<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 2000
REGISTRATION NO. 333-34642
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AUTOTRADER.COM, INC.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 7389 58-2534364
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
5775 PEACHTREE DUNWOODY ROAD, SUITE A-200
ATLANTA, GEORGIA 30342
(404)269-8000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
WILLIAM N. TEMPLETON
CHIEF FINANCIAL OFFICER AND VICE PRESIDENT
AUTOTRADER.COM, INC.
5775 PEACHTREE DUNWOODY ROAD, SUITE A-200
ATLANTA, GEORGIA 30342
(404) 843-5000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
STUART A. SHELDON KRIS F. HEINZELMAN
JOHN W. MCNAMARA CRAVATH, SWAINE & MOORE
DOW, LOHNES & ALBERTSON, PLLC WORLDWIDE PLAZA
1200 NEW HAMPSHIRE AVENUE, N.W. 825 EIGHTH AVENUE
WASHINGTON, D.C. 20036 NEW YORK, NEW YORK 10019
(202) 776-2000 (212) 474-1000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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(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 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,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED JULY 21, 2000
6,500,000 Shares
(AutoTrader.com logo)
Class A Common Stock
------------------
Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price of the Class A common stock is
expected to be $10.00 per share. We have applied to list our Class A common
stock on The Nasdaq Stock Market's National Market under the symbol "ATDC."
Following this offering, we will have two classes of common stock
outstanding, Class A common stock and Class B common stock. The rights of the
holders of Class A common stock and Class B common stock are identical, except
with respect to voting and conversion. Each share of Class A common stock is
entitled to one vote. Each share of Class B common stock is entitled to ten
votes and is convertible into one share of Class A common stock.
The underwriters have an option to purchase a maximum of 975,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
ON PAGE 7.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS AUTOTRADER.COM
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of Class A common stock will be made on or about
, 2000.
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.
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
CHASE H&Q
ROBERTSON STEPHENS
The date of this prospectus is , 2000.
<PAGE> 3
INSIDE COVER
[ARTWORK]
THE BIGGEST, BEST USED CAR SITE ON THE PLANET.
AutoTrader.com is clicking with buyers and sellers:
5 MILLION PEOPLE AND GROWING VISIT THE SITE EACH MONTH:
resulting in
8.2 MILLION SESSIONS GENERATING 68 MILLION PAGES
featuring
1.5 MILLION USED CARS UPDATED DAILY
from over
40,000 PARTICIPATING DEALERS
and over
225,000 PRIVATE SELLER LISTINGS
generating over
2 MILLION QUALIFIED LEADS
[AutoTrader.com logo]
Your car is waiting
<PAGE> 4
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 7
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS.......... 19
USE OF PROCEEDS....................... 19
DIVIDEND POLICY....................... 19
CAPITALIZATION........................ 20
DILUTION.............................. 21
SELECTED HISTORICAL AND UNAUDITED PRO
FORMA FINANCIAL DATA................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 24
BUSINESS.............................. 34
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT............................ 54
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 63
PRINCIPAL STOCKHOLDERS................ 70
DESCRIPTION OF CAPITAL STOCK.......... 72
SHARES ELIGIBLE FOR FUTURE SALE....... 76
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-U.S.
HOLDERS............................. 78
UNDERWRITING.......................... 82
NOTICE TO CANADIAN RESIDENTS.......... 85
LEGAL MATTERS......................... 86
EXPERTS............................... 86
ADDITIONAL INFORMATION................ 86
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary contains basic information about us and the offering. Because
it is a summary, it does not contain all the information that you should
consider before investing. You should read the entire prospectus carefully,
including the risk factors and our financial statements and the related notes to
those statements included in this prospectus.
OUR COMPANY
AutoTrader.com is the leading Internet destination and marketplace in the
United States for buyers and sellers of used cars, light trucks, vans and sport
utility vehicles and for consumers seeking information regarding automotive
products and services, such as insurance, financing and warranties. We utilize
the power of the Internet and our ability, through our exclusive strategic
alliances, to aggregate in a single location an extensive network of industry
participants and a comprehensive database of automotive information to create an
open marketplace that is local, regional and national in nature. In June 2000,
our marketplace contained approximately 1.5 million used vehicle listings and
attracted 5 million unique visitors who logged onto our Web site and conducted
nearly 14 million vehicle searches. By providing this digital marketplace, we
bring automobile dealers, private sellers and other industry participants, such
as vendors of automotive products and services and national advertisers,
together with purchase-minded consumers at the moment when these consumers are
directly engaged in a search for a used vehicle or automotive products and
services.
Our business model is built on multiple sources of revenue from a variety
of industry participants interested in marketing their services to consumers. We
generate our revenues primarily from subscription and advertising fees for
services provided to automobile dealers. We also generate revenues from
facilitating automotive e-commerce transactions, online used vehicle
auction-style trading services, national advertising and enhanced private seller
listings.
AutoTrader.com, formerly AutoConnect.com, was formed in 1997 as a
majority-owned subsidiary of Manheim Auctions, Inc., which has been in business
since 1945 and is the nation's largest operator of wholesale auto auctions.
Manheim Auctions, a wholly owned subsidiary of Cox Enterprises, Inc., a leading
media and information company, is our principal owner and one of our strategic
partners. Other investors in our company include entities with which we have
also formed strategic relationships, such as Trader Publishing Company, ADP,
Inc., eBay, Inc., and the venture capital firm, Kleiner Perkins Caufield &
Byers. Since our inception, we have received approximately $175 million in cash
contributions from our investors.
MARKET OPPORTUNITY
The automotive industry in the United States exceeds $1 trillion per year.
In 1999, the used vehicle industry exceeded $360 billion in retail sales, with
used vehicle unit sales exceeding new vehicle unit sales by over 200%. The
traditional used vehicle market is highly fragmented, competitive and
inefficient. For dealers, this market structure has resulted in high costs
associated with attracting consumers. For consumers, this fragmented market has
resulted in a lack of access to the information that is needed for consumers to
research and evaluate their automotive purchasing decisions. Additionally,
consumers must often deal with multiple parties to arrange for financing,
insurance, warranties and maintenance. The Internet provides an efficient
platform for dealers to aggregate vehicle listings and other automotive product
information and disseminate such information to consumers as well as to expose
both consumers and dealers to an extensive range of buying and selling
opportunities.
<PAGE> 6
THE AUTOTRADER.COM SOLUTION
We provide significant benefits to both industry participants and
consumers:
Dealers and Other Industry Participants. We provide a range of services
and features that allows dealers to efficiently and effectively market their
inventory of used vehicles to consumers, including basic listings, enhanced
listings, inventory pages, Web site links, Web site design and hosting, banner
advertising and listings on our co-branded, auction-style Web site operated with
eBay. We also collect, analyze and return to dealers usable information on the
shopping habits of used vehicle purchasers in a dealer's region. In addition, we
provide vendors of automotive products and services with access to a large and
growing number of purchase-minded consumers who, in many instances, may require
insurance, financing, warranties, a roadside assistance program or other
automotive products and services. We also expose our national advertisers, which
have included General Motors, Ford, DaimlerChrysler, Honda, Acura, Mazda,
Toyota, Lexus, BMW, Volvo and Hertz, to this large and targeted group of
consumers. The costs associated with utilizing our advertising and promotional
services are significantly lower than the costs typically associated with
traditional advertising media, such as newspapers, television and radio.
Consumers. Our Web site is designed to provide consumers with a "one-stop"
destination that incorporates all aspects of commerce and content related to the
process for purchasing and selling used vehicles and automotive products and
services. We maintain the largest database of used vehicle listings -- with
approximately 1.5 million used vehicles listed for sale on our Web site by
dealers, finance companies and private sellers -- which generally provides
consumers the most comprehensive selection in their local market. We also
provide one of the most comprehensive sources of automotive information,
including a variety of decision tools, buying and selling tips, vehicle
specifications and reviews, and vehicle pricing and safety information, as well
as assistance with financing, insurance and warranty programs. Private sellers
can include their used vehicles on our Web site as a basic listing without
charge or as an upgraded listing for a price per enhancement and can access our
content features and databases to help them determine a fair asking price. In
addition, private sellers can list their used vehicles for a nominal fee on the
co-branded, auction-style Web site that we operate with eBay.
OUR STRATEGY AND COMPETITIVE ADVANTAGES
Our objective is to build and maintain the preeminent online marketplace
for facilitating transactions between buyers and sellers of used vehicles. The
main thrust of our strategy is to enhance our market leadership position by
growing our database of used vehicle listings, our database of information
regarding the vehicle searching patterns of buyers, our network of dealers and
the audience of users of our Web site. We are implementing an aggressive
national marketing campaign to enhance the strength of our brand in the used
vehicle market and to increase consumer and dealer awareness and usage of our
Web site and our products and services.
Our ability to maintain the largest dynamic database of used vehicle
listings, to attract and retain the largest number of dealers and to attract
what we believe is the largest audience of used vehicle buyers is enhanced by
our strategic partners. We have exclusive relationships with Trader Publishing,
Manheim Auctions, ADP, eBay and America Online, Inc. Trader Publishing is the
publisher of over 230 automotive classified magazines containing the most
extensive print listings of used vehicles in the United States, with an
approximate weekly circulation of 2.3 million copies. Manheim Auctions is the
nation's largest operator of wholesale auto auctions, with nearly 7 million
vehicles auctioned at its 65 U.S. auction locations in 1999. ADP is a leading
provider of transaction systems and data products to dealers. Since Trader
Publishing, Manheim Auctions and ADP are the three largest aggregators of used
vehicle information in the United States and each company has agreed to make
AutoTrader.com its exclusive consumer-oriented Web site for vehicle inventory
aggregation, we believe we are well-positioned to maintain our lead as the
largest aggregator of used vehicle listings in the United States. We also have
an exclusive relationship with eBay, the world's largest person-to-person
trading community, to promote used vehicle auction-style transactions. In
addition, we have an exclusive distribution agreement with America Online to
drive traffic from the more than 30 million users of America Online, AOL.com and
Compuserve to our Web site. We
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also have a range of non-exclusive distribution agreements with other Internet
portals, content providers and Web sites.
RECENT DEVELOPMENTS
We are currently organized as a limited liability company, with our equity
interests referred to as units. Concurrently with the consummation of this
offering, we will complete a reorganization transaction in which AutoTrader.com,
LLC will merge into AutoTrader.com, Inc., a newly formed, wholly owned
subsidiary of AutoTrader.com, LLC, with AutoTrader.com, Inc. remaining as the
surviving entity. Holders of membership units in AutoTrader.com, LLC will
exchange all of their units for Class A and Class B common stock of
AutoTrader.com, Inc. on a one-for-one basis. For a further description of this
reorganization transaction, see "Certain Relationships and Related
Transactions -- Reorganization."
In February and March of this year, with respect to our calls for capital
funding, we issued 13,281,855 units to our members in exchange for $81,554,000.
In March 2000, we issued 1,173,876 units to eBay in exchange for $9,237,000. For
a further description of this transaction with eBay, see "Certain Relationships
and Related Transactions -- eBay Agreements."
CORPORATE INFORMATION
Our principal executive offices are located at 5775 Peachtree Dunwoody
Road, Suite A-200, Atlanta, Georgia 30342. Our general telephone number is (404)
269-8000. Our Web site address is www.autotrader.com. Our Web site address is
included in this prospectus as an inactive textual reference only. The
information contained on our Web site is not part of this prospectus and is not
incorporated into this prospectus by reference.
3
<PAGE> 8
THE OFFERING
<TABLE>
<S> <C>
Class A common stock offered by AutoTrader.com... 6,500,000 shares
Common stock to be outstanding after this
offering:
Class A common stock........................... 26,154,243 shares
Class B common stock........................... 21,201,482 shares
Total.................................. 47,355,725 shares
Use of proceeds.................................. For general corporate purposes, including
continued development of our Internet
offerings and funding our marketing
activities. See "Use of Proceeds."
Voting rights of common stock.................... Each share of Class A common stock is
entitled to one vote, and each share of
Class B common stock is entitled to ten
votes. After this offering, Manheim
Auctions will have approximately 85% of
the combined voting power of our common
stock.
Proposed Nasdaq National Market symbol........... "ATDC"
</TABLE>
Unless we specifically state otherwise, the information in this prospectus:
- does not take into account the sale of up to 975,000 shares of Class A
common stock that the underwriters have the option to purchase from
AutoTrader.com to cover over-allotments; and
- assumes the consummation of the reorganization transaction described in
"Certain Relationships and Related Transactions -- Reorganization" and
the filing of our amended and restated certificate of incorporation.
Common stock to be outstanding after the offering is as of the closing
date. It excludes awards of Class A common stock issuable under our stock-based
incentive programs; the maximum number of shares of Class A common stock that
can be awarded under these programs is 3,600,000 shares.
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<PAGE> 9
SUMMARY FINANCIAL DATA
You should read this summary information with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED THREE MONTHS ENDED
OCTOBER 1, 1997 DECEMBER 31, MARCH 31,
(INCEPTION) TO ------------------------- -------------------------
DECEMBER 31, 1997 1998 1999 1999 2000
----------------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT UNIT OR SHARE AND PER UNIT OR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 42 $ 1,028 $ 5,183 $ 522 $ 4,251
Cost of revenues..................... -- 382 1,470 384 402
---------- ----------- ----------- ----------- -----------
Gross profit......................... 42 646 3,713 138 3,849
---------- ----------- ----------- ----------- -----------
Operating expenses:
Product development and
technology....................... 940 8,602 6,967 1,341 2,619
Sales and marketing................ 922 11,350 35,644 4,564 28,807
General and administrative......... 445 3,120 7,412 1,802 3,292
Depreciation and amortization...... 16 288 826 113 609
---------- ----------- ----------- ----------- -----------
Total operating expenses.... 2,323 23,360 50,849 7,820 35,327
---------- ----------- ----------- ----------- -----------
Loss from operations................. $ (2,281) $ (22,714) $ (47,136) $ (7,682) $ (31,478)
========== =========== =========== =========== ===========
Net loss............................. $ (2,281) $ (22,717) $ (46,715) $ (7,682) $ (31,241)
========== =========== =========== =========== ===========
Basic and diluted net loss per
unit............................... $ (0.16) $ (1.60) $ (2.51) $ (0.54) $ (1.00)
========== =========== =========== =========== ===========
Weighted-average number of units
outstanding used in computing basic
and diluted net loss per unit...... 14,168,000 14,168,000 18,625,140 14,168,000 31,180,964
========== =========== =========== =========== ===========
Pro forma as adjusted basic and
diluted net loss per share......... $ (0.99) $ (0.66)
=========== ===========
Shares used in computing pro forma as
adjusted basic and diluted net loss
per share.......................... 47,355,725 47,355,725
=========== ===========
</TABLE>
Pro forma as adjusted basic and diluted net loss per share is based on the
40,855,725 shares outstanding as of March 31, 2000, after giving effect to the
reorganization transaction described in "Certain Relationships and Related
Transactions -- Reorganization", as if those shares, as well as the issuance of
6,500,000 shares of Class A common stock offered in this offering, had been
outstanding since January 1, 1999.
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<PAGE> 10
The following table sets forth our summary balance sheet data as of March
31, 2000:
- on an actual basis;
- on a pro forma basis to reflect the reorganization transaction described
in "Certain Relationships and Related Transactions -- Reorganization";
and
- on a pro forma as adjusted basis to reflect the estimated net proceeds
from the sale of 6,500,000 shares of Class A common stock offered in this
offering at an assumed initial public offering price of $10.00 per share,
after deducting the underwriting discount and commissions and estimated
offering expenses that we will pay and the application of the net
proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ -- $ -- $ 58,590
Amounts due from Cox Enterprises, Inc.................... 64,612 64,612 64,612
Working capital.......................................... 62,298 62,298 120,888
Total assets............................................. 86,844 86,844 145,434
Other long-term obligations.............................. 1,334 1,334 1,334
Accumulated deficit...................................... (102,954) -- --
Total members' equity.................................... 72,689 -- --
Total stockholders' equity............................... -- 72,689 131,279
</TABLE>
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RISK FACTORS
You should carefully consider the risks described below before buying
shares in this offering. If any of the following risks actually occur, our
business, results of operations and financial condition could be materially and
adversely affected, the trading price of our Class A common stock could decline,
and you might lose all or part of your investment. Please also see "Cautionary
Note Regarding Forward-Looking Statements."
RISKS RELATING TO OUR BUSINESS
OUR FUTURE SUCCESS IS UNCERTAIN BECAUSE WE HAVE A LIMITED OPERATING HISTORY.
We commenced operations in the last quarter of 1997. Because of this
limited operating history, our prospects must be considered in light of the
risks, expenses and problems frequently encountered by companies that are in the
early stages of development and that operate in new and rapidly changing markets
like online commerce. To address these risks we must, among other things,
continue to expand our base of consumers and dealers, develop our relationships
with commercial vendors and maintain and upgrade our technology. If we cannot
execute our business strategy or successfully address each of these risks, our
financial condition and results of operations may suffer.
WE HAVE A NEW AND UNPROVEN BUSINESS MODEL.
The manner in which we conduct our business and charge for our services is
new and unproven. Our business model depends upon our ability to generate
revenue streams from multiple sources through our Web site, including:
- subscription and advertising fees from dealer services;
- revenue from facilitating automotive e-commerce transactions (such as
financing, insurance, warranties and aftermarket products);
- fees from the online used vehicle, auction-style trading services
provided by the co-branded Web site that we operate with eBay;
- fees from national advertising programs, promotions and services; and
- fees for enhanced private seller listings.
In order for us to be successful, large numbers of consumers must visit our
Web site on a regular basis to attract dealers, vendors and advertisers to list
vehicles and to advertise and offer products and services through our Web site.
Therefore, we must not only develop services that directly generate revenue, but
also provide information that attracts consumers to our Web site frequently. We
will need to develop new offerings in each of these areas as consumer
preferences change and new competitors emerge. We cannot assure you that we will
be able to provide consumers with an acceptable blend of services and
information. We provide information to consumers without charge, and we may not
be able to generate sufficient revenue to pay for these offerings. Accordingly,
we cannot be sure that our business model will be successful or that we can
sustain revenue growth or become profitable.
OUR STRATEGY TO GROW THE AUTOTRADER.COM BRAND WILL REQUIRE SIGNIFICANT
EXPENDITURES, AND OUR BUSINESS MAY NOT GENERATE SUFFICIENT REVENUES TO COVER
THESE EXPENDITURES.
Our business depends heavily on the prominence and value of the
AutoTrader.com brand. In particular, we believe that obtaining recognition as
the largest marketplace for used vehicles is critical to attracting consumers,
dealers, private sellers, commercial vendors and advertisers to our Web site. In
order to develop the AutoTrader.com brand, we expect that operating expenses,
particularly sales and marketing expenditures, will continue at a high level. We
expect that this high level of expenditures will have a
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negative impact on our results of operations in the near term. Moreover, if our
revenues do not increase as a result of these investments in our business, we
may never achieve or sustain profitability.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES FOR THE
FORESEEABLE FUTURE.
We have experienced operating losses in each quarterly and annual period
since inception. We incurred net losses of $31.2 million for the three months
ended March 31, 2000 (unaudited), $46.7 million for the fiscal year ended
December 31, 1999, $22.7 million for the fiscal year ended December 31, 1998 and
$2.3 million for the period from October 1, 1997 (inception) to December 31,
1997. As of March 31, 2000 (unaudited), we had an accumulated deficit of $103.0
million. We expect to maintain high levels of expenditures for sales and
marketing and general and administrative expenses, and consequently our losses
may increase in the future. We will need to continue to generate significant
increases in our revenues to achieve and maintain profitability.
OUR QUARTERLY FINANCIAL RESULTS MAY VARY, WHICH MAY REDUCE THE MARKET PRICE OF
OUR CLASS A COMMON STOCK.
Our quarterly operating results have fluctuated in the past and may
continue to fluctuate due to many factors. We expect that over time our revenues
will come from a mix of fees from dealers, vendors of automotive products and
services, national advertisers and fees from consumers. We plan to maintain our
current level of operating expenses based on our expectations of future
revenues. If revenues fall below our expectations, we will not be able to reduce
our spending rapidly in response to such a shortfall, which will adversely
affect our operating results.
We may also experience seasonality in our business. Internet usage
typically declines during the summer and certain holiday periods, while vehicle
purchasing in the United States is strongest in the late spring and summer
months. Because of our limited operating history, we do not know which seasonal
pattern, if any, will predominate.
Due to these factors, among others, we believe that quarter-to-quarter
comparisons of our results of operations are not a good indication of our future
performance. However, if our results of operations in some future quarter fall
below the expectations of public market analysts and investors, the price of our
Class A common stock is likely to decline.
THE ONLINE MARKET FOR USED VEHICLE INFORMATION AND AUTOMOTIVE PRODUCTS AND
SERVICES MAY FAIL TO GROW, WHICH WOULD LIMIT THE GROWTH OF OUR ONLINE
ADVERTISING REVENUES AND ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The online market for used vehicle information and automotive products and
services is new and rapidly developing. As is typical for any new, rapidly
evolving market, demand and market acceptance for recently introduced products
and services are subject to a high level of uncertainty and risk. It is also
difficult to predict the market's future growth rate, if any. If the online
market for used vehicle information and automotive products and services fails
to develop or develops more slowly than expected or our services do not achieve
or sustain market acceptance, we may not be able to increase our revenues, and,
therefore, our results of operations and financial condition could be materially
and adversely affected.
WE ARE IN AN INTENSELY COMPETITIVE MARKET WHICH COULD REDUCE OUR MARKET SHARE
AND HARM OUR FINANCIAL PERFORMANCE.
The market for providers of used vehicle information and automotive
products and services, including classified advertising, is intensely
competitive, and we expect competition to increase significantly, particularly
on the Internet. Barriers to entry on the Internet are relatively low, and we
may face competitive pressures from numerous companies. There are a number of
Web sites that offer vehicle listings, including vehicle manufacturers' own Web
sites and Web sites containing electronic classified advertisements, and
automotive products and services. In addition, there are numerous Web sites that
offer vehicle information and other content, as well as community offerings,
directly to the vehicle-purchasing
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consumer generally or to targeted audiences such as car collectors. We also face
competition from traditional media companies such as newspapers, niche
classified publishers and television and radio companies, many of which
currently operate Web sites. In addition to direct competitors, we also compete
indirectly with vehicle brokerage firms, discount warehouse clubs and automobile
clubs. Several Web sites provide auction services, and some have also recently
announced their intention to auction vehicles on the Internet. We expect
additional competitors to enter our market in the future.
The automotive e-commerce market is new and rapidly evolving, and we expect
competition among e-commerce companies to increase significantly. We cannot
assure you that Web sites maintained by our existing and potential competitors
will not be perceived by consumers, dealers, other potential automotive vendors
or advertisers as being superior to ours. We also cannot assure you that we will
be able to maintain or increase the levels of visitors logging onto our Web site
and the number of leads these visitors generate for sellers of used vehicles and
automotive products and services or that competitors will not experience greater
growth in these areas than we do.
OUR BUSINESS IS DEPENDENT ON THE ECONOMIC STRENGTH OF THE AUTOMOTIVE INDUSTRY.
The strength of the automotive industry significantly impacts both the
revenues we derive from our dealers, other automotive vendors and advertisers
and the consumer traffic to our Web site. The automotive industry is cyclical,
with the number of sales of vehicles changing due to national and global
economic forces. Any decrease in the current level of vehicle sales could have a
material adverse effect on our business, results of operations and financial
condition.
BECAUSE OF THE INDUSTRY IN WHICH WE OPERATE, WE MAY BE PARTICULARLY AFFECTED BY
GENERAL ECONOMIC CONDITIONS.
Purchases of vehicles are typically discretionary for consumers and may be
particularly affected by negative trends in the general economy. The success of
our operations depends to a significant extent upon a number of factors relating
to discretionary consumer spending, including economic conditions (and
perceptions of such conditions by consumers) affecting disposable consumer
income (such as employment, wages and salaries, business conditions, interest
rates, availability of credit and taxation) for the economy as a whole and in
regional and local markets. In addition, because the purchase of a vehicle is a
significant investment and is relatively discretionary, any reduction in
disposable income in general may affect us more significantly than companies in
other industries. Our business strategy also relies on advertising by and
agreements with other Internet companies. Any significant deterioration in
general economic conditions that adversely affects these companies could also
have a material adverse effect on us.
WE RELY HEAVILY ON MAINTAINING RELATIONSHIPS WITH A LARGE NUMBER OF DEALERS.
We derive the majority of our revenues from subscription and advertising
fees from dealer services, and we expect to continue to do so for the
foreseeable future. These dealer fees represented approximately 82% of our net
revenues in 1998, approximately 57% of our net revenues in 1999 and
approximately 60% of our net revenues in the first three months of 2000. These
fees are received from a large number of dealers. For example, our largest
dealer represented less than 0.3% of our total revenues in 1999. Consequently,
our business is highly dependent on consumers' use of our Web site to shop for
vehicles so that dealers will continue to use our services.
WE MAY BECOME SUBJECT TO GENERAL VEHICLE-RELATED LAWS OR VEHICLE BROKERAGE AND
AUCTION LAWS.
There are numerous state laws regarding the sale of vehicles. In addition,
government authorities may take the position that state or federal insurance
licensing laws, vehicle financing laws, motor vehicle dealer laws or related
consumer protection or product liability laws apply to aspects of our business.
If federal or individual states' regulatory requirements change or additional
requirements are imposed on us, we may be required to modify aspects of our
business in those states in a manner that might undermine the attractiveness of
our Web site's products and services to consumers, dealers, automotive vendors
or
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advertisers or require us to terminate operations in that state, either of which
could harm our business. As we introduce new services and if we expand our
operations to other countries, we could become subject to additional licensing
and regulatory requirements.
Substantially all states have laws that broadly define brokerage
activities, and government authorities may take the position that under these
laws we are acting as a broker. If this occurs, we may be required to comply
with burdensome licensing requirements or terminate our operations in those
states. In either case, our business, results of operations and financial
condition could be materially and adversely affected.
Many states also have laws and regulations related to the operation of
auctions. While we believe that the used vehicle auction-style trading services
provided under our marketing agreement with eBay do not qualify as an auction
operation, it is difficult to predict whether any states will seek to regulate
the operations of the co-branded Web site as the auction statutes and
regulations currently in place do not contemplate an Internet-related business.
If any state determines that the co-branded Web site is an auction operation, we
would analyze the aspects of the business that triggered the application of the
auction laws or regulations, and we may need to modify these activities
accordingly so that these laws and regulations would no longer apply.
Consequences to our business would vary from state to state depending on the
reasons that a state chooses to regulate the co-branded Web site activities. For
example, we may need to alter the pricing structure of the co-branded Web site
or the manner in which the bidding occurs, we may need to screen potential
sellers or we may need to provide for inspection and certification of the
vehicles that are listed. If one or more states seek to regulate the operations
of our co-branded Web site as an auction operation, our business, results of
operations and financial condition could be materially and adversely affected.
CONFLICTS OF INTEREST MAY ARISE WITH OUR PRINCIPAL STOCKHOLDERS WHO ARE ENGAGED
IN AUTOMOTIVE BUSINESSES, AND SUCH CONFLICTS MAY NOT BE RESOLVED IN OUR FAVOR.
Those of our principal stockholders who are involved in automotive
businesses compete with various aspects of our business. For example, Manheim
Auctions operates wholesale auto auctions, and Trader Publishing is a publisher
of magazines containing used vehicle listings in print. These stockholders may
vote in a manner so as to restrict us from expanding our business or entering
into additional lines of business which may be related to their current or
future operations. In addition, representatives of Manheim Auctions, Trader
Publishing and several of our other stockholders are members of our board of
directors. As a result, these principal stockholders and directors may be
subject to potential conflicts of interest with respect to future business
opportunities that both AutoTrader.com and these stockholders may be interested
in pursuing.
WE DEPEND ON OUR DATA CONTRIBUTION AGREEMENTS WITH MANHEIM AUCTIONS, TRADER
PUBLISHING AND ADP, AND WE WOULD HAVE DIFFICULTY OPERATING WITHOUT THEM.
We believe that our ability to offer our customers the largest available
database of used vehicle listings in the United States provides us with a
significant marketing advantage. More than 50% of our vehicle listings are
gathered pursuant to our data contribution agreements with Manheim Auctions,
Trader Publishing and ADP. The stated termination date of these data
contribution agreements is August 2009, but they may be terminated sooner if we
fail to comply with any of the material provisions of these agreements. In
addition, the data contribution agreement with Manheim Auctions may be
terminated by Manheim Auctions anytime after August 2004 if its voting interest
in AutoTrader.com falls below 50%. In the event the Manheim Auctions data
contribution agreement is terminated, Trader Publishing may also terminate its
data contribution agreement. Moreover, our data contribution agreement with ADP
may be terminated with six months' advance notice from ADP starting in January
2003. If we cannot either maintain these data contribution agreements or enter
into alternative arrangements with other companies to provide a similar volume
of used vehicle listings, we may be unable to continue our operations.
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OUR BRAND NAME AND DOMAIN NAME ARE LICENSED TO US BY TRADER PUBLISHING, AND IF
THIS LICENSE EXPIRES OR IS TERMINATED, OUR MARKETING EFFORTS TO PROMOTE OUR
BRAND NAME AND WWW.AUTOTRADER.COM WILL BE RENDERED INEFFECTIVE.
The extensive marketing expenditures that we have incurred to promote the
AutoTrader brand name and the www.autotrader.com domain name will yield benefits
only during the period when our license of the AUTOTRADER mark and the
www.autotrader.com domain name is valid. While the initial term of this license
does not expire until December 2041, Trader Publishing may terminate the license
sooner if:
- we fail to comply with any of the license's material terms;
- Trader Publishing's data contribution agreement is terminated for our
failure to comply with any of the material terms of Trader Publishing's
data contribution agreement;
- we fail to renew Trader Publishing's data contribution agreement; or
- the underlying license from TPI Holdings, Inc., a wholly owned subsidiary
of Cox Enterprises, to Trader Publishing expires.
Early termination of this license would require us to increase our
marketing expenditures significantly in order to promote a new brand name and
domain name, which would have a material adverse effect on our business, results
of operations and financial condition.
WE DEPEND ON RELATIONSHIPS WITH INTERNET PORTALS, HIGH-TRAFFIC WEB SITES AND
VENDORS OF AUTOMOTIVE PRODUCTS AND SERVICES, AND OUR FAILURE TO MAINTAIN OR
SUPPLEMENT THESE RELATIONSHIPS MAY REDUCE USER TRAFFIC TO OUR WEB SITE AND LIMIT
OUR ABILITY TO GENERATE REVENUES.
We have entered into written agreements with various commercial vendors,
including:
- Internet portals and other high-traffic Web sites, such as America
Online, Lycos.com, HotBot and Snap;
- vendors of automotive products and services, such as Allstate Insurance
Company, GMAC, YouDecide.com, E-Loan, DriveItToday.com and CarParts.com;
and
- providers of automotive information, such as Intellichoice, Kelley Blue
Book, the NADA, New Car Test Drive, Car & Driver, Road and Track and
Consumer's Digest.
These relationships, some of which are exclusive, direct user traffic to
our Web site and permit us to offer a broad range of services to consumers.
However, many of these relationships expire within the next two years, and we
may be unable to renew them on reasonable terms, or at all. In particular,
competition for placement on many of the Web sites with whom we have
relationships is intense, and renewing our agreements may be possible only at a
significant cost. We also may be unable to secure relationships with additional
vendors of automotive products and services. If we are unable to maintain or
supplement these relationships, our consumer base may stop growing, and our
financial condition and results of operations may be adversely affected.
IF WE DO NOT CONTINUE TO PROVIDE A HIGH-QUALITY USER EXPERIENCE AND SERVICE
OFFERINGS THROUGH OUR WEB SITE, THE VALUE OF OUR BRAND MAY FALL.
Promotion and enhancement of the AutoTrader.com brand will depend largely
on our success in consistently providing a high-quality consumer experience for
buyers and sellers of vehicles and automotive products and services and relevant
and useful information. If consumers, dealers, automotive vendors and
advertisers do not perceive our service offerings to be of high quality, or if
we introduce new services or enter into new business ventures that are not
favorably received by such groups, the value of our brand could be impaired or
diluted. Such brand impairment or dilution could decrease the attractiveness of
AutoTrader.com to one or more of these groups, which could materially and
adversely affect our business, results of operations and financial condition.
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WE NEED TO CONTINUE TO DEVELOP OUR CONTENT AND SERVICE OFFERINGS.
Our future success depends upon our ability to enhance and improve the ease
of use, responsiveness, functionality and features of our Web site and to
develop new services, in addition to continuing to improve the consumer shopping
experience. These efforts may require the development or licensing of
increasingly complex technologies. We may not be successful in developing or
introducing new features, functions and services, and these features, functions
and services may not achieve market acceptance or enhance our brand loyalty. If
we fail to develop and introduce new features, functions or services
effectively, it could have a material adverse effect on our business, results of
operations and financial condition.
OUR FAILURE TO MANAGE OUR GROWTH COULD HAVE A DETRIMENTAL EFFECT ON OUR BUSINESS
RESULTS.
Our recent growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources.
Several of our executive officers joined us recently. Any inability to manage
growth effectively could have a material adverse effect on our business, results
of operations and financial condition.
OUR GROWTH MAY SLOW OR STOP IF WE CANNOT ATTRACT OR RETAIN PERSONNEL WITH
TECHNICAL AND MANAGEMENT EXPERTISE.
As of June 30, 2000, we had 305 full-time employees, and we anticipate that
the number of employees will increase significantly during the next 12 months,
primarily in sales and customer service. Wages for managerial and technical
employees are increasing and are expected to continue to increase in the
foreseeable future due to the competitive nature of the current employment
market. We have experienced difficulty from time to time attracting the
personnel necessary to support the growth of our business, and we may experience
similar difficulty in the future. Inability to attract and retain the technical
and managerial personnel necessary to support the growth of our business could
have a material adverse effect upon our business, results of operations and
financial condition.
WE DEPEND ON CONTINUED IMPROVEMENTS IN OUR SYSTEMS AND THE INTERNET
INFRASTRUCTURE.
Our ability to retain and attract consumers, dealers, automotive vendors
and advertisers, and to achieve market acceptance of our services and our brand,
depends significantly upon the performance of our systems and network
infrastructure. We have experienced difficulty from time to time in maintaining
acceptable system response times. Any future system or network failure that
causes interruption or slower response time of our services could result in less
traffic to our Web site and, if sustained or repeated, could reduce the
attractiveness of our services to consumers, dealers, automotive vendors and
advertisers. An increase in the volume of our Web site traffic could strain the
capacity of our technical infrastructure, which could lead to slower response
times or system failures. Slower response times or system failures would cause
the number of purchase inquiries, advertising impressions, other
revenue-producing e-commerce offerings and our information offerings to decline,
any of which could hurt our revenue growth and our brand loyalty. Any failure of
our server and networking systems to handle current or higher volumes of user
traffic would have a material adverse effect on our business, results of
operations and financial condition.
As our listings database and consumer traffic grew rapidly during 1999, our
system capacity was strained on several occasions, resulting in slowdowns in Web
page deliveries and database loading. We addressed these problems by improving
our listing databases and Internet infrastructure during the fourth quarter of
1999. We believe that we now have sufficient capacity to service expected
traffic levels over the next year. However, despite these efforts, our system
could become overburdened again by unexpected traffic growth. If this occurs,
our business results would be negatively impacted.
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WE DEPEND ON THIRD-PARTY TECHNOLOGY AND CONTENT TO OPERATE OUR BUSINESS, AND
THIS TECHNOLOGY AND CONTENT MAY NOT BE AVAILABLE TO US IN THE FUTURE.
We currently license from third parties technologies and information that
are 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. Such failure could also
adversely affect the performance of our existing services until equivalent
technology or information can be identified, obtained and integrated.
OTHERS COULD CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH
MAY RESULT IN SUBSTANTIAL COSTS, DIVERSION OF RESOURCES AND MANAGEMENT ATTENTION
AND HARM TO OUR REPUTATION.
We cannot be certain that our services do not infringe on patents or other
intellectual property rights of others that may relate to our services. In
addition, because patent applications in the United States are not publicly
disclosed until the patent is issued, applications may have been filed that
relate to our services. We may be subject to legal proceedings and claims from
time to time in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties. If our services violate third-party proprietary rights, we cannot
assure you that we would be able to obtain licenses to continue offering such
services on commercially reasonable terms, or at all. Any claims against us
relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in substantial costs, diversion of resources and
management attention and in injunctions preventing us from distributing these
services. A successful infringement claim against us could materially and
adversely affect us in the following ways:
- we may be liable for damages and litigation costs, including attorneys'
fees;
- we may be enjoined from further use of the intellectual property;
- we may have to license the intellectual property, incurring licensing
fees;
- we may have to develop a non-infringing alternative, which could be
costly and delay projects; and
- we may have to indemnify users of our Web site with respect to losses
incurred as a result of our infringement of the intellectual property.
Regardless of the outcome, an infringement claim could materially and adversely
affect our business.
In 1996, our licensor, Trader Publishing, and its licensor, TPI Holdings,
Inc., were sued in United States District Court for the Southern District of
Indiana, by a company then called The Trader Enterprises, Inc. The action
related to the use of the TRADER trademark and variations thereon (including
AUTOTRADER) for print publications whose content consisted primarily of
advertisements. The litigation was settled in April 1999 prior to any judicial
ruling on the facts of the case and without any obligation of Trader Publishing
or TPI Holdings to pay any license fees. The settlement did not, however,
address the use of variations of the TRADER mark on the Internet. We do not
believe that our use of the mark AUTOTRADER.COM violates the trademark rights of
any third party, but we cannot give any assurance that any such claims will not
be made and, if made, will not be successful.
IF OUR INTELLECTUAL PROPERTY PROTECTION IS INADEQUATE, COMPETITORS MAY GAIN
ACCESS TO OUR TECHNOLOGY AND UNDERMINE OUR COMPETITIVE POSITION, CAUSING US TO
LOSE BUSINESS.
We regard our service marks, trademarks, trade secrets and similar
intellectual property as important to our success and rely on trademark law,
trade secret protection, copyright law and confidentiality and/or license
agreements with our employees, customers and business partners to protect our
proprietary rights.
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Our listing database is particularly important to our success. Although our
listing database is protected by copyright, the degree of copyright protection
afforded factual compilations such as our listing database is uncertain. Most
courts that have considered this issue in the past decade have permitted third
parties to take more material from a factual database without authorization than
they would be able to take from other sorts of protected works, provided that
they have not taken all or a substantial part of the protectable elements of the
database. Despite our precautions, unauthorized parties may copy portions of our
services or obtain and use information that we regard as proprietary. In
addition, our efforts to limit public access to our database may not adequately
deter third parties from misappropriating a substantial portion of our listing
database. Provisions in our visitor agreement protecting against unauthorized
use, copying, transfer and disclosure of our intellectual property, including
our listing database, may be unenforceable under the laws of certain
jurisdictions and foreign countries. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as do the laws of
the United States. Our means of protecting our proprietary rights in the United
States or abroad may not be adequate, and competitors may independently develop
similar technology or duplicate our products or our other intellectual property,
which would harm our business.
