<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2000
REGISTRATION NO. 333-34642
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AUTOTRADER.COM, INC.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 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>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
No form of prospectus is filed with this Amendment No. 1 to the registration
statement. This amendment is being filed solely to file Exhibit 10.1.
<PAGE> 3
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> 4
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> 5
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TABLE OF CONTENTS
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PAGE
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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> 6
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> 7
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> 8
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> 9
THE OFFERING
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<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> 10
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> 11
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> 12
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> 13
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> 22
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> 23
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology including "could," "may," "will," "should," "expect," "intend,"
"plan," "anticipate," "believe," "estimate," "predict," "potential," "continue"
or "opportunity," the negative of these terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially from
any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as otherwise required by federal
securities laws, we are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform them to actual results
or to changes in our expectations.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 6,500,000
shares of Class A common stock that we are offering hereby will be approximately
$ 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> 24
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> 25
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> 26
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> 27
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> 28
<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> 29
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> 30
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> 31
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> 32
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 page views)
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Well-Established and Recognized Brand
By using the AutoTrader name, we are able to both take advantage of a
highly recognized brand that Trader Publishing's AutoTrader magazines have
already established and build upon this brand through our own marketing efforts
and by ongoing exposure through Trader Publishing's and Manheim Auctions'
marketing commitments. Unlike many new Internet companies that face a major
challenge in establishing their brand name, AutoTrader is already the best known
name in the automobile classifieds market in the United States. Trader
Publishing's long history of printing used vehicle listings under the AutoTrader
brand, its presence in over 137,000 retail locations across the United States
and its exclusive commitments to promote our brand and domain names in its print
magazines provide us with recognition and credibility in the used vehicle
marketplace and drive large numbers of private sellers and shoppers to our Web
site. In addition, Manheim Auctions' exclusive obligations to promote our brand
and domain names at each of its 67 North American wholesale auto auctions give
us access to the more than 60,000 dealers who visit Manheim Auctions each month.
See "-- Strategic Alliances," "Certain Relationships and Related
Transactions -- Contribution-Related Agreements -- Data Contribution Agreement
with Trader Publishing" and "-- Data Contribution Agreement with Manheim
Auctions."
Strategic Alliances
We believe our strategic alliances, including our exclusive data
contribution agreements with Manheim Auctions, Trader Publishing and ADP's
Dealer Services Group, provide us with significant competitive advantages, which
include the ability to aggregate the most comprehensive selection of used
vehicles for sale in the United States. Since Trader Publishing, Manheim
Auctions and ADP are the three largest aggregators of used vehicle information
in the United States and each company has agreed to make AutoTrader.com its
exclusive consumer-oriented Web site for vehicle inventory aggregation, we
believe that we are well-positioned to maintain our lead as the largest
aggregator of used vehicle classified listings in the United States.
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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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 85
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> 86
- 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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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> 112
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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
[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> 119
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............................................. 10,500
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> 120
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> 121
<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>
- ---------------
* Previously filed with the registration statement.
** To be filed by amendment.
++ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment, and the omitted portions have been filed separately
with the Securities and Exchange Commission.
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.
II-3
<PAGE> 122
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at such
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AutoTrader.com,
Inc. has duly caused this amendment no. 1 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, State of Georgia on May 3, 2000.
AUTOTRADER.COM, INC.
By: /s/ VICTOR A. PERRY, III
------------------------------------
Victor A. Perry, III
President and Chief Executive
Officer
AutoTrader.com, Inc., a Delaware corporation, and each person whose
signature appears below constitutes and appoints Victor A. Perry, III and
William N. Templeton, and either of them, with full power to act without the
others, such person's true and lawful attorneys-in-fact, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign this Registration Statement, and any and all
amendments thereto (including, without limitation, post-effective amendments and
any subsequent registration statement filed pursuant to Rule 462(b) or Rule
462(d) under the Securities Act of 1933, as amended), and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing necessary or desirable to be done in and
about the premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact, or either of them, or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to the registration statement has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ VICTOR A. PERRY, III President and Chief Executive May 3, 2000
- ----------------------------------------------------- Officer and Director
Victor A. Perry, III
* Vice President and Chief May 3, 2000
- ----------------------------------------------------- Financial Officer
William N. Templeton
* Director of May 3, 2000
- ----------------------------------------------------- Accounting/Controller
Jonathan W. Miller
* Director May 3, 2000
- -----------------------------------------------------
James C. Kennedy
* Director May 3, 2000
- -----------------------------------------------------
G. Dennis Berry
* Director May 3, 2000
- -----------------------------------------------------
Darryll M. Ceccoli
* Director May 3, 2000
- -----------------------------------------------------
David E. Easterly
</TABLE>
II-5
<PAGE> 124
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director May 3, 2000
- -----------------------------------------------------
Dean H. Eisner
* Director May 3, 2000
- -----------------------------------------------------
Robert C. O'Leary
* Director May 3, 2000
- -----------------------------------------------------
Allan Stejskal
* Director May 3, 2000
- -----------------------------------------------------
Richard F. Barry, III
* Director May 3, 2000
- -----------------------------------------------------
Joseph Lacob
</TABLE>
*POWER OF ATTORNEY
Victor A. Perry, III, by signing his name hereto, does sign this document
on behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.
By: /s/ VICTOR A. PERRY, III
------------------------------------
Victor A. Perry, III
Attorney-in-fact
II-6
<PAGE> 1
EXHIBIT 10.1
INTERACTIVE MARKETING AGREEMENT
This Interactive Marketing Agreement (the "Agreement"), dated as of
April 13, 1999 (the "Effective Date"), is between America Online, Inc. ("AOL"),
a Delaware corporation, with offices at 22000 AOL Way, Dulles, Virginia 20166,
and AutoConnect, L.L.C. ("Marketing Partner", or "MP"), a Delaware limited
liability company, with offices at 1400 Lake Hearn Drive, Atlanta, Georgia
30319. AOL and MP may be referred to individually as a "Party" and collectively
as the "Parties."
INTRODUCTION
AOL and MP each desires to enter into an interactive marketing
relationship whereby AOL will promote and distribute an interactive site
referred to (and further defined) herein as the Affiliated MP Site. This
relationship is further described below and is subject to the terms and
conditions set forth in this Agreement. Defined terms used but not defined in
the body of the Agreement will be as defined on Exhibit B attached hereto.
TERMS
1. PROMOTION, DISTRIBUTION AND MARKETING.
1.1. AOL PROMOTION OF AFFILIATED MP SITE. AOL will provide MP with
the promotions for the Affiliated MP Site described on Exhibit
A attached hereto and in Sections 1.2.1 and 1.2.2 below.
Subject to MP's reasonable prior approval, AOL will have the
right to fulfill its promotional commitments with respect to
any of the foregoing by providing MP comparable promotional
placements in appropriate alternative areas of the AOL
Network. In addition, if AOL is unable to deliver any
particular Promotion, AOL will work with MP to provide MP, as
its sole remedy, a comparable promotional placement. AOL
reserves the right to redesign or modify the organization,
structure, "look and feel," navigation and other elements of
the AOL Network at any time. In the event such modifications
materially and adversely affect any specific Promotion, AOL
will work with MP to provide MP, as its sole remedy, a
comparable promotional placement. The promotions described on
Exhibit A and in Sections 1.2.1 and 1.2.2 and any comparable
promotions provided herein shall be referred to as the
"Promotions." In the event that AOL discontinues its
Classified Auto Category, the Parties shall attempt to agree,
within * (*) days of such discontinuance, upon
comparable promotional placements to be provided to MP, to the
extent of the promotional commitments still owed to MP under
this Agreement. In the event that the Parties cannot agree on
such comparable promotional placements within such * (*)
day period, the parties will submit such dispute to the
Management Committee (as defined in Section 6.1 hereof) for
resolution. If the Management Committee cannot resolve such
dispute within an additional * (*) days, MP shall have
the right to terminate this Agreement upon written notice to
AOL. In the event of termination of this Agreement by MP in
accordance with this Section 1.1, AOL shall refund to MP the
pro rata portion of the payments made pursuant to Section 4.1
hereof equal to the value of the Classifieds Final Sponsorship
Shortfall as defined in Section 1.2.2 hereto, to be determined
in accordance with the allocation methodology set forth in
Section 1.2.2 hereof.
1.2. IMPRESSIONS COMMITMENT.
1.2.1. During the Term, AOL shall deliver * Impressions (*)
to MP through the Promotions described on Exhibit A
(the "Promotions Impressions Commitment"). In the
event there is (or
1
* Certain information on this page has been omitted from this filing and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
<PAGE> 2
will be in AOL's reasonable judgment) a shortfall in
the Promotions Impressions Commitment as of the end
of the Initial Term (a "Final Promotions Shortfall"),
AOL will provide MP, as MP's sole remedy, with one of
the following three remedies: (a) continuation of
Promotions until such time as the Final Promotions
Shortfall has been delivered, (b) an advertising
credit equal to the value of the Final Promotions
Shortfall (determined by multiplying the percentage
of Impressions that were not delivered by the total,
guaranteed payment provided for in Section 4.1 below)
to be used to purchase (subject to availability)
inventory within the Levels described on Exhibit A at
the CPMs specified therein for each Level, or (c) a
refund of a pro rata portion of the payments made
pursuant to Section 4.1 equal to the value of the
Final Promotions Shortfall (determined by multiplying
the percentage of Impressions that were not delivered
by the total, guaranteed payment provided for in
Section 3.1 below). In the event of a Final
Promotions Shortfall, AOL shall promptly provide MP
with written notice of the Final Promotions Shortfall
and AOL shall determine, in its sole discretion,
which of the remedies set forth in the foregoing
sentence shall be provided to MP.
In the event that AOL selects remedy (a) or (b) set
forth above, AOL shall deliver the Final Impression
Shortfall to MP within six (6) months following the
expiration of the Initial Term.
At least * (*) Impressions shall be delivered to the
main screen of the vehicles department of Classifieds
Plus (the "Classifieds Plus Sponsorship Impressions
Commitment") and at least * Impressions (*) shall be
delivered to the main screen of the Decision Guide
Affiliated Site (the "DGAS Sponsorship Impressions
Commitment").
1.2.2. In the event there is (or will be in AOL's reasonable
judgment) a shortfall in the Classifieds Plus
Sponsorship Impression Commitment as of the end of
the Initial Term (a "Classifieds Final Sponsorship
Shortfall"), AOL will provide MP, as MP's sole
remedy, with one of the following two remedies: (a)
AOL will continue to deliver Impressions on the main
screen of the vehicle department of Classified Plus
until such time as the Classifieds Final Sponsorship
Shortfall has been delivered, or (b) AOL will pay MP
a refund of * for each Impression to the main screen
of the vehicle department of Classified Plus
committed to but not delivered. In the event of a
Classifieds Final Sponsorship Shortfall, AOL shall
promptly provide MP with written notice of the
Classifieds Final Sponsorship Shortfall and AOL shall
determine, in its sole discretion, which of the
remedies set forth in the foregoing sentence shall be
provided to MP. In the event there is (or will be in
AOL's reasonable judgment) a shortfall in the DGAS
Sponsorship Impression Commitment as of the end of
the Initial Term (a "DGAS Final Sponsorship
Shortfall"), AOL will provide MP, as MP's sole
remedy, with one of the following three remedies: (a)
AOL will continue to deliver Impressions on the
Decision Guide Affiliated Site until such time as the
DGAS Final Sponsorship Shortfall has been delivered,
(b) AOL will give MP an advertising credit equal to *
cents times the number of undelivered Impressions to
be used to purchase (subject to availability)
inventory within the Levels described on Section A of
Exhibit A at the CPMs specified therein for each
Level or (c) AOL will pay MP a refund of * cents for
each Impression to the Decision Guide Affiliated Site
committed to but not delivered. In the event of a
DGAS Final Sponsorship Shortfall, AOL shall promptly
provide MP with written notice of the DGAS Final
Sponsorship Shortfall and AOL shall determine, in its
sole discretion, which of the remedies set forth in
the foregoing sentence shall be provided to MP.
2
* Certain information on this page has been omitted from this filing and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
<PAGE> 3
1.3. CONTENT OF PROMOTIONS. Promotions for MP will link only to the
Affiliated MP Site and will promote only the MP Products
listed on Exhibit D. The specific MP Content to be
contained within the Promotions (including, without
limitation, advertising banners and contextual promotions)
(the "Promo Content") will be determined by MP, subject to
AOL's technical limitations, the terms of this Agreement and
AOL's then-applicable policies relating to advertising and
promotions (provided that, with respect to AOL's
then-applicable policies relating to advertising and
promotions, MP shall not be in breach of this Agreement for
violations of any such policies to the extent that MP was not
aware of the applicable terms of any such then-applicable
policies). MP will meet in person or by telephone with its
designated AOL account services representative at least
monthly to review operations and performance hereunder,
including a review of the Promo Content to ensure that it is
designed to maximize performance. MP will consistently update
the Promo Content no less than twice per month. Except to the
extent expressly described herein, the specific form,
placement, duration and nature of the Promotions will be as
determined by AOL in its reasonable editorial discretion
(consistent with the editorial composition of the applicable
screens).
