liabilities
incurred by the Corporation or any affiliated company of the Corporation in
connection with such violation or interference or alleged violation or
interference.

           14.  Entire Agreement. This Agreement contains the entire agreement
between the parties and shall not be modified except in writing by the parties
hereto. Furthermore, the parties hereto specifically acknowledge and agree that
this agreement supersedes all prior agreements between the Executive, the
Corporation and its officers, directors, and agents, if any and in whatever
capacity so entered into, whether written or oral, and all such prior
agreements, whether written or oral, shall be of no further force or effect from
and after the date hereof.

           15.   Severability. If any phrase, clause or provision of this
Agreement is declared invalid or unenforceable by a court of competent
jurisdiction, such phrase, clause or provision shall be deemed severed from
this Agreement, but will not affect any other provisions of this Agreement,
which shall otherwise remain in full force and effect. If any restriction or
limitation in this Agreement is deemed to be unreasonable, onerous and unduly
restrictive by a court of competent jurisdiction, it shall not be stricken in
its entirety and held totally void and unenforceable, but shall remain effective
to the maximum extent permissible within reasonable bounds.

                                      -8-



         16. Notices. Any notice, request or other communication required to be
given pursuant to the provisions hereof shall be in writing and shall be deemed
to have been given when delivered in person, on the next business day after
being delivered to a nationally-recognized overnight courier service (for such
next-day delivery) or five (5) days after being deposited in the United States
mail, certified or registered, postage prepaid, return receipt requested and
addressed to the other party at its or his last known address. The address of
any party may be changed by notice in writing to the other party duly served in
accordance herewith.

         17. Waiver. The waiver by the Corporation or the Executive of any
breach of any term or condition of this Agreement shall not be deemed to
constitute the waiver of any other breach of the same or any other term or
condition hereof.

         18. Governing Law. This Agreement and the enforcement hereof shall be
governed and controlled in all respects by the internal laws, and not the laws
of conflict, of the State of Illinois.

         19. Advanced Education Reimbursement. The parties acknowledge and agree
that the Corporation believes that advanced management education is customary
for an individual in Executive's management position and that the Corporation
derives a material benefit from such education and experience, therefore,
subject to any limitations imposed by the Sarbanes-Oxley Act of 2002, any rules
or regulations of the Securities and Exchange Commission, any rules or
regulations of any exchange or stock market on which the shares of Common Stock
are traded, or any other applicable laws, rules or regulations (collectively,
the "Corporate Reform Laws"), in the event that Executive is admitted to a
graduate executive management program at the Kellogg School of Management,
Northwestern University (or another similar weekend executive management
post-graduate business program at a reputable Chicago-area graduate business
school), then during the term of Executive's employment by the Corporation, the
Corporation shall reimburse Executive for the expenses of tuition, books and
supplies (other than a laptop computer) incurred by Executive. Subject to any
limitations imposed by any Corporate Reform Laws, in the event that Executive's
employment by the Corporation is terminated for any reason prior to completion
of such education or at any time prior to the date which is two years following
completion of such education, Executive shall be required to reimburse the
Corporation for any amounts reimbursed to Executive hereunder by the
Corporation. Executive acknowledges and agrees that the Corporation shall be
permitted to offset any amounts payable to Executive pursuant to Section 12
hereof and to attach any amounts received through the exercise of Options in
order to satisfy amounts reimbursable to the Corporation hereunder.

         20. Assignment of Inventions. The Executive shall disclose promptly in
writing to a designated representative of the Corporation all material of a
proprietary nature, including, but not limited to, ideas, inventions,
discoveries, improvements, developments, designs, methods, systems, computer
programs, trade secrets or any other intellectual property whether or not
patentable or copyrightable, specifically including, but not limited to,
copyright and mask works, formulae, compositions, products, processes,
apparatus, and new uses of existing materials or machines (hereafter
collectively called "Inventions") made, conceived or first reduced to practice
by the Executive solely or jointly with others while employed by the
Corporation. The Corporation shall be the owner of all property rights in any
such Inventions, including, but not