RISKS RELATING TO THE INTERNET
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES ASSOCIATED WITH THE INTERNET COULD
ADVERSELY AFFECT OUR BUSINESS.
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain as to
how existing laws will be applied to the Internet. The adoption of new laws or
the application of existing laws may decrease the growth in the use of the
Internet, which could in turn decrease the demand for our services and increase
our cost of doing business.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local levels and by
foreign governments that could impose taxes on the sale of goods and services
and other Internet activities. The Internet Tax Freedom Act, signed into law in
October 1998, placed a three-year moratorium on new state and local taxes on
Internet commerce. We cannot assure you that future laws imposing taxes or other
regulations on commerce over the Internet would not substantially impair the
growth of e-commerce and the growth of our business.
WE DEPEND ON INCREASED USE OF THE INTERNET AS A MEANS OF COMMERCE.
Our business depends on increased and sustained acceptance and use of the
Internet as a medium of commerce. Consumers and businesses will not likely
widely accept and adopt the Internet for conducting business and exchanging
information unless the Internet provides these consumers and businesses with
greater efficiencies and improvements in commerce and communication. In
addition, e-commerce generally, and shopping for and the purchase of used
vehicles and automotive products and services on the Internet in particular, is
a recent phenomenon. The growth of this phenomenon may not continue at recent
rates, and a sufficiently broad base of businesses and consumers may not adopt
or continue to use the Internet as a means of commerce. The Internet may not
prove to be a viable commercial marketplace generally, or, in particular, for
used vehicles and automotive products and services. If use of the Internet does
not continue to increase, our business will suffer.
OUR BUSINESS DEPENDS ON THE INTEGRITY OF THE INTERNET, WHICH IS UNCERTAIN AND IS
BEYOND OUR ABILITY TO CONTROL.
If Internet usage continues to increase rapidly, the Internet
infrastructure may not be able to support the demands placed on it by this
growth, and its performance and reliability may decline. The recent
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growth in Internet traffic has caused frequent periods of decreased performance,
outages and delays. Our ability to increase the speed with which we provide
services to consumers and to increase the scope and quality of such services is
limited by and dependent upon the speed and reliability of the Internet, which
is beyond our ability to control. If periods of decreased performance, outages
or delays on the Internet occur frequently, overall Internet usage or usage of
our Web site could increase more slowly or decline.
THE MARKET FOR INTERNET PRODUCTS AND SERVICES IS CHARACTERIZED BY RAPID
TECHNOLOGICAL CHANGE.
Rapid technological developments, evolving industry standards and consumer
demands, and frequent new product introductions and enhancements characterize
the market for Internet products and services. These market characteristics are
exacerbated by the emerging nature of the market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. Our future success will significantly depend on our ability to
continually improve the used vehicle shopping experience, the addition of new
and useful services and content to our Web site, and the performance, features
and reliability of our Web site. In addition, the widespread adoption of
developing multimedia-enabling technologies could require fundamental and costly
changes in our technology and could fundamentally affect the nature and
viability of Internet-based advertising. The failure to improve or augment the
services that we provide or to successfully implement emerging technologies
could harm our business.
WE COULD FACE LIABILITY FOR INFORMATION AND CONTENT CONTAINED ON OUR WEB SITE
AND FOR PRODUCTS SOLD THROUGH OUR WEB SITE.
We could be exposed to liability with respect to third-party information
that may be accessible through our Web site. Such claims might assert, among
other things, that, by directly or indirectly providing links to Web sites
operated by third parties, we should be liable for copyright or trademark
infringement or other wrongful actions by such third parties through such Web
sites, including defamation or negligence. It is also possible that if any
third-party content information, including vehicle listings data, provided on
our Web site contains errors, consumers or dealers could make claims against us
for losses incurred in reliance on such information. We do not and cannot
practically screen all of the content generated by providers of information and
services on our Web site.
Even to the extent that such claims do not result in liability to us, we
could incur significant costs in settling, investigating and defending against
such claims. The imposition of potential liability for information carried on or
disseminated through our Web site could require us to expend substantial
resources or take steps that may limit the attractiveness of our services to
consumers, dealers, automotive vendors, advertisers and others.
Our liability insurance may not cover all potential claims to which we may
be exposed and may not be adequate to indemnify us for all liability that may be
imposed. Any imposition of liability that is not covered by insurance or is in
excess of insurance coverage could have a material adverse effect on our
business and financial condition.
SECURITY RISKS AND CONCERNS ABOUT USE OF THE INTERNET MAY DETER POTENTIAL
CUSTOMERS FROM USING OUR SERVICES.
Concern about the security of the transmission of confidential information
over public networks is a significant barrier to e-commerce and communication.
Advances in computer capabilities, new discoveries in the field of cryptography
or other events or developments could result in compromises or breaches of
Internet security systems that protect proprietary information. If any
well-publicized compromises of security were to occur, they could substantially
reduce the use of the Internet for commerce and communications.
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WE MAY ENCOUNTER SECURITY BREACHES THAT RESULT IN DISRUPTION OR INACCESSIBILITY
OF OUR WEB SITE.
Anyone who circumvents our security measures could misappropriate
proprietary, confidential information, place false orders or cause interruptions
in our services or operations. The Internet is a public network, and data is
sent over this network from many sources. Recently, some Internet service
providers and e-commerce Web sites have been targeted by "denial of service" and
other attacks that overloaded these Web sites and forced them to shut down
temporarily. Computer viruses have also been distributed and have rapidly spread
over the Internet. Computer viruses could be introduced into our systems, which
could disrupt our online technology or make our Web site inaccessible to our
customers. We may be required to expend significant capital and other resources
to protect against the threat of, or to alleviate problems caused by, security
breaches and the introduction of computer viruses. Our security measures may be
inadequate to prevent security breaches or combat the introduction of computer
viruses, either of which may result in loss of data, increased operating costs,
litigation and possible liability.
RISKS RELATING TO THIS OFFERING
OUR CLASS A COMMON STOCK HAS NOT TRADED PUBLICLY; THE INITIAL PUBLIC OFFERING
PRICE MAY NOT BE INDICATIVE OF THE MARKET PRICE OF OUR CLASS A COMMON STOCK
AFTER THIS OFFERING, AND THE MARKET PRICE OF OUR CLASS A COMMON STOCK, LIKE THE
MARKET PRICES OF THE STOCKS OF OTHER INTERNET COMPANIES, MAY FLUCTUATE WIDELY
AND RAPIDLY.
There is currently no public market for our Class A common stock, and we
cannot assure you that an active trading market will develop or be sustained
after this offering. The initial public offering price will be determined
through negotiation between us and representatives of the underwriters and may
not be indicative of the market price for our Class A common stock after this
offering.
The market price of our Class A common stock could fluctuate significantly
as a result of:
- our susceptibility to quarter-to-quarter variations in our operating
results, which may cause us to fail to meet analysts' or investors'
expectations;
- economic and stock market conditions specific to Internet companies;
- changes in financial estimates by securities analysts following our
stock;
- earnings and other announcements by, and changes in market evaluations
of, Internet companies;
- changes in business or regulatory conditions affecting Internet
companies;
- announcements or implementation by us or our competitors of technological
innovations or new products or services; and
- trading volume of our Class A common stock.
The securities of many companies have experienced extreme price and volume
fluctuations in recent years often unrelated to those companies' operating
performance. Specifically, market prices for securities of Internet-related and
technology companies have frequently reached elevated levels, often following
their initial public offerings. These levels may not be sustainable and may not
bear any relationship to these companies' operating performances. If the market
price of our Class A common stock reaches an elevated level following this
offering, it may materially and rapidly decline. In the past, following periods
of volatility in the market price of a company's securities, stockholders have
often instituted securities class action litigation against the company. If we
were involved in a class action suit, it could divert the attention of senior
management, and, if adversely determined, could have a negative impact on our
financial condition.
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THE SALE OR AVAILABILITY FOR SALE OF SUBSTANTIAL AMOUNTS OF OUR CLASS A COMMON
STOCK COULD ADVERSELY AFFECT ITS MARKET PRICE.
Sales of substantial amounts of our Class A common stock in the public
market after the completion of this offering, or the public perception that
these sales could occur, could cause the market price of our Class A common
stock to decline and could materially impair our ability to raise capital
through future offerings of our Class A common stock. There will be 26,154,243
shares of Class A common stock outstanding immediately after this offering, or
27,129,243 shares if the underwriters exercise their over-allotment option in
full. All of the 6,500,000 shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act, unless
held by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. The 19,654,243 shares of Class A common stock outstanding prior
to this offering are "restricted securities" as defined in Rule 144 and may not
be sold in the absence of registration other than in accordance with Rule 144 or
Rule 701 under the Securities Act or another exemption from registration.
In connection with this offering, we, our executive officers and directors
and all of our principal stockholders have agreed, except in limited
circumstances, not to sell any shares of Class A common stock for 180 days after
completion of this offering without the consent of Credit Suisse First Boston
Corporation; however, Credit Suisse First Boston Corporation may release these
shares from these restrictions at any time. We cannot predict what effect, if
any, market sales of shares held by principal stockholders or any other
stockholder or the availability of these shares for future sale will have on the
market price of our Class A common stock.
All of our existing stockholders are parties to an agreement with us that
provides them with the right to require us to register the sale of shares they
own or obtain from time to time. Registration of these shares of our Class A
common stock would permit the sale of these shares without regard to the
restrictions of Rule 144.
THE NET PROCEEDS OF THIS OFFERING MAY BE ALLOCATED IN WAYS WITH WHICH YOU AND
OTHER STOCKHOLDERS MAY NOT AGREE.
Our management has significant flexibility in applying the proceeds we
receive in this offering. Because the proceeds are not required to be allocated
to any specific investment or transaction, you cannot determine at this time the
value or propriety of our management's application of the proceeds on our
behalf, and you and other stockholders may not agree with our management's
decisions.
INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
If you purchase Class A common stock in this offering, you will pay more
for your shares than the amounts paid by existing stockholders for their shares.
As a result, you will experience immediate and substantial dilution of
approximately $7.31 per share, representing the difference between our net
tangible book value per share after giving effect to this offering and the
initial public offering price. In addition, you may experience further dilution
to the extent that shares of our Class A common stock are issued upon the
exercise of stock options or under our stock purchase plan. These shares may be
issued at a purchase price less than the initial public offering price per share
in this offering. We also expect to offer stock options to employees in the
future. These issuances will cause further dilution to investors.
ANTI-TAKEOVER PROVISIONS OF OUR CERTIFICATE OF INCORPORATION COULD DELAY OR
DETER A CHANGE IN CONTROL.
Provisions of our certificate of incorporation and bylaws may make it more
difficult to effect a change in control of our company. The existence of these
provisions may adversely affect the price of our Class A common stock,
discourage third parties from making a bid for our company or reduce any
premiums paid to our stockholders for their Class A common stock. For example,
our certificate of incorporation authorizes our board of directors to issue up
to 5,000,000 shares of "blank check" preferred stock and to attach special
rights and preferences to this preferred stock. The issuance of this preferred
stock may make it more difficult for a third party to acquire control of us. A
special meeting of stockholders may only be
17
<PAGE> 22
called by our president, chief executive officer or secretary at the written
request of a majority of the board of directors. In addition, a stockholder
proposal for an annual meeting must be received within a specified period of
time to be placed on the agenda. Because stockholders do not have the ability to
require the calling of a special meeting of stockholders and are subject to
timing requirements in submitting stockholder proposals for consideration at an
annual meeting, any third-party takeover not supported by the board of directors
would be subject to significant delays and difficulties.
WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER WHO CAN CONTROL MATTERS REQUIRING
STOCKHOLDER APPROVAL BECAUSE IT OWNS A LARGE PERCENTAGE OF OUR COMMON STOCK, AND
IT MAY VOTE THE COMMON STOCK IN A WAY WITH WHICH YOU DO NOT AGREE.
After giving effect to this offering, assuming that we issue approximately
6,500,000 shares in this offering, Manheim Auctions will own approximately 43%
of our equity and 85% of our voting power. Manheim Auctions, therefore, would
control substantially all of the actions to be taken by our stockholders. In
addition, TPI, Inc., a Manheim Auctions affiliate, will own 9% of our equity and
2% of our voting power after giving effect to this offering. Our principal
stockholders, including Manheim Auctions, have agreed to enter into a
stockholders' agreement immediately prior to the consummation of this offering
under which they will agree to vote their shares together to elect ten of our
directors. This voting control may have the effect of discouraging offers to
acquire us and could adversely affect the price that investors might be willing
to pay in the future for shares of our common stock.
ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO INVESTORS.
Some investors favor companies that pay dividends. We have never declared
or paid any cash dividends on our Class A common stock. For the foreseeable
future, we intend to retain any earnings to finance the development and
expansion of our business, and we do not anticipate paying any cash dividends on
our Class A common stock. If we do not pay dividends, your return on an
investment in our Class A common stock will likely depend on your ability to
sell our stock at a profit.
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<PAGE> 23
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology including "could," "may," "will," "should," "expect," "intend,"
"plan," "anticipate," "believe," "estimate," "predict," "potential," "continue"
or "opportunity," the negative of these terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially from
any forward-looking statement.
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. Except as otherwise required by federal
securities laws, we are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform them to actual results
or to changes in our expectations.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 6,500,000
shares of Class A common stock that we are offering hereby will be approximately
$58.6 million, at an assumed initial public offering price of $10.00 per share
and after deducting the estimated underwriting discounts and commissions and
estimated offering expenses. If the underwriters' over-allotment option is
exercised in full, we estimate that such net proceeds will be approximately
$67.7 million. The primary purposes of this offering are to obtain additional
capital, create a public market for our Class A common stock and facilitate
future access to public capital markets.
Within the next 12 months, we intend to use cash on hand and the net
proceeds of the offering to fund an estimated $11.0 million of anticipated
capital expenditures, consisting primarily of office build-outs of corporate
facilities and regional offices, technology projects, including increased
storage capacity and reliability upgrades and increased hardware and software
requirements relating to staffing increases. We estimate that $51.7 million will
be used to fund advertising and other online and offline promotions. Any
remaining net proceeds will be utilized primarily for working capital and other
general corporate purposes. We may also use a portion of the net proceeds from
this offering to acquire or invest in businesses, technologies or products that
are complementary to our business. However, we have no present plans or
commitments and are not currently engaged in any negotiations with respect to
such transactions. Pending any use for these purposes, we intend to invest the
net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends in the foreseeable future.
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<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis;
- on a pro forma basis to reflect the reorganization transaction described
in "Certain Relationships and Related Transactions -- Reorganization";
and
- on a pro forma as adjusted basis to reflect the estimated net proceeds
from the sale of 6,500,000 shares of Class A common stock offered in this
offering at an assumed initial public offering price of $10.00 per share,
after deducting the underwriting discount and commissions and estimated
offering expenses that we will pay and the application of the net
proceeds therefrom. See "Use of Proceeds."
You should read this information together with our financial statements and
the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- --------- -----------
(IN THOUSANDS; UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ -- $ -- $ 58,590
Amounts due from Cox Enterprises(1)......................... 64,612 64,612 64,612
--------- ------- --------
Total............................................. $ 64,612 $64,612 $123,202
========= ======= ========
Members' equity:
Paid-in capital:
Capital contributions.................................. $ 174,648 $ -- $ --
Additional paid-in capital -- unit options............. 995 -- --
Accumulated deficit....................................... (102,954) -- --
--------- ------- --------
Total members' equity............................. 72,689 -- --
--------- ------- --------
Stockholders' equity:
Preferred stock, $1.00 par value, 5,000,000 shares
authorized on a pro forma basis, none outstanding on a
pro forma and pro forma as adjusted basis.............. -- -- --
Class A common stock, $1.00 par value, 100,000,000 shares
authorized on a pro forma basis, 19,654,243 shares
outstanding on a pro forma basis, and 26,154,243 shares
outstanding on a pro forma as adjusted basis(2)........ -- 19,654 26,154
Class B common stock, $1.00 par value, 100,000,000 shares
authorized on a pro forma basis, 21,201,482 shares
outstanding on a pro forma and pro forma as adjusted
basis.................................................. -- 21,201 21,201
Additional paid-in capital................................ -- 31,834 83,924
--------- ------- --------
Total stockholders' equity........................ -- 72,689 131,279
--------- ------- --------
Total capitalization.............................. $ 72,689 $72,689 $131,279
========= ======= ========
</TABLE>
---------------
(1) See Note 11 to our financial statements for a description of amounts due
from Cox Enterprises.
(2) Excludes 2,026,600 shares issuable upon the exercise of options outstanding
as of March 31, 2000, with a weighted-average exercise price of $5.70 per
share.
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<PAGE> 25
DILUTION
Our pro forma net tangible book value as of March 31, 2000 was
approximately $68.8 million, or $1.68 per share. Pro forma net tangible book
value per share is determined by dividing the amount of our total tangible
assets on a pro forma basis less total liabilities by the pro forma number of
shares at that date. The pro forma number of shares outstanding gives effect to
the reorganization transaction described in "Certain Relationships and Related
Transactions -- Reorganization".
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of common stock in
this offering and the net tangible book value per share of common stock
immediately after the consummation of this offering.
After giving effect to the issuance and sale of the shares of common stock
offered by us at an assumed initial public offering price of $10.00 per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book value
as of March 31, 2000 would have been $127.4 million, or $2.69 per share. This
represents an immediate increase in pro forma net tangible book value to our
existing stockholders of $1.01 per share and an immediate dilution to purchasers
in this offering of $7.31 per share. If the initial public offering price is
higher or lower, the dilution to purchasers in this offering will be greater or
less, respectively. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share prior to this
offering............................................... $1.68
Increase per share attributable to this offering.......... 1.01
-----
Adjusted pro forma net tangible book value per share after
this offering............................................. 2.69
------
Dilution per share to new investors(1)...................... $ 7.31
======
</TABLE>
---------------
(1) Assuming the exercise in full of the underwriters' over-allotment option,
our adjusted pro forma net tangible book value at March 31, 2000 would have
been approximately $2.82 per share, representing an immediate increase in
pro forma net tangible book value of $1.14 per share to our existing
stockholders and an immediate dilution in pro forma net tangible book value
of $7.18 per share to purchasers in this offering.
The following table summarizes, as of March 31, 2000, the number of shares
purchased from us, the total consideration provided to us and the average price
per share provided by existing stockholders, in each case on a pro forma basis
after giving effect to the sale of shares to investors in this offering.
The calculation below is based on an assumed initial public offering price
of $10.00 per share before deducting the underwriting discount and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 40,855,725 86.3% $175,282,000 72.9% $ 4.29
New stockholders........................ 6,500,000 13.7 65,000,000 27.1 $10.00
---------- ----- ------------ -----
Total......................... 47,355,725 100.0% $240,282,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and table assumes no exercise of options
outstanding under our 1999 Long-Term Incentive Plan and other stock-based
incentive programs. As of March 31, 2000, there were options outstanding to
purchase a total of 2,026,600 shares at a weighted-average exercise price of
$5.70 per share.
21
<PAGE> 26
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
You should read the following selected historical financial data in
conjunction with our historical financial statements and the related notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The selected historical
financial data in this section are not intended to replace the historical
financial statements.
The statement of operations data for the period from October 1, 1997
(inception) to December 31, 1997 and for the years ended December 31, 1998 and
1999 and balance sheet data as of December 31, 1998 and 1999 are derived from
our historical financial statements included elsewhere in this prospectus, which
have been audited by Deloitte & Touche LLP, our independent auditors. The
balance sheet data as of December 31, 1997 are derived from our financial
statements not included in this prospectus but which have been audited by
Deloitte & Touche LLP. The statement of operations data for the three months
ended March 31, 1999 and 2000 and the balance sheet data as of March 31, 2000
are derived from the unaudited financial statements included elsewhere in this
prospectus. We prepared the unaudited financial statements on substantially the
same basis as the audited financial statements, and, in our opinion, they
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for these
periods. Historical results are not necessarily indicative of results that may
be expected for any future period.
The unaudited pro forma financial data have been derived from the
historical financial statements of AutoTrader.com, LLC and Intellisoft
Development Corporation. The unaudited pro forma statement of operations for the
year ended December 31, 1999 has been presented as if the acquisition of
Intellisoft had been consummated on January 1, 1999. We acquired Intellisoft on
November 1, 1999. The unaudited pro forma financial data gives effect to the
acquisition of Intellisoft under the purchase method of accounting for business
combinations and is based upon the assumptions and adjustments described in the
accompanying notes to the unaudited pro forma financial information presented
elsewhere in this prospectus. The unaudited pro forma results do not purport to
represent the operating results that would have occurred had the acquisition of
Intellisoft been consummated on the date, or at the beginning of the period for
which such acquisition has been given effect. In addition, the unaudited pro
forma results do not purport to represent the combined results of future
operations.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED PRO FORMA THREE MONTHS ENDED
OCTOBER 1, 1997 DECEMBER 31, YEAR ENDED MARCH 31,
(INCEPTION) TO ------------------------- DECEMBER 31, -------------------------
DECEMBER 31, 1997 1998 1999 1999 1999 2000
----------------- ----------- ----------- ------------ ----------- -----------
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 42 $ 1,028 $ 5,183 $ 6,475 $ 522 $ 4,251
Cost of revenues....................... -- 382 1,470 1,626 384 402
---------- ----------- ----------- ----------- ----------- -----------
Gross profit........................... 42 646 3,713 4,849 138 3,849
---------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Product development and technology.... 940 8,602 6,967 6,998 1,341 2,619
Sales and marketing................... 922 11,350 35,644 35,738 4,564 28,807
General and administrative............ 445 3,120 7,412 8,128 1,802 3,292
Depreciation and amortization......... 16 288 826 1,533 113 609
---------- ----------- ----------- ----------- ----------- -----------
Total operating expenses........ 2,323 23,360 50,849 52,397 7,820 35,327
---------- ----------- ----------- ----------- ----------- -----------
Loss from operations................... (2,281) (22,714) (47,136) (47,548) (7,682) (31,478)
Other income (expense), net............ -- (3) 421 421 -- 237
---------- ----------- ----------- ----------- ----------- -----------
Net loss............................... $ (2,281) $ (22,717) $ (46,715) $ (47,127) $ (7,682) $ (31,241)
========== =========== =========== =========== =========== ===========
Basic and diluted net loss per unit.... $ (0.16) $ (1.60) $ (2.51) $ (2.53) $ (0.54) $ (1.00)
========== =========== =========== =========== =========== ===========
Weighted-average number of units
outstanding used in computing basic
and diluted net loss per unit......... 14,168,000 14,168,000 18,625,140 18,625,140 14,168,000 31,180,964
========== =========== =========== =========== =========== ===========
</TABLE>
22
<PAGE> 27
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ ---------
1997 1998 1999 2000
-------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ -- $ -- $ 13,945 $ --
Amounts due (to) from Cox Enterprises, Inc........... -- -- (7,268) 64,612
Working capital (deficit)............................ (916) (986) 12,662 62,298
Total assets......................................... 529 2,414 29,811 86,844
Other long-term obligations.......................... 28 794 2,100 1,334
Accumulated deficit.................................. (2,281) (24,998) (71,713) (102,954)
Total members' equity (deficit)...................... (601) 117 13,156 72,689
</TABLE>
23
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Historical
and Unaudited Pro Forma Financial Data" and our financial statements and related
notes included elsewhere in this prospectus. In addition to historical
information, the discussion in this prospectus contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated by these forward-looking statements due to
factors including, but not limited to, those factors set forth under "Risk
Factors" and elsewhere in this prospectus.
OVERVIEW
We are the leading Internet destination and marketplace in the United
States for buyers and sellers of used vehicles and for consumers seeking
information regarding automotive products and services, such as insurance,
financing and warranties. We utilize the power of the Internet and our ability,
through our exclusive strategic alliances, to aggregate in a single location an
extensive network of industry participants and a comprehensive database of
automotive information to create an open marketplace that is local, regional and
national in nature. In June 2000, our marketplace contained approximately 1.5
million used vehicle listings and attracted over 5 million unique visitors who
logged onto our Web site and conducted nearly 14 million vehicle searches. By
providing this digital marketplace, we bring automobile dealers, private sellers
and other industry participants, such as vendors of automotive products and
services and national advertisers, together with purchase-minded consumers at
the moment when these consumers are directly engaged in a search for a used
vehicle or automotive products and services.
We commenced operations in October 1997 under the auspices of Manheim
Auctions. Our predecessor company, AutoConnect.com, L.L.C., was formed as a
limited liability company owned by Manheim Auctions and ADP in 1997, and our new
Web site, www.autoconnect.com, was launched in May 1998. In August 1999, we
issued membership units to Landmark Communications, Inc., Kleiner Perkins
Caufield & Byers and Trader Publishing in exchange for cash and intangible
assets. In connection with this transaction, we changed our name to
AutoTrader.com, LLC and launched the www.autotrader.com Web site. In November
1999, we acquired the assets of Intellisoft Development Corporation, which
provides online automobile classifieds and dealer Web sites in the Chicago,
Illinois, metropolitan area, serving over 300 dealers and hosting over 30,000
vehicle listings on its Web site under the name "World Wide Wheels."
Concurrently with the consummation of this offering, we will effect a
reorganization, in which AutoTrader.com, LLC will merge into AutoTrader.com,
Inc., a newly formed, wholly owned subsidiary of AutoTrader.com, LLC, with
AutoTrader.com, Inc. remaining as the surviving entity. When we refer to
ourselves in periods prior to the consummation of this offering, the reference
is to AutoTrader.com, LLC, and when we refer to ourselves after the consummation
of this offering, the reference is to AutoTrader.com, Inc. See "Certain
Relationships and Related Transactions -- Reorganization."
REVENUES
We have developed a scalable business model characterized by multiple
revenue sources, including:
- subscription and advertising fees from dealer services;
- revenue from facilitating automotive e-commerce transactions;
- fees from our online, used vehicle auction-style trading services
provided by the co-branded Web site that we operate with eBay;
- fees from national advertising programs, promotions and services; and
- fees for enhanced private seller listings.
24
<PAGE> 29
Dealer Services Revenues. Automobile dealers comprise our largest revenue
source. We derive dealer services revenues from a range of advertising services,
including banner advertising, inventory pages, tiles, enhanced listings and
links to the dealer's own Web site. Dealers can also purchase Web products with
their own Internet address and searchable used vehicle inventory for an initial
set-up fee plus a monthly maintenance fee. Revenues from these services are
recognized ratably over the period in which the service is provided. The set-up
fees from dealer contracts are also recognized ratably over the period in which
the service is provided, generally a year.
E-Commerce Revenues. We derive e-commerce revenues from automotive vendors
such as insurance, warranty and finance companies and automotive aftermarket
retailers who can market their services on our Web site or integrate their
product with our Web site. E-commerce revenues are generally derived from
transaction-based fees determined by contractually defined metrics such as total
Web site visitors, specific traffic referrals or transaction leads that
originate on our Web site. Such revenues are recognized as the related fees are
earned.
Auction-Style Trading Services Revenues. We began deriving revenues from
used vehicle auction-style trading services in March 2000 as a result of our
marketing services agreement with eBay. Under this agreement, we are entitled to
a commission of 50% on gross revenues received by eBay for advertising, listing
and success fees and fees for related automotive services (such as financing,
insurance and shipping services) that are offered through the co-branded Web
site. Such commissions are recognized as revenue as the related fees are earned
by eBay. For a further description of this agreement, see "Certain Relationships
and Related Transactions -- eBay Agreements."
National Advertising Revenues. We derive national advertising revenues
from companies, such as automobile manufacturers, that desire to reach a large
audience of consumers interested in used vehicles by advertising on our Web
site. These revenues are generated from short-term contracts in which we
typically guarantee for a fixed fee a minimum number of impressions, or times
that an advertisement appears in pages viewed by our users. These revenues are
recognized ratably over the term of the agreement, provided that the amount
recognized does not exceed the amount that would be recognized based upon actual
impressions delivered.
Private Seller Listing Revenues. In May 2000, we began offering upgraded
listing products to private sellers who list their vehicles on our Web site. For
a particular price per product over 21-day listing periods, private sellers can
add enhancements such as bold letters, color backgrounds and photographs to
their listings. Such revenues will be recognized ratably over the related
listing period.
We do not currently recognize revenue related to barter advertising
arrangements, such as the exchange of advertising on our Web site for reciprocal
advertising on other Web sites or media, because the value of such arrangements
cannot be validated by reference to similar cash transactions.
We anticipate that our revenues will continue to increase as we continue
our efforts to expand the number of participating dealers, develop new products
and services and grow our consumer audience.
COST OF REVENUES
Our cost of revenues consists primarily of compensation and other personnel
costs for the development of dealer Web products and fees to outside vendors
contracted to set up, host and manage the Web sites that we create for dealers
as well as to place targeted banner advertisements on our Web site. As more of
our revenue comes from other products and services, we expect our cost of
revenues will decrease as a percentage of revenues going forward.
OPERATING EXPENSES
Product Development and Technology. Our product development and technology
expenses include personnel costs, professional service fees relating to the
design, content and functionality of our Web site and expenses associated with
the operation of our computer hardware, software and infrastructure. We incurred
substantial product development and technology expenses in 1999 in order to both
accommodate
25
<PAGE> 30
the significant increase in volume of visitors to our Web site and maintain a
high level of system reliability. Looking forward, we expect this expense will
increase in absolute dollars but will decrease as a percentage of revenues.
Sales and Marketing. Our sales and marketing expenses consist primarily of
compensation for sales, marketing and customer support personnel, outside
consulting fees, charges for polling dealers to collect and update their vehicle
inventory data, the provision for doubtful accounts and costs for online and
offline advertising, online distribution, trade shows and other promotion. We
expect that sales and marketing expenses will increase in future periods, and we
intend to continue to pursue aggressive branding and marketing campaigns to
develop AutoTrader.com brand awareness and loyalty through customer retention,
increased sales to our current dealers and other industry participants,
expansion of the number of participating dealers, development of our online
content and expansion of our other services. We also expect to expand our sales
force and customer support personnel commensurate with the opportunity to grow
our business. As part of our strategy, we launched a multi-million dollar,
national branding and advertising campaign in January 2000 consisting of
broadcast and cable television, radio, print, online and trade advertisements.
General and Administrative. Our general and administrative expenses
consist primarily of compensation for executive, finance, accounting, business
development and human resources personnel, fees for outside professional
advisors and overhead costs. We also pay a management fee to Cox Enterprises for
company-wide shared services, such as cash management, risk management and
technical support. We expect general and administrative expenses to increase as
we continue to expand our staff, increase our infrastructure and incur costs
associated with being a public company.
Prior to the commencement of this offering, several of our executive
officers and key employees who transferred from a Cox Enterprises entity
participate in the Cox Enterprises Unit Appreciation Plan. These transferred
employees no longer receive awards under this program, and it is expected that
such employees will elect to exchange their rights under the plan for restricted
shares of our Class A common stock equal in value to the value of the awards
that they had in the plan at the time of this offering. At an assumed offering
price of $10.00 per share, we expect to issue approximately 429,558 shares of
restricted stock under the AutoTrader.com 2000 Long-Term Incentive Plan to
implement this exchange. The cost of awards made under the plan with respect to
the time during which the employees were employed by AutoTrader.com was
allocated to us by Cox Enterprises over the applicable vesting periods and was
charged to general and administrative expense.
In addition, we have granted options to select employees of affiliated
companies. Included in general and administrative expense are non-cash costs
representing the estimated fair value of these awards.
Depreciation and Amortization. Depreciation and amortization expenses
consist of depreciation of property and equipment and amortization of intangible
assets, primarily the excess purchase price over the net assets acquired from
Intellisoft.
Other Income (Expense), Net. Other income (expense) consists of interest
income from our cash and cash equivalents, offset by interest expense on amounts
due to Cox Enterprises. Other income (expense) also consists of gains or losses
on the sale or disposal of property and equipment.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues. Our total revenues increased to $4.3 million for the three
months ended March 31, 2000 from $0.5 million for the three months ended March
31, 1999, or 714%. This rise is primarily attributable to increased traffic to
our Web site and higher sales volume across all of our product lines.
Our revenues from dealer services increased to $2.5 million for the three
months ended March 31, 2000 from $0.3 million for the three months ended March
31, 1999, or 655%. This increase is the result of the expansion in the number of
dealer Web and advertising products, continued development of existing
26
<PAGE> 31
products and concentrated sales efforts, resulting in an increase in the number
of paid dealer products from approximately 600 products in March 1999 to
approximately 3,450 products in March 2000 (each type of Web or advertising
product purchased by a dealer is considered a separate product). Revenues from
dealer Web products, including Web site set-up and hosting fees, increased $1.2
million, from $0.3 million for the three months ended March 31, 1999 to $1.5
million for the three months ended March 31, 2000. The November 1999 acquisition
of the dealer customer base of Intellisoft contributed to this increase in
dealer Web product revenues with approximately $0.5 million for the three months
ended March 31, 2000. Revenues from dealer advertising products such as banner
ads and hyperlinks increased $1.0 million, from a negligible amount for the
three months ended March 31, 1999 to $1.0 million for the three months ended
March 31, 2000.
Our e-commerce revenues increased to $1.2 million for the three months
ended March 31, 2000 from a negligible amount for the three months ended March
31, 1999, due to an increase in the number of e-commerce vendors as well as the
increase in visitors to our Web site. Nine e-commerce vendors marketed their
services on our Web site or integrated their products with our Web site at the
end of March 2000 compared to one vendor at the end of March 1999.
Our national advertising revenues increased to $0.4 million for the three
months ended March 31, 2000 from less than $0.2 million for the three months
ended March 31, 1999, or 164%. This increase was due primarily to approximately
the same number of advertisers buying more of our advertising inventory than the
first quarter of the prior year.
We began recognizing auction-style trading services revenues in March 2000
resulting in revenues of $0.1 million for the three months ended March 31, 2000.
Cost of Revenues. Our cost of revenues increased 5% to over $0.4 million
for the three months ended March 31, 2000 from nearly $0.4 million for the three
months ended March 31, 1999. Dealer Web site hosting expense increased
approximately $0.2 million, from a negligible amount for the three months ended
March 31, 1999 to $0.2 million for the three months ended March 31, 2000. Dealer
Web site set-up expense decreased approximately $0.2 million, from $0.2 million
for the three months ended March 31, 1999 to a negligible amount for the three
months ended 2000, as we no longer contract outside vendors to develop and set
up these Web sites. Web site development and set-up are now handled internally,
which is more efficient than contracting with outside vendors, and costs are
reflected as personnel expenses within cost of revenues.
Product Development and Technology. Our product development and technology
expenses increased to over $2.6 million for the three months ended March 31,
2000 from over $1.3 million for the three months ended March 31, 1999, or 95%.
Outside consulting costs increased $0.5 million, from $0.1 million for the three
months ended March 31, 1999 to $0.6 million for the three months ended March 31,
2000. Also, expenses associated with content and the operation of our computer
hardware and software increased $0.5 million, from $0.4 million for the three
months ended March 31, 1999 to $0.9 million for the three months ended March 31,
2000. In addition, salary and other personnel-related expenses increased $0.3
million, from $0.8 million for the three months ended March 31, 1999 to $1.1
million for the three months ended March 31, 2000, reflecting the hiring of
additional personnel.
Sales and Marketing. Our sales and marketing expenses increased to $28.8
million for the three months ended March 31, 2000 from $4.6 million for the
three months ended March 31, 1999, or 531%. Approximately $17.6 million of this
increase was due to significantly more spending on offline marketing activities
such as television and print advertising and trade shows, which increased from
$1.8 million for the three months ended March 31, 1999 to $19.4 million for the
three months ended March 31, 2000. In addition, approximately $3.5 million of
the increase in sales and marketing expense related to higher salary and
personnel-related costs incurred due to the growth of our in-house sales force
and the hiring of additional customer support personnel. These costs increased
from $0.5 million for the three months ended March 31, 1999 to $4.0 million for
the three months ended March 31, 2000. We also incurred approximately $1.6
million of increased distribution expense resulting primarily from our April
1999 exclusive distribution agreement with America Online. Distribution expenses
rose from $1.8 million for the
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three months ended March 31, 1999 to $3.4 million for the three months ended
March 31, 2000. Furthermore, our provision for doubtful accounts increased $0.3
million, from a negligible amount for the three months ended March 31, 1999 to
$0.3 million for the three months ended March 31, 2000, due to the growth in our
revenue and customer bases in late 1999 and 2000.
General and Administrative. Our general and administrative expenses
increased to $3.3 million for the three months ended March 31, 2000 from $1.8
million for the three months ended March 31, 1999, or 83%. Approximately $0.8
million of this increase relates to fees incurred in connection with our March
2000 marketing services agreement with eBay. In addition, our legal, audit and
other professional fees and outside consulting expenses increased $0.6 million,
from $0.2 million for the three months ended March 31, 1999 to $0.8 million for
the three months ended March 31, 2000. Also, amounts charged to expense for our
employees that are participating in the Cox Enterprises Unit Appreciation Plan
increased $0.3 million, from $0.1 million for the three months ended March 31,
1999 to $0.4 million for the three months ended March 31, 2000.
Depreciation and Amortization. Our depreciation and amortization expenses
increased to $0.6 million for the three months ended March 31, 2000 from $0.1
million for the three months ended March 31, 1999, or 439%, reflecting
depreciation expense related to increased purchases of computer equipment,
software and office equipment during 1999 and the first quarter of 2000. In
addition, approximately $0.2 million of the increase from the first quarter of
1999 relates to the amortization of the excess purchase price over the net
assets acquired from Intellisoft in November 1999.
Other Income (Expense), Net. Our other income was $0.2 million for the
three months ended March 31, 2000. Our cash and cash equivalents balance at the
end of 1999 as well as proceeds received from our Members for February and March
2000 capital contributions were the primary causes of the increase in our
interest income in 2000. There was no comparable interest income for the three
months ended March 31, 1999 because there was no excess cash on our balance
sheet.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Our total revenues increased to $5.2 million in 1999 from $1.0
million in 1998, or 404%. The rise is attributable primarily to increased
traffic to our Web site and higher sales volume across all of our product lines.
