<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1999.
REGISTRATION NO. 333-70621
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
AUTOBYTEL.COM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 33-0711569
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
18872 MACARTHUR BOULEVARD
IRVINE, CALIFORNIA 92612-1400
(949) 225-4500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARK W. LORIMER, CHIEF EXECUTIVE OFFICER AND PRESIDENT
AUTOBYTEL.COM INC.
18872 MACARTHUR BOULEVARD
IRVINE, CALIFORNIA 92612-1400
(949) 225-4500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
THOMAS R. POLLOCK, ESQ. CHRISTOPHER L. KAUFMAN, ESQ.
BRIGITTE LIPPMANN, ESQ. LAURA I. BUSHNELL, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP LATHAM & WATKINS
399 PARK AVENUE 135 COMMONWEALTH DRIVE
NEW YORK, NEW YORK 10022 MENLO PARK, CALIFORNIA 94025
(212) 318-6000 (650) 328-4600
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
============================================================================================================================
PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001
per share...................... 5,137,500 Shares $22.00 $113,025,000 $31,420.95
============================================================================================================================
</TABLE>
(1) Includes 637,500 shares that may be sold upon exercise of the underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(3) This registration fee has been previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
MARCH 25, 1999
4,500,000 SHARES
LOGO
AUTOBYTEL.COM INC.
COMMON STOCK
We are offering 3,500,000 shares of our common stock. The selling stockholders
identified in this prospectus are offering an additional 1,000,000 shares. We
will not receive any of the proceeds from the sale of shares by the selling
stockholders. There is currently no public market for our common stock. We
expect that the public offering price will be between $20.00 and $22.00 per
share. The market price of our common stock after this offering may be higher or
lower than the actual price at which the shares of our common stock will be sold
in this offering.
Our common stock has been approved for quotation on the Nasdaq National Market
under the symbol "ABTL."
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
Autobytel.com has received from international strategic investors indications of
interest for the purchase of up to 250,000 shares registered under the
registration statement of which this prospectus is a part at the initial public
offering price. The sale of these shares will not be subject to the underwriting
agreement between Autobytel.com and the underwriters. No underwriting discounts
will apply to the sale of these shares, however, if these shares are sold to
these investors we will pay a fee of $350,000 to an affiliate of one of the
underwriters.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price................................ $ $
Underwriting Discounts............................... $ $
Proceeds, before expenses, to Autobytel.com.......... $ $
Proceeds, before expenses, to the selling
stockholders....................................... $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The selling stockholders have granted the underwriters a 30-day option to
purchase up to an additional 637,500 shares of common stock to cover any
over-allotments. If the underwriters exercise the over-allotment option in full,
these stockholders will receive $ from the proceeds.
BT ALEXS BROWN
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
, 1999
<PAGE> 3
GATEFOLD
- --------
Purchase Request Process utilizes easy-to-use online forms that enable consumers
to choose their desired vehicle and options. The purchase request is then routed
to the nearest Autobytel.com participating dealer, whom we expect to promptly
contact the customer with a haggle-free, competitive offer.
Research allows consumers to empower themselves by gathering up-to-date, useful
information regarding vehicles, vehicle pricing and other related topics from
Autobytel.com's comprehensive network of automobile information sources.
Dealer Real Time(tm) is a extranet used exclusively by Autobytel.com and its
participating dealers that delivers the purchase requests from consumers to
Autobytel.com dealers in real time. It notifies dealers when new purchase
requests have been received, enables dealers to efficiently manage the purchase
process and allows dealers to load their pre-owned vehicle inventories directly
to the network.
Pre-Owned Vehicle Purchasing is simplified through Autobytel.com's Pre-Owned
CyberStore, which enables consumers to search for vehicles according to specific
search parameters such as the price, make, model, mileage, year and location of
the vehicle. CyberStore locates and displays the description, location and
actual photograph of all vehicles that satisfy the search parameters.
INSIDE COVER
- ------------
New Cars
Consumers can shop for and select a new vehicle that specifically fits their
needs using Autobytel.com.
Pre-Owned CyberStore
Consumers can search for, view and select a certified, pre-owned vehicle through
CyberStore.
Research
Pricing information, consumer reports, "test drives" and up-to-date automotive
industry information help consumers make informed and intelligent buying
decisions.
Finance
Consumers can research loan and leasing information and receive online approval.
Insure
Consumers can receive insurance quotes and obtain approval online.
Rewards
Mobalist Rewards and its affiliate programs allow members to earn credits toward
the purchase of a new or pre-owned car through Autobytel.com.
Warranty
Consumers can purchase extended warranty and mechanical breakdown insurance
through our online affiliates.
My Area
Consumers can keep track of their current cars, watch expenses and plan future
"dream car" purchases through this personalized homepage.
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PROSPECTUS SUMMARY
In addition to this summary, you should read the more detailed information
appearing elsewhere in this prospectus, including the "Risk Factors" section and
the Consolidated Financial Statements and Notes thereto.
AUTOBYTEL.COM
We are a leading, branded Internet site for new and pre-owned vehicle
information and purchasing services. Through our Web site, www.autobytel.com,
consumers can research pricing, specifications and other information regarding
new and pre-owned vehicles. When consumers indicate they are ready to buy, they
can be connected to Autobytel.com's network of over 2,700 dealers in North
America, with each dealer representing a franchise for a particular vehicle
make. Dealers participate in our network by entering into non-exclusive
contracts with us. We expect our dealers to provide a haggle-free, competitive
offer. We provide our services free of charge to consumers and derive
substantially all of our revenues from fees paid by participating dealers.
We believe our services benefit both consumers and participating dealers in
the following ways:
- we supply consumers with information they can use to make an informed and
intelligent vehicle purchasing decision,
- we provide consumers a convenient buying experience,
- we provide consumers access to a broad range of related services such as
insurance, financing and leasing through our Web site,
- we reduce our participating dealers' costs by directing to them large
volumes of potential automotive buyers, and
- we train our dealers to appropriately deal with knowledgeable Internet
consumers.
We introduced our new vehicle purchasing services in May 1995 and our
Certified Pre-Owned CyberStore program in April 1997. Our new vehicle purchasing
service enables consumers to shop for and select a new vehicle through our Web
site by providing research on new vehicles such as pricing, features,
specifications and colors. When consumers indicate they are ready to buy, they
can complete a purchase request online. A purchase request is an online inquiry
a consumer makes to receive a price quote for a specific vehicle from one of the
dealers in our network. The CyberStore allows consumers to search for a
pre-owned vehicle according to the price, make, model, color, year and location
of the vehicle. The CyberStore locates and displays the descriptions, locations
and actual photographs of all vehicles that satisfy the consumers' search
parameters.
According to CNW Marketing/Research, an independent research organization,
United States consumers spent over $657 and $667 billion on new and pre-owned
vehicles representing the sale of over 60.0 and 60.3 million vehicles in 1997
and 1998, respectively. Although automotive retailing attracts significant
consumer dollars, we believe that consumers associate the traditional vehicle
buying experience with high-pressure sales tactics. In the United States, new
vehicles are traditionally sold through face-to-face, negotiated transactions at
approximately 49,000 dealerships franchised by manufacturers. Approximately 40%
of pre-owned vehicles are also sold through these dealerships. Our company was
founded with the objective of significantly improving the purchasing process for
consumers and dealers.
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Since inception, we have successfully expanded our dealer network to over
2,700 dealers and have directed approximately 2.5 million purchase requests to
our dealer network. During 1998, we directed over 1.3 million purchase requests
to our dealers. The dealers in our network use our online information platform,
the Dealer Real Time system. The Dealer Real Time system is an Internet-based
communications platform that provides dealers with immediate purchase request
information, the ability to track customers and purchase requests, and other
value-added features, including automatic uploading of pre-owned vehicle
inventory into our database. We believe that the Dealer Real Time system gives
dealers a competitive advantage compared to delivering purchase requests by fax.
We have developed strategic marketing, advertising, development and
distribution affiliations with other companies, including:
- Internet search engine providers, such as Excite, Inc.,
- cable service providers, such as MediaOne Interactive Services, Inc.,
- international automotive distributors, such as Inchcape Automotive
Limited and Bilia AB,
- Internet providers of vehicle pricing and specification information, such
as Edmund's Publications Corp., Kelley Blue Book, Pace Publications, Inc.
and IntelliChoice, Inc., and
- financing and insurance providers, such as Chase Manhattan Automotive
Finance Corporation, General Electric Capital Auto Financial Services,
Inc. and New Hampshire Insurance Corporation, a member company of the
American International Group.
We have received indications of interest from existing and potential
strategic investors, including companies with international automotive
operations, for the purchase of up to 250,000 shares at the initial public
offering price. We have entered into agreements with e-solutions, Inc., Intec,
Inc. and Trans Cosmos, Inc. to provide for the organization and establishment of
a joint venture in Japan and the license for the use of our name and systems.
Following this offering, our executive officers and directors will
beneficially own or control approximately 5,856,614 shares or 30% of the
outstanding shares of our common stock. In addition, after this offering, our
founders, Peter Ellis and John Bedrosian will beneficially own or control
approximately 19% and 17%, respectively, of the outstanding shares of our common
stock. If the underwriters' over-allotment option is exercised in full, our
founders will beneficially own or control approximately 17% and 16%,
respectively, of the outstanding shares of our common stock.
We are a Delaware corporation incorporated on May 17, 1996. We were
previously formed in Delaware in January 1995 as a limited liability company
under the name Auto-By-Tel LLC. Our principal executive offices are located at
18872 MacArthur Boulevard, Irvine, California 92612-1400, and our telephone
number is (949) 225-4500. Our Web site is located at www.autobytel.com.
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THE OFFERING
The information below is stated as of December 31, 1998. Investors should
be aware that the aggregate number of shares of common stock to be outstanding
after the offering does not include 2,859,340 shares subject to outstanding
options and 773,133 shares subject to outstanding warrants.
<TABLE>
<S> <C>
Common stock offered by Autobytel.com...
3,500,000 shares
Common stock offered by the selling
stockholders..........................
1,000,000 shares
Common stock to be outstanding after the
offering..............................
17,858,745 shares
Use of proceeds.........................
For working capital and general
corporate purposes
Nasdaq National Market symbol...........
"ABTL"
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
We have calculated pro forma net loss per share assuming the conversion on
their date of issuance of the outstanding preferred stock into common stock. The
as adjusted for the offering column reflects the receipt by Autobytel.com of the
estimated net proceeds of $66.8 million from our sale of common stock offered in
this offering.
<TABLE>
<CAPTION>
INCEPTION
(JANUARY 31,
1995) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1995 1996 1997 1998
------------ ------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Revenues................................ $ 274 $ 5,025 $ 15,338 $ 23,826
======= ======= ======== ========
Loss from operations.................... (1,030) (6,159) (17,415) (20,643)
------- ------- -------- --------
Net loss................................ $(1,030) $(6,035) $(16,810) $(19,398)
======= ======= ======== ========
Basic net loss per share................ $ (0.12) $ (0.73) $ (2.03) $ (2.30)
======= ======= ======== ========
Shares used in computing basic net loss
per share............................. 8,250 8,252 8,291 8,423
Pro forma basic net loss per share...... $ (0.12) $ (0.68) $ (1.53) $ (1.49)
======= ======= ======== ========
Shares used in computing pro forma basic
net loss per share.................... 8,250 8,849 10,967 13,008
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------
AS ADJUSTED
ACTUAL FOR THE OFFERING
-------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 27,984 $ 94,768
Working capital........................................... 23,436 90,220
Total assets.............................................. 34,207 100,991
Accumulated deficit....................................... (43,273) (43,273)
Stockholders' equity...................................... 25,868 92,652
</TABLE>
5
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RISK FACTORS
You should read the following risk factors carefully before purchasing our
common stock.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT NET LOSSES FOR THE FORESEEABLE
FUTURE. IF WE CONTINUE TO LOSE MONEY, OUR OPERATIONS WILL NOT BE FINANCIALLY
VIABLE.
We were formed in January 1995 as Auto-By-Tel LLC, and first received
revenues from operations in March 1995. We therefore have a limited operating
history upon which you may evaluate our operations and future prospects. Because
of the recent emergence of the Internet-based vehicle information and purchasing
industry, none of our executives has significant experience in the industry.
This limited operating history and management experience means it is difficult
for us to predict future operating results. We have incurred losses every
quarter since inception and expect to continue to incur losses for the
foreseeable future. We had an accumulated deficit of $43.3 million and $23.9
million as of December 31, 1998 and 1997, respectively. Our potential for future
profitability must be considered in light of the risks, uncertainties, expenses
and difficulties frequently encountered by companies in the early stages of
development, particularly companies in new and rapidly evolving markets, such as
the market for Internet commerce. To achieve profitability, we must, among other
things:
- generate increased vehicle buyer traffic to our Web site,
- continue to send new and pre-owned vehicle purchase requests to dealers
that result in sufficient dealer transactions to justify our fees,
- continue to expand the number of dealers in our network and enhance the
quality of dealers,
- respond to competitive developments,
- increase our brand name visibility,
- successfully introduce new services,
- continue to attract, retain and motivate qualified personnel, and
- continue to upgrade and enhance our technologies to accommodate expanded
service offerings and increased consumer traffic.
We cannot be certain that we will be successful in achieving these goals.
IF OUR DEALER TURNOVER INCREASES, OUR DEALER NETWORK AND REVENUE DERIVED FROM
THIS NETWORK MAY DECREASE.
Substantially all of our revenues are derived from fees paid by our network
of subscribing dealerships. If dealer turnover increases and we are unable to
add new dealers to mitigate any turnover, our revenues will decrease as our
network of dealers decreases. If the number of dealers in our network declines
our revenues may decrease and our business, results of operations and financial
condition will be materially and adversely affected. A material factor affecting
dealer turnover is our ability to provide dealers with high quality purchase
requests. High quality purchase requests are those that result in high closing
ratios. Closing ratio is the ratio of the number of vehicles purchased at a
dealer generated from purchase requests to the total number of purchase requests
sent to that dealer. All of our subscribing dealerships have entered into
written marketing agreements with us having a stated term of one year or five
years, but they are cancelable at the option of either party upon 30 days
notice. We cannot assure that dealers will not terminate their agreements with
us. Subscribing dealers may terminate their relationship with us for any reason,
including an
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unwillingness to accept our subscription terms or in order to join alternative
marketing programs. Our business is dependent upon our ability to attract and
retain qualified new and pre-owned vehicle dealers. During 1998, 556 subscribing
dealers in the United States terminated their affiliation with us or were
terminated by us. During 1998 we also added 1,323 subscribing dealers to our
dealership network. In order for us to grow or maintain our dealer network, we
may need to reduce dealer turnover.
WE MAY LOSE SUBSCRIBING DEALERS IF WE RECONFIGURE DEALER TERRITORIES. IF WE LOSE
DEALERS, WE WILL LOSE THE REVENUES ASSOCIATED WITH THOSE DEALERS.
If the volume of purchase requests increases, we may need to reduce or
reconfigure the exclusive territories currently assigned to dealerships in order
to serve consumers more effectively. If a dealer is unwilling to accept a
reduction or reconfiguration of its territory, it may terminate its relationship
with us. The loss of dealers will cause a subsequent reduction in revenue unless
we are able to mitigate this loss by adding new dealers or increasing the fees
we receive from our other dealers. A dealer also could sue us to prevent such
reduction or reconfiguration, or collect damages from us. We have experienced
one such lawsuit -- for more details, see the section in this prospectus
entitled "Business -- Litigation." A material decrease in the number of dealers
subscribing to our network or litigation with dealers could have a material
adverse effect on our business, results of operations and financial condition.
WE RELY HEAVILY ON OUR PARTICIPATING DEALERS TO PROMOTE OUR BRAND VALUE BY
PROVIDING HIGH QUALITY SERVICES TO OUR CONSUMERS. IF DEALERS DO NOT PROVIDE OUR
CONSUMERS HIGH QUALITY SERVICES, OUR BRAND VALUE WILL DIMINISH AND THE NUMBER OF
CONSUMERS WHO USE OUR SERVICES MAY DECLINE CAUSING A DECREASE IN OUR REVENUES.
Promotion of our brand value depends on our ability to provide consumers a
high quality experience for purchasing vehicles throughout the purchasing
process. If our dealers do not provide consumers with high quality service, the
value of our brand could be damaged and the number of consumers using our
services may decrease. We devote significant efforts to train participating
dealerships in practices that are intended to increase consumer satisfaction.
Our inability to train dealers effectively, or the failure by participating
dealers to adopt recommended practices, respond rapidly and professionally to
vehicle inquiries, or sell and lease vehicles in accordance with our marketing
strategies, could result in low consumer satisfaction, damage our brand name and
could materially and adversely affect our business, results of operations and
financial condition.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS WHICH
MAY MAKE IT DIFFICULT FOR INVESTORS TO PREDICT OUR FUTURE PERFORMANCE.
Our quarterly operating results may fluctuate due to many factors. Our
expense levels are based in part on our expectations of future revenues which
may vary significantly. We plan our business operations based on increased
revenues and if our revenues do not increase faster than our expenses, our
business, results of operations and financial condition will be materially and
adversely affected. Other factors that may adversely affect our quarterly
operating results include:
- our ability to retain existing dealers, attract new dealers and maintain
dealer and customer satisfaction,
- the announcement or introduction of new or enhanced sites, services and
products by us or our competitors,
- general economic conditions and economic conditions specific to the
Internet, online commerce or the automobile industry,
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- a decline in the usage levels of online services and consumer acceptance
of the Internet and commercial online services for the purchase of
consumer products and services such as those offered by us,
- our ability to upgrade and develop our systems and infrastructure and to
attract new personnel in a timely and effective manner,
- the level of traffic on our Web site and other sites that refer traffic
to our Web site,
- technical difficulties, system downtime or Internet brownouts,
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure,
- governmental regulation, and
- unforeseen events affecting the industry.
SEASONALITY IS LIKELY TO CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS. INVESTORS
MAY NOT BE ABLE TO PREDICT OUR ANNUAL OPERATING RESULTS BASED ON A QUARTER TO
QUARTER COMPARISON OF OUR OPERATING RESULTS.
To date, our quarter to quarter growth in revenues have offset any effects
due to seasonality. However, we expect our business to experience seasonality as
it matures. If this occurs, investors may not be able to predict our annual
operating results based on a quarter to quarter comparison of our operating
results. Seasonality in the automotive industry, Internet and commercial online
service usage and advertising expenditures is likely to cause fluctuations in
our operating results and could have a material adverse effect on our business,
operating results and financial condition. We anticipate that purchase requests
will typically increase during the first and third quarters when new vehicle
models are introduced and will typically decline during the second and fourth
quarters. Internet and commercial online service usage and the growth rate of
such usage typically declines during the summer.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE. OUR MARKET IS COMPETITIVE NOT ONLY BECAUSE THE INTERNET HAS MINIMAL
BARRIERS TO ENTRY, BUT ALSO BECAUSE WE COMPETE DIRECTLY WITH OTHER COMPANIES IN
THE OFFLINE ENVIRONMENT.
Our vehicle purchasing services compete against a variety of Internet and
traditional vehicle purchasing services and automotive brokers. Therefore, we
are affected by the competitive factors faced by both Internet commerce
companies as well as traditional, offline companies within the automotive and
automotive-related industries. The market for Internet-based commercial services
is new, and competition among commercial Web sites is expected to increase
significantly in the future. Our business is characterized by minimal barriers
to entry, and new competitors can launch a competitive service at relatively low
cost. To compete successfully as an Internet-based commercial entity, we must
significantly increase awareness of our services and brand name. Failure to
achieve these objectives will cause our revenues to decline and would have a
material adverse effect on our business, results of operations and financial
condition.
We compete with other entities which maintain similar commercial Web sites
including Autoweb.com, Cendant Membership Service, Inc.'s AutoVantage, Microsoft
Corporation's Carpoint and Stoneage Corporation. Republic Industries, Inc., a
large consolidator of dealers, has announced its intention to launch a Web site
for marketing vehicles. We also compete indirectly against vehicle brokerage
firms and affinity programs
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offered by several companies, including Costco Wholesale Corporation and
Wal-Mart Stores, Inc. In addition, all major vehicle manufacturers have their
own Web sites and many have recently launched or announced plans to launch
online buying services, such as General Motors Corporation's BuyPower. We also
compete with vehicle insurers, lenders and lessors as well as other dealers that
are not part of our network. Such companies may already maintain or may
introduce Web sites which compete with ours.
We believe that the principal competitive factors in the online market are:
- brand recognition,
- speed and quality of fulfillment,
- variety of value-added services,
- ease of use,
- customer satisfaction,
- quality of service, and
- technical expertise.
We cannot assure that we can compete successfully against current or future
competitors, many of which have substantially more capital, existing brand
recognition, resources and access to additional financing. In addition,
competitive pressures may result in increased marketing costs, decreased Web
site traffic or loss of market share or otherwise may materially and adversely
affect our business, results of operations and financial condition.
IF ANY OF OUR RELATIONSHIPS WITH INTERNET SEARCH ENGINES OR ONLINE AUTOMOTIVE
INFORMATION PROVIDERS TERMINATES, OUR PURCHASE REQUEST VOLUME COULD DECLINE. IF
OUR PURCHASE REQUEST VOLUME DECLINES, OUR PARTICIPATING DEALERS MAY NOT BE
SATISFIED WITH OUR SERVICES AND MAY TERMINATE THEIR RELATIONSHIP WITH US OR
FORCE US TO DECREASE THE FEES WE CHARGE FOR OUR SERVICE. IF THIS OCCURS, OUR
REVENUES WOULD DECREASE.
We depend on a number of strategic relationships to direct a substantial
amount of purchase requests and traffic to our Web site. The termination of any
of these relationships or any significant reduction in traffic to Web sites on
which our services are advertised or offered, or the failure to develop
additional referral sources, would cause our purchase request volume to decline.
Since our dealers would be receiving fewer purchase requests, they may no longer
be satisfied with our service and may terminate their relationships with us or
force us to decrease the fees we charge for our services. If our dealers
terminate their relationship with us or force us to decrease the fees we charge
for our services, our revenues will decline which will have a material adverse
effect on our business, results of operations and financial condition. We
receive a significant number of purchase requests through a limited number of
Internet search engines, such as Excite, and online automotive information
providers, such as Edmund's and Kelley Blue Book. For example, in 1997 and 1998,
approximately 49% and 34%, respectively, of our purchase requests came through
Edmund's. We may not be able to maintain our relationship with Edmund's or other
online service providers or find alternative, comparable marketing partners
capable of originating significant numbers of purchase requests on terms
satisfactory to us. In addition, we periodically negotiate revisions to existing
agreements and these revisions could increase our costs in future periods. A
number of our agreements with online service providers may be terminated without
cause. Also, our agreement with Excite relating to our sponsorship of Netscape
Communications Corporation's NetCenter Auto Channel is conditioned on Excite's
NetCenter agreement with Netscape remaining in effect. The
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NetCenter agreement between Excite and Netscape can be terminated in the event
of a change in control which may be triggered if America Online's proposed
acquisition of Netscape occurs.
IF WE CAN NOT BUILD STRONG BRAND LOYALTY OUR BUSINESS MAY SUFFER.
We believe that the importance of brand recognition will increase as more
companies engage in commerce over the Internet. Development and awareness of the
Autobytel.com brand will depend largely on our ability to obtain a leadership
position in Internet commerce. If dealers do not perceive us as an effective
channel for increasing vehicle sales, or consumers do not perceive us as
offering reliable information concerning new and pre-owned vehicles, as well as
referrals to high quality dealers, in a user-friendly manner that reduces the
time spent for vehicle purchases, we will be unsuccessful in promoting and
maintaining our brand. Our brand may not be able to gain widespread acceptance
among consumers or dealers. Our failure to develop our brand sufficiently would
have a material adverse effect on our business, results of operations and
financial condition.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT, TRAIN AND RETAIN
ADDITIONAL HIGHLY QUALIFIED SALES AND MARKETING, MANAGERIAL AND TECHNICAL
PERSONNEL, OUR BUSINESS MAY SUFFER.
Our future success depends on our ability to identify, hire, train and
retain highly qualified sales and marketing, managerial and technical personnel.
In addition, as we introduce new services we will need to hire a significant
number of personnel. Competition for such personnel is intense, and we may not
be able to attract, assimilate or retain such personnel in the future. The
inability to attract and retain the necessary managerial, technical and sales
and marketing personnel could have a material adverse effect on our business,
results of operations and financial condition.
Our business and operations are substantially dependent on the performance
of our executive officers and key employees, some of whom are employed on an
at-will basis and all of whom have worked together for only a short period of
time. We maintain "key person" life insurance in the amount of $3.0 million on
the life of Mark W. Lorimer, our Chief Executive Officer and President. The loss
of the services of Mr. Lorimer or Ann Marie Delligatta, Executive Vice President
and Chief Operating Officer, or one or more of our other executive officers or
key employees could have a material adverse effect on our business, results of
operations and financial condition.
WE ARE A NEW BUSINESS IN A NEW INDUSTRY AND NEED TO MANAGE OUR GROWTH AND OUR
ENTRY INTO NEW BUSINESS AREAS IN ORDER TO AVOID INCREASED EXPENSES WITHOUT
CORRESPONDING REVENUES.
We are constantly expanding our operations and introducing new services to
consumers and dealers in order to establish ourselves as a leader in the
evolving market for Internet-based vehicle purchasing services. We also intend
to enter into new foreign markets. The growth of our operations requires us to
increase expenditures before we generate revenues. For example, we need to hire
personnel to oversee the introduction of new services before we generate revenue
from these services. Our inability to generate satisfactory revenues from such
expanded services to offset costs could have a material adverse effect on our
business, financial condition and results of operations. As of December 31,
1998, we had 180 employees, compared to 159 employees as of December 31, 1997,
and 73 employees as of December 31, 1996.
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We believe establishing industry leadership also requires us to:
- test, introduce and develop new services and products, including
enhancing our Web site,
- expand the breadth of products and services offered,
- expand our market presence through relationships with third parties, and
- acquire new or complementary businesses, products or technologies.
We cannot assure you that we can successfully manage these tasks.
IF FEDERAL OR STATE FRANCHISE LAWS APPLY TO US WE MAY BE REQUIRED TO MODIFY OR
ELIMINATE OUR MARKETING PROGRAMS. IF WE ARE UNABLE TO MARKET OUR SERVICES IN THE
MANNER WE CURRENTLY DO OUR REVENUES MAY DECREASE AND OUR BUSINESS MAY SUFFER.
We believe that neither our relationship with our dealers nor our dealer
subscription agreements constitute "franchises" under federal or state franchise
laws and that we are not subject to the coverage of state and motor vehicle
dealer licensing laws. However, in the event that any state's regulatory
requirements relating to franchises or our method of business impose additional
requirements on us or include us within an industry-specific regulatory scheme,
we may be required to modify our marketing programs in such states in a manner
which undermines the program's attractiveness to consumers or dealers, we may
become subject to fines or other penalties or if we determine that the licensing
and related requirements are overly burdensome, we may elect to terminate
operations in such state. In each case, our revenues may decline and our
business, results of operations and financial condition could be materially and
adversely affected.
A Federal district court in Michigan has ruled that our dealer subscription
agreement is not a "franchise" under Michigan law. However, if our relationship
or written agreement with our dealers were found to be a "franchise" under
federal or state franchise laws, then we could be subjected to other
regulations, such as franchise disclosure and registration requirements and
limitations on our ability to effect changes in our relationships with our
dealers. We also believe that our dealer marketing service does not qualify as
an automobile brokerage activity and therefore state broker licensing
requirements do not apply to us. In response to Texas Department of
Transportation concerns, we modified our marketing program in that state to
include a pricing model under which all subscribing dealerships in Texas are
charged uniform fees based on the population density of their particular
geographic area and to make our program open to all dealerships who wish to
apply.
IF FINANCIAL BROKER AND INSURANCE LICENSING REQUIREMENTS APPLY TO US IN STATES
WHERE WE ARE NOT CURRENTLY LICENSED, WE WILL BE REQUIRED TO OBTAIN ADDITIONAL
LICENSES AND OUR BUSINESS MAY SUFFER.
We currently hold financial broker licenses in the states of Florida,
Indiana, Rhode Island and Wisconsin and have applied for renewals in the states
of California and Colorado. If we are required to be licensed elsewhere, it may
result in an expensive and time-consuming process that could divert the effort
of management away from day-to-day operations. In the event other states require
us to be licensed and we are unable to do so, or are otherwise unable to comply
with regulations required by changes in current operations or the introduction
of new services, we could be subject to fines or other penalties, and our
business, results of operations and financial condition could be materially and
adversely affected.
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We provide a link on our Web site to an online insurance application
program offered by the American International Group. We receive fees from a
member company of the American International Group in connection with this
advertising activity. We do not believe that this activity requires us to be
licensed under state insurance laws. The use of the Internet in the marketing of
insurance products, however, is a relatively new practice. It is not clear
whether or to what extent; state insurance licensing laws apply to activities
similar to ours. Given these uncertainties, we currently hold, through a
wholly-owned subsidiary, insurance agent licenses in California, Indiana,
Nebraska, New Jersey, and Utah. We have applied for insurance agent licenses in
the remaining thirty-two states that issue corporate licensing and are awaiting
approval. In the event other states require us to be licensed and we are unable
to do so, or are otherwise unable to comply with regulations required by changes
in current operations or the introduction of new services, we could be subject
to fines or other penalties, and our business, results of operations and
financial condition could be materially and adversely affected.
INTERNET COMMERCE HAS YET TO ATTRACT SIGNIFICANT REGULATION. GOVERNMENT
REGULATIONS MAY RESULT IN ADMINISTRATIVE MONETARY FINES, PENALTIES OR TAXES THAT
MAY REDUCE OUR FUTURE EARNINGS.
There are currently few laws or regulations that apply directly to the
Internet. Because our business is dependent on the Internet, the adoption of new
local, state, national or international laws or regulations may decrease the
growth of Internet usage or the acceptance of Internet commerce which could, in
turn, decrease the demand for our services and increase our costs or otherwise
have a material adverse effect on our business, results of operations and
financial condition.
Tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in Internet commerce. New state
tax regulations may subject us to additional state sales, use and income taxes.
EVOLVING GOVERNMENT REGULATIONS MAY REQUIRE FUTURE LICENSING WHICH COULD
INCREASE ADMINISTRATIVE COSTS OR ADVERSELY AFFECT OUR REVENUES.
In a regulatory climate that is uncertain, our operations may be subject to
direct and indirect adoption, expansion or reinterpretation of various domestic
and foreign laws and regulations. Compliance with these future laws and
regulations may require us to obtain appropriate licenses at an undeterminable
and possibly significant initial monetary and annual expense. These additional
monetary expenditures may increase future overhead, thereby potentially reducing
our future results of operations.
We have identified what we believe are the areas of domestic government
regulation, which if changed, would be costly to us. These laws and regulations
include franchise laws; motor vehicle brokerage licensing laws; insurance
licensing laws; and motor vehicle dealership licensing laws, which may be
applicable to aspects of our business. There could be laws and regulations
applicable to our business which we have not identified or which, if changed,
may be costly to us.
The introduction of new services and expansion of our operations to foreign
countries may require us to comply with additional, yet undetermined, laws and
regulations. Compliance may require obtaining appropriate business licenses,
filing of bonds, appointment of foreign agents and periodic business reporting
activity. The failure to adequately comply with these future laws and
regulations may delay or possibly prevent some of our products or services from
being offered in a particular foreign country, thereby having an adverse affect
on our results of operations.
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OUR SUCCESS IS DEPENDENT ON OUR KEEPING PACE WITH ADVANCES IN TECHNOLOGY. IF WE
ARE UNABLE TO KEEP PACE WITH ADVANCES IN TECHNOLOGY, CONSUMERS MAY STOP USING
OUR SERVICES AND OUR REVENUES WILL DECREASE.
The Internet and electronic commerce markets are characterized by rapid
technological change, changes in user and customer requirements, frequent new
service and product introductions embodying new technologies and the emergence
of new industry standards and practices that could render our existing Web site
and technology obsolete. If we are unable to adapt to changing technologies, our
business, results of operations and financial condition could be materially and
adversely affected. Our performance will depend, in part, on our ability to
continue to enhance our existing services, develop new technology that addresses
the increasingly sophisticated and varied needs of our prospective customers,
license leading technologies and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. The
development of our Web site, Dealer Real Time system and other proprietary
technology entails significant technical and business risks. We may not be
successful in using new technologies effectively or adapting our Web site,
Dealer Real Time system, or other proprietary technology to customer
requirements or to emerging industry standards.
WE ARE VULNERABLE TO COMMUNICATIONS SYSTEM INTERRUPTIONS BECAUSE ALL OF OUR
PRIMARY SERVERS ARE LOCATED IN A SINGLE LOCATION. IF COMMUNICATIONS TO THAT
LOCATION WERE INTERRUPTED, OUR OPERATIONS COULD BE ADVERSELY AFFECTED.
We host our Web site and Dealer Real Time system at our corporate
headquarters in Irvine, California. Although we maintain redundant local offsite
backup servers, all of our primary servers are located at our corporate
headquarters and are vulnerable to interruption by damage from fire, earthquake,
flood, power loss, telecommunications failure, break-ins and other events beyond
our control. In the event that we experience significant system disruptions, our
business, results of operations and financial condition would be materially and
adversely affected. We have, from time to time, experienced periodic systems
interruptions and anticipate that such interruptions will occur in the future.
We maintain business interruption insurance which pays up to $6 million for the
actual loss of business income sustained due to the suspension of operations as
a result of direct physical loss of or damage to property at our offices.
However, in the event of a prolonged interruption, this business interruption
insurance may not be sufficient to fully compensate us for the resulting losses.
INTERNET COMMERCE IS NEW AND EVOLVING WITH FEW PROFITABLE BUSINESS MODELS. WE
CANNOT ASSURE THAT OUR BUSINESS MODEL WILL BE PROFITABLE.
The market for Internet-based purchasing services has only recently begun
to develop and is rapidly evolving. While many Internet commerce companies have
grown in terms of revenue, few are profitable. We can not assure that we will be
profitable. As is typical for a new and rapidly evolving industry, demand and
market acceptance for recently introduced services and products over the
Internet are subject to a high level of uncertainty and there are few proven
services and products. Moreover, since the market for our services is new and
evolving, it is difficult to predict the future growth rate, if any, and size of
this market.
IF CONSUMERS DO NOT ADOPT INTERNET COMMERCE AS A MAINSTREAM MEDIUM OF COMMERCE,
OUR REVENUES MAY NOT GROW AND OUR EARNINGS MAY SUFFER.
The success of our services will depend upon the adoption of the Internet
by consumers and dealers as a mainstream medium for commerce. While we believe
that our services offer significant advantages to consumers and dealers, there
can be no assurance
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that widespread acceptance of Internet commerce in general, or of our services
in particular, will occur. Our success assumes that consumers and dealers who
have historically relied upon traditional means of commerce to purchase or lease
vehicles, and to procure vehicle financing and insurance, will accept new
methods of conducting business and exchanging information. In addition, dealers
must be persuaded to adopt new selling models and be trained to use and invest
in developing technologies. Moreover, critical issues concerning the commercial
use of the Internet, such as, ease of access, security, reliability, cost, and
quality of service, remain unresolved and may impact the growth of Internet use.
If the market for Internet-based vehicle marketing services fails to develop,
develops slower than expected or becomes saturated with competitors, or if our
services do not achieve market acceptance, our business, results of operations
and financial condition will be materially and adversely affected.
THE PUBLIC MARKET FOR OUR COMMON STOCK MAY BE VOLATILE, ESPECIALLY SINCE MARKET
PRICES FOR INTERNET-RELATED AND TECHNOLOGY STOCKS HAVE OFTEN BEEN UNRELATED TO
OPERATING PERFORMANCE.
Prior to this offering, there has been no public market for our common
stock. We cannot assure that an active trading market will develop or be
sustained or that the market price of the common stock will not decline. Even if
an active trading market does develop, the market price of the common stock is
likely to be highly volatile and could be subject to wide fluctuations in
response to factors such as:
- actual or anticipated variations in our quarterly operating results,
- announcements of new product or service offerings,
- technological innovations,
- competitive developments,
- changes in financial estimates by securities analysts,
- conditions and trends in the Internet and electronic commerce industries,
- adoption of new accounting standards affecting the automotive industry,
and
- general market conditions and other factors.
Further, the stock markets, and in particular the Nasdaq National Market,
have experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many technology companies and
have often been unrelated or disproportionate to the operating performance of
such companies. The trading prices of many technology companies' stocks are at
or near historical highs. We cannot assure that such high trading prices will be
sustained. These broad market factors may adversely affect the market price of
our common stock. In addition, general economic, political and market conditions
such as recessions, interest rates or international currency fluctuations, may
adversely affect the market price of the common stock. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been instituted against companies with
publicly traded securities. Such litigation, if instituted, could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on our business, results of operations and
financial condition.
WE FACE UNCERTAINTIES WITH CHANGING LEGISLATION IN THE AUTOMOTIVE INDUSTRY WHICH
COULD REQUIRE INCREASED REGULATORY AND LOBBYING COSTS AND MAY HARM OUR BUSINESS.
Our purchasing service may result in changing the way vehicles are sold
which may be viewed as threatening by new and pre-owned vehicle dealers who do
not subscribe to
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the Autobytel.com program. Such businesses are often represented by influential
lobbying organizations, and such organizations or other persons may propose
legislation which could impact the evolving marketing and distribution model
which our service promotes. Should current laws be changed or new laws passed,
our business, results of operations and financial condition could be materially
and adversely affected. As we introduce new services, we may need to comply with
additional licensing regulations and regulatory requirements.
To date, we have not spent significant resources on lobbying or related
government affairs issues but we may need to do so in the future. A significant
increase in the amount we spend on lobbying or related activities would have a
material adverse effect on our results of operations and financial condition.
OUR INTERNATIONAL EXPANSION MAY REQUIRE US TO COMPLY WITH BURDENSOME REGULATORY,
TARIFF AND LICENSING REQUIREMENTS. OUR NEED TO COMPLY WITH BURDENSOME
GOVERNMENTAL REQUIREMENTS MAY ADVERSELY AFFECT OUR ABILITY TO GROW OUR BUSINESS.
We intend to expand our new vehicle purchasing service to foreign markets
through licensing our technology, business processes and tradenames and by
establishing relationships with vehicle dealers and strategic partners located
in foreign markets.
By expanding our operations to various other countries, we may become
subject to laws or treaties that regulate the marketing, distribution and sale
of motor vehicles. We will need to spend our resources to determine whether the
laws of the countries in which we seek to operate require us to modify, or
prohibit the use of, our Autobytel.com system. In addition, the laws of other
countries may impose licensing, bonding or similar requirements on us as a
condition to doing business in these countries.
WE HAVE LIMITED EXPERIENCE IN PROVIDING OUR INTERNET-BASED MARKETING SERVICE
ABROAD. WE MAY NOT BE SUCCESSFUL IN ESTABLISHING OUR BUSINESS ABROAD WHICH MAY
LIMIT OUR FUTURE GROWTH.
We have had limited experience in providing our Internet-based marketing
service abroad and we cannot be certain that we will be successful in
introducing or marketing our services abroad. In addition, there are risks
inherent in conducting business in international markets, such as:
- changes in political conditions,
- regulatory requirements,
- potentially weaker intellectual property protections,
- tariffs and other trade barriers, fluctuations in currency exchange
rates, potentially adverse tax consequences,
- difficulties in managing or overseeing foreign operations, and
- educating consumers and dealers who may be unfamiliar with the benefits
of online marketing and commerce.
One or more of such factors may have a material adverse effect on our current or
future international operations and, consequently, on our business, results of
operations and financial condition.
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OUR COMPUTER INFRASTRUCTURE MAY BE VULNERABLE TO SECURITY BREACHES. ANY SUCH
PROBLEMS COULD JEOPARDIZE CONFIDENTIAL INFORMATION TRANSMITTED OVER THE
INTERNET, CAUSE INTERRUPTIONS IN OUR OPERATIONS OR CAUSE US TO HAVE LIABILITY TO
THIRD PERSONS.
Our computer infrastructure is potentially vulnerable to physical or
electronic computer break-ins, viruses and similar disruptive problems and
security breaches. Any such problems or security breach could cause us to have
liability to one or more third parties and disrupt all or part of our
operations. Any of these events would have a material adverse effect on our
business, results of operations and financial condition. A party who is able to
circumvent our security measures could misappropriate proprietary information,
jeopardize the confidential nature of information transmitted over the Internet
or cause interruptions in our operations. Concerns over the security of Internet
transactions and the privacy of users could also inhibit the growth of the
Internet in general, particularly as a means of conducting commercial
transactions. To the extent that our activities or those of third party
contractors involve the storage and transmission of proprietary information such
as personal financial information, security breaches could expose us to a risk
of financial loss, litigation and other liabilities. Our insurance does not
currently protect against such losses.
WE DEPEND ON CONTINUED TECHNOLOGICAL IMPROVEMENTS IN OUR SYSTEMS AND IN THE
INTERNET OVERALL. IF WE ARE UNABLE TO HANDLE AN UNEXPECTEDLY LARGE INCREASE IN
VOLUME OF CONSUMERS USING OUR WEB SITE, WE CANNOT ASSURE OUR CONSUMERS OR
DEALERS THAT PURCHASE REQUESTS WILL BE EFFICIENTLY PROCESSED AND OUR BUSINESS
MAY SUFFER.
If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it by such potential growth. The
Internet may not prove to be a viable commercial medium because of inadequate
development of the necessary infrastructure, timely development of complementary
products such as high speed modems, delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet activity
or increased government regulation.
An unexpectedly large increase in the volume or pace of traffic on our Web
site or the number of orders placed by customers may require us to expand and
further upgrade our technology, transaction-processing systems and network
infrastructure. We may not be able to accurately project the rate or timing of
increases, if any, in the use of our Web site or expand and upgrade our systems
and infrastructure to accommodate such increases. In addition, we cannot assure
that our dealers will efficiently process purchase requests.
WE HAVE NO SPECIFIC PLAN FOR THE PROCEEDS OF THE OFFERING AND OUR MANAGEMENT MAY
ALLOCATE OUR PORTION OF THE PROCEEDS TO USES THAT COULD ADVERSELY AFFECT OUR
STOCKHOLDERS.
We currently have no specific plans for the net proceeds of the offering.
As a consequence, our management will have the discretion to allocate this
portion of the net proceeds of this offering to uses that the stockholders may
not deem desirable. We may not be able to invest these proceeds to yield a
significant return. Substantially all of the proceeds of the offering will be
invested in short-term, interest-bearing, investment grade securities for an
indefinite period of time.
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OUR BUSINESS COULD BE INTERRUPTED BY YEAR 2000 PROBLEMS IF OUR VENDORS,
CONSUMERS OR DEALERS ARE UNABLE TO CONVERT THEIR SYSTEMS. THEIR FAILURE TO
CONVERT THEIR SYSTEMS MAY AFFECT THE ABILITY OF OUR CONSUMERS AND DEALERS TO
ACCESS OUR WEB SITE OR THE DEALER REAL TIME SYSTEM. OUR BUSINESS WOULD SUFFER IF
SUCH FAILURE PREVENTED ACCESS TO OUR ONLINE SYSTEMS.
Because many computer applications have been written using two digits
rather than four to define the applicable year, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
"Year 2000 issue" could result in system failures or miscalculations causing
disruptions of operations, including disruptions of our Web site, the Dealer
Real Time system or normal business activities.
We cannot predict the extent to which the Year 2000 issue will affect our
vendors, consumers or dealers, or the extent to which we would be vulnerable if
such parties fail to resolve any Year 2000 issues on a timely basis. The failure
of such parties to convert their systems on a timely basis or effect a
conversion that is compatible with our systems in order to avoid any Year 2000
issues could have a material adverse effect on us. In addition, to the extent
our customers are unable to access our Web site or dealers are unable to access
the Dealer Real Time system, such failures would have a material adverse effect
on our business, results of operations, or financial condition.
The worst-case scenario related to the Year 2000 issue would be an overall
failure of the national Internet and telecommunications infrastructure. If this
failure were to prevent users and dealers from accessing the Internet, we would
attempt to provide alternative means to allow users to connect to our servers.
Any national disruption to the telecommunications systems used by our business
will have a material adverse effect on our business, results of operations, or
financial condition.
MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS COULD
IMPAIR OUR COMPETITIVE POSITION.
Our ability to compete depends upon our proprietary systems and technology.
While we rely on trademark, trade secret and copyright law, confidentiality
agreements and technical measures to protect our proprietary rights, we believe
that the technical and creative skills of our personnel, continued development
of our proprietary systems and technology, brand name recognition and reliable
Web site maintenance are more essential in establishing and maintaining a
leadership position and strengthening our brand. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy aspects of our
services or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our proprietary rights is difficult. We cannot
assure that the steps taken by us will prevent misappropriation of technology or
that the agreements entered into for that purpose will be enforceable.
Misappropriation of our intellectual property or potential litigation would have
a material adverse effect on our business, results of operations and financial
condition. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our products and
services are made available online. In addition, litigation may be necessary in
the future to enforce or protect our intellectual property rights or to defend
against claims or infringement or invalidity. As part of our confidentiality
procedures, we generally enter into agreements with our employees and
consultants and limit access to our trade secrets and technology.
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OUR FOUNDERS, OFFICERS AND DIRECTORS AND THEIR AFFILIATES HAVE SUBSTANTIAL
CONTROL OF OUR VOTING STOCK AND HAVE THE ABILITY TO MAKE DECISIONS THAT COULD
ADVERSELY AFFECT STOCKHOLDERS. SUCH DECISIONS COULD ADVERSELY AFFECT OUR STOCK
PRICE.
The control of a large amount of our stock by insiders could have an
adverse effect on the market price of our common stock. Following this offering,
our executive officers and directors will beneficially own or control
approximately 5,856,614 shares or 30% of the outstanding shares of our common
stock. In addition, after this offering, our founders, Peter Ellis and John
Bedrosian will beneficially own or control approximately 19% and 17%,
respectively, of the outstanding shares of our common stock. If the
underwriters' over-allotment option is exercised in full, our founders will
beneficially own or control approximately 17% and 16%, respectively, of the
outstanding shares of our common stock. Our officers, directors, founders and
their affiliates, assuming they vote together, will have the ability to control
the election of our board of directors and the outcome of corporate actions
requiring stockholder approval, including mergers and other changes of corporate
control, going private transactions and other extraordinary transactions.
SUBSTANTIAL SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY
DEPRESS OUR STOCK PRICE. SINCE THE MARKET PRICES FOR INTERNET-RELATED STOCKS ARE
LIKELY TO REMAIN VOLATILE, OUR STOCK PRICE MAY BE MORE ADVERSELY AFFECTED THAN
OTHER COMPANIES BY SUCH FUTURE SALES.
Sale of substantial numbers of shares of common stock in the public market
could adversely affect the market price of our common stock and make it more
difficult for us to raise funds through equity offerings in the future. A
substantial number of outstanding shares of common stock and shares of common
stock issuable upon exercise of outstanding stock options will become available
for resale in the public market at prescribed times. Of the 17,858,745 shares to
be outstanding after the offering, the 4,500,000 shares offered hereby will be
eligible for immediate sale in the public market without restriction. Other
outstanding shares of common stock are restricted by 180-day lock-up agreements
with the underwriters, and 6,590,112 shares held by the selling stockholders are
restricted by 270-day lock-up agreements with the underwriters. Upon the
expiration of these lock-up agreements, such shares of common stock will become
eligible for sale in the public market in accordance with the provisions of
Rules 144 and 701 under the Securities Act and any contractual restrictions on
their transfer, as applicable. BT Alex. Brown Incorporated may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to lock-up agreements. Upon completion of the offering, the
holders of approximately 12,997,957 shares of common stock will be entitled to
certain registration rights with respect to such shares until such time as the
holders of such common stock may sell such shares under Rule 144 of the
Securities Act. In addition, we intend to register the shares of common stock
reserved for issuance under our 1996 Stock Option Plan, 1996 Stock Incentive
Plan, 1996 Employee Stock Purchase Plan, 1998 Stock Option Plan and 1999 Stock
Option Plan after the offering.
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING WE MAY NOT BE
ABLE TO CONTINUE TO OPERATE OUR BUSINESS.
We currently anticipate that the net proceeds of this offering that we will
receive, together with our cash, cash equivalents and short-term investments,
will be sufficient to meet our anticipated needs for working capital and other
cash requirements for at least twelve months following the effective date of
this prospectus. We may need to raise
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additional funds sooner, however, in order to fund more rapid expansion, to
develop new or enhance existing services or products, to respond to competitive
pressures or to acquire complementary products, businesses or technologies.
There can be no assurance that additional financing will be available on terms
favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, our ability to fund our expansion, take advantage
of potential acquisition opportunities, develop or enhance services or products
or respond to competitive pressures would be significantly limited. Such
limitation could have a material adverse effect on our business, results of
operations, financial condition and prospects.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A THIRD PARTY FROM ACQUIRING US OR LIMIT THE PRICE THIRD
PARTIES ARE WILLING TO PAY FOR OUR STOCK.
Provisions of our amended and restated certificate of incorporation and
bylaws relating to our corporate governance could make it difficult for a third
party to acquire us, and could discourage a third party from attempting to
acquire control of us. These provisions allow us to issue preferred stock with
rights senior to those of the common stock without any further vote or action by
the stockholders. These provisions, effective upon the closing of this offering,
provide that the board of directors will be divided into three classes, which
may have the effect of delaying or preventing changes in control or change in
our management because less than a majority of the board of directors are up for
election at each annual meeting. In addition, these provisions impose various
procedural and other requirements which could make it more difficult for
stockholders to effect corporate actions such as a merger, asset sale or other
change of control of us. Such charter provisions could limit the price that
certain investors might be willing to pay in the future for shares of our common
stock and may have the effect of delaying or preventing a change in control. The
issuance of preferred stock also could decrease the amount of earnings and
assets available for distribution to the holders of common stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the common stock.
We are also subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. In general, the statute prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns or did own 15% or more of the corporation's voting stock.
OUR ACTUAL RESULTS COULD DIFFER FROM FORWARD-LOOKING STATEMENTS IN THIS
PROSPECTUS.
This prospectus contains forward-looking statements based on current
expectations which involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of many factors, including the risk factors set forth above and
elsewhere in this prospectus. The cautionary statements made in this prospectus
should be read as being applicable to all forward-looking statements wherever
they appear in this prospectus.
19
<PAGE> 21
USE OF PROCEEDS
We estimate that the proceeds from the sale by us of the 3.5 million shares
of common stock offered in this offering at an assumed initial public offering
price of $21.00 per share, after deducting estimated underwriting discounts and
estimated offering expenses, will be approximately $66.8 million. The selling
stockholders will receive $19.5 million from the sale of one million shares of
common stock, after deducting estimated underwriting discounts, and an
additional $12.5 million if the underwriters' over-allotment option is exercised
in full. We will not receive any proceeds from the sale of common stock by the
selling stockholders. We intend to use all of the net proceeds from the offering
for general corporate purposes, which may include online and traditional
advertising programs designed to strengthen the Autobytel.com brand name,
information technology investments to support and further develop our Web site
and Dealer Real Time system and new products and services. We may use a portion
of the proceeds from the offering for possible acquisitions of or investments in
businesses and the introduction of products or technologies that expand,
complement or are otherwise related to our current or planned services. We have
no current plans, agreements or commitments with respect to any such
transaction, and we are not currently engaged in any negotiations with respect
to any such transaction. Pending such uses, we will invest the proceeds in
short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
intend to retain all of our future earnings, if any, for use in our business,
and therefore we do not expect to pay any cash dividends on our common stock in
the foreseeable future.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the actual capitalization of Autobytel.com
derived from our audited financial statements as of December 31, 1998. The as
adjusted capitalization of Autobytel.com as of December 31, 1998 set forth in
the following table reflects the conversion of all outstanding shares of
preferred stock into 5,852,290 shares of common stock and the sale by us of
3,500,000 shares of common stock pursuant to the offering at an assumed public
offering price of $21.00 net of estimated underwriting discounts and offering
expenses. The capitalization information set forth in the table below is
qualified by the more detailed consolidated financial statements and related
notes included elsewhere in this prospectus and should be read in conjunction
with such consolidated financial statements and related notes. Our stated number
of common shares outstanding does not include 2,859,340 shares of common stock
issuable upon exercise of options at a weighted average exercise price of $10.87
per share and 773,133 shares of common stock issuable upon exercise of warrants
outstanding at a weighted average exercise price of $13.12 per share.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------
AS
ACTUAL ADJUSTED
-------------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................. $ 27,984 $ 94,768
======== ========
Stockholders' equity:
Convertible preferred stock, $0.001 par value;
11,445,187 shares authorized, 7,436,653 shares
issued and outstanding, actual; 11,445,187 shares
authorized, no shares issued and outstanding, as
adjusted............................................ 7 --
Common stock, $0.001 par value; 50,000,000 shares
authorized, 8,506,455 shares issued and outstanding,
actual; 50,000,000 shares authorized, 17,858,745
shares issued and outstanding, as adjusted.......... 8 18
Warrants.............................................. 1,332 1,332
Additional paid-in capital............................ 67,813 134,594
Cumulative translation adjustment..................... (19) (19)
Accumulated deficit................................... (43,273) (43,273)
-------- --------
Total stockholders' equity............................ 25,868 92,652
======== ========
Total capitalization.................................. $ 25,868 $ 92,652
======== ========
</TABLE>
21
<PAGE> 23
DILUTION
The pro forma net tangible book value of Autobytel.com as of December 31,
1998 was $25.8 million or $1.80 per share of common stock. Pro forma net
tangible book value per share is equal to Autobytel.com's total tangible assets
less its total liabilities, divided by the number of shares of common stock
outstanding on a pro forma basis after giving effect to the conversion of the
preferred stock into 5,852,290 shares of common stock concurrent with the
closing of the offering. After giving effect to the sale of shares of common
stock offered in this offering at an assumed initial public offering price of
$21.00 and the receipt by Autobytel.com of the estimated net proceeds from such
sale, after deducting estimated underwriting discounts and offering expenses,
the pro forma net tangible book value of Autobytel.com at December 31, 1998
would have been $92.6 million, or $5.19 per share. This represents an immediate
increase in pro forma net tangible book value of $3.39 per share to existing
stockholders and an immediate dilution of $15.81 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share............. $21.00
Pro forma net tangible book value per share before the
offering.................................................. $ 1.80
Increase per share attributable to purchases of common stock
offered in this offering.................................. 3.39
------
Pro forma net tangible book value per share after the
offering.................................................. 5.19
Dilution per share to purchasers of common stock offered in
this offering............................................. $15.81
======
</TABLE>
The following table summarizes, as of December 31, 1998, the number of
shares of common stock purchased from Autobytel.com, the total consideration
paid to Autobytel.com and the average price per share paid by existing
stockholders and by the investors purchasing shares of common stock in this
offering, before deducting estimated underwriting discounts and estimated
offering expenses at an assumed public offering price of $21.00 per share:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
-------------------- ---------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 14,358,745 80.4 $ 68,033,000 48.1 $ 4.74
New investors................... 3,500,000 19.6 73,500,000 51.9 21.00
---------- ----- ------------ ----- ------
Total......................... 17,858,745 100.0 $141,533,000 100.0 $ 7.93
========== ===== ============ ===== ======
</TABLE>
22
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The statement of operations
data for the period from inception (January 31, 1995) to December 31, 1995, the
years ended December 31, 1996, 1997 and 1998 and the balance sheet data as of
December 31, 1995, 1996, 1997 and 1998 are derived from our consolidated
financial statements which have been audited by Arthur Andersen LLP, independent
auditors, and are included elsewhere in this prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." We
have calculated pro forma basic net loss per share assuming the conversion of
the outstanding preferred stock on their issue date into common stock. The
general and administrative expenses include a non-recurring $1.1 million charge
associated with a proposed initial public offering that was withdrawn in April
1997.
<TABLE>
<CAPTION>
INCEPTION
(JANUARY 31,
1995) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1995 1996 1997 1998
------------- ------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 274 $ 5,025 $ 15,338 $ 23,826
------- ------- -------- --------
Operating expenses:
Sales and marketing.............................. 930 7,790 21,454 30,033
Product and technology development............... 99 1,753 5,448 8,528
General and administrative....................... 275 1,641 5,851 5,908
------- ------- -------- --------
Total operating expenses...................... 1,304 11,184 32,753 44,469
------- ------- -------- --------
Loss from operations............................. (1,030) (6,159) (17,415) (20,643)
Other income, net................................ -- 124 620 1,280
------- ------- -------- --------
Loss before provision for income taxes........... (1,030) (6,035) (16,795) (19,363)
Provision for income taxes....................... -- -- 15 35
------- ------- -------- --------
Net loss......................................... $(1,030) $(6,035) $(16,810) $(19,398)
======= ======= ======== ========
Basic net loss per share........................... $ (0.12) $ (0.73) $ (2.03) $ (2.30)
======= ======= ======== ========
Shares used in computing basic net loss per
share............................................ 8,250 8,252 8,291 8,423
Pro forma basic net loss per share................. $ (0.12) $ (0.68) $ (1.53) $ (1.49)
======= ======= ======== ========
Shares used in computing pro forma basic net loss
per share........................................ 8,250 8,849 10,967 13,008
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1998
DECEMBER 31,
--------------------------------------------- AS ADJUSTED
1995 1996 1997 1998 FOR THE OFFERING
------- ------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 48 $ 9,062 $ 15,813 $ 27,984 $ 94,768
Working capital............................ (1,099) 5,977 10,938 23,436 90,220
Total assets............................... 285 12,298 20,513 34,207 100,991
Accumulated deficit........................ (1,030) (7,065) (23,875) (43,273) (43,273)
Stockholders' equity (deficit)............. (990) 7,996 13,259 25,868 92,652
</TABLE>
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of Autobytel.com should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
This discussion contains forward-looking statements based on current
expectations that involve risks and uncertainties. Actual results and the timing
of certain events may differ significantly from those projected in such
forward-looking statements due to a number of factors, including those set forth
in the section entitled "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are a leading, branded Internet site for new and pre-owned vehicle
information and purchasing services connecting consumers to our network of 2,718
participating dealers, as of December 31, 1998, in the United States and Canada.
Through our Web site, www.autobytel.com, consumers can research pricing,
specifications and other information regarding new and pre-owned vehicles. When
consumers indicate they are ready to buy, they can be connected to
Autobytel.com's dealer network. In addition, we are continuing to develop
ancillary programs for consumers such as financing, insurance and warranty
services. We introduced our new vehicle marketing service in 1995, and in 1997
commenced our CyberStore program.
Our revenues have increased from $274,000 in 1995 to $23.8 million in 1998.
We derive substantially all of our revenues from fees paid by subscribing
dealers, and we expect to be primarily dependent on our dealer network for
revenues in the foreseeable future. Dealers using our services pay an initial
subscription fee, as well as ongoing monthly fees based on the aggregation and
transmittal to them of purchase requests and through fiscal 1997, an annual fee.
In January 1998, Autobytel.com started to eliminate annual fees and increase
monthly fees to subscribing dealers. Average monthly program fees per dealer
were $947, $785 and $557 in 1998, 1997 and 1996, respectively. We also derive
some revenue on a per transaction basis by facilitating transactions between
consumers and other third parties, primarily lenders and insurance companies. We
reserve the right to raise our fees to dealers after 30 days notice.
Since the end of January 1999 and on a going forward basis we are
converting our dealers to new contracts with one year terms. Initial
subscription fees from dealers are recognized ratably over the first twelve
months of each dealer's contract in order to match the costs of integrating and
training dealers with revenues earned. Amortized revenues from initial
subscription fees were $2.4 million, $3.8 million and $2.2 million in 1998, 1997
and 1996, respectively. We anticipate that our initial subscription fee
amortization revenue will decline as a percentage of total revenue over time as
monthly fee revenues continue to grow. As our dealer network grows in absolute
terms, the number of new dealers added as a percentage of total dealers is
growing at a slower pace. Therefore, initial subscription fee revenue is
declining as a percentage of total revenue while monthly fee revenues are
growing. Monthly fees are recognized in the period the service is provided.
Monthly fee revenues were $18.2 million, $8.5 million, and $2.6 million in 1998,
1997 and 1996, respectively. Annual fees are recognized ratably over twelve
months. Amortized revenues from annual fees were $2.3 million, $1.1 million and
$103,000 in 1998, 1997 and 1996, respectively. Annual fee revenue will decline
in 1999 because we discontinued the practice of charging annual fees in late
1998. From October 1996 to February 1998, our revenues also included revenues
from sales of personal computers to our dealers, a practice we discontinued in
the first quarter of 1998. Our financial statements include revenues
24
<PAGE> 26
derived from computer equipment sales of $197,000 in 1998, $1.5 million in 1997,
and $147,000 in 1996. Excluding these revenues, our revenues would have been
$23.6 million, $13.8 million and $4.9 million in 1998, 1997 and 1996,
respectively.
Although we do not derive any direct revenue from the volume of purchase
requests, we believe our ability to increase the number of subscribing dealers
and the amount of fees paid by dealers is related to the volume of purchase
requests routed through our Web site. Vehicle purchase requests routed through
our online system increased from approximately 345,000 in 1996 to approximately
761,000 in 1997, an increase of 121%, and to 1.3 million in 1998, an increase of
71% over the previous year. Since inception we have directed approximately 2.5
million purchase requests to dealers.
We believe that our revenue growth has been and will continue to be
primarily dependent on our ability to continue to drive a significant number of
purchase requests to our dealer network, increase the number of dealers and
increase the average fees paid by each dealer. Since inception, our dealer
network has expanded in each quarter and as of December 31, 1998 there were
2,718 dealers. Of these dealers, 2,386 dealers, or 88% pay for our service and
we call them core dealers. The remaining 332 dealers, or 12% do not pay for our
service and we call them non-core dealers. Our non-core dealers are generally
associated with lower volume vehicle manufacturers such as Jaguar or Suzuki or
are located in remote, low volume territories and receive purchase request
referrals without paying fees to us. We enter into agreements with non-core
dealers to ensure the broadest geographic coverage possible for every make of
vehicle. These agreements also allow us to increase consumer satisfaction by
offering a complete selection of vehicle dealers throughout North America.
However, our costs incurred from non-core dealers are not offset by revenues.
Although the net number of our dealers in the United States increased by 51%
during 1998, 556 of our dealers were terminated or canceled during the same
period. We believe that the principal reasons for the dealer terminations were
due to our enforcement of our dealer network agreements and the cancellation of
our fax delivery of purchase requests in conjunction with the implementation of
the Dealer Real Time system. Our inability or failure to reduce dealer turnover
could have a material adverse effect on our business, results of operations and
financial condition.
Because our primary revenue source is from program fees, our business model
is significantly different from many existing Internet commerce sites. The
automobiles requested through our site are sold by individual dealers; therefore
we derive no direct revenue from the sale of a vehicle and have no significant
cost of goods sold, no procurement, carrying or shipping costs and no inventory
risk. The only cost of goods sold incurred by us since our inception was the
cost of computer equipment sold to dealers. We discontinued selling computer
equipment in the first quarter of 1998.
Sales and marketing costs consist primarily of promotion and advertising to
build brand awareness and encourage potential customers to go to our Web site.
Our sales and marketing expenses were $30.0 million, $21.5 million and $7.8
million in 1998, 1997 and 1996, respectively. We use Internet advertising, as
well as traditional media, such as television, radio and print. The majority of
our Internet advertising is comprised of sponsorship and partnership agreements
with Internet portals and advertising and marketing affiliations with online
automotive information providers. These internet portals and online information
providers charge a combination of set-up, initial, annual, monthly and variable
fees. Set-up fees are incurred for the development of the link between
Autobytel.com and the internet portal or online information provider and are
expensed in the period the link is established. Initial fees are prepaid annual
fees, which are amortized over the period they relate to and monthly fees which
are expensed in the month they
25
<PAGE> 27
relate to. Variable fees are fees paid for purchase requests and are expensed in
the period the purchase requests are received. During 1998, total Internet
marketing and advertising costs incurred were $11.1 million, including initial,
annual, monthly and variable fees of $50,000, $3.0 million, $2.9 million and
$5.2 million, respectively. There were no set-up fees incurred in 1998. Also
included in the sales and marketing expenses are the costs associated with
signing up new dealers and their ongoing training and support. Sales and
marketing costs are recorded as an expense in the period the service is
provided. Sales and marketing expenses have historically fluctuated
quarter-to-quarter due to varied levels of marketing and advertising and we
believe this will continue in the future.
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
revenues:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... 100% 100% 100%
Operating expenses:
Sales and marketing.................................. 155 140 126
Product and technology development................... 35 36 36
General and administrative........................... 33 38 25
---- ---- ----
Total operating expenses..................... 223 214 187
---- ---- ----
Loss from operations................................. (123) (114) (87)
---- ---- ----
Other income, net...................................... 2 4 5
Loss before provision for income taxes............... (120) (110) (81)
---- ---- ----
Provision for income taxes............................. -- -- --
---- ---- ----
Net loss............................................. (120)% (110)% (81)%
==== ==== ====
</TABLE>
1998 COMPARED TO 1997
Revenues. Our revenues increased by $8.5 million, or 56%, to $23.8 million
in 1998, compared to $15.3 million in 1997. The growth in revenue in 1998 was
primarily attributable to an increase in the net core dealer count and $162, or
a 21% increase in the average monthly program fee charged to subscribing
dealers. The net number of core dealers increased by 743, or 45%, to 2,386 as of
December 31, 1998, compared to 1,643 as of December 31, 1997. Our financial
statements include revenues derived from computer sales, a practice we
discontinued in the first quarter of 1998, of $197,000 in 1998 and $1.5 million
in 1997. Excluding our revenue from the sale of computer equipment, our revenues
increased by $9.8 million, or 71%, to $23.6 million in 1998 as compared to $13.8
million in 1997. In 1998, we launched additional ancillary services such as Web
site advertising and warranties.
Sales and Marketing. Sales and marketing expenses primarily include
advertising and marketing expenses paid to our purchase request providers and
for developing our brand equity, as well as personnel and other costs associated
with sales, training and support of our dealer network. Sales and marketing
expense increased by $8.6 million, or 40%, to $30.0 million in 1998, compared to
$21.5 million in 1997. The increase was primarily due to a $5.3 million or 91%
increase in fees related to information search aggregators resulting from higher
purchase requests and a $4.0 million, or 58% increase in other advertising and
26
<PAGE> 28
marketing expenses to build brand awareness. We expect to continue to increase
our advertising and marketing budget in the foreseeable future.
Product and Technology Development. Product and technology development
expense primarily includes personnel costs relating to enhancing the features,
content and functionality of our Web site and Dealer Real Time system, as well
as expenses associated with our telecommunications and computer infrastructure.
Product and technology development expense increased by $3.1 million, or 57%, to
$8.5 million in 1998, compared to $5.4 million in 1997. The increase was
primarily due to the additional staff and expenses related to Auto-by-Tel UK
Limited of $1.4 million in 1998.
General and Administrative. General and administrative expense primarily
consists of executive, financial and legal personnel expenses and related costs.
General and administrative expense was $5.9 million in 1998 and 1997. Excluding
a non-recurring charge of $1.1 million associated with a proposed initial public
offering withdrawn in April 1997, general and administrative expense increased
by $1.1 million, or 23%, to $5.9 million in 1998, compared to $4.8 million in
1997. This increase is primarily due to additional executive and financial
personnel and rent due to expansion of facilities.
Other Income. Other income consists primarily of interest income. Other
income increased by $660,000, or 106%, to $1.3 million in 1998, compared to
$620,000 in 1997. This increase is primarily due to a $1.4 million gain realized
from the sale of Auto-by-Tel UK Limited to Inchcape Automotive Limited in
November 1998, offset in part by a $792,000 charge for the value of warrants
issued to Invision AG and Aureus Private Equity AG. Excluding these
non-recurring items, other income increased by $44,000, or 7%, to $664,000 in
1998 as compared to $620,000 in 1997. Interest income increased due to higher
cash balances from the sale of preferred stock in 1998.
Income Taxes. No provision for federal income taxes has been recorded as we
incurred net operating losses through December 31, 1998. As of December 31,
1998, we had approximately $37.1 million of federal and $18.4 million of state
net operating loss carry forwards that we believe are available to offset future
taxable income; such carry forwards expire in various years through 2018. Under
the Tax Reform Act of 1986, the amounts of and benefits from our net operating
losses carry forwards will likely be limited upon the completion of the initial
public offering due to a cumulative ownership change of more than 50% over a
three year period. Based on preliminary estimates, we believe the effect of such
limitation, if imposed, will not have a material adverse effect on our business,
results of operations and financial condition.
