<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1999.
REGISTRATION NO. 333-70621
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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)
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COPIES TO:
<TABLE>
<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. [ ]
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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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)
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Common Stock, par value $.001
per share...................... 5,145,000 Shares $18.00 $92,610,000 $25,745.60
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</TABLE>
(1) Includes 645,000 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.
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<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 22, 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 $16.00 and $18.00 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
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<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 ALEX. 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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<PAGE> 5
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 strategic investors,
including companies with international automotive operations, for the purchase
of up to 250,000 shares at the initial public offering price. We are seeking to
enter into agreements with these companies to provide for, among other things,
the organization and establishment of our international operations through the
formation of joint ventures and licenses for the use of our name and systems in
international locations.
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 $53.8 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
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<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 $ 81,754
Working capital........................................... 23,436 77,206
Total assets.............................................. 34,207 87,977
Accumulated deficit....................................... (43,273) (43,273)
Stockholders' equity...................................... 25,868 79,638
</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. 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
unwillingness to accept our subscription terms or in order to join alternative
marketing programs. Our business is dependent upon our ability to
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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
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<PAGE> 10
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. 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
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conditioned on Excite's NetCenter agreement with Netscape remaining in effect.
The 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 certain corporate actions. 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.
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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 $17.00 per share, after deducting estimated underwriting discounts and
estimated offering expenses, will be approximately $53.8 million. The selling
stockholders will receive $15.8 million from the sale of one million shares of
common stock, after deducting estimated underwriting discounts, and an
additional $10.1 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 $17.00 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 $ 81,754
======== ========
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............................ 67,813 121,580
Cumulative translation adjustment..................... (19) (19)
Accumulated deficit................................... (43,273) (43,273)
-------- --------
Total stockholders' equity............................ 25,868 79,638
======== ========
Total capitalization.................................. $ 25,868 $ 79,638
======== ========
</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
$17.00 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 $79.6 million, or $4.46 per share. This represents an immediate
increase in pro forma net tangible book value of $2.66 per share to existing
stockholders and an immediate dilution of $12.54 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share............. $17.00
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.................................. 2.66
------
Pro forma net tangible book value per share after the
offering.................................................. 4.46
Dilution per share to purchasers of common stock offered in
this offering............................................. $12.54
======
</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 $17.00 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 53.3 $ 4.74
New investors................... 3,500,000 19.6 59,500,000 46.7 17.00
---------- ----- ------------ ----- ------
Total......................... 17,858,745 100.0 $127,533,000 100.0 $ 7.14
========== ===== ============ ===== ======
</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 $ 81,754
Working capital............................ (1,099) 5,977 10,938 23,436 77,206
Total assets............................... 285 12,298 20,513 34,207 87,977
Accumulated deficit........................ (1,030) (7,065) (23,875) (43,273) (43,273)
Stockholders' equity (deficit)............. (990) 7,996 13,259 25,868 79,638
</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, and monthly fees of $50,000, $3.0 million and $2.9 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 March 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.
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.
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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.
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.
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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 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 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
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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:
- 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 $321 million, we will be permitted
to offset against any taxable income $15 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 $18.
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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 an agreement with Auto-by-Tel UK Limited, an affiliate of Inchcape
Motors, the United Kingdom's largest independent automobile distributor, to
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 similar arrangements with Auto-By-Tel AB, an affiliate of
Bilia AB, to 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, the 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.
We have established marketing and advertising programs with many of the
leading automotive information providers on the Internet, including Edmund's,
IntelliChoice and
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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. 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.
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.
- 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.
- Our agreement with Excite covering its auto channel provides that we pay
Excite a monthly fee as well as a fee for each purchase request it sends
us. The agreement provides us with exclusivity in their auto channel. Our
agreement with Netscape's NetCenter auto channel is through Excite which
manages NetCenter for Netscape. The payment terms are similar in nature
to our deal directly with Excite's auto channel.
- Our agreement with Lycos in its "New" automotive channel is based on a
quarterly fee. The agreement provides us with exclusivity in their "New"
automotive area.
As of December 31, 1998, our Internet marketing agreements with our two
largest search engines required us to make aggregate minimum future payments of
$4.8 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.
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.
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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. 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 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
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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:
- 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.
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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 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
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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 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.
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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.
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.
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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 $8,000
legal expenses. See "Certain Transactions."
(2) 500,000 shares of such securities underlying options are contingent on the
performance of our market trading price after the closing of the offering.
(3) Relocation expense reimbursement.
(4) 200,000 shares of such securities underlying options are contingent on the
performance of our market trading price after the closing of the offering.
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<PAGE> 55
OPTION GRANTS DURING 1998
The following table sets forth the five most highly compensated officers
and certain information concerning stock options granted to them during 1998. We
have never issued stock appreciation rights. Options were granted at an exercise
price equal to the fair market value of the common stock at the date of grant.
In determining the fair market value of the common stock, the board of directors
considered various factors, including recent arms' length transactions, our
financial condition and business prospects, operating results, the absence of a
market for the common stock and the risks normally associated with investments
in companies engaged in similar businesses. The term of each option granted is
generally ten years from the date of grant. Options may terminate before their
expiration dates, if the optionee's status as an employee or a consultant is
terminated or upon the optionee's death or disability. We have not included
disclosure on Mr. Ellis as he resigned as our Chief Executive Officer in June
1998 and did not receive any option grants in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
---------------------------------------------------------- OF ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) 1998(2) ($/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> 56
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> 57
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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<PAGE> 58
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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<PAGE> 59
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 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; provided, that 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 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 holder of options and designate such options as incentive stock options
or nonstatutory stock options. The board of directors may
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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 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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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 (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 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
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<PAGE> 62
successors, heirs or designees, with continued payment of Mr. Lorimer's then
current base salary and all benefits for a period of two years.
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.
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.
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.
