-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O5ryOiq4/GbA9ZvGiq6DdjZ5SaOkreDFEFSzLpX9NOB5hZQ8xfy0kii6m3rYna2h QL230Wpy7DrQkOunm791wA== 0000892569-99-000625.txt : 19990308 0000892569-99-000625.hdr.sgml : 19990308 ACCESSION NUMBER: 0000892569-99-000625 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19990305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOBYTEL COM INC CENTRAL INDEX KEY: 0001023364 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 330711569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70621 FILM NUMBER: 99557558 BUSINESS ADDRESS: STREET 1: 18872 MACARTHUR BLVD STREET 2: SUITE 200 CITY: IRVINE STATE: CA ZIP: 92612-1400 BUSINESS PHONE: 9492254500 MAIL ADDRESS: STREET 1: AUTO BY TEL CORP STREET 2: 18872 MACARTHUR BLVD 2ND FL CITY: IRVINE STATE: CA ZIP: 92612-1400 FORMER COMPANY: FORMER CONFORMED NAME: AUTO BY TEL CORP DATE OF NAME CHANGE: 19960920 S-1/A 1 FORM S-1 AMENDMENT #2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1999. REGISTRATION NO. 333-70621 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------- AUTOBYTEL.COM INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7375 33-0711569 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
18872 MACARTHUR BOULEVARD IRVINE, CALIFORNIA 92612-1400 (949) 225-4500 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) MARK W. LORIMER, CHIEF EXECUTIVE OFFICER AND PRESIDENT AUTOBYTEL.COM INC. 18872 MACARTHUR BOULEVARD IRVINE, CALIFORNIA 92612-1400 (949) 225-4500 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: THOMAS R. POLLOCK, ESQ. CHRISTOPHER L. KAUFMAN, ESQ. BRIGITTE LIPPMANN, ESQ. LAURA I. BUSHNELL, ESQ. PAUL, HASTINGS, JANOFSKY & WALKER LLP LATHAM & WATKINS 399 PARK AVENUE 135 COMMONWEALTH DRIVE NEW YORK, NEW YORK 10022 MENLO PARK, CALIFORNIA 94025 (212) 318-6000 (650) 328-4600
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3) - ---------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.001 per share...................... 5,175,000 Shares $18.00 $93,150,000 $25,895.70 - ---------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------
(1) Includes 675,000 shares that may be sold upon exercise of the underwriters' over-allotment option. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act of 1933, as amended. (3) Of this registration fee, $23,018.40 has been previously paid. ------------------------ 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION MARCH 5, 1999 4,500,000 SHARES LOGO AUTOBYTEL.COM INC. COMMON STOCK We are offering 3,500,000 shares of our common stock. The selling stockholders identified in this prospectus are offering an additional 1,000,000 shares. We will not receive any of the proceeds from the sale of shares by the selling stockholders. There is currently no public market for our common stock. We expect that the public offering price will be between $16.00 and $18.00 per share. The market price of our common stock after this offering may be higher or lower than the actual price at which the shares of our common stock will be sold in this offering. Our common stock has been approved for quotation on the Nasdaq National Market under the symbol "ABTL." INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6. Autobytel.com has received from international strategic investors indications of interest for the purchase of up to 250,000 shares at the initial public offering price. The sale of these shares will not be subject to the underwriting agreement between Autobytel.com and the underwriters. Accordingly, no underwriting discounts will apply to the sale of these shares.
PER SHARE TOTAL --------- -------- Public Offering Price................................ $ $ Underwriting Discounts............................... $ $ Proceeds, before expenses, to Autobytel.com.......... $ $ Proceeds, before expenses, to the selling stockholders....................................... $ $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The selling stockholders have granted the underwriters a 30-day option to purchase up to an additional 675,000 shares of common stock to cover any over-allotments. If the underwriters exercise the over-allotment option in full, these stockholders will receive $ from the proceeds. BT ALEX. BROWN LEHMAN BROTHERS PAINEWEBBER INCORPORATED , 1999 3 GATEFOLD - -------- Purchase Request Process utilizes easy-to-use online forms that enable consumers to choose their desired vehicle and options. The purchase request is then routed to the nearest Autobytel.com participating dealer, whom we expect to promptly contact the customer with a haggle-free, competitive offer. Research allows consumers to empower themselves by gathering up-to-date, useful information regarding vehicles, vehicle pricing and other related topics from Autobytel.com's comprehensive network of automobile information sources. Dealer Real Time(tm) is a extranet used exclusively by Autobytel.com and its participating dealers that delivers the purchase requests from consumers to Autobytel.com dealers in real time. It notifies dealers when new purchase requests have been received, enables dealers to efficiently manage the purchase process and allows dealers to load their pre-owned vehicle inventories directly to the network. Pre-Owned Vehicle Purchasing is simplified through Autobytel.com's Pre-Owned CyberStore, which enables consumers to search for vehicles according to specific search parameters such as the price, make, model, mileage, year and location of the vehicle. CyberStore locates and displays the description, location and actual photograph of all vehicles that satisfy the search parameters. INSIDE COVER - ------------ New Cars Consumers can shop for and select a new vehicle that specifically fits their needs using Autobytel.com. Pre-Owned CyberStore Consumers can search for, view and select a certified, pre-owned vehicle through CyberStore. Research Pricing information, consumer reports, "test drives" and up-to-date automotive industry information help consumers make informed and intelligent buying decisions. Finance Consumers can research loan and leasing information and receive online approval. Insure Consumers can receive insurance quotes and obtain approval online. Rewards Mobalist Rewards and its affiliate programs allow members to earn credits toward the purchase of a new or pre-owned car through Autobytel.com. Warranty Consumers can purchase extended warranty and mechanical breakdown insurance through our online affiliates. My Area Consumers can keep track of their current cars, watch expenses and plan future "dream car" purchases through this personalized homepage. 2 4 PROSPECTUS SUMMARY In addition to this summary, you should read the more detailed information appearing elsewhere in this prospectus, including the "Risk Factors" section and the Consolidated Financial Statements and Notes thereto. AUTOBYTEL.COM We are a leading, branded Internet site for new and pre-owned vehicle information and purchasing services. Through our Web site, www.autobytel.com, consumers can research pricing, specifications and other information regarding new and pre-owned vehicles. When consumers indicate they are ready to buy, they can be connected to Autobytel.com's network of over 2,700 dealers in North America, with each dealer representing a franchise for a particular vehicle make. Dealers participate in our network by entering into non-exclusive contracts with us. We expect our dealers to provide a haggle-free, competitive offer. We provide our services free of charge to consumers and derive substantially all of our revenues from fees paid by participating dealers. We believe our services benefit both consumers and participating dealers in the following ways: - we supply consumers with information they can use to make an informed and intelligent vehicle purchasing decision, - we provide consumers a convenient buying experience, - we provide consumers access to a broad range of related services such as insurance, financing and leasing through our Web site, - we reduce our participating dealers' costs by directing to them large volumes of potential automotive buyers, and - we train our dealers to appropriately deal with knowledgeable Internet consumers. We introduced our new vehicle purchasing services in May 1995 and our Certified Pre-Owned CyberStore program in April 1997. Our new vehicle purchasing service enables consumers to shop for and select a new vehicle through our Web site by providing research on new vehicles such as pricing, features, specifications and colors. When consumers indicate they are ready to buy, they can complete a purchase request online. A purchase request is an online inquiry a consumer makes to receive a price quote for a specific vehicle from one of the dealers in our network. The CyberStore allows consumers to search for a pre-owned vehicle according to the price, make, model, color, year and location of the vehicle. The CyberStore locates and displays the descriptions, locations and actual photographs of all vehicles that satisfy the consumers' search parameters. According to CNW Marketing/Research, an independent research organization, United States consumers spent over $657 and $667 billion on new and pre-owned vehicles representing the sale of over 60.0 and 60.3 million vehicles in 1997 and 1998, respectively. Although automotive retailing attracts significant consumer dollars, we believe that consumers associate the traditional vehicle buying experience with high-pressure sales tactics. In the United States, new vehicles are traditionally sold through face-to-face, negotiated transactions at approximately 49,000 dealerships franchised by manufacturers. Approximately 40% of pre-owned vehicles are also sold through these dealerships. Our company was founded with the objective of significantly improving the purchasing process for consumers and dealers. 3 5 Since inception, we have successfully expanded our dealer network to over 2,700 dealers and have directed approximately 2.5 million purchase requests to our dealer network. During 1998, we directed over 1.3 million purchase requests to our dealers. We believe that our dealer network experiences a high closing ratio due to the quality of purchase requests generated through our Web site, our high quality dealer network, and our dealer training and support. The dealers in our network use our online information platform, the Dealer Real Time system. The Dealer Real Time system is an Internet-based communications platform that provides dealers with immediate purchase request information, the ability to track customers and purchase requests, and other value-added features, including automatic uploading of pre-owned vehicle inventory into our database. We believe that the Dealer Real Time system gives dealers a competitive advantage compared to delivering purchase requests by fax. We have developed strategic marketing, advertising, development and distribution affiliations with other companies, including: - Internet search engine providers, such as Excite, Inc., - cable service providers, such as MediaOne Interactive Services, Inc., - international automotive distributors, such as Inchcape Automotive Limited and Bilia AB, - Internet providers of vehicle pricing and specification information, such as Edmund's Publications Corp., Kelley Blue Book, Pace Publications, Inc. and IntelliChoice, Inc., and - financing and insurance providers, such as Chase Manhattan Automotive Finance Corporation, General Electric Capital Auto Financial Services, Inc. and New Hampshire Insurance Corporation, a member company of the American International Group. We have received indications of interest from strategic investors, including companies with international automotive operations, for the purchase of up to 250,000 shares at the initial public offering price. We are seeking to enter into agreements with these companies to provide for, among other things, the organization and establishment of our international operations through the formation of joint ventures and licenses for the use of our name and systems in international locations. We are a Delaware corporation incorporated on May 17, 1996. We were previously formed in Delaware in January 1995 as a limited liability company under the name Auto-By-Tel LLC. Our principal executive offices are located at 18872 MacArthur Boulevard, Irvine, California 92612-1400, and our telephone number is (949) 225-4500. Our Web site is located at www.autobytel.com. 4 6 THE OFFERING The information below is stated as of December 31, 1998. Investors should be aware that the aggregate number of shares of common stock to be outstanding after the offering does not include 2,859,340 shares subject to outstanding options and 773,133 shares subject to outstanding warrants. Common stock offered by Autobytel.com... 3,500,000 shares Common stock offered by the selling stockholders.......................... 1,000,000 shares Common stock to be outstanding after the offering.............................. 17,858,745 shares Use of proceeds......................... For working capital and general corporate purposes Nasdaq National Market symbol........... "ABTL"
SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) We have calculated pro forma net loss per share assuming the conversion on their date of issuance of the outstanding preferred stock into common stock. The as adjusted for the offering column reflects the receipt by Autobytel.com of the estimated net proceeds of $53.8 million from our sale of common stock offered hereby.
INCEPTION (JANUARY 31, 1995) TO YEARS ENDED DECEMBER 31, DECEMBER 31, ----------------------------- 1995 1996 1997 1998 ------------ ------- -------- -------- STATEMENT OF OPERATION DATA: Revenues................................ $ 274 $ 5,025 $ 15,338 $ 23,826 ======= ======= ======== ======== Loss from operations.................... (1,030) (6,159) (17,415) (20,643) ------- ------- -------- -------- Net loss................................ $(1,030) $(6,035) $(16,810) $(19,398) ======= ======= ======== ======== Basic net loss per share................ $ (0.12) $ (0.73) $ (2.03) $ (2.30) ======= ======= ======== ======== Shares used in computing basic net loss per share............................. 8,250 8,252 8,291 8,423 Pro forma basic net loss per share...... $ (0.12) $ (0.68) $ (1.53) $ (1.49) ======= ======= ======== ======== Shares used in computing pro forma basic net loss per share.................... 8,250 8,849 10,967 13,008
DECEMBER 31, 1998 --------------------------- AS ADJUSTED ACTUAL FOR THE OFFERING -------- ---------------- BALANCE SHEET DATA: Cash and cash equivalents................................. $ 27,984 $ 81,754 Working capital........................................... 23,436 77,206 Total assets.............................................. 34,207 87,977 Accumulated deficit....................................... (43,273) (43,273) Stockholders' equity...................................... 25,868 79,638
5 7 RISK FACTORS You should read the following risk factors carefully before purchasing our common stock. WE HAVE A HISTORY OF NET LOSSES AND EXPECT NET LOSSES FOR THE FORESEEABLE FUTURE. We were formed in January 1995 as Auto-By-Tel LLC, and first received revenues from operations in March 1995. We therefore have a limited operating history upon which you may evaluate our operations and future prospects. Because of the recent emergence of the Internet-based vehicle information and purchasing industry, none of our executives has significant experience in the industry. This limited operating history and management experience means it is difficult for us to predict future operating results. We have incurred losses every quarter since inception and expect to continue to incur losses for the foreseeable future. We had an accumulated deficit of $43.3 million and $23.9 million as of December 31, 1998 and 1997, respectively. Our potential for future profitability must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets, such as the market for Internet commerce. To achieve profitability, we must, among other things: - generate increased vehicle buyer traffic to our Web site, - continue to send new and pre-owned vehicle purchase requests to dealers that result in sufficient dealer transactions to justify our fees, - continue to expand the number of dealers in our network and enhance the quality of dealers, - respond to competitive developments, - increase our brand name visibility, - successfully introduce new services, - continue to attract, retain and motivate qualified personnel, and - continue to upgrade and enhance our technologies to accommodate expanded service offerings and increased consumer traffic. We cannot be certain that we will be successful in achieving these goals. WE MAY NEED TO REDUCE OUR PARTICIPATING DEALER TURNOVER. Substantially all of our revenues are derived from fees paid by subscribing dealerships under written marketing agreements with us having terms of one year or five years. These marketing agreements are cancelable at the option of either party upon 30 days notice. We cannot assure that dealers will not terminate their agreements with us. Subscribing dealers may terminate their relationship with us for any reason, including an unwillingness to accept our subscription terms or in order to join alternative marketing programs. Our business is dependent upon our ability to attract and retain qualified new and pre-owned vehicle dealers. During 1998, 556 subscribing dealers in the United States terminated their affiliation with us or were terminated by us. During 1998 we also added 1,323 subscribing dealers to our dealership network. In order for us to grow or maintain our dealer network, we may need to reduce dealer turnover. 6 8 WE MAY LOSE SUBSCRIBING DEALERS IF WE RECONFIGURE DEALER TERRITORIES. If the volume of purchase requests increases, we may need to reduce or reconfigure the exclusive territories currently assigned to dealerships in order to serve consumers more effectively. If a dealer is unwilling to accept a reduction or reconfiguration of its territory, it may terminate its relationship with us and could sue us to prevent such reduction or reconfiguration, or collect damages from us. We have experienced one such lawsuit -- for more details, see the section in this prospectus entitled "Business -- Litigation." A material decrease in the number of dealers subscribing to our network, slower than expected growth in the number of subscribing dealers, or litigation with dealers could have a material adverse effect on our business, results of operations and financial condition. WE RELY HEAVILY ON OUR PARTICIPATING DEALERS TO PROMOTE OUR BRAND VALUE. We devote significant efforts to train participating dealerships in practices that are intended to increase consumer satisfaction. Our inability to train dealers effectively, or the failure by participating dealers to adopt recommended practices, respond rapidly and professionally to vehicle inquiries, or sell and lease vehicles in accordance with our marketing strategies, could result in low consumer satisfaction, damage our brand name and could materially and adversely affect our business, results of operations and financial condition. OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. Our quarterly operating results may fluctuate due to many factors. Our expense levels are based in part on our expectations of future revenues which may vary significantly. We plan our business operations based on increased revenues and if our revenues do not increase faster than our expenses, our business, results of operations and financial condition will be materially and adversely affected. Other factors that may adversely affect our quarterly operating results include: - our ability to retain existing dealers, attract new dealers and maintain dealer and customer satisfaction, - the announcement or introduction of new or enhanced sites, services and products by us or our competitors, - general economic conditions and economic conditions specific to the Internet, online commerce or the automobile industry, - a decline in the usage levels of online services and consumer acceptance of the Internet and commercial online services for the purchase of consumer products and services such as those offered by us, - our ability to upgrade and develop our systems and infrastructure and to attract new personnel in a timely and effective manner, - the level of traffic on our Web site and other sites that refer traffic to our Web site, - technical difficulties, system downtime or Internet brownouts, - the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure, - governmental regulation, and - unforeseen events affecting the industry. 7 9 SEASONALITY IS LIKELY TO CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS. To date, our quarter to quarter growth in revenues have offset any effects due to seasonality. However, we expect our business to experience seasonality as it matures. Seasonality in the automotive industry, Internet and commercial online service usage and advertising expenditures is likely to cause fluctuations in our operating results and could have a material adverse effect on our business, operating results and financial condition. We anticipate that purchase requests will typically increase during the first and third quarters when new vehicle models are introduced and will typically decline during the second and fourth quarters. Internet and commercial online service usage and the growth rate of such usage typically declines during the summer. WE ARE IN AN INTENSELY COMPETITIVE MARKET. Our vehicle purchasing services compete against a variety of Internet and traditional vehicle purchasing services and automotive brokers. The market for Internet-based commercial services is new, and competition among commercial Web sites is expected to increase significantly in the future. Failure to achieve our competitive objectives would have a material adverse effect on our business, results of operations and financial condition. The Internet is characterized by minimal barriers to entry, and new competitors can launch new Web sites at relatively low cost. To compete successfully as an Internet-based commercial entity, we must significantly increase awareness of our services and brand name. We compete with other entities which maintain similar commercial Web sites including Autoweb.com, Cendant Membership Service, Inc.'s AutoVantage, Microsoft Corporation's Carpoint and Stoneage Corporation. Republic Industries, Inc., a large consolidator of dealers, has announced its intention to launch a Web site for marketing vehicles. We also compete indirectly against vehicle brokerage firms and affinity programs offered by several companies, including Costco Wholesale Corporation and Wal-Mart Stores, Inc. In addition, all major vehicle manufacturers have their own Web sites and many have recently launched or announced plans to launch online buying services, such as General Motors Corporation's BuyPower. We also compete with vehicle insurers, lenders and lessors as well as other dealers that are not part of our network. Such companies may already maintain or may introduce Web sites which compete with ours. We believe that the principal competitive factors in the online market are: - brand recognition, - speed and quality of fulfillment, - variety of value-added services, - ease of use, - customer satisfaction, - quality of service, and - technical expertise. We cannot assure that we can compete successfully against current or future competitors, many of which have substantially more capital, existing brand recognition, resources and access to additional financing. In addition, competitive pressures may result in increased marketing costs, decreased Web site traffic or loss of market share or 8 10 otherwise may materially and adversely affect our business, results of operations and financial condition. IF ANY OF OUR RELATIONSHIPS WITH KEY VENDORS TERMINATES, OUR PURCHASE REQUEST VOLUME COULD DECLINE. We depend on a number of strategic relationships to direct a substantial amount of purchase requests and traffic to our Web site. The termination of any of these relationships or any significant reduction in traffic to Web sites on which our services are advertised or offered, or the failure to develop additional referral sources, would have a material adverse effect on our business, results of operations and financial condition. We receive a significant number of purchase requests through a limited number of Internet search engines, such as Excite, and online automotive information providers, such as Edmund's and Kelley Blue Book. For example, in 1997 and 1998, approximately 49% and 34%, respectively, of our purchase requests came through Edmund's. We may not be able to maintain our relationship with Edmund's or other online service providers or find alternative, comparable marketing partners capable of originating significant numbers of purchase requests on terms satisfactory to us. In addition, we periodically negotiate revisions to existing agreements and these revisions could increase our costs in future periods. A number of our agreements with online service providers may be terminated without cause. Also, our agreement with Excite relating to our sponsorship of Netscape Communications Corporation's NetCenter Auto Channel is conditioned on Excite's NetCenter agreement with Netscape remaining in effect. The NetCenter agreement between Excite and Netscape can be terminated in the event of a change in control which may be triggered if America Online's proposed acquisition of Netscape occurs. IF WE CAN NOT BUILD STRONG BRAND LOYALTY OUR BUSINESS MAY SUFFER. We believe that the importance of brand recognition will increase as more companies engage in commerce over the Internet. Development and awareness of the Autobytel.com brand will depend largely on our ability to obtain a leadership position in Internet commerce. If dealers do not perceive us as an effective channel for increasing vehicle sales, or consumers do not perceive us as offering reliable information concerning new and pre-owned vehicles, as well as referrals to high quality dealers, in a user-friendly manner that reduces the time spent for vehicle purchases, we will be unsuccessful in promoting and maintaining our brand. Our brand may not be able to gain widespread acceptance among consumers or dealers. Our failure to develop our brand sufficiently would have a material adverse effect on our business, results of operations and financial condition. WE ARE DEPENDENT ON KEY PERSONNEL. Our future success depends on our ability to identify, hire, train and retain highly qualified sales and marketing, managerial and technical personnel. In addition, as we introduce new services we will need to hire a significant number of personnel. Competition for such personnel is intense, and we may not be able to attract, assimilate or retain such personnel in the future. The inability to attract and retain the necessary managerial, technical and sales and marketing personnel could have a material adverse effect on our business, results of operations and financial condition. Our business and operations are substantially dependent on the performance of our executive officers and key employees, some of whom are employed on an at-will basis and all of whom have worked together for only a short period of time. We maintain "key person" life insurance in the amount of $3.0 million on the life of Mark W. Lorimer, our 9 11 Chief Executive Officer and President. The loss of the services of Mr. Lorimer or Ann Marie Delligatta, Executive Vice President and Chief Operating Officer, or one or more of our other executive officers or key employees could have a material adverse effect on our business, results of operations and financial condition. WE NEED TO MANAGE OUR GROWTH AND OUR ENTRY INTO NEW BUSINESS AREAS. We are expanding our operations in order to establish ourselves as a leader in the evolving market for Internet-based vehicle purchasing services. We may not be able to expand our operations in a cost-effective or timely manner or increase overall market acceptance. As of December 31, 1998, we had 180 employees, compared to 159 employees as of December 31, 1997, and 73 employees as of December 31, 1996. We believe establishing industry leadership requires us to: - test, introduce and develop new services and products, including enhancing our Web site, - expand the breadth of products and services offered, - expand our market presence through relationships with third parties, and - acquire new or complementary businesses, products or technologies. Our inability to generate satisfactory revenues from such expanded services or products to offset their cost could have a material adverse effect on our business, financial condition and results of operations. WE FACE RISKS ASSOCIATED WITH FEDERAL OR STATE FRANCHISE LAWS. We believe that neither our relationship with our dealers nor our dealer subscription agreements constitute "franchises" under federal or state franchise laws and that we are not subject to the coverage of state and motor vehicle dealer licensing laws. However, in the event that any state's regulatory requirements relating to franchises or our method of business impose additional requirements on us or include us within an industry-specific regulatory scheme, we may be required to modify our marketing programs in such states in a manner which undermines the program's attractiveness to consumers or dealers, we may become subject to fines or other penalties or if we determine that the licensing and related requirements are overly burdensome, we may elect to terminate operations in such state. In each case, our business, results of operations and financial condition could be materially and adversely affected. A Federal district court in Michigan has ruled that our dealer subscription agreement is not a "franchise" under Michigan law. However, if our relationship or written agreement with our dealers were found to be a "franchise" under federal or state franchise laws, then we could be subjected to other regulations, such as franchise disclosure and registration requirements and limitations on our ability to effect changes in our relationships with our dealers. We also believe that our dealer marketing service does not qualify as an automobile brokerage activity and therefore state broker licensing requirements do not apply to us. In response to Texas Department of Transportation concerns, we modified our marketing program in that state to include a pricing model under which all subscribing dealerships in Texas are charged uniform fees based on the population density of their particular geographic area and to make our program open to all dealerships who wish to apply. 10 12 WE FACE RISKS ASSOCIATED WITH STATE LICENSING REQUIREMENTS. We currently hold financial broker licenses in the states of Florida, Indiana, Rhode Island and Wisconsin and have applied for renewals in the states of California and Colorado. We believe these are the only states that require us to have licenses in order to market our vehicle financing operations. If we are required to be licensed elsewhere, it may result in an expensive and time-consuming process that could divert the effort of management away from day-to-day operations. In the event other states require us to be licensed and we are unable to do so, or are otherwise unable to comply with regulations required by changes in current operations or the introduction of new services, we could be subject to fines or other penalties, and our business, results of operations and financial condition could be materially and adversely affected. We provide a link on our Web site to an online insurance application program offered by the American International Group. We receive fees from a member company of the American International Group in connection with this advertising activity. We do not believe that this activity requires us to be licensed under state insurance laws. The use of the Internet in the marketing of insurance products, however, is a relatively new practice. It is not clear whether or to what extent; state insurance licensing laws apply to activities similar to ours. Given these uncertainties, we currently hold, through a wholly-owned subsidiary, insurance agent licenses in California, Indiana, Nebraska, New Jersey, and Utah. We have applied for insurance agent licenses in the remaining thirty-two states that issue corporate licensing and are awaiting approval. In the event other states require us to be licensed and we are unable to do so, or are otherwise unable to comply with regulations required by changes in current operations or the introduction of new services, we could be subject to fines or other penalties, and our business, results of operations and financial condition could be materially and adversely affected. EVOLVING GOVERNMENT REGULATIONS MAY REQUIRE FUTURE LICENSING OR RESULT IN ADMINISTRATIVE MONETARY FINES OR PENALTIES THAT MAY REDUCE OUR FUTURE EARNINGS. General Business: There are currently few laws or regulations that apply directly to the Internet. Because our business is dependent on the Internet, the adoption of new local, state, national or international laws or regulations may decrease the growth of Internet usage or the acceptance of Internet commerce which could, in turn, decrease the demand for our services and increase our costs or otherwise have a material adverse effect on our business, results of operations and financial condition. Tax authorities in a number of states are currently reviewing the appropriate tax treatment of companies engaged in Internet commerce. New state tax regulations may subject us to additional state sales, use and income taxes. Licensing Risks: In a regulatory climate that is uncertain, our operations may be subject to direct and indirect adoption, expansion or reinterpretation of various domestic and foreign laws and regulations. Compliance with these future laws and regulations may require us to obtain appropriate licenses at an undeterminable and possibly significant initial monetary and annual expense. These additional monetary expenditures may increase future overhead, thereby potentially reducing our future results of operations. 11 13 We have identified what we believe are the areas of domestic government regulation, which if changed, would be costly to us. These laws and regulations include federal and/or state franchise laws; motor vehicle brokerage licensing laws; insurance licensing laws; motor vehicle dealership licensing laws; and/or related consumer protection liability laws applicable to aspects of our business. Introduction of new services and/or expansion of our operations to foreign countries may require us to comply with additional, yet undetermined, laws and regulations. Compliance may require obtaining appropriate business licenses, filing of bonds, appointment of foreign agents and periodic business reporting activity. The failure to adequately comply with these future laws and regulations may delay or possibly prevent some of our products or services from being offered in a particular foreign country, thereby having an adverse affect on our results of operations. OUR SUCCESS IS DEPENDENT ON OUR KEEPING PACE WITH ADVANCES IN TECHNOLOGY. The Internet and electronic commerce markets are characterized by rapid technological change, changes in user and customer requirements, frequent new service and product introductions embodying new technologies and the emergence of new industry standards and practices that could render our existing Web site and technology obsolete. If we are unable to adapt to changing technologies, our business, results of operations and financial condition could be materially and adversely affected. Our performance will depend, in part, on our ability to continue to enhance our existing services, develop new technology that addresses the increasingly sophisticated and varied needs of our prospective customers, license leading technologies and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of our Web site, Dealer Real Time system and other proprietary technology entails significant technical and business risks. We may not be successful in using new technologies effectively or adapting our Web site, Dealer Real Time system, or other proprietary technology to customer requirements or to emerging industry standards. WE ARE VULNERABLE TO INTERRUPTIONS OF OUR COMMUNICATIONS SYSTEMS. We host our Web site and Dealer Real Time system at our corporate headquarters in Irvine, California. Although we maintain redundant local offsite backup servers, all of our primary servers are located at our corporate headquarters and are vulnerable to interruption by damage from fire, earthquake, flood, power loss, telecommunications failure, break-ins and other events beyond our control. In the event that we experience significant system disruptions, our business, results of operations and financial condition would be materially and adversely affected. We have, from time to time, experienced periodic systems interruptions and anticipate that such interruptions will occur in the future. We maintain business interruption insurance which pays up to $6 million for the actual loss of business income sustained due to the suspension of operations as a result of direct physical loss of or damage to property at our offices. However, in the event of a prolonged interruption, this business interruption insurance may not be sufficient to fully compensate us for the resulting losses. 12 14 IF THE GROWTH IN THE USE OF THE INTERNET DECLINES, OUR BUSINESS MAY DECLINE. The market for Internet-based purchasing services has only recently begun to develop and is rapidly evolving. While many Internet commerce companies have grown in terms of revenue, few are profitable. We can not assure that we will be profitable. As is typical for a new and rapidly evolving industry, demand and market acceptance for recently introduced services and products over the Internet are subject to a high level of uncertainty and there are few proven services and products. Moreover, since the market for our services is new and evolving, it is difficult to predict the future growth rate, if any, and size of this market. The success of our services will depend upon the adoption of the Internet by consumers and dealers as a mainstream medium for commerce. While we believe that our services offer significant advantages to consumers and dealers, there can be no assurance that widespread acceptance of Internet commerce in general, or of our services in particular, will occur. Our success assumes that consumers and dealers who have historically relied upon traditional means of commerce to purchase or lease vehicles, and to procure vehicle financing and insurance, will accept new methods of conducting business and exchanging information. In addition, dealers must be persuaded to adopt new selling models and be trained to use and invest in developing technologies. Moreover, critical issues concerning the commercial use of the Internet, such as, ease of access, security, reliability, cost, and quality of service, remain unresolved and may impact the growth of Internet use. If the market for Internet-based vehicle marketing services fails to develop, develops slower than expected or becomes saturated with competitors, or if our services do not achieve market acceptance, our business, results of operations and financial condition will be materially and adversely affected. THE PUBLIC MARKET FOR OUR COMMON STOCK MAY BE VOLATILE. Prior to this offering, there has been no public market for our common stock. We cannot assure that an active trading market will develop or be sustained or that the market price of the common stock will not decline. Even if an active trading market does develop, the market price of the common stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as: - actual or anticipated variations in our quarterly operating results, - announcements of new product or service offerings, - technological innovations, - competitive developments, - changes in financial estimates by securities analysts, - conditions and trends in the Internet and electronic commerce industries, - adoption of new accounting standards affecting the automotive industry, and - general market conditions and other factors. Further, the stock markets, and in particular the Nasdaq National Market, have experienced extreme price and volume fluctuations that have particularly affected the market prices of equity securities of many technology companies and have often been unrelated or disproportionate to the operating performance of such companies. The trading prices of many technology companies' stocks are at or near historical highs. We cannot assure that such high trading prices will be sustained. These broad market factors may adversely affect the market price of our common stock. In addition, general economic, political and market conditions such as recessions, interest rates or international currency fluctuations, may adversely affect the market price of the common stock. In the past, 13 15 following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against companies with public traded securities. Such litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on our business, results of operations and financial condition. WE HAVE RISKS ASSOCIATED WITH CHANGING LEGISLATION IN THE AUTOMOTIVE INDUSTRY. Our purchasing service may result in changing the way vehicles are sold which may be viewed as threatening by new and pre-owned vehicle dealers who do not subscribe to the Autobytel.com program. Such businesses are often represented by influential lobbying organizations, and such organizations or other persons may propose legislation which could impact the evolving marketing and distribution model which our service promotes. Should current laws be changed or new laws passed, our business, results of operations and financial condition could be materially and adversely affected. As we introduce new services, we may need to comply with additional licensing regulations and regulatory requirements. To date, we have not spent significant resources on lobbying or related government affairs issues but we may need to do so in the future. A significant increase in the amount we spend on lobbying or related activities would have a material adverse effect on our results of operations and financial condition. WE HAVE RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. We intend to expand our new vehicle purchasing service to foreign markets through licensing our technology, business processes and tradenames and by establishing relationships with vehicle dealers and strategic partners located in foreign markets. However, we have had limited experience in providing our Internet-based marketing service abroad and we cannot be certain that we will be successful in introducing or marketing our services abroad. In addition, there are certain risks inherent in conducting business in international markets, such as: - changes in political conditions, - regulatory requirements, - potentially weaker intellectual property protections, - tariffs and other trade barriers, fluctuations in currency exchange rates, potentially adverse tax consequences, - difficulties in managing or overseeing foreign operations, and - educating consumers and dealers who may be unfamiliar with the benefits of online marketing and commerce. One or more of such factors may have a material adverse effect on our current or future international operations and, consequently, on our business, results of operations and financial condition. By expanding our operations to various other countries, we may become subject to laws or treaties that regulate the marketing, distribution and sale of motor vehicles. We will need to spend our resources to determine whether the laws of the countries in which we seek to operate require us to modify, or prohibit the use of, our Autobytel.com system. In addition, the laws of other countries may impose licensing, bonding or similar requirements on us as a condition to doing business therein. 14 16 WE COULD FACE LIABILITY OR DISRUPTION FROM SECURITY BREACHES AND OTHER ELECTRONIC PROBLEMS. Our computer infrastructure is potentially vulnerable to physical or electronic computer break-ins, viruses and similar disruptive problems and security breaches. Any such problems or security breach could cause us to have liability to one or more third parties and disrupt all or part of our operations. Any of these events would have a material adverse effect on our business, results of operations and financial condition. A party who is able to circumvent our security measures could misappropriate proprietary information, jeopardize the confidential nature of information transmitted over the Internet or cause interruptions in our operations. Concerns over the security of Internet transactions and the privacy of users could also inhibit the growth of the Internet in general, particularly as a means of conducting commercial transactions. To the extent that our activities or those of third party contractors involve the storage and transmission of proprietary information such as personal financial information, security breaches could expose us to a risk of financial loss, litigation and other liabilities. Our insurance does not currently protect against such losses. WE DEPEND ON CONTINUED IMPROVEMENTS IN OUR SYSTEMS AND IN THE INTERNET. If the Internet continues to experience significant growth in the number of users and the level of use, then the Internet infrastructure may not be able to continue to support the demands placed on it by such potential growth. The Internet may not prove to be a viable commercial medium because of inadequate development of the necessary infrastructure, timely development of complementary products such as high speed modems, delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity or increased government regulation. An unexpectedly large increase in the volume or pace of traffic on our Web site or the number of orders placed by customers may require us to expand and further upgrade our technology, transaction-processing systems and network infrastructure. We may not be able to accurately project the rate or timing of increases, if any, in the use of our Web site or expand and upgrade our systems and infrastructure to accommodate such increases. In addition, we cannot assure that our dealers will efficiently process purchase requests. WE HAVE NO SPECIFIC PLAN FOR THE PROCEEDS OF THE OFFERING. We currently have no specific plans for the net proceeds of the offering. As a consequence, our management will have the discretion to allocate this portion of the net proceeds of this offering to uses that the stockholders may not deem desirable. We may not be able to invest these proceeds to yield a significant return. Substantially all of the proceeds of the offering will be invested in short-term, interest-bearing, investment grade securities for an indefinite period of time. OUR BUSINESS COULD BE INTERRUPTED BY YEAR 2000 PROBLEMS. Because many computer applications have been written using two digits rather than four to define the applicable year, date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This "Year 2000 issue" could result in system failures or miscalculations causing disruptions of operations, including disruptions of our Web site, the Dealer Real Time system or normal business activities. We cannot predict the extent to which the Year 2000 issue will affect our vendors, consumers or dealers, or the extent to which we would be vulnerable if such parties fail to 15 17 resolve any Year 2000 issues on a timely basis. The failure of such parties subject to the Year 2000 issue to convert their systems on a timely basis or effect a conversion that is compatible with our systems could have a material adverse effect on us. In addition, to the extent our customers are unable to access our Web site or dealers are unable to access the Dealer Real Time system, such failures would have a material adverse effect on our business, results of operations, or financial condition. The worst-case scenario related to the Year 2000 issue would be an overall failure of the national Internet and telecommunications infrastructure. If this failure were to prevent users and dealers from accessing the Internet, we would attempt to provide alternative means to allow users to connect to our servers. Any national disruption to the telecommunications systems used by our business will have a material adverse effect on our business, results of operations, or financial condition. MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS COULD IMPAIR OUR COMPETITIVE POSITION. Our ability to compete depends upon our proprietary systems and technology. While we rely on trademark, trade secret and copyright law, confidentiality agreements and technical measures to protect our proprietary rights, we believe that the technical and creative skills of our personnel, continued development of our proprietary systems and technology, brand name recognition and reliable Web site maintenance are more essential in establishing and maintaining a leadership position and strengthening our brand. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our services or to obtain and use information that we regard as proprietary. Policing unauthorized use of our proprietary rights is difficult. We cannot assure that the steps taken by us will prevent misappropriation of technology or that the agreements entered into for that purpose will be enforceable. Misappropriation of our intellectual property or potential litigation would have a material adverse effect on our business, results of operations and financial condition. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our products and services are made available online. In addition, litigation may be necessary in the future to enforce or protect our intellectual property rights or to defend against claims or infringement or invalidity. As part of our confidentiality procedures, we generally enter into agreements with our employees and consultants and limit access to our trade secrets and technology. OUR FOUNDERS, OFFICERS AND DIRECTORS AND THEIR AFFILIATES HAVE SUBSTANTIAL CONTROL OF OUR VOTING STOCK. The control of a large amount of our stock by insiders could have an adverse effect on the market price of our common stock. Following this offering, our executive officers and directors will beneficially own or control approximately 5,753,954 shares or 30% of the outstanding shares of our common stock. In addition, after this offering, our founders, Peter Ellis and John Bedrosian will beneficially own or control approximately 20% and 17%, respectively, of the outstanding shares of our common stock. If the underwriters' over-allotment option is exercised in full, our founders will beneficially own or control approximately 18% and 15%, respectively, of the outstanding shares of our common stock. Our officers, directors, founders and their affiliates will have the ability to control the election of our board of directors and the outcome of corporate actions requiring stockholder approval, including mergers and other changes of corporate control, going private transactions and other extraordinary transactions. 16 18 FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE. Sale of substantial numbers of shares of common stock in the public market could adversely affect the market price of the common stock and make it more difficult for us to raise funds through equity offerings in the future. A substantial number of outstanding shares of common stock and shares of common stock issuable upon exercise of outstanding stock options will become available for resale in the public market at prescribed times. Of the 17,858,745 shares to be outstanding after the offering, the 4,500,000 shares offered hereby will be eligible for immediate sale in the public market without restriction. Other outstanding shares of common stock are subject to 180-day lock-up agreements with the underwriters, and 6,565,112 shares held by the selling stockholders are subject to 270-day lock-up agreements with the underwriters. Upon the expiration of these lock-up agreements, such shares of common stock will become eligible for sale in the public market, subject to the provisions of Rules 144 and 701 under the Securities Act, and any contractual restrictions on their transfer. BT Alex. Brown Incorporated may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to lock-up agreements. Upon completion of the offering, the holders of approximately 12,997,957 shares of common stock will be entitled to certain registration rights with respect to such shares until such time as the holders of such common stock may sell such shares under Rule 144 of the Securities Act. In addition, we intend to register the shares of common stock reserved for issuance under our 1996 Stock Option Plan, 1996 Stock Incentive Plan, 1996 Employee Stock Purchase Plan, 1998 Stock Option Plan and 1999 Stock Option Plan after the offering. WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS. We currently anticipate that the net proceeds of this offering, together with our cash, cash equivalents and short-term investments, will be sufficient to meet our anticipated needs for working capital and other cash requirements for at least twelve months following the effective date of this prospectus. We may need to raise additional funds sooner, however, in order to fund more rapid expansion, to develop new or enhance existing services or products, to respond to competitive pressures or to acquire complementary products, businesses or technologies. There can be no assurance that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our expansion, take advantage of potential acquisition opportunities, develop or enhance services or products or respond to competitive pressures would be significantly limited. Such limitation could have a material adverse effect on our business, results of operations, financial condition and prospects. OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS THAT COULD DISCOURAGE A THIRD PARTY ACQUISITION OF US. Provisions of our amended and restated certificate of incorporation and bylaws relating to our corporate governance could make it difficult for a third party to acquire, and could discourage a third party from attempting to acquire control of us. These provisions allow us to issue preferred stock with rights senior to those of the common stock without any further vote or action by the stockholders. These provisions, effective upon the closing of this offering, provide that the board of directors will be divided into three classes, which may have the effect of delaying or preventing changes in control or change in our management because less than a majority of the board of directors are up for election at each annual meeting. In addition, these provisions impose various procedural and other 17 19 requirements which could make it more difficult for stockholders to effect certain corporate actions. Such charter provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a change in control. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of the common stock. We are also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an "interested stockholder" is a person who, together with affiliates and associates, owns or did own 15% or more of the corporation's voting stock. OUR ACTUAL RESULTS COULD DIFFER FROM FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS. This prospectus contains forward-looking statements based on current expectations which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including the risk factors set forth above and elsewhere in this prospectus. The cautionary statements made in this prospectus should be read as being applicable to all forward-looking statements wherever they appear in this prospectus. 18 20 USE OF PROCEEDS We estimate that the proceeds from the sale by us of the 3.5 million shares of common stock offered hereby at an assumed initial public offering price of $17.00 per share, after deducting estimated underwriting discounts and estimated offering expenses, will be approximately $53.8 million. The selling stockholders will receive $15.8 million from the sale of one million shares of common stock, after deducting estimated underwriting discounts, and an additional $10.7 million if the underwriters' over-allotment option is exercised in full. We will not receive any proceeds from the sale of common stock by the selling stockholders. We intend to use all of the net proceeds from the offering for general corporate purposes, which may include online and traditional advertising programs designed to strengthen the Autobytel.com brand name, information technology investments to support and further develop our Web site and Dealer Real Time system and new products and services. We may use a portion of the proceeds from the offering for possible acquisitions of or investments in businesses, the introduction of products or technologies that expand, complement or are otherwise related to our current or planned services. We have no current plans, agreements or commitments with respect to any such transaction, and we are not currently engaged in any negotiations with respect to any such transaction. Pending such uses, we will invest the proceeds in short-term, investment grade, interest-bearing securities. DIVIDEND POLICY We have never declared or paid cash dividends on our common stock. We intend to retain all of our future earnings, if any, for use in our business, and therefore we do not expect to pay any cash dividends on our common stock in the foreseeable future. 19 21 CAPITALIZATION The following table sets forth the actual capitalization of Autobytel.com derived from our audited financial statements as of December 31, 1998. The as adjusted capitalization of Autobytel.com as of December 31, 1998 set forth in the following table reflects the conversion of all outstanding shares of preferred stock into 5,852,290 shares of common stock and the sale by us of 3,500,000 shares of common stock pursuant to the offering at an assumed public offering price of $17.00 net of estimated underwriting discounts and offering expenses. The capitalization information set forth in the table below is qualified by the more detailed Consolidated Financial Statements and Notes thereto included elsewhere in this prospectus and should be read in conjunction with such Consolidated Financial Statements and Notes. Our stated number of common shares outstanding does not include 2,859,340 shares of common stock issuable upon exercise of options at a weighted average exercise price of $10.87 per share and 773,133 shares of common stock issuable upon exercise of warrants outstanding at a weighted average exercise price of $13.12 per share.
