<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 12, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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 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. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ----------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, par value $1.00 per share............. $100,000,000 $26,400
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and 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 APRIL 12, 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 between $ and $ 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
275,000 PRIVATE SELLER LISTINGS
generating over
2 MILLION QUALIFIED LEADS
[AutoTrader.com logo]
Your car is waiting
<PAGE> 4
------------------
TABLE OF CONTENTS
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<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 7
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS.......... 18
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 20
SELECTED HISTORICAL AND UNAUDITED PRO
FORMA FINANCIAL DATA................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 24
BUSINESS.............................. 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
MANAGEMENT............................ 51
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 59
PRINCIPAL STOCKHOLDERS................ 66
DESCRIPTION OF CAPITAL STOCK.......... 69
SHARES ELIGIBLE FOR FUTURE SALE....... 73
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-U.S.
HOLDERS............................. 75
UNDERWRITING.......................... 79
NOTICE TO CANADIAN RESIDENTS.......... 82
LEGAL MATTERS......................... 83
EXPERTS............................... 83
ADDITIONAL INFORMATION................ 83
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. Except as otherwise required by
the context, references in this prospectus to "we," "our," "us" and
"AutoTrader.com" refer to AutoTrader.com, LLC prior to the consummation of this
offering and AutoTrader.com, Inc. after the consummation of this offering.
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 ("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.
Currently our marketplace contains over 1.5 million used vehicle listings, and,
in February 2000, our marketplace attracted 5 million unique monthly visitors
who conducted 14 million vehicle searches. By providing this digital
"many-to-many" 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 provide significant benefits to
consumers by giving them the tools they need to 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 geographical area.
Our business model is built on multiple revenue streams from a variety of
industry participants interested in marketing their services to our consumer
audience. We generate our revenues primarily from fees for dealer services. We
also generate revenues from facilitating automotive electronic commerce ("e-
commerce") transactions, online used vehicle auction-style trading services and
national advertising. A significant portion of our revenues are recurring in
nature.
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 world's largest operator of wholesale auto auctions.
Manheim Auctions, a wholly owned subsidiary of Cox Enterprises, Inc., a leading
media conglomerate, is our principal stockholder 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. and 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.
Our business focuses on the largest segment of this industry -- the used vehicle
market. In 1999, the used vehicle industry exceeded $360 billion in retail
sales, with used vehicle unit sales exceeding new vehicle unit sales by 400%.
Franchise 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. Historically, the used vehicle market has not
shown significant adverse effects during periods of economic downturn.
The traditional used vehicle market is highly fragmented, competitive and
inefficient. For dealers, this market structure has resulted in high customer
acquisition costs. For consumers, this fragmented market has resulted in a lack
of access to the information that is needed for consumers to research and
evaluate
<PAGE> 6
their automotive purchasing decisions. Additionally, consumers must often deal
with multiple parties to arrange for financing, insurance, warranties and
maintenance. 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. 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, and more than 66% of these buyers are expected to use the Internet for
these purposes by 2003. In addition, Jupiter Communications, Inc. estimates that
online automotive classified advertising expenditures will increase from $31
million in 1998 to $352 million in 2003.
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, filter 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 give consumers more control over the buying and selling process in
an efficient, convenient and personalized online environment where friction
between buyers and sellers is minimized. For buyers, we make finding a used
vehicle that meets their specific criteria easier than traditional media. We
maintain the largest database of used vehicle listings -- with typically over
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, vehicle
pricing and safety information, as well as assistance with financing, insurance
and warranty programs. Private sellers can list their used vehicles on our Web
site without charge and 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 our co-branded, auction-style Web site operated
with eBay.
In March 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. 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.
2
<PAGE> 7
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 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 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 200 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
world's largest operator of wholesale auto auctions, with 97 auction locations
worldwide and 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 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 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 (the "Reorganization"). 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. Except with respect
to our historical financial statements and historical financial data and except
as otherwise required by the context, for purposes of disclosure in this
prospectus, we have referred to our units as shares of our Class A and Class B
common stock as if the Reorganization has occurred.
In February and March of this year, with respect to our calls for capital
funding, we issued 13,281,855 shares of our common stock to our stockholders in
exchange for $81,554,000. In March 2000, we issued 1,173,876 shares of common
stock 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. The information on our Web
site is not incorporated into this prospectus.
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........................... 26,154,248 shares
Class B common stock........................... 21,201,482 shares
Total.................................. 47,355,730 shares
Use of proceeds.................................. For general corporate purposes, including
continued development of our Internet
offerings and expansion of 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 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.
4
<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
OCTOBER 1, 1997 DECEMBER 31,
(INCEPTION) TO --------------------------
DECEMBER 31, 1997 1998 1999
----------------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 42 $ 1,028 $ 5,183
Cost of revenues................................. -- 382 1,470
------- ----------- -----------
Gross profit..................................... 42 646 3,713
------- ----------- -----------
Operating expenses:
Product development and technology............. 940 8,602 6,967
Sales and marketing............................ 922 11,350 35,644
General and administrative..................... 445 3,120 7,412
Depreciation and amortization.................. 16 288 826
------- ----------- -----------
Total operating expenses............... 2,323 23,360 50,849
------- ----------- -----------
Loss from operations............................. $(2,281) $ (22,714) $ (47,136)
======= =========== ===========
Net loss......................................... $(2,281) $ (22,717) $ (46,715)
======= =========== ===========
Pro forma basic and diluted net loss per share... $ (1.60) $ (2.51)
=========== ===========
Shares used in computing pro forma basic and
diluted net loss per share..................... 14,168,000 18,625,140
=========== ===========
Pro forma as adjusted basic and diluted net loss
per share...................................... $ (0.99)
===========
Shares used in computing pro forma as adjusted
basic and diluted net loss per share........... 47,355,730
===========
</TABLE>
Pro forma basic and diluted net loss per share is computed by dividing net
loss by the pro forma weighted average number of shares of common stock
outstanding after giving effect to the Reorganization.
Pro forma as adjusted basic and diluted net loss per share is based on the
26,400,000 shares outstanding as of December 31, 1999, as if those shares, as
well as (a) the 13,281,855 shares of common stock issued to our existing
stockholders with respect to our calls for capital funding in February and March
2000, (b) the issuance of 1,173,876 shares of common stock to eBay in March 2000
and (c) the issuance of 6,500,000 shares of Class A common stock offered in this
offering, had been outstanding since January 1, 1999.
5
<PAGE> 10
The following table sets forth our summary balance sheet data as of
December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect (a) the issuance of 13,281,855 shares of
common stock to our existing stockholders in exchange for $81,554,000
with respect to our calls for capital funding in February and March 2000,
(b) the issuance of 1,173,876 shares of common stock to eBay in exchange
for $9,237,000 in March 2000 and (c) the 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 initial public offering price of $ per share (the
midpoint of the range set forth on the cover page), 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>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 13,945 $104,736 $
Working capital........................................... 12,662 103,453
Total assets.............................................. 29,811 120,602
Amounts due to Cox Enterprises, Inc....................... 7,268 7,268
Other long-term obligations............................... 2,100 2,100
Accumulated deficit....................................... (71,713) --
Total members' equity..................................... 13,156 --
Total stockholders' equity................................ -- 103,947
</TABLE>
6
<PAGE> 11
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 our online used vehicle, auction-style trading services
provided by the co-branded Web site operated with eBay; and
- fees from national advertising programs, promotions and services.
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 used vehicle marketplace 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 these increased expenditures will have a 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.
7
<PAGE> 12
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 $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 December 31, 1999, we had an accumulated deficit of
$71.7 million. We expect to significantly increase our sales and marketing and
general and administrative expenses, and consequently our losses will
significantly increase in the future. We will need 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 and national advertisers. We plan to increase our operating expenses
significantly, 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 sustain and 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 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 a Web site. In addition to
direct competitors, we also
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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 into our market in the future.
The 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 our Web site user traffic levels, purchase
inquiries and click-throughs 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, although the used vehicle market has historically been less
affected by cyclical forces than the new vehicle market. 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 and approximately 57% of our net revenues in 1999. This high
revenue percentage relies on dealer fees 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 achieve a satisfactory return
on their investment in the AutoTrader.com program and 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 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.
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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 and therefore that state auction regulations do not apply to us, one
or more states may seek to regulate the operations of our co-branded Web site
with eBay as an auction operation.
CERTAIN OF OUR PRINCIPAL STOCKHOLDERS ARE ENGAGED IN AUTOMOTIVE BUSINESSES, AND
CONFLICTS OF INTEREST MAY ARISE THAT MAY NOT BE RESOLVED IN OUR FAVOR.
Certain of our principal stockholders are involved in automotive businesses
that compete with certain 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. In addition,
representatives of Manheim Auctions, Trader Publishing and certain 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.
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.
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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 agreements with various commercial vendors, including:
- Internet portals and other high-traffic Web sites, such as America
Online, Lycos.com and HotBot;
- vendors of automotive products and services, such as Allstate Insurance
Company, Ford Motor Credit, E-Loan, DriveItToday.com and CarParts.com;
and
- providers of automotive information, such as Intellichoice, 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.
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.
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OUR GROWTH MAY SLOW OR STOP IF WE CANNOT ATTRACT OR RETAIN PERSONNEL WITH
TECHNICAL AND MANAGEMENT EXPERTISE.
As of February 29, 2000, we had 252 full-time employees, and we anticipate
that the number of employees will increase significantly during the next 12
months. 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 adding
significant capability in all stages of our production system 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.
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 certain technologies and
information incorporated into our Web site. As we continue to introduce new
services that incorporate new technologies and information, we may be required
to license additional technology and information from others. We cannot assure
you that these third-party technology and information licenses will continue to
be available to us on commercially reasonable terms, if at all. Additionally, we
cannot assure you that the third parties from which we currently license our
technology and information will be able to defend their proprietary rights
successfully against claims of infringement. Any failure to obtain any of these
technology and information licenses could result in delays or reductions in the
introduction of new features, functions or services. 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
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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, but the settlement did
not 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, listing database
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. Despite our precautions, unauthorized parties
may copy certain portions of our services or obtain and use information that we
regard as proprietary. Provisions in our visitor agreement protecting against
unauthorized use, copying, transfer and disclosure of our intellectual property
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 RELATED 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
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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
certain foreign governments that could impose taxes on the sale of goods and
services and certain 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 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
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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.
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;
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- 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.
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 26,154,248
shares of Class A common stock outstanding immediately after this offering, or
27,129,248 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 19,654,248 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 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 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
16
<PAGE> 21
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 $ 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 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> 22
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
$ million, at an assumed initial public offering price of $ per share
(the midpoint of the range set forth on the cover page) 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 $
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 at least $ million of capital expenditures
and at least $ million of advertising and other 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> 23
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect (a) the issuance of 13,281,855 shares of
common stock to our existing stockholders in exchange for $81,554,000
with respect to our calls for capital funding in February and March 2000,
(b) the issuance of 1,173,876 shares of common stock to eBay in exchange
for $9,237,000 in March 2000 and (c) the 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 initial public offering price of $ per share (the
midpoint of the range set forth on the cover page), 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>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 13,945 $104,736 $
======== ======== ========
Amounts due to Cox Enterprises, Inc.(1)..................... $ 7,268 $ 7,268 $
-------- -------- --------
Members' equity:
Paid-in capital:
Capital contributions.................................. 83,874 --
Additional paid-in capital -- unit options............. 995 --
Accumulated deficit....................................... (71,713) --
-------- -------- --------
Total members' equity............................. 13,156 --
-------- -------- --------
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, 19,654,248 shares
outstanding on a pro forma basis, and 26,154,248 shares
outstanding on a pro forma as adjusted basis(2)........ 19,654
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
Additional paid-in capital................................ -- 63,092
-------- -------- --------
Total stockholders' equity........................ -- 103,947
-------- -------- --------
Total capitalization.............................. $ 20,424 $111,215 $
======== ======== ========
</TABLE>
- ---------------
(1) See Note 11 to our financial statements for a description of amounts due to
Cox Enterprises.
(2) Excludes 1,894,100 shares of common stock issuable upon the exercise of
stock options outstanding as of December 31, 1999, with an exercise price of
$5.38 per share. See "Management -- 2000 Long-Term Incentive Plan."
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<PAGE> 24
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $100 million, or $2.44 per share of common stock. 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 of common stock outstanding at that date. The pro forma number
of shares of common stock outstanding gives effect to:
- the issuance of 13,281,855 shares of common stock to our existing
stockholders in exchange for $81,554,000 with respect to our calls for
capital funding in February and March 2000;
- the issuance of 1,173,876 shares of common stock to eBay in exchange for
$9,237,000 in March 2000; and
- the 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 estimated initial public offering price of $ per
share (the midpoint of the range set forth on the cover page) and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us, our pro forma net tangible book value as of
December 31, 1999 would have been $ , or $ per share. This
represents an immediate increase in pro forma net tangible book value to our
existing stockholders of $ per share and an immediate dilution to
purchasers in this offering of $ 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............. $
Pro forma net tangible book value per share prior to this
offering............................................... $
Increase per share attributable to this offering..........
-----
Adjusted pro forma net tangible book value per share after
this offering.............................................
-----
Dilution per share to new investors(1)...................... $
=====
</TABLE>
- ---------------
(1) Assuming the exercise in full of the underwriters' over-allotment option,
our adjusted pro forma net tangible book value at December 31, 1999 would
have been approximately $ per share, representing an immediate
increase in pro forma net tangible book value of $ per share to our
existing stockholders and an immediate dilution in pro forma net tangible
book value of $ per share to purchasers in this offering.
The following table summarizes, as of December 31, 1999, the number of
shares of common stock 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 issuance of 13,281,855 shares of common stock to our existing
stockholders in exchange for $81,554,000 with respect to our calls for
capital funding in February and March 2000;
- the issuance of 1,173,876 shares of common stock to eBay in exchange for
$9,237,000 in March 2000; and
- the sale of shares to investors in this offering.
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<PAGE> 25
The calculation below is based on an initial public offering price of
$ per share (the midpoint of the range set forth on the cover page), 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................... 40,855,730 % $175,282,000 % $4.29
New stockholders........................ $
---------- ----- ------------ -----
Total......................... 100.0% $ 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 December 31, 1999, there were options outstanding to
purchase a total of 1,894,100 shares of common stock at an exercise price of
$5.38 per share. See "Management -- Long-Term Incentive Plan."
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<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. 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
OCTOBER 1, 1997 DECEMBER 31, PRO FORMA
(INCEPTION) TO ------------------------- YEAR ENDED
DECEMBER 31, 1997 1998 1999 DECEMBER 31, 1999
----------------- ----------- ----------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 42 $ 1,028 $ 5,183 $ 6,475
Cost of revenues...................... -- 382 1,470 1,626
-------- ----------- ----------- -----------
Gross profit.......................... 42 646 3,713 4,849
-------- ----------- ----------- -----------
Operating expenses:
Product development and
technology....................... 940 8,602 6,967 6,998
Sales and marketing................. 922 11,350 35,644 35,738
General and administrative.......... 445 3,120 7,412 8,128
Depreciation and amortization....... 16 288 826 1,533
-------- ----------- ----------- -----------
Total operating expenses.... 2,323 23,360 50,849 52,397
-------- ----------- ----------- -----------
Loss from operations.................. (2,281) (22,714) (47,136) (47,548)
Other income (expense), net........... -- (3) 421 421
-------- ----------- ----------- -----------
Net loss.............................. $ (2,281) $ (22,717) $ (46,715) $ (47,127)
======== =========== =========== ===========
Pro forma basic and diluted net loss
per share........................... $ (1.60) $ (2.51) $ (2.53)
=========== =========== ===========
Shares used in computing pro forma
basic and diluted net loss per
share............................... 14,168,000 18,625,140 18,625,140
=========== =========== ===========
</TABLE>
Pro forma basic and diluted net loss per share is computed by dividing net
loss by the pro forma weighted average number of shares of common stock
outstanding after giving effect to the Reorganization.
22
<PAGE> 27
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $ -- $ 13,945
Working capital (deficit)................................... (916) (986) 12,662
Total assets................................................ 529 2,414 29,811
Amounts due to Cox Enterprises, Inc......................... -- -- 7,268
Other long-term obligations................................. 28 794 2,100
Accumulated deficit......................................... (2,281) (24,998) (71,713)
Total members' equity (deficit)............................. (601) 117 13,156
</TABLE>
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<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. Currently our marketplace contains over 1.5 million used
vehicle listings, and, in February 2000, our marketplace attracted over 5
million unique monthly visitors who conducted 14 million vehicle searches. By
providing this digital "many-to-many" 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 connection with a
recapitalization effected in August 1999, 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 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.
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 operated with eBay; and
- fees from national advertising programs, promotions and services.
Dealer Services Revenues. Automobile dealers comprise our largest revenue
source. We derive dealer services revenues 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 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.
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<PAGE> 29
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
specific traffic referrals or transaction leads that originate on our Web site
and are directed to the vendor's product. These revenues are recognized based on
Web site traffic or recognized ratably over the term of the contract.
Auction-Style Trading Service 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. 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.
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 provide technology for placing 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 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 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
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<PAGE> 30
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
certain 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, certain of our executives and
key employees have participated in the Cox Enterprises Unit Appreciation Plan.
Immediately following the consummation of this offering, our employees will no
longer receive any further 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. 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 certain
affiliated companies. Included in general and administrative expense are
non-cash costs representing the estimated fair value of these awards.
RESULTS OF OPERATIONS
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 Web site set-up and hosting fees and fees from
dealer advertising products 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 an increase in the number of paid dealer products from
approximately 300 products at the end of 1998 to nearly 2,400 at the end of 1999
(each type of Web site and other enhancements such as tiles or hyperlinks
purchased by a dealer is considered a separate product). In addition, the
acquisition of the dealer customer base of World Wide Wheels in November 1999
provided additional dealer service revenues of approximately $0.3 million for
the last two months of 1999.
Our e-commerce revenues increased to $1.1 million in 1999 from a negligible
amount in 1998. Our national advertising revenues increased to $1.2 million in
1999 from $0.2 million in 1998, or 523%. An increase in the number of e-commerce
and national advertising accounts, the higher volume of visitors to our Web site
and the corresponding increase in the number of page views translated into
higher revenues in the e-commerce and advertising categories.
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 higher costs incurred for the development of
the AutoConnect.com Web site in 1998. Offsetting this decrease were increased
expenses attributable to the hiring of additional personnel, the implementation
of our bi-coastal hosting operations and higher contracted content cost.
Sales and Marketing. Our total sales and marketing expenses increased to
$35.6 million in 1999 from $11.3 million in 1998, or 214%. Increases in sales
expenses were due in part to the growth of our in-
26
<PAGE> 31
house sales force in 1999, as well as the hiring of additional customer support
personnel to keep pace with the higher sales volume and to maintain a high level
of customer service for our dealers. We also incurred increased polling charges
in order to provide more dealer inventory listings on our Web site. A
significant portion of our sales and marketing expenses were incurred in
connection with our exclusive distribution agreement with America Online, which
was entered into in April 1999, and increased spending on off-line marketing
activities such as television and print advertising. We also incurred increased
advertising production and agency fees 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. Personnel-related costs, including
recruiting costs, also contributed to the increase. In connection with the grant
of stock options to certain non-employees of AutoTrader.com in 1999, we recorded
$1.0 million of expense, representing the estimated fair value of these options.
In addition, amounts charged to expense for our employees under the Cox
Enterprises Unit Appreciation Plan were approximately $0.2 million in 1998 and
$1.0 million in 1999, or an increase of 569%.
PERIOD PRIOR TO 1998
Because we did not begin operations until the last quarter of 1997 and had
relatively minimal business activity, we do not believe a comparison of 1998
with 1997 would be meaningful. In 1997, we had revenues of $42,000, no cost of
revenues, product development and technology expenses of $940,000, sales and
marketing expenses of $922,000 and general and administrative expenses of
$445,000.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our operating results for each of the eight
quarters in the period from the first quarter of 1998 through the fourth quarter
of 1999. 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,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS; UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 154 $ 182 $ 274 $ 418 $ 522 $ 794 $ 1,513 $ 2,354
Cost of revenues............... 15 52 158 157 384 295 350 441
------- ------- ------- ------- ------- ------- -------- --------
Gross profit................... 139 130 116 261 138 499 1,163 1,913
------- ------- ------- ------- ------- ------- -------- --------
Operating expenses:
Product development and
technology................. 2,291 3,195 2,025 1,091 1,341 1,657 1,954 2,015
Sales and marketing.......... 2,064 2,544 3,612 3,130 4,564 5,546 10,545 14,989
General and administrative... 446 824 791 1,059 1,802 1,294 1,578 2,738
Depreciation and
amortization............... 21 59 100 108 113 121 193 399
------- ------- ------- ------- ------- ------- -------- --------
Total operating
expenses............ 4,822 6,622 6,528 5,388 7,820 8,618 14,270 20,141
------- ------- ------- ------- ------- ------- -------- --------
Loss from operations........... (4,683) (6,492) (6,412) (5,127) (7,682) (8,119) (13,107) (18,228)
Other income (expense), net.... -- (3) -- -- (96) 85 165 267
------- ------- ------- ------- ------- ------- -------- --------
Net loss....................... $(4,683) $(6,495) $(6,412) $(5,127) $(7,778) $(8,034) $(12,942) $(17,961)
======= ======= ======= ======= ======= ======= ======== ========
</TABLE>
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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 ongoing upgrades with
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
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 stockholders 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 and $43.1 million in 1999. 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 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 $0.3 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.
Net cash used in investing activities was negligible in 1997, $1.8 million
in 1998 and $8.8 million in 1999. 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.
Net cash provided by financing activities was $1.4 million in 1997, $23.7
million in 1998 and $65.8 million in 1999. Cash was provided in each period by
funding from our existing stockholders, including borrowings from Cox
Enterprises of $7.3 million.
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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 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 No. 137, 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.
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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. Currently our marketplace contains over 1.5 million used
vehicle listings, and, in February 2000, our marketplace attracted 5 million
unique monthly visitors who conducted 14 million vehicle searches. By providing
this digital "many-to-many" 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
typically more than 1.5 million used vehicles listed for sale on our Web site by
dealers, finance companies and private sellers, we provide consumers the most
extensive selection of used vehicle purchase opportunities 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 February 2000, we had more than 5 million unique visitors
logging onto our Web site, a 400% increase over the 1 million visitors recorded
in February 1999. Along with this marked increase in unique visitors to our Web
site, our monthly page views increased from 6 million to 68 million, or 1,033%,
and our monthly vehicle searches increased from 1 million to 14 million, or
1,300%, from February 1999 to February 2000. Since monthly used car sales in the
United States average 3.5 million units per month, the 14 million vehicle
searches we recorded in February 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
February 2000, we delivered over 1.1 million leads to dealers and private
sellers. In addition, we generated over 1 million leads to dealer Web sites,
e-commerce partners and advertisers.
Our business model is built on multiple revenue streams from a variety of
industry participants interested in marketing their services to our consumer
audience. We generate our revenues primarily from fees for dealer services. We
also generate revenues from facilitating automotive e-commerce transactions,
online used vehicle auction-style trading services and national advertising. A
significant portion of our revenues are recurring in nature.
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. The
National Automobile Dealers Association ("NADA") estimates that approximately 41
million used vehicles were sold to retail customers in the United States in
1999, which is approximately four times the number of new vehicles sold at
retail that year. Based on these figures, the NADA 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 certain trends 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. ("ADT"), 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 NADA, franchise 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 $352 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 $117 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. Industry analysts
estimate 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
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News, accounted for only about 12% 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 customer acquisition costs. 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. In particular, many
consumers express dissatisfaction with the traditional sources of vehicle
information, such as newspaper classified advertisements or visits to a dealer,
because these individual sources 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 $352 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. 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.
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 decisions, we have significantly
improved the vehicle purchasing and selling process for both buyers and
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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 February 2000, we delivered over
2.1 million leads from potential customers to dealers, private sellers, e-
commerce partners and advertisers.
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 unique visitors per month logging onto our Web site
from 1 million in February 1999 to 5 million in February 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 reducing the per vehicle
costs associated with advertising a used vehicle between 60% and 90%. 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 from $250 to $300 per vehicle sold. By
using our paid services, this cost frequently ranges from $25 to $100 per
vehicle, depending upon which promotional products a dealer selects.
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 our auction-style Web site, which we operate on a co-branded
basis with eBay.
Access to Database of Consumer Buying Trends. We also collect, filter 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 typically more than 1.5 million
used vehicle listings. We currently have over 40,000 dealers listing their used
vehicles on our Web site and 275,000 listings from private sellers. Our database
employs customer-driven search tools which enables 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 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.
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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, 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, Ford Motor Credit, Greenlight.com,
Quicken Insurance, 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 or on our co-branded, auction-style Web site with eBay for a nominal fee.
With both 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 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
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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
February 2000, we had over 40,000 dealers listing their used vehicles on our Web
site and 275,000 listings from private sellers. These dealers and private
sellers, along with finance companies, typically provide us with over 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 per month in the first quarter of 1999 to more than 1 million in each of
February and March of 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 4.8 million unique monthly visitors in the first quarter of
2000 (over 5 million in February 2000), which represents an increase of 392%
over the first 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 first quarter of 2000 increased 1013% over Web
page views in the first quarter of 1999, a growth rate that is over twice 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 minutes in the first quarter of 1999
to approximately 9 minutes in the first 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 over 12 million monthly vehicle
searches in the first quarter of 2000 (14 million in February 2000), an increase
of 900% over the first quarter of 1999.
(CHART depicting quarter-to-quarter comparison of number of monthly vehicle
searches)
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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.
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SOURCES OF LISTINGS
(CHART depicting sources of listings)
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 200 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. In February 2000,
we received approximately 220,000 used vehicle listings from 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."
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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 world's largest operator of wholesale used auto auctions
with 97 auction locations worldwide. 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 12,000 dealer
subscribers as of February 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 has. In February 2000, we received approximately 160,000 used
vehicle listings from Manheim Auctions.
In January 2000, Manheim agreed to acquire ADT, 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 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 "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. In February 2000, we
received approximately 425,000 used vehicle listings from 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 general 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
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other Internet portals and Web sites, including Lycos.com and HotBot. 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 February 2000, our distribution partners drove
approximately 1.8 million visitors to our Web sites. 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 presence 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, 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 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,
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.
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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 revenue streams, a
significant portion of which are recurring in nature:
- 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 operated with eBay; and
- fees from national advertising programs, promotions and services.
Our extensive network of dealers gives us a scalable model for providing
multiple products to dealers and increasing dealer revenues. As of February
2000, we had approximately 2,100 dealer customers to whom we were billing over
3,000 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 e-commerce revenue streams with
expanded e-commerce offerings and increasing our national and regional
advertising revenue streams 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
our action-style co-branded Web site operated 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
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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:
inTouch Provides high-end, highly customized Web sites for
the franchised dealership group, including multiple
links and multiple methods of consumer contacts, as
well as a featured specials page
inSite Provides 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 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
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 by
completing our online order form and 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 on
our co-branded auction-style Web site operated with
eBay for a nominal fee
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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 condition. 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, 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
condition
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, Ford Motor Credit and GMAC currently
offer financing for Ford and GM vehicles and
bankrate.com offers current loan rates
Insurance Offer insurance product and information. For
example, Quicken Insurance 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 GE
Auto Insurance provides direct insurance quotes
Warranty Offer warranty products and information. For
example, DriveItToday.com provides online quotes
and purchasing for extended warranty products.
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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
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 February 29, 2000, we employed 153
full-time, dedicated sales representatives located in 76 markets in the United
States. The number of sales representatives that we have deployed has increased
dramatically during the second half of 1999, and 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 15
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.
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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 has risen by 37% over January traffic, page views have
increased by 63% and vehicle searches by 80%. 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 25 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 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 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.
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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
February 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.
We incurred $1.8 million and $4.6 million in capital expenditures in 1998
and 1999, respectively. We anticipate that we will continue to incur capital
expenditures in this range in the future as we add system capacity and new
features and functionality to our Web site.
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, 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.
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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, 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 for the consumer; 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 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 certain 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
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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, but the settlement did not 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 certain technologies and
information incorporated into our Web site. As we continue to introduce new
services that incorporate new technologies and information, we may be required
to license additional technology and information from others. We cannot assure
you that these third-party technology and information licenses will continue to
be available to us on commercially reasonable terms, if at all. Additionally, we
cannot assure you that the third parties from which we currently license our
technology and information will be able to defend their proprietary rights
successfully against claims of infringement. Any failure to obtain any of these
technology and information licenses could result in delays or reductions in the
introduction of new features, functions or services. It could also adversely
affect the performance of our existing services until equivalent technology or
information can be identified, obtained and integrated.
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
certain 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 February 29, 2000, we had 252 employees, including 159 in sales and
marketing, 40 in product development and technology, 38 in dealer services and
15 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 43,000 square feet of office space in Atlanta,
Georgia. The lease for this space expires on
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August 31, 2006. 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 certain 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........... 43 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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<PAGE> 56
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, MP3.com, 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 and Byers, a venture capital
firm that he joined in 1987. Mr. Lacob also serves as a director of
Greenlight.com.
AUDIT COMMITTEE
We do not presently have an audit committee. Prior to the consummation of
this offering, we will establish an audit committee to comply with applicable
SEC and Nasdaq Stock Market rules, which require that the audit committee
consist solely of at least three independent directors. 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; and
- review affiliate and related party transactions, if any.
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<PAGE> 57
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
certain management services to us during 1999 (see "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 certain 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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<PAGE> 58
EXECUTIVE COMPENSATION
The following table sets forth certain 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 $6,000
Executive Officer
James T. McKnight........... Executive Vice 153,750(2) 143,500 160,000 2,848(3)
President and Chief
Operating Officer
Andrew Drake(4)............. Vice President of 144,375(5) 50,625 30,000 1,856(6)
Business Development
Thomas L. Schilling(7)...... Chief Financial 135,872(8) -- 60,000(9) --
Officer and Vice
President of Finance
and Administration
</TABLE>
- ---------------
(1) Reflects amounts contributed pursuant to the Cox Enterprises, Inc. Savings
and Investment Plan (the "401(k) Plan") and the Cox Enterprises, Inc.
Executive Savings Plus Restoration Plan (the "401(k) Restoration Plan").
(2) Reflects salary earned for 1999 as of Mr. McKnight's hire date of April 1,
1999.
(3) Reflects amounts contributed pursuant to the 401(k) Plan and the 401(k)
Restoration Plan from Mr. McKnight's hire date of April 1, 1999.
(4) 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.
(5) Reflects salary earned from January 1, 1999 through November 15, 1999, Mr.
Drake's transition date from AutoTrader.com to Cox Enterprises.
(6) Reflects amount contributed pursuant to the 401(k) Plan through November 15,
1999, Mr. Drake's transition date from AutoTrader.com to Cox Enterprises.
(7) Mr. Schilling is included as an additional officer for whom disclosure would
have been required had he been employed as of December 31, 1999.
(8) Reflects salary earned from January 1, 1999 through December 10, 1999, Mr.
Schilling's termination date with AutoTrader.com.
(9) 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.
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
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<PAGE> 59
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 10.29% $5.38 10/19/2009 $676,691 $1,714,867
James T. McKnight........... 160,000 8.23 5.38 10/19/2009 541,352 1,371,894
Andrew Drake................ 30,000 1.54 5.38 10/19/2009 101,504 257,230
Thomas L. Schilling......... 60,000(5) 3.09 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) Certain 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, certain
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> 60
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
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/UARS AT IN-THE-MONEY OPTIONS/UARS
SHARES DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED VALUE --------------------------- ------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
---- ----------- -------- ----------- ------------- ----------- ----------------
<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......... -- -- -- --(2) -- --
</TABLE>
- ---------------
(1) The unexercisable value represents the value of the unexercisable shares
multiplied by the difference between the December 31, 1999 value of
AutoTrader.com ($ /share) and the exercise price of the 1999 options
($5.38/share).
(2) 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
AutoTrader.com 2000 Long-Term Incentive Plan, which will be effective as of the
Reorganization. Awards under the AutoTrader.com 1999 Long-Term Incentive Plan
will convert to awards under the 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 certain employees,
consultants and independent contractors of AutoTrader.com and its subsidiaries.
Under the 2000 Long-Term Incentive Plan, 3,300,000 shares of Class A common
stock will be reserved for issuance. 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 approval and 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
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<PAGE> 61
option will become first exercisable in any one calendar year may not exceed
$100,000. Payment of the 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 certain 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. 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 as of
the consummation of this offering. 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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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 as of the consummation of this offering. 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 certain
individuals on the board of directors who are not employees of AutoTrader.com.
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 a committee appointed by
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 and the terms and conditions of the
awards.
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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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, certain other material agreements are described.
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)
CONTRIBUTION-RELATED AGREEMENTS
Each of the agreements listed below was entered into on August 20, 1999 in
connection with a recapitalization transaction.
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 to each of
TPI, Inc. and LTM Company 3,542,000 shares of Class A common stock, 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;
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- 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 certain non-compete provisions.
Trader Publishing contributed to us certain 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 certain advertising space at no
charge to us in its 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 certain 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.
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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 certain 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 certain 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.
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.
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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 certain 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:
- passes through its North American auctions;
- is designated by North American dealers to be sent to us through Manheim
Auctions' Manheim Interactive software (which had over 12,000 dealer
subscribers as of February 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 5% 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.
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.
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Share Purchase Agreement for ATC Holdings
As contemplated in the umbrella contribution agreement, we entered into a
share purchase agreement with Manheim Auctions, ADP and ATC Holdings under which
we issued ATC Holdings 3,167,993 shares of Class A common stock in exchange for
$19,378,881.
Share Purchase Agreement for KPCB Holdings
As contemplated in the umbrella contribution agreement, we entered into a
share purchase agreement with Manheim Auctions, ADP and KPCB Holdings under
which we issued KPCB Holdings 1,980,006 shares of Class A common stock in
exchange for $12,111,801.
KPCB Holdings also acquired 264,006 shares of Class A common stock 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 "Description of Capital Stock -- General."
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 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.
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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.
Share Purchase Agreement
We entered into a share purchase agreement with eBay under which we issued
eBay 1,173,876 shares of Class A common stock 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 certain management services to us, including
legal, corporate secretarial, tax, cash management, internal audit, risk
management, benefits administration, business development and other support
services. Prior to August 20, 1999, we participated in Cox Enterprises' cash
management system, whereby our bank sent daily notification of our checks
presented for payment, and Cox Enterprises transferred funds from other sources
to cover our checks presented for payment. Effective August 20, 1999, we began
maintaining 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. We were 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 the services and office facilities provided. 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. These fees and expenses are subject to change in future
periods.
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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 certain
advertising, listing, marketing and linking services. Our current monthly
compensation is approximately $35,000. 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.
COX ENTERPRISES, INC. RESTRICTED UNIT AWARD PLAN
Certain 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 certain restrictions
pertaining to transferability.
COX ENTERPRISES, INC. UNIT APPRECIATION PLAN
Certain of our executive officers participated in Cox Enterprises Unit
Appreciation Plan which provides for payment of benefits in the form of shares
of Cox Enterprises common stock, cash or both. Immediately following the
consummation of this offering, our employees will no longer receive any further
awards under this program, and it is expected that the executive officers who
have participated in the plan 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. The
AutoTrader.com restricted stock will be subject to the terms and conditions of
the 2000 Long-Term Incentive Plan.
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. All future transactions between us and any of our
officers, directors or principal stockholders 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 listed in the Summary Compensation Table
under "Management"; 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
Securities and Exchange Commission 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 26,154,248 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 60 days after the date of this prospectus.
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 48,330,730 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(1)................. 50,000 * -- -- * *
James T. McKnight(2).................... 40,000 * -- -- * *
Andrew Drake(3)......................... 30,000 * -- -- * *
Thomas L. Schilling(4).................. -- -- -- -- -- --
James C. Kennedy(5)..................... 359,144 1.37% -- -- * *
G. Dennis Berry(6)...................... 60,000 * -- -- * *
Darryll M. Ceccoli(7)................... 20,000 * -- -- * *
David E. Easterly(8).................... 206,986 * -- -- * *
Dean H. Eisner(9)....................... 14,964 * -- -- * *
Robert O'Leary(10)...................... 44,893 * -- -- * *
Allan Stejskal(11)...................... 10,000 * -- -- * *
Richard F. Barry, III(12)............... -- -- -- -- -- --
Joseph Lacob(13)........................ -- -- -- -- -- --
William N. Templeton(14)................ 15,000 * -- -- * *
Bradley K. Mohs (15).................... 18,750 * -- -- * *
Manheim ATC, Inc.(16)................... 20,132,722 94.96 % 42.51% 84.53%
TPI, Inc.(17)........................... 4,208,141 16.09 -- -- 8.89 1.77
LTM Company, L.P.(18)................... 5,300,371 20.27 -- -- 11.19 2.23
ATC Holdings, Inc.(19).................. 4,740,694 18.13 -- -- 10.01 1.99
KPCB Holdings, Inc.(20)................. 3,358,018 12.84 -- -- 7.09 1.41
All directors and officers as a group
(15 persons).......................... 850,911 3.25 -- -- 1.80 *
</TABLE>
- ---------------
* Less than 1%
(1) Includes 50,000 shares of Class A common stock Mr. Perry has the right to
acquire pursuant to outstanding options exercisable within 60 days which
vest upon the consummation of this offering.
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(2) Includes 40,000 shares of Class A common stock Mr. McKnight has the right
to acquire pursuant to outstanding options exercisable within 60 days which
vest upon the consummation of this offering.
(3) Includes 30,000 shares of Class A common stock Mr. Drake has the right to
acquire pursuant to outstanding options exercisable within 60 days which
vest upon the consummation of this offering. Mr. Drake resigned from
AutoTrader.com on November 15, 1999.
(4) Mr. Schilling resigned from AutoTrader.com on December 10, 1999.
(5) 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 footnotes 16 and 17 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. 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.
(6) Includes 60,000 shares of Class A common stock Mr. Berry has the right to
acquire pursuant to outstanding options exercisable within 60 days which
vest upon the consummation of this offering. Mr. Berry's business address
is c/o Manheim Auctions, Inc., 1400 Lake Hearn Drive, N.E., Atlanta,
Georgia 30319.
(7) Includes 20,000 shares of Class A common stock Mr. Ceccoli has the right to
acquire pursuant to outstanding options exercisable within 60 days which
vest upon the consummation of this offering. Mr. Ceccoli's business address
is c/o Manheim Auctions, Inc., 1400 Lake Hearn Drive, N.E., Atlanta,
Georgia 30319.
(8) Mr. Easterly's business address is c/o Cox Enterprises, Inc., 1400 Lake
Hearn Drive, N.E., Atlanta, Georgia 30319.
(9) Mr. Eisner's business address is c/o Cox Enterprises, Inc., 1400 Lake Hearn
Drive, N.E., Atlanta, Georgia 30319.
(10) Mr. O'Leary's business address is c/o Cox Enterprises, Inc., 1400 Lake
Hearn Drive, N.E., Atlanta, Georgia 30319.
(11) Includes 10,000 shares of Class A common stock Mr. Stejskal has the right
to acquire pursuant to outstanding options exercisable within 60 days which
vest upon the consummation of this offering. Mr. Stejskal's business
address is c/o ADP Dealer Services, 1950 Hassell Road, Hoffman Estates,
Illinois 60195.
(12) Mr. Barry's business address is c/o Landmark Communications, Inc., 150 W.
Brambleton Avenue, Norfolk, Virginia 23510.
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(13) Mr. Lacob's business address is c/o Kleiner Perkins Caufield & Byers, 2750
Sand Hill Road, Menlo Park, California 94111.
(14) Includes 15,000 shares of Class A common stock Mr. Templeton has the right
to acquire pursuant to outstanding options exercisable within 60 days which
vest upon the consummation of this offering.
(15) Includes 18,750 shares of Class A common stock Mr. Mohs has the right to
acquire pursuant to outstanding options exercisable within 60 days which
vest upon the consummation of this offering.
(16) 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. Barbara Cox Anthony and
Anne Cox Chambers are the mother and aunt, respectively, of James C.
Kennedy, the Chairman of the Board of Directors and Chief Executive Officer
of Cox Enterprises. Mr. Kennedy is also one of our directors. Manheim ATC's
address is c/o Manheim Auctions, Inc. 1400 Lake Hearn Drive, N.E., Atlanta,
Georgia 30319.
(17) 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 16 above. TPI, Inc.'s address is c/o Cox Enterprises,
1400 Lake Hearn Drive, N.E., Atlanta, Georgia 30319.
(18) LTM Company's address is c/o Landmark Communications, Inc., 150 W.
Brambleton Avenue, Norfolk, Virginia 23510.
(19) ATC Holdings' address is c/o Landmark Communications, Inc., 150 W.
Brambleton Avenue, Norfolk, Virginia 23510.
(20) 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.
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:
- 26,154,248 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 of
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 ten 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. Certain of our stockholders, who will hold approximately 96.4% 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 president, chief executive
officer or secretary at the written request of a majority of the board of
directors.
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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 certain 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 registrations statement once in a 12-month
period for not more than 90 days.
Piggyback Registration Rights. Certain "piggyback" registration rights
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 registration; provided, however, that the managing
underwriter, if any, of any such offering has certain
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rights 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 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. Sales of
substantial amounts of our Class A common stock in the public market could
adversely affect the prevailing market price and our ability to raise equity
capital in the future.
After this offering, we will have outstanding 26,154,248 shares of Class A
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. As of March 31, 2000, no options were
exercisable. Upon completion of this offering, options for 776,975 aggregate
shares of Class A common stock will become exercisable. Options representing an
additional 1,117,125 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 19,654,248 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 261,543 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 1999 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 and officers. 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 of 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 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 Securities and
Exchange Commission 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 an 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
79
<PAGE> 84
stock option or employee 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 certain 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.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
80
<PAGE> 85
- 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.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the shares of Class A common stock
originally sold by that syndicate member are purchased in a stabilizing
transaction or syndicate covering transaction to cover syndicate short
positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the Class A common stock to be higher than it would
otherwise be in the absence of these transactions. 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.
81
<PAGE> 86
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
our 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.
82
<PAGE> 87
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 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 Securities and Exchange Commission 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 Securities and Exchange Commission ("SEC"), this prospectus,
which is a part of the registration statement, omits certain information,
exhibits, schedules and undertakings set forth in the registration statement.
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. Statements contained in this prospectus as to the contents or
provisions of any contract or other document referred to herein are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. 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 ("EDGAR") 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.
83
<PAGE> 88
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............. F-3
Statements of Operations for the period from October 1, 1997
(inception) to December 31, 1997 and for the years ended
December 31, 1998 and 1999................................ F-4
Statements of Members' Equity (Deficit) for the period from
October 1, 1997 (inception) to December 31, 1997 and for
the years ended December 31, 1998 and 1999................ F-5
Statements of Cash Flows for the period from October 1, 1997
(inception) to December 31, 1997 and for the years ended
December 31, 1998 and 1999................................ F-6
Notes to Financial Statements............................... F-7
FINANCIAL STATEMENTS OF INTELLISOFT DEVELOPMENT CORPORATION:
Independent Auditors' Report................................ F-19
Balance Sheets as of December 31, 1998 and October 31,
1999...................................................... F-20
Statements of Operations for the year ended December 31,
1998 and the ten months ended October 31, 1999............ F-21
Statements of Shareholder's Equity for the year ended
December 31, 1998 and the ten months ended October 31,
1999...................................................... F-22
Statements of Cash Flows for the year ended December 31,
1998 and the ten months ended October 31, 1999............ F-23
Notes to Financial Statements............................... F-24
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-27
Notes to the Unaudited Pro Forma Combined Statement of
Operations................................................ F-28
</TABLE>
F-1
<PAGE> 89
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.
Atlanta, Georgia
April 3, 2000
F-2
<PAGE> 90
AUTOTRADER.COM, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 13,945,081
Accounts receivable, less allowance for doubtful accounts
of $6,832 and $162,948, respectively................... 82,175 1,353,772
Prepaid expenses and other current assets................. 435,682 4,650,495
------------ ------------
Total current assets.............................. 517,857 19,949,348
Property and equipment, net................................. 1,629,363 5,685,433
Intangible assets........................................... 234,375 4,096,595
Other noncurrent assets..................................... 32,579 80,102
------------ ------------
Total assets...................................... $ 2,414,174 $ 29,811,478
============ ============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,410,750 $ 4,844,894
Accrued expenses.......................................... 92,771 1,883,441
Current portion of accrued incentive compensation......... -- 559,206
------------ ------------
Total current liabilities......................... 1,503,521 7,287,541
Amounts due to Cox Enterprises, Inc......................... -- 7,267,757
Accrued incentive compensation.............................. 793,825 2,099,689
------------ ------------
Total liabilities................................. 2,297,346 16,654,987
------------ ------------
Members' equity:
Paid-in capital:
Capital contributions.................................. 25,114,712 83,874,532
Additional paid-in capital -- unit options............. -- 995,316
Accumulated deficit....................................... (24,997,884) (71,713,357)
------------ ------------
Total members' equity............................. 116,828 13,156,491
------------ ------------
Total liabilities and members' equity............. $ 2,414,174 $ 29,811,478
============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 91
AUTOTRADER.COM, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1997
(INCEPTION) YEAR ENDED DECEMBER 31,
TO DECEMBER 31, ---------------------------
1997 1998 1999
--------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Dealer services................................... $ 41,536 $ 840,659 $ 2,929,268
Advertising....................................... -- 186,989 1,164,933
E-commerce........................................ -- 260 1,088,607
----------- ------------ ------------
Total revenues............................ 41,536 1,027,908 5,182,808
Cost of revenues.................................... -- 381,664 1,469,445
----------- ------------ ------------
Gross profit........................................ 41,536 646,244 3,713,363
----------- ------------ ------------
Operating expenses:
Product development and technology................ 940,190 8,602,067 6,967,423
Sales and marketing............................... 922,380 11,349,569 35,643,699
General and administrative........................ 444,457 3,120,316 7,411,705
Depreciation and amortization..................... 15,625 288,696 826,089
----------- ------------ ------------
Total operating expenses.................. 2,322,652 23,360,648 50,848,916
----------- ------------ ------------
Loss from operations................................ (2,281,116) (22,714,404) (47,135,553)
Other income (expense), net......................... -- (2,364) 420,080
----------- ------------ ------------
Net loss............................................ $(2,281,116) $(22,716,768) $(46,715,473)
=========== ============ ============
Pro forma basic and diluted net loss per unit....... $ (1.60) $ (2.51)
============ ============
Pro forma weighted-average number of units
outstanding....................................... 14,168,000 18,625,140
============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 92
AUTOTRADER.COM, LLC
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PAID-IN CAPITAL
----------------------------
ADDITIONAL TOTAL
PAID-IN MEMBERS'
CAPITAL CAPITAL - ACCUMULATED EQUITY
CONTRIBUTIONS UNIT OPTIONS DEFICIT (DEFICIT)
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, October 1, 1997 (inception)....... $ -- $ -- $ -- $ --
Contributions made by members............ 1,679,840 -- -- 1,679,840
Net loss................................. -- -- (2,281,116) (2,281,116)
----------- -------- ------------ ------------
Balance, December 31, 1997................. 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................. 25,114,712 -- (24,997,884) 116,828
Contributions made by members............ 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................. $83,874,532 $995,316 $(71,713,357) $ 13,156,491
=========== ======== ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 93
AUTOTRADER.COM, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1997
(INCEPTION) YEAR ENDED DECEMBER 31,
TO DECEMBER 31, ---------------------------
1997 1998 1999
--------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(2,281,116) $(22,716,768) $(46,715,473)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation......................................... -- 226,196 591,018
Amortization......................................... 15,625 62,500 235,071
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)
Increase in prepaid expenses and other current
assets.......................................... (144,469) (291,213) (4,214,813)
Increase in accounts payable and accrued
expenses........................................ 1,101,795 170,312 5,456,228
Increase in accrued incentive compensation........ 28,110 765,715 1,865,070
----------- ------------ ------------
Net cash used in operating activities........... (1,321,591) (21,821,533) (43,059,180)
----------- ------------ ------------
Cash flows from investing activities:
Additions to property and equipment.................... (45,749) (1,812,174) (4,569,222)
Acquisition of business................................ -- -- (4,176,657)
Increase in other noncurrent assets.................... -- (32,579) (46,023)
----------- ------------ ------------
Net cash used in investing activities........... (45,749) (1,844,753) (8,791,902)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from member contributions..................... 1,367,340 23,434,872 58,759,820
Increase in amounts due to Cox Enterprises, Inc........ -- -- 7,267,757
Increase (decrease) in book overdrafts................. -- 231,414 (231,414)
----------- ------------ ------------
Net cash provided by financing activities....... 1,367,340 23,666,286 65,796,163
----------- ------------ ------------
Net increase in cash and cash equivalents................ -- -- 13,945,081
Cash and cash equivalents at beginning of period......... -- -- --
----------- ------------ ------------
Cash and cash equivalents at end of period............... $ -- $ -- $ 13,945,081
=========== ============ ============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 94
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
AutoTrader.com, LLC (the "Company"), formerly known as AutoConnect, L.L.C.,
is an Internet destination and 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, ADP's ownership interest was diluted from 19% to 6.56% because it elected
not to participate in certain additional capital contribution requests.
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).
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.
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.
F-7
<PAGE> 95
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 specific traffic referrals or transaction leads that originate on the
Company's Web site and are recognized as such referrals and leads are directed
to the vendor's product. The Company 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.
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
F-8
<PAGE> 96
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Pro Forma Basic and Diluted Net Loss Per Unit. Pro forma basic and diluted
net loss per unit is computed by dividing net loss by the pro forma
weighted-average number of units outstanding for the years ended December 31,
1998 and 1999, which gives effect to the Company's pending reorganization from a
limited liability company to a C corporation. No effect has been given to the
exercise of unit options because the effect would be antidilutive on operations
for all periods.
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.
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 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.
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.
F-9
<PAGE> 97
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, World Wide Wheels 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 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
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.
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, 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-10
<PAGE> 98
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Computer equipment and software............................. $1,853,724 $6,014,424
Leasehold improvements...................................... -- 499,805
Other equipment............................................. 1,454 41,789
---------- ----------
Property and equipment, at cost........................... 1,855,178 6,556,018
Less accumulated depreciation............................... (225,815) (870,585)
---------- ----------
Net property and equipment................................ $1,629,363 $5,685,433
========== ==========
</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.
The Company will reorganize from an LLC to a C corporation upon completion
of the Offering (see Note 13). The following table sets forth (i) Members'
equity as of December 31, 1999 on an actual basis and (ii) stockholders' equity
as of December 31, 1999 on an unaudited pro forma basis to reflect (a) the
issuance of 13,281,855 units to certain Members in exchange for $81,554,000 with
respect to the Company's call for capital funding in February and March 2000,
(b) the issuance of 1,173,876 units to eBay in exchange for $9,237,000 in March
2000 and (c) the Company's reorganization from an LLC to a C corporation upon
completion of the Offering:
F-11
<PAGE> 99
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------
PRO
ACTUAL FORMA
------------ ------------
(UNAUDITED)
<S> <C> <C>
Members' equity:
Paid-in capital:
Capital contributions................................ $ 83,874,532 $ --
Additional paid-in capital -- unit options........... 995,316 --
------------ ------------
Total paid-in capital........................... 84,869,848 --
Accumulated deficit..................................... (71,713,357) --
------------ ------------
Total members' equity........................... $ 13,156,491 $ --
============ ============
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, 19,654,248
shares outstanding on a pro forma basis.............. -- 19,654,248
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.............................. -- 63,091,761
------------ ------------
Total stockholders' equity...................... $ -- $103,947,491
============ ============
</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.
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-12
<PAGE> 100
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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), $8.5 million 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. 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 retirees. 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.
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, certain 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
F-13
<PAGE> 101
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Employee Option activity under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTIONS EXERCISE
GRANTED PRICE
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1999.............................. -- --
Granted..................................................... 1,552,500 $5.38
Exercised................................................... -- --
Cancelled................................................... (63,000) 5.38
--------- -----
Outstanding at December 31, 1999............................ 1,489,500 $5.38
========= =====
Options exercisable at December 31, 1999.................... --
=========
Weighted-average grant-date fair value of options granted
during 1999............................................... $ 1.42
=========
</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- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE 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>
F-14
<PAGE> 102
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
DECEMBER 31,
1999
------------
<S> <C>
Net loss:
As reported.............................................. $(46,715,473)
Pro forma................................................ (46,796,816)
Pro forma basic and diluted net loss per unit:
As reported.............................................. $ (2.51)
Pro forma................................................ (2.51)
</TABLE>
Non-Employee Unit Options
In accordance with the terms of the Plan, the Company has granted 404,600
options to select employees of certain affiliated companies (the "Non-Employee
Options") that were fully vested on the date of grant, become exercisable on
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 has granted an
aggregate of 49,900 unit appreciation rights ("UARs") to certain employees of
the Company ("Employee UARs"), as well as to select employees of certain
affiliated companies ("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. 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."
Because there has been no appreciation in the estimated fair value of the
underlying units, the Company has not recognized compensation expense related to
these awards for any of the periods presented in the accompanying financial
statements.
10. COX UNIT APPRECIATION PLAN
Certain of the executives and key employees of the Company 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
F-15
<PAGE> 103
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
maximum unit benefit of 150% of the base amount, and benefits vest over the
five-year period following the date of award. Amounts charged to general and
administrative expense for the Company's employees were $6,145, $154,645 and
$1,034,577 for the period from October 1, 1997 to December 31, 1997 and the
years ended December 31, 1998 and 1999, respectively. Amounts accrued under the
plans were $183,825 and $2,099,689 as of December 31, 1998 and 1999,
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 shares of
restricted Class A common stock based on the 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 Cox
represent the net of various transactions, including those described above, and
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 carried interest at 40 basis points above Cox's commercial paper borrowing
rate.
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.
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."
In August 1999, the Company entered into a service agreement to exchange
certain cross-promotional services with Trader for a period of ten years as
follows:
- Trader will provide prominent promotion of the Company's Web site
throughout Trader's non-automotive Web sites and automotive print
publications; and
- the Company will provide (i) co-branding of each automotive listing
provided by Trader and (ii) banner advertisements, graphic links and
certain search functionality to direct visitors to Trader's
non-automotive Web sites.
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
F-16
<PAGE> 104
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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. The Company recognized approximately $141,000 in sales and
marketing expense related to this agreement for the year ended December 31,
1999.
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)
=========== =========== =========== ===========
Pro forma basic and diluted net loss per
unit...................................... $ (0.33) $ (0.46) $ (0.45) $ (0.36)
=========== =========== =========== ===========
</TABLE>
F-17
<PAGE> 105
AUTOTRADER.COM, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<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.................................. $(7,778,228) $(8,033,893) $(12,941,563) $(17,961,789)
=========== =========== ============ ============
Pro forma basic and diluted net loss per
unit.................................... $ (0.55) $ (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 Company's Web site at a current rate
of $35,000 per month. A Member of the Company, KPCB, has an approximate 38%
ownership interest in Greenlight.com.
In February and March 2000, the Management Committee requested additional
capital contributions from the Members in the aggregate amount 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. 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 three-year term of the arrangement. At the same time, eBay purchased 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 Securities and Exchange Commission that would permit the
Company to sell up to 7,475,000 shares of common stock in connection with the
Offering. 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.
F-18
<PAGE> 106
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.