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<PAGE> 63
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> 64
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> 65
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> 66
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.
Regarding 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> 67
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> 68
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> 69
<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> 70
(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
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a merger, asset sale or other transaction resulting in a financial benefit to
the interested 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 3,723,433 shares have been reserved for
issuance under such plans. As of March 1, 1999, 737,191 options have been
granted under the 1999 Stock Option Plan, 1,125,000 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.
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.
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.
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,
Non-U.S. Holders generally will be required to pay United States backup
withholding tax at a 31% rate, if the certification or documentary evidence,
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procedures and requirements, as applicable in the regulations under the Internal
Revenue Code are not satisfied directly or through an intermediary.
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,
- permanent establishment, or
- fixed base in the United States
will generally be taxed 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 comply with United States
federal income or withholding tax requirements in respect of 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) 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 present in the United States for 183 or more days in
the taxable year of the disposition and meets other tax law
requirements,
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(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 tax withheld with respect to such dividends. These
information reporting requirements
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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.
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 a Non-U.S. Holder is required to comply with
backup withholding requirements at the rate of 31% and information reporting
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 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
(1) a "controlled foreign corporation" for United States federal income
tax purposes; or
(2) 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 the applicable IRS certification
requirements are complied with. 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. The 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. ("GE Capital Services") 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
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this offering is required to be made in accordance with the applicable
provisions of Rule 2720 of the NASD.
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.
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.
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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 federal
securities laws. 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.
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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> 85
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
February 3, 1999
F-2
<PAGE> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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
$3.6 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 $1.2 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. There were no set-up fees incurred in 1998.
F-12
<PAGE> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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
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<PAGE> 102
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> 103
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> 104
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> 105
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> 106
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
annually 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> 107
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.
[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> 108
================================================================================
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................................ 34
Management.............................. 49
Financings and Related Party
Transactions.......................... 63
Principal and Selling Stockholders...... 67
Description of Capital Stock............ 69
Shares Eligible for Future Sale......... 72
Material United States Tax
Considerations for Non-U.S. Holders... 74
Underwriting............................ 79
Legal Matters........................... 81
Experts................................. 81
Additional Information.................. 82
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 ALEX. BROWN
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
------------------
, 1999
================================================================================
<PAGE> 109
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....................................... $ 26,000
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............................................ $1,565,000
==========
</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> 110
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> 111
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> 112
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 4, 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's Publications Corp.
10.11** Amendment to Marketing Agreement dated February 8, 1996
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
</TABLE>
II-4
<PAGE> 113
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
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.
10.34 Letter Agreement dated March 12, 1999 between autobytel.com
inc. and Trans Cosmos. Inc.
</TABLE>
II-5
<PAGE> 114
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
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.
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>
- -------------------------
* To be filed by Amendment.
** Previously filed.
(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.
(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-6
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 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 22, 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. 3 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 22, 1999
- ------------------------------------------------ and Director
Michael Fuchs
* Director March 22, 1999
- ------------------------------------------------
Jeffrey H. Coats
* Director March 22, 1999
- ------------------------------------------------
Mark N. Kaplan
* Director March 22, 1999
- ------------------------------------------------
Kenneth J. Orton
* Executive Vice March 22, 1999
- ------------------------------------------------ President and Director
Robert S. Grimes
/s/ MARK W. LORIMER Chief Executive March 22, 1999
- ------------------------------------------------ Officer, President and
Mark W. Lorimer Director (Principal
Executive Officer)
/s/ HOSHI PRINTER Senior Vice President March 22, 1999
- ------------------------------------------------ and Chief Financial
Hoshi Printer Officer (Principal
Financial Officer and
Principal Accounting
Officer)
</TABLE>
II-7
<PAGE> 116
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Executive Vice March 22, 1999
- ------------------------------------------------ President and Chief
Ann M. Delligatta Operating Officer
* Director March 22, 1999
- ------------------------------------------------
Peter Titz
* Director March 22, 1999
- ------------------------------------------------
Richard Post
*By: /s/ HOSHI PRINTER
---------------------------------------
Hoshi Printer, Attorney-in-Fact
</TABLE>
II-8
<PAGE> 117
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------------
<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 4, 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's Publications Corp.
10.11** Amendment to Marketing Agreement dated February 8,
1996 between Edmund Publications Corp. and the
Registrant
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------------
<S> <C> <C>
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
10.27** Procurement and Trafficking Agreement dated September
24, 1998 between DoubleClick Inc. and autobytel.com
inc.
</TABLE>
<PAGE> 119
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------------
<S> <C> <C>
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.
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>
- -------------------------
* To be filed by Amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 10.3
AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into, at Irvine, California, as of the 17th day of December , 1998, between
autobytel.com inc., a corporation duly organized under the laws of the State of
Delaware (the "Company"), with offices at 18872 MacArthur Blvd., Irvine,
California 92612-1400, and Ann Marie Delligatta (hereinafter referred to as the
"Executive"), who resides at 14400 Navarro Place, Orange, California 92689.
RECITALS
WHEREAS: The Company currently employs the Executive as Senior
Vice President and Chief Technology Officer, subject to the terms and conditions
contained in the Severance Agreement dated January 1, 1998 (the "Severance
Agreement");
WHEREAS: Each of the Executive and the Company desires to
terminate the Severance Agreement entered into between Executive and the Company
on January 1, 1998 and agree that Executive shall hereafter be employed as the
Executive Vice President and Chief Operating Officer of the Company, subject to
the following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and with reference to the above recitals, the
parties hereby agree as follows:
ARTICLE 1
TERM OF EMPLOYMENT
The Company hereby employs the Executive as Executive Vice President
and Chief Operating Officer of the Company and the Executive hereby accepts such
employment by the Company for a period of three (3) years (the "Term")
commencing from October 1, 1998 (the "Commencement Date") and expiring upon the
third anniversary of the Commencement Date, unless extended at the mutual option
of the parties.