1.4. MP PROMOTION OF AFFILIATED MP SITE AND AOL. As set forth in
Exhibit C, MP will promote the availability of the Affiliated
MP Site through the AOL Network.
2. AFFILIATED MP SITE AND DECISION GUIDE.
2.1. CONTENT. MP will make available through the Affiliated MP Site
the comprehensive offering of MP services and other related
Content described on Exhibit D. Except as mutually agreed in
writing by the Parties, the Affiliated MP Site will contain
only Content that is directly related to the MP services
listed on Exhibit D and will not contain any third-party
products, services, programming or other Content unrelated to
the MP services described on Exhibit D hereto. MP will review,
delete, edit, create, update and otherwise manage all Content
available on or through the Affiliated MP Site in accordance
with the terms of this Agreement. MP will ensure that the
Affiliated MP Site shall not in any respect promote,
advertise, market or distribute the products, services or
content of any other Interactive Service. AOL has provided MP
a list of categories in which AOL has established exclusive or
premier relationships with third parties. MP agrees that it
shall secure AOL's approval before entering into any agreement
to promote, advertise, market or distribute, within the
Affiliated MP Site, the products or services of any entity
primarily engaged in any of the listed lines of business;
provided, however, that MP shall have no obligation to seek
such approval before entering into any agreement with any
entity in any such listed line of business if, as of the
Effective Date, MP has an existing agreement to promote,
advertise, market or distribute the products, services or
content of any entity in such category (e.g., insurance
information, Internet-based mapping services, etc.).
2.2. CUSTOMIZATION OF THE AFFILIATED MP SITE. MP shall create, at
its own cost and expense, the customized Affiliated MP Site,
as well as any appropriate infrastructure additions to the
Affiliated MP Site to support the projected traffic growth
thereon. The Affiliated MP Site will have substantially
similar look and feel as the MP Look and Feel and will be
co-branded with the appropriate AOL Three System trademarks,
in accordance with MP's then current co-branding format (with
the general prominence and placement of such co-branding to
appear substantially as displayed on Exhibit K attached
hereto) (collectively, the "Affiliated Site Look and Feel").
MP reserves the right to redesign or modify the Affiliated
Site Look and Feel at any time (subject to the terms of this
Agreement, including without limitation regarding AOL's
ownership and control of such AOL trademarks and any Content
or other elements of the Affiliated Site Look and Feel
supplied by AOL) and to redesign and modify the Affiliated MP
Site accordingly. Upon the initial launch of the MP Affiliate
Site, such customization shall include, without limitation,
the following: (i) a
3
<PAGE> 4
prominent link back to the main screen of Classifieds Plus
below the toolbar on such main screen (or, in the event of any
redesign of such area, in a comparable location) and (ii) a
link back to the area of the AOL Network from which the AOL
User has come to the Affiliated MP Site, the appearance of
which shall be substantially as set out in Exhibit K (it being
understood and agreed by the Parties that such Exhibit is for
illustrative purposes only, and that the precise design and
color is subject to modifications therefrom and that such AOL
designated area on such Exhibit may be branding and/or
navigational links); provided, however, that AOL will work
with MP to design such links and to ensure that such links are
directed to the appropriate pages within the AOL Three System
(including, without limitation, by providing relevant URLs to
MP; and (iii) the URL of the Affiliated MP Site shall be
www.autoconnect.aol.com or any such other URL as described
below; provided, however, that such URL shall at all times
include prominently both (x) "autoconnect" (or any successor
brand of MP) and (y) "aol.com" or "csi.com" or any other
relevant name, brand or initials of the AOL Three System (or
any successor thereto), as determined by AOL. AOL shall work
with MP and any third party traffic measurement service (e.g.,
Media Metrix), to facilitate MP's receiving credit for traffic
to such URL as part of its overall network. MP will ensure
that the Affiliated MP Site will be presented predominantly as
a destination site for information on shopping for,
purchasing, and owning a used car. In addition, MP shall, as
promptly as practicable, replace the pre-existing "new car"
button on the Affiliated MP Site with a similar button saying
"new car info" (or a substantially similar message) to remain
conceptually similar thereto during the Term. When MP launches
a redesigned MP Interactive Site (currently anticipated for
the early fall of 1999), MP shall include, in lieu of the back
links described in subsections (i) and (ii), above, a
navigational tool bar, for navigation within the applicable
portion of the AOL Three System (to contain only navigation
and branding, but not to include banner advertisements), to be
created and served by AOL (the "Tool Bar"), at the top of each
page of the MP Affiliate Site. AOL shall control all
programming and applicable branding of such Tool Bar, and the
size and general appearance of such Tool Bar is to be
substantially in the form as shown on Exhibit J attached
hereto (it being understood and agreed by the Parties that
such Exhibit is for illustrative purposes only, and that the
precise design and color is subject to modifications
therefrom). MP shall use commercially reasonable efforts to
achieve launch of the re-designed Affiliated MP Site on or
before September 1, 1999, and shall in any event launch the
re-designed Affiliated MP Site on or before October 15, 1999.
2.3. PRODUCTION WORK. Except as agreed to in writing by the Parties
pursuant to the "Production Work" section of the Standard
Online Commerce Terms & Conditions attached hereto as Exhibit
F, MP will be responsible for all production work associated
with the Affiliated MP Site, including all related costs and
expenses, (except that, if and to the extent AOL supplies and
serves any advertisements to the Affiliated MP Site, AOL shall
pay any costs or expenses directly associated with serving
such advertisements to the Affiliated MP Site, and that AOL
shall pay the relevant programming expenses for the Tool Bar
and, if the Tool Bar is served by AOL, AOL will then pay any
costs or expenses directly associated with serving the Tool
Bar).
2.4. TECHNOLOGY. MP will take all reasonable steps necessary to
conform its promotion of Products through the Affiliated MP
Site to the then-existing technologies identified by AOL which
are optimized for the AOL Service. AOL will be entitled to
require reasonable changes to the Content (including, without
limitation, the features or functionality) of the Affiliated
MP Site to the extent such Content will, in AOL's good faith
judgment, adversely affect any operational aspect of the AOL
Network. AOL reserves the right to review and test the
Affiliated MP Site from time to time to determine whether the
site is compatible with AOL's then-available client and host
software and the AOL Network.
4
<PAGE> 5
2.5. PRODUCT OFFERING. MP will ensure that the Affiliated MP Site
includes all of the Products and other Content (including,
without limitation, any features, offers, contests,
functionality or technology) that are then made available by
or on behalf of MP through any Additional MP Channel;
provided, however, that (i) such inclusion will not be
required where it is commercially or technically impractical
to either Party (i.e., inclusion would cause either Party to
incur substantial incremental costs), (ii) such inclusion will
not be required where it would be a violation of MP's
obligation under Section 2.1 or Section 2.10 of this
Agreement; and (iii) the specific changes in scope, nature
and/or offerings required by such inclusion will be subject to
AOL's review and approval (which shall not be unreasonably
withheld) and the terms of this Agreement.
2.6. EXCLUSIVE OFFERS/MEMBER BENEFITS. MP shall promote through the
Affiliated MP Site at least once per quarter a special offer
exclusively available to AOL Users (the "AOL Exclusive
Offers"). The AOL Exclusive Offers shall provide a member
benefit to AOL Users, either by virtue of a meaningful price
discount, product enhancement, unique service benefit or other
special feature (e.g., offering of free T-shirts, baseball
caps, used cars, etc). MP will provide AOL with reasonable
prior notice of AOL Exclusive Offers so that AOL can market
the availability of such AOL Exclusive Offers in the manner
AOL deems appropriate in its editorial discretion.
2.7. OPERATING STANDARDS. MP will ensure that the Affiliated MP
Site complies at all times with the standards set forth in
Exhibit E. To the extent site standards are not established in
Exhibit E with respect to any aspect or portion of the
Affiliated MP Site (or the Products or other Content contained
therein), MP will provide such aspect or portion at a level of
accuracy, quality, completeness, and timeliness that meets or
exceeds prevailing standards in the online industry for
providers of the services set forth on Exhibit D. In the event
MP fails to comply (1) with its obligation under Section 2.1
of this Agreement to ensure that the Affiliated MP Site will
not promote, advertise, market or distribute the products
services or content of any other Interactive Service or (2)
with the provisions of Exhibit E (except for Sections 1 and
4), or (3) with any other material terms of AOL's Terms of
Service, Privacy Policy, or technical requirements herein,
which failure, by its nature, requires immediate action by AOL
(e.g., offensive content on the Affiliated MP Site,
significant technical problems or incompatibilities of the
Affiliated MP Site or the Promo Content with the AOL Network,
or other situations causing a significant and material adverse
effect on the AOL Service or other AOL products or creating a
material poor user experience), in the good faith judgement of
AOL, then, in any such case, AOL will have the right (in
addition to any other remedies available to AOL hereunder) to
decrease the applicable promotion (i.e., remove links to such
offending areas only, to the extent possible, in a manner
narrowly tailored to address the particular problem, to the
extent possible) it provides to MP hereunder (and to decrease
or cease any other contractual obligation hereunder) until
such time as MP corrects its non-compliance (and in such
event, AOL will be relieved of the proportionate amount of any
promotional commitment made to MP by AOL hereunder
corresponding to such decrease in promotion) and any revenue
threshold(s) set forth in Section 4 will each be adjusted
proportionately to correspond to such decrease in promotion
and other obligations during the period of non-compliance;
provided that AOL shall use best efforts to notify MP of such
non-compliance promptly upon becoming aware of such
non-compliance and AOL shall make good faith efforts to
attempt to deliver such notice to MP prior to or
contemporaneously with any action by AOL authorized by this
sentence. In addition, AOL agrees to make good faith efforts
to work with MP to resolve such non-compliance as quickly as
possible. Promptly after MP has corrected such non-compliance,
AOL shall resume the level of promotions (or other contractual
obligation if applicable) in effect prior to such
non-compliance.
5
<PAGE> 6
2.8. ADVERTISING SALES. For the first six (6) months following the
Effective Date (the "Ad Rep Exclusivity Period"), AOL shall
have the exclusive right (the "AOL Exclusive Right") to sell
promotions, advertisements, links, pointers, or similar
services or rights (i) on or through the Decision Guide
Affiliated Site (collectively the "DGAS Advertisements") and
(ii) in any areas of the Affiliated MP Site as mutually agreed
upon by the Parties (the "AMPS Advertisements") . AOL shall
retain all revenues from the DGAS Advertisements and the AMPS
Advertisements during the Ad Rep Exclusivity Period; provided,
however, that AOL shall pay MP an amount equal to * (*) cents
per Impression with respect to DGAS Advertisements or AMPS
Advertisements sold on the Decision Guide Affiliated Site or
the Affiliated MP Site during such period, as the case may be.
Upon the expiration of the Ad Rep Exclusivity Period, MP shall
have the right to terminate the AOL Exclusive Right. Upon the
expiration or termination of the Ad Rep Exclusivity Period,
the right to sell the DGAS Advertisements and AMPS
Advertisements shall revert to MP, which, subject to Section
4.3, shall be entitled to retain all revenue from the sale of
such advertisements.
2.9 TRAFFIC FLOW. MP will make the same efforts to ensure that
traffic is kept within the Affiliated MP Site that MP makes to
ensure that traffic is kept within the MP Interactive Site.
Without limiting the generality of the foregoing, the
Affiliated MP Site will include the customizations described
in Section 2.2, above.
2.10. NEW CARS. The Affiliated MP Site may contain only general
information regarding new cars (e.g., model specifications,
reviews), but may not contain any specific mechanism to effect
the purchase of a new car. Specifically, MP will ensure that
the Affiliated MP Site does not contain (i) offers to sell new
cars (on behalf of MP or any third party), (ii) any mechanism
through which a user can make an offer to purchase a new
car(s), provided, however, that the foregoing restriction
shall not prevent MP from running banner advertisements for
new car manufacturers, provided, further, that such banner
advertisements shall not be targeted solely to AOL Users, nor
be permanent links on any page (nor the functional equivalent
thereof) to predominately new car related areas (either of car
manufacturers or dealers), (iii) links or pointers to any
interactive area which offers solely new cars for sale, or
(iv) contact information of any type (e.g., addresses, phone
numbers, links to web sites) for any entity which sells solely
new cars.
