<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1999.
REGISTRATION NO. 333-70621
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
AUTOBYTEL.COM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 33-0711569
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
18872 MACARTHUR BOULEVARD
IRVINE, CALIFORNIA 92612-1400
(949) 225-4500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARK W. LORIMER, CHIEF EXECUTIVE OFFICER AND PRESIDENT
AUTOBYTEL.COM INC.
18872 MACARTHUR BOULEVARD
IRVINE, CALIFORNIA 92612-1400
(949) 225-4500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<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. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
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. 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 will be listed 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 agreed to sell to international strategic investors 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, we will pay a fee of $350,000 to an affiliate of one of the
underwriters.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Public Offering Price............................ $23.00 $103,500,000
Underwriting Discounts........................... $ 1.61 $ 6,842,500
Proceeds, before expenses, to Autobytel.com...... $21.39 $ 69,517,500
Proceeds, before expenses, to the selling
stockholders................................... $21.39 $ 21,390,000
</TABLE>
Proceeds, before expenses, to Autobytel.com above does not include $5,400,000
that will be realized as proceeds, before expenses, to Autobytel.com on the sale
of 250,000 shares to international strategic investors in this offering.
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 $13,636,125 from the proceeds.
BT ALEX. BROWN
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
March 26, 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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<PAGE> 4
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 agreed to sell to existing and potential strategic investors,
including companies with international automotive operations, 250,000 shares at
the initial public offering price. We have entered into agreements with
e-solutions, Inc., Intec, Inc. and Trans Cosmos, Inc. to provide for the
organization and establishment of a joint venture in Japan and the license for
the use of our name and systems.
Following this offering, our executive officers and directors will
beneficially own or control approximately 5,856,614 shares or 30% of the
outstanding shares of our common stock. In addition, after this offering, our
founders, Peter Ellis and John Bedrosian will beneficially own or control
approximately 19% and 17%, respectively, of the outstanding shares of our common
stock. If the underwriters' over-allotment option is exercised in full, our
founders will beneficially own or control approximately 17% and 15%,
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.
4
<PAGE> 6
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 $72.8 million from our sale of common stock offered in
this offering.
<TABLE>
<CAPTION>
INCEPTION
(JANUARY 31,
1995) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1995 1996 1997 1998
------------ ------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Revenues................................ $ 274 $ 5,025 $ 15,338 $ 23,826
======= ======= ======== ========
Loss from operations.................... (1,030) (6,159) (17,415) (20,643)
------- ------- -------- --------
Net loss................................ $(1,030) $(6,035) $(16,810) $(19,398)
======= ======= ======== ========
Basic net loss per share................ $ (0.12) $ (0.73) $ (2.03) $ (2.30)
======= ======= ======== ========
Shares used in computing basic net loss
per share............................. 8,250 8,252 8,291 8,423
Pro forma basic net loss per share...... $ (0.12) $ (0.68) $ (1.53) $ (1.49)
======= ======= ======== ========
Shares used in computing pro forma basic
net loss per share.................... 8,250 8,849 10,967 13,008
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------
AS ADJUSTED
ACTUAL FOR THE OFFERING
-------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 27,984 $100,802
Working capital........................................... 23,436 96,254
Total assets.............................................. 34,207 107,025
Accumulated deficit....................................... (43,273) (43,273)
Stockholders' equity...................................... 25,868 98,686
</TABLE>
5
<PAGE> 7
RISK FACTORS
You should read the following risk factors carefully before purchasing our
common stock.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT NET LOSSES FOR THE FORESEEABLE
FUTURE. IF WE CONTINUE TO LOSE MONEY, OUR OPERATIONS WILL NOT BE FINANCIALLY
VIABLE.
We were formed in January 1995 as Auto-By-Tel LLC, and first received
revenues from operations in March 1995. We therefore have a limited operating
history upon which you may evaluate our operations and future prospects. Because
of the recent emergence of the Internet-based vehicle information and purchasing
industry, none of our executives has significant experience in the industry.
This limited operating history and management experience means it is difficult
for us to predict future operating results. We have incurred losses every
quarter since inception and expect to continue to incur losses for the
foreseeable future. We had an accumulated deficit of $43.3 million and $23.9
million as of December 31, 1998 and 1997, respectively. Our potential for future
profitability must be considered in light of the risks, uncertainties, expenses
and difficulties frequently encountered by companies in the early stages of
development, particularly companies in new and rapidly evolving markets, such as
the market for Internet commerce. To achieve profitability, we must, among other
things:
- generate increased vehicle buyer traffic to our Web site,
- continue to send new and pre-owned vehicle purchase requests to dealers
that result in sufficient dealer transactions to justify our fees,
- continue to expand the number of dealers in our network and enhance the
quality of dealers,
- respond to competitive developments,
- increase our brand name visibility,
- successfully introduce new services,
- continue to attract, retain and motivate qualified personnel, and
- continue to upgrade and enhance our technologies to accommodate expanded
service offerings and increased consumer traffic.
We cannot be certain that we will be successful in achieving these goals.
IF OUR DEALER TURNOVER INCREASES, OUR DEALER NETWORK AND REVENUE DERIVED FROM
THIS NETWORK MAY DECREASE.
Substantially all of our revenues are derived from fees paid by our network
of subscribing dealerships. If dealer turnover increases and we are unable to
add new dealers to mitigate any turnover, our revenues will decrease as our
network of dealers decreases. If the number of dealers in our network declines
our revenues may decrease and our business, results of operations and financial
condition will be materially and adversely affected. A material factor affecting
dealer turnover is our ability to provide dealers with high quality purchase
requests. High quality purchase requests are those that result in high closing
ratios. Closing ratio is the ratio of the number of vehicles purchased at a
dealer generated from purchase requests to the total number of purchase requests
sent to that dealer. All of our subscribing dealerships have entered into
written marketing agreements with us having a stated term of one year or five
years, but they are cancelable at the option of either party upon 30 days
notice. We cannot assure that dealers will not terminate their agreements with
us. Subscribing dealers may terminate their relationship with us for any reason,
including an
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<PAGE> 8
unwillingness to accept our subscription terms or in order to join alternative
marketing programs. Our business is dependent upon our ability to attract and
retain qualified new and pre-owned vehicle dealers. During 1998, 556 subscribing
dealers in the United States terminated their affiliation with us or were
terminated by us. During 1998 we also added 1,323 subscribing dealers to our
dealership network. In order for us to grow or maintain our dealer network, we
may need to reduce dealer turnover.
WE MAY LOSE SUBSCRIBING DEALERS IF WE RECONFIGURE DEALER TERRITORIES. IF WE LOSE
DEALERS, WE WILL LOSE THE REVENUES ASSOCIATED WITH THOSE DEALERS.
If the volume of purchase requests increases, we may need to reduce or
reconfigure the exclusive territories currently assigned to dealerships in order
to serve consumers more effectively. If a dealer is unwilling to accept a
reduction or reconfiguration of its territory, it may terminate its relationship
with us. The loss of dealers will cause a subsequent reduction in revenue unless
we are able to mitigate this loss by adding new dealers or increasing the fees
we receive from our other dealers. A dealer also could sue us to prevent such
reduction or reconfiguration, or collect damages from us. We have experienced
one such lawsuit -- for more details, see the section in this prospectus
entitled "Business -- Litigation." A material decrease in the number of dealers
subscribing to our network or litigation with dealers could have a material
adverse effect on our business, results of operations and financial condition.
WE RELY HEAVILY ON OUR PARTICIPATING DEALERS TO PROMOTE OUR BRAND VALUE BY
PROVIDING HIGH QUALITY SERVICES TO OUR CONSUMERS. IF DEALERS DO NOT PROVIDE OUR
CONSUMERS HIGH QUALITY SERVICES, OUR BRAND VALUE WILL DIMINISH AND THE NUMBER OF
CONSUMERS WHO USE OUR SERVICES MAY DECLINE CAUSING A DECREASE IN OUR REVENUES.
Promotion of our brand value depends on our ability to provide consumers a
high quality experience for purchasing vehicles throughout the purchasing
process. If our dealers do not provide consumers with high quality service, the
value of our brand could be damaged and the number of consumers using our
services may decrease. We devote significant efforts to train participating
dealerships in practices that are intended to increase consumer satisfaction.
Our inability to train dealers effectively, or the failure by participating
dealers to adopt recommended practices, respond rapidly and professionally to
vehicle inquiries, or sell and lease vehicles in accordance with our marketing
strategies, could result in low consumer satisfaction, damage our brand name and
could materially and adversely affect our business, results of operations and
financial condition.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS WHICH
MAY MAKE IT DIFFICULT FOR INVESTORS TO PREDICT OUR FUTURE PERFORMANCE.
Our quarterly operating results may fluctuate due to many factors. Our
expense levels are based in part on our expectations of future revenues which
may vary significantly. We plan our business operations based on increased
revenues and if our revenues do not increase faster than our expenses, our
business, results of operations and financial condition will be materially and
adversely affected. Other factors that may adversely affect our quarterly
operating results include:
- our ability to retain existing dealers, attract new dealers and maintain
dealer and customer satisfaction,
- the announcement or introduction of new or enhanced sites, services and
products by us or our competitors,
- general economic conditions and economic conditions specific to the
Internet, online commerce or the automobile industry,
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<PAGE> 9
- a decline in the usage levels of online services and consumer acceptance
of the Internet and commercial online services for the purchase of
consumer products and services such as those offered by us,
- our ability to upgrade and develop our systems and infrastructure and to
attract new personnel in a timely and effective manner,
- the level of traffic on our Web site and other sites that refer traffic
to our Web site,
- technical difficulties, system downtime or Internet brownouts,
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure,
- governmental regulation, and
- unforeseen events affecting the industry.
SEASONALITY IS LIKELY TO CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS. INVESTORS
MAY NOT BE ABLE TO PREDICT OUR ANNUAL OPERATING RESULTS BASED ON A QUARTER TO
QUARTER COMPARISON OF OUR OPERATING RESULTS.
To date, our quarter to quarter growth in revenues have offset any effects
due to seasonality. However, we expect our business to experience seasonality as
it matures. If this occurs, investors may not be able to predict our annual
operating results based on a quarter to quarter comparison of our operating
results. Seasonality in the automotive industry, Internet and commercial online
service usage and advertising expenditures is likely to cause fluctuations in
our operating results and could have a material adverse effect on our business,
operating results and financial condition. We anticipate that purchase requests
will typically increase during the first and third quarters when new vehicle
models are introduced and will typically decline during the second and fourth
quarters. Internet and commercial online service usage and the growth rate of
such usage typically declines during the summer.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE. OUR MARKET IS COMPETITIVE NOT ONLY BECAUSE THE INTERNET HAS MINIMAL
BARRIERS TO ENTRY, BUT ALSO BECAUSE WE COMPETE DIRECTLY WITH OTHER COMPANIES IN
THE OFFLINE ENVIRONMENT.
Our vehicle purchasing services compete against a variety of Internet and
traditional vehicle purchasing services and automotive brokers. Therefore, we
are affected by the competitive factors faced by both Internet commerce
companies as well as traditional, offline companies within the automotive and
automotive-related industries. The market for Internet-based commercial services
is new, and competition among commercial Web sites is expected to increase
significantly in the future. Our business is characterized by minimal barriers
to entry, and new competitors can launch a competitive service at relatively low
cost. To compete successfully as an Internet-based commercial entity, we must
significantly increase awareness of our services and brand name. Failure to
achieve these objectives will cause our revenues to decline and would have a
material adverse effect on our business, results of operations and financial
condition.
We compete with other entities which maintain similar commercial Web sites
including Autoweb.com, Cendant Membership Service, Inc.'s AutoVantage, Microsoft
Corporation's Carpoint and Stoneage Corporation. Republic Industries, Inc., a
large consolidator of dealers, has announced its intention to launch a Web site
for marketing vehicles. We also compete indirectly against vehicle brokerage
firms and affinity programs
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<PAGE> 10
offered by several companies, including Costco Wholesale Corporation and
Wal-Mart Stores, Inc. In addition, all major vehicle manufacturers have their
own Web sites and many have recently launched or announced plans to launch
online buying services, such as General Motors Corporation's BuyPower. We also
compete with vehicle insurers, lenders and lessors as well as other dealers that
are not part of our network. Such companies may already maintain or may
introduce Web sites which compete with ours.
We believe that the principal competitive factors in the online market are:
- brand recognition,
- speed and quality of fulfillment,
- variety of value-added services,
- ease of use,
- customer satisfaction,
- quality of service, and
- technical expertise.
We cannot assure that we can compete successfully against current or future
competitors, many of which have substantially more capital, existing brand
recognition, resources and access to additional financing. In addition,
competitive pressures may result in increased marketing costs, decreased Web
site traffic or loss of market share or otherwise may materially and adversely
affect our business, results of operations and financial condition.
IF ANY OF OUR RELATIONSHIPS WITH INTERNET SEARCH ENGINES OR ONLINE AUTOMOTIVE
INFORMATION PROVIDERS TERMINATES, OUR PURCHASE REQUEST VOLUME COULD DECLINE. IF
OUR PURCHASE REQUEST VOLUME DECLINES, OUR PARTICIPATING DEALERS MAY NOT BE
SATISFIED WITH OUR SERVICES AND MAY TERMINATE THEIR RELATIONSHIP WITH US OR
FORCE US TO DECREASE THE FEES WE CHARGE FOR OUR SERVICE. IF THIS OCCURS, OUR
REVENUES WOULD DECREASE.
We depend on a number of strategic relationships to direct a substantial
amount of purchase requests and traffic to our Web site. The termination of any
of these relationships or any significant reduction in traffic to Web sites on
which our services are advertised or offered, or the failure to develop
additional referral sources, would cause our purchase request volume to decline.
Since our dealers would be receiving fewer purchase requests, they may no longer
be satisfied with our service and may terminate their relationships with us or
force us to decrease the fees we charge for our services. If our dealers
terminate their relationship with us or force us to decrease the fees we charge
for our services, our revenues will decline which will have a material adverse
effect on our business, results of operations and financial condition. We
receive a significant number of purchase requests through a limited number of
Internet search engines, such as Excite, and online automotive information
providers, such as Edmund's and Kelley Blue Book. For example, in 1997 and 1998,
approximately 49% and 34%, respectively, of our purchase requests came through
Edmund's. We may not be able to maintain our relationship with Edmund's or other
online service providers or find alternative, comparable marketing partners
capable of originating significant numbers of purchase requests on terms
satisfactory to us. In addition, we periodically negotiate revisions to existing
agreements and these revisions could increase our costs in future periods. A
number of our agreements with online service providers may be terminated without
cause. Also, our agreement with Excite relating to our sponsorship of Netscape
Communications Corporation's NetCenter Auto Channel is conditioned on Excite's
NetCenter agreement with Netscape remaining in effect. The
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<PAGE> 11
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 15%, respectively, of the
outstanding shares of our common stock. Our officers, directors, founders and
their affiliates, assuming they vote together, will have the ability to control
the election of our board of directors and the outcome of corporate actions
requiring stockholder approval, including mergers and other changes of corporate
control, going private transactions and other extraordinary transactions.
SUBSTANTIAL SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY
DEPRESS OUR STOCK PRICE. SINCE THE MARKET PRICES FOR INTERNET-RELATED STOCKS ARE
LIKELY TO REMAIN VOLATILE, OUR STOCK PRICE MAY BE MORE ADVERSELY AFFECTED THAN
OTHER COMPANIES BY SUCH FUTURE SALES.
Sale of substantial numbers of shares of common stock in the public market
could adversely affect the market price of our common stock and make it more
difficult for us to raise funds through equity offerings in the future. A
substantial number of outstanding shares of common stock and shares of common
stock issuable upon exercise of outstanding stock options will become available
for resale in the public market at prescribed times. Of the 17,858,745 shares to
be outstanding after the offering, the 4,500,000 shares offered hereby will be
eligible for immediate sale in the public market without restriction. Other
outstanding shares of common stock are restricted by 180-day lock-up agreements
with the underwriters, and 6,590,112 shares held by the selling stockholders are
restricted by 270-day lock-up agreements with the underwriters. Upon the
expiration of these lock-up agreements, such shares of common stock will become
eligible for sale in the public market in accordance with the provisions of
Rules 144 and 701 under the Securities Act and any contractual restrictions on
their transfer, as applicable. BT Alex. Brown Incorporated may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to lock-up agreements. Upon completion of the offering, the
holders of approximately 12,997,957 shares of common stock will be entitled to
certain registration rights with respect to such shares until such time as the
holders of such common stock may sell such shares under Rule 144 of the
Securities Act. In addition, we intend to register the shares of common stock
reserved for issuance under our 1996 Stock Option Plan, 1996 Stock Incentive
Plan, 1996 Employee Stock Purchase Plan, 1998 Stock Option Plan and 1999 Stock
Option Plan after the offering.
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING WE MAY NOT BE
ABLE TO CONTINUE TO OPERATE OUR BUSINESS.
We currently anticipate that the net proceeds of this offering that we will
receive, together with our cash, cash equivalents and short-term investments,
will be sufficient to meet our anticipated needs for working capital and other
cash requirements for at least twelve months following the effective date of
this prospectus. We may need to raise
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additional funds sooner, however, in order to fund more rapid expansion, to
develop new or enhance existing services or products, to respond to competitive
pressures or to acquire complementary products, businesses or technologies.
There can be no assurance that additional financing will be available on terms
favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, our ability to fund our expansion, take advantage
of potential acquisition opportunities, develop or enhance services or products
or respond to competitive pressures would be significantly limited. Such
limitation could have a material adverse effect on our business, results of
operations, financial condition and prospects.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A THIRD PARTY FROM ACQUIRING US OR LIMIT THE PRICE THIRD
PARTIES ARE WILLING TO PAY FOR OUR STOCK.
Provisions of our amended and restated certificate of incorporation and
bylaws relating to our corporate governance could make it difficult for a third
party to acquire us, and could discourage a third party from attempting to
acquire control of us. These provisions allow us to issue preferred stock with
rights senior to those of the common stock without any further vote or action by
the stockholders. These provisions, effective upon the closing of this offering,
provide that the board of directors will be divided into three classes, which
may have the effect of delaying or preventing changes in control or change in
our management because less than a majority of the board of directors are up for
election at each annual meeting. In addition, these provisions impose various
procedural and other requirements which could make it more difficult for
stockholders to effect corporate actions such as a merger, asset sale or other
change of control of us. Such charter provisions could limit the price that
certain investors might be willing to pay in the future for shares of our common
stock and may have the effect of delaying or preventing a change in control. The
issuance of preferred stock also could decrease the amount of earnings and
assets available for distribution to the holders of common stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the common stock.
We are also subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. In general, the statute prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns or did own 15% or more of the corporation's voting stock.
OUR ACTUAL RESULTS COULD DIFFER FROM FORWARD-LOOKING STATEMENTS IN THIS
PROSPECTUS.
This prospectus contains forward-looking statements based on current
expectations which involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of many factors, including the risk factors set forth above and
elsewhere in this prospectus. The cautionary statements made in this prospectus
should be read as being applicable to all forward-looking statements wherever
they appear in this prospectus.
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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 the initial public offering price of
$23.00 per share, after deducting underwriting discounts and estimated offering
expenses, will be approximately $72.8 million. The selling stockholders will
receive $21.4 million from the sale of one million shares of common stock, after
deducting underwriting discounts, and an additional $13.6 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 the public offering
price of $23.00 net of underwriting discounts and estimated 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 $100,802
======== ========
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............................ 67,813 140,628
Cumulative translation adjustment..................... (19) (19)
Accumulated deficit................................... (43,273) (43,273)
-------- --------
Total stockholders' equity............................ 25,868 98,686
======== ========
Total capitalization.................................. $ 25,868 $ 98,686
======== ========
</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 the initial public offering price of $23.00
and the receipt by Autobytel.com of the estimated net proceeds from such sale,
after deducting underwriting discounts and estimated offering expenses, the pro
forma net tangible book value of Autobytel.com at December 31, 1998 would have
been $98.6 million, or $5.52 per share. This represents an immediate increase in
pro forma net tangible book value of $3.72 per share to existing stockholders
and an immediate dilution of $17.48 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............... $23.00
Pro forma net tangible book value per share before the
offering............................................ $1.80
Increase per share attributable to purchases of common
stock offered in this offering...................... 3.72
-----
Pro forma net tangible book value per share after the
offering............................................ 5.52
------
Dilution per share to purchasers of common stock
offered in this offering............................ $17.48
======
</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 underwriting discounts and estimated offering
expenses at the public offering price of $23.00 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 45.8 $ 4.74
New investors................... 3,500,000 19.6 80,500,000 54.2 23.00
---------- ----- ------------ ----- ------
Total......................... 17,858,745 100.0 $148,533,000 100.0 $ 8.32
========== ===== ============ ===== ======
</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 $100,802
Working capital............................ (1,099) 5,977 10,938 23,436 96,254
Total assets............................... 285 12,298 20,513 34,207 107,025
Accumulated deficit........................ (1,030) (7,065) (23,875) (43,273) (43,273)
Stockholders' equity (deficit)............. (990) 7,996 13,259 25,868 98,686
</TABLE>
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of Autobytel.com should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
This discussion contains forward-looking statements based on current
expectations that involve risks and uncertainties. Actual results and the timing
of certain events may differ significantly from those projected in such
forward-looking statements due to a number of factors, including those set forth
in the section entitled "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are a leading, branded Internet site for new and pre-owned vehicle
information and purchasing services connecting consumers to our network of 2,718
participating dealers, as of December 31, 1998, in the United States and Canada.
Through our Web site, www.autobytel.com, consumers can research pricing,
specifications and other information regarding new and pre-owned vehicles. When
consumers indicate they are ready to buy, they can be connected to
Autobytel.com's dealer network. In addition, we are continuing to develop
ancillary programs for consumers such as financing, insurance and warranty
services. We introduced our new vehicle marketing service in 1995, and in 1997
commenced our CyberStore program.
Our revenues have increased from $274,000 in 1995 to $23.8 million in 1998.
We derive substantially all of our revenues from fees paid by subscribing
dealers, and we expect to be primarily dependent on our dealer network for
revenues in the foreseeable future. Dealers using our services pay an initial
subscription fee, as well as ongoing monthly fees based on the aggregation and
transmittal to them of purchase requests and through fiscal 1997, an annual fee.
In January 1998, Autobytel.com started to eliminate annual fees and increase
monthly fees to subscribing dealers. Average monthly program fees per dealer
were $947, $785 and $557 in 1998, 1997 and 1996, respectively. We also derive
some revenue on a per transaction basis by facilitating transactions between
consumers and other third parties, primarily lenders and insurance companies. We
reserve the right to raise our fees to dealers after 30 days notice.
Since the end of January 1999 and on a going forward basis we are
converting our dealers to new contracts with one year terms. Initial
subscription fees from dealers are recognized ratably over the first twelve
months of each dealer's contract in order to match the costs of integrating and
training dealers with revenues earned. Amortized revenues from initial
subscription fees were $2.4 million, $3.8 million and $2.2 million in 1998, 1997
and 1996, respectively. We anticipate that our initial subscription fee
amortization revenue will decline as a percentage of total revenue over time as
monthly fee revenues continue to grow. As our dealer network grows in absolute
terms, the number of new dealers added as a percentage of total dealers is
growing at a slower pace. Therefore, initial subscription fee revenue is
declining as a percentage of total revenue while monthly fee revenues are
growing. Monthly fees are recognized in the period the service is provided.
Monthly fee revenues were $18.2 million, $8.5 million, and $2.6 million in 1998,
1997 and 1996, respectively. Annual fees are recognized ratably over twelve
months. Amortized revenues from annual fees were $2.3 million, $1.1 million and
$103,000 in 1998, 1997 and 1996, respectively. Annual fee revenue will decline
in 1999 because we discontinued the practice of charging annual fees in late
1998. From October 1996 to February 1998, our revenues also included revenues
from sales of personal computers to our dealers, a practice we discontinued in
the first quarter of 1998. Our financial statements include revenues
24
<PAGE> 26
derived from computer equipment sales of $197,000 in 1998, $1.5 million in 1997,
and $147,000 in 1996. Excluding these revenues, our revenues would have been
$23.6 million, $13.8 million and $4.9 million in 1998, 1997 and 1996,
respectively.
Although we do not derive any direct revenue from the volume of purchase
requests, we believe our ability to increase the number of subscribing dealers
and the amount of fees paid by dealers is related to the volume of purchase
requests routed through our Web site. Vehicle purchase requests routed through
our online system increased from approximately 345,000 in 1996 to approximately
761,000 in 1997, an increase of 121%, and to 1.3 million in 1998, an increase of
71% over the previous year. Since inception we have directed approximately 2.5
million purchase requests to dealers.
We believe that our revenue growth has been and will continue to be
primarily dependent on our ability to continue to drive a significant number of
purchase requests to our dealer network, increase the number of dealers and
increase the average fees paid by each dealer. Since inception, our dealer
network has expanded in each quarter and as of December 31, 1998 there were
2,718 dealers. Of these dealers, 2,386 dealers, or 88% pay for our service and
we call them core dealers. The remaining 332 dealers, or 12% do not pay for our
service and we call them non-core dealers. Our non-core dealers are generally
associated with lower volume vehicle manufacturers such as Jaguar or Suzuki or
are located in remote, low volume territories and receive purchase request
referrals without paying fees to us. We enter into agreements with non-core
dealers to ensure the broadest geographic coverage possible for every make of
vehicle. These agreements also allow us to increase consumer satisfaction by
offering a complete selection of vehicle dealers throughout North America.
However, our costs incurred from non-core dealers are not offset by revenues.
Although the net number of our dealers in the United States increased by 51%
during 1998, 556 of our dealers were terminated or canceled during the same
period. We believe that the principal reasons for the dealer terminations were
due to our enforcement of our dealer network agreements and the cancellation of
our fax delivery of purchase requests in conjunction with the implementation of
the Dealer Real Time system. Our inability or failure to reduce dealer turnover
could have a material adverse effect on our business, results of operations and
financial condition.
Because our primary revenue source is from program fees, our business model
is significantly different from many existing Internet commerce sites. The
automobiles requested through our site are sold by individual dealers; therefore
we derive no direct revenue from the sale of a vehicle and have no significant
cost of goods sold, no procurement, carrying or shipping costs and no inventory
risk. The only cost of goods sold incurred by us since our inception was the
cost of computer equipment sold to dealers. We discontinued selling computer
equipment in the first quarter of 1998.
Sales and marketing costs consist primarily of promotion and advertising to
build brand awareness and encourage potential customers to go to our Web site.
Our sales and marketing expenses were $30.0 million, $21.5 million and $7.8
million in 1998, 1997 and 1996, respectively. We use Internet advertising, as
well as traditional media, such as television, radio and print. The majority of
our Internet advertising is comprised of sponsorship and partnership agreements
with Internet portals and advertising and marketing affiliations with online
automotive information providers. These internet portals and online information
providers charge a combination of set-up, initial, annual, monthly and variable
fees. Set-up fees are incurred for the development of the link between
Autobytel.com and the internet portal or online information provider and are
expensed in the period the link is established. Initial fees are prepaid annual
fees, which are amortized over the period they relate to and monthly fees which
are expensed in the month they
25
<PAGE> 27
relate to. Variable fees are fees paid for purchase requests and are expensed in
the period the purchase requests are received. During 1998, total Internet
marketing and advertising costs incurred were $11.1 million, including initial,
annual, monthly and variable fees of $50,000, $3.0 million, $2.9 million and
$5.2 million, respectively. There were no set-up fees incurred in 1998. Also
included in the sales and marketing expenses are the costs associated with
signing up new dealers and their ongoing training and support. Sales and
marketing costs are recorded as an expense in the period the service is
provided. Sales and marketing expenses have historically fluctuated
quarter-to-quarter due to varied levels of marketing and advertising and we
believe this will continue in the future.
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
revenues:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... 100% 100% 100%
Operating expenses:
Sales and marketing.................................. 155 140 126
Product and technology development................... 35 36 36
General and administrative........................... 33 38 25
---- ---- ----
Total operating expenses..................... 223 214 187
---- ---- ----
Loss from operations................................. (123) (114) (87)
---- ---- ----
Other income, net...................................... 2 4 5
Loss before provision for income taxes............... (120) (110) (81)
---- ---- ----
Provision for income taxes............................. -- -- --
---- ---- ----
Net loss............................................. (120)% (110)% (81)%
==== ==== ====
</TABLE>
1998 COMPARED TO 1997
Revenues. Our revenues increased by $8.5 million, or 56%, to $23.8 million
in 1998, compared to $15.3 million in 1997. The growth in revenue in 1998 was
primarily attributable to an increase in the net core dealer count and $162, or
a 21% increase in the average monthly program fee charged to subscribing
dealers. The net number of core dealers increased by 743, or 45%, to 2,386 as of
December 31, 1998, compared to 1,643 as of December 31, 1997. Our financial
statements include revenues derived from computer sales, a practice we
discontinued in the first quarter of 1998, of $197,000 in 1998 and $1.5 million
in 1997. Excluding our revenue from the sale of computer equipment, our revenues
increased by $9.8 million, or 71%, to $23.6 million in 1998 as compared to $13.8
million in 1997. In 1998, we launched additional ancillary services such as Web
site advertising and warranties.
Sales and Marketing. Sales and marketing expenses primarily include
advertising and marketing expenses paid to our purchase request providers and
for developing our brand equity, as well as personnel and other costs associated
with sales, training and support of our dealer network. Sales and marketing
expense increased by $8.6 million, or 40%, to $30.0 million in 1998, compared to
$21.5 million in 1997. The increase was primarily due to a $5.3 million or 91%
increase in fees related to information search aggregators resulting from higher
purchase requests and a $4.0 million, or 58% increase in other advertising and
26
<PAGE> 28
marketing expenses to build brand awareness. We expect to continue to increase
our advertising and marketing budget in the foreseeable future.
Product and Technology Development. Product and technology development
expense primarily includes personnel costs relating to enhancing the features,
content and functionality of our Web site and Dealer Real Time system, as well
as expenses associated with our telecommunications and computer infrastructure.
Product and technology development expense increased by $3.1 million, or 57%, to
$8.5 million in 1998, compared to $5.4 million in 1997. The increase was
primarily due to the additional staff and expenses related to Auto-by-Tel UK
Limited of $1.4 million in 1998.
General and Administrative. General and administrative expense primarily
consists of executive, financial and legal personnel expenses and related costs.
General and administrative expense was $5.9 million in 1998 and 1997. Excluding
a non-recurring charge of $1.1 million associated with a proposed initial public
offering withdrawn in April 1997, general and administrative expense increased
by $1.1 million, or 23%, to $5.9 million in 1998, compared to $4.8 million in
1997. This increase is primarily due to additional executive and financial
personnel and rent due to expansion of facilities.
Other Income. Other income consists primarily of interest income. Other
income increased by $660,000, or 106%, to $1.3 million in 1998, compared to
$620,000 in 1997. This increase is primarily due to a $1.4 million gain realized
from the sale of Auto-by-Tel UK Limited to Inchcape Automotive Limited in
November 1998, offset in part by a $792,000 charge for the value of warrants
issued to Invision AG and Aureus Private Equity AG. Excluding these
non-recurring items, other income increased by $44,000, or 7%, to $664,000 in
1998 as compared to $620,000 in 1997. Interest income increased due to higher
cash balances from the sale of preferred stock in 1998.
Income Taxes. No provision for federal income taxes has been recorded as we
incurred net operating losses through December 31, 1998. As of December 31,
1998, we had approximately $37.1 million of federal and $18.4 million of state
net operating loss carry forwards that we believe are available to offset future
taxable income; such carry forwards expire in various years through 2018. Under
the Tax Reform Act of 1986, the amounts of and benefits from our net operating
losses carry forwards will likely be limited upon the completion of the initial
public offering due to a cumulative ownership change of more than 50% over a
three year period. Based on preliminary estimates, we believe the effect of such
limitation, if imposed, will not have a material adverse effect on our business,
results of operations and financial condition.
1997 COMPARED TO 1996
Revenues. Our revenues increased by $10.3 million, or 206%, to $15.3
million in 1997, compared to $5.0 million in 1996. The significant growth in
revenue in 1997 was primarily attributable to an increase in the net core dealer
count and a $228, or 41% increase in the average monthly program fee charged to
subscribing dealers. The number of core dealers increased by 437, or 36%, to
1,643 as of December 31, 1997, compared to 1,206 as of December 31, 1996. We
started selling computer equipment to our dealers during the last quarter of
1996 and these revenues were $1.5 million in 1997 and $147,000 in 1996.
Excluding our revenue from the sale of computer equipment, our revenues
increased by $9.0 million, or 184%, to $13.8 million in 1997, compared to $4.9
million in 1996. Also, we launched several new ancillary services in 1997,
including leasing, financing, credit union services and the Mobalist Rewards
program, which cumulatively represented less than 3% of total revenues during
1997.
27
<PAGE> 29
Sales and Marketing. Sales and marketing expense increased by $13.7
million, or 176%, to $21.5 million in 1997, compared to $7.8 million in 1996.
This increase is attributable primarily to the increase in advertising and
marketing costs associated with driving the growth of purchase requests. The
number of purchase requests increased by approximately 416,000, or 121%, to
approximately 761,000. To a lesser degree this increase was also due to growth
in personnel and other expenses associated with sales training and maintenance
of our dealer channel.
Product and Technology Development. Product and technology development
expense increased by $3.7 million, or 206%, to $5.4 million in 1997, compared to
$1.8 million in 1996. The increase in product and technology development expense
was primarily associated with adding additional product and technical staff.
General and Administrative. General and administrative expense increased by
$4.2 million, or 263%, to $5.9 million in 1997, compared to $1.6 million in
1996. The increase was primarily due to additional executive, financial and
legal personnel and related costs, as well as a non-recurring $1.1 million
charge associated with a withdrawn initial public offering in 1997. Excluding
this non-recurring charge, general and administrative expense increased by $3.1
million, or 194%, to $4.8 million in 1997, compared to $1.6 million in 1996.
Other Income. Other income, which primarily consists of interest income,
increased by $496,000, or 400%, to $620,000 in 1997, compared to $124,000 in
1996. Interest income increased due to higher cash balances from the sale of
preferred stock in 1997.