ARTICLE 2
DUTIES AND OBLIGATIONS
2.1 During the Term of this Agreement, the Executive shall: (i) devote
her full business time, attention and energies to the business of the Company;
(ii) shall use her best efforts to promote the interests of the Company; (iii)
shall perform all functions and services as the Executive Vice President and
Chief Operating Officer of the Company, including general management and
supervision over the operations of the business and employees of the Company;
(iv) shall act in accordance with the policies and directives of the Company as
determined from time to time by the Chief Executive Officer and communicated to
the Executive in writing; and (v) shall report directly to the Chief Executive
Officer.
<PAGE> 2
2.2 The Executive covenants and agrees that, while actually employed by
the Company, she shall not engage in any other business duties or pursuits
whatsoever, or directly or indirectly render any services of a business or
commercial nature to any other person or organization, including, but not
limited to, providing services to any business that is in competition with or
similar in nature to the Company, whether for compensation or otherwise, without
the prior written consent of the board of directors of the Company (the
"Board"). However, the expenditure of reasonable amounts of time for
educational, charitable, or professional activities shall not be deemed a breach
of this Agreement, if those activities do not materially interfere with the
services required under this Agreement, and shall not require the prior written
consent of the Board. Notwithstanding anything herein contained to the contrary,
this Agreement shall not be construed to prohibit the Executive from making
passive personal investments or conducting personal business, financial or legal
affairs or other personal matters if those activities do not materially
interfere with the services required hereunder.
2.3 The principal location in which the Executive's services are to be
performed will be the Irvine, California area. The Executive shall not be
required to change such principal location without her consent.
ARTICLE 3
COMPENSATION
3.1 As compensation for the services to be rendered by the Executive
pursuant to this Agreement, the Company hereby agrees to pay the Executive a
base salary equal to at least Two Hundred Twenty Five Thousand Dollars
($225,000.00) per year during the Term of this Agreement, which rate shall be
reviewed by the Board at least annually and may be increased (but not reduced)
by the Board in such amounts as the Board deems appropriate. The base salary
shall be paid in substantially equal bimonthly installments, in accordance with
the normal payroll practices of the Company.
3.2 The Company shall provide the Executive with the opportunity to
earn an annual bonus for each fiscal year of the Company, occurring in whole or
in part during the Term. The annual bonus payable to the Executive shall be in
such amount and based on such criteria for the award as may be established by
the Board from time to time. Any bonus shall be paid as promptly as practicable
following the end of the preceding fiscal year. The Executive shall participate
also in all other short-term and long-term bonus or incentive plans or
arrangements in which other senior executives of the Company are collectively
eligible to participate from time to time. The provisions of this Section 3.2
shall be subject to the provisions of Section 3.5.
3.3 As further consideration for the services rendered by the Executive
during the Term, the Executive shall be granted stock options to purchase shares
of the Company's common stock on the terms and conditions set forth in the
attached Schedule A (each an "Option").
3.4 The Company shall have the right to deduct or withhold from the
compensation due to the Executive hereunder any and all sums required for
federal income and employee social security taxes and all state or local income
taxes now applicable or that may be enacted and become applicable during the
Term.
3.5 In the event the Company becomes a "publicly held corporation"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company may provide for shareholder approval of any
performance based compensation provided herein which is first created after the
Company becomes so "publicly held," and may provide for the establishment of a
compensation committee to establish any applicable performance goals and
determine whether such performance goals have been met.
2
<PAGE> 3
ARTICLE 4
EMPLOYEE BENEFITS
4.1 The Company agrees that the Executive shall be entitled to all
ordinary and customary perquisites afforded to executive employees of the
Company, at the Company's sole expense (except to the extent employee
contribution may be required under the Company's benefit plans as they may now
or hereafter exist), which shall in no event be less than the benefits afforded
to the Executive on the date hereof and the other executive employees of the
Company as of the date hereof or from time to time, but in any event shall
include any qualified or non-qualified pension, profit sharing and savings
plans, any death benefit and disability benefit plans, life insurance coverages,
any medical, dental, health and welfare plans or insurance coverages and any
stock purchase programs that are approved by the Board on terms and conditions
at least as favorable as provided to the Executive on the date hereof and other
senior executives of the Company as of the date hereof or from time to time.
4.2 The Executive shall be entitled to four (4) weeks of paid vacation
for each year of her employment hereunder, which, to the extent unused in any
given year, may be carried over in accordance with the policies of the Company
then in effect. Notwithstanding anything to the contrary, however, the Executive
shall be entitled to carry over any unused vacation for a period not less than
two (2) years.
ARTICLE 5
BUSINESS EXPENSES
5.1 The Company shall pay or reimburse the Executive for all reasonable
and authorized business expenses incurred by the Executive during the Term; such
payment or reimbursement shall not be unreasonably withheld so long as said
business expenses have been incurred for and promote the business of the Company
and are normally and customarily incurred by employees in comparable positions
at other comparable businesses in the same or similar market. Notwithstanding
the above, and except as otherwise provided in Section 4.4 hereof, the Company
shall not pay or reimburse the Executive for the costs of any membership fees or
dues for private clubs, civic organizations, and similar organizations or
entities, unless such organizations and the fees and costs associated therewith
have first been approved in writing by the Board.
5.2 The Company shall reimburse the Executive for expenses incurred
with business-related travel.
5.3 As a condition to reimbursement under this Article 5, the Executive
shall furnish to the Company adequate records and other documentary evidence
required by federal and state statutes and regulations for the substantiation of
each expenditure. The Executive acknowledges and agrees that failure to furnish
the required documentation may result in the Company denying all or part of the
expense for which reimbursement is sought.