Our revenues from dealer services increased to $2.9 million in 1999 from
$0.8 million in 1998, or 248%. This increase is the result of the introduction
of new products, continued development of existing products and concentrated
sales efforts, resulting in greater sales of paid dealer products from
approximately 300 products at the end of 1998 to nearly 2,400 at the end of
1999. Revenues from dealer Web products increased $1.0 million, from $0.8
million in 1998 to $1.8 million in 1999. The November 1999 acquisition of the
dealer customer base of Intellisoft contributed to this increase in dealer Web
product revenues with approximately $0.3 million for the last two months of
1999. Furthermore, revenues from dealer advertising fees increased $1.1 million,
from a negligible amount in 1998 to $1.1 million in 1999.
Our e-commerce revenues increased to $1.1 million in 1999 from a negligible
amount in 1998, due to an increase in the number of e-commerce vendors as well
as the increase in visitors to our Web site. Six e-commerce vendors marketed
their services on our Web site or integrated their products with our Web site at
the end of 1999 compared to one vendor at the end of 1998.
National advertising revenues increased to $1.2 million in 1999 from $0.2
million in 1998, or 523%, as we did not begin recognizing advertising revenues
in 1998 until after the AutoConnect.com Web site was officially launched in May
1998. This increase is also attributable to a rise in the number of advertisers
on our Web site from eleven at the end of 1998 to 18 at the end of 1999. The
higher volume of visitors to our Web site throughout the year provided a larger
target audience for our advertising customers.
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Cost of Revenues. Our cost of revenues increased to $1.5 million in 1999
from $0.4 million in 1998, or 285%. This change is attributable to the increase
in the number of participating dealers and Web products, as well as the increase
in the number of targeted banner advertisements on our Web site.
Product Development and Technology. Our product development and technology
expenses decreased to $7.0 million in 1999 from $8.6 million in 1998, or 19%.
This decrease is attributable to $3.4 million in nonrecurring costs incurred in
1998 for the development of the AutoConnect.com Web site. This $3.4 million
decrease was partially offset by $1.1 million and $0.7 million increases in
wages and other personnel-related costs and professional service fees,
respectively. Wages and other personnel-related costs increased from $2.0
million in 1998 to $3.1 million in 1999, reflecting the hiring of additional
employees, while professional service fees increased from $1.2 million in 1998
to $1.9 million in 1999 primarily because of consulting services used to
implement our bi-coastal hosting operations.
Sales and Marketing. Our total sales and marketing expenses increased to
$35.6 million in 1999 from $11.3 million in 1998, or 214%. The largest portion
of this increase is attributable to the marketing of our brand name.
Distribution agreements with Internet providers such as America Online increased
expenses $7.5 million, from $3.8 million in 1998 to $11.3 million in 1999. Media
advertising, including online and offline advertising, agency fees and
advertising production costs, increased $11.5 million, from $3.7 million in 1998
to $15.2 million in 1999.
We also incurred increases in sales expenses due primarily to the growth of
our in-house sales force in 1999, expanding from eight salespersons at the end
of 1998 to 125 sales and support personnel at the end of 1999. Sales wages and
other personnel-related costs increased $4.0 million, from $0.9 million in 1998
to $4.9 million in 1999, and agency sales commissions increased $0.5 million,
from $0.5 million in 1998 to $1.0 million in 1999. In addition, we incurred $0.2
million in additional polling expenses to provide more dealer inventory listings
on our Web site in 1999, increasing from $0.1 million in 1998 to $0.3 million in
1999. Our provision for doubtful accounts increased $0.5 million, from a
negligible amount in 1998 to $0.5 million in 1999, due to the growth of our
revenue and customer bases in 1999.
General and Administrative. Our general and administrative expenses
increased to $7.4 million in 1999 from $3.1 million in 1998, or 138%, reflecting
the hiring of key management personnel and additional staff to manage and
support our growth in 1998 and 1999. Outside consulting and other professional
fees increased $1.5 million, from $0.6 million in 1998 to $2.1 million in 1999.
Wage and other personnel-related costs increased $1.3 million, from $0.9 million
in 1998 to $2.1 million in 1999, while accrued incentive compensation expense
increased $0.2 million, from $0.8 million in 1998 to $1.0 million in 1999.
Expenses incurred for rent, office supplies and utilities increased $0.4
million, from $0.7 million in 1998 to $1.1 million in 1999. In addition, we
recorded approximately $1.0 million of expense in 1999 in connection with the
grant of stock options to several non-employees of AutoTrader.com, representing
the estimated fair value of these options.
Depreciation and Amortization. Our depreciation and amortization expenses
increased to $0.8 million in 1999 from $0.3 million, or 186%, reflecting
depreciation expense related to $4.6 million in purchases of computer equipment,
software and office equipment to support the growth of our infrastructure. In
addition, approximately $0.1 million of the increase from 1998 relates to the
amortization of the excess purchase price over the net assets acquired from
Intellisoft in November 1999.
Other Income (Expense), Net. We recognized $0.4 million in interest income
from our cash and cash equivalents in 1999. There was no comparable interest
income or interest expense in 1998.
YEAR ENDED DECEMBER 31, 1998 AND PERIOD FROM OCTOBER 1 (INCEPTION) TO DECEMBER
31, 1997
Revenues. Our total revenues increased to $1.0 million in 1998 from a
nominal amount in 1997, reflecting a full year of operations in 1998 versus
three months in 1997. In 1998, revenues were comprised of sales of dealer Web
products and services, primarily dealer Web site development and hosting fees,
totaling $0.8 million. There were no significant revenues from dealer
advertising products in 1998 or 1997. In addition, we recorded $0.2 million in
national advertising revenues related to advertising on our Web
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site that started late in the second quarter of 1998, after the AutoConnect.com
Web site was officially launched. Revenues recognized in 1997 were attributable
to dealer contracts that were contributed to us by ADP upon our formation.
Cost of Revenues. Our cost of revenues totaled $0.4 million in 1998,
comprised of costs incurred for dealer Web site development and hosting as well
as technology costs for placing banner advertisements on the AutoConnect.com Web
site. In 1997, we incurred no costs related to the development of the dealer Web
site products underlying the contracts assumed from ADP. Accordingly, there were
no costs of revenues reflected in our 1997 financial statements related to these
contracts.
Product Development and Technology. Our product development and technology
expenses increased to $8.6 million in 1998 from $0.9 million in 1997, or 815%,
reflecting a full year of expense incurred in 1998 versus three months in 1997.
In addition, we incurred $2.6 million in additional expenses, from $0.8 million
in 1997 to $3.4 million in 1998, related to the development of the
AutoConnect.com Web site.
Sales and Marketing. Our sales and marketing expenses increased to $11.3
million in 1998 from $0.9 million in 1997, or 1,130%, reflecting a full year of
expense incurred in 1998 versus three months in 1997. Expenses incurred for
marketing activities were significantly higher in 1998 versus 1997, particularly
$3.8 million incurred in 1998 for our distribution agreements with Internet
providers compared to $0.3 million incurred in 1997. Also, $3.7 million of media
advertising expenses were incurred in 1998 compared to $0.4 million in 1997. In
addition, our in-house sales force was created in 1998, contributing
approximately $0.9 million in expense that was not incurred in 1997.
General and Administrative. Our general and administrative expenses
increased to $3.1 million in 1998 from $0.4 million in 1997, or 602%, reflecting
a full year of expense incurred in 1998 versus three months in 1997. In addition
to increased wages and other personnel-related expense incurred in 1998, we
recognized $0.8 million of accrued incentive compensation expense in 1998
compared to a negligible amount in 1997.
Depreciation and Amortization. Our depreciation and amortization expenses
increased to $0.3 million in 1998 from a negligible amount in 1997, reflecting a
full year of depreciation and amortization in 1998 versus three months in 1997.
Purchases of property and equipment totaled $1.8 million during 1998 compared to
a negligible amount in 1997.
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QUARTERLY RESULTS OF OPERATIONS
The following table presents our operating results for each of the nine
quarters in the period from the first quarter of 1998 through the first quarter
of 2000. The statement of operations data have been derived from our unaudited
financial statements, which, in management's opinion, have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods presented. The
information should be read in conjunction with our financial statements and the
related notes included elsewhere in this prospectus. The operating results in
any quarter are not necessarily indicative of the results that may be expected
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS; UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues.............. $ 154 $ 182 $ 274 $ 418 $ 522 $ 794 $ 1,513 $ 2,354 $ 4,251
Cost of revenues...... 15 52 158 157 384 295 350 441 402
------- ------- ------- ------- ------- ------- -------- -------- --------
Gross profit.......... 139 130 116 261 138 499 1,163 1,913 3,849
------- ------- ------- ------- ------- ------- -------- -------- --------
Operating expenses:
Product development
and technology.... 2,291 3,195 2,025 1,091 1,341 1,657 1,954 2,015 2,619
Sales and
marketing......... 2,064 2,544 3,612 3,130 4,564 5,546 10,545 14,989 28,807
General and
administrative.... 446 824 791 1,059 1,802 1,294 1,578 2,738 3,292
Depreciation and
amortization...... 21 59 100 108 113 121 193 399 609
------- ------- ------- ------- ------- ------- -------- -------- --------
Total
operating
expenses... 4,822 6,622 6,528 5,388 7,820 8,618 14,270 20,141 35,327
------- ------- ------- ------- ------- ------- -------- -------- --------
Loss from
operations.......... (4,683) (6,492) (6,412) (5,127) (7,682) (8,119) (13,107) (18,228) (31,478)
Other income
(expense), net...... -- (3) -- -- -- (11) 165 267 237
------- ------- ------- ------- ------- ------- -------- -------- --------
Net loss.............. $(4,683) $(6,495) $(6,412) $(5,127) $(7,682) $(8,130) $(12,942) $(17,961) $(31,241)
======= ======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
We experienced growth in revenues in all quarters presented for each
revenue category. The growth is due primarily to increases in sales of dealer
Web products as well as advertising and e-commerce contracts, particularly as a
result of the implementation of a dedicated sales force for both dealer and
national accounts in mid-1999. Other factors contributing to higher revenues
include the development of a greater mix of Web products and growth in traffic
to the site.
Cost of revenues also increased, but not at the same rate as the revenues.
Dealer Web site set-up and hosting expenses associated with our outside Web site
service provider accelerated in the third quarter of 1998 and into the first
quarter of 1999.
Total operating expenses have increased in most of the quarters presented,
reflecting the growth of each segment of our operations, including steadily
increasing personnel and personnel-related costs such as taxes, benefits and
recruiting fees. Product development and technology expenses were significant
during the first half of 1998 due to the design and development of our Web site.
These particular expenses have decreased over time, but we continue to incur
development and technology-related costs due to high traffic volumes, the
implementation of bi-coastal hosting in late 1999 and routine upgrades and
maintenance from software, hardware and contracted content providers.
Sales and marketing expenses increased significantly in 1999 due to the
addition of a dedicated sales force for both dealer customers and other industry
participants and the implementation of a marketing strategy to increase brand
awareness by substantial online and offline advertising. Our agreement with
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America Online became effective in late June 1999, and our offline advertising
campaign began in the fourth quarter of 1999.
General and administrative expenses also increased in each quarter
presented, exclusive of the third quarter of 1998, reflecting higher overhead
costs associated with greater numbers of personnel, increased facilities expense
such as rent and utilities and, in the fourth quarter of 1999, the recognition
of non-cash stock-based expense to non-employees.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations and met our capital
expenditure requirements through funding by our existing members and cash
generated from the sale of our products and services.
Net cash used in operating activities was $1.3 million in 1997, $21.8
million in 1998, $43.1 million in 1999 and $32.1 million in the three months
ended March 31, 2000. Net cash used in operating activities in each period was
primarily the result of net operating losses before non-cash expenses. In 1997,
the net cash used in operating activities was primarily the result of our $2.3
million net loss partially offset by a $1.1 million increase in accounts payable
and accrued expenses. In 1998, the net cash used in operating activities
primarily reflected our $22.7 million net loss and a $0.3 million increase in
prepaid expenses and other current assets. These items were offset by a $0.8
million increase in accrued incentive compensation and a $0.2 million increase
in accounts payable and accrued expenses. In 1999, the net cash used in
operating activities resulted primarily from our $46.7 million net loss, a $4.2
million increase in prepaid expenses and other current assets, and a $1.3
million increase in accounts receivable. These items were offset by a $5.5
million increase in accounts payable and accrued expenses and a $1.9 million
increase in accrued incentive compensation. In the three months ended March 31,
2000, the net cash used in operating activities was due mainly to a $31.2
million net loss, a $2.9 million increase in prepaid expenses and other current
assets and a $1.6 million increase in accounts receivable. These items were
offset by a $1.8 million increase in accounts payable and accrued expenses and a
$1.3 million increase in accrued incentive compensation.
Net cash used in investing activities was negligible in 1997, $1.8 million
in 1998, $8.8 million in 1999 and $67.1 million in the three months ended March
31, 2000. In 1997 and 1998, almost all of the cash was used to acquire property
and equipment, primarily computer equipment and software. In 1999, approximately
$4.6 million was used to acquire property and equipment. In addition, we spent
approximately $4.2 million to purchase substantially all of the assets of
Intellisoft. In the three months ended March 31, 2000, approximately $2.4
million was used to acquire property and equipment, while amounts due from Cox
Enterprises increased by $64.6 million. Effective February 2000, we began
participating in the Cox Enterprises cash management system, whereby our bank
sends daily notification of our checks presented for payment, and Cox
Enterprises transfers funds from other sources to cover our checks presented for
payment. Outstanding amounts due from Cox Enterprises carry interest equal to
Cox Enterprises' commercial paper borrowing rate. The increase in amounts due
from Cox Enterprises is due to capital contributions received from our existing
members, net of operational requirements in the first quarter of 2000.
Net cash provided by financing activities was $1.4 million in 1997, $23.7
million in 1998, $65.8 million in 1999 and $85.2 million in the three months
ended March 31, 2000. Cash was provided in each period by capital contributions
from our existing members and borrowings from Cox Enterprises of $7.3 million
which were repaid in the first quarter of 2000.
Spending commitments in 2000 and thereafter include the payment of $8.5
million to America Online in 2000 in connection with our marketing agreement,
whereby America Online provides us with promotions within several automotive
pages on its Web sites. We are also committed to pay approximately $2.2 million
in 2000 related to non-cancelable agreements with other companies to purchase
advertising, Web-based content for our Web site and promotional rights and
linkage with the media companies. In addition, a total of approximately $16.9
million in payments under non-cancelable operating leases, primarily for office
facilities, are due in periodic installments through 2010. Further, in
connection with the
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co-branded Web site that we operate with eBay, we are required to pay to eBay a
marketing fee of at least $32.5 million, payable in periodic installments over
the three and a half year term of the agreement. We are also committed to spend
at least $7.0 million in 2000 to advertise and promote the co-branded Web site
and the products and services available on the Web site. Finally, we are
committed to spend $1.7 million by the end of 2000 on leasehold improvements and
office equipment in connection with the expansion of our Atlanta headquarters.
We intend to use cash on hand and the net proceeds of the offering to fund the
above commitments.
We believe that any cash generated from our operations, together with the
proceeds from this offering, will be sufficient to fund our operating
activities, capital expenditures and other obligations, including our marketing
campaign during the next 12 months. However, we may need to raise additional
capital in order to fund more rapid expansion, to expand our marketing
activities, to develop new or enhance existing products or services, to respond
to competitive pressures or to acquire complementary services, businesses or
technologies. If during that period or thereafter, we are not successful in
generating sufficient cash flow from operations, we may need to raise additional
capital through public or private financing, strategic relationships or other
arrangements. This additional funding, if needed, may not be available on terms
acceptable to us, or at all. Our failure to raise sufficient capital when needed
could have a material adverse effect on our business, results of operations and
financial condition. If additional funds were raised through the issuance of
equity securities, the percentage of our stock owned by our then-current
stockholders would be reduced. Furthermore, these equity securities may have
rights, preferences or privileges senior to those of our common stock.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk that we will incur losses in our investments due to
adverse changes in equity, interest, commodity or currency exchange rates and
prices. Currently, our market risk exposure would not result in material losses
due to adverse changes in the foregoing indices, rates and prices. Our
investments are classified as cash and cash equivalents with original maturities
of three months or less. As of December 31, 1999, we consider the reported
amount of these investments to be reasonable approximations of their fair
values.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Financial Instruments and Hedging Activities," was
issued. This statement requires that all derivatives be recognized in the
statement of financial position as either assets or liabilities and measured at
fair value. In addition, all hedging relationships must be designated,
reassessed and documented. SFAS No. 133, as amended by SFAS Nos. 137 and 138, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. We are in the process of assessing the impact of SFAS No. 133 on our
financial statements.
In 1999, Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements", was issued. The SAB provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. Although SAB No. 101 does not change any of the accounting profession's
existing rules on revenue recognition, it draws upon existing rules and explains
how the SEC staff applies those rules, by analogy, to other transactions that
existing rules do not specifically address. SAB No. 101, as amended by SAB No.
101B, becomes effective for the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. We are in the process of assessing the impact of SAB
No. 101 on our financial statements. However, we do not expect that the adoption
of SAB No. 101 will have a material impact on our financial statements.
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BUSINESS
INTRODUCTION
We are the leading Internet destination and marketplace in the United
States for buyers and sellers of used vehicles and for consumers seeking
information regarding automotive products and services, such as insurance,
financing and warranties. We utilize the power of the Internet and our ability,
through our exclusive strategic alliances, to aggregate in a single location an
extensive network of industry participants and a comprehensive database of
automotive information to create an open marketplace that is local, regional and
national in nature. In June 2000, our marketplace contained approximately 1.5
million used vehicle listings and attracted 5 million unique visitors who logged
onto our Web site and conducted nearly 14 million vehicle searches. By providing
this digital marketplace, we bring automobile dealers, private sellers and other
industry participants, such as vendors of automotive products and services and
national advertisers, together with purchase-minded consumers at the moment when
these consumers are directly engaged in a search for a used vehicle or
automotive products and services.
We provide significant benefits to dealers, private sellers and other
industry participants by enabling them to advertise, interact and transact with
what we believe is the largest online consumer audience related to the used
vehicle market. We currently have an open network of more than 40,000 dealers
listing some or all of their inventory on our Web site, which is approximately
three to four times the number of listing dealers of our nearest competitor and
represents more than 50% of the automobile dealers in the United States. With
approximately 1.5 million used vehicles listed for sale on our Web site by
dealers, finance companies and private sellers, we are the largest electronic
classified advertising marketplace in the United States. This selection provides
consumers, in most local markets, with a more comprehensive view of local
vehicles for sale than they can obtain from any other information source,
including newspaper print classifieds and other Web sites. Through our Web site,
consumers can effectively navigate the largest database of used vehicle listings
in the United States, thereby optimizing their ability to find the vehicle of
their choice in their chosen geographic area. We also provide one of the most
comprehensive sources of automotive information, including a variety of decision
tools, buying and selling tips, vehicle specifications and reviews, vehicle
pricing and safety information, as well as assistance with financing, insurance
and warranty programs.
Over the past year, the consumer traffic on our Web site has grown
significantly. In June 2000, we had more than 5 million unique visitors logging
onto our Web site, a 221% increase over the 1.6 million visitors recorded in
June 1999. Along with this marked increase in unique visitors to our Web site,
our monthly page views increased from over 9 million to 90 million, or 865%, and
our monthly vehicle searches increased from less than 2 million to nearly 14
million, or 717%, from June 1999 to June 2000. Since monthly used car sales in
the United States average 3.5 million units per month, the nearly 14 million
vehicle searches we recorded in June is an indication of the major presence that
we have established in the automotive marketplace.
We generate leads (potential buyers requesting a phone number, directions
or an e-mail address) for dealers that allow them to precisely target purchasers
of used vehicles in a manner which is more effective than traditional media. In
June 2000, we delivered over 2 million leads to dealers and private sellers. In
addition, we generated nearly 1 million leads to dealer Web sites, e-commerce
partners and advertisers.
Our business model is built on multiple sources of revenue from a variety
of industry participants interested in marketing their services to consumers. We
generate our revenues primarily from fees for services to automobile dealers. We
also generate revenues from facilitating automotive e-commerce transactions,
online used vehicle auction-style trading services, national advertising and
enhanced private seller listings.
Our objective is to build and maintain the preeminent online marketplace
for facilitating transactions between buyers and sellers of used vehicles. The
main thrust of our strategy is to enhance our market leadership position by
growing our database of used vehicle listings and sellers, our database of
information regarding the vehicle searching patterns of buyers, our network of
dealers and the audience of users of our
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Web site. We are developing a range of new products and services to enhance the
value proposition that we offer to dealers, consumers and vendors of automotive
products and services, which may include additional content and vehicle
searching features, additional forms of enhanced listings, additional dealer Web
site services, additional finance, insurance and aftermarket services and
inspection and certification services. We are implementing an aggressive
national marketing campaign to enhance the strength of our brand in the used
vehicle market and to increase consumer and dealer awareness and usage of our
Web site and our products and services.
Our ability to maintain the largest dynamic database of used vehicle
listings, to attract and retain the largest number of dealers and to attract
what we believe to be the largest audience of used vehicle buyers is enhanced by
our strategic partners. Our exclusive partnerships and other strategic alliances
with automotive and Internet industry leaders such as Trader Publishing, Manheim
Auctions, ADP, eBay and America Online provide us with significant competitive
advantages, enabling us to not only provide the largest database of used vehicle
listings available in the United States, but also to connect that database with
what we believe to be the largest community of potential used vehicle buyers.
MARKET OPPORTUNITY
The Market for Used Vehicles and Automotive Products and Services
The global proliferation of vehicles and automotive products and services
has served to make the automotive industry a $1 trillion industry in the United
States and one of the largest industries in the world. Our business focuses on
the largest segment of the automotive industry -- the used vehicle market. CNW
Marketing/Research estimates that approximately 41 million used vehicles were
sold to retail customers in the United States in 1999, which is over twice the
number of new vehicles sold at retail that year. Based on these figures, CNW
Marketing/Research estimates that the used vehicle market exceeded $360 billion
in retail sales in 1999. Unlike the new vehicle market, historically the used
vehicle market has not shown significant adverse effects during periods of
economic downturns.
We believe that the following factors are fueling growth in the used
vehicle market. In recent years, consumers have increasingly leased rather than
purchased new vehicles, leading to a larger dealer inventory of used vehicles
available for immediate sale. According to ADT Automotive Holdings, Inc., high
used vehicle sales volumes are anticipated for the next five years. We believe
factors contributing to this trend include rising prices on new vehicles and the
introduction of manufacturers' certification and warranty programs for their
used vehicles. Additionally, according to the National Automobile Dealers
Association, franchised dealers are highly motivated to sell used vehicles
because the average gross profit margin on a used vehicle is approximately 11%,
as compared to approximately 6% on a new vehicle.
The automotive industry spends more money on advertising than any other
industry in the United States. Automotive classified advertisements alone were
nearly $5 billion in 1999. According to Jupiter Communications, online
automotive classified advertising expenditures are expected to rise from $31
million in 1998 to $164 million in 2003.
A large market also exists for automotive products and services, such as
insurance, financing, warranties, parts, repairs and accessories. According to
A.M. Best, an insurance research firm, total automobile insurance premiums were
approximately $118 billion in 1999. In addition, the U.S. Federal Reserve Board
estimates that the automotive consumer credit outstanding totaled approximately
$468 billion as of the fourth quarter of 1999, and total sales for automotive
parts, repairs and accessories, according to The Automotive Aftermarket Industry
Association, exceeded $160 billion in 1999.
Inefficiencies of Traditional Used Vehicle Buying and Selling Methods
Despite its size and impact, the traditional used vehicle market suffers
from a highly fragmented and local distribution system. We believe that there
are approximately 78,000 dealerships in the United States selling used vehicles
made up of approximately 22,000 new car franchise stores and 56,000 independent
used car dealers. The unit sales of the top 100 dealership groups, as reported
by Automotive News,
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accounted for only about 8% of the approximately 16 million used vehicles that
CNW Marketing/Research reports as having been sold by franchised dealerships in
1999.
This highly fragmented, intensely competitive distribution system has
resulted in high costs associated with attracting customers. Dealers operate in
highly localized markets, and the competition for consumers within these local
markets has resulted in increased advertising and marketing costs that continue
to place downward pressure on dealer profits. Traditional advertising and
promotional methods are typically able to reach only consumers in a limited
local or regional geographic area, thus confining the potential payback from
advertising to a specific localized audience. Traditional mass advertising
media, such as newspapers, radio or television, are also inefficient because
they reach many consumers who are not in the used vehicle market and they do not
provide a means to target advertising to consumers who are likely to purchase
used vehicles based upon their individual preferences and interests. Moreover,
the costs associated with traditional mass advertising typically rise every
year, generally without attendant increases in the size or precision of the
audience delivery.
For the consumer, the process of buying and selling a used vehicle is
generally viewed as an inefficient process. Although the purchase of a vehicle
is one of the largest purchases made by most consumers, consumers historically
have not had access in a single, centralized location to the information needed
to research and evaluate automotive purchasing decisions. Traditional sources of
vehicle information, such as newspaper classified advertisements or visits to a
dealer, contain only a small percentage of the total universe of vehicles for
sale in their local market. As a result, consumers must often make significant
purchasing decisions and compromises with limited and incomplete information. At
the time of a vehicle purchase, the consumer must also make decisions on, and
deal with multiple parties to arrange for, other products and services such as
financing, insurance and warranties, often with an insufficient number of
options and inadequate available information.
The Online Used Vehicle Opportunity
Because of the size and fragmented nature of the used vehicle industry and
its reliance on the exchange of information, the Internet provides an efficient
platform for dealers to aggregate and disseminate information to consumers as
well as to expose both consumers and dealers to an extensive range of buying and
selling opportunities. Compared with traditional media, the Internet provides
significant advantages to dealers and private sellers of used vehicles in that
they have the ability to target local buyers more cost-effectively,
differentiate their products and services more effectively and expand the size
of their market to reach potential consumers beyond their normal trading area.
Dealers are increasingly recognizing this value proposition; Jupiter
Communications estimates that online automotive classified advertising
expenditures will increase from $31 million in 1998 to $164 million in 2003.
Moreover, according to a recent survey by J.D. Power & Associates, 26% of
late-model used car buyers used the Internet to search for information or
otherwise assist them with their used vehicle purchases or sales in 1999,
compared with 14% who did so in 1998, and more than 66% of these buyers are
expected to use the Internet for these purposes by 2003. We believe that
consumers are increasingly using the Internet when making automotive purchase
decisions because of the inadequacy of available information from other sources
and the convenience of searching a database of aggregated automotive information
from the privacy of their home or office. While the Internet substantially
increases the amount of information available for researching and evaluating
automotive purchasing decisions and choices, this information is often not
aggregated at a central, organized source. To date, we believe that other
automotive-related Web sites that have attempted to capitalize on this market
opportunity have not aggregated as broad and extensive a participation of used
vehicle dealers, private sellers and other industry participants as we have. As
the leading provider of online classified advertising services, we are
well-positioned to obtain a significant share of this emerging market.
THE AUTOTRADER.COM SOLUTION
We believe that by providing the largest marketplace on the Internet where
buyers and sellers of used vehicles and automotive-related products and services
can meet, negotiate and control their purchase
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decisions, we have significantly improved the vehicle purchasing and selling
process for both buyers and sellers. With what we believe to be the largest
consumer audience of used vehicle shoppers online today, our powerful
marketplace provides dealers, private sellers, vendors of automotive products
and services and national advertisers an effective environment for reaching an
economically and geographically diverse group of targeted consumers who have
expressed an interest in automotive information by logging onto our Web site.
With the largest number of online used vehicle listings and a comprehensive
selection of automotive products and services, our Web site is designed to
provide consumers with a "one-stop" destination that incorporates all aspects of
commerce and content related to the process for purchasing and selling used
vehicles and automotive products and services. The effectiveness of our
offerings is reflected by our ability to facilitate contacts and transactions
among dealers, other industry participants and consumers. In June 2000, we
delivered nearly 3 million leads from potential customers to dealers, private
sellers, e-commerce partners and advertisers. We believe that no other used
vehicle Web site generates as many leads as AutoTrader.com.
Significant Benefits to Dealers
Largest Online Consumer Audience. We believe that we offer dealers the
largest online consumer audience of used vehicle shoppers among our competitors,
with a dramatic increase in the number of unique visitors per month logging onto
our Web site from 1.6 million in June 1999 to 5 million in June 2000. Our Web
site provides dealers with access to a much larger and more geographically
diverse consumer base than they can find through traditional, locally-oriented
advertising and distribution channels.
Low Cost and Flexible Services. We provide dealer listings and
advertisements in a cost-effective manner, frequently substantially reducing the
per vehicle costs associated with advertising a used vehicle. Basic used vehicle
listings are posted on our Web site without charge and without requiring binding
contracts. Enhanced listings and other promotional products such as banner
advertising can be purchased for various fees which depend on contract terms.
According to the NADA, traditional newspaper, radio and television
advertisements typically cost a dealer over $200 per vehicle sold.
Our listing process and user-friendly software allow dealers to update
their listings and make changes to their Web sites as often as they wish, a
flexibility and convenience not found in traditional advertising dependent upon
fixed publishing and advertising schedules. Dealers can access their Web sites
and listings to make these changes 24 hours a day, seven days a week through a
password-protected system, and these changes are generally posted on our Web
site within a few hours.
Ability to Target Used Vehicle Purchasers. Our ability to target specific
dealer listings and advertisements to our users by geography and vehicle year,
make, model and pricing enables our Web site to match demand for and supply of
used vehicle information more efficiently than any traditional distribution
channel. Using a proprietary search engine and targeting, tracking and analysis
software from DoubleClick, Inc. and SAS Institute, Inc., our Web site displays
and monitors dealer listings and advertisements that are most likely to be of
interest to a specific consumer based upon his or her search criteria and zip
code. As a result, dealers experience a level of marketing precision with
AutoTrader.com that is unavailable through traditional newspaper, radio and
television advertising.
Wide Range of Listing and Advertising Products. Our Web site's extensive
targeted listing and advertising products together with our highly effective,
customer-driven search tools and functionality facilitate effective presentation
and matching of a dealer's inventory and services with the desired features and
criteria of prospective buyers. In addition to posting basic used vehicle
listings on our Web site free of charge, dealers can purchase a wide range of
online listing and advertising products, including:
- enhanced listings, which provide a more prominent presentation of a
dealer's vehicles similar to bold listings in the Yellow Pages;
- inventory pages, which enable visitors to view a dealer's entire
inventory, one mouse click from any one of its vehicle listings on our
Web site;
- Web site links, which enable visitors to our Web site to link through to
the dealer's own Web site;
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- Web site design and hosting, which provide dealers with their own
prominently listed Internet address in the AutoTrader.com Dealer
Directory for maximum exposure and a searchable used vehicle inventory
database;
- banner advertising, which displays a dealer's advertisement on a Web page
as it is being viewed by a potential buyer determined by search criteria,
including geography and vehicle year, make, model and pricing; and
- listings on the auction-style Web site that we operate on a co-branded
basis with eBay.
Access to Database of Consumer Buying Trends. We also collect, analyze and
report to dealers usable information on the shopping habits of used vehicle
purchasers in a dealer's region. Additionally, we provide dealers with monthly
usage tracking reports with information on the number of vehicles listed on our
Web site by a dealer, the number of times a dealer's listings are presented on a
search results page and the number of leads sent to a dealer to aid dealers in
further targeting their product offerings in their markets.
Open, Non-Exclusive Marketplace. We act as a neutral intermediary that
facilitates the interaction and exchange of information between dealers and
potential used vehicle purchasers, rather than competing with the dealers
directly by taking title to used vehicles and then selling the vehicles to users
of our Web site. Dealers listing their vehicles on our Web site are not
precluded from also listing their vehicles on other Web sites or through more
traditional advertising methods. As a result, we offer dealers a non-exclusive
channel to target potential buyers without having to compete with us in the
process. Furthermore, unlike many of our competitors, we do not compel dealers
to follow specific marketing rules or policies such as "no haggle prices." By
enabling all types of dealers and styles of selling to participate in our open
marketplace, we make it easy for dealers to include AutoTrader.com in their
marketing mix.
Significant Benefits to Consumers
Largest Marketplace for Used Vehicles. Because our Web site provides the
largest marketplace for used vehicles in the United States with the most listing
dealers and private sellers, we offer consumers the most comprehensive selection
of used vehicles in any centralized location. Listings from our strategic
partners, our open network of dealers, finance companies and private sellers
enable us to provide consumers across the United States with access to the
largest online selection of used vehicles, with approximately 1.5 million used
vehicle listings. We currently have over 40,000 dealers listing their used
vehicles on our Web site and approximately 225,000 listings from private
sellers. Our database employs customer-driven search tools which enable
consumers to define the geographic area in which their search is conducted.
Also, because our open, non-exclusive marketplace has attracted more dealers
than any other automotive Web site, we offer customers the ability to choose
from an unsurpassed number of local dealers and select the style of selling that
is most attractive to them. To mirror the shopping experience and selection
available through AutoTrader.com, consumers not using our Web site would
typically need to visit several other Web sites and purchase numerous
publications to assemble a comparable amount of information.
Flexible, Customer-Driven Search Process. Our Web site employs a
specialized, Java-based search engine, which allows consumers to quickly,
conveniently and easily navigate through our inventory of used vehicles to
locate vehicles that match their specific search criteria, including variables
such as make, model, price and geographic location. Once a consumer finds the
desired vehicle, the consumer is provided with the seller's contact information
as well as links to a wide range of detailed information about the vehicle,
including specifications, ratings, retail and trade-in values and review by
automotive experts. Our Web site also features PersonaLogic's state-of-the-art
decision guide software, which helps our users choose the vehicle that is right
for them. By completing a simple "Custom Search" question-and-answer form, users
are guided to vehicles that match their desires and needs. In addition, our Web
site also enables consumers to review automotive-related products and services
easily from category to category (e.g. from insurance to finance) without
needless backtracking. Moreover, the consumer data captured by
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our database enable us to provide customized advertising messages to consumers
that may be based, for example, on the category of vehicle inquiries they have
made.
Auction-Style Trading Services. We also provide auction-style trading
services through a co-branded Web site operated under a marketing relationship
with eBay, which we believe will generate an increasing share of our revenue.
This co-branded Web site, which is accessible through both the eBay and the
AutoTrader.com Web sites, focuses on used vehicles (other than classic cars,
high performance cars or antique vehicles more than 20 years old) in the
consumer-to-consumer and dealer-to-consumer segments of the United States
market. All transactions are facilitated through online bidding, rather than
face-to-face negotiations, with buyers having access to a seller's contact
information so that buyers can ask any questions they may have prior to
submitting a bid. Consumers also have access to the "Personal Shopper" service,
which runs and saves a consumer's favorite searches and sends consumers an
e-mail notification when a new item appears on the co-branded Web site that
matches the vehicle that the consumer is looking for. Over time, we plan to
integrate listing and search functionality between AutoTrader.com and the
co-branded Web site, providing consumers with a complete and integrated solution
for buying and selling used vehicles.
Convenient and Efficient Shopping Experience. Our Web site provides a
"one-stop" shopping environment that can significantly enhance the ongoing
relationship between dealers and consumers by allowing consumers to select used
vehicles and obtain automotive information conveniently in the privacy of their
home or office. We also create a direct connection between the consumer and the
relevant dealer or private seller by providing the consumer with contact
information such as an e-mail address, telephone number and map with directions.
Consumers can obtain online access, at no charge, to the comprehensive,
up-to-date information on our Web site that they need to make an informed
purchase decision. Information about vehicle models and options, dealer costs,
safety information, used vehicle values and reviews and articles from such
sources as Intellichoice, Kelley Blue Book, the NADA, New Car Test Drive, Road
and Track, Car & Driver and Consumer's Digest are collected in a centralized
location, providing consumers with an objective, convenient and cost-effective
means to make informed purchase decisions.
Availability of Automotive Products and Services. Traditionally, consumers
have been dependent on dealers and third-party vendors for automotive products
and services, such as financing, insurance, warranty, automotive parts and
repair services. Our Web site offers consumers convenient access to and online
connectivity with a comprehensive range of these services. Our current
e-commerce partners include E-Loan, GMAC, YouDecide.com, Greenlight.com,
Esurance, Allstate Insurance Company, CarFax.com and CarParts.com. In addition,
we are expanding our aftermarket service offerings in the areas of repairs and
maintenance by offering links to providers of these services within a consumer's
chosen geographic area as well as third-party reviews and editorial content. We
believe that providing a variety of service offerings in a single location
improves a consumer's ability to make an automotive purchase and to research and
purchase other automotive products and services at the same moment, enhancing a
consumer's satisfaction with our service.
Private Seller Listings. We also serve consumers by enabling them, as
private sellers, to list their used vehicles for sale on our Web site at no
charge for a basic listing, at a nominal charge for an enhanced listing, or for
a nominal fee on the co-branded, auction-style Web site that we operate with
eBay. With these listing options, private sellers make their listings available
to a large and geographically diverse number of potential buyers. In addition,
private sellers benefit from the ability of both Web sites to more effectively
target consumers in their geographic area than more traditional media.
Significant Benefits to Other Industry Participants
Vendors of Automotive Products and Services. We provide vendors of
automotive products and services with access to a large and growing number of
purchase-minded consumers who, in many instances, may require insurance,
financing, warranties, a roadside assistance program or other automotive
products and services. Consumers seeking automotive information are also often
interested in, or may be specifically researching, information regarding
competitive providers for their current automotive products
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and services. Vendors of automotive products and services can benefit from the
ability of our database and software to direct their advertised products to a
targeted consumer audience, which may provide them with a competitive advantage
and an opportunity to increase their product sales. In many cases, we link our
consumers directly to the online application forms of our e-commerce partners,
which enable them to capture immediate sales opportunities and customer contact
information.
National Advertisers. By utilizing the wide range of targeted marketing
offerings of AutoTrader.com, national advertisers gain exposure to a targeted
group of purchase-minded consumers at the moment when these consumers are
directly engaged in a search for information regarding automotive products and
services on our Web site. We have established national advertising accounts with
some of the most prominent names in the automotive industry, which have included
General Motors, Ford, DaimlerChrysler, Honda, Acura, Mazda, Toyota, Lexus, BMW,
Volvo and Hertz. Automobile makers are motivated to utilize AutoTrader.com to
market new vehicles, off-lease used vehicles and automobile finance services
because we offer services that are lower cost and more targeted at their
customer prospects than traditional mass advertising.
COMPETITIVE ADVANTAGES
Leading Online Marketplace for Used Vehicles
In terms of the number of dealers, private sellers and used car shoppers,
our Web site is the leading used car marketplace in the United States. In June
2000, we had over 40,000 dealers listing their used vehicles on our Web site and
approximately 225,000 listings from private sellers. These dealers and private
sellers, along with finance companies, provide us with approximately 1.5 million
used vehicle listings, which we believe is approximately three times the number
of used vehicle listings of our nearest online competitor. The number of leads
to vehicle sellers generated on our Web site has increased from less than
100,000 in June 1999 to more than 2 million in June 2000.