28
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth quarterly statement of operations data for
the eight quarters ended December 31, 1998. This quarterly information has been
derived from our unaudited financial statements and, in our opinion, includes
all adjustments necessary for a fair presentation of the information for the
periods covered. The quarterly data should be read in conjunction with our
consolidated financial statements and related notes. The operating results for
any quarter are not necessarily indicative of the operating results for any
future period.
INCOME STATEMENT FOR THE THREE MONTHS ENDED
(unaudited in thousands)
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES.......................... $ 3,063 $ 3,414 $ 4,293 $ 4,568 $ 4,632 $ 5,405 $ 6,462 $ 7,327
Operating expenses:
Sales and marketing............. 6,675 4,683 4,436 5,660 8,459 5,470 8,320 7,784
Product and technology
development................... 1,103 1,394 1,496 1,455 1,895 1,969 2,352 2,312
General and administrative...... 1,823 1,216 1,079 1,733 1,346 1,190 1,480 1,892
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses...... 9,601 7,293 7,011 8,848 11,700 8,629 12,152 11,988
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations............ (6,538) (3,879) (2,718) (4,280) (7,068) (3,224) (5,690) (4,661)
------- ------- ------- ------- ------- ------- ------- -------
Other income, net................. 165 114 147 194 185 163 153 779
Loss before provision for income
taxes......................... (6,373) (3,765) (2,571) (4,086) (6,883) (3,061) (5,537) (3,882)
------- ------- ------- ------- ------- ------- ------- -------
Provision for income taxes........ 11 4 -- -- 15 10 6 4
------- ------- ------- ------- ------- ------- ------- -------
Net loss........................ $(6,384) $(3,769) $(2,571) $(4,086) $(6,898) $(3,071) $(5,543) $(3,886)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
PERCENTAGE OF REVENUE FOR THE THREE MONTHS ENDED
(unaudited)
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... 100% 100% 100% 100% 100% 100% 100% 100%
Operating expenses:
Sales and marketing.............. 218 137 103 124 183 101 129 106
Product and technology
development.................... 36 41 35 32 41 36 36 32
General and administrative....... 60 36 25 38 29 22 23 26
---- ---- --- --- ---- --- --- ---
Total operating expenses....... 313 214 163 194 253 160 188 164
---- ---- --- --- ---- --- --- ---
Loss from operations............. (213) (114) (63) (94) (153) (60) (88) (64)
---- ---- --- --- ---- --- --- ---
Other income, net.................. 5 3 3 4 4 3 2 11
Loss before provision for income
taxes.......................... (208) (110) (60) (89) (149) (57) (86) (53)
---- ---- --- --- ---- --- --- ---
Provision for income taxes......... -- -- -- -- -- -- -- --
---- ---- --- --- ---- --- --- ---
Net loss......................... (208)% (110)% (60)% (89)% (149)% (57)% (86)% (53)%
==== ==== === === ==== === === ===
</TABLE>
Revenues. Growth in our dealer network and increases in fees and the sale
of ancillary products and services have resulted in a compounded quarterly
growth in revenue of 13% over the last eight quarters of operations. Revenue
growth is primarily associated with program fees and, to a lesser extent, new
product offerings. Between the quarters ended December 31, 1996 and March 31,
1998, we recognized revenues associated with computer systems sold to dealers.
After the introduction of the current Dealer Real Time system in February 1998,
we discontinued the sale of computer equipment. Our financial
29
<PAGE> 31
statements include non-recurring revenue for the Dealer Real Time system
hardware sales of $147,000 in 1996, $1.5 million in 1997, and $197,000 in 1998.
Sales and Marketing. We have increased spending on sales and marketing
every year since our inception. The increase in sales and marketing spending
accelerated after we completed our Series A preferred stock offering of $15.0
million in August 1996. We launched an aggressive advertising campaign, and in
the quarters ended March 31, 1997 and 1998, we aired a television advertisement
during the Super Bowl at a cost of approximately $1.3 million and $1.5 million,
respectively. Additionally, in the quarter ended December 31, 1997, we entered
into several Internet branding and purchase request generation contracts,
including contracts with Excite. From October 1996 through February 1998, we
incurred expenses of approximately $1.6 million associated with the sale of
computer equipment to support the old Dealer Real Time system. Such expenses
were included in sales and marketing. These computer sales were discontinued in
February 1998. We have generally increased the number of sales and marketing
personnel each quarter.
Product and Technology Development. Product and technology development has
generally risen on a dollar basis since our inception. The primary cause for the
increase in product and technology development expenses is the addition of
personnel to develop the technology infrastructure and new programs for our
dealers and Internet consumers.
General and Administrative. The quarter ended March 31, 1997 includes
approximately $1.1 million in previously capitalized legal, accounting and other
direct costs associated with a proposed initial public offering that was
withdrawn in April 1997. In the quarter ended December 31, 1997, general and
administrative expenses included legal, severance and bonuses incurred during
the period.
To date, quarter to quarter growth in our revenues have offset any effects
due to seasonality. However, we expect our business to experience seasonality as
it matures, reflecting seasonal fluctuations in the automotive industry,
Internet and commercial online service usage and advertising expenditures. We
anticipate that purchase requests will typically increase during the first and
third quarters when new vehicle models are introduced and will typically decline
during the second and fourth quarters. Internet and commercial online service
usage and the growth rate of such usage may be expected typically to decline
during the summer. In addition, our advertising costs in traditional media, such
as broadcast and cable television, generally decline in the first and third
quarters of each year. Depending on the extent to which the Internet and
commercial online services are accepted as an advertising medium, seasonality in
the level of advertising expenditures could become more pronounced for
Internet-based advertising. Seasonality in the automotive industry, Internet and
commercial online service usage, and advertising expenditures is likely to cause
fluctuations in our operating results and could have a material adverse effect
on our business, operating results and financial condition.
STOCK OPTIONS GRANTED IN 1999
From January to March 1999, we granted stock options to purchase 388,236
shares of common stock under the 1999 Stock Option Plan. These stock options
were granted to employees and directors at exercise prices of $13.20 and $16 per
share which were below the fair market value at the date of grant. In relation
to these grants, we will recognize estimated compensation expense of
approximately $2.7 million ratably over the vesting term of one to four years.
Compensation expense of approximately $1,092,000, $537,000,
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$537,000, $537,000 and $42,000 will be classified as operating expense in the
years ending 1999, 2000, 2001, 2002 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from the
issuance of shares of preferred stock, which through December 31, 1998 totaled
$67.9 million, comprised of $15.0 million raised in August 1996, $9.1 million
raised in January 1997, $13.0 million raised in October 1997, $0.5 million
issued in exchange for advertising in April 1998, $5.0 million raised in May
1998, $0.6 million issued in exchange for advertising in October 1998, $5
million raised in November 1998 and $19.7 million raised in December 1998. As of
December 31, 1998, we had approximately $28.0 million in cash and cash
equivalents.
Net cash used in operating activities increased to $16.3 million in 1998
from $13.5 million in 1997 and $3.6 million in 1996. The increases in the net
cash used in operating activities resulted primarily from increased sales and
marketing, product development and general and administrative expenditures
related to expanding our infrastructure. Also, working capital was used to
finance accounts receivable, prepaid expenditures and other assets, offset
partially by increased deferred revenue.
Net cash used in investing activities decreased to $1.1 million in 1998
from $1.8 million in 1997 and increased to $1.8 million in 1997 from $1.5
million in 1996. The net cash used in investing activities resulted primarily
from purchases of property and equipment consisting of computer hardware,
telecommunications equipment, furniture and leasehold improvements.
Net cash provided by financing activities increased to $29.6 million in
1998 from $22.0 million in 1997 and $14.1 million in 1996. The net cash provided
by financing activities resulted primarily from the issuance of preferred stock.
We believe our current cash and cash equivalents, excluding proceeds from
this offering, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. With respect
to years beyond fiscal 1999, we may be required to raise additional capital to
meet our long term operating requirements. Although we have grown our revenues
consistently since inception, our expenses have continued to and in the
foreseeable future are expected to exceed our revenues. Accordingly, we do not
expect to be able to fund our operations from internally generated funds for the
foreseeable future. Our cash requirements depend on several factors, including
the level of expenditures on marketing and advertising, the rate of market
acceptance, the ability to expand our customer base and increase the volume of
purchase requests, the cost of contractual arrangements with online information
providers, search engines and other referral sources, and other factors. The
timing and amount of such working capital requirements cannot accurately be
predicted. If capital requirements vary materially from those currently planned,
we may require additional financing sooner than anticipated. We have no
commitments for any additional financing, and there can be no assurance that any
such commitments can be obtained on favorable terms, if at all. Any additional
equity financing may be dilutive to our stockholders, and debt financing, if
available, may involve restrictive covenants with respect to dividends, raising
capital and other financial and operational matters which could restrict our
operations or finances. If we are unable to obtain additional financing as
needed, we may be required to reduce the scope of our operations or our
anticipated expansion, which could have a material adverse effect on our
business, results of operations and financial condition.
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YEAR 2000 ISSUES
Because many computer applications have been written using two digits
rather than four to define the applicable year, some date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
"Year 2000 issue" could result in system failures or miscalculations causing
disruptions of operations, including disruptions of our Web site, the Dealer
Real Time system or normal business activities.
The information technology systems pertain to software applications and
database interface programs that support the consumer website, as well as the
Dealer Real Time system that manages the inventory of pre-owned vehicles and
purchase requests transmitted to our participating dealers.
Non-information technology systems include accounts receivable/payable,
payroll, banking, 401k, postal bar code, and Federal Express software that
support our daily business activities. Although we have not conducted a survey,
we believe there is no material exposure to our non-information technology
systems. We believe that we do not have any other non-information, embedded
technology systems, with potential Year 2000 issues.
We do not believe that we have material exposure to the Year 2000 issue
with respect to our own information systems since our existing systems correctly
define the Year 2000 with four digits. We are currently taking two actions to
mitigate the risk and exposure of the Year 2000 issue:
1. We are in the process of obtaining confirmation from all of our
third-party vendors that they have resolved their Year 2000 issues.
These third-party vendors can be categorized as follows:
A. information technology systems
- computer hardware vendors
- computer software vendors
- network communications vendors
- data suppliers vendors
B. non-information technology systems
- landlord who oversees the facilities and utilities
- building security company
We expect to receive replies to our Year 2000 requests from third-party
vendors by second quarter 1999. Approximately 35% of the third party
vendors have responded. All of these vendors provided a statement of
compliance either displayed on their website or furnished in hard copy
format. These vendors who have already responded represent the most
critical vendors in our business.
2. In March 1999, we implemented a test lab environment to simulate the
Year 2000 rollover with hardware, software, network communications
vendors and certain key data suppliers. We plan to make any
modifications resulting from the test lab environment by the third
quarter of 1999.
Based on the test results, if any vendor was found to be non-compliant, our
contingency plan is to first attempt to find a replacement vendor, and if no
replacement can be found, to assist such vendor in becoming Year 2000 compliant.
If we cannot effectively assist such vendor in becoming Year 2000 compliant, we
plan to set up a front-end application to screen all non-compliant data or to
receive the data and modify it so
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that the data is Year 2000 compliant. We plan to establish our front-end
application screen in the third quarter of 1999.
The worst-case scenario pertaining to Year 2000 issue would be an overall
failure of the national Internet and telecommunications infrastructure. This may
require alternative means for users to gain connection to our servers.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This statement, adopted by us in the first quarter of
1998, requires companies to report a new measurement of income. Comprehensive
income (loss) is to include foreign currency translation gains and losses and
other unrealized gains and losses that have historically been excluded from net
income (loss) and reflected instead in equity. Currently, no material
differences exist between our net income or loss and comprehensive net income or
loss.
In March 1998, the American Institute of Certified Public Accounts (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained For Internal Use," which is effective for fiscal
years beginning after December 15, 1998. SOP No. 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and defines specific criteria that determine when such costs are required to
be expensed, and when such costs may be capitalized. Management believes the
adoption of SOP 98-1 will not have a material effect on our consolidated
financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up
Activities," which will be adopted by us in the beginning of our fiscal year
beginning January 1, 1999. SOP No. 98-5 provides guidance on the financial
reporting of start-up costs and organization costs and requires such costs to be
expensed as incurred. We believe the adoption of SOP 98-5 will not have a
material effect on our financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which will be adopted by us in our fiscal
year beginning January 1, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments by requiring every derivative
instrument to be recorded in the balance sheet as a liability or an asset at
fair market value. Any changes to a derivatives fair market value must be
recognized currently in earnings unless specific hedge accounting criteria are
met. We do not have any derivative instruments or undertake any hedging
activities and do not anticipate doing so, therefore the adoption of SFAS No.
133 will not have a material effect on our financial statements.
LIMITATION ON NET OPERATING LOSS CARRYFORWARDS
We have approximately $37.1 million federal net operating loss
carryforwards as of December 31, 1998 which may be available to reduce the
amount of United States federal income taxes payable by us in the future.
However, if we undergo an "ownership change" within the meaning of Section 382
of the Internal Revenue Code, an annual limitation will be imposed on our use of
net operating loss carryforwards. If an "ownership change" occurs, Section 382
of the Internal Revenue Code limits the amount of net operating
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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 $411 million, we will be permitted
to offset against any taxable income $19 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 $23.
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BUSINESS
OVERVIEW
We are a leading, branded Internet site for new and pre-owned vehicle
information and purchasing services. Through our Web site, www.autobytel.com,
consumers can research pricing, specifications and other information regarding
new and pre-owned vehicles. When consumers indicate they are ready to buy, they
can be connected to Autobytel.com's network of over 2,700 participating dealers
in North America, with each dealer representing a particular vehicle make.
Dealers participate in our network by entering into non-exclusive contracts with
us. We expect our dealers to promptly provide a haggle-free, competitive offer.
In addition, consumers can apply for and receive insurance, financing, leasing
and warranty proposals as well as other services and information through our Web
site. We believe that our services provide benefits for consumers by supplying
them with information to make an informed and intelligent vehicle purchasing
decision and by directing consumers to dealers, whom we expect to provide a
competitive price. In addition, our services are intended to reduce our dealers'
costs by directing to them large volumes of purchase requests from potential
consumers who have already indicated their intent to buy, thereby enabling
dealers to lower their marketing, advertising and personnel costs while
enhancing sales productivity. We provide our services free of charge to
consumers and derive substantially all of our revenues from fees paid by
participating dealers.
We introduced our new vehicle purchasing services in May 1995 and our
Certified Pre-Owned CyberStore in April 1997. Our new vehicle purchasing service
enables consumers to shop for and select a new vehicle through our Web site by
providing research on new vehicles such as pricing, features, specifications and
colors. When consumers indicate they are ready to buy, they can complete a
purchase request online. The CyberStore allows consumers to search for a
pre-owned vehicle according to the price, make, model, color, year and location
of the vehicle. The CyberStore locates and displays the description, location
and actual photograph of all vehicles that satisfy the consumer's search
parameters. The dealers in our network use our online information platform, the
Dealer Real Time system, which provides dealers with immediate purchase request
information for new and pre-owned vehicles, the ability to track customers and
purchase requests, and other value-added features, including automatic uploading
of pre-owned vehicle inventory into our database. In addition, Autobytel.com
offers a number of automotive finance and insurance services in conjunction with
strategic partners, including automobile financing through Chase, GE Capital and
Provident Bank, automotive insurance through member companies of the American
International Group and extended warranty service through New Hampshire
Insurance Company, a member company of the American International Group.
BACKGROUND
Growth of the Internet and Online Commerce. The Web and online services
have emerged as significant global communications and commercial media enabling
millions of people worldwide to share information, communicate and conduct
business electronically. We believe that the number of Web users will grow based
on a number of factors, including the large and growing base of installed
personal computers in the home and workplace, the decreasing cost of personal
computers, easier, faster and cheaper access to the Internet, the distribution
of broadband applications, the proliferation of Internet
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content and the increasing familiarity and acceptance of the Internet by
businesses and consumers.
The growth in the use of the Internet has also led to a rapid growth of
online commerce. Web commerce sites are enabling businesses to target and manage
a broad customer base and establish and maintain ongoing direct customer
relationships. As a growing number of businesses and information providers have
begun marketing on the Web, it has rapidly become a medium in which consumers
can access a vast amount of information regarding the pricing, quality and
specification of products. Additionally, online transactions can be faster, less
expensive and more convenient than transactions conducted in person or even over
the telephone.
The Automotive Vehicle Market. Automotive dealers operate in localized
markets and face significant state regulations and increasing business
pressures. These fragmented markets, with over 49,000 dealers in aggregate, are
characterized by:
- a perceived overabundance of dealerships,
- competitive sales within regional markets,
- increasing advertising and marketing costs that continue to reduce dealer
profits,
- high-pressure sales tactics with consumers, and
- large investments by dealers in real estate, construction, personnel and
other overhead expenses.
In addition, consumers have traditionally entered into the highly
negotiated sales process with relatively little information regarding
manufacturer's costs, leasing costs, financing costs, relative specifications
and other important information. Buying a vehicle is considered to be one of the
most significant purchases a United States consumer makes. According to CNW
Marketing/Research, over $657 billion and $667 billion was spent on new and
pre-owned vehicles in the United States representing the sale of over 60.0 and
60.3 million vehicles in 1997 and 1998, respectively. Although automotive
retailing attracts significant consumer dollars, we believe that consumers
associate the traditional vehicle buying experience with high-pressure sales
tactics.
THE AUTOBYTEL.COM SOLUTION
We believe that our online products and services improve the vehicle
purchasing process for both consumers and dealers. We offer consumers an
information-rich Web site, numerous tools to configure this information, and a
quality fulfillment experience. As part of the fulfillment experience, we expect
our dealers to provide competitive price quotes for new and pre-owned vehicles.
We believe our services enable dealers to reduce personnel and marketing costs,
increase consumer satisfaction, increase customer volume, and expand dealer
territories.
Benefits to Consumers. Our Web site provides consumers free of charge
up-to-date specifications and pricing information on vehicles. In addition, our
consumers gain easy access to valuable automotive information, such as dealer
invoice pricing and the AutoBuyTools(TM) services which consist of a lease
calculator, a loan calculator to determine monthly payments and a lease or buy
decision tool. Our database of articles allows consumers to perform online
library research by accessing documents such as weekly automotive reports,
consumer reviews and manufacturer brochures. Various automotive information
service providers, such as Edmund's, Kelley Blue Book, Pace Publication's
Carprice.com, and IntelliChoice, are also aggregated on Autobytel.com's Web site
to assist consumers with specific vehicle and related automotive decisions such
as insurance and
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financing. Armed with such information, the consumer should be more confident
and capable of making an informed and intelligent vehicle buying decision.
We expect our dealers to provide competitive price quotes for new and
pre-owned vehicles. By providing dealers with a large number of consumers
through quality purchase requests, we believe that we can help our dealers to
lower their operating costs due to higher sales volume. We believe that lowering
their operating costs allows dealers to offer more competitive prices.
We believe we offer consumers a significantly different vehicle purchasing
experience from that of traditional methods. Consumers using the Autobytel.com
system are able to shop for a vehicle, and make financing and insurance
decisions from the convenience of their own home or office. We expect dealers to
provide consumers a haggle-free price quote and a high level of customer
service. We form our dealer relationships after careful analysis of automotive
sales and demographic data in each region. We seek to include in our dealer
network the largest and highest quality dealers within defined territories. Our
strategy to be the leading Internet-based vehicle information and purchasing
service depends on our ability to provide consumers with a quality experience.
Benefits to Dealers. Autobytel.com benefits dealers by reducing the
dealers' incremental personnel and marketing costs, increasing consumer
satisfaction and increasing consumer volume. Through our investment in national
advertising and brand recognition of Autobytel.com, we attract consumers to our
Web site and direct them to dealers in their local area. We believe this
provides dealers access to a larger number of prequalified consumers without
increasing their advertising costs. Dealers' personnel costs should be reduced
because we provide dealers access to potential purchasers who have completed
their research and should be ready to buy or lease a vehicle. As a result,
reaching these consumers and selling or leasing them vehicles costs the dealer
little or no additional overhead expense other than the fees paid to us and the
personnel costs of a dedicated Autobytel.com manager. Through our Dealer Real
Time system, we provide dealers with on-site technology to better track sales,
inventory, customer solicitations, responses and other communications.
By providing consumers a quality fulfillment experience, we seek to provide
Autobytel.com dealers a large number of consumers, allowing them to compete more
effectively. Our solution includes an expanding network of over 2,700
participating dealers in the United States and Canada representing every major
domestic and imported make of vehicles and light trucks. Because a single
dealership location may hold multiple manufacturer franchises, the dealership
may represent more than one dealer in the Autobytel.com network.
To increase each dealer's incentive to participate in the Autobytel.com
system, we allocate each dealer an exclusive geographic territory based upon
specific vehicle make. A territory allocated by us to a dealer is generally
larger than a territory assigned to a dealer by a manufacturer. By granting
dealers exclusivity within a geographic area, we intend to assure dealers of a
large enough volume of quality purchase requests to lower their operating costs.
Our Web Site. Because Web sites can be continually updated and provide a
large quantity of quality information, we believe the Internet offers the most
efficient medium for consumers to learn about and shop for vehicles. The
Internet's global reach to consumers allows us to leverage our investment in
branding and marketing across a very large national and international audience
to create qualified purchase requests for vehicles.
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For these reasons, we also believe that the Internet represents the most
efficient method of directing purchase requests to local markets and dealers.
We currently provide the following services on our Web site:
[Chart depicting programs and services accessible to Internet consumers through
Autobytel.com]
STRATEGY
Our primary objective is to be the leading global Internet brand for
vehicle information and purchasing services. We intend to achieve this objective
through the following principal strategies:
Continue to Build Brand Equity. We believe that due to our focus on both
online and offline marketing, we have created one of the leading brand names in
our sector. We intend to continue aggressively to market and advertise to
enhance our brand recognition with consumers. We believe that continuing to
strengthen brand awareness of the Autobytel.com name among consumers is critical
to attract vehicle buyers, increase purchase requests and, in turn, increase the
size of our dealer base. We intend to continue advertising on the Internet and
through traditional media, such as television, radio and printed publications.
Ensure the Highest Quality Consumer Experience. We believe that consumer
satisfaction and loyalty is heavily influenced by the consumer's experience with
our site and with our dealers. In order to enhance our appeal to consumers, we
intend to continue developing our Web site by enhancing vehicle information, as
well as building new features such as personalization, auto maintenance
reminders and consumer reviews. As part of our continuing effort to enhance our
Web site technology and features, we have entered into strategic co-development
relationships, with Intel and Cow Inc. to improve our interactive dealer
training. In addition, we plan to continue compiling high quality content from
third
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party sources on our site, including information from Edmund's, IntelliChoice,
Carprices.com and Kelley Blue Book. We believe that consumer satisfaction with
the vehicle purchasing experience is also essential to our success and the
differentiation of our services from those of our competitors. We intend to
continue to invest in our dealer training and support services to ensure a
consistent, high-quality alternative to the traditional vehicle buying process.
Increase Purchase Requests. We believe that increasing the volume and
quality of purchase requests directed from our Web site to our dealer network is
crucial to the long-term growth and success of our business. By augmenting the
volume of quality purchase requests, we expect to attract additional dealers to
our network, increase fees paid by dealers, and solidify our relationships with
participating dealers. Our strategy for increasing traffic to our site and the
number of purchase requests includes forming and maintaining online sponsorships
and partnerships with Internet portals, such as Excite, and with Internet
automotive information providers, such as Edmund's. As part of our strategy to
improve the quality of purchase requests, we continue to expand the breadth and
depth of information and services available through our Web site to insure that
well informed, ready-to-buy consumers are directed to participating dealers.
Expand and Improve Dealer Network. We believe that strengthening the size
and quality of our dealer network is important to the success and growth of our
business. We believe our network of over 2,700 dealers is one of the largest in
the Internet-based vehicle purchasing industry. Our strategy is to increase the
size of our dealer network by attracting new dealers and strengthening
relationships with existing dealers by:
- increasing the volume and quality of purchase requests,
- advertising in trade publications aimed at dealers and participating in
industry trade shows,
- maintaining our extensive training and support program to participating
dealers, and
- providing our Dealer Real Time system to all participating dealers.
Invest in Ancillary Online Services. We believe that expanding our services
to both consumers and dealers will be critical to establishing ourselves as the
premier provider of online automotive services in the future. Our strategy is to
continue to invest in ancillary services, particularly in the CyberStore and
warranty, finance and insurance services. We also intend to use the Dealer Real
Time system to launch value added services for our dealer network, including
allowing dealers to offer accessories and aftermarket products directly through
the Autobytel.com Web site. We have recently begun to sell advertising on our
Web site and expect to expand this business during 1999. We plan to launch an
auction-based, online program for our dealers who sell pre-owned vehicles. We
are also seeking opportunities to market the information contained in our
databases.
Expand Internationally. We intend to continue our international expansion
through licensing agreements and partnering with local strategic partners. We
have established licensing arrangements with strategic partners such as Inchcape
Motors and Bilia AB in the United Kingdom and Scandinavia, respectively. In
addition, we have entered into agreements with Invision AG and Aureus Private
Equity AG to obtain their assistance in meeting potential strategic partners who
will assist us in establishing national operating companies throughout the rest
of Europe using Autobytel.com vehicle marketing systems. We have also entered
into agreements in Japan with e-solutions, Inc., Intec, Inc. and
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Trans Cosmos, Inc. to form a joint venture. We are currently exploring
additional opportunities in Asia and Latin America.
PRODUCTS, PROGRAMS AND SERVICES
New Vehicle Purchasing Service. Our new vehicle marketing service enables
consumers to shop for and select a new vehicle through our Web site by providing
research on new vehicles such as pricing, features, specifications, colors, etc.
When consumers indicate they are ready to buy, a consumer can complete a
purchase request online, which specifies the type of vehicle and accessories the
consumer desires, along with the consumer's contact information. The purchase
request is then routed by us to the nearest participating dealer that sells the
type of vehicle requested, and we promptly return an e-mail message to the
consumer with the dealership's name and phone number and the name of the
Autobytel.com manager at the dealership. Dealers agree in their contracts to
contact the consumer within 24 hours of receiving the purchase request with a
firm, haggle-free price quote for the requested vehicle. When consumers complete
a purchase, they usually take delivery of their vehicle at the dealership
showroom. Generally, within ten days of the submission of a consumer's purchase
request, we contact the consumer again by e-mail to conduct a quality assurance
survey that allows us to evaluate the sales process at participating dealers and
improve the quality of dealer service.
The Autobytel.com network has grown to 2,718 dealers as of December 31,
1998. These dealers represent every major domestic and imported make of vehicle
and light truck sold in the United States and Canada. Core dealerships are
charged initial subscription fees and on-going fees, principally on a monthly
basis, to participate in our dealer network.
Certified Pre-Owned CyberStore. We launched our CyberStore program in April
1997. The CyberStore allows consumers to search for a pre-owned vehicle
according to specific search parameters such as the price, make, model, mileage,
year and location of the vehicle. CyberStore locates and displays the
description, location and actual digital photograph of all vehicles that satisfy
the search parameters. The consumer can then complete a formal purchase request
for a specific vehicle and is contacted by the dealer to conclude the sale. To
be listed in the CyberStore a pre-owned vehicle must first pass a 135-point
inspection, be covered by a 72-hour money-back guarantee and be covered by a
three-month, 3,000-mile warranty, which is honored nationally by all CyberStore
dealers. We charge each vehicle dealer that participates in the CyberStore
program a separate additional monthly fee. The CyberStore program uses the
Dealer Real Time system to provide participating dealers online purchase
requests shortly after submission by consumers as well as the ability to track
their inventory on a real-time basis.
Ancillary Customer Services. We offer a number of ancillary services that
we market to consumers through our Web site and the linked Web sites of
participating partners such as Chase, GE Capital, Provident Bank and member
companies of the American International Group. We make purchase and lease
financing available to consumers through various Autobytel.com financing
programs offered by Chase, GE Capital and Provident Bank that allow consumers to
research and apply for vehicle financing online in a secure manner. Consumers
can apply for a loan or lease online at the time they submit their purchase
request for either a new or pre-owned vehicle. Consumers are able to arrive at
the dealership with their loan pre-approved, their credit verification documents
in hand, and the loan paperwork waiting for them. We believe that the
convenience of pre-approved purchase or lease financing, combined with a firm,
competitive price, enables dealers more easily to consummate purchase requests.
Lenders to whom Autobytel.com refers customers
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pay us an origination fee for most loans and the dealership is compensated by
the lender for each loan made to an Autobytel.com consumer through either an
origination fee or a limited rate participation fee. We currently market
financing through Chase, GE Capital and Provident Bank.
We provide a link on our Web site to an online insurance application
program offered by the American International Group on behalf of its member
companies through which consumers submit requests for insurance quotes and
obtain approval. The types of insurance products offered through this link
include automobile liability and property damage coverage. Our agreement with
the American International Group provides that we receive an advertising fee
based on a percentage of the net premiums earned and collected by the member
companies of the American International Group on all policies issued to
Autobytel.com consumers who access the American International Group Web site
through a link from our Web site.
We offer critical information concerning all aspects of owning and leasing
new and pre-owned vehicles that we believe makes our Web site a valuable
resource to consumers. AutoBuyTools(TM), a service on our Web site, consists of
a lease calculator, a loan calculator to determine monthly payments and a lease
or buy decision tool.
The Dealer Real Time System. In 1997, we launched a new, proprietary
technology and software system called the Dealer Real Time system. The Dealer
Real Time system is an Internet-based communications platform that gives dealers
a competitive advantage compared to delivering purchase requests by fax. A
fax-based system has the following inherent inefficiencies: it is susceptible to
system delays, has a less effective purchase request and inventory tracking
system and it is difficult to control the distribution of purchase requests.
Such inefficiencies include the delay of delivering faxes to salesmen and the
uncertainty of response time to consumers related to this delivery.
Using Internet technology, the Dealer Real Time system enables the dealer
to:
- instantaneously access a consumer's vehicle purchase request as soon as
the consumer submits it online,
- track all interaction with the consumer,
- send e-mail to consumers using a variety of predetermined templates,
- input used vehicle inventory information for immediate display to
consumers on the Autobytel.com web page,
- track dealership performance through a series of reports available
online,
- access Autobytel.com "news" and product information online, and
- contact Autobytel.com technical support personnel via e-mail links.
In March 1998, as part of our new Dealer Agreement, we began requiring our
dealers to use the Dealer Real Time system, and have converted substantially all
of our dealers to the Dealer Real Time system.
Loyalty Rewards Program (ABT Mobalist). To attract new customers prior to
their next vehicle purchase and encourage repeat business from our existing
customers, we began to offer consumers in April 1998 an affinity program called
Mobalist Rewards. To date, our affinity marketing partners include Virtual
Vineyards, Inc. and Uniglobe Travel Online, Inc. This program allows members to
earn credits toward the purchase price of a new or pre-owned vehicle through our
service. Members earn credits by purchasing products and services from
Autobytel.com's retail partners and also by using a credit card co-branded with
the Autobytel.com trademark to make purchases. We earn a commission each time
these services or the affinity program services are used.
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Planned Online Auction Services. We plan to launch an auction-based
program designed to streamline the process of wholesale buying and selling of
pre-owned vehicles over the next year. Through this program, we expect that our
dealers will be able to place online bids for pre-owned vehicles directly to the
wholesaler, eliminating associated distribution costs.
INTERNATIONAL ACTIVITIES
We intend to expand our new vehicle marketing service to foreign markets
through licensing agreements and by establishing relationships with vehicle
dealers and strategic partners located in foreign markets. As of December 31,
1998, approximately 161 Canadian dealerships belonged to our network. We have
entered into a 20 year agreement with Auto-by-Tel UK Limited, an affiliate of
Inchcape Motors, the United Kingdom's largest independent automobile
distributor, to exclusively license our technology, business processes and trade
names in the United Kingdom, as well as provide maintenance and development for
such technology. We have also entered into a similar arrangement with a term of
up to 10 years with Auto-By-Tel AB, an affiliate of Bilia AB, to exclusively
license our technology, business processes, and trade names in Sweden, Norway,
Denmark and Finland for which we will receive annual licensing and maintenance
fees as well as an initial license fee. Under the terms of our agreement with
Auto-by-Tel UK Limited we are entitled to receive minimum annual license and
maintenance and support fees of $850,000 and $250,000, respectively, and will
receive an initial license fee. We intend to enter into similar relationships
with strategic partners in other countries that have attractive automobile
markets. In addition, we have entered into agreements with Aureus Private Equity
AG and Invision AG to obtain their assistance in meeting potential strategic
partners who will assist us in establishing national operating companies
throughout the rest of Europe using Autobytel.com vehicle marketing systems.
We intend to expand our operations to Japan and have entered into letter
agreements with e-solutions, Inc., Intec, Inc. and Trans Cosmos, Inc. to form
ABT Japan, a joint venture in which we will own a 33% interest. We will license
our trade names, technology and business processes to ABT Japan. We expect ABT
Japan to commence operations by the end of 1999. These companies have elected to
invest $6 million in ABT Japan and to fund an additional $6 million to cover
operating losses, if any, and we have agreed to incorporate ABT Japan with a
capital contribution of $100,000. In addition, these companies have agreed to
purchase 200,000 shares in this offering.
MARKETING AND SALES
Our ability to enhance our brand name recognition, domestically and
internationally, and position ourselves as a leading Internet-based vehicle
information and purchasing services provider is critical to our efforts to
increase the number of vehicle purchase requests and requests for ancillary
services, as well as the number and quality of subscribing dealerships. We have
invested approximately $60 million to date in sales, marketing and
communications activities. Over the past several years, we have been the subject
of numerous newspaper, magazine, radio and television stories. Articles about
our new vehicle program have appeared in Business Week, Fortune, Forbes, Time,
and the Wall Street Journal, among other publications. Television stories
featuring us have been aired nationally on NBC Today, NBC Nightly News and CNN.
We believe that ongoing media coverage is an important element in creating
consumer awareness of the Autobytel.com brand name and has contributed to
dealership awareness of, and participation in, our programs.