2.11. USED CAR DECISION GUIDE AFFILIATED SITE GUIDELINES. The
Decision Guide Affiliated Site pointed to from each of the AOL
Service, AOL.com, and CompuServe shall contain branding for
both the relevant AOL property and MP and shall be designed to
assist AOL Users solely in the purchase of used cars. The
branding treatment given to each party's brand shall be
substantially in the form shown in the screenshot attached
hereto as Exhibit H (it being understood and agreed by the
Parties that such Exhibit is for illustrative purposes only,
and that the precise design and color is subject to
modifications therefrom and that such AOL designated area on
such Exhibit may be branding and/or navigational links). Upon
AOL's request, and subject to any limitations on MP's rights
to third-party content, MP shall supply to AOL any Content
necessary for AOL to create the Decision Guide Affiliated
Site. The Content requested by AOL may include, without
limitation, Content related to used cars. The existing
Decision Guide Affiliated Site will be hosted by AOL and will
incorporate the Affiliated Site Look and Feel. The parties
shall mutually agree upon any enhancements to be made to the
Decision Guide Affiliated Site and the allocation of the cost
of such enhancements, except that MP shall, as promptly as
practicable, replace the pre-existing "new car" button on the
Decision Guide Affiliated Site with a similar button saying
"new car info" (or a substantially similar message), at MP's
expense, to remain conceptually similar thereto during the
Term. MP acknowledges that AOL may promote the Decision Guide
Affiliated Site from areas of the AOL Network determined by
AOL in its sole discretion. Subject to all the terms hereof
(including without
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limitation, with respect to ownership and licensing), the Used
Car Decision Guide shall be available through the Decision
Guide Affiliated Site. The Tool Bar shall appear at the top of
each page of the Decision Guide Affiliated Site. AOL shall
control all programming and applicable branding of such Tool
Bar, and the size and general appearance of the Tool Bar is to
be substantially in the form as shown on Exhibit J attached
hereto (it being understood and agreed by the Parties that
such Exhibit is for illustrative purposes only, and that the
precise design and color is subject to modifications
therefrom).
2.12. LICENSE OF DECISION GUIDE. As part of this Agreement and
subject to all of the terms and conditions contained herein,
during the Initial Term hereof (but expressly not surviving
thereafter, notwithstanding anything else to the contrary
herein) AOL hereby grants to MP a non-exclusive,
non-transferable, royalty-free license to use, advertise,
market, promote, distribute and transmit (i) the Used Car
Decision Guide for use only in connection with the Decision
Guide Affiliated Site and (ii) the Decision Guides for use
only in connection with MP's primary MP Interactive Site (but
not in any event to be distributed separately from the primary
MP Interactive Site nor integrated into any third party
website), subject to being co-branded as displayed on Exhibit
I hereto (e.g., with respect to prominence of the branding)
(it being understood and agreed by the Parties that such
Exhibit is for illustrative purposes only, and that the
precise design and color is subject to modifications
therefrom, and that such branding shall be AOL branding rather
than the PersonaLogic branding displayed on such Exhibit,
provided however that if and to the extent MP creates a
version of an MP Interactive Site which is a co-branded or
private labeled version over which a third party has
significant approval rights or to the extent MP has a
distribution agreement with a third party that is an AOL
Competitor, then such Decision Guide co-branding as described
on Exhibit I shall be PersonaLogic branded rather than AOL
(substantially similar to as it as appears on such Exhibit I,
with the message remaining as PersonalLogic), and MP shall
request in good faith that such third party agree to promote
AOL branding as described in this paragraph (but if, despite
MP's efforts to include such AOL branding in place of
PersonaLogic branding, MP is not able to promote AOL instead
as described, then MP will not be deemed in breach of this
paragraph) (the "Decision Guide License"), subject to the
other terms of this Agreement. MP may not assign (except as
provided in Section 24 of Exhibit G hereof) or sublicense the
Decision Guide License. As between the Parties, AOL or its
licensor owns all intellectual property rights and all right,
title and interest in the Decision Guides, and shall own all
modifications, alterations, additions, enhancements and
improvements thereto ("Modifications") (including, without
limitation, any Modifications made or proposed by MP thereto),
subject to the limited license rights granted to MP set forth
in this Section 2.12. MP shall have no right to make
Modifications to the Decision Guides, and MP agrees not to
reverse engineer or otherwise attempt discover the source code
or operating logic of the Decision Guides; provided, however,
that if MP shall for any reason make or cause to be made any
Modification to the Decision Guides, it shall promptly
disclose and assign to AOL all such Modifications.
Notwithstanding the foregoing (but subject to Sections 6 and 7
of Exhibit F, attached hereto), MP shall retain all rights in
the MP supplied Licensed Content (but not any AOL supplied
Content, e.g., with respect to the Decision Guide Affiliated
Site), and the MP Look and Feel, that it incorporates or
provides to AOL for incorporation into the Decision Guides,
and AOL shall retain all rights in and to the AOL Look and
Feel and the Decision Guides. MP agrees that it will not, at
any time during or after the Term, (i) do anything which may
adversely affect the validity or enforceability of any
trademark, trade name, patent, copyright or trade secret
related to the Decision Guides belonging to or licensed to AOL
(including, without limitation, any act, or any assistance to
act, which may infringe or lead to the infringement of any
proprietary right in any AOL product or service related to the
Decision Guides) or (ii) exercise, or attempt to exercise, any
proprietary rights in any AOL products or services related to
the Decision Guides. AOL represents and warrants to MP that
during the Term and from and after the
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Effective Date, the Decision Guides will not infringe or
violate any U.S. patents, copyrights, trademarks, or (to the
best of AOL's knowledge) trade secrets of any third party.
2.13. MP INTERACTIVE SITE. The Parties hereby acknowledge that, with
the exception of the obligations set forth in Sections 2.12,
or 4.2.2 hereof, and Exhibit C hereto, none of the
restrictions, requirements and/or obligations placed on the
Affiliated MP Site will apply to the operation of any MP
Interactive Site.
3. AOL EXCLUSIVITY OBLIGATIONS. *
4. PAYMENTS.
4.1. GUARANTEED PAYMENTS. MP will pay AOL a non-refundable
guaranteed payment of Seventeen Million Dollars ($17,000,000)
as follows:
(i) * Dollars (US *) payable upon execution of this
Agreement; and
(ii) * Dollars (US *) payable in * (*) equal installments
of * Dollars (US*) payable as follows:
*
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*
4.2. SHARING OF AOL ADVERTISING REVENUES AND ADVERTISING REVENUES.
4.2.1 AOL Advertising Revenues. If at any time during the
term of the Agreement (a) AOL Advertising Revenues exceed *
Dollars (US$*), or (b) the number of AOL User visits to the
Affiliated MP Site and the Decision Guide Affiliated Site
(visits to the Decision Guide Affiliated Site to count towards
this total only to the extent that they exceed the DGAS
Sponsorship Impressions Commitment) exceeds * (*) (the "Term
AOL Revenue Sharing Threshold"), then MP will pay AOL *
percent (*%) of all AOL Advertising Revenues generated from
the date on which the Term AOL Revenue Sharing Threshold is
met through the remainder of the Term. If at any time during
either the first twelve months of the Initial Term or the
second twelve months of the Initial Term either (i) the amount
of AOL Advertising Revenues generated exceeds * Dollars
(US$*), or (ii) the number of AOL User visits to the
Affiliated MP Site and the Decision Guide Affiliated Site
(visits to the Decision Guide Affiliated Site to count towards
this total only to the extent that they exceed the DGAS
Sponsorship Impressions Commitment) exceeds * (*) (the "Annual
AOL Revenue Sharing Threshold"), then MP will pay AOL *
percent (*%) of all AOL Advertising Revenues generated from
the date on which the Annual AOL Revenue Sharing Threshold is
met through the remainder of the relevant twelve month period.
MP will pay all of the foregoing amounts described in this
Section 4.2.1 on a quarterly basis within thirty (30) days
following the end of the quarter in which the applicable AOL
Advertising Revenues were generated.
4.2.2 Advertising Revenues. Advertising Revenues. If at any
time during the term of the Agreement (a) Advertising Revenues
exceed * Dollars (US$*), or (b) the number of AOL User visits
to the Affiliated MP Site, the Decision Guide Affiliated Site
(visits to the Decision Guide Affiliated Site to count towards
this total only to the extent that they exceed the DGAS
Sponsorship Impressions Commitment) and the MP Interactive
Site exceeds * (*) (the "Term Revenue Sharing Threshold"),
then MP will pay AOL * percent (*%) of all Advertising
Revenues generated from the date on which the Term Revenue
Sharing Threshold is met through the remainder of the Term. In
the event that the Term Revenue Sharing Threshold is met, then
MP shall cease to have any payment obligations under the Term
AOL Revenue Sharing Threshold described Section 4.2.1. If at
any time during either the first twelve months of the Initial
Term or the second twelve months of the Initial Term either
(i) the amount of Advertising Revenues generated exceeds *
Dollars (US$*), or (ii) the number of AOL User visits to the
Affiliated MP Site, the Decision Guide Affiliated Site (visits
to the Decision Guide Affiliated Site to count towards this
total only to the extent that they exceed the DGAS Sponsorship
Impressions Commitment) and the MP Interactive Site exceeds *
(*) (the "Annual Revenue Sharing Threshold"), then MP will pay
AOL * percent (*%) of all Advertising Revenues generated from
the date on which the Annual Revenue Sharing Threshold is met
through the remainder of the relevant twelve month period. In
the event that the Annual Revenue Sharing Threshold is met,
then MP shall cease to have any payment obligations under the
Annual AOL Revenue Sharing Threshold described Section 4.2.1.
MP will pay all of the foregoing amounts described in this
Section 4.2.2 on a quarterly basis within thirty (30) days
following the end of the quarter in which the applicable
Advertising Revenues were generated.
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4.3. ALTERNATIVE REVENUE STREAMS. In the event MP or any of its
affiliates (a) receives or desires to receive any compensation
from any third party (including, without limitation,
any MP Commerce Partner or any car dealer) in connection with
the Affiliated MP Site or the Decision Guide Affiliated Site
other than Advertising Revenues (e.g., compensation derived
from offering fee-based clubs or Auction Services) (each such
compensation, an "Alternative Revenue Stream"), MP will
promptly inform AOL in writing, and the Parties will negotiate
in good faith regarding whether MP will be allowed to market
the products or services producing such Alternative Revenue
Stream (collectively, the "Alternative Products or Services")
through the Affiliated MP Site and/or the Decision Guide
Affiliated Site, and if so, the equitable portion of revenues
from such Alternative Revenue Stream (if applicable) that will
be shared with AOL; provided that MP shall be permitted to
offer MP-logo products (e.g., cups, hats, mugs) and to retain
all revenues from such sales, any other provision of this
Agreement notwithstanding (if and to the extent such revenues
do not exceed 5% of all revenues generated through the
Affiliated MP Site). If the Parties cannot agree, despite good
faith discussions, to the exact terms and conditions regarding
the marketing of any such Additional Products or Services, MP
shall be prohibited from marketing such Additional Products or
Services on the Affiliated MP Site and/or the Decision Guide
Affiliated Site. For the avoidance of doubt, Alternative
Revenue Stream shall not include the revenues generated by the
sale of any product or service to car sellers (e.g., offering
of website hosting) so long as (a) the price of such product
or service is not quoted or priced on an impressions based
model (e.g., based on traffic); and (b) the price of such
product or service is not supported or justified to the
customer by an explicit representation of the value of the
incremental AOL traffic resulting from this Agreement or the
collection of AOL User data; and (c) if and to the extent MP
offers to any third party any mechanism to capture the value
incremental traffic provides to the sale of such product or
service, then AOL shall receive compensation for AOL traffic
at least as favorable to AOL as to any such third party.
4.4. LATE PAYMENTS; WIRED PAYMENTS. All amounts owed hereunder not
paid when due and payable will bear interest from the date
such amounts are due and payable at the prime rate in effect
at such time. All payments required hereunder will be paid in
immediately available, non-refundable U.S. funds wired to the
"America Online" account, Account Number * at The Chase
Manhattan Bank, 1 Chase Manhattan Plaza, New York, NY 10081
(ABA: *).
4.5. AUDITING RIGHTS. During the Term of this Agreement and for
twelve (12) months thereafter, MP will maintain complete,
clear and accurate books and records relating to this
Agreement in accordance with generally accepted accounting
principles. During the Term of this Agreement and for twelve
(12) months thereafter, for the sole purpose of ensuring
compliance with this Agreement and determining the accuracy of
MP's reports, payments and revenues made or generated pursuant
to this Agreement, AOL (or its representative) will have the
right to conduct a reasonable and necessary inspection of
portions of the books and records of MP which are relevant to
MP's performance pursuant to this Agreement. Any such audit
may be conducted during normal business hours and after twenty
(20) business days prior written notice to MP. AOL shall bear
the expense of any audit conducted pursuant to this Section
4.5 unless such audit shows an error in AOL's favor amounting
to a deficiency to AOL in excess of five percent (5%) of the
actual amounts paid and/or payable to AOL hereunder, in which
event MP shall bear the reasonable expenses of the audit. MP
shall pay AOL the amount of any deficiency discovered by AOL
within thirty (30) days after receipt of notice thereof from
AOL.
4.6. TAXES. MP will collect and pay and indemnify and hold AOL
harmless from, any sales, use, excise, import or export value
added or similar tax or duty not based on AOL's net
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has been requested with respect to the omitted portions.
<PAGE> 11
income, including any penalties and interest, as well as any
costs associated with the collection or withholding thereof,
including attorneys' fees.