1997 COMPARED TO 1996
Revenues. Our revenues increased by $10.3 million, or 206%, to $15.3
million in 1997, compared to $5.0 million in 1996. The significant growth in
revenue in 1997 was primarily attributable to an increase in the net core dealer
count and a $228, or 41% increase in the average monthly program fee charged to
subscribing dealers. The number of core dealers increased by 437, or 36%, to
1,643 as of December 31, 1997, compared to 1,206 as of December 31, 1996. We
started selling computer equipment to our dealers during the last quarter of
1996 and these revenues were $1.5 million in 1997 and $147,000 in 1996.
Excluding our revenue from the sale of computer equipment, our revenues
increased by $9.0 million, or 184%, to $13.8 million in 1997, compared to $4.9
million in 1996. Also, we launched several new ancillary services in 1997,
including leasing, financing, credit union services and the Mobalist Rewards
program, which cumulatively represented less than 3% of total revenues during
1997.
27
<PAGE> 29
Sales and Marketing. Sales and marketing expense increased by $13.7
million, or 176%, to $21.5 million in 1997, compared to $7.8 million in 1996.
This increase is attributable primarily to the increase in advertising and
marketing costs associated with driving the growth of purchase requests. The
number of purchase requests increased by approximately 416,000, or 121%, to
approximately 761,000. To a lesser degree this increase was also due to growth
in personnel and other expenses associated with sales training and maintenance
of our dealer channel.
Product and Technology Development. Product and technology development
expense increased by $3.7 million, or 206%, to $5.4 million in 1997, compared to
$1.8 million in 1996. The increase in product and technology development expense
was primarily associated with adding additional product and technical staff.
General and Administrative. General and administrative expense increased by
$4.2 million, or 263%, to $5.9 million in 1997, compared to $1.6 million in
1996. The increase was primarily due to additional executive, financial and
legal personnel and related costs, as well as a non-recurring $1.1 million
charge associated with a withdrawn initial public offering in 1997. Excluding
this non-recurring charge, general and administrative expense increased by $3.1
million, or 194%, to $4.8 million in 1997, compared to $1.6 million in 1996.
Other Income. Other income, which primarily consists of interest income,
increased by $496,000, or 400%, to $620,000 in 1997, compared to $124,000 in
1996. Interest income increased due to higher cash balances from the sale of
preferred stock in 1997.
28
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth quarterly statement of operations data for
the eight quarters ended December 31, 1998. This quarterly information has been
derived from our unaudited financial statements and, in our opinion, includes
all adjustments necessary for a fair presentation of the information for the
periods covered. The quarterly data should be read in conjunction with our
consolidated financial statements and related notes. The operating results for
any quarter are not necessarily indicative of the operating results for any
future period.
INCOME STATEMENT FOR THE THREE MONTHS ENDED
(unaudited in thousands)
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES.......................... $ 3,063 $ 3,414 $ 4,293 $ 4,568 $ 4,632 $ 5,405 $ 6,462 $ 7,327
Operating expenses:
Sales and marketing............. 6,675 4,683 4,436 5,660 8,459 5,470 8,320 7,784
Product and technology
development................... 1,103 1,394 1,496 1,455 1,895 1,969 2,352 2,312
General and administrative...... 1,823 1,216 1,079 1,733 1,346 1,190 1,480 1,892
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses...... 9,601 7,293 7,011 8,848 11,700 8,629 12,152 11,988
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations............ (6,538) (3,879) (2,718) (4,280) (7,068) (3,224) (5,690) (4,661)
------- ------- ------- ------- ------- ------- ------- -------
Other income, net................. 165 114 147 194 185 163 153 779
Loss before provision for income
taxes......................... (6,373) (3,765) (2,571) (4,086) (6,883) (3,061) (5,537) (3,882)
------- ------- ------- ------- ------- ------- ------- -------
Provision for income taxes........ 11 4 -- -- 15 10 6 4
------- ------- ------- ------- ------- ------- ------- -------
Net loss........................ $(6,384) $(3,769) $(2,571) $(4,086) $(6,898) $(3,071) $(5,543) $(3,886)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
PERCENTAGE OF REVENUE FOR THE THREE MONTHS ENDED
(unaudited)
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... 100% 100% 100% 100% 100% 100% 100% 100%
Operating expenses:
Sales and marketing.............. 218 137 103 124 183 101 129 106
Product and technology
development.................... 36 41 35 32 41 36 36 32
General and administrative....... 60 36 25 38 29 22 23 26
---- ---- --- --- ---- --- --- ---
Total operating expenses....... 313 214 163 194 253 160 188 164
---- ---- --- --- ---- --- --- ---
Loss from operations............. (213) (114) (63) (94) (153) (60) (88) (64)
---- ---- --- --- ---- --- --- ---
Other income, net.................. 5 3 3 4 4 3 2 11
Loss before provision for income
taxes.......................... (208) (110) (60) (89) (149) (57) (86) (53)
---- ---- --- --- ---- --- --- ---
Provision for income taxes......... -- -- -- -- -- -- -- --
---- ---- --- --- ---- --- --- ---
Net loss......................... (208)% (110)% (60)% (89)% (149)% (57)% (86)% (53)%
==== ==== === === ==== === === ===
</TABLE>
Revenues. Growth in our dealer network and increases in fees and the sale
of ancillary products and services have resulted in a compounded quarterly
growth in revenue of 13% over the last eight quarters of operations. Revenue
growth is primarily associated with program fees and, to a lesser extent, new
product offerings. Between the quarters ended December 31, 1996 and March 31,
1998, we recognized revenues associated with computer systems sold to dealers.
After the introduction of the current Dealer Real Time system in February 1998,
we discontinued the sale of computer equipment. Our financial
29
<PAGE> 31
statements include non-recurring revenue for the Dealer Real Time system
hardware sales of $147,000 in 1996, $1.5 million in 1997, and $197,000 in 1998.
Sales and Marketing. We have increased spending on sales and marketing
every year since our inception. The increase in sales and marketing spending
accelerated after we completed our Series A preferred stock offering of $15.0
million in August 1996. We launched an aggressive advertising campaign, and in
the quarters ended March 31, 1997 and 1998, we aired a television advertisement
during the Super Bowl at a cost of approximately $1.3 million and $1.5 million,
respectively. Additionally, in the quarter ended December 31, 1997, we entered
into several Internet branding and purchase request generation contracts,
including contracts with Excite. From October 1996 through February 1998, we
incurred expenses of approximately $1.6 million associated with the sale of
computer equipment to support the old Dealer Real Time system. Such expenses
were included in sales and marketing. These computer sales were discontinued in
February 1998. We have generally increased the number of sales and marketing
personnel each quarter.
Product and Technology Development. Product and technology development has
generally risen on a dollar basis since our inception. The primary cause for the
increase in product and technology development expenses is the addition of
personnel to develop the technology infrastructure and new programs for our
dealers and Internet consumers.
General and Administrative. The quarter ended March 31, 1997 includes
approximately $1.1 million in previously capitalized legal, accounting and other
direct costs associated with a proposed initial public offering that was
withdrawn in April 1997. In the quarter ended December 31, 1997, general and
administrative expenses included legal, severance and bonuses incurred during
the period.
To date, quarter to quarter growth in our revenues have offset any effects
due to seasonality. However, we expect our business to experience seasonality as
it matures, reflecting seasonal fluctuations in the automotive industry,
Internet and commercial online service usage and advertising expenditures. We
anticipate that purchase requests will typically increase during the first and
third quarters when new vehicle models are introduced and will typically decline
during the second and fourth quarters. Internet and commercial online service
usage and the growth rate of such usage may be expected typically to decline
during the summer. In addition, our advertising costs in traditional media, such
as broadcast and cable television, generally decline in the first and third
quarters of each year. Depending on the extent to which the Internet and
commercial online services are accepted as an advertising medium, seasonality in
the level of advertising expenditures could become more pronounced for
Internet-based advertising. Seasonality in the automotive industry, Internet and
commercial online service usage, and advertising expenditures is likely to cause
fluctuations in our operating results and could have a material adverse effect
on our business, operating results and financial condition.
STOCK OPTIONS GRANTED IN 1999
From January to March 1999, we granted stock options to purchase 388,236
shares of common stock under the 1999 Stock Option Plan. These stock options
were granted to employees and directors at exercise prices of $13.20 and $16 per
share which were below the fair market value at the date of grant. In relation
to these grants, we will recognize estimated compensation expense of
approximately $2.0 million ratably over the vesting term of one to four years.
Compensation expense of approximately $826,000, $390,000,
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$390,000, $390,000 and $30,000 will be classified as operating expense in the
years ending 1999, 2000, 2001, 2002 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from the
issuance of shares of preferred stock, which through December 31, 1998 totaled
$67.9 million, comprised of $15.0 million raised in August 1996, $9.1 million
raised in January 1997, $13.0 million raised in October 1997, $0.5 million
issued in exchange for advertising in April 1998, $5.0 million raised in May
1998, $0.6 million issued in exchange for advertising in October 1998, $5
million raised in November 1998 and $19.7 million raised in December 1998. As of
December 31, 1998, we had approximately $28.0 million in cash and cash
equivalents.
Net cash used in operating activities increased to $16.3 million in 1998
from $13.5 million in 1997 and $3.6 million in 1996. The increases in the net
cash used in operating activities resulted primarily from increased sales and
marketing, product development and general and administrative expenditures
related to expanding our infrastructure. Also, working capital was used to
finance accounts receivable, prepaid expenditures and other assets, offset
partially by increased deferred revenue.
Net cash used in investing activities decreased to $1.1 million in 1998
from $1.8 million in 1997 and increased to $1.8 million in 1997 from $1.5
million in 1996. The net cash used in investing activities resulted primarily
from purchases of property and equipment consisting of computer hardware,
telecommunications equipment, furniture and leasehold improvements.
Net cash provided by financing activities increased to $29.6 million in
1998 from $22.0 million in 1997 and $14.1 million in 1996. The net cash provided
by financing activities resulted primarily from the issuance of preferred stock.
We believe our current cash and cash equivalents, excluding proceeds from
this offering, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. With respect
to years beyond fiscal 1999, we may be required to raise additional capital to
meet our long term operating requirements. Although we have grown our revenues
consistently since inception, our expenses have continued to and in the
foreseeable future are expected to exceed our revenues. Accordingly, we do not
expect to be able to fund our operations from internally generated funds for the
foreseeable future. Our cash requirements depend on several factors, including
the level of expenditures on marketing and advertising, the rate of market
acceptance, the ability to expand our customer base and increase the volume of
purchase requests, the cost of contractual arrangements with online information
providers, search engines and other referral sources, and other factors. The
timing and amount of such working capital requirements cannot accurately be
predicted. If capital requirements vary materially from those currently planned,
we may require additional financing sooner than anticipated. We have no
commitments for any additional financing, and there can be no assurance that any
such commitments can be obtained on favorable terms, if at all. Any additional
equity financing may be dilutive to our stockholders, and debt financing, if
available, may involve restrictive covenants with respect to dividends, raising
capital and other financial and operational matters which could restrict our
operations or finances. If we are unable to obtain additional financing as
needed, we may be required to reduce the scope of our operations or our
anticipated expansion, which could have a material adverse effect on our
business, results of operations and financial condition.
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YEAR 2000 ISSUES
Because many computer applications have been written using two digits
rather than four to define the applicable year, some date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
"Year 2000 issue" could result in system failures or miscalculations causing
disruptions of operations, including disruptions of our Web site, the Dealer
Real Time system or normal business activities.
The information technology systems pertain to software applications and
database interface programs that support the consumer website, as well as the
Dealer Real Time system that manages the inventory of pre-owned vehicles and
purchase requests transmitted to our participating dealers.
Non-information technology systems include accounts receivable/payable,
payroll, banking, 401k, postal bar code, and Federal Express software that
support our daily business activities. Although we have not conducted a survey,
we believe there is no material exposure to our non-information technology
systems. We believe that we do not have any other non-information, embedded
technology systems, with potential Year 2000 issues.
We do not believe that we have material exposure to the Year 2000 issue
with respect to our own information systems since our existing systems correctly
define the Year 2000 with four digits. We are currently taking two actions to
mitigate the risk and exposure of the Year 2000 issue:
1. We are in the process of obtaining confirmation from all of our
third-party vendors that they have resolved their Year 2000 issues.
These third-party vendors can be categorized as follows:
A. information technology systems
- computer hardware vendors
- computer software vendors
- network communications vendors
- data suppliers vendors
B. non-information technology systems
- landlord who oversees the facilities and utilities
- building security company
We expect to receive replies to our Year 2000 requests from third-party
vendors by second quarter 1999. Approximately 35% of the third party
vendors have responded. All of these vendors provided a statement of
compliance either displayed on their website or furnished in hard copy
format. These vendors who have already responded represent the most
critical vendors in our business.
2. In March 1999, we implemented a test lab environment to simulate the
Year 2000 rollover with hardware, software, network communications
vendors and certain key data suppliers. We plan to make any
modifications resulting from the test lab environment by the third
quarter of 1999.
Based on the test results, if any vendor was found to be non-compliant, our
contingency plan is to first attempt to find a replacement vendor, and if no
replacement can be found, to assist such vendor in becoming Year 2000 compliant.
If we cannot effectively assist such vendor in becoming Year 2000 compliant, we
plan to set up a front-end application to screen all non-compliant data or to
receive the data and modify it so
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that the data is Year 2000 compliant. We plan to establish our front-end
application screen in the third quarter of 1999.
The worst-case scenario pertaining to Year 2000 issue would be an overall
failure of the national Internet and telecommunications infrastructure. This may
require alternative means for users to gain connection to our servers.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This statement, adopted by us in the first quarter of
1998, requires companies to report a new measurement of income. Comprehensive
income (loss) is to include foreign currency translation gains and losses and
other unrealized gains and losses that have historically been excluded from net
income (loss) and reflected instead in equity. Currently, no material
differences exist between our net income or loss and comprehensive net income or
loss.
In March 1998, the American Institute of Certified Public Accounts (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained For Internal Use," which is effective for fiscal
years beginning after December 15, 1998. SOP No. 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and defines specific criteria that determine when such costs are required to
be expensed, and when such costs may be capitalized. Management believes the
adoption of SOP 98-1 will not have a material effect on our consolidated
financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up
Activities," which will be adopted by us in the beginning of our fiscal year
beginning January 1, 1999. SOP No. 98-5 provides guidance on the financial
reporting of start-up costs and organization costs and requires such costs to be
expensed as incurred. We believe the adoption of SOP 98-5 will not have a
material effect on our financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which will be adopted by us in our fiscal
year beginning January 1, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments by requiring every derivative
instrument to be recorded in the balance sheet as a liability or an asset at
fair market value. Any changes to a derivatives fair market value must be
recognized currently in earnings unless specific hedge accounting criteria are
met. We do not have any derivative instruments or undertake any hedging
activities and do not anticipate doing so, therefore the adoption of SFAS No.
133 will not have a material effect on our financial statements.
LIMITATION ON NET OPERATING LOSS CARRYFORWARDS
We have approximately $37.1 million federal net operating loss
carryforwards as of December 31, 1998 which may be available to reduce the
amount of United States federal income taxes payable by us in the future.
However, if we undergo an "ownership change" within the meaning of Section 382
of the Internal Revenue Code, an annual limitation will be imposed on our use of
net operating loss carryforwards. If an "ownership change" occurs, Section 382
of the Internal Revenue Code limits the amount of net operating losses that may
be utilized from pre-ownership change years to offset our taxable income in any
post-ownership change year to an amount equal to:
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- the value of Autobytel.com's capital stock, as adjusted, at the time of
the ownership change, multiplied by
- the long-term tax exempt rate for the month of the ownership change.
We believe that this offering will result in an ownership change for
purposes of Section 382 of the Internal Revenue Code. As a result, the use of
our pre-ownership change net operating loss carryforwards will be limited
annually by Section 382 of the Internal Revenue Code under the rules described
above. Based on an estimated company value of $393 million, we will be permitted
to offset against any taxable income $18 million of losses per year using
pre-charge net operating losses based on a long-term tax exempt rate of 4.7% and
a share price of $22.
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BUSINESS
OVERVIEW
We are a leading, branded Internet site for new and pre-owned vehicle
information and purchasing services. Through our Web site, www.autobytel.com,
consumers can research pricing, specifications and other information regarding
new and pre-owned vehicles. When consumers indicate they are ready to buy, they
can be connected to Autobytel.com's network of over 2,700 participating dealers
in North America, with each dealer representing a particular vehicle make.
Dealers participate in our network by entering into non-exclusive contracts with
us. We expect our dealers to promptly provide a haggle-free, competitive offer.
In addition, consumers can apply for and receive insurance, financing, leasing
and warranty proposals as well as other services and information through our Web
site. We believe that our services provide benefits for consumers by supplying
them with information to make an informed and intelligent vehicle purchasing
decision and by directing consumers to dealers, whom we expect to provide a
competitive price. In addition, our services are intended to reduce our dealers'
costs by directing to them large volumes of purchase requests from potential
consumers who have already indicated their intent to buy, thereby enabling
dealers to lower their marketing, advertising and personnel costs while
enhancing sales productivity. We provide our services free of charge to
consumers and derive substantially all of our revenues from fees paid by
participating dealers.
We introduced our new vehicle purchasing services in May 1995 and our
Certified Pre-Owned CyberStore in April 1997. Our new vehicle purchasing service
enables consumers to shop for and select a new vehicle through our Web site by
providing research on new vehicles such as pricing, features, specifications and
colors. When consumers indicate they are ready to buy, they can complete a
purchase request online. The CyberStore allows consumers to search for a
pre-owned vehicle according to the price, make, model, color, year and location
of the vehicle. The CyberStore locates and displays the description, location
and actual photograph of all vehicles that satisfy the consumer's search
parameters. The dealers in our network use our online information platform, the
Dealer Real Time system, which provides dealers with immediate purchase request
information for new and pre-owned vehicles, the ability to track customers and
purchase requests, and other value-added features, including automatic uploading
of pre-owned vehicle inventory into our database. In addition, Autobytel.com
offers a number of automotive finance and insurance services in conjunction with
strategic partners, including automobile financing through Chase, GE Capital and
Provident Bank, automotive insurance through member companies of the American
International Group and extended warranty service through New Hampshire
Insurance Company, a member company of the American International Group.
BACKGROUND
Growth of the Internet and Online Commerce. The Web and online services
have emerged as significant global communications and commercial media enabling
millions of people worldwide to share information, communicate and conduct
business electronically. We believe that the number of Web users will grow based
on a number of factors, including the large and growing base of installed
personal computers in the home and workplace, the decreasing cost of personal
computers, easier, faster and cheaper access to the Internet, the distribution
of broadband applications, the proliferation of Internet
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content and the increasing familiarity and acceptance of the Internet by
businesses and consumers.
The growth in the use of the Internet has also led to a rapid growth of
online commerce. Web commerce sites are enabling businesses to target and manage
a broad customer base and establish and maintain ongoing direct customer
relationships. As a growing number of businesses and information providers have
begun marketing on the Web, it has rapidly become a medium in which consumers
can access a vast amount of information regarding the pricing, quality and
specification of products. Additionally, online transactions can be faster, less
expensive and more convenient than transactions conducted in person or even over
the telephone.
The Automotive Vehicle Market. Automotive dealers operate in localized
markets and face significant state regulations and increasing business
pressures. These fragmented markets, with over 49,000 dealers in aggregate, are
characterized by:
- a perceived overabundance of dealerships,
- competitive sales within regional markets,
- increasing advertising and marketing costs that continue to reduce dealer
profits,
- high-pressure sales tactics with consumers, and
- large investments by dealers in real estate, construction, personnel and
other overhead expenses.
In addition, consumers have traditionally entered into the highly
negotiated sales process with relatively little information regarding
manufacturer's costs, leasing costs, financing costs, relative specifications
and other important information. Buying a vehicle is considered to be one of the
most significant purchases a United States consumer makes. According to CNW
Marketing/Research, over $657 billion and $667 billion was spent on new and
pre-owned vehicles in the United States representing the sale of over 60.0 and
60.3 million vehicles in 1997 and 1998, respectively. Although automotive
retailing attracts significant consumer dollars, we believe that consumers
associate the traditional vehicle buying experience with high-pressure sales
tactics.
THE AUTOBYTEL.COM SOLUTION
We believe that our online products and services improve the vehicle
purchasing process for both consumers and dealers. We offer consumers an
information-rich Web site, numerous tools to configure this information, and a
quality fulfillment experience. As part of the fulfillment experience, we expect
our dealers to provide competitive price quotes for new and pre-owned vehicles.
We believe our services enable dealers to reduce personnel and marketing costs,
increase consumer satisfaction, increase customer volume, and expand dealer
territories.
Benefits to Consumers. Our Web site provides consumers free of charge
up-to-date specifications and pricing information on vehicles. In addition, our
consumers gain easy access to valuable automotive information, such as dealer
invoice pricing and the AutoBuyTools(TM) services which consist of a lease
calculator, a loan calculator to determine monthly payments and a lease or buy
decision tool. Our database of articles allows consumers to perform online
library research by accessing documents such as weekly automotive reports,
consumer reviews and manufacturer brochures. Various automotive information
service providers, such as Edmund's, Kelley Blue Book, Pace Publication's
Carprice.com, and IntelliChoice, are also aggregated on Autobytel.com's Web site
to assist consumers with specific vehicle and related automotive decisions such
as insurance and
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financing. Armed with such information, the consumer should be more confident
and capable of making an informed and intelligent vehicle buying decision.
We expect our dealers to provide competitive price quotes for new and
pre-owned vehicles. By providing dealers with a large number of consumers
through quality purchase requests, we believe that we can help our dealers to
lower their operating costs due to higher sales volume. We believe that lowering
their operating costs allows dealers to offer more competitive prices.
We believe we offer consumers a significantly different vehicle purchasing
experience from that of traditional methods. Consumers using the Autobytel.com
system are able to shop for a vehicle, and make financing and insurance
decisions from the convenience of their own home or office. We expect dealers to
provide consumers a haggle-free price quote and a high level of customer
service. We form our dealer relationships after careful analysis of automotive
sales and demographic data in each region. We seek to include in our dealer
network the largest and highest quality dealers within defined territories. Our
strategy to be the leading Internet-based vehicle information and purchasing
service depends on our ability to provide consumers with a quality experience.
Benefits to Dealers. Autobytel.com benefits dealers by reducing the
dealers' incremental personnel and marketing costs, increasing consumer
satisfaction and increasing consumer volume. Through our investment in national
advertising and brand recognition of Autobytel.com, we attract consumers to our
Web site and direct them to dealers in their local area. We believe this
provides dealers access to a larger number of prequalified consumers without
increasing their advertising costs. Dealers' personnel costs should be reduced
because we provide dealers access to potential purchasers who have completed
their research and should be ready to buy or lease a vehicle. As a result,
reaching these consumers and selling or leasing them vehicles costs the dealer
little or no additional overhead expense other than the fees paid to us and the
personnel costs of a dedicated Autobytel.com manager. Through our Dealer Real
Time system, we provide dealers with on-site technology to better track sales,
inventory, customer solicitations, responses and other communications.
By providing consumers a quality fulfillment experience, we seek to provide
Autobytel.com dealers a large number of consumers, allowing them to compete more
effectively. Our solution includes an expanding network of over 2,700
participating dealers in the United States and Canada representing every major
domestic and imported make of vehicles and light trucks. Because a single
dealership location may hold multiple manufacturer franchises, the dealership
may represent more than one dealer in the Autobytel.com network.
To increase each dealer's incentive to participate in the Autobytel.com
system, we allocate each dealer an exclusive geographic territory based upon
specific vehicle make. A territory allocated by us to a dealer is generally
larger than a territory assigned to a dealer by a manufacturer. By granting
dealers exclusivity within a geographic area, we intend to assure dealers of a
large enough volume of quality purchase requests to lower their operating costs.
Our Web Site. Because Web sites can be continually updated and provide a
large quantity of quality information, we believe the Internet offers the most
efficient medium for consumers to learn about and shop for vehicles. The
Internet's global reach to consumers allows us to leverage our investment in
branding and marketing across a very large national and international audience
to create qualified purchase requests for vehicles.
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For these reasons, we also believe that the Internet represents the most
efficient method of directing purchase requests to local markets and dealers.
We currently provide the following services on our Web site:
[Chart depicting programs and services accessible to Internet consumers through
Autobytel.com]
STRATEGY
Our primary objective is to be the leading global Internet brand for
vehicle information and purchasing services. We intend to achieve this objective
through the following principal strategies:
Continue to Build Brand Equity. We believe that due to our focus on both
online and offline marketing, we have created one of the leading brand names in
our sector. We intend to continue aggressively to market and advertise to
enhance our brand recognition with consumers. We believe that continuing to
strengthen brand awareness of the Autobytel.com name among consumers is critical
to attract vehicle buyers, increase purchase requests and, in turn, increase the
size of our dealer base. We intend to continue advertising on the Internet and
through traditional media, such as television, radio and printed publications.
Ensure the Highest Quality Consumer Experience. We believe that consumer
satisfaction and loyalty is heavily influenced by the consumer's experience with
our site and with our dealers. In order to enhance our appeal to consumers, we
intend to continue developing our Web site by enhancing vehicle information, as
well as building new features such as personalization, auto maintenance
reminders and consumer reviews. As part of our continuing effort to enhance our
Web site technology and features, we have entered into strategic co-development
relationships, with Intel and Cow Inc. to improve our interactive dealer
training. In addition, we plan to continue compiling high quality content from
third
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party sources on our site, including information from Edmund's, IntelliChoice,
Carprices.com and Kelley Blue Book. We believe that consumer satisfaction with
the vehicle purchasing experience is also essential to our success and the
differentiation of our services from those of our competitors. We intend to
continue to invest in our dealer training and support services to ensure a
consistent, high-quality alternative to the traditional vehicle buying process.
Increase Purchase Requests. We believe that increasing the volume and
quality of purchase requests directed from our Web site to our dealer network is
crucial to the long-term growth and success of our business. By augmenting the
volume of quality purchase requests, we expect to attract additional dealers to
our network, increase fees paid by dealers, and solidify our relationships with
participating dealers. Our strategy for increasing traffic to our site and the
number of purchase requests includes forming and maintaining online sponsorships
and partnerships with Internet portals, such as Excite, and with Internet
automotive information providers, such as Edmund's. As part of our strategy to
improve the quality of purchase requests, we continue to expand the breadth and
depth of information and services available through our Web site to insure that
well informed, ready-to-buy consumers are directed to participating dealers.
Expand and Improve Dealer Network. We believe that strengthening the size
and quality of our dealer network is important to the success and growth of our
business. We believe our network of over 2,700 dealers is one of the largest in
the Internet-based vehicle purchasing industry. Our strategy is to increase the
size of our dealer network by attracting new dealers and strengthening
relationships with existing dealers by:
- increasing the volume and quality of purchase requests,
- advertising in trade publications aimed at dealers and participating in
industry trade shows,
- maintaining our extensive training and support program to participating
dealers, and
- providing our Dealer Real Time system to all participating dealers.
Invest in Ancillary Online Services. We believe that expanding our services
to both consumers and dealers will be critical to establishing ourselves as the
premier provider of online automotive services in the future. Our strategy is to
continue to invest in ancillary services, particularly in the CyberStore and
warranty, finance and insurance services. We also intend to use the Dealer Real
Time system to launch value added services for our dealer network, including
allowing dealers to offer accessories and aftermarket products directly through
the Autobytel.com Web site. We have recently begun to sell advertising on our
Web site and expect to expand this business during 1999. We plan to launch an
auction-based, online program for our dealers who sell pre-owned vehicles. We
are also seeking opportunities to market the information contained in our
databases.
Expand Internationally. We intend to continue our international expansion
through licensing agreements and partnering with local strategic partners. We
have established licensing arrangements with strategic partners such as Inchcape
Motors and Bilia AB in the United Kingdom and Scandinavia, respectively. In
addition, we have entered into agreements with Invision AG and Aureus Private
Equity AG to obtain their assistance in meeting potential strategic partners who
will assist us in establishing national operating companies throughout the rest
of Europe using Autobytel.com vehicle marketing systems. We have also entered
into agreements in Japan with e-solutions, Inc., Intec, Inc. and
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Trans Cosmos, Inc. to form a joint venture. We are currently exploring
additional opportunities in Asia and Latin America.
PRODUCTS, PROGRAMS AND SERVICES
New Vehicle Purchasing Service. Our new vehicle marketing service enables
consumers to shop for and select a new vehicle through our Web site by providing
research on new vehicles such as pricing, features, specifications, colors, etc.
When consumers indicate they are ready to buy, a consumer can complete a
purchase request online, which specifies the type of vehicle and accessories the
consumer desires, along with the consumer's contact information. The purchase
request is then routed by us to the nearest participating dealer that sells the
type of vehicle requested, and we promptly return an e-mail message to the
consumer with the dealership's name and phone number and the name of the
Autobytel.com manager at the dealership. Dealers agree in their contracts to
contact the consumer within 24 hours of receiving the purchase request with a
firm, haggle-free price quote for the requested vehicle. When consumers complete
a purchase, they usually take delivery of their vehicle at the dealership
showroom. Generally, within ten days of the submission of a consumer's purchase
request, we contact the consumer again by e-mail to conduct a quality assurance
survey that allows us to evaluate the sales process at participating dealers and
improve the quality of dealer service.
The Autobytel.com network has grown to 2,718 dealers as of December 31,
1998. These dealers represent every major domestic and imported make of vehicle
and light truck sold in the United States and Canada. Core dealerships are
charged initial subscription fees and on-going fees, principally on a monthly
basis, to participate in our dealer network.
Certified Pre-Owned CyberStore. We launched our CyberStore program in April
1997. The CyberStore allows consumers to search for a pre-owned vehicle
according to specific search parameters such as the price, make, model, mileage,
year and location of the vehicle. CyberStore locates and displays the
description, location and actual digital photograph of all vehicles that satisfy
the search parameters. The consumer can then complete a formal purchase request
for a specific vehicle and is contacted by the dealer to conclude the sale. To
be listed in the CyberStore a pre-owned vehicle must first pass a 135-point
inspection, be covered by a 72-hour money-back guarantee and be covered by a
three-month, 3,000-mile warranty, which is honored nationally by all CyberStore
dealers. We charge each vehicle dealer that participates in the CyberStore
program a separate additional monthly fee. The CyberStore program uses the
Dealer Real Time system to provide participating dealers online purchase
requests shortly after submission by consumers as well as the ability to track
their inventory on a real-time basis.
Ancillary Customer Services. We offer a number of ancillary services that
we market to consumers through our Web site and the linked Web sites of
participating partners such as Chase, GE Capital, Provident Bank and member
companies of the American International Group. We make purchase and lease
financing available to consumers through various Autobytel.com financing
programs offered by Chase, GE Capital and Provident Bank that allow consumers to
research and apply for vehicle financing online in a secure manner. Consumers
can apply for a loan or lease online at the time they submit their purchase
request for either a new or pre-owned vehicle. Consumers are able to arrive at
the dealership with their loan pre-approved, their credit verification documents
in hand, and the loan paperwork waiting for them. We believe that the
convenience of pre-approved purchase or lease financing, combined with a firm,
competitive price, enables dealers more easily to consummate purchase requests.
Lenders to whom Autobytel.com refers customers
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pay us an origination fee for most loans and the dealership is compensated by
the lender for each loan made to an Autobytel.com consumer through either an
origination fee or a limited rate participation fee. We currently market
financing through Chase, GE Capital and Provident Bank.
We provide a link on our Web site to an online insurance application
program offered by the American International Group on behalf of its member
companies through which consumers submit requests for insurance quotes and
obtain approval. The types of insurance products offered through this link
include automobile liability and property damage coverage. Our agreement with
the American International Group provides that we receive an advertising fee
based on a percentage of the net premiums earned and collected by the member
companies of the American International Group on all policies issued to
Autobytel.com consumers who access the American International Group Web site
through a link from our Web site.
We offer critical information concerning all aspects of owning and leasing
new and pre-owned vehicles that we believe makes our Web site a valuable
resource to consumers. AutoBuyTools(TM), a service on our Web site, consists of
a lease calculator, a loan calculator to determine monthly payments and a lease
or buy decision tool.
The Dealer Real Time System. In 1997, we launched a new, proprietary
technology and software system called the Dealer Real Time system. The Dealer
Real Time system is an Internet-based communications platform that gives dealers
a competitive advantage compared to delivering purchase requests by fax. A
fax-based system has the following inherent inefficiencies: it is susceptible to
system delays, has a less effective purchase request and inventory tracking
system and it is difficult to control the distribution of purchase requests.
Such inefficiencies include the delay of delivering faxes to salesmen and the
uncertainty of response time to consumers related to this delivery.
Using Internet technology, the Dealer Real Time system enables the dealer
to:
- instantaneously access a consumer's vehicle purchase request as soon as
the consumer submits it online,
- track all interaction with the consumer,
- send e-mail to consumers using a variety of predetermined templates,
- input used vehicle inventory information for immediate display to
consumers on the Autobytel.com web page,
- track dealership performance through a series of reports available
online,
- access Autobytel.com "news" and product information online, and
- contact Autobytel.com technical support personnel via e-mail links.
In March 1998, as part of our new Dealer Agreement, we began requiring our
dealers to use the Dealer Real Time system, and have converted substantially all
of our dealers to the Dealer Real Time system.
Loyalty Rewards Program (ABT Mobalist). To attract new customers prior to
their next vehicle purchase and encourage repeat business from our existing
customers, we began to offer consumers in April 1998 an affinity program called
Mobalist Rewards. To date, our affinity marketing partners include Virtual
Vineyards, Inc. and Uniglobe Travel Online, Inc. This program allows members to
earn credits toward the purchase price of a new or pre-owned vehicle through our
service. Members earn credits by purchasing products and services from
Autobytel.com's retail partners and also by using a credit card co-branded with
the Autobytel.com trademark to make purchases. We earn a commission each time
these services or the affinity program services are used.
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Planned Online Auction Services. We plan to launch an auction-based
program designed to streamline the process of wholesale buying and selling of
pre-owned vehicles over the next year. Through this program, we expect that our
dealers will be able to place online bids for pre-owned vehicles directly to the
wholesaler, eliminating associated distribution costs.
INTERNATIONAL ACTIVITIES
We intend to expand our new vehicle marketing service to foreign markets
through licensing agreements and by establishing relationships with vehicle
dealers and strategic partners located in foreign markets. As of December 31,
1998, approximately 161 Canadian dealerships belonged to our network. We have
entered into a 20 year agreement with Auto-by-Tel UK Limited, an affiliate of
Inchcape Motors, the United Kingdom's largest independent automobile
distributor, to exclusively license our technology, business processes and trade
names in the United Kingdom, as well as provide maintenance and development for
such technology. We have also entered into a similar arrangement with a term of
up to 10 years with Auto-By-Tel AB, an affiliate of Bilia AB, to exclusively
license our technology, business processes, and trade names in Sweden, Norway,
Denmark and Finland for which we will receive annual licensing and maintenance
fees as well as an initial license fee. Under the terms of our agreement with
Auto-by-Tel UK Limited we are entitled to receive minimum annual license and
maintenance and support fees of $850,000 and $250,000, respectively, and will
receive an initial license fee. We intend to enter into similar relationships
with strategic partners in other countries that have attractive automobile
markets. In addition, we have entered into agreements with Aureus Private Equity
AG and Invision AG to obtain their assistance in meeting potential strategic
partners who will assist us in establishing national operating companies
throughout the rest of Europe using Autobytel.com vehicle marketing systems.
We intend to expand our operations to Japan and have entered into letter
agreements with e-solutions, Inc., Intec, Inc. and Trans Cosmos, Inc. to form
ABT Japan, a joint venture in which we will own a 33% interest. We will license
our trade names, technology and business processes to ABT Japan. We expect ABT
Japan to commence operations by the end of 1999. These companies have elected to
invest $6 million in ABT Japan and to fund an additional $6 million to cover
operating losses, if any, and we have agreed to incorporate ABT Japan with a
capital contribution of $100,000. In addition, these companies have indicated an
interest to purchase 200,000 shares in this offering.
MARKETING AND SALES
Our ability to enhance our brand name recognition, domestically and
internationally, and position ourselves as a leading Internet-based vehicle
information and purchasing services provider is critical to our efforts to
increase the number of vehicle purchase requests and requests for ancillary
services, as well as the number and quality of subscribing dealerships. We have
invested approximately $60 million to date in sales, marketing and
communications activities. Over the past several years, we have been the subject
of numerous newspaper, magazine, radio and television stories. Articles about
our new vehicle program have appeared in Business Week, Fortune, Forbes, Time,
and the Wall Street Journal, among other publications. Television stories
featuring us have been aired nationally on NBC Today, NBC Nightly News and CNN.
We believe that ongoing media coverage is an important element in creating
consumer awareness of the Autobytel.com brand name and has contributed to
dealership awareness of, and participation in, our programs.
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We have established marketing and advertising programs with many of the
leading automotive information providers on the Internet, including Edmund's,
IntelliChoice and Kelley Blue Book which help direct traffic to our Web site and
increase purchase requests. Our agreements with automotive information providers
typically have terms ranging from one to five years. The agreement with Kelley
Blue Book is for an indefinite term but can be terminated on 30 days' notice by
either party. Our Kelly Blue Book agreement calls for a monthly payment based on
the number of times their visitors click on our links. Our position with Kelly
Blue Book is not an exclusive arrangement. Therefore, our competitors may have
similar relationships with Kelley Blue Book.
Edmund's is our single largest referral service. In 1997 and 1998,
approximately 49% and 34%, respectively, of our total purchase requests
originated from Edmund's. This percentage decreased to 29% for the last quarter
of 1998. Our agreement with Edmund's, pursuant to which we receive referrals
from Edmund's Web site, is scheduled to expire July 31, 2000. Edmund's has
agreed to recommend or refer visitors to its Web site only to us and no other
competitive online marketing program with respect to new vehicles, although
Edmund's may refer prospective buyers directly to automotive manufacturers' Web
sites and dealer locator services. We expect Edmund's Web site to account for a
significant number of purchase requests for the foreseeable future. We pay
Edmund's a monthly fee based on a per purchase request basis. We pay
IntelliChoice both a monthly fee for the use of its data and a fee for each
purchase request. Our arrangement with them is not exclusive, as they provide
data to other Web sites.
We endeavor to position ourselves as the leading vehicle and related
services purchasing program by affiliating ourselves with online services and
Internet portals. We believe that our presence on these Internet sites helps to
increase purchase request volume and will remain a key element of our future
business. For example, we have agreements with AT&T Corp., Classifieds2000,
Excite and Lycos that provide as follows:
- We pay AT&T a monthly fee to insert our branded content on their site
which includes a car purchasing link enabling their visitors to send us
purchase requests. We also pay AT&T a fee for each purchase request it
sends us. The agreement is not exclusive and is for an indefinite term
which can be terminated on 30 days' notice by either party.
- Our contract with Classifieds2000 provides that we pay a monthly fee as
well as a fee for each purchase request it sends us for the number of
users who submit purchase requests after having visited its site.
Moreover, it includes our pre-owned vehicle inventory in its classified
listings. In return we provide it with a link on our site where owners
can list their cars for sale directly. Our arrangement with
Classifieds2000 is exclusive. The agreement is for an indefinite term
which can be terminated on 30 days' notice by either party.
- Our agreement with Excite covering its auto channel provides that we pay
Excite a set-up fee and an annual fee as well as a fee for each purchase
request it sends us. The agreement provides us with exclusivity in their
auto channel and is for a term of 3 years but can be terminated by us if
the number of purchase requests does not meet specified threshold for
each year of the term of the agreement. The agreement with Excite
precludes us from providing supplementary automobile research information
to other search engines. Our agreement with Netscape's NetCenter auto
channel is through Excite which manages NetCenter for Netscape. The
agreement provides for an annual fee as well as a fee for each purchase
request it sends us. The agreement with NetCenter is exclusive and has a
two year term.
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- Our agreement with Lycos in its "New" automotive channel is based on an
initial fee as well as a fee for each purchase request it sends us. The
agreement provides us with exclusivity in their "New" automotive area.
The agreement is for a term of one year.
As of December 31, 1998, our Internet marketing agreements with our two
largest search engines, NetCenter and Excite, required us to make aggregate
minimum future payments of $9.1 million and provide up to three new vehicles to
each in a 12 month period. As of December 31, 1998, our agreements with
automotive information providers require aggregate minimum future commitments of
$0.7 million.
During 1998, total Internet marketing and advertising costs incurred were
$11.1 million, including initial, annual and monthly fees of $50,000, $3.0
million and $2.9 million, respectively. No set-up fees were incurred in 1998 and
variable fees were $5.2 million.
We are also working with MediaOne to develop and deliver our broadband
service offering. Broadband allows the Internet to deliver content and services
at faster speeds through high capacity coaxial cable networks. We believe that
the broadband opportunity is becoming an increasingly important focus within the
Internet industry, and we intend to enhance our presence using this technology.
We supplement our Internet presence with television and traditional print
advertising. Our initial marketing focus was on computer user and hobbyist
publications and major automotive magazines. In late 1996, we began to broaden
our marketing efforts with a campaign to accelerate consumer awareness of the
Autobytel.com brand name and drive traffic to our Web site through cable
television advertisements featured on CNN and CNET, Inc. and network television
advertisements featured on NBC and MSNBC. As part of our branding efforts, we
aired a 30-second commercial during the broadcast of the Super Bowl in both 1997
and 1998. We expect to continue to use television advertising to strengthen our
brand awareness. As of December 31, 1998, the aggregate future minimum payments
we are required to make for television advertising was $1.7 million.
In addition to our consumer-oriented marketing activities, we also market
our programs directly to dealerships, participate in trade shows, advertise in
trade publications and major automotive magazines and encourage subscribing
dealerships to recommend our program to other dealerships.
INTELLECTUAL PROPERTY
We have the registered service mark Auto-By-Tel and have applied for the
registered service marks Autobytel.com, AutoBuyTools, Certified Pre-Owned
CyberStore, Kre8.net and Dealer Real Time. The Autobytel.com logo is a service
mark and trademark for which we have applied for federal registration.
DEALER RELATIONSHIPS AND SERVICES
Dealer Network. Dealers participate in our network by entering into
contracts with us. Prior to January 1998, substantially all of the dealer
contracts we entered into were terminable by either party at its sole discretion
with 30 days notice. Since the end of January 1999 and on a going forward basis
we are converting our dealers to new contracts with one year terms that are also
terminable on 30 days' notice by either party. Our dealerships are located in
most major metropolitan areas in the United States and Canada and we believe
they are generally leaders in their respective markets. As of December 31, 1998,
our participating dealership base totaled 2,718 dealers, of which 2,386, or 88%,
are core dealers and 332, or 12%, are non-core dealers. Core
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dealerships are franchises with typically high volume vehicle sales such as Ford
or Toyota. These dealerships pay initiation and monthly fees to subscribe to our
online marketing program. Both the initial and monthly subscription fees are
established in the contract and are based upon many business factors including
the type and location of the franchise. We reserve the right to raise our fees
to dealers after 30 days notice. Non-core dealers are typically franchises of
lower-volume vehicle manufacturers such as Jaguar or Suzuki or are located in
remote, low volume territories, and receive purchase request referrals from us
without paying us either initial or monthly subscription fees. We enter into
agreements with non-core dealers to ensure the broadest geographic coverage
possible for the make of vehicle represented by the non-core dealer. These
agreements also allow us to increase consumer satisfaction by offering a
complete selection of vehicle dealers throughout North America. However, our
costs incurred from non-core dealers are not offset by revenues. We do not
prevent dealers from entering into agreements with our competitors.
Customer Support. We actively monitor subscribing dealers through ongoing
customer surveys, and research conducted by our internal dealer support group.
Generally, within ten days after a consumer submits a purchase request through
our Web site, we re-contact the consumer by e-mail requesting completion of a
quality assurance survey on our Web site that allows us to evaluate the sales
process at participating dealers. Dealerships that fail to abide by our program
guidelines or who receive repeated consumer complaints are generally reviewed
and, if appropriate, terminated. In return for requiring a high level of
consumer service, we assign participating dealerships exclusive territories. We
try to assign dealers attractive territories in order to increase participation
in our program.
Our dealer agreements are cancelable by either party on 30 days notice.
Each dealer agreement obligates the dealers to adhere to our policy of providing
prompt responses to customers, no haggle pricing practices and full disclosure
regarding vehicle availability, add-ons and related matters. We require each
dealer to have an Autobytel.com manager whose principal responsibility is
supervising our system, similar to the way in which most dealers have a new
vehicle sales manager, pre-owned vehicle sales manager and service and parts
department managers who are responsible for those dealership functions. We
reserve the right to reduce or modify each dealer's assigned territory after the
first six months, although there can be no assurance that a dealer whose
territory is reduced or modified will not contest such a change or terminate its
subscription. In addition, dealers whose territories are reduced or modified by
us may sue us in an effort to prevent the change or recover damages. We have
experienced one such suit. See "-- Litigation."
Training. We believe that traditional dealers and their employees require
specialized training to learn the skills necessary to serve the Internet user
and take full advantage of our proprietary Dealer Real Time system. Therefore,
we have developed an extensive training program for our dealers. We believe that
this training is critical to enhancing the Autobytel.com brand and reputation.
We require participating dealerships to have their representatives trained on
our system. Training is conducted at our headquarters in Irvine, California, at
regional training centers and at dealerships' premises. Training is currently
provided to the dealers at no additional cost. In training our dealers, we
de-emphasize traditional vehicle selling techniques and emphasize the
Autobytel.com approach. To increase consumer satisfaction and reduce costs, we
seek to discourage dealerships from using commissioned and multiple salespersons
to interface with our customers.
COMPETITION
We believe that the principal competitive factors affecting the market for
Internet-based vehicle marketing services include:
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- successful marketing and establishment of national brand name
recognition,
- ease of use, speed and quality of service execution,
- the size and effectiveness of the participating dealership base,
- the volume and quality of traffic to and purchase requests from a Web
site,
- the ability to introduce new services in a timely and cost-effective
manner.
- technical expertise,
- customer satisfaction, and
- competitive dealer pricing.
Our vehicle purchasing services compete against a variety of Internet and
traditional vehicle buying services and automotive brokers. In the
Internet-based market, we compete with other entities which maintain similar
commercial Web sites including Autoweb.com, Cendant's AutoVantage, General
Motors' BuyPower, Microsoft's CarPoint and Stoneage Corporation. Republic
Industries has also announced its intention to create a Web site for marketing
vehicles. We also compete indirectly against vehicle brokerage firms and
affinity programs offered by several companies, including Costco Wholesale
Corporation and Wal-Mart Stores, Inc.
We compete with vehicle insurers, lenders and lessors as well as individual
dealerships. Such companies may already maintain or may introduce Web sites
which compete with ours. We cannot assure that we can compete successfully
against current or future competitors, many of which have substantially more
capital, resources and access to additional financing than we do, nor can there
be any assurance that competitive pressures faced by us will not result in
increased marketing costs, decreased Web site traffic or loss of market share or
otherwise will not materially and adversely affect our business, results of
operations and financial condition. We compete primarily on brand name
recognition acquired through early entry into the Internet-based automotive
purchase referral market and through customer and dealer satisfaction.
OPERATIONS AND TECHNOLOGY
We believe that our future success is significantly dependent upon our
ability to continue to deliver a high-performance and reliable Web site, enhance
consumer/dealer communications, maintain the highest levels of information
privacy and ensure transactional security. We host our Web site at our corporate
headquarters in Irvine, California. We currently contract the services of two
nationally established Internet service providers to connect our systems with
the Internet. Our primary provider supplies two-thirds of our capacity to
connect with the Internet and our secondary provider supplies the remaining
third. Our primary servers are housed in one climate-controlled, raised floor
computer room with back-up power systems. We use industry-standard computers and
equipment in our network. Network security is provided by utilizing standard
products.
System enhancements are primarily intended to accommodate increased traffic
across our Web site, improve the speed in which purchase requests are processed
and introduce new and enhanced products and services. System enhancements entail
the implementation of sophisticated new technology and system processes.
FACILITIES
Our operations are principally located in a single office building in
Irvine, California. We occupy three full floors, each consisting of
approximately 12,000 square feet, which are
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leased through August 2001. We have options to renew the leases on each floor
for an additional 5-year term. We also lease office space in Houston, Texas,
consisting of less than 5,000 square feet through one of our subsidiaries,
Kre8.net, Inc., an Internet software company for dealer Web site design and
systems backup. In order to replace their existing leased space, we have
recently entered into a lease agreement for office space in Houston consisting
of 9,000 square feet, which Kre8.net plans to move into in the second quarter of
1999.
GOVERNMENT REGULATION
Currently few laws or regulations have been adopted that apply directly to
Internet business activities. The adoption of additional local, state, national
or international laws or regulations may decrease the growth of Internet usage
or the acceptance of Internet commerce.
We believe that our dealer marketing services do not constitute franchising
or vehicle brokerage activity in a way that makes federal and state franchise,
motor vehicle dealer, or vehicle broker licensing laws applicable to us.
However, if individual state regulatory requirements change or additional
requirements are imposed on us, we may be required to modify our service
programs in such a state in a manner which may undermine our program's
attractiveness to consumers or dealers.
If we are required by a state to be licensed as a vehicle broker and we
determine that the licensing and related requirements are overly burdensome, we
may elect to terminate operations in such a state.
In the event a state deems that we are acting as a vehicle broker, we may
be required to comply with burdensome licensing requirements of such state or
terminate operations in such state. As we introduce new services, we may need to
comply with additional licensing regulations and regulatory requirements.
Our marketing service may result in changes in the way vehicles are
currently sold or may be viewed as threatening by new and pre-owned vehicle
dealers who do not subscribe to the Autobytel.com program. Such businesses are
often represented by influential lobbying organizations, and such organizations
or other persons may propose legislation that, if adopted, could impact our
evolving marketing and distribution model, which our service promotes.
We expect to expand our operations to other countries that may have laws or
be subject to treaties that regulate the marketing, distribution, and sale of
vehicles. As we consider specific foreign operations, we will need to determine
whether the laws of the countries in which we seek to operate require us to
modify our program or otherwise change the Autobytel.com system or prohibit the
use of the system in such country entirely. In addition, the laws of a foreign
country may impose licensing, bonding or similar requirements on us as a
condition to doing business there.
To date, we have not expended significant resources on lobbying or related
government affairs issues but may be required to do so in the future.
Franchise Classification. If our relationship or written agreement with our
dealers was found to be a "franchise" under federal or state franchise laws, we
could be subjected to additional regulations, including but not limited to
licensing, increased reporting and disclosure requirements. Compliance with
varied laws, regulations, and enforcement characteristics found in each state
may require us to allocate both staff time and monetary resources, each of which
may have an adverse affect on our results of operations. As an
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additional risk, if our dealer relationship or subscription agreement is
determined to establish a franchise, we may be subject to limitations on our
ability to quickly and efficiently effect changes in our dealer relationships in
response to changing market trends, which may negatively impact our ability to
compete in the marketplace.
We believe that neither our relationship with our subscribing dealers nor
our dealer subscription agreements themselves constitute "franchises" under
federal or state franchise laws. This belief has been challenged but upheld by a
Federal District Court in Michigan that ruled our business relationship and our
dealer subscription agreement does not rise to the level of a "franchise" under
Michigan law.
Vehicle Brokerage Activities. If government licensing and enforcement
authorities determine that state motor vehicle brokering laws apply to our
business operations, we may be required to apply for and obtain a motor vehicle
brokers license. As additional risk, we may be required to pay administrative
fees, fines, and penalties for failure to comply with such licensing
requirements.
We believe that state motor vehicles dealer or broker licensing laws do not
apply to us. We believe that our dealer marketing service model does not qualify
as an automobile brokerage activity and therefore state broker licensing
requirements do not apply to us.
In response to concerns about our marketing program raised by the Texas
Department of Transportation, we modified our marketing program in that state to
achieve compliance. These modifications included a unique pricing model under
which all subscribing dealerships in Texas are charged uniform fees based on the
population density of their particular geographic area and opening our program
to all dealerships who wish to apply.
In the event that any other state's regulatory requirements impose state
specific requirements on us or include us within an industry-specific regulatory
scheme, we may be required to modify our marketing programs in such states in a
manner which may undermine the program's attractiveness to consumers or dealers.
In the alternative, if we determine that the licensing and related requirements
are overly burdensome, we may elect to terminate operations in such state. In
each case, our business, results of operations and financial condition could be
materially and adversely affected.
Financing Related Activities. We provide a connection through our Web site
that allows a consumer to obtain finance information and loan approval. We do
not demand nor do we receive any fees from consumers for this service. We do
receive fees from participating lenders. We currently hold financial broker
licenses in the states of Florida, Indiana, Rhode Island, and Wisconsin and have
applied for renewals in California and Colorado. In the event other states
require us to be licensed, we intend to obtain such licenses. We may be unable
to comply with a state's regulations affecting our current operations or newly
introduced services, or we could be required to incur significant fees and
expenses to license or be compelled to discontinue finance operations in those
states.
Insurance Related Activities. We provide access through a link from our Web
site to a Web site owned and maintained by American International Group. Persons
visiting our Web site who access the Web site maintained by American
International Group may obtain insurance directly from its member companies. We
receive fees from American International Group for allowing the American
International Group's Web site to be accessed from ours. We receive no premiums
from consumers nor do we charge consumers fees for our services. All
applications are completed on American International Group's Web site and at no
time do we receive the secure data found on the applications.
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We do not believe that our activity requires us to be licensed under state
insurance laws. The use of the Internet in the marketing of insurance products,
however, is a relatively new practice. It is not clear whether or to what extent
state insurance licensing laws apply to activities similar to ours. Given this
aforementioned uncertainty, we elected to proactively apply for and currently
hold insurance agent licenses in California, Indiana, Nebraska, New Jersey, and
Utah. We have also applied for insurance agent licenses in all remaining states
that license corporations as insurance agents and are awaiting approvals.
EMPLOYEES
As of December 31, 1998, we had a total of 180 employees. We also utilize
independent contractors for software and hardware development and certain
administrative activities. None of our employees are represented by a labor
union. We have not experienced any work stoppages and consider our employee
relations to be good.
LITIGATION
Jerome-Duncan Ford, a Michigan dealership, first subscribed to our new
vehicle marketing program in June 1996. In January 1997, we sought to replace
the existing agreement with our new standard subscription services agreement and
realign Jerome-Duncan Ford territory. Jerome-Duncan Ford objected to the
realignment and ceased payment of its monthly subscription fee to us. Unable to
resolve the matter, we terminated Jerome-Duncan Ford's subscription dealer
agreement. Jerome-Duncan Ford then sued us in Michigan State Court and sought an
injunction to prevent us from cancelling Jerome-Duncan Ford's subscription
services agreement. Jerome-Duncan Ford based its action on Michigan franchise
law which prohibits a franchiser from terminating a franchisee without good
cause. We removed the case to federal court. In late June 1997, the federal
district court ruled in favor of us and denied the injunction. The court held
that Jerome-Duncan Ford showed insufficient evidence of a likelihood of success
on the merits involving claims of breach of Michigan franchise law. The court
found that no franchise existed. We thereafter moved for summary judgment on the
franchise issues.
In late 1997, the court granted our motion for summary judgment and held
that our subscription services agreement and method of operation did not
constitute a franchise under Michigan state law. The plaintiffs have appealed
the ruling.
Halrec, Inc., a California based Toyota dealership, first subscribed to our
new vehicle marketing program in October 1996 and subsequently to our financing
program. On November 13, 1998, Halrec sued us in Superior Court, County of Santa
Clara, California for, among other things, restraint of trade, intentional
misrepresentation and unfair competition claiming that we wrongfully awarded to
other car dealers geographic territories that were contractually the property of
Halrec. We believe Halrec's claims are without merit and are vigorously
defending ourselves against their claims.
From time to time, we are involved in other litigation matters relating to
claims arising out of the ordinary course of business. We are involved in at
least one such case currently, including one seeking punitive damages in an
unspecified amount. We believe that there are no claims or actions pending or
threatened against us, the ultimate disposition of which would have a material
adverse effect on our business, results of operations and financial condition.
However, if a court or jury rules against us and the ruling is ultimately
sustained on appeal and damages are awarded against us that include punitive
damages, such ruling could have a material and adverse effect on our business,
results of operations and financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of Autobytel.com. Our audit committee consists of Mr.
Fuchs, Mr. Coats and Mr. Kaplan. Our compensation committee consists of Mr.
Fuchs, Mr. Coats and Mr. Orton.
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS AGE POSITION
---------------------- --- --------
<S> <C> <C>
Michael J. Fuchs.......................... 52 Chairman of the Board and Director
Mark W. Lorimer........................... 39 Chief Executive Officer, President and
Director
Robert S. Grimes.......................... 54 Executive Vice President and Director
Hoshi Printer............................. 57 Senior Vice President and Chief
Financial Officer
Ann M. Delligatta......................... 51 Executive Vice President and Chief
Operating Officer
Ariel Amir................................ 39 Vice President and General Counsel
Jeffrey H. Coats.......................... 41 Director
Mark N. Kaplan............................ 69 Director
Kenneth J. Orton.......................... 47 Director
Peter Titz................................ 45 Director
Richard A. Post........................... 40 Director
</TABLE>
Michael J. Fuchs was elected as a director of Autobytel.com in September
1996 and became Chairman in June 1998. Mr. Fuchs was Chairman and Chief
Executive Officer of Home Box Office, a Division of TimeWarner Entertainment
Company, L.P., a leading pay-television company, from October 1984 until
November 1995, and Chairman and Chief Executive Officer of Warner Music Group, a
Division of Time Warner Inc., from May 1995 to November 1995. Mr. Fuchs holds a
B.A. from Union College and a J.D. from the New York University School of Law.
Mr. Fuchs is a member of the board of directors of IMAX Corp., Wink
Communications, Inc. and Consolidated Cigar Holdings Inc.
Mark W. Lorimer joined Autobytel.com in December 1996 as Vice President,
General Counsel and Secretary, and was promoted to Executive Vice President and
Chief Operating Officer in May 1997. In May 1998, Mr. Lorimer was promoted to
President. He was elected a director and appointed Chief Executive Officer of
Autobytel.com in June 1998. From January 1996 to November 1996, Mr. Lorimer was
a partner and, from March 1989 to January 1996, was an associate with the law
firm of Dewey Ballantine LLP. Mr. Lorimer is a member of the board of directors
of IMC Mortgage Company. Mr. Lorimer holds a B.S. in Speech from Northwestern
University and a J.D. from the Fordham University School of Law.
Robert S. Grimes has been a director of Autobytel.com since inception and
has served as Executive Vice President since July 1996. Since September 1987,
Mr. Grimes has been President of R.S. Grimes & Co., Inc., a private investment
company. From April 1981 to March 1987, Mr. Grimes was a partner with the
investment firm of Cowen & Company. Mr. Grimes holds a B.S. from the Wharton
School of Commerce and Finance at the University of Pennsylvania and an L.L.B.
from the University of Pennsylvania Law School. Mr. Grimes has served on the
board of directors of Philips International Realty Corp., a New York Stock
Exchange listed company, since April 1998.
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Hoshi Printer joined Autobytel.com in January 1999 as Senior Vice President
and Chief Financial Officer. From June 1996 to December 1998, Mr. Printer served
as Vice President, Finance and Administration, Chief Financial Officer and
Secretary of Peerless Systems Corporation, a software technology company. From
July 1995 to May 1996, Mr. Printer was Chief Financial Officer of Neuron Data
Inc., a software technology company. From July 1994 to June 1995 Mr. Printer
served as Chief Financial Officer of Soane Technologies Inc., a polymer
technology company. From January 1990 to June 1994, Mr. Printer was Chief
Financial Officer of Catalytica Inc., an environmental technology company. Mr.
Printer also worked at Xerox Corporation for over 17 years as Vice President of
Finance and in 1976 served as a consultant to the White House for the
President's Reorganization project on cash management. Mr. Printer holds a B.E.
in mechanical engineering and a B.E. in electrical engineering from Poona
University in India, an M.S. in industrial engineering from Oklahoma State
University and an M.B.A. from Stanford University.
Ann M. Delligatta joined Autobytel.com in June 1997 as Senior Vice
President and Chief Technology Officer and was promoted to Executive Vice
President and Chief Operating Officer in July 1998. From September 1996 to June
1997, Ms. Delligatta was President and Chief Executive Officer of the Pharos
Group, an information technology consulting organization. From January 1987 to
September 1996, Ms. Delligatta held a number of managerial positions at TRW
Inc.'s TRW Information Systems and Services Group, most recently as Vice
President and General Manager/Information Technology Services. Ms. Delligatta
attended Mount St. Mary's College and was named by McGraw-Hill Companies as one
of the "Top 100 Women in Computing in 1996" in recognition of her success in the
alignment of business and technology strategies.
Ariel Amir joined Autobytel.com as Vice President and General Counsel in
March 1999. Mr. Amir was Vice President of Security Capital U.S. Realty from
February 1998 until March 1999, where he was responsible for mergers and
acquisitions and relations with strategic investees. Mr. Amir was Vice President
of Security Capital Group Incorporated, where he provided securities offering
and corporate acquisitions services from June 1994 until January 1998. Prior to
joining Security Capital Group, Mr. Amir was an attorney with the law firm of
Weil, Gotshal & Manges in New York where he practiced securities and corporate
law from September 1985 until April 1994. Mr. Amir received his law degree from
Georgetown University Law Center, an M.S. in industrial administration from
Carnegie-Mellon University Graduate School of Industrial Administration and an
A.B. in Economics, with honors, from Washington University in St. Louis.
Jeffrey H. Coats was elected a director of Autobytel.com in August 1996.
Mr. Coats has served as Managing Director of GE Equity Capital Group, Inc., a
wholly-owned subsidiary of General Electric Capital Corporation, a significant
stockholder in us, since April 1996. He has also held various positions, most
recently as Managing Director, of GE Capital Corporate Finance Group, Inc., a
wholly-owned subsidiary of General Electric Capital Corporation, from June 1987
to April 1993. From March 1994 to April 1996, Mr. Coats served as President of
Maverick Capital Equity Partners, LLC, and from April 1993 to January 1994, Mr.
Coats was a partner with Veritas Capital, Inc., both of which are investment
firms. Mr. Coats holds a B.B.A. in Finance from the University of Georgia and a
Masters in International Management in Finance from the American Graduate School
of International Management. Mr. Coats is a director and Chairman of the Board
of The Hastings Group, Inc., a privately-held clothing retailer, which on
October 23, 1995, filed a voluntary petition under Chapter 11 of the Bankruptcy
Code and confirmed a plan of liquidation in late 1997. Mr. Coats became a
director of The Hastings Group in
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connection with Maverick Capital Equity Partners' purchase of the assets of the
predecessor of The Hastings Group in a previous bankruptcy proceeding. Maverick
Capital Equity Partners was not able to make the business of The Hastings Group,
Inc. profitable after it purchased the business in a previous bankruptcy
proceeding and accordingly, The Hastings Group, Inc. filed for bankruptcy after
Maverick Capital Equity Partners determined not to continue to fund its
operating losses. Mr. Coats is a member of the board of directors of Wink
Communications, Inc. and of Krause's Furniture, Inc., a publicly-held company.
Mark N. Kaplan was elected as a director of Autobytel.com in June 1998. Mr.
Kaplan has been a member of the law firm of Skadden, Arps, Slate, Meagher & Flom
LLP since 1979. Mr. Kaplan serves on the board of directors of the following
companies whose shares are publicly traded: American Biltrite, Inc., Congoleum
Corporation, Inc., DRS Technologies, Inc., Grey Advertising, Inc., MovieFone,
Inc., REFAC Technology Development Corporation, and Volt Information Services,
Inc. Mr. Kaplan holds an A.B. from Columbia College and a J.D. from Columbia Law
School.
Kenneth J. Orton was elected a director of Autobytel.com in June 1998. Mr.
Orton is currently a director, and through February 1999 Mr. Orton was the
President and Chief Executive Officer, of Preview Travel, Inc., which he joined
in April 1994 as President and Chief Operating Officer. From September 1989 to
March 1994, Mr. Orton was Vice President and General Manager of the San
Francisco division of Epsilon, a database marketing firm and a wholly owned
subsidiary of American Express Company. Prior to his employment with Epsilon,
Mr. Orton was Vice President of MARC Inc., a market research and database
marketing company, and Vice President of Sales and Marketing for Future
Computing. Mr. Orton also serves as a director of ONSALE, Inc., a publicly-held
company. Mr. Orton received a B.A. from California State University, Fullerton.
Peter Titz was elected a director of Autobytel.com in January 1999. Mr.
Titz is a manager of Metro International Dienstleistung Beteiligungs AG and
Invision AG. Before joining Metro and Invision AG in 1989, Mr. Titz was managing
director of various institutions in the financial service sector including
American Express in Frankfurt where he was responsible for the introduction of
automatic teller machines and the installation of POS systems in Europe. Mr.
Titz received a degree in engineering from the University of Aachen and a degree
in economics from the University of Bonn. Mr. Titz is President of the board of
directors of Aureus Private Equity AG and Deutsche Media AG and is a member of
the board of directors of Teleclip AG.
Richard A. Post was elected a director of Autobytel.com in February 1999.
Mr. Post is Executive Vice President and Chief Financial Officer of MediaOne
Group, Inc. and president of MediaOne Capital Corp., a subsidiary of MediaOne
Group, Inc. Mr. Post joined US WEST Financial Services in April 1988 as manager
of Corporate Development and was promoted in 1990, first to executive director,
and then to vice president, responsible for all Capital Asset Group businesses.
From June 1996 to January 1997, he was president of Corporate Development at US
WEST, Inc. where he had responsibility for corporate development efforts at US
WEST Communications, as well as US WEST, Inc. US WEST, Inc. has since split into
two separate corporations, MediaOne Group, Inc. and US WEST. From December 1995
to June 1996, he served as vice president of Corporate Development for US WEST
Media Group, a division of the former US WEST, Inc. Mr. Post holds both a
business administration degree and an MBA from Delta State University. Mr. Post
is a member of the board of directors of Financial Security Assurance Holdings,
Inc., a financial guaranty company based in New York.
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BOARD COMPOSITION
The board of directors has currently authorized eight members of whom two
are to be elected by the holders of series A preferred stock pursuant to
Autobytel.com's certificate of incorporation. Mr. Coats and Mr. Fuchs are the
designees of the series A preferred stock to the board of directors. The rights
of the series A preferred stockholders will expire upon the closing of this
offering. Members of the board of directors are elected each year at our annual
meeting of stockholders, and serve until the following annual meeting of
stockholders or until their respective successors have been elected and
qualified.
In accordance with the terms of Autobytel.com's restated certificate of
incorporation, effective upon the closing of this offering, the terms of office
of the board of directors will be divided into three classes: the Class I term
will expire at the annual meeting of stockholders to be held in 1999; the Class
II term will expire at the annual meeting of stockholders to be held in 2000;
and the Class III term will expire at the annual meeting of stockholders to be
held in 2001. The Class I directors will be Mr. Lorimer, Mr. Titz and Mr. Post,
the Class II directors will be Mr. Kaplan and Mr. Orton and the Class III
directors will be Mr. Grimes, Mr. Fuchs and Mr. Coats. At each annual meeting of
stockholders after the initial classification, the successors to directors whose
term will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election. In addition,
our restated certificate of incorporation provides that the authorized number of
directors shall be designated by the bylaws of Autobytel.com. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of Autobytel.com. Directors of Autobytel.com may be removed, with or
without cause, by the affirmative vote of the holders of a majority of the
shares entitled to vote at an election of directors. There are no family
relationships among any of the directors and executive officers of
Autobytel.com.
BOARD COMMITTEES
The audit committee consists of Mr. Coats, Mr. Fuchs and Mr. Kaplan. The
audit committee makes recommendations to the board of directors regarding the
selection of independent public accountants, reviews the results and scope of
the audit and other services provided by Autobytel.com's independent public
accountants and reviews and evaluates our control functions.
The compensation committee consists of Mr. Coats, Mr. Fuchs and Mr. Orton.