Atlanta, Georgia
March 17, 2000
F-19
<PAGE> 107
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-20
<PAGE> 108
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-21
<PAGE> 109
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-22
<PAGE> 110
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-23
<PAGE> 111
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, World Wide Wheels 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.
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.
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
F-24
<PAGE> 112
INTELLISOFT DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 agreements with
several Internet media companies to purchase certain exclusive promotional
rights and linkage with the media companies and to purchase certain advertising.
Intellisoft has also entered into cancelable agreements with several companies
to purchase Web-based content for Intellisoft's Web site.
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-25
<PAGE> 113
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-26
<PAGE> 114
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)
============ ========== ========= ============
Pro forma per unit data:
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-27
<PAGE> 115
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............................................... (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 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.
(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>
(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-28
<PAGE> 116
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> 117
[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> 118
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 Securities and Exchange Commission 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............................................. *
Nasdaq Stock Market Listing Application Fee................. 95,000
Blue Sky Fees and Expenses.................................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Printing and Engraving Fees................................. *
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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
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 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
II-1
<PAGE> 119
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 "Description of Capital Stock." 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
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.
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.
</TABLE>
II-2
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <C> <S>
*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.
*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>
- ---------------
* To be filed by amendment.
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................... $ 0 $ 0 $ 0 $ 0
====== ======== ========= ========
Year Ended December 31, 1998
Allowance for doubtful accounts................... $ 0 $ 7,000 $ 0 $ 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 Securities and Exchange Commission 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.
II-3
<PAGE> 121
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.
II-4
<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AutoTrader.com,
Inc. has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia on April 12, 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
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 April 12, 2000
- ----------------------------------------------------- Officer and Director
Victor A. Perry, III
/s/ WILLIAM N. TEMPLETON Vice President and Chief April 12, 2000
- ----------------------------------------------------- Financial Officer
William N. Templeton
/s/ JONATHAN W. MILLER Director of April 12, 2000
- ----------------------------------------------------- Accounting/Controller
Jonathan W. Miller
/s/ JAMES C. KENNEDY Director April 12, 2000
- -----------------------------------------------------
James C. Kennedy
/s/ G. DENNIS BERRY Director April 12, 2000
- -----------------------------------------------------
G. Dennis Berry
/s/ DARRYLL M. CECCOLI Director April 12, 2000
- -----------------------------------------------------
Darryll M. Ceccoli
/s/ DAVID E. EASTERLY Director April 12, 2000
- -----------------------------------------------------
David E. Easterly
</TABLE>
II-5
<PAGE> 123
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DEAN H. EISNER Director April 12, 2000
- -----------------------------------------------------
Dean H. Eisner
/s/ ROBERT C. O'LEARY Director April 12, 2000
- -----------------------------------------------------
Robert C. O'Leary
/s/ ALLAN STEJSKAL Director April 12, 2000
- -----------------------------------------------------
Allan Stejskal
/s/ RICHARD F. BARRY, III Director April 12, 2000
- -----------------------------------------------------
Richard F. Barry, III
/s/ JOSEPH LACOB Director April 12, 2000
- -----------------------------------------------------
Joseph Lacob
</TABLE>
II-6
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AUTOTRADER.COM, INC.
FIRST. The name of the corporation is AutoTrader.com, Inc.
SECOND. Its registered office in the State of Delaware is located at
1013 Centre Road, Wilmington, New Castle County, Delaware 19805. The registered
agent in charge thereof is Corporation Service Company.
THIRD. The purpose or purposes of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, and to have and exercise all the
powers conferred by the laws of the State of Delaware upon corporations formed
under the General Corporation Law of the State of Delaware.
FOURTH. The amount of the total authorized capital stock of this
corporation shall be one thousand (1,000) shares of voting common stock, with a
par value of one dollar ($1.00) per share.
FIFTH. The name and mailing address of the Incorporator is as
follows:
Julie A. Mueller
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-6802
SIXTH. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors of the corporation shall have the following
powers:
(a) To adopt, and to alter or amend the Bylaws and to fix the
amount to be reserved as working capital; and
(b) With the consent in writing or pursuant to a vote of the
holders of a majority of the capital stock issued and outstanding, to dispose
of, in any manner, all or substantially all of the property of this corporation.
SEVENTH. The stockholders and directors shall have the power to hold
their meetings and keep the books, documents and papers of the corporation
within or outside the State of Delaware and at such place or places as may be
from time to time designated by the Bylaws or by resolution of the stockholders
or directors, except as otherwise required by the laws of the State of Delaware.
EIGHTH. The objects, purposes and powers specified in any clause or
paragraph of this Certificate of Incorporation shall be in no way limited or
restricted by reference to or
<PAGE> 2
inference from the terms of any other clause or paragraph of this Certificate of
Incorporation. The objects, purposes and powers in each of the clauses and
paragraphs of this Certificate of Incorporation shall be regarded as independent
objects, purposes and powers. The objects, purposes and powers specified in this
Certificate of Incorporation are in furtherance and not in limitation of the
objects, purposes and powers conferred by statute.
NINTH. The corporation shall have the power to indemnify its
officers, directors, employees and agents, and such other persons as may be
designated as set forth in the Bylaws, to the full extent permitted by the laws
of the State of Delaware. A director shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duties as a director, provided that the liability of a director (i) for any
breach of the director's loyalty to the corporation 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 Title 8 of the
Delaware Code, or (iv) for any transaction from which the director derived an
improper personal benefit shall not be eliminated or limited hereby.
TENTH. The corporation shall have perpetual existence.
The undersigned, Julie A. Mueller, for the purpose of forming a
corporation under the laws of the State of Delaware, does hereby make, file and
record this Certificate of Incorporation and does hereby certify that the facts
herein stated are true, and has accordingly hereunto set her hand and seal.
/s/ Julie A. Mueller
------------------------------
Julie A. Mueller, Incorporator
Dated: March 30, 2000
2
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
AUTOTRADER.COM, INC.
ARTICLE I
OFFICES
Section 1. The registered office of the corporation shall be located at
1013 Centre Road, in the City of Wilmington, County of New Castle, State of
Delaware 19805.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware and the United States as the Board
of Directors may from time to time determine or as the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings of the stockholders for the election of
directors shall be held in Atlanta, Georgia, at such place and time as may be
fixed from time to time by the Board of Directors, or at such other place either
within or without the State of Delaware or the United States as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting or in a duly executed waiver of the notice thereof. Meetings of
the stockholders for any other purpose may be held at such time and place,
within or without the State of Delaware or the United States, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of the stockholders shall be held on such
date and at such time as shall be designated from time to time by the Board of
Directors. At the annual meeting, the stockholders shall elect the Board of
Directors and shall transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting of stockholders stating
the place, date and time of the meeting shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting to each stockholder
entitled to vote at such meeting.
Section 4. Special meetings of the stockholders for any purpose or
purposes, unless otherwise provided by statute, the Certificate of Incorporation
or these Bylaws, may be called by the President and shall be called by the
President or Secretary at the request in writing of a majority of the Board of
Directors or at the request in writing of stockholders owning a majority of the
entire capital stock of the corporation issued and outstanding and entitled to
vote. Such requests shall state the purpose or purposes of the proposed meeting.
Section 5. Written notice of a special meeting shall state the place,
date and time of the meeting and the purpose or purposes for which the meeting
is called and shall be given not less than
<PAGE> 2
ten (10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 6. Business transacted at any special meeting of the
stockholders shall be limited to the purpose or purposes stated in the notice,
unless all the holders of the issued and outstanding shares entitled to vote
otherwise consent thereto either at the special meeting or in writing executed
subsequent to the meeting.
Section 7. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every annual
or special meeting of the stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to examination by any stockholder for
any purpose germane to the meeting during ordinary business hours, and for a
period of at least ten (10) days prior to the meeting either at a place within
the city where the meeting is to be held (which place shall be specified in the
notice of the meeting) or (if not so specified) at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof and may be inspected by any
stockholder who is present at the meeting.
Section 8. The holders of a majority of the issued and outstanding
shares entitled to vote thereat, who are present in person or represented by
proxy at the meeting, shall constitute a quorum at all annual and special
meetings of the stockholders for the transaction of business, unless otherwise
provided by statute, the Certificate of Incorporation or these Bylaws. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting, at which a quorum
shall be present or represented, any business may be transacted that might have
been transacted at the meeting as originally described in the notice to the
stockholders. If the adjournment is for more than thirty (30) days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 9. When a quorum is present at any annual or special meeting,
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy at the meeting shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of statute, the Certificate of Incorporation or these Bylaws a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 10. Unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, each stockholder shall at every annual or special
meeting of the stockholders be entitled to one vote in person or by proxy for
each share of the capital stock having voting power held by such stockholder,
but no proxy shall be voted or acted upon after a period of three years from its
date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any annual or special meeting of the stockholders may be taken without a
meeting, without prior written notice and without a vote if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock of
2
<PAGE> 3
the corporation having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Such consent shall be filed
with the Secretary of the corporation. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors that constitutes the Board of
Directors shall be at least one (1) and not more than fifteen (15). The first
Board of Directors shall initially consist ten (10) directors. Thereafter,
within the limits above specified, the number of directors shall be determined
by resolution of the Board of Directors or by the stockholders at the annual or
special meeting. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article. Each director
shall hold office until his successor is elected and qualified. Directors need
not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director. The directors so chosen shall hold office until the next annual
election and until their successors are duly elected and qualified, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If at any time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board of Directors (as
constituted immediately prior to any such increase), the Court of Chancery of
the State of Delaware, upon application of any stockholder or stockholders
holding at least ten percent of the total number of shares at the time
outstanding having the right to vote for such directors, may summarily order an
election to be held to fill any such vacancies or newly created directorships or
to replace the directors chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by its
Board of Directors, which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute, the Certificate of
Incorporation or these Bylaws directed or required to be exercised or done by
the stockholders.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. The Board of Directors of the corporation may hold meetings,
both regular and special, within or without the State of Delaware or the United
States.
Section 2. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting. No notice of such meeting to the newly
elected directors shall be necessary in order legally to constitute the meeting,
provided a quorum shall be present. If the stockholders fail to fix the time or
place of the first meeting of the newly elected Board of Directors or if this
meeting is not held at the time and place so fixed by the stockholders, the
meeting may be held at such time and place as shall be
3
<PAGE> 4
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors or as shall be specified in a written waiver signed by all of
the directors.
Section 3. Regular meetings of the Board of Directors shall be held
without notice at such time and place as shall from time to time be determined
by the Board of Directors.
Section 4. Special meetings of the Board of Directors may be called by
the President on three (3) days' notice to each director, either personally, by
mail or by telecopy. Such meetings shall be called by the President or Secretary
in like manner and on like notice on the written request of a majority of the
directors.
Section 5. At all regular and special meetings of the Board of
Directors, a simple majority of the directors shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, unless otherwise specifically provided by statute, the Certificate of
Incorporation, or these Bylaws. If a quorum is not present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum shall be present.
Section 6. Unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board or the committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or committee.
Section 7. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors or of any
committee designated by the Board of Directors may participate in a meeting of
the Board of Directors or any committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
ARTICLE V
COMMITTEES OF DIRECTORS
Section 1. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each consisting
of two or more directors of the corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Section 2. Except as provided below, any committee, to the extent
provided in the resolutions of the Board of Directors and in these Bylaws, shall
have and may exercise all of the powers and authority of the Board of Directors
in the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers that may
require
4
<PAGE> 5
it. No committee, however, shall have the power or authority to amend the
Certificate of Incorporation; to adopt an agreement of merger or consolidation;
to recommend to the stockholders the sale, lease, exchange or other disposition
of all or substantially all of the corporation's property and assets; to
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution; or to amend these Bylaws; further, unless a resolution of the
Board of Directors, these Bylaws or the Certificate of Incorporation expressly
so provides, no committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger.
Section 3. A committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors.
Section 4. Each committee shall keep regular minutes of its meetings
and shall file them with the minutes of the proceedings of the Board of
Directors when required.
ARTICLE VI
COMPENSATION OF DIRECTORS
Section 1. Unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of the directors.
Section 2. The directors may be paid their expenses, if any, of
attending meetings of the Board of Directors. Such payments may take the form of
a fixed sum for attendance at each meeting or a stated salary as a director.
Members of committees may be allowed like compensation for attending committee
meetings.
Section 3. No payment permitted under this Article VI shall preclude
any director from serving the corporation in any other capacity and receiving
compensation therefor.
ARTICLE VII
OFFICERS
Section 1. The officers of the corporation shall be designated by the
Board of Directors, by election, and shall include a President, a Vice
President, a Secretary and a Treasurer. The Board of Directors may also elect
such other officers and agents as it deems necessary, including additional Vice
Presidents and one or more Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person, unless otherwise provided by
statute, the Certificate of Incorporation or these Bylaws.
Section 2. The officers of the corporation shall be elected by the
Board of Directors at the Board's first meeting after each annual meeting of
stockholders.
Section 3. The officers of the corporation shall hold office until
their successors are chosen and qualified. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors whenever in its judgment the best interests
of the corporation will be served thereby. Any vacancy occurring in any office
of the corporation shall be filled by the Board of Directors.
5
<PAGE> 6
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The President shall be the chief executive officer of the
corporation. The President shall preside at all meetings of the stockholders,
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall execute under the seal of the
corporation bonds, mortgages and other contracts requiring a seal, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof is expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 6. In the absence of the President or in the event of his
inability or refusal to act, the Vice President (or in the event there are more
than one, the Vice Presidents in the order designated, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President and, when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. The Vice President shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Section 7. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all of the proceedings
of the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for any committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors and shall
perform such other duties as may be prescribed by the Board of Directors or the
President, under whose supervision he shall be. The Secretary shall have custody
of the corporate seal of the corporation, and he, or an Assistant Secretary,
shall have the authority to affix the same to any instrument requiring it, and
(when so affixed) it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 8. The Assistant Secretary, or if there are more than one, the
Assistant Secretaries in the order determined by the Board of Directors (or if
there is no such determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Section 9. The Treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 10. The Treasurer shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President, and the Board of Directors at
the Board's regular meetings or when the Board so requires, an account of all
his transactions as Treasurer and of the financial condition of the corporation.
Section 11. If required by the Board of Directors, the Treasurer shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and
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for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
Section 12. The Assistant Treasurer, or if there are more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there is no such determination, then in the order of their election), shall, in
the absence of the Treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
ARTICLE VIII
NOTICES
Section 1. Whenever, under the provisions of any statute, the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director or stockholder, it shall not be construed to mean solely personal
notice, but such notice may be given in writing and shall be deemed given when
delivered by hand or by telecopy, or sent by overnight delivery service or by
registered or certified mail (return receipt requested), postage prepaid, to any
director or stockholder at his address as it appears on the records of the
corporation.
Section 2. Whenever any notice is required to be given under the
provisions of statute, the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE IX
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by the stockholder in the corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile if the certificate is manually signed on behalf of a transfer agent or
a registrar (other than the corporation itself or an employee of the
corporation). In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, the certificate may be issued by the corporation with the same effect as
if he were such officer, transfer agent or registrar at the date of issue.
Section 3. The Board of Directors may direct that a new certificate or
certificates be issued in place of any certificate or certificates theretofore
issued by the corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
to be lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates or his legal
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representative to advertise the same in such manner as it shall require and/or
to give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by the
proper evidence of succession, assignment or authority to transfer, the
corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date that shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new date for
the new adjourned meeting.
Section 6. The corporation shall be entitled to recognize the exclusive
rights of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner. The corporation shall be entitled to hold
liable for calls and assessments a person registered on its books as the owner
of shares. The corporation shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, regardless of whether the corporation shall have express or other notice
thereof, unless otherwise provided by statute, the Certificate of Incorporation
or these Bylaws.
ARTICLE X
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid in cash,
property, or in shares of stock, unless otherwise provided by statute, the
Certificate of Incorporation or these Bylaws. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time, in their
absolute discretion, may think proper as a reserve or reserves for
contingencies, equalizing dividends, repairing or maintaining any property of
the corporation, or for such other purpose or purposes as the Board of Directors
shall think conducive to the interests of the corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
Section 2. Annual Statements. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
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Section 3. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
designated by resolution of the Board of Directors.
Section 5. Indemnification. The corporation shall have the power to
indemnify its officers, directors, employees and agents of the corporation, and
such other persons as designated by the Board of Directors, to the full extent
as permitted under the laws of the State of Delaware as amended and in effect
from time to time.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization, and the name of the State
of Delaware. The seal may be used by causing it or a facsimile thereof to be
impressed, affixed or otherwise reproduced.
Section 7. Amendments. Unless such power is reserved to the
stockholders by statute, the Certificate of Incorporation or these Bylaws, these
Bylaws may be altered, amended or repealed or new Bylaws adopted either by the
stockholders or the Board of Directors (when such power is conferred upon the
Board of Directors by the Certificate of Incorporation, and subject to repeal or
change by action of the stockholders) at any annual meeting of the stockholders
or regular meeting of the Board of Directors, or at any special meeting of the
stockholders or of the Board of Directors (if notice of such alteration,
amendment, repeal or adoption of new Bylaws is contained in the notice of such
special meeting), by a vote of a majority of the holders of stock having voting
power present in person or represented by proxy at such meeting at which there
is a quorum, or by a vote of a majority of the directors present at such meeting
at which there is a quorum (whichever is applicable).
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EXHIBIT 10.2
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (the "Agreement") is entered into as of
this 20th day of August, 1999, among Manheim Auctions, Inc., a Delaware
corporation ("Manheim"), ADP, Inc., a Delaware corporation ("ADP"), Trader
Publishing Company, a Virginia general partnership ("Trader"), AutoConnect,
L.L.C., a Delaware limited liability company (the "Company"), TPI, Inc., a
Delaware corporation ("Cox"), and LTM Company, L.P., a Virginia limited
partnership ("Landmark").
RECITALS:
A. The Company was formed by Manheim and ADP in 1997 in order to
provide consumer shopping and information services over the Internet to buyers
and sellers of automobiles and other vehicles.
B. In connection with such formation, Manheim and ADP each made certain
contributions and services commitments to the Company pursuant to an Operating
Agreement dated as of December 18, 1997 (the "Initial Operating Agreement").
C. Trader provides similar consumer shopping and information services
to buyers and sellers of automobiles and other vehicles and merchandise both
through print publications and over the Internet (such service for buyers and
sellers of Automobiles over the Internet, the "Online Automotive Business").
D. Cox and Landmark, as the only partners of Trader, desire to cause
Trader to contribute and license to the Company certain assets related to
Trader's Online Automotive Business, become Members of the Company, and for
Trader to enter into certain relationships with respect to its print
publications and other businesses (including its businesses on the Internet).
E. Manheim and ADP desire to admit Cox and Landmark as Members pursuant
to the Amended and Restated Limited Liability Company Agreement attached as
Exhibit A (the "Restated LLC Agreement"), and all such Members desire to restate
or establish, as applicable, the services commitments between the Company and
each of Manheim, ADP and Trader.
In consideration of the mutual covenants contained herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. DEFINED TERMS
All capitalized terms that are not defined herein shall have the meanings set
forth in Schedule 1 to this Agreement.
<PAGE> 2
2. COVENANTS AND UNDERTAKINGS
2.1. Contribution and License of Assets. Subject to the terms and
conditions set forth in this Agreement, Trader hereby agrees to:
(a) Contribution. Contribute, transfer, assign and deliver to
the Company at the Closing, free and clear of any claims, liabilities,
mortgages, liens, pledges, charges or encumbrances of any nature whatsoever, the
following assets related to the Online Automotive Business (the "Contributed
Assets"):
(i) The Automotive Data on Trader's Automotive Pages
as of the Closing Date.
(ii) All rights, title and interest of Trader under,
and existing goodwill associated with, contracts and insertion orders (the
"Dealer Contracts") to provide web site development, hosting and maintenance
services (the "Dealer Web Site Services") to Automobile dealers. ("Dealer
Contracts" specifically excludes any Excluded General Contract, defined below,
that may relate to Dealer Web Site Services.)
(iii) All rights, title and interest, including the
rights to receive fees and other payments, related to, and existing goodwill
associated with, Dealer Web Site Services under the Dealer Contracts which
relate to services rendered after the Closing Date.
(iv) A copy of Trader's books and records related to
Dealer Contracts and Dealer Web Site Services.
(v) The contracts listed on Schedule 2.1 (certain
data distribution, data hosting, re-sale, advertising (liner/text ads), and
other contracts related to the Automotive Pages) (the "Assigned General
Contracts").
The foregoing notwithstanding, to the extent that any Assigned General
Contract is not capable of being sold, assigned, transferred, delivered or
subleased without the waiver or consent of any third person (including a
government or governmental unit) and such waiver or consent is not obtained at
or prior to the Closing Date, then this Agreement and any assignment executed
pursuant hereto pertaining to such contract or agreement, to the extent
permitted by law, shall constitute an equitable assignment by Trader to the
Company of all of Trader's rights, benefits, title and interest in and to such
contract or agreement (except to the extent such rights relate to periods prior
to Closing), and where necessary or appropriate, the Company shall be deemed to
be Trader's agent for the purpose of completing, fulfilling and discharging all
of Trader's rights, obligations and liabilities arising after the Closing Date
under such contract or agreement and such contracts and agreements shall
continue to be deemed "Assigned General Contracts" for purposes hereof. The
Company and Trader shall work cooperatively to obtain any necessary third party
waiver or consent to the Assigned General Contracts, with Trader sending the
requisite notices of assignment promptly after Closing.
(b) License. Enter into a license agreement in the form
attached to this Agreement as Exhibit B (the "License Agreement") related to the
use of the names, service marks
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and trademarks "Auto Trader" and "autotrader.com" (the "Trademark License") in
connection with the Company's Business (as defined in the Restated LLC
Agreement) and Trader's rights to the URLs http://www.autotrader.com and
http://www.automart.com (the "Licensed Domain Names") and certain other rights
(collectively with the Trademark License and the license to the Licensed Domain
Names, the "License", and the rights so licensed, the "Licensed Rights").
2.2. Excluded Assets. Notwithstanding anything contained in this
Agreement to the contrary, Trader shall only be obligated to contribute the
Contributed Assets and license the Licensed Rights, and all other assets and
properties of Trader are specifically excluded from the Contributed Assets and
Licensed Rights, including, without limitation, the contracts listed on Schedule
2.2 (the "Excluded General Contracts" and collectively with the Assigned General
Contracts, the "General Contracts"), cash and any payments due under the Dealer
Contracts or General Contracts relating to any time on or prior to the Closing.
2.3. Valuation of Contributed Assets and License. The Members
acknowledge and agree that for the purposes of valuing Trader's contribution to
the Company and the initial capital accounts of Cox and Landmark, the fair
market value of the Contributed Assets and the License shall be deemed to be
$43,333,333.
2.4. Consideration and Issuance. In consideration of the contribution
and delivery of the Contributed Assets contemplated by Section 2.1 and the
consummation of the other transactions contemplated by this Agreement, at
Closing, the Company will issue to each of Cox and Landmark 250,000 Class A
Units of the Company (the "Contribution Units") and the Members will execute and
deliver the Restated LLC Agreement in furtherance of Cox's and Landmark's
admission as Members. On the basis of the capitalization schedule attached as
Schedule 2.4, the Contribution Units shall reflect an aggregate percentage
interest in the Company of 25.84% immediately after the Closing (assuming the
assignment by Cox of 18,634 of its Contribution Units to KPCB Holdings, Inc., as
nominee, pursuant to the Cox/KPCB Assignment, defined below).
2.5. Assumption of Certain Liabilities and Obligations; Excluded
Liabilities. The Company agrees that from and after the Closing, it shall assume
and pay, discharge and perform (a) all the obligations and liabilities of Trader
to advertisers, insofar as such obligations and liabilities relate to the
provision of advertising on the Automotive Pages after the Closing, (b) all the
obligations and liabilities of Trader under the Dealer Contracts and Assigned
General Contracts arising after the Closing, (c) all trade accounts payable and
accrued expenses related to Trader's Online Automotive Business, insofar as such
payables and expenses relate to the provision of Dealer Web Site Services or
services that would have been provided on the Automotive Pages after the
Closing, and (d) the Accrued Payroll Liabilities of the Transferred Employees.
All other obligations and liabilities of Trader, including, without limitation,
any obligations under the Dealer Contracts and Assigned General Contracts
relating to any time on or prior to the Closing, and any Employee Plan,
Compensation Arrangement, Multi-employer Plan or employment or collective
bargaining agreement of Trader, shall remain and be the obligations and
liabilities solely of Trader. Other than as specified herein, the Company shall
assume no liabilities or obligations of Trader.
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3. REPRESENTATIONS AND WARRANTIES OF TRADER
Trader represents and warrants to the Company, Manheim, ADP and their respective
successors and assigns that the statements contained in this Article 3 are
correct and complete as of the date of this Agreement. Whenever a statement is
qualified by "knowledge" of Trader, such knowledge means the actual knowledge of
Trader's executive officers.
3.1. Organization, Standing and Authority. Trader is a partnership duly
formed and validly existing under the laws of the Commonwealth of Virginia.
Trader has all requisite power and authority (a) to execute, deliver and perform
this Agreement and all Related Agreements; and (b) to consummate the
transactions contemplated hereby and thereby.
3.2. Authorization and Binding Obligation. All action on the part of
Trader and its Board of Directors and partners necessary for the authorization,
execution, delivery and performance by Trader of this Agreement and all Related
Agreements has been taken. This Agreement has been duly executed and delivered
by Trader, and this Agreement and the Related Agreements constitute or will
constitute, when duly executed and delivered, the valid and legally binding
obligations of Trader, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally, and except as enforcement of remedies may be limited by general
equitable principles.
3.3. Absence of Conflicting Agreements. Subject to obtaining the Trader
Consents by the Closing Date, the execution, delivery and performance of this
Agreement and the Related Agreements by Trader and the consummation of the
transactions contemplated hereby (with or without the giving of notice, the
lapse of time, or both): (a) will not conflict with any provision of the Joint
Venture Agreement of Trader; (b) will not, to Trader's knowledge, conflict with,
result in a breach of, or constitute a default under, any applicable law, rule
or regulation or any applicable judgment, order, ordinance, injunction or decree
of any court or governmental instrumentality; and (c) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, or accelerate or permit the acceleration of any performance
required by the terms of, any of the contracts included in the Contributed
Assets or directly related to the Licensed Rights, or, to Trader's knowledge,
any other material agreement, instrument, franchise, certificate, license or
permit to which Trader is a party or may be bound or by which the Contributed
Assets or the Licensed Rights are affected.
3.4. Contracts. Schedule 3.4 contains a list (including memoranda of
oral contracts) of all the Dealer Contracts and Assigned General Contracts. All
of the Dealer Contracts and Assigned General Contracts are in full force and
effect and are valid and binding upon Trader and enforceable in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws from time to time in effect
affecting the enforcement of creditors' rights generally, and except as
enforcement of remedies may be limited by general equitable principles. There is
not under any Dealer Contract or Assigned General Contract any material default
by Trader, or to the knowledge of Trader, any other party thereto, or any event
which, after notice or lapse of time, or both, would constitute such a default.
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Each Dealer Contract and Assigned General Contract identified on Schedule 3.4 as
an oral contract, if any, is, to Trader's knowledge, terminable at will by
Trader or its assignee with no penalty, fee or further obligation of any kind
associated with such termination.
3.5. Consents. Except for the Consents listed in Schedule 3.5, no
consent, approval or authorization of, or declaration to or filing with any
governmental or regulatory authority or any other third party is required to
permit Trader to assign or transfer the Contributed Assets to or to enter into
the License Agreement or to consummate the transactions contemplated hereby.
3.6. Compliance with Laws. Trader is presently operating and has in the
past operated its business so as to comply in all material respects with all
applicable statutes, ordinances, rules, regulations, laws and orders of any
federal, state or local governmental authority.
3.7. Employee Benefit Plans. Except for the Accrued Payroll Liabilities
described on Schedule 3.7, Trader does not have any Employee Plans or
Compensation Arrangements as to which the Company will be required to make any
contributions or with respect to which the Company shall have any obligation or
liability whatsoever, after the Closing.
3.8. Taxes. Trader has filed or will file all requisite federal, state,
local and other Tax Returns, and has paid or will pay all Taxes due under such
Tax Returns, which, if not filed or paid, could result in the imposition of any
lien or encumbrance on or against the Contributed Assets or Licensed Rights. As
of the Closing Date, Trader shall have filed or will file all such Tax Returns
due for all fiscal periods ended on or before the Closing Date (except any such
Tax Returns for which the filing date has been extended in accordance with
normal extension procedures or for which such extension period has not expired),
and shall have paid all Taxes due under such Tax Returns.
3.9. Claims and Legal Actions. Except as set forth in Schedule 3.9 and
except for any investigations or rule-making proceedings generally affecting the
Internet industry, there is no claim, legal action, counterclaim, suit,
arbitration, governmental investigation or other legal, administrative or tax
proceeding, nor any order, decree or judgment, in progress or pending, or to the
knowledge of Trader, threatened against or relating to any of the Contributed
Assets or Licensed Rights.
3.10. Title to Contributed Assets. Trader has the valid right to
contribute or provide to the Company the Automotive Data that is included among
the Contributed Assets. The Dealer Contracts to be assigned to the Company
hereunder are all of the contracts through which Trader's Online Automotive
Business has provided Dealer Web Site Services immediately prior to the Closing.
4. REPRESENTATIONS AND WARRANTIES OF MANHEIM
Manheim represents and warrants to the Company, ADP, Trader and their respective
successors and assigns that the statements contained in this Article 4 are
correct and complete as of the date of this Agreement:
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4.1. Organization, Standing and Authority. Manheim is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Manheim has all requisite corporate power and authority (a)
to execute, deliver and perform this Agreement and all Related Agreements; and
(b) to consummate the transactions contemplated hereby and thereby.
4.2. Authorization and Binding Obligation. All corporate action on the
part of Manheim and its Board of Directors and stockholders necessary for the
authorization, execution, delivery and performance by it of this Agreement and
the Related Agreements has been taken. This Agreement has been duly executed and
delivered by Manheim, and this Agreement and the Related Agreements constitute
or will constitute, when duly executed and delivered, the valid and legally
binding obligations of Manheim, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally, and except as enforcement of remedies may be limited by general
equitable principles.
4.3. Absence of Conflicting Agreements. The execution, delivery and
performance of this Agreement and the Related Agreements by Manheim and the
consummation of the transactions contemplated hereby (with or without the giving
of notice, the lapse of time, or both): (a) will not conflict with any provision
of the Certificate of Incorporation or Bylaws of Manheim; (b) will not conflict
with, result in a breach of, or constitute a default under, any applicable law,
rule or regulation or, to the knowledge of Manheim, any applicable judgment,
order, ordinance, injunction or decree of any court or governmental
instrumentality; and (c) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, or accelerate
or permit the acceleration of any performance required by the terms of, any
material agreement, instrument, franchise, certificate, license or permit to
which Manheim is a party or may be bound.
4.4. Consents. No consent, approval or authorization of, or declaration
to or filing with any governmental or regulatory third party is required to
permit Manheim to consummate the transactions contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES OF ADP
ADP represents and warrants to the Company, Manheim, Trader and their respective
successors and assigns that the statements contained in this Article 5 are
correct and complete as of the date of this Agreement:
5.1. Organization, Standing and Authority. ADP is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. ADP has all requisite corporate power and authority (a) to execute,
deliver and perform this Agreement and all Related Agreements; and (b) to
consummate the transactions contemplated hereby and thereby.
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5.2. Authorization and Binding Obligation. All corporate action on the
part of ADP and its Board of Directors and stockholders necessary for the
authorization, execution, delivery and performance by it of this Agreement and
the Related Agreements has been taken. This Agreement has been duly executed and
delivered by ADP, and this Agreement and the Related Agreements constitute or
will constitute, when duly executed and delivered, the valid and legally binding
obligations of ADP, enforceable against it in accordance with their respective
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws from
time to time in effect affecting the enforcement of creditors' rights generally,
and except as enforcement of remedies may be limited by general equitable
principles.
5.3. Absence of Conflicting Agreements. The execution, delivery and
performance of this Agreement and the Related Agreements by ADP and the
consummation of the transactions contemplated hereby (with or without the giving
of notice, the lapse of time, or both): (a) will not conflict with any provision
of the Certificate of Incorporation or Bylaws of ADP; (b) will not conflict
with, result in a breach of, or constitute a default under, any applicable law,
rule or regulation or, to the knowledge of ADP, any applicable judgment, order,
ordinance, injunction or decree of any court or governmental instrumentality;
and (c) will not conflict with, constitute grounds for termination of, result in
a breach of, constitute a default under, or accelerate or permit the
acceleration of any performance required by the terms of, any material
agreement, instrument, franchise, certificate, license or permit to which ADP is
a party or may be bound.
5.4. Consents. No consent, approval or authorization of, or declaration
to or filing with any governmental or regulatory third party is required to
permit ADP to consummate the transactions contemplated hereby.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the representations and warranties to Trader, Cox, Landmark
and their successors and assigns that are made by the Company to ATC Holdings,
Inc. ("ATCHI") in the separate Unit Purchase Agreement dated as of the date
hereof (the Unit Purchase Agreement") to which ATCHI and the Company are
parties. Each such representation and warranty is incorporated by reference
herein and shall apply as if fully set forth herein, provided that (a) each
reference to Purchase Units shall be deemed in this Agreement to refer to the
Contribution Units, (b) each reference to this "Agreement" and the "Related
Agreements" shall be deemed to be a reference to this Agreement and the Related
Agreements, as each is defined hereunder, (c) each reference to the Subscription
Closing shall be deemed in this Agreement to refer to the Closing, (d) Schedule
4.4 shall be deemed in this Agreement to refer to Schedule 6 to this Agreement
and (e) each other defined term shall be deemed to have the meaning given to it
in the Unit Purchase Agreement and each such representation and warranty shall
be limited as to survivability as provided in the Unit Purchase Agreement.
7. ADDITIONAL COVENANTS
7.1. Cooperation. The parties shall cooperate fully with each other and
their respective counsel and accountants in connection with any actions required
to be taken as part of their
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respective obligations under this Agreement, and the parties shall execute such
other documents as may be reasonably necessary and desirable to the
implementation and consummation of the transactions contemplated hereby and to
fulfill their obligations hereunder.
7.2. Fees and Expenses. Except as otherwise provided in this Agreement,
each party shall pay its own expenses incurred in connection with the
authorization, preparation, execution and performance of this Agreement,
including all fees and expenses of counsel, accountants, agents and other
representatives.
7.3. Brokers. Each of the parties represents and warrants to the other
that neither it nor any person or entity acting on its behalf has incurred any
liability for any finders' or brokers' fees or commissions in connection with
the transactions contemplated by this Agreement.
7.4. Bulk Sales Law. The parties hereto waive compliance with the
requirements, if any, of Article 6 of the Uniform Commercial Code of each state
where Contributed Assets are located.
7.5. Employee Matters.
(a) Prior to Closing, the Company will offer employment to
each of the Trader employees listed on Schedule 7.5(a) (the "Transferred
Employees").
(b) Except to the extent mutually agreed to by the Members,
Trader shall retain full responsibility and liability for offering and providing
"continuation coverage" to any "qualified beneficiary" who is covered by a
"group health plan" sponsored, maintained or contributed to by Trader and who
has experienced a "qualifying event" or is receiving such "continuation
coverage" on or prior to the Closing Date. Continuation coverage, qualified
beneficiary, qualifying event and group health plan shall have the meanings
given such terms under Section 4980B of the Code and Section 601 et seq. of
ERISA.
(c) Notwithstanding the foregoing, nothing in this Agreement
shall, or shall be deemed to, create any rights in favor of any person not a
party hereto or to constitute an employment agreement or condition of employment
for any employee of Trader or the Company. No provisions of this Section 7.5
shall be construed to create any right with respect to any employee to continued
employment with the Company.
7.6. Tax Matters. Trader agrees to pay and, notwithstanding any
disclosure of potential tax liabilities made by Trader, to indemnify, reimburse,
and hold harmless the Company, Manheim and ADP and their respective successors
from and against any and all Taxes of Trader payable with respect to, and any
and all claims, liabilities, losses, damages, costs and expenses (including
without limitation court costs and reasonable professional fees incurred in the
investigation, defense or settlement of any claims covered by this indemnity)
(herein referred to as "Indemnifiable Tax Damages"), arising out of or in any
manner incident, relating or attributable to Taxes of Trader payable with
respect to, or Tax Returns required to be filed by Trader and arising in any
taxable year (or other applicable reporting period) ("Reporting Period") of
Trader ending on or before the Closing Date. Trader shall be entitled to any
credits or refunds of Taxes arising
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in any Reporting Period of Trader ending on or before the Closing Date. The
Company shall cause the amount of any credits or refunds of Taxes to which
Trader is entitled under this Section 7.6, but which are received by or credited
to the Company after the Closing Date, to be paid to Trader within ten business
days following such receipt or crediting, provided that Trader shall reimburse
the Company or its successors to the extent of any required subsequent repayment
of, or reduction in, the amount of such credits or refunds of Taxes so received
or credited.
7.7. Notice of Assignment of Dealer Contracts. On or before such date
following the Closing as Trader and the Company shall agree, Trader shall send
notices of contract assignment to each of the other parties to the Dealer
Contracts identified on Schedule 3.4. Trader shall consult with the Company
regarding the form and content of such notices of assignment before sending any
such notices.
7.8. Access to Financial Statements. In the event that the Company
determines that it is required to provide financial statements related to the
contribution of the Contributed Assets in order to comply with federal or state
securities law requirements, Trader shall furnish, or cause to be furnished, to
the Company such access to Trader personnel, accountants and information as the
Company may reasonably request in order to prepare audited financial statements
(including a balance sheet and statements of income and cash flows) related to
the business represented by the Contributed Assets for such fiscal year periods
and unaudited financial statements for all interim periods as may be specified
under applicable provisions of Rules 3-01 and 3-02 of Regulation S-X promulgated
by the Securities and Exchange Commission (the "SEC"). In connection with the
foregoing, Trader agrees to provide the Company and its representatives and
auditors with reasonable access during normal business hours to Trader's
financial and accounting records. In addition, Trader shall direct its
independent certified public accountants to cooperate with the Company for
purposes of compiling all available financial information that is requested by
the Company or the Company's accountants (and to assist the Company in its
efforts to develop such information) and that is required in order to comply
with federal or state securities law requirements. The Company shall pay or
absorb all fees, costs and expenses related to Trader's compliance with the
foregoing covenants including, without limitation, the fees, costs and expenses
of any accountants engaged by the Company to audit the financial statements and
the fees, costs and expenses of Trader's accountants. Notwithstanding anything
to the contrary set forth herein, the Company shall use its best efforts to
limit the necessity for such financial statements and scope thereof (e.g., the
Company shall solicit opinions concerning the applicability of the SEC S-X
rules, the time periods required to be covered, if any, and the propriety of
using limited special purpose reports in lieu of full financial statements) and
to limit the disruption caused to Trader's business by such audit. Trader shall
have no liability to the Company if the SEC declines to permit the Company to
include in its securities filings the statements/reports that are prepared.
Trader also hereby disclaims any liability to third parties arising out of the
Company's use of any such statements/reports in securities filings.
7.9. Name Change. Immediately after Closing, the Company shall file an
amendment to its Certificate of Formation in order to effect the legal change in
its name to "AutoTrader.com, LLC."
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7.10. Excluded General Contracts; Termination. For each Excluded
General Contract where the Company has a pre-existing contractual relationship
with the third party to such contract, the Company and Trader shall jointly
notify such third party that the Excluded General Contract with it has been
excluded from the transaction contemplated hereunder and will be terminated,
replaced and superseded by such party's existing contract with (or a new
contract with) the Company. For each Excluded General Contract where the Company
does not have a pre-existing contractual relationship with the third party,
Trader will notify the third party of the termination of the of the contract;
Trader and the Company will work cooperatively to identify means by which the
liability arising out of such termination can be minimized.
8. CONDITIONS TO CLOSING
8.1. Conditions to Obligations of Manheim to Close. The obligation of
Manheim to consummate the Closing of the transactions contemplated by this
Agreement shall be subject to the satisfaction, on or before the Closing Date,
of each and every one of the following conditions, all or any of which may be
waived, in whole or in part, by Manheim; provided, however, that in the event
that any or all of such conditions are waived, such waiver shall be only for
purposes of closing the transactions contemplated hereby, and shall not serve to
waive any claims that the waiving party may have against the other hereunder.
(a) Representations and Warranties. All representations and
warranties of Trader, ADP and the Company contained in this Agreement shall be
true and complete in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such time.
(b) Covenants and Conditions. Trader, ADP and the Company
shall have performed and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by them prior to or on the Closing Date.
(c) Consents. Each of the material Consents listed on Schedule
3.5, if any, shall have been duly obtained and delivered to the Company with no
material adverse conditions imposed by such Consent.
(d) Deliveries. Trader and ADP shall have made or stand
willing and able to make all the deliveries to the Company set forth in Sections
9.2 and 9.4.
(e) Licensed Rights. Trader shall be authorized to enter into
the License Agreement, and no proceeding shall be pending the effect of which
would be to revoke, cancel, fail to renew, suspend or modify adversely any of
the material Licensed Rights.
(f) No Action or Other Proceeding Pending. No action,
proceeding, investigation, regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency or legislative body
to enjoin, restrain, prohibit or obtain substantial damages in respect of, or
which is related to, or arises out of, this Agreement or the consummation of the
transactions contemplated hereby, if such action, proceeding, investigation,
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regulation or legislation, in the reasonable judgment of Manheim, would make it
inadvisable to consummate such transactions.
8.2. Conditions to Obligation of ADP to Close. The obligation of ADP to
consummate the Closing of the transactions contemplated by this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each and every
one of the following conditions, all or any of which may be waived, in whole or
in part, by ADP; provided, however, that in the event that any or all of such
conditions are waived, such waiver shall be only for purposes of closing the
transactions contemplated hereby, and shall not serve to waive any claims that
the waiving party may have against the other hereunder.
(a) Representations and Warranties. All representations and
warranties of Manheim, Trader and the Company contained in this Agreement shall
be true and complete in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such time.
(b) Covenants and Conditions. Manheim, Trader and the Company
shall have performed and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by them prior to or on the Closing Date.
(c) Consents. Each of the material Consents listed on Schedule
3.5, if any, shall have been duly obtained and delivered to the Company with no
material adverse conditions imposed by such Consent.
(d) Deliveries. Trader, Manheim and the Company shall have
then made or stand willing and able to make all of the deliveries to the Company
set forth in Sections 9.2, 9.3 and 9.5.
(e) Licensed Rights. Trader shall be authorized to enter into
the License Agreement, and no proceeding shall be pending the affect of which
would be to revoke, cancel, fail to renew, suspend, or modify adversely any of
the material Licensed Rights.
(f) No Action or Other Proceeding Pending. No action,
proceeding, investigation, regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency or legislative body
to enjoin, restrain, prohibit or obtain substantial damages in respect of, or
which is related to, or arises out of, this Agreement or the consummation of the
transactions contemplated hereby, if such action, proceeding, investigation,
regulation or legislation, in the reasonable judgment of ADP, would make it
inadvisable to consummate such transactions.
8.3. Conditions to Obligation of Trader to Close. The obligation of
Trader to consummate the Closing of the transactions contemplated by this
Agreement shall be subject to the satisfaction, on or before the Closing Date,
of each and every one of the following conditions, all or any of which may be
waived, in whole or in part, by Trader; provided, however, that in the event
that any or all of such conditions are waived, such waiver shall be only for
purposes of
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closing the transactions contemplated hereby, and shall not serve to waive any
claims that the waiving party may have against the other hereunder.
(a) Representations and Warranties. All representations and
warranties of Manheim, ADP and the Company contained in this Agreement shall be
true and complete in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such time.
(b) Covenants and Conditions. Manheim, ADP and the Company
shall have performed and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by them prior to or on the Closing Date.
(c) Deliveries. Manheim, ADP and the Company shall have made
or stand willing and able to make all the deliveries to Trader set forth in
Sections 9.3, 9.4 and 9.5.
(d) No Action or Other Proceeding Pending. No action,
proceeding, investigation, regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency or legislative body
to enjoin, restrain, prohibit or obtain substantial damages in respect of, or
which is related to, or arises out of, this Agreement or the consummation of the
transactions contemplated hereby, if such action, proceeding, investigation,
regulation or legislation, in the reasonable judgment of Trader, would make it
inadvisable to consummate such transactions.
(e) Identification of Continuing Related-Party Agreements. The
Company shall have identified, in the Schedules to the representations and
warranties made under Article 6, all of its existing agreements (whether written
or oral) with Manheim, ADP or their affiliates that will continue after Closing
or with respect to which the Company will have continuing obligations or
liabilities after Closing.
(f) KPCB Closing. All conditions to the closing of the
transaction contemplated under that certain Unit Purchase Agreement attached
hereto as Exhibit D-1 among the Company, KPCB Holdings, Inc., as nominee
("KPCB"), and the other parties named therein shall have been satisfied and such
transaction, including the assignment to KPCB by Cox of 18,634 of the
Contribution Units acquired by Cox hereunder (the "Cox/KPCB Assignment"), shall
close contemporaneously with or immediately after the Closing.
8.4. Conditions to Obligations of the Company to Close.
(a) Conditions to Obligations of the Company to Close. The
obligation of the Company to consummate the Closing of the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each and every one of the following conditions, all
or any of which may be waived, in whole or in part, by the Company; provided,
however, that in the event that any or all of such conditions are waived, such
waiver shall be only for purposes of closing the transactions contemplated
hereby, and shall not serve to waive any claims that the waiving party may have
against the other hereunder.
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(b) Representations and Warranties. All representations and
warranties of Trader and ADP contained in this Agreement shall be true and
complete in all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such time.
(c) Covenants and Conditions. Trader and ADP shall have
performed and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed or complied with by
them prior to or on the Closing Date.
(d) Consents. Each of the material Consents listed on Schedule
3.5 shall have been duly obtained and delivered to the Company with no material
adverse conditions imposed by such Consent.
(e) Deliveries. Trader and ADP shall have made or stand
willing and able to make all the deliveries to the Company set forth in Sections
9.2 and 9.4.
(f) Licensed Rights. Trader shall be authorized to enter into
the License Agreement, and no proceeding shall be pending the effect of which
would be to revoke, cancel, fail to renew, suspend or modify adversely any of
the material Licensed Rights.
(g) No Action or Other Proceeding Pending. No action,
proceeding, investigation, regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency or legislative body
to enjoin, restrain, prohibit or obtain substantial damages in respect of, or
which is related to, or arises out of, this Agreement or the consummation of the
transactions contemplated hereby, if such action, proceeding, investigation,
regulation or legislation, in the reasonable judgment of the Company, would make
it inadvisable to consummate such transactions.
9. CLOSING AND CLOSING DELIVERIES
9.1. Closing. The Closing shall occur on August __, 1999 or such other
date as the parties shall mutually agree (the "Closing Date"), but in no event
later than _______________, 1999 and shall be held at the offices of Dow, Lohnes
& Albertson, PLLC, 1200 New Hampshire Avenue, N.W., Suite 800, Washington, D.C.
20036, commencing at 9:00 a.m. local time, or at such other time and place as
the Members may mutually agree. Notwithstanding the actual time the following
deliveries are made on the Closing Date, the parties hereto agree that the
Closing shall be effective and deemed for all purposes to have occurred as of
11:59 p.m. local time on the Closing Date.
9.2. Deliveries by Trader. Prior to or on the Closing Date, Trader
shall deliver to Manheim, ADP and the Company the following, in form and
substance reasonably satisfactory to Manheim, ADP and their counsel:
(a) Transfer Documents. Duly executed transfer documents which
shall be sufficient to deliver good title to, or the valid right to use, the
Contributed Assets in the name of the Company free and clear of any claims,
liabilities, mortgages, liens, pledges, charges or encumbrances of any nature
whatsoever.
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(b) Officer's Certificate. A certificate dated as of the
Closing Date, executed by the President or Vice President of Trader, certifying
that: (i) the representations and warranties of Trader contained in this
Agreement are true and complete in all material respects (except for changes
contemplated by this Agreement); and (ii) Trader has performed all of its
obligations and complied with all of its covenants set forth in this Agreement
to be performed or complied with by it in all material respects on or prior to
the Closing Date.
(c) License Agreement. A duly executed License Agreement.
(d) Data Contribution Agreement. A duly executed Data
Contribution Agreement between Trader and the Company in the form attached as
Exhibit C.
(e) Restated LLC Agreement. A duly executed Restated LLC
Agreement with all exhibits thereto, including the Certificate of Incorporation,
Bylaws, Stockholders' Agreement and the Registration Rights Agreement (the "LLC
Agreement Exhibits").
9.3. Deliveries by Manheim. Prior to or on the Closing Date, Manheim
shall deliver to Trader, ADP and the Company the following, in form and
substance reasonably satisfactory to Trader, ADP and their counsel:
(a) Officer's Certificate. A certificate dated as of the
Closing Date, executed by the President or Vice President of Manheim, certifying
that: (i) the representations and warranties of Manheim contained in this
Agreement are true and complete in all material respects (except for changes
contemplated by this Agreement); and (ii) Manheim has performed all of its
obligations and complied with all of its covenants set forth in this Agreement
to be performed or complied with by it in all material respects on or prior to
the Closing Date.
(b) Manheim Data Contribution Agreement. A duly executed
Manheim Data Contribution Agreement in the form attached as Exhibit E.
(c) Unit Purchase Agreement. A duly executed Unit Purchase
Agreement.
(d) Restated LLC Agreement. A duly executed Restated LLC
Agreement with the LLC Agreement Exhibits attached.
(e) Manheim/Trader Letter Agreements. A duly executed
Manheim/Trader letter agreement in the form attached as Exhibit F and a second
Manheim/Trader letter agreement in the form attached as Exhibit F-1.
9.4. Deliveries by ADP. Prior to or on the Closing Date, ADP shall
deliver to Trader, Manheim and the Company the following, in the form and
substance reasonably satisfactory to Manheim, Trader and their counsel:
(a) Officer's Certificate. A certificate dated as of the
Closing Date, executed by the President or Vice President of ADP, certifying
that: (i) the representations and warranties of ADP contained in this Agreement
are true and complete in all material respects (except for changes contemplated
by this Agreement); and (ii) ADP has performed all of its obligations and
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complied with all of its covenants set forth in this Agreement to be performed
or complied with by it in all material respects on or prior to the Closing Date.
(b) Service Agreement. A duly executed ADP Data Contribution
Agreement in the form attached as Exhibit G.
(c) Unit Purchase Agreement. A duly executed Unit Purchase
Agreement.
(d) Restated LLC Agreement. A duly executed Restated LLC
Agreement with the LLC Agreement Exhibits attached.
9.5. Deliveries by the Company. Prior to or on the Closing Date, the
Company shall deliver to Trader the following, in the form and substance
reasonably satisfactory to Trader and its counsel:
(a) Officer's Certificate. A certificate dated as of the
Closing Date, executed by the President or Vice President of the Company,
certifying that: (i) the representations and warranties of the Company contained
in this Agreement are true and complete in all material respects (except for
changes contemplated by this Agreement); and (ii) the Company has performed all
of its obligations and complied with all of its covenants set forth in this
Agreement to be performed or complied with by it in all material respects on or
prior to the Closing Date.
(b) License Agreement. A duly executed License Agreement.
(c) Data Contribution Agreement. A duly executed ADP Data
Contribution Agreement, Trader Data Contribution Agreement, and Manheim Data
Contribution Agreement.
(d) Unit Purchase Agreement. A duly executed Unit Purchase
Agreement to ATCHI in the form attached as Exhibit D.
(e) Restated LLC Agreement. A duly executed Restated LLC
Agreement with the LLC Agreement Exhibits attached.
10. TERMINATION
10.1. Method of Termination. This Agreement constitutes the binding and
irrevocable agreement of the parties to consummate the transactions contemplated
hereby, subject to and in accordance with the terms hereof, the consideration
for which is (i) the covenants, representations and warranties set forth in this
Agreement; and (ii) expenditures and obligations incurred and to be incurred by
each of the parties hereto, in respect of this Agreement, and this Agreement may
be terminated or abandoned only as follows:
(a) By the mutual consent of each of the parties hereto; or
(b) By any party, if any of the conditions set forth in
Section 8 to which the obligations of such party are subject, have not been
fulfilled in all material respects or waived in
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writing, unless such fulfillment has been frustrated or made impossible by any
act or failure to act of the party seeking to terminate this Agreement.
10.2. Rights Upon Termination.
(a) In the event of a termination of this Agreement pursuant
to Section 10.1(a), each party shall pay the costs and expenses incurred by it
in connection with this Agreement, and no party (or any of its officers,
directors, employees, agents, representatives or stockholders) shall be liable
to any other party for any costs, expenses, damage or loss of anticipated
profits hereunder.
(b) In the event of a termination of this Agreement pursuant
to Section 10.1(b) and if a party shall be in breach of any material provision
of this Agreement, each other party not so in breach of this Agreement shall
have all rights and remedies available at law or in equity.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION
11.1. Representations and Warranties. All representations, warranties
and covenants contained in this Agreement and the Related Agreements shall be
deemed continuing representations, warranties and covenants and shall survive
the Closing Date; provided that the representations and warranties shall survive
until the earlier of (a) the first anniversary of the Closing Date or (b) the
date upon which the Securities and Exchange Commission first declares effective
any registration statement with respect to any class of securities of the
Company (or its corporate successor). The indemnification described in Sections
11.2 through 11.5 shall be the exclusive remedy of the parties for the matters
addressed therein.
11.2. Indemnification by Trader. Trader agrees to indemnify and hold
harmless the Company, Manheim and ADP against and with respect to:
(a) Any and all losses, liabilities or damages incurred or
suffered by the Company, Manheim or ADP or any of their affiliates,
shareholders, partners, members, directors, officers, employees or
representatives, arising out of, based on or resulting from any untrue
representation, breach of warranty or nonfulfillment of any covenant by Trader
contained herein or in any certificate, document or instrument delivered by
Trader to the Company, Manheim or ADP hereunder;
(b) Any and all obligations of Trader not assumed by the
Company pursuant to the terms hereof;
(c) Any and all losses, liabilities or damages incurred or
suffered by the Company, Manheim or ADP, or any of their affiliates,
shareholders, directors, officers, employees or representatives, arising out of,
based on or resulting from Trader's ownership of the Contributed Assets or
Licensed Rights prior to the Closing Date, and any and all liabilities arising
under the Dealer Contracts or the General Contracts which relate to events or
matters arising or occurring prior to the Closing Date, whether or not disclosed
in the Schedules hereto;
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(d) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
11.3. Indemnification by Manheim. Manheim agrees to indemnify and hold
harmless the Company, ADP and Trader against and with respect to:
(a) Any and all losses, liabilities or damages incurred or
suffered by the Company, ADP or Trader, or any of their affiliates,
shareholders, partners, members, directors, officers, employees or
representatives, arising out of, based on or resulting from any untrue
representation, breach of warranty or nonfulfillment of any covenant by Manheim
contained herein or in any certificate, document or instrument delivered by
Manheim to the Company, ADP or Trader hereunder;
(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
11.4. Indemnification by ADP. ADP agrees to indemnify and hold harmless
the Company, Manheim and Trader against and with respect to:
(a) Any and all losses, liabilities or damages incurred or
suffered by the Company, Manheim or Trader, or any of their affiliates,
shareholders, partners, members, directors, officers, employees or
representatives, arising out of, based on or resulting from any untrue
representation, breach of warranty or nonfulfillment of any covenant by ADP
contained herein or in any certificate, document or instrument delivered by ADP
to the Company, Manheim or Trader hereunder;
(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
11.5. Indemnification by the Company. The Company agrees to indemnify
and hold harmless Trader, Manheim and ADP against and with respect to:
(a) Any and all losses, liabilities or damages incurred or
suffered by Trader, Manheim or ADP, or any of their affiliates, shareholders,
partners, members, directors, officers, employees or representatives, arising
out of, based on or resulting from any untrue representation, breach of warranty
or nonfulfillment of any covenant by the Company contained herein or in any
certificate, document or instrument delivered by the Company to the Trader,
Manheim or ADP hereunder;
(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of
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the foregoing or incurred in investigating or attempting to avoid the same or to
oppose the imposition thereof, or in enforcing this indemnity;
(c) Any and all losses, liabilities or damages incurred or
suffered by Trader as a result of or related to (i) the termination of the
Excluded General Contracts, (ii) the breach of such Excluded General Contracts
(but only to the extent such breaches relate to Trader's inability to perform
its obligations from and after Closing), and (iii) the Company's inability or
failure to assume, pay, discharge and/or perform the obligations and liabilities
accruing (or the performance of which is due) under the Assigned General
Contracts after the Closing.