3
<PAGE> 4
ARTICLE 6
TERMINATION OF EMPLOYMENT
6.1 Termination for Cause. The Board may, during the Term, without
notice to the Executive, terminate this Agreement and discharge the Executive
for Cause, whereupon the respective rights and obligations of the parties
hereunder shall terminate; provided, however, that the Company shall immediately
pay the Executive any amount due and owing pursuant to Articles 3, 4, and 5,
prorated to the date of termination. As used herein, the term "for Cause" shall
refer to the termination of the Executive's employment as a result of any one or
more of the following: (i) any conviction of the Executive for a felony; (ii)
the gross willful misconduct of the Executive which has a direct and material
injurious effect on the business or reputation of the Company; (iii) the gross
dishonesty of the Executive which is directly and materially injurious to the
business and reputation of the Company; or (iv) Failure to consistently
discharge her duties under this Agreement or as assigned by the Company from
time to time which failure continues for thirty (30) days following written
notice from the Company detailing the Company's expectations of Executive's
performance and the area or areas in which such expectations have not been met.
For purposes of this Section 6.1, no act or failure to act, on the part of the
Executive, shall be considered "willful" if it is done, or omitted to be done,
by the Executive in good faith or with reasonable belief that her action or
omission was in the best interest of the Company.
6.2 Termination Without Cause. Anything in this Agreement to the
contrary notwithstanding, the Board shall have the right, at any time in its
sole and subjective discretion, to terminate this Agreement without Cause upon
not less than thirty (30) days prior written notice to the Executive. The term
"termination without Cause" shall mean the termination of the Executive's
employment for any reason other than those expressly set forth in Section 6.1,
or no reason at all, and shall also mean the Executive's decision to terminate
this Agreement by reason of any act, decision or omission by the Company or the
Board that: (A) materially modifies, reduces, changes, or restricts the
Executive's salary, bonus opportunities, options or other compensation benefits
or perquisites, or the Executive's authority, functions, services, duties,
rights, and privileges as, or commensurate with the Executive's position as,
Executive Vice President and Chief Operating Officer of the Company as described
in Section 2.1 hereof; (B) relocates the Executive without her consent from the
Company's offices located at 18872 MacArthur Boulevard, Irvine, California,
92612-1400 to any other location in excess of fifty (50) miles beyond the
geographic limits of Irvine, California; (C) deprives the Executive of her
titles and positions of Executive Vice President and Chief Operating Officer of
the Company; or (D) involves or results in any failure by the Company to comply
with any provision of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive (each a
"Good Reason"). In the event the Company or the Executive shall exercise the
termination right granted pursuant to this Section 6.2, the Company shall,
within thirty (30) days of notice of termination to or from the Executive (as
the case may be), pay to the Executive in a single lump-sum payment the base
salary that would have been received by the Executive if she had remained
employed by the Company for the remaining balance of the Term. The Company also
shall (i) continue to provide to the Executive and her beneficiaries, at its
sole cost, the insurance coverages referred to in Section 4.1 above, and (ii)
pay to the Executive in a single lump-sum payment the aggregate cost of the
benefits (other than insurance coverages) under Section 4.1 hereof, in each case
to the extent she would have received such insurance coverages and benefits had
she remained employed by the Company for the remaining balance of the Term.
4
<PAGE> 5
6.3 Termination for Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during the Term. If the
Company determines in good faith that the Disability (as defined below) of the
Executive has occurred during the Term, it shall give written notice to the
Executive of its intention to terminate her employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive, provided that, within the
thirty (30) days after such receipt, the Executive shall not have returned to
full-time performance of her duties.
For purposes of this Agreement, "Disability" shall mean the
inability of the Executive to perform her duties to the Company on account of
physical or mental illness or incapacity for a period of sixty (60) consecutive
calendar days, or for a period of one hundred eighty (180) calendar days,
whether or not consecutive, during any three hundred sixty-five (365) day
period.
6.4 Termination by Executive. In the event the Executive voluntarily
terminates her employment hereunder other than for Good Reason, the respective
rights and obligations of the parties hereunder shall terminate; provided,
however, that the Company shall immediately pay the Executive any amount due and
owing pursuant to Articles 3, 4, and 5, prorated to the date of termination.
6.5 Anything in this Agreement to the contrary notwithstanding, upon
the Executive's termination under this Article 6, the Company's obligations with
respect to any stock option to purchase shares of the Company's common stock
granted to the Executive shall be determined by the terms and conditions of such
option as set forth in the Executive's written option agreement regarding such
option, which shall be fully consistent with the terms and conditions set forth
in attached Schedule A with respect to the options described therein.
ARTICLE 7
INDEMNIFICATION; INSURANCE
7.1 If the Executive is a party or is threatened to be made a party to
any threatened, pending or completed claim, action, suit or proceeding, or
appeal therefrom, whether civil, criminal, administrative, investigative or
otherwise, because she is or was an officer of the Company, or at the express
request of the Company is or was serving, for purposes reasonably understood by
her to be for the Company, as a director, officer, partner, employee, agent or
trustee (or in any other capacity of an association, corporation, general or
limited partnership, joint venture, trust or other entity), the Company shall
indemnify the Executive against any reasonable expenses (including attorneys'
fees and disbursements), and any judgments, fines and amounts paid in settlement
incurred by her in connection with such claim, action, suit, proceeding or
appeal therefrom to the extent such expenses, judgments, fines and amounts paid
in settlement were not advanced by the Company on her behalf pursuant to
subsection (b) below, to the fullest extent permitted under Delaware law
7.2 Provided that Executive shall first have agreed to in writing to
repay such amounts advanced if it is determined by an arbitrator or court of
competent jurisdiction that the Executive was not entitled to indemnification,
upon the written request of the Executive specifying the amount of a requested
advance and the intended use thereof, the Company shall indemnify Executive for
her expenses (including attorneys' fees and disbursements), judgments, fines and
amounts paid in settlement incurred by her in connection with such claim,
action, suit, proceeding or appeal whether civil, criminal, administrative,
investigative or otherwise,
5
<PAGE> 6
in advance of the final disposition of any such claim, action, suit, proceeding
or appeal therefrom to the fullest extent permitted under Delaware law.