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We have established marketing and advertising programs with many of the
leading automotive information providers on the Internet, including Edmund's,
IntelliChoice and Kelley Blue Book which help direct traffic to our Web site and
increase purchase requests. Our agreements with automotive information providers
typically have terms ranging from one to five years. The agreement with Kelley
Blue Book is for an indefinite term but can be terminated on 30 days' notice by
either party. Our Kelly Blue Book agreement calls for a monthly payment based on
the number of times their visitors click on our links. Our position with Kelly
Blue Book is not an exclusive arrangement. Therefore, our competitors may have
similar relationships with Kelley Blue Book.
Edmund's is our single largest referral service. In 1997 and 1998,
approximately 49% and 34%, respectively, of our total purchase requests
originated from Edmund's. This percentage decreased to 29% for the last quarter
of 1998. Our agreement with Edmund's, pursuant to which we receive referrals
from Edmund's Web site, is scheduled to expire July 31, 2000. Edmund's has
agreed to recommend or refer visitors to its Web site only to us and no other
competitive online marketing program with respect to new vehicles, although
Edmund's may refer prospective buyers directly to automotive manufacturers' Web
sites and dealer locator services. We expect Edmund's Web site to account for a
significant number of purchase requests for the foreseeable future. We pay
Edmund's a monthly fee based on a per purchase request basis. We pay
IntelliChoice both a monthly fee for the use of its data and a fee for each
purchase request. Our arrangement with them is not exclusive, as they provide
data to other Web sites.
We endeavor to position ourselves as the leading vehicle and related
services purchasing program by affiliating ourselves with online services and
Internet portals. We believe that our presence on these Internet sites helps to
increase purchase request volume and will remain a key element of our future
business. For example, we have agreements with AT&T Corp., Classifieds2000,
Excite and Lycos that provide as follows:
- We pay AT&T a monthly fee to insert our branded content on their site
which includes a car purchasing link enabling their visitors to send us
purchase requests. We also pay AT&T a fee for each purchase request it
sends us. The agreement is not exclusive and is for an indefinite term
which can be terminated on 30 days' notice by either party.
- Our contract with Classifieds2000 provides that we pay a monthly fee as
well as a fee for each purchase request it sends us for the number of
users who submit purchase requests after having visited its site.
Moreover, it includes our pre-owned vehicle inventory in its classified
listings. In return we provide it with a link on our site where owners
can list their cars for sale directly. Our arrangement with
Classifieds2000 is exclusive. The agreement is for an indefinite term
which can be terminated on 30 days' notice by either party.
- Our agreement with Excite covering its auto channel provides that we pay
Excite a set-up fee and an annual fee as well as a fee for each purchase
request it sends us. The agreement provides us with exclusivity in their
auto channel and is for a term of 3 years but can be terminated by us if
the number of purchase requests does not meet specified threshold for
each year of the term of the agreement. The agreement with Excite
precludes us from providing supplementary automobile research information
to other search engines. Our agreement with Netscape's NetCenter auto
channel is through Excite which manages NetCenter for Netscape. The
agreement provides for an annual fee as well as a fee for each purchase
request it sends us. The agreement with NetCenter is exclusive and has a
two year term.
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- Our agreement with Lycos in its "New" automotive channel is based on an
initial fee as well as a fee for each purchase request it sends us. The
agreement provides us with exclusivity in their "New" automotive area.
The agreement is for a term of one year.
As of December 31, 1998, our Internet marketing agreements with our two
largest search engines, NetCenter and Excite, required us to make aggregate
minimum future payments of $9.1 million and provide up to three new vehicles to
each in a 12 month period. As of December 31, 1998, our agreements with
automotive information providers require aggregate minimum future commitments of
$0.7 million.
During 1998, total Internet marketing and advertising costs incurred were
$11.1 million, including initial, annual and monthly fees of $50,000, $3.0
million and $2.9 million, respectively. No set-up fees were incurred in 1998 and
variable fees were $5.2 million.
We are also working with MediaOne to develop and deliver our broadband
service offering. Broadband allows the Internet to deliver content and services
at faster speeds through high capacity coaxial cable networks. We believe that
the broadband opportunity is becoming an increasingly important focus within the
Internet industry, and we intend to enhance our presence using this technology.
We supplement our Internet presence with television and traditional print
advertising. Our initial marketing focus was on computer user and hobbyist
publications and major automotive magazines. In late 1996, we began to broaden
our marketing efforts with a campaign to accelerate consumer awareness of the
Autobytel.com brand name and drive traffic to our Web site through cable
television advertisements featured on CNN and CNET, Inc. and network television
advertisements featured on NBC and MSNBC. As part of our branding efforts, we
aired a 30-second commercial during the broadcast of the Super Bowl in both 1997
and 1998. We expect to continue to use television advertising to strengthen our
brand awareness. As of December 31, 1998, the aggregate future minimum payments
we are required to make for television advertising was $1.7 million.
In addition to our consumer-oriented marketing activities, we also market
our programs directly to dealerships, participate in trade shows, advertise in
trade publications and major automotive magazines and encourage subscribing
dealerships to recommend our program to other dealerships.
INTELLECTUAL PROPERTY
We have the registered service mark Auto-By-Tel and have applied for the
registered service marks Autobytel.com, AutoBuyTools, Certified Pre-Owned
CyberStore, Kre8.net and Dealer Real Time. The Autobytel.com logo is a service
mark and trademark for which we have applied for federal registration.
DEALER RELATIONSHIPS AND SERVICES
Dealer Network. Dealers participate in our network by entering into
contracts with us. Prior to January 1998, substantially all of the dealer
contracts we entered into were terminable by either party at its sole discretion
with 30 days notice. Since the end of January 1999 and on a going forward basis
we are converting our dealers to new contracts with one year terms that are also
terminable on 30 days' notice by either party. Our dealerships are located in
most major metropolitan areas in the United States and Canada and we believe
they are generally leaders in their respective markets. As of December 31, 1998,
our participating dealership base totaled 2,718 dealers, of which 2,386, or 88%,
are core dealers and 332, or 12%, are non-core dealers. Core dealerships are
franchises
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with typically high volume vehicle sales such as Ford or Toyota. These
dealerships pay initiation and monthly fees to subscribe to our online marketing
program. Both the initial and monthly subscription fees are established in the
contract and are based upon many business factors including the type and
location of the franchise. We reserve the right to raise our fees to dealers
after 30 days notice. Non-core dealers are typically franchises of lower-volume
vehicle manufacturers such as Jaguar or Suzuki or are located in remote, low
volume territories, and receive purchase request referrals from us without
paying us either initial or monthly subscription fees. We enter into agreements
with non-core dealers to ensure the broadest geographic coverage possible for
the make of vehicle represented by the non-core dealer. These agreements also
allow us to increase consumer satisfaction by offering a complete selection of
vehicle dealers throughout North America. However, our costs incurred from
non-core dealers are not offset by revenues. We do not prevent dealers from
entering into agreements with our competitors.
Customer Support. We actively monitor subscribing dealers through ongoing
customer surveys, and research conducted by our internal dealer support group.
Generally, within ten days after a consumer submits a purchase request through
our Web site, we re-contact the consumer by e-mail requesting completion of a
quality assurance survey on our Web site that allows us to evaluate the sales
process at participating dealers. Dealerships that fail to abide by our program
guidelines or who receive repeated consumer complaints are generally reviewed
and, if appropriate, terminated. In return for requiring a high level of
consumer service, we assign participating dealerships exclusive territories. We
try to assign dealers attractive territories in order to increase participation
in our program.
Our dealer agreements are cancelable by either party on 30 days notice.
Each dealer agreement obligates the dealers to adhere to our policy of providing
prompt responses to customers, no haggle pricing practices and full disclosure
regarding vehicle availability, add-ons and related matters. We require each
dealer to have an Autobytel.com manager whose principal responsibility is
supervising our system, similar to the way in which most dealers have a new
vehicle sales manager, pre-owned vehicle sales manager and service and parts
department managers who are responsible for those dealership functions. We
reserve the right to reduce or modify each dealer's assigned territory after the
first six months, although there can be no assurance that a dealer whose
territory is reduced or modified will not contest such a change or terminate its
subscription. In addition, dealers whose territories are reduced or modified by
us may sue us in an effort to prevent the change or recover damages. We have
experienced one such suit. See "-- Litigation."
Training. We believe that traditional dealers and their employees require
specialized training to learn the skills necessary to serve the Internet user
and take full advantage of our proprietary Dealer Real Time system. Therefore,
we have developed an extensive training program for our dealers. We believe that
this training is critical to enhancing the Autobytel.com brand and reputation.
We require participating dealerships to have their representatives trained on
our system. Training is conducted at our headquarters in Irvine, California, at
regional training centers and at dealerships' premises. Training is currently
provided to the dealers at no additional cost. In training our dealers, we
de-emphasize traditional vehicle selling techniques and emphasize the
Autobytel.com approach. To increase consumer satisfaction and reduce costs, we
seek to discourage dealerships from using commissioned and multiple salespersons
to interface with our customers.
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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.
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.
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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 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
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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.
We believe that state motor vehicles dealer or broker licensing laws do not
apply to us. We believe that our dealer marketing service model does not qualify
as an automobile brokerage activity and therefore state broker licensing
requirements do not apply to us.
In response to concerns about our marketing program raised by the Texas
Department of Transportation, we modified our marketing program in that state to
achieve compliance. These modifications included a unique pricing model under
which all subscribing dealerships in Texas are charged uniform fees based on the
population density of their particular geographic area and opening our program
to all dealerships who wish to apply.
In the event that any other state's regulatory requirements impose state
specific requirements on us or include us within an industry-specific regulatory
scheme, we may be required to modify our marketing programs in such states in a
manner which may undermine the program's attractiveness to consumers or dealers.
In the alternative, if we determine that the licensing and related requirements
are overly burdensome, we may elect to terminate operations in such state. In
each case, our business, results of operations and financial condition could be
materially and adversely affected.
Financing Related Activities. We provide a connection through our Web site
that allows a consumer to obtain finance information and loan approval. We do
not demand nor do we receive any fees from consumers for this service. We do
receive fees from participating lenders. We currently hold financial broker
licenses in the states of Florida, Indiana, Rhode Island, and Wisconsin and have
applied for renewals in California and Colorado. In the event other states
require us to be licensed, we intend to obtain such licenses. We may be unable
to comply with a state's regulations affecting our current operations or newly
introduced services, or we could be required to incur significant fees and
expenses to license or be compelled to discontinue finance operations in those
states.
Insurance Related Activities. We provide access through a link from our Web
site to a Web site owned and maintained by American International Group. Persons
visiting our Web site who access the Web site maintained by American
International Group may obtain insurance directly from its member companies. We
receive fees from American International Group for allowing the American
International Group's Web site to be accessed from ours. We receive no premiums
from consumers nor do we charge consumers fees for our services. All
applications are completed on American International Group's Web site and at no
time do we receive the secure data found on the applications.
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We do not believe that our activity requires us to be licensed under state
insurance laws. The use of the Internet in the marketing of insurance products,
however, is a relatively new practice. It is not clear whether or to what extent
state insurance licensing laws apply to activities similar to ours. Given this
aforementioned uncertainty, we elected to proactively apply for and currently
hold insurance agent licenses in California, Indiana, Nebraska, New Jersey, and
Utah. We have also applied for insurance agent licenses in all remaining states
that license corporations as insurance agents and are awaiting approvals.
EMPLOYEES
As of December 31, 1998, we had a total of 180 employees. We also utilize
independent contractors for software and hardware development and certain
administrative activities. None of our employees are represented by a labor
union. We have not experienced any work stoppages and consider our employee
relations to be good.
LITIGATION
Jerome-Duncan Ford, a Michigan dealership, first subscribed to our new
vehicle marketing program in June 1996. In January 1997, we sought to replace
the existing agreement with our new standard subscription services agreement and
realign Jerome-Duncan Ford territory. Jerome-Duncan Ford objected to the
realignment and ceased payment of its monthly subscription fee to us. Unable to
resolve the matter, we terminated Jerome-Duncan Ford's subscription dealer
agreement. Jerome-Duncan Ford then sued us in Michigan State Court and sought an
injunction to prevent us from cancelling Jerome-Duncan Ford's subscription
services agreement. Jerome-Duncan Ford based its action on Michigan franchise
law which prohibits a franchiser from terminating a franchisee without good
cause. We removed the case to federal court. In late June 1997, the federal
district court ruled in favor of us and denied the injunction. The court held
that Jerome-Duncan Ford showed insufficient evidence of a likelihood of success
on the merits involving claims of breach of Michigan franchise law. The court
found that no franchise existed. We thereafter moved for summary judgment on the
franchise issues.
In late 1997, the court granted our motion for summary judgment and held
that our subscription services agreement and method of operation did not
constitute a franchise under Michigan state law. The plaintiffs have appealed
the ruling.
Halrec, Inc., a California based Toyota dealership, first subscribed to our
new vehicle marketing program in October 1996 and subsequently to our financing
program. On November 13, 1998, Halrec sued us in Superior Court, County of Santa
Clara, California for, among other things, restraint of trade, intentional
misrepresentation and unfair competition claiming that we wrongfully awarded to
other car dealers geographic territories that were contractually the property of
Halrec. We believe Halrec's claims are without merit and are vigorously
defending ourselves against their claims.
From time to time, we are involved in other litigation matters relating to
claims arising out of the ordinary course of business. We are involved in at
least one such case currently, including one seeking punitive damages in an
unspecified amount. We believe that there are no claims or actions pending or
threatened against us, the ultimate disposition of which would have a material
adverse effect on our business, results of operations and financial condition.
However, if a court or jury rules against us and the ruling is ultimately
sustained on appeal and damages are awarded against us that include punitive
damages, such ruling could have a material and adverse effect on our business,
results of operations and financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of Autobytel.com. Our audit committee consists of Mr.
Fuchs, Mr. Coats and Mr. Kaplan. Our compensation committee consists of Mr.
Fuchs, Mr. Coats and Mr. Orton.
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS AGE POSITION
---------------------- --- --------
<S> <C> <C>
Michael J. Fuchs.......................... 52 Chairman of the Board and Director
Mark W. Lorimer........................... 39 Chief Executive Officer, President and
Director
Robert S. Grimes.......................... 54 Executive Vice President and Director
Hoshi Printer............................. 57 Senior Vice President and Chief
Financial Officer
Ann M. Delligatta......................... 51 Executive Vice President and Chief
Operating Officer
Ariel Amir................................ 39 Vice President and General Counsel
Jeffrey H. Coats.......................... 41 Director
Mark N. Kaplan............................ 69 Director
Kenneth J. Orton.......................... 47 Director
Peter Titz................................ 45 Director
Richard A. Post........................... 40 Director
</TABLE>
Michael J. Fuchs was elected as a director of Autobytel.com in September
1996 and became Chairman in June 1998. Mr. Fuchs was Chairman and Chief
Executive Officer of Home Box Office, a Division of TimeWarner Entertainment
Company, L.P., a leading pay-television company, from October 1984 until
November 1995, and Chairman and Chief Executive Officer of Warner Music Group, a
Division of Time Warner Inc., from May 1995 to November 1995. Mr. Fuchs holds a
B.A. from Union College and a J.D. from the New York University School of Law.
Mr. Fuchs is a member of the board of directors of IMAX Corp., Wink
Communications, Inc. and Consolidated Cigar Holdings Inc.
Mark W. Lorimer joined Autobytel.com in December 1996 as Vice President,
General Counsel and Secretary, and was promoted to Executive Vice President and
Chief Operating Officer in May 1997. In May 1998, Mr. Lorimer was promoted to
President. He was elected a director and appointed Chief Executive Officer of
Autobytel.com in June 1998. From January 1996 to November 1996, Mr. Lorimer was
a partner and, from March 1989 to January 1996, was an associate with the law
firm of Dewey Ballantine LLP. Mr. Lorimer is a member of the board of directors
of IMC Mortgage Company. Mr. Lorimer holds a B.S. in Speech from Northwestern
University and a J.D. from the Fordham University School of Law.
Robert S. Grimes has been a director of Autobytel.com since inception and
has served as Executive Vice President since July 1996. Since September 1987,
Mr. Grimes has been President of R.S. Grimes & Co., Inc., a private investment
company. From April 1981 to March 1987, Mr. Grimes was a partner with the
investment firm of Cowen & Company. Mr. Grimes holds a B.S. from the Wharton
School of Commerce and Finance at the University of Pennsylvania and an L.L.B.
from the University of Pennsylvania Law School. Mr. Grimes has served on the
board of directors of Philips International Realty Corp., a New York Stock
Exchange listed company, since April 1998.
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Hoshi Printer joined Autobytel.com in January 1999 as Senior Vice President
and Chief Financial Officer. From June 1996 to December 1998, Mr. Printer served
as Vice President, Finance and Administration, Chief Financial Officer and
Secretary of Peerless Systems Corporation, a software technology company. From
July 1995 to May 1996, Mr. Printer was Chief Financial Officer of Neuron Data
Inc., a software technology company. From July 1994 to June 1995 Mr. Printer
served as Chief Financial Officer of Soane Technologies Inc., a polymer
technology company. From January 1990 to June 1994, Mr. Printer was Chief
Financial Officer of Catalytica Inc., an environmental technology company. Mr.
Printer also worked at Xerox Corporation for over 17 years as Vice President of
Finance and in 1976 served as a consultant to the White House for the
President's Reorganization project on cash management. Mr. Printer holds a B.E.
in mechanical engineering and a B.E. in electrical engineering from Poona
University in India, an M.S. in industrial engineering from Oklahoma State
University and an M.B.A. from Stanford University.
Ann M. Delligatta joined Autobytel.com in June 1997 as Senior Vice
President and Chief Technology Officer and was promoted to Executive Vice
President and Chief Operating Officer in July 1998. From September 1996 to June
1997, Ms. Delligatta was President and Chief Executive Officer of the Pharos
Group, an information technology consulting organization. From January 1987 to
September 1996, Ms. Delligatta held a number of managerial positions at TRW
Inc.'s TRW Information Systems and Services Group, most recently as Vice
President and General Manager/Information Technology Services. Ms. Delligatta
attended Mount St. Mary's College and was named by McGraw-Hill Companies as one
of the "Top 100 Women in Computing in 1996" in recognition of her success in the
alignment of business and technology strategies.
Ariel Amir joined Autobytel.com as Vice President and General Counsel in
March 1999. Mr. Amir was Vice President of Security Capital U.S. Realty from
February 1998 until March 1999, where he was responsible for mergers and
acquisitions and relations with strategic investees. Mr. Amir was Vice President
of Security Capital Group Incorporated, where he provided securities offering
and corporate acquisitions services from June 1994 until January 1998. Prior to
joining Security Capital Group, Mr. Amir was an attorney with the law firm of
Weil, Gotshal & Manges in New York where he practiced securities and corporate
law from September 1985 until April 1994. Mr. Amir received his law degree from
Georgetown University Law Center, an M.S. in industrial administration from
Carnegie-Mellon University Graduate School of Industrial Administration and an
A.B. in Economics, with honors, from Washington University in St. Louis.
Jeffrey H. Coats was elected a director of Autobytel.com in August 1996.
Mr. Coats has served as Managing Director of GE Equity Capital Group, Inc., a
wholly-owned subsidiary of General Electric Capital Corporation, a significant
stockholder in us, since April 1996. He has also held various positions, most
recently as Managing Director, of GE Capital Corporate Finance Group, Inc., a
wholly-owned subsidiary of General Electric Capital Corporation, from June 1987
to April 1993. From March 1994 to April 1996, Mr. Coats served as President of
Maverick Capital Equity Partners, LLC, and from April 1993 to January 1994, Mr.
Coats was a partner with Veritas Capital, Inc., both of which are investment
firms. Mr. Coats holds a B.B.A. in Finance from the University of Georgia and a
Masters in International Management in Finance from the American Graduate School
of International Management. Mr. Coats is a director and Chairman of the Board
of The Hastings Group, Inc., a privately-held clothing retailer, which on
October 23, 1995, filed a voluntary petition under Chapter 11 of the Bankruptcy
Code and confirmed a plan of liquidation in late 1997. Mr. Coats became a
director of The Hastings Group in
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connection with Maverick Capital Equity Partners' purchase of the assets of the
predecessor of The Hastings Group in a previous bankruptcy proceeding. Maverick
Capital Equity Partners was not able to make the business of The Hastings Group,
Inc. profitable after it purchased the business in a previous bankruptcy
proceeding and accordingly, The Hastings Group, Inc. filed for bankruptcy after
Maverick Capital Equity Partners determined not to continue to fund its
operating losses. Mr. Coats is a member of the board of directors of Wink
Communications, Inc. and of Krause's Furniture, Inc., a publicly-held company.
Mark N. Kaplan was elected as a director of Autobytel.com in June 1998. Mr.
Kaplan has been a member of the law firm of Skadden, Arps, Slate, Meagher & Flom
LLP since 1979. Mr. Kaplan serves on the board of directors of the following
companies whose shares are publicly traded: American Biltrite, Inc., Congoleum
Corporation, Inc., DRS Technologies, Inc., Grey Advertising, Inc., MovieFone,
Inc., REFAC Technology Development Corporation, and Volt Information Services,
Inc. Mr. Kaplan holds an A.B. from Columbia College and a J.D. from Columbia Law
School.
Kenneth J. Orton was elected a director of Autobytel.com in June 1998. Mr.
Orton is currently a director, and through February 1999 Mr. Orton was the
President and Chief Executive Officer, of Preview Travel, Inc., which he joined
in April 1994 as President and Chief Operating Officer. From September 1989 to
March 1994, Mr. Orton was Vice President and General Manager of the San
Francisco division of Epsilon, a database marketing firm and a wholly owned
subsidiary of American Express Company. Prior to his employment with Epsilon,
Mr. Orton was Vice President of MARC Inc., a market research and database
marketing company, and Vice President of Sales and Marketing for Future
Computing. Mr. Orton also serves as a director of ONSALE, Inc., a publicly-held
company. Mr. Orton received a B.A. from California State University, Fullerton.
Peter Titz was elected a director of Autobytel.com in January 1999. Mr.
Titz is a manager of Metro International Dienstleistung Beteiligungs AG and
Invision AG. Before joining Metro and Invision AG in 1989, Mr. Titz was managing
director of various institutions in the financial service sector including
American Express in Frankfurt where he was responsible for the introduction of
automatic teller machines and the installation of POS systems in Europe. Mr.
Titz received a degree in engineering from the University of Aachen and a degree
in economics from the University of Bonn. Mr. Titz is President of the board of
directors of Aureus Private Equity AG and Deutsche Media AG and is a member of
the board of directors of Teleclip AG.
Richard A. Post was elected a director of Autobytel.com in February 1999.
Mr. Post is Executive Vice President and Chief Financial Officer of MediaOne
Group, Inc. and president of MediaOne Capital Corp., a subsidiary of MediaOne
Group, Inc. Mr. Post joined US WEST Financial Services in April 1988 as manager
of Corporate Development and was promoted in 1990, first to executive director,
and then to vice president, responsible for all Capital Asset Group businesses.
From June 1996 to January 1997, he was president of Corporate Development at US
WEST, Inc. where he had responsibility for corporate development efforts at US
WEST Communications, as well as US WEST, Inc. US WEST, Inc. has since split into
two separate corporations, MediaOne Group, Inc. and US WEST. From December 1995
to June 1996, he served as vice president of Corporate Development for US WEST
Media Group, a division of the former US WEST, Inc. Mr. Post holds both a
business administration degree and an MBA from Delta State University. Mr. Post
is a member of the board of directors of Financial Security Assurance Holdings,
Inc., a financial guaranty company based in New York.
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BOARD COMPOSITION
The board of directors has currently authorized eight members of whom two
are to be elected by the holders of series A preferred stock pursuant to
Autobytel.com's certificate of incorporation. Mr. Coats and Mr. Fuchs are the
designees of the series A preferred stock to the board of directors. The rights
of the series A preferred stockholders will expire upon the closing of this
offering. Members of the board of directors are elected each year at our annual
meeting of stockholders, and serve until the following annual meeting of
stockholders or until their respective successors have been elected and
qualified.
In accordance with the terms of Autobytel.com's restated certificate of
incorporation, effective upon the closing of this offering, the terms of office
of the board of directors will be divided into three classes: the Class I term
will expire at the annual meeting of stockholders to be held in 1999; the Class
II term will expire at the annual meeting of stockholders to be held in 2000;
and the Class III term will expire at the annual meeting of stockholders to be
held in 2001. The Class I directors will be Mr. Lorimer, Mr. Titz and Mr. Post,
the Class II directors will be Mr. Kaplan and Mr. Orton and the Class III
directors will be Mr. Grimes, Mr. Fuchs and Mr. Coats. At each annual meeting of
stockholders after the initial classification, the successors to directors whose
term will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election. In addition,
our restated certificate of incorporation provides that the authorized number of
directors shall be designated by the bylaws of Autobytel.com. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of Autobytel.com. Directors of Autobytel.com may be removed, with or
without cause, by the affirmative vote of the holders of a majority of the
shares entitled to vote at an election of directors. There are no family
relationships among any of the directors and executive officers of
Autobytel.com.
BOARD COMMITTEES
The audit committee consists of Mr. Coats, Mr. Fuchs and Mr. Kaplan. The
audit committee makes recommendations to the board of directors regarding the
selection of independent public accountants, reviews the results and scope of
the audit and other services provided by Autobytel.com's independent public
accountants and reviews and evaluates our control functions.
The compensation committee consists of Mr. Coats, Mr. Fuchs and Mr. Orton.
The compensation committee administers the issuance of stock under
Autobytel.com's 1996 Stock Incentive Plan, 1996 Stock Option Plan, 1996 Employee
Stock Purchase Plan, 1998 Stock Option Plan and 1999 Stock Option Plan, makes
recommendations regarding various incentive compensation and benefit plans and
determines salaries for the executive officers and incentive compensation for
employees and consultants of Autobytel.com.
DIRECTOR COMPENSATION
Our non-employee directors do not currently receive any cash compensation
for service on Autobytel.com's board of directors or any committee thereof, but
directors may be reimbursed for expenses incurred in connection with attendance
at board and committee meetings. Our 1999 Stock Option Plan provides for
automatic grants of stock options to non-employee directors. See "Stock
Plans -- 1999 Stock Option Plan."
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We have entered into indemnification agreements with each member of the
board of directors and our officers providing for the indemnification of such
person to the fullest extent authorized, permitted or allowed by law.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation
(rounded to the nearest thousand) paid during each of our last three completed
fiscal years to our Chief Executive Officer and each of our other five most
highly compensated executive officers as of December 31, 1998. Mr. Ellis
resigned as our Chief Executive Officer in June 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
FISCAL COMPENSATION OTHER SECURITIES
NAME AND PRINCIPAL YEAR ENDED ------------------- ANNUAL UNDERLYING
POSITION DECEMBER 31, SALARY BONUS COMPENSATION OPTIONS(#)
------------------ ------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Peter R. Ellis............. 1998 $219,000 $ -- $522,000(1) --
Former Chief Executive 1997 275,000 100,000 15,000 --
Officer and President 1996 123,000 321,000 11,000 --
Mark W. Lorimer............ 1998 316,000 150,000 9,000 750,000(2)
Chief Executive Officer
and 1997 200,000 100,000 70,000(3) 100,000
President 1996 8,000 -- -- 333,333
Robert S. Grimes........... 1998 220,000 75,000 -- 125,000
Executive Vice President 1997 180,000 -- -- 116,667
1996 90,000 -- -- 166,667
Ann M. Delligatta.......... 1998 177,000 100,000 -- 316,667(4)
Executive Vice President 1997 88,000 -- -- 83,334
and Chief Operating
Officer
Michael J. Lowell.......... 1998 190,000 -- -- 16,667
Senior Vice President, 1997 139,000 50,000 -- 50,000
Development 1996 15,000 -- -- 111,111
Anne Benvenuto............. 1998 150,000 -- -- 16,667
Senior Vice President, 1997 13,000 5,000 15,000(3) 33,333
Marketing
</TABLE>
- -------------------------
(1) Represents a one-time payment of $500,000, $14,000 car allowance and $8,000
legal expenses. See "Certain Transactions."
(2) 500,000 shares of such securities underlying options are contingent on the
performance of our market trading price after the closing of the offering.
(3) Relocation expense reimbursement.
(4) 200,000 shares of such securities underlying options are contingent on the
performance of our market trading price after the closing of the offering.
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<PAGE> 56
OPTION GRANTS DURING 1998
The following table sets forth the five most highly compensated officers
and certain information concerning stock options granted to them during 1998. We
have never issued stock appreciation rights. Options were granted at an exercise
price equal to the fair market value of the common stock at the date of grant.
In determining the fair market value of the common stock, the board of directors
considered various factors, including recent arms' length transactions, our
financial condition and business prospects, operating results, the absence of a
market for the common stock and the risks normally associated with investments
in companies engaged in similar businesses. The term of each option granted is
generally ten years from the date of grant. Options may terminate before their
expiration dates, if the optionee's status as an employee or a consultant is
terminated or upon the optionee's death or disability. We have not included
disclosure on Mr. Ellis as he resigned as our Chief Executive Officer in June
1998 and did not receive any option grants in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
---------------------------------------------------------- OF ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) 1998(2) ($/SHARE) DATE(4) 5%($) 10%($)
---- ------------- -------------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark W. Lorimer...... 200,000 12.3% $13.20 12/17/08 $1,660,282 $ 4,207,480
500,000 30.7% 13.20 12/17/08 4,150,705 10,518,700
50,000 3.1% 13.20 06/21/08 415,070 1,051,870
Robert S. Grimes..... 125,000 7.7% 13.20 12/17/08 1,037,676 2,629,675
Ann M. Delligatta.... 100,000 6.1% 13.20 12/17/08 830,141 2,103,740
200,000 12.3% 13.20 12/17/08 1,660,282 4,207,480
16,667 1.0% 13.20 06/21/08 138,360 350,630
Anne Benvenuto....... 16,667 1.0% 13.20 06/21/08 138,360 350,630
Michael J. Lowell.... 16,667 1.0% 13.20 06/21/08 138,360 350,630
</TABLE>
- -------------------------
(1) Represents options granted under our Amended and Restated 1996 Stock
Incentive Plan and the 1998 Stock Option Plan.
(2) Based on an aggregate 1,630,340 shares of our common stock subject to
options granted to employees during fiscal 1998.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
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<PAGE> 57
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
The following table sets forth for each of the five most highly compensated
officers certain information concerning options exercised during fiscal 1998 and
the number of shares subject to both exercisable and unexercisable stock options
as of December 31, 1998. The values for "in-the-money" options are calculated by
determining the difference between the fair market value of the securities
underlying the options as of December 31, 1998 ($13.20 per share as determined
by the board of directors) and the exercise price of the officer's options. In
determining the fair market value of the common stock, the board of directors
considered various factors, including recent arms' length transactions, our
financial condition and business prospects, its operating results, the absence
of a market for the common stock and the risks normally associated with
investments in companies engaged in similar businesses. Autobytel.com has never
issued stock appreciation rights. We have not included disclosure on Mr. Ellis
as he resigned as our Chief Executive Officer in June 1998 and holds no options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
NUMBER OF OPTIONS AT THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark W. Lorimer........ -- $ -- 209,999 973,334 $1,609,491 $1,290,506
Michael J. Lowell...... -- -- 104,861 72,917 725,006 241,660
Robert S. Grimes....... -- -- 245,834 162,500 2,060,004 --
Ann M. Delligatta...... -- -- 29,165 370,836 -- --
Anne Benvenuto......... -- -- 8,333 41,667 -- --
</TABLE>
STOCK PLANS
Since our inception the board of directors has granted stock options in
order to attract, retain and motivate employees. Our board of directors
considers many factors in granting stock options. For example, among other
factors, our board of directors considers competitive market conditions for
employees and the risk associated with working for a development stage Internet
company.
1996 Stock Option Plan. Autobytel.com's 1996 Stock Option Plan was approved
by the board of directors on May 18, 1996 and the stockholders on May 31, 1996.
The 1996 Option Plan was terminated by a resolution of the board of directors on
October 23, 1996, at which time over 800,000 options had been issued.
The 1996 Option Plan provided for the granting to employees and directors
of stock options intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for
the grant to employees, consultants and directors of nonstatutory stock options.
Autobytel.com reserved 1,194,444 shares of common stock for issuance under the
1996 Option Plan. Under the 1996 Option Plan, the exercise price of any
incentive stock options granted under the 1996 Option Plan were not less than
the fair market value of the common stock on the date of grant, and the exercise
price of any non-statutory stock option granted under the 1996 Option Plan were
not less than 85% of the fair market value of the common stock at the date of
grant. The term of all options granted under the 1996 Option Plan did not exceed
10 years. The administrator of the options granted under the 1996 Option Plan is
the board of directors or a committee of the board of directors. Any options
granted under the 1996 Option Plan are exercisable at such times as determined
by the administrator, but in no case at a rate
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<PAGE> 58
of less than 20% per year over five years from the grant date. A majority of the
outstanding options vest and became exercisable as to one third of the grant on
October 31, 1996, and as to an additional one third of the grant at each
successive October 31. Options granted under the 1996 Option Plan generally must
be exercised within 30 days following termination of the optionee's status as an
employee, director or consultant of Autobytel.com, or within 12 months following
such optionee's termination by death or disability. Any optionee holding options
granted under the 1996 Option Plan cannot sell or transfer any shares of common
stock during the 180 day period following the effective date of the registration
statement relating to an initial public offering of securities filed pursuant to
the Securities Act.
1996 Stock Incentive Plan. The Incentive Plan was approved by the board of
directors on October 23, 1996, amended and restated by the board of directors on
November 24, 1996 and approved by the stockholders on January 16, 1997. The 1996
Stock Incentive Plan provides for the granting to employees and directors of
stock options intended to qualify as incentive stock options within the meaning
of Section 422 of the Code, and for the granting to employees, directors and
consultants of nonstatutory stock options and stock purchase rights.
As approved by the stockholders, Autobytel.com reserved 833,333 shares of
common stock for issuance under the Incentive Plan. Options with respect to all
of the common stock reserved for issuance have been issued and are either
incentive stock options or nonstatutory stock options.
Options granted under the Incentive Plan are not generally transferable by
the option holder, and each option is exercisable during the lifetime of the
option holder only by such option holder. Options granted under the Incentive
Plan must generally be exercised within three months of the end of the option
holder's status as an employee or consultant of Autobytel.com, or within twelve
months after such option holder's termination by death or disability, but in no
event later than the expiration of the option's ten year term.