DECEMBER 31, 1998 -------------------------- AS ACTUAL ADJUSTED -------------- -------- (IN THOUSANDS) Cash and cash equivalents............................. $ 27,984 $ 81,754 ======== ======== Stockholders' equity: Convertible preferred stock, $0.001 par value; 11,445,187 shares authorized, 7,436,653 shares issued and outstanding, actual; 11,445,187 shares authorized, no shares issued and outstanding, as adjusted............................................ 7 -- Common stock, $0.001 par value; 50,000,000 shares authorized, 8,506,455 shares issued and outstanding, actual; 50,000,000 shares authorized, 17,858,745 shares issued and outstanding, as adjusted(1)....... 8 18 Warrants.............................................. 1,332 1,332 Additional paid-in capital............................ 67,813 121,580 Cumulative translation adjustment..................... (19) (19) Accumulated deficit................................... (43,273) (43,273) -------- -------- Total stockholders' equity............................ 25,868 79,638 ======== ======== Total capitalization.................................. $ 25,868 $ 79,638 ======== ========
20 22 DILUTION The pro forma net tangible book value of Autobytel.com as of December 31, 1998 was $25.8 million or $1.80 per share of common stock. Pro forma net tangible book value per share is equal to Autobytel.com's total tangible assets less its total liabilities, divided by the number of shares of common stock outstanding on a pro forma basis after giving effect to the conversion of the preferred stock into 5,852,290 shares of common stock concurrent with the closing of the offering. After giving effect to the sale of shares of common stock offered hereby at an assumed initial public offering price of $17.00 and the receipt by Autobytel.com of the estimated net proceeds therefrom, after deducting estimated underwriting discounts and offering expenses, the pro forma net tangible book value of Autobytel.com at December 31, 1998 would have been $79.6 million, or $4.46 per share. This represents an immediate increase in pro forma net tangible book value of $2.66 per share to existing stockholders and an immediate dilution of $12.54 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $17.00 Pro forma net tangible book value per share before the offering.................................................. $ 1.80 Increase per share attributable to purchases of common stock offered hereby............................................ 2.66 ------ Pro forma net tangible book value per share after the offering.................................................. 4.46 Dilution per share to purchasers of common stock offered hereby.................................................... $12.54 ======
The following table summarizes, as of December 31, 1998, the number of shares of common stock purchased from Autobytel.com, the total consideration paid to Autobytel.com and the average price per share paid by existing stockholders and by the investors purchasing shares of common stock in this offering, before deducting estimated underwriting discounts and estimated offering expenses at an assumed public offering price of $17.00 per share:
AVERAGE SHARES PURCHASED TOTAL CONSIDERATION PRICE -------------------- ---------------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ------- ------------ ------- --------- Existing stockholders........... 14,358,745 80.4 $ 68,033,000 53.3 $ 4.74 New investors................... 3,500,000 19.6 59,500,000 46.7 17.00 ---------- ----- ------------ ----- ------ Total......................... 17,858,745 100.0 $127,533,000 100.0 $ 7.14 ========== ===== ============ ===== ======
21 23 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The statement of operations data for the period from inception (January 31, 1995) to December 31, 1995, the years ended December 31, 1996, 1997 and 1998 and the balance sheet data as of December 31, 1995, 1996, 1997 and 1998 are derived from the Consolidated Financial Statements of Autobytel.com which have been audited by Arthur Andersen LLP, independent auditors, and are included elsewhere in this prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." We have calculated pro forma basic net loss per share assuming the conversion of the outstanding preferred stock on their issue date into common stock. The general and administrative expenses include a non-recurring $1.1 million charge associated with a proposed initial public offering that was withdrawn in March 1997.
INCEPTION (JANUARY 31, 1995) TO YEARS ENDED DECEMBER 31, DECEMBER 31, ------------------------------- 1995 1996 1997 1998 ------------- ------- -------- -------- STATEMENT OF OPERATIONS DATA: Revenues........................................... $ 274 $ 5,025 $ 15,338 $ 23,826 ------- ------- -------- -------- Operating expenses: Sales and marketing.............................. 930 7,790 21,454 30,033 Product and technology development............... 99 1,753 5,448 8,528 General and administrative....................... 275 1,641 5,851 5,908 ------- ------- -------- -------- Total operating expenses...................... 1,304 11,184 32,753 44,469 ------- ------- -------- -------- Loss from operations............................. (1,030) (6,159) (17,415) (20,643) Other income, net................................ -- 124 620 1,280 ------- ------- -------- -------- Loss before provision for income taxes........... (1,030) (6,035) (16,795) (19,363) Provision for income taxes....................... -- -- 15 35 ------- ------- -------- -------- Net loss......................................... $(1,030) $(6,035) $(16,810) $(19,398) ======= ======= ======== ======== Basic net loss per share........................... $ (0.12) $ (0.73) $ (2.03) $ (2.30) ======= ======= ======== ======== Shares used in computing basic net loss per share............................................ 8,250 8,252 8,291 8,423 Pro forma basic net loss per share................. $ (0.12) $ (0.68) $ (1.53) $ (1.49) ======= ======= ======== ======== Shares used in computing pro forma basic net loss per share........................................ 8,250 8,849 10,967 13,008
DECEMBER 31, 1998 DECEMBER 31, --------------------------------------------- AS ADJUSTED 1995 1996 1997 1998 FOR THE OFFERING ------- ------- -------- -------------- ---------------- BALANCE SHEET DATA: Cash and cash equivalents.................. $ 48 $ 9,062 $ 15,813 $ 27,984 $ 81,754 Working capital............................ (1,099) 5,977 10,938 23,436 77,206 Total assets............................... 285 12,298 20,513 34,207 87,977 Accumulated deficit........................ (1,030) (7,065) (23,875) (43,273) (43,273) Stockholders' equity (deficit)............. (990) 7,996 13,259 25,868 79,638
22 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition of Autobytel.com should be read in conjunction with our Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth in the section entitled "Risk Factors" and elsewhere in this Prospectus. OVERVIEW We are a leading, branded Internet site for new and pre-owned vehicle information and purchasing services connecting consumers to our network of 2,718 participating dealers, as of December 31, 1998, in the United States and Canada. Through our Web site, www.autobytel.com, consumers can research pricing, specifications and other information regarding new and pre-owned vehicles. When consumers indicate they are ready to buy, they can be connected to Autobytel.com's network. In addition, we are continuing to develop ancillary programs for consumers such as financing, insurance and warranty services. We introduced our new vehicle marketing service in 1995, and in 1997 commenced our CyberStore program. Our revenues have increased from $274,000 in 1995 to $23.8 million in 1998. We derive substantially all of our revenues from fees paid by subscribing dealers, and we expect to be primarily dependent on our dealer network for revenues in the foreseeable future. Dealers using our services pay an initial subscription fee, as well as ongoing monthly fees based on the aggregation and transmittal to them of purchase requests. Average monthly program fees per dealer were $947, $785 and $557 in 1998, 1997 and 1996, respectively. We also derive some revenue on a per transaction basis from facilitating transactions between consumers and other third parties, primarily lenders and insurance companies. We reserve the right to raise our fees to dealers after 30 days notice. Initial subscription fees from dealers are recognized ratably over the first twelve months of each dealer's contract in order to match the costs of integrating and training dealers with revenues earned. The monthly fee is recognized in the period the service is provided. Amortized revenues from initial subscription fees were $4.7 million, $4.9 million and $2.2 million in 1998, 1997 and 1996, respectively. We anticipate that our initial subscription fee amortization revenue will decline as a percentage of total revenue over time as monthly fee revenues continue to grow. As our dealer network grows in absolute terms, the number of new dealers added as a percentage of total dealers is growing at a slower pace. Therefore initial subscription fee revenue is declining as a percentage of total revenue while monthly fee revenues is growing. From October 1996 to February 1998, our revenues also included revenues from sales of personal computers to our dealers, a practice we discontinued in the first quarter of 1998. Our financial statements include revenues derived from computer equipment sales of $197,000 in 1998, $1.5 million in 1997, and $147,000 in 1996. Excluding these revenues, our revenues would have been $23.6 million, $13.8 million and $4.9 million in 1998, 1997 and 1996, respectively. Although we do not derive any direct revenue from the volume of purchase requests, we believe our ability to increase the number of subscribing dealers and the amount of fees paid by dealers is related to the volume of purchase requests routed through our Web site. Vehicle purchase requests routed through our online system increased from approximately 23 25 345,000 in 1996 to approximately 761,000 in 1997, an increase of 121%, and to 1.3 million in 1998, an increase of 71% over the previous year. Since inception we have directed approximately 2.5 million purchase requests to dealers. We believe that our revenue growth has been and will continue to be primarily dependent on our ability to continue to drive a significant number of purchase requests to our dealer network, increase the number of dealers and increase the average fees paid by each dealer. Since inception, our dealer network has expanded in each quarter and as of December 31, 1998 there were 2,718 dealers. Of these dealers, 2,386 dealers pay for our service and we call them core dealers and 332 dealers do not pay for our service and we call them non-core dealers. Our non-core dealers are generally associated with lower volume vehicle manufacturers such as Jaguar or Suzuki or are located in remote, low volume territories and receive purchase request referrals without paying fees to us. We enter into agreements with non-core dealers to ensure the broadest geographic coverage possible for every make of vehicle. Although the net number of our dealers in the United States increased by 51% during 1998, 556 of our dealers were terminated or canceled during the same period. We believe that the principal reasons for the dealer terminations were due to our enforcement of our dealer network agreements and the cancellation of our fax delivery of purchase requests in conjunction with the implementation of the Dealer Real Time system. Our inability or failure to reduce dealer turnover could have a material adverse effect on our business, results of operations and financial condition. Because our primary revenue source is from program fees, our business model is significantly different from many existing Internet commerce sites. The automobiles requested through our site are sold by individual dealers; therefore we derive no direct revenue from the sale of a vehicle and have no significant cost of goods sold, no procurement, carrying or shipping costs and no inventory risk. The only cost of goods sold incurred by us since our inception was the cost of computer equipment sold to dealers. We discontinued selling computer equipment in the first quarter of 1998. Sales and marketing costs consist primarily of promotion and advertising to build brand awareness and encourage potential customers to go to our Web site. Our sales and marketing expenses were $30.0 million, $21.5 million and $7.8 million in 1998, 1997 and 1996, respectively. We use Internet advertising, as well as traditional media, such as television, radio and print. The majority of our Internet advertising is comprised of sponsorship and partnership agreements with Internet portals and advertising and marketing affiliations with online automotive information providers. Also included in the sales and marketing expenses are the costs associated with signing up new dealers and their ongoing training and support. Sales and marketing costs are recorded as an expense in the period the service is provided. Sales and marketing expenses have historically fluctuated quarter-to-quarter due to varied levels of marketing and advertising and we believe this will continue in the future. 24 26 RESULTS OF OPERATIONS The following table sets forth our results of operations as a percentage of revenues:
YEARS ENDED DECEMBER 31, ---------------------- 1996 1997 1998 ---- ---- ---- STATEMENT OF OPERATIONS DATA: Revenues............................................... 100% 100% 100% Operating expenses: Sales and marketing.................................. 155 140 126 Product and technology development................... 35 36 36 General and administrative........................... 33 38 25 ---- ---- ---- Total operating expenses..................... 223 214 187 ---- ---- ---- Loss from operations................................. (123) (114) (87) ---- ---- ---- Other income, net...................................... 2 4 5 Loss before provision for income taxes............... (120) (110) (81) ---- ---- ---- Provision for income taxes............................. -- -- -- ---- ---- ---- Net loss............................................. (120)% (110)% (81)% ==== ==== ====
1998 COMPARED TO 1997 Revenues. Our revenues increased by $8.5 million, or 56%, to $23.8 million in 1998, compared to $15.3 million in 1997. The growth in revenue in 1998 was primarily attributable to an increase in the net core dealer count and a 21% increase in the average fee charged to subscribing dealers. The net number of core dealers increased by 743, or 45%, to 2,386 as of December 31, 1998, compared to 1,643 as of December 31, 1997. Our financial statements include revenues derived from computer sales, a practice we discontinued in the first quarter of 1998, of $197,000 in 1998 and $1.5 million in 1997. Excluding our revenue from the sale of computer equipment, our revenues increased by $9.8 million, or 71%, to $23.6 million in 1998 as compared to $13.8 million in 1997. In 1998, we launched additional ancillary services such as Web site advertising and warranties. Sales and Marketing. Sales and marketing expenses primarily include advertising and marketing expenses paid to our purchase request providers and for developing our brand equity, as well as personnel and other costs associated with sales, training and support of our dealer network. Sales and marketing expense increased by $8.6 million, or 40%, to $30.0 million in 1998, compared to $21.5 million in 1997. The increase was primarily due to a 91% increase in fees related to information search aggregators resulting from higher purchase requests and a 58% increase in other advertising to build brand awareness. We expect to continue to increase our advertising and marketing budget in the foreseeable future. Product and Technology Development. Product and technology development expense primarily includes personnel costs relating to enhancing the features, content and functionality of our Web site and Dealer Real Time system, as well as expenses associated with our telecommunications and computer infrastructure. Product and technology development expense increased by $3.1 million, or 57%, to $8.5 million in 1998, compared to $5.4 million in 1997. The increase was primarily due to the additional staff and expenses related to Auto-By-Tel UK Limited of $1.4 million in 1998. 25 27 General and Administrative. General and administrative expense primarily consists of executive, financial and legal personnel expenses and related costs. General and administrative expense was $5.9 million in 1998 and 1997. Excluding a non-recurring charge of $1.1 million associated with a proposed initial public offering withdrawn in March 1997, general and administrative expense increased by $1.1 million, or 23%, to $5.9 million in 1998, compared to $4.8 million in 1997. This increase is primarily due to additional executive and financial personnel and rent due to expansion of facilities. Other Income. Other income consists primarily of interest income. Other income increased by $660,000, or 106%, to $1.3 million in 1998, compared to $620,000 in 1997. This increase is primarily due to a $1.4 million gain realized from the sale of Auto-by-Tel UK Limited to Inchcape Automotive Limited in November 1998, offset in part by a $792,000 charge for the value of warrants issued to Invision AG and Aureus Private Equity AG. Excluding these non-recurring items, other income increased by $44,000, or 7%, to $664,000 in 1998 as compared to $620,000 in 1997. Interest income increased due to higher cash balances from the sale of preferred stock in 1998. Income Taxes. No provision for federal income taxes has been recorded as we incurred net operating losses through December 31, 1998. As of December 31, 1998, we had approximately $37.1 million of federal and $18.4 million of state net operating loss carry forwards that we believe are available to offset future taxable income; such carry forwards expire in various years through 2018. Under the Tax Reform Act of 1986, the amounts of and benefits from our net operating losses carry forwards will likely be limited upon the completion of the initial public offering due to a cumulative ownership change of more than 50% over a three year period. Based on preliminary estimates, we believe the effect of such limitation, if imposed, will not have a material adverse effect on our business, results of operations and financial condition. 1997 COMPARED TO 1996 Revenues. Our revenues increased by $10.3 million, or 206%, to $15.3 million in 1997, compared to $5.0 million in 1996. The significant growth in revenue in 1997 was primarily attributable to an increase in the net core dealer count and a 41% increase in the average fee charged to subscribing dealers. The number of core dealers increased by 437, or 36%, to 1,643 as of December 31, 1997, compared to 1,206 as of December 31, 1996. We started selling computer equipment to our dealers during the last quarter of 1996 and these revenues were $1.5 million in 1997 and $147,000 in 1996. Excluding our revenue from the sale of computer equipment, our revenues increased by $9.0 million, or 184%, to $13.8 million in 1997, compared to $4.9 million in 1996. Also, we launched several new ancillary services in 1997, including leasing, financing, credit union services and the Mobalist Rewards program, which cumulatively represented less than 3% of total revenues during 1997. Sales and Marketing. Sales and marketing expense increased by $13.7 million, or 176%, to $21.5 million in 1997, compared to $7.8 million in 1996. This increase is attributable primarily to the increase in advertising and marketing costs associated with driving the growth of purchase requests. The number of purchase requests increased by 121%. To a lesser degree this increase was also due to growth in personnel and other expenses associated with sales training and maintenance of our dealer channel. Product and Technology Development. Product and technology development expense increased by $3.7 million, or 206%, to $5.4 million in 1997, compared to $1.8 million in 26 28 1996. The increase in product and technology development expense was primarily associated with adding additional product and technical staff. General and Administrative. General and administrative expense increased by $4.2 million, or 263%, to $5.9 million in 1997, compared to $1.6 million in 1996. The increase was primarily due to additional executive, financial and legal personnel and related costs, as well as a non-recurring $1.1 million charge associated with a withdrawn initial public offering in 1997. Excluding this non-recurring charge, general and administrative expense increased by $3.1 million, or 194%, to $4.8 million in 1997, compared to $1.6 million in 1996. Other Income. Other income, which primarily consists of interest income, increased by $496,000, or 400%, to $620,000 in 1997, compared to $124,000 in 1996. Interest income increased due to higher cash balances from the sale of preferred stock in 1997. 27 29 QUARTERLY RESULTS OF OPERATIONS The following table sets forth quarterly statement of operations data for the eight quarters ended December 31, 1998. This quarterly information has been derived from our unaudited financial statements and, in our opinion, includes all adjustments necessary for a fair presentation of the information for the periods covered. The quarterly data should be read in conjunction with our Consolidated Financial Statements and the notes thereto. The operating results for any quarter are not necessarily indicative of the operating results for any future period. INCOME STATEMENT FOR THE THREE MONTHS ENDED (unaudited in thousands)
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1997 1997 1997 1997 1998 1998 1998 1998 -------- -------- --------- -------- -------- -------- --------- -------- REVENUES.......................... $ 3,063 $ 3,414 $ 4,293 $ 4,568 $ 4,632 $ 5,405 $ 6,462 $ 7,327 Operating expenses: Sales and marketing............. 6,675 4,683 4,436 5,660 8,459 5,470 8,320 7,784 Product and technology development................... 1,103 1,394 1,496 1,455 1,895 1,969 2,352 2,312 General and administrative...... 1,823 1,216 1,079 1,733 1,346 1,190 1,480 1,892 ------- ------- ------- ------- ------- ------- ------- ------- Total operating expenses...... 9,601 7,293 7,011 8,848 11,700 8,629 12,152 11,988 ------- ------- ------- ------- ------- ------- ------- ------- Loss from operations............ (6,538) (3,879) (2,718) (4,280) (7,068) (3,224) (5,690) (4,661) ------- ------- ------- ------- ------- ------- ------- ------- Other income, net................. 165 114 147 194 185 163 153 779 Loss before provision for income taxes......................... (6,373) (3,765) (2,571) (4,086) (6,883) (3,061) (5,537) (3,882) ------- ------- ------- ------- ------- ------- ------- ------- Provision for income taxes........ 11 4 -- -- 15 10 6 4 ------- ------- ------- ------- ------- ------- ------- ------- Net loss........................ $(6,384) $(3,769) $(2,571) $(4,086) $(6,898) $(3,071) $(5,543) $(3,886) ======= ======= ======= ======= ======= ======= ======= =======
PERCENTAGE OF REVENUE FOR THE THREE MONTHS ENDED (unaudited)
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1997 1997 1997 1997 1998 1998 1998 1998 -------- -------- --------- -------- -------- -------- --------- -------- Revenues........................... 100% 100% 100% 100% 100% 100% 100% 100% Operating expenses: Sales and marketing.............. 218 137 103 124 183 101 129 106 Product and technology development.................... 36 41 35 32 41 36 36 32 General and administrative....... 60 36 25 38 29 22 23 26 ---- ---- --- --- ---- --- --- --- Total operating expenses....... 313 214 163 194 253 160 188 164 ---- ---- --- --- ---- --- --- --- Loss from operations............. (213) (114) (63) (94) (153) (60) (88) (64) ---- ---- --- --- ---- --- --- --- Other income, net.................. 5 3 3 4 4 3 2 11 Loss before provision for income taxes.......................... (208) (110) (60) (89) (149) (57) (86) (53) ---- ---- --- --- ---- --- --- --- Provision for income taxes......... -- -- -- -- -- -- -- -- ---- ---- --- --- ---- --- --- --- Net loss......................... (208)% (110)% (60)% (89)% (149)% (57)% (86)% (53)% ==== ==== === === ==== === === ===
Revenues. Growth in our dealer network and increases in fees and the sale of ancillary products and services have resulted in a compounded quarterly growth in revenue of 13% over the last eight quarters of operations. Revenue growth is primarily associated with program fees and, to a lesser extent, new product offerings. Between the quarters ended December 31, 1996 and March 31, 1998, we recognized revenues associated with computer systems sold to dealers. After the introduction of the current Dealer Real Time system in February 1998, we discontinued the sale of computer equipment. Our financial statements include non-recurring revenue for the Dealer Real Time system hardware sales 28 30 and other non-recurring items of $147,000 in 1996, $2.2 million in 1997, and $197,000 in 1998. Sales and Marketing. We have increased spending on sales and marketing every year since our inception. The increase in sales and marketing spending accelerated after we completed our Series A preferred stock offering of $15.0 million in August 1996. We launched an aggressive advertising campaign, and in the quarters ended March 31, 1997 and 1998, we aired a television advertisement during the Super Bowl at a cost of approximately $1.3 million and $1.5 million, respectively. Additionally, in the quarter ended December 31, 1997, we entered into several Internet branding and purchase request generation contracts, including contracts with Excite. From October 1996 through February 1998, we incurred expenses of approximately $1.6 million associated with the sale of computer equipment to support the old Dealer Real Time system. Such expenses were included in sales and marketing. These computer sales were discontinued in February 1998. We have generally increased the number of sales and marketing personnel each quarter. Product and Technology Development. Product and technology development has generally risen on a dollar basis since our inception. The primary cause for the increase in product and technology development expenses is the addition of personnel to develop the technology infrastructure and new programs for our dealers and Internet consumers. General and Administrative. The quarter ended March 31, 1997 includes approximately $1.1 million in previously capitalized legal, accounting and other direct costs associated with a proposed initial public offering that was withdrawn in March 1997. In the quarter ended December 31, 1997, general and administrative expenses included legal, severance and bonuses incurred during the period. To date, quarter to quarter growth in our revenues have offset any effects due to seasonality. However, we expect our business to experience seasonality as it matures, reflecting seasonal fluctuations in the automotive industry, Internet and commercial online service usage and advertising expenditures. We anticipate that purchase requests will typically increase during the first and third quarters when new vehicle models are introduced and will typically decline during the second and fourth quarters. Internet and commercial online service usage and the growth rate of such usage may be expected typically to decline during the summer. In addition, our advertising costs in traditional media, such as broadcast and cable television, generally decline in the first and third quarters of each year. Depending on the extent to which the Internet and commercial online services are accepted as an advertising medium, seasonality in the level of advertising expenditures could become more pronounced for Internet-based advertising. Seasonality in the automotive industry, Internet and commercial online service usage, and advertising expenditures is likely to cause fluctuations in our operating results and could have a material adverse effect on our business, operating results and financial condition. LIQUIDITY AND CAPITAL RESOURCES Since inception, we have financed our operations primarily from the issuance of shares of preferred stock, which through December 31, 1998 totaled $67.9 million, comprised of $15.0 million raised in August 1996, $9.1 million raised in January 1997, $13.0 million raised in October 1997, $0.5 million issued in exchange for advertising in April 1998, $5.0 million raised in May 1998, $0.6 million issued in exchange for advertising in October 1998, $5 million raised in November 1998 and $19.7 million raised in December 1998. As of December 31, 1998, we had approximately $28.0 million in cash and cash equivalents. 29 31 Net cash used in operating activities increased to $16.3 million in 1998 from $13.5 million in 1997 and $3.6 million in 1996. The increases in the net cash used in operating activities resulted primarily from increased sales and marketing, product development and general and administrative expenditures related to expanding our infrastructure. Also, working capital was used to finance accounts receivable, prepaid expenditures and other assets, offset partially by increased deferred revenue. Net cash used in investing activities decreased to $1.1 million in 1998 from $1.8 million in 1997 and increased to $1.8 million in 1997 from $1.5 million in 1996. The net cash used in investing activities resulted primarily from purchases of property and equipment consisting of computer hardware, telecommunications equipment, furniture and leasehold improvements. Net cash provided by financing activities increased to $29.6 million in 1998 from $22.0 million in 1997 and $14.1 million in 1996. The net cash provided by financing resulted primarily from the issuance of preferred stock. We believe our current cash and cash equivalents, excluding proceeds from this offering, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. With respect to years beyond fiscal 1999, we may be required to raise additional capital to meet our long term operating requirements. Although we have grown our revenues consistently since inception, our expenses have continued to and in the foreseeable future are expected to exceed our revenues. Accordingly, we do not expect to be able to fund our operations from internally generated funds for the foreseeable future. Our cash requirements depend on several factors, including the level of expenditures on marketing and advertising, the rate of market acceptance, the ability to expand our customer base and increase the volume of purchase requests, the cost of contractual arrangements with online information providers, search engines and other referral sources, and other factors. The timing and amount of such working capital requirements cannot accurately be predicted. If capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. We have no commitments for any additional financing, and there can be no assurance that any such commitments can be obtained on favorable terms, if at all. Any additional equity financing may be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants with respect to dividends, raising capital and other financial and operational matters which could restrict our operations or finances. If we are unable to obtain additional financing as needed, we may be required to reduce the scope of our operations or our anticipated expansion, which could have a material adverse effect on our business, results of operations and financial condition. YEAR 2000 ISSUES Because many computer applications have been written using two digits rather than four to define the applicable year, some date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This "Year 2000 issue" could result in system failures or miscalculations causing disruptions of operations, including disruptions of our Web site, the Dealer Real Time system or normal business activities. We do not believe that we have material exposure to the Year 2000 issue with respect to our own information systems since our existing systems correctly define the Year 2000 with four digits. We are currently taking two actions to mitigate the risk and exposure of the Year 2000 issue: 30 32 1. We are in the process of obtaining confirmation from all of our third-party vendors that they have resolved their Year 2000 issues. These third-party vendors can be categorized as follows: A. information technology systems - computer hardware vendors - computer software vendors - network communications vendors - data suppliers vendors B. non-information technology systems - landlord who oversees the facilities and utilities - building security company We expect to receive replies to our Year 2000 requests from third-party vendors by second quarter 1999. Approximately 10% of the third-party vendors have responded with a statement of compliance either displayed on their Web site or furnished in hard copy format. These vendors who have already responded represent the most critical vendors in our business. 2. We are implementing a test lab environment to simulate the Year 2000 rollover with hardware, software, network communications vendors and certain key data suppliers. Based on the test results, if any vendor was found to be non-compliant, our contingency plan is to first attempt to find a replacement vendor, and if no replacement can be found, to assist such vendor in becoming Year 2000 compliant. If we cannot effectively assist such vendor in becoming Year 2000 compliant, we plan to set up a front-end application to screen all non-compliant data or to receive the data and modify it so that the data is Year 2000 compliant. We plan to establish our front-end application screen in the third quarter of 1999. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This statement, adopted by us in the first quarter of 1998, requires companies to report a new measurement of income. Comprehensive income (loss) is to include foreign currency translation gains and losses and other unrealized gains and losses that have historically been excluded from net income (loss) and reflected instead in equity. Currently, no material differences exist between our net income or loss and comprehensive net income or loss. In March 1998, the American Institute of Certified Public Accounts (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained For Internal Use," which is effective for fiscal years beginning after December 15, 1998. SOP No. 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use and defines specific criteria that determine when such costs are required to be expensed, and when such costs may be capitalized. Management believes the adoption of SOP 98-1 will not have a material effect on our consolidated financial statements. In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up Activities," which will be adopted by us in the beginning of our fiscal year beginning January 1, 1999. SOP No. 98-5 provides guidance on the financial reporting of start-up 31 33 costs and organization costs and requires such costs to be expensed as incurred. We believe the adoption of SOP 98-5 will not have a material effect on our financial statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which will be adopted by us in our fiscal year beginning January 1, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments by requiring every derivative instrument to be recorded in the balance sheet as a liability or an asset at fair market value. Any changes to a derivatives fair market value must be recognized currently in earnings unless specific hedge accounting criteria are met. We do not have any derivative instruments or undertake any hedging activities and do not anticipate doing so, therefore the adoption of SFAS No. 133 will not have a material effect on our financial statements. 32 34 BUSINESS OVERVIEW We are a leading, branded Internet site for new and pre-owned vehicle information and purchasing services. Through our Web site, www.autobytel.com, consumers can research pricing, specifications and other information regarding new and pre-owned vehicles. When consumers indicate they are ready to buy, they can be connected to Autobytel.com's network of over 2,700 participating dealers in North America, with each dealer representing a particular vehicle make. Dealers participate in our network by entering into non-exclusive contracts with us. We expect our dealers to promptly provide a haggle-free, competitive offer. In addition, consumers can apply for and receive insurance, financing, leasing and warranty proposals as well as other services and information through our Web site. We believe that our services provide benefits for consumers by supplying them with information to make an informed and intelligent vehicle purchasing decision and by directing consumers to dealers, whom we expect to provide a competitive price. In addition, our services are intended to reduce our dealers' costs by directing to them large volumes of purchase requests from potential consumers who have already indicated their intent to buy, thereby enabling dealers to lower their marketing, advertising and personnel costs while enhancing sales productivity. We provide our services free of charge to consumers and derive substantially all of our revenues from fees paid by participating dealers. We introduced our new vehicle purchasing services in May 1995 and our Certified Pre-Owned CyberStore in April 1997. Our new vehicle purchasing service enables consumers to shop for and select a new vehicle through our Web site by providing research on new vehicles such as pricing, features, specifications and colors. When consumers indicate they are ready to buy, they can complete a purchase request online. The CyberStore allows consumers to search for a pre-owned vehicle according to the price, make, model, color, year and location of the vehicle. The CyberStore locates and displays the description, location and actual photograph of all vehicles that satisfy the consumer's search parameters. The dealers in our network use our online information platform, the Dealer Real Time system, which provides dealers with immediate purchase request information for new and pre-owned vehicles, the ability to track customers and purchase requests, and other value-added features, including automatic uploading of pre-owned vehicle inventory into our database. In addition, Autobytel.com offers a number of automotive finance and insurance services in conjunction with strategic partners, including automobile financing through Chase, GE Capital and Provident Bank, automotive insurance through member companies of the American International Group and extended warranty service through New Hampshire Insurance Company, a member company of the American International Group. BACKGROUND Growth of the Internet and Online Commerce. The Web and online services have emerged as significant global communications and commercial media enabling millions of people worldwide to share information, communicate and conduct business electronically. International Data Corporation estimates that the number of Web users worldwide will grow from approximately 69 million in 1997 to approximately 320 million by 2002. This growth is driven by a number of factors including the large and growing base of installed personal computers in the home and workplace, the decreasing cost of personal computers, easier, faster and cheaper access to the Internet, the distribution of broadband applications, 33 35 the proliferation of Internet content and the increasing familiarity and acceptance of the Internet by businesses and consumers. The growth in the use of the Internet has also led to a rapid growth of online commerce. Web commerce sites are enabling businesses to target and manage a broad customer base and establish and maintain ongoing direct customer relationships. As a growing number of businesses and information providers have begun marketing on the Web, it has rapidly become a medium in which consumers can access a vast amount of information regarding the pricing, quality and specification of products. Additionally, online transactions can be faster, less expensive and more convenient than transactions conducted in person or even over the telephone. According to International Data Corporation, the total value of goods and services purchased worldwide over the Internet will increase from approximately $12.4 billion in 1997 to approximately $425 billion in 2002. The Automotive Vehicle Market. Automotive dealers operate in localized markets and face significant state regulations and increasing business pressures. These fragmented markets, with over 49,000 dealers in aggregate, are characterized by: - a perceived overabundance of dealerships, - competitive sales within regional markets, - increasing advertising and marketing costs that continue to reduce dealer profits, - high-pressure sales tactics with consumers, and - large investments by dealers in real estate, construction, personnel and other overhead expenses. In addition, consumers have traditionally entered into the highly negotiated sales process with relatively little information regarding manufacturer's costs, leasing costs, financing costs, relative specifications and other important information. Buying a vehicle is considered to be one of the most significant purchases a United States consumer makes. According to CNW Marketing/Research, over $657 billion and $667 billion was spent on new and pre-owned vehicles in the United States representing the sale of over 60.0 and 60.3 million vehicles in 1997 and 1998, respectively. Although automotive retailing attracts significant consumer dollars, we believe that consumers associate the traditional vehicle buying experience with high-pressure sales tactics. THE AUTOBYTEL.COM SOLUTION We believe that our online products and services improve the vehicle purchasing process for both consumers and dealers. We offer consumers an information-rich Web site, numerous tools to configure this information, and a quality fulfillment experience. As part of the fulfillment experience, we expect our dealers to provide competitive price quotes for new and pre-owned vehicles. We believe our services enable dealers to reduce personnel and marketing costs, increase consumer satisfaction, increase customer volume, and expand dealer territories. Benefits to Consumers. Our Web site provides consumers free of charge up-to-date specifications and pricing information on vehicles. In addition, our consumers gain easy access to valuable automotive information, such as dealer invoice pricing and the AutoBuyTools(TM) services which consist of a lease calculator, a loan calculator to determine monthly payments and a lease or buy decision tool. Our database of articles allows consumers to perform online library research by accessing documents such as weekly 34 36 automotive reports, consumer reviews and manufacturer brochures. Various automotive information service providers, such as Edmund's, Kelley Blue Book, Pace Publication's Carprice.com, and IntelliChoice, are also aggregated on Autobytel.com's Web site to assist consumers with specific vehicle and related automotive decisions such as insurance and financing. Armed with such information, the consumer should be more confident and capable of making an informed and intelligent vehicle buying decision. We expect our dealers to provide competitive price quotes for new and pre-owned vehicles. By providing dealers with a large number of consumers through quality purchase requests, we believe that we can help our dealers to lower their operating costs due to higher sales volume. We believe that lowering their operating costs allows dealers to offer more competitive prices. We believe we offer consumers a significantly different vehicle purchasing experience from that of traditional methods. Consumers using the Autobytel.com system are able to shop for a vehicle, and make financing and insurance decisions from the convenience of their own home or office. We expect dealers to provide consumers a haggle-free price quote and a high level of customer service. We form our dealer relationships after careful analysis of automotive sales and demographic data in each region. We seek to include in our dealer network the largest and highest quality dealers within defined territories. Our strategy to be the leading Internet-based vehicle information and purchasing service depends on our ability to provide consumers with a quality experience. Benefits to Dealers. Autobytel.com benefits dealers by reducing the dealers' incremental personnel and marketing costs, increasing consumer satisfaction and increasing consumer volume. Through our investment in national advertising and brand recognition of Autobytel.com, we attract consumers to our Web site and direct them to dealers in their local area. We believe this provides dealers access to a larger number of prequalified consumers without increasing their advertising costs. Dealers' personnel costs should be reduced because we provide dealers access to potential purchasers who have completed their research and should be ready to buy or lease a vehicle. As a result, reaching these consumers and selling or leasing them vehicles costs the dealer little or no additional overhead expense other than the fees paid to us and the personnel costs of a dedicated Autobytel.com manager. Through our Dealer Real Time system, we provide dealers with on-site technology to better track sales, inventory, customer solicitations, responses and other communications. By providing consumers a quality fulfillment experience, we seek to provide Autobytel.com dealers a large number of consumers, allowing them to compete more effectively. Our solution includes an expanding network of over 2,700 participating dealers in the United States and Canada representing every major domestic and imported make of vehicles and light trucks. Because a single dealership location may hold multiple manufacturer franchises, the dealership may represent more than one dealer in the Autobytel.com network. To increase each dealer's incentive to participate in the Autobytel.com system, we allocate each dealer an exclusive geographic territory based upon specific vehicle make. A territory allocated by us to a dealer is generally larger than a territory assigned to a dealer by a manufacturer. By granting dealers exclusivity within a geographic area, we intend to assure dealers of a large enough volume of quality purchase requests to lower their operating costs. 