<PAGE>
As filed with the Securities and Exchange Commission on May 16, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CARSDIRECT.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 5511 95-4711621
State (or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
10567 Jefferson Boulevard
Culver City, CA 90232
(310) 280-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
ROBERT BRISCO
Chief Executive Officer
10567 Jefferson Boulevard
Culver City, CA 90232
(310) 280-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
LARRY W. SONSINI
MARTIN W. KORMAN
ROBERT SANCHEZ JEROME L. COBEN
Wilson Sonsini Goodrich & Rosati Skadden, Arps, Slate, Meagher & Flom LLP
Professional Corporation 300 South Grand Avenue, Suite 3400
650 Page Mill Road Los Angeles, California 90071
Palo Alto, California 94304 (213) 687-5000
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
Title of Each Class of Proposed Maximum Aggregate Amount of
Securities to be Registered Offering Price (1) Registration Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, $0.001 par
value........................... $172,500,000 $45,540
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
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 hereafter 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 Securities and Exchange Commission, acting
pursuant to such Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated May 16, 2000
PROSPECTUS
Shares
Class A Common Stock
-----------
This is CarsDirect.com's initial public offering. CarsDirect.com is selling
all of the shares.
We expect the public offering price to be between $ and $ per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will be quoted on the Nasdaq National
Market under the symbol "CRSD."
Investing in the Class A common stock involves risks that are described in
the "Risk Factors" section beginning on page 6 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................... $ $
Underwriting discount............................... $ $
Proceeds, before expenses, to CarsDirect.com ....... $ $
</TABLE>
The underwriters may also purchase up to an additional shares at the
public offering price, less the underwriting discount, within 30 days from the
date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares will be ready for delivery on or about , 2000.
-----------
Merrill Lynch & Co.
Chase H&Q
Robertson Stephens
E*OFFERING
-----------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary ...................................................... 1
Risk Factors ............................................................ 6
Special Note Regarding Forward-Looking Statements ....................... 23
Use of Proceeds ......................................................... 24
Dividend Policy ......................................................... 24
Capitalization .......................................................... 25
Dilution ................................................................ 26
Selected Consolidated Financial Data .................................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 29
Business ................................................................ 38
Management .............................................................. 56
Principal Stockholders .................................................. 66
Related Party Transactions .............................................. 69
Description of Capital Stock ............................................ 78
Shares Eligible for Future Sale ......................................... 82
Underwriting ............................................................ 84
Legal Matters ........................................................... 87
Experts ................................................................. 87
Where You Can Find Additional Information ............................... 87
Index to Financial Statements ........................................... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
CarsDirect.com, CarsDirect, Autodata, CD1Financial.com, Comparator,
Configurator, Autogenie, DirectAssist, Touchdrive, MatchMate and MileageMate
are our trademarks. All other brand names or trademarks appearing in this
prospectus are the property of their respective holders. Use or display by us
of other parties' trademarks, trade dress or products is not intended to and
does not imply a relationship with, or endorsement or sponsorship of, us by the
trademark or trade dress owners.
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. You should carefully
consider, among other things, the matters set forth in "Risk Factors."
CarsDirect.com
We are a leading direct online provider of new automobiles and related
products and services, such as loan and lease financing and extended
warranties. We allow consumers to research, price, configure, order, purchase
and finance a vehicle online. Our user-friendly, intuitive Web site offers
consumers highly-relevant product information for nearly every make, model and
style of new automobile available in the United States today, as well as the
ability to simultaneously compare the specifications of competing vehicles. We
offer an online shopping experience that features competitive, up-front, no-
haggle pricing on new vehicles which, in many cases, can be delivered directly
and conveniently to a consumer's home or office. Additionally, we offer
competitive lease and loan rates to finance our customers' vehicle purchases.
Our customer service personnel provide telephone, online chat and email support
24 hours a day, seven days a week. By combining our commitment to improving the
traditional process of purchasing an automobile with the benefits of the
Internet, we are able to deliver a unique value proposition to consumers. We
currently provide vehicles for purchase and lease in 30 states and the District
of Columbia, only for lease in 10 states and offer loan financing in 19 states
and the District of Columbia. From inception, October 1998, through March 2000,
our customers have purchased more than 12,800 vehicles, representing an
aggregate transaction value of $308.2 million. Of these, more than 6,200
vehicles, representing an aggregate transaction value of $142.7 million, were
purchased during the three months ended March 31, 2000.
A total of 17.0 million new vehicles and 30.6 million used vehicles were
sold in the United States in 1999, generating retail revenues in excess of
$650.0 billion. New vehicles and related services are predominantly sold
through over 22,000 dealerships, each of which represents approximately
2 different franchises or vehicle brands, on average. Our business model
benefits both consumers and dealers, by providing consumers with a simplified
and price-competitive vehicle purchasing experience and dealers with an
efficient and cost-effective source of new vehicle transactions. We enable
consumers to directly shop for and purchase vehicles through our Web site at
prices targeted to be below average transaction prices in each particular
market. Using our Web site, consumers can change the configuration of a vehicle
dynamically and obtain real-time price comparisons for different makes and
models without having to visit or negotiate with multiple parties. We believe
that consumers value this differentiated shopping and purchasing experience,
and that the more than 2,500 dealers in our network value the incremental
transaction volume and potential source of vehicle service and other business
opportunities that our customer relationships provide. Furthermore, the wealth
of information regarding consumer preferences, trends and demand captured
through our Web site could assist automotive manufacturers as they strive to
produce new vehicles that will be well-received by the consuming public.
Our objective is to become the world's leading online source of
automobiles and automotive products and services and to leverage our position
as one of the first direct e-commerce solutions for consumers in purchasing
automobiles. Key elements of our strategy are to:
Leverage the Efficiencies of our Business Model. Our model does not
require a large physical infrastructure, which allows for significant
flexibility and operating efficiencies as our transaction volume grows.
Furthermore, we expect to be able to negotiate favorable pricing for vehicles
as well as finance, lease, insurance and other aftermarket products through
arrangements with our dealers and preferred suppliers.
Expand Strategic Relationships. We currently have strategic relationships
with Bank One, our major provider of financing and lease products, CNA, our
preferred supplier of extended warranty products, and idealab!, which provides
us access to the collective knowledge and best practices of other Internet and
e-commerce businesses. In addition, we have entered into a strategic
relationship with Penske Automotive
1
<PAGE>
Group, Inc. and UnitedAuto Group, Inc., who will participate in providing
vehicles to our customers and vehicle information and automotive retailing
expertise to us. We intend to seek and forge additional strategic relationships
to complement our product offerings.
Provide a Compelling Business Proposition to Associated Dealers. Our
dealers can significantly benefit from a relationship with us, as we can
provide incremental transaction volume with minimal incremental cost and risk.
Our new vehicle customers also provide our dealers with potential sources of
future service and repair business and used car inventory through trade-ins.
Improve the Customer Shopping Experience. We intend to continue to
develop editorial and other relevant content to further enhance the consumer's
automobile buying experience. We also intend to routinely upgrade our Web site
to enhance speed, functionality and user-friendliness with investments in both
technology and personnel.
Build Enduring Brand Equity. We have established, and will continue to
build, our brand through a wide range of marketing initiatives including
television, radio, print, direct mail, online and outdoor advertising
campaigns. Targeted promotional events, such as the CarsDirect.com 400 NASCAR
event, are also major elements of our strategy to generate high customer
loyalty and brand recognition.
Pursue International Opportunities. We believe our business model is
applicable to other large international markets and intend initially to pursue
business opportunities in countries with high Internet usage and complementary
distribution networks.
Media Metrix estimates that 935,000 unique visitors came to our site in
March 2000. "Unique visitor" is an industry term used to describe an individual
who has visited a particular Internet site once or more during a specific
period of time. Additionally, according to a study performed by J.D. Power and
Associates that we sponsored, 9 out of 10 of our customers surveyed recommended
us to their friends. We believe the growth in online traffic to our Web site
and the high rate of customer referrals demonstrate the strength of our brand
as well as our customers' growing satisfaction with the overall shopping
experience of our Web site.
For the three months ended March 31, 2000, we generated $98.6 million in
revenues and incurred net losses of $43.1 million, of which $206,000
represented the excess of revenues over cost. We expect to be able to increase
the profitability of our business model by, among other things, pre-negotiating
prices for configured vehicles through preferred dealer arrangements and
expanding our offerings of vehicle-related products and services.
We were incorporated in Delaware under the name CarsDirect.com, Inc. in
October 1998. Our executive offices are located at 10567 Jefferson Boulevard,
Culver City, California 90232, and our telephone number is (310) 280-4000. Our
primary Web site is located at www.carsdirect.com. Information contained on or
linked to our Web site does not constitute part of this prospectus.
Assumptions
Except as otherwise noted, all information in this prospectus assumes:
. the initial public offering price of our Class A common stock will be
$ per share;
. the conversion of all outstanding shares of our preferred stock into
Class A common stock upon the completion of this offering;
. no exercise of the underwriters' over-allotment options to purchase an
additional aggregate shares of Class A common stock in this
offering;
. adoption of our restated certificate of incorporation and restated
bylaws; and
. adoption of new and amended stock plans.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Class A common stock offered by shares
CarsDirect.com............................
Common stock to be outstanding after this
offering:
Class A common stock................. shares
Class B common stock................. 2,050,000 shares
Voting rights:
Class A common stock................. One vote per share
Class B common stock................. Twenty votes per share
Use of proceeds............................ For capital expenditures, sales
and marketing activities and
general corporate purposes,
including expansion of our
operations, working capital, and
acquisition of complementary
businesses, products and
technologies.
Nasdaq National Market symbol.............. CRSD
</TABLE>
The above table is based on shares outstanding as of March 31, 2000. This
table excludes, as of March 31, 2000:
. 2,963,183 shares of Class A common stock issuable upon exercise of
options outstanding under our 1998 Stock Plan at a weighted average
exercise price of $3.14 per share;
. 10,000 shares of Class A common stock issuable upon exercise of a
warrant outstanding at an exercise price of $0.35 per share;
. 171,329 shares of Class A common stock or Series C preferred stock
issuable upon conversion of the initial principal amount of a
convertible promissory note;
. 244,917 shares of Class A common stock available for issuance under
our 1998 Stock Plan;
. 2,085,970 shares of Class A common stock issuable upon exercise of a
warrant outstanding at an exercise price of $0.01 per share; and
. 300,000 shares of Class A common stock issuable upon conversion of
shares of Series D preferred stock issuable upon exercise of warrants
outstanding at an exercise price of $15.76 per share.
Each share of our Class B common stock is convertible, at any time at the
option of the holder, into one share of Class A common stock. In addition, any
Class B common stock transferred to a holder unaffiliated with idealab!
Holdings, L.L.C. would be automatically converted into Class A common stock
upon transfer. Furthermore, all shares of Class B common stock would be
automatically converted into Class A common stock if idealab! Holdings, L.L.C.,
together with certain affiliates ceases to hold a specified minimum voting
power in us.
3
<PAGE>
Summary Consolidated Financial Data
(In thousands, except vehicle data, share and per share data)
The following table sets forth our summary consolidated financial data.
This summary consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our consolidated financial statements and the notes to those
financial statements, and the unaudited pro forma condensed consolidated
financial information appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period From
October 9,
1998
(Inception)
Through Year Ended Three Months
December 31, December 31, Ended March 31,
1998 1999 2000
------------ ------------ ---------------
<S> <C> <C> <C>
Vehicle Data
(unaudited):
Number of vehicle
transactions........... 8 6,622 6,255
Total value of vehicle
transactions (1)....... $ 212,000 $165,320,000 $142,705,000
Average vehicle price
per transaction ....... $ 26,500 $ 24,965 $ 22,815
<CAPTION>
Period From
October 9,
1998
(Inception) Pro Forma
Through Year Ended Year Ended Three Months
December 31, December 31, December 31, Ended March 31,
1998 1999 1999 (2) 2000
------------ ------------ --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Total revenues.......... $ (9) $ 15,177 $ 125,687 $ 98,564
Loss from operations.... (141) (74,659) (100,716) (45,803)
Net loss................ (141) (72,325) (100,617) (43,096)
Net loss per common
share:
Basic and diluted
(3).................. $ (5.67) $ (35.61) $ (6.22)
Weighted average
shares used to
calculate basic and
diluted (3).......... 24,855 2,031,276 6,928,279
Unaudited pro forma
basic and diluted
(3).................. $ (2.47) $ (3.31) $ (0.81)
Unaudited pro forma
weighted average
shares used to
calculate basic and
diluted (3).......... 29,317,289 30,442,069 53,517,326
<CAPTION>
As of March 31, 2000
---------------------------------------------
Pro Forma As
Actual Pro Forma (4) Adjusted (5)
------------ --------------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............ $ 202,075 $ 219,075
Working capital...................... 194,586 211,586
Total assets......................... 362,655 379,655
Capital leases and long term debt,
net of current portion.............. 1,281 1,281
Convertible preferred stock.......... 314,669 --
Deferred stock compensation.......... (60,765) (60,765)
Total stockholders' equity
(deficit)........................... (11,337) 320,332
</TABLE>
- -------
(1) Total value of vehicle transactions represents the total price our
customers paid for their vehicles. See Note 2 of our Notes to Consolidated
Financial Statements for information related to the total value of vehicle
transactions.
Footnotes continued on following page.
4
<PAGE>
(2) Pro forma consolidated statement of operations data for the year ended
December 31, 1999 reflects the acquisitions of the following as of January
1, 1999:
. Autodata Marketing Systems Incorporated, subsequently renamed Autodata
Solutions Company, in July 1999, through the purchase of the issued and
outstanding capital stock of its parent, Perga Capital Corp.;
. certain assets of Potamkin Auto Center, Ltd. in October 1999; and
. the remaining 49% membership interest in CD1Financial that we did not
already own in December 1999.
See Note 3 of our Notes to Consolidated Financial Statements for purchase
prices and information on goodwill and other intangible assets recorded in
connection with these acquisitions.
(3) See Notes 2 and 10 of our Notes to Consolidated Financial Statements for
determination of shares used in computing basic and diluted net loss per
common share.
(4) Pro forma to give effect to the conversion of all issued and outstanding
shares of preferred stock into 47,294,614 shares of Class A common stock
and the issuance in May 2000 of 1,078,682 shares of Series D preferred
stock to UnitedAuto Group, Penske Automotive Group and certain affiliated
and associated companies for proceeds of $17.0 million, but not giving
effect to:
. the exercise of outstanding options to purchase 2,963,183 shares of Class
A common stock;
. the exercise of outstanding warrants to purchase 2,095,970 shares of
Class A common stock;
. the conversion of the initial principal amount of a convertible
promissory note into 171,329 shares of Class A common stock or Series C
preferred stock;
. the issuance of 300,000 shares of Class A common stock issuable upon
conversion of shares of Series D preferred stock issuable upon exercise
of warrants outstanding at an exercise price of $15.76 per share; and
. the issuance of 7,939,339 shares of Class A common stock issuable upon
conversion of shares of Series D preferred stock issuable upon exercise
of warrants issued to UnitedAuto Group and Penske Automotive Group and
certain affiliated companies in May 2000 at an exercise price of
$15.76 per share.
(5) As adjusted to reflect the sale of shares of Class A common stock
offered hereby at an initial public offering price of $ per share,
after deducting underwriting discount and estimated offering expenses
payable by CarsDirect.com.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and all of the
other information contained in this prospectus before investing in our Class A
common stock. Our business could be seriously harmed by any of these risks. The
trading price of our Class A common stock could decline due to any of these
risks, and you may lose all or a part of your investment.
We have a limited operating history and management experience in the Internet-
based automotive sales industry. It is therefore difficult to evaluate our
business and prospects or predict our future operating results.
Our company was founded in October 1998. Therefore, we have a limited
operating history upon which to evaluate our business and prospects. Because of
the recent emergence of Internet-based automotive sales and related industries,
our management team does not have significant experience in these industries.
Our limited operating history and management experience make it difficult to
predict our future operating performance. Additionally, you should consider the
risks and difficulties frequently encountered by early stage companies such as
ours in new and rapidly evolving markets like the Internet. These risks include
our:
. ability to increase our customer base;
. ability to maintain our dealer relationships;
. need to broaden our product and service offerings;
. need to further develop our unproven business model;
. need to further develop our brand and create brand loyalty;
. need to develop and upgrade our infrastructure, including our
transaction processing systems, data storage and retrieval systems
and Web site;
. need to manage expanding operations, including our recent
implementation of new financial and accounting systems;
. reliance upon the Internet for commerce and the growth and acceptance
of automobile sales over the Internet;
. reliance on strategic relationships; and
. dependence upon and need to hire and retain key personnel.
We cannot be certain that we will be able to adequately address these or other
risks.
We have a new and unproven business model. If consumers do not adopt electronic
commerce as a means to purchase automobiles and related products and services,
if we are unable to penetrate new and existing markets or if consumers choose
not to use our Web site, our business and operating results will suffer.
The manner in which we conduct our business and charge for our products
and services is new and unproven. Our revenue and income potential is unproven,
and our business model is still evolving. Our future success depends upon
consumer adoption of electronic commerce as a means to purchase automobiles and
related products and services, including financing, insurance and aftermarket
products and services such as extended warranties. Further, the market for
electronic commerce is still emerging. Most potential consumers have only
limited experience purchasing over the Internet and have not made significant
purchases over the Internet. We may not be able to attract a large number of
potential customers to use our Web site. Furthermore, we may incur
significantly higher and more sustained advertising and promotional
expenditures than we currently anticipate to attract online users to our Web
site and to convert those users to purchasing customers.
6
<PAGE>
If we fail to retain our existing customers, attract new customers or achieve
significant additional revenues or improved operating margins in future
periods, our business, results of operations and financial condition will
suffer. In addition, the United States automobile sales industry is mature, and
little, if any, growth is expected in unit sales of new vehicles. As a
consequence, growth in our revenues and earnings is likely to be significantly
affected by our success in increasing our market share.
Our success will greatly depend upon our ability to enter new markets and
to further penetrate existing markets for our products and services. In
particular, we need to develop and maintain strong and continuing sales in
geographic areas exhibiting high volumes of automobile sales. We have only
recently begun to penetrate the automobile sales market in many major
metropolitan areas. If we are unable to penetrate new markets or maintain
current sales levels in existing markets, our revenues could decrease.
We expect losses for the foreseeable future. If we continue to lose money, our
business will not be financially viable.
We realized our first revenues in December 1998 and have not achieved
profitability. We expect to incur net losses and have negative cash flow for
the foreseeable future and may never become profitable. We incurred a net loss
of $72.3 million for the year ended December 31, 1999, a net loss of $43.1
million for the three months ended March 31, 2000, and as of March 31, 2000, we
had an accumulated deficit of $115.6 million. We expect to continue to increase
our sales and marketing, product development and administrative expenses, among
other expenses, which could further increase our net losses. These increased
expenses will require us to generate significant additional revenues to achieve
and maintain profitability. As a result, we may never achieve or sustain
profitability, and, if we do achieve profitability in any period, we may not be
able to sustain or increase profitability on a quarterly or annual basis.
To achieve profitability, we must, among other things:
. enhance our vehicle pricing and sourcing capabilities;
. generate increased vehicle buyer traffic to our Web site;
. 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 and sell new products and services;
. continue to attract, retain and motivate qualified personnel; and
. continue to upgrade and enhance our technologies to accommodate
expanded product and service offerings and increased consumer
traffic.
We cannot be certain that we will be successful in achieving any of these
goals.
Our quarterly financial results are subject to significant fluctuations because
of many factors, any of which could adversely affect our financial performance.
As we have a limited operating history, quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. Our
operating results may vary significantly from quarter to quarter due to a
number of factors, including:
. demand for our products by consumers;
. our ability to retain existing dealers, attract new dealers, maintain
dealer and customer satisfaction and increase our distribution
channels;
. our costs of attracting consumers to our Web site, including costs of
obtaining exposure on third-party Web sites and advertising costs;
7
<PAGE>
. costs resulting from the formation or loss of strategic
relationships;
. competition for and our ability to attract and retain new qualified
personnel;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our operations, including costs related to
acquisitions of technology or businesses;
. delays in introducing new automotive products and services;
. changes in the growth rate of Internet usage and acceptance by
consumers of electronic commerce, as well as the level of traffic on
our Web site and other sites that refer traffic to our Web site;
. technical difficulties, system failures or Internet downtime, as well
as our ability to upgrade and develop our information technology
systems and infrastructure;
. government regulations related to the use of the Internet and the
automotive sales industry in general, including the sale of
automobiles, insurance, financing and aftermarket products over the
Internet;
. seasonality and cyclicality in the automotive industry and in
Internet usage; and
. general economic conditions, as well as those specific to the
Internet, automotive sales and related industries.
As a result of our limited operating history, it is difficult to
accurately forecast our revenues, and we have limited meaningful historical
financial data upon which to base our planned operating expenses. We plan to
significantly increase our operating expenses to expand our sales and marketing
operations, broaden our customer support capabilities, and fund greater levels
of product development. Our operating expenses include sales and marketing,
technology and product development and general and administrative expenses. We
base our current and future expense levels on our operating plans and estimates
of future revenues. We expect our expenses to rise at a slower rate than our
revenues. Operating results are difficult to forecast because they generally
depend on the volume of transactions consummated on our Web site, which is
dependent on numerous factors described above and elsewhere in the "Risk
Factors" section. As a result, we may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfall. We may also
be unable to increase our spending and expand our operations in a timely manner
to adequately meet customer demand to the extent it exceeds our expectations.
Our industry is highly competitive, and we cannot assure you that we will be
able to compete effectively.
The market for automobiles and automobile-related services and products,
including financing, insurance and aftermarket products such as warranties, is
intensely competitive and highly fragmented. We compete against a variety of
Internet and traditional automotive dealerships and distributors, as well as
finance and insurance companies. 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 may
launch competitive services at relatively low costs. To compete successfully as
an Internet-based commercial entity, we must, among other things, significantly
increase awareness of our services and brand name. Failure to achieve these
objectives will cause our revenues to decline and our business, results of
operations and financial condition to suffer.
We believe that the principal factors necessary to compete effectively in
our markets are:
. brand recognition;
. competitive pricing;
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. a convenient and efficient shopping experience;
. product selection and availability;
. quality of Web site content;
. reliability and speed of vehicle delivery;
. personalized customer service; and
. strategic relationships.
Many of our current and potential traditional store-based and online
competitors have longer operating histories, larger customer or user bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do. Many of these current and potential competitors can
devote substantially more resources to Web site and systems development than we
can. In addition, larger, more well-established and well-financed entities may
acquire, invest in or form joint ventures with online competitors as the use of
the Internet and other online services increases.
Some of our competitors may be able to secure products from vendors on
more favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than we can. Traditional
store-based retailers also enable customers to see and feel products in a
manner that is not possible over the Internet. Some of our competitors have
significantly greater experience than we do in selling automobiles and
automobile-related products and services.
We cannot assure you that we can or will be able to compete successfully
against current or future competitors. In addition, competitive pressures may
result in increased marketing costs, decreased Web site traffic or loss of
market share or otherwise may cause our business, results of operations and
financial condition to suffer.
Our current or potential competitors in the automotive and aftermarket
product markets include, but are not limited to:
. traditional automobile dealers and manufacturers;
. aggregators and auto retail groups, such as AutoNation, Inc., CarMax
Auto Superstores, Inc., Group One Automotive Inc. and Sonic
Automotive Inc.;
. online automotive referral services and other sites, such as
Autobytel.com, Autoweb.com, Carclub.com, carOrder.com Inc., CarPoint,
cars.com and Greenlight.com, Inc., some of which have begun to sell
automobiles on their Web sites; and
. other online stores that sell automobiles, such as priceline.com
Incorporated.
We face competition from commercial banks, savings and loan associations,
credit unions, captive finance subsidiaries of automobile manufacturers and
other consumer lenders. Online services are also beginning to offer automobile
financing alternatives.
As we introduce insurance products, we will compete with both traditional
insurance distribution channels, including insurance agents and brokers, new
non-traditional channels such as commercial banks and savings and loan
associations, and a growing number of direct distributors, including other
online services, such as InsWeb Corporation, Quicken InsureMarket,
Quotesmith.com, Inc. and SelectQuote Insurance Services, among others.
Geographic concentration is likely to cause fluctuations in our operating
results and could harm our business.
Our success depends, in part, on regional auto-buying trends. Currently,
we offer vehicles for purchase throughout the United States. California is our
largest market, and the number of vehicle transactions in
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California accounted for 36% of our total vehicle transactions in the year
ended December 31, 1999 and 39% for the three months ended March 31, 2000.
Price-cutting by dealers in California or other large markets or a regional
economic downturn could harm our business, results of operations and financial
condition.
Our operating results could be harmed if the economy or automotive sales
industry experiences a downward cycle.
The automotive sales industry is cyclical. Industry downturns have been
characterized by diminished product demand, excess capacity and lower average
selling prices. Any significant downturn in the demand for automobiles or in
general economic conditions would likely result in a reduction in demand for
our products and services and could harm our business. In addition, a general
increase in interest rates or a general tightening of lending could cause a
significant downturn in the demand for automobiles because consumers would have
more difficulty in obtaining financing. Since the inception of our business,
sales of vehicles in the United States have been at historically high levels.
We cannot assure you that sales of vehicles will stay at their current levels,
and a decrease in the current level of vehicle sales could harm our business,
results of operations and financial condition.
We are dependent upon our dealer network with whom we have no long-term
guaranteed supply of automobiles. If we are not able to maintain adequate
sources of automobiles, our business, results of operations and financial
condition would suffer.
Our success depends largely upon our ability to reliably and quickly
locate and source automobiles requested by customers. To facilitate this
process, we have established relationships with over 2,500 new car dealerships
located throughout the United States from whom we source vehicles for our
customers. Our ability to deliver automobiles to our customers in a
commercially viable manner is largely dependent upon our maintaining
relationships with our network of dealers throughout the United States. Upon
receiving an order from a customer, we attempt to locate the requested
automobile from a member of our dealer network in a location geographically
proximate to the customer. In the event that there is an undersupply of
particular makes and/or models of cars, either nationally or within a
particular region, it could become difficult for us to reliably source these
cars from our dealer network, and we may therefore be unable to fulfill certain
customer orders in a cost-efficient manner, or at all. This is most likely to
occur with respect to automobiles that are either in high demand or late in the
model year. In addition, in the event that certain members of our dealer
network are approached by our competitors on terms more favorable than ours, if
the dealers in our network otherwise decide not to supply us with automobiles
on favorable terms, or at all, or if the number of dealers in our network
declines, we may not be able to source cars reliably or on commercially
acceptable terms, which could result in fewer transactions and decreased
revenues. We deliver automobiles from dealers and are subject to risks that
timely deliveries will not be made. Failure to fulfill orders or deliver
automobiles to our customers in a timely manner could damage our reputation and
brand.
Automobile manufacturers strictly control the terms and conditions upon
which new vehicles are allocated to their franchised dealers nationwide. The
relationships between these manufacturers and dealers are defined by
manufacturer policies, as well as written agreements, and are subject to
regulation on a state-by-state basis. Our ability to competitively price
vehicles for our customers is dependent upon our ability to source those
vehicles from franchised dealers at competitive prices and on favorable terms
and conditions. Manufacturers have from time to time indicated an intention to
exclude certain types of vehicle sales transactions, including transactions
that may be interpreted to include our business activities, from favorable
manufacturer incentive programs such as rebates or preferred financing. In the
event that manufacturer contract terms and conditions, current or future
manufacturer policies, or laws and regulations governing the relationship
between manufacturers and dealers permit manufacturers to exclude transactions
that may be interpreted to include our business activities from favorable
manufacturer-based incentive programs, our ability to source vehicles at
competitive prices or on favorable terms and conditions would be harmed and our
business would suffer.
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Customers may not ultimately purchase vehicles or may rescind their purchases
after we have committed to procure a vehicle ordered by the customer. If a
substantial number of our customers do not ultimately purchase a vehicle or
rescind purchases after we have committed to procure the requested vehicles,
our business, results of operations and financial condition would suffer.
Following receipt of a customer order, we enter into a legally
enforceable commitment to acquire a specific vehicle from a new car dealer to
fulfill that customer order. This commitment obligates us to pay the dealer for
the specific car regardless of whether our customer pays us. Completion of the
transaction typically occurs several days later when the vehicle is delivered
to the customer or the customer picks up the vehicle at the dealer. Our
customers have the right to cancel an order any time prior to accepting
delivery of the specific vehicle. In addition, laws in various states require
that customers be given the opportunity to return their vehicles for a full
refund over a period of days known as a "cooling-off period." We are therefore
subject to the risk that customers will rescind their purchases after we have
sourced and committed to acquire requested vehicles. If we commit to acquire a
substantial number of vehicles for customers who rescind their purchases, our
business, results of operations and financial condition would suffer because
we, and not the dealer, bear the risks of returns.
We may be unable to obtain vehicles below the prices at which we have committed
to our customers.
We commit to up-front prices with our customers prior to sourcing
vehicles. Accordingly, we are subject to the risk that we will be unable to
source vehicles at costs at or below the prices we have committed to our
customers. For the year ended December 31, 1999, the average cost of each
vehicle sourced was $25,410, including delivery costs, in those cases where we
delivered vehicles to our customers, and the average amount received per
vehicle was $24,965. For the three months ended March 31, 2000, the average
cost of each vehicle sourced was $22,923, including delivery costs, in those
cases where we delivered vehicles to our customers, and the average amount
received per vehicle was $22,815. If we are unable to source vehicles at prices
that are less than the corresponding up-front prices committed to our
customers, our business, results of operations and financial condition would
suffer.
If we lose access to existing strategic relationships, our business may
decrease.
We have established, and intend to continue to establish, key strategic
relationships in the automotive, financial services, insurance, data
aggregation and information services industries and in Internet-related
industries. We intend to develop and offer a variety of services for our
customers, including financing, leasing, warranties and insurance options and
provision of automotive industry-related information. In particular, our
relationships with lenders and financial institutions, insurance companies,
automotive industry data aggregators, extended warranty providers, and
statisticians and other Internet Web site businesses, including Internet search
engines, are crucial to the continued development and future success of our
business. In the event that our strategic partners were no longer interested in
maintaining or establishing relationships with us on commercially viable terms,
our ability to provide a full range of cost-effective services to our customers
would be adversely affected and our business, results of operations and
financial condition could suffer. For example, the majority of our auto loans
and leases are currently fulfilled through Bank One. If Bank One fails to
provide loans and leases at competitive rates, our business could be negatively
affected.
Historically, our principal stockholder has been an important source of
capital, strategic guidance and operational assistance. If we lost access to
any of these resources, our business could suffer.
If we fail to continue to develop our Web site content and improve our service
offerings, we may lose customers.
To remain competitive we must continue to enhance and improve the ease of
use, responsiveness, functionality and features of our Web site, to develop new
services and to continually improve the consumer's purchasing experience. These
efforts may require the development or licensing of increasingly complex
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technologies at great expense to us. We may not be successful in developing or
introducing new features, functions and services, and any such features,
functions and services actually developed and introduced may not achieve market
acceptance or enhance our brand loyalty. If we fail to develop and introduce
new features, functions or services effectively, our business, results of
operations and financial condition could suffer.
We rely on Autodata Solutions Company, our wholly owned subsidiary, to
provide us with content for our Web site, including prices, configuration data,
competitive comparison data and editorials. As we continue to enhance our Web
site, we will increasingly rely on Autodata to provide us with additional
content, such as 360-degree views of automobiles. Autodata is capable of
compiling information concerning the automotive industry in a timely fashion
based on data that it receives from an extensive network of original equipment
manufacturers and dealerships. If Autodata were to lose these relationships, it
would be unable to obtain and compile this information, which we currently use
on our Web site. These developments could make us less attractive compared to
our competition and could have a negative impact on our business, results of
operations and financial condition.
We may be found to be subject to state motor vehicle broker or dealer laws and
regulations for which compliance could be costly or require material changes to
our current operations. If we fail to comply, we could be subject to fines or
penalties or be prohibited from conducting our business in some additional
states.
All states comprehensively regulate vehicle sales and lease transactions,
including the imposition of strict licensure requirements for dealers and, in
some states, brokers. Most of these laws and regulations were drafted prior to
the emergence of Internet-based motor vehicle purchase and lease transactions
and specifically address only traditional vehicle purchase and lease
transactions. Nevertheless, these laws and regulations are broadly drafted and
may be interpreted by the courts or regulatory agencies to apply to our
business activities. We are licensed as a dealer with an autobroker endorsement
in California and are qualified to broker vehicles in other key states,
including New York and Florida. In connection with our acquisition of the
Potamkin assets, an application will be filed to transfer Potamkin's qualified
dealer license in New York to us. Transfer of this license is subject to
regulatory review and approval, and we cannot be certain that the transfer
application will be approved. In addition, we have applied for vehicle broker
or other similar licenses in Arizona, Colorado, Michigan, and Washington. We
are in the process of applying for a broker's license in Nevada and a vehicle
dealer license in Oregon. We currently are not licensed as a vehicle broker or
dealer in any other states in which we are conducting our business activities.
We are not presently conducting our business in Alaska, Arkansas, Kansas,
Montana, Nebraska, Oklahoma, Tennessee, Texas, Utah or Wisconsin. We do not
intend to conduct business in these states until laws or regulations have been
amended or are interpreted not to apply to us or until we take further steps to
comply with such laws or regulations as currently interpreted. Similarly, we
have elected presently only to offer vehicles for lease in Connecticut,
Illinois, Iowa, Louisiana, Maine, Maryland, Mississippi, Ohio, Pennsylvania and
Virginia. We have obtained a license to facilitate leases in Louisiana. We are
not presently separately licensed to broker or facilitate leases in any other
states.
If we are found to be subject to any laws or regulations in one or more
states where we are conducting our business with which we are found to be non-
compliant, or we are found to be non-compliant with applicable laws or
regulations in one or more states where we have obtained a license, either
because we have failed to obtain the appropriate license or because we are not
in compliance with the laws and regulations applicable to the license we hold,
we could be:
. subject to civil or criminal penalties;
. required to make costly changes in the way we do business in order to
obtain a vehicle broker, dealer or other appropriate license; or
. prohibited from engaging in our business in that state.
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Compliance with some state regulations could require us to maintain a
vehicle showroom in the state as well as obtain a franchise or service
agreement with each manufacturer whose vehicles may be purchased through us by
residents of that state. If so, we may not be able to locate and purchase
suitable dealerships in that state or obtain some or any of the necessary
franchise agreements to enable us to provide the volume and selection of
vehicles required to conduct our business. If we are prohibited or further
limited from pursuing our business in a number of states in the future, our
business could be adversely affected.
The Texas Department of Transportation initiated an enforcement action
against us in October 1999, alleging that we were not complying with Texas
vehicle dealer and broker regulations. That enforcement action is pending but
we expect to resolve the dispute by agreement. We have also received
correspondence from Oklahoma and Montana stating that a license is required to
conduct our business activities in those states. We have suspended business
activities in Texas, Oklahoma and Montana until the regulatory requirements
have been amended or interpreted not to encompass our business model or until
we take steps to comply with any requirements that apply to us. We have also
responded to an inquiry from the Wisconsin Department of Transportation
regarding our business practices and have voluntarily suspended business
activities there. The Colorado Auto Industry Division has also inquired about
our business process. Although no state other than Texas has notified us of any
enforcement action, we are unable to predict whether any additional states will
initiate enforcement actions or similar administrative proceedings against us.
Moreover, some states grant private rights of action to certain persons or
groups to pursue enforcement of broker or dealer laws or otherwise address
grievances. As a result, we may be subject to claims or causes of action from
such persons or groups. If we are unsuccessful in our defense of any such
enforcement actions or claims, our business, results of operation and financial
condition would suffer. Even if we ultimately prevail in an enforcement action
or similar proceeding, we will incur additional costs and our reputation may
suffer.
Motor vehicle dealers are represented by influential lobby organizations,
some of which currently do not view our business model favorably. These
organizations may initiate or support legislation or regulations that could
limit our ability to do business in some states or require costly changes to
our business model. We cannot predict whether any potentially adverse state
legislation or rules will be adopted. If adverse state legislation is enacted
in one or more states or if unfavorable pre-emptive federal legislation is
passed, it would harm our business. Although we believe that future federal and
state regulatory initiatives, including those related to motor vehicle sales
and services, will clarify the regulatory environment for Internet companies,
we cannot predict whether such legislation will be unfavorable to our business
practices or place new and costly burdens on the way we do business.
Our compliance with each state's regulation of the insurance industry is
expected to be costly, and, if we fail to comply with the numerous laws and
regulations that govern the industry, we could be subject to penalties.
We expect to offer insurance products for sale over the Internet. Before
engaging in this business activity, we will have to comply with the complex
rules and regulations of each jurisdiction's insurance department, some of
which are expected to impose strict and burdensome requirements on us regarding
our planned operations. Compliance with these rules and regulations will most
likely impose significant costs on our business. Each jurisdiction's insurance
department typically has the power, among other things, to:
. authorize how, by which personnel and under what circumstances an
insurance premium can be quoted and published;
. approve which entities can be paid commissions from insurance
companies;
. license insurance agents and brokers; and
. approve policy forms and regulate some premium rates.
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Due to the complexity, periodic modification and differing statutory
interpretations of these laws, we may not always be in compliance with all of
these laws. Failure to comply with these numerous laws could result in fines,
additional licensing requirements or the revocation of our license in a
particular jurisdiction or jurisdictions. These penalties could significantly
increase our general operating expenses and harm our business. In addition,
even if the allegations in any regulatory action against us turned out to be
false, negative publicity relating to any allegations could result in a loss of
consumer confidence and significant damage to our brand. We believe that
because many consumers and insurance companies are not yet comfortable with the
concept of purchasing insurance online, the publicity relating to any
regulatory or legal issues would harm our business.
As a company that expects to offer its customers the opportunity to
purchase insurance over the Internet, we expect to be subject to additional
regulatory risks, as insurance regulations have not been fully modified to
cover Internet transactions. Currently, many state insurance regulators are
exploring the need for specific regulation of insurance sales over the
Internet. Any new regulation could dampen the growth of the Internet as a means
of providing insurance services. This could harm our business, results of
operations and financial condition.
Current or future government regulations may limit our financing activities in
various geographic markets.
Through our Web site, our wholly owned subsidiary, CD1Financial, solicits
and brokers motor vehicle loans in 19 states and the District of Columbia. Some
states require licenses to solicit or broker motor vehicle loans. CD1Financial
presently is not licensed to broker motor vehicle loans in any states. If
CD1Financial is found to be subject to loan brokering or similar license
requirements in any jurisdictions in which it is engaged in business without a
license, or is found to be non-compliant with any laws or regulations in
jurisdictions in which it holds a license, it could be:
.subject to civil or criminal penalties;
.required to make costly changes to the way it does business; or
.prohibited from engaging in business in that jurisdiction.
CD1Financial's financing activities through Bank One and other lenders
are subject to federal truth in lending, consumer lending, equal credit
opportunity laws, as well as state usury and other laws. Any failure to comply
with these laws or any adverse change in these laws, whether by the adoption of
new laws, changes in the interpretation of existing laws or our entrance into
jurisdictions with more stringent regulatory requirements, could cause our
business, results of operations and financial condition to suffer. Moreover,
federal and state laws provide broad rights to consumers to pursue private
claims to address grievances arising from vehicle lending or financing
transactions. As a result, CD1Financial may be subject to consumer claims or
causes of action arising from vehicle lending or finance transactions in which
it participated as a broker. If CD1Financial is unsuccessful in defending these
claims, our business, results of operations and financial condition could
suffer. Even if CD1Financial ultimately prevailed in these actions, our
reputation and business could be harmed.
Our business could be negatively affected if sales taxes are not paid in
compliance with applicable law or if sales tax laws change.
If the party responsible for sales taxes does not make these payments, we
may be required to pay these sales taxes, plus any additional penalties and
interest, which would harm our business. Even where the responsible party
remits the applicable taxes collected from our customer, states and local
jurisdictions may attempt to collect additional taxes from us, effectively
resulting in tax being collected twice as a result of the same transaction. If
such obligations were successfully imposed on us, our business would suffer.
Moreover, a number of proposals have been made at the state and local level
that would impose additional taxes on the sale
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of goods and services through the Internet. The United States federal
government has enacted legislation prohibiting states or other local
authorities from imposing new taxes on Internet commerce until October 2006.
This tax moratorium does not prohibit states or the Internal Revenue Service
from collecting taxes on our income, if any, or from collecting taxes that are
due under existing tax rules. The Federal Advisory Commission on Electronic
Commerce is in the process of evaluating these issues. There can be no
assurance that future laws will not impose taxes or other regulations on
Internet commerce, that the moratorium will not be repealed or that it will be
renewed when it expires, any of which events could substantially impair the
growth of electronic commerce and harm our business, results of operations and
financial condition.
Our operating results could be impaired if we become subject to burdensome
government regulations and legal uncertainties concerning the Internet.
Laws and regulations relating to the Internet remain largely unsettled,
even in areas where there has been some legislative action. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
additional laws and regulations may be adopted with respect to the Internet,
relating to:
. user privacy;
. pricing, usage fees and taxes;
. content;
. copyrights;
. distribution;
. characteristics and quality of products and services; and
. online advertising and marketing.
The adoption of additional laws or regulations, both domestically and
abroad, may decrease the popularity or impede the expansion of the Internet and
could seriously harm our business. A decline in the popularity or growth of the
Internet could decrease demand for our products and services, reduce our
revenues and margins and increase our cost of doing business. Moreover, the
applicability of existing laws to the Internet is uncertain with regard to many
important issues, including property ownership, intellectual property, export
of encryption technology, libel and personal privacy. The application of laws
and regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services, could also harm our business. It may take years to
determine whether and how existing and future laws and regulations apply to us.
If outages or delays on the Internet increase in frequency, consumers may
refuse to visit our Web site and our revenues may decrease.
The recent growth in Internet traffic has caused frequent periods of
decreased performance over the Internet. If Internet usage continues to grow
rapidly, Internet infrastructure may not be able to support these demands and
its performance and reliability may decline. If outages or delays or security
interruptions on the Internet increase in frequency, overall Web usage,
including usage of our Web site in particular, could grow more slowly or
decline. Our ability to increase the speed and scope of our services to
customers is ultimately limited by and dependent upon the speed and reliability
of both the Internet and our customers' systems and Internet connections.
Consequently, the emergence and growth of the market for our products and
services depends on improvements being made to the entire Internet, as well as
to our individual customers' systems and Internet connections, to alleviate
overloading and congestion.
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Increased security risks of online commerce may deter future use of our
services.
Concerns over the security of transactions conducted on the Internet and
the privacy of users may also inhibit the growth of the Internet and other
online services generally and online commerce in particular. Our failure to
prevent security breaches could significantly harm our business, results of
operations and financial condition. We cannot be certain that advances in
computer capabilities, new discoveries in the field of cryptography or other
developments will not result in a compromise or breach of the security measures
we use to protect our transaction data. Anyone who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Any well-publicized compromise of security could deter people from
using the Web to conduct transactions that involve transmitting confidential
information such as credit card information or downloading sensitive materials,
which would cause our business, results of operations and financial condition
to suffer.
We have capacity constraints and system development risks that could damage our
customer relations or inhibit our possible growth, and we need to enhance our
management systems and controls.
Our success, in particular our ability to provide high quality customer
service, largely depends on the efficient and uninterrupted operation of our
computer and communications systems to accommodate significant increases in
visitors to our site and significant increases in transactions. Our success
also depends on our ability to rapidly expand our Web site, transaction-
processing systems and network infrastructure without any systems
interruptions. We do not believe that our data repositories, financial systems
and other technology resources are completely secure from break-in or sabotage.
In addition, many of our software systems are custom-developed, and we rely on
our employees and third-party contractors to develop and maintain these
systems. If these employees or contractors become unavailable to us, we may
experience difficulty in improving and maintaining these systems. Furthermore,
we expect that we will continue to be required to manage multiple relationships
with various software and equipment vendors and other third parties to maintain
and enhance our technology infrastructure. Although we are continually
enhancing and expanding our Web site, transaction-processing systems and
network infrastructure, we have experienced periodic systems interruptions,
which we believe will continue to occur. Our failure to achieve or maintain
high capacity data transmission without significant system downtime would harm
our business, results of operations and financial condition.
We are currently in the process of installing new information systems, and any
failure or significant downtime in our information systems could harm our
business.
Our current information systems and controls are not adequate to support
our anticipated growth. We are currently in the process of implementing new
enterprise resource planning software applications to support our operations,
including systems to manage accounting, customer management, order processing
and delivery. We have migrated a portion of our accounting systems to new
enterprise resource planning software. We may not be successful in implementing
these systems and transitioning data from our current systems to new systems in
a timely manner or at all. Any failure or significant downtime in our
information systems could prevent us from taking customer orders, delivering
products or billing customers and could harm our business, results of
operations and financial condition. In addition, our new information systems
require the services of employees with extensive knowledge of these systems and
the business environment in which we operate. To successfully implement and
operate our information systems, we must attract and retain employees who can
operate them. If we fail to attract the highly skilled personnel required to
implement, maintain and operate our information systems, our business could
suffer.
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We have experienced significant growth in our business in recent periods, and,
if we are unable to manage this growth, our business could suffer.
Our ability to successfully offer existing and new products and services
and implement our business plan in a rapidly evolving market requires an
effective planning and management process. We are constantly expanding our
operations and introducing new services to consumers to establish ourselves as
a leader in the evolving market for Internet-based vehicle purchasing and
related services. We have increased, and plan to continue to increase, the
scope of our operations domestically and plan to expand internationally. These
expansion efforts will be expensive and will put a strain on management, and,
if we do not manage growth properly, could adversely affect our business. Our
headcount has grown and will continue to grow substantially. At December 31,
1998, we had five full-time-equivalent consultants and no employees, and at
March 31, 2000, we had a total of 702 employees. As a result of our growth, we
also will need to expand our infrastructure, which will include hiring key
employees in sales, marketing and technology development. The market for these
employees has historically been very competitive, and we cannot assure you that
we will be able to successfully attract, assimilate and retain a sufficient
number of qualified personnel. The inability to attract and retain the
necessary managerial, technical, sales and marketing personnel could cause our
business, results of operations and financial condition to suffer. Our growth
will continue to put pressure on us to improve our transaction-processing,
operational, financial and managerial controls, reporting systems and
procedures, as well as expand, train, supervise and manage our work force, and
manage multiple relationships with third parties, among other things.
Disruption during our expansion could cause our business, results of operations
and financial condition to suffer.
We may not succeed in establishing our business abroad, which may limit our
future growth.
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, including with respect to the sale,
marketing and distribution of motor vehicles and related products and
services;
. potentially weaker intellectual property protections;
. tariffs and other trade barriers, fluctuations in currency exchange
rates and 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 the above or other factors may cause our future
international operations and, consequently, our business, results of operations
and financial condition to suffer.
Our principal stockholders, executive officers and key personnel are critical
to our business, and these officers and key personnel may not remain with us in
the future.
Our future success depends upon the continued service of our executive
officers and other key personnel as well as our continuing relationships with
our principal stockholders. If we lost the services of one or more of our key
employees, or if one or more of our executive officers or employees decided to
join a competitor or otherwise compete directly or indirectly with us, our
business, results of operations and financial condition could be harmed. In
particular, the services of our Chief Executive Officer, Robert Brisco, and key
members of our research and development team would be difficult to replace. We
cannot assure you that we will be able to successfully maintain our
relationships with our principal stockholders, retain our key personnel or, in
the event we were to lose the services of any key personnel, to replace them in
a timely manner, if at all.
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Many members of our management team are new to us, the automotive industry or
the Internet, and our business could be seriously harmed if integration of our
management team into our company is not successful.
We have recently experienced significant growth in our management team.
Many of the members of our senior management team do not have prior experience
in the automotive industry, in online businesses or in publicly traded
companies. Our business could be seriously harmed if integration of our
management team into our company is not successful. We expect that it will take
time for our new management team to integrate into our company, and it is too
early to predict whether this integration will be successful.
We face risks of claims from third parties relating to intellectual property
that could harm our business.
As part of our business model, we make Internet services and content
available to our customers. This creates the potential for claims to be made
against us, either directly or through contractual indemnification provisions
with partners. Any claims could result in costly litigation, divert
management's attention and resources, cause delays in releasing new or
upgrading existing services or require us to enter into royalty or licensing
agreements. These claims might, for example, be made for defamation,
negligence, patent, copyright or trademark infringement, personal injury,
breach of contract, unfair competition, false advertising, invasion of privacy
or other legal theories based on the nature, content or copying of these
materials. Liability, particularly if not covered by our insurance or in excess
of our insurance coverage, could damage our business. In the past, plaintiffs
have brought these types of claims and sometimes successfully litigated them
against online services. Although we carry general liability insurance, our
insurance may not cover claims of these types or may be inadequate to indemnify
us for all liability that may be imposed on us.
Litigation regarding intellectual property rights is common in the
Internet and software industries. We expect that Internet technologies and
software products and services may be increasingly subject to third-party
infringement claims as the number of competitors in our industry segment grows
and the functionality of products in different industry segments overlaps.
There can be no assurance that our services do not infringe on the intellectual
property rights of third parties. For example, Trilogy Software, Inc. has filed
an action against us alleging that we are infringing a patent held by Trilogy.
Trademark rights are becoming increasingly important to us and other e-
commerce companies. We regard our trade name, trademarks, service marks and
domain names as key to our success. We rely on the law to protect our
proprietary rights to these marks and names, and have taken steps to enhance
our rights by filing trademark applications in the United States and around the
world. Among the marks for which we are seeking trademark registrations are
Autogenie, CarsDirect.com, DirectAssist, MatchMate, MileageMate and Touchdrive.
However, the steps we have taken to protect our proprietary rights may be
inadequate. The validity, enforceability and scope of such rights are subject
to evolving legal standards. Third-parties may infringe our rights, and
litigation may be necessary to protect our rights in the future. Effective
protection may not be available in every country in which we make our services
available online.
We may incur liability and expenses as a result of product liability claims or
suits by consumers and others.
There is a significant amount of litigation in this country against
manufacturers, distributors and retailers of automobiles by purchasers of
automobiles, persons injured in automobile accidents and others alleging that a
product was defective, that a product was accompanied by inadequate warnings or
disclosures, that state consumer protection statutes were not complied with or
asserting other theories of liability. While the law varies from state to
state, in numerous jurisdictions, plaintiffs are often able to sue any party in
the chain of distribution on the theory of strict liability, as well as for the
defendant's own negligent or culpable conduct. As a result of our limited
operating experience, as well as the absence of a significant history of
Internet providers of automobiles, it is difficult to predict the extent to
which we will face these types of claims or
18
<PAGE>
litigation, the manner in which current laws will be applied to our
transactions, or our potential liability. In addition, we have had limited
experience with online transactions and developing relationships with
manufacturers or dealers of automobiles. Although our agreements with dealers
typically contain provisions intended to limit our exposure to liability
claims, these limitations may not prevent all potential claims. Liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. As a result, these claims, whether or not successful,
could seriously damage our reputation and could harm our business and financial
performance.
We have no assurance that third-party technology will be available on
commercially reasonable terms, if at all.
We currently license from third parties certain technologies and
information incorporated into our Web site. As we continue to introduce new
services that incorporate new technologies and information, we may be required
to license additional technology and information from others. We cannot assure
you that these third-party technology and information licenses will continue to
be available to us on commercially reasonable terms, if at all. Additionally,
we cannot assure you that the third parties from which we currently license our
technology and information will be able to defend their proprietary rights
successfully against claims of infringement. Any failure to obtain any of these
technology and information licenses could result in delays or reductions in the
introduction of new features, functions or services. It could also adversely
affect the performance of our existing services until equivalent technology or
information can be identified, obtained and integrated.
Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. A successful claim of infringement against us and
our failure or inability to license the infringed or similar technology could
harm our results of operations.
We may not be able to protect our Internet domain name, which is essential to
our business.
The Internet domain name we use, "CarsDirect.com," is an extremely
important part of our business. The acquisition and maintenance of domain names
generally is regulated by governmental agencies and their designees. The
regulation of domain names in the United States and in foreign countries is
subject to change in the near future. These changes in the United States are
expected to include a transition from the current system to a system that is
controlled by a non-profit corporation and the creation of additional top-level
domains, other than ".com," ".net" and ".org." Governing bodies may establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we may be unable
to acquire or maintain relevant domain names in all countries in which we
conduct business. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of our trademarks and other proprietary rights.
If we cannot build and maintain 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 CarsDirect.com brand will depend largely on our ability to obtain a
leadership position in Internet commerce. If customers do not perceive us as an
effective means for purchasing vehicles, obtaining financing, insurance and
aftermarket automobile products and services, as well as offering reliable
information concerning new and pre-owned vehicles, in a user-friendly manner
that reduces the time spent for vehicle purchases, we will be unsuccessful in
promoting and maintaining our brand. We depend on customer referrals in
attracting new customers to our Web site. Our brand may not be able to gain
widespread acceptance among consumers or dealers. Our failure to develop our
brand sufficiently could cause our business, results of operations and
financial condition to suffer.
19
<PAGE>
We may need additional capital, which could dilute the ownership interest of
investors.
We require substantial working capital to fund our business. Since our
inception, we have experienced negative cash flow from operations and expect to
experience significant negative cash flow from operations for the foreseeable
future. We currently anticipate that the net proceeds of this offering,
together with our available funds, will be sufficient to meet our anticipated
needs for working capital and capital expenditures through the next 12 months.
However, we may need to raise additional funds prior to the expiration of this
period or at a later date. If we raise additional funds through the issuance of
equity, equity-related or debt securities, these securities may have rights,
preferences or privileges senior to those of the rights of our Class A common
stock, and our stockholders may experience additional dilution. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all, which could negatively impact our ability to fund
expansion, take advantage of potential acquisition opportunities, develop or
enhance services or products or respond to competitive pressures.
Potential acquisitions could be difficult to integrate, disrupt our business,
dilute stockholder value and adversely affect our operating results.
We may make investments in or acquire complementary companies, services
and technologies. We are continually involved in the investigation and
evaluation of potential acquisitions and at any time may be discussing possible
transactions, conducting due diligence investigations or otherwise pursuing
acquisition opportunities. These acquisitions and investments could disrupt our
ongoing business, distract our management and employees and increase our
expenses. If we acquire a company or a company's assets, such as our
acquisition of the assets of Potamkin, we could face difficulties in
integrating that company's personnel, operations and financial and accounting
systems. In addition, the key personnel of the acquired company may decide not
to work for us. In the case of Potamkin, we have employed all 125 of their
employees, who represented 17.8% of our workforce as of March 31, 2000. The
oversight of these employees has created additional strain on our management.
Further, we may have to change the business model of companies we acquire in
order to integrate them into our business successfully.
Acquisitions of additional services or technologies also involve risks of
incompatibility and the need for integration into our existing services and
marketing, sales and support efforts. The financing of these acquisitions
through the issuance of equity securities could dilute our existing
stockholders. Any amortization of goodwill or other assets, or other charges
resulting from the costs of these acquisitions, could adversely affect our
operating results.
We have broad discretion to use the offering proceeds, and how we invest these
proceeds may not yield a favorable return.
Our management can spend most of the proceeds from this offering in ways
with which our stockholders may not agree. We cannot predict that the proceeds
will be invested to yield a favorable return.
Our securities have no prior market, and we cannot assure you that our stock
price will not decline after the offering.
Before this offering, there has not been a public market for any of our
securities, including our Class A common stock. The initial public offering
price of the Class A common stock has been determined by negotiations between
us and the representatives of the underwriters. An active public market for our
Class A common stock may not develop or be sustained after this offering. The
trading market price of our Class A common stock may decline below the initial
public offering price and is likely to be highly volatile and subject to wide
fluctuations in response to:
. actual or anticipated variations in our quarterly operating results;
. announcements of new products or service offerings;
20
<PAGE>
. 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 sales
and related industries; 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.
These price and volume fluctuations have often been unrelated or
disproportionate to the operating performance of these companies. The trading
prices of many technology companies' stocks are at or near historical highs. We
can not assure you that such high trading prices will be sustained. These broad
market factors may adversely affect the market price of our Class A common
stock. In addition, general economic, political and market conditions such as
recessions, interest rate fluctuations or international currency fluctuations,
may adversely affect the market price of our Class A common stock. In the past,
following periods of volatility and decline in the market price of a company's
securities, securities class action litigation has often been instituted
against companies with publicly traded securities. This litigation, if
instituted, could result in substantial costs, divert management's attention
and resources and cause our business, results of operations and financial
condition to suffer.
Future sales of our Class A common stock may depress our stock price.
After this offering, we will have shares of Class A common
stock outstanding on a fully diluted basis, assuming conversion of all shares
of our preferred stock and Class B common stock. The shares of Class A common
stock outstanding after this offering will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number of Shares Date of Availability for Sale
---------------- -----------------------------
<S> <C>
At the date of this prospectus
90 days after the date of this prospectus
180 days after the date of this prospectus or afterwards
</TABLE>
The above table assumes the effectiveness of lock-up arrangements with
the underwriters under which the stockholders have agreed not to sell or
otherwise dispose of their shares of Class A common stock. We cannot assure you
that the underwriters will not remove these lock-up restrictions prior to 180
days after the offering without our prior consent.
If our stockholders sell substantial amounts of Class A common stock in
the public market, including shares issued upon the exercise of outstanding
options, the market price of our Class A common stock could fall. This could
make it more difficult for us to raise funds through equity offerings in the
future.
Even after this offering, our current stockholders will control us.
As of March 31, 2000, the directors, executive officers and stockholders
owning 5% or more of our capital stock and their respective affiliates in the
aggregate beneficially owned approximately 69.9% of our outstanding capital
stock on an as-converted basis and including shares issuable upon exercise of
stock options to purchase shares of Class A common stock which were exercisable
within 60 days of March 31, 2000. In addition, upon completion of this
offering, the holders of Class B common stock have the right to elect a number
of the members of the board of directors equal to the total number of members
of the board of directors multiplied by a fraction the numerator of which is
the total number of votes that may be cast in the election on account of shares
of Class B common stock if all shares of Class B common stock are present and
21
<PAGE>
voted and the denominator of which is the total number of votes that may be
cast in the election if all securities (including Class B common stock)
entitled to vote in the election of these directors are present and voted
(rounded to the nearest whole number). As of March 31, 2000, entities
affiliated with idealab! Holdings, L.L.C. owned approximately 66% of our total
voting power. As a result, directors, executive officers and stockholders
owning 5% or more of our capital stock and their respective affiliates will
possess significant influence over us, giving them the ability, among other
things, to elect a majority of our board of directors and approve significant
corporate transactions. Such share ownership and control may also have the
effect of delaying or preventing a change in our control, impeding a merger,
consolidation, takeover or other business combination involving us or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us, which could have a material adverse effect
on the market price of our Class A common stock.
Our charter documents will make it more difficult to acquire us.
Provisions of our restated certificate of incorporation and restated
bylaws, both of which are to be adopted prior to or upon consummation of this
offering, and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders.
22
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements in the sections
entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue"
or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks outlined under "Risk
Factors," that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. In evaluating these statements, you
should specifically consider various factors, including the risks outlined in
"Risk Factors" above.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, levels
of activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
23
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the shares of Class A common
stock sold by us in this offering are estimated to be approximately $133.5
million, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
At this time, the principal purposes of this offering are to obtain
additional capital to increase our financial flexibility and to create a public
market for our Class A common stock. We presently intend to use the net
proceeds of this offering as follows:
. An estimated $15.0 million to $25.0 million may be used for capital
expenditures associated with technology and systems upgrades and
expansion.
. An estimated $80.0 million to $90.0 million may be used for sales and
marketing activities, particularly advertising campaigns and
promotions, to increase our brand recognition.
. The remainder of the net proceeds will be used to fund operating
losses, for additional working capital and for general corporate
purposes, including the introduction of new product categories, the
expansion of existing product categories and expansion into
international markets, including any payments in connection with the
initial funding of our international expansion.
As of the date of this prospectus, we have not allocated any specific
amount of the proceeds for the purposes listed above. The amounts actually
expended for the purposes listed above will depend upon a number of factors,
including the growth of our sales and customer base, the type of efforts we
make to build our brand and competitive developments in e-commerce. Therefore,
we cannot specify with certainty the amounts that may be allocated to the
particular uses of the net proceeds of this offering, and the amounts we
actually spend could be outside of the ranges set forth above. Our management
will have significant flexibility and discretion in applying the net proceeds
of this offering.
Pending any use, the net proceeds of this offering will be invested
generally in short-term, interest-bearing securities.
We may also use an unspecified portion of the net proceeds of this
offering to acquire or invest in complementary businesses, services or
technologies, or to enter into strategic marketing relationships with third
parties. From time to time, in the ordinary course of business, we expect to
evaluate potential acquisitions of these businesses, services or technologies
and strategic relationships. At this time, however, we do not have any present
understandings, commitments or agreements with respect to any material
acquisition.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends on our capital stock in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of our board of
directors and will be dependent upon our financial condition, results of
operations, capital requirements, general business conditions, restrictions, if
any, under existing or future indebtedness, and any other factors that the
board of directors may deem relevant.
24
<PAGE>
CAPITALIZATION
The following table below sets forth our capitalization as of March 31,
2000 (unaudited):
. on an actual basis;
. on a pro forma basis reflecting the automatic conversion of all
outstanding shares of convertible preferred stock into shares of Class
A common stock upon closing of this offering including the issuance of
1,078,682 shares of Series D preferred stock in May 2000 to UnitedAuto
Group, Penske Automotive Group and certain affiliated and associated
companies for proceeds of $17.0 million; and
. on a pro forma as adjusted basis, adjusted to give effect to the sale
in this offering of shares of Class A common stock offered
through this prospectus, assuming an initial public offering price of
$ per share, and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by
us and the conversion of all outstanding shares of our preferred stock
into shares of Class A common stock.
<TABLE>
<CAPTION>
March 31, 2000
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(In thousands, except share
and per share amounts)
<S> <C> <C> <C>
Cash and cash equivalents..................... $202,075 $219,075
======== ========
Capital leases and long term debt, net of
current portion.............................. $ 1,281 $ 1,281
Convertible preferred stock, $.001 par value,
49,127,938 shares authorized;
47,294,614 shares issued and outstanding,
actual; no shares issued and outstanding, pro
forma and pro forma as adjusted.............. 314,669 --
Stockholders' equity (deficit):
Common stock:
Class A, $.001 par value, 70,000,000 shares
authorized, actual and pro forma;
11,238,095 shares issued and outstanding,
actual; 59,611,391 shares issued and
outstanding, pro forma; shares
authorized, shares issued and
outstanding, pro forma as adjusted......... 11 60
Class B, $.001 par value, 2,050,000 shares
authorized, issued and outstanding, actual,
pro forma and pro forma as adjusted........ 2 2
Additional paid-in capital.................. 173,415 505,035
Accumulated deficit......................... (115,562) (115,562)
Deferred stock compensation................. (60,765) (60,765)
Stockholders' notes receivable.............. (8,243) (8,243)
Accumulated other comprehensive income...... (195) (195)
-------- -------- ---
Total stockholders' equity (deficit)...... (11,337) 320,332
-------- -------- ---
Total capitalization.................... $304,613 $321,613
======== ======== ===
</TABLE>
This table excludes as of March 31, 2000:
. 2,963,183 shares of Class A common stock issuable upon exercise of
options outstanding under our 1998 Stock Plan at a weighted average
exercise price of $3.14 per share;
. 10,000 shares of Class A common stock issuable upon exercise of a
warrant outstanding at an exercise price of $0.35 per share;
. 171,329 shares of Class A common stock or Series C preferred stock
issuable upon conversion of the initial principal amount of a
convertible promissory note;
. 244,917 shares of Class A common stock available for issuance under
our 1998 Stock Plan;
. 2,085,970 shares of Class A common stock issuable upon exercise of a
warrant outstanding at an exercise price of $0.01 per share; and
. 300,000 shares of Class A common stock issuable upon conversion of
shares of Series D preferred stock issuable upon exercise of warrants
outstanding at an exercise price of $15.76 per share.
25
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000, including
$17.0 million of proceeds from the sale of 1,078,682 shares of Series D
preferred stock in May 2000 to UnitedAuto Group, Penske Automotive Group and
certain affiliated and associated companies, was $244.3 million or $3.96 per
share. Pro forma net tangible book value per share represents the amount of our
total tangible assets less our total liabilities, divided by the number of
outstanding shares of our common stock on a pro forma basis after giving effect
to the automatic conversion of all outstanding shares of our convertible
preferred stock upon closing of this offering and the conversion of Class B
common stock into Class A common stock on a one to one basis. After giving
effect to our sale of shares of Class A common stock in this offering
at an assumed initial public offering price of $ per share and our receipt
of the estimated net proceeds from this offering, after deducting the estimated
underwriting discounts and commissions and our estimated offering expenses, our
pro forma net tangible book value as of March 31, 2000 would have been $
million or $ per share of common stock. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
common stockholders and an immediate dilution in pro forma net tangible book
value of $ per share to new investors purchasing Class A common stock in
this offering.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Pro forma net tangible book value per share as of March 31,
2000....................................................... $3.96
Increase per share attributable to new investors............
-----
Pro forma net tangible book value per share after this
offering.....................................................
----
Dilution per share to new investors........................... $
====
</TABLE>
The following table sets forth, as of March 31, 2000, on the pro forma
basis described above, the number of shares of Class A common stock purchased
from us, the total price paid and the average price per share paid by existing
stockholders and by the new investors in this offering at an assumed initial
public offering price of $ per share of Class A common stock (before
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us). The table below indicates that while
investors in the offering will contribute % of the total amount provided by
investors to fund us to date, they will own % of our company. The existing
stockholders amount includes 1,078,682 shares of Series D preferred stock
issued to UnitedAuto Group, Inc., Penske Automotive Group and certain
affiliated and associated companies for proceeds of $17.0 million.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------- ----------------------- Price
Number Percentage Amount Percentage Per Share
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 61,661,391 % $357,231,000 % $5.79
New investors.......... % % $
---------- ----- ------------ -----
Total................ 100.0% $ 100.0%
========== ===== ============ =====
</TABLE>
If the underwriters exercise their over-allotment options in full, the
following will occur:
. the percentage of shares of Class A common stock held by existing
stockholders will decrease to approximately % of the total number
of shares of our common stock outstanding after this offering; and
. the number of shares held by new public investors will increase to
, or approximately % of the total number of shares of our
Class A common stock outstanding after this offering.
The foregoing table assumes no exercise of the underwriters' over-
allotment option or the issuance of shares underlying common stock options or
other stock transactions as follows:
. 2,963,183 shares of Class A common stock issuable upon exercise of
options outstanding under our 1998 Stock Plan at a weighted average
exercise price of $3.14 per share;
. 10,000 shares of Class A common stock issuable upon exercise of a
warrant outstanding at an exercise price of $0.35 per share;
26
<PAGE>
. 171,329 shares of Class A common stock or Series C preferred stock
issuable upon conversion of the initial principal amount of a
convertible promissory note;
. 244,917 shares of Class A common stock available for issuance under
our 1998 Stock Plan;
. 2,085,970 shares of Class A common stock issuable upon exercise of a
warrant outstanding at an exercise price of $0.01 per share; and
. 300,000 shares of Class A common stock issuable upon conversion of
shares of Series D preferred stock issuable upon exercise of warrants
outstanding at an exercise price of $15.76 per share.
To the extent that any of these options, warrants or notes are exercised
or converted, there will be further dilution to new investors purchasing shares
of our Class A common stock in this offering. See "Capitalization" and Notes 5,
7 and 8 of our Notes to Consolidated Financial Statements.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with the 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 consolidated statement
of operations data for the period from October 9, 1998 (inception) through
December 31, 1998 and the year ended December 31, 1999 and the consolidated
balance sheet data as of December 31, 1998 and December 31, 1999 have been
derived from our audited consolidated financial statements. The consolidated
statement of operations data for the three months ended March 31, 1999 and 2000
and the consolidated balance sheet data as of March 31, 2000 have been derived
from our unaudited consolidated financial statements.
<TABLE>
<CAPTION>
Period From Three Months Ended March
October 9, 1998 Year Ended 31,
(Inception) Through December 31, -------------------------
December 31, 1998 1999 1999 2000
------------------- ---------------- ------------ ------------
(In thousands, except vehicle data, shares and per share data)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Vehicle Data
(unaudited):
Number of vehicle
transactions........... 8 6,622 169 6,255
Total value of vehicle
transactions (1)....... $212,000 $165,320,000 $4,279,000 $142,705,000
Average vehicle price
per transaction........ $ 26,500 $ 24,965 $ 25,320 $ 22,815
Consolidated Statement
of Operations Data:
Total revenues.......... $ (9) $ 15,177 $ (122) $ 98,564
Cost of revenues (2) ... -- 17,536 -- 98,358
-------- ------------ ---------- ------------
Excess of (cost over
revenues) revenues over
cost................... (9) (2,359) (122) 206
-------- ------------ ---------- ------------
Operating expenses:
Sales and marketing
(3)................... 4 33,425 25 14,573
Technology and product
development (4)....... -- 2,143 40 2,232
General and
administrative (5).... 128 19,994 456 13,655
Stock-based charges.... -- 14,213 47 9,050
Amortization of
intangibles........... -- 2,525 -- 6,499
-------- ------------ ---------- ------------
Total operating
expenses.............. 132 72,300 568 46,009
-------- ------------ ---------- ------------
Loss from operations... (141) (74,659) (690) (45,803)
Interest income, net.... -- 2,438 23 2,707
-------- ------------ ---------- ------------
Loss before provision
for income taxes and
minority interest..... (141) (72,221) (667) (43,096)
Provision for income
taxes.................. -- 307 -- --
-------- ------------ ---------- ------------
Loss before minority
interest.............. (141) (72,528) (667) (43,096)
Minority interest in
CD1Financial........... -- 203 -- --
-------- ------------ ---------- ------------
Net loss............... $ (141) $ (72,325) $ (667) $ (43,096)
======== ============ ========== ============
Net loss per common
share:
Basic and diluted (6).. $ (5.67) $ (35.61) $ (1.95) $ (6.22)
Weighted average shares
used to calculate
basic and diluted
(6)................... 24,855 2,031,276 342,500 6,928,279
Unaudited pro forma
basic and diluted
(6)................... $ (2.47) $ (0.81)
Unaudited pro forma
weighted average
shares used to
calculate basic and
diluted (6)........... 29,317,289 53,517,326
<CAPTION>
As of December 31, As of
----------------------------- March 31,
1998 1999 2000
---------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.................... $ 6 $ 170,260 $ 202,075
Working capital (deficit).................... (67) 161,815 194,586
Total assets................................. 66 296,403 362,655
Capital leases and long term debt, net of
current portion............................. -- 1,218 1,281
Convertible preferred stock.................. 91 298,420 314,669
Stockholder note receivable.................. -- (65,000) --
Deferred stock compensation.................. -- (57,077) (60,765)
Total stockholders' equity (deficit)......... (141) 23,157 (11,337)
</TABLE>
- -------
(1) Total value of vehicle transactions represents the total price our
customers paid for their vehicles. See Note 2 of our Notes to Consolidated
Financial Statements for information related to the total value of vehicle
transactions.
(2) Excluding $14, $0 and $29 in non-cash stock-based equity charges for the
year ended December 31, 1999 and the three months ended March 31, 1999 and
2000, respectively.
(3) Excluding $1,562, $4 and $1,527 in non-cash stock-based equity charges for
the year ended December 31, 1999 and the three months ended March 31, 1999
and 2000, respectively.
(4) Excluding $692, $1 and $804 in non-cash stock-based equity charges for the
year ended December 31, 1999 and the three months ended March 31, 1999 and
2000, respectively.
(5) Excluding $11,945, $42 and $6,690 in non-cash stock-based equity charges
for the year ended December 31, 1999 and the three months ended March 31,
1999 and 2000, respectively.
(6) See Notes 2 and 10 of our Notes to Consolidated Financial Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this prospectus.
Overview
We are a leading direct online provider of new automobiles and related
products and services, such as loan and lease financing and extended
warranties. We were incorporated on October 9, 1998 (inception) to offer
vehicles directly to consumers online and simplify the traditional process of
buying a new vehicle. Since inception, we have focused our operations on
developing our Web site and vehicle configurator (which allows consumers to
specify vehicles with desired options and colors), developing supplier and
vendor relationships, and establishing our customer service operations. Our
first new vehicle transactions were in December 1998. We publicly launched our
Web site during May 1999 and focused on building sales momentum, further
developing vehicle sourcing relationships, promoting our brand and improving
our customer service operations. In January 2000, we launched a new version of
our Web site and implemented updated procedures to improve the consumer
experience.
In May 1999, we established CD1Financial, a joint venture owned 51% by us
and 49% by Bank One, to expand our product offering to include financing and
leasing products to complement our new vehicle business. In December 1999, we
purchased Bank One's 49% interest in CD1Financial for $2.0 million in cash,
terminated the master agreement governing CD1Financial in exchange for $30.9
million in cash, and agreed that an existing warrant with a deemed fair value
for accounting purposes of $29.6 million would become immediately exercisable
by Bank One for 2,085,970 shares of our Class A common stock. Goodwill amounted
to $60.7 million and is being amortized on a straight-line basis over three
years.
In July 1999, we purchased Autodata, a Canadian company focused primarily
on licensing decision-making support tools and content to the automotive and
related industries in North America for total consideration of $8.8 million,
including the deemed fair value for accounting purposes of common stock issued.
Goodwill and other intangible assets of $8.5 million are being amortized on a
straight-line basis over three years. Through this acquisition, we gained
access to Autodata's proprietary content, which we also license to third
parties. In addition, the acquisition allows us to gain expertise in the
development and configuration of make, model, trim-level and vehicle-option
data and to strengthen relationships with automobile manufacturers and large
fleet operators that represent Autodata's other customers.
In October 1999, we acquired certain assets from Potamkin, which provide
us with relationships with approximately 200 automotive dealerships in the
Northeast, improve our sourcing efficiencies and enhance our automotive
experience in dealership operations, pricing, customer service and fulfillment.
Total consideration, including the deemed fair value for accounting purposes of
common stock issued, amounted to $14.1 million, including $2.4 million that was
allocated to tangible and identifiable intangible assets acquired and is being
amortized on a straight-line basis over their estimated useful lives ranging
from six months to ten years. Goodwill of $11.7 million is being amortized on a
straight-line basis over ten years.
We currently offer our products and services in 40 states and the
District of Columbia, which represent approximately 92% of the total
United States new vehicle market. Our wholly owned subsidiary, CD1Financial,
currently offers vehicle loan financing in 19 states and the District of
Columbia and lease financing in 40 states and the District of Columbia.
We recognize as revenues the price paid to us for a vehicle upon the
delivery of the vehicle to the customer, provided that collection of the
resulting receivable is probable. We believe that presentation, as our
revenues, of the price paid to us for a vehicle appropriately reflects the
risks, and rewards, of our business model. In addition, we believe this
presentation appropriately reflects the substance of the transaction and our
legal rights and obligations. Following receipt of a customer order, we enter
into a legally enforceable commitment to acquire a specific vehicle from a new
car dealer to fulfill that customer order. This commitment
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obligates us to pay the dealer for the specific car regardless of whether our
customer pays us. The customer has the right to cancel an order any time prior
to accepting delivery of the specific car. We set the price of the vehicle to
the customer, and the price is not based on a formula related to the price we
pay for the vehicle. Customers conduct their business directly with us and
have no influence over which supplier we use. Our cost and payment terms are
fixed and are independent of the price and terms customers pay us for
vehicles. Prior to delivery of the vehicle to the customer, we bear the
inventory risk for the vehicles we commit to acquire, we have the sole legal
right to direct the disposition of the vehicles we commit to acquire, we have
an insurable interest as beneficial owner in the vehicles we commit to
acquire, and we are responsible for taxes that may be assessed on a vehicle we
commit to acquire. We bear the risk of return of the vehicle if a customer
defaults on the sale or if the customer returns the vehicle in accordance with
applicable law. We do not have the right to return the vehicle to our supplier
in those instances, and we establish a reserve for estimated customer returns.
Upon delivery of the vehicle to the customer, we bear credit and other risks
related to the customer's payment obligation.
In transactions with our customers that do not include the foregoing
characteristics, we recognize as net revenues the difference between the
amount our customer pays and our committed cost with respect to the vehicle.
For transactions in which we do not recognize the price that customers
pay for purchased vehicles as revenues, our reported revenues do not reflect
the total value of our vehicle transactions. The total value of our vehicle
transactions was approximately $212,000 for the period from October 9, 1998
(inception) through December 31, 1998, $165.3 million for the year ended
December 31, 1999 and $142.7 million for the three months ended March 31,
2000.
The number of vehicle transactions on a quarterly basis for 1998, 1999
and 2000 were as follows:
<TABLE>
<CAPTION>
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Number of Vehicle Transactions
Three months ended March 31................................ -- 169 6,255
Three months ended June 30................................. -- 703
Three months ended September 30............................ -- 1,961
Three months ended December 31............................. 8 3,789
----- ----- -----
Total number of vehicle transactions..................... 8 6,622 6,255
===== ===== =====
</TABLE>
In addition to revenues from vehicle transactions, we generate revenues
from licensing vehicle configuration data to automotive manufacturers, from
the sale of extended warranty contracts for vehicles purchased or leased from
us and from arranging financing for customers purchasing or leasing vehicles.
Licensing revenues are recognized on a pro rata basis over the license period,
generally ranging from three to twelve months. Depending upon the nature of
extended warranty contracts sold, commissions on extended warranties are
either recognized as revenue ratably over the lives of the underlying
contracts or when our obligation to refund any portion of the commissions upon
customer contract termination expires. Finance fees are recognized as revenue
upon acceptance of the customer's credit by the financing institution.
Our business model, which leverages our national network of over 2,500
dealers, allows us to efficiently source and supply vehicles to consumers.
Accordingly, we can pass along significant operating savings to consumers
while still offering over 2,600 makes, models and styles on a nationwide
basis. To date, we have focused on driving traffic to our Web site with highly
competitive vehicle pricing, strategic relationships and extensive online and
offline marketing campaigns, and have invested in personnel and infrastructure
to deliver outstanding customer service.
Over time, as our transaction volume continues to increase, we expect
that our relationship with our dealer network will enable us to lower our
vehicle costs. We also anticipate developing and launching new financial,
insurance-related and aftermarket product offerings and expanding our current
services to additional states and internationally. In addition, although we do
not currently allow customers to purchase off-lease or used vehicles, we may
do so in the future.
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We do not currently believe that inflation will have a material impact on
our business. We expect our business to experience seasonality as it matures.
Results of Operations
In light of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our
operating results are not meaningful and that the results for any period should
not be relied upon as an indication of future performance.
Our operating results may fluctuate substantially in the future as a
result of a variety of factors, many of which are outside of our control,
including those discussed elsewhere in this prospectus. We plan to
significantly increase our selling, marketing, technology and infrastructure
expenses to generate revenues and promote the CarsDirect.com brand, enhance the
functionality and features of our Web site and internal transaction and
fulfillment processes, commence international operations and hire new personnel
across all areas of our organization. We forecast our operating expenses
largely on the basis of anticipated growth in revenues and the degree to which
various types of expenses are fixed or variable in nature. The timing and
achievement of revenue targets are subject to a variety of risks and there can
be no assurance that revenues will rise commensurately with expenses. We
believe that our expenses will exceed our revenues for the foreseeable future.
As a result of these and other factors, our operating results may vary
substantially from quarter to quarter.
Period Ended December 31, 1998
We were formed in October 1998 and did not commence operations until
December 1998. As a result, our results of operations for the period ended
December 31, 1998 do not bear any significant relationship to our operating
results for the year ended December 31, 1999. The significant changes in
operating results for the year ended December 31, 1999 compared to the period
ended December 31, 1998 were primarily attributable to the duration and extent
of our operations in those periods.
Year Ended December 31, 1999
Revenues
Revenues for the year ended December 31, 1999 were $15.2 million. These
revenues consisted of gross revenues from vehicle transactions of $17.9
million, net revenues from vehicle transactions of $(4.3) million and other
revenues of $1.6 million. Other revenues principally include licensing revenue,
extended warranty commissions and finance fee income.
Cost of Revenues
Cost of revenues for the year ended December 31, 1999 was $17.5 million.
Cost of revenues included $16.5 million of obligations to dealers for vehicles
and other costs of $1.0 million representing direct costs related to licensing
revenues. Initially, we often sourced vehicles from dealers at prices greater
than those that customers paid us. With increased volumes, improved sourcing
capability and regional pricing, we have reduced the level of these losses on a
per-transaction basis. On average for the year ended December 31, 1999, the
cost of each vehicle sourced was $25,410, including delivery costs, in those
cases where we delivered vehicles to our customers, and the amount received per
vehicle was $24,965.
Sales and Marketing
Sales and marketing expenses for the year ended December 31, 1999 were
$33.4 million. Sales and marketing expenses include offline and online
marketing and advertising, creative and other marketing costs, sales promotion,
compensation and benefit costs related to our sales and sales support staff and
direct expenses associated with our sales force, including telecommunication
costs.
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Technology and Product Development
Technology and product development expenses for the year ended December
31, 1999 were $2.1 million. Technology and product development expenses include
the development of new or improved technologies that are expected to enhance
the performance of our service, salaries and related expenses for our
technology department and contracted services for Web site development, content
and automation of transaction and fulfillment processing.
General and Administrative
General and administrative expenses for the year ended December 31, 1999
were $20.0 million. General and administrative expenses include compensation,
employee benefits, office expenses, travel and other expenses for executive,
finance, legal, business development, dealer relations and other corporate and
support-functions personnel. General and administrative expenses also include
fees for professional services, occupancy costs and recruiting of personnel.
Stock-Based Charges
Stock-based charges for the year ended December 31, 1999 were $14.2
million. In connection with the grant of stock options, warrants and restricted
shares to employees and consultants, we recorded deferred compensation of $71.2
million, including $3.1 million for shares issued in connection with our
acquisition of Autodata and $4.4 million for shares issued in connection with
our acquisition of Potamkin. Deferred compensation represents the difference
between the deemed fair value of our Class A common stock for accounting
purposes and the exercise price of options, warrants or restricted shares at
the date of grant. Deferred compensation is presented as a reduction of
stockholders' equity and amortized over the vesting period of applicable
options, warrants and restricted stock, which is generally four years.
Amortization of Intangibles
Amortization of intangibles for the year ended December 31, 1999 was $2.5
million. Amortization of intangibles represents principally the amortization of
goodwill and other intangible assets created as a result of the acquisitions of
Autodata, Potamkin and CD1Financial.
Interest Income, Net
Interest income, net for the year ended December 31, 1999 was $2.4
million. Interest income is comprised primarily of interest income earned on
cash and cash equivalents. Interest expense is comprised of interest on capital
equipment leases and other long-term debt.
Provision for Income Taxes
The provision for income taxes for the year ended December 31, 1999 was
$307,000 and relates to foreign income taxes for Autodata, which had a Canadian
income tax liability. As a result of net operating losses, we have no liability
for United States federal or state income taxes for the year ended December 31,
1999.
Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31,
1999
Revenues
Revenues for the three months ended March 31, 2000 were $98.6 million.
These revenues consisted of gross revenues from vehicle transactions of $97.2
million, net revenues from vehicle transactions of $(263,000) and other
revenues of $1.6 million. Other revenues principally include licensing revenue,
extended warranty commissions and finance fee income. Revenues for the three
months ended March 31, 1999 were $(122,000), representing net revenues from
vehicle transactions.
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Cost of Revenues
Cost of revenues for the three months ended March 31, 2000 was $98.4
million. Cost of revenues included $97.7 million of obligations to dealers for
vehicles and other costs of $696,000 representing direct costs related to
licensing revenues. Although we sourced vehicles from dealers at prices greater
than those that customers paid us, we were able to reduce the level of losses
on a per-transaction basis compared with the year ended December 31, 1999. On
average for the three months ended March 31, 2000, the cost of each vehicle
sourced was $22,923, including delivery costs, in those cases where we
delivered vehicles to our customers, and the amount received per vehicle was
$22,815. We anticipate that the cost of revenues as a percentage of revenues
will be positively impacted as we grow our operations, improve our sourcing
relationships and as our revenue mix shifts to include higher margin products,
such as finance and insurance products. However, cost of revenues as a
percentage of revenues will be negatively impacted by certain payments made in
connection with strategic marketing relationships. Cost of revenues for the
three months ended March 31, 1999 was zero as all revenues were reported on a
net basis.
Sales and Marketing
Sales and marketing expenses for the three months ended March 31, 2000
were $14.6 million. Sales and marketing expenses include offline and online
marketing and advertising, creative and other marketing costs, sales promotion,
compensation and benefit costs related to our sales and sales support staff and
direct expenses associated with our sales force, including telecommunication
costs. We intend to continue investing significantly in sales and marketing
activities to build positive brand awareness, build our user base, attract and
retain new customers and build the operating infrastructure to support
anticipated growth. We expect marketing expenses to continue to increase in
absolute dollars in future periods as we extend our reach and expand our
marketing presence using traditional and online media. We anticipate hiring
additional personnel in sales, expanding into international markets and
continuing to promote our operations. Sales and marketing expenses for the
three months ended March 31, 1999 were $25,000.
Technology and Product Development
Technology and product development expenses for the three months ended
March 31, 2000 were $2.2 million. Technology and product development expenses
include the development of new or improved technologies that are expected to
enhance the performance of our service, salaries and related expenses for our
technology department and contracted services for Web site development, content
and automation of transaction and fulfillment processing. We expect to continue
investing significantly in Web site development, transaction process automation
and related hardware, software and other technology costs. Technology and
product development expenses for the three months ended March 31, 1999 were
$40,000.
General and Administrative
General and administrative expenses for the three months ended March 31,
2000 were $13.7 million, reflecting growth in corporate and administrative
staff and related infrastructure. General and administrative expenses include
compensation, employee benefits, office expenses, travel and other expenses for
executive, finance, legal, business development, dealer relations and other
corporate and support-functions personnel. General and administrative expenses
also include fees for professional services, occupancy costs and recruiting of
personnel. We expect general and administrative expenses to increase in
absolute terms as we continue to expand our administrative infrastructure and
related system expenditures to support the anticipated growth of our business,
but to significantly decrease as a percentage of our total revenues. General
and administrative expenses for the three months ended March 31, 1999 were
$456,000.
Stock-Based Charges
Stock-based charges for the three months ended March 31, 2000 were $9.1
million, reflecting three months' amortization of deferred stock-based
compensation generated in 1999, and initial amortization of the $12.7 million
of deferred compensation recorded during the three months ended March 31, 2000.
Deferred
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compensation represents the difference between the deemed fair value of our
Class A common stock for accounting purposes and the exercise price of
options, warrants or restricted shares at the date of grant. Deferred
compensation is presented as a reduction of stockholders' equity and amortized
over the vesting period of applicable options, warrants and restricted stock,
which is generally four years.
Annual amortization of deferred stock compensation for options, warrants
and restricted shares granted as of March 31, 2000 is currently expected to be
$33.7 million in 2000, $19.9 million in 2001, $11.7 million in 2002,
$4.3 million in 2003, and $186,000 in 2004. The amount of stock compensation
expense to be recorded in future periods could decrease if options, warrants
and restricted shares for which accrued but unvested compensation has been
recorded are forfeited. Certain restricted share grants provide for
accelerated vesting in the event of an initial public offering or a change in
our control. Assuming a closing of this offering by , 2000, we believe that
the amortization of deferred stock compensation for the years listed above
would not be significantly different than the amounts presented above.
Amortization of deferred stock compensation for the three months ended March
31, 1999 was $47,000.
Amortization of Intangibles
Amortization of intangibles for the three months ended March 31, 2000 was
$6.5 million. Amortization of intangibles represents principally the
amortization of goodwill and other intangible assets created as a result of
the acquisitions of Autodata, Potamkin and CD1Financial in the second half of
1999.
Interest Income, Net
Interest income, net for the three months ended March 31, 2000 was $2.7
million. Interest income is comprised primarily of interest income earned on
cash and cash equivalents. Interest expense is comprised of interest on
capital equipment leases and other long-term debt. Interest income, net for
the three months ended March 31, 1999 was $23,000.
Segment and Geographic Information
Our reportable segments consist of vehicle and related transactions and
licensing of support tools and content. Vehicle and related transactions
operations are conducted in the United States and support tools and content
operations are based in Canada. Segment data include intersegment revenues and
reflect the allocation of all corporate-headquarters costs to our operating
segments. We evaluate the performance of our segments and allocate resources
to them accordingly. During 1998, we had one reportable segment domiciled in
the United States.
Our reportable segment geographic information for the year ended December
31, 1999 was as follows:
<TABLE>
<CAPTION>
Loss From Long-Lived
Revenues Operations Assets
-------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
United States
Third Parties............................... $14,006 $72,317 $84,056
Intersegment................................ -- 788 --
------- ------- -------
14,006 73,105 84,056
------- ------- -------
Canada
Third Parties............................... 1,959 1,554 8,339
Intersegment................................ (788) -- --
------- ------- -------
1,171 1,554 8,339
------- ------- -------
$15,177 $74,659 $92,395
======= ======= =======
</TABLE>
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Liquidity and Capital Resources
Since inception, we have financed our operations through equity issuances
and, to a lesser extent, with capital and operating lease obligations. Net cash
used in operating activities was $48.4 million for the year ended December 31,
1999 and was primarily attributable to investment in marketing, Web site
development and operating infrastructure. Net cash provided by financing
activities was $271.1 million for the year ended December 31, 1999 and was
primarily attributable to net proceeds from our equity issuances. Net cash used
in investing activities was $52.5 million for the year ended December 31, 1999
and was primarily attributable to our acquisitions of Autodata, Potamkin and
CD1Financial, as well as capital expenditures.
Net cash used in operating activities for the three months ended March
31, 2000 was $29.8 million and was primarily attributable to continued
investment in marketing our brand, driving traffic to our Web site, creating
and developing the Web site and building out our operating infrastructure. An
increase in vehicle inventories of $12.2 million and prepaid expenses of $4.5
million was offset by increased accounts payable and accrued expenses of $17.1
million. Net cash provided by financing activities was $70.2 million for the
three months ended March 31, 2000 and was primarily attributable to collection
of a stockholder note of $65.0 million. Net cash used in investing activities
was $8.6 million for the three months ended March 31, 2000 and was primarily
attributable to investments in marketable securities and capital expenditures.
In May 1999, we entered into master and operating agreements with Bank
One to form and operate CD1Financial, which was 51% owned by us and 49% owned
by Bank One. In conjunction with the agreements, we issued a warrant to Bank
One that entitled it to purchase a number of shares of our Class A common stock
to be determined based upon the value of Bank One's interest in CD1Financial
compared to the combined value of CD1Financial and us immediately prior to an
IPO of our common stock or change in our control. In December 1999, we
purchased the remaining 49% interest in CD1Financial from Bank One for
$2.0 million in cash and agreed to pay Bank One $30.9 million in cash to
terminate the master agreement. Additionally, in connection with the purchase,
we agreed that the warrant would become immediately exercisable and
non-forfeitable for 2,085,970 shares of our Class A common stock.
In July 1999, we purchased the issued and outstanding capital stock of
Perga, a Canadian holding company whose primary asset was the capital stock of
Autodata. As consideration for the purchase, we paid the stockholders of Perga
$6.8 million in cash and issued 600,000 shares of our Class A common stock.
In October 1999, we acquired certain assets from Potamkin. As
consideration for these assets, we issued 1,650,000 shares of our Class A
common stock.
In March 2000, we entered into a strategic co-marketing agreement with
Autoweb. As consideration for the agreement, we agreed to issue to Autoweb
576,071 shares of our Series D preferred stock and agreed to purchase 750,000
shares of Autoweb common stock at a purchase price of $10.62 per share.
In May 2000, we entered into an agreement with Penske Automotive Group
and UnitedAuto Group providing for automobile sourcing and other services. As
consideration, we granted UnitedAuto Group, Penske Automotive Group and certain
affiliated and associated companies warrants to purchase an aggregate of
7,939,339 shares of our Series D preferred stock at an exercise price of $15.76
per share. Separately, we sold to these entities 1,078,682 shares of Series D
Preferred stock at $15.76 per share, or a total of $17.0 million.
We anticipate that we will continue to have negative cash flows for the
foreseeable future. We anticipate building infrastructure, funding operating
losses, investing in technological enhancements, building our brand through
marketing expenditures, and pursuing selective acquisitions. We believe that
the net proceeds of this offering, along with our available cash, will be
sufficient to satisfy our working capital requirements for the next 12 months.
Even if additional funds are not required, we may seek additional equity or
debt financing. We may not be able to obtain additional funds on acceptable
terms, if at all.
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Year 2000 Issues
Year 2000 problems relating to hardware and software systems incorrectly
distinguishing dates in the 1900s from dates in the 2000s could affect both our
products and services as well as the hardware and software systems we use,
operate or maintain. To date, we are not aware of any year 2000 problems
relating to our hardware or software systems or operations.
After conducting a full review of our systems and infrastructure, we
believe that our internal infrastructure, including our non-information
technology systems, is year 2000 compliant. We obtained assurances from our
primary vendors from whom we purchase hardware and software products, as well
as from our distributors and fulfillment providers who provide and distribute
the products we sell on our Web site, that they are year 2000 compliant. Based
on our internal tests and the representations of our primary vendors,
distributors and fulfillment providers, we do not believe we will incur
material losses relating to the upgrade or replacement of our or their systems
and infrastructure.
To date, our expenses in connection with identifying and addressing year
2000 compliance issues have been minimal. These expenses were generally related
to costs associated with time spent by our employees in the evaluation process
and year 2000 compliance in general. We cannot assure you that our total costs
will be limited to these amounts. We could incur additional costs in addressing
any latent year 2000 issues, which could have a material adverse affect on our
business.
We believe we have identified and resolved the year 2000 problems that
could materially adversely affect our business. We do not anticipate material
year 2000 compliance costs in the future. However, we believe that it is not
possible to determine with complete certainty that all year 2000 problems
affecting us have been identified or corrected, and we cannot accurately
predict the extent to which latent year 2000 problem-related failures may
affect us. In the event we discover latent year 2000 problems in our hardware
and software systems or in those of our primary vendors, distributors and
fulfillment providers, we will attempt to resolve these problems by making
appropriate modifications on a timely basis. However, we have no other
contingency plan nor have we surveyed our primary vendors, distributors and
fulfillment providers to assess whether they have developed any specific
contingency plans to address the effect of any latent year 2000 problems. We
cannot assure you that we or our primary vendors, distributors and fulfillment
providers will be able to resolve any latent year 2000 problems before
significant losses are incurred.
Quantitative and Qualitative Disclosures About Market Risk
We do not hold any derivative instruments and do not engage in hedging
activities. Also, we do not hold any variable interest rate debt or borrowing
under lines of credit and thus have minimal exposure to interest rate
fluctuations. We invest excess cash in short term money market instruments to
minimize our exposure to interest risk.
Autodata subjects us to foreign currency exchange risks as it denominates
most of its transactions in Canadian dollars. Our exposure is limited to the
net assets of Autodata, which were negligible as of March 31, 2000. We have not
historically tried to reduce our exposure to exchange rate fluctuations by
using hedging transactions. Accordingly, we may experience economic loss and a
negative impact on earnings or equity as a result of foreign currency exchange
rate fluctuations.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS 133 requires that all derivatives be recognized at fair value
in the statement of financial position, and that related gains or losses be
reported either in the statement of operations or as a component of
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<PAGE>
comprehensive income, depending on the type of hedging relationship that
exists. SFAS 133 will be effective for fiscal years beginning after June 15,
2000. We do not currently hold derivative instruments or engage in hedging
activities. Accordingly, we do not believe that adoption of SFAS 133 will have
a significant impact on our financial position, results of operations or cash
flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which provides additional guidance related to applying generally
accepted accounting principles in financial statements. In March 2000, the
SEC issued Staff Accounting Bulletin No. 101A, which required implementation of
SAB 101 no later than June 30, 2000. We have adopted the provisions of SAB 101.
Implementation did not have a significant impact on our financial position,
results of operations or cash flows.
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BUSINESS
Overview
We are a leading direct online provider of new automobiles and related
products and services, such as loan and lease financing and extended service
agreements. We allow consumers to research, price, configure, order, purchase
and finance a vehicle online. Our user-friendly, intuitive Web site offers
consumers highly-relevant proprietary product information for nearly every
make, model and style of new automobile available in the United States today,
as well as the ability to directly compare the specifications of competing
vehicles in one location. We offer an online shopping experience that features
competitive, up-front, no-haggle pricing on new vehicles which, in many cases,
can be delivered directly and conveniently to a consumer's home or office.
Additionally, we offer competitive lease and loan rates to finance our
customers' vehicle purchases through strategic relationships with industry
leaders. We intend to seek and forge additional strategic relationships to
complement our expanding product offerings. By combining our commitment to
improving the traditional process of purchasing an automobile with the benefits
of the Internet, we deliver a unique value proposition to consumers. We
currently provide vehicles for purchase and lease in 30 states and the District
of Columbia, only for lease in 10 states and offer loan financing in 19 states
and the District of Columbia.
Industry Background
The Growth of the Internet and E-Commerce
The Internet has rapidly emerged as a significant interactive medium for
worldwide communication, enabling instant access to information and e-commerce.
International Data Corporation estimates that the number of Internet users
worldwide will increase from 196.1 million at the end of 1999 to 502.4 million
by the end of 2003. We believe the unique characteristics of the Internet
create a number of advantages for online retailers and have dramatically
affected the manner in which companies distribute goods and services. In
contrast to traditional retail channels, the Internet provides online retailers
the opportunity to offer a broad and evolving selection of merchandise to
customers worldwide, while enabling customers to shop at their convenience
without leaving their homes or offices. In addition, online retailers can
easily obtain demographic and behavioral data about customers, increasing
opportunities for targeted marketing and personalized services.
We believe increasing numbers of consumers will engage in e-commerce as
online retailers take advantage of the technological improvements associated
with the Internet that allow the integration of intelligent product
recommendations and near real-time customer service. The result may be a
significant shift in the way many consumers shop, make purchasing decisions and
eventually buy products and services in select industries. We believe the
greatest impact of this trend toward e-commerce will most likely be in
industries and categories that have traditionally been characterized by high
levels of customer dissatisfaction, lack of customer control, inconsistent
pricing and complex multi-step transactions that can be streamlined through
technology. The Internet enables consumers to easily research information
relating to particular products, allowing the online consumer to make informed
purchase decisions while simultaneously having a pleasurable experience.
International Data Corporation estimates that the number of customers making
purchases on the Internet will grow from 48.0 million in 1999 to 182.6 million
in 2003. As a result, International Data Corporation predicts the total value
of goods and services purchased annually over the Internet will increase from
approximately $111.4 billion in 1999 to approximately $1.3 trillion in 2003.
The Traditional Automobile Industry
According to industry sources, United States auto retailers sold
17.0 million new vehicles, generating $348.2 billion in revenues, and 30.6
million used vehicles, generating an additional $314.7 billion in revenues
during 1999. These amounts do not include revenues generated from automotive
related industries, such as loan and lease financing, insurance or aftermarket
automotive parts and services, which contribute significantly to industry
profitability. As a result, we believe that the total market for vehicles and
automotive related products and services exceeds $650.0 billion annually.
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The structure of the United States automotive retail market has changed
little since its formation. Automobile manufacturers in the United States
originally established the automotive retail market in the form of franchised
dealer networks, requiring single-dealership, single-owner operations. In
return for distribution rights within specific territories, manufacturers
exerted significant influence over dealers, with respect to location, inventory
size and composition, and merchandising programs. The manufacturers' desire to
expand sales in growing markets and the need for conveniently located service
centers contributed to the proliferation of thousands of small, privately held
dealerships.
The automotive retail market remains highly fragmented today with
dealership locations numbering more than 22,000 in total, and the largest 100
dealer groups control just 6% of all franchised dealerships and 11% of new
vehicle sales in the United States. Automobile manufacturers discourage
dealerships from offering multiple brands in a single physical location.
However, dealers in the same markets often sell the same makes, models and
styles of vehicles, resulting in increased competition. These dealers also
compete in their respective markets with other dealers who offer similar makes,
models and styles of vehicles from competing manufacturers. Each independent
dealership incurs expenses to pay personnel, advertise its products and cover
its overhead, as well as provide a return on its investment in real estate,
equipment and vehicle inventory. Consequently, with strong competition and
relatively low profit margins, dealers often employ aggressive sales tactics to
sell their inventory and maximize profitability.
The Traditional Vehicle Purchasing Experience
We believe many consumers find the traditional process of purchasing a
vehicle to be inconvenient due to the difficulty in obtaining accurate and
comprehensive information, such as pricing and specifications, the significant
amount of time required and the sales environment that has long been associated
with the traditional process.
With a wide variety of vehicle makes, models and styles, optional product
packages available with each base model and multiple financing options
available, the automobile purchase decision has become difficult, complex and
costly for consumers. Consumers have traditionally entered into the highly
negotiated sales process with limited information regarding manufacturers'
costs, leasing rates, financing rates, relative vehicle specifications and
other important information. We believe consumers typically spend a significant
amount of time and resources driving from dealer to dealer to gather
information on competing vehicle makes and models, and searching at length to
find the right style of vehicle with the desired options. Then, consumers must
typically negotiate for the exact vehicle they want at a price they can afford.
In addition, because of the negotiation process required to actually purchase
or lease a car, two consumers may pay significantly different prices for the
same car purchased or leased from the same dealership. As a result, we believe
that consumers often find the traditional automobile shopping experience to be
inconvenient.
The Online Vehicle Purchasing Experience
We believe the Internet provides a strong platform to create an
integrated branded experience that will lead to dramatic innovations in
automotive retailing and will considerably improve the process for customers
trying to buy new vehicles. According to the 1999 New Auto Shopper.com study
performed by J.D. Power and Associates, consumer demand for automotive services
on the Internet is growing rapidly with 40% of new vehicle buyers in 1999 using
the Internet to help during their buying process. J.D. Power and Associates
projects this number could increase to 80% of new vehicle purchasers by 2003.
To date, a number of research and lead generating sites have emerged, but
we believe none of these sites has created a complete solution by enabling
customers to purchase vehicles directly. The research providers only help
consumers during the information gathering step of the automotive buying
process. The referral models help their customers make more informed decisions
by providing limited vehicle information and comparison features, but typically
fall short by sending customers back to the traditional sales process. In
addition, automobile manufacturers and dealers have established their own
brand-specific Web sites that
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provide information regarding the various models produced by the manufacturer
but typically do not provide third-party comparisons with competitor vehicles.
These sites also do not allow consumers to avoid the traditional sales process.
We believe these types of services do little to solve the existing problems for
consumers. Consumers must still typically spend significant time researching
automobiles and engaging in comparison shopping and must still negotiate with a
dealer regarding price and features for a particular vehicle.
Due to the limitations of both the traditional automotive industry and
the online automobile Web sites discussed above, we believe that a significant
opportunity exists for a direct online provider that benefits both consumers
and dealers by delivering accurate, unbiased information, unique value-added
products and services and inspiring ongoing customer loyalty. We believe that
our ability to leverage new technologies and methods of distribution will make
the vehicle buying experience more satisfying and less costly for our
customers.
The CarsDirect.com Solution
CarsDirect.com is a leading direct online provider of nearly every make,
model and style of new automobile available for sale in the United States
today. We also offer automotive related products and services such as
financing, leasing and extended service agreements on our user-friendly Web
site. We offer an online shopping experience that features competitive, up-
front, no-haggle pricing on new vehicles which, in many cases, can be delivered
directly and conveniently to a consumer's home or office. Additionally, we make
available to customers competitive leases and loans to finance their vehicles.
We believe that our online products and services improve the automobile
purchasing process for consumers. The key components of our solution include:
Comprehensive Vehicle Offering. We provide consumers with one easy-to-use
online source for the selection and configuration of new automobiles. Consumers
using our Web site can compare and purchase more than 2,600 makes, models and
styles of automobiles, including pickup trucks, vans and sport utility
vehicles, from virtually every major manufacturer in one comprehensive
experience, which greatly expands upon the limited product variety of
traditional dealers. Consumers can use our intuitive configuration technology
to select any of the available factory and safety options to design a vehicle
that meets their specific needs. We have established a priority dealer network
of over 2,500 automotive dealer franchises nationwide that we use as a primary
source for vehicles.
Competitive, Up-Front, Dynamic Pricing Model. We eliminate the pricing
mystery typically associated with the car buying process by offering our
customers a competitive fixed price for the specific vehicle and options they
have selected on our Web site. We strive to set our prices below the average
negotiated prices in the market for comparably-equipped vehicles. Selecting
choices available on our Web site, consumers can reconfigure their selected
options or financing terms in real-time to see how their aggregate purchase
price or monthly payment would change. Thus, consumers are able to anonymously
identify the vehicle and price of their choice without the need to negotiate
with a sales person.
Objective, Multi-Brand Shopping Environment. We provide consumers with
objective information about nearly every major make, model and style of vehicle
available in the United States. Traditional dealers typically offer information
on a limited number of makes and models of vehicles. We intend to provide
extensive product information including high-quality photographs for over 2,600
makes, models and styles, allowing customers to directly compare the
specifications of competing vehicles in one location. As a result, we offer
consumers objective information that allows them to make more efficient and
informed purchase decisions.
Intuitive, One-Stop Shopping Environment. Our user-friendly Web site
provides a seamless shopping experience across all of our product and service
offerings 24 hours a day, seven days a week. Because we offer a complete
solution, including the extensive product information necessary to compare
various models and decide which one to purchase, an easily understood and
competitive price and online credit applications for financing, consumers can
save a significant amount of time purchasing a vehicle through us compared to
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engaging in the traditional sales process. Furthermore, we currently arrange
competitive financing rates in 19 states and the District of Columbia and
leasing rates in 40 states and the District of Columbia, and we offer a variety
of aftermarket products such as extended warranties and roadside assistance,
allowing our customers to complete their entire automobile purchase through us.
Superior Customer Service. To build customer loyalty, we provide
extensive product and pricing information backed by a commitment to ensuring
consumer satisfaction throughout all phases of the shopping experience. Our
customer service advisors provide telephone, online chat and email support 24
hours a day, seven days a week, and we regularly upgrade our services to ensure
total customer care. We believe that by providing an exceptional customer
experience during every transaction, we will succeed in generating customer
loyalty and extensive customer referrals.
The CarsDirect.com Strategy
Our objective is to become the world's leading direct online provider of
automobiles and related products and services. We intend to capitalize on our
position as one of the first companies to offer a direct e-commerce alternative
to the traditional sales process. The key elements of our strategy include the
following:
Leverage the Efficiencies of our Business Model. Our operating model does
not require a large physical infrastructure, which allows for significant
operating efficiencies as our transaction volume grows. For example, more than
2,500 dealer franchises have enrolled to participate in our dealer network,
enabling us to access their extensive product inventories and distribution
capabilities. As our transaction volume increases, we expect to be able to
negotiate more favorable pricing for vehicles as well as finance, lease,
insurance and other aftermarket products through arrangements with our dealers
and preferred suppliers. Furthermore, we have advertising, management and
operational efficiencies based on our national brand, scope and consolidated
operations. Therefore, we should be able to grow quickly within existing
product lines and add or remove new product categories easily and rapidly based
on consumer preferences, without the need for traditional capital investments.
We intend to apply the efficiencies of our model to related business areas,
including small-fleet and off-lease vehicles. Additionally, we intend to market
these complementary products, as well as vehicle accessories, beyond the
initial vehicle purchase. By offering additional products to consumers and
extending our relationships with our customers throughout the vehicle ownership
period, we believe we can increase the profitability of our business.
Expand Strategic Relationships. We have strategic relationships with Bank
One to provide financing and leasing to our customers, with CNA to provide
extended warranties, with idealab!, a company that creates, builds and operates
Internet and e-commerce companies, to provide us access to the collective
knowledge and business relationships of its network of companies, and with
Penske Automotive Group and UnitedAuto Group, Inc. which are a source of
vehicles for our customers and vehicle information and automotive retailing
expertise to us. Through our relationship with Bank One, we deliver competitive
financing and leasing rates to our customers, and we intend to leverage Bank
One's purchasing power with respect to insurance products. We intend to develop
relationships with other financial institutions that will enable us to provide
our customers increased access to the type and amount of financing they need.
Additionally, we currently offer extended warranties and intend to expand our
aftermarket product offerings to include, among other things, credit insurance
and accident insurance. idealab! actively encourages collaboration among its
network companies, of which we are one, as well as the formal and informal
sharing of information. As idealab! expands its network of operating companies,
we intend to extend our existing relationships and evaluate new relationships
to take advantage of these companies' collective knowledge and best practices.
We intend to seek and forge additional strategic relationships to complement
our product offerings.
Provide a Compelling Business Proposition to Associated Dealers and
Manufacturers. Unlike many other Internet-related providers, we do not charge
dealers for entering into a relationship with us. More importantly, we provide
incremental transaction volume at lower incremental cost and risk to dealers.
This incremental volume allows dealers to benefit from faster inventory turns.
In addition, our customers serve as new sources of higher-margin service
business and used-vehicle inventory for dealers by providing trade-ins. We
believe we can provide dealers increased volume with little or no additional
personnel, marketing or
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technology expenses as we control the process with the customer and absorb the
associated expenses. Further, as a result of our contractual relationships with
dealers, we assume the financial risk of customer transactions that are not
completed. We capture customer preferences for vehicle configuration and multi-
brand shopping behavior in real time, which could help manufacturers test new
model opportunities and market and distribute more effectively.
Improve the Customer Shopping Experience. We intend to increase and
continue to develop the editorial and other relevant content on our Web site to
attract large numbers of new and returning Web site users. Further, we intend
to continue to deliver a superior online shopping experience that encourages
repeat purchases and word-of-mouth recommendations, beginning with the initial
order and continuing through product delivery and post-purchase support. We
intend to frequently update our Web site to increase its speed and
functionality, provide greater product information in a more user-friendly,
intuitive format and streamline the automobile ordering and purchasing process.
For example, we have begun to implement features that enable consumers to
examine their configured vehicles in three dimensions from any viewpoint, both
internal and external, to better visualize what their ideal vehicle would look
like. We will continue to invest in technology and personnel to improve our
customer service and provide a more enjoyable shopping experience.
Build Enduring Brand Equity. We have marketed our Web site to consumers
through a wide range of advertising and promotional activities. We intend to
further increase customer loyalty and brand recognition by continuing to offer
comprehensive products and services at competitive prices backed by superior
customer service. We strive to continually improve the customer experience to
enhance our brand equity. We have found customer referrals to be one of our
most effective methods of marketing. According to a study performed by J.D.
Power and Associates that we sponsored, 9 out of 10 of our customers surveyed
recommended us to their friends. We plan to continue to promote our brand
through a variety of marketing and promotional campaigns, including television,
print, radio, direct-mail and outdoor advertisements, as well as strategically
placed online advertisements and promotional campaigns, including sponsorship
of national auto races, such as the CarsDirect.com 400 NASCAR event.
Pursue International Opportunities. Our business model will enable us to
pursue large international markets by aligning ourselves with established
international product and service providers. We intend to expand our presence
in the international marketplace by initially targeting countries with high
Internet usage and complementary distribution networks.
The CarsDirect.com Experience
Our Web site enables our customers to research, price, configure, order,
purchase, finance and, in key markets, arrange delivery of new vehicles. We
offer a convenient and intuitive graphical user interface for our customers to
easily and anonymously access our broad selection, up-front pricing and in-
depth vehicle information, all in a haggle-free environment.
Our home page welcomes customers with the simple message of "Right Car,
Right Price, Right Now" and offers four key buttons to accommodate the
different ways our customers shop. Customers who know exactly which car they
want to buy can start configuring their vehicle immediately upon entering the
site. Many customers want to shop around, so we offer them the ability to
search and compare virtually every available make and model. Other customers
are very interested in researching financing and delivery options before
configuring the exact vehicle they want to order. A navigation bar available
throughout the customer's visit provides access to information about us and our
vehicle buying process.
Our Web site is designed to:
. develop customer trust and knowledge of the CarsDirect.com process;
. provide a comprehensive shopping environment;
. facilitate the ordering process;
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. assist the customer in making financing and purchasing decisions; and
. communicate our commitment to convenience through delivery options.
Helping Customers Understand the Vehicle Purchasing Process
Our customers can easily access descriptions of our business and the
process of purchasing a vehicle through us with a single-click at any time
during their visit.
The communication options on our navigation bar include: Great Prices,
the CarsDirect.com Advantage, the Company, Privacy and a Help function. Our
"Great Prices" page assures our customers that we are committed to fair up-
front pricing and reinforces our no-pressure, no-haggle policy. We also let our
customers know that our great prices policy extends beyond the actual price of
the vehicle to include competitive financing and leasing rates. On "The
CarsDirect.com Advantage" page we offer third-party reviews of our service and
emphasize our objectivity in providing comprehensive vehicle information, great
prices, superior customer service and multiple delivery options. "The Company"
section informs our customers about our company history, senior management and
technical support. It also provides press clippings and press releases for
customers to view. For customers concerned with security, our "Privacy" page is
included to help them understand how their personal information is used and
safeguarded on our site.
Most important, the customer can request help at any time. We offer a
variety of help services depending on the customer's individual needs--from a
FAQ section to customer service personnel that provide telephone, online chat
and email support 24 hours a day, seven days a week.
Shop by Brand, Category or Price
Our Web site provides a customized method of researching, selecting and
configuring a vehicle online. With our Web site, customers control their
shopping experience, thus reducing the stress often associated with the
traditional sales process.
When customers begin shopping on our site, they can search for vehicles
by manufacturer, vehicle type, price point or any combination of the three. As
customers enter their preferences, the list of corresponding vehicles
dynamically narrows or expands in response.
We also help customers consider different vehicles by allowing customers
to compare up to four vehicles at one time. The comparison information that we
provide our customers is unbiased and based on information compiled from third
parties. Customers can compare standard features and specifications as well as
access e-brochures that include a photo gallery and a 360-degree view of many
cars.
Once a customer has decided to focus on a vehicle model, our
configuration technology helps build the car with the options selected. The key
feature of this area is our proprietary dynamic pricing configuration, which
enables us to update pricing information for virtually any make or model of
vehicle in real time. When a specific model is selected, we display, when
permissible under applicable law, Manufacturer's Suggested Retail Price, or
MSRP, the Dealer Invoice Price and the actual price the customer will pay--the
CarsDirect.com price. Every option and option package price is clearly
displayed and interior and exterior color choices are provided. As our customer
picks and chooses among these options, the three price points--MSRP, dealer
invoice and the CarsDirect.com price--are always available and instantaneously
updated to reflect the addition or deletion of a specific option or option
package. In geographic areas where we offer financing, estimated monthly lease
and loan payment amounts are dynamically presented as well.
Customers who configure vehicles but have not made the final decision to
place an order can save their configured vehicles for up to 30 days. This not
only saves time for customers in future visits, but also allows them to lock in
a vehicle price for several days.
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Order a New Vehicle
Once a customer order has been placed, it is designated with a specific
customer tracking number that is generated and confirmed on our Web site. An
automatic email is sent to the customer reconfirming the order and our message
of commitment. A customer service advisor then calls the customer within 48
hours and works with the customer throughout the process. The customer can
confirm the details of the order, review the financial application and find out
when the vehicle can be delivered. At any time after the order has been placed,
the customer can contact his personal service advisor or any member of our
customer care team for up-to-the-minute order status and delivery timetable.
Financing Options
We provide several financing options to customers ordering a new vehicle.
Customers can apply for financing and leasing arrangements that fit their
individual needs with an online application or, if they prefer, customers can
arrange financing through a third-party provider or purchase the new vehicle
for cash.
Our affordability calculator helps customers determine how much they can
afford through a loan or lease. Customers can then use this information, in
conjunction with our vehicle configuration technology that dynamically displays
the impact of monthly loan or lease payments for different options, to build
affordable vehicles of their choice.
Our finance page describes our loan financing, leasing and extended
service products. We offer objective and comprehensive content that describes
loan financing and leasing so our customers can be comfortable they are
choosing the method of payment that best suits their needs. We are committed to
offering low competitive rates, flexible terms and a convenient online
application.
Delivery Options
Our customers can take delivery of their new vehicles at their homes or
offices in selected geographic areas such as Los Angeles, San Francisco and New
York, or they can take delivery of their vehicles from local dealers. We also
provide a vehicle delivery checklist to help our customers make sure their
vehicle meets their expectations before they accept delivery.
Products and Services
New Vehicles
Our new vehicle product offering provides our customers with a broad
selection encompassing nearly every make, model and style of automobile
available for sale in the United States today from nearly every manufacturer,
including the following: Acura, AM General, Audi, BMW, Buick, Cadillac,
Chevrolet, Chrysler, Daewoo, Dodge, Ford, GMC, Honda, Hyundai, Infiniti, Isuzu,
Jaguar, Jeep, Kia, Land Rover, Lexus, Lincoln, Mazda, Mercedes-Benz, Mercury,
Mitsubishi, Nissan, Oldsmobile, Plymouth, Pontiac, Porsche, Saab, Saturn,
Subaru, Suzuki, Toyota, Volkswagen and Volvo.
Loan and Lease Financing and Other Aftermarket Products
We arrange financing and leasing for our customers' vehicles in selected
states. We also sell extended service contracts and arrange selected types of
insurance in connection with the financing and leasing of vehicles. We place
heavy emphasis on loans and leases and seek to maximize our role in arranging
them whenever our customers require. Due to the margins and fees associated
with these ancillary products and services, their combined contribution to
profit is an important supplement to our results of operations from vehicle
transactions.
Subject to certain agreed exceptions, and in exchange for their support
during our formative period, Bank One has the right to be the sole provider of
financing and leasing until September 15, 2000. Exceptions include credit
applications not approved by Bank One, which may be referred to any lender, and
applications for leasing pertaining to certain specified models, which may be
referred to other lessors.
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Subsequent to September 15, 2000, we plan to source loans and leases from
a consortium of best-in-class lenders on a competitive basis, allowing us to
offer customers some of the most favorable terms available. We intend for this
consortium to provide all relevant financial products including, but not
limited to, prime and sub-prime auto loans, leases, home equity loans, credit
cards, insurance and other aftermarket products.
At the time a new vehicle is purchased, we offer extended service
contracts that supplement the manufacturer's warranty. MatchMate doubles the
term of most factory warranties, offering six years or 72,000 miles of
uninterrupted coverage on all major components of the vehicle. MileageMate,
designed for the higher-mileage driver, triples the industry average for six
years and up to 108,000 miles of extensive component coverage. We enhance the
attractiveness of our finance and lease offerings by providing six years of
free roadside assistance to all customers who finance or lease their vehicles
through us. Customers who choose to finance their purchases by other means are
able to purchase the six-year roadside assistance product for an additional
charge.
We offer financing, leasing and ancillary products and services in states
where state regulations allow. As of the date of this prospectus:
. over 70% of our vehicle customers reside in states where we can
currently offer loans;
. over 90% of our vehicle customers reside in states where we can
currently arrange leases; and
. 100% of our vehicle customers reside in states where we can also
offer extended warranty products.
Comprehensive, Relevant Content
We provide our customers with comprehensive and relevant product
information, which is tightly coupled with our product selection to help our
customers make well-informed purchase decisions. Autodata, our wholly owned
subsidiary, develops and maintains most of the product information available on
our Web site. Autodata provides our customers with a multimedia virtual new car
showroom, allowing users to research, view and compare prices and features,
including exterior and interior colors, of nearly every make and model of
vehicle available for sale in the United States today. We update our vehicle
configuration and pricing data on our Web site daily and provide a glossary to
further explain vehicle features. Our Autodata team sources our vehicle
configuration, specification and pricing information directly from both
automobile manufacturers and dealers.
Autodata has been providing data and data-enabled software solutions to
most segments of the North American auto industry since 1991. Since its
inception, our Autodata team of experts has manipulated and digitized raw
vehicle data provided by manufacturers and dealers, loaded the data onto
proprietary software, and licensed the software back to manufacturers, dealers
and other industry participants. Autodata's software allows users to easily
search and compare detailed product and pricing information across a variety of
vehicle categories. Consequently, industry participants use the information to
perform competitive studies and create consumer product brochures, which allow
consumers to better compare the features of various automobiles. Autodata will
continue to provide its services to the auto industry to further strengthen our
strategic relationships with these industry participants and help ensure our
access to relevant industry data in the future.
Through Autodata, we have recently developed a proprietary system that
allows customers to compare available equipment for one vehicle to that of
other vehicles using more than 2,000 equipment choices. We intend to use this
system to enable consumers to perform open-ended, lifestyle-based searches for
automobiles when they do not have a particular model or make of vehicle in
mind. We also intend to further enhance our content with detailed 360-degree
views of the interior and exterior of most vehicles available on our Web site
and to provide vehicle safety test, test drive, recall notification and other
relevant information on our Web site.
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Customer Service
We believe that a high level of customer service and support is a key
element in providing a convenient shopping forum for our customers and is
critical to retaining and expanding our customer base. Accordingly, at any
point in the shopping experience, a customer can contact a service advisor via
email, online chat or our toll-free customer service phone number 24 hours a
day, seven days a week. In addition, our automated customer service function
distributes emails to customers after they place their vehicle order. Within 48
hours of the customer order, a service advisor calls each customer to confirm
the details of the vehicle order, answer any questions and, if requested, guide
the customer through every step of the shopping process. Once the customer's
order is confirmed, a vehicle that satisfactorily matches the order has been
obtained and payment has been arranged, our service advisor schedules the
delivery of the vehicle at a conveniently located dealer or, in certain major
markets, at the customer's home or office. We believe that our vehicle delivery
service provides a unique customer experience while enhancing the
CarsDirect.com brand. We plan to make continued technological and systems
advancements to enhance the overall customer experience.
Sourcing and Fulfillment of Vehicles
We depend on existing automobile dealerships throughout the United States
to supply vehicles purchased through our Web site. We believe that sourcing
vehicles through our existing dealer franchise network is attractive because it
gives us the flexibility to respond to inventory fluctuations within a market
area, minimizes the assumption of inventory risk and allows us to leverage the
infrastructure of the existing dealership network. Our strategy of committing
to acquire vehicles only after receipt of an order allows us to source vehicles
based on specific local market supply and demand trends, while also minimizing
capital investment in inventory and distribution facilities.
We have established a priority dealer network of over 2,500 dealer
franchises nationwide, which we use as a primary source for vehicles. We also
source vehicles through other dealers as necessary. We intend to continue to
develop relationships with dealer franchises in new markets and with new dealer
franchises throughout the country. We prioritize dealers in groups based on
their respective abilities and consistency in providing vehicles for us. Our
highest-priority dealers agree to set pricing on vehicles, specific payment
terms, a two-hour turnaround on vehicle inquiries and delivery of the vehicle
to the customer in accordance with our customer experience guidelines. Our
lowest-priority dealers simply agree to deliver vehicles to the customer in
accordance with our customer experience guidelines. We believe that, as our
priority dealer network grows and strengthens, we can improve our pricing
competitiveness and process efficiency through better data exchange and more
consistent business practices with our priority dealers. We are currently
developing an automated dealer communication network to more efficiently
exchange information with our dealers.
We presently have a team of vehicle sourcers that is focused on
developing dealer relationships and expertise within specific geographic areas
or vehicle product lines. Over time, we believe the vehicle sourcing function
can be significantly automated as our databases and dealer relationships more
fully develop. When a customer submits an order through our customer service
center, a vehicle sourcer immediately begins contacting dealers in priority
order within the customer's local market in search of a vehicle that matches
the customer's order. After the vehicle sourcer locates a vehicle that matches
the customer order, we commit to acquire the vehicle and provide the necessary
customer documentation for the dealer to execute the delivery of the vehicle.
We also offer a home or office delivery service in Los Angeles, San Francisco
and New York, which we plan to expand into additional major markets.
We believe that franchised dealers will remain a sustainable source of
product in the future. There were 22,038 dealership facilities with a total of
47,236 automobile franchises in the United States as of January 1, 2000. We
believe that the number of dealership facilities and average vehicle inventory
levels in the United States will provide a more than adequate source of vehicle
supply for our current growth objectives.
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In addition to our priority dealer network, Potamkin, acquired in October
1999, sources vehicles through its relationships with approximately 200
automotive dealerships located primarily throughout the northeastern United
States. Potamkin has developed significant expertise and efficiencies in
pricing and fulfillment that we may not have been able to develop
independently.
Our relationships with Penske Automotive Group, UnitedAuto Group, and
other dealerships allow us to source vehicles promptly from franchised dealers
throughout the United States. We believe these relationships will enable us to
more efficiently expand our market share and transaction volume throughout much
of the United States by leveraging our dealers' respective automotive industry
expertise.
Marketing and Promotion
Our marketing and promotion strategy is designed to:
. build brand recognition and brand equity;
. increase relevant consumer traffic to our site;
. add new customers;
. build strong customer loyalty; and
. develop additional ways to increase our revenues.
We build our brand name and customer loyalty through our online advertising and
marketing, traditional advertising, public relations, promotions and
exceptional customer service. Our efforts focus on building credibility with
customers and achieving market acceptance for our services.
Online Advertising and Marketing. We have marketing relationships with a
number of companies, including BizBuyer.com, Inc.; completehome.com; Classified
Ventures, parent of Cars.com; EarthLink Network, Inc.; Edmunds.com, Inc.; and
InfoSpace, Inc. With these relationships, we license a portion of our Web site
content to the Web sites of these companies, enabling visitors to these sites
to initiate an online vehicle order with us. We also conduct an advertising
campaign targeted towards potential car-buying customers on the Web sites of
major online portals, including Alta Vista Company, America Online, Inc. and
Yahoo! Inc. In order to increase exposure on the Internet and directly generate
revenues, we also have an affiliates program. Under this program, LinkShare
Corporation pays registered affiliates a marketing fee for certain customer
visits via affiliate links to our Web site. Over 11,000 Web sites have joined
our affiliates program since its inception in November 1999. We believe that
links to our Web site from third-party Web sites are a significant factor in
increasing brand awareness and generating revenues, as consumers increasingly
look to the Internet as a key source of information and commercial activity. In
addition to these relationships, we optimize our online media buys using ad
tracking services.
Traditional Advertising. Our advertising efforts focus on building
awareness, positive opinion, demand and traffic for our site, products and
services. Our advertising positions CarsDirect.com as a hassle-free medium to
research and buy new vehicles and related products and services. We advertise
in a broad range of publications, including national newspapers such as The
Wall Street Journal, major metropolitan newspapers such as The Los Angeles
Times, and national magazines, including Motor Trend. We also advertise on
billboards, television and radio networks in targeted major markets.
Public Relations. The objectives of our in-house public relations staff
are to build brand awareness, educate consumers about the benefits of buying a
vehicle online and increase consumer traffic to our site. Efforts to date have
resulted in positive editorial coverage in broadcast and print media outlets
such as Business 2.0, Business Week, Forbes and The Wall Street Journal.
Promotions. We use a variety of promotional activities to acquire new
customers. These include trade show participation, affinity group programs,
local market "street teams" and customer referral programs. We attempt to
enhance this significant source of leads through our promotional activities.
For example, we were the title sponsor of the CarsDirect.com 400 NASCAR race in
Las Vegas, Nevada, a nationally televised event that was held on March 5, 2000
with over 130,000 people in attendance.
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Ongoing Marketing Efforts. We also conduct focus group studies, consumer
surveys and usability testing to help us develop new products and services and
to enhance our existing offerings to improve our customers' experience. We
believe that introducing products and services in connection with our
customers' current vehicle ownership will establish loyal relationships well in
advance of our customers' new vehicle purchases. By offering customers a
compelling and personalized value proposition, our goal is to increase the
number of visitors that make a purchase through us, to encourage repeat visits
and purchases, to increase shopper and customer satisfaction, and to extend
customer continuity. In addition, loyal, satisfied customers generate strong
word-of-mouth support that we expect will increase our customer base and
transaction volume.
Strategic Relationships
Financing Relationships
We entered into a strategic relationship with Bank One in May 1999, by
forming a joint venture to provide financial services to our customers. In
December 1999, we purchased Bank One's interest in the joint venture and agreed
to redefine our relationship using the following principles:
. our relationship with Bank One will continue to deliver key products
and capabilities with mutual effort committed to automation and
scaling of underwriting and documentation processes, and will remain
exclusive until September 2000;
. the agreement governing our relationship contains provisions
regarding pricing, performance standards and certain exceptions to
exclusivity;
. loans and leases which fall into categories of permitted exceptions
under the agreement with Bank One are currently being provided by WFS
Financial, Inc. The combination of these relationships enables us to
serve many additional customers regardless of geography or credit
history; and
. we will construct a consortium of best-in-class providers, of which
Bank One will be a member, which will enable us to offer financial
products including, but not limited to, prime auto loans and leases,
non-prime and sub-prime loans, home equity loans, credit cards,
insurance and other related aftermarket products.
We intend to activate an automated decision engine multi-lender platform
to provide optimum matches between applicants and a larger selection of
lenders.
Autoweb
In March 2000, we entered into a strategic co-marketing agreement with
Autoweb. Under the agreement, Autoweb agreed to provide referrals to us for
fees that vary depending upon the nature of the referral, and we agreed to
establish links to Autoweb's Web site in exchange for a portion of Autoweb's
revenues generated from these links. In addition, the configurator on the
Autoweb Web site will be enhanced to enable consumers interested in purchasing
vehicles directly online to configure and receive pricing information on
vehicles in substantially the same manner and format as visitors to our Web
site. Over time, Autoweb has agreed to integrate our pricing, finance,
warranty, roadside assistance and vehicle configuration constraints into its
Web site, which will serve as an additional source of customers for our online
vehicle transactions. In exchange for Autoweb's participation in the strategic
co-marketing agreement and in addition to the referral fees specified in the
agreement, we have agreed to issue to Autoweb 576,701 shares of our Series D
preferred stock and purchased 750,000 shares of Autoweb common stock at a
purchase price of $10.62 per share.
InfoSpace
In April 2000, we entered into a strategic relationship with InfoSpace.
As part of our relationship, InfoSpace will feature prominent promotional
placements in various areas of its network of Web sites. These placements will
allow visitors to identify the make and model of a vehicle they are considering
for purchase. Upon selection of a vehicle, these visitors will be passed to a
co-branded version of our Web site. InfoSpace has guaranteed us a minimum level
of referrals in exchange for a pre-negotiated schedule of payments. In
addition, we will provide automotive related content to InfoSpace, which it
will incorporate into relevant areas of its network of Web sites.
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Penske Automotive Group and UnitedAuto Group
In May 2000, we entered into agreements with Penske Automotive Group and
UnitedAuto Group, which have agreed to supply vehicles to us through their
respective franchised vehicle dealers at pre-negotiated prices throughout much
of the United States. In addition, they have agreed to provide us with daily
vehicle inventory information. Penske Automotive Group and UnitedAuto Group
will cooperate with us in our efforts to create fully-automated vehicle
sourcing and customer purchasing transaction systems.
As part of the agreement, we will grant to Penske Automotive Group,
UnitedAuto Group and their franchised vehicle dealerships a limited, non-
exclusive license to certain text graphics, pictures and data of a substance
and form similar to that which we generally license to third parties, if
requested. Furthermore, we will work with Penske Auto Centers, Inc., a national
chain of automotive repair shops, to obtain, where feasible, temporary used
vehicle storage, vehicle inspection, reconditioning and delivery services at
their facilities.
Roger S. Penske, Sr. has agreed to serve on our board of directors.
Additionally, certain companies affiliated and associated with Penske
Automotive Group and UnitedAuto Group have agreed to provide us certain
consulting and advisory services.
As consideration, we granted to UnitedAuto Group, Penske Automotive Group
and certain affiliated and associated companies warrants to purchase an
aggregate of 7,939,339 shares of our Series D preferred stock at a per share
purchase price of $15.76. Separately, we sold to these entities an aggregate of
1,078,682 shares of our Series D preferred stock at a per share purchase price
of $15.76.
Recent Acquisitions
CD1Financial
In May 1999, we entered into master and operating agreements with Bank
One to form and operate CD1Financial, which was 51% owned by us and 49% owned
by Bank One. In conjunction with the agreements, we issued a warrant to Bank
One that entitled it to purchase a number of shares of our Class A common stock
to be determined based upon the value of Bank One's interest in CD1Financial
compared to the combined value of CD1Financial and us immediately prior to an
initial public offering of our Class A common stock or a change in our control.
In December 1999, we purchased the remaining 49% interest in CD1Financial from
Bank One for $2.0 million in cash and agreed to pay Bank One $30.9 million in
cash to terminate the master agreement. Additionally, in connection with the
purchase, we agreed that the warrant would become immediately exercisable and
non-forfeitable for 2,085,970 shares of our Class A common stock at an exercise
price of $0.01, resulting in an increase in goodwill and additional paid-in
capital of $29.6 million. The amount associated with this transaction allocated
to goodwill is being amortized on a straight-line basis over a three-year
period.
Autodata
In July 1999, we purchased the issued and outstanding capital stock of
Perga, a Canadian holding company whose primary asset was the capital stock of
Autodata, for an aggregate purchase price of $8.8 million. The purchase price
was comprised of $6.8 million in cash, $265,000 in direct acquisition costs and
the issuance of 210,000 shares of our Class A common stock with a deemed fair
value for accounting purposes of $1.7 million. Identifiable intangible assets
and goodwill associated with this acquisition are being amortized on a
straight-line basis over the average estimated useful life of three years. In
connection with the purchase, we issued an additional 390,000 shares of
restricted Class A common stock that vest over four years to the stockholders
of Perga, subject to the continued employment of certain key Autodata
employees. The vesting of these shares is also subject to acceleration in the
event of an initial public offering of our Class A common stock or a change in
our control, and these shares have been accounted for as $3.1 million of
deferred stock compensation, which is being amortized over the service periods
of the key Autodata employees.
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Also in connection with the purchase, we may make additional cash
payments within 90 days following September 30, 2000, September 30, 2001, and
September 30, 2002. The payment following September 30, 2000 will be equal to
50% of the difference between Autodata's net income for the year ended
September 30, 2000 and its net income for the year ended April 30, 1999. The
payment following September 30, 2001 will be equal to 45% of the difference
between Autodata's net income for the year ended September 30, 2001 and its net
income for the year ended April 30, 1999. The payment following September 30,
2002 will be equal to 35% of the difference between Autodata's net income for
the year ended September 30, 2002 and its net income for the year ended April
30, 1999. In the event that we consummate an initial public offering of our
Class A common stock, there is a change in our control or we pay $1.7 million
in exchange for cancellation of this contingent consideration, we will not pay
any additional cash consideration. The contingent consideration, if any, will
be recorded as an increase to the purchase price at the time that the
contingency lapses.
Potamkin
In October 1999, we acquired certain assets of Potamkin, a New York
partnership that sells and finances both new and used vehicles of every make
and manufacturer. The primary asset was Potamkin's ability to sell new and used
automobiles in New York without maintaining franchise agreements with
manufacturers. An application will be filed to transfer Potamkin's qualified
dealer license to us. Transfer of this license is subject to regulatory review
and approval and we cannot be certain that the transfer application will be
approved. In exchange for the assets, we issued 1,250,000 shares of our Class A
common stock. In addition, we issued an aggregate of 400,000 restricted shares
of our Class A common stock, which vest in approximately equal quarterly
installments through September 30, 2002, subject to, among other things, our
continued employment of a former Potamkin key employee. Identifiable intangible
assets and goodwill acquired as part of this transaction are being amortized on
a straight-line basis over their estimated useful lives ranging from six months
to ten years.
Technology and Systems
We believe that the success of our business depends on applying a very
high level of automation throughout our business process to:
. support customers in vehicle research, specification, pricing,
selection, purchase, documentation and lifecycle;
. minimize human intervention for most of the normal internal
operations surrounding these steps; and
. manage relationships with vehicle providers.
In each of these processes, a high level of automation will facilitate rapid
and high-quality response to customer or vendor needs, low costs of operations
and growth to accommodate increased volume. To achieve these results, we must
rapidly and effectively develop or implement a variety of technologies.
Numerous critical technology components are already in place. Our Web
site software already provides research capabilities, comparative shopping
information and tools with enhanced content, the ability to specify and compare
vehicles, immediate price information as options are selected and financing
choices are made, instant finance or lease payment estimators and immediate
online approval of loans for qualified customers through our financial
partners. Our data warehouse provides comprehensive information about nearly
all vehicles commonly available, including their prices, descriptions, pictures
and colors, options and option compatibility constraints, which is updated
daily.
Our Web systems are hosted at two main facilities, one on each coast of
the country in co-location facilities. With these facilities in place, we can
handle ten times our current peak traffic load. The nature of our applications
and software architecture also allow us to increase capacity by adding
additional servers to our existing facilities. Systems monitoring and
administration is provided 24 hours a day, seven days a week, in part by Level
Three and Global Crossing Cayman Ltd., and in part by internal staff.
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Software and Web services are developed by internal staff and third-party
organizations, the latter principally under some form of exclusive contract. We
have chosen selected third parties to rapidly obtain very high levels of
relevant skills as we selectively build our own staff. Development team
participants, including third parties, use hardware and software environments,
which match the live systems. Currently, we use NT based Web servers with
software principally written in Microsoft's ASP and Sun's Java. Currently, data
is predominantly stored in Microsoft's SQL 7 databases and Oracle on Unix
hosts.
All domestic computing systems are protected by redundant firewalls or
filters and are connected by private communications lines. Remote access is
provided by centralized dial up interfaces with additional security controls.
Competition
The market for the purchase and sale of automobiles and automobile
related services and products, including financing, insurance and aftermarket
products such as warranties, is intensely competitive, highly fragmented and
has no dominant leader. We compete against a variety of Internet and
traditional automotive dealerships and distributors, as well as finance and
insurance companies. Therefore, we are affected by the competitive factors
faced by both Internet commerce companies as well as traditional 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.
We believe that the principal factors to compete effectively in our
markets are:
. brand recognition;
. competitive pricing;
. a convenient and efficient shopping experience;
. product selection and availability;
. quality of Web site content;
. reliability and speed of vehicle delivery;
. personalized customer service; and
. strategic relationships.
Our current or potential competitors in the automobile transactions and
aftermarket product markets include, but are not limited to:
. traditional automobile dealers and manufacturers;
. aggregators and auto retail groups, such as AutoNation, Inc., CarMax
Auto Superstores, Inc., Group One Automotive Inc. and Sonic
Automotive Inc.;
. online automotive referral services and other sites, such as
Autobytel.com, Autoweb.com, Carclub.com, carOrder.com Inc., CarPoint,
cars.com and Greenlight.com, Inc., some of which have begun to sell
automobiles on their Web sites; and
. other online stores that sell automobiles, such as priceline.com
Incorporated.
We face competition from commercial banks, savings and loan associations,
credit unions, captive finance subsidiaries of automobile manufacturers and
other consumer lenders. Online services are also beginning to offer automobile
financing alternatives.
As we introduce insurance products, we will compete with both traditional
insurance distribution channels, including insurance agents and brokers, new
non-traditional channels such as commercial banks and savings and loan
associations, and a growing number of direct distributors, including other
online services, such as InsWeb Corporation, Quicken InsureMarket, Quotesmith
and SelectQuote, among others.
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Intellectual Property
We regard substantial elements of our business process, Web site and
underlying technology as proprietary and attempt to protect them by relying on
a combination of patent, copyright, trademark and trade secret laws, and
contractual agreements. We also maintain a policy of entering into
confidentiality agreements with our employees, consultants and third parties.
These confidentiality agreements generally seek to control access to, and
distribution of, our technology, documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use our proprietary information without
authorization or to develop similar technology independently.
In November 1999, we filed a provisional patent application, seeking
patent protection on our methods and technology as to new automobile
transactions using an electronic medium.
We have the right to use a number of unregistered trademarks for use in
connection with our business, including CarsDirect.com, CarsDirect, Autodata,
CD1Financial.com, Comparator, Configurator, Autogenie, DirectAssist,
Touchdrive, MatchMate and MileageMate. Provided that trademarks remain in
continuous use in connection with similar goods and services, their term can be
perpetual, subject, with respect to registered trademarks, to the timely
renewal of such registrations in the United States Patent and Trademark Office.
We seek to protect the source code of our software and our databases as
trade secrets and under copyright law. We have copyright registrations for
certain of our software, user manuals and databases. Copyright protection for
databases is limited, extending only to the selection and arrangement of the
data, and does not protect the facts included in the database. Accordingly,
other parties would be free to use the individual facts contained within any of
our databases or to compile their own database, containing similar facts,
without infringement of our copyright. We have obtained copyright registrations
for our software and customer databases from the Canadian Intellectual Property
Office. The absence of a registration does not waive copyright protection, but
registration is a necessary prerequisite to commencing litigation against an
infringer.
We, in part through Autodata, have originated and organized certain
information obtained from automobile manufacturers and dealers. This
information and its organization, which is wholly owned by us, is proprietary
and material to our business. We are also party to a number of third-party
software licenses relating primarily to desktop publishing, word processing and
the like. No single licensed program is considered material to our business
since alternatives are readily available.
We are also subject to the risk of adverse claims and litigation alleging
infringement of the proprietary rights of others. From time to time we receive
notices of infringement claims from other parties. Although we do not believe
the conduct of our business infringes the valid proprietary rights of others,
there can be no assurance against future infringement claims by third parties
in respect of our current or future products or services. The resolution of any
such infringement claims may require us to enter into license arrangements or
result in protracted and costly litigation, regardless of the merits of such
claims.
Government Regulation
We operate in a highly regulated business environment. All states
comprehensively regulate vehicle sales transactions, including the imposition
of strict licensing requirements for dealers and, in some states, brokers.
State and federal laws also regulate vehicle leasing and lending activities and
certain states impose licensing requirements and related regulations on
brokering and facilitating vehicle leases and loans. Moreover, various state
revenue agencies require taxes to be collected and remitted on each vehicle
sale or lease transaction with a consumer. Each state also has complex rules
and regulations governing the sale of insurance products, which we expect to
offer in the future.
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These government regulations impose substantial burdens on our business
and operations. Nevertheless, we must comply with all rules and regulations
applicable to our current and future business operations or face costly
penalties, including the risk of being prohibited from engaging in transactions
that are critical to the viability of our business model.
There are currently few laws or regulations directed specifically at
Internet businesses. However, because of the Internet's popularity and
increasing use, new laws and regulations may be adopted. Although we believe
that future federal and state legislation will clarify the regulatory
environment for commercial activity transacted via the Internet, including
transactions involving the sale, lease and financing of vehicles, as well as
the sale of insurance products, we cannot predict whether such legislation will
be favorable to our business practices or impose new or costly burdens on the
way we conduct business. These new laws and regulations may also cover issues
such as the collection and use of data from Web site visitors and related
privacy issues, pricing, content, copyrights, trademarks, distribution,
taxation, the quality of goods and services and consumer protection. The
enactment of any additional laws or regulations may impede the growth of the
Internet and Internet businesses, which could decrease our revenues and place
additional financial burdens on us.
Laws and regulations directly applicable to electronic commerce and
Internet communications are becoming more prevalent. For example, Congress
recently enacted laws regarding online copyright infringement and the
protection of information collected online from children. These laws add to the
legal and regulatory burden faced by Internet commerce and content companies
and could adversely affect our business. Other areas of state and federal
legislative activity include:
. Online vehicle sales transactions. Legislation addressing online
vehicle sales was introduced in the past year in Kentucky, Nebraska,
South Carolina and Washington. The Kentucky legislation, which would
have explicitly permitted online vehicle sale, was withdrawn without
action. The language addressing online sales was eliminated from the
Washington and Nebraska bills and their legislative sessions are now
concluded. The South Carolina legislation remains under legislative
consideration. In its current form, it would explicitly permit South
Carolina dealers to conduct motor vehicle sales in contracts with
online services. In addition, Florida has recently introduced
legislation that would authorize online services to engage in
business in the state, if manufacturers do not own them. Fifteen
other states are considering bills that would prohibit direct
competition with dealers by manufacturers, either through purchasing
dealerships, or otherwise. Most of these bills would preclude direct
sales by manufacturers except through a licensed, franchised dealer.
Vehicle dealers are represented by influential lobby organizations,
some of which currently do not view our business model as favorable.
These organizations may initiate legislation or support existing
legislation that could limit or preclude our ability to do business
in some states or require costly changes to our business model to
enable us to comply with such legislation. We cannot predict whether
any of these proposed bills, or any other potentially adverse
legislation or regulations that might be initiated by various states
in the future, will be adopted. Although we believe that federal and
state legislative initiatives in the future, including those related
to motor vehicle sales and services, will clarify the regulatory
environment for Internet companies, we cannot predict whether such
legislation will be unfavorable to our business practices or place
new and costly burdens on the way we do business.
. Taxes. Congress enacted a moratorium, ending in October 2006, on the
application of discriminatory or special taxes by the states on
Internet access or on products and services delivered over the
Internet. Congress further declared that there will be no federal
taxes on electronic commerce until the end of the moratorium.
However, this moratorium does not prevent states from taxing
activities or goods and services that the state would otherwise have
the power to tax including transactions involving the sale or leasing
of vehicles. Furthermore the moratorium does not apply to certain
state taxes that were in place before the moratorium was enacted.