The steady increase in our amount of user traffic, as well as its large
absolute size, gives us a competitive advantage in attracting additional used
vehicle listings and advertisers. As shown below, our Web site attracted an
average of nearly 5.1 million unique visitors logging onto our Web site each
month in the second quarter of 2000, which represents an increase of 264% over
the second quarter of 1999.
(CHART depicting quarter-to-quarter comparison of number of monthly visitors)
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The "stickiness" of consumer usage of our Web site, as measured in Web page
views, has risen faster than the growth of our online audience. As shown below,
monthly Web page views in the second quarter of 2000 increased 980% over Web
page views in the second quarter of 1999, a growth rate that is over three times
as fast as the growth in our monthly visitors shown above. A key factor in this
growth rate was the increase in the duration of the average session of our
users, which increased from approximately 4.7 minutes in the second quarter of
1999 to approximately 9 minutes in the second quarter of 2000.
(CHART depicting quarter-to-quarter comparison of number of monthly page views)
Another key measure of consumer usage of our Web site is monthly vehicle
searches. As shown below, we recorded on average nearly 14 million monthly
vehicle searches in the second quarter of 2000, an increase of 830% over the
second quarter of 1999.
(CHART depicting quarter-to-quarter comparison of number of monthly page views)
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Well-Established and Recognized Brand
By using the AutoTrader name, we are able to both take advantage of a
highly recognized brand that Trader Publishing's AutoTrader magazines have
already established and build upon this brand through our own marketing efforts
and by ongoing exposure through Trader Publishing's and Manheim Auctions'
marketing commitments. Unlike many new Internet companies that face a major
challenge in establishing their brand name, AutoTrader is already the best known
name in the automobile classifieds market in the United States. Trader
Publishing's long history of printing used vehicle listings under the AutoTrader
brand, its presence in over 137,000 retail locations across the United States
and its exclusive commitments to promote our brand and domain names in its print
magazines provide us with recognition and credibility in the used vehicle
marketplace and drive large numbers of private sellers and shoppers to our Web
site. In addition, Manheim Auctions' exclusive obligations to promote our brand
and domain names at each of its 67 North American wholesale auto auctions give
us access to the more than 60,000 dealers who visit Manheim Auctions each month.
See "-- Strategic Alliances," "Certain Relationships and Related
Transactions -- Contribution-Related Agreements -- Data Contribution Agreement
with Trader Publishing" and "-- Data Contribution Agreement with Manheim
Auctions."
Strategic Alliances
We believe our strategic alliances, including our exclusive data
contribution agreements with Manheim Auctions, Trader Publishing and ADP's
Dealer Services Group, provide us with significant competitive advantages, which
include the ability to aggregate the most comprehensive selection of used
vehicles for sale in the United States. Since Trader Publishing, Manheim
Auctions and ADP are the three largest aggregators of used vehicle information
in the United States and each company has agreed to make AutoTrader.com its
exclusive consumer-oriented Web site for vehicle inventory aggregation, we
believe that we are well-positioned to maintain our lead as the largest
aggregator of used vehicle classified listings in the United States.
(CHART depicting sources of listings)
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These exclusive sources of listings, and our other key strategic alliances
with Internet industry leaders eBay, America Online and Kleiner Perkins Caufield
& Byers, are described below.
Trader Publishing. Through our agreement with Trader Publishing, which is
the publisher of magazines containing the nation's most extensive used vehicle
listings in print, Trader Publishing provides us, on an exclusive basis for
Internet use, with all of the listings and vehicle images collected for
publication in its AutoTrader and AutoMart magazines (except listings of
specialty, collector or high performance cars or cars more than 20 years old).
Trader Publishing has relationships with over 18,000 dealers and has the largest
collection of private owner listings in the United States. Trader Publishing
publishes over 230 automotive classified magazines with an approximate weekly
circulation of 2.3 million copies distributed in more than 137,000 retail
outlets. We also have an exclusive license from Trader Publishing to use the
AutoTrader.com brand name on the Internet. In addition, our domain name is
featured prominently on the cover and on every inside page of Trader
Publishing's automotive magazines, and Trader Publishing maintains exclusive
links to our Web site on its Web site. Two-thirds of our private seller listings
are generated through our relationship with Trader Publishing. As of June 30,
2000, approximately 41% of the used vehicle listings on our Web site were
generated by Trader Publishing.
Trader Publishing is a partnership owned equally by TPI, Inc., a wholly
owned subsidiary of Cox Enterprises, and LTM Company, L.P., a wholly owned
subsidiary of Landmark Communications. Both TPI, Inc. and LTM Company are also
stockholders of AutoTrader.com. See "Certain Relationships and Related
Transactions -- Contribution-Related Agreements -- Data Contribution Agreement
with Trader Publishing."
Manheim Auctions. We are the only consumer-oriented, online used vehicle
Web site with exclusive access to vehicle listings and images provided by
Manheim Auctions, the nation's largest operator of wholesale used auto auctions.
In 1999, Manheim Auctions auctioned nearly 7 million vehicles at its 65 U.S.
auction locations, which operate in 17 of the top 25 vehicle markets in the
United States. At these auctions, manufacturers, fleet operators and automobile
dealers sell used vehicles to automobile dealers who then resell them to the
public. Each Manheim Auctions facility extensively promotes AutoTrader.com's
services and gives purchasing dealers the opportunity to list their vehicles on
AutoTrader.com free of charge. Since approximately 60% of the vehicles handled
by Manheim Auctions are sold at auction, we have access to information regarding
over 4 million used vehicles annually through Manheim Auctions. As part of our
agreement, Manheim Auctions provides us exclusively and without charge with
listings of vehicles along with associated vehicle images from the following
sources:
- vehicles sold at its 65 U.S. auctions;
- dealers who designate vehicle listings to be sent to us through Manheim
Auctions' Manheim Interactive software (which had over 13,500 dealer
subscribers as of June 2000); and
- automotive manufacturers, finance companies and other wholesale
consignors for which Manheim Auctions operates Web sites.
The ability to tap into Manheim Auctions' extensive, aggregated source of
listings on an exclusive basis gives us a significant advantage over our
competitors, none of whom has nearly the same number of dealer relationships as
Manheim Auctions. As of June 30, 2000, approximately 16% of the used vehicle
listings on our Web site were generated by Manheim Auctions and other related
entities.
In January 2000, Manheim Auctions agreed to acquire ADT Automotive
Holdings, Inc., a division of Tyco International Ltd., for $1 billion. ADT owns
28 auto auctions in the United States. Manheim Auctions currently expects to
complete this transaction, which is subject to legal and regulatory review, in
2000.
Manheim Auctions also currently owns or operates 32 auctions in Canada, the
United Kingdom, France, Australia and New Zealand, and, if we expand our
operations outside North America, Manheim Auctions has agreed to provide similar
data and services in the countries in which it operates. See
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"Certain Relationships and Related Transactions -- Contribution-Related
Agreements -- Data Contribution Agreement with Manheim Auctions."
ADP. We have an exclusive arrangement with ADP, a leading provider of
transaction systems and data products to dealers, which automatically provides
us with the data results from the weekly polling of the inventory databases of
approximately 3,000 dealers. This polling data provides us with information
needed for listing the unsold used vehicles in a dealer's inventory.
Approximately 40% of United States franchise dealerships use ADP's software and
have the option of allowing us to poll their Web sites. As of June 30, 2000,
approximately 18% of the used vehicle listings on our Web site were generated by
ADP. See "Certain Relationships and Related Transactions -- Contribution-Related
Agreements -- Data Contribution Agreement with ADP."
eBay. On March 6, 2000, we entered into an exclusive relationship with
eBay to jointly create, as part of the larger eBay Web site, a co-branded Web
site dedicated to the online auction-style trading of vehicles. This co-branded
Web site, which is accessible through both the eBay and AutoTrader.com Web
sites, as well as directly at www.ebay-autotrader.com, focuses on used vehicles
(excluding classic cars, motorcycles, trucks and vehicles more than 20 years
old) in the consumer-to-consumer and dealer-to-consumer segments of the U.S.
market. Our marketing agreement with eBay provides that we will not launch or
promote any other services for the dynamically priced trading of these vehicles
in the United States, nor will eBay implement any other Web site for the U.S.
market for the online trading of these vehicles. See "Certain Relationships and
Related Transactions -- eBay Agreements."
Distribution Agreements. We have exclusive online distribution agreements
with three America Online properties -- America Online, AOL.com and
CompuServe -- and non-exclusive agreements with other Internet portals and Web
sites, including Lycos.com, HotBot and Snap. Our distribution partners are
valuable as they drive visitor traffic to our products and services through
links to a series of co-branded Web sites created under our distribution
agreements. In June 2000, our distribution partners drove approximately 1.3
million visitors to our Web site. These co-branded Web sites mirror the
appearance and function of our primary Web site, with the exception of the
co-branding banner.
Our marketing agreement with America Online, which expires in June 2001
(renewable at the option of America Online), provides that we will create, and
America Online will promote and distribute, a co-branded version of our Web site
on the proprietary America Online service, the AOL.com Web site and the
proprietary CompuServe service. During the term of this agreement, we are the
exclusive provider of used car classified listings in the "Classified Plus"
sections of these three America Online properties.
Kleiner Perkins Caufield & Byers. Kleiner Perkins Caufield & Byers is a
leading private venture capital firm focusing on technology investments and,
through its representation on our board of directors, provides us with strategic
advice on new products, partnerships and technology developments in the Internet
industry.
Content Providers. We have agreements with leading industry content
providers, including Intellichoice, Kelley Blue Book, the NADA, New Car Test
Drive, Car & Driver, Road and Track, Consumer's Digest, Car Connection and Bank
Rate Monitor, that enable us to provide consumers with comprehensive
automotive-related information, buying and selling advice and third-party
reviews and editorial content.
STRATEGY
Our objective is to build and maintain the preeminent online marketplace
for facilitating transactions between buyers and sellers of used vehicles. We
intend to accomplish our objective by pursuing the following strategic
initiatives:
Expand Our Network of Dealers and Database of Listings
We believe that by continuing to leverage our relationships with Trader
Publishing, Manheim Auctions and ADP and by increasing the size and productivity
of our sales force and marketing efforts, we
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can increase our leading position by expanding our network of dealers and
database of listings. Also, we expect that over time we will receive from the
co-branded Web site that we operate with eBay a listing for each vehicle that is
presented on that Web site.
Enhance and Broaden Services, Relevant E-Commerce Offerings and Content
Offerings
We intend to leverage our brand name and online infrastructure by expanding
the range of services that we provide to consumers, dealers and other
third-party vendors. We anticipate offering additional products and services
such as expanded advertising and promotional opportunities, additional forms of
enhanced listings, additional dealer Web site services, additional finance,
insurance and aftermarket services and inspection and certification services. We
also plan to enhance and expand the selection criteria of our customer-driven
search tools by allowing searches that include desired vehicle trim levels,
options and colors to pinpoint even more effectively the used vehicle of the
consumer's choice. In addition, we intend to provide dealers and manufacturers
with additional services and data on general consumer preference and behavior
information derived from our database of consumer searches and leads.
We work with leading automotive content providers, such as Intellichoice,
Kelley Blue Book, the NADA, New Car Test Drive, Car & Driver, Road and Track and
Consumer's Digest, to provide consumers with product reviews and editorials,
expert advice and comparisons and other information. We intend to further
integrate these content offerings with our search and purchase functions by
deploying new enhanced versions of our Web site thereby further establishing
ourselves as a comprehensive, independent destination for automotive information
and encouraging repeat user visits. Additionally, we intend to broaden the
resources available to consumers by developing relationships with other leading
automotive content providers.
Increase Brand Awareness and Consumer Traffic
We believe that building consumer and dealer awareness of the
AutoTrader.com brand and the products and services that we offer is critical to
our effort to build on our position as the leading Internet marketplace
destination for used vehicle buying and selling and obtaining information
regarding automotive products and services. In January 2000, we launched a
year-long, multi-million dollar, national branding and advertising campaign
consisting of broadcast and cable television, radio, print, online and trade
advertisements. Prior to that time, we focused our consumer marketing efforts
primarily on online advertising with selected high traffic Internet portals and
Web sites. Our strategy is to further increase our brand awareness and Web site
traffic through continued advertising efforts encompassing both online and
traditional advertising methods.
Leverage Our Business Model
Our business model revolves around facilitating the interaction between
buyers and sellers of used vehicles and other automotive-related products and
services. By combining an expansion of consumer traffic to our Web site with an
expansion of the size and information content of our listing database, we expect
to continue to experience rapid growth in the generation of leads for sellers
and other industry participants. Unlike many of our competitors, we have
developed a scalable business model characterized by multiple sources of
revenue:
- subscription and advertising fees from dealer services;
- revenue from facilitating automotive e-commerce transactions (such as
financing, insurance, warranties and aftermarket products);
- fees from our online used vehicle, auction-style trading services
provided by the co-branded Web site that we operate with eBay;
- fees from national advertising programs, promotions and services; and
- fees for enhanced private seller listings;
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Our extensive network of dealers gives us a scalable model for providing
multiple products to dealers and increasing dealer revenues. As of June 2000, we
had over 3,000 dealer customers to whom we were billing nearly 5,400 products.
As we introduce new dealer services, we anticipate that the incremental costs
will be minimal because we will be marketing these new offerings to an installed
base of dealers who are already utilizing our services. Although our revenue is
currently derived principally from dealer fees, we also intend to continue
building our sources of e-commerce revenue with expanded e-commerce offerings
and increasing our national and regional sources of advertising revenue by
adding new national and regional advertising services and accounts.
SERVICES TO DEALERS
We currently offer the following services to dealers on our Web site:
Listing and Advertising. We provide dealers with an effective, efficient
and accessible online Web site on which to list their used vehicles and
advertise their dealerships. Our Web site offers the following services:
Listings Allow a dealer to list used vehicles on our
database at no cost and to list used vehicles on
the auction-style co-branded Web site that we
operate with eBay for a nominal fee
Enhanced Listings Upgrade listings on our Web site with such
enhancements as bold letters and color backgrounds
for a fee
Banner Advertisements Display prominent banners on our Web site, which
are targetable by geography and vehicle make and
which advertise a dealer and provide a link to the
dealer's Web site
Dealer Tiles Display a small advertisement next to each vehicle
listing promoting the dealer
Site Links Provide a direct hyperlink from our Web site to a
dealer's Web site
Web Services. On a monthly subscription basis, we provide dealers with the
following Web site-related services:
Web sites Provide professionally designed high-end Web sites
for dealers that may be accessed directly from our
Web site
inView Provides a Web page containing all of the dealer's
listings that are available on our Web site, which
is linked to the dealer's individual listings
Other Services. We provide all our listing dealers with the following
additional services:
Tracking Reports Provide monthly activity reports listing the number
of vehicles by a dealer listed on our Web site, the
number of times a dealer's listings are presented
on a search results page and the number of leads
sent to a dealer
Ad Manager Allows dealers access to our database to add and
revise listings 24 hours a day, seven days a week
Web Manager Allows dealers access to their Web site for
revisions 24 hours a day, seven days a week
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SERVICES TO CONSUMERS
We offer consumers a "one-stop" shopping Web site with all of the
information and tools a consumer needs to cover each step of the used vehicle
shopping or selling process.
Vehicle Search, Selection and Listing. We make the vehicle search,
selection and listing process easy by providing a searchable database of vehicle
listings, a user-friendly online used vehicle listing form and access to an
auction-style Web site and a new vehicle Web site. More specifically, we provide
consumers with the following services:
Searchable Used
Vehicle Listings Search our listings database by make, model, year,
price and geographic location and obtain contact
information such as e-mail addresses, telephone
numbers and maps with directions
"Sell a Car" Service List a used vehicle on our Web site at no cost or
upgrade a basic listing on our Web site with such
enhancements as bold letters and color backgrounds
for a fee by completing our online order form;
simultaneously submit a listing for publication in
a print magazine published by Trader Publishing
(subject to any fees required by Trader Publishing)
Access to Vehicle
Auction-Style
Trading Service List a used vehicle or purchase a used vehicle for
a nominal fee on the co-branded auction-style Web
site that we operate with eBay
Vehicle Histories Perform a "lemon check" to find out a particular
vehicle's ownership and maintenance history by
accessing CarFax.com's database of vehicle
histories
New Vehicle
Information Access new vehicle information and purchase a new
vehicle online through Greenlight.com, our new
vehicle partner
Product Information and Consumer Tools. We help consumers select the right
vehicle for them based upon their individual preferences, price parameters and
financial resources. We also provide consumers with expert reviews and advice
relating to the automotive market. More specifically, we provide consumers with
the following services:
Decision Guide Complete a simple "Custom Search"
question-and-answer form in our interactive
decision guide to find out which vehicle best fits
the consumer's desires, needs and budget
Vehicle Reviews and
Comparisons Review automotive content materials from such
leading content providers as IntelliChoice, Kelley
Blue Book, the NADA, New Car Test Drive, Car &
Driver, Road and Track and Consumer's Digest to
find vehicle reviews and buying and selling tips
Pricing Guides Obtain used vehicle pricing information to learn
what price the consumer should pay for a used
vehicle or what price the consumer should ask for
his or her used vehicle
Affordability
Calculator Calculate the amount that the consumer can
reasonably borrow based upon his or her financial
resources
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SERVICES TO OTHER INDUSTRY PARTICIPANTS
We currently offer other industry participants the following services on
our Web site:
E-Commerce. We provide finance companies, insurance companies,
manufacturers and other vendors of automotive products and services the ability
to reach purchase-minded consumers on our Web site in order to capture sales
opportunities for which we receive commissions and advertising fees. More
specifically, we provide the following services:
Financing Offer financing products and information; for
example, E-Loan currently offers discount
financing, GMAC currently offers financing for GMAC
dealers and bankrate.com offers current loan rates
Insurance Offer insurance product and information; for
example, YouDecide.com offers instant, personalized
insurance quotes and rate comparisons from over 50
top-rated companies, Allstate provides access to an
agent in the consumer's area who can answer the
consumer's insurance questions and Esurance
provides direct insurance quotes
Warranty Offer warranty products and information; for
example, DriveItToday.com provides online quotes
and purchasing of extended warranty products
Aftermarket Goods and
Services Offer aftermarket goods and services; for example,
Carparts.com, the largest online retailer of
automotive parts and accessories provides online
access to its parts inventory
Advertising. We provide national and regional industry participants with
an effective, efficient and accessible Web site on which to promote their
products and services. Our Web site offers the following advertising
alternatives:
Banner Advertisements Display prominent banners on our Web site, which
are targetable by geography and vehicle year, make
and model and provide a link to the advertiser's
Web site
Home Page Tiles Allow an advertiser to target Web site users as
they enter the first page of our Web site and
provide a link to the advertiser's Web site
Search Results Tiles Locate three tiles on our most highly visited page,
which are targetable by geography and vehicle year,
make and model and provide a link to the
advertiser's Web site
New Car Tile Locate tiles at the end of the new vehicle
information area to target qualified new vehicle
shoppers
Integrated Marketing. Our Web site offers the following integrated
marketing alternatives:
Site Integration Allows for placement in the content areas of the
Web site
Sponsorship Allows an advertiser to display its brand name and
link to its Web site
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Deep Link Allows a consumer to be sent from a vehicle on our
Web site to the exact same vehicle on a partner's
Web site
E-mail Allows a marketer to communicate with consumers who
have agreed to receive marketing messages
SALES AND MARKETING
Our sales and marketing strategy includes the following key points:
Increase the Size and Impact of our Sales Force
Our sales strategy is to sell our services directly through our locally
deployed sales professionals. As of June 30, 2000, we employed 172 full-time,
dedicated sales representatives located in 76 markets in the United States. The
number of sales representatives that we have deployed increased substantially
during the second half of 1999 and the first half of 2000. We intend to continue
increasing our sales force as we gain further insight into the optimal level of
sales coverage across the country. Our sales force is organized into 18
districts, each operating under a district manager who reports to one of six
regional directors who in turn reports directly to our vice president of dealer
sales. We have developed a tightly focused sales training and incentive program
designed to ensure that our sales representatives present consistent sales
messages and employ professional sales techniques. Each region also has an
inhouse telemarketing team focused on supporting our outside sales
representatives.
Leverage Our Relationship with Manheim Auctions
We intend to leverage our relationship with Manheim Auctions to strengthen
our dealer and national accounts sales efforts. Manheim Auctions prominently
promotes our services through trade advertising, signage and collateral
materials and its Manheim Interactive software and allows us to sell our
services directly to dealers within its auction facilities. Furthermore, Manheim
Auctions has a technology sales booth at each of its auctions that promotes and
sells our services. Lastly, Manheim Auctions assists us in making proposals to
national accounts such as automobile manufacturers and rental companies who
consign vehicles at its auctions.
Build Brand Name and Increase Consumer Traffic Through Advertising
We launched a year-long, multi-million dollar, national branding and
advertising campaign in January 2000, with the primary marketing goal of winning
widespread recognition of our position as the leading online used vehicle
marketplace in the United States. Our nationwide campaign debuted in January
2000 with our television commercial airing during this year's Super Bowl. After
our Super Bowl exposure, our visitor traffic as measured in monthly visitors in
February and March rose by 39% over January traffic, page views increased by 65%
and vehicle searches increased by 79%. In addition, our branding and advertising
campaign is supplemented by the promotion of our brand name and Web site by
Manheim Auctions at its wholesale auto auctions and Trader Publishing in its
automotive magazines. See "Certain Relationships and Related
Transactions -- Contribution-Related Agreements -- Data Contribution Agreement
with Manheim Auctions" and "-- Data Contribution Agreement with Trader
Publishing."
CUSTOMER SERVICE
We are dedicated to providing quality customer service to the dealers who
list their vehicles on our Web site. Our 36 customer service employees staff a
telephone helpline that provides technical and Web support services, including
how to create listings and how to develop and manage a dealer's individual Web
site. Our proprietary software tools, Ad Manager and Web Manager, provide
dealers with secure, password-protected access to their listings 24 hours a day,
seven days a week. By using this software, dealers can make their own listing
changes and have these changes posted on our Web site generally
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within a few hours. In addition, we provide dealers with monthly reports, which
show dealers how many times their listings were viewed and how many leads their
listings have generated. We also provide interactive training for dealers
through TargetLive.com, the leading operator of online distance learning
applications dedicated to the automotive industry. This service is available 24
hours a day, seven days a week and is designed to help dealers grow and maximize
their online business potential.
We are also dedicated to providing quality customer service to private
sellers who list their vehicles on our Web site. We also provide online customer
service via e-mail to our private sellers.
Our focus on effective customer service extends to our strategic alliances
with Manheim Auctions, ADP and eBay. We provide selected Manheim Auctions
employees with ongoing training programs to assist them in effectively
supporting the sale of our services to dealers. We also provide selected ADP
employees with periodic training programs on our dealer marketing plans and
practices as those plans and practices relate to ADP's inventory polling
services. In addition, we provide customer service to dealers interested in
listing vehicles on the co-branded auction-style Web site that we operate with
eBay.
TECHNOLOGY
We believe that we have built a robust, scalable user interface and
transaction processing system that is designed around industry standard
architectures and internally developed proprietary software. Our system
maintains operational data records regarding dealers, used vehicle listings and
leads generated by our listings and e-commerce partners. Our system also handles
other aspects of the used vehicle shopping process, including providing dealer
contact information and submitting insurance, warranty and finance inquiries, as
well as other inquiries and information, to various vendors.
Our system has the capability to provide dealers, advertisers and vendors
with online access to information relevant to their business. For example,
dealers can access AutoTrader.com's extranet (Dealers.autotrader.com) to manage
their used car inventory by adding, modifying or updating their listings, as
well as uploading pictures of used cars.
Our Web site applications use a multi-tiered architecture with proven
technology such as Java and server-side dynamic content generation. This allows
us to provide customized features for our customers with limited dependence on
different user browser technologies. Our technology choices allow us to re-use
key software components to reduce our time to market.
Our operations provide Web site services 24 hours a day, seven days a week
with occasional short interruptions due to maintenance or system problems, such
as power failures or router failures. We have two Web site hosting operations
for redundancy and load distribution, one located in Sunnyvale, California and
the other located in Atlanta, Georgia. Both of these hosting facilities are
state-of-the-art with multiple redundancies for power and network components.
Additionally, at each facility, our systems have redundant units such as
multiple Web servers and databases. The system architecture has been built with
standard industry components such as Oracle8i databases, Sun Solaris systems and
Cisco switches. Our internal network is designed with redundant paths to provide
fault-tolerance, and our Web sites are protected by Cisco Pix firewalls.
The AutoTrader.com infrastructure is also modular and scalable. Component
pieces can be easily added as our load increases over time. Each of our two Web
site hosting operations can handle 100% of our user traffic in the event that
one of our Web site hosting operations experiences a complete failure. As of
June 2000, the system has the capacity to service expected traffic levels over
the next year. To provide faster access to our consumers, each user who accesses
www.autotrader.com is routed to the Web site hosting facility that is "closest"
to them in terms of network response.
COMPETITION
Each of our used vehicle listing services, automotive products and services
and content offerings competes against a variety of Internet and offline
providers. Barriers to entry on the Internet are relatively low; however, no
other Web site currently offers our unique blend of extensive used vehicle
listings,
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automotive products and services and relevant content offerings. We could face
significant competition in the future from new Web sites that offer the same
emphasis on used vehicle listings and services and existing Web sites that
introduce competing services, including the NADA, which recently announced its
intention to launch an automotive Web site.
Automotive Advertising Media
Our used vehicle listing services compete against a number of Web sites
that offer both new and used vehicle listings and a number of Web sites posting
electronic classified ads. We also compete with traditional media companies such
as newspapers (which list used vehicles in print classified advertisements and
online databases), print magazines specializing in used vehicle listings and
television and radio stations. Many of these traditional media competitors
either alone or as part of a consortium have established or have announced plans
to establish online sites incorporating their classified listings.
Automotive Products and Services
Our automotive e-commerce service offerings compete against a variety of
Internet and offline automotive companies. There are a number of Web sites that
offer automotive products and services, some of which have substantial used
vehicle listings and shopping information. We also face competition indirectly
from traditional offline stores that offer automotive products and services
similar to those found on our Web site.
Content Offerings
Our content offerings compete with both Internet and offline content
providers. There are a number of Web sites that provide similar content. In
addition, print content providers such as magazines, books and newspapers also
provide similar content. Through our agreements with industry content leaders
such as Intellichoice, Kelley Blue Book, the NADA, New Car Test Drive, Car &
Driver, Road and Track and Consumer's Digest, we already have access to a
significant number of vehicle-specific publications.
We believe that the principal competitive factors in attracting dealers,
private sellers, automotive vendors and advertisers include:
- the volume of our Web site's consumer traffic;
- awareness of our brand and dealer loyalty;
- the demographics of our consumers; and
- the cost effectiveness of advertising on our Web site, including the
ability to target advertising to specific audiences.
We believe that the principal competitive factors in attracting consumers
to our Web site are:
- breadth and depth of used vehicle listings;
- brand awareness and loyalty;
- ease of use;
- Web site functionality, responsiveness and information;
- a positive vehicle shopping experience; and
- quality of content, other service offerings and customer service.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
We regard substantial elements of our Web site and underlying technology as
proprietary and attempt to protect them by relying on trademark, service mark
and trade secret laws, restrictions on disclosure and transferring title and
other methods. We also generally enter into confidentiality agreements with our
employees and consultants and with third parties in connection with our license
agreements. 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
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party to copy or otherwise obtain and use our proprietary information without
authorization or to develop similar technology independently.
We license our trademark and domain names through a license agreement with
Trader Publishing. If this license agreement terminates and we are required to
change our name and adopt a new trademark, we would incur significant expenses
related to marketing a replacement trademark and domain name, and such a change
would likely have a materially adverse effect on our business. Further, even if
the mark is available, effective trademark, service mark and trade secret
protection may not be available in every country in which our services are
distributed or made available through the Internet in the future, and policing
unauthorized use of our proprietary information may be difficult or expensive.
See "Certain Relationships and Related Transactions -- Contribution-Related
Agreements -- License Agreement with Trader Publishing."
Legal standards relating to the validity, enforceability and scope of
protection of proprietary rights in Internet-related businesses are uncertain
and still evolving, and we can give no assurance regarding the future viability
or value of any of our proprietary rights. We also cannot assure you that the
steps that we have taken will prevent misappropriation or infringement of our
proprietary information, which could have a material adverse effect on our
business, results of operations and financial condition.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or trademarks or to determine the
validity and scope of the proprietary rights of others. Such litigation might
result in substantial costs and diversion of resources and management attention.
Furthermore, our business activities may be alleged to infringe upon the
proprietary rights of others, and other parties may assert infringement claims
against us, including claims that arise from directly or indirectly providing
hyperlink text links to Web sites operated by third parties. Moreover, from time
to time, we may be subject to claims of alleged infringement by us or our
dealers of the trademarks, service marks and other intellectual property rights
of third parties. Such claims and any resultant litigation, should it occur,
might subject us to significant liability for damages, might result in
invalidation of our proprietary rights and, even if not meritorious, could
result in substantial costs and diversion of resources and management attention
and have a material adverse effect on our business, results of operations and
financial condition.
In 1996, our licensor, Trader Publishing, and its licensor, TPI Holdings,
were sued in United States District Court for the Southern District of Indiana,
by a company then called The Trader Enterprises, Inc. The action related to the
use of the TRADER trademark and variations thereon (including AUTOTRADER) for
print publications whose content consisted primarily of advertisements. The
litigation was settled in April 1999, prior to any judicial ruling on the facts
of the case and without any obligation of Trading Publishing or TPI Holdings to
pay any license fees. The settlement did not, however, address the use of
variations of the TRADER mark on the Internet. We do not believe that our use of
the mark AUTOTRADER.COM violates the trademark rights of any third party, but we
cannot give any assurance that any such claims will not be made and, if made,
will not be successful.
We currently license from third parties technologies and information that
are 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.
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PRIVACY POLICY
We believe that issues relating to privacy and use of personal information
relating to Internet users are becoming increasingly important as the Internet
and its commercial use increase. We have adopted a privacy policy concerning how
we use information about our consumer visitors and the extent to which others
may have access to this information, and we are a member of the TRUSTe
third-party oversight seal program, which monitors our Web site and imposes data
use disclosure practices. We do not sell or rent any personally identifiable
information about our consumer visitors to any third party, although we may
consider doing so in the future. We do use information about our consumer
visitors for internal purposes in order to improve marketing and promotional
efforts, to analyze Web site usage statistically and to improve content, product
offerings and Web site layout.
EMPLOYEES
As of June 30, 2000, we had 305 employees, including 178 in sales and
marketing, 41 in product development and technology, 69 in dealer services and
17 in general and administration. We consider our relations with our employees
to be satisfactory. We have never had a work stoppage, and no employees are
represented under collective bargaining agreements.
FACILITIES
Our principal administrative, marketing and product development facilities
are located in approximately 63,375 square feet of office space in Atlanta,
Georgia. The lease for this space expires on August 31, 2010. We also lease
approximately 2,665 square feet of office space in Placentia, California, 2,625
square feet of office space in Irving, Texas, 5,378 square feet of office space
in Elmhurst, Illinois and 2,508 square feet of office space in Chesapeake,
Virginia. These leases expire on February 1, 2003, January 1, 2003, December 31,
2002 and November 20, 2004, respectively. We believe that this space will be
adequate to meet our needs for the foreseeable future.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our directors and
executive officers:
<TABLE>
<CAPTION>
NAME AGE* POSITION
---- ---- --------
<S> <C> <C>
Victor A. Perry, III..... 46 President, Chief Executive Officer and Director
James T. McKnight........ 48 Executive Vice President and Chief Operating Officer
William N. Templeton..... 44 Vice President and Chief Financial Officer
Bradley K. Mohs.......... 38 Senior Vice President and Chief Technology Officer
James C. Kennedy......... 52 Director
G. Dennis Berry.......... 55 Director
Darryll M. Ceccoli....... 53 Director
David E. Easterly........ 57 Director
Dean H. Eisner........... 42 Director
Robert C. O'Leary........ 61 Director
Allan Stejskal........... 41 Director
Richard F. Barry, III.... 57 Director
Joseph Lacob............. 44 Director
</TABLE>
---------------
* As of April 1, 2000
Victor ("Chip") A. Perry, III has served as our President and Chief
Executive Officer since August 1997 and as one of our directors since August
1999. Prior to joining AutoTrader.com, Mr. Perry was Vice President of Corporate
Development for the Times Mirror Company from December 1995 to July 1997 and
Vice President of New Business Development for The Los Angeles Times from
February 1992 to November 1995.
James T. McKnight has served as our Executive Vice President and Chief
Operating Officer since April 1999. Prior to joining AutoTrader.com, Mr.
McKnight was Vice President of Development for Manheim Auctions from October
1998 to March 1999. He joined Cox Enterprises in 1983 as manager of
telecommunications and subsequently held a series of positions, including
President of Optical Data Corporation, a developer of visual educational
learning systems used in elementary education, from 1995 to 1998 and President
of InfoVentures, a joint venture between Cox Newspapers and BellSouth
Advertising & Publishing, from 1994 to 1995.
William N. Templeton has served as our Vice President and Chief Financial
Officer since January 2000. Prior to joining AutoTrader.com, Mr. Templeton
served as Vice President of Development for Cox Broadcasting, Inc. from January
1996 to December 1999, except from February 1998 to March 1999 when he was the
Vice President of Finance and Administration for Telecom Towers, LLC, an
affiliate of Cox Enterprises. Mr. Templeton joined Cox Enterprises in 1980 and
has served in a variety of financial management and business development
positions.
Bradley K. Mohs has served as our Senior Vice President and Chief
Technology Officer since April 2000. Prior to joining AutoTrader.com, Mr. Mohs
was Regional Technology Director for CSC Consulting Group in Falls Church,
Virginia from 1995 to March 2000. From 1986 to 1995, Mr. Mohs was employed by
IBM US in positions of increasing responsibility culminating in Director of
Marketing and Services Information Systems.
James C. Kennedy has served as one of our directors since August 1999. In
1972, Mr. Kennedy joined Cox Enterprises where he has served as the Chairman of
the Board of Directors and Chief Executive Officer since January 1988. Mr.
Kennedy also currently serves as the Chairman of the Board of Directors of Cox
Communications, Inc. Mr. Kennedy is also a director of Cox Radio, Inc., a
majority-owned subsidiary of Cox Enterprises, and Flagler Systems, Inc. He is an
advisory director of Chase Bank of Texas, N.A.
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David E. Easterly has served as one of our directors since August 1999.
Since 1994, Mr. Easterly has served as President and Chief Operating Officer and
as a director of Cox Enterprises. Mr. Easterly also serves as a director of Cox
Communications, Cox Radio, the Associated Press and Mutual Insurance Company,
Ltd.
G. Dennis Berry has served as one of our directors since August 1999. In
1995, Mr. Berry joined Manheim Auctions, where he has served as President and
Chief Executive Officer. From 1992 to October 1995, he was Publisher of The
Atlanta Journal-Constitution, a subsidiary of Cox Enterprises.
Darryll M. Ceccoli has served as one of our directors since August 1999. In
1975, Mr. Ceccoli joined Manheim Auctions, where he has served as the Chief
Operating Officer since October 1995.
Dean H. Eisner has served as one of our directors since August 1999. In
1992, Mr. Eisner joined Cox Enterprises, where he has served as Vice President
of Business Development and Planning since 1995. Mr. Eisner also serves as a
director of American Tower Corporation and Agora-Gazeta, SP z 0.0., a Polish
stock exchange listed company in which Cox Enterprises has a minority interest.
Robert C. O'Leary has served as one of our directors since March 2000. In
1982, Mr. O'Leary joined Cox Enterprises, where he has served as Executive Vice
President and Chief Financial Officer and as a director since 1999. Mr. O'Leary
also serves as a director of Cox Communications and the Georgia Chapter of the
National Multiple Sclerosis Society.
Allan Stejskal has served as one of our directors since August 1999. Since
1997, Mr. Stejskal has been Vice President e-Business of ADP Dealer Services.
From 1995 to 1997, Mr. Stejskal served as Vice President and General Manager of
ADP's Wholesale Distribution Services.
Richard F. Barry, III has served as one of our directors since August 1999.
In 1973, Mr. Barry joined Landmark Communications, where he has served as Vice
Chairman since 1991. He also serves as a director of Landmark Communications,
The Weather Channel, Trader Publishing Company and various other corporations in
which Landmark Communications has an interest.
Joseph Lacob has served as one of our directors since August 1999. Mr.
Lacob is a partner with Kleiner Perkins Caufield & Byers, a venture capital firm
that he joined in 1987. Mr. Lacob also serves as a director of Greenlight.com.
AUDIT COMMITTEE
We established an audit committee in May 2000. We have not yet appointed
any members to the committee, but prior to the consummation of this offering, we
will appoint at least three independent directors as members of the committee.
The audit committee will:
- approve the selection of the independent auditors;
- review the scope and results of the annual audit;
- approve the services to be performed by the independent auditors;
- review the performance and fees of the independent auditors;
- review the independence of the auditors;
- review the adequacy of the system of internal accounting controls;
- review the scope and results of internal auditing procedures;
- review affiliate and related party transactions, if any; and
- review and discuss with management the audited financial statements.
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COMPENSATION COMMITTEE
We established a compensation committee in October 1999. The compensation
committee currently consists of David E. Easterly and G. Dennis Berry. Prior to
the consummation of this offering, we will replace the current members of the
compensation committee with at least two independent directors. The compensation
committee:
- adopts and oversees the administration of compensation plans for
executive officers and senior management;
- determines awards granted to executive officers under these plans;
- approves the Chief Executive Officer's compensation; and
- reviews the reasonableness of this compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
David E. Easterly and G. Dennis Berry were the only two members of our
compensation committee during the last completed fiscal year. Mr. Easterly is
the President and Chief Operating Officer of Cox Enterprises, which provided
management services to us during 1999 as described in "Certain Relationships and
Related Transactions -- Transactions with Cox Enterprises, Inc." Mr. Berry is
the President and Chief Executive Officer of Manheim Auctions, which is a wholly
owned subsidiary of Cox Enterprises. Prior to the consummation of this offering,
we will replace our current compensation committee members, Mr. Easterly and Mr.
Berry, with at least two independent directors.
DIRECTOR COMPENSATION
Our non-independent directors do not currently receive any cash
compensation for service on the board of directors or any board committee, but
they may be reimbursed for expenses in connection with attendance at board and
committee meetings. After the restructuring of our compensation committee is
complete, our independent directors will be eligible to participate in our
Equity Incentive Plan for Non-Employee Directors.