The compensation committee administers the issuance of stock under
Autobytel.com's 1996 Stock Incentive Plan, 1996 Stock Option Plan, 1996 Employee
Stock Purchase Plan, 1998 Stock Option Plan and 1999 Stock Option Plan, makes
recommendations regarding various incentive compensation and benefit plans and
determines salaries for the executive officers and incentive compensation for
employees and consultants of Autobytel.com.
DIRECTOR COMPENSATION
Our non-employee directors do not currently receive any cash compensation
for service on Autobytel.com's board of directors or any committee thereof, but
directors may be reimbursed for expenses incurred in connection with attendance
at board and committee meetings. Our 1999 Stock Option Plan provides for
automatic grants of stock options to non-employee directors. See "Stock
Plans -- 1999 Stock Option Plan."
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We have entered into indemnification agreements with each member of the
board of directors and our officers providing for the indemnification of such
person to the fullest extent authorized, permitted or allowed by law.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation
(rounded to the nearest thousand) paid during each of our last three completed
fiscal years to our Chief Executive Officer and each of our other five most
highly compensated executive officers as of December 31, 1998. Mr. Ellis
resigned as our Chief Executive Officer in June 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
FISCAL COMPENSATION OTHER SECURITIES
NAME AND PRINCIPAL YEAR ENDED ------------------- ANNUAL UNDERLYING
POSITION DECEMBER 31, SALARY BONUS COMPENSATION OPTIONS(#)
------------------ ------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Peter R. Ellis............. 1998 $219,000 $ -- $522,000(1) --
Former Chief Executive 1997 275,000 100,000 15,000 --
Officer and President 1996 123,000 321,000 11,000 --
Mark W. Lorimer............ 1998 316,000 150,000 9,000 750,000(2)
Chief Executive Officer
and 1997 200,000 100,000 70,000(3) 100,000
President 1996 8,000 -- -- 333,333
Robert S. Grimes........... 1998 220,000 75,000 -- 125,000
Executive Vice President 1997 180,000 -- -- 116,667
1996 90,000 -- -- 166,667
Ann M. Delligatta.......... 1998 177,000 100,000 -- 316,667(4)
Executive Vice President 1997 88,000 -- -- 83,334
and Chief Operating
Officer
Michael J. Lowell.......... 1998 190,000 -- -- 16,667
Senior Vice President, 1997 139,000 50,000 -- 50,000
Development 1996 15,000 -- -- 111,111
Anne Benvenuto............. 1998 150,000 -- -- 16,667
Senior Vice President, 1997 13,000 5,000 15,000(3) 33,333
Marketing
</TABLE>
- -------------------------
(1) Represents a one-time payment of $500,000, $14,000 car allowance and $8,000
legal expenses. See "Certain Transactions."
(2) 500,000 shares of such securities underlying options are contingent on the
performance of our market trading price after the closing of the offering.
(3) Relocation expense reimbursement.
(4) 200,000 shares of such securities underlying options are contingent on the
performance of our market trading price after the closing of the offering.
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<PAGE> 56
OPTION GRANTS DURING 1998
The following table sets forth the five most highly compensated officers
and certain information concerning stock options granted to them during 1998. We
have never issued stock appreciation rights. Options were granted at an exercise
price equal to the fair market value of the common stock at the date of grant.
In determining the fair market value of the common stock, the board of directors
considered various factors, including recent arms' length transactions, our
financial condition and business prospects, operating results, the absence of a
market for the common stock and the risks normally associated with investments
in companies engaged in similar businesses. The term of each option granted is
generally ten years from the date of grant. Options may terminate before their
expiration dates, if the optionee's status as an employee or a consultant is
terminated or upon the optionee's death or disability. We have not included
disclosure on Mr. Ellis as he resigned as our Chief Executive Officer in June
1998 and did not receive any option grants in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
---------------------------------------------------------- OF ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) 1998(2) ($/SHARE) DATE(4) 5%($) 10%($)
---- ------------- -------------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark W. Lorimer...... 200,000 12.3% $13.20 12/17/08 $1,660,282 $ 4,207,480
500,000 30.7% 13.20 12/17/08 4,150,705 10,518,700
50,000 3.1% 13.20 06/21/08 415,070 1,051,870
Robert S. Grimes..... 125,000 7.7% 13.20 12/17/08 1,037,676 2,629,675
Ann M. Delligatta.... 100,000 6.1% 13.20 12/17/08 830,141 2,103,740
200,000 12.3% 13.20 12/17/08 1,660,282 4,207,480
16,667 1.0% 13.20 06/21/08 138,360 350,630
Anne Benvenuto....... 16,667 1.0% 13.20 06/21/08 138,360 350,630
Michael J. Lowell.... 16,667 1.0% 13.20 06/21/08 138,360 350,630
</TABLE>
- -------------------------
(1) Represents options granted under our Amended and Restated 1996 Stock
Incentive Plan and the 1998 Stock Option Plan.
(2) Based on an aggregate 1,630,340 shares of our common stock subject to
options granted to employees during fiscal 1998.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
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<PAGE> 57
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
The following table sets forth for each of the five most highly compensated
officers certain information concerning options exercised during fiscal 1998 and
the number of shares subject to both exercisable and unexercisable stock options
as of December 31, 1998. The values for "in-the-money" options are calculated by
determining the difference between the fair market value of the securities
underlying the options as of December 31, 1998 ($13.20 per share as determined
by the board of directors) and the exercise price of the officer's options. In
determining the fair market value of the common stock, the board of directors
considered various factors, including recent arms' length transactions, our
financial condition and business prospects, its operating results, the absence
of a market for the common stock and the risks normally associated with
investments in companies engaged in similar businesses. Autobytel.com has never
issued stock appreciation rights. We have not included disclosure on Mr. Ellis
as he resigned as our Chief Executive Officer in June 1998 and holds no options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
NUMBER OF OPTIONS AT THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark W. Lorimer........ -- $ -- 209,999 973,334 $1,609,491 $1,290,506
Michael J. Lowell...... -- -- 104,861 72,917 725,006 241,660
Robert S. Grimes....... -- -- 245,834 162,500 2,060,004 --
Ann M. Delligatta...... -- -- 29,165 370,836 -- --
Anne Benvenuto......... -- -- 8,333 41,667 -- --
</TABLE>
STOCK PLANS
Since our inception the board of directors has granted stock options in
order to attract, retain and motivate employees. Our board of directors
considers many factors in granting stock options. For example, among other
factors, our board of directors considers competitive market conditions for
employees and the risk associated with working for a development stage Internet
company.
1996 Stock Option Plan. Autobytel.com's 1996 Stock Option Plan was approved
by the board of directors on May 18, 1996 and the stockholders on May 31, 1996.
The 1996 Option Plan was terminated by a resolution of the board of directors on
October 23, 1996, at which time over 800,000 options had been issued.
The 1996 Option Plan provided for the granting to employees and directors
of stock options intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for
the grant to employees, consultants and directors of nonstatutory stock options.
Autobytel.com reserved 1,194,444 shares of common stock for issuance under the
1996 Option Plan. Under the 1996 Option Plan, the exercise price of any
incentive stock options granted under the 1996 Option Plan were not less than
the fair market value of the common stock on the date of grant, and the exercise
price of any non-statutory stock option granted under the 1996 Option Plan were
not less than 85% of the fair market value of the common stock at the date of
grant. The term of all options granted under the 1996 Option Plan did not exceed
10 years. The administrator of the options granted under the 1996 Option Plan is
the board of directors or a committee of the board of directors. Any options
granted under the 1996 Option Plan are exercisable at such times as determined
by the administrator, but in no case at a rate
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<PAGE> 58
of less than 20% per year over five years from the grant date. A majority of the
outstanding options vest and became exercisable as to one third of the grant on
October 31, 1996, and as to an additional one third of the grant at each
successive October 31. Options granted under the 1996 Option Plan generally must
be exercised within 30 days following termination of the optionee's status as an
employee, director or consultant of Autobytel.com, or within 12 months following
such optionee's termination by death or disability. Any optionee holding options
granted under the 1996 Option Plan cannot sell or transfer any shares of common
stock during the 180 day period following the effective date of the registration
statement relating to an initial public offering of securities filed pursuant to
the Securities Act.
1996 Stock Incentive Plan. The Incentive Plan was approved by the board of
directors on October 23, 1996, amended and restated by the board of directors on
November 24, 1996 and approved by the stockholders on January 16, 1997. The 1996
Stock Incentive Plan provides for the granting to employees and directors of
stock options intended to qualify as incentive stock options within the meaning
of Section 422 of the Code, and for the granting to employees, directors and
consultants of nonstatutory stock options and stock purchase rights.
As approved by the stockholders, Autobytel.com reserved 833,333 shares of
common stock for issuance under the Incentive Plan. Options with respect to all
of the common stock reserved for issuance have been issued and are either
incentive stock options or nonstatutory stock options.
Options granted under the Incentive Plan are not generally transferable by
the option holder, and each option is exercisable during the lifetime of the
option holder only by such option holder. Options granted under the Incentive
Plan must generally be exercised within three months of the end of the option
holder's status as an employee or consultant of Autobytel.com, or within twelve
months after such option holder's termination by death or disability, but in no
event later than the expiration of the option's ten year term.
The board of directors determined the exercise price of nonstatutory stock
options granted under the Incentive Plan, and in all cases, the exercise price
was the fair market value of the common stock on the date of grant. The term of
all options granted under the Incentive Plan did not exceed ten years. Stock
options granted under the Incentive Plan vest according to vesting schedules
determined by the administrator.
The Incentive Plan provides that in the event of a merger of Autobytel.com
with or into another corporation, a sale of substantially all of Autobytel.com's
assets or a like transaction involving Autobytel.com, each option will be
assumed or an equivalent option substituted by the successor corporation. If the
outstanding options are not assumed or substituted as described in the preceding
sentence, the committee of the board of directors shall provide for each option
holder to have the right to exercise the option as to all of the optioned stock,
including shares as to which it would not otherwise be exercisable. If the
administrator makes an option exercisable in full in the event of a merger or
sale of assets, the administrator will notify the option holder that the option
will be fully exercisable for a period of 15 days from the date of such notice,
and the option will terminate upon the expiration of such period.
From October 1996 through January 1999, we purported to grant incentive
stock options to employees, of which 689,406 shares granted exceeded the
Incentive Plan limit of 833,333 shares. As of January 29, 1999, 688,921 options,
and 485 shares that were acquired upon the exercise of excess options were
outstanding in excess of the Incentive
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Plan limit. Because these grants exceed the plan's limit, they did not qualify
as incentive stock options, which have more favorable tax treatment for
employees than nonqualified stock options. In connection with these matters, on
January 29, 1999, we filed an application with the California Department of
Corporations for approval of a rescission offer to those affected optionholders
holding options covering 689,406 shares of common stock. The Department of
Corporations approved the rescission offer on February 12, 1999. The rescission
offer allowed each affected optionholder to choose between a cash payment or a
new grant of incentive stock options under the 1999 Stock Option Plan. The offer
for a cash payment was for 10% of the aggregate exercise price per share of the
option plus 7% statutory interest since the date of grant of the option. The
terms of the options granted under the 1999 Stock Option Plan are similar to the
terms of the original stock options, with an exercise price equal to the fair
market value on the date of regrant. In addition, optionholders who chose new
grants under the 1999 Stock Option Plan were granted additional options based on
the length of time the original options were held. The aggregate maximum number
of additional shares of common stock issuable under this choice for all those
optionholders were 35,000 shares. All the affected optionholders participated in
the rescission offer and we paid $8,000 to four optionholders who chose the cash
alternative.
1996 Employee Stock Purchase Plan. Autobytel.com's 1996 Employee Stock
Purchase Plan was adopted by the board of directors on November 18, 1996 and
approved by the stockholders on January 16, 1997. The maximum number of shares
of common stock available for sale is 444,444. Currently the plan has not been
implemented. The Purchase Plan, which is intended to qualify under Section 423
of the Code, permits eligible employees of Autobytel.com to purchase shares of
common stock through payroll deductions of up to ten percent of their
compensation for all purchase periods ending within any calendar year.
Individuals who are eligible employees on the start day of any offering
period may enter the Purchase Plan on that start date. Individuals who become
eligible employees after the start date of the offering period may join the
Purchase Plan on any subsequent quarterly entry date within that period.
Employees are eligible to participate if they are customarily employed by
Autobytel.com or any designated subsidiary for at least 20 hours per week and
for more than five months in any calendar year.
The price of common stock purchased under the Purchase Plan will be 85% of
the lower of the fair market value of the common stock on the first or last day
of each six month purchase period. Employees may end their participation in the
Purchase Plan at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with Autobytel.com. Rights granted under the Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the plan.
The Purchase Plan will be administered by the board of directors or by a
committee appointed by the board of directors. The board of directors may amend
or modify the Purchase Plan at any time. The Purchase Plan will terminate 10
years from the date of its adoption.
1998 Stock Option Plan. Our 1998 Stock Option Plan was adopted by the
board of directors in December 1998. The Plan provides that an aggregate of
1,500,000 shares of our common stock is available to be granted to key employees
of Autobytel.com and its parent or subsidiary corporations, if any. If any stock
option expires or terminates for any reason without having been exercised in
full, new stock options may be granted covering
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the shares of our common stock originally set aside for the unexercised portion
of such expired or terminated stock option.
Under the 1998 Option Plan, eligible key employees of Autobytel.com may
receive incentive stock options within the meaning of Section 422 of the Code or
nonstatutory stock options. No eligible employee shall receive stock options
with respect to more than 700,000 shares of our common stock during any one
calendar year. Incentive stock options granted under the 1998 Option Plan must
have an exercise price that is no less than the fair market value of our common
stock as of the time the option is granted and generally may not be exercised
more than ten years after the date of grant. Any incentive stock option that is
granted to any option holder who beneficially owns more than 10% of the total
combined voting power of all classes of outstanding shares of capital stock of
Autobytel.com must have an exercise price that is no less than 110% of the fair
market value of our common stock as of the time the option is granted and may
not be exercised more than five years after the date of grant. To the extent
that the aggregate fair market value of stock exercisable by an optionee for the
first time in any one calendar year under incentive stock options granted under
the 1998 Option Plan and all other stock plans of Autobytel.com exceeds
$100,000, options for such shares shall not be considered incentive stock
options but instead shall be considered nonstatutory stock options.
Nonstatutory stock options granted under the 1998 Option Plan must have an
exercise price that is no less than 85% of the fair market value of our common
stock as of the time the option is granted and may not be exercised more than 10
years after the date they are granted. Under the 1998 Option Plan, nonstatutory
stock options vest over a time period determined by the administrator, however,
the vesting could accelerate based on the performance of our common stock. All
other stock options granted under the 1998 Option Plan vest according to
time-based vesting schedules determined by the administrator. In addition, an
option holder who is not an officer, director or consultant shall have the right
to exercise at least 20% of the options granted per year over 5 years from the
date of grant. Options granted under the 1998 Option Plan are nontransferable,
other than by will or the laws of descent and distribution.
The 1998 Option Plan provides that, unless otherwise stated in a stock
option agreement, upon any merger, consolidation, or sale or transfer of all or
any part of our business or assets, any option shall vest and may be exercised
immediately unless any party to these transactions specifically assumes our
obligations under the 1998 Option Plan. In addition, unless otherwise provided
in the stock option agreement for any given option, upon any liquidation or
dissolution of Autobytel.com, all rights of the option holder with respect to
the unexercised portion of any option will terminate and all options will be
canceled unless the plan under which such liquidation or dissolution is effected
makes specific provisions regarding the 1998 Option Plan. The holder of any
option granted under the 1998 Option Plan has the right immediately prior to the
effective date of a merger, consolidation or sale of all or any part of our
business or assets or a liquidation or dissolution to exercise such option
without regard to any time vesting provision of such option. In no event may any
incentive stock options be exercised later than the date preceding the tenth
anniversary date of the grant.
The 1998 Option Plan will be administered by the board of directors or by a
committee of the board of directors acting as the administrator. The
administrator shall select the eligible key employees who are to be granted
options, determine the number of shares to be subject to options to be granted
to each eligible key employee and designate such options as incentive stock
options or nonstatutory stock options. The board of
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directors may at any time amend or modify the 1998 Option Plan, except that the
board of directors may not, without approval of the stockholders of
Autobytel.com:
- increase the number of shares issued under the 1998 Option Plan,
- modify the requirements as to eligibility for participation in the 1998
Option Plan or
- change the option price provisions of the 1998 Option Plan so as to have
a material adverse effect on Autobytel.com other than to conform with any
applicable provisions of the Code or regulations or rulings.
Unless terminated earlier, the 1998 Option Plan terminates ten years from
the date it was adopted by the board of directors.
1999 Stock Option Plan. Our 1999 Stock Option Plan was adopted by the board
of directors on January 14, 1999. The plan provides that an aggregate of
1,800,000 shares of our common stock are available to our employees; provided
that after March 31, 1999, we may not grant more than 1,000,000 options under
the plan. Unless otherwise provided in the stock option agreement, upon any
merger, consolidation, or sale or transfer of all or any part of our business or
assets, any option under the plan shall immediately vest and be exercisable
unless any party to such a transaction specifically assumes the obligations of
Autobytel.com under the 1999 Option Plan.
Non-employee directors are entitled to participate in our 1999 Stock Option
Plan. The 1999 Stock Option Plan provides for an automatic grant of a first
option to purchase 20,000 shares of common stock to each non-employee director
on the date on which the person first becomes a non-employee director; provided,
that if any person serving as a non-employee director before January 14, 1999
received options for less than 20,000 shares on the date such person became a
member of the board of directors, such person will be granted an option to
purchase a number of shares equal to the difference between 20,000 shares and
the shares actually granted. After the first option is granted to the non-
employee director, he or she will automatically be granted a subsequent option
to purchase 5,000 shares on November 1 of each subsequent year provided he or
she is then a non-employee director and, provided further, that on such date he
or she has served on the Board for at least six months. First options and each
subsequent option will have a term of ten years. The shares related to the first
option and each subsequent option vest in their entirety and becomes exercisable
on the first anniversary of the grant date, provided that the option holder
continues to serve as a director on such dates. The exercise price of shares
subject to the first option and each subsequent option shall be 100% of the fair
market value per share of the common stock on the date of the grant of the
option.
The 1999 Stock Option Plan is identical in all other material respects to
the 1998 Stock Option Plan.
401(K) PLAN
All employees of Autobytel.com over age 21 who have completed three months
of service with Autobytel.com are eligible to participate in the Auto-By-Tel
Retirement Savings Plan, a defined contribution plan effective September 1, 1997
and intended to qualify under Section 401 of the Internal Revenue Code. Eligible
employees may enter the savings plan as of the first day of January or July
following the date on which they have met the savings plan's eligibility
requirements. Participants may make pre-tax contributions to the savings plan of
up to 15 percent of their eligible earnings, but not in excess of a statutory
annual limit. Autobytel.com may make discretionary matching contributions to the
savings plan. For the year ended December 31, 1998, Autobytel.com made no
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<PAGE> 62
matching contributions to each eligible participant's contributions. Each
participant in the savings plan is fully vested in his or her contributions and
the investments earnings on these contributions. Participants vest in matching
contributions made on their behalf, and the investment earnings on these
contributions at the rate of 20 percent per year and are thus 100 percent vested
in their employer matching contribution accounts after five years of service.
Contributions by the participants or Autobytel.com and the income earned on such
contributions are not taxable to the participants until withdrawn. Contributions
by Autobytel.com, if any, are deductible by it when made. Contributions are held
in trust as required by law. Individual participants may direct the trustee to
invest their accounts in authorized investment alternatives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. The compensation committee of the board of directors currently consists of
Mr. Fuchs, Mr. Coats and Mr. Orton.
EMPLOYMENT AGREEMENTS
On July 1, 1998, we entered into a three year employment agreement with Mr.
Mark W. Lorimer, our President and Chief Executive Officer. Under this
agreement, Mr. Lorimer is entitled to a base salary of $325,000 and a bonus as
determined by the board of directors from time to time. Mr. Lorimer is also
entitled to 200,000 options which vest over two years, 500,000 performance
options which vest over seven years, unless accelerated upon the earlier
accomplishment of stock price goals. In addition, Mr. Lorimer may participate in
any medical, dental welfare plans, insurance coverages and any death benefit and
disability benefit plans afforded to executive employees of Autobytel.com.
If Mr. Lorimer's employment is terminated without cause or if Mr. Lorimer
terminates his employment with good reason, Mr. Lorimer is entitled to a lump
sum payment equal to the highest annual base salary in effect for the term of
the agreement multiplied by the greater of (1) the remaining balance of the
three year term or longer if there is a change of control or (2) two years. In
the event of a change of control of Autobytel.com prior to January 1, 2000, and
while Mr. Lorimer remains employed by Autobytel.com, the term of the agrement
shall automatically extend for a period of three years from the date of the
change of control.
In addition to the above, in the event Lorimer's employment is terminated
during the six month period prior to (or the first thirty-six months following)
a change of control by Mr. Lorimer for good reason or by Autobytel.com other
than for cause, disability or death, Mr. Lorimer is entitled to a lump sum
payment equal to twice the highest bonus paid to Mr. Lorimer in the last three
fiscal years plus the amount of the cost of all benefits for the greater of the
remaining balance of the term or two years.
In the event of a change of control while Mr. Lorimer is employed by
Autobytel.com or if Lorimer's employment is terminated by Autobytel.com without
cause or by Mr. Lorimer for good reason during the six month period prior to a
change of control, unvested time based options shall become vested and
exercisable and unvested performance-based options shall become vested and
exercisable to the extent performance targets are met. In the event of the death
or disability of Mr. Lorimer during the term of this employment agreement,
Autobytel.com shall provide Mr. Lorimer or his successors, heirs or designees,
with continued payment of Mr. Lorimer's then current base salary and all
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benefits for a period of two years. If Mr. Lorimer's severance benefits are
parachute payments under the Internal Revenue Code, we have agreed to make
additional payments to him to compensate for his additional tax obligations.
On December 17, 1998, Autobytel.com entered into a three year employment
agreement with Ms. Ann Marie Delligatta, our Executive Vice President and Chief
Operating Officer. Under this agreement, Ms. Delligatta is entitled to a base
salary of $225,000, a bonus in such amounts and based on such criteria as may be
established by the board of directors from time to time. Ms. Delligatta is also
entitled to 100,000 options which vest fully by December 17, 2000 and 200,000
performance options which vest over seven years unless accelerated upon the
earlier accomplishment of stock price goals. In addition, Ms. Delligatta may
participate in any medical, dental welfare plans, insurance coverages and any
death benefit and disability benefit plans afforded to executive employees of
Autobytel.com. If Ms. Delligatta's employment is terminated without cause or if
Ms. Delligatta terminates her employment for good reason, Ms. Delligatta is
entitled to a lump sum payment equal to the base salary that would have been
received by Ms. Delligatta if she had remained employed by Autobytel.com for the
remaining balance of the three year term. Ms. Delligatta's employment with
Autobytel.com shall terminate automatically in the event of death or upon 30
days' written notice of termination by Autobytel.com in the event of a
disability.
On March 4, 1999, we entered into an employment and severance agreement
with Mr. Michael J. Lowell, our Senior Vice President, Development. Under this
agreement, Mr. Lowell is entitled to a base salary of $140,000 per year and to
all ordinary and customary perquisites such as any medical, dental welfare
plans, insurance coverages and any death benefit and disability benefit plans
afforded to executive employees of Autobytel.com. If Mr. Lowell's employment is
terminated without cause, he is entitled to a lump sum severance payment in
varying amounts depending on the date of termination. The maximum severance
payment is $232,501, payable if the effective date of termination occurs during
March 1999, and the minimum severance payment is $90,000, payable if the
effective date of termination occurs after January 2000.
Under a letter agreement dated December 18, 1998, Hoshi Printer, our Senior
Vice President and Chief Financial Officer, is entitled to a base salary of
$150,000, a $50,000 bonus payable upon closing of the offering, 150,000 options
which vest fully by January 2003 and employee benefits such as health and
insurance.
Under a letter agreement dated March 7, 1999, Ariel Amir, our Vice
President and General Counsel, is entitled to a base salary of $175,000, 125,000
options which vest fully by March 2003 and employee benefits, including health
and insurance. If Mr. Amir's employment is terminated without cause during the
first year of employment, Mr. Amir is entitled to one year's base salary payable
monthly. If Mr. Amir's employment is terminated without cause thereafter, he is
entitled to six month's base salary payable monthly.
INDEMNIFICATION AND LIMITATION OF DIRECTOR AND OFFICER LIABILITY
We have entered into agreements to indemnify our directors and officers, in
addition to the indemnification provided for in our bylaws. These agreements,
among other things, indemnify our directors and officers for expenses including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding arising out of such person's services as an
officer or director of us.
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In any event, our directors and officers shall not be entitled to indemnity
under these agreements if a reviewing party appointed by the board of directors
determines that such person is not entitled to be indemnified thereunder under
applicable law. In addition, our directors and officers may not be indemnified
for expenses reasonably incurred, regarding any claim related to the fact that
such person was a director or officer of Autobytel.com:
- if the expenses result from acts, omissions or transactions for which
such person is prohibited from receiving indemnification;
- if the claims were initiated or brought voluntarily by one of our
directors or officers and not by way of defense, counterclaim or cross
claim; or
- if a claim instituted by one of our directors or officers or by us to
enforce or interpret the indemnity agreement was found to be frivolous or
made in bad faith by a court having jurisdiction over such matter.
We believe that these agreements are necessary to attract and retain
qualified directors and officers.
To the extent indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us as
discussed above, we have been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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<PAGE> 65
FINANCINGS AND RELATED PARTY TRANSACTIONS
Series A Preferred Stock
On August 23, 1996, in a private placement transaction, we issued 1,500,000
shares of series A preferred stock at $10.00 per share convertible into common
stock at the conversion price per share of $9.00. The number of shares of common
stock into which each share of series A preferred stock will convert is 1.11
shares. The holders of such series A preferred stock are entitled to
registration rights regarding the shares of common stock issued or issuable upon
conversion. See "Description of Capital Stock--Registration Rights." The holders
of outstanding shares of series A preferred stock are entitled to receive, when
and as declared by the board of directors, dividends in cash at an annual rate
of $0.80 per share of series A preferred stock. Such dividends, if any, are
payable in preference and in priority to any declaration or payment of any
dividend on the series B preferred stock or common stock. We have never declared
or paid dividends on the series A preferred stock. All shares of series A
preferred stock will automatically convert into shares of common stock upon the
closing of the offering.
From July 9, 1996 through August 13, 1996, Mr. Fuchs made loans to us in
the aggregate principal amount of $500,000. These loans, along with accrued
interest, converted into series A preferred stock on August 23, 1996 at $10.00
per share. In September 1996, Mr. Fuchs was appointed to our board of directors.
The holders of series A preferred stock have the right to elect two members
of the board of directors. Because General Electric Capital Corporation holds
more than a majority of the shares of series A preferred stock it has the right
to designate on behalf of all holders of series A preferred stock such
directors. To date, General Electric Capital Corporation has designated Mr.
Fuchs and Mr. Coats to the board of directors.
Series B Preferred Stock
On January 30, 1997, in a private placement transaction we issued 967,915
shares of series B preferred stock at $9.35 per share convertible into common
stock at the conversion price per share of $10.37. The number of shares of
common stock into which each share of series B preferred stock will convert is
0.90 shares. The holders of such series B preferred stock are entitled to
registration rights with respect to the shares of common stock issued or
issuable upon conversion. See "Description of Capital Stock--Registration
Rights." The holders of outstanding shares of series B preferred stock are
entitled to receive, when and as declared by the board of directors, dividends
in cash at an annual rate of $0.80 per share of series B preferred stock. Such
dividends, if any, are payable in preference and in priority to any declaration
or payment of any dividend on the common stock. We have never declared or paid
dividends on the series B preferred stock. All shares of series B preferred
stock will automatically convert into shares of common stock upon the closing of
the offering.
Series C Preferred Stock
On October 21, 1997, April 30, 1998, May 7, 1998, October 30, 1998,
November 10, 1998, December 16, 1998, December 21, 1998 and December 24, 1998,
in private placement transactions, we issued a total of 4,968,738 shares of
series C preferred stock at $8.80 per share convertible into common stock at the
conversion price per share of $13.20.
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<PAGE> 66
The number of shares of common stock into which each share of series C preferred
stock will convert is 0.67 shares. The holders of such series C preferred stock
are entitled to registration rights with respect to the shares of common stock
issued or issuable upon conversion. See "Description of Capital
Stock--Registration Rights". The holders of outstanding shares of series C
preferred stock are entitled to receive, when and as declared by the board of
directors, dividends in cash at an annual rate of $0.80 per share of series C
preferred stock. Such dividends, if any, are payable in preference and in
priority to any declaration or payment of any dividend on the series A preferred
stock, series B preferred stock or common stock. We have never declared or paid
dividends on the series C preferred stock. All shares of series C preferred
stock will automatically convert into shares of common stock upon the closing of
the offering. National Broadcasting Company acquired its shares by providing
national spot advertising to Autobytel.com.
The following chart lists the holders of Autobytel.com's preferred stock
and the number and class of shares held by such holders as of March 1, 1999.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
NAME OF STOCKHOLDER PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
General Electric Capital
Corporation.......................... 800,000 534,760 681,819
National Union Fire Insurance Company
of Pittsburgh, PA, an affiliate of
American International Group......... 400,000 267,380 227,273
ContiTrade Services L.L.C............ 200,000 133,690
Michael Fuchs........................ 100,000 32,085
Tozer Kemsley and Millbourn
Automotive, Ltd., a unit of Inchcape
Motors............................... 568,182
Bilia AB............................. 568,182
National Broadcasting Company, Inc.,
an affiliate of General Electric
Capital Corporation.................. 121,009
Invision AG.......................... 568,182
Aureus Private Equity AG............. 1,097,727
MediaOne Interactive Services,
Inc.................................. 1,136,364
</TABLE>
Loans
From time to time, Autobytel.com has advanced funds to Peter R. Ellis, the
former Chairman of the board of directors and Chief Executive Officer of
Autobytel.com. As of December 31, 1998, Mr. Ellis was indebted to us in the
amount of $250,000 plus accrued interest at the rate of 8% per year compounded
quarterly. The principal amount of the loan is due and payable on or before
March 1, 2003. We received a pledge of 100,657 of Mr. Ellis' shares of common
stock to secure this loan.
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<PAGE> 67
Severance and General Release Agreement
Autobytel.com and John M. Markovich, our former Senior Vice President and
Chief Financial Officer, are parties to a severance and general release
agreement dated January 30, 1998. Under the terms of the severance agreement
regarding his resignation from Autobytel.com, we paid to Mr. Markovich a
severance payment of $75,000, extended Mr. Markovich's health coverage through
July 30, 1998, paid certain outplacement expenses of $10,000 and granted Mr.
Markovich a warrant to purchase 33,333 shares of common stock at $11.25 per
share. The warrant granted to Mr. Markovich expires on January 30, 2003.
Advisory Agreement
Autobytel.com and Mr. Ellis, our former Chief Executive Officer and
Chairman of the board of directors, are parties to a two year advisory agreement
dated as of August 20, 1998. Under the advisory agreement, Mr. Ellis received
$500,000 on the date of execution. Commencing on the thirteenth month
anniversary of this agreement, Mr. Ellis is entitled to receive $5,000 per
month. Mr. Ellis is entitled to participate in all employee health plans and
receives a car allowance of $1,000 per month until April 30, 1999. The advisory
agreement may be terminated by us for cause or upon 30 days prior written notice
without cause. In the event the advisory agreement is terminated without cause
by Autobytel.com or due to his death or disability, Mr. Ellis will still be
entitled to receive his base salary and health benefits through the remainder of
the term of the of the agreement. Mr. Ellis has the right to terminate the
advisory agreement on 90 days prior written notice to Autobytel.com. A majority
of disinterested directors approved the advisory agreement and the loans made to
Mr. Ellis from time to time.
Voting Proxy
In addition, on January 11, 1999, in consideration of us waiving our right
of first refusal permitting the sale of $1.4 million of our common stock by Mr.
Ellis to "accredited investors" as such term is defined under Rule 501 of the
Securities Act, Mr. Ellis transferred to us the voting power of 593,175 shares
of common stock of Autobytel.com owned by Mr. Ellis for a period that is the
earlier of five years from such date or until such time as Mr. Ellis sells the
shares to a person not affiliated with Mr. Ellis. Mr. Ellis sold these shares at
$11.88 per share.
Marketing Agreement
Auto-By-Tel Acceptance Corporation, member companies of the American
International Group, and Autobytel.com entered into a marketing agreement dated
July 22, 1996. Under this agreement, Autobytel.com, through Auto-By-Tel
Acceptance Corporation, authorizes and provides the American International Group
access to its Internet server, for the publication, display, and exhibition of
the American International Group's member companies' direct response automobile
insurance sales materials. In return, Auto-By-Tel Acceptance Corporation is paid
compensation based on a flat fee on the basis of the premiums collected from our
consumers.
Under a marketing and application processing agreement dated February 1,
1997, among GE Capital, Auto-By-Tel Acceptance Corporation and Autobytel.com,
Auto-By-Tel
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<PAGE> 68
Acceptance Corporation and Autobytel.com agreed to refer customers seeking
vehicle financing with favorable credit ratings to GE Capital. In return, GE
Capital agreed to pay Auto-By-Tel Acceptance Corporation a marketing fee of
$100.00 for each financing consummated by GE Capital under this agreement. GE
Capital is an affiliate of General Electric Capital Corporation, which
beneficially owns 1,831,903 shares of common stock. As of December 31, 1998,
Auto-By-Tel Acceptance Corporation had referred customers to GE Capital to whom
GE Capital extended financing in an aggregate amount of approximately $307,000
and received approximately $1,200 in marketing fees since the inception of this
relationship.
In addition, General Electric Capital Corporation is an affiliate of
PaineWebber Incorporated, one of the underwriters taking part in this offering.
As a result, BT Alex. Brown Incorporated will act as a qualified independent
underwriter to establish the price of the shares offered by this prospectus.
Issuance of Warrants
On November 10, 1998, we issued to Invision AG a warrant to purchase an
aggregate of 150,000 shares of our common stock at an exercise price of $13.20
per share. This warrant is exercisable as of such date and expires on November
10, 2001.
On December 16, 1998 and December 23, 1998, we issued to Aureus Private
Equity AG warrants to purchase 169,800 and 120,000 shares, respectively, of our
common stock at an exercise price of $13.20 per share. These warrants are
exercisable as of such date and expire on December 16, 2001 and December 23,
2001, respectively. In January 1999, Peter Titz, a manager of Invision AG and a
director of Aureus Private Equity AG, was appointed to our board of directors.
On December 21, 1998, we issued to MediaOne Interactive Services, Inc. a
warrant to purchase an aggregate of 300,000 shares of common stock of
Autobytel.com at an exercise price of $13.20 per share. This warrant is
exercisable as of such date and expires on December 21, 2001. In February 1999,
Richard Post, a director of MediaOne Interactive Services, Inc., was appointed
to Autobytel.com's board of directors.
Approval Procedure for Related Party Transactions
All future transactions between Autobytel.com and interested directors and
stockholders, if any, will be approved by the disinterested directors or
stockholders, as appropriate in accordance with Delaware law and our certificate
of incorporation and bylaws.
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<PAGE> 69
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the common stock as of March 15, 1999, as adjusted to reflect the
conversion of the preferred stock into common stock concurrently with the
offering and sale of common stock offered in this offering for:
- each person or entity who is known by Autobytel.com to beneficially own
five percent or more of the outstanding common stock,
- each of our directors,
- each of the five most highly compensated officers in 1998,
- each stockholder who is selling shares of common stock in this offering,
and
- all directors and executive officers of Autobytel.com as a group.
As of March 15, 1999, there were 14,372,783 shares of common stock outstanding.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or exercisable within 60 days of March 15, 1999, are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person. Except as
indicated in the footnotes to this table and under applicable community property
laws, each stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such stockholder's name. The
following table assumes no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
------------------- SHARES BEING -------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Peter R. Ellis(1)................... 3,877,032 27.0% 500,000 3,377,032 18.9%
c/o Autobytel.com
18872 MacArthur Boulevard
Irvine, California 92612-1400
John C. Bedrosian(2)................ 3,569,445 24.8% 500,000 3,069,445 17.2%
c/o Autobytel.com
18872 MacArthur Boulevard
Irvine, California 92612-1400
General Electric Capital
Corporation(3).................... 1,832,022 12.7% 1,832,022 10.2%
260 Long Ridge Road
Stamford, Connecticut 06927
Peter Titz(4)....................... 1,550,406 10.5% 1,550,406 8.5%
c/o Aureus Private Equity AG
Zugerstrasse 76b
CH-6340 Baar
Switzerland
MediaOne Interactive Services,
Inc.(5)........................... 1,057,576 7.2% 1,057,576 5.8%
9000 E. Nichols Avenue
Englewood, Colorado 80112
Aureus Private Equity AG(4)......... 1,021,618 7.0% 1,021,618 5.6%
Zugerstrasse 76b
CH-6340 Baar
Switzerland
National Union Fire Insurance
Company of Pittsburgh, PA(6)...... 837,157 5.8% 837,157 4.7%
200 Liberty Street
New York, New York 10281
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
------------------- SHARES BEING -------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Robert S. Grimes(7)................. 809,493 5.5% 809,493 4.5%
c/o R.S. Grimes & Co., Inc.
152 West 57th Street
New York, NY 10019
Mark W. Lorimer(8).................. 296,412 2.0% 296,412 1.6%
Michael J. Fuchs(9)................. 146,249 1.0% 146,249 *
Michael J. Lowell(10)............... 110,280 * 110,280 *
Ann M. Delligatta(11)............... 40,704 * 40,704 *
Anne Benvenuto(12).................. 12,472 * 12,472 *
Mark N. Kaplan...................... 1,000 * 1,000 *
Kenneth J. Orton.................... -- * -- *
Hoshi Printer....................... -- * -- *
Ariel Amir.......................... -- * -- *
All directors and executive officers
as a group (14 persons)(13)....... 9,733,646 61.5% 9,233,646 47.7%
</TABLE>
- ---------------
* Less than 1%
(1) Includes 46,110 shares held by trusts established for family members of Mr.
Ellis as to which Mr. Ellis' spouse maintains sole voting power. Also
includes 593,175 shares as to which Mr. Ellis granted voting power to
Autobytel.com under a voting proxy dated January 11, 1999. See "Certain
Transactions." If the underwriters' over-allotment option were exercised in
full, the number of shares beneficially owned by Mr. Ellis after the
offering would be 2,994,532 and the percentage would be 16.8%.
(2) 2,569,445 shares are held in the John C. Bedrosian and Judith D. Bedrosian
Revocable Trust in which Mr. Bedrosian maintains shared voting powers.
1,000,000 shares are held by the Bedrosian Investment Group, Ltd., of which
Mr. Bedrosian and his spouse are general partners. If the underwriters'
over-allotment option were exercised in full, the number of shares
beneficially owned by Mr. Bedrosian after the offering would be 2,814,445
and the percentage would be 15.7%.
(3) Mr. Jeffrey Coats is a managing director of GE Equity Capital Group, Inc.,
an affiliate of General Electric Capital Corporation, and is a director of
Autobytel.com. Includes 888,889 shares held by General Electric Capital
Corporation (GE) following the conversion of the series A preferred stock,
482,393 shares held by GE following the conversion of the series B
preferred stock, and 454,546 shares held by GE following the conversion of
the series C preferred stock. Also includes 6,194 shares issuable upon
exercise of options exercisable within 60 days of March 15, 1999 which were
granted to Mr. Coats, and subsequently assigned to GE. Mr. Coats disclaims
beneficial ownership of such 6,194 shares.
(4) Mr. Peter Titz is a director of Aureus Private Equity AG, a manager of
Invision AG, and a director of Autobytel.com. Includes 731,818 shares
following the conversion of the series C preferred stock and 289,800 shares
issuable upon exercise of warrants held by Aureus Private Equity AG. Also
includes 378,788 shares following the conversion of the series C preferred
stock and 150,000 shares issuable upon exercise of warrants held by
Invision AG.
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<PAGE> 71
(5) Mr. Richard Post is a director of MediaOne Interactive Services, Inc. and a
director of Autobytel.com. Includes 757,576 shares held by MediaOne
Interactive Services, Inc. following the conversion of the series C
preferred stock and 300,000 shares issuable upon exercise of warrants.
MediaOne Interactive Services, Inc. is an indirect wholly owned subsidiary
of MediaOne Group, Inc. As a result, MediaOne Group, Inc., may be deemed to
indirectly, beneficially own the shares reported as being directly
beneficially owned by MediaOne Interactive Services, Inc. MediaOne Group,
Inc., disclaims such beneficial ownership.
(6) Represents 444,445 shares following the conversion of the series A
preferred stock, 241,197 shares following the conversion of the series B
preferred stock, and 151,515 shares following the conversion of the series
C preferred stock.
(7) Includes an aggregate of 5,554 shares held in irrevocable trusts as to
which Mr. Grimes' spouse maintains sole voting power. Includes 253,938
shares issuable upon exercise of options exercisable within 60 days of
March 15 1999.
(8) Represents 296,412 shares issuable upon exercise of options exercisable
within 60 days of March 15, 1999.
(9) Includes 6,195 shares issuable upon exercise of options exercisable within
60 days of March 15, 1999 and 111,111 shares held by Mr. Fuchs following
the conversion of the series A preferred stock and 28,943 shares following
the conversion of the series B preferred stock.
(10) Represents 110,280 shares issuable upon exercise of options exercisable
within 60 days of March 15, 1999.
(11) Represents 40,704 shares issuable upon exercise of options exercisable
within 60 days of March 15, 1999.
(12) Represents 12,472 shares issuable upon exercise of options exercisable
within 60 days of March 15, 1999.
(13) Includes 726,195 shares issuable upon exercise of options and 739,800
shares issuable upon exercise of warrants exercisable within 60 days of
March 15, 1999. Mr. Ellis resigned as Chief Executive Officer of
Autobytel.com in June 1998. If Mr. Ellis' shares are not included in the
number of shares beneficially owned by all directors and executive officers
as a group, the number of shares owned by the directors and executive
officers prior to the offering is 5,856,614 shares or 37.0% of the shares
of common stock outstanding, and after the offering would be 5,856,614
shares or 30.3% of the shares of common stock outstanding.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the offering, the outstanding shares of common stock
will consist of 17,858,745 shares, $0.001 par value. As of December 31, 1998,
there were 8,506,455 shares of common stock outstanding held of record by 49
stockholders.
COMMON STOCK
Autobytel.com is authorized to issue a total of 50,000,000 shares of common
stock. Holders of common stock are entitled to one vote per share in all matters
to be voted on by the stockholders. After the preferences of the preferred
stock, holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the board of directors out of
funds legally available for payment. See "Dividend
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Policy." In the event of a liquidation, dissolution or winding up of
Autobytel.com, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, after prior distribution rights
of shares of preferred stock then outstanding, if any. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of the offering will be
fully paid and non-assessable.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, the board of
directors has the authority, without further action by the stockholders, to
issue up to 11,445,187 shares of preferred stock in one or more series. The
board of directors also has the power to determine the rights of the preferred
stock such as dividend rights, conversion rights, voting rights, and the terms
of redemption and liquidation preferences. The board of directors, without
stockholder approval, can issue preferred stock with voting, conversion or other
rights that are greater than the rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms calculated to delay or
prevent a change in control of Autobytel.com or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock, and may adversely affect the
voting and other rights of the holders of common stock. Upon the closing of the
offering, no shares of preferred stock will be outstanding and Autobytel.com has
no plans to issue any of the preferred stock. See "Financings and Related Party
Transactions."
REGISTRATION RIGHTS
The amended and restated investors' rights agreement, dated October 21,
1997, among Autobytel.com and the holders of 12,997,957 shares of common stock
and securities convertible into common stock, provides that the holders are
entitled to registration rights. If we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
holders exercising registration rights, the holders are entitled to notice of
such registration and may include shares of registrable securities in the
registration statement. Additionally, the holders are also entitled to demand
registration rights and may require us to file a registration statement under
the Securities Act at our expense for their shares of registrable securities.
The holders have waived their registration rights in connection with this
offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Anti-Takeover Law
The provisions of Section 203 of the Delaware General Corporation Law apply
to Autobytel.com. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a business combination with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner or unless the interested
stockholder acquired at least 85% of the corporation's voting stock (excluding
shares held by designated stockholders) in the transaction in which it became an
interested stockholder. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested
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stockholder. Other than persons who own shares in excess of 15% of the voting
stock of the corporation as a result of action taken solely by the corporation,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within the previous three years did own, 15% or more of the
corporation's voting stock.
Limitation of Director and Officer Liability
Our amended and restated certificate of incorporation and bylaws contain
provisions relating to the limitation of liability and indemnification of
directors and officers. Our amended and restated certificate of incorporation
provides that our directors may not be held personally liable to us or our
stockholders for a breach of fiduciary duty, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law,
- under Section 174 of the Delaware General Corporation Law, relating to
prohibited dividends, distributions and repurchases or redemptions of
stock, and
- for any transaction from which the director derives an improper benefit.
In addition, our amended and restated certificate of incorporation and bylaws
provide that we will indemnify directors and officers to the fullest extent
authorized by Delaware law.
No Stockholder Action by Written Consent
Our amended and restated certificate of incorporation provides that the
stockholders can take action only at a duly called annual or special meeting of
stockholders. Accordingly, stockholders of Autobytel.com will not be able to
take action by written consent in lieu of a meeting. This provision may have the
effect of deterring hostile takeovers or delaying changes in control or
management of Autobytel.com.
Staggered Board of Directors
Our amended and restated certificate of incorporation provides that upon
the closing of this offering, the terms of office of the board of directors will
be divided into three classes, such that the terms of Class I, Class II and
Class III directors shall expire at the annual meeting of stockholders to be
held in 1999, 2000 and 2001, respectively. The number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This provision may have the effect
of delaying or preventing changes in control or change in our management because
less than a majority of the board of directors are up for election at each
annual meeting.
TRANSFER AGENT AND REGISTRAR
U.S. Stock Transfer Corporation, Glendale, California, has been appointed
as the transfer agent and registrar for the common stock. Its telephone number
for such purposes is (818) 502-1404.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no market for the common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect market prices prevailing from time to time. Upon completion of
the offering, Autobytel.com will have outstanding an aggregate of 17,858,745
shares of common stock, assuming no exercise of outstanding options or warrants.
Of these shares, the 4,500,000 shares sold in the offering will be freely
tradeable without restriction or further registration under the Securities Act,
except that any shares purchased by "affiliates" of Autobytel.com, as that term
is defined in Rule 144 of the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 13,358,745 shares of common stock held by existing
stockholders are "restricted securities" under Rule 144. The number of shares of
common stock available for sale in the public market is limited by restrictions
under the Securities Act and lock-up agreements. Under the lock-up agreements,
the holders of such shares have agreed not to sell or otherwise dispose of any
of their shares for a period of 180 days after the date of this prospectus (the
"lock-up period") without the prior written consent of BT Alex. Brown
Incorporated. In addition, the selling shareholders have agreed to the same
lock-up except that they have agreed to a 270-day lock-up. On the date of this
prospectus, no shares other than the shares in this offering will be eligible
for sale.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons who has beneficially owned
restricted shares for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale. One percent of the number
of shares of common stock outstanding after the offering equals
approximately 178,587 shares.
Sales must be made under manner of sale provisions and notice requirements
specified by Rule 144 and current public information about Autobytel.com must be
available. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Autobytel.com at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" could be sold
immediately upon the completion of this offering.
Following the expiration of the lock-up period, none of the restricted
shares will become available for sale in the public market until the expiration
of their respective holding periods (approximately 11,298,480 of such shares
will have been held for more than one year at the end of such 180-day period).
Upon completion of the offering, the holders of 12,997,957 shares of common
stock, or their transferees, will be entitled to rights with respect to the
registration of such shares under the Securities Act until such time as the
holders of such common stock may sell such shares under the Rule 144 of the
Securities Act. See "Description of Capital
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Stock -- Registration Rights." Registration of such shares under the Securities
Act would result in such shares becoming freely tradeable without restriction
under the Securities Act, except for shares purchased by affiliates, immediately
upon the effectiveness of such registration.
OPTIONS AND RESTRICTED STOCK
We intend to file a registration statement under the Securities Act
covering shares of common stock reserved for issuance under the 1999 Stock
Option Plan, 1998 Stock Option Plan, 1996 Stock Incentive Plan, the 1996 Stock
Option Plan and the 1996 Employee Stock Purchase Plan. Such registration
statement is expected to be filed and become effective as soon as practicable
after the effective date of the offering. Accordingly, shares registered under
such registration statement will, with regards to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, unless such
shares are subject to vesting restrictions with Autobytel.com or the lock-up
agreements described above. A total of 5,522,948 shares have been reserved for
issuance under such plans. As of March 1, 1999, 790,739 options have been
granted under the 1999 Stock Option Plan, 1,278,000 options have been granted
under the 1998 Stock Option Plan, 833,333 options have been granted under the
1996 Stock Incentive Plan, 889,163 options have been granted under the 1996
Stock Option Plan and no shares have been purchased under the 1996 Employee
Stock Purchase Plan. See "Management -- Stock Plans."
In addition, under Rule 701 of the Securities Act as currently in effect,
any employee, consultant or advisor of Autobytel.com who is not an affiliate who
purchased shares from us under a compensatory stock or option plan or other
written agreement is eligible to resell such shares 90 days after the effective
date of this offering, governed by all provisions of Rule 144 except its minimum
holding period.
LOCK-UP AGREEMENTS
All officers, directors, and other stockholders of Autobytel.com have
entered into lock-up agreements. Under the lock-up agreements, each person
agreed not to sell or otherwise dispose of any shares of common stock or any
securities convertible into common stock for a period of 180 days after the date
of this prospectus, without the prior written consent of BT Alex. Brown
Incorporated. The selling stockholders have agreed to the same lock-up except
for a period of 270 days after the date of this prospectus. See "Underwriting."
In addition, under the terms of the 1999 Stock Option Plan, 1998 Stock Option
Plan, the 1996 Stock Option Plan and the 1996 Stock Incentive Plan, holders of
options to purchase common stock are obligated not to sell or transfer any
shares of Autobytel.com acquired through exercise of options during such 180-day
period if requested by us or the underwriters.
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MATERIAL UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS
GENERAL
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of common
stock by a Non-U.S. Holder, as defined below. As used in this prospectus, the
term "Non-U.S. Holder" is any person or entity that, for United States federal
income tax purposes, is either a non-resident alien individual, a foreign
corporation, a foreign partnership or a foreign trust in each case not subject
to United States federal income tax on a net basis in respect of income or gain
with respect to our common stock.
An individual may be deemed to be a resident alien, as opposed to a
nonresident alien, by virtue of being present in the United States for at least
31 days in the calendar year and for an aggregate of at least 183 days during a
three-year period ending in the current calendar year. In determining whether an
individual is present in the United States for at least 183 days, all of the
days present in the current year, one-third of the days present in the
immediately preceding year and one-sixth of the days present in the second
preceding year are counted. Resident aliens are subject to United States federal
income and estate tax in the same manner as United States citizens and
residents.
This discussion does not address all aspects of United States federal
income and estate taxes that may be relevant to a particular Non-U.S. Holder in
light of the holder's particular circumstances. This discussion is not intended
to be applicable in all respects to all categories of Non-U.S. Holders, some of
whom may be subject to special treatment under United States federal income tax
laws. Moreover this discussion does not address United States state or local or
foreign tax consequences. This discussion is based on provisions of the Internal
Revenue Code of 1986, as amended, existing and proposed regulations under, and
administrative and judicial interpretations of, the Internal Revenue Code, in
effect on the date of this prospectus. All of these authorities may change,
possibly with retroactive effect or different interpretations. The following
summary is included in this prospectus for general information. Accordingly,
prospective investors are urged to consult their tax advisers regarding the
United States federal, state, local and non-United States income and other tax
consequences of acquiring, holding and disposing of shares of our common stock.
DIVIDENDS
We do not anticipate paying cash dividends on our capital stock in the
foreseeable future. See "Dividend Policy." In the event, however, that dividends
are paid on shares of common stock, dividends paid to a Non-U.S. Holder of
common stock generally will be subject to United States withholding tax at a 30%
rate, unless an applicable income tax treaty provides for a lower withholding
rate. Non-U.S. Holders should consult their tax advisors regarding their
entitlement to benefit under a relevant income tax treaty.
Currently the applicable United States Treasury regulations presume, absent
actual knowledge to the contrary, that dividends paid to an address in a foreign
country are paid to a resident of such country for purposes of the 30%
withholding tax discussed above. However, the final United States Treasury
regulations provide that, in the case of dividends paid after December 31, 1999,
a Non-U.S. Holder who wishes to claim the benefits of an applicable treaty rate
and avoid backup withholding tax at a 31% rate as discussed below
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will be required to satisfy certification and other tax law requirements, which
will include filing an Internal Revenue Service Form W-8 containing the Non-U.S.
Holder's name, address and a certification that the holder is eligible for the
benefits of the treaty under the treaty's Limitations in Benefits Article. In
addition, certification and disclosure requirements must be met to be exempt
from withholding under the effectively connected income exemption discussed
below.
The regulations under the Internal Revenue Code also provide special rules
for dividend payments made to foreign intermediaries, United States or foreign
wholly owned entities that are disregarded for United States federal income tax
purposes and entities that are treated as fiscally transparent in the United
States, the applicable income tax treaty jurisdiction, or both. In addition,
recently enacted legislation, effective August 4, 1997, denies income tax treaty
benefits to foreign partners receiving income derived through a partnership, or
otherwise fiscally transparent entity, if the foreign partner does not certify
as to its Non-U.S. Holder status and the partnership does not provide required
information including a United States taxpayer identification number.
Prospective investors should consult with their own tax advisers concerning the
effect, if any, of these tax regulations and the recent legislation on an
investment in the common stock.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for a
refund with the IRS.
The recipient of dividends that are effectively connected with either a
Non-U.S. Holder's:
- conduct of a trade or business in the United States,
- permanent establishment in the United States if a tax treaty applies, or
- fixed base in the United States
are taxed generally on a net income basis at regular graduated rates. The 30%
withholding tax is not applicable to the payment of dividends if the Non-U.S.
Holder files Form 4224 or any successor form with the payor or, after December
31, 1999, such holder provides its United States taxpayer identification number
to the payor.
Any United States trade or business income received by a Non-U.S. Holder
that is a corporation also may be subject to an additional "branch profits tax"
at a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not have to pay United States federal
income or withholding tax on gain recognized on a disposition of common stock
unless:
(1) the gain is effectively connected with the conduct of a trade or
business of the Non-U.S. Holder within the United States or of a
partnership, trust or estate in which the Non-U.S. Holder is a partner
or beneficiary within the United States,
(2) if a treaty applies, the gain is effectively connected to a permanent
establishment of the Non-U.S. Holders within the United States,
(3) the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal
Revenue Code, is
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present in the United States for 183 or more days in the taxable year
of the disposition and meets other tax law requirements,
(4) the Non-U.S. Holder is a United States expatriate is required to pay
tax pursuant to the provisions of the United States tax law, or
(5) Autobytel.com is or has been a "United States real property holding
corporation" for federal income tax purposes at any time during the
shorter of the five-year period preceding such disposition or the
period that the Non-U.S. Holder holds the common stock.
Generally, a corporation is a United States real property holding
corporation if the fair market value of its United States real property
interests equals or exceeds 50% of the sum of the fair market value of its
worldwide real property interests plus its other assets used or held for use in
a trade or business.
Autobytel.com believes that it is not, has not been and does not anticipate
becoming a United States real property holding corporation for United States
federal income tax purposes. However, even if Autobytel.com were to become a
United States real property holding corporation, any gain realized by a Non-U.S.
Holder still would not be required to pay United States federal income tax if
the shares of Autobytel.com are regularly traded on an established securities
market. Autobytel.com believes that its common stock is "regularly traded on an
established securities market." If, however, Autobytel.com's common stock is not
so treated, on a sale or disposition by a Non-U.S. Holder of the common stock
the transferee of such stock will be required to withhold 10% of the proceeds
unless Autobytel.com certifies that either it is not and has not been a United
States real property holding company or another exemption from withholding
applies.
If a Non-U.S. Holder who is an individual meets the requirements of clause
(1), (2) or (4) above that individual generally will be required to pay tax on
the net gain derived from a sale of common stock under regular graduated United
States federal income tax rates. If an individual Non-U.S. Holder meets the
requirements of clause (3) above, such individual generally will be subject to a
flat 30% tax on the gain derived from a sale. Thus, individual Non-United States
Holders who have spent or expect to spend a short period of time in the United
States should consult their tax advisers prior to the sale of common stock to
determine the United States federal income tax consequences of the sale. If a
Non-U.S. Holder is a foreign corporation that is engaged in a United States
trade or business or has a United States permanent establishment, the
corporation generally will be required to pay tax on its net gain under regular
graduated United States federal income tax rates. Such a Non-U.S. Holder may
also have to pay branch profit tax.
FEDERAL ESTATE TAX
For United States federal estate tax purposes, an individual's gross estate
will include the common stock owned, or treated as owned, by an individual.
Generally, this will be the case regardless of whether such individual was a
United States citizen or a United States resident. This general rule of
inclusion may be limited by an applicable estate tax or other treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under United States Treasury regulations, Autobytel.com must report
annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to
such holder and the
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tax withheld with respect to such dividends. These information reporting
requirements apply regardless of whether withholding is required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder is
a resident under the provisions of an applicable income tax treaty or agreement.
Currently, the 31% United States backup withholding tax rate generally will
not apply:
- to dividends which are paid to Non-U.S. Holders and are taxed at the
regular withholding tax rate as discussed above, or
- before January 1, 2000, to dividends paid to a Non-U.S. Holder at an
address outside of the United States unless the payor has actual
knowledge that the payee is a United States Holder.
Backup withholding and information reporting generally will apply to dividends
paid to addresses inside the United States on shares of common stock to
beneficial owners that are not "exempt recipients" and that fail to provide, in
the manner required, identifying information.
On October 6, 1997, the United States Treasury Department issued new
regulations regarding the withholding and information reporting rules discussed
above. These regulations apply to payments made after December 31, 1999. The
regulations under the Internal Revenue Code do not significantly alter the
foregoing substantive withholding and information reporting requirements but do
alter the procedures for:
- claiming the benefits of an income tax treaty for, and
- the certification procedures relating to the receipt by intermediaries
of, dividends paid after December 31, 1999.
These regulations generally presume that backup withholding at the rate of 31%
and information reporting applies to payments made to a Non-U.S. Holder unless
Autobytel.com receives certification of such holder's Non-U.S. status. Depending
on the circumstances, this certification will need to be provided either:
- directly by the Non-U.S. Holder,
- in the case of a Non-U.S. Holder that is treated as a partnership or
other fiscally transparent entity, by the partners, shareholders or other
beneficiaries of such entity, or
- by qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.
Information reporting and backup withholding at a rate of 31% generally
will not apply to the payment of the proceeds of the disposition of common stock
by a holder to or through the United States office of a broker or through a
non-United States branch of a United States broker unless the holder either
certifies its status as a Non-U.S. Holder under penalties of perjury or
otherwise establishes an exemption. The payment of the proceeds of the
disposition by a Non-U.S. Holder of common stock to or through a Non-United
States office of a non-United States broker will not have to comply with backup
withholding or information reporting unless the non-United States broker has a
connection to the United States as specified in the tax law.
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In the case of the payment of proceeds from the disposition of common stock
effected by a foreign office of a broker that is a United States person or a
"United States related person," existing regulations require information
reporting on the payment unless
- the broker receives a statement from the owner, signed under penalty of
perjury, certifying its non-United States status or the broker has
documentary evidence in its files as to the Non-U.S. Holder's foreign
status, and the broker has no actual knowledge to the contrary, and other
United States federal tax law conditions are met or
- the beneficial owner otherwise establishes an exemption.
For this purpose, a "United States related person" is either
- a "controlled foreign corporation" for United States federal income tax
purposes; or
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment is derived from activities that are effectively connected
with the conduct of a United States trade or business.
After December 31, 1999, the regulations under the Internal Revenue Code
will impose information reporting and backup withholding on payments of the
gross proceeds from the sales or redemptions of common stock that are effected
through foreign offices of brokers having any of a broader class of specified
connections with the United States. Such information reporting and backup
withholding may be avoided, however, if a holder complies with the applicable
IRS certification requirements. Prospective investors should consult with their
own tax advisers regarding the regulations under the Internal Revenue Code and
in particular with respect to whether the use of a particular broker would
subject the investor to these rules.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be either refunded or credited against the holder's United
States federal income tax liability provided sufficient information is furnished
to the Internal Revenue Service.
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UNDERWRITING
Under the terms of an underwriting agreement, the underwriters named below,
through their representatives, BT Alex. Brown Incorporated, Lehman Brothers Inc.
and PaineWebber Incorporated, have severally agreed to purchase from
Autobytel.com the following respective number of shares of common stock at the
public offering price less the underwriting discount set forth on the cover page
of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated.................................
Lehman Brothers Inc.........................................
PaineWebber Incorporated....................................
---------
Total............................................. 4,250,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to conditions precedent as outlined in the underwriting
agreement and that the underwriters will purchase all of the shares of common
stock offered if any of such shares are purchased.
Autobytel.com and the selling stockholders have been advised by the
representatives that the underwriters propose to offer the shares of common
stock to the public at the public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the representatives of the underwriters.
Selling stockholders have granted the underwriters an option, exercisable
not later than 30 days after the date of this prospectus, to purchase up to
637,500 additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. To the extent that the underwriters exercise such option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage of such option that the number of shares of common stock to be
purchased by it in the above table bears to 4,250,000, and the selling
stockholders will be obligated under the option to sell such shares to the
underwriters. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the common stock offered in
this offering. If purchased, the underwriters will offer such additional shares
on the same terms as those on which the 4,250,000 shares are being offered.
Autobytel.com and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act.
Each of the officers and directors and substantially all of the
stockholders of Autobytel.com agreed not to sell or otherwise dispose of any
common stock for a period of 180 days after the date of our public offering,
without the prior written consent of
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BT Alex. Brown Incorporated. These officers, directors and stockholders hold
13,293,376 shares of our common stock in the aggregate. The selling stockholders
have agreed to a lock-up for a period of 270 days after the date of
Autobytel.com's public offering. BT Alex. Brown Incorporated may give such
consent at any time without public notice and may give consent for some
stockholders and not others. Autobytel.com has also entered into a similar
agreement, except that we may grant options or warrants to purchase shares of
common stock or any securities convertible into shares of common stock, under
the exercise of outstanding options and warrants and our issuance of options and
stock granted under our existing stock option and stock purchase plans.
The representatives have advised Autobytel.com that the underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thus creating a
short position in the common stock for their own account. Additionally, to cover
such over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 450,000 shares for friends of our founders, our
employees, family members of our employees and our vendors. The number of shares
of common stock available for sale to the general public will be reduced to the
extent these people purchase such reserved shares. Any reserved shares which are
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered hereby.
In addition, we are reserving 250,000 shares to be offered at the public
offering price to strategic international investors. We expect that these
strategic investors will enter into agreements not to sell any of the shares
purchased by them for a period of at least 180 days following the completion of
this offering. These shares are not subject to the underwriting agreement and
the underwriters will not receive any fees or commissions in connection with the
sale of these shares, however, if these shares are sold to the strategic
investors then Autobytel.com will be required to pay a $350,000 fee to Bankers
Trust, Tokyo Branch. Bankers Trust, Tokyo Branch is an affiliate of BT Alex.
Brown Incorporated, one of the underwriters in this offering.
General Electric Capital Services, Inc. indirectly beneficially owns
approximately 22% of the issued and outstanding common stock of Paine Webber
Group, Inc., which is the parent holding company of PaineWebber Incorporated, an
SEC-registered broker-dealer and one of the underwriters in this offering. The
voting rights with respect to such common stock are restricted by the terms of
an amended and restated shareholder's agreement. As a result, the offering of
the shares of common stock offered in this offering is required to be made in
accordance with the applicable provisions of Rule 2720 of the NASD.
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In compliance with Rule 2720, the public offering price can be no higher
than that recommended by a "qualified independent underwriter." BT Alex. Brown
Incorporated is acting as qualified independent underwriter and the public
offering price of the shares of common stock offered hereby will not be higher
than the public offering price recommended by BT Alex. Brown Incorporated. In
this offering, BT Alex. Brown Incorporated, in its role as qualified independent
underwriter, has performed due diligence investigations and reviewed and
participated in the preparation of the registration statement of which this
prospectus is a part.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among representatives of the underwriters and
Autobytel.com. Among the factors to be considered in determining the public
offering price will be:
- prevailing market conditions;
- our results of operations in recent periods;
- our present stage of development;
- the market capitalizations and stages of development of other companies
which we and the representatives of the underwriters believe to be
comparable to us; and
- estimates of our business potential.
LEGAL MATTERS
The validity of the shares of common stock offered in this offering will be
passed upon for Autobytel.com by Paul, Hastings, Janofsky & Walker LLP, New
York, New York and for the underwriters by Latham & Watkins, Menlo Park,
California. Attorneys in the firm of Paul, Hastings, Janofsky & Walker LLP may
participate in the directed share program in the offering in an amount of up to
15,000 shares.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for the years ended December 31, 1996, 1997 and 1998 appearing in this
prospectus and the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their report and are
included in reliance upon the authority of said firm as experts in giving said
report.
The discussion that appears under the headings "Risk Factors -- If
financial broker and insurance licensing requirements apply to us in states
where we are not currently licensed, we will be required to obtain additional
licenses and our business may suffer," "Business -- Products, Programs and
Services -- Ancillary Customer Services" and "Business -- Government Regulation"
has been reviewed by Barger & Wolen LLP, Los Angeles, California, and has been
included herein, to the extent such discussion involves regulations, laws or
legal conclusions relating to issues involving insurance, in reliance upon the
authority of such firm as an expert thereon.
82
<PAGE> 84
ADDITIONAL INFORMATION
A registration statement on Form S-1, including amendments, relating to the
common stock offered in this offering has been filed by Autobytel.com with the
Securities and Exchange Commission, Washington, D.C. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference. This prospectus
contains all material information required to be disclosed by the Securities
Act. For further information regarding Autobytel.com and the common stock
offered reference is made to such registration statement, exhibits and
schedules. A copy of the registration statement may be inspected by anyone
without charge at the SEC's principal office, 450 Fifth Street, N.W.,
Washington, D.C. 20549, the New York Regional Office located at 7 World Trade
Center, 13th Floor, New York, NY 10048, and the Chicago Regional Office located
at Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661, and
copies of all or any part including any exhibit may be obtained from the SEC
upon the payment of fees prescribed by the SEC. The public may obtain
information on the operation of the Public Reference room by calling the SEC at
1-800-SEC-0330. The SEC maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. The address of the site is
http://www.sec.gov.