4.7. REPORTS.
4.7.1. Sales Reports. MP will provide AOL in an automated
manner with a monthly report in a mutually agreed-upon format,
detailing the following activity in such period (and any other
information mutually agreed upon by the Parties or reasonably
required for measuring revenue activity by MP through the
Affiliated MP Site): (i) the number of visits to the
Affiliated MP Site, (ii) to the extent technically feasible,
the number of referrals sent to dealers from the Affiliated MP
Site, and (iii) a detailed description of Advertising Revenues
collected by MP (and the expenses associated therewith). AOL
will be entitled to use such information from such sales
reports in its business operations, subject to the terms of
this Agreement, and subject further to the following
limitations: during the Term and for a two year period
thereafter, such information shall not be released by AOL to
any third party not an affiliate of AOL (except, in each case,
for information released in the aggregate, without identifying
MP or MP's customers individually, and without distinguishing
MP's Promotions or Impressions from those of AOL's other
partners on the same screens or pages, e.g., for
promotional/marketing purposes when selling advertising to new
commerce partners (general "success stories" of AOL channels
or screens), and neither AOL nor any of its affiliates shall
not use such sales reports information obtained from MP to
compete with MP.
4.7.2. Usage Reports. AOL shall provide MP in an automated
manner with third party-audited, standard monthly
usage information related to the Promotions (e.g., a
schedule of the Impressions delivered by AOL at such
time and the number of visits to the Decision Guide
Affiliated Site) which are similar in substance and
form to the reports provided by AOL to other
interactive marketing partners similar to MP. In
addition, AOL shall provide MP with a monthly report,
in a mutually agreed upon form, regarding the
advertisements sold by AOL pursuant to Section 2.8.
At a minimum, such reports will provide breakdown by
impression, by advertiser, by month. All such
information from AOL shall be Confidential
Information, and used only be MP (and not disclosed
to any third party or affiliate).
4.7.3. Overhead Accounts. AOL shall provide MP with twelve
(12) overhead accounts, as further described in
Section 13 of Exhibit F.
5. TERM; RENEWAL; TERMINATION.
5.1. Term. Unless earlier terminated as set forth herein, the
initial term of this Agreement will be twenty-six (26) months
from the Effective Date (the "Initial Term").
5.2. Renewal. Upon conclusion of the Initial Term, this Agreement
may be renewed in accordance with one of the following two
renewal term options (each a "Renewal Term" and together with
the Initial Term, the "Term"): (i) the Parties may mutually
agree to renew this Agreement for a * (*) year term, during
which Renewal Term MP will be required to pay a guaranteed
fixed payment for the Renewal Term and perform the
cross-promotional obligations specified in Section 1 hereof,
and AOL will be obligated to undertake fixed
promotional/placement obligations or (ii) AOL may, at its
option, elect to renew this Agreement for successive (1) year
terms (not to exceed * (*) years in the aggregate) during
which MP will not be required to pay any guaranteed, fixed
payment or perform the
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<PAGE> 12
cross-promotional obligations specified in Section 1, and AOL
will not be required to undertake any fixed
promotional/placement obligations. If the Parties elect to
renew this Agreement pursuant to subsection (i) above, AOL and
MP shall work together in good faith to mutually agree upon
the exact fixed promotional/placement obligations for the
Renewal Term and the corresponding guaranteed, fixed payment.
In the event that the Parties cannot agree, despite good faith
discussions, on the exact fixed promotional/placement
obligations and the corresponding guaranteed, fixed payment on
or before the first day of the Renewal Term, the Agreement
shall renew pursuant to subsection (ii) above. If AOL elects
to renew this Agreement pursuant to subsection (ii) above, (x)
if such renewal is on an exclusive basis (as set forth in
Section 3 hereof), MP shall pay AOL * percent (*%) of
Advertising Revenues for the entire Renewal Term (i.e., there
is no hurdle before revenue sharing begins) or (y) if the
renewal is on a non-exclusive basis, then MP shall pay AOL the
greater of (i) * percent (*%) of the Advertising Revenues
generated during such period, or (ii) the greatest amount paid
by MP to any other participant in an MP "affiliate program"
(defined as any significant distribution partner of MP), or
(iii) the prevailing industry rates for similar distribution
arrangements.
5.3. Termination for Breach. Except as expressly provided elsewhere
in this Agreement, either Party may terminate this Agreement
at any time in the event of a material breach of the Agreement
by the other Party which remains uncured after thirty (30)
days written notice thereof to the other Party (or such
shorter period as may be specified elsewhere in this
Agreement); provided that if MP fails to make any payment to
AOL required hereunder, the cure period will be fifteen (15)
days from the date on which the payment was required to be
made. Notwithstanding the foregoing, in the event of a
material breach of a provision that expressly requires action
to be completed within an express period shorter than 30 days,
either Party may terminate this Agreement if the breach
remains uncured for an equal number of days after written
notice thereof to the other Party.
5.4. Termination for Bankruptcy/Insolvency. Either Party may
terminate this Agreement immediately following written notice
to the other Party if the other Party (i) ceases to do
business in the normal course, (ii) becomes or is declared
insolvent or bankrupt, (iii) is the subject of any proceeding
related to its liquidation or insolvency (whether voluntary or
involuntary) which is not dismissed within ninety (90)
calendar days or (iv) makes an assignment for the benefit of
creditors.
5.5. Termination on Change of Control. In the event of (i) a Change
of Control of MP resulting in control of MP by an Interactive
Service or (ii) a Change of Control of AOL, AOL may terminate
this Agreement by providing thirty (30) days prior written
notice of such intent to terminate. In the event that the
Parent Company shall, directly or indirectly acquire an AOL
Competitor, AOL shall have the right to terminate this
Agreement in accordance with this Section 5.5, provided that
in the event of such termination, AOL shall provide a refund
to MP in the manner set forth in Section 1.2.1 hereof.
6. MANAGEMENT COMMITTEE/DISPUTE RESOLUTION.
6.1. Management Committee. The Parties will act in good faith and
use commercially reasonable efforts to promptly resolve any
claim, dispute, claim, controversy or disagreement (each a
"Dispute") between the Parties or any of their respective
subsidiaries, affiliates, successors and assigns under or
related to this Agreement or any document executed pursuant to
this Agreement or any of the transactions contemplated hereby.
If the Parties cannot resolve the Dispute within such time
frame, the Dispute will be submitted to the Management
Committee for resolution. For ten (10) days following
submission of the Dispute to the Management Committee, the
Management Committee
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will have the exclusive right to resolve such Dispute;
provided further that the Management Committee will have the
final and exclusive right to resolve Disputes arising from any
provision of the Agreement which expressly or implicitly
provides for the Parties to reach mutual agreement as to
certain terms. If the Management Committee is unable to
amicably resolve the Dispute during the ten-day period, then
the Management Committee will consider in good faith the
possibility of retaining a third party mediator to
facilitate resolution of the Dispute. In the event the
Management Committee elects not to retain a mediator, the
Dispute will be subject to resolution through any legal means
deemed appropriate by either Party, subject to the remainder
of this Section 6. "Management Committee" will mean a
committee made up of a senior executive from each of the
Parties, each of whom is at least a Senior Vice President at
his or her respective company, for the purpose of resolving
Disputes under this Section 6 and generally overseeing the
relationship between the Parties contemplated by this
Agreement. Neither Party will seek, nor will be entitled to
seek, binding outside resolution of the Dispute unless and
until the Parties have been unable amicably to resolve the
Dispute as set forth in this Section 6 and then, only in
compliance with the procedures set forth in this Section 6.
6.2. Governing Law. This Agreement shall be governed by and
interpreted under the laws of the State of Delaware, without
reference to Delaware's choice of law rules.
6.3. Consent to Jurisdiction; Waivers. Each of AOL and MP (i)
irrevocably consents to the exclusive jurisdiction of any
state or federal court located within the State of Delaware
over any and all actions and claims arising under this
Agreement, as well as any and all actions to enforce such
claims or to recover damages or other relief in connection
with such claims, (ii) waives personal service of any and all
process upon it, (iii) consents that all such service of
process shall be made by registered mail directed to AOL or MP
(as the case may be) at the addresses set forth in the first
paragraph of this Agreement, and that such service of process
shall be deemed to have been completed three (3) business days
after the same shall have been posted as aforesaid; and (iv)
waives any objection based upon forum non conveniens and any
objection to venue of any action instituted hereunder.
6.4. WAIVER OF TRIAL BY JURY. EACH PARTY HERETO WAIVES ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT
OF THIS AGREEMENT IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY.
7. STANDARD TERMS. The Standard Online Commerce Terms & Conditions set
forth on Exhibit F attached hereto and Standard Legal Terms &
Conditions set forth on Exhibit G attached hereto are each hereby made
a part of this Agreement.
[signature page follows]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
AMERICA ONLINE, INC. AUTOCONNECT, L.L.C.
By: /s/ David M. Colburn By: /s/ Victor A. Perry, III
-------------------------------- -------------------------------
Name David M. Colburn Name: Victor A. Perry, III
Title: Senior Vice President Title: President/CEO
of Business Affairs
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<PAGE> 15
EXHIBIT A
PLACEMENT/PROMOTION
*
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A. MP may elect to redistribute Promotions among Level 1, Level 2, and
Level 3 in accordance with the following formulas: (a) a Level 1 Impression may
be exchanged for two Level 2 Impressions or ten Level 3 Impressions, (b) a Level
2 Impression may be exchanged for one half of a Level 1 Impression or five Level
3 Impressions, (c) a Level 3 Impression may be exchanged for one tenth of a
Level 1 Impression or one fifth of a Level 2 Impression. All redistribution of
Promotions shall be subject to availability, as determined by AOL. Impressions
may be exchanged in blocks of a minimum of 500,000 Impressions. Requests by MP
to redistribute Impressions may be placed no more frequently than once per
quarter. All redistributions and exchanges of Promotions or Impressions shall be
permitted only for Promotions or Impressions (as the case may be) within the
same AOL property (e.g., exchanges of Promotions in CompuServe may be made only
for other Promotions within CompuServe).
B. AOL shall deliver the Sponsorship Impressions Commitment.
C. During the Term, subject to the terms and conditions hereof, the
Keyword for the Affiliated MP Site shall be "AutoConnect," or any successor
brand under which MP markets its principal used car listings service.
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EXHIBIT B
DEFINITIONS
The following definitions will apply to this Agreement:
ADDITIONAL MP CHANNEL. Any other distribution channel (e.g., an Interactive
Service other than AOL) through which MP makes available an offering comparable
in nature to the Affiliated MP Site.
ADVERTISEMENT SERVING FEES. Fees paid to a third party for serving online
advertisements.
ADVERTISING REVENUES. The combination of AOL Advertising Revenues and Internet
Advertising Revenues:
AOL ADVERTISING REVENUES. Aggregate amounts collected plus the fair
market value of any other compensation received (such as barter
advertising) by MP or its agents, as the case may be (provided,
however, that no attempt shall be made to attribute value to any unsold
advertising inventory used by MP to promote the features of the
Affiliated MP Site or the Decision Guide Affiliated Site) arising from
the license or sale of advertisements, promotions, links, listings or
sponsorships ("Advertisements") that appear within any pages of the
Affiliated MP Site or the Decision Guide Affiliated Site which may be
exclusively available to AOL Users, less applicable Advertising Sales
Commissions and Advertisement Serving Fees. AOL Advertising Revenues
does not include amounts arising from Advertisements on any screens or
forms preceding, framing or otherwise directly associated with the
Affiliated MP Site, which will be sold exclusively by AOL.
INTERNET ADVERTISING REVENUES. For each Advertisement on a page of any
MP Interactive Site (including without limitation any pages including
the Decision Guides) which is not exclusively available to AOL Users,
the product of: (a) the amount collected plus the fair market value of
any other compensation received (such as barter advertising) by MP or
its agents (provided, however, that no attempt shall be made to
attribute value to any unsold advertising inventory used by MP for
"house" or barter advertisements from the Parent Company) arising from
the license or sale of such Advertisement attributable to a given
period of time less applicable Advertising Sales Commissions and
Advertisement Serving Fees, and (b) the quotient of (i) Impressions on
the page containing such Advertisement by AOL Users for such period of
time divided by (ii) total Impressions on the page containing such
Advertisement by all users for such period of time (the "Internet
Advertising Quotient") (or such other percentage or formula as is
mutually agreed upon in writing by the Parties). MP will be responsible
for calculating the Internet Advertising Quotient related to Internet
Advertising Revenues (the margin for error of such calculation not to
exceed five percent (5%)); provided, however, that AOL provides MP with
the technical assistance necessary for MP to determine the IP addresses
of AOL Users to enable MP to calculate the Internet Advertising
Revenues).
ADVERTISING SALES COMMISSION. (i) Actual amounts paid as commission (including,
without limitation, any performance-based compensation) to any third party by
either buyer or seller in connection with sale of the Advertisement or (ii) *%
of the gross sales price, in the event the Party has sold the Advertisement
directly and will not be deducting any third party commissions or fees.
AFFILIATED MP SITE. The specific area or web site to be promoted and distributed
by AOL hereunder through which MP can market its Products and related Content.
AOL COMPETITOR. For purposes of Section 5.5 and Exhibit C only: *
17
* Certain information on this page has been omitted from this filing and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
<PAGE> 18
* (or any division, subsidiary or affiliate thereof, which such division,
subsidiary or affiliate is an Interactive Service).
AOL INTERACTIVE SITE. Any Interactive Site that is managed, maintained, owned or
controlled by AOL or its agents.