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. Online privacy. Both Congress and the Federal Trade Commission are
considering regulating the extent to which companies should be able
to use and disclose information they obtain from consumers. If any
regulations are enacted, Internet companies may find some marketing
activities restricted. Also, the European Union has directed its
member nations to enact much more stringent privacy protection laws
then are generally found in the United States and has threatened to
prohibit the export of some personal data to United States companies
if similar measures are not adopted, Such a prohibition could limit
the growth of foreign markets for United States Internet companies.
The department of commerce is negotiating with the Federal Trade
Commission to provide exemptions from the European Union regulations,
but the outcome of these negotiations is uncertain.
. Other regulations. The growth of the Internet and Internet commerce
may lead to the enactment of more stringent consumer protection laws
including laws directed at online advertising, sale or leasing or
financing of vehicles or the sale of insurance products. The Federal
Trade Commission may use its existing jurisdiction to police
electronic commerce activities, and it is possible that the Federal
Trade Commission will seek authority from Congress to regulate
Internet activities. The enactment of new consumer protection laws or
the amendment of existing laws may impose new and costly burdens on
the way we conduct our business, which could decrease revenues and
harm our business.
Legal Proceedings
In September 1999, we filed an action against Trilogy Software, Inc. and
its wholly owned subsidiary carOrder.com, Inc. for tortious interference with
our contractual relations with IntelliChoice, Inc. This matter has been
dismissed without prejudice. In October 1999, Trilogy and carOrder.com filed an
action for patent infringement against us and our wholly owned subsidiary,
Autodata, in the United States District Court for the Western District of
Texas. The complaint alleged that we have infringed and are infringing
Trilogy's patented business process. Specifically, Trilogy and carOrder.com
claim that the method we use to configure vehicles and vehicle options
infringes various aspects of Trilogy's patent and that this infringement is
willful. Trilogy seeks, among other things, treble damages, preliminary and
permanent injunctive relief and attorneys' fees and costs. We deny Trilogy's
allegations and assert that Trilogy's patent is invalid, unenforceable and not
infringed.
In September 1999, Greg Brogger, our former Chief Operating Officer,
filed a complaint in Los Angeles County Superior Court. The action named
CarsDirect.com, CD1Financial, idealab! and Bank One as defendants. Mr. Brogger
pleaded a single cause of action for breach of contract against CD1Financial
and claims for intentional and negligent interference with contract against us
and others. Mr. Brogger claimed that CD1Financial, at the urging of the other
defendants, breached a purported employment agreement with Mr. Brogger by
terminating him without cause. As a result, he claimed he is entitled to a
5.75% ownership interest in CD1Financial, an amount he estimated to be worth
$33.0 million. In addition, he sought general and compensatory damages,
punitive damages and his costs of suit. Following the filing of the complaint,
we and the other defendants agreed to mediate and arbitrate Mr. Brogger's
claims. As a result, Mr. Brogger dismissed his action on January 14, 2000,
without prejudice. We have unsuccessfully mediated the case, and we are now
proceeding to a binding arbitration of Mr. Brogger's claims in June 2000. We
deny that we are liable to Mr. Brogger in any amount, and we intend to
vigorously defend against Mr. Brogger's allegations.
We intend to defend these lawsuits vigorously even though they could
result in the expenditure of significant financial and managerial resources. We
are not aware of any other material legal proceedings pending against us, even
though we may be involved in litigation or other proceedings arising in the
ordinary course of business.
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Employees
As of March 31, 2000, we had 702 full-time employees. Our employees are
not represented by any collective bargaining agreements, and we have never
experienced a work stoppage. We believe our employee relationships are good.
Facilities
We lease facilities in Culver City, California, which have approximately
43,000 square feet, pursuant to a lease agreement that expires in November
2004. These facilities comprise our headquarters, including our administration,
operations, and sales and marketing departments. We also lease parking
facilities pursuant to a lease agreement that expires December 10, 2000. In
addition we are leasing facilities consisting of approximately 24,000 square
feet for occupation by our sales and operations departments in November 2000.
We lease facilities in London, Ontario, Canada, which have approximately
14,861 square feet, pursuant to two separate lease agreements that expire
August 31, 2001. These facilities comprise our Autodata headquarters, including
our Autodata administration, operations, and sales and marketing departments.
We also lease a facility in Troy, Michigan that is approximately 10,200 square
feet and serves as a photo studio and sales center for Autodata. This lease
expires January 31, 2003.
We lease facilities in New York, New York, which have approximately
33,000 square feet, pursuant to a lease agreement that expires January 31,
2001. These facilities comprise our Potamkin headquarters, including our
Potamkin administration, operations, and sales and marketing departments, along
with our dealership showroom. We also occupy storage space in Clifton, New
Jersey and additional dealership showrooms in Westbury, New York and Brooklyn,
New York.
We believe we have adequate space for our present operations, and that
any additional space required will be available to us on commercially
reasonable terms.
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MANAGEMENT
Executive Officers, Key Employees and Directors
Our executive officers, key employees and directors, and their ages as of
April 15, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Robert Brisco................... 37 President, Chief Executive Officer and
Director
Christine Bucklin............... 37 Chief Operating Officer
Frederick G. Silny.............. 49 Chief Financial Officer and Secretary
Gerald Popek.................... 53 Chief Technology Officer
Lynn Walsh...................... 42 General Counsel
Eugene Schutt................... 46 Executive Vice President, Financial
Services Division and Chief Executive
Officer of CD1Financial
Greg Perrier.................... 38 Senior Vice President of Data Products,
President and Chief Executive Officer
and Director of Autodata
Larry Tchamkertenian............ 31 Executive Vice President of Sales and
Operations
Mark Miller..................... 43 Vice President of Dealer and Industry
Relations
Ari Wasserman................... 29 Vice President of Business Development
Neil Kaplan..................... 38 Vice President of Strategy and Business
Planning
Howard Morgan (1)............... 54 Director, Chairman of the Board
Jim Armstrong................... 34 Director
Glenn Fuhrman (1)............... 35 Director
Gerald Greenwald................ 64 Director
Bill Gross...................... 41 Director
Lawrence Gross (1).............. 38 Director
Michael Malamut................. 50 Director
Scott Painter................... 31 Director
Roger S. Penske, Sr. ........... 63 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Brisco has served as our President, Chief Executive Officer and
Director since November 1999. From October 1998 until October 1999, Mr. Brisco
served as President of Universal Studios Hollywood Theme Park, an entertainment
company, and CityWalk, an entertainment and shopping complex. From February
1993 until October 1998, he served as Senior Vice President of Advertising,
Marketing and New Business Development for The Los Angeles Times, a newspaper
company. Mr. Brisco received his B.A. in Economics and Journalism from the
University of Southern California and his M.B.A. from the University of
California at Los Angeles.
Ms. Bucklin has served as our Chief Operating Officer since November
1999. From July 1999 to November 1999, Ms. Bucklin served as an Entrepreneur in
Residence at idealab!, a company that creates, builds and operates businesses
that use the power of real-time communications, including the Internet,
telephony, cable and wireless, to satisfy unmet market needs, where she
assisted in launching portfolio companies. From September 1988 to July 1999,
she worked at McKinsey & Company, a management consulting firm, where she was a
Principal. Ms. Bucklin received her B.A. in Mathematics from Dartmouth College
and her M.B.A. from the Stanford Graduate School of Business.
Mr. Silny has served as our Chief Financial Officer since June 1999 and
as our Secretary since July 1999. From July 1989 until June 1999, he worked at
IHOP Corp., a food service company, where he served as Chief Financial Officer,
Vice President-Finance and Treasurer. Prior thereto, he was employed by
Carnation Company as Assistant General Manager and Division Manager of its
Dairies Division from September 1986 to July 1989, and as Director of Finance
of its Dairies Division from November 1985 to August 1986 and as Assistant
Treasurer in its Corporate Finance Department from July 1984 to October 1985.
Mr. Silny received his B.Sc. in Psychology from McGill University, his M.A. in
Statistics and in Psychology from the University of California at Berkeley, and
his M.B.A. from the University of Chicago.
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Dr. Popek has served as our Chief Technical Officer since August 1999.
From August 1995 until August 1999, Dr. Popek served as the Chief Technical
Officer at PLATINUM technology, Inc., a software company, and its successor,
Computer Associates International, Inc, a software company. From January 1982
until August 1995, he was Chairman of Locus Computing Corp., a software
company, which was acquired by PLATINUM technology, Inc. Dr. Popek earned his
B.S. in Nuclear Engineering from New York University, and his S.M. and Ph.D in
Applied Mathematics from Harvard University.
Ms. Walsh has served as our General Counsel since March 2000. From July
1998 until she joined us, Ms. Walsh was a partner in the Technology group at
Alston & Bird LLP in Atlanta, Georgia, where she specialized in securities,
transactional and compliance work. From April 1990 until June 1998, Ms. Walsh
was a partner at Hunton & Williams in Atlanta. Ms. Walsh received her B.A. from
the University of Michigan and her J.D. from Wayne State University Law School.
Mr. Schutt has served as our Executive Vice President, Financial Services
Division and as Chief Executive Officer of CD1Financial, our subisidary, since
September 1999. From August 23, 1999 until that time, he served as Chief
Operating Officer of CD1Financial. From January 1992 until January 1999,
Mr. Schutt served as President of Avco Financial Services Inc., a consumer and
commercial finance organization. He currently serves on the board of directors
of one public company, Channell Commercial Corp. Mr. Schutt received his B.A.
in Economics from the University of Virginia.
Mr. Perrier has served as Senior Vice President, Data Products and as
President and Chief Executive Officer and a Director of Autodata, our
subsidiary, since July 1999. From November 1992 until July 1999, prior to
Autodata's acquisition by CarsDirect.com, he served as President of that
entity. Mr. Perrier received his H.B.A. from the Richard Ivey School of
Business.
Mr. Tchamkertenian has served as our Executive Vice President of Sales
and Operations since February 1999. From May 1996 until January 1999, Mr.
Tchamkertenian served as Vice President of Operations at Quarterdeck
Corporation, a software publishing company, where he was responsible for
financial systems and reporting, production and distribution, technical and
customer support, and acquisition integration. From February 1993 to May 1996,
he served as Director of Operations at Knowledge Adventure, Inc., a software
publishing company, where he had similar responsibilities. Mr. Tchamkertenian
received his B.S. in Business Administration from California State University,
Northridge.
Mr. Miller has served as our Vice President of Dealer and Industry
Relations since June 1999. From 1979 until June 1999, he served as Vice
President and Chief Operating Officer of Miller Automotive Group, an automotive
dealership group. Mr. Miller received his B.S. in Business from the University
of Colorado at Boulder.
Mr. Wasserman has served as our Vice President of Business Development
since February 1999. From October 1995 to February 1999, he was an associate at
Sullivan & Cromwell, a law firm. Prior to October 1995, Mr. Wasserman earned
his B.A. in International Relations from the University of Pennsylvania and his
J.D. from Harvard Law School.
Mr. Kaplan has served as our Vice President of Strategy and Business
Planning since December 1999. From April 1999 until December 1999, Mr. Kaplan
served as Vice President of Market Planning and Development for Universal
Studios Hollywood, an entertainment company. From September 1994 until January
1999, he served as Director of Sales, Marketing and Strategic Planning for The
Los Angeles Times. Mr. Kaplan received his B.S. in Economics from the Wharton
School at the University of Pennsylvania and his M.M. from Kellogg Graduate
School of Management at Northwestern University.
Dr. Morgan has served as a Director of CarsDirect.com since February 1999
and as Chairman of our board of directors since September 1999. He has served
as President of idealab! New York, a company that creates, builds and operates
businesses that use the power of real-time communications, including the
Internet, telephony, cable and wireless, to satisfy unmet market needs, since
March 2000, as a director of idealab! since February 1999, and as a Vice
Chairman of idealab! since January 1999. Since 1989, Dr. Morgan has also been
President of Arca Group, Inc., a consulting and investment management firm
specializing in the areas of
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computers and communications technologies. He serves as a director for a number
of public companies, including Cylink Corp., Franklin Electronic Publishers,
Inc., Infonautics Corporation, MyPoints.com, Inc., Segue Software, Inc.,
Tickets.com, Inc. and Unitronix Corp. Dr. Morgan holds a B.S. in Physics from
City University of New York and a Ph.D. in operations research from Cornell
University.
Mr. Armstrong has served as a Director of CarsDirect.com since January
1999. Mr. Armstrong is a Managing Director at idealab! Capital Management I,
LLC, the sole general partner of venture capital funds, a firm he joined in
August 1998. From May 1995 until August 1998, he was a Senior Associate at
Austin Ventures, a venture capital firm. He also serves as a director of one
other public company, NetZero, Inc. Mr. Armstrong received his B.A. in
Economics from the University of California at Los Angeles and his M.B.A. from
the University of Texas at Austin.
Mr. Fuhrman has served as a Director of CarsDirect.com since April 1999.
He has been a Managing Principal of MSD Capital, L.P., a private investment
firm, since July 1998. From 1988 until June 1998, Mr. Fuhrman worked at
Goldman, Sachs & Co., an international investment bank, where he was a Managing
Director responsible for the Special Investments Group. Mr. Fuhrman received
his B.S.E. in Finance and Art History and his M.B.A. from the Wharton School at
the University of Pennsylvania.
Mr. Greenwald has served as a Director of CarsDirect.com since September
1999. Mr. Greenwald is chairman emeritus of UAL Corporation and United Air
Lines and served as the Chairman and Chief Executive Officer of United Air
Lines from 1994 to 1999. He serves as a director for two public companies,
Time-Warner Inc. and Aetna Inc. From 1979 to 1990, Mr. Greenwald was employed
by the Chrysler Corporation, where he worked in various positions including
corporate controller and chief financial officer before being promoted to vice
chairman, a position in which he shared responsibility with the Chief Executive
Officer for the operations of the company. From 1957 to 1979, he was employed
by the Ford Motor Company, where he worked in several positions including
controller, director of Ford's operations in Europe and as president of Ford of
Venezuela. Mr. Greenwald received his B.A. in Economics from Princeton
University and his M.A. in Economics from Wayne State University.
Mr. Bill Gross has served as a Director of CarsDirect.com since its
inception. Mr. Gross founded idealab!, a company that creates, builds and
operates businesses that use the power of real-time communications, including
the Internet, telephony, cable and wireless, to satisfy unmet market needs, in
March 1996 and has served as Chairman of the Board, Chief Executive Officer and
as a director of idealab! since that time. He also has served as a Managing
Director of idealab! Capital Management I, LLC, the sole general partner of
venture capital funds, since March 1998. From June 1991 to January 1997, he
served as Chairman of Knowledge Adventure, Inc., a software publishing company,
which he founded with his brother, Lawrence Gross. Mr. Gross serves on the
board of directors of Ticketmaster Online-CitySearch, Inc. (formerly
CitySearch, Inc.), NetZero, Inc. and GoTo.com, Inc. He also serves on the board
of directors of several private companies. Mr. Gross received his B.S. in
Mechanical Engineering from the California Institute of Technology.
Mr. Lawrence Gross has served as a Director of CarsDirect.com since
September 1999. Mr. Gross has served as President of idealab! Europe, since
March 2000, and as a Vice Chairman and director of idealab!, a company that
creates, builds and operates businesses that use the power of real-time
communications, including the Internet, telephony, cable and wireless, to
satisfy unmet market needs, since April 1999. Prior to joining idealab!, Mr.
Gross was the President and Chief Executive Officer of Knowledge Adventure, a
software publishing company, which he founded with his brother, Bill Gross, in
1991. Following the acquisition of Knowledge Adventure, Mr. Gross served as
senior vice president of Cendant Software and president of Davidson &
Associates from 1997 to 1999. Mr. Gross received his B.S. in Computer Science
from the California Institute of Technology and is a graduate of the Executive
Program for Growing Companies at the Stanford Graduate School of Business.
Mr. Malamut has served as a Director of CarsDirect.com since March 1999.
Since 1971, he has served as President and Chief Executive Officer of Autoland
Inc., a credit union auto buying service and auto brokerage company.
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Mr. Painter has served as a Director of CarsDirect.com since November
1998 and has served as Vice Chairman of CarsDirect.com since November 1999.
From our inception until November 1999, Mr. Painter served as our Chief
Executive Officer and President. From January 1998 until November 1999, he
served as Chief Executive Officer of Vision Inc., an e-commerce consulting
company. From February 1997 until January 1998, Mr. Painter served as Chief
Executive Officer of Dental Advantage, a professional services company for
dentists, which he founded. From June 1995 until February 1997, he was Vice
President of Marketing for Futuredontics, Inc. operator of the 1800DENTIST
service. Prior to joining Futuredontics Mr. Painter served as a consultant to
automotive manufacturers in the area of financing and leasing. From June 1993
to November 1994, Mr. Painter served as Vice President of Marketing and
Corporate Development at 1800CARSEARCH, an electronic database of used cars for
sale that also offered financing, leasing and warranties. Mr. Painter founded
InfoAccess, an electronic classified service, while a student at the University
of California at Berkeley where he majored in Economics from 1991 to 1993. From
1989 to 1991, Mr. Painter majored in Systems Engineering and Political Science
at West Point.
Mr. Penske has served as a Director of CarsDirect.com since May 2000. Mr.
Penske is also Chairman of the Board and Chief Executive Officer of Penske
Corporation. Penske Corporation is a privately-owned diversified transportation
services company which, among other things, holds, through its subsidiaries,
interests in a number of businesses, including Penske Truck Leasing Co., L.P.,
Detroit Diesel Corporation, Penske Automotive Group, Inc., Diesel Technology
Company and Penske Capital Partners, LLC. Mr. Penske is also Chairman of the
Boards of Directors of UnitedAuto Group, Inc. and Detroit Diesel Corporation,
Vice Chairman of the Board of International Speedway Corporation and a member
of the Boards of Directors of General Electric Company, Inc. and Delphi
Automotive Systems Corporation.
Board of Directors
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees, except that Bill Gross and Lawrence Gross, two of our directors, are
brothers.
Board Committees
Our board of directors established an audit committee and a compensation
committee on March 16, 1999. The compensation committee evaluates and approves
the compensation policies for the executive officers and administers our
employee benefit plans. The current members of the compensation committee are
Glenn Fuhrman, Lawrence Gross and Howard Morgan. The audit committee reviews
our accounting practices and procedures, the results and scope of our annual
audit and recommends the appointment of our independent auditors. The current
members of the audit committee are and .
Director Compensation
Our directors currently do not receive any cash compensation from us for
their service as members of the board of directors, except for reimbursement
for reasonable travel expenses in connection with attendance at board and
committee meetings. Under our 1998 Stock Plan, nonemployee directors are
eligible to receive stock option grants at the discretion of the board of
directors.
Compensation Committee Interlocks and Insider Participation
Prior to establishing the compensation committee on March 16, 1999, our
board of directors as a whole performed the functions delegated to the
compensation committee. 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 interlocking
relationship existed in the past.
During the year ended December 31, 1999, Glenn Fuhrman, Kathryn Gould,
Lawrence Gross and Howard Morgan served on our compensation committee.
. Glenn Fuhrman is a Managing Principal of MSD Capital, L.P. Entities
affiliated with MSD Capital, L.P. purchased 2,575,106 shares of
Series C preferred stock at a per share price of $2.33 and 31,725
shares of Series D preferred stock at a per share price of $15.76.
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. Kathryn Gould is a Managing Member of Foundation Capital Management
Co. II, L.L.C., a beneficial owner of more than 5% of our capital
stock. Entities affiliated with Foundation Capital Management Co. II,
L.L.C. purchased 3,246,753 shares of Series B preferred stock at a
per share price of $0.77, 515,021 shares of Series C preferred stock
at a per share price of $2.33, and 12,690 shares of Series D
preferred stock at a per share price of $15.76.
. Lawrence Gross and Howard Morgan are officers and directors of
idealab!, which is the parent of idealab! Holdings, L.L.C., a
beneficial owner of more than 5% of our capital stock. idealab!
Holdings, L.L.C. holds 1,000 shares of Class A common stock at a per
share price of $0.001, which was initially purchased by its
affiliate, idealab! Investments, L.L.C., 10,000,000 shares of Series
A preferred stock at a per share price of $0.01 which was initially
purchased by its affiliate, idealab! Investments, L.L.C., and it
purchased 2,575,107 shares of Series C preferred stock at a per share
price of $2.33, 11,603,735 shares of Series D preferred stock at a
per share price of $15.76, and 2,050,000 shares of Class B common
stock at a per share price of $17.34. In addition, idealab! Holdings,
L.L.C. issued us a promissory note in the initial principal amount of
$65.0 million as payment for its purchase of Series D preferred
stock, which note plus interest was paid in full in January 2000.
idealab!, an affiliate of idealab! Holdings, L.L.C. also leased us
office space and provided us with management services, and continues
to provide us with management consulting services.
Executive Compensation
The following table sets forth summary information concerning the
compensation we paid for services rendered to us during the fiscal year ended
December 31, 1999 by our executive officers who earned more than $100,000 in
salary and bonus during the fiscal year ended December 31, 1999, referred to as
the named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Name and Principal Position Annual Compensation Securities
- --------------------------- ----------------------- Underlying
Salary Bonus Options (1)
---------- --------- ------------
<S> <C> <C> <C>
Scott Painter (2)..................... $ 142,800 (3) $ 75,108 (4) 1,550,000
President and Chief Executive Officer
Robert Brisco (5)..................... 14,032 400,000 (6) 1,200,000
President and Chief Executive Officer
Ken Murphy (7)........................ 160,417 -- 75,000
Vice President and General Counsel
Mark Miller........................... 126,353 -- 90,000
Vice President of Dealer and Industry
Relations
</TABLE>
- --------
(1) These options were granted pursuant to our 1998 Stock Plan and are options
to purchase Class A common stock.
(2) Mr. Painter served as our President and Chief Executive Officer from our
inception until November 4, 1999.
(3) Includes $35,378 paid to Vision, Inc., the primary purpose of which was to
furnish compensation to Mr. Painter.
(4) This amount represents a signing bonus paid by us to Mr. Painter for his
entering into an amended and restated employment agreement with us on
September 30, 1999.
(5) Mr. Brisco has served as our President and Chief Executive Officer since
November 4, 1999.
(6) Although earned by Mr. Brisco during the year ended December 31, 1999, this
bonus was paid by us to Mr. Brisco on April 3, 2000.
(7) Mr. Murphy currently serves as our Special Counsel for Regulatory Affairs
and Industry Relations.
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Option Grants in Fiscal Year 1999
The following table provides information relating to stock options
awarded to the named executive officers during the fiscal year ended December
31, 1999, including the potential realizable value over the 10-year term of the
options based on assumed rates of stock appreciation of 5% and 10%, beginning
with a base value equal to the fair market value at the time of grant, which is
equal to the exercise price, compounded annually. These assumed rates of
appreciation comply with the rules of the Securities and Exchange Commission
and do not represent our estimate of future stock prices. Actual gains, if any,
on stock option exercises will be dependent on the future performance of our
Class A common stock. In the fiscal year ended December 31, 1999, we granted
options and rights to acquire up to an aggregate of 10,238,839 shares of
Class A common stock to employees, consultants, directors and other persons
having a business relationship with us under our 1998 Stock Plan and all at an
exercise price equal to not less than the fair market value of our Class A
common stock on the date of grant as determined in good faith by the board of
directors. Optionees may pay the exercise price by check, note, delivery of
already-owned shares of our Class A common stock or any other instrument the
board will accept. Options granted under the 1998 Stock Plan generally vest at
a rate of one-fourth per year. No stock appreciation rights were granted to
these individuals during such year.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percent of Annual Rates of Stock
Number of Total Price Appreciation for
Securities Options Granted Exercise Option Term
Underlying to Employees In Price per Expiration -----------------------
Name Options Granted Fiscal Year Share Date 5% 10%
- ---- --------------- --------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Scott Painter........... 500,000 4.88% $0.001 01/01/09 $ 314 $ 797
750,000 7.33% 0.35 06/23/09 165,085 418,357
Robert Brisco........... 1,200,000 11.72% 1.50 11/04/09 1,132,010 2,868,736
Ken Murphy.............. 75,000 0.73% 0.35 06/23/09 16,508 41,836
Mark Miller............. 70,000 0.68% 0.35 06/23/09 15,408 39,047
1,586 0.02% 1.50 11/04/09 1,496 3,792
18,414 0.18% 1.50 11/04/09 17,371 44,021
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information about the number and year-end
value of exercisable and unexercisable options held by the named executive
officers for the fiscal year ended December 31, 1999. The "Value Realized" on
shares acquired on exercise in the fiscal year ended December 31, 1999 is based
on the difference between the fair market value of the Class A common stock at
December 31, 1999 ($5.00 per share) and the exercise price, while the "Value of
Unexercised In-the-Money Options at December 31, 1999" is based on the
difference between the initial public offering price and the exercise price.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-the-
Options at Money Options at
Shares December 31, 1999 December 31, 1999
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott Painter........... 1,250,000 (1) $7,486,700 -- -- $-- $--
Robert Brisco........... 1,200,000 (2) 4,200,000 -- -- -- --
Ken Murphy.............. 75,000 (3) 348,750 -- -- -- --
Mark Miller............. 71,586 (4) 331,051 -- 18,414 --
</TABLE>
- --------
(1) Of these shares, as of December 31, 1999, 133,564 are subject to a right of
repurchase by us at a price of $0.001 per share and 574,228 are subject to
a right of repurchase by us at a price of $0.35 per share, which rights of
repurchase lapse over time.
(2) Of these shares, as of December 31, 1999, 1,140,000 are subject to a right
of repurchase by us at a price of $1.50 per share, which right of
repurchase lapses over time.
(3) Of these shares, as of December 31, 1999, 63,750 are subject to a right of
repurchase by us at a price of $0.35 per share, which right of repurchase
lapses over time.
(4) Of these shares, as of December 31, 1999, 56,000 are subject to a right of
repurchase by us at a price of $0.35 per share.
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Incentive Stock Plans
1998 Stock Plan
Our 1998 Stock Plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and stock purchase rights to employees, directors
and consultants. The 1998 Stock Plan, as amended, was adopted by our board of
directors on May 2, 2000 and approved by our stockholders in 2000.
As of March 31, 2000 a total of 11,000,000 shares of our Class A common
stock had been reserved for issuance under the 1998 Stock Plan. In addition,
annual increases will be added to the 1998 Stock Plan, beginning on January 1,
2001, equal to the lesser of 7,500,000 shares, 4.5% of the outstanding shares
or a lesser amount determined by our board of directors. As of March 31, 2000,
options to purchase 8,205,600 shares of Class A common stock have been
exercised, options to purchase 2,963,183 shares of Class A common stock were
outstanding under the 1998 Stock Plan and 244,917 shares of Class A common
stock were available for future grant.
Administration
Our board of directors or a committee of our board of directors
administers the 1998 Stock Plan. The administrator of our 1998 Stock Plan has
the power to determine, among other things:
. the terms of the options or stock purchase rights granted, including
the exercise price of the option or stock purchase right;
. the number of shares subject to each option or stock purchase right;
. the exercisability of each option or stock purchase right; and
. the form of consideration payable upon the exercise of each option or
stock purchase right.
Options
The exercise price of all incentive stock options granted under the 1998
Stock Plan must be at least equal to the fair market value of the Class A
common stock on the date of grant, as determined by our board of directors. The
exercise price of nonstatutory stock options and stock purchase rights granted
under the 1998 Stock Plan is determined by the administrator, but with respect
to nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the exercise price must be at least equal to the fair market value of our
Class A common stock on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must be at least equal 110% of the fair market value on the grant date
and the term of such incentive stock option must not exceed five years. The
term of all other options granted under the 1998 Stock Plan may not exceed ten
years.
During any fiscal year, each optionee may be granted options to purchase
a maximum of 1,500,000 shares. In addition, in connection with an optionee's
initial employment with us, such optionee may be granted an option covering an
additional 1,500,000 shares.
Options granted under the 1998 Stock Plan must generally be exercised
within three months after the end of an optionee's status as an employee,
director or consultant of CarsDirect.com, or within 12 months after an
optionee's termination as a result of death or disability of the optionee, but
in no event later than the expiration of the option's term.
Transferability of Options
Options and stock purchase rights granted under the 1998 Stock Plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by such optionee.
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Stock Purchase Rights
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreements grant us a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with us for any reason,
including death or disability. The purchase price for shares repurchased
pursuant to the restricted stock purchase agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of
the purchaser to us. The repurchase option shall lapse at a rate determined by
the administrator.
Adjustments upon Merger or Asset Sale
The 1998 Stock Plan provides that in the event of a merger of
CarsDirect.com with or into another corporation, or a sale of substantially all
of our assets, each option and stock purchase right shall be assumed or an
equivalent option or right substituted for by the successor corporation or a
parent or subsidiary of the successor corporation. If the outstanding options
and stock purchase rights are not assumed or substituted for by the successor
corporation, the optionees will become fully vested in and have the right to
exercise such options or stock purchase rights. If an option or stock purchase
right becomes fully vested and exercisable in the event of a merger or sale of
assets, the administrator must notify the optionee that the option or stock
purchase right is fully exercisable for a period of 15 days from the date of
the notice, and the option or stock purchase right will terminate upon the
expiration of the 15-day period.
Amendment and Termination of the 1998 Stock Plan
The administrator will have the authority to amend, suspend or terminate
the 1998 Stock Plan, so long as no such action affects any shares of common
stock previously issued and sold or any option previously granted under the
1998 Stock Plan. Unless terminated sooner, the 1998 Stock Plan will terminate
automatically ten years from the date of obtaining stockholder approval in
, 2000.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was adopted by our board of
directors on , 2000, and approved by our stockholders on , 2000. A
total of 1,500,000 shares of our Class A common stock has been reserved for
issuance under the 2000 Employee Stock Purchase Plan, plus annual increases
beginning on January 1, 2001 equal to the lesser of 1,000,000 shares, 1.0% of
the outstanding shares on such date or an amount determined by our board of
directors. As of the date of this prospectus, no shares have been issued under
the 2000 Employee Stock Purchase Plan.
Structure of the 2000 Employee Stock Purchase Plan
The 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains consecutive, overlapping
offering periods. The offering periods generally start on the first trading day
on or after May 1 and November 1 of each year, except for the first such
offering period, which commences on the first trading day on or after the
effective date of this offering and ends on the last trading day on or before
.
Eligibility
Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, employees may not be granted an
option to purchase stock under the 2000 Employee Stock Purchase Plan if they
either:
. immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock,
or
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. hold rights to purchase stock under our employee stock purchase plans
that accrue at a rate that exceeds $25,000 worth of stock for each
calendar year.
Purchases
The 2000 Employee Stock Purchase Plan permits participants to purchase
our Class A common stock through payroll deductions of up to 15% of the
participant's compensation. Compensation is defined as the participant's base
straight time gross earnings, bonuses, overtime, shift premium, incentive
compensation and commissions, but exclusive of other compensation. The maximum
number of shares a participant may purchase during a single offering period is
shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of Class A common stock at the end of each offering period. The price of
stock purchased under the 2000 Employee Stock Purchase Plan is generally 85% of
the lower of the fair market value of the Class A common stock either:
. at the beginning of the offering period; or
. at the end of the purchase period.
Participants may end their participation at any time during an offering
period, and they will be paid their payroll deductions to date. The Board has
the power to change the ability of participants to end their participation with
respect to future offerings if the change is announced prior to the scheduled
beginning of the first offering period to be affected. Participation ends
automatically upon termination of employment with CarsDirect.com.
Transferability of Rights
Rights granted under the 2000 Employee Stock Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the 2000 Employee Stock Purchase
Plan.
Merger or Asset Sale
The 2000 Employee Stock Purchase Plan provides that, in the event we
merge with or into another corporation or there is a sale of substantially all
of our assets, each outstanding option may be assumed or substituted for by the
successor corporation or a parent or subsidiary of the successor corporation.
If the successor corporation refuses to assume or substitute for the
outstanding options, the offering period then in progress will be shortened and
a new exercise date will be set.
Amendment and Termination of the 2000 Employee Stock Purchase Plan
The 2000 Employee Stock Purchase Plan will terminate in 2010. Our board
of directors has the authority to amend or terminate the 2000 Employee Stock
Purchase Plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 2000 Employee Stock Purchase Plan.
Limitations on Liability and Indemnification Matters
Our certificate of incorporation that we will adopt immediately prior to
the closing of this offering limits the liability of directors to the maximum
extent permitted by Delaware law. Delaware law provides that directors of a
corporation will not be personally liable for monetary damages for breach of
their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to our company or our
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
The limitations on a director or officer's liability in our certificate
of incorporation do not apply to liabilities arising under the federal
securities laws and do not affect the availability of equitable remedies such
as injunctive relief or rescission.
Our certificate of incorporation, together with our restated bylaws, both
of which we will adopt immediately prior to the closing of this offering, will
provide that we must indemnify our directors and officers and may indemnify our
other employees and agents to the fullest extent permitted by law. We believe
that indemnification under our restated bylaws will cover at least negligence
and gross negligence on the part of indemnified parties. Our restated bylaws
will also permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
that capacity, regardless of whether the restated bylaws would otherwise permit
indemnification. We believe that the indemnification provisions of our
certificate of incorporation and restated bylaws are necessary to attract and
retain qualified persons as directors and officers. We also maintain directors'
and officers' liability insurance.
We have entered into agreements to indemnify our directors, executive
officers and other employees as determined by the board of directors. These
agreements provide for indemnification for related expenses including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding that may arise by reason of that person's
status or service as an officer, director or employee. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of our company where
indemnification will be required or permitted, nor are we aware of any
threatened litigation or proceeding that might result in a claim for
indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our Class A
common stock as of March 31, 2000, by:
. each person or entity who is known by us to own beneficially more
than 5% of our capital stock;
. the named executive officers;
. each of our directors; and
. all of our executive officers and directors as a group.
Unless otherwise indicated, the address for each of the individuals or
entities listed below is c/o CarsDirect.com, Inc., 10567 Jefferson Boulevard,
Culver City, California 90232. Unless otherwise indicated below, and subject to
the rights of any spouse under applicable community property laws, we believe
that the persons named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them.
Percentage ownership in the table is based on 59,959,462 shares of Class
A common stock outstanding as of March 31, 2000, and shares outstanding
immediately following the completion of this offering, assuming the
underwriters' over-allotment option is not exercised and assuming the
conversion of all shares of our Class B common stock and preferred stock into
Class A common stock. Beneficial ownership is determined under the rules of the
Securities and Exchange Commission. All shares of common stock subject to
options currently exercisable or exercisable within 60 days after March 31,
2000 are deemed to be outstanding for the purpose of computing the percentage
ownership of the person holding the options, but are not deemed to be
outstanding for computing the percentage ownership of any other person. Entries
denoted by an asterisk represent an amount less than 1%.
<TABLE>
<CAPTION>
Percentage of Shares of
Class A Common Stock
Shares of Outstanding
Class A Common Stock ------------------------------
Name and Address Beneficially Owned Before Offering After Offering
- ---------------- -------------------- --------------- --------------
<S> <C> <C> <C>
idealab! Holdings,
L.L.C. (1)............... 26,234,842 43.8%
idealab! Capital
Management I, LLC (2).... 3,777,636 6.3
Foundation Capital
Management Co. II,
L.L.C. (3)............... 4,637,705 7.7
Howard Morgan (4)......... 26,234,842 43.8
Jim Armstrong (5)......... 3,777,636 6.3
Robert Brisco (6)......... 1,400,000 2.3
Glenn Fuhrman (7)......... 2,606,831 4.3
Gerald Greenwald (8)...... 484,484 *
Bill Gross (9)............ 30,012,478 50.1
Lawrence Gross (10)....... 26,234,842 43.8
Mike Malamut.............. 935,586 1.6
Scott Painter (11)........ 3,672,570 6.1
Roger S. Penske, Sr....... 0 *
Mark Miller (12).......... 86,190 *
Ken Murphy (13)........... 75,000 *
All directors and
executive officers as a
group (20 persons) (14)..
</TABLE>
- --------
(1) The address of idealab! Holdings, L.L.C. is 130 West Union Street,
Pasadena, California 91103.
(2) Includes 694,811 shares held of record by idealab! Capital Partners I-A,
LP, and 3,082,825 shares held of record by idealab! Capital Partners I-B,
LP. idealab! Capital Management I, LLC is the general partner of idealab!
Capital Partners I-A, LP and idealab! Capital Partners I-B, LP, and
exercises voting and investment power over the shares held by those
entities. The address of idealab! Capital Management I, LLC is 130 West
Union Street, Pasadena, California 91103.
(3) Includes 3,208,294 shares held of record by Foundation Capital II, L.P.,
377,446 shares held of record by Foundation Capital II Entrepreneurs Fund,
L.L.C., and 188,724 shares held of record by Foundation
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<PAGE>
Capital II Principals Fund, L.L.C. Also includes 863,241 shares that
certain entities affiliated with Foundation Capital Management Co. II,
L.L.C. have the option to purchase from Greg Brogger and Scott Painter upon
the closing of this offering, described as follows. Includes 201,450 shares
that Foundation Capital II, L.P. has the option to receive from Greg
Brogger in satisfaction of amounts outstanding under a Secured Promissory
Note dated February 25, 1999, referred to as the first Brogger option
agreement; 23,700 shares that Foundation Capital II Entrepreneurs Fund,
L.L.C. has the option to purchase from Greg Brogger under the first Brogger
option agreement; 11,850 shares that Foundation Capital II Principals Fund,
L.L.C. has the option to purchase from Greg Brogger under the first Brogger
option agreement. Includes 304,300 shares that Foundation Capital II, L.P.
has the option to receive from Scott Painter in satisfaction of amounts
outstanding under a Secured Promissory Note dated February 25, 1999,
referred to as the first Painter option agreement; 35,800 shares that
Foundation Capital II Entrepreneurs Fund, L.L.C. has the option to purchase
from Scott Painter under the first Painter option agreement; 17,900 shares
that Foundation Capital II Principals Fund, L.L.C. has the option to
purchase from Scott Painter under the first Painter option agreement.
Includes 82,081 shares that Foundation Capital II, L.P. has the option to
receive from Greg Brogger in satisfaction of amounts outstanding under a
Secured Promissory Note dated April 28, 1999, referred to as the second
Brogger option agreement; 9,657 shares that Foundation Capital II
Entrepreneurs Fund, L.L.C. has the option to purchase from Greg Brogger
under the second Brogger option agreement; 4,829 shares that Foundation
Capital II Principals Fund, L.L.C. has the option to purchase from Greg
Brogger under the second Brogger option agreement. Includes 145,923 shares
that Foundation Capital II, L.P. has the option to receive from Scott
Painter in satisfaction of amounts outstanding under a Secured Promissory
Note dated April 28, 1999, referred to as the second Painter option
agreement; 17,167 shares that Foundation Capital II Entrepreneurs Fund,
L.L.C. has the option to purchase from Scott Painter under the second
Painter option agreement; 8,584 shares that Foundation Capital II
Principals Fund, L.L.C. has the option to purchase from Scott Painter under
the first Painter option agreement. The address of Foundation Capital
Management Co. II, L.L.C. is 70 Willow Road, Suite 200, Menlo Park,
California 94025.
(4) Represents 26,234,842 shares held of record by idealab! Holdings, L.L.C.
Dr. Morgan is an officer and director of idealab!, the parent of idealab!
Holdings, L.L.C., and exercises voting and investment power over shares
held by that entity. Dr. Morgan disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest therein.
(5) Represents 3,777,636 shares held of record by entities affiliated with
idealab! Capital Management I, LLC. Mr. Armstrong is a Managing Director
of idealab! Capital Management I, LLC and exercises voting and investment
control over shares beneficially held by that entity. Mr. Armstrong
disclaims beneficial ownership of these shares, except to the extent of
his pecuniary interest therein.
(6) Includes shares subject to a right of repurchase by CarsDirect.com as of
March 31, 1999, which right of repurchase lapses over a four-year period.
Also includes 200,000 shares that Mr. Brisco is entitled to acquire upon
exercise of a warrant dated November 4, 1999.
(7) Represents shares held of record by entities affiliated with MSD Capital,
L.P., including 429,184 shares held of record by Black Marlin Investments,
LLC, 1,748,463 shares held of record by MSD Portfolio, L.P.-Investments
and 429,184 shares held of record by Vermeer Investments, LLC. Mr. Fuhrman
is a Managing Principal of MSD Capital, L.P. and exercises voting and
investment control over shares beneficially held by that entity. Mr.
Fuhrman disclaims beneficial ownership of these shares, except to the
extent of his pecuniary interest therein.
(8) Includes 484,484 shares held of record by GBJ Holdings, LLC. Mr. Greenwald
is a Managing Member of GBJ Holdings, LLC and exercises voting and
investment control over shares held by that entity. Also includes 171,329
shares that GBJ Holdings, LLC is entitled to acquire upon conversion of
the principal amount of a convertible subordinated promissory note dated
September 28, 1999. Mr. Greenwald disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest therein.
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<PAGE>
(9) Represents 26,234,842 shares held of record by idealab! Holdings, L.L.C.
and 3,777,636 shares held of record by entities affiliated with idealab!
Capital Management I, LLC. Mr. Bill Gross is a Managing Member of idealab!
Holdings, L.L.C. and a Managing Director of idealab! Capital Management I,
LLC and exercises voting and investment power over shares held by those
entities. Mr. Gross disclaims beneficial ownership of these shares, except
to the extent of his pecuniary interest therein.
(10) Represents 26,234,842 shares held of record by idealab! Holdings, L.L.C.
Mr. Lawrence Gross is an officer and director of idealab!, the parent of
idealab! Holdings, L.L.C., and exercises voting and investment power over
shares held by that entity. Mr. Gross disclaims beneficial ownership of
these shares, except to the extent of his pecuniary interest therein.
(11) Includes 634,518 shares held of record by Scott Painter, L.P. and 634,517
shares held of record by Scott Painter II, L.P. Mr. Painter is a general
partner of Scott Painter L.P. and Scott Painter II, L.P. and exercises
voting and investment control over shares held by those entities. Includes
shares that are subject to repurchase by us as of March 31, 2000, which
repurchase right lapses over a four-year period.
(12) Includes shares under outstanding stock options that are currently
exercisable or exercisable within 60 days of March 31, 2000, some of which
shares, if purchased, would be subject to repurchase by us as of March 31,
2000, which repurchase right lapses over a four-year period. Includes
shares that are subject to repurchase by us as of March 31, 2000, which
repurchase right lapses over a four-year period.
(13) Includes shares that are subject to repurchase by us as of March 31, 2000,
which repurchase right lapses over a four-year period.
(14) Includes shares under outstanding stock options that are currently
exercisable or exercisable within 60 days of March 31, 2000, some of which
shares, if purchased, would be subject to repurchase by us as of March 31,
2000, which repurchase right lapses over a four-year period. Includes
shares that are subject to repurchase by us as of March 31, 2000, which
repurchase right lapses over a four-year period.
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<PAGE>
RELATED PARTY TRANSACTIONS
Since our formation in October 1998, there has not been, nor is there any
proposed transaction where we were or will be a party in which the amount
involved exceeded or will exceed $60,000 and in which any director, executive
officer, holder of more than 5% of any class of our voting securities, or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest, other than the compensation agreements
and other agreements and transactions that are described in the section
entitled "Management" and the transactions described below.
Equity Transactions
1. We have raised capital primarily through the sale of our stock. In
connection with our financing activities, we issued shares of our capital stock
to certain investors who are members of our board of directors, our executive
officers or who beneficially own more than 5% of our capital stock or whose
principals are members of our board of directors or any immediate family member
of any of the foregoing. These transactions and relationships are described
below.
a. On October 9, 1998, we issued 1,000 shares of Class A common stock at
a per share price of $0.001 to idealab! Investments, L.L.C., which
shares are now held by idealab! Holdings, L.L.C., its affiliate.
b. In November 1998, we issued a total of 10,000,000 shares of Series A
preferred stock at a purchase price of $0.01 per share to idealab!
Investments, L.L.C, which shares are now held by idealab! Holdings,
L.L.C., its affiliate.
c. In January 1999, February 1999 and April 1999, we issued a total of
9,558,571 shares of Series B preferred stock to various investors at
a purchase price of $0.77 per share. Of the total number of shares of
Series B preferred stock issued:
. 3,246,753 shares were issued to entities affiliated with
Foundation Capital Management Co. II, L.L.C.;
. 3,246,753 shares were issued to entities affiliated with idealab!
Capital Management I, LLC;
. 552,805 shares were issued to Scott Painter, a member of our board
of directors and our former Chief Executive Officer and President;
and
. 11,000 were issued to Ari Wasserman, our Vice President of
Business Development.
d. In May 1999 and September 1999, we issued a total of 9,757,523 shares
of Series C preferred stock to various investors at a purchase price
of $2.33 per share and $2.67 per share, respectively. Of the total
number of shares of Series C preferred stock issued:
. 2,575,106 shares were issued to entities affiliated with MSD
Capital, L.P., whose Managing Principal, Glenn Fuhrman, is a
member of our board of directors;
. 515,021 shares were issued to entities affiliated with Foundation
Capital Management Co. II, L.L.C.;
. 191,011 shares were issued to GBJ Holdings, LLC, whose Managing
Member is Gerald Greenwald, a member of our board of directors;
. 515,021 shares were issued to entities affiliated with idealab!
Capital Management I, LLC;
. 2,575,107 shares were issued to idealab! Holdings, L.L.C.;
. 300,730 shares were issued to Scott Painter;
. 6,000 were issued to Larry Tchamkertenian, our Executive Vice
President of Sales and Operations; and
. 1,001 were issued to Ari Wasserman.
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<PAGE>
e. Between October 1999 and May 2000, we issued a total of 18,433,955
shares of Series D preferred stock to various investors at a purchase
price of $15.76 per share. Of the total number of shares of Series D
preferred stock issued:
. 12,690 shares were issued to entities affiliated with Foundation
Capital Management Co. II, L.L.C.;
. 15,862 shares were issued to entities affiliated with idealab!
Capital Management I, LLC;
. 11,603,735 shares were issued to idealab! Holdings, L.L.C.;
. 31,725 shares were issued to an entity affiliated with MSD
Capital, L.P.;
. 1,269,035 shares were collectively issued to Scott Painter, Scott
Painter, L.P. and Scott Painter II, L.P., entities beneficially
owned by Mr. Painter;
. 10,000 shares were issued to Mark Miller, our Vice President of
Dealer and Industry Relations;
. 5,000 shares were issued to Randolph E. Bucklin and Christine B.
Bucklin, Trustees of the Bucklin Family Revocable Trust U/A DTD
11-27-96, which is beneficially owned by Christine Bucklin, our
Chief Operating Officer;
. 6,345 shares were issued to Eugene Schutt, our Executive Vice
President, Financial Services Division and the Chief Executive
Officer of CD1Financial, our subsidiary;
. 3,173 shares were issued to Frederick G. Silny, our Chief
Financial Officer;
. 122,144 shares were issued to GBJ Holdings, LLC; and
. 1,078,682 shares were issued to UnitedAuto Group, Penske
Automotive Group and certain affiliated and associated companies.
f. In December 1999, we issued a total of 2,050,000 shares of Class B
common stock to idealab! Holdings, L.L.C. at a purchase price of
$17.34 per share.
With respect to the above stock issuances, shares issued to idealab!
Investments, L.L.C. currently are held by idealab! Holdings, L.L.C., which is
the beneficial owner of more than 5% of our outstanding capital stock, and Bill
Gross, the Managing Member of idealab! Holdings, L.L.C., Howard Morgan and
Lawrence Gross, officers and directors of idealab!, the parent of idealab!
Holdings, L.L.C., serve on our board of directors. idealab! Capital Management
I, LLC is the beneficial owner of more than 5% of our outstanding capital
stock, and Bill Gross and Jim Armstrong, Managing Directors of idealab! Capital
Management I, LLC, serve on our board of directors. Foundation Capital is the
beneficial owner of more than 5% of our outstanding capital stock. UnitedAuto
Group and Penske Automotive Group are affiliates of Roger S. Penske, Sr., a
member of our board of directors.
2. Pursuant to a Series C Preferred Stock and Note Purchase Agreement
dated September 28, 1999, CarsDirect.com issued to GBJ Holdings, LLC, an entity
whose Managing Member, Gerald Greenwald, serves on our board of directors, a
convertible subordinated promissory note, dated September 28, 1999, in the
initial principal amount of $490,000. The note earns interest at a rate of 3%
per year. Both principal and accrued interest are convertible, upon certain
events, into shares of Class A common stock or Series C preferred stock. The
initial principal amount of the note is convertible into 171,329 such shares.
The note terminates at the earlier of (i) September 28, 2003 or (ii) the date
the holder's designee ceases to be a director of CarsDirect.com by virtue of
his resignation or decision not to stand for re-election.
3. On November 15, 1999, we issued to Eugene Schutt, the Chief Executive
Officer of CD1Financial, our subsidiary, 13,655 shares of Class A common stock
in exchange for his services rendered to CarsDirect.com valued at $20,483.
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<PAGE>
Employment Agreements
We have entered into employment agreements with certain of our executive
officers. These agreements are described below:
1. In January 1999, we entered into an at-will employment agreement with
Scott Painter to serve as our President and Chief Executive Officer. In
September 1999, we amended and restated the employment agreement with Mr.
Painter to provide that he serve as our President and Chief Executive Officer
only until a replacement Chief Executive Officer officially began his duties.
Thereafter, Mr. Painter would serve as our Vice Chairman and Co-Founder at an
initial annual base salary of $165,000. Mr. Painter also received a signing
bonus of $75,000. The at-will employment agreement provides that, if this
offering becomes effective on or before June 30, 2000, and Mr. Painter has
remained a member of our board of directors through June 30, 2000 or was
removed from the board of directors without cause on or prior to June 30, 2000,
he will receive a bonus of $165,000. On October 20, 1998, we granted Mr.
Painter an option to purchase 300,000 shares of Class A common stock. This
option became fully vested as of the date of the amended and restated
employment agreement. On February 8, 1999, we granted Mr. Painter a second
option to purchase 500,000 shares of Class A common stock. Fifty percent of the
then unvested shares vested as of November 4, 1999, and the remaining unvested
shares vest over a three-year period commencing on November 4, 1999. Upon a
change in control of CarsDirect.com, this second option will become vested as
to 50% of the then unvested shares immediately prior to such change in control.
On June 23, 1999, we granted Mr. Painter a third option to purchase 750,000
shares of Class A common stock. Twenty percent of the unvested shares vested on
November 4, 1999, and the remaining unvested shares vest on a pro rata daily
basis through June 23, 2003. Although the agreement provides that Mr. Painter's
employment is at-will, if Mr. Painter is terminated as Co-Founder without
cause, he is entitled to severance payments equal to his base salary for nine
months. If Mr. Painter is removed from the board of directors prior to the
effectiveness of this registration statement or is not nominated by the board
for re-election thereafter, 50% of Mr. Painter's then unvested options will
then become fully vested and exercisable.
2. Gregory Brogger became employed by us in January 1999. Mr. Brogger's
employment agreement, dated January 27, 1999, provided that he would serve as
our Chief Operating Officer. There was no specified term in the contract, and
it expressly provided that his employment was at will. Under the employment
agreement, Mr. Brogger's annual salary was $85,000 per year. Mr. Brogger also
was eligible for an annual cash bonus at the discretion of the board of
directors. The employment agreement provided that Mr. Brogger was to be granted
a stock option in 500,000 shares of our Class A common stock. Under the
agreement, the option was to vest as to 100,000 shares on the date of the grant
and as to 100,000 shares on each anniversary date of the grant thereafter. In
the event of a change in our control or Mr. Brogger's termination without
cause, the agreement provided that 50% of Mr. Brogger's unvested shares subject
to the option would be fully vested and exercisable. In addition, the
employment agreement provided Mr. Brogger with the right to purchase shares at
each round of financing to maintain his percentage ownership interest in us. On
or about September 2, 1999, we terminated Mr. Brogger from any position he held
with us. In so doing, we terminated Mr. Brogger's employment agreement. Mr.
Brogger contends that he entered into an employment agreement with CD1Financial
on June 4, 1999. We, as well as CD1Financial, maintain that this agreement was
not effective and not enforceable.
3. In June 1999, we entered into an at-will employment agreement with
Frederick G. Silny to serve as our Chief Financial Officer, commencing on June
21, 1999. The agreement provides that Mr. Silny will receive an initial annual
base salary of $150,000, with a discretionary annual bonus set by the board of
directors. Mr. Silny received an option to purchase up to 401,606 shares of
Class A common stock. The option grant is subject to a vesting period of four
years. Pursuant to the employment agreement, Mr. Silny also received warrants
to purchase up to 100,000 shares of Class A common stock. Upon a change of
control or an involuntary termination within twelve months following the
appointment of a new President or Chief Executive Officer, fifty percent of Mr.
Silny's unvested options will vest.
4. In November 1999, we entered into a three-year employment agreement
with Robert Brisco, as amended by a letter agreement between us and Mr. Brisco
dated November 12, 1999, to serve as our Chief
71
<PAGE>
Executive Officer, commencing November 4, 1999. The agreement provides that
Mr. Brisco will receive an initial annual base salary of $95,000, with a
discretionary annual bonus based upon the achievement of milestones established
by the board of directors. Mr. Brisco's annual base salary will be increased to
$150,000 on November 4, 2000 and to $250,000 upon the effectiveness of this
registration statement. In addition, Mr. Brisco received a signing bonus of
$400,000 and will receive a bonus of $250,000 upon the effectiveness of this
registration statement. Mr. Brisco received an option to purchase up to
1,200,000 shares of Class A common stock and a warrant to purchase up to
200,000 shares of Series D preferred stock. The option and the warrant are
subject to a vesting period of four years; provided, however, that upon the
effectiveness of this registration statement, the option to purchase up to
1,200,000 shares of Class A common stock shall vest as to an additional
94,200 shares. The warrant is exercisable at any time on or before November 4,
2004. In the event Mr. Brisco is terminated other than for cause during the
first year of employment, he will be entitled to receive (i) nine months base
salary, (ii) company-paid COBRA coverage until the earlier of nine months
following the date of his termination or the date upon which Mr. Brisco and his
dependents become covered under another employer's welfare benefit plans and
(iii) accelerated vesting with respect to 35% of the shares subject to his
options. If Mr. Brisco is terminated other than for cause following the first
year of his employment (except during the one-year period following a change in
our control), Mr. Brisco will be entitled to the same benefits as if the
termination occurred within the first year of his employment, except that he
will be entitled to accelerated vesting with respect to that number of shares
that would have vested had he remained employed with us through the end of our
next fiscal quarter (but in no event less than 35%). If within one year
following a change in our control (as defined in the employment agreement) Mr.
Brisco is terminated by us without cause or by Mr. Brisco within 60 days
following the occurrence of a constructive termination (as defined in the
employment agreement), Mr. Brisco will be entitled to the same benefits as if
the termination occurred within the first year of his employment, except that
he will be entitled to accelerated vesting with respect to 50% of the then
unvested shares subject to his options.
5. In November 1999, we entered into a four-year employment agreement
with Christine Bucklin to serve as our Chief Operating Officer, commencing on
November 4, 1999. The agreement provides that Ms. Bucklin will receive an
initial annual salary of $150,000. Ms. Bucklin's annual salary will be
increased to $187,500 upon the effectiveness of this registration statement. In
addition, Ms. Bucklin received an option to purchase up to 500,000 shares of
our Class A common stock. Ms. Bucklin will also receive an option to purchase
up to 25,000 shares of Class A common stock each of the four fiscal quarters
following November 4, 1999 based on quarterly milestones established by the
Chief Executive Officer. All of the option grants are subject to a vesting
period of four years; provided, however, that upon the effectiveness of this
registration statement, the option to purchase up to 500,000 shares of Class A
common stock shall vest as to an additional 39,250 shares. In the event
Ms. Bucklin is terminated other than for cause during the first year of
employment, she will be entitled to receive (i) nine months base salary,
(ii) company-paid COBRA coverage until the earlier of nine months following the
date of her termination or the date upon which Ms. Bucklin and her dependents
become covered under another employer's welfare benefit plans and (iii)
accelerated vesting with respect to 35% of the shares subject to her options.
If Ms. Bucklin is terminated other than for cause following the first year of
her employment (except during the one year period following a change in our
control), Ms. Bucklin will be entitled to the same benefits as if the
termination occurred within the first year of her employment, except that she
will be entitled to accelerated vesting with respect to that number of shares
that would have vested had she remained employed with us through the end of our
next fiscal quarter (but in no event less than 35%). If within one year
following a change in our control (as defined in the employment agreement)
Ms. Bucklin is terminated by us without cause or by Ms. Bucklin within 60 days
following the occurrence of a constructive termination (as defined in the
agreement), Ms. Bucklin will be entitled to the same benefits as if the
termination occurred within the first year of her employment, except that she
will be entitled to accelerated vesting with respect to 50% of the then
unvested shares subject to her options.
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<PAGE>
Indebtedness of Management
Listed below are descriptions of all indebtedness of our directors and
executive officers to us. Unless otherwise indicated, all amounts remain
outstanding.
1. On December 28, 1998, Scott Painter, our director and our former Chief
Executive Officer and President, issued a promissory note to us in the initial
principal amount of $300 as payment for the exercise of options to purchase
300,000 shares of Class A common stock at $0.001 per share. The note was paid
in full by Mr. Painter on October 26, 1999.
On January 1, 1999, Mr. Painter issued a promissory note to us in the
initial principal amount of $75,000 in return for a cash loan from us in that
amount. The note earns interest at a rate of 6.00% per year,
compounded semiannually. Principal and interest are due and payable on January
1, 2001, subject to acceleration upon Mr. Painter's no longer being an
employee, director or consultant to us. The note is secured by 75,000 shares of
Class A common stock owned by Mr. Painter.
On April 27, 1999, Mr. Painter issued a promissory note to us in the
initial principal amount of $500 as payment for the exercise of options to
purchase 500,000 shares of Class A common stock at $0.001 per share. The note
earns interest at a rate of 5.21% per year, compounded semiannually. Principal
and interest are due and payable on April 27, 2004, subject to acceleration
upon Mr. Painter's no longer being an employee, director or consultant to us.
The note is secured by these shares of Class A common stock.
On August 3, 1999, Mr. Painter issued a promissory note to us in the
initial principal amount of $262,500 as payment for the exercise of options to
purchase 750,000 shares of Class A common stock at $0.35 per share. The note
earns interest at a rate of 6.08% per year, compounded semiannually. Principal
and interest are due and payable on August 3, 2004, subject to acceleration
upon Mr. Painter's no longer being an employee, director or consultant to us.
The note is secured by these shares of Class A common stock.
The maximum amount of Mr. Painter's indebtedness to us at any time was
$338,300.
2. On June 23, 1999, Frederick G. Silny, our Chief Financial Officer and
Secretary, issued a promissory note to us in the initial principal amount of
$140,562 as payment for the exercise of options to purchase 401,606 shares of
Class A common stock at $0.35 per share. The note earns interest at a rate of
5.30% per year, compounded semiannually. Principal and interest are due and
payable on June 23, 2004, subject to acceleration upon Mr. Silny's no longer
being an employee, director or consultant to us. The note is secured by these
shares of Class A common stock.
3. On August 11, 1999, Gerald Popek, our Chief Technology Officer, issued
a promissory note to us in the initial principal amount of $122,500 as payment
for the exercise of options to purchase 350,000 shares of Class A common stock
at $0.35 per share. The note earns interest at a rate of 6.00% per year,
compounded semiannually. Principal and interest are due and payable on August
31, 2003, subject to acceleration upon Dr. Popek's no longer being an employee,
director or consultant to us. The note is secured by these shares of Class A
common stock.
On September 1, 1999, Dr. Popek issued a promissory note to us in the
initial principal amount of $25,000 in return for a cash loan from us. The note
earns interest at a rate of 6.00% per year and is due and payable on the
earlier of the termination of Dr. Popek's employment with us or August 19,
2004. The note is a full recourse note, secured by 2,500 shares of Class A
common stock owned by Dr. Popek.
On November 8, 1999, Dr. Popek issued a promissory note to us in the
initial principal amount of $37,500 in return for a cash loan from us. The note
earns interest at a rate of 6.00% per year and is due and payable on the
earlier of the termination of Dr. Popek's employment with us or August 19,
2004. The note is a full recourse note, secured by 3,750 shares of Class A
common stock owned by Dr. Popek.
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The maximum amount of Dr. Popek's indebtedness to us at any time was
$185,000.
4. On September 18, 1999, Eugene Schutt, our Executive Vice President,
Financial Services Division and Chief Executive Officer of CD1Financial, issued
a promissory note to us in the initial principal amount of $750,000 as payment
for the exercise of options to purchase 500,000 shares of Class A common stock
at $1.50 per share. The note earns interest at a rate of 6.00% per year,
compounded semiannually. Principal and interest are due and payable on
September 18, 2003, subject to acceleration upon Mr. Schutt's no longer being
an employee, director or consultant to us. The note is secured by these shares
of Class A common stock.
5. On November 4, 1999, Christine Bucklin, our Chief Operating Officer,
issued a promissory note to us in the initial principal amount of $750,000 as
payment for the exercise of options to purchase 500,000 shares of Class A
common stock at $1.50 per share. The note earns interest at a rate of 6.00% per
year,
compounded semiannually. Principal and interest are due and payable on November
4, 2003, subject to acceleration upon Ms. Bucklin's no longer being an
employee, director or consultant to us. The note is secured by these shares of
Class A common stock.
On March 13, 2000, Ms. Bucklin issued a promissory note to us in the
initial principal amount of $255,000. The note earns interest at a rate of
6.00% per year, compounded semiannually. Principal and interest are due and
payable on the earlier of March 13, 2005 or 12 months after the date that Ms.
Bucklin ceases to be an employee, director or consultant to us. The note is a
full recourse note, secured by 200,000 shares of the common stock of idealab!.
On March 13, 2000, Ms. Bucklin issued an additional promissory note to us
in the initial principal amount of $261,211. The note earns interest at a rate
of 6.00% per year, compounded semiannually. Principal and interest are due and
payable on the earlier of March 13, 2005 or 12 months after the date that
Ms. Bucklin ceases to be an employee, director or consultant to us. The note is
a full recourse note, secured by 200,000 shares of the common stock of
idealab!.
On March 2, 2000, Ms. Bucklin issued a promissory note to us in the
initial principal amount of $150,000 as payment for the exercise of options to
purchase 25,000 shares of Class A common stock at $6.00 per share. The note
earns interest at a rate of 6.00% per year, compounded semiannually. Principal
and interest are due and payable on March 2, 2004, subject to acceleration upon
Ms. Bucklin's no longer being an employee, director or consultant to us. The
note is secured by these shares of Class A common stock.
The maximum amount of Ms. Bucklin's indebtedness to us at any time was
$1,416,211.
6. On November 5, 1999, Robert Brisco, our President, Chief Executive
Officer and director, issued a promissory note to us in the initial principal
amount of $1.8 million as payment for the exercise of options to purchase
1,200,000 shares of Class A common stock at $1.50 per share. The note earns
interest at a rate of 6.00% per year, compounded semiannually. Principal and
interest are due and payable on November 5, 2003, subject to acceleration upon
Mr. Brisco's no longer being an employee, director or consultant to us. The
note is secured by these shares of Class A common stock.
7. On November 15, 1999, Neil Kaplan, our Vice President of Strategy and
Business Planning, issued a promissory note to us in the initial principal
amount of $157,500 as payment for the exercise of options to purchase 105,000
shares of Class A common stock at $1.50 per share. The note earns interest at a
rate of 6.00% per year, compounded semiannually. Principal and interest are due
and payable on November 15, 2003. If Mr. Kaplan ceases to be an employee,
director or consultant to us, principal and interest are due and payable within
120 days after the termination date, unless we have not had an initial public
offering upon the date of termination, in which case principal and interest are
due and payable 18 months after the termination date. The note is secured by
these shares of Class A common stock.
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8. On March 2, 2000, Lynn Walsh, our General Counsel, issued a promissory
note to us in the initial principal amount of $624,000 as payment for the
exercise of options to purchase 104,000 shares of Class A common stock at $6.00
per share. The note earns interest at a rate of 6.00% per year, compounded
semiannually. Principal and interest are due and payable on March 2, 2004,
subject to acceleration upon Ms. Walsh's no longer being an employee, director
or consultant to us. The note is secured by these shares of Class A common
stock.
Transactions with Promoters
idealab! may be deemed to be our promoter. Below are all transactions
between CarsDirect.com and each of idealab!, idealab! Holdings, L.L.C., an
affiliate of idealab!, and idealab! Investments, L.L.C, an affiliate of
idealab!, from our inception until the present.
1. From inception of our business until April 1999, we rented office
space from idealab!, paying an aggregate rental payment of $17,240. From
inception of our business until April 1999, idealab! also provided us with
management services, such as payroll and benefits administration, facilities
management and accounting services. idealab! continues to provide management
consulting services to us.
2. In October 1998, we issued a total of 1,000 shares of Class A common
stock to idealab! Investments, L.L.C., at a purchase price of $0.001 per share,
which shares are now held by idealab! Holdings, L.L.C.
3. In November 1998, we issued a total of 10,000,000 shares of Series A
preferred stock to idealab! Investments, L.L.C., at a purchase price of $0.01
per share, which shares are now held by idealab! Holdings, L.L.C.
4. In May 1999, we issued a total of 2,576,108 shares of Series C
preferred stock to idealab! Holdings, L.L.C., at a purchase price of $2.33 per
share.
5. In October 1999, we issued a total of 4,758,882 shares of Series D
preferred stock to idealab! Holdings, L.L.C., at a purchase price of $15.76 per
share. On October 27, 1999, idealab! Holdings, L.L.C. issued to CarsDirect.com
a Promissory Note in the initial principal amount of $65.0 million as payment
for its purchase of Series D preferred stock. This promissory note was paid in
full by idealab! Holdings, L.L.C. on January 25, 2000.
6. In November 1999, we issued a total of 4,758,883 shares of Series D
preferred stock to idealab! Holdings, L.L.C., at a purchase price of $15.76 per
share.
7. In December 1999, we issued a total of 2,050,000 shares of Class B
common stock to idealab! Holdings, L.L.C., at a purchase price of $17.34 per
share. In connection with this purchase of Class B common
stock by idealab! Holdings, L.L.C., we entered into a Stockholder Agreement
with idealab! Holdings, L.L.C. and idealab!, its affiliate, on December 30,
1999, which provides, among other things that:
. idealab! Holdings, L.L.C. and certain parties related to idealab!
Holdings, L.L.C. will not, directly or indirectly, acquire or
beneficially own our voting securities or authorize or make a tender
offer, exchange offer or other offer therefor, if as a result of such
acquisition or beneficial ownership, idealab! and certain parties
related to idealab! Holdings, L.L.C. would own or control in excess
of 66% of the votes of our outstanding capital stock; and
. until the earlier of December 30, 2001 or 18 months following the
closing of this offering, idealab! Holdings, L.L.C. and certain
parties related to idealab! Holdings, L.L.C. will not, directly or
indirectly, sell, transfer, pledge, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise dispose
of, any of our capital securities other than (i) to us, (ii) to
certain parties related to idealab! Holdings, L.L.C., (iii) in
connection with a change in our control approved in accordance with
our certificate of incorporation, or (iv) for pledges of securities
as collateral in connection with certain lending transactions.
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8. In December 1999, we issued a total of 2,085,970 shares of Series D
preferred stock to idealab! Holdings, L.L.C., at a purchase price of $15.76 per
share.
Other Transactions
1. In April 1999, we entered into an agreement with Autoland, Inc.
pursuant to which Autoland provided us office space, training and other
resources, including the services of certain Autoland employees, computers,
phones, manuals, sales materials and software reasonably necessary to service
our customers. In exchange, we reimbursed Autoland the salaries of the Autoland
employees rendering services to us and the out-of-pocket expenses that Autoland
incurred in connection with the other resources described above. As of
March 31, 2000, we have reimbursed Autoland an aggregate of $670,653. In
addition, Autoland agreed to utilize its relationships with dealerships to
assist us in procuring automobiles to fill our customer orders. As of October
31, 1999, we were no longer receiving services from Autoland pursuant to this
agreement. Pursuant to the terms of the agreement and the consulting agreement
described below, we issued 50,000 shares of our Class A common stock to Ron
Frey, an officer of Autoland, and 989,540 shares of our Class A common stock to
Michael Malamut, the president of Autoland and a member of our board of
directors. Under this agreement, we are prohibited from intentionally marketing
to, developing or entering contractual relationships with, providing Web site
designs for or permitting hypertext links to credit unions or certain affinity
groups until April 2001. Reciprocally, Autoland is prohibited from
intentionally marketing to, developing or entering contractual relationships
with, providing Web site designs for or permitting hypertext links to entities
other than credit unions or affinity groups until April 2001. In November 1999,
we amended this agreement to permit each of the parties to enter into up to
three contractual relationships that would otherwise be prohibited by the
agreement.
In connection with our April 1999 agreement with Autoland, we also
entered into a consulting agreement with Michael Malamut, which provided that
Mr. Malamut would provide us consulting services in exchange for the shares of
Class A common stock issued to him. This consulting agreement has terminated.
2. On June 21, 1999, we issued to Frederick G. Silny, our Chief Financial
Officer and Secretary, two warrants to purchase up to an aggregate 100,000
shares of Class A common stock at an exercise price of $2.33 per share. At a
November 4, 1999 meeting of the board of directors, the board amended these
warrants to permit Mr. Silny to exercise them prior to this offering. On
November 14, 1999, Mr. Silny exercised these warrants in full. Pursuant to the
amendment, 50,000 of the 100,000 shares purchased by Mr. Silny remain subject
to repurchase by us until the completion of this offering.
3. On October 20, 1999, we issued to Eugene Schutt, our Executive Vice
President, Financial Services Division and Chief Executive Officer of
CD1Financial, a convertible promissory note in the initial principal amount of
$100,000 in exchange for services rendered, which accrued interest at a rate of
6.00% per year, compounded annually. According to the terms of the convertible
promissory note, on October 27, 1999, we paid off all principal and interest
then accrued by issuing 6,345 shares of Series D preferred stock to Mr. Schutt.
4. On November 4, 1999, we issued to Robert Brisco, our President and
Chief Executive Officer, a warrant to purchase up to 200,000 shares of Series D
preferred stock at an exercise price of $15.76. The warrant terminates on
November 4, 2004.
5. On January 13, 2000, we issued to Lynn Walsh, our General Counsel, a
warrant to purchase up to 100,000 shares of Series D preferred stock at an
exercise price of $15.76. The warrant terminates on January 13, 2004.
6. In May 2000, we entered into an agreement with Penske Automotive
Group, Inc. and UnitedAuto Group, Inc. providing for automobile sourcing and
other services. As consideration, we have granted UnitedAuto Group, Penske
Automotive Group and certain affiliated and associated companies warrants to
purchase an aggregate of 7,939,339 shares of our Series D preferred stock at an
exercise price of $15.76 per share. Separately, we sold to these entities and
to certain affiliated and associated entities 1,078,682 shares of
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Series D Preferred stock at $15.76 per share, or a total of $17.0 million.
Roger S. Penske, Sr., the Chairman of the Board of Directors of UnitedAuto
Group and Chairman of the Board and Chief Executive Officer of Penske
Corporation, the parent of Penske Automotive Group, is a member of our board of
directors.
7. In July 1999, we issued an employment offer letter to Gerald Popek,
our Chief Technology Officer. Pursuant to the terms of that offer letter, we
recommended that our board of directors approve an installment loan to Dr.
Popek in the amount of $125,000 at an annual interest rate of 6.00%. The
initial $25,000 installment was to be paid upon the commencement of Dr. Popek's
employment with us, and the remaining four installments of $25,000 were to be
paid quarterly thereafter. The offer letter provides that, if we have not filed
a registration statement for the initial public offering of our Class A common
stock prior to July 19, 2000, we will loan Dr. Popek an additional $125,000
installment loan upon the same terms in five quarterly installments, provided
that, upon the filing of such a registration statement, we have no obligation
to continue paying installments under such loan. Upon termination of Dr.
Popek's employment with us, all principal and interest then accrued will be due
and payable.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and the provisions of our
certificate of incorporation and restated bylaws that are to be adopted
immediately prior to the closing of this offering are only summaries and are
qualified by reference to our certificate of incorporation and restated bylaws
that will be filed as exhibits to the registration statement of which this
prospectus forms a part. Our authorized capital stock consists of
shares of common stock, $0.001 par value per share, and shares of
preferred stock, $0.001 par value per share. As of May 15, 2000, our
outstanding shares are set forth in the table below:
<TABLE>
<CAPTION>
Number of
Outstanding Shareholders
Shares of Record
----------- ------------
<S> <C> <C>
Total common stock
Class A.............................................. 11,238,095 231
Class B.............................................. 2,050,000 1
Total preferred stock
Series A............................................. 10,000,000 1
Series B............................................. 9,558,571 22
Series C............................................. 9,757,523 54
Series D............................................. 18,433,955 90
</TABLE>
Each of the shares of preferred stock outstanding prior to this offering
will automatically convert on a one-to-one basis into shares of Class A common
stock upon consummation of this offering.
Common Stock
The shares of Class A common stock and Class B common stock are identical
in all respects, except for voting rights, certain dividend rights and
conversion rights, as described below.
Voting Rights. Each holder of outstanding Class A common stock is
entitled to one vote per share on all matters submitted to a vote of our
stockholders, including the election of directors, and, except as described
below, each share of Class B common stock entitles the holder to twenty votes
on those matters. Except as required by applicable law, holders of the Class A
common stock and Class B common stock vote together as a single class on all
matters submitted to a vote of our stockholders. There is no cumulative voting
in the election of directors.
We have entered into a stockholders' agreement with idealab! Holdings,
L.L.C., the sole holder of our Class B common stock, that restricts its,
together with certain of its affiliates', ability to acquire or control in
excess of 66% of the total number of votes entitled to vote in the election of
our board of directors, and their respective ability to dispose of any shares
of our capital stock earlier than 18 months after the closing of this offering.
Dividends, Distributions and Stock Splits. Except for dividends of Class
A common stock, which shall be payable only to the holders of Class A common
stock, holders of Class A common stock or Class B common stock are entitled to
receive dividends out of assets legally available therefor at the same rate, at
the same time and in the same amounts as our board of directors may from time
to time determine.
The Class A common stock may not be subdivided or combined in any manner
unless the other class is subdivided or combined in the same proportion.
Conversion. The shares of Class A common stock are not convertible. The
shares of Class B common stock are convertible into Class A common stock, in
whole or in part, at any time and from time to time at the option of the
holder, on the basis of one share of Class A common stock for each share of
Class B common stock converted. Each share of Class B common stock would also
automatically convert into one
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share of Class A common stock upon the sale or transfer of the share of Class B
common stock by the initial holder thereof, other than to a person or entity
controlled by or affiliated with the initial holder. Additionally, each share
of Class B common stock would automatically convert into one share of Class A
common stock upon the failure of the initial holder together with certain of
its affiliates to maintain ownership of at least 20% of our outstanding capital
stock. The holder of Class B common stock would have, upon conversion of its
shares of Class B common stock into Class A common stock, one vote per share of
Class A common stock held on all matters submitted to a vote of our
stockholders.
Liquidation. In the event we dissolve, liquidate or wind up our affairs,
whether voluntarily or involuntarily, after payment of our debts, other
liabilities and preferential payments to preferred stockholders, our remaining
assets will be distributed ratably among the holders of the Class A common
stock and the Class B common stock, treated as a single class.
All shares of Class B common stock outstanding are fully paid and
nonassessable, and all of the shares of Class A common stock to be outstanding
upon completion of this offering will be fully paid and nonassessable.
Preferred Stock
Upon the completion of this offering, all outstanding shares of preferred
stock will be converted automatically on a one-to-one basis into shares of
Class A common stock. However, following this conversion, under our certificate
of incorporation, the board of directors will have the authority, without
action by the stockholders, to designate and issue additional preferred stock
in one or more series and to designate the rights, preferences and privileges
of each series, which may be greater than the rights of the common stock. It is
not possible to state the actual effect of the issuance of any shares of
preferred stock upon the rights of holders of the common stock until the board
of directors determines the specific rights of the holders of such preferred
stock. However, these effects might include:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; and
. delaying or preventing a change in control of our company without
further action by the stockholders.
We have no present plans to issue any shares of preferred stock.
Warrants
As of May 15, 2000, we had issued warrants outstanding to purchase a
total of 2,095,970 shares of Class A common stock and 8,239,339 shares of
Series D preferred stock.
Convertible Promissory Notes
As of May 15, 2000, we had outstanding one convertible subordinated
promissory note to GBJ Holdings, LLC in the initial principal amount of
$490,000, the principal amount of which is convertible into 171,329 shares of
Class A common stock or Series C preferred stock.
Registration Rights
Pursuant to the Fourth Amended and Restated Investor Rights Agreement,
referred to as the Rights Agreement, the holders of 47,750,049 shares of Class
A common stock issued upon conversion of our Series A preferred stock, Series B
preferred stock, Series C preferred stock, Series D preferred stock, and upon
the
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exercise by Bank One, N.A., Ohio of its warrant to purchase up to 2,085,970
shares of Class A common stock have the following rights. The holders of at
least 50% of the then-outstanding registrable securities issued upon conversion
of the preferred stock may require on two separate occasions that we register
their shares for public resale. We are not required to effect (1) more than two
such registrations pursuant to demand registration rights; (2) a registration
prior to one year after the effective date of this offering; (3) a registration
during 180 days after any other registration statement has been filed or has
been declared effective; or (4) within twelve months after effecting a prior
registration pursuant to these registration rights. In the event that we elect
to register any of our shares of Class A common stock for our own account or
the account of any party to the Rights Agreement, the holders of registrable
securities issued upon conversion of the preferred stock are entitled to
include their shares of Class A common stock in the registration, although we
may reduce the number of shares proposed to be registered in view of market
conditions. The holders of at least 50% of the then-outstanding registrable
securities issued upon conversion of the preferred stock may require on one
occasion in any twelve-month period that we register their shares for public
resale on Form S-3, if the value of the securities to be registered is at least
$3.0 million. All such registration rights will terminate upon the earlier of
the fourth anniversary following the effective date of this offering or, with
respect to each holder of registrable securities issued upon conversion of the
preferred stock, at such time as the holder is able to sell all such securities
under Rule 144 during any 90-day period.
In addition, Penske Internet Capital Group, L.L.C., UnitedAuto Group and
HAC II, Inc. are the holders of 1,078,682 shares of Series D preferred stock,
and certain entities affiliated and associated with those entities are the
holders of warrants to purchase up to 7,939,339 shares of Series D preferred
stock. The holders of these shares and the shares issued upon exercise of the
warrants may request on one occasion in any twelve-month period that we
register their shares for public resale on Form S-3, if the value of the
securities to be registered is at least $3.0 million. These registration rights
will terminate upon the earlier of May 15, 2012 or, with respect to each such
holder, at such time as the holder is able to sell all of its securities under
Rule 144 during any 90-day period.
Delaware Anti-Takeover Law and Charter Provisions
Certain provisions of Delaware law and our certificate of incorporation
and restated bylaws which will be adopted upon the consummation of this
offering could make the following more difficult:
. the acquisition of our company by means of a tender offer;
. acquisition of our company by means of a proxy contest or otherwise;
or
. the removal of our company's incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
our company to first negotiate with our board of directors. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
our company outweigh the disadvantages of discouraging such proposals, because
negotiation of such proposals could result in an improvement of their terms.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. Subject to certain exceptions, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless, subject to exception, the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Subject to certain
exceptions, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns or within three years prior to the
determination of interested
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stockholder status, did own, 15% or more of a corporation's voting stock. The
existence of this provision may have an anti-takeover effect with respect to
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by stockholders.
Charter Documents
Our restated bylaws that will be adopted upon consummation of this
offering establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board of directors. At an annual
meeting, stockholders may only consider proposals or nominations specified in
the notice of meeting or brought before the meeting by or at the direction of
the board of directors. Stockholders may also consider a proposal or nomination
by a person who was a stockholder of record on the record date for the meeting,
who is entitled to vote at the meeting and who has given to our Secretary
timely written notice, in proper form, of his or her intention to bring that
business before the meeting. The restated bylaws will not give the board of
directors the power to approve or disapprove stockholder nominations of
candidates or proposals regarding other business to be conducted at a special
or annual meeting of the stockholders. However, our restated bylaws may have
the effect of precluding the conduct of certain business at a meeting if the
proper procedures are not followed. These provisions may also discourage or
deter a potential acquirer from conducting a solicitation of proxies to elect
the acquirer's own slate of directors or otherwise attempting to obtain control
of our company.
Under Delaware law, a special meeting of stockholders may be called by
the board of directors or by any other person authorized to do so in the
certificate of incorporation or the restated bylaws. Our restated bylaws will
authorize a majority of our board of directors, the Chairman of the Board or
the Chief Executive Officer to call a special meeting of stockholders. Because
our stockholders do not have the right to call a special meeting, a stockholder
could not force stockholder consideration of a proposal over the opposition of
the board of directors by calling a special meeting of stockholders prior to
such time as a majority of the board of directors believed or the Chief
Executive Officer believed the matter should be considered or until the next
annual meeting provided that the requestor met the notice requirements. The
restriction on the ability of stockholders to call a special meeting means that
a proposal to replace the board of directors also could be delayed until the
next annual meeting.
Although Delaware law provides that stockholders may execute an action by
written consent in lieu of a stockholder meeting, it also allows us to
eliminate stockholder actions by written consent. Elimination of written
consents of stockholders may lengthen the amount of time required to take
stockholder actions since actions by written consent are not subject to the
minimum notice requirement of a stockholders meeting. However, we believe that
the elimination of stockholders' written consents may deter hostile takeover
attempts. Without the availability of stockholders' actions by written consent,
a holder controlling a majority of our capital stock would not be able to amend
our bylaws or remove directors without holding a stockholders meeting. The
holder would have to obtain the consent of a majority of the board of
directors, the Chairman of the Board or the Chief Executive Officer to call a
stockholders meeting and satisfy the notice periods determined by the board of
directors. Our restated bylaws will provide for the elimination of actions by
written consent of stockholders. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of any
attempt to change control of our company. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or
management of our company.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Norwest
Shareholder Services and is located at 161 North Concord Exchange Street, South
St. Paul, MN 55075, and its telephone number is (651) 450-4189.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have shares of Class A
common stock outstanding assuming no exercise of options after , 2000. Of
this amount, the shares offered by this prospectus will be available for
immediate sale in the public market as of the date of this prospectus.
Following the expiration of 180-day lockup agreements with the representatives
of the underwriters or CarsDirect.com, shares will be available for sale
in the public market, subject in some cases to compliance with the volume and
other limitations of Rule 144.
<TABLE>
<CAPTION>
Approximate Number
Days after the Date of Shares Eligible
of this Prospectus for Future Sale Comment
------------------- ------------------ -----------------------------------
<C> <C> <S>
Upon effectiveness.. Freely tradable shares sold in this
offering
90 days............. Shares saleable under Rule 144 that
are not subject to 180-day lock-up
180 days............ Lock-up released; shares saleable
under Rule 144, 144(k) or 701
</TABLE>
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
. 1% of the then outstanding shares of Class A common stock; or
. the average weekly trading volume during the four calendar weeks
preceding the sale, subject to the filing of a Form 144 with respect
to the sale.
A person who is not deemed to have been an affiliate of ours at any time during
the 90 days immediately preceding the sale and who has beneficially owned his
or her shares for at least two years is entitled to sell his or her shares
under Rule 144(k) without regard to the limitations described above. Persons
deemed to be affiliates must always sell under the limitations imposed by Rule
144, even after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under
Rule 144, since this will depend on the market price of our Class A common
stock, the personal circumstances of the sellers and other factors. Prior to
the offering, there has been no public market for the Class A common stock, and
there can be no assurance that a significant public market for the Class A
common stock will develop or be sustained after the offering. Any future sale
of substantial amounts of the Class A common stock in the open market may
adversely affect the market price of the Class A common stock offered by this
prospectus.
CarsDirect.com, its directors, executive officers, stockholders with
registration rights and other stockholders and optionholders have agreed, under
the purchase agreement and other agreements, that they will not sell any Class
A common stock without the prior written consent of Merrill Lynch for a period
of 180 days from the date of this prospectus, except that we may, without
consent, grant options and sell shares under our stock plans.
Any employee or consultant who purchased his or her shares under a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of 2000, the holders of options to purchase approximately
shares of Class A common stock will be eligible to sell their shares upon
the expiration of the 180-day lockup period, subject to the vesting of those
options.
82
<PAGE>
We intend to file a registration statement on Form S-8 under the
Securities Act as soon as practicable after the completion of the offering to
register shares of Class A common stock subject to outstanding stock
options or reserved for issuance under our stock plans. This registration will
permit the resale of these shares by nonaffiliates in the public market without
restriction under the Securities Act, upon completion of the lock-up period
described above. Shares registered under the Form S-8 registration statement
held by affiliates will be subject to Rule 144 volume limitations.
In addition, holders of 47,750,049 shares of Class A common stock have
registration rights with respect to their shares. Registration of these
securities would enable these shares to be freely tradable without restriction
under the Securities Act. We also have given registration rights to our warrant
holders with respect to 2,085,970 shares of Class A common stock.
83
<PAGE>
UNDERWRITING
General
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities
Inc., FleetBoston Robertson Stephens Inc. and E*OFFERING Corp. are acting as
representatives of the underwriters named below. Subject to the terms and
conditions described in a purchase agreement between us and the underwriters,
we have agreed to sell to the underwriters, and the underwriters severally have
agreed to purchase from us the number of shares of Class A common stock listed
opposite their names below.
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Chase Securities Inc.......................................
FleetBoston Robertson Stephens Inc.........................
E*OFFERING Corp............................................
-----
Total................................................
=====
</TABLE>
The underwriters have agreed to purchase all of the shares of Class A
common stock sold under the purchase agreement if any of these shares are
purchased. If an underwriter defaults, the purchase agreement provides that the
purchase commitments of the nondefaulting underwriters may be increased or the
purchase agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares of Class A common stock, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the validity of the
shares, and other conditions contained in the purchase agreements, such as the
receipt by the underwriters of officer's certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
E*OFFERING Corp., one of the underwriters, will allocate for distribution
by E*TRADE Securities, Inc. a portion of the shares that E*OFFERING is
underwriting in this offering. Copies of the prospectus in electronic format
will be made available on Internet Web sites maintained by E*OFFERING Corp. and
E*TRADE Securities, Inc. Customers of E*TRADE Securities, Inc. who complete and
pass an online eligibility profile may place conditional offers to purchase
shares in this offering through E*TRADE's Internet Web site.
Commissions and Discounts
The representatives have advised us that the underwriters propose
initially to offer the shares of Class A common stock to the public at the
initial public offering price set forth on the cover page of this prospectus
and to dealers at that price less a concession not in excess of $ per share.
The underwriters may allow, and the dealers may reallow, a discount not in
excess of $ per share to other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
84
<PAGE>
The following table shows the public offering price, underwriting
discount and proceeds before expenses to us. The information assumes either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price................ $ $ $
Underwriting discount................ $ $ $
Proceeds, before expenses, to us..... $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount,
are estimated at $ and are payable by us.
Over-allotment Option
We have granted an option to the underwriters to purchase up to
additional shares of Class A common stock at the public offering price less the
underwriting discount. The underwriters may exercise this option for 30 days
from the date of this prospectus solely to cover any over-allotments. If the
underwriters exercise this option, each will be obligated, subject to
conditions contained in the purchase agreements, to purchase a number of
additional shares proportionate to that underwriter's initial amount reflected
in the above table.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 10% of the shares of Class A common stock offered
by this prospectus for sale to some of our directors, officers, employees,
business associates and related persons. If these persons purchase reserved
shares, this will reduce the number of shares available for sale to the general
public. Any reserved shares of Class A common stock that are not orally
confirmed for purchase within one business day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.
No Sales of Similar Securities
We and our executive officers and directors and certain existing
stockholders have agreed, with exceptions, not to sell or transfer any common
stock for 180 days after the date of this prospectus without first obtaining
the written consent of Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly
. offer, pledge, sell or contract to sell any Class A common stock;
. sell any option or contract to purchase any Class A common stock;
. purchase any option or contract to sell any Class A common stock;
. grant any option, right or warrant for the sale of any Class A common
stock;
. lend or otherwise dispose of or transfer any Class A common stock;
. request or demand that we file a registration statement related to
the Class A common stock; or
. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any Class A common
stock whether any such swap or transaction is to be settled by
delivery of shares or other securities, in cash or otherwise.
This lockup provision applies to Class A common stock and to securities
convertible into or exchangeable or exercisable for or repayable with Class A
common stock. It also applies to Class A common stock owned now or acquired
later by the person executing the agreement or for which the person executing
the agreement later acquires the power of disposition.
85
<PAGE>
Quotation on the Nasdaq National Market
We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "CRSD."
Before this offering, there has been no public market for our Class A
common stock. The initial public offering price will be determined through
negotiations among us and the representatives. In addition to prevailing market
conditions, the factors to be considered in determining the initial public
offering price are
. the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
. our financial information;
. the history of, and the prospects for, our company and the industry
in which we compete;
. an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues;
. the present state of our development; and
. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares of Class A common stock may not
develop. It is also possible that after the offering the shares of Class A
common stock will not trade in the public market at or above the initial public
offering price.
The underwriters do not expect to sell more than 5% of the shares of
Class A common stock being offered in this offering to accounts over which they
exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares of Class A common stock is
completed, SEC rules may limit underwriters and selling group members from
bidding for and purchasing our Class A common stock. However, the
representatives may engage in transactions that stabilize the price of the
Class A common stock, such as bids or purchases to peg, fix or maintain that
price.
If the underwriters create a short position in the Class A common stock
in connection with the offering, i.e.. if they sell more shares than are listed
on the cover of this prospectus, the representatives may reduce that short
position by purchasing shares in the open market. The representatives may also
elect to reduce any short position by exercising all or part of the over-
allotment option described above. Purchases of the Class A common stock to
stabilize its price or to reduce a short position may cause the price of the
Class A common stock to be higher than it might be in the absence of such
purchases.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
in the open market to reduce the underwriter's short position or to stabilize
the price of such shares, they may reclaim the amount of the selling concession
from the underwriters and selling group members who sold those shares. The
imposition of a penalty bid may also affect the price of the shares in that it
discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
86
<PAGE>
LEGAL MATTERS
The validity of the Class A common stock offered hereby will be passed
upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. As of the date of this prospectus, certain investment
partnerships composed of certain current and former members of and persons
associated with Wilson Sonsini Goodrich & Rosati, Professional Corporation, as
well as certain individual attorneys of this firm, beneficially own an
aggregate of 109,673 shares of our Class A common stock on an as-converted to
Class A common stock basis. Legal matters relating to the sale of the Class A
common stock in this offering will be passed upon for the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP.
EXPERTS
The consolidated financial statements of CarsDirect.com, Inc. at December
31, 1998 and 1999 and for the period from October 9, 1998 (inception) through
December 31, 1998 and the year ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Perga Capital Corp. at April 30, 1998 and
1999 and for the years ended April 30, 1998 and 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Autodata Marketing Systems
Incorporated at April 30, 1998 and 1999 and the years ended April 30, 1998 and
1999 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Potamkin Auto Center, Ltd. at December 31,
1998 and September 30, 1999 and for the years ended December 31, 1997 and 1998
and the nine month period ended September 30, 1999 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the Class A
common stock offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules which are part of the
registration statement. For further information with respect to our company and
our Class A common stock, see the registration statement and the exhibits and
schedules thereto. Any document we file may be read and copied at the
Commission's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further
information about the public reference rooms. Our filings with the Commission
are also available to the public from the Commission's Web site at
http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, accordingly, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the
Commission's public reference rooms, and the Web site of the Commission
referred to above.
87
<PAGE>
CARSDIRECT. COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Information
Introduction............................................................ F-2
Unaudited Pro Forma Condensed Consolidated Statement of Operations...... F-3
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information............................................................ F-4
CarsDirect.com, Inc. Consolidated Financial Statements
Report of Independent Accountants....................................... F-5
Consolidated Balance Sheets............................................. F-6
Consolidated Statements of Operations................................... F-7
Consolidated Statements of Stockholders' Equity......................... F-8
Consolidated Statements of Cash Flows................................... F-9
Notes to Consolidated Financial Statements.............................. F-10
Perga Capital Corp.
Auditors' Report........................................................ F-33
Balance Sheets.......................................................... F-34
Statements of Operations and Deficit.................................... F-35
Statements of Cash Flows................................................ F-36
Notes to Financial Statements........................................... F-37
Autodata Marketing Systems Incorporated
Auditors' Report........................................................ F-44
Consolidated Balance Sheets............................................. F-45
Consolidated Statements of Earnings and Deficit......................... F-46
Consolidated Statements of Cash Flows................................... F-47
Notes to Consolidated Financial Statements.............................. F-48
Potamkin Auto Center, Ltd.
Report of Independent Accountants....................................... F-58
Balance Sheets.......................................................... F-59
Statements of Operations................................................ F-60
Statements of Shareholders' Equity...................................... F-61
Statements of Cash Flows................................................ F-62
Notes to Financial Statements........................................... F-63
</TABLE>
F-1
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
In July 1999, CarsDirect.com ("the Company") purchased the issued and
outstanding capital stock of Perga Capital Corp. ("Perga"), a Canadian holding
company whose primary asset was the capital stock of Autodata. Autodata
Marketing Systems Incorporated ("Autodata"). The aggregate purchase price was
approximately $8.8 million and was comprised of approximately $6.8 million in
cash, approximately $265,000 in direct acquisition costs and the issuance of
210,000 shares of the Company's Class A common stock with a deemed fair value
for accounting purposes of $1.7 million. In connection with the purchase, the
Company issued an additional 390,000 shares of restricted Class A common stock
to the stockholders of Perga which vest over four years, subject to the
continuing employment of certain key Autodata employees and subject to
acceleration in the event of an initial public offering ("IPO") by the Company
or a change of control transaction, as defined. The 390,000 shares have been
accounted for as $3.1 million of deferred stock compensation, which is being
amortized over the service periods of the key Autodata employees. This
acquisition was accounted for using the purchase method. The purchase price was
allocated to the estimated fair value of tangible and identifiable intangible
net assets acquired. The identifiable intangible assets included a tradename of
$135,000, acquired technology of $642,000, and workforce in-place of
$318,000 and are being amortized on a straight-line basis over their estimated
useful lives of three years. The excess of the purchase price over tangible and
intangible net assets acquired of approximately $7.5 million was allocated to
goodwill and is being amortized on a straight-line basis over an estimated life
of three years.
In October 1999, the Company acquired certain assets of Potamkin Auto
Center Ltd. ("Potamkin"). The aggregate purchase price was approximately $14.1
million and was comprised of 1,250,000 shares of the Company's Class A common
stock with a deemed fair value for accounting purposes of $13.8 million and
$395,000 in direct acquisition costs. In conjunction with the acquisition, the
Company also issued 400,000 shares of restricted Class A common stock to the
seller, one of the shareholders of which became an employee of the Company. The
400,000 restricted shares vest equally in quarterly increments commencing on
December 31, 1999 and continuing through September 30, 2002, subject to the
continued employment of the employee. The Company recorded deferred stock
compensation of approximately $4.4 million that will be amortized over the
vesting period of these shares. This acquisition was accounted for using the
purchase method and the purchase price was allocated to the estimated fair
value of tangible and identifiable intangible assets acquired. The identifiable
intangible assets included a tradename of approximately $1.2 million, inventory
supply agreement of $710,000, "and workforce in-place of $460,000" and are
being amortized on a straight-line basis over their estimated useful lives
ranging from six months to ten years. The purchase price allocation also
indicated goodwill, totaling approximately $11.7 million, which is being
amortized on a straight-line basis over an estimated life of ten years.
In May 1999, the Company entered into master and operating agreements
with another entity (the "Minority Member") to form and operate
CD1Financial.com LLC ("CD1Financial") in which the Company had a 51% member's
interest. On December 16, 1999, the Company entered into an agreement with the
Minority Member of CD1Financial whereby the Company: a) purchased the Minority
Member's 49% interest in exchange for $2.0 million in cash and b) terminated
the master agreement in exchange for approximately $30.9 million in cash.
Additionally, in connection with the purchase, the parties agreed that a pre-
existing warrant would become immediately exercisable and non-forfeitable for
2,085,970 shares of Class A common stock at an exercise price of $0.01. The
warrant was valued using the fair value method and resulted in an increase to
additional paid-in capital of approximately $29.6 million, which has been
included as part of goodwill. This acquisition was accounted for using the
purchase method. The purchase price was allocated to the estimated fair value
of tangible and identifiable intangible net assets acquired. The estimated fair
values of the tangible and intangible net assets acquired approximated their
historical cost bases. The excess of the purchase price over the net assets
acquired of approximately $60.7 million was allocated to goodwill and is being
amortized on a straight-line basis over an estimated life of three years.
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1999 gives effect to these
acquisitions as if they had occurred on January 1, 1999.
The unaudited pro forma condensed consolidated financial information is
not necessarily indicative of the results that would have occurred if the
acquisitions had occurred as of the beginning of the period presented and
should not be construed as being representative of future operating results.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the CarsDirect.com, Perga Capital Corp.,
Autodata and Potamkin separate financial statements and notes thereto, included
elsewhere in this prospectus.
F-2
<PAGE>
CARSDIRECT.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Autodata
Perga Marketing Potamkin
Capital Systems Auto Center,
CarsDirect.com Incorporated Incorporated Ltd. Pro Forma Pro Forma
(Historical) (Historical) (Historical) (Historical) Adjustments Consolidated
-------------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Vehicles, gross........ $ 17,850 $-- $ -- $ 105,725 $ -- $ 123,575
Vehicles, net
(excludes $14 in non-
cash stock-based
equity charges)....... (4,258) -- -- -- -- (4,258)
Other.................. 1,585 -- 1,729 3,056 -- 6,370
-------- ---- ------ --------- -------- ---------
Total revenues....... 15,177 -- 1,729 108,781 -- 125,687
Cost of revenues:
Vehicles............... 16,551 -- -- 98,835 -- 115,386
Other.................. 985 -- 58 -- -- 1,043
-------- ---- ------ --------- -------- ---------
Total cost of
revenues............ 17,536 -- 58 98,835 -- 116,429
-------- ---- ------ --------- -------- ---------
Excess of (cost over
revenues) revenues
over cost .......... (2,359) -- 1,671 9,946 -- 9,258
Operating expenses:
Sales and marketing
(excludes $1,562 in
non-cash stock-based
equity charges)....... 33,425 -- 272 4,913 191 (1) 38,801
Technology and product
development (excludes
$692 in non-cash
stock-based equity
charges).............. 2,143 -- -- -- -- 2,143
General and
administrative
(excludes $13,561 in
non-cash stock-based
equity charges)....... 19,994 -- 1,284 5,490 1,059 (2)(3) 27,827
Stock-based charges.... 14,213 -- -- -- 1,616 (4) 15,829
Amortization of
intangibles........... 2,525 -- -- -- 22,849 (5) 25,374
-------- ---- ------ --------- -------- ---------
Total operating
expenses............ 72,300 -- 1,556 10,403 25,715 109,974
-------- ---- ------ --------- -------- ---------
Income (loss) from
operations.......... (74,659) -- 115 (457) (25,715) (100,716)
Equity in income of
equity investee........ -- 12 -- -- (12)(6) --
Interest income
(expense).............. 2,438 -- (17) (350) (1,600)(7)(8) 471
-------- ---- ------ --------- -------- ---------
Income (loss) before
provision for income
taxes and minority
interest............ (72,221) 12 98 (807) (27,327) (100,245)
Provision for income
taxes.................. 307 -- 65 -- -- 372
-------- ---- ------ --------- -------- ---------
Income (loss) before
minority interest..... (72,528) 12 33 (807) (27,327) (100,617)
Minority interest in
CD1Financial........... 203 -- -- -- (203)(9) --
-------- ---- ------ --------- -------- ---------
Net income (loss).... $(72,325) $ 12 $ 33 $ (807) $(27,530) $(100,617)
======== ==== ====== ========= ======== =========
Basic and diluted net
loss per common share.. $ (35.61)
========
Weighted average shares
used to calculate basic
and diluted net loss
per common share....... 2,031
========
Unaudited pro forma
basic and diluted net
loss per common share.. $ (3.31)
=========
Unaudited pro forma
weighted average shares
used to calculate pro
forma basic and diluted
net loss per common
share.................. 30,422(10)
=========
</TABLE>
See the accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information
F-3
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
Pro forma adjustments reflect the following, giving effect to the
acquisitions as if they had occurred as of January 1, 1999 (in thousands):
(1) Additional sales compensation of $191 due to employment agreements signed
in connection with the Potamkin acquisition
(2) Additional rent expense of $1,139 due to new lease agreements signed in
connection with the Potamkin acquisition.
(3) Net adjustment of $80 to reduce depreciation expense for assets not
acquired in connection with the Potamkin acquisition.
(4) Stock-based compensation expense related to the issuance and subsequent
vesting of the 390,000 and 400,000 shares of restricted Class A common
stock issued in connection with the Autodata and Potamkin acquisitions,
respectively, as follows:
<TABLE>
<S> <C>
Autodata............................................................ $ 455
Potamkin............................................................ 1,161
------
$1,616
======
</TABLE>
(5) Amortization expense related to the intangible assets acquired in
connection with the acquisitions of Autodata, Potamkin and CD1Financial as
follows:
<TABLE>
<S> <C>
Autodata........................................................... $ 1,662
Potamkin........................................................... 1,804
CD1Financial....................................................... 19,383
-------
$22,849
=======
</TABLE>
(6) Elimination of investee income attributable to Autodata.
(7) Reduction of interest income by $1,950 related to the cash paid for the
Autodata and CD1Financial acquisitions.
(8) Reduction in interest expense of $350 due to CarsDirect.com not assuming
mortgage underlying Potamkin facilities.
(9) Elimination of CD1Financial minority interest.
(10) Additional weighted average shares used in the calculation of pro forma
basic and diluted net loss per share applicable to common shareholders
reflect the issuance of the 210,000 and 1,250,000 shares of Class A common
stock as part the Autodata and Potamkin acquisitions, respectively, as if
the shares had been outstanding for the entire period, and reflect the
390,000 and 400,000 restricted shares of Class A common stock issued as
part of the Autodata and Potamkin acquisitions, respectively, as if such
shares had been issued at January 1, 1999 and commenced vesting over
periods of four and three years, respectively. Additionally, weighted
average shares used in the calculation of pro forma basic and diluted net
loss per common share reflect the conversion of preferred stock to common
shares as of January 1, 1999, or the date of issuance, if later.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
CarsDirect.com, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
CarsDirect.com, Inc. (the "Company") at December 31, 1998 and 1999 and the
results of its operations and its cash flows for the period from October 9,
1998 (inception) through December 31, 1998 and the year ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. 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
of these consolidated financial statements in accordance with auditing
standards generally accepted in the United States, which 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 consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
February 25, 2000, except Notes 2 and 13, as
to which the date is May 15, 2000
F-5
<PAGE>
CARSDIRECT.COM, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
December 31, March 31 Stockholders'
--------------- --------- Equity March
1998 1999 2000 31, 2000
----- -------- --------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
- ------
Current assets
Cash and cash equivalents.......... $ 6 $170,260 $ 202,075
Accounts receivable, net........... -- 14,236 16,999
Inventory.......................... 43 11,202 23,427
Prepaid expenses and other current
assets............................ -- 4,725 10,127
----- -------- ---------
Total current assets............. 49 200,423 252,628
Property and equipment, net.......... 2 11,279 13,604
Goodwill and other intangible
assets.............................. -- 81,116 74,631
Other assets......................... 15 3,585 21,792
----- -------- ---------
Total assets..................... $ 66 $296,403 $ 362,655
===== ======== =========
LIABILITIES, CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
- ----------------------------------
Current liabilities
Accounts payable and accrued
expenses.......................... $ 105 $ 36,312 $ 53,459
Notes payable...................... 11 28 --
Deferred revenue................... -- 1,324 3,118
Capital lease obligations, current
portion........................... -- 944 1,465
----- -------- ---------
Total current liabilities........ 116 38,608 58,042
Convertible note payable............. -- 41 82
Capital lease obligations, net of
current portion..................... -- 1,177 1,199
----- -------- ---------
Total liabilities................ 116 39,826 59,323
----- -------- ---------
Commitments and contingencies (Note
11)
Convertible preferred stock, $.001
par value; 10,000,000, 49,127,938
and 49,127,938 shares authorized at
December 31, 1998, 1999 and March
31, 2000, respectively; 10,000,000,
46,321,360 and 47,294,614 shares
issued and outstanding; pro forma no
shares issued and outstanding;
liquidation preference and
redemption value of $313,586 at
March 31, 2000...................... 91 298,420 314,669
Stockholder note receivable........ -- (65,000) --
----- -------- ---------
91 233,420 314,669
Stockholders' equity (deficit)
Common stock, Class A, $.001 par
value; 20,000,000, 70,000,000 and
70,000,000 shares authorized at
December 31, 1998, 1999 and March
31, 2000 respectively; 316,000,
10,385,699 and 11,238,095 shares
issued and outstanding; pro forma
59,611,391 shares issued and
outstanding at March 31, 2000..... -- 10 11 $ 60
Common stock, Class B, $.001 par
value; 0, 2,050,000 and 2,050,000
shares authorized, issued and
outstanding at December 31, 1998,
1999 and March 31, 2000,
respectively; pro forma 2,050,000
shares issued and outstanding at
March 31, 2000.................... -- 2 2 2
Additional paid-in capital......... 156,734 173,415 505,035
Accumulated deficit................ (141) (72,466) (115,562) (115,562)
Deferred stock compensation........ -- (57,077) (60,765) (60,765)
Stockholders' notes receivable..... -- (4,414) (8,243) (8,243)
Accumulated other comprehensive
income............................ -- 368 (195) (195)
----- -------- --------- ---------
Total stockholders' equity
(deficit)....................... (141) 23,157 (11,337) $ 320,332
----- -------- --------- =========
Total liabilities, convertible
preferred stock and
stockholders' equity (deficit).. $ 66 $296,403 $ 362,655
===== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CARSDIRECT.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the
period from
October 9,
1998
(inception) Three months ended
through Year ended March 31,
December 31, December 31, -------------------
1998 1999 1999 2000
------------ ------------ ------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Vehicles, gross............... $ -- $ 17,850 $ -- $ 97,246
Vehicles, net ................ (9) (4,258) (122) (263)
Other......................... -- 1,585 -- 1,581
------ ---------- ------- ----------
Total revenues.............. (9) 15,177 (122) 98,564
Cost of revenues:
Vehicles (excludes $14, $0 and
$29 in non-cash stock-based
equity charges for the year
ended December 31, 1999 and
the three months ended March
31, 1999 and 2000,
respectively)................ -- 16,551 -- 97,662
Other......................... -- 985 -- 696
------ ---------- ------- ----------
Total cost of revenues...... -- 17,536 -- 98,358
------ ---------- ------- ----------
Excess of (cost over
revenues) revenues over
cost....................... (9) (2,359) (122) 206
------ ---------- ------- ----------
Operating expenses:
Sales and marketing (excludes
$1,562, $4 and $1,527 in non-
cash stock-based equity
charges for the year ended
December 31, 1999 and the
three months ended March 31,
1999 and 2000,
respectively)................ 4 33,425 25 14,573
Technology and product
development (excludes $692,
$1 and $804 in non-cash
stock-based equity charges
for the year ended December
31, 1999 and the three months
ended March 31, 1999 and
2000, respectively).......... -- 2,143 40 2,232
General and administrative
(excludes $11,945, $42 and
$6,690 in non-cash stock-
based equity charges for the
year ended December 31, 1999
and the three months ended
March 31, 1999 and 2000,
respectively)................ 128 19,994 456 13,655
Stock-based charges........... -- 14,213 47 9,050
Amortization of intangibles... -- 2,525 -- 6,499
------ ---------- ------- ----------
Total operating expenses.... 132 72,300 568 46,009
------ ---------- ------- ----------
Loss from operations........ (141) (74,659) (690) (45,803)
Interest income, net............ -- 2,438 23 2,707
------ ---------- ------- ----------
Loss before provision for
income taxes and minority
interest................... (141) (72,221) (667) (43,096)
Provision for income taxes...... -- 307 -- --
------ ---------- ------- ----------
Loss before minority
interest................... (141) (72,528) (667) (43,096)
Minority interest in
CD1Financial................... -- 203 -- --
------ ---------- ------- ----------
Net loss.................... $ (141) $ (72,325) $ (667) $ (43,096)
====== ========== ======= ==========
Basic and diluted net loss per
common share................... $(5.67) $ (35.61) $ (1.95) $ (6.22)
====== ========== ======= ==========
Weighted average shares used to
calculate basic and diluted net
loss per common share.......... 24,855 2,031,276 342,500 6,928,279
====== ========== ======= ==========
Unaudited pro forma basic and
diluted net loss per common
share.......................... $ (2.47) $ (0.81)
========== ==========
Unaudited pro forma weighted
average shares used to
calculate pro forma basic and
diluted net loss per common
share.......................... 29,317,289 53,517,326
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CARSDIRECT.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Class A Class B Accumulated
Common Stock Common Stock Additional Deferred Stockholders' Other
------------------ ---------------- Paid-In Accumulated Stock Notes Comprehensive
Shares Amount Shares Amount Capital Deficit Compensation Receivable Income
---------- ------ --------- ------ ---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
October 9, 1998
(inception)...... -- $-- -- $-- $ -- $ -- $ -- $ -- $ --
Issuance of
Class A common
stock........... 1,000 -- -- -- -- -- -- -- --
Exercise of
stock options... 15,000 -- -- -- -- -- -- -- --
Exercise of
stock options
for notes
receivable...... 300,000 -- -- -- -- -- -- -- --
Net loss and
comprehensive
loss............ -- -- -- -- -- (141) -- -- --
---------- ---- --------- ---- -------- --------- -------- ------- -----
Balance at
December 31,
1998............. 316,000 -- -- -- -- (141) -- -- --
Issuance of
Class B common
stock........... -- -- 2,050,000 2 35,545 -- -- -- --
Exercise of
stock options
and warrants.... 1,013,898 1 -- -- 424 -- -- -- --
Exercise of
stock options
for notes
receivable...... 6,110,606 6 -- -- 4,408 -- -- (4,414) --
Repurchase of
common stock.... (400,000) -- -- -- -- -- -- -- --
Beneficial
conversion on
convertible
promissory
note............ -- -- -- -- 41 -- -- -- --
Issuance of
common stock to
acquire
Autodata........ 600,000 -- -- -- 4,800 -- (3,120) -- --
Issuance of
common stock to
acquire
Potamkin........ 1,650,000 2 -- -- 18,148 -- (4,400) -- --
Warrant granted
as part of
CD1Financial
acquisition..... -- -- -- -- 29,579 -- -- -- --
Charge for
issuance of
common stock for
goods and
services........ 1,095,195 1 -- -- 3,908 -- (3,810) -- --
Charge for
issuance of
options and
warrants to non-
employees....... -- -- -- -- 185 -- (185) -- --
Deferred stock
compensation.... -- -- -- -- 59,696 -- (59,696) -- --
Amortization of
stock
compensation.... -- -- -- -- -- -- 14,134 -- --
Comprehensive
loss:
Net loss........ -- -- -- -- -- (72,325) -- -- --
Accumulated
other
comprehensive
income.......... -- -- -- -- -- -- -- -- 368
---------- ---- --------- ---- -------- --------- -------- ------- -----
Accumulated
comprehensive
loss............ -- -- -- -- -- (72,325) -- -- 368
---------- ---- --------- ---- -------- --------- -------- ------- -----
Balance at
December 31,
1999............. 10,385,699 10 2,050,000 2 156,734 (72,466) (57,077) (4,414) 368
Exercise of
stock options
and warrants
(unaudited)..... 123,346 -- -- -- 109 -- -- -- --
Exercise of
stock options
for notes
receivable
(unaudited)..... 742,750 1 -- -- 3,836 -- -- (3,837) --
Collections on
notes receivable
(unaudited)..... -- -- -- -- -- -- -- 8 --
Repurchase of
common stock
(unaudited)..... (13,700) -- -- -- (2) -- -- -- --
Deferred stock-
based
compensation
(unaudited)..... -- -- -- -- 12,738 -- (12,738) -- --
Amortization of
stock-based
compensation
(unaudited)..... -- -- -- -- -- -- 9,050 -- --
Comprehensive
loss:
Net loss
(unaudited)..... -- -- -- -- -- (43,096) -- -- --
Accumulated
other
comprehensive
income
(unaudited)..... -- -- -- -- -- -- -- -- (563)
---------- ---- --------- ---- -------- --------- -------- ------- -----
Accumulated
comprehensive
loss
(unaudited)..... -- -- -- -- -- (43,096) -- -- (563)
---------- ---- --------- ---- -------- --------- -------- ------- -----
Balance at March
31, 2000
(unaudited)...... 11,238,095 11 2,050,000 2 173,415 (115,562) (60,765) (8,243) (195)
Assumed
conversion of
convertible
preferred stock,
including
1,078,682 shares
of convertible
preferred stock
issued in May
2000 to
UnitedAuto Group
and Penske
Automotive Group
and certain
affiliated
companies, into
common stock
(unaudited)...... 48,373,296 49 -- -- 331,620 -- -- -- --
---------- ---- --------- ---- -------- --------- -------- ------- -----
Balance at March
31, 2000, pro
forma
(unaudited)...... 59,611,391 $ 60 2,050,000 $ 2 $505,035 $(115,562) $(60,765) $(8,243) $(195)
========== ==== ========= ==== ======== ========= ======== ======= =====
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
-------------
<S> <C>
Balance at
October 9, 1998
(inception)...... $ --
Issuance of
Class A common
stock........... --
Exercise of
stock options...
Exercise of
stock options
for notes
receivable...... --
Net loss and
comprehensive
loss............ (141)
-------------
Balance at
December 31,
1998............. (141)
Issuance of
Class B common
stock........... 35,547
Exercise of
stock options
and warrants.... 425
Exercise of
stock options
for notes
receivable...... --
Repurchase of
common stock.... --
Beneficial
conversion on
convertible
promissory
note............ 41
Issuance of
common stock to
acquire
Autodata........ 1,680
Issuance of
common stock to
acquire
Potamkin........ 13,750
Warrant granted
as part of
CD1Financial
acquisition..... 29,579
Charge for
issuance of
common stock for
goods and
services........ 99
Charge for
issuance of
options and
warrants to non-
employees....... --
Deferred stock
compensation.... --
Amortization of
stock
compensation.... 14,134
Comprehensive
loss:
Net loss........ (72,325)
Accumulated
other
comprehensive
income.......... 368
-------------
Accumulated
comprehensive
loss............ (71,957)
-------------
Balance at
December 31,
1999............. 23,157
Exercise of
stock options
and warrants
(unaudited)..... 109
Exercise of
stock options
for notes
receivable
(unaudited)..... --
Collections on
notes receivable
(unaudited)..... 8
Repurchase of
common stock
(unaudited)..... (2)
Deferred stock-
based
compensation
(unaudited)..... --
Amortization of
stock-based
compensation
(unaudited)..... 9,050
Comprehensive
loss:
Net loss
(unaudited)..... (43,096)
Accumulated
other
comprehensive
income
(unaudited)..... (563)
-------------
Accumulated
comprehensive
loss
(unaudited)..... (43,659)
-------------
Balance at March
31, 2000
(unaudited)...... (11,337)
Assumed
conversion of
convertible
preferred stock,
including
1,078,682 shares
of convertible
preferred stock
issued in May
2000 to
UnitedAuto Group
and Penske
Automotive Group
and certain
affiliated
companies, into
common stock
(unaudited)...... 331,669
-------------
Balance at March
31, 2000, pro
forma
(unaudited)...... $320,332
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
CARSDIRECT.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the period
from
October 9,
1998
(inception)
through Year ended
December 31, December 31, Three months
1998 1999 ended March 31,
-------------- ------------ ----------------
1999 2000
------ --------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................ $(141) $(72,325) $ (667) $(43,096)
Adjustments to reconcile net
loss to net cash
used in operating activities:
Depreciation and
amortization.................. -- 1,474 17 1,623
Amortization of intangibles.... -- 2,525 -- 6,499
Debt discount.................. -- 41 -- 41
Provision for bad debt
reserve....................... -- 216 -- 52
Stock-based charges............ -- 14,213 47 9,050
Minority interest in
CD1Financial.................. -- (203) -- --
Changes in operating assets
and liabilities, net of the
effect of acquisitions:
Accounts receivable.......... -- (13,808) (1) (2,815)
Inventory.................... (43) (11,160) 43 (12,225)
Prepaid expenses and other
current assets.............. (4) (3,045) (103) (4,475)
Other assets................. -- (3,309) -- (3,360)
Accounts payable and accrued
expenses.................... 105 35,869 251 17,147
Deferred revenue............. -- 1,144 -- 1,794
----- -------- ------ --------
Net cash used in operating
activities................ (83) (48,368) (413) (29,765)
----- -------- ------ --------
Cash flows from investing
activities:
Acquisitions, net of cash
acquired....................... -- (41,085) -- --
Investment in marketable
securities..................... -- -- -- (5,947)
Purchases of property and
equipment...................... (2) (9,440) (33) (2,365)
Capitalized internal use
software costs................. -- (1,973) (263) (336)
----- -------- ------ --------
Net cash used in investing
activities................ (2) (52,498) (296) (8,648)
----- -------- ------ --------
Cash flows from financing
activities:
Net proceeds from exercise of
Class A common stock options
and warrants................... -- 425 -- 109
Net proceeds from issuance of
Class B common stock........... -- 35,547 -- --
Net proceeds from issuance of
convertible preferred stock.... 91 233,370 6,767 5,516
Collections on stockholder note
receivable..................... -- -- -- 65,000
Net proceeds from issuance of
CD1Financial interests......... -- 2,000 -- --
Net proceeds from issuance of
notes payable.................. -- 30 38 --
Principal payments on notes
payable........................ -- (116) -- (28)
Principal payments on capital
lease obligations.............. -- (141) -- (365)
----- -------- ------ --------
Net cash provided by
financing activities...... 91 271,115 6,805 70,232
----- -------- ------ --------
Effect of exchange rate changes
on cash........................ -- 5 -- (4)
----- -------- ------ --------
Net increase in cash and cash
equivalents.................... 6 170,254 6,096 31,815
----- -------- ------ --------
Cash and cash equivalents,
beginning of period............ -- 6 6 170,260
----- -------- ------ --------
Cash and cash equivalents, end
of period...................... $ 6 $170,260 $6,102 $202,075
===== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
The Company
CarsDirect.com, Inc. ("CarsDirect.com") was incorporated in the State of
Delaware on October 9, 1998 and is a direct online provider of new automobiles
and related products and services that enables consumers to research, price,
configure, order, purchase and finance a vehicle online in the United States.
CarsDirect.com has two wholly owned subsidiaries: Autodata Marketing Systems
Incorporated ("Autodata"), acquired in July 1999, which licenses decision-
making support tools and content to the automotive and related industries in
North America; and CD1Financial.com, LLC ("CD1Financial"), in which
CarsDirect.com held a majority interest prior to acquiring 100% ownership in
December 1999, which provides automotive related financial products to
CarsDirect.com customers, including leases, loans and extended warranties. In
addition, through operations based in New York City, CarsDirect.com sells and
leases new and used automobiles, markets aftermarket products, including
extended warranties, and provides a variety of financing arrangements to its
customers.
Principles of Consolidation
The consolidated financial statements include the accounts of
CarsDirect.com and its subsidiaries ("the Company") from the dates of their
respective acquisitions (see Note 3). All intercompany transactions and
balances have been eliminated in consolidation.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and notes payable are carried at
historical cost. At December 31, 1999, the fair values of these instruments
approximated their financial statement carrying amounts because of the short-
term nature of these instruments.
At March 31, 2000, the Company held marketable equity securities
classified as "available-for-sale," carried at fair value, included as a
component of other assets, with unrealized gains and losses included in
accumulated other comprehensive income.
Impairment of Long-Lived Assets
The Company identifies and records impairment losses on long-lived assets
when events or circumstances indicate that such assets might be impaired. If
expected undiscounted future cash flows attributable to an asset are less than
the asset's carrying amount, an impairment loss equal to the excess of the
asset's carrying value over its fair value is recorded. To date, no such
impairment has been recorded.
F-10
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and short-term
investments with original maturities of three months or less.
Inventory
Inventory consists primarily of new vehicles that are valued at the lower
of cost or market. Cost is determined using the specific identification method.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment and purchased software........................ 3 years
Furniture and equipment.......................................... 5 years
Vehicles......................................................... 2-5 years
</TABLE>
Leasehold improvements are amortized over their estimated useful lives,
or the term of the lease, whichever is shorter. Repairs and maintenance are
expensed as incurred, while renewals or betterments are capitalized. Gains or
losses upon sale or retirement of property and equipment are included in the
consolidated statement of operations and the related cost and accumulated
depreciation are removed from the consolidated balance sheet. Such amounts were
not material for the period from October 9, 1998 (inception) through December
31, 1998, the year ended December 31, 1999 and the three months ended March 31,
1999 and 2000.
Internal Use Software Development Costs
The Company has adopted the provisions of Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 requires the capitalization of certain
external and internal computer software costs incurred during the application
development stage. The application development stage is characterized by
software design and configuration activities, coding, testing and installation.
Training costs and maintenance are expensed as incurred, while upgrades and
enhancements are capitalized if it is probable that such expenditures will
result in additional functionality. Internal use Web-site software development
costs are included in prepaid expenses and are amortized over an estimated
useful life of one year. As of December 31, 1999 and March 31, 2000,
accumulated amortization and amortization expense were approximately $407,000
and $407,000 and $868,000 and $461,000, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value
of the net assets acquired in an acquisition accounted for as a purchase.
Intangible assets consist primarily of identifiable intangible assets purchased
in connection with the Company's acquisitions (see Note 3). Goodwill and other
intangible assets are amortized on a straight-line basis over their estimated
useful lives, generally ranging from three to ten years. Accumulated
amortization amounted to approximately $2.5 million and $9.0 million as of
December 31, 1999 and March 31, 2000, respectively.
Income Taxes
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates
expected to apply
F-11
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. A valuation allowance is provided for the
amount of deferred tax assets that, based on available evidence, is not
expected to be realized.
Stock-Based Compensation
The Company accounts for its employee stock option plan in accordance
with the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations.
Accordingly, compensation expense related to employee stock options is recorded
if the deemed fair value of the common stock underlying stock options for
accounting purposes exceeds the exercise price on the date of grant. The
Company adopted the disclosure-only requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), which allows the Company to continue to apply the provisions of APB 25
for transactions with employees and provide pro forma net loss and pro forma
loss per common share disclosures as if the fair-value based method of
accounting had been applied. The Company accounts for equity awards issued to
non-employees in accordance with the provisions of SFAS 123 and Emerging Issues
Task Force Issue 96-18 ("EITF 96-18").
Revenue Recognition
Vehicle transactions:
The Company recognizes as revenues the price its customer pays it for a
vehicle upon the delivery of the vehicle to the customer, provided that
collection of the resulting receivable is probable. The Company believes that
presentation, as its revenues, of the price its customer pays for a vehicle
appropriately reflects the risks, and rewards, of its business model. In
addition, the Company believes such presentation appropriately reflects the
substance of the transaction and its legal rights and obligations. Following
receipt of a customer order, the Company enters into a legally enforceable
commitment to acquire a specific vehicle from a new car dealer to fulfill that
customer order. Such commitment obligates the Company to pay the dealer for the
specific car regardless of whether the customer pays the Company. The customer
has the right to cancel an order any time prior to accepting delivery of the
specific car. The Company sets the price of the vehicle to the customer, and
the price is not based on a formula related to the price the Company pays for
the vehicle. Customers conduct their business directly with the Company and
have no influence over which supplier the Company uses. The Company's cost and
payment terms are fixed, and are independent of the price and terms customers
pay it for vehicles. Prior to delivery of the vehicle to the customer, the
Company bears the inventory risk for the vehicles it commits to acquire; the
Company has the sole legal right to direct the disposition of the vehicles it
commits to acquire; the Company has an insurable interest as beneficial owner
in the vehicles it commits to acquire; and the Company is responsible for taxes
that may be assessed on a vehicle it commits to acquire. The Company bears the
risk of return of the vehicle if a customer defaults on the sale or if the
customer returns the vehicle in accordance with applicable law. The Company
does not have the right to return the vehicle to its supplier in those
instances and the Company establishes a reserve for estimated customer returns.
Upon delivery of the vehicle to the customer, the Company bears credit and
other risks related to the customer's payment obligation.
F-12
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
In transactions with its customers that do not include the foregoing
characteristics, the Company recognizes as net revenues the difference between
the amount its customer pays and its committed cost with respect to the
vehicle. For transactions in which we do not recognize the price that customers
pay for purchased vehicles as revenues, our reported revenues do not reflect
the total value of our vehicle transactions. A reconciliation of reported
revenue to the total value of vehicle transactions is as follows (in
thousands):
<TABLE>
<CAPTION>
For the period from Three months ended
October 9, 1998 March 31,
(inception) through Year ended --------------------
December 31, 1998 December 31, 1999 1999 2000
------------------- ----------------- --------- ----------
<S> <C> <C> <C> <C>
Total revenues, as
reported............... $ (9) $ 15,177 $ (122) $ 98,564
Vehicle revenues, net,
as reported............ 9 4,258 122 263
Customer payments
excluded from vehicle
revenues, net.......... 212 147,470 4,279 45,459
Less other revenues..... -- (1,585) -- (1,581)
---- -------- -------- ----------
Total value of vehicle
transactions......... $212 $165,320 $ 4,279 $ 142,705
==== ======== ======== ==========
</TABLE>
Other revenues:
Other revenues principally include licensing revenue, extended warranty
commissions and finance fee income. Licensing revenues are recognized on a pro
rata basis over the license period, generally ranging from three to twelve
months. Depending upon the nature of extended warranty contracts sold,
commissions on extended warranties are either recognized as revenue ratably
over the lives of the underlying contracts or when the Company's obligation to
refund any portion of the commissions upon customer termination expires.
Finance fees are recognized as revenue upon acceptance of the customer's credit
by the financing institution.
Cost of Revenues
Cost of revenues includes costs to purchase vehicles from dealers and
direct costs related to licensing revenues.
Sales and Marketing
Sales and marketing expenses include offline and online marketing and
advertising, creative and other marketing costs, sales promotion, compensation
and benefit costs related to our sales and sales support staff and direct
expenses associated with our sales force, including telecommunication costs.
The Company recognizes advertising expense at the time the advertisement is
first published. Advertising costs included in sales and marketing expenses
totaled approximately $3,000 and $29.6 million for the period from October 9,
1998 (inception) through December 31, 1998 and the year ended December 31, 1999
and $12,000 and $12.3 million for the three months ended March 31, 1999 and
2000, respectively.
Technology and Product Development
Costs incurred by the Company to develop, enhance, manage, monitor and
operate the Company's Web sites and related technologies are expensed as
incurred.
General and Administrative
General and administrative expenses include compensation, employee
benefits, office expenses, travel and other expenses for executive, finance,
legal, business development, dealer relations and other corporate and support-
functions personnel. General and administrative expenses also include fees for
professional services, occupancy costs and recruiting of personnel.
F-13
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
Stock-based Charges
Stock-based charges principally represent amortization of deferred stock
compensation related to the grant of stock options, warrants or restricted
stock to employees and consultants. Deferred compensation represents the
difference between the deemed fair value of the underlying common stock for
accounting purposes and the exercise price of options, warrants or restricted
shares at the date of grant. Deferred compensation is amortized over the
vesting period of applicable options, warrants and restricted stock, which is
generally four years.
Start-up Activities
The Company has adopted the provisions of Statement of Position No. 98-5,
"Reporting Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 requires that
the costs of start-up activities, including organization costs, be expensed as
incurred. The adoption of SOP 98-5 did not have a material impact on the
Company's consolidated financial position, results of operations, or cash
flows.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with major financial
institutions, and at times may be in excess of FDIC insurance limits. The
Company generally does not require collateral from its customers. As of
December 31, 1999, no customer comprised greater than 10% of the accounts
receivable balance, however, 16% of the Company's accounts receivable balance
was due from the entity with which the Company jointly established CD1Financial
(see Note 3). For the year ended December 31, 1999 and the three months ended
March 31, 2000, no customer comprised greater than 10% of revenues. The Company
did not have significant operations in 1998.
Basic and Diluted Net Loss per Share
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon conversion of convertible promissory
notes and convertible preferred stock (using the if-converted method) and
shares issuable upon the exercise of stock options and warrants (using the
treasury-stock method). Common equivalent shares are excluded from the
computation of diluted net loss per share as their effect is antidilutive.
Unaudited Pro Forma Net Loss Per Share
Basic pro forma net loss per share is computed using the weighted average
number of common shares outstanding, including the pro forma effects of the
automatic conversion of the Company's preferred stock on a one-to-one basis
into shares of the Company's Class A common stock, effective upon the closing
of the Company's initial public offering ("IPO"), as if such conversion had
occurred on the date the preferred stock was issued. Pro forma diluted net loss
per share is computed using the pro forma weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent
shares consist of convertible promissory notes (using the if-converted method)
and shares issuable upon the exercise of stock options and warrants (using the
treasury-stock method). Common equivalent shares are excluded from the
computation of pro forma diluted net loss per share as their effect is
antidilutive.
F-14
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
Unaudited Pro Forma Stockholders' Equity
Effective upon the closing of the Company's IPO, the outstanding shares
of the Company's convertible preferred stock will automatically convert into
48,373,296 shares of Class A common stock. The unaudited pro forma
stockholders' equity amounts reflect the conversion as of March 31, 2000,
including the 1,078,682 shares of preferred stock issued to UnitedAuto Group,
Inc., Penske Automotive Group, Inc. and certain affiliated and associated
companies (see Note 13).
Comprehensive Income
Comprehensive income includes all changes in equity (net assets) during a
period from non-owner sources. For the period from October 9, 1998 (inception)
through December 31, 1998, the Company's comprehensive loss was the same as its
net loss. For the year ended December 31, 1999, the Company's comprehensive
loss consisted of its net loss and cumulative translation adjustment. The tax
effect of the translation adjustment was not significant.
Foreign Currency Translation
The functional currency of one of the Company's wholly owned subsidiaries
is the local currency; accordingly, its financial statements are translated
into United States dollars using the exchange rate at each balance sheet date
for assets and liabilities and a weighted average exchange rate for revenues,
expenses, gains and losses. Translation adjustments related to the balance
sheet are included in accumulated other comprehensive income as a separate
component of stockholders' equity.
Segments
Segments are reported using the management approach in which reportable
segments are identified by reference to the Company's internal organization and
the factors that management uses to make operating decisions and assess
performance. The Company has two reportable segments consisting of its
operations related to new vehicles and related automotive financial and
extended warranty products, and its operations related to the licensing of
decision-making support tools and content.
Unaudited Interim Financial Information
The interim consolidated financial statements of the Company for the
three months ended March 31, 1999 and 2000 included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations relating to interim financial
statements. In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of the Company at March 31, 2000 and the results of its operations and
its cash flows for the three months ended March 31, 1999 and 2000.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 was amended by SFAS 137 in June
of 1999 to delay the effective date of adoption to fiscal years beginning after
June 15, 2000. SFAS 133 establishes new standards of accounting and reporting
for derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains and losses be reported either in the statement
of operations
F-15
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
or as a component of comprehensive loss, depending on the type of hedging
relationship that exists. To date, the Company has not engaged in any
derivative or hedging activities and management does not believe that adoption
of this statement will have a significant impact on the Company's consolidated
financial position, results of operations, or cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which provides additional guidance related to applying
generally accepted accounting principles in financial statements. In March
2000, the SEC issued Staff Accounting Bulletin No. 101A, which requires
implementation of SAB 101 no later than June 30, 2000. We have adopted the
provisions of SAB 101. Implementation did not have a significant impact on the
Company's consolidated financial position, results of operations, or cash
flows.
NOTE 3--ACQUISITIONS
During the year ended December 31, 1999, the Company made the
acquisitions described below, each of which has been accounted for as a
purchase. The consolidated statements of operations include the operating
results of each business from the acquisition date.
Autodata Marketing Systems Incorporated
In July 1999, the Company purchased the issued and outstanding capital
stock of Perga Capital Corp. ("Perga"), a Canadian holding company whose
primary asset was the capital stock of Autodata. The aggregate purchase price
was approximately $8.8 million, and was comprised of approximately $6.8 million
in cash, approximately $265,000 in direct acquisition costs and the issuance of
210,000 shares of Class A common stock with a deemed fair value for accounting
purposes of $1.7 million. In connection with the purchase, the Company issued
an additional 390,000 shares of restricted Class A common stock to the
stockholders of Perga, which vest over 4 years, subject to the continued
employment of certain key Autodata employees, and subject to acceleration in
the event of an IPO by the Company or a change of control transaction, as
defined. The 390,000 shares have been accounted for as $3.1 million of deferred
stock compensation, which is being amortized over the service periods of the
key Autodata employees. During the year ended December 31, 1999 and the three
months ended March 31, 2000, compensation expense included in stock-based
charges related to the amortization of deferred stock compensation amounted to
$325,000 and $195,000, respectively.
Also in connection with the purchase, additional cash payments will be
made within 90 days following September 2000, September 2001, and September
2002 equal to 50%, 45% and 35%, respectively, of Autodata's net income for the
years then ended, after subtracting Autodata's net income for the year ended
April 30, 1999. In the event that: a) the Company consummates an IPO, or b)
there is a change of control (as defined), or c) the Company pays $1.7 million
in exchange for cancellation of this contingent consideration, no additional
cash consideration will be paid. The contingent consideration, if any, will be
recorded as an increase to the purchase price at the time that the contingency
lapses.
The purchase price has been allocated to the tangible assets and
identifiable intangible assets acquired and liabilities assumed (the "Net
Assets"). The excess of the purchase price over the Net Assets has been
allocated to goodwill, and is being amortized on a straight-line basis over the
average estimated useful life of three years. The identifiable intangible
assets are being amortized on a straight-line basis over the average estimated
useful life of three years.
F-16
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
The following is a summary of the purchase price allocation at the date
of the Autodata acquisition at estimated fair values (in thousands):
<TABLE>
<S> <C>
Cash payment...................................................... $ 6,820
Class A common stock issued....................................... 1,680
Direct acquisition costs.......................................... 265
-------
Total purchase price........................................ $ 8,765
=======
Allocation of purchase price:
Tangible assets................................................. $ 1,268
Liabilities assumed............................................. (1,048)
Intangible assets:
Tradename..................................................... 135
Technology.................................................... 642
Workforce in-place............................................ 318
Goodwill...................................................... 7,450
-------
$ 8,765
=======
</TABLE>
Potamkin Auto Center, Ltd.
In October 1999, the Company acquired certain assets of Potamkin Auto
Center, Ltd. ("Potamkin"). The aggregate purchase price was approximately $14.1
million and was comprised of 1,250,000 shares of Class A common stock with a
deemed fair value for accounting purposes of $13.8 million, and $395,000 in
direct acquisition costs. In conjunction with the acquisition, the Company also
issued 400,000 shares of restricted Class A common stock, with a deemed fair
value for accounting purposes of $4.4 million to the seller, one of the
shareholders of which became an employee of the Company; such shares vest in
quarterly increments of 33,333 commencing on December 31, 1999 and continuing
through September 30, 2002, except that 33,337 shares will vest on September
30, 2002. Vesting of the shares is subject to the employee's continued
employment on the dates specified; accordingly, the Company accounted for the
restricted share grants as compensation and recorded $4.4 million as deferred
stock compensation, which will be amortized over the employee's service period.
During the year ended December 31, 1999 and the three months ended March 31,
2000, compensation expense included in stock-based charges related to the
amortization of deferred stock compensation amounted to $251,000 and $377,000
respectively.
The purchase price has been allocated to the tangible and identifiable
intangible assets acquired (the "Acquired Assets"). The excess of the purchase
price over the Acquired Assets has been allocated to goodwill that will be
amortized on a straight-line basis over ten years. The identifiable intangible
assets will be amortized on a straight-line basis over their estimated useful
lives ranging from six months to ten years.
F-17
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
The following is a summary of the purchase price allocation at the date
of the Potamkin acquisition at estimated fair values (in thousands):
<TABLE>
<S> <C>
Class A common stock issued...................................... $ 13,750
Direct acquisition costs......................................... 395
--------
Total purchase price....................................... $ 14,145
========
Allocation of purchase price:
Tangible assets................................................ $ 71
Intangible assets:
Tradename.................................................... 1,220
Inventory Supply Agreement................................... 710
Workforce in-place........................................... 460
Goodwill..................................................... 11,684
--------
$ 14,145
========
</TABLE>
CD1Financial.com, LLC
In May 1999, the Company entered into master and operating agreements
(the "Agreements") with another entity (the "Minority Member") to form and
operate CD1Financial, in which the Company had a 51% member's interest, to
provide automotive related financial products, including leases, loans and
extended warranties to the Company's customers. In conjunction with the
Agreements, the Company issued a warrant to the Minority Member that entitled
it to purchase the number of shares of Class A common stock which constituted
that percentage of the Company's pro forma fully diluted Preferred Stock and
Class A common stock prior to an IPO or change in control, as defined (an
"Event"), equal to the value of the Minority Member's interest divided by the
combined value of CD1Financial and the Company immediately prior to completion
of an Event.
On December 16, 1999, the Company entered into an agreement with the
Minority Member whereby the Company: a) purchased the Minority Member's 49%
interest in exchange for $2.0 million in cash, and b) terminated the master
agreement in exchange for approximately $30.9 million in cash. Additionally, in
connection with the purchase, the parties agreed that the warrant would become
immediately exercisable and non-forfeitable for 2,085,970 shares of Class A
common stock at an exercise price of $0.01. The warrant resulted in an increase
in goodwill and additional paid-in capital of approximately $29.6 million, its
deemed fair value for accounting purposes.
The estimated fair values of the tangible and intangible assets acquired
and the liabilities assumed approximated their historical cost bases, and the
excess of purchase price over the net assets acquired of approximately $60.7
million was allocated to goodwill, which is being amortized on a straight-line
basis over a three year life. Direct transaction costs related to the
acquisition amounted to $20,000.
F-18
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
The following unaudited summarized pro forma summary information presents
consolidated results of operations as if the Autodata, Potamkin and
CD1Financial acquisitions had been completed at October 9, 1998 (inception) and
January 1, 1999, respectively, and are not necessarily indicative of the
consolidated results of operations of the Company that would have occurred had
the acquisitions been completed at the beginning of the periods specified, nor
are they necessarily indicative of future operating results. The pro forma
amounts give effect to certain adjustments, including the amortization of
intangibles and goodwill (in thousands, except per share data).
<TABLE>
<CAPTION>
For the
period from
October 9,
1998
(inception)
through Year ended
December December
31, 1998 31, 1999
----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues........................................ $37,639 $ 125,687
Net loss........................................ $(7,227) $(100,617)
Net loss per share.............................. $ (0.63) $ (3.31)
Basic and diluted weighted average shares....... 11,514 30,422
</TABLE>
NOTE 4--COMPONENTS OF CERTAIN BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
----- --------
(in thousands)
<S> <C> <C>
Accounts receivable, net:
Accounts receivable...................................... $ -- $ 14,464
Allowance for doubtful accounts.......................... -- 228
----- --------
$ -- $ 14,236
===== ========
Prepaid expenses and other current assets:
Prepaid advertising...................................... $ -- $ 2,079
Capitalized Web-site software costs, net................. -- 1,972
Other.................................................... -- 674
----- --------
$ -- $ 4,725
===== ========
Property and equipment:
Computer equipment and purchased software................ $ 2 $ 6,164
Furniture and equipment.................................. -- 1,516
Vehicles................................................. -- 1,453
Leasehold improvements................................... -- 2,917
----- --------
2 12,050
Less, accumulated depreciation and amortization.......... -- (771)
----- --------
$ 2 $ 11,279
===== ========
</TABLE>
F-19
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
Included in property and equipment is approximately $2.3 million of
computer equipment acquired under capital leases with amortization and
accumulated amortization of approximately $179,000 at December 31, 1999 (in
thousands).
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
----- -------
<S> <C> <C>
Goodwill and other intangible assets:
Goodwill.................................................. $ -- $80,111
Tradenames................................................ -- 1,360
Inventory supply agreement................................ -- 710
Technology................................................ -- 668
Workforce in-place........................................ -- 792
----- -------
-- 83,641
Accumulated amortization.................................... -- (2,525)
----- -------
$ -- $81,116
===== =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- -------
<S> <C> <C>
Accounts payable and accrued expenses
Accounts payable........................................... $105 $17,044
Accrued expenses........................................... -- 1,614
Liability under inventory supply agreement................. -- 5,638
Book overdrafts............................................ -- 12,016
---- -------
$105 $36,312
==== =======
</TABLE>
As part of the Potamkin asset acquisition, the Company entered into an
inventory supply agreement with the seller requiring that inventory be acquired
with the proceeds of the financing agreement between the seller and Chrysler
Financial Corporation (the "Lender"). Under the terms of this inventory supply
agreement, the Company reimburses the seller for costs incurred in providing
this financing arrangement. The financing agreement grants the Lender a
collateral interest in the specific inventory and generally requires the
repayment of amounts financed upon sale of inventoried vehicles. The amounts
payable by the Company under the inventory supply agreement are recorded in
accounts payable and accrued expenses in the accompanying consolidated
financial statements, and amounted to $5.6 million at December 31, 1999.
NOTE 5--NOTES PAYABLE
Convertible Promissory Notes
In July 1999, the Company executed a $79,000 convertible promissory note
without a stated interest rate that was due in July 2000, unless converted. The
principal balance was converted in October 1999 into 5000 shares of Series D
preferred stock issued in the Company's subsequent round of equity financing.
The number of shares of preferred stock into which the convertible promissory
note was converted was determined by dividing the outstanding principal balance
by the preferred stock price per share paid by the outside investors in that
financing.
In September 1999, the Company executed a $490,000 convertible promissory
note that bears interest at a rate of 3.00% per annum and is due the earlier of
September 2003 or the date the note holder's designee
F-20
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
ceases to be a director of the Company as a result of certain circumstances, as
defined. The convertible promissory note will convert into Series C preferred
stock in each of the years from September 2000 to 2003 in the amount of
$123,000 unless the note holder elects not to convert. In April 2002, the
unpaid balance plus accrued interest will automatically convert into Class A
common stock if, prior to April 2000, the Company has completed an initial
public offering, unless the note holder elects not to convert. In the event an
initial public offering is consummated between April 2000 and August 2001, the
unpaid balance plus accrued interest will automatically convert into Class A
common stock two years following the consummation of the initial public
offering, unless the note holder elects not to convert. The conversion price
for both the Series C preferred stock and Class A common stock of $2.86 per
share was less than the deemed fair values of each of the securities on the
commitment date of the convertible promissory note. As a result, the total
amount of the convertible promissory note proceeds was allocated to the
beneficial conversion feature and is being amortized to interest expense over a
four year period using the effective interest method.
Note Payable
In June 1999, the Company executed a $150,000 unsecured note payable that
bears interest at a rate of 6.00% per annum and is due in monthly payments of
principal and interest of $17,000. As of December 31, 1999, approximately
$17,000 was outstanding on this note.
NOTE 6--INCOME TAXES
For the period October 9, 1998 (inception) through January 31, 1999, the
Company was included in the consolidated federal income tax returns of its
majority shareholder. Accordingly, the Company's net operating losses for the
period October 9, 1998 (inception) through January 31, 1999 are subject to
utilization by its majority shareholder consolidated tax reporting group. The
Company and its majority shareholder have entered into a tax-sharing agreement
whereby the Company will be reimbursed for the tax benefit of net operating
losses it otherwise could have used had it not joined its majority
shareholder's consolidated tax group, at the time that the losses would have
been utilized by the Company on a stand-alone basis.
For United States tax reporting purposes, Autodata, which was acquired in
July of 1999, is deemed to be a disregarded entity; thus all of its activities
are subject to taxation in the United States. For Canadian tax purposes,
AutoData is treated as a separate legal entity and will be subject to Canadian
income taxes.
As a result of net operating losses, the Company has not recorded a
provision for United States income taxes for the period from October 9, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999. However,
for the year ended December 31, 1999, a foreign tax provision was recorded as a
result of operations in Canada, as follows (in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Federal............................................. $-- $ -- $--
State............................................... -- -- --
Foreign............................................. 307 -- 307
---- ----- ----
$307 $ -- $307
==== ===== ====
</TABLE>
F-21
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
The provision for income taxes differs from the amount of income tax
benefit determined by applying the applicable United States statutory federal
income tax rate to pretax loss from continuing operations as a result of the
following differences (in thousands):
<TABLE>
<CAPTION>
October 9, 1998 Year ended
(inception) to December 31,
December 31, 1998 1999
----------------- ------------
<S> <C> <C>
Income tax benefit at federal statutory
rates.................................... $ (49) $(25,206)
Difference in provision for income taxes
resulting from:
Non-deductible items.................... -- 3,134
Valuation allowance..................... 49 22,379
----- --------
Provision for income taxes............ $ -- $ 307
===== ========
</TABLE>
The components of deferred tax assets and the related valuation allowance
at December 31, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
---- --------
<S> <C> <C>
Depreciation and amortization.............................. $-- $ 821
Allowance for doubtful accounts............................ -- 93
Foreign taxes.............................................. -- 307
Net operating loss carryforwards........................... 57 24,494
---- --------
Total gross deferred tax assets.......................... 57 25,715
Less: valuation allowance.................................. (57) (25,715)
---- --------
Net deferred tax assets.................................. $-- $ --
==== ========
</TABLE>
The Company has recorded a 100% valuation allowance against its deferred
tax assets as management believes that it is more likely than not that the
benefit will not be realized based on the Company's future estimated operating
results.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $60.9 million and
$141,000 respectively. Of the net operating losses generated for the year ended
December 31, 1999, approximately $260,000 are included in the tax return of the
majority shareholder's consolidated tax group and thus subject to utilization
by the majority shareholder's consolidated tax group. The net operating losses
have 20-year and 8-year carryforward periods for federal and state income tax
purposes, respectively. Utilization of the above carryforwards may be subject
to utilization limitations, which may inhibit the Company's ability to use its
carryforwards in the future.