The board of directors determined the exercise price of nonstatutory stock
options granted under the Incentive Plan, and in all cases, the exercise price
was the fair market value of the common stock on the date of grant. The term of
all options granted under the Incentive Plan did not exceed ten years. Stock
options granted under the Incentive Plan vest according to vesting schedules
determined by the administrator.
The Incentive Plan provides that in the event of a merger of Autobytel.com
with or into another corporation, a sale of substantially all of Autobytel.com's
assets or a like transaction involving Autobytel.com, each option will be
assumed or an equivalent option substituted by the successor corporation. If the
outstanding options are not assumed or substituted as described in the preceding
sentence, the committee of the board of directors shall provide for each option
holder to have the right to exercise the option as to all of the optioned stock,
including shares as to which it would not otherwise be exercisable. If the
administrator makes an option exercisable in full in the event of a merger or
sale of assets, the administrator will notify the option holder that the option
will be fully exercisable for a period of 15 days from the date of such notice,
and the option will terminate upon the expiration of such period.
From October 1996 through January 1999, we purported to grant incentive
stock options to employees, of which 689,406 shares granted exceeded the
Incentive Plan limit of 833,333 shares. As of January 29, 1999, 688,921 options,
and 485 shares that were acquired upon the exercise of excess options were
outstanding in excess of the Incentive
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Plan limit. Because these grants exceed the plan's limit, they did not qualify
as incentive stock options, which have more favorable tax treatment for
employees than nonqualified stock options. In connection with these matters, on
January 29, 1999, we filed an application with the California Department of
Corporations for approval of a rescission offer to those affected optionholders
holding options covering 689,406 shares of common stock. The Department of
Corporations approved the rescission offer on February 12, 1999. The rescission
offer allowed each affected optionholder to choose between a cash payment or a
new grant of incentive stock options under the 1999 Stock Option Plan. The offer
for a cash payment was for 10% of the aggregate exercise price per share of the
option plus 7% statutory interest since the date of grant of the option. The
terms of the options granted under the 1999 Stock Option Plan are similar to the
terms of the original stock options, with an exercise price equal to the fair
market value on the date of regrant. In addition, optionholders who chose new
grants under the 1999 Stock Option Plan were granted additional options based on
the length of time the original options were held. The aggregate maximum number
of additional shares of common stock issuable under this choice for all those
optionholders were 35,000 shares. All the affected optionholders participated in
the rescission offer and we paid $8,000 to four optionholders who chose the cash
alternative.
1996 Employee Stock Purchase Plan. Autobytel.com's 1996 Employee Stock
Purchase Plan was adopted by the board of directors on November 18, 1996 and
approved by the stockholders on January 16, 1997. The maximum number of shares
of common stock available for sale is 444,444. Currently the plan has not been
implemented. The Purchase Plan, which is intended to qualify under Section 423
of the Code, permits eligible employees of Autobytel.com to purchase shares of
common stock through payroll deductions of up to ten percent of their
compensation for all purchase periods ending within any calendar year.
Individuals who are eligible employees on the start day of any offering
period may enter the Purchase Plan on that start date. Individuals who become
eligible employees after the start date of the offering period may join the
Purchase Plan on any subsequent quarterly entry date within that period.
Employees are eligible to participate if they are customarily employed by
Autobytel.com or any designated subsidiary for at least 20 hours per week and
for more than five months in any calendar year.
The price of common stock purchased under the Purchase Plan will be 85% of
the lower of the fair market value of the common stock on the first or last day
of each six month purchase period. Employees may end their participation in the
Purchase Plan at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with Autobytel.com. Rights granted under the Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the plan.
The Purchase Plan will be administered by the board of directors or by a
committee appointed by the board of directors. The board of directors may amend
or modify the Purchase Plan at any time. The Purchase Plan will terminate 10
years from the date of its adoption.
1998 Stock Option Plan. Our 1998 Stock Option Plan was adopted by the
board of directors in December 1998. The Plan provides that an aggregate of
1,500,000 shares of our common stock is available to be granted to key employees
of Autobytel.com and its parent or subsidiary corporations, if any. If any stock
option expires or terminates for any reason without having been exercised in
full, new stock options may be granted covering
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the shares of our common stock originally set aside for the unexercised portion
of such expired or terminated stock option.
Under the 1998 Option Plan, eligible key employees of Autobytel.com may
receive incentive stock options within the meaning of Section 422 of the Code or
nonstatutory stock options. No eligible employee shall receive stock options
with respect to more than 700,000 shares of our common stock during any one
calendar year. Incentive stock options granted under the 1998 Option Plan must
have an exercise price that is no less than the fair market value of our common
stock as of the time the option is granted and generally may not be exercised
more than ten years after the date of grant. Any incentive stock option that is
granted to any option holder who beneficially owns more than 10% of the total
combined voting power of all classes of outstanding shares of capital stock of
Autobytel.com must have an exercise price that is no less than 110% of the fair
market value of our common stock as of the time the option is granted and may
not be exercised more than five years after the date of grant. To the extent
that the aggregate fair market value of stock exercisable by an optionee for the
first time in any one calendar year under incentive stock options granted under
the 1998 Option Plan and all other stock plans of Autobytel.com exceeds
$100,000, options for such shares shall not be considered incentive stock
options but instead shall be considered nonstatutory stock options.
Nonstatutory stock options granted under the 1998 Option Plan must have an
exercise price that is no less than 85% of the fair market value of our common
stock as of the time the option is granted and may not be exercised more than 10
years after the date they are granted. Under the 1998 Option Plan, nonstatutory
stock options vest over a time period determined by the administrator, however,
the vesting could accelerate based on the performance of our common stock. All
other stock options granted under the 1998 Option Plan vest according to
time-based vesting schedules determined by the administrator. In addition, an
option holder who is not an officer, director or consultant shall have the right
to exercise at least 20% of the options granted per year over 5 years from the
date of grant. Options granted under the 1998 Option Plan are nontransferable,
other than by will or the laws of descent and distribution.
The 1998 Option Plan provides that, unless otherwise stated in a stock
option agreement, upon any merger, consolidation, or sale or transfer of all or
any part of our business or assets, any option shall vest and may be exercised
immediately unless any party to these transactions specifically assumes our
obligations under the 1998 Option Plan. In addition, unless otherwise provided
in the stock option agreement for any given option, upon any liquidation or
dissolution of Autobytel.com, all rights of the option holder with respect to
the unexercised portion of any option will terminate and all options will be
canceled unless the plan under which such liquidation or dissolution is effected
makes specific provisions regarding the 1998 Option Plan. The holder of any
option granted under the 1998 Option Plan has the right immediately prior to the
effective date of a merger, consolidation or sale of all or any part of our
business or assets or a liquidation or dissolution to exercise such option
without regard to any time vesting provision of such option. In no event may any
incentive stock options be exercised later than the date preceding the tenth
anniversary date of the grant.
The 1998 Option Plan will be administered by the board of directors or by a
committee of the board of directors acting as the administrator. The
administrator shall select the eligible key employees who are to be granted
options, determine the number of shares to be subject to options to be granted
to each eligible key employee and designate such options as incentive stock
options or nonstatutory stock options. The board of
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directors may at any time amend or modify the 1998 Option Plan, except that the
board of directors may not, without approval of the stockholders of
Autobytel.com:
- increase the number of shares issued under the 1998 Option Plan,
- modify the requirements as to eligibility for participation in the 1998
Option Plan or
- change the option price provisions of the 1998 Option Plan so as to have
a material adverse effect on Autobytel.com other than to conform with any
applicable provisions of the Code or regulations or rulings.
Unless terminated earlier, the 1998 Option Plan terminates ten years from
the date it was adopted by the board of directors.
1999 Stock Option Plan. Our 1999 Stock Option Plan was adopted by the board
of directors on January 14, 1999. The plan provides that an aggregate of
1,800,000 shares of our common stock are available to our employees; provided
that after March 31, 1999, we may not grant more than 1,000,000 options under
the plan. Unless otherwise provided in the stock option agreement, upon any
merger, consolidation, or sale or transfer of all or any part of our business or
assets, any option under the plan shall immediately vest and be exercisable
unless any party to such a transaction specifically assumes the obligations of
Autobytel.com under the 1999 Option Plan.
Non-employee directors are entitled to participate in our 1999 Stock Option
Plan. The 1999 Stock Option Plan provides for an automatic grant of a first
option to purchase 20,000 shares of common stock to each non-employee director
on the date on which the person first becomes a non-employee director; provided,
that if any person serving as a non-employee director before January 14, 1999
received options for less than 20,000 shares on the date such person became a
member of the board of directors, such person will be granted an option to
purchase a number of shares equal to the difference between 20,000 shares and
the shares actually granted. After the first option is granted to the non-
employee director, he or she will automatically be granted a subsequent option
to purchase 5,000 shares on November 1 of each subsequent year provided he or
she is then a non-employee director and, provided further, that on such date he
or she has served on the Board for at least six months. First options and each
subsequent option will have a term of ten years. The shares related to the first
option and each subsequent option vest in their entirety and becomes exercisable
on the first anniversary of the grant date, provided that the option holder
continues to serve as a director on such dates. The exercise price of shares
subject to the first option and each subsequent option shall be 100% of the fair
market value per share of the common stock on the date of the grant of the
option.
The 1999 Stock Option Plan is identical in all other material respects to
the 1998 Stock Option Plan.
401(K) PLAN
All employees of Autobytel.com over age 21 who have completed three months
of service with Autobytel.com are eligible to participate in the Auto-By-Tel
Retirement Savings Plan, a defined contribution plan effective September 1, 1997
and intended to qualify under Section 401 of the Internal Revenue Code. Eligible
employees may enter the savings plan as of the first day of January or July
following the date on which they have met the savings plan's eligibility
requirements. Participants may make pre-tax contributions to the savings plan of
up to 15 percent of their eligible earnings, but not in excess of a statutory
annual limit. Autobytel.com may make discretionary matching contributions to the
savings plan. For the year ended December 31, 1998, Autobytel.com made no
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matching contributions to each eligible participant's contributions. Each
participant in the savings plan is fully vested in his or her contributions and
the investments earnings on these contributions. Participants vest in matching
contributions made on their behalf, and the investment earnings on these
contributions at the rate of 20 percent per year and are thus 100 percent vested
in their employer matching contribution accounts after five years of service.
Contributions by the participants or Autobytel.com and the income earned on such
contributions are not taxable to the participants until withdrawn. Contributions
by Autobytel.com, if any, are deductible by it when made. Contributions are held
in trust as required by law. Individual participants may direct the trustee to
invest their accounts in authorized investment alternatives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. The compensation committee of the board of directors currently consists of
Mr. Fuchs, Mr. Coats and Mr. Orton.
EMPLOYMENT AGREEMENTS
On July 1, 1998, we entered into a three year employment agreement with Mr.
Mark W. Lorimer, our President and Chief Executive Officer. Under this
agreement, Mr. Lorimer is entitled to a base salary of $325,000 and a bonus as
determined by the board of directors from time to time. Mr. Lorimer is also
entitled to 200,000 options which vest over two years, 500,000 performance
options which vest over seven years, unless accelerated upon the earlier
accomplishment of stock price goals. In addition, Mr. Lorimer may participate in
any medical, dental welfare plans, insurance coverages and any death benefit and
disability benefit plans afforded to executive employees of Autobytel.com.
If Mr. Lorimer's employment is terminated without cause or if Mr. Lorimer
terminates his employment with good reason, Mr. Lorimer is entitled to a lump
sum payment equal to the highest annual base salary in effect for the term of
the agreement multiplied by the greater of (1) the remaining balance of the
three year term or longer if there is a change of control or (2) two years. In
the event of a change of control of Autobytel.com prior to January 1, 2000, and
while Mr. Lorimer remains employed by Autobytel.com, the term of the agrement
shall automatically extend for a period of three years from the date of the
change of control.
In addition to the above, in the event Lorimer's employment is terminated
during the six month period prior to (or the first thirty-six months following)
a change of control by Mr. Lorimer for good reason or by Autobytel.com other
than for cause, disability or death, Mr. Lorimer is entitled to a lump sum
payment equal to twice the highest bonus paid to Mr. Lorimer in the last three
fiscal years plus the amount of the cost of all benefits for the greater of the
remaining balance of the term or two years.
In the event of a change of control while Mr. Lorimer is employed by
Autobytel.com or if Lorimer's employment is terminated by Autobytel.com without
cause or by Mr. Lorimer for good reason during the six month period prior to a
change of control, unvested time based options shall become vested and
exercisable and unvested performance-based options shall become vested and
exercisable to the extent performance targets are met. In the event of the death
or disability of Mr. Lorimer during the term of this employment agreement,
Autobytel.com shall provide Mr. Lorimer or his successors, heirs or designees,
with continued payment of Mr. Lorimer's then current base salary and all
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benefits for a period of two years. If Mr. Lorimer's severance benefits are
parachute payments under the Internal Revenue Code, we have agreed to make
additional payments to him to compensate for his additional tax obligations.
On December 17, 1998, Autobytel.com entered into a three year employment
agreement with Ms. Ann Marie Delligatta, our Executive Vice President and Chief
Operating Officer. Under this agreement, Ms. Delligatta is entitled to a base
salary of $225,000, a bonus in such amounts and based on such criteria as may be
established by the board of directors from time to time. Ms. Delligatta is also
entitled to 100,000 options which vest fully by December 17, 2000 and 200,000
performance options which vest over seven years unless accelerated upon the
earlier accomplishment of stock price goals. In addition, Ms. Delligatta may
participate in any medical, dental welfare plans, insurance coverages and any
death benefit and disability benefit plans afforded to executive employees of
Autobytel.com. If Ms. Delligatta's employment is terminated without cause or if
Ms. Delligatta terminates her employment for good reason, Ms. Delligatta is
entitled to a lump sum payment equal to the base salary that would have been
received by Ms. Delligatta if she had remained employed by Autobytel.com for the
remaining balance of the three year term. Ms. Delligatta's employment with
Autobytel.com shall terminate automatically in the event of death or upon 30
days' written notice of termination by Autobytel.com in the event of a
disability.
On March 4, 1999, we entered into an employment and severance agreement
with Mr. Michael J. Lowell, our Senior Vice President, Development. Under this
agreement, Mr. Lowell is entitled to a base salary of $140,000 per year and to
all ordinary and customary perquisites such as any medical, dental welfare
plans, insurance coverages and any death benefit and disability benefit plans
afforded to executive employees of Autobytel.com. If Mr. Lowell's employment is
terminated without cause, he is entitled to a lump sum severance payment in
varying amounts depending on the date of termination. The maximum severance
payment is $232,501, payable if the effective date of termination occurs during
March 1999, and the minimum severance payment is $90,000, payable if the
effective date of termination occurs after January 2000.
Under a letter agreement dated December 18, 1998, Hoshi Printer, our Senior
Vice President and Chief Financial Officer, is entitled to a base salary of
$150,000, a $50,000 bonus payable upon closing of the offering, 150,000 options
which vest fully by January 2003 and employee benefits such as health and
insurance.
Under a letter agreement dated March 7, 1999, Ariel Amir, our Vice
President and General Counsel, is entitled to a base salary of $175,000, 125,000
options which vest fully by March 2003 and employee benefits, including health
and insurance. If Mr. Amir's employment is terminated without cause during the
first year of employment, Mr. Amir is entitled to one year's base salary payable
monthly. If Mr. Amir's employment is terminated without cause thereafter, he is
entitled to six month's base salary payable monthly.
INDEMNIFICATION AND LIMITATION OF DIRECTOR AND OFFICER LIABILITY
We have entered into agreements to indemnify our directors and officers, in
addition to the indemnification provided for in our bylaws. These agreements,
among other things, indemnify our directors and officers for expenses including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding arising out of such person's services as an
officer or director of us.
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<PAGE> 64
In any event, our directors and officers shall not be entitled to indemnity
under these agreements if a reviewing party appointed by the board of directors
determines that such person is not entitled to be indemnified thereunder under
applicable law. In addition, our directors and officers may not be indemnified
for expenses reasonably incurred, regarding any claim related to the fact that
such person was a director or officer of Autobytel.com:
- if the expenses result from acts, omissions or transactions for which
such person is prohibited from receiving indemnification;
- if the claims were initiated or brought voluntarily by one of our
directors or officers and not by way of defense, counterclaim or cross
claim; or
- if a claim instituted by one of our directors or officers or by us to
enforce or interpret the indemnity agreement was found to be frivolous or
made in bad faith by a court having jurisdiction over such matter.
We believe that these agreements are necessary to attract and retain
qualified directors and officers.
To the extent indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us as
discussed above, we have been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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<PAGE> 65
FINANCINGS AND RELATED PARTY TRANSACTIONS
Series A Preferred Stock
On August 23, 1996, in a private placement transaction, we issued 1,500,000
shares of series A preferred stock at $10.00 per share convertible into common
stock at the conversion price per share of $9.00. The number of shares of common
stock into which each share of series A preferred stock will convert is 1.11
shares. The holders of such series A preferred stock are entitled to
registration rights regarding the shares of common stock issued or issuable upon
conversion. See "Description of Capital Stock--Registration Rights." The holders
of outstanding shares of series A preferred stock are entitled to receive, when
and as declared by the board of directors, dividends in cash at an annual rate
of $0.80 per share of series A preferred stock. Such dividends, if any, are
payable in preference and in priority to any declaration or payment of any
dividend on the series B preferred stock or common stock. We have never declared
or paid dividends on the series A preferred stock. All shares of series A
preferred stock will automatically convert into shares of common stock upon the
closing of the offering.
From July 9, 1996 through August 13, 1996, Mr. Fuchs made loans to us in
the aggregate principal amount of $500,000. These loans, along with accrued
interest, converted into series A preferred stock on August 23, 1996 at $10.00
per share. In September 1996, Mr. Fuchs was appointed to our board of directors.
The holders of series A preferred stock have the right to elect two members
of the board of directors. Because General Electric Capital Corporation holds
more than a majority of the shares of series A preferred stock it has the right
to designate on behalf of all holders of series A preferred stock such
directors. To date, General Electric Capital Corporation has designated Mr.
Fuchs and Mr. Coats to the board of directors.
Series B Preferred Stock
On January 30, 1997, in a private placement transaction we issued 967,915
shares of series B preferred stock at $9.35 per share convertible into common
stock at the conversion price per share of $10.37. The number of shares of
common stock into which each share of series B preferred stock will convert is
0.90 shares. The holders of such series B preferred stock are entitled to
registration rights with respect to the shares of common stock issued or
issuable upon conversion. See "Description of Capital Stock--Registration
Rights." The holders of outstanding shares of series B preferred stock are
entitled to receive, when and as declared by the board of directors, dividends
in cash at an annual rate of $0.80 per share of series B preferred stock. Such
dividends, if any, are payable in preference and in priority to any declaration
or payment of any dividend on the common stock. We have never declared or paid
dividends on the series B preferred stock. All shares of series B preferred
stock will automatically convert into shares of common stock upon the closing of
the offering.
Series C Preferred Stock
On October 21, 1997, April 30, 1998, May 7, 1998, October 30, 1998,
November 10, 1998, December 16, 1998, December 21, 1998 and December 24, 1998,
in private placement transactions, we issued a total of 4,968,738 shares of
series C preferred stock at $8.80 per share convertible into common stock at the
conversion price per share of $13.20.
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<PAGE> 66
The number of shares of common stock into which each share of series C preferred
stock will convert is 0.67 shares. The holders of such series C preferred stock
are entitled to registration rights with respect to the shares of common stock
issued or issuable upon conversion. See "Description of Capital
Stock--Registration Rights". The holders of outstanding shares of series C
preferred stock are entitled to receive, when and as declared by the board of
directors, dividends in cash at an annual rate of $0.80 per share of series C
preferred stock. Such dividends, if any, are payable in preference and in
priority to any declaration or payment of any dividend on the series A preferred
stock, series B preferred stock or common stock. We have never declared or paid
dividends on the series C preferred stock. All shares of series C preferred
stock will automatically convert into shares of common stock upon the closing of
the offering. National Broadcasting Company acquired its shares by providing
national spot advertising to Autobytel.com.
The following chart lists the holders of Autobytel.com's preferred stock
and the number and class of shares held by such holders as of March 1, 1999.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
NAME OF STOCKHOLDER PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
General Electric Capital
Corporation.......................... 800,000 534,760 681,819
National Union Fire Insurance Company
of Pittsburgh, PA, an affiliate of
American International Group......... 400,000 267,380 227,273
ContiTrade Services L.L.C............ 200,000 133,690
Michael Fuchs........................ 100,000 32,085
Tozer Kemsley and Millbourn
Automotive, Ltd., a unit of Inchcape
Motors............................... 568,182
Bilia AB............................. 568,182
National Broadcasting Company, Inc.,
an affiliate of General Electric
Capital Corporation.................. 121,009
Invision AG.......................... 568,182
Aureus Private Equity AG............. 1,097,727
MediaOne Interactive Services,
Inc.................................. 1,136,364
</TABLE>
Loans
From time to time, Autobytel.com has advanced funds to Peter R. Ellis, the
former Chairman of the board of directors and Chief Executive Officer of
Autobytel.com. As of December 31, 1998, Mr. Ellis was indebted to us in the
amount of $250,000 plus accrued interest at the rate of 8% per year compounded
quarterly. The principal amount of the loan is due and payable on or before
March 1, 2003. We received a pledge of 100,657 of Mr. Ellis' shares of common
stock to secure this loan.
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<PAGE> 67
Severance and General Release Agreement
Autobytel.com and John M. Markovich, our former Senior Vice President and
Chief Financial Officer, are parties to a severance and general release
agreement dated January 30, 1998. Under the terms of the severance agreement
regarding his resignation from Autobytel.com, we paid to Mr. Markovich a
severance payment of $75,000, extended Mr. Markovich's health coverage through
July 30, 1998, paid certain outplacement expenses of $10,000 and granted Mr.
Markovich a warrant to purchase 33,333 shares of common stock at $11.25 per
share. The warrant granted to Mr. Markovich expires on January 30, 2003.
Advisory Agreement
Autobytel.com and Mr. Ellis, our former Chief Executive Officer and
Chairman of the board of directors, are parties to a two year advisory agreement
dated as of August 20, 1998. Under the advisory agreement, Mr. Ellis received
$500,000 on the date of execution. Commencing on the thirteenth month
anniversary of this agreement, Mr. Ellis is entitled to receive $5,000 per
month. Mr. Ellis is entitled to participate in all employee health plans and
receives a car allowance of $1,000 per month until April 30, 1999. The advisory
agreement may be terminated by us for cause or upon 30 days prior written notice
without cause. In the event the advisory agreement is terminated without cause
by Autobytel.com or due to his death or disability, Mr. Ellis will still be
entitled to receive his base salary and health benefits through the remainder of
the term of the of the agreement. Mr. Ellis has the right to terminate the
advisory agreement on 90 days prior written notice to Autobytel.com. A majority
of disinterested directors approved the advisory agreement and the loans made to
Mr. Ellis from time to time.
Voting Proxy
In addition, on January 11, 1999, in consideration of us waiving our right
of first refusal permitting the sale of $1.4 million of our common stock by Mr.
Ellis to "accredited investors" as such term is defined under Rule 501 of the
Securities Act, Mr. Ellis transferred to us the voting power of 593,175 shares
of common stock of Autobytel.com owned by Mr. Ellis for a period that is the
earlier of five years from such date or until such time as Mr. Ellis sells the
shares to a person not affiliated with Mr. Ellis. Mr. Ellis sold these shares at
$11.88 per share.
Marketing Agreement
Auto-By-Tel Acceptance Corporation, member companies of the American
International Group, and Autobytel.com entered into a marketing agreement dated
July 22, 1996. Under this agreement, Autobytel.com, through Auto-By-Tel
Acceptance Corporation, authorizes and provides the American International Group
access to its Internet server, for the publication, display, and exhibition of
the American International Group's member companies' direct response automobile
insurance sales materials. In return, Auto-By-Tel Acceptance Corporation is paid
compensation based on a flat fee on the basis of the premiums collected from our
consumers.
Under a marketing and application processing agreement dated February 1,
1997, among GE Capital, Auto-By-Tel Acceptance Corporation and Autobytel.com,
Auto-By-Tel
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<PAGE> 68
Acceptance Corporation and Autobytel.com agreed to refer customers seeking
vehicle financing with favorable credit ratings to GE Capital. In return, GE
Capital agreed to pay Auto-By-Tel Acceptance Corporation a marketing fee of
$100.00 for each financing consummated by GE Capital under this agreement. GE
Capital is an affiliate of General Electric Capital Corporation, which
beneficially owns 1,831,903 shares of common stock. As of December 31, 1998,
Auto-By-Tel Acceptance Corporation had referred customers to GE Capital to whom
GE Capital extended financing in an aggregate amount of approximately $307,000
and received approximately $1,200 in marketing fees since the inception of this
relationship.
In addition, General Electric Capital Corporation is an affiliate of
PaineWebber Incorporated, one of the underwriters taking part in this offering.
As a result, BT Alex. Brown Incorporated will act as a qualified independent
underwriter to establish the price of the shares offered by this prospectus.
Issuance of Warrants
On November 10, 1998, we issued to Invision AG a warrant to purchase an
aggregate of 150,000 shares of our common stock at an exercise price of $13.20
per share. This warrant is exercisable as of such date and expires on November
10, 2001.
On December 16, 1998 and December 23, 1998, we issued to Aureus Private
Equity AG warrants to purchase 169,800 and 120,000 shares, respectively, of our
common stock at an exercise price of $13.20 per share. These warrants are
exercisable as of such date and expire on December 16, 2001 and December 23,
2001, respectively. In January 1999, Peter Titz, a manager of Invision AG and a
director of Aureus Private Equity AG, was appointed to our board of directors.
On December 21, 1998, we issued to MediaOne Interactive Services, Inc. a
warrant to purchase an aggregate of 300,000 shares of common stock of
Autobytel.com at an exercise price of $13.20 per share. This warrant is
exercisable as of such date and expires on December 21, 2001. In February 1999,
Richard Post, a director of MediaOne Interactive Services, Inc., was appointed
to Autobytel.com's board of directors.
Approval Procedure for Related Party Transactions
All future transactions between Autobytel.com and interested directors and
stockholders, if any, will be approved by the disinterested directors or
stockholders, as appropriate in accordance with Delaware law and our certificate
of incorporation and bylaws.
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<PAGE> 69
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the common stock as of March 15, 1999, as adjusted to reflect the
conversion of the preferred stock into common stock concurrently with the
offering and sale of common stock offered in this offering for:
- each person or entity who is known by Autobytel.com to beneficially own
five percent or more of the outstanding common stock,
- each of our directors,
- each of the five most highly compensated officers in 1998,
- each stockholder who is selling shares of common stock in this offering,
and
- all directors and executive officers of Autobytel.com as a group.
As of March 15, 1999, there were 14,372,783 shares of common stock outstanding.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or exercisable within 60 days of March 15, 1999, are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person. Except as
indicated in the footnotes to this table and under applicable community property
laws, each stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such stockholder's name. The
following table assumes no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
------------------- SHARES BEING -------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Peter R. Ellis(1)................... 3,877,032 27.0% 500,000 3,377,032 18.9%
c/o Autobytel.com
18872 MacArthur Boulevard
Irvine, California 92612-1400
John C. Bedrosian(2)................ 3,569,445 24.8% 500,000 3,069,445 17.2%
c/o Autobytel.com
18872 MacArthur Boulevard
Irvine, California 92612-1400
General Electric Capital
Corporation(3).................... 1,832,022 12.7% 1,832,022 10.2%
260 Long Ridge Road
Stamford, Connecticut 06927
Peter Titz(4)....................... 1,550,406 10.5% 1,550,406 8.5%
c/o Aureus Private Equity AG
Zugerstrasse 76b
CH-6340 Baar
Switzerland
MediaOne Interactive Services,
Inc.(5)........................... 1,057,576 7.2% 1,057,576 5.8%
9000 E. Nichols Avenue
Englewood, Colorado 80112
Aureus Private Equity AG(4)......... 1,021,618 7.0% 1,021,618 5.6%
Zugerstrasse 76b
CH-6340 Baar
Switzerland
National Union Fire Insurance
Company of Pittsburgh, PA(6)...... 837,157 5.8% 837,157 4.7%
200 Liberty Street
New York, New York 10281
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
------------------- SHARES BEING -------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Robert S. Grimes(7)................. 809,493 5.5% 809,493 4.5%
c/o R.S. Grimes & Co., Inc.
152 West 57th Street
New York, NY 10019
Mark W. Lorimer(8).................. 296,412 2.0% 296,412 1.6%
Michael J. Fuchs(9)................. 146,249 1.0% 146,249 *
Michael J. Lowell(10)............... 110,280 * 110,280 *
Ann M. Delligatta(11)............... 40,704 * 40,704 *
Anne Benvenuto(12).................. 12,472 * 12,472 *
Mark N. Kaplan...................... 1,000 * 1,000 *
Kenneth J. Orton.................... -- * -- *
Hoshi Printer....................... -- * -- *
Ariel Amir.......................... -- * -- *
All directors and executive officers
as a group (14 persons)(13)....... 9,733,646 61.5% 9,233,646 47.7%
</TABLE>
- ---------------
* Less than 1%
(1) Includes 46,110 shares held by trusts established for family members of Mr.
Ellis as to which Mr. Ellis' spouse maintains sole voting power. Also
includes 593,175 shares as to which Mr. Ellis granted voting power to
Autobytel.com under a voting proxy dated January 11, 1999. See "Certain
Transactions." If the underwriters' over-allotment option were exercised in
full, the number of shares beneficially owned by Mr. Ellis after the
offering would be 3,058,282 and the percentage would be 17.1%.
(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 2,750,695
and the percentage would be 15.4%.
(3) Mr. Jeffrey Coats is a managing director of GE Equity Capital Group, Inc.,
an affiliate of General Electric Capital Corporation, and is a director of
Autobytel.com. Includes 888,889 shares held by General Electric Capital
Corporation (GE) following the conversion of the series A preferred stock,
482,393 shares held by GE following the conversion of the series B
preferred stock, and 454,546 shares held by GE following the conversion of
the series C preferred stock. Also includes 6,194 shares issuable upon
exercise of options exercisable within 60 days of March 15, 1999 which were
granted to Mr. Coats, and subsequently assigned to GE. Mr. Coats disclaims
beneficial ownership of such 6,194 shares.
(4) Mr. Peter Titz is a director of Aureus Private Equity AG, a manager of
Invision AG, and a director of Autobytel.com. Includes 731,818 shares
following the conversion of the series C preferred stock and 289,800 shares
issuable upon exercise of warrants held by Aureus Private Equity AG. Also
includes 378,788 shares following the conversion of the series C preferred
stock and 150,000 shares issuable upon exercise of warrants held by
Invision AG.
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<PAGE> 71
(5) Mr. Richard Post is a director of MediaOne Interactive Services, Inc. and a
director of Autobytel.com. Includes 757,576 shares held by MediaOne
Interactive Services, Inc. following the conversion of the series C
preferred stock and 300,000 shares issuable upon exercise of warrants.
MediaOne Interactive Services, Inc. is an indirect wholly owned subsidiary
of MediaOne Group, Inc. As a result, MediaOne Group, Inc., may be deemed to
indirectly, beneficially own the shares reported as being directly
beneficially owned by MediaOne Interactive Services, Inc. MediaOne Group,
Inc., disclaims such beneficial ownership.
(6) Represents 444,445 shares following the conversion of the series A
preferred stock, 241,197 shares following the conversion of the series B
preferred stock, and 151,515 shares following the conversion of the series
C preferred stock.
(7) Includes an aggregate of 5,554 shares held in irrevocable trusts as to
which Mr. Grimes' spouse maintains sole voting power. Includes 253,938
shares issuable upon exercise of options exercisable within 60 days of
March 15 1999.
(8) Represents 296,412 shares issuable upon exercise of options exercisable
within 60 days of March 15, 1999.
(9) Includes 6,195 shares issuable upon exercise of options exercisable within
60 days of March 15, 1999 and 111,111 shares held by Mr. Fuchs following
the conversion of the series A preferred stock and 28,943 shares following
the conversion of the series B preferred stock.
(10) Represents 110,280 shares issuable upon exercise of options exercisable
within 60 days of March 15, 1999.
(11) Represents 40,704 shares issuable upon exercise of options exercisable
within 60 days of March 15, 1999.
(12) Represents 12,472 shares issuable upon exercise of options exercisable
within 60 days of March 15, 1999.
(13) Includes 726,195 shares issuable upon exercise of options and 739,800
shares issuable upon exercise of warrants exercisable within 60 days of
March 15, 1999. Mr. Ellis resigned as Chief Executive Officer of
Autobytel.com in June 1998. If Mr. Ellis' shares are not included in the
number of shares beneficially owned by all directors and executive officers
as a group, the number of shares owned by the directors and executive
officers prior to the offering is 5,856,614 shares or 37.0% of the shares
of common stock outstanding, and after the offering would be 5,856,614
shares or 30.3% of the shares of common stock outstanding.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the offering, the outstanding shares of common stock
will consist of 17,858,745 shares, $0.001 par value. As of December 31, 1998,
there were 8,506,455 shares of common stock outstanding held of record by 49
stockholders.
COMMON STOCK
Autobytel.com is authorized to issue a total of 50,000,000 shares of common
stock. Holders of common stock are entitled to one vote per share in all matters
to be voted on by the stockholders. After the preferences of the preferred
stock, holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the board of directors out of
funds legally available for payment. See "Dividend
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<PAGE> 72
Policy." In the event of a liquidation, dissolution or winding up of
Autobytel.com, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, after prior distribution rights
of shares of preferred stock then outstanding, if any. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of the offering will be
fully paid and non-assessable.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, the board of
directors has the authority, without further action by the stockholders, to
issue up to 11,445,187 shares of preferred stock in one or more series. The
board of directors also has the power to determine the rights of the preferred
stock such as dividend rights, conversion rights, voting rights, and the terms
of redemption and liquidation preferences. The board of directors, without
stockholder approval, can issue preferred stock with voting, conversion or other
rights that are greater than the rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms calculated to delay or
prevent a change in control of Autobytel.com or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock, and may adversely affect the
voting and other rights of the holders of common stock. Upon the closing of the
offering, no shares of preferred stock will be outstanding and Autobytel.com has
no plans to issue any of the preferred stock. See "Financings and Related Party
Transactions."