AOL LOOK AND FEEL. The elements of graphics, design, organization, presentation,
layout, user interface, navigation and stylistic convention (including the
digital implementations thereof) which are generally associated with Interactive
Sites within the AOL Service or AOL.com.
AOL MEMBER. Any authorized user of the AOL Service, including any sub-accounts
using the AOL Service under an authorized master account.
AOL NETWORK. (i) The AOL Service, (ii) AOL.com, (iii) CompuServe, and (iv) any
other product or service owned, operated, distributed or authorized to be
distributed by or through AOL or its affiliates worldwide (and including those
properties excluded from the definitions of the AOL Service or AOL.com). It is
understood and agreed that the rights of MP relate only to the AOL Service,
AOL.com, and CompuServe and not generally to the AOL Network.
AOL SERVICE. The standard narrow-band U.S. version of the America Online(R)
brand service, specifically excluding (a) AOL.com or any other AOL Interactive
Site, (b) the international versions of an America Online service (e.g., AOL
Japan), (c) the CompuServe(R) brand service and any other CompuServe products or
services (d) "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "Digital
City," "NetMail(TM)," "Electra", "Thrive", "Real Fans", "Love@AOL",
"Entertainment Asylum," "Hometown AOL" or any similar independent product,
service or property which may be offered by, through or with the U.S. version of
the America Online(R) brand service, (e) Netscape Netcenter(TM) and any other
Netscape products or services, (f) any programming or Content area offered by or
through the U.S. version of the America Online(R) brand service over which AOL
does not exercise complete operational control (including, without limitation,
Content areas controlled by other parties and member-created Content areas), (g)
any yellow pages, white pages, classifieds or other search, directory or review
services or Content offered by or through the U.S. version of the America
Online(R) brand service, (h) any property, feature, product or service which AOL
or its affiliates may acquire subsequent to the Effective Date and (i) any other
version of an America Online service which is materially different from the
standard narrow-band U.S. version of the America Online brand service, by virtue
of its branding, distribution, functionality, Content and services, including,
without limitation, any co-branded version of the service and any version
distributed through any broadband distribution platform or through any platform
or device other than a desktop personal computer.
AOL THREE SYSTEM. The AOL Service, AOL.com and CompuServe.
AOL USER. Any user of the AOL Service, AOL.com, CompuServe or the AOL Network.
AOL.COM. AOL's primary Internet-based Interactive Site marketed under the
"AOL.COM(TM)" brand, specifically excluding (a) the AOL Service, (b) any
international versions of such site, (c) "ICQ," "AOL NetFind(TM)," "AOL Instant
Messenger(TM)," "NetMail(TM)" or any similar independent product or service
offered by or through such site or any other AOL Interactive Site, (d) any
programming or Content area offered by or through such site over which AOL does
not exercise complete operational control (including, without limitation,
Content areas controlled by other parties and member-created Content areas), (e)
any programming or Content area offered by or through the U.S. version of the
America Online(R) brand service which was operated, maintained or controlled by
the former AOL Studios division (e.g., Electra), (f) Netscape Netcenter(TM) and
any other Netscape products or services, (g) any yellow pages, white pages,
classifieds or other search, directory or review services or Content offered by
or through such site or any other AOL Interactive Site, (h) any property,
feature, product or service which AOL or its affiliates may
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* Certain information on this page has been omitted from this filing and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
<PAGE> 19
acquire subsequent to the Effective Date and (i) any other version of an America
Online Interactive Site which is materially different from AOL's primary
Internet-based Interactive Site marketed under the "AOL.COM(TM)" brand, by
virtue of its branding, distribution, functionality, Content and services,
including, without limitation, any co-branded versions and any version
distributed through any broadband distribution platform or through any platform
or device other than a desktop personal computer.
AUCTION SERVICES. A format whereby (i) used cars or services (or groups thereof)
("Items") are sold or traded online, person to person, through (x) the bidding
on such Items by one or more prospective buyers, or (y) the clearing of a price
offered by one or more prospective sellers, and (ii) the price of such Items is
determined by the price paid by the highest bidder or the lowest price offered
by the seller; provided, however, that Classified Advertising shall not be
deemed Auction Services.
CHANGE OF CONTROL. (a) The consummation of a reorganization, merger or
consolidation or sale or other disposition of substantially all of the assets of
a party or (b) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1933,
as amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) of more than 50% of either (i) the then outstanding
shares of common stock of such party; or (ii) the combined voting power of the
then outstanding voting securities of such party entitled to vote generally in
the election of directors.
CLASSIFIED ADVERTISING. Any person (or entity) to person sales format which
involves only the posting of products to be purchased by an individual (whether
for a flat price or "best offer"), where the hosting entity is not facilitating
or promoting a bidding process, including, without limitation, classifieds and
message board postings.
CLASSIFIED AUTO CATEGORY. Classified listings for used cars contained in the
Classifieds Plus (or similar) area on the AOL Network.
CLASSIFIEDS PLUS. The Classified Plus area (or any successor area) which
integrates all vertical categories of classified listings (e.g., real estate,
employment, general merchandise) on the AOL Three System.
COMPUSERVE. The standard, narrow-band U.S. version of the CompuServe brand
service, specifically excluding (a) any international versions of such service,
(b) any web-based service including "compuserve.com", "cserve.com" and "cs.com",
or any similar product or service offered by or through the U.S. version of the
CompuServe brand service, (c) Content areas owned, maintained or controlled by
CompuServe affiliates or any similar "sub-service," (d) any programming or
Content area offered by or through the U.S. version of the CompuServe brand
service over which CompuServe does not exercise complete or substantially
complete operational control (e.g., third-party Content areas), (e) Netscape
Netcenter(TM) and any other Netscape products or services, (f) any yellow pages,
white pages, classifieds or other search, directory or review services or
Content and (g) any co-branded or private label branded version of the U.S.
version of the CompuServe brand service, (h) any version of the U.S. version of
the CompuServe brand service which offers Content, distribution, services and/or
functionality materially different from the Content, distribution, services
and/or functionality associated with the standard, narrow-band U.S. version of
the CompuServe brand service, including, without limitation, any version of such
service distributed through any platform or device other than a desktop personal
computer and (i) any property, feature, product or service which CompuServe or
its affiliates may acquire subsequent to the Effective Date.
CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the course
of the Agreement, which is or should be reasonably understood to be confidential
or proprietary to the disclosing Party, including, but not limited to, the
material terms of this Agreement, information about AOL Members, AOL Users, AOL
Purchasers and MP customers, technical processes and formulas, source codes,
product designs, sales, cost and other unpublished financial information,
product and business plans, projections, and marketing
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data. "Confidential Information" will not include information (a) already
lawfully known to or independently developed by the receiving Party, (b)
disclosed in published materials, (c) generally known to the public, or (d)
lawfully obtained from any third party.
CONTENT. Text, images, video, audio (including, without limitation, music used
in synchronism or timed relation with visual displays) and other data, Products,
advertisements, promotions, links, pointers and software, including any
modifications, upgrades, updates, enhancements and related documentation.
DECISION GUIDES. The New Car Decision Guide and the Used Car Decision Guide.
DECISION GUIDE AFFILIATED SITE. An interactive area linked to directly from the
AOL Network, created and maintained by AOL using AOL's proprietary technology
that contains a customized version of the Used Car Decision Guide (or any
successor area) (but shall not include the New Car Decision Guide) for AOL Users
designed to assist such AOL Users in selecting a used automobile.
IMPRESSION. User exposure to the applicable Promotion, as such exposure may be
reasonably determined and measured by AOL in accordance with its standard
methodologies and protocols.
INTERACTIVE SERVICE. An entity offering one or more of the following: (i) online
or Internet connectivity services (e.g., an Internet service provider); (ii) an
interactive site or service featuring a broad selection of aggregated third
party interactive content (or navigation thereto) (e.g., an online service or
search and directory service)and/or marketing a broad selection of products
and/or services across numerous interactive commerce categories (e.g., an online
mall or other leading online commerce site); and (iii) communications software
capable of serving as the principal means through which a user creates, sends
and receives electronic mail or real time online messages.
INTERACTIVE SITE. Any interactive site or area, including, by way of example and
without limitation, (i) an MP site on the World Wide Web portion of the Internet
or (ii) a channel or area delivered through a "push" product such as the
Pointcast Network or interactive environment such as Microsoft's Active Desktop.
KEYWORD. The Keyword(TM) terms (i.e., "Keyword:") made available on the AOL
Service for use by AOL Members.
LICENSED CONTENT. All Content offered through the Affiliated MP Site or the
Decision Guides pursuant to this Agreement or otherwise provided by MP or its
agents in connection herewith (e.g., offline or online promotional Content,
Promotions, AOL "slideshows" , etc.), including in each case, any modifications,
upgrades, updates, enhancements, and related documentation. Licensed Content
shall not include Content offered through the Affiliated MP Site or the Decision
Guide Affiliated Site that is provided by AOL or its agents.
MP COMMERCE PARTNER. Insurance providers, financing providers and other
automobile product and service commerce dealers promoted by MP through the
Affiliated MP Site, to the extent allowed under the terms of this Agreement.
MP COMPETITORS. * It is explicitly understood that automobile manufacturers
shall not be deemed MP Competitors.
MP INTERACTIVE SITE. Any Interactive Site (other than the Affiliated MP Site or
the Decision Guide Affiliated Site) which is managed, maintained, owned or
controlled by MP or its agents.
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* Certain information on this page has been omitted from this filing and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
<PAGE> 21
MP LOOK AND FEEL. The elements of graphics, design, organization, presentation,
layout, user interface, navigation and stylistic convention (including the
digital implementations thereof) which are generally associated with MP
Interactive Sites.
NEW CAR DECISION GUIDE. AOL's proprietary decision guide software, powered by
Personal Logic, which shall assist users in selecting a new automobile.
PARENT COMPANY. Cox Enterprises, Inc. ("CEI"), or any entity in which, as of the
Effective Date hereof, CEI or any successor to CEI directly or indirectly owns
any significant equity interest (excluding passive investment interests (e.g.,
via mutual funds or similar investments).
PRODUCT. Any product, good or service which MP or any MP Commerce Partner
offers, sells, provides, distributes or licenses to AOL Users directly or
indirectly through (i) the Affiliated MP Site (including through any Interactive
Site linked thereto), (ii) the Decision Guides, (iii) any other electronic means
directed at AOL Users (e.g., e-mail offers), or (iv) an "offline" means (e.g.,
toll-free number) for receiving orders related to specific offers within the
Affiliated MP Site requiring purchasers to reference a specific promotional
identifier or tracking code, including, without limitation, products sold
through surcharged downloads (to the extent expressly permitted hereunder).
REMNANT ADVERTISING. Unsold advertising inventory on the AOL Three System that
is sold on an untargeted basis at a substantial discount.
RUN OF SERVICE ADVERTISING. Untargeted advertising that runs on a rotation basis
throughout the AOL Three System.
SPONSORSHIP IMPRESSIONS COMMITMENT. The Classifieds Plus Sponsorship Impressions
Commitment and the DGAS Sponsorship Impressions Commitment, each as defined in
Section 1.2.1 hereof .
TOOL BAR. As defined in Section 2.2 hereof.
USED CAR DECISION GUIDE. AOL's proprietary decision guide software, powered by
Personal Logic, which shall assist users in selecting a used automobile.
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EXHIBIT C
MP CROSS-PROMOTION
A. Except as specified below, within each MP Interactive Site, MP shall
include the following (collectively, the "AOL Promos"): either (i) a
prominent promotional banner or button (either 90 x 30 pixels or 70 x
70 pixels in size) appearing on the first screen of the MP Interactive
Site (the placement of which shall be at MP's discretion, provided that
MP shall consult with AOL regarding the placement of such promotional
banner or button) to promote such AOL products or services as AOL may
designate (for example, the America Online(TM) brand service, the
CompuServe(TM) brand service, the AOL.com(TM) site, or the AOL Instant
Messenger(TM) service); or (ii) a prominent "Try AOL" feature (either
90 x 30 pixels or 70 x 70 pixels in size) appearing on the first screen
of the MP Interactive Site (the placement of which shall be at MP's
discretion, provided that MP shall consult with AOL regarding the
placement of such promotional feature) through which users can obtain
promotional information about AOL products or services designated by
AOL and, at AOL's option, download or order the then-current version of
client software for such AOL products or services; provided, however,
that no such MP Interactive Site shall be required to contain the AOL
Promos described in (i) or (ii) above if such AOL Promos promote any
Digital City product or service. To the extent technically practicable,
AOL will serve the AOL Promos to the MP Interactive Site from an ad
server controlled by AOL or its agent, and MP shall take all reasonable
operational steps necessary to facilitate such ad serving arrangement
including, without limitation, inserting HTML code designated by AOL on
the pages of the MP Interactive Site on which the AOL Promos will
appear; provided, that if AOL it is not technically practicable for AOL
to serve such AOL Promos to the MP Interactive Site, AOL will provide
the creative content to be used in the AOL Promos (including
designation of links) and MP shall post (or update, as the case may be)
the creative content supplied by AOL within the spaces for the AOL
Promos within five days of its receipt of such content from AOL. In
addition, if it is not technically practicable for AOL to serve the AOL
Promos to the MP Interactive Site and without limiting any other
reporting obligations of the Parties contained herein, MP shall provide
AOL with monthly written reports regarding the AOL Promos in a format
mutually agreed upon by the parties. In addition, MP shall include the
Keyword granted to MP hereunder on the first page of each MP
Interactive Site, below the AOL Promos referenced in clauses (i) and
(ii) above. To the extent MP creates a version of an MP Interactive
Site which is a co-branded or private labeled version over which a
third party has significant approval rights or to the extent MP has a
distribution agreement with a third party that is an AOL Competitor, MP
will request that such third party agree to promote AOL as described in
this paragraph (but if, despite MP's efforts, MP is not able to promote
AOL as described, MP will not be deemed in breach of this paragraph).