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EXECUTIVE COMPENSATION
The following table sets forth information for the year ended December 31,
1999 concerning the compensation earned by or awarded to our Chief Executive
Officer and our other most highly compensated executive officers whose combined
salary and bonus exceeded $100,000 during 1999 and who were executive officers
as of December 31, 1999 (the "named executive officers"). There was only one
executive officer other than the Chief Executive Officer who met the above
criteria. Furthermore, two additional individuals are included in the table who
were not serving as named executive officers as of December 31, 1999, but would
have satisfied the criteria above had they been employed at year-end.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)
---- ------------------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Victor A. Perry, III........ President and Chief $235,000 $117,500 200,000 $584,869(2)
Executive Officer
James T. McKnight........... Executive Vice 153,750(3) 107,625 160,000 618,746(4)
President and Chief
Operating Officer
Andrew Drake(5)............. Vice President of 144,375(6) 50,625 30,000 1,856(7)
Business Development
Thomas L. Schilling(8)...... Chief Financial 135,872(9) -- 60,000(10) --
Officer and Vice
President of Finance
and Administration
</TABLE>
---------------
(1) Reflects amounts contributed pursuant to the Cox Enterprises, Inc. Savings
and Investment Plan and the Cox Enterprises, Inc. Executive Savings Plus
Restoration Plan. With respect to Mr. Perry and Mr. McKnight, it also
includes amounts earned under the Cox Enterprises Unit Appreciation Plan.
Awards under the Unit Appreciation Plan will be converted into restricted
shares of Class A common stock of AutoTrader.com prior to the commencement
of this offering.
(2) Reflects $578,869 earned under the Unit Appreciation Plan and $6,000
contributed to the Savings and Investment Plan and the Executive Savings
Plus Restoration Plan.
(3) Reflects salary earned for 1999 as of Mr. McKnight's hire date of April 1,
1999.
(4) Reflects $615,898 earned under the Unit Appreciation Plan from Mr.
McKnight's hire date of April 1, 1999 and $2,848 contributed to the Savings
and Investment Plan and the Executive Savings Plus Restoration Plan from
Mr. McKnight's hire date of April 1, 1999.
(5) Mr. Drake is included as an additional officer for whom disclosure would
have been required had he been employed as of December 31, 1999. Mr. Drake
is now employed by Cox Enterprises and continues to pursue business
development opportunities that may benefit AutoTrader.com.
(6) Reflects salary earned from January 1, 1999 through November 15, 1999, Mr.
Drake's transition date from AutoTrader.com to Cox Enterprises.
(7) Reflects amount contributed pursuant to the Savings and Investment Plan
through November 15, 1999, Mr. Drake's transition date from AutoTrader.com
to Cox Enterprises.
(8) Mr. Schilling is included as an additional officer for whom disclosure
would have been required had he been employed as of December 31, 1999.
(9) Reflects salary earned from January 1, 1999 through December 10, 1999, Mr.
Schilling's termination date with AutoTrader.com.
(10) Mr. Schilling forfeited his rights to the options as of December 10, 1999,
Mr. Schilling's termination date with AutoTrader.com. Mr. Schilling's
successor as Vice President and Chief Financial Officer, William N.
Templeton, was granted options to purchase 60,000 shares of Class A common
stock.
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Long-Term Incentives
To date, we have provided long-term incentives to the named executive
officers through awards under the AutoTrader.com 1999 Long-Term Incentive Plan.
The 1999 Long-Term Incentive Plan provided for various forms of equity-based
compensation including options, appreciation rights, restricted unit awards and
other unit-based awards. The value of the awards issued under the 1999 Long-Term
Incentive Plan was determined by reference to the appreciation in value of
AutoTrader.com. A committee designated by the managers administered the 1999
Long-Term Incentive Plan and had the discretion to determine the type of awards
that were granted, when, if and to whom awards were granted, the number of units
covered by each award and the terms and conditions of each award. This committee
delegated to a management committee the administration of grants to eligible
individuals.
The following table discloses for the named executive officers information
regarding options granted under the 1999 Long-Term Incentive Plan during the
fiscal year ended December 31, 1999:
OPTION/UAR GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
NO. OF SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS/UARS EXERCISE TERM(4)
OPTIONS/UARS GRANTED PRICE PER EXPIRATION ---------------------------
NAME GRANTED(1) IN 1999(2) UNIT DATE(3) 5% 10%
---- ----------------- ---------------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Victor A. Perry, III........ 200,000 10.0% $5.38 10/19/2009 $676,691 $1,714,867
James T. McKnight........... 160,000 8.0 5.38 10/19/2009 541,352 1,371,894
Andrew Drake................ 30,000 1.5 5.38 10/19/2009 101,504 257,230
Thomas L. Schilling......... 60,000(5) 3.0 5.38 10/19/2009 203,007 514,460
</TABLE>
---------------
(1) At the time of the initial public offering, 25% of the options will vest.
The remaining options will vest in equal increments over the remaining
months in the four-year period from the grant date.
(2) Several of our employees were awarded unit appreciation rights that provide
for payment of benefits in the form of cash. We expect to convert such
awards into options to purchase our Class A common stock immediately prior
to the consummation of the initial public offering. In addition, several
other employees of Cox Enterprises and other investors in AutoTrader.com and
their subsidiaries have been awarded either options or unit appreciation
rights under the 1999 Long-Term Incentive Plan.
(3) The date listed refers to the expiration date of the options assuming that
our initial public offering is consummated on or before December 31, 2004.
(4) The dollar amounts under the columns are the 5% and 10% rates of
appreciation prescribed by the SEC. The 5% and 10% rates of appreciation
would result in per share prices of $8.7635 and $13.9543, respectively. We
express no opinion regarding whether this level of appreciation will be
realized and expressly disclaim any representation to that effect.
(5) Mr. Schilling's options were cancelled as of December 10, 1999, Mr.
Schilling's termination date with AutoTrader.com.
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<PAGE> 63
The following table sets forth information related to the number and value
of options held at December 31, 1999 by the named executive officers:
YEAR-END OPTION/UAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/UARS AT OPTIONS/UARS
SHARES DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Victor A. Perry, III........... -- $ -- -- 200,000 $ -- $ --
James T. McKnight.............. -- -- -- 160,000 -- --
Andrew Drake................... -- -- -- 30,000 -- --
Thomas L. Schilling............ -- -- -- --(1) -- --
</TABLE>
---------------
(1) Mr. Schilling was granted an option to purchase 60,000 units on October 19,
1999, but his options were cancelled as of December 10, 1999, Mr.
Schilling's termination date with AutoTrader.com.
2000 LONG-TERM INCENTIVE PLAN
Prior to the consummation of this offering, we will adopt the 2000
Long-Term Incentive Plan as an amendment and restatement of the AutoTrader.com
1999 Long-Term Incentive Plan to reflect the conversion of the units to common
stock pursuant to the reorganization. The 2000 Long-Term Incentive Plan will be
effective upon approval by the board. Awards under the AutoTrader.com 1999
Long-Term Incentive Plan will be subject to terms and conditions of the amended
and restated AutoTrader.com 2000 Long-Term Incentive Plan. The 2000 Long-Term
Incentive Plan will provide for the issuance of stock appreciation rights,
incentive stock options, non-qualified stock options, restricted stock awards
and other stock-based awards to eligible employees, consultants and independent
contractors of AutoTrader.com and its subsidiaries. We have reserved 3,300,000
shares of Class A common stock that will be available to satisfy awards granted
under the 2000 Long-Term Incentive Plan (including awards previously granted
under the 1999 Long-Term Incentive Plan). The 2000 Long-Term Incentive Plan will
provide that the number of shares available under the 2000 Long-Term Incentive
Plan may be adjusted in the event of a recapitalization, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange or other
similar corporate transaction or event affecting the Class A common stock.
Shares subject to an option that expires, is terminated or canceled or that is
repurchased by us will be available for future grants under the 2000 Long-Term
Incentive Plan.
Administration. The 2000 Long-Term Incentive Plan will be administered by
the compensation committee of the board of directors. The committee will have
the discretion to determine which eligible individuals will receive awards, the
time or times when such awards will be made, the number of shares to be covered
by the awards, the exercise date and price of the awards, whether the options
should be incentive stock options or non-qualified stock options and the terms
and conditions of the awards. The compensation committee will be able to
delegate to a management committee the administration of awards to individuals
who are not insiders under Section 16 of the Securities Exchange Act of 1934.
Stock Options -- Incentive Stock Options and Nonqualified Stock
Options. Under the 2000 Long-Term Incentive Plan, the committee will have the
discretion to grant incentive stock options qualifying for special tax treatment
under Section 422 of the Internal Revenue Code as well as nonqualified stock
options. The 2000 Long-Term Incentive Plan will provide that the exercise price
of any incentive stock option may not be less than the fair market value of the
Class A common stock on the date the option is granted, provided the exercise
price of any incentive stock option awarded to any person who owns stock
possessing more than 10% of the total combined voting power of all of our
classes of stock shall be not less than 110% of the fair market value of a share
of Class A common stock on the date the option is granted. Only employees will
be eligible to receive incentive stock options, and the fair market value of the
Class A common stock, determined at the time an incentive stock option is
granted, for which the incentive stock option will become first exercisable in
any one calendar year may not exceed $100,000. Payment of the
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<PAGE> 64
option price will be made in cash, by delivery of shares of Class A common stock
equivalent in value to the option price or by some other method approved by the
committee.
Restricted Stock Awards. Under the 2000 Long-Term Incentive Plan, the
committee will have the discretion to grant awards of restricted stock, which
will be subject to transfer restrictions and/or risk of forfeiture as determined
by the committee in its sole discretion. Except as specifically set forth in the
restricted stock award agreement, the participant will have all rights and
privileges of a stockholder as to his or her restricted stock, including the
rights to vote and to receive dividends. A participant will not be required to
make any payment for shares of Class A common stock issued under a restricted
stock award, except to the extent required by law or the committee.
Other Stock-Based Awards. The committee will also be authorized under the
2000 Long-Term Incentive Plan to grant to participants other awards that are
valued in whole or in part by reference to shares of Class A common stock. The
committee will have the discretion to issue such awards purely as a bonus and
not subject to any restrictions and conditions. The committee shall determine
the terms of such awards, which may include performance criteria.
Assignment of Interest/Non-Transferability. Except as determined by the
committee, awards under the 2000 Long-Term Incentive Plan generally will not be
assignable or transferable except by the laws of descent and distribution;
provided, that a participant may designate a beneficiary or beneficiaries to
exercise the rights of the participant and to receive any distribution with
respect to an award upon the participant's death.
Amendment or Termination of Plan/Award. The board of directors will be
able to amend, alter, suspend, discontinue or terminate the long-term incentive
plan at any time without the consent of the shareholders, provided that no such
amendment, alteration, suspension, discontinuation or termination of the
long-term incentive plan may impair the rights of the participants without such
participants' consent. The committee will be able to waive any conditions or
rights under, or amend, alter, suspend, discontinue or terminate any award or
award agreement; provided that no such amendment, alteration, suspension,
discontinuation or termination of any award may impair the rights of the
participants without such participants' consent.
2000 EMPLOYEE STOCK PURCHASE PLAN
Prior to the consummation of this offering, we will adopt the
AutoTrader.com 2000 Employee Stock Purchase Plan, which will be effective upon
approval by the board. The stock purchase plan will be administered by a
committee appointed by the board of directors. The board of directors will
reserve and authorize for issuance under the stock purchase plan 175,000 shares
of Class A common stock. We intend to register the shares reserved under the
stock purchase plan with the SEC.
All individuals who have been employed by us as of a specified grant date
and who customarily work at least 20 hours per week will be eligible to
participate in the stock purchase plan, except an employee who, immediately
after the grant date, would own 5% or more of the total combined voting power or
value of all classes of our stock. Each eligible employee will be given an
opportunity to purchase a number of shares of Class A common stock equal to a
dollar amount not to exceed $13,000. The price of the shares offered to
employees under the stock purchase plan will be the lesser of 85% of the fair
market value of the Class A common stock on the grant date or 90% of the fair
market value of the Class A common stock on the exercise date. Payment of an
eligible employee's subscription amount will be made through payroll deductions,
and an employee's participation in the stock purchase plan is contingent on the
employee providing us with written authorization to withhold from his or her pay
an amount to be applied toward the purchase of shares of Class A common stock.
Employees who terminate employment prior to the end of the offering period will
have the option of a cash refund of deducted money or the purchase of shares of
Class A common stock using the purchase price equal to 85% of the fair market
value of the Class A common stock on the grant date. An eligible employee is
deemed to have exercised his or her right to purchase shares under the stock
purchase plan as of the exercise date.
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<PAGE> 65
Generally, the employee will not recognize taxable income, and we will not
be entitled to an income tax deduction, on the grant or exercise of an option
issued under the stock purchase plan. If the employee sells the shares acquired
upon exercise of his or her option at least one year after the date he or she
exercised the option and at least two years after the date the option was
granted to him or her, then the employee will recognize ordinary income equal to
the difference between the fair market value of the Class A common stock as of
the date of grant and the exercise price. Any additional appreciation realized
on the sale of the Class A common stock will be treated as a capital gain. We
will be entitled to an income tax deduction corresponding to the amount of
ordinary income recognized by the employee. If the employee sells the shares
acquired upon the exercise of his or her option at any time within:
- one year after the date of exercise of the option; or
- two years after the date the option was granted, then the employee will
recognize ordinary income in an amount equal to the excess, if any, of:
(a) the lesser of the sale price or the fair market value on the date
of exercise, over
(b) the exercise price of the option.
The stock purchase plan will provide that it generally may be amended or
terminated by the board of directors at any time; however, no such amendment or
termination of the stock purchase plan may materially adversely affect any
previously issued option without the affected participant's written consent.
EQUITY INCENTIVE PLAN FOR NON-EMPLOYEE DIRECTORS
Prior to the consummation of this offering, we will adopt the
AutoTrader.com, Inc. Equity Incentive Plan for Non-Employee Directors, which
will be effective upon approval by the board. The equity incentive plan will
provide for the issuance of stock appreciation rights, non-qualified stock
options, restricted stock awards and other stock-based awards to individuals on
the board of directors who are not employees of AutoTrader.com or its
stockholders or affiliates. The board of directors will reserve and authorize
for issuance under the equity incentive plan 125,000 shares of Class A common
stock. The number of shares that will be available under the equity incentive
plan may be adjusted in the event of a recapitalization, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange or other
similar corporate transaction or event affecting the Class A common stock. We
intend to register the shares reserved under the equity incentive plan with the
SEC.
The equity incentive plan will be administered by the board of directors or
a committee appointed by the board of directors, which will have the discretion
to determine which eligible individuals will receive awards and the terms and
conditions of the awards. Each eligible director will receive options to
purchase 25,000 shares on the effective date of the plan and options to purchase
5,000 shares on the date of each annual meeting of stockholders thereafter. The
exercise price for each award will be the fair market value of the underlying
shares as of the award date.
Awards that will be granted under the equity incentive plan generally will
not be assignable or transferable except by the laws of descent and
distribution; provided that a participant may designate a beneficiary or
beneficiaries to exercise the rights of the participant and to receive any
distribution with respect to an award upon the participant's death.
The equity incentive plan will provide that it may be amended, altered,
suspended, discontinued or terminated by the board of directors at any time
without the consent of the participants or the stockholders, provided that no
such amendment, alteration, suspension, discontinuation or termination of the
equity incentive plan may impair the rights of the participants without the
participants' consent. The committee will be able to waive any conditions or
rights under, or amend, alter, suspend, discontinue or terminate any award or
award agreement; provided that no such amendment, alteration, suspension,
discontinuation or termination of any award may impair the rights of any
participant without the participant's consent.
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<PAGE> 66
COX ENTERPRISES UNIT APPRECIATION PLAN
The Cox Enterprises, Inc. Unit Appreciation Plan provides incentive
compensation to key employees of Cox Enterprises and its divisions, subsidiaries
and affiliates, including AutoTrader.com. The unit appreciation plan is
administered by a committee appointed from members of the board of directors of
Cox Enterprises. The committee, in its discretion, designates key employees as
participants, determines the number of units to be awarded to the participants
and retains the right to award additional units at any time. No committee member
may vote on any decision to award units to that member. Upon award, the
beginning base price of each unit is equal to the appraised fair market value of
a share of common stock of Cox Enterprises on the date of the award, as
determined by an independent appraisal firm or firms selected by the board of
directors of Cox Enterprises.
The appreciation period for units awarded under the unit appreciation plan
begins on the date of award, which is January 1 of the year of the award, and
ends on the earlier of the last day of the fifth calendar year after the award
or the December 31 which precedes the date the participant terminates
employment. Awarded units are subject to a five-year vesting schedule, with no
vesting rights earned in the first two years after the award, sixty percent
vesting after completion of the third year and twenty percent additional vesting
in each of the next two years. A participant who retires at 65 (or before 65 for
awards granted in 1998 and after), becomes disabled or dies becomes fully vested
in the awarded units. For awards granted prior to 1998, a special twenty percent
per year vesting schedule applies in the case of participants who retire before
65. Participants who are terminated by Cox Enterprises for cause forfeit all
rights under the unit appreciation plan.
The measure of standard benefits payable to any participant is equal to the
appreciated value of units from the award date to the end of the appreciation
period multiplied by the vested percentage. If the appreciation period ends on
the last day of the fifth year after the award date, the benefit payable to any
participants is equal to the greater of the standard benefit or the excess of
the average of the appraised unit values at the end of the last two years in the
appreciation period over the unit value as of the date of award. However, unless
otherwise determined by the committee in its sole discretion, the maximum award
per unit shall not exceed 150% of the beginning unit base price as of the date
of award. Awards are payable either in cash or Cox Enterprises common stock.
The appreciated value of units as of any time in the appreciation period is
based on the value of a share of common stock of Cox Enterprises, as determined
by an independent appraisal firm or firms selected by Cox Enterprises. Since
1969, Cox Enterprises has commissioned annual appraisals of its common stock by
two appraisal firms. The Cox Enterprises common stock is appraised as of
December 31, with the appraisals generally completed in the first quarter of the
next year. The average of the two appraisals has historically been considered
the fair market value of the common stock.
Prior to the commencement of this offering, several of our executive
officers and key employees who transferred from a Cox Enterprises entity
participate in the Cox Enterprises Unit Appreciation Plan. These transferred
employees no longer receive awards under this program, and it is expected that
such employees will elect to exchange their rights under the plan for restricted
shares of our Class A common stock equal in value to the value of the awards
that they had in the plan at the time of this offering. At the assumed offering
price of $10.00 per share, we expect to issue approximately 429,558 shares of
restricted stock under the 2000 Long-Term Incentive Plan to implement this
exchange. The AutoTrader.com restricted stock will be subject to the terms and
conditions of the 2000 Long-Term Incentive Plan.
COX ENTERPRISES RESTRICTED UNIT AWARD PLAN
Several employees of Cox Enterprises were awarded equity-based interests in
AutoTrader.com under the Cox Enterprises, Inc. Restricted Unit Award Plan in
recognition of their contributions to the development of AutoTrader.com. Awards
under this plan were made using units held by TPI, Inc., a wholly owned
subsidiary of Cox Enterprises, and are subject to restrictions pertaining to
transferability.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions occurring since we were
formed in 1997 to which we have been a party, in which the amount involved
exceeds $60,000 and in which any director, executive officer or holder of more
than 5% of our capital stock had or will have a direct or indirect material
interest, other than compensation arrangements which are described under
"Management." In addition, other material agreements are described.
REORGANIZATION
Simultaneously with the consummation of this offering, we will complete a
reorganization transaction in order to have AutoTrader.com, Inc. succeed to the
business of AutoTrader.com, LLC. Pursuant to our plan of reorganization:
- AutoTrader.com, LLC will merge into AutoTrader.com, Inc., a newly formed,
wholly owned subsidiary of AutoTrader.com, LLC, with AutoTrader.com, Inc.
as the surviving entity. In this transaction, holders of the units of
AutoTrader.com, LLC will exchange all of their units for common stock of
AutoTrader.com, Inc. on a one-for-one basis as further described below.
- The operating agreement of AutoTrader.com, LLC contemplates that all
holders of units of AutoTrader.com, LLC, with the exception of Manheim
ATC and ADP, will exchange their units in AutoTrader.com, LLC for Class A
common stock of AutoTrader.com, Inc. on a one-for-one basis. The
operating agreement also provides that Manheim ATC and ADP will exchange
their units in AutoTrader.com, LLC for Class B common stock of
AutoTrader.com, Inc. on a one-for-one basis.
- Although the structure of AutoTrader.com, LLC only provides for one class
of units, the operating agreement of AutoTrader.com, LLC requires, with
limited exceptions, that in the case of any provision of the operating
agreement that provides for a vote based on the relative voting power of
units of AutoTrader.com, LLC that are issued and outstanding, Manheim ATC
and ADP shall be entitled to ten votes per unit. This supervoting power
carries over into the AutoTrader.com, Inc. voting structure in that the
Class B common stock, to be held only by Manheim ATC and ADP, will carry
ten votes per share while the Class A common stock carries one vote per
share.
Following the consummation of this offering, our related parties will have
the following equity interests:
(CHART depicting equity ownership in AutoTrader.com of related parties)
* ADP and eBay are not on the above chart because neither will own 5% or more of
our capital stock following the consummation of this offering.
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CONTRIBUTION-RELATED AGREEMENTS
Each of the agreements listed below was entered into on August 20, 1999.
Umbrella Contribution Agreement
We entered into an umbrella contribution agreement with Trader Publishing,
Manheim Auctions, ADP, TPI, Inc. and LTM Company. Under this umbrella
contribution agreement, Trader Publishing agreed to contribute to us certain
assets related to its online automotive listing business and to enter into a
license agreement related to our use of certain names, service marks, trademarks
and domain names. In exchange for these contributions, we granted a total of
7,084,000 of units to TPI, Inc. and LTM Company, with an aggregate appraised
value of approximately $43.3 million. The umbrella contribution agreement also
provided that we would contemporaneously enter into the following agreements:
- a data contribution agreement with Trader Publishing;
- a license agreement with Trader Publishing;
- a data contribution agreement with Manheim Auctions;
- a data contribution agreement with ADP;
- a share purchase agreement with ATC Holdings;
- a share purchase agreement with KPCB Holdings;
- an amended and restated limited liability company agreement; and
- a registration rights agreement.
Data Contribution Agreement with Trader Publishing
As contemplated by the umbrella contribution agreement, we entered into a
data contribution agreement with Trader Publishing under which it agreed to
contribute data to us that has been published in its print magazines throughout
the term of the agreement. In addition, both parties agreed to provide each
other various promotional services and agreed to non-compete provisions.
Trader Publishing contributed to us assets related to its automotive online
listing business, including the following:
- all existing data related to automobiles in its databases (other than
data related to specialty cars, antique/collectors' cars, high
performance cars or cars more than 20 years old);
- contracts between Trader Publishing and dealers related to the provision
of Web site development, hosting and maintenance services; and
- existing Web sites related to its online automotive listing business.
Trader Publishing has agreed to contribute to us, on an exclusive basis,
automotive data related to the automotive listings in its print magazines within
24 hours of the publication and distribution of the magazines containing such
listings. Data related to specialty cars, antique/collectors' cars, high
performance cars or cars more than 20 years old is not included in such
obligation. Trader Publishing has also agreed to host a Web page that is
accessible within the www.traderonline.com Web site on which private sellers can
list their used vehicles on our Web site and simultaneously have their listing
sent to a Trader Publishing print magazine.
Under this agreement, we and Trader Publishing have agreed to provide each
other with various promotional services. Trader Publishing features our domain
name on the cover and on every inside page of each of its automotive magazines
(other than its AutoMart magazines, which promote www.automart.com, which in
turn promotes AutoTrader.com), maintains links to our Web site on its
www.traderonline.com Web site and reserves specified advertising space at no
charge to us in its
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automotive magazines for our advertisements. In consideration of these
promotional services, we promote Trader Publishing on our Web site at no charge
by displaying the brand of the Trader Publishing automotive magazine that
generates each transferred listing, reserving general advertising space for
Trader Publishing products and maintaining links to Trader Publishing Web sites.
The agreement contemplates additional barter relationships between the parties
for advertising opportunities.
Trader Publishing has agreed it will not engage in specified competitive
activities including:
- maintaining a consumer-oriented Web site containing automotive data
(other than on an incidental basis as related to Trader Publishing's
general solicitation of specialty, antique/collector or high performance
cars);
- providing vehicle data published in any of its automotive magazines to
any other person for display to consumers on the World Wide Web;
- accepting advertising in any of Trader Publishing's automotive magazines
related to competing products offered by certain of our competitors; and
- reselling data received from us without our prior consent.
We provide Trader Publishing with electronic access to our database
(including data from Manheim Auctions and Trader Publishing) and have given
Trader Publishing a non-exclusive license to use the data for its print listings
and certain other purposes.
We are restricted from engaging in various activities that are competitive
with Trader Publishing, including:
- reselling or redistributing the data received from Trader Publishing
without its consent;
- accepting advertising for products or services that compete with Trader
Publishing; and
- competing with Trader Publishing in the publication of data such as for
specialty, antique/collector or high performance cars or for motorcycles,
large trucks, recreational vehicles and related equipment.
The stated term of the agreement is ten years; however, it may be
terminated by Trader Publishing by written notice to us at any time if our data
contribution agreement with Manheim Auctions is terminated. See "-- Data
Contribution Agreement with Manheim Auctions." The agreement may also be
terminated by either party due to an uncured material breach by the other party.
There is an automatic renewal of the agreement for successive ten-year periods,
unless one party provides the other party with at least one year's notice of its
intention not to renew the agreement prior to the end of the then-current term.
License Agreement with Trader Publishing
As contemplated by the umbrella contribution agreement, we entered into a
license agreement with Trader Publishing under which it granted us the exclusive
right and license to use the following marks and domain names in connection with
our business:
- the AUTOTRADER, AUTOTRADER ONLINE and AUTOTRADER.COM trademarks, service
marks and names; and
- the www.autotrader.com, www.automart.com and other domain names which
include the elements AUTOTRADER and AUTOMART.
Under the license agreement, we agreed to use www.autotrader.com as our
principal mark and principal domain name. Trader Publishing retains the right to
use AUTOTRADER, AUTOTRADER ONLINE and AUTOMART in connection with its print
publications. Trader Publishing's right to license these marks and domain names
to us is pursuant to a license agreement with TPI Holdings, dated March 31,
1991.
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Our license, which is fully paid, terminates on December 31, 2049. If,
however, our data contribution agreement with Trader Publishing is terminated
for any reason other than termination of the data contribution agreement with
Manheim Auctions or its nonrenewal by Trader Publishing, the license will
terminate. In addition, either party may terminate the license agreement in the
event of an uncured material breach of the terms of the agreement. Further, our
license will terminate if Trader Publishing's license agreement with TPI
Holdings, which is fully paid, is terminated. TPI Holdings has the right to
terminate its license agreement if Trader Publishing fails to substantially
maintain the quality of the licensed marks over a significant period of time.
We cannot transfer our rights under the license agreement to any party
without Trader Publishing's consent, except that we can assign the rights in
whole to any person that acquires all or substantially all of our assets and
assumes our obligations under the license agreement and the Trader Publishing
data contribution agreement.
Data Contribution Agreement with Manheim Auctions
As contemplated by the umbrella contribution agreement, we entered into a
data contribution agreement with Manheim Auctions under which it agreed to
contribute automotive information to us throughout the term of the agreement.
Under the data contribution agreement, Manheim Auctions provides to us, on an
exclusive basis, specific data, including a digital photo image, on each vehicle
that:
- is sold at its North American auctions;
- is designated by North American dealers to be sent to us through Manheim
Auctions' Manheim Interactive software (which had over 13,500 dealer
subscribers as of June 2000); or
- is designated to be sent to us by automotive manufacturers, finance
companies and other wholesale consigners for which Manheim Auctions
operates Web sites.
The agreement also requires Manheim Auctions, at its own expense, to
prominently promote AutoTrader.com at its North American auctions, to train
technology managers and selected employees on how to effectively sell our
products to dealers and to include AutoTrader.com in the trade advertising and
marketing programs that are otherwise run by Manheim Auctions in the ordinary
course of business. At our request, Manheim Auctions will also provide us space
within its booths at trade shows and will provide administrative and technical
support at reasonable rates agreed to by Manheim Auctions and AutoTrader.com.
We have agreed to use commercially reasonable efforts to post the data
provided by Manheim Auctions to our Web site. Manheim Auctions also agreed not
to maintain a consumer-oriented Web site containing the data it transfers to us
or to provide such data to our competitors.
If we decide to expand our operations outside North America, the agreement
provides that Manheim Auctions will provide similar data and promotional
services in the areas in which Manheim Auctions operates its wholesale auto
auctions.
The stated term of this agreement is ten years; however, Manheim Auctions
has the right to terminate this agreement at any time after August 2004 if its
voting interest in AutoTrader.com falls below 50% (other than as a result of the
conversion by Manheim Auctions of its Class B common stock to shares of Class A
common stock) by providing us at least six months' prior written notice. Due to
the 10-to-1 supervoting power of Manheim Auction's Class B common stock, its
economic interest would need to decrease significantly following the
consummation of this offering to below 11% before it could terminate its
agreement with AutoTrader.com. Either party may also terminate due to an uncured
material breach of the agreement. Neither party may assign its rights and
obligations under the agreement without the prior written consent of the
non-assigning party, except in certain circumstances constituting a change of
control.
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Data Contribution Agreement with ADP
As contemplated in the umbrella contribution agreement, we entered into a
data contribution agreement with ADP under which it agreed to provide polling
information and marketing support to us in exchange for access to our database
of vehicle information and our promotional support. Under the agreement, ADP
exclusively provides to us inventory polling services for the used vehicle
inventory databases of its more than 8,000 U.S. dealer clients and other dealers
who consent to be polled, although ADP may provide polling services to other
non-aggregator Web sites in limited circumstances. Each dealer who elects to
receive this service is polled on at least a weekly basis, with all new data and
a digital photo image of each vehicle provided to us on a daily basis. We retain
the right to provide our own inventory polling services in limited
circumstances.
We pay ADP a fee for each successful polling of a dealer and a fee for the
initial setup of each new dealership, which may be adjusted pursuant to an
adjustment mechanism set forth in the agreement. From August 1999 through March
31, 2000, we have paid $302,200 in fees to ADP.
Unit Purchase Agreement for ATC Holdings
As contemplated in the umbrella contribution agreement, we entered into a
unit purchase agreement with Manheim Auctions, ADP and ATC Holdings under which
we issued ATC Holdings 3,167,993 units in exchange for $19,378,881.
Unit Purchase Agreement for KPCB Holdings
As contemplated in the umbrella contribution agreement, we entered into a
unit purchase agreement with Manheim Auctions, ADP and KPCB Holdings under which
we issued KPCB Holdings 1,980,006 units in exchange for $12,111,801.
KPCB Holdings also acquired 264,006 units from TPI, Inc. for nominal
consideration.
Amended and Restated Limited Liability Company Agreement
As contemplated by the umbrella contribution agreement, Manheim Auctions,
ADP, TPI, Inc., LTM Company, ATC Holdings and KPCB Holdings entered into an
amended and restated limited liability company agreement. Concurrently with the
consummation of this offering, however, the amended and restated limited
liability company agreement will be replaced by the charter and bylaws as
described in "-- Reorganization."
Registration Rights Agreement
In connection with the above transactions, the parties entered into a
registration rights agreement. For a description of this agreement, see
"Description of Capital Stock -- Registration Rights."
EBAY AGREEMENTS
Each of the agreements listed below was entered into on March 6, 2000.
Marketing Agreement and Marketing Services Agreement
We entered into an exclusive marketing agreement and a marketing services
agreement with eBay to jointly create, as part of the larger eBay Web site, a
co-branded Web site dedicated to the online auction-style trading of vehicles.
This co-branded Web site, which is accessible through both the eBay and
AutoTrader.com Web sites, as well as directly at www.ebay-autotrader.com,
focuses on used vehicles (excluding classic cars, motorcycles, trucks, and
vehicles more than 20 years old) in the consumer-to-consumer and
dealer-to-consumer segments of the U.S. market.
Our marketing agreement with eBay provides that we will not launch or
promote any other services for the dynamically-priced trading of these general
vehicles in the United States, nor will eBay implement
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any other Web site or Web pages for the U.S. market for the online trading of
these vehicles. Furthermore, eBay may not launch or promote any wholesale
automotive auctions for these vehicles on behalf of itself or any third party,
though the co-branded Web site may facilitate auctions of institutional or other
vehicles so long as the buyers are not required to be licensed dealers.
The marketing agreement also requires each of eBay and AutoTrader.com to
spend a minimum of $7 million in 2000 with third parties to advertise and
promote the co-branded Web site. We are also required to pay eBay a promotional
fee of a minimum of $32.5 million over the three and a half year term of the
agreement, and eBay is obligated to spend an additional $22 million with third
parties during the remaining term of the agreement to promote the co-branded Web
site.
eBay has agreed in the marketing services agreement to pay AutoTrader.com a
commission of 50% of gross revenues received by eBay for advertising, listing
and success fees and fees for related automotive services (such as financing,
insurance and shipping services) that are offered through the co-branded Web
site.
The initial term of each of these agreements expires on August 6, 2002, and
each agreement will renew automatically for additional one-year terms unless it
is terminated for an uncured material breach, so long as neither party has given
the other notice of its intent to terminate the agreement 90 days prior to the
time it would otherwise renew. The agreements also provide for a cross
termination -- if one agreement is terminated, the other agreement is
automatically terminated.
Unit Purchase Agreement
We entered into a unit purchase agreement with eBay under which we issued
eBay 1,173,876 units in exchange for $9,237,000. In a related agreement, we
granted eBay registration rights under the terms of the already existing
registration rights agreement. See "Description of Capital Stock -- Registration
Rights."
STOCKHOLDERS' AGREEMENT
Manheim Auctions, ADP, TPI, Inc., LTM Company, ATC Holdings and Kleiner
Perkins Caufield & Byers have agreed to enter into a stockholders' agreement
immediately prior to the consummation of this offering. The agreement will
provide for the election of ten members of our board of directors. The
stockholders who are party to our stockholders' agreement will agree that after
the consummation of this offering they will vote their shares together to elect:
- seven nominees selected by Manheim Auctions;
- one nominee selected jointly by LTM Company and ATC Holdings;
- one nominee selected by ADP; and
- one nominee selected by Kleiner Perkins Caufield & Byers.
The obligation of the stockholders who are party to the stockholders'
agreement to vote for the nominees of Manheim Auctions, LTM Company, ATC
Holdings and Kleiner Perkins Caufield & Byers to our board of directors will
terminate if at any time their respective percentage of our economic interest is
below 5%. Since ADP's ownership of our common stock is already below the level
at which the other parties to the stockholders' agreement would be obligated to
vote for the ADP nominee, after the closing of the offering there will be no
obligation of the stockholders who are party to the stockholders' agreement to
vote for ADP's nominee to the board of directors.
TRANSACTIONS WITH COX ENTERPRISES, INC.
Cox Enterprises provides several management services to us, including
legal, corporate secretarial, tax, cash management, internal audit, risk
management, benefits administration, business development and other support
services. We were allocated expenses related to these services and office
facilities provided
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for the period from October 1, 1997 to December 31, 1997, the years ended
December 31, 1998 and 1999 and the three months ended March 31, 2000 (unaudited)
of $5,625, $325,712, $396,278, and $375,783, respectively. Allocated expenses
are based on Cox Enterprises' estimate of expenses relative to the services
provided to us in relation to those provided to other divisions of Cox
Enterprises. Office facilities expense is allocated based on occupied space.
Management believes that these allocations were made on a reasonable basis.
However, the allocations are not necessarily indicative of the level of expenses
that might have been incurred had we contracted directly with third parties.
Management has not made a study or any attempt to obtain quotes from third
parties to determine what the cost of obtaining such services from third parties
would have been. As these fees and expenses are not fixed by a written agreement
with Cox Enterprises, they are subject to change in future periods.
Prior to August 20, 1999, and since February 18, 2000, we participate in
Cox Enterprises' cash management system, whereby our bank sends daily
notification of our checks presented for payment, and Cox Enterprises transfers
funds from other sources to cover our checks presented for payment. From August
20, 1999 to February 17, 2000, we maintained our own cash accounts. Outstanding
amounts due from Cox Enterprises carried interest equal to Cox Enterprises'
commercial paper borrowing rate, and outstanding amounts due to Cox Enterprises
carried interest at 40 basis points above Cox Enterprises' commercial paper
borrowing rate.
WEB ADVERTISING AND PROMOTION AGREEMENT
On January 18, 2000, we entered into a Web advertising and promotion
agreement with Greenlight.com, a Web site specializing in new vehicle sales and
approximately 38% of whose common stock is owned by Kleiner Perkins Caufield &
Byers. Under this agreement, we have agreed to exclusively promote
Greenlight.com as our new vehicle partner through a phasing-in of advertising,
listing, marketing and linking services. The term of this agreement is twelve
months from the date of completion of the service phase-in, with automatic
one-month extensions unless a two-month termination notice is given.
CONTENT, PROMOTION AND MARKETING RELATIONSHIP
We have entered into an arrangement with Cox Newspapers, Inc., a wholly
owned subsidiary of Cox Enterprises, under which Cox Newspapers will provide
sales and marketing services and content delivery. As part of this arrangement,
each participating newspaper will submit automotive classified listings to be
posted on the AutoTrader.com Web site. In addition, we and the participating
newspapers will promote one another. The newspapers' sales force will promote
and sell our products and services, and in return, will receive a commission.
The parties intend shortly to formalize this relationship by entering into a
binding agreement which will be reviewed by our audit committee.
POLICY REGARDING AFFILIATE TRANSACTIONS
We believe that the foregoing transactions were in our best interest and
were made on terms no less favorable to us than could have been obtained from
unaffiliated third parties. Future related party transactions will be:
- approved by our audit committee; and
- consistent with Delaware General Corporation Law.
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PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership of
our common stock after the consummation of this offering for:
- each person who beneficially owns more than 5% of our common stock;
- each of our directors;
- each of our executive officers; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each person or entity named
below is c/o AutoTrader.com, Inc., 5775 Peachtree Dunwoody Road, Suite A-200,
Atlanta, Georgia 30342.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
Except as indicated by footnote, and subject to community property laws where
applicable, the persons named in the table below have sole voting and investment
power with respect to all of the shares of common stock shown as beneficially
owned by them. Shares of Class B common stock are convertible into shares of
Class A common stock on a one-for-one basis at any time at the holder's option.