ARTICLE 8
RESTRICTIVE COVENANTS
8.1 Covenant Not to Disclose Confidential Information. During the Term
and following termination of this Agreement, the Executive agrees that, without
the Company's prior written consent, she will not use or disclose to any person,
firm, association, partnership, entity or corporation, any confidential
information concerning: (i) the business operations or internal structure of the
Company; (ii) the customers of the Company; (iii) the financial condition of the
Company; and (iv) other confidential information pertaining to the Company,
including without limitation, trade secrets, technical data, marketing analyses
and studies, operating procedures, customer and/or inventor lists, or the
existence or nature of any of the Company's agreements (other than this
Agreement and any other option or compensation related agreements involving the
Executive); provided, however, that the Executive shall be entitled to disclose
such information: (i) to the extent the same shall have otherwise become
publicly available (unless made publicly available by the Executive); (ii)
during the course of or in connection with any actual or potential litigation,
arbitration, or other proceeding based upon or in connection with the subject
matter of this Agreement; (iii) as may be necessary or appropriate to conduct
her duties hereunder, provided the Executive is acting in good faith and in the
best interest of the Company; or (iv) as may be required by law or judicial
process.
8.2 Covenant Not to Compete. The Executive acknowledges that she has
established and will continue to establish favorable relations with the
customers, clients and accounts of the Company and will have access to trade
secrets of the Company. Therefore, in consideration of such relations and to
further protect trade secrets, directly or indirectly, of the Company, the
Executive agrees that during the Term and for a period of one (1) year from the
date of termination of the Executive, the Executive will not, directly or
indirectly, without the express written consent of the Board:
(i) own or have any interest in or act as an officer,
director, partner, principal, employee, agent, representative,
consultant or independent contractor of, or in any way assist in, any
business which is engaged, directly or indirectly, in any business
competitive with the Company in those automotive markets and/or
automotive products lines in which the Company competes within each
county of the State of California and in the United States at any time
during the Term, or become associated with or render services to any
person, firm, corporation or other entity so engaged ("Competitive
Businesses"); provided, however; that the Executive may own without the
express written consent of the Company not more than two (2) percent of
the issued and outstanding securities of any company or enterprise
whose securities are listed on a national securities exchange or
actively traded in the over-the-counter market;
(ii) solicit clients, customers or accounts of the Company
for, on behalf of or otherwise related to any such Competitive
Businesses or any products related thereto; or
(iii) solicit any person who is or shall be in the employ or
service of the Company (or within 12 months of any such solicitation
was in the employ or service of the Company) to leave such employ or
service for employment with the Executive or an affiliate of the
Executive or to become employed with any other business.
6
<PAGE> 7
Notwithstanding the foregoing, if any court determines that the covenant not to
compete, or any part thereof, is unenforceable because of the duration of such
provision or the geographic area or scope covered thereby, such court shall have
the power to reduce the duration, area or scope of such provision to the extent
necessary to make the provision enforceable and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
8.3 Specific Performance. Recognizing the irreparable damage will
result to the Company in the event of the breach or threatened breach of any of
the foregoing covenants and assurances by the Executive contained in Sections
8.1 and 8.2 hereof, and that the Company's remedies at law for any such breach
or threatened breach may be inadequate, the Company and its successors and
assigns, in addition to such other remedies which may be available to them,
shall be entitled to an injunction to be issued by any court of competent
jurisdiction ordering compliance with this Agreement or enjoining and
restraining the Executive, and each and every person, firm or company acting in
concert or participation with her, from the continuation of such breach. The
obligations of the Executive and rights of the Company pursuant to this Article
8 shall survive the termination of this Agreement. The covenants and obligations
of the Executive set forth in this Article 9 are in addition to and not in lieu
of or exclusive of any other obligations and duties the Executive owes to the
Company, whether expressed or implied in fact or law.
ARTICLE 9
GENERAL PROVISIONS
9.1 This Agreement and attached schedules (which are incorporated
herein and shall be treated as part hereof) are intended to be the final,
complete and exclusive agreement between the parties relating to the employment
of the Executive by the Company with respect to the Term and all prior or
contemporaneous understandings, representations and statements, oral or written,
are merged herein. Notwithstanding anything to the contrary, the terms and
conditions of any stock option agreements signed by the Executive prior to the
date hereof shall remain in effect. No modification waiver, amendment, discharge
or change of this Agreement shall be valid unless the same is in writing and
signed by the party against which the enforcement thereof is or may be sought.
9.2 No waiver, by conduct or otherwise, by any party of any term,
provision, or condition of this Agreement, shall be deemed or construed as a
further or continuing waiver of any such term, provision, or condition nor as a
waiver of a similar or dissimilar condition or provision at the same time or at
any prior or subsequent time.
9.3 The rights under this Agreement, or by law or equity, shall be
cumulative and may be exercised at any time and from time to time. No failure by
any party to exercise, and no delay in exercising, any rights shall be construed
or deemed to be a waiver thereof, nor shall any single or partial exercise by
any party preclude any other or future exercise thereof or the exercise of any
other right.
7
<PAGE> 8
9.4 Except as otherwise provided in this Agreement, any notice,
approval, consent, waiver or other communication required or permitted to be
given or to be served upon any person in connection with this Agreement shall be
in writing. Such notice shall be personally served, sent by telegram, tested
telex, fax or cable, or sent prepaid by either registered or certified mail with
return receipt requested or Federal Express and shall be deemed given (i) if
personally served or by Federal Express, when delivered to the person to whom
such notice is addressed, (ii) if given by telegram, telex, fax or cable, when
sent, or (ii) if given by mail, two (2) business days following deposit in the
United States mail. Any notice given by telegram, telex, fax or cable shall be
confirmed in writing by overnight mail or Federal Express within forty-eight
(48) hours after being sent. Such notices shall be addressed to the party to
whom such notice is to be given at the party's address set forth below or as
such party shall otherwise direct.