AOL agrees to credit MP with an acquisition fee (an "Subscriber
Acquisition Fee") of * dollars ($*) for each subscriber who registers
with the AOL service based on the promotions described in this Exhibit
C, provided that such registrant remains an AOL user account for at
least ninety (90) days following such registration (collectively, a
"Paying Subscriber"). AOL shall provide MP with quarterly reports
(within thirty (30) days following the end of each quarter during the
Term) of the number of Paying Subscribers resulting in such quarter,
and the relevant Subscriber Acquisition Fees for each such quarter
shall be credited to MP within ten (10) days of the delivery of such
quarterly report.
B. In MP's print and "out of home" (e.g., buses and billboards)
advertisements and in any print and "out of home" publications,
programs, features or other forms of media over which MP exercises at
least partial editorial control (collectively, the "Out of Home
Advertisements"), MP's listing of the navigational reference (e.g.,
"URL") for any MP Interactive Site will be accompanied by an equally
prominent listing of the "Keyword" term (e.g., "AOL Keyword:
AutoConnect") on AOL for the Affiliated MP Site. To the extent that MP
makes any reference to any MP Interactive Site (other than the
Interactive Sites belonging to the Parent Company (and not directly to
MP)), MP will ensure that AOL is more prominently promoted on any such
Out of Home Ads than any such other Interactive Service.
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* Certain information on this page has been omitted from this filing and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
<PAGE> 23
C. In MP's television and radio advertisements and in any television or
radio publications, programs, features or other forms of media over
which MP exercises at least partial editorial control (collectively,
the "TV and Radio Advertisements"), MP will consider including specific
references or mentions (verbally where possible) of the availability of
the Affiliated MP Site through the AOL Network; provided, that MP shall
include such references or mentions in at least * percent (*%) of such
TV and Radio Advertisements. Without limiting the generality of the
foregoing, MP will use commercially reasonable efforts to ensure that
MP's listing of the "URL" for any MP Interactive Site will be
accompanied by an equally prominent listing of the "Keyword" term on
AOL for the Affiliated MP Site.
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* Certain information on this page has been omitted from this filing and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
<PAGE> 24
EXHIBIT D
DESCRIPTION OF PRODUCTS AND OTHER CONTENT
MP PROVIDES INFORMATION AND SERVICES TO ASSIST THE CONSUMER IN THE PROCESS OF
SHOPPING FOR, PURCHASING , AND OWNING A USED CAR. FEATURES OF THE SERVICE
CURRENTLY (OR WILL SHORTLY) INCLUDE (IN EACH CASE, ONLY IF AND TO THE EXTENT
RELATED TO AUTOMOBILES):
- - CAR LISTINGS
- - CAR RATINGS, REVIEWS, AND SPECS
- - CAR PRICE INFORMATION (E.G. KELLEY BLUE BOOK)
- - DECISION GUIDES
- - INSURANCE AND WARRANTY REFERRALS, QUOTES, AND ARTICLES
- - FINANCING RATES (E.G. FROM BANK RATE MONITOR), QUOTES, LOANS
- - LOAN AND LEASE CALCULATORS
- - CONSUMER CREDIT REPORTS
- - VEHICLE HISTORY REPORTS
- - CAR DEALER DIRECTORY
- - LOCATION MAPPING SERVICE
- - TIPS FOR BUYING AND SELLING CARS
- - CAR OWNERSHIP MAINTENANCE REMINDER
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EXHIBIT E
OPERATIONS
1. General. The Affiliated MP Site (including the Products and other
Content contained therein) will be in the top three (3) in the online used car
listing industry, as determined by each of the following methods: (a) based on
a cross-section of third-party reviewers who are recognized authorities in such
industry and (b) with respect to all material quality averages or standards in
such industry, including each of the following: (i) breadth and depth of Content
offered, (ii) scope and selection of Products, (iii) customer service and (v)
ease of use. In addition, the Affiliated MP Site will, with respect to each of
the measures listed above, be competitive in all respects with the used car
offerings of any MP Competitors.
2. Affiliated MP Site Infrastructure. MP will be responsible for all
communications, hosting and connectivity costs and expenses associated with the
Affiliated MP Site. MP will provide all hardware, software, telecommunications
lines and other infrastructure necessary to meet traffic demands on the
Affiliated MP Site from the AOL Network. MP will design and implement its
connection to the network between the AOL Service and Affiliated MP Site such
that (i) no single component failure will have a materially adverse impact on
AOL Users seeking to reach the Affiliated MP Site from the AOL Network and (ii)
no single line will run at more than 70% average utilization for a 5-minute peak
in a daily period. In this regard, MP will provide AOL, upon request, with a
detailed network diagram regarding the network infrastructure supporting the
Affiliated MP Site. In the event that MP elects to create a custom version of
the Affiliated MP Site in order to comply with the terms of this Agreement, MP
will bear responsibility for all aspects of the implementation, management and
cost of such customized site.
3. Optimization; Speed. MP will use commercially reasonable efforts to
ensure that: (a) the functionality and features within the Affiliated MP Site
are optimized for the client software then in use by AOL Members; and (b) the
Affiliated MP Site is designed and populated in a manner that minimizes delays
when AOL Users attempt to access such site. In order to assist MP in satisfying
the requirements of this Section 3, AOL shall provide information as may be
reasonably necessary to implement the functionality of the Affiliated MP Site.
At a minimum, MP will ensure that the Affiliated MP Site's data transfers
initiate within fewer than fifteen (15) seconds from receipt of the user query
on average. Prior to commercial launch of any material promotions described
herein, MP will permit AOL to conduct performance and load testing of the
Affiliated MP Site (in person or through remote communications), with such
commercial launch not to commence until such time as AOL is reasonably satisfied
with the results of any such testing.
4. User Interface. MP will maintain a graphical user interface within the
Affiliated MP Site that is competitive in all material respects with interfaces
of other similar sites based on similar form technology. AOL reserves the right
to review and approve the user interface and site design prior to launch of the
Promotions and to assess compliance with respect to MP's compliance with the
preceding sentence.
5. Technical Problems. MP agrees to use commercially reasonable efforts to
address material technical problems (over which MP exercises control) affecting
use by AOL Users of the Affiliated MP Site (a "MP Technical Problem") promptly
following notice thereof. In the event that MP is unable to promptly resolve a
MP Technical Problem following notice thereof from AOL (including, without
limitation, infrastructure deficiencies producing user delays), AOL will have
the right to regulate the promotions it provides to MP hereunder until such time
as MP corrects the MP Technical Problem at issue.
6. Monitoring. MP will ensure that the performance and availability of the
Affiliated MP Site is monitored on a continuous basis. MP will provide AOL with
contact information (including e-mail, phone, pager and fax information, as
applicable, for both during and after business hours) for MP's principal
business and technical representatives, for use in cases when issues or problems
arise with respect to the Affiliated MP Site.
7. Telecommunications. The Parties agree to explore encryption methodology
to secure data communications between the Parties' data centers. The network
between the Parties will be configured such that no single component failure
will significantly impact AOL Users. The network will be sized such that no
single line runs at more than 70% average utilization for a 5-minute peak in a
daily period.
8. Technical Performance.
i. MP will design the Affiliated MP Site to support the
AOL-client embedded versions of the Microsoft Internet
Explorer 3.0 and 4.0 browsers (Windows and Macintosh), the
Macintosh version of the Microsoft Internet Explorer 3.0, and
make commercially reasonable efforts to support all other AOL
browsers listed at: "http://webmaster.info.aol.com/BrowTable.
html."
ii. To the extent MP creates customized pages on the Affiliated MP
Site for AOL Users, MP will configure the server from which it
serves the site to examine the HTTP User-Agent field in order
to identify the "AOL Member-Agents" listed at:
"http://webmaster. info.aol.com/Brow2Text.html."
iii. MP will periodically review the technical information made
available by AOL at http://webmaster.info.aol.com.
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iv. MP will design its site to support HTTP 1.0 or later protocol
as defined in RFC 1945 and to adhere to AOL's parameters for
refreshing cached information listed at
http://webmaster.info.aol.com.
v. Prior to releasing material, new functionality or features
through the Affiliated MP Site ("New Functionality"), MP will
use commercially reasonable efforts to either (i) test the New
Functionality to confirm its compatibility with AOL Service
client software or (ii) provide AOL with written notice of the
New Functionality so that AOL can perform tests of the New
Functionality to confirm its compatibility with the AOL
Service client software.
9. AOL Internet Services MP Support. AOL will provide MP with access to
the standard online resources, standards and guidelines documentation, technical
phone support, monitoring and after-hours assistance that AOL makes generally
available to similarly situated web-based partners. AOL support will not, in any
case, be involved with content creation on behalf of MP or support for any
technologies, databases, software or other applications which are not supported
by AOL or are related to any MP area other than the Affiliated MP Site. Support
to be provided by AOL is contingent on MP providing to AOL demo account
information (where applicable), a detailed description of the Affiliated MP
Site's software, hardware and network architecture and access to the Affiliated
MP Site for purposes of such performance and load testing as AOL elects to
conduct.
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EXHIBIT F
STANDARD ONLINE COMMERCE TERMS & CONDITIONS
1. AOL Network Distribution. MP will not authorize or permit any third
party to distribute or promote the Products or any MP Interactive Site through
the AOL Network absent AOL's prior written approval. The Promotions and any
other promotions or advertisements purchased from or provided by AOL will link
only to the Affiliated MP Site, will be used by MP solely for its own benefit
and will not be resold, traded, exchanged, bartered, brokered or otherwise
offered to any third party.
2. Provision of Other Content. In the event that AOL notifies MP that (i)
as reasonably determined by AOL, any Content within the Affiliated MP Site
violates AOL's then-standard Terms of Service (as set forth on the America
Online(R) brand service at Keyword term "TOS"), the terms of this Agreement or
any other standard, written AOL policy or (ii) AOL reasonably objects to the
inclusion of any Content within the Affiliated MP Site (other than any specific
items of Content which may be expressly identified in this Agreement), then MP
will take commercially reasonable steps to block access by AOL Users to such
Content using MP's then-available technology. In the event that MP cannot,
through its commercially reasonable efforts, block access by AOL Users to the
Content in question, then MP will provide AOL prompt written notice of such
fact. AOL may then, at its option, restrict access from the AOL Network to the
Content in question using technology available to AOL. MP will cooperate with
AOL's reasonable requests to the extent AOL elects to implement any such access
restrictions.
3. Contests. MP will take all steps necessary to ensure that any contest,
sweepstakes or similar promotion conducted or promoted through the Affiliated MP
Site (a "Contest") complies with all applicable federal, state and local laws
and regulations.
4. Navigation. Subject to the prior consent of MP, which consent will not
be unreasonably withheld, AOL will be entitled to establish navigational icons,
links and pointers connecting the Affiliated MP Site (or portions thereof) with
other content areas on the AOL Network (with the exception of DCI).
Additionally, in cases where an AOL User performs a search for MP through any
search or navigational tool or mechanism that is accessible or available through
the AOL Network (e.g., Promotions, Keyword, or any other similar promotions or
navigational tools), AOL shall have the right to direct such AOL User to the
Affiliated MP Site.
5. Disclaimers. Upon AOL's request, MP agrees to include within the
Affiliated MP Site a product disclaimer (the specific form and substance to be
mutually agreed upon by the Parties) indicating that transactions are solely
between MP and AOL Users purchasing Products from MP.
6. AOL Look and Feel. MP acknowledges and agrees that AOL will own all
right, title and interest in and to the elements of graphics, design,
organization, presentation, layout, user interface, navigation and stylistic
convention (including the digital implementations thereof) which are generally
associated with online areas contained within the AOL Network, and to the Tool
Bar, subject to MP's ownership rights in any MP trademarks or copyrighted
material within the Affiliated MP Site or the Decision Guide Affiliated Site.
7. MP Look and Feel. AOL acknowledges and agrees that MP will own all
right, title and interest in and to the elements of graphics, design,
organization, presentation, layout, user interface, navigation and stylistic
convention (including the digital implementations thereof) which are generally
associated with the MP Interactive Sites or the Affiliated MP Site, subject to
AOL's ownership rights in any AOL trademarks or copyrighted material of AOL
included within the Affiliated MP Site or the Decision Guide Affiliated Site,
and subject to AOL's ownership rights in the Tool Bar and any AOL trademarks or
copyrighted material of AOL included therein.