11.6. Procedure for Indemnification. The procedure for indemnification
shall be as follows:
(a) The party claiming indemnification (the "Claimant") shall
give notice to the party from whom indemnification is claimed (the "Indemnifying
Party") of any claim, whether between the parties or brought by a third party,
specifying (i) the factual basis for such claim; and (ii) the amount of the
claim, if ascertainable. If the claim relates to an action, suit or proceeding
filed by a third party against Claimant, such notice shall be given promptly by
Claimant to the Indemnifying Party after written notice of such action, suit or
proceeding is received by Claimant. Nothing in this Agreement shall be construed
to limit the indemnities contained in this Section 11 to matters involving third
party claims or disputes.
(b) Following receipt of notice from the Claimant of a claim,
the Indemnifying Party shall have 30 days to make such investigation of the
claim as the Indemnifying Party deems necessary or desirable. For the purposes
of such investigation, the Claimant agrees to make available to the Indemnifying
Party and/or its authorized representative(s) the information relied upon by the
Claimant to substantiate the claim. If the Claimant and the Indemnifying Party
agree at or prior to the expiration of said 30-day period (or any mutually
agreed upon extension thereof) to the validity and amount of such claim, the
Indemnifying Party shall immediately pay to the Claimant the full amount of the
claim. If the Claimant and the Indemnifying Party do not agree within said
period (or any mutually agreed upon extension thereof), the Claimant may seek
appropriate legal remedy.
(c) With respect to any claim by a third party as to which the
Claimant is entitled to indemnification hereunder, the Indemnifying Party shall
have the right at its own expense, to participate in or assume control of the
defense of such claim, and the Claimant shall cooperate fully with the
Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses
incurred by the Claimant as the result of a request by the Indemnifying Party.
If the Indemnifying Party elects to assume control of the defense of any
third-party claim, the Claimant shall have the right to participate in the
defense of such claim at its own expense. If the Indemnifying Party does not
elect to assume control or otherwise participate in the defense of any third
party claim, it shall be bound by the results obtained by the Claimant with
respect to such claim.
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(d) If a claim, whether between the parties or by a third
party, requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
(e) The indemnification rights provided in Sections 11.2 and
11.3 shall extend to the affiliates, shareholders, partners, directors,
officers, employees and representatives of the Claimant, although, for the
purpose of the procedures set forth in this Section 11.6, any indemnification
claims by such parties shall be made by and through the Claimant.
11.7. Investigation. Any investigation made at any time by or on behalf
of any party hereto shall not diminish in any respect whatsoever such party's
right to rely on the representations, warranties, covenants and agreements made
by or on behalf of any other party herein or pursuant to this Agreement.
12. MISCELLANEOUS
12.1. Further Assurances. Each party hereto shall execute and deliver
all such other documents and do all such other acts and things as may be
reasonably necessary to more fully effectuate this Agreement and the
transactions contemplated hereby.
12.2. Notices. All notices and other communications hereunder shall be
(a) in writing; (b) delivered by telecopy, by commercial overnight or same-day
delivery service with all delivery costs paid by sender, or by registered or
certified mail with postage prepaid, return receipt requested; (c) deemed given
on the date and at the time shown on the telecopy confirmation of receipt (if
delivered by telecopy), on the date and at the time (if recorded) of delivery by
the commercial delivery service, as shown in the records thereof (if delivered
by commercial overnight or same-day delivery service), or on the date shown on
the return receipt (if delivered by registered or certified mail); and (d)
addressed to the parties at their addresses specified on the signature page to
this Agreement (or at such other address for a party as shall be specified by
like notice).
12.3. Waiver. Any waiver of any terms or conditions of this Agreement
shall be in writing and shall not operate as a waiver of any other breach of
such terms or conditions or any other term or condition, nor shall any failure
to enforce any provision of this Agreement operate as a waiver of such provision
or of any other provision of this Agreement.
12.4. Captions; Partial Invalidity. The captions, section numbers and
index appearing in this Agreement are inserted only as a matter of convenience
and in no way define, limit, construe or describe the scope or intent of such
sections or articles of this Agreement, nor in any way affect this Agreement.
12.5. Counterparts. This Agreement may be executed in counterparts each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument, and in pleading or proving any provision of this
Agreement, it shall not be necessary to produce more than one complete set of
such counterparts. Any counterpart of this Agreement which has
19
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attached to it separate signature pages, which together contain the signatures
of all parties hereto, shall for all purposes be deemed a fully executed
original.
12.6. Reproductions. This Agreement and all other documents,
instruments and agreements in the possession of the parties which relate hereto
or thereto may be reproduced by the parties, and any such reproduction shall be
admissible in evidence, with the same effect as the original itself, in any
judicial or other administrative proceeding, whether the original is in
existence. No party will object to the admission in evidence of any such
reproduction, unless the objecting party reasonably believes that the
reproduction does not accurately reflect the contents of the original and
objects on that basis.
12.7. Variations of Pronouns; Number; Gender. All pronouns and all
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the person or persons or entity
may require. Whenever used herein the singular number shall include the plural,
the plural shall include the singular, and the use of any gender shall include
all genders.
12.8. Governing Law; Construction. This Agreement shall be governed by
and construed in accordance with the substantive laws of the State of Delaware
without regard to its conflict of laws provisions. The parties acknowledge and
agree that they have been represented by counsel and that each of the parties
has participated in the drafting of this Agreement. Accordingly, it is the
intention and agreement of the parties that the language, terms and conditions
of this Agreement are not to be construed in any way against or in favor of any
party hereto by reason of the responsibilities in connection with the
preparation of this Agreement.
12.9. Third Parties. None of the provisions of this Agreement shall be
for the benefit of, or enforceable by, any employee or creditor of any party
hereto, nor any other person not a party hereto.
12.10. Entire Agreement. This Agreement and all of the Related
Agreements and exhibits attached hereto shall constitute the entire agreement of
the parties hereto; all prior agreements between the parties, whether written or
oral, are merged herein and shall be of no force and effect; and there are no
restrictions, agreements, representations, warranties, arrangements, or
undertakings, oral or written, between or among the parties relating to the
transactions contemplated hereby which are not fully expressed or referred to
herein. This Agreement cannot be changed, modified or discharged orally, but
only by an agreement in writing, signed by the party against whom enforcement of
the change, modification or discharge is sought.
12.11. Benefit and Binding Effect. None of the parties hereto may
assign the rights under or delegate any duties under this Agreement without the
prior written consent of the other parties hereto. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12.12. Time of the Essence. Time shall be of the essence in
interpreting the provisions of this Agreement.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
COMPANY:
AUTOCONNECT, L.L.C.
By: /s/ Dennis Berry
---------------------------------------
Name: Dennis Berry
-------------------------------------
Title: Member of Management Committee
------------------------------------
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Victor A. Perry, III
--------------------------------
Facsimile: (404) 843-7412
---------------------------------
MANHEIM:
MANHEIM AUCTIONS, INC.
By: /s/ Dennis Berry
---------------------------------------
Name: Dennis Berry
-------------------------------------
Title: President
------------------------------------
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: G. Dennis Berry
--------------------------------
Facsimile: (404) 843-5755
--------------------------------
ADP:
ADP, INC.
By: /s/ Allan Stejskal
---------------------------------------
Name: Allan Stejskal
-------------------------------------
Title: Vice President Dealer Services
------------------------------------
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<PAGE> 23
Address for Notices:
1950 Hassell Road
Hoffman Estates, Illinois 60195
Attention: President
--------------------------------
Facsimile: (847) 781-9873
--------------------------------
TRADER:
TRADER PUBLISHING COMPANY
By: /s/ Conrad M. Hall
---------------------------------------
Name: Conrad M. Hall
-------------------------------------
Title: President
------------------------------------
Address for Notices:
100 West Plume Street
Norfolk, Virginia 23510
Attention: Conrad M. Hall
Facsimile: (757) 640-4001
-------------------------
COX:
TPI, INC.
By: /s/ Jay Smith
---------------------------------------
Name: Jay Smith
-------------------------------------
Title: President
------------------------------------
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Jay Smith
--------------------------------
Facsimile: (404) 843-7928
--------------------------------
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LANDMARK:
LTM COMPANY, L.P.
By: LTM Holdings, Inc., General Partner
---------------------------------------
By: /s/ Guy R. Fridell, III
---------------------------------------
Name: Guy R. Fridell, III
---------------------------------------
Title: Vice President
------------------------------------
Address for Notices:
150 W. Brambleton Avenue
Norfolk, Virginia 23510
Attention: Guy R. Friddell, III
Facsimile: (757) 664-2164
24
<PAGE> 25
EXHIBITS AND SCHEDULES
Exhibit A Restated LLC Agreement
Exhibit B Form of License Agreement
Exhibit C Form of Trader Data Contribution Agreement
Exhibit D Form of ATCHI Unit Purchase Agreement
Exhibit D-1 Form of KPCB Unit Purchase Agreement
Exhibit E Form of Manheim Data Contribution Agreement
Exhibit F Form of Manheim/Trader Letter Agreement
Exhibit F-1 Form of additional Manheim/Trader Letter Agreement
Exhibit G Form of ADP Data Contribution Agreement
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<PAGE> 26
SCHEDULE 1
DEFINED TERMS
"ACCRUED PAYROLL LIABILITIES" means the accrued payroll
liabilities of Trader with respect to the Transferred Employees which are
described on Schedule 3.7.
"ADP" means ADP, Inc., a Delaware corporation.
"AGREEMENT" means this Contribution Agreement, as it may be
amended, modified, or supplemented from time to time in accordance with its
terms.
"AUTOMOBILES" has the meaning given such term under the Data
Contribution Agreement.
"AUTOMOTIVE DATA" has the meaning given such term under the
Data Contribution Agreement with respect to Trader's data (but shall exclude
data that is received from third parties and is subject to contractual
restrictions that prevent Trader from providing it to the Company).
"AUTOMOTIVE PAGES" means Trader's Web pages/sites which are
related predominantly to Automotive Data.
"CLAIMANT" has the meaning given in Section 11.4(a).
"CLOSING" means the consummation of the transactions
contemplated by this Agreement in accordance with the provisions of Article 9.
"CLOSING DATE" means the date of the Closing specified in
Section 9.1.
"CODE" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder, or any subsequent legislative enactment thereof,
as in effect from time to time.
"COMPANY" means AutoConnect, L.L.C., a Delaware limited
liability company.
"COMPENSATION ARRANGEMENT" means any plan or compensation
arrangement other than an Employee Plan, whether written or unwritten, which
provides to employees, former employees, officers, independent contractors,
directors and partners of Trader or any entity related to it (under the terms of
Sections 414(b), (c), (m) or (o) of the Code) any compensation or other
benefits, whether deferred or not, in excess of base salary or wages and
excluding overtime pay, including, but not limited to, any bonus or incentive
plan, stock rights plan, deferred compensation arrangement, life insurance,
stock purchase plan, severance pay plan and any other perquisites and employee
fringe benefit plan in connection with services rendered to or for the Business.
26
<PAGE> 27
"CONSENTS" means the Consents required in connection with the
transfer and assignment of the Contributed Assets to the Company.
"CONTRIBUTED ASSETS" means all of the tangible and intangible
assets that are to be contributed to the Company pursuant to Section 2.1(a).
"CONTRIBUTION UNITS" has the meaning given in Section 2.4.
"COX" means TPI, Inc., a Delaware corporation.
"DATA CONTRIBUTION AGREEMENT" has the meaning given in Section
9.2.
"DEALER CONTRACTS" has the meaning given in Section 2.1(a).
"DEALER WEB SITE SERVICES" has the meaning given in Section
2.1(a).
"EMPLOYEE PLAN" means any pension, retirement, profit-sharing,
deferred compensation, vacation, severance, bonus, incentive, medical, vision,
dental, disability, life insurance or any other employee benefit plan as defined
in Section 3(3) of ERISA to which Trader or any entity related to any of Trader
(under the terms of Sections 414(b), (c), (m) or (o) of the Code) contributes or
to which any of such entities sponsors, maintains or otherwise is bound.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder, as in effect from time to
time.
"GENERAL CONTRACTS" has the meaning given in Section 2.1(a).
"INDEMNIFIABLE TAX DAMAGES" has the meaning given in Section
7.6.
"INDEMNIFYING PARTY" has the meaning given in Section 11.5(a).
"INITIAL OPERATING AGREEMENT" has the meaning given in the
Recitals.
"LANDMARK" means LTM Company, L.P., a Virginia limited
partnership.
"LICENSE AGREEMENT" has the meaning given in Section 2.1.
"LICENSE" has the meaning given in Section 2.1(b).
"LICENSED DOMAIN NAMES" has the meaning given in Section
2.1(b).
"LICENSED RIGHTS" has the meaning given in Section 2.1(b).
"MANHEIM" has the meaning given in the Restated LLC Agreement.
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<PAGE> 28
"MEMBERS" has the meaning given in the Restated LLC Agreement.
"MULTI-EMPLOYER PLAN" means a plan, as defined in ERISA
Section 3(37), to which Trader or any entity related to it (under the terms of
Sections 414(b), (c), (m) or (o) of the Code) contributes or is required to
contribute.
"NSI" means Network Solutions, Inc.
"ONLINE AUTOMOTIVE BUSINESS" has the meaning given in the
Recitals.
"RELATED AGREEMENTS" means this Agreement, the Operating
Agreement, the License Agreement, the ADP Data Contribution Agreement, Manheim
Data Contribution Agreement and the Trader Data Contribution Agreement, the Unit
Purchase Agreements, the Manheim/Trader Letter Agreements and all other
agreements, documents, instruments and certificates to be executed and delivered
pursuant hereto or in connection herewith.
"REPORTING PERIOD" has the meaning given in Section 7.6.
"RESTATED LLC AGREEMENT" means the Restated LLC Agreement of
the Company among the Members to be entered into at the Closing, as it may be
amended, modified, or supplemented from time to time in accordance with its
terms.
"TAX" (and, with correlative meaning, "TAXES") means all
federal, state, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, license, excise, franchise,
capital, transfer, employment, withholding and other taxes and assessments,
together with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties.
"TAX RETURNS" means all federal, state, local and foreign
income and franchise Tax returns and Tax reports (including any attached
schedules) and other Tax statements and other similar filings required to be
filed, including any information return, claim for refund, amended return, or
declaration of estimated Tax.
"TRADEMARK LICENSE" has the meaning given in Section 2.1(b).
"TRADER" means Trader Publishing Company, a Virginia general
partnership.
"TRANSFERRED EMPLOYEES" has the meaning given in Section
7.5(a).
"UNIT PURCHASE AGREEMENT" has the meaning given in Section
9.2.
28
<PAGE> 1
EXHIBIT 10.3
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is entered into as of the
20th day of August, 1999 by and between TRADER PUBLISHING COMPANY, a Virginia
general partnership ("Trader"), and AUTOCONNECT, L.L.C., a Delaware limited
liability company ("ATC").
RECITALS:
A. Pursuant to a license agreement (the "TPI License Agreement")
between Trader and TPI Holdings, Inc. ("TPI Holdings") dated March 31, 1991,
Trader is the exclusive worldwide licensee in the field of advertising and
publishing, including electronic publishing, of the trademarks, service marks
and trade names TRADER and AUTOTRADER and variations thereof, as well as all
other trademarks and service marks including the element TRADER owned or
acquired by TPI Holdings, and is authorized by TPI Holdings to sublicense such
licensed rights.
B. Trader, together with TPI, Inc. ("Cox"), LTM Company, L.P.
("Landmark"), Manheim Auctions, Inc. and ADP, Inc., has executed concurrently
herewith a Contribution Agreement (the "Contribution Agreement") whereby Cox
and Landmark have agreed to cause Trader to contribute to ATC certain assets,
and to license to ATC certain rights including (i) the rights to use the
trademarks, service marks and names AUTOTRADER, AUTOTRADER ONLINE,
AUTOTRADER.COM and such other variations thereof as may be from time to time
authorized by Trader (hereinafter the "Licensed Marks"), and (ii) the rights to
certain domain names including the elements "AUTOTRADER" or "AUTOMART" alone or
in combination with other elements, including, the domain names
www.autotrader.com and www.automart.com (the "Licensed Domain Names").
C. The parties desire to enter into this Agreement to set forth the
terms of the license of the Licensed Marks and Licensed Domain Names to ATC for
use in connection with ATC's ownership and operation of a consumer-oriented
Internet shopping and information service for buyers and sellers of Automobiles
(the "Business").
In consideration of the mutual covenants contained herein, in the
Contribution Agreement, and in the Data Contribution Agreement (defined below),
and other good and valuable consideration, the receipt of sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
All capitalized terms that are not defined herein shall have the meanings set
forth in that certain Data Contribution Agreement (the "Data Contribution
Agreement") dated the date hereof between Trader and ATC.
<PAGE> 2
2. GRANT OF LICENSE
2.1. Subject to the TPI License Agreement, Trader hereby grants to
ATC the exclusive right and license to use the Licensed Marks and the Licensed
Domain Names in connection with the operation of the Business. ATC's license
shall be limited to the described field of use (and the promotion of such
Business in the ordinary course of ATC's Business) and shall in no way be
deemed to limit or prevent Trader's use of the Licensed Marks in connection
with the sale and/or distribution of Trader's print publications Auto Trader
and Auto Mart, the promotion of such publications in all media, the fulfillment
of Trader's obligations under the Data Contribution Agreement, and any other
purposes (except to the extent the Data Contribution Agreement prohibits such
activities). The preceding sentence notwithstanding, during the term of this
Agreement, Trader may not use the mark AUTOTRADER.COM (except as may be
required in connection with its obligations under the Data Contribution
Agreement) nor may Trader operate an on-line auction under any of the Licensed
Marks.
2.2. ATC hereby accepts the License granted by Trader herein and
undertakes and agrees to use the trademark AUTOTRADER.COM and the domain name
AUTOTRADER.COM as the principal mark and domain name of the ATC Main Site (and
as an element of the ATC Co-Branded Sites) so that Trader's brand name presence
for AutoTrader will be maintained on the Internet. Trader acknowledges that
pursuant to the Data Contribution Agreement ATC is permitted to operate
websites in connection with the operation of the Business that are co-branded
with the AUTOTRADER.COM mark and with the trademark, service mark or tradename
of a third party. Trader further acknowledges that if ATC operates an ATC
Ancillary Site, it could contain a principal mark other than AUTOTRADER.COM and
could be located at a domain name other than AUTOTRADER.COM.
3. TERM OF AGREEMENT
Unless earlier terminated in accordance with the provisions of Section 8 of
this Agreement, this Agreement shall commence on its effective date and shall
continue until December 31, 2041, provided that, if the TPI License is extended
or renewed, this Agreement shall be extended or renewed for the like term.
4. QUALITY CONTROL, NOTICES, APPROVAL AND SAMPLES
4.1. The quality of the graphics, text, artwork, displays or other
materials used by ATC on the ATC Main Site and ATC Co-Branded Sites and of the
services provided by ATC to members of the public shall be at least as high as
the quality of the graphics, text, artwork, displays or other materials used by
Trader in its publications.
4.2. ATC acknowledges that the maintenance of the standards of
quality previously established in relation to the Licensed Marks is essential
to preserving the reputation of the mark and the associated goodwill.
2
<PAGE> 3
4.3. Trader shall at all times retain the right to approve or
disapprove of (in accordance with the terms of this Agreement) ATC's use of the
Licensed Marks.
4.4. In the event Trader objects to any material displayed by ATC
on the ATC Main Site or the ATC Co-Branded Sites or in any advertising or
promotional materials or to the quality of services provided by ATC, Trader
shall give notice in writing of any such failures by ATC and ATC shall commence
and diligently prosecute reasonable efforts to correct any such failure.
5. USE OF LICENSED MARKS
5.1. ATC shall include on all printed, published, posted or
displayed materials bearing the Licensed Marks appropriate trademark notices as
reasonably required by Trader. All such materials shall comply with all
applicable laws and shall not be misleading or deceptive.
5.2. ATC agrees to use the Licensed Marks only as permitted by law
and this License Agreement.
5.3. If either party is, from time to time, using the Licensed
Marks in a manner not restricted hereunder or under the Data Contribution
Agreement (it being understood for purposes hereof that Trader may not use
AutoTrader.com) and the other party subsequently begins using the Licensed
Marks (or seeks to begin using the Licensed Marks) on the world wide web in a
manner that is confusingly similar to such use by the other party of the
Licensed Marks or that otherwise fails to distinguish each party's products or
services, the party with first use shall have the right to prohibit the other
party's use of the Licensed Marks in such manner.
6. OWNERSHIP OF RIGHTS
6.1. ATC acknowledges that TPI Holdings is the owner of all rights,
title and interest in and to the Licensed Marks and the goodwill associated
therewith, and that the Licensed Marks are the sole property of TPI Holdings.
ATC acknowledges that this sublicense is granted by Trader pursuant to rights
granted by the TPI License. ATC acknowledges that it has received a copy of the
TPI License and agrees to be bound by all of Trader's obligations to TPI
Holdings under the TPI License, except to the extent any such obligation has
expressly been waived by TPI Holdings pursuant to the Consent to License
Agreement attached hereto as Attachment 1 to Exhibit B, which has been executed
by TPI Holdings contemporaneously herewith. ATC will not dispute or contest
that Trader is the owner of all rights, title and interest in and to the
Licensed Domain Names and the goodwill associated therewith, and that the
Licensed Domain Names are the sole property of Trader.
6.2. The Parties will comply with each other's reasonable
requirements concerning confidentiality of proprietary information.
6.3. ATC shall provide full cooperation to Trader and TPI Holdings
in connection with the registration and maintenance of the Licensed Marks.
During the term of this Agreement, the parties acknowledge and agree that ATC
shall be entitled to be registered as the party in interest with respect to the
Licensed Domain Names and the control thereof and Trader
3
<PAGE> 4
shall provide full cooperation in connection with the registration and
maintenance of the Licensed Domain Names.
6.4. Except as specifically provided herein, ATC shall not create
and use any mark that incorporates any of the Licensed Marks other than
AutoTrader.com without Trader's consent. Any new mark created by ATC that
incorporates the Licensed Marks shall inure to the benefit of TPI Holdings (and
Trader) and, to the extent Trader has consented to such creation, shall be
included within the definition of Licensed Marks.
7. THIRD-PARTY INFRINGEMENT
7.1. ATC shall promptly notify Trader of any known infringement or
potential infringement, passing off, or any violation of any of the Licensed
Marks or any of the Licensed Domain Names in connection with the services
provided on the Internet or challenge to or claim by any person to the Licensed
Marks or Licensed Domain Names. Should TPI Holdings and/or Trader determine to
institute legal proceedings against any infringer or potential infringer, ATC
will extend its full cooperation in all such matters and bear its own costs
incurred in providing such cooperation. Notwithstanding who bears the cost for
such matters, ATC may not settle any dispute or proceeding without the express
written approval of TPI Holdings and Trader.
7.2. In the event that ATC notifies Trader of any infringement by a
third party in their use of a Licensed Mark on the world wide web (a "Noticed
Claim"), Trader shall send such third party a cease and desist letter and,
where Trader determines is reasonably necessary, appropriate and justified
under all circumstances to prevent infringement or dilution of the Licensed
Marks, institute legal proceedings at its sole expense against such infringer.
If Trader determines that it is not reasonably necessary, appropriate and
justified under all circumstances to prevent infringement or dilution by
instituting legal proceedings against any such infringer, Trader shall promptly
notify ATC in writing. In that event, ATC shall have the right to institute
legal proceedings against such infringer and Trader shall extend its full
cooperation in all such matters and bear its own costs in providing such
cooperation. Trader's obligations under this Section 7(b) shall terminate upon
the earlier of (i) the first anniversary of this Agreement, and (ii) the
effective date of the Company's Initial Public Offering (as defined in that
certain Amended and Restated Limited Liability Company Agreement of ATC dated
the date hereof), provided, Trader's obligation with respect to any Noticed
Claim shall survive such termination to the extent Trader has not fulfilled its
obligations with respect to such Noticed Claim.
8. TERMINATION
8.1. Except as otherwise provided herein, this Agreement shall
terminate automatically at the end of the term specified in Section 2.
8.2. This Agreement shall also terminate automatically if the Data
Contribution Agreement is terminated (a) by ATC pursuant to Section 7.1 of such
agreement (non-renewal) (if Trader terminates pursuant to the non-renewal right
of Section 7.1 of the Data Contribution
4
<PAGE> 5
Agreement, then, subject to Sections 8.1 and 8.3 hereof, this Agreement shall
continue in full force and effect) or, (b) by Trader pursuant to Section 7.2(a)
of such agreement (for cause).
8.3. Trader may also terminate this Agreement in the event that ATC
is in breach of a material term of this Agreement provided that Trader has
given ninety (90) days' prior written notice to ATC, setting forth the nature
of the breach. If the breach cannot be cured within the ninety (90) day period,
but ATC is diligently pursuing a cure, the cure period shall be extended for a
reasonable period of time, not to exceed an additional seventy-five (75) days,
in order to allow ATC to effect the cure. If ATC cures such breach prior to the
end of the cure period, Trader's right to terminate this Agreement in
connection with such breach shall cease. If Trader believes that ATC has not
cured said breach prior to the end of the expiration of said cure period,
Trader shall notify ATC in writing. Trader may then terminate this Agreement
fifteen (15) days after written notice of the failure to cure.
8.4. The failure by ATC to maintain the quality of services
provided under the Licensed Marks shall be considered a breach of the material
terms of this Agreement.
9. OBLIGATIONS AFTER TERMINATION
In the event of cancellation or termination of this Agreement pursuant to
Section 8, ATC shall discontinue use of the Licensed Marks and the Licensed
Domain Names in any manner and promptly return to Trader or otherwise destroy,
at Trader's instruction, of all materials bearing any of the Licensed Marks.
10. TRADEMARK AND DOMAIN NAME VALIDITY
ATC agrees that it will not, during the term of this Agreement or at any time
thereafter, claim or assert any ownership rights to the Licensed Marks or
Licensed Domain Names or any other mark or domain name including the term
"Trader" and will not apply to register any such mark or domain name or to
raise or cause to be raised any question concerning or objection to the
validity or enforceability of any of the Licensed Marks or Licensed Domain
Names or the rights of Licensor thereto on any grounds whatsoever in any
jurisdiction, including but not limited to the U.S. Patent and Trademark
Office.
11. NON-ASSIGNMENT
The rights granted herein shall not be assigned, licensed or sublicensed to any
other party without the written approval of Trader; provided, however, ATC may
assign its rights hereunder in whole to any Person that acquires all or
substantially all of its assets, assumes all of ATC's obligations hereunder,
and assumes or complies with, as applicable, all of the obligations and
restrictions applicable to ATC under the Data Contribution Agreement.
12. INDEMNIFICATION
12.1. Trader shall indemnify, protect and hold harmless ATC against
any and all claims, liabilities, damages, losses and expenses (including
reasonable attorneys' fees) arising out
5
<PAGE> 6
of, or resulting from, claims of third parties that the use of the Licensed
Marks or Licensed Domain Names by ATC in accordance with the terms of this
Agreement violates or infringes the rights of such third parties.
12.2. Except as provided in Section 12.1, ATC shall indemnify,
protect and hold harmless Trader and TPI Holdings against any and all claims,
liabilities, damages, losses and expenses (including reasonable attorneys'
fees) arising out of, or resulting from, claims of third parties against Trader
or TPI Holdings involving any activity carried on by ATC while using the
Licensed Marks or Licensed Domain Names.
13. REMEDIES
ATC acknowledges that a breach by it of the provisions of this Agreement
regarding the license or ATC's use of (or rights to use) such Licensed Marks
cannot be reasonably or adequately compensated by money damages in an action at
law; and a breach of any of its obligations under this Agreement regarding the
license or ATC's use of (or rights to use) such Licensed Marks will cause
Trader irreparable injury and damage. ATC agrees that, in addition to any other
remedies they may have under this Agreement or otherwise, Trader and TPI
Holdings shall be entitled to specific performance and to preliminary and
permanent injunctive and other equitable relief to prevent or curtail any
breach of the material terms of this Agreement regarding the license or ATC's
use of (or rights to use) such Licensed Marks without any obligation to post
bond or other security or surety.
14. REPRESENTATIONS AND WARRANTIES OF LICENSOR
Trader represents and warrants as follows:
14.1. Trader is a general partnership duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia
and has the power and authority to own, lease and operate its assets,
properties and business, to carry on its business as now being conducted, and
to enter into, execute and deliver this Agreement and to perform fully its
obligations hereunder. This Agreement has been duly executed and delivered and
constitutes the valid and binding obligation of Trader enforceable in
accordance with its terms.
14.2. Except as disclosed pursuant to the Contribution Agreement,
to Trader's knowledge (as such knowledge is defined under the Contribution
Agreement), there are no actions, suits or proceedings pending or threatened
against Trader that affect the Licensed Marks or ATC's right to use the
Licensed Marks as provided under this Agreement.
14.3. Neither Trader, nor, to the knowledge of Trader (as such
knowledge is defined under the Contribution Agreement), TPI Holdings is in
breach of the TPI License or any other agreement that would affect its rights
to make the license hereunder.
15. REPRESENTATIONS AND WARRANTIES OF LICENSEE
ATC represents and warrants as follows:
6
<PAGE> 7
15.1. ATC is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the necessary power and authority to own, lease and operate its assets,
properties and business and to carry on its business as now being conducted.
15.2. ATC has the legal right and authority required to enter into,
execute and deliver this Agreement and to perform fully its obligations
hereunder. This Agreement has been duly executed and delivered and constitutes
the valid and binding obligation of ATC enforceable in accordance with its
terms.
16. SURVIVAL
All covenants, agreements, representations and warranties made herein or
otherwise made in writing by any party pursuant hereto shall survive for such
period as is provided under the Contribution Agreement.
17. NOTICES
All notices and other communications hereunder shall be (a) in writing; (b)
delivered by telecopy, by commercial overnight or same-day delivery service
with all delivery costs paid by sender, or by registered or certified mail with
postage prepaid, return receipt requested; (c) deemed given on the date and at
the time shown on the telecopy confirmation of receipt (if delivered by
telecopy), on the date and at the time (if recorded) of delivery by the
commercial delivery service, as shown in the records thereof (if delivered by
commercial overnight or same-day delivery service), or on the date shown on the
return receipt (if delivered by registered or certified mail); and (d)
addressed to the parties at their addresses specified on the signature page to
this Agreement (or at such other address for a party as shall be specified by
like notice).
18. WAIVERS
Any waiver of any terms or conditions of this Agreement shall be in writing and
shall not operate as a waiver of any other breach of such terms or conditions
or any other term or condition, nor shall any failure to enforce any provision
of this Agreement operate as a waiver of such provision or of any other
provision of this Agreement. Except as set forth in this Agreement, all rights,
powers and remedies given to the parties under this Agreement are cumulative
and not alternative, and are in addition to all statutes or rules of law.
19. SEVERABILITY
In the event that any provision of this Agreement or any word, phrase, clause,
sentence or other portion thereof should be held to be unenforceable, in
conflict with the law of any jurisdiction where its enforcement is sought, or
invalid for any reason, such provision or portion thereof shall be modified or
deleted in such a manner so as to make this Agreement, as modified, legal and
enforceable to the fullest extent permitted under applicable laws.
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20. COUNTERPARTS
This Agreement may be executed in counterparts each of which shall be deemed an
original and all of which together shall constitute one and the same
instrument, and in pleading or proving any provision of this Agreement, it
shall not be necessary to produce more than one complete set of such
counterparts. Any counterpart of this Agreement which has attached to it
separate signature pages, which together contain the signatures of all parties
hereto, shall for all purposes be deemed a fully executed original.
21. REPRODUCTIONS
This Agreement and all other documents, instruments and agreements in the
possession of the parties which relate hereto or thereto may be reproduced by
the parties, and any such reproduction shall be admissible in evidence, with
the same effect as the original itself, in any judicial or other administrative
proceeding, whether the original is in existence. No party will object to the
admission in evidence of any such reproduction, unless the objecting party
reasonably believes that the reproduction does not accurately reflect the
contents of the original and objects on that basis.
22. GOVERNING LAW; CONSTRUCTION
This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of Delaware without regard to its conflict of
laws provisions. The parties acknowledge and agree that they have been
represented by counsel and that each of the parties has participated in the
drafting of this Agreement. Accordingly, it is the intention and agreement of
the parties that the language, terms and conditions of this Agreement are not
to be construed in any way against or in favor of any party hereto by reason of
the responsibilities in connection with the preparation of this Agreement.
23. INTEGRATED AGREEMENT/INTERPRETATION
This Agreement and the exhibits and schedules to this Agreement, and
the Contribution Agreement and the exhibits and schedules thereto, embody the
entire agreement and understanding between the Parties with regard to the
subject matter hereof and may be altered or amended only in a writing executed
by authorized agents of the Parties. As used herein, the word "or" shall be
interpreted to have both its conjunctive and disjunctive meanings wherever
possible. The paragraph titles are intended solely for convenience and shall in
no event affect or be used in connection with the interpretation of this
Agreement. This Agreement shall not be construed more strictly against one
party than the other by virtue of the fact that it may have been prepared by
counsel for one of the Parties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
COMPANY:
AUTOCONNECT, L.L.C.
By: /s/ Dennis Berry
--------------------------------------
Name: Dennis Berry
------------------------------------
Title: Member of Management Committee
-----------------------------------
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Victor Perry
-------------------------------
Facsimile: (404) 843-7412
-------------------------------
With a copy to:
Manheim Auctions, Inc.
-----------------------------------------
1400 Lake Hearn Drive, N.E.
-----------------------------------------
Atlanta, Georgia 30319
-----------------------------------------
Attention: G. Dennis Berry
-------------------------------
Facsimile: (404) 843-5755
-------------------------------
TRADER:
TRADER PUBLISHING COMPANY
By: /s/ Conrad M. Hall
--------------------------------------
Name: Conrad M. Hall
------------------------------------
Title: President
-----------------------------------
Address for Notices:
100 West Plume Street
Norfolk, Virginia 23510
Attention: Conrad M. Hall
Facsimile: (757) 640-4001
-------------------------------
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With a copy to:
Landmark Communications, Inc.
150 W. Brambleton Avenue
Norfolk, Virginia 23510
Attention: Richard F. Barry, III
Facsimile: (757) 626-3174
Attention: Guy R. Friddell, III
Facsimile: (757) 664-2164
With a copy to:
Cox Newspapers, Inc.
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Jay Smith
-------------------------------
Facsimile: (404) 843-7928
-------------------------------
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EXHIBIT 10.4
DATA CONTRIBUTION AGREEMENT
THIS DATA CONTRIBUTION AGREEMENT (the "Agreement") is entered into as
of the 20th day of August, 1999, between Trader Publishing Company, a Virginia
general partnership ("Trader"), and AutoConnect, L.L.C., a Delaware limited
liability company ("ATC").
RECITALS:
A. Trader and ATC are parties to a separate Contribution
Agreement and separate License Agreement, each dated as of the date of this
Agreement, pursuant to which Trader has contributed certain assets and licensed
certain rights to ATC, and ATC has agreed to perform certain obligations with
respect to the contributed assets and licensed rights.
B. As an integral part of the contribution and licensure, Trader
and ATC desire to establish the terms upon which Trader and ATC will each
perform certain obligations and provide certain data related to the business of
the other party.
C. Contemporaneously with the execution of this Agreement, ATC
will change its name to AutoTrader.com LLC.
In consideration of the mutual covenants contained herein, in the
Contribution Agreement and in the Related Agreements (as defined in the
Contribution Agreement) and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINED TERMS
The following capitalized terms, when used in this Agreement, shall
have the meanings set forth in this Section 1:
Advertisement - any advertisement used on the ATC Sites or other world
wide web sites, including banner advertising, as well as any other type of
advertising.
ATC - AutoTrader.com LLC (including AutoConnect, L.L.C. before its
anticipated name change) and its
successors and assigns.
ATC Ancillary Sites - Any world wide web sites maintained by ATC other
than the ATC Main Sites and ATC Co-Branded Sites.
ATC Co-Branded Sites - Any co-branded versions of the ATC Main Site
that contain Automotive Data.
ATC Competitors - competitors of ATC in the Business, which shall be
deemed to include Autobytel.com, AutoVantage, Autoweb.com, Carpoint, cars.com,
Classified2000, Cobalt Group, and Yahoo! and any other web sites that engage in
the Business and that, at the relevant
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time, are among the top 10 sites (as measured by monthly page views) in any
category that is comprised primarily of the Business.
ATC Main Site - the world wide web site maintained by ATC as of the
date of this Agreement under the domain name autoconnect.com and its successor
site, which will be operated under the domain name autotrader.com.
ATC Marks - all trademarks, service marks, trade names, URLs and logos
that are associated with ATC or the ATC Sites other than the Licensed Marks.
ATC Sites - the ATC Main Site, ATC Ancillary Sites and ATC Co-Branded
Sites.
Automobiles - "Automobile" means any and all automobiles and light
trucks (including pickups, minivans and sport utility vehicles). "Automobile"
shall not include: (i) any specialty, antique/collector's, exotic or
muscle/high performance cars, cars more than twenty (20) years old,
motorcycles, or related equipment, or (ii) airplanes, large trucks, heavy
equipment, RVs, boats, yachts or related equipment. However, for the purposes
of determining ATC's compliance with the restrictions contained in Section 3.8,
(x) the Company's web site may carry incidental listings for specialty,
antique/collector's, exotic or muscle/high performance cars, cars more than
twenty (20) years old, motorcycles and related equipment from buyers and
sellers other than the originators of FSBOs, (y) the Company's web site search
engine parameters may permit end users to search for such vehicles and related
equipment, so long as the Company has not actively solicited such listings or
created a subsite or separate area on its web site specifically relating to
such vehicles and related equipment, and (z) the Company's web site may carry
listings for, and the Company may solicit listings for, Dual Category Vehicles.
Automotive Data - (a) with respect to Trader, data, including
photographs, of the types listed on Schedule 1.1, that is related to
Automobiles and that has been published by Trader in its Automotive Magazines;
(b) with respect to ATC, data, including photographs, related to Automobiles
and that is collected by ATC or that is provided to ATC by Trader, Manheim, ADP
or other parties; (c) with respect to any other Person, data, including
photographs, related to Automobiles and that is collected by such Person from
its customers.
Automotive Magazines - the print magazines published by Trader and
related primarily to Automobiles and Automotive Data. The current Automotive
Magazines are listed on Schedule 1.2.
Business - the aggregation of Automotive Data for Internet publication
and consumer use as part of an Internet consumer shopping and information
service for buyers and sellers of Automobiles, and other lawful activities that
are reasonably incident or ancillary to that purpose (such incidental and
ancillary activities may include, for example, Automobile-related e-commerce,
auctions and advertising). The Business of ATC initially shall involve the
aggregation of Automotive Data for used Automobiles, although the Business may
be extended in the future to involve the aggregation of Automotive Data for new
Automobiles.
Complaining Party - See Section 5.1.
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Contribution Agreement - the Contribution Agreement to which Trader
and ATC are parties, dated as of August 20, 1999.
Control - the possession by any Person or related group of Persons,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, partnership interests, or membership interests, by contract or
otherwise.
Data - Automotive Data, Other Vehicle Data and/or Other Data, as the
context requires.
Dealer Sites - the individual world wide web sites or sub-sites
developed by Trader prior to the date of the Agreement, and/or maintained or
developed by ATC before and/or after the date of the Agreement, for individual
Automobile dealers and/or dealer groups.
Dual Category Vehicles - See Section 2.4(b).
FSBO - individual "for sale by owner" advertisements submitted to ATC
for inclusion on the ATC Main Site and the ATC Co-Branded Sites.
Impression - the loading or other display to a user of a world wide
web page or comparable means of display that causes an Advertisement to be
served to the user.
License Agreement - the License Agreement between Trader and ATC,
dated as of August 20, 1999.
Licensed Marks - all trademarks, service marks, trade names, URLs and
logos that are licensed by Trader to ATC pursuant to the terms of the License
Agreement.
Manheim - Manheim Auctions, Inc., a Delaware corporation.
Manheim Agreement - the Data Contribution Agreement between Manheim
and ATC dated as of August 20, 1999.
Other Data - data, including photographs, related to categories of
information other than Automotive Data or Other Vehicle Data with respect to
which Trader publishes Other Magazines and/or maintains an online presence,
including but not limited to general merchandise, all terrain vehicles,
airplanes, boats, yachts and related equipment.
Other Magazines - the print magazines published by Trader other than
the Automotive Magazines.
Other Vehicle Data - data, including photographs, relating to Other
Vehicles.
Other Vehicles - specialty, antique/collector's, exotic and
muscle/high performance cars, cars more than twenty (20) years old,
motorcycles, large trucks, recreational vehicles, and related equipment.
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Person - Any individual, corporation, partnership, limited liability
company, firm, joint venture, association, trust or unincorporated
organization, or any other entity.
Related Agreements - the "Related Agreements" as defined in the
Contribution Agreement.
Responding Party - See Section 5.1.
Subsidiary - Any person under the Control of the specified person.
Trader - Trader Publishing Company and its successors and assigns.
Trader Competitors - competitors of Trader in the print publication of
Automotive Data, Other Data and/or Other Vehicle Data, or in the online
provision of Other Data and/or Other Vehicle Data. Trader's competitors in the
online provision of Other Data and/or Other Vehicle Data shall be deemed to
include the persons listed on Schedule 1.3 and any other web sites that compete
with the Trader Sites and that, at the relevant time, are among the top 10 web
sites (as measured by monthly page views) in any category that is comprised
primarily of one or more categories of the Other Data and/or Other Vehicle
Data.
Trader Dealer Contracts - the agreements between Trader and Trader
Dealers that are the subject of an assignment by Trader and an assumption by
ATC under the terms of the Contribution Agreement.
Trader Dealers - the Automobile dealers with which Trader has a
business relationship, or for which Trader is furnishing Automotive Data to ATC
and/or transferring responsibility for a Dealer Site to ATC.
Trader Marks - all trademarks, service marks, trade names, URLs and
logos that are associated with Trader, the Trader Sites, the Automotive
Magazines or the Other Magazines, other than the Licensed Marks.
Trader Sites - the world wide web sites and other means of online
presence maintained by Trader.
Transition Period - See Section 4.2.
Upcharges - See Section 2.4(b).
2. TRADER AGREEMENTS
2.1. Contribution of Automotive Data to ATC.
(a) Contemporaneously with the execution of this
Agreement and pursuant to the Contribution Agreement, and subject to
appropriate consents, Trader will contribute all of the then existing
Automotive Data in its aggregated database to ATC. Thereafter, subject to
appropriate consents, Trader will contribute, transfer, assign and deliver its
Automotive Data to
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ATC from its aggregated database on a daily basis according to a schedule to be
established by agreement between the parties, such that each listing
contributed to or gathered by Trader is provided to ATC in the specified
format, together with any photographs or other data, within 24 hours of
publication and distribution by Trader of the applicable Automotive Magazine.
Trader will use commercially reasonable efforts to obtain any consents of third
parties required to carry out its obligations under this Section 2.1(a).
(b) Trader and ATC will cooperate to determine the
technical format and means of transmission of the Automotive Data. If ATC
desires that Trader change its method of transmission or any other technical
aspect of the contribution of the Automotive Data to ATC, ATC will consult with
Trader regarding the change, give Trader reasonable advance notice of the
requested change, provide Trader with the technical assistance necessary to
implement the change, and make commercially reasonable efforts to insure that
Trader is able to implement the change without material additional expense to
Trader.
(c) During the Transition Period, ATC will provide Trader
with the assistance necessary to convert Trader's Automotive Data to a format
that will allow ATC to use the Automotive Data on the ATC Sites.
2.2. Transition of Trader Dealer Relationships.
(a) Upon execution of this Agreement and the Contribution
Agreement between the parties of even date, Trader will contribute, transfer,
assign and deliver all of its existing Trader Dealer Sites and Trader Dealer
Contracts to ATC. Trader will use commercially reasonable efforts to transfer
Trader Dealer relationships to ATC, and ATC will use commercially reasonable
efforts to assume the Trader Dealer relationships from Trader, as soon as
reasonably possible, but in no event later than September 1, 1999.
(b) During the Transition Period, Trader will cooperate
with ATC in the transition of existing Dealer Sites to hosting and servicing by
ATC, as well as the transitioning of other aspects of Trader's online
relationships with the Trader Dealers under the Trader Dealer Contracts. Until
the transition of each Dealer Site is completed, Trader will continue to host
and maintain such Dealer Site, will continue to bill the applicable Trader
Dealer for the services provided under the applicable Trader Dealer Contract,
and will be entitled to retain all hosting and maintenance fees related to that
Trader Dealer. Upon completion of the transition for each Dealer Site, ATC will
assume responsibility for hosting and servicing that Dealer Site in accordance
with the terms of the applicable Dealer Contract and for billing the applicable
Trader Dealer for the services provided under the applicable Trader Dealer
Contract. Upon completion of the transition for each Dealer Site, Trader will
also pay ATC a pro rata share of all revenue actually collected by Trader with
respect to the services provided or to be provided under the Dealer Contracts
during the month in which the transition is completed, such share to be in
proportion to the number of days remaining in the month following completion of
the transition. After the Transition Period, Trader will remit to ATC on a
monthly basis any payments received by Trader for the services provided by ATC
under the Dealer Contracts, and ATC will remit to
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Trader on a monthly basis any payments received by ATC for the services
provided by Trader under the Dealer Contracts prior to the completion of the
transaction.
2.3. Trader Promotion of ATC. In consideration of ATC's agreements
as set forth in Section 3.4, Trader will provide the following promotional
consideration to ATC:
(a) Trader will prominently feature the domain name
www.autotrader.com on the cover of each of its Automotive Magazines (other than
its Auto Mart magazines, which will instead prominently feature the domain name
www.automart.com). The domain name shall be deemed prominently featured if it
is printed in a size, location, and prominence reasonably comparable to the
size, location and prominence Trader has typically afforded the
traderonline.com domain name on the cover of such magazines. An example is
shown on Schedule 2.3(a).
(b) Trader will prominently feature the domain name
www.autotrader.com in the top folio on each page of each Automotive Magazine
(other than its Auto Mart magazines, which will instead feature the URL
www.automart.com). The domain name shall be deemed prominently featured if it
is printed in a size, location, and prominence reasonably comparable to the
size, location and prominence Trader has typically afforded the
traderonline.com domain name on the top folio of such magazines. The parties
acknowledge that Trader is in the process of redesigning its Automotive
Magazines to accommodate the inclusion of a top folio on each page, and that
Trader's obligation under this Section 2.3(b) will come into effect as to each
Automotive Magazine upon the completion of its redesign. This redesign will be
completed within sixty (60) days of the date of this Agreement.
(c) Trader will provide ATC an average of one page (in
magazines with fewer than 160 pages) or two pages (in magazines with more than
159 pages) of black and white advertising of ATC in each Automotive Magazine.
These pages may consist of a combination of modular ads that in the aggregate
cover the required number of pages. The advertising may be used solely to
promote the ATC Sites. Trader's compliance with this agreement will be measured
on a rolling two-month basis.
(d) Trader will mention the URL www.autotrader.com in the
bottom folio of no fewer than one-quarter of the pages in its Other Magazines
that are devoted primarily to specialty, antique/collector's, exotic and
muscle/high performance cars.
(e) Trader will promote ATC through the inclusion of a
tab on the present configuration of the home page of the Trader Site located at
www.traderonline.com, and through a link on that home page in the form shown on
Schedule 2.3(e). Trader will also include links to the ATC Sites throughout
portions of the Trader Site located at www.traderonline.com that are devoted
primarily to Other Vehicles. If Trader changes the present configuration of the
home page of the Trader Site located at www.traderonline.com, Trader will
provide ATC with links on the new home page that are of comparable value,
function and prominence (taking into account changes in the customary types of
links and navigation tools used on world wide web sites from time to time) as
the links required by this Section.
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(f) Trader will cooperate with ATC in developing
additional barter relationships pursuant to which Trader and ATC will provide
each other with Advertising opportunities on an Impression-for-Impression
basis. These barter Advertisements will be in addition to the Advertisements
otherwise to be provided to Trader as required by Section 3.4(b).
(g) Trader will include within the Trader Sites search
capabilities for customers using those web sites that will cause users of the
Trader Sites who enter search terms relating to Dual Category Vehicles, in
addition to yielding listings drawn from Trader's database to generate a link
to the ATC Main Site with instructions that the user may find additional
matching listings on the ATC Main Sites. In addition, Trader will use
commercially reasonable efforts to include within the Trader Sites search
capabilities for customers using those web sites that will cause users of the
Trader Sites who enter search terms relating to other Automobiles to generate a
link to the ATC Main Site with instructions that the user may find matching
listings on the ATC Main Site.
(h) Following the execution of this Agreement, Trader
will use commercially reasonable efforts, where appropriate in its future
communications with providers of Other Vehicle Data, to notify dealers and
other providers of Other Vehicle Data of the opportunity to provide their
Automotive Data to ATC. If these communications will include promotional
material regarding ATC or the ATC Sites, ATC will provide Trader with a
sufficient number of copies of such promotional material.
2.4. AutoTrader Order Page.
(a) Trader will create, host and maintain one or more
world wide web pages through which each originator of a FSBO or other customer
desiring to order an Automotive listing online through the ATC Sites may submit
their Automotive Data through Trader. The initial world wide web page through
which such listings may be placed (the "AutoTrader Order Page") will be
designed by Trader to have the look and feel of the ATC Sites, will offer each
customer an opportunity to combine its request for an online listing with a
request for a print listing in Trader's Automotive Magazines and/or Other
Magazines, and will be consistent with the procedure for requesting a print
listing maintained on the Trader Sites prior to the date of this Agreement.
Trader may update the AutoTrader Order Page and related pages from time to time
in order to facilitate the integration of the Data submission process with
Trader's databases and to improve the implementation of print listings. ATC may
direct Trader to update the ATC Order Page and related pages from time to time
in order to facilitate the integration of the Data submission process with
ATC's databases and to improve the implementation of online listings. The
initial AutoTrader Order Page and each update shall be subject to the
reasonable approval of ATC, as to both design and functionality. ATC will also
be entitled to direct Trader from time to time to change the format of the
AutoTrader Order Page. Trader will continue to host and maintain the AutoTrader
Order Page throughout the term of this Agreement. Trader will ensure that the
typical performance and other delivery characteristics (e.g., delivery time,
rendering time, and uptime) of the AutoTrader Order Page are comparable to the
typical average page performance and other delivery characteristics throughout
the ATC Main Site.
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(b) The AutoTrader Order Page will be designed in such a
way that (i) the submission of Automotive Data generates a listing on the ATC
Sites only, (ii) the submission of Other Vehicle Data for Other Vehicles that
are specialty, collector's, exotic or muscle/high performance cars will
generate a listing on each of the applicable ATC Sites and Trader Sites, if the
parties agree that such cars ("Dual Category Vehicles") should reasonably be
deemed to be included both within the definition of "Automotive" and the
definition of "Other Vehicles" under this Agreement, (iii) the submission of
other Other Vehicle Data or Other Data will generate a listing on the Trader
Sites only.
(c) Trader will be responsible for billing and collection
with respect to all customers that purchase enhanced listings and other
upcharge services related to their online Automotive listings on the ATC Sites
through the AutoTrader Order Page, and will pay ATC all amounts collected that
relate to such enhanced listings and upcharge services (collectively,
"Upcharges") within ten (10) days following the end of each calendar month. ATC
will be entitled to change the amounts charged as Upcharges by giving notice to
Trader of any changes. Trader will be compensated for its responsibilities
pursuant to this Section 2.4 by an amount equal to ten percent (10%) of all
Upcharges (net of applicable taxes), which Trader may deduct and retain from
the amounts paid to ATC.
(d) Not more often than once during any twelve (12) month
period, ATC shall have the right to audit Trader's payments to ATC. The audit
will be at ATC's expense, provided that if the audit reveals an underpayment by
Trader of more than five percent (5%), (i) Trader will bear the cost of the
audit, and (ii) ATC will be entitled to exercise its audit right a second time
during the twelve (12) month period that includes the first audit.
(e) If Trader has failed in a material respect to fulfill
its obligations under Sections 2.4(a) and (b), ATC may give notice to Trader
describing the failure. If Trader has not cured the failure within thirty (30)
days after the notice has been given (or if the failure cannot be cured within
such thirty (30) day period, and Trader is diligently pursuing a cure, within a
reasonable period of time, not to exceed ninety (90) days, after the notice has
been given), ATC may give a further notice to Trader of its election to
terminate Trader's obligations under Sections 2.4(a) and (b). Such termination
will be effective on the date specified in the notice, which shall not be
sooner than sixty (60) days after the notice is given. From and after the
effective date of the termination, (i) ATC will have the obligation to perform
the obligations of Trader under Sections 2.4(a) and (b), and (ii) ATC will be
obligated to continue to provide to Trader all services and functionality made
available to Trader prior to the termination in connection with the hosting and
maintenance by Trader of the AutoTrader Order Page.
(f) If ATC terminates Trader's obligation under Sections
2.4(a) and (b), then from and after the effective date of the termination, the
AutoTrader Order Page will contain links to the Trader Sites offering the
originators of FSBOs and other customers the opportunity to order print
listings in Trader's Automotive Magazines and Other Magazines. Trader will be
responsible for billing and collection with respect to all customers that
purchase listings in any of the Automotive Magazines or Other Magazines through
such links.
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2.5. Trader Restrictions.
(a) Trader will not maintain a consumer-oriented world
wide web site containing Automotive Data (other than on an incidental basis as
part of its general solicitation of Other Vehicle Data and Other Data), nor
will it provide Automotive Data to any other Person for display to consumers on
the world wide web.