If to the Company: autobytel.com inc.
18872 MacArthur Boulevard
Irvine, California 92612-1400
Attn: Chief Executive Officer
If to the Executive: Ann Marie Delligatta
1440 Navarro Place
Orange, California 92689
9.5 The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto.
Notwithstanding the foregoing, Executive may not assign her obligations
hereunder.
9.6 This Agreement shall be construed and enforced in accordance with
the laws of the State of California, without giving effect to the principles of
conflict of laws thereof, except that the indemnification provisions of Section
8.2 shall be governed by Delaware law without regard to conflict of laws
principles.
9.7 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which shall constitute one
instrument.
9.8 The provisions of this Agreement are agreed to be severable, and if
any provision, or application thereof, is held invalid or unenforceable, then
such holding shall not effect any other provision or application.
9.9 As used herein, and as the circumstances require, the plural term
shall include the singular, the singular shall include the plural, the neuter
term shall include the masculine and feminine genders, and the masculine term
shall include the neuter and the feminine genders.
9.10 Any controversy or claim arising out of, or related to, this
Agreement, or the breach thereof, shall be settled by binding arbitration in the
City of Irvine, California, in accordance with the rules then in effect of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof. Each party hereto shall pay its or their own
expenses incident to the negotiation, preparation and resolution of any
controversy or claim arising out of, or related to, this Agreement, or the
breach thereof, provided, however, the Company shall pay and be solely
responsible for any attorneys' fees and expenses and court or arbitration costs
incurred by the Executive as a result of a claim that the Company has breached
or otherwise
8
<PAGE> 9
failed to perform this Agreement or any provision hereof to be performed by the
Company if the Executive prevails in the contest in whole or in part.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
autobytel.com inc.
By /s/ Mark W. Lorimer
-----------------------
Mark W. Lorimer
President
Chief Executive Officer
Executive
/s/ Ann Marie Delligatta
---------------------------
Ann Marie Delligatta
[Remainder of page intentionally left blank]
10
<PAGE> 11
SCHEDULE A
As further consideration for the services rendered by the Executive
during the Term, the Executive shall be granted Options on the terms and
conditions set forth below, effective as of December 17, 1998. Each such Option
shall be effective upon such grant effective date.
1. Regular 1998 Options. The Executive shall be granted Options to
purchase one hundred thousand (100,000) shares of the Company's common stock
(the "Regular 1998 Options") under the Company's 1998 Stock Option Plan. The
Regular 1998 Options shall have a ten (10) year term (the " Regular 1998 Option
Term") of exercise and, except as otherwise provided herein, shall remain
exercisable following vesting for the full term. The exercise price of an Option
granted as a Regular 1998 Option shall be equal to the fair market value per
share of the Company's common stock (as determined by the Company) as of the
date such Option is granted.
(a) Vesting. The Regular 1998 Options shall vest based on the continued
employment of the Executive in equal installments of fifty (50) percent of the
number of subject shares on each of December 17, 1999 and December 17, 2000.
(b) Payment Upon Exercise. Payment for the shares subject to any
Regular 1998 Option may be tendered in cash or by certified, bank cashier's or
teller's check or by shares of the Company's common stock (valued at fair market
value (as determined by the Company) as of the date of tender) already owned by
the Executive, or some combination of the foregoing or such other form of
consideration which has been approved by the Board, including any approved
cashless exercise mechanism or a promissory note given by the Executive.
(c) Termination for Cause. As of the date of the Executive's
termination for Cause under Section 6.1 of this Agreement, any unvested or
unexercised portion of the Regular 1998 Options shall terminate immediately and
shall be of no further force or effect.
(d) Termination Without Cause or for Good Reason. As of the date of the
Executive's termination by the Company without Cause or by the Executive for
Good Reason under Section 6.2 of this Agreement, any unvested portion of the
Regular 1998 Options shall become immediately and fully vested and exercisable
from such termination of employment until the date that is two (2) years
following the termination date.
(e) Termination due to Death or Disability. As of the date of the
Executive's termination due to death or Disability under Section 6.3 of this
Agreement, any unvested portion of the Regular 1998 Options shall become
immediately and fully vested and exercisable. Any previously vested but
unexercised Regular 1998 Options shall remain exercisable from the date of such
termination of employment until the end of the Regular 1998 Option Term or, if
earlier, the date that is two (2) years following the termination date.
(f) Termination Without Good Reason. As of the date of any voluntary
termination of employment with the Company by the Executive other than due to
death or Disability, and other than for Good Reason, any unvested portion of the
Regular 1998 Options shall terminate immediately and shall be of no further
force or effect. Any previously vested but unexercised Regular 1998 Options
shall remain exercisable from the date of such termination of employment until
the end of the Regular 1998 Option Term or, if earlier, the date that is one (1)
year following the termination date.