8. Management of the Affiliated MP Site and the Decision Guide Affiliated
Site. MP will manage, review, delete, edit, create, update and otherwise manage
all Content available on or through the Affiliated MP Site, and any Content MP
is responsible for supplying to AOL hereunder for the Decision Guide Affiliated
Site, in a timely and professional manner and in accordance with the terms of
this Agreement. MP will take commercially reasonable efforts to ensure that the
Affiliated MP Site is current, accurate and well-organized at all times. MP
warrants that the Products and other Licensed Content that MP places on the
Affiliated MP Site, or the Decision Guide Affiliated Site: (i) will not infringe
on or violate any copyright, trademark, U.S. patent or any other third party
right, including without limitation, any music performance or other
music-related rights; (ii) will not violate AOL's then-applicable Terms of
Service; and (iii) will not violate any applicable law or regulation, including
those relating to contests, sweepstakes or similar promotions. MP also warrants
that a reasonable basis exists for all Product performance or comparison claims
appearing on the Affiliated MP Site. MP shall not in any manner, including,
without limitation in any Promotion, the Licensed Content or the Materials state
or imply that AOL recommends or endorses MP or MP's services (e.g., no
statements that MP is an "official" or "preferred" provider of products or
services for AOL); provided, however, that MP shall be permitted to make
statements that it is the exclusive provider of the Exclusive Service on the AOL
Three System, subject to the terms of this Agreement. AOL will have no
obligations with respect to the Products available on or through the Affiliated
MP Site, including, but not limited to, any duty to review or monitor any such
Products.
9. AOL Management. AOL will make commercially reasonable efforts to
manage, review, delete, edit, create, update and otherwise manage the Decision
Guide Affiliated Site, in a timely and professional
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manner and in accordance with the terms of this Agreement. AOL also will make
commercially reasonable efforts to ensure that the Decision Guide Affiliated
Site is current, accurate and well-organized at all times. AOL warrants that any
Content that it contributes to the Affiliated MP Site or to the Decision Guide
Affiliated Site: (i) will not infringe on or violate any copyright, trademark,
U.S. patent or any other third party right, including without limitation, any
music performance or other music-related rights; (ii) will not violate AOL's
then-applicable Terms of Service; and (iii) will not violate any applicable law
or regulation, including those relating to contests, sweepstakes or similar
promotions. AOL also warrants that a reasonable basis exists for all Product
performance or comparison claims that it may place on the Decision Guide
Affiliated Site or sections of the AOL Three System that link to the Affiliated
MP Site.
10. Duty to Inform. MP will promptly inform AOL of any information related
to the Affiliated MP Site which could reasonably lead to a claim, demand, or
liability of or against AOL and/or its affiliates by any third party. AOL will
promptly inform MP of any information (of which it has actual knowledge) that is
related to the Decision Guide Affiliated Site or to the AOL Three System which
could reasonably lead to a claim, demand or liability against or of MP and/or
its affiliates by any third party.
11. Customer Service. MP will bear full responsibility for all customer
service related to the Affiliated MP Site, and AOL will have no obligations
whatsoever with respect thereto. MP will receive all emails from Customers via a
computer available to MP's customer service staff and will make commercially
reasonable efforts to respond to such emails within one business day of receipt.
MP will comply with the requirements of any federal, state or local consumer
protection or disclosure law.
12. Production Work. In the event that MP requests AOL's production
assistance in connection with (i) ongoing programming and maintenance related to
the Affiliated MP Site, (ii) a redesign of or addition to the Affiliated MP Site
(e.g., a change to an existing screen format or construction of a new custom
form), (iii) production to modify work performed by a third party provider or
(iv) any other type of production work, MP will work with AOL to develop a
detailed production plan for the requested production assistance (the
"Production Plan"). Following receipt of the final Production Plan, AOL will
notify MP of (i) AOL's availability to perform the requested production work,
(ii) the proposed fee or fee structure for the requested production and
maintenance work and (iii) the estimated development schedule for such work. To
the extent the Parties reach agreement regarding implementation of the
agreed-upon Production Plan, such agreement will be reflected in a separate work
order signed by the Parties. To the extent MP elects to retain a third party
provider to perform any such production work, work produced by such third party
provider must generally conform to AOL's standards & practices (as provided on
the America Online brand service at Keyword term "styleguide"). The specific
production resources which AOL allocates to any production work to be performed
on behalf of MP will be as determined by AOL in its sole discretion; provided,
however, that in the case of the Decision Guide Affiliated Site, the Parties
shall mutually agree on the production resources to be allocated to any
production work thereon.
13. Overhead Accounts. To the extent AOL has granted MP any overhead
accounts on the AOL Service, MP will be responsible for the actions taken under
or through its overhead accounts, which actions are subject to AOL's applicable
Terms of Service and for any surcharges, including, without limitation, all
premium charges, transaction charges, and any applicable communication
surcharges incurred by any overhead Account issued to MP, but MP will not be
liable for charges incurred by any overhead account relating to AOL's standard
monthly usage fees and standard hourly charges, which charges AOL will bear.
Upon the termination of this Agreement, all overhead accounts, related screen
names and any associated usage credits or similar rights, will automatically
terminate. AOL will have no liability for loss of any data or content related to
the proper termination of any overhead account.
14. Navigation Tools. Any Keyword to be directed to the Affiliated MP Site
shall be (i) subject to availability for use by MP and (ii) limited to the
combination of the Keyword(TM) search modifier combined with a bona fide or
registered trademark of MP. AOL reserves the right to revoke at any time MP's
use of any Keyword which do not incorporate bona fide or registered trademarks
of MP. MP acknowledges that its utilization of a Keyword will not create in it,
nor will it represent it has, any right, title or interest in or to such
Keyword, other than the right, title and interest MP holds in MP's bona fide or
registered trademark independent of the Keyword. Without limiting the generality
of the foregoing, MP will not: (a) attempt to register or otherwise obtain
trademark or copyright protection in the Keyword (unless such Keyword is also a
bona fide trademark of MP); or (b) use the Keyword, except for the purposes
expressly required or permitted under this Agreement. To the extent AOL allows
AOL Users to "bookmark" the URL or other locator (e.g., in "Favorite Places")
for the Affiliated MP Site, such bookmarks will be subject to AOL's control at
all times. Upon the termination of this Agreement, MP's rights to any Keyword
and bookmarking will terminate.
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EXHIBIT G
STANDARD LEGAL TERMS & CONDITIONS
1. Promotional Materials/Press Releases. Each Party will submit to the
other Party, for its prior written approval, which will not be
unreasonably withheld or delayed, any marketing, advertising, press
releases, and all other promotional materials related to the Affiliated
MP Site and/or referencing the other Party and/or its trade names,
trademarks, and service marks (the "Materials"); provided, however,
that either Party's use of screen shots of the Affiliated MP Site for
promotional purposes will not require the approval of the other Party
so long as America Online(R) is clearly identified as the source of
such screen shots and AutoConnect(R) is clearly identified as the
creator of the site pictured in the screen shot (if applicable); and
provided further, however, that, following the initial public
announcement of the business relationship between the Parties in
accordance with the approval and other requirements contained herein,
either Party's subsequent factual reference to the existence of a
business relationship between the Parties will not require the approval
of the other Party. Each Party will solicit and reasonably consider the
views of the other Party in designing and implementing such Materials.
Once approved, the Materials may be used by a Party and its affiliates
for the purpose of promoting the Affiliated MP Site and the content
contained therein and reused for such purpose until such approval is
withdrawn with reasonable prior notice. In the event such approval is
withdrawn, existing inventories of Materials may be depleted.
Notwithstanding the foregoing, either Party may issue press releases
and other disclosures as required by law or as reasonably advised by
legal counsel without the consent of the other Party and in such event,
the disclosing Party will provide reasonable prior written notice of
such disclosure to the other Party.
2. License. MP hereby grants AOL a non-exclusive worldwide license to
market, distribute, reproduce, display, perform and promote the
Licensed Content through the Affiliated MP Site or the Decision Guide
Affiliated Site in accordance with the terms of this Agreement. In
addition, AOL Users will have the right to access and use the
Affiliated MP Site and the Decision Guide Affiliated Site.
3. Trademark License. In designing and implementing the Materials and
subject to the other provisions contained herein, MP will be entitled
to use the following trade names, trademarks, and service marks of AOL:
the "America Online(R)" brand service, "AOL(TM)" service/software and
AOL's triangle logo, AOL.com, CompuServe and Decision Guide; and AOL
and its affiliates will be entitled to use the trade names, trademarks,
and service marks of MP (e.g., "AutoConnect(R)") for which MP holds all
rights necessary for use in connection with this Agreement
(collectively, together with the AOL marks listed above, the "Marks");
provided that each Party: (i) does not create a unitary composite mark
involving a Mark of the other Party without the prior written approval
of such other Party; and (ii) displays symbols and notices clearly and
sufficiently indicating the trademark status and ownership of the other
Party's Marks in accordance with applicable trademark law and practice.
4. Ownership of Trademarks. Each Party acknowledges the ownership right of
the other Party in the Marks of the other Party and agrees that all use
of the other Party's Marks will inure to the benefit, and be on behalf,
of the other Party. Each Party acknowledges that its utilization of the
other Party's Marks will not create in it, nor will it represent it
has, any right, title, or interest in or to such Marks other than the
licenses expressly granted herein. Each Party agrees not to do anything
contesting or impairing the trademark rights of the other Party.
5. Quality Standards. Each Party agrees that the nature and quality of its
products and services supplied in connection with the other Party's
Marks will conform to quality standards set by the other Party. Each
Party agrees to supply the other Party, upon request, with a reasonable
number of samples of any Materials publicly disseminated by such Party
which utilize the other Party's Marks. Each Party will comply with all
applicable laws, regulations, and customs and obtain any applicable
government approvals pertaining to use of the other Party's marks.
Should either Party find objectionable any use of its Marks by the
other Party, such Party shall have the right to revoke, with respect to
the objectionable use, the rights granted to the other Party under this
Agreement to use the any such Marks, and the other Party shall
immediately cease using such Marks in the manner found objectionable by
the Party owning such Marks.
6. Infringement Proceedings. Each Party agrees to promptly notify the
other Party of any unauthorized use of the other Party's Marks of which
it has actual knowledge. Each Party will have the sole right and
discretion to bring proceedings alleging infringement of its Marks or
unfair competition related thereto; provided, however, that each Party
agrees to provide the other Party with its reasonable cooperation and
assistance with respect to any such infringement proceedings. The costs
and expenses involved in any such infringement proceedings shall be the
responsibility of the party bringing the proceeding.
7. Representations and Warranties. Each Party represents and warrants to
the other Party that: (i) such Party has the full corporate right,
power and authority to enter into this Agreement and to perform the
acts required of it hereunder; (ii) the execution of this Agreement by
such Party, and the performance by such Party of its obligations and
duties hereunder, do not and will not violate any agreement to which
such Party is a party or by which it is otherwise bound; (iii) when
executed and delivered by such Party, this Agreement will constitute
the legal, valid and binding obligation of such Party, enforceable
against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties
or agreements related to the subject matter hereof that are not
expressly provided for in this Agreement. MP hereby represents and
warrants that it possesses all
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authorizations, approvals, consents, licenses, permits, certificates
or other rights and permissions necessary to provide the Exclusive
Service.
8. Confidentiality. Each Party acknowledges that Confidential Information
may be disclosed to the other Party during the course of this
Agreement. Each Party agrees that it will take reasonable steps, at
least substantially equivalent to the steps it takes to protect its own
proprietary information, during the term of this Agreement, and for a
period of two (2) years following expiration or termination of this
Agreement, to prevent the duplication or disclosure of Confidential
Information of the other Party, other than by or to its employees or
agents who must have access to such Confidential Information to perform
such Party's obligations hereunder, who will each agree to comply with
this section. Notwithstanding the foregoing, either Party may issue a
press release or other disclosure containing Confidential Information
without the consent of the other Party, to the extent such disclosure
is required by law, rule, regulation or government or court order. In
such event, the disclosing Party will provide reasonable prior written
notice of such proposed disclosure to the other Party. Further, in the
event such disclosure is required of either Party under the laws, rules
or regulations of the Securities and Exchange Commission or any other
applicable governing body, such Party will (i) redact mutually
agreed-upon portions of this Agreement to the fullest extent permitted
under applicable laws, rules and regulations and (ii) submit a request
to such governing body that such portions and other provisions of this
Agreement receive confidential treatment under the laws, rules and
regulations of the Securities and Exchange Commission or otherwise be
held in the strictest confidence to the fullest extent permitted under
the laws, rules or regulations of any other applicable governing body.
9. Limitation of Liability; Disclaimer; Indemnification.
(A) LIABILITY. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO
THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR
INABILITY TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED MP
SITE, THE DECISION GUIDES, THE DECISION GUIDE AFFILIATED SITE OR ARISING FROM
ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED
DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE
EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO
INDEMNIFICATION PURSUANT TO SECTION 9(C). EXCEPT AS PROVIDED IN SECTION 9(C),
(I) LIABILITY ARISING UNDER THIS AGREEMENT WILL BE LIMITED TO DIRECT,
OBJECTIVELY MEASURABLE DAMAGES, AND (II) THE MAXIMUM LIABILITY OF ONE PARTY TO
THE OTHER PARTY FOR ANY CLAIMS ARISING IN CONNECTION WITH THIS AGREEMENT WILL
NOT EXCEED THE AGGREGATE AMOUNT OF ALL PAYMENTS MADE UNDER THIS AGREEMENT IN THE
YEAR IN WHICH THE EVENT GIVING RISE TO LIABILITY OCCURS; PROVIDED THAT EACH
PARTY WILL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS
OWED TO THE OTHER PARTY PURSUANT TO THE AGREEMENT.