For purposes of this table, information as to the shares of common stock is
calculated based on 26,154,243 shares of Class A common stock and 21,201,482
shares of Class B common stock outstanding after the offering. In accordance
with the rules of the SEC, each beneficial owner's percentage ownership assumes
the exercise or conversion of all options, warrants and other convertible
securities held by such person and that are exercisable or convertible within 60
days after the date of this prospectus. For purposes of computing the percentage
of outstanding shares of common stock held by each person or group of persons
named below, any shares which such person or persons has the right to acquire
within 60 days after the date of this prospectus are deemed to be outstanding
but are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person or group of persons.
The table assumes no exercise of the underwriters' over-allotment option.
If the underwriters' over-allotment option is exercised in full, we will sell up
to an aggregate of 975,000 additional shares of our Class A common stock, and up
to 48,330,725 shares of common stock will be outstanding after the completion of
this offering.
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------------------------------
SHARES OF CLASS A SHARES OF CLASS B PERCENT OF PERCENT OF
BENEFICIALLY OWNED BENEFICIALLY OWNED TOTAL TOTAL
AFTER OFFERING AFTER OFFERING ECONOMIC VOTING
------------------- -------------------- INTEREST POWER
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT AFTER OFFERING AFTER OFFERING
------------------------ --------- ------- ---------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Victor A. Perry, III.................... 50,000 * -- -- * *
James T. McKnight....................... 40,000 * -- -- * *
James C. Kennedy(1)..................... 359,144 1.4% -- -- * *
G. Dennis Berry(2)...................... 60,000 * -- -- * *
Darryll M. Ceccoli(3)................... 20,000 * -- -- * *
David E. Easterly(4).................... 206,985 * -- -- * *
Dean H. Eisner(5)....................... 14,964 * -- -- * *
Robert O'Leary(6)....................... 44,893 * -- -- * *
Allan Stejskal(7)....................... 10,000 * -- -- * *
Richard F. Barry, III(8)................ -- -- -- -- -- --
Joseph Lacob(9)......................... -- -- -- -- -- --
William N. Templeton.................... 15,000 * -- -- * *
Bradley K. Mohs......................... 18,750 * -- -- * *
Manheim ATC, Inc.(10)................... -- -- 20,132,722 95.0% 42.5% 84.5%
TPI, Inc.(11)........................... 4,208,140 16.1 -- -- 8.9 1.8
LTM Company, L.P.(12)................... 5,300,370 20.3 -- -- 11.2 2.2
ATC Holdings, Inc.(13).................. 4,740,693 18.1 -- -- 10.0 2.0
KPCB Holdings, Inc.(14)................. 3,358,018 12.8 -- -- 7.1 1.4
All directors and officers as a group
(13 persons).......................... 839,736 3.2 -- -- 1.8 *
</TABLE>
---------------
* Less than 1%
(1) Mr. Kennedy is the Chairman of the Board of Directors and Chief Executive
Officer of Cox Enterprises. Cox Enterprises' beneficial ownership of
Manheim ATC and TPI, Inc. is described in
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footnotes 10 and 11 below. Mr. Kennedy owns of record no shares of the
common stock of Cox Enterprises. Sarah K. Kennedy, Mr. Kennedy's wife and
trustee of the Kennedy Trusts, exercises beneficial ownership over an
aggregate of 22,140 shares of the common stock of Cox Enterprises. In
addition, Barbara Cox Anthony and Anne Cox Chambers, the mother and aunt,
respectively, of Mr. Kennedy, together exercise sole or shared beneficial
ownership over 598,135,870 shares of the common stock of Cox Enterprises.
Also, Mr. Kennedy's children are the beneficiaries of a trust, of which R.
Dale Hughes is the sole trustee, that beneficially owns 16,155 shares of
Cox Enterprises. Mr. Kennedy disclaims beneficial ownership of all such
shares. Mr. Kennedy's business address is c/o Cox Enterprises, Inc., 1400
Lake Hearn Drive, N.E., Atlanta, Georgia 30319.
(2) Mr. Berry's business address is c/o Manheim Auctions, Inc., 1400 Lake Hearn
Drive, N.E., Atlanta, Georgia 30319.
(3) Mr. Ceccoli's business address is c/o Manheim Auctions, Inc., 1400 Lake
Hearn Drive, N.E., Atlanta, Georgia 30319.
(4) Mr. Easterly's business address is c/o Cox Enterprises, Inc., 1400 Lake
Hearn Drive, N.E., Atlanta, Georgia 30319.
(5) Mr. Eisner's business address is c/o Cox Enterprises, Inc., 1400 Lake Hearn
Drive, N.E., Atlanta, Georgia 30319.
(6) Mr. O'Leary's business address is c/o Cox Enterprises, Inc., 1400 Lake
Hearn Drive, N.E., Atlanta, Georgia 30319.
(7) Mr. Stejskal's business address is c/o ADP Dealer Services, 1950 Hassell
Road, Hoffman Estates, Illinois 60195.
(8) Mr. Barry's business address is c/o Landmark Communications, Inc., 150 W.
Brambleton Avenue, Norfolk, Virginia 23510.
(9) Mr. Lacob's business address is c/o Kleiner Perkins Caufield & Byers, 2750
Sand Hill Road, Menlo Park, California 94111.
(10) Cox Enterprises owns 100% of the outstanding capital stock of Manheim ATC.
There are 607,343,044 shares of common stock of Cox Enterprises
outstanding, with respect to which (i) Barbara Cox Anthony, as trustee of
the Anne Cox Chambers Atlanta Trust, exercises beneficial ownership over
174,949,266 shares (28.8%); (ii) Anne Cox Chambers, as trustee of the
Barbara Cox Anthony Atlanta Trust, exercises beneficial ownership over
174,949,266 shares (28.8%); (iii) Barbara Cox Anthony, Anne Cox Chambers
and Richard L. Braunstein, as trustees of the Dayton Cox Trust A, exercise
beneficial ownership over 248,237,055 shares (40.9%); and (iv) 262
individuals and other trusts exercise beneficial ownership over the
remaining 9,207,457 shares (1.5%), including 43,734 shares held
beneficially and of record by Garner Anthony, the husband of Barbara Cox
Anthony. Barbara Cox Anthony disclaims beneficial ownership of such shares.
Thus, Barbara Cox Anthony and Anne Cox Chambers, who are sisters, together
exercise sole or shared beneficial ownership over 598,135,587 shares
(98.5%) of the common stock of Cox Enterprises. Manheim ATC's address is
c/o Manheim Auctions, Inc., 1400 Lake Hearn Drive, N.E., Atlanta, Georgia
30319.
(11) Cox Enterprises owns 100% of the outstanding capital stock of TPI, Inc. The
beneficial ownership of the outstanding capital stock of Cox Enterprises is
described in footnote 10 above. TPI, Inc.'s address is c/o Cox Enterprises,
Inc., 1400 Lake Hearn Drive, N.E., Atlanta, Georgia 30319.
(12) LTM Company's address is c/o Landmark Communications, Inc., 150 W.
Brambleton Avenue, Norfolk, Virginia 23510.
(13) ATC Holdings' address is c/o Landmark Communications, Inc., 150 W.
Brambleton Avenue, Norfolk, Virginia 23510.
(14) KPCB Holding's address is c/o Kleiner Perkins Caufield & Byers, 2750 Sand
Hill Road, Menlo Park, California 94111.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Concurrently with the consummation of this offering, we will complete the
reorganization in which AutoTrader.com, LLC will merge into AutoTrader.com,
Inc., a newly formed, wholly owned subsidiary of AutoTrader.com, LLC, with
AutoTrader.com, Inc. remaining as the surviving entity. Holders of membership
units in AutoTrader.com, LLC will exchange all of their units for Class A and
Class B common stock of AutoTrader.com, Inc. on a one-for-one basis. See
"Certain Relationships and Related Transactions -- Reorganization."
Upon completion of the offering, our authorized capital stock will consist
of:
- 100,000,000 shares of Class A common stock;
- 100,000,000 shares of Class B common stock; and
- 5,000,000 shares of preferred stock.
Upon completion of the offering, our issued and outstanding capital stock
will consist of:
- 26,154,243 shares of Class A common stock;
- 21,201,482 shares of Class B common stock; and
- no shares of preferred stock.
COMMON STOCK
Except with respect to voting and convertibility, shares of Class A common
stock and shares of Class B common stock are identical in all respects.
Voting. Class A common stockholders are entitled to one vote per share,
while Class B common stockholders are entitled to ten votes per share. The Class
A common stockholders and the Class B common stockholders vote together as a
single class on all actions, except that the affirmative vote of the holders of
a majority of the outstanding shares of Class A common stock and Class B common
stock voting separately as a class is required:
- to approve any amendment to our certificate of incorporation that would
alter or change the powers, preferences or special rights of such class
in a way that adversely affects the holders of such class; and
- to approve such other matters as may require a class vote under the
Delaware General Corporation Law.
Dividends and Other Distributions. Each share of common stock is equal in
respect of dividends and other distributions in cash, stock or property,
including distributions upon AutoTrader.com's liquidation or a sale of all or
substantially all of AutoTrader.com's assets. However, in the case of dividends
or other distributions payable on either class of common stock in shares of such
stock, including distributions pursuant to stock splits or dividends, only Class
A common stock will be distributed with respect to outstanding Class A common
stock, and only Class B common stock will be distributed with respect to
outstanding Class B common stock. Neither the Class A common stock nor the Class
B common stock will be split, divided or combined unless each other class is
proportionately split, divided or combined.
We currently intend to retain any future earnings for use in developing and
operating our business. Accordingly, we do not expect to pay cash dividends on
the Class A common stock in the foreseeable future.
Convertibility of Class B Common Stock into Class A Common Stock. Manheim
Auctions, through its wholly owned subsidiary Manheim ATC, and ADP hold all of
the shares of Class B common stock currently outstanding. Shares of Class B
common stock are convertible at any time, or from time to time,
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at the Class B stockholder's option, into Class A common stock on a
share-for-share basis. Shares of Class B common stock will be converted
automatically into shares of Class A common stock on a share-for-share basis if
Manheim Auctions or ADP transfers its shares of Class B common stock to an
entity which is not an affiliate of Manheim Auctions or ADP.
Liquidation, Dissolution or Winding Up. In the event of any liquidation,
dissolution or winding up of AutoTrader.com, whether voluntary or not, the Class
A common stockholders and the Class B common stockholders shall be entitled to
share, ratably, according to their respective interests, in AutoTrader.com's
assets which remain after payment or provision for payment of our debts and
other liabilities and the preferential amounts due to the holders of any stock
ranking prior to the common stock in the distribution of assets.
PREFERRED STOCK
Our certificate of incorporation authorizes us to issue "blank check"
preferred stock with such designations, powers and preferences and other rights
and qualifications, limitations and restrictions as our board of directors may
authorize, without further action by our stockholders, including, but not
limited to:
- the distinctive designation of each series and the number of shares that
will constitute the series;
- the voting rights, if any, of shares of the series;
- the dividend rate on the shares of the series, any restriction,
limitation or condition upon the payment of dividends, whether dividends
will be cumulative and the dates on which dividends are payable;
- the prices at which, and the terms and conditions on which, the shares of
the series may be redeemed, if the shares are redeemable;
- the purchase or sinking fund provisions, if any, for the purchase or
redemption of shares of the series;
- any preferential amount payable upon shares of the series in the event of
the liquidation, dissolution or winding up of our business or the
distribution of our assets; and
- the prices or rates of conversion at which, and the terms and conditions
on which, the shares of such series may be converted into other
securities, if such securities are convertible.
BOARD OF DIRECTORS
Our board of directors consists of twelve directors who are elected on an
annual basis, and each director serves until his or her successor has been duly
elected and qualified, or until his or her earlier death, resignation or
removal. There are currently ten directors serving on our board, and the two
vacancies will be filled prior to the consummation of this offering by
individuals who are not our affiliates. Stockholders who will hold approximately
97% of our voting power after the consummation of this offering have agreed to
enter into a stockholders' agreement immediately prior to the consummation of
this offering under which these stockholders will agree to vote their shares
together to elect ten of our directors. See "Certain Relationships and Related
Transactions -- Stockholders' Agreement."
ANTI-TAKEOVER PROVISIONS
Provisions of our certificate of incorporation and bylaws may make it more
difficult to effect a change in control of our company. The existence of these
provisions may adversely affect the price of our Class A common stock,
discourage third parties from making a bid for our company or reduce any
premiums paid to our stockholders for their Class A common stock. Our
certificate of incorporation authorizes our board of directors to issue up to
5,000,000 shares of "blank check" preferred stock and to attach special rights
and preferences to this preferred stock. The issuance of this preferred stock
may make it more difficult for a third party to acquire control of us. A special
meeting of stockholders may only be called by our
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president, chief executive officer or secretary at the written request of a
majority of the board of directors. In addition, a stockholder proposal for an
annual meeting must be received within a specified period of time to be placed
on the agenda. Because stockholders do not have the ability to require the
calling of a special meeting of stockholders and are subject to timing
requirements in submitting stockholder proposals for consideration at an annual
meeting, any third-party takeover not supported by the board of directors would
be subject to significant delays and difficulties.
LIMITATION ON DIRECTORS' LIABILITIES
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. In the absence of the limitations
authorized by the Delaware statute, directors could be accountable to
corporations and their stockholders for monetary damages for conduct that does
not satisfy their duty of care. Although the statute does not change directors'
duty of care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission. Our certificate of incorporation
limits the liability of our directors to AutoTrader.com or our stockholders to
the fullest extent permitted by the Delaware statute. Specifically, the
directors will not be personally liable for monetary damages for breach of a
director's fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to AutoTrader.com or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, which relates
to the unlawful payment of dividend or unlawful stock purchase or
redemption by a corporation; or
- for any transaction from which a director derived an improper personal
benefit.
The inclusion of this provision in our certificate of incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited us and our stockholders.
REGISTRATION RIGHTS
Following the consummation of this offering, the holders of approximately
19,654,000 shares of common stock will have registration rights pertaining to
the shares of Class A common stock held by them pursuant to a registration
rights agreement, dated August 20, 1999.
Demand Registration Rights. At any time beginning six months after the
consummation of this offering, these stockholders may request registration under
the Securities Act for all or a portion of their shares of Class A common stock;
provided that, in the case of a registration statement on a form other than a
Form S-3, the registration statement has an aggregate proposed offering price to
the public of at least $10,000,000 or, in the case of a registration on a Form
S-3, there is a reasonably anticipated aggregate offering price to the public of
at least $1,000,000. These holders may request no more than five registrations
on a form other than a Form S-3 and may request an unlimited number of
registrations on a Form S-3; provided that these holders may request no more
than two registrations in any one year. These registration rights are subject to
our right to delay the filing of a registration statement once in a 12-month
period for not more than 90 days.
Piggyback Registration Rights. "Piggyback" registration rights also exist
for the shares of Class A common stock held by these stockholders. If we propose
to register any of our Class A common stock under the Securities Act (other than
pursuant to the demand registration rights noted above), these stockholders may
require us to include all or a portion of their shares of Class A common stock
in such
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registration; provided, however, that the managing underwriter, if any, of any
such offering has the right to limit the number of shares of Class A common
stock proposed to be included in such registration to 30% of the aggregate
shares included in the offering.
We will pay all registration expenses incurred in connection with the above
registrations. The selling stockholder will pay all underwriting discounts and
selling commissions applicable to the sale of his, her or its shares of common
stock. No person will be allowed to participate in any offering which is
underwritten unless the person agrees to sell on the same basis as is provided
in any applicable underwriting agreements.
LISTING
We have applied to have the Class A common stock included for quotation on
The Nasdaq Stock Market's National Market under the symbol "ATDC."
TRANSFER AGENT AND REGISTRAR
We have appointed First Union National Bank as the transfer agent and
registrar for our Class A common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our Class A common
stock, and we cannot assure you that a significant public market for the Class A
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of Class A common stock, including shares issued upon
exercise of outstanding options, in the public market after this offering could
adversely affect market prices prevailing from time to time and could impair our
ability to raise capital through the sale of our equity securities.
After this offering, we will have outstanding 26,154,243 shares of Class A
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. As of June 30, 2000, no options were
exercisable. Upon completion of this offering, options for 506,650 aggregate
shares of Class A common stock will become exercisable. Options representing an
additional 1,519,950 shares of Class A common stock will become exercisable in
the future. Of our outstanding shares, the 6,500,000 shares, or 7,475,000 shares
if the underwriters exercise their over-allotment option in full, of Class A
common stock sold in this offering will be freely tradable without restriction
under the Securities Act unless purchased by our affiliates as that term is
defined in Rule 144 under the Securities Act. Assuming no exercise of the
underwriters' over-allotment option, the remaining 19,654,243 shares of Class A
common stock outstanding will be restricted securities under Rule 144 and may in
the future be sold without registration under the Securities Act to the extent
permitted by Rule 144 or any other applicable exemption under the Securities Act
and subject to the lock-up agreements described in "Underwriting." Some holders
of outstanding shares of Class A common stock immediately prior to the offering
may, under certain circumstances, include their shares in a registration
statement filed by AutoTrader.com for a public offering of Class A common stock.
Some existing stockholders also have the right to demand that we register their
shares of Class A common stock for resale. See "Description of Capital Stock --
Registration Rights."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:
- one percent of the number of shares of Class A common stock then
outstanding, which will equal approximately 262,000 shares immediately
after this offering; or
- the average weekly trading volume of our Class A common stock on The
Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to the sale.
Sales under Rule 144 also are subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been an affiliate of
AutoTrader.com at any time during the three months preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance on Rule 144 but without
compliance with specified restrictions of Rule 144. Any employee, officer or
director of or consultant to AutoTrader.com who purchased his or her shares
under a written compensatory plan or contract may be entitled to rely on the
resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule
701 shares under Rule 144 without complying with the holding period requirements
of Rule 144. Rule 701 further provides that non-affiliates may sell those shares
in reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling those shares.
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Following this offering we intend to file registration statements on Form
S-8 under the Securities Act covering shares of Class A common stock, including
shares subject to outstanding options under the 2000 Long-Term Incentive Plan.
Based on the number of shares subject to outstanding options at March 31, 2000
and shares reserved for future issuance under our various stock-based incentive
programs, the registration statements would cover approximately 3,600,000
shares. The registration statements on Form S-8 will automatically become
effective upon filing. Accordingly, shares registered under the registration
statements, which include shares that are subject to the exercise of any
outstanding options, will be available for sale in the open market immediately
after such registration statements are filed, subject only to the 180-day
lock-up agreements restricting our directors, officers and selected employees.
See "Underwriting."
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS
The following is a summary of the material United States federal income,
estate and gift tax consequences of the purchase, ownership and disposition of
the Class A common stock by holders that are Non-U.S. Holders, as that term is
defined below. This summary does not purport to be a complete analysis of all
potential tax effects and is based upon the Internal Revenue Code of 1986, as
amended, existing and proposed regulations promulgated thereunder, published
rulings and court decisions, all as in effect and existing on the date hereof
and all of which are subject to change at any time, which change may be
retroactive or prospective. Unless otherwise specifically noted, this summary
applies only to those persons that purchased the Class A common stock for cash
and hold the Class A common stock as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND DOES NOT ADDRESS THE TAX
CONSEQUENCES TO TAXPAYERS WHO ARE SUBJECT TO SPECIAL RULES OR CIRCUMSTANCES.
THIS SUMMARY DOES NOT ADDRESS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE,
MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION. WE URGE YOU TO
CONSULT YOUR OWN TAX ADVISOR REGARDING THE UNITED STATES FEDERAL TAX
CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF THE CLASS A COMMON STOCK,
INCLUDING THE INVESTOR'S STATUS AS A NON-U. S. HOLDER, AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN
COUNTRY OR OTHER TAXING JURISDICTION.
GENERAL
A Non-U.S. Holder means a beneficial owner of the Class A common stock that
is not:
(i) a citizen or individual resident, as defined in Section 7701(b) of
the Internal Revenue Code, of the United States;
(ii) a corporation or any entity treated as a corporation for United
States federal income tax purposes, created or organized under the laws of
the United States, any State thereof or the District of Columbia;
(iii) an estate, the income of which is subject to United States
federal income tax without regard to its source; or
(iv) a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States persons have the authority to control all substantial
decisions of the trust.
Notwithstanding the preceding sentence, certain trusts in existence on August
20, 1996, and treated as U.S. Holders prior to such date, may elect to continue
to be treated as U.S. Holders. If a partnership, domestic or foreign, holds
Class A common stock, the tax treatment of a partner, domestic or foreign,
generally will depend upon the status of the partner and upon the activities of
the partnership. Partners of partnerships holding Class A common stock should
consult their tax advisors.
DIVIDENDS
Dividends, if any, paid to a Non-U.S. Holder will generally be subject to
the withholding of United States federal income tax at the rate of 30% of the
gross amount of such dividends, unless:
- the dividends are effectively connected with the conduct of a trade or
business (or, if an income tax treaty applies, are attributable to a
"permanent establishment", as defined therein) within the United States
of the Non-U.S. Holder, and such Non-U.S. Holder furnishes to us or our
paying agent a duly executed Internal Revenue Service Form W-8ECI, or any
successor form; or
- such Non-U.S. Holder is entitled to a reduced withholding tax rate
pursuant to any applicable income tax treaty.
For purposes of determining whether tax will be withheld at a reduced rate
as specified by an income tax treaty, current law permits us to presume that
dividends paid to an address in a foreign country are paid to a resident of such
country absent definite knowledge that such presumption is not warranted.
However, under newly issued U.S. Treasury regulations, in the case of dividends
paid after December 31, 2000, in order to obtain a reduced rate of withholding
under an income tax treaty, a Non-U.S. Holder
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generally will be required to furnish to us or our agent a duly executed
Internal Revenue Service Form W-8BEN (or any successor form) certifying, under
penalties of perjury, that such Non-U.S. Holder is entitled to benefits under an
income tax treaty. The new regulations also provide special rules for dividend
payments made to foreign intermediaries, U.S. or foreign wholly-owned entities
that are disregarded for U.S. federal income tax purposes, and entities that are
treated as fiscally transparent in the United States, the applicable income tax
treaty jurisdiction or both. We urge you to consult your own tax advisor
concerning the effect, if any, of the adoption of these new U.S. Treasury
regulations on an investment in the Class A common stock. A Non-U.S. Holder who
is eligible for a reduced withholding rate may obtain a refund of any excess
amounts withheld by filing an appropriate claim for a refund with the Internal
Revenue Service.
Dividends paid to a Non-U.S. Holder that are effectively connected with the
conduct of a trade or business (or, if an income tax treaty applies, are
attributable to a "permanent establishment," as defined therein) within the
United States of the Non-U.S. Holder will generally be taxed on a net income
basis (that is, after allowance for applicable deductions) at the graduated
rates that are applicable to United States persons. In the case of a Non-U.S.
Holder that is a corporation, such income may also be subject to the United
States federal branch profits tax (which is generally imposed on a foreign
corporation upon the deemed repatriation from the United States of effectively
connected earnings and profits) at a 30% rate, unless the rate is reduced or
eliminated by an applicable income tax treaty and the Non-U.S. Holder is a
qualified resident of the treaty country.
GAIN ON SALE OR OTHER DISPOSITION
A Non-U.S. Holder generally will not be subject to regular United States
federal income or withholding tax on gain recognized on a sale or other
disposition of the Class A common stock, unless:
(i) the gain is effectively connected with the conduct of a trade or
business (or, if an income tax treaty applies, is attributable to a
"permanent establishment," as defined therein) within the United States of
the Non-U.S. Holder or of a partnership, trust or estate in which such
Non-U.S. Holder is a partner or beneficiary;
(ii) we have been, are or become a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the
Internal Revenue Code at any time within the shorter of the five-year
period preceding such sale or other disposition or such Non-U.S. Holder's
holding period for the Class A common stock; or
(iii) the Non-U.S. Holder is an individual that:
(a) is present in the United States for 183 days or more in the
taxable year of the sale or other disposition; and
(b) either (I) has a "tax home" in the United States, as specially
defined for purposes of the United States federal income tax, or (II)
maintains an office or other fixed place of business in the United
States and the gain from the sale or other disposition of the Class A
common stock is attributable to such office or other fixed place of
business.
A corporation is generally considered to be a United States real property
holding corporation if the fair market value of its "United States real property
interests" within the meaning of Section 897(c)(1) of the Internal Revenue Code
equals or exceeds 50% of the sum of the fair market value of its worldwide real
property interests plus the fair market value of any other of its assets used or
held for use in a trade or business. We believe that we have not been, are not
currently and are not likely to become a United States real property holding
corporation. Further, even if we were to become a United States real property
holding corporation, any gain recognized by a Non-U.S. Holder still would not be
subject to U.S. federal income tax if the Class A common stock were considered
to be "regularly traded" (within the meaning of applicable U.S. Treasury
regulations) on an established securities market (e.g., the Nasdaq Stock
Market's National Market, on which the Class A common stock will be listed), and
the Non-U.S. Holder did not
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own, directly or indirectly, at any time during the five-year period ending on
the date of the sale or other disposition, more than 5% of the Class A common
stock.
Gains realized by a Non-U.S. Holder that are effectively connected with the
conduct of a trade or business (or, if an income tax treaty applies, are
attributable to a "permanent establishment," as defined therein) within the
United States of the Non-U.S. Holder will generally be taxed on a net income
basis (that is, after allowance for applicable deductions) at the graduated
rates that are applicable to United States persons. In the case of a Non-U.S.
Holder that is a corporation, such income may also be subject to the United
States federal branch profits tax (which is generally imposed on a foreign
corporation upon the deemed repatriation from the United States of effectively
connected earnings and profits) at a 30% rate, unless the rate is reduced or
eliminated by an applicable income tax treaty and the Non-U.S. Holder is a
qualified resident of the treaty country.
Individual Non-U.S. Holders may also be subject to tax pursuant to
provisions of United States federal income tax law applicable to certain United
States expatriates, including former long-term residents of the United States.
FEDERAL ESTATE AND GIFT TAXES
Class A common stock owned or treated as owned by an individual (regardless
of whether such an individual is a citizen or a resident of the United States)
at the date of death will be included in such individual's estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
A Non-U.S. Holder will not be subject to United States federal gift tax on
a transfer of Class A common stock, unless such person is an individual
domiciled in the United States or such person is an individual subject to
provisions of United States federal gift tax law applicable to certain United
States expatriates, including certain former long-term residents of the United
States.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
We must report annually to the Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, such Non-U.S. Holder, regardless of whether tax was actually
withheld and whether withholding was reduced by an applicable income tax treaty.
Pursuant to certain income tax treaties and other agreements, that information
may also be made available to the tax authorities of the country in which the
Non-U.S. Holder resides.
United States federal backup withholding tax (which is imposed at the rate
of 31% on certain payments to persons not otherwise exempt who fail to furnish
certain identifying information) will generally not apply to:
- dividends paid to a Non-U.S. Holder that are subject to withholding at
the 30% rate (or that are subject to withholding at a reduced rate under
an applicable income tax treaty); or
- under current law, dividends paid to a Non-U.S. Holder at an address
outside of the United States, unless the payor has knowledge that the
payee is a United States person.
Under newly issued U.S. Treasury regulations, in the case of dividends paid
after December 31, 2000, a Non-U.S. Holder will generally be subject to backup
withholding, unless certain certification procedures (or in the case of payments
made outside of the United States with respect to an offshore account, certain
documentary evidence procedures) are satisfied, directly or through a foreign
intermediary.
The backup withholding and information reporting requirements will
generally also apply to the gross proceeds paid to a Non-U.S. Holder upon the
sale or other disposition of Class A common stock by or through a United States
office of a United States or foreign broker, unless the Non-U.S. Holder
certifies to the broker under penalties of perjury as to, among other things,
such holder's name, address and status as a Non-U.S. Holder by filing the
Service's Form W-8BEN (or any successor form) with the broker, or unless the
Non-U.S. Holder otherwise establishes an exemption.
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Information reporting requirements (but not backup withholding) will
generally apply to a payment of the proceeds of a sale or other disposition of
Class A common stock effected at a foreign office of:
(i) a United States broker;
(ii) a foreign broker 50% or more of whose gross income for certain
periods is effectively connected with the conduct of a trade or business
within the United States;
(iii) a foreign broker that is a "controlled foreign corporation" for
United States federal income tax purposes; or
(iv) pursuant to newly issued U.S. Treasury regulations effective
after December 31, 2000, a foreign broker that is (a) a foreign partnership
one or more of whose partners are U.S. persons that in the aggregate hold
more than 50% of the income or capital interest in the partnership at any
time during its tax year, or (b) a foreign partnership engaged at any time
during its tax year in the conduct of a trade or business in the United
States,
unless the broker has certain documentary evidence in its records that the
holder is a Non-U.S. Holder (and the broker has no knowledge to the contrary)
and certain other conditions are met, or unless the Non-U.S. Holder otherwise
establishes an exemption.
Neither backup withholding nor information reporting will generally apply
to a payment of the proceeds of a sale or other disposition of Class A common
stock effected at a foreign office of a foreign broker not subject to the
preceding paragraph. You should consult your own tax advisor concerning the
effect, if any, of the adoption of the newly issued U.S. Treasury regulations on
backup withholding and information reporting on an investment in the Class A
common stock.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Holder's United States federal income tax liability; provided, however, that the
Non-U.S. Holder files an appropriate claim for a refund with the Internal
Revenue Service.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities Inc. and
FleetBoston Robertson Stephens Inc. are acting as representatives, the following
respective numbers of shares of Class A common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Chase Securities Inc........................................
FleetBoston Robertson Stephens Inc. ........................
---------
Total.................................................. 6,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of Class A common stock in the offering if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an underwriter
defaults, the purchase commitments of non-defaulting underwriters may be
increased or the offering of Class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 975,000 additional shares of Class A common stock from us at
the initial public offering price less the underwriting discounts and
commissions. The option may be exercised only to cover any over-allotments of
Class A common stock.
The underwriters propose to offer the shares of Class A common stock
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $ per
share. The underwriters and selling group members may allow a discount of
$ per share on sales to other broker/dealers. After the initial public
offering, the public offering price and concession and discount to
broker/dealers may be changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
Per Share Total
------------------------------ ------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us........... $ $ $ $
Expenses payable by us............. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of Class A common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any shares of our
common stock, or securities convertible into or exchangeable or exercisable for
any shares of our common stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus, except pursuant to or in connection with employee
stock option or employee
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stock purchase plans in effect on the date of this prospectus and except in
connection with the conversion of shares of Class B common stock solely into
shares of Class A common stock.
Our officers and directors and all of our existing stockholders have agreed
that they will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction that would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus. The restrictions described in this
paragraph do not apply to the transfer of shares by any person to any affiliate
of that person if the transferee agrees to be subject to the restrictions
described above.
The underwriters have reserved for sale, at the initial public offering
price up to 325,000 shares of the Class A common stock for employees, directors
and other persons associated with us who have expressed an interest in
purchasing Class A common stock in the offering. The number of shares available
for sale to the general public in the offering will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list the shares of Class A common stock on The Nasdaq
Stock Market's National Market under the symbol "ATDC."
Prior to this offering, there has been no public market for the Class A
common stock. The initial public offering price will be determined by
negotiation between us and the underwriters and will not reflect the market
price for the Class A common stock following the offering. The principal factors
considered in determining the initial public offering price will be:
- market conditions for initial public offerings;
- the history of and prospects for our business, our past and present
operations;
- our past and present earnings and current financial position;
- an assessment of our management;
- the market for securities of companies in businesses similar to ours; and
- the general condition of the securities markets.
The initial public offering price may not correspond to the price at which
the Class A common stock will trade in the public market subsequent to the
offering, and an active trading market for our Class A common stock may not
develop or continue after the offering.
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicated short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the
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number of shares over-allotted by the underwriters is not greater than
the number of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is greater than
the number of shares in the over-allotment option. The underwriters may
close out any short position by either exercising their over-allotment
option and/or purchasing shares in the open market.
- Syndicate covering transactions involve purchases of the Class A common
stock in the open market after the distribution has been completed in
order to cover syndicate short positions. In determining the source of
shares to close out the short position, the underwriters will consider,
among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase shares
through the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option -- a naked short
position -- that position can only be closed out by buying shares in the
open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the
price of the shares in the open market after pricing that could adversely
affect investors who purchase in the offering.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the Class A common stock originally sold by
the syndicate member is purchased in a stabilizing transaction or
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of the Class A
common stock or preventing or retarding a decline in the market price of the
Class A common stock. As a result, the price of the Class A common stock may be
higher than the price that might otherwise exist in the open market. These
transactions may be effected on The Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A common stock in Canada is being made only
on a private placement basis exempt from the requirement that we prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of Class A common stock are effected. Accordingly, any resale of
the Class A common stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Class A common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Class A common stock in Canada who receives a
purchase confirmation will be deemed to represent to us and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Class A common stock
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A common stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A common stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from us.
Only one such report must be filed in respect of Class A common stock acquired
on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Class A common stock should consult their own legal
and tax advisors with respect to the tax consequences of an investment in the
Class A common stock in their particular circumstances and with respect to the
eligibility of the Class A common stock for investment by the purchaser under
relevant Canadian legislation.
85
<PAGE> 90
LEGAL MATTERS
Dow, Lohnes and Albertson, PLLC in Washington, D.C. will pass upon the
validity of the shares of Class A common stock offered under this prospectus.
Cravath, Swaine & Moore, New York, New York, has represented the underwriters in
this offering.
EXPERTS
The financial statements of AutoTrader.com as of December 31, 1998 and
1999, and for the period October 1, 1997 (inception) to December 31, 1997 and
the years ended December 31, 1998 and 1999, included in the prospectus and the
related financial statement schedules included elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such firm
given their authority as experts in accounting and auditing.
The financial statements of Intellisoft Development Corporation as of
December 31, 1998 and October 31, 1999, and for the year ended December 31, 1998
and the ten months ended October 31, 1999, included in the prospectus and
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, with respect to the Class A common stock offered by this
prospectus. As permitted by the rules and regulations of the SEC, this
prospectus, which is a part of the registration statement, does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to it. For further information pertaining to us and the Class A common
stock offered hereby, reference is made to such registration statement and the
exhibits and schedules thereto. Whenever a reference is made to any contract or
other document filed as an exhibit to the registration statement, each such
statement is being qualified in all respects by such reference. A copy of the
registration statement may be inspected without charge at the office of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, and the SEC's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of all or any part of the registration
statement may be obtained from such offices upon the payment of the fees
prescribed by the SEC. In addition, registration statements and certain other
filings made with the SEC through its Electronic Data Gathering, Analysis and
Retrieval system, including our registration statement and all exhibits and
amendments to our registration statements, are publicly available through the
SEC's Web site at http://www.sec.gov.
The following are trademarks or service marks of AutoTrader.com:
- AUTOCONNECT;
- AUTOCONNECT AUTOLINK; and
- YOUR CAR IS WAITING.
We intend to apply for other trademarks and service marks. All trade names,
trademarks and service marks appearing in this prospectus, other than those
listed above, are the property of their holders.