(b) Trader will not include advertising from any ATC
Competitor in any of the Automotive Magazines promoting a product or service
competitive with the products or services being made available by ATC that
aggregates Automotive Data for Internet publication and consumer use as part of
an Internet consumer shopping and information service for buyers and sellers of
Automobiles.
(c) Trader will not resell any data received by it from
ATC without the prior written consent of ATC and an agreement with ATC as to
the compensation of ATC therefor.
(d) Trader will not exhibit or display in the Automotive
Magazines any content (including advertising) that is adult-themed or related
to "get-rich-quick" or similar schemes.
(e) Notwithstanding the restrictions contained in
Sections 2.5(a), (b) and (c):
(i) Trader may sell its pricing Data to any
party without restriction;
(ii) Trader may use Data received from ATC or
Manheim in connection with its print magazines and non-Automotive Trader Sites,
provided that Trader may not incorporate any of the Data received from ATC or
Manheim into any price guide (e.g., a print or online publication that purports
to report the value of Automobiles, for example, make, model, year and vehicle
condition);
(iii) Trader will not be restricted from promoting
or advertising any auction site on the world wide web or other online media
(including auctions for Other Vehicles) so long as the promotion or advertising
is not for the online auction of Automobiles;
(iv) Although Trader will not maintain or
participate in any Automobile auction site on the world wide web or other
online media, Trader will not be restricted from maintaining or participating
in any auction site on the world wide web or other online media (including
auctions for Other Vehicles) so long as any such auction site carries only
incidental listings for Automobiles and Trader has not actively solicited such
Automobile listings or created a subsite or separate area on the auction site
specifically relating to the auction of Automobiles; and
(v) If Trader invests in or acquires another
business or entity after the date of this Agreement, Trader or that entity may
continue to engage in or conduct the business of that business or entity after
the investment or acquisition, including any natural growth and/or expansion
thereof; provided, however, that Trader will not (A) invest in or acquire an
ownership
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share of Autobytel.com., AutoVantage, Autoweb.com, Carpoint, cars.com,
Classified2000, Cobalt Group, and Yahoo! or any other web sites that engage in
the aggregation of Automotive Data for Internet publication and consumer use as
part of an Internet consumer shopping and information service for buyers and
sellers of Automobiles, and that, at the relevant time, are among the top 10
sites (as measured by monthly page views) in any category that is comprised
primarily of the aggregation of Automotive Data for Internet publication and
consumer use as part of an Internet consumer shopping and information service
for buyers and sellers of Automobiles, or (B) invest in or acquire any other
ATC Competitor that as of the date of the acquisition, derives more than
twenty-five percent (25%) of its gross revenue from the aggregation of
Automotive Data for Internet publication and consumer use as part of an
Internet consumer shopping and information service for buyers and sellers of
Automobiles. However, Trader shall not be prohibited by the foregoing
restriction from acquiring any assets of any business or entity that do not
relate (x) to the aggregation of Automotive Data for Internet publication and
consumer use as part of an Internet consumer shopping and information service
for buyers and sellers of Automobiles, or (y) to the auction of Automobiles
(except for incidental listings of Automobiles, so long as Trader does not
create a subsite or separate area specifically relating to the auction of
Automobiles in connection with such acquisition).
3. ATC AGREEMENTS
3.1. Use of Trader Automotive Data. ATC will include and display
within the ATC Main Site and the ATC Co-Branded Sites, in the same manner as it
includes ATC's other Automotive Data, the listings and photographs comprising
all of the Automotive Data provided to ATC by Trader. All listings will be made
available on the ATC Main Site and the ATC Co-Branded Sites within twenty-four
(24) hours after they are transmitted to ATC, will include all Data supplied by
Trader, and will include color photographs where color photographs have been
made available to ATC by Trader. ATC will not charge Trader any fee or other
charge for placing the Automotive Data on any ATC Site, and will not charge the
originators of any FSBO that places a print advertisement in the Automotive
Magazines (or with respect to Other Vehicles, in the Other Magazines) or any
other Person that places a print advertisement in the Automotive Magazines or
Other Magazines, any fee or other charge (other than Upcharges) for posting a
corresponding listing on any ATC Site.
3.2. Use of ATC Name.
(a) Throughout the period ending on the earlier of
twenty (20) years following the date of this Agreement or the date of
termination by Trader of the License Agreement, (i) ATC will continue to use
the URL www.autotrader.com as the predominant URL for the ATC Main Site, (ii)
all promotion by ATC of the ATC Main Site will feature the domain name
www.autotrader.com as the predominant domain name of the ATC Main Site, and
(iii) all promotion by ATC of the ATC Co-Branded Sites will prominently feature
the name AutoTrader.com.
(b) Throughout the period ending on the earliest of (i)
twenty (20) years following the date of this Agreement, (ii) the date of
termination by Trader of the License
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Agreement, or (iii) the date of termination by Trader of this Data Contribution
Agreement, ATC will maintain an active ATC Co-Branded Site under the domain
name www.automart.com such that the Automotive Data available on the ATC Main
Site is also available under the domain name www.automart.com.
3.3. Provision of Data to Trader.
(a) ATC will provide Trader with electronic access to its
database (including its archives) of Automotive Data, as well as any Other
Vehicle Data or Other Data that is available to ATC from time to time, and
grants Trader a non-exclusive license to use such Data, subject to the terms of
this Agreement. However, ATC will be permitted to exclude any Data (i) that is
received from ADP that ATC is contractually required to exclude or (ii) that is
received from parties other than Manheim or Trader and subject to contractual
restrictions that prevent ATC from providing the Data to Trader.
(b) ATC will use commercially reasonable efforts to
obtain the right to redistribute such Data to Trader, and will include in its
standard form contracts provisions authorizing it to do so. ATC's commercially
reasonable efforts shall not require the payment by ATC of additional
consideration or require ATC to make additional material contractual
concessions to obtain such rights, and ATC shall have the right to delete
provisions authorizing Trader's access when requested to do so in the course of
contract negotiations.
3.4. ATC Promotion. In consideration of Trader's agreements set
forth in Section 2.3, ATC will provide the following promotional consideration
to Trader:
(a) All Automobile listings on the ATC Sites that use
Automotive Data provided by Trader will be branded on both the vehicle detail
page and in any e-mail message to sellers or buyers that relate directly to
such listings. The branding will include the name of the Automotive Magazine
from which the Automotive Data was derived, and will take the form shown on
Schedule 3.4(a).
(b) ATC will use commercially reasonable efforts to
promote Trader with Advertisements throughout the ATC Sites, including but not
limited to the following:
(i) The Advertisements made available to Trader
will include fifteen percent (15%) of all unsold Advertisement Impressions on
the ATC Sites, but in no event less than five percent (5%) of the total
Advertisement Impressions on the ATC Sites. ATC's compliance with this
commitment will be measured on a rolling two-month basis.
(ii) The Advertisements provided pursuant to this
Section 3.4 may include Advertisements for the Trader Sites and the Automotive
Magazines as well as the Other Magazines, as determined in Trader's sole
discretion. Trader and ATC will cooperate to establish the method of rotating
these Advertisements.
(c) ATC will cooperate with Trader in developing
additional barter relationships pursuant to which ATC and Trader will provide
each other with Advertising
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opportunities on an Impression-for-Impression basis. These barter
Advertisements will be in addition to the Advertisements otherwise to be
provided to Trader as required by Section 3.4(b).
(d) ATC will promote the Trader Sites on the ATC Sites
through (i) a "box" that will include a graphical link above the fold and a set
of hypertext links on the bottom of the home page of the ATC Main Site and (ii)
a navigation bar link, and a set of hypertext links on the bottom of each page
throughout the ATC Main Site, all as shown on the present configuration of that
home page on Schedule 3.4(d). ATC will include comparable links on each ATC
Co-Branded Site. If ATC changes the present configuration of the home page of
the ATC Site located at www.autotrader.com, ATC will provide Trader with links
or other navigation tools on the new home page that are of comparable value,
function and prominence (taking into account changes in the customary types of
links and navigation tools used on world wide web sites from time to time) as
the links required by this Section 3.4(d).
(e) ATC will include within the ATC Sites search
capabilities for customers using those web sites that will cause users of the
ATC Sites who enter search terms relating to Dual Category Vehicles, in
addition to yielding listings drawn from ATC's database, to generate a link to
the appropriate Trader Site with instructions that the user may find additional
matching listings on the Trader Site. In addition, ATC will use commercially
reasonable efforts to include within the ATC Sites search capabilities for
customers using those web sites that will cause users of the ATC Sites who
enter search terms related to other Other Vehicles to generate a link to the
appropriate Trader Site with instructions that the user may find additional
matching listings on the Trader Site.
(f) ATC will use commercially reasonable efforts to
promote Trader with Advertisements and appropriate links throughout the
Ancillary Sites.
3.5. Dealer Relationships.
(a) ATC will perform in all material respects the
obligations it has assumed under the Trader Dealer Contracts. ATC will use
commercially reasonable efforts to maintain and enhance the relationships
established by Trader with the Trader Dealers. If ATC becomes aware of a claim
by any Trader Dealer of a breach by ATC of the obligations ATC has assumed
under the Trader Dealer Contracts, ATC will promptly give notice to Trader of
the claimed breach, and give Trader the option to participate in any resolution
of the breach. Similarly, if a dispute between ATC and a Trader Dealer is
threatening the continued relationship between ATC or Trader and the Trader
Dealer, ATC will promptly notify Trader of the nature of the dispute, and give
Trader the option to participate in any resolution of the dispute.
(b) ATC will use commercially reasonable efforts to
resolve all disputes of the type identified in Section 3.5(a).
3.6. Customer Service.
(a) ATC will use commercially reasonable efforts to
provide customer service to the Trader Dealers in a professional manner
consistent with prevailing industry standards.
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ATC will also use commercially reasonable efforts to provide customer service
professional manner consistent with prevailing industry standards to the
originators of FSBOs and to other Trader customers whose Automotive Data is
included on the ATC Sites. ATC's customer service obligations will include the
measures described on Schedule 3.6.
(b) If ATC receives a complaint from the originator of a
FSBO or another Trader customer that relates to the Automotive Magazines or
Other Magazines, ATC will promptly (within one (1) business day) refer the
complaint to a designated representative of Trader. Similarly, if Trader
receives a complaint from the originator of a FSBO or another ATC customer that
relates to the ATC Sites, Trader will promptly (within one (1) business day)
refer the complaint to a designated representative of ATC.
3.7. Magazine Listings.
(a) As described in Section 2.4(a), contemporaneously
with the execution of this Agreement, ATC will implement a means by which each
originator of a FSBO or other customer desiring to order an Automotive listing
through the ATC Sites is directed to the AutoTrader Order Page. Each page of
the ATC Sites will include a prominent button that clearly offers an originator
of a FSBO or other customer the means to list his/her Automobile for sale. Each
such button will direct the customer to the AutoTrader Order Page, or to an
appropriate successor page.
(b) On each page within any of the ATC Sites on which
customers may submit Automobile listings for posting to such site (whether on
the AutoTrader Order Page described in Section 2.4, above, or in a successor
area maintained by ATC), ATC will offer customers a corresponding print listing
in an appropriate Automotive Magazine or Other Magazine.
(c) Following the execution of this Agreement, ATC will
use commercially reasonable efforts, where appropriate in its future
communications with Automobile dealers and other providers of Automotive Data,
to notify dealers and other providers of Automotive Data of the opportunity to
purchase listings in the Automotive Magazines and Other Magazines. If these
communications will include promotional material regarding Trader, the Trader
Sites, the Automotive Magazines or the Other Magazines, Trader will provide ATC
with a sufficient number of copies of such promotional material. ATC will also
provide Trader on a periodic basis with a list of the dealers from which ATC
obtains Automotive Data.
3.8. ATC Restrictions.
(a) ATC will not resell or redistribute any of the
Automotive Data provided by Trader, without the consent of Trader and an
agreement with Trader as to the compensation of Trader therefor. ATC will
promptly refer to Trader all inquires from third parties relating to the
purchase or use of all or part of Trader's Automotive Data. ATC agrees to use
commercially reasonable efforts to design and maintain the architecture of the
ATC Sites so as to minimize the ability of third parties to extract Automotive
Data from the site in large quantities within short periods of time.
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(b) ATC will not accept advertising from or promote on
the ATC Sites any Trader Competitor advertising or promoting a product or
service competitive with the products or services made available by Trader, or
enter into any relationship with any Trader Competitor that allows the Trader
Competitor to advertise or promote its relationship with ATC.
(c) Neither ATC nor any ATC Subsidiary will (i) compete
with Trader in the publication or other use of Other Vehicle Data or Other
Data, through targeted solicitation of listings containing such data, by
maintaining a section on any of the ATC Sites that features such Data, or by
otherwise actively seeking to make such Data available on the ATC Sites other
than on an incidental basis as part of its general solicitation of Automotive
Data, or (b) compete with Trader in the print publication of Data.
(d) ATC will not exhibit, display, transmit or deliver on
the ATC Sites any content (including advertising) that is adult-themed or
related to "get-rich-quick" or similar schemes.
(e) Notwithstanding the restrictions contained in
Sections 3.8(a), (b) and (c), ATC will not be restricted from promoting,
advertising, maintaining or participating in any auction sites on the world
wide web or other online media so long as such auction site is operated
predominantly for the sale of Automobiles.
4. OTHER MUTUAL AGREEMENTS
4.1. Online Sales.
(a) Trader and ATC will cooperate to determine ways in
which each of their sales forces may promote the products and services of the
other to Automotive dealers, including a method by which each party will be
entitled to receive lead fees, in an amount to be determined by the parties,
for all qualified leads (as defined by the parties) that result in sales of the
other party's products or services to dealers within 90 days after that party
provides a lead to the other party. Each party will provide, at its expense,
all training, support, and software and marketing materials necessary for the
other party's sales force to promote its products and services.
(b) Trader and ATC will cooperate in the marketing of
multi-media advertising services that promote a combination of advertising on
the ATC Sites, the Trader Sites, and the Automotive Magazines. Trader and ATC
will develop a means of compensating members of their respective sales forces
that successfully place national advertising that results in the additional use
of the products or services of ATC or Trader, as the case may be.
4.2. Transition Period. Trader and ATC will each use commercially
reasonable efforts to complete the conversion of the Trader Automotive Data and
the transfer of the Trader Dealer relationships to ATC no later than September
1, 1999. The last day of the "Transition Period" shall be the date on which
Trader and ATC agree that the conversion and transition have been completed.
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4.3. Advertising. Except as otherwise provided in this Agreement,
each party shall have the right to sell all advertisements on its respective
world wide web sites, and shall be entitled to retain all revenues generated by
the party or its agents with respect to such advertisements.
4.4. Costs and Expenses. Except as otherwise provided in this
Agreement, each party will bear its own costs and expenses incurred in
connection with its performance under this Agreement.
4.5. License.
(a) ATC grants Trader a non-exclusive, non-transferable
license to exhibit, display, transmit and reproduce the ATC Marks for the
purposes of carrying out Trader's obligations pursuant to Section 2.3 of this
Agreement. ATC shall at all times have the right to approve or disapprove
Trader's use of the ATC Marks.
(b) As more fully described in the License Agreement,
Trader grants ATC a non-exclusive, non-transferable license to exhibit,
display, transmit and reproduce the Trader Marks, inter alia, for the purposes
of carrying out ATC's obligations pursuant to Section 3.4 of this Agreement.
Trader shall at all times have the right to approve or disapprove ATC's use of
the Trader Marks.
4.6 Disclaimer of Warranty. ALL DATA PROVIDED BY EITHER PARTY TO
THE OTHER PARTY PURSUANT TO THIS AGREEMENT IS PROVIDED "AS IS". NEITHER PARTY
MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, NATURE OR DESCRIPTION,
EXPRESS OR IMPLIED, WITH RESPECT TO THE DATA, AND SPECIFICALLY DISCLAIMS ANY
SUCH REPRESENTATION OR WARRANTY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
ANY KIND OR NATURE WITH RESPECT TO THE ACCURACY OF THE DATA OR ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED
WARRANTIES ARISING FROM A COURSE OF DEALING OR A COURSE OF PERFORMANCE.
4.7 Stock Options. ATC may, at its own expense, provide special
stock options (or similar instruments) for selected Trader executives as
incentives for their sales and marketing efforts on behalf of ATC as
contemplated in Section 4.1.
5. DISPUTE RESOLUTION
The parties intend to minimize the potential for litigation or other
formal means of enforcing this Agreement. Accordingly, the parties agree that
the dispute resolution procedures set forth below shall be invoked prior to
either party instituting legal proceedings against the other.
5.1 Designation of Dispute. A party (the "Complaining Party") that
believes that the other (the "Responding Party") is in breach of this Agreement
in any particular, shall deliver
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written notification to the Responding Party, setting forth in reasonable
detail the breach for which the Complaining Party seeks redress, along with a
specific request for relief. The Responding Party shall have 10 business days
from receipt to provide a written reply. The reply shall contain a response to
the allegations contained in the notice or an agreement to provide the relief
requested. Upon receipt of the reply, the Complaining Party shall provide
written notice to the Responding Party either that the dispute has been
resolved satisfactorily or that the Complaining Party is invoking the
escalation procedure set forth in Section 5.3.
5.2 Escalation Procedure. In the event that the parties are unable
to resolve a dispute in the manner described in Section 5.1, each party agrees
to designate a single representative to attempt to resolve the dispute. Each
party's representative shall be a senior executive (the equivalent of a senior
vice president or higher) who shall have all necessary authority to bind the
party contractually and to resolve the dispute. The designated representatives
shall meet for a minimum of eight hours at a location to be mutually agreed
upon by the parties, in an effort to resolve the dispute. In the event that
mutual agreement regarding the location of such meeting cannot be reached, the
meeting will take place at ATC's offices in Atlanta, Georgia.
6. CO-BRANDED VERSIONS OF THE ATC MAIN SITE
Trader understands and acknowledges that ATC has created ATC
Co-Branded Sites to increase the distribution of its Automotive Data, and that
it will continue to operate such ATC Co-Branded Sites (and may operate other
ATC Co-Branded Sites) after consummation of the transaction contemplated in the
Contribution Agreement. Each ATC Co-Branded Site includes, and will include
after the date of this Agreement, content substantially similar to the content
of the ATC Main Site, including Trader's Automotive Data. Each ATC Co-Branded
Site prominently features the AutoConnect brand, and after the date of this
Agreement will feature the AutoTrader.com brand, along with the brand of the
appropriate ATC distribution partner (e.g., America Online, Yahoo!, Lycos,
Snap!). Except as specifically provided elsewhere in this Agreement, the rights
and obligations of the parties with respect to each ATC Co-Branded Site are
identical to the rights and responsibilities of the parties with respect to the
ATC Main Site, it being understood that following the re-branding of the ATC
Main Site, as contemplated herein and in the License Agreement, each such ATC
Co-Branded Sites shall prominently feature the AutoTrader brand along with the
brand of the appropriate ATC distribution partner. ATC agrees that the
Automotive Data will not be included on any ATC Sites other than the ATC Main
Site and the ATC Co-Branded Sites.
7. TERM AND TERMINATION
7.1. Term. Unless sooner terminated as provided below, the term of
this Agreement will expire on August 31, 2009. Upon the expiration of the ten
(10) year term, and each ten (10) year renewal term, this Agreement will
automatically renew for successive periods of ten (10) years each unless either
party gives notice to the other party, not less than one (1) year prior to the
expiration of the then-current term, of its intention not to renew the
Agreement.
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7.2. Termination.
(a) This Agreement may be terminated by either party upon
a material breach by the other party of its obligation under this Agreement
that is not cured by the breaching party within sixty (60) days after notice is
given by the non-breaching party. If a breach cannot be cured within the sixty
(60) day period, but the breaching party is diligently pursuing a cure, the
cure period shall be extended for a reasonable period of time (not to exceed
one hundred twenty (120) days) in order to allow the breaching party to effect
the cure.
(b) This Agreement may be terminated immediately by
Trader by written notice to ATC at any time if the Manheim Agreement has been
terminated.
8. MISCELLANEOUS
8.1 Representations and Warranties. ATC and Trader each represents
and warrants to the other that (i) it has the right, power and authority to
enter into this Agreement and to perform all of its obligations hereunder; and
(ii) it has the right to grant the licenses granted by it hereunder (subject,
to the extent applicable, to the terms of the separate License Agreement
between Trader and ATC).
8.2 Indemnification.
(a) ATC and Trader each agrees to indemnify, defend and
forever hold the other (and each of its parents, subsidiaries or entities under
common ownership or control), and all of their respective present and former
officers, members, shareholders, directors, employees, representatives,
attorneys, insurers and agents, and its successors, heirs and assigns, harmless
from and against any and all losses, liabilities, claims, costs, damages and
expenses (including, without limitation, fines, forfeitures, attorneys' fees,
disbursements and administrative or court costs) arising directly or indirectly
out of any breach or alleged breach of its representations and warranties, as
set forth in Section 8.2, above, or out of any other breach of this Agreement.
(b) A party entitled to indemnification pursuant to this
Agreement shall, with respect to any claim made against such indemnified party
for which indemnification is available, notify the other party in writing of
the nature of the claim as soon as practicable but not more than ten days after
the indemnified party receives notice of the assertion of the claim. (The
failure by an indemnified party to give notice as provided, above, shall not
relieve the indemnifying party of its obligations under this Section 8.2,
except to the extent that the failure results in the failure of actual notice
and the indemnifying party is damaged as a result of the failure to give
notice. Upon receipt of notice of the assertion of a claim, the indemnifying
party shall employ counsel reasonably acceptable to the indemnified party and
shall assume the defense of the claim. The indemnified party shall have the
right to employ separate counsel and to participate in (but not control) any
such action, but the fees and expenses of such counsel shall be at the expense
of the indemnified party unless (i) the employment of counsel by the
indemnified counsel has been authorized by the indemnifying party, (ii) the
indemnified party has been advised by its counsel in writing that there is a
conflict of interest between the indemnifying party and the indemnified party
in the conduct of the defense of the action (in
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which case the indemnifying party shall not have the right to direct the
defense of the action on behalf of the indemnified party), or (ii) the
indemnifying party has not in fact employed counsel to assume the defense of
the action within a reasonable time following receipt of the notice given
pursuant to this Section 8.2, in each of which cases the fees and expenses of
such counsel shall be at the expense of the indemnifying party. An indemnifying
party shall not be liable for any settlement of an action effected without its
written consent (which consent shall not be unreasonably withheld), nor shall
an indemnifying party settle any such action without the written consent of the
indemnified party (which consent shall not be unreasonably withheld). No
indemnifying party will consent to the entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to the indemnified party a release from all
liability with respect to the claim. Each party shall cooperate in the defense
of any claim for which indemnification is available and shall furnish such
records, information, testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may reasonably be requested by the
other party.
8.3 Limitation on Liability. Except with respect to
indemnification obligations under Section 8.2, above, in the event either party
incurs any liability to the other due to any performance or nonperformance of
any term of this Agreement, the liability therefor shall be limited to actual
damages (actual damages being defined as the actual out-of-pocket damages or
losses sustained by the damaged party and excluding indirect, special,
consequential, or punitive damages or lost profits).
8.4 Further Assurances. Each party hereto shall execute and
deliver all such other documents and do all such other acts and things as may
be reasonably necessary to more fully effectuate this Agreement and the
transactions contemplated hereby.
8.5 Non-Disclosure. Neither ATC nor Trader shall disclose to any
person or entity, directly or indirectly, without the prior approval of the
other, any non-public information relating to the other party obtained by
virtue of this Agreement, except on a confidential basis to its business, legal
and financial advisors or as required to be disclosed under applicable law or
by legal process.
8.6 Third Parties. None of the provisions of this Agreement shall
be for the benefit of, or enforceable by, any employee or creditor of any party
hereto, nor any other person not a party hereto.
8.7 Force Majeure. Neither party shall be deemed in default or
otherwise liable under this Agreement due to its inability to perform its
obligations by reason of any fire, earthquake, flood, substantial snowstorm,
epidemic, accident, explosion, casualty, strike, lockout, labor controversy,
riot, civil disturbance, act of public enemy, embargo, war, act of God, or any
municipal, county, state or national ordinance or law, or any executive,
administrative or judicial order (which order is not the result of any act or
omission which would constitute a default hereunder), or any failure or delay
of any transportation, power, or communications system or any other or similar
cause beyond that party's control.
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8.8 Governing Law/Construction. This Agreement and all matters or
issues related thereto shall be governed by the laws of the State of Delaware
without regard to its choice of law rules. The parties acknowledge and agree
that they have been represented by counsel and that each of the parties has
participated in the drafting of this Agreement. Accordingly, it is the
intention and agreement of the parties that the language, terms and conditions
of this Agreement are not to be construed in any way against or in favor of any
party hereto by reason of the responsibilities in connection with the
preparation of this Agreement.
8.9 Assignment/Benefit and Binding Effect. Neither party may
assign its rights and obligations under this Agreement except with the prior
written consent of the other party, which consent may not be unreasonably
withheld, conditioned or delayed. Notwithstanding the foregoing sentence,
either party may assign or transfer its rights and obligations under this
Agreement in connection with a change in control of the party, or the sale or
transfer of all or substantially all of the business or assets of the party, or
to any entity under common ownership or control with such party, upon notice to
the other party, provided that the assignee agrees to assume all of the
assigning party's obligations under this Agreement. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.10 Relationship of Parties. Neither this Agreement nor the
cooperation of the parties contemplated herein shall be deemed or construed to
create any partnership, joint venture or agency relationship between ATC and
Trader. Neither party is, nor shall either party hold itself out to be, vested
with any power or right to bind the other party contractually or to act on
behalf of the other party as a broker, agent or otherwise.
8.11 Captions/Severability. The captions, section numbers and index
appearing in this Agreement are inserted only as a matter of convenience and in
no way define, limit, construe or describe the scope or intent of such sections
or articles of this Agreement, nor in any way affect this Agreement. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.
In the event that any provision of this Agreement is determined to be invalid,
unenforceable or otherwise illegal, such provision shall be deemed restated, in
accordance with applicable law, to reflect as nearly as possible the original
intentions of the parties, and the remainder of the Agreement shall be in full
force and effect.
8.12 Waiver. No term or condition of this Agreement shall be deemed
waived, and no breach shall be deemed excused, unless such waiver or excuse is
in writing and is executed by the party against whom such waiver or excuse is
claimed. Except as set forth in this Agreement, all rights, powers and remedies
given to the parties under this Agreement are cumulative and not alternative,
and are in addition to all statutes or rules of law.
8.13 Entire Agreement. This Agreement contains the entire agreement
and understanding between the parties with regard to the subject matter hereof,
and supersedes all prior and contemporaneous oral or written agreements and
representations. Any amendment of this Agreement shall be in writing and signed
by both parties.
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8.14 Survival of Termination. The obligations of the parties under
this Agreement that by their nature would continue beyond expiration,
termination or cancellation of this Agreement (including, without limitation,
Sections 5, 7 and 8) shall survive any such expiration, termination or
cancellation.
8.15 Notices. All notices and other communications hereunder shall
be (a) in writing; (b) delivered by telecopy, by commercial overnight or
same-day delivery service with all delivery costs paid by sender, or by
registered or certified mail with postage prepaid, return receipt requested;
(c) deemed given on the date and at the time shown on the telecopy confirmation
of receipt (if delivered by telecopy), on the date and at the time (if
recorded) of delivery by the commercial delivery service, as shown in the
records thereof (if delivered by commercial overnight or same-day delivery
service), or on the date shown on the return receipt (if delivered by
registered or certified mail); and (d) addressed to the parties at their
addresses specified on the signature page to this Agreement (or at such other
address for a party as shall be specified by like notice).
8.16 Communications. Both parties recognize the value and
importance of clear, accurate and consistent public communications regarding
the transactions contemplated in this Agreement. Accordingly, the parties shall
agree on the timing and the content of any public announcement regarding the
cooperative relationship described in this Agreement. In addition, the parties
shall jointly prepare written material for use in responding to anticipated
questions that each party will likely receive from the press and public about
their relationship.
8.17 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which taken
together shall constitute one and the same Agreement. The parties may sign
facsimile copies of this Agreement which shall each be deemed originals.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
COMPANY:
AUTOCONNECT, L.L.C.
By: /s/ Dennis Berry
----------------------------------------
Name: Dennis Berry
--------------------------------------
Title: Member of Management Committee
-------------------------------------
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Victor Perry
---------------------------------
Facsimile: (404) 843-7412
---------------------------------
With a copy to:
Manheim Auctions, Inc.
-------------------------------------------
1400 Lake Hearn Drive, N.E.
-------------------------------------------
Atlanta, Georgia 30319
-------------------------------------------
Attention: G. Dennis Berry
---------------------------------
Facsimile: (404) 843-5755
---------------------------------
TRADER:
TRADER PUBLISHING COMPANY
By: /s/ Conrad M. Bell
----------------------------------------
Name: Conrad M. Bell
--------------------------------------
Title: President
-------------------------------------
Address for Notices:
100 West Plume Street
Norfolk, Virginia 23510
Attention: Conrad M. Hall
Facsimile: (757) 640-4001
---------------------------------
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With a copy to:
Landmark Communications, Inc.
150 W. Brambleton Avenue
Norfolk, Virginia 23510
Attention: Richard F. Barry, III
Facsimile: (757) 626-3174
Attention: Guy R. Friddell, III
Facsimile: (757) 664-2164
With a copy to:
TPI, Inc.
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Jay Smith
---------------------------------
Facsimile: (404) 843-7928
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EXHIBIT 10.5
DATA CONTRIBUTION AGREEMENT
THIS DATA CONTRIBUTION AGREEMENT (this "Agreement") is made as of
August 20, 1999 (the "Effective Date"), by and between AutoConnect, L.L.C., a
Delaware limited liability company ("AutoConnect"), and ADP, Inc., a Delaware
corporation ("ADP").
WHEREAS, AutoConnect operates a consumer-oriented shopping and
information service for buyers and sellers of automobiles and light trucks, and
provides other online services to the automotive industry; and
WHEREAS, ADP provides transaction systems, data products and
professional services to automobile and truck dealers and manufacturers; and
WHEREAS, ADP is a member of AutoConnect pursuant to the Amended and
Restated Limited Liability Company Agreement by and among ADP, Manheim Auctions,
Inc., TPI, Inc., LTM Company, L.P., ATC Holdings, Inc., a Nevada corporation and
KPCB Holdings, Inc., as nominee, dated as of August 20, 1999 (the "Restated LLC
Agreement"); and
WHEREAS, contemporaneously with the execution of this Agreement,
AutoConnect will change its name to AutoTrader.com, LLC; and
WHEREAS, AutoConnect and ADP mutually desire that ADP shall provide
certain data to AutoConnect, subject to the terms and conditions set forth
herein;
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by AutoConnect and ADP, and
intending legally to be bound, AutoConnect and ADP hereby agree as follows:
ARTICLE 1 OBLIGATIONS OF ADP
1.1 Polling Services. Subject to appropriate dealer consent, which
consent ADP shall use commercially reasonable efforts to obtain, ADP shall
maintain and continue to develop the capability to poll the used vehicle
inventory databases of its dealer management system dealer clients and those of
Reynolds & Reynolds ("R&R") for used vehicle data as follows:
(a) ADP shall provide staff, resources and equipment
reasonably necessary for soliciting dealers for polling services,
establishing polling protocols and connections, and performing Polling
Events (as defined in Section 2.3, below).
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(b) ADP shall provide both standard polling and, where
reasonably necessary to poll successfully particular participating
dealers, custom polling. For the purposes of this Agreement, "standard"
polling is the polling of the used and new vehicle inventory of each
participating dealer location at least once each week with relevant
fields in a manner that includes utilizes up-front coding to align the
dealer's data management system and AutoConnect's file format,
including coding accommodations for multi-DMS dealers. "Custom" polling
requires intervention by ADP personnel to manipulate polled data before
it is provided to AutoConnect.
(c) ADP shall deliver vehicle data obtained from polling, to
consist of both text listings (including at least the following fields:
make; model; body type; body subtype; year; mileage; color; price and
vehicle identification number; and including vehicle options to the
extent available) and digital photo images of vehicles to the extent
available, to AutoConnect on a daily basis in a format to be reasonably
determined by AutoConnect in consultation with ADP.
(d) ADP shall provide quality assurance with respect to its
polling services reasonably calculated to ensure that such polling
services shall consistently be both timely and accurate, including (i)
proactive identification and resolution of polling problems before
dealers bring them to the attention of AutoConnect; (ii) appropriate
incentives for its polling groups' managers and employees to increase
the number of polled dealers and ensure that all dealers receive high
quality and timely polling services; and (iii) weekly reports provided
to AutoConnect on the operation of ADP's polling groups, including
their productivity, polling errors, problem dealers (as defined in
Section 3.1(a), below), staffing levels and employee turnover.
1.2 License to Use Vehicle Listings and Images. ADP hereby grants
to AutoConnect a non-exclusive and fully paid up license, non-transferable
except in accordance with the provisions in Section 6.7 below, to use, copy,
reproduce, transmit, display and distribute, and create derivative works from,
the used vehicle inventory data acquired by ADP through its polling activities
and delivered to AutoConnect pursuant to this Agreement; provided, however, that
AutoConnect shall not use any such data to provide vehicle valuation products or
services to any third party (other than to consumers via AutoConnect's consumer
oriented Internet vehicle valuation product), nor shall AutoConnect permit any
third party to use any such data to provide vehicle valuation products or
services to any other person (including to consumers), nor shall AutoConnect
provide or make any such data available, directly or indirectly, to any of the
following persons: CCC Information Services, Inc., Mitchell International, NADA,
MacLean Hunter ("Red Book"), Black Book Enterprises, Kelly Blue Book, Edmunds
Publishing, Microsoft, or any company which markets or provides automated
dealership management and operations computer systems and/or software to
automobile or truck dealers (including, without limitation, Reynolds & Reynolds,
Universal Computer Systems, EDS,
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Key, IBM, Karmak, AutoByTel, AutoSoft, CAT, Cendant (i.e., AutoVantage),
Kerridge Computer Company Limited, Data Consultants, Inc., Advents, DeBuque
Data, Andersen Consulting, Deloitte & Touche and Adam Systems). AutoConnect
shall include a notice (reasonably acceptable to ADP) on its Internet web site
which states that the used vehicle data displayed on such site is for consumer
use only. In addition, AutoConnect agrees to use commercially reasonable efforts
to design and maintain the architecture of the AutoConnect Internet web site so
as to minimize the ability of third parties to extract the data provided by ADP
from the site in large quantities within short periods of time.
1.3 Trade Shows. At AutoConnect's request, ADP shall provide space
within its booths (subject to availability of such space) and computer
presentation equipment for use by AutoConnect at any major automobile dealer
trade shows at which ADP obtains vendor booth space, subject to AutoConnect's
payment of its pro rata share (to be agreed upon by AutoConnect and ADP in
advance) of ADP's actual costs of obtaining the booth space and providing such
computer equipment. ADP shall cooperate with AutoConnect by providing
information as far in advance as practicable concerning its plans to obtain
vendor booth space at dealer trade shows and the anticipated costs of the booth
space and computer equipment.
1.4 Major Account Marketing Support. At AutoConnect's request, ADP
shall make its manufacturer relations personnel reasonably available to
coordinate with AutoConnect on the sales of retail oriented Internet
applications to the automotive original equipment manufacturers ("OEMs"), to
facilitate sales contacts between AutoConnect and OEMs, and to support
AutoConnect's proposals to OEMs. ADP will not be entitled to share in any
revenues received by AutoConnect in connection with sales of AutoConnect
applications to OEMs (other than in ADP's capacity as a member of AutoConnect
and pursuant to the AutoConnect LLC Agreement), but ADP will retain all revenues
it may receive from OEMs for Internet services provided by ADP to OEMs that do
not include AutoConnect applications.
1.5 Preferred Provider Status for AutoConnect. ADP hereby
designates AutoConnect as ADP's preferred third-party provider of Internet-based
electronic commerce ("e-commerce") services by which consumers provide
information to potential providers of automobile financing, and for personalized
consumer web pages that reside in dealer web sites, and service scheduling and
parts ordering applications that take place through dealer web sites. As ADP's
preferred provider, AutoConnect shall have the first opportunity to collaborate
with ADP on the development of any such e-commerce services. AutoConnect shall
also be provided a first right of refusal to provide such automotive-related
e-commerce services on commercial terms no less favorable than those offered by
ADP to any other provider or potential provider of e-commerce services, as
follows: In the event ADP intends to enter into any arrangement with any other
provider of e-commerce services by which consumers provide information to
potential providers of automobile financing, and for personalized web pages that
reside in dealer web sites, and/or service scheduling and parts ordering
applications that take place
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through dealer web sites, ADP shall first reduce the terms of such arrangement
to writing and provide them to AutoConnect in the form of an offer by ADP to
enter into such an arrangement with AutoConnect. The offer shall also inform
AutoConnect of the identity of the contemplated other provider. AutoConnect
shall then have ten (10) business days from the date of its receipt of ADP's
offer (the "Acceptance Period") to accept the offer and enter into the
arrangement with ADP on the specified terms. If AutoConnect does not accept
ADP's offer within the Acceptance Period, ADP shall be free to enter into the
arrangement with the other provider on the same terms as were offered to
AutoConnect. However, if ADP does not enter into such arrangement with the other
provider on the same terms within thirty (30) days from the end of the
Acceptance Period, AutoConnect's right of first refusal shall once again apply
to such arrangement.
1.6 Provision of Financial Statements. In the event that
AutoConnect determines that it is required to provide financial statements
related to the assets that were contributed to or acquired by AutoConnect from
ADP in connection with the formation of AutoConnect in December, 1997, in order
to comply with federal or state securities law requirements, ADP shall furnish,
or cause to be furnished, to the Company such access to ADP personnel and
accountants and use reasonable efforts to furnish or cause to be furnished such
information as AutoConnect may reasonably request in order to prepare audited
financial statements (including a balance sheet and statements of income and
cash flows) related to the business represented by the Contributed Assets for
such fiscal year periods and unaudited financial statements for all interim
periods as may be specified under applicable provisions of Rules 3-01 and 3-02
of Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC"). In connection with the foregoing, ADP agrees to provide AutoConnect and
its representatives and auditors with reasonable access during normal business
hours to ADP's financial and accounting records. In addition, ADP shall direct
its independent certified public accountants to cooperate with AutoConnect for
purposes of compiling all available financial information that is requested by
AutoConnect or AutoConnect's accountants (and to assist AutoConnect in its
efforts to develop such information) and that is required in order to comply
with federal or state securities law requirements. AutoConnect shall pay or
absorb all fees, costs and expenses related to ADP's compliance with the
foregoing covenants including, without limitation, the fees, costs and expenses
of any accountants engaged by AutoConnect to audit the financial statements and
the fees, costs and expenses of ADP's accountants. Notwithstanding anything to
the contrary set forth herein, AutoConnect shall use its best efforts to limit
the necessity for such financial statements and scope thereof (e.g., AutoConnect
shall solicit opinions concerning the applicability of the SEC S-X rules, the
time periods required to be covered, if any, and the propriety of using limited
special purpose reports in lieu of full financial statements) and to limit the
disruption caused to ADP's business by such audit. ADP shall have no liability
to AutoConnect, any of its members or any successor corporation or its
shareholders if the SEC declines to permit AutoConnect to include in its
securities filings the statements/reports that are prepared or if ADP does not
have all information necessary to prepare such financial statements. ADP also
hereby disclaims any liability
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to third parties arising out of AutoConnect's use of any such statements/reports
in securities filings.
ARTICLE 2 PAYMENT FOR POLLING SERVICES
2.1 Calculation of Payment. AutoConnect shall pay ADP for
inventory polling services a polling services fee as follows:
(a) For the period from the Effective Date through June 30,
2000, AutoConnect shall pay ADP Three Dollars and Fifty Cents ($3.50)
for each successful Polling Event, and Sixty Dollars ($60.00) for
initial setup of each new participating dealer included in ADP's
polling service.
(b) For the period from July 1, 2000 through June 30, 2001,
AutoConnect shall pay ADP Two Dollars and Seventy-Five Cents ($2.75)
for each successful Polling Event, and Sixty Dollars ($60.00) for
initial setup of each new participating dealer included in ADP's
polling service.
(c) AutoConnect and ADP shall negotiate in good faith,
beginning at such time as is reasonably necessary to reach agreement on
or before May 1, 2001 and each May 1 thereafter during the term of this
Agreement, to agree on the polling services fee for each ADP fiscal
year in the term beginning with the year July 1, 2001 through June 30,
2002, based on then-current market rates for such services. If no
agreement on such market rates is reached for any given ADP fiscal
year, the parties shall proceed as follows: (i) in the event that there
are at least two thousand (2,000) participating dealers for the polling
services to be provided by ADP under this Agreement as of the first day
of the ADP fiscal year in question, the fee in effect for the
immediately preceding ADP fiscal year shall continue to apply
throughout the year in question; (ii) in the event that there are fewer
than two thousand (2,000) participating dealers for the polling
services to be provided by ADP under this Agreement as of the May 1
date for the commencement of negotiations prior to the ADP fiscal year
in question, ADP shall not be obligated to provide polling services
during the ADP fiscal year in question so long as the parties cannot
agree on the appropriate polling services fee.
2.2 Payment Process. AutoConnect shall pay the polling services
fee to ADP within thirty (30) days after its receipt of ADP's invoice for such
services provided during each calendar month during the term of the Agreement.
Each invoice shall be accompanied by a report showing the names and number of
successful Polling Events for currently participating dealers and the number of
initial set-ups for new participating dealers during the month in question, as
well as ADP's calculation of the polling services fee due for the month.
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2.3 Polling Event. For the purposes of this Agreement, a "Polling
Event" is a successfully completed upload of used vehicle inventory data from a
dealer's dealer management system ("DMS") and download to ADP's database of the
vehicle data (as specified in Section 1.1(c) above) of the entire inventory in
the dealer's DMS, and delivery of such data to AutoConnect in a format mutually
agreed to by ADP and AutoConnect.
2.4 Records/Access to Records. ADP shall keep full and adequate
records relevant to the number of successful Polling Events, the number of
initial set-ups for new participating dealers, and the calculation of the
polling services fee and shall make such records available for inspection by
representatives of AutoConnect upon reasonable prior written notice. AutoConnect
may exercise its right to inspect the records of ADP no more than once in any
given twelve (12) month period, and such inspection shall not unreasonably
interfere with the business operations of ADP. Any deficiency in payment
discovered in the course of performing such inspection shall be paid to
AutoConnect within thirty (30) days. If deficiencies in payment exceed five
percent (5%), ADP shall reimburse AutoConnect's reasonable out-of-pocket
expenses of that inspection, and AutoConnect shall be entitled to exercise its
right to inspect ADP records a second time during the twelve (12) month period
in question.
ARTICLE 3 OTHER OBLIGATIONS OF AUTOCONNECT
3.1 Exclusive Provider Status for ADP.
(a) AutoConnect hereby designates ADP as AutoConnect's
exclusive provider of inventory polling services for ADP's and R&R's
dealership customers. As AutoConnect's exclusive provider, ADP shall
continue to provide such polling services pursuant to this Agreement so
long as ADP is willing and able to provide such services as
contemplated herein. Notwithstanding the foregoing, however,
AutoConnect may use, develop and/or maintain a polling capability
independent of ADP's in order to poll dealerships that do not have ADP
or R&R dealer management systems. In addition, although AutoConnect
shall use commercially reasonable efforts to encourage all dealerships
utilizing ADP's and R&R's DMS to participate in ADP's polling services,
AutoConnect may also use, develop and/or maintain a polling capability
independent of ADP's for dealerships that ADP is not consistently
polling for technical or operational reasons, and for dealerships that
do not agree to be polled by ADP. The process with respect to
dealerships that ADP is not consistently polling for technical or
operational reasons shall be as follows: In the event that any dealer
is not successfully polled by ADP at least twice in any five-week
period, ADP shall report the dealer as a "problem dealer" in its next
weekly report delivered to AutoConnect pursuant to Section 1.1(d)(iii),
above. ADP shall then have thirty (30) days from the date of such
weekly report to implement a polling solution for the problem dealer.
If ADP is not able successfully to poll the problem dealer
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within such thirty (30) day period, AutoConnect shall be entitled, for
sixty (60) days thereafter, to develop its own polling capability for
the problem dealer. If AutoConnect is not able successfully to poll the
problem dealer within such sixty (60) day period, ADP shall once again
have the right under this Section 3.1(a) to be the exclusive provider
of inventory polling services for the dealer. Once AutoConnect has
begun successfully to poll any dealership through the independent
capability contemplated by this Section 3.1(a), AutoConnect shall
thereafter, for the term of this Agreement, be entitled to continue to
poll such dealership without obligation to encourage such dealership to
participate in ADP's polling services.
(b) AutoConnect also hereby designates ADP as AutoConnect's
preferred provider of e-commerce services, so long as such e-commerce
services involve direct connection to a dealer's DMS or access to or
use of data residing in a dealer's DMS. As AutoConnect's preferred
provider, ADP shall have the first opportunity to collaborate with
AutoConnect on the development of any such e-commerce applications. ADP
shall also be provided a first right of refusal to provide such
e-commerce services on commercial terms no less favorable than those
offered by AutoConnect to any other provider or potential provider of
similar e-commerce services, as follows: In the event AutoConnect
intends to enter into any arrangement with any other provider of such
e-commerce services, AutoConnect shall first reduce the terms of such
arrangement to writing and provide them to ADP in the form of an offer
by AutoConnect to enter into such an arrangement with ADP. The offer
shall also inform ADP of the identity of the contemplated other
provider. ADP shall then have ten (10) business days from the date of
its receipt of AutoConnect's offer (the "Acceptance Period") to accept
the offer and enter into the arrangement with AutoConnect on the
specified terms. If ADP does not accept AutoConnect's offer within the
Acceptance Period, AutoConnect shall be free to enter into the
arrangement with the other provider on the same terms as were offered
to ADP. However, if AutoConnect does not enter into such arrangement
with the other provider on the same terms within thirty (30) days from
the end of the Acceptance Period, ADP's right of first refusal shall
once again apply to such arrangement.
3.2 Provision and License to Use AutoConnect Data. AutoConnect
shall at ADP's request provide to ADP, and AutoConnect hereby grants to ADP a
non-exclusive, fully paid up and non-transferable license to use, copy,
reproduce, transmit, display and distribute, and create derivative works from,
the vehicle data supplied to AutoConnect by Manheim Auctions, Inc. ("Manheim")
(including data from Tracker and Manheim Online dealers) and by dealers who
provide vehicle data directly to AutoConnect (including but not limited to
AutoNation and AdManager users), for and in connection with ADP's (and/or its
affiliates') Total Vehicle Loss Program for insurance companies.
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3.3 Training of ADP Staff. AutoConnect shall provide periodic
training of ADP's staff on AutoConnect's dealer marketing plans and practices as
such plans and practices relate to inventory polling.
3.4 Promotion of ADP Polling Services. AutoConnect shall use
commercially reasonable efforts to promote ADP's polling services for
AutoConnect dealer customers utilizing ADP's and R&R's DMS. AutoConnect shall
also: (a) provide market support for ADP's polling services, making its sales
personnel reasonably available to coordinate with ADP on the promotion of
polling services; and (b) facilitate contacts between ADP and AutoConnect's
dealer customers.
3.5 Stock Options for Sales Incentives. AutoConnect may, at its
own expense, provide special stock options (or similar instruments) for selected
ADP executives and general managers as incentives for their sales and marketing
efforts on behalf of AutoConnect.
ARTICLE 4 EXCLUSIVITY
4.1 By ADP.
(a) So long as ADP is providing polling services to
AutoConnect pursuant to this Agreement for at least three hundred (300)
dealers, ADP shall not provide used vehicle inventory polling services
for any automotive Internet site that aggregates used vehicle inventory
data for consumer use or sells or advertises cars to retail customers.
During the term of this Agreement, ADP shall not sell, promote, or
otherwise solicit business from dealers for retail-oriented dealer web
sites on the Internet or create, provide marketing and sales support
to, or make equity investments in any other retail oriented automotive
Internet web site, in each case, that contains used vehicle inventory
data aggregated from multiple dealers or from multiple OEMs. ADP shall
also not create its own consumer-oriented automotive "aggregator site"
that would compete with AutoConnect (it being agreed that an Internet
automotive "aggregator site" that is oriented towards non-U.S.
consumers shall not be considered competitive with AutoConnect), nor
shall ADP assist any third party in creating such a site, provided,
however, that the foregoing prohibition shall not apply to ADP's
license of the Marketing Advisor Software application as described in
Section 4.1(b), below.
(b) Marketing Advisor is a database publishing tool and
multimedia advertising software application which ADP has licensed from
Gannett Media Technologies, Inc. for sublicense by ADP to auto dealers,
and pursuant to which auto dealers may enter vehicle inventory data in
Marketing Advisor's automotive database for use in one or more of the
following modules: a print advertising module, pursuant to which
Marketing Advisor uses such vehicle data to automate the production of
print ads and other print-based marketing materials; an auto
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text/fax back module, pursuant to which dealers may set up telephone
and audio text systems to provide auto inventory information via touch
tone telephone; and an Internet module, pursuant to which a dealer may
export auto inventory photo and text information to a third party
server capable of providing an integrated search engine and
database-driving web pages for use in Internet web sites. ADP agrees
that although the prohibition in Section 4.1(a), above, shall not
prohibit ADP from sublicensing Marketing Advisor to auto dealers, ADP
shall not modify or enhance the client Internet module of such
application in a manner that permits a dealer to use such application
to more easily and effectively deliver a dealer's entire used vehicle
inventory at one time or in a very short period of time to a third
party server for use in Internet web sites.
(c) Notwithstanding the foregoing, ADP may provide the
following products and services as follows: (i) ADP may provide used
vehicle inventory polling services directly to individual OEMs for
their own retail Internet web sites and (absent any other agreement to
the contrary with AutoConnect) shall retain all revenues from the
provision of such services. AutoConnect agrees to coordinate, at ADP's
request and expense, the delivery of such inventory data to such OEMs;
(ii) ADP may provide polled used vehicle data to any third parties for
uses that do not involve advertising or otherwise listing such vehicles
for sale to consumers via a retail oriented automotive aggregator
Internet web site; and (iii) ADP may license or otherwise provide any
software applications and/or functionality for use on or in conjunction
with retail-oriented dealer web sites operated by third parties so long
as such applications and/or functionality (such as personalized
customer web pages and service scheduling) do not facilitate or
otherwise involve the listing of a dealer's used car inventory.
4.2 By AutoConnect. AutoConnect shall not provide vehicle data to
any of ADP's competitors in the total loss vehicle valuation market, including
but not limited to CCC Information Services, Inc., Mitchell International, NADA,
MacLean Hunter ("Red Book"), Black Book Enterprises, Kelly Blue Book, Edmunds
Publishing, Microsoft, or any company which markets or provides automated
dealership management and operations computer systems and/or software to
automobile or truck dealers (including, without limitation, Reynolds & Reynolds,
Universal Computer Systems, EDS, Key, IBM, Karmak, AutoByTel, AutoSoft, CAT,
Cendant (i.e., AutoVantage), Kerridge Computer Company Limited, Data
Consultants, Inc., Advents, DeBuque Data, Andersen Consulting, Deloitte & Touche
and Adam Systems).
ARTICLE 5 TERM
5.1 Term. Unless terminated as provided in Section 5.2 below, the
term of this Agreement shall be ten (10) years commencing on the Effective Date,
and shall be automatically renewed for additional ten-year terms unless either
party gives written
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notice to the other, at least sixty (60) days prior to the end of the term or
any renewal term, that it does not wish to renew this Agreement.
5.2 Termination. Either party may terminate this Agreement and, in
addition to all other rights and remedies it may have under law or equity, be
relieved of all further obligations hereunder, in the event of a material breach
of the Agreement by the other party if such breach is not cured within thirty
(30) days of the receipt of written notice of such breach by such breaching
party. In addition, the parties may terminate this Agreement for any reason, or
for no reason, as follows:
(a) AutoConnect may terminate this Agreement as of the end of
ADP fiscal years concluding June 30, 2000, June 30, 2001 or June 30,
2002, upon providing at least sixty (60) days prior written notice to
ADP; or after January 1, 2003 at any time by providing at least six (6)
months prior written notice to ADP.
(b) ADP may terminate this Agreement at any time after January
1, 2003, by providing at least six (6) months prior written notice to
AutoConnect.
ARTICLE 6 MISCELLANEOUS
6.1 Ownership of Vehicle Data and Images and Database. As between
AutoConnect and ADP, and subject to the license granted to AutoConnect in this
Agreement, ADP shall be the owner of the vehicle data and images it obtains
through the dealer inventory polling process contemplated by this Agreement. As
between AutoConnect and ADP, and subject to the restrictions on its use of
vehicle data and images it obtains pursuant to the license granted by ADP in
this Agreement, AutoConnect is the owner of the database of vehicle data and
images obtained, compiled and used by AutoConnect in connection with its online
vehicle information service.
6.2 Representations and Warranties.
(a) AutoConnect and ADP each represents and warrants to the
other that: (i) it has the right, power and authority to enter into
this Agreement and to perform all of its obligations hereunder; and
(ii) it has the right to grant the licenses granted by it hereunder.
(b) EXCEPT AS STATED IN SECTION 6.2(A), ABOVE, NEITHER PARTY
MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, NATURE OR
DESCRIPTION, EXPRESS OR IMPLIED, WITH RESPECT TO THE VEHICLE DATA AND
IMAGES OR OTHER DELIVERABLES PROVIDED BY EITHER PARTY TO THE OTHER
PARTY, WHICH VEHICLE DATA AND IMAGES AND OTHER DELIVERABLES ARE
PROVIDED "AS IS." EACH PARTY SPECIFICALLY DISCLAIMS ANY SUCH
REPRESENTATION OR WARRANTY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY OR FITNESS
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FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM A
COURSE OF DEALING OR A COURSE OF PERFORMANCE.
6.3 Indemnification.
(a) AutoConnect and ADP each agrees to indemnify, defend and
forever hold the other (and each of its parents, subsidiaries or
entities under common ownership or control), and all of their
respective present and former officers, members, shareholders,
directors, employees, representatives, attorneys, insurers and agents,
and its successors, heirs and assigns, harmless from and against any
and all losses, liabilities, claims, costs, damages and expenses
(including, without limitation, fines, forfeitures, attorneys' fees,
disbursements and administrative or court costs) arising directly or
indirectly out of any breach or alleged breach of its representations
and warranties, as set forth in Section 6.2, above, or out of any other
breach of this Agreement.