11
<PAGE> 12
(g) Termination Prior to or Following a Change of Control. In the event
of a Change of Control while the Executive is employed by the Company, or the
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason within six (6) months prior to a Change of Control
during the Term, any unvested installment of the Regular 1998 Options shall
immediately vest and become exercisable from the date of such Change of Control,
or if earlier the date of termination, until the date that is two (2) years
following (i) the Change of Control date, or (ii) if earlier the date of
termination. For purposes of this Agreement "Change of Control" means the
occurrence of any of the following: (i) the sale, lease, transfer, conveyance or
other disposition (other than by way of merger or consolidation but not
including any initial or secondary public offering) in one or a series of
related transactions of all or substantially all of the assets of the Company
taken as a whole to any person (a "Person") or group of persons acting together
(a "Group") (other than any of the Company's wholly-owned subsidiaries, any
Company employee pension or benefits plan, or any person or entity owning at
least five (5) percent of the common stock of the Company as of October 1,
1998), (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) the consummation of any transactions (including any stock or
other purchase, sale, acquisition, disposition, merger or consolidation, but not
including any initial or secondary public offering) the result of which is that
any Person or Group (other than any of the Company's wholly-owned subsidiaries,
any Company employee pension or benefits plan, or any person or entity owning at
least five (5) percent of the common stock of the Company as of October 1,
1998), becomes the beneficial owners of more than 40 percent of the aggregate
voting power of all classes of stock of the Company having the right to elect
directors under ordinary circumstances; or (iv) the first day on which a
majority of the members of the Board are not individuals who were nominated for
election or elected to the Board with the approval of two-thirds of the members
of the Board just prior to the time of such nomination or election.
2. 1998 Performance Options. The Executive also shall be granted
Options to purchase two hundred thousand (200,000) shares of the Company's
common stock (the "1998 Performance Options") under the Company's 1998 Stock
Option Plan. The 1998 Performance Options shall vest in six (6) installments
with thirty thousand (30,000) shares subject to each of the first and second
installments and thirty-five thousand (35,000) shares subject to each of the
third, fourth, fifth and sixth installments. The 1998 Performance Options shall
have a ten (10) year term (the "1998 Performance Option Term") of exercise and,
except as otherwise provided herein shall remain exercisable following vesting
for the full term. The exercise price of an Option granted as a 1998 Performance
Option shall be equal to the fair market value (as determined by the Company)
per share of the Company's common stock as of the date of grant (the "Exercise
Price").
(a) Vesting. Each installment of 1998 Performance Options shall vest
based on the continued employment of the Executive through the seventh
anniversary of the date the installment of 1998 Performance Options vested;
provided, however, that following an effective initial public offering by the
Company (the "IPO") and based on the continued employment of the Executive the
vesting of the 1998 Performance Options shall accelerate as follows:
(i) the first installment will vest immediately and fully upon
the first six (6) month anniversary of the date of grant, or any six
month anniversary of such date thereafter, following the IPO if the
average trading price (as determined by averaging either the closing
price or bid-ask midpoint) of the Company's common stock for the ten
trading days (the "Average Trading Price") preceding any such
anniversary date exceeds the Exercise Price by at least Six Dollars and
Sixty Cents ($6.60);
(ii) the second installment will vest immediately and fully
upon the first one (1) year anniversary of the date of grant, or any
six month anniversary of such date thereafter, following the IPO if the
Average Trading Price preceding any such anniversary date exceeds the
Exercise Price by at least Thirteen Dollars and Twenty Cents ($13.20);
12
<PAGE> 13
(iii) the third installment will vest immediately and fully
upon the first eighteen (18) month anniversary of the date of grant, or
any six month anniversary of such date thereafter, following the IPO if
the Average Trading Price preceding any such anniversary date exceeds
the Exercise Price by at least Nineteen Dollars and Eighty Cents
($19.80);
(iv) the fourth installment will vest immediately and fully
upon the first two (2) year anniversary of the date of grant, or any
six month anniversary of such date thereafter, following the IPO if the
Average Trading Price preceding any such anniversary date exceeds the
Exercise Price by at least Twenty-Six Dollars and Forty Cents ($26.40);
(v) the fifth installment will vest immediately and fully upon
the first two and half year anniversary of the date of grant, or any
six month anniversary of such date thereafter, following the IPO if the
Average Trading Price preceding any such anniversary date exceeds the
Exercise Price by at least Thirty-three Dollars ($33.00); and
(vi) the sixth installment will vest immediately and fully
upon the first three (3) year anniversary of the date of grant, or any
six month anniversary of such date thereafter, following the IPO if the
Average Trading Price preceding any such anniversary date exceeds the
Exercise Price by at least Thirty-nine Dollars and Sixty Cents
($39.60).
(b) Payment Upon Exercise. Payment for the shares subject to any 1998
Performance Option may be tendered in cash or by certified, bank cashier's or
teller's check or by shares of the Company's common stock (valued at fair market
value (as determined by the Company) as of the date of tender) already owned by
the Executive, or some combination of the foregoing or such other form of
consideration which has been approved by the Board, including any approved
cashless exercise mechanism or a promissory note given by the Executive.
(c) Termination for Cause. As of the date of the Executive's
termination for Cause under Section 6.1 of this Agreement, any unvested or
unexercised portion of the 1998 Performance Options shall terminate immediately
and shall be of no further force or effect.
(d) Termination Without Cause or for Good Reason. If the Company has
not effected an IPO as of the date of the Executive's termination by the Company
without Cause or by the Executive for Good Reason under Section 6.2 of this
Agreement, any unvested portion of the 1998 Performance Options shall become
immediately and fully vested and exercisable as of the date of such termination.
Any shares subject to the 1998 Performance Options that become vested and
exercisable in accordance with the foregoing and any previously vested but
unexercised 1998 Performance Options shall remain exercisable from the date of
such termination of employment until the date that is one (1) year following the
termination date. If the Company has effected an IPO as of the date of the
Executive's termination by the Company without Cause or by the Executive for
Good Reason under Section 6.2 of this Agreement, any unvested portion of the
1998 Performance Options shall become immediately and fully vested and
exercisable to the extent the stock price targets in Paragraph 2.(a)(i)-(vi)
above are met on the termination date or as of the immediately preceding six (6)
month anniversary of the date of grant, or as of the six (6) month anniversary
of the grant date following such termination. Any shares subject to the 1998
Performance Options that become vested and exercisable in accordance with the
foregoing and any previously vested but unexercised 1998 Performance Options
shall remain exercisable from the date of such termination of employment until
the date that is one (1) year following the termination date, provided, however,
that if the Average Trading Price as of the date of termination exceeds the
Company's IPO initial offering price by at least thirty (30) percent, the vested
and unexercised 1998 Performance Options shall remain exercisable until the date
that is two (2) years following the termination date.