35 37 Our Web Site. Because Web sites can be continually updated and provide a large quantity of quality information, we believe the Internet offers the most efficient medium for consumers to learn about and shop for vehicles. The Internet's global reach to consumers allows us to leverage our investment in branding and marketing across a very large national and international audience to create qualified purchase requests for vehicles. For these reasons, we also believe that the Internet represents the most efficient method of directing purchase requests to local markets and dealers. We currently provide the following services on our Web site: [Chart depicting programs and services accessible to Internet consumers through Autobytel.com] STRATEGY Our primary objective is to be the leading global Internet brand for vehicle information and purchasing services. We intend to achieve this objective through the following principal strategies: Continue to Build Brand Equity. We believe that due to our focus on both online and offline marketing, we have created one of the leading brand names in our sector. We intend to continue aggressively to market and advertise to enhance our brand recognition with consumers. We believe that continuing to strengthen brand awareness of the Autobytel.com name among consumers is critical to attract vehicle buyers, increase purchase requests and, in turn, increase the size of our dealer base. We intend to continue advertising on the Internet and through traditional media, such as television, radio and printed publications. Ensure the Highest Quality Consumer Experience. We believe that consumer satisfaction and loyalty is heavily influenced by the consumer's experience with our site and with our dealers. In order to enhance our appeal to consumers, we intend to continue 36 38 developing our Web site by enhancing vehicle information, as well as building new features such as personalization, auto maintenance reminders and consumer reviews. As part of our continuing effort to enhance our Web site technology and features, we have entered into strategic co-development relationships, with Intel and Cow Inc. to improve our interactive dealer training. In addition, we plan to continue compiling high quality content from third party sources on our site, including information from Edmund's, IntelliChoice, Carprices.com and Kelley Blue Book. We believe that consumer satisfaction with the vehicle purchasing experience is also essential to our success and the differentiation of our services from those of our competitors. We intend to continue to invest in our dealer training and support services to ensure a consistent, high-quality alternative to the traditional vehicle buying process. Increase Purchase Requests. We believe that increasing the volume and quality of purchase requests directed from our Web site to our dealer network is crucial to the long-term growth and success of our business. By augmenting the volume of quality purchase requests, we expect to attract additional dealers to our network, increase fees paid by dealers, and solidify our relationships with participating dealers. Our strategy for increasing traffic to our site and the number of purchase requests includes forming and maintaining online sponsorships and partnerships with Internet portals, such as Excite, and with Internet automotive information providers, such as Edmund's. As part of our strategy to improve the quality of purchase requests, we continue to expand the breadth and depth of information and services available through our Web site to insure that well informed, ready-to-buy consumers are directed to participating dealers. Expand and Improve Dealer Network. We believe that strengthening the size and quality of our dealer network is important to the success and growth of our business. We believe our network of over 2,700 dealers is one of the largest in the Internet-based vehicle purchasing industry. Our strategy is to increase the size of our dealer network by attracting new dealers and strengthening relationships with existing dealers by: - increasing the volume and quality of purchase requests, - advertising in trade publications aimed at dealers and participating in industry trade shows, - maintaining our extensive training and support program to participating dealers, and - providing our Dealer Real Time system to all participating dealers. Invest in Ancillary Online Services. We believe that expanding our services to both consumers and dealers will be critical to establishing ourselves as the premier provider of online automotive services in the future. Our strategy is to continue to invest in ancillary services, particularly in the CyberStore and warranty, finance and insurance services. We also intend to use the Dealer Real Time system to launch value added services for our dealer network, including allowing dealers to offer accessories and aftermarket products directly through the Autobytel.com Web site. We have recently begun to sell advertising on our Web site and expect to expand this business during 1999. We plan to launch an auction-based, online program for our dealers who sell pre-owned vehicles. We are also seeking opportunities to market the information contained in our databases. Expand Internationally. We intend to continue our international expansion through licensing agreements and partnering with local strategic partners. We have established licensing arrangements with strategic partners such as Inchcape Motors and Bilia AB in the United Kingdom and Scandinavia, respectively. In addition, we have entered into 37 39 agreements with Invision AG and Aureus Private Equity AG to obtain their assistance in meeting potential strategic partners who will assist us in establishing national operating companies throughout the rest of Europe using Autobytel.com vehicle marketing systems. We are currently exploring additional opportunities in Asia and Latin America. PRODUCTS, PROGRAMS AND SERVICES New Vehicle Purchasing Service. Our new vehicle marketing service enables consumers to shop for and select a new vehicle through our Web site by providing research on new vehicles such as pricing, features, specifications, colors, etc. When consumers indicate they are ready to buy, a consumer can complete a purchase request online, which specifies the type of vehicle and accessories the consumer desires, along with the consumer's contact information. The purchase request is then routed by us to the nearest participating dealer that sells the type of vehicle requested, and we promptly return an e-mail message to the consumer with the dealership's name and phone number and the name of the Autobytel.com manager at the dealership. Dealers agree in their contracts to contact the consumer within 24 hours of receiving the purchase request with a firm, haggle-free price quote for the requested vehicle. When consumers complete a purchase, they usually take delivery of their vehicle at the dealership showroom. Generally, within ten days of the submission of a consumer's purchase request, we contact the consumer again by e-mail to conduct a quality assurance survey that allows us to evaluate the sales process at participating dealers and improve the quality of dealer service. The Autobytel.com network has grown to 2,718 dealers as of December 31, 1998. These dealers represent every major domestic and imported make of vehicle and light truck sold in the United States and Canada. Core dealerships are charged initial subscription fees and on-going fees, principally on a monthly basis, to participate in our dealer network. Certified Pre-Owned CyberStore. We launched our CyberStore program in April 1997. The CyberStore allows consumers to search for a pre-owned vehicle according to specific search parameters such as the price, make, model, mileage, year and location of the vehicle. CyberStore locates and displays the description, location and actual digital photograph of all vehicles that satisfy the search parameters. The consumer can then complete a formal purchase request for a specific vehicle and is contacted by the dealer to conclude the sale. To be listed in the CyberStore a pre-owned vehicle must first pass a 135-point inspection, be covered by a 72-hour money-back guarantee and be covered by a three-month, 3,000-mile warranty, which is honored nationally by all CyberStore dealers. We charge each vehicle dealer that participates in the CyberStore program a separate additional monthly fee. The CyberStore program uses the Dealer Real Time system to provide participating dealers online purchase requests shortly after submission by consumers as well as the ability to track their inventory on a real-time basis. Ancillary Customer Services. We offer a number of ancillary services that we market to consumers through our Web site and the linked Web sites of participating partners such as Chase, GE Capital, Provident Bank and member companies of the American International Group. We make purchase and lease financing available to consumers through various Autobytel.com financing programs offered by Chase, GE Capital and Provident Bank that allow consumers to research and apply for vehicle financing online in a secure manner. Consumers can apply for a loan or lease online at the time they submit their purchase request for either a new or pre-owned vehicle. Consumers are able to arrive at the dealership with their loan pre-approved, their credit verification documents in hand, and the loan paperwork waiting for them. We believe that the convenience of pre-approved 38 40 purchase or lease financing, combined with a firm, competitive price, enables dealers more easily to consummate purchase requests. Lenders to whom Autobytel.com refers customers pay us an origination fee for most loans and the dealership is compensated by the lender for each loan made to an Autobytel.com consumer through either an origination fee or a limited rate participation fee. We currently market financing through Chase, GE Capital and Provident Bank. We provide a link on our Web site to an online insurance application program offered by the American International Group on behalf of its member companies through which consumers submit requests for insurance quotes and obtain approval. The types of insurance products offered through this link include automobile liability and property damage coverage. Our agreement with the American International Group provides that we receive fees based on a percentage of the net premiums earned and collected by the member companies of the American International Group on all policies issued to Autobytel.com consumers who obtain insurance through our Web site link. We offer critical information concerning all aspects of owning and leasing new and pre-owned vehicles that we believe makes our Web site a valuable resource to consumers. AutoBuyTools(TM), a service on our Web site, consists of a lease calculator, a loan calculator to determine monthly payments and a lease or buy decision tool. The Dealer Real Time System. In 1997, we launched a new, proprietary technology and software system called the Dealer Real Time system. The Dealer Real Time system is an Internet-based communications platform that gives dealers a competitive advantage compared to delivering purchase requests by fax. A fax-based system has the following inherent inefficiencies: it is susceptible to system delays, has a less effective purchase request and inventory tracking system and it is difficult to control the distribution of purchase requests. Such inefficiencies include the delay of delivering faxes to salesmen and the uncertainty of response time to consumers related to this delivery. Using Internet technology, the Dealer Real Time system enables the dealer to: - instantaneously access a consumer's vehicle purchase request as soon as the consumer submits it online, - track all interaction with the consumer, - send e-mail to consumers using a variety of predetermined templates, - input used vehicle inventory information for immediate display to consumers on the Autobytel.com web page, - track dealership performance through a series of reports available online, - access Autobytel.com "news" and product information online, and - contact Autobytel.com technical support personnel via e-mail links. In March 1998, as part of our new Dealer Agreement, we began requiring our dealers to use the Dealer Real Time system, and have converted substantially all of our dealers to the Dealer Real Time system. Loyalty Rewards Program (ABT Mobalist). To attract new customers prior to their next vehicle purchase and encourage repeat business from our existing customers, we began to offer consumers in April 1998 an affinity program called Mobalist Rewards. To date, our affinity marketing partners include Virtual Vineyards, Inc. and Uniglobe Travel Online, Inc. This program allows members to earn credits toward the purchase price of a new or pre-owned vehicle through our service. Members earn credits by purchasing products and services from Autobytel.com's retail partners and also by using a credit card 39 41 co-branded with the Autobytel.com trademark to make purchases. We earn a commission each time these services or the affinity program services are used. Planned Online Auction Services. We plan to launch an auction-based program designed to streamline the process of wholesale buying and selling of pre-owned vehicles over the next year. Through this program, we expect that our dealers will be able to place online bids for pre-owned vehicles directly to the wholesaler, eliminating associated distribution costs. INTERNATIONAL ACTIVITIES We intend to expand our new vehicle marketing service to foreign markets through licensing agreements and by establishing relationships with vehicle dealers and strategic partners located in foreign markets. As of December 31, 1998, approximately 161 Canadian dealerships belonged to our network. We have entered into an agreement with Auto-By-Tel UK Limited, an affiliate of Inchcape Motors, the United Kingdom's largest independent automobile distributor, to license our technology, business processes and trade names in the United Kingdom, as well as provide maintenance and development for such technology. We have also entered into similar arrangements with Auto-By-Tel AB, an affiliate of Bilia AB, to license our technology, business processes, and trade names in Sweden, Norway, Denmark and Finland. Under the terms of our agreement with Auto-by-Tel UK Limited and Auto-By-Tel AB we received an annual maintenance fee and will receive an initial license fee. We intend to enter into similar relationships with strategic partners in other countries that have attractive automobile markets. In addition, we have entered into agreements with Aureus Private Equity AG and Invision AG to obtain their assistance in meeting potential strategic partners who will assist us in establishing national operating companies throughout the rest of Europe using Autobytel.com vehicle marketing systems. MARKETING AND SALES Our ability to enhance our brand name recognition, domestically and internationally, and position ourselves as a leading Internet-based vehicle information and purchasing services provider is critical to our efforts to increase the number of vehicle purchase requests and requests for ancillary services, as well as the number and quality of subscribing dealerships. We have invested approximately $60 million to date in sales, marketing and communications activities. Over the past several years, we have been the subject of numerous newspaper, magazine, radio and television stories. Articles about our new vehicle program have appeared in Business Week, Fortune, Forbes, Time, and the Wall Street Journal, among other publications. Television stories featuring us have been aired nationally on NBC Today, NBC Nightly News and CNN. We believe that ongoing media coverage is an important element in creating consumer awareness of the Autobytel.com brand name and has contributed to dealership awareness of, and participation in, our programs. We have established marketing and advertising programs with many of the leading automotive information providers on the Internet, including Edmund's, IntelliChoice and Kelley Blue Book which help direct traffic to our Web site and increase purchase requests. Our agreements with automotive information providers typically have terms ranging from one to five years. Our Kelly Blue Book agreement calls for a monthly payment based on the number of times their visitors click on our links. Our position with Kelly Blue Book is not an exclusive arrangement. Edmund's is our single largest referral service. In 1997 and 1998, approximately 49% and 34%, respectively, of our total purchase requests originated from Edmund's. This 40 42 percentage decreased to 29% for the last quarter of 1998. Our agreement with Edmund's, pursuant to which we receive referrals from Edmund's Web site, is scheduled to expire July 31, 2000. Edmund's has agreed to recommend or refer visitors to its Web site only to us and no other competitive online marketing program with respect to new vehicles, although Edmund's may refer prospective buyers directly to automotive manufacturers' Web sites and dealer locator services. We expect Edmund's Web site to account for a significant number of purchase requests for the foreseeable future. We pay Edmund's a monthly fee based on a per purchase request basis. We pay IntelliChoice both a monthly fee for the use of its data and a fee for each purchase request. Our arrangement with them is not exclusive, as they provide data to other Web sites. We endeavor to position ourselves as the leading vehicle and related services purchasing program by affiliating ourselves with online services and Internet portals. We believe that our presence on these Internet sites helps to increase purchase request volume and will remain a key element of our future business. For example, we have agreements with AT&T Corp., Classifieds2000, Excite and Lycos that provide as follows: - We pay AT&T a monthly fee to insert our branded content on their site which includes a car purchasing link enabling their visitors to send us purchase requests. - Our contract with Classifieds2000 provides that we pay a monthly fee as well as a fee for each purchase request it sends us for the number of users who submit purchase requests after having visited its site. Moreover, it includes our pre-owned vehicle inventory in its classified listings. In return we provide it with a link on our site where owners can list their cars for sale directly. Our arrangement with Classifieds2000 is exclusive. - Our agreement with Excite covering its auto channel provides that we pay Excite a monthly fee as well as a fee for each purchase request it sends us. The agreement provides us with exclusivity in their Auto channel. Our agreement with Netscape's NetCenter auto channel is through Excite which manages NetCenter for Netscape. The payment terms are similar in nature to our deal directly with Excite's auto channel. - Our agreement with Lycos in its "New" automotive channel is based on a quarterly fee. The agreement provides us with exclusivity in their "New" automotive area. We are also working with MediaOne to develop and deliver our broadband service offering. Broadband allows the Internet to deliver content and services at faster speeds through high capacity coaxial cable networks. We believe that the broadband opportunity is becoming an increasingly important focus within the Internet industry, and we intend to enhance our presence using this technology. We supplement our Internet presence with television and traditional print advertising. Our initial marketing focus was on computer user and hobbyist publications and major automotive magazines. In late 1996, we began to broaden our marketing efforts with a campaign to accelerate consumer awareness of the Autobytel.com brand name and drive traffic to our Web site through cable television advertisements featured on CNN and CNET, Inc. and network television advertisements featured on NBC and MSNBC. As part of our branding efforts, we aired a 30-second commercial during the broadcast of the Super Bowl in both 1997 and 1998. We expect to continue to use television advertising to strengthen our brand awareness. In addition to our consumer-oriented marketing activities, we also market our programs directly to dealerships, participate in trade shows, advertise in trade publications 41 43 and major automotive magazines and encourage subscribing dealerships to recommend our program to other dealerships. INTELLECTUAL PROPERTY We have the registered service mark Auto-By-Tel and have applied for the registered service marks Autobytel.com, AutoBuyTools, Certified Pre-Owned CyberStore, Kre8.net and Dealer Real Time. The Autobytel.com logo is a service mark and trademark for which we have applied for federal registration. DEALER RELATIONSHIPS AND SERVICES Dealer Network. Dealers participate in our network by entering into contracts with us. Our dealerships are located in most major metropolitan areas in the United States and Canada and we believe they are generally leaders in their respective markets. As of December 31, 1998, our participating dealership base totaled 2,718 dealers, consisting of 2,386 core dealers and 332 non-core dealers. Core dealerships are franchises with typically high volume vehicle sales such as Ford or Toyota. These dealerships pay initiation and monthly fees to subscribe to our online marketing program. Both the initial and monthly subscription fees are established in the contract and are based upon many business factors including the type and location of the franchise. We reserve the right to raise our fees to dealers after 30 days notice. Non-core dealers are typically franchises of lower-volume vehicle manufacturers such as Jaguar or Suzuki or are located in remote, low volume territories, and receive purchase request referrals from us without paying us either initial or monthly subscription fees. We enter into agreements with non-core dealers to ensure the broadest geographic coverage possible for the make of vehicle represented by the non-core dealer. We do not prevent dealers from entering into agreements with our competitors. Customer Support. We actively monitor subscribing dealers through ongoing customer surveys, and research conducted by our internal dealer support group. Generally, within ten days after a consumer submits a purchase request through our Web site, we re-contact the consumer by e-mail requesting completion of a quality assurance survey on our Web site that allows us to evaluate the sales process at participating dealers. Dealerships that fail to abide by our program guidelines or who receive repeated consumer complaints are generally reviewed and, if appropriate, terminated. In return for requiring a high level of consumer service, we assign participating dealerships exclusive territories. We try to assign dealers attractive territories in order to increase participation in our program. Our dealer agreements are cancelable by either party on 30 days notice. Each dealer agreement obligates the dealers to adhere to our policy of providing prompt responses to customers, no haggle pricing practices and full disclosure regarding vehicle availability, add-ons and related matters. We require each dealer to have an Autobytel.com manager whose principal responsibility is supervising our system, similar to the way in which most dealers have a new vehicle sales manager, pre-owned vehicle sales manager and service and parts department managers who are responsible for those dealership functions. We reserve the right to reduce or modify each dealer's assigned territory after the first six months, although there can be no assurance that a dealer whose territory is reduced or modified will not contest such a change or terminate its subscription. In addition, dealers whose territories are reduced or modified by us may sue us in an effort to prevent the change or recover damages. We have experienced one such suit. See "-- Litigation." Training. We believe that traditional dealers and their employees require specialized training to learn the skills necessary to serve the Internet user and take full advantage of 42 44 our proprietary Dealer Real Time system. Therefore, we have developed an extensive training program for our dealers. We believe that this training is critical to enhancing the Autobytel.com brand and reputation. We require participating dealerships to have their representatives trained on our system. Training is conducted at our headquarters in Irvine, California, at regional training centers and at dealerships' premises. Training is currently provided to the dealers at no additional cost. In training our dealers, we de-emphasize traditional vehicle selling techniques and emphasize the Autobytel.com approach. To increase consumer satisfaction and reduce costs, we seek to discourage dealerships from using commissioned and multiple salespersons to interface with our customers. COMPETITION We believe that the principal competitive factors affecting the market for Internet-based vehicle marketing services include: - successful marketing and establishment of national brand name recognition, - ease of use, speed and quality of service execution, - the size and effectiveness of the participating dealership base, - the volume and quality of traffic to and purchase requests from a Web site, - the ability to introduce new services in a timely and cost-effective manner. - technical expertise, - customer satisfaction, and - competitive dealer pricing. Our vehicle purchasing services compete against a variety of Internet and traditional vehicle buying services and automotive brokers. In the Internet-based market, we compete with other entities which maintain similar commercial Web sites including Autoweb.com, Cendant's AutoVantage, General Motors' BuyPower, Microsoft's CarPoint and Stoneage Corporation. Republic Industries has also announced its intention to create a Web site for marketing vehicles. We also compete indirectly against vehicle brokerage firms and affinity programs offered by several companies, including Costco Wholesale Corporation and Wal-Mart Stores, Inc. We compete with vehicle insurers, lenders and lessors as well as individual dealerships. Such companies may already maintain or may introduce Web sites which compete with ours. We cannot assure that we can compete successfully against current or future competitors, many of which have substantially more capital, resources and access to additional financing than we do, nor can there be any assurance that competitive pressures faced by us will not result in increased marketing costs, decreased Web site traffic or loss of market share or otherwise will not materially and adversely affect our business, results of operations and financial condition. We compete primarily on brand name recognition acquired through early entry into the Internet-based automotive purchase referral market and through customer and dealer satisfaction. OPERATIONS AND TECHNOLOGY We believe that our future success is significantly dependent upon our ability to continue to deliver a high-performance and reliable Web site, enhance consumer/dealer communications, maintain the highest levels of information privacy and ensure transactional security. We host our Web site at our corporate headquarters in Irvine, California. We currently contract the services of two nationally established Internet service providers to connect our systems with the Internet. Our primary provider supplies two-thirds of our capacity to connect with the Internet and our secondary provider supplies the remaining 43 45 third. Our primary servers are housed in one climate-controlled, raised floor computer room with back-up power systems. We use industry-standard computers and equipment in our network. Network security is provided by utilizing standard products. System enhancements are primarily intended to accommodate increased traffic across our Web site, improve the speed in which purchase requests are processed and introduce new and enhanced products and services. System enhancements entail the implementation of sophisticated new technology and system processes. FACILITIES Our operations are principally located in a single office building in Irvine, California. We occupy three full floors, each consisting of approximately 12,000 square feet, which are leased through August 2001. We have options to renew the leases on each floor for an additional 5-year term. We also lease office space in Houston, Texas, consisting of less than 5,000 square feet through one of our subsidiaries, Kre8.net, Inc., an Internet software company for dealer Web site design and systems backup. In order to replace their existing leased space, we have recently entered into a lease agreement for office space in Houston consisting of 9,000 square feet, which Kre8.net plans to move into in the second quarter of 1999. GOVERNMENT REGULATION Currently few laws or regulations have been adopted that apply directly to Internet business activities. The adoption of additional local, state, national or international laws or regulations may decrease the growth of Internet usage or the acceptance of Internet commerce. We believe that our dealer marketing services do not constitute franchising or vehicle brokerage activity in such a way that subjects us to federal and state franchise, motor vehicle dealer, or vehicle broker licensing laws. However, if individual state regulatory requirements change or additional requirements are imposed on us, we may be required to modify our service programs in such a state in a manner which may undermine our program's attractiveness to consumers or dealers. If we are required by a state to be licensed as a vehicle broker and we determine that the licensing and related requirements are overly burdensome, we may elect to terminate operations in such a state. In the event a state deems that we are acting as a vehicle broker, we may be required to comply with burdensome licensing requirements of such state or terminate operations in such state. As we introduce new services, we may need to comply with additional licensing regulations and regulatory requirements. Our marketing service may result in changes in the way vehicles are currently sold or may be viewed as threatening by new and pre-owned vehicle dealers who do not subscribe to the Autobytel.com program. Such businesses are often represented by influential lobbying organizations, and such organizations or other persons may propose legislation that, if adopted, could impact our evolving marketing and distribution model, which our service promotes. We expect to expand our operations to other countries that may have laws or be subject to treaties that regulate the marketing, distribution, and sale of vehicles. As we consider specific foreign operations, we will need to determine whether the laws of the countries in which we seek to operate require us to modify our program or otherwise change the Autobytel.com system or prohibit the use of the system in such country 44 46 entirely. In addition, the laws of a foreign country may impose licensing, bonding or similar requirements on us as a condition to doing business there. To date, we have not expended significant resources on lobbying or related government affairs issues but may be required to do so in the future. Franchise Classification. If our relationship or written agreement with our dealers was found to be a "franchise" under federal or state franchise laws, we could be subjected to additional regulations, including but not limited to licensing, increased reporting and disclosure requirements. Compliance with varied laws, regulations, and enforcement characteristics found in each state may require us to allocate both staff time and monetary resources, each of which may have an adverse affect on our results of operations. As an additional risk, if our dealer relationship or subscription agreement is determined to establish a franchise, we may be subject to limitations on our ability to quickly and efficiently effect changes in our dealer relationships in response to changing market trends, which may negatively impact our ability to compete in the marketplace. We believe that neither our relationship with our subscribing dealers nor our dealer subscription agreements themselves constitute "franchises" under federal or state franchise laws. This belief has been challenged but upheld by a Federal District Court in Michigan that ruled our business relationship and our dealer subscription agreement does not rise to the level of a "franchise" under Michigan law. Vehicle Broker. If government licensing and enforcement authorities determine our business operations to be subject to state motor vehicle brokering laws, we may be required to apply for and obtain a motor vehicle brokers license. As additional risk, we may be subject to administrative monetary fees, fines, and penalties for failure to comply with such licensing requirements. We believe that we are not subject to the coverage of state and motor vehicles dealer or broker licensing laws. We believe that our dealer marketing service model does not qualify as an automobile brokerage activity and therefore state broker licensing requirements do not apply to us. In response to concerns about our marketing program raised by the Texas Department of Transportation, we modified our marketing program in that state to achieve compliance. These modifications included a unique pricing model under which all subscribing dealerships in Texas are charged uniform fees based on the population density of their particular geographic area and to make our program open to all dealerships who wish to apply. In the event that any other state's regulatory requirements impose state specific requirements on us or include us within an industry-specific regulatory scheme, we may be required to modify our marketing programs in such states in a manner which may undermine the program's attractiveness to consumers or dealers. In the alternative, if we determine that the licensing and related requirements are overly burdensome, we may elect to terminate operations in such state. In each case, our business, results of operations and financial condition could be materially and adversely affected. Loan Broker. We provide a connection through our Web site that allows a consumer to obtain finance information and loan approval. We do not demand nor do we receive any fees from consumers for this service. We do receive fees from participating lenders. We currently hold financial broker licenses in the states of Florida, Indiana, Rhode Island, and Wisconsin and have applied for renewals in California and Colorado. In the event other 45 47 states require us to be licensed, we intend to obtain such licenses. We may be unable to comply with a state's regulations affecting our current operations or newly introduced services, or we could be required to incur significant fees and expenses to license or be compelled to discontinue finance operations in those states. Insurance Agent. We provide access through a link from our Web site to a Web site owned and maintained by American International Group. Persons visiting our Web site whom access the Web site maintained by American International Group may obtain insurance directly from its member companies. We receive fees from American International Group for allowing the American International Group's Web site to be accessed from ours. We receive no premiums from consumers nor do we charge consumers fees for our services. All applications are completed on American International Group's Web site and at no time do we receive the secure data found on the applications. We do not believe that our activity requires us to be licensed under state insurance laws. The use of the Internet in the marketing of insurance products, however, is a relatively new practice. It is not clear whether or to what extent state insurance licensing laws apply to activities similar to ours. Given this aforementioned uncertainty, we elected to proactively apply for and currently hold insurance agent licenses in California, Indiana, Nebraska, New Jersey, and Utah. We have also applied for insurance agent licenses in all remaining states that license corporations as insurance agents and are awaiting approvals. EMPLOYEES As of December 31, 1998, we had a total of 180 employees. We also utilize independent contractors for software and hardware development and certain administrative activities. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our employee relations to be good. LITIGATION Jerome-Duncan Ford, a Michigan dealership, first subscribed to our new vehicle marketing program in June 1996. In January 1997, we sought to replace the existing agreement with our new standard subscription services agreement and realign Jerome-Duncan Ford territory. Jerome-Duncan Ford objected to the realignment and ceased payment of its monthly subscription fee to us. Unable to resolve the matter, we terminated Jerome-Duncan Ford's subscription Dealer Agreement. Jerome-Duncan Ford then sued us in Michigan State Court and sought an injunction to prevent us from cancelling Jerome-Duncan Ford's subscription services agreement. Jerome-Duncan Ford based its action on Michigan franchise law which prohibits a franchiser from terminating a franchisee without good cause. We removed the case to federal court. In late June 1997, the federal district court ruled in favor of us and denied the injunction. The court held that Jerome-Duncan Ford showed insufficient evidence of a likelihood of success on the merits involving claims of breach of Michigan franchise law. The Court found that no franchise existed. We thereafter moved for summary judgment on the franchise issues. In late 1997, the court granted our motion for summary judgment and held that our subscription services agreement and method of operation did not constitute a franchise under Michigan state law. The plaintiffs have appealed the ruling. Halrec, Inc., a California based Toyota dealership, first subscribed to our new vehicle marketing program in October 1996 and subsequently to our financing program. On November 13, 1998, Halrec sued us in Superior Court, County of Santa Clara, California for, among other things, restraint of trade, intentional misrepresentation and unfair 46 48 competition claiming that we wrongfully awarded to other car dealers geographic territories that were contractually the property of Halrec. We believe Halrec's claims are without merit and are vigorously defending ourselves against their claims. From time to time, we are involved in other litigation matters relating to claims arising out of the ordinary course of business. We are involved in at least one such case currently, including one seeking punitive damages. We believe that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on our business, results of operations and financial condition. However, if a court or jury rules against us and the ruling is ultimately sustained on appeal and damages are awarded against us that include punitive damages, such ruling could have a material and adverse effect on our business, results of operations and financial condition. 47 49 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information with respect to the executive officers and directors of Autobytel.com. Our audit committee consists of Mr. Fuchs, Mr. Coats and Mr. Kaplan. Our compensation committee consists of Mr. Fuchs, Mr. Coats and Mr. Orton.