83
<PAGE> 85
AUTOBYTEL.COM INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of autobytel.com inc.:
We have audited the accompanying consolidated balance sheets of
autobytel.com inc. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1996, 1997 and 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
autobytel.com inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for the years ended December
31, 1996, 1997 and 1998 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1999
F-2
<PAGE> 87
AUTOBYTEL.COM INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents, includes restricted amounts of
$248 and $248, respectively............................. $ 15,813 $ 27,984
Accounts receivable, net of allowance for doubtful
accounts of $337 and $402, respectively................. 1,493 2,315
Prepaid expenses and other current assets................. 795 1,353
-------- --------
Total current assets............................... 18,101 31,652
Property and equipment, net................................. 2,317 2,208
Other assets................................................ 95 347
-------- --------
Total assets....................................... $ 20,513 $ 34,207
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,223 $ 2,915
Accrued expenses.......................................... 1,047 915
Deferred revenue.......................................... 3,700 4,008
Customer deposits......................................... 127 345
Other current liabilities................................. 66 33
-------- --------
Total current liabilities.......................... 7,163 8,216
Deferred rent............................................. 91 123
-------- --------
Total liabilities.................................. 7,254 8,339
-------- --------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series A, $0.001 par value;
aggregate liquidation preference of $15,000 at December
31, 1998; 1,500,000 shares authorized; 1,500,000 shares
issued and outstanding at December 31, 1997 and 1998.... 2 2
Convertible preferred stock, Series B, $0.001 par value;
aggregate liquidation preference of $9,050 at December
31, 1998; 967,915 shares authorized 967,915 shares
issued and outstanding at December 31, 1997 and 1998.... 1 1
Convertible preferred stock, Series C, $0.001 par value;
aggregate liquidation preference of $43,725 at December
31, 1998; 6,977,272 shares authorized; 1,477,274 shares
issued and outstanding at December 31, 1997; 4,968,738
shares issued and outstanding at December 31, 1998...... 1 4
Common stock, $0.001 par value; 50,000,000 shares
authorized; 8,324,443 shares issued and outstanding
December 31, 1997; 8,506,455 shares issued and
outstanding at December 31, 1998........................ 8 8
Warrants.................................................. -- 1,332
Additional paid-in capital................................ 37,123 67,813
Deferred compensation..................................... (1) --
Cumulative translation adjustment......................... -- (19)
Accumulated deficit....................................... (23,875) (43,273)
-------- --------
Total stockholders' equity......................... 13,259 25,868
-------- --------
Total liabilities and stockholders' equity......... $ 20,513 $ 34,207
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 88
AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Revenues............................... $ 5,025 $ 15,338 $ 23,826
---------- ----------- -----------
Operating expenses:
Sales and marketing.................. 7,790 21,454 30,033
Product and technology development... 1,753 5,448 8,528
General and administrative........... 1,641 5,851 5,908
---------- ----------- -----------
Total operating expenses.......... 11,184 32,753 44,469
---------- ----------- -----------
Loss from operations................. (6,159) (17,415) (20,643)
Other income, net...................... 124 620 1,280
---------- ----------- -----------
Loss before provision for income
taxes............................. (6,035) (16,795) (19,363)
Provision for income taxes............. -- 15 35
---------- ----------- -----------
Net loss............................. $ (6,035) $ (16,810) $ (19,398)
========== =========== ===========
Basic net loss per share............... $ (0.73) $ (2.03) $ (2.30)
========== =========== ===========
Shares used in computing basic net loss
per share............................ 8,252,325 8,291,142 8,423,038
========== =========== ===========
Pro forma basic net loss per share..... $ (0.68) $ (1.53) $ (1.49)
========== =========== ===========
Shares used in computing pro forma
basic net loss per share............. 8,848,864 10,966,633 13,008,090
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 89
AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
CONVERTIBLE MEMBERS'
PREFERRED STOCK COMMON STOCK INTEREST/
------------------ ------------------ ADDITIONAL DEFERRED CUMULATIVE
NUMBER OF NUMBER OF PAID-IN COMPEN- TRANSLATION
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL SATION ADJUSTMENT
--------- ------ --------- ------ -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995............. -- $-- -- $-- $ -- $ 40 $ -- $ --
Sale of members' interest in ABT
Acceptance Company, LLC............ -- -- -- -- -- 50 -- --
Issuance of common stock in exchange
for members' interest.............. -- -- 8,250,000 8 -- (8) -- --
Issuance of common stock options with
an exercise price of $0.90 per
share.............................. -- -- -- -- -- 87 (87) --
Issuance of Series A convertible
preferred stock at $10.00 per
share.............................. 1,450,000 2 -- -- -- 14,363 -- --
Issuance of Series A convertible
preferred stock at $10.00 per share
upon conversion of debt............ 50,000 -- -- -- -- 500 -- --
Issuance of common stock in exchange
for services....................... -- -- 6,667 -- -- 20 -- --
Issuance of common stock upon
exercise of stock options.......... -- -- 28,148 -- -- 25 -- --
Amortization of deferred
compensation....................... -- -- -- -- -- -- 61 --
Net loss............................. -- -- -- -- -- -- -- --
--------- -- --------- -- ------ ------- ---- ----
Balance, December 31, 1996............. 1,500,000 2 8,284,815 8 -- 15,077 (26) --
Issuance of Series B convertible
preferred stock at $9.35 per
share.............................. 967,915 1 -- -- -- 9,028 -- --
Issuance of Series C convertible
preferred stock at $8.80 per
share.............................. 1,477,274 1 -- -- -- 12,987 -- --
Issuance of common stock upon
exercise of stock options.......... -- -- 39,628 -- -- 31 -- --
Amortization of deferred
compensation....................... -- -- -- -- -- -- 25 --
Net loss............................. -- -- -- -- -- -- -- --
--------- -- --------- -- ------ ------- ---- ----
Balance, December 31, 1997............. 3,945,189 4 8,324,443 8 -- 37,123 (1) --
Issuance of Series C convertible
preferred stock at $8.80 per
share.............................. 3,370,455 3 -- -- -- 29,443 -- --
Issuance of Series C convertible
preferred stock at $8.80 per share
in exchange for advertising........ 121,009 -- -- -- -- 1,065 -- --
Issuance of warrants in exchange for
start-up costs for a Pan-European
entity............................. -- -- -- -- 792 -- -- --
Issuance of warrant in exchange for
involvement in broadband
application project................ -- -- -- -- 540 -- -- --
Issuance of common stock upon
exercise of stock options.......... -- -- 181,012 -- -- 169 -- --
Issuance of common stock at $13.20
per share.......................... -- -- 1,000 -- -- 13 -- --
Amortization of deferred
compensation....................... -- -- -- -- -- -- 1 --
Foreign currency translation
adjustment......................... -- -- -- -- -- -- -- (19)
Net loss............................. -- -- -- -- -- -- -- --
--------- -- --------- -- ------ ------- ---- ----
Balance, December 31, 1998............. 7,436,653 $7 8,506,455 $8 $1,332 $67,813 $ -- $(19)
========= == ========= == ====== ======= ==== ====
<CAPTION>
ACCUM-
ULATED
DEFICIT TOTAL
-------- --------
<S> <C> <C>
Balance, December 31, 1995............. $ (1,030) $ (990)
Sale of members' interest in ABT
Acceptance Company, LLC............ -- 50
Issuance of common stock in exchange
for members' interest.............. -- --
Issuance of common stock options with
an exercise price of $0.90 per
share.............................. -- --
Issuance of Series A convertible
preferred stock at $10.00 per
share.............................. -- 14,365
Issuance of Series A convertible
preferred stock at $10.00 per share
upon conversion of debt............ -- 500
Issuance of common stock in exchange
for services....................... -- 20
Issuance of common stock upon
exercise of stock options.......... -- 25
Amortization of deferred
compensation....................... -- 61
Net loss............................. (6,035) (6,035)
-------- --------
Balance, December 31, 1996............. (7,065) 7,996
Issuance of Series B convertible
preferred stock at $9.35 per
share.............................. -- 9,029
Issuance of Series C convertible
preferred stock at $8.80 per
share.............................. -- 12,988
Issuance of common stock upon
exercise of stock options.......... -- 31
Amortization of deferred
compensation....................... -- 25
Net loss............................. (16,810) (16,810)
-------- --------
Balance, December 31, 1997............. (23,875) 13,259
Issuance of Series C convertible
preferred stock at $8.80 per
share.............................. -- 29,446
Issuance of Series C convertible
preferred stock at $8.80 per share
in exchange for advertising........ -- 1,065
Issuance of warrants in exchange for
start-up costs for a Pan-European
entity............................. -- 792
Issuance of warrant in exchange for
involvement in broadband
application project................ -- 540
Issuance of common stock upon
exercise of stock options.......... -- 169
Issuance of common stock at $13.20
per share.......................... -- 13
Amortization of deferred
compensation....................... -- 1
Foreign currency translation
adjustment......................... -- (19)
Net loss............................. (19,398) (19,398)
-------- --------
Balance, December 31, 1998............. $(43,273) $ 25,868
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 90
AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,035) $(16,810) $(19,398)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 178 860 1,255
Provision for bad debt.................................. 145 175 187
Loss on disposal of property and equiptment............. -- -- 1
Amortization of deferred compensation................... 61 25 1
Issuance of common stock in exchange for services....... 20 -- --
Issuance of Series C convertible preferred stock in
exchange for advertising............................... -- -- 1,065
Issuance of warrants in exchange for start-up costs for
a Pan-European entity.................................. -- -- 792
Issuance of warrant in exchange for involvement in
broadband application project.......................... -- -- 540
Changes in assets and liabilities:
Accounts receivable................................... (429) (1,370) (1,009)
Prepaid expenses and other current assets............. (788) 107 (558)
Other assets.......................................... (604) 516 (252)
Accounts payable...................................... 564 1,572 692
Accrued expenses...................................... 722 325 (132)
Deferred revenue...................................... 1,970 1,374 308
Customer deposits..................................... 554 (427) 218
Other current liabilities............................. 16 34 (33)
Deferred rent......................................... 17 74 32
------- -------- --------
Net cash used in operating activities............... (3,609) (13,545) (16,291)
------- -------- --------
Cash flows from investing activities:
Acquisition of Internet Development Corporation........... -- (100) --
Purchases of property and equipment....................... (1,501) (1,652) (1,147)
------- -------- --------
Net cash used in investing activities............... (1,501) (1,752) (1,147)
------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock........................ 25 31 182
Proceeds from sale of members' interest in ABT Acceptance
Company, LLC............................................ 50 -- --
Net proceeds from issuance of Series A convertible
preferred stock......................................... 14,365 -- --
Net proceeds from issuance of Series B convertible
preferred stock......................................... -- 9,029 --
Net proceeds from issuance of Series C convertible
preferred stock......................................... -- 12,988 29,446
Proceeds from issuance of notes payable................... 765 -- --
Repayments of notes payable............................... (1,081) -- --
------- -------- --------
Net cash provided by financing activities........... 14,124 22,048 29,628
------- -------- --------
Effect of exchange rates on cash............................ -- -- (19)
------- -------- --------
Net increase in cash and cash equivalents................... 9,014 6,751 12,171
Cash and cash equivalents, at beginning of period........... 48 9,062 15,813
------- -------- --------
Cash and cash equivalents, at end of period................. $ 9,062 $ 15,813 $ 27,984
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes.............. $ 4 $ 15 $ 35
======= ======== ========
Cash paid during the period for interest.................. $ 24 $ -- $ 3
======= ======== ========
</TABLE>
Supplemental disclosure of non-cash financing activities (See Note 7):
* In May 1996, 8,250,000 shares of common stock were issued to founding
stockholders in exchange for members' interests in a predecessor limited
liability company.
* In August 1996, 50,000 shares of Series A convertible preferred stock were
issued in exchange for $500 previously advanced to the Company under three
notes payable.
* In September 1996, 6,667 shares of common stock with a fair market value of
$20 were issued for services.
* In April 1998, 56,776 shares of Series C convertible preferred stock with a
fair market value of $8.80 per share convertible into common stock at the
conversion price of $13.20 per share were issued for advertising.
* In October 1998, 64,233 shares of Series C convertible preferred stock with a
fair market value of $8.80 per share convertible into common stock at the
conversion price of $13.20 per share were issued for advertising.
* In November and December 1998, warrants to purchase 439,800 shares of common
stock at $13.20 per share were issued to investors in Series C convertible
preferred stock in exchange for a commitment to fund start-up activities of a
Pan-European entity in which the Company may invest with the investors.
* In December 1998, a warrant to purchase 300,000 shares of common stock at
$13.20 per share was issued to an investor in exchange for involvement in
broadband application project.
The accompanying notes are an integral part of these consolidated
statements.
F-6
<PAGE> 91
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data.)
1. ORGANIZATION AND OPERATIONS OF AUTOBYTEL.COM
autobytel.com inc. (Autobytel.com) is a branded Internet site for new and
pre-owned vehicle information and purchasing services. Through its Web site
(www.autobytel.com), consumers can research pricing, specifications and other
information related to new and pre-owned vehicles and, when consumers indicate
they are ready to buy, can be connected to Autobytel.com's network of
participating dealers. Autobytel.com also provides other related services such
as financing, leasing, vehicle warranties and insurance. Autobytel.com's
services are free to consumers and, to date, Autobytel.com has derived
substantially all of its revenues from fees paid by subscribing dealers located
in the United States and Canada.
Auto-By-Tel, LLC (ABT), Autobytel.com's predecessor, was organized in
January 1995 and commenced operations as a California limited liability company
in March 1995. ABT Acceptance Company, LLC (ABTAC), an affiliated company under
common control, was formed in February 1996. ABT and ABTAC (the LLCs) were
reorganized in May 1996 as a Delaware corporation pursuant to the terms of a
Contribution Agreement and Plan of Organization (the Plan of Organization)
entered into by all of the members of the LLCs (See Note 7). As the LLCs were
under common control, the reorganization was accounted for in a manner similar
to a pooling-of-interests, whereby the assets and liabilities of ABT and ABTAC
were transferred to Autobytel.com at their historical cost.
Since inception, Autobytel.com has invested the majority of its efforts in
marketing its brand name and developing infrastructure to support anticipated
future operating growth. As a result, Autobytel.com has experienced significant
operating losses and had an accumulated deficit of $43,273 at December 31, 1998.
To date, such losses have been financed primarily through private placements of
preferred stock (See Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Autobytel.com, its predecessors (See Note 1) and its wholly-owned subsidiaries:
Autobytel Services Corporation, Autobytel Acceptance Corporation, Autobytel
Insurance Services, Inc., Autobytel.ca Inc., Kre8.net, Inc., Auto-By-Tel
International LLC, Auto-by-Tel UK Limited and AutoVisions Communications, Inc.
All intercompany transactions and balances have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 92
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash and Cash Equivalents
For the purposes of the consolidated balance sheets and the consolidated
statements of cash flows, Autobytel.com considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject Autobytel.com to significant
concentrations of credit risk consist primarily of accounts receivable. To date,
accounts receivable have primarily been derived from marketing fees billed to
subscribing dealers located in the United States and Canada. Autobytel.com
generally requires no collateral to support customer receivables. Autobytel.com
maintains reserves for potential credit losses. Historically, such losses have
been minor and within management's expectations. As of December 31, 1997 and
1998, no subscribing dealer accounted for greater than 10% of accounts
receivable.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, generally three years. Amortization of leasehold improvements is
provided using the straight-line method over the lesser of the remaining lease
term or the estimated useful lives of the improvements.
Stock-Based Compensation
In 1996, Autobytel.com adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." Autobytel.com has elected to continue accounting for
stock-based compensation issued to employees using Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
pro forma disclosures required under SFAS No. 123 have been presented (See Note
8).
Revenue Recognition
Substantially all revenues to date consist of fees paid by subscribing
dealers. These fees are comprised of an initial fee, a monthly fee and, through
fiscal 1997, an annual fee. In January 1998, Autobytel.com started to eliminate
annual fees and increase monthly fees to subscribing dealers. The initial fee
and annual fee are recognized ratably over the service period of 12 months. The
monthly fee is recognized in the period services are provided. Deferred revenue
is comprised of unamortized fees.
Risks Due to Concentration of Significant Customers and Export Sales
For all periods presented in the accompanying consolidated statements of
operations, no subscribing dealer accounted for greater than 10% of revenues.
Autobytel.com conducts its business within one industry segment. Revenues
from customers outside of the United States were less than 10% of total revenues
for all periods presented in the accompanying consolidated statements of
operations.
F-8
<PAGE> 93
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Sales and Marketing
Sales and marketing expense primarily includes advertising and marketing
expenses paid to purchase request providers and developing Autobytel.com's brand
equity, as well as personnel and other costs associated with sales, training and
support of its dealer network. Sales and marketing expense also includes cost of
sales associated with the sale of computers, which was discontinued in February
1998. Sales and marketing costs are recorded as expenses as incurred. For the
years ended December 31, 1996, 1997 and 1998, Internet marketing and advertising
costs were $1,838, $5,828, and $11,090 and television advertising expenses were
$396, $4,048, and $5,296, respectively.
Product and Technology Development
Product and technology development expense primarily includes personnel
costs relating to enhancing the features, content and functionality of
Autobytel.com's Web site and its online dealer information platform (DRT), as
well as expenses associated with its telecommunications and computer
infrastructure. Product and technology development expenditures are expensed as
incurred.
General and Administrative
General and administrative expense primarily consists of executive,
financial and legal personnel expenses and related costs. General and
administrative expense for the year ended December 31, 1997 includes a
non-recurring $1.1 million charge associated with a proposed and withdrawn
initial public offering in April 1997.
Foreign Currency Translation
The functional currency of Autobytel.com's subsidiaries is the local
currency. Accordingly, all assets and liabilities are translated into United
States dollars at the current exchange rate as of the applicable balance sheet
date. Revenues and expenses are translated at the average exchange rate
prevailing during the period. Gains and losses resulting from the translation of
the financial statements are reported as a separate component of stockholders'
equity.
Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per
Share
Historical net loss per share has been calculated under SFAS No. 128,
"Earnings per Share." SFAS No. 128 requires companies to compute earnings per
share under two different methods (basic and diluted). Basic net loss per share
is calculated by dividing the net loss by the weighted average shares of common
stock outstanding during the period. No diluted loss per share information has
been presented in the accompanying consolidated statements of operations since
potential common shares from the conversion of preferred stock, stock options
and warrants are antidilutive. Autobytel.com evaluated the requirements of the
Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 98, and
concluded that there are no nominal issuances of common stock or potential
common stock which would be required to be shown as outstanding for all periods
as outlined in SAB No. 98.
F-9
<PAGE> 94
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro forma basic net loss per share has been calculated assuming the
conversion of the outstanding preferred stock into common stock, as if the
shares had been converted on the dates of their issuance.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and presentation of
comprehensive income. SFAS No. 130, which was adopted by Autobytel.com in the
first quarter of 1998, requires companies to report a new measurement of income.
Comprehensive income (loss) is to include foreign currency translation gains and
losses and other unrealized gains and losses that have historically been
excluded from net income (loss) and reflected instead in equity. The only
comprehensive income included in the accompanying stockholders' equity is
foreign currency translation loss of $19 for the year ended December 31, 1998.
As this amount is not material, comprehensive income (loss) is not presented in
the accompanying consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." Autobytel.com adopted SFAS No. 131 in
the fourth quarter of 1998 (See Note 12).
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use and defines specific criteria that determine when such costs are
required to be expensed, and when such costs may be capitalized. Autobytel.com
currently expenses software development costs as incurred. Management
anticipates that it will continue to incur such development costs. However,
management expects that, as a percentage of revenues, such costs will remain
consistent.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 provides guidance on the financial reporting of
start-up cost and organization costs and require such costs to be expensed as
incurred. Management believes that the adoption of SOP 98-5 will not have a
material effect on Autobytel.com's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments. The statement requires that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value, and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Autobytel.com does not have any derivative instruments as of
December 31, 1998. Management believes that the adoption of SFAS No. 133 will
not have a material effect on Autobytel.com's consolidated financial statements.
F-10
<PAGE> 95
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS ACQUISITION
In May 1997, one of Autobytel.com's subsidiaries, Kre8.net, Inc., entered
into an asset purchase agreement with Internet Development Corporation to
purchase certain assets and to assume certain liabilities of the business. The
combined entity develops Web sites for automobile and other industries. The
purchase price for the net assets was $100 in cash.
The acquisition was accounted for by the purchase method. Accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair market values whose fair value equaled book value
at the closing date. The excess of purchase price over the estimated fair value
of net assets acquired was $93, and is being amortized using the straight-line
method over a period of three years. The results of operations of the acquired
business are included in the accompanying consolidated statements of operations
and in Autobytel.com's accumulated deficit beginning in May 1997. Internet
Development Corporation's revenues and results of operations since the date of
acquisition are immaterial.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Computer software and hardware..................... $ 2,104 $ 2,800
Furniture and equipment............................ 892 1,206
Leasehold improvements............................. 427 561
------- -------
3,423 4,567
Less -- Accumulated depreciation and
amortization..................................... (1,106) (2,359)
------- -------
$ 2,317 $ 2,208
======= =======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Operating Leases
Autobytel.com leases its facilities and certain office equipment under
operating leases which expire on various dates through 2001. At December 31,
1998, future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1999................................................... $ 619
2000................................................... 649
2001................................................... 501
2002................................................... --
2003................................................... --
Thereafter............................................. --
------
$1,769
======
</TABLE>
F-11
<PAGE> 96
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Rent expense was $92, $247, and $491 for the years ended December 31, 1996,
1997 and 1998, respectively.
Marketing and Advertising Agreements
In September 1997, Autobytel.com entered into a three year Internet
marketing agreement with a company that operates a search engine. The agreement
permits Autobytel.com to maintain certain exclusive promotional rights and
linkage with the search engine, and provides for certain advertising. The
payments under the agreement consist of a set-up fee, an annual fee and a
variable fee per purchase request. The set-up fee represents the cost of
initiating the link between Autobytel.com and the search engine and was expensed
in the period the link was established. Autobytel.com expenses the annual fee
ratably over a 12-month period and the variable fee in the period purchase
requests are received. The amount of variable fee per purchase request increases
as the number of purchase requests received reaches agreed upon increments.
Under the agreement, Autobytel.com is also to provide the search engine with up
to three new vehicles in a 12-month period. The agreement grants Autobytel.com
the right to terminate the agreement if the number of purchase requests does not
meet the threshold specified for each year of the term of the agreement. As of
December 31, 1998, the minimum future payments under the agreement amounted to
$3.7 million.
In June 1998, Autobytel.com entered into a two year Internet marketing
agreement with another company that operates a search engine. The agreement
permits Autobytel.com to maintain certain exclusive promotional rights and
linkage with the search engine. The payments under the agreement consist of an
annual fee, and a variable fee per purchase request. Autobytel.com expenses the
annual fee ratably over a 12-month period and the variable fee in the period
purchase requests are received. The amount of variable fee per purchase request
increases as the number of purchase requests received reaches agreed upon
increments. Under the agreement, Autobytel.com is also to provide the search
engine with up to three new vehicles in a 12-month period, the total value of
which is not to exceed $45, which has been expensed as incurred. The agreement
grants Autobytel.com the right to terminate the agreement if the number of
purchase requests does not meet the threshold specified for each year of the
term of the agreement. As of December 31, 1998, the minimum future payments
under the agreement amounted to $5.4 million.
Autobytel.com has agreements with other automotive information providers
that make available to consumers vehicle research data over the Internet. Such
agreements are generally for a term of one to four years and require that
Autobytel.com pay a combination of set-up, initial, annual, monthly and variable
fees based on the volume of purchase requests received by Autobytel.com. The
set-up fees are expensed as incurred, the initial fees and annual fees are
amortized over the period they relate to. The monthly fees are expensed in the
month they relate to and variable fees are expensed in the period purchase
requests are received. As of December 31, 1998, the minimum future commitments
under these agreements were $0.7 million.
During 1998, total Internet marketing and advertising costs incurred were
$11,090, including initial, annual and monthly fees of $50, $2,965 and $2,903,
respectively. No set-up fees were incurred in 1998 and variable fees were
$5,172.
F-12
<PAGE> 97
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Autobytel.com has agreements with network and cable television stations
under which it has the right to purchase television advertising. As of December
31, 1998, the minimum future commitments under these agreements were $1.7
million. These amounts are expensed as advertisements are aired.
For the years ended December 31, 1996, 1997 and 1998, Autobytel.com paid
$2,721, $8,474 and $15,540, respectively, under these marketing and advertising
agreements.
Employment Agreements
Autobytel.com has employment agreements with certain executives under
which, in the event of termination without cause or resignation with a good
reason, the executives are entitled to receive severance payments equal to the
base salary that would have been received by the executives over the remaining
term of the agreements. One of these agreements also provides for an additional
severance payment in the event of a change in control as defined in the
agreement. The term of the agreements range from two to three years.
Litigation
In the normal course of business, Autobytel.com is involved in various
legal proceedings. Based upon the information presently available, management
believes that the ultimate resolution of any such proceedings will not have a
material adverse effect on Autobytel.com's financial position, liquidity or
results of operations.
6. RETIREMENT SAVINGS PLAN
Autobytel.com has a Retirement Savings Plan (the Retirement Plan) which
qualifies as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. The Retirement Plan covers all full time employees of
Autobytel.com who are over 21 years of age and have worked for Autobytel.com for
at least 90 days. Under the Retirement Plan, participating employees are allowed
to defer up to 15% of their pretax salaries up to a maximum of $10,000 per year.
Company contributions to the Retirement Plan are discretionary. Autobytel.com
has made no contributions since the inception of the Retirement Plan.
7. STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock
In August 1996, the Board of Directors authorized 1,500,000 shares of
Series A convertible preferred stock (Series A Preferred), and Autobytel.com
completed the sale of 1,500,000 shares of Series A Preferred at $10.00 per share
through a private placement offering. Of the total shares sold, 50,000 shares
were issued to an individual in exchange for $500 previously advanced to
Autobytel.com under three notes payable. In addition, $1,081 of the proceeds
were used to repay notes due to Autobytel.com's former Chairman and co-founder.
The Series A Preferred will be automatically converted into 1,666,667
shares of common stock at the conversion ratio of approximately 1:1.11 upon the
earliest of (i) the
F-13
<PAGE> 98
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
closing of an underwritten public offering of Autobytel.com's common stock with
a minimum per share price of $13.50 per share, and minimum aggregate offering
price of $30 million; (ii) the consent of two-thirds of the holders of preferred
stock; or (iii) when fewer than 300,000 shares of Series A Preferred remain
outstanding. The Series A Preferred is also convertible into 1,666,667 shares of
common stock at the option of the holder. Autobytel.com has reserved 1,666,667
shares of common stock to permit the conversion of the Series A Preferred.
Holders of Series A Preferred are entitled to one vote for each share of
common stock into which such shares of Series A Preferred may be converted
except with respect to election of directors, whereby the holders, voting
separately as a class, are entitled to elect two directors. Each share of Series
A Preferred entitles the holder to receive non-cumulative dividends, if and when
declared by the Board of Directors, prior to any dividend paid on Series B
Preferred or the common stock. Dividends, if any, on Series A Preferred shall be
declared at an annual rate of $0.80 per share. As of December 31, 1998, no
dividends have been declared.
In the event of liquidation, the Series A Preferred has preference over
Series B Preferred and the common stock in the amount of $10.00 per share, plus
declared but unpaid dividends.
Series B Convertible Preferred Stock
In January 1997, the Board of Directors authorized 967,915 shares of Series
B convertible preferred stock (Series B Preferred), and Autobytel.com completed
the sale of 967,915 shares of Series B Preferred at $9.35 per share through a
private placement offering.
The Series B Preferred will be automatically converted into 873,131 shares
of common stock at the conversion ratio of approximately 1:0.90 upon the
earliest of (i) the closing of an underwritten public offering of
Autobytel.com's common stock with a minimum per share price of $13.50 per share,
and minimum aggregate offering price of $30 million; (ii) the consent of
two-thirds of the holders of preferred stock; or (iii) when fewer than 200,000
shares of Series B Preferred remain outstanding. The Series B Preferred is also
convertible into 873,131 shares of common stock at the option of the holder.
Autobytel.com has reserved 873,131 shares of common stock to permit the
conversion of the Series B Preferred.
Holders of Series B Preferred are entitled to one vote for each share of
common stock into which such shares of Series B Preferred may be converted. Each
share of Series B Preferred entitles the holder to receive noncumulative
dividends, if and when declared by the Board of Directors, prior to any dividend
paid on the common stock. Dividends, if any, on Series B Preferred shall be
declared at an annual rate of $0.80 per share. As of December 31, 1998, no
dividends have been declared.
In the event of liquidation, the Series B Preferred has preference over the
common stock in the amount of $9.35 per share, plus declared but unpaid
dividends.
F-14
<PAGE> 99
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Series C Convertible Preferred Stock
In October 1997, the Board of Directors authorized 2,840,909 shares of
Series C convertible preferred stock (Series C Preferred), and Autobytel.com
completed the sale of 1,477,274 shares of Series C Preferred at $8.80 per share
through a private placement offering. The Board of Directors authorized an
additional 1,136,363 and 3,000,000 shares of Series C Preferred in February and
December 1998, respectively.
In April 1998, Autobytel.com issued 56,776 shares of its Series C Preferred
in payment of television advertising with an estimated fair market value of
$500. The majority of the advertising was aired and expensed in the three months
ended March 31, 1998.
In May 1998, Autobytel.com sold 568,182 shares of the Series C Preferred at
$8.80 per share through a private placement.
In October 1998, Autobytel.com issued 64,233 shares of Series C Preferred
in payment of television advertising with an estimated fair market value of
$565. The amount was expensed in the three months ended December 31, 1998.
In November 1998, Autobytel.com sold 568,182 shares of Series C Preferred
at $8.80 per share through a private placement.
In December 1998, Autobytel.com sold 2,234,091 shares of Series C Preferred
at $8.80 per share through private placements. Of these shares, 1,136,364 shares
were issued to an investor with whom Autobytel.com entered into a Directed
Proceeds Agreement. Under the Directed Proceeds Agreement, Autobytel.com is
committed to expend up to $1,000 for the development of technology for broadband
applications. In addition, Autobytel.com issued a warrant for 300,000 shares of
common stock in exchange for the right to participate in the development of this
technology and the warrant holder's agreement to use commercially reasonable
efforts to involve Autobytel.com in other broadband application projects. The
fair value of the warrant ($540) has been recorded as a prepaid expense at
December 31, 1998.
The Series C Preferred will be automatically converted into 3,312,492
shares of common stock at the conversion ratio of approximately 1:0.67 upon the
earliest of (i) the closing of an underwritten public offering of
Autobytel.com's common stock with a minimum per share price of $13.50 per share,
and minimum aggregate offering price of $30 million; (ii) the consent of
two-thirds of the holders of preferred stock; or (iii) when fewer than 250,000
shares of Series C Preferred remain outstanding. The Series C Preferred is also
convertible into 3,312,492 shares of common stock at the option of the holder.
Autobytel.com has reserved 3,312,492 shares of common stock to permit the
conversion of the Series C Preferred.
Holders of Series C Preferred are entitled to one vote for each share of
common stock into which such shares of Series C Preferred may be converted. Each
share of Series C Preferred entitles the holder to receive non-cumulative
dividends, if and when declared by the Board of Directors, prior to any dividend
paid on Series A and Series B Preferred and the common stock. Dividends, if any,
on Series C Preferred shall be declared at an annual rate of $0.80 per share. As
of December 31, 1998, no dividends have been declared.
F-15
<PAGE> 100
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the event of liquidation, the Series C Preferred has preference over
Series A and Series B Preferred and the common stock in the amount of $8.80 per
share, plus declared but unpaid dividends.
As of December 31, 1998, 2,000,000 shares of preferred stock were
undesignated.
Common Stock
Under the terms of the Plan of Organization, the interests of the members
of the LLCs were transferred to autobytel.com inc. in a tax-free transaction. In
consideration for their respective ownership interests, the members of ABT and
ABTAC received 8,250,000 shares of common stock of Autobytel.com.
Warrants
In November 1998, Autobytel.com issued a warrant to purchase 150,000 shares
of common stock to an investor in its Series C Preferred in exchange for the
investor's commitment to assist Autobytel.com with organizational and start-up
activities related to a Pan-European entity in which Autobytel.com may invest
with the investor. The warrant is exercisable at $13.20 per share and expires in
November 2001. The warrant was valued at $270, which was expensed in 1998, as
the investor has fulfilled its commitment and has no further obligation to
Autobytel.com.
In December 1998, Autobytel.com issued warrants to purchase 289,800 shares
of common stock to another investor in its Series C Preferred in exchange for
the investor's commitment to assist Autobytel.com with organizational and
start-up activities related to a Pan-European entity in which Autobytel.com may
invest with the investor. The warrants are exercisable at $13.20 per share and
expire in December 2001. The warrants were valued at $522, which was expensed in
1998, as the investor has fulfilled its commitment and has no further obligation
to Autobytel.com.
In December 1998, Autobytel.com issued a warrant to purchase 300,000 shares
of common stock to an investor in exchange for the right to participate in the
development of broadband application technology. The warrant is exercisable at
$13.20 per share and expires in December 2001. The warrant was valued at $540,
and is recorded as a prepaid expense at December 31, 1998.
The fair value of each of these warrants was estimated using the
Black-Scholes option-pricing model and the following assumptions: (1) no
dividend yield, (2) volatility of 0.10%, (3) risk-free interest rate of 4.90%,
and (4) expected life of three years.
8. STOCK OPTION PLANS
1996 Stock Option Plan
Autobytel.com's 1996 Stock Option Plan (the Option Plan) was approved by
the Board of Directors in May 1996. The Option Plan was terminated by a
resolution of the Board of Directors in October 1996, at which time 870,555
options had been issued. The Option Plan provided for the granting to employees
and directors of incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the Code), and for the granting
to employees, consultants and directors of nonstatutory
F-16
<PAGE> 101
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock options. Autobytel.com reserved 1,194,444 shares of common stock for
exercise of stock options under the Option Plan. The exercise price of incentive
stock options granted under the Option Plan could not be lower than the fair
market value of the common stock, and the exercise price of nonstatutory stock
options could not be less than 85% of the fair market value of the common stock,
as determined by the Board of Directors, on the date of grant. With respect to
any participants who, at the time of grant, owned stock that possessed more than
10% of the voting power of all classes of stock of Autobytel.com, the exercise
price of any stock option granted to such person was to be at least 110% of the
fair market value on the grant date, and the maximum term of such option was
five years. The term of all other options granted under the Option Plan did not
exceed 10 years. Stock options granted under the Option Plan vest according to
vesting schedules determined by the Board of Directors. As of December 31, 1998,
options to purchase an aggregate of 206,388 shares of common stock at an
exercise price ranging from $0.84 to $0.90 per share were outstanding under the
Option Plan.
1996 Stock Incentive Plan
Autobytel.com's 1996 Stock Incentive Plan (the Incentive Plan) was approved
by the Board of Directors in October 1996, and was amended in November 1996. The
Incentive Plan provides for the granting to employees and directors of incentive
stock options within the meaning of Section 422 of the Code, and for the
granting to employees, directors and consultants of nonstatutory stock options
and stock purchase rights. Autobytel.com has reserved a total of 833,333 shares
of common stock for issuance under the Incentive Plan. The exercise price of
stock options granted under the Incentive Plan cannot be lower than the fair
market value of the common stock, as determined by the Board of Directors, on
the date of grant. With respect to any participants who, at the time of grant,
own stock possessing more than 10% of the voting power of all classes of stock
of Autobytel.com, the exercise price of stock options granted to such person
must be at least 110% of the fair market value on the grant date, and the
maximum term of such options is five years. The term of all other options
granted under the Incentive Plan may be up to 10 years. Stock options granted
under the Incentive Plan vest according to vesting schedules determined by the
Board of Directors.
1998 Stock Option Plan
In December 1998, Autobytel.com adopted the 1998 Stock Option Plan (the
1998 Option Plan). Autobytel.com has reserved 1,500,000 shares under the 1998
Option Plan. The 1998 Option Plan provides for the granting to employees of
incentive stock options within the meaning of the Code, and for the granting to
employees of nonstatutory stock options. The exercise price of non-statutory
options granted under the 1998 Option Plan cannot be lower than 85% of the fair
market value of the common stock on the date of grant. The exercise price of all
incentive stock options granted cannot be lower than the fair market value on
the grant date. With respect to any participants who beneficially own more than
10% of the voting power of all classes of stock of Autobytel.com, the exercise
price of any stock option granted to such person must be at least 110% of the
fair market value on the grant date, and the maximum term of such option is five
years. The term of all other options granted under the 1998 Option Plan may be
up to 10 years. Under the 1998 Option Plan, certain nonstatutory stock options
(Performance Options) vest over a
F-17
<PAGE> 102
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
time period determined by the Board of Directors, however, the vesting could be
accelerated based on the performance of Autobytel.com's common stock. In
December 1998, the Board of Directors granted Performance Options to purchase
700,000 shares of common stock to its executives at an exercise price of $13.20
per share, which represents the fair market value on the date of grant. These
options vest over a seven-year period, but the vesting could be accelerated
based on the performance of Autobytel.com's common stock. The accelerated
vesting schedule is conditioned on Autobytel.com consummating an initial public
offering. The accelerated vesting schedule provides that the grants will vest in
six installments, one installment vesting each six months over a three-year
period if pre-established average trading prices of the common stock are
achieved. Those installments will vest if the average trading price exceeds the
exercise price by $6.60, $13.20, $19.80, $26.40, $33.00 and $39.60,
respectively, in the applicable six month period after the date of grant. All
other stock options granted under the 1998 Option Plan vest according to vesting
schedules determined by the Board of Directors.
The 1998 Option Plan provides that, unless otherwise provided in the stock
option agreement, in the event of any merger, consolidation, or sale or transfer
of all or any part of Autobytel.com's business or assets, all rights of the
optionee with respect to the unexercised portion of any option shall become
immediately vested and may be exercised immediately, except to the extent that
any agreement or undertaking of any party to any such merger, consolidation, or
sale or transfer of assets makes specific provisions for the assumption of the
obligations of Autobytel.com with respect to the 1998 Option Plan.
During the year ended December 31, 1996, Autobytel.com granted options
under the aforementioned plans to purchase an aggregate of 1,568,059 shares of
common stock at various exercise prices ranging from $0.90 to $11.25 per share.
During the year ended December 31, 1996, Autobytel.com recorded, based upon an
independent appraisal obtained by Autobytel.com's Board of Directors, $87 of
deferred compensation expense relating to certain options. This amount was
amortized over the vesting periods of the options. Amortization of deferred
compensation for the years ended December 31, 1996, 1997 and 1998 was $61, $25
and $1, respectively.
During the year ended December 31, 1997, Autobytel.com granted options to
various employees to purchase 853,504 shares of common stock at an exercise
price of $13.20 per share.
During the year ended December 31, 1998, Autobytel.com granted options to
various employees to purchase 1,630,340 shares of common stock at an exercise
price of $13.20 per share.
In January 1999, Autobytel.com granted options to Hoshi Printer, Senior
Vice President and Chief Financial Officer, to purchase 150,000 shares of common
stock at an exercise price of $13.20 per share.
1996 Employee Stock Purchase Plan
Autobytel.com's 1996 Employee Stock Purchase Plan (the Purchase Plan) was
adopted by the Board of Directors in November 1996. The Purchase Plan, which is
intended to qualify under Section 423 of the Code, permits eligible employees of
Autobytel.com to purchase shares of common stock through payroll deductions of
up to
F-18
<PAGE> 103
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ten percent of their compensation, up to a certain maximum amount for all
purchase periods ending within any calendar year. Autobytel.com has reserved a
total of 444,444 shares of common stock for issuance under the Purchase Plan.
The price of common stock purchased under the Purchase Plan will be 85% of the
lower of the fair market value of the common stock on the first or last day of
each six month purchase period. Employees may end their participation in the
Purchase Plan at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with Autobytel.com. There have been no stock purchases under the
Purchase Plan. In January 1999, the Board of Directors ratified the suspension
of the Purchase Plan.
F-19
<PAGE> 104
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of Autobytel.com's stock options as of December 31,
1996, 1997 and 1998, and changes during such periods is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
---------- --------
<S> <C> <C>
Outstanding at December 31, 1995................ -- $ --
Granted......................................... 1,568,059 3.24
Exercised....................................... (28,148) 0.90
Canceled........................................ (19,353) 0.90
---------- ------
Outstanding at December 31, 1996................ 1,520,558 3.32
Granted......................................... 853,504 13.20
Exercised....................................... (39,629) 0.90
Canceled........................................ (156,688) 7.88
---------- ------
Outstanding at December 31, 1997................ 2,177,745 6.92
Granted......................................... 1,630,340 13.20
Exercised....................................... (181,012) 0.94
Canceled........................................ (767,733) 6.93
---------- ------
Outstanding at December 31, 1998................ 2,859,340 $10.87
========== ======
Exercisable at December 31, 1996................ 362,958 $ 0.89
========== ======
Exercisable at December 31, 1997................ 858,187 $ 2.78
========== ======
Exercisable at December 31, 1998................ 738,860 $ 6.42
========== ======
Weighted-average fair value of options granted
during 1996 whose exercise price is less than
the market price of the stock on the grant
date (169,445 options)........................ $ 2.45
======
Weighted-average fair value of options granted
during 1996 whose exercise price exceeds the
market price of the stock on the grant date
(1,398,614 options)........................... $ 1.16
======
Weighted-average fair value of options granted
during 1997 whose exercise price equals the
market price of the stock on the grant date
(853,504 options)............................. $ 2.73
======
Weighted-average fair value of options granted
during 1998 whose exercise price equals the
market price of the stock on the grant date
(1,630,340 options)........................... $ 3.25
======
</TABLE>
The fair value of each option granted through December 31, 1998 is
estimated using the Black-Scholes option-pricing model on the date of grant
using the following assumptions: (i) no dividend yield, (ii) volatility of
effectively zero, (iii) weighted-average risk-free interest rate of
approximately 6.70%, 6.18%, and 4.80% for the years ended December 31, 1996,
1997 and 1998, respectively, and (iv) expected life of six years for the years
ended December 31, 1996 and 1997 and four to seven years for the year ended
December 31, 1998.
F-20
<PAGE> 105
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING LIFE AVERAGE NUMBER OF AVERAGE
EXERCISE PRICE OPTIONS (IN YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- -------------- --------- -------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
0$.84......... 166,667 7.5 $ 0.84 166,667 $ 0.84
0.90......... 39,721 7.5 0.90 39,442 0.90
4.50......... 466,666 7.8 4.50 279,444 4.50
11.25........ 24,443 7.9 11.25 16,294 11.25
13.20........ 2,161,843 9.5 13.20 237,013 13.20
--------- --- ------ ------- ------
0$.84-$13.20.. 2,859,340 9.1 $10.87 738,860 $ 6.42
========= === ====== ======= ======
</TABLE>
Had compensation cost for Autobytel.com's stock option grants for its
stock-based compensation plans been determined consistent with SFAS No. 123,
Autobytel.com's net loss and net loss per share for the years ended December 31,
1996, 1997 and 1998 would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Net loss, as reported.................. $(6,035) $(16,810) $(19,398)
Net loss per share, as reported........ (0.73) (2.03) (2.30)
Net loss, pro forma.................... (6,270) (17,624) (21,109)
Net loss per share, pro forma.......... (0.76) (2.13) (2.51)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
9. SALE OF AUTO-BY-TEL UK LIMITED
In November 1998, Autobytel.com entered into a Share Purchase Agreement
with Inchcape Automotive Limited to sell 100% of its United Kingdom operations
for a nominal cash amount and assumption of liabilities of $1,794. The sale
resulted in a gain of $1,408, which is included in other income in the
accompanying consolidated statements of operations. In connection with the Share
Purchase Agreement, Autobytel.com entered into a License and Service Agreement
with Auto-by-Tel UK Limited under which it will grant to Auto-by-Tel UK Limited
a license to use its proprietary software, technology and other business
procedures and provide maintenance and support in exchange for minimum annual
license and maintenance and support fees over a 20-year period.
The minimum annual license fee of $850 is payable in advance on a quarterly
basis beginning on the launch date of the Web site. The Web site has not yet
been launched. Beginning in the fourth year of this agreement, additional
license fees are payable based on a formula involving a percentage of
Auto-by-Tel UK Limited's gross revenue. A maintenance and support fee of $250 is
payable in advance on a monthly basis beginning on the execution date of the
agreement.
F-21
<PAGE> 106
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Annual license revenue will be recognized ratably over a 12-month period
beginning on the Web site launch date. Maintenance and support revenue will be
recognized ratably over the term of the agreement beginning on the execution
date of the agreement, as the maintenance and support fee also covers efforts to
develop the Web site. Autobytel.com recognized revenues of $26 under the License
and Service Agreement in the year ended December 31, 1998.
Under the Share Purchase Agreement, Inchcape shall not transfer 50% or more
of the shares of Auto-by-tel UK Limited for a period of 365 days from the Web
site launch date. Inchcape Automotive Limited, however, is entitled to transfer
any shares, not to exceed 50%, at any time after the execution of the Share
Purchase Agreement within the one-year period following the termination or
expiration of the License and Service Agreement. If Inchcape Automotive Limited
wishes to transfer any shares to a third party, Autobytel.com has the right to
purchase all, but not a portion, of such shares.
10. INCOME TAXES
Through May 1996, the LLCs were taxed as partnerships under the provisions
of the Internal Revenue Code of 1986 (Internal Revenue Code). Under those
provisions, Autobytel.com was not subject to corporate income taxes on its
taxable income. Instead, Autobytel.com's taxable income or loss was included in
the individual income tax returns of its members. Effective May 31, 1996, under
the terms of the Plan of Organization, the LLCs were reorganized as a C
Corporation under the provisions of the Internal Revenue Code (See Note 1). The
reorganization required that Autobytel.com adopt SFAS No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred income tax assets and liabilities
are determined based on the differences between the book and tax basis of assets
and liabilities and are measured using the currently enacted tax rates and laws.
The cumulative tax effect of these temporary differences was immaterial at the
time of the reorganization.
No provision for federal income taxes has been recorded as Autobytel.com
incurred net operating losses through December 31, 1998. Provision for income
taxes included in the accompanying consolidated statements of operations
primarily consists of franchise taxes paid to the state of Delaware. As of
December 31, 1998, Autobytel.com had approximately $37.1 million and $18.4
million of federal and state net operating loss carryforwards available to
offset future taxable income; such carry forwards expire in various years
through 2018. Under the Tax Reform Act of 1986, the amounts of and benefits from
Autobytel.com's net operating loss carryforwards will likely be limited upon the
completion of the initial public offering due to a cumulative ownership change
of more than 50% over a three year period. Based on preliminary estimates,
management believes the effect of such limitation, if imposed, will not have a
material adverse effect on Autobytel.com.
Net deferred income tax assets, totaling approximately $6.3 million at
December 31, 1997 and $15.8 million at December 31, 1998, consist primarily of
the tax effect of net operating loss carry forwards, reserves and accrued
expenses which are not yet deductible for tax purposes. Autobytel.com has
provided a full valuation allowance on these deferred income tax assets because
of the uncertainty regarding their realization.
F-22
<PAGE> 107
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS
Peter R. Ellis
In March 1998, Autobytel.com extended a $250 loan to co-founding member and
stockholder, Peter R. Ellis. The loan bears interest at 8% per annum compounded
quarterly and principal and accrued interest are due in full in March 2003. The
loan is secured by Mr. Ellis's stock in Autobytel.com. In June 1998, Mr. Ellis
resigned from Autobytel.com as Chief Executive Officer. In August 1998,
Autobytel.com executed a two year agreement with Mr. Ellis to provide advisory
services. Under the agreement, Mr. Ellis received $500 in the first year and is
entitled to receive $5 per month in the second year of the agreement term. The
amounts paid to Mr. Ellis under this agreement are included in operating
expenses in the accompanying consolidated statements of operations.
12. BUSINESS SEGMENT
Autobytel.com conducts its business within one business segment, which is
defined as providing online vehicle purchasing and other related services.
13. SUBSEQUENT EVENTS
Proposed Initial Public Offering
In January 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to permit
Autobytel.com to sell shares of its common stock in connection with the proposed
initial public offering (IPO). If the offering is consummated under the terms
presently anticipated, the Series A, the Series B and the Series C Preferred
(collectively Preferred Stock) outstanding at December 31, 1998 will
automatically convert to common stock upon closing of the IPO (See Note 7).
1999 Stock Option Plan
In January 1999, the Board of Directors adopted the 1999 Stock Option Plan
(the 1999 Option Plan). Autobytel.com has reserved 1,800,000 shares under the
1999 Option Plan. The 1999 Option Plan provides for the granting of stock
options to key employees of Autobytel.com. Under the 1999 Option Plan, not more
than 1,000,000 shares may be granted after March 31, 1999. The 1999 Option Plan
provides for an automatic grant of an option to purchase 20,000 shares of common
stock to each non-employee director on the date on which the person first
becomes a non-employee director. In each successive year the non-employee
director shall automatically be granted an option to purchase 5,000 shares on
November 1 of each subsequent year provided the non-employee director has served
on the Board for at least six months. Each option shall have a term of 10 years.
Such options vest in their entirety and become exercisable on the first
anniversary of the grant date, provided that the optionee continues to serve as
a director on such date and the exercise price per share shall be 100% of the
fair market value of Autobytel.com's common stock on the date of grant. The 1999
Option Plan is identical in all other material respects to the 1998 Option Plan.
F-23
<PAGE> 108
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Rescission Offer for Stock Options Granted in Excess of the 1996 Incentive
Plan Limit
From May 1997 to January 1999, Autobytel.com issued grants of incentive
stock options in excess of the plan limit of 833,333 shares. Subsequent to
December 31, 1998, Autobytel.com offered to exchange the affected options for a
cash payment or a new grant of incentive stock options under the 1999 Option
Plan. In 1999, Autobytel.com has resolved this matter without a material impact
on its financial statements. Total cash payments were less than $10. The new
stock options were granted at the fair market value at the date of the new
grant, which equaled the exercise price of the original options. All other
significant provisions associated with the options remained the same.
Stock Options Granted in 1999
From January to March 1999, Autobytel.com granted stock options to purchase
388,236 shares of common stock under the 1999 Stock Option Plan. These stock
options were granted to employees and directors at exercise prices of $13.20 and
$16.00 per share which were below the fair market value at the date of grant. In
relation to these grants, Autobytel.com will recognize estimated compensation
expense of approximately $2.0 million ratably over the vesting term of one to
four years. Compensation expense of approximately $826, $390, $390, $390 and $30
will be classified as operating expense in the years ending 1999, 2000, 2001,
2002 and 2003, respectively.
[The inside back cover of the prospectus depicts a map of the United States with
dots generally representing the territories covered by United States dealers
participating in the Autobytel.com network.]
F-24
<PAGE> 109
- ------------------------------------------------------
- ------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE
OFFER OR SOLICITATION IS UNLAWFUL.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 6
Use of Proceeds......................... 20
Dividend Policy......................... 20
Capitalization.......................... 21
Dilution................................ 22
Selected Consolidated Financial Data.... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 24
Business................................ 35
Management.............................. 50
Financings and Related Party
Transactions.......................... 64
Principal and Selling Stockholders...... 68
Description of Capital Stock............ 70
Shares Eligible for Future Sale......... 73
Material United States Tax
Considerations for Non-U.S. Holders... 75
Underwriting............................ 80
Legal Matters........................... 82
Experts................................. 82
Additional Information.................. 83
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,500,000 SHARES
LOGO
AUTOBYTEL.COM INC.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
BT ALEXS BROWN
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
------------------
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the common stock being registered, all of which will be paid by the
Registrant. All amounts are estimates except the SEC registration, NASD and
Nasdaq filing fees.
<TABLE>
<S> <C>
SEC Registration fee....................................... $ 32,000
NASD filing fee............................................ 9,000
Nasdaq National Market listing fee......................... 95,000
Blue Sky fees and expenses................................. 5,000
Accounting fees and expenses............................... 453,000
Legal fees and expenses.................................... 585,000
Transfer agent and registrar fees.......................... 15,000
Printing and engraving expenses............................ 300,000
Miscellaneous expenses..................................... 77,000
----------
Total............................................ $1,571,000
==========
</TABLE>
- -------------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Delaware Law") and
Autobytel.com's amended and restated certificate of incorporation provide for
indemnification of Autobytel.com's directors and officers in a variety of
circumstances which may include liabilities under the Securities Act. Article IX
of Autobytel.com's amended and restated certificate of incorporation provides
that Autobytel.com shall indemnify to the full extent permitted by the laws of
Delaware, as from time to time in effect, the persons described in Section 145
of Delaware Law.
The general effect of the provisions in our amended and restated
certificate of incorporation and Delaware Law is to provide that we shall
indemnify our directors and officers against all liabilities and expenses
actually and reasonably incurred in connection with the defense or settlement of
any judicial or administrative proceedings in which they have become involved by
reason of their status as corporate directors or officers, if they acted in good
faith and in the reasonable belief that their conduct was neither unlawful (in
the case of criminal proceedings) nor inconsistent with the best interests of
Autobytel.com. With respect to legal proceedings by or in the right of
Autobytel.com in which a director or officer is adjudged liable for improper
performance of his duty to Autobytel.com or another enterprise which such person
served in a similar capacity at the request of Autobytel.com, indemnification is
limited by such provisions to that amount which is permitted by the court.
We will maintain officers' and directors' liability insurance which will
insure against liabilities that our officers and directors may incur in such
capacities. We have also entered into indemnification agreements with its
directors and officers.
Reference is made to the Proposed Form of Underwriting Agreement filed as
Exhibit 1.1 which provides for indemnification of the directors and officers of
Autobytel.com signing the Registration Statement and certain controlling persons
of Autobytel.com against certain liabilities, including those arising under the
Securities Act in certain instances, of the Underwriters.
II-1
<PAGE> 111
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since Autobytel.com's inception, Autobytel.com has made the following sales
of securities that were not registered under the Securities Act:
1. On May 31, 1996, Autobytel.com issued and sold 8,250,000 shares of
common stock in exchange for membership interests in Autobytel LLC and
Autobytel Acceptance Corporation LLC.
2. During the period from May 18, 1996 through December 31, 1998,
Autobytel.com granted options to purchase an aggregate of 2,847,496 shares
of common stock pursuant to the 1996 Stock Option Plan, 1996 Stock
Incentive Plan and 1998 Stock Option Plan of which 248,788 options have
been exercised.
3. On August 20, 1996, Autobytel.com issued and sold 1,500,000 shares
of series A preferred stock in a private placement for an aggregate
consideration of $15.0 million in cash and cancellation of indebtedness. In
connection with such financing, Autobytel.com issued (i) 200,000 shares to
ContiTrade Services L.L.C. in exchange for $2.0 million in cash, (ii)
400,000 shares to National Union Fire Insurance company of Pittsburgh, PA
in exchange for $4.0 million in cash, (iii) 800,000 shares to General
Electric Capital Corporation in exchange for $8.0 million in cash, and (iv)
100,000 shares to Michael Fuchs in exchange for $1.0 million in cash and
cancellation of indebtedness.
4. On August 26, 1996, Autobytel.com issued and sold 6,667 shares to
a consultant of Autobytel.com.
5. On January 30, 1997, Autobytel.com issued and sold 967,915 shares
of series B preferred stock in a private placement for an aggregate
consideration of $9.05 million in cash. In connection with such financing,
Autobytel.com issued (i) 133,690 shares to ContiTrade Services L.L.C. in
exchange for $1.25 million in cash, (ii) 267,380 shares to National Union
Fire Insurance Company of Pittsburgh, PA in exchange for $2.5 million in
cash, (iii) 534,760 shares to General Electric Capital Corporation in
exchange for $5.0 million in cash, (iv) 32,085 shares to Michael Fuchs in
exchange for $300 thousand in cash.
6. On October 21, 1997, Autobytel.com issued and sold 1,477,274
shares of series C preferred stock in a private placement for an aggregate
consideration of $13.0 million in cash. In connection with such financing,
Autobytel.com issued (i) 681,819 shares to General Electric Capital
Corporation in exchange for approximately $6.0 million in cash; (ii)
227,273 shares to National Union Fire Insurance Company of Pittsburgh, PA
in exchange for approximately $2.0 million in cash; and (iii) 568,182
shares to Tozer Kemsley and Millbourn Automotive Ltd., a unit of Inchcape
Motors International plc in exchange for approximately $5.0 million in
cash.
7. On January 30, 1998, Autobytel.com issued to John M. Markovich a
warrant to purchase 33,333 shares of common stock of Autobytel.com (after
adjustment for the Reverse Split) at an exercise price of $11.25 per share.
The warrant expires on January 30, 2003.
8. On April 20, 1998, Autobytel.com entered into a transaction with
National Broadcasting Company, Inc. ("NBC") whereby Autobytel.com issued
and sold 56,776 shares of series C preferred stock in exchange for prime
time advertisement spots with a fair market value of not less than
$499,629.
II-2
<PAGE> 112
9. On May 7, 1998 Autobytel.com issued and sold 568,182 shares of
series C preferred stock to Bilia AB in a private placement for a total
consideration of approximately $5.0 million in cash.
10. On October 30, 1998, Autobytel.com entered into another
transaction with NBC whereby Autobytel.com issued and sold 64,233 shares of
Series C Stock in exchange for prime time advertisement spots with a fair
market value of not less than $565,250.
11. On November 10, 1998, Autobytel.com issued and sold 568,182 shares
of Series C Stock to Invision AG for a total consideration of approximately
$5 million in cash.
12. On November 10, 1998, Autobytel.com issued to Invision AG a
warrant to purchase an aggregate of 150,000 shares of common stock of
Autobytel.com at an exercise price of $13.20 per share. This warrant
expires on November 10, 2001.
13. On December 16, 1998, Autobytel.com issued and sold 643,182 shares
of Series C Preferred Stock to Aureus Private Equity AG for a total
consideration of approximately $5,660,000 in cash.
14. On December 16, 1998, Autobytel.com issued to Aureus Private
Equity AG a warrant to purchase an aggregate of 169,800 shares of common
stock of Autobytel.com at an exercise price of $13.20 per share. This
warrant expires on December 16, 2001.
15. On December 21, 1998, Autobytel.com issued and sold 1,136,364
shares of Series C Preferred Stock to MediaOne Interactive Services, Inc.
for a total consideration of approximately $10,000,000 in cash.
16. On December 21, 1998, Autobytel.com issued to MediaOne Interactive
Services, Inc. a warrant to purchase an aggregate of 300,000 shares of
common stock of Autobytel.com at an exercise price of $13.20 per share.
This warrant expires on December 21, 2001.
17. On December 23, 1998, Autobytel.com issued an additional warrant
to Aureus Private Equity AG to purchase 120,000 shares of common stock of
Autobytel.com at an exercise price of $13.20 per share. This warrant
expires on December 23, 2001.
18. On December 24, 1998, Autobytel.com issued and sold an additional
454,545 shares of Series C Preferred Stock to Aureus Private Equity AG for
a total consideration of approximately $4,000,000 in cash.
19. On December 30, 1998, Autobytel.com issued and sold 1,000 shares
of Common Stock to Mr. Kaplan for a total consideration of $13,200 in cash.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and Autobytel.com believes
that each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated
thereunder or Rule 701 pursuant to compensatory benefit plans and contracts
relating to compensation as provided under Rule 701. We did not engage in any
general solicitation in connection with such sales and, other than Rule 701
issuances, believe that each acquiror qualifies as an "accredited investor"
under Rule 501. In addition, the recipients in such transactions represented
their intention to acquire the securities for investment only and not with a
view to or for sale in
II-3
<PAGE> 113
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1** Form of Underwriting Agreement
3.1** Amended and Restated Certificate of Incorporation of
autobytel.com inc. certified by the Secretary of State of
Delaware (filed December 14, 1998 and amended March 1, 1999)
3.2** Amended and Restated Bylaws of autobytel.com inc.
4.1** Form of Stock Certificate
4.2** Amended and Restated Investors' Rights Agreement dated
October 21, 1997 as amended from time to time, between
autobytel.com inc. and the Investors named in Exhibit A
thereto
4.3** Form of Lock-Up Agreement
5.1** Opinion and Consent of Paul, Hastings, Janofsky & Walker LLP
9.1** Voting Proxy dated January 11, 1999 by Peter R. Ellis
10.1** Form of Indemnification Agreement between autobytel.com inc.
and its directors and officers
10.2** Employment Agreement dated July 1, 1998 between
autobytel.com inc. and Mark W. Lorimer
10.3** Employment Agreement dated December 17, 1998 between
autobytel.com.inc. and Anne Delligatta
10.4** Amended and Restated Employment and Severance Agreement
dated March 5, 1999 between autobytel.com.inc. and Michael
J. Lowell
10.5** 1996 Stock Option Plan and related agreements
10.6** 1996 Stock Incentive Plan and related agreements
10.7** 1996 Employee Stock Purchase Plan
10.8** 1998 Stock Option Plan
10.9** Marketing Agreement dated July 22, 1996, as amended on July
23, 1996, by and among Auto-By-Tel Acceptance Corporation, a
subsidiary of the Registrant ("ABTAC"), the Registrant, as
guarantor of the obligations of ABTAC, and AIU Insurance
Company, American International South Insurance Company,
American Home Assurance Company, American International
Insurance Company, American International Insurance Company
of California, Inc., Illinois National Insurance Company,
Minnesota Insurance Company, National Union Fire Insurance
Company of Pittsburgh, PA and the Insurance Company of the
State of Pennsylvania
10.10**+ Marketing Agreement dated February 8, 1996 between
Auto-By-Tel, LLC and Edmund Publications Corp.
10.11+ Amendment to Marketing Agreement of February 8, 1996, dated
June 6, 1997 between Edmund Publications Corp. and the
Registrant
10.12**+ Form of Dealership Agreements
</TABLE>
II-4
<PAGE> 114
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.13 Financing Inquiry Referral Agreement dated October 25, 1996
among Auto-By-Tel, Inc, as guarantor, Auto-By-Tel Acceptance
Corporation and Chase Manhattan Automotive Finance
Corporation
10.14** Marketing and Application Processing Agreement dated
February 1, 1997 between General Electric Capital Auto
Financial Services, Inc., Auto-By-Tel Acceptance Corporation
("ABTAC") and Auto-By-Tel, Inc., as guarantor
10.15**+ Content License and Channel Sponsorship Term Sheet dated
September 12, 1997 between Excite, Inc. and Auto-By-Tel
10.16**+ Data License and Web Site Agreement dated April 1, 1997
between IntelliChoice, Inc. and Auto-By-Tel Marketing
Corporation and the Registrant
10.17** Kelley Blue Book/Auto-By-Tel Agreement dated November 19,
1997, as amended July 1, 1998, between Kelley Blue Book and
Auto-By-Tel Corporation
10.18+ Listings Distribution, Sponsorship, Display Advertising and
Network Affiliation Agreement dated May 29, 1997 between
Classifieds2000, Inc. and Auto-By-Tel Corporation
10.19** License Agreement dated June 4, 1998 among J.D. Power and
Associates, Auto-By-Tel Marketing Corporation, and
autobytel.com inc.
10.20**+ Site Page Sponsorship and Commission Agreement dated June
25, 1997, between Auto-By-Tel Marketing Corporation and AT&T
Corporation
10.21+ Letter agreement dated April 1, 1997, between Auto-By-Tel
Marketing Corporation and NBC Multimedia Inc.
10.22+ Sponsorship Agreement, dated as of June 24, 1998, between
Excite, Inc. and Auto-By-Tel Corporation
10.23**+ License and Services Agreement dated August 7, 1998 between
autobytel.com inc. and Auto-By-Tel AB
10.24+ License and Services Agreement dated November 23, 1998
between autobytel.com inc. and Auto-by-Tel UK Limited
10.25**+ Share Purchase Agreement dated November 23, 1998 between
autobytel.com inc. and Inchcape Automotive Limited
10.26** Financing Inquiry Referral Agreement dated December 31, 1998
between Provident Bank, Auto-By-Tel Acceptance Corporation
and autobytel.com inc., as guarantor
10.27**+ Procurement and Trafficking Agreement dated September 24,
1998 between DoubleClick Inc. and autobytel.com inc.
10.28** Loan Agreement dated November 18, 1998 between Ann Benvenuto
and autobytel.com inc.
10.29** Advisory Agreement dated August 20, 1998 between
autobytel.com inc. and Peter R. Ellis
10.30** 1999 Stock Option Plan
10.31** Form of Gold Term Subscription Agreement
10.32** Form of Platinum Term Continuation Rider
10.33**+ Marketing Agreement dated February 18, 1999 between
autobytel.com inc. and Lycos, Inc.
</TABLE>
II-5
<PAGE> 115
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.34+ Letter Agreement dated March 12, 1999 between autobytel.com
inc. and Trans Cosmos, Inc.
10.35**+ Letter Agreement dated March 12, 1999 between autobytel.com
inc. and e-Solutions, Inc.
10.36+ Letter Agreement dated March 12, 1999 between autobytel.com
inc. and Intec, Inc.
10.37** Letter Agreement dated March 7, 1999 between Autobytel.com
and Ariel Amir
10.38** Letter Agreement dated December 18, 1998 between
Autobytel.com and Hoshi Printer.
11.1** Statement Regarding Computation of Per Share Earnings
21.1** Subsidiaries of autobytel.com inc.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2** Consent of Paul, Hastings, Janofsky & Walker LLP (reference
is made to Exhibit 5.1)
23.3** Consent of CNW Marketing Research
23.4** Consent of Barger & Wolen LLP
24.1** Power of Attorney (reference is made to the signature page)
27.1** Financial Data Schedule
</TABLE>
- -------------------------
** Previously filed.
+ Confidential treatment has been requested with regard to certain portions of
this document. Such portions were filed separately with the Securities and
Exchange Commission.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-6
<PAGE> 116
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act (sec.
230.424(b)(1) or (4) or 230.497(h)) shall be deemed to be part of this
Registration Statement as of the time the Commission declared it effective.
(2) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement for the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-7
<PAGE> 117
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 6 to the Registration Statement to
be signed on its behalf by the undersigned, hereunto duly authorized, in the
City of Irvine, State of California, on March 25, 1999.
autobytel.com inc.
By: /s/ MARK W. LORIMER
-----------------------------------
Name: Mark W. Lorimer
Title: Chief Executive Officer,
President and
Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 6 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Chairman of the Board March 25, 1999
- ------------------------------------------------ and Director
Michael Fuchs
* Director March 25, 1999
- ------------------------------------------------
Jeffrey H. Coats
* Director March 25, 1999
- ------------------------------------------------
Mark N. Kaplan
* Director March 25, 1999
- ------------------------------------------------
Kenneth J. Orton
* Executive Vice President March 25, 1999
- ------------------------------------------------ and Director
Robert S. Grimes
/s/ MARK W. LORIMER Chief Executive Officer, March 25, 1999
- ------------------------------------------------ President and Director
Mark W. Lorimer (Principal Executive
Officer)
/s/ HOSHI PRINTER Senior Vice President March 25, 1999
- ------------------------------------------------ and Chief Financial
Hoshi Printer Officer (Principal
Financial Officer and
Principal Accounting
Officer)
</TABLE>
II-8
<PAGE> 118
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Executive Vice President March 25, 1999
- ------------------------------------------------ and Chief Operating
Ann M. Delligatta Officer
* Director March 25, 1999
- ------------------------------------------------
Peter Titz
* Director March 25, 1999
- ------------------------------------------------
Richard Post
*By: /s/ HOSHI PRINTER
---------------------------------------
Hoshi Printer, Attorney-in-Fact
</TABLE>
II-9
<PAGE> 119
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ------------
<S> <C> <C>
1.1** Form of Underwriting Agreement
3.1** Amended and Restated Certificate of Incorporation of
autobytel.com inc. certified by the Secretary of
State of Delaware (filed December 14, 1998 and
amended March 1, 1999)
3.2** Amended and Restated Bylaws of autobytel.com inc.
4.1** Form of Stock Certificate
4.2** Amended and Restated Investors' Rights Agreement
dated October 21, 1997 as amended from time to time,
between autobytel.com inc. and the Investors named in
Exhibit A thereto
4.3** Form of Lock-Up Agreement
5.1** Opinion and Consent of Paul, Hastings, Janofsky &
Walker LLP
9.1** Voting Proxy dated January 11, 1999 by Peter R. Ellis
10.1** Form of Indemnification Agreement between
autobytel.com inc. and its directors and officers
10.2** Employment Agreement dated July 1, 1998 between
autobytel.com inc. and Mark W. Lorimer
10.3** Employment Agreement dated December 17, 1998 between
autobytel.com.inc. and Anne Delligatta
10.4** Amended and Restated Employment and Severance
Agreement dated March 5, 1999 between
autobytel.com.inc. and Michael J. Lowell
10.5** 1996 Stock Option Plan and related agreements
10.6** 1996 Stock Incentive Plan and related agreements
10.7** 1996 Employee Stock Purchase Plan
10.8** 1998 Stock Option Plan
10.9** Marketing Agreement dated July 22, 1996, as amended
on July 23, 1996, by and among Auto-By-Tel Acceptance
Corporation, a subsidiary of the Registrant
("ABTAC"), the Registrant, as guarantor of the
obligations of ABTAC, and AIU Insurance Company,
American International South Insurance Company,
American Home Assurance Company, American
International Insurance Company, American
International Insurance Company of California, Inc.,
Illinois National Insurance Company, Minnesota
Insurance Company, National Union Fire Insurance
Company of Pittsburgh, PA and the Insurance Company
of the State of Pennsylvania
10.10**+ Marketing Agreement dated February 8, 1996 between
Auto-By-Tel, LLC and Edmund Publications Corp.