REGISTRATION RIGHTS
The amended and restated investors' rights agreement, dated October 21,
1997, among Autobytel.com and the holders of 12,997,957 shares of common stock
and securities convertible into common stock, provides that the holders are
entitled to registration rights. If we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
holders exercising registration rights, the holders are entitled to notice of
such registration and may include shares of registrable securities in the
registration statement. Additionally, the holders are also entitled to demand
registration rights and may require us to file a registration statement under
the Securities Act at our expense for their shares of registrable securities.
The holders have waived their registration rights in connection with this
offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Anti-Takeover Law
The provisions of Section 203 of the Delaware General Corporation Law apply
to Autobytel.com. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a business combination with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner or unless the interested
stockholder acquired at least 85% of the corporation's voting stock (excluding
shares held by designated stockholders) in the transaction in which it became an
interested stockholder. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested
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stockholder. Other than persons who own shares in excess of 15% of the voting
stock of the corporation as a result of action taken solely by the corporation,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within the previous three years did own, 15% or more of the
corporation's voting stock.
Limitation of Director and Officer Liability
Our amended and restated certificate of incorporation and bylaws contain
provisions relating to the limitation of liability and indemnification of
directors and officers. Our amended and restated certificate of incorporation
provides that our directors may not be held personally liable to us or our
stockholders for a breach of fiduciary duty, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law,
- under Section 174 of the Delaware General Corporation Law, relating to
prohibited dividends, distributions and repurchases or redemptions of
stock, and
- for any transaction from which the director derives an improper benefit.
In addition, our amended and restated certificate of incorporation and bylaws
provide that we will indemnify directors and officers to the fullest extent
authorized by Delaware law.
No Stockholder Action by Written Consent
Our amended and restated certificate of incorporation provides that the
stockholders can take action only at a duly called annual or special meeting of
stockholders. Accordingly, stockholders of Autobytel.com will not be able to
take action by written consent in lieu of a meeting. This provision may have the
effect of deterring hostile takeovers or delaying changes in control or
management of Autobytel.com.
Staggered Board of Directors
Our amended and restated certificate of incorporation provides that upon
the closing of this offering, the terms of office of the board of directors will
be divided into three classes, such that the terms of Class I, Class II and
Class III directors shall expire at the annual meeting of stockholders to be
held in 1999, 2000 and 2001, respectively. The number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This provision may have the effect
of delaying or preventing changes in control or change in our management because
less than a majority of the board of directors are up for election at each
annual meeting.
TRANSFER AGENT AND REGISTRAR
U.S. Stock Transfer Corporation, Glendale, California, has been appointed
as the transfer agent and registrar for the common stock. Its telephone number
for such purposes is (818) 502-1404.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no market for the common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect market prices prevailing from time to time. Upon completion of
the offering, Autobytel.com will have outstanding an aggregate of 17,858,745
shares of common stock, assuming no exercise of outstanding options or warrants.
Of these shares, the 4,500,000 shares sold in the offering will be freely
tradeable without restriction or further registration under the Securities Act,
except that any shares purchased by "affiliates" of Autobytel.com, as that term
is defined in Rule 144 of the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 13,358,745 shares of common stock held by existing
stockholders are "restricted securities" under Rule 144. The number of shares of
common stock available for sale in the public market is limited by restrictions
under the Securities Act and lock-up agreements. Under the lock-up agreements,
the holders of such shares have agreed not to sell or otherwise dispose of any
of their shares for a period of 180 days after the date of this prospectus (the
"lock-up period") without the prior written consent of BT Alex. Brown
Incorporated. In addition, the selling shareholders have agreed to the same
lock-up except that they have agreed to a 270-day lock-up. On the date of this
prospectus, no shares other than the shares in this offering will be eligible
for sale.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons who has beneficially owned
restricted shares for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale. One percent of the number
of shares of common stock outstanding after the offering equals
approximately 178,587 shares.
Sales must be made under manner of sale provisions and notice requirements
specified by Rule 144 and current public information about Autobytel.com must be
available. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Autobytel.com at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" could be sold
immediately upon the completion of this offering.
Following the expiration of the lock-up period, none of the restricted
shares will become available for sale in the public market until the expiration
of their respective holding periods (approximately 11,298,480 of such shares
will have been held for more than one year at the end of such 180-day period).
Upon completion of the offering, the holders of 12,997,957 shares of common
stock, or their transferees, will be entitled to rights with respect to the
registration of such shares under the Securities Act until such time as the
holders of such common stock may sell such shares under the Rule 144 of the
Securities Act. See "Description of Capital
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Stock -- Registration Rights." Registration of such shares under the Securities
Act would result in such shares becoming freely tradeable without restriction
under the Securities Act, except for shares purchased by affiliates, immediately
upon the effectiveness of such registration.
OPTIONS AND RESTRICTED STOCK
We intend to file a registration statement under the Securities Act
covering shares of common stock reserved for issuance under the 1999 Stock
Option Plan, 1998 Stock Option Plan, 1996 Stock Incentive Plan, the 1996 Stock
Option Plan and the 1996 Employee Stock Purchase Plan. Such registration
statement is expected to be filed and become effective as soon as practicable
after the effective date of the offering. Accordingly, shares registered under
such registration statement will, with regards to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, unless such
shares are subject to vesting restrictions with Autobytel.com or the lock-up
agreements described above. A total of 5,522,948 shares have been reserved for
issuance under such plans. As of March 1, 1999, 790,739 options have been
granted under the 1999 Stock Option Plan, 1,278,000 options have been granted
under the 1998 Stock Option Plan, 833,333 options have been granted under the
1996 Stock Incentive Plan, 889,163 options have been granted under the 1996
Stock Option Plan and no shares have been purchased under the 1996 Employee
Stock Purchase Plan. See "Management -- Stock Plans."
In addition, under Rule 701 of the Securities Act as currently in effect,
any employee, consultant or advisor of Autobytel.com who is not an affiliate who
purchased shares from us under a compensatory stock or option plan or other
written agreement is eligible to resell such shares 90 days after the effective
date of this offering, governed by all provisions of Rule 144 except its minimum
holding period.
LOCK-UP AGREEMENTS
All officers, directors, and other stockholders of Autobytel.com have
entered into lock-up agreements. Under the lock-up agreements, each person
agreed not to sell or otherwise dispose of any shares of common stock or any
securities convertible into common stock for a period of 180 days after the date
of this prospectus, without the prior written consent of BT Alex. Brown
Incorporated. The selling stockholders have agreed to the same lock-up except
for a period of 270 days after the date of this prospectus. See "Underwriting."
In addition, under the terms of the 1999 Stock Option Plan, 1998 Stock Option
Plan, the 1996 Stock Option Plan and the 1996 Stock Incentive Plan, holders of
options to purchase common stock are obligated not to sell or transfer any
shares of Autobytel.com acquired through exercise of options during such 180-day
period if requested by us or the underwriters.
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MATERIAL UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS
GENERAL
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of common
stock by a Non-U.S. Holder, as defined below. As used in this prospectus, the
term "Non-U.S. Holder" is any person or entity that, for United States federal
income tax purposes, is either a non-resident alien individual, a foreign
corporation, a foreign partnership or a foreign trust in each case not subject
to United States federal income tax on a net basis in respect of income or gain
with respect to our common stock.
An individual may be deemed to be a resident alien, as opposed to a
nonresident alien, by virtue of being present in the United States for at least
31 days in the calendar year and for an aggregate of at least 183 days during a
three-year period ending in the current calendar year. In determining whether an
individual is present in the United States for at least 183 days, all of the
days present in the current year, one-third of the days present in the
immediately preceding year and one-sixth of the days present in the second
preceding year are counted. Resident aliens are subject to United States federal
income and estate tax in the same manner as United States citizens and
residents.
This discussion does not address all aspects of United States federal
income and estate taxes that may be relevant to a particular Non-U.S. Holder in
light of the holder's particular circumstances. This discussion is not intended
to be applicable in all respects to all categories of Non-U.S. Holders, some of
whom may be subject to special treatment under United States federal income tax
laws. Moreover this discussion does not address United States state or local or
foreign tax consequences. This discussion is based on provisions of the Internal
Revenue Code of 1986, as amended, existing and proposed regulations under, and
administrative and judicial interpretations of, the Internal Revenue Code, in
effect on the date of this prospectus. All of these authorities may change,
possibly with retroactive effect or different interpretations. The following
summary is included in this prospectus for general information. Accordingly,
prospective investors are urged to consult their tax advisers regarding the
United States federal, state, local and non-United States income and other tax
consequences of acquiring, holding and disposing of shares of our common stock.
DIVIDENDS
We do not anticipate paying cash dividends on our capital stock in the
foreseeable future. See "Dividend Policy." In the event, however, that dividends
are paid on shares of common stock, dividends paid to a Non-U.S. Holder of
common stock generally will be subject to United States withholding tax at a 30%
rate, unless an applicable income tax treaty provides for a lower withholding
rate. Non-U.S. Holders should consult their tax advisors regarding their
entitlement to benefit under a relevant income tax treaty.
Currently the applicable United States Treasury regulations presume, absent
actual knowledge to the contrary, that dividends paid to an address in a foreign
country are paid to a resident of such country for purposes of the 30%
withholding tax discussed above. However, the final United States Treasury
regulations provide that, in the case of dividends paid after December 31, 1999,
a Non-U.S. Holder wishing to claim the benefits of an applicable treaty rate and
avoid backup withholding tax at a 31% rate, as discussed below,
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is required to satisfy certification or documentary evidence procedures and
other tax law requirements, including the filing of an Internal Revenue Service
Form W-8 containing the Non-U.S. Holder's name, address and a certification that
the holder is eligible for the benefits of the applicable treaty under the
treaty's Limitations on Benefits Article. In addition, the certification and
disclosure requirements must be met for a non-U.S. Holder to be exempt from
withholding under the effectively connected income exemption discussed below.
The regulations under the Internal Revenue Code also provide special rules
for dividend payments made to foreign intermediaries, United States or foreign
wholly owned entities that are disregarded for United States federal income tax
purposes and entities that are treated as fiscally transparent in the United
States, the applicable income tax treaty jurisdiction, or both. In addition,
recently enacted legislation, effective August 4, 1997, denies income tax treaty
benefits to foreign partners receiving income derived through a partnership, or
otherwise fiscally transparent entity, if the foreign partner does not certify
as to its Non-U.S. Holder status and the partnership does not provide required
information including a United States taxpayer identification number.
Prospective investors should consult with their own tax advisers concerning the
effect, if any, of these tax regulations and the recent legislation on an
investment in the common stock.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for a
refund with the IRS.
The recipient of dividends that are effectively connected with either a
Non-U.S. Holder's:
- conduct of a trade or business in the United States,
- permanent establishment in the United States if a tax treaty applies, or
- fixed base in the United States
are taxed generally on a net income basis at regular graduated rates. The 30%
withholding tax is not applicable to the payment of dividends if the Non-U.S.
Holder files Form 4224 or any successor form with the payor or, after December
31, 1999, such holder provides its United States taxpayer identification number
to the payor.
Any United States trade or business income received by a Non-U.S. Holder
that is a corporation also may be subject to an additional "branch profits tax"
at a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not have to pay United States federal
income or withholding tax on any gain recognized on a disposition of common
stock unless:
(1) the gain is effectively connected with the conduct of a trade or
business of the Non-U.S. Holder within the United States or of a
partnership, trust or estate in which the Non-U.S. Holder is a partner
or beneficiary within the United States,
(2) if a treaty applies, the gain is effectively connected to a permanent
establishment of the Non-U.S. Holders within the United States,
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(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,
(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, a Non-U.S. Holder still would
not be required to pay United States federal income tax on any gain realized 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 purchaser or recipient of the 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.
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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 apply regardless of whether withholding is
required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
Currently, the 31% United States backup withholding tax rate generally will
not apply:
- to dividends which are paid to Non-U.S. Holders and are taxed at the
regular withholding tax rate as discussed above, or
- before January 1, 2000, to dividends paid to a Non-U.S. Holder at an
address outside of the United States unless the payor has actual
knowledge that the payee is a United States Holder.
Backup withholding and information reporting generally will apply to dividends
paid to addresses inside the United States on shares of common stock to
beneficial owners that are not "exempt recipients" and that fail to provide, in
the manner required, identifying information.
On October 6, 1997, the United States Treasury Department issued final
regulations under the Internal Revenue Code regarding the withholding and
information reporting rules discussed above. The regulations apply to payments
made after December 31, 1999. The final 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 backup withholding at the rate of 31% and
that information reporting will apply to payments to a Non-U.S. Holder unless
Autobytel.com receives certification of such holder's Non-U.S. status. Depending
on the circumstances, this certification will need to be provided either:
- directly by the Non-U.S. Holder,
- in the case of a Non-U.S. Holder that is treated as a partnership or
other fiscally transparent entity, by the partners, shareholders or other
beneficiaries of such entity, or
- by qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.
Information reporting and backup withholding at a rate of 31% generally
will not apply to the payment of the proceeds of the disposition of common stock
by a holder to or through the United States office of a broker or through a
non-United States branch of a United States broker unless the holder either
certifies its status as a Non-U.S. Holder under penalties of perjury or
otherwise establishes an exemption. The payment of the proceeds of the
disposition by a Non-U.S. Holder of common stock to or through a Non-United
States office of a non-United States broker will not have to comply with backup
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withholding or information reporting unless the non-United States broker has a
connection to the United States as specified in the tax law.
In the case of the payment of proceeds from the disposition of common stock
effected by a foreign office of a broker that is a United States person or a
"United States related person," existing regulations require information
reporting on the payment unless
- the broker receives a statement from the owner, signed under penalty of
perjury, certifying its non-United States status or the broker has
documentary evidence in its files as to the Non-U.S. Holder's foreign
status, and the broker has no actual knowledge to the contrary, and other
United States federal tax law conditions are met or
- the beneficial owner otherwise establishes an exemption.
For this purpose, a "United States related person" is either
- a "controlled foreign corporation" for United States federal income tax
purposes; or
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment is derived from activities that are effectively connected
with the conduct of a United States trade or business.
After December 31, 1999, the regulations under the Internal Revenue Code
will impose information reporting and backup withholding on payments of the
gross proceeds from the sales or redemptions of common stock that are effected
through foreign offices of brokers having any of a broader class of specified
connections with the United States. Such information reporting and backup
withholding may be avoided, however, if a Non-U.S. Holder complies with the
applicable IRS certification requirements. Prospective investors should consult
with their own tax advisers regarding the regulations under the Internal Revenue
Code and in particular with respect to whether the use of a particular broker
would subject the investor to these rules.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be either refunded or credited against the holder's United
States federal income tax liability provided sufficient information is furnished
to the Internal Revenue Service.
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UNDERWRITING
Under the terms of an underwriting agreement, the underwriters named below,
through their representatives, BT Alex. Brown Incorporated, Lehman Brothers Inc.
and PaineWebber Incorporated, have severally agreed to purchase from
Autobytel.com the following respective number of shares of common stock at the
public offering price less the underwriting discount set forth on the cover page
of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated................................. 1,650,000
Lehman Brothers Inc......................................... 1,072,500
PaineWebber Incorporated.................................... 577,500
Bear, Stearns & Co. Inc..................................... 75,000
Donaldson, Lufkin & Jenrette Securities..................... 75,000
Goldman, Sachs & Co. ....................................... 75,000
Morgan Stanley & Co. Incorporated........................... 75,000
NationsBanc Montgomery Securities LLC....................... 75,000
Salomon Smith Barney Inc.................................... 75,000
SG Cowen.................................................... 75,000
Warburg Dillon Read LLC..................................... 75,000
Adams, Harkness & Hill, Inc. ............................... 50,000
Dain Rauscher Wessels....................................... 50,000
FAC/Equities................................................ 50,000
Needham & Company, Inc. .................................... 50,000
U.S. Bancorp Piper Jaffray Inc. ............................ 50,000
Volpe Brown Whelan & Company, LLC........................... 50,000
WIT Capital Corporation..................................... 50,000
---------
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 $0.95 per share. The underwriters may allow, and such dealers may
re-allow, a concession not in excess of $0.10 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
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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 BT Alex. Brown Incorporated. These
officers, directors and stockholders hold 13,293,376 shares of our common stock
in the aggregate. The selling stockholders have agreed to a lock-up for a period
of 270 days after the date of Autobytel.com's public offering. BT Alex. Brown
Incorporated may give such consent at any time without public notice and may
give consent for some stockholders and not others. Autobytel.com has also
entered into a similar agreement, except that we may grant options or warrants
to purchase shares of common stock or any securities convertible into shares of
common stock, under the exercise of outstanding options and warrants and our
issuance of options and stock granted under our existing stock option and stock
purchase plans.
The representatives have advised Autobytel.com that the underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thus creating a
short position in the common stock for their own account. Additionally, to cover
such over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 450,000 shares for friends of our founders, our
employees, family members of our employees and our vendors. The number of shares
of common stock available for sale to the general public will be reduced to the
extent these people purchase such reserved shares. Any reserved shares which are
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered hereby.
In addition, we have agreed to sell 250,000 shares at the public offering
price to strategic international investors. These strategic investors entered
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,
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.
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General Electric Capital Services, Inc. indirectly beneficially owns
approximately 22% of the issued and outstanding common stock of Paine Webber
Group, Inc., which is the parent holding company of PaineWebber Incorporated, an
SEC-registered broker-dealer and one of the underwriters in this offering. The
voting rights with respect to such common stock are restricted by the terms of
an amended and restated shareholder's agreement. As a result, the offering of
the shares of common stock offered in this offering is required to be made in
accordance with the applicable provisions of Rule 2720 of the NASD.
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 has
been determined by negotiation among representatives of the underwriters and
Autobytel.com. Among the factors considered in determining the public offering
price were:
- prevailing market conditions;
- our results of operations in recent periods;
- our present stage of development;
- the market capitalizations and stages of development of other companies
which we and the representatives of the underwriters believe to be
comparable to us; and
- estimates of our business potential.
LEGAL MATTERS
The validity of the shares of common stock offered in this offering will be
passed upon for Autobytel.com by Paul, Hastings, Janofsky & Walker LLP, New
York, New York and for the underwriters by Latham & Watkins, Menlo Park,
California. Attorneys in the firm of Paul, Hastings, Janofsky & Walker LLP will
participate in the directed share program in the offering in an amount of up to
15,000 shares.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for the years ended December 31, 1996, 1997 and 1998 appearing in this
prospectus and the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their report and are
included in reliance upon the authority of said firm as experts in giving said
report.
82
<PAGE> 84
The discussion that appears under the headings "Risk Factors -- If
financial broker and insurance licensing requirements apply to us in states
where we are not currently licensed, we will be required to obtain additional
licenses and our business may suffer," "Business -- Products, Programs and
Services -- Ancillary Customer Services" and "Business -- Government Regulation"
has been reviewed by Barger & Wolen LLP, Los Angeles, California, and has been
included herein, to the extent such discussion involves regulations, laws or
legal conclusions relating to issues involving insurance, in reliance upon the
authority of such firm as an expert thereon.
ADDITIONAL INFORMATION
A registration statement on Form S-1, including amendments, relating to the
common stock offered in this offering has been filed by Autobytel.com with the
Securities and Exchange Commission, Washington, D.C. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference. This prospectus
contains all material information required to be disclosed by the Securities
Act. For further information regarding Autobytel.com and the common stock
offered reference is made to such registration statement, exhibits and
schedules. A copy of the registration statement may be inspected by anyone
without charge at the SEC's principal office, 450 Fifth Street, N.W.,
Washington, D.C. 20549, the New York Regional Office located at 7 World Trade
Center, 13th Floor, New York, NY 10048, and the Chicago Regional Office located
at Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661, and
copies of all or any part including any exhibit may be obtained from the SEC
upon the payment of fees prescribed by the SEC. The public may obtain
information on the operation of the Public Reference room by calling the SEC at
1-800-SEC-0330. The SEC maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. The address of the site is
http://www.sec.gov.
83
<PAGE> 85
AUTOBYTEL.COM INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of autobytel.com inc.:
We have audited the accompanying consolidated balance sheets of
autobytel.com inc. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1996, 1997 and 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
autobytel.com inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for the years ended December
31, 1996, 1997 and 1998 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1999
F-2
<PAGE> 87
AUTOBYTEL.COM INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents, includes restricted amounts of
$248 and $248, respectively............................. $ 15,813 $ 27,984
Accounts receivable, net of allowance for doubtful
accounts of $337 and $402, respectively................. 1,493 2,315
Prepaid expenses and other current assets................. 795 1,353
-------- --------
Total current assets............................... 18,101 31,652
Property and equipment, net................................. 2,317 2,208
Other assets................................................ 95 347
-------- --------
Total assets....................................... $ 20,513 $ 34,207
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,223 $ 2,915
Accrued expenses.......................................... 1,047 915
Deferred revenue.......................................... 3,700 4,008
Customer deposits......................................... 127 345
Other current liabilities................................. 66 33
-------- --------
Total current liabilities.......................... 7,163 8,216
Deferred rent............................................. 91 123
-------- --------
Total liabilities.................................. 7,254 8,339
-------- --------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series A, $0.001 par value;
aggregate liquidation preference of $15,000 at December
31, 1998; 1,500,000 shares authorized; 1,500,000 shares
issued and outstanding at December 31, 1997 and 1998.... 2 2
Convertible preferred stock, Series B, $0.001 par value;
aggregate liquidation preference of $9,050 at December
31, 1998; 967,915 shares authorized 967,915 shares
issued and outstanding at December 31, 1997 and 1998.... 1 1
Convertible preferred stock, Series C, $0.001 par value;
aggregate liquidation preference of $43,725 at December
31, 1998; 6,977,272 shares authorized; 1,477,274 shares
issued and outstanding at December 31, 1997; 4,968,738
shares issued and outstanding at December 31, 1998...... 1 4
Common stock, $0.001 par value; 50,000,000 shares
authorized; 8,324,443 shares issued and outstanding
December 31, 1997; 8,506,455 shares issued and
outstanding at December 31, 1998........................ 8 8
Warrants.................................................. -- 1,332
Additional paid-in capital................................ 37,123 67,813
Deferred compensation..................................... (1) --
Cumulative translation adjustment......................... -- (19)
Accumulated deficit....................................... (23,875) (43,273)
-------- --------
Total stockholders' equity......................... 13,259 25,868
-------- --------
Total liabilities and stockholders' equity......... $ 20,513 $ 34,207
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 88
AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Revenues............................... $ 5,025 $ 15,338 $ 23,826
---------- ----------- -----------
Operating expenses:
Sales and marketing.................. 7,790 21,454 30,033
Product and technology development... 1,753 5,448 8,528
General and administrative........... 1,641 5,851 5,908
---------- ----------- -----------
Total operating expenses.......... 11,184 32,753 44,469
---------- ----------- -----------
Loss from operations................. (6,159) (17,415) (20,643)
Other income, net...................... 124 620 1,280
---------- ----------- -----------
Loss before provision for income
taxes............................. (6,035) (16,795) (19,363)
Provision for income taxes............. -- 15 35
---------- ----------- -----------
Net loss............................. $ (6,035) $ (16,810) $ (19,398)
========== =========== ===========
Basic net loss per share............... $ (0.73) $ (2.03) $ (2.30)
========== =========== ===========
Shares used in computing basic net loss
per share............................ 8,252,325 8,291,142 8,423,038
========== =========== ===========
Pro forma basic net loss per share..... $ (0.68) $ (1.53) $ (1.49)
========== =========== ===========
Shares used in computing pro forma
basic net loss per share............. 8,848,864 10,966,633 13,008,090
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 89
AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
CONVERTIBLE MEMBERS'
PREFERRED STOCK COMMON STOCK INTEREST/
------------------ ------------------ ADDITIONAL DEFERRED CUMULATIVE
NUMBER OF NUMBER OF PAID-IN COMPEN- TRANSLATION
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL SATION ADJUSTMENT
--------- ------ --------- ------ -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995............. -- $-- -- $-- $ -- $ 40 $ -- $ --
Sale of members' interest in ABT
Acceptance Company, LLC............ -- -- -- -- -- 50 -- --
Issuance of common stock in exchange
for members' interest.............. -- -- 8,250,000 8 -- (8) -- --
Issuance of common stock options with
an exercise price of $0.90 per
share.............................. -- -- -- -- -- 87 (87) --
Issuance of Series A convertible
preferred stock at $10.00 per
share.............................. 1,450,000 2 -- -- -- 14,363 -- --
Issuance of Series A convertible
preferred stock at $10.00 per share
upon conversion of debt............ 50,000 -- -- -- -- 500 -- --
Issuance of common stock in exchange
for services....................... -- -- 6,667 -- -- 20 -- --
Issuance of common stock upon
exercise of stock options.......... -- -- 28,148 -- -- 25 -- --
Amortization of deferred
compensation....................... -- -- -- -- -- -- 61 --
Net loss............................. -- -- -- -- -- -- -- --
--------- -- --------- -- ------ ------- ---- ----
Balance, December 31, 1996............. 1,500,000 2 8,284,815 8 -- 15,077 (26) --
Issuance of Series B convertible
preferred stock at $9.35 per
share.............................. 967,915 1 -- -- -- 9,028 -- --
Issuance of Series C convertible
preferred stock at $8.80 per
share.............................. 1,477,274 1 -- -- -- 12,987 -- --
Issuance of common stock upon
exercise of stock options.......... -- -- 39,628 -- -- 31 -- --
Amortization of deferred
compensation....................... -- -- -- -- -- -- 25 --
Net loss............................. -- -- -- -- -- -- -- --
--------- -- --------- -- ------ ------- ---- ----
Balance, December 31, 1997............. 3,945,189 4 8,324,443 8 -- 37,123 (1) --
Issuance of Series C convertible
preferred stock at $8.80 per
share.............................. 3,370,455 3 -- -- -- 29,443 -- --
Issuance of Series C convertible
preferred stock at $8.80 per share
in exchange for advertising........ 121,009 -- -- -- -- 1,065 -- --
Issuance of warrants in exchange for
start-up costs for a Pan-European
entity............................. -- -- -- -- 792 -- -- --
Issuance of warrant in exchange for
involvement in broadband
application project................ -- -- -- -- 540 -- -- --
Issuance of common stock upon
exercise of stock options.......... -- -- 181,012 -- -- 169 -- --
Issuance of common stock at $13.20
per share.......................... -- -- 1,000 -- -- 13 -- --
Amortization of deferred
compensation....................... -- -- -- -- -- -- 1 --
Foreign currency translation
adjustment......................... -- -- -- -- -- -- -- (19)
Net loss............................. -- -- -- -- -- -- -- --
--------- -- --------- -- ------ ------- ---- ----
Balance, December 31, 1998............. 7,436,653 $7 8,506,455 $8 $1,332 $67,813 $ -- $(19)
========= == ========= == ====== ======= ==== ====
<CAPTION>
ACCUM-
ULATED
DEFICIT TOTAL
-------- --------
<S> <C> <C>
Balance, December 31, 1995............. $ (1,030) $ (990)
Sale of members' interest in ABT
Acceptance Company, LLC............ -- 50
Issuance of common stock in exchange
for members' interest.............. -- --
Issuance of common stock options with
an exercise price of $0.90 per
share.............................. -- --
Issuance of Series A convertible
preferred stock at $10.00 per
share.............................. -- 14,365
Issuance of Series A convertible
preferred stock at $10.00 per share
upon conversion of debt............ -- 500
Issuance of common stock in exchange
for services....................... -- 20
Issuance of common stock upon
exercise of stock options.......... -- 25
Amortization of deferred
compensation....................... -- 61
Net loss............................. (6,035) (6,035)
-------- --------
Balance, December 31, 1996............. (7,065) 7,996
Issuance of Series B convertible
preferred stock at $9.35 per
share.............................. -- 9,029
Issuance of Series C convertible
preferred stock at $8.80 per
share.............................. -- 12,988
Issuance of common stock upon
exercise of stock options.......... -- 31
Amortization of deferred
compensation....................... -- 25
Net loss............................. (16,810) (16,810)
-------- --------
Balance, December 31, 1997............. (23,875) 13,259
Issuance of Series C convertible
preferred stock at $8.80 per
share.............................. -- 29,446
Issuance of Series C convertible
preferred stock at $8.80 per share
in exchange for advertising........ -- 1,065
Issuance of warrants in exchange for
start-up costs for a Pan-European
entity............................. -- 792
Issuance of warrant in exchange for
involvement in broadband
application project................ -- 540
Issuance of common stock upon
exercise of stock options.......... -- 169
Issuance of common stock at $13.20
per share.......................... -- 13
Amortization of deferred
compensation....................... -- 1
Foreign currency translation
adjustment......................... -- (19)
Net loss............................. (19,398) (19,398)
-------- --------
Balance, December 31, 1998............. $(43,273) $ 25,868
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 90
AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,035) $(16,810) $(19,398)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 178 860 1,255
Provision for bad debt.................................. 145 175 187
Loss on disposal of property and equiptment............. -- -- 1
Amortization of deferred compensation................... 61 25 1
Issuance of common stock in exchange for services....... 20 -- --
Issuance of Series C convertible preferred stock in
exchange for advertising............................... -- -- 1,065
Issuance of warrants in exchange for start-up costs for
a Pan-European entity.................................. -- -- 792
Issuance of warrant in exchange for involvement in
broadband application project.......................... -- -- 540
Changes in assets and liabilities:
Accounts receivable................................... (429) (1,370) (1,009)
Prepaid expenses and other current assets............. (788) 107 (558)
Other assets.......................................... (604) 516 (252)
Accounts payable...................................... 564 1,572 692
Accrued expenses...................................... 722 325 (132)
Deferred revenue...................................... 1,970 1,374 308
Customer deposits..................................... 554 (427) 218
Other current liabilities............................. 16 34 (33)
Deferred rent......................................... 17 74 32
------- -------- --------
Net cash used in operating activities............... (3,609) (13,545) (16,291)
------- -------- --------
Cash flows from investing activities:
Acquisition of Internet Development Corporation........... -- (100) --
Purchases of property and equipment....................... (1,501) (1,652) (1,147)
------- -------- --------
Net cash used in investing activities............... (1,501) (1,752) (1,147)
------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock........................ 25 31 182
Proceeds from sale of members' interest in ABT Acceptance
Company, LLC............................................ 50 -- --
Net proceeds from issuance of Series A convertible
preferred stock......................................... 14,365 -- --
Net proceeds from issuance of Series B convertible
preferred stock......................................... -- 9,029 --
Net proceeds from issuance of Series C convertible
preferred stock......................................... -- 12,988 29,446
Proceeds from issuance of notes payable................... 765 -- --
Repayments of notes payable............................... (1,081) -- --
------- -------- --------
Net cash provided by financing activities........... 14,124 22,048 29,628
------- -------- --------
Effect of exchange rates on cash............................ -- -- (19)
------- -------- --------
Net increase in cash and cash equivalents................... 9,014 6,751 12,171
Cash and cash equivalents, at beginning of period........... 48 9,062 15,813
------- -------- --------
Cash and cash equivalents, at end of period................. $ 9,062 $ 15,813 $ 27,984
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes.............. $ 4 $ 15 $ 35
======= ======== ========
Cash paid during the period for interest.................. $ 24 $ -- $ 3
======= ======== ========
</TABLE>
Supplemental disclosure of non-cash financing activities (See Note 7):
* In May 1996, 8,250,000 shares of common stock were issued to founding
stockholders in exchange for members' interests in a predecessor limited
liability company.
* In August 1996, 50,000 shares of Series A convertible preferred stock were
issued in exchange for $500 previously advanced to the Company under three
notes payable.
* In September 1996, 6,667 shares of common stock with a fair market value of
$20 were issued for services.
* In April 1998, 56,776 shares of Series C convertible preferred stock with a
fair market value of $8.80 per share convertible into common stock at the
conversion price of $13.20 per share were issued for advertising.
* In October 1998, 64,233 shares of Series C convertible preferred stock with a
fair market value of $8.80 per share convertible into common stock at the
conversion price of $13.20 per share were issued for advertising.
* In November and December 1998, warrants to purchase 439,800 shares of common
stock at $13.20 per share were issued to investors in Series C convertible
preferred stock in exchange for a commitment to fund start-up activities of a
Pan-European entity in which the Company may invest with the investors.
* In December 1998, a warrant to purchase 300,000 shares of common stock at
$13.20 per share was issued to an investor in exchange for involvement in
broadband application project.
The accompanying notes are an integral part of these consolidated
statements.
F-6
<PAGE> 91
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data.)
1. ORGANIZATION AND OPERATIONS OF AUTOBYTEL.COM
autobytel.com inc. (Autobytel.com) is a branded Internet site for new and
pre-owned vehicle information and purchasing services. Through its Web site
(www.autobytel.com), consumers can research pricing, specifications and other
information related to new and pre-owned vehicles and, when consumers indicate
they are ready to buy, can be connected to Autobytel.com's network of
participating dealers. Autobytel.com also provides other related services such
as financing, leasing, vehicle warranties and insurance. Autobytel.com's
services are free to consumers and, to date, Autobytel.com has derived
substantially all of its revenues from fees paid by subscribing dealers located
in the United States and Canada.
Auto-By-Tel, LLC (ABT), Autobytel.com's predecessor, was organized in
January 1995 and commenced operations as a California limited liability company
in March 1995. ABT Acceptance Company, LLC (ABTAC), an affiliated company under
common control, was formed in February 1996. ABT and ABTAC (the LLCs) were
reorganized in May 1996 as a Delaware corporation pursuant to the terms of a
Contribution Agreement and Plan of Organization (the Plan of Organization)
entered into by all of the members of the LLCs (See Note 7). As the LLCs were
under common control, the reorganization was accounted for in a manner similar
to a pooling-of-interests, whereby the assets and liabilities of ABT and ABTAC
were transferred to Autobytel.com at their historical cost.
Since inception, Autobytel.com has invested the majority of its efforts in
marketing its brand name and developing infrastructure to support anticipated
future operating growth. As a result, Autobytel.com has experienced significant
operating losses and had an accumulated deficit of $43,273 at December 31, 1998.