                                      -9-



limited to, rights arising from the obtaining of letters of patent or copyright
in respect thereof, which shall be vested in the Corporation. The Executive will
at the Corporation's request execute any and all assignment, patent or copyright
forms and the like, deemed reasonably necessary by the Corporation, and will
assist in drafting of any description or specification of the Inventions as may
be required by the Corporation to protect the Corporation's rights in and to the
Inventions, including, but not limited to, application(s) for letters of patent.
The Corporation's rights hereunder shall not be limited to this country but
shall extend to any country in the world and shall attach to each Invention
notwithstanding that it is perfected, improved, reduced to specific form or used
after termination the Executive's employment. The Executive agrees to lend such
assistance as he may be able, at the Corporation's request without charge in
connection with any proceedings relating to such letters of patent, trade
secrets, copyright or application thereof, as may be determined by the
Corporation to be reasonably necessary. In such case the Corporation will
reimburse expenses which the Executive may reasonably incur in assisting the
Corporation to obtain, assert, defend and protect such letters of patent, trade
secrets, copyright or other protection.

         21. Successors. This Agreement is personal to the Executive and shall
not be assignable by the Executive otherwise by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives. The Corporation will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
if no such succession had taken place. All references to the Corporation shall
also refer to the any such successor.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

                                      CLICK COMMERCE, INC.


                                      By /s/ Michael W. Ferro, Jr.
                                         ------------------------
                                         Michael W. Ferro, Jr.,
                                         Chairman and Chief Executive Officer


                                      EXECUTIVE

                                         /s/ Michael W. Nelson
                                         ---------------------
                                             Michael W. Nelson

                                     Address: 2004 North Clifton; Unit A
                                              Chicago, IL 60614




                                    10 of 10



                                                                   Exhibit A

                              CLICK COMMERCE, INC.
                             STOCK OPTION AGREEMENT

         THIS STOCK OPTION AGREEMENT, is made as of August 7, 2002 (the
 "Grant Date") between Click Commerce, Inc., a Delaware corporation (the
 "Company"), and Michael W. Nelson (the "Optionee").

                              W I T N E S S E T H:

         WHEREAS, the Company desires to provide the Optionee with the
opportunity to purchase shares of its common stock, $.001 par value per share
(the "Common Stock"), in accordance with the terms of the Click Commerce, Inc.
Stock Option Plan (the "Plan"):

         NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter contained, the parties hereto mutually
covenant and agree as follows:

         1. Grant of Option. The Company hereby grants to the Optionee an option
(the "Option") to purchase all or any part of an aggregate of 200,000 shares of
Common Stock on the terms and conditions hereinafter set forth. The Option is
hereby designated as an "Incentive Stock Option" ("ISO") within the meaning of
Section 422(b) of the Internal Revenue Code ("code"), to the extent permitted
under that section.

         2. Purchase Price. The per share purchase price of the shares of
Common Stock issuable upon exercise of the Option shall be $0.73.

         3. Term. Except as provided in Section 6, the term of the Option
designated as an ISO shall be for a period of ten (10) years from the Grant
Date. The term of the Option not meeting the requirements of Section 422(b) of
the Code shall be for a period of ten (10) years from the Grant Date.

         4. Vesting.

         (a) Subject to the forfeiture provisions of Section 6, the Optionee
shall become vested in the Option granted hereunder over the period from the
Grant Date, as follows:

                  Percentage Vested         Vesting Date
                  -----------------         ------------

                        20%                 On December 31, 2002
                        60%                 On December 31, 2003
                        100%                On December 31, 2004

         (b) Notwithstanding anything contained in the Plan to the contrary,
coincident with a Change of Control (as hereinafter defined), all of the
unvested Option shall vest. For purposes of this agreement, a "Change in
Control" shall mean (i) a sale to a third party of at least a majority of the
outstanding shares of Common Stock, (ii) a sale of substantially all of the
assets of the Corporation, or (iii) a merger or other consolidation with an
unrelated third party following which the ability to elect a majority of the
members of the Board of Directors or a majority of the voting power of the
surviving corporation is not held by the holders of Common Stock prior to such
transaction.

         5. Exercise. Subject to the forfeiture provisions of Section 6, the
Optionee shall not be entitled to exercise the Option until it is vested.
Notwithstanding the foregoing, the Option shall not be exercisable after the
expiration date of the Option.