F-22
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
NOTE 7--CAPITALIZATION
Convertible Preferred Stock
The following table summarizes the Series A, Series B, Series C and
Series D activity for the period from October 9, 1998 (inception) through
December 31, 1998, the year ended December 31, 1999 and the three months ended
March 31, 2000 (in thousands, except share data):
<TABLE>
<CAPTION>
Series A Series B Series C Series D
----------------- ---------------- ----------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------ --------- ------ --------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 9,
1998 (inception)....... -- $-- -- $ -- -- $ -- -- $ --
Issuance of Series A.... 10,000,000 91 -- -- -- -- -- --
---------- ---- --------- ------ --------- ------- ---------- --------
Balance at December 31,
1998................... 10,000,000 91 -- -- -- -- -- --
Issuance of Series B.... -- -- 9,558,571 7,328 -- -- -- --
Issuance of Series C.... -- -- -- -- 9,757,523 22,683 -- --
Issuance of Series D.... -- -- -- -- -- -- 17,005,266 268,318
Stockholder note
receivable............. -- -- -- -- -- -- -- (65,000)
---------- ---- --------- ------ --------- ------- ---------- --------
Balance at December 31,
1999................... 10,000,000 91 9,558,571 7,328 9,757,523 22,683 17,005,266 203,318
Issuance of Series D.... -- -- -- -- -- -- 973,254 16,249
Collection of
stockholder note
receivable............. -- -- -- -- -- -- -- 65,000
---------- ---- --------- ------ --------- ------- ---------- --------
Balance at March 31,
2000................... 10,000,000 $ 91 9,558,571 $7,328 9,757,523 $22,683 17,978,520 $284,567
========== ==== ========= ====== ========= ======= ========== ========
</TABLE>
Convertible preferred stock (the "Preferred Stock") consisted of the
following as of March 31, 2000 (in thousands, except share and per share data):
<TABLE>
<CAPTION>
Par Issuance Price Shares Liquidation
Value Per Share Authorized Outstanding Value
----- ----------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Series A....... $.001 $ 0.01 10,000,000 10,000,000 $ 150
Series B....... $.001 $ 0.77 9,558,572 9,558,571 7,360
Series C....... $.001 $ 2.33 and $ 2.67 9,945,000 9,757,523 22,735
Series D....... $.001 $15.76 and $17.34 19,624,366 17,978,520 283,341
---------- ---------- --------
49,127,938 47,294,614 $313,586
========== ========== ========
</TABLE>
Each holder of Preferred Stock is entitled to the number of votes
determined on an as-converted basis, as if the Preferred Stock has been
converted into Class A common shares in the manner described below. The holders
of the Series A, B, C and D Preferred Stock are entitled to receive
noncumulative dividends in an amount equal to $0.02, $0.08, $0.19 and $1.26 per
annum, respectively, when and if declared by the Company's board of directors.
In the event of any liquidation, dissolution or winding up of the Company,
including a change of control, as defined, the holders of Series A, B, C and D
Preferred Stock are entitled to receive $0.015, $0.77, $2.33 and $15.76 per
share, respectively, plus declared but unpaid dividends on each share.
Each share of the Series A, B, C and D Preferred Stock is convertible, at
the option of the holder, at any time, into the number of Class A common shares
determined by dividing the applicable original issue price of such shares of
Preferred Stock by the conversion price (the "Conversion Price"). The
Conversion Price per share of Series A, B, C and D Preferred Stock is $0.015,
$0.77, $2.33 and $15.76, respectively. Each share of Preferred Stock will
automatically be converted into shares of Class A common stock at the then
effective
F-23
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
Conversion Price upon the earlier of (i) the closing of an IPO with gross
proceeds to the Company of not less than $20.0 million at a per share offering
price of at least $7.00, or (ii) the consent of holders of not less than 50% of
the outstanding shares of each series of Preferred Stock.
In October 1999, the Company executed a promissory note with a current
stockholder in the principal amount of $65.0 million bearing interest at 5.54%
per annum that was due in January 2000. The promissory note was issued by the
stockholder to the Company in exchange for Series D Preferred Stock issued to
the stockholder. In connection with the promissory note, the Company and the
note holder entered into a pledge agreement in which the shares of the Series D
preferred stock were pledged against the promissory note. This note was paid in
January 2000.
In November 1999, the Company issued a warrant to an employee to purchase
200,000 shares of Series D Preferred Stock at an exercise price of $15.76 per
share that is exercisable at any time through November 4, 2004. In January
2000, the Company issued a warrant to an employee to purchase 100,000 shares of
Series D Preferred Stock at an exercise price of $15.76 per share, exercisable
at any time through January 13, 2004.
Common Stock Issued For Goods and Services
During the year ended December 31, 1999, the Company issued 1,095,195
shares of the Company's Class A common stock for goods and services and
recorded stock-based charges of approximately $3.8 million. Principally all of
these shares were issued to a related party.
Issuance of Class B Common Stock
In December 1999, the Company issued 2,050,000 shares of its Class B
common stock for $17.34 per share to a current stockholder, resulting in gross
proceeds of approximately $35.5 million. Each share of Class B common stock has
20 votes and shall vote together with the shares of the Company's Class A
common stock as a single class.
Each share of Class B common stock shall be converted at the option of
the holder thereof, at any time after the date of issuance, into one share of
Class A common stock. Upon the transfer or disposition of any share of Class B
common stock to any person or entity other than to an affiliate of the current
stockholder, each such share of Class B common stock shall automatically be
converted into one share of Class A common stock. If and when the current
stockholder or its affiliates collectively cease to hold and have the right to
direct the vote of at least 20% of the shares of the Company's outstanding
capital stock, each outstanding share of Class B common stock shall
automatically be converted into one share of Class A common stock.
Repurchase of Common Stock
In October 1999, the Company repurchased 400,000 shares of Class A common
stock issued to a former employee for $0.001 per share.
F-24
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
NOTE 8--STOCK OPTIONS AND WARRANTS
Stock Option Plan
In October 1998, the Company adopted the 1998 Stock Plan (the "1998
Stock Plan") under which a total of 10,000,000 shares of Class A common stock
were reserved for issuance with respect to stock option grants. In January
2000, the board of directors approved increasing the shares of Class A common
stock reserved for issuance under the 1998 Stock Plan to 11,000,000. At March
31, 2000, 244,917 shares were available for future grants. The 1998 Stock Plan
provides for the granting of nonstatutory and incentive stock options to
employees, officers, directors and consultants of the Company. Stock purchase
rights may also be granted under the 1998 Stock Plan. Options granted
generally begin vesting over a four-year period, with 5% of the shares vesting
immediately upon grant, an additional 10% vesting six months after the grant
date, and the remaining options vesting on a quarterly basis over the
remaining 42 months. Options generally expire ten years from the date of
grant. In addition, certain employees have options that have accelerated
vesting provisions upon certain events, including the closing of an initial
public offering by the Company or the transfer of ownership of 50% or more of
the Company's common stock.
The following table summarizes activity under the 1998 Stock Plan:
<TABLE>
<CAPTION>
Weighted
Average
Number of Price per Exercise
shares Share Price
----------- ---------------- --------
<S> <C> <C> <C>
Options outstanding at October 9,
1998 (inception).................. -- $ -- $ --
Granted........................... 376,925 $ 0.001 $0.001
Exercised......................... (315,000) $ 0.001 $0.001
-----------
Options outstanding at December 31,
1998.............................. 61,925 $ 0.001
Granted........................... 10,238,839 $0.001 to $ 5.00 $ 1.00
Exercised......................... (7,024,504) $0.001 to $ 5.00 $ 0.66
Forfeited/expired................. (395,719) $0.15 to $ 5.00 $ 0.46
-----------
Options outstanding at December 31,
1999.............................. 2,880,541 $0.001 to $ 5.00 $ 1.91
Granted........................... 1,196,157 $ 5.00 to $10.00 $ 6.79
Exercised......................... (866,096) $ 0.15 to $ 6.00 $ 4.56
Forfeited/expired................. (247,419) $ 0.15 to $10.00 $ 1.40
-----------
Options outstanding at March 31,
2000.............................. 2,963,183 $0.001 to $10.00 $ 3.14
===========
Options available for future
grant............................. 244,917
===========
</TABLE>
Additional information with respect to outstanding options as of March
31, 2000 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------------
Average
Remaining
Contractual Average Number Average
Number of Life Exercise of Exercise
Shares (in years) Price Shares Price
--------- ----------- -------- ------ --------
<S> <C> <C> <C> <C>
5,000 8.56 $0.001 1,660 $0.001
196,558 9.01 $ 0.15 153,692 $ 0.15
871,354 9.31 $ 0.35 103,145 $ 0.35
1,500 9.08 $ 0.70 1,500 $ 0.70
4,598 9.34 $ 0.77 4,598 $ 0.77
692,286 9.52 $ 1.50 53,844 $ 1.50
661,355 9.72 $ 5.00 66,258 $ 5.00
102,382 9.88 $ 6.00 7,339 $ 6.00
133,500 9.92 $ 8.00 6,675 $ 8.00
294,650 9.98 $10.00 118,499 $10.00
--------- -------
2,963,183 9.54 $ 3.14 517,210 $ 3.40
========= =======
</TABLE>
F-25
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
In June 1999, the Company issued two warrants to an employee allowing the
employee to purchase a total of 100,000 shares of the Company's Class A common
stock at an exercise price of $2.33 per share. The first warrant was
exercisable and non-forfeitable into 50,000 shares of the Company's Class A
common stock when the Company's board of directors determined that the fair
market value of the Class A common stock was equal to or greater than $2.33 per
share, which occurred in November 1999. The second warrant was exercisable into
50,000 shares of the Company's Class A common stock upon the earliest of an
IPO, a change in control, as defined, an involuntary termination of the
employee within 12 months of the appointment of a new President or Chief
Executive Officer, or June 2004. In November 1999, the board of directors
amended the second warrant to allow the employee to early exercise and purchase
50,000 shares of the Company's Class A common stock, however such shares are
subject to repurchase by the Company until one of the previous conditions for
exercising the warrant occurs. The Company recorded and fully amortized
deferred stock compensation of $167,000 for these warrants during the year
ended December 31, 1999.
For the period from October 9, 1998 (inception) through December 31, 1998
and during the year ended December 31, 1999, notes receivable were exchanged
for the exercise of certain options, with interest rates ranging from 4.47% to
6.08% per annum. The notes receivable are generally due over a four-year
period, are full-recourse and are collateralized by the common stock issued
pursuant to the option exercise. As of December 31, 1998 and December 31, 1999,
receivables approximating $0 and $4.4 million, respectively, were due from
officers and directors of the Company. For the period from October 9, 1998
(inception) through December 31, 1998, the year ended December 31, 1999 and the
three months ended March 31, 1999 and 2000 interest income of approximately $0,
$69,000, $0 and $154,000, respectively, was recognized on these notes.
Options grants during the period from October 9, 1998 (inception) through
December 31, 1998 and the year ended December 31, 1999 resulted in a total
deferred stock compensation of $0 and $59.1 million, respectively, which
amounts have been included in deferred stock compensation in stockholders'
equity. During the period from October 9, 1998 (inception) through December 31,
1998, the year ended December 31, 1999 and the three months ended March 31,
1999 and 2000, compensation expense included in stock-based charges in the
consolidated statements of operations amounted to $0, $9.2 million, $44,000 and
$8.4 million, respectively.
Fair Value Disclosure
The Company calculated the fair value of each option on the date of grant
using the minimum value option-pricing model as prescribed by SFAS 123 using
the following assumptions:
<TABLE>
<CAPTION>
For the period
from October 9,
1998 (inception) Year ended
through December December 31,
31, 1998 1999
---------------- ------------
<S> <C> <C>
Risk-free interest rate................... 5% 5%
Expected term (years)..................... 4 4
Dividend yield............................ 0% 0%
Expected volatility....................... 0% 0%
</TABLE>
Under the fair-value model, compensation expense associated with stock-
based compensation plans would not have resulted in a material difference from
the reported net loss for the period from October 9, 1998 (inception) through
December 31, 1998 and the year ended December 31, 1999.
F-26
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
For the period from October 9, 1998 (inception) through December 31, 1998
and the year ended December 31, 1999, the Company granted 26,925 and 68,597
stock options to non-employee consultants, respectively, that are exercisable
into the Company's Class A common stock, under terms substantially the same as
those for options issued to employees. The options were valued using the fair-
value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
For the period
from October 9,
1998 (inception) Year ended
through December December 31,
31, 1998 1999
---------------- ------------
<S> <C> <C>
Risk-free interest rate................... 5% 5%
Expected term (years)..................... 7-10 7-10
Dividend yield............................ 0% 0%
Expected volatility....................... 58% 58%
</TABLE>
The weighted average fair values of the options issued to non-employees
during the period from October 9, 1998 (inception) through December 31, 1998
and the year ended December 31, 1999 were $0.001 and $2.14 per share,
respectively. The Company recorded total deferred stock compensation of
$657,000 for these stock options, which has been included in deferred stock
compensation in stockholders' equity. During the year ended December 31, 1999
and the three months ended March 31, 1999 and 2000, compensation expense
included in stock-based charges related to the amortization of the deferred
stock compensation amounted to approximately $368,000, $3,800 and $100,000,
respectively. The deferred compensation amount related to non-employee options
will be adjusted over the service period of these consultants based on changes
in the deemed fair value of the Company's Class A common stock.
NOTE 9--SEGMENTS AND GEOGRAPHIC INFORMATION
Our reportable segments consist of new vehicle and related transactions
and licensing of support tools and content. New vehicle operations are
conducted in the United States and support tools and content operations are
based in Canada. Segment data include intersegment revenues and reflect the
allocation of all corporate-headquarters costs to our operating segments. We
evaluate the performance of our segments and allocate resources to them
accordingly. During 1998, we had one reportable segment domiciled in the
United States.
Our reportable segment geographic information for the year ended December
31, 1999 was as follows (in thousands):
<TABLE>
<CAPTION>
Long-
Loss from Lived
Revenues Operations Assets
-------- ---------- -------
<S> <C> <C> <C>
United States
Third Parties................................ $14,006 $72,317 $84,056
Intersegment................................. -- 788 --
------- ------- -------
14,006 73,105 84,056
------- ------- -------
Canada
Third Parties................................ 1,959 1,554 8,339
Intersegment................................. (788) -- --
------- ------- -------
1,171 1,554 8,339
------- ------- -------
$15,177 $74,659 $92,395
======= ======= =======
</TABLE>
F-27
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
NOTE 10--NET LOSS PER SHARE
The following table sets forth the computation of basic, diluted and pro
forma net loss per share for the periods indicated (in thousands, except share
and per share data):
Historical Presentation
<TABLE>
<CAPTION>
For the period
from October 9,
1998 (inception) Year Three months ended
through ended March 31,
December 31, December 31, --------------------
1998 1999 1999 2000
---------------- ------------ -------- ----------
<S> <C> <C> <C> <C>
Net loss................... $ (141) $ (72,325) $ (667) $ (43,096)
======= ========== ======== ==========
Weighted average common
shares outstanding........ 24,855 2,031,276 342,500 6,928,279
======= ========== ======== ==========
Basic and diluted net
loss per common share... $ (5.67) $ (35.61) $ (1.95) $(6.22)
======= ========== ======== ==========
</TABLE>
Pro forma Presentation, assuming conversion of Preferred Stock (see Notes 2
and 7)
<TABLE>
<CAPTION>
Year ended Three months
December 31, ended March 31,
1999 2000
------------ ---------------
<S> <C> <C>
Shares used above in historical computation...... 2,031,276 6,928,279
Weighted average effect of redeemable convertible
preferred stock
Series A....................................... 10,000,000 10,000,000
Series B....................................... 8,256,114 9,558,571
Series C....................................... 6,474,156 9,928,852
Series D....................................... 2,555,743 17,101,625
----------- -----------
Unaudited pro forma weighted average shares
outstanding................................. 29,317,289 53,517,326
=========== ===========
Unaudited pro forma basic and diluted net
loss per common share....................... $ (2.47) $ (0.81)
=========== ===========
</TABLE>
The diluted per share computations exclude unvested restricted common
stock, warrants and common stock options which were antidilutive. The number of
shares excluded from the diluted net loss per common share computation was
8,665,864 for the year ended December 31, 1999 and 2,292,533 and 9,148,268 for
the three months ended March 31, 1999 and 2000, respectively. Excluded
restricted common stock, warrants and common stock options in 1998 were
insignificant.
NOTE 11--COMMITMENTS AND CONTINGENCIES
Leases
During 1999, the Company entered into several capital lease agreements to
purchase computer equipment at interest rates ranging from 10% to 19% per
annum. The Company leases its principal United States and Canadian facilities
under operating leases, with periodic rate increases, which expire through
2004, if not renewed.
F-28
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
Future minimum lease payments under noncancelable operating and capital
leases are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Year Ending December 31: --------- -------
<S> <C> <C>
2000................................................... $1,715 $1,114
2001................................................... 940 953
2002................................................... 851 121
2003................................................... 842 121
2004 and thereafter.................................... 717 100
------ ------
$5,065 2,409
======
Less amounts representing interest..................... 288
------
Present value of future lease payments................. 2,121
Less current portion................................... 944
------
$1,177
======
</TABLE>
Total rent expense under operating leases for the period from October 9,
1998 (inception) through December 31, 1998, the year ended December 31, 1999
and the three months ended March 31, 1999, and 2000 approximated $0, $764,000,
$12,000 and $199,000, respectively.
Subsequent to the acquisition of certain assets of Potamkin (see Note 3),
the Company leases certain of its facilities from the seller under operating
leases expiring through May 2004, and providing for renewals through May 2014.
Total rent expense under related party leases was $72,000 and $94,000 monthly
and amounted to $143,000 and $282,000 for the year ended December 31, 1999 and
the three months ended March 31, 2000, respectively.
Contingencies
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Based on the information presently available,
including discussion with counsel, management believes that resolution of these
matters will not have a material adverse effect on the Company's business,
consolidated results of operations, financial condition, or cash flows.
Gregory Brogger, the former Chief Operating Officer of the Company, filed
a complaint on September 30, 1999 in Los Angeles County Superior Court naming
CarsDirect.com, CD1Financial and Bank One as defendants. The complaint alleged
a single cause of action for breach of contract against CD1Financial, and
claims for intentional and negligent interference with contract against the
Company, one of the Company's shareholders and Bank One. Mr. Brogger claimed in
the suit that CD1Financial, at the urging of the other defendants, breached a
purported employment agreement with CD1Financial by terminating him without
cause. As a result, Mr. Brogger claimed he is entitled to a 5.75% ownership
interest in CD1Financial, an amount he estimated to be worth $33 million. In
addition, he sought general and compensatory damages, punitive damages and his
costs of suit. Following the filing of the complaint, the Company and the other
defendants agreed to mediate and arbitrate Mr. Brogger's claims. Mr. Brogger
dismissed his action on January 14, 2000 without prejudice. The parties have
unsuccessfully mediated the case, and are now proceeding to a binding
arbitration of Mr. Brogger's claims in June 2000. The Company has denied that
it is liable to Mr. Brogger in any amount and intends to vigorously defend
against Mr. Brogger's allegations.
F-29
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
On October 22, 1999, Trilogy Software and carOrder.com filed an action
in the United States District Court for the Western District of Texas
asserting claims against CarsDirect.com and its subsidiary, Autodata. In the
complaint, Trilogy alleges that CarsDirect.com and Autodata have infringed
Trilogy's United States patent entitled "Method and Apparatus for Maintaining
and Configuring Systems," and that such infringement is willful. Trilogy and
carOrder also allege that CarsDirect.com and Autodata tortiously interfered
with a license agreement between Trilogy and Intellichoice relating to
automobile industry data. Trilogy seeks, among other things, triple damages in
an unspecified amount, preliminary and permanent injunctive relief and
attorneys' fees and costs. CarsDirect.com and Autodata have filed an answer to
the complaint denying the material allegations and asserting defenses
including, among others, that the Trilogy patent is invalid, unenforceable and
not infringed. The Company intends to vigorously defend itself against the
allegations.
Letter of Credit
During 1999 the Company entered into various irrevocable letters of
credit totaling $1.1 million. The letters of credit are for one-year periods
and are subject to automatic renewal provisions. No amounts were outstanding
under these letters of credit at December 31, 1999. Principally all of the
letters of credit are secured by certificates of deposit totaling $1.1
million, which are included in other assets in the accompanying consolidated
financial statements.
Employment Agreements
The Company has entered into employment agreements with certain members
of management.
F-30
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
NOTE 12--SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three months
For the period from ended
October 9, 1998 Year ended March 31,
(inception) through December 31, -------------
December 31, 1998 1999 1999 2000
------------------- ------------ ----- -------
(in thousands)
<S> <C> <C> <C> <C>
Supplemental disclosures of cash
flows:
Cash paid for interest ....... $ -- $ 113 $ -- $ 205
==== ======= ===== =======
Cash paid for taxes........... $ -- $ -- $ -- $ 8
==== ======= ===== =======
Non-cash investing and financing
activities:
Notes receivable from
stockholders in connection
with exercise of stock
options...................... $ -- $ 4,414 $ -- $ 3,837
==== ======= ===== =======
Notes receivable from majority
stockholder in connection
with Class B common stock.... $ -- $65,000 $ -- $ --
==== ======= ===== =======
Issuance of 1,095,195 shares
of Class A common stock for
goods and services........... $ -- $ 3,830 $ -- $ --
==== ======= ===== =======
Issuance of note payable for
professional services........ $ -- $ 229 $ -- $ --
==== ======= ===== =======
Equipment obtained under
capital lease................ $ -- $ 2,262 $ -- $ 910
==== ======= ===== =======
Shares of Class A common stock
issued for the Autodata
acquisition.................. $ -- $ 4,800 $ -- $ --
==== ======= ===== =======
Shares of Class A common stock
issued for the Potamkin
acquisition.................. $ -- $18,150 $ -- $ --
==== ======= ===== =======
Warrant to purchase Class A
common stock related to the
acquisition of CD1Financial
minority interest............ $ -- $29,579 $ -- $ --
==== ======= ===== =======
Shares of Series D preferred
stock issued for goods and
services..................... $ -- $ -- $ -- $10,734
==== ======= ===== =======
</TABLE>
NOTE 13--SUBSEQUENT EVENTS (UNAUDITED)
Strategic Alliance
In May 2000, the Company entered into a strategic relationship with
Penske Automotive Group, Inc. and UnitedAuto Group, Inc. for vehicle sourcing
and other services. As consideration, the Company granted to UnitedAuto Group,
Penske Automotive Group and certain affiliated and associated companies
warrants to purchase an aggregate of 7,939,339 shares of Series D preferred
stock at an exercise price of $15.76 per share. Separately, the Company sold to
the aforementioned entities 1,078,682 shares of Series D preferred stock at
$15.76 per share, or a total of $17.0 million.
Leased Facility
In April 2000, the Company leased an additional facility for its sales
and operations departments under an operating lease expiring in November 2005.
Annual rentals of $504,000 will commence upon occupancy, anticipated in
November 2000.
F-31
<PAGE>
CARSDIRECT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the three months ended March 31, 1999 and
2000 is unaudited)
Authorization for IPO
In May 2000, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission that would
permit the Company to sell shares of its Class A common stock in connection
with a proposed IPO. If the IPO is consummated under the terms presently
anticipated, upon the closing of the proposed IPO, all of the then-outstanding
shares of the Company's preferred stock will automatically convert into shares
of Class A common stock on a one-for-one basis.
Employee Benefit Plan
The board of directors approved a 401(k) Profit Sharing Plan (the
"Plan"), to be effective March 2000, to be available to all employees who meet
the Plan's eligibility requirements. Under the Plan, participating employees
may defer a percentage (not to exceed 15%) of their eligible pretax earnings up
to the Internal Revenue Service's annual contribution limit. Company matching
and profit sharing contributions are discretionary.
Stock Option Plan
In May 2000, the board of directors approved increasing the shares of
Class A common stock reserved for issuance under the 1998 Stock Plan to
11,500,000.
F-32
<PAGE>
AUDITORS' REPORT
To the Directors of
Perga Capital Corp. (formerly R. L. Perrier Investments Limited)
We have audited the balance sheets of Perga Capital Corp. as at April 30,
1998 and 1999, and the statements of operations and deficit, and cash flows for
the years ended April 30, 1998 and 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all
material respects, the financial position of the Company as at April 30, 1998
and 1999, and the results of its operations and its cash flow for the years
ended April 30, 1998 and 1999 in accordance with Canadian generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
London, Ontario, Canada
October 27, 1999
F-33
<PAGE>
PERGA CAPITAL CORP.
BALANCE SHEETS
As at April 30, 1998 and 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
1998 1999
----- -----
(in
thousands)
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash............................................................ $ 3 $ 1
Accounts receivable............................................. 5 5
Income taxes recoverable (note 7)............................... -- 13
----- -----
8 19
Advances to a significantly influenced company (note 3)........... 151 310
Investment in significantly influenced company (note 4)........... -- --
----- -----
$ 159 $ 329
===== =====
<CAPTION>
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
- ----------------------------------------------
<S> <C> <C>
Current liabilities:
Non-interest bearing advances from a shareholder................ $ 223 $ 232
----- -----
223 232
----- -----
Shareholders' (deficit) equity:
Capital stock (note 6).......................................... -- --
Contributed surplus............................................. 222 222
Deficit......................................................... (286) (125)
----- -----
(64) 97
----- -----
$ 159 $ 329
===== =====
</TABLE>
See accompanying notes to the financial statements.
F-34
<PAGE>
PERGA CAPITAL CORP.
STATEMENTS OF OPERATIONS AND DEFICIT
For the years ended April 30, 1998 and 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
1998 1999
----- -----
(in
thousands)
<S> <C> <C>
Net sales revenue $ -- $ --
----- -----
General and administrative expenses.............................. 11 8
Interest expense................................................. 1 3
Share of loss (income) in significantly influenced company....... 12 (160)
----- -----
24 (149)
----- -----
(Loss) earnings before income taxes.............................. (24) 149
Recovery of income taxes (note 7)................................ (1) (13)
----- -----
Net (loss) earnings for the year................................. (23) 162
Deficit--Beginning of year....................................... (263) (286)
----- -----
Deficit--End of year............................................. $(286) $(124)
===== =====
</TABLE>
See accompanying notes to the financial statements.
F-35
<PAGE>
PERGA CAPITAL CORP.
STATEMENTS OF CASH FLOWS
For the years ended April 30, 1998 and 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
1998 1999
---- -----
(in
thousands)
-----------
<S> <C> <C>
Operating activities:
Net (loss) earnings for the year................................... $(23) $ 162
Items not affecting cash-
Share of loss (income) in significantly influenced company....... 12 (160)
---- -----
(11) 2
Net change in non-cash working capital-
Increase in accounts receivable.................................. (5) --
Increase in income taxes receivable.............................. -- (13)
Decrease in income taxes payable................................. (26) --
---- -----
(42) (11)
---- -----
Financing activities:
Non-interest bearing advances from a shareholder................... 24 9
---- -----
24 9
---- -----
Net change in cash and cash equivalents............................ (18) (2)
Cash and cash equivalents--Beginning of year....................... 21 3
---- -----
Cash and cash equivalents--End of year............................. $ 3 $ 1
==== =====
</TABLE>
See accompanying notes to the financial statements.
F-36
<PAGE>
PERGA CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
For the years ended April 30, 1998 and 1999
(expressed in Canadian dollars)
1 NATURE OF OPERATIONS
Perga Capital Corp. (the "Company") is a holding company without
significant operations and owns 35.4% of the common shares of Autodata
Marketing Systems Incorporated ("Autodata") which is located in London,
Ontario, Canada. The significantly influenced company is focused primarily on
licensing decision-making support tools and content to the automotive and
related industries in North America.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment
The Company's 35.4% investment in Autodata is accounted for using the
equity method. If an other than temporary decline in value occurs, the
investment would be written down to its net realizable value.
Income taxes
The Company follows the deferral method of income tax allocation. Under
this method, timing differences between reported and taxable income result in
provisions for taxes not currently payable.
Foreign currency translation
All foreign currency denominated accounts of the Company are translated
at the exchange rate at the balance sheet date. Transactions denominated in
foreign currency occurring during the period are translated at the rate in
effect at the date of the transaction.
Statement of cash flows
During the year, the Company retroactively implemented the new
presentation and disclosure requirements regarding cash flow statements per the
Canadian Institute of Chartered Accountants Handbook, section 1540.
Cash equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Financial instruments
The Company's estimate of the fair value of its financial instruments,
which include cash, accounts receivable and borrowings, approximates their
carrying value, due to the short-term nature of the instruments.
Use of estimates
The preparation of these financial statements requires management to make
estimates and assumptions that affect revenues and expenses during the
reporting periods, in addition to the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements. Actual results could differ from those estimates.
F-37
<PAGE>
PERGA CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3 ADVANCES TO SIGNIFICANTLY INFLUENCED COMPANY
<TABLE>
<CAPTION>
1998 1999
----- ----
(in
thousands)
<S> <C> <C>
Note receivable from Autodata bearing interest at the prime
lending rate of the Royal Bank of Canada.................... $ 100 $100
Note receivable from Autodata bearing interest at the prime
lending rate of the Royal Bank of Canada.................... 55 55
Note receivable from Autodata bearing interest at the prime
lending rate of the Royal Bank of Canada.................... 137 137
Note receivable from Autodata bearing interest at the prime
lending rate of the Royal Bank of Canada.................... 29 29
----- ----
321 321
Write-down of advances arising from share of loss in
significantly influenced company in excess of the investment
value (see note 4).......................................... (170) (11)
----- ----
$ 151 $310
===== ====
</TABLE>
The Company has agreed to waive all interest receivable for 1995 through
1999. All notes are due on demand, however, as the Company has agreed not to
demand payment within the next year, all notes are classified as long-term.
The Company has been granted the right, at its sole option, subject to
shareholders' approval, to convert the $100,000 and $55,000 notes to equity of
Autodata at the rate of 500 Class "A" special shares, plus 1 common share for
each $500 of notes receivable (see note 9).
The Company has been granted the option to convert the $29,000 note to
29,000 Class "A" special shares and 372 common shares of Autodata with stated
values of $29,000 and $4, respectively (see note 9).
4 INVESTMENT IN SIGNIFICANTLY INFLUENCED COMPANY
<TABLE>
<CAPTION>
Ownership 1998 1999
--------- ----- -----
(in
thousands)
<S> <C> <C> <C>
Investment in Autodata:
Shares........................................... 35.4% $ 130 $ 130
Equity in cumulative losses...................... (130) (130)
----- -----
$ -- $ --
===== =====
</TABLE>
The Company's investment in Autodata includes $383,000 attributable to
goodwill which is being amortized on a straight-line basis over ten years. The
accumulated balance as at April 30, 1999 is $192,000.
The investment balance is further offset by the cumulative share of
losses in the significantly influenced company. As the Company accounts for its
investment in Autodata on the equity basis, it records its share of the income
or loss of Autodata against the value of its investment in Autodata. To the
extent the cumulative share of the losses of Autodata exceed the value of the
investment, at any time, the excess loss is then charged against any advances
made to Autodata until the investment and advances balances are nil.
F-38
<PAGE>
PERGA CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's share of Autodata's income has been calculated based on
earnings for the years ended April 30, 1998 and 1999. The following summarized
financial information is disclosed as at April 30, 1998 and 1999 and for the
years then ended (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- ------
<S> <C> <C>
Current assets............................................ $ 230 $ 981
Other assets.............................................. 218 494
------- ------
448 1,475
======= ======
Current liabilities....................................... $ 874 $1,205
Long-term debt............................................ 564 701
Redeemable special shares................................. 429 429
------- ------
1,867 2,335
Shareholders' deficit..................................... (1,419) (860)
------- ------
$ 448 $1,475
======= ======
Revenue................................................... $ 1,903 $3,721
------- ------
Expenses.................................................. 1,831 3,163
------- ------
Net earnings.............................................. $ 72 $ 558
======= ======
</TABLE>
The Company has an irrevocable option to purchase a further 53.7% of the
common shares of Autodata for a fixed price from another shareholder (see note
9).
5 RELATED PARTY TRANSACTIONS
During a prior year, the Company entered into a management and consulting
agreement with Autodata, whereby management and consulting fees were payable by
Autodata at the rate of 10% of the first $1.0 million of annual pre-tax income
of Autodata and 8% of any excess. Management fees have been waived for all
years up to and including 1999.
6 CAPITAL STOCK
As at April 30, 1998 and 1999, the share capital of the Company is as
follows:
Authorized
10,000 8% non-cumulative, voting special shares of $.01 each, redeemable
and retractable at $100 each.
Unlimited common shares.
Issued (see note 9)
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
205 Common shares................................ $205 $205
---- ----
</TABLE>
F-39
<PAGE>
PERGA CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7 INCOME TAXES
The recovery of income taxes relates to the recovery of previously
provided taxes.
8 UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 Issue may be
experienced before, on or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting the entity, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
9 SUBSEQUENT EVENTS
Subsequent to the year-end, the Company acquired all of the common shares
from the remaining shareholders of the significantly influenced company,
Autodata.
Following completion of the above transactions, the Company cancelled all
remaining options to acquire shares and to convert notes receivable to shares
so that no options remain outstanding.
On May 13, 1999, the Company changed the 205 common shares which were
issued and outstanding to 9,000 common shares. The Articles were also amended
by creating an unlimited number of class "B" special shares and 10,000 class
"C" voting shares.
On July 27, 1999, the Company was acquired by CarsDirect.com, Inc.
Subsequent to the acquisition the Company was amalgamated with its
subsidiary companies and continued as Autodata Solutions Company.
Subsequent to the acquisition the Company repaid advances from a
shareholder at face value with funds received from the ultimate parent company.
10 DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP"). The only
significant difference between Canadian GAAP and United States generally
accepted accounting principles ("United States GAAP") relates to the share of
income of the investment in the significantly influenced company, Autodata, as
there are differences in income as determined under Canadian GAAP versus United
States GAAP for Autodata.
The following adjustments would be required in order to present the
results of operations of Autodata in accordance with United States GAAP.
Accounting for income taxes under United States GAAP
For United States GAAP purposes, the benefits of the losses for
income tax purposes and excess of amortization of capital assets over
capital cost allowance must be recognized in the financial statements
with an appropriate valuation allowance established for the portion of
the benefits not likely to be utilized in the foreseeable future.
F-40
<PAGE>
PERGA CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Accordingly, under United States GAAP, the tax benefit of these
losses and excess amortization of capital assets over capital cost
allowance would be (in thousands):
<TABLE>
<CAPTION>
1998 1999
----- ----
<S> <C> <C>
Tax benefit of losses........................................ $ 567 $318
Amortization in excess of capital cost allowance............. 61 97
----- ----
628 415
Valuation allowance.......................................... (628) --
----- ----
Net tax benefit of losses and amortization in excess of
capital cost allowance...................................... $ -- $415
===== ====
</TABLE>
A valuation allowance of 100% of the potential benefit of the
losses and amortization of capital assets in excess of capital cost
allowance was established in 1998 as at the year end 1998 it was not
likely that Autodata would generate sufficient income in the future
years before the losses would expire and Autodata had only generated
marginal income before tax in each of the years 1997 and 1998. In 1999,
Autodata generated increased pre-tax income from operations; Autodata
had generated increasing pre-tax profit in each of the last three
years, and the anticipated income in subsequent years was estimated to
be sufficient to utilize the losses before their expiry dates in the
carryforward periods. Accordingly, no valuation allowance was deemed
necessary at April 30, 1999.
Accounting for deferred charges
Under United States GAAP, items recorded as deferred charges
under Canadian GAAP, such as development costs and training costs, are
expensed as incurred. Deferred charges on the Canadian-GAAP balance
sheet of Autodata in 1999 include costs related to the development of
new products for the company and internally developed software. The
costs in 1998 represent training costs relating to the proprietary
processes of Autodata.
Accordingly, under United States GAAP, the deferred charges
relating to product development and training of $98,000 in 1998, and
$73,000 in 1999, would have been expensed, resulting in a reversal of
these expenses in the subsequent year for United States GAAP purposes,
when the expense was recognized under Canadian GAAP. Costs of $34,000
relating to internally developed software would have been capitalized
at April 30, 1999, to be amortized over the period of use of the
software.
Accounting for prepaid legal costs
Under United States GAAP, costs relating to legal fees paid for
assessment of contracts relating to the regular business activities of
Autodata would be expensed as incurred. Prepaid expenses at April 30,
1998 and 1999 respectively, include legal costs of $6,000 and $20,000.
Accordingly, under United States GAAP, these prepaid legal fees
would have been expensed in the year incurred, resulting in a reversal
of these expenses in the subsequent year for United States GAAP
purposes, when the expense was recognized under Canadian GAAP.
F-41
<PAGE>
PERGA CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Cash flow statements
The cash flow statements have been prepared on a basis consistent with
International Accounting Standards.
The following summarizes the Company's balance sheets and statements of
operations prepared in accordance with United States GAAP (in thousands).
Balance Sheets
<TABLE>
<CAPTION>
1998 1999
----- ----
<S> <C> <C>
ASSETS
Cash........................................................ $ 3 $ 1
Accounts receivable......................................... 5 5
Advances to significantly influenced company................ 114 321
Income taxes recoverable.................................... -- 13
Investment in significantly influenced company.............. -- 104
----- ----
$ 122 $444
===== ====
LIABILITIES
Non-interest bearing advances from a shareholder............ $ 223 $232
----- ----
223 232
----- ----
SHAREHOLDERS' (DEFICIT) EQUITY
Capital stock............................................... -- --
Contributed surplus......................................... 222 222
Deficit..................................................... (323) (10)
----- ----
(101) 212
----- ----
$ 122 $444
===== ====
<CAPTION>
Statements of Operations
<S> <C> <C>
Net sales revenue............................................. $ -- $ --
----- ----
General and administrative expenses........................... 11 8
Interest expense.............................................. 1 3
Share of loss (income) in significantly influenced company.... 49 (311)
----- -----
61 (300)
----- -----
(Loss) earnings before income taxes........................... (61) 300
Recovery of income taxes...................................... (1) (13)
----- -----
Net (loss) earnings for the year.............................. $ (60) $ 313
===== =====
</TABLE>
F-42
<PAGE>
PERGA CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Reconciliation of shareholders' (deficit) equity
<TABLE>
<S> <C>
Opening shareholders' deficit under Canadian GAAP and United
States GAAP..................................................... $ (41)
Adjustments 1998:
Net loss for the year.......................................... (60)
-----
Shareholders' deficit as at April 30, 1998....................... (101)
Adjustments 1999:
Net earnings for the year...................................... 313
-----
Shareholders' equity as at April 30, 1999........................ $ 212
=====
</TABLE>
F-43
<PAGE>
AUDITORS' REPORT
To the Directors of
Autodata Marketing Systems Incorporated
We have audited the consolidated balance sheets of Autodata Marketing
Systems Incorporated as at April 30, 1998 and 1999, and the consolidated
statements of earnings and deficit, and cash flows for the years ended April
30, 1998 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at April 30,
1998 and 1999, and the results of its operations and its cash flow for the
years ended April 30, 1998 and 1999 in accordance with Canadian generally
accepted accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
London, Ontario, Canada
October 27, 1999
F-44
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
As at April 30, 1998 and 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
1998 1999
------- -------
(in thousands)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash...................................................... $ 20 $ 87
Term deposits............................................. -- 200
Trade accounts receivable (net of allowance for doubtful
accounts of NIL and $21 at April 30, 1998 and 1999,
respectively)............................................ 176 568
Other accounts receivable................................. 9 64
Prepaid expenses.......................................... 25 62
------- -------
230 981
Capital assets (note 3)..................................... 120 387
Deferred charges (net of accumulated amortization of NIL and
$98 at April 30, 1998 and 1999, respectively).............. 98 107
------- -------
$ 448 $ 1,475
======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Accounts payable and accrued liabilities.................. $ 236 $ 296
Deferred revenue.......................................... 501 909
------- -------
737 1,205
Notes payable to related parties (notes 4 and 14)........... 701 701
Redeemable special shares (note 6).......................... 429 429
------- -------
1,867 2,335
------- -------
Shareholders' deficit:
Capital stock (notes 7 and 14)............................ 91 91
Contributed surplus....................................... 146 146
Deficit................................................... (1,656) (1,097)
------- -------
(1,419) (860)
------- -------
$ 448 $ 1,475
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-45
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
For the years ended April 30, 1998 and 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Net sales revenue............................................ $ 1,903 $ 3,722
------- -------
Cost of sales materials.................................... 112 258
Selling, general and administrative expenses............... 1,710 2,899
Interest expense........................................... 9 6
------- -------
1,831 3,163
------- -------
Earnings before income taxes................................. 72 559
Provision for income taxes (note 9).......................... -- --
------- -------
Net earnings for the year.................................... 72 559
Deficit--Beginning of year................................... (1,728) (1,656)
------- -------
Deficit--End of year......................................... $(1,656) $(1,097)
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-46
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended April 30, 1998 and 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Operating activities:
Net earnings for the year.................................... $ 72 $ 559
Items not affecting cash--
Amortization of capital assets............................. 35 80
Amortization of deferred charges........................... -- 98
Loss on disposal of capital assets......................... 3 --
------- -------
110 737
Net change in non-cash working capital (note 10)............. 139 (16)
------- -------
249 721
------- -------
Financing activities:
Decrease in bank indebtedness................................ (100) --
------- -------
Investing activities:
Purchase of capital assets................................... (59) (347)
Deferred charges incurred.................................... (98) (107)
------- -------
(157) (454)
------- -------
Net change in cash and cash equivalents...................... (8) 267
Cash and cash equivalents--Beginning of year................. 28 20
------- -------
Cash and cash equivalents--End of year....................... $ 20 $ 287
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-47
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended April 30, 1998 and 1999
(expressed in Canadian dollars)
1 NATURE OF OPERATIONS
Autodata Marketing Systems Incorporated (the "Company") is located in
London, Ontario, Canada. The Company is focused primarily on licensing
decision-making support tools and content to the automotive and related
industries in North America.
Subsequent to the year end, the Company's parent, Perga Capital
Incorporated, was acquired by CarsDirect.com, Inc., a United States company,
and the Company name was changed to Autodata Solutions Company.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include those of the Company and
its wholly owned subsidiary, Paradigm Publishing Inc.
Revenue recognition
Revenues from contract services are recorded evenly over the period of
the contracts. Terms of the executed contracts, under which the price has been
established and delivery of services has commenced, range from 3 months to 12
months.
Capital assets
Capital assets are recorded at cost. Amortization is provided annually at
rates calculated to write-off the assets over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Computer hardware................................... 30% declining balance
Computer software................................... 30% declining balance
Furniture and fixtures.............................. 20% declining balance
Leasehold improvements.............................. 20% straight line
</TABLE>
Deferred charges
Deferred charges include direct salary costs relating to the development
of new products and training costs associated with the Company's proprietary
processes. These charges are recorded at cost and amortized against income in
the period in which the related income is earned.
Income taxes
The Company follows the deferral method of income tax allocation. Under
this method, timing differences between reported and taxable income result in
provisions for taxes not currently payable.
Foreign currency translation
All foreign currency denominated accounts of the Company are translated
at the exchange rate at the balance sheet date. Transactions denominated in
foreign currency occuring during the period are translated at the rate in
effect at the date of the transaction.
F-48
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statement of cash flows
During the year, the Company retroactively implemented the new
presentation and disclosure requirements regarding cash flow statements per the
Canadian Institute of Chartered Accountants Handbook, section 1540.
Cash equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Financial instruments
The Company's estimate of the fair value of its financial instruments,
which include cash and term deposits, accounts receivable, accounts payable and
borrowings, approximates their carrying value. Notes payable to related parties
are interest bearing, but such interest has been waived since 1995. Therefore,
the carrying value is not necessarily representative of fair value. Subsequent
to year-end, notes payable to related parties were repaid in full, at face
value, which establishes the fair value of the debt.
Use of estimates
The preparation of these financial statements requires management to make
estimates and assumptions that affect revenues and expenses during the
reporting periods, in addition to the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements. Actual results could differ from those estimates.
3 CAPITAL ASSETS
<TABLE>
<CAPTION>
1998
----------------------
Accumulated
Cost amortization Net
---- ------------ ----
(in thousands)
<S> <C> <C> <C>
Computer hardware.................................. $118 $ 60 $ 58
Computer software.................................. 70 39 31
Furniture and fixtures............................. 34 14 20
Leasehold improvements............................. 21 10 11
---- ---- ----
$243 $123 $120
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1999
----------------------
Accumulated
Cost amortization Net
---- ------------ ----
(in thousands)
<S> <C> <C> <C>
Computer hardware.................................. $196 $ 89 $107
Computer software.................................. 76 49 27
Furniture and fixtures............................. 48 19 29
Leasehold improvements............................. 270 46 224
---- ---- ----
$590 $203 $387
==== ==== ====
</TABLE>
F-49
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4 NOTES PAYABLE TO RELATED PARTIES
As at April 30, the following amounts were due to shareholders of the
Company (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Long Term
8% note payable to a shareholder, secured by a general security
agreement (maximum $400)....................................... $350 $350
Note payable to a shareholder bearing interest at the prime
lending rate of the Royal Bank of Canada (note 14(i)).......... 100 100
Note payable to a shareholder bearing interest at the prime
lending rate of the Royal Bank of Canada....................... 30 30
Note payable to shareholder bearing interest at the prime
lending rate of the Royal Bank of Canada....................... 55 55
Note payable to a shareholder bearing interest at the prime
lending rate of the Royal Bank of Canada....................... 137 137
Note payable to a shareholder bearing interest at the prime
lending rate of the Royal Bank of Canada....................... 29 29
---- ----
$701 $701
==== ====
</TABLE>
The shareholders have agreed to waive all interest for 1995 through
1999. All notes are payable on demand, however as note holders have agreed not
to demand payment within the next year, all notes are classified as long-term.
The Company has granted the right to the holders of the first 4 long-
term notes, as set out above, at their sole option, subject to shareholders'
approval, to convert this debt to equity of the Company at the rate of 500
Class "A" special shares, plus 1 common share for each $500 of debt (see note
14 (iv)).
The Company has granted to the holder of the 6th note above, the option
to convert this debt to 29,000 Class "A" Special shares and 372 common shares
with stated values of $29,000 and $4, respectively (see note 14 (iv)).
5 RELATED PARTY TRANSACTIONS
Regular business transactions
The Company received services from a shareholder during the ordinary
course of business, with a value of $8,000 (1998--$11,000). An unpaid balance
of $32,000 (1998--$31,000) due to the shareholder is included in accounts
payable and accrued liabilities.
Management agreement
During a prior year, the Company entered into a management and
consulting agreement with shareholders, whereby management and consulting fees
were payable to the shareholders at the rate of 13% of the first $1.0 million
of annual pre-tax income and 8% of any excess. Management fees have been
waived for all years up to and including 1999.
F-50
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6 REDEEMABLE SPECIAL SHARES
Authorized
426 5% cumulative, non-voting, convertible, redeemable, and retractable
preference shares.
Unlimited non-cumulative, non-participating, non-voting redeemable Class
"A" special shares.
Issued (see note 14)
<TABLE>
<CAPTION>
1998 1999
------- -------
(in thousands)
<S> <C> <C>
429,000 Class "A" special shares.......................... $ 429 $ 429
</TABLE>
7 CAPITAL STOCK
As at April 30, 1998 and 1999, the share capital of the Company is as
follows:
Authorized
Unlimited common shares.
Issued and Outstanding (see note 14)
<TABLE>
<CAPTION>
1998 1999
------- -------
(in thousands)
<S> <C> <C>
1,109 Common shares........................................ $ 91 $ 91
</TABLE>
8 LINE OF CREDIT
At April 30, 1999, the Company had an available bank line of credit of
$100,000. As security for this line, a shareholder has guaranteed this amount
and the shareholder has placed a term deposit receipt in the amount of
$100,000 with the company's banker. The balance of the line of credit at April
30, 1999 is Nil (1998--Nil). Subsequent to the year end this line of credit
was cancelled.
9 INCOME TAXES
<TABLE>
<CAPTION>
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Income tax provision at statutory rates.................. $ 16 $ 124
Application of loss carryforwards........................ (16) (124)
------- -------
$ -- $ --
======= =======
</TABLE>
Non-capital losses available for carryforward to future accounting
periods which may be applied to reduce income taxes otherwise payable expire
as follows (in thousands):
<TABLE>
<S> <C>
July 27, 1999......................................................... $139
April 30, 2000........................................................ 232
April 30, 2001........................................................ 148
April 30, 2002........................................................ 192
----
$711
====
</TABLE>
F-51
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has also recorded amortization for accounting purposes in
excess of capital cost allowance for tax purposes in the amount of $218,000
(1998--$138,000).
The Company estimates that non-refundable investment tax credits
amounting to approximately $8,000 arising from the purchase of research and
development assets are available for the reduction of income taxes payable in
future years.
The potential benefits relating to the available losses, additional
capital cost allowances, and investment tax credits have not been recorded in
the financial statements.
Losses in the amount of approximately $558,000 (1998--$73,000) have been
utilized during the year to offset the tax provision that would be otherwise
payable.
10 NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
1998 1999
------- -------
(in thousands)
<S> <C> <C>
(Increase) decrease in--
Trade accounts receivable................................ $ 148 $ (392)
Other accounts receivable................................ (9) (55)
Prepaid expenses......................................... (14) (37)
Increase (decrease) in--
Accounts payable and accrued liabilities................. (74) 59
Deferred revenue......................................... 88 409
------ -------
$ 139 $ (16)
====== =======
</TABLE>
11 CONTINGENCIES AND COMMITMENTS
(a) Under the terms of various leases for equipment and premises, the
Company is committed to the following lease payments (in thousands):
<TABLE>
<S> <C>
Year ended April 30, 2000......................................... $133
2001.............................................................. 102
2002.............................................................. 48
2003.............................................................. 2
</TABLE>
(b) Contingency
The Company, along with CarsDirect.com, Inc. ("CarsDirect.com") was named
in an action for patent infringement on October 22, 1999. The complaint alleges
that CarsDirect.com and the Company have infringed, and are infringing, upon
another company's patent. Specifically, the claim alleges that the method which
defendants use to configure consumers' vehicles and vehicle options infringes
upon their patent. The claimant seeks damages, preliminary and permanent
injunctive relief, and attorney's fees and costs.
CarsDirect.com and the Company will defend the lawsuit on two grounds:
that the claimant's patent is invalid, and, in the alternative, the defendants
have not infringed the patent. CarsDirect.com and the Company do not believe
that this lawsuit will have a material adverse effect on their respective
companies and intend to vigorously defend themselves.
F-52
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12 UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 Issue may be
experienced before, on or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting the entity, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
13 SEGMENTED INFORMATION
The Company operates primarily in one industry segment, data collection
and licensing.
Geographic Information
<TABLE>
<CAPTION>
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Revenues
Canada....................................................... $ 818 $ 1,154
Europe....................................................... 38 223
United States................................................ 1,047 2,345
------- -------
$ 1,903 $ 3,722
======= =======
</TABLE>
The Company derives revenues from a number of customers. One customer
represents approximately $743,000 for 1999. Amounts receivable from this
customer were approximately $191,000 at April 30, 1999. Amounts receivable
from two different customers were approximately $40,000 and $147,000 at April
30, 1998 and April 30, 1999, respectively.
14 SUBSEQUENT EVENT
Subsequent to year-end, the shareholders approved a reorganization of
the Company's capitalization as follows:
(i) The $100,000 note payable as set out in note 4 above was converted
to the following:
45,000 Class "A" special shares with stated value of $45,000
90 common shares
Note payable to shareholder of $55,000
(ii) One of the shareholders acquired all of the common shares from the
remaining shareholders.
(iii) The Company redeemed 100% of its Class "A" shares, for
consideration of $474,000 in the form of a new promissory note payable to its
shareholder.
(iv) Following completion of the above transactions, the Company
cancelled all remaining options to acquire shares and to convert debt to
shares so that no options remain outstanding.
Subsequent to the year-end the Company was amalgamated with its parent
and subsidiary companies and continued as Autodata Solutions Company.
F-53
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Subsequent to the year-end the Company repaid its notes payable to
related parties at their face value with funds received from the ultimate
parent company.
15 DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ("Canadian GAAP"). The
following adjustments would be required in order to present these financial
statements in accordance with U.S. generally accepted accounting principles
("United States GAAP").
Accounting for income taxes under United States GAAP
For United States GAAP purposes, the benefits of the losses for income
tax purposes and excess of amortization of capital assets over capital
cost allowance must be recognized in the financial statements with an
appropriate valuation allowance established for the portion of the
benefits not likely to be utilized in the foreseeable future.
Accordingly, under United States GAAP, the tax benefit of these
losses and excess amortization of capital assets over capital cost
allowance would be (in thousands):
<TABLE>
<CAPTION>
1998 1999
----- ----
<S> <C> <C>
Tax benefit of losses.......................................... $ 567 $318
Amortization in excess of capital cost allowance............... 61 97
----- ----
628 415
Valuation allowance............................................ (628) --
----- ----
Net tax benefit of losses and amortization in excess of capital
cost allowance................................................ $ -- $415
===== ====
</TABLE>
A valuation allowance of 100% of the potential benefit of the
losses and amortization of capital assets in excess of capital cost
allowance was established in 1998 as at the year end 1998 it was not
likely that the Company would generate sufficient income in the future
years before the losses would expire and the Company had only generated
marginal income before tax in each of the years 1997 and 1998. In 1999
the Company generated increased pre-tax income from operations; the
Company had generated increasing pre-tax profit in each of the last
three years and the anticipated income in subsequent years was
estimated to be sufficient to utilize the losses before their expiry
dates in the carryforward periods. Accordingly, no valuation allowance
was deemed necessary at April 30, 1999.
Accounting for deferred charges
Under United States GAAP, items recorded as deferred charges
under Canadian GAAP, such as development costs and training costs, are
expensed as incurred. Deferred charges on the Canadian-GAAP balance
sheet in 1999 include costs related to the development of new products
for the Company and internally developed software. The costs in 1998
represent training costs relating to the proprietary processes of the
Company.
Accordingly, under United States GAAP, deferred charges relating
to product development and training of $98,000 in 1998, and $73,000 in
1999, would have been expensed, resulting in a reversal of these
expenses in the subsequent year for United States GAAP purposes when
the expense was recognized under Canadian GAAP. Costs of $34,000
relating to internally developed software would have been capitalized
at April 30, 1999, to be amortized over the period of use of the
software.
F-54
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounting for prepaid legal costs
Under United States GAAP, costs relating to legal fees paid for
assessment of contracts relating to the regular business activities of
the Company would be expensed as incurred. Prepaid expenses at
April 30, 1998 and 1999 respectively, include legal costs of $6,000 and
$20,000.
Accordingly, under United States GAAP, these prepaid legal fees
would have been expensed in the year incurred, resulting in a reversal
of these expenses in the subsequent year for United States GAAP
purposes when the expense was recognized under Canadian GAAP.
Interest waived on notes payable
Under United States GAAP, interest on notes payable that is
waived by the holder, who is a shareholder, is considered to be a
capital contribution and recorded as an increase in contributed
surplus. During the years 1995 to 1999, the shareholders waived all
interest owing on the notes payable (see note 4). The interest expense
that was waived amounted to $43,000 (1995), $52,000 (1996), $47,000
(1997), $47,000 (1998), and $52,000 (1999).
Accordingly, under United States GAAP, interest expense of
$47,000 and $52,000 would have been recorded for the years 1998 and
1999, respectively. A corresponding increase in contributed surplus
would have been recorded in each year. Additionally, contributed
surplus would have been increased in prior years by $141,000 with a
corresponding interest expense which would have increased the deficit
balance at April 30, 1997 by $141,000.
Management fees
Under United States GAAP, management fees that have been waived
by shareholders would be treated as contributed surplus. For the years
1997, 1998, and 1999, the Company generated pre-tax income and,
therefore, certain shareholders were entitled to receive management
fees, which were waived (see note 5). Management fees waived amounted
to $4,000 (1997), $9,000 (1998) and $73,000 (1999).
Accordingly, under United States GAAP, management fees expense
would have been $9,000 (1998) and $73,000 (1999) with a corresponding
increase in contributed surplus. In addition, the management fee waived
in 1997 would have increased contributed surplus and the deficit at
April 30, 1997 by $4,000.
Accounting for convertible notes payable
Under United States GAAP, convertible debt with a non-detachable
conversion feature that is considered, at the date of issue, to be a
beneficial conversion feature requires financial statement recognition
of the intrinsic value of such feature. All of the Company's notes
payable, excluding the note payable of $137,000, were issued as
convertible debt with a beneficial conversion feature in a prior year.
The conversion feature for four of the notes payable totalling $535,000
allows for the debt holder to convert the debt into equity of the
Company at the rate of 500 Class "A' special shares plus 1 common share
for $500 of debt, or 1,070 common shares. The remaining convertible
debt of $29,000 is convertible into $29,000 of Class "A' Special shares
and 372 common shares.
The value of the common shares corresponding to the beneficial
conversion feature amounts to $124,000 based on the fair value of the
shares at the time the convertible debt was issued.
F-55
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As a result, under United States GAAP, the impact of the
beneficial conversion feature would have resulted in the allocation of
the proceeds received when the debt was issued between the debt and the
beneficial conversion feature. The debt would initially have been
recorded at a discounted value of $440,000 and the beneficial
conversion feature would have been recorded at $124,000. As the option
to convert the debt was exercisable upon issuance of the debt, United
States GAAP would have required that the discount on the face value of
the debt be recorded as interest expense upon issuance, with a
corresponding increase in the face amount of the debt.
Cash flow statements
The cash flow statements have been prepared on a basis consistent with
International Accounting Standards.
The following summarizes the Company's balance sheets and statements of
operations in accordance with United States GAAP (in thousands).
Balance sheets
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Assets
Cash and term deposits................................. $ 20 $ 287
Trade accounts receivable.............................. 176 568
Other accounts receivable.............................. 9 64
Prepaid expenses....................................... 19 42
Capital assets......................................... 120 387
Intangible assets...................................... -- 34
Deferred tax asset..................................... -- 415
Deferred charges....................................... -- --
------- -------
$ 344 $ 1,797
======= =======
Liabilities
Accounts payable and accrued liabilities............... $ 236 $ 296
Deferred revenue....................................... 501 909
Notes payable to related parties....................... 701 701
Redeemable special shares.............................. 429 429
------- -------
1,867 2,335
------- -------
Shareholders' deficit
Capital stock.......................................... 91 91
Contributed surplus.................................... 349 473
Beneficial conversion feature.......................... 124 124
Deficit................................................ (2,087) (1,226)
------- -------
(1,523) (538)
------- -------
$ 344 $ 1,797
======= =======
</TABLE>
F-56
<PAGE>
AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statements of operations
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Net sales revenue.......................................... $1,903 $3,722
------ ------
Cost of sales materials.................................... 112 258
Selling, general and administrative expenses............... 1,824 2,960
Interest expense........................................... 56 58
------ ------
1,992 3,276
------ ------
(Loss) earnings before taxes............................... (89) 446
Recovery of income taxes................................... -- 415
------ ------
Net (loss) earnings for the year........................... $ (89) $ 861
====== ======
</TABLE>
Reconciliation of shareholders' deficit
<TABLE>
<S> <C>
Opening shareholders' deficit under Canadian GAAP and United
States GAAP................................................... $(1,491)
Adjustments 1998:
Net loss for the year........................................ (89)
Increase in contributed surplus
Interest waived on notes payable to related parties........ 47
Management fees waived..................................... 10
-------
Shareholders' deficit as at April 30, 1998..................... (1,523)
Adjustments 1999:
Net earnings for the year.................................... 861
Increase in contributed surplus
Interest waived on notes payable to related parties........ 52
Management fees waived..................................... 72
-------
Shareholders' deficit as at April 30, 1999..................... $ (538)
=======
</TABLE>
F-57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of CarsDirect.com, Inc.
In our opinion, the accompanying balance sheets and the related
statements of operations, stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Potamkin Auto
Center, Ltd. (the "Company") at December 31, 1998 and September 30, 1999, and
the results of its operations and its cash flows for the years ended December
31, 1997 and 1998 and the nine month period ended September 30, 1999 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 22, 1999
F-58
<PAGE>
POTAMKIN AUTO CENTER, LTD.
BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
December September
31, 1998 30, 1999
-------- ---------
<S> <C> <C>
ASSETS
- ------
Current assets
Cash.................................................... $ 117 $ 121
Accounts receivable, net................................ 3,939 3,387
Inventories............................................. 10,391 7,950
Due from related parties................................ 114 33
Prepaid expenses and other current assets............... 381 358
------- -------
Total current assets.................................. 14,942 11,849
Property and equipment, net............................. 7,010 6,916
Other assets............................................ 114 114
------- -------
Total assets.......................................... $22,066 $18,879
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities
Book overdrafts......................................... $ 2,169 $ 428
Floor plan notes payable................................ 10,028 8,378
Accounts payable........................................ 892 1,143
Accrued expenses and other liabilities.................. 1,388 1,529
Current maturities of long-term debt.................... 181 192
Due to related parties.................................. 20 23
Note payable to shareholders............................ -- 500
Deferred revenue........................................ 1,594 1,626
------- -------
Total current liabilities............................. 16,272 13,819
------- -------
Long-term debt, excluding current maturities.............. 5,442 5,301
------- -------
Total liabilities..................................... 21,714 19,120
------- -------
Shareholders' equity (deficit)
Common stock, no par value, 100 shares authorized; 70
issued and outstanding................................... -- --
Additional paid-in capital................................ 1,900 1,900
Accumulated deficit....................................... (1,548) (2,141)
------- -------
Total shareholders' equity (deficit).................. 352 (241)
------- -------
Total liabilities and shareholders' equity (deficit).. $22,066 $18,879
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
POTAMKIN AUTO CENTER, LTD.
STATEMENTS OF OPERATIONS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Year For the Nine Month
Ended Period Ended
December 31, September 30,
----------------- --------------------
1997 1998 1998 1999
-------- -------- ----------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues
Vehicle sales....................... $152,617 $130,636 $94,644 $102,203
Other revenues, net................. 3,199 3,812 2,875 2,924
-------- -------- ------- --------
Total revenues.................... 155,816 134,448 97,519 105,127
Cost of sales, including floor plan
note interest of approximately $820,
$791, $611 (unaudited) and $441,
respectively......................... 140,623 120,925 87,321 95,120
-------- -------- ------- --------
Gross profit...................... 15,193 13,523 10,198 10,007
Selling, general and administrative... 13,459 12,807 9,648 10,034
-------- -------- ------- --------
Income (loss) from operations......... 1,734 716 550 (27)
Interest expense...................... 572 468 355 327
-------- -------- ------- --------
Income (loss) before income taxes..... 1,162 248 195 (354)
Provision for state and local income
taxes................................ 138 33 33 24
-------- -------- ------- --------
Net income (loss)..................... $ 1,024 $ 215 $ 162 $ (378)
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
POTAMKIN AUTO CENTER, LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
------------- Additional Total
Issued Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity (Deficit)
------ ------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balances, December 31,
1996................... 70 $ -- $1,900 $ (885) $ 1,015
Distribution to
shareholders........... -- -- -- (443) (443)
Net income for 1997..... -- -- -- 1,024 1,024
---- ----- ------ ------- -------
Balances, December 31,
1997................... 70 -- 1,900 (304) 1,596
Distribution to
shareholders........... -- -- -- (1,459) (1,459)
Net income for 1998..... -- -- -- 215 215
---- ----- ------ ------- -------
Balances, December 31,
1998................... 70 -- 1,900 (1,548) 352
Distribution to
shareholders........... -- -- -- (215) (215)
Net loss for the nine
month period
ended September 30,
1999.................. -- -- -- (378) (378)
---- ----- ------ ------- -------
Balances, September 30,
1999................... 70 $ -- $1,900 $(2,141) $ (241)
==== ===== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
POTAMKIN AUTO CENTER, LTD.
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Nine
Month Period
For the Year Ended Ended
December 31, September 30,
------------------- ----------------
1997 1998 1998 1999
----------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)..................... $ 1,024 $ 215 $ 162 $ (378)
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities
Depreciation and amortization....... 147 139 97 103
Changes in operating assets and
liabilities........................
Accounts receivable................. 2,001 206 (147) 552
Inventories......................... (5,337) 3,385 3,060 2,441
Prepaid expenses and other current
assets............................. (187) (3) (120) 23
Other assets........................ (6) -- -- --
Floor plan notes payable............ 6,817 (3,450) (2,906) (1,650)
Accounts payable.................... 251 (232) 308 252
Accrued expenses and other
liabilities........................ (120) 474 (5) 141
Due to related parties, net......... (225) 165 174 83
Deferred revenue.................... 630 181 135 31
------- ------- ------- -------
Net cash provided by operating
activities............................. 4,995 1,080 758 1,598
------- ------- ------- -------
Cash flows from investing activities
Purchase of property and equipment.... (81) (34) (25) (9)
------- ------- ------- -------
Net cash used in investing activities... (81) (34) (25) (9)
------- ------- ------- -------
Cash flows from financing activities
Book overdrafts....................... (3,991) 636 747 (1,741)
Repayments of long-term debt.......... (493) (155) (115) (129)
Advances from related parties......... -- -- -- 500
Distribution to shareholders.......... (443) (1,459) (1,295) (215)
------- ------- ------- -------
Net cash used in financing activities... (4,927) (978) (663) (1,585)
------- ------- ------- -------
(Decrease) increase in cash............. (13) 68 70 4
Cash, beginning of year............... 62 49 49 117
------- ------- ------- -------
Cash, end of year..................... 49 $ 117 $ 119 $ 121
======= ======= ======= =======
Supplemental disclosure of cash flow
information:
Interest paid......................... $ 1,308 $ 1,263 $ 984 $ 820
------- ------- ------- -------
Income taxes paid..................... $ 164 $ 106 $ 106 $ 42
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND
The Potamkin Auto Center, Ltd. (the "Company") is engaged in the sale of
new and used automobiles and light trucks of numerous manufacturers. In
addition, the Company arranges financing for and sells extended warranties to
vehicle customers. The Company operates from a central location in Manhattan
with remote sales locations in Westbury, Brooklyn and until April 1999, Nanuet,
New York.
Approximately 50% of the common stock of the Company was owned by Robert
Potamkin and Alan Potamkin who have similar or greater ownership interests in
various entities (herein referred to as the Potamkin Companies or "related
parties") engaged in the sale of new and used automobiles and light trucks and
related products and services.
On October 19, 1999, CarsDirect.com, Inc. ("CarsDirect.com") acquired
from the Company certain tangible and intangible assets and substantially all
of the business of the Company in exchange for common stock of CarsDirect.com.
These financial statements exclude any effect of the transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
Cash accounts that have book overdrafts are reclassified to current
liabilities in the financial statements.
Revenue recognition
Revenues are recognized by the Company when vehicles are delivered to
consumers.
Other revenues
Other revenues include finance fee income, net of estimated chargebacks,
and extended warranty commissions, net of estimated cancellations.
Finance fee income represents revenue earned by the Company for notes
placed with financial institutions in connection with customer vehicle
financing. Finance fee income is recognized as income upon acceptance of the
credit by the financial institution. The Company is charged back a portion of
these fees should the customer terminate or prepay the contracts prior to
making the first three payments to the financial institution. The estimated
allowance for these chargebacks ("chargeback reserve") is based upon the
Company's historical experience.
Extended warranty commissions represent commissions earned from third-
party extended warranty companies for the sale of third party extended warranty
policies to the Company's customers. The Company defers the commission revenue
received from the extended warranties, net of estimated cancellations, and
recognizes such amounts as revenue ratably over the lives of the underlying
contracts. Costs directly related to sales of these contracts are deferred and
charged to expense proportionately as revenues are recognized.
Inventories
Inventories are valued at the lower of cost or market. The Company uses
the last-in, first-out ("LIFO") method for new vehicles and the specific
identification method for used vehicles.
F-63
<PAGE>
POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the respective lives of the
assets. The ranges of estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings......................... 39 years
Furniture, fixtures, and
equipment........................ 5 to 7 years
Leasehold improvements............ Economic life or life of the lease term,
whichever is shorter
</TABLE>
When depreciable assets are sold or retired, the related cost and
accumulated depreciation are removed from the accounts. Any gains or losses are
included in selling, general and administrative expenses in the accompanying
statement of operations. Such amounts were not material for the years ended
December 31, 1997 and 1998 and the nine month periods ended September 30, 1998
(unaudited) and 1999, respectively. Major additions and betterments are
capitalized. Maintenance and repairs that do not materially improve or extend
the lives of the respective assets are charged to operating expenses as
incurred.
Long-lived Assets
The Company reviews long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of the assets may not be fully recoverable.
Advertising and promotional costs
Advertising and promotional costs are expensed as incurred and are
included in selling, general, and administrative expenses in the accompanying
statements of operations. Advertising and promotional costs for the years ended
December 31, 1997 and 1998 and the nine months periods ended September 30, 1998
(unaudited) and 1999 amounted to approximately $2.3 million, $2.8 million, $1.7
million, and $2.2 million, respectively.
Income taxes
The Company has elected to be taxed for federal income tax purposes under
the provisions of Subchapter S of the Internal Revenue Code by unanimous
consent of its shareholders. Under these provisions, the Company does not pay
corporate income taxes on its taxable income. Instead, the shareholders are
individually liable for the federal income taxes on the Company's income. The
Company periodically makes shareholder distributions to fund personal tax
liabilities resulting from the Company's taxable income. A provision for state
and local income taxes is included in the financial statements since S
Corporation elections are not recognized for state and local income tax
purposes.
Fair value of financial instruments
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques, as appropriate. Unless
otherwise disclosed, the fair value of financial instruments, including cash,
accounts receivable, floor plan notes payable, accounts payable and accrued
liabilities, approximates their recorded values due primarily to the short-term
nature of their maturities. Management believes that the fair value of the
Company's long-term debt approximates its recorded value based on the variable
nature of the related interest rates.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-64
<PAGE>
POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(Continued)
liabilities, 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.
Geographic concentration
The diversity of the Company's customers and suppliers reduces the risk
that a severe impact will occur in the near term as a result of changes in its
customer base, competition or sources of supply. The Company's operations
currently are concentrated in the northeastern United States. A severe economic
downturn in the northeastern United States could negatively impact the
Company's operating results. Due to the Company's geographic concentration,
management cannot assure that unanticipated events will not have a negative
impact on the Company.
Interim financial statements
The unaudited financial statements presented herein have been prepared by
the Company without audit and, in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments, necessary to
present the results of its operations and cash flows for the nine month period
ended September 30, 1998 (unaudited) fairly and on a basis consistent with the
financial statements for the year ended December 31, 1998 and the nine month
period ended September 30, 1999.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Contracts in transit............................ $3,766 $3,067
Finance income and other receivables............ 223 370
------ ------
Total......................................... 3,989 3,437
Less finance income chargebacks reserve......... (50) (50)
------ ------
$3,939 $3,387
====== ======
</TABLE>
Contracts in transit primarily represent receivables from financial
institutions that provide funding for customer vehicle financing. These
receivables are normally collected within 30 days of the sale of the related
vehicle. Finance income receivables represent amounts due from financial
institutions earned from arranging financing with the Company's customers.
Concentrations of credit risk with respect to contracts in transit and finance
income receivables are limited primarily to financial institutions.
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
New vehicles.................................... $ 4,922 $3,835
Used vehicles................................... 5,634 4,256
------- ------
Total before LIFO reserve..................... 10,556 8,091
Less LIFO reserve............................... (165) (141)
------- ------
Net inventories................................. $10,391 $7,950
======= ======
</TABLE>
F-65
<PAGE>
POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(Continued)
As previously noted, inventories are valued at the lower of cost or
market. The Company uses the last-in, first-out ("LIFO") method for new
vehicles and the specific identification method for used vehicles.
During 1998 and 1999, inventory quantities were reduced, which resulted
in liquidations of LIFO inventory layers carried at lower costs which prevailed
in the prior years. The effect of the liquidations was not significant to any
of the periods presented.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Land.......................................... $3,848 $3,848
Buildings and leasehold improvements.......... 3,325 3,325
Furniture, fixture and equipment.............. 537 546
------ ------
Total....................................... 7,710 7,719
Less accumulated depreciation and
amortization................................. (700) (803)
------ ------
$7,010 $6,916
====== ======
</TABLE>
6. FLOOR PLAN NOTES PAYABLE
The Company's floor plan agreements are with Chrysler Financial
Corporation and provide financing for purchases of substantially all new and
certain used vehicles.
Floor plan notes payable reflect amounts for the purchase of specific
vehicle inventory and consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Chrysler Financial Corporation with interest at
LIBOR plus 2.25% at December 31, 1998 and
LIBOR plus 1.75% at September 30, 1999........ $10,028 $8,378
======= ======
</TABLE>
The floor plan agreements grant the lender a collateral interest in the
specific inventory and certain other assets of the Company, and generally
require the repayment of debt upon the sale of the vehicle. At December 31,
1998 and September 30, 1999, new and used vehicle inventory financed under
floor plan agreements are pledged as collateral under these agreements.
The weighted average annual interest rate on the floor plan borrowings
was 7.9% and 7.8% for the year ended December 31, 1998 and for the nine month
period ended September 30, 1999, respectively.
F-66
<PAGE>
POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Mortgage, 7.72% (adjustable every fifth
year), monthly interest and principal
payment of $37, matures January 1, 2015..... $ 4,067 $3,973
Mortgage, 7.72 (adjustable every fifth year),
monthly interest and principal payment of
$14, matures January 1, 2015................ 1,556 1,520
------- ------
Total long-term debt....................... 5,623 5,493
Less current maturities of long-term debt.... (181) (192)
------- ------
Long-term debt, excluding current
maturities.................................. $ 5,442 $5,301
======= ======
</TABLE>
The mortgages described above are collateralized by certain land and
buildings with a net book value of approximately $6.7 million and $6.6 million
at December 31, 1998 and September 30, 1999, respectively.
Scheduled maturities of long-term are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31,
1999........................................................... $ 47
2000........................................................... 196
2001........................................................... 211
2002........................................................... 228
2003........................................................... 247
2004........................................................... 267
Thereafter..................................................... 4,297
------
$5,493
======
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company provides medical benefits to its employees after the first
ninety days of employment. Medical benefit coverage for family members and
dental coverage for employees and their family members are paid by the
employee. The Company's total costs for medical benefits were approximately
$232,000, $329,000, $259,000 and $333,000 for the years ended December 31, 1997
and 1998 and nine month periods ended September 30, 1998 (unaudited) and 1999,
respectively.
9. RELATED PARTY TRANSACTIONS
The Company has several demand notes payable to its shareholders in
aggregate amounts of $500,000 at September 30, 1999. As these notes are payable
on demand, they have been classified as current liabilities on the accompanying
balance sheet. Interest on these notes accrues at rates generally consistent
with the floor plan note interest rate. Interest expense recorded by the
Company related to these notes was approximately $15,000 for the nine month
period ended September 30, 1999.
The Company participates in a casualty insurance program (coverage for
property damage, loss from theft and umbrella liability coverage) administered
by the Potamkin Companies. The total costs of this program are allocated to the
participating companies based upon various methodologies depending upon the
type of
F-67
<PAGE>
POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(Continued)
coverage, including historical claims, value of property and number of
employees and net revenue. The Company's total costs for this program were
$181,000, $196,000, $158,000, and $86,000 for the years ended December 31, 1997
and 1998 and nine month periods ended September 30, 1998 (unaudited) and 1999,
respectively.
The Company has vehicle purchases and sales with related parties, which
are as follows (in thousands):
<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
------------------------- ---------------------------
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Purchases........... $18,756 $9,844 $7,930 $5,269
Sales............... $ 3,063 $ 318 $ 240 $ 131
</TABLE>
The statements of operations include the costs of certain administrative
and other services provided by the Potamkin Companies. These services include
accounting, treasury, tax, human resources, legal, information systems and
other related costs. These costs are allocated to the Company based upon the
estimated percentage of personnel time spent on Company matters. The amounts of
such costs allocated were $148,000, $144,000, $114,000 and $185,000 for the
years ended December 31, 1997 and 1998 and nine month periods ended September
30, 1998 (unaudited) and 1999, respectively. In addition to these amounts,
commencing in 1998, the Potamkin Companies have charged the Company a general
management fee amounting to approximately $85,000, $151,000, and $113,000 for
the year ended December 31, 1998 and nine month periods ended September 30,
1998 (unaudited) and 1999, respectively.
10. COMMITMENTS
The Company leases certain of the land and buildings where its dealership
operations are located under operating lease agreements with related parties.
The property leases are noncancelable and generally have renewal options in
series of five-year renewals subject to renewal, under essentially the same
terms and conditions as the original lease.
The aggregate minimum rental commitments for all noncancelable operating
leases are as follows (in thousands):
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Year ending December 31,
1999 (three months)............................................... $ 247
2000.............................................................. 1,021
2001.............................................................. 1,048
2002.............................................................. 1,083
2003.............................................................. 1,113
2004.............................................................. 976
Thereafter........................................................ 506
------
$5,994
======
</TABLE>
Rent expense under all operating leases approximated $949,000, $968,000,
$725,000 and $734,000 for the years ended December 31, 1997 and 1998 and the
nine month periods ended September 30, 1998 (unaudited) and 1999, respectively.
F-68
<PAGE>
POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company has guaranteed certain leases between related parties and
third parties. The Company has guaranteed the floor plan notes payable between
a related party and a third party. The floor plan notes payable are used to
provide financing for the purchase of vehicles.
11. OTHER
In April 1999, the Company closed its Nanuet, NY sales office. Included
in selling, general and administrative expenses is approximately $215,000 to
provide for the portion of the Company's lease commitment related to the closed
sales office which management estimates will not be recouped through sub-lease
to a third party. For the years ended December 31, 1997 and 1998 and the nine
month periods ended September 30, 1998 (unaudited) and 1999, this sales office
had total revenues of approximately $7.8 million, $5.8 million, $4.4 million
and $2.1 million and gross profit of approximately $515,000, $376,000, $275,000
and $130,000, respectively.
12. SUBSEQUENT EVENT
As previously noted, on October 19, 1999 CarsDirect.com acquired from the
Company certain tangible and intangible assets and substantially all of the
business of the Company in exchange for common stock of CarsDirect.com.
F-69
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Shares
CarsDirect.com, Inc.
Class A Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
Chase H&Q
Robertson Stephens
E*OFFERING
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by CarsDirect.com in connection
with the sale of the Class A common stock being registered. All amounts are
estimates except the SEC registration fee, the NASD filing fee and the Nasdaq
National Market listing fee. All expenses are payable by CarsDirect.com.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 45,540
NASD filing fee.................................................. 17,750
Nasdaq National Market listing fee............................... 90,000
Printing and engraving costs..................................... 700,000
Legal fees and expenses.......................................... 3,000,000
Accounting fees and expenses..................................... 2,000,000
Blue Sky fees and expenses....................................... *
Transfer Agent and Registrar fees................................ *
Miscellaneous expenses........................................... *
----------
Total.......................................................... $[ ]
==========
</TABLE>
- --------
* To be filed by amendment
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article X of our amended and restated certificate of incorporation
provide for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of our restated bylaws that will be adopted upon the
consummation of this offering will provide for the indemnification of officers,
directors and third parties acting on our behalf if such person acted in good
faith and in a manner reasonably believed to be in and not opposed to our best
interests, and, with respect to any criminal action or proceeding, the
indemnified party had no reason to believe his or her conduct was unlawful.
We have entered into indemnification agreements with our directors and
executive officers, in addition to indemnification provided for in our restated
bylaws, and intend to enter into indemnification agreements with any new
directors and executive officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of us and our executive officers and
directors in connection with matters specifically provided in writing by the
underwriters for inclusion in the Registration Statement, and by us of the
underwriters for certain liabilities, including liabilities arising under the
Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since October 9, 1998, the date of CarsDirect.com's incorporation,
CarsDirect.com has issued and sold unregistered securities in the amounts, at
the times, and for the aggregate amounts of consideration listed as follows:
1. On October 9, 1998, CarsDirect.com issued 1,000 shares of Class A
common stock to idealab! Investments, L.L.C. for an aggregate offering
price of $1.00.
II-1
<PAGE>
2. On November 30, 1998, CarsDirect.com issued 10,000,000 shares of
Series A preferred stock to idealab! Investments, L.L.C. for an aggregate
offering price of $100,000.
3. Between January 21, 1999 and April 12, 1999, CarsDirect.com issued
9,558,571 shares of Series B preferred stock to entities affiliated with
idealab! Capital Management I, LLC, entities affiliated with Foundation
Capital Management Co. II, L.L.C., and to other investors at a price of
$0.77 per share, for an aggregate purchase price of $7,360,099.67.
4. On March 19, 1999, CarsDirect.com issued 4,000 shares of Class A
common stock to Michael Boehm in exchange for services rendered worth $600.
5. On March 19, 1999, CarsDirect.com issued 4,000 shares of Class A
common stock to Albert Soong in exchange for services rendered worth $600.
6. On March 25, 1999, CarsDirect.com issued 989,540 shares of Class A
common stock to Mike Malamut in exchange for services rendered worth
$148,431.
7. On April 1, 1999, CarsDirect.com issued 50,000 shares of Class A
common stock to Ron Frey in exchange for services rendered worth $7,500.
8. On April 19, 1999, CarsDirect.com purchased a domain name from HSD
Incorporated in exchange for cash and 2,500 shares of Class A common stock
valued at an aggregate price of $375 issued to David Peter.
9. On May 7, 1999, CarsDirect.com issued 9,566,512 shares of Series C
preferred stock to entities affiliated with MSD Capital, L.P., idealab!
Holdings, L.L.C., entities affiliated with Goldman, Sachs & Co., Primedia
Ventures, Inc., entities affiliated with Foundation Capital Management Co.
II, L.L.C., and to other investors at prices of $2.33 per share, for an
aggregate purchase price of $22,289,972.6.
10. On June 21, 1999, CarsDirect.com issued warrants to purchase up
to 100,000 shares of Class A common stock to Fred Silny at an exercise
price of $2.33 per share. On November 14, 1999, Mr. Silny exercised the
warrants to purchase 100,000 shares of Class A common stock.
11. On July 5, 1999, CarsDirect.com purchased a domain name from
TeleCD in exchange for cash and 3,000 shares of Class A common stock valued
at an aggregate price of $1,050 issued to Mitchell de Graff.
12. On July 8, 1999, CarsDirect.com issued a convertible promissory
note in the aggregate principal amount of $78,823.30 to Lee & Associates,
which converted into 5,001 shares of Series D preferred stock on October
27, 1999.
13. On July 19, 1999, CarsDirect.com issued a warrant to purchase up
to 10,000 shares of Class A common stock to Heidrick & Struggels, Inc. at
an exercise price of $0.35 per share.
14. On July 27, 1999, CarsDirect.com issued 600,000 shares of Class A
common stock valued at $210,000 as payment for the acquisition by
CarsDirect.com of Perga Capital Corp.
15. On August 4, 1999, CarsDirect.com issued 6,500 shares of Class A
common stock to Alan Rappoport in exchange for services rendered worth
$2,275.
16. On August 5, 1999, CarsDirect.com issued 6,000 shares of Class A
common stock to Recruitment Advisors International, LLC d.b.a. Hunter
Recruitment Advisors in exchange for a Settlement Agreement valued at
$2,100.
17. On August 18, 1999, CarsDirect.com issued warrants to purchase an
undetermined number of shares of Class A common stock to Banc One Vehicle
Finance Corporation, with an exercise price of $0.01 per share. Our board
of directors has determined that the number of shares subject to the
warrants is 2,085,970.
II-2
<PAGE>
18. On September 20, 1999, CarsDirect.com issued 191,011 shares of
Series C preferred stock to GBJ Holdings, LLC at a per share price of $2.67
per share, for an aggregate purchase price of $509,999.37.
19. On September 28, 1999, CarsDirect.com issued a convertible
promissory note in the aggregate principal amount of $490,000 to GBJ
Holdings, LLC, the principal amount of which is convertible into 171,329
Class A common stock or Series C preferred stock as of December 31, 1999.
20. On October 19, 1999, CarsDirect.com issued 1,650,000 shares of
Class A common stock to persons and entities affiliated with Potamkin Auto
Center, Ltd. in connection with the acquisition by CarsDirect.com of assets
of Potamkin Auto Center, Ltd. valued at $2,475,000.
21. On October 20, 1999, CarsDirect.com issued a convertible
promissory note in the aggregate principal amount of $100,000 to Eugene R.
Schutt. On October 27, 1999, this note converted into 6,345 shares of
Series D preferred stock.
22. On November 4, 1999, CarsDirect.com issued 6,000 shares of Class
A common stock to Marcee Kleinman in exchange for services rendered worth
$9,000.
23. On November 4, 1999, CarsDirect.com issued a warrant to purchase
up to 200,000 shares of Series D preferred stock to Robert Brisco at an
exercise price of $15.76 per share.
24. On November 15, 1999, CarsDirect.com issued 13,655 shares of
Class A common stock to Eugene Schutt in exchange for services rendered
worth $20,483.
25. Between October 27, 1999 and April 2000, CarsDirect.com issued
17,355,273 shares of Series D preferred stock to idealab! Holdings, L.L.C.,
entities affiliated with idealab! Capital Management I, LLC, entities
affiliated with East Peak Partners, Scott Painter and entities of which Mr.
Painter is a beneficial owner, Greg Brogger and to other investors at a
price of $15.76 per share, for an aggregate purchase price of
$273,519,102.48.
26. On December 16, 1999, CarsDirect.com issued 10,000 shares of
Class A common stock to Alston & Bird, LLP in exchange for services
rendered worth $50,000.
27. On December 29, 1999, CarsDirect.com issued 2,050,000 shares of
Class B common stock to idealab! Holdings, L.L.C., at a per share price of
$17.34, for an aggregate price of $35,547,000.
28. On January 13, 2000, CarsDirect.com issued a warrant to purchase
up to 100,000 shares of Series D preferred stock to Lynn Walsh at an
exercise price of $15.76 per share.
29. On May 15, 2000, CarsDirect.com issued 1,078,682 shares of Series
D preferred stock to UnitedAuto Group, Penske Automotive Group and certain
affiliated and associated companies at a per share price of $15.76, for an
aggregate purchase price of $17,000,028.32 and issued warrants to purchase
an aggregate of 7,939,339 shares of Series D preferred stock at an exercise
price of $15.76 per share to UnitedAuto Group, Penske Automotive Group and
certain affiliated companies.
30. Between December 28, 1998 and , CarsDirect.com granted stock
options to purchase shares of Class A common stock at exercise
prices ranging from $0.001 to $ per share to employees and consultants
pursuant to its 1998 Stock Plan.
31. Between December 28, 1998 and , an aggregate of shares
of Class A common stock were issued upon exercise of options under
CarsDirect.com's 1998 Stock Plan.
The sale and issuance of securities in the above transactions were deemed
to be exempt from registration under the Securities Act. Items 3, 9, 18 and 25
were deemed to be exempt under Regulation D and items 30 and 31 were deemed
exempt under Rule 701. The remaining items were deemed to be exempt under
Section 4(2) of the Securities Act. Appropriate legends are affixed to the
stock certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about CarsDirect.com or had access,
through employment or other relationships, to such information.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Share Purchase Agreement, dated July 16, 1999, among CarsDirect.com,
ADMS Nova Scotia Company, Perga Capital Corp., Autodata Marketing
Systems Incorporated, the shareholders of Perga Capital Corp. and
Gregory T. Perrier.
2.2 Asset Purchase Agreement, dated October 19, 1999, among
CarsDirect.com, Potamkin Auto Center, Ltd., Robert M. Potamkin, Alan
H. Potamkin, Ted Bessen and Planet Automotive Group, Inc.
2.3 Roll-Up Agreement, dated December 16, 1999, among CarsDirect.com, Bank
One Corporation, Bank One, N.A., Columbus, Ohio, Bank One Insurance
Services Corporation and CD1Financial.com, LLC.
3.1 Restated Certificate of Incorporation of the Registrant currently in
effect.
3.2 Bylaws of the Registrant currently in effect.
3.3* Restated Certificate of Incorporation of the Registrant to be in
effect upon completion of this offering.
3.4* Restated Bylaws of the Registrant to be in effect upon completion of
this offering.
4.1* Specimen Common Stock Certificate.
4.2 Fourth Amended and Restated Investor Rights Agreement, dated October
27, 1999, among CarsDirect.com and purchasers of its preferred stock.
4.3 Stock Purchase Warrant, dated November 4, 1999, of CarsDirect.com in
favor of Robert Brisco.
4.4 Stock Purchase Warrant, dated January 13, 2000, of CarsDirect.com in
favor of Lynn Walsh.
4.5 Convertible Subordinated Promissory Note, dated September 28, 1999, of
CarsDirect.com in favor of GBJ Holdings, LLC.
4.6 Warrant to Purchase 10,000 Shares of the Common Stock of
CarsDirect.com, Inc., dated October 29, 1999, of CarsDirect.com in
favor of Heidrick & Struggels, Inc.
4.7 Common Stock Purchase Warrant dated December 16, 1999, of
CarsDirect.com in favor of Bank One, N.A., Columbus, Ohio.
4.8 Stockholder Agreement, dated December 30, 1999, between
CarsDirect.com, idealab! Holdings, L.L.C. and Bill Gross' idealab!.
4.9* Security Agreement and Note in the initial principal amount of
$255,000, dated March 13, 2000, of Christine Bucklin in favor of
CarsDirect.com.
4.10* Security Agreement and Note in the initial principal amount of
$261,211, dated March 13, 2000, of Christine Bucklin in favor of
CarsDirect.com.
4.11 Form of Note and Security Agreement.
4.12 Secured Promissory Note, dated September 1, 1999, of Gerald J. Popek
in favor of CarsDirect.com.
4.13 Secured Promissory Note, dated November 8, 1999, of Gerald L. Popek in
favor of CarsDirect.com.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* 1998 Stock Plan, as amended, and form of option agreement thereunder.
10.2* 2000 Employee Stock Purchase Plan.
10.3 Robert Brisco Employment Agreement, dated November 8, 1999, between
CarsDirect.com and Robert Brisco, as amended.
10.4 Christine Bucklin Employment Agreement, dated November 4, 1999,
between CarsDirect.com and Christine Bucklin.
10.5 Employment Agreement, dated June 21, 1999, between CarsDirect.com and
Frederick G. Silny.
10.6 Employment Agreement, dated September 30, 1999, among CarsDirect.com,
Scott Painter and Bill Gross' idealab!.
10.7 Form of Indemnification Agreement.
10.8 Standard Industrial/Commercial Multi-Tenant Lease--Net, dated July 1,
1999, between CarsDirect.com and Trenton Property, LLC.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10.9 First Amendment to Standard Industrial/Commercial Multi-Tenant Lease
Net, dated April 24, 2000, between CarsDirect.com and Trenton
Property, LLC.
10.10 Agreement of Lease, dated October 19, 1999, between CarsDirect.com and
Potamkin Auto Center, Ltd.
10.11* Term Sheet, dated December 16, 1999, between CarsDirect.com and
Finance One Corporation.
10.12 Amendment No. 1 to Strategic Alliance Agreement, dated November 23,
1999, between CarsDirect.com and Autoland, Inc.
10.13 Consulting Agreement, dated April 1, 1999, between CarsDirect.com,
Michael L. Malamut and Ronald L. Frey.
10.14 Separation and Consulting Agreement, dated April 28, 2000, between
CarsDirect.com and Kenneth J. Murphy.
10.15* Strategic Co-Marketing Agreement, dated March 16, 2000, between
CarsDirect.com and Autoweb.com, Inc.
10.16* Series D Preferred Stock Purchase and Warrant Agreement, dated May 15,
2000, among CarsDirect.com, Penske Internet Capital Group, L.L.C.,
UnitedAuto Group, Inc., HAC II, Inc. and Penske Automotive Group,
Inc., and related documents.
21.1 List of Subsidiaries.
23.1 Consent of Independent Accountants.
23.2 Consent of Independent Accountants.
23.3* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (Included on signature page hereto).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with
the Commission.
* To be filed by amendment.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Pasadena,
State of California, on the 16th day of May, 2000.
CARSDIRECT.COM, INC.
/s/ Robert Brisco
By: _________________________________
Robert Brisco
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Robert
Brisco and Frederick G. Silny, and each of them acting individually, as his or
her attorney-in-fact, each with full power of substitution, for him or her in
any and all capacities, to sign any and all amendments (including, without
limitation, post-effective Amendments and any amendments or abbreviated
registration statements increasing the amount of securities for which
registration is being sought filed pursuant to Rule 462 under the Security Act
of 1933) to this Registration Statement, with all exhibits and any and all
documents required to be filed with respect thereto, with the Securities and
Exchange Commission or any regulatory authority, granting unto such attorneys-
in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
order to effectuate the same, as fully to all intents and purposes as he or she
might or could do if personally present, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or either of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert Brisco President, Chief Executive May 16, 2000
____________________________________ Officer and Director
Robert Brisco (Principal Executive Officer)
/s/ Frederick G. Silny Chief Financial Officer and May 16, 2000
____________________________________ Secretary (Principal
Frederick G. Silny Financial Officer)
/s/ Howard Morgan Director, Chairman of the May 16, 2000
____________________________________ Board
Howard Morgan
/s/ Jim Armstrong Director May 16, 2000
____________________________________
Jim Armstrong
/s/ Glenn Fuhrman Director May 16, 2000
____________________________________
Glenn Fuhrman
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerald Greenwald Director May 16, 2000
____________________________________
Gerald Greenwald
/s/ Bill Gross Director May 16, 2000
____________________________________
Bill Gross
/s/ Lawrence Gross Director May 16, 2000
____________________________________
Lawrence Gross
/s/ Michael Malamut Director May 16, 2000
____________________________________
Michael Malamut
/s/ Scott Painter Director May 16, 2000
____________________________________
Scott Painter
/s/ Roger S. Penske, Sr. Director May 16, 2000
____________________________________
Roger S. Penske, Sr.
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Share Purchase Agreement, dated July 16, 1999, among CarsDirect.com,
ADMS Nova Scotia Company, Perga Capital Corp., Autodata Marketing
Systems Incorporated, the shareholders of Perga Capital Corp. and
Gregory T. Perrier.
2.2 Asset Purchase Agreement, dated October 19, 1999, among
CarsDirect.com, Potamkin Auto Center, Ltd., Robert M. Potamkin, Alan
H. Potamkin, Ted Bessen and Planet Automotive Group, Inc.
2.3 Roll-Up Agreement, dated December 16, 1999, among CarsDirect.com, Bank
One Corporation, Bank One, N.A., Columbus, Ohio, Bank One Insurance
Services Corporation and CD1Financial.com, LLC.
3.1 Restated Certificate of Incorporation of the Registrant currently in
effect.
3.2 Bylaws of the Registrant currently in effect.
3.3* Restated Certificate of Incorporation of the Registrant to be in
effect upon completion of this offering.
3.4* Restated Bylaws of the Registrant to be in effect upon completion of
this offering.
4.1* Specimen Common Stock Certificate.
4.2 Fourth Amended and Restated Investor Rights Agreement, dated October
27, 1999, among CarsDirect.com and purchasers of its preferred stock.
4.3 Stock Purchase Warrant, dated November 4, 1999, of CarsDirect.com in
favor of Robert Brisco.
4.4 Stock Purchase Warrant, dated January 13, 2000, of CarsDirect.com in
favor of Lynn Walsh.
4.5 Convertible Subordinated Promissory Note, dated September 28, 1999, of
CarsDirect.com in favor of GBJ Holdings, LLC.
4.6 Warrant to Purchase 10,000 Shares of the Common Stock of
CarsDirect.com, Inc., dated October 29, 1999, of CarsDirect.com in
favor of Heidrick & Struggels, Inc.
4.7 Common Stock Purchase Warrant dated December 16, 1999, of
CarsDirect.com in favor of Bank One, N.A., Columbus, Ohio.
4.8 Stockholder Agreement, dated December 30, 1999, between
CarsDirect.com, idealab! Holdings, L.L.C. and Bill Gross' idealab!.
4.9* Security Agreement and Note in the initial principal amount of
$255,000, dated March 13, 2000, of Christine Bucklin in favor of
CarsDirect.com.
4.10* Security Agreement and Note in the initial principal amount of
$261,211, dated March 13, 2000, of Christine Bucklin in favor of
CarsDirect.com.
4.11 Form of Note and Security Agreement.
4.12 Secured Promissory Note, dated September 1, 1999, of Gerald J. Popek
in favor of CarsDirect.com.
4.13 Secured Promissory Note, dated November 8, 1999, of Gerald L. Popek in
favor of CarsDirect.com.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* 1998 Stock Plan, as amended, and form of option agreement thereunder.
10.2* 2000 Employee Stock Purchase Plan.
10.3 Robert Brisco Employment Agreement, dated November 8, 1999, between
CarsDirect.com and Robert Brisco, as amended.
10.4 Christine Bucklin Employment Agreement, dated November 4, 1999,
between CarsDirect.com and Christine Bucklin.
10.5 Employment Agreement, dated June 21, 1999, between CarsDirect.com and
Frederick G. Silny.
10.6 Employment Agreement, dated September 30, 1999, among CarsDirect.com,
Scott Painter and Bill Gross' idealab!.
10.7 Form of Indemnification Agreement.
10.8 Standard Industrial/Commercial Multi-Tenant Lease--Net, dated July 1,
1999, between CarsDirect.com and Trenton Property, LLC.
10.9 First Amendment to Standard Industrial/Commercial Multi-Tenant Lease
Net, dated April 24, 2000, between CarsDirect.com and Trenton
Property, LLC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10.10 Agreement of Lease, dated October 19, 1999, between CarsDirect.com and
Potamkin Auto Center, Ltd.
10.11* Term Sheet, dated December 16, 1999, between CarsDirect.com and
Finance One Corporation.
10.12 Amendment No. 1 to Strategic Alliance Agreement, dated November 23,
1999, between CarsDirect.com and Autoland, Inc.
10.13 Consulting Agreement, dated April 1, 1999, between CarsDirect.com,
Michael L. Malamut and Ronald L. Frey.
10.14 Separation and Consulting Agreement, dated April 28, 2000, between
CarsDirect.com and Kenneth J. Murphy.
10.15* Strategic Co-Marketing Agreement, dated March 16, 2000, between
CarsDirect.com and Autoweb.com, Inc.
10.16* Series D Preferred Stock Purchase and Warrant Agreement, dated May 15,
2000, among CarsDirect.com, Penske Internet Capital Group, L.L.C.,
UnitedAuto Group, Inc., HAC II, Inc. and Penske Automotive Group,
Inc., and related documents.
21.1 List of Subsidiaries.
23.1 Consent of Independent Accountants.
23.2 Consent of Independent Accountants.
23.3* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (Included on signature page hereto).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with
the Commission.
* To be filed by amendment.
<PAGE>
EXHIBIT 2.1
SHARE PURCHASE AGREEMENT
BY AND AMONG
CARSDIRECT.COM, INC.,
ADMS NOVA SCOTIA COMPANY,
PERGA CAPITAL CORP.,
AUTODATA MARKETING SYSTEMS INCORPORATED,
THE SHAREHOLDERS OF
PERGA CAPITAL CORP.,
and
GREGORY T. PERRIER
Dated as of July 16, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I PURCHASE AND SALE OF SHARES............................ 2
1.1 Sale of Shares......................................... 2
1.2 Closing................................................ 2
1.3 Purchase Price......................................... 2
1.4 Stock Vesting.......................................... 6
1.5 No Further Ownership Rights in the Company Shares...... 6
1.6 Further Action......................................... 7
1.7 Transaction Structure.................................. 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF EACH OF THE
SHAREHOLDERS................................................. 7
2.1 Organization of the Company and Company Sub............ 7
2.2 The Company Capital Structure.......................... 7
2.3 Subsidiaries........................................... 8
2.4 Authority.............................................. 9
2.5 Company Financial Statements........................... 9
2.6 No Undisclosed Liabilities............................. 10
2.7 No Changes............................................. 10
2.8 Tax Matters............................................ 12
2.9 Restrictions on Business Activities.................... 14
2.10 Title of Properties; Absence of Liens and Encumbrances. 14
2.11 Intellectual Property.................................. 15
2.12 Agreements, Contracts and Commitments.................. 20
2.13 Interested Party Transactions.......................... 21
2.14 Compliance with Laws................................... 21
2.15 Litigation............................................. 22
2.16 Insurance.............................................. 22
2.17 Minute Books........................................... 22
2.18 Environmental Matters.................................. 22
2.19 Brokers' and Finders' Fees; Third Party Expenses....... 24
2.20 Employee Benefit Plans and Compensation................ 24
2.21 Governmental Authorizations and Licenses............... 27
2.22 Competition Act........................................ 27
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
2.23 Sale of the Company Shares............................. 27
2.24 Representations Complete............................... 27
2.25 Offering............................................... 27
2.26 Sale of Company Shares................................. 28
2.27 No Conflict............................................ 28
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT............. 29
3.1 Organization and Standing; Certificate of
Incorporation and Bylaws............................... 29
3.2 Authority.............................................. 29
3.3 Subsidiaries........................................... 30
3.4 Capitalization......................................... 30
3.5 Authorization.......................................... 30
3.6 Governmental Consent, etc.............................. 31
3.7 Litigation, etc........................................ 31
3.8 Compliance with Laws................................... 31
3.9 Insurance.............................................. 31
3.10 Minute Books........................................... 32
3.11 No Conflict............................................ 32
3.12 Environmental Matters.................................. 32
ARTICLE IV CONDUCT PRIOR TO THE CLOSING.......................... 33
4.1 Conduct of Business of the Company..................... 33
4.2 No Solicitation........................................ 36
4.3 No Encumbrance......................................... 36
ARTICLE V ADDITIONAL AGREEMENTS.................................. 36
5.1 Access to Information.................................. 37
5.2 Expenses............................................... 37
5.3 Public Disclosure...................................... 37
5.4 Contractual Consents................................... 37
5.5 Regulatory Filings; Reasonable Efforts................. 37
5.6 Notification of Certain Matters........................ 38
5.7 Covenant Not to Compete or Solicit..................... 38
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.8 Release of Liabilities................................. 39
5.9 Consent to Transfer of Company Shares.................. 39
5.10 Employee Options....................................... 39
5.11 Additional Documents and Further Assurances............ 40
5.12 Shareholder Assurances................................. 40
5.13 Employment Arrangements................................ 40
5.14 Tax Matters............................................ 40
5.15 Investment Representations............................. 40
5.16 Residency.............................................. 40
5.17 Continuance and Amalgamation........................... 41
ARTICLE VI CONDITIONS TO THE CLOSING............................. 42
6.1 Conditions to Obligations of the Shareholders.......... 42
6.2 Conditions to the Obligations of Parent................ 43
ARTICLE VII SURVIVAL; INDEMNIFICATION; SET OFF................... 44
7.1 Survival and Limitations of Claims..................... 44
7.2 Indemnification; Set Off............................... 44
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER................... 48
8.1 Termination............................................ 48
8.2 Effect of Termination.................................. 49
8.3 Amendment.............................................. 49
8.4 Extension; Waiver...................................... 49
ARTICLE IX GENERAL PROVISIONS.................................... 50
9.1 Notices................................................ 50
9.2 Interpretation......................................... 51
9.3 Counterparts........................................... 52
9.4 Entire Agreement; Assignment........................... 52
9.5 Severability........................................... 52
9.6 Other Remedies......................................... 52
9.7 Governing Law.......................................... 52
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
9.8 Rules of Construction.................................. 52
9.9 Specific Performance................................... 53
</TABLE>
-iv-
<PAGE>
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (this "Agreement") is made and entered into
---------
as of July 16, 1999 by and among CarsDirect.com, Inc., a Delaware corporation
("Parent"), ADMS Nova Scotia Company, a Nova Scotia unlimited liability company
- --------
and an indirect wholly owned subsidiary of Parent ("Buyer"), Perga Capital
-----
Corp., a corporation formed under the laws of the province of Ontario, Canada
(the "Company"), AutoData Marketing Systems Incorporated, a corporation formed
-------
under the laws of the province of Ontario, Canada ("Company Sub"), Chris
-----------
Wedermann, an individual resident in Canada, Rodolphe Perrier, an individual
resident in The Bahamas, the Royal Bank Financial Corporation, for and on behalf
of The Tungsten Trust (together with Chris Wedermann and Rodolphe Perrier, the
"Shareholders" and each a "Shareholder") and Gregory T. Perrier, an individual.
- ------------- -----------
Except as otherwise expressly indicated, or where the context otherwise
requires, references herein to the Company shall be deemed to include a
reference to the Company and Company Sub on a consolidated basis.
RECITALS
A. The Shareholders believe it is in their best interests and the Boards
of Directors of Parent and the Company each believe it is in the best interests
of their respective shareholders that Parent acquire the Company through the
acquisition of the entire issued share capital of the Company (the "Company
Shares") and, in furtherance thereof, have approved the transactions
contemplated hereby.
B. The Shareholders are the owners of and have good and valid title to all
of the Company Shares (other than those 4,000 Class "C" Voting Shares held by
Richard Hrga), free and clear of any legal or equitable encumbrances.
C. Subject to the terms and conditions of this Agreement, Buyer will
purchase and the Shareholders will sell all of the Company Shares in
consideration for cash payments, Parent Common Stock and certain additional cash
payments, each as set forth in Article I hereof.
D. Parent, the Company and the Shareholders desire to make certain
representations and warranties and other agreements in connection with the
purchase and sale of the Company Shares.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
and intending to be legally bound hereby, the parties agree as follows:
-1-
<PAGE>
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Sale of Shares. At the Closing (as defined in Section 1.2 hereof) and
--------------
subject to and upon the terms and conditions of this Agreement including,
without limitation, satisfaction of the conditions found in Article VI hereof,
each of the Shareholders will sell, transfer, convey and deliver to Buyer and
Buyer will purchase and acquire from each of the Shareholders, good and valid
title to the Company Shares now owned and to be owned at the Closing by such
Shareholder, as set forth in Annex A, at the Closing, free and clear of any
-------
liens, claims, charges, pledges, security interests, options, or other legal or
equitable encumbrances. At the Closing, each Shareholder will deliver to Buyer
duly executed instruments of transfer and related share certificates of its
Company Shares sufficient to vest in Buyer such Shareholder's interests in its
Company Shares in accordance with the terms of this Agreement, and thereby, the
Company will become a wholly-owned subsidiary of Buyer.
1.2 Closing. Unless this Agreement is earlier terminated pursuant to
-------
Section 8.1 hereof, the closing of the purchase and sale of the Company Shares
(the "Closing") will take place as promptly as practicable, but no later than
-------
five (5) business days, following satisfaction or waiver of the conditions set
forth in Article VI hereof, at the offices of Wilson Sonsini Goodrich & Rosati,
counsel to Parent, unless another place or time is agreed to by Parent and the
Shareholders' Agent (as defined in Section 7.2). The date upon which the Closing
actually occurs is herein referred to as the "Closing Date." For all purposes of
------------
this Agreement, the term "business day" will mean any day in California other
------------
than a Saturday, Sunday or a day on which banking institutions in California are
authorized or obligated by law or executive order to close.
1.3 Purchase Price.
--------------
(a) Amount of Payment. In full consideration of the sale, assignment
-----------------
and transfer of the Company Shares and the agreements of the Shareholders made
in connection with the transactions contemplated hereby, Buyer shall pay to the
Shareholders consideration as follows:
(i) In exchange for each Class "B" Special Share of the Company,
Buyer shall pay to the holder thereof (each such holder being a "Class B
-------
Shareholder") the following amounts:
- -----------
(1)(A) The remainder of $3,499,900 less the Outstanding
Liability Amount (as defined in Section 5.8 below), divided by (B) 1,000,000
(the "Initial Class B Consideration"); and
-----------------------------
(2)(A) The remainder of $4,000,000 less the Current Asset
Shortfall if below zero (as defined in Section 2.30 below), if any, divided by
(B) 1,000,000 (the "Subsequent
----------
-2-
<PAGE>
Class B Consideration," and together with the Initial Class B Consideration, the
- ---------------------
"Class B Consideration").
---------------------
(ii) In exchange for each Class "C" Voting Share of the Company held
by the Shareholders, Buyer shall pay to the holder thereof (each such holder
being a "Class C Shareholder") $0.01 (the "Class C Consideration").
------------------- ---------------------
(iii) In exchange for each Common Share of the Company, Buyer shall
pay to the holder thereof (each such holder being a "Common Shareholder"): (1)
------------------
subject to vesting as set forth in Section 1.4 below, 6,000 shares of Parent
Common Stock (the "Stock Consideration"), and (2) the right to receive such
-------------------
Common Shareholder's Pro Rata Portion of the additional cash as provided in
Section 1.3(d) below (the "Additional Cash Payment," and, together with the
-----------------------
Stock Consideration, the "Common Consideration"). The "Pro Rata Portion" with
-------------------- ----------------
respect to each Common Shareholder shall mean the ratio obtained by dividing the
amount of the Common Shares set forth across from such Shareholder's name in
Annex A by 100.
- -------
The Class B Consideration, Class C Consideration and the Common Consideration
shall together constitute the "Purchase Price," which amounts are subject to
---------------
adjustment as set forth in Section 7.2.
(b) Delivery of Initial Class B Consideration and Class C Consideration.
-------------------------------------------------------------------
Payment of the Initial Class B Consideration and Class C Consideration will be
made to the Class B Shareholders and Class C Shareholders, respectively, by wire
transfer of immediately available funds to the account of Soloway Wright,
counsel to the Shareholders, on the Closing Date.
(c) Delivery of Subsequent Class B Consideration.
--------------------------------------------
(i) Payment of the Subsequent Class B Consideration will be made to
the Class B Shareholders by wire transfer of immediately available funds to the
account of Soloway Wright, counsel to the Shareholders, promptly after the
earlier of (x) December 31, 1999, or (y) the closing of Parent's next round of
equity financing in which Parent receives aggregate net proceeds of at least
$5,000,000.
(ii) In the event of the failure of Buyer to perform in full its
obligations under Section 1.3(c)(i):
(1) Buyer shall pay to the Class B Shareholders, in addition to
the Subsequent Class B Consideration, interest at a rate of ten percent (10%)
per annum on any unpaid Subsequent Class B Consideration from January 1, 2000 to
the time of payment, compounded quarterly; and
(2) If, following a final nonappealable judgment against Buyer
for any unpaid Subsequent Class B Consideration, Buyer has not paid to the
Shareholders the full amount of the Subsequent Class B Consideration within
ninety (90) days of such final judgment, then (x) the
-3-
<PAGE>
Shareholders may seek rescission of the purchase and sale of the Company Shares,
and (y) Section 5.7 shall terminate and be of no further force or effect;
provided, however, that in no event shall Buyer be deemed to have failed to
satisfy its obligations under Section 1.3(c)(i) to the extent Buyer shall have
elected to set off all or a portion of the Subsequent Class B Consideration in
respect of a claim for indemnification pursuant to Section 7.2 hereof,
regardless of whether Buyer is ultimately required to pay all or any portion of
the withheld amount to the Class B Shareholders pursuant to Section 7.2(e)(ii).
Notwithstanding the foregoing, Buyer shall not be relieved of its obligation to
pay to the Class B Shareholders all or any portion of the Subsequent Class B
Consideration which is not subject to set off in respect of a claim for
indemnification.
(d) Additional Cash Payment.
-----------------------
(i) Subject to clause (ii) below, within 90 days following the first,
second and third anniversary of the Measurement Date (as defined below),
respectively (each, an "Additional Cash Payment Date"), Buyer shall pay each
----------------------------
Common Shareholder (by wire transfer of immediately available funds to the
account of Soloway Wright) its Pro Rata Portion of the product of (x) 0.50, 0.45
and 0.35, respectively, and (y) the Company's net income, as determined in
accordance with United States generally accepted accounting principles
("U.S. GAAP") by Parent's independent auditors, for the one-year periods ending
---------
on the first, second and third anniversary of the Measurement Date,
respectively, minus, in each case, the Company's net income (determined as
aforesaid) for the one-year period ending April 30, 1999. For purposes of this
Section 1.3(c), "Measurement Date" shall mean the last day of Parent's fiscal
----------------
quarter ending immediately after the Closing Date.
(ii) Notwithstanding the foregoing, the Common Shareholders shall not
be entitled to receive any Additional Cash Payment and Parent and Buyer's
obligations thereto shall be deemed fully satisfied, following the occurrence of
any of the following: (x) the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Parent Common Stock to
the public involving gross proceeds to Parent of not less $15,000,000 at a per
share offering price of at least $5.00 (as adjusted for stock splits, dividends,
combinations and the like occurring after the date of this Agreement) (an
"IPO"); (y) the consummation of a merger, sale or consolidation of Parent with
---
any other corporation or entity, other than a merger, sale or consolidation
which would result in the voting securities of Parent outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or any parent
thereof) more than fifty percent (50%) of the total voting power represented by
the voting securities of Parent or such surviving entity or any parent thereof
outstanding immediately after such merger, sale or consolidation, in which the
holders of Parent common stock receive consideration equal to at least $5.00 per
share (as adjusted for stock splits, dividends, combinations, and the like
occurring after the date of this Agreement) (a "Change of Control Transaction");
-----------------------------
or (z) the payment
-4-
<PAGE>
by Buyer to the Common Shareholders of their Pro Rata Portion of a total of
$1,700,000 in exchange for the cancellation of such Common Shareholders' rights
to receive any Additional Cash Payment after the date thereof (the "Additional
----------
Cash Termination Payment"). Any Additional Cash Payment that may have accrued
- ------------------------
prior to an IPO, Change of Control Transaction or Additional Cash Termination
Payment and subsequent to the previous Additional Cash Payment Date, if any,
shall cease to accrue on the day preceding, and shall be payable within five
days of, the date of closing of such IPO or Change of Control Transaction, or
Additional Cash Termination Payment, as applicable.
(e) Section 116 Certificate.
-----------------------
(i) If a Shareholder (a "Non-Resident Shareholder") has not
delivered a statutory declaration in accordance with section 5.16(a) hereof to
Parent at or before the Closing, such Non-Resident Shareholder shall deliver to
Parent at or before Closing, a certificate under subsection 116(2) of the Income
Tax Act (Canada) with a certificate limit not less than the Purchase Price
attributable to the securities being acquired from such Non-Resident Shareholder
(the "Non-Resident Holder's Purchase Price"), Buyer shall be entitled to
withhold from the Non-Resident Holder's Purchase Price an amount equal to 35% of
the Non-Resident Holder's Purchase Price (the "Withheld Amount"), such amount to
be held in escrow by Aird & Berlis pursuant to an escrow agreement to be agreed
upon by the parties prior to the Closing (which agreement shall provide that the
Withheld Amount shall be placed in an interest-bearing account), pending release
in accordance with Section 1.3(c)(ii) or remission to the Receiver General of
Canada in accordance with Section 1.3(c)(iii).
(ii) If a Non-Resident Shareholder delivers to Parent prior to the
25th day after the end of the month in which the Closing occurs a certificate
issued by the Canadian Minister of National Revenue with a certificate limit not
less than each such Non-Resident Shareholder's Pro Rata Portion of the Purchase
Price under subsection 116(2) or (4) of the Income Tax Act (Canada), within two
business days thereof, Parent shall direct Aird & Berlis to pay the Withheld
Amount (at Parent's discretion, in Canadian dollars in an amount based upon the
rate of exchange on the Closing Date) plus any interest on the Withheld Amount
(less the amount of any withholding tax on such interest), if any, each such
Non-Resident Shareholder by wire transfer of immediately available funds to an
account or accounts to be designated by such Non-Resident Shareholder, or
certified check or bank draft made payable in lawful money of the United States
in accordance with a direction to the Parent executed by the Non-Resident
Shareholder.
(iii) If the Non-Resident Shareholder does not deliver to Parent the
certificate described in clause (i) or (ii) above, Aird & Berlis, on behalf of
the Parent, shall on or before the 30th day after the end of the month in which
the Closing occurs (A) remit to the Receiver General of Canada the amount
required to be remitted pursuant to section 116 of the Income Tax Act (Canada)
and the amount so remitted shall be credited to Parent as a payment to the Non-
Resident Shareholder on account of such Non-Resident Shareholder's Pro Rata
Portion of the Purchase Price, and (B) within two business days thereof pay the
remaining portion of the Withheld Amount (at
-5-
<PAGE>
Parent's discretion, in Canadian dollars in an amount based upon the rate of
exchange on the Closing Date) plus any interest on the Withheld Amount (less the
amount of any withholding tax on such interest, if any) to the Non-Resident
Shareholder by wire transfer of immediately available funds to an account or
accounts to be designated by the Non-Resident Shareholder, or certified check or
bank draft made payable in lawful money of the United States in accordance with
a direction to the Parent executed by the Non-Resident Shareholder.
1.4 Stock Vesting. The Stock Consideration shall be subject to vesting as
-------------
follows, and any vested Stock Consideration shall be issued to the Common
Shareholders on the date upon which such Stock Consideration vests (each such
date a "Stock Vesting Date"):
------------------
(a) Thirty-five percent of the Stock Consideration allocable to each
of Common Shareholders shall vest at the time of Closing.
(b) The remaining Stock Consideration shall vest at a rate of 4.0625%
of the entire Stock Consideration allocable to each of The Tungsten Trust and
Chris Wedermann as of the end of each three-month period following the Closing
Date; provided, that in the event of an IPO or a Change of Control Transaction,
the remaining Stock Consideration shall vest at a rate of 8.125% of the entire
Stock Consideration allocable to each of The Tungsten Trust and Chris Wedermann
as of the end of each three-month period following such IPO or Change of Control
Transaction.
Any unvested shares constituting a portion of the Stock Consideration initially
allocable to The Tungsten Trust shall be returned to Parent and cancelled upon
the voluntary resignation as a full-time employee of Parent or termination for
Cause by Parent of the full-time employment of Gregory Perrier. Any unvested
shares constituting a portion of the Stock Consideration initially allocable to
Chris Wedermann shall be returned to Parent and cancelled upon the voluntary
resignation as a full-time employee of Parent or termination for Cause by Parent
of the full-time employment of Chris Wedermann. For purposes of this Section
1.4(c), "Cause" shall mean (i) any act of personal dishonesty taken by Gregory
Perrier or Chris Wedermann, as the case may be, in connection with his
responsibilities to Parent which results in substantial material enrichment of
them, (ii) a plea of guilty or conviction of a felony by Gregory Perrier or
Chris Wedermann, as the case may be, which the Board of Directors of Parent
reasonably believes has had or will have a material detrimental effect on
Parent's reputation or business, (iii) a willful act by Gregory Perrier or Chris
Wedermann, as the case may, which constitutes misconduct and is injurious to
Parent, and (iv) continued willful violations by Gregory Perrier or Chris
Wedermann, as the case may be, of his obligations to Parent after there has been
delivered to him a written demand for performance from Parent which describes
the basis for Parent's belief that he has not substantially performed his
duties.
1.5 No Further Ownership Rights in the Company Shares. The Class B
-------------------------------------------------
Consideration, the Class C Consideration and the Common Consideration shall,
when paid in accordance with the terms of this Agreement, be deemed to have been
issued in full satisfaction of all rights pertaining to
-6-
<PAGE>
the Company Shares and the Shareholders shall have no continuing rights with
respect to or arising from the Company Shares following the Closing.
1.6 Further Action. If, at any time after the Closing, any further action
--------------
is necessary or desirable to carry out the purposes of this Agreement and to
ensure that the Company retains full right, title and possession to all its
assets, property, rights, privileges, powers and franchises, the Shareholders,
the Shareholders' Agent, the Company, Parent and Buyer will take all such lawful
and necessary action.
1.7 Transaction Structure. The Company and the Shareholders shall
---------------------
cooperate in structuring and effecting such corporate transactions as may be
reasonably requested by Parent (at Parent's cost) prior to Closing; provided,
that such changes do not result in adverse consequences to the Shareholders and
can be reversed (at Parent's cost) if the Closing does not occur.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
EACH OF THE WARRANTORS
Chris Wedermann, Rodolphe Perrier and Gregory Perrier (together, the
"Warrantors") hereby jointly and severally represent and warrant to Parent and
Buyer as of the date hereof and as of the Closing Date, subject to exceptions
(referencing the appropriate section number) as are specifically disclosed in
the disclosure schedule, dated as of the date hereof, supplied by the Warrantors
to Parent (the "Warrantor Disclosure Schedules"):
2.1 Organization of the Company and Company Sub. The Company and the
-------------------------------------------
Company Sub are corporations duly organized, validly existing and in good
standing under the laws of the province of Ontario, Canada. The Company and the
Company Sub have the corporate power to own their properties and to carry on
their business as now being conducted. The Company and the Company Sub are duly
qualified to do business as now being conducted and are in good standing in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets (including intangible assets), financial
condition, results of operations or prospects (hereinafter referred to as a
"Material Adverse Effect") of the Company or the Company Sub. The Company and
-----------------------
the Company Sub have delivered to Parent a true and correct copy of the Articles
of Incorporation, Bylaws, Minute Books and any other similar organizational
documents (the "Organizational Documents") of the Company and the Company Sub,
------------------------
each as amended to date.
2.2 The Company Capital Structure.
-----------------------------
(a) The authorized share capital of the Company consists solely of an
unlimited number of Common Shares, of which 100 shares are issued and
outstanding, 10,000 Class "A" Special Shares, none of which are issued and
outstanding, an unlimited number of Class "B" Special
-7-
<PAGE>
Shares, of which 1,000,000 shares are issued and outstanding, and 10,000 Class
"C" Voting Shares, of which 10,000 shares are issued and outstanding. All issued
and outstanding shares of capital stock of the Company are held by the
Shareholders, in such individual amounts as is set forth on Annex A, who each
have good and valid title to their shares of the Company, free and clear of any
liens, claims, charges, pledges, security interests, options, or other legal or
equitable encumbrances. The authorized share capital of the Company Sub consists
solely of an unlimited number of Common Shares, of which 1,199 shares are issued
and outstanding, 426 shares of cumulative, non-voting, convertible, redeemable,
retractable preference shares, none of which are issued and outstanding, and an
unlimited number of Redeemable Class "A" Special Shares, none of which are
issued and outstanding. All issued and outstanding shares of Company Sub are
held by the Company which has good and valid title to its shares of the Company
Sub, free and clear of any liens, claims, charges, pledges, security interests,
options, or other legal or equitable encumbrances. All outstanding shares of
capital stock of the Company and the Company Sub are duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights in
favor of third parties created by statute, the Organizational Documents or any
agreement to which the Company and the Company Sub are a party or by which they
are bound. There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which either the Company or
Company Sub or any Shareholder is a party or by which it is bound obligating the
Company or Company Sub or any Shareholder to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital Shares of the Company or Company Sub or to grant, issue or
enter into any option, warrant, call, right, commitment or agreement. As a
result of the purchase and sale of the Company Shares as contemplated hereby,
Buyer will be the record and sole beneficial owner of all outstanding capital
stock of the Company and all rights to acquire or receive capital stock of the
Company, free and clear of all liens encumbrances or other defects in title
(other than those created by Buyer).
(b) The Company has not agreed to become a member of any joint venture,
consortium, partnership or other unincorporated association; and the Company is
not, and has not agreed to become, a party to any agreement or arrangement for
participating with others in any business sharing commissions or other income.
(c) Neither the Company nor the Company Sub nor any Shareholder is a party
to any agreement with any other shareholder governing the business and affairs
of the Company or Company Sub, including without limitation any unanimous
shareholder agreement within the meaning of the Business Corporations Act
(Ontario).
2.3 Subsidiaries. Except as set forth on Schedule 2.3 and other than the
------------
Company Sub, the Company has no, nor has ever had, any subsidiaries or
affiliated companies and otherwise owns no shares of capital stock or interest
in, or controls, directly or indirectly, no other corporation, partnership,
association, joint venture or other business entity. Except as set forth on
Schedule 2.3, the Company Sub has no, and has never had, any subsidiaries or
affiliated companies and otherwise
-8-
<PAGE>
owns no shares of capital stock or interest in, or controls, directly or
indirectly, any other corporation, partnership, association, joint venture or
other business entity.
2.4 Authority. The Company has all requisite corporate power and
---------
authority to enter into this Agreement and to consummate the transactions
contemplated hereby, subject to the approval of the transactions contemplated
herein by the Shareholders. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company. The Board of
Directors of the Company has approved this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms except as enforceability may be limited
by principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
Except as set forth on Schedule 2.4, the execution and delivery of this
Agreement by the Company does not, and, as of the Closing Date, the consummation
of the transactions contemplated hereby will not, conflict with, or result in
any violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict") (i)
--------
the Organizational Documents or (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of the Company's assets or properties. Except as set forth on
Schedule 2.4, no consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other national, federal, regional, state, provincial, county,
local, municipal or foreign governmental authority, instrumentality, agency or
commission ("Governmental Entity") or any third party (so as not to trigger any
-------------------
Conflict), is required by or with respect to the Company in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby except for (i) the filing with appropriate Canadian
authorities of such forms as may be required by the Investment Canada Act
(Canada); (ii) such other consents, waivers, authorizations, filings, approvals
and registrations which are set forth on Schedule 2.4. Neither entering into nor
completing this Agreement will or is likely to cause the Company to lose the
benefit of any right or privilege it presently enjoys or any person who normally
does business with or gives credit to the Company not to continue to do so on
the same basis or any officer or senior employee of the Company to leave its
employment.
2.5 Company Financial Statements. (a) Schedule 2.5 sets forth, (i) for
----------------------------
Company Sub, an unaudited balance sheet including all assets and liabilities as
of April 30, 1999 (the "Balance Sheet") and the related unaudited statements of
-------------
income and changes in financial position for the 12-month period then ended
(collectively, the "Company Financials"), and (ii) for the Company and Company
------------------
Sub, a pro forma unaudited consolidated balance sheet including all assets and
liabilities as of May 12, 1999 (the "Current Balance Sheet").
---------------------
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<PAGE>
The Company Financials have been prepared in accordance with the laws of
Canada and in accordance with Canadian generally accepted accounting standards,
principles and practices in Canada ("Canadian GAAP"). The Current Balance Sheet
-------------
has been prepared in good faith in accordance with the books and records of the
Company and consistent with the accounting policies and procedures employed by
the Company in prior periods.
No change in accounting policies has been made in preparing the Company
Financials for each of the three twelve-month financial periods of the Company
Sub ended on April 30, except as stated in the unaudited balance sheets and
profit and loss accounts for these periods.
The Company Financials and Current Balance Sheet are accurate and fairly
present the financial condition of the Company as of April 30, 1999.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
--------------------------
neither the Company nor Company Sub has any liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with Canadian
GAAP, as the case may be), which individually or in the aggregate, has not been
reflected on the Company Financials.
2.7 No Changes. Except as set forth on Schedule 2.7, since April 30,
----------
1999, there has not been, occurred or arisen, as of the date hereof, any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendment or change to the Organizational Documents;
(c) capital expenditure or commitment by the Company;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge, dismissal or other
unlawful labor practice or action related to the Company or any union,
collective bargaining or labor organizing activity;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company or any
disagreement between the Company and its auditors;
(g) revaluation by the Company of any of its assets;
-10-
<PAGE>
(h) the declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its ten (10) most highly paid employees, or the
declaration, payment or commitment or obligation of any kind for the payment, by
the Company, of a bonus or other additional salary or compensation to any person
(other than annual increases consistent with past practice not exceeding in any
one case more than 10% of annual base salary);
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring any
indebtedness, guaranteeing by the Company of any indebtedness, issuance or sale
of any debt securities of the Company or guaranteeing of any debt securities of
others by the Company, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(m) waiver or release of any material right or claim of the Company,
including any material write-off or other compromise, outside the ordinary
course of business, of any account receivable of the Company;
(n) the commencement of any lawsuit or notice or threat of
commencement of any material lawsuit or proceeding against or investigation of
the Company or its affairs;
(o) notice of any claim of ownership by a third party of the Company
Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company of any Registered Intellectual Property Rights (as
defined in Section 2.11 below);
(p) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(q) material change in pricing set or charged by the Company to its
customers or in pricing or royalties set or charged by persons who have licensed
Registered Intellectual Property Rights to the Company;
(r) any event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect on the Company;
-11-
<PAGE>
(s) adopt or amend any Company Employee Plan (as defined in Section
2.20); or
(t) negotiation or agreement by the Company, or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Parent and their representatives
regarding the transactions contemplated by this Agreement).
2.8 Tax Matters.
-----------
(a) Definition of Taxes. For the purposes of this Agreement, the
-------------------
term "Tax" or, collectively, "Taxes" shall mean (i) any and all federal, state,
provincial, local, municipal and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes based
upon or measured by gross receipts, income, profits, sales, use, workers
compensation and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, customs, excise, business and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts, (ii) any liability for the payment of any amounts of
the type described in clause (i) of this Section 2.8(a) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any period,
and (iii) any liability for the payment of any amounts of the type described in
clauses (i) or (ii) of this Section 2.8(a) as a result of any express or implied
obligation to indemnify any other person or as a result of any obligations under
any agreements or arrangements with any other person with respect to such
amounts and including any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) As of the Closing Date, the Company and Company Sub will
have prepared and timely filed all required federal, state, provincial, local,
municipal and foreign returns, declarations, estimates, information statements
and reports ("Returns") relating to any and all Taxes concerning or attributable
-------
to the Company and Company Sub or their operations and such Returns, and any
extensions or amendments thereof, are true and correct and have been completed
in accordance with applicable law.
(ii) As of the Closing Date, each of the Company and the
Company Sub (A) will have paid all Taxes they are required to pay (B) will have
withheld all Taxes and other deductions required to be withheld including,
without limiting the generality of the foregoing from all payments made to past
or present employees, officers, directors, independent contractors, creditors,
stockholders, non-residents and other third parties and have, with the time
required by law, paid such withheld amount to the proper governmental
authorities and (C) will not have any liabilities for unpaid federal,
provincial, state, local and foreign Taxes which have not been accrued or
reserved on the Current Balance Sheet, whether asserted or unasserted,
contingent or otherwise and will not have incurred any liability for Taxes for
the period commencing after the date of the Balance Sheet and ending immediately
prior to the Closing Date, other than in the ordinary course of business.
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<PAGE>
(iii) Neither the Company nor the Company Sub has been
delinquent in the payment of any Tax, nor is there any Tax deficiency
outstanding, assessed or proposed against the Company, nor has the Company
executed any waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax. There are no matters relating to Taxes
under discussion between the Company or the Company Sub and any governmental
authority.
(iv) No audit or other examination of any Return of the Company
or the Company Sub is presently in progress, nor has the Company or the Company
Sub been notified of any request for such an audit or other examination, nor is
any governmental authority asserting, or to the Company's knowledge threatening
to assert against the Company or the Company Sub any claims for Taxes.
(v) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal, provincial, state and local income and
all state and local sales and use Returns for the Company and the Company Sub
filed for all periods ending during the five year period preceding the Closing
Date.
(vi) There are (and immediately following the Closing there
will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company relating to or attributable to Taxes other
-----
than Liens for Taxes not yet due and payable.
(vii) Neither Company nor the Company Sub has knowledge of any
basis for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company or
the Company Sub.
(viii) Neither the Company, nor any of its subsidiaries are
"engaged in a trade or business within the United States" or maintain a
"permanent establishment" in the United States.
(ix) Neither Company nor the Company Sub is a party to any tax
sharing, indemnification or allocation agreement nor does the Company or the
Company Sub owe any amount under any such agreement.
(x) For purposes of the Income Tax Act (Canada), each of the
Company's and the Company Sub's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal and
provincial income Tax deductions is accurately reflected on the Company's and
the Company Sub's tax books and records, and the Company's and the Company Sub's
losses, if any, for federal and provincial income tax purposes are accurately
reflected on the Company's and the Company Sub's tax books and records.
(xi) Except as set forth on Schedule 2.8, no adjustment
relating to any Return filed by the Company or the Company Sub has been proposed
formally or, to the knowledge
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<PAGE>
of the Company or the Company Sub, informally by any tax authority to the
Company, the Company Sub or any representative thereof.
(xii) Each of the Company and the Company Sub has remitted to
the appropriate Tax authority when required by law to do so all amounts
collected by it on account of Taxes under Part IX of the Excise Tax Act (Canada)
and any similar provincial legislation and in respect of retail sales tax.
(xiii) To the Company's knowledge and the knowledge of the
Company Sub, no circumstances exist which would make the Company or the Company
Sub subject to the application of any of Sections 79 to 80.04 of the Income Tax
Act (Canada). Neither the Company nor the Company Sub has acquired property or
services from or disposed of property or provided services to, a person with
whom it does not deal at arm's length (within the meaning of the Income Tax Act
(Canada)) for an amount that is other than the fair market value of such
property or services, or has been deemed to have done so for purposes of the
Income Tax Act (Canada).
(xiv) Neither Company nor the Company Sub has deducted any
amounts in computing its income in a taxation year which may be included in a
subsequent taxation year under Section 78 of the Income Tax Act (Canada).
(xv) The paid-up capital of the shares of the Company for
purposes of the Income Tax Act (Canada) is Cdn$1.00 per share for each Common
Share, Cdn$0.01002 per share for each Class "B" Special Share and Cdn$0.0001 per
share for each Class "C" Voting Share.
(c) Executive Compensation Tax. There is no contract, agreement,
--------------------------
plan or arrangement to which the Company or Company Sub is a party, including,
without limitation, the provisions of this Agreement, covering any employee or
former employee of the Company or Company Sub, which, individually or
collectively, could give rise to the payment of any amount that would not be
deductible.
2.9 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company. All
statutory and other licenses, consents, permits and authorities necessary or
desirable for the carrying on of the business of the Company as now carried on
have been obtained and are valid and subsisting and all conditions applicable to
any license, consent (including any planning consent) permit or authority have
been complied with and none of the licenses, consents, permits or authorities
have been breached or is likely to be suspended, canceled, refused or revoked.
2.10 Title of Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
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<PAGE>
(a) Schedule 2.10(a) sets forth a list of all real property
currently, or at any time in the past, owned or leased by the Company,
including, in the case of owned property, the dates of purchase and sale and the
title particulars, and in the case of leases, the name of the lessor, the date
of the lease and each amendment thereto and, with respect to any current lease,
the aggregate annual rental and/or other fees payable under any lease. All
current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of the
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, except as reflected in the Company
Financials and except for liens for taxes not yet due and payable and
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
(c) All material items of equipment owned or leased by the Company
are, taken as a whole, (i) adequate for the conduct of the business of the
company as currently conducted and (ii) in good operating condition regularly
and properly maintained, subject to normal wear and tear.
2.11 Intellectual Property.
---------------------
(a) Definitions. For all purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
(i) "Technology" shall mean any or all of the following: (i)
----------
works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, data and mask works; (ii)
inventions (whether or not patentable), improvements, and technology; (iii)
proprietary and confidential information, including technical data and customer
and supplier lists, trade secrets and know how; (iv) databases, data
compilations and collections and technical data and the application of such
data; (v) logos, trade names, trade dress, trademarks, service marks, World Wide
Web addresses and domain names, tools, methods and processes; and all
instantiations of the foregoing in any form and embodied in any media.
(ii) "Intellectual Property Rights" shall mean any or all of
----------------------------
the following and all rights in, arising out of, or associated therewith: (i)
all Canadian, United States and foreign patents and utility models and
applications therefor and all reissues, divisions, re-examinations, renewals,
extensions, provisionals, continuations and continuations-in-part thereof, and
equivalent or similar rights anywhere in the world in inventions and discoveries
including without limitation invention disclosures ("Patents"); (ii) all trade
-------
secrets and other rights in know-how and confidential
-15-
<PAGE>
or proprietary information; (iii) all copyrights, copyrights registrations and
applications therefor and all other rights corresponding thereto throughout the
world ("Copyrights"); (iv) databases, database compilations and collections and
----------
technical data and the application of such data; (v) all rights in World Wide
Web addresses and domain names and applications and registrations therefor, all
trade names, logos, common law trademarks and service marks, trademark and
service mark registrations and applications therefor and all goodwill associated
therewith throughout the world ("Trademarks"); and (vi) any similar,
----------
corresponding or equivalent rights to any of the foregoing anywhere in the
world.
(iii) "Company Intellectual Property" shall mean any Technology
-----------------------------
and Intellectual Property Rights including the Company Registered Intellectual
Property Rights (as defined below) that are owned by the Company (including
Company Sub).
(iv) "Registered Intellectual Property Rights" shall mean all
---------------------------------------
Canadian, United States, international and foreign: (i) Patents, including
applications therefor; (ii) registered Trademarks, applications to register
Trademarks, including intent-to-use applications, or other registrations or
applications related to Trademarks; (iii) Copyrights registrations and
applications to register Copyrights; and (iv) any other Technology or
Intellectual Property Right that are the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded by,
any state, government or other public legal authority at any time.
(b) Schedule 2.11(b) lists all Registered Intellectual Property
Rights owned by, filed in the name of, or applied for, by the Company or Company
Sub (the "Company Registered Intellectual Property Rights"), and any and all
-----------------------------------------------
invention disclosures, and lists any proceedings or actions before any court,
tribunal (including the United States Patent and Trademark Office (the "PTO") or
---
equivalent authority anywhere in the world) related to any of the Company
Registered Intellectual Property Rights or Company Intellectual Property.
(c) Each item of Company Registered Intellectual Property Rights is
valid and subsisting, and all necessary registration, maintenance and renewal
fees in connection with such Company Registered Intellectual Property Rights
have been paid and all necessary documents and certificates in connection with
such Company Registered Intellectual Property Rights have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property Rights. Except as set forth on Schedule
2.11(c), there are no actions that must be taken by the Company within one
hundred twenty (120) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any responses to PTO
office actions, documents, applications or certificates for the purposes of
obtaining, maintaining, perfecting or preserving or renewing any Registered
Intellectual Property Rights. To the maximum extent provided for by, and in
accordance with, applicable laws and regulations, the Company has recorded each
such assignment of a Registered Intellectual Property Right assigned to the
Company with the relevant Governmental Entity, any relevant Canadian or foreign
jurisdiction, as the case may be.
-16-
<PAGE>
Except as set forth on Schedule 2.11(c), the Company has not claimed a
particular status, including "Small Business Status," in the application for any
Intellectual Property Rights, which claim of status was not at the time made, or
which has since become, inaccurate or false.
(d) Except as set forth on Schedule 2.11(d), the Company Intellectual
Property is valid and enforceable. Without limiting the foregoing, the Company
knows of no information, materials, facts, or circumstances, including any
information or fact that would constitute prior art, that would render any of
the Company Registered Intellectual Property Rights or any of the Company
Intellectual Property invalid or unenforceable, or would adversely effect any
pending application for any Company Registered Intellectual Property Right and
the Company has not misrepresented, or failed to disclose, and has no knowledge
of any misrepresentation or failure to disclose, any fact or circumstances in
any application for any Company Registered Intellectual Property Right that
would constitute fraud or a misrepresentation with respect to such application
or that would otherwise affect the validity or enforceability of any Company
Registered Intellectual Property Right.
(e) Each item of Company Intellectual Property is free and clear of
any Liens. The Company is the exclusive owner of all Company Intellectual
Property.
(f) Except for "shrink-wrap" and similar widely available commercial
end-user licenses, all Technology used in or necessary to the conduct of
Company's business as presently conducted or currently contemplated to be
conducted by the Company was written or created solely by either (i) employees
of the Company acting within the scope of their employment or (ii) by third
parties who have validly and irrevocably assigned all of their rights, including
Intellectual Property Rights therein, to the Company, and no third party owns or
has any rights to any of the Company Intellectual Property.
(g) All employees of the Company have entered into a valid and
binding written agreement with the Company sufficient to vest title in the
Company of all Technology, including all accompanying Intellectual Property
Rights, created by such employee in the scope of his or her employment with the
Company.
(h) The Company has taken all steps that are required to protect the
Company's rights in confidential information and trade secrets of the Company or
provided by any other person to the Company. Without limiting the foregoing, the
Company has, and enforces, a policy requiring each employee, consultant and
contractor to execute a proprietary information, confidentiality and assignment
agreement, substantially in the form previously delivered to Parent, and all
current and former employees, consultants and contractors of the Company have
executed such an agreement.
(i) The Company has not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention of any
exclusive rights to use or joint ownership
-17-
<PAGE>
of, any Technology or Intellectual Property Right that is or was Company
Intellectual Property, to any other person.
(j) Except as set forth on Schedule 2.11(j), the Company Intellectual
Property constitutes all the Technology and Intellectual Property Rights used in
and/or necessary to the conduct of the business of the Company as it currently
is conducted, including, without limitation, the design, development,
manufacture, use, import and sale of products, technology and performances of
services (including products, technology or services currently under
development).
(k) Other than inbound "shrink-wrap" and similar publicly available
commercial binary code end-user licenses, the contracts, licenses and agreements
listed in Schedule 2.11(k) lists all contracts, licenses and agreements to which
the Company is a party with respect to any Technology or Intellectual Property
Rights. The Company is not in breach of nor has the Company failed to perform
under, any of the foregoing contracts, licenses or agreements and, to the
Company's knowledge, no other party to any such contract, license or agreement
is in breach thereof or has failed to perform thereunder.
(l) Except as set forth on Schedule 2.11(l), no person who has
licensed Technology or Intellectual Property Rights to the Company has ownership
rights or license rights to improvements made by the Company in such Technology
or Intellectual Property Rights.
(m) Schedule 2.11(m) lists all contracts, licenses and agreements
between the Company and any other person wherein or whereby the Company has
agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse,
hold harmless, guaranty or otherwise assume or incur any obligation or liability
or provide a right of rescission with respect to the infringement or
misappropriation by the Company or such other person of the Intellectual
Property Rights of any person other than the Company.
(n) Except as set forth on Schedule 2.11(n), the operation of the
business of the Company as it currently is conducted or is contemplated to be
conducted by the Company, including but not limited to the collection,
organization, configuration and distribution of automobile data does not and
will not and will not when conducted by Parent or Buyer in substantially the
same manner following the Closing, infringe or misappropriate any Intellectual
Property Right of any person, violate any right of any person (including any
right to privacy or publicity), or constitute unfair competition or trade
practices under the laws of any jurisdiction, and the Company has not received
notice from any person claiming that such operation or any act, product,
technology or service (including products, technology or services currently
under development) of the Company infringes or misappropriates any Intellectual
Property Right of any person or constitutes unfair competition or trade
practices under the laws of any jurisdiction (nor does the Company have
knowledge of any basis therefor).
-18-
<PAGE>
(o) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute regarding the scope of such agreement, or performance
under such agreement, including with respect to any payments to be made or
received by the Company thereunder.
(p) Except as set forth on Schedule 2.11(p), to the Company's
knowledge, no person or entity is infringing or misappropriating any Company
Intellectual Property Right.
(q) Except as set forth on Schedule 2.11(q), no Company Intellectual
Property or service of the Company is subject to any proceeding or outstanding
decree, order, judgment or settlement agreement or stipulation that restricts in
any manner the use, transfer or licensing thereof by the Company or may affect
the validity, use or enforceability of such Company Intellectual Property.
(r) No (i) product, technology, service or publication of the
Company, (ii) material published or distributed by the Company, or (iii) conduct
or statement of the Company constitutes a defamatory statement or material,
false advertising or otherwise violates any law or regulations.
(s) All of the Company's products (including products currently under
development): (i) will record, store, process, calculate and present calendar
dates falling on and after (and if applicable, spans of time including) January
1, 2000, and will calculate any information dependent on or relating to such
dates in the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "Year 2000 Compliant");
-------------------
and (ii) will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000. All of the Company's
Information Technology (as defined below) is Year 2000 Compliant, and will not
cause an interruption in the ongoing operations of the Company's business on or
after January 1, 2000. For purposes of the foregoing, the term "Information
-----------
Technology" shall mean and include all software, hardware, firmware,
- ----------
telecommunications systems, network systems, embedded systems and other systems,
components and/or services (other than general utility services including gas,
electric, telephone and postal) that are owned or used by the Company in the
conduct of its business, or purchased by the Company from third party suppliers.
(t) All Company Intellectual Property will be fully transferable,
alienable or licensable by Parent or Buyer without restriction and without
payment of any kind to any third party.
(u) Neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Buyer or Parent, by operation of law or
otherwise, of any contracts or agreements to which the Company is a party, will
result in (i) Buyer or Parent's granting to any third party any right to or with
respect to any Technology or Intellectual Property Right owned by, or
-19-
<PAGE>
licensed to, either of them, (ii) Buyer or Parent's being bound by, or subject
to, any non-compete or other restriction on the operation or scope of their
respective businesses, or (iii) Buyer or Parent's being obligated to pay any
royalties or other amounts to any third party in excess of those payable by the
Company prior to the Closing.