(b) A party entitled to indemnification pursuant to this
Agreement shall, with respect to any claim made against such
indemnified party for which indemnification is available, notify the
other party in writing of the nature of the claim as soon as
practicable but not more than ten days after the indemnified party
receives notice of the assertion of the claim. (The failure by an
indemnified party to give notice as provided, above, shall not relieve
the indemnifying party of its obligations under this Section 6.3,
except to the extent that the failure results in the failure of actual
notice and the indemnifying party is damaged as a result of the failure
to give notice.) Upon receipt of notice of the assertion of a claim,
the indemnifying party shall employ counsel reasonably acceptable to
the indemnified party and shall assume the defense of the claim. The
indemnified party shall have the right to employ separate counsel and
to participate in (but not control) any such action, but the fees and
expenses of such counsel shall be at the expense of the indemnified
party unless (a) the employment of counsel by the indemnified counsel
has been authorized by the indemnifying party, (b) the indemnified
party has been advised by its counsel in writing that there is a
conflict of interest between the indemnifying party and the indemnified
party in the conduct of the defense of the action (in which case the
indemnifying party shall not have the right to direct the defense of
the action on behalf of the indemnified party), or (c) the indemnifying
party has not in fact employed counsel to assume the defense of the
action within a reasonable time following receipt of the notice given
pursuant to this Section 6.3, in each of which cases the fees and
expenses of such counsel shall be at the expense of the indemnifying
party. An indemnifying party shall not be liable for any settlement of
an action effected without its written consent (which consent shall not
be unreasonably withheld), nor shall an indemnifying party settle any
such action without the written consent of the indemnified party (which
consent shall not be unreasonably withheld). No indemnifying party will
consent to the entry of any judgment or enter into any
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settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the indemnified party a release
from all liability with respect to the claim. Each party shall
cooperate in the defense of any claim for which indemnification is
available and shall furnish such records, information, testimony and
attend such conferences, discovery proceedings, hearings, trials and
appeals as may reasonably be requested by the other party.
6.4 Limitation on Liability. Except with respect to
indemnification obligations under Section 6.3, above, in the event either party
incurs any liability to the other due to any performance or nonperformance of
any term of this Agreement, the liability therefor shall be limited to actual
damages (actual damages being defined as the actual out-of-pocket damages or
losses sustained by the damaged party and excluding indirect, special,
consequential or punitive damages or lost profits).
6.5 Dispute Resolution. The parties intend to minimize the
potential for litigation or other formal means of enforcing this Agreement.
Accordingly, the parties agree that the dispute resolution procedures set forth
below shall be invoked prior to either party instituting legal proceedings
against the other.
(a) A party (the "Complaining Party") that believes that the
other (the "Responding Party") is in breach of this Agreement in any
particular, shall deliver written notification to the Responding Party,
setting forth in reasonable detail the breach for which the Complaining
Party seeks redress, along with a specific request for relief. The
Responding Party shall have 10 business days from receipt to provide a
written reply. The reply shall contain a response to the allegations
contained in the notice or an agreement to provide the relief
requested. Upon receipt of the reply, the Complaining Party shall
provide written notice to the Responding Party either that the dispute
has been resolved satisfactorily or that the Complaining Party is
invoking the escalation procedure set forth in Section 6.5(b).
(b) In the event that the parties are unable to resolve a
dispute in the manner described in Section 6.5(a), each party agrees to
designate a single representative to attempt to resolve the dispute.
Each party's representative shall be a senior executive (the equivalent
of a senior vice president or higher) who shall have all necessary
authority to bind the party contractually and to resolve the dispute.
The designated representatives shall meet for a minimum of eight hours
at a location to be mutually agreed upon by the parties, in an effort
to resolve the dispute. In the event that mutual agreement regarding
the location of such meeting cannot be reached, the meeting will take
place at AutoConnect's offices in Atlanta, Georgia.
6.6 Further Assurances. Each party hereto shall execute and
deliver all such other documents and do all such other acts and things as may be
reasonably necessary to more fully effectuate this Agreement and the
transactions contemplated hereby.
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6.7 Non-Disclosure. Neither AutoConnect nor ADP shall disclose to
any person or entity, directly or indirectly, without the prior approval of the
other, any non-public information relating to the other party obtained by virtue
of this Agreement, except on a confidential basis to its business, legal and
financial advisors or as required to be disclosed under applicable law or by
legal process.
6.8 Third Parties. None of the provisions of this Agreement shall
be for the benefit of, or enforceable by, any employee or creditor of any party
hereto, nor any other person not a party hereto.
6.9 Force Majeure. Neither party shall be deemed in default or
otherwise liable under this Agreement due to its inability to perform its
obligations by reason of any fire, earthquake, flood, substantial snowstorm,
epidemic, accident, explosion, casualty, strike, lockout, labor controversy,
riot, civil disturbance, act of public enemy, embargo, war, act of God, or any
municipal, county, state or national ordinance or law, or any executive,
administrative or judicial order (which order is not the result of any act or
omission which would constitute a default hereunder), or any failure or delay of
any transportation, power, or communications system or any other or similar
cause beyond that party's control.
6.10 Governing Law/Construction. This Agreement and all matters or
issues related thereto shall be governed by the laws of the State of Delaware
without regard to its choice of law rules. The parties acknowledge and agree
that they have been represented by counsel and that each of the parties has
participated in the drafting of this Agreement. Accordingly, it is the intention
and agreement of the parties that the language, terms and conditions of this
Agreement are not to be construed in any way against or in favor of any party
hereto by reason of the responsibilities in connection with the preparation of
this Agreement.
6.11 Assignment/Benefit and Binding Effect. Neither party may
assign its rights and obligations under this Agreement except with the prior
written consent of the other party, which consent may not be unreasonably
withheld, conditioned or delayed. Notwithstanding the foregoing sentence, either
party may assign or transfer its rights and obligations under this Agreement in
connection with a change in control of the party, or the sale or transfer of all
or substantially all of the business or assets of the party, or to any entity
under common ownership or control with such party, upon notice to the other
party, provided that the assignee agrees to assume all of the assigning party's
obligations under this Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
6.12 Relationship of Parties. Neither this Agreement nor the
cooperation of the parties contemplated herein shall be deemed or construed to
create any partnership, joint venture or agency relationship between AutoConnect
and ADP. Neither party is, nor shall either party hold itself out to be, vested
with any power or right to bind the other party contractually or to act on
behalf of the other party as a broker, agent or otherwise.
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6.13 Captions/Severability. The captions, section numbers and index
appearing in this Agreement are inserted only as a matter of convenience and in
no way define, limit, construe or describe the scope or intent of such sections
or articles of this Agreement, nor in any way affect this Agreement. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.
In the event that any provision of this Agreement is determined to be invalid,
unenforceable or otherwise illegal, such provision shall be deemed restated, in
accordance with applicable law, to reflect as nearly as possible the original
intentions of the parties, and the remainder of the Agreement shall be in full
force and effect.
6.14 Waiver. No term or condition of this Agreement shall be deemed
waived, and no breach shall be deemed excused, unless such waiver or excuse is
in writing and is executed by the party against whom such waiver or excuse is
claimed. Except as set forth in this Agreement, all rights, powers and remedies
given to the parties under this Agreement are cumulative and not alternative,
and are in addition to all statutes or rules of law.
6.15 Entire Agreement. This Agreement contains the entire agreement
and understanding between the parties with regard to the subject matter hereof,
and supersedes all prior and contemporaneous oral or written agreements and
representations. Any amendment of this Agreement shall be in writing and signed
by both parties.
6.16 Survival of Termination. The obligations of the parties under
this Agreement that by their nature would continue beyond expiration,
termination or cancellation of this Agreement (including, without limitation,
Sections 1.2, 2.4, 3.2, 6.1, 6.2, 6.3, 6.4 and 6.7) shall survive any such
expiration, termination or cancellation.
6.17 Notices. Notices and other communications hereunder shall be
(a) in writing; (b) delivered by telecopy, by commercial overnight or same-day
delivery service with all delivery costs paid by sender, or by registered or
certified mail with postage prepaid, return receipt requested; (c) deemed given
on the date and at the time (if recorded) of delivery by the commercial delivery
service, as shown in the records thereof (if delivered by commercial overnight
or same-day delivery service), or on the date shown on the return receipt (if
delivered by registered or certified mail); and (d) addressed to the parties at
their addresses specified on the signature page to this Agreement (or at such
other address for a party as shall be specified by like notice).
6.18 Communications. Both parties recognize the value and
importance of clear, accurate and consistent public communications regarding the
transactions contemplated in this Agreement. Accordingly, the parties shall
agree on the timing and the content of any public announcement regarding the
cooperative relationship described in this Agreement. In addition, the parties
shall jointly prepare written material for use in responding to anticipated
questions that each party will likely receive from the press and public about
their relationship.
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6.19 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which taken
together shall constitute one and the same Agreement. The parties may sign
facsimile copies of this Agreement which shall each be deemed originals.
AGREED TO BY THE PARTIES AS OF THE DATE WRITTEN ABOVE.
AUTOCONNECT, L.L.C.
By: /s/ DENNIS BERRY
-------------------------------
Name: Dennis Berry
Title: Director
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Victor Perry
Phone: 404-843-5480
Fax: 404-843-7412
ADP, INC.
By: /s/ ALLAN STEJSKAL
-------------------------------
Name: Allan Stejskal
Title: V.P. Dealer Services
Address for Notices:
Dealer Services Division
1950 Hassell Road
Hoffman Estates, Illinois 60195
Attention: President
Phone: 847-397-1700
Fax: 847-781-9873
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EXHIBIT 10.6
DATA CONTRIBUTION AGREEMENT
THIS DATA CONTRIBUTION AGREEMENT (this "Agreement") is made as of
August 20, 1999 (the "Effective Date"), by and between AutoConnect, L.L.C., a
Delaware limited liability company ("AutoConnect"), and Manheim Auctions, Inc.,
a Delaware corporation ("Manheim").
WHEREAS, AutoConnect operates a consumer-oriented shopping and
information service for buyers and sellers of automobiles and light trucks, and
provides other online services to the automotive industry; and
WHEREAS, Manheim operates automobile auctions and provides related
goods and services; and
WHEREAS, Manheim is a member of AutoConnect pursuant to the Amended and
Restated Limited Liability Company Agreement by and among Manheim, ADP, Inc.,
TPI, Inc., LTM Company, L.P., ATC Holdings, Inc., a Nevada corporation and KPCB
Holdings, Inc., as nominee, dated as of August 20, 1999 (the "Restated LLC
Agreement"); and
WHEREAS, contemporaneously with the execution of this Agreement,
AutoConnect will change its name to AutoTrader.com, LLC; and
WHEREAS, AutoConnect and Manheim mutually desire that Manheim provide
certain data to AutoConnect on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by AutoConnect and Manheim, and
intending legally to be bound, AutoConnect and Manheim hereby agree as follows:
ARTICLE 1 OBLIGATIONS OF MANHEIM
1.1 Data and Image Collection and Delivery. Manheim will use
commercially reasonable efforts to procure appropriate dealer consent for, and
to obtain data on (including at least the following: make; model; body type;
body subtype; year; mileage; color; price and vehicle identification number; and
including vehicle options to the extent available) and digital color photo
images of (collectively, such data and images being the "Manheim Data") the
following vehicles: (a) all vehicles sold at its North American auctions; (b)
all vehicles designated by North American dealers to be sent to AutoConnect
through Manheim's Tracker and Manheim Online software; and (c) all vehicles
designated by the automotive original equipment manufacturers ("OEMs") and other
wholesale consigners for which Manheim operates retail Internet web sites.
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Manheim shall deliver the Manheim Data to AutoConnect on a daily basis in a
format to be determined by AutoConnect in consultation with Manheim.
1.2 Image Production. Manheim shall operate and maintain, at its
own expense, a network of image capture stations at its auctions to provide high
quality images of vehicles registered for sale. Manheim shall also provide
operational support of the image capture process, including but not limited to
installation of new image capture stations as needed, maintenance and repair of
existing capture stations as needed, routine quality assurance, and training of
auction personnel in the operation of image capture stations. Manheim shall use
commercially reasonable efforts to capture and provide image data to AutoConnect
for ninety percent (90%) of all cars registered at its auctions.
1.3 Licenses to Use Manheim Data and VIN Decoder. Manheim hereby
grants to AutoConnect a non-exclusive, fully paid up and non-transferable
(except in accordance with the provisions in Section 6.11, below) license to
use, copy, reproduce, transmit, display and distribute, and create derivative
works from, the Manheim Data. Manheim also grants to AutoConnect a
non-exclusive, fully paid up and non-transferable (except in accordance with the
provisions in Section 6.11, below) license to use Manheim's vehicle
identification number ("VIN") decoder software.
1.4 Promotion at Auctions. Manheim shall, at its own expense,
provide prominent promotion of AutoConnect in each of Mannheim's North American
Auction facilities. Such promotion shall take the form of signage, booths,
and/or racks for printed materials to be provided to the auction facilities by
AutoConnect.
1.5 Executive and General Manager Incentives. Manheim may, at its
own expense, provide ongoing incentives for its executives and general managers
to support AutoConnect sales and marketing efforts. The nature of the incentives
shall be at Manheim's reasonable discretion, but may include revenue credits
provided to auctions based on sales of AutoConnect dealer websites and
advertising products.
1.6 General Marketing Support. Manheim shall provide ongoing
support for AutoConnect in the trade advertising and marketing programs
otherwise run or undertaken by Manheim in the ordinary course of business,
including but not limited to print advertisements in Automotive News.
AutoConnect shall be permitted to review and direct the manner in which its
brand is presented in such advertising and marketing programs, and AutoConnect
may decide in its discretion whether to participate in any particular program.
In the event AutoConnect determines to participate, its participation shall be
subject its payment of a pro rata share of any media production and placement
costs (to be agreed upon by AutoConnect and Manheim in advance) associated with
such program.
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1.7 Trade Shows. At AutoConnect's request, Manheim shall provide
space within its booths and computer presentation equipment for use by
AutoConnect at any major automobile dealer trade shows at which Manheim obtains
vendor booth space, subject to AutoConnect's payment of its pro rata share (to
be agreed upon by AutoConnect and Manheim in advance) of Manheim's actual costs
of obtaining the booth space and providing such computer equipment. Manheim
shall cooperate with AutoConnect by providing information as far in advance as
possible concerning its plans to obtain vendor booth space at dealer trade shows
and the anticipated costs of the booth space and computer equipment.
1.8 Major Account Marketing Support. At AutoConnect's request,
Manheim shall: (a) make its national accounts sales personnel reasonably
available to coordinate with AutoConnect on the sales of retail oriented
Internet applications to OEMs; (b) facilitate sales contacts between AutoConnect
and OEMs and other major automobile consignors; and (c) support AutoConnect's
proposals to OEMs and consignors. Manheim will not be entitled to share in any
revenues received by AutoConnect in connection with sales of AutoConnect
applications to OEMs or consignors, but Manheim will retain all revenues it may
receive from OEMs and consignors for Internet services provided by Manheim that
do not include AutoConnect applications.
1.9 Technology Support. Manheim shall provide AutoConnect access
to and a license (as provided in this Section 1.9, below) for its wholesale
Internet applications, including but not limited to cyberlots, inventory
manager, power search, silent cyberauctions, and auto finance and warranty
transactions, for use by AutoConnect on its consumer and dealer web sites.
Manheim shall collaborate with AutoConnect on the development of new Tracker and
Manheim Online applications that support dealers' retail sales programs and
shall provide, at its expense, linkages within Tracker and Manheim Online for
enabling dealers easily to transmit vehicle data and images to AutoConnect and
for consumers to transmit warranty applications and auto finance-related
information to entities selected by Manheim's dealers (when such technology
becomes reasonable available). Manheim hereby grants to AutoConnect a
non-exclusive, fully paid up and non-transferable (except in accordance with the
provisions in Section 6.11, below) license to use, copy, reproduce, transmit,
display and distribute, and create derivative works from, all such Internet
applications for use on AutoConnect's consumer and dealer web sites.
1.10 Certification Programs. In the event that Manheim develops
certification products for vehicles sold at auction, which products dealers can
pass along to their retail customers, Manheim shall, at its own expense,
facilitate the transfer of data about certified vehicles for use by AutoConnect,
in AutoConnect's discretion, in its sales programs with dealers.
1.11 Technology Manager Sales and Training. Manheim shall cause the
Technology Manager of each of its auctions to devote a considerable portion of
his or her
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time, in coordination with AutoConnect's sales force, to selling AutoConnect's
products to dealers. Manheim shall also, at its own expense, but with the
assistance of AutoConnect, provide ongoing training programs for its Technology
Managers to assist them effectively to sell AutoConnect's products to dealers.
1.12 General Auction Employee Training. Manheim shall, at its own
expense, but with the assistance of AutoConnect, provide ongoing training
programs for selected auction employees (including but not limited to Assistant
General Managers, Marketing Managers and Checkout Counter Clerks) to assist them
effectively to support the sale of AutoConnect's products to dealers.
1.13 Online Consumer Price Guide. In the event that AutoConnect, in
its discretion, determines to use Manheim's wholesale pricing data in building
an online consumer price guide, Manheim shall use commercially reasonable
efforts to support the development of such a guide by providing appropriate
pricing data. However, Manheim shall have the right to specify policies and
guidelines for how Manheim pricing data may be used by AutoConnect in the
consumer price guide.
1.14 Administrative and Operational Support. Upon AutoConnect's
request, Manheim shall provide, or arrange for the provision of, administrative
and operational support necessary and useful for AutoConnect's activities,
including but not limited to physical facilities and human resources, legal,
tax, SEC reporting, and corporate communications services. AutoConnect and
Manheim shall establish reasonable cross-exhange rates for the provision of such
administrative and operational support by Manheim.
1.15 International Expansion. In the event AutoConnect determines
to expand its activities outside North American into areas where Manheim
operates wholesale automobile auctions, Manheim shall support and facilitate
such expansion by providing marketing and operational support in such areas
similar in scope and nature to that contemplated by this Agreement for North
America. Any such support and facilitation shall be subject to local laws,
marketing customs and the approval of Manheim's local partners.
ARTICLE 2 OBLIGATIONS OF AUTOCONNECT
2.1 Posting of Manheim Data. AutoConnect shall use commercially
reasonable efforts to post the Manheim Data to the searchable database of
automotive data available on AutoConnect's online used vehicle shopping and
information service.
2.2 Stock Options for Sales Incentives. AutoConnect may, at its
own expense, provide special stock options (or similar instruments) for selected
Manheim executives and general managers as incentives for their sales and
marketing efforts on behalf of AutoConnect as contemplated in Section 1.5 of
this Agreement.
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2.3 Payment of Expenses. AutoConnect shall make timely payment,
within thirty (30) days of its receipt of appropriate detailed invoices from
Manheim, of its share of all expenses required by this Agreement to be borne by
AutoConnect.
2.4 Payment of Commissions. AutoConnect shall pay commissions to
Manheim Technology Managers and selected other Manheim auction employees based
on, and as an incentive for, their successful support for and sale of
AutoConnect products to dealers as contemplated by Sections 1.11 and 1.12 above.
The structure and level of such commission payments shall be as mutually agreed
upon by AutoConnect and Manheim.
ARTICLE 3 TRADEMARKS
3.1 AutoConnect Marks. AutoConnect hereby grants Manheim a
non-exclusive license to use its logos, trademarks and service marks
(collectively, "AutoConnect Marks") in connection with Manheim's promotion of
AutoConnect as contemplated by this Agreement. Manheim acknowledges and agrees
that AutoConnect owns or licenses and otherwise has the exclusive right to use
and to license the AutoConnect Marks and that AutoConnect shall have the right
to review and approve or disapprove Manheim's use of the AutoConnect Marks.
ARTICLE 4 EXCLUSIVITY
4.1 By Manheim. Manheim shall not maintain a consumer-oriented
world wide web site containing the Manheim Data, nor shall it provide the
Manheim Data to any other person for display to consumers on the world wide web.
Manheim shall not include advertising in any publications of Manheim from any
AutoConnect Competitor promoting a product or service competitive with the
products or services being made available by AutoConnect. Manheim shall also not
create, provide marketing or sales support to, or make any equity investment in
any other retail oriented automotive Internet site that contains inventory data
that is aggregated from multiple dealers or from multiple OEMs. For the purposes
of this Section 4.1, "AutoConnect Competitor" means any competitor of
AutoConnect in the business of aggregation of automotive data for Internet
publication and consumer use as part of an Internet consumer shopping and
information service (the "Business"), including Autobytel.com, AutoVantage,
Autoweb.com, Carpoint, cars.com, Classified2000, Cobalt Group and Yahoo! and any
other web sites that engage in the Business and that, at the relevant time, are
among the top 10 sites (as measured by monthly page views) in any category that
is comprised primarily of the Business. Notwithstanding the foregoing, Manheim
may provide the following products and services to its customers:
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(a) Manheim may provide vehicle data and images to retail
Internet sites that Manheim operates for individual OEMs and other
wholesale automobile consignors (such as, but not limited to,
Fordpreowned.com);
(b) Manheim may provide vehicle data and images, and may
operate, wholesale oriented Internet sites that serve automobile
dealers as their primary customers; and
(c) Manheim may provide wholesale vehicle pricing data to any
third parties for any purpose whatsoever, or may publish or operate a
retail price guide.
ARTICLE 5 TERM
5.1 Term. Unless terminated as provided in Section 5.2 below, the
term of this Agreement shall be ten (10) years commencing on the Effective Date.
5.2 Termination. Either party may terminate this Agreement and, in
addition to all other rights and remedies it may have under law or equity, be
relieved of all further obligations hereunder, in the event of a material breach
of the Agreement by the other party if such breach is not cured within sixty
(60) days of the receipt of written notice of such breach by such breaching
party. In addition, Manheim may terminate this Agreement at any time after the
fifth anniversary of the Effective Date, if Manheim's voting interest in
AutoConnect falls below Fifty Percent (50%) (as determined pursuant to the
Restated LLC Agreement or, upon conversion of AutoConnect to a corporation,
pursuant to the corporation's certificate of incorporation, and other than as a
result of Manheim's converting its shares with supervoting powers to ordinary
shares), by providing at least six (6) months prior written notice to
AutoConnect.
ARTICLE 6 MISCELLANEOUS
6.1 Ownership of Vehicle Data and Images and Database. As between
AutoConnect and Manheim, and subject to the license granted to AutoConnect in
this Agreement, Manheim shall be the owner of the vehicle data and images it
obtains and provides to AutoConnect as contemplated by this Agreement. As
between AutoConnect and Manheim, AutoConnect is the owner of the database of
vehicle data and images obtained, compiled and used by AutoConnect in connection
with its online vehicle information service.
6.2 Representations and Warranties.
(a) AutoConnect and Manheim each represents and warrants to
the other that: (i) it has the right, power and authority to enter into
this Agreement and to perform all of its obligations hereunder; and
(ii) it has the right to grant the licenses granted by it hereunder.
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(b) EXCEPT AS STATED IN SECTION 6.2(A), ABOVE, NEITHER PARTY
MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, NATURE OR
DESCRIPTION, EXPRESS OR IMPLIED, WITH RESPECT TO THE MANHEIM DATA OR
OTHER DELIVERABLES PROVIDED BY EITHER PARTY TO THE OTHER PARTY, WHICH
MANHEIM DATA AND OTHER DELIVERABLES ARE PROVIDED "AS IS." EACH PARTY
SPECIFICALLY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM A COURSE OF
DEALING OR A COURSE OF PERFORMANCE.
6.3 Indemnification.
(a) AutoConnect and Manheim each agrees to indemnify, defend
and forever hold the other (and each of its parents, subsidiaries or
entities under common ownership or control), and all of their
respective present and former officers, members, shareholders,
directors, employees, representatives, attorneys, insurers and agents,
and its successors, heirs and assigns, harmless from and against any
and all losses, liabilities, claims, costs, damages and expenses
(including, without limitation, fines, forfeitures, attorneys' fees,
disbursements and administrative or court costs) arising directly or
indirectly out of any breach or alleged breach of its representations
and warranties, as set forth in Section 6.2(a), above, or out of any
other breach of this Agreement.
(b) A party entitled to indemnification pursuant to this
Agreement shall, with respect to any claim made against such
indemnified party for which indemnification is available, notify the
other party in writing of the nature of the claim as soon as
practicable but not more than ten days after the indemnified party
receives notice of the assertion of the claim. (The failure by an
indemnified party to give notice as provided, above, shall not relieve
the indemnifying party of its obligations under this Section 6.3,
except to the extent that the failure results in the failure of actual
notice and the indemnifying party is damaged as a result of the failure
to give notice.) Upon receipt of notice of the assertion of a claim,
the indemnifying party shall employ counsel reasonably acceptable to
the indemnified party and shall assume the defense of the claim. The
indemnified party shall have the right to employ separate counsel and
to participate in (but not control) any such action, but the fees and
expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of counsel by the indemnified counsel
has been authorized by the indemnifying party, (ii) the indemnified
party has been advised by its counsel in writing that there is a
conflict of interest between the indemnifying party and the indemnified
party in the conduct of the defense of the action (in which case the
indemnifying party shall not have the right to direct the defense of
the action on behalf of the indemnified
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party), or (iii) the indemnifying party has not in fact employed
counsel to assume the defense of the action within a reasonable time
following receipt of the notice given pursuant to this Section 6.3, in
each of which cases the fees and expenses of such counsel shall be at
the expense of the indemnifying party. An indemnifying party shall not
be liable for any settlement of an action effected without its written
consent (which consent shall not be unreasonably withheld), nor shall
an indemnifying party settle any such action without the written
consent of the indemnified party (which consent shall not be
unreasonably withheld). No indemnifying party will consent to the entry
of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff
to the indemnified party a release from all liability with respect to
the claim. Each party shall cooperate in the defense of any claim for
which indemnification is available and shall furnish such records,
information, testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may reasonably be
requested by the other party.
6.4 Limitation on Liability. Except with respect to
indemnification obligations under Section 6.3, above, in the event either party
incurs any liability to the other due to any performance or nonperformance of
any term of this Agreement, the liability therefor shall be limited to actual
damages (actual damages being defined as the actual out-of-pocket damages or
losses sustained by the damaged party and excluding indirect, special,
consequential or punitive damages or lost profits).
6.5 Dispute Resolution. The parties intend to minimize the
potential for litigation or other formal means of enforcing this Agreement.
Accordingly, the parties agree that the dispute resolution procedures set forth
below shall be invoked prior to either party instituting legal proceedings
against the other.
(a) A party (the "Complaining Party") that believes that the
other (the "Responding Party") is in breach of this Agreement in any
particular, shall deliver written notification to the Responding Party,
setting forth in reasonable detail the breach for which the Complaining
Party seeks redress, along with a specific request for relief. The
Responding Party shall have 10 business days from receipt to provide a
written reply. The reply shall contain a response to the allegations
contained in the notice or an agreement to provide the relief
requested. Upon receipt of the reply, the Complaining Party shall
provide written notice to the Responding Party either that the dispute
has been resolved satisfactorily or that the Complaining Party is
invoking the escalation procedure set forth in Section 6.5(b).
(b) In the event that the parties are unable to resolve a
dispute in the manner described in Section 6.5(a), each party agrees to
designate a single representative to attempt to resolve the dispute.
Each party's representative shall be a senior executive (the equivalent
of a senior vice president or higher) who shall have all necessary
authority to bind the party contractually and to resolve the
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dispute. The designated representatives shall meet for a minimum of
eight hours at a location to be mutually agreed upon by the parties, in
an effort to resolve the dispute. In the event that mutual agreement
regarding the location of such meeting cannot be reached, the meeting
will take place at AutoConnect's offices in Atlanta, Georgia.
6.6 Further Assurances. Each party hereto shall execute and
deliver all such other documents and do all such other acts and things as may be
reasonably necessary to more fully effectuate this Agreement and the
transactions contemplated hereby.
6.7 Non-Disclosure. Neither AutoConnect nor Manheim shall disclose
to any person or entity, directly or indirectly, without the prior approval of
the other, any non-public information relating to the other party obtained by
virtue of this Agreement, except on a confidential basis to its business, legal
and financial advisors or as required to be disclosed under applicable law or by
legal process.
6.8 Third Parties. None of the provisions of this Agreement shall
be for the benefit of, or enforceable by, any employee or creditor of any party
hereto, nor any other person not a party hereto.
6.9 Force Majeure. Neither party shall be deemed in default or
otherwise liable under this Agreement due to its inability to perform its
obligations by reason of any fire, earthquake, flood, substantial snowstorm,
epidemic, accident, explosion, casualty, strike, lockout, labor controversy,
riot, civil disturbance, act of public enemy, embargo, war, act of God, or any
municipal, county, state or national ordinance or law, or any executive,
administrative or judicial order (which order is not the result of any act or
omission which would constitute a default hereunder), or any failure or delay of
any transportation, power, or communications system or any other or similar
cause beyond that party's control.
6.10 Governing Law/Construction. This Agreement and all matters or
issues related thereto shall be governed by the laws of the State of Delaware
without regard to its choice of law rules. The parties acknowledge and agree
that they have been represented by counsel and that each of the parties has
participated in the drafting of this Agreement. Accordingly, it is the intention
and agreement of the parties that the language, terms and conditions of this
Agreement are not to be construed in any way against or in favor of any party
hereto by reason of the responsibilities in connection with the preparation of
this Agreement.
6.11 Assignment/Benefit and Binding Effect. Neither party may
assign its rights and obligations under this Agreement except with the prior
written consent of the other party, which consent may not be unreasonably
withheld, conditioned or delayed. Notwithstanding the foregoing sentence, either
party may assign or transfer its rights and obligations under this Agreement in
connection with a change in control of the party, or the sale or transfer of all
or substantially all of the business or assets of the party, or to
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any entity under common ownership or control with such party, upon notice to the
other party, provided that the assignee agrees to assume all of the assigning
party's obligations under this Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
6.12 Relationship of Parties. Neither this Agreement nor the
cooperation of the parties contemplated herein shall be deemed or construed to
create any partnership, joint venture or agency relationship between AutoConnect
and Manheim. Neither party is, nor shall either party hold itself out to be,
vested with any power or right to bind the other party contractually or to act
on behalf of the other party as a broker, agent or otherwise.
6.13 Captions/Severability. The captions, section numbers and index
appearing in this Agreement are inserted only as a matter of convenience and in
no way define, limit, construe or describe the scope or intent of such sections
or articles of this Agreement, nor in any way affect this Agreement. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.
In the event that any provision of this Agreement is determined to be invalid,
unenforceable or otherwise illegal, such provision shall be deemed restated, in
accordance with applicable law, to reflect as nearly as possible the original
intentions of the parties, and the remainder of the Agreement shall be in full
force and effect.
6.14 Waiver. No term or condition of this Agreement shall be deemed
waived, and no breach shall be deemed excused, unless such waiver or excuse is
in writing and is executed by the party against whom such waiver or excuse is
claimed. Except as set forth in this Agreement, all rights, powers and remedies
given to the parties under this Agreement are cumulative and not alternative,
and are in addition to all statutes or rules of law.
6.15 Entire Agreement. This Agreement contains the entire agreement
and understanding between the parties with regard to the subject matter hereof,
and supersedes all prior and contemporaneous oral or written agreements and
representations. Any amendment of this Agreement shall be in writing and signed
by both parties.
6.16 Survival of Termination. The obligations of the parties under
this Agreement that by their nature would continue beyond expiration,
termination or cancellation of this Agreement (including, without limitation,
Sections 1.3, 6.1, 6.2, 6.3, 6.4 and 6.7) shall survive any such expiration,
termination or cancellation.
6.17 Notices. Notices and other communications hereunder shall be
(a) in writing; (b) delivered by telecopy, by commercial overnight or same-day
delivery service with all delivery costs paid by sender, or by registered or
certified mail with postage prepaid, return receipt requested; (c) deemed given
on the date and at the time (if recorded) of delivery by the commercial delivery
service, as shown in the records thereof (if delivered by commercial overnight
or same-day delivery service), or on the date
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shown on the return receipt (if delivered by registered or certified mail); and
(d) addressed to the parties at their addresses specified on the signature page
to this Agreement (or at such other address for a party as shall be specified by
like notice).
6.18 Communications. Both parties recognize the value and
importance of clear, accurate and consistent public communications regarding the
transactions contemplated in this Agreement. Accordingly, the parties shall
agree on the timing and the content of any public announcement regarding the
cooperative relationship described in this Agreement. In addition, the parties
shall jointly prepare written material for use in responding to anticipated
questions that each party will likely receive from the press and public about
their relationship.
6.19 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which taken
together shall constitute one and the same Agreement. The parties may sign
facsimile copies of this Agreement which shall each be deemed originals.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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AGREED TO BY THE PARTIES AS OF THE DATE WRITTEN ABOVE.
AUTOCONNECT, L.L.C.
By: /s/ Dennis Berry
---------------------------
Name: Dennis Berry
Title: Member of Management Committee
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Victor Perry
Phone: 404-843-5480
Fax: 404-843-7412
MANHEIM AUCTIONS, INC.
By: /s/ Dennis Berry
---------------------------
Name: Dennis Berry
Title: President
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Dennis Berry
Phone: 404-843-5287
Fax: 404-843-5755
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EXHIBIT 10.7
UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT (this "Agreement") is entered into as of
this 20th day of August, 1999 among AutoConnect, L.L.C., a Delaware limited
liability company (the "Company"), Manheim Auctions, Inc., a Delaware
corporation ("Manheim"), ADP, Inc., a Delaware corporation ("ADP"), and ATC
Holdings, Inc., a Nevada corporation ("ATCHI" and together with the Company,
Manheim, and ADP, the "Parties").
RECITALS:
A. The Company was originally formed by Manheim and ADP on
December 18, 1997 pursuant to an Operating Agreement (the "Initial Operating
Agreement").
B. TPI, Inc. ("Cox") and LTM Company, L.P. ("LTM"), as the only
partners of Trader Publishing Company ("Trader"), have agreed to cause Trader to
contribute certain of its assets to the Company pursuant to a Contribution
Agreement (the "Contribution Agreement") dated the date hereof.
C. In connection with the closing (the "Contribution Closing") of
the transactions contemplated under the Contribution Agreement (the
"Contribution Transaction"), the Company has issued to Cox and LTM certain units
and membership interests and admitted Cox and ATCHI as members of the Company,
all as more specifically described in the Contribution Agreement and the Amended
and Restated Limited Liability Company Agreement of the Company dated the date
hereof (the "Restated LLC Agreement"), which amends and restates the Initial
Operating Agreement in its entirety.
D. The Company has authorized the issuance and sale to ATCHI of
223,602 Class A Units (as defined in the Restated LLC Agreement), and ATCHI
desires to subscribe for and purchase such Class A Units, all on and subject to
the terms and conditions set forth below.
In consideration of the mutual covenants contained herein, the receipt
and sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
1. DEFINITIONS
All capitalized terms which are not defined herein shall have the meanings set
forth in the Restated LLC Agreement.
2. ISSUANCE AND SALE OF UNITS
Upon the terms and subject to the conditions set forth herein, the Company
hereby issues and sells to ATCHI, and ATCHI hereby purchases from the Company,
223,602 Class A Units (the "Purchase Units") for an aggregate cash purchase
price of $19,378,881.99 (the "Purchase Price"). The aggregate Class A Units and
Membership Interest of LTM and ATCHI
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immediately following such purchase (assuming the KPCB Purchase, as defined and
described below) shall equal 473,602 and 25.42%, respectively.
3. CLOSING DATE; DELIVERY
3.1. Closing Date. The closing of the purchase and sale of the
Purchase Units hereunder (the "Subscription Closing") shall be held at the
offices of Dow, Lohnes & Albertson, PLLC, 1200 New Hampshire Avenue, N.W., Suite
800, Washington, D.C. 20036, or such other place as shall be mutually agreeable
to the Parties, on August 20, 1999, immediately following the Contribution
Closing (the "Closing Date").
3.2. Delivery. At the Subscription Closing, the Company will
deliver to ATCHI the Restated LLC Agreement, against payment by wire transfer of
the Purchase Price.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce ATCHI to enter into this Agreement, the Company represents
and warrants to ATCHI that the statements in this Article 4 are correct and
complete as of the date of this Agreement. The following representations and
warranties, other than those set forth in Sections 4.2 and 4.3 below, assume
that the Contribution Closing shall have not occurred (and, in the case of
forward looking statements, will not occur) such that the Company would not be
affected by or subject to the Contribution Transaction.
4.1. Organization, Good Standing Qualification and Subsidiaries.
The Company is a limited liability company duly organized, validly existing and
in good standing under the laws of the state of Delaware. The Company has all
requisite limited liability company power and authority (a) to execute and
deliver this Agreement and any other agreement to which the Company is a party
and the execution and delivery of which is contemplated hereby (the "Related
Agreements"), (b) to issue and sell the Purchase Units, and to carry out the
provisions of this Agreement and any Related Agreements, and (c) to conduct its
business as presently conducted and as proposed to be conducted. The Company is
duly qualified and is in good standing in each jurisdiction where the failure to
be so qualified would have a material and adverse effect on the business,
properties, operations or financial condition of the Company. The Company has no
subsidiaries, participates in no joint ventures, and does not own or control or
have a commitment to purchase or acquire, directly or indirectly, any equity
interest in any entity.
4.2. Authorization and Binding Obligation. All action on the part
of the Company, its Management Committee and Members necessary for the
authorization, execution, delivery and performance of this Agreement and the
Related Agreements, the performance of all obligations of the Company hereunder
and thereunder, and the authorization, sale, issuance and delivery of the
Purchase Units has been taken. This Agreement and the Related Agreements have
been duly executed and delivered by the Company and constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws from
time to time in effect affecting the
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enforcement of creditors' rights generally, and except as enforcement of
remedies may be limited by general equitable principles. The Purchase Units are
not subject to any preemptive rights or rights of first refusal, except for such
preemptive rights as have been waived hereunder solely for purposes of this
transaction or as set forth in the Restated LLC Agreement.
4.3. Absence of Conflicting Agreements; Noncontravention. The
execution, delivery and performance of this Agreement and the Related Agreements
by the Company and the consummation of the transactions contemplated hereby
(with or without the giving of notice, the lapse of time or both): (a) will not
conflict with or result in any violation or default of any provision of the
Certificate of Formation or Restated LLC Agreement of the Company; (b) will not
conflict with, result in a breach of, or constitute a default under, any
applicable law, rule or regulation, judgment, order, ordinance, injunction or
decree of any court or governmental instrumentality; and (c) will not conflict
with, constitute grounds for termination of, result in a breach of, constitute a
default under, or accelerate or permit the acceleration of any performance
required by the terms of, any material agreement, instrument, franchise,
certificate, license or permit to which the Company is a party or may be bound
or by which its business or assets are affected. Assuming the accuracy of the
representations of ATCHI set forth in Article 5 hereof, no consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company in
connection with the Company's valid execution, delivery, or performance of this
Agreement, or the offer, sale or issuance of the Purchase Units.
4.4. Membership Interests and Capital Accounts. Schedule 4.4 is a
true and complete list of the Company's Members and their respective Membership
Interests, Capital Accounts and Unit holdings immediately prior to and
immediately after (assuming the KPCB Purchase) the Subscription Closing. All
issued and outstanding Units representing the Company's Membership Interests (a)
have been duly authorized and validly issued and (b) were issued in compliance
with all applicable state and federal laws concerning the issuance of
securities. Except as provided in the Restated LLC Agreement and the exhibits
thereto, the Company is not a party to any outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy,
voting or member agreements, nor are there any other agreements of any kind to
which the Company is a party or, to its knowledge, which apply to the purchase
or acquisition of any of its securities. Except as provided in the Registration
Rights Agreement, the Company is not presently under any obligation and has not
granted any rights to register under the Securities Act any of its presently
outstanding securities or any of its securities that may subsequently be issued.
4.5. Financial Statements. The Company has delivered to ATCHI the
following financial statements (collectively, the "Financial Statements"): (a)
the unaudited balance sheet and statement of operations and cash flows for the
Company as of and for the fiscal year ended December 31, 1998, and (b) the
unaudited balance sheet (the "July Balance Sheet") and statement of operations
and cash flows for the Company as of and for the six months ended July 31, 1999.
The Financial Statements (a) are in accordance with the books and records of the
Company (which books and records are complete and correct in all material
respects),
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(b) have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated, and
(c) fairly present the financial condition and operating results of the Company
as of the dates and during the periods indicated therein, except that the
unaudited Financial Statements may not be in accordance with GAAP because of the
absence of footnotes normally contained therein and are subject to normal
recurring year-end audit adjustments which are not, individually or in the
aggregate, expected to be material.
4.6. Absence of Undisclosed Liabilities. Except as set forth on
Schedule 4.6, the Company has no material liabilities, contingent or otherwise,
other than (a) liabilities shown on the face of the July Balance Sheet, (b)
liabilities incurred in the ordinary course of business subsequent to July 31,
1999, and (c) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
4.7. Absence of Certain Changes or Events. Since July 31, 1999,
other than as set forth on Schedule 4.7 hereto and other than as set forth in
the Restated LLC Agreement and the Related Agreements, there has not been:
(a) any change in the assets, liabilities, condition
(financial or otherwise), affairs, earnings, business, or operations of the
Company, except changes in the ordinary course of business which have not been,
either in any case or in the aggregate, materially adverse;
(b) any change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty or any
assurance of performance or payment, endorsement, indemnity, warranty or
otherwise;
(c) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties or
business of the Company, taken as whole;
(d) any waiver by the Company of a valuable right or of a
material debt owed to it;
(e) any loans made by the Company to its employees,
officers or directors other than advances of expenses made in the ordinary
course of business;
(f) any distribution of the assets of the Company or any
direct or indirect redemption, purchase or acquisition of any of the Company's
Units;
(g) any labor organization activity or labor trouble;
(h) any other event or condition of any character which
has materially and adversely affected the business, condition, affairs,
operations, properties or assets of the Company;
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(i) any material increases in the compensation of any of
the Company's employees, officers or directors;
(j) any resignation or termination of employment of any
officer or key employee of the Company;
(k) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the business, properties or
financial condition of the Company;
(l) any material change to a Material Contract or
material arrangement by which the Company or any of its assets is bound or
subject;
(m) any sale, assignment or transfer of any material
patents, trademarks, copyrights, trade secrets or other intangible assets;
(n) any mortgage, pledge, transfer of a security interest
in, or lien created by the Company with respect to any of its material
properties or assets; or
(o) any agreement entered into by the Company to do any
of the foregoing matters covered by Sections 4.7(a) through 4.7(n).
4.8. Title to Properties and Assets; Liens, etc. The Company has
good title to, or a valid leasehold interest in, all its material properties and
assets, including all properties and assets reflected in the July Balance Sheet,
except those disposed of since the date thereof in the ordinary course of
business, and none of such properties or assets is subject to any mortgage,
pledge, lien, encumbrance or charge, other than the lien of current taxes,
assessments, governmental charges or levies not yet due and payable and the
mortgages, pledges, liens, encumbrances and charges set forth in Schedule 4.7
("Permitted Encumbrances"). The Company does not own, and has never owned, any
real property.
4.9. Intellectual Property.
(a) The Company owns, free and clear of all security
interests, liens, encumbrances or other charges (except for Permitted
Encumbrances), or has the valid right to use, all Intellectual Property (as
defined below in this Section 4.9) used by it in its business as currently
conducted or as currently proposed by it to be conducted. Except as set forth on
Schedule 4.9, no other person or entity (other than licensors of software that
is generally commercially available, and their respective other licensees, and
licensors of Intellectual Property under the agreements disclosed pursuant to
paragraph (d) below, and their respective other licensees) has any rights to any
of the Intellectual Property owned or used by the Company, and, to the knowledge
of the Company, no other person or entity is infringing, violating or
misappropriating any of the Intellectual Property that the Company owns. For
purposes of this Agreement, "Intellectual Property" means all (i) patents,
patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications,
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registrations and applications for registrations, (ii) trademarks, service
marks, trade dress, logos, trade names, corporate names, domain names and URLs,
and registrations and applications for registration thereof, (iii) copyrights
and registrations and applications for registration thereof, (iv) trade secrets
and confidential business information, whether patentable or unpatentable and
whether or not reduced to practice, know-how, manufacturing and production
processes and techniques, research and development information, copyrightable
works, financial marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
and (v) other proprietary rights relating to any of the foregoing.
(b) None of the activities or business conducted by the
Company infringes, violates or constitutes a misappropriation of any
Intellectual Property of any other person or entity and, to the Company's
knowledge, none of the activities or business currently proposed to be conducted
by the Company infringes, violates or constitutes a misappropriation of any
Intellectual Property of any person or entity. Other than as set forth on
Schedule 4.9, the Company has not received any complaint, claim or notice
alleging any such infringement, violation or misappropriation, and to the
knowledge of the Company, there is no reasonable basis for any such complaint,
claim or notice.
(c) Schedule 4.9(c) identifies (i) each patent that has
been issued or assigned to the Company with respect to any of its Intellectual
Property, (ii) each pending patent application that the Company has made with
respect to any of its Intellectual Property, and (iii) each copyright
registration or application, each trademark registration or application, and
each domain name registration or application with respect to the Company's
Intellectual Property. The contracts designated on Schedule 4.11 as relating to
this Section 4.9(c) include all of the material licenses or other agreements
pursuant to which the Company has granted any rights to any third party with
respect to any of its Intellectual Property.
(d) Schedule 4.9(d) identifies each agreement with third
parties pursuant to which the Company obtains rights to Intellectual Property
material to the business of the Company (other than software that is generally
commercially available) that is owned by a party other than the Company. The
contracts designated on Schedule 4.11 as relating to this Section 4.9(d) include
additional license agreements and distribution agreements with third parties
pursuant to which the Company obtains rights to Intellectual Property material
to the business of the Company that is owned by a party other than the Company.
Other than license fees for software that is generally commercially available or
license fees due to third parties pursuant to the agreements appropriately
designated on Schedule 4.9(d) and Schedule 4.11, the Company is not obligated to
pay any royalties or other compensation to any third party in respect of its
ownership, use or license of any of its Intellectual Property.
(e) The Company has taken reasonable precautions (i) to
protect its rights in its Intellectual Property and (ii) to maintain the
confidentiality of its trade secrets, know-how and other confidential
Intellectual Property, and to the Company's knowledge, there have been no acts
or omissions (other than those made based on reasonable, good faith business
decisions) by the officers, directors, shareholders and employees of the Company
the result of
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which would be to materially compromise the rights of the Company to apply for
or enforce appropriate legal protection of the Company's Intellectual Property.
(f) All of the Company's owned Intellectual Property has
been created by employees of the Company within the scope of their employment by
the Company or by independent contractors of the Company who have executed
agreements expressly assigning all right, title and interest in such
Intellectual Property to the Company. Except as set forth on Schedule 4.9(f), no
portion of the Company's owned Intellectual Property was jointly developed with
any third party. The Company does not believe it is or will be necessary to use
any inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company.
4.10. Compliance with Other Instruments. The Company is not in
violation of any term of its Restated LLC Agreement, or in any material respect
of any term or provision of any material mortgage, evidence of indebtedness,
indenture, contract, agreement, instrument, judgment or decree, order, statute,
rule or regulation applicable to the Company or to which its properties is
subject.
4.11. Material Contracts and Obligations. Schedule 4.11 sets forth a
list of all material agreements or commitments of any nature to which the
Company is a party or by which it is bound ("Material Contracts"), including
without limitation:
(a) Any agreement which requires future expenditures by
the Company in excess of $50,000 or which might result in payments to the
Company in excess of $50,000.
(b) Any employment and consulting agreements, employee
benefit, bonus, pension, profit-sharing, stock option, stock purchase and
similar plans and arrangements.
(c) Any material distributor or sales representative
agreement.
(d) Any material agreement relating to the acquisition,
transfer, distribution, use, development, sharing or license of any technology
or Intellectual Property.
(e) Any material agreement relating to hyperlinks,
co-branded sites, affiliations, barters, revenue sharing, advertising sales,
data distribution or data acquisition or content.
(f) Any agreement with any current or former member,
officer or director of the Company, or any "affiliate" or "associate" of such
persons (as such terms are defined in the rules and regulations promulgated
under the Securities Act), including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity.
(g) Any agreement under which the Company is restricted
or limited in any material respect from carrying on any business or other
services anywhere in the world.
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(h) Any agreement relating to indebtedness for borrowed
money or evidencing a security interest or mortgage in the assets of the
Company.
(i) Any guaranty issued by the Company.
(j) Any agreement relating to the acquisition, issuance
or transfer of any Units or securities of the Company other than the Restated
LLC Agreement and the Related Agreements.
(k) Any agreement relating to the acquisition or
disposition of a material portion of the Company's assets.
(l) Any agreement for the acquisition of the business or
shares of another party.
(m) Any outstanding offer, commitment or obligation to
enter into any agreement of the nature described in subsections (a) through (l)
of this Section 4.11.
The Company or its counsel has delivered or made available to ATCHI's counsel
copies of each of the foregoing agreements; provided, however, that the Company
shall not be obligated to provide to ATCHI copies of any employee benefit plans
with respect to which the Company shall not retain any liability after the
Closing. All of such agreements are valid, binding and in full force and effect.
Neither the Company, nor, to the Company's knowledge, any other party thereto,
is in default of any of its obligations under any of such agreements in a manner
which could have a material adverse effect on the Company.
4.12. Taxes. The amount shown on the July Balance Sheet as provision
for taxes is sufficient in all material respects for payment of all accrued and
unpaid federal, state, county, local and foreign taxes for the period then ended
and all prior periods. The Company has filed or has obtained presently effective
extensions with respect to all federal, state, county, local and foreign tax
returns which are required to be filed by it, such returns are true and correct
in all material respects and all taxes shown thereon to be due have been timely
paid with exceptions not material to the Company. Federal income tax returns of
the Company have not been audited by the Internal Revenue Service, and no
controversy with respect to taxes of any type involving or related to the
Company is pending or, to the best of the Company's knowledge, threatened. The
Company has withheld or collected from each payment made to its partners or
employees the amount of all taxes required to be withheld or collected therefrom
and has paid all such amounts to the appropriate taxing authorities when due.
The Company qualifies (and has since the date of its formation qualified) and,
giving effect to the terms of the Restated LLC Agreement, will qualify
immediately after the Closing Date, to be treated as a partnership for federal
income tax purposes and none of the Company or any member or any taxing
authority has taken a position inconsistent with such treatment.
4.13. Claims and Legal Actions. There are no actions, suits,
proceedings or investigations pending against the Company or its properties
before any court or governmental agency (nor to the best of the Company's
knowledge, is there any threat thereof, except for
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any proceedings generally affecting the Internet industry). The Company is not a
party to or subject to any writ, order, injunction, decree or judgment and there
is no action, suit, proceeding or investigation by the Company currently pending
or which the Company currently intends to originate.
4.14. Compliance with Laws; Permits. The Company is not nor has it
been in violation of (nor would any policy, procedure or practice of the Company
be reasonably expected to result in a violation of), or delinquent in respect
to, any statute, rule, regulation, order, restriction, decree, arbitration
award, or any agreement with, or any license or permit from, any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of the Company's business or the ownership of its properties which
violation has or would reasonably be expected to materially and adversely affect
the business, assets, liabilities, financial condition, operations of the
Company. Without limiting the foregoing, the Company is not nor has it been in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such applicable
statute, law or regulation. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company, and the Company has
no knowledge or belief that it will not be able to obtain, without undue burden
or expense, any similar authority for the conduct of its business as proposed to
be conducted under the Company's current business plan. The Company is not in
default in any material respect under such franchises, permits, licenses or
other similar authority.
4.15. Employees; Employee Benefits. To the best of the Company's
knowledge, no employee or consultant of the Company is in violation of any
material term of any employment contract or any other contract or agreement
relating to the relationship of any employee or consultant with the Company or
any other party because of the nature of the business conducted by the Company.
The Company does not have any collective bargaining agreements covering any of
its employees and there is no strike or labor dispute or union organization
activities pending or threatened. The Company has not received notice and has no
knowledge otherwise that any key employee of the Company has any plans to
terminate his or her employment with the Company, nor does the Company have a
present intention, except as previously disclosed to ATCHI by the Company, to
terminate the employment of any key officer. Except as set forth on Schedule
4.15, the Company does not have any deferred compensation, pension, profit
sharing, bonus, insurance, severance or other similar employee benefit plan or
obligation covering any of its employees or any plan subject to the Employee
Retirement Income Security Act of 1974. The Company has complied in all material
respects with all applicable state and federal equal employment opportunity and
other laws relating to employment. Except for Schedule 4.15, the Company's
obligations to its independent contractors or consultants are limited to payment
of fees for services rendered. Except as may be set forth in Schedule 4.15,
subject to general principles related to wrongful termination, the employment of
each officer and employee of the Company is terminable at the will of the
Company.
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4.16. Insurance. The Company maintains or is covered by valid
policies of workers' compensation insurance, directors' and officers' liability
insurance, and of insurance with respect to its properties and business of the
kinds and in the amounts that the Company believes is reasonable, including,
without limitation, insurance against loss, damage, fire, theft, public
liability and other risks.
4.17. Brokers or Finders; Other Offers. The Company has not
incurred, and will not incur, directly or indirectly, as a result of any action
taken by the Company, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
4.18. Related-Party Transactions. Except as set forth on Schedule
4.18, to the Company's knowledge, no member, Broad Affiliate of a member
(defined below), manager or officer of the Company (each, a "Related Party") has
any direct or indirect ownership interest in any firm or corporation with which
the Company has a material business relationship (or any firm or corporation
that competes with the Company), nor does any such Related Party receive any
material benefit from any material contract with the Company (other than such
contracts as relate to any such person's ownership interest in the Company). For
purposes of this Section 4.18, "Broad Affiliate" has the meaning given such term
in the Restated LLC Agreement.
4.19. No Bankruptcy. The Company is not bankrupt or insolvent, nor
is it a party to any current or threatened bankruptcy, insolvency or similar
proceeding.
4.20. No Guarantees. The Company has not guaranteed the obligations
or liabilities of any other person, firm or corporation.
4.21. Veracity. No representation or warranty of the Company
contained in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein, in light of all the circumstances under which they were made,
not misleading, and there is no fact or condition known to the Company which has
not been disclosed in writing to ATCHI that has had or would reasonably be
likely to have a material adverse effect on the Company's ability to perform its
material obligations under this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF ATCHI
In order to induce the Company to enter into this Agreement, ATCHI represents
and warrants to the Company that the statements contained in this Article 5 are
correct and complete as of the date of this Agreement.
5.1. Authorization. This Agreement when executed and delivered by
ATCHI will constitute a valid and legally binding obligation of ATCHI,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws from time to time in effect affecting the
enforcement of creditors' rights generally, and except as enforcement of
remedies may be
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limited by general equitable principles. All consents necessary, if any, to
authorize ATCHI to enter into this Agreement and the Related Agreements have
been obtained.
5.2. Experience. ATCHI has substantial experience in evaluating and
investing in private placement transactions so that ATCHI is capable of
evaluating the merits and risks of ATCHI's investment in the Company. ATCHI, by
reason of its business or financial experience or the business or financial
experience of its professional advisors who are unaffiliated with and who are
not compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly, has the capacity to protect its own interests in
connection with the purchase of the Units hereunder.
5.3. Investment. ATCHI is acquiring the Purchase Units for
investment for ATCHI's own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution thereof. ATCHI
understands that the Units to be purchased have not been, and may not be,
registered under the Securities Act of 1933 (the "Securities Act") or the
securities laws of any state ("Blue Sky Laws") by reason of a specific exemption
or exemptions from the registration provisions of the Securities Act or Blue Sky
Laws which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of ATCHI's representations as expressed
herein.
5.4. Accredited Investor. ATCHI represents that it is an
"accredited investor" as such term is defined in Rule 501 promulgated under the
Securities Act.
5.5. Rule 144. ATCHI acknowledges that the Units must be held
indefinitely unless subsequently registered under the Securities Act and
applicable Blue Sky Laws or an exemption from such registration is available.