         6.  Termination of Option on Certain Events. The Option term and the
Optionee's rights hereunder shall terminate on the date of Optionee's
termination of employment with the Company ("Termination Date"), subject to the
following:


                                     1 of 4



         (a) Death or Permanent Disability. If Optionee's termination of
employment by the Company is due to Optionee's death or "permanent disability"
(as hereinafter defined), the Optionee shall forfeit any right to purchase
shares of Common Stock under the Option to the extent not vested as of the date
of termination of employment. The Option, to the extent vested, may thereafter
be exercised by the Optionee or Optionee's executor, administrator or other
personal or legal representative, as applicable for a period of 90 days
following Optionee's termination of employment for ISOs and for one year
following Optionee's termination of employment for Options which do not qualify
as ISOs. "Permanent disability" shall have the meaning set forth in Section
12(c) of that certain employment agreement between Optionee and the Company
dated as of August 7, 2002 ("Employment Agreement").

         (b) Voluntary Termination or Involuntary Termination Other Than For
Cause. In the event of the Optionee's voluntary termination or involuntary
termination of employment by the Company without "cause" (as defined below), the
Optionee shall forfeit any nonvested right to purchase shares of Common Stock
under the Option as of the date of termination of employment. The Option, to the
extent vested, may thereafter be exercised by the Optionee or, if the Optionee
dies during the remainder of the Option's term, by the Optionee's executor,
administrator or other personal or legal representative, as applicable for a
period of 90 days following Optionee's termination of employment for ISOs and
for one year following Optionee's termination of employment for Options which do
not qualify as ISOs.

         (c) Termination for Cause. All of Optionee's rights hereunder shall
terminate upon the Company's written or oral notice to the Optionee that the
Optionee's employment by the Company is being terminated for "cause" (as
hereinafter defined), and all rights to purchase shares of Common Stock under
the Option (whether or not vested according to the schedule of Section 4) shall
be forfeited. The Company shall have "cause" to terminate Optionee's employment
with the Company, as set forth and defined in Section 12(a) of the Employment
Agreement.

         7. Nontransferability. The Option shall not be transferable otherwise
than by will or the laws of descent and distribution to the extent provided in
Sections 5 and 6, and the Option may be exercised, during the lifetime of the
Optionee, only by the Optionee. Without limiting the generality of the
foregoing, the Option may not be assigned, transferred (except as provided
above), pledged or hypothecated in any way, shall not be assignable by operation
of law, and shall not be subject to execution, attachment or similar process,
and any attempt to do so shall be void.

         8. Method of Exercising Option.

         (a) Subject to the terms and conditions of this Agreement, the Option
may be exercised by written notice by registered or certified mail, return
receipt requested, addressed to the Company at its offices at the address for
notices set forth in Section 10 or to its designated representative by written
notice. Such notice shall state that the Option is being exercised thereby and
the number of shares of Common Stock in respect of which it is being exercised.
It shall be signed by the person or persons so exercising the Option and shall
be accompanied by payment in full of the Option price for such shares of Common
Stock (i) in cash, (ii) in shares of Common Stock held by the Optionee for a
period of six months to be valued at the Fair Market Value (as defined in
Section 6(b) of the Plan) thereof on the date of such exercise, (iii) with a
combination of the foregoing, or (iv) by other means authorized by the
Committee. If the tender of shares of Common Stock as payment of the Option
price would result in the issuance of fractional shares of Common Stock, the
Company shall instead return the balance in cash or by check to the Optionee. If
the Option is exercised by any person or persons other than the Optionee under
Section 6(a), the notice shall be accompanied by appropriate proof of the right
of such person or persons to exercise the Option. The Company shall issue, in
the name of the person or persons exercising the Option, and deliver a
certificate or certificates representing such shares as soon as practicable
after notice and payment shall be received.

         (b) The Option may be exercised in accordance with Section 5 and the
terms of the Plan with respect to any whole number of shares included therein,
but in no event may an Option be exercised as to less than one hundred (100)
shares at any one time, or the remaining shares covered by the Option if less
than two hundred (200).

         (c) The Optionee shall have no rights of a stockholder with respect to
shares of Common Stock to be acquired by the exercise of the Option until the
date of issuance of a certificate or certificates representing such shares.
Except as otherwise expressly provided in the Plan, no adjustment shall be made
for dividends or other rights for which the record date is


                                     2 of 4



prior to the date such stock certificate is issued. All shares of Common Stock
purchased upon the exercise of the Option as provided herein shall be fully paid
and non-assessable.