OFFICERS AND DIRECTORS AGE POSITION ---------------------- --- -------- Michael J. Fuchs.......................... 52 Chairman of the Board and Director Mark W. Lorimer........................... 39 Chief Executive Officer, President and Director Robert S. Grimes.......................... 54 Executive Vice President and Director Hoshi Printer............................. 57 Senior Vice President and Chief Financial Officer Ann M. Delligatta......................... 51 Executive Vice President and Chief Operating Officer Jeffrey H. Coats.......................... 41 Director Mark N. Kaplan............................ 69 Director Kenneth J. Orton.......................... 47 Director Peter Titz................................ 45 Director Richard A. Post........................... 40 Director
Michael J. Fuchs was elected as a director of Autobytel.com in September 1996 and became Chairman in June 1998. Mr. Fuchs was Chairman and Chief Executive Officer of Home Box Office, a Division of TimeWarner Entertainment Company, L.P., a leading pay-television company, from October 1984 until November 1995, and Chairman and Chief Executive Officer of Warner Music Group, a Division of Time Warner Inc., from May 1995 to November 1995. Mr. Fuchs holds a B.A. from Union College and a J.D. from the New York University School of Law. Mr. Fuchs is a member of the board of directors of IMAX Corp., Wink Communications, Inc. and Consolidated Cigar Holdings Inc. Mark W. Lorimer joined Autobytel.com in December 1996 as Vice President, General Counsel and Secretary, and was promoted to Executive Vice President and Chief Operating Officer in May 1997. In May 1998, Mr. Lorimer was promoted to President. He was elected a director and appointed Chief Executive Officer of Autobytel.com in June 1998. From January 1996 to November 1996, Mr. Lorimer was a partner and, from March 1989 to January 1996, was an associate with the law firm of Dewey Ballantine LLP. Mr. Lorimer is a member of the board of directors of IMC Mortgage Company. Mr. Lorimer holds a B.S. in Speech from Northwestern University and a J.D. from the Fordham University School of Law. Robert S. Grimes has been a director of Autobytel.com since inception and has served as Executive Vice President since July 1996. Since September 1987, Mr. Grimes has been President of R.S. Grimes & Co., Inc., a private investment company. From April 1981 to March 1987, Mr. Grimes was a partner with the investment firm of Cowen & Company. Mr. Grimes holds a B.S. from the Wharton School of Commerce and Finance at the University of Pennsylvania and an L.L.B. from the University of Pennsylvania Law School. Mr. Grimes has served on the board of directors of Philips International Realty Corp., a New York Stock Exchange listed company, since April 1998. 48 50 Hoshi Printer joined Autobytel.com in January 1999 as Senior Vice President and Chief Financial Officer. From June 1996 to December 1998, Mr. Printer served as Vice President, Finance and Administration, Chief Financial Officer and Secretary of Peerless Systems Corporation, a software technology company. From July 1995 to May 1996, Mr. Printer was Chief Financial Officer of Neuron Data Inc., a software technology company. From July 1994 to June 1995 Mr. Printer served as Chief Financial Officer of Soane Technologies Inc., a polymer technology company. From January 1990 to June 1994, Mr. Printer was Chief Financial Officer of Catalytica Inc., an environmental technology company. Mr. Printer also worked at Xerox Corporation for over 17 years as Vice President of Finance and in 1976 served as a consultant to the White House for the President's Reorganization project on cash management. Mr. Printer holds a B.E. in mechanical engineering and a B.E. in electrical engineering from Poona University in India, an M.S. in industrial engineering from Oklahoma State University and an M.B.A. from Stanford University. Ann M. Delligatta joined Autobytel.com in June 1997 as Senior Vice President and Chief Technology Officer and was promoted to Executive Vice President and Chief Operating Officer in July 1998. From September 1996 to June 1997, Ms. Delligatta was President and Chief Executive Officer of the Pharos Group, an information technology consulting organization. From January 1987 to September 1996, Ms. Delligatta held a number of managerial positions at TRW Inc.'s TRW Information Systems and Services Group, most recently as Vice President and General Manager/Information Technology Services. Ms. Delligatta attended Mount St. Mary's College and was named by McGraw-Hill Companies as one of the "Top 100 Women in Computing in 1996" in recognition of her success in the alignment of business and technology strategies. Jeffrey H. Coats was elected a director of Autobytel.com in August 1996. Mr. Coats has served as Managing Director of GE Equity Capital Group, Inc., a wholly-owned subsidiary of General Electric Capital Corporation, a significant stockholder in us, since April 1996. He has also held various positions, most recently as Managing Director, of GE Capital Corporate Finance Group, Inc., a wholly-owned subsidiary of General Electric Capital Corporation, from June 1987 to April 1993. From March 1994 to April 1996, Mr. Coats served as President of Maverick Capital Equity Partners, LLC, and from April 1993 to January 1994, Mr. Coats was a partner with Veritas Capital, Inc., both of which are investment firms. Mr. Coats holds a B.B.A. in Finance from the University of Georgia and a Masters in International Management in Finance from the American Graduate School of International Management. Mr. Coats is a director and Chairman of the Board of The Hastings Group, Inc., a privately-held clothing retailer, which on October 23, 1995, filed a voluntary petition under Chapter 11 of the Bankruptcy Code and confirmed a plan of liquidation in late 1997. Mr. Coats became a director of The Hastings Group in connection with Maverick Capital Equity Partners' purchase of the assets of the predecessor of The Hastings Group in a previous bankruptcy proceeding. Mr. Coats is a member of the board of directors of Wink Communications, Inc. and of Krause's Furniture, Inc., a publicly-held company. Mark N. Kaplan was elected as a director of Autobytel.com in June 1998. Mr. Kaplan has been a member of the law firm Skadden, Arps, Slate, Meagher & Flom LLP since 1979. Mr. Kaplan serves on the board of directors of the following companies whose shares are publicly traded: American Biltrite, Inc., Congoleum Corporation, Inc., DRS Technologies, Inc., Grey Advertising, Inc., MovieFone, Inc., REFAC Technology Development Corporation, and Volt Information Services, Inc. Mr. Kaplan holds an A.B. from Columbia College and a J.D. from Columbia Law School. 49 51 Kenneth J. Orton was elected a director of Autobytel.com in June 1998. Mr. Orton is currently a director, and through February 1999 Mr. Orton was the President and Chief Executive Officer, of Preview Travel, Inc., which he joined in April 1994 as President and Chief Operating Officer. From September 1989 to March 1994, Mr. Orton was Vice President and General Manager of the San Francisco division of Epsilon, a database marketing firm and a wholly owned subsidiary of American Express Company. Prior to his employment with Epsilon, Mr. Orton was Vice President of MARC Inc., a market research and database marketing company, and Vice President of Sales and Marketing for Future Computing. Mr. Orton also serves as a director of ONSALE, Inc., a publicly-held company. Mr. Orton received a B.A. from California State University, Fullerton. Peter Titz was elected a director of Autobytel.com in January 1999. Mr. Titz is a manager of Metro International Dienstleistung Beteiligungs AG and Invision AG. Before joining Metro and Invision AG in 1989, Mr. Titz was managing director of various institutions in the financial service sector including American Express in Frankfurt where he was responsible for the introduction of automatic teller machines and the installation of POS systems in Europe. Mr. Titz received a degree in engineering from the University of Aachen and a degree in economics from the University of Bonn. Mr. Titz is President of the board of directors of Aureus Private Equity AG and Deutsche Media AG and is a member of the board of directors of Teleclip AG. Richard A. Post was elected a director of Autobytel.com in February 1999. Mr. Post is Executive Vice President and Chief Financial Officer of MediaOne Group, Inc. and president of MediaOne Capital Corp., a subsidiary of MediaOne Group, Inc. Mr. Post joined US WEST Financial Services in April 1988 as manager of Corporate Development and was promoted in 1990, first to executive director, and then to vice president, responsible for all Capital Asset Group businesses. From June 1996 to January 1997, he was president of Corporate Development at US WEST, Inc. where he had responsibility for corporate development efforts at US WEST Communications, as well as US WEST, Inc. US WEST, Inc. has since split into two separate corporations, MediaOne Group, Inc. and US WEST. From December 1995 to June 1996, he served as vice president of Corporate Development for US WEST Media Group, a division of the former US WEST, Inc. Mr. Post holds both a business administration degree and an MBA from Delta State University. Mr. Post is a member of the board of directors of Financial Security Assurance Holdings, Inc., a financial guaranty company based in New York. BOARD COMPOSITION The board of directors has currently authorized eight members of whom two are to be elected by the holders of series A preferred stock pursuant to Autobytel.com's certificate of incorporation. Mr. Coats and Mr. Fuchs are the designees of the series A preferred stock to the board of directors. The rights of the series A preferred stockholders will expire upon the consummation of this offering. Members of the board of directors are elected each year at our annual meeting of stockholders, and serve until the following annual meeting of stockholders or until their respective successors have been elected and qualified. In accordance with the terms of Autobytel.com's restated certificate of incorporation, effective upon the closing of this offering, the terms of office of the board of directors will be divided into three classes: the Class I term will expire at the annual meeting of stockholders to be held in 1999; the Class II term will expire at the annual meeting of stockholders to be held in 2000; and the Class III term will expire at the annual meeting of stockholders to be held in 2001. The Class I directors will be Mr. Lorimer, Mr. Titz 50 52 and Mr. Post, the Class II directors will be Mr. Kaplan and Mr. Orton and the Class III directors will be Mr. Grimes, Mr. Fuchs and Mr. Coats. At each annual meeting of stockholders after the initial classification, the successors to directors whose term will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. In addition, our restated certificate of incorporation provides that the authorized number of directors shall be designated by the bylaws of Autobytel.com. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in control or management of Autobytel.com. Directors of Autobytel.com may be removed, with or without cause, by the affirmative vote of the holders of a majority of the shares entitled to vote at an election of directors. There are no family relationships among any of the directors and executive officers of Autobytel.com. BOARD COMMITTEES The audit committee consists of Mr. Coats, Mr. Fuchs and Mr. Kaplan. The audit committee makes recommendations to the board of directors regarding the selection of independent public accountants, reviews the results and scope of the audit and other services provided by Autobytel.com's independent public accountants and reviews and evaluates our control functions. The compensation committee consists of Mr. Coats, Mr. Fuchs and Mr. Orton. The compensation committee administers the issuance of stock under Autobytel.com's 1996 Stock Incentive Plan, 1996 Stock Option Plan, 1996 Employee Stock Purchase Plan, 1998 Stock Option Plan and 1999 Stock Option Plan, makes recommendations regarding various incentive compensation and benefit plans and determines salaries for the executive officers and incentive compensation for employees and consultants of Autobytel.com. DIRECTOR COMPENSATION Our non-employee directors do not currently receive any cash compensation for service on Autobytel.com's board of directors or any committee thereof, but directors may be reimbursed for certain expenses incurred in connection with attendance at board and committee meetings. Our 1999 Stock Option Plan provides for automatic grants of stock options to non-employee directors. See "Stock Plans -- 1999 Stock Option Plan." We have entered into indemnification agreements with each member of the board of directors and its officers providing for the indemnification of such person to the fullest extent authorized, permitted or allowed by law. 51 53 EXECUTIVE COMPENSATION The following table sets forth information regarding the compensation (rounded to the nearest thousand) paid during each of our last three completed fiscal years to our Chief Executive Officer and each of our other five most highly compensated executive officers as of December 31, 1998. Mr. Ellis resigned as our Chief Executive Officer in June 1998. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL ------------ FISCAL COMPENSATION OTHER SECURITIES NAME AND PRINCIPAL YEAR ENDED ------------------- ANNUAL UNDERLYING POSITION DECEMBER 31, SALARY BONUS COMPENSATION OPTIONS(#) ------------------ ------------ -------- -------- ------------ ------------ Peter R. Ellis............. 1998 $219,000 $ -- $522,000(1) -- Former Chief Executive 1997 275,000 100,000 15,000 -- Officer and President 1996 123,000 321,000 11,000 -- Mark W. Lorimer............ 1998 316,000 150,000 9,000 750,000(2) Chief Executive Officer and 1997 200,000 100,000 70,000(3) 100,000 President 1996 8,000 -- -- 333,333 Robert S. Grimes........... 1998 220,000 75,000 -- 125,000 Executive Vice President 1997 180,000 -- -- 116,667 1996 90,000 -- -- 166,667 Ann M. Delligatta.......... 1998 177,000 100,000 -- 316,667(4) Executive Vice President 1997 88,000 -- -- 83,334 and Chief Operating Officer Michael J. Lowell.......... 1998 190,000 -- -- 16,667 Senior Vice President, 1997 139,000 50,000 -- 50,000 Development 1996 15,000 -- -- 111,111 Anne Benvenuto............. 1998 150,000 -- -- 16,667 Senior Vice President, 1997 13,000 5,000 15,000(3) 33,333 Marketing
- ------------------------- (1) Represents a one-time payment of $500,000, $14,000 car allowance and $8,000 legal expenses. See "Certain Transactions." (2) 500,000 shares of such securities underlying options are contingent on the performance of our market trading price after the closing of the offering. (3) Relocation expense reimbursement. (4) 200,000 shares of such securities underlying options are contingent on the performance of our market trading price after the closing of the offering. 52 54 OPTION GRANTS DURING 1998 The following table sets forth the five most highly compensated officers and certain information concerning stock options granted to them during 1998. We have never issued stock appreciation rights. Options were granted at an exercise price equal to the fair market value of the common stock at the date of grant. In determining the fair market value of the common stock, the board of directors considered various factors, including recent arms' length transactions, our financial condition and business prospects, operating results, the absence of a market for the common stock and the risks normally associated with investments in companies engaged in similar businesses. The term of each option granted is generally ten years from the date of grant. Options may terminate before their expiration dates, if the optionee's status as an employee or a consultant is terminated or upon the optionee's death or disability. We have not included disclosure on Mr. Ellis as he resigned as our Chief Executive Officer in June 1998 and did not receive any option grants in 1998.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE ---------------------------------------------------------- OF ASSUMED ANNUAL RATES NUMBER OF PERCENT OF OF STOCK PRICE SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE TERM(3) OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------- NAME GRANTED(#)(1) 1998(2) ($/SHARE) DATE(4) 5%($) 10%($) ---- ------------- -------------- ------------ ---------- ----------- ------------ Mark W. Lorimer...... 200,000 12.3% $13.20 12/17/08 $1,660,282 $ 4,207,480 500,000 30.7% 13.20 12/17/08 4,150,705 10,518,700 50,000 3.1% 13.20 06/21/08 415,070 1,051,870 Robert S. Grimes..... 125,000 7.7% 13.20 12/17/08 1,037,676 2,629,675 Ann M. Delligatta.... 100,000 6.1% 13.20 12/17/08 830,141 2,103,740 200,000 12.3% 13.20 12/17/08 1,660,282 4,207,480 16,667 1.0% 13.20 06/21/08 138,360 350,630 Anne Benvenuto....... 16,667 1.0% 13.20 06/21/08 138,360 350,630 Michael J. Lowell.... 16,667 1.0% 13.20 06/21/08 138,360 350,630
- ------------------------- (1) Represents options granted under our Amended and Restated 1996 Stock Incentive Plan and the 1998 Stock Option Plan. (2) Based on an aggregate 1,630,340 shares of our common stock subject to options granted to employees during fiscal 1998. (3) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future common stock prices. 53 55 AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES The following table sets forth for each of the five most highly compensated officers certain information concerning options exercised during fiscal 1998 and the number of shares subject to both exercisable and unexercisable stock options as of December 31, 1998. The values for "in-the-money" options are calculated by determining the difference between the fair market value of the securities underlying the options as of December 31, 1998 ($13.20 per share as determined by the board of directors) and the exercise price of the officer's options. In determining the fair market value of the common stock, the board of directors considered various factors, including recent arms' length transactions, our financial condition and business prospects, its operating results, the absence of a market for the common stock and the risks normally associated with investments in companies engaged in similar businesses. Autobytel.com has never issued stock appreciation rights. We have not included disclosure on Mr. Ellis as he resigned as our Chief Executive Officer in June 1998 and holds no options.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN- NUMBER OF OPTIONS AT THE-MONEY OPTIONS AT SHARES DECEMBER 31, 1998 DECEMBER 31, 1998($) ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- Mark W. Lorimer........ -- $ -- 209,999 973,334 $1,609,491 $1,290,506 Michael J. Lowell...... -- -- 104,861 72,917 725,006 241,660 Robert S. Grimes....... -- -- 245,834 162,500 2,060,004 -- Ann M. Delligatta...... -- -- 29,165 370,836 -- -- Anne Benvenuto......... -- -- 8,333 41,667 -- --
STOCK PLANS Since our inception the board of directors has granted stock options in order to attract, retain and motivate employees. Our board of directors considers many factors in granting stock options. For example, among other factors, our board of directors considers competitive market conditions for employees and the risk associated with working for a development stage Internet company. 1996 Stock Option Plan. Autobytel.com's 1996 Stock Option Plan was approved by the board of directors on May 18, 1996 and the stockholders on May 31, 1996. The 1996 Option Plan was terminated by a resolution of the board of directors on October 23, 1996, at which time over 800,000 options had been issued. The 1996 Option Plan provided for the granting to employees and directors of stock options intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for the grant to employees, consultants and directors of nonstatutory stock options. The Company reserved 1,194,444 shares of common stock for issuance under the 1996 Option Plan. Under the 1996 Option Plan, the exercise price of any incentive stock options granted under the 1996 Option Plan were not less than the fair market value of the common stock on the date of grant, and the exercise price of any non-statutory stock option granted under the 1996 Option Plan were not less than 85% of the fair market value of the common stock at the date of the grant. The term of all options granted under the 1996 Option Plan did not exceed 10 years. The administrator of the options granted under the 1996 Option Plan is the board of directors or a committee of the board of directors. Any options granted under the 1996 Option Plan are exercisable at such times as determined by the administrator, but in no case at a rate 54 56 of less than 20% per year over five years from the grant date. A majority of the outstanding options vest and became exercisable as to one third of the grant on October 31, 1996, and as to an additional one third of the grant at each successive October 31. Options granted under the 1996 Option Plan generally must be exercised within 30 days following termination of the optionee's status as an employee, directors or consultant of Autobytel.com, or within 12 months following such optionee's termination by death or disability. Any optionee holding options granted under the 1996 Option Plan cannot sell or transfer any shares of common stock during the 180 day period following the effective date of the registration statement relating to an initial public offering of securities filed pursuant to the Securities Act. 1996 Stock Incentive Plan. The Incentive Plan was approved by the board of directors on October 23, 1996, amended and restated by the board of directors on November 24, 1996 and approved by the stockholders on January 16, 1997. The Company's 1996 Stock Incentive Plan provides for the granting to employees and directors of stock options intended to qualify as incentive stock options within the meaning of Section 422 of the Code, and for the granting to employees, directors and consultants of nonstatutory stock options and stock purchase rights. As approved by the stockholders, Autobytel.com reserved 833,333 shares of common stock for issuance under the Incentive Plan. Options with respect to all of the common stock reserved for issuance have been issued and are either incentive stock options or nonstatutory stock options. Options granted under the Incentive Plan are not generally transferable by the optionee, and each option is exercisable during the lifetime of the optionee only by such optionee. Options granted under the Incentive Plan must generally be exercised within three months of the end of the optionee's status as an employee or consultant of Autobytel.com, or within twelve months after such optionee's termination by death or disability, but in no event later than the expiration of the option's ten year term. The exercise price of nonstatutory stock options granted under the Incentive Plan was determined by the board of directors, and in all cases, was the fair market value of the common stock on the date of grant. The term of all options granted under the Incentive Plan did not exceed ten years. Stock options granted under the Incentive Plan vest according to vesting schedules determined by the administrator. The Incentive Plan provides that in the event of a merger of Autobytel.com with or into another corporation, a sale of substantially all of Autobytel.com's assets or a like transaction involving Autobytel.com, each option will be assumed or an equivalent option substituted by the successor corporation. If the outstanding options are not assumed or substituted as described in the preceding sentence, the committee of the board of directors shall provide for each optionee to have the right to exercise the option as to all of the optioned stock, including shares as to which it would not otherwise be exercisable. If the administrator makes an option exercisable in full in the event of a merger or sale of assets, the administrator will notify the optionee that the option will be fully exercisable for a period of 15 days from the date of such notice, and the option will terminate upon the expiration of such period. 1996 Employee Stock Purchase Plan. Autobytel.com's 1996 Employee Stock Purchase Plan was adopted by the board of directors on November 18, 1996 and approved by the stockholders on January 16, 1997. The maximum number of shares of common stock available for sale is 444,444. Currently the plan has not been implemented but will 55 57 be on consummation of our offering. The Purchase Plan, which is intended to qualify under Section 423 of the Code, permits eligible employees of Autobytel.com to purchase shares of common stock through payroll deductions of up to ten percent of their compensation for all purchase periods ending within any calendar year. Individuals who are eligible employees on the start day of any offering period may enter the Purchase Plan on that start date. Individuals who become eligible employees after the start date of the offering period may join the Purchase Plan on any subsequent quarterly entry date within that period. Employees are eligible to participate if they are customarily employed by Autobytel.com or any designated subsidiary for at least 20 hours per week and for more than five months in any calendar year. The price of common stock purchased under the Purchase Plan will be 85% of the lower of the fair market value of the common stock on the first or last day of each six month purchase period. Employees may end their participation in the Purchase Plan at any time during an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with Autobytel.com. Rights granted under the Purchase Plan are not transferable by a participant other than by will, the laws of descent and distribution, or as otherwise provided under the plan. The Purchase Plan will be administered by the board of directors or by a committee appointed by the board of directors. The board of directors may amend or modify the Purchase Plan at any time. The Purchase Plan will terminate 10 years from the date of its adoption. 1998 Stock Option Plan. Our 1998 Stock Option Plan was adopted by the board of directors in December 1998. The Plan provides that an aggregate of 1,500,000 shares of our common stock is available to be granted subject to options to key employees of Autobytel.com and its parent or subsidiary corporations, if any. If any stock option expires or terminates for any reason without having been exercised in full, new stock options may be granted covering the shares of our common stock originally set aside for the unexercised portion of such expired or terminated stock option. Under the 1998 Option Plan, eligible key employees of Autobytel.com may receive incentive stock options within the meaning of Section 422 of the Code or nonstatutory stock options. No eligible employee shall receive stock options with respect to more than 700,000 shares of our common stock during any one calendar year. Incentive stock options granted under the 1998 Option Plan must have an exercise price that is no less than the fair market value of our common stock as of the time the option is granted and generally may not be exercised more than ten years after the date of grant. With respect to any optionee who beneficially owns more than 10% of the total combined voting power of all classes of outstanding shares of capital stock of Autobytel.com, any incentive stock option must have an exercise price that is no less than 110% of the fair market value of our common stock as of the time the option is granted and may not be exercised more than five years after the date of grant. To the extent that the aggregate fair market value of stock exercisable by an optionee for the first time in any one calendar year under the 1998 Option Plan and all other stock plans of Autobytel.com exceeds $100,000, options for such shares shall not be considered incentive stock options but instead shall be considered nonstatutory stock options. Nonstatutory stock options granted under the 1998 Option Plan must have an exercise price that is no less than 85% of the fair market value of our common stock as of the time the option is granted and may not be exercised more than 10 years after the date they are 56 58 granted. Under the 1998 Option Plan, certain nonstatutory stock options relating to vest over a time period determined by the administrator, however, the vesting could accelerate based on the performance of our common stock. All other stock options granted under the 1998 Option Plan vest according to time-based vesting schedules determined by the administrator; provided, that an optionee who is not an officer, director or consultant shall have the right to exercise at least 20% of the options granted per year over 5 years from the date of grant. Options granted under the 1998 Option Plan are nontransferable, other than by will or the laws of descent and distribution. The 1998 Option Plan provides that, unless otherwise provided in the stock option agreement, upon any merger, consolidation, or sale or transfer of all or any part of our business or assets, all rights of the optionee with respect to the unexercised portion of any option shall become immediately vested and may be exercised immediately, except to the extent that any agreement or undertaking of any party to any such merger, consolidation, or sale or transfer of assets, makes specific provisions for the assumption of the obligations of Autobytel.com with respect to the 1998 Option Plan. In addition, unless otherwise provided in the stock option agreement for any given option, upon any liquidation or dissolution of Autobytel.com, all rights of the optionee with respect to the unexercised portion of any option will terminate and all options will be canceled at the time of any such liquidation or dissolution, except to the extent that any plan pursuant to which such liquidation or dissolution is effected, makes specific provisions with respect to the 1998 Option Plan. The holder of any option granted under the 1998 Option Plan has the right immediately prior to the effective date of such merger, consolidation, sale or transfer of assets, liquidation or dissolution to exercise such option without regard to any vesting provision of such option. In no event may any incentive stock options be exercised later than the date preceding the tenth anniversary date of the grant thereof. The 1998 Option Plan will be administered by the board of directors or by a committee of the board of directors acting as the administrator. The administrator shall select the eligible key employees who are to be granted options, determine the number of shares to be subject to options to be granted to each optionee and designate such options as incentive stock options or nonstatutory stock options. The board of directors may at any time amend or modify the 1998 Option Plan, except that the board of directors may not, without approval of the stockholders of Autobytel.com, (1) increase the number of shares issued under the 1998 Option Plan, (2) modify the requirements as to eligibility for participation in the 1998 Option Plan or (3) change the option price provisions of the 1998 Option Plan so as to have a material adverse effect on Autobytel.com other than to conform with any applicable provisions of the Code or regulations or rulings thereunder. Unless terminated earlier, the 1998 Option Plan terminates ten years from the date it is adopted by the board of directors. 1999 Stock Option Plan. Our 1999 Stock Option Plan was adopted by the board of directors on January 14, 1999. The plan provides that an aggregate of 1,800,000 shares of our common stock are available to be granted subject to options to employees of Autobytel.com; provided that after March 31, 1999, not more than 1,000,000 options may be granted under the plan. The 1999 Option Plan provides that, unless otherwise provided in the stock option agreement, upon any merger, consolidation, or sale or transfer of all or any part of our business or assets, all rights of the optionee with respect to the unexercised portion of any option shall become immediately vested and may be exercised immediately, except to the extent that any agreement or undertaking of any party to any such merger, consolidation, or sale or transfer of assets, makes specific provisions for the assumption of the obligations of Autobytel.com with respect to the 1999 Option Plan. 57 59 Non-employee directors are entitled to participate in our 1999 Stock Option Plan. The 1999 Stock Option Plan provides for an automatic grant of a first option to purchase 20,000 shares of common stock to each non-employee director on the date on which the person first becomes a non-employee director; provided, that if any person serving as a non-employee director before January 14, 1999 received less than 20,000 shares on the date such person became a member of the board of directors, such person will be granted an option to purchase a number of shares equal to the difference between 20,000 shares and the shares actually granted. After the first option is granted to the non-employee director, he or she will automatically be granted a subsequent option to purchase 5,000 shares on November 1 of each subsequent year provided he or she is then a non-employee director and, provided further, that on such date he or she has served on the Board for at least six months. First options and each subsequent option will have a term of ten years. The shares subject to the first option and each subsequent option vest in their entirety and becomes exercisable on the first anniversary of the grant date, provided that the optionee continues to serve as a director on such dates. The exercise price of shares subject to the first option and each subsequent option shall be 100% of the fair market value per share of the common stock on the date of the grant of the option. The 1999 Stock Option Plan is identical in all other material respects to the 1998 Stock Option Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No interlocking relationship exists between the board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. The compensation committee of the board of directors currently consists of Mr. Fuchs, Mr. Coats and Mr. Orton. EMPLOYMENT AGREEMENTS On July 1, 1998, we entered into a three year employment agreement with Mr. Mark W. Lorimer, our President and Chief Executive Officer. Under this agreement, Mr. Lorimer is entitled to a base salary of $325,000, a bonus in such amounts and based on such criteria as may be established by the board of directors from time to time, 200,000 options which vest over two years, 500,000 performance options which vest over seven years unless accelerated upon the earlier accomplishment of stock price goals, and all ordinary and customary perquisites such as any medical, dental welfare plans, insurance coverages and any death benefit and disability benefit plans afforded to executive employees of Autobytel.com. If Mr. Lorimer's employment is terminated without cause or if Mr. Lorimer terminates his employment with good reason, Mr. Lorimer is entitled to a lump sum payment equal to the aggregate annual base salary, which annual base salary shall be the highest annual base salary in effect during the term of his employment, that would have been received by Mr. Lorimer if he had remained employed by Autobytel.com for the greater of (1) the remaining balance of the three year term or (2) two years. In the event of a change of control of Autobytel.com prior to January 1, 2000, and while Mr. Lorimer remains employed by Autobytel.com, the term of the agrement shall automatically extend for a period of three years from the date of the change of control. In addition to the above, in the event Lorimer's employment is terminated during the six month period prior to (or the first thirty-six months following) a change of control by Mr. Lorimer for good reason or by Autobytel.com other than for cause, disability or death, Mr. Lorimer is entitled to a lump sum payment equal to twice the highest bonus paid to 58 60 Mr. Lorimer in the last three fiscal years plus the amount of the cost of all benefits for the greater of the remaining balance of the term or two years. In the event of a change of control while Mr. Lorimer is employed by Autobytel.com or if Lorimer's employment is terminated by Autobytel.com without cause or by Mr. Lorimer for good reason during the six month period prior to a change of control, unvested performance-based options shall become vested and exercisable to the extent performance targets are met. In the event of the death or disability of Mr. Lorimer during the term of this employment agreement, Autobytel.com shall provide Mr. Lorimer or his successors, heirs, designees or assigns, with continued payment of Mr. Lorimer's then current base salary and all benefits for a period of two years. On December 17, 1998, Autobytel.com entered into a three year employment agreement with Ms. Ann Marie Delligatta, our Executive Vice President and Chief Operating Officer. Under this agreement, Ms. Delligatta is entitled to a base salary of $225,000, a bonus in such amounts and based on such criteria as may be established by the board of directors from time to time, 100,000 options which vest fully by June 2000, 200,000 performance options which vest over seven years unless accelerated upon the earlier accomplishment of stock price goals, and all ordinary and customary perquisites such as any medical, dental welfare plans, insurance coverages and any death benefit and disability benefit plans afforded to executive employees of Autobytel.com. If Ms. Delligatta's employment is terminated without cause or if Ms. Delligatta terminates her employment for good reason, Ms. Delligatta is entitled to a lump sum payment equal to the base salary that would have been received by Ms. Delligatta if she had remained employed by Autobytel.com for the remaining balance of the three year term. Ms. Delligatta's employment with Autobytel.com shall terminate automatically in the event of death or upon 30 days' written notice of termination by Autobytel.com in the event of a disability. On March 4, 1999, we entered into an employment and severance agreement with Mr. Michael J. Lowell, our Senior Vice President, Development. Under this agreement, Mr. Lowell is entitled to a base salary of $140,000 per year and to all ordinary and customary perquisites such as any medical, dental welfare plans, insurance coverages and any death benefit and disability benefit plans afforded to executive employees of Autobytel.com. If Mr. Lowell's employment is terminated without cause, he is entitled to a lump sum severance payment in varying amounts depending on the date of termination. The maximum severance payment is $232,501, payable if the effective date of termination occurs during March 1999, and the minimum severance payment is $90,000, payable if the effective date of termination occurs after January 2000. INDEMNIFICATION AND LIMITATION OF DIRECTOR AND OFFICER LIABILITY We have entered into agreements to indemnify our directors and officers, in addition to the indemnification provided for in our bylaws. These agreements, among other things, indemnify our directors and officers for expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of Autobytel.com, arising out of such person's services as a director or officer of us, any subsidiary of us or any other company or enterprise to which the person provides services at our request. Notwithstanding the foregoing, our directors and officers shall not be entitled to indemnity pursuant to these agreements if a reviewing party appointed by the board of directors determines that such person is not entitled to be indemnified thereunder under applicable law. In addition, our directors and officers may 59 61 not be indemnified for expenses reasonably incurred, in connection with any claim related to the fact that such person was a director or officer of Autobytel.com: - if the expenses result from acts, omissions or transactions for which such person is prohibited from receiving indemnification; - with respect to claims initiated or brought voluntarily by the indemnitee and not by way of defense, counterclaim or cross claim; or - with respect to any claim instituted by the indemnitee, on behalf of himself or us or by us to enforce or interpret the indemnity agreement if a court has jurisdiction over such matter determines that the defenses or assertions made by the indemnitee were made in bad faith or was frivolous. We believe that these agreements are necessary to attract and retain qualified directors and officers. To the extent indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us as discussed above, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 60 62 FINANCINGS AND RELATED PARTY TRANSACTIONS Series A Preferred Stock On August 23, 1996, in a private placement transaction, we issued 1,500,000 shares of series A preferred stock at $10.00 per share convertible into common stock at the conversion price per share of $9.00. The number of shares of common stock into which each share of series A preferred stock will convert is 1.11 shares. The holders of such series A preferred stock are entitled to certain registration rights with respect to the shares of common stock issued or issuable upon conversion thereof. See "Description of Capital Stock--Registration Rights." All shares of series A preferred stock will automatically convert into shares of common stock upon the closing of the offering. We have never declared or paid dividends on the series A preferred stock. From July 9, 1996 through August 13, 1996, Mr. Fuchs made loans to us in the aggregate principal amount of $500,000. These loans, along with accrued interest, converted into series A preferred stock on August 23, 1996 at $10.00 per share. In September 1996, Mr. Fuchs was appointed to our board of directors. The holders of series A preferred stock have the right to elect two members of the board of directors. Because General Electric Capital Corporation holds more than a majority of the shares of series A preferred stock it has the right to designate on behalf of all holders of series A preferred stock such directors. To date, General Capital Electric Corporation has designated Mr. Fuchs and Mr. Coats to the board of directors. Series B Preferred Stock On January 30, 1997, in a private placement transaction we issued 967,915 shares of series B preferred stock at $9.35 per share convertible into common stock at the conversion price per share of $10.37. The number of shares of common stock into which each share of series B preferred stock will convert is 0.90 shares. The holders of such series B preferred stock are entitled to certain registration rights with respect to the shares of common stock issued or issuable upon conversion thereof. See "Description of Capital Stock-- Registration Rights." All shares of series B preferred stock will automatically convert into shares of common stock upon the closing of the offering. We have never declared or paid dividends on the series B preferred stock. Series C Preferred Stock On October 21, 1997, April 30, 1998, May 7, 1998, October 30, 1998, November 10, 1998, December 16, 1998, December 21, 1998 and December 24, 1998, in private placement transactions, we issued a total of 4,968,738 shares of series C preferred stock at $8.80 per share convertible into common stock at the conversion price per share of $13.20. The number of shares of common stock into which each share of series C preferred stock will convert is 0.67 shares. The holders of such series C preferred stock are entitled to certain registration rights with respect to the shares of common stock issued or issuable upon conversion thereof. See "Description of Capital Stock--Registration Rights". All shares of series C preferred stock will automatically convert into shares of common stock upon the closing of the offering. National Broadcasting Company acquired its shares by providing national spot advertising to Autobytel.com. We have never declared or paid dividends on the series C preferred stock. 61 63 The following chart lists the holders of Autobytel.com's preferred stock and the number and class of shares held by such holders as of March 1, 1999.
SERIES A SERIES B SERIES C NAME OF STOCKHOLDER PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK ------------------- --------------- --------------- --------------- General Electric Capital Corporation.......................... 800,000 534,760 681,819 National Union Fire Insurance Company of Pittsburgh, PA, an affiliate of AIG.................................. 400,000 267,380 227,273 ContiTrade Services L.L.C............ 200,000 133,690 Michael Fuchs........................ 100,000 32,085 Tozer Kemsley and Millbourn Automotive, Ltd., a unit of Inchcape Motors............................... 568,182 Bilia AB............................. 568,182 National Broadcasting Company, Inc., an affiliate of General Electric Capital Corporation.................. 121,009 Invision AG.......................... 568,182 Aureus Private Equity AG............. 1,097,727 MediaOne Interactive Services, Inc.................................. 1,136,364
Other Transactions From time to time, Autobytel.com has advanced funds to Peter R. Ellis, the former Chairman of the board of directors and Chief Executive Officer of Autobytel.com. As of December 31, 1998, Mr. Ellis was indebted to us in the amount of $250,000 plus accrued interest at the rate of 8% per year compounded quarterly. The principal amount of the loan is due and payable on or before March 1, 2003. The Company has received a pledge of 100,657 of Mr. Ellis' shares of common stock to secure this loan. Autobytel.com and John M. Markovich, our former Senior Vice President and Chief Financial Officer, are parties to a severance and general release agreement dated January 30, 1998. Pursuant to the terms of the severance agreement, in connection with his resignation from Autobytel.com, we paid to Mr. Markovich a severance payment of $75,000, extended Mr. Markovich's health coverage through July 30, 1998, paid certain outplacement expenses of $10,000 and granted Mr. Markovich a warrant to purchase 33,333 shares of common stock at $11.25 per share. The warrant granted to Mr. Markovich expires on January 30, 2003 unless exercised prior thereto. Autobytel.com and Mr. Ellis, our former Chief Executive Officer and Chairman of the board of directors are parties to a two year advisory agreement dated as of August 20, 1998. Under the advisory agreement, Mr. Ellis received $500,000 on the date of execution and commencing on the thirteenth month anniversary of this agreement, Mr. Ellis is entitled to receive $5,000 per month. Mr. Ellis is entitled to participate in all employee health plans and receives a car allowance of $1,000 per month until April 30, 1999. The advisory agreement may be terminated by us for cause or upon 30 days prior written notice without cause. In the event the advisory agreement is terminated without cause by Autobytel.com or due to his death or disability, Mr. Ellis will still be entitled to receive his 62 64 base salary and health benefits through the remainder of the term of the of the agreement. Mr. Ellis has the right to terminate the advisory agreement on 90 days prior written notice to Autobytel.com. A majority of disinterested directors approved the advisory agreement and such other transaction between autobytel.com and Mr. Ellis. In addition, on January 11, 1999, in consideration of us waiving our right of first refusal permitting the sale of $1.4 million of our common stock to certain "accredited investors" as such term is defined under Rule 501 of the Securities Act, Mr. Ellis transferred to us the voting power of 593,175 shares of common stock of Autobytel.com owned by Mr. Ellis for a period that is the earlier of five years from the date thereof or until such time as Mr. Ellis sells the such shares to a person not affiliated with Mr. Ellis. Mr. Ellis sold these shares at $11.88 per share. Pursuant to a marketing and application processing agreement dated February 1, 1997, among GE Capital, Auto-By-Tel Acceptance Corporation and Autobytel.com, Auto-By-Tel Acceptance Corporation and Autobytel.com agreed to refer customers seeking vehicle financing with favorable credit ratings to GE Capital. In return, GE Capital agreed to pay Auto-By-Tel Acceptance Corporation a marketing fee of $100.00 for each financing consummated by GE Capital under this agreement. GE Capital is an affiliate of General Electric Capital Corporation, which beneficially owns 1,831,903 shares of common stock. As of December 31, 1998, Auto-By-Tel Acceptance Corporation had referred customers to GE Capital to whom GE Capital extended financing in an aggregate amount of approximately $307,000 and received approximately $1,200 in marketing fees since the inception of this relationship. In addition, General Electric Capital Corporation is an affiliate of PaineWebber Incorporated, one of the underwriters taking part in this offering. As a result, BT Alex. Brown Incorporated will act as a qualified independent underwriter to establish the price of the shares offered by this prospectus. Auto-By-Tel Acceptance Corporation, member companies of the American International Group, and Autobytel.com entered into a marketing agreement dated July 22, 1996. Pursuant to this agreement, Autobytel.com, through Auto-By-Tel Acceptance Corporation, authorizes and provides the American International Group access to its Internet server, for the publication, display, and exhibition of the American International Group's member companies' direct response automobile insurance sales materials to our users. In return, Auto-By-Tel Acceptance Corporation is paid compensation based on a flat fee on the basis of the premium collected. On November 10, 1998, we issued to Invision AG a warrant to purchase an aggregate of 150,000 shares of our common stock at an exercise price of $13.20 per share. This warrant is exercisable as of the date thereof and expires on November 10, 2001. On December 16, 1998 and December 23, 1998, we issued to Aureus Private Equity AG warrants to purchase 169,800 and 120,000 shares, respectively, of our common stock at an exercise price of $13.20 per share. Each of these warrants are exercisable as of the date thereof and expires on December 16, 2001 and December 23, 2001, respectively. In January 1999, Peter Titz, a manager of Invision AG and a director of Aureus Private Equity AG, was appointed to our board of directors. On December 21, 1998, we issued to MediaOne Interactive Services, Inc. a warrant to purchase an aggregate of 300,000 shares of common stock of Autobytel.com at an exercise 63 65 price of $13.20 per share. This warrant is exercisable as of the date thereof and expires on December 21, 2001. In February 1999, Richard Post, a director of MediaOne Interactive Services, Inc., was appointed to Autobytel.com's board of directors. All future transactions between Autobytel.com and interested directors and stockholders, if any, will be approved by the disinterested directors or stockholders, as appropriate in accordance with Delaware law and our certificate of incorporation and bylaws. 64 66 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information with respect to the beneficial ownership of the common stock as of December 31, 1998, as adjusted to reflect the conversion of the preferred stock into common stock concurrently with the offering and sale of common stock offered hereby for (1) each person or entity who is known by Autobytel.com to beneficially own five percent or more of the outstanding common stock, (2) each of our directors, (3) each of the five most highly compensated officers in 1998, (4) each stockholder who is selling shares of common stock in this offering, and (5) all directors and executive officers of Autobytel.com as a group. As of December 31, 1998, there were 14,358,745 shares of common stock outstanding. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of December 31, 1998 are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. The following table assumes no exercise of the underwriters' over-allotment option.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED PRIOR TO OFFERING NUMBER OF AFTER OFFERING ------------------- SHARES BEING ------------------- NUMBER PERCENT OFFERED NUMBER PERCENT --------- ------- ------------ --------- ------- Peter R. Ellis(1)................... 4,020,667 28.0% 500,000 3,520,667 19.7% c/o Autobytel.com 18872 MacArthur Boulevard Irvine, California 92612-1400 John C. Bedrosian(2)................ 3,569,445 24.9% 500,000 3,069,445 17.2% c/o Autobytel.com 18872 MacArthur Boulevard Irvine, California 92612-1400 General Electric Capital Corporation(3).................... 1,831,903 12.8% 1,831,903 10.3% 260 Long Ridge Road Stamford, Connecticut 06927 Peter Titz(4)....................... 1,550,406 10.5% 1,550,406 8.5% c/o Aureus Private Equity AG Zugerstrasse 76b CH-6340 Baar Switzerland MediaOne Interactive Services, Inc.(5)........................... 1,057,576 7.2% 1,057,576 5.8% 9000 E. Nichols Avenue Englewood, Colorado 80112 Aureus Private Equity AG(4)......... 1,021,618 7.0% 1,021,618 5.6% Zugerstrasse 76b CH-6340 Baar Switzerland National Union Fire Insurance Company of Pittsburgh, PA......... 837,157 5.8% 837,157 4.7% 200 Liberty Street New York, New York 10281 Robert S. Grimes(6)................. 803,472 5.5% 803,472 4.4% c/o R.S. Grimes & Co., Inc. 152 West 57th Street New York, NY 10019 Mark W. Lorimer(7).................. 214,165 1.5% 214,165 1.2% Michael J. Fuchs(8)................. 146,130 1.0% 146,130 *
65 67
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED PRIOR TO OFFERING NUMBER OF AFTER OFFERING ------------------- SHARES BEING ------------------- NUMBER PERCENT OFFERED NUMBER PERCENT --------- ------- ------------ --------- ------- Michael J. Lowell(9)................ 106,944 * 106,944 * Ann M. Delligatta(10)............... 32,637 * 32,637 * Anne Benvenuto(11).................. 9,721 * 9,721 * Mark N. Kaplan...................... 1,000 * 1,000 * Kenneth J. Orton.................... -- * -- * Hoshi Printer....................... -- * -- * All directors and executive officers as a group (13 persons)(12)....... 9,774,621 62.2% 9,274,621 48.2%