13
<PAGE> 14
(e) Due to Death or Disability. If the Company has not effected an IPO
as of the date of the Executive's termination due to death or Disability under
Section 6.3 of this Agreement, as of the date of such termination of the
Executive any unvested portion of the 1998 Performance Options shall become
immediately and fully vested and exercisable. If the Company has effected an IPO
as of such termination date, any unvested portion of the 1998 Performance
Options shall become vested and exercisable to the extent the stock price
targets in Paragraph 2.(a)(i)-(vi) above are met on the termination date or as
of the immediately preceding six (6) month anniversary of the date of grant, or
as of the six (6) month anniversary of the grant date following such
termination. Any shares subject to the 1998 Performance Options that become
vested and exercisable in accordance with the foregoing and any previously
vested but unexercised 1998 Performance Options shall remain exercisable from
the date of such termination of employment until the date that is one (1) year
following the termination date, provided, however, that if the Average Trading
Price as of the date of termination exceeds the Company's IPO initial offering
price by at least thirty (30) percent, the vested and unexercised 1998
Performance Options shall remain exercisable until the date that is two (2)
years following the termination date.
(f) Termination Without Good Reason. Regardless of whether the Company
has or has not effected an IPO as of the date of any voluntary termination of
employment with the Company by the Executive other than due to death or
Disability and other than for Good Reason, as of the date of such termination by
the Executive any unvested portion of the 1998 Performance Options shall
terminate immediately and shall be of no further force or effect. Any previously
vested but unexercised 1998 Performance Options shall remain exercisable from
the date of such termination of employment until the date that is one (1) year
following the termination date, provided, however, that if the Average Trading
Price as of the date of termination exceeds the Company's IPO initial offering
price by at least thirty (30) percent, the vested and unexercised 1998
Performance Options shall remain exercisable until the date that is two (2)
years following the termination date.
(g) Change of Control. In the event of a Change of Control while the
Executive is employed by the Company, or the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason
within six (6) months prior to a Change of Control during the Term, any
otherwise unvested installment of the 1998 Performance Options shall immediately
vest and become exercisable to the extent (i) the installment meets the
applicable stock price targets in Paragraph 2.(a)(i)-(vi) above based on the
Average Trading Price at the time of or within six (6) months of the Change of
Control but without regard to any anniversary of the installment's grant date if
the Company has effected an IPO as of the date of the Change of Control; or (ii)
the fair market value (as determined by an independent appraiser designated by
the Company) per share of the Company's common stock exceeds the Exercise Price
of the installment by an amount equal to or greater than the applicable dollar
amount for the installment as set forth in 2.(a)(i)-(vi) above if the Company
has not effected an IPO as of the date of the Change of Control. Any shares
subject to the 1998 Performance Options that become vested and exercisable in
accordance with the foregoing and any previously vested but unexercised 1998
Performance Options shall be at the Executive's option either cashed out based
on a value per share determined in accordance with (i) or (ii) of this clause
(g), as applicable, or remain exercisable from the date of such Change of
Control until the date that is one (1) year following the Change of Control
date, provided, however, that if the Average Trading Price as of the date of the
Change of Control exceeds the Company's IPO initial offering price by at least
thirty (30) percent, the vested and unexercised 1998 Performance Options shall
remain exercisable until the date that is two (2) years following the Change of
Control date.
14
<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. [*] 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 10.35
March 12, 1999
e-solutions, Inc.
Shuwa Kanda Sarugaku-cho Building 6F
2-6-10 Sarugaku-cho
Chiyoda-ku, Tokyo 101-0064
JAPAN
Attention: Mr. Yoshikuni Kato, Chairman
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
e-solutions, 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
[*] Confidential treatment has been requested
<PAGE> 2
e-solutions, Inc.
March 12, 1999
Page 2
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.
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
<PAGE> 3
e-solutions, Inc.
March 12, 1999
Page 3
(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 [*].
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,
<PAGE> 4
e-solutions, Inc.
March 12, 1999
Page 4
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
e-solutions, 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
e-solutions, 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
e-solutions, 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:
e-solutions, Inc.
By: /s/ Yoshikuni Kato
--------------------------------
Name: Yoshikuni Kato
Title: Chairman
Date: March 16, 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. [*] 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. 3 to Form S-1 (Registration No.
333-70621) of our report dated February 3, 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 22, 1999
<PAGE> 1
EXHIBIT 23.3
[CNW MARKETING RESEARCH LETTERHEAD]
March 3, 1999
Michael J. Lowell
Senior Vice President, Development
Autobytel.com
18872 MacArthur Blvd.
Irvine, CA 92612-1400
Dear Mr. Lowell:
This letter will serve as permission to use our statistics, with proper
identification, in your registration statement (file number 333-70621).
As reflected in the attached spreadsheets, the size of the US automotive market
in 1998 was $667 billion (new and used).
Sincerely,
/s/ ART SPINELLA
- -------------------------------
Art Spinella
Vice-President, General Manager
AS/sy
<PAGE> 1
EXHIBIT 23.4
CONSENT OF BARGER & WOLEN LLP
We hereby consent to the reference to our name and analyses performed by
us in our capacity as independent consultants to autobytel.com inc. which are
set forth in the Registration Statement on Form S-1, File No. 333-70621, or in
any related or abbreviated registration statement filed by autobytel.com inc.
with the Securities and Exchange Commission pursuant to Rule 462(b) under the
Securities Act of 1933, as amended with the Securities and Exchange Commission
on March 5, 1999.
/s/ BARGER & WOLEN LLP
Los Angeles, California
March 4, 1999