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ------------
<S> <C> <C>
10.11+ Amendment to Marketing Agreement of February 8, 1996,
dated June 6, 1997 between Edmund Publications Corp.
and the Registrant
10.12**+ Form of Dealership Agreements
10.13 Financing Inquiry Referral Agreement dated October
25, 1996 among Auto-By-Tel, Inc, as guarantor,
Auto-By-Tel Acceptance Corporation and Chase
Manhattan Automotive Finance Corporation
10.14** Marketing and Application Processing Agreement dated
February 1, 1997 between General Electric Capital
Auto Financial Services, Inc., Auto-By-Tel Acceptance
Corporation ("ABTAC") and Auto-By-Tel, Inc., as
guarantor
10.15**+ Content License and Channel Sponsorship Term Sheet
dated September 12, 1997 between Excite, Inc. and
Auto-By-Tel
10.16**+ Data License and Web Site Agreement dated April 1,
1997 between IntelliChoice, Inc. and Auto-By-Tel
Marketing Corporation and the Registrant
10.17** Kelley Blue Book/Auto-By-Tel Agreement dated November
19, 1997, as amended July 1, 1998, between Kelley
Blue Book and Auto-By-Tel Corporation
10.18+ Listings Distribution, Sponsorship, Display
Advertising and Network Affiliation Agreement dated
May 29, 1997 between Classifieds2000, Inc. and
Auto-By-Tel Corporation
10.19** License Agreement dated June 4, 1998 among J.D. Power
and Associates, Auto-By-Tel Marketing Corporation,
and autobytel.com inc.
10.20**+ Site Page Sponsorship and Commission Agreement dated
June 25, 1997, between Auto-By-Tel Marketing
Corporation and AT&T Corporation
10.21+ Letter agreement dated April 1, 1997, between
Auto-By-Tel Marketing Corporation and NBC Multimedia
Inc.
10.22+ Sponsorship Agreement, dated as of June 24, 1998,
between Excite, Inc. and Auto-By-Tel Corporation
10.23**+ License and Services Agreement dated August 7, 1998
between autobytel.com inc. and Auto-By-Tel AB
10.24+ License and Services Agreement dated November 23,
1998 between autobytel.com inc. and Auto-by-Tel UK
Limited
10.25**+ Share Purchase Agreement dated November 23, 1998
between autobytel.com inc. and Inchcape Automotive
Limited
10.26** Financing Inquiry Referral Agreement dated December
31, 1998 between Provident Bank, Auto-By-Tel
Acceptance Corporation and autobytel.com inc., as
guarantor
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ------------
<S> <C> <C>
10.27**+ Procurement and Trafficking Agreement dated September
24, 1998 between DoubleClick Inc. and autobytel.com
inc.
10.28** Loan Agreement dated November 18, 1998 between Ann
Benvenuto and autobytel.com inc.
10.29** Advisory Agreement dated August 20, 1998 between
autobytel.com inc. and Peter R. Ellis
10.30** 1999 Stock Option Plan
10.31** Form of Gold Term Subscription Agreement
10.32** Form of Platinum Term Continuation Rider
10.33**+ Marketing Agreement dated February 18, 1999 between
autobytel.com inc. and Lycos, Inc.
10.34+ Letter Agreement dated March 12, 1999 between
autobytel.com inc. and Trans Cosmos, Inc.
10.35**+ Letter Agreement dated March 12, 1999 between
autobytel.com inc. and e-Solutions, Inc.
10.36+ Letter Agreement dated March 12, 1999 between
autobytel.com inc. and Intec, Inc.
10.37** Letter Agreement dated March 7, 1999 between
Autobytel.com and Ariel Amir
10.38** Letter Agreement dated December 18, 1998 between
Autobytel.com and Hoshi Printer.
11.1** Statement Regarding Computation of Per Share Earnings
21.1** Subsidiaries of autobytel.com inc.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2** Consent of Paul, Hastings, Janofsky & Walker LLP
(reference is made to Exhibit 5.1)
23.3** Consent of CNW Marketing Research
23.4** Consent of Barger & Wolen LLP
24.1** Power of Attorney (reference is made to the signature
page)
27.1** Financial Data Schedule
</TABLE>
- -------------------------
** Previously filed.
+ Confidential treatment has been requested with regard to certain portions of
this document. Such portions were filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 10.11
[*] Confidential Treatment has been requested for certain portions of this
exhibit.
EDMUND PUBLICATIONS CORP.
AUTO-BY-TEL MARKETING CORPORATION
Amendment to Marketing Agreement dated February 8, 1996
1. Term of agreement to be extended 18 months, to July 31, 2000,
2. Exclusivity:
a. New cars: Exclusive for entire term.
b. Used cars: Exclusivity unless and until terminated at Edmund's
election on not less than 90 days' notice, but no such election
to be effective prior to August 1, 1998. "Exclusivity" means
that other than EVRI, ABT will be the exclusive retail used
vehicle purchase program. Edmund shall have the right to
terminate ABT's used car program, on not less than 90 days'
notice, if the number of (non-duplicate) used car request forms
is less than (i) 100,000 during the twelve months commencing
with the first full calendar month after Edmund begins
submitting used car request forms to ABT, (ii) 200,000 during
the second such twelve-month period, or (iii) 250,000 during any
subsequent twelve-month period.
c. No exclusivity re financing.
3. Fees:
a. [*] for each new car request form for the first 16,667 per
calendar month. [*] for the next 8,333 per month, [*] for the
next 8,333 per month, [*] for the next 8,333 per month, and [*]
for any forms in excess of 41,667 per month. A reconciliation
shall be made as soon as practicable after each March 31, June
30, September 30 and December 31 based on Edmund being entitled
to [*] for each new car request form for the first 200,000 per
twelve months, [*] for the next 100,000 per twelve months, [*]
for the next 100,000 per twelve months, [*] for the next 100,000
per twelve months, and [*] for any forms in excess of 500,000
per twelve months (prorated for the number of months that are
the subject of such reconciliation). The first reconciliation
shall be for the period June 1 through September 30 1997. If, as
a result of any such reconciliation, ABT paid Edmund too much
for the applicable period, ABT shall offset such excess against
the next payment due to Edmund.
b. [*] for each used car request form, plus [*] for each form in
excess of 16,667 per calendar month, while exclusivity is in
effect. Thereafter, [*] for each used car request form plus
[*] for each form in excess of 16,667 per calendar month.
Similar reconciliation as for the new car request forms.
c. 25% of net origination fees paid to ABT from Chase Manhattan
Automotive Finance Corporation and/or other providers of
purchase and/or lease financing with respect to purchase
requests received through Edmund.
4. Upon execution hereof, ABT to pay Edmund $275,000 as a deposit against
future payments (to be offset by ABT in 10 installments of $27,500
beginning with the payment due by ABT in August 1997 in respect of July
1997, or to be paid in full if the agreement is terminated). Edmund
agrees to waive any right of offset or any other defenses to its
unconditional obligation to pay such amount back to ABT on such terms.
<PAGE> 2
[*] Confidential treatment requested.
5. Effective date of this amendment: June 1, irrespective of when the
long-form agreement is executed. All fees reflected in this amendment to
be paid in respect of requests forms submitted on or after June 1, 1997.
6. All Information from consumers is jointly owned by ABT and Edmund, and
both parties have unrestricted rights to use and/or sell such
information.
7. "Duplicate forms" issue: Edmund will be paid based on ABT's method of
acceptance/rejection of forms.
8. Location of forms:
a. New cars: to remain on Edmund site and Edmund will coordinate
with ABT to ensure that consumers have a seamless transfer to
ABT for financing.
b. Used cars: will reside on ABT server; however, there will be
appropriately-placed links back to Edmund.
9. Transmissions of data:
c. New cars: no changes from current arrangement.
d. Used cars and financing: ABT to e-mail to Edmund all information
submitted by consumers while on the ABT server (other than
financial information), and the consumer's search criteria.
e. At end of each month, ABT to send Edmund the aggregate number of
financings consummated by Edmund's consumers.
10. ABT and Edmunds will cooperate with one another on the issuance and
timing of a press release.
Agreed to and accepted this 6th day of June 1997:
AUTO-BY-TEL MARKETING CORPORATION EDMUND PUBLICATIONS CORP.
BY: /s/ MARK LORIMER By: /s/ PETER STEINLAUF
---------------------------------- ----------------------------------
Mark Lorimer Peter Steinlauf, President
Executive Vice President and
Chief Operating Officer
2
<PAGE> 1
EXHIBIT 10.13
EXECUTION COPY
FINANCING INQUIRY REFERRAL AGREEMENT
This FINANCING INQUIRY REFERRAL AGREEMENT ("Agreement"),
dated as of October 25, 1996, between Chase Manhattan Automotive Finance
Corporation, a Delaware corporation ("CAF"), with its principal place of
business at 900 Stewart Avenue, Garden City, New York 11530, on the one hand,
and Auto-By-Tel Acceptance Corporation ("ABTAC"), a Delaware corporation, with
its principal place of business at 18722 MacArthur Blvd., Irvine, CA 92612 and
Auto-By-Tel, Inc. ("ABT"), a Delaware corporation, located at 18722 MacArthur
Blvd., Irvine, CA 92612, as guarantor of the obligations of ABTAC under this
Agreement, (in such capacity, the "Guarantor").
W I T N E S S E T H
WHEREAS, ABTAC is in the business of, among other things
identifying persons interested in arranging financing for the purchase or lease
of new and used Vehicles and trucks ("Vehicles") who visit the ABT Internet
website and purchase a new Vehicle ("Customers") and CAF and Chase Manhattan
Bank U.S.A., N.A. (hereinafter referred to collectively in the singular as
"CAF") is in the business of extending financing to certain persons for the
purchase and lease of Vehicles; and
WHEREAS, ABTAC desires to refer such Customers to CAF, and
CAF desires to purchase from Dealers (as defined herein) retail installment sale
contracts originated by such Dealers to finance the purchase of new motor
Vehicles only (excluding recreational vehicles) (such transactions, "RFTs") and
to pay marketing fees in connection with RFTs purchased by CAF as a result of
ABTAC's referrals;
NOW THEREFORE, in consideration of the foregoing premises,
and for other good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound, ABTAC and CAF
agree as follows:
SECTION 1. FINANCING PROGRAM
(a) ABTAC shall cause to be included on the ABT Website an application
for credit containing requests for the information designated by CAF as set
forth on Exhibit A hereto (the "Application"). The Application shall request the
information specified by CAF and shall be in a form reasonably satisfactory to
CAF. CAF may request changes from time to time in the information solicited by
the Application and, provided the requests are made in writing and with
reasonable notice,
<PAGE> 2
ABTAC shall use its best efforts to promptly accommodate such requests;
provided, however, that CAF shall use its best efforts not to request changes to
the information requested by, or form of, the Application (unless such changes
are required by law) more often than once in any three-month period; provided,
further, if such changes are required by law, and CAF gives ABTAC 30 days
notice, ABTAC shall honor such requested change within such thirty (30) day
period.
(b) Unless it already has done so, CAF will enter into its standard
dealer agreement ("Closing Agreement") with each seller of Vehicles in the
United States and the District of Columbia (the "Territory") who has executed an
on-line purchase referral agreement with ABT (each, a "Dealer," and together the
"Dealers"). The Closing Agreement shall contain customary terms no less
favorable to the Dealers than CAF's customary agreements in use with its other
financing programs and shall govern the terms upon which the Dealer and CAF will
close vehicle financing transactions referred through this Agreement. Upon
execution of a Closing Agreement, CAF shall assign such Dealer an identifying
number (the "Dealer ID") and inform ABTAC of such number. CAF may terminate its
relationship with any Dealer at any time for any reason, subject to the terms
and conditions of its Closing Agreement with such Dealer. CAF shall notify ABT
if it terminates any such Dealer under the provisions of its Closing Agreement
with such Dealer. Notwithstanding the foregoing, CAF shall not be obligated to
enter into a Closing Agreement or otherwise do business with any Dealer which
CAF has determined it will not do any business.
(c) Except as specified to the contrary in this Agreement, ABTAC (i)
shall not be a party to, (ii) shall not have any obligations with respect to,
and (iii) shall be held harmless by each Dealer and CAF with respect to any
losses or liabilities arising from or in connection with, the Closing
Agreements. If for any reason the Closing Agreement between a Dealer and CAF is
terminated, then CAF shall be under no obligation to approve any Application
received from Customers of such Dealer.
(d) CAF agrees to offer a buy-rate for each approved Customer credit
application at terms no less favorable than those offered to the applicable
Dealer by CAF. For each Customer credit application approved, CAF agrees to
inform ABTAC of the buy-rate offered to the applicable Dealer for RFTs. On a
monthly basis, the buy rate for RFTs purchased from Dealers by CAF that month
shall average no higher than 210 basis points over the 18-month treasury (the
"Base Range"). CAF may, upon 90 days written notice (a "Base Range Notice") to
ABTAC, raise the Base Range.
Subject to the ability of CAF to handle the systems issues
involved, as reasonably determined by CAF, and pursuant to a methodology to be
agreed upon by CAF and ABTAC, from time to time, upon ten (10) business days
written request from ABTAC, CAF shall raise the buy rate offered on RFTs, up to
a limit 50bps over the life of the term of this Agreement, which raise shall be
paid to ABTAC in the form of an increase in the fees paid to ABTAC by CAF
pursuant to Section 6. Such increase in fees shall be determined by reference to
the present value
2
<PAGE> 3
of such rate raise determined in accordance with the assumptions employed by CAF
for its valuation of excess spread on the portion of the excess spread CAF
retains on such loan.
(e) For so long as the "Exclusivity Conditions" (as defined below) are
met, CAF shall not enter into any agreement or arrangement similar to this
Agreement with any other Internet automobile buying, purchase assistance, or
automotive pricing information program or service, whereby the Internet program
or service provider receives or solicits credit information from its customers
to finance the purchase of new motor vehicles only (excluding recreational
vehicles), forwards that information for credit review to CAF and CAF purchases
that customer's retail installment sales contract originated by an automobile
dealer that has executed an on-line purchase or financing referral agreement or
similar agreement with the Internet program or service provider; provided,
however, that (i) CAF's rights to and/or use of IBM's Auto Loan Exchange System
for indirect dealer financing shall not violate the provisions of this Section
1(e); and (ii) CAF, any affiliate of CAF or any person controlled by or under
common control with CAF may, after the date hereof, acquire control (through
merger, acquisition, consolidation or purchase of all or substantially all of
the assets) of any corporation or other entity (other than a corporation or
entity which has as its primary line of business services substantially similar
to ABT and ABTAC) which at the time of such acquisition is engaged in a business
or service substantially similar to that contemplated by this Agreement, so that
such corporation or entity (including the surviving or continuing entity in any
acquisition effective on a merger, consolidation or purchase of assets) shall
not violate the provisions of this Section 1(e). CAF shall not use or
participate in the use of the ABTAC Marks (as defined in Schedule 2) in
conjunction with the offering or making of any automobile finance product or
product related thereto on the Internet.
For purposes of this Agreement, the term "Exclusivity Conditions" shall
mean the occurrence of the following two conditions:
(i) ABTAC forwards to CAF not less than 51% of the Applications for
RFTs ABTAC receives from Customers who qualify for financing
from or through ABTAC within the Base Range; and
(ii) Of the Applications received by CAF from ABTAC, not less than
30% result in an RFT purchased from a Dealer.
(f) From time to time, ABTAC shall forward to CAF Applications received
from Customers. CAF shall review each forwarded Application and, if such
Application does not represent a credit which CAF will approve within the Base
Range, CAF shall so inform ABTAC and ABTAC may forward such Application to
another financing source.
3
<PAGE> 4
(g) ABTAC will be responsible for informing Dealers of the nature of
CAF's financing program. ABTAC will provide CAF with a list of the Dealers with
addresses so that CAF may forward Closing Agreements to them for signature. CAF
shall provide ABTAC with a copy of the form of Closing Agreement.
(h) ABTAC shall comply at all times with the provisions of the federal
Fair Credit Reporting Act and the Equal Credit Opportunity Act as well as the
so-called "fair lending" laws, in each case pertaining to the performance of its
obligations under this Agreement: including but not limited to the following:
(A) ABTAC will not submit any Application or credit information to
CAF with respect to applicants if ABTAC has any knowledge that such
Application, credit information or applicant is fraudulent, or that the
Application or credit information contains information which ABTAC knows
is untrue; and
(B) ABTAC will, on its Website, advise each applicant that his/her
Application may be submitted to Chase Manhattan Bank USA, N.A., 802
Delaware Avenue, Wilmington DE 19801, or such other address as CAF may
specify from time to time.
SECTION 2. RECEIPT AND TRANSMISSION OF APPLICANT INFORMATION
(a) Subject to the provisions of Section 1 (f), ABTAC will transmit each
completed Application to CAF by telephone, telefax, e-mail, or other electronic
or agreed upon means. When transmitting an Application to CAF, ABTAC will also
designate the Dealer that is to be notified of the credit decision.
(b) ABTAC will not use any such information in any manner which violates
applicable law in effect from time to time.
SECTION 3. UNDERWRITING
(a) Upon receipt, CAF will review each Application in accordance with
its underwriting criteria in effect from time to time. ABTAC acknowledges that
CAF has sole discretion in determining whether or not to approve an Application,
which discretion CAF agrees to exercise in a manner consistent with its
company-wide or market-wide underwriting procedures, as the case may be. CAF
shall inform ABTAC whether an Applicant has been approved, conditionally
approved or denied, but shall not reveal the reasons it has denied any
Application.
(b) CAF will complete its review of no less than 50% of the Applications
within the two (2) business hours after electronic receipt of the Application
and a further 80% of the Applications within four (4) business hours of
4
<PAGE> 5
such time. Compliance with these performance standards shall be measured on a
monthly basis. If CAF fails to comply with these performance standards, ABTAC's
sole remedy shall be to terminate this Agreement pursuant to Section 9(b). CAF's
business hours will be 8:00 a.m. to 9:00 p.m. Eastern Time, each day of the
year, except for those days banks located in New York are required to close.
Subject to the mutual agreement of the parties, the parties shall review the
foregoing business hours and expand same if justified economically by business
volume.
(c) CAF reserves the sole right and power to change the Underwriting
Criteria in accordance with sound lending practices consistent with CAF's normal
business practices and subject to applicable law, and further to suspend,
restrict or modify the purchase of RFTs from Dealers in any portion of the
Territory for any reason. CAF shall provide ABTAC with advance written notice,
given as early as practicable, of any actions under this clause (c) it plans to
implement. Any such actions shall be taken in good faith and only if consistent
with actions taken by CAF on a company-wide basis.
SECTION 4. COMMUNICATION OF CREDIT DECISIONS
At the completion of underwriting, subject to the time-frames set forth
in Paragraph 3(b) of this Agreement, CAF will notify ABTAC, [via E-MAIL] or such
other method as agreed upon by the parties from time to time, of CAF's credit
decision, and ABTAC shall use its best efforts to promptly notify the Dealer and
the Applicant on behalf of the Dealer and CAF of CAF's credit decision, and in
any event shall notify no less than 80% of such Dealers and Applicants within
two business hours. If CAF declines a request for credit, CAF will send to the
Applicant any and all notices required pursuant to federal or applicable state
law or regulation including, but not limited to, those required under the
federal Equal Credit Opportunity Act and Federal Reserve Regulation B. CAF shall
not provide Applications received from ABTAC which do not result in an RFT
purchase from a Dealer to any other financing source, including without
limitation, ProCredit Corp.
SECTION 5. CLOSING AND FUNDING
CAF and the Dealer shall use its best efforts to close approved
financing within 24 business hours after receipt from the Dealer of all properly
completed and required documentation pursuant to the terms of the Closing
Agreements. CAF will remit the proceeds of each purchased RFT to the related
Dealer in a timely manner.
5
<PAGE> 6
[*] Confidential Treatment Requested
SECTION 6. COMPENSATION
(a) During the term of this Agreement, CAF shall pay ABTAC a service
fee, in the amounts determined by reference to Exhibit A, and during the term of
this Agreement, CAF shall pay to each Dealer a service fee, in the amounts
determined by reference to Exhibit A and further subject to the terms of the
Closing Agreement for each RFT purchased under the terms of this Agreement. The
payment to ABTAC shall be made on the business day following any funding and the
payment to Dealer shall be made in accordance with the terms of the applicable
Closing Agreement. Dealer may markup CAF's buy rate, up to a maximum of 100 bps,
subject to the terms of the Closing Agreement and any applicable agreement
between the Dealer and ABTAC, which shall be provided to CAF. Dealers will earn
reserves in accordance with CAF's standard practices in connection with any such
mark up, subject to the terms of the Closing Agreement.
(b) ABTAC may appoint public accountants of its choice no more than once
during any 12 month period, and at its sole expense, for the purpose of auditing
CAF's compliance with the compensation provisions specified in Section 6 of this
Agreement and CAF agrees to grant such accountants access, during normal
business hours and upon reasonable notice, to all records necessary to determine
the compliance of CAF with the compensation provisions of Section 6 of this
Agreement. If the results of such audit reveal a discrepancy between the amounts
paid by CAF hereunder and the amounts which should have been paid hereunder,
then the appropriate payments shall be made (i) if to ABTAC, immediately, and
(ii) if to CAF, by the withholding of 1/6th of such amount from the payments to
be made to ABTAC over the succeeding six months with any balance due hereunder
payable on the 180th day notwithstanding any termination of this Agreement. If
the discrepancy is in ABTAC's favor and exceeds $250,000, then CAF shall
reimburse ABTAC for the full cost of the audit.
SECTION 7. REPORTS
(a) Each business day, via facsimile or such other method as agreed upon
by the parties from time to time, CAF will send to ABTAC a report identifying
each RFT to an Applicant, sorted by Dealer ID, that was purchased from a Dealer
on the preceding day (or, in the case of a report submitted on a Monday, each
RFT purchased from a Dealer on each of the three preceding days).
(b) On or before the 10th day of each month, via facsimile or such other
method as agreed upon by the parties from time to time, CAF will send to ABTAC a
report, sorted by Dealer ID, outlining for the preceding month (i) the number of
Applications received from ABTAC, (ii) the number of Applications that were
approved, (iii) the number of Applications that were denied, (iv) the number of
Applications pending at month-end, and (v) the average processing time for
6
<PAGE> 7
Applications, and the amount financed under each RFT. In the case of the
information set forth in clauses (i), (ii) and (iii) of the preceding sentence,
the report shall identify each Application by name of applicant. CAT shall
include with such report, a report indicating any Dealers which executed a
Closing Agreement and any Closing Agreements which terminated.
(c) On or before the 10th day of each month, via facsimile or such other
method as agreed upon by the parties from time to time, CAF will send to ABTAC a
report on the performance of RFTs purchased from Dealer detailing, for each
month this Agreement shall have been in effect, the number and aggregate
outstanding balance of (i) RFTs purchased during the month, (ii) RFTs in a
current status, (iii) RFTs more than 30 but less than 60 days delinquent, (iv)
RFTs more than 60 but less than 90 days delinquent, and (v) RFTs more than 90
days delinquent, (vi) repossessions and repossession ratio, (vii) gross and net
charge-offs and loss ratios. This monthly report will be provided on an overall
portfolio basis with respect to RFTs purchased from Dealers.
(d) ABTAC agrees to maintain complete and accurate books and records and
procedures concerning the taking and referral of Applications and credit
information and compliance with all applicable law. Throughout the term of this
Agreement, and for a period of twenty five (25) months after the termination of
this Agreement, CAF, its duly authorized agents, representatives or employees or
federal or state agencies having jurisdiction over CAF, may from time to time,
upon reasonable notice and during normal business hours, inspect such books,
records and procedures to ensure compliance with ABTAC's obligations concerning
the taking and referral of Applications and credit information under this
Agreement and compliance with all applicable law.
(e) On or before the 10th day of each month, via facsimile or such other
method as agreed upon by the partners from time to time, ABTAC will send to CAF
a report specifying for the preceding month, the number of Applications for RFTs
ABTAC receives from customers who qualified that month for financing from or
through ABTAC within the Base Range.
SECTION 8. INDEMNIFICATION
(a) ABTAC shall defend, indemnify and hold harmless CAF and its
affiliates and all of its and their officers, directors, owners, agents,
attorneys, and employees, from and against any and all loss, liability, claims,
counterclaims, damage, cost or expense (including reasonable attorney's fees and
costs), whether asserted in a judicial or administrative proceeding, arising out
of either (i) a breach of the representations and warranties of ABTAC designated
on Schedule 2 as items A(l), A(2), A(3), A(4), A(6) or A(7); (ii) a breach of
the provisions of Section 1(h); (iii) the receipt of a Customer's Application
information by any person or entity other than CAF or
7
<PAGE> 8
another entity that has a business relationship with ABTAC and a permissible
purpose to receive such information, by hacking or by any other authorized or
unauthorized method, unless such person or entity obtained or received such
information directly or indirectly from CAF; or (iv) any gross negligence or
intentional misconduct of ABTAC in connection with ABTAC's performance of its
obligations under this Agreement.
(b) CAF shall defend, indemnify and hold harmless ABTAC and its
affiliates and all of its and their officers, directors, owners, agents,
attorneys, and employees, from and against any and all loss, liability, claims,
counterclaims, damage, cost or expense including reasonable attorney's fees and
costs), whether asserted in a judicial or administrative proceeding, arising out
of either (i) a breach of the representations and warranties of CAF designated
on Schedule 2 as items B(1), B(2), B(3), B(4), B(6) or B(7); or (ii) any gross
negligence or intentional misconduct of CAF in connection with CAF's performance
of its obligations under this Agreement.
(c) Promptly after the receipt by either party hereto of notice of any
claim, action, suit or proceeding of any third party which is subject to
indemnification hereunder, such party (the "Indemnified Party") shall give
written notice of such claim to the party obligated to provide indemnification
hereunder (the "Indemnifying Party"), stating the nature and basis of such claim
and the amount thereof, to the extent known. Failure of the Indemnified Party to
give such notice shall not relieve the Indemnifying Party from any liability
which it may have on account of this indemnification or otherwise, except to the
extent that the Indemnifying Party is materially and adversely prejudiced
thereby. The Indemnifying Party shall be entitled to participate in the defense
of and, if it so chooses, to assume the defense of, or otherwise contest, such
claim, action, suit or proceeding with counsel selected by the Indemnifying
Party and reasonably satisfactory to the Indemnified Party. Upon the election by
the Indemnifying Party to assume the defense of, or otherwise contest, such
claim, action, suit or proceeding, the Indemnifying Party shall not be liable
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof. Although the Indemnified Party shall
have the right to participate in the defense thereof and to employ counsel, at
its own expense, separate from the counsel employed by the Indemnifying Party.
Notwithstanding the foregoing, the Indemnifying Party shall be liable for the
fees and expenses of counsel employed by the Indemnified Party, if, and only to
the extent that (i) the Indemnifying Party has not employed counsel or counsel
reasonably acceptable to the Indemnified Party to assume the defense of action
within a reasonable time after receiving notice of the commencement of the
action, (ii) the employment of counsel and the amount reimbursable therefor by
the Indemnified Party has been authorized in writing by the Indemnifying Party
or (iii) representation of the Indemnifying Party and the Indemnified Party by
the same counsel would, in the opinion of such counsel, constitute a conflict of
interest (in which case the Indemnifying Party will not have the right to direct
the defense of such action on behalf of the Indemnified Party). The parties
shall use commercially reasonable efforts to minimize Losses from claims by
third parties and shall act in good faith in responding to, defending against,
settling or
8
<PAGE> 9
otherwise dealing with such claims, notwithstanding any dispute as to liability
as between the parties under this Article 9. The parties shall also cooperate in
any such defense, give each other full access to all information relevant
thereto and make employees and other representatives available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Whether or not the Indemnifying Party shall have
assumed the defense, the Indemnifying Party shall not be obligated to indemnify
the other party hereunder for any settlement entered into without the
Indemnifying Party's prior written consent, which consent shall not be
unreasonably withheld. The Indemnifying Party shall not compromise or settle any
claim, action, suit or proceeding, without the consent of the Indemnified Party
(which consent shall not be unreasonably withheld) unless the terms of such
settlement or compromise release the Indemnified Party from any and all
liability with respect to such claim, action, suit or proceeding.
SECTION 9. TERM AND TERMINATION
(a) This Agreement shall remain in effect for a period of three (3)
years from the date hereof unless terminated by either party upon one hundred
eighty (180) days prior written notice. This Agreement shall also terminate if
required by governmental authority or court of law, but only insofar as this
Agreement applies to such jurisdiction affected.
(b) If any party shall be in breach of any material obligation under
this Agreement and such breach shall remain uncured for a period of thirty (30)
days after written notice thereof from the other party (or, if such breach is
curable and requires more than thirty (30) days to cure, if such cure is not
commenced within thirty (30) days and thereafter diligently prosecuted), then
the other party may, by written notice sent, terminate this Agreement upon 30
days after delivery of such notice. Non-payment of amounts due under this
Agreement shall be deemed to be a breach of a material obligation hereunder, but
institution of suit for payment of amounts due under this Agreement shall not be
deemed to be an automatic termination hereunder. Notwithstanding anything in
this Agreement to the contrary, either party has the right to terminate this
Agreement immediately, upon written notice to the other party, if the other
party's breach of any material obligation of this Agreement causes the
non-breaching party to be in violation of any applicable law, rule, regulation
or order.
(c) ABTAC may terminate this Agreement on thirty (30) business days
notice at any time between the receipt of a Base Range Notice and the date
specified in such notice for the increase in the Base Range.
(d) Notwithstanding paragraph 9(a) above, CAF may terminate this
Agreement on thirty (30) days written notice if, on the first business day of
any calendar month, the Exclusivity Conditions have not been met during the most
9
<PAGE> 10
recently completed six (6) month period, measured on a weighted average basis.
For any six month period, CAF's right under this Section 9(d) shall expire on
the fifteenth day of the month following the end of such period, but shall have
no effect on any right CAF may have to terminate under any other provision of
this Agreement.
(e) At any party's option, and upon written notice of exercise of the
option, this Agreement shall terminate upon the voluntary or involuntary
bankruptcy or insolvency of a party, the voluntary or involuntary dissolution or
liquidation of a party, the admission in writing by a party of its inability to
pay its debts as they mature, or the assignment by a party for the benefit of
creditors.
SECTION 10. NOTICES
All notices or transmissions pursuant to this Agreement, unless
otherwise specified, shall be by facsimile transmission, by personal delivery,
or by registered or certified mail, return receipt requested, to the addresses
of the parties listed on Schedule 1 hereto, or such other address as any party
listed below shall specify in writing to the others in a notice conforming to
this Section.
SECTION 11. GUARANTEE
The Guarantor hereby unconditionally and irrevocably guarantees to CAF,
its successors, endorsees and assigns, the performance when due of all present
and future obligations and liabilities of all kinds of ABTAC arising out of or
in connection with the Agreement, whether due or to become due, secured or
unsecured, absolute or contingent, joint or several ("Obligations"). The
Guarantor agrees that CAF and ABTAC may mutually agree to modify the Obligations
or any agreement between CAF and ABTAC without in any way impairing or affecting
this Guarantee. The Guarantor agrees that the liability hereunder will not be
affected by any settlement, extension, renewal, or modification of this
Agreement or by the discharge or release of the Obligations of ABTAC, whether by
operation of law or otherwise. The Guarantor agrees to also be liable for all
fees and costs, including reasonable attorney's fees, incurred by CAF in
enforcing the terms of this guarantee.
SECTION 12. REPRESENTATIONS, GENERAL
The representations and warranties set forth on Schedule 2 to this
Agreement and the provisions of general application set forth on Schedule 3 to
this Agreement are incorporated herein by reference and shall have the same
force and effect as if set forth herein in their entirety.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officer on the date first above written.
CHASE MANHATTAN AUTOMOTIVE FINANCE CORPORATION
By: /s/ [SIG]
-------------------------------------------
Title: President
----------------------------------------
AUTO-BY-TEL ACCEPTANCE CORPORATION
By:
-------------------------------------------
Title:
----------------------------------------
AUTO BY-TEL, INC., as Guarantor
By:
-------------------------------------------
Title:
----------------------------------------
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officer on the date first above written.
CHASE MANHATTAN AUTOMOTIVE FINANCE CORPORATION
By:
-------------------------------------------
Title:
----------------------------------------
AUTO-BY-TEL ACCEPTANCE CORPORATION
By: /s/ [SIG]
-------------------------------------------
Title: Chief Operating Officer
----------------------------------------
AUTO BY-TEL, INC., as Guarantor
By: /s/ [SIG]
-------------------------------------------
Title: President
----------------------------------------
12
<PAGE> 13
EXHIBIT A
to
Financing Inquiry Referral Agreement,
dated as of October 25, 1996, between
Chase Manhattan Automotive Finance Corporation,
and Auto-By-Tel Acceptance Corporation
and Auto-By-Tel, Inc., as guarantor (the "Agreement")
COMPENSATION SCHEDULE
Capitalized terms used in this Exhibit and not defined herein shall have the
meanings ascribed thereto in the Agreement.
The following compensation shall be paid for each financing contract (RFT or
lease) funded pursuant to the Agreement:
Fee to ABTAC
------------
Amount Financed Flat Fee
--------------- --------
$25,000 + $125
15,001 - 25,000 100
10,000 - 15,000 50
< $10,000 0
Fee to Dealer
-------------
Amount Financed Flat Fee
--------------- --------
$25,000 + $75
15,001 - 25,000 50
10,000 - 15,000 25
< $10,000 25
Contracts or title documents which have to be returned to the Dealer for the
correction of errors and omissions will not require payment, and will not be
funded, until corrected documents are received and accepted by CAF. All amounts
paid to Dealer shall be subject to the terms of the Closing Agreements.
Exhibit A - Page 1 of 1
<PAGE> 14
SCHEDULE 1
to
Financing Inquiry Referral Agreement,
dated as of October 25, 1996, between
Chase Manhattan Automotive Finance Corporation,
and Auto-By-Tel Acceptance Corporation
and Auto-By-Tel, Inc., as guarantor (the "Agreement")
NOTICES
Capitalized terms used in this Schedule
and not defined herein shall have the meanings
ascribed thereto in the Agreement.
If to CAF:
Chase Manhattan Automotive Finance Corporation
900 Stewart Avenue
Garden City, New York 11530
Attention: Anthony Langan,
Marketing Executive,
or his successor
If to ABTAC: AUTO-BY-TEL ACCEPTANCE CORPORATION
18722 MacArthur Blvd.
Irvine, CA 92612
Attention: Peter Ellis,
President,
or his successor
If to ABT: AUTO-BY-TEL, INC.
18722 MacArthur Blvd.
Irvine, CA 92612
Attention: Peter Ellis,
President,
or his successor
Schedule 1 - Page 1 of 1
<PAGE> 15
SCHEDULE 2
to
Financing Inquiry Referral Agreement,
dated as of October 25, 1996, between
Chase Manhattan Automotive Finance Corporation,
and Auto-By-Tel Acceptance Corporation
and Auto-By-Tel, Inc., as guarantor (the "Agreement")
REPRESENTATIONS AND WARRANTIES
Capitalized terms used in this Schedule
and not defined herein shall have the meanings
ascribed thereto in the Agreement.
(A) Representations and Warranties of ABTAC.
ABTAC hereby makes the following representations and warranties to CAF:
(1) ABTAC has been duly organized and is validly existing as a
corporation under the laws of the state of Delaware and is duly licensed where
required as a "Licensee" or is otherwise qualified in each state in which it
transacts business and is not in default of such state's applicable laws, rules
and regulations, except where the failure to so qualify or such default would
not have a material adverse effect on its ability to conduct its business or to
perform its obligations under the Agreement.
(2) ABTAC has the requisite power and authority and legal right to
execute and deliver the Agreement, engage in the transactions contemplated by
the Agreement, and perform and observe those terms and conditions of the
Agreement to be performed or observed by it hereunder. The person signing the
Agreement, and any document executed pursuant to it, on behalf of ABTAC has full
power and authority to bind ABTAC. The execution, delivery and performance of
the Agreement, and the performance by ABTAC of all transactions contemplated
therein, have been duly authorized by all necessary and appropriate corporate
action on the part of ABTAC.
(3) The Agreement has been duly authorized and executed by ABTAC and is
valid, binding and enforceable against ABTAC in accordance with its terms,
except that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws (whether statutory, regulatory
or decisional) now or hereafter in effect relating to creditors' rights
generally, and the execution, delivery and
Schedule 2 - Page 1 of 3
<PAGE> 16
performance by ABTAC of the Agreement do not conflict with any term or provision
of (i) its certificate of incorporation or bylaws, (ii) any law, rule,
regulation, order, judgment, writ, injunction or decree applicable to ABTAC of
any court, regulatory body, administrative agency or governmental body having
jurisdiction over ABTAC or (iii) any agreement to which ABTAC is a party or by
which its property is bound.
(4) No consent, approval, authorization or order of, registration or
filing with, or notice to any governmental authority or court is required under
applicable law in connection with the execution, delivery and performance by
ABTAC of the Agreement.
(5) There is no action, proceeding or investigation pending or, to the
best knowledge of ABTAC, threatened against it before any court, administrative
agency or other tribunal (i) asserting the invalidity of the Agreement, (ii)
seeking to prevent the consummation of any of the transactions contemplated by
the Agreement, or (iii) which could reasonably be expected to materially and
adversely affect its performance of its respective obligations under, or the
validity or enforceability of, the Agreement.
(6) ABTAC has all regulatory approvals, authorizations, licenses,
permits and other permissions, consents and authorities whatsoever, needed to
operate the ABT Website and perform ABTAC's obligations under the Agreement.
(7) ABTAC warrants that it has the legal and valid right to use any
registered or unregistered trademark, tradename, service mark, logo, emblem or
other proprietary designation, or any variations, derivatives and modifications
thereof, used by it in the materials provided to CAF or used by ABTAC in
connection with the Agreement (the "ABTAC Marks").
(B) Representations and Warranties of CAF. CAF hereby makes the following
representations and warranties to ABTAC:
(1) CAF is duly licensed where and as required in each state in which it
transacts business and is not in default of such state's applicable laws, rules
and regulations, except where such default would not have a material adverse
effect on the ability of CAF to conduct its business or to perform its
obligations under the Agreement.
(2) CAF has the requisite power and authority and legal right to execute
and deliver, engage in the transactions contemplated by, and perform and observe
the terms and conditions of, the Agreement. The person or persons signatory to
the Agreement and any document executed pursuant to it on behalf of CAF have
full power and authority to bind CAF. The execution, delivery and performance of
the Agreement, and the performance by CAF of all transactions contemplated
therein, have
Schedule 2 - Page 2 of 3
<PAGE> 17
been duly authorized by all necessary and appropriate and corporate action on
the part of CAF.
(3) The Agreement has been duly authorized and executed by CAF and is
valid, binding and enforceable against CAF in accordance with its terms, except
that such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws (whether statutory, regulatory or decisional)
now or hereafter in effect relating to creditors' rights generally, and the
execution, delivery and performance by CAF of the Agreement do not conflict with
any term or provision of the certificate of incorporation or bylaws of CAF, or
any law, rule, regulation, order, judgment, writ, injunction or decree
applicable to CAF of any court, regulatory body, administrative agency or
governmental body having jurisdiction over CAF.
(4) No consent, approval, authorization or order of, registration or
filing with, or notice to any governmental authority or court is required under
applicable law in connection with the execution, delivery and performance by CAF
of the Agreement.
(5) There is no action, proceeding or investigation pending or, to the
best knowledge of CAF, threatened against it before any court, administrative
agency or other tribunal (i) asserting the invalidity of the Agreement, (ii)
seeking to prevent the consummation of any of the transactions contemplated by
the Agreement, or (iii) which could reasonably be expected to materially and
adversely affect the performance by CAF of its obligations under, or the
validity or enforceability of, the Agreement.
(6) CAF warrants that it has all regulatory approvals, authorizations,
licenses, permits and other permissions, consents and authorities whatsoever, as
needed (i) to offer and enter into the financing arrangements with Customers
contemplated by the Agreement in each jurisdiction in the Territory and to
otherwise perform its obligations under the Agreement, and (ii) to use any
materials developed, provided or used by CAF in connection with the Agreement.
(7) CAF warrants that it has the legal and valid right to use any
registered or unregistered trademark, tradename, service mark, logo, emblem or
other proprietary designation, or any variations, derivatives and modifications
thereof, used by it in any materials provided to ABTAC or used by CAF in
connection with the Agreement.
Schedule 2 - Page 3 of 3
<PAGE> 18
SCHEDULE 3
to
Financing Inquiry Referral Agreement,
dated as of October 25, 1996, between
Chase Manhattan Automotive Finance Corporation,
and Auto-By-Tel Acceptance Corporation
and Auto-By-Tel, Inc., as guarantor (the "Agreement")
PROVISIONS OF GENERAL APPLICABILITY
Capitalized terms used in this Schedule
and not defined herein shall have the meanings
ascribed thereto in the Agreement.
(a) Entire Agreement. Except as specified in paragraph (b) of this
Schedule 3, the Agreement and the exhibits and schedules thereto constitute the
entire agreement of the parties, and may be amended from time to time only upon
the execution of a written amendment by the parties. The indemnities of Section
8 of the Agreement shall survive the termination thereof.
(b) Confidentiality. Both ABTAC and CAF have made and will continue
throughout the term of the Agreement to make available to the other party
confidential and proprietary materials and information ("Proprietary
Information"). Prospectively, each party shall advise the other of material and
information that is confidential and/or proprietary. Proprietary Information
does not include materials or information that: (a) are already, or otherwise
become, generally known by third parties as a result of no act or omission of
the receiving party; (b) subsequent to disclosure hereunder are lawfully
received from a third party having the right to disseminate the information and
without restriction on disclosure; (c) are generally furnished to others by the
disclosing party without restriction on disclosure; (d) were already known by
the receiving party prior to receiving them from the disclosing party and were
not received from a third party in breach of that third party's obligations or
confidentiality; or (e) are independently developed by the receiving party
without use of confidential information of the disclosing party.
(i) Each party shall maintain the confidentiality of the other's
Proprietary Information and will not disclose such Proprietary Information
without the written consent of the other party unless required to by law, rule,
regulation or court
Schedule 3 - Page 1 of 3
<PAGE> 19
order of any applicable jurisdiction. Each party shall also keep confidential
the terms of the Agreement and/or schedule hereto. The confidentiality
provisions of the Agreement shall survive the termination of the Agreement.
Notwithstanding any contrary provision of the Agreement, the confidentiality
provisions of the two confidentiality agreements executed by the parties hereto
prior to the date of the Agreement shall remain in full force and effect.
(ii) Notwithstanding any contrary provision of the Agreement, as
long as each party protects Proprietary Information of the other, neither the
exposure to the other party's confidential information nor its ownership of work
products shall prevent either party from using ideas, concepts, expressions,
know-how, skills and experience possessed by either party prior to its
association with the other party or developed by either party during its
association with the other party.
(c) Limitation of Liability. In no event shall either party be liable to
the other party for any incidental, special, exemplary or consequential losses
or damages of any kind whatsoever (including but not limited to lost profits),
even if advised of the possibility of such losses or damages and regardless of
the form of action.
(d) Assignment. Either party shall have the right to transfer or assign
the Agreement to any direct or indirect wholly-owned subsidiary at no charge or
penalty; provided, however, that such assignee assumes assignors obligations,
and assignee remains liable hereunder.
(e) Waiver. Neither party shall be deemed to be in default of any
provision of the Agreement or be liable to the other party or to any third party
for any delay, error, failure in performance or interruption of performance
resulting directly or indirectly from causes beyond that party's reasonable
control. The period of performance shall be extended to such extent as may be
appropriate after the cause of the delay has been removed. If any excusable
delay or failure to perform by a party exceeds thirty (30) days, the other party
shall have the right to terminate the Agreement without liability.
(f) Severability. If any provision of the Agreement is declared or found
to be illegal, unenforceable or void, then both parties shall be relieved of all
obligations arising under such provision, but only to the extent that such
provision is illegal, unenforceable or void, it being the intent and agreement
of the parties that the Agreement shall be deemed amended by modifying such
provision to the extent necessary to make it legal and enforceable while
preserving its intent or, if that is not possible, by substituting therefore
another provision that is legal and enforceable and achieves the same objective.
Each party agrees that it will perform its obligations hereunder in accordance
with all applicable laws, rules and regulations now or hereafter in effect.
Schedule 3 - Page 2 of 3
<PAGE> 20
(g) Arbitration. The parties acknowledge that the Agreement evidences a
transaction involving interstate commerce. Any controversy or claim arising out
of or relating to the Agreement, or the breach of the same, shall be settled
through consultation and negotiation in good faith and a spirit of mutual
cooperation. However, if those attempts fail, the parties agree that any
misunderstandings or disputes arising from the Agreement shall be decided by
arbitration which shall be conducted, upon request by either party, in Orange
County, California, before three (3) arbitrators (unless both parties agree on
one (1) arbitrator) designated by the American Arbitration Association (the
"AAA"), in accordance with the terms of the Commercial Arbitration Rule of the
AAA, and, to the maximum extent applicable, the United States Arbitration Act
(Title 9 of the United States Code), or if such Act is not applicable, any
substantially equivalent state law. The parties further agree that the
arbitrator(s) (i) will decide which party must bear the expense, of the
arbitration proceedings; (ii) shall not have the authority to award punitive
damages; and (iii) shall apply the internal laws of the State of California.
Notwithstanding anything herein to the contrary, either party may proceed to a
court of competent jurisdiction to obtain injunctive relief at any time.
(h) Force Majeure. Neither party shall be deemed to be in default of any
provision of the Agreement or be liable to the other party or to any third party
for any delay, error, failure in performance or interruption of performance
resulting directly or indirectly from causes beyond that party's reasonable
control. The period of performance shall be extended to such extent as may be
appropriate after the cause of the delay has been removed.
(i) Media Releases. ABTAC and CAF may utilize media releases to
publicize their business relationship with the prior approval of the other party
which shall not be unreasonably withheld. ABTAC and CAF shall not use any trade
name, service mark or any other information which identifies the other in sales,
marketing, advertising and publicity materials placed in any medium without
obtaining the prior written approval of the other.
(j) Governing Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to conflicts
of law principles.
(k) No Agency: No Joint Venture. Neither of ABTAC nor CAF is the agent
or representative of the other. Nothing contained herein nor the acts of the
parties hereto shall be construed to create a partnership, agency or joint
venture between ABTAC and CAF.
(l) Counterparts. The Agreement may be signed in two or more
counterparts, each of which shall be deemed an original, and taken together they
shall be considered one agreement.
Schedule 3 - Page 3 of 3
<PAGE> 1
Exhibit 10.18
[*] Confidential Treatment has been requested for certain portions of this
exhibit.
CLASSIFIEDS2000 LISTINGS DISTRIBUTION, SPONSORSHIP, DISPLAY ADVERTISING AND
NETWORK AFFILIATION AGREEMENT
This LISTINGS DISTRIBUTION, SPONSORSHIP, DISPLAY ADVERTISING AND NETWORK
AFFILIATION AGREEMENT (the "Agreement") is between CLASSIFIEDS2000, INC., a
California corporation having its place of business at 617 Palomar Avenue,
Sunnyvale, CA 94086 ("Classifieds2000"), and AUTO-BY-TEL, CORPORATION, a
Delaware Corporation, having its place of business at 18872 MacArthur Blvd.,
2nd Floor, Irvine, CA 92612 ("Customer"). This Agreement is effective as of May
29, 1998 (the "Effective Date").
WHEREAS, Classifieds2000 is the creator and administrator of an Internet
classifieds service (the "Classifieds2000 Service");
WHEREAS, Customer is in the business of distributing Vehicle Listings
("Classified Advertisements" or "Listings") and offering other services on its
own Web site and elsewhere on the Internet on behalf of its clients;
WHEREAS, Customer desires to: (a) license Classifieds2000 to distribute
Classified Advertisements through the Classifieds2000 Service; (b) be one of
four (4) sponsors of the Classifieds2000 Vehicles Channel; (c) display banner
and in-line text advertorials through the Classifieds2000 Vehicles category;
and (d) be a Network Affiliate of the Classifieds2000 Network, as the
Classifieds2000 Network presently exists or is augmented or supplemented from
time to time during the term of this Agreement.
WHEREAS, Customer and Classifieds2000 desire that this new Agreement replace
any and all oral or written agreements or understandings between the parties as
to the subject matter of this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. SERVICES. Classifieds2000 will provide to Customer the services described in
this section. For the purposes of this section, a Listing means a single used
vehicle listing that is delivered to Classifieds2000 according to the
Classifieds2000 Standard Vehicle Upload Specification. A summary of such
services is shown in Attachment A.
1.1. DISTRIBUTION OF LISTINGS. Classifieds2000 will distribute all
Listings provided by Customer within the Vehicles section of the
Classifieds2000 Service. Customer may include listings from DealerSites.com in
the Listings feed that it sends to Classifieds2000. Classifieds2000 will
provide Customer with the ability to remotely and automatically upload and
update the Listings it distributes in the Classifieds2000 Service on a regular
basis. The upload and update capability currently allows changes on a twenty
four-hour basis.
1.1.1. DETAIL PAGE LAYOUT AND BRANDING. For each Listing distributed
by Customer, Classifieds2000 will display a detail page in a layout exactly as
Customer's Listings are displayed in the current Classifieds2000 Service. Each
Listing will display the Customer logo and will contain links to additional
pages describing Customer's services. An example of this layout is shown in
Attachment B.
1.1.2. CONTACT REQUEST LEADS. Classifieds2000 will provide Customer
with contact request leads via a specialized Customer enhanced email form that
captures specific information and directly processes such information into
Customer's contact request service.
1.2. NETWORK-WIDE EXPOSURE. Classifieds2000 will integrate and
display Customer's branding throughout the Classifieds2000 Service in the
manner described below in order to provide users with easy access from various
points within the Vehicles Channel of Classifieds2000's premier classifieds to
the Customer Site.
1.2.1. CATEGORY-ENTRY SPONSOR BUTTON. Customer will be the exclusive
Auto Buying Service Sponsor. As such, Customer shall receive a fixed presence
logo link and FasTrak box on the Entry Page of the Vehicles Channel. The logo
shall link to a page of Customer's choice. Minimum impressions from this box
shall be one million (1,000,000) per month.
1.2.2. PRODUCTS AND SERVICES PAGE. Customer will receive a fixed
presence logo, text link and two lines of text in the New Car Price Quotes
Section of the Products and Services Page. The text link shall link to
Customer's FasTrak new car buying form. Minimum impressions from this page shall
be fourteen thousand (14,000) per month. Logo specifications shall be: 88x31
pixels.
1.
<PAGE> 2
1.2.3. INLINE TEXT ADVERTORIALS. Customer will receive four (4)
separate Text Advertorial links that will rotate randomly throughout the Search
Results Grid of the Vehicles Channel of the Classifieds2000 Service. Minimum
impressions from the Inline Text Advertorials shall be two million (2,000,000)
per month. Inline text specifications shall be no greater than sixty (60)
characters long; no mention of any company names or brands.
1.2.4. PAGE BOTTOM TEXT ADVERTISEMENTS. Customer will receive a Page
Bottom Text Advertisement that will rotate on the Vehicle Search Results Pages
and the Vehicle Details Pages of the Private Party Listings. These
advertisements shall link to Customer's FasTrak new car buying form. Minimum
impressions from the Page Bottom Text Advertisements shall be one million per
month.
1.2.5. BANNER ADVERTISEMENTS. Customer will receive a minimum of five
hundred thousand (500,000) banner impressions per month. Banner Specifications
shall be 468 x 60 pixels; 10K maximum file size.
1.2.6. SEASONAL PROMOTIONS. Customer will be included in all
relevant Classifieds2000 Service seasonal promotions for advertisers/sponsors
that occur during the term of this Agreement. The impressions for this type of
advertisement will vary.
1.3. CLASSIFIEDS2000 NETWORK AFFILIATION. Classifieds2000 will develop and
offer the following network affiliation service to Member:
1.3.1. CONTENT AND TECHNOLOGY. Classifieds2000 will provide Customer
with a private label classified advertising service including the Search Ad,
Place Ad, Change Ad, Cool Notify and Hot List features ("Customer
Classifieds"). The Customer Classifieds shall include the Vehicles category and
any other classified categories selected by Member. The look and feel of the
Customer Classifieds Service shall be as shown on:
http://classifieds2000.com/cgi-cls/Display.exe?Customer-demo+class.
1.3.2. LISTINGS RESTRICTIONS. In the Vehicles category, the Customer
Classifieds shall contain only private party listings provided by
Classifieds2000.
1.3.3. ALL SERVICE UPGRADES AND NEW CATEGORIES. All new standard
feature enhancements and categories will be added to the Customer Classifieds
as they are released.
1.3.4. PROMOTION OF CUSTOMER CLASSIFIEDS ON WWW.AUTOBYTEL.COM/
("CUSTOMER SITE"). Customer will provide a prominent home page link and
tool/menu bar link to the Customer Classifieds from the Customer Site.
1.3.5. ADVERTISING SALES. No third party advertising or banners shall
be displayed in the Customer Classifieds.
1.3.6. FREE SERVICE. Private parties will be able to list and view
merchandise and services for free on Customer Classifieds.
1.3.7. EXCLUSIVITY. For the Term of this Agreement, Customer shall
not enter into any on line co-branding or private label arrangements wherein
any party (other than Classifieds2000) provides a private party classifieds
service ("For Sale by Owner") to Customer.
1.3.8. CLASSIFIEDS2000 MARKS. A credit for the Classifieds2000
Service and a "Powered By Classifieds2000 - The Internet Classifieds" logo will
be displayed on each page within the Customer Classifieds.
1.3.9. OPTION TO REMOVE OF CUSTOMER CLASSIFIEDS. Customer shall have
the option of removing Customer Classifieds if it determines that it has a
negative impact on Customer's Cyberstore service.
1.4. REPORTING. Classifieds2000 shall provide periodic reports by email to
Customer outlining the number of banner impressions and total click-throughs
delivered, number of Customer listings in the Classifieds2000 database, and
detail pages viewed. Classifieds2000 shall commit to quarterly performance
reviews to assess the quality of purchase requests being sent to Customer.
Classifieds2000 shall commit to working closely with Customer to improve the
quality of purchase requests throughout the term of this Agreement.
1.5. ADDITIONAL PER LISTING SERVICES. The fee for additional per listing
services such as secondary detail pages will be on a per listing or setup fee
basis
2.
<PAGE> 3
[*] Confidential Treatment Requested
2. FEES. The fees for the services contemplated in this Agreement shall be as
follows:
2.1 A flat fee of [*] per month for the Listings Distribution Services
described in Section 1.1 together with the Network Affiliation
Services described in Section 1.3 herein; plus
2.2 A flat fee of [*] per month for the Network Wide Exposure Services
described in Section 1.2 herein; plus
2.3 A variable "Bounty" as follows:
i. [*] per Unique New Car Purchase Request forwarded to Customer for
the first seventy five thousand (75,000) Unique New Car Purchase
Requests;
ii. [*] per Unique New Car Purchase Request beginning with seventy
five thousand and one (75,001) up to and including one hundred
and fifty thousand (150,000) Unique New Car Purchase Requests;
and
iii. [*] per Unique New Car Purchase Requests after the first 150,000
new car purchase requests.
2.4 Classifieds2000 will guarantee a minimum of one hundred thousand
(100,000) Unique New Car Purchase Requests over the term of this
Agreement.
2.5 The total number of Unique New Car Purchase Request shall be
calculated in accordance with Customer's standard de-duplication
formula as set forth in item (i) on the attached Schedule C,
incorporated herein by this reference.
2.6 All fees payable to Classifieds2000 shall be invoiced monthly at the
beginning of the month. Fees due under this Agreement shall be paid
within thirty (30) days of receipt of a statement of such payment
obligations. In the event there is an unpaid thirty (30) days after
payment is due, Customer shall also pay interest at the rate of the
lesser of one and one-half (1.5%) per month or the then-highest
interest rate allowed to be imposed by applicable law, plus
Classifieds2000's reasonable costs of collection.
3. TERM. The term of this Agreement shall be as follows:
3.1 This Agreement shall have a stipulated start date of June 1, 1998,
and shall remain in effect for one contract year ("Contract Year").
3.2 A Contract Year shall be the longer of (a) twelve (1) consecutive
months following the stipulated start date; or (b) that period of
time following the stipulated start date deemed necessary for
Classifieds2000 to deliver the guaranteed number of Unique New Car
Purchase Requests as set forth in Section 2.3 above. Classifieds2000
agrees that in the event a Contract Year extends beyond twelve (12)
months following the stipulated start date, then Classifieds2000
shall waive the fixed monthly cost associated with Section 2.2 of
this Agreement until such time as the guaranteed number of Unique New
Car Purchase Requests are delivered to Customer, and Customer shall
only pay the variable fee per Unique New Car Purchase Request as
identified in Section 2.2 above.
3.3 Upon the expiration of this Agreement, which shall be either the
lapse of (12) months following the stipulated start date or upon the
lapse of the Contract Year, whichever term is in effect, this
Agreement will automatically renew on a monthly basis, unless either
party provides thirty (30) days written notice of its election to not
have this Agreement automatically renew.
3.4 After this Agreement has been in effect for twelve (12) consecutive
months, either party may terminate or renegotiate the terms upon
thirty (30) days written notice.
4. ADDITIONAL TERMS AND CONDITIONS.
4.1. CLASSIFIED ADVERTISEMENTS. Customer hereby authorizes Classifieds2000
to use, reproduce, publicly distribute and publicly display
Classified Advertisements on the Classifieds2000 Service. Customer
will be solely responsible for creating, managing, editing,
reviewing, deleting and otherwise controlling the Listings. Customer
will deliver to Classifieds2000 Customers' Classifieds Advertisements
in the format specified by the document "Classifieds2000 Vehicle
Listing Import Specification." Classifieds2000 and its affiliates may
decline to include any Classified Advertisements in the
Classifieds2000 Service for any reason or at any time.
3.
<PAGE> 4
4.2. DISPLAY ADVERTISING. Electronic images and URLs must be
submitted at least 3 days before the desired start date. GIFs and go-to URLs
should be e-mailed to [email protected]. Classifieds2000 and its
related parties reserve the right, at any time, and for any reason in its sole
discretion to decline any advertising and to cease further publication of any
advertising, and shall not be liable in any way, provided that any amounts
received for advertising that is not published will be refunded.
4.3. TERMINATION. This Agreement may be terminated by the parties as
follows:
4.3.1 This Agreement will terminate automatically in the event
that Classifieds2000 decides, in its sole discretion, to
stop operating its Web-accessible service.
4.3.2 Either party may terminate this Agreement after eight
(8) months provided that sixty (60) days prior written
notice is delivered.
4.3.3 Either party may terminate this agreement upon the
material breach of the other party, if such breach
remains uncured for thirty (30) days following written
notice to the breaching party; except that
Classifieds2000 may, by providing written notice,
terminate this Agreement immediately if the monthly
fees are not paid when due, as set forth herein.
4.3.4 Either Party may terminate this Agreement upon thirty
(30) days written notice to Classifieds2000 upon the
determination that the Unique New Car Purchase
Requests forwarded to Customer fall below Customer's
acceptable quality standard should such unacceptable
quality standard remains uncured for sixty (60) days
following written notice to the other party. For the
purposes of this Agreement, Customer's quality standard
shall be determined in accordance with the formula set
forth in item (ii) on the attached Schedule C,
incorporated herein by this reference.
4.3.5 Except for Classified Advertisements that
Classifieds2000 requires for maintenance of its
systems, upon the expiration or termination of this
Agreement, Classifieds2000 will promptly remove the
Classified Advertisements from its systems. Sections 2,
4.3, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11 and 4.12
shall survive any termination or expiration of this
Agreement.
4.4. DISCLAIMER OF WARRANTIES. Classifieds2000 provides all Services
performed hereunder "AS IS" and without any warranty of any kind.
Classifieds2000 does not guarantee continuous or uninterrupted service to and
use of the Services. In the event of interruption of Services, Classifieds2000's
sole obligation shall be to restore service as soon as practicably and
reasonably possible.
4.5. TRADEMARKS. Neither party may use the other party's trademarks,
service marks, trade names, logos, or other commercial or product designations
(collectively, "Marks") for any purpose whatsoever without the prior written
consent of the other party. Notwithstanding the foregoing, each party grants to
the other a revocable, non-exclusive, nontransferable, royalty-free, worldwide
license to use each other's respective Marks (a) in conjunction with the
Services for the purposes of marketing, promotion, and Classified
Advertisements directories or indexes, and (b) in electronic or printed
advertising, publicity, press releases, newsletters and mailings about the
Services or Classifieds2000.
4.6. CLASSIFIEDS2000 SERVICE PROMOTION. Customer may not use the
names of specific Classifieds2000 affiliates to promote, advertise, or publicly
state, either verbally or in written form, that Customer's listings are being
distributed on such affiliates' Web sites without explicitly stating that this
distribution is enabled via an arrangement with Classifieds2000.
4.7. INDEMNITY. Customer agrees to defend, indemnify and hold
harmless Classifieds2000 and its directors, officers, agents and employees for
any and all losses, costs, liabilities or expenses (including without
limitation reasonable attorneys' and expert witnesses' fees) incurred or
arising from any Classified Advertisements.
4.8. LIMITATIONS ON LIABILITY. IN NO EVENT SHALL CLASSIFIEDS2000 BE
LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING BUT NOT LIMITED TO SUCH DAMAGES ARISING FROM BREACH OF CONTRACT OR
WARRANTY OR FROM NEGLIGENCE OR STRICT LIABILITY), OR FOR INTERRUPTED
COMMUNICATIONS, LOST DATA OR LOST PROFITS, ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT, EVEN IF CLASSIFIEDS2000 HAS BEEN ADVISED OF (OR KNOWS OR SHOULD
KNOW OF) THE POSSIBILITY OF SUCH DAMAGES. UNDER NO CIRCUMSTANCES SHALL
CLASSIFIEDS2000 BE LIABLE TO CUSTOMER OR ANY THIRD PARTIES FOR AN AMOUNT
GREATER THAN THE AMOUNTS RECEIVED FROM CUSTOMER HEREUNDER.
4.9. GOVERNING LAW. This Agreement will be governed and construed
in accordance with the laws of the State of California without giving effect to
principles of conflict of laws. Customer agrees to submit to jurisdiction in
California and further agrees that any cause of action arising under this
Agreement may be brought in a court in Santa Clara County, California.
4.
<PAGE> 5
4.10. SUCCESSORS AND ASSIGNS. Neither party may assign this Agreement
without prior written consent of the other, except that no such consent shall
be required for assignments in connection with the sale of all or substantially
all of the assets or securities of a party or by merger (whether by operation
of law or otherwise). The parties' rights and obligations will bind and inure
to the benefit of their respective successors, heirs, executors and
administrators and permitted assigns.
4.11. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
and agreement of the parties and supersedes any and all oral or written
agreements or understandings between the parties as to the subject matter of
this Agreement. This Agreement may be changed only by a written agreement
signed by both parties.
4.12. CONFIDENTIALITY. This Agreement and its terms and conditions are
confidential information of both parties. Neither party may disclose the terms
and conditions hereof without the advance written consent of the other party.
Signed:
AUTO-BY-TEL, CORPORATION CLASSIFIEDS2000, INC.
/s/ Mark S. Lockareff
- ---------------------------- --------------------------------------
Customer Signature Signature
/s/ Mark Lockareff
- ------------------------------- --------------------------------------
Anne M. Benvenuto Mark Lockareff
Senior Vice President, Marketing Vice President, Classified Advertising
6/4/98
- ------------------------------- --------------------------------------
Date Date
5.
<PAGE> 6
4.10. SUCCESSORS AND ASSIGNS. Neither party may assign this Agreement
without prior written consent of the other, except that no such consent shall
be required for assignment in connection with the sale of all or substantially
all of the assets or securities of a party or by merger (whether by operation
of law or otherwise). The parties' rights and obligations will bind and inure
to the benefit of their respective successors, heirs, executors and
administrators and permitted assigns.
4.11 ENTIRE AGREEMENT. This Agreement set forth the entire understanding
and agreement of the parties and supersedes any and all oral or written
agreements or understandings between the parties as to the subject matter of
this Agreement. This Agreement may be changed only by a written agreement
signed by both parties.
4.12. CONFIDENTIALITY. This Agreement and its terms and conditions are
confidential information of both parties. Neither party may disclose the terms
and conditions hereof without the advance written consent of the other party.
Signed:
AUTO-BY-TEL, CORPORATION CLASSIFIEDS2000, INC.
- ------------------------------- -------------------------------
Customer Signature Signature
/s/ ANNE M. BENVENUTO
- ------------------------------- -------------------------------
Anne M. Benvenuto Mark Lockareff
Vice President, Classified
Advertising
- ------------------------------- -------------------------------
Date Date
5.
<PAGE> 7
[*] Confidential Treatment Requested
ATTACHMENT A
<TABLE>
<CAPTION>
USED CAR PROGRAM
FLAT FEE INCLUDES: Fixed Monthly [*] [*]
----------- ----------
<S> <C> <C> <C> <C> <C> <C>
- - Listings Distribution on Network
- - Per Listing Branding & Links
- - Unlimited Dealer Participation
- - Unlimited Contact Request Leads
- - FSBO Listings on ABT Site
NEW CAR PROGRAM
FLAT FEE INCLUDES: Fixed Monthly [*] [*]
- - Exclusive Buying Service Sponsor
- - Real Estate Slotting Fee
- - Minimum guarantee of 4,514,000 imps per month
PER NEW PURCHASE REQUEST Variable Monthly [*]
- - 0 - 75,000 - [*]
- - 75,001 - 150,000 - [*]
- - 150,001 + - [*]
- - Minimum guarantee of 100,000 new "PR's" during terms
TOTAL MONTHLY FIXED [*]
TOTAL ANNUAL FIXED [*]
TOTAL VARIABLE (ESTIMATED*) PER MONTH MONTH # PRs S/PR TOTAL
Jun-98 3,000 [*] [*]
* BASED ON A MINIMUM GUARANTEE OF 100,000 PER MONTH Jul-98 5,000 [*] [*]
Aug-98 6,000 [*] [*]
Sep-98 7,000 [*] [*]
Oct-98 7,000 [*] [*]
Nov-98 8,000 [*] [*]
Dec-98 9,000 [*] [*]
Jan-99 9,000 [*] [*]
Feb-99 10,000 [*] [*]
Mar-99 11,000 [*] [*]
Apr-99 12,000 [*] [*]
May-99 13,000 [*] [*]
ESTIMATED TOTAL ANNUAL VARIABLE 100,000 [*]
TOTAL ESTIMATED MONTHLY COST Jun-98 [*]
Jul-98 [*]
Aug-98 [*]
Sep-98 [*]
Oct-98 [*]
Nov-98 [*]
Dec-98 [*]
Jan-99 [*]
Feb-99 [*]
Mar-99 [*]
Apr-99 [*]
May-99 [*]
----------
TOTAL ESTIMATED ANNUAL COST [*]
----------
</TABLE>
<PAGE> 8
SCHEDULE C
TO THAT CERTAIN CLASSIFIED2000 LISTING DISTRIBUTION,
SPONSORSHIP, DISPLAY ADVERTISING AND
NETWORK AFFILIATION AGREEMENT ("AGREEMENT")
BETWEEN
CLASSIFIEDS2000, INC
AND
AUTO-BY-TEL CORPORATION
THE FOLLOWING LANGUAGE SHALL BE INCORPORATED INTO SECTION 2.4 OF THE
AGREEMENT AS THOUGH FULLY SET FORTH THEREIN:
i. Unique Purchase Request. For the purposes of this Agreement, a "Unique
Purchase Request" shall be a new car purchase request electronic form
with all data fields deemed mandatory by Customer completed by the
user, which has been received by Customer from Classifieds2000, and
for which Customer has not, within the previous ninety (90) day
period, received a duplicate new car purchase request from
Classifieds2000, or any other source from which Customer regularly
receives purchase requests, for the same or similar vehicle, as
determined by the year, make and model; from the same user, as
identified by the same name, zip code and/or the same e-mail address.
THE FOLLOWING LANGUAGE SHALL BE INCORPORATED INTO SECTION 4.3.4 OF THE
AGREEMENT AS THOUGH FULLY SET FORTH THEREIN:
ii. Customer may terminate this Agreement at any time during the term of
hereof, if, based upon a random sampling over a thirty (30) day period
of not less than one hundred (100) purchase requests referred by
Classifieds2000 for either new or used vehicles, it is determined that
the number of Classifieds2000 referred purchase requests which are
converted to actual sales of vehicles is less than fifteen percent
(15%) of the total number of conversion experienced by Customer with
non-Classifieds2000 purchase requests during the same time frame.