- --------------- * Less than 1% (1) Includes 46,110 shares held by certain trusts established for family members of Mr. Ellis as to which Mr. Ellis' spouse maintains sole voting power. Includes 118,635 shares Mr. Ellis sold on January 11, 1999 and 593,175 shares as to which Mr. Ellis granted voting power to Autobytel.com pursuant to a voting proxy dated January 11, 1999. See "Certain Transactions." If the underwriters' over-allotment option were exercised in full, the number of shares beneficially owned by Peter Ellis after the offering would be 3,183,167 and the percentage would be 17.8%. (2) All shares are held in the John C. Bedrosian and Judith D. Bedrosian Revocable Trust in which Mr. Bedrosian maintains shared voting powers. If the underwriters' over-allotment option were exercised in full, the number of shares beneficially owned by Mr. Bedrosian after the offering would be 2,731,945 and the percentage would be 15.3%. (3) Mr. Jeffrey Coats is a managing director of GE Equity Capital Group, Inc., an affiliate of General Electric Capital Corporation, and is a director of Autobytel.com. Includes 888,889 shares held by General Electric Capital Corporation (GE) following the conversion of the series A preferred stock, 482,393 shares held by GE following the conversion of the series B preferred stock, and 454,546 shares held by GE following the conversion of the series C preferred stock. Also includes 6,075 shares issuable upon exercise of options exercisable within 60 days of December 31, 1998 which were granted to Mr. Coats, and subsequently assigned to General Electric Capital Corporation. Mr. Coats disclaims beneficial ownership of such 6,075 shares. (4) Mr. Peter Titz is a director of Aureus Private Equity AG, a manager of Invision AG, and a director of Autobytel.com. Includes 731,818 shares following the conversion of the series C preferred stock and 289,800 shares issuable upon exercise of warrants held by Aureus Private Equity AG. Also includes 378,788 shares following the conversion of the series C preferred stock and 150,000 shares issuable upon exercise of warrants held by Invision AG. (5) Mr. Richard Post is a director of MediaOne Interactive Services, Inc. and a director of Autobytel.com. Includes 757,576 shares held by MediaOne Interactive Services, Inc. following the conversion of the series C preferred stock and 300,000 shares issuable upon exercise of warrants. MediaOne Interactive Services, Inc., is an indirect, wholly owned subsidiary of MediaOne Group, Inc. As a result, MediaOne Group, Inc., may be deemed to indirectly, beneficially own the shares reported as 66 68 being directly beneficially owned by MediaOne Interactive Services, Inc. MediaOne Group, Inc., disclaims such beneficial ownership. (6) Includes an aggregate of 5,554 shares held in irrevocable trusts as to which Mr. Grimes' spouse maintains sole voting power. Includes 247,917 shares issuable upon exercise of options exercisable within 60 days of December 31, 1998. (7) Represents 214,165 shares issuable upon exercise of options exercisable within 60 days of December 31, 1998. (8) Includes 6,076 shares issuable upon exercise of options exercisable within 60 days of December 31, 1998 and 111,111 shares held by Mr. Fuchs following the conversion of the series A preferred stock and 28,943 shares following the conversion of the series B preferred stock. (9) Represents 106,944 shares issuable upon exercise of options exercisable within 60 days of December 31, 1998. (10) Represents 32,637 shares issuable upon exercise of options exercisable within 60 days of December 31, 1998. (11) Represents 9,721 shares issuable upon exercise of options exercisable within 60 days of December 31, 1998. (12) Includes 623,535 shares issuable upon exercise of options and 739,800 shares issuable upon exercise of warrants exercisable within 60 days of December 31, 1998. Peter Ellis resigned as Chief Executive Officer of Autobytel.com in June 1998. If Mr. Ellis' shares are not included in the number of shares beneficially owned by all directors and executive officers as a group, the number of shares owned by the directors and executive officers prior to the offering is 5,753,954 shares or 36.6% of the shares of common stock outstanding, and after the offering would be 5,753,954 shares or 29.9% of the shares of common stock outstanding. DESCRIPTION OF CAPITAL STOCK Upon the closing of the offering, the outstanding shares of common stock will consist of 17,858,745 shares, $0.001 par value. As of December 31, 1998, there were 8,506,455 shares of common stock outstanding held of record by 70 stockholders. COMMON STOCK Autobytel.com is authorized to issue a total of 50,000,000 shares of common stock. Holders of common stock are entitled to one vote per share in all matters to be voted on by the stockholders. Subject to the preferences of the preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available for payment. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of Autobytel.com, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of shares of preferred stock then outstanding, if any. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be issued upon completion of the offering will be fully paid and non-assessable. 67 69 PREFERRED STOCK Pursuant to our amended and restated certificate of incorporation, the board of directors has the authority, without further action by the stockholders, to issue up to 11,445,187 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. The board of directors, without stockholder approval, can issue preferred stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of common stock. Preferred stock could thus be issued quickly with terms calculated to delay or prevent a change in control of Autobytel.com or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of the common stock, and may adversely affect the voting and other rights of the holders of common stock. Upon the closing of the offering, no shares of preferred stock will be outstanding and Autobytel.com has no plans to issue any of the preferred stock. See "Financings and Related Party Transactions." REGISTRATION RIGHTS Pursuant to the Amended and Restated Investors' Rights Agreement, dated October 21, 1997, among Autobytel.com and the holders of approximately 13,854,322 shares of common stock and securities convertible into common stock, the holders are entitled to certain rights as described below with respect to the registration of such registrable securities under the Act. If Autobytel.com proposes to register any of its securities under the Act, either for its own account or for the account of other holders exercising registration rights, the holders are entitled to notice of such registration and are entitled to include shares of registrable securities therein. Additionally, the holders are also entitled to demand registration rights pursuant to which they may require us to file a registration statement under the Act at our expense with respect to their shares of registrable securities, and Autobytel.com is required to use its best efforts to effect such registration. All of these registration rights are subject to conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration and the right of Autobytel.com not to effect a requested registration within one year of an initial public offering of our securities, such as the offering made hereby, or if such requested registration would have an anticipated aggregate offering to the public of less than $30 million. The holders have waived all such rights in connection with the offering. DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS Anti-Takeover Law Autobytel.com is subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a business combination with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner or unless the interested stockholder acquired at least 85% of the corporation's voting stock (excluding shares held by certain designated stockholders) in the transaction in which it became an interested stockholder. For purposes of Section 203, a "business combination" 68 70 includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within the previous three years did own, 15% or more of the corporation's voting stock. Limitation of Director and Officer Liability Our amended and restated certificate of incorporation and bylaws contain certain provisions relating to the limitation of liability and indemnification of directors and officers. Our amended and restated certificate of incorporation provides that our directors may not be held personally liable to us or our stockholders for a breach of fiduciary duty, except for liability: - for any breach of the director's duty of loyalty to us or our stockholders, - for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, - under Section 174 of the Delaware General Corporation Law, relating to prohibited dividends, distributions and repurchases or redemptions of stock, and - for any transaction from which the director derives an improper benefit. In addition, our amended and restated certificate of incorporation and bylaws provide that we will indemnify directors and officers to the fullest extent authorized by Delaware law. No Stockholder Action by Written Consent Our amended and restated certificate of incorporation provides that the stockholders can take action only at a duly called annual or special meeting of stockholders. Accordingly, stockholders of Autobytel.com will not be able to take action by written consent in lieu of a meeting. This provision may have the effect of deterring hostile takeovers or delaying changes in control or management of Autobytel.com. Staggered Board of Directors Our amended and restated certificate of incorporation provides that upon the closing of this offering, the terms of office of the board of directors will be divided into three classes, such that the terms of Class I, Class II and Class III directors shall expire at the annual meeting of stockholders to be held in 1999, 2000 and 2001, respectively. The number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors of the directors. This provision may have the effect of delaying or preventing changes in control or change in our management because less than a majority of the board of directors are up for election at each annual meeting. TRANSFER AGENT AND REGISTRAR U.S. Stock Transfer Corporation, Glendale, California, has been appointed as the transfer agent and registrar for the common stock. Its telephone number for such purposes is (818) 502-1404. 69 71 SHARES ELIGIBLE FOR FUTURE SALE Prior to the offering, there has been no market for the common stock. Future sales of substantial amounts of common stock in the public market could adversely affect market prices prevailing from time to time. Upon completion of the offering, Autobytel.com will have outstanding an aggregate of 17,858,745 shares of common stock, assuming no exercise of outstanding options or warrants. Of these shares, the 4,500,000 shares sold in the offering will be freely tradeable without restriction or further registration under the Securities Act, except that any shares purchased by "affiliates" of Autobytel.com, as that term is defined in Rule 144 of the Securities Act, may generally only be sold in compliance with the limitations of Rule 144 described below. SALES OF RESTRICTED SHARES The remaining 13,358,745 shares of common stock held by existing stockholders are "restricted securities" under Rule 144. The number of shares of common stock available for sale in the public market is limited by restrictions under the Securities Act and lock-up agreements under which the holders of such shares have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this prospectus (the "lock-up period") without the prior written consent of BT Alex. Brown Incorporated, and the selling shareholders have agreed to the same lock-up except that they have agreed to a 270-day lock-up. On the date of this prospectus, no shares other than the shares offered hereby will be eligible for sale. In addition, following the expiration of the lock-up period, none of the restricted shares will become available for sale in the public market until the expiration of their respective holding periods (approximately 11,287,358 of such shares will have been held for more than one year at the end of such 180-day period). 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 if the prior owner was an affiliate, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (1) one percent of the number of shares of common stock then outstanding; or (2) the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. One percent of the number of shares of common stock outstanding after the offering equals approximately 178,587 shares. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about Autobytel.com. Under Rule 144(k), a person who is not deemed to have been an affiliate of Autobytel.com at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except if the prior owner was an affiliate, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144; therefore, unless otherwise restricted, "144(k) shares" could be sold immediately upon the completion of this offering. Upon completion of the offering, the holders of 12,997,957 shares of common stock, or their transferees, will be entitled to certain rights with respect to the registration of such shares under the Act until such time as the holders of such common stock may sell such shares under the Rule 144 of the Securities Act. See "Description of Capital Stock -- Registration Rights." Registration of such shares under the Securities Act would result in 70 72 such shares becoming freely tradeable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of such registration. OPTIONS AND RESTRICTED STOCK We intend to file a registration statement under the Securities Act covering shares of common stock reserved for issuance under the 1999 Stock Option Plan, 1998 Stock Option Plan, 1996 Stock Incentive Plan, the 1996 Stock Option Plan and the 1996 Employee Stock Purchase Plan. Such registration statement is expected to be filed and become effective as soon as practicable after the effective date of the offering. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, unless such shares are subject to vesting restrictions with Autobytel.com or the lock-up agreements described above. A total of 3,723,433 shares have been reserved for issuance under such plans. As of March 1, 1999, 737,191 options have been granted under the 1999 Stock Option Plan, 1,125,000 options have been granted under the 1998 Stock Option Plan, no shares have been purchased under the 1996 Employee Stock Purchase Plan, options to purchase 833,333 shares of common stock have been granted under the 1996 Stock Incentive Plan, options to purchase 889,163 shares of common stock have been granted under the 1996 Stock Option Plan and no shares have been purchased under the 1996 Employee Stock Purchase Plan. See "Management -- Stock Plans." In addition, under Rule 701 of the Securities Act as currently in effect, any employee, consultant or advisor of Autobytel.com who is not an affiliate who purchased shares from us in connection with a compensatory stock or option plan or other written agreement is eligible to resell such shares 90 days after the effective date of this offering, subject to all provisions of Rule 144 except its minimum holding period. LOCK-UP AGREEMENTS All officers, directors, and certain other stockholders of Autobytel.com have agreed not to sell, offer, contract or grant any option to sell, make any short sale, pledge, transfer, establish an open "put equivalent position" within the meaning of the Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or otherwise dispose of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock for a period of 180 days after the date of this prospectus, without the prior written consent of BT Alex. Brown Incorporated, and the selling stockholders have agreed to the same lock-up period except for a period of 270 days after the date of this prospectus. See "Underwriting." In addition, under the terms of the 1999 Stock Option Plan, the 1996 Stock Option Plan and the Amended and Restated 1996 Incentive Plan, holders of options to purchase common stock are obligated not to sell or transfer any shares of Autobytel.com during such 180-day period if so requested by us or the underwriters. 71 73 CERTAIN UNITED STATES TAX CONSIDERATIONS FOR NON-U.S. HOLDERS GENERAL The following is a general discussion of the principal United States federal income and estate tax consequences of the ownership and disposition of common stock by a Non-United States Holder, as defined below. As used herein, the term "Non-U.S. Holder" is any person or entity that, for United States federal income tax purposes, is either a non-resident alien individual, a foreign corporation, a foreign partnership or a foreign trust in each case not subject to United States federal income tax on a net basis in respect of income or gain with respect to the common stock of the Company. This discussion does not address all aspects of United States federal income and estate taxes that may be relevant to a particular Non-U.S. Holder in light of the holder's particular circumstances, and is not intended to be applicable in all respects to all categories of Non-U.S. Holders, some of whom may be subject to special treatment under United States federal income tax laws and does not address United States state or local or foreign tax consequences. Furthermore, this discussion is based on provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations promulgated thereunder and administrative and judicial interpretations thereof, in effect on and as of the date hereof and all of which are subject to change, possibly with retroactive effect or different interpretations. The following summary is included herein for general information. ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF COMMON STOCK. An individual may be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. In determining whether an individual is present in the United States for at least 183 days, all of the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to United States federal income and estate tax in the same manner as United States citizens and residents. LIMITATION ON NET OPERATING LOSS CARRYFORWARDS We have approximately $37.1 million federal net operating loss carryforwards as of December 31, 1998 which may be available to reduce the amount of United States federal income taxes payable by Autobytel.com in the future. However, if Autobytel.com undergoes an "ownership change" within the meaning of Section 382 of the Code, an annual limitation will be imposed on Autobytel.com's use of its net operating loss carryforwards. If an "ownership change" occurs, Section 382 of the Code limits the amount of net operating losses that may be carried over from pre-ownership change years to offset Autobytel.com's taxable income in any post-ownership change year to an amount equal to (1) the value of Autobytel.com's capital stock (as adjusted) at the time of the ownership change multiplied by (2) the long-term bond rate for the month of the ownership change (the "Section 382 Limitation"). 72 74 Autobytel.com believes that it will undergo an ownership change for purposes of Section 382 of the Code. As a result, the use of Autobytel.com's pre-ownership change net operating loss carryforwards will be limited annually by Section 382 of the Code pursuant to the rules described above. Based on an estimated company value of $321 million, Autobytel.com will be limited to $15 million of losses per year based on a long-term tax exempt rate of 4.7% and a share price of $18. DIVIDENDS Autobytel.com does not anticipate paying cash dividends on its capital stock in the foreseeable future. See "Dividend Policy." In the event, however, that dividends are paid on shares of common stock, dividends paid to a Non-U.S. Holder of common stock generally will be subject to United States withholding tax at a 30% rate, (or such lower rate as may be provided by an applicable income tax treaty). Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefit under a relevant income tax treaty. Currently the applicable United States Treasury regulations presume, absent actual knowledge to the contrary, that dividends paid to an address in a foreign country are paid to a resident of such country for purposes of the 30% withholding tax discussed above. However, the final United States Treasury regulations provide that, in the case of dividends paid after December 31, 1999, Non-U.S. Holders generally will be subject to United States backup withholding tax at a 31% rate, if specified certification procedures and requirements (or, in the case of payments made outside the United States with respect to an offshore account, specific documentary evidence procedures) are not satisfied, directly or through an intermediary. The Final Regulations also provide special rules for dividend payments made to foreign intermediaries, United States or foreign wholly owned entities that are disregarded for United States federal income tax purposes and entities that are treated as fiscally transparent in the United States, the applicable income tax treaty jurisdiction, or both. In addition, recently enacted legislation, effective August 4, 1997, denies income tax treaty benefits to foreign partners receiving income derived through a partnership (or otherwise fiscally transparent entity) if the foreign partner does not certify as to its Non-U.S. Holder status and the partnership does not provide required information including a United States taxpayer identification number. Prospective investors should consult with their own tax advisers concerning the effect, if any, of these Final Regulations and the recent legislation on an investment in the common stock. A Non-U.S. Holder of common stock that is eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for a refund with the IRS. Dividends that are effectively connected with: a Non-U.S. Holder's (1) conduct of a trade or business, (2) permanent establishment or (3) fixed base in the United States ("United States trade or business income"), generally are subject to United States federal income tax on a net income basis at regular graduated rates, but are not subject to the 30% withholding tax if the Non-U.S. Holder files Form 4224 (or successor form) with the payor or, after December 31, 1999, such holder provides its United States taxpayer identification number to the payor. 73 75 Any United States trade or business income received by a Non-U.S. Holder that is a corporation also may be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. GAIN ON DISPOSITION OF COMMON STOCK A Non-U.S. Holder generally will not be subject to United States federal income or withholding tax in respect of gain recognized on a disposition of common stock unless: (1) 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) of the Non-U.S. Holder within the United States or of a partnership, trust or estate in which the Non-U.S. Holder is a partner or beneficiary within the United States, (2) the Non-U.S. Holder is an individual who holds the common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment), is present in the United States for 183 or more days in the taxable year of the disposition and meets other tax law requirements, (3) the Non-U.S. Holder is a United States expatriate subject to tax pursuant to the provisions of the United States tax law, or (4) Autobytel.com is or has been a "United States real property holding corporation" for federal income tax purposes at any time during the shorter of the five-year period preceding such disposition or the period that the Non-U.S. Holder holds the common stock. Generally, a corporation is a "United States real property holding corporation" if the fair market value of its "United States real property interests" equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. Autobytel.com believes that it is not, has not been and does not anticipate becoming a "United States real property holding corporation" for United States federal income tax purposes. However, even if Autobytel.com were to become a "United States real property holding corporation," any gain realized by a Non-U.S. Holder still would not be subject to United States federal income tax if the shares of Autobytel.com are "regularly traded" (within the meaning of the applicable regulations) on an established securities market (for example, New York Stock Exchange or NASDAQ Stock Market). Autobytel.com believes that its common stock is "regularly traded on an established securities market." If, however, Autobytel.com's common stock is not so treated, on a sale or disposition by a Non-U.S. Holder of the common stock the transferee of such stock will be required to withhold 10% of the proceeds unless Autobytel.com certifies that either it is not (and has not been) a United States real property holding company or another exemption from withholding applies. If a Non-U.S. Holder who is an individual is subject to tax under clauses (1) or (3) above, such individual generally will be taxed on the net gain derived from a sale of common stock under regular graduated United States federal income tax rates. If an individual Non-U.S. Holder is subject to tax under clause (2) above, such individual generally will be subject to a flat 30% tax on the gain derived from a sale, which may be offset by certain United States capital losses (notwithstanding the fact that such individual is not considered a resident alien of the United States). Thus, individual Non-United 74 76 States Holders who have spent (or expect to spend) more than a de minimis period of time in the United States in the taxable year in which they contemplate a sale of common stock are urged to consult their tax advisers prior to the sale concerning the United States federal income tax consequences of such sale. If a Non-U.S. Holder that is a foreign corporation is subject to tax under clause (1) above it generally will be taxed on its net gain under regular graduated United States federal income tax rates and, in addition, will be subject to the branch profit tax equal to 30% of its "effectively connected earnings and profits," within the meaning of the Code for the taxable year, as adjusted for certain items, unless it qualifies for a lower rate under an applicable tax treaty. FEDERAL ESTATE TAX Common stock owned or treated as owned by an individual who is neither a United States citizen nor a United States resident (as defined for United States federal estate tax purposes) at the time of death will be included in the individual's gross estate for United States federal estate tax purposes unless an applicable estate tax or other treaty provides otherwise and, therefore, may be subject to United States federal estate tax. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX Under United States Treasury regulations, Autobytel.com must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends. These information reporting requirements apply regardless of whether withholding is required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S. Holder is a resident under the provisions of an applicable income tax treaty or agreement. Currently, United States backup withholding (which generally is a withholding tax imposed at the rate of 31%) generally will not apply (1) to dividends paid to Non-U.S. Holders that are subject to the 30% withholding discussed above (or that are not so subject because a tax treaty applies that reduces such 30% withholding) or (2) before January 1, 2000, to dividends paid to a Non-U.S. Holder at an address outside of the United States unless the payor has actual knowledge that the payee is a United States Holder. Backup withholding and information reporting generally will apply to dividends paid to addresses inside the United States on shares of common stock to beneficial owners that are not "exempt recipients" and that fail to provide, in the manner required, identifying information. The Final Regulations do not generally significantly alter the foregoing substantive withholding and information reporting requirements but do alter the procedures for claiming the benefits of an income tax treaty with respect to, and the certification procedures relating to the receipt by intermediaries of, dividends paid after December 31, 1999. These regulations generally presume a Non-U.S. Holder is subject to backup withholding at the rate of 31% and information reporting unless Autobytel.com receives certification of such holder's Non-U.S. status. Depending on the circumstances, this certification will need to be provided (1) directly by the Non-United States Holder, (2) in the case of a Non-U.S. Holder that is treated as a partnership or other fiscally transparent entity, by the partners, shareholders or other beneficiaries of such entity, or (3) by qualified financial institutions or other qualified entities on behalf of the Non-U.S. Holder. 75 77 The payment of the proceeds of the disposition of common stock by a holder to or through the United States office of a broker or through a non-United States branch of a United States broker generally will be subject to information reporting and backup withholding at a rate of 31% unless the holder either certifies its status as a Non-United States Holder under penalties of perjury or otherwise establishes an exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder of common stock to or through a non-United States office of a non-United States broker will not be subject to backup withholding or information reporting unless the non-United States broker has a connection to the United States as specified in the tax law. In the case of the payment of proceeds from the disposition of common stock effected by a foreign office of a broker that is a United States person or a "United States related person", existing regulations require information reporting on the payment unless (1) the broker receives a statement from the owner, signed under penalty of perjury, certifying its non-United States status or the broker has documentary evidence in its files as to the Non-U.S. Holder's foreign status, and the broker has no actual knowledge to the contrary, and other United States federal tax law conditions are met or (2) the beneficial owner otherwise establishes an exemption. For this purpose, a "United States related person" is either (1) a "controlled foreign corporation" for United States federal income tax purposes; or (2) a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment (or for such part of the period that the broker has been in existence) is derived from activities that are effectively connected with the conduct of a United States trade or business. After December 31, 1999, the Final Regulations will impose information reporting and backup withholding on payments of the gross proceeds from the sales or redemptions of common stock that are effected through foreign offices of brokers having any of a broader class of specified connections with the United States. Such information reporting and backup withholding may be avoided, however, if the applicable IRS certification requirements are complied with. Prospective investors should consult with their own tax advisers regarding the Final Regulations and in particular with respect to whether the use of a particular broker would subject the investor to these rules. Any amounts withheld under the backup withholding rules from a payment to a Non-United States Holder will be refunded (or credited against the holder's United States federal income tax liability, if any) provided that the required information is furnished to the Internal Revenue Service. 76 78 UNDERWRITING Subject to the terms of an underwriting agreement, the underwriters named below, through their representatives, BT Alex. Brown Incorporated, Lehman Brothers Inc. and PaineWebber Incorporated, have severally agreed to purchase from Autobytel.com the following respective number of shares of common stock at the public offering price less the underwriting discount set forth on the cover page of this prospectus.
NUMBER OF UNDERWRITERS SHARES ------------ --------- BT Alex. Brown Incorporated................................. Lehman Brothers Inc......................................... PaineWebber Incorporated.................................... -------- Total............................................. 4,250,000 ========
The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent and that the underwriters will purchase all of the shares of common stock offered hereby if any of such shares are purchased. Autobytel.com and the selling stockholders have been advised by the representatives that the underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at such price less a concession not in excess of $ per share. The underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. After the initial public offering, the offering price and other selling terms may be changed by the representatives of the underwriters. Selling stockholders have granted the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to 675,000 additional shares of common stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. To the extent that the underwriters exercise such option, each of the underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of common stock to be purchased by it in the above table bears to 3,500,000, and the stockholders will be obligated, pursuant to the option to sell such shares to the underwriters. The underwriters may exercise such option only to cover over-allotments made in connection with the sale of the common stock offered hereby. If purchased, the underwriters will offer such additional shares on the same terms as those on which the 3,500,000 shares are being offered. Autobytel.com and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act. Each of the officers and directors and certain stockholders of Autobytel.com, holding in the aggregate 13,181,223 shares of common stock, have agreed not to offer, sell, contract to sell or otherwise dispose of (or enter into any transaction which is designed to, or could be expected to, result in the disposition of any portion of) any common stock for 77 79 a period of 180 days after the date of our public offering, without the prior written consent of BT Alex. Brown Incorporated, and the selling stockholders have agreed to a lock-up for a period of 270 days after the date of Autobytel.com's public offering. Such consent may be given at any time without public notice and may be given for certain stock holders and not others. We have entered into a similar agreement, except that we may issue, and grant options or warrants to purchase, shares of common stock or any securities convertible into, exercisable for or exchangeable for shares of common stock, pursuant to the exercise of outstanding options and warrants and our issuance of options and stock granted under the existing stock and stock purchase plans. The representatives have advised Autobytel.com that the underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the market price of the common stock. Specifically, the underwriters may over-allot shares of the common stock in connection with this offering, thereby creating a short position in the common stock for their own account. Additionally, to cover such over-allotments or to stabilize the market price of the common stock, the underwriters may bid for, and purchase, shares of the common stock in the open market. Finally, the representatives, on behalf of the underwriters, also may reclaim selling concessions allowed to an underwriter or dealer if the underwriting syndicate repurchases shares distributed by that underwriter or dealer. Any of these activities may maintain the market price of our common stock at a level above that which might otherwise prevail in the open market. The underwriters are not required to engage in these activities and, if commenced, may end any of these activities at any time. At our request, the underwriters have reserved for sale, at the initial public offering price, up to 450,000 shares for officers, employees, business associates, and other related persons of Autobytel.com. The number of shares of common stock available for sale to the general public will be reduced to the extent these people purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered hereby. In addition, we are reserving 250,000 shares to be offered at the public offering price to strategic international investors. We expect that these strategic investors will enter into agreements not to sell any of the shares purchased by them for a period of at least 180 days following the completion of this offering. These shares are not subject to the underwriting agreement and the underwriters will not receive any fees or commissions in connection with the sale of these shares. PaineWebber Incorporated is affiliated with General Electric Capital Corporation which is also an affiliate of GE Capital. The Rules of Conduct of the National Association of Securities Dealers, Inc. would not permit PaineWebber Incorporated to participate in the offering unless the offering is made in accordance with Section 2720 of the Rules of Conduct. In particular, the public offering price of the common stock can be no higher than that recommended by a "qualified independent underwriter" meeting the standards of the Rules of Conduct. In accordance with this requirement, BT Alex. Brown Incorporated will serve in such capacity and will recommend the public offering price in compliance with the requirements of Rule 2720. In its role as qualified independent underwriter, BT Alex. Brown Incorporated, has participated in due diligence investigations and reviewed 78 80 and participated in the preparation of this prospectus and the registration statement of which this prospectus forms a part. PRICING OF THIS OFFERING Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for our common stock will be determined by negotiation among representatives of the underwriters and Autobytel.com. Among the factors to be considered in determining the public offering price will be: - prevailing market conditions; - our results of operations in recent periods; - our present stage of development; - the market capitalizations and stages of development of other companies which we and the representatives of the underwriters believe to be comparable to us; and - estimates of our business potential. LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for Autobytel.com by Paul, Hastings, Janofsky & Walker LLP, New York, New York and for the underwriters by Latham & Watkins, Menlo Park, California. EXPERTS The consolidated financial statements as of December 31, 1997 and 1998 and for the years ended December 31, 1996, 1997 and 1998 appearing in this prospectus and the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report with respect thereto and are included herein in reliance upon the authority of said firm as experts in giving said report. ADDITIONAL INFORMATION A registration statement on Form S-1, including amendments thereto, relating to the common stock offered hereby has been filed by Autobytel.com with the Securities and Exchange Commission, Washington, D.C. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference. For further information with respect to Autobytel.com and the common stock offered hereby, reference is made to such registration statement, exhibits and schedules. A copy of the registration statement may be inspected by anyone without charge at the SEC's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549, the New York Regional Office located at 7 World Trade Center, 13th Floor, New York, NY 10048, and the Chicago Regional Office located at Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661, and copies of all or any part thereof, including any exhibit thereto, 79 81 may be obtained from the SEC upon the payment of certain fees prescribed by the SEC. The public may obtain information on the operation of the Public Reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov. 80 82 AUTOBYTEL.COM INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Stockholders' Equity (Deficit)... F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 83 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of autobytel.com inc.: We have audited the accompanying consolidated balance sheets of autobytel.com inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended December 31, 1996, 1997 and 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of autobytel.com inc. and subsidiaries as of December 31, 1997 and 1998, and the results of their operations and their cash flows for the years ended December 31, 1996, 1997 and 1998 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Los Angeles, California February 3, 1999 F-2 84 AUTOBYTEL.COM INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) ASSETS
DECEMBER 31, -------------------- 1997 1998 -------- -------- Current assets: Cash and cash equivalents, includes restricted amounts of $248 and $248, respectively............................. $ 15,813 $ 27,984 Accounts receivable, net of allowance for doubtful accounts of $337 and $402, respectively................. 1,493 2,315 Prepaid expenses and other current assets................. 795 1,353 -------- -------- Total current assets............................... 18,101 31,652 Property and equipment, net................................. 2,317 2,208 Other assets................................................ 95 347 -------- -------- Total assets....................................... $ 20,513 $ 34,207 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 2,223 $ 2,915 Accrued expenses.......................................... 1,047 915 Deferred revenue.......................................... 3,700 4,008 Customer deposits......................................... 127 345 Other current liabilities................................. 66 33 -------- -------- Total current liabilities.......................... 7,163 8,216 Deferred rent............................................. 91 123 -------- -------- Total liabilities.................................. 7,254 8,339 -------- -------- Commitments and contingencies Stockholders' equity: Convertible preferred stock, Series A, $0.001 par value; aggregate liquidation preference of $15,000 at December 31, 1998; 1,500,000 shares authorized; 1,500,000 shares issued and outstanding at December 31, 1997 and 1998.... 2 2 Convertible preferred stock, Series B, $0.001 par value; aggregate liquidation preference of $9,050 at December 31, 1998; 967,915 shares authorized 967,915 shares issued and outstanding at December 31, 1997 and 1998.... 1 1 Convertible preferred stock, Series C, $0.001 par value; aggregate liquidation preference of $43,725 at December 31, 1998; 6,977,272 shares authorized; 1,477,274 shares issued and outstanding at December 31, 1997; 4,968,738 shares issued and outstanding at December 31, 1998...... 1 4 Common stock, $0.001 par value; 50,000,000 shares authorized; 8,324,443 shares issued and outstanding December 31, 1997; 8,506,455 shares issued and outstanding at December 31, 1998........................ 8 8 Warrants.................................................. -- 1,332 Additional paid-in capital................................ 37,123 67,813 Deferred compensation..................................... (1) -- Cumulative translation adjustment......................... -- (19) Accumulated deficit....................................... (23,875) (43,273) -------- -------- Total stockholders' equity......................... 13,259 25,868 -------- -------- Total liabilities and stockholders' equity......... $ 20,513 $ 34,207 ======== ========
The accompanying notes are an integral part of these consolidated statements. F-3 85 AUTOBYTEL.COM INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share and per share data)
YEARS ENDED DECEMBER 31, ---------------------------------------- 1996 1997 1998 ---------- ----------- ----------- Revenues............................... $ 5,025 $ 15,338 $ 23,826 ---------- ----------- ----------- Operating expenses: Sales and marketing.................. 7,790 21,454 30,033 Product and technology development... 1,753 5,448 8,528 General and administrative........... 1,641 5,851 5,908 ---------- ----------- ----------- Total operating expenses.......... 11,184 32,753 44,469 ---------- ----------- ----------- Loss from operations................. (6,159) (17,415) (20,643) Other income, net...................... 124 620 1,280 ---------- ----------- ----------- Loss before provision for income taxes............................. (6,035) (16,795) (19,363) Provision for income taxes............. -- 15 35 ---------- ----------- ----------- Net loss............................. $ (6,035) $ (16,810) $ (19,398) ========== =========== =========== Basic net loss per share............... $ (0.73) $ (2.03) $ (2.30) ========== =========== =========== Shares used in computing basic net loss per share............................ 8,252,325 8,291,142 8,423,038 ========== =========== =========== Pro forma basic net loss per share..... $ (0.68) $ (1.53) $ (1.49) ========== =========== =========== Shares used in computing pro forma basic net loss per share............. 8,848,864 10,966,633 13,008,090 ========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. F-4 86 AUTOBYTEL.COM INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Amounts in thousands, except share and per share data)
CONVERTIBLE MEMBERS' PREFERRED STOCK COMMON STOCK INTEREST/ ------------------ ------------------ ADDITIONAL DEFERRED CUMULATIVE NUMBER OF NUMBER OF PAID-IN COMPEN- TRANSLATION SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL SATION ADJUSTMENT --------- ------ --------- ------ -------- ---------- -------- ----------- Balance, December 31, 1995............. -- $-- -- $-- $ -- $ 40 $ -- $ -- Sale of members' interest in ABT Acceptance Company, LLC............ -- -- -- -- -- 50 -- -- Issuance of common stock in exchange for members' interest.............. -- -- 8,250,000 8 -- (8) -- -- Issuance of common stock options with an exercise price of $0.90 per share.............................. -- -- -- -- -- 87 (87) -- Issuance of Series A convertible preferred stock at $10.00 per share.............................. 1,450,000 2 -- -- -- 14,363 -- -- Issuance of Series A convertible preferred stock at $10.00 per share upon conversion of debt............ 50,000 -- -- -- -- 500 -- -- Issuance of common stock in exchange for services....................... -- -- 6,667 -- -- 20 -- -- Issuance of common stock upon exercise of stock options.......... -- -- 28,148 -- -- 25 -- -- Amortization of deferred compensation....................... -- -- -- -- -- -- 61 -- Net loss............................. -- -- -- -- -- -- -- -- --------- -- --------- -- ------ ------- ---- ---- Balance, December 31, 1996............. 1,500,000 2 8,284,815 8 -- 15,077 (26) -- Issuance of Series B convertible preferred stock at $9.35 per share.............................. 967,915 1 -- -- -- 9,028 -- -- Issuance of Series C convertible preferred stock at $8.80 per share.............................. 1,477,274 1 -- -- -- 12,987 -- -- Issuance of common stock upon exercise of stock options.......... -- -- 39,628 -- -- 31 -- -- Amortization of deferred compensation....................... -- -- -- -- -- -- 25 -- Net loss............................. -- -- -- -- -- -- -- -- --------- -- --------- -- ------ ------- ---- ---- Balance, December 31, 1997............. 3,945,189 4 8,324,443 8 -- 37,123 (1) -- Issuance of Series C convertible preferred stock at $8.80 per share.............................. 3,370,455 3 -- -- -- 29,443 -- -- Issuance of Series C convertible preferred stock at $8.80 per share in exchange for advertising........ 121,009 -- -- -- -- 1,065 -- -- Issuance of warrants in exchange for start-up costs for a Pan-European entity............................. -- -- -- -- 792 -- -- -- Issuance of warrant in exchange for involvement in broadband application project................ -- -- -- -- 540 -- -- -- Issuance of common stock upon exercise of stock options.......... -- -- 181,012 -- -- 169 -- -- Issuance of common stock at $13.20 per share.......................... -- -- 1,000 -- -- 13 -- -- Amortization of deferred compensation....................... -- -- -- -- -- -- 1 -- Foreign currency translation adjustment......................... -- -- -- -- -- -- -- (19) Net loss............................. -- -- -- -- -- -- -- -- --------- -- --------- -- ------ ------- ---- ---- Balance, December 31, 1998............. 7,436,653 $7 8,506,455 $8 $1,332 $67,813 $ -- $(19) ========= == ========= == ====== ======= ==== ==== ACCUM- ULATED DEFICIT TOTAL -------- -------- Balance, December 31, 1995............. $ (1,030) $ (990) Sale of members' interest in ABT Acceptance Company, LLC............ -- 50 Issuance of common stock in exchange for members' interest.............. -- -- Issuance of common stock options with an exercise price of $0.90 per share.............................. -- -- Issuance of Series A convertible preferred stock at $10.00 per share.............................. -- 14,365 Issuance of Series A convertible preferred stock at $10.00 per share upon conversion of debt............ -- 500 Issuance of common stock in exchange for services....................... -- 20 Issuance of common stock upon exercise of stock options.......... -- 25 Amortization of deferred compensation....................... -- 61 Net loss............................. (6,035) (6,035) -------- -------- Balance, December 31, 1996............. (7,065) 7,996 Issuance of Series B convertible preferred stock at $9.35 per share.............................. -- 9,029 Issuance of Series C convertible preferred stock at $8.80 per share.............................. -- 12,988 Issuance of common stock upon exercise of stock options.......... -- 31 Amortization of deferred compensation....................... -- 25 Net loss............................. (16,810) (16,810) -------- -------- Balance, December 31, 1997............. (23,875) 13,259 Issuance of Series C convertible preferred stock at $8.80 per share.............................. -- 29,446 Issuance of Series C convertible preferred stock at $8.80 per share in exchange for advertising........ -- 1,065 Issuance of warrants in exchange for start-up costs for a Pan-European entity............................. -- 792 Issuance of warrant in exchange for involvement in broadband application project................ -- 540 Issuance of common stock upon exercise of stock options.......... -- 169 Issuance of common stock at $13.20 per share.......................... -- 13 Amortization of deferred compensation....................... -- 1 Foreign currency translation adjustment......................... -- (19) Net loss............................. (19,398) (19,398) -------- -------- Balance, December 31, 1998............. $(43,273) $ 25,868 ======== ========
The accompanying notes are an integral part of these consolidated statements. F-5 87 AUTOBYTEL.COM INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands, except share and per share data)
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 ------- -------- -------- Cash flows from operating activities: Net loss.................................................. $(6,035) $(16,810) $(19,398) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 178 860 1,255 Provision for bad debt.................................. 145 175 187 Loss on disposal of property and equiptment............. -- -- 1 Amortization of deferred compensation................... 61 25 1 Issuance of common stock in exchange for services....... 20 -- -- Issuance of Series C convertible preferred stock in exchange for advertising............................... -- -- 1,065 Issuance of warrants in exchange for start-up costs for a Pan-European entity.................................. -- -- 792 Issuance of warrant in exchange for involvement in broadband application project.......................... -- -- 540 Changes in assets and liabilities: Accounts receivable................................... (429) (1,370) (1,009) Prepaid expenses and other current assets............. (788) 107 (558) Other assets.......................................... (604) 516 (252) Accounts payable...................................... 564 1,572 692 Accrued expenses...................................... 722 325 (132) Deferred revenue...................................... 1,970 1,374 308 Customer deposits..................................... 554 (427) 218 Other current liabilities............................. 16 34 (33) Deferred rent......................................... 17 74 32 ------- -------- -------- Net cash used in operating activities............... (3,609) (13,545) (16,291) ------- -------- -------- Cash flows from investing activities: Acquisition of Internet Development Corporation........... -- (100) -- Purchases of property and equipment....................... (1,501) (1,652) (1,147) ------- -------- -------- Net cash used in investing activities............... (1,501) (1,752) (1,147) ------- -------- -------- Cash flows from financing activities: Proceeds from sale of common stock........................ 25 31 182 Proceeds from sale of members' interest in ABT Acceptance Company, LLC............................................ 50 -- -- Net proceeds from issuance of Series A convertible preferred stock......................................... 14,365 -- -- Net proceeds from issuance of Series B convertible preferred stock......................................... -- 9,029 -- Net proceeds from issuance of Series C convertible preferred stock......................................... -- 12,988 29,446 Proceeds from issuance of notes payable................... 765 -- -- Repayments of notes payable............................... (1,081) -- -- ------- -------- -------- Net cash provided by financing activities........... 14,124 22,048 29,628 ------- -------- -------- Effect of exchange rates on cash............................ -- -- (19) ------- -------- -------- Net increase in cash and cash equivalents................... 9,014 6,751 12,171 Cash and cash equivalents, at beginning of period........... 48 9,062 15,813 ------- -------- -------- Cash and cash equivalents, at end of period................. $ 9,062 $ 15,813 $ 27,984 ======= ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes.............. $ 4 $ 15 $ 35 ======= ======== ======== Cash paid during the period for interest.................. $ 24 $ -- $ 3 ======= ======== ========