         (d) If at any time the Company is required to withhold tax on ordinary
income recognized by the Optionee with respect to the shares received under the
Option, the amount required to be withheld shall be provided to the Company by
the Optionee. Such amount shall be paid in due course by the Company to the
applicable taxing authorities as income taxes withheld.

         9. General. The Company shall during the term of the Option reserve and
keep available such number of shares of Common Stock as will be sufficient to
satisfy the requirements of this Agreement, shall pay all original issue taxes,
if any, with respect to the issuance of shares of Common Stock hereunder and all
other fees and expenses necessarily incurred by the Company in connection
herewith, and shall, from time to time, use its best efforts to comply with all
laws and regulations which, in the opinion of counsel for the Company, shall be
applicable hereto.

         10. Notices. Each notice relating to this Agreement shall be in writing
and shall be sufficiently given if sent by registered or certified mail, or by
nationally recognized overnight delivery service, postage or charges prepaid, to
the address as hereinafter provided. Any such notice or communication given by
mail shall be deemed to have been given two business days after the date so
mailed, and such notice or communication given by overnight delivery service
shall be deemed to have been given one business day after the date so sent. Each
notice to the Company shall be addressed to it at its offices at 200 East
Randolph Street, 49th floor, Chicago, Illinois 60601 (Attention: Rebecca Maskey)
or the Company's designee. Each notice to the Optionee or other person or
persons then entitled to exercise the Option shall be addressed to the Optionee
or such other person or persons at the Optionee's last known address.

         11. Incorporation of the Plan. Notwithstanding the terms and conditions
contained herein, this Agreement shall be subject to and governed by all the
terms and conditions of the Plan. A copy of the Plan has been delivered to the
Optionee and is hereby incorporated by reference. In the event of any
discrepancy or inconsistency between the terms and conditions of this Agreement
and of the Plan, the terms and conditions of the Plan shall control.

         12. Continuance of Involvement with the Company. The granting of the
Option is in consideration of the Optionee continuing as a director, officer,
consultant or employee of the Company or any subsidiary; provided, that nothing
in this Agreement shall confer upon the Optionee the right to continue as a
member of the board, as an officer of the Company, as a consultant to the
Company or in the employ of the Company or any subsidiary or affect the right of
the Company or any subsidiary to terminate the Optionee's membership,
officership, consulting arrangement or employment at any time in the sole
discretion of the Company or any subsidiary, with or without cause.

       13. Interpretation. The interpretation and construction of any terms
or conditions of the Plan, or of this Agreement or other matters related to the
Plan by the Committee shall be final and conclusive.

       14. Enforceability. This Agreement shall be binding upon the Optionee
and such Optionee estate, personal representative and beneficiaries.

                                     *  *  *

       IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and the Optionee has executed
this Agreement all as of the day and year first above written.

                                         CLICK COMMERCE, INC.

                                         By:
                                            --------------------------------
                                         Its:
                                             -------------------------------


                                     3 of 4



                                    OPTIONEE:

                                    ________________________
                                        Michael W. Nelson



cc:   Michael W. Ferro




                                     4 of 4

EX-99.1

                                                                  Exhibit 99.1



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly Report of Click Commerce, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Michael
W. Ferro, Jr., Chief Executive Officer of the Company, do hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

         (1)    The Report fully complies with the requirements of Section 13(a)
                or 15(d) of the Securities Exchange Act of 1934; and

         (2)    The information contained in the Report fairly presents, in
                all material respects, the financial condition and results of
                operations of the Company.


                                       /s/  Michael W. Ferro, Jr.
                                       --------------------------------
                                            Michael W. Ferro, Jr.,
Dated:  August 13, 2002                     Chief Executive Officer

EX-99.2

                                                                  Exhibit 99.2



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly Report of Click Commerce, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Michael
W. Nelson, Chief Financial Officer of the Company, do hereby certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

         (1)   The Report fully complies with the requirements of Section 13(a)
               or 15(d) of the Securities Exchange Act of 1934; and

         (2)   The information contained in the Report fairly presents, in
               all material respects, the financial condition and results of
               operations of the Company.


                                      /s/   Michael W. Nelson
                                     --------------------------------
                                            Michael W. Nelson,
Dated:  August 13, 2002                     Chief Financial Officer