2.12 Agreements, Contracts and Commitments. Except as set forth on
-------------------------------------
Schedule 2.12, as of the date hereof, the Company is not a party to or bound by:
(a) any collective bargaining agreements,
(b) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations other than reasonable notice
provisions of common law,
(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans, policies or arrangements,
(d) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization,
(e) any agreement or plan, including any Shares option plan, Shares
appreciation rights plan, Shares purchase plan, or employee share option scheme,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement,
(f) any fidelity or surety bond or completion bond,
(g) any lease of personal property having a value individually in
excess of $10,000,
(h) any agreement of indemnification or guaranty,
(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or to
compete with any person or entity,
(j) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000, except as
disclosed in Note 10 to the Company Financials,
(k) any agreement, contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business,
-20-
<PAGE>
(l) any mortgages, charges, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause (h)
hereof,
(m) any purchase order or contract for the purchase of raw materials
involving $10,000 or more,
(n) any construction contracts,
(o) any distribution, joint marketing or development agreement,
(p) any agreement pursuant to which the Company has granted or may
grant in the future, to any party, a source-code license or option or other
right to use or acquire source codes, or
(q) any other agreement, contract or commitment that involves $10,000
or more or is not cancelable without penalty within thirty (30) days.
Except for alleged breaches, violations and defaults, and events that would
constitute a breach, violation or default with the lapse of time, giving of
notice, or both, as are all noted in Schedule 2.12(b), the Company has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment to which the Company is a party or by which it is bound
(any agreement, contract or commitment, a "Contract"). Each Contract is in full
--------
force and effect and, except as otherwise disclosed in Schedule 2.12(b), is not
subject to any default thereunder.
2.13 Interested Party Transactions. Except as set forth on Schedule 2.13,
-----------------------------
no officer, director or Shareholder (nor any ancestor, sibling, descendant or
spouse of any of persons, or any trust, partnership or corporation in which any
of persons has or has had an interest), has or has had, directly or indirectly,
(i) a material interest in any entity which furnished or sold, or furnishes or
sells, services or products that the Company furnishes or sells, or proposes to
furnish or sell, or (ii) a material economic interest in any entity that
purchases from or sells or furnishes to, the Company, any goods or services or
(iii) a beneficial interest in any contract or agreement set forth in Schedule
2.12 or Schedule 2.11(b); provided, that ownership of no more than one percent
(1%) of the outstanding voting Shares of a publicly traded corporation will not
be deemed a "material economic interest in any entity" for purposes of this
Section 2.13.
2.14 Compliance with Laws. The Company has complied in all respects with,
--------------------
is not in violation of, and has not received any notices of violation with
respect to, any Canadian, United States, foreign, federal, state, provincial,
municipal or local statute, law, regulation or directive. The Company is in
compliance with all conditions and requirements of any manufacturing or other
license required in any of the jurisdictions in which it does business.
-21-
<PAGE>
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
----------
action, suit or proceeding of any nature pending or, to the Warrantor's
knowledge, threatened against the Company, its properties or any of its officers
or directors, in their respective capacities as such officers or directors.
Except as set forth in Schedule 2.15, to Warrantor's knowledge, there is no
investigation pending or threatened against the Company, its properties or any
of its officers or directors by or before any Governmental Entity. Schedule
2.15 sets forth, with respect to any pending or threatened action, suit,
proceeding or investigation, the forum, the parties thereto, the subject matter
thereof and the amount of damages claimed or other remedy requested. No
Governmental Entity has at any time challenged or questioned the legal right of
the Company to manufacture, offer or sell any of its products or services in the
present manner or style thereof.
2.16 Insurance.
---------
(a) With respect to the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, there is no claim by the Company pending
under any of its policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of its policies or bonds. All premiums
due and payable under all policies and bonds have been paid and the Company is
otherwise in material compliance with the terms of policies and bonds (or other
policies and bonds providing substantially similar insurance coverage). The
Company has no knowledge of any threatened termination of, or material premium
increase with respect to, any of policies.
(b) All the material assets of the Company which are of an insurable
nature have at all material times been, and are at the date of this agreement,
insured to the full replacement value thereof against fire and other risks
normally insured against by companies carrying on similar businesses or owning
property of a similar nature, and the Company has at all material times been and
is at the date of this agreement adequately covered against accident, third
party injury, damage and other risks normally covered by insurance.
(c) No claim is outstanding under any of the policies and bonds and
no event has occurred, and no circumstances exist, which gives rise, or is
likely to give rise, to any claim under any of the policies and bonds.
2.17 Minute Books. The minute books of the Company (including Company
------------
Sub) made available to counsel for the Parent are the only minute books of the
Company and contain a reasonably accurate summary of all meetings of directors
(or committees thereof) and Shareholders or actions by written consent since the
time of incorporation of the Company and the Company Sub.
2.18 Environmental Matters.
---------------------
(a) Hazardous Material. The Company has not: (i) operated any
------------------
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any
-22-
<PAGE>
Governmental Entity or by applicable international, national, federal,
provincial or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including PCBs, asbestos, petroleum, and
urea-formaldehyde all substances listed as hazardous substances or contaminants
pursuant to the Environmental Protection Act (Ontario) or any other applicable
federal, provincial or municipal laws or constituting a hazardous waste (a
"Hazardous Material"), but excluding office and janitorial supplies properly
- -------------------
and safely maintained, and (iii) no Hazardous Materials are present, as a result
of any action or omission of the Company, or as a result of any action or
omission of any third party or otherwise, in, on, under or around any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported,
------------------------------
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities")
------------------------------
in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
-------
approvals, permits, licenses, clearances and consents (the "Environmental
-------------
Permits") necessary for the conduct of the Company's Hazardous Material
- -------
Activities and other businesses of the Company as activities and businesses are
currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending or
threatened concerning any Environmental Permit, Hazardous Material or any
Hazardous Materials Activity of the Company. There is no fact or circumstance
which could involve either the Company in any environmental litigation or impose
upon the Company any environmental liability.
(e) Compliance with Environmental Laws. The Company, the operation
----------------------------------
of its business, the property and assets owned, leased or used by the Company
and the use, maintenance and operation thereof have been and are in compliance
with all Environmental Laws. The Company has complied in all material respects
with all reporting and monitoring requirements under all Environmental Laws.
The Company has not received any notice of any non- compliance with any
Environmental Laws, and the Company has never been convicted of an offense for
non-compliance with any Environmental Laws or been fined or otherwise sentenced
or settled such prosecution short of conviction.
(f) Definition of Environmental Laws. As used herein,
--------------------------------
"Environmental Laws" shall mean all applicable statutes, regulations,
ordinances, by-laws, and codes and all international treaties and agreements,
now or hereafter in existence in Canada (whether federal, provincial or
-23-
<PAGE>
municipal) and, to the extent applicable to the conduct of the Company's
business in the United States (whether federal, state or local) or any other
jurisdiction in which the Company carries on business relating to the protection
and preservation of the environment, occupational health and safety, product
safety or product liability including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; the
Resource Conservation and Recovery Act of 1976, as amended; the Federal Water
Pollution Control Act, as amended; the Clean Air Act, as amended; the
Environmental Protection Act, R.S.O. 1990, c E.19 (Ontario), as amended; the
Canadian Environmental Protection Act, R.S.C. 1985, C. 16 (4th Supp.), as
amended; and the regulations promulgated pursuant to such laws.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Neither the
------------------------------------------------
Company nor the Shareholders have incurred, nor will incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.20 Employee Benefit Plans and Compensation.
---------------------------------------
(a) Definitions. For all purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
"Affiliate" shall have the meaning ascribed thereto in the
---------
Business Corporations Act (Ontario).
"Company Employee Plan" shall mean any plan, program, policy,
---------------------
practice, contract, agreement or other material arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation, any arrangement for the
benefit of Employees who perform services outside Canada, which is or has been
maintained, contributed to, or required to be contributed to, by the Company or
any Affiliate for the benefit of any Employee, or with respect to which the
Company or any Affiliate has or may have any liability or obligation.
"Employee" shall mean any current or former employee, consultant
--------
or director of the Company or any Affiliate.
"Employee Agreement" shall mean each management, employment,
------------------
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or other agreement, or contract between the Company or any Affiliate and
any Employee.
"Pension Plan" shall mean all the Pension Plans which the Company
------------
is a party to or bound by or under which the Company has any liability or
contingent liability, as listed and described in Schedule 2.22(b).
-24-
<PAGE>
(b) Schedule. Schedule 2.20(b) contains an accurate and complete
--------
list of each Company Employee Plan and each Employee Agreement under each
Company Employee Plan or Employee Agreement. The Company does not have any plan
or commitment to establish any new Company Employee Plan or Employee Agreement,
to modify any Company Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement. Schedule 2.20(b) of the
----------------
Disclosure Schedule also sets forth a table setting forth the name and salary of
each employee of the Company.
(c) Documents. The Company has made available to Parent true,
---------
correct and complete copies of the benefit plans and pension plans and related
documentation (including trust agreements, funding agreements, actuarial reports
and investment reports).
(d) Employee Plan Compliance. The Company has performed all
------------------------
obligations required to be performed by it under, is not in default or violation
of, and has no knowledge of any default or violation by any other party to each
Company Employee Plan, and each Company Employee Plan has been established and
maintained in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations. There are no actions, suits or
claims pending, or to the knowledge of the Company threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan. Each Company
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent or
Buyer, the Company or any Affiliate (other than ordinary administration
expenses). There are no audits, inquiries or proceedings pending or to the
knowledge of the Company or any Affiliates, threatened with respect to any
Company Employee Plan.
(e) No Post-Employment Obligations. No Company Employee Plan
------------------------------
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
person for any reason, except as may be required by applicable statute, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other person would be provided with
retiree life insurance, retiree health or other retiree employee welfare
benefit, except to the extent required by statute.
(f) Effect of Transaction. The execution of this Agreement and the
---------------------
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee, except as expressly
required by this Agreement.
-25-
<PAGE>
(g) Employment Matters. The Company: (i) is in compliance with all
------------------
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees, (ii) has withheld
and reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees, (iii)
is not liable for any arrears of wages or any taxes or any penalty for failure
to comply with any of the foregoing, and (iv) is not liable for any payment to
any trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending or to the knowledge of the Company
threatened, or reasonably anticipated claims or actions against the Company
under any worker's compensation policy or long-term disability policy. Without
limiting the generality of the foregoing, the Company is in compliance with and
there are no legal proceedings or proceedings of any kind under the Employment
Standards Act (Ontario), the Pay Equity Act (Ontario), the Labour Relations Act
(Ontario), the Workplace Safety & Insurance Act, 1997 (Ontario), the
Occupational Health and Safety Act (Ontario) and the Human Rights Code
(Ontario).
(h) Labor. No work stoppage or labor strike against the Company is
-----
pending or to the knowledge of the Company threatened, or reasonably
anticipated. The Company does not know of any activities or proceedings of any
labor union to organize any Employees. There are no actions, suits, claims,
labor disputes or grievances pending or to the knowledge of the Company
threatened, or reasonably anticipated relating to any labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints. The Company has
not engaged in any unfair labor practices within the meaning of the Labour
Relations Act (Ontario). The Company is not presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
(i) No Interference or Conflict. To the knowledge of the Company,
---------------------------
no stockholder, officer, employee or consultant of the Company is obligated
under any contract or agreement subject to any judgment, decree or order of any
court or administrative agency that would interfere with such person's efforts
to promote the interests of the Company or that would interfere with the
Company's business. Neither the execution nor delivery of this Agreement, nor
the carrying on of the Company's business as presently conducted or proposed to
be conducted nor any activity of such officers, directors, employees or
consultants in connection with the carrying on of the Company's business as
presently conducted or currently proposed to be conducted, will to the knowledge
of the Company conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract or agreement under
which any of such officers, directors, employees or consultants is now bound.
-26-
<PAGE>
2.21 Governmental Authorizations and Licenses. The Company possesses all
----------------------------------------
material consents, licenses, permits, grants or other authorizations issued to
the Company by a Governmental Entity (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest
therein (collectively called "Company Authorizations"), which Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.
2.22 Competition Act. The aggregate value of the assets in Canada,
---------------
determined as of such time and in such manner as is prescribed by the
Competition Act (Canada) and the regulations thereto, that are owned by the
Company (including Company Sub), other than assets that are shares of any of the
Company's subsidiaries, does not exceed CDN $35 million, and the gross revenues
from sales in or from Canada, determined for such annual period and in such
manner as is prescribed by the Competition Act (Canada) and the regulations
thereto, generated from the assets referred to above, do not exceed CDN $35
million.
2.23 Ownership of the Company Shares. The Shareholders, together with
-------------------------------
Richard Hrga, are the sole record holders of the Company Shares. Neither the
Shareholders nor the Company Shares are subject to any restrictions with respect
to transferability of the Company Shares, except as set forth in the Company's
Articles of Incorporation. Such Company Shares are owned free and clear of all
liens, encumbrances, charges, security interests, claims and assessments.
Together, the Shareholders and Richard Hrga hold one hundred percent (100%) of
the outstanding capital shares and voting power of the Company. The
Shareholders are not party to any agreement among shareholders of the Company
with respect to voting or any other matters.
2.24 Representations Complete. None of the representations or warranties
------------------------
made by the Warrantors, nor any statement made in the Warrantor Disclosure
Schedules or certificate furnished by the Warrantors pursuant to this Agreement
contains or will contain at the Closing Date, any untrue statement of a material
fact, or omits or will omit at the Closing Date to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
2.25 Offering. No Shareholder has offered its Company Shares for sale to
--------
any person other than Parent or Buyer.
2.26 Distributions. No Shareholder, other than Chris Wedermann or
-------------
Rodolphe Perrier, will distribute or otherwise transfer any right to or interest
in the Common Consideration, Class B Consideration or Class C Consideration
unless such transferee has agreed in writing satisfactory to Parent that such
transferee agrees to be subject to the indemnification provisions set forth in
Article VII of this Agreement; provided, however, that following an IPO, such
Shareholder can sell Parent Common Stock received as consideration under this
Agreement without having obtained such an agreement from the transferee thereof
provided that the proceeds are retained by such Shareholder;
-27-
<PAGE>
and provided, further, that the proceeds of any such sale of Parent Common Stock
shall be subject to this Section 2.26.
2.27 Sale of Company Shares. The Shareholders' sale and delivery of their
----------------------
Company Shares to Buyer pursuant to the terms hereof will vest in Buyer legal
and valid title to one hundred percent (100%) of the capital stock of the
Company and Company Sub (other than 4,000 Class "C" Voting Shares held by
Richard Hrga) free and clear of all liens, encumbrances or other defects of
title other than those created by Buyer. The Shareholders' Company Shares were
issued in compliance with the Organizational Documents of the Company.
2.28 Liabilities. Neither the Company nor Company Sub has any outstanding
-----------
liability or other obligation, except the Current Liabilities (as defined in
Section 2.30 below) and except as is set forth on Schedule 5.8 hereto. Except
as is set forth on Schedule 5.8, as of the Closing, neither the Company nor the
Company Sub will have any outstanding liability or other obligation to Gregory
Perrier or any Shareholder (or any assignee thereof) in connection with their
employment or otherwise.
2.29 No Conflict. Such Shareholder's execution, delivery and performance
-----------
of this Agreement and the consummation by it of the transactions contemplated
hereby will not, with or without the giving of notice of the lapse of time, or
both, (i) violate any provision of law, rule or regulation, foreign or domestic,
(ii) violate any order, judgement or decree applicable to such Shareholder, or
(iii) violate any contract, agreement or arrangement to which such Shareholder
is a party or by which such Shareholder is bound. No consent, approval or
authorization of, or exemption by, or filing with, any governmental authority or
third party is required to be obtained by such Shareholder in connection with
the execution, delivery and performance by such Shareholder of this Agreement or
the taking of any other action contemplated hereby.
2.30 Current Asset Shortfall. As of the Closing Date, the Current Asset
-----------------------
Shortfall (as defined below) will be greater than zero. For purposes of this
Agreement, the "Current Asset Shortfall" shall mean that amount equal to (i) the
-----------------------
sum of cash, term deposit receipts and accounts receivable of the Company, as
expressed in Canadian dollars ("Current Assets"), less (ii) trade accounts
payable, accrued liabilities, accrued ___ tax withholdings, accrued vacation
pay, accrued unemployment insurance, accrued payroll and other current debts of
the Company Sub, as expressed in Canadian dollars ("Current Liabilities"), less
-------------------
(iii) Cdn$600,000.
For purposes of illustration only, as of April 30, 1999, the Current Asset
Shortfall was Cdn$24,030 (where Current Assets were equal to Cdn$919,030, and
Current Liabilities were equal to Cdn$295,000).
-28-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent and Buyer represent and warrant to the Shareholders, subject to
exceptions (referencing the appropriate section number) as are specifically
disclosed in the disclosure schedule, dated as of the date hereof, supplied by
Parent to the Company and Shareholders (the "Parent Disclosure Schedules"):
---------------------------
3.1 Organization and Standing; Certificate of Incorporation and Bylaws.
------------------------------------------------------------------
(a) Parent is a corporation duly organized and existing under, and by
virtue of, the laws of the State of Delaware and is in good standing under such
laws. Parent has requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as presently conducted.
Parent is presently qualified to do business as a foreign corporation in
California and there is no other jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect on the business or financial
condition of Parent. Parent has furnished the counsel for the Shareholders with
copies of its Amended and Restated Certificate of Incorporation. Said copies are
true, correct and complete and reflect all amendments now in effect.
(b) Buyer is an unlimited liability company duly organized and
existing under, and by virtue of, the laws of the province of Nova Scotia,
Canada, and is in good standing under such laws. Buyer has corporate power and
authority to own and operate its properties and assets and to carry on its
business as presently conducted. Buyer is a newly formed unlimited liability
company created solely for purposes of the transactions contemplated by this
Agreement.
3.2 Authority. Parent and Buyer have all requisite corporate power and
---------
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Buyer. The Board of
Directors of Parent has approved this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and Buyer and constitutes the valid and binding obligation of Parent and
Buyer, enforceable in accordance with its terms except as enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The execution and delivery of this Agreement by Parent and
Buyer does not, and, as of the Closing Date, the consummation of the
transactions contemplated hereby will not, Conflict with (i) Parent's Amended
and Restated Certificate of Incorporation or Bylaws, or Buyer's Articles of
Association and Memorandum of Association, or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent, Buyer or any of Parent's assets or properties. No
consent, waiver, approval,
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order or authorization of, or registration, declaration or filing with, any
Governmental Entity or any third party (so as not to trigger any Conflict), is
required by or with respect to Parent or Buyer in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except the filing with appropriate Canadian authorities of
such forms as may be required by the Investment Canada Act (Canada). Neither
entering into nor completing this Agreement will or is likely to cause Parent to
lose the benefit of any right or privilege it presently enjoys or any person who
normally does business with or gives credit to Parent not to continue to do so
on the same basis or any officer or senior employee of Parent to leave its
employment.
3.3 Subsidiaries. Except as set forth on Schedule 3.3, Parent has no
------------
subsidiaries or affiliated companies and do not otherwise own or control,
directly or indirectly, any equity interest in any corporation, association or
business entity.
3.4 Capitalization. The authorized capital stock of Parent consists of
--------------
38,470,000 shares of Common Stock and 29,128,572 shares of Preferred Stock,
10,000,000 of which have been designated Series A Preferred Stock, 9,558,572 of
which have been designated Series B Preferred Stock and 9,570,000 of which have
been designated Series C Preferred Stock. 1,054,040 shares of Common Stock (not
including shares issued pursuant to the exercise of options granted under
Parent's 1998 Stock Option Plan), 10,000,000 shares of Series A Preferred Stock,
9,545,584 shares of Series B Preferred Stock, and 9,566,512 shares of Series C
Preferred Stock are currently issued and outstanding. All currently outstanding
shares of Parent Common Stock, Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock have been duly authorized and validly issued,
are fully paid and nonassessable, and have been issued in compliance with
applicable securities laws. Of the 6,000,000 shares of Common Stock of Parent
reserved for issuance under Parent's 1998 Stock Option Plan, options to purchase
fewer than 6,000,000 shares have been granted. Except as set forth above and as
provided in the Amended and Restated Certificate of Incorporation and the Parent
Disclosure Schedules, there are no options, warrants or other rights to purchase
or acquire any of Parent's authorized and unissued capital stock. The shares of
Parent Common Stock constituting the Stock Consideration, when issued, will be
duly authorized, validly issued, fully paid and nonassessable, and issued in
compliance with applicable United States federal and state securities laws. The
authorized capital stock of Buyer consists of 100,000 Common Shares, one of
which is issued and outstanding. Parent owns, indirectly, all of the outstanding
capital stock of Buyer.
3.5 Authorization. All corporate action on the part of Parent and Buyer,
-------------
their directors and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement and the performance of Parent and
Buyer's obligations under this Agreement has been taken or will be taken prior
to the Closing. This Agreement, when executed and delivered by Parent and
Buyer, shall constitute valid and binding obligations of Parent and Buyer,
enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency
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and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
3.6 Governmental Consent, etc. Parent possesses or is seeking all
-------------------------
material consents, licenses, permits, grants or other authorizations issued or
issuable to Parent by a Governmental Entity (i) pursuant to which Parent
currently operates or holds any interest in any of its properties or (ii) which
is required for the operation of Parent's business or the holding of any such
interest therein (collectively called "Parent Authorizations"). Parent
Authorizations already issued are in full force and effect. Parent
Authorizations which are issued and to be issued constitute all Parent
Authorizations required to permit Parent to operate or conduct its business or
hold any interest in its properties or assets.
3.7 Litigation, etc. Except as set forth in Schedule 3.7, there is no
---------------
action, suit or proceeding of any nature pending or, to Parent or Buyer's
knowledge, threatened against Parent or Buyer, their properties or any of their
officers or directors, in their respective capacities as such officers or
directors. Except as set forth in Schedule 3.7, to Parent or Buyer's knowledge,
there is no investigation pending or threatened against Parent or Buyer, their
properties or any of their officers or directors by or before any Governmental
Entity. No Governmental Entity has at any time challenged or questioned the
legal right of Parent or Buyer to manufacture, offer or sell any of its products
or services in the present manner or style thereof.
3.8 Compliance with Laws. Parent has complied in all material respects
--------------------
with, is not in material violation of, and has not received any notices of
violation with respect to, any United States, foreign, federal, state, municipal
or local statute, law, regulation or directive. Parent is in compliance with all
conditions and requirements of any manufacturing or other license required in
any of the jurisdictions in which it does business. Buyer is in compliance with
the laws of the province of Nova Scotia, Canada.
3.9 Insurance.
---------
(a) With respect to the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Parent, there is no claim by Parent pending under any
of its policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of its policies or bonds. All premiums due and
payable under all policies and bonds have been paid and Parent is otherwise in
material compliance with the terms of policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). Parent has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of policies.
(b) All the material assets of Parent which are of an insurable
nature have at all material times been, and are at the date of this agreement,
insured to the full replacement value thereof against fire and other risks
normally insured against by companies carrying on similar
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businesses or owning property of a similar nature, and Parent has at all
material times been and is at the date of this agreement adequately covered
against accident, third party injury, damage and other risks normally covered by
insurance.
(c) No claim is outstanding under any of the policies and bonds and
no event has occurred, and no circumstances exist, which gives rise, or is
likely to give rise, to any claim under any of the policies and bonds.
3.10 Minute Books. The minute books of Parent and Buyer made available to
------------
counsel for the Company are the only minute books of Parent and Buyer and
contain a reasonably accurate summary of all meetings of directors (or
committees thereof) and stockholders or actions by written consent since the
time of incorporation of Parent and Buyer.
3.11 No Conflict. Parent and Buyer's execution, delivery and performance
-----------
of this Agreement and the consummation by it of the transactions contemplated
hereby will not, with or without the giving of notice of the lapse of time, or
both, (i) violate any provision of law, rule or regulation, foreign or domestic,
(ii) violate any order, judgement or decree applicable to Parent or Buyer, or
(iii) violate any contract, agreement or arrangement to which Parent or Buyer is
a party or by which Parent or Buyer is bound.
3.12 Environmental Matters.
---------------------
(a) Hazardous Material. Parent has not: (i) operated any underground
------------------
storage tanks at any property that Parent has at any time owned, operated,
occupied or leased; or (ii) illegally released any material amount of any
substance that has been designated by any Governmental Entity or by applicable
international, national, federal, state or local law to be a radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant
to the United States Resource Conservation and Recovery Act of 1976, as amended,
or similar laws of other Governmental Entities and the regulations promulgated
pursuant to said laws, (a "U.S. Hazardous Material"), but excluding office and
-----------------------
janitorial supplies properly and safely maintained, and (iii) no U.S. Hazardous
Materials are present, as a result of any action or omission of Parent, or as a
result of any action or omission of any third party or otherwise, in, on, under
or around any property, including the land and the improvements, ground water
and surface water thereof, that Parent has at any time owned, operated, occupied
or leased.
(b) Hazardous Materials Activities. Parent has not transported,
------------------------------
stored, used, manufactured, disposed of, released or exposed its employees or
others to U.S. Hazardous Materials in violation of any law in effect on or
before the Closing Date, nor has Parent disposed of, transported, sold, or
manufactured any product containing a U.S. Hazardous Material (any or all of the
foregoing being collectively referred to as "U.S. Hazardous Materials
------------------------
Activities") in violation of
- ----------
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any rule, regulation, treaty or statute promulgated by any Governmental Entity
in effect prior to or as of the date hereof to prohibit, regulate or control
U.S. Hazardous Materials or any U.S. Hazardous Material Activity.
(c) Permits. Parent currently holds all environmental approvals,
-------
permits, licenses, clearances and consents (the "Environmental Permits")
---------------------
necessary for the conduct of Parent's U.S. Hazardous Material Activities and
other businesses of Parent as activities and businesses are currently being
conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending or
threatened concerning any Environmental Permit, U.S. Hazardous Material or any
U.S. Hazardous Materials Activity of Parent. There is no fact or circumstance
which could involve either Parent in any environmental litigation or impose upon
Parent any environmental liability.
(e) Compliance with Environmental Laws. Parent, the operation of its
----------------------------------
business, the property and assets owned, leased or used by Parent and the use,
maintenance and operation thereof have been and are in compliance with all U.S.
Environmental Laws. Parent has complied in all material respects with all
reporting and monitoring requirements under all U.S. Environmental Laws. Parent
has not received any notice of any non-compliance with any U.S. Environmental
Laws, and Parent has never been convicted of an offense for non-compliance with
any U.S. Environmental Laws or been fined or otherwise sentenced or settled such
prosecution short of conviction.
Definition of Environmental Laws. As used herein, "U.S. Environmental Laws"
- --------------------------------
shall mean all applicable statutes, regulations, ordinances, by-laws, and codes
and all international treaties and agreements, now or hereafter in existence in
the United States (whether federal, state or local) or any other jurisdiction in
which Parent carries on business relating to the protection and preservation of
the environment, occupational health and safety, product safety or product
liability including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; the Resource
Conservation and Recovery Act of 1976, as amended; the Federal Water Pollution
Control Act, as amended; the Clean Air Act, as amended; and the regulations
promulgated pursuant to such laws.
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING
4.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, the Company (including Company Sub) agrees
(except to the extent that Parent shall otherwise consent in writing) to carry
on the business of the Company in the usual, regular and ordinary course
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in substantially the same manner as heretofore conducted, that the Company will
pay its debts and Taxes when due, to pay or perform other obligations when due,
and, to the extent consistent with business, use their best efforts consistent
with past practice and policies to preserve intact their present business
organization, keep available the services of its present officers and key
employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
them, all with the goal of preserving unimpaired the goodwill and ongoing
businesses of the Company at and following the Closing Date. The Company will
promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of the business of the Company, and any material event involving
the Company. Without limiting the generality of the foregoing, except as
expressly contemplated by this Agreement and as set forth on Schedule 4.1, the
Shareholders and the Company will take all action necessary to ensure that, the
Company (including Company Sub) will not, without the prior written consent of
Parent:
(a) Enter into any commitment or transaction;
(b) Transfer to any person or entity any Company Intellectual
Property Rights (other than pursuant to end user licenses in the ordinary course
of business);
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Shareholder Disclosure Schedules;
(e) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, Shares or property) in respect of any of its
capital Shares, or split, combine or reclassify any of its capital Shares or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of capital Shares of the Company, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares of
its capital Shares (or options, warrants or other rights exercisable therefor);
(f) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital Shares or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any shares or other
convertible securities;
(g) Cause or permit any amendments to the Organizational Documents;
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any
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corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of the Company;
(i) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(j) Incur any indebtedness for borrowed money or guarantee any
indebtedness or issue or sell any of its debt securities or guarantee any debt
securities of others;
(k) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee or consultant or except payments made
pursuant to written agreements outstanding on the date hereof or requirements of
applicable law;
(l) Except as required by applicable law, adopt or amend any employee
benefit plan, or enter into any employment contract, pay or agree to pay any
special bonus or special remuneration to any director or employee, or increase
the salaries or wage rates of its employees;
(m) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business;
(n) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes or otherwise, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(o) Enter into any strategic alliance or joint marketing arrangement
or agreement;
(p) Incur any indebtedness other than in the ordinary course of its
business as it has been run prior to the date hereof, but in no event for an
amount in excess of $10,000; or
(q) Pass any resolution by its directors in general meeting other
than any resolution or resolutions which may be necessary so as to implement in
full the terms and provisions of this agreement;
(r) Knowingly permit any of its insurance to lapse or knowingly do
anything to make any policy of insurance void or voidable;
(s) Enter into indemnities, guarantees or suretyships except those
implied by law or given in relation to the products manufactured by it;
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<PAGE>
(t) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (s) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Closing Date or the date of
---------------
termination of this Agreement, neither the Shareholders nor the Company
(including Company Sub) will (nor will the Company (including Company Sub)
permit its officers, directors, shareholders, agents, representatives or
affiliates to) directly or indirectly, take any of the following actions with
any party other than Parent and its designees: (i) solicit, conduct discussions
with or engage in negotiations with any person, relating to the possible
acquisition of the Company (including Company Sub) (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise), or any portion of
the capital stock or assets of the Company (or Company Sub) (other than sales of
inventory or products in the ordinary course of business), (ii) provide
information with respect to the Company (or Company Sub) to any person, other
than Parent or Buyer, relating to the possible acquisition of the Company (or
Company Sub) (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), or any portion of the capital stock or assets of the
Company (or Company Sub) (other than sales of inventory or products in the
ordinary course of business), (iii) enter into an agreement with any person,
other than Parent or Buyer, providing for the acquisition of the Company (or
Company Sub) (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), or any portion of the capital stock or assets of the
Company (or Company Sub) (other than sales of inventory or products in the
ordinary course of business) or (iv) make or authorize any statement,
recommendation or solicitation in support of any possible acquisition of the
Company (or Company Sub) (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), or any portion of the capital stock or assets
of the Company (or Company Sub) (other than sales of inventory or products in
the ordinary course of business), by any person, other than by Parent or Buyer.
In addition to the foregoing, if the Company (or Company Sub) receives prior to
the Closing Date or the termination of this Agreement any offer or proposal
relating to any of the above, the Company will immediately notify Parent
thereof, including information as to the identity of the offeror or the party
making any offer or proposal and the specific terms of any such offer or
proposal, as the case may be, and other information related thereto as Parent
may request.
4.3 No Encumbrance. Until the earlier of the Closing Date or the date of
--------------
termination of this Agreement, the Shareholders will not (nor will the
Shareholders permit any of their agents, representatives or affiliates to)
directly or indirectly, take any action which could in any way and at any time
impair the Shareholders' good and valid title to all of the Company Shares or
could cause or lead to the creation of any lien, claim, charge, pledge, security
interest, option, or other legal or equitable encumbrance with regard to any of
the Company Shares.
ARTICLE V
ADDITIONAL AGREEMENTS
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<PAGE>
5.1 Access to Information. The Company will afford Parent and its
---------------------
accountants, counsel and other representatives, access during normal business
hours during the period prior to the Closing Date to (i) all of its properties,
books, contracts, commitments and records, and (ii) all other information
concerning the business, properties and personnel (subject to restrictions
imposed by applicable law) of it as may reasonably be requested. No information
or knowledge obtained in any investigation pursuant to this Section 5.1 will
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the transactions
contemplated hereby.
5.2 Expenses. Whether or not the purchase and sale of the Company Shares
--------
contemplated hereby are consummated, all fees and expenses incurred in
connection hereby including all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, will be the
obligation of the respective party incurring such fees and expenses.
5.3 Public Disclosure. Unless otherwise required by law, prior to the
-----------------
Closing Date, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement will be made by any party hereto unless
expressly approved by Parent, the Shareholders' Agent and the Company prior to
release. Following the Closing and prior to the earlier of an IPO or the two-
year anniversary of the Closing Date, Parent and the Shareholders' Agent (as
defined below) shall consult with each other prior to the public disclosure by
either of them of the subject matter of this Agreement.
5.4 Contractual Consents. The Company and the Shareholders will each use
--------------------
their best efforts to obtain the consents, waivers and approvals under any of
the contracts to which the Company is a party or by which it is bound as may be
required in connection with the transactions contemplated hereby so as to
preserve all rights of, and benefits to, Buyer or Parent thereunder.
5.5 Regulatory Filings; Reasonable Efforts. Subject to the terms and
--------------------------------------
conditions provided in this Agreement, each of the parties hereto will use its
reasonable efforts to take promptly, or cause to be taken, all actions, and to
do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby (including in the case of the Company the
holding of a meeting of its Shareholders as promptly as is reasonably
practicable to approve this Agreement and the transactions contemplated hereby),
to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement.
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5.6 Notification of Certain Matters. The Company will give prompt notice
-------------------------------
to Parent, and Parent will give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company or
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Closing Date and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.6 will not limit or otherwise
affect any remedies available to the party receiving notice.
5.7 Covenant Not to Compete or Solicit.
----------------------------------
(a) Beginning on the Closing Date and ending on the third anniversary
of the Closing Date (the "Non-Compete Period"), none of the Warrantors shall,
------------------
without the prior written consent of Parent, approach, contact, solicit or
interfere with the business of (i) the Company's clients as of either the
Closing Date or the one year period previous to the Closing Date; or (ii)
clients of Parent or its affiliates on the Closing Date or the previous one year
period with which Company employees had involvement; or (iii) any prospective
client of Parent or the Company for which (a) a Proposal for work was made by
the Company or such Warrantor within the twelve (12) month period prior to the
Closing Date or (b) a Proposal for work is planned within six months of the
Closing Date, in each case in connection with a "competing business purpose."
--------------------------
The term "competing business purpose" shall mean a business purpose that is or
is likely to be competitive with the business of Parent or the Company. The term
"Proposal" shall mean a written or oral presentation from the Company or a
--------
Warrantor to a client or potential client.
In addition, during the Non-Compete Period, no Warrantor shall directly
or indirectly (other than on behalf of Parent or the Company), within the
Territory, without the prior written consent of Parent, either individually or
in partnership or in conjunction with any person or persons, firm, association,
syndicate, company or corporation as principal, agent, shareholder, employee or
in any other manner whatsoever, engage in a Competitive Business Activity (as
defined below). For all purposes hereof, the term "Competitive Business
--------------------
Activity" shall mean: (i) engaging in, or managing or directing persons engaged
- --------
in the pricing, quotation, data gathering, data dissemination, and/or the sale
or marketing of automobiles (whether independently or as an employee, agent,
consultant, advisor, independent contractor, proprietor, partner, officer,
director or otherwise); (ii) acquiring or having an ownership interest in any
entity that engages or participates in any business related to the sale, the
pricing, quotation, data gathering, data dissemination or marketing of
automobiles via the Internet (except for ownership of one percent (1%) or less
of any entity whose securities have been registered under the Securities Act of
1933, as amended, or Section 12 of the Securities Exchange Act of 1934, as
amended); or (iii) participating in the financing, operation, management or
control of any firm, partnership, corporation, entity or business described in
clause (ii) of this sentence.
(b) During the Non-Compete Period, no Warrantor shall, directly or
indirectly, without the prior written consent of Parent, solicit, encourage,
hire or take any other action which is
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<PAGE>
intended to induce any employee of Parent, any subsidiary of Parent or the
Company to terminate his or her employment with Parent, any subsidiary of Parent
or the Company.
(c) For the purposes hereof, "Territory" shall mean North America,
Japan, and each country of Europe (including the United Kingdom).
(d) Each of Gregory Perrier and Chris Wedermann acknowledges that his
services are needed by virtue of the transactions contemplated herein and in
connection with the ongoing business of the Company, and that their covenants
not to compete or solicit contained in this Section 5.7 are given in conjunction
with the transactions contemplated herein and the Company's ongoing business.
(e) Each Warrantor agrees that it would be impossible or inadequate
to measure and calculate Parent's or the Company's damages from any breach of
the covenants set forth in this Section 5.7. Accordingly, each Warrantor agrees
that if he breaches any provision of this Section 5.7, Parent or the Company
will have available, in addition to any other right or remedy otherwise
available, the right to obtain an injunction from a court of competent
jurisdiction restraining breach by such Warrantor or threatened breach and to
specific performance of any provision of this Agreement. Each Warrantor further
agrees that no bond or other security shall be required in obtaining equitable
relief, nor will proof of actual damages be required for equitable relief. Each
Warrantor hereby expressly consents to the issuance of injunction and to the
ordering of specific performance.
5.8 Release of Liabilities. The Company shall obtain releases from those
----------------------
persons set forth on Schedule 5.8 (the "Company Creditors") in form and
-----------------
substance satisfactory to Parent that, contingent upon the payment of those
amounts set forth opposite such persons' name on Schedule 5.8 (the total of such
amounts being the "Outstanding Liability Amount"), the Company and the Company
----------------------------
Sub shall have no further liability or obligation to such Company Creditors, and
that such Company Creditors have no other voting or other interest in the
Company or Company Sub, except as may be expressly set forth in this Agreement.
5.9 Consent to Transfer of Company Shares. By execution of this Agreement
-------------------------------------
below, each of the Shareholders hereby approves the transfer of the Company
Shares pursuant to the terms of this Agreement for purposes of the approval
necessary for transfer of the Company Shares set forth in the Articles of the
Company, as amended, and otherwise.
5.10 Employee Options. Following the Closing, Parent will grant options
----------------
to purchase a total of 100,000 shares of Parent Common Stock to those employees
of Company and/or Company Sub, and in the individual amounts, set forth on
Schedule 5.10, and on substantially the same terms and conditions on which
Parent customarily grants options to purchase Parent Common Stock to its
employees.
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<PAGE>
5.11 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of another party hereto, will execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby. In addition, prior to the Closing, the Company
will timely satisfy all obligations to its suppliers and/or customers and
otherwise carry on its relationships with parties in a businesslike and
commercially reasonable manner.
5.12 Shareholder Assurances. In addition to the specific obligations set
----------------------
forth herein, the Shareholders shall use their best efforts to cause the Company
(including Company Sub) to take or perform such actions as are required to be
taken by the Company (or Company Sub) pursuant to this Agreement and to
consummate the transactions contemplated by this Agreement.
5.13 Employment Arrangements. Parent shall make employment offers to
-----------------------
Gregory Perrier and Chris Wedermann substantially in the form set forth as Annex
B hereto (the "Employment Offers") which will provide for compensation of at
-----------------
least $85,000 per annum and a one-time grant of an option to purchase 77,000
shares of Common Stock of Parent at an exercise price per share equal to the
then fair market value (as determined in good faith by the Board of Directors of
Parent) of a share of Parent Common Stock. The vesting schedule of the stock
option shall be as follows: 3,850 shares shall vest on the date of grant, 7,700
shares shall vest on the sixth month anniversary of the date of grant and the
remaining 65,450 shares shall vest at the end of each three-month period
thereafter on a pro rata basis for the subsequent 42 months. Shares actually
will vest only if optionee does not terminate employment with Parent prior to
the scheduled vesting date.
5.14 Tax Matters. At the request of Parent, (i) the Shareholders and
-----------
Company shall join with Parent and Buyer in making a timely election available
under Section 338 of the Internal Revenue Code of 1986, as amended (the "Code")
and any corresponding elections available under state and local tax laws
(collectively, the "Election") with respect to the transactions contemplated
--------
herein, (ii) Parent, Buyer and the Company shall, as promptly as practicable
following the closing Date, cooperate with each other to take all actions
necessary and appropriate (including filing such forms, returns, elections,
schedules and other documents as may be required) to effect and preserve a
timely Election in accordance with Section 338 of the Code or any successor
provisions (and all corresponding state and local tax laws) and (iii) Parent,
Buyer and the Company shall report the acquisition pursuant to this Agreement
consistent with the Election.
5.15 Investment Representations. Each of the Shareholders shall provide
--------------------------
to Parent a certificate in the form attached as Annex E hereto, setting forth
-------
certain investment representations.
5.16 Residency. Each Shareholder shall deliver to Parent prior to the
---------
Closing either (i) a statutory declaration to the effect that such Shareholder
is not a non-resident of Canada for the purposes of the Income Tax Act (Canada);
or (b) a Section 116 Certificate with a certificate limit not less than the non-
resident holder's Pro Rata Portion of the Purchase Price, failing which the
provisions of Section 1.4(c) shall apply.
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5.17 Continuance and Amalgamation.
----------------------------
(a) At least two Business Days prior to Closing, the Shareholders
will, if requested by the Parent, and at Parent's expense, cause the Company to
cause Company Sub to incorporate a wholly-owned subsidiary of Company Sub ("ULC
Subco") as an unlimited liability company pursuant to the Companies Act (Nova
Scotia), utilizing a form of Memorandum of Association and Articles of
Association satisfactory to the Parent in its sole discretion, and provide the
Parent with executed and/or filed copies of all documents relating to such
incorporation.
(b) The Company shall ensure that the ULC Subco does not carry on
any activities, enter into any agreements, or become subject to any obligations,
except as requested by Parent.
(c) At least two Business Days prior to Closing, the Shareholders
shall cause the Company and Company Sub to be continued (the "Continuance") out
of the Province of Ontario and into the Province of Nova Scotia under the
Companies Act (Nova Scotia), utilizing a form of Memorandum of Association and
Articles of Association for such continued company satisfactory to the Parent,
acting reasonably, and provide the Parent with executed and/or filed copies of
all documents and consents relating to the Continuance.
(d) At least two Business Days prior to Closing, the Shareholders
will cause the Company and Company Sub to provide the Parent with, or execute or
cause to be executed, sufficient number of original consents and documents,
including, without limitation, all affidavits and resolutions, duly executed by
the requisite officers, directors and/or shareholders of the Company, Company
Sub and ULC Subco, necessary to allow the Parent to file, prior to the Closing,
an application with the Supreme Court of Nova Scotia to amalgamate the Company,
Company Sub and, at the option of Parent, either Buyer or ULC Subco, such
application being conditional upon the completion of the transactions
contemplated herein this Agreement.
(e) The Shareholders shall, and shall cause the Company to, take all
other actions as may be reasonably requested by the Parent necessary to give
effect to the covenants contemplated in the foregoing subsections and not to
take any actions whatsoever in relation to such covenants without the prior
written consent of the Parent.
(f) Parent shall indemnify and hold harmless each of the Company and
the Shareholders for any action(s) taken by them at the request of Parent
pursuant to this Section 5.17.
5.18 Maintenance of the Company Existence. Parent agrees that following
------------------------------------
the Closing and until such time as the obligations under Section 1.3(c) have
been satisfied, Parent shall maintain the existence of Company Sub as a
"distinguishable business division."
5.19 Guarantee. Parent hereby guarantees to the Shareholders the prompt
---------
payment in full when due of the Class B Consideration, the Class C Consideration
and the Common Consideration
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under the terms of this Agreement, in each case strictly in accordance with the
terms hereof. Parent hereby further agrees that if Buyer shall fail to pay in
full when due any of the Class B Consideration, Class C Consideration or Common
Consideration, Parent will promptly pay the same, without any demand or notice
whatsoever.
ARTICLE VI
CONDITIONS TO THE CLOSING
6.1 Conditions to Obligations of the Shareholders. The obligations of the
---------------------------------------------
Shareholders to consummate the transactions contemplated by this Agreement will
be subject to the satisfaction at or prior to the Closing of each of the
following conditions, any of which may be waived by the Shareholders' Agent:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Parent contained in this Agreement will be true and correct in all
material respects on and as of the Closing Date, except for changes contemplated
by this Agreement and except for those representations and warranties which
address matters only as of a particular date (which will remain true and correct
as of such date) with the same force and effect as if made on and as of the
Closing Date, and the Shareholders will have received a certificate to such
effect signed by Parent.
(b) Agreements and Covenants. Parent will have performed or complied
------------------------
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the purchase and sale of the Company
Shares contemplated hereby will be in effect. All waiting periods, if any, under
the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, relating to the transactions contemplated hereby will have expired or
terminated early.
(d) Legal Opinion. The Company shall have received a legal opinion
-------------
from Wilson Sonsini Goodrich & Rosati, legal counsel to Parent, in the form
attached hereto as Annex C.
-------
(e) Canadian Filings. The parties each shall have filed all notices
----------------
and information (if any) required under (i) the Investment Canada Act (Canada)
and shall have received a notice (if required) from the responsible Minister
under the Investment Canada Act (Canada) that he is satisfied or deemed to be
satisfied that the transactions contemplated by this Agreement are likely to be
of net benefit to Canada, and (ii) Part IX of the Competition Act (Canada) and
the applicable waiting period shall have expired.
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6.2 Conditions to the Obligations of Parent. The obligations of Parent
---------------------------------------
and Buyer to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Warrantors contained in this Agreement will be true and
correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which will remain
true and correct as of such date), with the same force and effect as if made on
and as of the Closing Date; and Parent will have received a certificate to such
effect signed by the Warrantors.
(b) Agreements and Covenants. The Company and the Shareholders will
------------------------
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them on
or prior to the Closing Date.
(c) Claims. There shall not have occurred any claims (whether or not
------
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or which are reasonably
likely to have a Material Adverse Effect on the Company.
(d) Third Party Consents. Any and all consents, waivers, and
--------------------
approvals required to be listed pursuant to the Warrantor Disclosure Schedules
shall have been obtained.
(e) Legal Opinion. Parent shall have received a legal opinion from
-------------
Soloway, Wright, legal counsel to the Company, in the form attached hereto as
Annex D.
(f) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the business, assets (including intangible assets),
results of operations, liabilities (contingent or accrued), financial condition
or prospects of the Company or Company Sub since the date of this Agreement.
(g) Employment Offers. Gregory Perrier and Chris Wedermann shall
-----------------
have each accepted an Employment Offer.
(h) Sale by Shareholders. (i) Each of the Shareholders shall have
--------------------
submitted for sale to Buyer, in accordance with the terms of this Agreement, all
of the Company Shares set forth across from such Shareholder's name as set forth
in Annex A, and (ii) Richard Hrga shall have agreed to sell all of the Company
-------
Shares owned by him to Buyer immediately upon payment of all amounts owed to him
by the Company and Company Sub.
(i) Investment Representation Certificates. The Common Shareholders
--------------------------------------
shall have each provided an Investment Representation Certificate to Parent.
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(j) Resignation of Directors. All directors of the Company and
------------------------
Company Sub shall have tendered their resignation effective as of the Closing.
(k) No Liabilities. Parent shall have received evidence satisfactory
--------------
to Parent that, upon payment of the Outstanding Liability Amount, the Company
shall have no further liability or obligation to the Company Creditors.
(l) Canadian Filings. The parties each shall have filed all notices
----------------
and information (if any) required under (i) the Investment Canada Act (Canada)
and shall have received a notice (if required) from the responsible Minister
under the Investment Canada Act (Canada) that he is satisfied or deemed to be
satisfied that the transactions contemplated by this Agreement are likely to be
of net benefit to Canada, and (ii) Part IX of the Competition Act (Canada) and
the applicable waiting period shall have expired.
(m) No Amendments. No amendments to the Memorandum of Association or
-------------
Articles of Association of the Company, Company Sub or ULC Subco have been made,
and no resolutions of the directors or shareholders of the Company, Company Sub
or ULC Subco shall have been passed, from the date of incorporation of ULC Subco
or the date of the Continuance, as the case may be, until the Closing without
the prior written consent of Parent.
ARTICLE VII
SURVIVAL; INDEMNIFICATION; SET OFF
7.1 Survival and Limitations of Claims. The representations and
----------------------------------
warranties of the parties contained herein shall survive the Closing and
continue until the date which is the three-year anniversary of the Closing Date
(except for any representation or warranty subject to a statutory period of
limitation mandated by U.S. or Canadian law, in which case, the parties shall
give effect to any waiver, mitigation or extension thereof). In the event that
the Shareholders or Gregory Perrier (together, the "Indemnifying Parties") are
--------------------
obligated to indemnify Buyer pursuant to Section 7.2(a) hereof, Buyer shall not
be entitled to claim indemnity from the Indemnifying Parties unless the amount
of Losses (as defined below) is, in the aggregate, in excess of $10,000 (the
"Basket Amount"), in which case, Buyer shall be entitled to claim against the
Indemnifying Parties the entire amount of all such Losses. Notwithstanding the
foregoing, Buyer shall be entitled to claim indemnity and the Basket Amount
shall not apply as a threshold to, any and all claims made as a result of a
breach or inaccuracy of the representations and warranties set forth in Section
2.1 of this Agreement.
7.2 Indemnification; Set Off.
------------------------
(a) Shareholders' Indemnity. The Indemnifying Parties, jointly and
-----------------------
severally, will indemnify Buyer against and agree to hold harmless from any and
all damage, loss, liability,
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claim, obligation of any nature whatsoever (after taking into account any
insurance proceeds received) and expense (including any reasonable expenses of
investigation and reasonable attorneys' fees and expenses), including the
Current Asset Shortfall to the extent the Subsequent Class B Consideration is
not reduced by such Current Asset Shortfall (each a "Loss") incurred by Parent,
Buyer or the Company arising out of any breach of any representation or
warranty, covenant or other agreement of the Company or the Indemnifying Parties
contained or incorporated by reference herein or otherwise. The Indemnifying
Parties shall not have any right of contribution from the Company with respect
to any Loss claimed by Buyer after the Closing. As partial security for the
indemnity provided in this Section 7.2, Buyer shall have the right to set off
amounts from any Additional Cash Payments, Stock Consideration or Subsequent
Class B Consideration in the manner provided in Section 7.2(c). In addition to
setting off amounts from the Additional Cash Payments, Stock Consideration or
Subsequent Class B Consideration, Buyer may, at its sole discretion, seek
indemnification for Losses directly from the Indemnifying Parties in the manner
and to the extent provided in Section 7.2(d). Except with respect to any knowing
and intentional or fraudulent breaches of the representations and warranties or
covenants of the Indemnifying Parties or the Company contained in this
Agreement, the maximum amount that Buyer may recover from the Indemnifying
Parties and Buyer's recourse against the Indemnifying Parties pursuant to the
indemnity set forth in this Article VII shall be limited to the portion of the
Purchase Price to which such Indemnifying Party is beneficially entitled;
provided, that, except with respect to any knowing and intentional or fraudulent
breaches of the representations and warranties or covenants of Rodolphe Perrier
of which he has personal knowledge, the maximum amount that Buyer may recover
from Rodolphe Perrier and Buyer's recourse against Rodolphe Perrier pursuant to
the indemnity set forth in this Article VII shall be limited to the portion of
the Purchase Price to which Rodolphe Perrier is beneficially entitled.
(b) Delivery of Officer's Certificate. In the event Buyer shall have
---------------------------------
incurred any Losses for which indemnification pursuant to this Article VII is
sought, Buyer shall deliver to the Shareholder(s) from whom indemnification is
being sought a certificate signed by any officer of Parent or Buyer (an
"Officer's Certificate"): (i) stating that Buyer has paid or properly accrued or
---------------------
reasonably anticipates that it will have to pay or accrue Losses, (ii)
specifying in reasonable detail the individual items of Losses included in the
amount so stated, the date each item was paid or properly accrued, or the basis
for anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which item is related and (iii) indicating whether Buyer
is seeking to set off Losses against the Additional Cash Payment, Stock
Consideration or Subsequent Class B Consideration or is seeking indemnification
directly, or any combination thereof, from such Indemnifying Party.
(c) Set Off From Additional Cash Payment, Stock Consideration and
-------------------------------------------------------------
Subsequent Class B Consideration. Subject to Section 7.2(e), in the event that
- --------------------------------
Buyer has elected a set off of the Additional Cash Payment, Stock Consideration
or Subsequent Class B Consideration pursuant to this Section 7.2, upon delivery
of an Officer's Certificate to the Indemnifying Parties, the Additional Cash
Payment, Stock Consideration or Subsequent Class B Consideration otherwise
payable to such
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Shareholder(s) shall be appropriately reduced (or eliminated) by the amount of
the Losses incurred by Buyer. For purposes hereof, each share of Parent Common
Stock comprising a part of the Stock Consideration in respect of which Buyer
shall have claimed a set off prior to vesting shall be valued at the fair market
value of a share of Parent Common Stock as of the Closing Date, as determined by
the Board of Directors of Parent. In the event that the Indemnifying Parties pay
Buyer in full for any Losses in respect of which Buyer shall have elected a set
off against the Stock Consideration, and such payment was made within ten (10)
days of the resolution as to whether such Losses are in fact owing to Parent,
the Indemnifying Parties shall be entitled to receive such Stock Consideration
as if no set off had occurred.
(d) Actions Against Shareholder(s). Subject to Section 7.2(e), in the
------------------------------
event that Buyer has elected to pursue indemnity directly from an Indemnifying
Party, the Indemnifying Party shall promptly, and in no event later than thirty
(30) days after delivery of the Officer's Certificate, wire transfer to Buyer,
the appropriate portion of the applicable Loss.
(e) Resolution of Conflicts; Arbitration.
------------------------------------
(i) If indemnification is being sought under Section 7.2(a),
the Shareholders' Agent (as defined below) shall be responsible for and
empowered to take all necessary and appropriate Shareholders' Agent Action (as
defined below) in respect thereof. If the Shareholders Agent shall object in
writing to any claim or claims made in any Officer's Certificate within thirty
(30) days after delivery of such Officer's Certificate, the Shareholders' Agent
and Buyer shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of Buyer's claims. If the Shareholders' Agent and
Buyer should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and such memorandum shall be final, binding
and conclusive upon all parties hereto.
(ii) If no agreement as to the Shareholders' Agent's objections
to any claim in an Officer's Certificate can be reached after good faith
negotiation, either Buyer or the Shareholders' Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until an amount is ascertained or all parties agree to arbitration; and in
either event the matter shall be settled by arbitration conducted by one
arbitrator mutually agreeable to Buyer and the Shareholders' Agent. In the event
that within thirty (30) days after submission of any dispute to arbitrators,
Buyer and the Shareholders' Agent cannot mutually agree on an arbitrator, Buyer
and the Shareholders' Agent shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators shall set a limited time period and establish procedures designed to
reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgement of the arbitrator or a majority of
the three arbitrators, as the case may be, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrator or
a majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including
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<PAGE>
attorneys' fees and costs, to the same extent as a court of competent law or
equity, should the arbitrator or a majority of the three arbitrators, as the
case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
the Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrator(s). Within ten (10) business days of
any entry of a decision of the arbitrator(s) requiring payment of all or some
portion of the Additional Cash Payment, Stock Consideration or Subsequent Class
B Consideration withheld pursuant to Sections 7.1 and 7.2, Buyer shall make such
payment to the Shareholders' Agent. Within ten (10) business days of a decision
of an arbitrator(s) requiring payment by an Indemnifying Party, such
Indemnifying Party shall make such payment to Buyer.
(iii) Judgment upon any award rendered by the arbitrator(s) may
be entered in any court having jurisdiction. Any arbitration shall be held in
the State of California, U.S.A., under the international rules then in effect of
the American Arbitration Association. The arbitrator(s) shall determine how all
expenses of and fees of the arbitrator(s) and the administrative fees of the
American Arbitration Association shall be paid.
(f) Each of the parties hereto agrees that Gregory Perrier shall be
hereby appointed as agent and attorney-in-fact (the "Shareholders' Agent") for
-------------------
each of the Indemnifying Parties, and on their behalf is empowered to give and
receive notices and communications, to authorize or object to Buyer's actions
(including those pursuant to this Section 7.2), to negotiate and settle any
disputes with Buyer and to demand arbitration and comply with the orders of
courts and awards of arbitrators with respect to such adjustments, and to take
all actions necessary or appropriate in the judgment of the Shareholders' Agent
for the accomplishment of the foregoing, all to the extent set forth in this
Agreement. The Indemnifying Parties agree that the decisions, acts, consents and
instructions of the Shareholders' Agent with regard to matters for which he is
empowered to act on their behalf (each a "Shareholders' Agent Action") shall be
--------------------------
final, binding and conclusive upon each Indemnifying Party as if such
Indemnifying Party had taken such Shareholders' Agent Action itself and on its
own behalf. Buyer may rely upon any Shareholders' Agent Action as being the
decision, act, consent or instruction of each and every Indemnifying Party.
Buyer is hereby relieved of any liability to any person for any acts done by
them in accordance with a Shareholders' Agent Action. The Shareholders' Agent
shall not be liable for any act done or omitted as Shareholders' Agent while
acting in good faith and in the exercise of reasonable judgment. The
Indemnifying Parties hereby agree to severally indemnify and hold harmless the
Shareholders Agent against any loss, liability or expense incurred without
negligence or bad faith on the part of Shareholders' Agent and arising out of or
in connection with the acceptance or administration of the Shareholders' Agent's
duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Shareholders' Agent. A new Shareholders' Agent may
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be appointed by Shareholders holding sixty six percent (66%) of the Company
Shares as of the date hereof and upon twenty (20) business days written notice
to Buyer.
(g) Third-Party Claims. In the event Buyer becomes aware of a third-
------------------
party claim which Buyer believes may result in Losses, Buyer shall notify the
Indemnifying Parties of the claim, and the Indemnifying Parties shall be
permitted to authorize the Shareholders' Agent, at their expense, to participate
in the defense of such claim. Buyer shall have the right in its sole discretion
to settle any such claim; provided, that except with the consent of the
Shareholders' Agent, the amount of any such settlement with such third-party
claimants shall not be determinative of the amount of any Losses incurred by
Buyer for purposes of indemnification pursuant to Sections 7.1 and 7.2 hereto,
if the consent of the Shareholders' Agent was reasonably withheld (in which
event the amount of Losses to which Buyer has a right of indemnification shall
be determined pursuant to Section 7.2(e) unless Buyer and the Shareholders'
Agent shall agree as to the amount of such Losses). In the event that the
Shareholders' Agent has consented to any settlement, the Shareholder(s) shall
have no power or authority to object under any provision of Sections 7.1 and 7.2
to the amount of any set off in accordance with settlement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
-----------
may be terminated and the transactions contemplated hereby abandoned at any time
prior to the Closing Date:
(a) by mutual consent of Parent and either the Shareholders' Agent or
Shareholders holding a majority of the Company Shares as of the date hereof;
(b) by Parent or the Shareholders' Agent if: (i) the Closing Date has
not occurred by the end of August 3, 1999 (provided that the right to terminate
this Agreement under this clause 8.1(b)(i) will not be available to any party
whose willful failure to fulfill any obligation hereunder has been the cause of,
or resulted in, the failure of the Closing Date to occur on or before such
date); (ii) there shall be a final nonappealable order of a national, federal or
state court in Canada or the United States in effect preventing consummation of
the purchase and sale of the Company Shares contemplated hereby; or (iii) there
shall be any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the purchase and sale of the Company Shares contemplated
hereby by any Governmental Entity that would make consummation of the purchase
and sale of the Company Shares contemplated hereby illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the transactions contemplated hereby by any Governmental Entity, which would:
(i) prohibit Parent's or the Company's ownership or
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operation of all or a portion of the business of the Company or (ii) compel
Parent or the Company to dispose of or hold separate all or a portion of the
business or assets of the Company as a result of the transactions contemplated
hereby;
(d) by Parent if Parent is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Shareholders and (i) such breach has not been cured within five
(5) business days after written notice to the Company and the Shareholders'
Agent (provided that, no cure period will be required for a breach which by its
nature cannot be cured), and (ii) as a result of breach the conditions set forth
in Sections 6.2(a), 6.2(b) or 6.2(e), as the case may be, would not then be
satisfied;
(e) by the Shareholders' Agent if no Shareholder is in material
breach of its obligations under this Agreement and there has been a breach of
any representation, warranty, covenant or agreement contained in this Agreement
on the part of Parent and (i) such breach has not been cured within five (5)
business days after written notice to Parent (provided that, no cure period will
be required for a breach which by its nature cannot be cured), and (ii) as a
result of breach the conditions set forth in Section 6.1(b) would not then be
satisfied.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement will forthwith become void and there
will be no liability or obligation on the part of Parent, the Company or the
Shareholders, or their respective officers, directors or shareholders, provided
that each party will remain liable for any breaches of this Agreement prior to
its termination; and provided further that, the provisions of Sections 5.2 and
5.3 and Article IX of this Agreement will remain in full force and effect and
survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
---------
time, but any amendment shall be valid only by execution of an instrument in
writing signed on behalf of Parent, Buyer, the Company, Company Sub, the
Shareholders and Gregory Perrier.
8.4 Extension; Waiver. At any time prior to the Closing Date, Parent, on
-----------------
the one hand, and either the Shareholders' Agent or Shareholders holding a
majority of the Company Shares as of the date hereof on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to a party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of party contained herein. Any
agreement on the part of a party hereto to any extension or waiver will be valid
only if set forth in an instrument in writing signed on behalf of parties.
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ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder will be in
-------
writing and will be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at other address for a party as
shall be specified by like notice):
(a) if to Parent or Buyer, to:
CarsDirect.com, Inc.
4312 Woodman Avenue
3rd Floor
Sherman Oaks, CA 91423
Attention: Chief Executive Officer and Chief Financial Officer
Telephone No.: (800) 692-2200
Facsimile No.: (818) 386-2418
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Martin Korman
Peter Bergman
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
and
Aird & Berlis
BCE Place
Suite 1800, Box 754
181 Bay Street
Toronto, Ontario M5J 2T9
Attention: Jay A. Lefton
Telephone No.: (416) 865-7720
Facsimile No.: (416) 863-1515
(b) if to the Company:
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Perga Capital Corp.
345 Saskatoon Street
London, Ontario, Canada
Attention: Gregory Perrier
Telephone No.: 519-451-2323
Facsimile No.: 519-451-6615
with a copy to:
Soloway, Wright
427 Laurier Avenue West, Suite 900
Ottawa, Ontario KIR 7Y2
Attention: Gregory Sanders
Telephone No.: 613-236-0111
Facsimile No.: 613-238-8507
(c) if to the Shareholders' Agent:
Gregory T. Perrier
345 Saskatoon Street
London, Ontario, Canada
Attention: Gregory Perrier
Telephone No.: 519-451-2323
Facsimile No.: 519-451-6615
with a copy to:
Soloway, Wright
427 Laurier Avenue West, Suite 900
Ottawa, Ontario KIR 7Y2
Attention: Gregory Sanders
Telephone No.: 613-236-0111
Facsimile No.: 613-238-8507
(d) if to a Shareholder or to the Shareholders, to each of their
respective addresses as set forth in Annex A.
-------
9.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Unless otherwise indicated, (i) all
references herein to "Dollars" or "$" shall refer to the lawful currency of the
United States of America, and (ii) all references herein to "Cdn$" shall refer
to the lawful currency of Canada.
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9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and
----------------------------
Annexes hereto, and the documents and instruments and other agreements among the
parties hereto referenced herein: (i) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (ii) are not intended to confer upon any
other person any rights or remedies hereunder; and (iii) shall not be assigned
by operation of law or otherwise except as otherwise specifically provided.
9.5 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the United States and the state of California,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. Each of the parties hereto irrevocably consents
to the non-exclusive jurisdiction of the courts of such state and agrees that
process may be served upon them in any manner authorized by the laws of the
state of California for persons and waives and covenants not to assert or plead
any objection which they might otherwise have to jurisdiction and process.
Notwithstanding the foregoing, with respect to any litigation concerning a
breach of Section 1.3(c)(i) of this Agreement, (i) Parent and Buyer shall
consent to the jurisdiction of the courts of, and venue in, Toronto, Ontario,
Canada, and (ii) the governing law in the event of such litigation shall be that
of the province of Ontario, Canada.
9.8 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
-52-
<PAGE>
9.9 Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, including Section 4.2 hereof, in
any court in the state of California having jurisdiction, this being in addition
to any other remedy to which they are entitled at law or in equity.
9.10 Currency Conversion. For the purpose of conversion of United States
-------------------
currency to Canadian currency, or vice versa, the closing New York foreign
exchange selling rate for the currency to be converted for the prior business
day as reported by The Wall Street Journal shall be used.
*****
-53-
<PAGE>
IN WITNESS WHEREOF, Parent, Buyer, the Company, Company Sub, the
Shareholders and Gregory T. Perrier have signed or caused this Agreement to be
signed by their duly authorized respective officers, all as of the date first
written above.
CARSDIRECT.COM, INC.
By: /s/ Scott Painter
-------------------------------
Name: Scott Painter
Title: CEO
ADMS NOVA SCOTIA COMPANY
By: /s/ Scott Painter
-------------------------------
Name: Scott Painter
Title: CEO
PERGA CAPITAL CORP.
By: /s/ G. T. Perrier
-------------------------------
Name: Gregory T. Perrier
Title: Vice President
AUTODATA MARKETING SYSTEMS INCORPORATED
By: /s/ G. T. Perrier, President/C. Wedermann
------------------------------------------
Name:
Title:
/s/ C. Wedermann
- ----------------------------------
Chris Wedermann
/s/ Rodolphe Perrier
- ----------------------------------
Rodolphe Perrier
***SHARE PURCHASE AGREEMENT***
-54-
<PAGE>
ROYAL BANK FINANCIAL CORPORATION,
AS TRUSTEE FOR THE TUNGSTEN TRUST
By: /s/
-------------------------------
Name:
Title:
/s/ G. T. Perrier
- ----------------------------------
Gregory Perrier
***SHARE PURCHASE AGREEMENT***
-55-
<PAGE>
INDEX OF ANNEXES
Annex Description
------ -----------
Annex A Schedule of Shareholders
Annex B Form of Employment Offer Letter
Annex C Legal Opinion of Wilson Sonsini Goodrich & Rosati
Annex D Legal Opinion of Soloway, Wright
Annex E Form of Investment Representation Certificate
-56-
<PAGE>
INDEX OF SCHEDULES
Schedule Description
-------- -----------
-57-
<PAGE>
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
BY AND AMONG
CARSDIRECT.COM, INC.,
POTAMKIN AUTO CENTER, LTD.,
ROBERT M. POTAMKIN, ALAN H. POTAMKIN, TED BESSEN
AND PLANET AUTOMOTIVE GROUP, INC.
Dated as of
October 19, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I............................................................... 2
1.1 Purchase and Sale......................................... 2
1.2 Assumption of Liabilities................................. 2
1.3 Consideration for Assets; TED's Employment............... 3
1.4 Sales and Use Taxes....................................... 5
1.5 Closing................................................... 5
ARTICLE II................................................................ 6
2.1 Organization of Seller.................................... 7
2.2 Capitalization............................................ 7
2.3 Authority; Consents....................................... 7
2.4 Taxes..................................................... 8
2.5 Restrictions on Business Activities....................... 8
2.6 Absence of Liens and Encumbrances......................... 9
2.7 Agreements, Contracts and Commitments..................... 9
2.8 Litigation................................................ 9
2.9 Employee Arrangements..................................... 9
2.10 Compliance with Laws...................................... 9
2.11 Seller Financial Statements............................... 9
2.12 Leases.................................................... 10
2.13 Intellectual Property..................................... 10
2.14 Qualified Dealer.......................................... 11
2.15 Absence of Material Changes............................... 11
2.16 Investment Representations................................ 11
ARTICLE III............................................................... 12
3.1 Organization and Standing................................. 12
3.2 Corporate Power........................................... 12
3.3 Subsidiaries.............................................. 12
3.4 Capitalization............................................ 12
3.5 Authorization............................................. 13
3.6 Proprietary Rights........................................ 13
3.7 Registration Rights....................................... 13
3.8 Governmental Consent, etc................................. 14
3.9 Permits................................................... 14
ARTICLE IV................................................................ 14
4.1 Confidentiality........................................... 14
4.2 Expenses.................................................. 14
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.3 Bulk Sales................................................ 15
4.4 Trademark, Transfer, License and Covenant Not to Compete.. 15
4.5 Right of First Offer...................................... 21
4.6 Employees................................................. 22
4.7 Services Agreement........................................ 22
4.8 Qualified Dealer Registration............................. 23
4.9 Dealership Arrangements................................... 24
4.10 Inventory Agreement....................................... 24
4.11 Real Estate Agreement..................................... 24
4.12 Advertising Rates......................................... 24
4.13 Public Disclosure......................................... 24
4.14 Excluded Assets........................................... 24
4.15 Waiver of Jury Trial...................................... 24
4.16 Retention of Records...................................... 25
4.17 No Finders or Brokers..................................... 25
4.18 Investor Rights Agreement................................. 25
ARTICLE V................................................................. 25
5.1 Additional Conditions to Obligations of Seller and the
Shareholders.............................................. 25
5.2 Additional Conditions to the Obligations of Buyer......... 26
ARTICLE VI................................................................ 27
6.1 Survival and Limitations of Claims........................ 27
6.2 Indemnification........................................... 28
ARTICLE VII............................................................... 34
7.1 Termination............................................... 34
7.2 Effect of Termination..................................... 35
7.3 Amendment................................................. 35
7.4 Extension; Waiver......................................... 35
7.5 Effect of Closing......................................... 36
ARTICLE VIII.............................................................. 36
8.1 Specific Performance...................................... 36
8.2 Notices................................................... 36
8.3 Interpretation............................................ 37
8.4 Counterparts.............................................. 37
8.5 Entire Agreement; Nonassignability; Parties in Interest... 38
8.6 Severability.............................................. 38
8.7 Remedies Cumulative; Attorneys' Fees...................... 38
8.8 Governing Law............................................. 39
8.9 Rules of Construction..................................... 39
</TABLE>
ii
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of October 19, 1999, by and among CarsDirect.com, Inc., a Delaware
corporation ("Buyer"), Potamkin Auto Center, Ltd., a New York corporation
("Seller"), and Alan H. Potamkin, an individual ("AHP"), Robert M. Potamkin, an
individual ("RMP") and Ted Bessen, an individual ("TED") (AHP, RMP and TED are
sometimes individually referred to as a "Shareholder" and, collectively as the
"Shareholders"), and, for the purposes of Section 4.4 hereof, Planet Automotive
Group, Inc., a Florida corporation ("Planet").
RECITALS
A. Seller has been engaged in the business of selling and leasing new
and used motor vehicles.
B. Seller wishes to sell to Buyer and Buyer wishes to purchase from
Seller, on the terms and subject to the conditions set forth herein, the assets
of Seller described herein (such transaction herein referred to as the
"Acquisition").
C. The Board of Directors of each of the parties believe it is in the
best interests of their respective companies and shareholders that the
Acquisition be consummated and, in furtherance thereof, has approved the
Acquisition.
D. In connection with the Acquisition, and as a material inducement to
the parties to enter into this Agreement, Buyer and Seller are contemporaneously
entering into an Inventory Agreement substantially in the form attached hereto
as Exhibit A (the "Inventory Agreement").
E. In connection with the Acquisition, and as a material inducement to
the parties to enter into this Agreement, Buyer and Seller are contemporaneously
entering into a Real Estate Agreement substantially in the form attached hereto
as Exhibit B (the "Real Estate Agreement").
F. In connection with the Acquisition, and as a material inducement to
the parties to enter into this Agreement, Buyer and TED are contemporaneously
entering into an Offer Letter substantially in the form attached hereto as
Exhibit C (the "Offer Letter") and a Stock Option Agreement substantially in the
form attached hereto as Exhibit D (the "Stock Option Agreement").
G. Seller and Buyer desire to make certain representations and
warranties and other agreements in connection with the Acquisition.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
-1-
<PAGE>
ARTICLE I
PURCHASE AND SALE OF ASSETS
---------------------------
1.1 Purchase and Sale.
-----------------
(a) On the terms and subject to the conditions set forth in this
Agreement, except for those assets, properties and rights set forth on Schedule
1.1 hereto which will not be conveyed, transferred, assigned or delivered to
Buyer (the "Excluded Assets"), Seller will sell, convey, transfer, assign and
deliver to Buyer and Buyer will purchase and acquire from Seller on the Closing
Date (as defined in Section 1.5), all of Seller's right, title and interest in
and to all of the assets, properties and rights of every kind, nature, character
and description, whether real, personal or mixed, whether tangible or
intangible, whether accrued, contingent or otherwise relating to or utilized in
the business of Seller, directly or indirectly, in whole or in part, in
existence on the date hereof and any additions thereto on or before the Closing
Date, whether or not carried on the books and records of Seller and wherever
located (the "Assets") free and clear of all liens, pledges, charges, claims,
security interests or other encumbrances of any sort (collectively, "Liens").
(b) The Assets shall include, without limitation, all rights of Seller
and, to the extent any such rights exist as of the Closing Date (or derived from
rights that exist as of the Closing Date), of the Shareholders and their
affiliates, to conduct activities specified under Section 415 of the Vehicle and
Traffic Law of the State of New York ("New York Dealer Law") as a result of
meeting the criteria of a "Qualified Dealer" pursuant to subdivision 1,
paragraph g of Section 415 of New York Dealer Law (when used in this Agreement,
"Qualified Dealer" shall have the meaning set forth in subdivision 1, paragraph
g of Section 415 of New York Dealer Law). To the extent that Seller acquires any
rights after the date of this Agreement by virtue of being deemed a Qualified
Dealer under New York Dealer Law, this Agreement shall be deemed an automatic
transfer of such rights to Buyer, without any further action on the part of
Buyer, Seller, the Shareholders or their affiliates, the payment of additional
consideration by Buyer to Seller, the Shareholders or their affiliates.
1.2 Assumption of Liabilities.
-------------------------
(a) Buyer expressly is not assuming any obligations or liabilities,
whether accrued, absolute, contingent, matured, unmatured or other, of Seller,
the Shareholders or their respective affiliates. To the extent that Buyer
assumes any agreement required to be set forth in Section 2.7 of the Seller
Schedule ("Assignable Contracts"), which assumption shall be at Buyer's sole
option exercisable within 90 days of the Closing Date (subject to Seller's
consent not to be unreasonably withheld). Buyer shall also assume and be
responsible for liabilities thereunder arising after the date of assumption
(other than those caused by an act or omission of Seller or its affiliates). If
the assignment to Buyer of an Assignable Contract is subject to the consent of a
third party, the assignment shall be conditioned upon such consent. Buyer and
Seller each shall reasonably cooperate in obtaining any such consent. If such
consent is not obtained, at Buyer's request Seller will perform under such
contract for Buyer's benefit and Buyer will indemnify Seller for any Losses (as
defined in Section 6.2(a)) resulting from such performance. Subject to Article
VI, Seller and the
2
<PAGE>
Shareholders will severally indemnify and hold Buyer harmless from and against
any and all losses, costs, expenses, claims, liabilities, deficiencies,
judgments and damages (including reasonable attorneys' fees) incurred or
suffered by Buyer related to or arising out of any liabilities or obligations to
third parties of Seller or any of Seller's stockholders, affiliates or
successors, including without limitation the following liabilities or
obligations: (1) any liability or obligation for any Taxes (as defined in
Section 2.4) incurred or accrued by Seller for any period or any liability for
Taxes of any person or entity attributable to the Assets for any period or
portion of any period ending on or prior to the Closing Date; (2) any liability
or obligation of Seller as a result of any legal or equitable action or judicial
or administrative proceeding initiated at any time in respect of anything done
or suffered to be done by the Seller or any of its directors, officers,
employees, or agents to third parties; or (3) any liability or obligation of
Seller relating to or in connection with any product liability or warranty
matters relating to Seller's products (i.e., motor vehicles), or the return of
Seller's products from customers or any other person or entity.
(b) Subject to Article VI, Buyer will indemnify and hold Seller and
Shareholders harmless from and against any and all losses, costs, expenses,
claims, liabilities, deficiencies, judgments and damages (including reasonable
attorney's fees) incurred or suffered by Seller or Shareholders related to or
arising out of any liabilities or obligations to third parties of Buyer,
including without limitation the following liabilities or obligations: (1) any
liability or obligation for any Taxes accrued by Buyer for any period or any
liability for Taxes of any person or entity attributable to the Assets for any
period or portion of any period commencing after the Closing Date; (2) any
liability or obligation of Buyer as a result of any legal or equitable action or
judicial or administrative proceeding initiated at any time in respect of
anything done or suffered to be done by Buyer or any of its directors, officers,
shareholders, employees or agents after the Closing Date; or (3) any liability
or obligation of Buyer relating to or in connection with any product liability
or warranty matters relating to Buyer's products (i.e., motor vehicles),
inventory provided by Seller under the Inventory Agreement or the return of any
product from customers or any other person or entity.
1.3 Consideration for Assets; TED's Employment.
------------------------------------------
(a) On the terms and subject to the conditions set
forth in this Agreement, as full payment for the transfer of the Assets by
Seller to Buyer and the other transactions contemplated hereby, Buyer shall
issue and deliver to Seller at the Closing One Million Two Hundred Fifty
Thousand (1,250,000) shares (the "Closing Shares") of the Common Stock of Buyer
(the "Buyer Common Stock").
(b) Buyer shall, at the Closing, issue to and hold for the benefit of
Seller (with Seller having the ability to receive cash dividends and to vote
such shares) an aggregate of Four Hundred Thousand (400,000) shares of Buyer
Common Stock (the "Additional Shares" and, together with the Closing Shares, the
"Shares"), to be delivered to Seller (or a Permitted Transferee (as defined in
Section 4.5(c)) designated by Seller) in increments of 33,333 shares (subject to
adjustment pursuant to Section 1.3(f))on each of the Payment Dates (as defined
below), except that 33,337 shares (subject to adjustment pursuant to Section
1.3(f)) shall be delivered on September 30, 2002, in
3
<PAGE>
each case if, but only if, on the applicable Payment Date the Earnout Condition
(as defined below) is satisfied or deemed satisfied. If the Earnout Condition is
not satisfied or is deemed not satisfied, the Additional Shares required to be
delivered to Seller (or its Permitted Transferees) hereunder on or after the
date, but not before the date, that the Earnout Condition is not satisfied or
deemed not satisfied shall be automatically cancelled, and Buyer shall have no
further obligation to deliver any Additional Shares.
(c) In the event that Buyer terminates TED's employment without Cause
(as defined below), the Earnout Condition shall be deemed thereafter satisfied.
If TED terminates his employment with Buyer voluntarily for a reason other than
Buyer's failure to provide TED with his salary or employment-related benefits as
set forth in the Offer Letter, the Earnout Condition shall be deemed thereafter
not satisfied.
(d) Upon the (i) death or Disability (as defined below) of TED
between April __, 2000 and September 30, 2002, or (ii) TED's voluntary
termination of his employment as a result of Buyer's failure to provide TED with
salary or employment-related benefits as set forth in the Offer Letter, the
Earnout Condition shall be deemed thereafter satisfied. Upon the death or
Disability of TED prior to April 15, 2000, the Earnout Condition shall be deemed
thereafter satisfied; provided, however, that in such event the number of
Additional Shares deliverable pursuant to Section 1.3(b) shall be 200,000
shares, to be delivered to Seller (or its Permitted Transferees) in equal
whole-share increments on each of the Payment Dates.
(e) For the purposes of this Agreement, the following terms have the
following definitions:
"Cause" shall mean (a) TED's continued material failure to be present
at work and perform his duties as an executive of Buyer having a principal
office in the New York Metro Area (as defined in Section 4.4(h)) or such other
area as TED consents to work (other than as a result of sickness, accident,
Disability, family emergency or similar cause beyond his reasonable control, not
including incarceration) after receipt of written warnings specifying the
misconduct; (b) TED's engaging in willful misconduct that is demonstrably and
materially injurious to Buyer; (c) TED's being convicted of or pleading guilty
or nolo contendre to a felony not directly resulting from the operation of a
--------------
motor vehicle; or (d) TED's committing an act of fraud against or the
misappropriation of material property belonging to Buyer.
"Disability" shall mean that TED, by reason of physical or mental
illness or otherwise, is incapable of performing his employment-related duties
for Buyer in any material respect for a continuous period of three (3)
consecutive calendar months.
"Earnout Condition" shall mean that, as of any Payment Date, TED is
employed by Buyer as of such Payment Date and has remained in Buyer's employment
since the Closing Date.
"Payment Date" shall mean each of the following dates: December 31,
1999; March 31, 2000; June 30, 2000; September 30, 2000; December 31, 2000;
March 31, 2001; June 30, 2001;
4
<PAGE>
September 30, 2001; December 31, 2001; March 31, 2002; June 30, 2002; and
September 30, 2002.
(f) The shares of Buyer Common Stock issuable and deliverable pursuant
to this Section 1.3 are subject to adjustment as set forth below:
(i) The number and type of securities and/or other property
issuable pursuant to this Section 1.3 shall be appropriately and proportionately
adjusted to reflect any stock dividend, stock split, combination of shares,
reclassification, recapitalization or other similar event affecting the number
or character of outstanding shares of Buyer Common Stock, so that the number and
type of securities and/or other property issuable pursuant to this Section 1.3
shall be equal to that which would have been issuable with respect to the number
of shares of Buyer Common Stock subject hereto at the time of such event, had
such shares of Buyer Common Stock then been outstanding.
(ii) In case of any consolidation or merger of Buyer with or into
any other corporation, entity or person, or any other corporate reorganization,
in which Buyer shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, Seller at any time after
the consummation or effective date of such Reorganization shall receive, in lieu
of Buyer Common Stock issuable pursuant to this Section 1.3, the stock and other
securities and property (including cash) to which Seller would have been
entitled upon the date of such Reorganization if Buyer had issued and delivered
all Shares to Seller prior to such date.
(g) Set-Off. Buyer shall not have the right to set off obligations
-------
owed to Buyer against the Additional Shares held by Buyer unless Buyer first
obtains an arbitration award or judgment against Seller which is not satisfied
within thirty (30) days after entry of award or judgment.
(h) Arbitration. Any disputes arising under this Section 1.3 shall be
-----------
resolved by arbitration with Buyer having the burden of proving that the Earnout
Condition has not been satisfied or deemed satisfied.
1.4 Sales and Use Taxes. Seller and Buyer shall equally bear and pay any
-------------------
sales, use and transfer taxes arising out of the transfer of the Assets (the
"Transfer Taxes"). To the extent permitted by law, Buyer and Seller shall
cooperate fully with one another in minimizing Transfer Taxes. To the extent a
taxing authority provides notice to either party of an audit of the Transfer
Taxes, such party shall promptly notify the other and Buyer and Seller shall
mutually assume responsibility for such audit and shall equally bear and pay
when due any additional Transfer Taxes (plus interest and penalties) ultimately
assessed with respect to the transfer contemplated by this Agreement.
1.5 Closing.
-------
5
<PAGE>
(a) Closing Date. Unless this Agreement is earlier terminated pursuant
to Section 7.1, the closing of the transactions contemplated by this Agreement
(the "Closing") shall be held at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, CA 94304 (and by facsimile at other
locations), at 10:00 a.m. on the date which is two business days following
satisfaction or waiver of the last of the conditions set forth in the Article V
hereof, or on such other time and/or date as the parties agree (the date of the
Closing is referred to herein as the "Closing Date").
(b) Delivery at Closing. In addition to satisfaction or waiver of the
-------------------
other conditions to the respective parties' obligations to consummate the
Acquisition, at the Closing:
(i) Seller shall deliver to Buyer all bills of sale,
endorsements, assignments, consents to assignments and other instruments and
documents as Buyer may reasonably request to sell, convey, assign, transfer and
deliver to Buyer good title to all the Assets free and clear of any and all
Liens;
(ii) Buyer shall issue and deliver the Closing Shares to Seller,
and issue and hold for Seller's benefit the Additional Shares, each in
accordance with Section 1.3;
(iii) Buyer and TED shall deliver the executed Offer Letter
and Stock Option Agreement; and
(iv) Buyer and Seller shall deliver the executed Inventory
Agreement and Real Estate Agreement.
(c) Taking of Necessary Action; Further Action. Each party shall
------------------------------------------
execute and deliver such additional instruments and documents and shall take
such further actions as may be reasonably necessary or appropriate to
effectuate, carry out and comply with the terms of this Agreement, including
without limitation, any actions required to vest Buyer with full right, title
and possession of the Assets free and clear of all Liens and to vest Seller, the
Shareholders and the Permitted Transferees, as applicable, with full right,
title and possession of the Closing Shares (and, if the Earnout Condition is
satisfied or deemed satisfied on the applicable Payment Dates, the Additional
Shares) in accordance with Section 1.3 free and clear of all Liens. The
Shareholders agree to cause Seller to perform its obligations hereunder. Each of
the parties agrees to cooperate with the other parties in the preparation and
filing of all forms, notifications, applications, reports and information, if
any, required pursuant to any law, rule, or regulation in connection with the
transactions contemplated by this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE SHAREHOLDERS AND SELLER
------------------------------
Seller and each Shareholder severally, subject to Article VI, represent
and warrant to Buyer, subject to such exceptions as are specifically disclosed
in the disclosure letter and referencing a
6
<PAGE>
specific representation supplied by Seller and the Shareholders to Buyer (the
"Seller Schedule") as of the date hereof, as follows:
2.1 Organization of Seller. Seller is a corporation duly organized, validly
----------------------
existing and in good standing under the laws of the State of New York. Seller
has the corporate power to own its property and to carry on its business as now
being conducted. Seller is duly qualified to do business and in good standing in
each jurisdiction in which the failure to be so qualified would result in a
Buyer Harm. For the purposes of this Agreement, a "Buyer Harm" shall mean any
(1) material adverse effect on the Assets taken as a whole or Buyer's interest
therein or use (or legal or other right to use) thereof following the Closing
(which use is consistent with Seller's use prior to the Closing), or (2) Losses
(as such term is defined in Section 6.2) of or to Buyer for which (without
regard to Section 6.2(e) hereof) Buyer is entitled to indemnification hereunder
including, without limitation, Losses resulting from any Lien on the Assets.
2.2 Capitalization. Capitalization. The authorized share capital of Seller
--------------
and a description of the currently issued and outstanding shares of Seller are
set forth in Section 2.2 of the Seller Schedule, all of which shares are held by
the Shareholders in the amounts set forth thereon, who each have good and valid
title to their shares of Seller, free and clear of any Liens. All outstanding
shares of capital stock of Seller are duly authorized, validly issued, fully
paid and non-assessable and not subject to preemptive rights in favor of third
parties created by statute, the Certificate of Incorporation and Bylaws of
Seller (the "Organizational Documents") or any agreement to which Seller is a
party or by which it is bound; provided, however, that the outstanding shares of
capital stock of Seller may be subject to restrictions on transfer under state
or federal securities laws and under a shareholders' agreement. All consents
under such shareholders' agreement necessary to complete the transactions
contemplated by this Agreement have been obtained as of the date hereof and such
agreement will have no effect upon Buyer's rights in or rights to use the Assets
following the Closing. Except as set forth on Section 2.2 of the Seller
Schedule, there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which Seller or any Shareholder
is a party or by which it or he is bound obligating Seller or any Shareholder to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital shares of Seller or to
grant, issue or enter into any option, warrant, call, right, commitment or
agreement.
2.3 Authority; Consents. Seller has all requisite corporate power and
-------------------
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate and shareholder action on the part of Seller. This
Agreement has been duly executed and delivered by Seller and the Shareholders
and constitutes the valid and binding obligation of Seller and the Shareholders,
enforceable in accordance with its terms. Except as otherwise disclosed on
Section 2.3(a) of the Seller Schedule, the execution and delivery of this
Agreement by Seller does not, and, as of the Closing, the consummation of the
transactions contemplated hereby will not, result in any material violation of,
or material default under (with or without notice or lapse of time, or both), or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any benefit under (any such event, a "Conflict") (i) any
7
<PAGE>
provision of the Organization Documents, (ii) any mortgage, indenture, lease,
contract or other agreement or instrument or (iii) any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Seller or its properties or assets in the case of
clause (ii), other than as would not have a Buyer Harm. Except as otherwise
disclosed on Section 2.3(b) of the Seller Schedule, no consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other federal, state,
county, local or foreign governmental authority, instrumentality, agency or
commission having jurisdiction over Seller (a "Governmental Entity"), or any
third party, is required by and with respect to Seller in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, other than whose absence would not have a material adverse
effect on the ability of Seller, the Shareholders or Buyer to effectuate the
transactions contemplated hereby or otherwise result in a Buyer Harm.
2.4 Taxes.
-----
(a) Definition of Taxes. For the purposes of this Agreement,
-------------------
"Tax" or, collectively, "Taxes," means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits. Other than as would not have a Buyer
----------------------
Harm, Seller has filed within the time period for filing or any extension
granted with respect thereto all federal, state, local, foreign and other
returns, estimates and reports ("Tax Returns") which it is required to file and
each such Tax Return has been completed in accordance with applicable law. Other
than as would not have a Buyer Harm, Seller has paid all Taxes required under
applicable law to be paid and has withheld with respect to its employees and
paid to the appropriate taxing authority all federal, state and local income
taxes, FICA, FUTA and any other Taxes required to be withheld. There are (and as
of immediately following the Closing there will be) no Liens (other than
statutory liens securing amounts not yet due or payable) on the Assets relating
to or attributable to Taxes. Except as provided in Section 1.4, Buyer will not
be responsible for the payment of any Taxes as a result of any of the
transactions contemplated hereby, including without limitation, the payment of
any sales, use or similar taxes by virtue of any state law providing for the
liability of any successor in interest, or any similar law or regulation.
2.5 Restrictions on Business Activities. Except as otherwise disclosed on
-----------------------------------
Section 2.5 of the Seller Schedule, there is no agreement, commitment, judgment,
injunction, law, rule, order or decree binding upon Seller or any Shareholder
which has or could reasonably be expected to have the effect of prohibiting or
impairing any use by Buyer of the Assets following the Closing and/or the
carrying on of Seller's business by Buyer in substantially the same manner as
generally conducted by Seller prior to the Closing or otherwise would result in
a Buyer Harm.
8
<PAGE>
2.6 Absence of Liens and Encumbrances. Except as otherwise disclosed on
---------------------------------
Section 2.6 of the Seller Schedule, Seller has and at Closing will have good and
valid title to all of the Assets, free and clear of any Liens. Seller has full
corporate right and corporate power to (and at the Closing will) sell, convey,
assign, transfer and deliver to Buyer good title to all the Assets, free and
clear of all Liens.
2.7 Agreements, Contracts and Commitments. Section 2.7 of the Seller
-------------------------------------
Schedule sets forth a list of all agreements, contracts and commitments (written
or oral) (the "Contracts") relating to the Assets to which Seller is a party or
by which it is bound. Except for such (i) breaches, violations and defaults,
(ii) alleged breaches, violation and defaults, and (iii) events that would
constitute a breach, violation or default with the lapse of time, giving of
notice, or both, noted in Section 2.7 of the Seller Schedule and those which
reasonably would not be expected to have a Buyer Harm, Seller is not currently
in breach or violation of or in default under any of the terms or conditions of
any Contract. Each Contract is in full force and effect and, except as otherwise
disclosed in Section 2.7 of the Seller Schedule, is not subject to any default
thereunder of which Seller or any Shareholder has knowledge by any party
obligated to Seller pursuant thereto.
2.8 Litigation. Except as would not result in a Buyer Harm, there is no
----------
action, suit or proceeding of any nature pending or, to Seller's or any
Shareholder's knowledge, threatened against Seller, the Assets or any of
Seller's officers or directors in their respective capacities as such, nor, to
the knowledge of Seller and the Shareholders, is there any basis therefor that
is reasonably likely to be asserted and that would result in a Buyer Harm.
Except as would not result in a Buyer Harm, there is no investigation pending
or, to Seller's and the Shareholders' knowledge, threatened against Seller, its
properties or assets, or any of its officers or directors (nor, to the knowledge
of Seller and the Shareholders, is there any basis therefor) by or before any
Governmental Entity.
2.9 Employee Arrangements. No employee of Seller is subject to any
---------------------
agreement with Seller that would preclude the employment by Buyer of such
individual, or result in an obligation of Buyer to make any payments to any
person or entity in connection with such previous employment by Seller or its
affiliates if any such employee is hired by Buyer.
2.10 Compliance with Laws. To the extent that noncompliance would have a
--------------------
Buyer Harm, Seller has complied with and has not received any notices of
violation with respect to, any federal, state or local statute, law or
regulation, domestic or foreign.
2.11 Seller Financial Statements. Except as otherwise disclosed on Section
---------------------------
2.11 of the Seller Schedule, Seller's Balance Sheet as of July 31, 1999,
Statement of Operations from the period January 1, 1999 to July 31, 1999, and
the accompanying footnotes which are an integral part thereof, copies of which
are attached to Section 2.11 of the Seller Schedule (the "Seller Financials")
(i) have been prepared in good faith based on the consolidated books and records
of Seller, (ii) present fairly in all material respects the financial condition
and operating results of Seller as of July 31, 1999 and during the period then
ended, subject to normal year-end adjustments, and (iii) accurately set forth
sales by new and used units sold (by location), net sales and gross profit for
such periods.
9
<PAGE>
2.12 Leases. Section 2.12 of the Seller Schedule contains a complete
------
and accurate list of all leases pursuant to which Seller currently leases real
property from others. Seller has made available to Buyer a true, correct and
complete copy of each of the leases listed in Section 2.12 of the Seller
Schedule.
2.13 Intellectual Property.
---------------------
(a) Definitions. For the purposes of this Agreement, the following
-----------
terms have the following definitions:
"Intellectual Property" means any or all of the following and all rights
in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or
not), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and
all documentation relating to any of the foregoing; (iii) all copyrights,
copyrights registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (iv) all industrial designs and
any registrations and applications therefor throughout the world; (v) all
trade names, logos, URLs, common law trademarks and service marks,
trademark and service mark registrations and applications therefor
throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world, and
(viii) any similar or equivalent rights to any of the foregoing anywhere in
the world.
"Transferred Intellectual Property" means all Intellectual Property owned
by Seller that is embodied by, necessary to, or that would (absent a
license from Seller) be infringed by, the copying, making, using, selling,
distribution or other exploitation of the Assets.
(b) Section 2.13 of the Seller Schedule lists all Transferred
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded by,
any state, government or other public legal authority, including (i) patents,
patent applications (including provisional applications), and (ii) registered
copyrights and applications for copyright registration.
(c) Except as set forth in Section 2.13 of the Seller Schedule,
Seller has not transferred ownership of, or granted any license with respect to,
any Intellectual Property that is Transferred Intellectual Property, to any
other person. No Transferred Intellectual Property is the subject of any
proceeding or outstanding decree, order, judgment, agreement or stipulation that
restricts or would restrict in any manner the use, transfer or licensing thereof
by Buyer or may affect the validity, use or enforceability of such Transferred
Intellectual Property.
(d) Neither Seller nor any Shareholder has received notice from any
person claiming that the Assets or any conduct of Seller or the Shareholders
related to the Assets infringes
<PAGE>
or misappropriates the Intellectual Property of any person or constitutes unfair
competition or trade practices under the laws of any jurisdiction.
2.14 Qualified Dealer. Seller meets the criteria of a "Qualified Dealer,"
----------------
as such term is, as of the date of this Agreement, set forth in the text of
subdivision 1, paragraph g of Section 415 of New York Dealer Law. Seller and the
Shareholders represent and warrant that, other than Seller, no Shareholder or
entity within the control of Seller or any Shareholder meets the criteria of a
"Qualified Dealer," as such term is, as of the date of this Agreement, set forth
in the text of subdivision 1, paragraph g of Section 415 of New York Dealer Law
2.15 Absence of Material Changes. Except as set forth in Section 2.15 of
---------------------------
the Seller Schedule, Seller has not, since July 31, 1999:
(a) Declared, set aside or paid any dividends on or made any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combined or reclassified any of its capital stock or
issued or authorized the issuance of any securities, or repurchased, redeemed or
otherwise acquired, directly or indirectly, any shares of its capital stock (or
options, warrants or other rights exercisable therefor);
(b) Acquired or agreed to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquired or agreed to acquire any
assets which are material, individually or in the aggregate, to its business; or
(c) Sold, leased, licensed or otherwise disposed of or encumbered
any material Assets, including without limitation any rights as a Qualified
Dealer.
2.16 Investment Representations. Seller and each of the Shareholders:
--------------------------
(a) understands that Buyer is a new business, has a limited
operating history and has in the past and may for the foreseeable future
experience significant operating losses;
(b) understands that no public market now exists for any of the
securities issued by Buyer and that Buyer has made no assurances that a public
market will ever exist for Buyer's securities;
(c) believes it has received all information it considers necessary
or appropriate for deciding whether to invest in the Shares;
(d) represents that it has had an opportunity to ask questions and
receive answers from Buyer regarding the business, properties, prospects and
financial condition of Buyer; and
<PAGE>
(e) acknowledges that it is able to fend for itself, can bear the
economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of its investment in the Shares.
2.17 Disclosure. No representation or warranty of Seller or the
----------
Shareholders in this Agreement contains an untrue statement of a material fact
or omits to state a material fact required to be stated therein to make the
statement made, in the context in which made, not materially false or
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller and the Shareholders, subject to
such exceptions as are specifically disclosed in the disclosure letter supplied
by Buyer and referencing a specific representation supplied by Buyer to Seller
(the "Buyer Schedule") as of the date hereof, as follows:
3.1 Organization and Standing. Buyer is a corporation duly organized and
-------------------------
existing under, and by virtue of, the laws of the State of Delaware and is in
good standing under such laws. Buyer has requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as
presently conducted. Buyer is presently qualified to do business as a foreign
corporation in California and there is no other jurisdiction in which the
failure to be so qualified would have a material adverse effect on the business
or financial condition of Buyer.
3.2 Corporate Power. Buyer has all requisite legal and corporate power and
---------------
authority to execute and deliver this Agreement, to sell and issue the Buyer
Common Stock hereunder and to carry out and perform its obligations under the
terms of this Agreement.
3.3 Subsidiaries. Except for Autodata Solutions Company, a Nova Scotia
------------
unlimited liability company, Autodata, Inc., a Delaware corporation, and
CD1Financial.com, LLC, a Delaware limited liability company, Buyer has no
subsidiaries or affiliated companies and does not otherwise own or control,
directly or indirectly, any equity interest in any corporation, association or
business entity.
3.4 Capitalization. The authorized capital stock of Buyer consists of
--------------
43,845,000 shares of Common Stock and 29,503,572 shares of Preferred Stock,
10,000,000 of which have been designated Series A Preferred Stock, 9,558,572 of
which have been designated Series B Preferred Stock and 9,945,000 of which have
been designated Series C Preferred Stock. As of the date of this Agreement,
4,560,821 shares of Common Stock (not including shares issued pursuant to the
exercise of options granted under Buyer's 1998 Stock Option Plan), 10,000,000
shares of Series A Preferred Stock, 9,545,584 shares of Series B Preferred Stock
and 9,757,523 shares of Series C Preferred Stock will be outstanding. All
currently outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, and have been issued in
compliance with applicable securities laws. Of the 7,700,000 shares of Common
Stock of Buyer reserved for issuance under Buyer's 1998 Stock Option Plan,
options to purchase fewer than 7,700,000 shares
<PAGE>
have been granted. In accordance with the Operating Agreement of
CD1Financial.com, LLC, dated as of May 28, 1999, Buyer has an obligation to
issue shares of Common Stock (i) pursuant to the exercise of a warrant issued to
BANK ONE CORPORATION and (ii) in exchange for Additional Members' (defined in
the Operating Agreement) respective Allocation Percentages (defined in the
Operating Agreement). Except as set forth above, there are no options, warrants
or other rights to purchase or acquire any of Buyer's authorized and unissued
capital stock.
3.5 Authorization. All corporate action on the part of Buyer, its
-------------
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by Buyer, the authorization, sale, issuance
and delivery of the Shares, and the performance of Buyer's obligations under
this Agreement has been taken or will be taken prior to the Closing. This
Agreement, when executed and delivered by Buyer, shall constitute a valid and
binding obligation of Buyer, enforceable in accordance with its terms. The
Shares, when issued in compliance with the provisions of this Agreement, will be
validly issued, fully paid and nonassessable, and the Shares will be free of any
Liens other than any Liens created by Seller, a Shareholder or Permitted
Transferee; provided, however, that the Shares may be subject to restrictions on
transfer under state or federal securities laws and restrictions set forth in
this Agreement and in the Rights Agreement. The issuance of the Shares is not
subject to any preemptive rights or rights of first refusal.
3.6 Proprietary Rights. Buyer has title and ownership of, or full right to
------------------
use, all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, proprietary rights and processes necessary for its
business as now conducted and, to Buyer's knowledge, without any conflict with
or infringement of the rights of others. Other than as would not have a material
adverse effect on Buyer, there are no outstanding options, licenses, or
agreements of any kind relating to the foregoing, nor is Buyer bound by or a
party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity. Other than as would not have a material adverse effect on Buyer, Buyer
has not received any communications alleging that Buyer has violated or, by
conducting its business as currently conducted, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade proprietary
rights of any other person or entity. Other than as would not have a material
adverse effect on Buyer, to the knowledge of Buyer, none of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of Buyer or that would conflict with
Buyer's business as currently conducted. Neither the execution and delivery of
this Agreement, nor the carrying on of Buyer's business by the employees of
Buyer, nor the conduct of Buyer's business as currently conducted, will, to
Buyer's knowledge, conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. Buyer does not
believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by Buyer.
3.7 Registration Rights. Except as set forth in the Rights Agreement,
-------------------
Buyer is not under any contractual obligation to register under the Securities
Act of 1933, as amended (the "Securities
<PAGE>
Act"), any of its presently outstanding securities or any of its securities
which may hereafter be issued.
3.8 Governmental Consent, etc. No consent, approval order or authorization
-------------------------
of or registration, qualification, designation, declaration or filing with any
governmental authority on the part of Buyer is required in connection with the
valid execution and delivery of this Agreement, or the offer, sale or issuance
of the Shares, or the consummation of any other transaction contemplated hereby,
(other than with respect to dealer licenses under New York state law) and except
the qualification (or taking of such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the Shares
under applicable Blue Sky laws, which filings and qualifications, if required,
will be accomplished in a timely manner.
3.9 Permits. Buyer has or is investigating the requirements for any
-------
material franchises, permits, licenses, and any similar authority necessary for
the conduct of its business as now being conducted by it, the lack of which
would materially and adversely affect the business, properties, or financial
condition of Buyer, and Buyer believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. To its knowledge, Buyer is not in default in any material respect
under any of such franchises, permits, licenses, or other similar authority.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Confidentiality. Each of the parties hereto hereby agrees to keep the
---------------
terms of this Agreement (except to the extent contemplated hereby) and such
information or knowledge obtained in any investigation, or pursuant to the
negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, confidential; provided, however, that the
foregoing shall not apply to information or knowledge which (a) a party can
demonstrate was already lawfully in its possession prior to the disclosure
thereof by the other party, (b) is generally known to the public and did not
become so known through any violation of law, (c) became known to the public
through no fault of such party, (d) is later lawfully acquired by such party
without confidentiality restrictions from other sources, (e) is required to be
disclosed by order of court or government agency with subpoena powers (provided
that such party shall have provided the other party with prior notice of such
order and an opportunity to object or take other available action), (f) which is
disclosed in the course of any litigation between any of the parties hereto or
(g) which is disclosed pursuant to Section 4.13.
4.2 Expenses. All fees and expenses incurred in connection with the
--------
Acquisition including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties incurred
by a party in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby, shall be
the obligation of the respective party incurring such fees and expenses.
<PAGE>
4.3 Bulk Sales. Buyer hereby agrees to waive the requirement, if any, that
----------
Seller comply with any bulk transfer law which may be applicable to the
transactions contemplated by this Agreement; provided, however, that Seller and
the Shareholders agree, subject to Article VI, to indemnify and hold harmless
Buyer with respect to any noncompliance with such laws and Buyer's waiver with
respect thereto.
4.4 Trademark, Transfer, License and Covenant Not to Compete. For purposes
--------------------------------------------------------
of this Section 4.4, certain capitalized terms shall have the meanings therefor
set forth in Section 4.4(h).
(a) Trademark, Transfer and License.
-------------------------------
(i) Transfer and License Grants. Subject to the terms and
---------------------------
conditions of this Agreement, Licensors hereby (i) grant to Buyer and Buyer
accepts from Licensors, a worldwide, royalty-free, fully paid-up license to use
the Non-Exclusive Marks for the Term and (ii) transfer to Buyer all of their
right, title and interest in and to the Exclusive Marks and the goodwill
represented thereby in each case only in connection with the Sale and promotion
of Automobiles, including the online Sale and promotion of Automobiles. Such
transfer and license shall include without limitation for the respective Term
Buyer's right to register in Buyer's, or Buyer's affiliates', own name Internet
domain names incorporating the Marks. Except with respect to the use of the name
"POTAMKIN" in a Mark, Buyer shall not use the name "POTAMKIN" for any purpose
without the prior written consent of Seller's Designee, which consent maybe
withheld in the sole discretion of Seller's Designee. Buyer acknowledges and
agrees that Seller and the Shareholders do not make, and have not made, any
representations or warranties relating to use or ownership of the Marks, except
that Seller and the Shareholders represent and warrant that, as of the date of
this Agreement, no Non-Competing Party (as defined in Section 4.4(b)) has
authorized any third party or any related party to use the Marks and, as between
the Non-Competing Parties, only Licensors are authorized to use the Marks.
(ii) Exclusivity. Subject to the terms and conditions of this
-----------
Agreement, the grants set forth above shall be exclusive (including as to
Licensors) with respect to the Marks. If Licensors have recorded as an Internet
domain name any Marks, Licensors shall transfer such domain names to Buyer for
the respective Term. Notwithstanding any provision to the contrary herein, the
Marks may not be used for any purpose other than in connection with the Sale of
Automobiles.
(iii) Forfeiture of Marks. The use of the Marks by Buyer shall
-------------------
be subject to the following limitations:
(1) If Buyer commits an act that results in a material
adverse effect on the goodwill of the Marks and which subjects any Licensor or
any Non-Competing Party to public hatred, scorn, obloquy or shame (such event,
an "Event of Obloquy"), Buyer shall take prompt action to cease or otherwise
cure such conduct which gave rise to such Event of Obloquy. Following the
occurrence of a second Event of Obloquy and upon written notice from Seller's
Designee evidencing that such Event of Obloquy has occurred, Buyer shall, not
later than six (6) months
<PAGE>
following the date of receipt of such notice, discontinue use of the Marks and
all rights with respect to such Marks shall revert back to Seller's Designee.
(2) All rights to the Marks shall automatically revert
back to Seller's Designee if:
a) Buyer files any petition or action for relief under
any bankruptcy, reorganization, insolvency or moratorium law, or any other law
for the relief of, or relating to, debtors, now or hereafter in effect, or makes
any assignment for the benefit of creditors, or takes any corporate action in
furtherance of any of the foregoing; or
b) An involuntary petition is filed against Buyer
(unless such petition is dismissed or discharged within sixty (60) days), under
any bankruptcy statute now or hereafter in effect, or a custodian, receiver,
trustee or assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody or control of any property of Buyer
(unless such appointment is rescinded or removed within sixty (60) days).
(3) If, at any time after the date of this Agreement, a
Mark is due to enter the public domain as a result of Buyer's failure to use
such Mark, then Seller's Designee shall provide Buyer written notice of such
fact. If Buyer does not then use such Mark, then, immediately prior to such
Mark's entry into the public domain, all rights to such Mark shall revert back
to Seller's Designee.
(iv) Maintenance of Marks.
--------------------
(1) Buyer shall not enter into any agreement with any
third party that in any way alters, diminishes or restricts the rights of
Licensors in the Marks or places any restrictions or conditions upon the use or
appearance of the Marks other than as used by Buyer or as set forth in this
Agreement.
(2) Other than as set forth in Section 4.4(a)(i), Buyer
shall not without the prior written consent of Seller's Designee (which consent
shall not be unreasonably withheld) prosecute any application for the
registration of any Mark.
(b) Restricted Activities.
---------------------
(i) In order to protect and realize the value and goodwill
associated with the Assets and as an inducement to Buyer to enter into this
Agreement, neither Seller, the Shareholders nor Planet (collectively, the "Non-
Competing Parties") shall, nor shall they permit any of their subsidiaries or
affiliates now or hereafter under their control, to (each of the following
activities, a "Restricted Activity"):
(1) Commencing on the Closing Date and ending on June 15,
2000, Operate a Consolidated Internet Site.
<PAGE>
a) Notwithstanding this Section 4.4(b)(i)(1) to the
contrary, Non-Competing Parties (i) located within the same geographic
metropolitan area (e.g., the Miami Metro Area) may Engage in the Sale of
Automobiles from a Consolidated Internet Site if but only if the Automobiles
offered on such Consolidated Internet Site bear a nameplate for which any Non-
Competing Party now or hereafter controls a franchised dealership in such
geographic metropolitan area and (ii) may link their Internet sites together.
(2) Commencing on the Closing Date and ending on April 15,
2001, Engage in the use, licensing or any other exploitation of any Restricted
Mark online in connection with the Sale of Automobiles.
a) Notwithstanding this Section 4.4(b)(i)(2) to the
contrary, but subject to Section 4.4(b)(i)(3), below, (i) any Automobile dealer
located within the New York Metro Area, now or hereafter controlled by a Non-
Competing Party, may use those marks listed on Schedule 4.4(b) hereto (the
"Schedule 4.4(b) Marks") in connection with the Sale of Automobiles, provided
that such Automobiles bear a nameplate for which any Non-Competing Party now or
hereafter owns or controls a franchised dealership in the New York Metro Area
and (ii) Planet may use the Schedule 4.4(b) Marks for the purpose of linking to
Internet sites of the Automobile dealers referred to in clause (i) of this
paragraph.
b) Notwithstanding this Section 4.4(b)(i)(2) to the
contrary, (i) any Automobile dealer located within the Miami Metro Area, now or
hereafter controlled by a Non-Competing Party, may use all Restricted Marks
(except for the Licensed Marks) in connection with the Sale of Automobiles,
provided such Automobile bears a nameplate for which any Non-Competing Party now
or hereafter owns or controls a franchised dealership in the Miami Metro Area
and (ii) Planet may use the Restricted Marks (except for the Licensed Marks) for
the purpose of linking to Internet sites of the Automobile dealers referred to
in clause (i) of this paragraph.
(3) Commencing on the Closing Date and ending on January
15, 2001, Engage in the Sale of Automobiles (x) from a location within the New
York Metro Area or (y) online to any customer who resides in the New York Metro
Area.
a) Notwithstanding this Section 4.4(b)(i)(3) to the
contrary, any Non-Competing Party may Engage in the Sale of Automobiles if such
Automobiles bear a nameplate for which any Non-Competing Party now or hereafter
controls a franchised dealership in the New York Metro Area.
b) Notwithstanding this Section 4.4(b)(i)(3) to the
contrary, this restriction shall cease to apply to Planet and its subsidiaries
if and when there is a Change of Control of Planet. In addition, in the event
that there is a Change of Control of Planet that is consummated after the
Trigger Date (as defined herein) and the securities of the acquiring entity or
its parent are publicly traded, then this Section 4.4(b)(i)(3) shall cease to
apply to such acquiring entity and its parent, if any, as well as to the
shareholders of Planet solely with respect to such shareholders' future
participation, if any, in the ownership or control of such acquiring entity or
its
<PAGE>
parent, if any. For the purposes hereof, "Trigger Date" shall mean the earlier
of (i) ten months after the Closing Date or (ii) six months after a Buyer IPO,
if any.
c) Notwithstanding this Section 4.4(b)(i)(3) to the
contrary, an individual Automobile dealer located outside the New York Metro
Area now or hereafter controlled by a Non-Competing Party may Engage in the Sale
of Automobiles to residents of the New York Metro Area, provided that such
Automobiles bear a nameplate for which such individual dealer is a franchisee.
d) Notwithstanding this Section 4.4(b)(i)(3) to the
contrary, this restriction shall not apply with respect to Seller performing its
obligations or exercising its rights under the Inventory Agreement or Seller
performing its obligations, if any, under Section 4.8.
e) Link to Buyer Internet Site. Commencing on the
---------------------------
Closing Date and ending on the first to occur of (i) January 15, 2001, (ii) an
initial public offering of Planet capital stock, or (iii) a Change in Control of
Planet, to the extent that Planet Operates a Consolidated Internet Site as
permitted under this Section 4.4(b)(i)(3), Planet will use its best efforts to
link or otherwise refer to Buyer's Internet site all customers who make
inquiries on Planet's Consolidated Internet Site that Planet identifies as being
residents of the New York Metro Area (either through point of purchase
recognition or through customer self-selection) who are interested in purchasing
Automobiles for which a Non-Competing Party does not now or hereafter control a
franchised dealership in the New York Metro Area.
(c) Non-Solicitation. For a period commencing on the Closing Date and
----------------
ending on the third anniversary of the Closing Date (the "Non-Solicitation
Period"), the Non-Competing Parties shall not solicit, encourage, take any other
action which is intended to induce or encourage, or has the effect of inducing
or encouraging any employee of Buyer (who prior to the Closing Date was an
employee of Seller) to terminate his or her employment with Buyer. Further,
during the Non-Solicitation Period, the Non-Competing Parties shall not solicit
or encourage any employee of Buyer (who prior to the Closing Date was an
employee of Seller) to accept employment with Seller, any Non-Competing Party or
any of their respective affiliates. Seller and the Shareholders represent and
warrant that all persons employed by any Non-Competing Party or any affiliate
thereof who operate the business being purchased by Buyer from Seller in the
ordinary course prior to the Closing Date are employees solely of Seller, other
than as listed in Section 4.4(c) of the Seller Schedule.
(d) Separate Covenants. The covenants contained herein shall be
------------------
construed as a series of separate covenants, one for each county, city or other
area of geographic scope. If, in any judicial proceeding, a court refuses to
enforce any of such separate covenants (or any part thereof), then such
unenforceable covenant (or such part) shall be eliminated from this Agreement to
the extent necessary to permit the remaining separate covenants (or portions
thereof) to be enforced. In the event that the provisions of this Section are
deemed to exceed the time, geographic or scope limitations permitted by
applicable law, then such provisions shall be reformed to the maximum time,
geographic or scope limitations, as the case may be, permitted by applicable
laws.
<PAGE>
(e) Acknowledgment. Seller, the Shareholders and Planet acknowledge
--------------
that: (i) Planet is currently under the control of RMP and AHP; (ii) the
goodwill associated with the Assets is reflected in the consideration for the
Acquisition to be received by Seller; (iii) Seller's, the Shareholders' and
Planet's agreements set forth herein are necessary to preserve the value of the
Acquisition to Buyer. The parties also acknowledge that the limitations of time,
geographic scope and scope of activity agreed to in this Agreement are
reasonable because, among other things, (x) Seller and Buyer are engaged in a
highly competitive industry, (y) the Shareholders, have unique access to, and
will continue to have access to, the trade secrets and know-how included in the
Assets, including without limitation the plans and strategy (and, in particular,
the competitive strategy) of Buyer; and (iv) Seller and the Shareholders are
receiving significant consideration in connection with the Acquisition. The
parties acknowledge that TED is not currently employed by or an owner of Planet
or any of Planet's subsidiaries.
(f) Remedies. Seller, the Shareholders and Planet, on the one hand,
--------
and Buyer, on the other hand, agree that it would be impossible or inadequate to
measure and calculate the other's damages from any breach of the covenants set
forth in this Section 4.4. Accordingly, Seller, the Shareholders and Planet, on
the one hand, and Buyer, on the other hand, agree that if any party breaches any
provision of this Section 4.4, the other will have available, in addition to any
other right or remedy otherwise available, the right to obtain an injunction
from a court of competent jurisdiction restraining such breach or threatened
breach and to an order of specific performance of any such provision of this
Agreement. Buyer, Seller, the Shareholders and Planet further agree that no bond
or other security shall be required in obtaining such equitable relief, nor will
proof of actual damages be required for such equitable relief. Buyer, Seller,
the Shareholders and Planet hereby expressly consent to the issuance of such
injunctive relief, whether in the form of a temporary restraining order or
otherwise, and to the ordering of such specific performance.
(g) Buyer Obligations. Until April 15, 2001, Buyer shall refer to
-----------------
an Internet address designated by Seller's Designee, all prospective customers
who (i) Buyer knows reside in the Miami Metro Area, (ii) arrived at an Internet
site controlled by Buyer through a Link or other similar access from an Internet
address with a Licensed Mark as its domain name, and (iii) have expressed an
interest in purchasing an Automobile.
(h) Definitions. For purposes of this Section 4.4, the following
-----------
definitions apply:
(i) "Automobile" means new cars, new sport utility vehicles,
new minivans, new trucks with gross vehicle weight less than 10,000 lbs. and any
similar new motor vehicles.
(ii) "Change of Control" means, with respect to a party: (a)
the sale of all or substantially all of the assets of such party to an entity
unaffiliated with such party or its shareholders prior to such transaction or
(b) the acquisition of such party by another entity unaffiliated with such party
or its shareholders prior to such transaction by means of merger or
consolidation resulting in the exchange of the outstanding shares of such party
for securities or consideration issued, or caused to be issued, by the acquiring
corporation or its subsidiary, unless in the case of either (a) or (b) the
stockholders of such party (when aggregated with their affiliates)
<PAGE>
beneficially own at least 50% of the voting power or equity of the surviving,
purchasing or resulting entity or its parent, if any, in such a transaction.
(iii) "Consolidated Internet Site" means an Internet site that
permits a user to (a) configure online (e.g., select color, options and/or
accessories) an Automobile from a selection of a variety of makes and models of
Automobiles and (b) obtain the sales price for the configured Automobile.
(iv) "Engage" means, with respect to any Restricted Activity:
(a) to engage in or conduct (whether himself or itself or as an employee,
officer or director) such Restricted Activity; (b) to have any ownership
interest (except for ownership of 4.9% or less) in or profits interest in (other
than profits derived from ordinary course business activity unrelated to the
Sale of Automobiles to the New York Metro Area), any entity engaged in such
Restricted Activity; or (iii) to exercise in any material respect executive
control of, any firm, partnership, corporation, entity or business (other than
Buyer) that engages in or conducts such Restricted Activity.
(v) "Exclusive Marks" means "POTAMKIN DIRECT" or "POTAMKIN
AUTO CENTER," and trademarks or service marks incorporating such mark, and any
confusingly similar variation thereof, including Internet domain names (whether
.com, .net, .org or similar such extension) incorporating or based on such
marks.
(vi) "Licensor" means any of Seller, the Shareholders or Planet
(or any entity controlled by or under common control with any of the foregoing)
to the extent that any of such parties now or hereafter has any rights to the
Marks; provided, however, that RMP and AHP represent to Buyer that no entity
controlled by RMP and/or AHP or under common control with any of Seller, any
Shareholder or Planet has any interest in any of the Marks.
(vii) "Marks" means the Exclusive Marks and the Non-Exclusive
Marks.
(viii) "Miami Metro Area" means that geographic area co-extensive
with the following counties in Florida: Dade County, Broward County and Monroe
County.
(ix) "New York Metro Area" means that geographic area bounded
by a circle whose radius extends forty-five (45) miles from the World Trade
Center in New York City, New York, and includes the facility in Nanuet, New
York, operated by Seller prior to the Closing.
(x) "Non-Exclusive Marks" means POTAMKIN.COM, and trademarks
or service marks incorporating such mark, and any confusingly similar variation
thereof, including without limitation Internet domain names (whether .com, .net,
.org or similar such extension) incorporating or based on such marks.
(xi) "Operate" means to launch to the public, control, host or
manage an Internet site or series of related Internet sites.
<PAGE>
(xii) "Restricted Marks" means the following trademark and
terms, or any confusingly similar variation thereof: "POTAMKIN," including
without limitation (X) the Marks and (Y) all Internet domain names (whether
.com, .net, .org or similar such extension) based on or incorporating such marks
and terms.
(xiii) "Sale" means any transaction involving the wholesale,
retail or fleet sales or leasing of Automobiles, including any transaction
whereby a person acts a dealer, broker or agent for the purchase, sale or
leasing of an Automobile.
(xiv) "Seller's Designee" means RMP, AHP or any entity
designated by RMP or AHP which is under the control of RMP or AHP.
(xv) "Term" means: (a) with respect to the Exclusive Marks, a
period commencing on the Effective Date and lasting in perpetuity; and (b) with
respect to the Non-Exclusive Marks, the period commencing on the Effective Date
and ending on April 15, 2001.
4.5 Right of First Offer. Prior to the date of Buyer's initial public
--------------------
offering, if any, pursuant to an effective registration statement under the
Securities Act, covering the offer and sale of Buyer Common Stock to the public
(a "Buyer IPO") and except as set forth in Section 4.5 (c), before there can be
a valid sale or transfer for consideration of any of the Shares by any holder
thereof (each such holder, a "Selling Shareholder"), such Selling Shareholder
shall first offer such Shares to Buyer in the following manner:
(a) The Selling Shareholder shall deliver a notice in writing to
Buyer (an "Offer Notice") stating the price, terms, and conditions of such
proposed sale or transfer, the number of Shares to be sold or transferred, and
his or her intention to so sell or transfer such Shares. Within thirty (30) days
thereafter, Buyer shall have the prior right to purchase all but not less than
all of the Shares offered at the price and upon the terms and conditions stated
in such notice (it being understood that Buyer may assign this right in its sole
discretion).
(b) If all of the Shares in the Offer Notice are not purchased by
Buyer (or an assignee of Buyer) within a thirty (30)-day period from the date
the Offer Notice is delivered by a Selling Shareholder to Buyer, the Selling
Shareholder may sell or transfer to any person or persons all Shares referred to
in the Offer Notice, but only within a period of sixty (60) days from the date
the Offer Notice is delivered to Buyer; provided, however, that the Selling
Shareholder shall not sell or transfer such Shares at a lower price or on terms
more favorable to the purchaser or transferee than those specified in the Offer
Notice. After said sixty (60)-day period, the foregoing procedure for first
offering Shares to Buyer shall again apply if the proposed sale or transfer has
not been completed.
(c) Notwithstanding anything contained herein to the contrary, Seller
and the Shareholders may transfer any of the Shares to up to twelve (12)
Permitted Transferees (as defined below) in addition to the Shareholders without
complying with the requirements of this Section 4.5, provided that (i) such
transfer is otherwise effected in accordance with applicable securities laws,
(ii) until six months after the Closing Date, such transfer is for value no
greater than $1.50 per Share,
21
<PAGE>
(iii) until the earlier of (x) a Buyer IPO or (y) three years after the Closing
Date, such transfer is for no greater price per Share than the fair market value
as then determined by the Board of Directors of Buyer, (iv) written notice is
promptly given to Buyer, and (v) such Permitted Transferee agrees to be bound by
the provisions of this Section 4.5, except that all transfers by Permitted
Transferees shall be aggregated with the transfers by Seller for the purpose of
determining whether the maximum of twelve (12) Permitted Transferees has been
met. For the purpose of this Agreement, "Permitted Transferee" shall mean a
Shareholder, a family member, friend, associate, relative or affiliate of a
Shareholder, or a trust or any other entity established for such Shareholder's,
family member's, friend's, associate's, relative's or affiliate's benefit;
provided, however, that TED may designate no more than two (2) Permitted
Transferees.
(d) Buyer shall not be required to recognize any sale or transfer or
purported sale or transfer of the Shares, and any sale or transfer or purported
sale or transfer of the Shares shall be null and void, unless the terms,
conditions, and provisions of this Section 4.5 are observed and followed.
4.6 Employees. Buyer shall have the right to offer employment to any
---------
employees of Seller (the "Designated Employees"), other than those employees of
Seller, the Shareholders or their affiliates listed in Section 4.4(c) of the
Seller Schedule, effective upon the Closing or at any time within a period of
one hundred twenty (120) days following the Closing Date. Seller shall use all
reasonable efforts to assist and encourage the transition of employment of the
Designated Employees from Seller to Buyer, but shall not be obligated to incur
any expenses in connection therewith. Seller will not assert a claim (of
tortious interference, theft of trade secrets or otherwise) as a result of
Buyer's recruitment of employees or former employees of Seller as of the date of
this Agreement. Seller agrees not to rehire any of the Designated Employees
hired by Buyer, whether as employees or otherwise, until the later of (i) the
termination of their employment with Buyer and (ii) one hundred eighty (180)
days after the Closing Date; provided, however, that if Buyer terminates the
employment of any of Seller's former employees, Seller may rehire such
terminated employees.
4.7 Services Agreement. From the Closing Date until six (6) months
------------------
following the Closing Date, unless earlier terminated by Buyer, Seller or an
affiliate of Seller shall, upon the reasonable written request of Buyer, assist
Buyer in the performance of back-office accounting-related functions related to
the business acquired by Buyer from Seller hereunder, including accounting and
other related services. Buyer shall reimburse Seller on a monthly basis for all
reasonable costs incurred by Seller or an affiliate of Seller in the performance
of such services, including without limitation, an allocation of payroll
expenses and out-of-pocket costs.
<PAGE>
4.8 Qualified Dealer Registration.
-----------------------------
(a) Promptly after and from time to time following the Closing, at
Buyer's request, Seller shall and the Shareholders shall cause Seller to make an
application and pay any necessary fees for a registration certificate to qualify
Seller as a Qualified Dealer pursuant to Section 415 of New York Dealer Law and
shall use their reasonable efforts to cause such certificate(s) to be issued as
promptly as practicable.
(b) From time to time following the Closing, at Buyer's written
request, Seller and the Shareholders shall perform such acts as may be
reasonably necessary and within their power and control to maintain the status
of Buyer as a Qualified Dealer under Section 415 of New York Dealer Law to the
fullest extent permitted thereunder, including without limitation filing renewal
applications and paying any necessary fees. Any rights of Seller or its
successor, if any, as a Qualified Dealer, upon renewal or otherwise after the
Closing Date, shall automatically, by the terms of this Agreement, be
transferred to Buyer without the payment of any additional consideration
therefor to the fullest extent permitted under New York Dealer Law.
(c) Promptly after and from time to time following the Closing, at the
written request of Buyer, Seller shall and the Shareholders shall cause Seller
to apply to transfer all of Seller's rights as a Qualified Dealer to Buyer
pursuant to Section 415 of New York Dealer Law to the fullest extent permitted
under New York Dealer Law and shall use their reasonable efforts to cause such
transfer to occur as promptly as practicable.
(d) As of and following the date of this Agreement, neither Seller nor
any Shareholder shall, nor shall they permit any affiliate to transfer, nor
shall Seller or any Shareholder suffer or permit involuntarily the transfer, of
any of Seller's rights as a Qualified Dealer under Section 415 of New York
Dealer Law to any person or entity other than Buyer.
(e) Except as otherwise provided in Section 4.8(a), Buyer shall
promptly reimburse Seller and the Shareholders for all of out-of-pocket expenses
reasonably incurred by Seller and the Shareholders in performing their
obligations under this Section 4.8.
(f) Notwithstanding any provision to the contrary contained herein,
the parties acknowledge and agree that (i) the only representations and
warranties provided by Seller and the Shareholders with respect to Seller's, the
Shareholders' and their affiliates' status as a Qualified Dealer under New York
Dealer Law are set forth in Sections 2.14, (ii) Seller and Shareholders do not
bear any risk or responsibility in the event that, a certificate registering
Seller as a Qualified Dealer under New York Dealer Law is not issued to Seller,
Seller is unable to transfer its status as a Qualified Dealer to Buyer, or Buyer
is unable to qualify as a dealer or maintain its status as a Qualified Dealer,
unless such events are caused by a breach by Seller or any Shareholder of this
Agreement, and (iii) Seller and the Shareholders do not bear any risk resulting
from an amendment to or repeal or interpretation of New York Dealer Law by the
legislature or any Governmental Entity.
23
<PAGE>
(g) If the rights of Seller to conduct the activities of a Qualified
Dealer (the "Qualified Dealer License") are not transferred to Buyer for any
reason other than (i) Buyer's refusal to comply with regulations or other
requirements of the New York State Department of Motor Vehicles (the "NYS DMV")
necessary to obtain the Qualified Dealer License or (ii) Buyer's failing to meet
any criteria established by the NYS DMV in order to qualify for a new dealer's
license, then the Shareholders and Seller agree that the Broker Period (as
defined in the Inventory Agreement) will be extended to a date which is the
earlier of (x) the fifth anniversary of the date of this Agreement or (y) the
date on which Buyer obtains the Qualified Dealer License. To the extent that the
Qualified Dealer License is not issued to Buyer, at Buyer's option, Seller shall
be deemed not to have transferred to Buyer hereunder rights as a Qualified
Dealer, but rather, shall be deemed to have retained such rights in order to
perform its obligations under this subsection (g) to the fullest extent
permitted by New York Dealer Law.
4.9 Dealership Arrangements. Buyer, Seller and the Shareholders shall use
-----------------------
their respective reasonable efforts to facilitate Buyer's entering into supply
arrangements with automobile dealerships controlled by Seller and/or the
Shareholders.
4.10 Inventory Agreement. Buyer and Seller shall execute and deliver the
-------------------
Inventory Agreement at the Closing.
4.11 Real Estate Agreement. Buyer and Seller shall execute and deliver the
---------------------
Real Estate Agreement at the Closing.
4.12 Advertising Rates. Seller and the Shareholders shall use their
-----------------
reasonable efforts to assist Buyer in obtaining local and other advertising
rates equivalent to those rates paid by Seller and other dealerships located in
the New York metropolitan area that are owned or controlled by any
Shareholder(s).
4.13 Public Disclosure. Upon the execution of this Agreement, the parties
-----------------
shall release a mutually agreed upon press release regarding the public
announcement of the transactions contemplated hereby in the form set forth on
Schedule 4.13. Unless otherwise required by law (including, without limitation,
foreign, federal and state corporate and securities laws) and by the rules and
regulations of the Nasdaq Stock Market, no public disclosure (whether or not in
response to an inquiry) of the subject matter of this Agreement shall be made by
any party hereto (or their directors or officers) unless approved by Buyer and
either AHP or RMP prior to release, provided that such approval shall not be
unreasonably withheld.
4.14 Excluded Assets. The Excluded Assets are being retained by Seller and
---------------
Buyer is not acquiring an interest therein. In the event that any of the
Excluded Assets shall come into Buyer's possession, Buyer shall promptly provide
such Excluded Assets to Seller, including, without limitation, all accounts
receivable of Seller accrued prior to the Closing.
4.15 Waiver of Jury Trial. Each of the parties hereto hereby irrevocably
--------------------
waives any and all right to trial by jury in any legal proceeding arising out of
or related to this Agreement or the transactions contemplated hereby.
24
<PAGE>
4.16 Retention of Records. Commencing on the Closing and continuing for a
--------------------
period seven (7) years thereafter, the parties each shall retain and make
available for the other parties' reasonable use, inspection and copying, all
documents and files related to the Assets and the business being acquired by
Buyer from Seller pursuant to this Agreement.
4.17 No Finders or Brokers. Each party represents and warrants to the other
---------------------
parties that there are no investment bankers, brokers, finders or other
intermediaries which have been retained by or which have been authorized to act
on behalf of such party who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
4.18 Investor Rights Agreement. Upon the issuance of Buyer's next series of
-------------------------
Preferred Stock after the date of this Agreement, and in no event later than
December 31,1999, Buyer shall amend its current Investor Rights Agreement to
provide that Seller and the Shareholders and Permitted Transferees reasonably
acceptable to Buyer will be and will, subject to the terms of such Investor
Rights Agreement, have the rights and obligations of "Holders" under the terms
of such agreement and that the Shares will be "Registrable Securities" under the
terms of such agreement.
ARTICLE V
CONDITIONS TO THE ACQUISITION
5.1 Additional Conditions to Obligations of Seller and the Shareholders.
-------------------------------------------------------------------
The obligations of Seller and the Shareholders to consummate the Acquisition and
the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, by Seller and the Shareholders:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct in all material respects as of such
date), with the same force and effect as if made on and as of the Closing Date;
(b) Agreements and Covenants. Buyer in all material respects shall
------------------------
have performed or be in compliance with all agreements and covenants required by
this Agreement to be performed or complied with by Buyer on or prior to the
Closing Date, including, without limitation, delivery at the Closing of the
items set forth in Section 1.5 required to be delivered by Buyer;
(c) No Governmental Litigation. There shall not be pending any suit
--------------------------
by, action by or proceeding by any Governmental Entity, (i) challenging the
Acquisition or any of the transactions contemplated hereby, seeking to restrain
or prohibit the consummation of the Acquisition, or seeking to place limitations
on the ownership of the Assets by Buyer, (ii) seeking to prohibit or materially
limit the ownership or operation by Buyer of any of its affiliates of any
portion of any of their respective assets (including without limitation the
Assets) or businesses, or to compel Buyer or any of its affiliates to dispose of
or hold separate any portion of any of their respective assets (including
without limitation the Assets) or businesses, as a result of the Acquisition, or
(iii)
25
<PAGE>
seeking to prohibit Buyer of any of its affiliates from effectively controlling
in any material respect the Assets;
(d) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Acquisition shall be in effect,
nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Acquisition, which makes
the consummation of the Acquisition illegal;
(e) Inventory Agreement. Buyer shall have executed and delivered the
-------------------
Inventory Agreement to Seller;
(f) Real Estate Agreement. Buyer shall have executed and delivered
---------------------
the Real Estate Agreement to Seller;
(g) Offer Letter; Stock Option Agreement. Buyer shall have executed
------------------------------------
and delivered the Offer Letter and the Stock Option Agreement to TED; and
(h) Certificate of Buyer. Seller and the Shareholders shall have been
--------------------
provided with a certificate executed on behalf of Buyer to the effect that, as
of the Closing, the conditions set forth in this Section 5.1 have been
satisfied.
5.2 Additional Conditions to the Obligations of Buyer. The obligations of
-------------------------------------------------
Buyer to consummate the Acquisition and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing, by
Buyer:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Seller and the Shareholders contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date, except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct in all material respects as
of such date), with the same force and effect as if made on and as of the
Closing Date;
(b) Agreements and Covenants. Seller and the Shareholders in all
------------------------
material respects shall have performed or be in compliance with all agreements
and covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing, including, without limitation, delivery at the
Closing of the items set forth in Section 1.5 required to be delivered by them;
(c) Seller Stockholder Approval. This Agreement and the Acquisition
---------------------------
shall have been approved and adopted by the stockholders of Seller by the
requisite vote under applicable law and Seller's Organizational Documents;
26
<PAGE>
(d) No Governmental Litigation. There shall not be pending any suit
--------------------------
by, action by or proceeding by any Governmental Entity, (i) challenging the
Acquisition or any of the transactions contemplated hereby, seeking to restrain
or prohibit the consummation of the Acquisition, or seeking to place limitations
on the ownership of the Assets by Buyer, (ii) seeking to prohibit or materially
limit the ownership or operation by Buyer of any of its affiliates of any
portion of any of their respective assets (including without limitation the
Assets) or businesses, or to compel Buyer or any of its affiliates to dispose of
or hold separate any portion of any of their respective assets (including
without limitation the Assets) or businesses, as a result of the Acquisition, or
(iii) seeking to prohibit Buyer of any of its affiliates from effectively
controlling in any material respect the Assets;
(e) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Acquisition shall be in effect,
nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Acquisition, which makes
the consummation of the Acquisition illegal;
(f) Inventory Agreement. Seller shall have executed and delivered the
-------------------
Inventory Agreement to Buyer;
(g) Real Estate Agreement. Seller shall have executed and delivered
---------------------
the Real Estate Agreement to Buyer;
(h) Offer Letter; Stock Option Agreement. TED shall have executed and
------------------------------------
delivered the Offer Letter and Stock Option Agreement to Buyer; and
(i) Certificate of Seller. Buyer shall have been provided with a
---------------------
certificate on behalf of Seller and the Shareholders to the effect that, as of
the Closing, the conditions set forth in this Section 5.2 have been satisfied.
ARTICLE VI
SURVIVAL; INDEMNIFICATION
6.1 Survival and Limitations of Claims.
----------------------------------
(a) All representations and warranties in this Agreement shall
survive the Closing and shall continue until (in each of the following cases,
the "Expiration Date"): (i) in the case of the representations and warranties in
Sections 2.1, 2.2, 2.3, 2.5, 2.6, 2.8, 2.10 and 2.14 and Article III, two (2)
years after the Closing Date; (ii) in the case of the representations and
warranties in Sections 2.4, the expiration of the applicable statute of
limitations relative to the liability relating to such representation or
warranty; and (iii) in the case of all other representations and warranties in
this Agreement, one (1) year after the Closing Date.
27
<PAGE>
(b) All claims for indemnification based upon the breach of a
representation or warranty in this Agreement shall be asserted by the delivery
of a Claim Notice (as defined below) to the applicable breaching party(ies) no
later than the applicable Expiration Date. All claims for indemnification based
upon the breach of a covenant contained in this Agreement, including without
limitation those contained in Section 1.2, shall be asserted by the delivery of
a Claim Notice no later than five (5) years after the Closing Date; provided,
however, that the five (5)-year limitation on the delivery of Claim Notices
shall not apply with respect to Section 4.4(a) or with respect to claims for
indemnification by any party related thereto. Furthermore, the five (5)-year
limitation on the delivery of Claim Notices shall not apply with respect to
claims seeking only specific performance of the obligations under Section 4.8
for the period commencing on the fifth anniversary of the Closing Date and
ending on the earlier of (i) the tenth anniversary of the Closing Date or (ii)
the date of Seller's liquidation.
6.2 Indemnification.
---------------
(a) Seller's Indemnity. Subject to the limitations in this Article
------------------
VI, the Seller and each Shareholder, severally (each an "Indemnitor" and
collectively, the "Indemnitors"), will indemnify Buyer against and agree to hold
harmless Buyer from any and all damage, loss, liability, claim or obligation of
any nature whatsoever and all expenses incurred in connection therewith
(including any reasonable expenses of investigation and reasonable attorneys'
fees and expenses) (each a "Loss") incurred by Buyer arising out of any breach
of any representation or warranty, covenant of the parties other than Buyer
contained in this Agreement.
(b) Buyer's Indemnity. Subject to the limitations in this Article VI,
-----------------
Buyer will indemnify, defend and hold harmless Seller and each Shareholder from
and against any and all Losses arising from Buyer's breach of any covenant in
this Agreement. Buyer shall not be liable for any breach of representation or
warranty in this Agreement other than (i) those breaches that arise from an act
of fraud by Buyer or (ii) the representation that, when issued and delivered in
accordance with the terms of this Agreement, the Shares will be duly authorized,
validly issued, fully paid and non-assessable, and will be free of monetary
Liens created by Buyer.
(c) Delivery of Claim Notice; Opportunity to Cure.
----------------------------------------------
(i) In the event Buyer desires to assert a claim for
indemnification under this Agreement, Buyer shall deliver to each of the other
parties a certificate (a "Claim Notice") signed by any officer of Buyer. In the
event Seller or a Shareholder desires to assert a claim for indemnification
under this Agreement such party shall deliver to Buyer a Claim Notice signed by
any officer of Seller or such Shareholder, as the case may be. A Claim Notice
shall (i) state that the party seeking indemnification has paid or properly
accrued or reasonably anticipates that it will have to pay or accrue Losses and
(ii) specify in reasonable detail the individual items of Losses included in the
amount so stated, the date each item was paid or properly accrued, or the basis
for anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which item is related.
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(ii) Opportunity to Cure. Following the delivery of a Claim
-------------------
Notice to a party, such party shall have a period of twenty (20) business days
to cure any breach alleged in the Claim Notice.
(d) Limitation on Liability.
-----------------------
(i) Shareholder Liability. Notwithstanding any provision to
---------------------
the contrary contained in this Agreement, the aggregate liability of each
Shareholder under this Agreement shall be capped at Four Million Dollars
($4,000,000) (the "Shareholder Liability Cap"), for a total of Twelve Million
Dollars ($12,000,000) in the aggregate; provided, however, that each Shareholder
may incur liability in excess of the Shareholder Liability Cap for Losses
incurred by Buyer as a result of (collectively, the "Excess Losses") (i)
Seller's or such Shareholder's transfer or participation in the transfer of
Seller's rights as a Qualified Dealer (other than to Buyer or its successors),
without the prior written consent of Buyer, or (ii) Seller's or such
Shareholder's willful material failure to perform its or his obligations under
Section 4.4(b) or Section 4.8; provided, however, that (x) neither RMP nor AHP
shall be liable for Seller's action if such action was caused by TED without the
authority or participation of RMP or AHP and (y) TED shall not be liable for
Seller's action if such action was caused by either RMP or AHP without the
authority or participation of TED. The Excess Losses that RMP and AHP may each
severally incur as a result of any of the items (i) and (ii) above (each of
them, a "Deliberate Bad Act") shall not exceed, in the aggregate, $1,750,000
each. The Excess Losses that TED may incur as a result of any of the Deliberate
Bad Acts shall not exceed, in the aggregate, $7,500,000. By way of illustration,
if RMP or AHP (but not TED) breaches any of the Deliberate Bad Acts and as a
result of such breach, Buyer incurs a Loss of $11,500,000, RMP and AHP would
each severally be responsible for $5,750,000 of such Loss and TED would incur no
liability for such Loss. By way of further illustration, if TED (but not RMP or
AHP) breaches any of the Deliberate Bad Acts and as a result of such breach,
Buyer incurs a Loss of $11,500,000, TED would be responsible for $11,500,000 of
such Loss and RMP and AHP would incur no liability for such Loss. Each of RMP's
and AHP's respective Shareholder Liability Cap and responsibility for Excess
Losses shall be reduced by 50% of the Losses sustained by Buyer that are paid by
Planet.
(ii) Shareholder Liability Several.
-----------------------------
(1) Except as otherwise provided in Section 6.2(d)(ii),
the liabilities of each Shareholder hereunder shall be several and not joint and
several. Except as otherwise provided in Section 6.2(d)(ii), but subject to
Section 6.2(d)(i), with respect to any Loss incurred by Buyer hereunder, each
Shareholder shall only be responsible to pay his Prorata Share (as defined
below) of a Loss, not to exceed in the case of each Shareholder the Shareholder
Liability Cap with respect to all Losses.
(2) For purposes of this Agreement, the "Prorata Share" of
each Loss means with respect to (x) RMP, twenty-five percent (25%) of such Loss,
(y) AHP, twenty-five percent (25%) of such Loss, and (z) TED, fifty percent
(50%) of such Loss.
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(3) Notwithstanding this Section 6.2(d)(ii) to the
contrary, TED shall be responsible for the payment of all Losses incurred by
Buyer as a result of the breach of a specific covenant contained in this
Agreement by TED or any entity under TED's control, and neither RMP, AHP nor any
entity under either of their control shall be responsible for any such Loss,
unless RMP, AHP or an entity under either of their control participated in the
breach of such covenant.
(4) Notwithstanding this Section 6.2(d)(ii) to the
contrary, RMP shall be responsible for the payment of all Losses incurred by
Buyer as a result of the breach of a specific covenant contained in this
Agreement by RMP or AHP or any entity under the control of either RMP or AHP,
and neither TED nor any entity under TED's control shall be responsible for any
such Loss, unless TED or an entity under TED's control participated in the
breach of such covenant. TED shall not be responsible for the payment of any
Losses incurred by Buyer as a result of the breach of a specific covenant
contained in this Agreement by Planet.
(5) Notwithstanding this Section 6.2(d)(ii) to the
contrary, AHP shall be responsible for the payment of all Losses incurred by
Buyer as a result of the breach of a specific covenant contained in this
Agreement by AHP or RMP or any entity under the control of either AHP or RMP,
and neither TED nor any entity under TED's control shall be responsible for any
such Loss, unless TED or an entity under TED's control participated in the
breach of such covenant.
(6) Notwithstanding this Section 6.2(d)(ii) to the
contrary, RMP and AHP shall each be responsible for the payment of all Losses
incurred by Buyer as a result of the breach of a specific covenant contained in
this Agreement by an entity under their joint control (excluding Seller), and
neither TED nor any other entity (including Seller) shall be responsible for any
such Loss, unless TED or such entity participated in the breach of such
covenant.
(iii) Planet Liability. The aggregate liability of Planet under
----------------
this Agreement shall be capped at Eight Million Dollars ($8,000,000); provided,
however, that Planet's aggregate liability shall be increased to Eleven Million
Dollars ($11,000,000) in the event of Planet's willful material failure to
perform its obligations under Section 4.4(b). Planet's liability cap under this
Section 6.2(d)(iii) shall be reduced by any Losses or Excess Losses paid by RMP
or AHP.
(iv) Seller and Buyer Liability. The aggregate liability of
--------------------------
each of Seller and Buyer under this Agreement shall be capped at Twenty-Three
Million Dollars ($23,000,000).