5.6. Brokers or Finders. The Company has not incurred, and will not
incur, directly or indirectly, as a result of any action taken by ATCHI any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
6. CONDITIONS TO CLOSING OF ATCHI
ATCHI's obligation to purchase the Purchase Units at the Subscription Closing is
subject to the fulfillment as of the Closing Date of the following conditions:
6.1. Contribution Closing. The closing of the Contribution
Transaction shall have been consummated in accordance with the terms of the
Contribution Agreement and the Restated LLC Agreement shall be in full force and
effect.
6.2. Authorization. All action on the part of the Company, its
Management Committee and Members necessary for the authorization, execution,
delivery and performance of this Agreement and the Related Agreements, the
authorization, sale, issuance and delivery of the Purchase Units, and the
performance of all of the Company's obligations hereunder and under the Related
Agreements shall have been taken in accordance with and as required by the
Company's Restated LLC Agreement.
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6.3. Representation and Warranties. The representations and
warranties made by the Company in Section 4 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date. The President of the Company shall deliver to ATCHI
at the Subscription Closing a certificate certifying that the conditions
specified in Sections 6.1 through 6.4 have been fulfilled.
6.4. Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.5. Opinion of Company's Counsel. ATCHI shall have received from
Dow, Lohnes & Albertson, PLLC, an opinion addressed to it dated the Closing
Date, in the form attached hereto as Exhibit A.
6.6. Consents and Waivers. The Company shall have obtained any and
all material consents (including but not limited to governmental or regulatory
consents or approvals) permits and waivers applicable to the Company necessary
or appropriate for the consummation of the transactions contemplated by this
Agreement and the Related Agreements.
6.7. KPCB Purchase. The closing of the purchase by KPCB Holdings,
Inc. ("KPCB") from the Company of 139,752 Class A Units (7.5%) for
$12,111,801.24 (the "KPCB Purchase") shall close contemporaneously with the
Subscription Closing, on terms and conditions no more favorable to KPCB than the
terms of ATCHI's investment.
7. MISCELLANEOUS
7.1. Survival. The covenants made herein shall survive the closing
of the transactions contemplated hereby. All representations and warranties
shall survive the closing of the transactions contemplated hereby for the
survival period set forth in the Contribution Agreement.
7.2. Notices. All notices and other communications hereunder shall
be (a) in writing; (b) delivered by telecopy, by commercial overnight or
same-day delivery service with all delivery costs paid by sender, or by
registered or certified mail with postage prepaid, return receipt requested; (c)
deemed given on the date and at the time shown on the telecopy confirmation of
receipt (if delivered by telecopy), on the date and at the time (if recorded) of
delivery by the commercial delivery service, as shown in the records thereof (if
delivered by commercial overnight or same-day delivery service), or on the date
shown on the return receipt (if delivered by registered or certified mail); and
(d) addressed to the parties at their addresses specified on the signature page
to this Agreement (or at such other address for a party as shall be specified by
like notice).
7.3. Waiver. Any waiver of any terms or conditions of this
Agreement shall be in writing and shall not operate as a waiver of any other
breach of such terms or conditions or
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<PAGE> 13
any other term or condition, nor shall any failure to enforce any provision of
this Agreement operate as a waiver of such provision or of any other provision
of this Agreement.
7.4. Captions; Partial Invalidity. The captions, section numbers
and index appearing in this Agreement are inserted only as a matter of
convenience and in no way define, limit, construe or describe the scope or
intent of such sections or articles of this Agreement, nor in any way affect
this Agreement.
7.5. Counterparts. This Agreement may be executed in counterparts
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument, and in pleading or proving any provision
of this Agreement, it shall not be necessary to produce more than one complete
set of such counterparts. Any counterpart of this Agreement which has attached
to it separate signature pages, which together contain the signatures of all
parties hereto, shall for all purposes be deemed a fully executed original.
7.6. Variations of Pronouns; Number; Gender. All pronouns and all
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the person or persons or entity
may require. Whenever used herein the singular number shall include the plural,
the plural shall include the singular, and the use of any gender shall include
all genders.
7.7. Governing Law; Construction. This Agreement shall be governed
by and construed in accordance with the substantive laws of the State of
Delaware without regard to its conflict of laws provisions. The parties
acknowledge and agree that they have been represented by counsel and that each
of the parties has participated in the drafting of this Agreement. Accordingly,
it is the intention and agreement of the parties that the language, terms and
conditions of this Agreement are not to be construed in any way against or in
favor of any party hereto by reason of the responsibilities in connection with
the preparation of this Agreement.
7.8. Third Parties. None of the provisions of this Agreement shall
be for the benefit of, or enforceable by, any employee or creditor of any party
hereto, nor any other person not a party hereto.
7.9. Entire Agreement. This Agreement and all of the Related
Agreements and exhibits attached hereto shall constitute the entire agreement of
the parties hereto; all prior agreements between the parties, whether written or
oral, are merged herein and shall be of no force and effect; and there are no
restrictions, agreements, representations, warranties, arrangements, or
undertakings, oral or written, between or among the parties relating to the
transactions contemplated hereby which are not fully expressed or referred to
herein. This Agreement cannot be changed, modified or discharged orally, but
only by an agreement in writing, signed by the party against whom enforcement of
the change, modification or discharge is sought.
7.10. Benefit and Binding Effect. Other than in connection with a
pledge, assignment or other transfer of all or any of its interest in the
Company that is permitted by the Operating
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<PAGE> 14
Agreement, none of the parties hereto may assign the rights under or delegate
any duties under this Agreement without the prior written consent of the other
parties hereto. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
7.11. Expenses. Except as otherwise expressly provided, the Company
and ATCHI shall each bear its own expenses incurred on its behalf with respect
to this Agreement and the transactions contemplated thereby.
7.12. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 15
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
COMPANY:
AUTOCONNECT, L.L.C.
By: /s/ Dennis Berry
----------------------------------------
Name: Dennis Berry
--------------------------------------
Title: Member of Management Committee
-------------------------------------
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Victor A. Perry, III
Facsimile: (404) 843-5755
MANHEIM:
MANHEIM AUCTIONS, INC.
By: /s/ Dennis Berry
----------------------------------------
Name: Dennis Berry
--------------------------------------
Title: President
-------------------------------------
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: G. Dennis Berry
Facsimile: (404) 843-5755
ADP:
ADP, INC.
By: /s/ Allan Stejskal
----------------------------------------
Name: Allan Stejskal
--------------------------------------
Title: V.P. Dealer Services
-------------------------------------
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<PAGE> 16
Address for Notices:
1950 Hassell Road
Hoffman Estates, Illinois 60195
Attention: President
Facsimile: (847) 781-9873
ATCHI:
ATC HOLDINGS, INC.
By: /s/ Guy R. Friddell, III
----------------------------------------
Name: Guy R. Fridell, III
--------------------------------------
Title: Vice President
-------------------------------------
Address for Notices:
ATC Holdings, Inc.
3228 Channel 8 Drive
Las Vegas, Nevada 89109
Attention: President
Facsimile: 702-792-9034
---------------------------------
with a copy to:
Landmark Communications, Inc.
150 W. Brambleton Avenue
Norfolk, VA 23510-2075
Attention: Guy R. Friddell, III, Esquire
Facsimile: (757) 664-2164
16
<PAGE> 1
EXHIBIT 10.8
UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT (this "Agreement") is entered into as of
this 20th day of August, 1999 among AutoConnect, L.L.C., a Delaware limited
liability company (the "Company"), Manheim Auctions, Inc., a Delaware
corporation ("Manheim"), ADP, Inc., a Delaware corporation ("ADP"), and KPCB
Holdings, Inc., as nominee ("KPCB" and together with the Company, Manheim, and
ADP, the "Parties").
RECITALS:
A. The Company was originally formed by Manheim and ADP on
December 18, 1997 pursuant to an Operating Agreement (the "Initial Operating
Agreement").
B. TPI, Inc. ("Cox") and LTM Company, L.P. ("LTM"), as the only
partners of Trader Publishing Company ("Trader"), have agreed to cause Trader to
contribute certain of its assets to the Company pursuant to a Contribution
Agreement (the "Contribution Agreement") dated the date hereof.
C. In connection with the closing (the "Contribution Closing") of
the transactions contemplated under the Contribution Agreement (the
"Contribution Transaction"), (i) the Company has issued to Cox and LTM certain
units and membership interests and admitted Cox and Landmark as members of the
Company, all as more specifically described in the Contribution Agreement and
the Amended and Restated Limited Liability Company Agreement of the Company
dated the date hereof (the "Restated LLC Agreement"), which amends and restates
the Initial Operating Agreement in its entirety.
D. The Company has authorized the issuance and sale to KPCB of
139,752 Class A Units (as defined in the Restated LLC Agreement), and KPCB
desires to subscribe for and purchase such Class A Units, all on and subject to
the terms and conditions set forth below.
In consideration of the mutual covenants contained herein, the receipt
and sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
1. DEFINITIONS
All capitalized terms which are not defined herein shall have the
meanings set forth in the Restated LLC Agreement.
2. ISSUANCE AND SALE OF UNITS
Upon the terms and subject to the conditions set forth herein, the
Company hereby issues and sells to KPCB, and KPCB hereby purchases from the
Company, 139,752 Class A Units (the "Purchase Units") for an aggregate cash
purchase price of $12,111,801.24 (the "Purchase Price"). KPCB's Membership
Interest immediately following such purchase (assuming the Cox Assignment as
defined below) shall equal 8.5%.
<PAGE> 2
3. CLOSING DATE; DELIVERY
3.1. Closing Date. The closing of the purchase and sale of the
Purchase Units hereunder (the "Subscription Closing") shall be held at the
offices of Dow, Lohnes & Albertson, PLLC, 1200 New Hampshire Avenue, N.W., Suite
800, Washington, D.C. 20036, or such other place as shall be mutually agreeable
to the Parties, on August 20, 1999, immediately following the Contribution
Closing (the "Closing Date").
3.2. Delivery. At the Subscription Closing, the Company will
deliver to KPCB the Restated LLC Agreement, against payment by wire transfer of
the Purchase Price.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce KPCB to enter into this Agreement, the Company represents and
warrants to KPCB that the statements in this Article 4 are correct and complete
as of the date of this Agreement. The following representations and warranties,
other than those set forth in Sections 4.2 and 4.3 below, assume that the
Contribution Closing shall not have occurred (and, in the case of forward
looking statements, will not occur) such that the Company would not be affected
by or subject to the Contribution Transaction.
4.1. Organization, Good Standing Qualification and Subsidiaries.
The Company is a limited liability company duly organized, validly existing and
in good standing under the laws of the state of Delaware. The Company has all
requisite limited liability company power and authority (a) to execute and
deliver this Agreement and any other agreement to which the Company is a party
and the execution and delivery of which is contemplated hereby (the "Related
Agreements"), (b) to issue and sell the Purchase Units, and to carry out the
provisions of this Agreement and any Related Agreements, and (c) to conduct its
business as presently conducted and as proposed to be conducted. The Company is
duly qualified and is in good standing in each jurisdiction where the failure to
be so qualified would have a material and adverse effect on the business,
properties, operations or financial condition of the Company. The Company has no
subsidiaries, participates in no joint ventures, and does not own or control or
have a commitment to purchase or acquire, directly or indirectly, any equity
interest in any entity.
4.2. Authorization and Binding Obligation. All action on the part
of the Company, its Management Committee and Members necessary for the
authorization, execution, delivery and performance of this Agreement and the
Related Agreements, the performance of all obligations of the Company hereunder
and thereunder, and the authorization, sale, issuance and delivery of the
Purchase Units has been taken. This Agreement and the Related Agreements have
been duly executed and delivered by the Company and constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws from
time to time in effect affecting the enforcement of creditors' rights generally,
and except as enforcement of remedies may be limited by general equitable
principles. The Purchase Units are not subject to any preemptive rights or
rights of first refusal, except for such preemptive rights as have been waived
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<PAGE> 3
hereunder solely for purposes of this transaction or as set forth in the
Restated LLC Agreement.
4.3. Absence of Conflicting Agreements; Noncontravention. The
execution, delivery and performance of this Agreement and the Related Agreements
by the Company and the consummation of the transactions contemplated hereby
(with or without the giving of notice, the lapse of time or both): (a) will not
conflict with or result in any violation or default of any provision of the
Certificate of Formation or Restated LLC Agreement of the Company; (b) will not
conflict with, result in a breach of, or constitute a default under, any
applicable law, rule or regulation, judgment, order, ordinance, injunction or
decree of any court or governmental instrumentality; and (c) will not conflict
with, constitute grounds for termination of, result in a breach of, constitute a
default under, or accelerate or permit the acceleration of any performance
required by the terms of, any material agreement, instrument, franchise,
certificate, license or permit to which the Company is a party or may be bound
or by which its business or assets are affected. Assuming the accuracy of the
representations of KPCB set forth in Article 5 hereof, no consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company in
connection with the Company's valid execution, delivery, or performance of this
Agreement, or the offer, sale or issuance of the Purchase Units.
4.4. Membership Interests and Capital Accounts. Schedule 4.4 is a
true and complete list of the Company's Members and their respective Membership
Interests, Capital Accounts and Unit holdings immediately prior to and
immediately after (assuming the Cox Assignment) the Subscription Closing. All
issued and outstanding Units representing the Company's Membership Interests (a)
have been duly authorized and validly issued and (b) were issued in compliance
with all applicable state and federal laws concerning the issuance of
securities. Except as provided in the Restated LLC Agreement and the exhibits
thereto, the Company is not a party to any outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy,
voting or member agreements, nor are there any other agreements of any kind to
which the Company is a party or, to its knowledge, which apply to the purchase
or acquisition of any of its securities. Except as provided in the Registration
Rights Agreement, the Company is not presently under any obligation and has not
granted any rights to register under the Securities Act any of its presently
outstanding securities or any of its securities that may subsequently be issued.
4.5. Financial Statements. The Company has delivered to KPCB the
following financial statements (collectively, the "Financial Statements"): (a)
the unaudited balance sheet and statement of operations and cash flows for the
Company as of and for the fiscal year ended December 31, 1998, and (b) the
unaudited balance sheet (the "July Balance Sheet") and statement of operations
and cash flows for the Company as of and for the six months ended July 31, 1999.
The Financial Statements (a) are in accordance with the books and records of the
Company (which books and records are complete and correct in all material
respects), (b) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, and (c) fairly present the financial condition and operating results
of the Company as of the dates and during the periods indicated
3
<PAGE> 4
therein, except that the unaudited Financial Statements may not be in accordance
with GAAP because of the absence of footnotes normally contained therein and are
subject to normal recurring year-end audit adjustments which are not,
individually or in the aggregate, expected to be material.
4.6. Absence of Undisclosed Liabilities. Except as set forth on
Schedule 4.6, the Company has no material liabilities, contingent or otherwise,
other than (a) liabilities shown on the face of the July Balance Sheet, (b)
liabilities incurred in the ordinary course of business subsequent to July 31,
1999, and (c) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
4.7. Absence of Certain Changes or Events. Since July 31, 1999,
other than as set forth on Schedule 4.7 hereto and other than as set forth in
the Restated LLC Agreement and the Related Agreements, there has not been:
(a) any change in the assets, liabilities, condition
(financial or otherwise), affairs, earnings, business, or operations of the
Company, except changes in the ordinary course of business which have not been,
either in any case or in the aggregate, materially adverse;
(b) any change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty or any
assurance of performance or payment, endorsement, indemnity, warranty or
otherwise;
(c) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties or
business of the Company, taken as whole;
(d) any waiver by the Company of a valuable right or of a
material debt owed to it;
(e) any loans made by the Company to its employees,
officers or directors other than advances of expenses made in the ordinary
course of business;
(f) any distribution of the assets of the Company or any
direct or indirect redemption, purchase or acquisition of any of the Company's
Units;
(g) any labor organization activity or labor trouble;
(h) any other event or condition of any character which
has materially and adversely affected the business, condition, affairs,
operations, properties or assets of the Company;
(i) any material increases in the compensation of any of
the Company's employees, officers or directors;
4
<PAGE> 5
(j) any resignation or termination of employment of any
officer or key employee of the Company;
(k) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the business, properties or
financial condition of the Company;
(l) any material change to a Material Contract or
material arrangement by which the Company or any of its assets is bound or
subject;
(m) any sale, assignment or transfer of any material
patents, trademarks, copyrights, trade secrets or other intangible assets;
(n) any mortgage, pledge, transfer of a security interest
in, or lien created by the Company with respect to any of its material
properties or assets; or
(o) any agreement entered into by the Company to do any
of the foregoing matters covered by Sections 4.7(a) through 4.7(n).
4.8. Title to Properties and Assets; Liens, etc. The Company has
good title to, or a valid leasehold interest in, all its material properties and
assets, including all properties and assets reflected in the July Balance Sheet,
except those disposed of since the date thereof in the ordinary course of
business, and none of such properties or assets is subject to any mortgage,
pledge, lien, encumbrance or charge, other than the lien of current taxes,
assessments, governmental charges or levies not yet due and payable and the
mortgages, pledges, liens, encumbrances and charges set forth in Schedule 4.7
("Permitted Encumbrances"). The Company does not own, and has never owned, any
real property.
4.9. Intellectual Property.
(a) The Company owns, free and clear of all security
interests, liens, encumbrances or other charges (except for Permitted
Encumbrances), or has the valid right to use, all Intellectual Property (as
defined below in this Section 4.9) used by it in its business as currently
conducted or as currently proposed by it to be conducted. Except as set forth on
Schedule 4.9, no other person or entity (other than licensors of software that
is generally commercially available, and their respective other licensees, and
licensors of Intellectual Property under the agreements disclosed pursuant to
paragraph (d) below and their respective other licensees) has any rights to any
of the Intellectual Property owned or used by the Company, and, to the knowledge
of the Company, no other person or entity is infringing, violating or
misappropriating any of the Intellectual Property that the Company owns. For
purposes of this Agreement, "Intellectual Property" means all (i) patents,
patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations, (ii) trademarks, service marks, trade dress,
logos, trade names, corporate names, domain names and URLs, and registrations
and applications for registration thereof, (iii) copyrights and registrations
and applications for
5
<PAGE> 6
registration thereof, (iv) trade secrets and confidential business information,
whether patentable or unpatentable and whether or not reduced to practice,
know-how, manufacturing and production processes and techniques, research and
development information, copyrightable works, financial marketing and business
data, pricing and cost information, business and marketing plans and customer
and supplier lists and information, and (v) other proprietary rights relating to
any of the foregoing.
(b) None of the activities or business conducted by the
Company infringes, violates or constitutes a misappropriation of any
Intellectual Property of any other person or entity and, to the Company's
knowledge, none of the activities or business currently proposed to be conducted
by the Company infringes, violates or constitutes a misappropriation of any
Intellectual Property of any other person or entity. Other than as set forth on
Schedule 4.9, the Company has not received any complaint, claim or notice
alleging any such infringement, violation or misappropriation, and to the
knowledge of the Company, there is no reasonable basis for any such complaint,
claim or notice.
(c) Schedule 4.9(c) identifies (i) each patent that has
been issued or assigned to the Company with respect to any of its Intellectual
Property, (ii) each pending patent application that the Company has made with
respect to any of its Intellectual Property, and (iii) each copyright
registration or application, each trademark registration or application, and
each domain name registration or application with respect to the Company's
Intellectual Property. The contracts designated on Schedule 4.11 as relating to
this Section 4.9(c) include all of the material licenses or other agreements
pursuant to which the Company has granted any rights to any third party with
respect to any of its Intellectual Property.
(d) Schedule 4.9(d) identifies each agreement with third
parties pursuant to which the Company obtains rights to Intellectual Property
material to the business of the Company (other than software that is generally
commercially available) that is owned by a party other than the Company. The
contracts designated on Schedule 4.11 as relating to this Section 4.9(d) include
additional license agreements and distribution agreements with third parties
pursuant to which the Company obtains rights to Intellectual Property material
to the business of the Company that is owned by a party other than the Company.
Other than license fees for software that is generally commercially available or
license fees due to third parties pursuant to the agreements appropriately
designated on Schedule 4.9(d) and Schedule 4.11, the Company is not obligated to
pay any royalties or other compensation to any third party in respect of its
ownership, use or license of any of its Intellectual Property.
(e) The Company has taken reasonable precautions (i) to
protect its rights in its Intellectual Property and (ii) to maintain the
confidentiality of its trade secrets, know-how and other confidential
Intellectual Property, and to the Company's knowledge, there have been no acts
or omissions (other than those made based on reasonable, good faith business
decisions) by the officers, directors, shareholders and employees of the Company
the result of which would be to materially compromise the rights of the Company
to apply for or enforce appropriate legal protection of the Company's
Intellectual Property.
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<PAGE> 7
(f) All of the Company's owned Intellectual Property has
been created by employees of the Company within the scope of their employment by
the Company or by independent contractors of the Company who have executed
agreements expressly assigning all right, title and interest in such
Intellectual Property to the Company. Except as set forth on Schedule 4.9(f), no
portion of the Company's owned Intellectual Property was jointly developed with
any third party. The Company does not believe it is or will be necessary to use
any inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company.
4.10. Compliance with Other Instruments. The Company is not in
violation of any term of its Restated LLC Agreement, or in any material respect
of any term or provision of any material mortgage, evidence of indebtedness,
indenture, contract, agreement, instrument, judgment or decree, order, statute,
rule or regulation applicable to the Company or to which its properties is
subject.
4.11. Material Contracts and Obligations. Schedule 4.11 sets forth a
list of all material agreements or commitments of any nature to which the
Company is a party or by which it is bound ("Material Contracts"), including
without limitation:
(a) Any agreement which requires future expenditures by
the Company in excess of $50,000 or which might result in payments to the
Company in excess of $50,000.
(b) Any employment and consulting agreements, employee
benefit, bonus, pension, profit-sharing, stock option, stock purchase and
similar plans and arrangements.
(c) Any material distributor or sales representative
agreement.
(d) Any material agreement relating to the acquisition,
transfer, distribution, use, development, sharing or license of any technology
or Intellectual Property.
(e) Any material agreement relating to hyperlinks,
co-branded sites, affiliations, barters, revenue sharing, advertising sales,
data distribution or data acquisition or content.
(f) Any agreement with any current or former member,
officer or director of the Company, or any "affiliate" or "associate" of such
persons (as such terms are defined in the rules and regulations promulgated
under the Securities Act), including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity.
(g) Any agreement under which the Company is restricted
or limited in any material respect from carrying on any business or other
services anywhere in the world.
(h) Any agreement relating to indebtedness for borrowed
money or evidencing a security interest or mortgage in the assets of the
Company.
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(i) Any guaranty issued by the Company.
(j) Any agreement relating to the acquisition, issuance
or transfer of any Units or securities of the Company other than the Restated
LLC Agreement and the Related Agreements.
(k) Any agreement relating to the acquisition or
disposition of a material portion of the Company's assets.
(l) Any agreement for the acquisition of the business or
shares of another party.
(m) Any outstanding offer, commitment or obligation to
enter into any agreement of the nature described in subsections (a) through (l)
of this Section 4.11.
The Company or its counsel has delivered or made available to KPCB's
counsel copies of each of the foregoing agreements; provided, however, that the
Company shall not be obligated to provide to KPCB copies of any employee benefit
plans with respect to which the Company shall not retain any liability after the
Closing. All of such agreements are valid, binding and in full force and effect.
Neither the Company, nor, to the Company's knowledge, any other party thereto,
is in default of any of its obligations under any of such agreements in a manner
which could have a material adverse effect on the Company.
4.12. Taxes. The amount shown on the July Balance Sheet as provision
for taxes is sufficient in all material respects for payment of all accrued and
unpaid federal, state, county, local and foreign taxes for the period then ended
and all prior periods. The Company has filed or has obtained presently effective
extensions with respect to all federal, state, county, local and foreign tax
returns which are required to be filed by it, such returns are true and correct
in all material respects and all taxes shown thereon to be due have been timely
paid with exceptions not material to the Company. Federal income tax returns of
the Company have not been audited by the Internal Revenue Service, and no
controversy with respect to taxes of any type involving or related to the
Company is pending or, to the best of the Company's knowledge, threatened. The
Company has withheld or collected from each payment made to its partners or
employees the amount of all taxes required to be withheld or collected therefrom
and has paid all such amounts to the appropriate taxing authorities when due.
The Company qualifies (and has since the date of its formation qualified) and,
giving effect to the terms of the Restated LLC Agreement, will qualify
immediately after the Closing Date, to be treated as a partnership for federal
income tax purposes and none of the Company or any member or any taxing
authority has taken a position inconsistent with such treatment.
4.13. Claims and Legal Actions. There are no actions, suits,
proceedings or investigations pending against the Company or its properties
before any court or governmental agency (nor to the best of the Company's
knowledge, is there any threat thereof, except for any proceedings generally
affecting the Internet industry). The Company is not a party to or subject to
any writ, order, injunction, decree or judgment and there is no action, suit,
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proceeding or investigation by the Company currently pending or which the
Company currently intends to originate.
4.14. Compliance with Laws; Permits. The Company is not nor has it
been in violation of (nor would any policy, procedure or practice of the Company
be reasonably expected to result in a violation of), or delinquent in respect
to, any statute, rule, regulation, order, restriction, decree, arbitration
award, or any agreement with, or any license or permit from, any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of the Company's business or the ownership of its properties which
violation has or would reasonably be expected to materially and adversely affect
the business, assets, liabilities, financial condition, operations of the
Company. Without limiting the foregoing, the Company is not nor has it been in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such applicable
statute, law or regulation. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company, and the Company has
no knowledge or belief that it will not be able to obtain, without undue burden
or expense, any similar authority for the conduct of its business as proposed to
be conducted under the Company's current business plan. The Company is not in
default in any material respect under such franchises, permits, licenses or
other similar authority.
4.15. Employees; Employee Benefits. To the best of the Company's
knowledge, no employee or consultant of the Company is in violation of any
material term of any employment contract or any other contract or agreement
relating to the relationship of any employee or consultant with the Company or
any other party because of the nature of the business conducted by the Company.
The Company does not have any collective bargaining agreements covering any of
its employees and there is no strike or labor dispute or union organization
activities threatened or pending. The Company has not received notice and has no
knowledge otherwise that any key employee of the Company has any plans to
terminate his or her employment with the Company, nor does the Company have a
present intention, except as previously disclosed to KPCB by the Company, to
terminate the employment of any key officer. Except as set forth on Schedule
4.15, the Company does not have any deferred compensation, pension, profit
sharing, bonus, insurance, severance or other similar employee benefit plan or
obligation covering any of its employees or any plan subject to the Employee
Retirement Income Security Act of 1974. The Company has complied in all material
respects with all applicable state and federal equal employment opportunity and
other laws relating to employment. Except for Schedule 4.15, the Company's
obligations to its independent contractors or consultants are limited to payment
of fees for services rendered. Except as may be set forth in Schedule 4.15,
subject to the general principles related to wrongful termination, the
employment of each officer and employee of the Company is terminable at the will
of the Company.
4.16. Insurance. The Company maintains or is covered by valid
policies of workers' compensation insurance, directors' and officers' liability
insurance, and of insurance with
9
<PAGE> 10
respect to its properties and business of the kinds and in the amounts that the
Company believes is reasonable, including, without limitation, insurance against
loss, damage, fire, theft, public liability and other risks.
4.17. Brokers or Finders; Other Offers. The Company has not
incurred, and will not incur, directly or indirectly, as a result of any action
taken by the Company, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
4.18. Related-Party Transactions. Except as set forth on Schedule
4.18, to the Company's knowledge, no member, Broad Affiliate of a member
(defined below), manager or officer of the Company (each, a "Related Party") has
any direct or indirect ownership interest in any firm or corporation with which
the Company has a material business relationship (or any firm or corporation
that competes with the Company), nor does any such Related Party receive any
material benefit from any material contract with the Company (other than such
contracts as relate to any such person's ownership interest in the Company). For
the purposes of this Section 4.18, "Broad Affiliate" has the meaning given such
term in the Restated LLC Agreement.
4.19. No Bankruptcy. The Company is not bankrupt or insolvent, nor
is it a party to any current or threatened bankruptcy, insolvency or similar
proceeding.
4.20. No Guarantees. The Company has not guaranteed the obligations
or liabilities of any other person, firm or corporation.
4.21. Veracity. No representation or warranty of the Company
contained in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein, in light of all the circumstances under which they were made,
not misleading, and there is no fact or condition known to the Company which has
not been disclosed in writing to KPCB that has had or would reasonably be likely
to have a material adverse effect on the Company's ability to perform its
material obligations under this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF KPCB
In order to induce the Company to enter into this Agreement, KPCB
represents and warrants to the Company that the statements contained in this
Article 5 are correct and complete as of the date of this Agreement.
5.1. Authorization. This Agreement when executed and delivered by
KPCB will constitute a valid and legally binding obligation of KPCB, enforceable
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws from time to time in effect affecting the enforcement of
creditors' rights generally, and except as enforcement of remedies may be
limited by general equitable principles. All consents necessary, if any, to
authorize KPCB to enter into this Agreement and the Related Agreements have been
obtained.
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<PAGE> 11
5.2. Experience. KPCB has substantial experience in evaluating and
investing in private placement transactions so that KPCB is capable of
evaluating the merits and risks of KPCB's investment in the Company. KPCB, by
reason of its business or financial experience or the business or financial
experience of its professional advisors who are unaffiliated with and who are
not compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly, has the capacity to protect its own interests in
connection with the purchase of the Units hereunder.
5.3. Investment. KPCB is acquiring the Purchase Units for
investment for KPCB 's own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution thereof. KPCB
understands that the Units to be purchased have not been, and may not be,
registered under the Securities Act of 1933 (the "Securities Act") or the
securities laws of any state ("Blue Sky Laws") by reason of a specific exemption
or exemptions from the registration provisions of the Securities Act or Blue Sky
Laws which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of KPCB's representations as expressed
herein.
5.4. Accredited Investor. KPCB represents that it is an "accredited
investor" as such term is defined in Rule 501 promulgated under the Securities
Act.
5.5. Rule 144. KPCB acknowledges that the Units must be held
indefinitely unless subsequently registered under the Securities Act and
applicable Blue Sky Laws or an exemption from such registration is available.
5.6. Brokers or Finders. The Company has not incurred, and will not
incur, directly or indirectly, as a result of any action taken by KPCB any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
6. CONDITIONS TO CLOSING OF KPCB
KPCB's obligation to purchase the Purchase Units at the Subscription
Closing is subject to the fulfillment as of the Closing Date of the following
conditions:
6.1. Contribution Closing. The closing of the Contribution
Transaction shall have been consummated in accordance with the terms of the
Contribution Agreement and the Restated LLC Agreement shall be in full force and
effect.
6.2. Authorization. All action on the part of the Company, its
Management Committee and Members necessary for the authorization, execution,
delivery and performance of this Agreement and the Related Agreements, the
authorization, sale, issuance and delivery of the Purchase Units, and the
performance of all of the Company's obligations hereunder and under the Related
Agreements shall have been taken in accordance with and as required by the
Company's Restated LLC Agreement.
6.3. Representation and Warranties. The representations and
warranties made by the Company in Section 4 hereof shall be true and correct in
all material respects when made, and
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shall be true and correct in all material respects on the Closing Date with the
same force and effect as if they had been made on and as of said date. The
President of the Company shall deliver to KPCB at the Subscription Closing a
certificate certifying that the conditions specified in Sections 6.1 through 6.4
have been fulfilled.
6.4. Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.5. Opinion of Company's Counsel. KPCB shall have received from
Dow, Lohnes & Albertson, PLLC, an opinion addressed to it dated the Closing
Date, in the form attached hereto as Exhibit A.
6.6. Consents and Waivers. The Company shall have obtained any and
all material consents (including but not limited to governmental or regulatory
consents or approvals) permits and waivers applicable to the Company necessary
or appropriate for the consummation of the transactions contemplated by this
Agreement and the Related Agreements.
6.7. Cox Assignment. Cox shall have assigned 18,634 of its Class A
Units in the Company to KPCB pursuant to an Assignment and Assumption of
Membership Interest dated the date hereof (the "Cox Assignment").
7. MISCELLANEOUS
7.1. Survival. The covenants made herein shall survive the closing
of the transactions contemplated hereby. All representations and warranties
shall survive the closing of the transactions contemplated hereby for the
survival period set forth in the Contribution Agreement.
7.2. Notices. All notices and other communications hereunder shall
be (a) in writing; (b) delivered by telecopy, by commercial overnight or
same-day delivery service with all delivery costs paid by sender, or by
registered or certified mail with postage prepaid, return receipt requested; (c)
deemed given on the date and at the time shown on the telecopy confirmation of
receipt (if delivered by telecopy), on the date and at the time (if recorded) of
delivery by the commercial delivery service, as shown in the records thereof (if
delivered by commercial overnight or same-day delivery service), or on the date
shown on the return receipt (if delivered by registered or certified mail); and
(d) addressed to the parties at their addresses specified on the signature page
to this Agreement (or at such other address for a party as shall be specified by
like notice).
7.3. Waiver. Any waiver of any terms or conditions of this
Agreement shall be in writing and shall not operate as a waiver of any other
breach of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision of this Agreement operate as a waiver of such
provision or of any other provision of this Agreement.
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7.4. Captions; Partial Invalidity. The captions, section numbers
and index appearing in this Agreement are inserted only as a matter of
convenience and in no way define, limit, construe or describe the scope or
intent of such sections or articles of this Agreement, nor in any way affect
this Agreement.
7.5. Counterparts. This Agreement may be executed in counterparts
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument, and in pleading or proving any provision
of this Agreement, it shall not be necessary to produce more than one complete
set of such counterparts. Any counterpart of this Agreement which has attached
to it separate signature pages, which together contain the signatures of all
parties hereto, shall for all purposes be deemed a fully executed original.
7.6. Variations of Pronouns; Number; Gender. All pronouns and all
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the person or persons or entity
may require. Whenever used herein the singular number shall include the plural,
the plural shall include the singular, and the use of any gender shall include
all genders.
7.7. Governing Law; Construction. This Agreement shall be governed
by and construed in accordance with the substantive laws of the State of
Delaware without regard to its conflict of laws provisions. The parties
acknowledge and agree that they have been represented by counsel and that each
of the parties has participated in the drafting of this Agreement. Accordingly,
it is the intention and agreement of the parties that the language, terms and
conditions of this Agreement are not to be construed in any way against or in
favor of any party hereto by reason of the responsibilities in connection with
the preparation of this Agreement.
7.8. Third Parties. None of the provisions of this Agreement shall
be for the benefit of, or enforceable by, any employee or creditor of any party
hereto, nor any other person not a party hereto.
7.9. Entire Agreement. This Agreement and all of the Related
Agreements and exhibits attached hereto shall constitute the entire agreement of
the parties hereto; all prior agreements between the parties, whether written or
oral, are merged herein and shall be of no force and effect; and there are no
restrictions, agreements, representations, warranties, arrangements, or
undertakings, oral or written, between or among the parties relating to the
transactions contemplated hereby which are not fully expressed or referred to
herein. This Agreement cannot be changed, modified or discharged orally, but
only by an agreement in writing, signed by the party against whom enforcement of
the change, modification or discharge is sought.
7.10. Benefit and Binding Effect. Other than in connection with a
pledge, assignment or other transfer of all or any of its interest in the
Company that is permitted by the Operating Agreement, none of the parties hereto
may assign the rights under or delegate any duties under this Agreement without
the prior written consent of the other parties hereto. This Agreement
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shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
7.11. Expenses. Except as otherwise expressly provided, the Company
and KPCB shall each bear its own expenses incurred on its behalf with respect to
this Agreement and the transactions contemplated thereby.
7.12. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
COMPANY:
AUTOCONNECT, L.L.C.
By: /s/ Dennis Berry
---------------------------------------
Name: Dennis Berry
-------------------------------------
Title: Member of Management Committee
------------------------------------
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Victor A. Perry, III
Facsimile: (404) 843-5755
MANHEIM:
MANHEIM AUCTIONS, INC.
By: /s/ Dennis Berry
---------------------------------------
Name: Dennis Berry
-------------------------------------
Title: President
------------------------------------
Address for Notices:
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: G. Dennis Berry
Facsimile: (404) 843-5755
ADP:
ADP, INC.
By: /s/ Allan Stejskal
---------------------------------------
Name: Allan Stejskal
-------------------------------------
Title: Vice President Dealer Services
------------------------------------
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Address for Notices:
1950 Hassell Road
Hoffman Estates, Illinois 60195
Attention: President
Facsimile: (847) 781-9873
KPCB:
KPCB Holdings, Inc., as nominee
By: /s/ Joseph S. Lacob
---------------------------------------
Name: Joseph S. Lacob
-------------------------------------
Title: Senior Vice President
------------------------------------
Address for Notices:
Kleiner, Perkins, Caufield & Byers
2750 Sand Hill Road
Menlo Park, California 94025
Attention: Joseph S. Lacob
--------------------------------
Facsimile: 650-233-0323
---------------------------------
16
<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is entered into as of August 20th, 1999, by and among AUTOCONNECT,
L.L.C., a Delaware limited liability company to be renamed as "AutoTrader.com,
LLC" (referred to herein, together with any Successor thereto, as the
"Company"), the undersigned members of the Company (the "Members"), and those
other persons and entities who have executed or shall have executed this
Agreement and whose names appear on the Schedule of Registration Rights Holders
attached hereto as Exhibit A, as such Schedule may be amended from time to time
pursuant to Section 11.2 hereof.
WHEREAS, the Company was formed pursuant to an Operating Agreement,
dated as of December 18, 1997 (the "Original LLC Agreement"), between Manheim
Auctions, Inc., a Delaware corporation ("Manheim"), and ADP, Inc., a Delaware
corporation ("ADP"); and
WHEREAS, in conjunction with the Original LLC Agreement, the Company,
Manheim and ADP entered into a Registration Rights Agreement dated as of
December 18, 1997 (the "Original Registration Rights Agreement"); and
WHEREAS, Manheim, ADP, TPI, Inc., a Delaware corporation ("Cox"), LTM
Company, L.P., a Virginia limited partnership ("Landmark"), ATC Holdings, Inc.,
a Nevada corporation, and KPCB Holdings, Inc., as nominee ("KPCB"), have entered
into an Amended and Restated Limited Liability Company Agreement, dated as of
the date hereof (the "LLC Agreement"), which amends and restates the Original
LLC Agreement in its entirety; and
WHEREAS, Manheim, ADP, Cox, Landmark and KPCB desire to enter into this
Amended and Restated Registration Rights Agreement, which amends and restates
the Original Registration Rights Agreement in its entirety; and
WHEREAS, the Company has agreed to grant certain rights with respect to
the Membership Interests now or hereafter issued to the Members pursuant to the
LLC Agreement (and any equity securities into or for which such Membership
Interests are changed or exchanged in a Reorganization);
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
For all purposes of this Agreement, capitalized terms not otherwise
defined herein shall have the meanings set forth in the LLC Agreement. As used
herein, the following terms shall have the following respective meanings:
<PAGE> 2
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1.1 "Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
1.2 "Holders" shall mean any person or persons who have executed
this Agreement and whose names appear on the Schedule of Registration Rights
Holders or who shall, pursuant to Section 11.4 hereof, become parties hereto,
and any qualifying transferees under Article 10 hereof who hold Registrable
Securities.
1.3 "Initial Public Offering" shall mean the initial firm
commitment underwritten public offering of equity interests of the Company (or
its Successor) by means of a Registration Statement filed by the Company (or its
Successor) with the Securities and Exchange Commission under the Securities Act,
which offering does not exclusively relate to the securities under an employee
stock option, bonus or other compensation plan, and yielding gross proceeds to
the Company (or such Successor) of not less than $20,000,000 (before any
underwriting discounts and other expenses and including proceeds received by the
Company (or such Successor) upon exercise of any over-allotment option by
underwriters).
1.4 The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
1.5 "Registrable Securities" means any and all (i) interests or
units of interest of the Company's Membership Interests issued under the LLC
Agreement, (ii) equity securities of the Company issued or issuable to Holders
upon a Reorganization, and (iii) any securities of the Company issued or
issuable to Holders with respect to any securities referred to in clauses (i)
and (ii) above, upon any stock split, stock dividend, recapitalization or
similar event, or upon conversion of any shares of Class B Common Stock of the
Company (or its Successor) into shares of Class A Common Stock of the Company
(or its Successor), but excluding shares that (A) have been sold to or through a
broker, dealer or underwriter in a public distribution or a public securities
transaction, or (B) are available for sale and can be sold (whether or not so
sold) without limitation pursuant to Rule 144(k) promulgated under the
Securities Act (or any similar successor provision thereto); to the extent that
any of such holder's securities described in clauses (i) through (iii) above
(collectively, "Equity Shares") are not eligible to be sold pursuant to Rule
144(k), such Equity Shares shall remain Registrable Securities.
1.6 "Registration Expenses" shall mean all expenses, except
Selling Expenses, incurred by the Company in complying with Articles 2, 3 and 4
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of legal
counsel and accountants for the Company, fees and disbursements of one legal
counsel for the selling stockholders, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
1.7 "Requesting Holders" shall mean the Initiating Holders and
each other Holder that requests that any or all of its Registrable Securities be
included in a registration.
<PAGE> 3
-3-
1.8 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.9 "Selling Expenses" shall mean all underwriting fees,
discounts, selling commissions and stock transfer taxes applicable to the
Registrable Securities registered by the Holders.
ARTICLE 2
REQUESTED REGISTRATION
2.1 Request for Registration. At any time after the date which is
six months from the date of the closing of the Initial Public Offering, one or
more Holders (the "Initiating Holders") seeking to register Registrable
Securities for a public offering of such shares in which the reasonably
anticipated aggregate offering price to the public would be at least $10 million
may request, in writing, that the Company effect a registration or qualification
with respect to Registrable Securities held by the Initiating Holders. In the
event the Company receives from the Initiating Holders such a written request,
the Company will:
(a) promptly give written notice of the proposed
registration or qualification to all other Holders, which notice shall state
that each Holder has the right to request that any or all of its Registrable
Securities be included in such registration; and
(b) use its reasonable best efforts to effect such
registration or qualification as soon as practicable (including, without
limitation, undertaking to file post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
undertaking to effect appropriate compliance with applicable regulations issued
under the Securities Act, and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Requesting Holders that join in such request by written
request received by the Company within 15 days after the receipt of the written
notice from the Company described in Section 2.1(a); provided, however, that the
Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Article 2:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) after the Company has effected three (3)
such registrations at the request of any Initiating Holders pursuant to this
Article 2 and each such registration has been declared or ordered effective by
the Commission; provided, however, that each of Manheim, ADP, Cox, Landmark and
KPCB in any event shall be entitled, subject to the satisfaction of the other
requirements relating to requested registrations under this Article 2, to
request a minimum
<PAGE> 4
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of one (1) registration pursuant to this Article 2 that is declared or ordered
effective by the Commission;
(iii) if the Company, within fifteen (15) days of
the receipt of the request of the Holder or Holders, gives notice of its bona
fide intention to effect the filing of a registration statement with the
Commission within sixty (60) days of receipt of such request (other than with
respect to a registration statement relating to a transaction pursuant to Rule
145 of the rules and regulations promulgated under the Securities Act (a "Rule
145 Transaction") or an offering solely to employees), provided that the Company
is actively employing in good faith all reasonable best efforts to file such a
registration statement and provided, further, that no other person or entity
could require the Company to file a registration statement in such period;
(iv) during the period starting with the date of
filing of, and ending on a date which is 180 days following the effective date
of, a registration statement described in (iii) above or filed pursuant to this
Article 2, or Articles 3 or 4 hereof (or such shorter period as the managing
underwriter of the Company's most recent public offering may agree), provided
that the Company is actively employing in good faith all reasonable best efforts
to cause such registration statement to become effective and provided, further,
that no other person or entity could require the Company to file a registration
statement in such period;
(v) more than twice in any twelve (12) month
period.
(c) Subject to the foregoing clauses (i) through (v) of
Section 2.1(b), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request of the Initiating Holders; provided, however, that
if the Company shall furnish to such Initiating Holders a certificate signed by
the chief executive officer of the Company stating that in the good faith
judgment of the Management Committee or the Board of Directors of the Company
(as the case may be), it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed as a result of a
pending corporate transaction, the Company shall have the right to defer such
filing for a period of not more than ninety (90) days after receipt of the
request of the Initiating Holders, provided, however, that the Company shall not
be permitted to exercise such deferral right under this Section 2.1(c) or
Section 4.1(c) more than once in any 365-day period.
2.2 Underwriting.
(a) The distribution of the Registrable Securities
covered by the request of the Requesting Holders shall be effected, if requested
by at least a majority in interest of the Requesting Holders, by means of a firm
commitment underwriting. The right of any Holder to registration pursuant to
this Article 2 shall be conditioned upon such Holder's participation in such
requested underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise agreed by a majority in interest of the
Requesting Holders) to the extent provided herein.
(b) The Company (together with all Requesting Holders)
shall enter into an underwriting agreement in customary form with a managing
underwriter of nationally recognized
<PAGE> 5
-5-
standing selected for such underwriting by the Company. The Company shall use
its reasonable best efforts to ensure that the Requesting Holders' indemnity
obligations pursuant to such an underwriting agreement are no more extensive
than those provided in Article 7 of this Agreement. Notwithstanding any other
provision of this Article 2, if the managing underwriter advises such Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the underwriters may exclude shares requested to be
included in such registration. The number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
first among the Requesting Holders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities proposed to be sold by such
Requesting Holders pursuant to the registration request notices contemplated by
Section 2.1. No Registrable Securities excluded from the underwriting by reason
of the managing underwriter's marketing limitation shall be included in such
registration, and if the number of Registrable Securities of any Requesting
Holder that is excluded from the Registration is greater than thirty percent
(30%) of the Registrable Securities that any Requesting Holder has requested be
included in the registration, then such registration shall not be included among
the registrations provided for in Section 2.1(b)(ii).
(c) If any Requesting Holder disapproves of the terms of
the underwriting, such Holder may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities so withdrawn shall also be withdrawn from registration
but the Holders shall continue to be bound by Article 7 hereof and such
Registrable Securities shall not be transferred in a public distribution prior
to ninety (90) days after the effective date of the registration statement filed
pursuant to such registration. Notwithstanding the previous sentence, if by the
withdrawal of such Registrable Securities a greater number of Registrable
Securities held by other Holders may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Company shall
offer to all remaining Requesting Holders the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 2.2.
2.3 Inclusion of Shares by Company. If the managing underwriter
has not limited the number of Registrable Securities to be underwritten, the
Company may include securities for its own account or for the account of others
in such registration if the managing underwriter so agrees and if the number of
Registrable Securities held by Holders which would otherwise have been included
in such registration and underwriting will not thereby be limited. The inclusion
of such shares shall be on the same terms as the registration of shares held by
the Requesting Holders. In the event that the underwriters exclude some of the
securities to be registered, the securities to be sold for the account of the
Company and any other holders shall be excluded in their entirety prior to the
exclusion of any Registrable Securities.
2.4 Form S-3. Notwithstanding any other provision of this
Agreement, if a Holder makes a request for registration of Registrable
Securities pursuant to this Article 2, and the Company is then a registrant
entitled to use Form S-3 (or any successor form to Form S-3), the Company may
elect to effect such registration utilizing Form S-3 (or any successor form to
Form S-3) in accordance with the procedures set forth in Article 4, and such
registration shall not be included among the registrations provided for in
Section 2.1(b)(ii).
<PAGE> 6
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ARTICLE 3
COMPANY REGISTRATION
3.1 Notice of Registration to Holders. If at any time or from time
to time the Company shall determine to register any of its securities, either
for its own account or the account of a security holder or holders, other than
(i) a registration relating solely to employee benefit plans on Form S-8 (or any
successor form), (ii) a registration relating solely to a Rule 145 Transaction
on Form S-4 (or any successor form), or (iii) a registration to effect the
Initial Public Offering, the Company will:
(a) promptly give to each Holder written notice thereof;
and
(b) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 15 days after receipt of such written notice from the
Company described in Section 3.1(a), by any Holder or Holders.
3.2 Underwriting.
(a) If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to Section
3.1(a). In such event, the right of any Holder to registration pursuant to this
Article 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company. The Company shall use
its reasonable best efforts to ensure that the Requesting Holders' indemnity
obligations pursuant to such an underwriting agreement are no more extensive
than those provided in Article 7 of this Agreement.
(b) Notwithstanding any other provision of this Article
3, if the managing underwriters determine that marketing factors require a
limitation of the number of shares to be underwritten, the underwriters may
exclude some or all Registrable Securities from such registration and
underwriting (provided, however, that in no event shall such exclusion be
permitted to the extent that it would limit the number of shares proposed to be
underwritten to be less than thirty percent (30%) of the total number of shares
proposed to be underwritten). The Company shall so advise all Holders of
Registrable Securities, and the number of Equity Shares to be included in such
registration shall be allocated as follows: first, for the account of the
Company, all Equity Shares proposed to be sold by the Company; second, for the
account of Holders of Registrable Securities participating in such registration,
the number of Registrable Securities requested to be included in the
registration by such Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities proposed to have been sold by such
Holders pursuant to the registration request notices contemplated by Section
3.1, and third, for the account of any other stockholders of the Company
participating in such registration, the
<PAGE> 7
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number of Equity Shares requested to be included in the registration by such
other stockholders in proportion, as nearly as practicable, to the respective
amounts of Equity Shares that are proposed to be offered and sold by such other
stockholders of Equity Shares at the time of filing the registration statement.
No Registrable Securities excluded from the underwriting by reason of the
underwriters' marketing limitation shall be included in such registration.
(c) The Company shall so advise all Holders and the other
holders distributing their securities through such underwriting of any such
limitation, and the number of shares of Registrable Securities held by Holders
that may be included in the registration and underwriting shall be allocated
among all Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities proposed to have been sold by all such Holders
pursuant to the registration request notices contemplated by Section 3.1. If any
Holder disapproves of the terms of any such underwriting, such Holder may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, but the Holder shall continue to be bound
by Article 7 hereof and such Registrable Securities shall not be transferred in
a public distribution prior to ninety (90) days after the effective date of the
registration statement filed pursuant to such registration, or such other period
of time as the underwriters may require, but in no event shall such period
exceed one hundred and eighty (180) days.
(d) The Company shall have the right to terminate or
withdraw any registration initiated by it under this Article 3 prior to the
effectiveness of such registration, whether or not a Holder has elected to
include securities in such registration.
ARTICLE 4
REGISTRATION ON FORM S-3
4.1 Request for Registration. In addition to the rights set forth
in Articles 2 and 3 hereof, one or more Holders may from time to time (and an
unlimited number of times) request that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public offering
of shares of Registrable Securities having an aggregate offering price of at
least $1.0 million (based on the then current market price). In the event that
the Company shall receive from the Initiating Holders such a written request,
and the Company is then a registrant entitled to use Form S-3 (or any successor
form to Form S-3) to register such shares for such an offering, the Company
will:
(a) promptly give written notice of the proposed
registration to all other Holders, which notice shall state that each Holder has
the right to request that any or all of its Registrable Securities by be
included in such registration; and shall use its reasonable best efforts to
cause such shares to be registered for the offering as soon as practicable on
Form S-3 (or any successor form to Form S-3).
(b) use its reasonable best efforts to effect such
registration or qualification as soon as practicable (including, without
limitation, undertaking to file post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
undertaking
<PAGE> 8
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to effect appropriate compliance with applicable regulations issued under the
Securities Act, and any other governmental requirements or regulations) as may
be so requested and as would permit or facilitate the sale and distribution of
all or such portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
Requesting Holders that join in such request by written request received by the
Company within 15 days after the receipt of the written notice from the Company
described in Section 4.1(a); provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Article 4:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) if the Company, within fifteen (15) days of
the receipt of the request of the Holder or Holders, gives notice of its bona
fide intention to effect the filing of a registration statement with the
Commission within sixty (60) days of receipt of such request (other than with
respect to a registration statement relating to a Rule 145 transaction or an
offering solely to employees); provided that the Company is actively employing
in good faith all reasonable best efforts to file such a registration and
provided, further, that no other person or entity could require the Company to
file a registration statement in such period; and
(iii) during the period starting with the date of
the filing of, and ending on a date which is 180 days following the effective
date of, a registration statement described in (ii) above or filed pursuant to
this Article 4, or Articles 2 or 3 hereof (or such shorter period as the
managing underwriter of the Company's most recent public offering may agree),
provided that the Company is actively employing in good faith all reasonable
best efforts to cause such registration statement to become effective and
provided, further, that no other person or entity could require the Company to
file a registration statement in such period.
(c) Subject to the foregoing clauses (i) through (iii) of
Section 4.1(b), the Company shall file a registration statement on Form S-3
covering the Registrable Securities so requested to be registered as soon as
practicable after the receipt of the request of the Initiating Holders;
provided, however, that if the Company shall furnish to the Initiating Holders a
certificate signed by the chief executive officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed as the result of a pending corporate transaction, the
Company shall have the right to defer such filing for a period of not more than
ninety (90) days after the receipt of the request of the Initiating Holders;
provided, further, that the Company shall not be permitted to exercise such
deferral right under this Section 4.1(c) or Section 2.1(c) hereof more than once
in any 365-day period.
4.2 Underwriting.
(a) The distribution of the Registrable Securities
covered by the request of the Requesting Holders shall be effected, if requested
by at least a majority in interest of the
<PAGE> 9
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Requesting Holders, by means of a firm commitment underwriting. The right of any
Holder to registration pursuant to this Article 4 shall be conditioned upon such
Holder's participation in such requested underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise agreed by
a majority in interest of the Requesting Holders) to the extent provided herein.
(b) The Company (together with all Requesting Holders)
shall enter into an underwriting agreement in customary form with a managing
underwriter of nationally recognized standing selected for such underwriting by
the Company. The Company shall use its reasonable best efforts to ensure that
the Requesting Holders' indemnity obligations pursuant to such an underwriting
agreement are no more extensive than those provided in Article 7 of this
Agreement. Notwithstanding any other provision of this Article 4, if the
managing underwriter advises the Requesting Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the underwriters may exclude some or all of the shares requested to be included
in such registration. The number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among the
Requesting Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities proposed to be sold by such Requesting Holders
pursuant to the registration request notices contemplated by Section 4.1. No
Registrable Securities excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such registration.
(c) If any Requesting Holder disapproves of the terms of
the underwriting, such Holder may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities so withdrawn shall also be withdrawn from registration
but the Holders shall continue to be bound by Article 8 hereof and such
Registrable Securities shall not be transferred in a public distribution prior
to ninety (90) days after the effective date of the registration statement filed
pursuant to such registration. Notwithstanding the previous sentence, if by the
withdrawal of such Registrable Securities a greater number of Registrable
Securities held by other Holders may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Company shall
offer to all remaining Requesting Holders the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 4.2.
4.3 Inclusion of Shares by Company. If the managing underwriter
has not limited the number of Registrable Securities to be underwritten, the
Company may include securities for its own account or for the account of others
in such registration if the managing underwriter so agrees and if the number of
Registrable Securities held by Holders requesting registration on Form S-3 which
would otherwise have been included in such registration and underwriting will
not thereby be limited. The inclusion of such shares shall be on the same terms
as the registration of shares held by the Requesting Holders. In the event that
the underwriters exclude some of the securities to be registered on Form S-3,
the securities to be sold for the account of the Company and any other holders
shall be excluded in their entirety prior to the exclusion of any Registrable
Securities.