86
<PAGE> 91
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF AUTOTRADER.COM, LLC:
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1998 and 1999 and March
31, 2000 (unaudited)...................................... F-3
Statements of Operations for the period from October 1, 1997
(inception) to December 31, 1997, for the years ended
December 31, 1998 and 1999 and for the three months ended
March 31, 1999 and 2000 (unaudited)....................... F-4
Statements of Members' Equity (Deficit) for the period from
October 1, 1997 (inception) to December 31, 1997, for the
years ended December 31, 1998 and 1999 and for the three
months ended March 31, 2000 (unaudited)................... F-5
Statements of Cash Flows for the period from October 1, 1997
(inception) to December 31, 1997, for the years ended
December 31, 1998 and 1999 and for the three months ended
March 31, 1999 and 2000 (unaudited)....................... F-6
Notes to Financial Statements............................... F-7
FINANCIAL STATEMENTS OF INTELLISOFT DEVELOPMENT CORPORATION:
Independent Auditors' Report................................ F-22
Balance Sheets as of December 31, 1998 and October 31,
1999...................................................... F-23
Statements of Operations for the year ended December 31,
1998 and the ten months ended October 31, 1999............ F-24
Statements of Shareholder's Equity for the year ended
December 31, 1998 and the ten months ended October 31,
1999...................................................... F-25
Statements of Cash Flows for the year ended December 31,
1998 and the ten months ended October 31, 1999............ F-26
Notes to Financial Statements............................... F-27
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF
AUTOTRADER.COM, LLC:
Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1999.............................. F-30
Notes to the Unaudited Pro Forma Combined Statement of
Operations................................................ F-31
</TABLE>
F-1
<PAGE> 92
INDEPENDENT AUDITORS' REPORT
To the Members of AutoTrader.com, LLC:
We have audited the accompanying balance sheets of AutoTrader.com, LLC (the
"Company") as of December 31, 1998 and 1999, and the related statements of
operations, members' equity (deficit) and cash flows for the period from October
1, 1997 (inception) to December 31, 1997 and for the years ended December 31,
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 auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1999, and the results of its operations and its cash flows for the period from
October 1, 1997 (inception) to December 31, 1997 and for the years ended
December 31, 1998 and 1999, in conformity with accounting principles generally
accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 3, 2000 (June 1, 2000 as to the sixth paragraph of Note 13)
F-2
<PAGE> 93
AUTOTRADER.COM, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1998 1999 2000
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ -- $ 13,945,081 $ --
Accounts receivable, less allowance for doubtful
accounts of $6,832, $162,948, and $480,982,
respectively................................... 82,175 1,353,772 2,996,615
Prepaid expenses and other current assets......... 435,682 4,650,495 7,510,462
Amounts due from Cox Enterprises, Inc. ........... -- -- 64,611,524
------------ ------------ -------------
Total current assets...................... 517,857 19,949,348 75,118,601
Property and equipment, net......................... 1,629,363 5,685,433 7,742,837
Intangible assets................................... 234,375 4,096,595 3,879,072
Other noncurrent assets............................. 32,579 80,102 103,292
------------ ------------ -------------
Total assets.............................. $ 2,414,174 $ 29,811,478 $ 86,843,802
============ ============ =============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 1,410,750 $ 4,844,894 $ 8,669,263
Accrued expenses.................................. 92,771 1,883,441 1,498,552
Current portion of accrued incentive
compensation................................... -- 559,206 2,652,707
------------ ------------ -------------
Total current liabilities................. 1,503,521 7,287,541 12,820,522
Amounts due to Cox Enterprises, Inc................. -- 7,267,757 --
Accrued incentive compensation...................... 793,825 2,099,689 1,334,271
------------ ------------ -------------
Total liabilities......................... 2,297,346 16,654,987 14,154,793
------------ ------------ -------------
Members' equity:
Paid-in capital:
Capital contributions.......................... 25,114,712 83,874,532 174,647,847
Additional paid-in capital -- unit options..... -- 995,316 995,316
Accumulated deficit............................... (24,997,884) (71,713,357) (102,954,154)
------------ ------------ -------------
Total members' equity..................... 116,828 13,156,491 72,689,009
------------ ------------ -------------
Total liabilities and members' equity..... $ 2,414,174 $ 29,811,478 $ 86,843,802
============ ============ =============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 94
AUTOTRADER.COM, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1997 THREE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
TO DECEMBER 31, --------------------------- --------------------------
1997 1998 1999 1999 2000
--------------- ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Dealer services................... $ 41,536 $ 840,659 $ 2,929,268 $ 335,700 $ 2,533,967
National advertising.............. -- 186,989 1,164,933 151,603 400,309
E-commerce........................ -- 260 1,088,607 35,092 1,186,800
Auction-style trading services.... -- -- -- -- 130,240
----------- ------------ ------------ ----------- ------------
Total revenues............. 41,536 1,027,908 5,182,808 522,395 4,251,316
Cost of revenues.................... -- 381,664 1,469,445 384,404 402,129
----------- ------------ ------------ ----------- ------------
Gross profit........................ 41,536 646,244 3,713,363 137,991 3,849,187
----------- ------------ ------------ ----------- ------------
Operating expenses:
Product development and
technology...................... 940,190 8,602,067 6,967,423 1,341,036 2,618,807
Sales and marketing............... 922,380 11,349,569 35,643,699 4,564,381 28,806,563
General and administrative........ 444,457 3,120,316 7,411,705 1,801,799 3,291,754
Depreciation and amortization..... 15,625 288,696 826,089 113,146 609,581
----------- ------------ ------------ ----------- ------------
Total operating expenses... 2,322,652 23,360,648 50,848,916 7,820,362 35,326,705
----------- ------------ ------------ ----------- ------------
Loss from operations................ (2,281,116) (22,714,404) (47,135,553) (7,682,371) (31,477,518)
Other income (expense), net......... -- (2,364) 420,080 -- 236,721
----------- ------------ ------------ ----------- ------------
Net loss............................ $(2,281,116) $(22,716,768) $(46,715,473) $(7,682,371) $(31,240,797)
=========== ============ ============ =========== ============
Basic and diluted net loss per
unit.............................. $ (0.16) $ (1.60) $ (2.51) $ (0.54) $ (1.00)
=========== ============ ============ =========== ============
Weighted-average number of units
outstanding....................... 14,168,000 14,168,000 18,625,140 14,168,000 31,180,964
=========== ============ ============ =========== ============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 95
AUTOTRADER.COM, LLC
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PAID-IN CAPITAL
----------------------------
ADDITIONAL TOTAL
PAID-IN MEMBERS'
CAPITAL CAPITAL - ACCUMULATED EQUITY
UNITS CONTRIBUTIONS UNIT OPTIONS DEFICIT (DEFICIT)
---------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1997
(inception)...................... -- $ -- $ -- $ -- $ --
Contributions made by members.... 14,168,000 1,679,840 -- -- 1,679,840
Net loss......................... -- -- -- (2,281,116) (2,281,116)
---------- ------------ -------- ------------- ------------
Balance, December 31, 1997......... 14,168,000 1,679,840 -- (2,281,116) (601,276)
Contributions made by members.... -- 23,434,872 -- -- 23,434,872
Net loss......................... -- -- -- (22,716,768) (22,716,768)
---------- ------------ -------- ------------- ------------
Balance, December 31, 1998......... 14,168,000 25,114,712 -- (24,997,884) 116,828
Contributions made by members.... 12,232,000 58,759,820 -- -- 58,759,820
Issuance of unit options......... -- -- 995,316 -- 995,316
Net loss......................... -- -- -- (46,715,473) (46,715,473)
---------- ------------ -------- ------------- ------------
Balance, December 31, 1999......... 26,400,000 83,874,532 995,316 (71,713,357) 13,156,491
Contributions made by members
(unaudited)................... 14,455,725 90,773,315 -- -- 90,773,315
Net loss (unaudited)............. -- -- -- (31,240,797) (31,240,797)
---------- ------------ -------- ------------- ------------
Balance, March 31, 2000
(unaudited)...................... 40,855,725 $174,647,847 $995,316 $(102,954,154) $ 72,689,009
========== ============ ======== ============= ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 96
AUTOTRADER.COM, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1997 THREE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
TO DECEMBER 31, --------------------------- --------------------------
1997 1998 1999 1999 2000
--------------- ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $(2,281,116) $(22,716,768) $(46,715,473) $(7,682,371) $(31,240,797)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation.......................... -- 226,196 591,018 97,521 392,058
Amortization.......................... 15,625 62,500 235,071 15,625 217,523
Loss on disposal of equipment......... -- 2,364 -- -- --
Unit-based compensation expense....... -- -- 995,316 -- --
Changes in assets and liabilities, net
of effect of acquisition:
Increase in accounts receivable..... (41,536) (40,639) (1,271,597) (383,869) (1,642,843)
(Increase) decrease in prepaid
expenses and other current
assets........................... (144,469) (291,213) (4,214,813) 427,200 (2,859,967)
Increase in accounts payable and
accrued expenses................. 1,101,795 170,312 5,456,228 1,092,932 1,754,004
Increase in accrued incentive
compensation..................... 28,110 765,715 1,865,070 84,046 1,328,083
----------- ------------ ------------ ----------- ------------
Net cash used in operating
activities..................... (1,321,591) (21,821,533) (43,059,180) (6,348,916) (32,051,939)
----------- ------------ ------------ ----------- ------------
Cash flows from investing activities:
Additions to property and equipment..... (45,749) (1,812,174) (4,569,222) (97,462) (2,449,462)
Acquisition of business................. -- -- (4,176,657) -- --
Increase in other assets................ -- (32,579) (46,023) -- (23,190)
Increase in amounts due from Cox
Enterprises, Inc...................... -- -- -- -- (64,611,524)
----------- ------------ ------------ ----------- ------------
Net cash used in investing
activities..................... (45,749) (1,844,753) (8,791,902) (97,462) (67,084,176)
----------- ------------ ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from member contributions...... 1,367,340 23,434,872 58,759,820 6,098,423 90,773,315
Increase (decrease) in amounts due to
Cox Enterprises, Inc.................. -- -- 7,267,757 (40,985) (7,267,757)
Increase (decrease) in book
overdrafts............................ -- 231,414 (231,414) 388,940 1,685,476
----------- ------------ ------------ ----------- ------------
Net cash provided by financing
activities..................... 1,367,340 23,666,286 65,796,163 6,446,378 85,191,034
----------- ------------ ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents............................. -- -- 13,945,081 -- (13,945,081)
Cash and cash equivalents at beginning of
period.................................. -- -- -- -- 13,945,081
----------- ------------ ------------ ----------- ------------
Cash and cash equivalents at end of
period.................................. $ -- $ -- $ 13,945,081 $ -- $ --
=========== ============ ============ =========== ============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 97
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
1. THE COMPANY
AutoTrader.com, LLC (the "Company"), formerly known as AutoConnect, L.L.C.,
is an Internet destination and electronic classified marketplace for buyers and
sellers of used cars, light trucks, vans and sport utility vehicles and for
consumers seeking information regarding automotive products and services such as
insurance, financing and warranties. The Company commenced operations on October
1, 1997 (date of inception) and subsequently became a Delaware limited liability
company ("LLC"). In connection with the Company's formation, Manheim Auctions,
Inc. ("Manheim"), a wholly owned subsidiary of Cox Enterprises, Inc. ("Cox"),
and Automatic Data Processing ("ADP") (collectively, the "Members") entered into
a Contribution Agreement, under which ADP committed to contribute to the Company
approximately $3.0 million in cash and certain ADP assets with a fair value of
approximately $0.3 million, including a Web site domain name and other
intellectual property, in return for a 19% equity ownership interest. Manheim
committed to contribute to the Company approximately $14.0 million in cash in
return for an 81% equity ownership interest. An aggregate of 14,168,000 units
were issued to Manheim and ADP in connection with the formation of the Company.
At various dates during the period from October 1, 1997 through August 20,
1999, pursuant to the Contribution Agreement, Manheim and ADP were requested to
make certain additional cash contributions to the Company. ADP's ownership
interest was diluted from 19% to 6.56% because it elected not to fully
participate in certain of these additional capital contribution requests. During
such period, Manheim and ADP made cash contributions to the Company, including
both the initial commitment and subsequent capital contribution requests, in the
aggregate amount of approximately $53.0 million.
On August 20, 1999, the Company issued units in exchange for cash and
certain intangible assets, as follows:
- Landmark Communications, Inc. ("Landmark") contributed approximately
$19.4 million cash in exchange for approximately 3,168,000 units;
- KPCB Holdings, Inc. ("KPCB") contributed approximately $12.1 million cash
in exchange for approximately 1,980,000 units; and
- Trader Publishing Company ("Trader"), a Virginia general partnership
jointly owned by wholly owned subsidiaries of Cox and Landmark,
contributed certain intangible assets in exchange for 7,084,000 units
(see Note 11).
Costs directly associated with the aforementioned transaction in the
aggregate amount of approximately $0.6 million have been accounted for as a
reduction of the related proceeds.
Contemporaneously with the aforementioned transaction, the Company changed
its name from AutoConnect, L.L.C. to AutoTrader.com, LLC.
The unitholders' agreement provides Cox and ADP with supervoting power in
that each of their respective units vote on a 10-to-1 basis. As of December 31,
1999, Cox, through Manheim and TPI, Inc., a wholly-owned subsidiary of Cox, held
an ownership interest and a voting interest in the Company of 60.63% and 87.81%,
respectively.
The Company has determined that it does not have any separately reportable
business segments. Furthermore, the Company has no operations outside of the
United States.
F-7
<PAGE> 98
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. The carrying value of these investments approximates fair value.
Property and Equipment. Property and equipment are carried at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the useful lives of three to ten years. Expenditures for maintenance
and repairs are charged to expense as incurred.
Long-Lived Assets. Long-lived assets and certain intangibles to be held
and used by an entity are required to be reviewed for impairment when events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable based on expected future undiscounted cash flows. If impairment
has occurred, the asset is required to be written down to fair value. Long-lived
assets and certain intangibles to be disposed of are required to be reported at
the lower of carrying amount or fair value less cost to sell.
Intangible Assets. Intangible assets consisting primarily of excess
purchase price over net assets acquired in business combinations are carried at
cost less accumulated amortization and are amortized on a straight-line basis
over an estimated useful life of five years. The recoverability of the carrying
values of the excess of the purchase price over the net assets acquired in
business combinations accounted for by the purchase method and other intangible
assets is evaluated periodically to determine if an impairment in value has
occurred. An impairment in value will be considered to have occurred when it is
determined that the undiscounted future operating cash flows generated by the
acquired business are not sufficient to recover the carrying values of such
intangible assets. If it has been determined that an impairment in value has
occurred, the excess of the purchase price over the net assets acquired and
other intangible assets would be written down to an amount which will be
equivalent to the present value of the future operating cash flows to be
generated by the acquired businesses.
Revenue Recognition. The Company's revenues are derived from multiple
sources. Dealer services revenues are derived from a range of promotional
services, including banner advertising, inventory pages, tiles, enhanced
listings and links to the dealer's own Web site. Dealers can also purchase a
stand-alone Web site with their own Internet address and searchable used vehicle
inventory for an initial non-refundable set-up fee plus a monthly maintenance
fee. Revenues from these services are recognized ratably over the period in
which the service is provided. The set-up fees from dealer contracts are
recognized ratably over the period in which the service is provided, generally a
year. Advertising revenues are generated from short-term contracts in which the
Company typically guarantees for a fixed fee a minimum number of impressions, or
times that an advertisement appears in pages viewed by the users. These revenues
are recognized ratably over the term of the agreement, provided that the amount
recognized does not exceed the amount that would be recognized based upon actual
impressions delivered. E-commerce revenues are derived from automotive vendors
such as insurance, warranty and finance companies and automotive aftermarket
retailers who can market their services on the Company's Web site or integrate
their product with the Company's Web site. Such revenues are generally derived
from transaction-based fees determined by contractually-defined metrics such as
total site visitors, specific traffic referrals or transaction leads that
originate on the Company's Web site. Such revenues are recognized as the related
fees are earned. Auction-style trading service revenues represent commissions
related to advertising, listing and success fees and fees for related automotive
services (such as financing, insurance and shipping services) that are offered
through the Company's auction-style trading service with eBay, Inc. ("eBay").
Such commissions are recognized as revenue as the related fees are earned by
eBay. The Company does
F-8
<PAGE> 99
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
not currently recognize revenue related to barter advertising arrangements
because the value of such arrangements cannot be validated by reference to
similar cash transactions.
Web Site Development Costs. Prior to January 1, 1999, Web site development
costs were expensed as incurred. Effective January 1, 1999, the Company adopted
a policy that any software-related costs of Web sites will be capitalized in
accordance with AICPA Statement of Position No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," and amortized over
their estimated useful life. However, no such costs were incurred in 1999. Costs
related to routine Web site maintenance are expensed as incurred.
Advertising Costs. Advertising costs are expensed as incurred and totaled
approximately $922,000, $7,527,000 and $27,007,000 during the period from
October 1, 1997 to December 31, 1997 and for the years ended December 31, 1998
and 1999, respectively. The Company does not incur any significant
direct-response advertising costs.
Unit-Based Compensation. The Company has elected to account for its
unit-based compensation plans using the intrinsic value method prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations. As such, compensation expense is not
recognized for awards to employees, provided that the fair value of the
underlying equity instrument does not exceed the exercise price. Awards to
non-employees are accounted for using the fair-value method prescribed by
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," and the consensus reached by the Emerging Issues Task
Force ("EITF") in Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services." As such, compensation expense is recognized for awards to
non-employees based on the fair value of the award at the date of grant.
Income Taxes. The Company is currently a Delaware LLC. Accordingly, income
or loss attributed to the Company's operations prior to the closing of its
proposed initial public offering (the "Offering") (see Note 13) will be
allocated to its Members to be reported in their respective income tax returns.
As a result, the Company will not be able to offset future taxable income, if
any, against losses incurred prior to the closing of the Offering.
Basic and Diluted Net Loss Per Unit. Basic and diluted net loss per unit
is computed by dividing net loss by the weighted-average number of units
outstanding for the period from October 1, 1997 to December 31, 1997, the years
ended December 31, 1998 and 1999 and the three months ended March 31, 1999 and
2000 (unaudited). No effect has been given to the potential exercise of
1,894,100 and 2,026,600 unit options outstanding at December 31, 1999 and March
31, 2000 (unaudited), respectively, because the effect would be antidilutive.
There were no unit options outstanding at December 31, 1997 and 1998.
Fair Value of Financial Instruments. Carrying amounts of certain of the
Company's financial instruments, including accounts receivable, accounts payable
and other accrued liabilities, approximate fair value due to their short
maturities.
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 amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-9
<PAGE> 100
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
primarily of accounts receivable. To date, accounts receivable have primarily
been derived from fees billed to subscribing dealers, advertisers and other
industry participants. The Company generally requires no collateral to support
customer receivables. The Company maintains reserves for potential credit
losses. Historically, such losses have been within management's expectations. As
of December 31, 1998 and 1999, no subscribing dealer accounted for greater than
10% of accounts receivable. For all periods presented in the accompanying
statements of operations, no single customer accounted for greater than 10% of
revenues.
Reclassifications. Certain amounts in the 1997 and 1998 financial
statements have been reclassified for comparative purposes with 1999.
Unaudited Interim Financial Statements. The financial statements as of
March 31, 2000 and for the three months ended March 31, 1999 and 2000 include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for these
periods. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the entire year.
Recent Accounting Pronouncements. In 1998, SFAS No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities," was issued. This
statement requires that all derivatives be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be designated, reassessed and
documented. SFAS No. 133, as amended by SFAS No. 137, is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management is
in the process of assessing the impact of SFAS No. 133 on the Company's
financial statements.
In 1999, Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements", was issued. The SAB provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
Securities and Exchange Commission ("SEC"). Although SAB No. 101 does not change
any of the accounting profession's existing rules on revenue recognition, it
draws upon existing rules and explains how the SEC staff applies those rules, by
analogy, to other transactions that existing rules do not specifically address.
SAB No. 101, as amended by SAB No. 101B, becomes effective for the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. Management is in the
process of assessing the impact of SAB No. 101 on the Company's financial
statements. However, management does not expect that the adoption of SAB No. 101
will have a material impact on the Company's financial statements.
3. ACQUISITION OF INTELLISOFT DEVELOPMENT CORPORATION
On November 1, 1999, the Company purchased substantially all of the assets
of Intellisoft Development Corporation (d/b/a World Wide Wheels), an Illinois S
corporation that published, designed, maintained and managed Web sites for, and
provided marketing services to, automobile dealerships and automotive customers.
Founded in the metro Chicago area in 1995, Intellisoft also maintained and
managed its own Web sites, www.wwwheels.com and www.specialcar.com.
In addition to an initial cash payment of $4.1 million, the acquisition
agreement provides for up to $1.0 million of contingent consideration, as
follows:
- One payment of $333,333 was paid to the previous owner in January 2000 in
exchange for continued employment through December 31, 1999. This amount
has been recognized as
F-10
<PAGE> 101
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
compensation expense in the accompanying statement of operations for the
year ended December 31, 1999.
- Two additional payments of $333,333 each to be paid in February 2001 and
2002 are contingent upon the attainment of certain performance criteria
related to revenue and customer growth of the acquired company for the
years ended December 31, 2000 and 2001, respectively, and will be
accounted for as contingent purchase price in accordance with APB Opinion
No. 16, "Business Combinations", if and when it becomes probable beyond
reasonable doubt that such performance criteria will be attained. Upon
the probable attainment of the foregoing performance criteria, these
additional payments will be recorded as excess purchase price over net
tangible assets acquired and amortized as amortization expense using the
straight-line method over an estimated useful life of five years.
The acquisition has been accounted for by the purchase method of accounting
in accordance with APB Opinion No. 16, whereby the purchase price has been
allocated to the identifiable assets acquired and liabilities assumed based on
their estimated fair values at the date of acquisition. A final determination of
required purchase accounting adjustments, including the allocation of the
purchase price to the assets acquired and liabilities assumed based on their
respective fair values, has not yet been made. Upon determination of the final
fair values of certain assets and liabilities, the actual financial position and
results of operations may differ from the amounts reflected herein because of a
variety of factors, including availability of additional information and changes
in values not currently identified. However, the Company does not expect that
such final determination will have a material impact on its financial position
or results of operations. The accompanying financial statements include the
operating results of the acquisition subsequent to the date of acquisition.
The following summarized unaudited pro forma financial information for the
years ended December 31, 1998 and 1999 assumes the acquisition had occurred on
January 1 of each year:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31,
---------------------------
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................. $ 1,922,894 $ 6,475,324
Loss from operations...................................... (23,433,552) (47,548,021)
Net loss.................................................. (23,435,715) (47,127,008)
Pro forma basic and diluted net loss per unit............. $ (1.65) $ (2.53)
</TABLE>
4. CASH MANAGEMENT
Prior to August 20, 1999 (and after February 18, 2000), the Company
participated in Cox's cash management system, whereby the bank sent daily
notification of checks presented for payment. Cox transferred funds from other
sources to cover the checks presented for payment. Included in accounts payable
are book overdrafts of $231,414 at December 31, 1998, which resulted from checks
outstanding and are considered financing activities in the accompanying
statement of cash flows. Effective August 20, 1999, the Company began
maintaining its own cash accounts.
F-11
<PAGE> 102
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- -----------
1998 1999 2000
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software................... $1,853,724 $6,014,424 $ 7,976,770
Leasehold improvements............................ -- 499,805 763,267
Other equipment................................... 1,454 41,789 211,692
---------- ---------- -----------
Property and equipment, at cost................. 1,855,178 6,556,018 8,951,729
Less accumulated depreciation..................... (225,815) (870,585) (1,208,892)
---------- ---------- -----------
Net property and equipment...................... $1,629,363 $5,685,433 $ 7,742,837
========== ========== ===========
</TABLE>
6. MEMBERS' EQUITY
The Members have been and may continue to be requested to make additional
capital contributions to the Company at such times and in such amounts as
determined by the Management Committee in order to fund the Company's operating
requirements or for any other business purpose deemed appropriate by the
Management Committee. Such capital contributions shall be assessed to all
Members, with each Member having the option to contribute its pro rata share of
the total requested capital contribution based on such Member's ownership
percentage. If any Member fails to provide all or part of the capital
contribution requested of such Member, the ownership interest of that Member
will be diluted in accordance with a predetermined formula. In such event, the
other Members that have made their full capital contributions may make
additional contributions to the Company up to the entire amount of the capital
contribution not paid by the defaulting Member.
Membership units outstanding at December 31, 1998 and 1999 and March 31,
2000 (unaudited) were 14,168,000, 26,400,000 and 40,855,725, respectively. Upon
completion of the Offering, the Company will complete a reorganization
transaction in order to have AutoTrader.com, Inc., a newly formed, wholly owned
subsidiary of the Company, succeed to the business of the Company (the
"Reorganization"). In connection with the Reorganization, the Company will merge
into AutoTrader.com, Inc. with AutoTrader.com, Inc. remaining as the surviving
entity. Holders of membership units in the Company will exchange all of their
units for Class A and Class B common stock of AutoTrader.com, Inc. on a one-for-
one basis. Class A common stockholders will be entitled to one vote per share,
while Class B stockholders will be entitled to ten votes per share. Manheim and
ADP will hold all of the shares of Class B common stock, which will be
convertible at any time, or from time to time, at the Class B stockholder's
option, into Class A common stock on a share-for-share basis. Shares of Class B
common stock will convert automatically into shares of Class A common stock on a
share-for-share basis if Manheim or ADP transfers its shares of Class B common
stock to an entity which is not an affiliate of Manheim or ADP.
Immediately prior to the consummation of the Offering, Cox, Manheim,
Landmark, ADP and KPCB will enter into a stockholders' agreement that will
provide for the election of ten members of the Company's board of directors. The
stockholders who are party to the Company's stockholders' agreement will agree
that, after the consummation of this Offering, they will vote their shares
together to elect:
- seven nominees selected by Manheim;
- one nominee selected by Landmark;
- one nominee selected by ADP; and
- one nominee selected by KPCB.
F-12
<PAGE> 103
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
Upon completion of the Offering, Cox will retain control of the Company
through its economic and voting interests of approximately 51.4% and 86.3%,
respectively (50.4% and 86.0%, respectively, assuming the underwriters'
overallotment option is exercised in full).
The following table sets forth (i) Members' equity as of March 31, 2000
(unaudited) on an actual basis and (ii) stockholders' equity as of March 31,
2000 on an unaudited pro forma basis to reflect the Reorganization upon
completion of the Offering:
<TABLE>
<CAPTION>
MARCH 31, 2000
---------------------------
PRO
ACTUAL FORMA
------------- -----------
(UNAUDITED)
<S> <C> <C>
Members' equity:
Paid-in capital:
Capital contributions................................ $ 174,647,847 $ --
Additional paid-in capital -- unit options........... 995,316 --
------------- -----------
Total paid-in capital........................... 175,643,163 --
Accumulated deficit..................................... (102,954,154) --
------------- -----------
Total members' equity........................... $ 72,689,009 $ --
============= ===========
Stockholders' equity:
Preferred stock, $1.00 par value, 5,000,000 shares
authorized on a pro forma basis, none outstanding on
a pro forma basis.................................... $ -- $ --
Class A common stock, $1.00 par value, 100,000,000
shares authorized on a pro forma basis, 19,654,243
shares outstanding on a pro forma basis.............. -- 19,654,243
Class B common stock, $1.00 par value, 100,000,000
shares authorized on a pro forma basis, 21,201,482
shares outstanding on a pro forma basis.............. -- 21,201,482
Additional paid-in capital.............................. -- 31,833,284
------------- -----------
Total stockholders' equity...................... $ -- $72,689,009
============= ===========
</TABLE>
7. COMMITMENTS
Operating Leases. The Company leases office facilities and equipment under
non-cancelable operating leases. In August 1999, the Company entered into a
lease agreement, which expires in 2006, for additional office facilities for its
Atlanta, Georgia headquarters. In addition, the Company signed lease agreements
during 1999 for office space for its regional sales operations, with various
expiration dates through 2004.
As of December 31, 1999, future minimum lease payments under non-cancelable
operating leases, including the August 1999 lease, are as follows:
<TABLE>
<S> <C>
2000........................................................ $1,098,168
2001........................................................ 1,239,445
2002........................................................ 1,208,633
2003........................................................ 1,039,870
2004........................................................ 1,046,444
Thereafter.................................................. 1,649,517
----------
$7,282,077
==========
</TABLE>
F-13
<PAGE> 104
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
Total rental expense was $0, $42,677 and $273,394 for the period from
October 1, 1997 to December 31, 1997 and the years ended December 31, 1998 and
1999, respectively.
Other Agreements. In April 1999, the Company entered into a marketing
agreement with America Online ("AOL"), whereby AOL will provide the Company with
certain promotions, primarily rotating banner advertisements, within certain
automotive pages on AOL's Web site for a period of 26 months. The Company agreed
to pay AOL $17,000,000 (which is being recognized ratably as sales and marketing
expense over the term of the agreement), $8,500,000 of which remains to be paid
in 2000.
In addition, the Company has entered into non-cancelable agreements with
several other Internet media companies to purchase certain promotional rights
and linkage with the media companies and to purchase certain advertising. The
Company has also entered into non-cancelable agreements with several companies
to purchase Web-based content for the Company's Web site. Future scheduled
payments under these agreements are approximately $2,188,000 for the year 2000
and $8,500 thereafter.
8. EMPLOYEE BENEFITS PLANS
All full-time employees of the Company hired prior to December 1, 1999 are
eligible to participate in Cox's funded, qualified, defined-benefit pension
plan. Certain key employees also participate in Cox's unfunded, nonqualified
supplemental pension plan. These plans call for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the Company
and compensation rates near retirement. As specific identification of the
Company's pension expense was not practicable, a reasonable method was used to
allocate expense to the Company. Cox allocates pension expense to its
subsidiaries generally based on actuarial determinations of the effects of the
subsidiaries' employees' participation in the plans. As Manheim's allocation
included expense related to the Company, the Company's expense was calculated by
applying the number of its employees as a percentage of total Manheim employees
to total Manheim pension expense. Pension expense allocated to the Company by
Cox under the qualified and nonqualified plans was $5,514, $74,935 and $207,835
for the period from October 1, 1997 to December 31, 1997 and the years ended
December 31, 1998 and 1999, respectively.
The funded status of the portion of the Cox qualified plan covering the
employees of the Company is not determinable. The estimated fair value of
qualified plan assets exceeds the projected benefit obligation for the qualified
pension plan of Cox as of December 31, 1998 and 1999. The weighted-average
discount rate used to measure the 1999 projected benefit obligation is 8.0%
(6.75% in 1998), the rate of increase in future compensation levels is 5.75%
(4.5% in 1998) and the expected long-term rate of return on assets is 9.0% (9.0%
in 1998).
In addition to pension benefits, Cox provides certain health care and life
insurance benefits to substantially all of the Company's retirees. As specific
identification of the Company's postretirement expense was not practicable, a
reasonable method was used to allocate expense to the Company. Cox allocates
postretirement expense to its subsidiaries generally based on actuarial
determinations of the effects of the subsidiaries' employees' participation in
the plan. As Manheim's allocation included expense related to the Company, the
Company's expense was calculated by applying the number of its employees as a
percentage of total Manheim employees to total Manheim postretirement expense.
Net periodic postretirement expense allocated to the Company by Cox was $669,
$2,000 and $11,653 for the period from October 1, 1997 to December 31, 1997 and
the years ended December 31, 1998 and 1999, respectively. The Company's
actuarial present value of benefit obligations and the funded status of the
portion of the postretirement plan covering the Company's employees are not
determinable. The actuarial present value of benefit obligations for the
postretirement plan of Cox substantially exceeded the fair value of assets held
in the plan at December 31, 1999.
F-14
<PAGE> 105
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
Actuarial assumptions used to determine the accumulated postretirement
benefit obligation include a discount rate of 8.0% (6.75% in 1998) and an
expected long-term rate of return on plan assets of 9.0% (9.0% in 1998). The
weighted-average assumed rate of increase in the per capita cost of covered
health care benefits (i.e., health care cost trend rate) for retirees prior to
age 65 is 9.5% (10.0% in 1998), gradually decreasing to 5.5% (5.5% in 1998) by
2007, and remaining level thereafter. For retirees at age 65 or later, this rate
decreases to 5.0% (5.0% in 1998) by 2008. A one-percent change in the assumed
health care cost trend rate would have the following effects on the Cox plan
(the Company's specific portion of the plan is not determinable) as of December
31, 1999:
<TABLE>
<CAPTION>
ONE PERCENT
------------------------
INCREASE DECREASE
---------- -----------
<S> <C> <C>
Effect on service and interest cost components.............. $ 503,000 $ (479,000)
Effect on other postretirement benefit obligations.......... 6,208,000 (5,470,000)
</TABLE>
In addition, substantially all of the Company's employees are eligible to
participate in the qualified 401(k) savings plan of Cox. Under the terms of the
401(k) plan, the Company matches 50% of employee contributions up to a maximum
percentage of the employee's eligible compensation. The Company's expense under
the 401(k) plan was $1,085, $4,484 and $70,672 for the period from October 1,
1997 to December 31, 1997 and the years ended December 31, 1998 and 1999,
respectively.
9. UNIT-BASED COMPENSATION
Effective October 19, 1999, the Company established the 1999 AutoTrader.com
Long-Term Incentive Plan (the "Plan") to provide opportunities for certain
individuals to participate in the appreciation in value of the Company. The Plan
is administered by a committee (the "Compensation Committee") appointed by the
Management Committee. In connection with the adoption of the Plan, the
Compensation Committee reserved 3,600,000 units for awards under the Plan.
Awards may be granted to employees (including employees who are also directors),
consultants or independent contractors of the Company.
Employee Unit Options
In accordance with the terms of the Plan, the Company has granted certain
employee unit options (the "Employee Options") that become fully vested and
exercisable on January 1, 2005; however, the vesting and exercise provisions of
the Employee Options are subject to acceleration if the Company successfully
completes an initial public offering of its stock (see Note 13). If the Company
remains private, the Employee Options will expire on March 31, 2005. If the
Company completes an initial public offering, the Employee Options will remain
exercisable for a period of ten years from the date of grant. The exercise price
of the Employee Options equals the fair value of the underlying units at the
date of grant.
F-15
<PAGE> 106
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
Employee Option activity under the Plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
--------------------- ---------------------
(UNAUDITED)
WEIGHTED-
AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE
GRANTED PRICE GRANTED PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period........... -- -- 1,489,500 $5.38
Granted...................................... 1,552,500 $5.38 208,000 7.87
Exercised.................................... -- -- -- --
Cancelled.................................... (63,000) 5.38 (75,500) 5.38
--------- ----- --------- -----
Outstanding at end of period................. 1,489,500 $5.38 1,622,000 $5.70
========= ===== ========= =====
Options exercisable at end of period......... -- --
========= =========
Weighted-average grant-date fair value of
options granted during period.............. $ 1.42 $ 2.07
========= =========
</TABLE>
The fair value of each Employee Option is estimated using the Black-Scholes
Option Pricing Model with the following assumptions: dividend yield of 0%,
risk-free interest rate of 6.31% and an expected life of 5.0 years. As permitted
under the provision of SFAS No. 123, "Accounting for Stock-Based Compensation,"
and based on the historical lack of a public market of the Company's units, no
factor for volatility has been reflected in the Employee Option pricing
calculation.
The following table summarizes information about Employee Options
outstanding under the Plan at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED-
AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PRICE OUTSTANDING PRICE
-------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$5.38 1,489,500 5.25 years $5.38 -- --
</TABLE>
Because the exercise price of the Employee Options was equal to the fair
value of the underlying units at the date of grant, compensation expense has not
been recognized for Employee Options.
The pro forma effect on the Company's net loss and pro forma basic and
diluted net loss per unit, had such options been accounted for using the fair
value method prescribed by SFAS No. 123, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net loss:
As reported............................ $(46,715,473) $(31,240,797)
Pro forma.............................. (46,796,816) (31,343,015)
Pro forma basic and diluted net loss per
unit:
As reported............................ $ (2.51) $ (0.98)
Pro forma.............................. (2.51) (0.99)
</TABLE>
Non-Employee Unit Options
In accordance with the terms of the Plan, in exchange for prior services,
the Company has granted 404,600 options to select employees of Manheim, Trader
and ADP and former employees of the Company (the "Non-Employee Options") that
were fully vested on the date of grant, become exercisable on
F-16
<PAGE> 107
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
January 1, 2005 and expire on March 31, 2005. However, the exercise provisions
of the Non-Employee Options are subject to acceleration if the Company
successfully completes an initial public offering of its stock. The exercise
price of the Non-Employee Options is $5.38 per unit, which equals the estimated
fair value of the underlying units at the date of grant. The Non-Employee
Options have been accounted for using the fair value method prescribed by SFAS
No. 123 and the consensus reached by the EITF in Issue No. 96-18. The
weighted-average grant-date fair value of Non-Employee Options granted during
the year ended December 31, 1999 was $2.46, which was estimated using the
Black-Scholes Option Pricing Model with the following assumptions: dividend
yield of 0%, risk-free interest rate of 6.17%, volatility of 50% and an expected
life of 4.0 years. The Company recognized compensation expense related to these
awards of $995,316 for the year ended December 31, 1999.
Employee and Non-Employee Unit Appreciation Rights
In accordance with the terms of the Plan, the Company granted unit
appreciation rights ("UARs") to certain employees of the Company ("Employee
UARs"), as well as to select employees of Manheim, Trader and ADP ("Non-Employee
UARs"), each of which entitle the respective holder to receive a cash payment
equal to any appreciation in value of one of the Company's units above a fixed
exercise price that equals the fair value of the underlying units at the date of
grant. The Employee and Non-Employee UARs expire on January 1, 2005 and March
31, 2005, respectively. However, the exercise provisions of the UARs are subject
to acceleration if the Company successfully completes an initial public offering
of its stock. Compensation cost is recognized based on the appreciation that
will be paid to the holder upon exercise of the UAR in accordance with FASB
Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans." The Company recognized $0 and $10,964 of
compensation expense related to these awards for the year ended December 31,
1999 and the three months ended March 31, 2000 (unaudited), respectively.
UAR activity under the Plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
------------------ -------------------
(UNAUDITED)
WEIGHTED-
AVERAGE
UARS EXERCISE UARS EXERCISE
GRANTED PRICE GRANTED PRICE
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period...................... -- -- 49,900 $5.38
Granted................................................. 49,000 $5.38 11,500 7.87
Exercised............................................... -- -- -- --
Cancelled............................................... -- -- -- --
------ ----- ------ -----
Outstanding at end of period............................ 49,000 $5.38 61,400 $5.85
====== ===== ====== =====
UARs exercisable at end of period....................... -- --
====== ======
</TABLE>
10. COX UNIT APPRECIATION PLAN
Prior to the commencement of the Offering (see Note 13), several of the
executive officers and key employees of the Company who transferred from a Cox
entity participate in the Cox Unit Appreciation Plan that provides for payment
of benefits in the form of shares of Cox common stock, cash, or both, generally
five years after the date of award. Unit benefits are based on the excess, if
any, over a base amount (value of award) of the fair value of a share of Cox
common stock five years after the effective date of award. Fair values are
determined by independent appraisal. The plans provide for a maximum unit
benefit of 150% of the base amount, and benefits vest over the five-year period
following the date of award.
F-17
<PAGE> 108
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
Amounts charged to general and administrative expense for the Company's
employees were $6,145, $154,645, $1,034,577 and $377,838 for the period from
October 1, 1997 to December 31, 1997, the years ended December 31, 1998 and 1999
and the three months ended March 31, 2000 (unaudited), respectively. Amounts
accrued under the plans were $183,825, $2,099,689 and $3,416,808 as of December
31, 1998 and 1999 and March 31, 2000 (unaudited), respectively, and are included
in accrued incentive compensation in the accompanying balance sheets. In
connection with the Offering (see Note 13), the UAP liability is expected to be
settled through the issuance of 429,558 shares of restricted Class A common
stock based on the anticipated Offering price.
11. TRANSACTIONS WITH AFFILIATED COMPANIES
Manheim and Cox provide certain management services to the Company,
including legal, corporate secretarial, tax, cash management (see Note 4),
internal audit, risk management, benefits administration, business development
and other support services. The Company was allocated expenses for the period
from October 1, 1997 to December 31, 1997 and the years ended December 31, 1998
and 1999 of approximately $5,625, $325,712 and $396,278, respectively, related
to these services and office facilities. Allocated expenses are based on Cox's
estimate of expenses relative to the services provided to the Company in
relation to those provided to other divisions of Cox. Office facilities expense
is allocated based on occupied space. Management believes that these allocations
were made on a reasonable basis. However, the allocations are not necessarily
indicative of the level of expenses that might have been incurred had the
Company contracted directly with third parties. Management has not made a study
or any attempt to obtain quotes from third parties to determine what the cost of
obtaining such services from third parties would have been. Such fees and
expenses are subject to change in future periods.
The amounts due to or from Cox represent the net of various transactions,
including those described above, as well as the Company's participation in the
Cox cash management system (see Note 4). The amounts due to Cox at December 31,
1999 are classified as long-term because the Company has the ability and the
intent to refinance these obligations on a long-term basis. Outstanding amounts
due to Cox carry interest at 40 basis points above Cox's commercial paper
borrowing rate, whereas outstanding amounts due from Cox carry interest at Cox's
commercial paper borrowing rate, which was 6.0% at December 31, 1999 and March
31, 2000 (unaudited). There were no outstanding amounts due to or from Cox at
December 31, 1998.
Prior to August 20, 1999, the Company paid commissions to ADP relating to
sales transactions with ADP customers. Sales commissions of $52,539 and
$1,354,201 were paid to ADP in 1998 and 1999, respectively. These transactions
ceased subsequent to August 20, 1999.
The intangible assets acquired from Trader (the "Trader Assets") in
exchange for 7,084,000 units (see Note 1) are comprised of (i) Trader's existing
and ongoing access to preowned automobile classified listings and photos
appearing in Trader's automotive print publications for a period of ten years,
(ii) a license to use certain marks, trade names and domain names, including
www.autotrader.com, and (iii) certain dealer and Web site service agreements,
including all rights, title and interest of Trader under service agreements and
preowned automobile insertion orders to provide Web site development, hosting
and maintenance to automobile dealers. The license terminates on the earlier of
December 31, 2049 or upon the occurrence of certain termination events. The
Company has accounted for the contribution of the Trader Assets at Trader's
historical cost basis of zero, in accordance with Staff Accounting Bulletin No.
48, "Transfers of Nonmonetary Assets by Promoters or Shareholders."