(e) Deductible. Claims for Losses made by Buyer on the one hand or
----------
Seller and/or the Shareholders on the other hand pursuant to this Agreement
shall be payable only if the aggregate amount of all such Losses exceeds Five
Hundred Thousand Dollars ($500,000), in which case the only amount of such
Losses in excess of $500,000 shall be paid by Seller and/or the Shareholders to
Buyer or by Buyer to the Seller and/or the Shareholders, as the case may be.
(f) Exceptions. Notwithstanding anything contained herein to the
----------
contrary, (i) the limitations on liability set forth in this Article VI, shall
not apply with respect to Seller and each
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Shareholder, as the case may be, if the Loss for which Buyer is seeking
indemnity is for Taxes attributable to the Assets, Seller or the Shareholders
for any period on or prior to the Closing Date (except that 6.2(d)(ii) shall
apply) or (ii) with respect to Losses incurred by a party arising from an act of
fraud by another party, the defrauded parties shall have, in addition to the
rights and remedies provided herein, all other rights and remedies available to
a defrauded party at law or in equity.
(g) Payment.
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(i) Subject to Section 6.2(h) and paragraphs (g)(i)(1) and
(g)(i)(2) below, the Indemnitors shall promptly, and in no event later than
thirty (30) days after delivery of the Claim Notice delivered by Buyer, pay to
Buyer all Losses set forth in such Claim Notice, by (x) wire transfer of
immediately available funds, (y) the delivery of that number of Shares equal to
the amount of the applicable Loss divided by the Indemnity Value (as defined
below), or (z) any combination of the foregoing.
(1) Notwithstanding this Section 6.2(g)(i) to the
contrary, the liability, if any, of RMP and AHP with respect to Deliberate Bad
Acts occurring on or prior to 15 months after the Closing Date, shall be
satisfied only as follows: first, by the delivery in no event later than thirty
(30) days after delivery of the Claim Notice delivered by Buyer of that number
of Shares, not to exceed 312,500 Shares in the aggregate (i.e. up to 156,250
Shares for each of RMP and AHP), equal to the amount of Buyer's Losses in
respect of such Deliberate Bad Acts divided by the Indemnity Value (as defined
in subclause (C) of Section 6.2(g)(iii)), and to the extent that Buyer's Losses
exceed 312,500 multiplied by the Indemnity Value, then only by wire transfer of
immediately available funds.
(2) Notwithstanding this Section 6.2(g)(i) to the
contrary, the aggregate liability, if any, of RMP and AHP with respect to
Deliberate Bad Acts occurring after 15 months after the Closing Date, and all
liability of TED with respect to Deliberate Bad Acts whenever they shall occur
shall be satisfied by only by wire transfer of immediately available funds no
later than thirty (30) days after delivery of the Claim Notice delivered by
Buyer.
(ii) Subject to Section 6.2(h), Buyer shall promptly, and in no
event later than thirty (30) days after delivery of the Claim Notice by Seller
and/or the Shareholders, pay to Seller and/or the Shareholders, as applicable,
all Losses set forth in such Claim Notice, by wire transfer of immediately
available funds.
(iii) For the purpose of this Agreement, "Indemnity Value" shall
mean (A) to the extent that a Loss is paid or accrued after a Buyer IPO, the
average closing price of Buyer Common Stock quoted on any exchange on which
Buyer Common Stock is listed, as published in The Wall Street Journal for the
ten (10) trading days prior to but not including the date of delivery of such
payment or accrual of the Loss(es) set forth in the Claim Notice, (B) to the
extent that a Loss is paid or accrued prior to a Buyer IPO, 0.85 multiplied by
the price per share (on an as converted to Buyer Common Stock basis) at which
Buyer shall have sold its then most recently issued series of Preferred Stock,
and (C) to the extent a Loss arises from a Deliberate Bad Act by Seller or any
Shareholder, whether paid or accrued prior to or after a Buyer IPO, 0.85
multiplied by the price per
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share (on an as-converted to Buyer Common Stock basis) at which Buyer sells its
next issued series of Preferred Stock after the date of this Agreement.
Notwithstanding the foregoing to the contrary, in no event shall the Indemnity
Value be less than 0.85 multiplied by the price per share (on an as-converted to
Buyer Common Stock basis) at which Buyer sells its next issued series of
Preferred Stock after the date of this Agreement.
(h) Resolution of Conflicts; Arbitration.
------------------------------------
(i) If indemnification is being sought under Section 6.2(a)
from RMP, AHP and/or Seller, the Indemnitors' Agent (as defined below) shall be
empowered to take all necessary and appropriate Indemnitors' Agent Action (as
defined below) in respect thereof. If a party objects in writing to any claim or
claims made in any Claim Notice within thirty (30) days after delivery of such
Claim Notice, the parties shall attempt in good faith to agree upon the rights
of the respective parties with respect to each of the claims in the Claim
Notice. If the parties should so agree, a memorandum setting forth such
agreement shall be prepared and signed by the parties and such memorandum shall
be final, binding and conclusive upon all parties hereto.
(ii) All disputes arising under this Agreement shall be
resolved by arbitration, except that each party shall have the right to seek
equitable and injunctive relief from a court of competent jurisdiction. If a
dispute arises under this Agreement or if no agreement as to a party's
objections to any claim in a Claim Notice can be reached, in each case after
good faith negotiation, any party may demand arbitration of the matter unless
the amount of the damage or loss is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until an amount is
ascertained or all parties agree to arbitration; and in either event the matter
shall be settled by arbitration conducted by one arbitrator mutually agreeable
to Buyer and the Indemnitors' Agent. In the event that, within thirty (30) days
after a party submits any dispute to arbitration, the parties cannot mutually
agree on an arbitrator, Buyer and the Indemnitors' Agent shall each select one
arbitrator within ten (10) days following such thirty (30)-day period, and the
two arbitrators so selected shall select a third arbitrator within ten (10) days
following such ten (10)-day period. The arbitrator or arbitrators shall set a
limited time period not to exceed forty-five (45) days and establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgement of the arbitrator or a majority of
the three arbitrators, as the case may be, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrator or
a majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a court of competent
law or equity, should the arbitrator or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
the Claim Notice shall be binding and conclusive upon the parties to this
Agreement. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrator(s). The arbitrator(s) shall not have
the authority to award a party more than that requested in the Claim Notice
(except that the arbitrator may award punitive
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damages to Buyer only in connection with Deliberate Bad Acts, after taking into
consideration the Indemnity Value) or in excess of the limitations imposed by
Section 6.2. Within ten (10) business days of any entry of a decision of the
arbitrator(s) requiring payment by Buyer, Buyer shall make such payment to the
Indemnitors' Agent. Within ten (10) business days of a decision of an
arbitrator(s) requiring payment by any of the Indemnitors, such Indemnitors
shall make such payment to Buyer.
(iii) Judgment upon any award rendered by the arbitrator(s) may
be entered in any court having jurisdiction. Any arbitration shall be held in
Wilmington, Delaware, U.S.A., under the commercial arbitration rules then in
effect of the American Arbitration Association. The arbitrator(s) shall
determine how all expenses of and fees of the arbitrator(s) and the
administrative fees of the American Arbitration Association shall be paid.
(i) The term "Indemnitors' Agent" shall have the meaning as set forth
herein. Seller, TED, RMP and AHP agree that, in the event a claim for a Loss is
made against Seller, then RMP or AHP, on the one hand, and TED, on the other
hand, acting jointly, are hereby appointed as agents and attorneys-in-fact for
the Seller and shall be deemed the Indemnitors' Agent for Seller when acting
jointly. RMP and AHP agree that, in the event that a claim for a Loss is made
against either RMP or AHP, each of RMP and AHP acting individually are hereby
appointed as agent and attorney-in-fact for each other and shall be deemed to be
the Indemnitors' Agent for each other. In the event that a claim for a Loss is
made against TED, TED shall be deemed to be the Indemnitors' Agent for TED. The
Indemnitors' Agent is empowered to give and receive notices and communications,
to authorize or object to Buyer's actions (including those pursuant to this
Section 6.2), to negotiate and settle any disputes with Buyer and to demand
arbitration and comply with the orders of courts and awards of arbitrators with
respect to such adjustments, and to take all actions necessary or appropriate in
the judgment of the Indemnitors' Agent for the accomplishment of the foregoing,
all to the extent set forth in this Agreement. In the case of a claim for a Loss
made against Seller, RMP, AHP, or TED, such parties agree that the decisions,
acts, consents and instructions of the applicable Indemnitors' Agent with regard
to matters for which such Indemnitors' Agent is empowered to act on their behalf
(each an "Indemnitors' Agent Action") shall be final, binding and conclusive
upon such parties, as if each such party had taken such Indemnitors' Agent
Action itself and on its own behalf. Buyer may rely upon any Indemnitors' Agent
Action as being the decision, act, consent or instruction of the party for whom
such Indemnitors' Agent acts as an agent. Buyer is hereby relieved of any
liability to any person for any acts done by them in accordance with an
Indemnitors' Agent Action. The Indemnitors' Agent shall not be liable for any
act done or omitted as Indemnitors' Agent while acting in good faith and in the
exercise of reasonable judgment. Seller hereby agrees to indemnify and hold
harmless RMP, AHP and TED against any loss, liability or expense incurred
without negligence or bad faith on his part as Indemnitors' Agent and arising
out of or in connection with the acceptance or administration of the
Indemnitors' Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by him. A new Indemnitors' Agent on
behalf of Seller may be appointed by the unanimous consent of RMP or AHP (to the
extent alive), on the one hand, and TED (to the extent alive), on the other
hand, and upon twenty (20) business days written notice to Buyer. In the event
of death of an Indemnitors' Agent representing Seller, a new Indemnitors' Agent
shall be appointed
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within fifteen (15) days (by court order if RMP or AHP, on the one hand, and
TED, on the other hand, cannot agree). In the event of the death or disability
of TED, TED's executor or guardian, as the case may be, may select or act as the
Indemnitors' Agent on behalf of TED. In the event of the death or disability of
both RMP and AHP, RMP's executor or guardian, as the case may be, may select or
act as the Indemnitors' Agent on behalf of RMP, and AHP's executor or guardian,
as the case may be, may select or act as the Indemnitors' Agent on behalf of
AHP.
(j) Third-Party Claims. In the event a party becomes aware of a
------------------
third-party claim which such party believes may result in a Loss to such party,
such party shall notify the other parties of the claim, and such parties (in the
case of the Indemnitors, the notice shall be provided to the applicable
Indemnitors' Agent) shall be permitted to participate in the defense of such
claim. The party seeking indemnification shall have the right in its sole
discretion to settle any such claim. In the event that the party from whom
indemnification is sought (in the case of the Indemnitors, the Indemnitors'
Agent) has consented to any settlement (which consent shall not be unreasonably
withheld), the other parties shall have no power or authority to object to such
party's right to indemnification for the amount of any such settlement; in the
event that no consent is given to such settlement, then, provided that the
consent was reasonably withheld, the arbitrator(s) shall determine the amount of
the Loss subject to indemnification, without regard to the actual amount of the
settlement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Except as provided in Section 7.2 below, this Agreement
-----------
may be terminated and the Acquisition abandoned at any time prior to the
Closing, but in no event after Closing:
(a) by mutual consent of Seller, the Shareholders and Buyer;
(b) by Buyer if: (i) there shall be a final nonappealable order of a
foreign, federal or state court in effect preventing consummation of the
Acquisition, or (ii) there shall be any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Acquisition by any
Governmental Entity that would make consummation of the Acquisition illegal;
(c) by Seller or Buyer if such party is not in material breach of its
obligations under this Agreement and if the Closing has not occurred before 5:00
p.m. (California time) on October 31, 1999;
(d) by Seller or Buyer if there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Acquisition, by any Governmental Entity, which would: (i) prohibit Buyer's
ownership or operation of all or any portion of the Assets or (ii) compel Buyer
or Seller to dispose of or hold separate all or a portion of the business or
assets
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<PAGE>
(including without limitation the Assets) of Buyer or any of its affiliates as a
result of the Acquisition;
(e) by Buyer if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any covenant or agreement
contained in this Agreement on the part of Seller or any Shareholder and such
breach has not been cured within twenty (20) business days after written notice
to Seller and the Shareholders; provided, however, that, no cure period shall be
required for a breach which by its nature cannot be cured;
(f) by Seller if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any covenant or
agreement contained in this Agreement on the part of Buyer and such breach has
not been cured within twenty (20) business days after written notice to Buyer;
provided, however, that, no cure period shall be required for a breach which by
its nature cannot be cured; and
(g) by Buyer if the required approvals of the stockholders of Seller
contemplated by this Agreement shall not have been obtained by reason of the
failure to obtain the required vote upon a vote taken at a meeting of
stockholders, duly convened therefor or at any adjournment thereof.
Where action is taken to terminate this Agreement pursuant to this Section 7.1,
it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
7.2 Effect of Termination. In the event of termination of this Agreement
---------------------
prior to Closing, this Agreement shall become void and there shall be no
liability or obligation on the part of Buyer, Seller or the Shareholders, or the
respective officers, directors or stockholders of Buyer or Seller, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, the provisions of Sections 4.1, 4.2,
6.2(h), and this Section 7.2 and Article VIII of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
7.3 Amendment. Except as is otherwise required by applicable law after the
---------
stockholders of Seller approve this Agreement, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Closing, Buyer and Seller
-----------------
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations of the other, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
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7.5 Effect of Closing. Effective upon Closing, this Article VII shall be
-----------------
of no further force or effect and claims may not be asserted by any party.
ARTICLE VIII
GENERAL PROVISIONS
------------------
8.1 Specific Performance. The parties agree that irreparable damage would
--------------------
occur in the event that any of the post-Closing covenants contained in Sections
1.1, 1.3, 4.4 and 4.8 were not performed in accordance with their specific terms
or were otherwise breached. Moreover, each party's post-Closing obligations
under the foregoing Sections of this Agreement are unique. If any party should
default in its obligations under those post-Closing covenants contained in
Sections 1.1, 1.3, 4.4 or 4.8, the parties each acknowledge that it would be
extremely impracticable to measure the resulting damages. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of those post-Closing covenants contained in Sections 1.1, 1.3,
4.4 or 4.8 and, subject to Section 8.8, to enforce specifically such provisions
hereof in any court of the U.S. or any state having jurisdiction, this being in
addition to any other remedy provided under this Agreement.
8.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given (i) when received if delivered personally or
(ii) the next day if delivered overnight by commercial delivery service, or
(iii) three (3) days after mailing by registered or certified mail (return
receipt requested) to the parties at the following address (or at such other
address for a party as shall be specified by like notice):
(a) if to Seller or the respective Shareholders to:
Robert M. Potamkin
7714 Fisher Island Drive
Fisher Island, FL 33109
Alan H. Potamkin
Casaurina Concourse
Coral Gables, FL 33143
Ted Bessen
101 W. 79th Street, Apt. 4G
New York, NY 10024
with copies to:
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Kleinbard, Bell & Brecker, LLC
1900 Market Street, Suite 700
Philadelphia, PA 19103
Attention: Murray I. Blackman, Esq.
Elias, Goodman, Shanks & Zizmor, LLP
370 Lexington Avenue, 19th Floor
New York, NY 10017
Attention: Andrew S. Zizmor, Esq.
The Potamkin Companies
130 Spruce Street, Suite 30B
Philadelphia, PA 19106
Attention: John P. Hickey, Esquire
(b) if to Buyer, to:
CarsDirect.com, Inc.
4312 Woodman Avenue, 3rd Floor
Sherman Oaks, CA 91423
Attention: Chief Financial Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Marty Korman, Esq.
Cynthia M. Greene, Esq.
8.3 Interpretation. When a reference is made in this Agreement to
--------------
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
8.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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8.5 Entire Agreement; Nonassignability; Parties in Interest.
-------------------------------------------------------
(a) This Agreement and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits and the Schedules, (i) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and may be amended only by a writing
signed by the parties; (ii) are not intended to confer upon any other person or
entity (including without limitation any stockholder, affiliate or creditor of
the parties) any rights or remedies hereunder; and (iii) shall not be assigned
by operation of law or otherwise, except as otherwise specifically provided
herein.
(b) Buyer may not, without the prior written consent of Seller's
Designee, sell, assign, grant or otherwise transfer the Marks, except that Buyer
shall have the right to:
(i) assign the Marks to any purchaser of substantially all of
its assets or capital stock so long as (i) such assignment is within the scope
of, is subject to the limitations set forth in, and otherwise complies with,
this Agreement; and (ii) such purchaser or successor executes and delivers to
Seller's Designee a written agreement to be bound by the terms of Sections
4.4(a), 4.4(d), 4.4(e), 4.4(f), 4.4(g), and 4.4(h), Article VI (as it relates to
the performance of such obligations) and Article VIII of this Agreement; and
(ii) sublicense (with right of further sublicense) any or all
of the Marks to any of its wholly-owned subsidiaries (now or hereafter existing)
so long as: (i) such sublicense is within the scope of, is subject to the
limitations set forth in, and otherwise complies with, this Agreement; (ii)
Buyer remains responsible for all of Buyer's and any sublicensees' obligations
under this Agreement; and (iii) each sublicensee executes and delivers to
Seller's Designee a written agreement to be bound by the terms of Sections
4.4(a), 4.4(d), 4.4(e), 4.4(f), 4.4(g), 4.4(h), Article VI (as it relates to the
performance of such obligations), and Article VIII of this Agreement.
8.6 Severability. In the event that any provision of this Agreement, or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Remedies Cumulative; Attorneys' Fees. Any and all remedies herein
------------------------------------
expressly conferred upon a party will be deemed cumulative with and not
exclusive, of any other remedy conferred hereby, and the exercise by a party of
any one remedy will not preclude the exercise of any other remedy conferred
hereby. In the event of any action arising out of this Agreement, the prevailing
party(ies) shall be entitled to recover reasonable attorney's fees and other
reasonable costs incurred in connection therewith. All of the remedies of the
parties are set forth herein and are subject to the limitations provided for
herein; provided, however, that with respect to losses incurred
38
<PAGE>
by a party arising from an act of fraud by a party, the defrauded party(ies)
shall have, in addition to the rights and remedies provided herein, all other
rights and remedies available to a defrauded party at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of law. Each of
the parties hereto irrevocably consents to the exclusive jurisdiction and venue
of any court located within the State of Delaware, in connection with any matter
based upon or arising out of this Agreement or the matters contemplated herein,
agrees that process may be served upon them in any manner authorized by the laws
of the State of Delaware for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction and
such process. Notwithstanding the foregoing to the contrary, all disputes among
the parties based upon or arising out of this Agreement or the matters
contemplated herein will be resolved pursuant to Section 6.2, except that each
party may enforce an arbitration award and seek equitable and injunctive
non-monetary relief from a court located in the State of Delaware.
8.9 Rules of Construction. The parties agree that they have been
---------------------
represented by counsel during the negotiation, preparation and execution of this
Agreement and have each participated in the drafting of this Agreement, and
therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
(Remainder of page intentionally left blank).
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first written above.
"BUYER"
CARSDIRECT.COM, INC.
By: /s/ Scott Painter
------------------------------------
Name: Scott Painter
----------------------------------
Title: CEO
---------------------------------
"SELLER"
POTAMKIN AUTO CENTER, LTD.
By: /s/ Ted M. Bessen
-----------------------------------
Name: Ted M. Bessen
---------------------------------
Title: President
--------------------------------
"SHAREHOLDERS"
/s/ Robert M. Potamkin
---------------------------------------
Robert M. Potamkin
/s/ Alan H. Potamkin
---------------------------------------
Alan H. Potamkin
/s/ Ted M. Bessen
---------------------------------------
Ted M. Bessen
*****ASSET PURCHASE AGREEMENT*****
<PAGE>
The undersigned hereby agrees to the
provisions of Section 4.4, Article VI
and Article VIII as they relate to the
undersigned and its subsidiaries.
"PLANET"
PLANET AUTOMOTIVE GROUP, INC.
By: /s/ Robert M. Potamkin
------------------------------
Name: Robert M. Potamkin
----------------------------
Title: Co-CEO and Co-Chairman
---------------------------
<PAGE>
EXHIBIT 2.3
ROLL-UP AGREEMENT
This Roll-Up Agreement (this "Agreement") is entered into as of December
16, 1999 by and among CarsDirect.com, Inc., a Delaware corporation
("CarsDirect.com"), BANK ONE CORPORATION, a Delaware corporation ("Bank One"),
Bank One, N.A., Columbus, Ohio, a national banking association organized under
the laws of the United States and a wholly owned subsidiary of Bank One ("Bank
One NA"), Banc One Insurance Services Corporation, a Wisconsin corporation
("Banc One Insurance Services Corporation") and CD1Financial.com, LLC, a
Delaware limited liability company ("CD1").
RECITALS
A. CarsDirect.com and Bank One entered into the Operating Agreement of CD1
dated May 28, 1999 (the "Operating Agreement"), pursuant to which Bank One NA,
as successor to Banc One Vehicle Finance Corporation, an Ohio corporation, its
wholly-owned subsidiary, was designated as a Member (as defined in the Operating
Agreement) of CD1, and pursuant to which Bank One NA currently holds all of Bank
One's Interest (as defined in the Operating Agreement) in CD1, which such
Interest includes a 49% Allocation Percentage (as defined in the Operating
Agreement) in CD1.
B. As of October 31, 1999, the total assets net of total liabilities of CD1
equaled approximately $3.8 million.
C. Bank One desires to sell, and CarsDirect.com desires to purchase, the
entire Interest in CD1 held by Bank One, Bank One NA and their affiliates for an
aggregate purchase price of $2,000,000; immediately prior to such sale, Bank One
and CarsDirect.com desire to amend and restate the Operating Agreement of CD1 in
the form set forth as Exhibit A hereto (the "Amended and Restated Operating
---------
Agreement").
D. CarsDirect.com, Bank One and CD1 entered into a Master Agreement dated
May 28, 1999 (the "Master Agreement").
E. CarsDirect.com desires to pay, and Bank One desires to receive,
$30,874,889, in exchange for the termination of the Master Agreement, including
the termination of the exclusivity provisions set forth therein, and in
settlement of all outstanding liabilities, claims and other obligations arising
from or related to the Master Agreement.
F. In connection with the foregoing, CarsDirect.com and Bank One desire
to set forth the nature of their business relationship following the date hereof
pursuant to the Term Sheet attached hereto as Exhibit B (the "Term Sheet"),
---------
which the parties desire to make legally binding.
G. Bank One NA holds a warrant (the "Warrant") dated August 18, 1999, to
acquire shares of CarsDirect.com Common Stock.
<PAGE>
H. Pursuant to the terms of the Warrant, the parties wish to confirm
that Bank One NA owns a currently exercisable Warrant to purchase 2,085,970
shares of CarsDirect.com Common Stock (referred to in the Warrant as the
"Determination Number").
I. In addition, in connection with the foregoing, CarsDirect.com and Bank
One desire to terminate the Amendment No. 1, dated August 18, 1999, to the
CarsDirect.com Third Amended and Restated Investor Rights Agreement dated May 7,
1999 (the "Rights Agreement Amendment") entered into between CarsDirect.com,
Bank One and certain stockholders of CarsDirect.com.
J. CarsDirect.com, Banc One Insurance Services Corporation and CD1 entered
into an Insurance Services Agreement dated August 3, 1999 (the "Insurance
Agreement").
K. CarsDirect.com, CD1 and Banc One Insurance Services Corporation desire
to terminate the Insurance Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties hereto agree as follows:
1. The Restatement of the Relationship. At the Closing (as defined below)
-----------------------------------
and subject to and upon the terms and conditions of this Agreement, the
following shall occur:
(a) CarsDirect.com shall pay and deliver to Bank One NA by wire
transfer of immediately available funds to an account designated by Bank One the
aggregate amounts of $30,874,889, on account of the agreements set forth in
Section 4 below, and $2,000,000, on account of the sale of the Interest in CD1
to CarsDirect.com pursuant to Section 1(b) below.
(b) Bank One NA (and, to the extent applicable, Bank One and any of
its affiliates) shall transfer to CarsDirect.com all of its right, title, duties
and interest in and to its Interest in CD1.
(c) CarsDirect.com and Bank One NA shall execute and deliver the
Amended and Restated Operating Agreement.
(d) Bank One shall execute and deliver the Fourth Amended and Restated
Investor Rights Agreement ("Rights Agreement") dated October 27, 1999, between
CarsDirect.com and certain of its stockholders.
(e) The representatives of Bank One on the Board of Directors of CD1
shall submit their resignations from the Board of Directors of CD1 effective as
of the Closing.
(f) The parties hereto agree that the Amended and Restated Operating
Agreement shall be executed and deemed effective immediately prior to those
other actions taken at the Closing.
(g) The Warrant shall become immediately exercisable by its terms for
2,085,970 shares of CarsDirect.com Common Stock.
-2-
<PAGE>
(h) CarsDirect.com and Bank One hereby agree that the terms of the
Term Sheet shall be binding upon the parties identified therein until such time
as any such terms shall terminate in accordance with the terms of the Term Sheet
or as otherwise agreed to by said parties in writing.
(i) In recognition of the liquidation of Bank One Vehicle Finance
Corporation, CarsDirect.com shall issue to Bank One NA a replacement Warrant
pursuant to Section 3 of the Warrant with terms identical to the Warrant
previously held by Bank One Vehicle Finance Corporation, and the Warrant issued
to Banc One Vehicle Finance Corporation shall thereupon be cancelled.
2. Closing. The closing of the performance of the actions required by
-------
this Agreement shall take place at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, CA 94304 at 10:00 a.m., on the date
hereof or at such other time and place as the parties hereto shall mutually
agree.
3. Survival of Certain Obligations under Operating Agreement.
---------------------------------------------------------
CarsDirect.com, Bank One and Bank One NA hereby acknowledge and agree that
following the Closing, Bank One NA shall cease to be a Member (as defined in the
Operating Agreement) of CD1, the Interests in CD1 shall be owned entirely by
CarsDirect.com (and CarsDirect.com shall have a 100% Allocation Percentage in
CD1) and that notwithstanding Sections 7 or 10.9 of the Operating Agreement
(which shall not apply to the transactions described in this Agreement or to
Bank One or its affiliates), neither Bank One nor any of its affiliates shall
have any further rights or obligations as an owner of an Interest or as a
Member, or otherwise, with respect to CD1, including without limitation that
Bank One and its affiliates shall have no further liability or obligation under
Section 3.1(b) of the Operating Agreement. Other than as set forth in this
Agreement, the foregoing sentence shall not limit or restrict the rights of Bank
One NA under the Warrant, Section 6.16 of the Operating Agreement or Section 7
of this Agreement. Notwithstanding the foregoing, Bank One NA shall remain
subject to and shall retain the benefits of Sections 6.12(a), 6.13, 6.14 and 9
of the Operating Agreement, with respect to the period prior to Closing, and the
foregoing sections of the Operating Agreement shall survive with respect to such
periods notwithstanding the amendment of the Operating Agreement or liquidation
or dissolution of CD1.
4. Termination of Master Amendment. CarsDirect.com, CD1 and Bank One
-------------------------------
agree that as of the Closing, the Master Agreement (including any amendments
thereto and derivatives therefrom, other than this Agreement, the Amended and
Restated Operating Agreement, the Warrant, the Rights Agreement and the Term
Sheet (together, the "Continuing Agreements")) shall be terminated and
thereafter shall be deemed null and void; provided, however, that
notwithstanding anything in this Agreement to the contrary, the indemnification
provisions of Section 22 of the Master Agreement shall survive and remain in
full force and effect with respect to Damages (as defined in the Master
Agreement) resulting from claims brought by third parties unaffiliated with
either CarsDirect.com, CD1 or Bank One.
5. Termination of Insurance Agreement. CarsDirect.com, CD1 and Bank One
----------------------------------
agree that as of the Closing, the Insurance Agreement (including any amendments
thereto and derivatives therefrom, other than the Continuing Agreements) shall
be terminated and thereafter shall be deemed null and void.
-3-
<PAGE>
6. Termination of Rights Agreement Amendment. CarsDirect.com and Bank
-----------------------------------------
One agree that as of the Closing, the Rights Agreement Amendment shall be
terminated and thereafter shall be deemed null and void.
7. Registration Rights.
-------------------
(a) CarsDirect.com hereby agrees that on and after the Closing, (i)
Bank One NA will be a "Holder" (as such term is defined in the Rights
Agreement), and (ii) the 2,085,970 shares of CarsDirect.com Common Stock
issuable pursuant to the exercise of the Warrant (and shares of CarsDirect.com
Common Stock issuable in respect of the foregoing upon any stock split, stock
dividend, recapitalization or similar event) will be "Registrable Securities"
(as such term is defined in the Rights Agreement), in each case subject to the
execution of the Rights Agreement by Bank One.
(b) Notwithstanding Section 7(a) hereof, in lieu of such other
legends as may be required pursuant to Section 3 of the Rights Agreement, any
stock certificate(s) representing shares of capital stock of CarsDirect.com
issued to Bank One or Bank One NA shall be stamped or otherwise imprinted with a
legend in substantially the following form (in addition to any legends required
by agreement or by applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY
NOT BE TRANSFERRED OTHER THAN TO BANK ONE CORPORATION (OR A MAJORITY
OWNED SUBSIDIARY THEREOF WHICH QUALIFIES AS AN "ACCREDITED INVESTOR")
UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSFER OR IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH TRANSFER
MAY BE MADE PURSUANT TO RULE 144 OR REGISTRATION UNDER THE ACT IS
OTHERWISE UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE
ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCKUP
PERIOD OF UP TO 180 DAYS FOLLOWING THE EFFECTIVE DATE OF A
REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH LOCKUP PERIOD IS
BINDING ON THE TRANSFEREES OF THESE SHARES.
(c) Notwithstanding the provisions of the third sentence of Section 4
of the Rights Agreement, CarsDirect.com agrees that Bank One and Bank One NA
shall not be required to provide prior written notice of the transfer of
Restricted Securities (as such term is defined in the Rights Agreement) with
respect to any transfer to Bank One or any majority-owned subsidiary of either
Bank One or Bank One NA, provided that any such transfer after the date hereof
shall not deemed effective until such transferee executes and becomes subject to
the Rights Agreement. Bank
-4-
<PAGE>
One and/or Bank One NA shall notify CarsDirect.com of the identity of any such
subsidiary transferee as soon as practicable with respect to any such transfer
(unless a registration statement is in effect with respect to such Restricted
Securities).
(d) CarsDirect.com hereby agrees that with respect to the second
sentence of Section 11 of the Rights Agreement, the term "Purchaser" shall be
deemed to include Bank One and/or Bank One NA.
(e) Subject to Sections 6(c) and
(d) of the Rights Agreement, notwithstanding those minimum stock ownership
requirements set forth in Section 6(a) of the Rights Agreement, CarsDirect.com
hereby agrees to provide to Bank One or to a majority-owned subsidiary of Bank
One designated by Bank One the financial information described in Section
6(a)(i), (ii), and (iii) of the Rights Agreement, without regard to any
subsequent amendments to Section 6(a), while Bank One or Bank One NA and/or any
affiliate(s) (as defined in Rule 405 of the Securities Act) thereof continue to
hold the Warrant prior to exercise, or, following exercise of the Warrant,
continue to hold at least the lesser of (i) 1,000,000 shares of CarsDirect.com
Common Stock (as adjusted for recapitalizations, stock combinations, stock
dividends, stock splits and the like) or (ii) fifty percent (50%) of the shares
of CarsDirect.com Common Stock initially acquired by Bank One NA pursuant to the
exercise of the Warrant (as adjusted for recapitalizations, stock combinations,
stock dividends, stock splits and the like).
(f) Bank One and Bank One NA hereby expressly agree that each of them,
and any transferee of any shares of CarsDirect.com capital stock acquired by
them pursuant to the exercise of the Warrant or otherwise, shall be subject to
the lockup agreement set forth in Section 7 of the Rights Agreement.
8. Publicity. CarsDirect.com shall not issue any press release or other
---------
public communication that is not routine in nature concerning the relationship
of CarsDirect.com with Bank One or any Bank One affiliate, without the prior
approval of Bank One or such affiliate.
9. Representations and Warranties of CarsDirect.com. and CD1.
---------------------------------------------------------
(a) Organization and Standing. CarsDirect.com is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
Delaware and is in good standing under such laws. CD1 is a limited liability
company duly organized and validly existing under, and by virtue of, the laws of
the State of Delaware and is in good standing under such laws.
(b) Corporate Power. CarsDirect.com has all requisite legal and
corporate power and authority to execute and deliver the Roll-Up Agreements (as
defined below) and to carry out and perform its obligations under the terms of
the Roll-Up Agreements. For purposes of this Section 9 and Section 10,
references to the "Roll-Up Agreements" shall be deemed a reference to each of
this Agreement, the Amended and Restated Operating Agreement and the Rights
Agreement, insofar as the applicable party is a party thereto.
(c) Authorization; Compliance with Laws. All corporate action on the
part of CarsDirect.com, its officers, directors and stockholders necessary for
the authorization, execution,
-5-
<PAGE>
delivery and performance of the Roll-Up Agreements by CarsDirect.com, and the
performance of all of CarsDirect.com's obligations under the Roll-Up Agreements,
has been taken. The Roll-Up Agreements, when executed and delivered by
CarsDirect.com, shall constitute valid and binding obligations of
CarsDirect.com, enforceable in accordance with their terms. The execution,
delivery and performance of the Roll-Up Agreements by CarsDirect.com, and the
performance of its business thereunder, will not violate in any material respect
any law, rule, regulation, order, agreement, settlement or judgment applicable
to CarsDirect.com. All corporate action on the part of CD1, its officers,
directors and members necessary for the authorization, execution, delivery and
performance of the Roll-Up Agreements by CD1, and the performance of all of
CD1's obligations under the Roll-Up Agreements, has been taken. The Roll-Up
Agreements, when executed and delivered by CD1, shall constitute a valid and
binding obligation of CD1, enforceable in accordance with its terms. The
execution, delivery and performance of the Roll-Up Agreements by CD1, and the
performance of its business hereunder, will not violate in any material respect
any law, rule, regulation, order, agreement, settlement or judgment applicable
to CD1.
(d) Litigation. There is no action, suit, proceeding or, to
CarsDirect.com's knowledge, investigation pending or, to CarsDirect.com's
knowledge, currently threatened against CarsDirect.com that questions the
validity of the Roll-Up Agreements, or the right of CarsDirect.com to enter into
each such agreement, or to consummate the transactions contemplated hereby or
thereby. CarsDirect.com is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality which prohibits the transactions contemplated by the Roll-Up
Agreements. There is no such action, suit or proceeding brought by
CarsDirect.com currently pending or which CarsDirect.com currently intends to
initiate. There is no action, suit, proceeding or, to CD1's knowledge,
investigation pending or, to CD1's knowledge, currently threatened against CD1
that questions the validity of the Roll-Up Agreements, or the right of CD1 to
enter into the Roll-Up Agreements, or to consummate the transactions
contemplated hereby. CD1 is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality which prohibits the transactions contemplated by the Roll-Up
Agreements. There is no such action, suit or proceeding brought by CD1 currently
pending or which CD1 currently intends to initiate.
(e) Consents and Approvals. No consent, approval, filing, exemption,
waiver or registration with any governmental entity or any other Person is
required to be made or obtained by CarsDirect.com or CD1 in connection with the
execution, delivery or performance of the Roll-Up Agreements or the consummation
of the transactions contemplated hereby or thereby, other than in the case of
the Term Sheet, various government licenses and approvals required in various
jurisdictions to engage in the business contemplated thereunder.
10. Representations and Warranties of Bank One and Bank One NA.
----------------------------------------------------------
(a) Organization and Standing. Bank One is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
Delaware and is in good standing under such laws. Bank One NA is a national
banking association duly organized and validly existing under, and by virtue of,
the laws of the United States and is in good standing under such laws.
-6-
<PAGE>
(b) Corporate Power. Bank One has all requisite legal and corporate
power and authority to execute and deliver the Roll-Up Agreements and to carry
out and perform its obligations under the terms of the Roll-Up Agreements. Bank
One NA has all requisite legal and corporate power and authority to execute and
deliver the Roll-Up Agreements and to carry out and perform its obligations
under the terms of the Roll-Up Agreements.
(c) Authorization; Compliance with Laws. All corporate action on the
part of Bank One, its officers, directors and stockholders necessary for the
authorization, execution, delivery nd performance of the Roll-Up Agreements, has
been taken. The Roll-Up Agreements, has been taken. The Roll-Up Agreements, when
executed and delivered by Bank One, shall constitute valid and binding
obligations of Bank One, enforceable in accordance with their terms. The
execution, delivery and performance of the Roll-Up Agreements by Bank One, and
the performance of its business thereunder, will not violate in any material
respect any law, rule, regulation, order, agreement, settlement or judgment
applicable to Bank One. All corporate action on the part of Bank One NA, its
officers, directors and stockholders necessary for the authorization, execution,
delivery and performance of the Roll-Up Agreements by Bank One NA, and the
performance of all of Bank One NA's obligations under the Roll-Up Agreements,
has been taken. The Roll-Up Agreements, when executed and delivered by Bank One
NA, shall constitute the valid and binding obligations of Bank One NA,
enforceable an accordance with their terms. The execution, delivery and
performance of the Roll-Up Agreements by Bank One NA, and the performance of its
business thereunder, will not violate in any material respect any law, rule,
regulation, order, agreement, settlement or judgement applicable to Bank One NA.
(d) Litigation. There is no action, suit, proceeding or, to Bank One's
knowledge, investigation pending or, to Bank One's knowledge, currently
threatened against Bank One that questions the validity of the Roll-Up
Agreements, or the right of Bank One to enter into each such agreement, or to
consummate the transactions contemplated hereby or thereby. Bank One is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality which prohibits the
transactions contemplated by the Roll-Up Agreements. There is no action, suit or
proceeding brought by Bank One currently pending or which Bank One currently
intends to initiate with respect to the transactions contemplated by the Roll-Up
Agreements. There is no action, suit, proceeding or, to Bank One NA's knowledge,
investigation pending or, to Bank One NA's knowledge, currently threatened
against Bank One NA that questions the validity of the Roll-Up Agreements, or
the right of Bank One NA to enter into the Roll-Up Agreements, or to consummate
the transactions contemplated hereby or thereby. Bank One NA is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality which prohibits the
transactions contemplated by the Roll-Up Agreements. There is no action, suit or
proceeding brought by Bank One NA currently pending or which Bank One NA
currently intends to initiate with respect to the transactions contemplated by
the Roll-Up Agreements.
(e) Consents and Approvals. No consent, approval, filing, exemption,
waiver or registration with any governmental entity or any other Person is
required to be made or obtained by Bank One or Bank One NA in connection with
the execution, delivery or performance of the Roll-Up Agreements or the
consummation of the transactions contemplated hereby or thereby.
-7-
<PAGE>
11. Indemnification.
---------------
(a) By CarsDirect.com. CarsDirect.com shall indemnify, save and hold
harmless Bank One and its affiliates and their respective representatives, from
and against any and all costs, losses, liabilities, damages, lawsuits,
deficiencies, claims brought by third parties and expenses in connection
therewith, including without limitation, interest, penalties, reasonable
attorneys' fees and expenses (including fees and expenses of in-house legal
counsel) and all amounts paid in investigation, defense or settlement of any of
the foregoing (herein, the "Indemnifiable Damages"), incurred in connection with
or arising out of or resulting from any material breach of any covenant or
agreement, or the material inaccuracy of any representation or warranty, made by
CarsDirect.com or CD1 in or pursuant to the Roll-Up Agreements.
(b) By Bank One. Bank One shall indemnify, save and hold harmless
CarsDirect.com and its affiliates, and their respective representatives from and
against any and all Indemnifiable Damages incurred in connection with or arising
out of or resulting from any material breach of any covenant or agreement, or
the material inaccuracy of any representation or warranty, made by Bank One or
Bank One NA in or pursuant to the Roll-Up Agreements.
(c) Claims. If a claim for Indemnifiable Damages is to be made by a
party entitled to indemnification hereunder against the indemnifying party, the
party entitled to such indemnification shall give written notice to the
indemnifying party as soon as practical after the party entitled to
indemnification becomes aware of any fact, condition or event which may give
rise to Indemnifiable Damages for which indemnification may be sought under this
Section 11. If any claim, lawsuit, proceeding or action is filed against any
party entitled to the benefit of indemnity hereunder, written notice thereof
shall be given to the indemnifying party as promptly as practicable (and in any
event within 15 days after the service of the citation or summons); provided,
that the failure of any indemnified party to give the notice required by the
preceding clause or sentence shall not affect rights to indemnification
hereunder except to the extent that the indemnifying party demonstrates actual
damage caused by such failure. After such notice, if the indemnifying party
shall acknowledge in writing to the indemnified party that the indemnifying
party shall be obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then, except as provided below, the
indemnifying party shall be entitled, if it so elects, to take control of the
defense and investigation of such lawsuit or action and to employ and engage
attorneys of its own choice to handle and defend the same, at the indemnifying
party's cost, risk and expense provided that the indemnifying party and its
counsel shall proceed with diligence and in good faith with respect thereto. The
indemnified party shall cooperate (at the indemnifying party's expense) in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom and provided, further, that if the
indemnifying party shall not have employed counsel to direct the defense of any
such action or if any such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), legal and other expenses
thereafter reasonably incurred by the indemnified party shall be borne by the
indemnifying party. An indemnified party shall not be
-8-
<PAGE>
entitled to any payment under an indemnity hereunder with respect to any action
or portion of an action until such action or portion shall have been settled by
agreement among the pertinent parties or shall have been finally determined
(including any appeals unless by agreement no further appeals are taken) by a
court or board of arbitration of competent jurisdiction. No indemnifying party
shall be required to pay indemnification hereunder as a result of a settlement
or compromise unless the indemnified party shall have given its prior written
consent to such settlement or compromise, which consent shall not be
unreasonably withheld.
(d) No Consequential Damages. Notwithstanding any provision of this
Agreement to the contrary, NO PARTY HERETO SHALL BE LIABLE TO ANY INDEMNIFIED
PARTY FOR ANY CONSEQUENTIAL DAMAGES SUFFERED BY SAID PERSON, EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
12. Successors and Assigns. The provisions hereto shall inure to the
----------------------
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original and all of which together shall
constitute one instrument.
14. Governing Law. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of Delaware without regard to conflict of laws
provisions.
15. Amendments. This Agreement may be amended by the parties hereto only
----------
by an instrument in writing signed on behalf of each of the parties hereto.
* * * * * * *
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
CARSDIRECT.COM, INC.
By:____________________________
Name:__________________________
Title:_________________________
BANK ONE CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
CD1FINANCIAL.COM, LLC
By:____________________________
Name:__________________________
Title:_________________________
BANK ONE, N.A.,
Columbus, Ohio
By:____________________________
Name:__________________________
Title:_________________________
BANC ONE INSURANCE SERVICES
CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
Signature Page to Roll-Up Agreement
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CARSDIRECT.COM, INC.
(Incorporated October 9, 1998)
CarsDirect.com, Inc. (the "corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law") hereby certifies as follows:
1. That the corporation was incorporated on October 9, 1998 under the
name CarsDirect.com, Inc., pursuant to the General Corporation Law.
2. Pursuant to Sections 242 and 245 of the General Corporation Law, this
Restated Certificate of Incorporation restates and integrates and further amends
the provisions of the Certificate of Incorporation of the corporation.
3. The text of the Certificate of Incorporation is hereby restated in its
entirety as follows:
ONE. That the name of the corporation is: CarsDirect.com, Inc.
TWO. The address of the corporation's registered office in the State of
Delaware is 15 East North Street, in the City of Dover, County of Kent, Delaware
19901. The name of its registered agent at such address is Incorporating
Services, Ltd.
THREE. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law.
FOUR. The corporation is authorized to issue three classes of stock to be
designated, respectively, "Class A Common Stock," "Class B Common Stock" and
"Preferred Stock." The total number of shares of Class A Common Stock that the
corporation is authorized to issue is 80,000,000 with a par value of $0.001 per
share. The total number of shares of Class B Common Stock that the corporation
is authorized to issue is 2,050,000, with a par value of $0.001 per share (the
Class A Common Stock and Class B Common Stock sometimes collectively referred to
herein as "Common Stock"). The total number of shares of Preferred Stock that
the corporation is authorized to issue is 57,503,572 with a par value of $0.001
per share, 10,000,000 of which are designated "Series A Preferred Stock,"
9,558,572 of which are designated "Series B Preferred Stock," 9,945,000 of which
are designated "Series C Preferred Stock," and 28,000,000 of which are
designated "Series D Preferred Stock."
<PAGE>
The remaining shares of Preferred Stock, if any, may be issued from time to
time in one or more series. The Board of Directors of the corporation (the
"Board of Directors") is expressly authorized to provide for the issue of all or
any of the remaining shares of the Preferred Stock in one or more series, and to
fix the number of shares and to determine or alter for each such series, such
voting powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional or other rights and such
qualifications, limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such shares and as may be permitted by the General
Corporation Law. The Board of Directors is also expressly authorized to
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series other than the Series A
Preferred Stock, subsequent to the issue of shares of that series. In case the
number of shares of any such series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
In addition to any vote required by law, the corporation shall not, without
first obtaining the approval of the holders of not less than a majority of the
total number of shares of the Class A Common Stock then outstanding and the
holders of not less than a majority of the total number of shares of the Class B
Common Stock then outstanding, voting as separate classes, effect any increase
in the authorized number of shares of Class B Common Stock.
The corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Class A Common Stock if
at any time the number of shares of Class A Common Stock remaining unissued and
available for issuance upon conversion of the Preferred Stock and the Class B
Common Stock shall not be sufficient to permit conversion of the Preferred Stock
and the Class B Common Stock.
The relative rights, preferences, privileges and restrictions granted to or
imposed upon the respective classes and series of the shares of capital stock or
the holders thereof are as set forth below.
Section 1. Dividends. The holders of the Series A Preferred Stock, the
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Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock
shall be entitled to receive, out of any funds legally available therefor,
noncumulative dividends in an amount equal to $0.02 per share per annum, $0.08
per annum, $0.19 per annum, and $1.26 per annum respectively, when and if
declared by the corporation's board of directors. No dividend shall be paid on
the Common Stock in any year, other than dividends payable solely in capital
stock, until all dividends for such year have been declared and paid on the
Preferred Stock, and no dividends on the Common Stock shall be paid unless the
amount of such dividend on the Common Stock is also paid on the Preferred Stock
on an as-converted to Common Stock basis. When and as dividends are declared
thereon, whether in cash, securities or other property (other than shares of
Class A Common Stock), the holders of Class A
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<PAGE>
Common Stock and the holders of Class B Common Stock will be entitled to share
equally, share for share, in such dividends.
Section 2. Liquidation Preference.
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(a) In the event of any liquidation, dissolution or winding up of the
corporation, prior and in preference to any distribution of any of the assets or
funds of the corporation to the holders of the Common Stock by reason of their
ownership of such stock, (i) the holders of Series A Preferred Stock shall be
entitled to receive for each outstanding share of Series A Preferred Stock then
held by them an amount equal to $0.015 plus declared but unpaid dividends on
such share (as adjusted for any recapitalizations, stock combinations, stock
dividends, stock splits and the like), (ii) the holders of Series B Preferred
Stock shall be entitled to receive for each outstanding share of Series B
Preferred Stock then held by them an amount equal to $0.77 plus declared but
unpaid dividends on such share (as adjusted for any recapitalizations, stock
combinations, stock dividends, stock splits and the like), (iii) the holders of
Series C Preferred Stock shall be entitled to receive for each outstanding share
of Series C Preferred Stock then held by them an amount equal to $2.33 plus
declared but unpaid dividends on such share (as adjusted for any
recapitalizations, stock combinations, stock dividends, stock splits and the
like), and (iv) the holders of Series D Preferred Stock shall be entitled to
receive for each outstanding share of Series D Preferred Stock then held by them
an amount equal to $15.76 plus declared but unpaid dividends on such share (as
adjusted for any recapitalizations, stock combinations, stock dividends, stock
splits and the like). The Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock and the Series D Preferred Stock shall rank
on parity as to the receipt of the respective preferential amounts for each such
series upon the occurrence of such event. If, upon the occurrence of a
liquidation, dissolution or winding up, the assets and funds of the corporation
legally available for distribution to stockholders by reason of their ownership
of stock of the corporation shall be insufficient to permit the payment to such
holders of Preferred Stock of the full aforementioned preferential amount, then
the entire assets and funds of the corporation legally available for
distribution to stockholders by reason of their ownership of stock of the
corporation shall be distributed ratably among the holders of Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled to
receive.
(b) Upon a liquidation, dissolution or winding up of the corporation, and
after payment to the holders of Preferred Stock of the amounts to which they are
entitled pursuant to Section 2(a), all assets and funds of the corporation that
remain legally available for distribution to stockholders by reason of their
ownership of stock of the corporation shall be distributed ratably among the
holders of Common Stock and Preferred Stock in proportion to the number of
shares of Common Stock held by them or issuable upon the conversion of the
Preferred Stock held by them and based on the total number of shares of Common
Stock outstanding, or issuable upon conversion of the outstanding Preferred
Stock, until such time as each holder of shares of Preferred Stock has received
an aggregate liquidation amount under this Section 2(b) equal to 1.5 times the
applicable Original Issue Price (as defined in Section 3(a)(i) hereof) (as
adjusted for recapitalizations, stock
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<PAGE>
combinations, stock dividends, stock splits and the like). Thereafter, all such
assets and funds shall be distributed ratably among the holders of Common Stock.
(c) For the purposes of this Section 2, a liquidation, dissolution or
winding up of the corporation shall be deemed to be occasioned by, and to
include, the corporation's sale of all or substantially all of its assets or the
acquisition of this corporation by another entity by means of merger or
consolidation resulting in the exchange of the outstanding shares of this
corporation for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its subsidiary, unless the stockholders of this
corporation hold at least 50% of the voting power of the surviving or resulting
corporation in such a transaction.
(d) If any of the assets of this corporation are to be distributed under
this Section 2, or for any other purpose, in a form other than cash, then the
Board of Directors shall be empowered to, and shall promptly determine the value
of the assets to be distributed to the holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Common Stock. This corporation shall, upon receipt of such determination, give
prompt written notice of the determination to each holder of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Common Stock.
Section 3. Conversion.
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(a) Preferred Stock. The holders of Preferred Stock shall have conversion
---------------
rights as follows:
(i) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for such Preferred Stock, into such number of fully paid and nonassessable
shares of Class A Common Stock as is determined by dividing the applicable
Original Issue Price of such share of Preferred Stock by the Conversion Price
(the "Conversion Price") at the time in effect for a share of such series of
Preferred Stock. The Original Issue Price per share of Series A Preferred Stock
is $0.015. The Conversion Price per share of Series A Preferred Stock initially
shall be $0.015, subject to adjustment from time to time as provided below. The
Original Issue Price per share of the Series B Preferred Stock is $0.77. The
Conversion Price per share of the Series B Preferred Stock initially shall be
$0.77, subject to adjustment from time to time as provided below. The Original
Issue Price per share of Series C Preferred Stock is $2.33. The Conversion Price
per share of Series C Preferred Stock initially shall be $2.33, subject to
adjustment from time to time as provided below. The Original Issue Price per
share of the Series D Preferred Stock is $15.76. The Conversion Price per share
of Series D Preferred Stock initially shall be $15.76, subject to adjustment
from time to time as provided below.
(ii) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Class A Common Stock at the then
effective Conversion
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<PAGE>
Price upon the earlier of (i) the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Class A
Common Stock to the public involving gross proceeds to the Company of not less
than $20,000,000 at a per share offering price of at least $7.00 (a "Qualified
Initial Public Offering") or (ii) the consent of holders of not less than 50% of
the then outstanding shares of each series of Preferred Stock.
(iii) Mechanics of Conversion. No fractional shares of Class A Common
-----------------------
Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price of such series of Preferred Stock. Before any holder
of Preferred Stock shall be entitled to convert the same into shares of Class A
Common Stock pursuant to Section 3(a)(i), such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for such Preferred Stock, and shall give
written notice by mail, postage prepaid, to the corporation at its principal
corporate office, of the election to convert the same, and such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Preferred Stock to be converted. In the
event of an automatic conversion pursuant to Section 3(a)(ii), the outstanding
shares of Preferred Stock shall be converted automatically without any further
action by the holder of such shares and whether or not the certificates
representing such shares are surrendered to the corporation or the transfer
agent for such Preferred Stock; and the corporation shall not be obligated to
issue certificates evidencing the shares of Class A Common Stock issuable upon
such automatic conversion unless the certificates evidencing such shares of
Preferred Stock are either delivered to the corporation or the transfer agent
for such Preferred Stock as provided above, or the holder notifies the
corporation or the transfer agent for such Preferred Stock that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the corporation to indemnify the corporation from any loss
incurred by it in connection with such certificates. The corporation shall, as
soon as practicable thereafter, issue and deliver to such address as the holder
may direct, a certificate or certificates for the number of shares of Class A
Common Stock to which such holder shall be entitled. If the conversion is in
connection with a public offering of securities described in Section 3(a)(ii),
the conversion shall be conditioned upon the closing with the underwriters of
the sale of securities pursuant to such offering, and the conversion shall not
be deemed to have occurred until immediately prior to the closing of such sale
of securities.
(iv) Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to this Section 3(a), the shares so converted
shall be canceled and shall not be reissued by the corporation.
(v) Adjustment of Conversion Price of Preferred Stock. The
-------------------------------------------------
Conversion Prices shall be subject to adjustment from time to time as follows:
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<PAGE>
(A) Adjustments for Subdivisions or Combinations of Class A
-------------------------------------------------------
Common Stock. In the event the outstanding shares of Class A Common Stock shall
- ------------
be subdivided by stock split, stock dividend or otherwise, into a greater number
of shares of Class A Common Stock, the Conversion Price of each series of
Preferred Stock then in effect shall, concurrently with the effectiveness of
such subdivision, be proportionately decreased. In the event the outstanding
shares of Class A Common Stock shall be combined or consolidated into a lesser
number of shares of Class A Common Stock, the Conversion Price of each series of
Preferred Stock then in effect shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(B) Adjustments for Stock Dividends and Other Distributions. In
-------------------------------------------------------
the event the corporation makes, or fixes a record date for the determination of
holders of Class A Common Stock entitled to receive, any distribution (excluding
repurchases of securities by the corporation not made on a pro rata basis)
payable in property or in securities of the corporation other than shares of
Class A Common Stock, and other than as otherwise adjusted for in this Section
3(a) or as provided for in Section 1 in connection with a dividend, then and in
each such event the holders of Preferred Stock shall receive, at the time of
such distribution, the amount of property or the number of securities of the
corporation that they would have received had their Preferred Stock been
converted into Class A Common Stock on the date of such event.
(C) Adjustments for Reorganizations, Reclassifications or
-----------------------------------------------------
Similar Events. If the Class A Common Stock shall be changed into the same or a
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different number of shares of any other class or classes of stock or other
securities or property, whether by capital reorganization, reclassification or
otherwise, then each share of Preferred Stock shall thereafter be convertible
into the number of shares of stock or other securities or property to which a
holder of the number of shares of Class A Common Stock of the corporation
deliverable upon conversion of such shares of Preferred Stock shall have been
entitled upon such reorganization, reclassification or other event.
(D) Adjustments for Diluting Issues. In addition to the
-------------------------------
adjustment of the Conversion Prices provided above, the Conversion Price of the
Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred
Stock, and the Series D Preferred Stock shall be subject to further adjustment
from time to time as follows:
(1) Special Definitions.
-------------------
(a) "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Class A Common Stock or
Convertible Securities.
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<PAGE>
(b) "Original Issue Date" shall mean the date on which
the first share of Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock, as applicable, was first issued.
(c) "Convertible Securities" shall mean securities
convertible into or exchangeable for Class A Common Stock, either directly or
indirectly (including without limitation Class B Common Stock).
(d) "Additional Shares of Common Stock" shall mean all
shares of Class A Common Stock issued (or, pursuant to Section 3(a)(v)(D)(3),
deemed to be issued) by the corporation after the Original Issue Date other than
shares of Class A Common Stock issued (or, pursuant to Section 3(a)(v)(D)(3),
deemed to be issued):
i) upon conversion of shares of Preferred Stock;
ii) to employees, consultants or directors
pursuant to stock options, stock grants, or stock purchase rights under the
Company's 1998 Stock Option Plan approved by the Board of Directors, including
without limitation upon the exercise of options outstanding as of the Original
Issue Date, or any such options, grants or rights made outside of such plan to
any person or group (provided that any such non-plan options, grants, or rights
do not exceed 200,000 shares (as adjusted for stock splits and the like) per
person or group of affiliated persons in one transaction or a series of related
transactions);
iii) to equipment lessors, banks, financial
institutions or similar entities in transactions approved by the Board of
Directors, the principal purpose of which is other than the raising of capital;
iv) as a dividend or other distribution in
connection with which an adjustment to the Conversion Price is made pursuant to
Section 3(a)(v)(A), (B) or (C);
v) in the corporation's Qualified Initial Public
Offering;
vi) in a merger or acquisition that is approved
by the Board of Directors;
vii) pursuant to any transactions approved by the
Board of Directors primarily for the purpose of (A) joint ventures, technology
licensing or research and development activities, (B) distribution or
manufacture of the corporation's products or
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<PAGE>
services, or (C) any other transactions involving corporate partners that are
primarily for purposes other than raising capital; or
viii) if the holders of a majority of the then
outstanding shares of each series of Preferred Stock the Conversion Price of
which may be subject to adjustment upon such issuance agree in writing that such
shares shall not constitute Additional Shares of Common Stock.
(2) No Adjustment of Conversion Price. No adjustment in
---------------------------------
the Conversion Price shall be made pursuant to Section 3(a)(v)(D)(4) unless the
consideration per share for an Additional Share of Common Stock issued (or,
pursuant to Section 3(a)(v)(D)(3), deemed to be issued) by the corporation is
less than the Conversion Price in effect on the date of, and immediately prior
to, such issue, and provided that any such adjustment shall not have the effect
of increasing the Conversion Price to an amount which exceeds the Conversion
Price existing immediately prior to such adjustment.
(3) Deemed Issue of Additional Shares of Common Stock.
-------------------------------------------------
Except as otherwise provided in Section 3(a)(v)(D)(1) or 3(a)(v)(D)(2), in the
event the corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of any holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Class A Common Stock issuable upon the exercise of such Options or, in the case
of Convertible Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided that
in any such case in which additional shares of Class A Common Stock are deemed
to be issued:
(a) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Class A Common Stock upon the exercise of such Options or conversion or exchange
of such Convertible Securities;
(b) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the corporation, or increase or
decrease in the number of shares of Class A Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Conversion Price computed upon the
original issue thereof or upon the occurrence of a record date with respect
thereto, and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease;
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<PAGE>
(c) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof or upon the occurrence of a record date with respect thereto, and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
i) in the case of Convertible Securities or
Options for Class A Common Stock, the only Additional Shares of Common Stock
issued were shares of Class A Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, and the consideration received therefor was the consideration
actually received by the corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the corporation
upon such exercise, or for the issue of all such Convertible Securities, whether
or not converted or exchanged, plus the additional consideration, if any,
actually received by the corporation upon such conversion or exchange; and
ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options and the
consideration received by the corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to Section
3(a)(v)(D)(3)(b) or (c) above shall have the effect of increasing the Conversion
Price to an amount which exceeds the Conversion Price existing immediately prior
to the original adjustment with respect to the issuance of such Options or
Convertible Securities, as adjusted for any Additional Shares of Common Stock
issued (or, pursuant to Section 3(a)(v)(D)(3), deemed to be issued) between such
original adjustment date and such readjustment date;
(e) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options; and
(f) in the case of any Option or Convertible Security
with respect to which the maximum number of shares of Common Stock issuable upon
exercise or conversion or exchange thereof is not determinable, no adjustment to
the Conversion Price shall be made until such number becomes determinable.
(4) Adjustment of Conversion Price Upon Issuance of
-----------------------------------------------
Additional Shares of Common Stock. Subject to the limitation set forth in
- ---------------------------------
Section 3(a)(v)(D)(2),
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<PAGE>
above, if Additional Shares of Common Stock are issued (or, pursuant to Section
3(a)(v)(D)(3), deemed to be issued) without consideration or for a consideration
per share (computed on an as-converted to Class A Common Stock basis) less than
a Conversion Price in effect on the date of, and immediately prior to, such
issue (a "Dilutive Issue"), then and in such event, such Conversion Price shall
be reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, (x) the
numerator of which shall be the number of shares of Class A Common Stock
outstanding immediately prior to such issue plus the number of shares of Class A
Common Stock which the aggregate consideration received by the corporation for
the total number of Additional Shares of Common Stock so issued would purchase
at such Conversion Price, and (y) the denominator of which shall be the number
of shares of Class A Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common Stock so issued. For the
purposes of this Section 3(a)(v)(D)(4), all shares of Class A Common Stock
issuable upon exercise of outstanding Options, upon conversion of outstanding
Convertible Securities and Preferred Stock, shall be deemed to be outstanding,
and immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section 3(a)(v)(D)(3), such Additional Shares of Common Stock shall
be deemed to be outstanding.
(5) Determination of Consideration. For purposes of this
------------------------------
Section 3(a)(v)(D), the consideration received by the corporation for any
Additional Shares of Common Stock issued (or, pursuant to Section 3(a)(v)(D)(3),
deemed to be issued) shall be computed as follows:
(a) Cash and Property. Such consideration shall:
-----------------
i) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the corporation after deducting any
commissions paid by the corporation with respect to such issuance;
ii) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issuance,
as determined in good faith by the Board of Directors of the corporation; and
iii) if Additional Shares of Common Stock are
issued (or, pursuant to Section 3(a)(v)(D)(3), deemed to be issued) together
with other shares or securities or other assets of the corporation for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (i) and (ii) above, as determined in
good faith by the Board of Directors of the corporation.
(b) Options and Convertible Securities. The
----------------------------------
consideration received by the corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 3(a)(v)(D)(3), relating to
Options and Convertible Securities, shall be the sum of (x) the total amount, if
any, received or receivable by the corporation as consideration
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<PAGE>
for the issue of such Options or Convertible Securities, plus (y) the minimum
aggregate amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the corporation upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities.
(vi) Certificate as to Adjustments. Upon the
-----------------------------
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 3(a), the corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Preferred Stock to which such adjustment pertains a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The corporation shall, upon
the written request at any time of any holder of Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Prices at the time in effect,
and (iii) the number of shares of Class A Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of
such holder's Preferred Stock.
(b) Class B Common Stock. The Class B Common Stock shall
--------------------
be convertible to Class A Common Stock as follows:
(i) Election of Holder. Each share of Class B Common
------------------
Stock shall be convertible at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the corporation or
any transfer agent for such Class B Common Stock, into one (1) share of Class A
Common Stock.
(ii) Mandatory Conversion upon Transfer of Shares.
--------------------------------------------
Upon the transfer or disposition of any share of Class B Common Stock to any
person or entity other than an idealab! Related Party (as defined below) (or any
voting rights therein to any person or entity other than (i) the corporation or
(ii) an idealab! Related Party), each such share of Class B Common Stock shall,
upon such transfer, automatically be converted into one (1) share of Class A
Common Stock. For purposes of the preceding sentence, a "transfer" shall be
deemed to occur with respect to any shares held by an idealab! Related Party
when such idealab! Related Party ceases to be an idealab! Related Party.
Notwithstanding the foregoing, idealab! may, without effecting its automatic
conversion to Class A Common Stock, pledge Class B Common Stock to nationally-
recognized financial institutions (not affiliated with idealab! or an idealab!
Related Party) as collateral in connection with bona fide lending transactions.
For purposes hereof, "idealab! Related Party" shall mean (i) idealab! Holdings,
L.L.C. ("idealab!"), (ii) Bill Gross' idealab!, Inc. ("BGIL"), (iii) any
directly or indirectly wholly-owned subsidiary of BGIL (an "idealab! Sub"), (iv)
idealab! Capital Management I LLC ("ICM1"), (v) idealab! Capital Management II
LLC ("ICM2"), and (vi) any venture capital fund in which ICM1 or ICM2 is a
general partner or managing member (an "ICM Fund"). idealab! shall cease to be
an idealab! Related Party if and when it is no longer wholly-owned by BGIL. An
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<PAGE>
idealab! Sub shall cease to be an idealab! Related Party if and when it is no
longer wholly-owned (directly or indirectly) by BGIL. ICM1 shall cease to be an
idealab! Related Party if and when neither idealab! nor BGIL serves as its
managing member. ICM2 shall cease to be an idealab! Related Party if and when
neither idealab! nor BGIL serves as its managing member. An ICM Fund shall cease
to be an idealab! Related Party if and when (a) neither ICM1 nor ICM2 serves as
general partner or managing member of such ICM Fund, or (b) neither idealab! nor
BGIL serves as the managing member of such general partner or managing member;
and
(iii) Mandatory Conversion upon Failure to
------------------------------------
Maintain Minimum Ownership. If and when the idealab! Related Parties
- --------------------------
collectively cease to hold and have the right to direct the vote of at least 20%
of the shares of outstanding capital stock of the corporation(assuming for these
purposes that all shares of Class B Common Stock of the corporation have been
converted into shares of Class A Common Stock of the corporation in accordance
with the terms of this Restated Certificate of Incorporation), each outstanding
share of Class B Common Stock shall automatically be converted into one (1)
share of Class A Common Stock.
(iv) Mechanics of Conversion. Before any holder
-----------------------
of Class B Common Stock shall be entitled to convert the same into shares of
Class A Common Stock pursuant to this Section 3(b), such holder shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for such Class B Common Stock, and shall
give written notice by mail, postage prepaid, to the corporation at its
principal corporate office, of the election to convert the same, and such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Class B Common Stock to
be converted. In the event of an automatic conversion pursuant to Section
3(b)(ii) or 3(b)(iii), the outstanding shares of Class B Common Stock shall be
converted automatically without any further action by the holder of such shares
and whether or not the certificates representing such shares are surrendered to
the corporation or the transfer agent for such Class B Common Stock; and the
corporation shall not be obligated to issue certificates evidencing the shares
of Class A Common Stock issuable upon such automatic conversion unless the
certificates evidencing such shares of Class B Common Stock are either delivered
to the corporation or the transfer agent for such Class B Common Stock as
provided above, or the holder notifies the corporation or the transfer agent for
such Class B Common Stock that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the corporation to indemnify
the corporation from any loss incurred by it in connection with such
certificates. The corporation shall, as soon as practicable thereafter, issue
and deliver to such address as the holder may direct, a certificate or
certificates for the number of shares of Class A Common Stock to which such
holder shall be entitled.
(v) Status of Converted Stock. In the event
-------------------------
any shares of Class B Common Stock shall be converted pursuant to this Section
3(b), the shares so converted shall be canceled and shall not be reissued by the
corporation.
-12-
<PAGE>
(v) Adjustment of Conversion of Class B Common
------------------------------------------
Stock. The conversion of the Class B Common Stock into Class A Common Stock
- -----
pursuant to this Section 3(b) shall be subject to adjustment from time to time
as follows:
(A) Adjustments for Subdivisions or
-------------------------------
Combinations of Class A Common Stock. In the event the outstanding shares of
- ------------------------------------
Class A Common Stock shall be subdivided by stock split, stock dividend or
otherwise (but not including a distribution or exercise of rights to acquire
Class A Common Stock), into a greater number of shares of Class A Common Stock,
the number of shares of Class A Common Stock into which each share of Class B
Common Stock is convertible shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event the outstanding shares
of Class A Common Stock shall be combined or consolidated into a lesser number
of shares of Class A Common Stock, the number of shares of Class A Common Stock
into which each share of Class B Common Stock is convertible shall, concurrently
with the effectiveness of such combination or consolidation, be proportionately
increased.
(B) Adjustments for Reorganizations,
--------------------------------
Reclassifications or Similar Events. If the Class A Common Stock shall be
- -----------------------------------
changed into the same or a different number of shares of any other class or
classes of stock or other securities or property, whether by capital
reorganization, reclassification or otherwise, then each share of Class B Common
Stock shall thereafter be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares of Class
A Common Stock of the corporation deliverable upon conversion of such shares of
Class B Common Stock shall have been entitled upon such reorganization,
reclassification or other event.
Section 4. Voting.
---------- ------
(a) General. Except as otherwise required by law or as otherwise
-------
set forth herein, (i) each holder of Class A Common Stock shall be entitled to
vote one (1) vote for each share of Class A Common Stock held as of the
applicable date on any matter that is submitted to a vote or to the consent of
the stockholders of the corporation, (ii) each holder of Class B Common Stock
shall be entitled to vote that number of votes that equals twenty (20)
multiplied by the number of shares of Class A Common Stock into which each share
of Class B Common Stock is then currently convertible under Section 3(b) of this
Restated Certificate of Incorporation, for each share of Class B Common Stock
held as of the applicable date on any matter that is submitted to a vote or to
the consent of the stockholders of the corporation, and (iii) each holder of
Preferred Stock shall be entitled to the number of votes equal to the number of
shares of Series A Common Stock into which the shares of Preferred Stock so held
could be converted as of the applicable date on any matter that is submitted to
a vote or to the consent of the stockholders of the corporation. Except as
required by law or as otherwise set forth herein (including without limitation
Section 4(b)), all shares of all series of Preferred Stock and all shares of
both classes of Common Stock shall vote together as a single
-13-
<PAGE>
class. Fractional votes by the holders of Preferred Stock shall not, however, be
permitted, and any fractional voting rights shall (after aggregating all shares
into which shares of Preferred Stock held by each holder could be converted) be
rounded down to the nearest whole number.
(b) Election of Directors.
---------------------
(i) The authorized number of directors of the corporation shall be
set forth in the Bylaws of the corporation and may be increased or decreased by
an amendment to such Bylaws in accordance with their provisions. The Board of
Directors shall at all times be comprised of no fewer than three (3) directors.
For so long as at least 50% of the authorized number of shares of Series A
Preferred Stock remain outstanding (as adjusted for recapitalizations, stock
combinations, stock dividends, stock splits and the like) and are held by the
original holders, the holders of shares of Series A Preferred Stock, voting
separately as a class, shall be entitled to elect one (1) director of the
corporation at each annual election of directors (and to fill any vacancies with
respect thereto). For so long as at least 50% of the authorized number of shares
of Series B Preferred Stock remain outstanding (as adjusted for
recapitalizations, stock combinations, stock dividends, stock splits and the
like) and are held by the original holders, the holders of Series B Preferred
Stock, voting separately as a class, shall be entitled to elect one (1) director
of the corporation at each annual election of directors (and to fill any
vacancies with respect thereto). For so long as at least 50% of the authorized
number of shares of Series C Preferred Stock remain outstanding (as adjusted for
recapitalizations, stock combinations, stock dividends, stock splits and the
like) and are held by the original holders, the holders of Series C Preferred
Stock, voting separately as a class, shall be entitled to elect one (1) director
of the corporation at each annual election of directors (and to fill any
vacancies with respect thereto).
(ii) For so long as at least 50% of the authorized number of shares of
Series D Preferred Stock remain outstanding (as adjusted for recapitalizations,
stock combinations, stock dividends, stock splits and the like) and are held by
the original holders, the holders of Series D Preferred Stock, voting separately
as a class, shall be entitled to elect one (1) director of the corporation at
each annual election of directors (and to fill any vacancies with respect
thereto). For so long as the idealab! Related Parties collectively hold shares
of capital stock of the corporation entitling them to direct in excess of 50% of
the votes of the outstanding capital stock of the corporation and prior to the
closing of a Qualified Initial Public Offering, (i) the holders of Class A
Common Stock and Preferred Stock, together as a single class, shall be entitled
to elect that number of directors which, when aggregated with any directors
separately elected by the individual classes of the Preferred Stock, equals one
(1) less than a majority of the of the Board of Directors, and (ii) the holders
of Class B Common Stock shall be entitled to elect a majority of the Board of
Directors, in each case at each annual election of directors (and to fill any
vacancies with respect thereto). Subsequent to the closing of a Qualified
Initial Public Offering and except as set forth in the following sentence, the
holders of the Class A Common Stock and the Class B Common Stock voting together
as a single class, shall be entitled, at each annual election of directors (and
to fill any vacancies with respect thereto), to elect all of directors of the
corporation. Notwithstanding the
-14-
<PAGE>
preceding sentence, subsequent to the closing of a Qualified Initial Public
Offering, the holders of the Class B Common Stock shall be entitled, at each
annual election of directors (and to fill any vacancies with respect thereto),
to elect that number of directors (rounded to the nearest director and rounded
up in the event that such number is exactly between two whole numbers) which
equals the total number of members of the Board of Directors of the corporation
multiplied by a fraction the numerator of which is the total number of votes
which may be cast in the election of members of the Board of Directors of the
corporation on account of shares of Class B Common Stock if all shares of Class
B Common Stock are present and voted and the denominator of which is the total
number of votes which may be cast in the election of members of the Board of
Directors of the corporation if all securities (including Class B Common Stock)
entitled to vote in the election of such directors are present and voted. So
long as any shares of Class B Common Stock are outstanding, the holders of the
Class B Common Stock at each annual election of directors (and to fill any
vacancies with respect thereto), shall be entitled to elect no fewer than one
member of the Board of Directors of the corporation.
(c) Approval of Change in Control Transactions. The corporation
------------------------------------------
shall not, without first obtaining the approval of the holders of (i) not less
than a majority of the total number of votes of the Class A Common Stock and the
Class B Common Stock then outstanding, voting together as a single class, and
(ii) not less than a majority of the total number of votes of the Class A Common
Stock then outstanding, consummate a Change in Control (as defined below).
"Change in Control" shall mean any of the following: (i) a merger, consolidation
or other business combination or transaction to which the corporation is a party
which results in the holders of Class A Common Stock (assuming for purposes of
the clause (i) that all shares of Class B Common Stock have been converted into
shares of Class A Common Stock in accordance with the terms of this Restated
Certificate of Incorporation) of the corporation immediately prior to the
effective date of such merger, consolidation or other business combination or
transaction, as a result of such share ownership and such transaction, having
beneficial ownership (as defined in Rule 13d-3 of the rules and regulations
promulgated under the Securities Exchange Act of 1934, as amended) following
such merger, consolidation or other business combination or transaction of
voting securities representing less than 50% of the total number of votes which
may be cast in the election of members of the Board of Directors of the
surviving or resulting corporation (or any parent entity thereof), if all
securities entitled to vote in the election of such directors are present and
voted; (ii) a sale of all or substantially all the assets of the corporation; or
(iii) a liquidation or dissolution of the corporation.
(d) Approval by Preferred Stock. The corporation shall not, without
---------------------------
first obtaining the approval of the holders of not less than a majority of the
total number of shares of the Preferred Stock then outstanding, voting as a
single class on an as-converted-to-Class A Common Stock basis, effect a Change
in Control; provided, however, that the provisions of this Section 4(d) shall
not apply to any series of Preferred Stock if such merger, consolidation, sale
of assets, liquidation or dissolution provides for aggregate per share
consideration to each holder of such series
-15-
<PAGE>
of Preferred Stock of at least three times the Original Issue Price for such
series of Preferred Stock (as adjusted for recapitalizations, stock
combinations, stock dividends, stock splits and the like).
(e) Approval by Series A Preferred Stock. The corporation shall not,
------------------------------------
without first obtaining the approval of the holders of not less than a majority
of the total number of shares of the Series A Preferred Stock then outstanding:
(i) authorize, create or issue shares of any class or series of
stock having any preference or priority superior to, or on a parity with, any
preference or priority of the Series A Preferred Stock;
(ii) take any action resulting in the repurchase or redemption
of shares of Common Stock of the corporation, except as set forth in Section 5
hereof;
(iii) amend or repeal any provision of, or add any provision to,
the corporation's Certificate of Incorporation if such action would adversely
alter or change the rights, preferences, privileges, or restrictions of the
Series A Preferred Stock;
(iv) increase the size of the Board of Directors to more than
ten (10) members;
(v) increase the number of authorized shares of Series A
Preferred Stock; or
(vi) pay any dividends on its Common Stock.
(f) Approval by Series B Preferred Stock. The corporation shall not,
------------------------------------
without first obtaining the approval of the holders of not less than a majority
of the total number of shares of the Series B Preferred Stock then outstanding:
(i) authorize, create or issue shares of any class or series of
stock having any preference or priority superior to, or on a parity with, any
preference or priority of the Series B Preferred Stock;
(ii) take any action resulting in the repurchase or redemption
of shares of Common Stock of the corporation, except as set forth in Section 5
hereof;
(iii) amend or repeal any provision of, or add any provision to,
the corporation's Certificate of Incorporation if such action would adversely
alter or change the rights, preferences, privileges, or restrictions of the
Series B Preferred Stock;
-16-
<PAGE>
(iv) increase the number of authorized shares of Series B
Preferred Stock; or
(v) pay any dividends on its Common Stock.
(g) Approval by Series C Preferred Stock. The corporation shall not,
-------------------------------------
without first obtaining the approval of the holders of not less than a majority
of the total number of shares of the Series C Preferred Stock then outstanding:
(i) authorize, create or issue shares of any class or series of
stock having any preference or priority superior to, or on a parity with, any
preference or priority of the Series C Preferred Stock;
(ii) take any action resulting in the repurchase or redemption
of shares of Common Stock of the corporation, except as set forth in Section 5
hereof;
(iii) amend or repeal any provision of, or add any provision to,
the corporation's Certificate of Incorporation if such action would adversely
alter or change the rights, preferences, privileges, or restrictions of the
Series C Preferred Stock;
(iv) increase the size of the Board of Directors to more than
ten (10) directors;
(v) increase the number of authorized shares of Series C
Preferred Stock; or
(vi) pay any dividends on its Common Stock.
(h) Approval by Series D Preferred Stock. The corporation shall not,
------------------------------------
without first obtaining the approval of the holders of not less than a majority
of the total number of shares of the Series D Preferred Stock then outstanding:
(i) authorize, create or issue shares of any class or series of
stock having any preference or priority superior to, or on a parity with, any
preference or priority of the Series D Preferred Stock;
(ii) take any action resulting in the repurchase or redemption
of shares of Common Stock of the corporation, except as set forth in Section 5
hereof;
(iii) amend or repeal any provision of, or add any provision to,
the corporation's Certificate of Incorporation if such action would adversely
alter or change the rights, preferences, privileges, or restrictions of the
Series D Preferred Stock;
-17-
<PAGE>
(iv) increase the size of the Board of Directors to more than
ten (10) directors;
(v) increase the number of authorized shares of Series D
Preferred Stock; or
(vi) pay any dividends on its Common Stock.
Section 5. Reclassification. Immediately upon the filing of this Restated
--------- ----------------
Certificate of Incorporation in the Office of the Secretary of State of the
State of Delaware (the "Effective Time"), each share of Common Stock, par value
$0.001 per share (the "Old Common Stock"), outstanding immediately prior to the
Effective Time, and each share of Old Common Stock which immediately prior to
the Effective Time is held by the corporation as treasury stock, automatically
and without any action on the part of the holder thereof shall be reclassified
as and converted into one (1) share of Class A Common Stock. Each holder of a
certificate or certificates that immediately prior to the Effective Time
represented outstanding shares of Old Common Stock (the "Old Certificates") will
be entitled to receive, upon surrender of such Old Certificates to the
corporation for cancellation, a certificate or certificates (the "New
Certificate," whether one or more) representing the number of shares of Class A
Common Stock into which and for which the shares of Old Common Stock formerly
represented by such Old Certificates so surrendered are reclassified under the
terms hereof. From and after the Effective Time, Old Certificates shall
represent only a right to receive New Certificates pursuant to the provisions
hereof.
Section 6. Consent to Distributions. Each holder of Preferred Stock shall
---------- ------------------------
be deemed to have consented, for purposes of Sections 502, 503 and 506 of the
California Corporations Code and Sections 1 and 2 of this Article Four, to
distributions made by the corporation in connection with the repurchase of
shares of Common Stock from employees, officers, directors or consultants of the
corporation in connection with the termination of their employment or services
pursuant to agreements or arrangements approved by the Board of Directors of the
corporation.
Section 7. Reacquired Shares. Any shares of Preferred Stock purchased or
---------- -----------------
otherwise acquired by the corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 8. Waiver of Rights, Preferences or Privileges. Any right,
---------- -------------------------------------------
preference or privilege of the Preferred Stock may be waived by a majority of
the outstanding shares of each series of Preferred Stock voting on an as
converted to Class A Common Stock basis, and such waiver shall be binding on all
holders of Preferred Stock.
-18-
<PAGE>
FIVE. The corporation is to have perpetual existence.
SIX. Except as set forth in Article Four, Section 4(b) hereof, the number
of directors which constitute the whole Board of the corporation shall be as
specified in the Bylaws of the corporation.
SEVEN. In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the corporation is expressly authorized to
make, alter, amend or repeal the Bylaws of the corporation.
EIGHT. Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the corporation shall so provide.
NINE. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the corporation may provide. The books of the
corporation may be kept outside of the State of Delaware at such place or places
as may be designated from time to time by the board of directors of the
corporation or in the Bylaws of the corporation.
TEN.
(a) Limitation of Director's Liability. To the fullest extent not
----------------------------------
prohibited by the General Corporation Law of Delaware as the same exists or as
it may hereafter be amended, a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for conduct as a director.
(b) Indemnification of Corporate Agents. The corporation may
-----------------------------------
indemnify to the fullest extent not prohibited by law any person made or
threatened to be made a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that such person,
such person's testator or intestate is or was a director, officer, employee
benefit plan fiduciary, agent or employee of the corporation or any predecessor
of the corporation or serves or served at the request of the corporation or any
predecessor of the corporation as a director, officer, agent, employee benefit
plan fiduciary or employee of another corporation, partnership, limited
liability company, joint venture, trust or other entity or enterprise.
(c) Repeal or Modification. Neither any amendment or repeal of this
----------------------
Article Ten, nor the adoption of any provision of the corporation's Certificate
of Incorporation inconsistent with this Article Ten, shall eliminate or reduce
the effect of this Article Ten, in respect of any matter occurring, or any
action or proceeding accruing or arising or that, but for this Article Ten,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision."
-19-
<PAGE>
4. The foregoing amendment and restatement of the Certificate of
Incorporation has been duly approved by the Board of Directors of the
corporation in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law.
5. The foregoing amendment and restatement of the Certificate of
Incorporation has been duly approved by the written consent of the stockholders
in accordance with Sections 228 and 245 of the Delaware General Corporation Law.
-20-
<PAGE>
IN WITNESS WHEREOF, the corporation has caused this Restated
Certificate of Incorporation to be signed by Robert Brisco, its President and
Chief Executive Officer, this 12th day of May, 2000.
CARSDIRECT.COM, INC.
/s/ Robert N. Brisco
------------------------------------------
Robert Brisco
President and Chief Executive Officer
-21-
<PAGE>
EXHIBIT 3.2
================================================================================
BYLAWS
OF
CARSDIRECT.COM, INC.
October 9, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES.......................................................................................... 1
1.1 Registered Office...................................................................................... 1
1.2 Other Offices.......................................................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS.................................................................................. 1
2.1 Place of Meetings...................................................................................... 1
2.2 Annual Meeting......................................................................................... 1
2.3 Special Meeting........................................................................................ 2
2.4 Notice of Stockholders' Meetings....................................................................... 2
2.5 Manner of Giving Notice; Affidavit of Notice........................................................... 2
2.6 Quorum................................................................................................. 2
2.7 Adjourned Meeting; Notice.............................................................................. 2
2.8 Voting................................................................................................. 3
2.9 Waiver of Notice....................................................................................... 3
2.10 Stockholder Action by Written Consent Without a Meeting................................................ 3
2.11 Record Date for Stockholder Notice; Voting; Giving Consents............................................ 3
2.12 Proxies................................................................................................ 4
2.13 List of Stockholders Entitled to Vote.................................................................. 4
ARTICLE III DIRECTORS................................................................................................ 5
3.1 Powers................................................................................................. 5
3.2 Number of Directors.................................................................................... 5
3.3 Election, Qualification and Term of Office of Directors................................................ 5
3.4 Resignation and Vacancies.............................................................................. 5
3.5 Place of Meetings; Meetings by Telephone............................................................... 6
3.6 First Meetings......................................................................................... 7
3.7 Regular Meetings....................................................................................... 7
3.8 Special Meetings; Notice............................................................................... 7
3.9 Quorum................................................................................................. 7
3.10 Waiver of Notice....................................................................................... 7
3.11 Adjourned Meeting; Notice.............................................................................. 8
3.12 Board Action by Written Consent Without a Meeting...................................................... 8
3.13 Fees and Compensation of Directors..................................................................... 8
3.14 Approval of Loans to Officers.......................................................................... 8
3.15 Removal of Directors................................................................................... 8
ARTICLE IV COMMITTEES................................................................................................ 9
4.1 Committees of Directors................................................................................ 9
4.2 Committee Minutes...................................................................................... 9
4.3 Meetings and Action of Committees...................................................................... 9
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V OFFICERS.................................................................................................... 10
5.1 Officers................................................................................................ 10
5.2 Election of Officers.................................................................................... 10
5.3 Subordinate Officers.................................................................................... 10
5.4 Removal and Resignation of Officers..................................................................... 10
5.5 Vacancies in Offices.................................................................................... 11
5.6 Chairman of the Board................................................................................... 11
5.7 President............................................................................................... 11
5.8 Vice President.......................................................................................... 11
5.9 Secretary............................................................................................... 11
5.10 Treasurer............................................................................................... 12
5.11 Assistant Secretary..................................................................................... 12
5.12 Assistant Treasurer..................................................................................... 12
5.13 Authority and Duties of Officers........................................................................ 13
ARTICLE VI INDEMNITY.................................................................................................. 13
6.1 Indemnification of Directors and Officers............................................................... 13
6.2 Indemnification of Others............................................................................... 13
6.3 Insurance............................................................................................... 13
ARTICLE VII RECORDS AND REPORTS....................................................................................... 14
7.1 Maintenance and Inspection of Records................................................................... 14
7.2 Inspection by Directors................................................................................. 14
7.3 Annual Statement to Stockholders........................................................................ 15
7.4 Representation of Shares of Other Corporations.......................................................... 15
ARTICLE VIII GENERAL MATTERS.......................................................................................... 15
8.1 Checks.................................................................................................. 15
8.2 Execution of Corporate Contracts and Instruments........................................................ 15
8.3 Stock Certificates; Partly Paid Shares.................................................................. 15
8.4 Special Designation on Certificates..................................................................... 16
8.5 Lost Certificates....................................................................................... 16
8.6 Construction; Definitions............................................................................... 17
8.7 Dividends............................................................................................... 17
8.8 Fiscal Year............................................................................................. 17
8.9 Seal.................................................................................................... 17
8.10 Transfer of Stock....................................................................................... 17
8.11 Stock Transfer Agreements............................................................................... 17
8.12 Registered Stockholders................................................................................. 18
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
<S>
ARTICLE IX AMENDMENTS................................................................................................. 18
ARTICLE X DISSOLUTION................................................................................................. 18
ARTICLE XI CUSTODIAN.................................................................................................. 19
11.1 Appointment of a Custodian in Certain Cases................................................................ 19
11.2 Duties of Custodian........................................................................................ 19
</TABLE>
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<PAGE>
CARSDIRECT.COM, INC.
BYLAWS
------
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office
-----------------
The registered office of the corporation shall be in the City of Dover,
County of Kent, State of Delaware. The name of the registered agent of the
corporation at such location is Incorporating Services, Ltd.
1.2 Other Offices
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 Annual Meeting
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such designation,
the annual meeting of stockholders shall be held on the third Tuesday of April
in each year at 10:00 a.m. However, if such day falls on a legal holiday, then
the meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected and any other proper
business may be transacted.
<PAGE>
2.3 Special Meeting
---------------
A special meeting of the stockholders may be called, at any time for any
purpose or purposes, by the board of directors or by such person or persons as
may be authorized by the certificate of incorporation or the bylaws.
2.4 Notice of Stockholders' Meetings
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 Manner of Giving Notice; Affidavit of Notice
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 Quorum
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 Adjourned Meeting; Notice
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
-2-
<PAGE>
2.8 Voting
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
2.9 Waiver of Notice
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 Stockholder Action by Written Consent Without a Meeting
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 Record Date for Stockholder Notice; Voting; Giving Consents
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate
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action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
(iii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 Proxies
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 List of Stockholders Entitled to Vote
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
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so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 Powers
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 Number of Directors
-------------------
The number of directors of the corporation shall be three (3). This number
may be changed by a duly adopted amendment to the certificate of incorporation
or by an amendment to this bylaw duly adopted by the vote or written consent of
the holders of a majority of the stock issued and outstanding and entitled to
vote or by resolution of a majority of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 Election, Qualification and Term of Office of Directors
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation and Vacancies
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
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effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
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3.6 First Meetings
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 Regular Meetings
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 Special Meetings; Notice
------------------------
Special meetings of the board of directors may be called by the president
on three (3) days' notice to each director, either personally or by mail,
telegram, telex, or telephone; special meetings shall be called by the president
or secretary in like manner and on like notice on the written request of two (2)
directors unless the board consists of only one (1) director, in which case
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of the sole director.
3.9 Quorum
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 Waiver of Notice
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or
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special meeting of the directors, or members of a committee of directors, need
be specified in any written waiver of notice unless so required by the
certificate of incorporation or these bylaws.
3.11 Adjourned Meeting; Notice
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 Board Action by Written Consent Without a Meeting
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 Fees and Compensation of Directors
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 Approval of Loans to Officers
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 Removal of Directors
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
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ARTICLE IV
COMMITTEES
4.1 Committees of Directors
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 Committee Minutes
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 Meetings and Action of Committees
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment),
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and Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 Officers
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 Election of Officers
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 Subordinate Officers
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 Removal and Resignation of Officers
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not
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be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 Chairman of the Board
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 President
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 Vice President
--------------
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 Secretary
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 Treasurer
---------
The treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the board of directors. He shall disburse the funds of the corporation as may be
ordered by the board of directors, shall render to the president and directors,
whenever they request it, an account of all of his transactions as treasurer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the board of directors or
these bylaws.
5.11 Assistant Secretary
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 Assistant Treasurer
-------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
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5.13 Authority and Duties of Officers
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 Indemnification of Directors and Officers
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 Indemnification of Others
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 Insurance
---------
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the
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power to indemnify him against such liability under the provisions of the
General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance and Inspection of Records
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 Inspection by Directors
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any
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limitations or conditions with reference to the inspection, or award such other
and further relief as the Court may deem just and proper.
7.3 Annual Statement to Stockholders
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 Representation of Shares of Other Corporations
----------------------------------------------
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 Checks
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all
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<PAGE>
classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the corporation. Notwithstanding the adoption of
such a resolution by the board of directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the chairman or vice-chairman of the board of directors, or the president or
vice-president, and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 Special Designation on Certificates
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be
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<PAGE>
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 Dividends
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 Fiscal Year
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 Seal
----
The seal of the corporation shall be such as from time to time may be
approved by the board of directors.
8.10 Transfer of Stock
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares
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<PAGE>
of stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the General Corporation Law of
Delaware.
8.12 Registered Stockholders
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall
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<PAGE>
be necessary. The consent shall be filed and shall become effective in
accordance with Section 103 of the General Corporation Law of Delaware. Upon
such consent's becoming effective in accordance with Section 103 of the General
Corporation Law of Delaware, the corporation shall be dissolved. If the consent
is signed by an attorney, then the original power of attorney or a photocopy
thereof shall be attached to and filed with the consent. The consent filed with
the Secretary of State shall have attached to it the affidavit of the secretary
or some other officer of the corporation stating that the consent has been
signed by or on behalf of all the stockholders entitled to vote on a
dissolution; in addition, there shall be attached to the consent a certification
by the secretary or some other officer of the corporation setting forth the
names and residences of the directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 Appointment of a Custodian in Certain Cases
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the stockholders
are so divided that they have failed to elect successors to directors whose
terms have expired or would have expired upon qualification of their successors;
or
(ii) the business of the corporation is suffering or is threatened with
irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed within a
reasonable time to take steps to dissolve, liquidate or distribute its assets.
11.2 Duties of Custodian
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
CARSDIRECT.COM, INC.
Adoption by Incorporator
------------------------
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of CarsDirect.com, Inc. hereby adopts the foregoing bylaws,
comprising nineteen (19) pages, as the Bylaws of the corporation.
Executed this 9th day of October, 1998.
/s/ Jim Melo
------------------------------------
Jim Melo, Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that she is the duly elected, qualified,
and acting Secretary of CarsDirect.com, Inc. and that the foregoing Bylaws,
comprising seventeen (17) pages, were adopted as the Bylaws of the corporation
on October 9, 1998, by the person appointed in the Certificate of Incorporation
to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 9th day of October 1998.
/s/ Marcia Goodstein
------------------------------------
Marcia Goodstein, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE BYLAWS OF
CARSDIRECT.COM, INC
The undersigned, being the Assistant Secretary of CarsDirect.com, Inc. (the
"Company"), hereby certifies as follows:
1. Effective November 10, 1999, the Bylaws of the Company were amended to
read as follows:
Article III, Section 3.2 of the Bylaws of the Company was amended by deleting
the first sentence of Section 3.2 in its entirety and replacing it with the
following sentence:
The number of directors of the corporation shall be (10).
Dated effective: November 10, 1999
/s/ Michael D. Charney
_______________________________________
Michael D. Charney, Assistant Secretary
<PAGE>
EXHIBIT 4.2
=========================================================================
CARSDIRECT.COM, INC.
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
October 27, 1999
=========================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Certain Definitions......................................................................................... 2
2. Restrictions on Transferability............................................................................. 3
3. Restrictive Legend.......................................................................................... 3
4. Notice of Proposed Transfers................................................................................ 4
5. Registration................................................................................................ 5
5.1 Requested Registration............................................................................. 5
5.2 Company Registration............................................................................... 7
5.3 Registration on Form S-3........................................................................... 8
5.4 Subsequent Registration Rights..................................................................... 9
5.5 Expenses of Registration........................................................................... 10
5.6 Registration Procedures............................................................................ 10
5.7 Indemnification.................................................................................... 10
5.8 Information by Holder.............................................................................. 12
5.9 Rule 144 Reporting................................................................................. 12
5.10 Termination of Registration Rights................................................................. 13
6. Financial Information Rights................................................................................ 13
7. Lockup Agreement............................................................................................ 14
8. Right of First Refusal...................................................................................... 15
9. Vesting of Employee Options................................................................................. 17
10. Employment, Confidential Information and Invention Assignment Agreements.................................... 17
11. Transfer of Rights.......................................................................................... 18
12. Series B Preferred Board Members............................................................................ 18
13. Amendment................................................................................................... 18
14. Governing Law............................................................................................... 18
15. Entire Agreement............................................................................................ 18
16. Notices, etc................................................................................................ 19
17. Counterparts................................................................................................ 19
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
EXHIBITS
- --------
A. Schedule of Purchasers
-ii-
<PAGE>
CARSDIRECT.COM, INC.
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This Fourth Amended and Restated Investor Rights Agreement (this
"Agreement") is made effective as of October 27, 1999, by and among
CarsDirect.com, Inc., a Delaware corporation (the "Company"), purchasers of the
Company's Series D Preferred Stock who are signatories to this Agreement (the
"Purchasers"), the Series A Investors (as defined herein), the Series B
Investors (as defined herein) and the Series C Investors (as defined herein) and
other persons or entities who are or become signatories to this Agreement and/or
the Prior Agreement (as defined below).
RECITALS
A. In connection with the sale and issuance of its Series C Preferred
Stock, the Company entered into that certain Third Amended and Restated Investor
Rights Agreement dated May 7, 1999 (the "Prior Agreement") with the purchasers
of Series A Preferred Stock (the "Series A Investors"), the purchasers of Series
B Preferred Stock (the "Series B Investors") and the purchasers of the Series C
Preferred Stock (the "Series C Investors").
B. The Company and the Purchasers are parties to the Series D Preferred
Stock Purchase Agreement dated as of October 27, 1999, as may be amended from
time to time (the "Purchase Agreement"), whereby the Company will sell, and the
Purchasers will buy, Series D Preferred Stock of the Company.
C. The obligations of the Company and the Purchasers under the Purchase
Agreement are conditioned, among other things, upon the execution and delivery
of this Agreement by the Company and the Purchasers.
D. Section 12 of the Prior Agreement provides that the consent of the
Company and a majority of the outstanding Registrable Securities is required to
amend the Prior Agreement.
E. The Company and certain stockholders, who together hold not less than
a majority of the Registrable Securities (as defined under the Prior Agreement)
now desire to amend and restate the Prior Agreement in its entirety as set forth
below in order to add additional Purchasers as parties hereto and to make
certain other changes.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, the receipt and sufficiency are hereby acknowledged, the parties hereto
agree to amend and restate the Prior Agreement in its entirety as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Conversion Stock" means the Company's Common Stock issued or issuable
pursuant to conversion of the Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal rule or statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" means (i) any Series A Investor, any Series B or Series C
Investor or Purchaser holding Registrable Securities, (ii) any person or entity
that the Board of Directors of the Company authorizes to be a Holder and who
becomes a signatory to this Agreement, and (iii) any person holding Registrable
Securities to whom the rights under this Agreement have been transferred in
accordance with Section 11 hereof or, prior to the date hereof, in accordance
with Section 11 of the Prior Agreement.
"Initiating Holders" means any Holder or Holders who, in the
aggregate, hold not less than 50% of the Registrable Securities then
outstanding.
"Preferred Stock" shall mean the Company's Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred
Stock.
"Qualified Initial Public Offering" shall mean the Company's initial
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of the Company's Common Stock to the
public with gross proceeds to the Company not less than $20 million at a per
share price of at least $7.00.
"Registrable Securities" means (i) the Conversion Stock, (ii) any
Common Stock of the Company issued or issuable in respect of any of the
foregoing upon any stock split, stock dividend, recapitalization or similar
event; provided, however, that securities shall only be treated as Registrable
Securities if and so long as (x) they have not been registered or sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction and (y) the
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<PAGE>
registration rights with respect to such securities have not terminated pursuant
to Section 5.10, and (iii) Common Stock of the Company that the Board of
Directors of the Company authorizes to be Registrable Securities under this
Agreement.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 5.1, 5.2 and
5.3 hereof, including without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company). Registration Expenses shall also include the fees and disbursements
for one special counsel to the selling stockholders, not to exceed $15,000 per
registration.
"Restricted Securities" shall mean the securities of the Company
required to bear the legends set forth in Section 3 hereof.
"Rule 144" and "Rule 145" shall mean Rules 144 and 145, respectively,
promulgated under the Securities Act, or any similar federal rules thereunder,
all as the same shall be in effect at the time.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal rule or statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all fees and disbursements of
counsel for any Holder.
2. Restrictions on Transferability. The Preferred Stock, the Conversion
-------------------------------
Stock and any other securities issued in respect of such stock upon any stock
split, stock dividend, recapitalization, merger, or similar event, shall not be
sold, assigned, transferred or pledged except upon the conditions specified in
this Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each Holder or transferee will cause any
proposed purchaser, assignee, transferee, or pledgee of any such shares held by
the Holder or transferee to agree to take and hold such securities subject to
the restrictions and upon the conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing the Preferred Stock,
------------------
the Conversion Stock or any other securities issued in respect of such stock
upon any stock split, stock
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<PAGE>
dividend, recapitalization, merger, or similar event, shall (unless otherwise
permitted by the provisions of Section 4 below) be stamped or otherwise
imprinted with legends in substantially the following form (in addition to any
legends required by agreement or by applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY
NOT BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE
COMPANY, SUCH TRANSFER MAY BE MADE PURSUANT TO RULE 144 OR
REGISTRATION UNDER THE ACT IS OTHERWISE UNNECESSARY IN ORDER FOR SUCH
TRANSFER TO COMPLY WITH THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCKUP
PERIOD OF UP TO 180 DAYS FOLLOWING THE EFFECTIVE DATE OF A
REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH LOCKUP PERIOD IS
BINDING ON TRANSFEREES OF THESE SHARES.
Each Holder consents to the Company making a notation on its records
and giving stop transfer instructions to any transfer agent of its capital stock
in order to implement the restrictions on transfer established in this
Agreement.
4. Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Without in any way limiting the
immediately preceding sentence, no sale, assignment, transfer or pledge of
Restricted Securities shall be made by any holder thereof to any person unless
such person shall first agree in writing to be bound by the restrictions of this
Agreement. Prior to any proposed sale, assignment, transfer or pledge of any
Restricted Securities, unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and, if requested by the Company, the holder shall also
provide, at such holder's expense, either (i) a written opinion of legal counsel
who shall be, and whose legal opinion shall be, reasonably satisfactory to the
Company addressed to the Company, to the effect that the proposed transfer of
the Restricted Securities may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission to the
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<PAGE>
effect that the transfer of such securities without registration will not result
in a recommendation by the staff of the Commission that action be taken with
respect thereto, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company; provided, however, that the
Company shall not request an opinion of counsel or "no action" letter with
respect to (i) a transfer not involving a change in beneficial ownership, (ii) a
transaction involving the distribution without consideration of Restricted
Securities by the holder to its constituent partners or members in proportion to
their ownership interests in the holder, or (iii) a transaction involving the
transfer without consideration of Restricted Securities by an individual holder
during such holder's lifetime by way of gift or on death by will or intestacy.
Each certificate evidencing the Restricted Securities transferred as above
provided shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 3 above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for such holder and counsel for the Company such legend is not required in order
to establish compliance with any provision of the Securities Act.
Notwithstanding the foregoing, each holder of Restricted Securities agrees that
it will not request that a transfer of the Restricted Securities be made or that
the legend set forth in Section 3 be removed from the certificate representing
the Restricted Securities, solely in reliance on Rule 144(k), if as a result
thereof the Company would be rendered subject to the reporting requirements of
the Exchange Act.
5. Registration.
------------
5.1 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive
from Initiating Holders a written request that the Company effect any
registration with respect to shares of Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use commercially reasonable
efforts to effect such registration as part of a firm commitment underwritten
public offering with underwriters reasonably acceptable to the Initiating
Holders and the Company (including, without limitation, appropriate
qualification under applicable state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request by delivering a written notice to such effect to the Company within
twenty days after the date of such written notice from the Company.
-5-
<PAGE>
Notwithstanding the foregoing, the Company shall not be obligated to take
any action to effect or complete any such registration pursuant to this Section
5.1:
(A) Prior to the earlier of (i) one year after the
effective date of the Company's first registered public offering of its Common
Stock or (ii) five years from the date hereof;
(B) Unless the requested registration would have
an aggregate offering price of all Registrable Securities sought to be
registered by all Holders, net of underwriting discounts and commissions,
exceeding $5,000,000;
(C) Following the filing of, and for 180 days
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan), provided
that the Company is actively employing in good faith commercially reasonable
efforts to cause such registration statement to become effective;
(D) After the Company has effected
two registrations pursuant to this Section 5.1(a) in which the Initiating
Holders were able to sell at least 50% of the Registrable Securities sought to
be included and such registration has been declared or ordered effective;
(E) If the Initiating Holders are able to request
a registration on Form S-3 pursuant to Section 5.3 hereof;
(F) Within twelve months after the Company has
effected such a registration pursuant to this Section 5.1(a), and such
registration has been declared or ordered effective; or
(G) If the Company shall furnish to the Initiating
Holders a certificate signed by the President of the Company (i) giving notice
of its bona fide intention to effect the filing of a registration statement with
the Commission, or (ii) stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its stockholders
for a registration statement to be filed in the near future. In such case, the
Company's obligation to use its commercially reasonable efforts to register,
qualify or comply under this Section 5.1(a) shall be deferred one or more times
for a period not to exceed 180 days from the receipt of the request to file such
registration by such Initiating Holder or Holders, provided that the Company may
not exercise this deferral right more than once per twelve month period.
Subject to the foregoing clauses (A) through (G), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
-6-
<PAGE>
(b) Underwriting. In the event of a registration pursuant to
Section 5.1, the Company shall advise the Holders as part of the notice given
pursuant to Section 5.1(a)(i) that the right of any Holder to registration
pursuant to Section 5.1 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 5.1, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall, together with all Holders proposing to distribute their
securities through such underwriting, enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders, but subject to the Company's
reasonable approval. Notwithstanding any other provision of this Section 5.1, if
the managing underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, the managing underwriter may limit
the Registrable Securities to be included in such registration (i) in the case
of the Company's initial public offering, to zero, and (ii) in the case of any
other offering, to an amount no less than 33% of all shares to be included in
such offering. The Company shall so advise all Holders requesting to be included
in the registration and underwriting and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders requesting to be included in the registration and
underwriting in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities held by them at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares. If any Holder of Registrable Securities
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company.
5.2 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time
----------------------
the Company shall determine to register any of its equity securities, either for
its own account or the account of a Holder or other holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Rule 145 transaction, or (iii) a registration in which the
only equity security being registered is Common Stock issuable upon conversion
of convertible debt securities which are also being registered, the Company
will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualifications including compliance with Blue Sky laws), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within ten days after the date of such written notice from the
Company, by any Holder.
-7-
<PAGE>
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event, the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other Holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company. Notwithstanding any other provision of this Section 5.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration (i) in the case of
the Company's initial public offering, to zero, and (ii) in the case of any
other offering, to an amount no less than 33% of all shares to be included in
such offering. The Company shall so advise all Holders requesting to be included
in the registration and underwriting and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all the Holders requesting to be included in the registration
and underwriting in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by them at the time of filing the
registration statement. To facilitate the allocation of shares in accordance
with the above provisions, the Company or the underwriters may round the number
of shares allocated to any Holder to the nearest 100 shares. If any Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company.
(c) Right to Terminate Registration. The Company shall have the
-------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 5.2 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
5.3 Registration on Form S-3.
------------------------
(a) Request for Registration. In case the Company shall receive
------------------------
from Initiating Holders a written request that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public offering
of shares of the Registrable Securities the aggregate price to the public of
which, net of underwriting discounts and commissions, would exceed $3,000,000,
and the Company is a registrant entitled to use Form S-3 to register the
Registrable Securities for such an offering, the Company shall use commercially
reasonable efforts to cause such Registrable Securities to be registered for the
offering on such form and to cause such Registrable Securities to be qualified
in such jurisdictions as such Holder or Holders may reasonably request;
provided, however, that the Company shall not be required to effect more than
one registration pursuant to this Section 5.3 in any twelve month period. If
such offer is to be an underwritten offer, the underwriters must be acceptable
to both the Initiating Holders and the Company. The Company shall inform the
other Holders of the proposed registration and offer them
-8-
<PAGE>
the opportunity to participate. In the event the registration is proposed to be
part of a firm commitment underwritten public offering, the substantive
provisions of Section 5.1(b) shall be applicable to each such registration
initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 5.3:
(i) Following the filing of, and for 180 days immediately
following the effective date of, any registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), provided that the
Company is actively employing in good faith commercially reasonable efforts to
cause such registration statement to become effective;
(ii) Within twelve months after the Company has effected
such a registration pursuant to this Section 5.3(a), and such registration has
been declared or ordered effective; or
(iii) If the Company shall furnish to the Initiating Holders
a certificate signed by the President of the Company (i) giving notice of its
bona fide intention to effect the filing of a registration statement with the
Commission, or (ii) stating that, in the good faith judgment of the Board of
Directors, it would be seriously detrimental to the Company or its stockholders
for a registration statement to be filed in the near future, then the Company's
obligation to use its commercially reasonable efforts to file a registration
statement shall be deferred one or more times for a period not to exceed 180
days from the receipt of the request to file such registration by such
Initiating Holder or Holders, provided that the Company may not exercise this
deferral right more than once per twelve month period.
5.4 Subsequent Registration Rights.
------------------------------
(a) Without the consent of any holder of Registrable Securities
hereunder, the Company may grant to any holder of securities of the Company
registration rights inferior to those granted hereunder.
(b) The Company shall not enter into any agreement granting any
holder or prospective holder of any securities of the Company registration
rights superior to or on a pari passu basis with the rights granted the Holders
hereunder without the written consent of the holders of a majority of the
Registrable Securities. Notwithstanding the foregoing, the Company may, without
obtaining any further consent of the holders of Registrable Securities, amend
this Agreement to the extent necessary to grant rights and obligations on a pari
passu basis with the rights and obligations of the Holders to investors in any
subsequent round of financing with respect to the securities purchased by such
investors in such financing.
-9-
<PAGE>
5.5 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with (i) two registrations pursuant to Section 5.1, (ii) all
registrations pursuant to Section 5.2, and (iii) all registrations pursuant to
Section 5.3, shall be borne by the Company. Notwithstanding the foregoing, in
the event that Initiating Holders cause the Company to begin a registration
pursuant to Section 5.1, and the request for such registration is subsequently
withdrawn by the Initiating Holders or such registration is not completed due to
failure to meet the net proceeds requirement set forth in such section or is
otherwise not successfully completed due to no fault of the Company, all Holders
shall be deemed to have forfeited their right to one registration under Section
5.1 unless the Initiating Holders pay for, or reimburse the Company for, the
Registration Expenses incurred in connection with such withdrawn or incomplete
registration. Unless otherwise stated, all Selling Expenses relating to
securities registered on behalf of the Holders and all other registration
expenses shall be borne by the Holders of such securities pro rata on the basis
of the number of shares so registered or proposed to be so registered.
5.6 Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Agreement, the Company will keep each
Holder advised in writing as to the initiation of such registration and as to
the completion thereof. The Company will:
(a) Prepare and file with the Commission a registration statement
and such amendments and supplements as may be necessary and use commercially
reasonable efforts to cause such registration statement to become and remain
effective for at least 90 days or until the distribution described in the
registration statement has been completed, whichever first occurs; provided,
however, that such 90 day period shall be extended for a period of time equal to
that which the Holder refrains from selling any securities at the request of any
underwriter of the Company; and
(b) Furnish to the Holders participating in such registration and
to the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
5.7 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers
and directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration
has been effected pursuant to this Agreement, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, or any violation by the Company of the Securities Act, the Exchange
Act, state securities laws or any rule or regulation
-10-
<PAGE>
promulgated under such laws applicable to the Company in connection with any
such registration, and the Company will reimburse each such Holder, each of its
officers and directors, and each person controlling such Holder, for any legal
and any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder or controlling person, and stated to be specifically for use therein;
provided, however, that the foregoing indemnity Agreement is subject to the
condition that, insofar as it relates to any such untrue statement, alleged
untrue statement, omission or alleged omission made in a preliminary prospectus
on file with the Commission at the time the registration statement becomes
effective or the amended prospectus is filed with the Commission pursuant to
Rule 424(b) (the "Final Prospectus"), such indemnity Agreement shall not inure
to the benefit of any Holder, if a copy of the Final Prospectus was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act, and if the
Final Prospectus would have cured the defect giving rise to the loss, liability,
claim or damage.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration is being
effected, indemnify the Company, each of its directors and officers, other
holders of the Company's securities covered by such registration statement, each
person who controls the Company within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Holder of the Securities Act, the Exchange Act, state securities laws or any
rule or regulation promulgated under such laws applicable to the Holder, and
will reimburse the Company, such other Holders, such directors, officers,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred, as such expenses are incurred, in connection with
investigating or defending any such claim, loss, damage, liability or action,
but in the case of the Company or the other Holders or their officers, directors
or controlling persons, only to the extent that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with information furnished to the Company by
such Holder. Notwithstanding the foregoing, the liability of each Holder under
this subsection 5.7(b) shall be limited in an amount equal to the initial public
offering price of the shares sold by such Holder, unless such liability arises
out of or is based on willful misconduct or fraud by such Holder.
-11-
<PAGE>
(c) Each party entitled to indemnification under this Section
5.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or there are separate
and different defenses. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party (whose
consent shall not be unreasonably withheld), consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
5.8 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration
referred to in this Agreement.
5.9 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use commercially reasonable efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
-12-
<PAGE>
(c) So long as a Holder owns any Restricted Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
5.10 Termination of Registration Rights. The rights granted pursuant
----------------------------------
to Sections 5.1, 5.2 and 5.3 of this Agreement shall terminate as to any Holder
upon the earlier of (i) the date four years after the effective date of the
Company's initial public offering and (ii) the date such Holder is able to
immediately sell all shares of Registrable Securities held or entitled to be
held upon conversion by such Holder under Rule 144 during any 90-day period.
6. Financial Information Rights.
----------------------------
(a) The Company will, upon request, provide the following
documents to each Holder who continues to hold at least the lesser of (A)
1,000,000 shares of Preferred Stock and/or Conversion Stock (as adjusted for
recapitalizations, stock combinations, stock dividends, stock splits and the
like) or (B) fifty percent (50%) of the shares of Preferred Stock and/or
Conversion Stock initially acquired by such Holder (as adjusted for
recapitalizations, stock combinations, stock dividends, stock splits and the
like):
(i) As soon as practicable after the end of the fiscal
year ending December 31, 1998 and each fiscal year thereafter, and in any event
within 90 days after the end of each such fiscal year, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such fiscal
year, and consolidated statements of operations and consolidated statements of
cash flows and stockholders' equity of the Company and its subsidiaries, if any,
for such year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year (except that no such comparative data from the fiscal
year ended December 31, 1997 need be provided), all in reasonable detail and
audited by independent public accountants of national standing selected by the
Company, and a capitalization table in reasonable detail for such fiscal year;
(ii) As soon as practicable after the end of each monthly
accounting period in each fiscal year of the Company and in any event within 30
days after, a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of each such quarterly period, and consolidated statements of
operations and consolidated statements of cash flows of the Company and its
subsidiaries, if any, for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles (other than
accompanying notes), subject to changes resulting from year-end audit
adjustments, in reasonable detail and signed by the principal financial or
accounting officer of the Company, and a
-13-
<PAGE>
capitalization table in reasonable detail for such quarterly period, and such
other documents generally distributed or made available to the Company's
stockholders; provided, however, that the Company shall not be obligated to
provide information which it deems in good faith to be proprietary or
confidential.
(iii) such other documents generally distributed or made
available to the Company's stockholders; provided, however, that the Company
-------- -------
shall not be obligated to provide information which it deems in good faith to be
proprietary or confidential.
(b) For purposes of determining the minimum holdings pursuant to
this Section 6, any Purchaser which is a partnership or limited liability
company shall be deemed to hold any Preferred Stock originally purchased by such
Holder and subsequently distributed to constituent partners or members of such
Holder, but which have not been resold by such partners or members. If the
partnership or limited liability company is still in existence, the Company may
satisfy any obligation to distribute reports to individual partners of the
partnership or members of a limited liability company by delivering a single
copy of each report to the partnership or limited liability company as agent for
the constituent partners or members.
(c) Each Holder or transferee of rights under this Section 6
acknowledges and agrees that any information obtained pursuant to this Section 6
which may be considered nonpublic information will be maintained in confidence
by such Holder or transferee and will not be utilized by such Holder or
transferee in connection with purchases or sales of the Company's securities
except in compliance with applicable state and Federal securities laws.
(d) The covenants of the Company set forth in this Section 6
shall terminate and be of no further force or effect upon the earliest to occur
of (i) the closing of a Qualified Initial Public Offering; or (ii) the sale of
all or substantially all of the assets of the Company or the acquisition of the
Company by another entity by means of merger or consolidation resulting in the
exchange of the outstanding shares of the Company for securities or
consideration issued, or caused to be issued, by the acquiring corporation or
its subsidiary, unless the stockholders of the Company hold at least fifty
percent (50%) of the voting power of the surviving corporation in such a
transaction.
7. Lockup Agreement. Each Holder and transferee hereby agrees that, in
----------------
connection with the first two registrations of the offering of any securities of
the Company under the Securities Act for the account of the Company, if so
requested by the Company or any representative of the underwriters (the
"Managing Underwriter"), such Holder or transferee shall not sell or otherwise
transfer any securities of the Company during the period specified by the
Company's Board of Directors at the request of the Managing Underwriter (the
"Market Standoff Period"), with such period not to exceed (i) 180 days following
the effective date of a registration statement of the Company filed under the
Securities Act. The Company may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such Market
Standoff Period. The Company shall use commercially reasonable efforts to place
similar contractual lockup
-14-
<PAGE>
restrictions on all capital stock issued now or hereafter to officers,
directors, employees and consultants of the Company and holders of registration
rights with respect to capital stock of the Company.
8. Right of First Refusal.
----------------------
(a) The Company hereby grants to idealab! Holdings, L.L.C.
("idealab"), MSD Portfolio L.P. -Investments, Susan L. Dell Separate Property
Trust, Black Marlin Investments, LLC, Vermear Investments, LLC, Victory
Partners - A, L.P., the Goldman Sachs Group, L.P., Stone Street Fund 1999, L.P.
and Bridge Street Fund 1999, L.P. (the "Qualified Purchasers") the right of
first refusal to purchase its Pro Rata Share of New Securities (as defined in
Section 8(d)) which the Company may, from time to time, propose to sell and
issue. A "Pro Rata Share," for purposes of this right of first refusal, equals
the proportion that the total number of shares of Common Stock then held by the
Qualified Purchasers plus the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock, the Series C Preferred Stock and the
Series D Preferred Stock then held by the Qualified Purchasers bears to the sum
of the total number of shares of Common Stock then outstanding plus the number
of shares of Common Stock issuable upon exercise or conversion of all then
outstanding securities exercisable for or convertible into, directly or
indirectly, Common Stock.
(b) Subject to the rights of all Qualified Purchasers (other
than idealab) as set forth in Section 8(a), in connection with one or more
equity financings of the Company subsequent to the date of this Agreement
pursuant to which New Securities (as defined in Section 8(d) except that for
purposes of this Section 8(b), New Securities shall include capital stock issued
or issuable in the Company's Qualified Initial Public Offering) are issued (a
"Subsequent Financing"), the Company hereby covenants to provide idealab the
right to purchase an amount of New Securities that would enable idealab to own
following such Subsequent Financing 38.2% of the Common Stock of the Company (on
a fully diluted as converted to Common Stock basis) (the "Purchase Right"). In
the event that the Subsequent Financing is the Company's Qualified Initial
Public Offering, the Purchase Right shall be reduced or eliminated if the
Managing Underwriter determines, in its sole discretion, that the exercise of
the Purchase Right would adversely impact the Qualified Initial Public Offering.
(c) If the Company intends to commence a Subsequent Financing,
the Company shall deliver to idealab a written notice (the "Written
Notification") stating: (i) its bona fide intention to commence a Subsequent
Financing; (ii) the then projected amount of money to be raised by the Company
in the Subsequent Financing; and (iii) if then known, the projected per share
price of the capital stock sold in the Subsequent Financing. idealab's Purchase
Right shall then be exercisable for ten (10) days after the date of the Written
Notification. idealab shall exercise its Purchase Right by delivering to the
Company a written notice indicating the number of shares (or percentage of the
shares of Common Stock of the Company on a post-Subsequent Financing fully
diluted as converted to Common Stock basis) pursuant to the Purchase Right that
it elects to purchase.
-15-
<PAGE>
If idealab elects to exercise its Purchase Right, its obligations
to the Company will not exceed the amount it elected to purchase based upon (i)
the projected amount of money to be raised by the Company in the Subsequent
Financing; and (ii) the projected per share price of the capital stock in the
Subsequent Financing that were stated in the Written Notification.
If idealab elects to exercise its Purchase Right, such purchase of
shares of capital stock shall be on the same terms and conditions as the other
purchasers of shares of capital stock in the Subsequent Financing at the time of
the first closing of the Subsequent Financing. If the Subsequent Financing is
the Company's Qualified Initial Public Offering, such purchase of shares of
capital stock shall be at the purchase price paid by the public. If the
Subsequent Financing does not close within six (6) months after the date of the
Written Notification, then idealab's exercise of its Purchase Right shall be
null and void and idealab shall not be obligated, but may elect, to purchase
shares of capital stock in the Subsequent Financing.
(d) Except as set forth below, "New Securities" shall mean any
shares of capital stock of the Company, including Common Stock and any series of
preferred stock, whether now authorized or not, and rights, options or warrants
to purchase said shares of Common Stock or preferred stock, and securities of
any type whatsoever that are, or may become, convertible into or exchangeable
for said shares of Common Stock or preferred stock. Notwithstanding the
foregoing, "New Securities" does not include stock issued and issuable: (i) upon
conversion of shares of Preferred Stock; (ii) to employees, consultants or
directors pursuant to stock options, stock grants, or stock purchase rights
under the Company's 1998 Stock Option Plan approved by the Board of Directors,
including without limitation upon the exercise of Options outstanding as of the
Original Issue Date, or any such options, grants or rights made outside of such
plan to any person or group (provided that any such non-plan options, grants, or
rights do not exceed 200,000 shares (as adjusted for stock splits and the like)
per person or group of affiliated persons in one transaction or a series of
related transactions); (iii) to equipment lessors, banks financial institutions
or similar entities in a transaction approved by the board of directors, the
principle purpose of which is other than the raising of capital; (iv) as a
dividend or other distribution; (v) in the Company's Qualified Initial Public
Offering; (vi) in a merger or acquisition that is approved by the Board of
Directors; (vii) pursuant to any transactions approved by the Board of Directors
primarily for the purpose of (A) joint ventures, technology licensing or
research and development activities, (B) distribution or manufacture of the
Company's products or service, or (C) any other transactions involving corporate
partners that are primarily for purposes other than raising capital; or (viii)
if the holders of a majority of the then outstanding Registrable Securities
agree in writing that such shares shall not constitute New Securities.
(e) In the event the Company proposes to undertake an issuance
of New Securities, it shall give the Qualified Purchaser written notice of its
intention, describing the amount and type of New Securities, and the price and
terms upon which the Company proposes to issue the same. The Qualified Purchaser
shall have ten days from the date of receipt of any such notice to agree to
purchase up to its Pro Rata Share of such New Securities for the price and upon
the terms
-16-
<PAGE>
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
(f) Beginning ten days after the notice given pursuant to
Section 8(b) above, the Company shall have 180 days to sell the New Securities
not elected or eligible to be purchased by the Qualified Purchaser at the price
and upon the terms no more favorable to the purchasers of such securities than
specified in the Company's notice. In the event the Company has not sold all of
the New Securities within said 180 day period, the Company shall not thereafter
issue or sell any New Securities without first offering such securities in the
manner provided above.
(g) The provisions of Sections 8(a), (c), (d), (e) and (f) will
terminate and be of no further force or effect upon the earlier to occur of: (i)
the closing of a Qualified Initial Public Offering, or (ii) the sale of all or
substantially all of the assets of the Company or the acquisition of the Company
by another entity by means of merger or consolidation resulting in the exchange
of the outstanding shares of the Company for securities or consideration issued,
or caused to be issued, by the acquiring corporation or its subsidiary, unless
the stockholders of the Company hold at least fifty percent (50%) of the voting
power of the surviving corporation in such a transaction.
(h) The provisions of Section 8(b) will terminate and be of no
further force or effect (i) following (but not including) the closing of a
Qualified Initial Public Offering, or (ii) the sale of all or substantially all
of the assets of the Company or the acquisition of the Company by another entity
by means of merger or consolidation resulting in the exchange of the outstanding
shares of the Company for securities or consideration issued, or caused to be
issued, by the acquiring corporation or its subsidiary, unless the stockholders
of the Company hold at least fifty percent (50%) of the voting power of the
surviving corporation in such a transaction.
The provisions of Section 8(a), (c), (d), (e), (f) and (g) may be
amended only with the written consent of the Qualified Purchasers of the Company
and the provisions of Section 8(b) and (h) may be amended only with the written
consent of idealab and the Company.
9. Vesting of Employee Options. Unless otherwise agreed to by a majority
---------------------------
of the Directors who are not then employees of the Company, options granted to
employees of the Company under the Company's 1998 Employee Stock Plan or other
approved stock plans will vest, until the option holder's employment with or
service to the Company terminates, on terms no more favorable to the employee
than twenty percent (20%) of such shares on the date of employment and twenty
percent (20%) of such shares at the end of each year for four (4) years
thereafter.
10. Employment, Confidential Information and Invention Assignment
-------------------------------------------------------------
Agreements. The Company will maintain a policy requiring each person now or
- ----------
hereafter employed by it or any subsidiary with access to confidential
information to enter into an Employment, Confidential Information and Invention
Assignment Agreement substantially in a form approved by the Board of Directors.
-17-
<PAGE>
11. Transfer of Rights. The rights granted under Sections 5, 6 and 8 of
------------------
this Agreement may be assigned to any transferee or assignee, other than a
competitor or potential competitor of the Company (as determined in good faith
by the Company's Board of Directors in connection with any transfer or
assignment of Registrable Securities by the Holder, provided that: (i) such
transfer is otherwise effected in accordance with applicable securities laws and
the terms of this Agreement; (ii) such assignee or transferee acquires at least
the lesser of (A) 1,000,000 shares (as adjusted for stock splits, stock
dividends, stock combinations and the like) of Registrable Securities (including
Preferred Stock convertible into Registrable Securities) or (B) fifty percent
(50%) of the shares of Registrable Securities (as adjusted for stock splits,
stock dividends, stock combinations and the like) initially acquired by the
transferring Holder (including Preferred Stock convertible into Registrable
Securities), (iii) written notice is promptly given to the Company; and (iv)
such transferee or assignee agrees to be bound by the provisions of this
Agreement. Notwithstanding the foregoing, the rights granted to the Purchaser
hereunder may be assigned without compliance with item (ii) above to any
constituent partner or member of the Purchaser which is a partnership or limited
liability company, or to an affiliate (as such term is defined in Rule 405 of
the Securities Act) of the Purchaser which is a corporation, partnership or
limited liability company.
12. Series B Preferred Board Members. For so long as the holders of
--------------------------------
Series B Preferred Stock shall be entitled to elect two directors under the
Company's Amended and Restated Certificate of Incorporation, the Purchasers
will: (i) vote for the nominee selected by idealab! Capital Partners I-B, L.P.
provided that idealab! Capital Partners I-A, L.P. and idealab! Capital Partners
I-B, L.P. together hold 500,000 shares of Series B Preferred Stock; and (ii)
vote for the nominee selected by Foundation Capital II, L.P. ("Foundation")
provided that Foundation, Foundation Capital II Entrepreneurs Fund, LLC and
Foundation Capital II Principals Fund, LLC together hold 500,000 shares of
Series B Preferred Stock.
This Section 12 may be amended only with the written consent of
idealab! Capital Partners I-B, L.P., Foundation and the Company.
13. Amendment. Except as otherwise provided herein, additional parties may
---------
be added to this Agreement, any provision of this Agreement may be amended or
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Holders of a majority of the Registrable
Securities then outstanding provided that any amendment treats all holders of
Registrable Securities in a similar manner. Any amendment or waiver effected in
accordance with Section 5.4 or Section 13, as applicable, shall be binding upon
each Purchaser, Holder of Registrable Securities at the time outstanding, each
future holder of any of such securities, and the Company.
14. Governing Law. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of California without regard to conflict of laws
provisions.
15. Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and Agreement among the parties regarding the matters set forth
herein. Except as otherwise expressly
-18-
<PAGE>
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon the successors, assigns, heirs, executors and administrators of the
parties hereto.
16. Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) if to a Holder, at such Holder's address as set forth on the
signature page, or at such other address as such Holder shall have furnished to
the Company.
(b) if to the Company, to:
4312 Woodman Avenue, 3/rd/ Floor
Sherman Oaks, California 91423
Attn: Scott Painter
Chief Executive Officer
Fax: (818) 808-4887
or at such other address as the Company shall have furnished to
the Holders,
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Martin W. Korman, Esq.
Michael D. Charney, Esq.
Fax: (650) 493-6811
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which together shall
constitute one instrument.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
CARSDIRECT.COM, INC. MSD PORTFOLIO L.P.
By: ________________________ By: __________________________
Name: ______________________ Name:_________________________
Title: _____________________ Title: _______________________
SUSAN L. DELL SEPARATE PROPERTY TRUST
By: __________________________
Name:_________________________
Title: _______________________
BLACK MARLIN INVESTMENTS, LLC
By: __________________________
Name:_________________________
Title: _______________________
VERMEER INVESTMENTS, LLC
By: __________________________
Name:_________________________
Title: _______________________
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
VICTORY PARTNERS - A, L.P.
By: ___________________________
Name:__________________________
Title: ________________________
IDEALAB! HOLDINGS, L.L.C.
By: ___________________________
Name: Marcia Goodstein
--------------------------
Title: ________________________
Address: 130 W. Union Street
Pasadena, CA 91103
IDEALAB! CAPITAL PARTNERS-I-A, L.P.
By: ___________________________
Name: Bill Elkus
--------------------------
Title: ________________________
Address: 130 W. Union Street
Pasadena, CA 91103
IDEALAB! CAPITAL PARTNERS-I-B, L.P.
By: ___________________________
Name: Bill Elkus
--------------------------
Title: ________________________
Address: 130 W. Union Street
Pasadena, CA 91103
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
HARVEY & SANDRA COHEN LIVING TRUST
By:_________________________________
Name: Harvey Cohen
------------------------------
Title:______________________________
Address: 5035 Andasol Avenue
Encinco, CA 91316
WS INVESTMENT COMPANY 98B
By:_________________________________
Name: Martin W. Korman
------------------------------
Title: Partner
-----------------------------
Address: 650 Page Mill Road
Palo Alto, CA 94304
Foundation Capital II, L.P.
By Foundation Capital Management II, LLC
By:_________________________________
Manager
Foundation Capital II Principals Fund, LLC
By Foundation Capital Management II, LLC
By:_________________________________
Manager
Foundation Capital II Entrepreneurs Fund, LLC
By Foundation Capital Management II, LLC
By:_________________________________
Manager
____________________________________
Scott Painter, an individual
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
___________________________________
Greg Brogger, an individual
___________________________________
Daniel Alexander, an individual
___________________________________
Andrew Skarupa, an individual
___________________________________
Steven Damron, an individual
Emanuel Wasserman DDS MSD APC
Employees' Profit Sharing Plan
By:________________________________
Name:______________________________
Title:_____________________________
Ronald Nussbaum, SSB Keogh
MP Custodian
___________________________________
Ari Wasserman, an individual
PRIMEDIA VENTURES, INC.
By:________________________________
Name:______________________________
Title:_____________________________
___________________________________
Marcia Goodstein, an individual
___________________________________
Judith and David Goodstein
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
WS INVESTMENT COMPANY 99A
By:________________________________
Name:______________________________
Title:_____________________________
THE GOLDMAN SACHS GROUP, L.P.
By: The Goldman Sachs Corporation
its general partner
By:________________________________
Name:______________________________
Title:_____________________________
STONE STREET FUND 1999, L.P.
By: Stone Street 1999 Corp.
its general partner
By:________________________________
Name:______________________________
Title:_____________________________
BRIDGE STREET FUND 1999, L.P.
By: Stone Street 1999 Corp.
its general partner
By:________________________________
Name:______________________________
Title:_____________________________
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
CARSONLINE LLC
By:________________________________
Name: Ahmed O. Alfi
------------------------------
Title:_____________________________
Address: 301 North Lake Avenue
Suite 910
Pasadena, CA 91101
GBJ HOLDINGS, LLC
By:________________________________
Name: Joel S. Beckman
------------------------------
Title: Member
-----------------------------
Address: 40 Meadowbrook Road
Old Greenwich, CT 06870
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
___________________________________
Shelley Sasahara, an individual
___________________________________
Michael McFarland, an individual
___________________________________
Terry Painter, an individual
___________________________________
Tyler Painter, an individual
___________________________________
Avi Steinlauf, an individual
___________________________________
Lev Stark, an individual
___________________________________
Gina Bell, an individual
___________________________________
Siran Agadjanian, an individual
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
___________________________________
Michael Boehm, an individual
___________________________________
Ari Wasserman, an individual
___________________________________
Kirk Uhler, an individual
___________________________________
Todd Lindstrom, an individual
___________________________________
Joe LaRosa, an individual
___________________________________
Kevin Goldberg, an individual
___________________________________
Larry Tchamkertenian, an individual
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
____________________________________
Chris Gaebler, an individual
____________________________________
Scott Hannah, an individual
____________________________________
Serko Ashikian, an individual
____________________________________
Robert Tchamkertenian, an individual
____________________________________
Chris Camillo, an individual
____________________________________
Jeffrey Jack, an individual
____________________________________
Rick Rosenweig, an individual
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
____________________________________
Daniel Alexander, an individual
____________________________________
Yvette Clark, an individual
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
SERIES D PURCHASER
______________________________________
Print Name of Signatory as it is
to appear on stock certificate
______________________________________
Authorized Signature
______________________________________
Title of Signatory (if appropriate)
Address:
______________________________________
______________________________________
______________________________________
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
<PAGE>
EXHIBIT 4.3
WD-1
Initially Issued November 4, 1999
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF
CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. WARRANTHOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
STOCK PURCHASE WARRANT
To Purchase Shares of Preferred Stock of
CARSDIRECT.COM, INC.
For value received, CarsDirect.com, Inc., a Delaware corporation (the
"Company") hereby grants to Robert Brisco (the "Warrantholder"), and its
assigns, the right, upon the terms and subject to the conditions hereinafter set
forth, at any time during the period commencing on November 4, 1999 and ending
on the close of business on November 4, 2004, to subscribe for and purchase from
the Company up to 200,000 fully paid and nonassessable shares of Series D
Preferred of the Company at a purchase price per share of $15.76. The exercise
price and the number of shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein.
1. Title of Warrant. Prior to the expiration hereof and subject to
----------------
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
referred to in Section 2(a) below, by the registered holder hereof (the
"Holder") in person or by duly authorized attorney, upon surrender of this
Warrant and the Assignment Form attached hereto properly
endorsed.
2. Exercise of Warrant.
-------------------
(a) The purchase rights represented by this Warrant are exercisable by
the Holder, in whole or in part, at any time before the close of business on
November 4, 2004 by the surrender of this Warrant and the Notice of Exercise
attached hereto duly executed at the office of the Company (or such other office
or agency of the Company as it may designate in writing to the Holder at the
address of the Holder appearing on the books of the Company), and upon payment
of the Purchase Price of the shares thereby purchased (by cash, check, or
cancellation of indebtedness of the Company to the Holder, if any, at the time
of exercise in an amount equal to the purchase price of the shares thereby
purchased); whereupon the Holder shall be entitled to receive a certificate for
the
<PAGE>
number of shares of Series D Preferred Stock so purchased. The Company agrees
that upon due exercise of this Warrant by the Holder, the shares so purchased
shall be and be deemed to be issued to the Holder as the record owner of such
shares as of the close of business on the date on which this Warrant is
exercised.
(b) In lieu of the cash payment set forth in Section 2(a) above, the
Holder shall have the right ("Conversion Right") to convert this Warrant in its
entirety (without payment of any kind) into that number of shares of Series D
Preferred Stock equal to the quotient obtained by dividing the Net Value (as
defined below) of the Shares of Series D Preferred Stock underlying this Warrant
by the Fair Market Value (as defined below) of one share of Series D Preferred
Stock. As used herein, (A) the Net Value means the aggregate Fair Market Value
of the shares of Series D Preferred Stock subject to this Warrant minus the
aggregate purchase price; and (B) the Fair Market Value of one share of Series D
Preferred Stock means:
(i) if the exercise is in connection with a registered public
offering of the Company's Common Stock, the Fair Market Value of one share of
Series D Preferred Stock shall be the product of (x) the initial "Price to
Public" of one share of Common Stock specified in the final prospectus with
respect to the offering and (y) the number of shares of Common Stock into which
each share of Series D Preferred Stock is convertible at the time of such
exercise;
(ii) if the exercise is in connection with a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving party,
the Fair Market Value of one share of Series D Preferred Stock shall be deemed
to be the value received by the holders of the Company's Series D Preferred
Stock on a common equivalent basis pursuant to such Merger Transaction; and
(iii) in all other cases, the Fair Market Value of one share of
Series D Preferred Stock shall be the product of (x) the fair market value of
the Common Stock of the Company, as determined in good faith by the Company's
Board of Directors and (y) the number of shares of Common Stock into which each
share of Series D Preferred Stock is convertible at the time of such exercise.
(c) Certificates for shares purchased hereunder shall be delivered to
the Holder within a reasonable period of time after the date on which this
Warrant is exercised.
(d) The Company covenants that all shares of Series D Preferred Stock
which may be issued upon the exercise of this Warrant will be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon the exercise of
this Warrant, an amount equal to such fraction multiplied by the current
Purchase Price at which each share may be purchased hereunder shall be paid in
cash to the Holder.
-2-
<PAGE>
4. Charges, Taxes and Expenses. Issuance of certificates for shares of
---------------------------
Series D Preferred Stock upon the exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the Holder;
provided however that in the event certificates for shares of Series D Preferred
Stock are to be issued in a name other than the name of the Holder, this Warrant
when surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder; and provided further that upon any
transfer involved in the issuance or delivery of any certificates for shares of
Series D Preferred Stock, the Company may require reimbursement for any transfer
tax.
5. Rights as Stockholders. This Warrant does not entitle the Holder to
----------------------
any voting rights or other rights as a stockholder of the Company prior to the
exercise hereof. Upon exercise of this Warrant, the Holder shall become entitled
to all rights provided to Series D Preferred Holders under the Fourth Amended
and Restated Investor Rights Agreement between the Company and certain
stockholders dated October 27, 1999.
6. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
--------------------------------
the surrender hereof by the Holder at the above-mentioned office or agency of
the Company, for a new Warrant of like tenor and dated as of such exchange. The
Company shall maintain at such office or agency a registry showing the name and
address of the Holder. This Warrant may be surrendered for exchange, transfer or
exercise, in accordance with its terms, at such office or agency of the Company,
and the Company shall be entitled to rely in all respects, prior to written
notice to the contrary, upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
-------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of such Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
8. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
----------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
9. Adjustment and Termination.
--------------------------
(a) Reclassification, etc. If the Company at any time shall, by
----------------------
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into the
same or a different number of securities of any class or classes, the shares of
Series D Preferred Stock or other securities for which this Warrant is
exercisable shall thereafter be convertible into the kind and number of shares
of stock or other securities or property of the Company or otherwise to which
the Holder would have been entitled if immediately prior to such change the
Holder had acquired the shares of Series D Preferred Stock or
-3-
<PAGE>
other securities for which this Warrant is exercisable. If shares of the
Company's Series D Preferred Stock or other securities purchasable hereunder are
subdivided or combined into a greater or smaller number of shares, or if the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock, the Purchase Price under this Warrant shall
be proportionately reduced in case of subdivision of shares or proportionately
increased in the case of combination of shares. No adjustment on account of cash
dividends or interest on the Company's Series D Preferred Stock or other
securities purchasable hereunder will be made to the Purchase Price under this
Warrant.
(b) Notice of Adjustment. Upon any adjustment of the securities
--------------------
issuable upon exercise of this Warrant the Purchase Price for the shares, and/or
any increase or decrease in the number of shares purchasable upon the exercise
of this Warrant, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the Holder at the address of the Holder as
shown on the books of the Company.
(c) Authorized Shares. The Company covenants that during the period
-----------------
the Warrant is outstanding, it will reserve from its authorized and unissued
Series D Preferred Stock or other securities purchasable hereunder a sufficient
number of shares to provide for the issuance of Series D Preferred Stock or
other securities upon the exercise of any purchase rights under this Warrant.
10. No Impairment. The Company will not, by amendment of its Certificate
-------------
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid, directly or indirectly, the
performance of any of the terms of this Warrant, but will at all times in good
faith take all necessary action to carry out all such terms. Without limiting
the generality of the foregoing, the Company (a) will not create any par value,
or increase the par value, of any shares of stock receivable on exercise of this
Warrant above the amount payable therefor on such exercise, and (b) will take
all such action as may be necessary or appropriate so that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
exercise of this Warrant. Notwithstanding the foregoing, in the event of (a) a
dissolution or liquidation of the Company, (b) a merger consolidation or other
acquisition in which the Company is not the surviving corporation, (c) the sale
of all or substantially all of the assets of the Company, (d) unless otherwise
determined by the Company's Board of Directors (the "Board") in its sole
discretion, any other transaction which qualifies as a corporate reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, wherein the stockholders of the Company no longer hold a majority of
the outstanding capital stock of the surviving entity then, with respect to a
corporate transaction of the type described above, this Warrant shall,
notwithstanding any contrary terms set forth herein, expire twenty (20) days
after the Warrantholder receives written notice of such transaction. Such notice
shall describe the transaction in detail reasonably sufficient to allow the
Warrantholder to analyze the material terms of the transaction.
11. Lockup Agreement. In consideration for the Company agreeing to its
----------------
obligations hereunder, the Warrantholder and each transferee of Warrantholder's
rights hereunder, agrees in connection with the first registration of the
Company's securities, upon the request of the Company or the underwriters
managing such underwritten offering of the Company's securities, not to sell,
-4-
<PAGE>
make any short sale of, loan, grant, any option for the purchase of, or
otherwise dispose of any shares of Series D Preferred or other securities of the
Company (other than those included in the Registration) into which such Series D
Preferred Stock is convertible without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
one hundred eighty (180) days) from the effective date of such registration as
the Company or the underwriters may specify. The Warrantholder agrees that the
Company may instruct its transfer agent to place stop transfer notations in its
records to enforce the foregoing provisions.
12. Record Date.
-----------
(a) If the Company shall fix a record date of the holders of Series D
Preferred Stock (or other stock or securities at the time deliverable on
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend (other than a stock dividend) or other distribution, or to
receive any right to subscribe for or purchase any shares of any class of any
other securities, or to receive any other right;
(b) In the event of any reorganization or recapitalization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation or any
transfer of all or substantially all of the assets of the Company to another
entity;
(c) In the event of the voluntary or involuntary dissolution,
liquidation or winding up of the Company or;
(d) If the Company has filed a registration statement under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
for an offering of the Company's capital stock.
Then, in any such event, the Company will mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (i) the date on which a record
is to be taken for the purpose of such dividend, distribution or right and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which a record is to be taken for the purpose of voting on or
approving such reorganization, recapitalization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up and
the date on which such event is to take place and the time, if any is to be
fixed, as of which the holders of record of Series D Preferred Stock (or such
other stock or securities at the time deliverable on exercise of this Warrant)
shall be entitled to exchange their shares of Series D Preferred Stock (or such
other stock or securities) for securities or other property deliverable on such
reorganization, recapitalization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding up or (iii) the date on which
the Company's registration statement was filed and the class of securities
proposed to be registered. Such notice shall be mailed at least twenty-one days
prior to the record date therein specified or within twenty-one days after
filing the registration statement, as the case may be.
-5-
<PAGE>
13. Miscellaneous.
-------------
(a) Issue Date. The provisions of this Warrant shall be construed and
----------
shall be given effect in all respect as if it had been issued and delivered by
the Company on the date hereof. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of the State of California and for all purposes shall be
construed in accordance with and governed by the laws of said state.
(b) Restrictions. The Holder acknowledges that the securities
------------
acquired upon the exercise of this Warrant may have restrictions upon its resale
imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof
-----------------------
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. All notices, reports and other communications required
-------
or permitted hereunder shall be in writing and may be delivered in person, by
telecopy with written confirmation, overnight delivery service or U.S. mail, in
which event it may be mailed by first-class, certified or registered, postage
prepaid, addressed to the Holder at its address as shown on the books of the
Company or to the Company at 10567 Jefferson Blvd., Culver City, CA 90232
Attention: President, with a copy to Martin W. Korman, Esq., Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304.
Each such notice, report or other communication shall for all
purposes under this Warrant be treated as effective or having been given when
delivered if delivered personally or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid, or, if sent by telecopier with written confirmation, at the earlier
of (i) 24 hours after confirmation of transmission by the sending telecopier
machine or (ii) delivery of written confirmation.
Dated: November 4, 1999
CARSDIRECT.COM, INC.
By: /s/ Frederick G. Silny
-----------------------------------
Name: Frederick G. Silny
---------------------------------
Title: Secretary
--------------------------------
-6-
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply the required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the undersigned hereby, sells, assigns and
transfers unto:
________________________________________________________________________________
whose address is________________________________________________________________
(Please Print)
and whose Social Security or other Taxpayer Identification Number is:___________
the foregoing Warrant and all rights thereunder, hereby constituting and
appointing ______________________________________ to transfer said Warrant on
the books of the Company, will full power of substitution in the premises.
Dated: ______________, 19__.
Holder's Signature:_____________________
Holder's Name:__________________________
(Please Print)
Holder's Address:_______________________
(Please Print)
________________________________________
Signature Guaranteed: ____________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company or by a
member of the National Association of Securities Dealers, Inc. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
-7-
<PAGE>
NOTICE OF EXERCISE
------------------
To: CarsDirect.com, Inc.
10567 Jefferson Blvdd.
Culver City, CA 90232
(1) The undersigned hereby elects to purchase ______________ shares of
Series D Preferred Stock (the "Shares") of CarsDirect.com, Inc. pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing the Shares in
the name of the undersigned or in such other name as is specified below:
____________________________________
(Print Name)
____________________________________
(Print Address)
____________________________________
(3) The undersigned confirms that the Shares are being acquired for the
account of the undersigned for investment only and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or selling the Shares.
(4) The undersigned agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to
sell, make short sale of, loan, grant any options for the purchase of,
or otherwise dispose of the securities of the Company which are
acquired directly from the Company, held by the undersigned (other
than those securities included in the registration) without the prior
written consent of the Company or the underwriters managing
-8-
<PAGE>
such initial underwritten public offering of the Company's securities
for one hundred eighty (180) days from the effective date of such
registration, and (2) further agrees to execute any agreement
reflecting (1) above as may be requested by the underwriters at the
time of the public offering.