<PAGE> 9
ATTACHMENT B
[CLASSIFIEDS2000 LETTERHEAD]
"The most visited classifieds on the web!"
FEATURES
7.25% OR 7.75%
HOME CLICK HERE!
SEARCH ADS CLICK HERE FOR MORE INFORMATION
PLACE ADS
DELETE ADS SEARCH ADS
CHANGE ADS CATEGORIES / VEHICLES / CARS
COOL NOTIFY
HOT LIST Back to List Next Cool Notify Add to Hot List
HELP
AUTO-BY-TEL - RISK FREE VEHICLE!
72 hour money back refund!
[PHOTOGRAPH]
AUTO-BY-TEL MAKES YOUR USED CAR PURCHASE RISK-FREE
- - Full refund within 72-hours
- - National 3Mo./3K Mi. Limited Warranty
- - Travel Repair Program
- - Certified 135 Point Inspection
CAR 1996, Pontiac Grand Am SE, 31K miles, $11,300
OPTIONS 31227 exterior
Air Conditioning
Cruise Control
Two Door
Automatic Transmission
DESCRIPTION bucket seats, am/fm radio, tilt steering wheel, power door
locks, stock number 67801
VEHICLE ID 1G2NE12M7TM565098
SELLER INFO
More about Auto-By-Tel Purchase Guidelines
Birmingham, Alabama 35209
Back to List Next Cool Notify Add to Hot List
<PAGE> 1
EXHIBIT 10.21
[*] Confidential Treatment has been requested for certain portions of this
exhibit.
April 1, 1997
[NBC LETTERHEAD]
Federal Express
Mr. Peter Ellis
President/CEO
Auto-By-Tel
11872 MacArthur Blvd., Second Floor
Irvine, CA 92612
Re: Auto-By-Tel Participation in NBC Syndication Platform
Dear Mr. Ellis:
This Letter sets forth the initial agreement between NBC Multimedia, Inc.
("NBC"), and Auto-By-Tel Marketing Corporation ("Company") with respect to the
Company's agreement to provide content as part of NBC's Syndication Platform.
The terms and conditions shall be as follows:
1. Description of NBC Syndication Platform: NBC intends to create a menu of
localized world wide web services (the "NBC Syndication Platform") which
it will offer to the NBC Television Network's ("NBC TV") owned and
operated stations and interested affiliates (the "Stations"). NBC agrees
that if it does actually offer the NBC Syndication Platform, localized
versions of the Auto-By-Tel online automotive information, purchasing
financing and related services created and operated by the Company
("Auto-By-Tel") shall be among the list of primary services offered as
part of such platform subject to the terms and conditions hereof. Company
acknowledges (i) that each Station will have the sole right to determine
which individual services it will accept as part of the NBC Syndication
Platform, (ii) that Auto-By-Tel may or may not be included in any
individual Station's list of such services, and (iii) that NBC and
declining Stations shall have no liability or obligations to Company due
to any Stations' decision not to so include Auto-By-Tel.
2. Creation of Auto-By-Tel Local Sites: Company agrees that it shall create
customized local versions of Auto-By-Tel (each a "Auto-By-Tel Local
Site") for use by Stations participating in the NBC Syndication Platform.
Such Auto-By-Tel Local Sites will be designed to provide online viewers
of the Stations' world wide web sites (the "Station Sites") with
automotive information and purchasing financing and related services.
Each such Auto-By-Tel Local Site shall be a mirror Auto-By-Tel site which
shall be framed within a sub-page of the Station Site but which will
contain material to be provided by Company and located at a to be
established URL on a server of the Company. As a result, all online
viewers will be accessing and bookmarking the Auto-By-Tel Local Site
content through the NBC Syndication Platform's portion of the Station's
URL, and any user searches will continue to take place within the portion
of the Station Site framing the Auto-By-Tel Local Site.
3. Links: As a condition of utilizing the NBC Syndication Platform, each
participating Station will be required to devote a portion of the front
page of the Station Site to the NBC Syndication Platform, subject to
Station's right to have overall design control of the Station Site. Each
Station shall be encouraged to devote enough space on its front page to
permit the placement of hotlinks to the individual services which make up
the NBC Syndication Platform within space on such front page allocated
and dedicated to the NBC Syndication Platform, but at a minimum, each
participating Station Site's front page shall contain a prominent hotlink
to a special sub-page devoted to hotlinks for all of the services making
up the NBC Syndication Platform, the size and placement
<PAGE> 2
of which shall be comparable to that of any other link to a service
offered by the Station. NBC agrees that when the individual services which
make up the NBC Syndication Platform are displayed and a hotlink to the
Auto-By-Tel Local Site is provided, whether on a front page or on a
separate page, the link to the Auto-By-Tel Local Site which may be either
a generic category description or a Auto-By-Tel logo or text (the
"Auto-By-Tel Link") shall be comparable and consistent with the links
devoted to any of the other individual services which are part of the NBC
Syndication Platform.
4. Management of Auto-By-Tel Local Sites: The day-to-day management of the
Auto-By-Tel Local Sites, and all costs associated therewith, shall be the
responsibility of the Company subject to the following:
(a) Content - Company will provide all of the content for each of the
Auto-By-Tel Local Sites, provided that as part of the localization and
customizing process required herein, NBC and the Stations may provide
relevant local material (but not advertising) in their own discretion from
time to time with reasonable notice for use on the relevant Auto-By-Tel
Local Sites and Company will make good faith efforts to include such
material in its reasonable discretion. Company will acquire all necessary
rights and licenses required for the operation of each Auto-By-Tel Local
Site as contemplated herein and for the acquisition and use of any content
(e.g., automobile purchase analyses, appreciation costs, financing
incentives, etc.) not provided by NBC and the Stations. Each of the
Company, NBC and the Stations will retain and own all copyrights and other
intellectual property rights in, and to, the material which that entity
contributes for use hereunder.
(b) Editorial - Editorial standards and direction regarding the inclusion
and presentation of content will come from Company. In addition, Company
agrees to allow NBC to review the Auto-By-Tel Local Sites for compliance
with any NBC Broadcast Standards and Practices which may apply to the
Auto-By-Tel Local Sites and make all changes requested by NBC in
connection therewith. Finally, Company agrees to comply with any Rules and
Regulations of the Federal Communications Commission which may be
applicable to the Auto-By-Tel Local Sites and/or the rules and regulations
of any other governmental body having jurisdiction.
(c) Technology - Auto-By-Tel shall be responsible for all maintenance of
the Auto-By-Tel Local Sites (including customer service, technical upkeep,
etc.) including the costs associated therewith. Auto-By-Tel agrees to use
its best efforts to work with NBC's technology partners to coordinate the
interface between the Auto-By-Tel Local Sites and the Station Sites and
provide the required services contemplated herein.
(d) Branding - NBC shall create the Auto-By-Tel Link and may request that
Company provide appropriate proprietary material for use thereon. The
Auto-By-Tel Local Sites will be co-branded with trademarks and other
material to be provided by NBC, the Stations and Company subject to the
approval of each party and provided that the size of such brands shall be
left to the reasonable discretion of NBC. The parties agree that the
Company's brands on the Auto-By-Tel Local Sites shall be not more than
fifty percent (50%) smaller than, but as visible as, the brands of NBC and
the relevant Stations. Company agrees to abide by all requirements and
guidelines which NBC and the Stations may have regarding the use of their
trademarks, service marks and other brands and agrees that it shall make
no use of such marks and brands which is not approved in advance by NBC
and the relevant Stations. Branding for all other areas of the NBC
Syndication Platform and the Station Sites shall be at the sole discretion
of NBC and the Stations.
5. Promotion: As a condition of utilizing the NBC Syndication Platform, each
Station will be required of offer a minimum of 10 on-air promos
concerning, or mentions of,
2
<PAGE> 3
the URL address of the Station Site per week. NBC shall encourage
Stations to include information regarding the NBC Syndication Platform
as part of such promos or mentions.
6. Exclusivity: NBC agrees that Auto-By-Tel will be the exclusive service
provider for the online automotive purchasing and information category
of the NBC Syndication Platform offered by NBC, provided that Company
acknowledges that nothing in this Section 6 or elsewhere in the Letter
Agreement shall restrict NBC rights in any way in connection with NBC's
world wide web site ("NBC.com"), MSNBC.com, Intellicast.com or any
other future NBC related interactive (or other) services other than the
NBC Syndication Platform. Notwithstanding the foregoing, Company
acknowledges that (i) other services provided by third parties may be
offered to the Stations by NBC as part of the NBC Syndication Platform
which happen to provide online automotive information in addition to
their primary services as long as NBC does not offer such third party
services in place of Company's services on the NBC Syndication Platform
or materially promote such competing aspects of such third party
services to the Stations or the public (other than through general
advertising) in connection with the NBC Syndication Platform and (ii)
NBC will have no ability to prevent the Stations from placing competing
services elsewhere on their own Station Sites. Company agrees that NBC
will be the exclusive United States television distribution partner for
Auto-By-Tel's content and service, and Company agrees not to provide
the Auto-By-Tel service, or any portion thereof, to national or
regional television networks, syndicated programming services or
syndicated or like content platforms distributed by or through the
foregoing; provided, however, that NBC recognizes that such exclusivity
shall not prevent Company from providing the Auto-By-Tel service to any
internet service provider which uses televisions as a delivery device
(i.e., Web TV). The exclusivity terms of this Paragraph 6 will be
contingent upon NBC's reaching and then maintaining over each following
year on average the following critical mass of Station support for the
NBC Syndication Platform: (x) participating Stations providing 50% of
the total Stations' television household market reach in the United
States as of the later of December 31, 1998 or 18 months after launch
of the platform and (y) participating Stations providing 75% of the
total Stations' television household market reach in the United States
three years after launch of the platform, provided that for purposes
of this calculation, no Station Site including online automotive
purchasing or information content or service shall be included when
calculating the participating Stations. If such contingencies are not
met, the exclusivity terms of this Section 6 shall no longer apply,
but all other terms of this Letter Agreement shall remain in effect
until the termination hereof. In addition, if Company is not able to
provide competitive, localized coverage and service for any of the NBC
TV markets, NBC will be free to contract with Company's competitors in
order to obtain online automotive information in such markets.
7. Advertising Sales: Company shall be responsible for the sale of
advertising inventory to be placed on each Auto-By-Tel Local Site, if
any. Company shall have the responsibility of administering the contract
for such advertising, paying all necessary expenses and collecting all
fees related thereto in return for a seller's commission of [*] of the
gross advertising revenues related to such sale (the "Sales
Commission"). Unless the parties mutually agree to the contrary, if
Company decides in its sole discretion to sell advertising inventory for
the Auto-By-Tel Local Sites at less than the rates normally charged by
Company for advertising appearing elsewhere on Auto-By-Tel (the "Normal
Rates") or barters such inventory in any way, such advertising inventory
shall be deemed to have been sold at such Normal Rates for purposes of
calculating revenues for purposes of Section 8(b) below. Company
acknowledges that NBC and the Stations will be solely responsible for
the sale of advertising which appears within the area of the Station
Sites which frames Auto-By-Tel Local Sites and that Company will have no
right to advertising revenues received by NBC and Stations in connection
with such frames or any other portions of the
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[*] Confidential Treatment Requested
Station Sites other than the Auto-By-Tel Local Sites. NBC acknowledges
that manufacturers' financing and insurance products or services offered
through the Auto-By-Tel Local Site shall not be deemed advertising for
the purposes hereof.
8. Financial Terms: Company agrees that it will be responsible for all costs
and expenses associated with the creation and operation of the Auto-By-Tel
Local Sites. Auto-By-Tel shall make the following monthly payments to NBC.
(a) Annual License Fee - Company will pay NBC a license fee of [*] upon
execution hereof and upon each anniversary date of the launch of the NBC
Syndication Platform occurring during the term hereof. This fee shall also
be considered a non-refundable advance on any revenues payable to NBC in
connection with the terms of sub-section (c) of this Section 8.
(b) Advertising Revenues - NBC and Company will equally share (i.e.,
50/50) all gross revenues received by Company in connection with the sale
of advertising for display anywhere within the Auto-By-Tel Local Sites
after deduction of the Sales Commission is made but prior to the
deduction of any expenses of any kind.
(c) Lead Generation Revenues - Company will pay NBC [*] for each online
or physical (e.g., mail, fax, etc.) submission of any "unique purchase
request" to Auto-By-Tel by any individual or corporate user which is
received by Company and attributable to usage on an Auto-By-Tel Local
Site. "Unique purchase request" shall mean a purchase request from a user
with a different name and e-mail address from any name or address received
by Company in the past. In addition, once the Auto-By-Tel Local Sites
generate one hundred and fifty thousand (150,000) such submissions in any
calendar year during the term hereof, then Company will pay NBC [*] for
each such submission received thereafter until the end of that calendar
year. The parties agree that the Annual License Fee described above shall
be an advance against payments for the first 8,333 submissions otherwise
owed hereunder.
(d) Future Revenue - The parties agree that if any future revenue
generating opportunities not engaged in by Company through its
Auto-By-Tel service as of the date hereof or described above are created
in connection with the Auto-By-Tel Local Sites, the parties will
negotiate in good faith regarding what revenue sharing arrangements
between the parties would be appropriate, provided that, unless such
opportunities involve characteristics which would make them materially
different from the opportunities described above, it is the intent of the
parties to share such revenues equally.
9. Payment and Audit Conditions. At the end of each month in which Company
receives any revenue of the type described in Section 8 (b) and (c),
Company shall prepare a monthly statement providing sufficient detail
regarding the source of such revenue and will deliver such statement
along with the required payment described therein to NBC no less than
thirty (30) days following such date. Company agrees that NBC shall have
the right to conduct a reasonable audit of the relevant books and records
of such party in order to determine compliance with the terms of this
Letter Agreement. The parties agree that all amounts due under this
Agreement from the Company to NBC shall be paid directly to NBC and not
to any of the individual Stations.
10. Representations and Warranties: (a) Company represents and warrants to
NBC and the Stations that it has the right and power to perform its
obligations and to grant the rights granted herein, that Company's
creation and operation of the Auto-By-Tel Local Sites pursuant to this
Letter Agreement will not violate any agreement or obligation between
Company and a third party or any laws or regulations and that, except for
material provided by NBC and the Stations, the material included on the
Auto-By-Tel Local Sites and the Auto-By-Tel Link as well as the operation
of the Auto-By-Tel
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Local Sites as contemplated herein will, to the best of its knowledge, be
accurate and correct and will not violate or infringe any third party
rights, including intellectual property rights. Company also agrees that
standard software industry representation and warranties will apply to
all software and technology used by Company in order to carry out its
obligations described herein. Company acknowledges that the Final
Agreement (as defined below) will contain additional and more detailed
versions of the representations and warranties described above.
(b) NBC represents and warrants to Company that it has the right and
power to perform its obligations and to grant the rights granted herein
and that the material provided by NBC to Company for inclusion on the
Auto-By-Tel Local Sites will, to the best of its knowledge, be accurate
and correct and will not violate or infringe any third party rights,
including intellectual property rights.
11. Indemnity. (a) Company agrees to indemnify, defend, and hold NBC, the
Stations, their affiliates and their successors, officers, directors and
employees harmless from any and all actions, causes of action, claims,
demands, costs, liabilities, expenses (including reasonable attorneys'
fees) and damages arising out of or in connection with any third party
claims (i) relating to Company's operation and management of the
Auto-By-Tel Local Sites, or (ii) relating to a breach of any of Company's
representations and/or warranties set forth in Section 10 of this Letter
Agreement.
(b) NBC agrees to indemnify, defend, and hold Company, its affiliates
and its successors, officers, directors and employees harmless from any
and all actions, causes of action, claims, demands, costs, liabilities,
expenses (including reasonable attorneys' fees) and damages arising out
of or in connection with any third party claims relating to a breach of
any of NBC's representations and/or warranties set forth in Section 10 of
this Letter Agreement.
(c) The indemnified party agrees to notify the other party promptly of
any written claims or demands against the indemnified party for which the
other party is responsible, and the Indemnified Party for which the other
party will be entitled, at its option, to assume the defense or
settlement of any such claim, provided that no settlement shall be
reached without the consent of the indemnifying party. The indemnified
party will promptly be reimbursed by the other party for Indemnified
Amounts as they are incurred.
(d) IN NO EVENT UNDER ANY CIRCUMSTANCES SHALL EITHER PARTY (OR ITS
AFFILIATES) BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF OR IN CONNECTION WITH ITS
OBLIGATION UNDER THIS LETTER AGREEMENT; PROVIDED HOWEVER, THAT THE
FORGOING LIMITATION SHALL NOT APPLY TO DIRECT DAMAGES RESULTING FROM THE
INTENTIONAL OR WILLFUL BREACH OF THIS LETTER AGREEMENT.
12. Term. The initial term of this Letter Agreement shall be four (4) years,
and ninety (90) days prior to the end of the initial term, the parties
agree to negotiate in good faith regarding a possible extension of the
term hereof for an additional two (2) years. Either party may terminate
this Letter Agreement upon a material default by the other party of the
terms hereof which default is not cured within thirty (30) days following
such party's receipt of a written notice regarding the default. In
addition, if Company materially alters the nature or quality of its
service (e.g., changes Auto-By-Tel from a free to subscription service),
NBC may terminate this Letter Agreement, at its option, by providing
Company with ten (10) days prior notice thereof in writing. Finally, if
NBC determines in its sole discretion at any time, not to offer the NBC
Syndication Platform as such term is described in Paragraph 1, it will
inform the Company of such
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decision in writing and this Letter Agreement shall be deemed terminated as
of the date of such notice.
13. Formal Agreement. Recognizing that time is of the essence, this Letter
Agreement shall serve as the intent of both parties to enter into a more
formal agreement for the creation and operation of Auto-By-Tel Local Sites
(the "Final Agreement"). Both parties shall use reasonable efforts to
complete the Final Agreement within a reasonable time period following the
date of execution of this Letter Agreement, provided, however, that
notwithstanding the foregoing, if no Final Agreement is reached, the terms
contained herein shall govern the relationship between the parties for the
Term.
14. NBC Local Link. The parties agree that each Auto-By-Tel Local Site shall
include a link (which may include an appropriate NBC logo) to the NBC
Local section of NBC.com in its first page.
15. Confidentiality. Neither party shall issue a press release or make any
statement to the general public concerning this Letter Agreement, the NBC
Syndication Platform or the Auto-By-Tel Local Sites, or the existence
thereof, without the express prior written consent of the other; provided,
however, that NBC agrees that Company may file this Letter Agreement with
the Securities and Exchange Commission (the "SEC") if so required by the
Securities Act of 1933 and Securities Exchange Act of 1934, in each case,
as amended, the rules and regulations related thereto or any applicable
state laws (the "Securities Laws") as long as Company agrees to use its
best efforts to obtain confidential treatment of the economic and other
material terms hereof under the Securities Laws and consult with NBC
during the process.
16. Miscellaneous. This Letter Agreement constitutes the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations, and
understandings between the parties, both oral and written, provided that
the Non-Disclosure and Confidentiality Agreement between the parties shall
remain in full force and effect. No waiver or modification of any
provision of this Letter Agreement shall be effective unless in writing
and signed by both parties. Any waiver by either party of any provision of
this Letter Agreement shall not be construed as a waiver of any other
provision of this Letter Agreement, nor shall such waiver operate as or be
construed as a waiver of such provision respecting any future event or
circumstance. This Letter Agreement shall be governed by and construed
under the laws of the State of New York applicable to contracts fully
executed in New York, without regard to New York conflicts law. The
parties hereby consent to and submit to the jurisdiction of the federal
and state courts located in the State of New York.
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If you are in agreement with the above terms and conditions, please
indicate your acceptance by signing in the space provided below, and return one
original to me. This Letter Agreement shall be null and void if not signed
within 7 days of the date set forth above.
Very truly yours,
NBC MULTIMEDIA, INC.
By: /s/ KEN KRUSHEL
-------------------------------------
Name: Ken Krushel
Title: Vice President
ACCEPTED AND AGREED;
AUTO-BY-TEL MARKETING
CORPORATION
By: /s/ MARK W. LORIMER
-----------------------------------
Name: Mark W. Lorimer
Title: Vice President, General Counsel
and Secretary
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Exclusivity "Critical Mass" Formula:
NBC must reach and maintain over each following year, on average, the following
critical mass:
X= Participating stations providing 50% of the total station's television
household market reach in the U.S. as of the later of 12/31/98 or 18 months
after launch of the platform.
Y= Participating stations providing 75% of the total station's television
household market reach in the U.S. 3 years after launch of the platform.
"Provided that no Station Site including online automotive purchasing or
information content or service shall be included when calculating the
participating stations."
<PAGE> 1
EXHIBIT 10.22
[*] Confidential treatment has been requested for certain portions of this
exhibit.
CONFIDENTIAL
------------
SPONSORSHIP AGREEMENT
This agreement ("Agreement") is entered into as of the 24th day of June, 1998
("Effective Date"), by and between Excite, Inc., a California corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and
Auto-By-Tel Corporation, a California corporation, located at 18872 MacArthur
Boulevard, #200, Irvine, California 92612-1400 ("Client").
RECITALS
A. Excite has obtained the right to program certain content and sell and
display advertising on the site on the Internet maintained by Netscape
Communications Corporation ("Netscape") located at
http://home.netscape.com and/or other URLs or locations designated by
Netscape (the "Excite Portion of the Netscape Site") pursuant to an
agreement dated April 29, 1998 ("the Netcenter Agreement"), which, among
other things, allow Netscape's users to search for and access content
and other sites on the Internet.
B. Within the Excite Portion of the Netscape Site, Excite plans to organize
certain content into topical channels (each, a "Channel") and to provide
an Internet search service ("Netscape Search").
C. Client is engaged in the business of, among other things, (i) providing
online information and data to prospective purchasers of motor vehicles
through its Web site located at http://www.autobytel.com (the "Client
Site") and facilitating the acquisition of vehicles through a network of
dealer subscribers; (ii) offering to any such purchaser vehicle
financing and leasing programs, insurance programs and after market
products, and (iii) offering an incentive "rewards" based membership
program featuring a co- branded credit card, roadside assistance and
select retail providers (the "Mobalist" Program).
D. Client wishes to promote its business to Netscape's users through
promotions, content and advertising in the Excite Portion of the
Netscape Site.
Therefore, the parties agree as follows:
1. SPONSORSHIP OF THE AUTOS CHANNEL
(a) Client acknowledges that Excite's right to display promotional
placements on the Excite Portion of the Netscape Site is
conditioned on the Netcenter Agreement remaining in effect.
However, Excite represents that it will, in good faith, perform
all of its obligations under the Netcenter Agreement and do all
other commercially
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CONFIDENTIAL
------------
reasonable acts necessary to keep such Agreement in place,
subject at all times to Netscape's rights to terminate the
Netcenter Agreement for reasons unrelated to Excite's performance
or breach. Therefore, subject to the Netcenter Agreement
remaining in effect, commencing on the Launch Date (as defined
below), Client will be promoted in the Autos Channel of the
Excite Portion of the Netscape Site:
(i) A link to the Client Site (consistent with the format used
on similar links on the same page) will be displayed in
the Autos Channel home page for the duration of the term
of the Agreement.
(ii) A link to the Client Site (consistent with the format used
on similar links on the same page) will be displayed in
the "Buy A Car Online" department of the Autos Channel (or
a similar portion of the Autos Channel featuring
comparable content) for the duration of the term of the
Agreement.
(iii) A link to the Client Site (consistent with the format used
on similar links on the same page) will be displayed in
the "Take a Test Drive" department of the Autos Channel
(or a similar portion of the Autos Channel featuring
comparable content) for the duration of the term of the
Agreement.
(iv) A link to the Client Site (consistent with the format used
on similar links on the same page) will be displayed in
the "Auto Makers" promotional area in the "SUV," "Truck,"
"Cars" and "Luxury Cars" departments of the Autos Channel
(or a similar portion of the Autos Channel featuring
comparable content) for the duration of the term of the
Agreement.
(b) Client acknowledges that Excite's right to display content on the
Excite Portion of the Netscape Site is conditioned on the
Netcenter Agreement remaining in effect. Therefore, subject to
the Netcenter Agreement remaining in effect, commencing of the
Launch Date (as defined below), motor vehicle related content
supplied by Client ("Client Content") will be promoted in the
Autos Channel of the Excite Portion of the Netscape Site:
(i) Client Content from Bank Rate Monitor, Edmunds,
Auto-By-Tel, and/or AIG (subject to approval by Excite)
will be displayed in the Autos Channel for the duration of
the term of the Agreement. The selection and placement of
Client Content to appear in the Autos Channel will be
subject to Excite's discretion.
(ii) A module containing text and graphics links of less than
6K in file size, the pixel dimensions to be mutually
determined by the parties, featuring Client's "Mobalist"
program which will be displayed in the Autos Channel for
the
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[*] Confidential Treatment Requested
CONFIDENTIAL
------------
duration of the term of the Agreement. The placement of
the "Mobalist" module in the Autos Channel will be subject
to Excite's discretion and continued positive user
feedback.
(iii) All Client Content will link to the Client Site. The
"Mobalist" module will link to http://www.mobalist.com;
unless, upon reasonable notice, Client directs Excite to
link the Mobalist module to an additional or alternative
address.
(iv) Client and Excite will determine mutually agreeable
methods for the transmission and incorporation of updates
to the Client Content and "Mobalist" module. Other than
updates to the Client Content and "Mobalist" module,
Client will not alter the Client Content or "Mobalist"
module without Excite's prior consent.
(v) Netscape and Excite, on the one hand, and Client, on the
other, will cooperate in good faith regarding the "look
and feel" of the "Mobalist" module, but Netscape and
Excite will have final decision authority over of the
"look and feel" of the Client Content, the "Mobalist"
module and the Autos Channel.
(vi) Client will have sole responsibility for providing, at its
expense, the Client Content and "Mobalist" module to
Excite.
2. SWEEPSTAKES
(a) Every twelve (12) months, Client, at its sole expense, will
supply Excite with up to three (3) new motor vehicles to be used
by Excite as sweepstakes prizes offered to Netscape users. The
parties agree that the aggregate suggested manufacturer's retail
price for the vehicle(s) selected by Excite though Client shall
not exceed forty-five thousand dollars ($45,000) in any
twelve-month period.
(b) Client and Excite will cooperate in good faith to identify
appropriate opportunities to promote these sweepstakes and Client
in the Excite Portion of the Netscape Site during the term of the
Agreement.
(c) Other than the motor vehicles supplied by Client, Excite will
assume all expenses involved in administering and promoting these
sweepstakes.
(d) Either party may issue press releases regarding the sweepstakes,
the timing and wording of which will be mutually agreed upon. Any
such press releases will
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CONFIDENTIAL
------------
identify Excite as the host of the sweepstakes and Client as the
provider of the prize vehicle.
3. ADVERTISING ON THE EXCITE PORTION OF THE NETSCAPE SITE
(a) Client acknowledges that Excite's right to display advertising on
the Excite Portion of the Netscape Site is conditioned on the
Netcenter Agreement remaining in effect. Therefore, subject to
the Netcenter Agreement remaining in effect, commencing of the
Launch Date (as defined below), Excite will display Client's
banner advertising in rotation on the Channels on the Excite
Portion of the Netscape Site for the term of the Agreement.
(b) Subject to the Netcenter Agreement remaining in effect, Excite
guarantees the display of twenty-eight million seven hundred
fifty thousand (28,750,000) of Client's advertising banners,
which shall be distributed evenly and equitably per month, during
the term of the Agreement.
4. EXCLUSIVITY
(a) For the term of the Agreement, Excite will not enter into any
agreement to display and shall not display on the Autos, Arts &
Leisure, Auctions, Education, Games, Lifestyle, Real Estate or
Shopping Channels of the Excite Portion of the Netscape Site
content created by Excite promoting Client's "Competitors,"
content created by Client's Competitors or promotional placements
and/or advertising banners from Client's Competitors.
(b) For the purposes of this Agreement, "Competitors" means those
merchants whose primary business is (i) the online referral of
new motor vehicle purchase and/or leasing requests or the online
referral of used motor vehicle purchase requests to a nationwide
network of automobile dealers, (but does not include Excite's
subsidiary, Classifieds2000, Inc. ("Classifieds2000")), together
with the offering of ancillary motor vehicle products in
connection with any such purchase or lease including financing,
insurance and aftermarket products as well as (ii) the offering
of a rewards-based incentive program targeted to motorists
featuring a co-branded credit card, roadside assistance and
select retail dealers (but does not include any rewards-based
incentive program offered by Excite under the "Excite" brand).
(c) Notwithstanding the foregoing, Excite may display links to
Client's Competitors in Excite's general directory of Web sites
that appears on the Netscape Site, in search results displayed in
"Jango" shopping search services, in Netscape Search results
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CONFIDENTIAL
------------
pages and in classified advertising listings, subject to any
agreement entered into by Client and Classifieds2000, pursuant to
Section 5 below.
5. RIGHT OF FIRST NEGOTIATION FOR CLASSIFIEDS CHANNEL
(a) Client will have a right of first negotiation with
Classifieds2000 for an exclusive sponsorship of the Classifieds
Channel of the Excite Portion of the Netscape Site.
(b) Excite will not propose, solicit or negotiate offers from
entities other than Client for any exclusive sponsorships of the
Classifieds Channel of the Excite Portion of the Netscape Site by
any of Client's Competitors, if at all, prior to fifteen (15)
business days from the Effective Date.
(c) Classifieds2000 will negotiate with Client in good faith with
respect to the terms and conditions under which Client would
become the exclusive online seller of new motor vehicles
sponsoring the Classifieds Channel of the Excite Portion of the
Netscape Site. If Client and Classifieds2000 have not entered
into a written sponsorship agreement by close of business on the
fifteenth business day from the Effective Date, Excite and/or
Classifieds2000 may enter into negotiations with any third party
with respect to exclusive sponsorships of the Classifieds Channel
of the Excite Portion of the Netscape Site.
6. LAUNCH DATE AND REPORTING
(a) Client and Excite will use reasonable efforts to implement the
display of the promotional placements, content and advertising
described in the Agreement by July 1, 1998 (the "Launch Date").
The parties recognize that the scheduled Launch Date can be met
only if Client provides final versions of all graphics, text,
keywords, banner advertising, promotional placements, other
promotional media and valid URL links necessary to implement the
promotional placements, content and advertising described in the
Agreement (collectively, "Impression Material") to Excite five
(5) days prior to scheduled Launch Date.
(b) In the event that Client fails to provide the Impression Material
to Excite five (5)days in advance of the scheduled Launch Date,
Excite may, at its sole discretion (i) reschedule the Launch Date
at the earliest practicable date according to the availability of
Excite's engineering resources after delivery of the complete
Impression Material or (ii) commence delivery of Impressions
based on Impression Material in Excite's possession at the time
and/or reasonable placeholders created by Excite.
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[*] Confidential Treatment Requested
CONFIDENTIAL
------------
(c) Excite will provide Client with monthly reports substantiating
the number of impressions of Client's advertising banners,
content and promotional placements displayed on the Excite
Portion of the Netscape Site.
7. SPONSORSHIP, ADVERTISING AND TRANSACTION FEES
(a) Client will pay Excite sponsorship and advertising fees of two
million four hundred eighty-seven thousand dollars ($2,487,000)
in the first year of the term of the Agreement. These fees will
be paid in equal monthly installments of two hundred seven
thousand two hundred fifty dollars ($207,250). The first monthly
payment will be due upon the display of the first of the
promotional placements and advertising described in the
Agreement. Subsequent installments will be due on a monthly basis
thereafter.
(b) Client will pay Excite sponsorship and advertising fees of four
million one hundred fifty thousand dollars ($4,150,000) in the
second year of the term of the Agreement. These fees will be paid
in equal monthly installments of three hundred forty-five
thousand eight hundred thirty three dollars and thirty-three
cents ($345,833.33). The first monthly payment will be due upon
the first anniversary of the display of the first of the
promotional placements and advertising described in the
Agreement. Subsequent installments will be due on a monthly basis
thereafter.
(c) Separate and apart from the sponsorship and advertising fees,
Client will pay Excite for each "Unique Purchase Request"
completed by users referred to the Client Site from the Excite
Portion of the Netscape Site during the first year of the term of
the Agreement. For the purposes of this Agreement, a "Unique
Purchase Request" shall be a new car purchase request electronic
form with all data fields deemed mandatory by Client completed by
the user, which has been received by Client from Excite, and for
which Client has not, within the previous ninety (90) day period,
received a duplicate new car purchase request from the Excite
Portion of the Netscape Site for the same or similar vehicle, as
determined by the year, make and model; from the same user, as
identified by the same name, zip code and/or the same e-mail
address. Client will pay Excite for each Unique Purchase Request
during the first year of the term of the Agreement as follows:
(i) [*] per Unique Purchase Request up to the first one
hundred fifty thousand (150,000) Unique Purchase Requests;
(ii) [*] per Unique Purchase Request for between one hundred
fifty thousand one (150,001) and two hundred thirty
thousand (230,000) Unique Purchase Requests; and
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[*] Confidential Treatment Requested
CONFIDENTIAL
------------
(iii) [*] per Unique Purchase Request in excess of [*] Unique
Purchase Requests.
(d) Separate and apart from the sponsorship and advertising fees,
Client will pay Excite for each Unique Purchase Request completed
by users referred to the Client Site from the Excite Portion of
the Netscape Site during the second year of the term of the
Agreement as follows:
(i) [*] per Unique Purchase Request up to the first [*] Unique
Purchase Requests;
(ii) [*] per Unique Purchase Request for between [*] and [*]
Unique Purchase Requests; and
(iii) [*] per Unique Purchase Request in excess of [*] Unique
Purchase Requests.
(e) The sponsorship fees and transaction payments are net of any
agency commissions to be paid by Client.
(f) Client will provide Excite with monthly reports of the number of
"Unique Purchase Requests." It is currently Client's goal to
provide these reports to Excite on or about the fifth business
day after the close of the preceding month. Client shall pay
Excite the transaction payments within forty-five (45) days after
Excite's receipt of Client's report of the number of "Unique
Purchase Requests" each month. In the event that Client does not
pay the transaction payments within forty-five (45) days after
Excite's receipt of Client's report of the number of "Unique
Purchase Requests" for any month, that month shall be deemed to
be a "Late Payment Month" for the purposes of this Agreement. In
the event that there are two or more Late Payment Months in any
twelve (12) month period during the term of the Agreement, Client
will increase by ten percent (10%) the monthly payment otherwise
due for the second and any other Late Payment Month that occurs
in the twelve (12) period.
(g) Client will provide complete reports to Excite within thirty (30)
days of each month describing the month's transaction activity by
users referred to the Client Site from the Excite Portion of the
Netscape Site including, but not limited to, the total number of
purchase requests submitted and the number of Unique Purchase
Requests completed. Client will make good faith efforts to
develop tracking and reporting capabilities to correlate this
transaction information to the various promotional placements,
content and advertising banners on the Excite Portion of the
Netscape
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CONFIDENTIAL
------------
Site in order to facilitate optimization of Client's
sponsorship program. Client's reports will be delivered to Excite
in a mutually agreed-upon electronic format to an email address
or URL designated by Excite. In the event that Client does not
provide the required reports to Excite within sixty (60) days
after the end of any month, that month shall be deemed to be a
"Late Reporting Month" for the purposes of this Agreement. In the
event that there are two or more Late Reporting Months in any
twelve (12) month period during the term of the Agreement, Client
will increase by ten percent (10%) the monthly payment otherwise
due for the second and any other Late Reporting Month that occurs
in the twelve (12) month period. To the extent that interim
reports regarding the quality of the performance of Client's
sponsorship program on the Excite Portion of the Netscape Site,
as described in Section 9(b)(i), are available more frequently
than quarterly, Client will make good faith efforts to supply
such interim reports to Excite as soon as reasonably practical.
(h) Client will maintain accurate records with respect to the
calculation of all transaction payments and reporting due under
this Agreement. Once per year, the parties will review these
records to verify the accuracy and appropriate accounting of all
payments made pursuant to the Agreement. In addition, Excite may,
upon no less than thirty (30) days prior written notice to
Client, cause an independent Certified Public Accountant to
inspect the records of Client reasonably related to the
calculation of such payments during Client's normal business
hours. The fees charged by such Certified Public Accountant in
connection with the inspection will be paid by Excite unless the
payments made to Excite are determined to have been less than
ninety-five percent (95%) of the payments actually owed to
Excite, in which case Client will be responsible for the payment
of the reasonable fees for such inspection.
8. PUBLICITY
Unless required by law, neither party will make any public statement,
press release or other announcement relating to the terms of or
existence of this Agreement without the prior written approval of the
other. Notwithstanding the foregoing, the parties agree to issue an
initial press release regarding the relationship between Excite and
Client, the timing and wording of which will be mutually agreed upon.
9. TERM AND TERMINATION
(a) The term of this Agreement will begin on the Launch Date and will
end at the earlier of June 30, 2000 or the expiration or
termination of the Netcenter Agreement. In the event that the
Netcenter Agreement expires or is terminated prior to June 30,
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2000, Client and Excite will negotiate in good faith to resolve
all outstanding promotional and financial issues.
(b) Despite Excite's performance of its obligations hereunder, Client
may terminate this Agreement under the following limited
conditions:
(i) Client and Excite will meet once per quarter throughout
the term of the Agreement to review the performance of
Client's sponsorship program on the Excite Portion of the
Netscape Site. At the quarterly meeting, refers to the
Client Site generated on the Excite Portion of the
Netscape Site will be evaluated for quality and compared
to an index (the "Performance Index") based on the
performance of refers to the Client Site from the
excite.com Web site (the "Excite Site"). The Parties agree
that the Performance Index shall use June 1998 performance
results of the Excite Site as its baseline, which shall be
deemed "100%" for the purposes of comparison to the Excite
Portion of the Netscape Site. Quality performance will be
monitored and provided by Client's independent auditors
(currently, Arthur Andersen).
This information will be shared with Excite at the
quarterly performance meetings.
(ii) In the event that purchase request quality performance
from the Excite Portion of the Netscape Site is materially
below that from the Excite Site during any ninety (90) day
period during the term of the Agreement, Client will
notify Excite in writing of the poor performance. Excite
will undertake commercially reasonable efforts to remedy
the poor performance.
(iii) In the first year of the term of the Agreement only, if
Excite's efforts do not materially improve performance
after a reasonable period of time after receiving Client's
written notice of poor performance pursuant to Section
9(b)(ii), then, no later than forty-five (45) days prior
to the end of the first year of the term of the Agreement,
Client can give written notice to Excite of termination of
the Agreement at the end of the first year due to the
purchase request quality performance from the Excite
Portion of the Netscape Site being materially below that
from the Excite Site. This written termination notice must
include supporting reports or analysis by the accredited
neutral third party. Client may not terminate the
Agreement prior to the end of the first year of the term
of the Agreement under Sections 9(b)(ii) or 9(b)(iii).
(iv) In the event that purchase request quality performance
from the Excite Portion of the Netscape Site is materially
below that from the Excite Site
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during any ninety (90) day period during the second year
of the term of the Agreement and Excite's efforts do not
materially improve performance after a reasonable period
of time after receiving Client's notice of poor
performance then, in any quarterly meeting in the second
year of the term of the Agreement, Client may give notice
to Excite that Excite has sixty (60) days to remedy the
poor performance or the Agreement will be subject to
termination. Should Excite not be able to remedy purchase
request quality performance within the sixty (60) day
period, Client may give Excite written notice that the
Agreement will be terminated in thirty (30) additional
days.
(v) In the event that Client receives less than one hundred
fifty thousand (150,000) Unique Purchase Requests from
users referred to the Client Site from the Excite Portion
of the Netscape Site in the first year of the term of the
Agreement, Client can terminate the Agreement upon written
notice to Excite. Notwithstanding Section 7(c), within
thirty (30) days of any such termination, Client will pay
Excite the difference between (i) three million two
hundred twenty-five thousand dollars ($3,225,000) and (ii)
the amounts previously paid to Excite pursuant to 7(c)(i)
for the Unique Purchase Requests from users referred to
the Client Site from the Excite Portion of the Netscape
Site in the first year of the term of the Agreement under
the 150,000 minimum.
(vi) As soon as it becomes reasonably apparent that Client is
likely to pay Excite ten million two hundred thousand
dollars ($10,200,000) for Unique Purchase Requests from
users referred to the Client Site from the Excite Portion
of the Netscape Site within the next sixty (60) days,
Excite and Client will meet to discuss Client's plans to
continue or terminate the Agreement. After that meeting,
Client may, in its sole discretion, give Excite written
notice terminating the Agreement effective thirty (30)
days after Client has paid to Excite ten million two
hundred thousand dollars ($10,200,000) for Unique Purchase
Requests from users referred to the Client Site from the
Excite Portion of the Netscape Site. Once Client gives
written notice to Excite of its election to terminate the
Agreement under this Section 9(b)(vi), Excite will be free
to commence negotiations for replacement advertising
and/or sponsorships of the Excite Portion of the Netscape
Site with any third party, including Client's Competitors.
(c) Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach
remains uncured for thirty (30) days following the notice to the
breaching party of the breach.
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(d) All undisputed payments that have accrued prior to the
termination or expiration of this Agreement will be payable in
full within thirty (30) days thereof.
(e) The provisions of Section 12 (Confidentiality), Section 13
(Indemnity), Section 14 (Limitation of Liability) and Section 15
(Dispute Resolution) will survive any termination or expiration
of this Agreement.
10. TRADEMARK OWNERSHIP AND LICENSE
(a) Client will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to
the limited license granted to Excite hereunder.
(b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to
the limited license granted to Client hereunder.
(c) Each party hereby grants to the other a revocable, royalty-free,
nonexclusive, limited license to use its trademarks, service
marks or trade names only as specifically described in this
Agreement. All such use shall be in accordance with each party's
reasonable policies regarding advertising and trademark usage as
established from time to time.
(d) Upon the expiration or termination of this Agreement, each party
will cease using the trademarks, service marks and/or trade names
of the other except as the parties may agree in writing.
11. CONTENT OWNERSHIP AND LICENSE
(a) Client will retain all right, title and interest in and to the
Client Site worldwide including, but not limited to, ownership of
all copyrights and other intellectual property rights therein.
(b) Client will retain all right, title and interest in and to the
Client Content and the content of the "Mobalist" module worldwide
(including, but not limited to, ownership of all copyrights and
other intellectual property rights therein). Subject to the terms
and conditions of this Agreement, Client hereby grants to Excite
a revocable, royalty-free, non-exclusive, worldwide license to
use, reproduce, distribute, transmit and publicly display the
Client Content and "Mobalist" module in accordance with this
Agreement and to sub-license the Client Content and "Mobalist"
module to Excite's wholly-owned subsidiaries or to joint ventures
in
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which Excite participates for the sole purpose of using,
reproducing, distributing, transmitting and publicly displaying
the Client Content and "Mobalist" module in accordance with this
Agreement
(c) Netscape and Excite will retain all right, title, and interest in
and to the Excite Portion of the Netscape Site worldwide
including, but not limited to, ownership of all copyrights, look
and feel and other intellectual property rights therein.
12. CONFIDENTIALITY AND USER DATA
(a) For the purposes of this Agreement, "Confidential Information"
means information about the disclosing party's (or its
suppliers') business or activities that is proprietary and
confidential, which shall include all business, financial,
technical and other information of a party marked or designated
by such party as "confidential or "proprietary" or information
which, by the nature of the circumstances surrounding the
disclosure, ought in good faith to be treated as confidential.
(b) Confidential Information will not include information that (i) is
in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party
without restriction on disclosure and without breach of a
nondisclosure obligation, (iii) the receiving party knew prior to
receiving such information from the disclosing party or (iv) the
receiving party develops independent of any information
originating from the disclosing party.
(c) Each party agrees (i) that it will not disclose to any third
party or use any Confidential Information disclosed to it by the
other except as expressly permitted in this Agreement and (ii)
that it will take all reasonable measures to maintain the
confidentiality of all Confidential Information of the other
party in its possession or control, which will in no event be
less than the measures it uses to maintain the confidentiality of
its own information of similar importance.
(d) The usage reports provided by Excite to Client hereunder will be
deemed to be the Confidential Information of Excite. The reports
provided to Excite under Section 7(g) will be deemed to be the
Confidential Information of Client.
(e) The terms and conditions of this Agreement will be deemed to be
Confidential Information and will not be disclosed without the
written consent of the other party.
(f) The parties acknowledge that Client is in the process of
obtaining access to data base marketing capabilities and that it
is Client's current goal to enable such data base marketing
capabilities on or about January 1999. The parties will cooperate
in good
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faith to develop a program whereby Excite may leverage
Client's data base marketing opportunities under the following
guidelines:
(i) Excite will not have direct access to any user data
collected on the Client Site;
(ii) Excite will have the right to market Excite's own services
and/or products to Client's users coming through the
Excite Portion of the Netscape Site, by specifying a
profile of the target audience (e.g., male, 25 - 40 years
old, etc.);
(iii) Excite will deliver any marketing material to Client.
Client will then arrange for delivery of the marketing
material to the target audience;
(iv) Excite will bear all direct expenses in connection with
the creation and delivery of the marketing material.
Client will not charge Excite for usage of Client's user
data;
(v) Excite's marketing plans and the results of Excite's
marketing efforts through Client will be "Confidential
Information" of Excite under this Agreement; and
(vi) Excite will not conduct such marketing through Client on
behalf of Client's Competitors.
(g) Client will not use User Data to directly or indirectly target
for solicitations any Excite users as a unique subset of Client's
user data base (except as specifically provided in this Agreement
or except to encourage the continued use of Client's own products
and/or services) either individually or in the aggregate during
the term of this Agreement and for a period of twelve (12) months
following the expiration or termination of this Agreement (except
to encourage the continued use of Client's own products and/or
services).
(h) Neither party will sell, disclose, transfer or rent any user data
obtained from users referred to the Client Site from the Excite
Portion of the Netscape Site which could reasonably be used to
identify a specific named individual ("Individual Data") to any
third party nor will either party use Individual Data on behalf
of any third party without the express permission of the
individual user. Where user permission for dissemination of
Individual Data to third parties has been obtained, each party
will use commercially reasonable efforts to require the third
party recipients of Individual Data to provide an "unsubscribe"
feature in any email communications generated by, or on behalf
of, the third party recipients of Individual Data.
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(i) Notwithstanding the foregoing, each party may disclose
Confidential Information or user data obtained from users
referred to the Client Site from the Excite Portion of the
Netscape Site (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as
required by law or (ii) on a "need-to-know" basis under an
obligation of confidentiality to its legal counsel, accountants,
banks and other financing sources and their advisors.
Notwithstanding the foregoing, Excite may disclose Confidential
Information or user data obtained from users referred to the
Client Site from the Excite Portion of the Netscape Site to
Netscape as required under the terms of the Netcenter Agreement.
13. INDEMNITY
(a) Client will indemnify, defend and hold harmless Excite, its
affiliates, officers, directors, employees, consultants and
agents from any and all third party claims, liability, damages
and/or costs (including, but not limited to, attorneys fees)
arising from:
(i) The breach of any representation or covenant in this
Agreement; or
(ii) Any claim that Client's Impression Material, the Client
Content or the content of the "Mobalist" module infringe
or violate any third party's copyright, patent, trade
secret, trademark, right of publicity or right of privacy
or contain any defamatory content; or
(iii) Any claim arising from content displayed on the Client
Site.
Excite will promptly notify Client of any and all such claims and
will reasonably cooperate with Client with the defense and/or
settlement thereof; provided that, if any settlement requires an
affirmative obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Excite in any way and such
obligation, liability, prejudice or impact can reasonably be
expected to be material, then such settlement shall require
Excite's written consent (not to be unreasonably withheld or
delayed) and Excite may have its own counsel in attendance at all
proceedings and substantive negotiations relating to such claim.
(b) Excite will indemnify, defend and hold harmless Client, its
affiliates, officers, directors, employees, consultants and
agents from any and all third party claims, liability, damages
and/or costs (including, but not limited to, attorneys fees)
arising from:
(i) The breach of any representation or covenant in this
Agreement; or
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(ii) Any claim arising from the Excite Portion of the Netscape
Site other than content or services provided by Client.
Client will promptly notify Excite of any and all such claims and
will reasonably cooperate with Excite with the defense and/or
settlement thereof; provided that, if any settlement requires an
affirmative obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Client in any way and such
obligation, liability, prejudice or impact can reasonably be
expected to be material, then such settlement shall require
Client's written consent (not to be unreasonably withheld or
delayed) and Client may have its own counsel in attendance at all
proceedings and substantive negotiations relating to such claim.
(c) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT
AND HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING
ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER.
14. LIMITATION OF LIABILITY
EXCEPT UNDER SECTIONS 13(a) AND 13(b), IN NO EVENT WILL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT
(INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. EXCEPT UNDER
SECTIONS 13(a) AND 13(b), THE LIABILITY OF EITHER PARTY FOR
DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT
OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED,
THE AMOUNTS TO BE PAID BY CLIENT TO EXCITE HEREUNDER.
15. DISPUTE RESOLUTION
(a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names,
confidentiality and/or User Data would result in irreparable
injury for which there is no adequate remedy at law. Therefore,
in the event of any breach or threatened breach of a party's
obligations regarding trademarks, service marks or trade names or
confidentiality, the aggrieved party will be entitled to seek
equitable relief in addition to its other available legal
remedies in a court of competent jurisdiction.
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(b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names, confidentiality and/or User Data,
the parties will first attempt to resolve the dispute(s) through
good faith negotiation. In the event that the dispute(s) cannot
be resolved through good faith negotiation, the parties will
refer the dispute(s) to a mutually acceptable mediator.
(c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names, confidentiality and/or User Data,
cannot be resolved through good faith negotiation and mediation,
the parties will refer the dispute(s) to the American Arbitration
Association for resolution through binding arbitration by a
single arbitrator pursuant to the American Arbitration
Association's rules applicable to commercial disputes.
16. GENERAL
(a) Assignment. Neither party may assign this Agreement, in whole or
in part, without the other party's written consent (which will
not be unreasonably withheld), except that no such consent will
be required in connection with (i) a merger, reorganization or
sale of all, or substantially all, of such party's assets or (ii)
either party's assignment and/or delegation of its rights and
responsibilities hereunder to a wholly-owned subsidiary or joint
venture in which the assigning party holds an interest. Any
attempt to assign this Agreement other than as permitted above
will be null and void.
(b) Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of California,
notwithstanding the actual state or country of residence or
incorporation of Excite or Client.
(c) Notice. Any notice under this Agreement will be in writing and
delivered by personal delivery, express courier, confirmed
facsimile, confirmed email or certified or registered mail,
return receipt requested, and will be deemed given upon personal
delivery, one (1) day after deposit with express courier, upon
confirmation of receipt of facsimile or email or five (5) days
after deposit in the mail. Notices will be sent to a party at its
address set forth in this Agreement or such other address as that
party may specify in writing pursuant to this Section.
(d) No Agency. The parties are independent contractors and will have
no power or authority to assume or create any obligation or
responsibility on behalf of each other.
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This Agreement will not be construed to create or imply any
partnership, agency or joint venture.
(e) Force Majeure. Any delay in or failure of performance by either
party under this Agreement will not be considered a breach of
this Agreement and will be excused to the extent caused by any
occurrence beyond the reasonable control of such party including,
but not limited to, acts of God, power outages and governmental
restrictions.
(f) Severability. In the event that any of the provisions of this
Agreement are held to be unenforceable by a court or arbitrator,
the remaining portions of the Agreement will remain in full force
and effect.
(g) Entire Agreement. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement
may only be modified, or any rights under it waived, by a written
document executed by both parties.
(h) Counterparts. This Agreement may be executed in counterparts,
each of which will serve to evidence the parties' binding
agreement.
Auto-By-Tel Corporation Excite, Inc.
By: /s/ Anne Benvenuto By: /s/ Tod C. Harmon
------------------------- -------------------------
Name: Anne Benvenuto Name: Tod C. Harmon
------------------------- -------------------------
Title: Senior V.P., Marketing Title: Dir. Financial Planning
------------------------- -------------------------
Date: June 25, 1998 Date: June 29, 1998
------------------------- -------------------------
18872 MacArthur Blvd., #200 555 Broadway
Irvine, California 92612-1400 Redwood City, California 94063
949-225-4500 (Voice) 650-566-6000 (Voice)
949-662-1323 (Fax) 650-566-6030 (Fax)
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EXHIBIT 10.24
[*] Confidential Treatment has been requested for certain portions of this
exhibit.
AUTOBYTEL.COM
LICENSE AND SERVICES AGREEMENT
This LICENSE AND SERVICES AGREEMENT (this "Agreement") is entered into as of
November 23, 1998, (the "Effective Date") by and between autobytel.com inc., a
Delaware corporation with offices at 18872 MacArthur Boulevard, Irvine,
California, 92612 ("APT"), and Auto by Tel UK Limited, a corporation organized
under the laws of the United Kingdom with offices at _______________ ("ABT/UK"),
and describes the terms and conditions pursuant to which ABT will grant to
ABT/UK a license to use and modify the Software and Business Procedures (as
defined below) and to use certain related technology, to deploy, develop and
support a localized version of such Software and Business Procedures.
BACKGROUND
WHEREAS, ABT is engaged in an Internet-based marketing business for new
and used vehicles in North America that provides Internet users with fast,
haggle-free, and courteous purchasing and related services designed to improve
consumers' overall vehicle buying experience:
WHEREAS, ABT/UK desires to market new and used vehicles, in the United
Kingdom using the ABT proprietary Software, technology, and ABT Business
Procedures;
WHEREAS, ABT/UK desires to develop a localized version of ABT's
proprietary Software and Business Procedures applicable to the United Kingdom;
WHEREAS, ABT/UK is a wholly-owned subsidiary of Inchcape Automotive
Limited, registered number 3580629 whose registered office is 33 Cavendish
Square, London W1M 9HF, a corporation organized under the laws of the United
Kingdom; and
WHEREAS, ABT and Inchcape have entered into a Share Purchase Agreement of
even date herewith memorializing certain arrangements between ABT and Inchcape
plc regarding the ownership of ABT/UK.
NOW, THEREFORE, in consideration of the mutual promises and upon the terms
and conditions set forth below, the parties agree as follows:
1 Definitions
1.1 "ABT Brand" means the "Auto-By-Tel" trademark, service mark and
logo, and the ABT/UK Domain, and does not include the mark DealerSites.com.
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1.2 "ABT/UK Domain" means the Uniform Resource Locator "autobytel.uk.co"
1.3 "Affiliate" of a party means (i) any entity controlled by,
controlling, or under common control with such party, where "control" means
ownership, either direct or indirect, of more than 50% of the equity interest
entitled to vote for the election of directors or equivalent governing body
and/or (ii) any entity of which such party has possession, either direct or
indirect, of the power to direct or cause the direction of management and
policies of the entity through ownership of voting securities, by contract or
otherwise.
1.4 "Business Procedures" means the general proprietary business
procedures for operating the Local Business described on Attachment B, and any
updates or new revisions thereof provided by ABT in accordance with this
Agreement from time to time upon ninety (90) days prior notice, which, may be
supplemented by ABT with more specific procedures as described in Section 2.9.
1.5 "Confidential Information" means this Agreement and all its
Attachments, any addenda hereto signed by both parties, all Software listings,
Documentation, information, data, drawings, benchmark tests, specifications,
trade secrets, object code and machine-readable copies of the Software, Business
Procedures, and any other proprietary information disclosed by one party to the
other.
1.6 "Consumer Price Index" means the Consumer Price Index, for All Urban
Consumers, Subgroup AA11 Items=, for the Los Angeles-Riverside-Orange County
Area (Base Year 1982-84=100), which is currently being published by the United
States Department of Labor, Bureau of Labor Statistics. If, however, this
Consumer Price Index is changed so that the base year is altered from that used
as of the Commencement Date, then the Consumer Price Index will be converted in
accordance with the conversion factor published by the United States Department
of Labor, Bureau of Labor Statistics, to obtain the same results that would have
been obtained had the base year not been changed. If no conversion factor is
available or if the Consumer Price Index is otherwise changed, revised or
discontinued for any reason, the term "Consumer Price Index" will thereafter
refer to the most nearly comparable official price index of the United States
Government to obtain substantially the same result as would have been obtained
had the original Consumer Price Index not been changed, revised or discontinued.
1.7 "Derivative Work" means a derivative work within the meaning of 17
U.S.C. Section 101 of the U.S. copyright law (even if the term is not
capitalized when used herein).
1.8 "Documentation" means any electronic instructions, manuals or other
materials, including without limitation on-line help files, regarding the
development or use of the Software provided by ABT under this Agreement.
1.9 "DRT" means the Dealer Communication System portion of the Software.
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1.10 "Error" means a material, reproducible failure of the Software to
perform in substantial conformity with the functional specifications in the
Documentation.
1.11 "Error Correction" means a release or version of the Software
containing corrections or fixes of Errors which may be indicated by a change in
the numeric identifier to the Software in the digit to the right of the decimal.
1.12 "Fees" mean all minimum and monthly license, maintenance and other
fees payable to ABT hereunder.
1.13 "Global Brand Protocols" means the procedures for use of the ABT
Brand set forth on Attachment C along with any revisions thereof, which ABT may,
subject to Section 2.9, provide from time to time in its sole discretion upon
ninety (90) days prior notice.
1.14 "Gross Revenues" means all payments actually received by ABT/UK with
regard to the Local Business, including without limitation fees received from
dealers for participating in the Internet referral system, payments received
from dealers as a result of Internet inquiries referred to them, sums received
as payments for advertising on internet sites which are part of the Local
Business, gross revenues from providing maintenance of, and training regarding,
the DRT, and all other revenues arising directly out of the Local Business.
Gross revenues will not include revenues from sales of cars, from servicing of
cars or from other activities by ABT/UK or any of its affiliates other than the
operation of the Local Business.
1.15 "Launch Date" means the earlier of (a) the first date ABT/UK makes
the World Wide Web site for the Local Business generally available on the World
Wide Web; (b) thirty (30) days after completion of Initial Localization Services
under Section 3.1(c); and (c) June 1, 1999.
1.16 "Local Business" means a business providing Internet-based
automotive and automotive related products and services relating to vehicle
dealers located in the Territory.
1.17 "Localized Version" means a Derivative Work of the Software and
Business Procedures that implements the core functionality of the Software and
Business Procedures, but incorporates the language, currency and functional
variations for the Territory, which Derivative Works are in each case created by
or for use by ABT/UK
1.18 "Localize, or Localization" means any modifications to the Software
or Business Procedures necessary to facilitate the operation and functionality
of the Software on the operating systems or platforms within the Territory, or
the modification of the Business Procedures to meet local custom or
technological or regulatory requirements.
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1.19 "Fiscal Quarter" means a period of three (3) consecutive calendar
months which period commences upon the Launch Date, or three (3), six (6), or
nine (9) months thereafter; or the anniversary of any of the foregoing.
1.20 "Fiscal Year" means a period of four (4) consecutive Fiscal Quarters
commencing on the Launch Date or the anniversary thereof.
1.21 "Software" means ABT's existing proprietary Software products
specified on Attachment A hereto, in source code form, and object code form
(where applicable), together with any Error Corrections, Updates or Upgrades
thereof provided to ABT/UK pursuant to this Agreement.
1.22 "Territory" means the United Kingdom as constituted on the Effective
Date.
1.23 "Update" means a release or version of the Software, in source code
form, and object code form (where applicable), containing minor functional
enhancements, extensions, error corrections or fixes, which may be indicated by
a change in the numeric identifier to the Software in the digit to the right of
the decimal.
1.24 "Upgrade" means any version of the Software, in source code form,
and object code form (where applicable), designated as such by ABT, which
contains new functionality or significantly enhanced operation and may be
indicated by a change in the numeric identifier to the Software in the digit to
the left of the decimal.
1.25 "Use" means utilization of the Software by ABT/UK solely in
accordance with this Agreement.
2. Grant of License
2.1 License. Subject to the terms and conditions of this Agreement, ABT
hereby grants to ABT/UK:
(a) an exclusive, non-transferable license in the Territory to
copy and create Derivative Works of the Software, Business Procedures and
Derivative Works thereof, in each case solely for the development of a Localized
Version. In this Section 2.1 (a), "exclusive" means that ABT shall not for its
own account, nor grant to any third party in the Territory a license to create
derivative works of the Software or the Business Procedures in order to create a
Localized Version in connection with the operation of a Local Business.
(b) an exclusive, non-transferable license to Use the Software and
Business Procedures in connection with the operation of the Local Business in
the Territory; provided, however, that ABT/UK will not have the right to use the
Software with respect to vehicle dealers outside the Territory. In this Section
2.1(b), "exclusive" means that ABT shall not for its own account, nor grant to
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any third party a license to use the Software or the Business Procedures in
connection with the operation of a Local Business.
(c) an exclusive, non-transferable license in the Territory to Use
the Business Procedures and the Documentation solely for the operation of the
Local Business, provided that ABT/UK operates the Local Business solely in the
accordance with the Business Procedures; and provided that ABT/UK does not use
the Business Procedures and Documentation with respect to vehicle dealers
outside the Territory.
2.2 Sublicenses. ABT/UK may grant non-exclusive sublicenses to vehicle
dealers in the Territory to use copies of the DRT in object code format, solely
for use in connection with the Local Business, and solely in connection with an
end user license in a form as protective of ABT's rights as the form set forth
in Attachment H. ABT/UK may grant sublicenses of the rights granted in Section
2.1 only upon the prior written approval of ABT.
2.3 Copies. ABT shall deliver to ABT/UK, as soon as practicable, one (1)
copy of the Software, one (1) copy of the related Documentation and one (1) copy
of the Business Procedures. ABT/UK will be entitled: (a) to make two (2) copies
of the Software solely for backup or archival purposes, (b) to retain one (1)
copy of the Software for production purposes, and (c) to make and retain such
copies of the Software as reasonably necessary for ABT/UK to Use the Software in
connection with the Local Business; provided, however, that ABT/UK shall
immediately advise ABT of any such copies made and their location. Except as
otherwise set forth herein, ABT/UK may not copy, distribute, reproduce, use or
allow access to the Software and Business Procedures. All copies of the Software
will be subject to the terms and conditions of this Agreement. Whenever ABT/UK
is permitted to copy or reproduce all or any part of the Software and Business
Procedures, all titles, trademark symbols, copyright symbols and legends, and
other proprietary markings must be reproduced. ABT/UK shall not alter or remove
any of ABT's trademarks, copyright notices or other proprietary notices affixed
to the Software by ABT.
2.4 Ownership. ABT owns all right, title and interest in and to the
Software and Business Procedures, together with any Localized Version or other
modifications to the Software and Business Procedures made by either ABT or
ABT/UK in connection with Localization of the Software or Business Procedures.
The licenses granted herein transfers to ABT/UK neither title, nor any
proprietary or intellectual property rights to the Software, Business
Procedures, or Documentation, or any copyrights, patents, or trademarks,
embodied or Used in connection therewith, except for the rights expressly
granted herein. Upon development of any Localized Version by ABT/UK, ABT/UK
hereby assigns all right, title and interest to such Localized Version to ABT.
Such Localized Version will be included as, and incorporated in, the Software
for the purposes of the license grant in this Section 2. For any Localizations
or Extensions incorporated into ABT's generally available version of the
Software, ABT shall promptly incorporate related Documentation. Except as
otherwise set forth in the applicable Work Order for the Localization services
(as such term is defined in the "Services Agreement" in
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<PAGE> 6
Attachment D, any modifications that are not Derivative Works of the Software or
Business Procedures and that contain no part of the Software or Business
Procedures (such modifications to be referred to as "Extensions"), ABT hereby
grants ABT/UK an irrevocable, non-exclusive, fully paid-up, nontransferable
license to reproduce, distribute, publicly perform and display, transmit, and
prepare derivative works of the Extensions in connection with the Local
Business. This license to use Extensions will survive the termination of this
Agreement. All rights not expressly granted hereunder are reserved to ABT. To
the extent that a Localized Version, or any Extension prepared by ABT/UK's
employees or Contractors (as defined in Section 10.4) and provided to ABT
hereunder, embody patentable methods of doing business, inventions, or
algorithms ("ABT/UK Inventions"), then ABT/UK retains all right, title and
interest in and to such ABT/UK Inventions, and ABT/UK hereby grants ABT an
irrevocable, non-exclusive, fully paid-up, royalty-free, non-transferable
license to make, have made, use, sell, import, and otherwise exploit products
embodying such ABT/UK Inventions. ABT may sublicense such rights in connection
with licenses of the Software and ABT's trademarks. This license to ABT/UK
Inventions will survive the termination of this Agreement.
2.5 Software and Business Procedure Localizations and Extensions. Except
as otherwise set forth in this Agreement or as otherwise agreed by the parties,
as between the parties, ABT/UK is responsible for any changes to the Software,
Documentation, or Business Procedures necessary to Localize them in accordance
with the operation of the Local Business. All such Localization changes, and the
development of any Extensions, must be approved by ABT prior to development and
implementation, as set forth in this Section. All such Localization changes and
the development of any Extensions must be either: (i) performed by ABT in
accordance with Section 3.1 below; or (ii) performed by ABT/UK, or by its
independent contractor approved by ABT, under the technical oversight and
subject to the approval of ABT, subject to Section 3.1 below. ABT's approval of
such Localizations or Extensions shall not be unreasonably withheld, and without
limiting the above, will not be withheld where the requested Localization or
Extension: (x) is required to comply with the laws and regulations of the
Territory, or (y) is in current use in ABT's United States version of the
Software. Further, subject to the above provisions of this Section 2.5, ABT may
withhold approval for any implementation of a Localization or Enhancement which
would materially impair the value of the ABT Brand, cause the Local Business not
to be in accordance with the Business Procedures, or require a change in the
technical architecture of the Software. Any modifications made to the Software,
Documentation, or Business Procedures without the approval of ABT as set forth
herein will be a material breach of this Agreement. Upon completion of any
Localized Version or Extension (other than by ABT), ABT/UK must disclose to ABT
a copy of such Localized Version or Extension. Any such disclosure of Localized
Software or Extension must be in source code format.
2.6 Updates and Upgrades. During the Term, and (except as required in
Section 11.2(d)) subject to ABT/UK's payment to ABT of the Minimum Maintenance
Fees and Maintenance and Support Fees set forth in Sections 5.3 and 6.2 below,
ABT will deliver to ABT/UK any Error Corrections, Updates or Upgrades to the
Software or Business Procedures that it releases to any of ABT's other local
country affiliates or United States licensees within a reasonable time after
such Error
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<PAGE> 7
Correction, Update, or Upgrade is released in the United States. ABT/UK shall
implement all Error Corrections, Updates, or Upgrades provided by ABT under this
Agreement, no later than one (1) year after delivery thereof to ABT/UK.
Notwithstanding the above, ABT will not be obligated to provide such Error
Corrections, Updates or Upgrades during the period during which, in the
reasonable discretion of ABT's project manager, they are in release for testing
purposes or otherwise not suitable for release outside the United States.
2.7 License Restrictions. ABT/UK shall not:
(a) sell, lease, license, sublicense or distribute the Software,
Documentation, or Business Procedures except in accordance with this Agreement;
(b) provide, disclose, divulge or make available to, or permit use
of the Software, Documentation, Business Procedures, or Localized Version by any
third party without ABT's prior written consent, except as specifically
authorized by this Agreement; or
(c) use the Software for any purpose except as expressly provided
for in this Agreement.
2.8 Third Party Technology. The parties acknowledge that certain
software, equipment, or technology of third parties, including without
limitation server equipment, server software, and database software, may be
required to operate the Software. ABT shall cooperate reasonably with ABT/UK to
identify any such third-party technology, but ABT will not be obligated to
provide any such third party technology to ABT/UK.
2.9 Changes to Business Procedures and Global Branding Protocols. ABT
may only make those changes to the Business Procedures and Global Branding
Protocols that ABT makes generally for ABT's and ABT's licensees using the
Software and Business Procedures. Where feasible, ABT shall seek comments and
suggestions of ABT/UK regarding such changes. ABT shall discuss in good faith
any concerns ABT/UK may have with respect to such changes.