<PAGE> 10
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ARTICLE 5
EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Articles 2, 3 and 4 hereof shall be
borne by the Company. All Selling Expenses relating to securities registered by
the Holders shall be borne by the holders of such securities pro rata on the
basis of the number of shares so registered.
ARTICLE 6
REGISTRATION PROCEDURES
In the case of each registration or qualification effected by the
Company pursuant to this Agreement, the Company will keep each Holder advised in
writing as to the initiation of each registration and qualification and as to
the completion thereof. At its expense, the Company will:
(a) Keep such registration or qualification effective and
current for a period of 180 days (or such longer period as may be necessary to
accommodate the filing of amendments or supplements necessary to comply with the
Securities Act) or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) Promptly furnish such number of prospectuses
(including all amendments) and other documents incident thereto as a Holder from
time to time may reasonably request;
(c) Use its reasonable best efforts to register and
qualify the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Holders or any managing underwriter for the distribution of the
Registrable Securities covered by the registration statement; provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdiction;
(d) Use its reasonable best efforts to cause all
Registrable Securities covered by the registration statement to be listed or
accepted for quotation on a national securities exchange or automated quotation
system, and maintained for listing or quotation thereon;
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement; provided, that the Company shall use its
reasonable best efforts to ensure that the Requesting Holders' indemnity
obligations pursuant to such an underwriting agreement are no more extensive
than those provided in Article 7 of this Agreement. In addition, the Company
shall use its reasonable best efforts to take such other actions as may be
reasonably requested by the managing underwriter to expedite or facilitate the
completion of the offering, including participation by a "named executive
officer" of the Company
<PAGE> 11
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(as defined in Item 402(a)(3) of Regulation S-K under the Securities Act) in any
road shows or other presentations organized by the managing underwriter.
(f) Subject to receiving reasonable assurances of
confidentiality, for a reasonable period after the filing of such registration
statement, and throughout each period during which the Company is required to
keep a registration effective, make available for inspection by the selling
Holders, and any underwriters, and their respective counsel, such financial and
other information and books and records of the Company, and cause the officers,
directors, employees, counsel and independent certified public accountants of
the Company to respond to such inquiries as shall be reasonably necessary to
conduct a reasonable investigation within the meaning of Section 11 of the
Securities Act;
(g) Promptly notify each Holder of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto covered by such registration statement is required to be delivered under
the Securities Act, of the occurrence of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(h) Promptly notify the selling Holders and any
underwriters, and confirm such advice in writing, (i) when such registration
statement or the prospectus included therein or any prospectus amendment or
supplement or post-effective amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same has become
effective, (ii) of any comments by the Commission, by the National Association
of Securities Dealers Inc. ("NASD"), and by the blue sky or securities
commissioner or regulator of any state with respect thereto or any request by
any such entity for amendments or supplements to such registration statement or
prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such registration
statement or the initiation or threatening of any proceedings for that purpose,
(iv) if at any time the representations and warranties of the Company cease to
be true and correct in all material respects, and (v) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Registrable Securities covered by the registration statement for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose.
(i) At the request of any Requesting Holder, (i) use its
reasonable best efforts to furnish to such requesting Holder, if such
registration includes an underwritten public offering, at the closing provided
for in the underwriting agreement, copies of any opinion, dated such date, of
the counsel representing the Company for the purposes of such registration,
addressed to the underwriters covering such matters with respect to the
registration statement, the prospectus and each amendment or supplement thereto,
proceedings under state and Federal securities laws, other matters relating to
the Company, the securities being registered and the offer and sale of such
securities as are customarily the subject of opinions of issuer's counsel
provided to underwriters in underwritten public offerings and (ii) use its
reasonable best efforts to furnish to the Requesting Holder letters dated each
such effective date and such closing date, from the independent certified public
accountants of the Company, addressed to the underwriters stating
<PAGE> 12
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that they are independent certified pubic accountants within the meaning of the
Securities Act and dealing with such matters as the underwriters may reasonably
request, and (iii) furnish to the Requesting Holder such information as such
seller may reasonably request for the purpose of establishing its "due
diligence" defense under Section 11 of the Securities Act, but subject to such
confidentiality restrictions as the Company may reasonably impose to protect its
confidential and proprietary information.
ARTICLE 7
INDEMNIFICATION
7.1 The Company will indemnify each Holder, each of its officers,
directors, partners, stockholders, employees and agents, and each person
controlling any such persons within the meaning of Section 15 of the Securities
Act, with respect to which registration or qualification has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, preliminary prospectus or prospectus or any amendment or
supplement thereof, incident to any such registration or qualification, or based
on any omission (or alleged omission) to state therein, a material fact required
to be stated therein or necessary to make the statements therein, not misleading
and will reimburse each such Holder, each of its officers and directors,
partners, stockholders, employees and agents, and each person controlling any
such persons, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by or on the
account of such Holder, underwriter or controlling person and expressly intended
for use in such registration statement, preliminary prospectus or prospectus or
any amendment or supplement thereof. Expenses (including attorneys' and
accountants' fees) incurred in defending a civil or criminal claim, action,
suit, or proceeding shall be paid by the Company in advance of the final
disposition of the matter upon receipt of an undertaking satisfactory to the
Company by or on behalf of any person or entity entitled to indemnification
pursuant to this Section 7.1 to repay such amount if such person or entity is
ultimately determined not to be entitled to indemnity.
7.2 Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration or
qualification is being effected, severally but not jointly indemnify the
Company, each of its directors and officers, stockholders, agents and employees,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning
<PAGE> 13
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of Section 15 of the Securities Act, and each other such Holder, each of its
officers, directors, partners, stockholders, employees and agents, and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, preliminary prospectus or
prospectus or any amendment or supplement thereto, incident to any such
registration, qualification or compliance or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, partners, stockholders,
employees, agents, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, preliminary prospectus or prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by such Holder or controlling person and expressly intended for use
in such registration statement, preliminary prospectus or prospectus or other
document, or any amendment or supplement thereof; provided, however, that the
obligations of each Holder or the person controlling such Holder hereunder shall
be limited to an amount equal to the proceeds to such Holder from the sale of
Registrable Securities sold pursuant to registration as contemplated herein.
7.3 Each party entitled to indemnification under this Section 7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party, whose approval shall not unreasonably be
withheld. The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall bear the expense
of such defense of the Indemnified Party if representation of both parties by
the same counsel would be inappropriate due to actual or potential conflicts of
interest. The failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement, unless such failure is materially prejudicial to the ability of the
Indemnifying Party to defend the action. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect of such claim or litigation.
7.4 If the indemnification provided for in Section 7.1 or 7.2 is
unavailable or insufficient to hold harmless an Indemnified Party, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of the expenses, claims, losses, damages or
liabilities (or actions or proceedings in respect thereof) referred to in
Section 7.1 or 7.2, in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the sellers of Registrable Securities
on the other hand in connection with statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) or expenses, as well as any other relevant equitable
considerations.
<PAGE> 14
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The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the sellers of Registrable Securities and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Holders agree that it would not be just and equitable if contributions pursuant
to this Section 7.4 were to be determined by pro rata allocation (even if all
Sellers of Registrable Securities were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to in the first sentence of this Section 7.4.
The amount paid by an Indemnified Party as a result of the expenses, claims,
losses, damages or liabilities (or actions or proceedings in respect thereof)
referred to in the first sentence of this Section 7.4 shall be deemed to include
any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any claim, action or proceeding which
is the subject of this Section 7.4. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The obligations of sellers of Registrable
Securities to contribute pursuant to this Section 7.4 shall be several in
proportion to the respective amount of Registrable Securities sold by them
pursuant to a registration statement.
ARTICLE 8
INFORMATION BY HOLDER
The Holder or Holders of Registrable Securities included in any
registration shall furnish in writing to the Company such information regarding
such Holder or Holders and the distribution proposed by such Holder or Holders
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration or qualification referred to in
this Agreement.
ARTICLE 9
RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
securities of the Company to the public without registration, after such time as
a public market exists for the Common Stock of the Company, the Company agrees
to:
9.1 Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the Initial Public Offering; and
9.2 Use its best efforts to then file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), at any time after it has become subject to such reporting
requirements; and
<PAGE> 15
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9.3 So long as a Holder owns any Registrable Securities, furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as a Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Holder to sell any such securities
without registration.
ARTICLE 10
TRANSFER OF REGISTRATION RIGHTS
The rights to cause the Company to register securities granted Holders
under Articles 2, 3 and 4 hereof may be assigned in connection with any
permitted transfer or assignment of the Holder's Registrable Securities. All
transferees and assignees of the rights to cause the Company to register
securities granted Holders under Articles 2, 3 and 4 hereof, as a condition to
the transfer of such rights, shall agree in writing to be bound by the
agreements set forth herein. For the purposes of determining the Holders with
the power to exercise any of the rights (including the rights granted under
Section 2.1(b)(ii) and Section 11.2) granted under this Agreement to any of
Manheim, ADP, Cox, Landmark and KPCB, such rights may be exercised by a Holder
or Holders holding a majority in interest of all Registrable Securities
collectively held by each such party and its respective transferees as of the
date on which the Holder or Holders desire to exercise such rights.
ARTICLE 11
MISCELLANEOUS
11.1 Aggregation. Shares of capital stock of the Company owned by
partnerships and corporations having substantially common ownership interests or
managed by the same principals and owned by individual investors affiliated with
one another may be aggregated for the purposes of calculating the aggregate
percentage of capital stock of the Company owned by any Holder and any permitted
transferee hereunder.
11.2 Waivers and Amendments. With the written consent of (i) the
Company and the Holders holding a majority of the Registrable Securities held by
all the Holders and (ii) for so long as they remain Holders of Registrable
Securities, each of Manheim, ADP, Cox, Landmark and KPCB, the obligations and
rights of the Company and the Holders under this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely) or amended; provided,
however, that no such waiver or amendment shall reduce the aforesaid number of
shares the Holders of which are required to consent to any waiver or amendment,
without the consent of all the Holders. Upon the effectuation of each such
waiver or amendment, the Company shall promptly give written notice thereof to
any Holders who have not previously consented thereto in writing.
Notwithstanding
<PAGE> 16
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the foregoing, any party hereto may waive any of its rights hereunder by a
statement in writing signed by such party. Such waiver shall only be effective
with respect to the rights specifically set forth in such writing and shall not
waive, amend or prejudice any other rights the party may have hereunder.
11.3 Damages. The Company recognizes and agrees that the Holders
will not have an adequate remedy if the Company fails to comply with the
provisions of this Registration Rights Agreement regarding registration and that
damages will not be readily ascertainable, and the Company expressly agrees
that, in the event of such failure, the Company shall not oppose an application
by any Holder, or any other person entitled to the benefits of these provisions,
requiring specific performance of any provisions hereof or enjoining the Company
from continuing to commit any such breach of such provisions.
11.4 Grant of Subsequent Registration Rights. The parties hereto
agree that additional Holders may, with the consent of the Company and the
Holders of a majority of the Registrable Securities then outstanding, be added
as parties to the Agreement with respect to any or all securities of the Company
held by them; provided, however, that from and after the date of this Agreement
the Company shall not grant registration rights to subsequent holders of
securities in the Company pursuant to this Agreement or otherwise unless such
rights are subordinate to or pari passu with and not inconsistent with the
rights of the Holders of Registrable Securities or the grant of such rights is
consented to by the Holders of all of the Registrable Securities, and provided
that for the purposes of Sections 2.2(b), 3.2(b), and 4.2(b), such subsequent
holders of securities in the Company (other than qualifying transferees of the
Holders as of the date of this Agreement) shall not be entitled to include
Registrable Securities in a registration unless all of the Registrable
Securities of the Requesting Holders who are not such subsequent holders of
securities in the Company are first included in the registration.
Notwithstanding the foregoing, so long as any Registrable Securities exist, the
Company shall not enter into any agreement providing registration rights to
subsequent holders of securities in the Company unless such agreement provides
for the participation of Holders of Registrable Securities on terms materially
the same to those of Section 2.2 hereof in any underwritten registration
effected pursuant to such agreement.
11.5 Market Standoff. Each Holder agrees, in connection with the
Company's Initial Public Offering and upon request of the underwriters managing
the Initial Public Offering, not to sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of any Registrable
Securities without the prior written consent of such underwriters, for such
period of time (not to exceed one hundred and eighty (180) days) from the
effective date of the final prospectus for such Initial Public Offering as may
be requested by such underwriters, and to enter into such further lock-up
agreements, containing terms customary in similar underwritten public offerings,
as may be requested by such underwriters; provided, however, that each Holder
shall only be subject to the foregoing lock-up limitations if and to the extent
that the underwriters have requested that all of the other Holders be bound by
such limitations.
11.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed entirely within the state without regard to
principles of conflicts of law.
<PAGE> 17
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11.7 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
11.8 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof.
11.9 Notices. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed effectively
given and received upon delivery in person, or one business day after delivery
by national overnight courier service or by telecopier transmission with
acknowledgment of transmission receipt, or three business days after deposit via
certified or registered mail, return receipt requested, in each case addressed
as follows:
if to the Company:
AutoTrader.com LLC
1400 Lake Hearn Drive, N.E.
Atlanta, GA 30319
Attention: Victor A. Perry, III
if to the Holders, at the address shown in the records of the
Company.
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
11.10 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
11.11 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
11.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
constitute one instrument.
<PAGE> 18
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AUTOTRADER.COM, LLC
By: /s/ Dennis Berry
-----------------------------------------
Name: Dennis Berry
Title: Member of Management Committee
MANHEIM AUCTIONS, INC.
By: /s/ Dennis Berry
-----------------------------------------
Name: Dennis Berry
Title: President
ADP, INC.
By: /s/ Allan Stejskal
-----------------------------------------
Name: Allan Stejskal
Title: VP Dealer Services
TPI, INC.
By: /s/ Jay Smith
-----------------------------------------
Name: Jay Smith
Title: President
LTM COMPANY, L.P.
By: /s/ Guy R. Friddell, III
-----------------------------------------
Name: Guy R. Friddell, III
Title: Vice President
KPCB HOLDINGS, INC., as nominee
By: /s/ Joseph S. Lacob
-----------------------------------------
Name: Joseph S. Lacob
Title: Senior Vice President
ATC HOLDINGS, INC.
By: /s/ Guy R. Friddell, III
-----------------------------------------
Name: Guy R. Friddell, III
Title: Vice President
<PAGE> 19
EXHIBIT A
Registration Rights Holders
Manheim Auctions, Inc.
ADP, Inc.
TPI, Inc.
LTM Company, L.P.
ATC Holdings, Inc.
KPCB Holdings, Inc.
<PAGE> 1
EXHIBIT 10.10
ASSET PURCHASE AGREEMENT
DATED NOVEMBER 1, 1999
BETWEEN
AUTOTRADER.COM, LLC
AND
INTELLISOFT DEVELOPMENT CORPORATION
<PAGE> 2
<TABLE>
<S> <C>
SECTION 1: DEFINED TERMS........................................................................................ 1
1.1 Terms Defined in this Section.................................................................. 1
1.2 Terms Defined Elsewhere in this Agreement...................................................... 4
1.3 Rules of Construction.......................................................................... 5
SECTION 2: SALE AND PURCHASE OF ASSETS.......................................................................... 5
2.1 Agreement to Sell and Buy...................................................................... 5
2.2 Excluded Assets................................................................................ 6
2.3 Purchase Price................................................................................. 7
2.4 Adjustments and Prorations..................................................................... 7
(a) Working Capital Adjustment............................................................ 7
(b) Prorations............................................................................ 7
(c) Manner of Determining Adjustments and Prorations...................................... 8
2.5 Payment of Initial Payment..................................................................... 9
(a) Payments to Reflect Adjustments....................................................... 9
2.6 Assumption of Liabilities and Obligations...................................................... 9
SECTION 3: REPRESENTATIONS AND WARRANTIES OF SELLER........................................................... .10
3.1 Organization, Standing and Authority.......................................................... 10
3.2 Authorization and Binding Obligation.......................................................... 10
3.3 Absence of Conflicting Agreements............................................................. 10
3.4 Licenses and Assumed Contracts................................................................ 11
3.5 Real and Personal Property.................................................................... 10
3.6 Intangibles................................................................................... 11
3.7 Consents...................................................................................... 11
3.8 Information on the Business................................................................... 12
(a) Customers; Billing Rate.............................................................. 11
(b) Account Balances..................................................................... 11
(c) Commitments.......................................................................... 12
3.9 Insurance and Bonds........................................................................... 12
3.10 Personnel Matters............................................................................. 12
3.11 Claims and Legal Actions...................................................................... 12
3.12 Compliance with Laws.......................................................................... 12
3.13 Taxes and Tax Returns......................................................................... 13
3.14 Conduct of Business in Ordinary Course........................................................ 13
3.15 Transactions with Affiliates.................................................................. 13
3.16 Financial Statements.......................................................................... 13
3.17 Broker........................................................................................ 13
3.18 Year 2000 Compliance.......................................................................... 13
SECTION 4: REPRESENTATIONS AND WARRANTIES OF BUYER............................................................. 14
4.1 Organization, Standing and Authority.......................................................... 14
4.2 Authorization and Binding Obligation.......................................................... 14
4.3 Absence of Conflicting Agreements............................................................. 14
4.4 Litigation.................................................................................... 14
SECTION 5: COVENANTS AND AGREEMENTS............................................................................ 15
5.1 Confidentiality............................................................................... 15
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5.2 Accounts Receivable........................................................................... 15
5.3 Employee Matters.............................................................................. 15
5.4 Allocation.................................................................................... 15
5.5 Further Assurances............................................................................ 15
5.6 Sale of Website............................................................................... 15
SECTION 6: CLOSING AND CLOSING DELIVERIES...................................................................... 15
6.1 Closing....................................................................................... 15
6.2 Deliveries by Seller.......................................................................... 16
(a) Transfer Documents................................................................... 16
(b) Consents............................................................................. 16
(c) Power of Attorney.................................................................... 16
(d) Secretary's Certificate.............................................................. 16
(e) Contracts, Business Records, Etc..................................................... 16
(f) Employment Agreements................................................................ 16
(g) Lease Agreement...................................................................... 16
6.3 Deliveries by Buyer........................................................................... 16
(a) Purchase Consideration............................................................... 16
(b) Assumption Agreements................................................................ 16
(c) Employment Agreements................................................................ 17
(d) Lease Agreement...................................................................... 17
(e) Officer's Certificates............................................................... 17
SECTION 7: SURVIVAL OF REPRESENTATIONS AND WARRANTIES,
AND INDEMNIFICATION.................................................................................... 17
7.1 Representations and Warranties................................................................ 17
7.2 Indemnification by Seller..................................................................... 17
7.3 Indemnification by Buyer...................................................................... 17
7.4 Procedure for Indemnification................................................................. 18
7.5 Affiliates.................................................................................... 18
7.6 Guaranty...................................................................................... 18
(a) Terms................................................................................ 18
(b) Waivers.............................................................................. 19
(c) Representations and Warranties....................................................... 19
SECTION 8: MISCELLANEOUS....................................................................................... 19
8.1 Fees and Expenses............................................................................. 19
8.2 Notices....................................................................................... 19
8.3 Benefit and Binding Effect.................................................................... 20
8.4 Laws of the State of Illinois................................................................. 20
8.5 Entire Agreement.............................................................................. 21
8.6 Waiver of Compliance; Consents................................................................ 21
8.7 Bulk Sales Law................................................................................ 21
8.8 Severability.................................................................................. 21
8.9 Counterparts.................................................................................. 21
8.10 Arbitration Procedure......................................................................... 21
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
LIST OF SCHEDULES
-----------------
<S> <C>
Schedule 2.2 -- Excluded Assets
Schedule 2.3 -- Performance Standards
Schedule 3.3 -- Conflicting Agreements
Schedule 3.4 -- Licenses and Contracts
Schedule 3.5 -- Real and Personal Property
Schedule 3.6 -- Intangibles
Schedule 3.7 -- Consents
Schedule 3.8 -- Information on the Business
Schedule 3.9 -- Insurance and Bonds
Schedule 3.10 -- Personnel Matters
Schedule 3.11 -- Claims and Legal Actions
Schedule 3.12 -- Compliance with Laws
Schedule 3.15 -- Transactions with Affiliates
<CAPTION>
EXHIBIT
-------
<S> <C>
Exhibit A -- Territory
</TABLE>
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<PAGE> 5
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "AGREEMENT") is dated November 1,
1999 by and between AUTOTRADER.COM, LLC, a Delaware limited liability company
("BUYER"), and INTELLISOFT DEVELOPMENT CORPORATION, an Illinois corporation
("SELLER").
RECITALS:
A. Seller owns and operates a business that publishes, builds,
designs, maintains and manages various websites, including, without limitation,
the "http://www.wwwheels.com" website and the "http://www.specialcar.com"
website (collectively, the "WEBSITES") for, and provides related marketing
services to, automobile dealerships and other related customers (collectively,
the "BUSINESS").
B. Seller desires to sell, and Buyer wishes to buy, substantially
all of Seller's assets, tangible and intangible, real, personal and mixed, used
or useful in the operation of the Business, on the terms and conditions
hereinafter set forth.
AGREEMENTS:
In consideration of the covenants and agreements contained herein,
Buyer and Seller agree as follows:
SECTION 1: DEFINED TERMS
1.1 TERMS DEFINED IN THIS SECTION. The following terms shall have
the following meanings in this Agreement:
"ACCOUNTS RECEIVABLE" means all rights of Seller to payment for
services to be provided by the Buyer's W3 Division directly or indirectly
through the Business after the Closing Date, including for (i) services provided
to Customers of the Business, (ii) the sale of any Websites, and (iii) other
services related to the Business or the Purchased Assets.
"AFFILIATE" means any person, corporation or partnership directly or
indirectly, controlling, controlled by or under common control with either Buyer
or Seller, as the case may be, or any of its officers, directors, shareholders,
or general partners. As used in this definition, "control" (including, with
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other common interests, by contract or otherwise).
"ASSUMED CONTRACTS" means all Contracts listed in Schedule 3.4 hereto.
"CLOSING ACCOUNTS RECEIVABLE" means all rights of Seller to payment for
services provided by Seller directly or indirectly through the Business prior to
the Closing Date, including
<PAGE> 6
for (i) services provided to Customers of the Business, (ii) the sale of any
Websites, and (iii) other services related to the Business or the Purchased
Assets.
"CLOSING" means the consummation of the transactions contemplated to
occur on the Closing Date in accordance with the terms hereof.
"CLOSING DATE" means the date of the Closing.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder, or any subsequent legislative enactment thereof, as in
effect from time to time.
"COMPENSATION ARRANGEMENT" means any plan or compensation arrangement
other than an Employee Plan, whether written or unwritten, which provides to
employees, former employees, officers, independent contractors, directors and
shareholders of Seller or any entity related to Seller (under the terms of
Sections 414(b), (c), (m) or (o) of the Code) any compensation or other
benefits, whether deferred or not, in excess of base salary or wages and
excluding overtime pay, including any bonus or incentive plan, stock rights
plan, deferred compensation arrangement, life insurance, stock purchase plan,
severance pay plan and any other perquisites and employee fringe benefit plan.
"CONSENTS" means all of the consents, permits or approvals of
government authorities and other third parties necessary to transfer the
Purchased Assets to Buyer or otherwise to consummate the transaction
contemplated hereby.
"CONTRACTS" means all Licenses, deeds, leases, easements,
rights-of-way, customer agreements, and other agreements, written or oral
(including any amendments and other modifications thereto) to which Seller is a
party or which are binding upon Seller and which relate to the Purchased Assets
or the Business, and including, without limitation, all web-development and
web-hosting contracts and other production contracts.
"CUSTOMER" means any individual, entity or organization to whom Seller
provides services or products through the Business, or with respect to the
second paragraph of Schedule 2.3 and Exhibit A of the Employment Agreement, any
individual, entity or organization to whom the W3 Division of Buyer provides
services or products through the Business.
"EFFECTIVE TIME" means 12:01 a.m., Eastern Standard Time, on the
Closing Date.
"EMPLOYEE PLAN" means any pension, retirement, profit-sharing, deferred
compensation, vacation, severance, bonus, incentive, medical, vision, dental,
disability, life insurance or any other employee benefit plan as defined in
Section 3(3) of ERISA to which either of the Seller or any entity related to
Seller (under the terms of Sections 414 (b), (c), (m) or (o) of the Code)
contributes or which either of Seller or any entity related to Seller (under the
terms of Sections 414 (b), (c), (m) or (o) of the Code) sponsors or maintains,
or by which Seller or any such entity is otherwise bound.
"ENCUMBRANCES" means any pledge, claim, liability, mortgage, lien,
charge, encumbrance, restriction on transfer, or security interest of any kind
or nature whatsoever.
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<PAGE> 7
"ENFORCEABILITY EXCEPTIONS" means the exceptions or limitations to the
enforceability of contracts under bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally, and by the
application of general principles of equity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder, as in effect from time to
time.
"EXCLUDED ASSETS" means certain assets of Seller that are not being
sold, transferred, or otherwise conveyed to Buyer hereunder, as specified in
Section 2.2.
"EXCLUDED LIABILITIES" means certain liabilities of Seller that are not
being assumed, transferred or otherwise conveyed to Buyer hereunder, as
specified in Section 2.6.
"GAAP" means generally accepted accounting principles in the United
States of America, as in effect at the relevant date.
"INTANGIBLES" means all copyrights, trademarks, trade names, licenses,
permits, privileges, and other similar intellectual property rights and
interests (and any goodwill associated with any of the foregoing) applied for,
issued to, or owned by Seller or under which Seller is licensed or franchised
and used or held for use by Seller in the operation of the Business as currently
conducted.
"LEGAL REQUIREMENTS" means applicable common law and any applicable
statute, ordinance, code or other law, rule, regulation, order, technical or
other standard, requirement or procedure enacted, adopted, promulgated or
applied by any governmental authority, including any applicable order, decree or
judgment which may have been handed down, adopted or imposed by any governmental
authority.
"LICENSES" means all licenses, authorizations and permits relating to
the Business granted to Seller by any governmental instrumentality, and all
applications (if any) submitted by Seller for any of the foregoing.
"PERMITTED ENCUMBRANCES" means (i) liens for current taxes and other
government charges not yet due and payable or which are being contested in good
faith in appropriate proceedings and for which adequate reserves have been set
aside in the Business's financial statements, (ii) materialmen's, mechanics',
carriers', workmen's, repairmen's and other similar person's liens arising in
the ordinary course of business for sums not yet delinquent or being contested
in good faith to the extent reserved against in the Financial Statements, (iii)
Encumbrances arising under the Assumed Contracts, and (iv) liens that relate to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security.
"PERSONAL PROPERTY" means all of the equipment (including, without
limitation, electronic and computer apparatus, databases and database systems,
software and software systems, documentation and source codes), tools, vehicles,
furniture, leasehold improvements, inventory, spare parts, and other tangible
personal property which are used or held for use by Seller in the operation of
the Business as currently conducted.
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<PAGE> 8
"PURCHASED ASSETS" means all of the assets (other than the "Excluded
Assets"), tangible and intangible, real, personal and mixed, owned or held by
Seller and used or held for use by Seller in the operation of the Business as
currently conducted, which assets are being sold, transferred, or otherwise
conveyed by Seller to Buyer hereunder, as specified in detail in Section 2.1.
"REAL PROPERTY" means all of the fee estates and buildings and other
improvements thereon, leasehold interests, easements, licenses, rights to
access, rights-of-way, and other real property interests which are owned or held
by Seller and used or held for use by Seller in the operation of the Business.
"REVENUE" means any revenue derived from the Business determined in
accordance with Seller's current practices for recording revenue, consistently
applied, as of the Closing Date.
"TAX" OR "TAXES" means any and all federal, state, local, or foreign
taxes, assessments, deficiencies, fees and other governmental charges or
impositions, together with any interest, additions, or penalties with respect
thereto and any interest in respect of such additions or penalties.
"TAX RETURN" means any federal, state, or local Tax return, report,
statement and other similar filings required to be filed by Seller with respect
to Taxes.
"TERRITORY" means the area described on Exhibit A attached hereto.
1.2 TERMS DEFINED ELSEWHERE IN THIS AGREEMENT. In addition to (i)
the defined terms in the preamble, recitals and Section 1.1 hereof, or (ii)
certain defined terms used solely within a single section hereof, the following
is a list of terms used in this Agreement and a reference to the section hereof
in which such term is defined:
<TABLE>
<CAPTION>
Term Section
----------------------- --------------
<S> <C>
Assumed Liabilities Section 2.6
Business Recital A
Business Records Section 2.1(g)
Buyer's Damages Section 7.2
Cash Equivalents Section 2.2(a)
Claimant Section 7.4(a)
Closing Cash Payment Section 2.5
Deferred Payment Section 2.3(b)
Excluded Assets Section 2.2
Financial Statements Section 3.16
Guarantor Section 7.6
Indemnifier Section 7.4(a)
Initial Payment Section 2.3(a)
Purchase Price Section 2.3
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
Seller's Damages Section 7.3
Websites Recital A
</TABLE>
1.3 RULES OF CONSTRUCTION. Words used in this Agreement,
regardless of the gender and number specifically used, shall be deemed and
construed to include any other gender and any other number as the context
requires. As used in this Agreement, the word "including" is not limiting, and
the word "or" is both conjunctive and disjunctive. Except as specifically
otherwise provided in this Agreement in a particular instance, a reference to a
section or schedule is a reference to a section of this Agreement or a schedule
hereto, and the terms "hereof," "herein," and other like terms refer to this
Agreement as a whole, including the Schedules to this Agreement, and not solely
to any particular part of this Agreement. The descriptive headings in this
Agreement are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.
SECTION 2: SALE AND PURCHASE OF ASSETS
2.1 AGREEMENT TO SELL AND BUY. Subject to the terms and conditions
set forth in this Agreement, Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer on the Closing Date, and Buyer agrees to purchase,
all of Seller's rights, title and interest in, to and under the Purchased Assets
(other than the Excluded Assets), free and clear of any Encumbrances (except for
Permitted Encumbrances), more specifically described as follows:
(a) The Personal Property; (b) The Real Property;
(c) The Licenses;
(d) The Assumed Contracts;
(e) The Intangibles;
(f) The Accounts Receivable;
(g) Any and all books and records relating to the conduct
or operations of the Business (except as expressly excluded by Section 2.2(d)),
including any and all executed copies of the Assumed Contracts, any and all
equipment warranties, any and all technical information and data, computer
discs, diagrams, blueprints and schematics relating to the Business
(collectively, the "BUSINESS RECORDS");
(h) Any and all intangible assets of Seller relating to
the Business and not specifically described above, including, without
limitation, all of Seller's goodwill associated with the Business;
(i) Any and all right, title and interest of Seller in
and to the Websites, and any assets used in support of or for the operation of
such Websites;
- 5 -
<PAGE> 10
(j) Any and all Internet, electronic, on-line rights or
domain names associated with the Business, including, without limitation, the
domain names "wwwheels.com" and "specialcar.com";
(k) Any and all existing copy, films, artwork,
photographs and other reproduction materials, tapes, master videos and other
components relating to the Business, whether in possession of Seller;
(l) Any and all existing lists, including lists rented or
owned by Seller, documents and records of Seller relating to users of the
Websites;
(m) Any and all existing lists, mailing lists (in both
printed form and computer media), documents and records of Seller relating to
all past, present or prospective advertisers in the Business and copies of all
call reports and advertiser status reports; and
(n) Any and all existing lists, documents and records of
Seller relating to past, present and prospective purchasers of mailing lists
relating to the Business.
Notwithstanding anything in this Agreement to the contrary, Seller
retains all of its rights, title and interest in, and possession of, and Seller
does not hereby sell, assign, convey, transfer or deliver to Buyer, any right,
title or interest of Seller in, to or under, the Excluded Assets.
2.2 EXCLUDED ASSETS. The Purchased Assets shall exclude the
following assets of Seller (collectively, the "EXCLUDED ASSETS"):
(a) Seller's cash and cash equivalents on hand as of the
Effective Time and all other cash in any of Seller's bank or savings accounts;
any and all insurance policies and contracts of insurance and any claims and
rights of Seller thereunder (including any claims and rights of Seller to
reserves, unearned premiums and returns of premiums arising thereunder), letters
of credit, or other similar items and, in each case, any cash surrender value in
regard thereto; and any stocks or bonds, any options, warrants or rights to
acquire any securities, certificates of deposit and similar investments
(collectively, the "CASH EQUIVALENTS");
(b) Any and all Contracts, other than the Assumed
Contracts, specifically identified on Schedule 2.2 hereto;
(c) Any and all Employee Plan, Compensation Arrangement,
and any and all collective bargaining agreements;
(d) Any and all books and records which Seller is
required by law to retain and Seller's corporate name, minute books, other books
and records related to internal corporate matters and financing arrangements,
subject to the right of Buyer to have access and to copy for a period of three
(3) years from the Closing Date;
(e) The Real Property that is the subject of the Lease
Agreement described in Section 6.2(h);
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<PAGE> 11
(f) Any and all intercompany accounts between Seller and
any Affiliates of Seller relating to the Business;
(g) All rights of Seller under this Agreement and the
agreements, documents and instruments delivered in connection with the
transactions contemplated hereby;
(h) Any other assets of Seller described on Schedule 2.2
hereto; and
(i) Any and all Closing Accounts Receivable.
2.3 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") for
the Purchased Assets is Five Million One Hundred Thousand Dollars ($5,100,000),
and is comprised of the following:
(a) an initial payment of Four Million One Hundred
Thousand Dollars ($4,100,000) (the "INITIAL PAYMENT"), which (i) shall be
adjusted, if necessary, as provided in Section 2.4(b), and (ii) is being paid by
Buyer to Seller at Closing in accordance with Section 2.5 by wire transfer of
immediately available funds; and
(b) a deferred payment of One Million Dollars
($1,000,000) (the "DEFERRED PAYMENT"), which Buyer shall pay to Seller in three
annual installments of Three Hundred Thirty Three Thousand Three Hundred Thirty
Three Dollars ($333,333) each; provided, however, that no such installment will
be paid, and Seller shall irrevocably lose the right hereunder to receive or
claim such installment for any particular year, unless Seller satisfies the
performance standard for that year described in Schedule 2.3 hereto. Each such
installment, if payable by Buyer to Seller in accordance with the prior
sentence, shall be paid on or prior to January 3, 2000, February 15, 2001 and
February 15, 2002, respectively.
2.4 PRORATIONS.
(a) Intentionally omitted.
(b) PRORATIONS. The Initial Payment shall be increased or
decreased as required to effectuate the proration of income and expenses as set
forth herein. All income and expenses arising from the operation of the Business
through the Effective Time, including, without limitation, Customer fees,
advertising fees, service charges, rental charges, utility charges, real and
personal property taxes and assessments levied against the Purchased Assets,
salesmen advances, property and equipment rentals, applicable copyright or other
fees, sales and services charges, taxes (except for taxes arising from the
transfer of the Purchased Assets hereunder and from any taxes on income earned
by Seller), and similar prepaid and deferred items, shall be prorated between
Buyer and Seller in accordance with the principle that Seller shall be
responsible for all expenses, costs, obligations and liabilities, and shall be
entitled to receive all income, allocable to or arising from the operation of
the Business for the period prior to the Effective Time, and Buyer shall be
responsible for all expenses, costs, obligations and liabilities, and shall be
entitled to receive all income, allocable to or arising from the operation of
the Business after the Effective Time; provided, however, that there shall be no
adjustment for, and Seller shall remain solely liable with respect to any
obligations arising under any Contracts not included in the Assumed Contracts,
or any other obligation or liability not being assumed by Buyer in accordance
with Section 2.6 whether such obligations arise before, at or after the
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Effective Time, and Buyer shall be entitled to all income from Accounts
Receivable included in the Purchased Assets.
(c) MANNER OF DETERMINING PRORATIONS. The Initial
Payment, taking into account the prorations pursuant to Section 2.4(b), will be
determined in accordance with the following procedures:
(1) Intentionally Omitted.
(2) Within sixty (60) days after Closing, Buyer
shall prepare and deliver to Seller a final settlement statement (the
"FINAL SETTLEMENT STATEMENT"), which shall be prepared by Buyer in good
faith and shall (A) contain all information reasonably necessary to
determine the prorations to the Initial Payment under Section 2.4(b),
and (B) be certified by Buyer to be true and complete to Buyer's
knowledge as of the date thereof.
(3) Within thirty (30) days after the date that
the Final Settlement Statement is delivered by Buyer to Seller pursuant
to Section 2.4(c)(2) hereof, Seller shall complete its examination
thereof and may deliver to Buyer a written report setting forth any
proposed adjustments to the Final Settlement Statement. If Seller
notifies Buyer of its acceptance of the amount shown on the Final
Settlement Statement, or if Seller fails to deliver its report of
proposed adjustments to the Final Settlement Statement within the
thirty-day period specified in the preceding sentence, the amount shown
on the Final Settlement Statement shall be conclusive and binding on
the parties as of the last day of the thirty-day period.
(4) After Closing, Buyer and Seller shall use
good faith efforts to resolve any dispute relating to the Final
Settlement Statement or otherwise involving the determination of the
Initial Payment. If the parties are unable to resolve the dispute
within fifteen (15) days following the delivery of Seller's written
report pursuant to Section 2.4(c)(3), Buyer and Seller shall jointly
designate an independent certified public accountant in the Chicago,
Illinois business area, who shall be knowledgeable in the operation of
businesses that design and operate websites, to resolve the dispute. If
the parties are unable to agree on the designation of an independent
certified public accountant, the selection of the accountant to resolve
the dispute shall be submitted to arbitration in the Chicago, Illinois
business area in accordance with the commercial arbitration rules of
the American Arbitration Association. The accountant's resolution of
the dispute shall be final and binding on the parties, and a judgment
may be entered thereon in any court of competent jurisdiction. Any fees
of this accountant, and, if necessary, for arbitration to pick such
accountant, shall be split equally between the parties.
(5) Seller and Buyer shall reasonably cooperate
with each other to enable the other party to review or prepare, as
applicable, the Final Settlement Statement, including, without
limitation, by providing the other party with all books, records,
accounts and other information reasonably requested by the other party
to enable it to compute the prorations to the Initial Payment
contemplated by Section 2.4(b).
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2.5 PAYMENT OF INITIAL PAYMENT. At the Closing, Buyer shall pay or
cause to be paid to or for the account of Seller the amount of the
Initial Payment (such amount, the "CLOSING CASH PAYMENT") by federal
wire transfer of immediately available funds pursuant to wire transfer
instructions which shall have been delivered by Seller to Buyer not
fewer than two (2) business days before the Closing Date.
(a) [PAYMENTS TO REFLECT PRORATIONS
(i) If the Initial Payment as finally determined
pursuant to Section 2.4 exceeds the Closing Cash Payment, Buyer shall pay to
Seller, in immediately available funds within five (5) days after the date on
which the Initial Payment is finally determined pursuant to Section 2.4, the
difference between the Initial Payment (as finally determined) and the Closing
Cash Payment.
(ii) If the Initial Payment as finally determined
pursuant to Section 2.4 is less than the
Closing Cash Payment, Seller shall pay to Buyer, in immediately available funds
within five (5) days after the date on which the Initial Payment is finally
determined pursuant to Section 2.4, the difference between the Initial Payment
(as finally determined) and the Closing Cash Payment.]
2.6 ASSUMPTION OF LIABILITIES AND OBLIGATIONS. As of the Effective
Time, Buyer shall assume, pay, discharge and perform (i) all the obligations and
liabilities of Seller under the Assumed Contracts insofar as they relate to the
time period after the Effective Time, (ii) all obligations and liabilities of
Seller to any Customer of the Business for any advance payments or deposits, if
and to the extent that an adjustment was made to the Initial Payment with
respect to such advance payments or deposits pursuant to Section 2.4(b) above,
and (iii) all obligations and liabilities arising out of events occurring after
the Effective Time related to Buyer's ownership of the Purchased Assets or its
operation of the Business after the Effective Time (collectively, the "ASSUMED
LIABILITIES"). All other obligations and liabilities of Seller (collectively,
the "EXCLUDED LIABILITIES"), including, without limitation, (a) obligations with
respect to the Excluded Assets, including under any Contract not included in the
Assumed Contracts, (b) any obligations under the Assumed Contracts relating to
the time period prior to the Effective Time, (c) any claims or pending
litigation or proceedings relating to the operation of the Business prior to the
Effective Time, and (d) all accounts payable to Affiliates of Seller and loans
payable by Seller, shall remain and be the obligations and liabilities solely of
Seller.
SECTION 3: REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer, to the knowledge of its
President, John Hentrich, as follows:
3.1 ORGANIZATION, STANDING AND AUTHORITY. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois, and is qualified to conduct business in Illinois. Seller has
all requisite corporate power and authority (i) to own, lease and use the
Purchased Assets as presently owned, leased and used, (ii) to conduct and
operate the Business as presently conducted and operated, and (iii) to execute,
deliver and perform this Agreement and the documents contemplated hereby in
accordance with their
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respective terms. Seller is not a participant in any joint venture or
partnership with any other person or entity with respect to any part of the
Business's operations, the Purchased Assets or the Assumed Liabilities.
3.2 AUTHORIZATION AND BINDING OBLIGATION. The execution, delivery
and performance of this Agreement and the documents contemplated hereby by
Seller have been duly authorized by all necessary corporate actions on the part
of Seller. This Agreement has been and the documents contemplated hereby will be
upon the execution and delivery thereof on behalf of Seller, duly executed and
delivered by Seller and constitute or will constitute, as applicable, the legal,
valid and binding obligation of Seller, enforceable against Seller in accordance
with their respective terms, except to the extent such enforceability may be
limited by Enforceability Exceptions.
3.3 ABSENCE OF CONFLICTING AGREEMENTS. Except as set forth in
Schedule 3.3 or Schedule 3.7, the execution, delivery and performance of this
Agreement and the documents contemplated hereby and the consummation by Seller
of the transactions contemplated hereby (with or without the giving of notice,
the lapse of time, or both): (i) do not require the consent of, notice to, or
filing with any governmental authority or any other third party under any
License or other Contract; (ii) do not conflict with any provision of Seller's
articles of incorporation or bylaws, each as currently in effect; (iii) assuming
receipt of all Consents listed in Schedule 3.7, will not conflict with, result
in a breach of, or constitute a default under any Legal Requirement to which
Seller is bound; (iv) assuming receipt of all Consents listed in Schedule 3.7,
will not conflict with, constitute grounds for termination of, result in a
breach of, constitute a default under, or accelerate or permit the acceleration
of any performance required by the terms of any License or other Contract; and
(v) assuming receipt of all Consents listed in Schedule 3.7, will not result in
the creation of any Encumbrance upon the Purchased Assets.
3.4 LICENSES AND ASSUMED CONTRACTS. Schedule 3.4 contains a list
or description of all Licenses and all Contracts, except for employment
contracts described in Schedule 3.10. Seller has delivered to Buyer copies of
the written Licenses and written Contracts listed on Schedule 3.4 (together with
all amendments thereto). The Licenses and Assumed Contracts listed or described
on Schedule 3.4, together with the agreements described in the exceptions listed
above, comprise all licenses and contracts necessary to own and operate the
Business as currently conducted. The Licenses and Assumed Contracts are in full
force and effect and are valid, binding and enforceable against Seller and, to
the knowledge of Seller, the other parties thereto in accordance with their
terms, except to the extent such enforceability may be limited by the
Enforceability Exceptions. Except as described on Schedule 3.4, none of the
Licenses or Assumed Contracts will be breached by virtue of the consummation of
the transactions contemplated hereby or by virtue of the assignment thereof by
Seller to Buyer pursuant hereto. Except as disclosed on Schedule 3.4, (i) there
is not under any Assumed Contract any default by Seller or, to Seller's
knowledge, any other party thereto which would have a material adverse effect on
the Business, and (ii) Seller is in compliance with the material terms of the
Licenses.
3.5 REAL AND PERSONAL PROPERTY. Schedule 3.5 contains descriptions
of all material items of Personal Property owned by Seller as of the date
hereof. Seller holds no Real Property in connection with the operation of the
Business other than the Real Property described in Section 2.2(e). Except for
tangible Personal Property leased by Seller under leases listed in
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Schedule 3.5, Seller has good and marketable title to all of the tangible
Personal Property, free and clear of all Encumbrances, except for Permitted
Encumbrances. Except as specified on Schedule 3.5, all tangible Personal
Property is (a) in good condition and repair (ordinary wear and tear excepted),
and (b) available for immediate use in the same manner as currently used in the
operation of the Business.
3.6 INTANGIBLES. Schedule 3.6 contains a description of the
Intangibles (exclusive of those required to be listed in Schedule 3.4 and
inclusive of those relating to software used in connection with the Business),
all of which are valid and in full force and effect and uncontested except as
described in Schedule 3.11. None of the Intangibles infringes upon any
trademarks, copyrights, patents or any other rights or other Intangibles of any
other person, and none is subject to any outstanding order, decree, judgment,
stipulation, injunction, written restriction or agreement restricting the scope
of use thereof. Except as described in Schedule 3.6, Seller has not granted any
license, franchise or permit to any person or entity to use any of Seller's
Intangibles and Seller has the right to assign and transfer the Intangibles in
accordance with the terms of this Agreement.
3.7 CONSENTS. Except for the Consents described in Schedule 3.7,
no consent, approval, permit or authorization of, or filing with any
governmental authority or any other third party is required to be obtained by
Seller (i) to consummate this Agreement and the transactions contemplated
hereby, (ii) to permit Seller to assign or transfer the Purchased Assets to
Buyer, or (iii) to enable Buyer to conduct or operate the Business in
essentially the same manner as the Business is currently conducted or operated.
3.8 INFORMATION ON THE BUSINESS.
(a) CUSTOMERS; BILLING RATE. The Business (i) has at
least 320 Customers, and (ii) has a billing rate for Customers as described on
Schedule 3.8. The Business generated Revenues of at least $1,338,812.70 for the
ten (10) consecutive months ending on October 31, , 1999.
(b) ACCOUNT BALANCES. All the account balances of
Customers to the Business are actual and bona fide receivables representing
obligations for services rendered in the regular course of Seller's business, in
the total dollar amount thereof shown on the books of Seller and are collectible
in full in the ordinary course, subject to Enforceability Exceptions.
(c) COMMITMENTS. Except as described on Schedule 3.8,
there are no unfulfilled binding material commitments for capital improvements
which Seller is obligated to make in connection with the Business. There are no
obligations or liabilities to Customers which are material to the operation of
the Business, except: (i) with respect to deposits made by such Customers or
such other users; and (ii) the obligation to supply services to Customers in the
ordinary course of business. Except with respect to deposits and any other item
which is to be adjusted for pursuant to Section 2.4 hereof, Seller has no
obligation or liability for the refund of monies or for the provision of rebates
to Customers of the Business.
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3.9 INSURANCE AND BONDS. Schedule 3.9 comprises a list of all
insurance policies of Seller, currently in full force and effect, which insure
the Business or any part of the Purchased Assets, and a list of all surety and
performance bonds in connection with the Business.
3.10 PERSONNEL MATTERS. Schedule 3.10 contains a list of all
employees of the Business (the "EMPLOYEES") along with their job titles and
rates of pay and Employee Plans. Except as described in Schedule 3.10, Seller
has no written or oral contracts of employment with any employee of the Business
other than oral employment agreements terminable at will without penalty. Seller
is not a party to or subject to any collective bargaining agreements with
respect to the Business. Seller has furnished Buyer with true and complete
copies of all employee handbooks, employee rules and regulations, and Employee
Plans, if any. None of Seller's employees is represented by a union or other
representative for collective bargaining purposes, no union or other
representative claims to represent any of Seller's employees for such purposes
and Seller has not received a request for recognition from any union or other
representative seeking to represent any of Seller's employees for such purposes.
Seller's employees are not engaged in or subject to any organizing activity with
respect to any labor union or other representative seeking to represent Seller's
employees and no such organizing activity is threatened. There is no strike,
picketing, work slow down or other labor disputes or controversies or
proceedings pending or threatened involving or relating to any of Seller's
employees. No Employee Plan is a "Multiemployer Plan," as defined in Section
3(37) of ERISA, and neither Seller nor any entity related to Seller (under the
terms of Sections 414(b), (c), (m) or (o) of the Code) has within the last ten
years, or reasonably expects to incur, any "withdrawal liability," as defined
under Section 4201 et seq. of ERISA. No Employee Plan is covered by Title IV of
ERISA and neither the Seller nor any entity related to Seller (under the terms
of Sections 414(b), (c), (m) or (o) of the Code) has within the last ten years
terminated any Employee Plan which was covered by Title IV of ERISA, other than
pursuant to a standard termination under Section 4041(b) of ERISA. No Employee
Plan or Compensation Arrangement provides medical or death benefit coverage to
former employees, except for "COBRA" benefits required by Section 4980B of the
Code as further described in Schedule 3.10.
3.11 CLAIMS AND LEGAL ACTIONS. Except as set forth on Schedule
3.11, there is no claim, legal action, arbitration, governmental investigation
or other legal, administrative or tax proceeding, nor any order, decree or
judgment, in progress or pending, or to the knowledge of Seller threatened,
against or relating to Seller, the Purchased Assets, or the operation of the
Business.
3.12 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.12,
Seller has complied with, and the Business and Purchased Assets are in
compliance, in all material respects, with all applicable Legal Requirements.
Seller is licensed in all material respects to operate all the facilities
required by law to be licensed.
3.13 TAXES AND TAX RETURNS. All Tax Returns relating to the
Purchased Assets or the operation of the Business have been timely filed with
the appropriate governmental agencies in all jurisdictions in which such Tax
Returns are required to be filed, all such Tax Returns are true, correct and
complete in all material respects, and all Taxes due for the periods covered by
such Tax Returns have been properly accrued or paid to the extent such Taxes
have become due. Seller has received no notice of any notice of deficiency or
proposed assessment from any taxing
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governmental authority with respect to Taxes relating to the Business or the
Purchased Assets. There are no Tax liens on any of the Purchased Assets.
3.14 CONDUCT OF BUSINESS IN ORDINARY COURSE. From June 30, 1999
through and including the Closing Date, Seller has operated the Business only in
the ordinary course and has not (i) made any material increase in compensation
payable or to become payable to any of the employees of the Business, or any
material change in personnel policies, insurance benefits or other compensation
arrangements affecting the employees of the Business, (ii) made any sale,
assignment, lease or other transfer of any of Seller's properties other than
Excluded Assets, obsolete assets no longer usable in the operation of the
Business, or other assets sold or disposed of in the normal course of business
with suitable replacements being obtained therefor, and (iii) suffered any
material adverse change in the assets, properties, financial condition, or
results of operations of the Business, including any material damage,
destruction, or loss affecting any assets used or useful in the operation of the
Business.
3.15 TRANSACTIONS WITH AFFILIATES. Except as disclosed in the
Financial Statements and described on Schedule 3.15, Seller has not been
involved in any business arrangement or relationship with any Affiliate of
Seller, and no Affiliate of Seller has provided services to Seller, has incurred
on behalf of Seller expenses unreimbursed by Seller, or owns any property or
right, tangible or intangible, that is used in the operation of the Business.
3.16 FINANCIAL STATEMENTS. Seller has furnished Buyer with true and
complete copies of an unaudited balance sheet and profit and loss statement as
at, and for the fiscal year ended, December 31, 1998 and the ten month period
ended October 26, 1999 (collectively, the "FINANCIAL STATEMENTS"). The Financial
Statements have been prepared from the books and records of Seller, accurately
reflect the books, records and accounts of Seller (which books, records and
accounts are complete and correct in all material respects), and present fairly
the financial condition of Seller as at their respective dates and the results
of operations for the periods then ended, except that the Financial Statements
do not include footnotes or customary year-end adjustments and there are no
automobiles owned by the Company.
3.17 BROKER. Neither Seller nor any person or entity acting on
Seller's behalf has employed any broker or lender or incurred any liability for
any finders' or brokers' fees or commissions in connection with the transactions
contemplated by this Agreement.
3.18 YEAR 2000 COMPLIANCE. Seller has no current actual knowledge
that Seller's information technology (including without limitation all of the
computer hardware and software owned, leased or used by Seller in connection
with the Websites or otherwise in the ordinary course of the operation of the
Business) is not Year 2000 Compliant. For purposes of this section, "YEAR 2000
COMPLIANT" means, with respect to Seller's information technology, that the
information technology is designed to be used prior to, during, and after the
calendar Year 2000 A.D., and the information technology used during each such
time period will accurately receive, provide and process date/time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries, including the years
1999 and 2000, and leap year calculations, and will not malfunction, cease to
function, or provide invalid or incorrect results as a result of date/time data,
to the extent that other
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information technology, used in combination with the information technology
being acquired by Buyer hereunder, properly exchanges date/time data with it.
SECTION 4: REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION, STANDING AND AUTHORITY. Buyer is a limited
liability company duly organized, validly existing and in good standing under
the laws of Delaware. Buyer has all requisite limited liability company power
and authority to execute, deliver and perform this Agreement and the documents
contemplated hereby in accordance with their respective terms.
4.2 AUTHORIZATION AND BINDING OBLIGATION. The execution, delivery
and performance of this Agreement and the documents contemplated hereby by Buyer
have been duly authorized by all necessary limited liability company actions on
the part of Buyer. This Agreement has been, and the documents contemplated
hereby will be upon the execution and delivery on behalf of Buyer, duly executed
and delivered by Buyer and constitute or will constitute, as applicable, the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with their respective terms, except to the extent such enforceability
may be limited by the Enforceability Exceptions.
4.3 ABSENCE OF CONFLICTING AGREEMENTS. The execution, delivery and
performance of this Agreement and the documents contemplated hereby and thereby
and the consummation of the transactions contemplated hereby and thereby by
Buyer (with or without the giving of notice, the lapse of time, or both): (i) do
not require the consent of, notice to, or filing with any governmental authority
or any other third party under any License or other Contract; (ii) do not
conflict with any provision of Buyer's articles of organization or operating
agreement, each as currently in effect; (iii) will not conflict with, result in
a breach of, or constitute a default under any Legal Requirement to which Buyer
is bound; and (iv) will not conflict with, constitute grounds for termination
of, result in a breach of, constitute a default under, or accelerate or permit
the acceleration of any performance required by the terms of any License or
other Contract.
4.4 LITIGATION. There is no claim, legal action, arbitration,
governmental investigation or other legal or administrative proceeding, nor any
order, decree or judgment, in progress or pending, or to the knowledge of Buyer
threatened, against or relating to Buyer which would enjoin, rescind or
condition the transactions contemplated hereunder.
SECTION 5: COVENANTS AND AGREEMENTS
5.1 CONFIDENTIALITY. Buyer and Seller, for themselves and for
their respective Affiliates, each agrees that it will use commercially
reasonable efforts to keep confidential (except for such disclosure to its
advisors and representatives as may be appropriate in the furtherance of this
transaction and except for such disclosure as may be necessary to comply with
applicable law) all information of a confidential nature obtained by it from the
other in connection with the transactions contemplated by this Agreement.
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5.2 ACCOUNTS RECEIVABLE. At the Closing, Seller shall assign to
Buyer all Accounts Receivable included in the Purchased Assets. Seller shall
deliver to Buyer on the Closing Date a complete and detailed statement of such
Accounts Receivable, showing the account number and date of issuance, the name
and address of the account payor, the aggregate amount of such receivable, and
the balance due as of Closing Date on each such Account Receivable. Any payments
received by Seller from account payors on or after the Closing Date with respect
to such Accounts Receivable shall be remitted by Seller to Buyer.