________________________________ ___________________________________
(Date) (Signature)
___________________________________
(Print Name)
-9-
<PAGE>
EXHIBIT 4.4
WD-2
Initially Issued January 13, 2000
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF
CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. WARRANTHOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
STOCK PURCHASE WARRANT
To Purchase Shares of Preferred Stock of
CARSDIRECT.COM, INC.
For value received, CarsDirect.com, Inc., a Delaware corporation (the
"Company") hereby grants to Lynn Walsh (the "Warrantholder"), and its assigns,
the right, upon the terms and subject to the conditions hereinafter set forth,
at any time during the period commencing on January 13, 2000 and ending on the
close of business on January 13, 2004, to subscribe for and purchase from the
Company up to 100,000 fully paid and nonassessable shares of Series D Preferred
of the Company at a purchase price per share of $15.76. The exercise price and
the number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein.
1. Title of Warrant. Prior to the expiration hereof and subject to
----------------
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
referred to in Section 2(a) below, by the registered holder hereof (the
"Holder") in person or by duly authorized attorney, upon surrender of this
Warrant and the Assignment Form attached hereto properly endorsed.
2. Exercise of Warrant.
-------------------
(a) The purchase rights represented by this Warrant are exercisable
by the Holder, in whole or in part, at any time before the close of business on
January 13, 2004 by the surrender of this Warrant and the Notice of Exercise
attached hereto duly executed at the office of the Company (or such other office
or agency of the Company as it may designate in writing to the Holder at the
address of the Holder appearing on the books of the Company), and upon payment
of the Purchase Price of the shares thereby purchased (by cash, check, or
cancellation of indebtedness of the Company to the Holder, if any, at the time
of exercise in an amount equal to the purchase price of the shares thereby
purchased); whereupon the Holder shall be entitled to receive a certificate for
the
<PAGE>
number of shares of Series D Preferred Stock so purchased. The Company agrees
that upon due exercise of this Warrant by the Holder, the shares so purchased
shall be and be deemed to be issued to the Holder as the record owner of such
shares as of the close of business on the date on which this Warrant is
exercised.
(b) In lieu of the cash payment set forth in Section 2(a) above, the
Holder shall have the right ("Conversion Right") to convert this Warrant in its
entirety (without payment of any kind) into that number of shares of Series D
Preferred Stock equal to the quotient obtained by dividing the Net Value (as
defined below) of the Shares of Series D Preferred Stock underlying this Warrant
by the Fair Market Value (as defined below) of one share of Series D Preferred
Stock. As used herein, (A) the Net Value means the aggregate Fair Market Value
of the shares of Series D Preferred Stock subject to this Warrant minus the
aggregate purchase price; and (B) the Fair Market Value of one share of Series D
Preferred Stock means:
(i) if the exercise is in connection with a registered public
offering of the Company's Common Stock, the Fair Market Value of one share of
Series D Preferred Stock shall be the product of (x) the initial "Price to
Public" of one share of Common Stock specified in the final prospectus with
respect to the offering and (y) the number of shares of Common Stock into which
each share of Series D Preferred Stock is convertible at the time of such
exercise;
(ii) if the exercise is in connection with a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, the Fair Market Value of one share of Series D Preferred Stock
shall be deemed to be the value received by the holders of the Company's Series
D Preferred Stock on a common equivalent basis pursuant to such Merger
Transaction; and
(iii) in all other cases, the Fair Market Value of one share of
Series D Preferred Stock shall be the product of (x) the fair market value of
the Common Stock of the Company, as determined in good faith by the Company's
Board of Directors and (y) the number of shares of Common Stock into which each
share of Series D Preferred Stock is convertible at the time of such exercise.
(c) Certificates for shares purchased hereunder shall be delivered to
the Holder within a reasonable period of time after the date on which this
Warrant is exercised.
(d) The Company covenants that all shares of Series D Preferred Stock
which may be issued upon the exercise of this Warrant will be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon the exercise of
this Warrant, an amount equal to such fraction multiplied by the current
Purchase Price at which each share may be purchased hereunder shall be paid in
cash to the Holder.
-2-
<PAGE>
4. Charges, Taxes and Expenses. Issuance of certificates for shares of
---------------------------
Series D Preferred Stock upon the exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the Holder;
provided however that in the event certificates for shares of Series D Preferred
Stock are to be issued in a name other than the name of the Holder, this Warrant
when surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder; and provided further that upon any
transfer involved in the issuance or delivery of any certificates for shares of
Series D Preferred Stock, the Company may require reimbursement for any transfer
tax.
5. Rights as Stockholders. This Warrant does not entitle the Holder to
----------------------
any voting rights or other rights as a stockholder of the Company prior to the
exercise hereof. Upon exercise of this Warrant, the Holder shall become entitled
to all rights provided to Series D Preferred Holders under the Fourth Amended
and Restated Investor Rights Agreement between the Company and certain
stockholders dated October 27, 1999.
6. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
--------------------------------
the surrender hereof by the Holder at the above-mentioned office or agency of
the Company, for a new Warrant of like tenor and dated as of such exchange. The
Company shall maintain at such office or agency a registry showing the name and
address of the Holder. This Warrant may be surrendered for exchange, transfer or
exercise, in accordance with its terms, at such office or agency of the Company,
and the Company shall be entitled to rely in all respects, prior to written
notice to the contrary, upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
-------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of such Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
8. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
----------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
9. Adjustment and Termination.
--------------------------
(a) Reclassification, etc. If the Company at any time shall, by
----------------------
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into the
same or a different number of securities of any class or classes, the shares of
Series D Preferred Stock or other securities for which this Warrant is
exercisable shall thereafter be convertible into the kind and number of shares
of stock or other securities or property of the Company or otherwise to which
the Holder would have been entitled if immediately prior to such change the
Holder had acquired the shares of Series D Preferred Stock or
-3-
<PAGE>
other securities for which this Warrant is exercisable. If shares of the
Company's Series D Preferred Stock or other securities purchasable hereunder are
subdivided or combined into a greater or smaller number of shares, or if the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock, the Purchase Price under this Warrant shall
be proportionately reduced in case of subdivision of shares or proportionately
increased in the case of combination of shares. No adjustment on account of cash
dividends or interest on the Company's Series D Preferred Stock or other
securities purchasable hereunder will be made to the Purchase Price under this
Warrant.
(b) Notice of Adjustment. Upon any adjustment of the securities
--------------------
issuable upon exercise of this Warrant the Purchase Price for the shares, and/or
any increase or decrease in the number of shares purchasable upon the exercise
of this Warrant, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the Holder at the address of the Holder as
shown on the books of the Company.
(c) Authorized Shares. The Company covenants that during the period
-----------------
the Warrant is outstanding, it will reserve from its authorized and unissued
Series D Preferred Stock or other securities purchasable hereunder a sufficient
number of shares to provide for the issuance of Series D Preferred Stock or
other securities upon the exercise of any purchase rights under this Warrant.
10. No Impairment. The Company will not, by amendment of its Certificate
-------------
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid, directly or indirectly, the
performance of any of the terms of this Warrant, but will at all times in good
faith take all necessary action to carry out all such terms. Without limiting
the generality of the foregoing, the Company (a) will not create any par value,
or increase the par value, of any shares of stock receivable on exercise of this
Warrant above the amount payable therefor on such exercise, and (b) will take
all such action as may be necessary or appropriate so that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
exercise of this Warrant. Notwithstanding the foregoing, in the event of (a) a
dissolution or liquidation of the Company, (b) a merger consolidation or other
acquisition in which the Company is not the surviving corporation, (c) the sale
of all or substantially all of the assets of the Company, (d) unless otherwise
determined by the Company's Board of Directors (the "Board") in its sole
discretion, any other transaction which qualifies as a corporate reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, wherein the stockholders of the Company no longer hold a majority of
the outstanding capital stock of the surviving entity then, with respect to a
corporate transaction of the type described above, this Warrant shall,
notwithstanding any contrary terms set forth herein, expire twenty (20) days
after the Warrantholder receives written notice of such transaction. Such notice
shall describe the transaction in detail reasonably sufficient to allow the
Warrantholder to analyze the material terms of the transaction.
11. Lockup Agreement. In consideration for the Company agreeing to its
----------------
obligations hereunder, the Warrantholder and each transferee of Warrantholder's
rights hereunder, agrees in connection with the first registration of the
Company's securities, upon the request of the Company or the underwriters
managing such underwritten offering of the Company's securities, not to sell,
-4-
<PAGE>
make any short sale of, loan, grant, any option for the purchase of, or
otherwise dispose of any shares of Series D Preferred or other securities of the
Company (other than those included in the Registration) into which such Series D
Preferred Stock is convertible without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
one hundred eighty (180) days) from the effective date of such registration as
the Company or the underwriters may specify. The Warrantholder agrees that the
Company may instruct its transfer agent to place stop transfer notations in its
records to enforce the foregoing provisions.
12. Record Date.
-----------
(a) If the Company shall fix a record date of the holders of Series D
Preferred Stock (or other stock or securities at the time deliverable on
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend (other than a stock dividend) or other distribution, or to
receive any right to subscribe for or purchase any shares of any class of any
other securities, or to receive any other right;
(b) In the event of any reorganization or recapitalization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation or any
transfer of all or substantially all of the assets of the Company to another
entity;
(c) In the event of the voluntary or involuntary dissolution,
liquidation or winding up of the Company or;
(d) If the Company has filed a registration statement under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
for an offering of the Company's capital stock.
Then, in any such event, the Company will mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (i) the date on which a record
is to be taken for the purpose of such dividend, distribution or right and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which a record is to be taken for the purpose of voting on or
approving such reorganization, recapitalization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up and
the date on which such event is to take place and the time, if any is to be
fixed, as of which the holders of record of Series D Preferred Stock (or such
other stock or securities at the time deliverable on exercise of this Warrant)
shall be entitled to exchange their shares of Series D Preferred Stock (or such
other stock or securities) for securities or other property deliverable on such
reorganization, recapitalization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding up or (iii) the date on which
the Company's registration statement was filed and the class of securities
proposed to be registered. Such notice shall be mailed at least twenty-one days
prior to the record date therein specified or within twenty-one days after
filing the registration statement, as the case may be.
-5-
<PAGE>
13. Miscellaneous.
-------------
(a) Issue Date. The provisions of this Warrant shall be construed and
----------
shall be given effect in all respect as if it had been issued and delivered by
the Company on the date hereof. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of the State of California and for all purposes shall be
construed in accordance with and governed by the laws of said state.
(b) Restrictions. The Holder acknowledges that the securities
------------
acquired upon the exercise of this Warrant may have restrictions upon its resale
imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof
-----------------------
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. All notices, reports and other communications required
-------
or permitted hereunder shall be in writing and may be delivered in person, by
telecopy with written confirmation, overnight delivery service or U.S. mail, in
which event it may be mailed by first-class, certified or registered, postage
prepaid, addressed to the Holder at its address as shown on the books of the
Company or to the Company at 10567 Jefferson Blvd., Culver City, CA 90232
Attention: President, with a copy to Martin W. Korman, Esq., Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304.
Each such notice, report or other communication shall for all
purposes under this Warrant be treated as effective or having been given when
delivered if delivered personally or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid, or, if sent by telecopier with written confirmation, at the earlier
of (i) 24 hours after confirmation of transmission by the sending telecopier
machine or (ii) delivery of written confirmation.
Dated: January 13, 2000
CARSDIRECT.COM, INC.
By: /s/ Robert N. Brisco
---------------------------------
Name: Robert N. Brisco
-------------------------------
Title: C.E.O.
------------------------------
-6-
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply the required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the undersigned hereby, sells, assigns and transfers
unto:
________________________________________________________________________________
whose address is _______________________________________________________________
(Please Print)
and whose Social Security or other Taxpayer Identification Number is:___________
the foregoing Warrant and all rights thereunder, hereby constituting and
appointing ______________________________________ to transfer said Warrant on
the books of the Company, will full power of substitution in the premises.
Dated:_______________________
Holder's Signature:______________________
Holder's Name:___________________________
(Please Print)
Holder's Address:________________________
(Please Print)
_________________________________________
Signature Guaranteed: ____________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company or by a
member of the National Association of Securities Dealers, Inc. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
-7-
<PAGE>
NOTICE OF EXERCISE
------------------
To: CarsDirect.com, Inc.
10567 Jefferson Blvdd.
Culver City, CA 90232
(1) The undersigned hereby elects to purchase ______________ shares of
Series D Preferred Stock (the "Shares") of CarsDirect.com, Inc. pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing the Shares in
the name of the undersigned or in such other name as is specified below:
____________________________________
(Print Name)
____________________________________
(Print Address)
____________________________________
(3) The undersigned confirms that the Shares are being acquired for the
account of the undersigned for investment only and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or selling the Shares.
(4) The undersigned agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to
sell, make short sale of, loan, grant any options for the purchase of,
or otherwise dispose of the securities of the Company which are
acquired directly from the Company, held by the undersigned (other
than those securities included in the registration) without the prior
written consent of the Company or the underwriters managing such
initial underwritten public offering of the Company's securities for
one hundred eighty (180) days from the effective date of such
registration, and (2) further agrees to execute any agreement
reflecting (1) above as may be requested by the underwriters at the
time of the public offering.
_______________________________ _________________________________
(Date) (Signature)
_________________________________
(Print Name)
-8-
<PAGE>
EXHIBIT 4.5
THIS CONVERTIBLE SUBORDINATED PROMISSORY NOTE AND THE SECURITIES ISSUABLE
HEREUNDER HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT.
CARSDIRECT.COM, INC.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
Sherman Oaks, California
$490,000 September 28, 1999
FOR VALUE RECEIVED, CarsDirect.com, Inc., a Delaware corporation (the
"Company") hereby promises to pay to GBJ Holdings, a Delaware limited liability
company (the "Holder") the principal sum of Four Hundred Ninety Thousand Dollars
($490,000), plus interest on the unpaid and unconverted principal balance from
the date hereof until paid or converted in accordance with the terms hereof at a
rate of 3% per annum payable on the Maturity Date referred to below, subject to
the terms and provisions below. If (i) the Holder has not converted all
outstanding principal and interest into the Series C Preferred Stock of the
Company in accordance with Section 2 hereof by September 28, 2003 or (ii) the
designee of Holder ("Holder's Designee") ceases to be a director of the Company
by virtue of his/her resignation, his/her decision not to stand for election or
removal for cause, the Company shall be obligated to pay all outstanding
principal and accrued interest on this Promissory Note to Holder on the Maturity
Date. For purposes hereof, the Maturity Date shall mean the earlier of (x)
September 28, 2003, or (y) the date Holder's Designee ceases to be a director of
the Company because of any of the events set forth in clause (ii) above;
furthermore, for purposes hereof, "his/her resignation" and "his/her decision
not to stand for election" shall not include his/her death or permanent
disability.
This Promissory Note is issued in connection with that certain Series C
Preferred Stock and Note Purchase Agreement, dated as of September 20, 1999 (the
"Purchase Agreement"), by and between the Company and the Holder. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Purchase Agreement, unless the context otherwise requires.
Section 1. Payment. All payments of principal and interest made in
-------
accordance with this Promissory Note are to be made by check in immediately
available United States funds at the address of the Holder as indicated in the
Purchase Agreement, or at such other address as the Holder may designate from
time to time by written notice to the Company.
No delay or omission on the part of the Holder in exercising any right
hereunder shall operate as a waiver of such right or any other right of the
Holder, nor shall any delay, omission or waiver of any one occasion be deemed a
bar to or waiver of the same or any other right or any other occasion.
<PAGE>
The Company and every endorser and guarantor of this Promissory Note regardless
of the time, order or place of signing hereby waives presentment, demand,
protest and notice of every kind, and assents to any extension or postponement
of the time for payment or any other indulgence, to any substitution, exchange
or release of collateral, and to the addition or release of any other party or
person or entity primarily or secondarily liable.
Interest payable under this Promissory Note shall be calculated on the
basis of actual number of days elapsed over a year of 360 days. All payments
received by the Holder hereunder will be applied first to interest and the
balance to principal.
Section 2. Conversion.
2.1 Conversion into Preferred Stock. In accordance with the
-------------------------------
provisions of Section 2.2 hereof, the Holder shall be deemed to have elected to
convert $122,500 of the then unpaid principal amount of this Promissory Note,
together with any accrued but unpaid interest thereon, into Series C Preferred
Stock of the Company upon each of September 28, 2000, September 28, 2001,
September 28, 2002 and September 28, 2003 (each, a "Conversion Date") (unless
the Company receives a written request from the Holder at least 30 days prior to
each such respective Conversion Date that the conversion of such $122,500
principal amount and any accrued but unpaid interest thereon not occur, in which
case the conversion on the applicable Conversion Date or any other Conversion
Date (including as described in the next sentences) will not under any
circumstances occur). On April 30, 2002 (a "Conversion Date") the then entire
unpaid principal amount of this Promissory Note together with any accrued but
unpaid interest thereon, shall be automatically converted into Common Stock of
the Company if prior to April 30, 2000, the Company shall have consummated an
initial public offering pursuant to an effective registration statement under
the Securities Act covering the offer and sale of the Company's Common Stock to
the public with gross proceeds to the Company of not less than $20 million at a
per share price of at least $7.00 (an "IPO") (unless the company receives a
written request from the Holder at least 30 days prior to the closing of such
IPO that such conversion not occur, in which case such conversion will not under
any circumstances occur). If the Company shall have consummated an IPO following
April 30, 2000 and prior to August 31, 2001, then, two years following the
closing of such IPO (a "Conversion Date") the then entire unpaid principal
amount of this Promissory Note together with any accrued but unpaid interest
thereon, shall be automatically converted into Common Stock of the Company
(unless the Company receives a written request from the Holder at least 30 days
prior to such Conversion Date that such conversion not occur, in which case such
conversion will not under any circumstances occur). Any conversion effected
pursuant to this Section 2.1 shall be at a rate which shall be equal to the
quotient obtained by dividing (x) the principal amount of this Promissory Note
and any accrued but unpaid interest by (y) $2.86294 (as adjusted for any
recapitalizations, stock dividends, stock splits and the like) (the "Conversion
Price").
2.2 Mechanics and Effect of Conversion. No fractional shares of
----------------------------------
Series C Preferred Stock will be issued upon any conversion of this Promissory
Note. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company will pay to the Holder that amount of the unconverted
amount due under of this Promissory Note in cash. Upon any conversion of this
Promissory Note pursuant to this Section 2, interest on the principal amount of
this Promissory Note so converted shall cease to accrue, and the Company will at
its own expense as soon as practicable
-2-
<PAGE>
thereafter, issue and deliver to the Holder, a certificate or certificates for
the number of shares of Series C Preferred Stock to which the Holder is entitled
upon such conversion, together with a check for immediately available funds
payable to the Holder for any cash amounts payable to Holder. Upon conversion of
the entire principal amount of this Promissory Note, the Holder shall surrender
this Promissory Note, duly endorsed, at the principal offices of the Company or
any transfer agent for the Company. At its expense, the Company will, as soon as
practicable thereafter, issue and deliver to the Holder, a certificate or
certificates for the number of shares of Series C Preferred Stock to which the
Holder is entitled upon such conversion, together with a check for immediately
available funds payable to the Holder for any cash amounts payable to Holder.
Upon any conversion of the entire principal amount of, and accrued interest
under, this Promissory Note, the Company will be forever released from all of
its obligations and liabilities under this Promissory Note with regard to the
entire principal amount plus all accrued interest hereunder, including, without
limitation, the obligation to pay such principal amount and accrued interest.
2.3 Adjustment to Number and Type of Securities and Exercise Price.
--------------------------------------------------------------
The type and number of securities of the Company issuable upon conversion of
this Promissory Note are subject to adjustment as set forth below:
(a) Adjustment for Stock Splits, Stock Dividends,
---------------------------------------------
Recapitalizations, Conversion, etc. The number and type of securities and/or
- ----------------------------------
other property issuable upon conversion of this Promissory Note shall be
appropriately and proportionately adjusted to reflect any stock dividend, stock
split, combination of shares, reclassification, recapitalization, (including
without limitation conversion of Series C Preferred Stock to another class of
securities), or other similar event affecting the number or character of
outstanding shares of Series C Preferred Stock, so that the number and type of
securities and/or other property issuable upon conversion of this Promissory
Note shall be equal to that which would have been issuable with respect to the
number of shares of Series C Preferred Stock subject hereto at the time of such
event, had such shares of Series C Preferred Stock then been outstanding.
(b) Adjustment for Reorganization, Consolidation, Merger, etc.
---------------------------------------------------------
In case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, the Holder of this
Promissory Note, on conversion hereof at any time after the consummation or
effective date of such Reorganization shall receive, in lieu of the Series C
Preferred Stock issuable on such conversion prior to the date of such
Reorganization, the stock and other securities and property (including cash) to
which such holder would have been entitled upon the date of such Reorganization
if such Holder had converted this Promissory Note immediately prior thereto.
Section 3. Events of Default. If any of the following events shall occur,
-----------------
the entire unpaid principal and accrued interest on the Promissory Note shall be
immediately due and payable:
(a) The institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under
-3-
<PAGE>
the Federal Bankruptcy Act, or any other applicable federal or state law, or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee, or other similar official, of the
Company, or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due or the taking of
corporate action by the Company in furtherance of any such action; or
(b) If, within sixty (60) days after the commencement of an
action against the Company seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been dismissed or all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if, within sixty (60) days after the appointment without the consent
or acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company, such
appointment shall not have been vacated; or
(c) The Company fails to pay any principal or interest hereunder
when due pursuant to the terms of this Promissory Note; or
(d) The Company shall be in material default under the terms of
any other bond, debenture, note or other evidence of indebtedness, which default
shall not have been cured.
Section 4. Subordination of Indebtedness.
-----------------------------
4.1 Subordination. The indebtedness evidenced by this Promissory
-------------
Note is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, in right of payment to the prior payment in full of all
indebtedness of the Company, or with respect to which the Company is a
guarantor, to banks, commercial finance lenders, insurance companies, leasing or
equipment financing institutions or other lending institutions regularly engaged
in the business of lending money, which is for money borrowed, or purchase or
leasing of equipment in the case of lease or other equipment financing, by the
Company, whether or not secured ("Senior Indebtedness").
4.2 Further Assurances. By acceptance of this Promissory Note, the
------------------
Holder agrees to execute and deliver customary forms of subordination agreement
requested from time to time by holder(s) of Senior Indebtedness, and as a
condition to the Holder's rights hereunder, Company may require that Holder
execute such forms of subordination agreement.
4.3 Other Indebtedness. No indebtedness which does not constitute
------------------
Senior Indebtedness shall be senior in any respect to the indebtedness
represented by this Promissory Note.
4.4 Subrogation. Subject to the payment in full of all Senior
-----------
Indebtedness, the Holder of this Promissory Note shall be subrogated to the
rights of the holder(s) of such Senior Indebtedness (to the extent of the
payments or distributions made to the holder(s) of such Senior Indebtedness
pursuant to the provisions of this Section 4) to receive payments and
distributions of assets of Company applicable to the Senior Indebtedness. For
purposes of such subrogation, no payments or distributions to the holder(s) of
Senior Indebtedness to which the Holder would be
-4-
<PAGE>
entitled except for the provisions of this Section 4 shall, as between Company
and its creditors, other than the holder(s) of Senior Indebtedness and the
Holder, be deemed to be a payment by Company to or on account of the Senior
Indebtedness.
4.5 No Impairment. Subject to the rights, if any, of the holder(s)
-------------
of Senior Indebtedness under this Section 4 to receive cash, securities or other
properties otherwise payable or deliverable to the Holder of this Promissory
Note and the other restrictions set forth in this Section 4, nothing contained
in this Section 4 shall impair, as between Company and Holder, the obligation of
Company, subject to the terms and conditions hereof, to pay to the Holder the
principal hereof and interest hereon as and when the same become due and payable
or shall prevent the Holder, upon the occurrence of an Event of Default as
described in Section 3 hereof hereunder from exercising all rights, powers and
remedies provided herein or by applicable law.
4.6 Holder's Waivers. Holder hereby expressly waives for the benefit
----------------
of the holder(s) of Senior Indebtedness (i) all notices not specifically
required pursuant to the terms of this Note whatsoever, including without
limitation any notice of the incurrence of Senior Indebtedness; (ii) any claim
which Holder may now or hereafter have against a holder of Senior Indebtedness
arising out of any and all actions which a holder of Senior Indebtedness in good
faith, takes or omits to take with respect to the Senior Indebtedness
(including, without limitation, (A) actions with respect to the creation,
perfection or continuation of liens in or on any collateral security for the
Senior Indebtedness, (B) actions with respect to the occurrence of an event of
default under any Senior Indebtedness, (C) actions with respect to the
foreclosure upon, sale, release, or depreciation of, or failure to realize upon,
any of the collateral security for the Senior Indebtedness and (D) actions with
respect to the collection of any claim for all or any part of the Senior
Indebtedness or the valuation, use, protection or release of any collateral
security for the Senior Indebtedness).
Section 5. Miscellaneous.
-------------
5.1 Titles and Subtitles. The titles and subtitles used herein are
--------------------
for convenience only and are not to be considered in construing or interpreting
this Promissory Note.
5.2 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Promissory Note shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified,
upon delivery by facsimile transmission, or upon the fifth business day after
deposit with the United States Post Office, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by ten (10)
days advance written notice to the other party.
5.3 Highest Lawful Rate. Anything in this Promissory Note to the
-------------------
contrary notwithstanding, the Company shall never be required to pay interest on
this Promissory Note at a rate in excess of the Highest Lawful Rate (as
hereinafter defined), and if the effective rate of interest which would
otherwise be payable under this Promissory Note would exceed the Highest Lawful
Rate, or if the maturity of this Promissory Note is accelerated for any reason
before the Maturity Date, or in the event of voluntary prepayment by the Company
hereof, or if the Holder shall otherwise receive any unearned interest or shall
receive monies that are deemed to constitute interest which would increase the
effective rate of interest payable under this Promissory Note to a rate in
-5-
<PAGE>
excess of the Highest Lawful Rate, then (a) the amount of interest which would
otherwise be payable under this Promissory Note shall be reduced to the amount
allowed under applicable law, and (b) any interest paid by the Company or any
interest paid by the Company in excess of the Highest Lawful Rate shall be
credited to the principal of this Promissory Note. It is further agreed that,
without limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received by the Holder under this Promissory Note
that are made for the purpose of determining whether such rate exceeds the
Highest Lawful Rate shall be made, to the extent permitted by applicable usury
laws (now or hereafter enacted), by amortizing, prorating and spreading in equal
parts during the period of the full stated term of this Promissory Note all
interest at any time contracted for, charged or received by the Holder in
connection herewith. "Highest Lawful Rate" shall mean the maximum rate of
interest which the Holder is permitted by applicable law to contract for, charge
or receive and as to which the Company could not successfully assert a claim or
defense of usury.
5.4 Amendments and Waivers. Any term of this Promissory Note may be
----------------------
amended and the observance of any term of this Promissory Note may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holder. Any
amendment or waiver effected in accordance with this subsection 5.4 shall be
binding upon the Holder of this Promissory Note, each future holder of all such
securities and the Company.
5.5 Severability. If one or more provisions of this Promissory Note
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Promissory Note, and the remaining provisions of this
Promissory Note shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with their terms, with the effect of the
excluded provision being taken into consideration and the remaining terms
construed in accordance with the intent of this Promissory Note.
5.6 Governing Law. This Promissory Note shall be governed by and
-------------
construed and enforced in accordance with the internal laws of the State of
California.
[Remainder of Page Intentionally Left Blank]
-6-
<PAGE>
IN WITNESS WHEREOF, this Convertible Subordinated Promissory Note has been
duly executed and delivered under its corporate seal as of the date first above
written.
CARSDIRECT.COM, INC.
a Delaware corporation
By: /s/ Scott Painter
--------------------------------
Name:
Title:
Address: 4312 Woodman Avenue, 3rd Floor
Sherman Oaks, CA 91423
ACCEPTED AND AGREED
GBJ HOLDINGS, LLC
By: /s/ Joel S. Beckman
--------------------------
Joel S. Beckman
Member
-7-
<PAGE>
EXHIBIT 4.6
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT") OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE 10,000 SHARES
OF THE COMMON STOCK OF
CarsDirect.com, Inc.
(Void after July 19, 2006)
This certifies that Heidrick & Struggles, Inc. or its assigns (each
individually, the "Holder") for value received, shall be entitled to purchase
from CarsDirect.com, Inc. a Delaware corporation (the "Company"), having its
principal place of business at 4312 Woodman Avenue, Third Floor, Sherman Oaks,
CA 91423, a maximum of 10,000 fully paid and nonassessable shares of the
Company's Common Stock ("Common Stock") for cash at a price equal to $0.35 per
share (the "Exercise Price") at any time, or from time to time, up to and
including 5:00 p.m. (local time) on the seventh anniversary from the date of
this Warrant (the "Expiration Date"), upon the surrender to the Company at its
principal place of business (or at such other location as the Company may advise
the Holder in writing) of this Warrant properly endorsed a Form of Subscription
in substantially the form attached hereto duly filled in and signed and, if
applicable, upon payment in cash or by check of the aggregate Exercise Price for
the number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. The Exercise Price and the number of
shares of Common Stock purchasable hereunder are subject to adjustment as
provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
1.1 General. This Warrant is exercisable at the option of the holder
of record hereof at any time or from time, to time, up to the Expiration Date
for all or any part of the shares of Common Stock (but not for a fraction of a
share) which may be purchased hereunder. The Company agrees that the shares of
Common Stock purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered, properly
endorsed, the completed, executed Form of Subscription delivered and payment
made for such shares. Certificates for the shares of Common Stock so purchased,
together with any other securities or property to which the Holder is entitled
upon such exercise, shall be delivered to the Holder by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised, and in any event, within fifteen (15) days of
such exercise. In case of a purchase of less than all the shares which may be
purchased under this Warrant, the Company shall cancel this Warrant and execute
and deliver a new Warrant or Warrants of like tenor for the balance of the
shares purchasable under the Warrant surrendered upon such purchase to the
Holder hereof within a reasonable time. Each stock certificate so delivered
shall
<PAGE>
be in such denominations of Common Stock as may be requested by the Holder
hereof and shall be registered in the name designated by such Holder.
1.2 Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, the Holder may elect to receive
shares equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with the properly endorsed Form of Subscription and notice
of such election in which event the Company shall issue to the Holder a number
of shares of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if only a portion
of the Warrant is being exercised, the portion of
the Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation)
B = Exercise Price (as adjusted to the date of
such calculation).
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that where there is a public market for the Company's
Common Stock, the fair market value per share shall be the average of the
closing prices of the Company's Common Stock quoted on the Nasdaq National
Market (or similar system) or on any exchange on which the Common Stock is
listed, whichever is applicable, over the five (5) day period ending one (1) day
before the day the current fair market value is being determined.
2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, or other securities and property, when and as required to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed;
2.
<PAGE>
provided, however, that the Company shall not be required to effect a
registration under Federal or State securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Exercise Price (as set forth in Section 3 hereof) if the total
number of shares of Common Stock issuable after such action upon exercise of all
outstanding warrants, together with all shares of Common Stock then outstanding
and all shares of Common Stock then issuable upon exercise of all options and
upon the conversion of all convertible securities then outstanding, would exceed
the total number of shares of Common Stock then authorized by the Company's
Articles/Certificate of Incorporation (the "Company Charter").
3. Adjustment of Exercise Price and Number of Shares. The Exercise Price
and the number of shares purchasable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the occurrence of certain events
described in this Section 3. Upon each adjustment of the Exercise Price, the
Holder of this Warrant shall thereafter be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Exercise Price resulting
from such adjustment.
3.1 Subdivision or Combination of Stock. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Company shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased.
3.2 Dividends in Common Stock, Other Stock, Property,
Reclassification. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Common Stock or any shares of stock or other securities which
are at any time directly or indirectly convertible into or exchangeable for
Common Stock, or any rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other distribution,
(b) any cash paid or payable otherwise than as a cash dividend,
or
(c) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Common Stock issued as a stock split or adjustments in respect of which shall be
covered by the terms of Section 3.1 above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (b) above and this clause (c)) which such Holder would hold on the date
of such exercise had he been the holder of record of such
3.
<PAGE>
Common Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares or all other additional stock and other
securities and property.
3.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If
any recapitalization, reclassification or reorganization of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented by this Warrant) such shares of
stock, securities or other assets or property as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented by this
Warrant. In the event of any Organic Change, appropriate provision shall be made
by the Company with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof (including, without limitation,
provisions for adjustments of the Exercise Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company will not effect any
such consolidation, merger or sale unless, prior to the consummation thereof,
the successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument reasonably satisfactory in form and substance to the Holders executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
3.4 Certain Events. If any change in the outstanding Common Stock of the
Company or any other event occurs as to which the other provisions of this
Section 3 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number and class of shares available under the Warrant, the Exercise
Price or the application of such provisions, so as to protect such purchase
rights as aforesaid. The adjustment shall be such as will give the Holder of
the Warrant upon exercise for the same aggregate Exercise Price the total
number, class and kind of shares as he would have owned had the Warrant been
exercised prior to the event and had he continued to hold such shares until
after the event requiring adjustment.
4.
<PAGE>
3.5 Notices of Change.
(a) If prior to an initial public offering, promptly following any
adjustment in the number or class of shares subject to this Warrant and of the
Exercise Price, the Company shall give written notice thereof to the Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(b) If prior to an initial public offering, the Company shall give
written notice to the Holder at least 10 business days prior to the date on
which the Company closes its books or takes a record for determining rights to
receive any dividends or distributions.
(c) If prior to an initial public offering, the Company shall also
give written notice to the Holder at least 30 business days prior to the date on
which an Organic Change shall take place.
4. Issue Tax. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. Closing of Books. Subject to federal and state securities laws, the
Company will at no time close its transfer books against the transfer of any
warrant or of any shares of Common Stock issued or issuable upon the exercise of
any warrant in any manner which interferes with the timely exercise of this
Warrant.
6. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Exercise Price or as a shareholder of the Company, whether
such liability is asserted by the Company or by its creditors.
7. Warrants Transferable. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
5.
<PAGE>
8. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.
9. Further Representations, Warranties and Covenants of the Company.
(a) Articles and Bylaws. The Company has made available to Holder
true, complete and correct copies of the Company Charter and Bylaws, as amended,
through the date hereof.
(b) Due Authority. The execution and delivery by the Company of this
Warrant and the performance of all obligations of the Company hereunder,
including the issuance to Holder of the right to acquire the shares of Common
Stock, have been duly authorized by all necessary corporate action on the part
of the Company, and the Warrant is not inconsistent with the Company Charter or
Bylaws and constitutes a legal, valid and binding agreement of the Company,
enforceable in accordance with its terms.
(c) Consents and Approvals. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant, except for any filing required by applicable
federal and state securities laws, which filing will be effective by the time
required thereby.
(d) Issued Securities. All issued and outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable. All outstanding shares of capital stock were issued in
full compliance with all federal and state securities laws.
(e) Exempt Transaction. Subject to the accuracy of the Holders
representations in Section 10 hereof, the issuance of the Common Stock upon
exercise of this Warrant will constitute a transaction exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the "1933 Act"), in reliance upon Section 4(2) thereof.
(f) Compliance with Rule 144. At the written request of the Holder,
who proposes to sell Common Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Holder, within thirty (30)
days after receipt of such request, a written statement confirming the
status of the Company's compliance with the filing requirements of the
Securities and Exchange Commission as set forth in such Rule, as such Rule
may be amended from time to time.
6.
<PAGE>
10. Representations and Covenants of the Holder.
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Holder:
(a) Investment Purpose. The Warrant or the Common Stock issuable upon
exercise of the Warrant will be acquired for investment and not with a view to
the sale or distribution of any part thereof, and the Holder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption.
(b) Private Issue. The Holder understands (i) that the Warrant and
the Common Stock issuable upon exercise of this Warrant is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this Warrant will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Holders Rights. In no event will the Holder make a
disposition of the Warrant or the Common Stock issuable upon exercise of the
Warrant unless and until (i) it shall have notified the Company of the proposed
disposition, and (ii) if requested by the Company, it shall have furnished the
Company with an opinion of counsel (which counsel may either be inside or
outside counsel to the Holder) satisfactory to the Company and its counsel to
the effect that (A) appropriate action necessary for compliance with the 1933
Act and state securities laws has been taken, or (B) an exemption from the
registration requirements of the 1933 Act and state securities laws is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Common Stock or Common Stock
issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Common Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Holder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to the Holder at its request by
such Commission stating that no action shall be recommended by such staff or
taken by such Commission, as the case may be, if such security is transferred
without registration under the 1933 Act in accordance with the conditions set
forth in such letter or ruling and such letter or ruling specifies that no
subsequent restrictions on transfer are required. Whenever the restrictions
imposed hereunder shall terminate, as hereinabove provided, the Holder or holder
of a share of Common Stock then outstanding as to which such restrictions have
terminated shall be entitled to receive from the Company, without expense to
such holder, one or more new certificates for the Warrant or for such shares of
Common Stock not bearing any restrictive legend.
(d) Financial Risk. The Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
7.
<PAGE>
(e) Risk of No Registration. The Holder understands that if the Company
does not register with the Securities and Exchange Commission pursuant to
Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the Warrant, or (ii) the Common Stock issuable upon exercise of the
Warrant, it may be required to hold such securities for an indefinite period.
The Holder also understands that any sale of the Warrant or the Common Stock
issuable upon exercise of the Warrant which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Holder is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the 1933 Act, as presently in effect.
11. Modification and Waiver. This Warrant and any provision hereof may be
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of the same is sought.
12. Notices. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
13. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
14. Descriptive Headings and Governing Law. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
15. Lost Warrants. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
16. Fractional Shares. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Exercise Price.
8.
<PAGE>
In Witness Whereof, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this 29th day of October, 1999.
CarsDirect.com
a Delaware corporation
By: /s/ SCOTT PAINTER
---------------------------
Title: CEO
---------------------------
ATTEST:
/s/ FREDERICK G. SILNY
- --------------------------------
Secretary
<PAGE>
EXHIBIT 4.7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED OTHER THAN TO BANK ONE CORPORATION (OR A MAJORITY
OWNED SUBSIDIARY THEREOF WHICH QUALIFIES AS AN "ACCREDITED INVESTOR") WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933.
Warrant No. W-5 Date of Issuance: December 16, 1999
CARSDIRECT.COM, INC.
Common Stock Purchase Warrant
-----------------------------
CARSDIRECT.COM, INC. (the "Company"), for valid consideration received,
-------
hereby certifies that Bank One, N.A., Columbus, Ohio, a national banking
association, or its registered assigns (in each case the "Holder"), is entitled,
------
subject to the terms set forth below, to purchase from the Company, up to that
number of shares of Common Stock ("Common Stock") equal to the Determination
------------
Number (as defined in Section 6.16 of the Operating Agreement (the "Operating
---------
Agreement") of CD1Financial.com, Inc., a Delaware limited liability company,
- ---------
dated as of May 28, 1999), at a purchase price of $0.01 per share, upon the
occurrence of a CarsDirect.com Event (also as defined in Section 6.16 of the
Operating Agreement). The shares purchasable upon exercise of this Warrant, and
the purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "Warrant Stock"
-------------
and the "Purchase Price," respectively. This Warrant is issued in connection
--------------
with the transactions described in that certain Master Agreement dated as of May
28, 1999 between the Company and Bank One Corporation, a Delaware corporation
("Bank One"). The Holder is subject to certain restrictions and is entitled to
certain rights and privileges set forth in the Operating Agreement and, upon
exercise, will be subject to certain restrictions and will be entitled to
certain rights and privileges set forth in the Third Amended and Restated
Investor Rights Agreement dated May 7, 1999 between the Company and certain
stockholders of the Company (the "Registration Rights Agreement").
1. Exercise.
--------
(a) This Warrant may be exercised by the Holder, in whole or in part,
by surrendering this Warrant, with the purchase form appended hereto as Exhibit
-------
A duly executed by such Holder or by such Holder's duly authorized attorney, at
- -
the principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full by cash, check or wire
transfer of the Purchase Price payable in respect of the number of shares of
Warrant Stock purchased upon such exercise.
<PAGE>
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in Section 1(a)
above. At such time, the person or persons in whose name or names any
certificates for Warrant Stock shall be issuable upon such exercise shall be
deemed to have become the holder or holders of record of the Warrant Stock
represented by such certificates.
(c) Net Issue Exercise.
(i) In lieu of exercising this Warrant in the manner provided
above in Section 1(a), the Holder may elect to receive shares equal to the value
of this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with notice of such
election in which event the Company shall issue to Holder a number of shares of
Warrant Stock computed using the following formula:
X = Y (A - B)
---------
A
Where X = The number of shares of Warrant Stock to be issued to the Holder.
Y = The number of shares of Warrant Stock purchasable under this
Warrant (at the date of such calculation).
A = The fair market value of one share of Warrant Stock (at the date
of such calculation).
B = The Purchase Price (as adjusted to the date of such calculation).
(ii) For purposes of this Section 1(c), the fair market value of
each share of Warrant Stock shall be: (a) if Warrant Stock is traded in the
public market, the closing price of Warrant Stock reported for the business day
immediately before this Warrant is exercised (or the average of the closing bid
and ask if Warrant Stock is traded in the over-the-counter market); (b) if
securities into which Warrant Stock is convertible are traded on the public
market, the closing price of such securities (or the average of the closing bid
and ask if such securities are traded in the over-the-counter market) multiplied
by the number of shares of such securities into which each share of Warrant
Stock is convertible; and (c) if neither Warrant Stock nor any security into
which Warrant Stock is convertible is traded in the public market, the fair
market value as determined by the Board of Directors in its reasonable good
faith judgment.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 15 days thereafter, the Company at the
Company's expense will cause to be issued in the name of, and delivered to, the
Holder, or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct:
-2-
<PAGE>
(i) a certificate or certificates for the number of shares of
Warrant Stock to which such Holder shall be entitled, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, providing in the aggregate for
the number of shares of Warrant Stock equal (without giving effect to any
adjustment therein) to the number of such shares provided for in this Warrant
minus the number of such shares purchased by the Holder upon such exercise as
provided in Section 1(a) or 1(c) above.
2. Adjustments.
-----------
(a) If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a stock dividend shall be paid in
respect of Common Stock, the Purchase Price in effect immediately prior to such
subdivision or at the record date of such dividend, as the case may be, shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior to
such adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(b) In case of any reclassification or change of the outstanding
securities of the Company or of any reorganization of the Company on or after
the date hereof, other than an event described in Section 2(c), then and in each
such case the Holder of this Warrant, upon the exercise hereof at any time after
the consummation of such reclassification, change, or reorganization, shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities or property to which such Holder would have been entitled upon
such consummation if such Holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in paragraph (a); and in
each such case, the terms of this Section 2 shall be applicable to the shares of
stock or other securities properly receivable upon the exercise of this Warrant
after such consummation.
(c) If at any time there shall be a merger or consolidation of the
Company with or into another corporation pursuant to which the stockholders of
the Company immediately prior to such merger or consolidation control less than
50% of the voting securities of the surviving corporation, or the sale of all or
substantially all of the assets of the Company shall be affected in such a way
that holders of the Company Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for the Company Common
Stock, then, as a part of such merger, consolidation or sale, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant and upon payment of the aggregate
-3-
<PAGE>
exercise price then in effect the number of shares of stock or other securities
or property resulting from such merger, consolidation or sale to which a holder
of the stock deliverable upon exercise of this Warrant would have been entitled
in such merger, consolidation or sale if this Warrant had been exercised
immediately before such merger, consolidation or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Warrant with respect to the rights and interests of the Holder after the
merger, consolidation or sale. Notwithstanding the provisions of this Section
2(c) to the contrary, (1) the Holder shall be required to exercise this Warrant
prior to any such merger, consolidation or sale (x) if and to the extent such
exercise and the holding of the property received upon such exercise would not
cause the Holder to be in violation of any laws applicable to national banks and
(y) if and to the extent the corporation or other entity that is party to the
transaction described in this Section 2(c) other than the Company notifies the
Company and the Holder in writing at least 10 days before the consummation of
said transaction of its demand for the Holder to exercise all or a portion of
the Warrant, and (2) the preceding two sentences shall apply only to that
portion of this Warrant as to which the Warrant may not be so exercised.
(d) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Holder a certificate setting forth the
Purchase Price after such adjustment and setting forth in reasonable detail a
brief statement of the facts requiring such adjustment. Such certificate shall
also set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in Section 2(a), (b) or (c) above.
3. Transfers.
---------
(a) Each Holder of this Warrant acknowledges that this Warrant and
the Warrant Stock have not been registered under the Securities Act, and agrees
not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose
of this Warrant or any Warrant Stock issued upon its exercise (other than to
Bank One or a majority owned subsidiary thereof which qualifies as an
"accredited investor" under Regulation D promulgated by the Securities and
Exchange Commission) in the absence of (i) an effective registration statement
under the Securities Act as to this Warrant or such Warrant Stock and
registration or qualification of this Warrant or such Warrant Stock under any
applicable Blue Sky or state securities law then in effect, or (ii) an opinion
of counsel, reasonably satisfactory to the Company, that such registration and
qualification are not required. Each certificate or other instrument for Warrant
Stock issued upon the exercise of this Warrant shall bear the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN TO
BANK ONE CORPORATION (OR A MAJORITY OWNED SUBSIDIARY THEREOF WHICH QUALIFIES AS
AN "ACCREDITED INVESTOR") WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED."
-4-
<PAGE>
(b) Subject to the provisions of Section 3(a) hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of the Warrant with a properly executed assignment (in the form of Exhibit B
---------
hereto) at the principal office of the Company, and the transferee shall be
deemed to be a "Holder" hereunder, provided, however, that this Warrant may not
------ -------- -------
be transferred in whole or in part to any person or entity, other than Bank One
or a majority owned subsidiary of Bank One, the primary business of which is the
sale of automobiles, or the financing of the purchase or lease of automobiles,
over the Internet.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Holder of this Warrant as the absolute owner
hereof for all purposes; provided, however, that if and when this Warrant is
-------- -------
properly assigned in blank, the Company may (but shall not be required to) treat
the bearer hereof as the absolute owner hereof for all purposes, notwithstanding
any notice to the contrary and such transferee may be deemed by the Company to
be the "Holder."
------
(d) The Company will maintain a register containing the name and
address of the Holder of this Warrant. The Holder may change such Holder's
address as shown on the warrant register by written notice to the Company
requesting such change.
4. No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will (subject
to Section 13 below) at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be reasonably
necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment.
5. Term of the Warrant.
-------------------
(a) This Warrant shall be perpetual and survive any initial public
offering of the Company's Common Stock or any change of control of the Company.
6. Notices of Certain Transactions. In case:
-------------------------------
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right to subscribe for or purchase any shares of stock of any class or
any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger that is effected solely for changing the domicile of the
Company), any other transaction or series of related transactions pursuant to
which the Company's shareholders immediately prior thereto will possess a
minority of the voting power of the
-5-
<PAGE>
surviving or acquiring entity immediately thereafter, or any transfer of all or
substantially all of the assets of the Company, or any other transaction which
would constitute a CarsDirect.com Event or give rise to an adjustment pursuant
to Section 2 hereof, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company shall furnish the Holder or Holders hereof prompt written notice of
such event or action.
7. Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby represents and warrants that:
(a) Investment Representation. It is aware that the Common Stock to
be purchased hereunder has not been registered under the Securities Act of 1933,
as amended (the "Act"), or qualified under the California Corporate Securities
Law of 1968, as amended, or any other state securities or "blue sky" laws. Such
Common Stock is being acquired by it for investment purposes only and not for
sale or with a view to distribution of all or any part of such Common Stock.
(b) Access to Information. It has had an opportunity to ask questions
and receive answers from the Company regarding the terms and conditions of its
purchase of the Common Stock and regarding the business, financial affairs and
other aspects of the Company, and it has further had the opportunity to obtain
any information (to the extent the Company possesses or can acquire such
information without unreasonable effort or expense) which it deems necessary to
evaluate its investment or to verify the accuracy of information otherwise
provided to it.
(c) Investment Experience. It is experienced in evaluating and
investing in companies such as the Company, is capable of evaluating the merits
and risks of its investment in the Common Stock, is able to bear the economic
risk of the investment and is prepared to hold the Shares for an indefinite
period of time. It is an "accredited investor" within the meaning of Regulation
D under the Act.
(d) Restricted Securities. It understands that the shares of Common
Stock which may be purchased hereunder are characterized as "restricted
securities" under the federal securities laws inasmuch as they would be acquired
from the Company in a transaction not involving a public offering, and that
under such laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances and that
otherwise such securities must be held indefinitely. In this connection,
Purchaser represents that it is familiar with SEC Rule 144, as presently in
effect, and the conditions which must be met in order for that Rule to be
available for resale of restricted securities, and understands the resale
limitations imposed by the Act.
8. Reservation of Stock. The Company will at all times reserve and keep
--------------------
available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock
-6-
<PAGE>
and other stock, securities and property, as from time to time shall be issuable
upon the exercise of this Warrant. The Company covenants and agrees that all
shares of Warrant Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly authorized, validly
issued, fully paid (assuming payment of the exercise price by Holder) and
nonassessable and free from all preemptive rights of any shareholder and free of
all taxes, liens and charges with respect to the issue thereof. The Company will
take all such action as may be reasonably necessary to assure that such shares
of Warrant Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed; provided, however, except as
-------- -------
may be provided in the Registration Rights Agreement, that the Company shall not
be required to effect a registration under Federal or state securities laws with
respect to such exercise.
9. Exchange of Warrants. Upon the surrender by the Holder of any Warrant
--------------------
or Warrants, properly endorsed, to the Company at the principal office of the
Company, the Company will, subject to the provisions of Section 3 hereof, issue
and deliver to or upon the order of such Holder, at the Company's expense, a new
Warrant or Warrants of like tenor, in the name of such Holder or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct,
providing for in the aggregate the number of shares of Warrant Stock provided
for in the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor at the Holder's expense.
11. Mailing of Notices. Any notice required or permitted pursuant to this
------------------
Warrant shall be in writing and shall be deemed delivered when delivered
personally or by fax (as evidenced by sender's confirmation receipt) or forty-
eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, addressed (a) if to the Holder, to Bank
One Corporation, c/o One First National Plaza, Suite 0897, Chicago, IL 60670,
Attn: William P. Boardman, Senior Executive Vice President, with a copy to
Daniel P. Cooney, Esq., One First National Plaza, Suite 0292, Chicago, IL 60670,
or as subsequently modified by written notice to the Company and (b) if to the
Company, to the address set forth below or as subsequently modified by written
notice to the Holder.
12. No Rights as Stockholder. Until the exercise of this Warrant, the
------------------------
Holder of this Warrant shall not have or exercise any rights by virtue hereof as
a stockholder of the Company. Without limiting the generality of the foregoing,
and subject to Section 2 hereof, no dividends shall accrue to the shares of
Warrant Stock underlying this Warrant until the exercise hereof and the purchase
of the underlying shares of Warrant Stock, at which point dividends shall begin
to accrue with respect to such purchased shares of Warrant Stock from and after
the date such shares of Warrant Stock are so purchased.
-7-
<PAGE>
13. No Fractional Shares. No fractional shares of Warrant Stock will be
--------------------
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Warrant Stock on the date of exercise, as determined in accordance with Section
1(c)(ii) hereof.
14. Binding Effect on Successors. This Warrant shall be binding upon any
----------------------------
person succeeding to the Company by merger, consolidation or acquisition of all
or substantially all of the Company's assets only if and to the extent this
Warrant may be exercised after such event pursuant to Section 2(c).
15. Amendment or Waiver. Any term of this Warrant may be amended or
--------------------
waived only by an instrument in writing signed by the party against which
enforcement of the amendment or waiver is sought.
16. Headings. The headings in this Warrant are for purposes of reference
--------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
17. Governing Law. This Warrant shall be governed, construed and
-------------
interpreted in accordance with the laws of the State of Delaware, without
giving effect to principles of conflicts of law.
CARSDIRECT.COM, INC.
By: ______________________________
Name:_____________________________
Title:____________________________
Address: 4312 Woodman Avenue, 3rd Floor
Sherman Oaks, California 91423
BANK ONE, N.A., COLUMBUS, OHIO
By:_______________________________
Name:_____________________________
Title:____________________________
Address: c/o One First National Plaza
Suite 0897
Chicago, IL 60670
-8-
<PAGE>
EXHIBIT 4.8
IDEALAB! STOCKHOLDER AGREEMENT
This Stockholder Agreement (the "Agreement") is made as of December 30,
1999, by and between Bill Gross' idealab!, Inc., a California corporation
("BGIL"), and idealab! Holdings, L.L.C., a Delaware limited liability company
("idealab!"), on the one hand (BGIL and idealab!, collectively, the "idealab!
Parties"), and CarsDirect.com, Inc., a Delaware corporation, on the other hand
(the "Company").
A. The Company and idealab! have entered into a Class B Common Stock
Purchase Agreement (the "Purchase Agreement") pursuant to which idealab! agrees
to purchase from the Company, and Company agrees to sell to idealab!, 2,050,000
shares of the Company's Class B Common Stock, par value $0.001 per share;
B. The Company and the idealab! Parties desire, in connection with the
consummation of the transactions contemplated by the Purchase Agreement, to make
certain covenants and agreements with one another pursuant to this Agreement;
C. It is a mutual condition to the consummation of the transactions
contemplated by the Purchase Agreement that the idealab! Parties and the Company
enter into this Agreement.
NOW THEREFORE, in consideration of the covenants and promises set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
meanings specified with respect thereto below:
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the rules and
regulations promulgated under the Exchange Act; provided, however, that for
purposes of this Agreement, the idealab! Parties and their Affiliates, on the
one hand, and the Company and its Affiliates, on the other hand, shall not be
deemed to be "Affiliates" of one another.
"Beneficially Own" or "Beneficial Ownership" shall have the meaning set
forth in Rule 13d-3 of the rules and regulations promulgated under the Exchange
Act.
"Change in Control of the Company" shall mean any of the following: (i) a
merger, consolidation or other business combination or transaction to which the
Company is a party which results in
1
<PAGE>
the holders of Class A Common Stock (assuming for purposes of the clause (i)
that all shares of Class B Common Stock have been converted into shares of Class
A Common Stock in accordance with the terms of the Company's Restated
Certificate of Incorporation) of the Company immediately prior to the effective
date of such merger, consolidation or other business combination or transaction,
as a result of such share ownership and such transaction, having Beneficial
Ownership following such merger, consolidation or other business combination or
transaction of voting securities representing less than 50% of the Total Voting
Power of the surviving or resulting corporation (or any parent entity thereof);
(ii) a sale of all or substantially all the assets of the Company; or (iii) a
liquidation or dissolution of the Company.
"Closing" shall have the meaning set forth in the Purchase Agreement.
"Company Common Stock" shall mean shares of the Class A Common Stock of the
Company, par value $0.001 per share.
"Company Notice" shall have the meaning set forth in Section 3.1(a) below.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean, in the case of New Preferred Stock, the
fair market value as of the date of determination of such New Preferred Stock as
determined in good faith by the members of the Company's Board of Directors that
are not affiliates of the idealab! Parties or the Related Parties.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"New Preferred Stock" shall mean shares of a new series of preferred stock
of the Company, par value $0.001 per share, that the Company may designate and
issue from time to time as required under Section 3.1 below and having rights,
preferences, privileges and restrictions substantially similar to those of the
Company's Series D Preferred Stock.
"New Securities" shall mean Voting Stock issued by the Company after the
date of this Agreement, excluding any such issuance of Voting Stock (i) upon
exercise of stock options to employees, directors and consultants issued from
time to time or upon conversion or exchange of convertible securities
outstanding on the date hereof, (ii) to any idealab! Party or any Affiliate
thereof, (iii) pursuant to the exercise by the idealab! Parties of their rights
pursuant to Section 3.1 below, (iv) to Bank One, N.A. ("Bank One") in connection
with the Company's acquisition of Bank One's ownership interest in CDOne
Financial, (v) of the Company's Series D Preferred Stock authorized as of the
date hereof, and (vi) in connection with strategic transactions of the Company
approved in writing by the Chairman of the Board of Directors of the Company
(with such issuances not to exceed 500,000 shares in the aggregate).
2
<PAGE>
"Pro Rata Share" shall mean that number of shares of New Preferred Stock
that solves for "X" according to the following formula: {X/(the number of New
Securities + X)=63%}; provided that, for the avoidance of doubt, the number of
--------
New Securities in such formula shall include all shares of Voting Stock issuable
upon the conversion, exchange or exercise of all convertible securities to be
issued at such time.
"Qualified Initial Public Offering" shall mean a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of Company Common Stock to
the public involving gross proceeds to the Company not less than $20 million at
a per share price of at least $7.00.
"Related Party" shall mean any of the following: (i) idealab!, (ii) BGIL,
(iii) any directly or indirectly wholly-owned subsidiary of BGIL (an "idealab!
Sub"), (iv) idealab! Capital Management I LLC ("ICM1"), (v) idealab! Capital
Management II LLC ("ICM2"), and (vi) any venture capital fund in which ICM1 or
ICM2 is a general partner or managing member (an "ICM Fund"). idealab! shall
cease to be a Related Party if and when it is no longer wholly-owned by BGIL.
An idealab! Sub shall cease to be a Related Party if and when it is no longer
wholly-owned (directly or indirectly) by BGIL. ICM1 shall cease to be a Related
Party if and when neither idealab! nor BGIL serves as its managing member. ICM2
shall cease to be a Related Party if and when neither idealab! nor BGIL serves
as its managing member. An ICM Fund shall cease to be a Related Party if and
when (a) neither ICM1 nor ICM2, as the case may be, serves as general partner or
managing member of such ICM Fund, or (b) neither idealab! nor BGIL serves as the
managing member of such general partner or managing member.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean any shares of Voting Stock Beneficially Owned by any
idealab! Party, Related Party or any entity controlled by an idealab! Party or
Related Party, after giving effect to the conversion or exchange of or other
exercise of rights to acquire all Voting Stock held by any idealab! Party,
Related Party or any entity controlled by an idealab! Party or Related Party
which is or could be pursuant to its terms convertible, exchangeable or
exercisable into securities of the Company having the power to vote in the
election of members of the Board of Directors of the Company, other than
conversion of shares of Class B Common Stock of the Company into shares of Class
A Common Stock of the Company.
"Standstill Limit" shall mean 66% of the Total Voting Power.
"Standstill Period" shall mean the period beginning on the date hereof and
ending on the earliest to occur of the following: (i) the third anniversary of
the Closing or (ii) the consummation of a transaction that results in a Change
in Control of the Company.
3
<PAGE>
"Total Voting Power" shall mean, with respect to any entity, the total
number of votes which may be cast in the election of members of the Board of
Directors of the corporation if all securities entitled to vote in the election
of such directors are present and voted.
"Voting Stock" shall mean shares of the Company Common Stock and any other
securities of the Company having the power to vote, or which are or could be
pursuant to its terms convertible, exchangeable or otherwise exercisable into
securities of the Company having the power to vote, in the election of members
of the Board of Directors of the Company.
"13D Group" means any group of persons formed for the purpose of acquiring,
holding, voting or disposing of Voting Stock which would be required under
Section 13(d) of the Exchange Act, and the rules and regulations promulgated
thereunder in effect as of the date hereof, to file a statement on Schedule 13D
pursuant to Rule 13d-1(a) or a Schedule 13G pursuant to Rule 13d-1(c) with the
SEC as a "person" within the meaning of Section 13(d)(3) of the Exchange Act if
such group Beneficially Owned Voting Stock representing more than 5% of any
class of Voting Stock then outstanding.
ARTICLE II
THE PURCHASER'S COVENANTS AND THE COMPANY'S RIGHTS
2.1 The idealab! Parties' Standstill Obligations
--------------------------------------------
(a) Notwithstanding anything to the contrary contained herein and only
during the Standstill Period, the idealab! Parties shall not, nor will the
idealab! Parties permit any entity controlled by any of the idealab! Parties or
any 13D Group of which any of the idealab! Parties is a member to, directly or
indirectly acquire or Beneficially Own Voting Stock, or authorize or make a
tender offer, exchange offer or other offer therefor, if the result of such
acquisition or Beneficial Ownership would be that the percentage of Total Voting
Power represented by all Shares would exceed the Standstill Limit; provided that
--------
all shares of Voting Stock Beneficially Owned by ICM1 or ICM2 as of the date
hereof shall not be included in the number of shares Beneficially Owned by the
idealab! Parties for purposes of this Section 2.1.
(b) During the Standstill Period, the idealab! Parties shall notify
the Company of any acquisition of additional shares of Voting Stock by any
idealab! Party, any entity controlled by any of the idealab! Parties or any 13D
Group of which any of the idealab! Parties is a member promptly after each such
acquisition and in any event not more than five (5) business days thereafter.
(c) During the Standstill Period, the idealab! Parties shall not, nor
will the idealab! Parties permit any entity controlled by any of the idealab!
Parties to, solicit proxies with respect to any Voting Stock, nor shall it
become a "participant" in any "election contest" (as such terms are used in
4
<PAGE>
Rule 14(a)-11 of Regulation 14A promulgated under the Exchange Act) relating to
the election of directors of the Company. Nothing in this Section 2.1(c) shall
be construed to limit: (i) the right of any officer or director of the Company
to communicate with any member of the Board of Directors of the Company, any
executive officer of the Company, counsel to the Company or auditors for the
Company, as may be necessary, in such officer's or director's reasonable
judgment, for the discharge of such officer's or director's duties; (ii) the
activities of any officer of the Company to discharge the duties of such office;
or (iii) the right of any stockholder to communicate with any member of the
Board of Directors of the Company.
(d) During the Standstill Period, the idealab! Parties shall not, nor
will the idealab! Parties permit any entity controlled by any idealab! Party to,
deposit any shares of Voting Stock in a voting trust or subject any Voting Stock
to any arrangement or agreement with any party other than a Related Party with
respect to the voting of such Voting Stock.
(e) During the Standstill Period, the idealab! Parties shall not join
a 13D Group, partnership, limited partnership, syndicate or other group, or
otherwise act in concert with any person (other than a Related Party) for the
purpose of acquiring, holding or Voting Stock having Total Voting Power in
excess of the Standstill Limit.
(f) The restrictions contained in Paragraphs (a) and (e) (solely to
the extent that Paragraph (a) or (e) restricts the activities that are
restricted by Paragraphs (c) or (d)) and (c) and (d) of this Section 2.1 shall
not apply if both (i) the idealab! Parties collectively own shares of Voting
Stock representing less than 50% of the Total Voting Power of the Company and
(ii) (A) a tender offer or exchange offer is made by any person or 13D Group
(other than an Affiliate of, or person acting in concert with, any idealab!
Party and other than a tender offer or exchange offer that is induced by any
idealab! Party or any Affiliate thereof) to acquire shares of Voting Stock
which, if added to the Shares of Voting Stock (if any) already owned by such
person or 13D Group, would represent more than 20% of the Total Voting Power of
the Company at such time, (B) it is publicly disclosed that shares of Voting
Stock representing more than 20% of the Total Voting Power of the Company have
been acquired subsequent to the date hereof, or are proposed to (in a public
announcement or filing) to be acquired subsequent to the date hereof by any
person or 13D Group (other than an Affiliate of, or any person acting in concert
with, any idealab! Party and other than any such acquisition or proposed
acquisition of Voting Stock that has been induced, in whole or in part, by any
idealab! Party or any Affiliate thereof), or (C) any person or 13D Group (not
including any idealab! Party or Affiliates of an idealab! Party) shall
Beneficially Own shares of Voting Stock representing a percentage of the Total
Voting Power of the Company which exceeds the greater of (x) 20% of the Total
Voting Power of the Company or (y) the percentage of the Total Voting Power of
the Company represented by the Shares, and would be required (under rules and
regulations in effect as of the date hereof) to file a statement on Schedule 13D
with the Securities and Exchange Commission reporting beneficial ownership of
such shares of Voting Stock.
5
<PAGE>
2.2 The idealab! Parties' Transfer Restrictions.
-------------------------------------------
(a) Until the earlier of two (2) years following the date hereof or
eighteen (18) months following a Qualified Initial Public Offering, the idealab!
Parties shall not, and shall not permit any entity controlled by any idealab!
Party to, directly or indirectly, sell, transfer, pledge, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise dispose of, any
Voting Stock except: (i) to the Company; (ii) to a Related Party, so long as
such Related Party agrees to be bound by the provisions of this Agreement as an
idealab! Party, and agrees to transfer such Voting Stock to an idealab! Party or
another Related Party if and when it ceases to be a Related Party; (iii) in
connection with a Change in Control of the Company approved in accordance with
the Company's Restated Certificate of Incorporation, or (iv) for pledges of
Voting Stock to nationally-recognized financial institutions (not affiliated
with an idealab! Party or a Related Party) as collateral in connection with bona
fide lending transactions.
(b) Any attempted sale, transfer or other disposition of Voting Stock
which is not in compliance with this Section 2.2 shall be null and void.
ARTICLE III
THE COMPANY'S COVENANTS AND IDEALAB!'S RIGHTS
3.1 idealab!'s Rights to Maintain. Until the closing of a Qualified
-----------------------------
Initial Public Offering, idealab! (or, at idealab!'s option, any Related Party)
shall have the right to purchase that number of shares of New Preferred Stock
equal to the Pro Rata Share of any New Securities which the Company may, from
time to time, issue, in accordance with the following terms and conditions:
(a) In the event the Company proposes to undertake an issuance of New
Securities, it shall give idealab! written notice of its intention (the "Company
Notice"), describing the amount and type of New Securities, and the price and
material terms upon which the Company then proposes to issue the same. idealab!
shall have ten (10) business days from the date of receipt of the Company Notice
to provide the Company with written notice (the "idealab! Notice") of its
intention to purchase (or its intention to have a Related Party purchase) a
number of shares of New Preferred Stock up to the Pro Rata Share, for a price
equal to the Fair Market Value of such New Preferred Stock as of the date of the
first closing of the issuance of New Securities. The closing of any such sale
of New Preferred Stock must occur no later than thirty (30) days after the
issuance of the related New Securities, subject to extension as needed for the
parties to comply with the HSR Act with respect to such sale. The Company
agrees to use reasonable best efforts to secure requisite stockholder approvals
of the authorization and issuance of any New Preferred Stock required pursuant
to this Section 3.1, and failure of the Company to issue New Preferred Stock as
required pursuant to this Section 3.1 shall constitute a material breach of this
Agreement by the Company (whether or not the Company is able to obtain any
requisite stockholder approvals).
6
<PAGE>
(b) The provisions of this Section 3.1 will terminate and be of no
further force or effect upon the earlier to occur of: (i) the closing of a
Qualified Initial Public Offering, or (ii) a Change in Control of the Company.
ARTICLE IV
MISCELLANEOUS
4.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of California.
4.2 Successors and Assigns. This Agreement shall inure to the benefit of,
----------------------
and be binding upon, the parties hereto and their respective successors and
assigns. Except as otherwise provided in this Agreement, this Agreement may not
be assigned by a party without the prior written consent of the other parties
hereto.
4.3 Entire Agreement; Amendment. This Agreement constitutes the full and
---------------------------
entire understanding and agreement between the parties with regard to the
subject hereof. Except as expressly provided herein, neither this Agreement nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought, including on behalf of
the Company, approval by a majority of the members of the Board of Directors
that are not, and have not for the then previous twelve (12) months been,
Affiliates of any idealab! Party or any Related Party.
4.5 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) If to the idealab! Parties, to:
idealab! Holdings, L.L.C.
130 West Union Street
Pasadena, California 91103
Attn: General Counsel
(Telephone) (626) 535-2828
(Facsimile) (626) 535-2703
7
<PAGE>
With a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: David M. Hernand, Esq.
(Telephone) (213) 485-1234
(Facsimile) (213) 891-8763
(b) If to the Company, to:
CarsDirect.com, Inc.
10567 Jefferson Boulevard
Culver City, CA 90232
Attn: Chief Financial Officer
General Counsel
(Telephone) (310) 280-4380
(Facsimile) (310) 649-5302
With a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Two Palo Alto Square
Palo Alto, CA 94306
Attn: Martin W. Korman, Esq.
Michael D. Weisberg, Esq.
(Telephone) (650) 493-9300
(Facsimile) (650) 493-6811
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
4.6 Delays or Omissions. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to a party under this
Agreement, shall impair any such right, power or remedy nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver
8
<PAGE>
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring.
4.7 Expenses. The Company and the idealab! Parties shall bear their own
--------
expenses incurred with respect to this Agreement and the transactions
contemplated hereby, provided, that the idealab! Parties shall pay any filing
fee required under the HSR Act arising out of this Agreement or the transactions
contemplated hereby, including any issuances and sales of New Preferred Stock
pursuant to idealab!'s rights to maintain set forth in Section 3.1 above.
4.8 Specific Performance. The parties hereto acknowledge and agree that
--------------------
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached and that such damage would not be compensable in money
damages and that it would be extremely difficult or impracticable to measure the
resultant damages. It is accordingly agreed that any party hereto shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of the Agreement and to enforce specifically the terms and provisions hereof, in
addition to any other remedy to which it may be entitled at law or equity, and
such party that is sued for breach of this Agreement expressly waives any
defense that a remedy in damages would be adequate and expressly waives any
requirement in an action for specific performance for the posting of a bond by
the party bringing such action.
4.9 Further Assurances. The parties hereto shall do and perform or cause
------------------
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments or documents as any
other party may reasonably request from time to time in order to carry out the
intent and purposes of this Agreement and the consummation of the transactions
contemplated hereby. Neither the Company nor the idealab! Parties shall
voluntarily undertake any course of action inconsistent with satisfaction of the
requirements applicable to them set forth in this Agreement and each shall
promptly do all such acts and take all such measures as may be appropriate to
enable them to perform as early as practicable the obligations herein and
therein required to be performed by them.
4.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by fewer than all of the parties,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
4.11 Severability. In the event that any provision of .this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, that no such severability shall be effective
if it materially changes the economic impact of this Agreement on any party.
4.12 Captions. Headings of the various sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be relied upon in
construing this Agreement. Use of any
9
<PAGE>
gender herein to refer to any person shall be deemed to comprehend masculine,
feminine, and neuter unless the context clearly requires otherwise.
4.13 Attorneys' Fees. In any action at law or suit in equity in relation
---------------
to this Agreement, the prevailing party in such action or suit shall be entitled
to receive a reasonable sum for its attorneys' fees and all other reasonable
costs and expenses incurred in such action or suit.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY"
CARSDIRECT.COM, INC.
By: /s/ Robert N. Brisco
-------------------------------
Name: Robert N. Brisco
Title: CEO
"IDEALAB! PARTIES"
IDEALAB! HOLDINGS, L.L.C.
By: /s/ Bill Gross
-------------------------------
Name:
Title:
BILL GROSS' IDEALAB!, INC.
By: /s/ Bill Gross
-------------------------------
Name:
Title: Chairman
11
<PAGE>
EXHIBIT 4.11
SECURITY AGREEMENT
This Security Agreement is made as of ________________________ between
CarsDirect.com, Inc., a Delaware corporation ("Pledgee"), and
((Name)) ("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ((DateofGrant)) (the "Option"), between Pledgor and Pledgee
under Pledgee's 1998 Stock Option Plan, and Pledgor's election under the terms
of the Option to pay for such shares with his promissory note (the "Note"),
Pledgor has purchased _________ shares of Pledgee's Common Stock (the "Shares")
at a price of $((PriceperShare)) per share, for a total purchase price of
$__________. The Note and the obligations thereunder are as set forth in Exhibit
A to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the Delaware Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number
___, duly endorsed in blank or with executed stock powers, and herewith delivers
said certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold
said certificate subject to the terms and conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender"
<PAGE>
within the meaning of the regulations under Part 207 of Title 12 of the Code of
Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee
in making any amendments to the Note or providing any additional collateral as
may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
------------------
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the Delaware
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
---------------------
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
-2-
<PAGE>
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
----
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of Delaware.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" ________________________________________
((Name))
"PLEDGEE" CarsDirect.com,Inc.,
a Delaware corporation
________________________________________
Signature
________________________________________
Title
"PLEDGEHOLDER" ________________________________________
Secretary of CarsDirect.com, Inc.
-4-
<PAGE>
EXHIBIT A
NOTE
$_______________ Culver City, CA
Date:_________________
FOR VALUE RECEIVED, ((Name)) promises to pay to CarsDirect.com, Inc., a
Delaware corporation (the "Company"), or order, the principal sum of
$__________, together with interest on the unpaid principal hereof from the date
hereof at the rate of six percent per annum, compounded semiannually.
Principal and interest shall be due and payable four years from the date
hereof. Payment of principal and interest shall be made in lawful money of the
United States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
((DateofGrant)). This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
___________________________________
((Name))
<PAGE>
Schedule to Exhibit 4.11
- ------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Number of Shares as
Party Date of Execution Interest on Note Security Amount of Note
- ----------------------- ------------------ ----------------- ------------------------ --------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scott Painter January 1, 1999 6.00% 75,000 $ 75,000
- ------------------------------------------------------------------------------------------------------------
April 27, 1999 5.21% 500,000 $ 500
- ------------------------------------------------------------------------------------------------------------
August 3, 1999 6.08% 750,000 $ 262,500
- ------------------------------------------------------------------------------------------------------------
Frederick G. Silny June 23, 1999 5.30% 401,606 $ 140,562
- ------------------------------------------------------------------------------------------------------------
Gerald Popek August 11, 1999 6.00% 350,000 $ 122,500
- ------------------------------------------------------------------------------------------------------------
Eugene Schutt September 11, 1999 6.00% 500,000 $ 750,000
- ------------------------------------------------------------------------------------------------------------
Christine Bucklin November 4, 1999 6.00% 500,000 $ 750,000
- ------------------------------------------------------------------------------------------------------------
March 2, 2000 6.00% 25,000 $ 150,000
- ------------------------------------------------------------------------------------------------------------
Robert Brisco November 5, 1999 6.00% 1,200,000 $1,800,000
- ------------------------------------------------------------------------------------------------------------
Neil Kaplan November 15, 1999 6.00% 105,000 $ 157,500
- ------------------------------------------------------------------------------------------------------------
Lynn Walsh March 2, 2000 6.00% 104,000 $ 624,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SECURED PROMISSORY NOTE EXHIBIT 4.12
<TABLE>
<S> <C>
Loan Principal Amount: $ 25,000
Term: Principal and all accrued interest due and payable upon the
earlier to occur of (i) August 19, 2004 or (ii) the date of
Borrower's termination of employment with CarsDirect.com, Inc.
Interest Rate: 6% per annum
Effective: September 1, 1999
</TABLE>
For value received, Gerald J. Popek ("Borrower") promises to pay to the
order of CarsDirect.com, Inc. (the "Company") or, if the Company has transferred
or assigned this Note in whole or in part to any other party (the Company, any
such assignee, and any further assignee of an assignee, all individually
referred to as a "holder" of the Note), then to the order of the holder, the
principal amount of twenty five thousand dollars ($25,000) along with interest
accrued on the unpaid principal at a rate of 6% per annum. Borrower shall repay
such principal and accrued interest upon the earlier to occur of (i) the date of
termination of your employment or (ii) August 19, 2004; provided, however, that
-------- -------
Borrower may repay all or part of the remaining principal and interest at any
time.
Borrower hereby waives demand, presentment, protest, notice of protest and
notice of nonpayment or dishonor of this Note. No delay or omission on the part
of the holder of this Note in the exercise of any right or remedy shall operate
as a waiver thereof, and no single or partial exercise by the holder of this
Note of any right or remedy shall preclude other or further exercise thereof or
of any other right or remedy. In the event of nonpayment of any amount due and
payable under the terms of this Note, Borrower agrees to pay all reasonable
attorneys' fees and costs of collection incurred by the holder of the Note in
connection with collection of the amount owing.
Borrower agrees and acknowledges that this Note in no way constitutes a
guarantee of employment by the Company either during the term of this Note or
thereafter
This Note (including the interest that shall accrue hereto) is secured by a
pledge of shares of common stock of the Company, and is subject to all of the
terms and provisions of a Security Agreement between the undersigned and the
Company (the "Agreement") attached hereto as Exhibit A.
---------
Events of Default. If one or more of the following events of default shall
-----------------
have occurred, that is to say:
(i) If Borrower shall fail to pay the principal of or interest on this
Note when the same shall become due and payable, whether at maturity or upon
acceleration, and such failure shall have continued unremedied for a period of
thirty (30) days after written notice thereof shall have been given to Borrower
by the holder of this Note; or
-1-
<PAGE>
(ii) If any material representation or warranty made by Borrower in
the Stock Pledge Agreement shall prove to have been false as of the date made;
or
(iii) Any assignment by Borrower for the benefit of creditors, or
filing by or against Borrower of a petition in bankruptcy, or adjudication of
Borrower as a bankrupt or insolvent; or
(iv) If the Company terminates Borrower's employment for Cause. For
the purpose of this Section (b), "Cause" means the occurrence of one or more of
the following events: (a) failure or refusal to carry out any lawful duties
assigned to him by the Company's Board of Directors or the Chief Executive
Officer or any directions of the Board of Directors of the Company reasonably
consistent with such duties; (b) the conviction of Borrower of, or the entrance
by or on behalf of the Borrower of a plea of nolo contendere with respect to,
violation of a state or federal criminal law (excluding non-felony driving or
traffic offenses) or other criminal act involving moral turpitude; (c) any
fraud, dishonesty or deception by the Borrower that is related to his duties for
the Company; or (d) any act or omission by the Borrower that substantially
impairs the Company's business, goodwill or reputation then the holder of this
Note may at any time at its option and without prior notice to Borrower declare
the principal of and accrued interest on this Note to be immediately due and
payable, and thereupon the same shall become so due and payable, without
presentment or protest, both of which are hereby waived by Borrower.
If any event of default occurs, neither the failure of the holder of this
Note promptly to exercise its right to declare the outstanding principal of and
accrued and unpaid interest on this Note to be immediately due and payable, nor
the failure of the holder to exercise any other right or remedy the holder may
have for default, nor the acceptance by the holder of late payments, nor the
failure of the holder to demand strict performance of any obligation of Borrower
hereunder, shall constitute a waiver of any such rights while such default
continues, nor a waiver of such rights in connection with any future default on
the part of Borrower. Further, acceptance by the holder of this Note of partial
payments following due acceleration of the indebtedness evidenced hereby shall
not constitute a waiver by the holder of the acceleration of such indebtedness.
If an action is instituted for collection of this Note, the undersigned
agrees to pay court costs and reasonable attorneys' fees incurred by the
Company.
This Note may be prepaid at any time without penalty. In the event that
this Note is prepaid in part, (i) the accrued interest shall be evenly allocated
to each pledged share and (ii) payment received from Borrower shall be
considered full payment for that number of shares (including the allocated
interest) that is equal to the amount of payment.
This Note and the obligations hereunder shall be governed by and construed
and enforced in accordance with the laws of the State of California.
THE UNDERSIGNED FURTHER UNDERSTANDS THAT THIS IS A FULL RECOURSE PROMISSORY
NOTE AND THAT THE COMPANY MAY, AT ITS OPTION, PROCEED AGAINST OTHER ASSETS OF
THE UNDERSIGNED IN THE EVENT OF A DEFAULT.
-2-
<PAGE>
Signed and delivered effective as of September 1, 1999, at the Company,
Culver City, California.
CARSDIRECT.COM, INC. BORROWER
/s/ Frederick G. Silny /s/ Gerald J. Popek
----------------------- -------------------------
Frederick G. Silny, Gerald J. Popek
Chief Financial Officer
-3-
<PAGE>
[Signature Page to the Secured Promissory Note]
-4-
<PAGE>
EXHIBIT 4.13
SECURED PROMISSORY NOTE
Loan Principal Amount: $37,500
Term: Principal and all accrued interest due
and payable upon the earlier to occur of
(i) August 19, 2004 or (ii) the date of
Borrower's termination of employment
with CarsDirect.com, Inc.
Interest Rate: 6% per annum
Effective: November 8, 1999
For value received, Gerald J. Popek ("Borrower") promises to pay to the
order of CarsDirect.com, Inc. (the "Company") or, if the Company has transferred
or assigned this Note in whole or in part to any other party (the Company, any
such assignee, and any further assignee of an assignee, all individually
referred to as a "holder" of the Note), then to the order of the holder, the
principal amount of thirty seven thousand five hundred dollars ($37,500) along
with interest accrued on the unpaid principal at a rate of 6% per annum.
Borrower shall repay such principal and accrued interest upon the earlier to
occur of (i) the date of termination of your employment or (ii) August 19, 2004;
provided, however, that Borrower may repay all or part of the remaining
- -------- -------
principal and interest at any time.
Borrower hereby waives demand, presentment, protest, notice of protest
and notice of nonpayment or dishonor of this Note. No delay or omission on the
part of the holder of this Note in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the holder of
this Note of any right or remedy shall preclude other or further exercise
thereof or of any other right or remedy. In the event of nonpayment of any
amount due and payable under the terms of this Note, Borrower agrees to pay all
reasonable attorneys' fees and costs of collection incurred by the holder of the
Note in connection with collection of the amount owing.
Borrower agrees and acknowledges that this Note in no way constitutes a
guarantee of employment by the Company either during the term of this Note or
thereafter
This Note (including the interest that shall accrue hereto) is secured
by a pledge of shares of common stock of the Company, and is subject to all of
the terms and provisions of a Security Agreement between the undersigned and the
Company (the "Agreement") attached hereto as Exhibit A.
---------
Events of Default. If one or more of the following events of default
-----------------
shall have occurred, that is to say:
(i) If Borrower shall fail to pay the principal of or interest
on this Note when the same shall become due and payable, whether at maturity or
upon acceleration, and such failure shall have continued unremedied for a period
of thirty (30) days after written notice thereof shall have been given to
Borrower by the holder of this Note; or
-1-
<PAGE>
(ii) If any material representation or warranty made by Borrower
in the Stock Pledge Agreement shall prove to have been false as of the date
made; or
(iii) Any assignment by Borrower for the benefit of creditors,
or filing by or against Borrower of a petition in bankruptcy, or adjudication of
Borrower as a bankrupt or insolvent; or
(iv) If the Company terminates Borrower's employment for Cause.
For the purpose of this Section (b), "Cause" means the occurrence of one or more
of the following events: (a) failure or refusal to carry out any lawful duties
assigned to him by the Company's Board of Directors or the Chief Executive
Officer or any directions of the Board of Directors of the Company reasonably
consistent with such duties; (b) the conviction of Borrower of, or the entrance
by or on behalf of the Borrower of a plea of nolo contendere with respect to,
violation of a state or federal criminal law (excluding non-felony driving or
traffic offenses) or other criminal act involving moral turpitude; (c) any
fraud, dishonesty or deception by the Borrower that is related to his duties for
the Company; or (d) any act or omission by the Borrower that substantially
impairs the Company's business, goodwill or reputation then the holder of this
Note may at any time at its option and without prior notice to Borrower declare
the principal of and accrued interest on this Note to be immediately due and
payable, and thereupon the same shall become so due and payable, without
presentment or protest, both of which are hereby waived by Borrower.
If any event of default occurs, neither the failure of the holder of
this Note promptly to exercise its right to declare the outstanding principal of
and accrued and unpaid interest on this Note to be immediately due and payable,
nor the failure of the holder to exercise any other right or remedy the holder
may have for default, nor the acceptance by the holder of late payments, nor the
failure of the holder to demand strict performance of any obligation of Borrower
hereunder, shall constitute a waiver of any such rights while such default
continues, nor a waiver of such rights in connection with any future default on
the part of Borrower. Further, acceptance by the holder of this Note of partial
payments following due acceleration of the indebtedness evidenced hereby shall
not constitute a waiver by the holder of the acceleration of such indebtedness.
If an action is instituted for collection of this Note, the undersigned
agrees to pay court costs and reasonable attorneys' fees incurred by the
Company.
This Note may be prepaid at any time without penalty. In the event that
this Note is prepaid in part, (i) the accrued interest shall be evenly allocated
to each pledged share and (ii) payment received from Borrower shall be
considered full payment for that number of shares (including the allocated
interest) that is equal to the amount of payment.
This Note and the obligations hereunder shall be governed by and
construed and enforced in accordance with the laws of the State of California.
THE UNDERSIGNED FURTHER UNDERSTANDS THAT THIS IS A FULL RECOURSE
PROMISSORY NOTE AND THAT THE COMPANY MAY, AT ITS OPTION, PROCEED AGAINST OTHER
ASSETS OF THE UNDERSIGNED IN THE EVENT OF A DEFAULT.
-2-
<PAGE>
Signed and delivered effective as of November 8, 1999, at the Company,
Culver City, California.
CARSDIRECT.COM, INC. BORROWER
/s/ Frederick G. Silny /s/ Gerald J. Popek
------------------------------ ------------------------------
Frederick G. Silny, Gerald J. Popek
Chief Financial Officer
-3-
<PAGE>
[Signature Page to the Secured Promissory Note]
-4-
<PAGE>
EXHIBIT 10.3
CARSDIRECT.COM, INC.
ROBERT BRISCO EMPLOYMENT AGREEMENT
This Agreement is entered into as by and among CarsDirect.com, Inc. (the
"Company") and Robert Brisco (the "Employee") this 8th day of November, 1999.
WHEREAS, the Company desires to retain Employee on a full-time basis in the
capacity of Chief Executive Officer of the Company, and Employee desires to
accept such employment; and
WHEREAS the parties desire and agree to enter into an employment
relationship by means of this Agreement;
NOW THEREFORE in consideration of the promises and mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and among the parties as follows:
1. Term. Employee's employment with the Company pursuant to this
----
Agreement shall commence on November 8, 1999 (the "Employment Commencement
Date"). This Agreement shall remain effective for 36 months from the Employment
Commencement Date.
2. Position and Duties. Employee shall be employed as Chief Executive
-------------------
Officer of the Company, reporting to the Company's Board of Directors (the
"Board") and assuming and discharging such responsibilities as are commensurate
with Employee's position. Employee shall perform his duties faithfully and to
the best of his ability and shall devote his full business time and effort to
the performance of his duties hereunder. Additionally, Employee will be
appointed as a member of the Board promptly following the Employment
Commencement Date.
3. Compensation.
------------
(a) Base Salary. While employed by the Company hereunder, Employee
-----------
shall receive a minimum annual base salary of $95,000, payable in accordance
with the Company's normal payroll practices; provided, that such annual base
salary shall be increased to $150,000 on and after the first anniversary of the
Employment Commencement Date. Notwithstanding the foregoing, upon the
effectiveness of a fully underwritten initial public offering of the Company's
equity securities pursuant to a registration statement filed with the Securities
and Exchange Commission (an "IPO"), Employee's base salary shall be increased to
$250,000.
(b) Sign On Bonus. Employee shall be entitled to receive a bonus of
-------------
$400,000, payable to Employee in one lump sum upon the signing of this agreement
by both parties hereto (the "Sign On Bonus").
(c) IPO Bonus. Employee shall be entitled to receive a bonus of
---------
$250,000 upon the IPO. Such bonus shall be paid to Employee in one lump sum upon
the date of the IPO.
<PAGE>
(d) Bonus. While employed hereunder, Employee shall be eligible to
-----
receive an annual bonus that is targeted to be 60% of Employee's annual base
salary based upon the achievement of milestones established by the Board or its
compensation committee. Such bonus, if due, shall be paid within 90 days
following the end of the Company's fiscal year.
(e) Common Stock Option. On the Employment Commencement Date, the
-------------------
Company shall grant Employee an option under the Company's 1998 Stock Plan to
purchase up to 1,200,000 shares of the Company's Common Stock (the "Common
Shares"), at an exercise price per Share of $1.50 (the "Common Option"). Subject
to accelerated vesting as provided elsewhere in this Agreement, the Common
Option (or restricted stock subject thereto) shall be vested with respect to
60,000 Common Shares on the Employment Commencement Date, shall vest as to an
additional 120,000 Common Shares upon the date that is six months following the
Employment Commencement Date and shall vest as to an additional 6.0714% of the
Common Shares originally subject to the Option each full three months
thereafter, so as to be 100% vested on the date that is four years after the
Employment Commencement Date. Upon the first to occur (but not upon the second
to occur) of (i) an IPO, or (ii) a "Change of Control" (as such term is defined
herein), the Common Option (or restricted stock subject thereto) shall
accelerate vesting as to 7.85% of the Common Shares originally subject to the
Option, and shall thereafter continue to vest at the same rate as prior to the
IPO. All vesting provided for in this paragraph is subject to Employee remaining
an employee, consultant or member of the Board of the Company on each such
vesting date. The Common Option may be exercised prior to its vesting, including
by means of a fully recourse promissory note bearing the lowest rate which will
not subject Employee to recognizing imputed taxable income, subject to Employee
entering into the Company's form of Restricted Stock Purchase Agreement which
provides the Company with the right to purchase unvested shares at the original
exercise price in the event of Employee's termination. If no IPO has occurred by
January 1, 2001, then Employee (or his heirs) shall have the right (until such
time as an IPO occurs) to sell to the Company vested shares of stock that he
purchased pursuant to the Common Option that he has owned for at least 6 months
at a price equal to 100% of the then fair market value of such shares, as
determined by the Board in good faith, up to a maximum dollar amount of $630,000
(the "Put Right"). The Put Right shall exist without regard as to whether or not
Employee is providing services to the Company. The Common Option shall be
subject to the terms and conditions of the Company's 1998 Stock Plan and the
stock option agreement evidencing the Common Option. To the extent the Common
Option has not been exercised prior to the IPO, following the IPO the Company
agrees to promptly register the exercise and potential resale of the shares
subject to the Common Option on a Form S-8 with the Securities and Exchange
Commission, and to maintain the effectiveness of such registration statement
during the term of this Agreement and for 12 months thereafter.
(f) Preferred Stock Option. On the Employment Commencement Date, the
----------------------
Company shall grant Employee an option to purchase up to 200,000 shares of the
Company's Series D Preferred Stock (the "Preferred Shares"), at an exercise
price per Share of $15.76 (the "Preferred Option"). Subject to accelerated
vesting as provided elsewhere in this Agreement, the Preferred Option shall be
vested with respect to 10,000 Preferred Shares on the Employment Commencement
Date, shall vest as to an additional 20,000 Preferred Shares upon the date that
is six months
-2-
<PAGE>
following the Employment Commencement Date and shall vest as to an additional
6.0714% of the Preferred Shares originally subject to the Option each full three
months thereafter, so as to be 100% vested on the date that is four years after
the Employment Commencement Date. Upon the first to occur (but not upon the
second to occur) of (i) an IPO, or (ii) a "Change of Control" (as such term is
defined herein), the Preferred Option shall accelerate vesting as to 7.85% of
the Preferred Shares originally subject to the Option, and shall thereafter
continue to vest at the same rate as prior to the IPO. All vesting provided for
in this paragraph is subject to Employee remaining an employee, consultant or
member of the Board of the Company on each such vesting date. The Preferred
Option may not be exercised prior to its vesting. Otherwise, the Preferred
Option shall be subject to an agreement containing terms and conditions similar
to those governing stock options granted under the Company's 1998 Stock Plan.
Following the IPO, the Company agrees to promptly register the exercise and
potential resale of the shares subject to the Preferred Option on a Form S-8
with the Securities and Exchange Commission, and to maintain the effectiveness
of such registration statement during the term of this Agreement and for 12
months thereafter.
4. Other Benefits. Employee shall be entitled to participate in the
--------------
employee benefit plans and programs of the Company, if any, to the extent that
his position, tenure, salary, age, health and other qualifications make him
eligible to participate in such plans or programs, subject to the rules and
regulations applicable thereto, on the same terms as other senior executives of
the Company, including without limitation, any car program generally available
to senior executives. The Company reserves the right to cancel or change the
benefit plans and programs it offers to its employees at any time.
5. Expenses. The Company shall reimburse Employee for reasonable travel,
--------
entertainment or other expenses incurred by Employee in the furtherance of or in
connection with the performance of Employee's duties hereunder, in accordance
with the Company's expense reimbursement policy as in effect from time to time.
6. Confidential Information. Employee agrees to maintain the
------------------------
confidentiality of all confidential and proprietary information of the Company
and agrees to enter into the CarsDirect.com, Inc. Employment, Confidential
Information and Inventions Assignment Agreement.
7. Severance. Employee agrees that notwithstanding the term of this
---------
Agreement set forth in Section 1, his sole remedy for termination of employment
under this Agreement are the severance benefits and payments provided for in
this Section 7.
(a) Upon Involuntary Termination Without Cause in Year 1. Subject to
----------------------------------------------------
Section 8, in the event that Employee's employment is terminated by the Company
for reasons other than "Cause" (as defined in Section 9) prior to the first
anniversary of the Employment Commencement Date, then Employee shall be entitled
to receive the following benefits from the Company:
(i) Salary Continuation. Continuation of Employee's Base
-------------------
Salary (as defined in Section 9) for a period of nine (9) months following
Employee's termination of employment ("9 Months' Severance Pay"). All such
severance payments shall be paid in accordance
-3-
<PAGE>
with the Company's normal payroll practices. Such continuation of Base Salary
shall be in lieu of any and all severance payments which Employee is entitled to
receive on the date of Employee's termination of employment pursuant to any
Company severance and benefit plans and practices or pursuant to other
agreements with the Company.
(ii) Benefits. The Company shall pay Employee's premiums for
--------
continuation coverage under title X of the Consolidated Budget Reconciliation
Act of 1985 ("COBRA") for health, dental and vision insurance in the same
proportion as it pays group health, dental and vision insurance premiums for
active senior executives (i.e., the Company and the Employee shall pay the same
portion of the total premiums as if Employee was an active senior executive). If
such coverage included Employee's dependents immediately prior to Employee's
termination, such dependents shall also be covered. The Company shall pay such
premium amounts until the earlier of (i) nine (9) months following the date of
Employee's termination, or (ii) the date upon which Employee and his covered
dependents become covered under another employer's group health, dental and
vision insurance plans. For purposes of COBRA, the date of the qualifying event
for Employee and his or her dependents shall be the date of Employee's
termination of employment by the Company. The benefits specified under this
paragraph are referred to herein as "9 Months' COBRA Benefits."
(iii) Stock Option Vesting Acceleration. The Common Stock Option
---------------------------------
(or restricted stock subject thereto) and the Preferred Stock Option shall have
their vesting accelerated so as to be vested as to 35% of the Common Shares and
Preferred Shares originally subject thereto (i.e., assuming no stock splits or
similar changes in equity structure of the Company effected without the receipt
of consideration, the Common Stock Option will then be vested as to 420,000
shares, the Preferred Stock Option will be vested as to 70,000 shares and the
remaining 65% of the shares originally subject to each option shall be unvested
and shall revert to the Company).
(iv) Post-Termination Option Exercisability. The post-
--------------------------------------
termination exercise period with respect to vested shares under the Common Stock
Option and Preferred Stock Option shall automatically be extended to 12 months
following the date of termination of employment ( the "12-Month Post Termination
Exercisability Benefit").
(b) Other Termination During Year 1. If, during the period ending on
-------------------------------
the first anniversary of the Employment Commencement Date, Employee's employment
is terminated by the Company for Cause, or by Employee for any reason (except
during the one year period following a "Change of Control," as defined herein,
which is covered by Section 7(e) hereof), including death or disability, then
Employee shall not be entitled to receive severance or other benefits pursuant
to Section 7(a), but may be eligible for those benefits (if any) as may then be
established under the Company's severance and benefit plans and policies
existing at the time of such termination, or with respect to death or
disability, as specified under Sections 10 and 11 hereof.
(c) Upon Involuntary Termination Without Cause After Year 1(Except
--------------------------------------------------------------
During the One Year Period Following a Change of Control). Subject to Section 8,
- ---------------------------------------------------------
in the event that Employee's employment is terminated by the Company for reasons
other than "Cause" (as
-4-
<PAGE>
defined herein) on or after the first anniversary of the Employment Commencement
Date (except during the one year period following a "Change of Control," as such
term is defined herein), then Employee shall be entitled to receive (i) 9
Months' Severance Pay, (ii) 9 Months' COBRA Benefits, (iii) the 12-Month Post-
Termination Exercisability Benefit, and (iv) accelerated vesting with respect to
the shares (including restricted stock) covered by the Common Option and the
Preferred Option to the same extent as if Employee had remained employed with
the Company through the end of the next fiscal quarter of the Company, and in no
event shall they be vested on the date of such termination of employment, in
total, as to less than 35% of the shares originally subject to such options.
(d) Other Termination Following Year 1 (Except During the One Year
--------------------------------------------------------------
Period Following a Change of Control). If, following the first anniversary of
- -------------------------------------
the Employment Commencement Date and during the term of this Agreement (except
during the one year period following a Change of Control, which is covered in
Section 7(e) hereof), Employee's employment is terminated by the Company for
Cause, or by Employee for any reason, including death or disability, then
Employee shall not be entitled to receive severance or other benefits pursuant
to Section 7(c), but may be eligible for those benefits (if any) as may then be
established under the Company's severance and benefit plans and policies
existing at the time of such termination, or with respect to disability or
death, as specified under Sections 10 and 11 hereof.
(e) Within 1 Year Following a Change of Control, Upon Involuntary
-------------------------------------------------------------
Termination Without Cause or a Voluntary Resignation Within 60 days of a
- ------------------------------------------------------------------------
Constructive Termination. Subject to Section 8, in the event that Employee's
- ------------------------
employment is terminated by the Company for reasons other than Cause or by
Employee within 60 days following the occurrence of a "Constructive Termination"
(as defined in Section 9) during the period commencing upon a Change of Control
and ending one year later, then Employee shall be entitled to receive (i) 9
Months' Severance Pay, (ii) 9 Months' COBRA Benefits, (iii) the 12-Month Post-
Termination Exercisability Benefit, and (iv) accelerated vesting with respect to
50% of the shares (including restricted stock) covered by the Common Option and
the Preferred Option that are not vested on the date of termination of
employment.
(f) Other Termination During the One Year Period Following a Change of
------------------------------------------------------------------
Control. If, during the one year period following a Change of Control,
- -------
Employee's employment is terminated by the Company for Cause, or by Employee for
any reason, other than within 60 days following a Constructive Termination, or
by virtue of Employee's death or disability, then Employee shall not be entitled
to receive severance or other benefits pursuant to Section 7, but may be
eligible for those benefits (if any) as may then be established under the
Company's severance and benefit plans and policies existing at the time of such
termination, or with respect to disability or death, as specified under Sections
10 and 11 hereof.
(g) No Mitigation. Employee shall not be required to mitigate the
-------------
value of any severance payments or benefits contemplated by Section 7 of this
Agreement, nor shall any such payments or benefits be reduced by any earnings or
benefits that the Employee may receive from any other source.
-5-
<PAGE>
8. Covenant Not to Compete. In the event Employee breaches the provisions
-----------------------
of this Section 8, the severance benefits under Section 7 above shall
immediately terminate and Employee shall cease to earn or be entitled to any
additional payments under this Agreement.
(a) Covenant Not to Compete. Until the end of the nine month period
-----------------------
following the date of Employee's termination triggering the provision of
severance benefits under Section 7 above, Employee will not directly or
indirectly engage in (whether as an employee, consultant, proprietor, partner,
director or otherwise), or have any ownership interest in, or participate in the
financing, operation, management or control of, any person, firm, corporation or
business that engages or participates anywhere in the world in selling
automobiles on the Internet. Ownership of less than 3% of the outstanding voting
stock of a publicly traded corporation will not constitute a violation of this
provision.
(b) Representations. The parties intend that the covenant contained
---------------
in Section 8(a) shall be construed as a series of separate covenants, one for
each county, city and state (or analogous entity) and country of the world. If,
in any judicial proceeding, a court shall refuse to enforce any of the separate
covenants, or any part thereof, then such unenforceable covenant, or such part
thereof, shall be deemed eliminated from this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining separate covenants,
or portions thereof, to be enforced.
(c) Reformation. In the event that the provisions of this Section 8
-----------
should ever be deemed to exceed the time or geographic limitations, or scope of
this covenant, permitted by applicable law, then such provisions shall be
reformed to the maximum time or geographic limitations, as the case may be,
permitted by applicable laws.
(d) Reasonableness of Covenants. Employee represents that he (i) is
---------------------------
familiar with the covenants not to compete, and (ii) is fully aware of his
obligations hereunder, including, without limitation, the reasonableness of the
length of time, scope and geographic coverage of these covenants.
9. Definitions.
-----------
(a) Base Salary. "Base Salary" shall mean Employee's annual Company
-----------
salary at the rate in effect immediately preceding Employee's date of
termination with the Company.
(b) Cause. "Cause" shall mean (i) Employee's commission of an act of
-----
fraud or embezzlement upon the Company; (ii) Employee's being convicted of or
pleading guilty or nolo contendere to a felony involving fraud, dishonesty or
moral turpitude, (iii) Employee's willful and continued failure to perform
substantially Employee's material duties with the Company (other than failure
resulting from incapacity due to physical or mental illness) which is not
remedied in a reasonable period of time after written demand for substantial
performance is delivered to Employee by the Board of Directors which
specifically identifies the manner in which the Board of Directors believes
Employee has not substantially performed his duties; provided, however, that
with respect to clause (iii), such failure shall not constitute Cause if it is
cured by Employee within thirty (30)
-6-
<PAGE>
days following delivery to Employee of a written explanation specifying the
basis for the Company's beliefs with respect to such clause.
(c) Change of Control. "Change of Control" shall mean (i) the
-----------------
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; (ii) the consummation of the sale or disposition by the Company
of all or substantially all the Company's assets; (iii) a change in the
composition of the Board occurring within a two-year period, as a result of
which fewer than a majority of the directors are Incumbent Directors ("Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date upon which this Agreement was entered into, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of those directors whose election or nomination was not in connection
with any transaction described in subsections (i) or (ii) above, or in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or (iv) Bill Gross' idealab!, Inc. or, in the
aggregate, its affiliates, ceasing to be the largest holder of voting stock of
the Company.
(d) Constructive Termination. "Constructive Termination" shall mean
------------------------
(i) the assignment to Employee of duties not commensurate with his status as
Chief Executive Officer, or any material reduction of the Employee's duties,
authority or responsibilities or any reduction, whether material or not, in
Employee's title, relative to the Employee's duties, authority, responsibilities
or title as in effect immediately prior to such reduction, except if agreed to
in writing by the Employee; provided, however, that a reduction in duties,
title, authority or responsibilities solely by virtue of the consummation of a
"Change of Control," (for example, if the Company becomes a division of the
acquiring company in a Change of Control and Employee remains Chief Executive
Officer of the division of and is not made Chief Executive Officer of the
Acquirer and does not sit on the board of directors of the acquirer shall not by
itself constitute a "Constructive Termination" unless, notwithstanding the title
of divisional Chief Executive Officer, there is a material reduction of
Employee's duties, authority or responsibilities with respect to the division,
whether material or not, relative to Employees duties, authority and
responsibilities as in effect prior to such reduction), (ii) any breach by the
Company of the terms of this Agreement, (iii) any reduction in Employee's
compensation, including, without limitation, a reduction in Base Salary or a
reduction in the Annual Bonus formula, or (iv) the relocation of the Employee to
a facility or a location more than fifty (50) miles from the Employee's then
present location, without the Employee's written consent; provided, however,
that such actions shall not constitute Constructive Termination if they are
cured by the Company within thirty (30) days following delivery to the Company
of a written explanation specifying the basis for the Employee's beliefs with
respect to such Constructive Termination events.
10. Total Disability of Employee. Upon Employee's becoming permanently and
----------------------------
totally disabled (as defined below) during the term of this Agreement,
employment hereunder shall
-7-
<PAGE>
automatically terminate, all payments of compensation by the Company to Employee
hereunder shall immediately terminate (except as to amounts already earned) and
all vesting of the Employee's Common and Preferred Options and restricted stock
shall immediately cease; provided, however, that upon the date of such
termination of employment the Common and Preferred Options shall have their
vesting accelerated to the same extent as they would have vested had Employee
remained employed by the Company through the date of the next anniversary of the
Employment Commencement Date, and in no event shall they be vested on the date
of termination of employment, in total, as to less than 35% of the shares
originally subject to such options. Moreover, the Company agrees, at its own
expense, to maintain a disability policy covering all executives. Such policy
will include a differentiated "top tier" coverage feature which will provide for
a higher payment level for the Employee than for other executives in the
Company. For the purposes of this Agreement, disability shall mean the absence
of Employee from his duties with the Company on a full-time basis for a period
of six months as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to Employee or his legal representative (such
agreement as to acceptability not be withheld unreasonably).
11. Death of Employee. If Employee dies while employed by the Company
-----------------
pursuant to this Agreement, all payments of compensation by the Company to
Employee hereunder shall immediately terminate (except as to amounts already
earned, which shall be paid to his estate) and all vesting of the Employee's
Stock Options and Restricted Stock shall immediately cease. As soon as
practicable following the Employment Commencement Date and while Employee
remains employed pursuant to this Agreement, the Company agrees to pay the
premiums on a $1 million term life insurance policy covering the Employee for
the benefit such beneficiaries as are selected in writing by Employee under the
policy.
12. Arbitration.
-----------
(a) Employee agrees that any dispute or controversy arising out of,
relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof, shall be
settled by expedited, binding arbitration to be held in Los Angeles, California
in accordance with the National Rules for the Resolution of Employment Disputes
then in effect of the American Arbitration Association (the "Rules"). The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in any court having jurisdiction. The Company agrees to advance Employee all
costs, including attorney's fees, relating to such arbitration. Employee agrees
to reimburse the Company for such costs in the event the arbitrator determines
that the Company has not breached this Agreement in such a manner as to give
rise to financial damages to the Employee in an amount greater than $5,000.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. The Employee
-8-
<PAGE>
hereby consents to the personal jurisdiction of the state and federal courts
located in California for any action or proceeding arising from or relating to
this Agreement or relating to any arbitration in which the parties are
participants.
(c) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, DISCRIMINATION CLAIMS.
13. Right to Advice of Counsel. Employee acknowledges that he has had the
--------------------------
right to consult with counsel and is fully aware of his rights and obligations
under this Agreement.
14. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company," as applicable, shall include any successor to the Company's business
and/or assets which executes and delivers the assumption agreement described in
this subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Employee's Successors. Without the written consent of the
---------------------
Company, Employee shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
15. Notice Clause. All notices, requests, demands and other communications
-------------
called for hereunder shall be in writing and shall be deemed given if (i)
delivered personally or by facsimile, (ii) one (1) day after being sent by
Federal Express or a similar commercial overnight service, or (iii) three (3)
days after being mailed by registered or certified mail, return receipt
requested, prepaid and addressed to the parties or their successors in interest.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws, but not the choice of law rules,
of the state of California.
-9-
<PAGE>
17. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement, or any terms hereof, shall not affect the validity or
enforceability of any other provision or term of this Agreement.
18. Integration. This Agreement, the Common Option agreement, the
-----------
Preferred Option agreement and the Employment, Confidential Information and
Inventions Assignment Agreement represent the entire agreement and understanding
between the parties as to the subject matter herein and supersedes all prior or
contemporaneous agreements whether written or oral. No waiver, alteration, or
modification of any of the provisions of this Agreement shall be binding unless
in writing and signed by duly authorized representatives of the parties hereto.
19. Taxes. All payments made pursuant to this Agreement shall be subject
-----
to withholding of applicable income and employment taxes; provided, however,
that the Sign On Bonus shall not be subject to federal employment tax
withholding.
20. Legal Fee Reimbursement. The Company agrees to directly pay Employee"s
-----------------------
reasonable legal fees associated with entering into this Agreement up to $15,000
upon receiving invoices for such services.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officers, as of the day and year
first above written.
CARSDIRECT.COM, INC.
By: /s/ Howard L. Morgan
-------------------------------------
Title: Chairman of the Board
----------------------------------
EMPLOYEE:
/s/ Robert N. Brisco
----------------------------------------
Robert Brisco
-10-
<PAGE>
[LETTERHEAD OF CARSDIRECT.COM]
November 12, 1999
Robert Brisco
10567 Jefferson Blvd.
Culver City, CA 90232
Dear Mr. Brisco:
The purpose of this letter is to amend the terms of your Employment
Agreement dated November 8, 1999 (the "Agreement") to provide: (i) The Company
hereby agrees to pay your $400,000 in accordance with Section 3(b) of the
Agreement (the "Sign On Bonus") on April 3, 2000; and (ii) Section 19 of the
Agreement shall be amended to provide that applicable federal taxes shall be
withheld from your Sign On Bonus.
Sincerely,
/s/ FREDERICK SILNY
Frederick Silny
Chief Financial Officer
CarsDirect.com, Inc.
Agreed & Accepted:
/s/ ROBERT N. BRISCO
- --------------------------------
Robert N. Brisco, Employee
<PAGE>
EXHIBIT 10.4
CARSDIRECT.COM, INC.
CHRISTINE BUCKLIN EMPLOYMENT AGREEMENT
This Agreement is entered into as by and among CarsDirect.com, Inc. (the
"Company") and Christine Bucklin (the "Employee") this 4th day of November,
1999.
WHEREAS, the Company desires to retain Employee on a full-time basis in the
capacity of Chief Operating Officer of the Company, and Employee desires to
accept such employment; and
WHEREAS the parties desire and agree to enter into an employment
relationship by means of this Agreement;
NOW THEREFORE in consideration of the promises and mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and among the parties as follows:
1. Term. Employee's employment with the Company pursuant to this
----
Agreement shall commence on November 4, 1999 (the "Employment Commencement
Date"). This Agreement shall remain effective for 48 months from the Employment
Commencement Date.
2. Position and Duties. Employee shall be employed as Chief Operating
-------------------
Officer of the Company, reporting to the Chief Executive Officer and assuming
and discharging such responsibilities as are commensurate with Employee's
position. Employee shall perform her duties faithfully and to the best of her
ability and shall devote her full business time and effort to the performance of
her duties hereunder (except for any consulting for Bll Gross' idealab!).
3. Compensation.
------------
(a) Base Salary. While employed by the Company hereunder, Employee
-----------
shall receive a minimum annual base salary of $150,000, payable in accordance
with the Company's normal payroll practices. Notwithstanding the foregoing, upon
the effectiveness of a fully underwritten initial public offering of the
Company's equity securities pursuant to a registration statement filed with the
Securities and Exchange Commission (an "IPO"), Employee's base salary shall be
increased to $187,500. A review of Employee's salary shall be given each year on
the anniversary of the Employment Commencement Date.
(b) Common Stock Option. On the Employment Commencement Date, the
-------------------
Company shall grant Employee options under the Company's 1998 Stock Plan to
purchase (i) up to 500,000 shares of the Company's Common Stock at an exercise
price per Share of $1.50 (the "Common Option" or "Common Shares") and (ii)
Employee shall be granted 25,000 options each quarter of the fiscal year
beginning on the Employment Commencement Date for four quarters (a total of
100,000 options) based on quarterly goals as reasonably determined by the Chief
Executive Officer of the Company (the "Subsequent Options"). Subject to
accelerated vesting as provided
<PAGE>
elsewhere in this Agreement, the Common Shares (or restricted stock subject
thereto) shall be vested with respect to 25,000 Common Shares on the Employment
Commencement Date, shall vest as to an additional 50,000 Common Shares upon the
date that is six months following the Employment Commencement Date and shall
vest as to an additional 6.0714% of the Common Shares originally subject to the
Option each full three months thereafter, so as to be 100% vested on the date
that is four years after the Employment Commencement Date. In the event of an
IPO, the Common Option (or restricted stock subject thereto) shall accelerate
vesting as to 7.85% of the Common Shares originally subject to the Option, and
shall thereafter continue to vest at the same rate as prior to the IPO. The
Subsequent Options shall vest quarterly on a pro rata basis over a four year
period, except that the Subsequent Options shall be subject to accelerated
vesting as provided elsewhere in this Agreement. All vesting provided for in
this paragraph is subject to Employee remaining an employee, consultant or
member of the Board of the Company on each such vesting date. The Common Option
and Subsequent Options may be exercised prior to its vesting, including by means
of a promissory note bearing the lowest rate which will not subject Employee to
recognizing imputed taxable income, subject to Employee entering into the
Company's form of Restricted Stock Purchase Agreement which provides the Company
with the right to purchase unvested shares at the original exercise price in the
event of Employee's termination. The Common Option and Subsequent Options shall
be subject to the terms and conditions of the Company's 1998 Stock Plan and the
stock option agreements. To the extent the Common Option has not been exercised
prior to the IPO, following the IPO the Company agrees to promptly register the
exercise and potential resale of the shares subject to the Common Option on a
Form S-8 with the Securities and Exchange Commission, and to maintain the
effectiveness of such registration statement during the term of this Agreement
and for 12 months thereafter.
4. Other Benefits. Employee shall be entitled to participate in the
--------------
employee benefit plans and programs of the Company, if any, to the extent that
her position, tenure, salary, age, health and other qualifications make her
eligible to participate in such plans or programs, subject to the rules and
regulations applicable thereto, on the same terms as other senior executives of
the Company, including without limitation, any car program generally available
to senior executives. The Company reserves the right to cancel or change the
benefit plans and programs it offers to its employees at any time.
5. Expenses. The Company shall reimburse Employee for reasonable travel,
--------
entertainment or other expenses incurred by Employee in the furtherance of or in
connection with the performance of Employee's duties hereunder, in accordance
with the Company's expense reimbursement policy as in effect from time to time.
6. Confidential Information. Employee agrees to maintain the
------------------------
confidentiality of all confidential and proprietary information of the Company
and agrees to enter into the CarsDirect.com, Inc. Employment, Confidential
Information and Inventions Assignment Agreement.
7. Severance. Employee agrees that notwithstanding the term of this
---------
Agreement set forth in Section 1, her sole remedy for termination of employment
under this Agreement are the severance benefits and payments provided for in
this Section 7.
-2-
<PAGE>
(a) Upon Involuntary Termination Without Cause in Year 1. Subject to
----------------------------------------------------
Section 8, in the event that Employee's employment is terminated by the Company
for reasons other than "Cause" (as defined in Section 9) prior to the first
anniversary of the Employment Commencement Date, then Employee shall be entitled
to receive the following benefits from the Company:
(i) Salary Continuation. Continuation of Employee's Base Salary
-------------------
(as defined in Section 9) for a period of nine (9) months following Employee's
termination of employment ("9 Months' Severance Pay"). All such severance
payments shall be paid in accordance with the Company's normal payroll
practices. Such continuation of Base Salary shall be in lieu of any and all
severance payments which Employee is entitled to receive on the date of
Employee's termination of employment pursuant to any Company severance and
benefit plans and practices or pursuant to other agreements with the Company.
(ii) Benefits. The Company shall pay Employee's premiums for
--------
continuation coverage under title X of the Consolidated Budget Reconciliation
Act of 1985 ("COBRA") for health, dental and vision insurance in the same
proportion as it pays group health, dental and vision insurance premiums for
active senior executives (i.e., the Company and the Employee shall pay the same
portion of the total premiums as if Employee was an active senior executive). If
such coverage included Employee's dependents immediately prior to Employee's
termination, such dependents shall also be covered. The Company shall pay such
premium amounts until the earlier of (i) nine (9) months following the date of
Employee's termination, or (ii) the date upon which Employee and her covered
dependents become covered under another employer's group health, dental and
vision insurance plans. For purposes of COBRA, the date of the qualifying event
for Employee and her dependents shall be the date of Employee's termination of
employment by the Company. The benefits specified under this paragraph are
referred to herein as "9 Months' COBRA Benefits."
(iii) Stock Option Vesting Acceleration. The Common Stock Option
---------------------------------
and Subsequent Options (or restricted stock subject thereto) shall have its
vesting accelerated so as to be vested as to 35% of the Common Shares originally
subject thereto.
(iv) Post-Termination Option Exercisability. The post-
--------------------------------------
termination exercise period with respect to vested shares under the Common Stock
Option and Subsequent Options shall automatically be extended to 12 months
following the date of termination of employment (the "12-Month Post Termination
Exercisability Benefit").
(b) Other Termination During Year 1. If, during the period ending on
-------------------------------
the first anniversary of the Employment Commencement Date, Employee's employment
is terminated by the Company for Cause, or by Employee for any reason (except
during the one year period following a "Change of Control," as defined herein,
which is covered by Section 7(e) hereof), including death or disability, then
Employee shall not be entitled to receive severance or other benefits pursuant
to Section 7(a), but may be eligible for those benefits (if any) as may then be
established under the
-3-
<PAGE>
Company's severance and benefit plans and policies existing at the time of such
termination, or with respect to death or disability, as specified under Sections
10 and 11 hereof.
(c) Upon Involuntary Termination Without Cause After Year 1 (Except
---------------------------------------------------------------
During the One Year Period Following a Change of Control). Subject to Section 8,
- ---------------------------------------------------------
in the event that Employee's employment is terminated by the Company for reasons
other than "Cause" (as defined herein) on or after the first anniversary of the
Employment Commencement Date (except during the one year period following a
"Change of Control," as such term is defined herein), then Employee shall be
entitled to receive (i) 9 Months' Severance Pay, (ii) 9 Months' COBRA Benefits,
(iii) the 12-Month Post-Termination Exercisability Benefit, and (iv) accelerated
vesting with respect to the shares (including restricted stock) covered by the
Common Option and Subsequent Options to the same extent as if Employee had
remained employed with the Company through the end of the quarter (with respect
to the Employment Commencement Date), and in no event shall it be vested on the
date of such termination of employment, in total, as to less than 35% of the
shares originally subject to such options.
(d) Other Termination Following Year 1 (Except During the One Year
--------------------------------------------------------------
Period Following a Change of Control). If, following the first anniversary of
- -------------------------------------
the Employment Commencement Date and during the term of this Agreement (except
during the one year period following a Change of Control, which is covered in
Section 7(e) hereof), Employee's employment is terminated by the Company for
Cause, or by Employee for any reason, including death or disability, then
Employee shall not be entitled to receive severance or other benefits pursuant
to Section 7(c), but may be eligible for those benefits (if any) as may then be
established under the Company's severance and benefit plans and policies
existing at the time of such termination, or with respect to death or
disability, as specified under Sections 10 and 11 hereof.
(e) Within 1 Year Following a Change of Control, Upon Involuntary
-------------------------------------------------------------
Termination Without Cause or a Voluntary Resignation Within 60 days of a
- ------------------------------------------------------------------------
Constructive Termination. Subject to Section 8, in the event that Employee's
- ------------------------
employment is terminated by the Company for reasons other than Cause or by
Employee within 60 days following the occurrence of a "Constructive Termination"
(as defined in Section 9) during the period commencing upon a Change of Control
and ending one year later, then Employee shall be entitled to receive (i) 9
Months' Severance Pay, (ii) 9 Months' COBRA Benefits, (iii) the 12-Month Post-
Termination Exercisability Benefit, and (iv) accelerated vesting with respect to
50% of the shares (including restricted stock) covered by the Common Option and
the Subsequent Options that are not vested on the date of termination of
employment.
(f) Other Termination During the One Year Period Following a Change
---------------------------------------------------------------
of Control. If, during the one year period following a Change of Control,
- ----------
Employee's employment is terminated by the Company for Cause, or by Employee for
any reason, other than within 60 days following a Constructive Termination, or
by virtue of Employee's death or disability, then Employee shall not be entitled
to receive severance or other benefits pursuant to Section 7, but may be
eligible for those benefits (if any) as may then be established under the
Company's severance and benefit
-4-
<PAGE>
plans and policies existing at the time of such termination, or with respect to
death or disability, as specified under Sections 10 and 11 hereof.
(g) No Mitigation. Employee shall not be required to mitigate the
-------------
value of any severance payments or benefits contemplated by Section 7 of this
Agreement, nor shall any such payments or benefits be reduced by any earnings or
benefits that the Employee may receive from any other source.
8. Covenant Not to Compete. In the event Employee breaches the provisions
-----------------------
of this Section 8, the severance benefits under Section 7 above shall
immediately terminate and Employee shall cease to earn or be entitled to any
additional payments under this Agreement.
(a) Covenant Not to Compete. Until the end of the nine month period
-----------------------
following the date of Employee's termination triggering the provision of
severance benefits under Section 7 above, Employee will not directly or
indirectly engage in (whether as an employee, consultant, proprietor, partner,
director or otherwise), or have any ownership interest in, or participate in the
financing, operation, management or control of, any person, firm, corporation or
business that engages or participates anywhere in the world in selling
automobiles on the Internet. Ownership of less than 3% of the outstanding voting
stock of a publicly traded corporation will not constitute a violation of this
provision.
(b) Representations. The parties intend that the covenant contained
---------------
in Section 8(a) shall be construed as a series of separate covenants, one for
each county, city and state (or analogous entity) and country of the world. If,
in any judicial proceeding, a court shall refuse to enforce any of the separate
covenants, or any part thereof, then such unenforceable covenant, or such part
thereof, shall be deemed eliminated from this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining separate covenants,
or portions thereof, to be enforced.
(c) Reformation. In the event that the provisions of this Section 8
-----------
should ever be deemed to exceed the time or geographic limitations, or scope of
this covenant, permitted by applicable law, then such provisions shall be
reformed to the maximum time or geographic limitations, as the case may be,
permitted by applicable laws.
(d) Reasonableness of Covenants. Employee represents that she (i) is
---------------------------
familiar with the covenants not to compete, and (ii) is fully aware of her
obligations hereunder, including, without limitation, the reasonableness of the
length of time, scope and geographic coverage of these covenants.
9. Definitions.
-----------
(a) Base Salary. "Base Salary" shall mean Employee's annual Company
-----------
salary at the rate in effect immediately preceding Employee's date of
termination with the Company.
(b) Cause. "Cause" shall mean (i) Employee's commission of an act of
-----
fraud or embezzlement upon the Company; (ii) Employee's being convicted of or
pleading guilty or
-5-
<PAGE>
nolo contendere to a felony involving fraud, dishonesty or moral turpitude,
(iii) Employee's willful and continued failure to perform substantially
Employee's material duties with the Company (other than failure resulting from
incapacity due to physical or mental illness) which is not remedied in a
reasonable period of time after written demand for substantial performance is
delivered to Employee by the Board of Directors which specifically identifies
the manner in which the Board of Directors believes Employee has not
substantially performed her duties; provided, however, that with respect to
clause (iii), such failure shall not constitute Cause if it is cured by Employee
within thirty (30) days following delivery to Employee of a written explanation
specifying the basis for the Company's beliefs with respect to such clause.
(c) Change of Control. "Change of Control" shall mean (i) the
-----------------
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; (ii) the consummation of the sale or disposition by the Company
of all or substantially all the Company's assets; or (iii) a change in the
composition of the Board occurring within a two-year period, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors""shall mean directors who either (A) are directors of the Company as
of the date upon which this Agreement was entered into, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of those directors whose election or nomination was not in connection
with any transaction described in subsections (i) or (ii) above, or in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company
(d) Constructive Termination. "Constructive Termination" shall mean
------------------------
(i) the assignment to Employee of duties not commensurate with her status as
Chief Operating Officer, or any material reduction of the Employee's duties,
authority or responsibilities or any reduction, whether material or not, in
Employee's title, relative to the Employee's duties, authority, responsibilities
or title as in effect immediately prior to such reduction, except if agreed to
in writing by the Employee; provided, however, that a reduction in duties,
title, authority or responsibilities solely by virtue of the consummation of a
"Change of Control," (for example, if the Company becomes a division of the
acquiring company in a Change of Control and Employee remains Chief Operating
Officer of the division of and is not made Chief Operating Officer of the
Acquirer shall not by itself constitute a "Constructive Termination" unless,
notwithstanding the title of divisional Chief Operating Officer, there is a
material reduction of Employee's duties, authority or responsibilities with
respect to the division, whether material or not, relative to Employees duties,
authority and responsibilities as in effect prior to such reduction), (ii) any
breach by the Company of the terms of this Agreement, (iii) any reduction in
Employee's compensation, including, without limitation, a reduction in Base
Salary, or (iv) the relocation of the Employee to a facility or a location more
than fifty (50) miles from the Employee's then present location, without the
Employee's written consent; provided, however, that such actions shall not
constitute Constructive Termination if they are cured by the Company within
thirty (30) days following delivery to the Company of a
-6-
<PAGE>
written explanation specifying the basis for the Employee's beliefs with respect
to such Constructive Termination events.
10. (a) Total Disability of Employee. Upon Employee's becoming
----------------------------
permanently and totally disabled (as defined below) during the term of this
Agreement, employment hereunder shall automatically terminate, all payments of
compensation by the Company to Employee hereunder shall immediately terminate
(except as to amounts already earned) and all vesting of the Employee's Common
and Subsequent Options and restricted stock shall immediately cease; provided,
however, that upon the date of such termination of employment the Common and
Subsequent Options shall have their vesting accelerated to the same extent as
they would have vested had Employee remained employed by the Company through the
date of the next anniversary of the Employment Commencement Date, and in no
event shall they be vested on the date of termination of employment, in total,
as to less than 35% of the shares originally subject to such options. Moreover,
the Company agrees, at its own expense, to maintain a disability policy covering
all executives. Such policy will include a differentiated "top tier" coverage
feature which will provide for a higher payment level for the Employee than for
other executives in the Company. For the purposes of this Agreement, disability
shall mean the absence of Employee from her duties with the Company on a full-
time basis for a period of six months as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to Employee or her legal
representative (such agreement as to acceptability not be withheld
unreasonably).
(b) Temporary Disability of Employee. In the event that Employee
--------------------------------
becomes temporarily disabled, Employee's salary and benefits and vesting shall
continue for a period of nine weeks, if after such nine week period Employee
remains temporarily disabled, the Board of Directors shall determine whether
Employee has become totally disabled and subject to Section 10 hereof.
11. Death of Employee. If Employee dies while employed by the Company
-----------------
pursuant to this Agreement, all payments of compensation by the Company to
Employee hereunder shall immediately terminate (except as to amounts already
earned, which shall be paid to her estate) and all vesting of the Employee's
Stock Options and Restricted Stock shall immediately cease. Employee shall be
reimbursed for premiums paid on a life insurance policy for $1.75 million
dollars payable to beneficiaries as designated by Employee.
12. Arbitration.
-----------
(a) Employee agrees that any dispute or controversy arising out of,
relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof, shall be
settled by expedited, binding arbitration to be held in Los Angeles, California
in accordance with the National Rules for the Resolution of Employment Disputes
then in effect of the American Arbitration Association (the "Rules"). The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in
-7-
<PAGE>
any court having jurisdiction. The Company agrees to advance Employee all costs,
including attorney's fees, relating to such arbitration. Employee agrees to
reimburse the Company for such costs in the event the arbitrator determines that
the Company has not breached this Agreement in such a manner as to give rise to
financial damages to the Employee in an amount greater than $5,000.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. The Employee hereby consents
to the personal jurisdiction of the state and federal courts located in
California for any action or proceeding arising from or relating to this
Agreement or relating to any arbitration in which the parties are participants.
(c) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, DISCRIMINATION CLAIMS.
13. Right to Advice of Counsel. Employee acknowledges that he has had the
--------------------------
right to consult with counsel and is fully aware of her rights and obligations
under this Agreement.
14. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company," as applicable, shall include any successor to the Company's business
and/or assets which executes and delivers the assumption agreement described in
this subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Employee's Successors. Without the written consent of the
---------------------
Company, Employee shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
-8-
<PAGE>
15. Notice Clause. All notices, requests, demands and other communications
-------------
called for hereunder shall be in writing and shall be deemed given if (i)
delivered personally or by facsimile, (ii) one (1) day after being sent by
Federal Express or a similar commercial overnight service, or (iii) three (3)
days after being mailed by registered or certified mail, return receipt
requested, prepaid and addressed to the parties or their successors in interest.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws, but not the choice of law rules,
of the state of California.
17. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement, or any terms hereof, shall not affect the validity or
enforceability of any other provision or term of this Agreement.
18. Integration. This Agreement, the Common Option agreement, the
-----------
Subsequent Option agreements and the Employment, Confidential Information and
Inventions Assignment Agreement represent the entire agreement and understanding
between the parties as to the subject matter herein and supersedes all prior or
contemporaneous agreements whether written or oral. No waiver, alteration, or
modification of any of the provisions of this Agreement shall be binding unless
in writing and signed by duly authorized representatives of the parties hereto.
19. Taxes. All payments made pursuant to this Agreement shall be subject
-----
to withholding of applicable income and employment taxes.
20. Legal Fee Reimbursement. The Company agrees to directly pay Employees
-----------------------
legal fees associated with reasonable entering into this Agreement up to $5,000
upon receiving invoices for such services.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officers, as of the day and year
first above written.
CARSDIRECT.COM, INC.
/s/ Robert N. Brisco
__________________________________
Robert Brisco
Chief Executive Officer
EMPLOYEE:
/s/ Christine Bucklin
__________________________________
Christine Bucklin
-9-
<PAGE>
EXHIBIT 10.5
CARSDIRECT.COM, INC.
EMPLOYMENT AGREEMENT
This Agreement is entered into as of June 21, 1999 (the "Effective Date"),
by and between CarsDirect.com, Inc. a Delaware corporation (the "Company"), and
Frederick G. Silny ("Executive").
WHEREAS, the Company desires to retain the Executive as the Chief Financial
Officer and President of the Company, and Executive desires to perform such
service for the Company, on the terms and conditions as set forth herein;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually agreed by the
parties as follows:
1. Duties and Scope of Employment.
------------------------------
(a) Position. Executive shall be employed as Chief Financial Officer
--------
of the Company.
(b) Duties. During the term of the Executive's employment with the
------
Company, the Executive shall devote his full time, skill and attention to his
duties and responsibilities, which the Executive shall perform faithfully,
diligently and competently, and the Executive shall use his best efforts to
further the business of the Company. During the term of this Agreement,
Executive agrees not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board, except that this provision shall not be interpreted to
prohibit Executive from involvement in any charitable or community
activity/organization that he is currently involved in and that does not
materially interfere with his ability to perform his duties under this
Agreement.
2. At-Will Employment. Executive and the Company understand and
------------------
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Executive and the Company acknowledge that this employment
relationship may be terminated at any time with or without notice, with or
without good cause or for any or no cause, at the option either of the Company
or Executive.
3. Compensation, Fringe Benefits and Stock Options.
-----------------------------------------------
(a) Base Salary. While employed by the Company pursuant to this
-----------
Agreement, the Company shall pay the Executive as compensation for his service a
base salary at the annualized rate of $150,000 (the "Base Salary") which
amount shall be reviewed annually at a minimum by the Board. Such salary shall
be paid periodically in accordance with normal Company payroll practices
<PAGE>
and subject to the usual and applicable required withholding. Executive
understands and agrees that neither his job performance nor promotions,
commendations, bonuses or the like from the Company give rise to or in any way
serve as the basis for modification, amendment, or extension, by implication or
otherwise, of this Agreement.
(b) Cash Bonus. In addition to the Base Salary, the Board may, in its
----------
discretion, award the Executive, during the Executive's employment with the
Company pursuant to this Agreement, a cash bonus less applicable withholding,
following the Board's review of Executive's employment on an annual basis at a
minimum.
(c) Executive Benefits. During his employment hereunder, Executive
------------------
shall be eligible to participate in the employee benefit plans currently and
hereafter maintained by the Company of general applicability to other senior
executives of the Company. The Company reserves the right to cancel or change
the benefit plans and programs it offers to its employees at any time.
(d) Stock Options.
-------------
(i) Initial Grant. Subject to approval by the Board of
-------------
Directors of the Company, Executive shall be granted a Nonstatutory Stock Option
(as defined in the Company's 1998 Stock Plan). The Option shall consist of
401,606 shares of the Company's then issued and outstanding shares of Common
Stock at an exercise price equal to the fair market value of the shares on the
date of grant. The Option shall vest as to 5% of the shares immediately upon
grant; 10% 6 months from the Vesting Commencement Date; the remaining unvested
shares shall vest on a pro rata basis per quarter over the next 42 months, so
that 401,606 shares subject to the Option shall be fully vested four years from
the date of grant, subject to Executive continuing to render services to the
Company as an employee. In all other respects, the Option shall be subject to
the terms, definitions and provisions of the Company's 1998 Stock Option Plan
and the Stock Option Agreement by and between Executive and the Company, all of
which documents are incorporated herein by reference.
(ii) Right to Purchase Additional Shares of Common Stock.
---------------------------------------------------
Subject to approval by the Board of Directors of the Company, Executive shall be
granted a warrant to purchase 50,000 shares of Common Stock of the Company. The
exercise price of the warrant shall be $2.33 per share and the warrant shall be
exercisable from the date on which the Board of Directors of the Company
determines that the fair market value of the Common Stock of the Company is
equal to or greater than $2.33 per share. Subject to approval by the Board of
Directors of the Company, Executive shall also be granted an option to purchase
an additional 50,000 shares of Common Stock of the Company at $2.33 per share,
which warrant shall be exercisable upon the first to occur of (i) the first sale
of Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (ii) a Change of
Control (as defined below); (iii) an Involuntary Termination (as defined below)
of Executive within 12 months of the appointment of a new President or Chief
Executive Officer of the Company or (iv) five years following the date hereof
-2-
<PAGE>
Acceleration. Upon the occurrence of (i) a "Change of Control" (as defined
------------
below) or (ii) the appointment of a new President or Chief Executive Officer of
the Company, which appointment is followed within twelve (12) months by an
"Involuntary Termination" (as defined below), 50% of the unvested portion of the
Option held by the Executive shall immediately vest and become exercisable in
full. For purposes of this Agreement, "Change of Control" shall mean (i) the
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or resulting entity) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving or resulting entity outstanding immediately after
such merger or consolidation; or (ii) the consummation of the sale or
disposition by the Company of a or substantially all the Company's assets. For
purposes of this Agreement, "Involuntary Termination" shall mean termination of
Executive's employment with the Company immediately following any of the
following: (i) a reduction by the Company of the Executive's base salary as in
effect immediately prior to such reduction; (ii) a material reduction by the
Company in the kind or level of employee benefits to which the Executive is
entitled immediately prior to such reduction with the result that the
Executive's overall benefits package is significantly reduced; (iii) the
material breach by the Company of a material provision of this Agreement which
is not cured or waived by Executive within thirty (30) days following written
notice thereof to the Company; or (iii) any purported termination of the
Executive by the Company which is not effected for "Cause" (as defined below).
For purposes of this Agreement, "Cause" shall mean (i) any act of personal
dishonesty taken by the Executive in connection with the his responsibilities to
the Company which is intended to result in substantial personal enrichment of
the Executive, (ii) Executive's conviction of a felony which the Board
reasonably believes has had or will have a material detrimental effect on the
Company's reputation or business, (iii) a willful act by the Executive which
constitutes misconduct and is injurious to the Company, and (iv) continued
willful violations by the Executive of his obligations to the Company after
there has been delivered to the Executive a written demand for performance from
the Company which describes the basis for the Company's belief that the
Executive has not substantially performed his duties.
4. Expenses. The Company will pay or reimburse Executive for reasonable
--------
travel, entertainment or other expenses incurred by Executive in the furtherance
of or in connection with the performance of Executive's duties hereunder in
accordance with the Company's established policies.
5. Confidential Information. Executive agrees to continue to maintain the
------------------------
confidentiality of all confidential and proprietary information of the Company
and agrees, if he has not done so already, to enter into the CarsDirect.com,
Inc. Confidential Information and Invention Assignment Agreement.
6. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or
-3-
<PAGE>
otherwise, directly or indirectly, acquires all or substantially all of the
assets or business of the Company. None of the rights of Executive to receive
any form of compensation payable pursuant to this Agreement shall be assignable
or transferable except through a testamentary disposition or by the laws of
descent. Any attempted assignment, transfer, conveyance or other disposition
(other than as aforesaid) of any interest in the rights of Executive to receive
any form of compensation hereunder shall be null and void.
7. Notices. All notices, requests, demands and other communications
-------
called for hereunder shall be in writing and shall be deemed given if delivered
personally, one (1) day after mailing via Federal Express overnight or a similar
overnight delivery service, or three (3) days after being mailed by registered
or certified mail, return receipt requested, prepaid and addressed to the
parties or their successors in interest at the following addresses, or at such
other addresses as the parties may designate by written notice in the manner
aforesaid:
If to the Company: CarsDirect.com, Inc.
4312 Woodman Avenue, 3rd Floor
Sherman Oaks, California 94123
If to Executive: Frederick G. Silny
2247 W. Silverlake Drive
Los Angeles, California 90039
8. Severability. In the event that any provision hereof becomes or
------------
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
9. Entire Agreement. This Agreement, the Stock Option Plan, the Option
----------------
Agreement, and the Company's Confidential Information and Invention Assignment
Agreement represent the entire agreement and understanding between the Company
and Executive concerning Executive's employment relationship with the Company,
and supersede in their entirety any and all prior agreements and understandings
concerning Executive's employment relationship with the Company.
10. Arbitration and Equitable Relief.
--------------------------------
(a) Except as provided in Section 10(e) below, Executive agrees that
any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof shall be settled by arbitration, to the extent
permitted by law, to be held in Los Angeles County, California in accordance
with the National Rules for the Resolution of Employment Disputes then in effect
of the American Arbitration Association (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of the
arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction.
-4-
<PAGE>
(b) The arbitrator shall apply California law to the merits of any
dispute or claim, without reference to rules of conflict of law. Executive
hereby expressly consents to the personal jurisdiction of the state and federal
courts of Los Angeles County located in California for any action or proceeding
arising from or relating to this Agreement and/or relating to any arbitration in
which the parties are participants.
(c) Executive understands that nothing in this Section modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(d) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 10, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION TO THE EXTENT PERMITTED BY
LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT
TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL
ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO,
THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION;
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO THE CIVIL RIGHTS ACT OF 1991,
THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH
DISABILITIES ACT OF 1990, AND THE FAIR LABOR STANDARDS ACT;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
(e) THE PARTIES MAY APPLY TO ANY COURT OF COMPETENT JURISDICTION FOR A
TEMPORARY RESTRAINING ORDER, PRELIMINARY INJUNCTION, OR OTHER INTERIM OR
CONSERVATORY RELIEF, AS NECESSARY, WITHOUT BREACH OF THIS ARBITRATION AGREEMENT
AND WITHOUT ABRIDGMENT OF THE POWERS OF THE ARBITRATOR.
-5-
<PAGE>
11. No Oral Modification, Cancellation or Discharge. This Agreement may
-----------------------------------------------
only be amended, canceled or discharged in writing signed by Executive and the
Company.
12. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of the State of California.
13. Acknowledgment. Executive acknowledges that he has had the
--------------
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement,
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below.
CARSDIRECT.COM, INC.
By: /s/ Scott Painter
-------------------------------------
Name: Scott Painter
-----------------------------------
Title: CEO
----------------------------------
/s/ Frederick G. Silny
----------------------------------------
Frederick G. Silny
-6-
<PAGE>
EXHIBIT 10.6
CARSDIRECT.COM, INC.
EMPLOYMENT AGREEMENT
Amended & Restated Effective as of September 30, 1999
This amended and restated Agreement is entered into as of September 30,
1999 (the "Effective Date"), between and among CarsDirect.com, Inc., a Delaware
corporation (the "Company"), Scott Painter ("Executive") and Bill Gross'
idealab! ("idealab!") (collectively, the "Parties").
WHEREAS, idealab! and Executive entered into a Consulting Agreement dated
December 29, 1998 (the "Consulting Agreement"); and
WHEREAS, the Company and Executive have entered into an Employment
Agreement dated as of January 1, 1999 (the "Original Employment Agreement"); and
WHEREAS, a dispute has arisen regarding the Parties' continuing obligations
and therefore the Parties desire to amend and restate the Original Employment
Agreement as set forth herein (the "Amended and Restated Employment Agreement");
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually agreed by the
parties as follows:
1. Duties and Scope of Employment.
------------------------------
(a) Position. Prior to the CEO Date (as defined herein), Executive
--------
shall be employed as Chief Executive Officer and President of the Company;
following the CEO Date, Executive shall be employed as Vice Chairman and Co-
Founder of the Company. The "CEO Date" shall be the date upon which a
replacement Chief Executive Officer (Executive's successor) approved by a
majority of the Board of Directors officially begins his/her duties as Chief
Executive Officer of the Company.
(b) Duties. During the term of the Executive's employment with the
------
Company as Co-Founder, the Executive shall devote his full time, skill and
attention to his duties and responsibilities, which the Executive shall perform
faithfully, diligently and competently, and the Executive shall use his best
efforts to further the business of the Company. While he is employed by the
Company as Co-Founder, Executive agrees not to actively engage in any other
employment, occupation or consulting activity (other than time spent and
responsibilities as a board member and principal of Vision, Inc.) for any direct
or indirect remuneration without the prior approval of the Board.
2. At-Will Employment. Executive and the Company understand and
------------------
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Executive and the
<PAGE>
Company acknowledge that this employment relationship may be terminated at any
time with or without notice, with or without good cause or for any or no cause,
at the option either of the Company or Executive.
3. Compensation, Fringe Benefits and Stock Options.
-----------------------------------------------
(a) Base Salary. While employed by the Company pursuant to this
-----------
Amended and Restated Employment Agreement on and after the Effective Date, the
Company shall pay the Executive as compensation for his services a base salary
at the annualized rate of $165,000 (the "Base Salary") which amount shall be
reviewed annually at a minimum by the Board. Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual and applicable required withholding. Executive understands and agrees
that neither his job performance nor promotions, commendations, bonuses or the
like from the Company give rise to or in any way serve as the basis for
modification, amendment, or extension, by implication or otherwise, of this
Amended and Restated Employment Agreement.
(b) Signing Bonus. On the Effective Date, the Company shall pay
-------------
Executive $75,000, less applicable withholding, as a signing bonus.
(c) June 30, 2000 IPO and Retention Bonus. If (i) the Company's
-------------------------------------
initial public offering of its equity securities pursuant to a registration
statement on Form S-1 (or its successor form) has been declared effective by the
Securities and Exchange Commission (an "IPO") on or before June 30, 2000, (ii)
Executive has either (A) remained as a member of the Board of Directors through
June 30, 2000, or (B) has been removed from Board by the Company's stockholders
on or prior to June 30, 2000 without cause pursuant to and within the meaning of
Section 141(k) of the Delaware General Corporation Law (a "Board Removal Without
Cause"), and (iii) Executive executes a release of claims substantially similar
to that contained in Section 16 hereof (a "Release of Claims"), then Executive
shall receive a bonus, payable on June 30, 2000, equal to one times the Base
Salary (as defined in Section 3(a) hereof, i.e., a total of $165,000), less
applicable withholding (the "IPO and Retention Bonus"). Executive shall not be
entitled to any payment hereunder for partial performance, e.g., the IPO occurs
on July 1, 2000 and all the other conditions for payment have been satisfied.
(d) Executive Benefits. During his employment hereunder, Executive
------------------
shall be eligible to participate in the employee benefit plans currently and
hereafter maintained by the Company of general applicability to other senior
executives of the Company. The Company reserves the right to cancel or change
the benefit plans and programs it offers to its employees at any time.
(e) Stock Options.
-------------
(i) Existing Grants. Executive has been granted stock options
---------------
as follows:
2
<PAGE>
(A) First Option. A stock option covering 300,000 shares of
------------
Company common stock with an exercise price equal to $0.001 per share (the
"First Option"). The First Option has a grant date of October 20, 1998 and is
100% vested as of the Effective Date. Executive has exercised the First Option
and the Company agrees to issue certificates representing the shares issued to
Executive upon such exercise promptly following the Effective Date.
(B) Second Option. A stock option covering 500,000 shares
-------------
of Company common stock with an exercise price equal to $0.001 per share (the
"Second Option"). The Second Option has a grant date of February 8, 1999 and a
vesting commencement date of January 1, 1999. As amended by this Amended and
Restated Employment Agreement, the Second Option shall become vested as to fifty
percent (50%) of the then unvested shares subject to the Second Option on the
CEO Date, and the remainder of the unvested shares subject to the Second Option
shall vest on a pro rata daily basis for three years commencing on the CEO Date,
so as to be 100% vested on the third anniversary of the CEO Date, subject to
Executive continuing to render services to the Company as an employee or
director on such vesting dates; provided, however, that in the event of a Change
of Control of the Company (as defined below) occurring while Executive is an
employee or director of the Company, the vesting of the Second Option will
accelerate and the Second Option shall become vested as to 50% of the then
unvested shares subject to the Second Option immediately prior to such Change of
Control. "Change of Control" is defined as (i) the consummation of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (ii) the
consummation of the sale or disposition by the Company of all or substantially
all of the Company's assets.
(C) Third Option. A stock option covering 750,000 shares of
------------
Company common stock with an exercise price equal to $0.35 per share (the "Third
Option" and, together with the First Option and the Second Option, the
"Options"). The Third Option has a grant date of June 23, 1999. As amended by
this Amended and Restated Employment Agreement, the Shares subject to the Third
Option vest daily on a ratable basis over a four year period; provided, however,
that upon the CEO date, the Third Option vesting shall accelerate so that twenty
percent (20%) of the shares originally subject to the Third Option are vested on
the CEO Date and the remaining eighty percent (80%) of the shares originally
subject to the Third Option shall thereafter vest on a pro rata daily basis
through June 23, 2003, so that one hundred percent (100%) of the shares subject
to the Third Option shall be fully vested on June 23, 2003, subject to Executive
continuing to render services to the Company as an employee or director on such
vesting dates.