(B) NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL
NETWORK, THE AOL SERVICE, AOL.COM, THE DECISION GUIDES, THE DECISION GUIDE
AFFILIATED SITE OR THE AFFILIATED MP SITE, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING
THE PROFITABILITY OF THE AFFILIATED MP SITE.
(c) Indemnity. Either Party will defend, indemnify, save and hold
harmless the other Party and the officers, directors, agents, affiliates,
distributors, franchisees and employees of the other Party from any and all
third party claims, demands, liabilities, costs or expenses, including
reasonable attorneys' fees ("Liabilities"), resulting from the indemnifying
Party's material breach of any duty, representation, or warranty of this
Agreement.
10. Claims. If a Party entitled to indemnification hereunder (the
"Indemnified Party") becomes aware of any matter it believes is indemnifiable
hereunder involving any claim, action, suit, investigation, arbitration or other
proceeding against the Indemnified Party by any third party (each an "Action"),
the Indemnified Party will give the other Party (the "Indemnifying Party")
prompt written notice of such Action. Such notice will (i) provide the basis on
which indemnification is being asserted and (ii) be accompanied by copies of all
relevant pleadings, demands, and other papers related to the Action and in the
possession of the Indemnified Party. The Indemnifying Party will have a period
of ten (10) days after delivery of such notice to respond. If the Indemnifying
Party elects to defend the Action or does not respond within the requisite ten
(10) day period, the Indemnifying Party will be obligated to defend the Action,
at its own expense, and by counsel reasonably satisfactory to the Indemnified
Party. The Indemnified Party will cooperate, at the expense of the Indemnifying
Party, with the Indemnifying Party and its counsel in the defense and the
Indemnified Party will have the right to participate fully, at its own expense,
in the defense of such Action. If the Indemnifying Party responds within the
required ten (10) day period and elects not to defend such Action, the
Indemnified Party will be free, without prejudice to any of the Indemnified
Party's rights hereunder, to compromise or defend (and
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control the defense of) such Action, all Liabilities and any amount paid by the
Indemnified Party in compromise of the Action to be paid by the Indemnifying
Party. In such case, the Indemnifying Party will cooperate, at its own expense,
with the Indemnified Party and its counsel in the defense against such Action
and the Indemnifying Party will have the right to participate fully, at its own
expense, in the defense of such Action. Any compromise or settlement of an
Action will require the prior written consent of both Parties hereunder, such
consent not to be unreasonably withheld or delayed.
11. Acknowledgment. AOL and MP each acknowledges that the provisions of
this Agreement were negotiated to reflect an informed, voluntary allocation
between them of all risks (both known and unknown) associated with the
transactions contemplated hereunder. The limitations and disclaimers related to
warranties and liability contained in this Agreement are intended to limit the
circumstances and extent of liability. The provisions of this Section 11 will be
enforceable independent of and severable from any other enforceable or
unenforceable provision of this Agreement.
12. Solicitation of AOL Users. During the term of the Agreement and for a
two year period thereafter, MP will not use the AOL Network (including, without
limitation, the e-mail network contained therein) to solicit AOL Users on behalf
of another Interactive Service. More generally, MP will not send unsolicited,
commercial e-mail (i.e., "spam") through or into AOL's products or services,
absent a Prior Business Relationship. For purposes of this Agreement, a "Prior
Business Relationship" will mean that the AOL User to whom commercial e-mail is
being sent has voluntarily either (i) engaged in a transaction with MP or (ii)
provided information to MP through a contest, registration, or other
communication, which included clear notice to the AOL User that the information
provided could result in commercial e-mail being sent to that AOL User by MP or
its agents. Any commercial e-mail communications to AOL Users which are
otherwise permitted hereunder, will (a) include a prominent and easy means to
"opt-out" of receiving any future commercial e-mail communications from MP, and
(b) shall also be subject to AOL's then-standard restrictions on distribution of
bulk e-mail (e.g., related to the time and manner in which such e-mail can be
distributed through or into the AOL product or service in question).
13. AOL User Communications. To the extent that MP is permitted to
communicate with AOL Users under Section 15 of this Exhibit G, in any such
communications (on or off the Affiliated MP Site (including without limitation,
by e-mail)) (A) to specific AOL Users based on contact or other information
obtained by MP as a direct or indirect result of this Agreement, or (B) targeted
specifically to AOL Users as a group, MP will not encourage AOL Users to take
any action inconsistent with the scope and purpose of this Agreement, including
without limitation, the following actions: (i) using an Interactive Site other
than the Affiliated MP Site for the purchase of Products or provision of
Services (except for any links to the MP Commerce Partners within the Affiliated
MP Site, if and to the extent permitted by this Agreement), (ii) using Content
other than the Licensed Content; (iii) bookmarking of Interactive Sites; or (iv)
changing the default home page on the AOL browser. Additionally, with respect to
such AOL User communications, in the event that MP encourages an AOL User to
purchase products through such communications, MP shall ensure that (a) the AOL
Network is promoted as the primary means through which the AOL User can access
the Affiliated MP Site and (b) any link to the Affiliated MP Site will link to a
page which indicates to the AOL User that such user is in a site which is
affiliated with the AOL Network.
14. Collection and use of User Information. MP shall ensure that its
collection, use and disclosure of information obtained from AOL Users obtained
as a direct or indirect result of this Agreement ("User Information") complies
with (i) all applicable laws and regulations and (ii) in the case of the
Affiliated MP Site, MP's standard privacy policies so long as such policies are
prominently published on the site and provide adequate notice, disclosure and
choice to users regarding MP's collection, use and disclosure of user
information. MP will not disclose User Information collected hereunder to any
third party in a manner that identifies AOL Users as end users of an AOL product
or service or use AOL User Information collected under this Agreement to market
another Interactive Service; provided that MP may advise car dealers which are
strategic partners of MP (but not any individuals) of other Internet access
methods that are compatible with the Parent Company's Manheim Online service.
AOL expressly acknowledges and agrees that this Section 14 shall not require any
other MP Interactive Site to comply with such AOL privacy policies.
15. Excuse. Neither Party will be liable for, or be considered in breach of
or default under this Agreement on account of, any delay or failure to perform
as required by this Agreement as a result of any causes or conditions which are
beyond such Party's reasonable control and which such Party is unable to
overcome by the exercise of reasonable diligence.
16. Independent Contractors. The Parties to this Agreement are independent
contractors. Neither Party is an agent, representative or employee of the other
Party. Neither Party will have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the other Party. This Agreement will not be interpreted or
construed to create an association, agency, joint venture or partnership between
the Parties or to impose any liability attributable to such a relationship upon
either Party.
17. Notice. Any notice, approval, request, authorization, direction or
other communication under this Agreement will be given in writing and will be
deemed to have been delivered and given for all purposes (i) on the delivery
date if delivered by electronic mail (to screenname "[email protected]" in the
case of AOL) or by confirmed facsimile; (ii) on the delivery date if delivered
personally to the Party to whom the same is directed; (iii) one business day
after deposit with a commercial overnight carrier, with written verification of
receipt; or (iv) five business days after the mailing date, whether or not
actually received, if sent by U.S. mail, return receipt
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requested, postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available. In the case of AOL, such notice will
be provided to both the Senior Vice President for Business Affairs (phone no.
703-265-1000, fax no. 703-265-1206) and the Deputy General Counsel (phone no.
703-265-1000, fax no. 703-265-1105), each at the address of AOL set forth in the
first paragraph of this Agreement. In the case of MP, such notice will be
provided to Andrew Drake (phone no. 404-843-7423, fax no. 404-843-7412, email
address [email protected]) at the address for MP set forth in the
first paragraph of this Agreement, with a copy to Jonathan Hart, Esq. (phone no.
202-776-2000, fax no. 202-776-2222, email address: [email protected]) at Dow,
Lohnes & Albertson, P.L.L.C., 1200 New Hampshire Avenue, N.W., Washington, D.C.
20036.
18. No Waiver. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to exercise
any right under this Agreement will not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same will be
and remain in full force and effect.
19. Return of Information. Upon the expiration or termination of this
Agreement, each Party will, upon the written request of the other Party, return
or destroy (at the option of the Party receiving the request) all confidential
information, documents, manuals and other materials specified the other Party.
20. Survival. Sections 1.1 (only with respect to the make-good provisions
therein, and then, only until such make-good is completed), 1.2.1 (only with
respect to the make-good provisions therein, and then, only until such make-good
is completed), 1.2.2 (only with respect to the make-good provisions therein, and
then, only until such make-good is completed), 2.12 (except as set forth therein
with respect to the termination of the Decision Guide License), 4.4, 4.6, 6.1,
6.2, 6.3 and 6.4 of the body of the Agreement, Sections 6 and 7 of Exhibit F,
and Sections 4 through 12, 14 through 22, 25, 26, 27, 29 and 30 of this Exhibit
G, will survive the completion, expiration, termination or cancellation of this
Agreement.
21. Entire Agreement. This Agreement sets forth the entire agreement and
supersedes any and all prior agreements of the Parties with respect to the
transactions set forth herein (including without limitation that certain
Development, License and Hosting Agreement (For Used Cars), by and between
PersonaLogic, Inc., and MP, and as amended by that certain Addendum thereto,
except that if and to the extent MP has, as of the Effective Date hereof, any
then due and payable payments thereunder, such accrued obligations shall
survive). Neither Party will be bound by, and each Party specifically objects
to, any term, condition or other provision which is different from or in
addition to the provisions of this Agreement (whether or not it would materially
alter this Agreement) and which is proffered by the other Party in any
correspondence or other document, unless the Party to be bound thereby
specifically agrees to such provision in writing.
22. Amendment. No change, amendment or modification of any provision of
this Agreement will be valid unless set forth in a written instrument signed by
the Party subject to enforcement of such amendment, and in the case of AOL, by
at least a Senior Vice President.
23. Further Assurances. Each Party will take such action (including, but
not limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or continuing
performance of this Agreement.
24. Assignment. MP will not assign this Agreement or any right, interest or
benefit under this Agreement without the prior written consent of AOL, which
consent shall not be unreasonably withheld, delayed or conditioned.
Notwithstanding the foregoing, MP may assign this Agreement without obtaining
AOL's consent (i) to any entity that succeeds to MP's interests by merger,
consolidation or similar transaction or otherwise by operation of law, or (ii)
to any entity that acquires all or substantially all of the assets or equity
interests in MP, in each case subject to Section 5.5 of the main body of this
Agreement. Subject to the foregoing, this Agreement will be fully binding upon,
inure to the benefit of and be enforceable by the Parties hereto and their
respective successors and assigns.
25. Construction; Severability. In the event that any provision of this
Agreement conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with jurisdiction over the
Parties to this Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the Parties in
accordance with applicable law, and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect.
26. Remedies. Except where otherwise specified, the rights and remedies
granted to a Party under this Agreement are cumulative and in addition to, and
not in lieu of, any other rights or remedies which the Party may possess at law
or in equity; provided that, in connection with any dispute hereunder, MP will
be not entitled to offset any amounts that it claims to be due and payable from
AOL against amounts otherwise payable by MP to AOL.
27. Applicable Law. Except as otherwise expressly provided herein, this
Agreement will be interpreted, construed and enforced in all respects in
accordance with the laws of the State of Delaware except for its conflicts of
laws principles.
28. Export Controls. Both Parties will adhere to all applicable laws,
regulations and rules relating to the export of technical data and will not
export or re-export any technical data, any products received from the other
Party or the direct product of such technical data to any proscribed country
listed in such applicable laws, regulations and rules unless properly
authorized.
32
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29. Headings. The captions and headings used in this Agreement are inserted
for convenience only and will not affect the meaning or interpretation of this
Agreement.
30. Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will constitute one
and the same document
33
<PAGE> 34
EXHIBIT H
DECISION GUIDE AFFILIATED SITE SCREENSHOT
(WITH CO-BRANDING THEREOF)
[SEE ATTACHED]
34
<PAGE> 35
[SCREEN SHOT]
35
<PAGE> 36
EXHIBIT I
POWERED BY BRANDING SCREENSHOT FOR DECISION GUIDES
[SEE ATTACHED]
36
<PAGE> 37
[SCREEN SHOT]
37
<PAGE> 38
EXHIBIT J
TOOL BAR SCREEN SHOT
(WITH CO-BRANDING THEREOF)
[SEE ATTACHED]
38
<PAGE> 39
[SCREEN SHOT]
39
<PAGE> 40
EXHIBIT K
AFFILIATED SITE SCREENSHOT
(WITH CO-BRANDING THEREOF)
[SEE ATTACHED]
40
<PAGE> 41
[SCREEN SHOT]
41