3. Obligations.
3.1 Services. Upon mutual agreement, ABT may, from time to time, perform
services and provide support to ABT/UK that will be subject to the Services
Agreement included on Attachment D hereto (the "Services" as further defined
below).
(a) In addition to the compensation set forth in the definitive
Services Agreement, ABT/UK shall reimburse ABT for the reasonable actual travel
and living expenses of ABT's personnel engaged in performing the Services at
locations other than ABT's facilities, together with other reasonable
out-of-pocket expenses incurred in connection with the performance of such
Services, subject to ABT's adherence to any travel policy reasonably promulgated
by ABT/UK in connection therewith.
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(b) ABT/UK shall pay ABT for any Services provided under this
Section 3.1 in accordance with the payment terms set forth in Section 5 below.
(c) ABT shall provide initial Services to Localize the Software
(the "Initial Localization Services") in accordance with the initial Work Order
(as such term is defined in the Services Agreement) set forth in Attachment E.
ABT shall provide further Services to Localize the Software in accordance with
such subsequent Work Orders agreed to by the parties in writing according to the
software development procedures described in Attachment G.
(d) Notwithstanding the above, ABT shall provide ABT/UK with a
one-time, three (3) day "train the trainer" session at ABT's office in Irvine,
California, at no charge to ABT/UK. ABT/UK will be responsible for any travel,
living, and related expenses of any persons it sends to such training session.
3.2 Scope of Services. The parties currently anticipate that the
Services that may be performed in accordance with Section 3.1 above may include
the following. However, nothing in this Section 3.2 will be deemed to create any
binding obligation on either party.
(a) Hardware selection and configuration consulting services;
(b) Business model conversion support for software systems and
operating procedures;
(c) Marketing, sales and information technology training;
(d) Support for training of vehicle dealers in the use of the DRT
portions of the Software; and
(e) Business Procedures marketing support, including support
regarding know-how, cooperative advertising or other co-marketing activities.
3.3 ABT/UK Obligations. ABT/UK shall operate the Local Business solely
in accordance with the Business Procedures, which the parties acknowledge set
forth general principles for operation of the Local Business. The parties shall
agree in good faith upon more detailed business procedures, and ABT/UK shall use
reasonable efforts to abide by the business procedures generally provided by ABT
to its licensees. ABT/UK shall operate the Local Business solely in accordance
with the laws, regulations, and other requirements of the Territory and of the
European Union. During the Term, ABT/UK will devote sufficient resources and
personnel to the Local Business to market, promote and operate the Local
Business. ABT/UK will be responsible for training vehicle dealers in the use of
the DRT portions of the Software and will be solely responsible for all costs
and expenses related to the marketing, promotion and operation of the Local
Business and for performing its obligations hereunder. ABT/UK
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<PAGE> 9
will ensure that only properly trained and qualified persons perform ABT/UK's
technical obligations under this Agreement.
3.4 Hyperlinks. ABT shall, on and after the first date ABT/UK makes the
World Wide Web site for the Local Business generally available on the World Wide
Web, display a hypertext link on its Web page at the location where ABT provides
links to its local country affiliates, pointing toward ABT/UK's home Web page
for the Local Business, and ABT/UK shall, on and after the first date ABT/UK
makes the World Wide Web site for the Local Business generally available on the
World Wide Web, display a hypertext link on the home Web page for the Local
Business pointing to such location.
3.5 Territory and Sales. The parties acknowledge that ABT/UK may receive
inquiries or orders for sales of products or services from persons outside the
Territory. In such case, ABT/UK shall respond to such inquiries only in
accordance with the laws of the Territory and the European Union. In addition,
ABT/UK acknowledges that ABT may enter into agreements with other parties who
will operate a Local Business outside the Territory. ABT/UK shall use its best
efforts to resolve any channel conflicts with such third parties relating to
such inquiries.
3.6 Reports. No less frequently than each month, as reasonably requested
by ABT, ABT Entity (as defined in Attachment B) will provide to ABT, in a format
reasonably acceptable to ABT, a summary report of business data regarding the
operation of the business of the ABT Entity, including without limitation the
number of purchase requests and finance requests, Web statistics, and revenue
data, as required for the ABT global data warehouse and reporting system.
4. Warranty and Disclaimer
4.1 ABT Warranty.
(a) ABT represents and warrants to ABT/UK that during the Term,
the Software in the form delivered to ABT/UK will perform in substantial
accordance with the Documentation.
(b) Without limitation to any other warranty, ABT represents and
warrants to ABT/UK that the Software in the form delivered to ABT/UK is Year
2000 Compliant. "Year 2000 Compliant" means that the Software, when used in
accordance with the Documentation and with the hardware and operating systems
approved by ABT, will: (a) initiate and operate; (b) correctly store, represent
and process dates; and (c) not cause or result in an abnormal termination or
ending or degradation of performance; when processing data containing dates in
the Year 2000 and in any preceding and following years, including leap years,
provided that all third party products that exchange date data with the Software
do so in a form and format compatible with the Software.
(c) ABT warrants and represents to ABT/UK that the Software, in
the form delivered to ABT/UK and on the media delivered to ABT/UK does not
contain any virus, codes, commands or
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<PAGE> 10
instructions that alter, delete, erase, damage, disable, disrupt, or otherwise
interfere with A.BT/UK's use of, the Software.
(d) If the Software does not perform as warranted under Sections
4.1(a), 4.1(b), or 4.1(c), ABT shall, at no charge to ABT/UK, use reasonably
diligent efforts to correct the Software in accordance with the escalation
procedures in Attachment F, and include the correction thereof in the next Error
Correction released by ABT and provided to ABT/UK under Section 6.2 below. The
foregoing are ABT/UK's sole and exclusive remedies for breach of warranties. The
warranty will apply only if the then-current version of the Software has been
properly installed and Used at all times and in accordance with the instructions
for Use.
(e) ABT represents and warrants to ABT/UK that ABT has full power,
right and authority to enter into this Agreement, to carry out its obligations
under this Agreement and to grant the rights granted to ABT/UK herein.
(f) ABT represents and warrants to ABT/UK that all Services
performed by ABT under this Agreement shall be performed in a professional
manner consistent with industry standards by personnel with the required
training, background and experience to perform such services. In the event of a
breach of such warranty, ABT shall re-perform the non-conforming services at no
charge. The foregoing is ABT/UK's sole and exclusive remedy for breach of such
warranty.
4.2 ABT/UK Warranty. ABT/UK represents and warrants to ABT that ABT/UK
has MI power, right and authority to enter into this Agreement, to carry out its
obligations under this Agreement and to grant the rights granted to ABT herein.
ABT/UK represents and warrants to ABT that ABT/UK is sufficiently capitalized to
undertake the business transaction contemplated hereunder.
4.3 Disclaimer. EXCEPT FOR THE EXPRESS LIMITED WARRANTY SET FORTH IN
SECTION 4.1 ABOVE, THE SOFTWARE, DOCUMENTATION AND BUSINESS PROCEDURES ARE
PROVIDED "AS-IS" AND WITHOUT WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE. ABT HEREBY DISCLAIMS ANY WARRANTY THAT THE OPERATION OF
THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE. ABT SPECIFICALLY DISCLAIMS ALL
IMPLIED WARRANTIES OF NONINFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE SOFTWARE, DOCUMENTATION, BUSINESS
PROCEDURES AND ANY SERVICES PROVIDED BY ABT HEREUNDER.
4.4 Additional Disclaimer. The success of the business venture
contemplated to be undertaken by ABT/UK by virtue of this Agreement is
speculative and depends, to a large extent, upon the ability of ABT/UK as an
independent business operator and the active participation of ABT/UK in the
daily affairs of the Local Business, as well as other factors. ABT does not make
any representation or warranty, express, or implied, as to the potential success
of the business venture contemplated by this Agreement.
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[*] Confidential Treatment Requested
5. Compensation.
5.1 Minimum License Fee. In consideration of the licenses granted
herein, ABT/UK shall pay to ABT the minimum license fee specified on Attachment
A ("Minimum Annual License Fee"). The Minimum Annual License Fee will be payable
in four (4) equal installments, in advance of each Fiscal Quarter.
5.2 Additional License Fees. In consideration of the licenses granted
herein, ABT/UK shall pay to ABT the following fees ("Additional License Fees"):
(a) For the [*].
(b) For the sixth (6th) Fiscal Year and each Fiscal Year
thereafter, ABT/UK shall, no later than fifteen (15) days after the end of each
month pay to ABT an amount equal to [*] of Gross Revenues received by ABT/UK
during such month in connection with the operation of the Local Business. Such
fees will be in addition to any fees due under Section 5.1. For purposes of this
Section 5.2, the "Credit Amount" means one million one hundred thousand dollars
($1,100,000); however, if ABT/UK terminates the maintenance portion of this
Agreement under Section 11.2(d), the Credit Amount for each Fiscal Year ending
after such termination will be eight hundred fifty thousand dollars ($850,000).
ABT/UK may credit up to the Credit Amount each Fiscal Year against Additional
License Fees payable under this Section 5.2(b). Such credits may only be applied
against ABT/UK's payment of Additional License Fees under this Section 5.2(b)
and in no event will be refundable to ABT/UK or reduce the amount of fees
payable under Section 5.1.
(c) For the fourth (4th) and fifth (5th) Fiscal Years, ABT/UK
shall pay ABT the fees set forth in Section 5.2(b). Notwithstanding the monthly
payment and calculation of such fees under Section 5.2(b), in the fourth (4th)
or fifth (5th) Fiscal Years, such fees will be calculated and paid on a Fiscal
Quarterly basis. However, ABT/UK will not be required under this Section 5.2(c)
to pay more than one-half (1/2) of its cumulative Gross Profit to date during
such Fiscal Year. For purposes of this section, "Gross Profits" for a Fiscal
Quarter means Gross Revenues for such Fiscal Quarter, less trading expenses
(i.e., all expenses of ABT/UK during the Fiscal Quarter, but not including
interest expenses or taxes), less 1/4 of the Credit Amount for the Fiscal Year.
For example:
<TABLE>
<CAPTION>
All figures in US $1,000 QUARTER FISCAL
1 2 3 4 YEAR
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A Gross Revenues [*] [*] [*] [*] [*]
B Fees due to ABT [*] of Gross [*] [*] [*] [*] [*]
Revenue
</TABLE>
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[*] Confidential Treatment Requested
<TABLE>
<S> <C> <C> <C> <C> <C>
C Trading Expenses [*] [*] [*] [*] [*]
D 1/4 of Credit Amount [*] [*] [*] [*] [*]
E Gross Profit (=A-C-D) [*] [*] [*] [*] [*]
F Cumulative Gross Profit for Fiscal [*] [*] [*] [*]
Year to date
G 1/2 Cumulative Gross Profit (=FX.5) [*] [*] [*] [*] [*]
H Credit Amount [*] [*] [*]
I Additional License Fees, Less Credit [*] [*] [*] [*] [*]
[*]
J Additional License Fee Payable (at [*] [*] [*] [*] [*]
the end of the Fiscal Quarter)
K Cumulative License Fee Payable to [*] [*] [*] [*] [*]
date for Fiscal Year (which cannot be
more than G)
</TABLE>
If, in the last Fiscal Quarter of the fourth (4th) Fiscal Year, ABT/UK has a
negative Gross Profit for such Fiscal Quarter which will result in a negative
cumulative Gross Profit for the fourth (4th) Fiscal Year, then ABT/UK may credit
up to one-half (1/2) of the amount of such negative Gross Profit for such Fiscal
Year against payments of the Additional License Fee (after deduction of the
Credit Amount), if any, due under this Section 5.2 for the fifth (5th) Fiscal
Year. Such credits may only be applied against ABT/UK's payment of Additional
License Fees under this Section 5.2(c) and in no event will be refundable to
ABT/UK or reduce the amount of fees payable under Section 5.1. If, in the last
Fiscal Quarter of the fifth (5th) Fiscal Year, ABT/UK has a negative Gross
Profit for such Fiscal Quarter which will result in a negative cumulative Gross
Profit for the fifth (5) Fiscal Year, then there will be no credit to the
Additional License Fee due by ABT/UK in the sixth (6th) Fiscal Year.
(d) No later than ninety (90) days after the end of each ABT/UK
Fiscal Period during the Term, ABT/UK shall pay to ABT (by way of a fee payable,
as set forth in this Section 5.2(d), in the ABT/UK Fiscal Period after that
which has expired) [*] of any Aggregate Profits, where "Aggregate Profits" means
aggregate profits of ABT/UK and its subsidiaries shown by the audited accounts
of ABT/UK (and any subsidiary thereof, as applicable), that are available for
distribution as defined in section 263(3) of the UK Companies Act 1985, (i)
after adding thereto any amounts distributed or repaid as premium in respect of
share capital to the shareholders of ABT/UK on or prior to the end of such
ABT/UK Fiscal Period and (ii) after deducting any amounts owed by ABT/UK to its
shareholders and the amount paid up in respect of the share capital of ABT/UK at
the end of such ABT/UK Fiscal Period, less any amounts previously paid under
this Section 5.2(d). No amount payable under this Section will be repayable to
ABT/UK regardless of whether the calculation of Aggregate Profits for any later
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[*] Confidential Treatment Requested
ABT/UK Fiscal Period would result in an a fee under this Section 5.2(d) of zero
or less. If this Agreement is terminated other than at the end of a Fiscal
Period, then no later than ninety (90) days after the termination of this
Agreement, ABT/UK shall pay [*] of Aggregate Profits as defined above, as
calculated as of the date of termination. For purposes of this Section 5.2(d),
"ABT Fiscal Period" means a regular fiscal reporting period, no less frequent
that an annual period, for which ABT/UK chooses to conduct its financial
accounting. ABT/UK shall select the frequency and ending date of the ABT Fiscal
Period, and notify ABT thereof in writing no later than one (1) year after the
Effective Date.
(e) Minimum Fee. Notwithstanding anything else in this Agreement,
if ABT/UK pays to ABT less than one million one hundred thousand dollars
$1,100,000) in Total Fees for any Fiscal Year, where "Total Fees" for a Fiscal
Year means Minimum License Fees, Additional License Fees, and Minimum
Maintenance Fees for such Fiscal Year, ABT/UK shall, within ninety (90) days
after the end of such Fiscal Year, pay to ABT the difference between one million
one hundred thousand dollars ($1,100,000) and such Total Fees.
5.3 Maintenance Fee. In consideration of the services to be provided by
ABT under Section 6, ABT/UK shall pay to ABT the maintenance fee specified on
Attachment A (the "Minimum Maintenance Fee"). The Minimum Maintenance Fee will
be payable in equal monthly installments in advance. ABT may increase the
Minimum Maintenance Fee after the first year of the Term, in proportion to any
increase in the Consumer Price Index over the previous year.
5.4 Taxes. All charges and Fees provided for in this Agreement are
exclusive of, and do not include, any taxes, duties, or similar charges imposed
by any government. ABT/UK shall pay or reimburse ABT for all federal, state,
dominion, provincial, or local sales, use, personal property, excise or other
taxes, fees, or duties arising out of this Agreement or the transactions
contemplated by this Agreement (other than taxes on the net income of ABT).
5.5 Payment. ABT/UK shall calculate, denominate, and make all payments
in U.S. Dollars by wire transfer to an account designated by ABT. Any payments
due under this Agreement which are not paid when due will bear interest, to the
extent permitted by applicable law, at the prime rate as reported by the Chase
Manhattan Bank, New York, New York, beginning on the date such payment is due,
plus an additional three percent (3%), calculated on the number of days such
payment is delinquent. This Section 5.5 will not limit any other remedies
available to any party.
5.6 Records. ABT/UK shall make and maintain, and shall cause its
subsidiaries to make and maintain, an accounting and record keeping system,
including the basic accounting information necessary to prepare sufficient
financial statements and a general ledger in accordance with the United
Kingdom's Generally Accepted Accounting Principles (UKGAAP) with adequate and
verifiable records and supporting documentation, including, without limitation,
invoices, payroll records, check registers, sales tax records, cash receipts and
disbursements journals, and general ledgers in order to calculate and confirm
ABT/UK's payment obligations hereunder. At a minimum, ABT/UK will maintain such
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[*] Confidential Treatment Requested
records until the expiration of three (3) years after the year to which such
records pertain. ABT will have the right, at its own expense, to inspect,
through either its employees or agents, and upon reasonable notice in writing,
and during regular business hours, such records to verify the accuracy of fees
paid by ABT/UK under the terms of this Agreement; provided, however, that any
third party auditors must sign a non-disclosure agreement reasonably acceptable
to ABT/UK. If any such examination discloses a shortfall in the fees due to ABT
hereunder, ABT/UK shall reimburse ABT for the full amount of such shortfall plus
interest and if the amount of the underpayment for any period is more than five
percent (5%) ABT/UK shall pay ABT's costs of performing that audit with respect
to such period.
6. Maintenance and Support.
6.1 Support. For so long as ABT/UK is current in payment of all fees,
ABT shall provide Maintenance and Support as described in Section 6.2 below.
ABT's provision of Maintenance and Support to ABT/UK will commence upon payment
of the Maintenance Fee and will continue for as long as ABT/UK continues to pay
the annual Maintenance Fee.
6.2 Maintenance and Support Services. For purposes of this Agreement,
"Maintenance and Support" means that ABT will: (a) use reasonably diligent
efforts to correct and resolve Errors that ABT/UK reports to ABT in accordance
with the escalation procedures set forth in Attachment F and (b) provide Error
Corrections, Updates and Upgrades, if any, to the Software, Business Procedures
and Documentation that ABT releases during the current period covered by the
Minimum Maintenance Fee, in accordance with Section 2.6; and (c) up to
twenty-five hundred (2,500) hours of technical support per year, in English,
pursuant to the escalation procedures in Attachment F, and the software
development resource commitment guidelines in Attachment G. The parties
acknowledge that such technical support services may be applied to any Services
performed by ABT pursuant to the Services Agreement in Attachment D and will not
include any time spent by ABT to create or provide Error Corrections, Updates,
or Upgrades, or to provide telephone support related thereto, except as mutually
agreed in a Work Order as specified in Attachment D. ABT shall provide ABT/UK
with a monthly report of the hours of technical support provided by ABT under
this Section 6.2. Each month, ABT shall invoice ABT/UK in arrears for Fees for
any Maintenance and Support services in excess of one-twelfth of the allotted
twenty-five hundred (2,500) hours for the year, in reasonable detail showing
such additional hours to the nearest quarter hour, and Customer shall pay such
Fees no later than fifteen (15) days after the invoice date. Any such additional
Maintenance and Support services will be billed at a rate equal to [*] per hour.
ABT may increase such rate after the first year of the Term, in proportion to
any increase in the Consumer Price Index over the previous year.
6.3 Project Managers and Staff. Each party shall designate a project
manager to administer Maintenance and Support under this Agreement. The parties
shall coordinate all Maintenance and Support work under this Agreement through
such project managers. Each party may change its project manager upon written
notice. ABT will ensure that only properly trained and qualified persons perform
its technical obligations under this Agreement.
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7. Trademarks and Domain Names.
7.1 Trademarks. ABT hereby grants to ABT/UK the exclusive right to use
the ABT Brand in connection with a Local Business in the Territory. The above
license will include, without limitation, the right to indicate to the public
that ABT/UK is an authorized licensee of ABT and to advertise ABT/UK's products
and services in connection with the Local Business under the ABT Brand. ABT/UK
shall fully comply with the Global Brand Protocols in relation to ABT/UK's use
of the ABT Brand. All representations of the ABT Brand that ABT/UK intends to
use must first be submitted to ABT for approval of design, color and other
details, subject to the following limitations: (a) ABT's approval will not be
unreasonably withheld or delayed; (b) such approval, once given, will not be
unreasonably withdrawn; and (c) once ABT has approved a particular use, ABT/UK
need not re-submit for approval any substantially similar use.
7.2 Restrictions. Except as set forth in this Section 7, nothing
contained in this Agreement will grant or will be deemed to grant to ABT/UK any
right, title or interest in or to the ABT Brand. ABT/UK shall not challenge or
assist others to challenge the ABT Brand (except to the extent such restriction
is expressly prohibited by applicable law) or the registration thereof or
attempt to register any trademarks, marks trade names, Uniform Resource
Locators, or other designations confusingly similar to those of ABT. If ABT/UK,
in the course of exercising its rights hereunder, acquires any goodwill or
reputation in the ABT Brand, all such goodwill or reputation will automatically
vest in ABT when and as, on an on-going basis, such acquisition of goodwill or
reputation occurs, as well as at the expiration or termination of this
Agreement, without any separate payment or other consideration of any kind to
A.BT/UK, and ABT/UK agrees to take all such actions necessary to effect such
vesting, including without limitation the transfer to ABT of rights in any
filings or registrations made under Section 7.3 below, and including without
limitation the transfer from ABT/UK to ABT the ABT Domain upon termination of
this Agreement. Upon termination of this Agreement, ABT/UK shall immediately
cease to use the ABT Brand.
7.3 Trademark Registrations in the Territory. ABT/UK shall advise ABT
regarding the appropriate registrations or filings appropriate to protect the
use of the ABT Brand in the Territory. ABT shall make, and ABT/UK shall
cooperate with ABT to make such registrations or filings with the appropriate
authorities. ABT shall pay all costs or fees associated with such filing.
7.4 Registered User Agreements. ABT/UK shall cooperate with ABT to make
any registrations or filings with the appropriate authorities referenced in
Section 7.3, including without limitation entering into registered user
agreements with respect to the ABT Brand pursuant to applicable trademark law
requirements in the Territory. ABT will be responsible for proper filing of
registered user agreements with appropriate government authorities and shall pay
all costs or fees associated with such filing.
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7.5 Name Branding; Product Protection. On any promotional materials used
or disseminated by ABT/UK relating to the Local Business, ABT/UK shall display
the ABT Brand. Where both ABT/UK's marks and the ABT Brand are displayed, the
marks will be presented equally legibly, and in a size and style in accordance
with ABT's then-current Global Brand Protocols.
7.6 Domain Names. ABT hereby grants to ABT/UK the right to use the
ABT/UK Domain, solely for the operation of a Local Business. ABT shall, prior to
the first date ABT/UK makes the World Wide Web site for the Local Business
generally available on the World Wide Web, register the ABT/UK Domain name with
InterNIC or its successor Internet name assignment authority, and shall pay the
registration fees for one year. Thereafter, ABT/UK shall in a timely fashion
renew such registration with such authority at its own expense each time such
registration becomes due during the Term.
8. Limitation of Liability
EXCEPT FOR LIABILITY FOR THIRD PARTY CLAIMS ARISING OUT OF SECTIONS
9 OR 10, (A) IN NO EVENT WILL EITHER PARTY'S TOTAL LIABILITY ARISING OUT OF OR
RELATED TO THIS AGREEMENT EXCEED THE TOTAL AMOUNTS PAID OR PAYABLE BY ABT/UK TO
ABT UNDER THIS AGREEMENT, AND (B) IN NO EVENT WILL EITHER PARTY HAVE ANY
LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER FOR BREACH OF CONTRACT,
TORT OR OTHERWISE, ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING BUT
NOT LIMITED TO, LOSS OF. ANTICIPATED PROFITS, LOSS OF DATA, OR LOSS OF USE, EVEN
IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9. Indemnification for Infringement
9.1 ABT Indemnity for Infringement. ABT shall, at its expense, defend or
settle any claim, action or allegation brought against ABT/UK that the Software,
or any Localization or Extension developed by ABT, or the use of the ABT Brand
in the Territory, infringes any copyright, patent, trademark or trade secret
right of any third party, or that any Localization or Extension not developed by
ABT/UK infringes such rights as a necessary result of specifications required by
ABT, and shall pay any final judgments awarded or settlements entered into;
provided that ABT/UK gives prompt written notice to ABT of any such claim,
action or allegation of infringement and gives ABT the authority to proceed as
contemplated herein. ABT will have the exclusive right to defend any such claim,
action or allegation and make settlements thereof in its own discretion, and
ABT/UK may not settle or compromise such claim, action or allegation, except
with the prior written consent of ABT. ABT/UK shall give such assistance and
information as ABT may reasonably require to settle, or oppose such claims. In
the event any such infringement, claim, action or allegation is brought or
threatened, ABT shall, at its sole option and expense:
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(a) procure for ABT/UK the right to continue use of the Software
or Business Procedures or infringing part thereof,
(b) modify or amend the Software or Business Procedures or
infringing part thereof, or replace the Software or Business Procedures or
infringing part thereof with other Software or Business Procedures having
substantially the same or better capabilities; or if neither (a) nor (b) is
reasonably possible,
(c) terminate this Agreement and repay to ABT/UK a portion of the
Minimum Annual License Fee equal to the amount paid by ABT/UK less an amount
equal to one twelfth (1/12) of the total Minimum Annual License Fee for each
month or portion thereof of the current one (1) year term to account for use by
ABT/UK.
The foregoing obligations will not apply to the extent the infringement
arises as a result of modifications to the Software not made by or for ABT. The
foregoing states the entire liability of ABT with respect to infringement of any
patent, copyright, trademark, trade secret or other proprietary right.
9.2 ABT/UK Indemnity. ABT/UK shall, at its expense, defend or settle any
claim, action or allegation brought against ABT (to the extent not covered by
Section 9.1) arising from the act or omission of ABT/UK, where a third party
alleges fraud, misrepresentation, or unfair business practices arising from the
operation of the Local Business, or those that arise from a third party
allegation that a Localized Version or Extension, infringes any copyright,
patent, trademark, or trade secret or other intellectual property right of any
third party, or that any Localization or Extension developed by ABT/UK infringes
such rights as a necessary result of specifications required by ABT/UK, and
shall pay any final judgments awarded or settlements entered into; provided that
ABT gives prompt written notice to ABT/UK of any such claim, action or
allegation of infringement and gives ABT/UK the authority to proceed as
contemplated herein. ABT/UK will have the exclusive right to defend any such
claim, action or allegation and make settlements thereof in its own discretion,
and ABT may not settle or compromise such claim, action or allegation, except
with the prior written consent of ABT/UK. ABT shall give such assistance and
information as ABT/UK may reasonably require to settle or oppose such claims. In
the event any such infringement, claim, action or allegation is brought or
threatened, ABT/UK may, at its sole option and expense:
(a) procure for ABT the right to continue use of the Localized
Version or Extension or infringing part thereof; or
(b) modify or amend the Localized Version or Extension or
infringing part thereof, or replace the Localized Version or Extension or
infringing part thereof with other materials having substantially the same or
better capabilities.
9.3 Prosecution of Infringers. ABT and ABT/UK shall give each other
written notice of any acts of infringement by third parties involving
intellectual property rights relating to the Localized
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Version, Extensions, Software, Business Procedures, or ABT Brand anywhere in the
Territory of which ABT or ABT/UK has knowledge, and the parties shall consult
together with a view to determine the course of action, if any, to be taken in
such circumstances. ABT will have the right to take action to enforce such
rights. If the parties are unable to agree on any such course of action to be
taken, then ABT shall authorize ABT/UK to take such actions as ABT/UK considers
necessary or appropriate and ABT/UK will be entitled to take such actions at
ABT/UK's expense. Each party shall render to the other any assistance requested
by the other in proceedings against an infringer within the Territory, at the
other party's expense. Any damage that might be awarded will, after deduction of
actual costs, be awarded to the party that undertakes legal action.
10. Confidential Information
10.1 Obligations. The parties acknowledge and agree that the Confidential
Information disclosed by one party (the "Disclosing Party") to the other party
(the "Receiving Party") directly or indirectly (which information is marked as
"proprietary" or "confidential" or, if disclosed orally, is designated as
confidential or proprietary at the time of disclosure) hereunder constitutes the
confidential and proprietary information of the Disclosing Party. The Receiving
Party shall retain in strict confidence and not disclose to any third party any
Confidential Information without the Disclosing Party's express written consent,
and the Receiving Party shall not use such Confidential Information except to
exercise the rights and perform its obligations under this Agreement. Without
limiting the foregoing, each party shall use at least the same procedures and
degree of care which it uses to protect its own Confidential Information of like
importance, and in no event less than reasonable care.
10.2 Exceptions. The Receiving Party shall be relieved of this obligation
of confidentiality to the extent it can demonstrate that any such information
is: publicly available, already in the Receiving Party's possession at the time
of disclosure and not subject to a confidentiality obligation, obtained by the
Receiving Party from third parties without restrictions on disclosure,
independently developed by the Receiving Party without reference to Confidential
Information, or required to be disclosed by order of a court or other
governmental entity or stock exchange, or disclosed to business or legal
advisors acting under a duty of confidentiality.
10.3 Source Code Protections. ABT/UK shall not under any circumstances
distribute the source code for the Software in any manner. ABT/UK shall
reproduce and shall not obscure or remove any marking on any copy or Derivative
Work of the source code for the Software. In addition, each copy or Derivative
Work of the source code for the Software must be marked as the confidential and
proprietary property of ABT to which access is restricted, and ABT/UK shall keep
and use the source code for the Software solely at ABT/UK's secure development
facilities under password protection. ABT/UK agrees to limit access to the
source code for the Software twenty-four (24) hours a day, and strictly to those
employees or Contractors to whom access is reasonably necessary in order to
carry out the permitted uses of the source code for the Software hereunder.
ABT/UK shall keep records of all
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persons who have access to the source code for the Software. At ABT's request,
ABT/UK agrees to provide such records to ABT for review.
10.4 Contractors. ABT/UK may appoint a third party contractor
("Contractor") to assist ABT/UK in ABT/UK's modification or implementation of
the Localized Version as authorized hereunder; provided, however, that any such
Contractor's access to and use of the Software (including the Localized
Version): (a) will only be permitted pursuant to a signed written agreement
between ABT/UK and such Contractor that contains terms at least as restrictive
as those set forth in this Section 10, (b) protects ABT's proprietary rights in
the Software to the degree set forth in this Agreement, and (c) grants the
Contractor no rights in the Localized Version beyond those expressly granted
hereunder ("Contractor Agreement"). Such agreement must be approved in writing
by ABT prior to its execution. ABT may perform technical oversight of all work
performed by a Contractor in accordance with this Section 10.4.
10.5 Notification of Security Breach. ABT/UK shall notify ABT promptly in
the event of any breach of its security of which ABT/UK becomes aware, under
conditions in which it would appear that the trade secrets contained in the
source code for the Software or the Localized Version were prejudiced or exposed
to loss. ABT/UK shall, upon request of ABT, take all other reasonable steps
necessary to recover any compromised trade secrets disclosed to or placed in the
possession of ABT/UK by virtue of this Agreement. The cost of taking such steps
will be borne solely by ABT/UK, unless ABT willfully caused the breach.
10.6 Injunctive Relief In the event of breach of the provisions of
Section 10.1 or 10.3, the non-breaching party will have no adequate remedy at
law and will be entitled to seek immediate injunctive and other equitable
relief, without the necessity of showing actual money damages.
11. Term and Termination
11.1 Term. This Agreement and the licenses granted hereunder will be
effective as of the Effective Date and will continue in full force and effect
for a term of twenty (20) years (the "Term") after the Launch Date, unless
terminated as set forth in this Section 11.
11.2 Termination. This Agreement may be terminated only as follows, if
any of the following events ("Termination Events") occur:
(a) Termination at Will. ABT/UK may terminate this Agreement, for
any reason or no reason, upon no less than one hundred eighty (180) days prior
written notice to ABT; however, such notice may not be given before the date one
(1) year after the Launch Date.
(b) Nonpayment of Fees. In the event that: (i) ABT/UK fails to pay
the Fees as they become due, in accordance with Section 5 above, and (ii) fails
to do so after sixty (60) days written
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notice thereof, ABT may terminate this Agreement upon written notice to ABT/UK;
provided, however, that:
(i) ABT may terminate this Agreement based on non-payment of
Fees only if. (A) the cumulative amount of unpaid Fees is more than sixty-two
thousand five hundred dollars ($62,500); or (B) any Fees in excess of ten
thousand dollars ($10,000) are unpaid for more than ninety (90) days.
Notwithstanding the above, ABT shall continue to have the right to seek damages
from ABT/UK, and seek attorneys' fees under Section 15.14.
(ii) In all events, if ABT attempts to terminate this
Agreement under this Section 11.2(b), and the Fees due to ABT are subject to a
good faith dispute, then either party may initiate an arbitration proceeding in
accordance with Section 15.13(c), and the Agreement shall remain in force during
such arbitration provided that ABT/UK continues to pay ongoing Fees into an
escrow account to be distributed based on the findings of the arbitrator.
(c) Default. In the event that either party defaults in the
performance of a material non-monetary obligation under this Agreement (other
than nonpayment of Fees as set forth in Section 11.2(b)(i) above, then the
non-defaulting party may provide written notice to the defaulting party
indicating: (i) the nature and basis of such default with reference to the
applicable provisions of this Agreement; and (ii) the non-defaulting party's
intention to terminate this Agreement. If such default is amenable to cure
within thirty (30) days, the non-defaulting party may seek to terminate this
Agreement under this Section 11.2(c) in the event that such material default is
not cured within such thirty (30) day period. If such default is not amenable to
cure within thirty (30) days, then the non-defaulting party may seek to
terminate this Agreement if the defaulting party has not made significant and
ongoing attempts to cure such default within thirty (30) days, or if the
defaulting party has not cured such default as soon as possible thereafter. In
either case, upon the expiration of such cure periods the non-defaulting party
may initiate an arbitration proceeding to terminate this Agreement in accordance
with Section 15.13(c). The parties shall instruct the arbitrators to make a
determination as to whether a material default has occurred within thirty (30)
days after the arbitration proceeding is initiated. If the arbitrators
deter-mine that a material default has occurred, the non-defaulting party may
terminate this Agreement immediately upon written notice.
(d) Severable Termination for ABT/UK. In the event that ABT
breaches and fails to cure its obligations under this Agreement and ABT/UK
obtains the right to terminate this Agreement as contemplated in Section 11.2(c)
above, ABT/UK shall have the right, after the date three (3) years after the
Effective Date, to terminate this Agreement as to its obligation to pay Minimum
Services Fees under Sections 3, 5.3, and the Services Agreement, and as to ABT's
obligation to provide Services thereunder, but that all other provisions of this
Agreement shall remain in force, however, each party will continue to be
obligated to perform its duties under Section 2.6; or
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(e) ABT may terminate this Agreement immediately upon written
notice if ABT/UK: (i) terminates or suspends its business; (ii) admits in
writing its inability to pay its debts as they Mature, makes an assignment for
the benefit of creditors, or becomes subject to direct control of a trustee,
receiver or similar authority; or (iii) becomes subject to any bankruptcy or
insolvency proceeding under federal, foreign, or state statutes; or
(f) ABT/UK may terminate this Agreement immediately upon written
notice to ABT in the event that the final Deliverable (as defined in the initial
Work Order referenced in Section 3.1(c)) is not accepted by March 31, 1999. Such
termination will be deemed a termination at will, and will be ABT/UK's sole
remedy and ABT's sole liability for ABT's failure to deliver conforming Initial
Localization Services under Section 3.1(c). ABT/UK's ability to terminate under
this Section 11.2(f) will cease upon the Launch Date. If ABT/UK terminates this
Agreement under this Section 11.2(f), ABT/UK will not be obligated to pay any
amounts not already due as of the date of termination under the Services
agreement or under this Agreement; however, ABT/UK will not be entitled to any
refund of any amount payable under this Agreement or the Services agreement.
11.3 Effect of Termination.
(a) Unwind Services. Upon any expiration or termination of this
Agreement in accordance with Sections 11.2(a), (b), or (c) that takes place
after the first date ABT/UK makes the World Wide Web site for the Local Business
generally available on the World Wide Web, each party shall continue to perform
its obligations under this Agreement, for a period of up to one hundred eighty
(180) days following the effective date of termination ("Unwind Services"). In
consideration of the performance by ABT of such services and ABT/UK's continued
use of the Localized Version, Business Procedures and ABT Brand during such
period, ABT/UK shall continue to pay ABT the amounts set forth in Section 5, and
the Agreement shall be deemed to continue in force until the termination of the
Unwind Services.
(b) Survival. Upon termination of this Agreement in accordance
with the above provisions, the rights and licenses granted under this Agreement
will immediately terminate except as otherwise stated herein. The terms and
conditions of the following Sections will survive termination or expiration of
this Agreement: 1, 2.3, 2.7, 4.3, 4.4, 5.6, 7.2, 8, 9, 10, 11.2, 11.3, 11.4, 13
and 15, as well as any payment obligations in accordance with Section 5 which
accrued prior to expiration or termination hereof.
(c) Return of Materials. Within thirty (30) days after the date of
termination or discontinuance of this Agreement for any reason whatsoever,
ABT/UK shall, at ABT's option, return or destroy any copies of the Software,
Documentation, Business Procedures and any other Confidential Information in its
possession that is in tangible form. ABT/UK shall furnish ABT with a certificate
signed by an executive officer of ABT/UK verifying that the same has been done.
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(d) Non-Competition. If this Agreement is terminated by ABT/UK
under Section 11.2(a), or if this Agreement is terminated by ABT under Section
11.2(b), (c) or (e) before the end of the Term, then during the period between
termination of this Agreement and two (2) years after termination of the
Agreement, ABT/UK shall not operate a Local Business. If ABT/UK assigns this
Agreement to another party in accordance with the terms of Section 12, this
obligation will ran to ABT/UK, and to such assignee. Nothing in this Section
11.3(d) will be construed to limit the ability of ABT/UK or its affiliates to
operate Web sites that primarily promote the automobiles and related products of
a particular manufacturer, for instance, an Internet site promoting automobiles
featuring the brand of Chrysler Corporation.
11.4 License if ABT Enters Bankruptcy. If, at any time during the Term,
ABT: (a) files a voluntary petition in bankruptcy under Chapter 7 of 11 United
States Code (the "Bankruptcy Code"); or (b) has an involuntary petition in
bankruptcy filed against it under Chapter 7 of the Bankruptcy Code, which
petition is not dismissed within ninety (90) days, ABT/UK may elect to retain
its right in the licenses granted in this Agreement, subject to the terms of
this Agreement, in accordance with Chapter 3, Section 365(n) of the Bankruptcy
Code. The licenses granted in this Agreement will be deemed licenses of
"intellectual property" under Section 365(n) of the Bankruptcy Code.
12. Nonassignment/Binding Agreement. Neither this Agreement, nor any rights
under this Agreement, may be assigned or otherwise transferred by ABT/UK, in
whole or in part, whether voluntary, or by operation of law, including by way of
sale of assets, merger or consolidation, without the prior written consent of
ABT. ABT may assign all its rights and obligations under this Agreement to an
Affiliate of ABT. Any permitted assignee must agree in writing to be bound by
all the terms and conditions of this Agreement. Subject to the foregoing, this
Agreement will be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
13. Non-Solicitation. Each party acknowledges and agrees that the technical
and development employees and consultants of the other party are a valuable
asset of such party and are difficult to replace. Accordingly, each party agrees
that, for the Term and for a period of two (2) years thereafter, it will not
offer employment as an employee, independent contractor, or consultant to any
such employee or consultant of the other party. In the event of a breach of the
provisions of this Section 13, the parties agree that it would be difficult to
determine the amount of actual damages that would result from such breach. The
parties further agree that in the event of a breach of the provisions of this
Section 13, the breaching party shall pay the non-breaching party liquidated
damages of $25,000 for each such breach, which is the parties' good faith
estimate of the amount of damages to the non-breaching party from such breach.
14. Notices. Any notice, submission, or communication required or permitted
under the terms of this Agreement, or required by law, whether or not so
required elsewhere in this Agreement, must be in writing and must be: (a)
delivered in person, (b) sent by first class registered mail, return receipt
requested, or air mail, as appropriate, or (c) sent by overnight air courier; in
each case properly posted and fully
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prepaid to the appropriate address set forth below. Either party may change its
address for notice by notice to the other party given in accordance with this
Section 14. Notices will be considered to have been given at the time of the
earlier of: (p) actual delivery in person, (q) the date of a receipt of such
notice signed by an authorized representative of the party being notified, (r)
the date of a written confirmation of receipt by the party being notified, or
(s) thirty (30) days after deposit in the mail as set forth above.
15. Miscellaneous
15.1 Force Majeure. Neither party will incur any liability to the other
party on account of any loss or damage resulting from any delay or failure to
perform all or any part of this Agreement if such delay or failure is caused, in
whole or in part, by embargoes, floods, acts of civil or military authority,
fuel crisis, acts of God, strikes, lockouts, riots, acts of war, fires and
explosions, but the inability to meet financial obligations is expressly
excluded ("Force Majeure"). The time for performance will be extended for a
period equal to the duration of the delay, but in no event longer than one
hundred eighty (180) days. If, as a result of a Force Majeure, a party is unable
to resume performance within such one hundred eighty (ISO) day period, the other
party will have the right to terminate this Agreement.
15.2 No Waiver; Amendment. Any waiver of the provisions of this Agreement
or of a party's rights or remedies under this Agreement must be in writing to be
effective. Failure, neglect, or delay by a party to enforce the provisions of
this Agreement or its rights or remedies at any time will not be construed and
will not be deemed to be a waiver of such party's rights under this Agreement
and will not in any way affect the validity of the whole or any part of this
Agreement or prejudice such party's right to take subsequent action. This
Agreement may not be amended, except by a writing signed by both parties.
15.3 Severability. If any term, condition, or provision of this Agreement
is found to be invalid, unlawful or unenforceable to any extent, the parties
shall endeavor in good faith to agree to such amendments that will preserve, as
far as possible, the intentions expressed in this Agreement. If the parties fail
to agree on such an amendment, such invalid term, condition or provision will be
severed from the remaining terms, conditions and provisions, which will continue
to be valid and enforceable to the fullest extent permitted by law.
15.4 Entire Agreement. This Agreement (including the Attachments and any
addenda hereto signed by both parties) contains the entire agreement of the
parties with respect to the subject matter of this Agreement and supersedes all
previous communications, representations, understandings and agreements, either
oral or written, between the parties with respect to said subject matter.
15.5 No Conflicting Provisions. No terms, provisions or conditions of any
purchase order, acknowledgment or other business form that either party may use
in connection with this Agreement have any effect on the rights, duties or
obligations of the parties under, or otherwise modify, this Agreement,
regardless of any failure of the other party to object to such terms, provisions
or conditions.
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15.6 Consent. Unless expressly provided otherwise in this Agreement, any
prior consent of ABT that is required before ABT/UK may take an action may be
granted or withheld in ABT's sole and absolute discretion.
15.7 Export Restrictions. ABT/UK understands that ABT is subject to
regulation by agencies of the U.S. government, including, but not limited to,
the U.S. Department of Commerce, which prohibit export or diversion of certain
technical products to certain countries. ABT/UK warrants that it will comply in
all respects with the Export Administration Regulations and all other export or
re-export restrictions applicable to the technology and Documentation licensed
hereunder. Further, ABT/UK shall cooperate as requested by ABT to ensure
compliance with any export restrictions or licenses relating to the Software.
15.8 Press Releases. Neither party shall disclose to any third party the
terms and conditions of this Agreement, except as required by the law, of any
relevant jurisdiction, or to any securities exchange or regulatory authority or
governmental body or quasi-governmental department or agency to which either
party is subject, wherever situated (including without limitation the London
Stock Exchange Limited, the Panel on Takeovers and Mergers, the Securities and
Exchange Commission, and the U.S. Department of Justice) whether or not the
requirement has force of law, in which case the party making such disclosure
shall take all such steps as are reasonable and practicable in the circumstances
to agree upon the contents of such disclosure with the other party before
marking such disclosure. Either party may disclose the terms and conditions of
this Agreement to their respective legal or business advisors with a need to
know acting under a duty of confidentiality. Notwithstanding the above, at a
mutually agreed time, as soon as possible but no later than sixty (60) days
after the Effective Date, ABT and ABT/UK shall issue a mutually acceptable joint
press release announcing the relationship contemplated by this Agreement.
15.9 Rights and Remedies. No exercise or enforcement by either party of
any right or remedy under this Agreement will preclude the enforcement by such
party of any other right or remedy under this Agreement or that such party is
entitled by law to enforce.
15.10 Counterparts. This Agreement may be executed in counterparts, each
of which so executed will be deemed to be an original and such counterparts
together will constitute one and the same agreement.
15.11 Governing Law. This Agreement will be interpreted and construed in
accordance with the laws of the State of California and the United States of
America, without regard to conflict of law principles and excluding the 1980
United Nations Convention on Contracts for the International Sale of Goods.
15.12 Language. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions hereof in any
other language shall not be binding on the
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parties hereto. All communications and notices to be made or given pursuant to
this Agreement shall be in the English language.
15.13 Dispute Resolution.
(a) Escalation. If a dispute otherwise arises under this
Agreement, it should be referred to the President of each of the parties for
resolution, and such persons shall use their best efforts to resolve the matter
for no less than thirty (30) days. Any matter such persons are unable to resolve
within such period may be submitted to the dispute resolution procedure set
forth in Section 15.13 (b) or (c), as applicable.
(b) Fast Track Resolution for Technical Disputes. For all disputes
between the parties that relate to technical issues under this Agreement, which
disputes cannot be resolved under Section 15.13(a), the parties shall refer the
dispute to a single third party individual mutually agreed to by the parties,
who possesses such technical expertise and impartiality to resolve the dispute,
such approval of such individual not to be unreasonably withheld (the "Expert").
The parties shall each bear fifty percent (50%) of the Expert's expenses, and
shall direct the Expert to issue a decision on the matter within fifteen (15)
days, which decision shall be final and binding on both parties. If the parties
are unable to agree upon an Expert, or upon whether a dispute is a technical
dispute, notwithstanding the good faith efforts to do so, then the dispute shall
be submitted to arbitration as set forth in Section 15.13(c). Except as
expressly set forth to the contrary in this Section 15.13(b), any such fast
track resolution will take place according to the procedures set forth in
Section 15.13(c).
(c) Arbitration. Any dispute or claim arising out of or in
relation to this Agreement not resolved by Sections 15.13(a) or 15.13(b) above
must be settled by binding arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce as presently in force
("Rules") and by one (1) arbitrator appointed in accordance with said Rules.
Judgment on the award rendered may be entered in any court having jurisdiction
thereof. The place of arbitration will be Orange County, California, U.S.A. Any
monetary award must be calculated and denominated in U.S. dollars and the
arbitration must be conducted in the English language. Notwithstanding the other
provisions of this Section 15.13, either party may apply to any court of
competent jurisdiction for injunctive or equitable relief
15.14 Legal Expenses. If there is a successful action by one party against
the other party to enforce this Agreement or obtain damages as a result of any
breach of this Agreement, then the prevailing party shall be entitled to recover
from the other party, in addition to any damages, all costs and expenses
incurred by the prevailing party in connection with the action, including
reasonable attorneys' fees and court costs.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by duly
authorized representatives on the dates set forth below.
autobytel.com inc. ABT/UK
By: By:
-------------------------------- ---------------------------------
Name: Name:
------------------------------ --------------------------------
Title: Title:
----------------------------- -------------------------------
Date: Date:
------------------------------ --------------------------------
Address: Address:
--------------------------- -----------------------------
- ----------------------------------- -------------------------------------
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ATTACHMENT A
SOFTWARE:
The Software will include all core business applications, including:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CATEGORY APPLICATION NAME DESCRIPTION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Product Affinity Programs Restricted view of Consumer Web Interface customized for Affinity Partners. Users are
limited to the web pages (functionality) specified by Affinity Partner.
- ---------------------------------------------------------------------------------------------------------------------------------
Finance Used by End-User Customers to apply for credit to buy/lease an automobile.
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Information Provider Used to provide New/Used Car Information to customers via links to various information
Links providers.
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Insurance Hyperlink to Insurance Site(s).
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Mobalist Used by End-User Customers to sign-up for and monitor Mobalist Rewards account.
- ---------------------------------------------------------------------------------------------------------------------------------
New Car Request Used by End-User Customers to gather new car information and request a price quote.
Process (FasTrak)
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Online Customer Used by End-Users to check on status of Purchase and Finance Requests.
Service Center
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Quality Assurance Allow End-Users to answer QA survey questions.
Survey (QA)
- ---------------------------------------------------------------------------------------------------------------------------------
Used Car Request Used by End-User Customers to gather used car information, review dealer used car
Process (FasTrak) inventories, and make a used car purchase request.
- ---------------------------------------------------------------------------------------------------------------------------------
Dealer Interface Dealer Communication Used by ABT Contracted Dealers to manage purchase requests and customer contact
System (DRT) information; Maintain Used Car Inventory information for Dealership(s).
- ---------------------------------------------------------------------------------------------------------------------------------
Dealer Management Contract Management Used by ABT Contract Administration department to manage contracts with subscribers
(CM) including New Car (Postal), Used Car, Finance and DRT.
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Distribution [Dealer] Used by ABT Dealer Support Services (DSS) to set-up and maintain relationship with
Management (RD) dealers.
- ---------------------------------------------------------------------------------------------------------------------------------
QA Survey (QA) Used by ABT DSS/Training to monitor customer satisfaction and closure rates; Dealer
Performance.
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Financial Car matching Match vehicle make, model, series in ABT_PROD database to vehicles in GE Capital
Processing database in order to determine residual values.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C>
Credit Union Faxing Faxes consumer purchase requests to Credit Unions for processing.
(CU FX)
Customer Financial Fax Faxes credit decisions to dealers for finance requests submitted by consumers.
to Dealer
(FinFaxDealer)
Financial Status Provides system operations with access to processing statistics, error logging
Monitor and recovery procedures for financial request processing system.
(Financial Status)
Finance/Customer E-mails credit decisions/information from financial institutions to consumers.
Email (FML2)
Bank Matcher, Bank Sends financial requests to and receives credit decision from financial institutions.
Transfer, Bank Watcher
(FSMFrame)
Information Postal Code Updates Imports Postal Code related data from Postal Service, GDT. Import Postal Code
Provider Centroids (Longitude, Latitude of center of zip codes).
Interface
Used Car Import/Export Import/Export Used Car data to/from information providers.
VIN Decoding Import Import Vintek data. Vintek provides the information required to Decode VIN's.
New/Used Car Import Intellichoice data including make, model, series, options and pricing
Information Import information.
MIS Financial Reports Reporting on Financial Requests. Reports are summarized by various
(Financial) dimensions including:
Time - day, week, month, quarter, year
Type - Lease, Retail
Intranet Basic management reporting, system operation monitoring, data maintenance
and company/employee information.
MIS/Billing Interface Used by ABT internal staff to pass billing data from ABT Core system to
Dynamics (ABT's Internal Financial Accounting Application).
QA Reports (QA) Reporting on Customer Satisfaction, Closure rates
Time - day, week, month, quarter, year
Geography - region, state, dealer
Vehicle - make, model, series
PR Type - New car or Used Car
Contract - Paying, Non-Paying Dealers
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Standard Reports Reporting on Purchase Requests. Reports are summarized by various
(Standard) dimensions including:
Time - day, week, month, quarter, year
Geography - region, state, dealer
Vehicle - make, model, series
PR Type - New Car or Used Car
Contract - Paying, Non-Paying Dealers
Various Base Network Much of the core functionality of the systems described above is
Architecture & encapsulated in stored procedures/data tables in the following SQL
Supporting Systems databases: ABT_PROD, ABT_FINANCE, ABT_INTERFACE.
</TABLE>
MINIMUM ANNUAL LICENSE FEE:
The annual Minimum Annual License Fee will be Eight Hundred Fifty Thousand
Dollars ($850,000) payable in four (4) Fiscal Quarterly installments of Two
Hundred Twelve Thousand Five Hundred Dollars ($212,500).
ANNUAL MAINTENANCE FEE:
The annual Minimum Maintenance Fee will be Two Hundred Fifty Thousand
dollars ($250,000) payable in advance.
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ATTACHMENT B
ABT BUSINESS PROCEDURES
The following general principles will apply, in ABT/UK is described as the
"ABT Entity." The parties will agree in good faith upon more detailed business
procedures, and ABT/UK will use reasonable efforts to abide by the business
procedures generally provided by ABT to its licensees.
GENERAL
ABT Entity will have a consumer focus and will supply consumer products and
services at competitive prices, in a hassle free, haggle free environment.
("Universal Autobytel.com Philosophy")
ABT Entity will strive to offer all automotive related products and services,
including the purchase or lease of new and used vehicles from dealers,
financing, insurance and the sale of warranty services, and after market
products, if applicable. Additional products and services may be added to the
basic model, but only in accordance with universal ABT philosophy (for example,
consumer to consumer used car sales, dealer to dealer auctions and the
Mobalist).
CONSUMER
ABT Entity will supply consumer with access to information on automotive
products and services, including pricing information, specifications and other
useful information to educate the consumer on automotive related matters.
ABT Entity is to use a purchase request concept under which a consumer provides
pertinent information and specifications on the vehicle the consumer wishes to
purchase or lease. In addition, the ABT Entity will notify the consumer of
purchase request's receipt, the dealer to whom the request was forwarded and
provide a toll free number to call if purchase request is not responded to
within a defined period of hours.
Consumer personal information will be considered confidential and treated as
such. It should not be sold or supplied to external sources without the
permission of the consumer. Any such distribution of data should be made to
reputable external partners only.
DEALER
The goal of the Universal Autobytel.com Philosophy is that dealers and
manufacturer will benefit from supplying consumer products and services at
competitive prices, in a hassle free, haggle free environment.
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ABT Entity must require each dealer to appoint at least one dedicated ABT
Manager who is a salaried employee (not a commission salesman) whose function is
to interact with the consumer from receipt of purchase request to delivery of
the vehicle. The ABT Manager must respond to purchase requests within a defined
period of hours.
For new car transactions, there will be exclusive geographic (e.g. postal code
based) territories for each auto manufacturer franchise; one dealer per
territory for each auto manufacturer franchise. The size of each territory will
be based on criteria such as population, average driving distance, auto
manufacturer franchise popularity (based on new vehicle registrations), Internet
penetration and household income levels.
Dealers will be selected based on criteria such as reputation in community,
consumer satisfaction, inventory, financial strength and ability to handle large
volume of business.
Each dealer will sign a contract (with rights of ABT Entity to cancel if the
dealer does not meet certain minimum performance requirements) paying ABT Entity
monthly marketing and software fees (the determination of the fees being made on
a country by country basis). The ABT Entity may also receive additional fees
from the offering of various complementary products and services to the
consumer.
ABT Entity will require the dealer to use the DRT system to process requests,
manage customer contacts and record status of purchase requests through
completion.
The ABT Entity will train the ABT Manager, educate the owner of the dealership,
the manager and other relevant personnel on all ABT procedures. Such training
sessions will include periodic visits to dealerships, classes, updates and
reviews of ABT systems and software.
For used car transactions, the ABT Entity may include both dealers and
independent dealers meeting ABT Entity standards (in accordance with the
Universal Autobytel Philosophy). Used cars sold under ABT brand will be sold
under a customer assurance program, which may include a money-back return or
vehicle exchange policy and limited warranty policy. However, such a requirement
will not apply to any "back lot" or exotic used car sales programs. ABT Entity
will require dealers to maintain used car data in a timely manner. Dealers will
be responsible for ensuring used car information is updated to reflect sales
and/or availability.
ABT ENTITY OPERATIONS
ABT Entity will maintain a dealer relations organization to communicate with
dealers and their ABT Managers.
ABT Entity will maintain a consumer communication organization to answer
consumer questions and complaints.
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ABT Entity will survey each consumer within a defined time after a purchase
request is received. Surveys will be reviewed and the conclusions sent to the
participating dealers on a monthly basis.
ABT Entity will remove ABT dealers who do not comply with ABT standards set by
ABT in each country (but adhering to universal ABT philosophy).
ABT Entity will review all technical modifications/extensions with Autobytel.com
CTO prior to the design, coding and implementation phases of each project. ABT
Entity will abide to technology standards and direction provided by
Autobytel.com. Any deviations from standards must be approved by the
Autobytel.com CTO in advance of development and implementation. ABT Entity will
ensure all Autobytel.com confidential proprietary and copyrighted materials are
secured and used with at least the same care and procedures that the ABT Entity
would use to protect its own confidential proprietary and copyrighted materials.
ABT Entity will provide for 24x7 system availability to the consumer (Web Site)
and dealers (DRT), with only short, off-peak downtime for planned or unscheduled
maintenance. Additionally, ABT Entity will implement a disaster
recovery/business continuity plan to handle potential system/facility outages.
ABT Entity will, as soon as reasonably possible, implement a defined technical
quality assurance process that provides for at least unit and system level
testing of each significant system change. Autobytel.com will reserve the right
to oversee QA procedures as necessary to ensure quality of customer/dealer
experience with ABT systems.
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ATTACHMENT C
ABT'S GLOBAL BRAND PROTOCOLS
GLOBAL BRANDING PROTOCOL:
INTRODUCTION TO GUIDELINES, PRACTICES AND PROCEDURES
Introduction
The Auto-By-Tel Corporation has recently changed its name to autobytel.com inc.
and is currently in the process of conducting brand positioning research, which
will be complete in September of 1995. Upon completion of this research,
autobytel.com inc. will issue an update to its global brand standards protocol
(and look book), containing all of the new brand identity materials. In the
interim the old book is attached as an example of its contents as well as this
introductory document which is designed to address some of the more immediate
needs.
New Logo
Our new logo embodies some of our initial learning. We have chosen a mark
symbolizing a road, which signifies a destination that leads to Autobytel.com as
opposed to an automobile icon, which is more predictable. This mark is highly
differentiated from other companies in the category and positions autobytel.com
inc. as the leader. The new logo is reliable, innovative, trustworthy,
contemporary yet timeless. The idea of a road leading to a destination is
empowering for the consumer, reminding them that they are in the driver's seat
when buying through autobytel.com inc. The conveying of the concept of a
destination will create an association with the brand over time.
The logo will be adapted to each country by replacing the domain type that is
relevant to that country; for example, autobytel.se, autobytel.ca, autobytel.uk,
etc. Also the selling line can be inserted immediately in the lower left. Full
treatments of the logo will be reviewed when the new look book is issued.
Purpose and Function of Global Standards
The purpose of the global brand standards is to clearly define and articulate
the brand's core values and ensure that the brand's positioning remains
consistent and properly communicated throughout all forms of marketing
communication across the globe.
Since a brand is a promise of an experience, it is important that it be
comprised of the intangible as well as the tangible values in order to best
create an enduring relationship
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between Autobytel.com and its stakeholder target constituencies - shareholders,
consumers and dealers alike.
What Does the Standard Address
The image below graphically illustrates the intangible components (on the
right), which the global brand protocol is designed to address.
Purpose and Intent of autobytel.com inc.'s "Global Brand Protocol and Look Book"
The purpose of the global brand protocol and "Look Book" when complete, will be
to aid Autobytel.com, all its companies, subsidiaries, partners, and licensees
to properly administer and steward autobytel.com inc.'s intangible assets - the
brand. It is not designed to police licensees: but rather to ensure that the
tenets of strong branding be observed for Autobytel.com so that all collateral,
business, advertising, and web site creative and content guarantee quality and
consistency of message. This will ensure that the net impression left in the
mind of target audience is relevant, differentiated, and enduring.
Differentiating Autobytel.com by experience (emotional bond) with the customer,
versus just the key rational benefits (e.g. low-cost, haggle-hassle-free, etc.)
will ensure the success of Autobytel.com.
Role of Autobytel.com Brand Management
It is the role of Autobytel.com Corporate Marketing to clearly articulate and
communicate the brand's core value, identity, positioning, and Global Brand
Protocol to all autobytel.com inc. companies, subsidiaries, divisions, partners
and licensees.
Role of the Autobytel.com Global Brand Agency
It is the role of the global brand agency to develop, create, recommend and
steward autobytel.com inc.'s brand positioning so that it conforms to
autobytel.com inc.'s brand values. They have the responsibility of managing the
Autobytel.com brand communications on a global scale while recognizing local
needs. In this role the agency will steward the brand with regards to the
quality and consistency of the brand's global advertising.
Role of the Local Agency
It is the role of the local country agency to create successful advertising that
conforms to autobytel.com inc.'s brand positioning.
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A LOOK AT THE REQUIREMENTS, PROCESS AND INTERACTION BETWEEN autobytel.com inc.'s
GLOBAL BRAND AGENCY AND THE LOCAL COUNTRY'S AGENCY AS IT RELATES TO ADVERTISING
Generally speaking, autobytel.com inc.'s advertising (visual and copy content)
must be in synergy with the brand's core values and comply with the brand's
positioning strategy as will be stated in the "Global Brand Protocol & Look
Book" (after the brand positioning project is completed in September).
While this book is dynamic and periodic updates should be expected, it is our
intent to develop an enduring brand positioning, which should remain in effect
over a number of years. All decisions regarding the appropriateness of
Autobytel.com advertising will be measured against this benchmark.
Some general requirements and procedures which you should expect to see outlined
in the Global Brand Protocol about Autobytel.com advertising follows:
Creative
All creative formats and units must:
Feature the appropriate upper and lower case treatment of the company name (e.g.
autobytel.com inc., and Autobytel.com, etc.)
Feature the autobytel.com inc. logo
Feature the Autobytel.com tag-line (which will be translated by the global brand
agency into the appropriate language for each county in a way that is mutually
agreeable so that it mutually satisfies the requirements of both the brand and
country's cultural environment.)
Feature the appropriate Autobytel.com URL (Uniform Resource Locator) for the
country involved (e.g. autobytel.com, autobytel.ca, autobytel.uk, etc.)
reflect the highest level of moral and ethical standards within the community to
which the commercial's message is to be conveyed
reflect the brand's recommended look and feel (e.g. color palettes, typefaces,
imagery, etc.) of which examples will be provided in the look book.
Autobytel.com strongly urges all licensees to use the network affiliate of the
global brand agency. If for any reason, the licensee utilizes an agency that is
not part of the global brand agency's network, the following will apply.
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Creative Procedure
Each licensee does not need to submit creative concepts and executions to
Autobytel.com for prior approval. But it is required that each country submit
copies of all creative materials to autobytel.com inc.'s global brand agency at
least quarterly. While it is not autobytel.com inc.'s intention to police
creative, should the marketing materials not conform to the brand's positioning,
Autobytel.com reserves the right to advise the country to discontinue the use of
any creative that does not properly comply. In the unlikely event that this
should occur, the country will be required to discontinue use of the materials
within 45 days. Autobytel.com strongly encourages the country's local agency to
implement an on-going dialogue with the global brand agency (a contact name will
be issued). The frequency and format for this communication can be mutually
agreeable to suit the needs and requirements of both parties, and may expand and
contract based upon the need of each party.
Media Procedure
Each country can determine the specific marketing communications mix (e.g. PR,
Advertising, Promotion, etc.) selection of media (e.g. Internet, TV, Radio,
etc), and selection of specific media vehicles (e.g. stations, publications,
etc), that is most appropriate for its culture and environment. autobytel.com
inc. may volunteer from time to time, the sharing of information about media
that has been particularly successful in other countries across the globe. We
will encourage that all partners and licensees share information about what
is/isn't working for the benefit of aggregated learning.
However, it will be required that information about marketing communication mix
and media plans be shared and submitted to Autobytel.com Corporation on at least
a bi-annual basis. This may be submitted either in a written or digital format.
Fees for Global Brand Management
(For countries not using the local affiliate of autobytel.com inc.'s global
agency)
autobytel.com inc.'s global brand agency will be appropriately organized to
steward the brand, bring strategic value to autobytel.com inc. and its
licensees, and to facilitate communication among the parties. If the licensee
does not use a local agency that is an affiliate of the global agency,
autobytel.com inc. will charge the licensee for any expenses associated with
stewarding the brand.
ADVERTISING OPPORTUNITY ON autobytel.com inc.'s WEBSITE
autobytel.com inc. will offer its licensees an opportunity to participate in its
global web site advertising initiative. autobytel.com inc. plans to offer
advertising on its U.S. site, and on each
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country's local site if the country chooses to participate. If the licensee
participates, autobytel.com inc. will require to country's site to allocate 50%
of the total pages served and inventory. In return, autobytel.com inc. will
offer licensees the opportunity to share in 50% of the revenues generated after
expenses through this sale.
If the licensee is interested, additional details will be provided after this
program is finalized. In the interim, here are some examples of the guidelines:
Site must be constructed to accommodate advertising
Screen real estate positioning must conform to autobytel.com inc.'s global
advertising standards (currently this is a top right position and 3 IAB unit
sizes will be utilized
50% of ad inventory (equal to approximately 50% of total pages served) will be
allocated to this effort.
Licensee has 6 months after launch of site to have prepared for advertising
In Closing, please refer to the attached Global Brand Protocol and Look Book,
which is currently in development. A number of sections have been added since
the last submission.
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autobytel.com inc.'s new U.S. Web site, launched 07/31/98
[GRAPHIC]
Note: Upon completion of the brand positioning, the new selling line will appear
below in the top ledge frame of the site.
<PAGE> 39
ATTACHMENT D
SERVICES AGREEMENT
AGREEMENT FOR CONSULTING BY AUTO-BY-TEL
This Agreement for Consulting ("Agreement") is made and entered into as of the
___ day of ___________, 199_ by and between autobytel.com inc., a Delaware
corporation with offices at 18872 MacArthur Boulevard, Irvine, California, 92612
("APT"), and Auto by Tel UK Limited, a ___________ corporation with offices at
_____________ ("ABT/UK"). The ABT/UK desires to retain ABT as an independent
contractor to perform certain development and consulting services for the ABT/UK
as described in the License and Services Agreement between the parties dated
_______________ ("License and Services Agreement"), and ABT is willing to
perform such services on terms set forth more fully below. In consideration of
the mutual promises contained herein, the parties agree as follows:
1. SERVICES.
(a) Work Orders. The parties may from time to time agree upon
certain software development and related services to be provided by ABT under
this Agreement ("Services"). The parties shall develop a description of such
Services in reasonable detail ("Work Order") in a form substantially as set
forth in the Work Order. ABT agrees to perform for the ABT/UK the services
described in each Work Order on the terms and conditions set forth therein. The
parties acknowledge that ABT/UK may have certain obligations under each Work
Order, and all of ABT's obligations will be subject to the prompt performance of
ABT/UK's obligations thereunder. In addition, any delays in ABT's performance of
the Services due to allocation of ABT's development resources in accordance with
requests of ABT/UK for additional Services will not be deemed a breach of this
Agreement. The parties expressly agree that ATTACHMENT E to the License and
Services Agreement will be the initial Work Order for this Agreement.
(b) Change Orders. Any changes to Specifications ("Change
Orders") are subject to mutual agreement. All Change Orders must be coordinated
through a single point of contact for each party, and approved in advance in
writing by CEO of ABT/UK and the CTO of ABT. The parties will discuss any
proposed Change Order, and ABT will use reasonable efforts to estimate any
additional fees that would result from changed or additional Services to be
performed under the Work Order. If the parties cannot agree on whether a Change
Order should be implemented, or upon the related fees, ABT/UK may, at its sole
option and discretion, continue with the Work Order as specified before the
Change Order, or terminate the Work Order and pay ABT for all services performed
up to the effective date of termination. In such a case, ABT shall deliver to
ABT/UK all work in process not yet delivered to ABT/UK under the Work Order;
provided, however, that such work in process will be provided "as is," not
subject to the warranty in Section 10(a).
(c) Change Orders due to Technical Infeasibility. If ABT
decides, in its reasonable discretion, during performance of a Work Order, that
the Work Order is technically infeasible or that ABT, despite using its best
efforts, will not be able to complete the Work Order, ABT shall notify ABT/UK
that a Change Order is required to complete the development, and shall propose a
Change Order to ABT/UK. ABT/UK may, at its sole option and discretion, agree to
the Change Order, or terminate the Work Order,
<PAGE> 40
in which case, (a) ABT shall deliver to ABT/UK all work in process not yet
delivered to ABT/UK under the Work Order; provided, however, that such work in
process will be provided "as is," not subject to the warranty in Section 10(a);
(b) ABT/UK will not be obligated to pay for the work performed on that Work
Order after the last-completed Milestone; and (c) ABT shall provide a reasonable
number of hours of free technical support to assist ABT/UK to perform the
remainder of the Work Order by itself or through a third party, up to 10% of the
total hours for which ABT/UK has paid in connection with the Work Order.
2. COMPENSATION
(a) Services. ABT/UK shall pay ABT for performing the Services
as shown in the Work Order.
(b) Expenses. The ABT/UK shall also reimburse ABT for the
reasonable actual travel and living expenses of its personnel engaged in the
performance of Services at locations other than ABT facilities, together with
other reasonable out-of-pocket expenses incurred in connection with performance
of the Services. ABT shall adhere to any travel policy reasonably promulgated by
ABT/UK, provided that ABT may incur expenses up to a total of ________ dollars
without ABT/UK's prior approval.