Supplemental disclosure of non-cash financing activities (See Note 7): * In May 1996, 8,250,000 shares of common stock were issued to founding stockholders in exchange for members' interests in a predecessor limited liability company. * In August 1996, 50,000 shares of Series A convertible preferred stock were issued in exchange for $500 previously advanced to the Company under three notes payable. * In September 1996, 6,667 shares of common stock with a fair market value of $20 were issued for services. * In April 1998, 56,776 shares of Series C convertible preferred stock with a fair market value of $8.80 per share convertible into common stock at the conversion price of $13.20 per share were issued for advertising. * In October 1998, 64,233 shares of Series C convertible preferred stock with a fair market value of $8.80 per share convertible into common stock at the conversion price of $13.20 per share were issued for advertising. * In November and December 1998, warrants to purchase 439,800 shares of common stock at $13.20 per share were issued to investors in Series C convertible preferred stock in exchange for a commitment to fund start-up activities of a Pan-European entity in which the Company may invest with the investors. * In December 1998, a warrant to purchase 300,000 shares of common stock at $13.20 per share was issued to an investor in exchange for involvement in broadband application project. The accompanying notes are an integral part of these consolidated statements. F-6 88 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share and per share data.) 1. ORGANIZATION AND OPERATIONS OF AUTOBYTEL.COM autobytel.com inc. (Autobytel.com) is a branded Internet site for new and pre-owned vehicle information and purchasing services. Through its Web site (www.autobytel.com), consumers can research pricing, specifications and other information related to new and pre-owned vehicles and, when consumers indicate they are ready to buy, can be connected to Autobytel.com's network of participating dealers. Autobytel.com also provides other related services such as financing, leasing, vehicle warranties and insurance. Autobytel.com's services are free to consumers and, to date, Autobytel.com has derived substantially all of its revenues from fees paid by subscribing dealers located in the United States and Canada. Auto-By-Tel, LLC (ABT), Autobytel.com's predecessor, was organized in January 1995 and commenced operations as a California limited liability company in March 1995. ABT Acceptance Company, LLC (ABTAC), an affiliated company under common control, was formed in February 1996. ABT and ABTAC (the LLCs) were reorganized in May 1996 as a Delaware corporation pursuant to the terms of a Contribution Agreement and Plan of Organization (the Plan of Organization) entered into by all of the members of the LLCs (See Note 7). As the LLCs were under common control, the reorganization was accounted for in a manner similar to a pooling-of-interests, whereby the assets and liabilities of ABT and ABTAC were transferred to Autobytel.com at their historical cost. Since inception, Autobytel.com has invested the majority of its efforts in marketing its brand name and developing infrastructure to support anticipated future operating growth. As a result, Autobytel.com has experienced significant operating losses and had an accumulated deficit of $43,273 at December 31, 1998. To date, such losses have been financed primarily through private placements of preferred stock (See Note 7). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of Autobytel.com, its predecessors (See Note 1) and its wholly-owned subsidiaries: Autobytel Services Corporation, Autobytel Acceptance Corporation, Autobytel Insurance Services, Inc., Autobytel.ca Inc., Kre8.net, Inc., Auto-By-Tel International LLC, Auto-by-Tel UK Limited and AutoVisions Communications, Inc. All intercompany transactions and balances have been eliminated. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-7 89 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cash and Cash Equivalents For the purposes of the consolidated balance sheets and the consolidated statements of cash flows, Autobytel.com considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject Autobytel.com to significant concentrations of credit risk consist primarily of accounts receivable. To date, accounts receivable have primarily been derived from marketing fees billed to subscribing dealers located in the United States and Canada. Autobytel.com generally requires no collateral to support customer receivables. Autobytel.com maintains reserves for potential credit losses. Historically, such losses have been minor and within management's expectations. As of December 31, 1997 and 1998, no subscribing dealer accounted for greater than 10% of accounts receivable. Property and Equipment Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, generally three years. Amortization of leasehold improvements is provided using the straight-line method over the lesser of the remaining lease term or the estimated useful lives of the improvements. Stock-Based Compensation In 1996, Autobytel.com adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Autobytel.com has elected to continue accounting for stock-based compensation issued to employees using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, pro forma disclosures required under SFAS No. 123 have been presented (See Note 8). Revenue Recognition Substantially all revenues to date consist of fees paid by subscribing dealers. These fees are comprised of an initial fee, a monthly fee and, through fiscal 1997, an annual fee. In January 1998, Autobytel.com started to eliminate annual fees and increase monthly fees to subscribing dealers. The initial fee and annual fee are recognized ratably over the service period of 12 months. The monthly fee is recognized in the period services are provided. Deferred revenue is comprised of unamortized fees. Risks Due to Concentration of Significant Customers and Export Sales For all periods presented in the accompanying consolidated statements of operations, no subscribing dealer accounted for greater than 10% of revenues. Autobytel.com conducts its business within one industry segment. Revenues from customers outside of the United States were less than 10% of total revenues for all periods presented in the accompanying consolidated statements of operations. F-8 90 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Sales and Marketing Sales and marketing expense primarily includes advertising and marketing expenses paid to purchase request providers and developing Autobytel.com's brand equity, as well as personnel and other costs associated with sales, training and support of its dealer network. Sales and marketing expense also includes cost of sales associated with the sale of computers, which was discontinued in February 1999. Sales and marketing costs are recorded as expenses as incurred. For the years ended December 31, 1996, 1997 and 1998, Internet marketing and advertising costs were $1,838, $5,828, and $11,090 and television advertising expenses were $396, $4,048, and $5,296, respectively. Product and Technology Development Product and technology development expense primarily includes personnel costs relating to enhancing the features, content and functionality of Autobytel.com's Web site and its online dealer information platform (DRT), as well as expenses associated with its telecommunications and computer infrastructure. Product and technology development expenditures are expensed as incurred. General and Administrative General and administrative expense primarily consists of executive, financial and legal personnel expenses and related costs. General and administrative expense for the year ended December 31, 1997 includes a non-recurring $1.1 million charge associated with a proposed and withdrawn initial public offering in March 1997. Foreign Currency Translation The functional currency of Autobytel.com's subsidiaries is the local currency. Accordingly, all assets and liabilities are translated into United States dollars at the current exchange rate as of the applicable balance sheet date. Revenues and expenses are translated at the average exchange rate prevailing during the period. Gains and losses resulting from the translation of the financial statements are reported as a separate component of stockholders' equity. Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per Share Historical net loss per share has been calculated under SFAS No. 128, "Earnings per Share." SFAS No. 128 requires companies to compute earnings per share under two different methods (basic and diluted). Basic net loss per share is calculated by dividing the net loss by the weighted average shares of common stock outstanding during the period. No diluted loss per share information has been presented in the accompanying consolidated statements of operations since potential common shares from the conversion of preferred stock, stock options and warrants are antidilutive. Autobytel.com evaluated the requirements of the Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 98, and concluded that there are no nominal issuances of common stock or potential common stock which would be required to be shown as outstanding for all periods as outlined in SAB No. 98. F-9 91 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Pro forma basic net loss per share has been calculated assuming the conversion of the outstanding preferred stock into common stock, as if the shares had been converted on the dates of their issuance. New Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and presentation of comprehensive income. SFAS No. 130, which was adopted by Autobytel.com in the first quarter of 1998, requires companies to report a new measurement of income. Comprehensive income (loss) is to include foreign currency translation gains and losses and other unrealized gains and losses that have historically been excluded from net income (loss) and reflected instead in equity. The only comprehensive income included in the accompanying stockholders' equity is foreign currency translation loss of $19 for the year ended December 31, 1998. As this amount is not material, comprehensive income (loss) is not presented in the accompanying consolidated financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company adopted SFAS No. 131 in the fourth quarter of 1998 (See Note 12). In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which is effective for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use and defines specific criteria that determine when such costs are required to be expensed, and when such costs may be capitalized. Autobytel.com currently expenses software development costs as incurred. Management anticipates that it will continue to incur such development costs. However, management expects that, as a percentage of revenues, such costs will remain consistent. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities," which is effective for fiscal years beginning after December 15, 1998. SOP 98-5 provides guidance on the financial reporting of start-up cost and organization costs and require such costs to be expensed as incurred. Management believes that the adoption of SOP 98-5 will not have a material effect on Autobytel.com's consolidated financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments. The statement requires that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value, and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Autobytel.com does not have any derivative instruments as of December 31, 1998. Management believes that the adoption of SFAS No. 133 will not have a material effect on Autobytel.com's consolidated financial statements. F-10 92 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BUSINESS ACQUISITION In May 1997, one of Autobytel.com's subsidiaries, Kre8.net, Inc., entered into an asset purchase agreement with Internet Development Corporation to purchase certain assets and to assume certain liabilities of the business. The combined entity develops Web sites for automobile and other industries. The purchase price for the net assets was $100 in cash. The acquisition was accounted for by the purchase method. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair market values whose fair value equaled book value at the closing date. The excess of purchase price over the estimated fair value of net assets acquired was $93, and is being amortized using the straight-line method over a period of three years. The results of operations of the acquired business are included in the accompanying consolidated statements of operations and in Autobytel.com's accumulated deficit beginning in May 1997. Internet Development Corporation's revenues and results of operations since the date of acquisition are immaterial. 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ------------------ 1997 1998 ------- ------- Computer software and hardware..................... $ 2,104 $ 2,800 Furniture and equipment............................ 892 1,206 Leasehold improvements............................. 427 561 ------- ------- 3,423 4,567 Less -- Accumulated depreciation and amortization..................................... (1,106) (2,359) ------- ------- $ 2,317 $ 2,208 ======= =======
5. COMMITMENTS AND CONTINGENCIES Operating Leases Autobytel.com leases its facilities and certain office equipment under operating leases which expire on various dates through 2001. At December 31, 1998, future minimum lease payments are as follows:
YEARS ENDING DECEMBER 31, ------------------------- 1999................................................... $ 619 2000................................................... 649 2001................................................... 501 2002................................................... -- 2003................................................... -- Thereafter............................................. -- ------ $1,769 ======
F-11 93 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Rent expense was $92, $247, and $491 for the years ended December 31, 1996, 1997 and 1998, respectively. Marketing and Advertising Agreements In September 1997, Autobytel.com entered into a three year Internet marketing agreement with a company that operates a search engine. The agreement permits Autobytel.com to maintain certain exclusive promotional rights and linkage with the search engine, and provides for certain advertising. As of December 31, 1998, the agreement requires minimum future payments of $3.6 million. These amounts are expensed on a straight-line basis over the term of the agreement. In June 1998, Autobytel.com entered into a two year Internet marketing agreement with another company that operates a search engine. The agreement permits Autobytel.com to maintain certain exclusive promotional rights and linkage with the search engine. As of December 31, 1998, the agreement requires minimum future payments of $1.2 million. These amounts are expensed on a straight-line basis over the term of the agreement. Autobytel.com also has multi-year agreements with other automotive information providers that make available to consumers vehicle research data over the Internet. Such agreements are generally for a term of one to three years and require that Autobytel.com pay fees to these companies based on the volume of referrals received by Autobytel.com from these services. As of December 31, 1998, the minimum future commitments under these agreements were $0.7 million. These amounts are expensed on a straight-line basis over the terms of the agreements. Autobytel.com has agreements with network and cable television stations under which it has the right to purchase television advertising. As of December 31, 1998, the minimum future commitments under these agreements were $1.7 million. These amounts are expensed as advertising is aired. For the years ended December 31, 1996, 1997 and 1998, Autobytel.com paid $2,721, $8,474 and $15,540, respectively, under these marketing and advertising agreements. Employment Agreements Autobytel.com has employment agreements with certain executives under which, in the event of termination without cause or resignation with a good reason, the executives are entitled to receive severance payments equal to the base salary that would have been received by the executives over the remaining term of the agreements. One of these agreements also provides for an additional severance payment in the event of a change in control as defined in the agreement. The term of the agreements range from two to three years. Litigation In the normal course of business, Autobytel.com is involved in various legal proceedings. Based upon the information presently available, management believes that the F-12 94 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ultimate resolution of any such proceedings will not have a material adverse effect on Autobytel.com's financial position, liquidity or results of operations. 6. RETIREMENT SAVINGS PLAN Autobytel.com has a Retirement Savings Plan (the Retirement Plan) which qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. The Retirement Plan covers all full time employees of Autobytel.com who are over 21 years of age and have worked for Autobytel.com for at least 90 days. Under the Retirement Plan, participating employees are allowed to defer up to 15% of their pretax salaries up to a maximum of $10,000 per year. Company contributions to the Retirement Plan are discretionary. Autobytel.com has made no contributions since the inception of the Retirement Plan. 7. STOCKHOLDERS' EQUITY Series A Convertible Preferred Stock In August 1996, the Board of Directors authorized 1,500,000 shares of Series A convertible preferred stock (Series A Preferred), and Autobytel.com completed the sale of 1,500,000 shares of Series A Preferred at $10.00 per share through a private placement offering. Of the total shares sold, 50,000 shares were issued to an individual in exchange for $500 previously advanced to Autobytel.com under three notes payable. In addition, $1,081 of the proceeds were used to repay notes due to Autobytel.com's former Chairman and co-founder. The Series A Preferred will be automatically converted into 1,666,667 shares of common stock at the conversion ratio of approximately 1:1.11 upon the earliest of (i) the closing of an underwritten public offering of Autobytel.com's common stock with a minimum per share price of $13.50 per share, and minimum aggregate offering price of $30 million; (ii) the consent of two-thirds of the holders of preferred stock; or (iii) when fewer than 300,000 shares of Series A Preferred remain outstanding. The Series A Preferred is also convertible into 1,666,667 shares of common stock at the option of the holder. Autobytel.com has reserved 1,666,667 shares of common stock to permit the conversion of the Series A Preferred. Holders of Series A Preferred are entitled to one vote for each share of common stock into which such shares of Series A Preferred may be converted except with respect to election of directors, whereby the holders, voting separately as a class, are entitled to elect two directors. Each share of Series A Preferred entitles the holder to receive non-cumulative dividends, if and when declared by the Board of Directors, prior to any dividend paid on Series B Preferred or the common stock. Dividends, if any, on Series A Preferred shall be declared at an annual rate of $0.80 per share. As of December 31, 1998, no dividends have been declared. In the event of liquidation, the Series A Preferred has preference over Series B Preferred and the common stock in the amount of $10.00 per share, plus declared but unpaid dividends. F-13 95 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Series B Convertible Preferred Stock In January 1997, the Board of Directors authorized 967,915 shares of Series B convertible preferred stock (Series B Preferred), and Autobytel.com completed the sale of 967,915 shares of Series B Preferred at $9.35 per share through a private placement offering. The Series B Preferred will be automatically converted into 873,131 shares of common stock at the conversion ratio of approximately 1:0.90 upon the earliest of (i) the closing of an underwritten public offering of Autobytel.com's common stock with a minimum per share price of $13.50 per share, and minimum aggregate offering price of $30 million; (ii) the consent of two-thirds of the holders of preferred stock; or (iii) when fewer than 200,000 shares of Series B Preferred remain outstanding. The Series B Preferred is also convertible into 873,131 shares of common stock at the option of the holder. Autobytel.com has reserved 873,131 shares of common stock to permit the conversion of the Series B Preferred. Holders of Series B Preferred are entitled to one vote for each share of common stock into which such shares of Series B Preferred may be converted. Each share of Series B Preferred entitles the holder to receive noncumulative dividends, if and when declared by the Board of Directors, prior to any dividend paid on the common stock. Dividends, if any, on Series B Preferred shall be declared at an annual rate of $0.80 per share. As of December 31, 1998, no dividends have been declared. In the event of liquidation, the Series B Preferred has preference over the common stock in the amount of $9.35 per share, plus declared but unpaid dividends. Series C Convertible Preferred Stock In October 1997, the Board of Directors authorized 2,840,909 shares of Series C convertible preferred stock (Series C Preferred), and Autobytel.com completed the sale of 1,477,274 shares of Series C Preferred at $8.80 per share through a private placement offering. The Board of Directors authorized an additional 1,136,363 and 3,000,000 shares of Series C Preferred in February and December 1998, respectively. In April 1998, Autobytel.com issued 56,776 shares of its Series C Preferred in payment of television advertising with an estimated fair market value of $500. The majority of the advertising was aired and expensed in the three months ended March 31, 1998. In May 1998, Autobytel.com sold 568,182 shares of the Series C Preferred at $8.80 per share through a private placement. In October 1998, Autobytel.com issued 64,233 shares of Series C Preferred in payment of television advertising with an estimated fair market value of $565. The amount was expensed in the three months ended December 31, 1998. In November 1998, Autobytel.com sold 568,182 shares of Series C Preferred at $8.80 per share through a private placement. In December 1998, Autobytel.com sold 2,234,091 shares of Series C Preferred at $8.80 per share through private placements. Of these shares, 1,136,364 shares were issued F-14 96 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) to an investor with whom Autobytel.com entered into a Directed Proceeds Agreement. Under the Directed Proceeds Agreement, Autobytel.com is committed to expend up to $1,000 for the development of technology for broadband applications. In addition, Autobytel.com issued a warrant for 300,000 shares of common stock in exchange for the right to participate in the development of this technology and the warrant holder's agreement to use commercially reasonable efforts to involve Autobytel.com in other broadband application projects. The fair value of the warrant ($540) has been recorded as a prepaid expense at December 31, 1998. The Series C Preferred will be automatically converted into 3,312,492 shares of common stock at the conversion ratio of approximately 1:0.67 upon the earliest of (i) the closing of an underwritten public offering of Autobytel.com's common stock with a minimum per share price of $13.50 per share, and minimum aggregate offering price of $30 million; (ii) the consent of two-thirds of the holders of preferred stock; or (iii) when fewer than 250,000 shares of Series C Preferred remain outstanding. The Series C Preferred is also convertible into 3,312,492 shares of common stock at the option of the holder. Autobytel.com has reserved 3,312,492 shares of common stock to permit the conversion of the Series C Preferred. Holders of Series C Preferred are entitled to one vote for each share of common stock into which such shares of Series C Preferred may be converted. Each share of Series C Preferred entitles the holder to receive non-cumulative dividends, if and when declared by the Board of Directors, prior to any dividend paid on Series A and Series B Preferred and the common stock. Dividends, if any, on Series C Preferred shall be declared at an annual rate of $0.80 per share. As of December 31, 1998, no dividends have been declared. In the event of liquidation, the Series C Preferred has preference over Series A and Series B Preferred and the common stock in the amount of $8.80 per share, plus declared but unpaid dividends. As of December 31, 1998, 2,000,000 shares of preferred stock were undesignated. Common Stock Under the terms of the Plan of Organization, the interests of the members of the LLCs were transferred to autobytel.com inc. in a tax-free transaction. In consideration for their respective ownership interests, the members of ABT and ABTAC received 8,250,000 shares of common stock of Autobytel.com. Warrants In November 1998, Autobytel.com issued a warrant to purchase 150,000 shares of common stock to an investor in its Series C Preferred in exchange for the investor's commitment to fund organizational and start-up activities related to a Pan-European entity in which Autobytel.com may invest with the investor. The warrant is exercisable at $13.20 per share and expires in November 2001. The warrant was valued at $270, which was expensed in the three months ended December 31, 1998. In December 1998, Autobytel.com issued warrants to purchase 289,800 shares of common stock to another investor in its Series C Preferred in exchange for the investor's F-15 97 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) commitment to fund organizational and start-up activities related to Pan-European entity in which Autobytel.com may invest with the investor. The warrants are exercisable at $13.20 per share and expire in December 2001. The warrants were valued at $522, which was expensed in the three months ended December 31, 1998. In December 1998, Autobytel.com issued a warrant to purchase 300,000 shares of common stock to an investor in exchange for the right to participate in the development of broadband application technology. The warrant is exercisable at $13.20 per share and expires in December 2001. The warrant was valued at $540, and is recorded as a prepaid expense at December 31, 1998. 8. STOCK OPTION PLANS 1996 Stock Option Plan Autobytel.com's 1996 Stock Option Plan (the Option Plan) was approved by the Board of Directors in May 1996. The Option Plan was terminated by a resolution of the Board of Directors in October 1996, at which time 870,555 options had been issued. The Option Plan provided for the granting to employees and directors of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code), and for the granting to employees, consultants and directors of nonstatutory stock options. Autobytel.com reserved 1,194,444 shares of common stock for exercise of stock options under the Option Plan. The exercise price of incentive stock options granted under the Option Plan could not be lower than the fair market value of the common stock, and the exercise price of nonstatutory stock options could not be less than 85% of the fair market value of the common stock, as determined by the Board of Directors, on the date of grant. With respect to any participants who, at the time of grant, owned stock that possessed more than 10% of the voting power of all classes of stock of Autobytel.com, the exercise price of any stock option granted to such person was to be at least 110% of the fair market value on the grant date, and the maximum term of such option was five years. The term of all other options granted under the Option Plan did not exceed 10 years. Stock options granted under the Option Plan vest according to vesting schedules determined by the Board of Directors. As of December 31, 1998, options to purchase an aggregate of 206,388 shares of common stock at an exercise price ranging from $0.84 to $0.90 per share were outstanding under the Option Plan. 1996 Stock Incentive Plan Autobytel.com's 1996 Stock Incentive Plan (the Incentive Plan) was approved by the Board of Directors in October 1996, and was amended in November 1996. The Incentive Plan provides for the granting to employees and directors of incentive stock options within the meaning of Section 422 of the Code, and for the granting to employees, directors and consultants of nonstatutory stock options and stock purchase rights. Autobytel.com has reserved a total of 833,333 shares of common stock for issuance under the Incentive Plan. The exercise price of stock options granted under the Incentive Plan cannot be lower than the fair market value of the common stock, as determined by the Board of Directors, on the date of grant. With respect to any participants who, at the time of grant, own stock possessing more than 10% of the voting power of all classes of stock of Autobytel.com, the exercise price of stock options granted to such person must be at least 110% of the fair F-16 98 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) market value on the grant date, and the maximum term of such options is five years. The term of all other options granted under the Incentive Plan may be up to 10 years. Stock options granted under the Incentive Plan vest according to vesting schedules determined by the Board of Directors. 1998 Stock Option Plan In December 1998, Autobytel.com adopted the 1998 Stock Option Plan (the 1998 Option Plan). Autobytel.com has reserved 1,500,000 shares under the 1998 Option Plan. The 1998 Option Plan provides for the granting to employees of incentive stock options within the meaning of the Code, and for the granting to employees of nonstatutory stock options. The exercise price of non-statutory options granted under the 1998 Option Plan cannot be lower than 85% of the fair market value of the common stock on the date of grant. The exercise price of all incentive stock options granted cannot be lower than the fair market value on the grant date. With respect to any participants who beneficially own more than 10% of the voting power of all classes of stock of Autobytel.com, the exercise price of any stock option granted to such person must be at least 110% of the fair market value on the grant date, and the maximum term of such option is five years. The term of all other options granted under the 1998 Option Plan may be up to 10 years. Under the 1998 Option Plan, certain nonstatutory stock options (Performance Options) vest over a time period determined by the Board of Directors, however, the vesting could be accelerated based on the performance of Autobytel.com's common stock. In December 1998, the Board of Directors granted Performance Options to purchase 700,000 shares of common stock to its executives at an exercise price of $13.20 per share, which represents the fair market value on the date of grant. These options vest over a seven-year period, but the vesting could be accelerated based on the performance of Autobytel.com's common stock. All other stock options granted under the 1998 Option Plan vest according to vesting schedules determined by the Board of Directors. The 1998 Option Plan provides that, unless otherwise provided in the stock option agreement, in the event of any merger, consolidation, or sale or transfer of all or any part of Autobytel.com's business or assets, all rights of the optionee with respect to the unexercised portion of any option shall become immediately vested and may be exercised immediately, except to the extent that any agreement or undertaking of any party to any such merger, consolidation, or sale or transfer of assets makes specific provisions for the assumption of the obligations of Autobytel.com with respect to the 1998 Option Plan. During the year ended December 31, 1996, Autobytel.com granted options under the aforementioned plans to purchase an aggregate of 1,568,059 shares of common stock at various exercise prices ranging from $0.90 to $11.25 per share. During the year ended December 31, 1996, Autobytel.com recorded, based upon an independent appraisal obtained by Autobytel.com's Board of Directors, $87 of deferred compensation expense relating to certain options. This amount was amortized over the vesting periods of the options. Amortization of deferred compensation for the years ended December 31, 1996, 1997 and 1998 was $61, $25 and $1, respectively. During the year ended December 31, 1997, Autobytel.com granted options to various employees to purchase 853,504 shares of common stock at an exercise price of $13.20 per share. F-17 99 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During the year ended December 31, 1998, Autobytel.com granted options to various employees to purchase 1,630,340 shares of common stock at an exercise price of $13.20 per share. In January 1999, Autobytel.com granted options to Hoshi Printer, Senior Vice President and Chief Financial Officer, to purchase 150,000 shares of common stock at an exercise price of $13.20 per share. 1996 Employee Stock Purchase Plan Autobytel.com's 1996 Employee Stock Purchase Plan (the Purchase Plan) was adopted by the Board of Directors in November 1996. The Purchase Plan, which is intended to qualify under Section 423 of the Code, permits eligible employees of Autobytel.com to purchase shares of common stock through payroll deductions of up to ten percent of their compensation, up to a certain maximum amount for all purchase periods ending within any calendar year. Autobytel.com has reserved a total of 444,444 shares of common stock for issuance under the Purchase Plan. The price of common stock purchased under the Purchase Plan will be 85% of the lower of the fair market value of the common stock on the first or last day of each six month purchase period. Employees may end their participation in the Purchase Plan at any time during an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with Autobytel.com. There have been no stock purchases under the Purchase Plan. In January 1999, the Board of Directors ratified the suspension of the Purchase Plan. F-18 100 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of the status of Autobytel.com's stock options as of December 31, 1996, 1997 and 1998, and changes during such periods is presented below:
WEIGHTED AVERAGE NUMBER OF EXERCISE OPTIONS PRICE ---------- -------- Outstanding at December 31, 1995................ -- $ -- Granted......................................... 1,568,059 3.24 Exercised....................................... (28,148) 0.90 Canceled........................................ (19,353) 0.90 ---------- ------ Outstanding at December 31, 1996................ 1,520,558 3.32 Granted......................................... 853,504 13.20 Exercised....................................... (39,629) 0.90 Canceled........................................ (156,688) 7.88 ---------- ------ Outstanding at December 31, 1997................ 2,177,745 6.92 Granted......................................... 1,630,340 13.20 Exercised....................................... (181,012) 0.94 Canceled........................................ (767,733) 6.93 ---------- ------ Outstanding at December 31, 1998................ 2,859,340 $10.87 ========== ====== Exercisable at December 31, 1996................ 362,958 $ 0.89 ========== ====== Exercisable at December 31, 1997................ 858,187 $ 2.78 ========== ====== Exercisable at December 31, 1998................ 738,860 $ 6.42 ========== ====== Weighted-average fair value of options granted during 1996 whose exercise price is less than the market price of the stock on the grant date (169,445 options)........................ $ 2.45 ====== Weighted-average fair value of options granted during 1996 whose exercise price exceeds the market price of the stock on the grant date (1,398,614 options)........................... $ 1.16 ====== Weighted-average fair value of options granted during 1997 whose exercise price equals the market price of the stock on the grant date (853,504 options)............................. $ 2.73 ====== Weighted-average fair value of options granted during 1998 whose exercise price equals the market price of the stock on the grant date (1,630,340 options)........................... $ 3.25 ======
The fair value of each option granted through December 31, 1998 is estimated using the Black-Scholes option-pricing model on the date of grant using the following assumptions: (i) no dividend yield, (ii) volatility of effectively zero, (iii) weighted-average risk-free interest rate of approximately 6.70%, 6.18%, and 4.80% for the years ended December 31, 1996, 1997 and 1998, respectively, and (iv) expected life of six years for the years ended December 31, 1996 and 1997 and four to seven years for the year ended December 31, 1998. F-19 101 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED NUMBER OF REMAINING LIFE AVERAGE NUMBER OF AVERAGE EXERCISE PRICE OPTIONS (IN YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE - -------------- --------- -------------- -------------- --------- -------------- 0$.84......... 166,667 7.5 $ 0.84 166,667 $ 0.84 0.90......... 39,721 7.5 0.90 39,442 0.90 4.50......... 466,666 7.8 4.50 279,444 4.50 11.25........ 24,443 7.9 11.25 16,294 11.25 13.20........ 2,161,843 9.5 13.20 237,013 13.20 --------- --- ------ ------- ------ 0$.84-$13.20.. 2,859,340 9.1 $10.87 738,860 $ 6.42 ========= === ====== ======= ======
Had compensation cost for Autobytel.com's stock option grants for its stock-based compensation plans been determined consistent with SFAS No. 123, Autobytel.com's net loss and net loss per share for the years ended December 31, 1996, 1997 and 1998 would approximate the pro forma amounts below:
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 ------- -------- -------- Net loss, as reported.................. $(6,035) $(16,810) $(19,398) Net loss per share, as reported........ (0.73) (2.03) (2.30) Net loss, pro forma.................... (6,270) (17,624) (21,109) Net loss per share, pro forma.......... (0.76) (2.13) (2.51)
The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. 9. SALE OF AUTO-BY-TEL UK LIMITED In November 1998, Autobytel.com entered into an agreement with Inchcape Automotive Limited to sell 100 percent of its United Kingdom operations for a nominal cash amount and assumption of liabilities of $1,794. The sale resulted in a gain of $1,408, which is included in other income in the accompanying consolidated statements of operations. In addition, Autobytel.com entered into a License and Service Agreement with Auto-By-Tel UK Limited, under which it will grant a license to use its proprietary software, technology and other business procedures and provide maintenance and support in exchange for minimum annual license and maintenance payments of $850 and $250, respectively, over a 20-year period. No revenues were recognized under the License and Service Agreement in the year ended December 31, 1998. License revenue will be recognized ratably over the term of the agreement. Maintenance revenue will be recognized ratably over the service period. Revenue attributable to significant support will be based on the price charged or derived value of the undelivered elements and will be recognized ratably over the term of the agreement. F-20 102 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. INCOME TAXES Through May 1996, the LLCs were taxed as partnerships under the provisions of the Internal Revenue Code of 1986 (Internal Revenue Code). Under those provisions, Autobytel.com was not subject to corporate income taxes on its taxable income. Instead, Autobytel.com's taxable income or loss was included in the individual income tax returns of its members. Effective May 31, 1996, under the terms of the Plan of Organization, the LLCs were reorganized as a C Corporation under the provisions of the Internal Revenue Code (See Note 1). The reorganization required that Autobytel.com adopt SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets and liabilities are determined based on the differences between the book and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. The cumulative tax effect of these temporary differences was immaterial at the time of the reorganization. No provision for federal income taxes has been recorded as Autobytel.com incurred net operating losses through December 31, 1998. Provision for income taxes included in the accompanying consolidated statements of operations primarily consists of franchise taxes paid to the state of Delaware. As of December 31, 1998, Autobytel.com had approximately $37.1 million and $18.4 million of federal and state net operating loss carryforwards available to offset future taxable income; such carry forwards expire in various years through 2018. Under the Tax Reform Act of 1986, the amounts of and benefits from Autobytel.com's net operating loss carryforwards will likely be limited upon the completion of the initial public offering due to a cumulative ownership change of more than 50% over a three year period. Based on preliminary estimates, management believes the effect of such limitation, if imposed, will not have a material adverse effect on Autobytel.com. Net deferred income tax assets, totaling approximately $6.3 million at December 31, 1997 and $15.8 million at December 31, 1998, consist primarily of the tax effect of net operating loss carry forwards, reserves and accrued expenses which are not yet deductible for tax purposes. Autobytel.com has provided a full valuation allowance on these deferred income tax assets because of the uncertainty regarding their realization. 11. RELATED PARTY TRANSACTIONS Peter R. Ellis In March 1998, Autobytel.com extended a $250 loan to co-founding member and stockholder, Peter R. Ellis. The loan bears interest at 8% per annum compounded annually and principal and accrued interest are due in full in March 2003. The loan is secured by Mr. Ellis's stock in Autobytel.com. In June 1998, Mr. Ellis resigned from Autobytel.com as Chief Executive Officer. In August 1998, Autobytel.com executed a two year agreement with Mr. Ellis to provide advisory services. Under the agreement, Mr. Ellis received $500 in the first year and is entitled to receive $5 per month in the second year of the agreement term. The amounts paid to Mr. Ellis under this agreement are included in operating expenses in the accompanying consolidated statements of operations. F-21 103 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. BUSINESS SEGMENT Autobytel.com conducts its business within one business segment, which is defined as providing online vehicle purchasing and other related services. 13. SUBSEQUENT EVENTS Proposed Initial Public Offering In January 1999, the Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission to permit Autobytel.com to sell shares of its common stock in connection with the proposed initial public offering (IPO). If the offering is consummated under the terms presently anticipated, the Series A, the Series B and the Series C Preferred (collectively Preferred Stock) outstanding at December 31, 1998 will automatically convert to common stock upon closing of the IPO (See Note 7). 1999 Stock Option Plan In January 1999, the Board of Directors adopted the 1999 Stock Option Plan (the 1999 Option Plan). Autobytel.com has reserved 1,800,000 shares under the 1999 Option Plan. The 1999 Option Plan provides for the granting of stock options to key employees of Autobytel.com. Under the 1999 Option Plan, not more than 1,000,000 shares may be granted after March 31, 1999. The 1999 Option Plan provides for an automatic grant of an option to purchase 20,000 shares of common stock to each non-employee director on the date on which the person first becomes a non-employee director. In each successive year the non-employee director shall automatically be granted an option to purchase 5,000 shares on November 1 of each subsequent year provided the non-employee director has served on the Board for at least six months. Each option shall have a term of 10 years. Such options vest in their entirety and become exercisable on the first anniversary of the grant date, provided that the optionee continues to serve as a director on such date and the exercise price per share shall be 100% of the fair market value of Autobytel.com's common stock on the date of grant. The 1999 Option Plan is identical in all other material respects to the 1998 Option Plan. Rescission Offer for Stock Options Granted in Excess of the 1996 Incentive Plan Limit From May 1997 to January 1999, Autobytel.com issued grants of incentive stock options in excess of the plan limit of 833,333 shares. Subsequent to December 31, 1998, Autobytel.com offered to exchange the affected options for a cash payment or a new grant of incentive stock options under the 1999 Option Plan. In 1999, Autobytel.com has resolved this matter without a material impact on its financial statements. Total cash payments were less than $10. The new stock options were granted at the fair market value at the date of the new grant, which equaled the exercise price of the original options. All other significant provisions associated with the options remained the same. [The inside back cover of the prospectus depicts a map of the United States with dots generally representing the territories covered by United States dealers participating in the Autobytel.com network.] F-22 104 - ------------------------------------------------------ - ------------------------------------------------------ YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS UNLAWFUL. ------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary...................... 3 Risk Factors............................ 6 Use of Proceeds......................... 19 Dividend Policy......................... 19 Capitalization.......................... 20 Dilution................................ 21 Selected Consolidated Financial Data.... 22 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 23 Business................................ 33 Management.............................. 48 Financings and Related Party Transactions.......................... 61 Principal and Selling Stockholders...... 65 Description of Capital Stock............ 67 Shares Eligible for Future Sale......... 70 Certain United States Tax Considerations for Non-U.S. Holders.................. 72 Underwriting............................ 77 Legal Matters........................... 79 Experts................................. 79 Additional Information.................. 79 Index to Consolidated Financial Statements............................ F-1
------------------ UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ 4,500,000 SHARES LOGO AUTOBYTEL.COM INC. COMMON STOCK ------------------- PROSPECTUS ------------------- BT ALEX. BROWN LEHMAN BROTHERS PAINEWEBBER INCORPORATED ------------------ , 1999 - ------------------------------------------------------ - ------------------------------------------------------ 105 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, to be paid in connection with the sale of the common stock being registered, all of which will be paid by the Registrant. All amounts are estimates except the SEC registration, NASD and Nasdaq filing fees. SEC Registration fee....................................... $ 26,000 NASD filing fee............................................ 9,000 Nasdaq National Market listing fee......................... 95,000 Blue Sky fees and expenses................................. 5,000 Accounting fees and expenses............................... 453,000 Legal fees and expenses.................................... 585,000 Transfer agent and registrar fees.......................... 15,000 Printing and engraving expenses............................ 300,000 Miscellaneous expenses..................................... 77,000 ---------- Total............................................ $1,565,000 ==========
- ------------------------- ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware Law General Law ("Delaware Law") and Autobytel.com's certificate of incorporation provide for indemnification of Autobytel.com's directors and officers in a variety of circumstances which may include liabilities under the Securities Act. Article IX of Autobytel.com's certificate of incorporation provides that Autobytel.com shall indemnify to the full extent permitted by the laws of Delaware, as from time to time in effect, the persons described in Section 145 of Delaware Law. The general effect of the provisions in our certificate of incorporation and Delaware Law is to provide that we shall indemnify our directors and officers against all liabilities and expenses actually and reasonably incurred in connection with the defense or settlement of any judicial or administrative proceedings in which they have become involved by reason of their status as corporate directors or officers, if they acted in good faith and in the reasonable belief that their conduct was neither unlawful (in the case of criminal proceedings) nor inconsistent with the best interests of Autobytel.com. With respect to legal proceedings by or in the right of Autobytel.com in which a director or officer is adjudged liable for improper performance of his duty to Autobytel.com or another enterprise which such person served in a similar capacity at the request of Autobytel.com, indemnification is limited by such provisions to that amount which is permitted by the court. We will maintain officers' and directors' liability insurance which will insure against liabilities that our officers and directors may incur in such capacities. We have also entered into indemnification agreements with its directors and officers. Reference is made to the Proposed Form of Underwriting Agreement filed as Exhibit 1.1 which provides for indemnification of the directors and officers of Autobytel.com signing the Registration Statement and certain controlling persons of II-1 106 Autobytel.com against certain liabilities, including those arising under the Securities Act in certain instances, of the Underwriters. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since Autobytel.com's inception, Autobytel.com has made the following sales of securities that were not registered under the Securities Act: 1. On May 31, 1996, Autobytel.com issued and sold 8,250,000 shares of common stock in exchange for membership interests in Autobytel LLC and Autobytel Acceptance Corporation LLC. 2. During the period from May 18, 1996 through December 31, 1998, Autobytel.com granted options to purchase an aggregate of 2,847,496 shares of common stock pursuant to the 1996 Stock Option Plan, 1996 Stock Incentive Plan and 1998 Stock Option Plan of which 248,788 options have been exercised. 3. On August 20, 1996, Autobytel.com issued and sold 1,500,000 shares of series A preferred stock in a private placement for an aggregate consideration of $15.0 million in cash and cancellation of indebtedness. In connection with such financing, Autobytel.com issued (i) 200,000 shares to ContiTrade Services L.L.C. in exchange for $2.0 million in cash, (ii) 400,000 shares to National Union Fire Insurance company of Pittsburgh, PA in exchange for $4.0 million in cash, (iii) 800,000 shares to General Electric Capital Corporation in exchange for $8.0 million in cash, and (iv) 100,000 shares to Michael Fuchs in exchange for $1.0 million in cash and cancellation of indebtedness. 4. On August 26, 1996, Autobytel.com issued and sold 6,667 shares to a consultant of Autobytel.com. 5. On January 30, 1997, Autobytel.com issued and sold 967,915 shares of series B preferred stock in a private placement for an aggregate consideration of $9.05 million in cash. In connection with such financing, Autobytel.com issued (i) 133,690 shares to ContiTrade Services L.L.C. in exchange for $1.25 million in cash, (ii) 267,380 shares to National Union Fire Insurance Company of Pittsburgh, PA in exchange for $2.5 million in cash, (iii) 534,760 shares to General Electric Capital Corporation in exchange for $5.0 million in cash, (iv) 32,085 shares to Michael Fuchs in exchange for $300 thousand in cash. 6. On October 21, 1997, Autobytel.com issued and sold 1,477,274 shares of series C preferred stock in a private placement for an aggregate consideration of $13.0 million in cash. In connection with such financing, Autobytel.com issued (i) 681,819 shares to General Electric Capital Corporation in exchange for approximately $6.0 million in cash; (ii) 227,273 shares to National Union Fire Insurance Company of Pittsburgh in exchange for approximately $2.0 million in cash; and (iii) 568,182 shares to Tozer Kemsley and Millbourn Automotive Ltd., a unit of Inchcape Motors International plc in exchange for approximately $5.0 million in cash. 7. On January 30, 1998, Autobytel.com issued to John M. Markovich a warrant to purchase 33,333 shares of common stock of Autobytel.com (after adjustment for the Reverse Split) at an exercise price of $11.25 per share. The warrant expires on January 30, 2003. 8. On April 20, 1998, Autobytel.com entered into a transaction with National Broadcasting Company, Inc. ("NBC") whereby Autobytel.com issued and sold 56,776 II-2 107 shares of series C preferred stock in exchange for prime time advertisement spots with a fair market value of not less than $499,629. 9. On May 7, 1998 Autobytel.com issued and sold 568,182 shares of series C preferred stock to Bilia AB in a private placement for a total consideration of approximately $5.0 million in cash. 10. On October 30, 1998, Autobytel.com entered into another transaction with NBC whereby Autobytel.com issued and sold 64,233 shares of Series C Stock in exchange for prime time advertisement spots with a fair market value of not less than $565,250. 11. On November 10, 1998, Autobytel.com issued and sold 568,182 shares of Series C Stock to Invision AG for a total consideration of approximately $5,000,000 in cash. 12. On November 10, 1998, Autobytel.com issued to Invision AG a warrant to purchase an aggregate of 150,000 shares of common stock of Autobytel.com at an exercise price of $13.20 per share. This warrant expires on November 10, 2001. 13. On December 16, 1998, Autobytel.com issued and sold 643,182 shares of Series C Stock to Aureus Private Equity AG for a total consideration of approximately $5,660,000 in cash. 14. On December 16, 1998, Autobytel.com issued to Aureus Private Equity AG a warrant to purchase an aggregate of 169,800 shares of common stock of Autobytel.com at an exercise price of $13.20 per share. This warrant expires on December 16, 2001. 15. On December 21, 1998, Autobytel.com issued and sold 1,136,364 shares of Series C Stock to MediaOne Interactive Services, Inc. for a total consideration of approximately $10,000,000 in cash. 16. On December 21, 1998, Autobytel.com issued to MediaOne Interactive Services, Inc. a warrant to purchase an aggregate of 300,000 shares of common stock of Autobytel.com at an exercise price of $13.20 per share. This warrant expires on December 21, 2001. 17. On December 23, 1998, Autobytel.com issued an additional warrant to Aureus Private Equity AG to purchase 120,000 shares of common stock of Autobytel.com at an exercise price of $13.20 per share. This warrant expires on December 23, 2001. 18. On December 24, 1998, Autobytel.com issued and sold an additional 454,545 shares of Series C Stock to Aureus Private Equity AG for a total consideration of approximately $4,000,000 in cash. 19. On December 30, 1998, Autobytel.com issued and sold 1,000 shares of Common Stock to Mr. Kaplan for a total consideration of $13,200 in cash. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and Autobytel.com believes that each transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. We did not engage in any general solicitation in connection with such sales and, other than Rule 701 issuances, believe that each acquiror qualifies as an "accredited II-3 108 investor" under Rule 501. In addition, the recipients in such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES a. Exhibits
NUMBER DESCRIPTION ------ ----------- 1.1* Form of Underwriting Agreement 3.1 Amended and Restated Certificate of Incorporation of autobytel.com inc. certified by the Secretary of State of Delaware (filed December 14, 1998 and amended March 1, 1999) 3.2 Amended and Restated Bylaws of autobytel.com inc. 4.1 Form of Stock Certificate 4.2** Amended and Restated Investors' Rights Agreement dated October 21, 1997, as amended from time to time, between autobytel.com inc. and the Investors named in Exhibit A thereto 4.3 Form of Lock-Up Agreement 5.1** Opinion and Consent of Paul, Hastings, Janofsky & Walker LLP 9.1** Voting Proxy dated January 11, 1999 by Peter R. Ellis 10.1** Form of Indemnification Agreement between autobytel.com inc. and its directors and officers 10.2** Employment Agreement dated July 1, 1998 between autobytel.com inc. and Mark W. Lorimer 10.3* Employment Agreement dated December 17, 1998 between autobytel.com inc. and Anne Delligatta 10.4 Amended and Restated Employment and Severance Agreement dated March 4, 1999 between autobytel.com inc. and Michael J. Lowell 10.5** 1996 Stock Option Plan and related agreements 10.6** 1996 Stock Incentive Plan and related agreements 10.7** 1996 Employee Stock Purchase Plan 10.8** 1998 Stock Option Plan 10.9** Marketing Agreement dated July 22, 1996, as amended on July 23, 1996, by and among Auto-By-Tel Acceptance Corporation, a subsidiary of the Registrant ("ABTAC"), the Registrant, as guarantor of the obligations of ABTAC, and AIU Insurance Company, American International South Insurance Company, American Home Assurance Company, American International Insurance Company, American International Insurance Company of California, Inc., Illinois National Insurance Company, Minnesota Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA and the Insurance Company of the State of Pennsylvania 10.10** Marketing Agreement dated February 8, 1996 between Auto-By-Tel, LLC and Edmund Publications Corp. 10.11** Amendment to Marketing Agreement dated February 8, 1996 between Edmund Publications Corp. and the Registrant 10.12** Form of Dealership Agreements
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NUMBER DESCRIPTION ------ ----------- 10.13** Financing Inquiry Referral Agreement dated October 25, 1996 among Auto-By-Tel, Inc, as guarantor, Auto-By-Tel Acceptance Corporation and Chase Manhattan Automotive Finance Corporation 10.14** Marketing and Application Processing Agreement dated February 1, 1997 between General Electric Capital Auto Financial Services, Inc., Auto-By-Tel Acceptance Corporation ("ABTAC") and Auto-By-Tel, Inc., as guarantor 10.15 Content License and Channel Sponsorship Term Sheet dated September 12, 1997 between Excite, Inc. and Auto-By-Tel 10.16** Data License and Web Site Agreement dated April 1, 1997 between IntelliChoice, Inc. and Auto-By-Tel Marketing Corporation and the Registrant 10.17** Kelley Blue Book/Auto-By-Tel Agreement dated November 19, 1997, as amended July 1, 1998, between Kelley Blue Book and Auto-By-Tel Corporation 10.18** Listings Distribution, Sponsorship, Display Advertising and Network Affiliation Agreement dated May 29, 1997 between Classifieds2000, Inc. and Auto-By-Tel Corporation 10.19** License Agreement dated June 4, 1998 among J.D. Power and Associates, Auto-By-Tel Marketing Corporation, and the Registrant 10.20** Site Page Sponsorship and Commission Agreement dated June 25, 1997, between Auto-By-Tel Marketing Corporation and AT&T Corporation 10.21** Letter agreement dated April 1, 1997, between Auto-By-Tel Marketing Corporation and NBC Multimedia Inc. 10.22 Sponsorship Agreement, dated as of June 24, 1998, between Excite, Inc. and Auto-By-Tel Corporation 10.23** License and Services Agreement dated August 7, 1998 between autobytel.com inc. and Auto-By-Tel AB 10.24** License and Services Agreement dated November 23, 1998 between autobytel.com inc. and Auto-by-Tel UK Limited 10.25** Share Purchase Agreement dated November 23, 1998 between autobytel.com inc. and Inchcape Automotive Limited 10.26** Financing Inquiry Referral Agreement dated December 31, 1998 between Provident Bank, Auto-By-Tel Acceptance Corporation and autobytel.com inc., as guarantor 10.27** Procurement and Trafficking Agreement dated September 24, 1998 between DoubleClick Inc. and autobytel.com inc. 10.28** Loan Agreement dated November 18, 1998 between Ann Benvenuto and autobytel.com inc. 10.29** Advisory Agreement dated August 20, 1998 between autobytel.com inc. and Peter R. Ellis 10.30** 1999 Stock Option Plan 10.31** Form of Gold Term Subscription Agreement 10.32** Form of Platinum Term Continuation Rider 10.33 Marketing Agreement dated February 18, 1999 between autobytel.com inc. and Lycos, Inc.