3
<PAGE>
(ii) Other Terms and Conditions. In all other respects, the
--------------------------
First, Second and Third Options are subject to the terms, definitions and
provisions of the Company's 1998 Stock Plan and the stock option agreements by
and between Executive and the Company, all of which documents are incorporated
herein by reference and are subject to accelerated vesting as set forth
elsewhere herein.
(iii) Right to Maintain. On an after the Effective Date,
-----------------
Executive shall be deemed a "Qualified Purchaser" under the Company's Third
Amended Investor Rights Agreement, as amended from time to time.
(iv) Termination as Co-Founder Without Cause. In the event
---------------------------------------
Executive is terminated as Co-Founder without Cause (as defined below), then,
subject to Executive executing a new Release of Claims, the Company shall make
continued payments of Base Salary, less applicable withholding, to Executive for
nine months following the date of such termination. For purposes of this
paragraph (but not for purposes of a Board Removal Without Cause under Sections
3(c) and 3(e)(v) hereof, which shall be made with reference to Section 141(k) of
the Delaware General Corporation Law), "Cause" shall mean (i) a material act of
dishonesty made by Executive in connection with Executive's fiduciary
responsibilities as an employee and which materially affects the Company, (ii)
Executive's conviction of, or plea of nolo contendere to, a felony, or (iii)
---- ----------
Executive's failure to perform his material employment duties if such failure is
not remedied within ninety (90) days following receipt by Executive of written
notice from the Board specifying the facts relating to the failure. A change of
Executive's title as Co-Founder (but not as Vice-Chairman) or material
modification of Executive's duties as Co-Founder (but not as Vice-Chairman)
shall be deemed for purposes of this section to be a termination without Cause.
(v) Board Removal Without Cause Prior to an IPO; Failure to
-------------------------------------------------------
Nominate to Board Following IPO. In the event Executive is (i) subject to a
- -------------------------------
Board Removal Without Cause prior to an IPO, or (ii) if, following an IPO, the
Board fails to nominate Executive for re-election to the Board at any annual
meeting of the Company's stockholders upon which Executive's tenure as a Board
member would otherwise expire (except if Executive has voluntarily resigned from
the Board or elects not to stand for re-election), then, subject to Executive
executing a new Release of Claims, the Company agrees to accelerate the vesting
and exercisability of Executive's then outstanding unvested Options, so that
fifty percent (50%) of the unvested shares subject to each such Option shall be
fully vested and exercisable.
4. Loan. Executive has received a $75,000 loan from the Company at a 6%
----
simple interest rate (the "Loan"). The Loan has a repayment term of two years
and is secured by 75,000 shares of Common Stock of the Company (the "Escrow
Shares"). In the event that the Executive voluntarily terminates his employment
with the Company or is terminated for "Cause" (as defined below), the Loan shall
become immediately payable.
4
<PAGE>
5. Expenses. The Company will pay or reimburse Executive for reasonable
--------
travel, entertainment or other expenses incurred by Executive in the furtherance
of or in connection with the performance of Executive's duties hereunder in
accordance with the Company's established policies.
6. Confidential Information. Executive agrees to continue to maintain the
------------------------
confidentiality of all confidential and proprietary information of the Company
and agrees, if he has not done so already, to enter into the CarsDirect.com,
Inc. Employment, Confidential Information and Inventions Assignment Agreement.
7. Assignment. This Amended and Restated Employment Agreement shall be
----------
binding upon and inure to the benefit of (a) the heirs, executors and legal
representatives of Executive upon Executive's death and (b) any successor of the
Company. Any such successor of the Company shall be deemed substituted for the
Company under the terms of this Amended and Restated Employment Agreement for
all purposes. As used herein, "successor" shall include any person, firm,
corporation or other business entity which at any time, whether by purchase,
merger or otherwise, directly or indirectly, acquires all or substantially all
of the assets or business of the Company. None of the rights of Executive to
receive any form of compensation payable pursuant to this Amended and Restated
Employment Agreement shall be assignable or transferable except through a
testamentary disposition or by the laws of descent. Any attempted assignment,
transfer, conveyance or other disposition (other than as aforesaid) of any
interest in the rights of Executive to receive any form of compensation
hereunder shall be null and void.
8. Notices. All notices, requests, demands and other communications
-------
called for hereunder shall be in writing and shall be deemed given if delivered
personally, one (1) day after mailing via Federal Express overnight or a similar
overnight delivery service, or three (3) days after being mailed by registered
or certified mail, return receipt requested, prepaid and addressed to the
parties or their successors in interest at the following addresses, or at such
other addresses as the parties may designate by written notice in the manner
aforesaid:
If to the Company: CarsDirect.com, Inc.
4312 Woodman Avenue
Sherman Oaks, California 91423
Attn: General Counsel
----
If to idealab!: Bill Gross' idealab!
130 West Union Street
Pasadena, California 91103
Attn: General Counsel
----
If to Executive: Scott Painter
10048 Cielo Drive
Beverly Hills, California 90210
5
<PAGE>
9. Severability. In the event that any provision hereof becomes or is
------------
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Amended and Restated Employment Agreement shall continue in full
force and effect without said provision.
10. Entire Agreement. This Amended and Restated Employment Agreement, the
----------------
Stock Option Plan, the First, Second and Third Option agreements, and the
Company's Employment, Confidential Information and Invention Assignment
Agreement represent the entire agreement and understanding between the Company
and Executive concerning Executive's employment relationship with the Company,
and supersede in their entirety any and all prior agreements and understandings
concerning Executive's employment relationship with the Company, including the
Original Employment Agreement. To the extent this Amended and Restated
Employment Agreement is inconsistent or conflicts with any other agreement
entered into between Executive and the Company, including the First, Second and
Third Option agreements, this Amended and Restated Employment Agreement shall
control.
11. Arbitration and Equitable Relief.
--------------------------------
(a) Except as provided in Section 11(e) below, Executive agrees that
any dispute or controversy arising out of, relating to, or in connection with
this Amended and Restated Employment Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof shall be settled by
arbitration, to the extent permitted by law, to be held in Los Angeles County,
California in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association (the
"Rules"). The arbitrator may grant injunctions or other relief in such dispute
or controversy. The decision of the arbitrator shall be final, conclusive and
binding on the parties to the arbitration. Judgment may be entered on the
arbitrator's decision in any court having jurisdiction.
(b) The arbitrator shall apply California law to the merits of any
dispute or claim, without reference to rules of conflict of law. Executive
hereby expressly consents to the personal jurisdiction of the state and federal
courts of Los Angeles County located in California for any action or proceeding
arising from or relating to this Amended and Restated Employment Agreement
and/or relating to any arbitration in which the parties are participants.
(c) Executive understands that nothing in this Section modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(d) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 11, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AMENDED AND RESTATED
EMPLOYMENT AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT
OF, RELATING TO, OR IN CONNECTION WITH THIS AMENDED AND RESTATED EMPLOYMENT
AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH,
6
<PAGE>
OR TERMINATION THEREOF TO BINDING ARBITRATION TO THE EXTENT PERMITTED BY LAW,
AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A
JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS
OF THE EMPLOYER/EXECUTIVE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE
FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR
PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL, STATE
OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO THE CIVIL RIGHTS ACT OF
1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH
DISABILITIES ACT OF 1990, AND THE FAIR LABOR STANDARDS ACT;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
(e) THE PARTIES MAY APPLY TO ANY COURT OF COMPETENT JURISDICTION FOR
A TEMPORARY RESTRAINING ORDER, PRELIMINARY INJUNCTION, OR OTHER INTERIM OR
CONSERVATORY RELIEF, AS NECESSARY, WITHOUT BREACH OF THIS ARBITRATION AGREEMENT
AND WITHOUT ABRIDGMENT OF THE POWERS OF THE ARBITRATOR.
12. No Oral Modification, Cancellation or Discharge. This Amended and
-----------------------------------------------
Restated Employment Agreement may only be amended, canceled or discharged in
writing signed by Executive and the Company.
13. Governing Law. This Amended and Restated Employment Agreement shall be
-------------
governed by the internal substantive laws, but not the choice of law rules, of
the State of California.
14. Corporate Action. The Company represents and warrants to Executive
----------------
that all necessary corporate action has been taken by the Company to execute,
deliver and perform this Amended and Restated Employment Agreement by the
Company.
7
<PAGE>
15. Consulting Agreement. Idealab! and Executive acknowledge and agree
--------------------
that idealab! has fully performed its obligations pursuant to the Consulting
Agreement and that the Consulting Agreement has terminated as of the Effective
Date. Executive acknowledges that amounts previously paid by idealab! constitute
its full and final payment obligations according to the Consulting Agreement,
and that Executive is not entitled to further compensation from idealab!
16. Release. Executive, in consideration for the mutual promises between
-------
the parties, hereby fully and unconditionally releases and forever discharges
Company and idealab! and any parent, subsidiary or affiliated entity, and all
persons acting by, through, under or in concert with them, and their respective
successors and assigns, from and against any and all claims, contentions, debts,
liabilities, demands, promises, agreements, costs, expenses (including but not
limited to attorneys' fees), damages, losses, suits, liens, actions or causes of
action, of whatever kind or nature, whether in law or equity and whether now
known or unknown, based on, arising out of, or in connection with Executive's
employment or consultation with Company or idealab!, except for claims resulting
from alleged breaches of the Amended and Restated Employment Agreement arising
after the date hereof.
(a) Waiver of Civil Code Section 1542. This release is intended
---------------------------------
to cover all claims or possible claims held by Executive, including but not
limited to those claims, demands, liabilities or causes of action arising out of
or related to Executive's employment or consultation with Company or idealab!,
whether the same are known, unknown, or hereinafter discovered or ascertained.
Executive acknowledges that he has been advised by legal counsel and is familiar
with the provisions of California Civil Code Section 1542, which provides as
follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
Executive, being aware of said Code Section, hereby expressly, knowingly and
intentionally waives any rights he may have thereunder, as well as under any
other statute or common law principles of similar effect.
(b) No Admission of Liability. This Amended and Restated Employment
-------------------------
Agreement is a compromise of disputed claims and does not in any way constitute
an admission by Company or idealab! of any liability or responsibility, past,
present or future, for the matters released by and through this Amended and
Restated Employment Agreement.
17. Confidentiality. Executive agrees that the terms of this Amended and
---------------
Restated Employment Agreement will remain confidential, and that he shall not
disclose the contents or terms of the Amended and Restated Employment Agreement
to any other person or entity, except to accountants, financial advisors,
attorneys and governmental agencies on a need-to-know basis and in order to
comply with applicable tax laws.
8
<PAGE>
18. Non-Solicitation; Non-Disparagement. In consideration for the benefits
-----------------------------------
Executive is to receive herein Executive agrees that he (i) will not, at any
time during the one year following his termination date, directly or indirectly
solicit any individuals to leave the Company's or idealab!'s employ for any
reason or interfere in any other manner with the employment relationships at the
time existing between the Company or idealab! and their current or prospective
employees, and (ii) will not disparage, criticize, defame or slander the
Company, idealab! or their employees.
19. Further Assurances. Each of the Company and Executive agrees to take
-------------------
promptly all actions necessary, proper or advisable or as the other may
reasonably request to fully carry out the intent and purpose of this Amended and
Restated Employment Agreement.
20. Representation by Counsel. Each of the Parties hereto acknowledge that
-------------------------
they have been represented by independent counsel of their choice throughout all
negotiations which preceded the execution of this Amended and Restated
Employment Agreement, and that this Amended and Restated Employment Agreement
has been executed with the consent and on the advice of such independent legal
counsel.
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Employment Agreement, effective as of the Effective Date.
9
<PAGE>
CARSDIRECT.COM, INC.
By: _______________________
Name: _____________________
Title: ____________________
BILL GROSS' IDEALAB!
________________________
Marcia Goodstein
Chief Operating Officer
EXECUTIVE
________________________
Scott Painter
10
<PAGE>
EXHIBIT 10.7
CARSDIRECT.COM, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of __________,
2000 by and between CarsDirect.com, Inc., a Delaware corporation (the
"Company"), and the person whose signature appears on the signature page
attached hereto ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, the Company and Indemnitee desire to continue to have in place the
additional protection provided by an indemnification agreement and to provide
indemnification and advancement of expenses to the Indemnitee to the maximum
extent permitted by Delaware law;
WHEREAS, the Company and Indemnitee desire to amend and restate any prior
indemnification agreement between them, if any, in its entirety as set forth
herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting
<PAGE>
Securities, (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of related
transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
CarsDirect.com, Inc., any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger to which CarsDirect.com,
Inc. (or any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity.
(e) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to
-2-
<PAGE>
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld), actually and
reasonably incurred, of any Claim and any federal, state, local or foreign taxes
imposed on the Indemnitee as a result of the actual or deemed receipt of any
payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless otherwise
indicated.
(k) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. Subject to the provisions of Section
---------------------------
2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest
extent permitted by law if
-3-
<PAGE>
Indemnitee was or is or becomes a party to or witness or other participant in,
or is threatened to be made a party to or witness or other participant in, any
Claim (whether by reason of or arising in part out of a Covered Event),
including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
-------------------------------------
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid in indemnifying Indemnitee; provided, however, that if
-------- -------
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee is entitled to
be indemnified hereunder under applicable law, any determination made by any
Reviewing Party that Indemnitee is not entitled to be indemnified hereunder
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expenses theretofore paid in indemnifying
Indemnitee until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expenses shall be
unsecured and no interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect.
--------------------------------------------------------------
If any Reviewing Party determines that Indemnitee substantively is not entitled
to be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has
-----------------------------------------------
not been a Change in Control, any Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnification of Expenses under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, or under any other applicable law, if
desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such
-4-
<PAGE>
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto. Notwithstanding any other provision of this
Agreement, the Company shall not be required to pay Expenses of more than one
Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
----------------
(a) Obligation to Make Expense Advances. Upon receipt of a written
-----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefor by the Company, the Company shall make Expense Advances to Indemnitee.
(b) Form of Undertaking. Any written undertaking by the Indemnitee
-------------------
to repay any Expense Advances hereunder shall be unsecured and no interest shall
be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties
--------------------------------------------
agree that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
---------------------------------------------------
(a) Timing of Payments. All payments of Expenses (including without
------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than forty-five (45) business days after such
written demand by Indemnitee is presented to the Company, except in the case of
Expense Advances, which shall be made no later than twenty (20) business days
after such written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this
-5-
<PAGE>
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
--------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
---------------
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by this Agreement or applicable
law. In addition, neither the failure of any Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by any
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
this Agreement or applicable law, shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any
determination by any Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently employed by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the
-6-
<PAGE>
conduct of any such defense, or (C) the Company shall not continue to retain
such counsel to defend such Claim, then the fees and expenses of Indemnitee's
separate counsel shall be Expenses for which Indemnitee may receive
indemnification or Expense Advances hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee
-----
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense
--------------
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
----------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in
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<PAGE>
the future to undertake with the Securities and Exchange Commission to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
----------
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
----------------------------
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law; provided, however, that notwithstanding any limitation set forth in this
-------- -------
Section 10(a) regarding the Company's obligation to provide indemnification,
Indemnitee shall be entitled under Section 3 to receive Expense Advances
hereunder with respect to any such Claim unless and until a court having
jurisdiction over the Claim shall have made a final judicial determination (as
to which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee has engaged in acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or applicable
law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
------------------------------
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
------------------
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
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<PAGE>
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute; provided, however, that
-------- -------
notwithstanding any limitation set forth in this Section 10(d) regarding the
Company's obligation to provide indemnification, Indemnitee shall be entitled
under Section 3 to receive Expense Advances hereunder with respect to any such
Claim unless and until a court having jurisdiction over the Claim shall have
made a final judicial determination (as to which all rights of appeal therefrom
have been exhausted or lapsed) that Indemnitee has violated said statute.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
------------------------------------------------------
Interpretation. In the event that any action is instituted by Indemnitee under
- --------------
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including without limitation attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee in defense of such action
(including without limitation costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action a court having jurisdiction over such action makes a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or lapsed) that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous; provided, however, that
until such
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<PAGE>
final judicial determination is made, Indemnitee shall be entitled under Section
3 to receive payment of Expense Advances hereunder with respect to such action.
14. Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement, and all rights, remedies, liabilities,
-------------
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of laws.
18. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the entire
--------------------------------
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations,
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commitments, understandings and agreements relating to the subject matter hereof
between the parties hereto. This Agreement shall supersede any prior
Indemnification Agreement between the parties hereto, and all such prior
agreements shall hereafter be void and of no force and effect with respect to
matters occurring after the date hereof.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
CARSDIRECT.COM, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address: CarsDirect.com, Inc.
10567 Jefferson Avenue
Culver City, California 90232
AGREED TO AND ACCEPTED by Indemnitee
By:_______________________
Print Name:_______________
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EXHIBIT 10.8
[LOGO]
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only July
1st, 1999, is made by and between TRENTON PROPERTY, LLC, a California limited
liability company ("Lessor") and CARSDIRECT.COM, a Delaware corporation
("Lessee"), (collectively the "Parties," or individually a "Party").
1.2(a) Premises: That certain portion of the Project (as defined below),
including all improvements therein or to be provided by Lessor under the terms
of this Lease, commonly known by the street address of 10567 Jefferson
Boulevard, located in the city of Culver City, County of Los Angeles, State of
California, with zip code _______, as outlined on Exhibit "A" attached hereto
("Premises") and generally described as (describe briefly the nature of the
Premises): An approximately 43,000 rentable square foot building. See Paragraph
50
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the building
containing the Premises (Building) or to any other buildings in the. The
Premises, the Building, the Common Areas, the land upon which they are located,
along with all other buildings and improvements thereon, are herein collectively
referred to as the "Project Center." (Also see Paragraph 2.)
1.2(b) Parking: 143 unreserved vehicle parking spaces ("Unreserved Parking
Spaces"); and of which those adjacent to the Building (as shown on the Site Plan
attached hereto as Exhibit "A" shall be reserved vehicle parking spaces
("Reserved Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: Five (5) years ands Zero (0) months ("Original Term") commencing
See paragraph 51 "Commencement Date" and ending See paragraph 51, ("Expiration
Date"). (Also see Paragraph 3)
1.4 Early Possession: N/A ("Early Possession Date").
(See also Paragraphs 3.2 and 3.3)
1.5 Base Rent: $61,060.00 ($1.42 per rentable square foot) per month
("Base Rent"), payable on the first (1st) day of each month commencing See
paragraph 52. (Also see Paragraph 4.)
|X| If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Lessee's Share of Common Area Operating Expenses: See Paragraph 53
("Lessee's Share").
1.7 Base Rent and Other Monies Paid Upon Execution:
(a) Base Rent: $61,060.00 for the first (1st) month of the Term.
(b) Common Area Operating Expenses: $___________________ for the period
_________________________.
(c) Security Deposit: 61,060.00 ("Security Deposit"). (See also
Paragraph 5)
(d) Other: $515,019.60 Letter of Credit. See Letter of Credit Rider
attached hereto and incorporated herein by this reference.
(e) Total Due Upon Execution of this Lease: $122,120.00, plus
$515,019.60 Letter of Credit.
1.8 Agreed Use: General office use and related legally permitted uses,
and for no other use or purpose. (Also see Paragraph 6)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph 8)
1.10 Real Estate Brokers: (Also see Paragraph 15)
(a) Representation: The following real estate brokers (the
"Brokers") and brokerage relationships exist in this transaction (check
applicable boxes):
|X| Lee & Associates represent Lessor exclusively ("Lessor's Broker");
|X| CB Richard Ellis represents Lessee exclusively ("Lessee's Broker"); or
|_| _______________________________________ represents both Lessor and Lessee
("Dual Agency").
(b) Payment to Brokers. Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a
separate written agreement (or if there is no such agreement, the sum of
_____________________ _______ or ______% of the total Base Rent for the
brokerage services rendered by the Brokers).
1.11 Guarantor. the obligations of the Lessee under this Lease are to be
guaranteed by N/A (("Guarantor"). (See also Paragraph 37)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 66, Exhibits "A" through "B" and Rules and
Regulations for the building and Letter of Credit Rider, all of which constitute
a part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of size set forth in this Lease, or that may have been
used in calculating Rent, is an approximation which the Parties agree is
reasonable and any payments based thereon are not subject to revision whether or
not the actual size is more or less.
2.2 Condition. Lessor shall deliver that portion of the Premises contained
within the Building ("Unit") to Lessee broom clean and reasonably free of debris
within one (1) business day after the execution of this Lease ("Start Date") and
so long as the required service contracts "described in Paragraph 7.1((b) below
are obtained by Lessee and in effect within thirty days following the
Commencement Date, warrants that the existing electrical, plumbing, fire
sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"),
loading doors, if any, and all other such elements in the Unit, other than those
constructed by Lessee, shall be in good operating condition on said date and
that the structural elements of the roof, heating, walls and foundation of the
Unit shall be free of material defects. If a non-compliance with such warranty
exists as of the Commencement Date, of if one of such systems or elements should
malfunction or fail within the appropriate warranty period through no act,
misuse or failure to maintain (as provided hereunder) by Lessee, Lessor shall,
as Lessor's sole obligation with respect to such matter, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such non-compliance,
malfunction or failure, rectify same at Lessor's expense. The warranty periods
shall be as followes: (i) the initial Term as to the roof, bearing walls and
foundation, and 12 months as to the HVAC systems, and (ii) 180 days as to the
remaining systems and other elements of the Unit. If Lessee does not give Lessor
the required notice within the appropriate
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warranty period, correction of any such non-compliance, malfunction or failure
shall be the obligation of Lessee at Lessee's sole cost and expense (except for
the repairs to the fire sprinkler-systems, roof, foundations, and/or bearing
walls - see Paragraph 7).
2.3 Compliance. Lessor warrants that the improvements on the Premises and
the Common Area comply with the building codes that were in effect at the time
that each such improvement, or portion thereof, was constructed, and also with
all applicable laws, covenants or restrictions of record, regulations, and
ordinances in effect on the Start Date ("Applicable Requirements"). Said
warranty doe not apply to the use other than office use to which Lessee will put
the Premises or to any Alterations or Utility Installations (as defined in
Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the Applicable Requirements, and especially the
zoning, are appropriate for Lessee's intended use, and acknowledges that past
uses of the Premises may no longer be allowed. If the premises do not comply
with said warranty, Lessor shall, except as otherwise provided, promptly after
receipt of written notice from Lessee setting forth with specificity the nature
and extent of such non-compliance, rectify the same at Lessor's expense. See
Paragraph 53A. If the Applicable Requirements are hereafter changed so as to
require during the terms of this Lease the construction of an addition to or an
alteration of the Unit, Premises and/or Building, or the or reinforcement of
other physical modification of the Unit, Premises and/or Building ("Capital
Expenditure"), Lessor and Lessee shall allocate the cost of such work as
follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the alteration of the Premises by Lessee or the
specific and unique use of the Premises by Lessee as compared with uses by
tenants in general, Lessee shall be fully responsible for the cost thereof.
(b) If such Capital Expenditure is not the result of the alteration
of the Premises by Lessee or the specific and unique use of the Premises by
Lessee (such as, governmentality mandated seismic modifications), then Lessor
shall pay for the portion of such costs reasonably attributable to the Premises
and Lessee shall only be required to reimburse Lessor in accordance with
paragraph 4.2(a)(viii) below.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual change in use, change in intensity of use, or
modification to the Premises then, and in that event, Lessee shall be fully
responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 Acknowledgements. Lessee acknowledges: that (a)it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements and the Americans with Disabilities Act), and their suitability for
Lessee's intended use; (b) Lessee has made such investigation as it deems
necessary with reference to such matters and assumes all responsibility therefor
as the same relate to its occupancy of the Premises, and (c) neither Lessor,
Lessor's agents, nor Brokers have made any oral or written representations or
warranties with respect to said matters other than as set forth in this Lease.
In addition, Lessor acknowledges that (i) Brokers have made no representations,
promises or warranties concerning Lessee's ability to honor the Lease or
suitability to occupy the Premises, and (ii) it is Lessor's sole responsibility
to investigate the financial capability and/or suitability of all proposed
tenants.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles, vans, sport utility vehicles or pick-up trucks,
herein called "Permitted Size Vehicles." Lessor may regulate the loading and
unloading of delivery vehicles by adopting Rules and Regulations as defined in
Paragraph 2.9. No vehicles other than Permitted Size Vehicles shall be parked in
the Common Area without the prior written permission of Lessor.
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) Lessor shall not service or store any vehicles in the Common
Areas.
(c) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor. See Paragraph 54.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Unit that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other Leases of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Project. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, with notice, in addition to such other rights and remedies
that it may have, to remove the property and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations including without limitation,
those attached hereto ("Rules and Regulations") for the management, safety,
care, and cleanliness of the grounds, the parking and unloading of vehicles and
the preservation of good order, as well as for the convenience of other
occupants or tenants of the Building and the Project and their invitees. Lessee
agrees to abide by and conform to all such Rules and Regulations, and to cause
its employees, suppliers, shippers, customers, contractors and invitees to so
abide and conform. Lessor shall not be responsible to Lessee for the
non-compliance with said Rules and Regulations by other tenants of the Project.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Project, or any portion thereof; and
(d) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Project as Lessor may, in the
exercise of reasonable sound business judgment, deem to be appropriate. See
Paragraph 54A.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.3 Delay in Possession. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee within one
(1) business day after the execution hereof. If, despite said efforts, Lessor is
unable to deliver possession as agreed, Lessor shall not be subject to any
liability, therefor, nor
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shall such failure affect the validity of this Lease. The Term shall not
commence and Lessee shall not, however, be obligated to pay Rent or perform its
other obligations until it receives possession of the Premises. If Possession is
not delivered within 60 days after the execution of this Lease, Lessee may, at
its option, by notice in writing within 10 days after the end of such 60 day
period, cancel this Lease, in which event the Parties shall be discharged from
all obligations hereunder. If such written notice is not received by Lessor
within said 10 day period, Lessee's right to cancel shall terminate. Except as
otherwise provided, if possession is not tendered to Lessee by the Start Date
and Lessee does not terminate this Lease, as aforesaid, any period of rent
abatement that Lessee would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to what Lessee would
otherwise have enjoyed under the terms hereof, but minus any days of delay
caused by the acts or omission of Lessee. If possession of the Premises is not
delivered within 4 months after execution of this Lease, this Lease shall
terminate unless other agreements are reached between Lessor and Lessee, in
writing.
3.4 Lessee Compliance. Lessor shall not be required to lender possession
of the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.5). The terms and conditions of this Lease
shall apply from and after the Start Date.
4. Rent.
4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("Rent").
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6 and Paragraph 53) of all Common Area Operating Expenses, as
hereinafter defined, during each calendar year of the term of this Lease, in
accordance with the following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Project, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition of the following:
(aa) The Common Areas and Common Area improvements,
including parking areas, loading and unloading areas,
trash areas, roadways, parkways, walkways, driveways,
landscaped areas, bumpers, irrigation systems, Common
Area lighting facilities, fences and gates, elevators,
roofs, and roof drainage systems.
(bb) Exterior signs and any tenant directories.
(cc) Any fire detection and/or sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas and any utilities not
separately metered.
(iii) Trash disposal, pest control services, property
management, security services, and the costs of any
environmental inspections if Lessor has reason to
suspect that Lessee (or any subtenant of Lessee) has
breached its obligations hereunder.
(v) Real Property Taxes (as defined in Paragraph 10).
(vi) The cost of the premiums for the insurance maintained
by Lessor pursuant to Paragraph 8.3.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas (other than earthquake).
(viii) The cost of any Capital Expenditure to the Building or
the Project not covered under the provisions of
Paragraph 2.3 See Paragraph 54B provided; however, that
Lessor shall allocate the cost of any such Capital
Expenditure over a 12 year period and Lessee shall not
be required to pay more than Lessee's Share of 1/144th
of the cost of such Capital Expenditure in any given
month.
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area
Operating Expense.
See Paragraph 54C
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Unit, the Building or to any other building
in the Project or to the operation, repair and maintenance thereof, shall be
allocated entirely to such Unit, Building, or other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Project.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Project Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within 10 business days after a reasonably detailed statement
of actual expenses is presented to Lessee. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses (based upon actual costs to the date of
estimation) and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each 12 month period of the Lease term, on the same day as the
Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 days
after the expiration of each calendar year a reasonably detailed statement
showing Lessee's Share of the actual Common Area Operating Expenses incurred
during the preceding year. If Lessee's payments under this Paragraph 4.2(d)
during the preceding year exceed Lessee's Share as indicated on such statement.
Lessor shall be credited the amount of such over-payment against Lessee's Share
of Common Area Operating Expenses next becoming due. See Paragraph 54D. If
Lessee's payments under this Paragraph 4.2(d) during the preceding year were
less than Lessee's Share as indicated on said statement, Lessee shall pay to
Lessor the amount of the deficiency within 10 business days after delivery by
Lessor to Lessee of said statement. See Paragraph 54E.
4.3 Payment. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent for any period during the term hereof which is for less than one full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating. In the event that any check,
draft, or other instrument of payment given by Lessee to Lessor is dishonored
for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any
late charges which may be due.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of the Security Deposit, Lessee shall within 10 days after written request
therefor deposit monies with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Within 14 days after the expiration
or termination of this Lease, if Lessor elects to apply the Security Deposit
only to unpaid Rent, and otherwise within 30 days after the premises have been
vacated pursuant to paragraph 7.4(c) below, Lessor shall return that portion of
the Security Deposit not used or applied by Lessor. No part of the Security
Deposit shall be considered to be held in trust, to bear interest or to be
prepayment for any monies to be paid by Lessee under this Lease. See Letter of
Credit Rider.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the Permitted
Use, or any other legal use which is reasonably comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
occupants of, or causes damage to or neighboring premises or properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, and/or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after
such request give written notification of same, which notice shall include an
explanation of Lessor's objections to the change in the Agreed Use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or
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fractions thereof. Lessee shall not engage in any activity in or on the Premises
which constitutes a Reportable Use of Hazardous Substances without the express
prior written consent of Lessor and timely compliance (at Lessee's expense) with
all Applicable Requirements. "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit. See Paragraph 54F.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance. See Paragraph 54G.
(c) Lessee Remediation. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any of Lessee's contractors, subcontractors, invitees or licensees.
(d) Lessee indemnification. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees (collectively
"Claims") arising out of or involving any Hazardous Substance brought onto the
Premises by or for Lessee, or any of Lessee's contractors, subcontractors,
invitees or licensees (provided, however, that Lessee shall have no liability
under this Lease with respect to underground migration of any Hazardous
Substance under the Premises from areas outside of the Project). Lessee's
obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor in
writing at the time of such agreement.
(e) Lessor Indemnification. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all Claims, including the cost of remediation,
which existed or arise, as a result of Hazardous Substances on the Project
(except as provided under Paragraph 6.2(d) above and Paragraph 55 below) or
which are caused by the gross negligence or willful misconduct of Lessor, its
agents or employees. Lessor's obligations, as and when required by the
Applicable Requirements, shall include, but not be limited to, the cost of
investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. See Paragraph 55.
(f) Investigations and Remediations. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate fully
in any such activities at the request of Lessor, including allowing Lessor and
Lessor's agents to have reasonable access to the Premises at reasonable times
in order to carry out Lessor's investigative and remedial responsibilities.
(g) Lessor Termination Option. If a Hazardous Substance Condition
(see Paragraph 9.1(e)) occurs during the term of this Lease (See Paragraph 55A)
unless Lessee is legally responsible therefor (in which case Lessee shall make
the investigation and remediation thereof required by the Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at
Lessor's option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to remediate such condition exceeds 12 times the then monthly
Base Rent or $500,000, whichever is greater, give written notice to Lessee,
within 30 days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of
the date 60 days following the date of such notice. In the event Lessor elects
to give a termination notice, Lessee may, within 10 days thereafter, give
written notice to Lessor of Lessee's commitment to pay the amount by which the
cost of the remediation of such Hazardous Substance Condition exceeds an amount
equal to 12 times the then monthly Base Rent or $500,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within 30 days following such commitment. In such event, this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible, after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination. See Paragraph 55B.
6.3 Lessee's Compliance with Applicable Requirements. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, which relate in any manner to the Premises, without regard to
whether said requirements are now in effect or become effective after the Start
Date. See Paragraph 55C. Lessee shall, within 10 days after receipt of Lessor's
written request, provide Lessor with copies of all permits and other documents,
and other information evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened in
writing or actual claim, notice, citation, warning, complaint or report
pertaining to or involving the failure of Lessee or the Premises to comply with
any Applicable Requirements.
6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in
Paragraph 30) and consultants shall have the right to enter into Premises at any
time, in the case of an emergency, and otherwise at reasonable times, upon
reasonable notice and accompanied by a representative of Lessee, for the purpose
of inspecting the condition of the Premises and for verifying compliance by
Lessee with this Lease. The cost of any such inspections shall be paid by
Lessor, unless a violation of Applicable Requirements, or a contamination is
found to exist or be imminent, or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request reimburse Lessor
for the cost of such inspection, so long as such inspection is reasonably
related to the violation or contamination.
7. Maintenance, Repairs, Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) In General. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations (intended for Lessee's exclusive use, no matter where
located), and Alterations in good order, condition and repair (whether or not
the portion of the Premises requiring repairs, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, but not limited
to, all equipment or facilities, such as plumbing, HVAC equipment, electrical,
lighting facilities, boilers, pressure vessels, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices,
specifically including the procurement and maintenance of the service contracts
required by Paragraph 7.1(b) below. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Service Contracts. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment (ii) boiler and pressure vessels,
(iii) clarifiers, and (iv) any other equipment, if reasonably required by
Lessor.
(c) Failure to Perform. If Lessee fails to perform Lessee's
obligations under this Paragraph 7.1, Lessor may enter upon the Premises after
10 days' prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf, and put the Premises in good order, condition and repair, and Lessee
shall promptly reimburse Lessor for the cost thereof.
(d) Replacement. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if an item described in Paragraph 7.1(b) cannot be repaired other
than at a cost which is in excess of 33% of the cost of replacing such item,
then such item shall be replaced by Lessor, and subject to Paragraph 2.2 above,
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is 144 (ie. 1/144th of the cost per month).
Lessee shall pay interest on the unamortized balance at a rate that is
commercially reasonable in the judgment of Lessor's accountants. Lessee may,
however, prepay its obligation at any time.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use),
7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation),
Lessor, subject to reimbursement pursuant to Paragraph
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4.2, (except to the extent expressly not permitted to be charged to Lessee under
the terms of this Lease), shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke
detection systems, fire hydrants, parking lots, walkways, parkways, driveways,
landscaping, fences, signs and utility systems serving the Common Areas and all
parts thereof, as well as providing the services for which there is a Common
Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated
to paint the exterior or interior surfaces of exterior walls nor shall Lessor be
obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessee expressly waives the benefit of any statute now or hereafter in
effect to the extent it is inconsistent with the terms of this Lease. See
Paragraph 55D.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions. The term "Utility Installations" refers to all
floor and window coverings, air lines, power panels, electrical distribution,
security and fire protection systems, communications systems, lighting fixtures
attached to the Premises in a manner such that removal would cause material
damage to the Premises, HVAC lines, plumbing, and fencing in or on the Premises.
The term "Trade Fixtures" shall mean Lessee's machinery, fixtures, and equipment
that can be removed without doing material damage to the Premises. The term
"Alterations" shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
"Lessee Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a)
(b) Consent. Lessee shall not make any Alterations or Utility
Installations to the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor, as
long as they are not visible form the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative cost
thereof during this Lease does not exceed a sum equal to 3 month's Base Rent in
the aggregate or a sum equal to one month's Base Rent in any one year.
Notwithstanding the foregoing, Lessee shall not make or permit any roof
penetrations and/or install anything on the roof without the prior written
approval of Lessor. Lessor may, as a precondition to granting such approval,
require Lessee to utilize a contractor chosen and/or approved by Lessor, not
unreasonably withheld. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with final plans and specifications
showing field changes. For work which costs an amount in excess of one month's
Base Rent, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to 150% of the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor.
(c) Indemnification. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialman's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than 10 days notice prior to the commencement
of any work in, on or about the Premises, and Lessor shall have the right to
post notices of non-responsibility. If Lessee shall contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond
in an amount equal to 150% of the amount of such contested lien, claim or
demand, indemnifying Lessor against liability for the same.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee
Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.
(b) Removal. By delivery to Lessee of written notice from Lessor not
earlier than 90 and not later than 30 days prior to the end of the term of this
Lease, Lessor may require that any or all Lessee Owned Alterations or Utility
Installations be removed by the expiration or termination of this Lease. Lessor
may require the removal at any time of all or any part of any Lessee Owned
Alterations or Utility Installations made without the required consent. See
Paragraph 55E.
(c) Surrender; Restoration. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state or repair, ordinary wear and tear and
casualty excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Notwithstanding the foregoing, if the Lease is for 12 months or less, then
Lessee shall surrender the Premises in the same condition as delivered to Lessee
on the Start Date with NO allowance for ordinary wear and tear. Lessee shall
repair any damage occasioned by the installation, maintenance or removal of
Trade Fixtures, Lessee owned Alterations and/or Utility Installations,
furnishings, and equipment as well as the removal of any storage tank installed
by or for Lessee. Lessee shall also completely remove from the Premises any and
all Hazardous Substances brought onto the Premises by or for Lessee, or any
third party (except Hazardous Substances which were deposited via underground
migration from areas outside of the Project) even if such removal would require
Lessee to perform or pay for work that exceeds statutory requirements. Trade
Fixtures shall remain the property of Lessee and shall be removed by Lessee. The
failure of Lessee to timely vacate the Premises pursuant to this Paragraph
7.4(c) without the express written consent of Lessor shall constitute a holdover
under the provisions of Paragraph 26 below.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of the premiums for the insurance
policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a)
and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy
periods commencing prior to, or extending beyond, the term of this Lease shall
be prorated to coincide with the corresponding Start Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force a
Commercial General Liability policy of insurance protecting Lessee and Lessor as
an additional Insured against claims for bodily injury, personal injury and
property damage based upon or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $2,000,000 per occurrence with an annual aggregate of not less than
$2,000,000, an "Additional Insured-Managers or Lessors of Premises Endorsement"
and contain the "Amendment of the Pollution Exclusion Endorsement" for damage
caused by heat, smoke or fumes from a hostile fire. Lessee may use an umbrella
policy and/or primary and excess insurance to effect the coverage required
hereunder. The policy shall not contain any intra-insured exclusions as between
insured persons or organizations, but shall include coverage for liability
assumed under this Lease as an "Insured contract" for the performance of
Lessee's indemnity obligations under this Lease. The limits of said insurance
shall not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance carried by Lessee shall be primary to and
not contributory with any similar insurance carried by Lessor, whose insurance
shall be considered excess insurance only.
(b) Carried by Lessor. Lessor shall maintain liability
insurance as described in Paragraph 8.2(a), in addition to, and not in
lieu of, the insurance required to be maintained by Lessee. Lessor shall use
commercially reasonable efforts to have Lessee named as an additional insured
therein.
8.3 Property Insurance - Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in force
a policy or policies of insurance in the name of Lessor, with loss payable to
Lessor, any ground-lessor, and to any Lender insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lender, but in no event more than the commercially reasonable
and available insurable value thereof. Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal properly shall be insured
by Lessee under Paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender in which event the cost thereof shall be split evenly by
Lessor and Lessee, including coverage for debris removal and the enforcement of
any Applicable Requirements requiring the upgrading, demolition, reconstruction
or replacement of any portion of the Premises as the result of a covered loss.
Said policy or policies shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence.
(b) Rental Value. Lessor shall also obtain and keep in force a
policy or policies in the name of Lessor with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one year with an extended
period of indemnity for an additional 180 days ("Rental Value insurance"). Said
insurance shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected Rent otherwise payable by Lessee, for the next 12 month period.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Project if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property; Business Interruption Insurance.
(a) Property Damage Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $25,000 per
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occurrence. To the extent rebuilding is required hereunder, the proceeds from
any such insurance shall be used by Lessee for the replacement of personal
property, Trade Fixtures and Lessee Owned Alterations and
Utility Installations. Lessee shall provide Lessor with written evidence that
such insurance is in force.
(b) Business Interruption. Lessee shall obtain and maintain
loss of income and extra expense insurance in amounts as will reimburse Lessee
for direct or indirect loss of earnings attributable to all perils commonly
insured against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, as set forth in the most current issue of "Best's Insurance Guide",
or such other rating as may be required by a Lender. Lessee shall not knowingly
do or permit to be done anything which invalidates the required insurance
policies. Lessee shall, prior to the Start Date, deliver to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of the required insurance. No such policy shall be cancelable or
subject to modification except after 30 days prior written notice to Lessor.
Lessee shall at least 10 days prior to the expiration of such policies, furnish
Lessor with evidence of renewals or "insurance binders" evidencing renewal
thereof, or Lessor may order such insurance and charge the cost thereof to
Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such
policies shall be for a term of at least one year, or the length of the
remaining term of this Lease, whichever is less. If either Party shall fail to
procure and maintain the insurance required to be carried by it, the other Party
may, but shall not be required to, procure and maintain the same.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 Indemnity. (a) Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents. Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified. See
Paragraph 55F.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, whether the said injury or
damage results from conditions arising upon the Premises or upon other portions
of the Building or from other sources or places except to the extent caused by
Lessor's gross negligence or willful misconduct. Lessor shall not be liable for
any damages arising from any act or neglect of any other tenant of Lessor nor
from the failure by Lessor to enforce the provisions of any other lease in the
Project. Notwithstanding Lessor's negligence or breach of this Lease, Lessor
shall under no circumstances be liable for injury to Lessee's business or for
any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions
(a) "Premises Partial Damage" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility Installations,
which can reasonably be repaired in 9 months or less from the date of the damage
or destruction, and the cost thereof does not exceed a sum equal to See
Paragraph 55G. Lessor shall notify Lessee in writing within 30 days from the
date of the damage or destruction as to whether or not the damage is Partial
or Total.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Trade
Fixtures, which cannot reasonably be repaired in 9 months or less from the date
of the damage or destruction and/or the cost thereof exceeds a sum equal to See
Paragraph 55G. Lessor shall notify Lessee in writing within 30 days from the
date of the damage or destruction as to whether or not the damage is Partial or
Total.
(c) "Insured Loss" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the discovery of a
condition involving the presence of, or a contamination by, a hazardous
Substance as defined in Paragraph 6.2(a) in, on, or under the Premises.
9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $5,000 or less, and, in such event, Lessor shall make any applicable
insurance proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements made by Lessee full
replacement cost insurance coverage was not commercially reasonable and
available. Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within 10 business days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said 10 business day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall remain
in full force and effect. If such funds or assurance are not received, Lessor
may nevertheless elect by written notice to Lessee within 10 days thereafter to:
(i) make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee
shall not be entitled to reimbursement of any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be
some insurance coverage, but the not proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is
not an insured Loss occurs, unless caused by a willful act of Lessee (in which
event Lessee shall make the repairs at Lessee's expense See Paragraph 55H.)
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
30 days after receipt by Lessor of knowledge of the occurrence of such damage;
provided the Lessor shall not terminate this Lease pursuant to this subparagraph
9.3(ii) unless the cost of repair to Lessor will exceed $500,000 excluding
insurance proceeds. Such termination shall be effective 60 days following the
date of such notice. In the event Lessor elects to terminate this Lease, Lessee
shall have the right within 10 days after receipt of the termination notice to
give written notice to Lessor of Lessee's committment to make the repair and to
pay for the repair of such damage without reimbursement from Lessor. Lessee
shall provide Lessor with said funds or satisfactory assurance thereof within 30
days after making such commitment. In such event this Lease shall continue in
full force and effect, and Lessor or Lessee, in accordance with Paragraph 55I,
below, shall proceed to make such repairs as soon as reasonably possible after
the required funds are available (and in such event, if Lessee has at least one
(1) option to extend the Term remaining under this Lease, then Lessee may
exercise such option, at time such repair commences). If Lessee does not make
the required commitment, this Lease shall terminate as of the date specified in
the termination notice. See Paragraph 55I.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate 60 days following
such destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6
9.5 Damage Near End of Term. See Paragraph 55J. If at any time during the
last 6 months of this lease there is damage for which the cost to repair exceeds
three month's Base Rent, whether or not an insured Loss, Lessor may terminate
this Lease effective 60 days following the date of occurrence of such damage by
giving a written termination notice to Lessee within 30 days after the date of
occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time
has an exercisable option to extend this Lease or to purchase the Premises, then
Leasee may preserve this Lease by exercising such option and if an uninsured
loss only, providing Lessor with any shortage in Insurance proceeds (or adequate
assurance thereof) need to make the repairs on or before the earlier of (i) the
date which is 10 days after Lessee's receipt or Lessor's written notice
purposing to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee, duly exercises such option during such period
and if an uninsured loss only, provides Lessor with funds (or adequate assurance
thereof) to cover an shortage in insurance proceeds. Lessor shall, at Lessor's
commercially reasonable expense, repair such damage as soon as reasonably
possible and this Lease shall continue in full force and effect. If Lessee fails
to exercise such option and if an uninsured loss only, provide such funds or
assurance during such period, then this Lease shall terminate on the date
specified in the termination notice and Lessee's option shall be extinguished.
9.6 Abatement of Rent; Lessee's Remedies.
(a) Abatement. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage See Paragraph
55K shall be abated in proportion to the degree to which Lessee's use of the
Premises and Lessee Owned Alterations, impaired.
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All other obligations of Lessee hereunder shall be performed by Lessee, and
Lessor shall have no liability for any such damage, destruction, remediation,
repair or restoration except as provided herein.
(b) Remedies. If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and meaningful way,
such repair or restoration within 90 days after such obligation shall accrue,
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice, of Lessee's election to terminate this Lease on a date not less than 60
days following the giving of such notice. If Lessee gives such notice and such
repair or restoration is not commenced within 30 days thereafter, this Lease
shall terminate as of the date specified in said notice. If the repair or
restoration is commenced within such 30 days, this Lease shall continue in full
force and effect. "Commence" shall mean the beginning of the actual work ont
Premises.
9.7 Termination; Advance Payments. Upon termination of this Lease pursuant
to Paragraph 5.2(g) or Paragraph 9, an equitable adjustment shall be made
concerning advance Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor.
9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10.1 Definition. As used herein, the term "Real Property Taxes" shall
include any form of assessment; real estate, general, special ordinary or
extraordinary, or rental levy or tax (other than inheritance, personal income,
franchise or estate taxes); improvement bond; and/or license fee imposed upon or
levied against any legal or equitable interest of Lessor in the Project.
Lessor's right to other income therefrom, and/or Lessor's business of leasing,
by any authority having the direct or indirect power to tax and where the funds
are generated with reference to the Project address and where the proceeds so
generated are to be applied by the city, county or other local taxing authority
of a jurisdiction within which the Project is located. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring during the term of this
Lease, including by not limited to, a change in the ownership of the Project or
any portion thereof or a change in the improvements thereon. In calculating
Real Property Taxes for any calendar year, the Real Property Taxes for any real
estate tax year shall be included in the calculation of Real Property Taxes for
such calendar year based upon the number of days which such c Real Property
Taxes Calendar year, the Real Property Taxes for any real estate tax year shall
be included in the calculation of Real Property Taxes for such calendar year
based upon the number of days which such calendar year and tax year have in
common. See Paragraph 56.
10.2 Payment of Taxes. Lessor shall pay the Real Property Taxes applicable
to the Industrial Center, and except as otherwise provided in Paragraph 10.3,
any such amounts shall be included in the calculation of Common Area Operating
Expenses in accordance with the provisions of Paragraph 4.2.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the enjoyment of such other lessees.
Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to Lessor at
the time Common Area Operating Expenses are payable under Paragraph 4.2, the
entirety of any increase in Real Property Taxes if assessed solely by reason of
the Initial Tenant Improvements, Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be reasonably determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available.
10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Alterations and Utility Installations
placed upon this Premises by Lessee, and all, Trade Fixtures, furnishings,
equipment and all personal property of Lessee contained in the Premises or
stored within the Industrial Center. When possible, Lessee and Lessor shall
cooperate with each other to cause such items to be assessed and billed
separately from the real property of Lessor. If any of Lessee's said property
shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee's property within 10 days after receipt of a
written statement setting forth the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. See Paragraph 57.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Subject to the provisions of Paragraph 58, Lessee shall
not voluntarily or by operation of law assign, transfer, mortgage or encumber
(collectively, "assign or assignment") or sublet all or any part of Lessee's
interest in this Lease or in the Premises without Lessor's prior written
consent, not to be unreasonably or delayed.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis of 25% or
more of the voting control of Lessee shall constitute a change in control for
this purpose.
(c) Subject to the provisions of Paragraph 58, the involvement
of Lessee or its assets in any transaction, or series of transactions (by way of
merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise),
whether or not a formal assignment or hypothecation of this Lease or Lessee's
assets occurs, which results or will result in a reduction of the Net Worth of
Lessee by an amount greater than 25% of such Net Worth as it was represented at
the time of the execution of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, whichever was or
is greater, shall be considered an assignment requiring Lessor's consent, which
shall not be unreasonably withheld or delayed. "Tangible Net Worth of Leasee"
shall mean the tangible net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles.
(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may either, (i) terminate this Lease, or (ii) upon 30 days
written notice, increase the monthly Base Rent to 110% of the Base Rent then in
effect. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to 110% of the price previously in effect. See
Paragraph 58.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease,
applicable to the portion of the Premises covered by such subletting, if
applicable, other than the payment of Rent unto relating to an assignment, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises. Lessee agrees
to provide Lessor with such other or additional information and/or documentation
as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, applicable
to the portion of the Premises covered by such subletting, if applicable, other
than the payment of Rent unto relating to an assignment, other than such
obligations as are contrary to or inconsistent with provisions of an assignment
or sublease to which Lessor has specifically consented in writing.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and subject to the provisions of Paragraph 53(a) of
the Addendum, apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach (as defined in Paragraph 13.1) shall occur in the
performance of Lessee's obligations under this Lease, and subject to the
provisions of Paragraph 53(a) of the Addendum, Lessee may, except as otherwise
provided in this Lease, receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of the foregoing provision or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such Sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any
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such notice from Lessor and shall pay all rents to Lessor without any obligation
or right to inquire as to whether such Breach exists, notwithstanding any claim
from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor, not to be unreasonably withheld or delayed.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. A "Default" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or Rules and
Regulations under this Lease. A "Breach" is defined as the occurrence of one or
more of the following Defaults, and the failure of Lessee to cure such Default
within any applicable grace period.
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or
without providing reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, or to provide reasonable evidence of insurance or
surety bond, where such failure continues for a period of 3 business days
following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) an
Estoppel Certificate, (v) subordination, required under this Lease, (vi)
evidence concerning any guaranty and/or Guarantor, (vii) any document requested
under Paragraph 41 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this Lease,
where any such failure continues for a period of 10 business days following
written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of 30 days after written notice; provided,
however, that if the nature of Lessee's Default is such that more than 30 days
are reasonably required for its cure, then it shall not be deemed to be a Breach
if Lessee commences such cure within said 30 day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
of any general arrangement or assignment for the benefit of creditors, (ii)
becoming a "debtor" as defined in 11 U.S.C. (S) 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within 60 days); (iii) the appointment of a trustee or receiver to
take possession of substantially all of Lessee's assets located at the Premises
or of Lessee's interest in this Lease, where possession is not restored to
Lessee within 30 days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within 30
days; provided, however, in the event that any provision of this subparagraph
(e) is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was knowingly materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within 60 days following written notice of any such event, to
provide written alternative assurance or security, which, when coupled with the
then existing resources of Lessee, equals or exceeds the combined financial
resources of Lessee and the guarantors that existed at the time of execution of
this Lease.
13.2 Remedies. If Lessee fails to commence to perform any of its
affirmative duties or obligations, within 10 business days after written notice
(or in case of an emergency, without notice), and diligently prosecute the same
to completion thereafter, Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent. Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within 7 days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
one-time late charge equal to 5% of each such overdue amount or $100, whichever
is greater. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for 3 consecutive installments of Base Rent, then notwithstanding any provision
of this Lease to the contrary, Base Rent shall, at Lessor's option, become due
and payable quarterly in advance.
13.5 Interest. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, within 10 days after the same is due as to
scheduled payments (such as Base Rent) or within 30 days following the date on
which it was due for non-scheduled payment, shall bear interest from the date
which is 10 days after due, as to scheduled payments, or the 31st day after it
was due as to non-scheduled payments. The interest ("Interest") charged shall be
equal to the prime rate reported in the Wall Street Journal as published closest
prior to the date when due plus 3% but shall not exceed the maximum rate allowed
by law.
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Interest is payable in addition to the potential late charge provided for in
Paragraph 13.4.
13.6 Breach by Lessor.
(a) Notice of Breach. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time after notice to perform an
obligation required to be performed by Lessor. For purposes of this Paragraph, a
reasonable time shall in no event be less than 30 days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than 30 days are reasonably required for
its performance, then Lessor shall not be in breach if performance is commenced
within such 30 day period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "Condemnation"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than 10% of the floor area of the Unit, or more than 10%
of Lessee's Reserved Parking Spaces without provision of reasonable replacement
spaces is taken by Condemnation, Lessee may, at Lessee's option, to be exercised
in writing within 10 days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within 10 days after the
condemning authority shall have taken possession) terminate this Lease as of the
date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in proportion to the reduction in utility of
the Premises caused by such Condemnation. Condemnation awards and/or payments
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold, the value of the part
taken, or for severance damages; provided, however, that Lessee shall be
entitled to any compensation for Lessee's relocation expenses, loss of business
goodwill and/or Trade Fixtures, without regard to whether or not this Lease is
terminated pursuant to the provisions of this Paragraph. All Alterations and
Utility Installations made to the Premises by Lessee, for purposes of
Condemnation only, shall be considered the property of the Lessee and Lessee
shall be entitled to any and all compensation which is payable therefor. In the
event that this Lease is not terminated by reason of the Condemnation, Lessor
shall repair any damage to the Premises caused by such Condemnation.
15. Brokerage Fees.
15.1 Additional Commission. In addition to the payments owed
pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise
agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if
Lessee acquires from Lessor any rights to the Premises or other premises owned
by Lessor and located with the Project, (c) if Lessee remains in possession of
the Premises, with the consent of Lessor, after the expiration of this Lease, or
(d) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then, Lessor shall pay Brokers a fee in accordance
with the schedule of the Brokers in effect at the time of the execution of this
Lease.
15.2 Assumption of Obligations. Any buyer or transferee of
Lessor's interest in this Lease shall be deemed to have assumed Lessor's
obligation hereunder. Brokers shall be third party beneficiaries of the
provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers
any amounts due as and for brokerage fees pertaining to this Lease when due,
then such amounts shall accrue interest. In addition, if Lessor fails to pay any
amounts to Lessee's Broker when due, Lessee's Broker may send written notice to
Lessor and Lessee of such failure and if Lessor fails to pay such amounts within
10 days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker for the limited purpose of collecting any
brokerage fee owed.
15.3 Representations and indemnities of Broker Relationships.
Lessee and Lessor each represent and warrant to the other that it has had no
dealings with any person, firm, broker or finder (other than the Brokers, if
any) in connection with this Lease, and that no one other than said named
Brokers is entitled to any commission or finder's fee in connection herewith.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably with respect thereto.
16. Estoppel Certificates.
(a) Each Party (as "Responding Party") shall within 10 days
after written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Estoppel Certificate" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver
the Estoppel Certificate within such 10 day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance. Prospective purchasers and encumbrances may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements as
may be reasonably required by such lender or purchaser, including but not
limited to Lessee's financial statements for the past 3 years. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Definition of Lessor. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title of interest in the Premises of this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, and
the assumption in writing by the successor lessor of all Lessor's obligations
under this Lease, the prior Lessor shall be relieved of all liability with
respect to the obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only upon
the Lessor as hereinabove defined. Notwithstanding the above, and subject to the
provisions of Paragraph 20 below, the original Lessor under this Lease, and all
subsequent holders of the Lessor's interest in this Lease shall remain liable
and responsible with regard to the potential duties and liabilities of Lessor
pertaining to Hazardous Substances as outlined in Paragraph 6.2 above.
18. Severability. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Days. Unless otherwise specifically indicated to the contrary, the
word "days" as used in this Lease shall mean and refer to calendar days.
20. Limitation on Liability. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Project (and the proceeds thereof) and to no other assets of Lessor, for
the satisfaction of any liability of Lessor with respect to this Lease, and
except with respect to Lessor's interest in the Project (and proceeds thereof),
shall not seek recourse against the individual partners of Lessor, or its or
their individual partners, directors, officers or shareholders, or any of their
personal assets for such satisfaction. Notwithstanding anything to the contrary
contained in this Lease, in no event shall Lessor or Lesse be liable under any
circumstances for any consequential damages, including without limitation, lost
profits.
21. Time of Essence. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties
under this lease.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the use, nature, quality and character of the Premises. Brokers have
no responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease or applicable law shall be in writing and may be delivered in person (by
hand or by courier) or may be sent by regular, certified or registered mail or
U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing of
notices. Either Party may by written notice to the other specify a different
address or addresses for notice, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for notice. A copy
of all notices to Lessor shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate in
writing.
23.2 Date of Notice. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. If sent by regular mail the notice shall be deemed given 48 hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given on the next business day after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar
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means shall be deemed delivered upon telephone confirmation of receipt only if
sent prior to 4:00 p.m. on such business day, otherwise on the next business day
(confirmation report from fax machine is sufficient), provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor
at or before the time of deposit of such payment.
25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.
(a) When entering into a discussion with a real estate agent regarding a
real estate transaction, a Lessor or Lessee should from the outset understand
what type of agency relationship or representation it has with the agent or
agents in the transaction. Lessor and Lessee acknowledge being advised by the
Brokers in this transaction, as follows:
(i) Lessor's Agent. A Lessor's agent under listing agreement with
--------------
the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent
has the following affirmative obligations: To the Lessor: A fiduciary duty of
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utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the
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Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in
- ---------------------
performance of the agent's duties. (b) A duty of honest and fair dealing and
good faith. (c) A duty to disclose all facts known to the agent materially
affecting the value of desirability of the property that are not known to, or
within the diligent attention and observation of, the Parties. An agent is not
obligated to reveal to either Party any confidential information obtained from
the other Party which does not involve the affirmative duties set forth above.
(ii) Lessee's Agent. An agent can agree to act as agent for the
--------------
Lessee only. In these situations, the agent is not the Lessor's agent, even if
by agreement the agent may receive compensation for services rendered, either in
full or in part for the Lessor. An agent acting only for a Lessee has the
following affirmative obligations. To the Lessee: A fiduciary duty of utmost
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care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee
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and the Lessor: (a) Diligent exercise of reasonable skills and care in
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performance of the agent's duties. (b) A duty of honest and fair dealings and
good faith. (c) A duty to disclose all facts known to the agent materially
affecting the value or desirability of the property that are not known to, or
within the diligent attention and observation of, the Parties. An agent is not
obligated to reveal to either Party any confidential information obtained from
the other Party which does not involve the affirmative duties set forth above.
(iii) Agent Representing Both Lessor and Lessee. A real estate
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agent, either acting directly or through one or more associate licenses, can
legally be the agent of both the Lessor and the Lessee in a transaction, but
only with the knowledge and consent of both the Lessor and the Lessee. In a dual
agency situation, the agent has the following affirmative obligations to both
the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity,
honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other
duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii)
in representing both Lessor and Lessee, the agent may not without the express
permission of the respective Party, disclose to the other Party that the Lessor
will accept rent in an amount less than that indicated in the listing or that
the Lessee is willing to pay a higher rent than that offered. The above duties
of the agent in a real estate transaction do not relieve a Lessor or Lessee from
the responsibility to protect their own interests. Lessor and Lessee should
carefully read all agreements to assure that they adequately express their
understanding of the transaction. A real estate agent is a person qualified to
advise about real estate. If legal or tax advice is desired, consult a competent
professional.
(b) Brokers have no responsibility with respect to any default or breach
hereof by either party. The liability (including court costs and attorneys'
fees), of any Broker with respect to any breach of duty, error or omission
relating to this Lease shall not exceed the fee received by such Broker pursuant
to this Lease; provided, however, that the foregoing limitation on each Broker's
liability on each Broker's liability shall not be applicable to any gross
negligence or willful misconduct of such Broker.
(c) Buyer and Seller agree to identify to Brokers as "Confidential" any
communication or information given Brokers that is considered by such Party to
be confidential.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any party thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to 150% of the Base Rent applicable immediately preceding the
expiration or termination. Nothing contained herein shall be construed as
consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. Covenants and Conditions; Construction of Agreement. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning the Lease shall be initiated in the county
in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or,
subject to Paragraph 30.3, hereafter placed upon the Premises, to any and all
advances made on the security thereof, and to all renewals, modifications, and
extensions thereof. Lessee agrees that the holders of any such Security Devices
(in this Lease together referred to as "Lender") shall have no liability or
obligation to perform any of the obligations of Lessor under this Lease. Any
Lender may elect to have this Lease and/or any Option granted hereby superior to
the lien of its Security Device by giving written notice thereof to Lessee,
whereupon this Lease and such Options shall be deemed prior to such Security
Device, notwithstanding the relative dates of the documentation or recordation
thereof.
30.2 Attornment. In the event that Lessor transfers title to the
Premises, or the Premises are acquired by another upon the foreclosure or
termination of a Security Device to which this Lease is subordinated (i) Lessee
shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to
such new owner, and upon request, enter into a new lease, containing all of the
terms and provisions of this Lease, with such new owner for the remainder of the
terms and conditions hereof, for the remainder of the term hereof, and (ii)
Lessor shall thereafter be relieved of any further obligations hereunder and
such new owner shall assume all of Lessor's obligations hereunder, except that
such new owner shall not: (a) be liable for any act or omission of any prior
lessor or with respect to events occurring prior to acquisition of ownership;
(b) subject to the terms of the nondisturbance agreement delivered pursuant to
the second sentence of Paragraph 30.3, be subject to any offsets or defenses
which Lessee might have against any prior lessor, (c) be bound by prepayment of
more than one month's rent or (d) be liable for the return of any security
deposit paid to any prior lessor unless actually delivered to such new owner.
30.3 Non-Disturbance. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "Non-Disturbance Agreement") form the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises in accordance with Paragraph 30.2. Further, as a condition to the
effectiveness of this Lease, Lessor shall obtain a Non-Disturbance Agreement
from the holder of any pre-existing Security Device which is secured by the
Premises. In the event that Lessor is unable to provide the Non-Disturbance
Agreement, then Lessee may, at Lessee's option, directly contact Lender and
attempt to negotiate for the execution and delivery of a Non-Disturbance
Agreement. Lessee may record a request for notice under Section 2924C of the
California Civil Code.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding
involving the Premises whether founded in tort, contract or equity, or to
declare rights hereunder, the Prevailing Party (as hereafter defined) in any
such proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision
or judgment. The term, "Prevailing Party" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorney's fees reasonably incurred. In addition
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach ($200 is a reasonable minimum per
occurrence for such services and consultation).
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or tenants (during the last 9 months of the
Term), and making such alterations, repairs, improvements or additions to the
Premises as Lessor may deem necessary. All such activities shall be without
abatement of rent or liability to Lessee. Lessor may at any time place on the
Building in which the Premises is located any ordinary "For Sale" signs and
Lessor may during the last 6 months of the term hereof place on the
Premises any ordinary "For Lease" signs. Lessee may at any time place on the
Premises any ordinary "For Sublease" sign. See Paragraph 59.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor
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shall not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. Signs. Except for ordinary "For Sublease" signs which may be placed only
on the Premises, Lessee shall not place any sign upon the Project without
Lessor's prior written consent, not to be unreasonably withheld or delayed. All
signs must comply with all Applicable Requirements.
35. Termination: Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within 10 days following any such event
to elect to the contrary by written notice to the holder of any such lesser
interest, shall constitute Lessor's election to have such event constitute the
termination of such interest.
36. Consents. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses paid to independent, third-party contractors
(including but not limited to architects', attorneys', engineers' and other
consultants' fees) incurred in the consideration of, or response to, a request
by Lessee for any Lessor consent, including but not limited to consents to an
assignment, a subletting or the presence or use of a Hazardous Substance, shall
be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. In the event that either Party disagrees with any
determination made by the other hereunder and reasonably requests the reasons
for such determination, the determining party shall furnish its reasons in
writing and in reasonable detail within 10 business days following such request.
37. Guarantor.
37.1 Execution. The Guarantors, if any, shall each execute a
guaranty in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease.
37.2 Default. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements,
(c) an Estoppel Certificate, or (d) written confirmation that the guaranty is
still in effect.
38. Quiet Possession. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
39. Options. If Lessee is granted an option, as defined below, then the
following provisions shall apply.
39.1 Definition. "Option" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor, (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor, (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised
unless the prior Options have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option: (i)
during the period commencing with the giving of any notice of Default and
continuing until said Default is cured, (ii) during the period of time any Rent
is unpaid (without regard to whether notice thereof is given Lessee), (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessee has been given 3 or more notices of separate Default, whether or not the
Defaults are cured, during the 12 month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of 30 days after such Rent becomes due,
(ii) Lessor gives to Lessee 3 or more notices of separate Default during any 12
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. Security Measures. Lessee hereby acknowledges that the Rent payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
41. Reservations. Lessor reserves the right: (i) to grant, without the consent
or joinder of Lessee, such easements, rights and dedications that Lessor deems
necessary, (ii) to cause the recordation of parcel maps and restrictions, and
(iii) to create and/or install new utility raceways, so long as such easements,
rights, dedications, maps, restrictions, and utility raceways do not
unreasonably interfere with access to or the use of the Premises or Project by
Lessee or reduce the square footage of the Premises by more than 3% (and then
only with an equitable rent adjustment). Lessee agrees to sign any documents
reasonably requested by Lessor to effectuate such rights.
42. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
43. Authority. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within 30 days after request, deliver to the other party satisfactory
evidence of such authority.
44. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
45. Offer. Preparation of this Lease by either party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
46. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
47. Multiple Parties. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
48. Waiver of Jury Trial. The Parties hereby waive their rights to trial
by jury in any action or proceeding involving the Property or arising out of
this Agreement.
49. Mediation and Arbitration of Disputes. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [ ] is [x] is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES, THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE
CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED
TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES,
THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS,
COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE
PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES ARE LOCATED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
SP
- ---------- ----------
KSM
- ---------- ----------
Initials Initials
Page 11 of 12
<PAGE>
Executed at: Los Angeles, CA
------------------------------------------
on: July 17, 1999
---------------------------------------------------
By LESSOR:
TRENTON PROPERTY, LLC
- ------------------------------------------------------
a California limited liability company
- ------------------------------------------------------
By: /s/ Kenneth S. Millman
---------------------------------------------------
Name Printed: Kenneth S. Millman
-----------------------------------------
Title: Partner
------------------------------------------------
By:
---------------------------------------------------
Name Printed:
-----------------------------------------
Title:
------------------------------------------------
Address:
----------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Telephone: (510) 552-2011
--------------------------------------------
Facsimile: (510) 552-2704
--------------------------------------------
Federal ID No.
----------------------------------------
Executed at: Sherman Oaks, CA
------------------------------------------
on: July 8, 1999
---------------------------------------------------
By LESSEE:
CARSDIRECT.COM
- ------------------------------------------------------
a Delaware corporation
- ------------------------------------------------------
By: /s/ Scott Painter
---------------------------------------------------
Name Printed: Scott Painter
-----------------------------------------
Title: CEO
------------------------------------------------
By:
---------------------------------------------------
Name Printed:
-----------------------------------------
Title:
------------------------------------------------
Address:
----------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Telephone:
--------------------------------------------
Facsimile:
--------------------------------------------
Federal ID No.
----------------------------------------
These forms are are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017, (213) 687-8777.
(C)Copyright 1999 By American Industrial Real Estate Association.
All rights reserved.
No part of these works may be reproduced in any form
without permission in writing.
<PAGE>
39.2 Intentionally Deleted.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, during the
time Lessee is in Breach of this Lease.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults
are cured, or (iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep
and observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or
Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor
shall not be deemed an offer to lease. This Lease is not intended to be binding
until executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by Lessor's Lender in connection with the obtaining of normal financing
or refinancing of the property of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
-20-
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH
TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW
THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT
THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS,
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS
LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at LA CALIF
on 12-31-96
by LESSOR:
ADAYA ASSET WASHINGTON, L.P., a
California limited partnership
By: /s/ M M Siam
--------------------------------------
Name Printed: M M SIAM
Title: Vice President
By: ______________________________________
Name Printed: ____________________________
Title: ___________________________________
Address: c/o Investment Development Services
888 West Sixth Street, 9th Floor
Los Angeles, California 90017
Telephone: (213) 362-9300
Facsimile: (213) 627-9937
Executed at Haupauge, New York
on 12/27/96
by LESSEE:
GRAHAM-FIELD, INC. a New York corporation
By: /s/ Richard Kolodny
--------------------------------------
Name Printed: Richard Kolodny
Title: Vice President, General Counsel
By: /s/ Gary M. Jacobs
--------------------------------------
Name Printed: GARY M. JACOBS
Title: V P Finance
Address: 400 Rabro Drive
Hauppauge, New York 11788
Telephone: (516) 582-5900
Facsimile: (516) 582-5608
NOTICE: These forms are often modified to meet changing requirements
of law and needs of the industry. Always write or call to
make sure you are utilizing the most current form: AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION, 345 South Figueroa Street,
Suite M-l, Los Angeles, California 90071 (213) 687-8777.
<PAGE>
EXHIBIT 10.9
FIRST AMENDMENT TO STANDARD INDUSTRIAL/COMMERCIAL
MULTI-TENANT LEASE NET
THIS FIRST AMENDMENT TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE
NET dated, for reference purposes only, as of April 24, 2000 (this "First
Amendment"), is entered into by and between TRENTON PROPERTY, LLC, a California
limited liability company ("Lessor"), and CARSDIRECT.COM, a Delaware corporation
("Lessee"), with reference to the following:
R E C I T A L S
---------------
WHEREAS, Lessor and Lessee entered into that certain Standard
INDUSTRIAL/COMMERCIAL Multi-Tenant Lease Net dated, for reference purposes only,
as July 1, 1999 (the "Lease"), by and between Lessor, as lessor, and Lessee, as
lessee, for the lease of certain premises (the "Original Premises"), consisting
of an approximately 43,000 square foot building located at 10567 Jefferson
Boulevard, Culver City, California. All capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Lease; and
WHEREAS, Lessor and Lessee have agreed to amend the Lease in order to,
among other things, (a) expand the Original Premises leased by Lessee under the
Lease to include the Additional Space (as defined in the Lease), consisting of
approximately 24,000 rentable square feet, (b) provide for the Base Rent to be
paid by Lessee for the Expanded Premises (as hereafter defined), and (c) further
amend, modify and supplement the Lease as set forth herein.
NOW, THEREFORE, in consideration of the Expanded Premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee hereby agree as follows:
1. Expansion of Premises. Effective as of the date (the "Expanded
---------------------
Premises Commencement Date") that is the earlier of the date (a) that is one
hundred twenty (120) days after the date of substantial completion of the Base
Building Improvements (as defined in the Work Letter attached to the Lease as
Exhibit "B") for the Additional Space and delivery of the Additional Space, as
so improved, to Lessee to perform the Tenant Improvements, and (b) all Tenant
Improvements (with the exception of any punch-list items) have been completed
and Lessee commences the normal conduct of its business operations within the
Additional Space, the Original Premises shall be expanded to include the
Additional Space, which Additional Space contains approximately Twenty Four
Thousand (24,000) rentable square feet of space, as shown on the site plan
attached hereto as Exhibit "A" and incorporated herein by this reference.
Therefore, the Lease is hereby amended such that, from and after Expanded
Premises Commencement Date, all references in the Lease to the "Premises" shall
mean and refer to the entirety of the space in the Original Premises and the
Additional Space, consisting of a total of approximately Sixty Seven Thousand
(67,000) rentable square feet of space (the entirety of such space is referred
to herein as the "Expanded Premises"). Lessor and Lessee hereby acknowledge and
agree that the foregoing statement of the rentable square footage of the
Expanded Premises is not a representation or warranty of the exact number of
rentable square feet therein but rather is only a reasonable approximation and
that the Base Rent payable under the Lease (as amended hereby) is not subject to
revision whether or not the actual square footage is more or less than such
approximation. Section 62 of the Lease is hereby deleted in its entirety.
2. Improvements to Additional Space: Possession. Promptly after the
--------------------------------------------
execution hereof, Lessor shall commence and perform the Base Building
Improvements in accordance with the Lease, with the exception of (a) Section
1.1(a) of the Work Letter which shall be amended to read: "Exterior windows,
awnings and doors, generally consistent with those certain plans prepared by The
Albert Group dated December 3, 1999, as the same may be modified, and (b)
1
<PAGE>
Section 1.1(f) of the Work Letter which shall be amended by replacing the
figure, "$32,500", with the figure "$16,250"; provided, that except for Lessor's
obligation to perform the Base Building Improvements, Lessee shall accept the
Additional Space "AS IS", with no representations, warranties or improvements by
Lessor. Upon delivery of the Additional Space to Lessee with such Base Building
Improvements substantially complete in accordance with the Lease, as amended
hereby, Lessee shall have full access to the Additional Space to construct
Tenant Improvements in the Additional Space in accordance with and subject to
the terms of the Work Letter without the obligation to pay any rent until the
Expanded Premises Commencement Date. Upon occupancy of the Additional Space and
continuing until the expiration or earlier termination of the Lease Term, in
addition to Lessee's obligations under the Lease with respect to the Original
Premises, Lessee agrees that, with respect to the Additional Space, Lessee shall
observe and perform all of the terms, covenants and provisions set forth in the
Lease.
3. Lease Term. The Original Term with respect to the Additional Space
----------
shall commence on the Expanded Premises Commencement Date and shall expire,
unless extended or earlier terminated under the terms of the Lease, at midnight
on the day before the fifth (5th) anniversary of the Expanded Premises
Commencement Date (the "Expiration Date"). In addition, with respect to the
Original Premises, on the Expanded Premises Commencement Date, the Original Term
under the Lease shall be extended such that said Original Term shall terminate
on the Expiration Date. Therefore, the Lease is hereby amended such that,
effective on the Expanded Premises Commencement Date, all references in the
Lease to the "Original Term" (and all references thereto in this First
Amendment) shall mean and refer to the Original Term, as extended in accordance
with this Section 3.
4. Base Rent. The parties acknowledge and agree that until the Expanded
---------
Premises Commencement Date, Lessee shall continue to pay Base Rent for the
Original Premises as provided under the Lease; provided, however, that effective
on the Expansion Premises Commencement Date, the Base Rent for the Original
Premises shall be increased to Sixty-Four Thousand Nine Hundred Thirty and
No/100 Dollars ($64,930.00) ($1.51 per rentable square foot in the Original
Premises per month) and such monthly Base Rent for the Original Premises shall
increase on each anniversary of the Expansion Premises Commencement Date
thereafter by five cents ($.05) per rentable square foot of the Original
Premises (in connection with the foregoing, effective on the Expansion Space
Commencement Date, the first paragraph of Section 52 of the Addendum to the
Lease shall be deleted and of no further force or effect). Effective on the
Expanded Premises Commencement Date, Lessee shall pay, in addition to the Base
Rent for the Original Premises in accordance with the foregoing, Base Rent for
the Additional Space during the Original Term according to the following
schedule: Forty-Two Thousand and No/100 Dollars ($42,000.00) ($1.75 per rentable
square foot of the Additional Space) per month payable on the first (1st) day of
each month commencing on the Expanded Premises Commencement Date and continuing
through the twelfth (12th) month of the Original Term; on the first day of the
thirteenth (13th) month of the Original Term, Base Rent for the Additional Space
shall be increased to Forty-Three Thousand Two Hundred and No/100 Dollars
($43,200.00) ($1.80 per rentable square foot of the Additional Space) per month
and such amount shall be the Base Rent for the Additional Space through and
including the twenty-fourth (24th) month of the Original Term; on the first day
of the twenty-fifth (25th) month of the Original Term, Base Rent for the
Additional Space shall be increased to Forty-Four Thousand Four Hundred and
No/100 Dollars ($44,400.00) ($1.85 per rentable square foot of the Additional
Space) per month and such amount shall be the Base Rent for the Additional Space
through and including the thirty-sixth (36th) month of the Original Term; on the
first day of the thirty-seventh (37th) month of the Original Term, Base Rent for
the Additional Space shall be increased to Forty-Five Thousand Six Hundred and
No/100 Dollars ($45,600.00) ($1.90 per rentable square foot of the Additional
Space) per month and such amount shall be the Base Rent for the Additional Space
through and including the forty-eighth month of the Original Term; and on the
first day of the forty-ninth (49th) month of the Original Term, Base Rent for
the Additional Space shall be increased to Forty-Six Thousand Eight Hundred and
No/100 Dollars ($46,800.00) ($1.95 per rentable square foot of the Additional
Space) per month and such amount shall be the Base Rent for
2
<PAGE>
the Additional Space through and including the sixtieth (60th) month of the
Original Term. At any time on or after the Expanded Premises Commencement Date
Lessor may deliver to Lessee a Memorandum of Term Commencement (the
"Memorandum"), acknowledging the actual dates, rents and other adjustments
applicable under the Lease, as amended hereby, which Memorandum Lessee shall
execute and return to Lessor within twenty (20) days of receipt thereof
(provided that if Lessee believes that the Memorandum is not accurate, then
Lessee shall notify Lessor of such changes as are necessary to make the
Memorandum accurate within such twenty (20) day period and the parties shall
correct the Memorandum as appropriate), and after execution of the Memorandum by
Lessor and Lessee the dates set forth on such Memorandum shall be conclusive and
binding upon Lessor and Lessee. Failure of Lessee to timely execute and deliver
the Memorandum (or so notify Lessor) within such twenty (20) day period shall
constitute an acknowledgment by Lessee that the statements included in the
Memorandum are true and correct, without exception.
5. Rent Reduction. The second (2nd) paragraph of Paragraph 52 of the
--------------
Lease is hereby deleted in its entirety and replaced with the following:
Notwithstanding anything to the contrary contained in this Lease but
subject to the provisions of Paragraph 13.3 of this Lease, provided that Lessee
is not in Breach under this Lease beyond the applicable cure period, Lessor and
Lessee hereby agree that for the sixth (6th) and thirteenth (13th) months of the
Original Term, the Base Rent due hereunder shall be reduced by Thirty Thousand
Five Hundred Thirty and No/100 Dollars ($30,530.00) and $32,465.00,
respectively; provided, that Lessee agrees that notwithstanding the foregoing
Base Rent reduction, Lessee shall observe and perform all of the other terms,
covenants and provisions set forth in this Lease, including without limitation,
payment of Lessee's Share of Common Area Operating Expenses required to be paid
by Lessee under this Lease.
6. Common Area Operating Expenses. Paragraph 53 of the Lease is hereby
------------------------------
deleted in its entirety and is replaced with the following: "Lessor and Lessee
agree that Lessee's Share of Common Area Expenses is 100%."
7. Security Deposit. Lessee agrees to increase the Security Deposit being
----------------
held by Lessor under the Lease by Forty-Two Thousand and No/100 Dollars
($42,000.00), which amount, along with the first month's rent for the Additional
Space in the amount of Forty-Two Thousand and No/100 Dollars ($42,000.00) (for a
total of $84,000.00), shall be paid by Lessee to Lessor upon the execution
hereof The Lease is hereby amended by replacing all references to the existing
amount of the Security Deposit with the amount of One Hundred Three Thousand and
Sixty Dollars and No/100 Dollars ($103,060.00).
8. Letter of Credit. Concurrent with Lessee's execution and delivery of
----------------
this First Amendment, Lessee shall furnish to Lessor a clean, unconditional and
irrevocable replacement Letter of Credit that satisfies the provisions of
Section 1 of the LC Rider (which replacement Letter of Credit shall be
transferable) in the amount of $909,649.68, which shall constitute the LC Amount
under the LC Rider. Therefore, (a) Section 1 of the LC Rider and Section 3 of
the LC Rider are hereby amended by replacing the figure, "$515,019.60", with the
figure "$909,649.68", and (b) the second sentence of Section 3 of the LC Rider
is hereby deleted and replaced with the following: "So long as Lessee is not, at
the time of the reduction, in default under this Lease as indicated in a written
notice from Lessor to Lessee, on the first (lst) anniversary of the Commencement
Date and on each anniversary thereafter during the Original Term, the LC Amount
shall be reduced by $74,999.94." Upon Lessor's receipt of the replacement Letter
of Credit, Lessor shall return the existing Letter of Credit to Lessee.
9. Parking. Notwithstanding anything to the contrary contained in the
-------
Lease, as of the Expanded Premises Commencement Date, Lessee shall be entitled
to the use of all Parking Spaces, as shown on the Site Plan, subject to and in
accordance with the terms of the Lease.
3
<PAGE>
10. Estoppel. Lessee hereby certifies and acknowledges, that as of the
--------
date hereof (a) to Lessee's knowledge, Lessor is not in default in any respect
under the Lease, (b) to Lessee's knowledge, Lessee does not have any defenses to
its obligations under the Lease, (c) Lessor is holding a Sixty One Thousand
Sixty and No/100 Dollars ($61,060.00) Security Deposit of Lessee (subject to
increase in accordance with this First Amendment), and (d) there are no offsets
against rent payable under the Lease. Lessor hereby certifies and acknowledges
that as of the date hereof, (a) to Lessor's knowledge, Lessee is not in default
in any respect under the Lease, (b) to Lessor's knowledge, Lessor does not have
any defenses to its obligations under the Lease, and (c) Lessor is holding a
Sixty One Thousand Sixty and No/100 Dollars ($61,060.00) Security Deposit of
Lessee (subject to increase in accordance with this First Amendment).
11. Brokers. Except with respect to Lee & Associates and CB Richard Ellis,
-------
the brokers involved in this First Amendment, each party hereby represents and
warrants to the other party that it has not entered into any agreement or taken
any other action which might result in any obligation on the part of such party
to pay any brokerage commission, finder's fee or other compensation with respect
to this First Amendment, and each party agrees to indemnify and hold the other
party harmless from and against any losses, damages, costs or expenses
(including without limitation, attorneys' fees) by reason of any breach or
inaccuracy of such representation or warranty.
12. Ratification. Except as otherwise specifically herein amended, the
------------
Lease is and shall remain in full force and effect according to the terms
thereof. In the event of any conflict between the Lease and this First
Amendment, this First Amendment shall control.
13. Counterparts. This First Amendment may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, this First Amendment has been executed by the parties
as of the date first referenced above.
"Lessor"
TRENTON PROPERTY, LLC,
a California limited liability company
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
"Lessee"
CARSDIRECT.COM,
a Delaware corporation
By: /s/
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
4
<PAGE>
Exhibit 10.10
================================================================================
Potamkin Auto Center Ltd.,
Landlord
TO
CarsDirect.com, Inc.
Tenant
AGREEMENT OF LEASE
================================================================================
<PAGE>
Table of Contents
Statement of Facts ........................................................ 1
Article 1 Demise; Term .................................................... 1
Article 2 Fixed Net Rent; Incremental Rent;
Appraisal Rent; Additional Rent ................................ 2
Article 3 Impositions and Charges.......................................... 5
Article 4 Subordination ................................................... 8
Article 5 Use of the Leased Premises ...................................... 11
Article 6 No Representations by Landlord .................................. 12
Article 7 Landlord Not Liable for Failure of Water Supply, Etc. ........... 13
Article 8 Tenant to Repair ................................................ 13
Article 9 Tenant to Comply with Laws; Environmental Matters ............... 16
Article 10 Purchase Option ................................................ 21
Article 11 Net Lease; Non-Terminability ................................... 25
Article 12 Insurance ...................................................... 26
Article 13 Fire or Casualty ............................................... 29
Article 14 Landlord May Cure Defaults ..................................... 32
Article 15 Bankruptcy, Insolvency, Reorganization,
Liquidation or Dissolution of Tenant ........................... 33
Article 16 Default Clauses ................................................ 35
Article 17 Landlord's Remedies ............................................ 36
Article 18 Tenant to Indemnify Landlord ................................... 39
Article 19 Mechanics' Liens ............................................... 40
Article 20 Condemnation ................................................... 41
<PAGE>
Article 21 Arbitration .................................................... 44
Article 22 Shoring ........................................................ 45
Article 23 Waiver of Redemption ........................................... 46
Article 24 Vaults; Vault Space; Vault Area ................................ 46
Article 25 Covenant of Quiet Enjoyment .................................... 46
Article 26 Non-Merger ..................................................... 47
Article 27 Waiver of Counterclaim and Jury Trial .......................... 47
Article 28 Assignment and Subletting ...................................... 47
Article 29 Notices ........................................................ 52
Article 30 Broker ......................................................... 54
Article 31 Waivers and Surrenders to be in Writing ........................ 54
Article 32 Rights and Remedies Cumulative ................................. 54
Article 33 Removal of Personal Property and Fixtures ...................... 55
Article 34 Sale or Conveyance of Leased Premises;
Limits of Liability of Landlord ................................ 56
Article 35 Alterations .................................................... 56
Article 36 Tenant and Landlord to Furnish Statements ...................... 58
Article 37 Inspections by Landlord ........................................ 59
Article 38 Surrender at the End of the Term ............................... 59
Article 39 Covenants Binding on Successors and Assigns .................... 60
Article 40 Entire Agreement ............................................... 60
Article 41 Short Form of Lease ............................................ 60
Article 42 Miscellaneous .................................................. 61
<PAGE>
Article 43 Certain Definitions ............................................ 62
Article 44 Reservation of Rooftop Rights .................................. 63
Article 45 Reservation of Air Rights ...................................... 63
Article 46 Termination for Demolition ..................................... 64
--------------
This Index is included only as a matter of convenience of reference and
shall not be deemed or construed in any way to define or limit the scope
of the following Lease or the intent of any provision thereof.
<PAGE>
LEASE AGREEMENT
LEASE AGREEMENT ("Agreement" or "lease") dated the 19th day of
October, 1999 made by and between POTAMKIN AUTO CENTER LTD., a New York
corporation (hereinafter called "landlord") and CARSDIRECT.COM, INC., a Delaware
corporation (hereinafter called "Tenant").
Statement of Facts
Landlord is the fee owner of a property situated in the City and
State of New York. Landlord desires to lease to Tenant, and Tenant desires to
hire from Landlord, those certain plots, pieces and parcels of land described on
Exhibit A hereof, together with the building and other structures located
thereon hereinafter called the "Improvements" but reserving therefrom the rights
of Landlord pursuant to Articles 44 and 45 hereof, (together hereinafter called
the "Leased Premises").
All capitalized terms used in this Lease, not otherwise defined,
shall have the meanings ascribed to them in Article 43.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars, each to
the other in hand paid, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant
hereby agree as follows:
Article 1
Demise; Term
1.1 Landlord hereby leases the Leased Premises to Tenant, and Tenant
hereby hires the Leased Premises from Landlord, upon, and subject to, the terms,
covenants and conditions contained in this Lease.
1.2 The initial term of Tenant's leasehold estate in and to the
Leased Premises shall be for a period commencing upon the date hereof
(hereinafter called the "Commencement Date") and expiring on the thirty first
day of January, 2001 (hereinafter called the "Expiration Date"), unless this
Lease shall sooner terminate or expire as hereinafter provided.
1.3 Provided that Tenant at the time of the exercise of the option
herein granted is not in default of any term, covenant, condition or agreement
provided for in this Lease, Tenant shall have the option to extend the Term of
this Lease (the "First Option") for one additional period of six (6) years,
whereupon the Expiration Date shall be deemed to be January
<PAGE>
31, 2007. The option for such period may be exercised by Tenant only by written
notice to Landlord given not later than August 1, 2000. Except as herein stated
in Section 2.1 below, all of the terms, covenants and conditions of this Lease
last pertaining to the initial Term hereof shall equally pertain during the
period resulting from the exercise of the First Option.
1.4 Provided that Tenant shall have exercised the First Option in
accordance with the provisions of Section 1.3 hereof, and that at the time of
the exercise of the option herein granted Tenant is not in default of any term,
covenant, condition or agreement provided for in this Lease, Tenant shall have
one additional option (the "Additional Option") to extend the Term, for an
additional period of five (5) years commencing February 1, 2007, whereupon the
Expiration Date shall be deemed to be January 31, 2012. The option for such
period may be exercised by Tenant only by written notice to Landlord given not
later than February 1, 2006. Except as herein stated in Section 2.1 below, and
except that there shall be no further option to extend the Term hereof, all of
the terms, covenants and conditions of this Lease last pertaining to the period
resulting from the exercise of the First Option shall equally pertain during the
period resulting from the exercise of the Additional Option.
Article 2
Fixed Net Rent; Incremental Rent; Appraisal Rent; Additional Rent
2.1 Tenant covenants and agrees to pay to Landlord a "Fixed Net
Rent" under this Lease as follows:
(a) During the initial Term the sum of Sixty thousand
($60,000) per month;
(b) If Tenant shall timely and effectively exercise the First
Option pursuant to Section 1.3 above, then, for the six year period commencing
January 31, 2001. the Fixed Net Rent, subject to adjustment as hereinafter set
forth, shall be at the rate of Nine Hundred Thousand ($900,000) annually;
(c) Commencing with the Lease Year (the term Lease Year for
the purposes of this paragraph being hereby defined as the twelve month period
commencing February 1, 2003 and ending January 31, 2004 (the "First Lease Year")
and for each ensuing twelve month period ("Lease Year") during the Term (as the
Term may be extended pursuant to the provisions of Article 1 hereof), the Fixed
Net Rent shall be increased by an amount equal to 2.5% of the Fixed Net Rent for
the immediately preceding Lease Year (the "Incremental Rent"); for the purposes
of determining the amount of increased rent pursuant to this Section 2.1(c), the
Incremental Rent shall be calculated so as to take into account all prior
Incremental Rent increases and shall be based upon the Fixed Net Rent for the
prior Lease Years increased by the Incremental Rent for such Lease Year.
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<PAGE>
(d) If Tenant shall timely and effectively exercise the Additional
Option, there shall be determined (as set forth and defined below), the Fair
Rental Value for the Leased Premises as of February 1, 2006 and following such
determination, effective as of February 1, 2007 and for the remainder of the
Term
hereof, the Fixed Net Rent for such Lease Year shall be the greater of (i) the
Fixed Net Rent computed in accordance with subsections (b) and (c) of this
Section 2.1 or (ii) the Fair Rental Value of the Leased Premises. In the event
that such Fair Rental Value is greater than the Fixed Net Rent determined
pursuant to the aforementioned subsections (b) and (c), then the Fixed Net Rent
for the Lease Year with respect to which it shall have been computed shall be an
amount equal to such Fair Rental Value, retroactive to the first day thereof.
Fair Rental Value shall be determined pursuant to the following
procedures:
(i) within ten (10) business days after the last date upon which the
Additional Option may be exercised (February 1, 2006) Landlord and Tenant shall
each select an MAI appraiser and notify the other of the name and address of the
appraiser which it has selected. Within fifteen days thereafter, the two MAI
appraisers shall select a third MAI appraiser. If they cannot agree upon such
third MAI appraiser within such fifteen (15) day period, the third appraiser
shall be selected by the chief officer of the local MAI chapter in New York City
within the next fifteen (15) days. If the parties do not receive notice of the
selection of the third appraiser within the next fifteen (15) days, the third
appraiser shall be an MAI appraiser selected by the chief officer of the New
York
City office of the American Arbitration Association upon application of either
party. Within thirty (30) days of the appointment of the third appraiser, the
three appraisers shall meet and exchange their appraisals and the Fair Rental
Value shall be the average of the Fair Rental Values of the three appraisers,
provided that if the Fair Rental Value determined by a Party's appraiser shall
be more than ten percent (10%) different from the Fair Rental Value determined
by the third appraiser, the Fair Rental Value by such Party's appraiser shall
not be taken into account to calculate the average and, if the Fair Rental
Values determined by both Parties' appraisers each shall be more than ten
percent (10%) different from the Fair Market Value determined by the third
appraiser, the Fair Market Value to be used for the purposes of this subsection
(d) shall be the Fair Rental Value as determined by the third appraiser.
(ii) each appraiser, whether appointed by the appraisers selected by
the parties, by the two appraisers so appointed, or by the chief officer of the
New York City office of the local MAX Chapter in New York City or the American
Arbitration Association, shall be instructed to determine the Fair Rental Value,
and advise Landlord and Tenant thereof, within sixty days after their
appointment and shall also be instructed that the determination made by each
appraiser shall be the amount of Fixed Net Rent which he or she determines to be
the Fair Rental Value for the Leased Premises as of February 1, 2006 for its
highest and best use, which shall be the amount of Fixed Net Rent that a willing
tenant not compelled to lease would pay a willing landlord not compelled to
lease, subject to the terms and provisions of this Lease for the remaining Term.
Reference herein to an "MAI appraiser" means that the appraiser shall be an MAI
member of the American Institute of Real Estate Appraising, or any successor
association
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<PAGE>
or body of comparable standing if such institute is not then in
existence. All appraisers shall have a minimum of ten (10) years recent
experience in the appraisal of commercial real estate in the Borough of
Manhattan, City of New York. For the purposes hereof, the term "highest and best
use" shall be determined without regard to zoning or other use limitations
pursuant to applicable law or regulations, but rather to the highest and best
use assuming that all necessary zoning and other approvals would be granted and
that, if required to achieve such highest and best use, the improvements upon
the Leased Premises were demolished.
(iii) The determination of Fair Rental Value pursuant to the
provisions of this Section shall be final and binding upon Landlord and Tenant.
The provisions for determination by appraisal shall be specifically enforceable
to the extent such remedy is available under applicable law, and any
determination made hereunder shall be final and binding upon Landlord and Tenant
except as otherwise provided by applicable law. Landlord and Tenant shall each
pay the fees and expenses of the appraiser which it appoints and each shall pay
one-half of the fees and expenses of the third appraiser and one-half of all
other costs and expenses incurred in connection with each appraisal.
(e) Fixed Net Rent shall be paid by Tenant to Landlord in
equal monthly installments in advance on the first day of each and every month
during the Term of this Lease at Landlord's office, or at such other place
and/or to such agent as Landlord may designate by notice to Tenant, in lawful
money of the United States of America. The last installment of Fixed Net Rent
payable under this Lease shall be suitably prorated, if applicable. Any increase
in Fixed Net Rent resulting from the determination of Fair Rental Value shall be
paid, retroactive to the commencement of the Lease Year for which the
determination shall have been made, within thirty business days after the
determination pursuant to the provisions of subsection (d) of this Section 2.1.
2.2 All such sums, charges, costs, expenses and other sums of money
(other than the Fixed Net Rent) as Tenant shall agree to pay under, or pursuant
to, this Lease shall be deemed to be "additional rent" hereunder, for default in
the payment of which (which default remains uncured after any applicable notice
or grace period) Landlord shall have the same remedies as for a default in the
payment of Fixed Net Rent.
2.3 Tenant shall pay the Fixed Net Rent reserved herein, as well as
the items of additional rent assumed or payable by Tenant pursuant hereto or
hereunder, promptly, without demand therefor, and without any abatement, setoff,
or deduction of any kind whatsoever.
2.4 Wherever in this Lease the term "Fixed Net Rent" appears, it
shall be deemed to be the amount set forth for the First Lease Year, as
increased from time to time pursuant to the provisions of Section 2.1 hereof.
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<PAGE>
Article 3
Impositions and Charges
3.1 Tenant shall, as additional rent, pay and discharge:
(a) all real estate taxes, assessments, water charges, water
meter charges (including, without limitation, any expenses incident to the
installation, repair or replacement of any water meter), sewer rents, sewer
charges, vault tax, vault charge and all other charges, taxes, rents, levies and
sums of every kind or nature whatsoever, extraordinary as well as ordinary,
whether or not now within the contemplation of the parties, as shall, during the
Term, be imposed by any governmental or public authority upon, or become a lien
in respect of, the Leased Premises, any Improvement situated on the Leased
Premises, or any part thereof, or upon any sidewalk or street in front of or
adjacent to the Leased Premises, or that may become due and payable with respect
thereto, and any and all taxes, assessments and charges levied, assessed, or
imposed upon the Leased Premises in lieu of, or in addition to, the foregoing,
under or by virtue of any present or future laws, rules, requirements, orders,
directives, ordinances, or regulations of the United States of America, or of
the State, County or City government, or of any municipal bureau, department, or
other lawful authority whatsoever;
(b) all charges for fire alarm service, gas, electricity,
steam and all other public utility or similar service or services furnished
during the Term to the Leased Premises, any Improvement situated on the Leased
Premises, or any part thereof all fees and charges of the Federal, State; County
or City government, or of any municipal bureau, department, or other lawful
authority whatsoever, for the construction, maintenance or use of any street or
sidewalk adjacent to the Leased Premises and all fees and charges for the
construction, maintenance, use, or occupancy, during the Term, of the Leased
Premises, any Improvement now or hereafter situated on the Leased Premises, or
any part thereof; and
(c) all taxes and assessments that shall or may, during the
Term, be charged, levied, assessed, or imposed upon, or become a lien upon, the
personal property of Tenant used in connection with the operation of the Leased
Premises, any Improvement situated on the Leased Premises, or any part thereof,
or in connection with Tenant's business conducted thereon or therein.
Nothing herein contained shall be construed so as to require Tenant to pay, or
be liable for any taxes and assessments attributable to a period prior to the
commencement of the Term, nor any gift, inheritance, estate, franchise, income,
profits, capital, or similar tax imposed upon Landlord, unless such tax shall be
imposed or levied upon, or with respect to, the rents payable to Landlord
hereunder in lieu of one or more of the charges or impositions described in
sub-section (a), (b) and/or (c) above, in which event Tenant covenants and
agrees to pay such tax as if the Leased Premises were the only property owned by
Landlord.
-5-
<PAGE>
3.2 Tenant shall be deemed to have complied with the requirements of
Section 3.1 if Tenant shall:
(a) pay each such imposition or charge prior to the expiration
of the period within which payment is permitted without penalty or interest,
(b) promptly procure an official receipt from the appropriate
taxing authority, if available, or other evidence of payment, evidencing each
such payment; and
(c) within thirty (30) days after the expiration of the
payment period described in subsection (a) above, and upon Landlord's request
therefor, exhibit to Landlord such official receipt or such time, such other
evidence of payment as Landlord shall reasonably request.
In the event that, at any time during the Term of this Lease, either:
(i) Tenant shall foil to pay any such imposition or
charge as and when provided in subsection (a) above and shall not cure such
failure within 30 days after written notice from Landlord;
(ii) Tenant shall fail to deliver to Landlord any
receipt or other evidence of payment required to be delivered to Landlord
pursuant to the term of subsection (c) above within thirty (30) days after
Landlord's request therefor,
(iii) any of the contingencies set forth in subsections
(a) through (e) of Section 15.1 shall occur; and/or
(iv) an Event of Default (as such term is defined in
Section 16.01) shall occur,
then, notwithstanding anything to the contrary provided in this Section 3.2,
Landlord shall have the right, at Landlord's option and in addition to all other
rights and remedies that shall be available to Landlord as a result thereof to
require Tenant to:
(x) promptly deposit with Landlord funds for the payment
of all then current impositions and charges of the nature described in Section
3.1 required to be paid by Tenant hereunder; and
(y) also, to the extent Landlord is required to do so by
an institutional lender or lenders holding a mortgage on any portion of the
Leased Premises, deposit one-twelfth (1/12) of the current impositions and
charges (with respect to such portion), or those of the preceding year(s) if the
current amount(s) thereof have not been fixed, on the first day of each month in
advance, except that all additional funds required for any payments thereof
shall
-6-
<PAGE>
also be deposited as aforesaid on the first day of the final month during which,
or at the end of which, a payment is due and payable without interest or
penalty.
3.3 In any action or proceeding involving any question arising under
the provisions of this Article 3, a search, certificate, or receipt made or
given by any person or entity legally authorized to make or give the same,
certifying or showing, or purporting to certify or show, that any charge or
imposition referred to in this Article 3 is due and payable on the date of said
search or certificate, or has been paid as of the date of such receipt, shall be
prima facie evidence that such charge or imposition was due and payable, all
upon, or a charge against, the Leased Premises or the Improvements, or paid, as
the case may be. Landlord or Tenant shall be protected in any action that it may
take in reliance upon any such certificate, search, or receipt.
3.4 Tenant may, at its own expense, contest in good faith and by
appropriate proceedings, any tax, assessment, imposition or charge referred to
in this Article 3, and to appeal any adverse determination, provided that Tenant
shall have deposited with the fee mortgagee with respect to the Leased Premises
(or, if the Leased Premises are not subject to a fee mortgage, with the New York
office of a title insurance company designated by Landlord), if Landlord so
requires, the amount of the item so contested (or, where permitted by law, paid
the same under protest), together with such additional sums as may reasonably be
required to cover interest or penalties accrued and to accrue on any such item
or items, and provided, further, that no Event of Default shall have occurred
and be continuing under the terms of this Lease. Any refund obtained by Tenant
or Landlord (net of recovery costs) on account of taxes paid by Tenant shall be
Tenant's sole property. If such contest involves real estate taxes, any
additional taxes, interest, court costs, penalties and/or other charges directed
to be paid as a result of such contest shall be forthwith deposited by Tenant
with the fee mortgagee or title company (as the case may be), if Landlord so
requires, to enable Landlord to comply with the adjudication of said contest.
Nothing herein contained, however, shall relieve Tenant of the obligation and
duty to pay and discharge such contested items, as finally adjudicated, with
interest and penalties, and all other charges directed to be paid in or by any
such adjudication, less such sums as shall have been deposited as aforesaid. Any
such contest or legal proceeding shall be begun by Tenant as soon as reasonably
possible after the imposition of any contested item and shall be prosecuted to
final adjudication with all reasonable promptness and dispatch except, however,
that Tenant may, in its discretion, consolidate any proceeding to obtain a
reduction in the assessed valuation of the Leased Premises and the Improvements
for real estate tax purposes relating to any tax year with any similar
proceeding or proceedings relating to one or more other tax years. Anything to
the contrary herein notwithstanding Tenant shall pay all such contested items
before the time when the Leased Premises or any part thereof might be forfeited
as a result or nonpayment. Landlord shall cooperate with Tenant with respect to
such contest to the extent reasonably necessary, but all costs, fees and
expenses incurred in connection with such proceedings shall be borne by Tenant.
Tenant will give Landlord written advance notice of Tenant's intention to make
any such contest.
-7-
<PAGE>
3.5 At the commencement and expiration of the Term, all impositions
and charges referred to in this Article 3 for the period or periods in which the
Commencement Date or the Expiration Date (as the case may be) shall occur,
whether accrued or prepaid (as the case may be), shall be apportioned between
Landlord and Tenant in accordance with the usual practice and custom then in
effect in the City of New York.
3.6 If, by law, any assessment for a public improvement with respect
to the Leased Premises or any Improvements situated thereon is payable at the
option of the taxpayer, in installments, Tenant may, whether or not interest
shall accrue on the unpaid balance thereof, pay the same, and any accrued
interest or any unpaid balance thereof, in installments, as each installment
becomes due and payable, but in any event before any fine, penalty, interest, or
cost may be had thereto for non-timely payment of any installment or interest.
Any such installment(s) becoming due for a period commencing after the
Expiration Date shall not be Tenant's obligation to pay, and any installment(s)
becoming due for a period including the Expiration Date shall be adjusted
between the parties as set forth in Section 3.5 above. Any refunds resulting
from overpayment of impositions resulting from Tenant contesting any imposition,
if received by Landlord, shall be paid to Tenant. This provision shall survive
the termination of the Term hereof.
Article 4
Subordination
4.1 Subject to the terms and conditions contained herein, this Lease
is subject and subordinate to all ground, overriding, or underlying leases, as
well as to all mortgages that may now or, subject to the provisions of Sections
4.2 and 4.3 below, hereafter affect such leases or the Leased Premises, and to
all renewals, modifications, consolidations, replacements and extensions of any
such leases and/or mortgages. This Section 4.1 shall be self-operative, and no
further instrument of subordination shall be required by any such ground or
underlying lessor or mortgagee. In confirmation of such subordination, Tenant
shall execute promptly any reasonable certificate that Landlord, or any such
lessor or mortgagee, may request.
4.2 Landlord shall use reasonable, good faith efforts to obtain a
non-disturbance agreement substantially in the form hereinafter described from
any existing mortgagees, but the failure to obtain the same shall not be a
Landlord default, so long as Landlord uses good faith, diligent efforts.
Landlord represents to Tenant that as of the date of this Lease there are no
ground, overriding or underlying leases affecting the Leased Premises which are
superior to this Lease. The subordination of this Lease to ground, overriding,
or underlying leases entered into after the date of this Lease is subject to
the express conditions that, so long as this Lease shall be in full force and
effect in the event of termination of the term of any such ground, overriding,
or underlying lease by reentry, notice, summary proceedings, or other action or
proceeding, or if the term of such ground, overriding, or underlying lease shall
otherwise terminate or expire before the termination or expiration of the Term
of this Lease:
-8-
<PAGE>
(a) Tenant shall not be made a party to any action or
proceeding to remove or evict Tenant or the tenant under such ground,
overriding, or underlying lease, or to disturb its possession by reason of, or
based upon, such termination or expiration of the term of such ground,
overriding or underlying lease; and
(b) This Lease shall continue in full force and effect as a
direct lease between Tenant and the then owner of the fee or the lessor of such
ground, overriding, or underlying lease, as the case may be, upon all of the
obligations of this Lease, except that said owner or lessor shall not:
(i) be liable for any previous act or omission of any
prior landlord (including Landlord) under this Lease;
(ii)be subject to any offset, not expressly provided for
in this Lease, that shall have theretofore accrued to Tenant against Landlord;
or
(iii) be bound by
(x) any previous modification of this Lease, not
expressly provided for in this Lease, where Tenant shall have, prior to such
modification, received notice of such ground, overriding, or underlying lease;
or
(y) any previous prepayment of more than one
month's Fixed Net Rentor any additional rent then due,
unless such modification or prepayment shall have been expressly approved in
writing by the lessor of the superior lease through, or by reason of which, said
owner or lessor shall have succeeded to the rights of Landlord under this Lease.
4.3 The subordination of this Lease to the liens of mortgages
granted or modified by Landlord after the date of this Lease is subject to the
express conditions that, so long as this Lease shall be in effect:
(a) Tenant shall not be named or joined in any action or
proceeding to foreclose any such mortgage;
(b) such action or proceeding shall not result in a
cancellation or termination of the Term of this Lease;
(c) if the holder of any such mortgage becomes the owner of
the fee or the assignee of any ground or underlying lease referred to in Section
4.1, or the lessee of any other lease given in substitution therefor, or if the
Land or the Building shall be sold as a result of any action or proceeding to
foreclose such mortgage, this Lease shall continue in full force and effect as a
direct lease between Tenant and the then owner of the fee, the then lessee of
such
-9-
<PAGE>
ground, overriding, or underlying lease, the lessee of any other lease
given in substitution therefor, or such purchaser of the Land or Building, as
the case may be, upon all of the obligations of this Lease, except that such
owner, lessee, or purchaser shall not:
(i) be liable for any previous act or omission of any
prior landlord (including Landlord) under this Lease;
(ii)be subject to any offset;
(iii) be bound by:
(x) any previous modification of this Lease, not
expressly provided for in this Lease, where Tenant shall have, prior to such
modification, either received notice of such mortgage; or
(y) any previous prepayment of more than one (1) month's
Fixed Net Rent or any additional rent then due,
unless such modification or prepayment shall have been expressly approved in
writing by the holder of the superior mortgage through, or by reason of which,
such owner, lessee, or purchaser shall have succeeded to the rights of Landlord
under this Lease; and
(d) such mortgage shall provide that, notwithstanding anything to
the contrary contained therein, the proceeds of any insurance maintained by
Tenant under this Lease or any condemnation award receivable by Tenant pursuant
hereto shall be applied and distributed in accordance with the provisions of
this Lease.
4.4 If Tenant shall give Landlord any notice of a claimed default or
breach by Landlord, Tenant agrees to give a similar written notice to the
holder(s) of record of any fee mortgage(s) with respect to the Leased Premises,
provided that Tenant has received written notice of the existence of such fee
mortgage(s), including the name and address of the then holder(s) of such
mortgage(s). Such notice(s) to be given by Tenant to the holder(s) of record of
any fee mortgage(s) shall be sent by registered or certified mail to such
holder(s) at their respective addresses specified in the mortgage instruments,
or to any different address that they may designate for the purpose by written
notice given to Tenant in the manner provided in this Lease for notices to be
given to Tenant. Such mortgagee(s) shall be permitted to correct or remedy
Landlord's breach or default within the same time within which Landlord may do
so, and with like effect as if Landlord had done so. In in the event, however,
that such breach or default is of a nature that the same cannot be corrected or
remedied by such mortgagee(s) without first obtaining possession of the Leased
Premises from Landlord, and such mortgagee(s) inform Tenant that it (they)
intend to cure following the obtaining of possession, the time herein before
allowed to such mortgagee(s) to cure shall be extended for the period necessary
to obtain possession of the Leased Premises from Landlord. Tenant's failure to
give any holder of a fee mortgage the notice provided in this paragraph shall
not be deemed a default by Tenant under
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this Lease, but no notice given by Tenant to Landlord of any claim, default, or
breach by Landlord shall be deemed legally effective until Tenant shall have
given such notice to any and all such holders of fee mortgages with respect to
the Leased Premises.
4.5 In the event that any mortgagee comes into possession or ownership
of the fee title to the Leased Premises, or acquires the leasehold interest of
Landlord, by foreclosure of its mortgage, by proceedings on the underlying bond
or debt, or otherwise, Tenant agrees to attorn to such mortgagee as its new
lessor. In no event, however, shall Tenant be entitled to credit against such
mortgagee in possession of the Leased Premises, or against any mortgagee or
other party that otherwise becomes the new lessor of Tenant as provided in this
Section 4.5, for any Fixed Net Rent paid by Tenant to the predecessor of such
mortgagee or other party for more than one (1) month in advance or any
additional rent then due. The provisions for attornment hereinbefore set forth
in this Article 4 shall not require the execution of any further instrument.
However, if the holder of any fee mortgage and/or any party to whom Tenant
agrees to attain as aforesaid reasonably requests a further instrument
expressing such attornment, Tenant agrees to execute the same in form reasonably
acceptable to such mortgagee and/or party within fifteen (15) days after a
request made do so in accordance with the provisions of this Lease, provided
such instrument does not increase Tenant's obligations or adversely affect
Tenant's rights.
Article 5
Use of the Leased Premises
5.1 Except as otherwise provided in Section 52, Tenant shall be
permitted to use the Leased Premises for any and all lawful purposes, subject,
however to:
(a) the laws, ordinances, orders, rules and regulations
(including, without limitation, zoning ordinances) now in effect or hereafter
adopted by all governmental and quasi-governmental authorities having or
assessing jurisdiction, and
(b) such conditions, restrictions and other encumbrance of
record, if any, to which the Leased Premises are subject at the date of this
Lease being those set forth in Exhibit "C" hereof.
5.2 Notwithstanding anything to the contrary provided in Section
5.1, Tenant shall not use or occupy the Leased Premises, permit or suffer the
same to be used or occupied and/or do, or permit or suffer anything to be done,
in or on the Leased Premises or any part thereof, that would, in any manner or
respect:
(a) violate any certificate of occupancy in force relating to
any Improvement situated on the Leased Premises (unless Tenant obtains an
amendment to the certificate of occupancy in order to avoid such violation);
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(b) make void or voidable any insurance then in force with
respect to the Leased Premises, or render it impossible to obtain fire or other
insurance thereon required to be furnished by Tenant under this Lease;
(c) cause structural or other injury to any of the
Improvements, or constitute a private or public nuisance or waste; and/or
(d) render the Leased Premises incapable of being used or
occupied after the expiration or sooner termination of the Term of this Lease
for the purposes for which the same were used and occupied on the Commencement
Date (such use being the sales, lease and service of motor vehicles), whether by
reason of alterations or improvements or by reason of the loss of
"grandfathered" zoning or use rights to use such location as an automobile
dealership.
5.4 Nothing contained in this Lease, and no action or inaction by
Landlord, shall be deemed or construed to mean that Landlord has granted to
Tenant any right, power, or authority to do any act, or to make any agreement,
that may create, give rise to, or be the foundation to any right, title,
interest, lien, charge, or other encumbrance upon the estate of Landlord in the
Leased Premises.
5.5 Notwithstanding anything in this Lease to the contrary, Landlord
shall have the right throughout the Term to apply for such licenses, permits or
other approvals pursuant to any laws, ordinances, orders, rules or regulations
(including without limitation, zoning ordinances) now in effect or hereafter
adopted by any governmental or quasi governmental authorities, whether or not
the approval of such applications would result in a change in the permitted use
of the Leased Premises, provided only that as a result thereof the Leased
Premises will not be rendered incapable of being used or occupied during the
Term of this Lease for the purposes for which the same were used and occupied on
the Commencement Date (such use being the sales, lease and service of motor
vehicles). Tenant agrees to cooperate with Landlord with regard to such
applications, including the joinder therein if deemed necessary or desirable by
Landlord, but at no cost to Tenant
Article 6
No Representations by Landlord
6.1 (a) Tenant acknowledges to Landlord that Tenant has examined
Landlord's tide to, as well as the physical condition of the Leased Premises
prior to the execution and delivery of this Lease and has found the same to be
satisfactory to it for all purposes hereof In view thereof Tenant has accepted
the Leased Premises "AS IS" and "WHERE IS" without any representation or
warranty by Landlord of any kind or nature, including without limitation as to
Landlord's title to the Leased Premises, the physical and environmental
condition of the Leased Premises or the use or occupancy that may be made of the
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Leased Premises. Landlord represents and warrants to Tenant that Landlord holds
fee title to the Leased Premises at the time of the execution of this Lease.
(b) Tenant assumes the sole responsibility for the condition,
operation, maintenance and management of the Leased Premises, and Landlord shall
not be required to furnish any facilities or services or make any repairs or
alterations thereto. Without limiting the foregoing, Tenant shall have no claims
or recourse against Landlord with respect to the condition (including
environmental conditions) or permitted use of the Leased Premises as of the date
of this Lease and Tenant hereby waives any such claims against Landlord.
Article 7
Landlord Not Liable for Failure of Water Supply, Etc.
7.1 Landlord shall not be liable for:
(a) any failure of water supply, gas, or electric current, nor
for any injury or damage to person or property for any reason whatsoever,
including, without limitation, that caused by or resulting from:
(i) hurricane, tornado, flood, wind, or similar storms
or disturbances; or
(ii) the leakage or flow of gasoline, oil, gas,
electricity, steam, water, rain, or snow from the street, sewer, gas mains,
tanks, wires, lines, any subsurface area, an part of the Improvements, pipes,
appliances, plumbing works, or any other place; or
(b) any interference with light or other incorporeal
hereditaments by anybody, or caused by operations by or of any public or
quasi-public work.
Article 8
Tenant to Repair
8.1 Tenant shall take good care of the Leased Premises and of the
Improvements now or hereafter situated thereon, both inside and outside, and
keep the same and all parts thereof (including without limitation the generality
thereof, the roofs, foundations and appurtenances thereto, together with any and
all alterations, additions and improvements therein or thereto) in good order
and condition, suffering no waste or injury. Subject to the terms of Section 8.3
below, Tenant shall, at Tenant's expense, promptly make all needed repairs and
replacements, structural or otherwise, ordinary and extraordinary, in and to the
Improvements now or hereafter erected upon the Leased Premises, including, but
not limited to sidewalks, curbs, water, electric lines, and gas connections,
pipes and mains, and all other fixtures, machinery and equipment now or
hereafter belonging to or used in connection with the Leased
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Premises (whether or not located thereon) or used in the operation of the
Improvements. All such repairs and replacements shall be of good quality
sufficient for the proper maintenance and operation of the Leased Premises and
the Improvements thereon (but need not be of greater quality than the original
quality of that which is being repaired or replaced), shall be constructed and,
subject to Section 9.2 below, installed in compliance with all requirements of
all governmental authorities having jurisdiction thereof and of the Board of
Fire Underwriters or any successor thereof. Tenant shall not permit the
accumulation of waste or refuse matter, nor permit anything to be done upon the
Leased Premises or the Improvements that would invalidate or prevent the
procurement of any insurance policies that may at any time be required pursuant
to the provisions of Article 12. Tenant shall not obstruct, or permit the
obstruction of, any street, road, walk, or sidewalk located on or adjoining the
Leased Premises, except as may be permitted by all governmental authorities
having jurisdiction thereof and shall keep any sidewalks adjoining the Leased
Premises clean and free of snow and ice.
8.2 Landlord shall not, under any circumstance, be required to build
on the Leased Premises, or to make any repairs, restorations, replacements,
alterations, or renewals of any nature or description to the Leased Premises or
to any of the Improvements, whether interior or exterior, ordinary or
extraordinary, structural or nonstructural, foreseen or unforeseen, to make any
expenditure whatsoever in connection with this Lease, or to inspect or maintain
the Leased Premises in any way. Tenant hereby waives the right to make repairs,
restorations, replacements, alterations, or renewals at the expense of Landlord
pursuant to any law. Additionally, Tenant shall not make any claim or demand
upon, or bring any action against, Landlord for any loss, cost, injury, damage,
or other expense caused by any failure or defect, structural or non-structural,
of the Leased Premises or any part thereof.
8.3 Notwithstanding anything to the contrary contained in Section
8.1 above, but subject in all respects to the provisions of Section 8.2 above,
and further provided that Tenant is not in default under this Lease beyond any
applicable notice and/or grace period, Tenant shall have the right to elect not
to make any structural repair or structural repairs in or to the Leased Premises
(however, Tenant shall continue to be obligated with respect to non-structural
repair or repairs) during the last three (3) years of the Term, provided, and
upon the conditions, that:
(a) Tenant shall give to Landlord written notice of such
election, which notice shall describe the repair or repairs to which such notice
relates with reasonable detail and set forth Tenant's good faith estimate of the
cost and expense of performing the same;
(b) if the need for such repair or repairs shall result from
condemnation, then, notwithstanding anything to the contrary provided in this
Lease, Tenant shall have no right to assert any claim against the condemning
authority, or to receive any award or damages therefrom, for consequential
damage to the portion of the Leased Premises not taken or for restoration costs
and/or expenses (all such claims and rights to claim, as well as all such awards
and/or damages, in such circumstances being hereby irrevocably and
unconditionally assigned by Tenant to Landlord), which awards and/or damages
shall be payable to Landlord in addition to the amounts described in subsections
(a) and (b) of Section 20.3 below and in
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reduction of any amount payable to Tenant pursuant to subsection (c) of Section
20.3, and the terms of Section 20.3 shall not apply thereto;
(c) if the need for such repair or repairs shall result from
the happening of an event as to which insurance is, or is required to be,
maintained by Tenant pursuant to the terms of this Lease, then, notwithstanding
anything to the contrary provided in this Lease:
(i) Landlord shall be entitled to adjust the loss with
Tenant's insurance carrier and to settle the same (in Tenant's name, if
required), without obtaining Tenant's consent thereto;
(ii) Landlord shall be entitled to receive and retain
for its own account any and all insurance proceeds becoming available in
connection therewith (Tenant hereby irrevocably and unconditionally assigning to
Landlord all of Tenant's right, title and interest in and to such proceeds), and
any such proceeds received by Tenant shall be received as trust funds for
Landlord's account and shall be promptly remitted by Tenant to Landlord; and
(iii) in the event that the proceeds of Tenant's
insurance actually received by Landlord shall be insufficient to compensate
Landlord for the entire loss, whether due to an insufficiency in coverage or
otherwise, Tenant shall pay to Landlord, as additional rent hereunder within ten
(10) days after Landlord's demand therefor, the amount of the shortfall;
(d) neither the failure of such repair or repairs to be made
nor Landlord's election to make the same pursuant to subsection below shall:
(1) entitle Tenant to terminate this Lease;
(ii) permit Tenant to a reduction or abatement of; or a
credit or off-set against, the full Fixed Net Rent and/or additional rent
otherwise thereafter becoming due hereunder; nor
(iii) otherwise affect or diminish, in any manner or
respect whatsoever, any of Landlord's rights and/or Tenant's other obligations
under this Lease;
(e) notwithstanding the foregoing, Tenant shall make such
repair or repairs at its sole cost and expense, as set forth in Section 8.1,
if (x) the need for such repair or repairs shall result other than from
condemnation and other than from the happening of an event as to which insurance
is, or is required to be, maintained by Tenant pursuant to this Lease and (y)
the failure to make such repair or repairs shall or could:
(i) create or lead to an unsafe condition of any nature
whatsoever;
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(ii) result in the invalidation of any policy or
policies of insurance maintained, or required to be maintained, by Tenant
pursuant to the terms of this Lease, or result in the reduction of the coverage
provided, or to be provided, thereunder; or
(iii) constitute a crime or an offense punishable by
fine or imprisonment (including, without limitation, result in the filing of a
violation against the Leased Premises or the issuance of any other order or
directive to make such repair or repairs by any governmental agency or authority
having jurisdiction); and
(f) if the failure to make such repair or repairs shall or could
constitute a default under any fee mortgage or if the nature of such repair or
repairs is such that Tenant would be required to make the same pursuant to
subsection (e) above but for the provisions of sub-subsection (x) of such
subsection (e), Tenant shall, if Landlord so elects in its sole discretion,
afford Landlord with all necessary and/or desirable access to the Leased
Premises so as to enable Landlord to perform such repair or repairs for its own
account, and Tenant shall otherwise cooperate with Landlord in connection with
the same in all reasonable respects.
In the event that Landlord shall make a demand upon Tenant pursuant to
sub-subsection (iii) of subsection (c) above and Tenant shall dispute the amount
claimed by Landlord, the dispute shall be resolved, upon the petition of either
party, by an arbitration conducted by the parties in accordance with the
provisions of Article 21 below. Tenant's obligations under subsections (b) and
(c) and, if applicable, subsection (e) of this Section 8.3 shall survive the
expiration or sooner termination of the Term.
Article 9
Tenant to Comply with Laws; Environmental Matters
9.1 Tenant shall, at Tenant's expense, promptly comply with:
(a) the requirements of every applicable statute, law,
ordinance, regulation, or order now or hereafter made by any Federal, State,
County, municipal, or other public body, department, bureau, officer or
authority, with respect to:
(i) the Leased Premises, the Improvements and
appurtenances thereto (including without limitation, any vaults with respect
therto);
(ii) the use or occupation of the Leased premises and
the Improvements, including the making of any alteration or addition in or to
any structure upon, connected with, or appurtenant to, the Leased Premises; and
(iii) the removal of any encroachment arising after the
Commencement Date, but only if required to do so by order of any court,
department, or bureau having jurisdiction;
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(b) the requirements of all easements, restrictions and other
documents existing of record as of the date of this Agreement of Lease and/or
hereafter granted by Landlord with the prior written consent or joinder of
Tenant, which consent or joinder shall not be unreasonably withheld or delayed
by Tenant; and
(c) any applicable regulation or order of the Board of Fire
Underwriters, Fire insurance Rating Organization, or other body having similar
functions, whether or not such compliance involves structural repairs or
changes, whether or not such compliance is required on account of any particular
use to which the Leased Premises, the Improvements, or any part thereof may be
put, whether or not any such statute, law, ordinance, requirement, regulation,
or order is of a kind now within the contemplation of the parties hereto and
regardless of the cost thereof.
9.2 Provided that non-compliance therewith shall not constitute a
crime or an offense punishable by fine or imprisonment, and provided, further,
that no Event of Default shall have occurred and be continuing under the terms
of this Lease, Tenant may, at Tenant's expense, contest the validity of any such
law, ordinance, regulation, order, or requirement, and such noncompliance by
Tenant during such contest, provided that such contest shall be diligently
prosecuted, shall not be deemed a breach of this covenant, provided that, before
the commencement of such contest, Tenant shall furnish to Landlord, if Landlord
so requires, either:
(a) the bond of a surety company reasonably satisfactory to
Landlord, which bond shall:
(i) be, as to its provisions and form, reasonably
satisfactory to Landlord;
(ii) be in an amount at least equal to one hundred and
ten per centum (110%) of the estimated cost of such compliance; and
(iii) indemnify Landlord against the cost of such
compliance, as well as against all liability for any damages, interests,
penalties and expense (including reasonable fees of attorneys or counsel),
resulting from or incurred in connection with such contest or non-compliance; or
(b) other security, in lieu of such bond that is reasonably
satisfactory to Landlord as to form and amount.
Landlord shall cooperate with Tenant with regard to any such contest
to the extent reasonable necessary, provided that in Landlord's reasonable
judgement the change sought by Tenant would not have an adverse effect upon the
value of Landlord's interest in the Leased Premises and provided that all fees
and expenses incurred in connection with such proceedings shall be borne by
Tenant.
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9.3 Subject to Section 9.2 above, Tenant shall conduct, and cause to
be conducted, all operations and activity at the Leased Premises in compliance
with, and shall in all other respects applicable to the Leased Premises comply
with, all applicable present and future federal, state, municipal and other
governmental statutes, ordinances, regulations, orders, directives, guidelines
and other requirements, and all present and future requirements of common law,
concerning the environment (hereinafter called "Environmental Statutes")
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.ss.9601 et seq., the Resource
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Conservation and Recovery Act, 42 U.S.C. ss.ss.9601 et seq,, the Clean Air Act,
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42 U.S.C. ss.ss.7401 et seq., and the Toxic Substances Control Act, 15 U.S.C.
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ss.ss.2601 et seq., (i) those relating to the generation, use, handling,
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treatment, storage, transportation, release, emission, disposal, remediation or
presence of any material, substance, liquid, effluent or product, including,
without limitation, hazardous substances, hazardous waste or hazardous
materials, (ii) those concerning conditions at, above or below the surface of
the ground and (iii) those concerning conditions in, at or outside of buildings.
(b) Tenant, in a timely manner, shall obtain and maintain in
full force and effect all permits, licenses and approvals, and shall make and
file all notifications and registrations, as required by Environmental Statutes.
Tenant (subject to Tenant's right to contest as elsewhere provided) shall at all
times comply with the terms and conditions of any such permits, licenses,
approvals, notifications and registrations.
(c) Tenant shall provide to Landlord copies of the following,
forthwith after each shall have been submitted, prepared or received by Tenant
or any affiliate of Tenant: (i) all applications and associated materials
submitted to any governmental agency relating to any Environmental Statute; (ii)
all permits, licenses, approvals, and amendments or modifications thereof,
obtained under any Environmental Statute; and (iii) any notice of violation,
summons, order, or complaint, received by Tenant or any occupant of the Leased
Premises pertaining to compliance with any Environmental Statute.
(d) Tenant, without the prior written consent of Landlord,
shall not install or cause, suffer or permit the installation of; any above or
underground storage tank at the Leased Premises. If Tenant does install or
cause, suffer or permit the installation of any such tank, Tenant shall comply
with all applicable laws as to its installation, maintenance, operation and
closure, including any requirement for the maintenance of liability insurance
with respect to risks associated with any such tank. If such liability insurance
is required to be maintained, Landlord shall be named as an additional insured
thereunder. Upon termination of this Lease, Landlord shall have the option of
requiring that Tenant, at Tenant's sole cost and expense, remove any tank
installed by Tenant and any associated contaminated material and other
contamination and perform all tests required by Landlord and any required by
Environmental Statutes and any other applicable governmental requirements and
provide Landlord and all required government agencies with the results of such
tests in such form as reasonably required by Landlord or as required by law.
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(e) Tenant shall not cause or suffer or permit to occur at,
in, on or under the Leased Premises any generation, use, manufacturing,
refining, transportation, emission, release, treatment, storage, disposal,
presence or handling of hazardous substances, hazardous wastes or hazardous
materials (as such terms are now or hereafter defined under any Environmental
Statute) (herein called "Hazardous Substances"), except that construction
materials (other than asbestos or polychlorinated biphenyls), office equipment,
fuel and similar products and cleaning solutions, and other maintenance
materials that are or contain Hazardous Substances, and other Hazardous
Substances which are contained in a suitable and safe manner, may be used,
generated, handled or stored on the Leased Premises, provided such is incident
to and reasonably necessary for the operation and maintenance of the Leased
Premises as an automobile dealership and service center and incidental uses,
including the leasing of motor vehicles and their storage, and is in compliance
with all Environmental Statutes and all other applicable governmental
requirements. Should any release of any Hazardous Substance occur at the Leased
Premises, Tenant shall promptly contain, remove and dispose of such Hazardous
Substances, and any material that was contaminated by the release and remedy and
mitigate all threats to human health or the environment relating to such release
as and to the extent required by applicable Environmental Law. When conducting
any such measures, Tenant shall comply with Environmental Statutes.
(f) If the use of the Leased Premises by Tenant, or any
operation or activity conducted at the Leased Premises during the Term of this
Lease, shall be such as requires, under any present or future Environmental
Statute, the obtaining of an approval (herein called an "Environmental Approval
of Transfer or Change") by any governmental agency, or an acknowledgment by such
agency that such approval is not required, (i) in order to change or transfer
ownership of the Leased Premises, (ii) in order to change or transfer Tenant's
interest in this Lease or any interest in Tenant or in any entity which directly
or indirectly controls Tenant or (iii) in connection with: (A) cessation of all
or any operations or activity at the Leased Premises for any reason or (B) a
change in or transfer of any operations or activity at the Leased Premises or
(C) the expiration or termination of this Lease (each of the transactions and
occurrences referred to in the foregoing clauses (i), (ii) or (iii) being
hereinafter called a "Change"), Tenant, at Tenant's sole cost and expense,
shall, in compliance with all Environmental Statutes, apply for, and prior to
the Change deliver to Landlord, a copy of the required approval or
acknowledgment and Tenant shall perform or cause to be performed all remedial
actions required by such governmental agency for the issuance of the approval,
in whole or in part by reason of Tenant's use of the Leased Premises or
operations or activities at the Leased Premises during the Term of this Lease;
provided that as to any Change which is a change or transfer of ownership of the
Leased Premises or of an interest in Landlord or in any entity which directly or
indirectly controls Landlord, Tenant shall instead (x) promptly comply with any
request of Landlord to provide such information, statements or affidavits as to
operations and activities at the Leased Premises during the Term of this Lease,
and as to the use of the Leased Premises by Tenant as may be determined by
Landlord to be necessary, (y) either promptly perform or, at the option of
Landlord, reimburse Landlord within fifteen (15) days after demand for
Landlord's costs of, all remedial actions required by any governmental agency
for issuance of the Environmental Approval of Transfer or Change and (z) pay, or
reimburse
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Landlord for, all other costs and expenses which are attributable to the
existence of Tenant's tenancy or to Tenant's use of the Leased Premises or to
any operation or activity at the Leased Premises during the Term of this Lease
and were incurred to obtain such required approval or acknowledgment. Tenant
covenants, represents and warrants that any application, statement or
information made or provided by or through Tenant pursuant to this subsection
shall be true and complete. If there should be an Environmental Statute which
requires an Environmental Approval of Transfer or Change, but such requirement
shall not have been made applicable by Tenant's use of the Leased Premises or
operations or activities conducted at the Leased Premises during the Term of
this Lease, and if an official statement of such non-applicability shall be
obtainable from the applicable governmental agency, then, whether or not the
obtaining of such statement is required by law, Tenant, at Tenant's sole cost
and expense, shall obtain and deliver such statement to Landlord before the
change occurs (in the case of a change described in clause (ii) & clause (iii)
above) or promptly upon request of Landlord (in the case of a change described
in clause (i) above).
(g) Tenant agrees to permit Landlord and its authorized
representatives to enter, inspect and assess the Leased Premises at reasonable
times and after reasonable notice, for the purpose of determining Tenant's
compliance with the provisions of this Section 9.3.
(h) Tenant hereby agrees to indemnify and to hold harmless Landlord
of, from and against any and all expense, loss or liability suffered by Landlord
by reason of Tenant's breach of any of the provisions of this Section 9.3
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including, but not limited to, (i) any and all expenses that Landlord may incur
in complying with any Environmental Statutes, (ii) any and all costs that
Landlord may incur in studying, assessing, containing, removing, remedying,
mitigating, or otherwise responding to, the release of any Hazardous Substance
or waste at or from the Leased Premises, (iii) any and all costs for which
Landlord may be liable to any governmental agency for studying, assessing,
containing, removing remedying, mitigating, or otherwise responding to, the
release of a Hazardous Substance or waste at or from the Leased Premises, (iv)
any and all fines or penalties assessed, or threatened to be assessed, upon
Landlord by reason of a failure of Tenant to comply with any obligations,
covenants or conditions set forth in this Section 9.3 and (v) any and all legal
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fees and costs incurred by Landlord in connection with any of the foregoing.
(i) No subsequent modification or termination of this Lease by
agreement of the patties, or otherwise shall be construed to waive, release or
to modify, any provisions of this Section 5.3, unless the termination or
modification agreement or other document so states in writing and makes specific
reference to this Section 9.3.
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Article 10
Purchase Option
10.1 Provided that (i) Tenant shall have timely and effectively
exercised the First Option, (ii) Tenant shall not have exercised the Additional
Option, (iii) the Lease remains in full force and effect, and (iv) at the time
of the exercise of the Option herein granted and during the remainder of the
Term until and including the Closing Date hereinafter referred to, Tenant shall
not be in default of any term, covenant, condition or agreement provided for in
this Lease, then Tenant shall have the option to purchase the Leased Premises
(the "Purchase Option"), exercisable only by written notice to Landlord given
not later than February 1, 2006. Upon the timely and effective exercise of the
Purchase Option by Tenant, this Lease, together with the notice from Tenant
exercising the Purchase Option shall also be deemed to be an agreement of sale
and purchase between Landlord and Tenant with respect to the Leased Premises
without the necessity of any further act or agreement it being understood and
agreed that pending the consummation of closing for such purchase and sale, this
Lease will remain in full force and effect, as a lease, and Tenant will remain
obligated to perform all of its obligations under this Lease, including, without
limitation, the obligation to pay Fixed Net Rent, Incremental Rent and/or
Appraisal Rent and Additional Rent. The Purchase Option shall be subject to the
following terms and provisions:
(a) Closing for the sale and purchase of the Leased Premises
shall take place commencing at 10 a.m. prevailing time, on February 1, 2007 at
the offices of Wolf Block, Schorr and Sois-Cohen LLP. 250 Park Avenue, New York,
NY or at such other place as may be designated by Landlord by notice given to
Tenant at least ten business days before the Closing Date.
(b) The purchase price ("Purchase Price") for the Leased
Premises shall be the Fair Market Value of the Leased Premises, which shall be
determined and paid as hereinafter set forth. All payments on account of the
Purchase Price shall be made by wire transfer of immediately available funds to
an account designated by Landlord.
(c) Fair Market Value shall be determined pursuant to the
following procedures:
(i) within ten business days after the last date upon
which the Purchase Option may be exercised (February 1, 2006) Landlord and
Tenant
shalt each select an MAI appraiser and notify the other of the name and address
of the appraiser which it has selected. Each of the parties shall then direct
the appraiser which it has selected that within fifteen (15) days thereafter,
the two MAI appraisers shall select a third MAI appraiser. If they cannot agree
upon such third MAI appraiser within such fifteen (15) day period, the third
appraiser shall be selected by the chief officer of the local MAI chapter in New
York City within the next fifteen (15) days. If the parties do not receive
notice of the selection of the third appraiser within the next fifteen (15)
days, the third appraiser shall be an MAI appraiser selected
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by the chief officer of the New York City office of the American Arbitration
Association upon application of either party. Within thirty days of the
appointment of the third appraiser, the three appraisers shall meet and exchange
their appraisals and the Fair Market Value shall be the average of the Fair
Market Values of the three appraisers, provided that if the Fair Market Value
determined by a Party's appraiser shall be more than 10% different from the Fair
Market Value determined by the third appraiser, the Fair Market Value by such
Party's appraiser shall not be taken into account to calculate the average and,
if the Fair Market Values determined by both Parties' appraisers each shall be
more than 10% different from the Fair Market Value determined by the third
appraiser, the Fair Market Value to be used for the purposes of this subsection
(c) shall be the Fair Market Value as determined by the third appraiser.
(ii) each appraiser, whether appointed by the appraisers
selected by the parties or by the chief officer of the New York City office of
the American Arbitration Association, shall be instructed to determine the Fair
Market Value, and advise Landlord and Tenant thereof, within thirty days after
the appointment of the third appraiser and shall also be instructed that the
determination made by each appraiser shall be the amount of the Fair Market
Value of the Leased Premises which he or she determines to be the Fair Market
Value as of February 1, 2006 for its highest and best use, which shall be the
amount of the cash purchase price that a willing purchaser not compelled to
purchase would pay a willing seller not compelled to sell the Leased Premises,
free and clear of this Lease. Reference herein to an "MAI Appraiser" means that
the appraiser shall be an MAI member of the American Institute of Real Estate
Appraising, or any successor association or body of comparable standing if such
institute is not then in existence. All appraisers shall have a minimum often
(10) years recent experience in the appraisal of commercial real estate in the
Borough of Manhattan, City of New York. For the purposes hereof, the term
"highest and best use" shall be determined without regard to zoning or other use
limitations pursuant to applicable law or regulations, but rather to the highest
and best use assuming that all necessary zoning and other approvals would be
granted and that, if required to achieve such highest and best use, the
improvements upon the Leased Premises were demolished.
(iii) The determination of Fair Market Value pursuant to
the provisions of this Section shall be final and binding upon Landlord and
Tenant. The provisions for determination by appraisal shall be specifically
enforceable to the extent such remedy is available under applicable law, except
in the event that liquidated damages shall be applicable as specifically
hereinafter set forth, and any determination made hereunder shall be final and
binding upon Landlord and Tenant except as otherwise provided by applicable law.
Landlord and Tenant shall each pay the fees and expenses of the appraiser which
it appoints and each shall pay one-half of the fees and expenses of the third
appraiser and one-half of all other costs and expenses incurred in connection
with each appraisal.
(d) As consideration for the grant of the Purchase Option Tenant
shall pay Landlord the sum of One Million Five Hundred Thousand ($1,500,000)
upon and as a condition to the exercise of the Purchase Option and as
consideration for the grant of the Purchase Option by Tenant. Such payment shall
be made by wire transfer of immediately available funds or by
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letter of credit meeting the provisions and conditions hereinafter set forth. If
the payment is to be made by wire transfer, Tenant shall so advise Landlord at
least ten (10) business date prior to date upon which the Purchase Option shall
be exercised and within five (5) business days thereafter, Landlord shall
provide wiring instructions to Tenant. The consideration for the grant of the
Purchase Option shall be deemed earned by Landlord at the time of the exercise
of the Purchase Option, and shall be repaid to Tenant only in the event that
Tenant validly terminates its obligation to purchase the Leased Premises
pursuant to paragraph (1) below.
(e) Within ten business days following the determination of Fair
Market Value, Tenant shall pay to Landlord, to be held by Landlord as security
for Tenant's performance of its obligation to purchase the Leased Premises, an
amount equal to twelve (12%) of such Fair Market Value (the "Security Deposit")
Provided Tenant is not in default beyond any applicable notice and/or grace
period, interest at the rate actually received by Landlord on the Security
Deposit shall be credited to Tenant upon closing having taken place pursuant to
the provisions hereof at which time there shall also be credited to Tenant, on
account of the Purchase Price an amount equal to the Security Deposit and the
$1,500,000 consideration for the grant of the Purchase Option. If Tenant
defaults in completing closing pursuant to the provisions hereof, then Landlord
(in addition to retaining the $1,500,000 consideration for the grant of the
Purchase Option) shall retain the Security Deposit (plus, interest thereon) as
liquidated damages in lieu of any other remedy available to Landlord by reason
of such default by Tenant. Landlord and Tenant have agreed upon the
determination
of the amount of liquidated damages, after negotiation, as the parties'
reasonable estimate of Landlord's damages in the event of such default by Tenant
in completing closing pursuant to its exercise of the Purchase Option.
Notwithstanding the foregoing, if Tenant, having exercised the Purchase Option,
fails to pay the Security Deposit to Landlord within ten business days following
the determination of Fair Market Value, (i) Tenant shall be deemed to be in
default hereunder, (ii) the foregoing provision for liquidated damages shall be
inapplicable and (iii) Landlord shall be entitled to enforce any remedies at law
or in equity (including without limitation a claim in the amount of the Security
Deposit and/or an action to specifically enforce the Purchase Option and this
Lease shall terminate at the election of Landlord.
(i) The Security Deposit, at Tenant's election, may be
cash or a Letter of Credit obtained and maintained at Tenant's cost and expense.
"Letter of Credit" means an irrevocable letter or letters of credit in the form
reasonably approved by Landlord, issued by a bank reasonably accepted in writing
by Landlord, designating Landlord as beneficiary and subject only to such other
conditions as may otherwise be specified in this Lease. Presentment (by the
beneficiary of the Letter of Credit) for payment to the issuer thereof, shall be
in New York County, New York and shall be by correspondent or agency
arrangements.
(ii) If any part of a Security Deposit is a Letter of
Credit the Letter of Credit shall be for a term expiring not earlier than thirty
(30) days following the date for closing under the Purchase Option; if drawn
down by Landlord, proceeds of the Letter of Credit shall be credited on account
of the Purchase Price, or retained as liquidated damages, as the case may be,
pursuant to the provisions hereof.
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(f) Title to the Leased Premises shall be conveyed by bargain and
sale deed with covenant against grantor's acts and shall be insurable as good
and marketable by a reputable title insurance company authorized to transact
business in the State of New York, pursuant to an ALTA (or its successor
organization's) standard form, subject to the standard exceptions thereof and to
the additional exceptions set forth in Exhibit "C" hereof. If Landlord is unable
to convey title to the Leased Premises to Tenant at closing in accordance with
the requirements of this paragraph (f), Tenant shall have the options (i) of
taking such title as Landlord is able to convey, without abatement of the
Purchase Price, except to the extent of the amount of any fixed or ascertainable
liens upon the Leased Premises which are not otherwise the obligation of Tenant
to discharge under this Lease or (ii) of terminating Tenant's obligations to
purchase the Leased Premises, in which latter event the Purchase Option
provisions of this Lease shall be null and void. Provided, however that in the
event of such valid termination of Tenant's obligation to purchase the Leased
Premises, then at the election of Tenant by notice given to Landlord within ten
business days following the date set for closing, the Additional Option shall be
reinstated and deemed exercised by Tenant, "with the provisions hereinabove set
forth for the determination of the Fair Rental Value to be effective; but with
the appointment of the MAI Appraisers by Landlord and Tenant to be made within
ten business days by notification of each to the other.
(g) The sale and purchase of the Leased Premises shall be made on an
"as is" basis, and without any representations or warranties whatsoever,
expressed or implied, being made by Landlord.
(h) If at any time following the exercise of the Purchase Option and
before closing thereunder the Leased Premises or any portion thereof is
destroyed or damaged as a result of fire or other casualty, the rights and
obligations of the parties shall not be affected thereby; provided however that
Tenant shall be entitled to the proceeds of such insurance as may be in effect
with regard to such casualty.
(i) The Purchase Option shall not be assignable by Tenant.
(j) At the closing and as part thereof Fixed Net Rent (which
includes Incremental Rent and/or Appraisal Rent) and all other sums payable by
Tenant to Landlord hereunder shall be apportioned and any sums prepaid as of the
date of closing shall be credited to Tenant at the time of Closing on account of
the Purchase Price. Fixed Net Rent and all such other sums which shall have
accrued through the date of closing shall be paid by Tenant to Landlord at the
time of closing. There shall be no apportionment of impositions and other
charges the payment of which is Tenant's obligation hereunder.
(k) The customs and procedures followed in New York City at the time
of closing, including those relating to documentary, recording and other fees,
charges and taxes imposed by reason of a conveyance of real estate, shall govern
the rights and obligations of the parties to the extent not inconsistent
herewith.
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(l) For the purposes of this Lease, a default by Tenant under this
Article 10 shall be deemed a monetary default, entitling Tenant to only five
business days and not a longer time period) to cure after default notice by
Landlord.
Article 11
Net Lease; Non-Terminability
11.1 This Lease is a net lease, and the Fixed Net Rent (which
includes additional rent and all other sums payable hereunder to, or on behalf
of, Landlord) shall be paid without notice or demand and without setoff,
counterclaim, abatement, suspension, deduction, or defense. Landlord and Tenant
each hereby further agree and confirm that, notwithstanding anything to the
contrary contained in this Lease, it is the purpose and intent of both Landlord
and Tenant that the rents payable under this Lease shall be absolutely net to
Landlord, so that this Lease shall yield, net to Landlord, the Fixed Net Rent
specified herein in each year during the Term.
11.2 Except as otherwise expressly provided herein, this Lease shall
not terminate, nor shall Tenant have any right to terminate this Lease or be
entitled to the abatement of any rent or any reduction thereof, nor shall the
obligations hereunder of Tenant be otherwise affected, any present or fixture
law to the contrary notwithstanding, by reason of:
(a) any damage to, or the destruction of, the Leased Premises,
the Improvements, or any portion thereof, from whatever cause;
(b) the taking of the Leased Premises, the Improvements, or any
portion thereof by condemnation or otherwise, except as, and to the extent,
provided to the contrary in Article 20 below;
(c) the prohibition, limitation, or restriction of Tenant's
use of the Leased Premises, the Improvements, or any portion thereof (including,
without limitation, any diminution in the amount of space usable by Tenant at
the Leased Premises caused by legally required changes in the construction,
equipment, fixture, motors, machinery, operation, or use of the Leased
Premises), or the interference with such use by any private person or entity;
(d) Tenant's acquisition of the fee ownership of the Leased
Premises or the Improvements; or
(e) any other cause whatsoever, whether similar or dissimilar
to the foregoing.