To date, such losses have been financed primarily through private placements of
preferred stock (See Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Autobytel.com, its predecessors (See Note 1) and its wholly-owned subsidiaries:
Autobytel Services Corporation, Autobytel Acceptance Corporation, Autobytel
Insurance Services, Inc., Autobytel.ca Inc., Kre8.net, Inc., Auto-By-Tel
International LLC, Auto-by-Tel UK Limited and AutoVisions Communications, Inc.
All intercompany transactions and balances have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 92
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash and Cash Equivalents
For the purposes of the consolidated balance sheets and the consolidated
statements of cash flows, Autobytel.com considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject Autobytel.com to significant
concentrations of credit risk consist primarily of accounts receivable. To date,
accounts receivable have primarily been derived from marketing fees billed to
subscribing dealers located in the United States and Canada. Autobytel.com
generally requires no collateral to support customer receivables. Autobytel.com
maintains reserves for potential credit losses. Historically, such losses have
been minor and within management's expectations. As of December 31, 1997 and
1998, no subscribing dealer accounted for greater than 10% of accounts
receivable.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, generally three years. Amortization of leasehold improvements is
provided using the straight-line method over the lesser of the remaining lease
term or the estimated useful lives of the improvements.
Stock-Based Compensation
In 1996, Autobytel.com adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." Autobytel.com has elected to continue accounting for
stock-based compensation issued to employees using Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
pro forma disclosures required under SFAS No. 123 have been presented (See Note
8).
Revenue Recognition
Substantially all revenues to date consist of fees paid by subscribing
dealers. These fees are comprised of an initial fee, a monthly fee and, through
fiscal 1997, an annual fee. In January 1998, Autobytel.com started to eliminate
annual fees and increase monthly fees to subscribing dealers. The initial fee
and annual fee are recognized ratably over the service period of 12 months. The
monthly fee is recognized in the period services are provided. Deferred revenue
is comprised of unamortized fees.
Risks Due to Concentration of Significant Customers and Export Sales
For all periods presented in the accompanying consolidated statements of
operations, no subscribing dealer accounted for greater than 10% of revenues.
Autobytel.com conducts its business within one industry segment. Revenues
from customers outside of the United States were less than 10% of total revenues
for all periods presented in the accompanying consolidated statements of
operations.
F-8
<PAGE> 93
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Sales and Marketing
Sales and marketing expense primarily includes advertising and marketing
expenses paid to purchase request providers and developing Autobytel.com's brand
equity, as well as personnel and other costs associated with sales, training and
support of its dealer network. Sales and marketing expense also includes cost of
sales associated with the sale of computers, which was discontinued in February
1998. Sales and marketing costs are recorded as expenses as incurred. For the
years ended December 31, 1996, 1997 and 1998, Internet marketing and advertising
costs were $1,838, $5,828, and $11,090 and television advertising expenses were
$396, $4,048, and $5,296, respectively.
Product and Technology Development
Product and technology development expense primarily includes personnel
costs relating to enhancing the features, content and functionality of
Autobytel.com's Web site and its online dealer information platform (DRT), as
well as expenses associated with its telecommunications and computer
infrastructure. Product and technology development expenditures are expensed as
incurred.
General and Administrative
General and administrative expense primarily consists of executive,
financial and legal personnel expenses and related costs. General and
administrative expense for the year ended December 31, 1997 includes a
non-recurring $1.1 million charge associated with a proposed and withdrawn
initial public offering in April 1997.
Foreign Currency Translation
The functional currency of Autobytel.com's subsidiaries is the local
currency. Accordingly, all assets and liabilities are translated into United
States dollars at the current exchange rate as of the applicable balance sheet
date. Revenues and expenses are translated at the average exchange rate
prevailing during the period. Gains and losses resulting from the translation of
the financial statements are reported as a separate component of stockholders'
equity.
Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per
Share
Historical net loss per share has been calculated under SFAS No. 128,
"Earnings per Share." SFAS No. 128 requires companies to compute earnings per
share under two different methods (basic and diluted). Basic net loss per share
is calculated by dividing the net loss by the weighted average shares of common
stock outstanding during the period. No diluted loss per share information has
been presented in the accompanying consolidated statements of operations since
potential common shares from the conversion of preferred stock, stock options
and warrants are antidilutive. Autobytel.com evaluated the requirements of the
Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 98, and
concluded that there are no nominal issuances of common stock or potential
common stock which would be required to be shown as outstanding for all periods
as outlined in SAB No. 98.
F-9
<PAGE> 94
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro forma basic net loss per share has been calculated assuming the
conversion of the outstanding preferred stock into common stock, as if the
shares had been converted on the dates of their issuance.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and presentation of
comprehensive income. SFAS No. 130, which was adopted by Autobytel.com in the
first quarter of 1998, requires companies to report a new measurement of income.
Comprehensive income (loss) is to include foreign currency translation gains and
losses and other unrealized gains and losses that have historically been
excluded from net income (loss) and reflected instead in equity. The only
comprehensive income included in the accompanying stockholders' equity is
foreign currency translation loss of $19 for the year ended December 31, 1998.
As this amount is not material, comprehensive income (loss) is not presented in
the accompanying consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." Autobytel.com adopted SFAS No. 131 in
the fourth quarter of 1998 (See Note 12).
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use and defines specific criteria that determine when such costs are
required to be expensed, and when such costs may be capitalized. Autobytel.com
currently expenses software development costs as incurred. Management
anticipates that it will continue to incur such development costs. However,
management expects that, as a percentage of revenues, such costs will remain
consistent.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 provides guidance on the financial reporting of
start-up cost and organization costs and require such costs to be expensed as
incurred. Management believes that the adoption of SOP 98-5 will not have a
material effect on Autobytel.com's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments. The statement requires that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value, and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Autobytel.com does not have any derivative instruments as of
December 31, 1998. Management believes that the adoption of SFAS No. 133 will
not have a material effect on Autobytel.com's consolidated financial statements.
F-10
<PAGE> 95
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS ACQUISITION
In May 1997, one of Autobytel.com's subsidiaries, Kre8.net, Inc., entered
into an asset purchase agreement with Internet Development Corporation to
purchase certain assets and to assume certain liabilities of the business. The
combined entity develops Web sites for automobile and other industries. The
purchase price for the net assets was $100 in cash.
The acquisition was accounted for by the purchase method. Accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair market values whose fair value equaled book value
at the closing date. The excess of purchase price over the estimated fair value
of net assets acquired was $93, and is being amortized using the straight-line
method over a period of three years. The results of operations of the acquired
business are included in the accompanying consolidated statements of operations
and in Autobytel.com's accumulated deficit beginning in May 1997. Internet
Development Corporation's revenues and results of operations since the date of
acquisition are immaterial.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Computer software and hardware..................... $ 2,104 $ 2,800
Furniture and equipment............................ 892 1,206
Leasehold improvements............................. 427 561
------- -------
3,423 4,567
Less -- Accumulated depreciation and
amortization..................................... (1,106) (2,359)
------- -------
$ 2,317 $ 2,208
======= =======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Operating Leases
Autobytel.com leases its facilities and certain office equipment under
operating leases which expire on various dates through 2001. At December 31,
1998, future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1999................................................... $ 619
2000................................................... 649
2001................................................... 501
2002................................................... --
2003................................................... --
Thereafter............................................. --
------
$1,769
======
</TABLE>
F-11
<PAGE> 96
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Rent expense was $92, $247, and $491 for the years ended December 31, 1996,
1997 and 1998, respectively.
Marketing and Advertising Agreements
In September 1997, Autobytel.com entered into a three year Internet
marketing agreement with a company that operates a search engine. The agreement
permits Autobytel.com to maintain certain exclusive promotional rights and
linkage with the search engine, and provides for certain advertising. The
payments under the agreement consist of a set-up fee, an annual fee and a
variable fee per purchase request. The set-up fee represents the cost of
initiating the link between Autobytel.com and the search engine and was expensed
in the period the link was established. Autobytel.com expenses the annual fee
ratably over a 12-month period and the variable fee in the period purchase
requests are received. The amount of variable fee per purchase request increases
as the number of purchase requests received reaches agreed upon increments.
Under the agreement, Autobytel.com is also to provide the search engine with up
to three new vehicles in a 12-month period. The agreement grants Autobytel.com
the right to terminate the agreement if the number of purchase requests does not
meet the threshold specified for each year of the term of the agreement. As of
December 31, 1998, the minimum future payments under the agreement amounted to
$3.7 million.
In June 1998, Autobytel.com entered into a two year Internet marketing
agreement with another company that operates a search engine. The agreement
permits Autobytel.com to maintain certain exclusive promotional rights and
linkage with the search engine. The payments under the agreement consist of an
annual fee, and a variable fee per purchase request. Autobytel.com expenses the
annual fee ratably over a 12-month period and the variable fee in the period
purchase requests are received. The amount of variable fee per purchase request
increases as the number of purchase requests received reaches agreed upon
increments. Under the agreement, Autobytel.com is also to provide the search
engine with up to three new vehicles in a 12-month period, the total value of
which is not to exceed $45, which has been expensed as incurred. The agreement
grants Autobytel.com the right to terminate the agreement if the number of
purchase requests does not meet the threshold specified for each year of the
term of the agreement. As of December 31, 1998, the minimum future payments
under the agreement amounted to $5.4 million.
Autobytel.com has agreements with other automotive information providers
that make available to consumers vehicle research data over the Internet. Such
agreements are generally for a term of one to four years and require that
Autobytel.com pay a combination of set-up, initial, annual, monthly and variable
fees based on the volume of purchase requests received by Autobytel.com. The
set-up fees are expensed as incurred, the initial fees and annual fees are
amortized over the period they relate to. The monthly fees are expensed in the
month they relate to and variable fees are expensed in the period purchase
requests are received. As of December 31, 1998, the minimum future commitments
under these agreements were $0.7 million.
During 1998, total Internet marketing and advertising costs incurred were
$11,090, including initial, annual and monthly fees of $50, $2,965 and $2,903,
respectively. No set-up fees were incurred in 1998 and variable fees were
$5,172.
F-12
<PAGE> 97
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Autobytel.com has agreements with network and cable television stations
under which it has the right to purchase television advertising. As of December
31, 1998, the minimum future commitments under these agreements were $1.7
million. These amounts are expensed as advertisements are aired.
For the years ended December 31, 1996, 1997 and 1998, Autobytel.com paid
$2,721, $8,474 and $15,540, respectively, under these marketing and advertising
agreements.
Employment Agreements
Autobytel.com has employment agreements with certain executives under
which, in the event of termination without cause or resignation with a good
reason, the executives are entitled to receive severance payments equal to the
base salary that would have been received by the executives over the remaining
term of the agreements. One of these agreements also provides for an additional
severance payment in the event of a change in control as defined in the
agreement. The term of the agreements range from two to three years.
Litigation
In the normal course of business, Autobytel.com is involved in various
legal proceedings. Based upon the information presently available, management
believes that the ultimate resolution of any such proceedings will not have a
material adverse effect on Autobytel.com's financial position, liquidity or
results of operations.
6. RETIREMENT SAVINGS PLAN
Autobytel.com has a Retirement Savings Plan (the Retirement Plan) which
qualifies as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. The Retirement Plan covers all full time employees of
Autobytel.com who are over 21 years of age and have worked for Autobytel.com for
at least 90 days. Under the Retirement Plan, participating employees are allowed
to defer up to 15% of their pretax salaries up to a maximum of $10,000 per year.
Company contributions to the Retirement Plan are discretionary. Autobytel.com
has made no contributions since the inception of the Retirement Plan.
7. STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock
In August 1996, the Board of Directors authorized 1,500,000 shares of
Series A convertible preferred stock (Series A Preferred), and Autobytel.com
completed the sale of 1,500,000 shares of Series A Preferred at $10.00 per share
through a private placement offering. Of the total shares sold, 50,000 shares
were issued to an individual in exchange for $500 previously advanced to
Autobytel.com under three notes payable. In addition, $1,081 of the proceeds
were used to repay notes due to Autobytel.com's former Chairman and co-founder.
The Series A Preferred will be automatically converted into 1,666,667
shares of common stock at the conversion ratio of approximately 1:1.11 upon the
earliest of (i) the
F-13
<PAGE> 98
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
closing of an underwritten public offering of Autobytel.com's common stock with
a minimum per share price of $13.50 per share, and minimum aggregate offering
price of $30 million; (ii) the consent of two-thirds of the holders of preferred
stock; or (iii) when fewer than 300,000 shares of Series A Preferred remain
outstanding. The Series A Preferred is also convertible into 1,666,667 shares of
common stock at the option of the holder. Autobytel.com has reserved 1,666,667
shares of common stock to permit the conversion of the Series A Preferred.
Holders of Series A Preferred are entitled to one vote for each share of
common stock into which such shares of Series A Preferred may be converted
except with respect to election of directors, whereby the holders, voting
separately as a class, are entitled to elect two directors. Each share of Series
A Preferred entitles the holder to receive non-cumulative dividends, if and when
declared by the Board of Directors, prior to any dividend paid on Series B
Preferred or the common stock. Dividends, if any, on Series A Preferred shall be
declared at an annual rate of $0.80 per share. As of December 31, 1998, no
dividends have been declared.
In the event of liquidation, the Series A Preferred has preference over
Series B Preferred and the common stock in the amount of $10.00 per share, plus
declared but unpaid dividends.
Series B Convertible Preferred Stock
In January 1997, the Board of Directors authorized 967,915 shares of Series
B convertible preferred stock (Series B Preferred), and Autobytel.com completed
the sale of 967,915 shares of Series B Preferred at $9.35 per share through a
private placement offering.
The Series B Preferred will be automatically converted into 873,131 shares
of common stock at the conversion ratio of approximately 1:0.90 upon the
earliest of (i) the closing of an underwritten public offering of
Autobytel.com's common stock with a minimum per share price of $13.50 per share,
and minimum aggregate offering price of $30 million; (ii) the consent of
two-thirds of the holders of preferred stock; or (iii) when fewer than 200,000
shares of Series B Preferred remain outstanding. The Series B Preferred is also
convertible into 873,131 shares of common stock at the option of the holder.
Autobytel.com has reserved 873,131 shares of common stock to permit the
conversion of the Series B Preferred.
Holders of Series B Preferred are entitled to one vote for each share of
common stock into which such shares of Series B Preferred may be converted. Each
share of Series B Preferred entitles the holder to receive noncumulative
dividends, if and when declared by the Board of Directors, prior to any dividend
paid on the common stock. Dividends, if any, on Series B Preferred shall be
declared at an annual rate of $0.80 per share. As of December 31, 1998, no
dividends have been declared.
In the event of liquidation, the Series B Preferred has preference over the
common stock in the amount of $9.35 per share, plus declared but unpaid
dividends.
F-14
<PAGE> 99
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Series C Convertible Preferred Stock
In October 1997, the Board of Directors authorized 2,840,909 shares of
Series C convertible preferred stock (Series C Preferred), and Autobytel.com
completed the sale of 1,477,274 shares of Series C Preferred at $8.80 per share
through a private placement offering. The Board of Directors authorized an
additional 1,136,363 and 3,000,000 shares of Series C Preferred in February and
December 1998, respectively.
In April 1998, Autobytel.com issued 56,776 shares of its Series C Preferred
in payment of television advertising with an estimated fair market value of
$500. The majority of the advertising was aired and expensed in the three months
ended March 31, 1998.
In May 1998, Autobytel.com sold 568,182 shares of the Series C Preferred at
$8.80 per share through a private placement.
In October 1998, Autobytel.com issued 64,233 shares of Series C Preferred
in payment of television advertising with an estimated fair market value of
$565. The amount was expensed in the three months ended December 31, 1998.
In November 1998, Autobytel.com sold 568,182 shares of Series C Preferred
at $8.80 per share through a private placement.
In December 1998, Autobytel.com sold 2,234,091 shares of Series C Preferred
at $8.80 per share through private placements. Of these shares, 1,136,364 shares
were issued to an investor with whom Autobytel.com entered into a Directed
Proceeds Agreement. Under the Directed Proceeds Agreement, Autobytel.com is
committed to expend up to $1,000 for the development of technology for broadband
applications. In addition, Autobytel.com issued a warrant for 300,000 shares of
common stock in exchange for the right to participate in the development of this
technology and the warrant holder's agreement to use commercially reasonable
efforts to involve Autobytel.com in other broadband application projects. The
fair value of the warrant ($540) has been recorded as a prepaid expense at
December 31, 1998.
The Series C Preferred will be automatically converted into 3,312,492
shares of common stock at the conversion ratio of approximately 1:0.67 upon the
earliest of (i) the closing of an underwritten public offering of
Autobytel.com's common stock with a minimum per share price of $13.50 per share,
and minimum aggregate offering price of $30 million; (ii) the consent of
two-thirds of the holders of preferred stock; or (iii) when fewer than 250,000
shares of Series C Preferred remain outstanding. The Series C Preferred is also
convertible into 3,312,492 shares of common stock at the option of the holder.
Autobytel.com has reserved 3,312,492 shares of common stock to permit the
conversion of the Series C Preferred.
Holders of Series C Preferred are entitled to one vote for each share of
common stock into which such shares of Series C Preferred may be converted. Each
share of Series C Preferred entitles the holder to receive non-cumulative
dividends, if and when declared by the Board of Directors, prior to any dividend
paid on Series A and Series B Preferred and the common stock. Dividends, if any,
on Series C Preferred shall be declared at an annual rate of $0.80 per share. As
of December 31, 1998, no dividends have been declared.
F-15
<PAGE> 100
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the event of liquidation, the Series C Preferred has preference over
Series A and Series B Preferred and the common stock in the amount of $8.80 per
share, plus declared but unpaid dividends.
As of December 31, 1998, 2,000,000 shares of preferred stock were
undesignated.
Common Stock
Under the terms of the Plan of Organization, the interests of the members
of the LLCs were transferred to autobytel.com inc. in a tax-free transaction. In
consideration for their respective ownership interests, the members of ABT and
ABTAC received 8,250,000 shares of common stock of Autobytel.com.
Warrants
In November 1998, Autobytel.com issued a warrant to purchase 150,000 shares
of common stock to an investor in its Series C Preferred in exchange for the
investor's commitment to assist Autobytel.com with organizational and start-up
activities related to a Pan-European entity in which Autobytel.com may invest
with the investor. The warrant is exercisable at $13.20 per share and expires in
November 2001. The warrant was valued at $270, which was expensed in 1998, as
the investor has fulfilled its commitment and has no further obligation to
Autobytel.com.
In December 1998, Autobytel.com issued warrants to purchase 289,800 shares
of common stock to another investor in its Series C Preferred in exchange for
the investor's commitment to assist Autobytel.com with organizational and
start-up activities related to a Pan-European entity in which Autobytel.com may
invest with the investor. The warrants are exercisable at $13.20 per share and
expire in December 2001. The warrants were valued at $522, which was expensed in
1998, as the investor has fulfilled its commitment and has no further obligation
to Autobytel.com.
In December 1998, Autobytel.com issued a warrant to purchase 300,000 shares
of common stock to an investor in exchange for the right to participate in the
development of broadband application technology. The warrant is exercisable at
$13.20 per share and expires in December 2001. The warrant was valued at $540,
and is recorded as a prepaid expense at December 31, 1998.
The fair value of each of these warrants was estimated using the
Black-Scholes option-pricing model and the following assumptions: (1) no
dividend yield, (2) volatility of 0.10%, (3) risk-free interest rate of 4.90%,
and (4) expected life of three years.
8. STOCK OPTION PLANS
1996 Stock Option Plan
Autobytel.com's 1996 Stock Option Plan (the Option Plan) was approved by
the Board of Directors in May 1996. The Option Plan was terminated by a
resolution of the Board of Directors in October 1996, at which time 870,555
options had been issued. The Option Plan provided for the granting to employees
and directors of incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the Code), and for the granting
to employees, consultants and directors of nonstatutory
F-16
<PAGE> 101
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock options. Autobytel.com reserved 1,194,444 shares of common stock for
exercise of stock options under the Option Plan. The exercise price of incentive
stock options granted under the Option Plan could not be lower than the fair
market value of the common stock, and the exercise price of nonstatutory stock
options could not be less than 85% of the fair market value of the common stock,
as determined by the Board of Directors, on the date of grant. With respect to
any participants who, at the time of grant, owned stock that possessed more than
10% of the voting power of all classes of stock of Autobytel.com, the exercise
price of any stock option granted to such person was to be at least 110% of the
fair market value on the grant date, and the maximum term of such option was
five years. The term of all other options granted under the Option Plan did not
exceed 10 years. Stock options granted under the Option Plan vest according to
vesting schedules determined by the Board of Directors. As of December 31, 1998,
options to purchase an aggregate of 206,388 shares of common stock at an
exercise price ranging from $0.84 to $0.90 per share were outstanding under the
Option Plan.
1996 Stock Incentive Plan
Autobytel.com's 1996 Stock Incentive Plan (the Incentive Plan) was approved
by the Board of Directors in October 1996, and was amended in November 1996. The
Incentive Plan provides for the granting to employees and directors of incentive
stock options within the meaning of Section 422 of the Code, and for the
granting to employees, directors and consultants of nonstatutory stock options
and stock purchase rights. Autobytel.com has reserved a total of 833,333 shares
of common stock for issuance under the Incentive Plan. The exercise price of
stock options granted under the Incentive Plan cannot be lower than the fair
market value of the common stock, as determined by the Board of Directors, on
the date of grant. With respect to any participants who, at the time of grant,
own stock possessing more than 10% of the voting power of all classes of stock
of Autobytel.com, the exercise price of stock options granted to such person
must be at least 110% of the fair market value on the grant date, and the
maximum term of such options is five years. The term of all other options
granted under the Incentive Plan may be up to 10 years. Stock options granted
under the Incentive Plan vest according to vesting schedules determined by the
Board of Directors.
1998 Stock Option Plan
In December 1998, Autobytel.com adopted the 1998 Stock Option Plan (the
1998 Option Plan). Autobytel.com has reserved 1,500,000 shares under the 1998
Option Plan. The 1998 Option Plan provides for the granting to employees of
incentive stock options within the meaning of the Code, and for the granting to
employees of nonstatutory stock options. The exercise price of non-statutory
options granted under the 1998 Option Plan cannot be lower than 85% of the fair
market value of the common stock on the date of grant. The exercise price of all
incentive stock options granted cannot be lower than the fair market value on
the grant date. With respect to any participants who beneficially own more than
10% of the voting power of all classes of stock of Autobytel.com, the exercise
price of any stock option granted to such person must be at least 110% of the
fair market value on the grant date, and the maximum term of such option is five
years. The term of all other options granted under the 1998 Option Plan may be
up to 10 years. Under the 1998 Option Plan, certain nonstatutory stock options
(Performance Options) vest over a
F-17
<PAGE> 102
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
time period determined by the Board of Directors, however, the vesting could be
accelerated based on the performance of Autobytel.com's common stock. In
December 1998, the Board of Directors granted Performance Options to purchase
700,000 shares of common stock to its executives at an exercise price of $13.20
per share, which represents the fair market value on the date of grant. These
options vest over a seven-year period, but the vesting could be accelerated
based on the performance of Autobytel.com's common stock. The accelerated
vesting schedule is conditioned on Autobytel.com consummating an initial public
offering. The accelerated vesting schedule provides that the grants will vest in
six installments, one installment vesting each six months over a three-year
period if pre-established average trading prices of the common stock are
achieved. Those installments will vest if the average trading price exceeds the
exercise price by $6.60, $13.20, $19.80, $26.40, $33.00 and $39.60,
respectively, in the applicable six month period after the date of grant. All
other stock options granted under the 1998 Option Plan vest according to vesting
schedules determined by the Board of Directors.
The 1998 Option Plan provides that, unless otherwise provided in the stock
option agreement, in the event of any merger, consolidation, or sale or transfer
of all or any part of Autobytel.com's business or assets, all rights of the
optionee with respect to the unexercised portion of any option shall become
immediately vested and may be exercised immediately, except to the extent that
any agreement or undertaking of any party to any such merger, consolidation, or
sale or transfer of assets makes specific provisions for the assumption of the
obligations of Autobytel.com with respect to the 1998 Option Plan.
During the year ended December 31, 1996, Autobytel.com granted options
under the aforementioned plans to purchase an aggregate of 1,568,059 shares of
common stock at various exercise prices ranging from $0.90 to $11.25 per share.
During the year ended December 31, 1996, Autobytel.com recorded, based upon an
independent appraisal obtained by Autobytel.com's Board of Directors, $87 of
deferred compensation expense relating to certain options. This amount was
amortized over the vesting periods of the options. Amortization of deferred
compensation for the years ended December 31, 1996, 1997 and 1998 was $61, $25
and $1, respectively.
During the year ended December 31, 1997, Autobytel.com granted options to
various employees to purchase 853,504 shares of common stock at an exercise
price of $13.20 per share.
During the year ended December 31, 1998, Autobytel.com granted options to
various employees to purchase 1,630,340 shares of common stock at an exercise
price of $13.20 per share.
In January 1999, Autobytel.com granted options to Hoshi Printer, Senior
Vice President and Chief Financial Officer, to purchase 150,000 shares of common
stock at an exercise price of $13.20 per share.
1996 Employee Stock Purchase Plan
Autobytel.com's 1996 Employee Stock Purchase Plan (the Purchase Plan) was
adopted by the Board of Directors in November 1996. The Purchase Plan, which is
intended to qualify under Section 423 of the Code, permits eligible employees of
Autobytel.com to purchase shares of common stock through payroll deductions of
up to
F-18
<PAGE> 103
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ten percent of their compensation, up to a certain maximum amount for all
purchase periods ending within any calendar year. Autobytel.com has reserved a
total of 444,444 shares of common stock for issuance under the Purchase Plan.
The price of common stock purchased under the Purchase Plan will be 85% of the
lower of the fair market value of the common stock on the first or last day of
each six month purchase period. Employees may end their participation in the
Purchase Plan at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with Autobytel.com. There have been no stock purchases under the
Purchase Plan. In January 1999, the Board of Directors ratified the suspension
of the Purchase Plan.
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>
F-19
<PAGE> 104
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-20
<PAGE> 105
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-21
<PAGE> 106
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
11. RELATED PARTY TRANSACTIONS
Peter R. Ellis
In March 1998, Autobytel.com extended a $250 loan to co-founding member and
stockholder, Peter R. Ellis. The loan bears interest at 8% per annum compounded
quarterly and principal and accrued interest are due in full in March 2003. The
loan is secured by Mr. Ellis's stock in Autobytel.com. In June 1998, Mr. Ellis
resigned from Autobytel.com as Chief Executive Officer. In August 1998,
Autobytel.com executed a two year agreement with Mr. Ellis to provide advisory
services. Under the agreement, Mr. Ellis received $500 in the first year and is
entitled to receive $5 per month in the second year of the agreement term. The
amounts paid to Mr. Ellis under this agreement are included in operating
expenses in the accompanying consolidated statements of operations.
12. BUSINESS SEGMENT
Autobytel.com conducts its business within one business segment, which is
defined as providing online vehicle purchasing and other related services.
13. SUBSEQUENT EVENTS
Proposed Initial Public Offering
In January 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to permit
Autobytel.com to sell shares of its common stock in connection with the proposed
initial public offering (IPO). If the offering is consummated under the terms
presently anticipated, the Series A, the Series B and the Series C Preferred
(collectively Preferred Stock) outstanding at December 31, 1998 will
automatically convert to common stock upon closing of the IPO (See Note 7).
1999 Stock Option Plan
In January 1999, the Board of Directors adopted the 1999 Stock Option Plan
(the 1999 Option Plan). Autobytel.com has reserved 1,800,000 shares under the
1999 Option Plan. The 1999 Option Plan provides for the granting of stock
options to key employees of Autobytel.com. Under the 1999 Option Plan, not more
than 1,000,000 shares may be granted after March 31, 1999. The 1999 Option Plan
provides for an automatic grant of an option to purchase 20,000 shares of common
stock to each non-employee director on the date on which the person first
becomes a non-employee director. In each successive year the non-employee
director shall automatically be granted an option to purchase 5,000 shares on
November 1 of each subsequent year provided the non-employee director has served
on the Board for at least six months. Each option shall have a term of 10 years.
F-22
<PAGE> 107
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Rescission Offer for Stock Options Granted in Excess of the 1996 Incentive
Plan Limit
From May 1997 to January 1999, Autobytel.com issued grants of incentive
stock options in excess of the plan limit of 833,333 shares. Subsequent to
December 31, 1998, Autobytel.com offered to exchange the affected options for a
cash payment or a new grant of incentive stock options under the 1999 Option
Plan. In 1999, Autobytel.com has resolved this matter without a material impact
on its financial statements. Total cash payments were less than $10. The new
stock options were granted at the fair market value at the date of the new
grant, which equaled the exercise price of the original options. All other
significant provisions associated with the options remained the same.
Stock Options Granted in 1999
From January to March 1999, Autobytel.com granted stock options to purchase
388,236 shares of common stock under the 1999 Stock Option Plan. These stock
options were granted to employees and directors at exercise prices of $13.20 and
$16.00 per share which were below the fair market value at the date of grant. In
relation to these grants, Autobytel.com will recognize estimated compensation
expense of approximately $2.7 million ratably over the vesting term of one to
four years. Compensation expense of approximately $1,092, $537, $537, $537 and
$42 will be classified as operating expense in the years ending 1999, 2000,
2001, 2002 and 2003, respectively.
[The inside back cover of the prospectus depicts a map of the United States with
dots generally representing the territories covered by United States dealers
participating in the Autobytel.com network.]
F-23
<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................................ 35
Management.............................. 50
Financings and Related Party
Transactions.......................... 64
Principal and Selling Stockholders...... 68
Description of Capital Stock............ 70
Shares Eligible for Future Sale......... 73
Material United States Tax
Considerations for Non-U.S. Holders... 75
Underwriting............................ 80
Legal Matters........................... 82
Experts................................. 82
Additional Information.................. 83
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
------------------
UNTIL APRIL 20, 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
------------------
March 26, 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....................................... $ 33,000
NASD filing fee............................................ 9,000
Nasdaq National Market listing fee......................... 95,000
Blue Sky fees and expenses................................. 5,000
Accounting fees and expenses............................... 500,000
Legal fees and expenses.................................... 685,000
Transfer agent and registrar fees.......................... 15,000
Directors and officers insurance........................... 240,000
Printing and engraving expenses............................ 410,000
Miscellaneous expenses..................................... 108,000
----------
Total............................................ $2,100,000
==========
</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
II-1
<PAGE> 110
Autobytel.com against certain liabilities, including those arising under the
Securities Act in certain instances, of the Underwriters.
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.
II-2
<PAGE> 111
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.
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
II-3
<PAGE> 112
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 connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of
autobytel.com inc. certified by the Secretary of State of
Delaware (filed December 14, 1998 and amended March 1, 1999)
3.2* Amended and Restated Bylaws of autobytel.com inc.
4.1* Form of Stock Certificate
4.2* Amended and Restated Investors' Rights Agreement dated
October 21, 1997 as amended from time to time, between
autobytel.com inc. and the Investors named in Exhibit A
thereto
4.3* Form of Lock-Up Agreement
5.1* Opinion and Consent of Paul, Hastings, Janofsky & Walker LLP
9.1* Voting Proxy dated January 11, 1999 by Peter R. Ellis
10.1* Form of Indemnification Agreement between autobytel.com inc.
and its directors and officers
10.2* Employment Agreement dated July 1, 1998 between
autobytel.com inc. and Mark W. Lorimer
10.3* Employment Agreement dated December 17, 1998 between
autobytel.com.inc. and Anne Delligatta
10.4* Amended and Restated Employment and Severance Agreement
dated March 5, 1999 between autobytel.com.inc. and Michael
J. Lowell
10.5* 1996 Stock Option Plan and related agreements
10.6* 1996 Stock Incentive Plan and related agreements
10.7* 1996 Employee Stock Purchase Plan
10.8* 1998 Stock Option Plan
10.9* Marketing Agreement dated July 22, 1996, as amended on July
23, 1996, by and among Auto-By-Tel Acceptance Corporation, a
subsidiary of the Registrant ("ABTAC"), the Registrant, as
guarantor of the obligations of ABTAC, and AIU Insurance
Company, American International South Insurance Company,
American Home Assurance Company, American International
Insurance Company, American International Insurance Company
of California, Inc., Illinois National Insurance Company,
Minnesota Insurance Company, National Union Fire Insurance
Company of Pittsburgh, PA and the Insurance Company of the
State of Pennsylvania
10.10*+ Marketing Agreement dated February 8, 1996 between
Auto-By-Tel, LLC and Edmund Publications Corp.
</TABLE>
II-4
<PAGE> 113
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.11*+ Amendment to Marketing Agreement of February 8, 1996, dated
June 6, 1997 between Edmund Publications Corp. and the
Registrant
10.12* Form of Dealership Agreements
10.13* Financing Inquiry Referral Agreement dated October 25, 1996
among Auto-By-Tel, Inc, as guarantor, Auto-By-Tel Acceptance
Corporation and Chase Manhattan Automotive Finance
Corporation
10.14* Marketing and Application Processing Agreement dated
February 1, 1997 between General Electric Capital Auto
Financial Services, Inc., Auto-By-Tel Acceptance Corporation
("ABTAC") and Auto-By-Tel, Inc., as guarantor
10.15+ Content License and Channel Sponsorship Term Sheet dated
September 12, 1997 between Excite, Inc. and Auto-By-Tel
10.16*+ Data License and Web Site Agreement dated April 1, 1997
between IntelliChoice, Inc. and Auto-By-Tel Marketing
Corporation and the Registrant
10.17*+ Kelley Blue Book/Auto-By-Tel Agreement dated November 19,
1997, as amended July 1, 1998, between Kelley Blue Book and
Auto-By-Tel Corporation
10.18*+ Listings Distribution, Sponsorship, Display Advertising and
Network Affiliation Agreement dated May 29, 1997 between
Classifieds2000, Inc. and Auto-By-Tel Corporation
10.19* License Agreement dated June 4, 1998 among J.D. Power and
Associates, Auto-By-Tel Marketing Corporation, and
autobytel.com inc.
10.20*+ Site Page Sponsorship and Commission Agreement dated June
25, 1997, between Auto-By-Tel Marketing Corporation and AT&T
Corporation
10.21*+ Letter agreement dated April 1, 1997, between Auto-By-Tel
Marketing Corporation and NBC Multimedia Inc.