F-18
<PAGE> 109
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
In August 1999, the Company entered into a reciprocal service agreement to
exchange certain cross-promotional services with Trader for a period of ten
years. In connection with this agreement, the Company provides the following
advertising and promotion on its Web site on behalf of Trader:
- all listings provided by Trader are branded as such;
- at least 15% of all unsold advertisement impressions, but in no event
less than 5% of total advertisement impressions are to be made available
to Trader; and
- graphical links to Trader's Web site are to be included on the home page
of the Company's Web site as well as on the bottom of each page
throughout the Company's Web site.
In return, Trader provides the following advertising and promotion to the
Company:
- prominent featuring of the Company's domain name on the cover and on
every inside page of Trader's automotive print magazines;
- black and white advertising of the Company on an average of one or two
pages in each automotive magazine and the Company's domain name on
one-quarter of the pages in Trader's non-automotive magazines; and
- inclusion of a tab on the home page of Trader's Web site and a link to
the Company's Web site.
The Company has accounted for the service agreement with Trader as an
advertising barter transaction in accordance with EITF Issue No. 99-17,
"Accounting for Advertising Barter Transactions," which specifies that barter
revenue and barter expense may be recognized to the extent the reporting entity
has a history of similar cash transactions. The Company analyzed the nature of
the services to be provided under the service agreement with Trader and
concluded that it did not have an adequate history of similar cash transactions.
Accordingly, the Company has not recognized any barter revenue or barter expense
in the accompanying statement of operations for the year ended December 31, 1999
related to its service agreement with Trader.
Also in August 1999, the Company and Manheim entered into a ten-year data
contribution agreement whereby Manheim agreed to provide the Company with
certain information related primarily to vehicles sold through its North
American auctions, including a digital photo image. The agreement also requires
Manheim, at its own expense, to prominently promote the Company at its North
American auctions. Manheim can terminate this agreement at any time after August
2004 if its voting interest in the Company falls below 50%. The incremental
costs allocated by Manheim to the Company during 1999 in connection with this
agreement were nominal.
Also in August 1999, the Company and ADP entered into a data contribution
agreement whereby ADP agreed to provide on-going automotive inventory polling
services in exchange for (i) a transaction-based fee, along with an initial
set-up fee for each dealer and (ii) access to the Company's database of vehicle
information. These inventory polling services are expensed as incurred and are
included in sales and marketing expense. The Company recognized approximately
$141,000 of such expense related to this agreement for the year ended December
31, 1999.
F-19
<PAGE> 110
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
12. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following table sets forth selected historical unaudited quarterly
financial information of the Company. This information is derived from unaudited
quarterly financial statements of the Company and includes, in the opinion of
management, only normal and recurring adjustments that management considers
necessary for a fair presentation of the results for such periods.
<TABLE>
<CAPTION>
1998
-----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................................... $ 154,518 $ 182,012 $ 273,711 $ 417,667
Cost of revenues............................ 15,675 52,271 157,508 156,210
----------- ----------- ----------- -----------
Gross profit................................ 138,843 129,741 116,203 261,457
----------- ----------- ----------- -----------
Operating expenses:
Product development and technology........ 2,291,091 3,194,663 2,024,764 1,091,549
Sales and marketing....................... 2,063,993 2,543,481 3,612,146 3,129,949
General and administrative................ 445,806 824,035 791,534 1,058,941
Depreciation and amortization............. 20,576 59,698 99,711 108,711
----------- ----------- ----------- -----------
Total operating expenses.......... 4,821,466 6,621,877 6,528,155 5,389,150
----------- ----------- ----------- -----------
Loss from operations........................ $(4,682,623) $(6,492,136) $(6,411,952) $(5,127,693)
=========== =========== =========== ===========
Net loss.................................... $(4,682,623) $(6,494,500) $(6,411,952) $(5,127,693)
=========== =========== =========== ===========
Basic and diluted net loss per unit......... $ (0.33) $ (0.46) $ (0.45) $ (0.36)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1999
-------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues.................................. $ 522,395 $ 793,641 $ 1,513,195 $ 2,353,577
Cost of revenues.......................... 384,404 294,468 349,851 440,722
----------- ----------- ------------ ------------
Gross profit.............................. 137,991 499,173 1,163,344 1,912,855
----------- ----------- ------------ ------------
Operating expenses:
Product development and technology...... 1,341,036 1,656,505 1,954,046 2,015,836
Sales and marketing..................... 4,564,381 5,546,525 10,544,679 14,988,114
General and administrative.............. 1,801,799 1,293,852 1,577,895 2,738,159
Depreciation and amortization........... 113,146 121,013 193,382 398,548
----------- ----------- ------------ ------------
Total operating expenses........ 7,820,362 8,617,895 14,270,002 20,140,657
----------- ----------- ------------ ------------
Loss from operations...................... $(7,682,371) $(8,118,722) $(13,106,658) $(18,227,802)
=========== =========== ============ ============
Net loss.................................. $(7,682,371) $(8,129,750) $(12,941,563) $(17,961,789)
=========== =========== ============ ============
Basic and diluted net loss per unit....... $ (0.54) $ (0.57) $ (0.66) $ (0.68)
=========== =========== ============ ============
</TABLE>
13. SUBSEQUENT EVENTS
In January 2000, the Company entered into an annual advertising agreement
with Greenlight.com to promote Greenlight.com's new car listing through banner
advertisements and linking services on the
F-20
<PAGE> 111
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO
DECEMBER 31, 1999 IS UNAUDITED)
Company's Web site. A Member of the Company, KPCB, has an approximate 38%
ownership interest in Greenlight.com.
In February and March 2000, the Company issued an aggregate of
approximately 13,282,000 units to its Members in exchange for capital
contributions in the aggregate of approximately $81.6 million. Such additional
capital contributions were requested from all Members, with each Member having
the option to contribute its pro rata share of the total capital contribution
based on such Members' ownership percentage. Because certain Members elected not
to participate, their respective ownership interests were diluted on a pro rata
basis.
In March 2000, the Company entered into a marketing arrangement with eBay
to jointly engage in the development and operation of an online auction-style
trading service of used vehicles through a new co-branded Web site for a term of
3 1/2 years. eBay will pay to the Company a commission of 50% of gross revenues
received by eBay for advertising, listing and success fees, and fees for related
automotive services (such as financing, insurance, and shipping services) that
are offered through the co-branded Web site. The agreement also requires the
Company to pay to eBay a marketing fee of at least $32.5 million, payable in
periodic installments over the term of the arrangement. In addition, the Company
is committed to spend at least $7.0 million in 2000 to advertise and promote the
co-branded Web site. The Company is recognizing the 50% commission as revenue as
the related fees are earned by eBay. The $32.5 million marketing fee is being
recognized as expense ratably over the term of the agreement. The $7.0 million
advertising and promotion commitment is being recognized as expense as it is
incurred.
Also in March 2000, eBay purchased approximately 1,174,000 units
(representing a 3.3% ownership interest in the Company) for approximately $9.2
million.
In April 2000, the Members authorized the filing of a registration
statement with the SEC that would permit the Company to sell up to 7,475,000
shares of common stock in connection with the Offering.
In June 2000, the Company entered into an amended lease agreement for its
headquarters in Atlanta, Georgia. Under the amended agreement, the Company
agreed to lease additional space in its office facility totalling 20,430 square
feet, as well as extend the term of the lease three years, to expire in August
2010. These lease amendments resulted in an additional commitment by the Company
of approximately $9.6 million over the extended term of the amended agreement.
The Company is also committed to spend an additional $1.7 million by the end of
2000 on leasehold improvements and office equipment related to the expansion of
its Atlanta headquarters.
F-21
<PAGE> 112
INDEPENDENT AUDITORS' REPORT
To the Shareholder of Intellisoft Development Corporation:
We have audited the accompanying balance sheets of Intellisoft Development
Corporation ("Intellisoft") as of December 31, 1998 and October 31, 1999, and
the related statements of operations, shareholder's equity and cash flows for
the year ended December 31, 1998 and for the ten month period ended October 31,
1999. These financial statements are the responsibility of Intellisoft's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Intellisoft as of December 31, 1998 and
October 31, 1999 and the results of its operations and its cash flows for the
year ended December 31, 1998 and for the ten month period ended October 31,
1999, in conformity with accounting principles generally accepted in the United
States of America.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 17, 2000
F-22
<PAGE> 113
INTELLISOFT DEVELOPMENT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1998 1999
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $101,907 $117,046
Accounts receivable, less allowance for doubtful accounts
of $12,256 and $39,860, respectively................... 135,065 118,113
-------- --------
Total current assets.............................. 236,972 235,159
Property and equipment, net................................. 49,572 77,866
Other noncurrent assets..................................... 2,500 1,667
-------- --------
Total assets...................................... $289,044 $314,692
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 42,496 $ 91,781
-------- --------
Shareholder's equity:
Common stock, $1 par value, 100,000 shares authorized,
1,000 shares issued and outstanding.................... 1,000 1,000
Retained earnings......................................... 245,548 221,911
-------- --------
Total shareholder's equity........................ 246,548 222,911
-------- --------
Total liabilities and shareholder's equity........ $289,044 $314,692
======== ========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 114
INTELLISOFT DEVELOPMENT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, OCTOBER 31,
1998 1999
------------ -----------
<S> <C> <C>
Revenues.................................................... $894,986 $1,292,516
Cost of revenues............................................ 97,054 156,831
-------- ----------
Gross profit................................................ 797,932 1,135,685
-------- ----------
Expenses:
Product development and technology........................ 60,064 30,751
Sales and marketing....................................... 66,702 94,007
General and administrative................................ 406,051 663,134
Depreciation and amortization............................. 14,838 24,074
-------- ----------
Total operating expenses.......................... 547,655 811,966
-------- ----------
Income from operations...................................... 250,277 323,719
Other income, net........................................... 201 933
-------- ----------
Net income.................................................. $250,478 $ 324,652
======== ==========
</TABLE>
See notes to financial statements.
F-24
<PAGE> 115
INTELLISOFT DEVELOPMENT CORPORATION
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED SHAREHOLDER'S
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balance, December 31, 1997.................................. $1,000 $ 108,650 $ 109,650
Distributions to shareholder.............................. (113,580) (113,580)
Net income................................................ 250,478 250,478
------ --------- ---------
Balance, December 31, 1998.................................. 1,000 245,548 246,548
Distributions to shareholder.............................. (348,289) (348,289)
Net income................................................ 324,652 324,652
------ --------- ---------
Balance, October 31, 1999................................... $1,000 $ 221,911 $ 222,911
====== ========= =========
</TABLE>
See notes to financial statements.
F-25
<PAGE> 116
INTELLISOFT DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, OCTOBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 250,478 $ 324,652
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 14,838 24,074
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... (86,255) 16,952
Increase in accounts payable and accrued expenses.... 22,057 49,285
--------- ---------
Net cash provided by operating activities......... 201,118 414,963
--------- ---------
Cash flows from investing activities:
Additions to property and equipment....................... (27,342) (51,535)
--------- ---------
Cash flows from financing activities:
Distributions to shareholder.............................. (113,580) (348,289)
--------- ---------
Net increase in cash and cash equivalents................... 60,196 15,139
Cash and cash equivalents at beginning of period............ 41,711 101,907
--------- ---------
Cash and cash equivalents at end of period.................. $ 101,907 $ 117,046
========= =========
</TABLE>
See notes to financial statements.
F-26
<PAGE> 117
INTELLISOFT DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Intellisoft Development Corporation (d/b/a World Wide Wheels)
("Intellisoft") is an Illinois S corporation that publishes, designs, maintains
and manages various Web sites for, and provides marketing services to,
automobile dealerships and automotive-related customers. Founded in the metro
Chicago area in 1995, Intellisoft also maintains and manages its own Web sites,
www.wwwheels.com and www.specialcar.com.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents. Cash equivalents include all highly liquid
assets with original maturities of three months or less. The carrying amounts
reported in the accompanying balance sheets approximate fair value.
Property and Equipment. Property and equipment are carried at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the useful lives of three to five years. Expenditures for
maintenance and repairs are charged to expense as incurred.
Long-Lived Assets. Long-lived assets and certain intangibles to be held
and used by an entity are required to be reviewed for impairment when events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable based on expected future undiscounted cash flows. If impairment
has occurred, the asset is required to be written down to fair value. Long-lived
assets and certain intangibles to be disposed of are required to be reported at
the lower of carrying amount or fair value less cost to sell.
Revenue Recognition. Substantially all revenues consist of fees paid by
subscribing dealers and advertisers. Dealer fees are comprised of an initial
set-up fee and a monthly hosting fee for maintaining the dealer's data on the
Web site. Fees are charged on a month-to-month basis and revenue is recognized
when the related services are performed. Intellisoft does not currently
recognize revenue related to barter advertising arrangements because the value
of such arrangements cannot be validated by reference to similar cash
transactions.
Cost of Revenues. Cost of revenues consists of fees to outside vendors
contracted to host and manage the dealer Web sites as well as compensation and
other personnel costs incurred for the development of dealer Web products.
Web Site Development Costs. Prior to January 1, 1999, Web site development
costs were expensed as incurred. Effective January 1, 1999, Intellisoft adopted
a policy that any software-related costs of Web sites will be capitalized in
accordance with AICPA Statement of Position No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," and amortized over
their estimated useful life. However, no such costs were incurred in 1999. Costs
related to routine Web site maintenance are expensed as incurred.
Advertising Costs. Advertising costs are expensed as incurred and totaled
approximately $134,000 and $208,000 for the year ended December 31, 1998 and the
ten months ended October 31, 1999, respectively. Intellisoft does not incur any
significant direct-response advertising costs.
Income Taxes. Intellisoft has no provision for income taxes due to its
status as an S corporation. For tax purposes, all earnings and losses of
Intellisoft flow through to its shareholder.
Fair Value of Financial Instruments. Carrying amounts of certain of
Intellisoft's financial instruments, including accounts receivable and accounts
payable and accrued expenses, approximate fair value due to their short
maturities.
F-27
<PAGE> 118
INTELLISOFT DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk. Financial instruments that potentially
subject Intellisoft to significant concentrations of credit risk consist
primarily of accounts receivable. Accounts receivable have primarily been
derived from fees billed to subscribing dealers. Intellisoft generally requires
no collateral to support customer receivables. Intellisoft maintains reserves
for potential credit losses. Historically, such losses have been minor and
within management's expectations. As of December 31, 1998 and October 31, 1999,
no subscribing dealer accounted for greater than 10% of accounts receivable. For
all periods presented in the accompanying statements of operations, no
subscribing dealer accounted for greater than 10% of revenues.
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 amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1998 1999
------------ -----------
<S> <C> <C>
Computer equipment and software............................. $ 77,141 $100,525
Leasehold improvements...................................... -- 5,088
Other equipment............................................. 2,941 26,004
-------- --------
Property and equipment, at cost........................... 80,082 131,617
Less accumulated depreciation............................... (30,510) (53,751)
-------- --------
Net property and equipment................................ $ 49,572 $ 77,866
======== ========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
Intellisoft has entered into cancelable and non-cancelable barter
agreements with several online and offline media companies whereby Intellisoft
provides certain Web site development and hosting services in exchange for the
right to post Intellisoft's used vehicle listings on the customers' Web sites,
as well as promotional branding and linkage to Intellisoft's Web site. Such
promotional branding and linkage is typically featured prominently on the main
automobile-related pages within the customers' Web sites. Intellisoft does not
currently give recognition to these arrangements in its financial statements
because the underlying value cannot be validated by reference to similar cash
transactions.
5. RELATED PARTY TRANSACTIONS
Intellisoft leased office facilities from Intellisoft's shareholder during
a portion of 1999. Total rental payments of $35,000 were made to Intellisoft's
shareholder during the ten months ended October 31, 1999.
Total rental expense was $12,000 for the year ended December 31, 1998 and
$38,000 for the ten months ended October 31, 1999.
6. SUBSEQUENT EVENTS
Intellisoft entered into an agreement on November 1, 1999 to sell
substantially all of Intellisoft's assets to AutoTrader.com, LLC. In addition to
initial cash proceeds of approximately $4.1 million, the acquisition agreement
provides for up to $1.0 million of contingent consideration to be received upon
the attainment of certain performance criteria.
F-28
<PAGE> 119
AUTOTRADER.COM, LLC
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information has been
derived from the historical financial statements of AutoTrader.com, LLC (the
"Company") and Intellisoft Development Corporation ("Intellisoft"). The
unaudited pro forma combined statement of operations for the year ended December
31, 1999 has been presented as if the acquisition of Intellisoft had been
consummated on January 1, 1999. The Company acquired Intellisoft on November 1,
1999.
The unaudited pro forma combined financial information gives effect to the
acquisition of Intellisoft under the purchase method of accounting for business
combinations and is based upon the assumptions and adjustments described in the
accompanying notes to the unaudited pro forma combined financial information
presented on the following pages. A final determination of required purchase
accounting adjustments, including the allocation of the purchase price to the
assets acquired and liabilities assumed based on their respective fair values,
has not yet been made. Accordingly, the purchase accounting adjustments made in
connection with the development of the unaudited pro forma combined financial
information are preliminary. Upon determination of the final fair values of
certain assets and liabilities, the actual financial position and results of
operations may differ from the unaudited pro forma combined amounts because of a
variety of factors, including availability of additional information and changes
in values not currently identified. However, the Company does not expect that
such final determination will have a material impact on its financial position
or results of operations.
The pro forma adjustments do not reflect any operating efficiencies and
cost savings that the Company may achieve with respect to the combined
companies. The pro forma adjustments do not include any adjustments to
historical revenues for any future price changes nor any adjustments to
operating, marketing and general and administrative expenses for any future
operating changes.
The unaudited pro forma combined results are not necessarily indicative of
the financial position or operating results that would have occurred had the
acquisition of Intellisoft been consummated on the date, or at the beginning of
the period, for which such acquisition has been given effect. In addition, the
unaudited pro forma combined results are not necessarily indicative of the
combined results of future operations.
F-29
<PAGE> 120
AUTOTRADER.COM, LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
AUTOTRADER.COM(1) INTELLISOFT(1) ADJUSTMENTS(2) TOTAL
----------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Dealer services...................... $ 2,929,268 $1,292,516 $ -- $ 4,221,784
Advertising.......................... 1,164,933 -- -- 1,164,933
E-commerce........................... 1,088,607 -- -- 1,088,607
------------ ---------- --------- ------------
Total revenues................ 5,182,808 1,292,516 -- 6,475,324
Cost of revenues....................... 1,469,445 156,831 -- 1,626,276
------------ ---------- --------- ------------
Gross profit........................... 3,713,363 1,135,685 -- 4,849,048
------------ ---------- --------- ------------
Operating expenses:
Product development and technology... 6,967,423 30,751 -- 6,998,174
Sales and marketing.................. 35,643,699 94,007 -- 35,737,706
General and administrative........... 7,411,705 663,134 53,333(3) 8,128,172
Depreciation and amortization........ 826,089 24,074 682,854(4) 1,533,017
------------ ---------- --------- ------------
Total operating expenses...... 50,848,916 811,966 736,187 52,397,069
------------ ---------- --------- ------------
Income (loss) from operations.......... (47,135,553) 323,719 (736,187) (47,548,021)
Other income, net...................... 420,080 933 421,013
------------ ---------- --------- ------------
Net income (loss)...................... $(46,715,473) $ 324,652 $(736,187) $(47,127,008)
============ ========== ========= ============
Basic and diluted net loss per
unit............................... $ (2.51) $ (2.53)
============ ============
Weighted-average units outstanding... 18,625,140 18,625,140
============ ============
</TABLE>
See notes to unaudited pro forma combined statement of operations.
F-30
<PAGE> 121
AUTOTRADER.COM, LLC
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
(1) Represents historical revenues and expenses of the Company for the year
ended December 31, 1999 and of Intellisoft for the ten-month period ended
October 31, 1999. The Company acquired Intellisoft on November 1, 1999.
Accordingly, the historical revenues and expenses of Intellisoft for the
period subsequent to October 31, 1999 through December 31, 1999 are
reflected in the Company's historical amounts.
(2) The following adjustments are presented to reflect the effects of recording
the Intellisoft acquisition and applying purchase accounting to the
accounts of Intellisoft. A summary of the basis for these adjustments is as
follows:
<TABLE>
<S> <C>
Cash purchase price......................................... $4,100,000
----------
Allocation of purchase price to net tangible assets
acquired:
Less: Estimated fair value of net tangible assets
acquired:
Property and equipment................................. (77,866)
Other noncurrent assets................................ (1,667)
----------
Total net tangible assets acquired................... (79,533)
----------
Add: Direct acquisition costs............................. 76,657
----------
Excess of purchase price over net tangible assets
acquired.................................................. $4,097,124
==========
</TABLE>
In addition, the acquisition agreement provides for up $1.0 million of
contingent consideration as follows:
(a) One payment of $333,333 was paid to the previous owner in January 2000
in exchange for continued employment through December 31, 1999. This
payment has been recognized as compensation expense in the historical
statement of operations of the Company for the year ended December 31,
1999.
(b) Two additional payments of $333,333 each to be paid in February 2001
and 2002 are contingent upon the attainment of certain performance
criteria related to revenue and customer growth of the acquired company
for the years ended December 31, 2000 and 2001, respectively, and will
be accounted for as contingent purchase price in accordance with APB
Opinion No. 16, "Business Combinations" if and when it becomes probable
beyond reasonable doubt that such performance criteria will be
attained. Upon the probable attainment of the foregoing performance
criteria, these additional payments will be recorded as excess purchase
price over net tangible assets acquired and amortized as amortization
expense using the straight-line method over an estimated useful life of
five years.
(3) To record incremental compensation expense arising from employment
agreements that were entered into by the previous owner of Intellisoft with
the Company in conjunction with the acquisition as follows:
<TABLE>
<S> <C>
Annual base compensation of $250,000 to be paid under the
employment agreement entered into in conjunction with the
acquisition and prorated for the ten-month period ended
October 31, 1999.......................................... $208,333
Less: Compensation expense recorded in Intellisoft's
historical financial statements for the ten-month period
ended October 31, 1999.................................... (155,000)
--------
Incremental compensation expense............................ $ 53,333
========
</TABLE>
F-31
<PAGE> 122
AUTOTRADER.COM, LLC
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS -- (CONTINUED)
(4) To record amortization expense related to the intangible assets arising
from the Intellisoft acquisition using an estimated life of five years as
follows:
<TABLE>
<S> <C>
Excess of purchase price over net tangible assets acquired
(see Note 2).............................................. $4,097,124
==========
Straight-line amortization expense over five years and
prorated for the ten-month period ended October 31,
1999...................................................... $ 682,854
==========
</TABLE>
F-32
<PAGE> 123
INSIDE BACK COVER
[ARTWORK]
THE BIGGEST, BEST PARTNERSHIPS ON THE PLANET
Some of the world's leading businesses are partnering with
AutoTrader.com to make it the "biggest, best used car site on the planet."
[LOGO OF COX ENTERPRISES, INC.]
Cox Enterprises is one of the nation's leading media companies with
major subsidiaries including: Manheim Auctions, Cox Newspapers, Inc., Cox
Broadcasting, Inc., Cox Radio, Inc., Cox Communications, Inc., and Cox
Interactive Media, Inc. Cox has been a pioneer in media for over 100 years.
[LOGO OF LANDMARK COMMUNICATIONS INC.]
Landmark Communications Inc., a leading media company, has extensive
holdings in newspapers, cable networks, TV stations, print publications and the
Internet.
[LOGO OF MANHEIM AUCTIONS]
Manheim Auctions, the world's largest wholesale auto auction company,
has partnered exclusively with AutoTrader.com, providing access to the largest
network of dealers and millions of vehicle listings and images.
[LOGO OF TRADER PUBLISHING]
Trader Publishing, a joint venture of Cox and Landmark, is the largest
publisher of auto classified magazines and provides exclusive listings, images
and promotional support to AutoTrader.com.
[LOGO OF KLEINER PERKINS CAUFIELD & BYERS]
Kleiner Perkins Caufield & Byers, a leading investment company has
invested in Internet leaders such as AOL and Amazon.com. They offer
AutoTrader.com unparalleled Internet experience and insight.
[LOGO OF ADP]
ADP, the leading provider of dealer management systems, has made an
exclusive partnership with AutoTrader.com to poll dealer inventories in order
to make the site the most comprehensive listings source.
[LOGO OF eBay]
eBay, the world's largest personal trading community, and pioneer of
person-to-person on-line trading, has teamed up exclusively with AutoTrader.com
to launch a co-branded site called ebay-autotrader.com.
<PAGE> 124
[ARTWORK]
BUILDING ONE OF THE BIGGEST, BEST INTERNET BRANDS ON THE PLANET.
Using a multi-media marketing effort to reach millions of used car
buyers and sellers, AutoTrader.com is committed to building a long-term brand.
[picture from "Whoosh" television advertisement showing
a customer searching for a used vehicle]
"Whoosh"
A 30 second television spot first appeared during Super Bowl 2000 to
initiate AutoTrader.com's branding campaign.
[logos of distribution partners]
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the SEC registration fee, the NASD filing fee and the Nasdaq National Market
application fee. All of these fees are being paid by AutoTrader.com.
<TABLE>
<S> <C>
Registration Fee............................................ $ 26,400
NASD Filing Fee............................................. 10,500
Nasdaq Stock Market Listing Application Fee................. 95,000
Legal Fees and Expenses..................................... 900,000
Accounting Fees and Expenses................................ 600,000
Printing and Engraving Fees................................. 225,000
Transfer Agent and Registrar Fee............................ *
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>
---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. In the absence of the limitations
authorized by the Delaware statute, directors could be accountable to
corporations and their stockholders for monetary damages for conduct that does
not satisfy their duty of care. Although the statute does not change directors'
duty of care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The certificate of incorporation
limits the liability of AutoTrader.com's directors to AutoTrader.com or its
stockholders to the fullest extent permitted by the Delaware statute.
Specifically, the directors of AutoTrader.com will not be personably liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to
AutoTrader.com or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law (which relates to the
unlawful payment of a dividend or an unlawful stock purchase or redemption by a
corporation) or (iv) for any transaction from which a director derived an
improper personal benefit. The inclusion of this provision in the certificate of
incorporation may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefited
AutoTrader.com and its stockholders.
AutoTrader.com has entered into indemnification agreements with each of its
directors. These agreements provide for the indemnification of directors by
AutoTrader.com under certain conditions in connection with actions brought
against a director based on the fact of his or her service as a director of
AutoTrader.com or based on any action taken by him or her as a director. Under
these agreements, a director is indemnified against all expenses, costs,
attorneys' fees, settlements, judgments, fines or penalties incurred in
connection with any action other than an action brought by or on behalf of
AutoTrader.com, as long as the director had acted in good faith and in the best
interests of AutoTrader.com (and in the case
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<PAGE> 126
of a criminal proceeding, as long as the director had no reason to believe that
his or her conduct was unlawful).
In connection with an action by or on behalf of AutoTrader.com, a director
is indemnified against any expenses, costs, attorneys' fees or settlements
(where permitted by law), as long as such director had acted in good faith and
in the best interests of AutoTrader.com. However, the director will not be
entitled to indemnification in such an action if he or she is found to be liable
to the company, unless the court determines that despite this liability, the
director is fairly and reasonably entitled to indemnification under the
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In December 1997, AutoConnect, L.L.C. (the predecessor of AutoTrader.com,
LLC) issued to Manheim Auctions, Inc. and ADP, Inc. 810,000 Class A membership
units and 190,000 Class A membership units, respectively, in connection with
AutoConnect, L.L.C.'s formation. The aggregate consideration paid for such
securities was $17,324,757. Such securities were issued pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
In August 1999, AutoConnect, L.L.C. (the predecessor of AutoTrader.com,
LLC) issued 250,000 Class A membership units to each of TPI, Inc. and LTM
Company, L.P. in connection with the closing of the transactions contemplated by
the Contribution Agreement. In consideration for such securities, assets with an
agreed fair market value of $43,333,333 were contributed to AutoConnect, L.L.C.
Such securities were issued pursuant to the exemption set forth in Section 4(2)
of the Securities Act.
In August 1999, AutoConnect, L.L.C. (the predecessor of AutoTrader.com,
LLC) issued 223,602 Class A membership units to ATC Holdings, Inc. in connection
with the closing of the transactions contemplated by a Unit Purchase Agreement.
The consideration paid for such securities was $19,378,881.99. Such securities
were issued pursuant to the exemption set forth in Section 4(2) of the
Securities Act.
In August 1999, AutoConnect, L.L.C. (the predecessor of AutoTrader.com,
LLC) issued 139,752 Class A membership units to KPCB Holdings, Inc. in
connection with the closing of the transactions contemplated by a Unit Purchase
Agreement. The consideration paid for such securities was $12,111,801.24. Such
securities were issued pursuant to the exemption set forth in Section 4(2) of
the Securities Act.
In August 1999, as part of the other transactions occurring at that time
and described above, AutoConnect, L.L.C. changed its name to AutoTrader.com,
LLC.
In December 1999, AutoTrader.com, LLC effected a 14.168-for-1 split of its
outstanding membership units.
In February 2000, AutoTrader.com, LLC issued 7,955,311 membership units to
its members pursuant to the consummation of a capital call. The aggregate
consideration paid for such securities was $48,662,997.83. Such securities were
issued pursuant to the exemption set forth in Section 4(2) of the Securities
Act.
In March 2000, AutoTrader.com, LLC issued 1,173,876 membership units to
eBay, Inc. in connection with the closing of the transactions contemplated by a
Unit Purchase Agreement. The consideration paid for such securities was
$9,237,000. Such securities were issued pursuant to the exemption set forth in
Section 4(2) of the Securities Act.
In March 2000, AutoTrader.com, LLC issued 5,326,544 membership units to its
members pursuant to the consummation of a capital call. The aggregate
consideration paid for such securities was $32,891,000. Such securities were
issued pursuant to the exemption set forth in Section 4(2) of the Securities
Act.
The Registrant issued 100 shares of its common stock to AutoTrader.com, LLC
on April 1, 2000 for an aggregate consideration of $100. The offering and sale
of the shares of common stock were not
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<PAGE> 127
registered under the Securities Act of 1933 because the offering and sale were
made in reliance on the exemption provided by Section 4(2) of the Securities Act
of 1933 and Rule 506 thereunder for transactions by an issuer not involving a
public offering. As a result of a merger between the Registrant and
AutoTrader.com, LLC concurrently with the consummation of the offering to which
this registration statement relates, the holders of the limited liability
company units of AutoTrader.com, LLC will exchange all of their membership units
for the Registrant's Class A and Class B common stock on a one-for-one basis.
For more information, see "Certain Relationships and Related
Transactions -- Reorganization." The offering and sale of the shares of common
stock will not be registered under the Securities Act of 1933 because the
offering and sale will be made in reliance on the exemption provided by Section
4(2) of the Securities Act of 1933 and Rule 506 thereunder for transactions by
an issuer not involving a public offering (with the recipients representing
their intentions to acquire the securities for their own accounts and not with a
view to the distribution thereof and acknowledging that the securities will be
issued in a transaction not registered under the Securities Act of 1933).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
2.1 -- Form of Agreement and Plan of Merger
*3.1 -- Certificate of Incorporation of AutoTrader.com, Inc.
3.2 -- Form of Amended and Restated Certificate of Incorporation of
AutoTrader.com, Inc.
*3.3 -- Bylaws of AutoTrader.com, Inc.
3.4 -- Form of Amended and Restated Bylaws of AutoTrader.com, Inc.
4.1 -- Specimen Class A Common Stock Certificate
**5.1 -- Opinion of Dow, Lohnes & Albertson, PLLC regarding the
validity of the Class A common stock.
*++10.1 -- Interactive Marketing Agreement, dated as of April 12, 1999,
among AutoConnect, L.L.C. n/k/a AutoTrader.com, LLC and
America Online, Inc.
*10.2 -- Contribution Agreement, dated as of August 20, 1999, among
Manheim Auctions, Inc., ADP, Inc., Trader Publishing
Company, AutoConnect, L.L.C. n/k/a AutoTrader.com, LLC, TPI,
Inc. and LTM Company, L.P.
*10.3 -- License Agreement, dated as of August 20, 1999, between
Trader Publishing Company and AutoConnect, L.L.C. n/k/a
AutoTrader.com LLC.
*10.4 -- Data Contribution Agreement, dated as of August 20, 1999,
between Trader Publishing Company and AutoConnect, L.L.C.
n/k/a AutoTrader.com, LLC.
*10.5 -- Data Contribution Agreement, dated as of August 20, 1999,
between AutoConnect, L.L.C. n/k/a AutoTrader.com, LLC and
ADP, Inc.
*10.6 -- Data Contribution Agreement, dated as of August 20, 1999,
between AutoConnect, L.L.C. n/k/a AutoTrader.com, LLC and
Manheim Auctions, Inc.
*10.7 -- Unit Purchase Agreement, dated as of August 20, 1999, among
AutoConnect, L.L.C. n/k/a AutoTrader.com, LLC, Manheim
Auctions, Inc., ADP, Inc. and ATC Holdings, Inc.
*10.8 -- Unit Purchase Agreement, dated as of August 20, 1999, among
AutoConnect, L.L.C. n/k/a AutoTrader.com, LLC, Manheim
Auctions, Inc., ADP, Inc. and KPCB Holdings, Inc.
*10.9 -- Amended and Restated Registration Rights Agreement, dated as
of August 20, 1999, among AutoConnect, L.L.C. n/k/a
AutoTrader.com, LLC, Manheim Auctions, Inc., LTM Company,
L.P., ATC Holdings, Inc., KPCB Holdings, Inc., as nominee
and TPI, Inc.
</TABLE>
II-3
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <C> <S>
*10.10 -- Asset Purchase Agreement, dated as of November 1, 1999,
between AutoTrader.com, LLC and Intellisoft Development
Corporation.
10.11 -- Web Advertising and Promotion Agreement, dated as of January
18, 2000, between AutoTrader.com, LLC and Greenlight.com,
Inc.
10.12 -- Marketing Agreement, dated as of March 6, 2000, between
AutoTrader.com, LLC and eBay, Inc.
10.13 -- Marketing Services Agreement, dated as of March 6, 2000,
between AutoTrader.com, LLC and eBay, Inc.
*10.14 -- Unit Purchase Agreement, dated as of March 6, 2000, between
AutoTrader.com, LLC and eBay, Inc.
*10.15 -- Joinder Agreement, dated as of March 6, 2000, among
AutoTrader.com, LLC, eBay, Inc. and Manheim ATC, Inc.
10.16 -- AutoTrader.com, Inc. 2000 Long-Term Incentive Plan.
10.17 -- AutoTrader.com, Inc. 2000 Employee Stock Purchase Plan.
10.18 -- AutoTrader.com, Inc. Equity Incentive Plan for Non-Employee
Directors.
10.19 -- Form of Stockholders' Agreement, among AutoTrader.com, Inc.,
Manheim Auctions, Inc., LTM Company, L.P., ATC Holdings,
Inc., KPCB Holdings, Inc., as nominee, and TPI, Inc.
10.20 -- License Agreement, dated as of March 31, 1991, between TPI
Holdings, Inc. and Trader Publishing Company.
**23.1 -- Consent of Dow, Lohnes & Albertson, PLLC (included in their
opinion filed as Exhibit 5.1).
23.2 -- Consent and Report on Schedule of Deloitte & Touche LLP.
23.3 -- Consent of Deloitte & Touche LLP.
*24.1 -- Power of Attorney (set forth on the signature page of this
registration statement).
*27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
---------------
* Previously filed with the registration statement.
** To be filed by amendment.
++ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment, and the omitted portions have been filed separately
with the Securities and Exchange Commission.
II-4
<PAGE> 129
SCHEDULES
V. VALUATION AND QUALIFYING ACCOUNT
SCHEDULE V
AUTOTRADER.COM, LLC
VALUATION AND QUALIFYING ACCOUNT
<TABLE>
<CAPTION>
BALANCE AT PROVISION BALANCE AT
BEGINNING FOR DOUBTFUL END OF
OF PERIOD ACCOUNTS DEDUCTIONS PERIOD
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Period Ended December 31, 1997
Allowance for doubtful accounts.................. $ -- $ -- $ -- $ --
======== ======== ========= ========
Year Ended December 31, 1998
Allowance for doubtful accounts.................. $ -- $ 7,000 $ -- $ 7,000
======== ======== ========= ========
Year Ended December 31, 1999
Allowance for doubtful accounts.................. $ 7,000 $525,000 $(369,000) $163,000
======== ======== ========= ========
</TABLE>
All other schedules for which provisions are made in the applicable
regulations of the SEC are not required under the related instructions or are
inapplicable and therefore have been omitted.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted 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 of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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 a
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 such
time shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AutoTrader.com,
Inc. has duly caused this amendment no. 3 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, State of Georgia on July 21, 2000.
AUTOTRADER.COM, INC.
By: /s/ VICTOR A. PERRY, III
------------------------------------
Victor A. Perry, III
President and Chief Executive
Officer
AutoTrader.com, Inc., a Delaware corporation, and each person whose
signature appears below constitutes and appoints Victor A. Perry, III and
William N. Templeton, and either of them, with full power to act without the
others, such person's true and lawful attorneys-in-fact, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign this Registration Statement, and any and all
amendments thereto (including, without limitation, post-effective amendments and
any subsequent registration statement filed pursuant to Rule 462(b) or Rule
462(d) under the Securities Act of 1933, as amended), and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing necessary or desirable to be done in and
about the premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact, 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 amendment
no. 3 to the registration statement has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ VICTOR A. PERRY, III President and Chief Executive July 21, 2000
----------------------------------------------------- Officer and Director
Victor A. Perry, III
* Vice President, Chief Financial July 21, 2000
----------------------------------------------------- Officer and Principal
William N. Templeton Accounting Officer
* Director July 21, 2000
-----------------------------------------------------
James C. Kennedy
* Director July 21, 2000
-----------------------------------------------------
G. Dennis Berry
* Director July 21, 2000
-----------------------------------------------------
Darryll M. Ceccoli
* Director July 21, 2000
-----------------------------------------------------
David E. Easterly
* Director July 21, 2000
-----------------------------------------------------
Dean H. Eisner
</TABLE>
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<PAGE> 131
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director July 21, 2000
-----------------------------------------------------
Robert C. O'Leary
* Director July 21, 2000
-----------------------------------------------------
Allan Stejskal
* Director July 21, 2000
-----------------------------------------------------
Richard F. Barry, III
* Director July 21, 2000
-----------------------------------------------------
Joseph Lacob
</TABLE>
*POWER OF ATTORNEY
Victor A. Perry, III, by signing his name hereto, does sign this document
on behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
SEC.
By: /s/ VICTOR A. PERRY, III
------------------------------------
Victor A. Perry, III
Attorney-in-fact
II-7