5.3 EMPLOYEE MATTERS. On the Closing Date, Seller shall terminate
the employment of the Employees, and effective on the Closing Date, Buyer shall
hire and continue the employment of the Employees in comparable positions, at
comparable salaries and with comparable benefits (including health and life
insurance). Seller shall be responsible for and shall cause to be discharged and
satisfied in full all amounts owed to any employee, including, without
limitation, wages, salaries, commissions, bonuses, severance, sick pay, vacation
pay, and any other benefits due to an employee under any Employee Plan or
Compensation Arrangement for the period prior to the Closing Date.
5.4 ALLOCATION. Buyer and Seller shall use commercially reasonable
good faith efforts to agree on the allocation of the Purchase Price and the
Assumed Liabilities in accordance with the rules under Section 1060 of the Code;
provided however, that if the parties are unable to agree to such allocation,
each party may make such allocation as it may determine in its sole discretion.
5.5 FURTHER ASSURANCES. After the Closing, Seller and Buyer will
take such actions, and execute and deliver to Buyer or Seller, as appropriate,
such further deeds, bills of sale, assignments or other transfer documents as,
in the reasonable opinion of counsel for Buyer or Seller, as appropriate, may be
necessary to evidence or complete the transfer of the Purchased Assets to Buyer
pursuant to this Agreement.
5.6 SALE OF WEBSITE. After the Closing, Buyer covenants and agrees
with Seller to extend to Mr. John Hentrich and Ms. Dawn Hentrich the right to
approve any prospective purchaser of the "http://www.specialcar.com" website
from Buyer, with such approval not to be unreasonably withheld by Mr. John
Hentrich or Ms. Dawn Hentrich.
5.7 CLOSING ACCOUNTS RECEIVABLE. Seller shall deliver to Buyer
promptly after the Closing Date a complete and detailed statement of the Closing
Accounts Receivable, showing the account number and date of issuance, the name
and address of the account payor, the aggregate amount of such receivable, and
the balance due as of Closing Date on each such Closing Account Receivable.
Buyer agrees to use its normal business efforts, for a period of one hundred
eighty (180) days, as collection agent for Seller, to diligently collect the
Closing Accounts Receivable following the Closing Date in the ordinary course of
business in accordance with the Buyer's standard collection practice, provided
however, that the Buyer shall not be required to take any extraordinary measures
including instituting a legal proceeding or utilizing any collection agency. Any
funds received by the Buyer payable in respect to Closing Accounts Receivable
shall be held for the account of the Seller in a segregated bank account and all
funds accumulated shall be wire transferred to the Seller on a monthly basis or
as agreed to by the Seller and the Buyer. Nothing herein shall preclude the
Seller from taking any action to collect the Closing Accounts Receivable.
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SECTION 6: CLOSING AND CLOSING DELIVERIES
6.1 CLOSING. The Closing Date shall be on the same date as the
date of this Agreement at such place and by such means as Buyer and Seller shall
mutually agree.
6.2 DELIVERIES BY SELLER. On the Closing Date, Seller shall
deliver to Buyer the following, in form and substance reasonably satisfactory to
Buyer and its counsel:
(a) TRANSFER DOCUMENTS. Duly executed bills of sale,
assignments and other transfer documents which shall be sufficient to vest good
and marketable title to the Purchased Assets, including, without limitation, the
Assumed Contracts and the Accounts Receivable, in the name of Buyer, free and
clear of any Encumbrances except for Permitted Encumbrances;
(b) CONSENTS. The original of each Consent with, as a
result of obtaining such Consent, no adverse change having been made in the
terms of the License or Assumed Contract with respect to which such Consent has
been obtained;
(c) POWER OF ATTORNEY. A power of attorney sufficient to
enable Buyer to collect the Accounts Receivable being conveyed to Buyer at the
Closing, including the endorsement of any payments by check made by Customers;
(d) SECRETARY'S CERTIFICATE. A certificate dated as of
the Closing Date, executed by Seller's Secretary, certifying that the
resolutions attached to such certificate were duly adopted by Seller's Board of
Directors and Stockholders authorizing and approving the execution of this
Agreement and the consummation of the transaction contemplated hereby and that
such resolutions remain in full force and effect;
(e) CONTRACTS, BUSINESS RECORDS, ETC. Copies of all
Assumed Contracts, customer, advertiser, purchaser and user lists used or
maintained by Seller (including, without limitation lists described in Section
2.1), computer master tapes or disks with customer and user information and
copies of the Websites, blueprints, schematics, working drawings, plans,
projections, statistics, films, artwork, photographs and other reproduction
materials, master videos, engineering records and other books and records owned
or maintained by Seller relating to the operation of the Business (other than
those excluded by Section 2.2(d));
(f) EMPLOYMENT AGREEMENTS. Employment Agreements, dated
as of the Closing Date (the "EMPLOYMENT Agreements"), and duly executed by Mr.
John Hentrich and Ms. Dawn Hentrich, as appropriate; and
(g) LEASE AGREEMENT. The Lease Agreement, dated as of the
Closing Date (the "LEASE AGREEMENT"), and duly executed by Seller or Mr. John
Hentrich and Ms. Dawn Hentrich (as applicable) as lessor thereunder.
6.3 DELIVERIES BY BUYER. Prior to or on the Closing Date, Buyer
shall deliver to Seller the following, in form and substance reasonably
satisfactory to Seller and its counsel:
(a) PURCHASE CONSIDERATION. The Closing Cash Payment as
provided in Section 2.5;
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<PAGE> 21
(b) ASSUMPTION AGREEMENTS. Appropriate assumption
agreements and other documents reasonably requested by Seller pursuant to which
Buyer shall assume and undertake to perform Seller's obligations arising on and
after the Closing Date under the Assumed Contracts;
(c) EMPLOYMENT AGREEMENTS. The Employment Agreements,
duly executed by Buyer;
(d) LEASE AGREEMENT. The Lease Agreement, duly executed
by Buyer as lessee thereunder; and
(e) OFFICER'S CERTIFICATES. A certificate dated as of the
Closing Date, executed by a duly authorized officer of Buyer, certifying that
the resolutions attached to such certificate were duly adopted by the requisite
parties authorizing and approving the execution of this Agreement and the
consummation of the transactions contemplated hereby and that such resolutions
remain in full force and effect.
SECTION 7: SURVIVAL OF REPRESENTATIONS AND WARRANTIES, AND INDEMNIFICATION
7.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Buyer and Seller herein shall be deemed continuing
representations, warranties and covenants, and shall survive the Closing for a
period of twelve (12) months after the Closing Date. Any investigations by or on
behalf of any party hereto shall not constitute a waiver as to enforcement of
any representation, warranty, or covenant contained in this Agreement.
7.2 INDEMNIFICATION BY SELLER. Seller shall indemnify and hold
Buyer harmless against and with respect to, and shall reimburse Buyer for any
and all losses, liabilities or damages resulting from (collectively, "BUYER'S
DAMAGES"):
(a) any breach of any representation or warranty, or any
nonfulfillment of any covenant by Seller contained in this Agreement;
(b) Any and all obligations of Seller not assumed by
Buyer pursuant to the terms hereof; and
(c) the operation or ownership of the Business or the
Purchased Assets prior to the Effective Time.
Notwithstanding the foregoing, (a) Seller shall be required to
indemnify Buyer for Buyer's Damages only to the extent that the aggregate
Buyer's Damages exceed $50,000 in the aggregate (provided that no claim may be
counted toward such $50,000 unless it exceeds $5,000), (b) Seller shall not be
required to indemnify Buyer for Buyer's Damages in an aggregate amount in excess
of the amount which is the after-tax amount of the amount of the Initial
Payment, as adjusted, and the Deferred Payment, actually received by Seller
(which the parties agree shall be assumed to be 75%), and (c) any claim for
indemnification under Section 7 hereof must be made during the applicable
survival period set forth in Section 7.1 hereof.
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<PAGE> 22
7.3 INDEMNIFICATION BY BUYER. Buyer shall indemnify and hold
Seller harmless against and with respect to, and shall reimburse Seller for any
and all losses, liabilities or damages resulting from (collectively, "SELLER'S
DAMAGES"):
(a) any breach of any representation or warranty, or any
nonfulfillment of any covenant by Buyer contained in this Agreement;
(b) any and all obligations of Seller assumed by Buyer
pursuant to the terms hereof; and
(c) the operation or ownership of the Business or the
Purchased Assets after the Effective Time.
7.4 PROCEDURE FOR INDEMNIFICATION. The procedure for
indemnification shall be as follows:
(a) The party claiming indemnification (the "CLAIMANT"),
shall give notice to the other party (the "INDEMNIFIER") of any claim, whether
between the parties or brought by a third party, within fifteen (15) business
days of receiving notice, or becoming aware thereof, and specifying (i) the
factual basis for such claim, and (ii) the amount of the claim.
(b) Following receipt of notice from the Claimant of a
claim, the Indemnifier shall have thirty (30) days to make such investigation of
the claim as the Indemnifier deems necessary or desirable. For the purposes of
such investigation, the Claimant agrees to make available to the Indemnifier
and/or its authorized representative(s) the information relied upon by the
Claimant to substantiate the claim. If the Claimant and the Indemnifier agree at
or prior to the expiration of said thirty (30) day period (or any mutually
agreed upon extension thereof) to the validity and amount of such claim, the
Indemnifier shall immediately pay to the Claimant the full amount of the claim.
If the Claimant and the Indemnifier do not agree within said period (or any
mutually agreed upon extension thereof), the parties agree to arbitrate the
matter pursuant to Section 8.10.
(c) With respect to any claim by a third party as to
which either Buyer or Seller is claiming indemnification hereunder, the
Indemnifier, subject to its acknowledgment of its indemnity obligations
hereunder, shall have the right at its own expense to assume control of the
defense. If the Indemnifier elects to assume control of the defense of any
third-party claim, the Claimant shall have the right to participate in the
defense of such claim at its own expense. If the Indemnifier does not elect to
assume control or otherwise participate in the defense of any third-party claim,
it shall be bound by the results obtained by the Claimant with respect to such
claim.
7.5 AFFILIATES. The indemnification rights provided in Sections
7.2 and 7.3 shall, in any instance, extend to any Affiliate of each of Buyer and
Seller although any indemnification claims by such parties shall be made by and
through the Claimant.
7.6 GUARANTY.
(a) TERMS. By their execution hereof with respect to this
Section 7.6, Mr. John Hentrich and Ms. Dawn Hentrich, the principle stockholders
of Seller (collectively,
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<PAGE> 23
"GUARANTOR"), jointly and severally, irrevocably and unconditionally guarantee
to Buyer the full, complete and timely performance by Seller following the
Closing of any and all obligations of Seller under this Section 7 (the
"OBLIGATIONS"). This guaranty shall remain in full force and effect so long as
Seller shall have any obligations or liabilities under this Section 7. This
guaranty shall be deemed a continuing guaranty and the waivers of Guarantor
herein shall remain in full force and effect until the satisfaction in full of
the Obligations. If any default shall occur by Seller in its performance or
satisfaction of any of the Obligations, then Guarantor will perform or satisfy,
or cause to be performed or satisfied, such obligations immediately upon notice
from Buyer describing such default. This guaranty is an absolute, unconditional
and continuing guaranty of payment and performance which shall remain in full
force and effect without respect to future changes in conditions (including any
change of law) and without regard to any amendment to this Agreement or any
circumstance which might otherwise constitute a legal or equitable discharge of
a guarantor or surety. Guarantor agrees that its obligations hereunder shall not
be contingent upon the exercise or enforcement by Buyer of whatever remedies it
may have against Seller or any other guarantor.
(b) WAIVERS. To the maximum extent permitted by law,
Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any
adverse change in the financial condition of Seller or of any other fact that
might increase Guarantor's risk hereunder; and (iii) presentment, protest,
demand, action or delinquency in respect of any of the Obligations.
(c) REPRESENTATIONS AND WARRANTIES. Guarantor represents
and warrants to Seller that, to their knowledge, (i) this Agreement has been
duly and validly executed and delivered by Guarantor and this Section 7.6
constitutes its legal, valid, and binding agreement, enforceable in accordance
with its terms, except as the enforceability of this Agreement may be affected
by bankruptcy, insolvency, or similar laws affecting creditors' rights
generally, and by judicial discretion in the enforcement of equitable remedies,
and (ii) the execution, delivery, and performance by Guarantor of this Agreement
(A) do not require the consent of any third party (including any governmental or
regulatory authority); (B) will not violate or result in a breach of, or
contravene any law, judgment, order, ordinance, injunction, decree, rule,
regulation, or ruling of any court or governmental instrumentality applicable to
Guarantor; and (C) will not violate, conflict with, or result in a material
breach of any terms of, constitute grounds for termination of, constitute a
default under, or result in the acceleration of any performance required by the
terms of, any mortgage, indenture, lease, contract, agreement, instrument,
license, or permit to which Guarantor is a party or by which Guarantor or its
properties may be bound legally.
SECTION 8: MISCELLANEOUS
8.1 FEES AND EXPENSES. Any transfer Taxes, recordation Taxes,
sales Taxes, use Taxes, document stamps, Taxes and fees, filing fees, or other
charges levied by any governmental entity on account of the transfer of the
Purchased Assets from Seller to Buyer up to an aggregate amount of $20,000 shall
be paid by Seller and Buyer equally, and all other such charges shall be paid by
Seller alone. Except as otherwise provided in this Agreement, each party shall
pay its own expenses incurred in connection with the authorization, preparation,
execution, and performance of this Agreement, including all fees and expenses of
counsel, accountants, agents and representatives, and each party shall be
responsible for all fees or commissions payable to any finder, broker, advisor,
or similar person retained by or on behalf of such party.
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<PAGE> 24
8.2 NOTICES. All notices, demands, and requests required or
permitted to be given under the provisions of this Agreement shall be in
writing, may be sent by telecopy (with automatic machine confirmation),
delivered by personal delivery, or sent by commercial delivery service or
certified mail, return receipt requested, shall be deemed to have been given on
the date of actual receipt, which may be conclusively evidenced by the date set
forth in the records of any commercial delivery service or on the return
receipt, and shall be addressed to the recipient at the address specified below,
or with respect to any party, to any other address that such party may from time
to time designate in a writing delivered in accordance with this Section 8.2:
<TABLE>
<CAPTION>
If to Seller: Intellisoft Development Corporation
------------
<S> <C>
Suite 3C
340 West Butterfield Road
Elmhurst, Illinois 60126
Attention: John Hentrich, President
Telecopy: 630/953-8403
Telephone: 630/953-1989
with a copy Winston & Strawn
(which shall 35 West Wacker Drive
not constitute Chicago, Illinois 60601-9703
notice) to: Attention: Andrew J. McDonough, Esq.
Telecopy: 312/558-5700
Telephone: 312/558-6079
If to Buyer: AutoTrader.com, LLC
1400 Lake Hearn Drive
Atlanta, Georgia 30319
Attention: Victor A. Perry, President
Telecopy: 404/843-7412
Telephone: 404/843-5480
with a copy Dow, Lohnes & Albertson, PLLC
(which shall 1200 New Hampshire Ave., Suite 800
not constitute Washington, D.C. 20036
notice) to: Attention: Stuart A. Sheldon, Esq.
Telecopy: 202/776-2222
Telephone: 202/776-2000
</TABLE>
or to any such other or additional persons and addresses as the parties may from
time to time designate in a writing delivered in accordance with this Section
8.2.
8.3 BENEFIT AND BINDING EFFECT. Neither party hereto may assign
this Agreement without the prior written consent of the other party hereto,
which consent shall not be unreasonably withheld. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
- 20 -
<PAGE> 25
8.4 LAWS OF THE STATE OF ILLINOIS. THIS AGREEMENT SHALL BE
GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS (WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF).
8.5 ENTIRE AGREEMENT. This Agreement, all schedules hereto and all
documents and certificates to be delivered by the parties pursuant hereto
collectively represent the entire understanding and agreement between Buyer and
Seller with respect to the subject matter hereof. All schedules attached to this
Agreement shall be deemed part of this Agreement and are incorporated herein,
where applicable, as if fully set forth herein. This Agreement supersedes all
prior negotiations, letters of intent or other writings between Buyer and Seller
and their respective representatives with respect to the subject matter hereof,
and cannot be amended, supplemented or modified except by a written agreement
which makes specific reference to this Agreement or an agreement delivered
pursuant hereto, as the case may be, and which is signed by the party against
which enforcement of any such amendment, supplement or modification is sought.
8.6 WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise provided
in this Agreement, any failure of any of the parties to comply with any
obligation, representation, warranty, covenant, agreement or condition herein
may be waived by the party entitled to the benefits thereof only by a written
instrument signed by the party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation, representation, warranty,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. Whenever this Agreement
requires or permits consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 8.6.
8.7 BULK SALES LAW. The parties hereto waive compliance with the
provisions of any bulk sales or fraudulent conveyance law applicable to the
transaction contemplated hereby.
8.8 SEVERABILITY. If any provision hereof or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
8.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be an
original, and all of which counterparts together shall constitute one and the
same fully executed instrument.
8.10 ARBITRATION PROCEDURE.
(a) The Seller and Buyer agree that the arbitration
procedure set forth below shall be the sole and exclusive method for resolving
and remedying claims for money damages arising out of the provisions of this
Agreement (the "Dispute"). The parties hereby agree and acknowledge that, except
as otherwise provided in this Section 8.10 or in the Commercial Arbitration
Rules of the American Arbitration Association as in effect from time to time,
the arbitration procedures and any Final Determination hereunder shall be
governed by, and shall be enforced pursuant to, the Uniform Arbitration Act.
- 21 -
<PAGE> 26
(b) In the event that either the Seller or Buyer asserts
that there exists a Dispute, such party shall deliver a written notice to each
other party or parties involved therein specifying the nature of the asserted
Dispute and requesting a meeting to attempt to resolve the same. If no such
resolution is reached within thirty (30) calendar business days after such
delivery of such notice, the party delivering such notice of Dispute (the
"Disputing Person") may, within sixty (60) business days after delivery of such
notice, commence arbitration hereunder by delivering to each other party
involved therein a notice of arbitration (a "Notice of Arbitration"). Such
Notice of Arbitration shall specify the matters as to which arbitration is
sought, the nature of any Dispute, the claims of each party to the arbitration
and shall specify the amount and nature of any damages, if any, sought to be
recovered as a result of any alleged claim, and any other matters required to be
included therein, if any, by the Commercial Arbitration Rules of the American
Arbitration Association as in effect from time to time.
(c) The Seller and Buyer each shall select one
independent arbitrator expert in the subject matter of the Dispute (the
arbitrators so selected shall be referred to herein as the "Seller's Arbitrator"
and the "Buyer's Arbitrator," respectively). In the event that either party
fails to select an independent arbitrator as set forth herein within twenty (20)
days from delivery of a Notice of Arbitration, then the matter shall be resolved
by the arbitrator selected by the other party. The Seller's Arbitrator and the
Buyer's Arbitrator shall select a third independent arbitrator expert in the
subject matter of the dispute, and the three arbitrators so selected shall
resolve the matter according to the procedures set forth in this Section 8.10.
If the Seller's Arbitrator and the Buyer's Arbitrator are unable to agree on a
third arbitrator within twenty (20) days after their selection, the Seller's
Arbitrator and the Buyer's Arbitrator shall each prepare a list of three
independent arbitrators. The Seller's Arbitrator and the Buyer's Arbitrator
shall each have the opportunity to designate as objectionable and eliminate one
arbitrator from the other arbitrator's list within seven (7) days after
submission thereof, and the third arbitrator shall then be selected by lot from
the arbitrators remaining on the lists submitted by the Seller's Arbitrator and
the Buyer's Arbitrator.
(d) The arbitrator(s) selected pursuant to paragraph (c)
above will determine the allocation of the costs and expenses of arbitration
based upon the percentage which the portion of the contested amount awarded to
each party bears to the amount actually contested by such party. For example, if
Seller submits a claim for $1,000, and if Buyer contests only $500 of any amount
claimed by Seller, and if the arbitrator(s) ultimately resolves the dispute by
awarding Seller $300 of the $500 contested, then the costs and expenses of
arbitration will be allocated 60% (i.e. 300/500) to Buyer and 40% (i.e. 200/500)
to Seller.
(e) The arbitration shall be conducted in Chicago,
Illinois and under the Commercial Arbitration Rules of the American Arbitration
Association as in effect from time to time, except as modified by the agreement
of Seller and Buyer. The arbitrator(s) shall so conduct the arbitration that a
final result, determination, finding, judgment and/or award (the "Final
Determination") is made or rendered as soon as practicable, but in no event
later than ninety (90) business days after the delivery of the Notice of
Arbitration nor later than ten (10) days following completion of the
arbitration. The Final Determination must be agreed upon and signed by the sole
arbitrator or by at least two of the three arbitrators (as the case may be). The
Final Determination shall be final and binding on all parties and there shall be
no appeal from or reexamination of the Final Determination, except for fraud,
perjury, evident partiality or
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<PAGE> 27
misconduct by an arbitrator prejudicing the rights of any party, and to correct
manifest clerical errors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURES APPEAR ON FOLLOWING
PAGE]
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<PAGE> 28
IN WITNESS WHEREOF, this Asset Purchase Agreement has been executed by
Buyer and Seller as of the date first above written.
<TABLE>
<CAPTION>
BUYER: SELLER:
- ------ -------
<S> <C>
AUTOTRADER.COM, LLC INTELLISOFT DEVELOPMENT
CORPORATION
By: /s/ Victor A. Perry By /s/ John J. Hentrich
------------------------------- -------------------------------
Name: Victor A. Perry Name: John J. Hentrich
----------------------------- -----------------------------
Title: President / CEO Title President
---------------------------- ----------------------------
</TABLE>
SOLELY WITH RESPECT TO SECTION 7.6
GUARANTOR:
/s/ John Hentrich
----------------------------------------
John Hentrich
/s/ Dawn Hentrich
----------------------------------------
Dawn Hentrich
<PAGE> 1
EXHIBIT 10.14
UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT (this "Agreement") is entered into as of this
6th day of March, 2000 between AutoTrader.com, LLC, a Delaware limited liability
company (the "Company"), and eBay, Inc., a Delaware corporation (the
"Purchaser").
RECITALS:
A. Manheim ATC, Inc., ADP, Inc., LTM Company L.P., ATC Holdings, Inc., and
KPCB Holdings, Inc, as nominee, are parties to (i) that certain Amended and
Restated Limited Liability Company Agreement, dated as of August 20, 1999 and as
amended (the "LLC Agreement"), with respect to the Company, and (ii) that
certain Amended and Restated Registration Rights Agreement, dated as of August
20, 1999 (the "Registration Rights Agreement").
B. The Company has authorized the issuance and sale to the Purchaser of
1,207,425 Class A Units (as defined in the LLC Agreement), and the Purchaser
desires to subscribe for and purchase such Class A Units, all on and subject to
the terms and conditions set forth below.
In consideration of the mutual covenants contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. DEFINITIONS
All capitalized terms which are not defined herein shall have the meanings
set forth in the LLC Agreement.
2. ISSUANCE AND SALE OF UNITS; GOVERNING DOCUMENTS
2.1 Sale of Units. Upon the terms and subject to the conditions set forth
herein, the Company hereby issues and sells to the Purchaser, and the Purchaser
hereby purchases from the Company, 1,207,425 Class A Units (the "Purchase
Units") for an aggregate cash purchase price of $9,237,000 (the "Purchase
Price").
2.2 Governing Documents. The Purchaser hereby agrees, for the benefit of
the Company and its Members, to be bound by all of the terms, obligations,
conditions and agreements set forth in the LLC Agreement and the Registration
Rights Agreement that are applicable to the Purchase Units, as if it were a
party to each such agreement.
3. CLOSING; DELIVERY
3.1. Closing. The closing of the purchase and sale of the Purchase Units
hereunder (the "Closing") shall be held at the offices of Dow, Lohnes &
Albertson, PLLC, 1200 New Hampshire Avenue, N.W., Suite 800, Washington, D.C.
20036, at 10:00 A.M. on March 6,
<PAGE> 2
2000, or at such other time and place as the Company and the Purchaser mutually
agree upon, orally or in writing (the "Closing Date").
3.2. Delivery. At the Closing, the Company will deliver to the Purchaser
such documents as are necessary to effect the admission of the Purchaser as a
"Member" of the Company as such term is defined in the LLC Agreement and to add
the Purchaser as an additional "Holder" as such term is defined in the
Registration Rights Agreement, against payment by the Purchaser by wire transfer
of the Purchase Price to the Company. The Company and the Purchaser shall each
take such additional actions and execute and deliver such additional agreements
and other instruments and documents as are necessary or appropriate to effect
the transactions contemplated by this Agreement in accordance with its terms.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Purchaser to enter into this Agreement, the Company
represents and warrants to the Purchaser that the statements in this Article 4
are correct and complete as of the date of this Agreement.
4.1. Organization, Good Standing Qualification and Subsidiaries. The
Company is a limited liability company duly organized, validly existing and in
good standing under the laws of the state of Delaware. The Company has all
requisite limited liability company power and authority (a) to execute and
deliver this Agreement, (b) to issue and sell the Purchase Units, and to carry
out the provisions of this Agreement, and (c) to conduct its business as
presently conducted and as proposed to be conducted. The Company is duly
qualified and is in good standing in each jurisdiction where the failure to be
so qualified would have a material and adverse effect on the business,
properties, operations or financial condition of the Company. The Company has no
subsidiaries, participates in no joint ventures, and does not own or control or
have a commitment to purchase or acquire, directly or indirectly, any equity
interest in any entity.
4.2. Authorization and Binding Obligation. All action on the part of the
Company, its Management Committee and Members necessary for the authorization,
execution, delivery and performance of this Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
sale, issuance and delivery of the Purchase Units has been taken. This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and legally binding obligation of the Company enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws from
time to time in effect affecting the enforcement of creditors' rights generally,
and except as enforcement of remedies may be limited by general equitable
principles. The Purchase Units are not subject to any preemptive rights or
rights of first refusal, except for such preemptive rights as have been waived
hereunder solely for purposes of this transaction or as set forth in the LLC
Agreement.
2
<PAGE> 3
4.3. Absence of Conflicting Agreements; Noncontravention. The execution,
delivery and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby (with or without the giving of notice,
the lapse of time or both): (a) will not conflict with or result in any
violation or default of any provision of the Certificate of Formation or LLC
Agreement of the Company; (b) will not conflict with, result in a breach of, or
constitute a default under, any applicable law, rule or regulation, judgment,
order, ordinance, injunction or decree of any court or governmental
instrumentality; and (c) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, or accelerate
or permit the acceleration of any performance required by the terms of, any
material agreement, instrument, franchise, certificate, license or permit to
which the Company is a party or may be bound or by which its business or assets
are affected. Assuming the accuracy of the representations of the Purchaser set
forth in Article 5 hereof, no consent, approval, qualification, order or
authorization of, or filing with, any local, state, or federal governmental
authority is required on the part of the Company in connection with the
Company's valid execution, delivery, or performance of this Agreement, or the
offer, sale or issuance of the Purchase Units.
4.4. Membership Interests and Capital Accounts. Schedule 4.4 is a true and
complete list of the Company's Members and their respective Membership
Interests, Capital Accounts and Unit holdings immediately prior to and
immediately after the Closing. All issued and outstanding Units representing the
Company's Membership Interests (a) have been duly authorized and validly issued
and (b) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities. Except as provided in the LLC Agreement
and the exhibits thereto, the Company is not a party to any outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy, voting or member agreements, nor are there any other agreements
of any kind to which the Company is a party or, to its knowledge, which apply to
the purchase or acquisition of any of its securities. Except as provided in the
Registration Rights Agreement, the Company is not presently under any obligation
and has not granted any rights to register under the Securities Act any of its
presently outstanding securities or any of its securities that may subsequently
be issued.
4.5. Financial Statements. The Company has delivered to the Purchaser the
following financial statements (collectively, the "Financial Statements"): (a)
the unaudited balance sheet and statement of operations and cash flows for the
Company as of and for the fiscal year ended December 31, 1998, and (b) the
unaudited balance sheet (the "Balance Sheet") and statement of operations and
cash flows for the Company as of and for the fiscal year ended December 31,
1999. The Financial Statements (a) are in accordance with the books and records
of the Company (which books and records are complete and correct in all material
respects), (b) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, and (c) fairly present the financial condition and operating results
of the Company as of the dates and during the periods indicated therein, except
that the unaudited Financial Statements may not be in accordance with GAAP
because of the absence of footnotes normally contained therein and are
3
<PAGE> 4
subject to normal recurring year-end audit adjustments which are not,
individually or in the aggregate, expected to be material.
4.6. Absence of Undisclosed Liabilities. Except as set forth on Schedule
4.6, the Company has no material liabilities, contingent or otherwise, other
than (a) liabilities shown on the face of the Balance Sheet, (b) liabilities
incurred in the ordinary course of business subsequent to December 31, 1999, and
(c) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company.
4.7. Absence of Certain Changes or Events. Since December 31, 1999, other
than as set forth on Schedule 4.7 hereto and other than as set forth in the LLC
Agreement, there has not been:
(a) any change in the assets, liabilities, condition (financial or
otherwise), affairs, earnings, business, or operations of the Company, except
changes in the ordinary course of business which have not been, either in any
case or in the aggregate, materially adverse;
(b) any change, except in the ordinary course of business, in the
contingent obligations of the Company by way of guaranty or any assurance of
performance or payment, endorsement, indemnity, warranty or otherwise;
(c) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of the
Company, taken as whole;
(d) any waiver by the Company of a valuable right or of a material debt
owed to it;
(e) any loans made by the Company to its employees, officers or
directors other than advances of expenses made in the ordinary course of
business;
(f) any distribution of the assets of the Company or any direct or
indirect redemption, purchase or acquisition of any of the Company's Units;
(g) any labor organization activity or labor trouble;
(h) any other event or condition of any character which has materially
and adversely affected the business, condition, affairs, operations, properties
or assets of the Company;
(i) any material increases in the compensation of any of the Company's
employees, officers or directors;
4
<PAGE> 5
(j) any resignation or termination of employment of any officer or key
employee of the Company;
(k) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the business, properties or financial
condition of the Company;
(l) any material change to a Material Contract or material arrangement
by which the Company or any of its assets is bound or subject;
(m) any sale, assignment or transfer of any material patents,
trademarks, copyrights, trade secrets or other intangible assets;
(n) any mortgage, pledge, transfer of a security interest in, or lien
created by the Company with respect to any of its material properties or assets;
or
(o) any agreement entered into by the Company to do any of the
foregoing matters covered by Sections 4.7(a) through 4.7(n).
4.8. Title to Properties and Assets; Liens, etc. The Company has good title
to, or a valid leasehold interest in, all its material properties and assets,
including all properties and assets reflected in the Balance Sheet, except those
disposed of since the date thereof in the ordinary course of business, and none
of such properties or assets is subject to any mortgage, pledge, lien,
encumbrance or charge, other than the lien of current taxes, assessments,
governmental charges or levies not yet due and payable and the mortgages,
pledges, liens, encumbrances and charges set forth in Schedule 4.7 ("Permitted
Encumbrances"). The Company does not own, and has never owned, any real
property.
4.9. Intellectual Property.
(a) The Company owns, free and clear of all security interests, liens,
encumbrances or other charges (except for Permitted Encumbrances), or has the
valid right to use, all Intellectual Property (as defined below in this Section
4.9) used by it in its business as currently conducted or as currently proposed
by it to be conducted. Except as set forth on Schedule 4.9, no other person or
entity (other than licensors of software that is generally commercially
available, and their respective other licensees, and licensors of Intellectual
Property under the agreements disclosed pursuant to paragraph (d) below and
their respective other licensees) has any rights to any of the Intellectual
Property owned or used by the Company, and, to the knowledge of the Company, no
other person or entity is infringing, violating or misappropriating any of the
Intellectual Property that the Company owns. For purposes of this Agreement,
"Intellectual Property" means all (i) patents, patent applications, patent
disclosures and all related continuation, continuation-in-part, divisional,
reissue, reexamination, utility model, certificate of invention and design
patents, patent applications, registrations and applications for registrations,
(ii) trademarks, service marks, trade dress, logos, trade names, corporate
names, domain names and URLs, and registrations and applications for
registration thereof, (iii) copyrights and registrations and applications for
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<PAGE> 6
registration thereof, (iv) trade secrets and confidential business information,
whether patentable or unpatentable and whether or not reduced to practice,
know-how, manufacturing and production processes and techniques, research and
development information, copyrightable works, financial marketing and business
data, pricing and cost information, business and marketing plans and customer
and supplier lists and information, and (v) other proprietary rights relating to
any of the foregoing.
(b) None of the activities or business conducted by the Company
infringes, violates or constitutes a misappropriation of any Intellectual
Property of any other person or entity and, to the Company's knowledge, none of
the activities or business currently proposed to be conducted by the Company
infringes, violates or constitutes a misappropriation of any Intellectual
Property of any other person or entity. Other than as set forth on Schedule 4.9,
the Company has not received any complaint, claim or notice alleging any such
infringement, violation or misappropriation, and to the knowledge of the
Company, there is no reasonable basis for any such complaint, claim or notice.
(c) Schedule 4.9(c) identifies (i) each patent that has been issued or
assigned to the Company with respect to any of its Intellectual Property, (ii)
each pending patent application that the Company has made with respect to any of
its Intellectual Property, and (iii) each copyright registration or application,
each trademark registration or application, and each domain name registration or
application with respect to the Company's Intellectual Property. The contracts
designated on Schedule 4.11 as relating to this Section 4.9(c) include all of
the material licenses or other agreements pursuant to which the Company has
granted any rights to any third party with respect to any of its Intellectual
Property.
(d) Schedule 4.9(d) identifies each agreement with third parties
pursuant to which the Company obtains rights to Intellectual Property material
to the business of the Company (other than software that is generally
commercially available) that is owned by a party other than the Company. The
contracts designated on Schedule 4.11 as relating to this Section 4.9(d) include
additional license agreements and distribution agreements with third parties
pursuant to which the Company obtains rights to Intellectual Property material
to the business of the Company that is owned by a party other than the Company.
Other than license fees for software that is generally commercially available or
license fees due to third parties pursuant to the agreements appropriately
designated on Schedule 4.9(d) and Schedule 4.11, the Company is not obligated to
pay any royalties or other compensation to any third party in respect of its
ownership, use or license of any of its Intellectual Property.
(e) The Company has taken reasonable precautions (i) to protect its
rights in its Intellectual Property and (ii) to maintain the confidentiality of
its trade secrets, know-how and other confidential Intellectual Property, and to
the Company's knowledge, there have been no acts or omissions (other than those
made based on reasonable, good faith business decisions) by the officers,
directors, shareholders and employees of the Company the result of which would
be to materially compromise the rights of the Company to apply for or enforce
appropriate legal protection of the Company's Intellectual Property.
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<PAGE> 7
(f) All of the Company's owned Intellectual Property has been created
by employees of the Company within the scope of their employment by the Company
or by independent contractors of the Company who have executed agreements
expressly assigning all right, title and interest in such Intellectual Property
to the Company. Except as set forth on Schedule 4.9(f), no portion of the
Company's owned Intellectual Property was jointly developed with any third
party. The Company does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company.
4.10. Compliance with Other Instruments. The Company is not in violation
of any term of its LLC Agreement, or in any material respect of any term or
provision of any material mortgage, evidence of indebtedness, indenture,
contract, agreement, instrument, judgment or decree, order, statute, rule or
regulation applicable to the Company or to which its properties is subject.
4.11. Material Contracts and Obligations. Schedule 4.11 sets forth a list
of all material agreements or commitments of any nature to which the Company is
a party or by which it is bound ("Material Contracts"), including without
limitation:
(a) Any agreement which requires future expenditures by the Company in
excess of $50,000 or which might result in payments to the Company in excess of
$50,000.
(b) Any employment and consulting agreements, employee benefit, bonus,
pension, profit-sharing, stock option, stock purchase and similar plans and
arrangements.
(c) Any material distributor or sales representative agreement.
(d) Any material agreement relating to the acquisition, transfer,
distribution, use, development, sharing or license of any technology or
Intellectual Property.
(e) Any material agreement relating to hyperlinks, co-branded sites,
affiliations, barters, revenue sharing, advertising sales, data distribution or
data acquisition or content.
(f) Any agreement with any current or former member, officer or
director of the Company, or any "affiliate" or "associate" of such persons (as
such terms are defined in the rules and regulations promulgated under the
Securities Act), including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal property
from, or otherwise requiring payments to, any such person or entity.
(g) Any agreement under which the Company is restricted or limited in
any material respect from carrying on any business or other services anywhere in
the world.
(h) Any agreement relating to indebtedness for borrowed money or
evidencing a security interest or mortgage in the assets of the Company.
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<PAGE> 8
(i) Any guaranty issued by the Company.
(j) Any agreement relating to the acquisition, issuance or transfer of
any Units or securities of the Company other than the LLC Agreement.
(k) Any agreement relating to the acquisition or disposition of a
material portion of the Company's assets.
(l) Any agreement for the acquisition of the business or shares of
another party.
(m) Any outstanding offer, commitment or obligation to enter into any
agreement of the nature described in subsections (a) through (l) of this Section
4.11.
The Company or its counsel has delivered or made available to the
Purchaser's counsel copies of each of the foregoing agreements. All of such
agreements are valid, binding and in full force and effect. Neither the Company,
nor, to the Company's knowledge, any other party thereto, is in default of any
of its obligations under any of such agreements in a manner which could have a
material adverse effect on the Company.
4.12. Taxes. The amount shown on the Balance Sheet as provision for taxes
is sufficient in all material respects for payment of all accrued and unpaid
federal, state, county, local and foreign taxes for the period then ended and
all prior periods. The Company has filed or has obtained presently effective
extensions with respect to all federal, state, county, local and foreign tax
returns which are required to be filed by it, such returns are true and correct
in all material respects and all taxes shown thereon to be due have been timely
paid with exceptions not material to the Company. Federal income tax returns of
the Company have not been audited by the Internal Revenue Service, and no
controversy with respect to taxes of any type involving or related to the
Company is pending or, to the best of the Company's knowledge, threatened. The
Company has withheld or collected from each payment made to its partners or
employees the amount of all taxes required to be withheld or collected therefrom
and has paid all such amounts to the appropriate taxing authorities when due.
The Company qualifies (and has since the date of its formation qualified) and,
giving effect to the terms of the LLC Agreement, will qualify immediately after
the Closing Date, to be treated as a partnership for federal income tax purposes
and none of the Company or any member or any taxing authority has taken a
position inconsistent with such treatment.
4.13. Claims and Legal Actions. There are no actions, suits, proceedings
or investigations pending against the Company or its properties before any court
or governmental agency (nor to the best of the Company's knowledge, is there any
threat thereof, except for any proceedings generally affecting the Internet
industry). The Company is not a party to or subject to any writ, order,
injunction, decree or judgment and there is no action, suit, proceeding or
investigation by the Company currently pending or which the Company currently
intends to originate.
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<PAGE> 9
4.14. Compliance with Laws; Permits. The Company is not nor has it been in
violation of (nor would any policy, procedure or practice of the Company be
reasonably expected to result in a violation of), or delinquent in respect to,
any statute, rule, regulation, order, restriction, decree, arbitration award, or
any agreement with, or any license or permit from, any domestic or foreign
government or any instrumentality or agency thereof in respect of the conduct of
the Company's business or the ownership of its properties which violation has or
would reasonably be expected to materially and adversely affect the business,
assets, liabilities, financial condition, operations of the Company. Without
limiting the foregoing, the Company is not nor has it been in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such applicable statute, law
or regulation. The Company has all franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties or financial condition of the Company, and the Company has no
knowledge or belief that it will not be able to obtain, without undue burden or
expense, any similar authority for the conduct of its business as proposed to be
conducted under the Company's current business plan. The Company is not in
default in any material respect under such franchises, permits, licenses or
other similar authority.
4.15. Employees; Employee Benefits. To the best of the Company's
knowledge, no employee or consultant of the Company is in violation of any
material term of any employment contract or any other contract or agreement
relating to the relationship of any employee or consultant with the Company or
any other party because of the nature of the business conducted by the Company.
The Company does not have any collective bargaining agreements covering any of
its employees and there is no strike or labor dispute or union organization
activities threatened or pending. The Company has not received notice and has no
knowledge otherwise that any key employee of the Company has any plans to
terminate his or her employment with the Company, nor does the Company have a
present intention, except as previously disclosed to the Purchaser by the
Company, to terminate the employment of any key officer. Except as set forth on
Schedule 4.15, the Company does not have any deferred compensation, pension,
profit sharing, bonus, insurance, severance or other similar employee benefit
plan or obligation covering any of its employees or any plan subject to the
Employee Retirement Income Security Act of 1974. The Company has complied in all
material respects with all applicable state and federal equal employment
opportunity and other laws relating to employment. Except for Schedule 4.15, the
Company's obligations to its independent contractors or consultants are limited
to payment of fees for services rendered. Except as may be set forth in Schedule
4.15, subject to the general principles related to wrongful termination, the
employment of each officer and employee of the Company is terminable at the will
of the Company.
4.16. Insurance. The Company maintains or is covered by valid policies of
workers' compensation insurance, directors' and officers' liability insurance,
and of insurance with respect to its properties and business of the kinds and in
the amounts that the Company believes is reasonable, including, without
limitation, insurance against loss, damage, fire, theft, public liability and
other risks.
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<PAGE> 10
4.17. Brokers or Finders; Other Offers. The Company has not incurred, and
will not incur, directly or indirectly, as a result of any action taken by the
Company, any liability for brokerage or finders' fees or agents' commissions or
any similar charges in connection with this Agreement.
4.18. Related-Party Transactions. Except as set forth on Schedule 4.18, to
the Company's knowledge, no member, Broad Affiliate of a member (as defined
below), manager or officer of the Company (each, a "Related Party") has any
direct or indirect ownership interest in any firm or corporation with which the
Company has a material business relationship (or any firm or corporation that
competes with the Company), nor does any such Related Party receive any material
benefit from any material contract with the Company (other than such contracts
as relate to any such person's ownership interest in the Company). For the
purposes of this Section 4.18, "Broad Affiliate" has the meaning given such term
in the LLC Agreement.
4.19. No Bankruptcy. The Company is not bankrupt or insolvent, nor is it a
party to any current or threatened bankruptcy, insolvency or similar proceeding.
4.20. No Guarantees. The Company has not guaranteed the obligations or
liabilities of any other person, firm or corporation.
4.21. Veracity. No representation or warranty of the Company contained in
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
herein, in light of all the circumstances under which they were made, not
misleading, and there is no fact or condition known to the Company which has not
been disclosed in writing to the Purchaser that has had or would reasonably be
likely to have a material adverse effect on the Company's ability to perform its
material obligations under this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
In order to induce the Company to enter into this Agreement, the Purchaser
represents and warrants to the Company that the statements contained in this
Article 5 are correct and complete as of the date of this Agreement.
5.1. Authorization. This Agreement when executed and delivered by the
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws from time to time in
effect affecting the enforcement of creditors' rights generally, and except as
enforcement of remedies may be limited by general equitable principles. All
consents necessary, if any, to authorize the Purchaser to enter into this
Agreement have been obtained.
5.2. Experience. The Purchaser has substantial experience in evaluating
and investing in private placement transactions so that the Purchaser is capable
of evaluating the merits and risks of the Purchaser's investment in the Company.
The Purchaser, by reason of
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<PAGE> 11
its business or financial experience or the business or financial experience of
its professional advisors who are unaffiliated with and who are not compensated
by the Company or any affiliate or selling agent of the Company, directly or
indirectly, has the capacity to protect its own interests in connection with the
purchase of the Units hereunder.
5.3. Investment. The Purchaser is acquiring the Purchase Units for
investment for the Purchaser's own account, not as a nominee or agent, and not
with the view to, or for resale in connection with, any distribution thereof.
The Purchaser understands that the Units to be purchased have not been, and may
not be, registered under the Securities Act of 1933 (the "Securities Act") or
the securities laws of any state ("Blue Sky Laws") by reason of a specific
exemption or exemptions from the registration provisions of the Securities Act
or Blue Sky Laws which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein.
5.4. Accredited Investor. The Purchaser represents that it is an
"accredited investor" as such term is defined in Rule 501 promulgated under the
Securities Act.
5.5. Rule 144. The Purchaser acknowledges that the Units must be held
indefinitely unless subsequently registered under the Securities Act and
applicable Blue Sky Laws or an exemption from such registration is available.
5.6. Brokers or Finders. The Company has not incurred, and will not incur,
directly or indirectly, as a result of any action taken by the Purchaser any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
6. CONDITIONS TO PURCHASER'S OBLIGATIONS.
The Purchaser's obligation to purchase the Purchase Units at the Closing is
subject to the fulfillment as of the Closing of the following conditions:
6.1. Authorization. All action on the part of the Company, its Management
Committee and Members necessary for the authorization, execution, delivery and
performance of this Agreement, the authorization, sale, issuance and delivery of
the Purchase Units, and the performance of all of the Company's obligations
hereunder shall have been taken in accordance with and as required by the
Company's LLC Agreement.
6.2. Representation and Warranties. The representations and warranties
made by the Company in Section 4 hereof shall be true and correct in all
material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date. The President of the Company shall deliver to the
Purchaser at the Closing a certificate certifying that the conditions specified
in Sections 6.1 through 6.3 have been fulfilled.
6.3. Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by Company on or prior to the Closing shall have been
performed or complied with in all material respects.
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<PAGE> 12
6.4. Opinion of Company's Counsel. The Purchaser shall have received from
Dow, Lohnes & Albertson, PLLC, an opinion addressed to it dated the Closing, in
the form attached hereto as Exhibit A.
6.5. Consents and Waivers. The Company shall have obtained any and all
material consents (including but not limited to governmental or regulatory
consents or approvals) permits and waivers applicable to the Company necessary
or appropriate for the consummation of the transactions contemplated by this
Agreement.
7. MISCELLANEOUS
7.1. Restrictions on Transfer. The Purchaser acknowledges and agrees that
the Purchase Units shall be subject to the restrictions on sale of Units
contained in Section 11.1 of the LLC Agreement.
7.2. Survival. All representations, warranties and covenants contained in
this Agreement shall be deemed continuing representations, warranties and
covenants and shall survive the Closing; provided that the representations and
warranties shall survive until the earlier of (a) the first anniversary of the
Closing or (b) the date upon which the Securities and Exchange Commission first
declares effective any registration statement with respect to any class of
securities of the Company (or its corporate successor).
7.3. Notices. All notices and other communications hereunder shall be (a)
in writing; (b) delivered by telecopy, by commercial overnight or same-day
delivery service with all delivery costs paid by sender, or by registered or
certified mail with postage prepaid, return receipt requested; (c) deemed given
on the date and at the time shown on the telecopy confirmation of receipt (if
delivered by telecopy), on the date and at the time (if recorded) of delivery by
the commercial delivery service, as shown in the records thereof (if delivered
by commercial overnight or same-day delivery service), or on the date shown on
the return receipt (if delivered by registered or certified mail); and (d)
addressed to the parties at their addresses specified on the signature page to
this Agreement (or at such other address for a party as shall be specified by
like notice).
7.4. Waiver. Any waiver of any terms or conditions of this Agreement shall
be in writing and shall not operate as a waiver of any other breach of such
terms or conditions or any other term or condition, nor shall any failure to
enforce any provision of this Agreement operate as a waiver of such provision or
of any other provision of this Agreement.
7.5. Captions; Partial Invalidity. The captions, section numbers and index
appearing in this Agreement are inserted only as a matter of convenience and in
no way define, limit, construe or describe the scope or intent of such sections
or articles of this Agreement, nor in any way affect this Agreement.
7.6. Counterparts. This Agreement may be executed in counterparts each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument, and in pleading or proving any provision of this
Agreement, it shall not be
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<PAGE> 13
necessary to produce more than one complete set of such counterparts. Any
counterpart of this Agreement which has attached to it separate signature pages,
which together contain the signatures of all parties hereto, shall for all
purposes be deemed a fully executed original.
7.7. Variations of Pronouns; Number; Gender. All pronouns and all
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the person or persons or entity
may require. Whenever used herein the singular number shall include the plural,
the plural shall include the singular, and the use of any gender shall include
all genders.
7.8. Governing Law; Construction. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of Delaware
without regard to its conflict of laws provisions. The parties acknowledge and
agree that they have been represented by counsel and that each of the parties
has participated in the drafting of this Agreement. Accordingly, it is the
intention and agreement of the parties that the language, terms and conditions
of this Agreement are not to be construed in any way against or in favor of any
party hereto by reason of the responsibilities in connection with the
preparation of this Agreement.
7.9. Third Parties. None of the provisions of this Agreement shall be for
the benefit of, or enforceable by, any employee or creditor of any party hereto,
nor any other person not a party hereto.
7.10. Entire Agreement. This Agreement and exhibits attached hereto shall
constitute the entire agreement of the parties hereto; all prior agreements
between the parties, whether written or oral, are merged herein and shall be of
no force and effect; and there are no restrictions, agreements, representations,
warranties, arrangements, or undertakings, oral or written, between or among the
parties relating to the transactions contemplated hereby which are not fully
expressed or referred to herein. This Agreement cannot be changed, modified or
discharged orally, but only by an agreement in writing, signed by the party
against whom enforcement of the change, modification or discharge is sought.
7.11. Benefit and Binding Effect. Other than in connection with a pledge,
assignment or other transfer of all or any of its interest in the Company that
is permitted by the LLC Agreement, none of the parties hereto may assign the
rights under or delegate any duties under this Agreement without the prior
written consent of the other parties hereto. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
7.12. Expenses. Except as otherwise expressly provided, the Company and the
Purchaser shall each bear its own expenses incurred on its behalf with respect
to this Agreement and the transactions contemplated thereby.
7.13. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such
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<PAGE> 14
severability shall be effective if it materially changes the economic benefit of
this Agreement to any party.
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<PAGE> 15
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date first above written.
COMPANY:
AUTOTRADER.COM, LLC.
By: /s/ Victor A. Perry, III
-----------------------------
Name: Victor A. Perry, III
---------------------------
Title: President and Chief
Executive Officer
--------------------------
Address for Notices:
5775 Peachtree Dunwoody Road
Suite A-200
Atlanta, Georgia 30342
Attention: Victor A. Perry, III
Facsimile: (404) 843-7412
PURCHASER:
eBay, Inc.
By: /s/ Brian Swette
-----------------------------
Name: Brian Swette
---------------------------
Title: Chief Operating Officer
--------------------------
Address for Notices:
2125 Hamilton Avenue
San Jose, California 95125
Attention: General Counsel
Facsimile: 408-558-7514
15
<PAGE> 1
EXHIBIT 10.15
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "Agreement") is made as of the 6th day of
March, 2000 by and among eBay, Inc., a Delaware corporation ("eBay"), Manheim
ATC, Inc., a Delaware corporation ("Manheim"), and AutoTrader.com, LLC, a
Delaware limited liability company (the "Company").
RECITALS:
A. The Company, Manheim, ADP, Inc., a Delaware corporation ("ADP"), LTM
Company L.P., a Virginia limited partnership ("Landmark"), ATC Holdings, Inc., a
Nevada corporation ("ATCHI"), and KPCB Holdings, Inc, as nominee ("KPCB"), are
parties to that certain Amended and Restated Registration Rights Agreement,
dated as of August 20, 2000 (the "Registration Rights Agreement"), pursuant to
which the Company has granted Manheim, ADP, Landmark, ATCHI and KPCB certain
registration rights with respect to the Company's Class A Units.
B. eBay and the Company are parties to that certain Unit Purchase
Agreement, dated as of March 6, 2000 (the "Unit Purchase Agreement"), pursuant
to which the Company has agreed to issue and sell to eBay three percent (3%) of
the Company's limited liability company membership Units, determined on a fully
diluted basis (the "Purchase Units").
C. The Company wishes to grant registration rights to eBay under the
Registration Rights Agreement and to add eBay as a Holder under the terms of the
Registration Rights Agreement.
In consideration of the mutual covenants contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Joinder. In accordance with Section 11.4 of the Registration Rights
Agreement, by the execution of this Agreement, eBay hereby agrees to become, and
to be deemed for all purposes to be, a signatory to the Registration Rights
Agreement and an additional Holder thereunder, and eBay shall be entitled to all
of the rights and benefits of an additional Holder in accordance with the terms
of the Registration Rights Agreement. eBay agrees to be bound by all of the
terms and conditions applicable to it as an additional Holder under the
Registration Rights Agreement with respect to the Purchase Units. In accordance
with Section 11.4 of the Registration Rights Agreement, each of the Company and
Manheim, as the holder of a majority of the outstanding Registrable Securities,
hereby consents and approves the addition of eBay as an additional Holder under
the Registration Rights Agreement.
2. Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of Delaware without regard to
its conflict of laws provisions.
<PAGE> 2
3. Further Assurances. The parties hereto each agree to perform any further
acts and execute and deliver any additional documents that may be reasonably
necessary to carry out the provisions of this Agreement or the Registration
Rights Agreement.
4. Binding Effect. This Agreement and the Registration Rights Agreement
shall be binding upon, and shall inure to the benefit of, each of the parties
hereto and their respective successors and assigns.
5. Capitalized Terms. All capitalized terms used but not otherwise defined
in this Agreement shall have the same meaning as set forth in the Registration
Rights Agreement.
6. Amendments. This Agreement and any of the provisions hereof may not be
amended, altered or added to in any manner except by a document in writing
signed by each party.
7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed and original, but all of which
together shall constitute one and the same instrument.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
<PAGE> 3
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date first above written.
COMPANY:
AUTOTRADER.COM, LLC
By: /s/ Andrew A. Merdek
-----------------------------
Name: Andrew A. Merdek
---------------------------
Title: Secretary
--------------------------
EBAY:
eBay, Inc.
By: /s/ Brian Swette
-----------------------------
Name: Brian Swette
---------------------------
Title: Chief Operating Officer
--------------------------
MANHEIM:
MANHEIM ATC, INC.
By: /s/ Andrew A. Merdek
-----------------------------
Name: Andrew A. Merdek
---------------------------
Title: Secretary
--------------------------
<PAGE> 1
EXHIBIT 23.2
[LETTERHEAD OF DELOITTE & TOUCHE]
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Members of AutoTrader.com, LLC
We consent to the use in this Registration Statement relating to 6,500,000
shares of Class A Common Stock of AutoTrader.com, Inc. on Form S-1 of our report
dated April 3, 2000, appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the headings "Selected
Historical and Unaudited Pro Forma Financial Data" and "Experts" in such
Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of AutoTrader.com, LLC, listed in
Item 16. This financial statement schedule is the responsibility of the
management of AutoTrader.com, LLC. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 12, 2000
<PAGE> 1
EXHIBIT 23.3
[LETTERHEAD OF DELOITTE & TOUCHE]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement relating to 6,500,000
shares of Class A Common Stock of AutoTrader.com, Inc. on Form S-1 of our report
dated March 17, 2000 (relating to the financial statements of Intellisoft
Development Corporation), appearing in the Prospectus, which is a part of this
Registration Statement.
We also consent to the references to us under the headings "Selected Historical
and Unaudited Pro Forma Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 12, 2000
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