10.22+ Sponsorship Agreement, dated as of June 24, 1998, between
Excite, Inc. and Auto-By-Tel Corporation
10.23*+ License and Services Agreement dated August 7, 1998 between
autobytel.com inc. and Auto-By-Tel AB
10.24*+ License and Services Agreement dated November 23, 1998
between autobytel.com inc. and Auto-by-Tel UK Limited
10.25*+ Share Purchase Agreement dated November 23, 1998 between
autobytel.com inc. and Inchcape Automotive Limited
10.26* Financing Inquiry Referral Agreement dated December 31, 1998
between Provident Bank, Auto-By-Tel Acceptance Corporation
and autobytel.com inc., as guarantor
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
</TABLE>
II-5
<PAGE> 114
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.32* Form of Platinum Term Continuation Rider
10.33*+ Marketing Agreement dated February 18, 1999 between
autobytel.com inc. and Lycos, Inc.
10.34*+ Letter Agreement dated March 12, 1999 between autobytel.com
inc. and Trans Cosmos, Inc.
10.35*+ Letter Agreement dated March 12, 1999 between autobytel.com
inc. and e-Solutions, Inc.
10.36*+ Letter Agreement dated March 12, 1999 between autobytel.com
inc. and Intec, Inc.
10.37* Letter Agreement dated March 7, 1999 between Autobytel.com
and Ariel Amir
10.38* Letter Agreement dated December 18, 1998 between
Autobytel.com and Hoshi Printer.
11.1* Statement Regarding Computation of Per Share Earnings
21.1* Subsidiaries of autobytel.com inc.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2* Consent of Paul, Hastings, Janofsky & Walker LLP (reference
is made to Exhibit 5.1)
23.3* Consent of CNW Marketing Research
23.4* Consent of Barger & Wolen LLP
24.1* Power of Attorney (reference is made to the signature page)
27.1* Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed.
+ Confidential treatment has been requested with regard to certain portions of
this document. Such portions were filed separately with the Securities and
Exchange Commission.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-6
<PAGE> 115
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act (sec.
230.424(b)(1) or (4) or 230.497(h)) shall be deemed to be part of this
Registration Statement as of the time the Commission declared it effective.
(2) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement for the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-7
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Post-Effective Amendment No. 1 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 26, 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 Post-Effective Amendment No. 1 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 26, 1999
- ------------------------------------------------ and Director
Michael Fuchs
* Director March 26, 1999
- ------------------------------------------------
Jeffrey H. Coats
* Director March 26, 1999
- ------------------------------------------------
Mark N. Kaplan
* Director March 26, 1999
- ------------------------------------------------
Kenneth J. Orton
* Executive Vice President March 26, 1999
- ------------------------------------------------ and Director
Robert S. Grimes
/s/ MARK W. LORIMER Chief Executive Officer, March 26, 1999
- ------------------------------------------------ President and Director
Mark W. Lorimer (Principal Executive
Officer)
/s/ HOSHI PRINTER Senior Vice President March 26, 1999
- ------------------------------------------------ and Chief Financial
Hoshi Printer Officer (Principal
Financial Officer and
Principal Accounting
Officer)
</TABLE>
II-8
<PAGE> 117
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Executive Vice President March 26, 1999
- ------------------------------------------------ and Chief Operating
Ann M. Delligatta Officer
* Director March 26, 1999
- ------------------------------------------------
Peter Titz
* Director March 26, 1999
- ------------------------------------------------
Richard Post
*By: /s/ HOSHI PRINTER
---------------------------------------
Hoshi Printer, Attorney-in-Fact
</TABLE>
II-9
<PAGE> 118
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ------------
<S> <C> <C>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of
autobytel.com inc. certified by the Secretary of
State of Delaware (filed December 14, 1998 and
amended March 1, 1999)
3.2* Amended and Restated Bylaws of autobytel.com inc.
4.1* Form of Stock Certificate
4.2* Amended and Restated Investors' Rights Agreement
dated October 21, 1997 as amended from time to time,
between autobytel.com inc. and the Investors named in
Exhibit A thereto
4.3* Form of Lock-Up Agreement
5.1* Opinion and Consent of Paul, Hastings, Janofsky &
Walker LLP
9.1* Voting Proxy dated January 11, 1999 by Peter R. Ellis
10.1* Form of Indemnification Agreement between
autobytel.com inc. and its directors and officers
10.2* Employment Agreement dated July 1, 1998 between
autobytel.com inc. and Mark W. Lorimer
10.3* Employment Agreement dated December 17, 1998 between
autobytel.com.inc. and Anne Delligatta
10.4* Amended and Restated Employment and Severance
Agreement dated March 5, 1999 between
autobytel.com.inc. and Michael J. Lowell
10.5* 1996 Stock Option Plan and related agreements
10.6* 1996 Stock Incentive Plan and related agreements
10.7* 1996 Employee Stock Purchase Plan
10.8* 1998 Stock Option Plan
10.9* Marketing Agreement dated July 22, 1996, as amended
on July 23, 1996, by and among Auto-By-Tel Acceptance
Corporation, a subsidiary of the Registrant
("ABTAC"), the Registrant, as guarantor of the
obligations of ABTAC, and AIU Insurance Company,
American International South Insurance Company,
American Home Assurance Company, American
International Insurance Company, American
International Insurance Company of California, Inc.,
Illinois National Insurance Company, Minnesota
Insurance Company, National Union Fire Insurance
Company of Pittsburgh, PA and the Insurance Company
of the State of Pennsylvania
10.10*+ Marketing Agreement dated February 8, 1996 between
Auto-By-Tel, LLC and Edmund Publications Corp.
</TABLE>
<PAGE> 119
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ------------
<S> <C> <C>
10.11*+ Amendment to Marketing Agreement of February 8, 1996,
dated June 6, 1997 between Edmund Publications Corp.
and the Registrant
10.12* Form of Dealership Agreements
10.13* Financing Inquiry Referral Agreement dated October
25, 1996 among Auto-By-Tel, Inc, as guarantor,
Auto-By-Tel Acceptance Corporation and Chase
Manhattan Automotive Finance Corporation
10.14* Marketing and Application Processing Agreement dated
February 1, 1997 between General Electric Capital
Auto Financial Services, Inc., Auto-By-Tel Acceptance
Corporation ("ABTAC") and Auto-By-Tel, Inc., as
guarantor
10.15+ Content License and Channel Sponsorship Term Sheet
dated September 12, 1997 between Excite, Inc. and
Auto-By-Tel
10.16*+ Data License and Web Site Agreement dated April 1,
1997 between IntelliChoice, Inc. and Auto-By-Tel
Marketing Corporation and the Registrant
10.17*+ Kelley Blue Book/Auto-By-Tel Agreement dated November
19, 1997, as amended July 1, 1998, between Kelley
Blue Book and Auto-By-Tel Corporation
10.18*+ Listings Distribution, Sponsorship, Display
Advertising and Network Affiliation Agreement dated
May 29, 1997 between Classifieds2000, Inc. and
Auto-By-Tel Corporation
10.19* License Agreement dated June 4, 1998 among J.D. Power
and Associates, Auto-By-Tel Marketing Corporation,
and autobytel.com inc.
10.20*+ Site Page Sponsorship and Commission Agreement dated
June 25, 1997, between Auto-By-Tel Marketing
Corporation and AT&T Corporation
10.21*+ Letter agreement dated April 1, 1997, between
Auto-By-Tel Marketing Corporation and NBC Multimedia
Inc.
10.22+ Sponsorship Agreement, dated as of June 24, 1998,
between Excite, Inc. and Auto-By-Tel Corporation
10.23*+ License and Services Agreement dated August 7, 1998
between autobytel.com inc. and Auto-By-Tel AB
10.24*+ License and Services Agreement dated November 23,
1998 between autobytel.com inc. and Auto-by-Tel UK
Limited
10.25*+ Share Purchase Agreement dated November 23, 1998
between autobytel.com inc. and Inchcape Automotive
Limited
10.26* Financing Inquiry Referral Agreement dated December
31, 1998 between Provident Bank, Auto-By-Tel
Acceptance Corporation and autobytel.com inc., as
guarantor
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ------------
<S> <C> <C>
10.27*+ Procurement and Trafficking Agreement dated September
24, 1998 between DoubleClick Inc. and autobytel.com
inc.
10.28* Loan Agreement dated November 18, 1998 between Ann
Benvenuto and autobytel.com inc.
10.29* Advisory Agreement dated August 20, 1998 between
autobytel.com inc. and Peter R. Ellis
10.30* 1999 Stock Option Plan
10.31* Form of Gold Term Subscription Agreement
10.32* Form of Platinum Term Continuation Rider
10.33*+ Marketing Agreement dated February 18, 1999 between
autobytel.com inc. and Lycos, Inc.
10.34*+ Letter Agreement dated March 12, 1999 between
autobytel.com inc. and Trans Cosmos, Inc.
10.35*+ Letter Agreement dated March 12, 1999 between
autobytel.com inc. and e-Solutions, Inc.
10.36*+ Letter Agreement dated March 12, 1999 between
autobytel.com inc. and Intec, Inc.
10.37* Letter Agreement dated March 7, 1999 between
Autobytel.com and Ariel Amir
10.38* Letter Agreement dated December 18, 1998 between
Autobytel.com and Hoshi Printer.
11.1* Statement Regarding Computation of Per Share Earnings
21.1* Subsidiaries of autobytel.com inc.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2* Consent of Paul, Hastings, Janofsky & Walker LLP
(reference is made to Exhibit 5.1)
23.3* Consent of CNW Marketing Research
23.4* Consent of Barger & Wolen LLP
24.1* Power of Attorney (reference is made to the signature
page)
27.1* Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed.
+ Confidential treatment has been requested with regard to certain portions of
this document. Such portions were filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 10.15
[*] Confidential Treatment has been requested for certain portions of this
exhibit.
CONTENT LICENSE AND CHANNEL SPONSORSHIP TERM SHEET
This agreement ("Agreement") is entered into as of the ___ ("Effective Date"),
by and between Excite, Inc., a California corporation, located at 555 Broadway,
Redwood City, California 94063 ("Excite"), and Auto-By-Tel, a _________________
corporation, located at ____________________________________ ("Auto-By-Tel").
RECITALS
A. Excite maintains a site on the Internet at http://www.excite.com and owns
and/or manages related Web sites worldwide (collectively, the "Excite
Network") which, among other things, allow its users to search for and
access content and other sites on the Internet.
B. Within the Excite Network, Excite currently organizes certain content into
topical channels, including the Excite Automotive Channel.
C. Excite also maintains and/or manages certain Web pages which may be
delivered to users via email, desktop "channels" or Internet "push"
technologies (collectively, "Broadcast Pages") which may incorporate
content supplied to Excite by third parties for the purpose of providing
value to Excite users and providing access to the content, products and/or
services of such third parties.
D. Auto-By-Tel owns or has the right to distribute certain content relating to
online automobile buying and maintains a related site on the Internet at
http://www.autobytel.com (the "Auto-By-Tel Site") for which it wishes to
generate increased traffic.
E. Auto-By-Tel wishes to promote use of the Auto-By-Tel Site to Excite's users
by sponsoring the Excite Automotive Channel and purchasing banner
advertising on the Excite Network.
Therefore, the parties agree as follows:
1. SPONSORSHIP OF EXCITE AUTOMOTIVE CHANNEL
a) Auto-By-Tel will be the exclusive online automobile buying service
sponsor of the Excite Automotive Channel, located at
http://www.excite.com.
b) During the term of the Agreement, Excite will not display any banner
advertising or promotional placements for any of Auto-By-Tel's direct
competitors (listed in Exhibit C) in the Excite Automotive Channel.
Not more than once per quarter, Auto-By-Tel may update this list of
competitors.
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<PAGE> 2
c) In the event that Excite intends to enter into an agreement with a
third party with respect to sponsorship of the Excite Automotive
Channel before the expiration of the term of the Agreement, Excite
will deliver to Auto-By-Tel a written notice describing the relevant
opportunity. Although Excite will not be required to disclose any
information in violation of any nondisclosure agreement between Excite
and any third party, the notice will include information sufficient to
permit Auto-By-Tel to evaluate the requirements for meeting the
competing offer for sponsorship of the Excite Automotive Channel and
to formulate a meaningful response. Auto-By-Tel will have ten (10)
days after receipt of such written notice to provide notice to Excite
that it is prepared to enter into an agreement with Excite on the same
terms and conditions as Excite proposes to accept from such third
party. Excite and Auto-By-Tel will then promptly commence good faith
negotiations to conclude the agreement. If Auto-By-Tel rejects said
offer or fails to notify Excite of its acceptance within the ten (10)
day period, Excite shall have the right to enter into the agreement
with such third party, provided the terms and conditions of the
agreement are not less favorable to Excite than previously offered by
Auto-By-Tel.
2. MARKETING AND PROMOTION
a) Excite will feature Auto-By-Tel in the Auto Buying Services department
of the Excite Automotive Channel for the term of the Agreement.
b) Excite will conduct three (3) two-week car give away promotions on the
Excite home page promoting Auto-By-Tel during the first year of the
Agreement, with one promotion coinciding with the launch of
Auto-By-Tel's sponsorship and the other two to be mutually scheduled.
Excite will conduct similar promotions in years two and three of the
Agreement. Auto-By-Tel will provide the cars to be given away through
these promotions.
c) Auto-By-Tel will purchase banner advertising on the Excite Network in
Year One of the Agreement in the amounts described in Exhibit A.
Auto-By-Tel will purchase banner advertising on the Excite Network in
Year Two and Year Three in amounts substantially comparable to the
amounts agreed upon in Exhibit B.
d) Excite will deliver a minimum of 150 impressions of Auto-By-Tel
promotional placements during the term of the Agreement, including the
placement in the Auto Buying Services department of the Excite
Automotive Channel, the car give-away promotions and the banner
advertisements described above, the display of Auto-By-Tel's content
described below and other promotional placements that may be
determined by the parties.
e) Neither party will make any public statement, press release or other
announcement relating to the terms of or existence of this Agreement
without
2
<PAGE> 3
[*] Confidential Treatment Requested
the prior written approval of the other. Notwithstanding the
foregoing, Auto-By-Tel hereby grants to Excite the right to issue an
initial press release, the timing and wording of which will be subject
to Auto-By-Tel's reasonable approval, regarding the relationship
between Excite and Auto-By-Tel.
3. CONTENT PROVIDED TO EXCITE
a) Auto-By-Tel will provide to Excite mutually agreed upon content
relating to online automobile buying such as AutoSite and The Bank
Rate Monitor (the "Content") which is described in Exhibit D. Excite
may display the Content in the Excite Automotive Channel and in other
locations in the Excite Network. Excite will determine the "look and
feel" of the Excite Automotive Channel and the Excite Network.
b) Auto-By-Tel will not provide the Content to any of Excite's
competitors during the term of the Agreement, including, but not
limited to, AltaVista, HotBot, Infoseek, Lycos, Search.com and Yahoo,
or any other Web site promoting itself as a provider of Internet
search and navigation services. Not more than once per quarter, Excite
may update this list of competitors.
c) Auto-By-Tel and Excite will determine mutually agreeable methods for
the transmission and incorporation of updates to the Content. Other
than updates to the Content or revisions as needed to reflect changes
to Auto-By-Tel's name and/or brand, Auto-By-Tel will not alter the
Content without Excite's prior consent.
d) Auto-By-Tel will ensure that the Content will at all times feature the
full array of content and functionality as made generally available by
Auto-By-Tel at the Auto-By-Tel Site, through any other means of
distribution of Auto-By-Tel's own branded service or through any other
third-party relationship.
e) Auto-By-Tel will have sole responsibility for providing, at its
expense, the Content to Excite.
f) Reasonable excerpts or portions of the Content may be incorporated
into "Broadcast Pages" delivered by Excite via email, desktop
"channels" or Internet "push" technologies. Excite will determine the
"look and feel" of the Broadcast Pages.
4. SPONSORSHIP AND ADVERTISING FEES AND REVENUE SHARING
a) A "set-up fee" of $550,000 will be due to Excite upon execution of the
Agreement as compensation for exclusivity, costs of initiating access
to the Excite Network, programming costs associated with the
incorporation of the Content into the Excite Network, set-up costs and
other expenses associated
3
<PAGE> 4
[*] Confidential Treatment Requested
with Excite's initiation of the links, placements, advertisements and
promotions contemplated by this Agreement.
b) Separate and apart from the set-up fee, sponsorship and advertising
fees will be due to Excite as follows:
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3
---------- ---------- ----------
<S> <C> <C> <C>
Sponsorship $ 650,000 $1,400,000 $1,600,000
Banners - US $ 800,000 $ 700,000 $ 700,000
Banners - WebTV/ $ 300,000 $ 300,000 $ 300,000
International
Total $1,750,000 $2,400,000 $2,600,000
</TABLE>
In the event that Excite is unable to deliver the agreed-upon amount
of banner advertising in the WebTV and/or International rotations,
Excite will provide the undelivered amounts in rotation on its primary
Web site.
c) Auto-By-Tel will pay Excite a bounty per unique purchase request
submitted by users referred to the Auto-By-Tel Site from the Excite
Network of [*] for the first 100,000 unique purchase requests in
each year of the Agreement, [*] for the second 100,000 unique
purchase requests in each year of the Agreement and [*] for each
unique purchase request in excess of 200,000 in each year of the
Agreement. For the purposes of the Agreement, a "unique purchase
request" is one purchase or lease request submitted by any particular
user in a sixty [60] day period, as measured by Auto-By-Tel.
d) If the number of unique purchase requests submitted by users referred
directly to the Auto-By-Tel Site from the Excite Network in any year
of the Agreement exceeds 180,000, the bounty increases to [*] for
the first 100,000 unique purchase requests in the following year of
the Agreement, [*] for the second 100,000 unique purchase requests
In the following year of the Agreement and [*] for each unique
purchase request in excess of 200,000 in the following year of the
Agreement.
e) The set-up, sponsorship and advertising fees are gross amounts and do
not reflect any agency commissions to be paid by Auto-By-Tel. The
bounty payment amounts are net of any agency commissions to be paid by
Auto-By-Tel.
f) Sponsorship and advertising fees will be paid in twelve equal monthly
installments commencing on the execution of the Agreement. Bounty
payments will be made quarterly. The parties will conduct annual
reviews to ensure accurate payments and accounting.
4
<PAGE> 5
g) Auto-By-Tel will maintain accurate records with respect to the
calculation of all payments due under this Agreement. Excite may, upon
no less than thirty (30) days prior written notice to Auto-By-Tel,
cause an independent Certified Public Accountant to inspect the
records of Auto-By-Tel reasonably related to the calculation of such
payments during Auto-By-Tel's normal business hours. The fees charged
by such Certified Public Accountant in connection with the inspection
will be paid by Excite unless the payments made to Excite are
determined to have been less than ninety-five percent (95%) of the
payment owed to Excite, in which case Auto-By-Tel will be responsible
for the payment of the reasonable fees for such inspection.
5. CUSTOMER INFORMATION
a) Auto-By-Tel will retain all rights to customers acquired pursuant to
the Agreement.
b) Once per quarter, in connection with Auto-By-Tel's bounty payments,
Auto-By-Tel will provide Excite with all of the customer information
it acquires through the purchase requests submitted by users referred
directly to Auto-By-Tel's Web site from the Excite Network. This
customer information will be deemed to be the joint property of the
parties. Under no circumstances will Excite sell, provide or transfer
this customer information to any third party.
6. OPERATIONAL SUPPORT
a) Excite will provide, at its sole expense, Account Management support
of the Auto Buying Services department of the Excite Automotive
Channel sufficient to support for the level of sales and marketing
contemplated by the Agreement.
b) The parties will hold formal reviews on a monthly basis to maintain
anticipated results according to the sponsorship objectives.
Advertising and sponsorship placements will be adjusted monthly by
mutual agreement.
7. TERM AND TERMINATION
a) The Agreement will have an initial term three (3) years.
b) Auto-By-Tel will have the option to cancel the Agreement if, at the
end of the first year of the Agreement, users referred to the
Auto-By-Tel Site from the Excite Network do not submit 100,000 unique
purchase requests.
c) Either party may terminate this Agreement it the other party
materially breaches its obligations hereunder and such breach remains
uncured for thirty (30) days following the notice to the breaching
party of the breach, with the following exceptions:
5
<PAGE> 6
(i) In the event of three or more errors, failures or outages of the
Content in any thirty (30) day period, Excite may elect to
immediately terminate this Agreement upon written notice to
Auto-By-Tel and enter into an other arrangements for the
acquisition of similar content; or
(ii) Auto-By-Tel will ensure that the Content will at all times be at
least comparable to any other source of similar topical content
available on the Internet in terms of the following factors,
taken as a whole: (i) breadth and depth of coverage, (ii)
timeliness of content updates and (iii) reputation and ranking
based on a cross-section of third party reviewers in terms of
features, functionality, quality and other qualitative factors.
In the event that Auto-By-Tel fails to meet these quality
criteria, Excite may terminate this agreement on thirty (30) days
written notice and enter into an other arrangements for the
acquisition of similar content.
d) All payments that have accrued prior to the termination or expiration
of this Agreement will be payable in full within thirty (30) days
thereof.
e) The provisions of Section 10 (Confidentiality), Section 11 (Warranty
and Indemnity), Section 12 (Limitation of Liability) and Section 13
(Dispute Resolution) will survive any termination or expiration of
this Agreement.
8. CONTENT OWNERSHIP AND LICENSE
a) Auto-By-Tel will retain all right, title and interest in and to the
Content worldwide (including, but not limited to, ownership of all
copyrights and other intellectual property rights therein). Subject to
the terms and conditions of this Agreement, Auto-By-Tel hereby grants
to Excite a royalty-free, nonexclusive, worldwide license to use,
reproduce, distribute, transmit and publicly display the Content in
accordance with this Agreement and to sublicense the Content to
Excite's wholly-owned subsidiaries or to joint ventures in which
Excite participates for the sole purpose of using, reproducing,
distributing, transmitting and publicly displaying the Content in
accordance with this Agreement.
b) Excite will retain all right, title, and interest in and to the Excite
Network and the Broadcast Pages worldwide (including, but not limited
to, ownership of all copyrights, look and feel and other intellectual
property rights therein).
9. TRADEMARK OWNERSHIP AND LICENSE
a) Auto-By-Tel will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Excite hereunder.
6
<PAGE> 7
b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Auto-By-Tel hereunder.
c) Each party hereby grants to the other a non-exclusive, limited license
to use its trademarks, service marks or trade names only as
specifically described in this Agreement. All such use shall be in
accordance with each party's reasonable policies regarding advertising
and trademark usage as established from time to time.
d) Upon the expiration or termination of this Agreement, each party will
cease using the trademarks, service marks and/or trade names of the
other except:
i) As the parties may agree in writing; or
ii) To the extent permitted by applicable law.
10. CONFIDENTIALITY
a) For the purposes of this Agreement, "Confidential Information" means
information about the disclosing party's (or its suppliers') business
or activities that is proprietary and confidential, which shall
include all business, financial, technical and other information of a
party marked or designated by such party as "confidential" or
"proprietary"; or information which, by the nature of the
circumstances surrounding the disclosure, ought in good faith to be
treated as confidential.
b) Confidential Information will not include information that (i) is in
or enters the public domain without breach of this Agreement, (ii) the
receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure
obligation or (iii) the receiving party knew prior to receiving such
information from the disclosing party or develops independently.
c) Each party agrees (i) that it will not disclose to any third party or
use any Confidential Information disclosed to it by the other except
as expressly permitted in this Agreement and (ii) that it will take
all reasonable measures to maintain the confidentiality of all
Confidential Information of the other party in its possession or
control, which will in no event be less than the measures it uses to
maintain the confidentiality of its own information of similar
importance.
d) Notwithstanding the foregoing, each party may disclose Confidential
Information (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required
by law or (ii) on a
7
<PAGE> 8
"need-to-know" basis under an obligation of confidentiality to its
legal counsel, accountants, banks and other financing sources and
their advisors.
e) The information contained in the Usage Reports provided by each party
hereunder will be deemed to be the Confidential Information of the
disclosing party.
f) The terms and conditions of this Agreement will be deemed to be the
Confidential Information of each party and will not be disclosed
without the written consent of the other party.
11. WARRANTY AND INDEMNITY
a) Auto-By-Tel warrants that it owns, or has obtained the right to
distribute and make available as specified in this Agreement, any and
all content provided to Excite or made available to third parties in
connection with this Agreement.
b) Auto-By-Tel warrants that the Content will comply with the description
and technical specifications contained in Exhibit D.
c) Auto-By-Tel will indemnify, defend and hold harmless Excite, its
affiliates, officers, directors, employees, consultants and agents
from any and all third party claims, liability, damages and/or costs
(including, but not limited to, attorneys fees) arising from:
i) The breach of any warranty, representation or covenant in this
Agreement;
ii) Any claim that the Content infringes or violates any third
party's copyright, patent, trade secret, trademark, right of
publicity or right of privacy or contains any defamatory content;
or
iii) Any claim arising from content displayed on the Auto-By-Tel Site.
Excite will promptly notify Auto-By-Tel of any and all such claims and
will reasonably cooperate with Auto-By-Tel with the defense and/or
settlement thereof; provided that, it any settlement requires an
affirmative obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Excite in any way and such
obligation, liability, prejudice or impact, can reasonably be expected
to be material, then such settlement shall require Excite's written
consent (not to be unreasonably withheld or delayed) and Excite may
have its own counsel in attendance at all proceedings and substantive
negotiations relating to such claim,
d) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND
HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED
WARRANTIES OF
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<PAGE> 9
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING SUCH
SUBJECT MATTER.
12. LIMITATION OF LIABILITY
EXCEPT UNDER SECTION 11(c), IN NO EVENT WILL EITHER PARTY BE LIABLE TO
THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER
BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE,
WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE. THE LIABILITY OF EXCITE FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER,
WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND
WILL NOT EXCEED, THE AMOUNTS ACTUALLY PAID BY AUTO-BY-TEL TO EXCITE
HEREUNDER.
13. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names and/or
confidentiality would result in irreparable injury for which there is
no adequate remedy at law. Therefore, in the event of any breach or
threatened breach of a party's obligations regarding trademarks,
service marks or trade names or confidentiality, the aggrieved party
will be entitled to seek equitable relief in addition to its other
available legal remedies in a court of competent jurisdiction. For the
purposes of this section only, the parties consent to venue in either
the state courts of the county in which Excite has its principal place
of business or the United States District Court for the Northern
District of California.
b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks or
trade names and/or confidentiality, the parties will first attempt to
resolve the dispute(s) through good faith negotiation. In the event
that the dispute(s) cannot be resolved through good faith negotiation,
the parties will refer the dispute(s) to a mutually acceptable
mediator for hearing in the county in which Excite has its principal
place of business.
c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks or
trade names and/or confidentiality, cannot be resolved through good
faith negotiation and mediation, the parties will refer the dispute(s)
to the American Arbitration Association for resolution through binding
arbitration by a single arbitrator pursuant to the American
Arbitration Association's rules applicable to
9
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commercial disputes. The arbitration will be held in the county in
which Excite has its principal place of business.
14. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole or in
part, without the other party's written consent (which will not be
unreasonably withheld), except that no such consent will be required
in connection with a merger, reorganization or sale of all, or
substantially all, of such party's assets. Any attempt to assign this
Agreement other than as permitted above will be null and void.
b) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California, notwithstanding
the actual state or country of residence or incorporation of
Auto-By-Tel.
c) Notice. Any notice under this Agreement will be in writing and
delivered by personal delivery, express courier, confirmed facsimile,
confirmed email or certified or registered mail, return receipt
requested, and will be deemed given upon personal delivery, one (1)
day after deposit with express courier, upon confirmation of receipt
of facsimile or email or five (5) days after deposit in the mail.
Notices will be sent to a party at its address set forth below or such
other address as that party may specify in writing pursuant to this
Section.
d) No Agency. The parties are independent contractors and will have no
power or authority to assume or create any obligation or
responsibility on behalf of each other. This Agreement will not be
construed to create or imply any partnership, agency or joint venture.
e) Force Majeure. Any delay in or failure of performance by either party
under this Agreement will not be considered a breach of this Agreement
and will be excused to the extent caused by any occurrence beyond the
reasonable control of such party including, but not limited to, acts
of God, power outages and governmental restrictions.
f) Severability. In the event that any of the provisions of this
Agreement are held by to be unenforceable by a court or arbitrator,
the remaining portions of the Agreement will remain in full force and
effect.
g) Entire Agreement. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement may
only be modified, or any rights under it waived, by a written document
executed by both parties.
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Auto-By-Tel Excite, Inc.
By: /s/ Mark W. Lorimer By: /s/ Robert C. Hood
-------------------------------- ------------------------------
Name: Mark W. Lorimer Name: Robert C. Hood
------------------------------ ----------------------------
Title: EVP & COO Title: EVP & CFO
------------------------------ ----------------------------
[ADDRESS] 555 Broadway
Redwood City, California 94063
415.568.6000 (voice)
415.568.6030 (fax)
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[*] Confidential Treatment Requested
AUTO-BY-TEL AND EXCITE
YEAR ONE PROMOTIONAL PLAN
EXHIBIT A
<TABLE>
<CAPTION>
[COLUMN HEADS ILLEGIBLE]
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASE PAYMENT 10/1 Base payment excluding Purchase Y [*]
requests
EXCITE AUTOMOTIVE CHANNEL
Sole buying service 10/1 Link under "Buying Services" to Y 150,000 [*] [*]
sponsorship with link off custom area
home page to Custom area Link under "Used Cars": Search ABT's Y
Used Car Cyberstore
Link under "News": Weekly Automotive Y
Report
Link under "Insurance & Finance": Y
Generic
Text/graphic on all pages Y
KEYWORDS*
Excite (Auto brand, keyword) 10/1 Minimum 12.5% "Gen'l Auto"* per month Y** 1,145 [*] [*]
Integrated Search 9,160
------
10,305
Webcrawler (Auto brand, 10/1 Minimum 15% "Gen'l Auto"* per month N 1,100 [*] [*]
keyword)
LIFESTYLE DIRECTORIES/GEN'L
Various & Specific 10/1 Business & Investing N 6,228 [*] [*]
preferences Shopping
Computers & Internet
General Rotation 10/1 Various keyword results N 7,000 [*] [*]
AUTOMOTIVE SHOPPING*** 10/1 Graphic link N 4,800 [*]
4,800M imp's/year
EXCITE HOME PAGE SPONSOR***
2 Weeks on Home Page (3X/yr.) 10/1 Car giveaway (1X in 1997, 3X/yr Y 0 [*]
6,000M imp's/wk. subsequent years)
ABT to provide cars ($25,000) retail
value per car)
WEB TV, EUROPE, CANADA
Programs TBD 10/1 25% Auto keywords on Web TV/possible Y 15,000 [*] [*]
in Auto area
Auto Keywords (Europe/Canada) TBD
TOTAL 191,633 [*] [*]
PURCHASE REQUEST PROGRAM
100M Unique requests annual 10/1 Net: [*] up to 100M, [*] up to 200M, N/A [*]
guarantee [*] after 200M.
Years 2*3: [*], [*], [*]
GRAND TOTAL 196,433 [*] [*]
</TABLE>
* Keywords: Car(s), Auto(s), Automobile(s), Automotive, Dealer, Incentive,
Buyer(s)
** Category Exclusivity on the [*] Keywords listed above only, not Auto brand
words
*** impressions included within Autochannel
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[*] Confidential Treatment Requested
AUTO-BY-TEL AND EXCITE
THREE YEAR PROMOTIONAL PLAN
EXHIBIT B
<TABLE>
<CAPTION>
Date of Impression Negotiate
Content Area Description
<S> <C> <C> <C> <C> <C>
BASE PAYMENT Base payment excluding Purchase requests Y [*] [*]
EXCITE AUTOMOTIVE CHANNEL
Sole buying service sponsorship Link under "Buying Services" to Custom area Y 150,000 [*] [*] [*]
with link off home page to "Used Cars": Search ABT's Used Car Cyberstore Y
custom area Link under "News": Weekly Automotive Report Y
Link under "Insurance & Finance". Generic Y
Text/graphic on all pages Y
KEYWORDS*
Excite (Auto brand, keyword) Minimum 12.5% "Gen'l Auto"* Y 10,300 [*] [*] [*]
Integrated Search
Webcrawler (Auto brand,
keyword) Minimum 15% "Gen'l Auto"* per month N 1,100 [*] [*] [*]
LIFESTYLE DIRECTORIES/GEN'L
Various Specific Preferences Business Investing N 8,228 [*] [*] [*]
Shopping
Computers & Internet
General Position Various keyword results N 7,000 [*] [*] [*]
AUTOMOTIVE SHOPPING*** Graphic link N 4,800 [*] [*]
4,800M imp's/year
EXCITE HOME PAGE SPONSOR***
2 weeks on Home Page (3x/yr.) Car giveaway 1x in 1997 3x/yr subsequent years Y 0 [*] [*] [*]
6,000M imp's/wk. ABT to provide cars ($25,000 retail value per
car)
WEB TV, EUROPE, CANADA
Programs TBD 25% Auto keywords on Web TV/possible in Auto area Y 15,000 [*] [*] [*]
Auto Keywords (Europe/Canada) 100
TOTAL 191,633 [*] [*] [*]
PURCHASE REQUEST PROGRAM
100M Unique requests Net [*] illegible to 2000M, $?? after 200M N/A [*] [*]
annual guarantee Years ??? illegible
GRAND TOTAL $191,633 [*] [*] [*]
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
BASE PAYMENT Base payment excluding Purchase (requests) Y
$2,600,000 [*]
EXCITE AUTOMOTIVE CHANNEL
Sole buying service sponsorship Link under "Buying Services" to Custom area Y $1,052,912 [*] [*] [*]
with link off home page to "Used Cars": Search ABT's Used Car Cyberstore Y
custom area Link under "News": Weekly Automotive Report Y
Link under "Insurance & Finance" Generic Y
Text/graphic on all pages Y
KEYWORDS*
Excite (Auto brand, keyword) Minimum 12.5% "Gen'l Auto"* Y $ 742,085 [*] [*] [*]
Integrated Search
Webcrawler (Auto brand, $ 45,350 [*] [*] [*]
keyword) Minimum 15% "Gen'l Auto"* per month N
LIFESTYLE DIRECTORIES/GEN'L $ 273,548 [*] [*] [*]
Various Specific Preferences Business Investing N
Shopping
Computers & Internet
$ 79,149 [*] [*] [*]
General Position Various keyword results N
$ 0 [*] [*]
AUTOMOTIVE SHOPPING*** Graphic link N
4,800M imp's/year
EXCITE HOME PAGE SPONSOR*** $ 0 [*] [*]
2 weeks on Home Page (3x/yr.) Car giveaway (1X in 1997 3x/yr subsequent years Y
6,000M imp's/wk. ABT to provide cars ($25,000 retail value per
car)
WEB TV, EUROPE, CANADA $ 406,956 [*] [*] [*]
Programs TBD 25% Auto keywords on Web TV/possible in Auto area Y
Auto Keywords (Europe/Canada) 100
$2,600,000 [*] [*] [*]
TOTAL
PURCHASE REQUEST PROGRAM
100M Unique requests Net [*] up to 100M, [*] up to 200M, [*] after ? $ 823,523 [*]
annual guarantee 200M. Years 2 & 3: [*], [*], [*]
GRAND TOTAL $3,423,529 [*] [*] [*]
</TABLE>
*Keywords: Car(1), Auto(2), Automobile(3), AutoCenter, Dealer Incentive,
Buyer(s).