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It being the intention of the parties hereto that the Fixed Net Rent and
additional rent reserved hereunder shall continue to be payable in all events,
and the obligations of Tenant hereunder shall continue unaffected, unless the
requirement to pay or perform the same shall be terminated pursuant to an
express provision of this Lease.
11.3 Except as provided in Article 20 below, Tenant waives all
rights now or hereafter conferred by law to:
(a) quit, terminate, or surrender this Lease or the Leased
Premises, the Improvements or any part thereof; or
(b) any abatement, suspension, deferment, or reduction of the
Fixed Net Rent, additional rent, or any other sums payable under this Lease,
regardless of whether such rights shall arise from any present or future
constitution, statute, or rule of law.
Article 12
Insurance
12.1 Throughout the Term, Tenant shall, at its own cost and expense:
(a) keep the Improvements insured against loss or damage by
fire, windstorm, and other peiils included in so-called "All Risk" or Special
Form Insurance policies and also including coverage for floods, earthquakes, and
sinkholes. Insurance amounts shall be provided for 100% of the full replacement
cost value of buildings and other land improvements. Coverage extensions shall
include: Replacement Cost Value with a Coinsurance Waiver if available, or
Agreed amount Endorsement, and Demolition and Increased Cost of Construction
(Law and Ordinance). Such insurance shall:
(i) be issued by insurance companies authorized to do
business in the State where the Leased Premises are located and be rated in the
latest publication of A.M. Best rating guide or equivalent rating guide at A:IX
or A:VII or or greater, under insurance policies in form and content reasonably
satisfactory to Landlord;
(ii) be carried in the name, and in favor, of Landlord,
Tenant and any fee mortgagee(s), as their respective interests may appear;
(iii) effectively provide that the respective interests
of Landlord and any fee mortgagee(s) therein shall not be subject to
cancellation by reason of any act or omission of Tenant without thirty (30)
days' prior written notice of such cancellation, however, when cancellation is
for nonpayment of premium the insurance company may cancel the policy by giving
at least ten (10) days prior written notice of such cancellation;
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(iv) subject to the requirements of any fee mortgagee,
provide that the loss, if any, under any such policies shall be adjusted by
Tenant that Landlord may participate in the loss adjustment, and Landlord may
adjust the loss if Tenant fails to do so, and provide that the loss shall be
paid by the insurance company or companies as provided in Section 12.7; and
(v) provide Business Interruption or Rental Value
insurance including coverage for the continuing rental obligations under this
Lease on an Actual Loss Sustained basis in amounts not less than 12 months
insurable value with loss payable endorsement thereunder in favor of the
Landlord; and
(vi) provide Comprehensive Boiler & Machinery insurance
covering all pressure vessels, boilers, mechanical, and electrical equipment at
the Leased Premises. This coverage shall include Extra Expense and insurance for
the continuing rental obligations under this Lease. Insurance amounts shall be
as reasonably required by Landlord, but not less than $5 million per accidents
and
(vii) provide such other insurance as may from time to
time be reasonably required by the Landlord as insurance against insurable
hazards that are customarily and generally required to be insured with respect
to similar premises, with due regard for the height, depth and width of the
Improvements, their construction and their use and occupancy.
(b) provide Landlord and any fee mortgagee(s) with public
liability insurance policies which insurance shall comply with the requirements
of subsections 12.1 (a)(i) and (iii) and shall provide at least the following:
(i) Commercial General Liability covering the Leased
Premises and operations of the Tenant in amounts not less than $1 million per
occurrence and $2 million in the annual aggregate per location and including
coverage for Products and Completed Operations Liability;
(ii)Commercial Automobile Liability, including Garage
Liability, covering all Owned, Hired, Non Owned Automobiles including customer
and demonstrator vehicles, any other vehicle usual to the Tenant's business in
amounts not less than $1 million per accident;
(iii) Garagckeepers Legal Liability providing coverage
for vehicles of others in the possession of Tenant for physical damage to those
vehicles;
(iv) Workers Compensation and Employers Liability, which
coverage shall meet the statutory requirements of the state in which the Leased
Premises is located,
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(v) Umbrella Liability in excess of the Commercial
General, Automobile, Garage, and Employers Liability in amounts not less than
$40,000,000 per occurrence and in the annual aggregate;
(vi) all Third Party liability policies shall name the
Landlord and any fee mortgagee(s) as an "Additional Insured" and be evidenced by
a certificate of insurance policy endorsement specifically indicating the
Landlord's and any fee mortgagee(s) Additional Insured status;
(vii) other insurance as is customary to the operations
of the Tenant or as may reasonably be required by the Landlord as good
commercial practice would dictate.
In the event of any dispute between Landlord and Tenant with respect to the
amount of general liability coverage to be maintained by Tenant and/or the types
and amounts of such other insurance as Landlord may reasonably require Tenant to
carry from time to time, as above provided, such dispute shall be arbitrated
pursuant to the provisions of Article 21 of this Lease.
12.2 Tenant shall procure policies for the insurance required to be
carried pursuant to Section 12.1 for periods of from one (1) to five (5) years,
as Tenant shall elect, and shall deliver to Landlord original certificates
thereof with evidence, by stamping or otherwise, of the payment of the premiums
thereon. An such policies shall contain a loss payable endorsement which shall
provide that (i) the loss, if any, under such policies shall be paid by the
insurance companies as provided in Section 12.7 below, (ii) the insurer will not
cancel or modify such policy except after thirty (30) days prior written notice
to Landlord, however, if the cancellation is for nonpayment of premium, the
insurance company may cancel the policy after ten (10) days' prior written
notice to Landlord, and (iii) any loss payable thereunder shall not be
invalidated by any act or neglect of the Tenant, nor by any foreclosure or other
proceedings or notice of sale relating to the Leased Premises nor by any change
in the title or ownership of said property, nor by the occupation of the
locations for purposes more hazardous than are permitted by the Policy.
12.3 All premiums and charges for Tenant's insurance policies
(including, without limitation, for the insurance policies required to be
carried pursuant to Section 12.1) shall be paid by Tenant. If Tenant shall fail
to make any such payment when due, or shall fail to carry any such policy, the
provisions of Article 14 shall apply.
12.4 Tenant shall pay the premiums for Tenant's initial policies of
insurance required hereunder and all renewals thereof not later than the due
date thereof so as to prevent a lapse of coverage. Prior to the expiration of
each policy of insurance, Tenant shall deliver to Landlord a certificate of such
renewal policy with evidence, by stamping or otherwise, of the payment of the
premiums thereon. If any such premiums shall not be paid when due or if such a
certificate of any renewal policy required to be delivered hereunder shall not
be so delivered, the provisions of Article 14 shall apply.
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12.5 Tenant shall not violate, or permit to be violated, any of the
conditions or provisions of any such policy, and Tenant shall so perform and
satisfy the reasonable requirements of the companies writing such policies.
12.6 Tenant shall not carry separate insurance, concurrent in
coverage or contributing in the event of loss with any insurance required to be
furnished by Tenant under the provisions of this Article 12, if the effect of
such separate insurance would be to reduce the protection or the payment to be
made under said insurance required to be furnished by Tenant, unless Landlord
and any fee mortgagee(s) (where the insurance required to be carried requires
the inclusion of the fee mortgagee(s)) are included as additional insureds, with
loss payable as hereinabove provided. Tenant shall promptly notify Landlord of
the issuance of any such separate insurance and shall cause such policies or
certificates of insurance to be delivered to Landlord and any fee mortgagee(s)
as provided in this Article 12.
12.7 The loss proceeds of any fire and extended coverage insurance
shall be:
(a) if less than Five Hundred Thousand ($500,000.00) Dollars,
paid to Tenant as a trust fund, to be deposited in a separate bank account
maintained by Tenant and used, applied and paid to the repair and restoration of
the damage of the Improvements on the Leased Premises (such $500,000 figure
shall be increased by the corresponding increase in the Fixed Net Rent over the
amount thereof on the Commencement Date
(b) if in excess of Five Hundred Thousand ($500,000.00)
Dollars (such $500,000 figure shall be increased by the corresponding increase
in the Fixed Net Rent over the amount thereof on the Commencement Date), paid
to, and deposited with, the Depositary, which shall hold, apply, and make
available the proceeds of such insurance to pay the cost of repair of the damage
and replacement or rebuilding of the Improvements as more particularly provided
in Article 13.
12.8 In the event that Landlord receives any rent insurance
proceeds, Tenant shall be credited therefor as payments made to Landlord on
account of Fixed Net Rent and additional rent payable by Tenant.
Article 13
Fire or Casualty
13.1 If during the Term of this Lease, the Improvements now or
hereafter erected upon the Leased Premises shall be destroyed or damaged, in
whole or in part, by fire, as a result, directly or indirectly, of war, by act
of God, or by reason of any other cause or causes whatsoever (whether or not
insurable), Tenant shall give prompt notice thereof to Landlord and file prompt
proof of loss with the appropriate insurance company or companies (if insured).
At Tenant's own cost and expense, Tenant shall thereafter promptly repair,
replace and rebuild the
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Improvements, at least to the extent of the value and as nearly as practicable
to the character of the Improvements existing immediately prior to such
occurrence. Such repairs, replacements, or rebuilding shall be made by Tenant in
accordance with. the following terms and conditions:
(a) the same shall be made in accordance with plans and
specifications therefor, if required by law;
(b) at least ten (10) days before commencing such work, Tenant
shall notify Landlord of Tenant's intention to commence the same, and Tenant
shall pay the increased premiums, if any, charged by the insurance companies
carrying insurance on the Improvements in order to cover the additional risk
during the course of such work;
(c) before commencing any such work:
(i) plans and specifications therefor shall be filed and
approved by all governmental departments and other authorities having
jurisdiction thereof;
(ii)a firm estimate for the cost of such work shall be
obtained;
(iii) Tenant shall, at its own cost and expense, deliver
to Landlord appropriate endorsements to be attached to, and made part of, the
fire and liability policies more particularly described in Article 12, which
endorsements shall cover all of the risks concerned during the course of such
work and shall be in form and content reasonably satisfactory to Landlord;
(d) such work shall be commenced within one hundred twenty
(120) days after settlement shall have been made with the insurance companies
and the insurance monies shall have been turned over to Tenant or the Depositary
as provided in Article 12 hereof and all necessary governmental approvals shall
have been obtained, subject to reasonable extension to the extent that Tenant,
after diligent efforts to obtain such approvals, shall not have received them
within such one hundred twenty (120) days; and
(e) such work shall be completed:
(i) within a reasonable time after the commencement of
the same, due regard being had to conditions;
(ii) flee and clear of all liens and encumbrances; and
(iii) in accordance with the plans and specifications
therefor.
Any dispute with respect to any of the insurance endorsements referred to in
subsection (c)(iii) above shall be determined by arbitration as hereinafter
provided.
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13.2 The Depositary shall, provided that this Lease shall then be in
full force and effect, apply the net proceeds of any insurance deposited with it
to the payment of the cost of such repairing or rebuilding as the same
progresses, payments to be made against properly certified vouchers of a
competent architect in charge of the work selected by Tenant. The Depositary
shall advance out of such, insurance proceeds, toward each payment to be made by
or on behalf of Tenant, the amount that shall bear the same portion to such
payment as the whole amount received by the Depositary shall bear to the total
estimated cost of the repairing or rebuilding, except however, if the contract
provides for such retainage, the Depositary shall withhold from each amount so
to be paid by it ten percent (10%) thereof until:
(a) the work of repairing or rebuilding shall have been
completed; and
(b) reasonable proof is furnished to the Depositary and
Landlord that no lien or liability has attached, or will attach, to the Leased
Premises, to the Improvements, or to Landlord in connection with such repairing
or rebuilding.
If the total estimated cost of the repairs or rebuilding shall exceed the amount
of the net proceeds of such insurance received by the Depositary, the Depositary
shall require of Tenant that, before such repairing or rebuilding be commenced,
the Depositary be secured by a surety bond or cash equal to the amount of the
excess of such estimated cost over the net insurance proceeds as security for
the due completion, within a reasonable time, of such repairs or rebuilding. The
total cost of all such rebuilding shall, at all events, be borne by Tenant
without any contribution thereto by Landlord. If the insurance proceeds shall
exceed the cost of repairs or rebuilding, the balance remaining after payment of
the cost of repairs or rebuilding shall be paid over and belong to Tenant.
13.3 If:
(a) the work of repairing, replacing, or rebuilding such
damage or destroyed Improvements shall not have been commenced within the one
hundred twenty (120) day period (subject to force majeure causes) provided for
in subdivision (d) of Section 13.1; or
(b) such work, after commencement, shall not be expeditiously
proceeded with, uniess such work is delayed by strikes, lockouts, labor
disputes, or other causes unavoidable or reasonably beyond the control of
Tenant,
Landlord shall have the right to terminate this Lease and the Term by giving
Tenant not less than thirty (30) days written notice of Landlord's intention so
to do, and, upon the expiration of the date fixed in such notice, this Lease and
the Term shall wholly cease and expire, and the insurance proceeds received and
receivable under any and all policies of insurance shall be retained by
Landlord, or by any mortgagee of the fee to whom the same day be payable, as
their interests may appear, without claim thereon by Tenant, but Tenant
shallcontinue liable as
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provided in Article 17 hereof. Any dispute under this Section 13.3 shall be
determined by arbitration as hereinafter provided.
13.4 Except as provided in Section 13.3, this Lease shall not
terminate or be affected in any manner by reason of the destruction or damage,
in whole or in part, of the Improvements, or by reason of the untenantability of
the Improvements or the Leased Premises, and the Fixed Net Rent reserved in this
Lease, as well as all other charges payable hereunder to the extent that the
same are not actually paid pursuant to rent insurance, shall be paid by Tenant
in accordance with the terms, covenants and conditions of this Lease, without
abatement, diminution, or reduction.
Article 14
Landlord May Cure Defaults
14.1 If Tenant shall default in:
(a) making any payment required to be made by Tenant under
this Lease and such default is not cured within five (5) business days after
written notice has been given under Article 29 below; or
(b) performing any term, covenant, or condition of this Lease
on the part of Tenant to be performed, Landlord may, at its option (but shall
not be obligated to do so) and for the account of Tenant, make such payment or
expend such sum as may be necessary or desirable to perform and fulfill such
term, covenant, or condition, upon ten (10) days' prior written notice to Tenant
(except that no such notice shall be required in a case of emergency). However,
no such payment or expenditure by Landlord shall be deemed a waiver of Tenant's
default, nor shall the same affect any other remedy of Landlord by reason of
such default.
14.2 Any and all sums paid or expended by Landlord pursuant to
Section 14.1, as well as any other reasonable out of pocket cost or expense
(including, without limitation, reasonable attorneys fees, disbursements and
court costs) incurred by Landlord in instituting, prosecuting, or defending any
action or proceeding instituted by reason of, or relating to, any default by
Tenant under this Lease (provided, however, that, as to such costs and expenses
related to an action or proceeding, Landlord prevails therein), shall:
(a) be repaid by Tenant to Landlord as additional rent under
this Lease within 30 days after Landlord's written demand therefor; and
(b) bear interest from the date of Landlord's payment or
expenditure thereof to the date of Tenant's repayment of the same to Landlord,
both dates inclusive, at the rate of two (2%) percent above the so-called prime,
base, index, or reference interest rate publicly
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announced by The Chase Manhattan Bank, N.A., from time to time in effect (but in
no event in excess of any then lawful maximum interest rate then applicable to
Tenant).
Article 15
Bankruptcy, Insolvency, Reorganization, Liquidation or Dissolution of Tenant
15.1 The occurrence of any of the following at any time during the
Term shall constitute and be deemed a material breach of this Lease and a
default by Tenant, entitling Landlord, at its option and to the extent permitted
by applicable law, to cancel and terminate this Lease upon giving Tenant a
thirty (30) day notice in writing of Landlord's intention so to do, whereupon
this Lease shall terminate and come to an end at the expiration of said thirty
(30) days as if said expiration date were the time originally fixed for the
termination of this Lease, and Tenant shall quit and surrender the Leased
Premises and the Improvements to Landlord:
(a) the filing of a petition by or against Tenant under this
Lease and/or by or against any guarantor or other party having liability for the
performance of the obligations of Tenant under this Lease (hereinafter called a
"Guarantor") under the provisions of the United States Bankruptcy Act, or under
the provisions of any other federal or state law of similar import now or
hereafter in effect, for an arrangement, reorganization, adjudication of
bankruptcy and/or any other relief thereunder,
(b) the dissolution or liquidation of Tenant under this Lease
and/or any Guarantor, or the commencement of any action or proceeding by or
against Tenant tinder this Lease and/or any Guarantor for its dissolution or
liquidation, that shall be other than a voluntary dissolution, liquidation,
spinoff, split-off, or other similar proceeding pursuant to the United States
Internal Revenue Code whereby the assets of Tenant and/or such Guarantor are
distributed to its stockholders or to a partnership comprised of any such
stockholders;
(c) the appointment of a permanent receiver or a permanent
trustee of all or substantially all of the property of Tenant under this Lease
and/or any Guarantor or the commencement of any action or proceeding by or
against Tenant and/or such Guarantor for such appointment;
(d) the seizure of the property of Tenant under this Lease
and/or any Guarantor by any governmental officer or agency pursuant to statutory
authority for the dissolution, rehabilitation, reorganization or liquidation of
Tenant and/or such Guarantor, or
(e) the assignment by Tenant under this Lease and/or any
Guarantor of its property for the benefit of creditors,
However, if any event described in subsection (a), (b),(c), or (d) occurs and is
not voluntarily initiated or commenced by Tenant and/or such Guarantor, or on
behalf of Tenant and/or such
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Guarantor, the event in question shall not constitute or be deemed a default
hereunder provided that the same is removed or remedied by appropriate discharge
or dismissal of the action or proceeding concerned, and the discharge or any
receiver, trustee, or other judicial custodian appointed for the property of
Tenant and/or such Guarantor within one hundred twenty (120) days from the
commencement date of such action, proceeding, or appointment.
15.2 It is stipulated and agreed that, in the event of the
termination of this Lease pursuant to Section 15.1 hereof, Landlord shall
forthwith be entitled to recover from Tenant, as and for liquidated damages and
in addition to any other damages sustained by Landlord by reason of breach of
any other covenants of this Lease, an amount equal to the difference between:
(a) the aggregate of all Fixed Net Rent and additional rent reserved
hereunder for the then unexpired portion of the Term (conclusively presuming
that the increase in the Fixed Net resulting from the provisions of Section 2. l
hereof as to Incremental Rent and/or the provisions of Section 2.1 as to Fair
Rental Value for each year included in such unexpired portion of the Term will
be the same as was payable for the year immediately preceding the termination of
this Lease); and
(b) the then fair and reasonable rental value of the Leased Premises
for the same period.
If the Leased Premises, or any part thereof: is re-let by Landlord for the
unexpired portion of the Term, or any part thereof; before presentation of proof
of such liquidated damages to any court, commission, or tribunal, the amount of
rent reserved upon such reletting shall be prima facie evidence that it is the
fair and reasonable rental value for such part or the whole of the Leased
Premises sore-let during the term of the reletting. Nothing herein contained
shall limit or prejudice the right of Landlord to prove and obtain, as
liquidated damages by reason of such termination, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, such damages are to be proved, whether or not such
amount is greater or less than, or equal to, the amount of the difference
referred to above.
Article 16
Default Clauses
16.1 Upon the occurrence of any of the following events (hereinafter
called "Events of Default"), Landlord shall have the right, at Landlord's
option, to terminate this Lease and the Term, as well as all of the right, title
and interest of Tenant in and to the Leased Premises hereunder, by giving Tenant
ten (10) days' notice in writing of such termination, whereupon this Lease and
the Term, as well as all of the right, title and interest of Tenant in and to
the Leased Premises, shall wholly cease and expire in the same manner, and with
the same force and effect
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(except as to Tenant's liability), as if the date fixed by such notice were the
expiration date of the Term:
(a) if Tenant shall fail to pay any installment of Fixed Net
Rent, any other item of additional rent, or any part thereof as and when the
same shall become due and payable, and such default shall continue for a period
of five (5) business days alter written notice from Landlord, provided no such
notice shall be required more than three times in any 12 month period;
(b) subject to Section 16.2 below, if Tenant shall violate,
fail to comply with, or fail to perform any other covenant, term, or condition
of this Lease, other than the requiring Tenant's payment of a sum of money, and
such default shall continue for a period of thirty (30) days after written
notice from Landlord;
(c) if any execution or attachment shall be issued against
Tenant or any of Tenant's property, whereby the Leased Premises or the
Improvements shall be taken or occupied, or attempted to be taken or occupied by
someone other than Tenant, and such condition shall continue for a period of
thirty (30) days after written notice from Landlord,
(d) if Tenant's right, title and interest in this Lease, or
the estate of Tenant hereunder, shall be transferred or passed to, or devolve
upon, any other person, firm, or corporation, except in the manner provided in
this Lease, and such default shall continue for a period of thirty (30) days
after written notice from Landlord; or
(e) if an "Event of Default" (as such term is defined therein)
shall occur under or pursuant to any of the Other Leases.
On or before the expiration of the ten (10) days' termination notice reflected
to above, Tenant shall immediately quit and surrender the Leased Premises, the
Improvements and each and every part thereof to Landlord, and Landlord may enter
into or repossess the Leased Premises and the Improvements by summary or other
suitable proceedings.
16.2 If any of the events described in subsection (b) of Section
16.1 occurs and is of such a nature that it cannot practicably be cured and
remedied within the applicable notice period, an Event of Default shall not be
deemed to exist with respect thereto if Tenant shall:
(a) commence the work, or initiate the action, required to
cure and remedy such event promptly within the applicable notice period; and
(b) thereafter prosecute such work or action in good faith
diligently to completion.
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16.3 No default shall be deemed waived by Landlord unless such
waiver is confirmed in a writing signed by Landlord.
16.4 In the event that Tenant shall fail to make any payment of
Fixed Net Rent or additional rent required to be paid pursuant to this Lease on
or before the due date for the payment thereof (without regard to the notice and
grace provisions provided for in Section 16.1), the same shall accrue interest
from and after such due date, as extended to give effect to any applicable pace
period, and until Tenant's payment thereof at a rate equal to two (2%) percent
above the so-called prime, base, index, or reference interest rate publicly
announced by The Chase Manhattan Bank, NA., from time to time in effect (but in
no event in excess of any then lawful maximum interest rate then applicable to
Tenant). In addition to the foregoing interest, as well as in addition to the
other remedies available to Landlord for a default by Tenant under this Lease
and otherwise at law and in equity, in the event that Tenant shall fail to make
any payment of Fixed Net Rent or additional rent required to be paid pursuant to
this Lease on or before the twentieth (20th) day after the due date for the
payment thereof (without regard to notice and grace provisions provided in
Section 16.1), Tenant shall pay to Landlord, as additional rent, in addition to
such payment and interest, a charge equal to five (5%) percent of such late
payment in reimbursement for Landlord's administrative and other expenses in
connection with handling and processing such late payment. However, no late
charge
shall be imposed pursuant to the preceding sentence with respect to the first
late payment in any 12 month period. Neither this Section 16.4 nor any other
provision of this Lease shall require the payment of interest in excess of the
maximum amount permitted by law. If any excess of interest in such respect is
provided for, or shall be adjudicated to be so provided for, Tenant shall not be
obligated to pay such Interest in excess of the maximum amount permitted by law,
the right to demand the payment of any such excess shall be, and hereby is,
waived and any such excess interest nonetheless paid to Landlord shall be
promptly returned to Tenant.
Article 17
Landlord's Remedies
17.1 In the event that this Lease shall be terminated by reason of
Tenant's default, whether as provided in Article 16, by summary proceedings, or
otherwise, then:
(a) Landlord or its agents or representatives pursuant to the
appropriate judicial proceedings may re-enter and resume possession of the
Leased Premises and the Improvements, either by summary proceedings or by a
suitable action or proceeding at law or otherwise, without being liable for may
damages therefor, and no such reentry by Landlord shall be deemed an acceptance
of a surrender of this Lease;
(b) the rent (the aggregate of all Fixed Net Rent and
additional rent) shall become due thereupon and be paid up to the time of such
reentry, dispossess and/or
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termination, together with such counsel fees and expenses as Landlord may incur
in
connection therewith;
(c) Landlord may, in its own name, but as agent for Tenant (if
this Lease is not terminated) or on its own behalf (if this Lease is
terminated):
(i) relet the whole or any portion of the Leased
Premises and/or the Improvements for any period equal to, or greater or less
than, the remainder of the Term, for any sum that it deems reasonable
(including, without limitation, free rent concessions), to any tenant that it
may deem suitable and satisfactory and for any use and purpose that it may deem
appropriate; and
(ii) in connection with any such reletting, make such
changes in the character of the Improvements as Landlord may determine to be
appropriate or helpful in effecting such lease, provided, however, that Landlord
shall, in no event, be:
(x) under any obligation to relet the Leased Premises or
the Improvements for any purpose or to any tenant; or
(y) required to pay to Tenant any surplus of any sums
received by Landlord on a reletting of the Leased Premises or the Improvements
in excess of the Fixed Net Rent and additional rent reserved in this Lease;
(d) Tenant shall pay to Landlord an amount equal to any
reasonable out-of-pocket costs and expenses (including, without limitation,
attorneys' fees, disbursements and court costs) incurred by Landlord in
recovering possession of the Leased Premises and the Improvements, as well as
all costs and expenses incurred by Landlord for the care of the Leased Premises
and the Improvements while vacant, which amounts shall be due and payable by
Tenant to Landlord at such time or times as such costs and expenses shall have
been incurred by Landlord; and
(e) Tenant shall also pay to Landlord, as damages for the
failure of Tenant to observe and perform Tenant's covenants herein contained,
any deficiency for each month of the period that would have otherwise
constituted the balance of the Term between:
(i) the aggregate of all Fixed Net Rent and additional
rent hereby reserved and/or covenanted to be paid, and
(ii) the net amount, if any, of the rents collected on
account of the lease or leases made upon such re-letting of the Leased Premises,
and, in computing such damages, there shall be added to the deficiency such
out-of-pocket expenses as Landlord may incur in connection with re-letting,
including, without limitation, legal
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expenses, attorneys' fees, disbursements and court costs, brokerage and the
costs and expenses of keeping the Leased Premises in good order and preparing
the same for reletting.
The damages described in subsection (e) shall be paid in installments by Tenant
on the rent day specified in this Lease, and any suit brought by Landlord to
collect the amount of the deficiency for any period shall not prejudice in any
way the right of Landlord to collect the deficiency for any subsequent period by
a similar action or proceeding. Nothing contained herein shall be deemed to
require Landlord to postpone suit until the date when the Term of this Lease
would have expired if it had not been so terminated by reason of Tenant's
default.
17.2 In lieu of the damages described in subsection (e) of Section
17.1, Landlord shall, at its sole discretion, be entitled to receive, as
liquidated damages, an amount equal to the difference between:
(a) the aggregate of all Fixed Net Rent and additional rent
reserved hereunder for the then unexpired portion of the Term (conclusively
presuming that the Fixed Net Rent would increase pursuant to the provisions of
Section 2.1 hereof throughout the unexpired Term, discounted to present value at
a rate equal to the prime, base, index or refinance interest rate publicly
announced by The Chase Manhattan Bank, NA, in effect as of the date of default;
and
(b) the then Fair Rental Value, determined pursuant to the
provisions of Section 2.1(d), of the Leased Premises for the same period.
If the Leased Premises, or any part thereof, is re-let by Landlord for the
unexpired portion of the Term, or any part thereof, before presentation of proof
of such liquidated damages to any court, commission, or tribunal, the amount of
rent reserved upon such reletting shall be prima facie evidence that it is the
fair and reasonable rental value for such part or the whole of the Leased
Premises so re-let during the term of the re-letting,
17.3 Landlord, at its option, may make such alterations,
replacements and/or decorations in and to the Leased Premises and/or the
improvements as Landlord, in Landlord's sole judgment, considers advisable and
necessary for the purpose of re-letting the Leased Premises and/or the
Improvements for similar uses, and the making of such alterations, replacements
and/or decorations shall not operate, or be construed, to release Tenant from
liability hereunder as aforesaid.
17.4 Landlord shall not be liable to Tenant in any respect
whatsoever for Landlord's failure to re-let the Leased Premises and/or the
Improvements or, in the event that the Leased Premises and/or the Improvements
are re-let, for Landlord's failure to collect the rent thereof under such
re-letting. No such failure shall relieve Tenant of liability for, and
obligation to pay, all of the items of damages to which Landlord shall be
entitled under this Article 17 or otherwise at law or in equity. Landlord agrees
to cooperate with Tenant, and reasonably assist
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Tenant in any efforts by Tenant to mitigate its losses, without cost or
liability to Landlord, if Tenant offers to assist Landlord in reletting the
Leased Premises.
17.5 In the event of a breach by Tenant or Landlord of any of the
covenants or provisions of this Lease, the non-breaching party shall have the
right of injunction, as well as to invoke any remedy allowed at law or in
equity, as if re-entry, summary proceedings and other remedies were not herein
provided for.
17.6 Nothing contained in this Article 17 shall be construed to
limit or preclude recovery by Landlord against Tenant of any sums or damages to
which, in addition to the damages particularly provided above, Landlord may
lawfully be entitled by reason of any default hereunder on the part of Tenant.
Article IS
Tenant to Indemnify Landlord
18.1 Tenant shall not do any act or thing upon the Leased Premises
or the Improvements' or permit any such act or thing to be done, that may
subject Landlord to any liability by reason of any illegal business or conduct
upon the Leased Premises or the Improvements or by reason of any violation of
law or of any legal requirement of public authority, or by reason of any other
cause whatsoever. Tenant shall indemnify and hold Landlord harmless against and
from any and all liability, fates, suits, claims, demands, actions, costs and
expenses of each and every kind or nature whatsoever to the fullest extent
permitted by law (including, without limitation, reasonable attorneys' fees,
disbursements and court costs) due to or arising out of any:
(a) breach, violation, or non-performance of any term,
covenant, or condition of this Lease on the pan of Tenant to be fulfilled, kept,
observed, or performed, and/or
(b) injury to any person or persons (including, without
limitation, the death of any person or persons) or damage to any property
occurring in or about the Leased Premises and/or the Improvements at any time
during the Term, whether or not such injury or damage is occasioned by Tenant's
use and occupancy of the Leased Premises and/or the Improvements, by any use or
occupancy that Tenant may permit or suffer to be made thereof, or otherwise.
If Tenant is required to defend any action or proceeding pursuant to this
Article 18 to which Landlord is made a party, Tenant shall do so through counsel
reasonably acceptable to Landlord (provided, however, that counsel selected by
Tenant's insurance carrier shall be deemed to be acceptable to Landlord).
Landlord shall cooperate with Tenant's counsel in all reasonable respects in
connection with resolving the action or proceeding, provided, however, that
Landlord shall not be required to expend any money with respect thereto.
Landlord shall be entitled to
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participate in such defense, at its election, by counsel of its own choosing and
at its own expense, and Tenant and its counsel shall consult and otherwise
cooperate with Landlord's counsel in all reasonable respects in connection with
such participation provided that neither Tenant nor its counsel shall be
required to expend any money with respect thereto and such participation by
Landlord does not limit or render void any liability of any insurer of Landlord
or Tenant hereunder in respect to the claim or matter in question. Tenant's
liability under this Article 18 shall be reduced by the net proceeds actually
collected on any insurance effected by Tenant on the risks in question for
Landlord's benefit and by the net proceeds actually collected by Landlord of any
insurance carried by Landlord which has the effect of reducing the amount
recovered by Landlord under Tenant's policies. However, nothing contained in
this Article 18 shall vary the insurance requirements contained in Article 12.
Tenant's indemnity shall not include Landlord's lost profits or consequential
damages, but shall include any claims by third parties against Landlord for lost
profits or consequential damages.
Article 19
Mechanics' Liens
19.1 Notice is hereby given that Landlord shall not be liable for
any labor or materials furnished, or to be furnished, to Tenant upon credit, and
that no mechanic's or other lien for any such labor or materials shall attach
to, or otherwise affect, the reversion or other estate or interest of Landlord
in and to the Leased Premises or the Improvements.
19.2 Tenant covenants that, whenever and as often as any mechanic's
lien shall have been filed against the Leased Premises or the Improvements,
other than any mechanic's lien that shall nave been filed based upon any act or
omission of Landlord or anyone acting on behalf of Landlord, Tenant shall
forthwith take such action, by bonding, deposit, or payment as will remove or
satisfy the lien. In default thereof for sixty (60) days after notice to Tenant,
the provisions of Article 14 shall apply.
Article 20
Condemnation
20.1 If, at any time during the Term, any person or corporation,
municipal, public, private or otherwise, shall lawfully condemn and acquire
title to all or substantially all of the Leased Premises in or by condemnation
proceedings in pursuance of any law, general, special, or otherwise, or by
agreement between Landlord, Tenant and those authorized to exercise such right
(a) this Lease and the Term shall terminate and expire on the
date of such taking; and
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(b) the Fixed Net Rent and additional rent herein reserved and
provided to be paid by Tenant shall be apportioned and paid to the date of such
taking.
20.2 If less than all or substantially all of the Leased Premises
shall be taken as aforesaid, (i) if it is economically infeasible for Tenant to
operate its business at the Leased Premises in the manner so operated
immediately prior to the taking (any disputes as to such infeasibility shall be
subject to arbitration in the manner provided in Article 20. Tenant may
terminate this Lease, and in all other cases (ii) this Lease and the Term shall
continue notwithstanding such taking, but the Fixed Net Rent thereafter payable
by Tenant shall be equitably apportioned and reduced, as and from the date of
such partial taking, which apportionment and reduction shall be made only as and
when the particular award shall ultimately be received by Landlord. If Landlord
and Tenant cannot mutually agree upon such equitable apportionment and
reduction, it shall be determined by arbitration in the manner provided in
Article 21.
20.3 In the event of a partial condemnation where Tenant is
obligated to restore, the net proceeds of the award shall be made available to
Tenant for such purpose. The rights of Landlord and Tenant in and to the award
and/or damages which are not used for restoration upon any taking of all or a
portion of the Leased Premises (including, without limitation, the value of the
fee estate of Landlord, the value of the leasehold estate of Tenant, the
consequential damages to the part of the Leased Premises not taken and the cost
of reconstruction) shall be determined as follows:
(a) first, Landlord shall be entitled to receive the aggregate
amount, with interest thereon, that shall represent compensation for;
(i) the value of Landlord's reversionary estate and
interest in and to the entire Leased Premises or the portion of the Leased
Premises taken, as the case may be; and
(ii) if the entire Leased Premises shall not be taken,
the amount of any consequential damages to Landlord's reversionary estate and
interest in and to the portion of the Leased Premises not taken;
(b) second, to the extent that the award and/or damages upon
such taking shall be sufficient therefor, Landlord shall be entitled to receive
an amount, with interest thereon, equal to the "Lost Rental Compensation" (as
such term is defined below); and
(c) third, Tenant shall be entitled to receive any balance of
the award and/or damages remaining after Landlord shall be paid the amounts
described in subsections (a) and (b) above.
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In the event that the total amount of the award and/or damages upon any taking
of all or a Portion of the Leased Premises shall be insufficient to pay Landlord
all of the amounts described in subsections (a) and (b) above, Tenant shall pay
to Landlord, within thirty (30) days alter Landlord's written demand therefor as
additional rent under this Lease, the amount of the deficiency with interest
thereon, it being the intent and understanding of the parties that Landlord
shall receive from Tenant and/or the condemning authority, as the case may be,
and retain for its own account, in any event whatsoever, a net payment equal
to the sum of the amounts described in subsections (a) and (b) above, with
interest thereon. Tenant's obligation to pay any deficiency and/or interest to
Landlord hereunder shall survive the termination and/or expiration of this Lease
and/or the Term. As such term is used in this Section 20.3, the term "Lost
Rental Compensation" shall mean, either:
(a) as to a taking that shall result in the termination of
this Lease and the Term pursuant to Section 20.1 above, an amount equal to the
aggregate of the Fixed Net Rent reserved hereunder for the then unexpired
portion of the Term (conclusively presuming that such Fixed Net Rent as
determined pursuant to the provisions of Section 2.12 hereof for the Rent for
each year included in such unexpired portion of the Term will be the same as was
payable for the year immediately preceding the termination of this Lease),
discounted to present value at a rate equal to two (2%) percent below the
so-called prime, base, index, or reference interest rate publicly announced by
The Chase Manhattan Bank, NA., in effect as of the date of the taking; or
(b) as to a taking that shall result in the termination of
this Lease and the Term pursuant to Section 20.1 above, an amount equal to the
aggregate of the Fixed Net Rent reserved hereunder for the then unexpired
portion of the Term (conclusively presuming that the Fixed Net Rent as
determined pursuant to the provisions of Section 2.1 hereof for the expired
pardon of the Term will be the same as was payable for the Lease Year
immediately preceding the termination of the Lease) discounted to present value
at a rate equal to two (2%) percent below the so-called prime, base, index, or
reference interest rate publicly announced by The Chase Manhattan Bank, NA., in
effect as of the date of the taking.
20.4 If any or all of amounts due to Landlord pursuant to Section
20.3 above shall not be fixed in the proceedings for such taking in accordance
with the agreement of the parties set forth in Section 20.3, and if the parties
shall not agree in writing as to the unfixed amount or amounts to be paid to
Landlord thereunder within ninety (90) days after the date of the final
determination in such proceedings, such unfixed amount or amounts shall be
determined by arbitration in the manner provided in Article 21.
20.5 Except as otherwise provided in Section 3.3, if the Improvements
shall be damaged or partially destroyed by any taking of less than all or
substantially all of the Leased Premises, Tenant shall proceed, with reasonable
diligence and at Tenant's own cost and expense, to conduct any necessary
demolition and to repair, replace, or rebuild any remaining part of the
Improvements not so taken, so as to constitute such remaining part thereof a
complete and rentable building, in condition and repair, having a configuration,
design and suitability for
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nature of use as similar as is practicable under the circumstances to the
configuration, design and suitability for nature of use of the Leased Premises
immediately prior to the taking. Tenant shall receive and retain, in trust, any
portion of the award and/or damages upon such condemnation to be received and
retained by Tenant pursuant to the tenant in Section 20.3 above, to apply the
same to cost and expense of such demolition, repair, replacement and rebuilding
by whatsoever incurred. If such amount received and retained by Tenant is
insufficient to pay for the cost of such demolition, repair, replacement and/or
rebuilding, Tenant shall make up the deficiency at its own cost and expense.
Conversely, if such amount received and retained by Tenant is more than
sufficient to pay the cost of such demolition, repair, replacement and/or
rebuilding, the amount of any excess remaining alter such demolition, repair,
replacement and/or rebuilding is completed and the cost thereof is fully paid
shall belong to Tenant. The provisions of Article 13 shall apply to the work
required to be done under this Section 20.5.
20.6 If at any time during the Term, any person or corporation,
municipal, public, private, or otherwise, shall lawfully condemn and acquire the
temporary use of the Leased Premises in or by condemnation proceedings in
pursuance of any law, general, special, or otherwise, or by agreement with
Landlord, Tenant and those authorized to exercise such right:
(a) the Term shall not be reduced or affected in any way;
(b) Tenant shall continue pay the full Fixed Net Rent and
additional rent herein reserved and provided to be paid by Tenant; and
(c) Tenant shall be entitled to make claim for, recover and
retain any award or awards, whether in the form of rental or otherwise,
recovered in respect of such possession or occupancy, provided, however, that,
if such possession or occupancy shall extend beyond the date fixed as the
Expiration Date, the award shall be apportioned between Landlord and Tenant as
of such date.
Article 21
Arbitration
21.1 In the event of a dispute between Landlord and Tenant with
respect to any issue of fact (other than one determined by a condemnation court)
arising out of a taking referred to by Article 20, or specifically mentioned and
provided far elsewhere in this Lease as a matter to be decided by arbitration,
such dispute shall be detained by arbitration as provided in this Article 21.
21.2 Landlord and Tenant shall each appoint as an arbitrator a fit
and impartial person from a panel proposed by the American Arbitration
Association who shall have had at least ten (10) years' experience with regard
to commercial real estate in the City of New York Such appointment shall be
signified in writing by each party to the other. If either Landlord or
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Tenant shall fail to appoint an arbitrator as set forth in this Section 21.2 for
a period of twenty (20) days after written notice from the other party to make
such an appointment, then the arbitrator appointed by the party who shall have
made such an appointment shall appoint the second arbitrator.
21.3 The arbitrators, after being duly sworn to perform their duties
with impartiality and fidelity, shall proceed with all reasonable dispatch to
determine the question submitted. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and the award of the arbitrators shall be binding, final and
conclusive on the parties. The decision of the arbitrators shall be rendered
within thirty (30) days after their appointment, and such decision shall be in
writing and in duplicate, one counterpart thereof to be delivered to each of the
parties. 1f, however, the arbitrators shall fail to so render their decision
within such thirty (30) day period, such arbitrators shall appoint an umpire,
whose determination shall be conclusive. If the arbitrators fail to agree upon
the identity of the person to act as umpire, such umpire shall be appointed by
the American Arbitration Association from its qualified panel of arbitrators,
and shall be a person having at least ten (10) years' recent experience as to
the subject matter in question.
21.4 If an umpire is appointed as provided in Section 21.3, the
arbitrators and the umpire, after the umpire is duly sworn to perform his or her
duties with impartiality and fidelity, shall proceed with all reasonable
dispatch to determine the question submitted. The arbitration shall be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and the award of the arbitrators and the umpire, to be determined
by the majority vote of the arbitrators and the umpire, shall be binding, final
and conclusive on the parties. The decision of the arbitrators and the umpire
shall be rendered within thirty (30) days after the umpire's appointment, and
such decision shall be in writing and in duplicate, one counterpart thereof to
be delivered to each of the parties.
21.5 The fees of the arbitrators and any umpire, as well as the
expenses incident to the proceedings, shall be borne by the parties equally. The
fees of respective counsel engaged by the parties, and the fees of expert
witnesses and other witnesses called or engaged by the parties, shall be paid by
the respective party engaging such counsel or calling or engaging such
witnesses.
21.6 Wherever in this Lease it is provided that Landlord's consent
or approval shall not be unreasonably withheld (or word of like import), if
Landlord shall withhold its consent or approval such adverse determination by
Landlord shall be an arbitrable dispute as provided in this Article 21. Twenty
(20) days after Tenant's receipt of Landlord's adverse determination, Landlord's
determination shall be conclusive, unless prior to the end of such 10 day period
Tenant shall give notice of demand for arbitration under this Article 21, in
which event Landlord, within 10 days after receipt of Tenant's demand, shall (if
Landlord has not already done so) specify in writing Landlord's reasons for the
adverse determination. Anything in this Article 21 to the contrary
notwithstanding, (i) the proceeding shall occur on an
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expeditious basis, with all time periods for performance at any stage of the
arbitration proceeding to be 10 days, rather than 20 or 30 days as provided
above, and (ii) the losing party shall pay all costs of such arbitration,
including the legal fees and witness or expert fees of the prevailing party. The
submission to arbitration in accordance with this Lease shall be the sole remedy
of Tenant as respect to any consent or approval which may not be unreasonably
withheld. If a determination is made by the arbitrators that the withholding of
consent or approval was unreasonable the arbitrators shall annul such
withholding of consent or approval. Except for the costs and expenses referred
to above, no damages of any kind, and no other monetary or other remedy may be
awarded in such circumstances, it being agreed that such annulment shall be
Tenant's sole remedy.
Article 22
Shoring
22.1 To the extent required by law, Tenant shall allow an adjoining
owner desiring to excavate on its premises, or a municipality desiring to
excavate a nearby street, to enter onto the Leased Premises and the Improvements
and shore up a perimeter wall during such excavation. Tenant shall, at Tenant's
own expense, repair, or cause to be repaired, any damage caused to any part of
the Leased Premises and/or the Improvements because of any excavation,
construction work, or other work of a similar nature that may be done on any
property adjoining or adjacent to the Leased Premises, and Landlord hereby
assigns to Tenant any and all rights to sue for and/or recover against such
adjoining owners, or the parties causing such damages, the amounts expended or
injuries sustained by Tenant because of the provisions of this Article 22
requiring Tenant to repair any damages sustained by such excavations,
construction work, or other work.
Article 23
Waiver of Redemption
23.1 Tenant, for itself and for all persons claiming through or
under it, hereby expressly waives any and all rights which are or may be
conferred upon Tenant by any present or future law to redeem the Leased
Premises, or to any new trial in any action of ejectment under any provision of
law, after re-entry thereupon, or upon any part thereof; by Landlord, or after
any warrant to dispossess of judgement in ejectment. If Landlord shall have
acquired possession of the Leased Premises by summary proceedings, or in any
other lawful manner without judicial proceedings, it shall be deemed a re-entry
within the meaning of that word as used in this Lease.
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Article 24
Vaults; Vault Space; Vault Area
24.1 No vault, vault space, or vault area located outside the
property line of the Leased Premises, whether or not enclosed or covered, is
leased to Tenant hereunder, anything contained in, or indicated on, any sketch,
blueprint, or plan, or anything elsewhere contained, or referred to, in this
Lease to the contrary notwithstanding. Landlord makes no representation as to
the location of the property line of the Leased Premises. All vaults, vault
space and other similar areas located outside the property line of the Leased
Premises and that Tenant may be permitted to use and/or occupy is to be used
and/or occupied under a revocable license, and if any such license is revoked,
or if the amount of such space or area be diminished or required by any federal,
state, or municipal authority or public utility, Landlord shall not be subject
to any liability to Tenant, nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution, or
requisition be deemed to constitute a constructive or actual eviction of Tenant.
Article 25
Covenant of Quiet Enjoyment
25.1 If, and for so long as, Tenant shall pay the Fixed Net Rent and
additional rent reserved by or payable pursuant to this Lease, and shall perform
and observe all of the other terms, covenants and conditions herein contained on
the part of Tenant to be performed and observed, Tenant shall quietly enjoy the
Leased Premises, subject, however, to the terms, covenants and conditions of
this Lease (including, without limitation, the terms of Article 34), to the
ground leases, underlying leases, overriding leases and mortgages referred to in
Article 4 and to the matters relating to title. However, no failure by Landlord
to comply with the foregoing covenant shall give Tenant any right to cancel or
terminate this Lease, to abate, reduce, or make any deduction from, or offset
against, the Fixed Net Rent or additional rent payable under this Lease, or to
fail to perform any other obligation of Tenant hereunder.
Article 26
Non-Merger
26.1 There shall not be a merger of:
(a) Tenant's interest in this Lease or the leasehold estate
created hereby;
(b) Tenant's interest in the improvements; or
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(c) the fee estate in the Leased Premises or any part thereof,
by reason of the fact that the same person may acquire, own, or hold, directly
or indirectly, all or part of the interests or estates described in subsections
(a), (b) and/or (c) above and no such merger shall occur unless and until all
persons (including, without limitation, Landlord, Tenant and all mortgagees)
having an interest in all of such interests and estates shall join in a written
instrument effecting such merger and shall duly record the same,
Article 27
Waiver of Counterclaim and Jury Trial
27.1 In the event that Landlord shall commence any summary
proceeding or action for non-payment of rent or of additional rent hereunder,
Tenant shall not interpose any counterclaim of any nature or description in
such proceeding or action. The parties hereto waive a trial by jury on any or
all issues arising in any action or proceeding between them or their successors
under or connected with this Lease or any of its provisions, any negotiations
in connection therewith, or Tenant's use or occupation of the Leased Premises.
Article 28
Assignment and Subletting
28.1 Provided that no Event of Default shall have occurred and be
continuing under this Lease and except as hereinafter provided in this Article
28, Tenant shall have the right to assign this Lease and Tenant's rights
hereunder, whether in whole or in part, or to sublet the entire, or portions of,
the Leased Premises, only with Landlord's prior written consent, which shall not
be unreasonably withheld.
28.2 In connection with any assignment or subletting (whether or not
approved or required to be approved by Landlord) Tenant and the assignee or
subtenant shall each comply with the following terms, covenants and conditions,
which shall be conditions precedent thereto:
(a) Tenant shall give Landlord written notice of each such
assignment or subletting, as well as of the effective date thereof, not more
than ten (10) days prior to the execution of such assignment or sublease;
(b) such assignment or subletting shall be in writing, duly
executed and acknowledged by Tenant and the assignee (and by the sublessee, in
the case of a subletting) in proper form for recording, and in form prepared by
or reasonably approved by Landlord;
(c) a duplicate original of such assignment or sublease shall
be delivered to Landlord not more than ten (10) days after the execution of such
assignment or sublease;
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(d) the business to be conducted on the Leased Premises by
such assignee or subtenant shall:
(i) be permitted pursuant to the then existing
Certificate of Occupancy for the Leased Premises or pursuant to any revised or
amended Certificate of Occupancy obtained by Tenant or by the assignee or
subtenant; and
(ii) not render the Leased Premises incapable of being
used or occupied after the expiration or sooner termination of the Term of this
Lease for the purposes for which the same were used and occupied on the
Commencement Date.
(e) such assignment or sublease shall be consistent with, and
subordinate and subject to, all of the terms, covenants and conditions of this
Lease;
(f) if the transaction in question is an assignment, Landlord
shall receive, prior to the effective date thereof an original counterpart of an
instrument signed by the assignee in recordable form, pursuant to which the
assignee agrees to unconditionally assume all of the obligations of this Lease
on the part of the tenant hereunder to perform from and after the effective date
thereof;
(g) if the transaction in question is a sublease, the
expiration date of the term thereof shall not be later than one (1) day prior to
the Expiration Date hereunder;
(h) if the transaction in question is a sublease, the sublease
shall contain a provision to the effect that (i) such sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the sights
of Landlord hereunder; (ii) in the event this Lease shall terminate or be
rejected before the expiration of such sublease, the sublessee either will at
Landlord's option, attorn to Landlord or waive any right the sublease may have
to terminate the sublease or surrender possession thereunder, as a result of the
termination of this Lease and (iii) in the event the sublessee thereunder
receives a written notice from Landlord stating that Tenant is under default
under this Lease beyond any applicable notice or cure period, that the sublessee
shall then or after be obligated to pay all rentals accruing under said sublease
directly to the party giving such notice, or as such party may otherwise direct,
unless and until notified by Landlord that the default has been cured.
No such assignment or sublease shall release, or otherwise affect or reduce, the
obligations of Tenant under this Lease or of any guarantors of this Lease.
28.3 (a) Tenant shall have the right, without the consent of
Landlord, to assign this Lease or sublet the Leased Premises or portions thereof
to any "Related Entity" or "Successor Entity" (as hereinafter defined),
provided, however, that Tenant and such Related Entity or Successor Entity shall
remain liable for all of the covenants and obligations of Tenant in this Lease.
As used herein, the term "Related Entity" means any entity controlled by or
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controlling Tenant, but only if such assignee or sublessee entity continues to
remain at all times controlled by or controlling Tenant while such entity is a
tenant or sublessee with respect to all or any portion of the Leased Premises,
and the term "Successor Entity" means any entity resulting from the merger,
consolidation or acquisition of all or substantially all of the assets and
business or a majority of the voting stock or voting control of Tenant.
Notwithstanding the foregoing, an assignment or subletting to a Successor Entity
may be made without Landlord's consent on any three occasions and thereafter
shall be subject to Landlord's consent under this Article 28.
(b) For the purposes of this Lease, the sale or issuance of
stock or other interests of Tenant (other than a public offering or the sale of
Tenant's stock on a publicly traded stock exchange) or a merger or consolidation
or other transaction whereby control of Tenant's interest in this Lease and/or
all or any portion of this Leased Premises is transferred shall be an
"assignment" subject to the provisions of this Article 28, unless made with or
to a Related Entity or Successor Entity, in which event Section 28.3(a) shall be
applicable.
28.4 In determining whether to consent to Tenant's proposed
assignment or subletting, the Landlord may consider all factors, which in
Landlord's reasonable business judgment, are pertinent to such decision, and the
parties agree that the following, without limitation, are examples of such
factors:
a. Whether the financial strength of the proposed assignee
(including net worth and working capital) are sufficient
to assure the future performance by such assignee of its
obligation under this Lease;
b. The character, business reputation, and managerial
skills of the assignee or subtenant;
c. Whether the assignee or subtenant, has substantial
experience in the sale, service and leasing of motor
vehicles or other uses permitted by this Lease; and
d. Whether the use of the Leased Premises by the proposed
assignee or subtenant is identical to the use conducted
prior to such assignment of subletting.
In the event a dispute should arise between Landlord and Tenant as
to whether Landlord has acted reasonably in failing to give its consent to any
proposed assignment or sublease, Tenant's sole remedy shall be an action for an
arbitration on such issue pursuant to Article 21 below, and in no event shall
Landlord be liable to Tenant for any damages (direct or consequential) allegedly
suffered by Tenant or any such assignee or subtenant as a result of such failure
to consent.
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28.5 (a) Any consent by Landlord to an assignment or subletting or
use or occupancy by others shall be held to apply only to the specific
transaction thereby authorized and shall not constitute a waiver of the
necessity for such consent to any subsequent assignment or subletting or use or
occupancy by others, including, but not limited to, a subsequent assignment or
subletting by any trustee, receiver, liquidator, or personal representative of
Tenant, nor shall the references anywhere in this Lease to subtenants, licensees
and concessionaires be construed as a consent by Landlord to an assignment. If
this Lease or any interest herein be assigned or if the Leased Premises be
sublet or used or occupied in whole or in part by anyone other than Tenant, with
or without Landlord's prior written consent having been obtained thereto,
Landlord may nevertheless after the Event of Default by Tenant collect rent
(including, but not limited to, Fixed Net Rent (as determined from time to time
pursuant to the provisions of Section 2.1 hereof) and additional rent) from the
assignee, sublessee, user or occupant and apply the net amount collected to the
rents herein reserved. No such assignment, subletting, use, occupancy or
collection shall be deemed a waiver of the covenant herein against assignment,
subletting or use or occupancy by others, or the acceptance of the assignee,
subtenant, user or occupant as Tenant hereunder, or constitute a release of
Tenant from the further performance by Tenant of the terms and provisions of
this Lease, or a cure of Tenant's default.
(b) In the event of a sublease, in no event will Landlord be
obligated to give any notice to or join such sublessee in any proceeding
Landlord institutes against Tenant, or recognize the continued existence of such
sublessee as Landlord's tenant in the event Tenant defaults under this Lease,
and the agreement, sublease and/or other agreement relating to the Leased
Premises between Tenant and the sublessee will by their own terms automatically
end upon the expiration or sooner termination of this Lease unless Landlord, at
its option, requests such sublessee to attorn to Landlord. Notwithstanding the
foregoing, if the sublease requires the subtenant to pay the rent and additional
rent to be paid for the Leased Premises and is otherwise approved by Landlord in
accordance with this Article 28, then in either such case Landlord covenants
that upon request from Tenant or the sublessee, Landlord will deliver
a non-disturbance agreement, in form and substance reasonably approved by
Landlord, and providing that (a) Tenant's sublessee shall not be disturbed in
its possession in accordance with the terms and conditions of its sublease,
except for such cause as would entitle Tenant hereunder to terminate any such
sublessee's sublease, (b) such sublease, if then in existence, shall continue
with the same force and effect as if Landlord and the sublessee, as lessee, had
entered into a lease containing the same terms, covenants and conditions as
those contained in this Lease and the sublease, and (c) Landlord shall accept
the attornment of any such sublessees as lessee to Landlord.
(c) In all cases in which Tenant desires to assign or sublet
this Lease, Tenant shall send Landlord an assignment notice not less than sixty
(60) days prior to the proposed date of such assignment and subletting
("Assignment Notice"), which Assignment Notice shall include, inter alia (i) the
name of the proposed assignee or subtenant; (ii) the current financial statement
showing the net worth working capital and liabilities of Tenant; (iii) a
"resume" or other description setting forth the managerial experience of such
assignee or subtenant; (iv) a list
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of other locations (and trade names if different from the trade name to be
utilized in the proposed location) then operated by such assignee or subtenant;
(v) a complete description of the use of the Leased Premises intended by such
assignee or subtenant; and (vi) if then available, a copy of the proposed
assignment and assumption agreement or sublease, as the case may be, which must
be in form and substance reasonably acceptable to Landlord. In addition, Tenant
will supply such other information as Landlord may reasonably require to make
its decision as to whether or not to consent to the proposed assignment or
subletting. If the proposed assignment and assumption agreement or sublease is
not available at the time Tenant submits its Assignment Notice to Landlord, such
assignment or sublease shall not be deemed to be effective unless and until
Landlord approves the applicable agreement.
(d) Upon the occurrence of any of such events as described above
whether voluntary, involuntary, by operation of law, or otherwise, without the
prior written consent of Landlord where required (whether or not Tenant shall
have given notice thereof to Landlord), Landlord may treat any such occurrence
as
an immediate Event of Default.
28.6 (a) Tenant, from time to time during the Term, if not then in
default beyond any applicable notice and cure period in the observance or
performance of any of its obligations under this Lease, may mortgage all or
substantially all (but not less than all or substantially all) of its leasehold
estate under this Lease and the Building to a recognized institutional lender
holding a first leasehold mortgage lien, provided that the Mortgage provides
that insurance proceeds and Condemnation Awards will be disposed of and applied
as provided in this Lease. Each such permitted mortgage as the same may be
modified, extended or renewed from time to time, is herein referred to as a
"Leasehold Mortgage," the holder of record from time to time of a Leasehold
Mortgage is herein sometimes referred to as a "Leasehold Mortgagee." Tenant or
the Leasehold Mortgagee shall give notice to Landlord of the name of the
Leasehold Mortgagee and the address to which notices to it shall be sent and
shall furnish Landlord with a true copy of the Leasehold Mortgage. After the
assignment of a Leasehold Mortgage, the assignor or assignee shall give notice
to Landlord of the name of the assignee and the address to which notices to it
shall be sent and shall furnish Landlord with a true copy of the instrument of
assignment.
(b) If a Leasehold Mortgage shall be in effect at such time
and if notice shall have been given to Landlord of the name and address of the
Leasehold Mortgagee and a true copy of the Leasehold Mortgage and of any
instrument of assignment shall have been furnished to Landlord as provided in
Section 28.2, then;
(i) The Leasehold Mortgagee shall be entitled to all
rights conferred by this Lease upon a Leasehold Mortgagee and shall be entitled
to receive notice of default, casualty, condemnation and each other notice
provided in this Lease to be given to a Leasehold Mortgagee or requested by the
Leasehold Mortgagee, and no such notice given by Landlord to Tenant shall be
deemed to have been effectively given for the purposes of this Lease unless and
until a copy thereof shall have been given to the Leasehold Mortgagee.
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(ii) Landlord will accept performance by the Leasehold
Mortgagee of any or all of the agreements and obligations on Tenant's part to be
performed under this Lease with the same force and effect as if performed by
Tenant.
(iii) Landlord, without the prior consent of the
Leasehold Mortgagee, will not consent to or accept a voluntary surrender of this
Lease.
(iv) No agreement between Landlord and Tenant purporting
to modify, cancel or terminate this Lease will be effective against the
Leasehold Mortgagee unless and until it shall have consented in writing to such
agreement.
Article 29
Notices
29.1 Any notice, demand, election, or other communication
(hereinafter called a "notice") that, under the terms of this Lease or under any
statute, must or may be given by the parties hereto shall be in writing and
shall be given by mailing the same by registered mail, return receipt requested,
in a prepaid wrapper, addressed:
(a) in the case of notices to Landlord, to Landlord at:
c/a Robert M. Potamkin
Oceanside Four
7714 Fisher Island Drive
Fisher Island, FL 33109-0000
and also to:
Alan H. Potamkin
I Casuarina Concourse
Coral Gables, FL 33143
and also to:
Ted Bessen
101 W. 79th Street, Apt. 46
New York, NY 10024
and also to:
The Potamkin Companies
130 Spruce Street, Suite 301
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Philadelphia, PA 19106
(b) in the case of notices to Tenant, to Tenant at:
CarsDirect.com, Inc.
4312 Woodman Avenue, 3rd Floor
Sherman Oaks, CA 91423
Attn: Chief Financial Officer
Either Landlord or Tenant may designate, by notice in writing, a new or other
address to which notices shall thereafter be given. Any notice given hereunder
shall be deemed given three (3) business days after the same is deposited in a
United States general or branch post office, or in an official United States
mail depositary, enclosed in a registered mail prepaid wrapper, return receipt
requested, addressed as hereinabove provided.
29.2 If Landlord's title to the Leased Premises, or Tenant's
leasehold estate and interest in and to the Leased Premises, is vested at the
date of this Lease, or shall hereafter vest, in more than one person or entity,
all of the title holders or holders of such leasehold estate (as the case may
be) shall, within thirty (30) days thereafter, designate one of their number, or
some other person or entity, as authorized to receive Payments (as to Landlord)
and notices, and grant consents or approvals, as required under lease. In the
event that:
(a) no such designation shall have been made within the said
thirty (30) days; or
(b) the person of entity so designated shall fail to or refuse
to act at any time,
then, and in either event, Tenant or Landlord (as the case may be) may apply to
the appropriate court sitting in the City, County and State of New York, on
notice to one or more of such of successors, for the appointment of a nominee to
act for Landlord or Tenant (as the case may be) in the matters concerned.
29.3 If the interest of Landlord or Tenant, or any portion thereof,
shall vest in an infant or incompetent, or in any person lacking legal capacity
for any reason, then the general guardian of such infant, or the committee of
such incompetent or incapacitated person, shall be the person to whom notices on
behalf of such infant, or incompetent or incapacitated person, may be sent,
whenever notice is required to be given so such person, and shall be the person
to consent on behalf of such infant, or incompetent or incapacitated person,
wherever the consent of such person shall be required. In the event that Tenant
or Landlord, as the case maybe, is prevented from giving notice to, or obtaining
the consent of such person by reason of infancy,
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incompetency, or other legal incapacity of such person, the time of Landlord or
Tenant to perform any act requiring notice to, or the consent of such person
shall be extended for a reasonable time sufficient to enable the procuring of
such consent according to law.
Article 30
Broker
30.1 Landlord and Tenant covenant, warrant and represent that there
was no broker or finder instrumental in consummating this Lease and that no
conversations or negotiations were had with any broker or finder concerning the
leasing of the Leased Premises.
Article 31
Waivers and Surrenders to be in Writing
31.1 The receipt of rent by Landlord with knowledge of any breach of
this Lease by Tenant or of any default on the part of Tenant in the observance
or performance of any of the conditions or covenants of this Lease, shall not be
deemed to be a waiver of any provision of this Lease. No failure on the part of
Landlord or Tenant to enforce any covenant or provision herein contained, nor
any waiver of any right hereunder by Landlord or Tenant (unless such waiver is
in a writing signed by the party to be charged), shall discharge or invalidate
such covenant or provision, or affect the right of Landlord or Tenant to enforce
the same in the event of an subsequent breach or default. The receipt by
Landlord
of any rent, or other sum of money, or any other consideration paid by Tenant
after the expiration or termination, in any manner, of the Term shall not
reinstate, continue, or extend the Term, unless so agreed to in writing and
signed by Landlord. Neither acceptance of the keys to any Improvement, nor any
other act or thing done by Landlord or any agent to employee during the Term,
shall be deemed to be an acceptance of a surrender of the Leased Premises
excepting only an agreement in writing signed by Landlord accepting or agreeing
to accept such a surrender.
Article 32
Rights and Remedies Cumulative
32.1 The rights given to Landlord herein are in addition to any
rights that may be given to Landlord by any statute or otherwise. All of the
rights and remedies of Landlord under this Lease or pursuant to present or
future law shall be deemed to be separate, distinct and cumulative, and no one
or more of them, whether exercised or not, nor any mention of, or reference to,
any one or more of them in this Lease shall be deemed to be in exclusion of, or
a waiver of, any of the others, or of any of the other rights or remedies that
Landlord may have, whether by present or future law or pursuant to this Lease
Landlord shall have, to the fullest extent permitted by law, the right to
enforce any rights or remedies separately, and to take any
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lawful action or proceedings to exercise or enforce any right or remedy, without
thereby waiving, or being barred or estopped from exercising and enforcing, any
other rights and remedies by appropriate action or proceedings.
32.2 Except where Tenant's remedies are expressly limited by this
Lease, the rights given to Tenant herein are in addition to any rights that may
be given to Tenant by any statute or otherwise. All of the rights and remedies
of Tenant under this Lease or pursuant to present or future law shall be deemed
to be separate, distinct and cumulative, and no one or more of them, whether
exercised or not, nor any mention of or reference to, any one or more of them
in this Lease shall be deemed to be in exclusion of, or a waiver of any of the
others Tenant may have, whether by present or future law or pursuant to this
Lease. Tenant shall have, to the fullest extent permitted by law, the right to
enforce any such rights or remedies separately, and to take any lawful action or
proceedings to exercise or enforce any such right or remedy, without thereby
waiving, or being barred or estopped from exercising and enforcing, any other
rights and remedies by appropriate action or proceedings.
Article 33
Removal of Personal Property and Fixtures
33.1 Tenant shall, on or before the last day of the Term, or on the
sooner termination thereof peaceably and quietly leave, surrender and yield up
unto Landlord all and singular the Leased Premises and the Improvements, free of
all subtenancies (except to the extent that Landlord shall have consented to
such subtenancies), broom-clean (subject to reasonable wear and tear), together
with all alterations, additions and improvements that may have been made upon
the Leased Premises (except movable furniture, movable personal property, or
movable trade fixtures put in at the expense of Tenant, or at the expense of any
subtenant, subject, however, to the subsequent provisions hereof. All furniture,
personal property and trade fixtures properly removable pursuant to the
provisions of this Article 33 shall be removed by Tenant on or before the last
day of the Term, or on the sooner termination thereof and all property not so
removed shall be deemed abandoned by Tenant, lf the Leased Premises and the
Improvements are not so surrendered at the end of the term, Tenant shall make
good to Landlord all damage that Landlord shall suffer by reason thereof and
shall indemnify Landlord against all claims made by any succeeding tenant
against Landlord founded upon delay by Tenant in delivering possession of the
Leased Premises to such succeeding tenant, so far as such delay is occasioned by
the failure of Tenant to so surrender the Leased Premises. For purposes of this
Lease "trade fixtures" will be deemed to include hydraulic lifts and other
moveable machinery and equipment used in connection with the operation of the
business of an automobile dealership.
33.2 Should Landlord incur any expense in removing any subtenant, or
any other Person holding by, through, or under Tenant, who has failed to so
surrender the Leased Premises, the Improvements, or any part thereof Tenant
shall reimburse Landlord for the reasonable cost and expense (including, without
limitation, reasonable attorneys' fees,
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disbursements and court costs) of removing such subtenant or such person,
provided that Tenant shall have failed to have effected such removal after
written demand.
Article 34
Sale or Conveyance of Leased Premises;
Limits of Liability of Landlord
34.1 The term "Landlord", as used in this Lease, means only the
owner for the time being of the Leased Premises, so that, in the event of any
sale of the Leased Premises, the seller shall be, and hereby is, entirely freed
and relieved of all covenants and obligations of Landlord hereunder thereafter
arising, and it shall be deemed and construed, without further agreement between
the parties or between the parties and the purchaser of the Leased Premises,
that such purchaser has assumed and agreed to carry out any and all covenants
and obligations of Landlord hereunder. If Landlord and/or any successor in
interest of Landlord shall be an individual or individuals who are joint
venturers, tenants in common, members of a firm, a general or limited
partnership, or a corporation, it is specifically understood and agreed that the
monetary liability of such individual, or of the members or other principals of
such firm, partnership, or joint ventures, or of the officers, directors and/or
shareholders of such corporation, whether disclosed or undisclosed, in relation
to any covenants or conditions under this Lease, shall be unconditionally and
completely limited to the equity of Landlord in the Leased Premises, in the
event of a breach by Landlord of any of the terms, covenants and conditions of
this Lease to be performed by Landlord. Except as expressly otherwise provided
in this Lease, there shall be no personal liability with respect to any of the
foregoing persons and/or entities.
Article 35
Alterations
35.1 (a) Provided that no Event of Default shall have occurred and
be continuing under this Lease, Tenant shall have the right:
(i) without Landlord's consent, to make non-structural,
interior changes in, or additions to, the Improvements; and
(ii) with Landlord's prior written consent, not to be
unreasonably withheld or delayed, to make structural and/or exterior changes in,
or additions to, the Improvements.
(b) In determining whether to consent to Tenant's proposed
structural and/or exterior changes in, or additions to the Improvements,
Landlord may consider all factors which in Landlord's reasonable business
judgment are pertinent to such decision, and the parties agree that the
following arr examples of such factors:
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(i) whether the work will convert any Improvement that is,
prior to such alterations, a complete, self-contained operating unit into a
structure that is not a complete, self-contained operating unit or impair the
structural integrity of any Improvement;
(ii) whether the work will decrease the value of any location
which is part of the Leased Premises below the value of the same as of the date
of commencement of such alterations or materially decrease the size of the
rentable space contained therein;
(iii) whether the work will convert the use of any location
which is part of the Leased Premises from the use thereof as of the date of this
Lease, unless (x) prior to making any such alterations, Landlord shall notify
Tenant that Tenant shall be obligated to restore the Leased Premises to the use
thereof existing as of the date of this Lease at the sole cost and expense of
Tenant, on or before the last day of the Term, or the sooner expiration or
termination thereof, and Tenant shall agree in writing to so restore and (y)
such alterations shall be of such a nature as to reasonably permit such
restoration to be made without excessive cost or expense; or
(iv) whether the work will constitute the demolition of all or
a substantial portion of the structure of any Improvement.
(c) Landlord's failure to respond to a request for approval under
this Section 35.1 within ten (10) business days shall be deemed to be a
disapproval by Landlord. Any disputes under this Article 35 shall be subject to
arbitration under Article 21 above.
35.2 No alterations shall be commenced until Tenant shall have procured
all necessary permits and authorizations of all public authorities having
jurisdiction. Landlord shall, reasonably promptly following Tenant's notice of
the need therefor, join whenever required by the public authorities, but without
any liability or expense to Landlord, in the applications for such permits or
authorizations. All alterations shall be made promptly, in good and workmanlike
manner, in compliance with all applicable permits, authorizations, laws,
ordinances, regulations and requirements of all public authorities having
jurisdiction and in accordance with the orders, rules and regulations of the
applicable Board of Fire Underwriters having jurisdiction over the Leased
Premises, the Insurance Services Office and any other body exercising similar
functions to either of the foregoing.
35.3 Prior to commencing any construction, alterations, or additions to
the Leased Premises or the Improvements estimated to cost in excess of Two
Hundred Fifty Thousand ($250,000.00) Dollars, increased by the corresponding
increase in the Fixed Net Rent over the amount thereof on the commencement Date,
Tenant shall, if Landlord so elects, deliver to Landlord, at Tenant's expense,
payment and performance bonds, naming Landlord as an insured, for the general
contractor employed by Tenant or, if there is no general contractor for Tenant,
for the major subcontractors, which bonds shall be issued by a company or
companies,
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and in form and content, reasonably satisfactory to Landlord and in an amount
equal to the estimated cost of such construction, alterations, or additions.
35.4 Any and all alterations, additions and improvements made with respect
to, or placed upon, the Leased Premises or the Improvements by Tenant, as well
as all fixtures and articles of personal property attached to, or used in
connection with, the Leased Premises or the Improvements, shall become, be and
remain the property of Tenant for the Term of this Lease, but shall become the
property of, and surrendered to, Landlord at the end or other termination of
this Lease, provided, however, that the stable furniture, movable personal
property and movable trade fixtures put in at the expense of Tenant or any
subtenant that, pursuant to the provisions of Article 23 hereof may be removed
by Tenant, or by any subtenant, at or before the expiration or sooner
termination of this Lease, shall not be deemed to be attached to the freehold
nor the property of, nor surrendered to, Landlord.
Article 36
Tenant and Landlord to Furnish Statements
36.1 Each party shall, within thirty (30) days after the written request
of the other party or of any holder or potential holder of a fee mortgage or
leasehold mortgage on the Leased Premises or any portion thereof, furnish a
written statement, duly acknowledged, of the following items:
(a) the amount of Fixed Net Rent then payable and additional rent
due, if any;
(b) whether this Lease is unmodified and in full force and effect
(or, if there have been modifications, that the same are in full force and
effect as modified and stating the modifications);
(c) whether, to the best knowledge and belief of the requesting
party, the requesting party is in default;
(d) whether Tenant has given Landlord or Landlord has given Tenant
any notice of default under this Lease, and if given, whether the default set
forth therein remains uncured.
Any such statement shall be for the sole benefit of Landlord or its assigns, or
such holder or prospective holder requesting the same or its assigns, and shall
have no effect, as an estoppel or otherwise, with respect to any third party.
36.2 Upon the failure of Tenant to furnish any such statement within the
said thirty (30) day period, it shall be conclusively presumed that this Lease
is in full force and
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effect and that there are no defaults by Landlord hereunder.
Article 37
Inspections by Landlord
37.1 Upon reasonable prior notice from Landlord (except in an emergency,
in which event no notice shall be necessary), and without Landlord causing
unreasonable interference with Tenant's use, Tenant shall subject to reasonable
notice and at reasonable times, permit an inspection of the Leased Premises and
the Improvements by Landlord, by Landlord's agents or representatives, and by,
or on behalf of, prospective purchasers and/or mortgagees of the fee interest in
the Leased Premises during business hours at any time and from time to time
during the Term. During the three (3) year period next preceding the Expiration
Date, Tenant shall permit inspection thereof by or on behalf of prospective
tenants. If during such hours, admission to the Leased Premises or any
Improvement for the foregoing purposes cannot be obtained, or if at any time by
reason of an emergency condition an entry shall be deemed necessary for the
protection of the Leased Premises or the Improvements, whether for the benefit
of Tenant or not, Landlord, or Landlord's agents or representatives, may enter
the Leased Premises or the Improvements and accomplish such purposes. The
provisions contained in this Article 37 are not intended to create or increase,
and are not to be construed as creating or increasing, any obligations on
Landlord's part hereunder.
Article 38
Surrender at the End of the Term
38.1 On the last day of the Term, or on the earlier termination of the
Term, Tenant shall peaceably and quietly leave, surrender and deliver the Leased
Premises and the Improvements to Landlord (together with any instrument
necessary to transfer title to Landlord with respect to alterations or
improvements made by Tenant with any transfer tax, recording fees, or
documentary stamp taxes or fees to be the sole cost and expense of Tenant to the
extent imposed upon Tenant by applicable law, together with any machinery,
equipment or other personal property of any kind or nature that Tenant may have
installed or affixed on, in, or to the Leased Premises or the Improvements for
use in connection with the operation and maintenance of the Leased Premises
and/or the Improvements for the purposes for which they are intended (whether or
not such property is deemed to be fixtures) in good working order and condition
(subject to the terms of Section 8.3 hereof), reasonable use, wear and tear and
insured casualty excepted. If the Leased Premises and the Improvements are not
so surrendered, Tenant shall make good to Landlord all damages and expenses that
Landlord shall incur by reason thereof, and, in addition, Tenant shall indemnify
Landlord from and against all claims made by any succeeding lessee against
Landlord, founded upon delay by Landlord in delivering possession of the Leased
Premises and the Improvements to such succeeding lessee, so far as such delay is
occasioned by the failure of Tenant to surrender the Leased Premises and the
Improvements.
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Tenant's indemnity shall not include Landlord's lost profits or consequential
damages, but shall include any claims by third parties against Landlord for lost
profits or consequential damages.
Article 39
Covenants Binding on Successors and Assigns
39.1 The covenants, agreements, terms, provisions and conditions contained
in this Lease shall apply to, inure to the benefit of and be binding upon
Landlord, Tenant and their respective successors and assigns, except as
expressly otherwise hereinbefore provided.
Article 40
Entire Agreement
40.1 This Lease contains the entire agreement between the parties, and
shall not be modified in any manner except by an instrument in writing executed
by the parties or their respective successors in interest.
Article 41
Short Form of Lease
41.1 At the request of either party, Landlord and Tenant shall promptly
execute, acknowledge and deliver a memorandum with respect to this Lease
sufficient for recording. At the same time, Tenant shall also execute
acknowledge and deliver to Landlord at the same time a termination of such
memorandum, in form sufficient to give recorded notice to the effect that the
Tenant's rights with respect to the Initial Option, the Additional Option or the
Purchase Option, which Landlord may record at any time that Landlord believes in
good faith that such Options have terminated, upon ten days prior written notice
to Tenant Such memorandum shall not in any circumstances be deemed to change or
otherwise affect any of the obligations or provisions of this Lease.
41.2 Any modification or amendment of this Lease shall be executed in form
sufficient for recording and it, or a memorandum thereof may be recorded by
either Landlord or Tenant
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<PAGE>
Article 42
Miscellaneous
42.1 Where the consent or approval of either party hereto shall be
required, the parties hereto agree that except as may otherwise be specifically
provided herein, such consent shall not be unreasonably withheld or delayed.
42.2 The captions of this Lease and the index preceding this Lease are for
convenience and reference only and in no way define, limit or describe the scope
or intent of this Lease, nor in any way affect this Lease.
42.3 All the provisions of this Lease shall be deemed and construed to be
"conditions" as well as "covenants", as though the words specifically expressing
or importing covenants and conditions were used in each separate provision
hereof.
42.4 Words of any gender in this Lease shall be held to include any other
gender and words in the singular number shall be held to include the plural when
the sense requires.
42.5 If and to the extent that a provision of this Lease shall be unlawful
or contrary to public policy, the same shall not be deemed to invalidate the
other provisions of this Lease.
42.6 This Lease shall be governed by, and construed and interpreted in
accordance with the laws of the State where the Leased Premises are located.
42.7 Landlord represents to Tenant that Landlord has the right to enter
into this Lease with Tenant.
42.8 Landlord agrees that any amount payable by Tenant under this Lease
may be made by Tenant under protest and Tenant may reserve its right to later
contest the legitimacy of the charges in question and/or the amount thereof.
42.9 Whenever any determination is to be made, notice is to be given or
action is to be taken on a date specified in this Lease, if such date shall fall
on a Saturday, Sunday or legal holiday under the laws of New York State, then in
such event said date shall be extended to the next day which is not a Saturday,
Sunday or legal holiday. Except as otherwise set forth in this Section 42.9, the
times for making a determination, giving notice or taking action (including,
without limitation the date of closing pursuant the exercise of the Purchase
Option and of making payments pursuant thereto) are agreed to be of the essence
of this Lease and are not to be extended, unless by consent in writing signed by
Landlord and Tenant
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<PAGE>
Article 43
Certain Definitions
43.1 As the same are used in this Lease, the following terms shall have
the following meanings:
(a) "Commencement Date" shall have the meaning set forth in Section
2.1;
(b) "Depository" shall mean a bank or trust company having offices
in the City, County and State of New York and a net worth of not less than
Twenty-Five Million ($25,000,000.00) Dollars, to be selected by Tenant subject
to the written approval of Landlord, to act as insurance trustee;
(c) "Event of Default" shall have the meaning set forth in Section
16.1;
(d) "Expiration Date" shall mean the ending, termination, or
expiration date of the Term of this Lease;
(e) "Fixed Net Rent" shall have the meaning set forth in Section 2.1
as determined from time to time pursuant to the provisions of Section 2.1;
(f) "Improvements" shall mean the structures or buildings, and
replacements thereof, now on the Leased Premises or hereafter erected on the
Leased Premises, including all building equipment apparatus, machinery and
failures of every kind and nature forming part of such structures or buildings,
or of any structures or buildings hereafter standing on the Leased Premises or
on any part thereof and articles of personal property owned by the Tenant now or
at any time hereafter affixed to, attached to, placed upon, or used in any way
in connection with the complete and comfortable use, enjoyment occupancy or
operation of, any such structures or buildings (provided, however, that nothing
in the foregoing definition shall be construed to be in limitation of Tenant's
rights and obligations pursuant to the terms of Section 33.1 to remove certain
personal property and trade fixtures (including hydraulic lifts) from the Leased
Premises on or before the Expiration Date);
(g) "Landlord" shall mean the then holder of the fee title to the
Leased Premises at the time in question;
(h) "Leased Premises" shall have the meaning set forth in the
Statement of Facts to this Lease;
(i) "Notice" shall have the meaning set forth in Section 29.1;
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(j) "Term" shall mean the period of the Initial Term ending January
31, 2001 or if the First Option is exercised pursuant to Section 1.3 hereof,
ending January 31, 2007, and if the Additional Option is exercised, then ending
January 31, 2012.
Article 44
Reservation of Rooftop Rights
44.1 Notwithstanding anything in this Lease to the contrary, during the
Term of this Lease or any extensions or renewals thereof, Landlord shall have
the exclusive right to install, maintain, repair, replace and operate satellite,
microwave and/or other antenna and communications equipment as well as rooftop
signs (collectively, the "Rooftop Equipment") on the roof of the building
comprising the Improvements, and to all rents, issues and profits relating
thereto or derived therefrom, provided same shall not materially and adversely
affect the structural elements of the building. Landlord's rights shall also
include, without limitation, the right (a) to locate control equipment,
transformers, switches and other equipment utilized in connection with the
Rooftop Equipment (collectively, the "Control Equipment") in mechanical or other
spaces in the building, which space Tenant shall make available to Landlord
without cost and (b) to run any wires, cables, conduits and similar equipment
(collectively, the "Wiring") between the Rooftop Equipment and the Control
Equipment and the Wiring (collectively the "Wiring Equipment") to the building's
electrical lines with the usage thereof to be paid for by Landlord pursuant to
separate metering to be installed at Landlord's expense. The Equipment shall be
installed at locations satisfactory to Landlord. Landlord shall be solely
responsible for the cost of installation, operation and maintenance of the
Equipment and will install and operate the Equipment in accordance with all
federal, state, and local laws and regulations. In addition, Landlord shall be
responsible for obtaining any permits and licenses required to install and
operate the Equipment and Tenant agrees to cooperate with Landlord to accomplish
same. Notwithstanding the foregoing, Landlord shall make available to Tenant
such space on the roof as may be reasonably necessary for the installation of
telecommunication equipment in connection with the operation of Tenant's
business.
Article 45
Reservation of Air Rights
45.1 Notwithstanding anything in this Lease to the contrary, Landlord
reserves and there shall be excluded from the leasehold estate granted hereby,
all of Landlord's right, title and interest in the air space above a horizontal
plane to be defined at the level of the roof of the building, together with
easements for access, ingress and egress, for support and such other rights in
respect to the Leased Premises as may be required for the development of such
air space, all as more fully set forth in Exhibit "B" hereof. The provisions of
this Article 45 shall not be applicable unless and until Tenant shall have
failed to have validly and effectively exercised the Purchase Option on or
before February 1, 2006.
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Article 46
Termination for Demolition
46.1 Provided that Tenant shall have exercised the Additional Option (and
not the Purchase Option), then on and after February 1,2009, Landlord may
provide Tenant with written notice ("Landlord's Notice") of its intention to
terminate this Lease for the purpose of demolishing the buildings and
improvements on the Leased Premises. Landlord's notice shall be given in good
faith and in accordance with the provisions of this Lease for the giving of
notice. Landlord shall not be liable to Tenant for any damages or equitable
relief in the event that the buildings and improvements are not demolished, so
long as Landlord had a good faith intention to demolish at the time Landlord's
Notice was given. In the event that Landlord's Notice is given, the Term of this
Lease shall expire on the date set forth therefor in Landlord's Notice, which
shall be not earlier than one year from the date of Landlord's Notice, as if
that date were the date for the termination of the Term. Tenant shall surrender
the Leased Premises on such date, vacant and broom clean and free and clear of
all tenancies, sublettings, occupancies, liens and encumbrances (except for such
liens and encumbrances, if any, which may have been created by Landlord's own
acts), otherwise in accordance with the terms of this Lease applicable to
termination of the Term, and without any payment or liability on the part of
Landlord to Tenant for such early termination of the Term. Upon such termination
Fixed Net Rent, Incremental Rent and/or Appraisal Rent, and impositions payable
by Tenant shall be apportioned.
46.2 If after Landlord's Notice has been given, Landlord shall determine
not to proceed with the demolition, then Landlord shall give notice to Tenant of
such determination, and Tenant shall have the option, exercisable by written
notice to Landlord given within sixty days after date of such notice from
Landlord, to remain in the Leased Premises pursuant to the provisions of this
Lease then in effect, for the remainder of the Term as extended pursuant to the
exercise of the Additional Option. If Tenant shall exercise such option after
having surrendered possession of the Leased Premises, then (i) the Lease shall
be reinstated as of the earlier of ninety days after the date on which Tenant
shall have exercised such option or the date upon which Tenant retakes
possession of the Leased Premises; (ii) Tenant shall accept possession of the
Leased Premises "as is" as of the date upon which Tenant exercises such option,
being in the same condition as when the Leased Premises were surrendered by
Tenant subject to ordinary wear and tear; and Tenant shall accept such surrender
of the Leased Premises by Landlord in complete satisfaction of any and all
rights, remedies and claims which Tenant may have against the Landlord pursuant
to law or in equity, all of which are hereby waived by Tenant.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
of Lease as of the day and year first above written.
LANDLORD:
POTAMKIN AUTO CENTER LTD.
Attest: /s/ R. Potamkin By: /s/ Ted M. Bessen, President
-------------------- ----------------------------------
TENANT:
CARSDIRECT.COM, INC.
Attest: By: /s/ Scott Painter
-------------------- ----------------------------------
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EXHIBIT 10.12
AMENDMENT NO. 1 TO STRATEGIC ALLIANCE AND SERVICE AGREEMENT
-----------------------------------------------------------
THIS Agreement is made and entered into as of November 23, 1999 (the
"Effective Date"), by and between CarsDirect.com, Inc.("CarsDirect") and
Autoland, Inc. "("Autoland") with reference to the following:
A. The parties hereto are parties to that certain Strategic Alliance
and Services Agreement dated April 1, 1999 (the "April 1999
Agreement");
B. The parties wish to amend the April 1999 Agreement as provided
below.
NOW THEREFORE, the parties agree as follows:
1. Notwithstanding the provisions of Paragraph 5 of the April 1999 Agreement
(the "Non-compete Provisions") and subject to the terms and conditions set forth
herein, CarsDirect shall be permitted to enter into three (3) contractual,
strategic and/or business relationships (collectively the "CarsDirect Strategic
Relationships) which would otherwise be prohibited pursuant to the Non-compete
Provisions. Notwithstanding the foregoing, CarsDirect may not enter into a
CarsDirect Strategic Relationship with a credit union ("CU") if as of the date
CarsDirect proposes to enter into a CarsDirect Strategic Relationship with a CU
any one of the following conditions exists: (i) the CU purposely displays
Autoland brochures at its office, lobby or other physical facilities where such
brochures would normally be displayed; (ii) the CU is contained on the bona-fide
Autoland client list; (iii) the CU has promoted Autoland in its newsletter to
members within twelve (12) months prior to the date that CarsDirect proposes to
enter into the proposed CarsDirect Strategic Relationships with the CU or (iv)
the CU has an established hyperlink between its website and the Autoland website
located at www.Autoland.com (or successor versions thereof).
a. Notice. Prior to consummating a CarsDirect Strategic Relationship,
------
CarsDirect may, but is not required to, provide Autoland with written notice of
such intention which such notice shall specify the name of the CU (the
"CarsDirect Notice").
b. Response. If CarsDirect chooses to provide the CarsDirect Notice,
--------
Autoland shall have five (5) business days from the date of the CarsDirect
Notice to provide CarsDirect written verification of the existence of at least
one of the conditions set forth in Sections 1(i) through (iv) above. If Autoland
fails to provide such written verification within such five (5) business day
period, CarsDirect may consummate the CarsDirect Strategic Relationship with the
CU which was the subject of the CarsDirect Notice.
2. Notwithstanding the Non-compete Provisions and subject to the terms and
conditions set forth herein, Autoland shall be permitted to enter into three (3)
contractual, strategic and/or business relationships (collectively, the
"Autoland Strategic Relationships") which would otherwise be prohibited pursuant
to the Non-compete Provisions. Notwithstanding the foregoing, Autoland may not
(i) enter into an Autoland Strategic Relationship with an entity with which
CarsDirect has a contractual relationship as of the date Autoland proposes to
enter into the Autoland Strategic Relationship or (ii) develop or have developed
an Autoland branded consumer website directed to the public at large; provided,
however, Autoland shall be permitted
1
<PAGE>
in three instances as contemplated above, to enter into Autoland Strategic
Relationships with third parties whose websites offer cars to the general
public) and Autoland may in such cases have a co-branded relationship with such
third parties including a hyperlink with such parties.
a. Notice. Prior to consummating an Autoland Strategic Relationship.
------
Autoland may, but is not required to, provide CarsDirect with written notice of
such invention which such notice shall specify the name of the Non-Credit Union
(the "Autoland Notice").
b. Response. CarsDirect shall have five (5) business days from the date
--------
of the Autoland Notice to provide Autoland written verification of the
contractual relationship with such Non-Credit Union. If CarsDirect fails to
provide such written verification within such five (5) business day period,
Autoland may consummate the Autoland Strategic Relationship.
3. Except as amended above, the April 1999 Agreement shall remain in full
force and effect in accordance with its terms.
4. Entire Agreement. This Amendment contains the entire understanding of the
----------------
parties hereto with respect to the transactions and matters contemplated hereby,
supersedes all previous agreements between CarsDirect and Autoland concerning
the subject matter contained herein, and cannot be amended except by a writing
signed by both parties. No party hereto has relied on any statement,
representation or promise of the other party in executing this Amendment except
as expressly stated herein.
5. Counterparts and Facsimile Signatures. This Amendment may be executed in
-------------------------------------
multiple counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument. Facsimile
signatures will be considered original signatures.
6. Governing Law. This Amendment, its interpretation, performance or any
-------------
breach thereof, shall be construed in accordance with, and all questions with
respect thereto shall be determined by, the laws of the State of California
applicable to contracts entered into and wholly to be performed within said
state.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first
set forth above.
CARSDIRECT.COM, INC.
By: /s/ Ari Wasserman
--------------------------------------
Its: V. P., Business Development
--------------------------------------
AUTOLAND, iNC.
By: /s/ Michael L. Malamut
--------------------------------------
Its: President
--------------------------------------
2
<PAGE>
STRATEGIC ALLIANCE AND SERVICES AGREEMENT
This Strategic Alliance and Services Agreement ("Agreement") is made and
---------
entered into as of April 1, 1999 (the "Effective Date") by and between
--------------
CarsDirect, Inc., a Delaware corporation with offices at 130 West Union Street,
Pasadena, CA ("CarsDirect") and Autoland, Inc., a California corporation with
-----------
offices at 4312 ("Autoland").
--------
RECITALS
A. CarsDirect is an Internet-based company that utilizes its site on the
World Wide Web primarily to sell cars direct to consumers and the related
products and services listed on Exhibit A (the "Aftermarket Products").
--------- --------------------
Similarly, Autoland facilitates automobile sales and sells Aftermarket Products,
but to predominately credit union members and other affinity groups.
B. CarsDirect desires to obtain, and Autoland desires to provide, certain
infrastructure and and know-how to enable CarsDirect to market and sell the
Aftermarket Products to CarsDirect customers.
C. Accordingly, Autoland will dedicate certain of its employees and work
with CarsDirect employees to sell Aftermarket Products to CarsDirect customers
under the CarsDirect name.
D. In consideration of Autoland's assistance, CarsDirect will issue
Autoland shares of its Common Stock and reimburse Autoland for its out of pocket
expenes associated with its efforts pursuant to this agreement.
NOW THEREFORE, in consideration of the mutual promises contained herein
and intending to be legally bound, the parties agree as follows:
1. Autoland Commitment.
-------------------
(a) Initial Personnel. Within five (5) days of the Effective Date,
-----------------
CarsDirect and Autoland employees will work together to service the customers
which CarsDirect desires to service with the assistance Autoland (the
"CarsDirect Customers") in accordance with the Organizational Chart attached
--------------------
hereto as Exhibit B which may be amended at any time with the consent of both
parties. The Autoland employees listed on Exhibit B shall be referred to as the
"Dedicated Autoland Employees." It is acknowledge that some of the Dedicated
Autoland Employees will service CarsDirect Customers only part time and continue
to work on behalf of Autoland with the remainder of their time. All matters
pertaining to the employment, supervision, compensation, promotion and discharge
of the Dedicated Autoland Employees shall be the responsibility of Autoland.
Autoland will assist CarsDirect in hiring and training new CarsDirect employees
to work in the Autoland Office Space (as defined in subsection b below). The
initial Dedicated Autoland Employees and the initial CarsDirect employees to
work in the Autoland Office Space will be named in Exhibit B.
<PAGE>
(b) Office Space. Within five (5) days of the Effective Date, Autoland
------------
will make available office space of sufficeint size and quality within the
Autoland headquarters located in Sherman Oaks, California (the "Autoland Office
---------------
Space") to house the Dedicated Autoland Employees and the CarsDirect employees
- -----
which CarsDirect assigns to the Autoland Office Space. In addition, from time to
time, Autoland will provide additional Autoland Office Space as reasonably
necessary to house such additional CarsDirect employees as CarsDirect shall
desire to locate at the Autoland headquarters provided that Autoland shall not
be required at anytime to provide for more than 36 CarsDirect employees and
Dedicated Autoland Employees combined at the Autoland Office Space.
(c) Training. At CarsDirect's request, Autoland will hold training
--------
classes for CarsDirect employees; provided however, that Autoland shall not be
required to hold more than one such class during any thirty (30) day period.
Such classes will be substantially similar to Autoland's standard classes for
new Autoland customer service employees including, but not limited to, in terms
of; (i) being taught by the same personnel, (ii) being taught in the same manner
according to the same schedule; (iii) teaching the same content (though
customized for CarsDirect); and (iv) utilizing the same materials (though
customized for CarsDirect).
(d) Resources. To the extent legally or contractually permitted,
---------
Autoland will provide each of the employees located at the Autoland Office Space
with the necessary resources, computers, phones, other equipment, manuals, sales
materials, software and other such materials to service the CarsDirect Customers
as contemplated by this Agreement. This will include full access to the
proprietary systems and relationships and agreements with third parties which
Autoland utilizes to service its own customers. In addition, Autoland will
assist CarsDirect in developing its own proprietary training, sales and such
other manuals and materials as should be reasonably necessary for the CarsDirect
employees to effectuate the sale of the Aftermarket Products to the CarsDirect
Customers, tailor the training program to give it the "CarsDirect Feel" and for
such other purposes as shall reasonably be deemed necessary by CarsDirect.
(e) Standards. The items which Autoland will provide pursuant to this
---------
Section 1 (e.g., employees, office space, training and resources) will be
sufficient in quantity and quality to provide the CarsDirect Customers with the
same high quality of customer service which Autoland provides its own customers.
It is acknowledged that the parties expect the volume of CarsDirect Customers
and the volume of Automotive Products sold to service the CarsDirect Customers
to increase significantly over time and that Autoland will use its best efforts
to hire, develop, direct and train additional resources and Dedicated Autoland
Employees as necessary to maintain this high level of customer service.
2. Reimbursement.
-------------
(a) Personnel Costs. CarsDirect will reimburse Autoland only for the
---------------
salaries of the Dedicated Autoland Employees listed on Exhibit B. To the extent
---------
that any of the Dedicated Autoland Employees work only part time in servicing
the CarsDirect Customers, then CarsDirect will reimburse Autoland in proportion
to their time spent servicing CarsDirect Customers versus their total time spent
at Autoland (such proportion shall also be listed on Exhibit B). Exhibit B may
--------- ---------
<PAGE>
be amended either (i) by Autoland on each anniversary of thge Effective Date to
reflect actual, demonstrable changes in Autoland's costs, or (ii) at any time
upon the consent of both parties.
(b) Schedule of Costs. In addition, CarsDirect will reimburse Autoland's
-----------------
out of pocket expenses actually expended for each of the items set forth in
Section 1(b) trough 1(e) above according to the schedule in Exhibit C. Such
---------
schedule may be amended by Autoland on each anniversary of the Effective Date to
reflect actual, demonstrable changes Autoland's costs. Such schedule may be
amended at any time with the consent of both parties to add additional items for
reimbursement. CarsDirect will not be obligated to pay or reimburse Autoland for
any items that are not listed on Exhibit C (or Exhibit B). Except for the ADP
--------- ---------
hardware and software and the telephone system upgrades referred to in Exhibit
C, to the extent that payments made by CarsDirect to Autoland pursuant to this
Section 2 are for the purchase of property (e.g., computers, phones, computer
programs), CarsDirect will be the owner of such property and shall be entitled
to take possession of such property upon the termination of this Agreement or
upon vacating the Autoland Office Space.
(c) Timing of Payments. Autoland will invoice CarsDirect for
------------------
reimbursement of Autoland's costs actually expended during such month as set
forth below. Autoland will invoice CarsDirect for reimbursement pursuant to
Section 2(a) (i.e., personnel expenses) on the fifth day and twentieth day of
each month on each occasion for one-half of the monthly salaries of the then
current Dedicated Autoland Employees. Autoland will invoice CarsDirect once each
month for reimbursement pursuant to Section 2(b) (i.e., other expenses).
CarsDirect will pay such invoices within ten (10) days of receiving such
invoices. Autoland shall keep accurate, full and complete books and accounts and
supporting documentation showing to services it has rendered and the costs it
has incurred for each of the items set forth in Section 1 above according to the
schedules in Exhibit B and Exhibit C. CarsDirect shall have the right to audit
--------- ---------
such materials at such times as shall be reasonably satisfactory to each of
Autoland and CarsDirect.
3. Car Sourcing.
------------
(a) Sourcing of Automobiles. Autoland will utilize its network of
-----------------------
automobile dealership relationships and agreements and other such methods of
sourcing automobiles to procure automobiles to fill the orders of CarsDirect
Customers. CarsDirect Customers will acquire title to, and take possession of,
such automobiles in the same manner as Autoland's customers do, or in such other
manner shall be reasonably satisfactory to each of Autoland and CarsDirect.
(b) Pricing of Automobiles. The price CarsDirect or the CarsDirect
----------------------
Customer (whichever CarsDirect elects to have take title) will pay for any such
automobiles will be the same as the total dollar amount which Autoland would pay
at that time for the same automobile. Autoland will pay to CarsDirect any
"holdbacks," rebates or similar payments that Autoland receives as a result of
automobiles sold to any CarsDirect Customer.
(c) Flow of Funds from Autoland. Autoland will provide CarsDirect with
---------------------------
separate financial and accounting statements which describe the financial
activity arising from the CarsDircet Customers and CarsDirect's and Autoland's
efforts pursuant to this agreement. Such
<PAGE>
statements will be substantially similar to the financial and accounting
statements Autoland uses for its own purposes. All revenues and cash generated
by sales and services to CarsDirect Customers will be kept separate amd apart
from Autoland's revenue and cash, and will be deposited only into CarsDirect
bank account or held by CarsDirect employees.
4. Products and Services.
---------------------
(a) Private Label. The Aftermarket Products offered to the CarsDirect
-------------
Customers through or with the assistance of Autoland personnel, to the extent
legally allowable and to the extent desired by CarsDirect, will be exclusively
offered under the name and account of CarsDirect. It is acknowledged that
Autoland will accordingly be unable to offer certain Aftermarket Products until
new sales literature and other materials are created.
(b) List of Products. Only products specified on Exhibit A will be
---------------- ---------
deemed Aftermarket Products and only Aftermarket Products may be offered to
CarsDirect Customers through Autoland Dedicated Employees. Exhibit A may be
---------
amended at any time with the consent of CarsDirect to reflect changes in
existing products or provide for the addition of new products.
(c) Description of Products. For each Aftermarket Product, Exhibit A
----------------------- ---------
lists: (i) the name of the product or service, (ii) the name of the provider of
such product or service and the names of any outrside affiliated agencies used
by such provider, (iii) a brief description of the product or service, (iv) the
retail price to the CarsDirect Customer for such product or service; and (v)
either the wholesale cost to CarsDirect for such product (which shall be equa1
to Autoland's cost) or the per unit commission for each such product (which
shall be equal to Autoland's commission).
5. Non-Complete. During the term of this Agreement and for one year
------------
thereafter, CarsDirect shall not be permitted to (i) intentionally market
directly to credit unions or other affinity groups (which shall not be deemed to
include groups rising in connection with nationally recognized, branded,
automobile related publications which are unrelated to credit unions, or
advertisements, contests or sponsorships on Internet portals (e.g., AOL, Yahoo,
etc.)), (ii) provide website designs for credit unions or affinity groups, (iii)
develop or enter into contractual relationships with, or provide direct
assistance to, credit unions or affinity groups, or (iv) permit hypertext links
to credit unions or affinity groups on its website. During the term of this
Agreement and for one year thereafter, Autoland and shall not be permitted to
(i) intentionally market directly to other than credit unions and affinity
groups, (ii) provide website designs for other than credit unions or affinity
groups, (iii) develop or enter into contractual relationship with, or provide
assistance to, other than credit unions and affinity groups, or (iv) permit
hypertext links to any Autoland related website to be located on the websites of
any entity other than a credit union or affinity group. it is understood that
the forgoing shall not be construed to either prevent Autoland from selling
products and services to non-credit union or affinity group members by any means
not in violation of this Section 5, or prevent CarsDirect from selling products
and services to credit union and affinity group members who come to the
CarsDirect website by any means not in violation of this Section 5.
6. Compensation. In consideration of Autoland's providing expertise and
------------
knowledge with regard to the automobile business and for its experience in
marketing automobiles, CarsDirect
<PAGE>
will issue 50,000 shares of its Common Stock to Ron Fry on the Effective Date.
CarsDirect will also issue 989,540 shares of its Common Stock to Mike Malamutt
on the Effective Date, 450,000 shares of which will be delivered to Mike
Malamutt on the Effective Date and 539,540 shares of which shall be held in
escrow by CarsDirect pursuant to the terms of a Restricted Stock Purchase
Agreement to be entered into by and between Mike Malamutt and CarsDirect.
200,000 shares shall be delivered to Mike Malamutt on the first month
anniversary of the Effective Date and an additional 67,908 shares shall be
delivered to Mike Malamutt on each of the second through sixth month
anniversaries of the Effective Date, provided that Autoland has not breached its
obligations under this Agreement. In no event will CarsDirect issue more than
50,000 shares to Ron Fry or more than 989,540 shares to Mike Malamutt pursuant
to this Agreement.
7. Representations and Warranties.
------------------------------
(a) Autoland represents and warrants to CarsDirect as specified on
Exhibit D.
- ---------
(b) CarsDirect represents and warrants to Autoland as specified on
Exhibit E.
- ---------
8. Confidentiality. Each party agrees to keep confidential and not to
---------------
disclose to any third party the terms and conditions of this Agreement;
provided, however, that each party may disclose the terms and conditions of this
Agreement (i) in confidence, to its banks, lawyers, accountants and other
professional advisors, (ii) in connection with its enforcement of rights under
this Agreement, (iii) as may be required by law pursuant to a judicial
proceeding; provided, however, that the disclosure must not exceed the extent
necessary to comply with the request for information and the party disclosing
information about this Agreement must provide the other party with prior notice
of such disclosure.
9. Term and Termination.
--------------------
(a) Term. This Agreement will commence on the Effective Date, and be
----
effective for a period of one year. Thereafter, this Agreement will remain in
effect until cancelled by either party upon sixty (60) days written notice to
the other party.
(b) Survival. Upon such termination, all rights amid duties of the
--------
parties toward each other shall cease except Sections 8 (Confidentiality), 9
(Term and Termination) and 10 (Miscellaneous) shall survive expiration or
termination of this Agreement.
10. Miscellaneous.
(a) Amendments. No amendment or modification of this Agreement will be
----------
valid unless made in writing and signed by both CarsDirect and Autoland.
(b) Assignment. The parties acknowledge that a portion of the
----------
consideration for CarsDirect's entering into this Agreement is the special skill
and reputation of Autoland. Neither this Agreement nor any right hereunder or
interest herein may be assigned or transferred by Autoland without CarsDirect's
express written consent. Subject to the foregoing, this Agreement
<PAGE>
shall inure to each party's successors and assigns. CarsDirect may assign its
right and obligations under this Agreement in connection with a merger,
acquisition, reorganization, or sale of all or substantially all its assets
relating to this Agreement.
(c) Compliance with Laws. Autoland shall comply with all applicable
--------------------
federal, state, local and other laws, regulations, ordinances or statutes of
which it is aware in connection with its activities under this Agreement. It is
recognized that Autoland does not currently operate in every state. Accordingly,
CarsDirect shall be responsible for the legal fees it incurs in connection with
the offering of products and services to CarsDirect customers outside of the
states in which Autoland currently operates.
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed an original, but all of which will
constitute but one and the same instrument.
(e) Entire Agreement. This Agreement along with any Exhibits and
----------------
Amendments hereto form the entire agreement of the parties and supersede any
prior agreements between them with respect to the subject matter hereof.
(f) Headings. Section headings contained in this Agreement are included
--------
for convenience only and form no part of this Agreement.
(g) Independent Contractors. It is the express intention of the parties
-----------------------
that Autoland is an independent contractor. Nothing in this Agreement will in
any way be construed to constitute Autoland as an agent, employee,
representative or partner of CarsDirect, nor will this Agreement be construed as
creating a joint venture.
(h) Notices. Notices under this Agreement will be deemed given upon
-------
delivery if personally delivered, or 48 hours after deposit in the United States
mail, postage prepaid, registered or certified mail, return receipt requested.
Any notice or request with reference to this Agreement must be made by first
class mail postage prepaid, telex, or facsimile to the address in the preamble
of this Agreement. Each party may change such notice address by written notice.
(i) Severability. If any provision of this Agreement is declared invalid
------------
by any court or government agency, all other provisions will remain in full
force and effect.
(j) Use of Names. Neither party shall use in any advertising,
------------
promotional or sales literature the name of the other party without prior
written consent.
(k) Governing Law. This Agreement will be governed by the laws of the
-------------
State of California as applied to agreements entered into and performed within
California by residents of that state. Each party hereby expressly consents to
the nonexclusive personal jurisdiction and venue of the state and federal courts
located in Los Angeles County for any lawsuit arising from or relating to this
Agreement.
<PAGE>
(l) Waiver. Waiver of any term or provision of this Agreement or
------
forbearance to enforce any term or provision by either party shall not
constitute a waiver as to any subsequent breach or failure of the same term or
provision or waiver of any other term or provision of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"CarsDirect" "Autoland"
By: /s/ Scott Painter By: /s/ Michael L. Malamut
------------------------------- -------------------------------------
Print Name: Scott Painter Print Name: Michael L. Malamut
----------------------- -----------------------------
Title: CEO Title: President
---------------------------- ----------------------------------
<PAGE>
EXHIBIT 10.13
CONSULTING AGREEMENT
THIS AGREEMENT entered into this 1st day of April, 1999, between
CARSDIRECT, INC., a Delaware corporation, ("CarsDirect") having its principal
place of business at 4312 Woodman Ave. ("Companies") and MICHAEL L. MALAMUT AND
RONALD L. FREY, JR. (hereinafter referred to as the "Consultants"), whose
address is 4312 Woodman Avenue, Sherman Oaks, California 91423 with reference to
the following:
A. CarsDirect and Autoland, Inc., a California corporation
("Autoland"), entered into a Strategic Alliances and Services Agreement
dated as of April 1, 1999 ("Alliance").
B. The Alliance provides services to be rendered to CarsDirect by
Autoland and the consideration to be paid to Autoland therefor. The
Alliance also provides for the consideration to be paid to Consultants for
services to be rendered by them individually and this agreement sets forth
the services to be provided by Consultants for which the consideration to
them is payable.
NOW, THEREFORE, it is hereby agreed as follows:
1. Duties of Consultants.
---------------------
Each of Consultants shall, during the term of the Alliance and as an
independent contractor, provide CarsDirect with management and/or marketing
information, advice and assistance as may be reasonably requested by
CarsDirect. It is understood that Consultants are full time executives of
Autoland but will be rendering the consulting services hereunder during
their own spare time. With this is mind, CarsDirect will endeavor to
request the services of Consultants with sufficient notice such that they
can arrange their affairs so as to reasonably be able to render the
services requested on a part-time basis while not neglecting their other
full-time duties at Autoland. Consultants shall have full control of the
method and means utilized by Consultants in providing such consultation and
assistance.
2. Term of Agreement.
-----------------
This agreement shall terminate concurrently with the termination of
the Alliance.
3. Consulting Fee.
--------------
Except with respect to expenses mentioned in 4 below, the sole and
exclusive compensation to Consultants for services rendered under this
Agreement shall be the stock in CarsDirect as provided in paragraph 6 of
the Alliance.
4. Expenses Incurred by Consultants.
--------------------------------
All expenses of Consultants reasonably incurred for the performance of
this Agreement shall be reimbursed to Consultant by CarsDirect upon
presentation of appropriate backup documentation.
5. Termination of Agreement.
------------------------
This Agreement shall be terminated before the end of its term on the
occurrence of any one of the following events:
(a) The willful breach of material obligations of Consultants
to CarsDirect under
1
<PAGE>
this Agreement.
(b) Conviction of a felony, whether or not related to this
Agreement, or conviction of a misdemeanor which either
materially interferes with Consultants' ability to perform
this Agreement or has a material detriment to the
reputation of CarsDirect.
(c) Causing substantial injury to the reputation of CarsDirect,
at the election of CarsDirect.
(d) Material breach of fiduciary duty to CarsDirect on the part
of Consultants or either of them, at the election of
CarsDirect.
(e) Material breach on the part of Autoland or the Alliance.
(f) Death or permanent disability of both Consultants.
Permanent Disability shall in this context mean illness or
injury to Consultants rendering them unable to render the
consulting services provided in this Agreement for a
continuous period of six (6) months.
6. Effect of Termination on Consulting Fee.
---------------------------------------
In the event of the termination of this Agreement prior to the
completion of its term, Consultants shall be entitled to retain all
compensation received by them to the date thereof but shall be entitled to
no further compensation hereunder.
7. Determination of Controversies.
------------------------------
Any controversy, dispute or claim arising out of the interpretation,
performance or breach of this Agreement shall be resolved by binding
arbitration, at the request of either party, in accordance with the rules
of the American Arbitration Association. The arbitrators shall apply
California substantive law and the California Evidence Code to the
proceeding. The arbitrators shall have the power to grant all legal and
equitable remedies and award compensatory damages provided by California
law, including the power to award punitive damages. The arbitrators shall
prepare in writing and provide to the parties an award including factual
findings and the reasons on which the decision is based. The arbitrators
shall not have the power to commit errors of law or legal reasoning, and
the award may be vacated or corrected pursuant to California Code of Civil
Procedure Sections 1286.2 for any such error. In any such arbitration
proceeding, discovery shall be permitted in accordance with CCP (S)
1283.05.
8. Attorneys Fees and Costs.
------------------------
Any action at law, in equity, or by way of arbitration to enforce or
interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys fees, costs and necessary disbursements in
addition to any other relief to which he may be entitled.
9. Consultants Not Agents.
----------------------
Consultants are not the agents or employees of CarsDirect and shall
have no authority to make any agreement or representation on behalf of
CarsDirect.
10. Notices.
-------
Any notices to be given hereunder by either party to the other may be
effected either by personal delivery in writing or by mail, registered or
certified, postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties and the addresses appearing in the
introductory paragraph to this Agreement, but each party may change his
address by written notice in accordance with this paragraph. Notices
delivered personally shall be deemed communicated as of actual receipt;
mailed notices shall be deemed communicated as of two (2) days after
mailing with respect to United States domestic mail and ten (10) days after
mailing with respect to notices mailed from foreign countries to addresses
in the United States.
11. Entire Agreement.
----------------
2
<PAGE>
This Agreement supersedes any and all other agreements either oral or
in writing, between the parties hereto with respect to consulting services
by the Consultants to CarsDirect and contains all of the covenants and
agreements between the parties with respect to such consulting services.
Each party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, orally or otherwise, have been made
by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification of
this Agreement will be effective only if it is in writing, signed by the
party to be charged.
12. Law Governing Agreement.
-----------------------
This Agreement shall be governed by and construed in accordance with
the laws of California.
13. Partial Invalidity.
------------------
If any provision of this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired
or invalidated in any way.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
CARSDIRECT, INC.
by /s/ SCOTT PAINTER
-------------------------------------
___________, its President
CONSULTANTS
/s/ MICHAEL L. MALAMUT
---------------------------------------
Michael L. Malamut
/s/ RONALD L. FREY, JR.
---------------------------------------
Ronald L. Frey, Jr.
3
<PAGE>
EXHIBIT 10.14
SEPARATION AND CONSULTING AGREEMENT
-----------------------------------
This Agreement (the "Agreement"), is entered into by Kenneth J. Murphy
("Executive"), an individual, and CarsDirect.com Inc. a Delaware corporation
(the "Company"). In consideration of the mutual covenants and representations
contained herein, the parties agree as follows:
1. Effective Date. Effective May 1, 2000 (the "Effective Date"),
--------------
Executive's employment with the Company shall be converted into a consulting
relationship for a period of six months. As of the Effective Date, and to the
extent he has not already done so, Executive hereby resigns all of his positions
with the Company, and any subsidiary of the Company, including any position as
an officer, director or employee of the Company and the Company accepts his
resignation. The parties acknowledge that as of the Effective Date, Executive
has 62 hours of accrued personal time off with regard to all pay periods prior
to the Effective Date ("PTO"). Executive's PTO shall be carried forward to and
exercisable by the Executive in the Consulting Term as defined below.
2. Consultancy. Executive shall render services to Company, as reasonably
-----------
requested by the Company, as a consultant on an exclusive and full-time basis
for a 6-month term ("Consulting Term") commencing on the Effective Date.
Executive shall be paid $137,500.00 at the rate of $22,916.66 per month at the
same time as the Company's regular payroll for salaried employees.
Governmentally mandated withholding amounts shall be deducted.
a. During the Consulting Term, Executive shall have the title of
Special Counsel for Regulatory Affairs and Industry Relations. The services
rendered by Executive pursuant to this Agreement shall be determined by the
Company in its sole discretion and may change during the Consulting Term based
upon the Company's determination of its needs and its judgment regarding the
most effective use of Executive's training, skills and experience. As of the
Effective Date, the Company intends for Executive to engage primarily in the
management of the Company's regulatory affairs, including regulatory compliance,
legislative strategies and industry relations.
b. Executive shall have access to an office, a computer and such other
support, services, equipment and materials as reasonably required to perform the
work requested by the Company. Executive shall be reimbursed for all reasonable
out of pocket expenses to the extent they are approved by the Company, including
but not limited to expenses incurred for travel to the location of any
consulting services outside of the geographic area in which Executive maintains
his principal residence.
c. The Parties acknowledge that Executive's obligation to render
services to the Company on an exclusive and full-time basis during the
Consulting Term is subject to the reasonable flexibility exercised by Executive
while he was employed by the Company and that Executive may set his own hours of
work. Nevertheless, the Parties intend for Executive to be engaged in services
on behalf of the Company on an average of forty (40) hours per week.
<PAGE>
d. The Company shall have the right, in its sole discretion, to extend
the Consulting Term for additional six-month terms ("Extended Consulting Term")
on terms and conditions mutually agreeable to the Parties. In the event the
Company desires to exercise its right to extend, the Company shall notify
Executive on or before the expiration of the Consulting Term and endeavor to
negotiate the terms and conditions for the Extended Consulting Term. If the
Parties are unable to reach agreement on such terms and conditions, the
Consulting Term shall expire. In the event the Company, in its sole discretion,
elects to extend the Consulting Term and the Parties reach mutual agreement on
the terms and conditions for the Extended Consulting Term, then (but only then)
Executive shall be entitled to continue to vest in the shares of Company's
Common Stock purchased by Executive pursuant to that certain Stock Option
Agreement dated June 23, 1999 and any addenda thereto (the "Stock Option
Agreement") during the Extended Consulting Term. At the expiration of the
Extended Consulting Term, and provided the Company has not elected to extend
Executive's services for an additional six-month term pursuant to the process
set forth in this subparagraph, Executive's vesting rights under the Stock
Option Agreement shall terminate and all unvested shares previously exercised by
Executive shall be repurchased as provided in paragraph 4 below. If the Company
elects to extend Executive's services for additional Extended Consulting Term(s)
and the Parties mutually agree upon the terms and conditions of such
extension(s), Executive shall continue to vest pursuant to the terms of the
Stock Option Agreement during such additional Extended Consulting Term(s). The
conditional continuing vesting rights set forth in this subparagraph are in
addition to and not in lieu of the Acceleration provision of paragraph 4 below.
e. At the expiration of the Consulting Term (if not extended by the
Company) or at the expiration of the last Extended Consulting Term (if the
Company exercises its right to extend pursuant to subparagraph 2d.), and
provided Executive shall not be in material breach of any obligation under this
Agreement, Executive shall be entitled to severance pay for three months
commencing on the first day following the expiration of the Consulting Term or
Extended Consulting Term, whichever is applicable, at the same monthly payment
rate Executive is being paid pursuant to the Consulting Term or Extended
Consulting Term just expired ("Severance Pay"). Executive shall be paid monthly
during this three-month period at the same time as the Company's regular payroll
for salaried employees. Governmentally-mandated withholding amounts, if any,
shall be deducted. Executive's right to receive this Severance Pay shall
terminate immediately upon any material breach of Executive's obligations under
this Agreement.
3. Benefits. During the Consulting Term, so long as Executive is not
--------
covered by another group plan and so long as Executive is in compliance with his
obligations under paragraph 10 of this Agreement, Executive shall continue to be
covered by the Company's group health plan generally available to executives of
the Company. If the Company's group health plan denies coverage for Executive on
the basis that Executive is not an eligible participant in the plan due to the
consulting relationship established by this Agreement, then (but only then)
Company shall pay the costs of Executive's COBRA benefits during the Consulting
Term. Executive shall not be eligible for, and shall not receive, any other
employee benefits (other than parking) during the Consulting Term.
4. Stock Options. Pursuant to that certain Stock Option Agreement dated
-------------
June 23, 1999 and any addenda thereto (the "Stock Option Agreement"), Executive
currently has
-2-
<PAGE>
vested stock options, as of the Effective Date, to purchase 15,803 shares of the
Company's common stock. Executive shall continue to vest during the Consulting
Term until 9,107 shares have vested. In addition, upon the expiration of the
Consulting Term, if Executive has not revoked his ADEA waiver pursuant to
paragraph 31 below, the Company shall waive its right of repurchase with respect
to 18,215 additional shares (the "Acceleration") Therefore, at the expiration of
the Consulting Term, Executive shall own 43,125 of his shares, provided,
however, that if Executive materially breaches any terms of this Agreement, he
shall not be entitled to the Acceleration. Except as provided in paragraph 2d.
above, all other unvested shares previously exercised by Executive shall be
repurchased as of the end of the Consulting Term. Executive shall be required to
pay all promissory notes to the Company at the expiration of the Consulting Term
(or the expiration of the Extended Consulting Term).
5. Sole Entitlement. Executive agrees that his sole entitlement to
----------------
compensation and benefits directly and indirectly from the Company is as
expressly set forth in this Agreement, which supersedes all prior agreements
between the Company and Executive.
6. Releases by Executive. Executive on behalf of himself and his
---------------------
successors, assigns, agents, heirs, administrators, and representatives does
hereby and forever release and discharge the Company and the past and present
parent, subsidiary and affiliated corporations of the Company as well as the
stockholders of any of them and the successors, stockholders, officers and
directors of corporate stockholders and partners of partnership stockholders,
and officers, directors, employees, heirs, predecessors, assigns, agents,
employees, advisors, attorneys and representatives of each of the foregoing
persons or entities, past or present (all of the foregoing collectively referred
to as the "Released Parties"), from any and all claims, rights, agreements,
contracts, covenants, promises, demands, actions, causes of action, suits,
liens, judgments, orders, debts, obligations, liabilities, wages, accounts,
damages, costs, attorneys' fees or any other expenses whatsoever, of whatever
kind or nature, in law, equity or otherwise, whether known or unknown, suspected
or unsuspected, and whether or not concealed or hidden, which Executive now has
or has at any time heretofore had, relating to or arising out of any state,
municipal, or Federal constitution, statute, regulation, ordinance, order, or
common law, including, but not limited to: Title VII of the Civil Rights Act of
1964, as amended, 42 U.S.C. (S) 2000(e), et seq.; the Civil Rights Act of 1866,
-- ----
as amended, 42 U.S.C. (S) 1981, et seq.; the Equal Pay Act, as amended, 29
-- ----
U.S.C. (S) 206(d); the Americans With Disabilities Act, 42 U.S.C., (S) 12101, et
--
seq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. (S) 201, et
- ---- --
seq.; the Family and Medical Leave Act, 29 U.S.C. (S) 2601, et seq.; the
- ---- -- ----
Americans with Disability Act of 1990, as amended, 42 U.S.C. (S) 12101, et seq.;
-- ----
the age discrimination provisions of California law; the Employee Retirement
Income Security Act, 29 U.S.C. (S) 1001, et seq.; any equivalent state statute,
-- ----
and any action based on misrepresentation, fraud, work place injury, breach of
public policy, contract, quasi-contract, implied contract, an accounting,
wrongful or constructive discharge, breach of the covenant of good faith and
fair dealing, libel, slander, malicious prosecution, negligent or intentional
infliction of emotional distress, any other tort, discrimination on any basis
prohibited by statute, regulation, ordinance, or public policy, negligence,
interference with business opportunity or with contracts, or unfair practices
arising out of any acts or omissions occurring before the execution of this
Agreement. This release shall not be deemed to release any obligations of
Company under this Agreement or to release any insurance carrier
-3-
<PAGE>
or administrator with regard to any unpaid claims for medical or dental expenses
or treatment.
7. Waiver of Unknown Claims. In connection with the foregoing release,
------------------------
Executive acknowledges that he is aware that he may later discover facts in
addition to or different from those which he currently knows or believes to be
true with respect to the subject matters of the above release, but that it is
his intention hereby fully, finally, and forever, to settle and release all of
these matters which now exist, may exist, or previously existed between
Executive and the Release Parties, whether known or unknown, suspected or
unsuspected. In furtherance of such intent, the releases given herein shall be
and shall remain in effect as full and complete releases, notwithstanding the
discovery or existence of such additional or different facts. In this regard,
Executive specifically waives the benefits of the provisions of Section 1542 of
the Civil Code of the State of California and any other analogous state or
federal law or regulation. Said Section 1542 of the California Civil Code reads
as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIS MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
DEBTOR."
8. Releases by the Company. Company does hereby release and forever
-----------------------
discharge Executive his successors, assigns, agents, heirs, administrators,
attorneys, and representatives from any and all claims, rights, agreements,
contracts, covenants, promises, demands, actions, causes of action, suits,
liens, judgments, orders, debts, obligations, liabilities, wages, accounts,
damages, costs, attorneys' fees or any other expenses whatsoever, of whatever
kind or nature, in law, equity or otherwise, whether known or unknown, suspected
or unsuspected, and whether or not concealed or hidden, which Company now has or
has at any time heretofore had, relating to or arising out of any state,
municipal, or Federal constitution, statute, regulation, ordinance, order, or
common law other than any claim based upon fraud, theft or intentional
misconduct. Claims released include, but are not limited to those based upon
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. (S) 2000(e), et
--
seq.; the Civil Rights Act of 1866, as amended, 42 U.S.C. (S) 1981, et seq.; the
- ---- -- ----
Equal Pay Act, as amended, 29 U.S.C. (S) 206(d); the Americans With Disabilities
Act, 42 U.S.C., (S) 12101, et seq.; the Fair Labor Standards Act of 1938, as
-- ----
amended, 29 U.S.C. (S) 201, et seq.; the Family and Medical Leave Act, 29 U.S.C.
-- ----
(S) 2601, et seq.; the Americans with Disabilities Act of 1990, as amended, 42
-- ----
U.S.C. (S) 12101, et seq.; the age discrimination provisions of California law;
-- ----
the Employee Retirement Income Security Act, 29 U.S.C. (S) 1001, et seq.; any
-- ----
equivalent state statute, and any action based on misrepresentation, fraud,
breach of fiduciary duty, work place injury, breach of public policy, contract,
quasi-contract, implied contract, an accounting, wrongful or constructive
discharge, breach of the covenant of good faith and fair dealing, libel,
slander, malicious prosecution, negligent or intentional infliction of emotional
distress, any other tort, discrimination on any basis prohibited by statute,
regulation, ordinance, or public policy, negligence, interference with business
opportunity or with contracts, or unfair practices arising out of any acts or
omissions occurring before the execution of this Agreement. This release shall
not be deemed to release any obligations of Executive under this Agreement.
-4-
<PAGE>
9. Waiver of Unknown Claims. In connection with the foregoing release,
------------------------
Company acknowledges that it is aware that it may later discover facts in
addition to or different from those which it currently knows or believes to be
true, but that it is Company's intention hereby fully, finally, and forever, to
settle and release all of these matters which now exist, may exist, or
previously existed between it and Executive, whether known or unknown, suspected
or unsuspected. In furtherance of such intent, the releases given herein shall
be and shall remain in effect as full and complete releases, notwithstanding the
discovery or existence of such additional or different facts. In this regard,
Company specifically waives the benefits of the provisions of Section 1542 of
the California Civil Code quoted in full above and any other analogous state or
federal law or regulation.
10. Confidentiality, Unfair Competition, Conflicts of Interest and Other
--------------------------------------------------------------------
Obligations.
- -----------
a. Executive shall not, without the prior written consent and approval
of Company, divulge to any person, firm or corporation, nor use to the detriment
of Company or any other Released Party, nor use in any business, venture, or any
organization of any kind, at any time during the Consulting Term or thereafter
any trade secrets or confidential information including, but not limited to,
information subject to attorney-client, accountant-client or other applicable
privilege, work product of attorneys for Company, trade secret or confidential
information of the following types: any legal or non public information
regarding regulatory compliance, revenue recognition, sales or other applicable
tax reporting, collection or remittance obligations, development, marketing,
organizational, financial, accounting, managerial, administrative, production,
distribution and sales information, data, specifications and processes presently
owned, or developed in whole or in part (by Executive or by or on behalf of the
Company) during Executive's employment or during the Consulting Term
(collectively, the "Confidential Material"). Confidential Material shall not
include information that has been publicly disclosed by the Company or included
in any publicly available filing, report, or analysis or which is available to
the public through lawful means unrelated to any disclosures by Executive.
Except in the performance of Executive's duties as a consultant to the Company,
Executive shall not, directly or indirectly for any reason whatsoever, disclose
or use any such Confidential Material at any time during the Consulting Term or
thereafter. Upon or at any time following the termination of the Consulting
Term, or sooner if requested by the Company, Executive shall promptly deliver to
the Company any and all of the Confidential Material, not previously delivered
to the Company, that may be in the possession or under the control of Executive.
b. Once Executive has disclosed to the Company processes, developments
and discoveries conceived by Executive (collectively, the "Executive Work
Product"), in any way related to the Confidential Material or the development,
production, financing, marketing or other business activity carried on by the
Company, whether conceived alone or with others during the performance of
Executive's duties, and whether or not conceived during the regular working
hours of the Company, such Executive Work Product shall become the sole and
exclusive property of the Company, and Executive hereby assigns to the Company
Executive's entire right, title and interest in and to the Executive Work
Product. The Company shall also have the right to keep any and all of the
Executive Work Product as the Company's Confidential Material.
-5-
<PAGE>
c. In order to protect the Company's Confidential Material from use by
or disclosure to a party other than the Company, and to enable the Company to be
able to obtain the benefits of Executive's consulting obligations hereunder,
Executive agrees that so long as he is accepting payment and/or vesting shares
pursuant to paragraph 2 of this Agreement for consulting with the Company, he
will not accept employment from or consulting in any capacity with any
competitor of Company.
d. Executive acknowledges that the business of the Company is highly
innovative and competitive, and that the trade secret information and
Confidential Material which he has come to possess during his employment with
Company or which he may come to possess as a result of consulting for Company
involve valuable and proprietary information, including information with regard
to regulatory compliance, revenue recognition, products, product design,
manufacturing, pricing and marketing strategy. Executive further acknowledges
that this trade secret and Confidential Material would necessarily be
compromised were he to use this information for himself after his employment or
consulting or were he to become involved as an employee or consultant or
otherwise with any competitor of the Company during the life-cycle of the
development of products and the strategy associated with the development,
manufacturing and marketing of such products. Executive and the Company agree
that a 6-month period of protection is reasonable and necessary to protect the
Company's legitimate business interests. Accordingly, the Company and Executive
agree that for the 6-month period following the termination of his consulting
obligations pursuant to paragraph 2 of this Agreement, regardless of whether
such consulting obligations are terminated by the Company because of a breach of
paragraph 10 of this Agreement, Executive will not become an employee of,
consult with, render services for, own, manage, control, participate in, or in
any other manner directly or indirectly engage in, any business where his
responsibilities are in any way competitive with those of the Company. Because
of the international scope of the Company's plans and goals, Executive and
Company agrees that such limitations shall apply throughout the world.
Notwithstanding the foregoing, nothing herein shall prevent Executive from
owning, in the aggregate, not more than one percent (1%) of the outstanding
stock or other equity interests in any company whose products compete with those
of the Company and whose shares or other equity interests are registered
pursuant to (S) 12(b) or (S) 12(g) of the Securities Exchange Act of 1934.
e. For a period of twenty-four months from the Effective Date,
Executive shall not solicit any employee of the Company or encourage any such
employee to leave the employment of the Company nor have any active involvement
in the hiring of any such employee without the Company's prior written consent;
provided, however, that this limitation shall not apply in any event with regard
to the hiring of any individual who has not been employed by the Company for at
least one year.
f. The parties acknowledge that damages would not adequately
compensate the Company for any breach by Executive of any of the provisions of
this paragraph 10 of this Agreement; that any such breach will irreparably harm
the Company; and that in the event of allegations of irreparable injury from
this or any other type of conduct, any court of competent jurisdiction, may
grant to the Company provisional relief,
-6-
<PAGE>
including a temporary restraining order or injunction, pending arbitration, to
protect the Company or its Confidential Material. Similarly, in the event any
alleged breach by the Company shall threaten irreparable harm to the Executive,
Executive may seek from any court with appropriate venue located within the
greater Los Angeles area, provisional relief, including a temporary restraining
order or injunction, to protect his interests, pending arbitration.
11. Prohibition Against Defamation and Willful Disparagement. The Company,
--------------------------------------------------------
with respect to Executive, and Executive with respect to the Company and the
other Released Parties, agree that they will not at any time orally or in
writing defame or intentionally make disparaging remarks that could be expected
to have a material adverse impact on the business reputation or prospects of the
other party or person, except as may be required by law.
12. Cooperation and Indemnification
-------------------------------
a. Executive agrees to cooperate with the Company in connection with
any future, potential or currently pending litigation or regulatory or other
enforcement action, including without limitation, by providing information
within Executive's knowledge to Company and by making himself reasonably
available to consult with counsel for the Company and testify in any action as
reasonably requested by the Company. With respect to any such litigation, in the
event Executive is named as a defendant by any party thereto, the Company shall
be responsible for providing a defense to, and indemnifying, Executive, to the
same extent and under the same conditions as if he were an officer of the
Company, with respect to any litigation including any third party litigation or
other proceeding arising from his lawful activities on behalf of the Company and
the discharge of his duties as an employee or a consultant to the Company. In
the event that the interests of Executive and the Company in litigation should
become adverse, Executive shall be entitled to select counsel, subject to the
approval of the Company (which approval shall not be unreasonably withheld)..
Company shall endeavor in good faith to maintain insurance coverage for its
indemnity obligations under this Agreement pursuant to any Directors and
Officers or other liability or indemnity insurance policy applicable to other
executives of the Company.
b. Executive agrees that following the Consulting Term or any Extended
Consulting Term(s) he shall cooperate with the Company in the event of
litigation or regulatory or other enforcement action. Executive's compensation
for his services under this subparagraph b. shall be $250.00 per hour; provided,
however, that Executive shall not be entitled to compensation for witness
preparation, testifying at trial or deposition, or other activity undertaken by
Executive in connection with any litigation in which Executive is a defendant.
Executive shall also be paid for his reasonable, out-of-pocket expenses in
connection with any such consulting.
13. Confidentiality. The financial terms of this Agreement are intended to
---------------
be confidential. Accordingly, except as may be required to satisfy the Company's
public disclosure or the Company's or the Executive's financial or accounting or
regulatory requirements, if any, or except as may be required by law, neither
the Company nor Executive shall disclose or publicize to any person, firm or
corporation the terms of this Agreement without the written consent of the other
party. As reasonably necessary,
-7-
<PAGE>
Executive may discuss this Agreement with his attorneys, accountants, immediate
family, and financial advisors and Company may discuss this Agreement with its
attorneys, accountants, officers, directors, and senior managers provided,
however, that each agrees to be bound by the terms of this paragraph to keep the
information confidential. Notwithstanding this Confidentiality provision,
Executive may disclose to any prospective employer or entity with whom he may
seek to consult the fact that he is subject to obligations of Confidentiality,
non-disclosure and non-competition. If requested by a prospective employer or
entity with whom Executive seeks to consult, Company and Executive will endeavor
to agree regarding whether or how the terms and conditions of this Agreement
should be disclosed to such third parties.
14. Attorney's Fees. Executive shall be entitled to reimbursement from the
---------------
Company for the expenses of legal counsel incurred in connection with the
negotiation and drafting of this Agreement provided, however, that such
reimbursement shall not exceed $2,500.
15. Legal Advice. Each party has received independent legal advice from
------------
his or its attorneys with respect to the advisability of executing this
Agreement.
16. Indemnification. In the event that any action, suit, or other
----------------
proceeding is instituted relating to or arising from this Agreement, including
without limitation any action to remedy, prevent, or obtain relief from a breach
of this Agreement, or arising out of a breach of this Agreement, the prevailing
party shall recover all of such party's reasonable attorneys' fees incurred in
each and every such action, suit, or other proceeding, including any and all
appeals or petitions, to the extent permitted by law.
17. Factual Investigation. Each party to this Agreement has made such
---------------------
investigation of the facts pertaining to the matters resolved by this Agreement
and of all the matters pertaining thereto as he or it deems necessary.
18. Later Discovered Facts. Each party hereto is aware that he or it may
----------------------
hereafter discover claims or facts in addition to or different from those he or
it now knows or believes to be true with respect to the matters resolved herein.
Nevertheless, it is the intention of each party to fully, finally and forever
settle and release all such matters and all claims relative thereto which may
exist or may heretofore have existed between them.
19. Assignment. Each of the parties represents and warrants that he or it
----------
has not heretofore assigned, transferred or granted or purported to assign,
transfer or grant any claims, matters, demands or causes of action herein
released, disclaimed, discharged or terminated, and agrees to indemnify and hold
harmless any other party from and against any and all costs, expense, loss or
liability incurred as a consequence of any such assignment.
20. Recitals and Paragraph Headings. Each term of this Agreement is
-------------------------------
contractual and not merely a recital. All recitals are incorporated by
reference into this Agreement. Captions and paragraph headings are used herein
for convenience only, are no part of this Agreement and shall not be used in
interpreting or construing it.
-8-
<PAGE>
21. Additional Documents. The parties will execute all such further and
--------------------
additional documents and undertake all such other actions as shall be
reasonable, convenient, necessary or desirable to carry out the provisions of
this Agreement.
22. No Admissions. This Agreement effects the settlement of claims which
-------------
are denied, disputed and/or contested and nothing contained herein shall be
construed as an admission by any party hereto of any liability of any kind to
any other party. Each of the parties hereto denies any liability in connection
with any claim and intends merely to avoid the uncertainties and costs of
litigation and buy his or its peace.
23. California Law. This Agreement was negotiated, executed and delivered
--------------
within the State of California, and the rights and obligations of the parties
hereto shall be construed and enforced in accordance with and governed by the
laws of the State of California. Should any litigation arise concerning this
Agreement, it will be filed only in a court in the County of Los Angeles, State
of California, and then only if consistent with the parties' obligations under
paragraph 30 hereof with regard to arbitration.
24. Entire Agreement. This Agreement constitutes a single integrated
----------------
contract expressing the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous oral and
written agreements and discussions with respect to the subject matter hereof.
There are no other agreements, written or oral, express or implied, between the
parties hereto, concerning the subject matter hereof, except as set forth
herein. This Agreement may be amended only by an agreement in writing.
25. Binding Effect. This Agreement is binding upon and shall inure to the
--------------
benefit of the parties hereto, their heirs, assignees and successors in interest
(including successors in any reorganization or merger with any other entity).
26. Additional Documents. The parties will execute all such further and
---------------------
additional documents and undertake all such other actions shall be reasonable,
convenient, necessary or desirable to carry out the provisions of this
Agreement.
27. Construction of Agreement. Each party has cooperated in the drafting
-------------------------
and preparation of this Agreement, and, accordingly, in any construction or
interpretation of this Agreement, the same shall not be construed against any
party by reason of the source of drafting.
28. Counterparts. This Agreement may be executed in counterparts. When
------------
each party has signed and delivered at least one such counterpart, each
counterpart shall be deemed an original, and, when taken together with other
signed counterparts, shall constitute one Agreement, which shall be binding upon
and effective as to all parties. No counterpart shall be effective until all
parties hereto have executed and exchanged an executed counterpart hereof.
29. No Waiver. The failure to enforce at any time any of the provisions of
---------
this Agreement, or to require at any time performance by the other party of any
of the provisions hereof, shall in no way be construed to be a waiver of such
provisions or to affect either the validity of this Agreement or any part hereof
or the right of either party thereafter to enforce each and every provision in
accordance with the terms of this Agreement.
-9-
<PAGE>
30. Arbitration. Any controversy, dispute, or claim between the parties
-----------
to this Agreement or any party released pursuant to it, including any claim
arising out of, in connection with, or in relation to the interpretation,
performance or breach of this Agreement shall be settled by arbitration, before
a single arbitrator, conducted in Los Angeles, California, in accordance with
the then-most applicable rules of the American Arbitration Association, and
judgment upon any award rendered by the arbitrator may be entered by any state
or federal court having the arbitration jurisdiction thereof. Arbitration shall
be the exclusive remedy for determining any such dispute, regardless of its
nature.
In the event the parties are unable to agree upon an arbitrator, the
parties shall select a single arbitrator from a list of nine arbitrators drawn
by the parties at random from the "Independent" (or "Gold Card") list of retired
judges. If the parties are unable to agree upon an arbitrator from the list so
drawn, then the parties shall each strike names alternately from the list, with
the first to strike being determined by lot. After each party has used four
strikes, the remaining name on the list shall be the arbitrator.
This agreement to resolve any disputes by binding arbitration shall extend
to claims against any parent, subsidiary or affiliate of each party, and, when
acting within such capacity, any officer, director, shareholder, employee or
agent of each party, or of any of the above, and shall apply as well to claims
arising out of state and federal statutes and local ordinances as well as to
claims arising under the common law. In the event of a dispute subject to this
paragraph the parties shall be entitled to reasonable discovery subject to the
discretion of the arbitrator. The remedial authority of the arbitrator shall be
the same as, but no greater than, would be the remedial power of a court having
jurisdiction over the parties and their dispute. In the event of a conflict
between the then-most applicable rules of the American Arbitration Association
and these procedures, the provisions of these procedures shall govern.
Any filing or administrative fees shall be borne initially by the party
requesting administration by the American Arbitration Association. If both
parties request such administration, the fees shall be borne initially by the
party incurring such fees as provided by the rules of the American Arbitration
Association. The fees and costs of the arbitrator shall be borne equally
between the parties to the extent permitted by law. The prevailing party in
such arbitration, as determined by the arbitrator, and in any enforcement or
other court proceedings, shall be entitled to the extent permitted by law, to
reimbursement from the other party for all of the prevailing party's costs
(including but not limited to the arbitrator's compensation), expenses, and
attorneys' fees.
The arbitrator shall render an award and written opinion, and the award
shall be final and binding upon the parties. If any of the provisions of this
paragraph, or of this Agreement, are determined to be unlawful or otherwise
unenforceable, in whole or in part, such determination shall not affect the
validity of the remainder of this Agreement, and this Agreement shall be
reformed to the extent necessary to carry out its provisions to the greatest
extent possible and to insure that the resolution of all conflicts between the
parties, including those arising out of statutory claims, shall be resolved by
neutral, binding arbitration.
-10-
<PAGE>
Unless mutually agreed by the parties otherwise, any arbitration shall take
place in the City of Los Angeles, California.
31. Age Discrimination in Employment Act Waiver. The waiver given below
-------------------------------------------
is given only in exchange for consideration in addition to anything of value to
which Executive is already entitled. The waiver set forth below does not waive
rights or claims, which may arise after the date of execution of this Agreement.
Executive acknowledges that (i) this paragraph is written in a manner calculated
to be understood by Executive, (ii) by reviewing this paragraph or drafts
thereof he has been advised in writing to consult with an attorney before
executing this Agreement, (iii) he was given a period of 21 days within which to
consider this paragraph, and (iv) to the extent he executes this Agreement,
including this paragraph, before the expiration of the 21 day period, he does so
knowingly and voluntarily and only after consulting with an attorney. Executive
shall have the right to cancel and revoke this paragraph during a period of
seven days following his execution of the Agreement and this paragraph shall not
become effective, and no money shall be paid hereunder, until the expiration of
such seven-day period. Executive shall notify Company's counsel in writing of
the date of his execution of this Agreement by faxing to Company's counsel a
signed and dated copy of the signature page signed by him. The seven-day period
of revocation shall commence upon the date of Executive's execution of this
Agreement. Within the seven-day revocation period, Executive's counsel shall
forward to Company's counsel a copy of this Agreement fully executed by
Executive. In order to revoke this paragraph, Executive shall deliver to
Company's counsel, prior to the expiration of said seven-day period, a written
notice of cancellation.
In addition to the release set forth in paragraph 6 hereof, Executive
hereby voluntarily and knowingly waives all rights or claims arising under the
Federal Age Discrimination in Employment Act. The consideration for this
release of any federal age claims Executive may have shall be the continued
vesting of certain of Executive's shares as provided in paragraph 4.
32. Notice. All notices required hereunder shall be in writing and shall
------
be deemed given upon receipt if delivered personally (receipt of which is
confirmed) or by courier service promising overnight delivery (with delivery
confirmed the next day) or three (3) business days after deposit in the U.S.
Mails, certified with return receipt requested.
-11-
<PAGE>
33. Notices shall be addressed as follows:
To Executive: Kenneth J. Murphy
130 Marguerita Avenue
Santa Monica, California 90402
To Company: CarsDirect.com, Inc.
10567 Jefferson Boulevard
Culver City, California 90232
Attention: Fred Philpott
Executed at Culver City, California, this 28th day of April, 2000.
/s/ Kenneth J. Murphy
-------------------------------
Kenneth J. Murphy
CARSDIRECT.COM, INC.
By: /s/ Robert N. Brisco
----------------------------------
Robert N. Brisco
Its: Chief Executive Officer
APPROVED AS TO FORM:
TROY & GOULD
By:________________________________
William D. Gould
Attorneys for Kenneth J. Murphy
-12-
<PAGE>
Exhibit 21.1
------------
List of Subsidiaries
(as of April 25, 2000)
Autodata Solutions Group Ltd., a Delaware corporation
Autodata Solutions, Inc., a Delaware corporation (a subsidiary of Autodata
Solutions Group Ltd.)
Autodata, Inc., a Delaware corporation
Autodata Solutions Company, a Nova Scotia unlimited liability company (a
subsidiary of Autodata, Inc.)
CD1 Financial.com, LLC, a Delaware limited liability company
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
of our report on CarsDirect.com, Inc., dated February 25, 2000, except for
Notes 2 and 13 as to which the date is May 15, 2000 and our report on Potamkin
Auto Center Ltd., dated December 22, 1999, relating to the financial statements
which appear in such Registration Statement. We also consent to the references
to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
May 15, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
of our reports dated October 27, 1999 relating to the financial statements of
Perga Capital Corp. and Autodata Marketing Systems Incorporated, which appear
in such Registration Statement. We also consent to the references to us under
the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
London, Ontario, Canada
May 15, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 170,260 202,075
<SECURITIES> 0 0
<RECEIVABLES> 14,236 16,999
<ALLOWANCES> 0 0
<INVENTORY> 11,202 23,427
<CURRENT-ASSETS> 200,423 252,628
<PP&E> 11,279 13,604
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 296,403 362,655
<CURRENT-LIABILITIES> 38,608 58,042
<BONDS> 0 0
0 0
233,420 314,669
<COMMON> 10 11
<OTHER-SE> 23,147 (11,348)
<TOTAL-LIABILITY-AND-EQUITY> 296,403 362,655
<SALES> 13,592 96,983
<TOTAL-REVENUES> 15,177 98,564
<CGS> 16,551 97,662
<TOTAL-COSTS> 17,536 98,358
<OTHER-EXPENSES> 72,300 46,009
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (72,221) (43,096)
<INCOME-TAX> 307 0
<INCOME-CONTINUING> (72,325) (43,096)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (72,325) (43,096)
<EPS-BASIC> 35.61 6.22
<EPS-DILUTED> 35.61 6.22
</TABLE>