(c) Payments. ABT shall invoice ABT/UK for all amounts on or
after the due date. Payment terms shall be net ____ days. Any amounts due ABT
under this Agreement not received by the date due shall be subject to a service
charge of one and one-half percent (1.5%) per month, or the maximum charge
permitted by law, whichever is less. Any payment terms set forth in the
applicable Work Order will take precedence over this Section 2(c).
3. CONFIDENTIALITY. All information disclosed under this Agreement will
be subject to Section 10 of the License and Services Agreement.
4. OWNERSHIP. The work product resulting from the Services shall consist
of, and shall operate in conjunction with, multiple elements of intellectual
property, as set forth in the Work Order, approximately in the form set forth in
Exhibit B. The parties' respective rights with respect to such intellectual
property shall be as set forth below. For purposes of this Agreement, the term
"ownership" shall refer to ownership of all intellectual property rights
including, but not limited to, all patent, copyright, trade secret and trademark
rights, as applicable, with respect to the subject intellectual property:
(a) ABT/UK Materials and Pre-Existing ABT/UK Materials. For all
materials designated as "ABT/UK Materials" in the Work Order, ABT agrees that
such materials are the sole property of the ABT/UK, and shall be considered
"works made for hire" as that term is defined in the United States Copyright
Act. ABT further agrees to assign (or cause to be assigned) and does hereby
assign fully to the ABT/UK all such works and the intellectual property rights
relating thereto. For all materials designated as "Pre-Existing ABT/UK
Materials" in the Work Order, ABT agrees that such materials are the sole
property of the ABT/UK, and ABT/UK hereby grants to ABT a non-exclusive,
non-transferable, royalty-free, fully paid up license to use, reproduce, and
prepare derivative works of such materials solely for the purpose of performing
ABT's obligations under this Agreement.
(b) Third Party Materials. For all materials designated as
"Third Party Materials" on the Work Order, the parties hereby agree that such
materials shall be necessary for ABT/UK to use the ABT/UK
<PAGE> 41
Materials or ABT Materials, and ABT/UK shall be solely responsible for obtaining
necessary licenses to the Third Party Materials.
(c) Pre-existing Materials and ABT Materials. For all materials
designated as "Pre-existing Materials" or "ABT Materials" in the Work Order,
ABT/UK agrees that such materials are the sole property of the ABT. All work
product resulting from the Services will be deemed "ABT Materials" unless
otherwise designated in the Work Order. ABT hereby grants to ABT/UK a license to
use the ABT Materials as part of the Software, set forth in the License and
Services Agreement. No other grants of licenses or rights to ABT/UK shall be
implied from the provisions stated in this Agreement. ABT/UK shall not
obliterate or remove and will reproduce ABT's intellectual property notices
contained in the ABT Materials or Pre-existing Materials.
(d) Further Assurances. Each party agrees to execute any
additional documents deemed reasonably necessary to effect and evidence the
other party's rights with respect to the intellectual property elements set
forth above.
5. REPORTS. Except as otherwise set forth in the applicable Work Order,
ABT agrees that it will, approximately once per month during the term of this
Agreement or any extension thereof, keep the ABT/UK advised as to ABT's progress
in performing the Services hereunder and that ABT will, as requested by the
ABT/UK, prepare written reports with respect thereto. It is understood that the
time required in the preparation of such written reports shall be considered
time devoted to the performance of ABT's Services.
6. TERM AND TERMINATION
(a) Term. This Agreement will commence on the date first written
above and will continue until final completion of the Services or termination as
provided below.
(b) Termination. The ABT/UK may terminate this Agreement or any
Work Order at any time upon giving ten (10) days' prior written notice thereof
to ABT, provided, however, that ABT/UK shall pay ABT for any Services performed
up to the effective date of termination, and, promptly upon ABT's request, pay
all of ABT's sunk costs related to any terminated Work Order, including
without limitation any cancellation payments to third parties to terminate
contracts entered into by ABT in reliance upon the Work Order. ABT shall deliver
any work in process promptly after such payments. Such work in process will be
provided "as is," and will not be subject to the warranty in Section 10(a).
Either party may terminate this Agreement upon thirty (30) days' notice of any
uncured material breach of this Agreement by the other party.
(c) Survival. Upon such termination all rights and duties of the
parties toward each other shall cease except Sections 3, 4, 8, 9, 10, 11, 12,
and 13 shall survive termination of this Agreement.
7. ASSIGNMENT. Neither this Agreement nor any right hereunder or
interest herein may be assigned or transferred by either party without the
express written consent of the other.
8. INDEPENDENT CONTRACTOR. Nothing in this Agreement shall in any way be
construed to constitute ABT as an agent, employee or representative of the
ABT/UK, but ABT shall perform the Services hereunder as an independent
contractor.
<PAGE> 42
9. ARBITRATION. The parties agree that any dispute or controversy
arising out of or relating to any interpretation, construction, performance or
breach of this Agreement will be resolved as set forth in the License and
Services Agreement.
1O. WARRANTY AND DISCLAIMER.
(c) ABT represents and warrants to ABT/UK that all software
deliverables specified in any Work Order ("Software"), in the form delivered to
ABT/UK, will perform in substantial accordance with the specifications therefor
in the Work Order, and any other specifications developed in writing pursuant to
the Work Order. If the Software does not perform as warranted, ABT shall use
reasonably diligent efforts to correct the Software in accordance with the
escalation procedures in Attachment F to the License and Services Agreement. The
foregoing are ABT/UK's sole and exclusive remedies for breach of such warranty.
The warranty will apply only if the then-current version of the Software has
been properly installed and used in accordance with the instructions for use.
(b) OTHER THAN AS EXPLICITLY SET FORTH IN THIS SECTION 12, ABT
DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING ANY AND ALL IMPLIED WARRANTIES OF
TITLE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT.
11. LIMITATION OF REMEDIES AND DAMAGES EXCEPT FOR CLAIMS ARISING FROM
SERVICES PROVIDED HEREUNDER THAT ARE COVERED BY SECTION 9 OF THE LICENSES AND
SERVICES AGREEMENT (A) EACH PARTY'S LIABILITY ARISING HEREUNDER SHALL BE LIMITED
TO FEES PAID BY ABT/UK HEREUNDER, AND (B) NEITHER PARTY SHALL BE LIABLE FOR ANY
CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, INCLUDING WITHOUT LIMITATION
DAMAGES FOR LOSS OF BUSINESS PROFITS AND/OR BUSINESS INTERRUPTION, WHETHER
FORESEEABLE OR NOT, AND WHETHER ARISING IN CONTRACT, TORT, OR NEGLIGENCE, EVEN
IF A REPRESENTATIVE OF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED REMEDY.
12. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto form the
entire agreement of the parties and supersede any prior agreements between them
with respect to the subject matter hereof.
13. WAIVER. Waiver of any term or provision of this Agreement or
forbearance to enforce any term or provision by either party shall not
constitute a waiver as to any subsequent breach or failure of the same term or
provision or a waiver of any other term or provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ABT/UK: ABT:
By: By:
------------------------------- ----------------------------
<PAGE> 43
Print Name: Print Name:
----------------------- ---------------------
Title: Title:
----------------------- -------------------------
<PAGE> 44
EXHIBIT A
WORK ORDER FORMAT
Services to be performed by ABT:
Compensation of ABT:
(a) Rate of pay: per
--------- ----------
(b) Total payment limitation:
--------------------------------
(c) Advance payment:
-----------------------------------------
(d) Expenses authorized for reimbursement by the ABT/UK:
(e) Other:
---------------------------------------------------
(f) Expected duration of project:
----------------------------
ABT/UK: ABT:
By: By:
-------------------------------- ---------------------------
Print Name: Print Name:
----------------------- -------------------
Title: Title:
---------------------------- ------------------------
<PAGE> 45
EXHIBIT B
ABT/UK MATERIALS
ABT MATERIALS
THIRD PARTY MATERIALS
PRE-EXISTING MATERIALS
PRE-EXISTING ABT/UK MATERIALS
<PAGE> 46
[*] Confidential Treatment Requested
ATTACHMENT E
WORK ORDER FOR INITIAL LOCALIZATION SOFTWARE DEVELOPMENTS
DEVELOPMENT OF SPECIFICATIONS AND ACCEPTANCE TEST PLAN. The parties intend that
the performance of the Services will result in the production of one or more
specifications describing the requirements to modify the Software (the
"Specifications"), which will include a delivery schedule, estimated fees and
expenses relating thereto, and associated deliverables ("Deliverables") and
milestones ("Milestones"), and a plan for acceptance testing of the Software
modifications to be performed ("Acceptance Test Plan"). ABT/UK will provide a
written request for the Services to ABT in a mutually acceptable format. ABT
will prepare detailed Specifications for such Services in a mutually acceptable
format. Each Specification must be agreed upon in writing by the CEO of ABT/UK
and the CTO of ABT.
If the parties cannot agree on the Specifications or Acceptance Test Plan,
either party may terminate this Work Order upon written notice, and neither
party will have any further obligations under this Work Order. Once the
Specification is complete, the Specification will be added to this Agreement,
and ABT shall perform the Services described therein. Any changes to a
Specification after the Specification has been agreed to by the parties must be
affected in accordance with the "Change Orders" section set forth below. The
parties intend that there will be at least one Deliverable or Milestone for each
month during which Services will be performed.
ACCEPTANCE TESTING. Upon delivery by ABT of any Deliverable consisting of
software or modifications thereto, ABT/UK shall review such Deliverable
according to the Acceptance Test Plan to determine whether it conforms in all
material respects to the applicable Specifications. ABT/UK shall, no later than
ten (10) working days after receiving such Deliverable, review and accept such
Deliverable that meets the Specifications. Deliverables submitted for acceptance
that ABT/UK does not reject in writing within such period will be deemed
accepted. If ABT/UK rejects such a Deliverable, ABT/UK shall provide ABT with
written notice setting forth in reasonable detail why the Deliverable fails to
meet the Specifications. ABT will have thirty (30) days from notice of rejection
to resubmit such Deliverable to ABT/UK for acceptance. This procedure will be
repeated until the Deliverable is accepted. If any Deliverable is rejected more
than twice ABT/UK may terminate this Agreement in accordance with the provisions
of this Work Order below entitled "Termination." The Acceptance Test Plan must
include, at a minimum, for ABT to test the Deliverables according to the
then-current quality assurance procedures of ABT. Such testing must be approved
in writing by the CTO of ABT. Acceptance testing must be approved in writing by
the CEO of ABT/UK.
FEES. The fee for the Services (the "Fees") will be [*]. The development of the
Specifications and Acceptance Test Plan will be on a time and materials basis.
All work thereafter will be payable on a time and materials basis upon
completion of Milestones, as set forth in the paragraph below entitled "Fees."
As part of the Specifications, the parties will agree on a budget for each
Milestone. ABT will inform ABT/UK as soon as reasonably possible, but in no
event later than the next weekly status report, if it appears to ABT that the
Services required to complete a Milestone will exceed the amount budgeted by
more than 10%. In such event, if the parties cannot agree on a revised budget
for such Milestone, either party may terminate this Work Order immediately upon
written notice, and if this Work Order is terminated, neither party will have
any further obligations under this Work Order. ABT/UK's payment of Fees is
subject to the provisions of Attachment G entitled "Penalties for Large
Developments."
<PAGE> 47
PAYMENT. ABT shall invoice ABT/UK each month for Fees and expenses due for
Services performed during the previous month. ABT/UK shall pay ABT any expenses
set forth on each invoice, within (10) days after receipt of the invoice.
ABT/UK shall pay ABT any Fees for a particular Milestone upon acceptance of such
Milestone in accordance with the Acceptance Test Plan. ABT may credit against
any such Fees any Minimum Maintenance Fees paid under the License and Services
Agreement.
TERMINATION. If a Deliverable is rejected more than twice, as described above in
the Section entitled "Acceptance Testing," or if the final Deliverable is not
accepted by ________ , ABT/UK may provide written notice of its intent to
terminate (a) this Agreement; or (b) both, this Agreement and the License and
Services Agreement in accordance with Section 11.2(c). If ABT/UK terminates
this Agreement under this paragraph, notwithstanding Section 6(b) of this
Agreement, ABT/UK may withhold any amount associated with the current Milestone
that it has not yet paid. For avoidance of doubt, any Minimum Maintenance Fees
paid under the License and Services Agreement will not be refunded.
ABT/UK: ABT:
By: By:
-------------------------------- ---------------------------
Print Name: Print Name:
----------------------- -------------------
Title: Title:
---------------------------- ------------------------
<PAGE> 48
ATTACHMENT F
ABT ESCALATION PROCEDURES
ABT - International Technical Support Escalation Procedure
There will be one named primary technical support contact and one named backup
support contact. All requests for technical support must come from the primary
support contact. In the event the primary contact is not available, the backup
contact may submit the technical support request. The primary support contact
will be ____________ and the back-up support contract will be ______________.
Changes to the primary and/or backup support contacts must be received by ABT in
writing 1 business day prior to them being effective.
All local Technical Support escalation will occur prior to any escalation to
Auto-By-Tel International Technical Support team by either the primary or backup
support contact. All infrastructure (Hardware/Network/Operating System/SQL
Server/IIS Server) errors must be corrected prior to escalation.
All Technical Support calls related to remaining APPLICATION ERRORS or SYSTEM
ERRORS with severity level of ERROR OR HIGHER should be routed through the ABT -
Corporate NTS Support person at 1-949-xxx-xxxx. Response time will be as
specified in table below.
All Technical Support calls that related to errors with severity level of
WARNING or APPLICATION PROBLEMS (as defined below) should be referred to the ABT
- - International Technology Support Coordinator at 1-949-xxx-xxxx.
The quoted response times relate to the time required to have a qualified
technical support person contact the person who made the technical support
request. Depending on the severity of the problem, reasonably diligent efforts
will be made to resolve the problem as soon as possible within the guidelines
under RESPONSE LEVEL.
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
Application Problem Problem related to the use of a specific application
program or module. The program does not appear to be
functioning correctly, however, no error messages have
been received.
Application Error An application program or module has issued an error
message. The error was not issued by the underlying
technology, (i.e. the network, operating system,
database management system server or internet server.
System Error An error message has been received when executing an
application or web page. The error message originated
from the underlying technology, not the application
itself.
</TABLE>
<TABLE>
<CAPTION>
SEVERITY DESCRIPTION RESPONSE TIME RESPONSE LEVEL
<S> <C> <C> <C>
WARNING Provides information or warning message only. 72 hours Effort during
Does not impact the overall operation of Normal Bus.
the system. Hours
ERROR Error interrupts processing of a single 12 hours (Next Effort during 7
application or module. System operation Business Day) days/week 8am-
continues to support primary business functions. 5pm, until resolved.
</TABLE>
<PAGE> 49
<TABLE>
<S> <C> <C> <C>
SEVERE ERROR Error interrupts processing of multiple and/or 4 hours Effort 7
primary business applications. Primary business days/week 5am
operations are impacted. - 9 pm, until
resolved
FATAL ERROR Error causes system to become unavailable. All 1 hour Effort 7 x 24,
business processing is aborted. until resolved
</TABLE>
ABT will provide help desk support (i.e. other than reporting of Errors) by
telephone from the hours of 2:30 p.m. to 5:30 p.m. Pacific Time on U.S. business
days. ABT will handle all help desk inquiries during other hours by U.S. next
business day fax/email back.
THE FOLLOWING CHART EXPLAINS THE RESPONSIBILITIES OF ABT AND ABT/UK REGARDING
MAINTENANCE AND SUPPORT.
TECHNICAL SUPPORT/MAINTENANCE EXAMPLES
<TABLE>
<CAPTION>
SITUATION ABT ABT/UK COMMENTS
- --------- --- ------ --------
<S> <C> <C> <C>
ABT/UK SQL Server configuration parameter Assisted if Requested Responsible for Fix Any Hardware, Operating
(e.g. number of locks) is changed by (Maintenance Hours) System, or Third-party
ABT/UK Staff for tuning purposes. SQL product configuration
Queries begin failing because there are issues/changes/problems
not enough locks available. should not be the
responsibility of ABT.
ABT/UK Servers are running the UK-English Assisted if Requested Responsible for Fix Same as above. ABT/UK should
(rather than US English) versions of (Maintenance Hours) work with Microsoft (or
the Microsoft software (NT, SQL Server, IIS). other vendor) technical
An error occurs in one of those support to resolve problem.
third-party programs that causes the system to
fail. The error is related to the fact that the
UK-English version of the software is at a
slightly different revision level than the
US version.
ABT software uses a complicated algorithm Responsible for Fix. Since this is a "bug" that
to calculate distance between two (Not counted against is part of the core system,
(longitude, latitude) points. The ABT/UK Maint Hours) then it should be fixed as
team notices that the distance calculation part of the ABT ongoing
algorithm is not implemented correctly, maintenance efforts.
which causes distances to be noticeably
incorrect. The "bug" is present in the ABT
system as well. It had not been detected.
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
SITUATION ABT ABT/UK COMMENTS
- --------- --- ------ --------
<S> <C> <C> <C>
ABT (on behalf of ABT/UK) changes Will perform Responsible for Fix Since the ABT development team
the distance calculations throughout modifications simply made changes specified by
the system to multiply the US Miles (Maintenance Hours) ABT/UK staff, AFT/UK staff is
distance by a conversion factor to responsible for the correction. (Had
arrive at an appropriate distance in the error occurred because the ABT
UK Miles. ABT/UK analyst provided ABT Development team had not implemented
with specification for the conversion the specification correctly, the fix
calculation and factor. As it turns would be preformed by ABT at no cost
out, the specification provided by the to the UK)
UK analyst is incorrect.
ABT/UK data provider changes format Assist if Requested Responsible for Fix ABT/UK is responsible for day-to-day
of data extracts that feed ABT system. (Maintenance Hours) monitoring of systems and for all data
ABT/UK staff attempt to import data inputs/outputs. Many system problems
into ABT System. Importing this data can be traced back to problems with
corrupts data in ABT System. Corrupted improper data in the system. It is not
data causes ABT system to not operate always possible to differentiate a
correctly. Depending on the extent of programming issue from a data issue
the data corruption, this problem might up front. Sometimes, it takes several
be detected immediately or it may be hours/days to determine the root cause
so subtle that it is not detected for of a problem. ABT hours spent in this
days or weeks. Problem Identification process will be
charged as Maintenance Hours if the
root cause of the problem is found to
be ABT/UK responsibility.
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
SITUATION ABT ABT/UK COMMENTS
- --------- --- ------ --------
<S> <C> <C> <C>
ABT/UK IT staff develop several Assist if Requested Responsible for Fix Again, the relationship between the
management reports that run against (Maintenance Hours) system performance problem and the
production data. System performance execution of the management reports
is significantly impacted by execution may not be clearly understood. For
of the management reports. example, in the first month or two of
operation, ABT/UK staff may develop
these reports and the reports may run
quickly because there is a relatively
small amount of data in the database.
Twelve (12) months into the operation
of the system, the performance seems
to be very poor compared to user
expectations. Since those reports were
written 9-12 months ago, the ABT/UK
staff don't relate the performance
problems to those reports. They
complain to ABT (Technical Support)
about the performance issues. ABT
spends two weeks trying to analyze the
problem. Eventually, the source of the
problem is identified. ABT/UK should
be responsible for the ABT efforts.
ABT staff train ABT/UK IT staff on Assist if Requested Responsible for Re- ABT/UK is responsible for paying for
operating procedures for software. (Maintenance Hours) Training re-training.
ABT/UK IT turnover occurs, requiring
additional training.
Suppose ABT has a report that shows Assist if Requested Responsible for ABT/UK management notice a
summary level purchase request (Maintenance Hours) Development of discrepancy between the overall
counts sorted by dealer within sales new report without purchase request report and the
region. Further, suppose the report exclusion summary report that excludes green
excludes requests that are for green cars. They report it as a bug.
cars because the ABT sales However, ABT technical support
organization requested that exclusion doesn't consider this a bug because it
when the report was originally meets the original specification. So it
defined. (For whatever reason). is not changed. IF ABT/UK management
required a new report that did not
exclude green cars, that would
constitute development work and be
paid for with development hours.
ABT/UK does not have access to Provide development License new Where a UK specific piece of third
Infopower Delphi libraries. ABT/UK support per services product, pay for party software requires enhancements
finds another product that provides agreement. development per to ABT/UK code ABT could do this
similar functionality. ABT asks ABT services agreement. work under the Services Agreement,
to incorporate this new product in but this would be chargeable to ABT/UK.
place of the Infopower library.
Microsoft introduces a new version of Upgrade to core Responsible for Where an upgrade to third party
SQL Server. ABT incorporates new system provided to obtaining license for software demands adjustment to the
version of SQL Server into ABT core UK for free under upgraded version of standard ABT system in order for it to
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
SITUATION ABT ABT/UK COMMENTS
- --------- --- ------ --------
<S> <C> <C> <C>
system. ABT Releases new version of Maintenance and SQL Server from operate effectively, this should be
core system. Support Services. Microsoft. treated as an upgrade to the ABT
Re-localization is ABT/UK would also system and therefore passed on to
performed at pay for any ABT/UK free of charge under
ABT/UK's cost per localization related Maintenance and Support Services.
services agreement. to the new upgrade
of the ABT system
per services
agreement.
</TABLE>
<PAGE> 53
ATTACHMENT G
SOFTWARE DEVELOPMENT RESOURCE COMMITMENT PROCEDURES
1. PURPOSE. This document is designed to govern the processes for planning
software Localization for ABT/UK, and to describe when ABT will be obligated
to assign software engineers and other technical and management personnel to
perform such Localization. In this document, assigning software engineers
and other technical and management personnel to a project, and providing the
services of those personnel, will be described as "committing resources."
For avoidance of doubt, ABT has already agreed to its commitment of
resources for the Work Order for the Initial Localization Services.
2. MAINTENANCE AND SUPPORT. This document describes the obligations of ABT to
commit resources covered by the 2,500 annual pre-paid hours of Maintenance
and Support services ABT is required to commit under the License and
Services Agreement, as well as other resources that may be committed by ABT
as described in this Attachment G. ABT will commit resources up to 1/12 of
such 2500 hours (i.e. 208 hours) (the "Minimum Monthly Commitment") each
month upon ABT/UK's request in its sole discretion. If ABT/UK does not
request a resource commitment in a given month, or requests less than the
Minimum Monthly Commitment in a given month, ABT/UK may carry forward each
month's Minimum Monthly Commitment into the next 2 months. Any requests by
ABT/UK for development that would require ABT to carry forward more hours,
or carry forward any hours for more than one month, will be subject to the
resource commitment requirements for small and large developments set forth
in this Attachment G.
3. SMALL AND LARGE DEVELOPMENTS. Two processes will exist - one to manage small
developments, where "small developments" means those that ABT estimates will
be performed in 10 man days or less; and another to manage large
developments, where "large developments" means those that ABT estimates will
be performed in more than 10 man days.
4. MONTHLY MEETINGS. The parties will meet monthly to plan large and small
developments. Progress on all developments will be monitored at such monthly
meetings. All such meetings will take place at ABT corporate headquarters in
Irvine. For large developments, ABT shall provide weekly updates by
telephone or email.
5. SMALL DEVELOPMENTS. Small developments will have a lead time of 1 month;
i.e. ABT may, if resources are available, but will not be obligated to,
commit resources for any small development sooner than 1 month after the
initial request by ABT/UK. ABT will be obligated to commit resources of a
minimum of 20 man days in such month; 40 man days in the next month; and 60
man days in the next month. For example, if ABT/UK requests on January 1 for
ABT to perform a small development, then ABT shall commit resources of 20
man days in February, 40 man days in March, and 60 man days in April.
6. LARGE DEVELOPMENTS. Large developments will have a lead time of 3 months;
i.e. ABT may, if resources are available, but will not be obligated to,
provide services for any Large Development any sooner than 3 months after
the initial request by ABT/UK. ABT will be obligated to commit resources of
a minimum of 60 man days in such month; 80 man days in the next month; and
100 man days in the next month. For example, if ABT/UK requests on January 1
for ABT to perform a
<PAGE> 54
large development, ABT shall commit resources of 60 man days in April, 80
man days in May, and 100 man days in June.
7. OVERALL COMMITMENTS. For large and small developments combined, ABT will not
be obligated to commit resources of more than 200 man days in any month. Of
these 200 man days, ABT will not be obligated to commit resources of more
than 60 man days to small developments.
8. PRIORITY OF DEVELOPMENTS. For each new development, ABT/UK must specify
which ongoing developments, if any, will be prioritized above and below the
new development. Any changes to priority of developments must be agreed in
writing between the parties. Unless otherwise agreed, ABT may prioritize
large developments over small developments, and may further prioritize
resources that it is required to commit under this Attachment G using its
professional judgment. For any development that takes priority over another,
ABT may, in its sole discretion, use resources that would be otherwise
committed to the lower priority development to finish the higher priority
development in a timely fashion, if in ABT's reasonable discretion, it is
necessary to do so.
9. PENALTIES FOR LARGE DEVELOPMENTS. For a large development, if ABT fails to
complete the Work Order by the estimated completion date because ABT failed
to commit the resources it was required to commit under this Attachment G,
ABT shall, upon ABT/UK's request, complete the development, but ABT/UK will
not be obligated to pay ABT for the price of the "undelivered hours," which
means resources required to be committed under Attachment G, less the
resources actually provided at the estimated project completion date.
10. TECHNICAL FEASIBILITY. If ABT, in its reasonable discretion, determines that
a requested Localization is not technically feasible, ABT will not be
obligated to commit resources to perform such Localization.
<PAGE> 55
ATTACHMENT H
DRT END USER LICENSE
DRT
DEALER REAL TIME ACCESS AGREEMENT
THIS AGREEMENT IS ENTERED INTO THIS _____, DAY OF _____ BETWEEN
AUTO-BY-TEL MARKETING CORPORATION, A DELAWARE CORPORATION WITH ITS PRINCIPAL
PLACE OF BUSINESS LOCATED AT 18872 MACARTHUR BOULEVARD, IRVINE, CALIFORNIA
92612-1400 ("LICENSOR"), AND __________ A(N) ____________ LIMITED LIABILITY
CORPORATION, WITH ITS PRINCIPAL PLACE OF BUSINESS LOCATED AT ___________________
("LICENSEE").
WHEREAS, LICENSEE HAS EXECUTED AN AUTO-BY-TEL MARKETING CORPORATION NEW
CAR SUBSCRIPTION AGREEMENT AND/OR "USED CAR CYBERSTORE(TM)" SUBSCRIPTION
AGREEMENT; AND
WHEREAS, LICENSOR HAS DEVELOPED AND OWNS THE RIGHT TO LICENSE CERTAIN
PROPRIETARY SOFTWARE PROGRAMS COMMONLY REFERRED TO AS THE AUTO-BY-TEL DEALER
REAL TIME (DRT) PROGRAM AS WELL AS RELATED INFORMATION AND DOCUMENTATION
CURRENTLY RESIDING EXCLUSIVELY WITH LICENSOR; AND
WHEREAS, LICENSEE HAS REPRESENTED TO LICENSOR THAT THEY WILL PROVIDE FOR
THEMSELVES A PERSONAL COMPUTER, AND CERTAIN ANCILLARY EQUIPMENT RELATED THERETO
WHICH MEETS THE MINIMUM SPECIFICATIONS SET FORTH HEREIN (TOGETHER, THE
"EQUIPMENT") FOR USE IN CONNECTION WITH DRT AND
WHEREAS, LICENSOR WILL PROVIDE DATA ACCESS, PROGRAM MAINTENANCE, UPDATING AND
HELP-LINE TECHNICAL SERVICES TO LICENSEE TO ASSIST LICENSEE IN THE USE OF THE
PROGRAMS;
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND PREMISES HEREIN
RECITED AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES, INTENDING TO BE
LEGALLY BOUND HEREBY, WARRANT, COVENANT AND AGREE AS FOLLOWS:
GRANT OF LICENSE. LICENSOR HEREBY GRANTS TO LICENSEE A NON-EXCLUSIVE,
NON-TRANSFERABLE LICENSE TO ACCESS AND USE THE DRT PROPRIETARY PROGRAM AND ANY
RELATED INFORMATION AND DOCUMENTATION SUPPLIED BY LICENSOR SUBJECT TO THE TERMS
AND CONDITIONS CONTAINED IN THIS AGREEMENT.
TERM OF THIS AGREEMENT: EXCEPT AS PROVIDED HEREIN, THE RIGHTS AND OBLIGATIONS
CONFERRED BY THIS AGREEMENT SHALL RUN CONCURRENTLY WITH THE TERM OF THE ABT
MASTER SUBSCRIPTION AGREEMENT EXECUTED BETWEEN THE PARTIES. LICENSOR MAY
IMMEDIATELY TERMINATE THIS AGREEMENT IN THE EVENT OF A MATERIAL BREACH BY
LICENSEE OF ANY PROVISION OF THIS AGREEMENT, OR ANY OTHER AGREEMENT BETWEEN
LICENSEE AND LICENSOR OR ANY OF THEIR RESPECTIVE AFFILIATES, INCLUDING WITHOUT
LIMITATION THE ABT MASTER SUBSCRIPTION AGREEMENT. EITHER PARTY MAY VOLUNTARILY
TERMINATE THIS AGREEMENT UPON 30 DAYS' WRITTEN NOTICE TO THE OTHER PARTY. UPON
TERMINATION OF THIS AGREEMENT FOR ANY REASON, LICENSEE SHALL PROMPTLY
DISCONTINUE USE OF THE PROGRAMS, DELETE ALL COPIES OF THE DRT PROGRAM, IF ANY,
IN WHATEVER FORM, RESIDING ON ITS COMPUTERS, STORAGE MEDIA AND/OR ON HARD COPY.
RIGHT OF USE. DURING THE TERM OF THIS AGREEMENT, LICENSEE SHALL HAVE THE RIGHT
TO ACCESS THE DRT PROGRAM IN CONNECTION WITH THE INTERNAL OPERATION AND
MANAGEMENT OF LICENSEE'S OWN BUSINESS. LICENSEE IS PROHIBITED FROM RESELLING OR
OTHERWISE ALLOWING ACCESS BY THIRD PARTIES NOT AFFILIATED WITH LICENSEE'S AUTO
DEALERSHIP BUSINESS.
LICENSE FEE. LICENSEE SHALL PAY LICENSOR THE INITIAL SUM OF ____________ DOLLAR
($_________ AS CONSIDERATION FOR THE LICENSE GRANTED HEREUNDER.
<PAGE> 56
MONTHLY ACCESS FEE. LICENSEE SHALL PAY LICENSOR A MONTHLY ACCESS FEE OF ONE
HUNDRED AND FIFTY DOLLARS ($150.00) AND BE ENTITLED TO AN ACCESS VIA UNIQUE
PASSWORD(S) ALLOWING SIMULTANEOUS LOGON FOR A MAXIMUM OF TWO USERS PER SESSION.
SYSTEM REQUIREMENTS. DEALER SHALL PROVIDE AT THEIR OWN EXPENSE A PERSONAL
COMPUTER AND RELATED EQUIPMENT THAT MEETS OR EXCEEDS THE FOLLOWING MINIMUM
SPECIFICATIONS:
133 Pentium Processor; 32MB RAM; 33.6 Modem (The faster the better!); 2GB Hard
Drive; Windows '95; ISP (Internet Service Provider - ie: AT & T, Netcom, MCI
.... ); Netscape Navigator Web Browser Software (version 3.0 or later).
TECHNICAL SUPPORT. LICENSOR SHALL MAINTAIN FOR THE BENEFIT OF THE LICENSEE A
TECHNICAL SUPPORT HELP-LINE. LICENSOR SHALL ESTABLISH AND STAFF SUCH HELP-LINE
WITH PERSONS KNOWLEDGEABLE ABOUT THE DRT PROGRAM. THE HOURS OF AVAILABILITY
SHALL BE BETWEEN 6:00 A.M. AND 5:00 P.M. PST, EXCLUDING SATURDAYS AND SUNDAYS.
TECHNICIANS WILL PROVIDE ASSISTANCE TO LICENSEE WITH RESPECT TO ACCESSING AND
USING THE DRT PROGRAM ONLY. TECHNICAL ASSISTANCE AND SUPPORT REGARDING COMPUTER
OR RELATED HARDWARE ARE BEYOND THE SCOPE OF THIS AGREEMENT AND WILL NOT BE
PROVIDED BY LICENSOR. THE HOURS OF THE AVAILABILITY OF THE HELP-LINE ARE SUBJECT
TO CHANGE AT THE SOLE DISCRETION OF THE LICENSOR.
COVENANTS OF LICENSEE. DURING THE TERM OF THIS AGREEMENT:
LICENSEE SHALL ADOPT AND ENFORCE SUCH INTERNAL POLICIES, PROCEDURES AND
MONITORING MECHANISMS AS ARE NECESSARY TO ENSURE THAT THE DRT PROGRAM IS USED
ONLY IN ACCORDANCE WITH THIS AGREEMENT AND THAT ALL STEPS NECESSARY TO ENSURE
THAT NO PERSON OR ENTITY WILL HAVE UNAUTHORIZED ACCESS TO THE PROGRAMS ARE
TAKEN.
LICENSEE SHALL NOT: ASSIGN, SUBLICENSE, LEASE, ENCUMBER OR OTHERWISE TRANSFER OR
ATTEMPT TO TRANSFER THE DRT PROGRAM OR ANY PORTION THEREOF; PERMIT ANY THIRD
PARTY OTHER THAN THE LICENSEE OR ITS AUTHORIZED AGENT ACTING IN BEHALF OF
LICENSEE, TO HAVE ACCESS TO THE DRT PASSWORDS OR TO USE PROGRAMS, WHETHER BY
TIMESHARING, NETWORKING, OR ANY OTHER MEANS; DUPLICATE, MODIFY, TRANSLATE,
REVERSE, ENGINEER, DECOMPILE OR DISASSEMBLE THE DRT PROGRAM; POSSESS OR USE THE
PROGRAMS OR ANY PORTION THEREOF, OTHER THAN IN MACHINE READABLE OBJECT CODE;
REMOVE ANY COPYRIGHT, TRADEMARK, PATENT OR OTHER PROPRIETARY NOTICES FROM THE
DRT PROGRAM(S), OR ANY PORTION THEREOF WITHOUT THE EXPRESS WRITTEN CONSENT OF
LICENSOR.
PROGRAM MODIFICATIONS: ONLY THE LICENSOR SHALL MAKE PROGRAM MODIFICATIONS.
LICENSOR SHALL FROM TIME TO TIME PROVIDE UPGRADES AND/OR MODIFICATIONS TO THE
DRT PROGRAM TO LICENSEE. LICENSEE SHALL ACCEPT ANY UPGRADES OR OTHER
MODIFICATION MADE BY LICENSOR TO THE PROGRAMS.
NO WARRANTY. THE PROGRAMS ARE PROVIDED ON AN "AS-IS" BASIS. LICENSOR MAKES NO
WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
LIMITATION OF REMEDIES. REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS
OF ITS ESSENTIAL PURPOSE, IN NO EVENT WILL THE LICENSOR BE LIABLE THE DAMAGES TO
THE LICENSEE FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT OR SIMILAR DAMAGES,
INCLUDING ANY LOST PROFITS OR LOST DATA BEYOND THE ACCESS FEE PAID FOR THE MONTH
IN WHICH THEY OCCURRED, ARISING OUT OF THE USE OR INABILITY TO USE THE DRT
PROGRAM OR ANY DATA SUPPLIED THEREWITH.
PROPRIETARY DATA. LICENSEE ACKNOWLEDGES THAT THE PROGRAMS ARE PROPRIETARY TO
LICENSOR AND THAT IT HAS (AND WILL HAVE) NO INTEREST THEREIN OR IN ANY
MODIFICATIONS OR IMPROVEMENTS THERETO, AND HEREBY ASSIGNS TO LICENSOR ALL RIGHTS
IN ANY SUCH MODIFICATIONS OR IMPROVEMENTS MADE BY OR ON BEHALF OF LICENSEE.
CONFIDENTIALITY. FOR THE PURPOSE OF THIS AGREEMENT, CONFIDENTIAL INFORMATION
INCLUDES THE DRT PROGRAMS AND ALL OTHER INFORMATION PROVIDED BY LICENSOR MARKED
"CONFIDENTIAL." INFORMATION SHALL NOT BE DEEMED CONFIDENTIAL INFORMATION AND
LICENSEE AND LICENSEE'S EMPLOYEES SHALL HAVE NO OBLIGATION WITH RESPECT TO ANY
SUCH INFORMATION IF SUCH INFORMATION: (A) IS OR FALLS INTO THE PUBLIC DOMAIN
THROUGH NO WRONGFUL ACT OF LICENSEE OR THE LICENSEE'S EMPLOYEES; (B) IS
RIGHTFULLY RECEIVED FROM A THIRD PARTY WHO IS WITHOUT RESTRICTION AND WITHOUT
BREACH OF THIS AGREEMENT; (C)
<PAGE> 57
IS APPROVED FOR RELEASE BY WRITTEN AUTHORIZATION OF AN OFFICER OF LICENSOR; OR
(D) IS DISCLOSED PURSUANT TO THE REQUIREMENTS OF A GOVERNMENTAL AGENCY OR
OPERATION OF LAW.
Should the licensee or licensee's employees learn of confidential information
from licensor or any other source, neither licensee nor licensee's employees
shall, at any time during the term, or for one year thereafter, disclose such
information to any individual, agency, company or other entity. Licensee shall
not use such confidential information for licensee's own advantage other than as
permitted by this agreement.
BOTH PARTIES RECOGNIZE AND ACKNOWLEDGE THAT BREACH OF THIS SECTION 13 WOULD
CAUSE IRREPARABLE INJURY INADEQUATELY COMPENSABLE IN DAMAGES. ACCORDINGLY,
LICENSOR MAY SEEK AND OBTAIN INJUNCTIVE RELIEF AGAINST A BREACH OR THREATENED
BREACH HEREOF, IN ADDITION TO ANY OTHER LEGAL REMEDIES THAT MAY BE AVAILABLE AT
LAW OR IN EQUITY.
14. ASSIGNMENT. EXCEPT FOR ASSIGNMENTS TO AFFILIATES, PROVIDED EACH SUCH
AFFILIATE AGREES TO BE BOUND BY THE TERMS HEREOF, LICENSEE MAY NOT, WITHOUT
LICENSOR'S PRIOR WRITTEN CONSENT, ASSIGN ITS RIGHTS OR DELEGATE ITS OBLIGATIONS
UNDER THIS AGREEMENT.
SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT SHALL BE HELD TO BE INVALID,
ILLEGAL OR ENFORCEABLE, SUCH DETERMINATION SHALL IN NOR WAY ALTER OR IMPAIR THE
VALIDITY, LEGALITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS OF THIS
AGREEMENT.
GOVERNING LAW. THE FORMATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS IN EFFECT IN THE STATE OF
CALIFORNIA.
ENTIRE AGREEMENT. THIS AGREEMENT AND ITS PREAMBLE CONSTITUTE THE ENTIRE
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
SHALL SUPERSEDE ALL PREVIOUS ORAL AND WRITTEN PROPOSALS, NEGOTIATIONS,
REPRESENTATIONS, COMMITMENTS AND OTHER COMMUNICATIONS BETWEEN THE PARTIES. THIS
AGREEMENT MAY NOT BE RELEASED, DISCHARGED, CHANGED OR MODIFIED EXCEPT BY A
WRITTEN INSTRUMENT THAT IS SIGNED BY DULY AUTHORIZED REPRESENTATIVES OF EACH
PARTY AND THAT EXPRESSLY INTENDS SUCH RELEASE, DISCHARGE, CHANGE OR
MODIFICATION.
INDEPENDENT CONTRACTORS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR CONSTRUED
BY THE PARTIES OR ANY THIRD PERSON TO CREATE A FRANCHISE, AGENCY, PARTNERSHIP OR
JOINT VENTURE BETWEEN LICENSOR AND LICENSEE.
WAIVER. A FAILURE OF THIS LICENSOR TO ENFORCE AT ANY TIME ANY PROVISION OF THIS
AGREEMENT SHALL IN NO WAY AFFECT THE FULL RIGHT OF THE LICENSOR TO ENFORCE SUCH
PROVISION AT ANY TIME THEREAFTER.
<PAGE> 1
EXHIBIT 10.34
March 12, 1999
Trans Cosmos, Inc.
Planning and Administration
Sumitomoseimei Akasaka Bldg.
3-3-3, Akasaka
Minato-ku, Tokyo 107-0052
JAPAN
Attention: Mr. Koki Okuda, Chairman and CEO
Ladies and Gentlemen:
This letter agreement (together with all Exhibits and attachments
hereto, this "Letter"), upon your execution and return, will confirm the binding
agreement between autobytel.com inc., a Delaware corporation ("ABT"), and Trans
Cosmos, Inc. (the "Transaction Partner") regarding the establishment in Japan of
autobytel.jp ("ABT Japan") as a KABUSHIKI KAISHA in accordance with the laws of
Japan by and among ABT, the Transaction Partner and certain other parties, and
the operation of ABT Japan's business thereafter (collectively, the
"Transaction").
1. Purpose. ABT Japan will be responsible for (i) implementing
dealer, consumer and manufacturer offerings in Japan, (ii) ABT brand protocols
in Japan, (iii) establishing relationships with Japanese vehicle manufacturers,
(iv) coordinating the ABT Japan Cyberstore and (v) engaging in such other
businesses relating to Internet automotive distribution and automotive sales as
is appropriate. The initial business model of ABT Japan, in accordance with
which the Transaction Partner and ABT expect that ABT Japan's business will be
carried out and which includes ABT Japan's obligations to ABT, is attached
hereto as EXHIBIT A (the "Initial Business Plan") and is expressly agreed to by
the parties hereto.
2. Corporate Structure. ABT will initially incorporate ABT Japan as
a KABUSHIKI KAISHA in accordance with the laws of Japan. ABT Japan's initial
paid-in capital amount upon incorporation will be (Y)12,400,000 with 248 issued
and outstanding shares of
[*] Confidential treatment has been requested
<PAGE> 2
Trans Cosmos, Inc.
March 12, 1999
Page 2
common stock bearing the par value of (Y)50,000 per share, all of which shares
will be subscribed to for cash at the par value per share and owned by ABT.
Immediately after the incorporation of ABT Japan, ABT will cause ABT Japan to
issue up to 496 shares of common stock to the Transaction Partner and the other
partners selected by either ABT or the Transaction Partner (subject to ABT
approval) (such other partners, together with the Transaction Partner, being
collectively referred to herein as the "Japanese Shareholders") at cash price of
(Y)2,500,000 per share. Promptly after the issuance of 496 shares in total to
the Transaction Partner and the other Japanese Shareholders, ABT and the
Transaction Partner, together with the other Japanese Shareholders, will cause
ABT Japan to split its shares of common stock at the ratio of one (1) to
thirty-three (33) (the "Stock Split").
3. Investment.
(a) As described above, prior to the Stock Split, the Transaction
Partner will invest in the capital stock of ABT Japan jointly with other
Japanese Shareholders. The Transaction Partner will initially subscribe to [*]
shares of common stock of ABT Japan for an aggregate cash contribution to ABT
Japan of [*].
(b) It is contemplated that the total initial investment by all
Japanese Shareholders in ABT Japan will be (Y)1,240,000,000 (the "Initial
Investment").
(c) In addition, the Transaction Partner shall fund its
proportionate share (computed as a ratio of the shares of common stock of ABT
Japan held by the Transaction Partner to all shares of common stock of ABT Japan
held by all Japanese Shareholders) of ABT Japan's operating losses for at least
three years following ABT Japan's commencement of operations by subscribing in
cash to additional shares of common stock of ABT Japan; provided, however, that
the Transaction Partner shall not be obligated under this paragraph to purchase
such additional shares of common stock in an aggregate amount exceeding
[*], and all Japanese Shareholders shall not be collectively obligated to
purchase such additional shares of common stock in an aggregate amount exceeding
(Y)1,240,000,000 (the "Secondary Investment"). ABT will have the right to
provide, or cause to be provided, any additional financing required by ABT Japan
after the Initial Investment and the Secondary Investment made by the Japanese
Shareholders as contemplated hereby. Without regard to ABT's determination
whether or not to provide such financing, ABT will nonetheless, at all times,
have preemptive rights to maintain its then current proportionate equity
position in ABT Japan.
<PAGE> 3
Trans Cosmos, Inc.
March 12, 1999
Page 3
4. Other Japanese Shareholders. The parties hereto acknowledge that,
at present, it is contemplated that the Japanese Shareholders will collectively
subscribe, prior to the Stock Split, to 496 shares of common stock of ABT Japan
for an aggregate cash investment of (Y)1,240,000,000. The Transaction Partner
expressly acknowledges and agrees that, even in the event that the Japanese
Shareholders (other than the Transaction Partner) shall ultimately invest an
aggregate amount which is less than [*] in the capital stock of ABT Japan, the
Transaction Partner shall nevertheless make the investments set forth in
Paragraph 3 above, and perform all of its other obligations under this Letter.
5. License. ABT will license its name, technology, business
methodologies and know how to ABT Japan, and ABT Japan will use the name
"autobytel.jp" and otherwise obtain from ABT existing U.S. technology and
operating support pursuant to a license agreement, the form of which is attached
hereto as EXHIBIT B and hereby approved by the parties hereto (the "License
Agreement"). As set forth in Exhibit B, the total and entire fee to be paid by
ABT Japan to ABT under the License Agreement will be [*] of gross revenues,
subject to an annual minimum fee of U.S. $1 million, which will be payable in
the forms of (i) the Minimum Annual License Fee of U.S. [*] and (ii) the
Minimum Annual Maintenance Fee of U.S. [*]. For the first year, U.S. [*] out of
the Minimum Annual License Fee will be paid by ABT Japan on or promptly after
the execution of the License Agreement as the Initial Transfer Fee to cover
ABT's initial costs associated with transferring ABT's technology, business
methodologies and know-how, etc. to ABT Japan.
6. Board of Directors. Following the subscription of shares by the
Transaction Partner and other Japanese Shareholders pursuant to Paragraph 3, ABT
shall have the right to designate such number of directors to the board of
directors of ABT Japan ("Board") constituting 33-1/3% of the Board, such number
being rounded upward to the nearest whole number.
7. Buy Back Option. If ABT Japan is a private company and its net
loss exceeds, on a cumulative basis, the worst case earnings projections as set
forth in the Initial Business Plan (or any subsequent business plan which has
been approved by ABT, the Transaction Partner and the other Japanese
Shareholders in writing) during the [*] period immediately following ABT Japan's
incorporation, then ABT shall have the right, for a period of twelve (12) months
following the lapse of such period, to buy back for cash or shares of ABT common
stock, at ABT's option, the Transaction Partner's (and its transferees')
investment in ABT Japan at [*].
<PAGE> 4
Trans Cosmos, Inc.
March 12, 1999
Page 4
8. Non-Competition. The Transaction Partner represents and warrants
to ABT that, as of the date hereof and except as set forth in EXHIBIT C, it has
neither entered into, nor otherwise engaged in, any Restricted Business in
Japan, whether as owner, manager, investor (except for less than 3% interests in
publicly-held companies), partner, joint venturer, consultant, agent or
supplier. From the date hereof and continuing until one year after the
Transaction Partner shall no longer be a shareholder of ABT Japan, the
Transaction Partner shall not enter into or otherwise engage in any Restricted
Business in Japan, whether as owner, manager, investor (except for less than 3%
interests in publicly-held companies), partner, joint venturer, consultant,
agent or supplier, except to the extent entered into or otherwise engaged in as
of the date hereof as set forth in Exhibit C. For purposes of this Letter,
"Restricted Business" means any enterprise of any form whatsoever which utilizes
the internet (a) to aggregate motor vehicle manufacturers, dealers and
distributors, and (b) to route motor vehicle purchase or lease requests and
other consumer information to such motor vehicle manufacturers, dealers or
distributors.
9. Common Stock of ABT. The Transaction Partner has requested that
shares of ABT common stock be sold to the Transaction Partner and to certain
other Japanese Shareholders. If and only if (a) ABT shall have received, on or
before the date and time set forth in the last paragraph of this Letter, letter
agreements substantially in the form attached hereto as EXHIBIT D duly executed
and delivered by each of the Japanese Shareholders listed in Exhibit E, and (b)
the aggregate amount committed to be invested by such Japanese Shareholders in
the common stock of ABT Japan as set forth in Paragraph 3(a) of such letter
agreements equals or exceeds (Y)770,000,000, and (c) ABT shall have received, on
or before the date and time set forth in the last paragraph of this Letter,
nonbinding letter agreements substantially in the form attached hereto as
EXHIBITS F-1, F-2 AND F-3, duly executed and delivered by Itochu Corporation,
Orient Corporation and Recruit Co., Ltd., respectively, then ABT shall agree to
use commercially reasonable efforts in consultation with the underwriters of
ABT's initial public offering to respond to the request to purchase shares of
ABT common stock in the initial public offering by the Transaction Partner and
such other Japanese Shareholders in the amounts set forth on EXHIBIT E hereto.
The Transaction Partner acknowledges that such shares of common stock may be
sold to the Transaction Partner at a price per share equal to the price at which
the stock is offered in the public offering and that the Transaction Partner may
be subject to a lockup agreement for a term of one year from the date of the
closing of the public offering.
10. Confidentiality. Each of the parties hereto will, subject to
complying with applicable law or a court order, maintain the confidentiality of
all information furnished to such party in connection with the Transaction, and
each such party will inform any representative that may be furnished with such
information of the confidential nature thereof.
<PAGE> 5
Trans Cosmos, Inc.
March 12, 1999
Page 5
11. Binding Agreement; Documentation. The parties hereto will
immediately after executing this Letter work in good faith to more fully
document the Transaction including, but not limited to, preparing (a) a
shareholders agreement for ABT Japan which shall be executed by ABT and all
Japanese Shareholders, shall incorporate the terms and conditions set forth
herein and shall include such other key provisions as set forth in EXHIBIT G,
and as to which provisions Transaction Partner hereby consents (the
"Shareholders Agreement"), and (b) the License Agreement (all such documentation
being referred to herein collectively as the "Transaction Agreements"). The
Transaction Partner and ABT will use their respective reasonable best efforts to
negotiate and execute, and to cause ABT Japan to negotiate and execute, as soon
as reasonably practicable but in no event later than May 31, 1999, the
Transaction Agreements with respect to the Transaction. Notwithstanding anything
to the contrary contained herein, unless and until such Transaction Agreements
are entered into, this Letter (i) shall constitute the legally binding agreement
of the parties hereto, and (ii) together with such other letter agreements
executed by the other Japanese Shareholders, shall constitute the legally
binding agreement of the Transaction Partner, the other Japanese Shareholders
and ABT, expressly in lieu of such Transaction Agreements.
12. Expenses. Each of ABT and the Transaction Partner will pay its
own expenses incident to the negotiation, preparation and execution of this
Letter and the Transaction Agreements, including without limitation, all fees,
expenses, due diligence costs and fees of their respective counsel.
13. Choice of Law. This Letter shall be governed by and construed in
accordance with the internal laws of the State of California, without giving
effect to any choice of law rule that would cause the application of the laws of
any jurisdiction other than the internal laws of the State of California to the
rights and duties of the parties hereto.
14. Submission to the Jurisdiction. Any legal action or proceeding
with respect to this Letter may be brought in the courts of the State of
California or of the United States for the Central District of California, and
Transaction Partner consents, for itself and in respect of its property, to the
non-exclusive jurisdiction of those courts. Transaction Partner irrevocably
waives any objection, including any objection to the laying of venue or based on
the grounds of inconvenient forum, which it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction in respect of this
Letter. Transaction Partner further consents to process being served in any such
action or proceeding by mailing a copy thereof to its address set forth above,
and agrees that such service shall be deemed in every respect effective service
of process upon Transaction Partner in any such action or proceeding and shall
be taken and held to be valid personal service upon and personal delivery to
Transaction Partner to the full extent permitted by law.
<PAGE> 6
Trans Cosmos, Inc.
March 12, 1999
Page 6
15. Injunctive Relief. It is understood that any party hereto may
institute appropriate proceedings against a breaching party hereunder (and
others who are subject to the terms hereof) to enforce its rights hereunder. The
parties hereto acknowledge and agree that money damages would not be a
sufficient remedy for any violation of the terms of this Letter and,
accordingly, the non-breaching party shall be entitled to specific performance
and injunctive relief as remedies for any violation. These remedies shall not be
deemed to be exclusive remedies for a violation of the terms of this Letter but
shall be in addition to all other remedies available to the non-breaching party
at law or in equity. In any proceeding or dispute under this Letter, whether
brought in arbitration or a court of law, the substantially prevailing party
shall be entitled to recover from the other party its legal fees and costs
relating to enforcing or protecting its rights hereunder.
16. Advice of Counsel. Transaction Partner hereby represents and
warrants that it has received advice of legal counsel of its own selection in
negotiations for, and the preparation of, this Letter, that it has read this
Letter or has had the same read to it by its counsel, that it has had this
Letter, and the legal effect hereof, fully explained by such counsel, and that
Transaction Partner is fully aware of this Letter's contents and legal effect.
17. Counterparts. This Letter may be signed may be executed by one
or more parties hereto in any number of separate counterparts, each of which,
when so executed, shall be deemed an original, and all of said counterparts
taken together shall be deemed to constitute but one and the same instrument.
<PAGE> 7
Trans Cosmos, Inc.
March 12, 1999
Page 7
If you are in agreement with the foregoing, please have the enclosed
copy of this Letter executed in the space provided below and return a fully
executed copy to the undersigned prior to 5:00 p.m. (California time) on March
18, 1999 at which time the terms of this Letter will expire if not then
countersigned by you. We look forward to working with you.
Very truly yours,
AUTOBYTEL.COM INC.
By: /s/ Mark Lorimer
-------------------------------
Name: Mark Lorimer
Title: President and CEO
Agreed and Accepted:
TRANS COSMOS, INC.
By: /s/ Koki Okuda
------------------------------
Name: Koki Okuda
Title: Chairman and Chief
Executive Officer
Date: March 12, 1999
<PAGE> 1
EXHIBIT 10.36
March 12, 1999
Intec, Inc.
EC Business Planning Department
2-6-10 Sarugaku-cho
Chiyoda-ku, Tokyo 101-8347
JAPAN
Attention: Takeshi Miyashita, Manager
Ladies and Gentlemen:
This letter agreement (together with all Exhibits and attachments
hereto, this "Letter"), upon your execution and return, will confirm the binding
agreement between autobytel.com inc., a Delaware corporation ("ABT"), and Intec,
Inc. (the "Transaction Partner") regarding the establishment in Japan of
autobytel.jp ("ABT Japan") as a KABUSHIKI KAISHA in accordance with the laws of
Japan by and among ABT, the Transaction Partner and certain other parties, and
the operation of ABT Japan's business thereafter (collectively, the
"Transaction").
1. Purpose. ABT Japan will be responsible for (i) implementing
dealer, consumer and manufacturer offerings in Japan, (ii) ABT brand protocols
in Japan, (iii) establishing relationships with Japanese vehicle manufacturers,
(iv) coordinating the ABT Japan Cyberstore and (v) engaging in such other
businesses relating to Internet automotive distribution and automotive sales as
is appropriate. The initial business model of ABT Japan, in accordance with
which the Transaction Partner and ABT expect that ABT Japan's business will be
carried out and which includes ABT Japan's obligations to ABT, is attached
hereto as EXHIBIT A (the "Initial Business Plan") and is expressly agreed to by
the parties hereto.
2. Corporate Structure. ABT will initially incorporate ABT Japan as
a KABUSHIKI KAISHA in accordance with the laws of Japan. ABT Japan's initial
paid-in capital amount upon incorporation will be (Y)12,400,000 with 248 issued
and outstanding shares of common stock bearing the par value of (Y)50,000 per
share, all of which shares will be subscribed to for cash at the par value per
share and owned by ABT. Immediately after the incorporation of
[*] Confidential treatment has been requested
<PAGE> 2
Intec, Inc.
March 12, 1999
Page 2
ABT Japan, ABT will cause ABT Japan to issue up to 496 shares of common stock to
the Transaction Partner and the other partners selected by either ABT or the
Transaction Partner (subject to ABT approval) (such other partners, together
with the Transaction Partner, being collectively referred to herein as the
"Japanese Shareholders") at cash price of (Y)2,500,000 per share. Promptly after
the issuance of 496 shares in total to the Transaction Partner and the other
Japanese Shareholders, ABT and the Transaction Partner, together with the other
Japanese Shareholders, will cause ABT Japan to split its shares of common stock
at the ratio of one (1) to thirty-three (33) (the "Stock Split").
3. Investment.
(a) As described above, prior to the Stock Split, the Transaction
Partner will invest in the capital stock of ABT Japan jointly with other
Japanese Shareholders. The Transaction Partner will initially subscribe to [*]
shares of common stock of ABT Japan for an aggregate cash contribution to ABT
Japan of [*].
(b) It is contemplated that the total initial investment by all
Japanese Shareholders in ABT Japan will be (Y)1,240,000,000 (the "Initial
Investment").
(c) In addition, the Transaction Partner shall fund its
proportionate share (computed as a ratio of the shares of common stock of ABT
Japan held by the Transaction Partner to all shares of common stock of ABT Japan
held by all Japanese Shareholders) of ABT Japan's operating losses for at least
three years following ABT Japan's commencement of operations by subscribing in
cash to additional shares of common stock of ABT Japan; provided, however, that
the Transaction Partner shall not be obligated under this paragraph to purchase
such additional shares of common stock in an aggregate amount exceeding [*], and
all Japanese Shareholders shall not be collectively obligated to purchase such
additional shares of common stock in an aggregate amount exceeding
(Y)1,240,000,000 (the "Secondary Investment"). ABT will have the right to
provide, or cause to be provided, any additional financing required by ABT Japan
after the Initial Investment and the Secondary Investment made by the Japanese
Shareholders as contemplated hereby. Without regard to ABT's determination
whether or not to provide such financing, ABT will nonetheless, at all times,
have preemptive rights to maintain its then current proportionate equity
position in ABT Japan.
4. Other Japanese Shareholders. The parties hereto acknowledge that,
at present, it is contemplated that the Japanese Shareholders will collectively
subscribe, prior to the Stock Split, to 496 shares of common stock of ABT Japan
for an aggregate cash investment of (Y)1,240,000,000. The Transaction Partner
expressly acknowledges and agrees that, even in the
<PAGE> 3
Intec, Inc.
March 12, 1999
Page 3
event that the Japanese Shareholders (other than the Transaction Partner) shall
ultimately invest an aggregate amount which is less than [*] in the capital
stock of ABT Japan, the Transaction Partner shall nevertheless make the
investments set forth in Paragraph 3 above, and perform all of its other
obligations under this Letter.
5. License. ABT will license its name, technology, business
methodologies and know how to ABT Japan, and ABT Japan will use the name
"autobytel.jp" and otherwise obtain from ABT existing U.S. technology and
operating support pursuant to a license agreement, the form of which is attached
hereto as EXHIBIT B and hereby approved by the parties hereto (the "License
Agreement"). As set forth in Exhibit B, the total and entire fee to be paid by
ABT Japan to ABT under the License Agreement will be [*] of gross revenues,
subject to an annual minimum fee of U.S. $1 million, which will be payable in
the forms of (i) the Minimum Annual License Fee of U.S. [*] and (ii) the Minimum
Annual Maintenance Fee of U.S. [*]. For the first year, U.S. [*] out of the
Minimum Annual License Fee will be paid by ABT Japan on or promptly after the
execution of the License Agreement as the Initial Transfer Fee to cover ABT's
initial costs associated with transferring ABT's technology, business
methodologies and know-how, etc. to ABT Japan.
6. Board of Directors. Following the subscription of shares by the
Transaction Partner and other Japanese Shareholders pursuant to Paragraph 3, ABT
shall have the right to designate such number of directors to the board of
directors of ABT Japan ("Board") constituting 33-1/3% of the Board, such number
being rounded upward to the nearest whole number.
7. Buy Back Option. If ABT Japan is a private company and its net
loss exceeds, on a cumulative basis, the worst case earnings projections as set
forth in the Initial Business Plan (or any subsequent business plan which has
been approved by ABT, the Transaction Partner and the other Japanese
Shareholders in writing) during the [*] period immediately following ABT Japan's
incorporation, then ABT shall have the right, for a period of twelve (12) months
following the lapse of such period, to buy back for cash or shares of ABT common
stock, at ABT's option, the Transaction Partner's (and its transferees')
investment in ABT Japan at [*].
8. Non-Competition. The Transaction Partner represents and warrants
to ABT that, as of the date hereof and except as set forth in EXHIBIT C, it has
neither entered into, nor otherwise engaged in, any Restricted Business in
Japan, whether as owner, manager, investor (except for less than 3% interests in
publicly-held companies), partner, joint venturer, consultant, agent or
supplier. From the date hereof and continuing until one year after the
Transaction
<PAGE> 4
Intec, Inc.
March 12, 1999
Page 4
Partner shall no longer be a shareholder of ABT Japan, the Transaction Partner
shall not enter into or otherwise engage in any Restricted Business in Japan,
whether as owner, manager, investor (except for less than 3% interests in
publicly-held companies), partner, joint venturer, consultant, agent or
supplier, except to the extent entered into or otherwise engaged in as of the
date hereof as set forth in Exhibit C. For purposes of this Letter, "Restricted
Business" means any enterprise of any form whatsoever which utilizes the
internet (a) to aggregate motor vehicle manufacturers, dealers and distributors,
and (b) to route motor vehicle purchase or lease requests and other consumer
information to such motor vehicle manufacturers, dealers or distributors.
9. Common Stock of ABT. The Transaction Partner has requested that
shares of ABT common stock be sold to the Transaction Partner and to certain
other Japanese Shareholders. If and only if (a) ABT shall have received, on or
before the date and time set forth in the last paragraph of this Letter, letter
agreements substantially in the form attached hereto as EXHIBIT D duly executed
and delivered by each of the Japanese Shareholders listed in Exhibit E, and (b)
the aggregate amount committed to be invested by such Japanese Shareholders in
the common stock of ABT Japan as set forth in Paragraph 3(a) of such letter
agreements equals or exceeds (Y)770,000,000, and (c) ABT shall have received, on
or before the date and time set forth in the last paragraph of this Letter,
nonbinding letter agreements substantially in the form attached hereto as
EXHIBITS F-1, F-2 AND F-3, duly executed and delivered by Itochu Corporation,
Orient Corporation and Recruit Co., Ltd., respectively, then ABT shall agree to
use commercially reasonable efforts in consultation with the underwriters of
ABT's initial public offering to respond to the request to purchase shares of
ABT common stock in the initial public offering by the Transaction Partner and
such other Japanese Shareholders in the amounts set forth on EXHIBIT E hereto.
The Transaction Partner acknowledges that such shares of common stock may be
sold to the Transaction Partner at a price per share equal to the price at which
the stock is offered in the public offering and that the Transaction Partner may
be subject to a lockup agreement for a term of one year from the date of the
closing of the public offering.
10. Confidentiality. Each of the parties hereto will, subject to
complying with applicable law or a court order, maintain the confidentiality of
all information furnished to such party in connection with the Transaction, and
each such party will inform any representative that may be furnished with such
information of the confidential nature thereof.
<PAGE> 5
Intec, Inc.
March 12, 1999
Page 5
11. Binding Agreement; Documentation. The parties hereto will
immediately after executing this Letter work in good faith to more fully
document the Transaction including, but not limited to, preparing (a) a
shareholders agreement for ABT Japan which shall be executed by ABT and all
Japanese Shareholders, shall incorporate the terms and conditions set forth
herein and shall include such other key provisions as set forth in EXHIBIT G,
and as to which provisions Transaction Partner hereby consents (the
"Shareholders Agreement"), and (b) the License Agreement (all such documentation
being referred to herein collectively as the "Transaction Agreements"). The
Transaction Partner and ABT will use their respective reasonable best efforts to
negotiate and execute, and to cause ABT Japan to negotiate and execute, as soon
as reasonably practicable but in no event later than May 31, 1999, the
Transaction Agreements with respect to the Transaction. Notwithstanding anything
to the contrary contained herein, unless and until such Transaction Agreements
are entered into, this Letter (i) shall constitute the legally binding agreement
of the parties hereto, and (ii) together with such other letter agreements
executed by the other Japanese Shareholders, shall constitute the legally
binding agreement of the Transaction Partner, the other Japanese Shareholders
and ABT, expressly in lieu of such Transaction Agreements.
12. Expenses. Each of ABT and the Transaction Partner will pay its
own expenses incident to the negotiation, preparation and execution of this
Letter and the Transaction Agreements, including without limitation, all fees,
expenses, due diligence costs and fees of their respective counsel.
13. Choice of Law. This Letter shall be governed by and construed in
accordance with the internal laws of the State of California, without giving
effect to any choice of law rule that would cause the application of the laws of
any jurisdiction other than the internal laws of the State of California to the
rights and duties of the parties hereto.
14. Submission to the Jurisdiction. Any legal action or proceeding
with respect to this Letter may be brought in the courts of the State of
California or of the United States for the Central District of California, and
Transaction Partner consents, for itself and in respect of its property, to the
non-exclusive jurisdiction of those courts. Transaction Partner irrevocably
waives any objection, including any objection to the laying of venue or based on
the grounds of inconvenient forum, which it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction in respect of this
Letter. Transaction Partner further consents to process being served in any such
action or proceeding by mailing a copy thereof to its address set forth above,
and agrees that such service shall be deemed in every respect effective service
of process upon Transaction Partner in any such action or proceeding and shall
be taken and held to be valid personal service upon and personal delivery to
Transaction Partner to the full extent permitted by law.
<PAGE> 6
Intec, Inc.
March 12, 1999
Page 6
15. Injunctive Relief. It is understood that any party hereto may
institute appropriate proceedings against a breaching party hereunder (and
others who are subject to the terms hereof) to enforce its rights hereunder. The
parties hereto acknowledge and agree that money damages would not be a
sufficient remedy for any violation of the terms of this Letter and,
accordingly, the non-breaching party shall be entitled to specific performance
and injunctive relief as remedies for any violation. These remedies shall not be
deemed to be exclusive remedies for a violation of the terms of this Letter but
shall be in addition to all other remedies available to the non-breaching party
at law or in equity. In any proceeding or dispute under this Letter, whether
brought in arbitration or a court of law, the substantially prevailing party
shall be entitled to recover from the other party its legal fees and costs
relating to enforcing or protecting its rights hereunder.
16. Advice of Counsel. Transaction Partner hereby represents and
warrants that it has received advice of legal counsel of its own selection in
negotiations for, and the preparation of, this Letter, that it has read this
Letter or has had the same read to it by its counsel, that it has had this
Letter, and the legal effect hereof, fully explained by such counsel, and that
Transaction Partner is fully aware of this Letter's contents and legal effect.
17. Counterparts. This Letter may be signed may be executed by one
or more parties hereto in any number of separate counterparts, each of which,
when so executed, shall be deemed an original, and all of said counterparts
taken together shall be deemed to constitute but one and the same instrument.
<PAGE> 7
Intec, Inc.
March 12, 1999
Page 7
If you are in agreement with the foregoing, please have the enclosed
copy of this Letter executed in the space provided below and return a fully
executed copy to the undersigned prior to 5:00 p.m. (California time) on March
18, 1999 at which time the terms of this Letter will expire if not then
countersigned by you. We look forward to working with you.
Very truly yours,
AUTOBYTEL.COM INC.
By: /s/ Mark Lorimer
---------------------------
Name: Mark Lorimer
Title: President and CEO
Agreed and Accepted:
INTEC, INC.
By: /s/ Koju Takizawa
------------------------------
Name: Koju Takizawa
Title: General Manager
Date: March 17, 1999
<PAGE> 1
EXHIBIT 23.1
[ARTHUR ANDERSEN LLP LETTERHEAD]
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the inclusion in
this registration statement on Amendment No. 6 to Form S-1 (Registration No.
333-70621) of our report dated March 25, 1999 on our audits of the
consolidated balance sheets of autobytel.com inc. and subsidiaries as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the years ended
December 31, 1996, 1997 and 1998. We also consent to the reference to our firm
under the caption "Experts".
/s/ ARTHUR ANDERSEN LLP
-----------------------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1999