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NUMBER DESCRIPTION ------ ----------- 11.1** Statement Regarding Computation of Per Share Earnings 21.1 Subsidiaries of autobytel.com inc. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants 23.2** Consent of Paul, Hastings, Janofsky & Walker LLP (reference is made to Exhibit 5.1) 23.3* Consent of CNW Marketing Research 24.1 Power of Attorney (reference is made to the signature page) 27.1** Financial Data Schedule
- ------------------------- * To be filed by Amendment. ** Previously filed. (b) Financial Statement Schedules ITEM 17. UNDERTAKINGS (a) The Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted against the Registrant by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act (sec. 230.424(b)(1) or (4) or 230.497(h)) shall be deemed to be part of this Registration Statement as of the time the Commission declared it effective. (2) For purposes of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement for the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 111 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, hereunto duly authorized, in the City of Irvine, State of California, on March 5, 1999. autobytel.com inc. By: /s/ MARK W. LORIMER ----------------------------------- Name: Mark W. Lorimer Title: Chief Executive Officer, President and Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that Richard Post constitutes and appoints Mark W. Lorimer and Hoshi Printer, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for Richard Post and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and any other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as Richard Post might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or such person's substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ RICHARD POST Director March 5, 1999 - ------------------------------------------------ Richard Post
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
NAME TITLE DATE ---- ----- ---- * Chairman of the Board March 5, 1999 - ------------------------------------------------ and Director Michael Fuchs * Director March 5, 1999 - ------------------------------------------------ Jeffrey H. Coats * Director March 5, 1999 - ------------------------------------------------ Mark N. Kaplan
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NAME TITLE DATE ---- ----- ---- * Director March 5, 1999 - ------------------------------------------------ Kenneth J. Orton * Executive Vice March 5, 1999 - ------------------------------------------------ President and Director Robert S. Grimes /s/ MARK W. LORIMER Chief Executive March 5, 1999 - ------------------------------------------------ Officer, President and Mark W. Lorimer Director (Principal Executive Officer) /s/ HOSHI PRINTER Senior Vice President March 5, 1999 - ------------------------------------------------ and Chief Financial Hoshi Printer Officer (Principal Financial Officer and Principal Accounting Officer) * Executive Vice March 5, 1999 - ------------------------------------------------ President and Chief Ann M. Delligatta Operating Officer * Director March 5, 1999 - ------------------------------------------------ Peter Titz /s/ RICHARD POST Director March 5, 1999 - ------------------------------------------------ Richard Post *By: /s/ HOSHI PRINTER --------------------------------------- Hoshi Printer, Attorney-in-Fact
II-8 113 EXHIBIT INDEX
SEQUENTIALLY NUMBERED PAGE NUMBER DESCRIPTION NUMBER ------ ----------- ------------ 1.1* Form of Underwriting Agreement 3.1 Amended and Restated Certificate of Incorporation of autobytel.com inc. certified by the Secretary of State of Delaware (filed December 14, 1998 and amended March 1, 1999) 3.2 Amended and Restated Bylaws of autobytel.com inc. 4.1 Form of Stock Certificate 4.2** Amended and Restated Investors' Rights Agreement dated October 21, 1997 as amended from time to time, between autobytel.com inc. and the Investors named in Exhibit A thereto 4.3 Form of Lock-Up Agreement 5.1** Opinion and Consent of Paul, Hastings, Janofsky & Walker LLP 9.1** Voting Proxy dated January 11, 1999 by Peter R. Ellis 10.1** Form of Indemnification Agreement between autobytel.com inc. and its directors and officers 10.2** Employment Agreement dated July 1, 1998 between autobytel.com inc. and Mark W. Lorimer 10.3* Employment Agreement dated December 17, 1998 between autobytel.com.inc. and Anne Delligatta 10.4 Amended and Restated Employment and Severance Agreement dated March 5, 1999 between autobytel.com.inc. and Michael J. Lowell 10.5** 1996 Stock Option Plan and related agreements 10.6** 1996 Stock Incentive Plan and related agreements 10.7** 1996 Employee Stock Purchase Plan 10.8** 1998 Stock Option Plan 10.9** Marketing Agreement dated July 22, 1996, as amended on July 23, 1996, by and among Auto-By-Tel Acceptance Corporation, a subsidiary of the Registrant ("ABTAC"), the Registrant, as guarantor of the obligations of ABTAC, and AIU Insurance Company, American International South Insurance Company, American Home Assurance Company, American International Insurance Company, American International Insurance Company of California, Inc., Illinois National Insurance Company, Minnesota Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA and the Insurance Company of the State of Pennsylvania 10.10** Marketing Agreement dated February 8, 1996 between Auto-By-Tel, LLC and Edmund Publications Corp.
114
SEQUENTIALLY NUMBERED PAGE NUMBER DESCRIPTION NUMBER ------ ----------- ------------ 10.11** Amendment to Marketing Agreement dated February 8, 1996 between Edmund Publications Corp. and the Registrant 10.12** Form of Dealership Agreements 10.13** Financing Inquiry Referral Agreement dated October 25, 1996 among Auto-By-Tel, Inc, as guarantor, Auto-By-Tel Acceptance Corporation and Chase Manhattan Automotive Finance Corporation 10.14** Marketing and Application Processing Agreement dated February 1, 1997 between General Electric Capital Auto Financial Services, Inc., Auto-By-Tel Acceptance Corporation ("ABTAC") and Auto-By-Tel, Inc., as guarantor 10.15 Content License and Channel Sponsorship Term Sheet dated September 12, 1997 between Excite, Inc. and Auto-By-Tel 10.16** Data License and Web Site Agreement dated April 1, 1997 between IntelliChoice, Inc. and Auto-By-Tel Marketing Corporation and the Registrant 10.17** Kelley Blue Book/Auto-By-Tel Agreement dated November 19, 1997, as amended July 1, 1998, between Kelley Blue Book and Auto-By-Tel Corporation 10.18** Listings Distribution, Sponsorship, Display Advertising and Network Affiliation Agreement dated May 29, 1997 between Classifieds2000, Inc. and Auto-By-Tel Corporation 10.19** License Agreement dated June 4, 1998 among J.D. Power and Associates, Auto-By-Tel Marketing Corporation, and the Registrant 10.20** Site Page Sponsorship and Commission Agreement dated June 25, 1997, between Auto-By-Tel Marketing Corporation and AT&T Corporation 10.21** Letter agreement dated April 1, 1997, between Auto-By-Tel Marketing Corporation and NBC Multimedia Inc. 10.22 Sponsorship Agreement, dated as of June 24, 1998, between Excite, Inc. and Auto-By-Tel Corporation 10.23** License and Services Agreement dated August 7, 1998 between autobytel.com inc. and Auto-By-Tel AB 10.24** License and Services Agreement dated November 23, 1998 between autobytel.com inc. and Auto-by-Tel UK Limited 10.25** Share Purchase Agreement dated November 23, 1998 between autobytel.com inc. and Inchcape Automotive Limited 10.26** Financing Inquiry Referral Agreement dated December 31, 1998 between Provident Bank, Auto-By-Tel Acceptance Corporation and autobytel.com inc., as guarantor
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SEQUENTIALLY NUMBERED PAGE NUMBER DESCRIPTION NUMBER ------ ----------- ------------ 10.27** Procurement and Trafficking Agreement dated September 24, 1998 between DoubleClick Inc. and autobytel.com inc. 10.28** Loan Agreement dated November 18, 1998 between Ann Benvenuto and autobytel.com inc. 10.29** Advisory Agreement dated August 20, 1998 between autobytel.com inc. and Peter R. Ellis 10.30** 1999 Stock Option Plan 10.31** Form of Gold Term Subscription Agreement 10.32** Form of Platinum Term Continuation Rider 10.33 Marketing Agreement dated February 18, 1999 between autobytel.com inc. and Lycos, Inc. 11.1** Statement Regarding Computation of Per Share Earnings 21.1 Subsidiaries of autobytel.com inc. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants 23.2** Consent of Paul, Hastings, Janofsky & Walker LLP (reference is made to Exhibit 5.1) 23.3* Consent of CNW Marketing Research 24.1 Power of Attorney (reference is made to the signature page) 27.1** Financial Data Schedule
- ------------------------- * To be filed by Amendment. ** Previously filed. EX-3.1 2 AMENDED & RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 AUTOBYTEL.COM INC. FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION Autobytel.com inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies under penalty of perjury under the laws of the State of Delaware as follows: FIRST: That this Corporation was originally incorporated on May 17, 1996 under the name of Auto-By-Tel Corporation, pursuant to the General Corporation Law of the State of Delaware (the "Delaware General Corporation Law"). SECOND: That pursuant to Section 141 and 242 of the Delaware General Corporation Law, the Board of Directors has duly adopted resolutions proposing to amend and restate the Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on April 16, 1998, as amended on July 22, 1998, declaring said amendment and restatement to be advisable and in the best interests of this Corporation and its stockholders. THIRD: That pursuant to Section 228 and 242 of the Delaware General Corporation Law, the changes to be effected by this Fifth Amended and Restated Certificate of Incorporation have been duly approved by the holders of the requisite number of shares of this Corporation. FOURTH: That pursuant to Section 242 and 245 of the General Corporation Law of the State of Delaware, this Fifth Amended and Restated Certificate of Incorporation restates and amends the provisions of this Corporation's Amended and Restated Certificate of Incorporation. FIFTH: That the text of the Amended and Restated Certificate of Incorporation is hereby restated and amended in its entirety as set forth in Exhibit A attached hereto. 2 IN WITNESS WHEREOF, this Fifth Amended and Restated Certificate of Incorporation has been signed this 14th day of December, 1998. AUTOBYTEL.COM INC. By: /s/ Mark W. Lorimer ------------------------------- Title: President ATTEST: By: /s/ Craig S. Frost ------------------------------- Title: Secretary 2 3 Exhibit A --------- FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AUTOBYTEL.COM INC. A Delaware Corporation ARTICLE I The name of the corporation is autobytel.com inc. (the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, zip code 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. ARTICLE IV A. Classes of Stock. This Corporation is authorized to issue two classes of stock, to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares that this Corporation is authorized to issue is sixty-one million four hundred forty-five thousand one hundred eighty-seven (61,445,187). The number of shares of Preferred Stock authorized to be issued is eleven million four hundred forty-five thousand one hundred eighty-seven (11,445,187), par value $0.001 per share, one million five hundred thousand (1,500,000) of which have been designated Series A Preferred Stock (the "Series A Preferred Stock"), nine hundred sixty-seven thousand nine hundred fifteen (967,915) of which have been designated Series B Preferred Stock (the "Series B Preferred Stock"), six million nine hundred seventy-seven thousand two hundred seventy-two (6,977,272) of which have been designated Series C Preferred Stock (the "Series C Preferred Stock") and two million (2,000,000) of which shall be undesignated. The Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock shall be hereinafter referred to collectively as the "Preferred Stock." The number of shares of Common Stock authorized to be issued is fifty million (50,000,000), par value $0.001 per share. 3 4 B. Rights, Preferences and Restrictions of the Preferred Stock. The undesignated shares of Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. The rights, preferences, privileges, and restrictions granted to and imposed on the Preferred Stock are as set forth below in this Article IV(B). Section 1. Dividends. (a) The holders of outstanding shares of Series C Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, payable in preference and priority to any declaration or payment of any dividend on the Series A Preferred Stock, Series B Preferred Stock or Common Stock of the Corporation, dividends in cash at an annual rate of $0.80 per share of Series C Preferred Stock. The holders of outstanding shares of Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, payable in preference and priority to any declaration or payment of any dividend on the Series B Preferred Stock or Common Stock of the Corporation, dividends in cash at an annual rate of $0.80 per share of Series A Preferred Stock. The holders of outstanding shares of Series B Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, payable in preference and priority to any declaration or payment of any dividend on the Common Stock of the Corporation, dividends in cash at an annual rate of $0.80 per share of Series B Preferred Stock. The right to such dividends shall not be cumulative and no right to such dividends shall accrue to holders of Preferred Stock by reason of the fact that dividends on such shares are not declared in any prior year. No dividend or other distribution shall be made with respect to the Series B Preferred Stock in any fiscal year until full dividends at the rate set forth in this Section 1(a) have been paid on the Series C Preferred Stock and Series A Preferred Stock. No dividend or other distribution shall be made with respect to the Series A Preferred Stock in any fiscal year until full dividends at the rate set forth in this Section 1(a) have been paid on the Series C Preferred Stock. No dividend or other distribution shall be made with respect to the Common Stock in any fiscal year until full dividends at the rate set forth in this Section 1(a) have been paid on the Preferred Stock. 4 5 (b) Definition of Distribution. For purposes of this Section 1, unless the context otherwise requires, a "distribution" shall mean the transfer of cash or other property without consideration whether by way of dividend or otherwise, payable other than in Common Stock, or the purchase or redemption of shares of the Corporation (other than repurchases at cost of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase) for cash or property. Section 2. Liquidation Preference. (a) In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, the holders of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Series A Preferred Stock, Series B Preferred Stock or Common Stock, an amount equal to $8.80 per share for each share of Series C Preferred Stock then held by them (as adjusted for any stock split, combination, consolidation, or stock distributions or stock dividends effected with respect to such shares after the Original Issue Date) plus all declared but unpaid dividends, if any (the "Series C Liquidation Preference"); provided that upon the occurrence of any event described in Section 2(e) below, the holders of Series C Preferred Stock shall be entitled to receive, at their option, either the Series C Liquidation Preference described above or the consideration, if any, which would be payable to such holders as if they had converted their shares of Series C Preferred Stock into Common Stock immediately prior to such event. If the assets and funds thus distributed among the holders of Series C Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and surplus funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock in proportion to the number of shares of Series C Preferred Stock then held by them. (b) After payment has been made to the holders of Series C Preferred Stock of the full amounts to which they shall be entitled as set forth in subparagraph (a) of this Section 2, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Series B Preferred Stock or Common Stock, an amount equal to $10.00 per share for each share of Series A Preferred Stock then held by them (as adjusted for any stock split, combination, consolidation, or stock distributions or stock dividends effected with respect to such shares after the Original Issue Date) plus all declared but unpaid dividends, if any (the "Series A Liquidation Preference"); provided that upon the occurrence of any event described in Section 2(e) below, the holders of Series A Preferred Stock shall be entitled to receive, at their option, either the Series A Liquidation Preference described above or the consideration, if any, which would be payable to such holders as if they had converted their shares of Series A Preferred Stock into Common Stock immediately prior to such event. 5 6 If the assets and funds thus distributed among the holders of Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and surplus funds of the Corporation legally available for distribution to the holders of Series A Preferred Stock shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock then held by them. (c) After payment has been made to the holders of Series C Preferred Stock and Series A Preferred Stock of the full amounts to which they shall be entitled as set forth in subparagraphs (a) and (b) of this Section 2, the holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock, an amount equal to $9.35 per share for each share of Series B Preferred Stock then held by them (as adjusted for any stock split, combination, consolidation, or stock distributions or stock dividends effected with respect to such shares after the Original Issue Date) plus all declared but unpaid dividends, if any (the "Series B Liquidation Preference"); provided that upon the occurrence of any event described in Section 2(e) below, the holders of Series B Preferred Stock shall be entitled to receive, at their option, either the Series B Liquidation Preference described above or the consideration, if any, which would be payable to such holders as if they had converted their shares of Series B Preferred Stock into Common Stock immediately prior to such event. If the assets and funds thus distributed among the holders of Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and surplus funds of the Corporation legally available for distribution to the holders of Series B Preferred Stock shall be distributed ratably among the holders of the Series B Preferred Stock in proportion to the number of shares of Series B Preferred Stock then held by them. (d) After payment has been made to the holders of Preferred Stock of the full amounts to which they shall be entitled as set forth in subparagraphs (a), (b) and (c) of this Section 2, then the entire remaining assets and surplus funds of the Corporation legally available for distribution, if any, shall be distributed ratably among the holders of Common Stock based upon the number of shares of Common Stock then held by them. (e) A merger or consolidation of the Corporation with or into any other corporation or corporations, or the merger of any other corporation or corporations into the Corporation, in which the stockholders of the Corporation receive distributions in cash or securities of another corporation or corporations as a result of such consolidation or merger and in which the stockholders of the Corporation do not own at least 50% of the voting power of the surviving corporation after the consolidation or merger, or a sale of all or substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 2. 6 7 Section 3. Conversion. The holders of the Preferred Stock shall have conversion rights (the "Conversion Rights") as follows: (a) Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of this Corporation or any transfer agent for the Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $10.00 in the case of the Series A Preferred Stock, $9.35 in the case of the Series B Preferred Stock, or $8.80 in the case of the Series C Preferred Stock by the Conversion Price, determined as hereinafter provided, in effect for such series of Preferred Stock at the time of conversion. The initial Conversion Price per share shall be $9.00 for the Series A Preferred Stock, $10.36 for the Series B Preferred Stock and $13.20 for the Series C Preferred Stock. The Conversion Price per share of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock shall be subject to adjustment as hereinafter provided. Upon conversion, all declared and unpaid dividends on the Preferred Stock shall be paid in cash, to the extent legally permitted and in accordance with Section 4(B)(1)(a) hereof. (b) Automatic Conversion. (i) Each share of Preferred Stock shall, with notice to the holders thereof delivered promptly thereafter, automatically be converted into shares of Common Stock at the applicable Conversion Price then in effect upon the earlier of (A) the date upon which this Corporation obtains the consent of the holders of two-thirds of the then outstanding shares of Preferred Stock, voting together as a single class, (B) (1) in the case of Series A Preferred Stock, the date on which fewer than 300,000 shares of Series A Preferred Stock (appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends effected with respect to such shares after the Original Issue Date) remain outstanding, (2) in the case of Series B Preferred Stock, the date on which fewer than 200,000 shares of Series B Preferred Stock (appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends effected with respect to such shares after the Original Issue Date) remain outstanding, (3) in the case of Series C Preferred Stock, the date on which fewer than 250,000 shares of Series C Preferred Stock (appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends effected with respect to such shares after the Original Issue Date) remain outstanding, or (C) the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public at a price per share (before deduction of underwriter discounts and commissions and offering expenses) of not less than $13.50 per share (appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends effected with respect to such shares after the date of the filing of this Certificate of Incorporation) and an aggregate offering price to the public of not less than $30,000,000 (the "Initial Public Offering"). 7 8 (ii) In the event of the automatic conversion of the Preferred Stock as set forth in Section 3(b)(i)(C) above, the person(s) entitled to receive the Common Stock issuable upon such conversion shall not be deemed to have converted such shares until immediately prior to the closing of such sale of securities. (c) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then current fair value of the Common Stock, as determined in good faith by the Board of Directors. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued; provided, however, that in the event of an automatic conversion pursuant to Section 3(b)(i), the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent. The Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, or in the case of automatic conversion on the record date for such conversion, which shall not be earlier than the date notice of conversion is received by holders, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) Adjustments to Conversion Price for Stock Splits, Distributions and Recapitalizations. (i) Stock Splits, Subdivisions, Dividends and Distributions. In the event this Corporation should at any time or from time to time after the Original Issue 8 9 Date (as defined below), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price in effect for each series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. (ii) Combinations. If the number of shares of Common Stock outstanding at any time after the Original Issue Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination (or the date of such combination if no record date is fixed), the Conversion Price in effect for each series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of Preferred Stock shall be decreased in proportion to such decrease in outstanding shares. (iii) Other Distributions. In the event this Corporation shall at any time or from time to time after the Original Issue Date, fix a record date for the determination of holders of Common Stock entitled to receive a distribution payable in securities of the Corporation or other persons, evidences of indebtedness issued by this Corporation or other persons, assets or options or rights not referred to in Section 3(d)(i), then, in each such case for the purpose of this Section 3(d)(iii), the holders of shares of Preferred Stock shall, as of such record date, be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of such record date. (iv) Recapitalization. If at any time or from time to time there shall be a recapitalization of the Common Stock whereby the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by reorganization, reclassification or otherwise, (other than a subdivision, dividend, combination or merger or sale of assets transaction provided for elsewhere in this Section 3), provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the shares of Preferred Stock the number of shares of stock or other securities or property of the Corporation which a holder of Common Stock deliverable upon conversion would have been entitled to receive on such recapitalization. In any such case, appropriate adjustment shall be made in the 9 10 application of the provisions of this Section 3 with respect to the rights of the holders of Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Conversion Price then in effect for each series of Preferred Stock and the number of shares issuable upon conversion of shares of Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (e) Adjustments to Conversion Price. Subject to the terms of Section 6 hereof, the Conversion Price in effect from time to time for each series of Preferred Stock shall be subject to adjustment in certain cases as follows: (i) Special Definitions. For purposes of this Section 3, the following definitions shall apply: (A) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date on which the first share of such series of Preferred Stock was first issued. (C) "Convertible Securities" shall mean any evidences of indebtedness, Preferred Stock or other securities convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common" shall mean all shares of Common Stock issued (or, pursuant to Section 3(e)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: (1) upon conversion of shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock; (2) up to a maximum of 3,333,333 shares (as appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends effected with respect to such shares after the date of the filing of this Certificate of Incorporation) to officers, directors or employees of, or consultants to, the Corporation (other than Peter Ellis or John Bedrosian) pursuant to a stock grant, stock option plan or stock purchase plan or other stock incentive agreement or arrangement approved by the Board of Directors; (3) as a dividend or distribution on Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock; 10 11 (4) in connection with any transaction for which adjustment is made pursuant to Section 3(d) hereof; (5) upon the exercise of warrants granted incidental to a bona fide commercial transaction (unless the grant of such warrant is opposed by the holders of more than two-thirds of the Preferred Stock, voting together as a single class, following notice from the Corporation to the holders of Preferred Stock to be delivered to such holders at least ten (10) business days prior to such grant; provided further that no notice need be given and the holders of the Preferred Stock shall not have the right to object to the issuance of warrants to purchase up to a maximum of 3,333 shares so long as they are granted incidental to a bona fide commercial transaction and approved by the Board of Directors); and (6) any shares of Common Stock issued, issuable or, pursuant to Section 3(e)(iii), deemed to be issued, if the holders of a majority of the Series A Preferred Stock and Series B Preferred Stock and Series C Preferred Stock, voting together as a class, agree in writing that such shares shall not constitute Additional Shares of Common. (ii) No Adjustment of Conversion Price. Subject to the terms of Section 6 hereof, no adjustment in the Conversion Price for each series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share for an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Conversion Price for such series in effect on the date of, and immediately prior to, such issue. (iii) Options and Convertible Securities. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number, including provisions designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 3(e)(v) hereof) of such Additional Shares of Common would be less than the Conversion Price for such series of Preferred Stock in effect on the date of, and immediately prior to, such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common are deemed to be issued: 11 12 (A) no further adjustment in the Conversion Price for a series of Preferred Stock shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time, by reason of antidilution provisions or otherwise, for any change in the consideration payable to the Corporation, or change in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such change becoming effective, be recomputed to reflect an appropriate increase or decrease reflecting such change insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; provided, however, that no such adjustment of the Conversion Price shall affect Common Stock previously issued upon conversion of the Preferred Stock; (C) upon the expiration or cancellation of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration or cancellation, be recomputed as if: 1) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all Convertible Securities which were actually converted or exchanged plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange; and 2) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; and 12 13 (D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (1) the applicable Conversion Price on the original adjustment date, or (2) the applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common between the original adjustment date and such readjustment date. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common. In the event this Corporation shall issue Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to Section 3(e)(iii)) for a consideration per share less than the Conversion Price for a particular series of Preferred Stock in effect on the date of, and immediately prior to, such issue, then and in such event, the Conversion Price of such series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price, and (y) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common so issued; provided, that, for the purposes of this Section 3(e)(iv), all shares of Common Stock issuable upon exercise, conversion or exchange of outstanding Options or Convertible Securities or Preferred Stock shall be deemed to be outstanding; and, further provided, that immediately after any Additional Shares of Common are deemed issued pursuant to Section 3(e)(iii), such Additional Shares of Common shall be deemed to be outstanding. (v) Determination of Consideration. For purposes of this Section 3(e), the consideration received by the Corporation for the issue of any Additional Shares of Common shall be computed as follows: (A) Such consideration shall: 1) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; 2) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith in the exercise of reasonable business judgment by the Board of Directors of the Corporation; and 3) in the event Additional Shares of Common are issued together with other shares or securities or other assets of the Corporation for 13 14 consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (1) and (2) above, as determined in good faith by the Board of Directors of the Corporation. (B) Options and Convertible Securities. 1) The consideration per share received by the Corporation for Additional Shares of Common deemed to have been issued pursuant to Section 3(e)(iii) shall be the sum of (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities plus (y) the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration, including any provisions designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities. 2) The number of Additional Shares of Common deemed to have been issued pursuant to Section 3(e)(iii) hereof shall be the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number, including any provisions designed to protect against dilution) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (f) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price in effect for a series of Preferred Stock pursuant to this Section 3, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of shares of such series of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of such series of Preferred Stock. Section 4. Redemption. The Preferred Stock shall not be redeemable. 14 15 Section 5. Voting Rights. (a) General. Except as otherwise required by law or as set forth herein, each holder of shares of Preferred Stock shall be entitled to vote in all matters for which shareholders are entitled to vote, that number of votes equal to the whole number of shares of the Corporation's Common Stock issued or issuable upon the conversion of such holder's shares of Preferred Stock immediately after the close of business on the record date fixed for a shareholder meeting or the effective date of such written consent. (b) Board of Directors. The authorized number of directors of the Corporation shall be set forth in the Bylaws of the Corporation and may be increased or decreased by an amendment to such Bylaws in accordance with their provisions. As long as 600,000 or more of the shares (appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends effected with respect to such shares after the Original Issue Date) of Series A Preferred Stock remain outstanding, the holders of shares of Series A Preferred Stock, voting separately as a class, shall be entitled to elect one (1) director of the Corporation at each annual election of directors (and to fill any vacancies with respect thereto); provided that if the authorized number of directors is increased to greater than five (5) members, the holders of shares of Series A Preferred Stock, voting separately as a class, shall be entitled to elect two (2) directors at each annual election of directors (and to fill any vacancies with respect thereto). Section 6. Covenants. In addition to any other rights provided by law, so long as at least an aggregate of 600,000 shares of Preferred Stock are outstanding, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of two-thirds of the outstanding shares of the Preferred Stock, voting as a single class: (a) amend or repeal any provision of, or add any provision to, this Corporation's Certificate of Incorporation or Bylaws if such action would alter or change the preferences, rights, privileges, or powers of, or the restrictions provided for the benefit of, any series of Preferred Stock in an adverse manner; (b) increase the number of directors to greater than ten (10) members; (c) increase the number of authorized shares of any series of Preferred Stock; (d) sell any shares for consideration other than cash or the forgiveness of debt; (e) authorize any new shares or reclassify any Common Stock into shares of any class of stock having any preference or priority as to dividends, redemption rights, liquidation preferences, conversion rights, voting rights or rights otherwise superior to or on a parity with any such preference or priority of any series of outstanding Preferred Stock; 15 16 (f) sell or otherwise dispose of all or substantially all of the assets or business of the Corporation; (g) effect a consolidation, reorganization or merger (including, without limitation, the issuance of any shares of stock, or rights to acquire shares of stock, which would result in the stockholders of the Corporation immediately prior to such issuance owning less than two-thirds of the voting power of the Corporation on a fully diluted basis after such issuance) of the Corporation with or into any other corporation; (h) declare or pay any dividends, in cash or otherwise, or make any distributions to its shareholders, or purchase, redeem or otherwise acquire any of its outstanding capital stock, or set apart assets for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any shares of its capital stock; (i) purchase, acquire or agree to purchase or acquire or invest in the business, property or assets of, or any securities of, any other company or business, except that the Corporation may (A) invest its excess cash in Cash Equivalents and (B) make such purchase, acquisition or investment with respect to a wholly-owned subsidiary of the Corporation to the extent otherwise permitted hereunder; (j) create, assume, incur, issue, guarantee or otherwise become directly or indirectly liable in respect of any Indebtedness; (k) sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any properties or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate other than in the ordinary course of business. For purposes of this Section 6: 1) the term "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (ii) certificates of deposit or Eurodollar time deposits having maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (ii) entered into with any financial institution meeting the qualifications described in clause (ii) above, and (iv) commercial paper of any person that is not a subsidiary or an Affiliate of the Corporation having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, and maturing within six months after the date of acquisition; 16 17 2) the term "Indebtedness" means, with respect to any person or entity, calculated without duplication, any indebtedness of such person or entity, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or bankers' acceptances or representing capital lease obligations or the balance deferred and unpaid of the purchase price of any property, or guarantees of any of the foregoing, except any such balance that constitutes an accrued expense or trade payable to the extent that any such accrued expense or trade payable is not more than 90 days overdue or is otherwise being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; and 3) the term "Affiliate" means, with respect to any person or entity, any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with, such person or entity (for purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person or entity, whether through the ownership of voting securities, by agreement or otherwise); provided that no holder of Preferred Stock (or Common Stock issued upon conversion thereof) shall be deemed to be an Affiliate. Notwithstanding the foregoing, the Corporation may undertake an initial public offering unless the initial public offering is opposed in writing by the holders of two-thirds of the Preferred Stock, voting as a single class, following notice to such holders at least 30 days prior to the filing of a registration statement with the Securities and Exchange Commission relating to such initial public offering. In addition, in connection with any such initial public offering, unless the holders of two-thirds of the Preferred Stock shall have opposed such initial public offering as aforesaid, the holders of the Preferred Stock shall not have a separate vote as a single class with respect to amendments to the Certificate of Incorporation in connection with such initial public offering to increase the authorized Common Stock, create a class of undesignated Preferred Stock, or effect a stock split, which amendments are proposed in connection with such initial public offering. Notwithstanding any other provision herein, the requirement of the approval of the holders of two-thirds of the holders of Preferred Stock in this Section 6 shall not be amended or modified without the unanimous approval of the holders of Preferred Stock. Section 7. Reacquired Shares. Any shares of Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 17 18 Section 8. Status of Converted or Redeemed Stock. In the event any shares of Preferred Stock shall be redeemed or converted, the shares so converted or redeemed shall be canceled and shall not have the status of authorized but unissued shares of Preferred Stock and shall not be issuable by the Corporation and the Certificate of Incorporation of this Corporation shall be amended to effect the corresponding reduction in the Corporation's capital stock. ARTICLE V The Corporation is to have perpetual existence. ARTICLE VI The election of directors need not be by written ballot unless a stockholder demands election by written ballot at a meeting of stockholders and before voting begins or unless the Bylaws of the Corporation shall so provide. ARTICLE VII The number of directors which constitute the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation. ARTICLE VIII In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, alter, amend or repeal the Bylaws of the Corporation. ARTICLE IX (A) No director shall be personally liable to the Corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director (1) shall be liable under Section 174 of the General Corporation Law of the State of Delaware or any amendment thereto or successor provision thereto, or (2) shall be liable by reason that, in addition to any and all other requirements for liability, he: (i) shall have breached his duty of loyalty to the Corporation or its stockholders; (ii) shall not have acted in good faith or, in failing to act, shall not have acted in good faith; 18 19 (iii) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law; or (iv) shall have derived an improper personal benefit. If the Delaware General Corporation Law is amended after the date hereof to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. (B) The Corporation shall indemnify to the fullest extent permitted under and in accordance with the laws of the State of Delaware any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (C) Expenses incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding shall (in the case of any action, suit or proceeding against a director of the Corporation) or may (in the case of any action, suit or proceeding against an officer, employee or agent) be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board upon receipt of an undertaking by or on behalf of the indemnified person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article IX. (D) The indemnification and other rights set forth in this Article IX shall not be exclusive of any provisions with respect thereto in the By-Laws or any other contract or agreement between the Corporation and any officer, director, employee or agent of the Corporation. (E) Neither the amendment nor repeal of this Article IX, paragraph (B), (C) or (D), nor the adoption of any provision of this Certificate of Incorporation inconsistent with Article IX, paragraph (B), (C) or (D), shall eliminate or reduce the effect of this Article IX, paragraphs (B), (C) or (D), in respect of any matter occurring before such amendment, repeal or adoption of an inconsistent provision or in respect of any cause of 19 20 action, suit or claim relating to any such matter which would have given rise to a right of indemnification or right to receive expenses pursuant to this Article IX, paragraph (B), (C) or (D), if such provision had not been so amended or repealed or if a provision inconsistent therewith had not been so adopted. ARTICLE X At the election of directors of the Corporation, each holder of stock of any class or series shall be entitled to one vote for each share held. No stockholder will be permitted to cumulate votes at any election of directors. ARTICLE XI Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the laws of the State of Delaware) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE XII Effective upon the Initial Public Offering (as defined in Article IV Section 3(b)(i) above), the stockholders of the Corporation may not take action by written consent without a meeting but must take such action at a duly called annual or special meeting of stockholders. ARTICLE XIII Subject to the limitations set forth herein, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights conferred herein are granted subject to this reservation." 20 21 CERTIFICATE OF AMENDMENT OF THE FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AUTOBYTEL.COM INC. A Delaware Corporation Autobytel.com inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies under penalty of perjury under the laws of the State of Delaware as follows: FIRST: That this Corporation was originally incorporated on May 17, 1996 under the name of Auto-By-Tel Corporation, pursuant to the General Corporation Law of the State of Delaware (the "Delaware General Corporation Law"). SECOND: That pursuant to Sections 141 and 242 of the Delaware General Corporation Law, the Board of Directors of this Corporation has duly adopted resolutions proposing to amend and restate the Fifth Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on December 14, 1998, declaring said amendment to be advisable and in the best interests of this Corporation and its stockholders. THIRD: That pursuant to Sections 228 and 242 of the Delaware General Corporation Law, the changes to be effected by this Amendment to the Fifth Amended and Restated Certificate of Incorporation have been duly approved by the holders of the requisite number of shares of this Corporation. FOURTH: That pursuant to Section 242 and 245 of the General Corporation Law of the State of Delaware, this Amendment to the Fifth Amended and Restated Certificate of Incorporation amends the Fifth Amended and Restated Certificate of Incorporation of the Corporation as follows: The following sentence shall be added to the end of Section 3(b)(ii) of Article IV, B: "In addition, immediately prior to the closing of an underwritten public offering as described in Section 3(b)(i)(C) above, all designated but unissued shares of Series C Preferred Stock shall be retired and restored to the status of authorized, undesignated and unissued shares of Preferred Stock." 22 Section 8 of Article IV, B shall be deleted and inserted therefor shall be the following provisions: "Section 8. Status of Converted or Redeemed Preferred Stock. In the event all shares of any class or series of Preferred Stock shall be redeemed or converted including, without limitation, in connection with an underwritten public offering as described in Section 3(b)(i)(C) of Article IV, B hereof, the shares so converted or redeemed shall be deemed to be retired and shall resume the status of authorized, undesignated and unissued shares of Preferred Stock." The second sentence of Section 3 of Article IV, B shall be amended and restated to read as follows: "The initial Conversion Price per share shall be $9.00 for the Series A Preferred Stock, $10.37 for the Series B Preferred Stock and $13.20 for the Series C Preferred Stock." Article VII shall be amended by adding the following provisions thereto: "Effective upon the consummation of an underwritten public offering as described in Section 3(b)(i)(C) of Article IV, B hereof, the terms of office of the Board of Directors will be divided into three classes: the Class I term will expire at the annual meeting of stockholders to be held in 1999; the Class II term will expire at the annual meeting of stockholders to be held in 2000; and the Class III term will expire at the annual meeting of stockholders to be held in 2001. At each annual meeting of stockholders after the initial classification, the successors to directors whose term will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. The directorships will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors." 23 IN WITNESS WHEREOF, this Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation has been signed this 1st day of March, 1999. AUTOBYTEL.COM INC. By: /s/ Mark W. Lorimer --------------------------------- Name: Mark W. Lorimer Title: President and CEO ATTEST: By: /s/ Craig S. Frost --------------------------------- Name: Craig S. Frost Title: Secretary EX-3.2 3 AMENDED & RESTATED BYLAWS 1 EXHIBIT 3.2 BYLAWS OF AUTOBYTEL.COM INC. A DELAWARE CORPORATION 2 TABLE OF CONTENTS
Page ---- ARTICLE I OFFICES 2 Section 1.01 REGISTERED OFFICE 2 Section 1.02 PRINCIPAL OFFICE 2 Section 1.03 OTHER OFFICES 2 ARTICLE II MEETINGS OF STOCKHOLDERS 2 Section 2.01 ANNUAL MEETINGS 2 Section 2.02 SPECIAL MEETINGS 2 Section 2.03 PLACE OF MEETINGS 3 Section 2.04 NOTICE OF MEETINGS 3 Section 2.05 QUORUM 3 Section 2.06 VOTING 4 Section 2.07 LIST OF STOCKHOLDERS 5 Section 2.08 INSPECTOR OF ELECTION 5 Section 2.09 STOCKHOLDER ACTION WITHOUT MEETINGS 5 Section 2.10 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS. 6 Section 2.11 ADJOURNED MEETING; NOTICE. 6 Section 2.12 ORGANIZATION. 6 ARTICLE III BOARD OF DIRECTORS 6 Section 3.01 GENERAL POWERS 6 Section 3.02 NUMBER 6 Section 3.03 ELECTION OF DIRECTORS 6 Section 3.04 RESIGNATIONS 7 Section 3.05 VACANCIES 7 Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING 8 Section 3.07 FIRST MEETING 8 Section 3.08 REGULAR MEETINGS 8 Section 3.09 SPECIAL MEETINGS 8 Section 3.10 QUORUM AND ACTION 9 Section 3.11 ACTION BY CONSENT 9 Section 3.12 COMPENSATION 9 Section 3.13 COMMITTEES 9 Section 3.14 MEETINGS AND ACTIONS OF COMMITTEES. 10 Section 3.15 OFFICERS OF THE BOARD 10 ARTICLE IV OFFICERS 11 Section 4.01 OFFICERS 11 Section 4.02 ELECTION 11 Section 4.03 SUBORDINATE OFFICERS 11 Section 4.04 REMOVAL AND RESIGNATION 11 Section 4.05 VACANCIES 11 Section 4.06 CHIEF EXECUTIVE OFFICER 12 Section 4.07 PRESIDENT 12 Section 4.08 CHIEF OPERATING OFFICER. 12 Section 4.09 CHIEF FINANCIAL OFFICER. 12