**Category Exclusivity on the [*] keywords rated above only, not auto brand
words.
***impressions included within Autochannel number.
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<PAGE> 14
EXHIBIT C
AUTO-BY-TEL LIST OF COMPETITORS
14
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EXHIBIT D
CONTENT DESCRIPTION AND TECHNICAL SPECIFICATIONS
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<PAGE> 1
EXHIBIT 10.22
[*] Confidential treatment has been requested for certain portions of this
exhibit.
CONFIDENTIAL
------------
SPONSORSHIP AGREEMENT
This agreement ("Agreement") is entered into as of the 24th day of June, 1998
("Effective Date"), by and between Excite, Inc., a California corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and
Auto-By-Tel Corporation, a California corporation, located at 18872 MacArthur
Boulevard, #200, Irvine, California 92612-1400 ("Client").
RECITALS
A. Excite has obtained the right to program certain content and sell and
display advertising on the site on the Internet maintained by Netscape
Communications Corporation ("Netscape") located at
http://home.netscape.com and/or other URLs or locations designated by
Netscape (the "Excite Portion of the Netscape Site") pursuant to an
agreement dated April 29, 1998 ("the Netcenter Agreement"), which, among
other things, allow Netscape's users to search for and access content
and other sites on the Internet.
B. Within the Excite Portion of the Netscape Site, Excite plans to organize
certain content into topical channels (each, a "Channel") and to provide
an Internet search service ("Netscape Search").
C. Client is engaged in the business of, among other things, (i) providing
online information and data to prospective purchasers of motor vehicles
through its Web site located at http://www.autobytel.com (the "Client
Site") and facilitating the acquisition of vehicles through a network of
dealer subscribers; (ii) offering to any such purchaser vehicle
financing and leasing programs, insurance programs and after market
products, and (iii) offering an incentive "rewards" based membership
program featuring a co- branded credit card, roadside assistance and
select retail providers (the "Mobalist" Program).
D. Client wishes to promote its business to Netscape's users through
promotions, content and advertising in the Excite Portion of the
Netscape Site.
Therefore, the parties agree as follows:
1. SPONSORSHIP OF THE AUTOS CHANNEL
(a) Client acknowledges that Excite's right to display promotional
placements on the Excite Portion of the Netscape Site is
conditioned on the Netcenter Agreement remaining in effect.
However, Excite represents that it will, in good faith, perform
all of its obligations under the Netcenter Agreement and do all
other commercially
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reasonable acts necessary to keep such Agreement in place,
subject at all times to Netscape's rights to terminate the
Netcenter Agreement for reasons unrelated to Excite's performance
or breach. Therefore, subject to the Netcenter Agreement
remaining in effect, commencing on the Launch Date (as defined
below), Client will be promoted in the Autos Channel of the
Excite Portion of the Netscape Site:
(i) A link to the Client Site (consistent with the format used
on similar links on the same page) will be displayed in
the Autos Channel home page for the duration of the term
of the Agreement.
(ii) A link to the Client Site (consistent with the format used
on similar links on the same page) will be displayed in
the "Buy A Car Online" department of the Autos Channel (or
a similar portion of the Autos Channel featuring
comparable content) for the duration of the term of the
Agreement.
(iii) A link to the Client Site (consistent with the format used
on similar links on the same page) will be displayed in
the "Take a Test Drive" department of the Autos Channel
(or a similar portion of the Autos Channel featuring
comparable content) for the duration of the term of the
Agreement.
(iv) A link to the Client Site (consistent with the format used
on similar links on the same page) will be displayed in
the "Auto Makers" promotional area in the "SUV," "Truck,"
"Cars" and "Luxury Cars" departments of the Autos Channel
(or a similar portion of the Autos Channel featuring
comparable content) for the duration of the term of the
Agreement.
(b) Client acknowledges that Excite's right to display content on the
Excite Portion of the Netscape Site is conditioned on the
Netcenter Agreement remaining in effect. Therefore, subject to
the Netcenter Agreement remaining in effect, commencing of the
Launch Date (as defined below), motor vehicle related content
supplied by Client ("Client Content") will be promoted in the
Autos Channel of the Excite Portion of the Netscape Site:
(i) Client Content from Bank Rate Monitor, Edmunds,
Auto-By-Tel, and/or AIG (subject to approval by Excite)
will be displayed in the Autos Channel for the duration of
the term of the Agreement. The selection and placement of
Client Content to appear in the Autos Channel will be
subject to Excite's discretion.
(ii) A module containing text and graphics links of less than
6K in file size, the pixel dimensions to be mutually
determined by the parties, featuring Client's "Mobalist"
program which will be displayed in the Autos Channel for
the
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[*] Confidential Treatment Requested
CONFIDENTIAL
------------
duration of the term of the Agreement. The placement of
the "Mobalist" module in the Autos Channel will be subject
to Excite's discretion and continued positive user
feedback.
(iii) All Client Content will link to the Client Site. The
"Mobalist" module will link to http://www.mobalist.com;
unless, upon reasonable notice, Client directs Excite to
link the Mobalist module to an additional or alternative
address.
(iv) Client and Excite will determine mutually agreeable
methods for the transmission and incorporation of updates
to the Client Content and "Mobalist" module. Other than
updates to the Client Content and "Mobalist" module,
Client will not alter the Client Content or "Mobalist"
module without Excite's prior consent.
(v) Netscape and Excite, on the one hand, and Client, on the
other, will cooperate in good faith regarding the "look
and feel" of the "Mobalist" module, but Netscape and
Excite will have final decision authority over of the
"look and feel" of the Client Content, the "Mobalist"
module and the Autos Channel.
(vi) Client will have sole responsibility for providing, at its
expense, the Client Content and "Mobalist" module to
Excite.
2. SWEEPSTAKES
(a) Every twelve (12) months, Client, at its sole expense, will
supply Excite with up to three (3) new motor vehicles to be used
by Excite as sweepstakes prizes offered to Netscape users. The
parties agree that the aggregate suggested manufacturer's retail
price for the vehicle(s) selected by Excite though Client shall
not exceed forty-five thousand dollars ($45,000) in any
twelve-month period.
(b) Client and Excite will cooperate in good faith to identify
appropriate opportunities to promote these sweepstakes and Client
in the Excite Portion of the Netscape Site during the term of the
Agreement.
(c) Other than the motor vehicles supplied by Client, Excite will
assume all expenses involved in administering and promoting these
sweepstakes.
(d) Either party may issue press releases regarding the sweepstakes,
the timing and wording of which will be mutually agreed upon. Any
such press releases will
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CONFIDENTIAL
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identify Excite as the host of the sweepstakes and Client as the
provider of the prize vehicle.
3. ADVERTISING ON THE EXCITE PORTION OF THE NETSCAPE SITE
(a) Client acknowledges that Excite's right to display advertising on
the Excite Portion of the Netscape Site is conditioned on the
Netcenter Agreement remaining in effect. Therefore, subject to
the Netcenter Agreement remaining in effect, commencing of the
Launch Date (as defined below), Excite will display Client's
banner advertising in rotation on the Channels on the Excite
Portion of the Netscape Site for the term of the Agreement.
(b) Subject to the Netcenter Agreement remaining in effect, Excite
guarantees the display of twenty-eight million seven hundred
fifty thousand (28,750,000) of Client's advertising banners,
which shall be distributed evenly and equitably per month, during
the term of the Agreement.
4. EXCLUSIVITY
(a) For the term of the Agreement, Excite will not enter into any
agreement to display and shall not display on the Autos, Arts &
Leisure, Auctions, Education, Games, Lifestyle, Real Estate or
Shopping Channels of the Excite Portion of the Netscape Site
content created by Excite promoting Client's "Competitors,"
content created by Client's Competitors or promotional placements
and/or advertising banners from Client's Competitors.
(b) For the purposes of this Agreement, "Competitors" means those
merchants whose primary business is (i) the online referral of
new motor vehicle purchase and/or leasing requests or the online
referral of used motor vehicle purchase requests to a nationwide
network of automobile dealers, (but does not include Excite's
subsidiary, Classifieds2000, Inc. ("Classifieds2000")), together
with the offering of ancillary motor vehicle products in
connection with any such purchase or lease including financing,
insurance and aftermarket products as well as (ii) the offering
of a rewards-based incentive program targeted to motorists
featuring a co-branded credit card, roadside assistance and
select retail dealers (but does not include any rewards-based
incentive program offered by Excite under the "Excite" brand).
(c) Notwithstanding the foregoing, Excite may display links to
Client's Competitors in Excite's general directory of Web sites
that appears on the Netscape Site, in search results displayed in
"Jango" shopping search services, in Netscape Search results
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CONFIDENTIAL
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pages and in classified advertising listings, subject to any
agreement entered into by Client and Classifieds2000, pursuant to
Section 5 below.
5. RIGHT OF FIRST NEGOTIATION FOR CLASSIFIEDS CHANNEL
(a) Client will have a right of first negotiation with
Classifieds2000 for an exclusive sponsorship of the Classifieds
Channel of the Excite Portion of the Netscape Site.
(b) Excite will not propose, solicit or negotiate offers from
entities other than Client for any exclusive sponsorships of the
Classifieds Channel of the Excite Portion of the Netscape Site by
any of Client's Competitors, if at all, prior to fifteen (15)
business days from the Effective Date.
(c) Classifieds2000 will negotiate with Client in good faith with
respect to the terms and conditions under which Client would
become the exclusive online seller of new motor vehicles
sponsoring the Classifieds Channel of the Excite Portion of the
Netscape Site. If Client and Classifieds2000 have not entered
into a written sponsorship agreement by close of business on the
fifteenth business day from the Effective Date, Excite and/or
Classifieds2000 may enter into negotiations with any third party
with respect to exclusive sponsorships of the Classifieds Channel
of the Excite Portion of the Netscape Site.
6. LAUNCH DATE AND REPORTING
(a) Client and Excite will use reasonable efforts to implement the
display of the promotional placements, content and advertising
described in the Agreement by July 1, 1998 (the "Launch Date").
The parties recognize that the scheduled Launch Date can be met
only if Client provides final versions of all graphics, text,
keywords, banner advertising, promotional placements, other
promotional media and valid URL links necessary to implement the
promotional placements, content and advertising described in the
Agreement (collectively, "Impression Material") to Excite five
(5) days prior to scheduled Launch Date.
(b) In the event that Client fails to provide the Impression Material
to Excite five (5)days in advance of the scheduled Launch Date,
Excite may, at its sole discretion (i) reschedule the Launch Date
at the earliest practicable date according to the availability of
Excite's engineering resources after delivery of the complete
Impression Material or (ii) commence delivery of Impressions
based on Impression Material in Excite's possession at the time
and/or reasonable placeholders created by Excite.
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[*] Confidential Treatment Requested
CONFIDENTIAL
------------
(c) Excite will provide Client with monthly reports substantiating
the number of impressions of Client's advertising banners,
content and promotional placements displayed on the Excite
Portion of the Netscape Site.
7. SPONSORSHIP, ADVERTISING AND TRANSACTION FEES
(a) Client will pay Excite sponsorship and advertising fees of two
million four hundred eighty-seven thousand dollars ($2,487,000)
in the first year of the term of the Agreement. These fees will
be paid in equal monthly installments of two hundred seven
thousand two hundred fifty dollars ($207,250). The first monthly
payment will be due upon the display of the first of the
promotional placements and advertising described in the
Agreement. Subsequent installments will be due on a monthly basis
thereafter.
(b) Client will pay Excite sponsorship and advertising fees of four
million one hundred fifty thousand dollars ($4,150,000) in the
second year of the term of the Agreement. These fees will be paid
in equal monthly installments of three hundred forty-five
thousand eight hundred thirty three dollars and thirty-three
cents ($345,833.33). The first monthly payment will be due upon
the first anniversary of the display of the first of the
promotional placements and advertising described in the
Agreement. Subsequent installments will be due on a monthly basis
thereafter.
(c) Separate and apart from the sponsorship and advertising fees,
Client will pay Excite for each "Unique Purchase Request"
completed by users referred to the Client Site from the Excite
Portion of the Netscape Site during the first year of the term of
the Agreement. For the purposes of this Agreement, a "Unique
Purchase Request" shall be a new car purchase request electronic
form with all data fields deemed mandatory by Client completed by
the user, which has been received by Client from Excite, and for
which Client has not, within the previous ninety (90) day period,
received a duplicate new car purchase request from the Excite
Portion of the Netscape Site for the same or similar vehicle, as
determined by the year, make and model; from the same user, as
identified by the same name, zip code and/or the same e-mail
address. Client will pay Excite for each Unique Purchase Request
during the first year of the term of the Agreement as follows:
(i) [*] per Unique Purchase Request up to the first one
hundred fifty thousand (150,000) Unique Purchase Requests;
(ii) [*] per Unique Purchase Request for between one hundred
fifty thousand one (150,001) and two hundred thirty
thousand (230,000) Unique Purchase Requests; and
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[*] Confidential Treatment Requested
CONFIDENTIAL
------------
(iii) [*] per Unique Purchase Request in excess of two hundred
thirty thousand (230,000) Unique Purchase Requests.
(d) Separate and apart from the sponsorship and advertising fees,
Client will pay Excite for each Unique Purchase Request completed
by users referred to the Client Site from the Excite Portion of
the Netscape Site during the second year of the term of the
Agreement as follows:
(i) [*] per Unique Purchase Request up to the first two
hundred eighteen thousand (218,000) Unique Purchase
Requests;
(ii) [*] per Unique Purchase Request for between two hundred
eighteen thousand one (218,001) and three hundred
thirty-five thousand (335,000) Unique Purchase Requests;
and
(iii) [*] per Unique Purchase Request in excess of three hundred
thirty-five thousand (335,000) Unique Purchase Requests.
(e) The sponsorship fees and transaction payments are net of any
agency commissions to be paid by Client.
(f) Client will provide Excite with monthly reports of the number of
"Unique Purchase Requests." It is currently Client's goal to
provide these reports to Excite on or about the fifth business
day after the close of the preceding month. Client shall pay
Excite the transaction payments within forty-five (45) days after
Excite's receipt of Client's report of the number of "Unique
Purchase Requests" each month. In the event that Client does not
pay the transaction payments within forty-five (45) days after
Excite's receipt of Client's report of the number of "Unique
Purchase Requests" for any month, that month shall be deemed to
be a "Late Payment Month" for the purposes of this Agreement. In
the event that there are two or more Late Payment Months in any
twelve (12) month period during the term of the Agreement, Client
will increase by ten percent (10%) the monthly payment otherwise
due for the second and any other Late Payment Month that occurs
in the twelve (12) period.
(g) Client will provide complete reports to Excite within thirty (30)
days of each month describing the month's transaction activity by
users referred to the Client Site from the Excite Portion of the
Netscape Site including, but not limited to, the total number of
purchase requests submitted and the number of Unique Purchase
Requests completed. Client will make good faith efforts to
develop tracking and reporting capabilities to correlate this
transaction information to the various promotional placements,
content and advertising banners on the Excite Portion of the
Netscape
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Site in order to facilitate optimization of Client's
sponsorship program. Client's reports will be delivered to Excite
in a mutually agreed-upon electronic format to an email address
or URL designated by Excite. In the event that Client does not
provide the required reports to Excite within sixty (60) days
after the end of any month, that month shall be deemed to be a
"Late Reporting Month" for the purposes of this Agreement. In the
event that there are two or more Late Reporting Months in any
twelve (12) month period during the term of the Agreement, Client
will increase by ten percent (10%) the monthly payment otherwise
due for the second and any other Late Reporting Month that occurs
in the twelve (12) month period. To the extent that interim
reports regarding the quality of the performance of Client's
sponsorship program on the Excite Portion of the Netscape Site,
as described in Section 9(b)(i), are available more frequently
than quarterly, Client will make good faith efforts to supply
such interim reports to Excite as soon as reasonably practical.
(h) Client will maintain accurate records with respect to the
calculation of all transaction payments and reporting due under
this Agreement. Once per year, the parties will review these
records to verify the accuracy and appropriate accounting of all
payments made pursuant to the Agreement. In addition, Excite may,
upon no less than thirty (30) days prior written notice to
Client, cause an independent Certified Public Accountant to
inspect the records of Client reasonably related to the
calculation of such payments during Client's normal business
hours. The fees charged by such Certified Public Accountant in
connection with the inspection will be paid by Excite unless the
payments made to Excite are determined to have been less than
ninety-five percent (95%) of the payments actually owed to
Excite, in which case Client will be responsible for the payment
of the reasonable fees for such inspection.
8. PUBLICITY
Unless required by law, neither party will make any public statement,
press release or other announcement relating to the terms of or
existence of this Agreement without the prior written approval of the
other. Notwithstanding the foregoing, the parties agree to issue an
initial press release regarding the relationship between Excite and
Client, the timing and wording of which will be mutually agreed upon.
9. TERM AND TERMINATION
(a) The term of this Agreement will begin on the Launch Date and will
end at the earlier of June 30, 2000 or the expiration or
termination of the Netcenter Agreement. In the event that the
Netcenter Agreement expires or is terminated prior to June 30,
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2000, Client and Excite will negotiate in good faith to resolve
all outstanding promotional and financial issues.
(b) Despite Excite's performance of its obligations hereunder, Client
may terminate this Agreement under the following limited
conditions:
(i) Client and Excite will meet once per quarter throughout
the term of the Agreement to review the performance of
Client's sponsorship program on the Excite Portion of the
Netscape Site. At the quarterly meeting, refers to the
Client Site generated on the Excite Portion of the
Netscape Site will be evaluated for quality and compared
to an index (the "Performance Index") based on the
performance of refers to the Client Site from the
excite.com Web site (the "Excite Site"). The Parties agree
that the Performance Index shall use June 1998 performance
results of the Excite Site as its baseline, which shall be
deemed "100%" for the purposes of comparison to the Excite
Portion of the Netscape Site. Quality performance will be
monitored and provided by Client's independent auditors
(currently, Arthur Andersen).
This information will be shared with Excite at the
quarterly performance meetings.
(ii) In the event that purchase request quality performance
from the Excite Portion of the Netscape Site is materially
below that from the Excite Site during any ninety (90) day
period during the term of the Agreement, Client will
notify Excite in writing of the poor performance. Excite
will undertake commercially reasonable efforts to remedy
the poor performance.
(iii) In the first year of the term of the Agreement only, if
Excite's efforts do not materially improve performance
after a reasonable period of time after receiving Client's
written notice of poor performance pursuant to Section
9(b)(ii), then, no later than forty-five (45) days prior
to the end of the first year of the term of the Agreement,
Client can give written notice to Excite of termination of
the Agreement at the end of the first year due to the
purchase request quality performance from the Excite
Portion of the Netscape Site being materially below that
from the Excite Site. This written termination notice must
include supporting reports or analysis by the accredited
neutral third party. Client may not terminate the
Agreement prior to the end of the first year of the term
of the Agreement under Sections 9(b)(ii) or 9(b)(iii).
(iv) In the event that purchase request quality performance
from the Excite Portion of the Netscape Site is materially
below that from the Excite Site
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during any ninety (90) day period during the second year
of the term of the Agreement and Excite's efforts do not
materially improve performance after a reasonable period
of time after receiving Client's notice of poor
performance then, in any quarterly meeting in the second
year of the term of the Agreement, Client may give notice
to Excite that Excite has sixty (60) days to remedy the
poor performance or the Agreement will be subject to
termination. Should Excite not be able to remedy purchase
request quality performance within the sixty (60) day
period, Client may give Excite written notice that the
Agreement will be terminated in thirty (30) additional
days.
(v) In the event that Client receives less than one hundred
fifty thousand (150,000) Unique Purchase Requests from
users referred to the Client Site from the Excite Portion
of the Netscape Site in the first year of the term of the
Agreement, Client can terminate the Agreement upon written
notice to Excite. Notwithstanding Section 7(c), within
thirty (30) days of any such termination, Client will pay
Excite the difference between (i) three million two
hundred twenty-five thousand dollars ($3,225,000) and (ii)
the amounts previously paid to Excite pursuant to 7(c)(i)
for the Unique Purchase Requests from users referred to
the Client Site from the Excite Portion of the Netscape
Site in the first year of the term of the Agreement under
the 150,000 minimum.
(vi) As soon as it becomes reasonably apparent that Client is
likely to pay Excite ten million two hundred thousand
dollars ($10,200,000) for Unique Purchase Requests from
users referred to the Client Site from the Excite Portion
of the Netscape Site within the next sixty (60) days,
Excite and Client will meet to discuss Client's plans to
continue or terminate the Agreement. After that meeting,
Client may, in its sole discretion, give Excite written
notice terminating the Agreement effective thirty (30)
days after Client has paid to Excite ten million two
hundred thousand dollars ($10,200,000) for Unique Purchase
Requests from users referred to the Client Site from the
Excite Portion of the Netscape Site. Once Client gives
written notice to Excite of its election to terminate the
Agreement under this Section 9(b)(vi), Excite will be free
to commence negotiations for replacement advertising
and/or sponsorships of the Excite Portion of the Netscape
Site with any third party, including Client's Competitors.
(c) Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach
remains uncured for thirty (30) days following the notice to the
breaching party of the breach.
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(d) All undisputed payments that have accrued prior to the
termination or expiration of this Agreement will be payable in
full within thirty (30) days thereof.
(e) The provisions of Section 12 (Confidentiality), Section 13
(Indemnity), Section 14 (Limitation of Liability) and Section 15
(Dispute Resolution) will survive any termination or expiration
of this Agreement.
10. TRADEMARK OWNERSHIP AND LICENSE
(a) Client will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to
the limited license granted to Excite hereunder.
(b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to
the limited license granted to Client hereunder.
(c) Each party hereby grants to the other a revocable, royalty-free,
nonexclusive, limited license to use its trademarks, service
marks or trade names only as specifically described in this
Agreement. All such use shall be in accordance with each party's
reasonable policies regarding advertising and trademark usage as
established from time to time.
(d) Upon the expiration or termination of this Agreement, each party
will cease using the trademarks, service marks and/or trade names
of the other except as the parties may agree in writing.
11. CONTENT OWNERSHIP AND LICENSE
(a) Client will retain all right, title and interest in and to the
Client Site worldwide including, but not limited to, ownership of
all copyrights and other intellectual property rights therein.
(b) Client will retain all right, title and interest in and to the
Client Content and the content of the "Mobalist" module worldwide
(including, but not limited to, ownership of all copyrights and
other intellectual property rights therein). Subject to the terms
and conditions of this Agreement, Client hereby grants to Excite
a revocable, royalty-free, non-exclusive, worldwide license to
use, reproduce, distribute, transmit and publicly display the
Client Content and "Mobalist" module in accordance with this
Agreement and to sub-license the Client Content and "Mobalist"
module to Excite's wholly-owned subsidiaries or to joint ventures
in
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which Excite participates for the sole purpose of using,
reproducing, distributing, transmitting and publicly displaying
the Client Content and "Mobalist" module in accordance with this
Agreement
(c) Netscape and Excite will retain all right, title, and interest in
and to the Excite Portion of the Netscape Site worldwide
including, but not limited to, ownership of all copyrights, look
and feel and other intellectual property rights therein.
12. CONFIDENTIALITY AND USER DATA
(a) For the purposes of this Agreement, "Confidential Information"
means information about the disclosing party's (or its
suppliers') business or activities that is proprietary and
confidential, which shall include all business, financial,
technical and other information of a party marked or designated
by such party as "confidential or "proprietary" or information
which, by the nature of the circumstances surrounding the
disclosure, ought in good faith to be treated as confidential.
(b) Confidential Information will not include information that (i) is
in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party
without restriction on disclosure and without breach of a
nondisclosure obligation, (iii) the receiving party knew prior to
receiving such information from the disclosing party or (iv) the
receiving party develops independent of any information
originating from the disclosing party.
(c) Each party agrees (i) that it will not disclose to any third
party or use any Confidential Information disclosed to it by the
other except as expressly permitted in this Agreement and (ii)
that it will take all reasonable measures to maintain the
confidentiality of all Confidential Information of the other
party in its possession or control, which will in no event be
less than the measures it uses to maintain the confidentiality of
its own information of similar importance.
(d) The usage reports provided by Excite to Client hereunder will be
deemed to be the Confidential Information of Excite. The reports
provided to Excite under Section 7(g) will be deemed to be the
Confidential Information of Client.
(e) The terms and conditions of this Agreement will be deemed to be
Confidential Information and will not be disclosed without the
written consent of the other party.
(f) The parties acknowledge that Client is in the process of
obtaining access to data base marketing capabilities and that it
is Client's current goal to enable such data base marketing
capabilities on or about January 1999. The parties will cooperate
in good
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faith to develop a program whereby Excite may leverage
Client's data base marketing opportunities under the following
guidelines:
(i) Excite will not have direct access to any user data
collected on the Client Site;
(ii) Excite will have the right to market Excite's own services
and/or products to Client's users coming through the
Excite Portion of the Netscape Site, by specifying a
profile of the target audience (e.g., male, 25 - 40 years
old, etc.);
(iii) Excite will deliver any marketing material to Client.
Client will then arrange for delivery of the marketing
material to the target audience;
(iv) Excite will bear all direct expenses in connection with
the creation and delivery of the marketing material.
Client will not charge Excite for usage of Client's user
data;
(v) Excite's marketing plans and the results of Excite's
marketing efforts through Client will be "Confidential
Information" of Excite under this Agreement; and
(vi) Excite will not conduct such marketing through Client on
behalf of Client's Competitors.
(g) Client will not use User Data to directly or indirectly target
for solicitations any Excite users as a unique subset of Client's
user data base (except as specifically provided in this Agreement
or except to encourage the continued use of Client's own products
and/or services) either individually or in the aggregate during
the term of this Agreement and for a period of twelve (12) months
following the expiration or termination of this Agreement (except
to encourage the continued use of Client's own products and/or
services).
(h) Neither party will sell, disclose, transfer or rent any user data
obtained from users referred to the Client Site from the Excite
Portion of the Netscape Site which could reasonably be used to
identify a specific named individual ("Individual Data") to any
third party nor will either party use Individual Data on behalf
of any third party without the express permission of the
individual user. Where user permission for dissemination of
Individual Data to third parties has been obtained, each party
will use commercially reasonable efforts to require the third
party recipients of Individual Data to provide an "unsubscribe"
feature in any email communications generated by, or on behalf
of, the third party recipients of Individual Data.
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(i) Notwithstanding the foregoing, each party may disclose
Confidential Information or user data obtained from users
referred to the Client Site from the Excite Portion of the
Netscape Site (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as
required by law or (ii) on a "need-to-know" basis under an
obligation of confidentiality to its legal counsel, accountants,
banks and other financing sources and their advisors.
Notwithstanding the foregoing, Excite may disclose Confidential
Information or user data obtained from users referred to the
Client Site from the Excite Portion of the Netscape Site to
Netscape as required under the terms of the Netcenter Agreement.
13. INDEMNITY
(a) Client will indemnify, defend and hold harmless Excite, its
affiliates, officers, directors, employees, consultants and
agents from any and all third party claims, liability, damages
and/or costs (including, but not limited to, attorneys fees)
arising from:
(i) The breach of any representation or covenant in this
Agreement; or
(ii) Any claim that Client's Impression Material, the Client
Content or the content of the "Mobalist" module infringe
or violate any third party's copyright, patent, trade
secret, trademark, right of publicity or right of privacy
or contain any defamatory content; or
(iii) Any claim arising from content displayed on the Client
Site.
Excite will promptly notify Client of any and all such claims and
will reasonably cooperate with Client with the defense and/or
settlement thereof; provided that, if any settlement requires an
affirmative obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Excite in any way and such
obligation, liability, prejudice or impact can reasonably be
expected to be material, then such settlement shall require
Excite's written consent (not to be unreasonably withheld or
delayed) and Excite may have its own counsel in attendance at all
proceedings and substantive negotiations relating to such claim.
(b) Excite will indemnify, defend and hold harmless Client, its
affiliates, officers, directors, employees, consultants and
agents from any and all third party claims, liability, damages
and/or costs (including, but not limited to, attorneys fees)
arising from:
(i) The breach of any representation or covenant in this
Agreement; or
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(ii) Any claim arising from the Excite Portion of the Netscape
Site other than content or services provided by Client.
Client will promptly notify Excite of any and all such claims and
will reasonably cooperate with Excite with the defense and/or
settlement thereof; provided that, if any settlement requires an
affirmative obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Client in any way and such
obligation, liability, prejudice or impact can reasonably be
expected to be material, then such settlement shall require
Client's written consent (not to be unreasonably withheld or
delayed) and Client may have its own counsel in attendance at all
proceedings and substantive negotiations relating to such claim.
(c) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT
AND HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING
ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER.
14. LIMITATION OF LIABILITY
EXCEPT UNDER SECTIONS 13(a) AND 13(b), IN NO EVENT WILL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT
(INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. EXCEPT UNDER
SECTIONS 13(a) AND 13(b), THE LIABILITY OF EITHER PARTY FOR
DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT
OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED,
THE AMOUNTS TO BE PAID BY CLIENT TO EXCITE HEREUNDER.
15. DISPUTE RESOLUTION
(a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names,
confidentiality and/or User Data would result in irreparable
injury for which there is no adequate remedy at law. Therefore,
in the event of any breach or threatened breach of a party's
obligations regarding trademarks, service marks or trade names or
confidentiality, the aggrieved party will be entitled to seek
equitable relief in addition to its other available legal
remedies in a court of competent jurisdiction.
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(b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names, confidentiality and/or User Data,
the parties will first attempt to resolve the dispute(s) through
good faith negotiation. In the event that the dispute(s) cannot
be resolved through good faith negotiation, the parties will
refer the dispute(s) to a mutually acceptable mediator.
(c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names, confidentiality and/or User Data,
cannot be resolved through good faith negotiation and mediation,
the parties will refer the dispute(s) to the American Arbitration
Association for resolution through binding arbitration by a
single arbitrator pursuant to the American Arbitration
Association's rules applicable to commercial disputes.
16. GENERAL
(a) Assignment. Neither party may assign this Agreement, in whole or
in part, without the other party's written consent (which will
not be unreasonably withheld), except that no such consent will
be required in connection with (i) a merger, reorganization or
sale of all, or substantially all, of such party's assets or (ii)
either party's assignment and/or delegation of its rights and
responsibilities hereunder to a wholly-owned subsidiary or joint
venture in which the assigning party holds an interest. Any
attempt to assign this Agreement other than as permitted above
will be null and void.
(b) Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of California,
notwithstanding the actual state or country of residence or
incorporation of Excite or Client.
(c) Notice. Any notice under this Agreement will be in writing and
delivered by personal delivery, express courier, confirmed
facsimile, confirmed email or certified or registered mail,
return receipt requested, and will be deemed given upon personal
delivery, one (1) day after deposit with express courier, upon
confirmation of receipt of facsimile or email or five (5) days
after deposit in the mail. Notices will be sent to a party at its
address set forth in this Agreement or such other address as that
party may specify in writing pursuant to this Section.
(d) No Agency. The parties are independent contractors and will have
no power or authority to assume or create any obligation or
responsibility on behalf of each other.
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This Agreement will not be construed to create or imply any
partnership, agency or joint venture.
(e) Force Majeure. Any delay in or failure of performance by either
party under this Agreement will not be considered a breach of
this Agreement and will be excused to the extent caused by any
occurrence beyond the reasonable control of such party including,
but not limited to, acts of God, power outages and governmental
restrictions.
(f) Severability. In the event that any of the provisions of this
Agreement are held to be unenforceable by a court or arbitrator,
the remaining portions of the Agreement will remain in full force
and effect.
(g) Entire Agreement. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement
may only be modified, or any rights under it waived, by a written
document executed by both parties.
(h) Counterparts. This Agreement may be executed in counterparts,
each of which will serve to evidence the parties' binding
agreement.
Auto-By-Tel Corporation Excite, Inc.
By: /s/ Anne Benvenuto By: /s/ Tod C. Harmon
------------------------- -------------------------
Name: Anne Benvenuto Name: Tod C. Harmon
------------------------- -------------------------
Title: Senior V.P., Marketing Title: Dir. Financial Planning
------------------------- -------------------------
Date: June 25, 1998 Date: June 29, 1998
------------------------- -------------------------
18872 MacArthur Blvd., #200 555 Broadway
Irvine, California 92612-1400 Redwood City, California 94063
949-225-4500 (Voice) 650-566-6000 (Voice)
949-662-1323 (Fax) 650-566-6030 (Fax)
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EXHIBIT 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 Post Effective Amendment No. 1 to Form S-1
(Registration No. 333-70621) of our report dated March 25, 1999 on our audits of
the consolidated balance sheets of autobytel.com inc. and subsidiaries as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the years ended
December 31, 1996, 1997 and 1998. We also consent to the reference to our firm
under the caption "Experts".
/s/ ARTHUR ANDERSEN LLP
-----------------------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1999