3 Section 4.10 VICE PRESIDENT 13 Section 4.11 SECRETARY 13 Section 4.12 ASSISTANT SECRETARY. 13 ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 14 Section 5.01 EXECUTION OF CONTRACTS 14 Section 5.02 CHECKS, DRAFTS, ETC 14 Section 5.03 DEPOSIT 14 Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS 14 ARTICLE VI SHARES AND THEIR TRANSFER 15 Section 6.01 CERTIFICATES FOR STOCK 15 Section 6.02 TRANSFER OF STOCK 15 Section 6.03 REGULATIONS 16 Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES 16 Section 6.05 RECORD DATE 16 Section 6.06 REPRESENTATION OF SHARES OF OTHER CORPORATIONS 16 Section 6.07 SPECIAL DESIGNATION ON CERTIFICATES. 17 ARTICLE VII INDEMNIFICATION 17 Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION 17 Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION 18 Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION 18 Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY 18 Section 7.05 ADVANCE OF EXPENSES 18 Section 7.06 OTHER RIGHTS AND REMEDIES 19 Section 7.07 INSURANCE 19 Section 7.08 CONSTITUENT CORPORATIONS 19 Section 7.09 EMPLOYEE BENEFIT PLANS 19 Section 7.10 BROADEST LAWFUL INDEMNIFICATION 20 Section 7.11 TERM 21 Section 7.12 SEVERABILITY 21 Section 7.13 AMENDMENTS 21 ARTICLE VIII RECORDS AND REPORTS 21 Section 8.01 MAINTENANCE OF RECORDS. 21 Section 8.02 INSPECTION BY DIRECTORS. 21 ARTICLE IX MISCELLANEOUS 22 Section 9.01 SEAL 22 Section 9.02 WAIVER OF NOTICES. 22 Section 9.03 LOANS AND GUARANTIES 22 Section 9.04 GENDER. 22 Section 9.05 AMENDMENTS. 22 CERTIFICATE OF SECRETARY 23
4 BYLAWS OF AUTOBYTEL.COM INC. A DELAWARE CORPORATION ARTICLE I OFFICES Section 1.01 REGISTERED OFFICE. The registered office of autobytel.com inc. (hereinafter called the "Corporation") shall be at such place in the State of Delaware as shall be designated by the Board of Directors (hereinafter called the "Board"). Section 1.02 PRINCIPAL OFFICE. The principal office for the transaction of the business of the Corporation shall be at such location, within or without the State of Delaware, as shall be designated by the Board. Section 1.03 OTHER OFFICES. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings shall be held each year at such time, date and place as the Board shall determine by resolution. In the absence of such designation, the annual meeting of stockholders shall be held at 3:00 p.m., on the third Thursday in June at the principal office of the Corporation. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. Section 2.02 SPECIAL MEETINGS. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board, or by a committee of the Board which has been duly designated by the Board and whose powers and authority, as provided in a resolution of the Board or in the Bylaws, include the power to call such meetings, or by the Chairman of the Board, or by the President, but such special meetings may not be called by any other person or persons; provided, however, that if and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provisions of the Certificate of Incorporation or any amendment thereto or any certificate filed under Section 151(g) of the General Corporation Law of Delaware (or its successor statute as in effect from time to time hereafter), then such special meeting may also be called by the person or persons, in the manner, at the time and for the purposes so specified. 5 Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as designated by the Board of Directors and specified in the respective notices or waivers of notice thereof. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the Corporation. Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, or by depositing such notice in the United States mail or nationally recognized overnight courier, in a postage prepaid envelope, directed to him at his address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his address as it appears on the registrar of the Corporation, or by transmitting a notice thereof to him at such address by telegraph, facsimile transmission, cable or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting shall also state the purpose or purposes for which the meeting is called (no business other than that specified in the notice may be transacted). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the Board intends to present for election. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the Corporation giving the notice, shall be prima facie evidence of the giving of such notice. Section 2.05 QUORUM. Except as otherwise provided by statute or by the certificate of incorporation, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at or to act as secretary of such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. 6 Section 2.06 VOTING. (a) At each meeting of the stockholders, each stockholder shall be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation which has voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 6.05 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (A) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (B) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon. The stockholders present at a duly called or held meeting at which a quorum is 7 present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy if there be such proxy, and it shall state the number of shares voted. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the entire duration thereof, and may be inspected by any stockholder who is present. Section 2.08 INSPECTOR OF ELECTION. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint an inspector or inspectors of election to act with respect to such vote. Each inspector so appointed shall first subscribe an oath faithfully to execute the duties of an inspector at such meeting with strict impartiality and according to the best of his ability. Such inspectors shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of the inspectors shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. Inspectors need not be stockholders of the Corporation, and any officer of the Corporation may be an inspector on any question other than a vote for or against a proposal in which he shall have a material interest. Section 2.09 STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General Corporation Law of Delaware to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. This Section 2.09 shall no longer be effective once the Corporation shall be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. 8 Section 2.10 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS. To be properly brought before an annual meeting or special meeting, nominations for the election of directors or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board or (c) otherwise properly brought before the meeting by a stockholder. Section 2.11 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another time and place, unless the Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.12 ORGANIZATION. The Chief Executive Officer, or in the absence of the Chief Executive Officer, the Chairman of the Board, shall call the meeting of the stockholders to order, and shall act as chairman of the meeting. In the absence of the Chief Executive Officer, the Chairman of the Board, and all of the Vice Presidents, the stockholders shall appoint a chairman for such meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and the conduct of business. The Secretary of the corporation shall act as secretary of all meetings of the stockholders, but in the absence of the Secretary at any meeting of the stockholders, the chairman of the meeting may appoint any person to act as secretary of the meeting. ARTICLE III BOARD OF DIRECTORS Section 3.01 GENERAL POWERS. The property, business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all of the powers of the Corporation, except such as are by the Certificate of Incorporation, by these Bylaws or by law conferred upon or reserved to the stockholders. Section 3.02 NUMBER. The authorized number of directors of the Corporation shall be eight (8) members until changed by an amendment of this Section 3.02. Directors need not be stockholders in the Corporation. Section 3.03 ELECTION OF DIRECTORS. The directors shall be elected by the stockholders of the Corporation, and at each election the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provisions for a classified board. 9 Except as provided in Sections 3.04 and 3.05 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. Section 3.04 RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, it shall take effect immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.05 VACANCIES. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum, or by a sole remaining director. Each director so chosen to fill a vacancy shall hold office until his successor shall have been elected and shall qualify or until he shall resign or shall have been removed. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Upon the resignation of one or more directors from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided hereinabove in the filling of other vacancies. Unless otherwise provided in the Certificate of Incorporation or the Bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of 10 Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting. Section 3.07 FIRST MEETING. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. Section 3.08 REGULAR MEETINGS. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day which is not a legal holiday. Except as provided by law, notice of regular meetings need not be given. Section 3.09 SPECIAL MEETINGS. Special meetings of the Board may be called at any time by the Chairman of the Board or the President or by any three (3) directors, to be held at the principal office of the Corporation, or at such other place or places, within or without the State of Delaware, as the person or persons calling the meeting may designate. Notice of the time and place of special meetings shall be given to each director either (i) by mailing or otherwise sending to him a written notice of such meeting, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held, at least seventy-two (72) hours prior to the time of the holding of such meeting; or (ii) by orally communicating the time and place of the special meeting to him at least forty-eight (48) hours prior to the time of the holding of such meeting. Either of the notices as above provided shall be due, legal and personal notice to such director. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. Whenever notice is required to be given, either to a stockholder or a director, under any provision of the General Corporation Law of Delaware, the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting, whether in person or by proxy, shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or 11 convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of directors or committee of directors need be specified in any written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 3.10 QUORUM AND ACTION. Except as otherwise provided in these Bylaws or by law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of the time and place of holding an adjourned meeting of the Board need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meetings takes place, in the manner specified in Section 3.09 of these Bylaws, to the directors who were not present at the time of adjournment. The directors shall act only as a Board, and the individual directors shall have no power as such. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the quorum for that meeting. Section 3.11 ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or such committee. Such action by written consent shall have the same force and effect as the unanimous vote of such directors. Section 3.12 COMPENSATION. No stated salary need be paid to directors, as such, for their services but, as fixed from time to time by resolution of the Board, the directors may receive directors' fees, compensation (including without limitation cash compensation and/or the grant of stock options or stock) and reimbursement for expenses for attendance at directors' meetings, for serving on committees and for discharging their duties; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.13 COMMITTEES. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board will establish and maintain an Audit Committee and a Compensation Committee. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it, but no such committee shall have any power or authority to (i) amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted 12 by the Board as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution or (v) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. Any such committee shall keep written minutes of its meetings and report the same to the Board when required. In the absence of any member of any such committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may appoint another member of the Board to act at the meeting in the place of such absent member. A majority of the members, or replacements thereof, of any such committee shall constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the members, or replacements thereof, of any such committee shall be regarded as the act or decision of the entire committee. Section 3.14 MEETINGS AND ACTIONS OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the following provisions of Article III of these Bylaws: Section 3.06 (place of meetings; meetings by telephone), Section 3.08 (regular meetings), Section 3.09 (special meetings; notice), Section 3.10 (quorum and action), and Section 3.11 (action by consent), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. Section 3.15 CHAIRMAN OF THE BOARD. The Board may elect a Chairman of the Board and may have one or more Vice Chairmen. The Chairman of the Board and the Vice Chairmen shall be appointed from time to time by the Board and shall have such powers and duties as shall be designated by the Board. 13 ARTICLE IV OFFICERS Section 4.01 OFFICERS. The officers of the Corporation shall be a Chief Executive Officer, a President, a Chief Operating Officer, a Secretary and a Chief Financial Officer (who will be the Treasurer). The Corporation may also have, at the discretion of the Board, one or more Vice Presidents (who may include a Chief Accounting Officer), one or more Assistant Vice Presidents, one or more Assistant Secretaries, and such other officers as may be appointed in accordance with the provisions of Section 4.03 of these Bylaws. One person may hold two or more offices, except that the Secretary may not also hold the office of President. The salaries of all officers of the Corporation above the rank of Vice President shall be fixed by the Board, unless at the discretion of the Board, the Board elects to fix the salaries of officers at or below the rank of vice president. Section 4.02 ELECTION. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 4.03 or Section 4.05 of these Bylaws, shall be chosen annually by the Board, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or until his successor shall be elected and qualified. Section 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may authorize the Chief Executive Officer to appoint, such other officers as the business of the Corporation may require, including without limitation Vice Presidents and Assistant Secretaries, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board or the President from time to time may specify, and shall hold office until he shall resign or shall be removed or otherwise disqualified to serve. Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed, with or without cause (subject to any right such officer may have under an employment contract with the Corporation), by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board, by the Chief Executive Officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Board, the Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective; provided that this provision shall not supercede any powers of the Board or the Chief Executive Officer pursuant to Section 4.04. Section 4.05 VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for the regular appointments to such office. 14 Section 4.06 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation shall, subject to the control of the Board, have general supervision, direction and control of the business and affairs of the Corporation. He shall preside at all meetings of stockholders and the Board. He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation, and shall have such other powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to him by the Board or as prescribed by the Bylaws. In the absence or disability of the President, the Chief Executive Officer, in addition to his assigned duties and powers, shall perform all the duties of the President and when so acting shall have all the powers and be subject to all restrictions upon the President. Section 4.07 PRESIDENT. The President shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to him by the Chief Executive Officer (unless the President is also the Chief Executive Officer) or by the Board or as is prescribed by the Bylaws. In the absence or disability of the Chief Executive Officer, the President shall perform all of the duties of the Chief Executive Officer and when so acting shall have all the powers and be subject to all the restrictions upon the Chief Executive Officer. Section 4.08 CHIEF OPERATING OFFICER. The Chief Operating Officer shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to him by the Chief Executive Officer or by the Board. In the absence or disability of both the Chief Executive Officer and the President, the Chief Operating Officer shall perform all of the duties of the Chief Executive Officer and when so acting shall have all the powers and be subject to all the restrictions upon the Chief Executive Officer. Section 4.09 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director for a purpose reasonably related to his position as director. The Chief Financial Officer shall also be the Treasurer. The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board. He shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President and directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or the Bylaws. 15 Section 4.10 VICE PRESIDENT. The Vice President(s), if any, shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as from time to time may be assigned to each of them by the President, by the Chief Executive Officer, by the Board or as is prescribed by the Bylaws. A Vice President may also be designated as a "Senior Vice President" or "Executive Vice President." In the absence or disability of the President, the Vice Presidents, in order of their rank as fixed by the Board, or if not ranked, the Vice President designated by the Board, shall perform all of the duties of the President and when so acting shall have all of the powers of and be subject to all the restrictions upon the President. A Vice President may be designated the Chief Accounting Officer who may be the Chief Financial Officer, and any person so designated shall have such powers as is customary for a Chief Accounting Officer. Section 4.11 SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office for the transaction of the business of the Corporation, or such other place as the Board may order, of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office for the transaction of the business of the Corporation or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws. If for any reason the Secretary shall fail to give notice of any special meeting of the Board called by one or more of the persons identified in Section 3.09 of these Bylaws, or if he shall fail to give notice of any special meeting of the stockholders called by one or more of the persons identified in Section 2.02 of these Bylaws, then any such person or persons may give notice of any such special meeting. Section 4.12 ASSISTANT SECRETARY. The Assistant Secretary, if any, or, if there is more than one, the Assistant Secretaries in the order determined by the Board (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe. 16 ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws or in the case of the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer, within the agency power of such officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person shall give such bond, if any, as the Board may require. Section 5.03 DEPOSIT. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, attorney or attorneys, of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the President, the Chief Executive Officer, the Chief Financial Officer, or any Vice President(or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall be determined by the Board from time to time) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board from time to time may authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by an officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. 17 ARTICLE VI SHARES AND THEIR TRANSFER Section 6.01 CERTIFICATES FOR STOCK. The shares of the Corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman or Vice Chairman of the Board, or the President or Vice-President, and by the Treasurer or Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Certificates for shares shall be of such form and device as the Board may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; a summary statement or reference to the powers, designations, preferences or other special rights of such stock and the qualifications, limitations or restrictions of such preferences and/or rights, if any; a statement or summary of liens, if any; a conspicuous notice of restrictions upon transfer or registration of transfer, if any; a statement as to any applicable voting trust agreement; if the shares be assessable, or, if assessments are collectible by personal action, a plain statement of such facts. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.04 of these Bylaws. Section 6.02 TRANSFER OF STOCK. Transfer of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03 of these Bylaws, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be stated expressly in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. 18 Section 6.03 REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sums as the Board may direct and in the case of mutilation, upon surrender of the mutilated certificate; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper to do so. Section 6.05 RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If, in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders, the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. Section 6.06 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or any Vice President and the Secretary or any Assistant Secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any person authorized so to do by proxy or power of attorney duly executed by said officers. 19 Section 6.07 SPECIAL DESIGNATION ON CERTIFICATES. If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. ARTICLE VII INDEMNIFICATION Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. 20 Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a member of any committee or similar body, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification under Section 7.01 or 7.02 of these Bylaws (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 7.01 and 7.02 of these Bylaws. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article VII, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02 of these Bylaws, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 7.05 ADVANCE OF EXPENSES. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VII. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. 21 Section 7.06 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article VII shall not be deemed exclusive and are declared expressly to be nonexclusive of any other rights to which those seeking indemnification or advancements of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 7.07 INSURANCE. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VII. Section 7.08 CONSTITUENT CORPORATIONS. For the purposes of this Article VII, references to "the Corporation" include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 7.09 EMPLOYEE BENEFIT PLANS. For the purposes of this Article VII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VII. 22 Section 7.10 BROADEST LAWFUL INDEMNIFICATION. In addition to the foregoing, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same exists from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of indemnification than is permitted to the Corporation prior to such amendment or change), indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. In addition, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same may exist from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of payment of expenses incurred in advance of the final disposition of an action, suit or proceeding than is permitted to the Corporation prior to such amendment or change), pay to such person any and all expenses (including attorneys' fees) incurred in defending or settling any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount if it shall ultimately be determined by a final judgment or other final adjudication that he is not entitled to be indemnified by the Corporation as authorized in this Section 7.10. The first sentence of this Section 7.10 to the contrary notwithstanding, the Corporation shall not indemnify any such person with respect to any of the following matters: (i) remuneration paid to such person if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; or (ii) any accounting of profits made from the purchase or sale by such person of the Corporation's securities within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or (iii) actions brought about or contributed to by the dishonesty of such person, if a final judgment or other final adjudication adverse to such person establishes that acts of active and deliberate dishonesty were committed or attempted by such person with actual dishonest purpose and intent and were material to the adjudication; or (iv) actions based on or attributable to such person having gained any personal profit or advantage to which he was not entitled, in the event that a final judgment or other final adjudication adverse to such person establishes that such person in fact gained such personal profit or other advantage to which he was not entitled; or (v) any matter in respect of which a final decision by a court with competent jurisdiction shall determine that indemnification is unlawful; provided, however, that the Corporation shall perform its obligations under the second sentence of this Section 7.10 on behalf of such person until such time as it shall be ultimately determined by a final judgment or other final adjudication that he is not entitled to be indemnified by the Corporation as authorized by the first sentence of this Section 7.10 by virtue of any of the preceding clauses (i), (ii), (iii), (iv) or (v). 23 Section 7.11 TERM. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7.12 SEVERABILITY. If any part of this Article VII shall be found, in any action, suit or proceeding or appeal therefrom or in any other circumstances or as to any particular officer, director, employee or agent to be unenforceable, ineffective or invalid for any reason, the enforceability, effect and validity of the remaining parts or of such parts in other circumstances shall not be affected, except as otherwise required by applicable law. Section 7.13 AMENDMENTS. The foregoing provisions of this Article VII shall be deemed to constitute an agreement between the Corporation and each of the persons entitled to indemnification hereunder, for as long as such provisions remain in effect. Any amendment to the foregoing provisions of this Article VII which limits or otherwise adversely affects the scope of indemnification or rights of any such persons hereunder shall, as to such persons, apply only to claims arising, or causes of action based on actions or events occurring, after such amendment and delivery of notice of such amendment is given to the person or persons so affected. Until notice of such amendment is given to the person or persons whose rights hereunder are adversely affected, such amendment shall have no effect on such rights of such persons hereunder. Any person entitled to indemnification under the foregoing provisions of this Article VII shall, as to any act or omission occurring prior to the date of receipt of such notice, be entitled to indemnification to the same extent as had such provisions continued as Bylaws of the Corporation without such amendment. ARTICLE VIII RECORDS AND REPORTS Section 8.01 MAINTENANCE OF RECORDS. The Corporation shall, either, at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records of its business and properties. Section 8.02 INSPECTION BY DIRECTORS. Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. 24 ARTICLE IX MISCELLANEOUS Section 9.01 SEAL. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and showing the year of incorporation. Section 9.02 WAIVER OF NOTICES. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. Section 9.03 LOANS AND GUARANTIES. The Corporation may lend money to, or guarantee any obligation of, and otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer who is a director, whenever, in the judgment of the Board, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty, or other assistance may be with or without interest, and may be unsecured or secured in such manner as the Board shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing contained in this Section 9.03 shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. Section 9.04 GENDER. All personal pronouns used in these Bylaws shall include the other genders, whether used in the masculine, feminine or neuter gender, and the singular shall include the plural, and vice versa, whenever and as often as may be appropriate. Section 9.05 AMENDMENTS. These Bylaws, or any of them, may be rescinded, altered, amended or repealed, and new Bylaws may be made (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board or (ii) by the stockholders, by the vote of a majority of the outstanding shares of voting stock of the Corporation, at an annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting; provided, however, that Section 2.02 of these Bylaws can only be amended if that Section as amended would not conflict with the Corporation's Certificate of Incorporation. Any Bylaw made or altered by the stockholders may be altered or repealed by the Board or may be altered or repealed by the stockholders. 25 CERTIFICATE OF SECRETARY The undersigned certifies: (1) That the undersigned is duly elected and acting Secretary of autobytel.com inc., a Delaware corporation; and (2) That the foregoing Bylaws constitute the Bylaws of the Corporation as duly adopted by unanimous action of the Board of Directors dated the _____day of March, 1999. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of the Corporation this ____ day of March 1999. ------------------------------------ Craig S. Frost, Secretary [SEAL] EX-4.1 4 FORM OF STOCK CERTIFICATE 1 EXHIBIT 4.1 [AUTOBYTEL.COM STOCK CERTIFICATE] COMMON STOCK COMMON STOCK autobytel.com INCORPORATED UNDER THE LAWS SEE REVERSE FOR OF THE STATE OF DELAWARE CERTAIN DEFINITIONS CUSIP 05275N 10 6 This Certifies that is the record holder of FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF autobytel.com inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. IN WITNESS WHEREOF the Corporation has caused this Certificate to be signed in facsimile by its duly authorized officers and a facsimile of the corporate seal. Dated: [SEAL] /s/ HOSHI PRINTER /s/ MARK LORIMER TREASURER PRESIDENT COUNTERSIGNED AND REGISTERED: U.S. STOCK TRANSFER CORPORATION TRANSFER AGENT AND REGISTRAR By AUTHORIZED SIGNATURE 2 The Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporations's Secretary at the principal office of the Corporation. KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNF GIFT MIN ACT -- ___________ Guardian ________________ TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants in common Act__________________________________ (State) UNIF TRF MIN ACT -- ___________ Custodian (until age ___) (Cust) _____________ under Uniform Transfers (Minor) to Minors Act________________________ (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ____________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- _________________________________________________________________________ Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _______________________________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ____________________________________ X ___________________________________ X ___________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAMES AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By ________________________________________________ THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO SEC RULE 17Ad-15. EX-4.3 5 FORM OF LOCK-UP AGREEMENT 1 EXHIBIT 4.3 February __, 1999 BT Alex. Brown Incorporated Lehman Brothers PaineWebber Incorporated C/o BT Alex. Brown Incorporated One South Street Baltimore, Maryland 21202 Ladies and Gentlemen: The undersigned understands that BT Alex. Brown Incorporated ("BT Alex. Brown"), Lehman Brothers, and PaineWebber Incorporated as representatives (the "Representatives") of the several underwriters (the "Underwriters"), propose to enter into an Underwriting Agreement (the "Underwriting Agreement") with autobytel.com inc. (the "Company") and the Selling Stockholders named therein providing for the public offering by the Underwriters, including the Representatives, of common stock (the "Common Stock") of the Company ("the "Public Offering"). In order to induce the Underwriters to enter into the Underwriting Agreement, the undersigned covenants and agrees, except as otherwise provided in the Underwriting Agreement, with the several Underwriters that the undersigned will not make any offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other capital stock of the Company or other securities convertible, exchangeable or exercisable for Common Stock or derivative of Common Stock owned by the undersigned (collectively the "Shares") or request the registration for the offer or sale of any of the Shares (or as to which the entity has the right to direct the disposition of) for a period of 180 days after the effective date of the Public offering (the "Lock-Up Period"), directly or indirectly, by the undersigned otherwise than (i) with prior written consent of BT Alex. Brown or (ii) in a disposition of shares of Common Stock by transfer to any affiliate of the undersigned, including any trust, or to any other transferee in a private transaction not requiring registration under the Securities Act of 1933, as amended, or by any bona fide pledge of such shares of Common Stock, provided that such affiliate, trustee or other transferee and/or lender or creditor acknowledges in writing that it is bound by the provisions of this Lock-up Letter. Without limiting the restrictions herein, any disposition by the undersigned shall remain at all times subject to applicable securities laws. The undersigned agrees that the Company may (i) respect to any Shares for which the undersigned is the record holder, instruct the transfer agent for the Company to note stop transfer instructions with respect to such Shares on the transfer books and records of the Company and (ii) with respect to any Shares for which the undersigned is the beneficial holder but not the record holder, cause the record holder of such Shares to instruct the transfer agent for the 2 Company to note stop transfer instructions with respect to such Shares on the transfer books and records of the Company. The undersigned understands that the Company, the Underwriters and the Representatives will proceed with the Public Offering in reliance on this Lock-up Letter. If for any reason the Underwriting Agreement is not entered into on or before June 30, 1999 or if entered into by such date and is thereafter terminated prior to the Closing Date (as defined in the Underwriting Agreement), the agreement set forth above shall likewise be terminated without further action on the part of any party. Very truly yours, ---------------------------------------- Signature By: ----------------------------------- (Name and Title of Signatory, if Stockholder is an entity) Accepted as of the Date Hereof: BT ALEX. BROWN INCORPORATED LEHMAN BROTHERS PAINEWEBBER INCORPORATED On behalf of each of the underwriters By: BT Alex. Brown Incorporated By: -------------------------------- Name: -------------------------------- Title: -------------------------------- EX-10.4 6 AMENDED & RESTATED EMPLOYMENT & SEVERENCE 1 EXHIBIT 10.4 AMENDED AND RESTATED EMPLOYMENT AND SEVERANCE AGREEMENT This Employment and Severance Agreement ("Agreement") is made and entered into at Irvine, California, as of the 4th day of March 1999, between autobytel.com inc., a corporation duly organized under the laws of the State of Delaware (the "Company"), with offices at 18872 MacArthur Blvd, Irvine, California, 92612-1400 and Michael J. Lowell (hereinafter referred to as "Lowell" or "Employee"), domiciled at 32942 Barque Way, Dana Point, California 92629. RECITALS WHEREAS: Employee and the Company entered into a Severance Agreement dated January 1, 1998 (the "Severance Agreement".) WHEREAS: Each of the Employee and the Company desire to terminate the Severance Agreement and agree that Employee shall hereafter be employed as the Senior Vice President, Development, subject to the following terms and conditions. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and with reference to the above recitals, the parties hereby agree as follows: ARTICLE 1 TERM OF EMPLOYMENT The Company hereby employs Lowell as Senior Vice President Development of the Company and Lowell hereby accepts such employment by the Company commencing from the date of this Agreement (the "Commencement Date"). ARTICLE 2 DUTIES AND OBLIGATIONS 2.1 During the Term of this Agreement, Lowell shall: (i) devote his entire time, attention and energies to the business of the Company; (ii) shall use his best efforts to promote the interests of the Company; (iii) shall perform all functions and services as Senior Vice President Development of the Company; and (iv) shall act in accordance with the policies and directives of the Company as determined from time to time by its President and Chief Executive Officer. 2 2.2 Lowell covenants and agrees that he shall not engage in any other business duties or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, including, but not limited to, providing services to any business that is in competition with or similar in nature to the Company, whether for compensation or otherwise, without the prior written consent of the President and Chief Executive Officer of the Company. However, the expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement, if those activities do not materially interfere with the services required under this Agreement, and shall not require the prior written consent of the Company's Board of Directors. Notwithstanding anything herein contained to the contrary, this Agreement shall not be construed to prohibit Lowell from making passive personal investments or conducting private business affairs if those activities do not materially interfere with the services required hereunder. ARTICLE 3 COMPENSATION 3.1 As compensation for the services to be rendered by Lowell pursuant to this Agreement, the Company hereby agrees to pay Lowell a salary at the rate of One Hundred and forty Thousand Dollars ($140,000.00) per year, payable in twenty-six (26) equal bimonthly installments of Seven Thousand Three Hundred and Seven Dollars and Seventy Cents ($5,384.62), each at such times or on such dates that employees of the Company are regularly and customarily paid. In the event of termination of this Agreement pursuant to Article 6 hereof (other than a termination pursuant to Section 6.2), Lowell shall be entitled to receive only that portion of the yearly salary earned by Lowell up to the date of termination and applicable accrued vacation. 3.2 The Company shall have the right to deduct or withhold from the compensation due to Lowell hereunder any and all sums required for federal income and social security taxes and all state or local taxes now applicable or that may be enacted and become applicable during the Term. ARTICLE 4 EMPLOYEE BENEFITS 4.1 The Company agrees that Lowell shall be entitled to all ordinary and customary perquisites afforded to employees of the Company, at the Company's sole expense (except to the extent employee contribution may be required under the Company's benefit plans as they may now or hereafter exist). 4.2 Lowell shall be entitled to the greater of: (a) two (2) weeks of paid vacation for each year of his employment hereunder, or (b) the number of vacation days provided for under the Company's then-current vacation policy; provided, however, that any accrued but unused vacation time shall accumulate and carry over into 2 3 successive years of employment with the Company, for a period not to exceed two (2) successive years of employment hereunder. 4.3 Lowell shall be entitled to one-half (1/2) day per month, or six (6) days per year, of paid sick leave for each year of his employment hereunder; provided, however, that any unused sick leave shall not accumulate and carry over into successive years of employment with the Company. ARTICLE 5 BUSINESS EXPENSES 5.1 The Company shall promptly pay or reimburse Lowell for all reasonable and authorized business expenses incurred by Lowell during the Term; such payment or reimbursement shall not be unreasonably withheld so long as said business expenses have been incurred for and promote the business of the Company and are normally and customarily incurred by employees in comparable positions at other comparable businesses in the same or similar market. 5.2 The Company shall reimburse Lowell for the use of his personal vehicle for business-related mileage at the reimbursement rate approved by the United States Internal Revenue Service, as such rate may change from time to time. Notwithstanding the foregoing, the Company shall not reimburse Lowell for mileage traveled to the Company's office from Lowell's residence, or from the Company's office to Lowell's residence. Nothing contained in this Section 5.2 shall be construed as requiring the Company to reimburse Lowell for the cost of gasoline, maintenance, or other expense relating to his motor vehicle. 5.3 As a condition to reimbursement, Lowell shall furnish to the Company adequate records and other documentary evidence required by federal and state statutes and regulations for the substantiation of each expenditure as an income tax deduction. Lowell acknowledges and agrees that failure to furnish the required documentation may result in the Company denying all or part of the expense for which reimbursement is sought. ARTICLE 6 TERMINATION OF EMPLOYMENT 6.1 Termination for Cause. The Company may, during the Term, without notice to Lowell, terminate this Agreement and discharge Lowell for cause, whereupon the respective rights and obligations of the parties hereunder shall terminate; provided, however, that the Company shall immediately pay Lowell any amount due and owing pursuant to Articles 3, 4, and 5, prorated to the date of termination. As used herein, the 3 4 term "for cause" shall refer to the termination of Lowell's employment as a result of any one or more of the following: 6.1.1 Any conviction of Lowell for a felony or any crime involving moral turpitude, in which event Lowell agrees to resign from employment with the Company and to release the Company from all further obligations under this Agreement, except for those obligations set forth in Article 6 herein above; 6.1.2 Breach of his fiduciary duties to the Company for the purpose of and inuring to his own pecuniary benefit; 6.1.3 Failure to consistently and competently discharge his duties under this Agreement or as assigned by the Company from time to time which failure continues for thirty (30) days following written notice from the Company detailing the Company's expectations of Lowell's performance and the area or areas in which such expectations have not been met. 6.2 Termination Without Cause. Anything in this Agreement to the contrary notwithstanding, the Company shall have the right, at any time in its sole and subjective discretion, to terminate this Agreement without cause upon prior written notice to Lowell in accordance with Section 6.4 herein below. The term "termination without cause" shall mean the termination of Lowell's employment for any reason other than those expressly set forth in Section 6.1, or no reason at all, and shall also mean (i) the permanent or quasi-permanent assignment to duties grossly inappropriate for a senior vice president and (ii) the Company's decision to relocate Lowell from the Company's offices located at 18872 MacArthur Boulevard, Irvine, California, to 92612-1400 to any other location in excess of fifty (50) miles beyond the geographic limits of Irvine, California, without Lowell's consent. 6.3 Severance Amount. In the event the Company shall exercise the termination right granted pursuant to Section 6.2 herein above, the Company shall, within Thirty (30) Days of notice of termination to Lowell, pay to Lowell, in a single lump-sum payment, the amount set forth below corresponding to the effective date of any such termination (the "Severance Amount"): i. If the effective date of termination occurs during January 1999, then the Severance Amount shall be two hundred and sixty four thousand one hundred and sixty seven dollars ($264,167.00) less any applicable Federal and State taxes; ii. If the effective date of termination occurs during February 1999, then the Severance Amount shall be two hundred and forty eight thousand, three hundred and thirty four dollars ($248,334.00) less any applicable Federal and State taxes; iii.If the effective date of termination occurs during March 1999, then the Severance Amount shall be two hundred and thirty two thousand, five hundred and one dollars ($232,501.00) less any applicable Federal and State taxes; 4 5 iv. If the effective date of termination occurs during April 1999, then the Severance Amount shall be two hundred and sixteen thousand, six hundred and sixty eight dollars ($216,668.00) less any applicable Federal and State taxes; v. If the effective date of termination occurs during May 1999, then the Severance Amount shall be two hundred thousand, eight hundred and thirty five dollars ($200,835.00) less any applicable Federal and State taxes; vi. If the effective date of termination occurs during June 1999, then the Severance Amount shall be one hundred and eighty five thousand and two dollars ($185, 002.00) less any applicable Federal and State taxes; vii.If the effective date of termination occurs during July 1999, then the Severance Amount shall be one hundred and sixty nine thousand, one hundred and sixty nine dollars ($169, 169.00) less any applicable Federal and State taxes; viii. If the effective date of termination August 1999, then the Severance Amount shall be one hundred and fifty three thousand, three hundred and thirty six dollars ($153,336.00) any applicable Federal and State taxes; ix. If the effective date of termination occurs during September 1999, then the Severance Amount shall be one hundred and thirty seven thousand, five hundred and three dollars ($137,503.00) less any applicable Federal and State taxes; x. If the effective date of termination occurs during October 1999, then the Severance Amount shall be one hundred and twenty one thousand, six hundred and seventy dollars ($121,670.00) less any applicable Federal and State taxes; xi. If the effective date of termination occurs during November 1999, then the Severance Amount shall be one hundred and five thousand, eight hundred and thirty seven dollars, ($105,837.00) less any applicable Federal and State taxes; xii.If the effective date of termination occurs during December 1999, then the Severance Amount shall be ninety thousand and four dollars ($90,004.00) less any applicable Federal and State taxes; xiii. If the effective date of termination is after January 1, 2000 and prior to the end of the Term of this Agreement, the Severance Amount shall be ninety thousand dollars ($90,000.00) less any applicable Federal and State taxes. 5 6 6.4 Notice of Termination. In the event that the Company elects to exercise its rights to terminate Lowell's employment without cause pursuant to Section 6.2 of the Agreement, the Company shall provide notice of such termination as follows: i. Should termination occur prior to May 1, 1999, the Company shall provide one hundred and eighty (180) days written notice. ii. Should termination occur between May 1, 1999, and July 1, 1999, the Company shall provide ninety (90) days written notice. iii.Should termination occur between July 1, 1999 and September 30, 1999, the Company shall provide sixty (60) days written notice. iv. Should termination occur on October 1, 1999 or thereafter for the remainder of the Term of this Agreement, the Company shall provide thirty (30) days written notice. 6.5 Death or Disability. Anything in this Agreement to the contrary notwithstanding, upon the death or disability of Lowell, the Company shall pay to Lowell or his successors, heirs, designees, or assigns, the amount that would have been due and owing to Lowell for the remainder of the Term. ARTICLE 7 RESTRICTIVE COVENANTS 7.1 During the Term and following termination of this Agreement, Lowell agrees that, without the Company's prior written consent, he will not use or disclose to any person, firm, association, partnership, entity or corporation, other than in the course of his employment hereunder acting for and on behalf of the Company, any information concerning: (a) the business operations or internal structure of the Company; (b) the customers of the Company; (c) the financial condition of the Company; and (d) other confidential information pertaining to the Company, including without limitation, trade secrets, technical data, marketing analyses and studies, operating procedures, customer and/or inventor lists, or the existence or nature of any of the Company's agreements; provided, however, that Lowell shall be entitled to disclose such information: (a) to the extent the same shall have otherwise become publicly available (unless made publicly available by Lowell); or (b) during the course of or in connection with any litigation, arbitration, or other proceeding based upon or in connection with the subject matter of this Agreement. 6 7 7.2 Employee acknowledges that a breach or violation of the covenants contained in Section 7.1 above will cause severe and irreparable harm to the Company and that recovery of monetary damages by the Company may not constitute an adequate remedy. Accordingly, in the event of any breach or violation of such covenants by Employee, the Company reserves the right to specifically enforce Section 7.1 of this Agreement, or at its election, to seek an injunction enjoining any such acts, without requirement of bond or showing of actual damages, provided that nothing contained herein shall limit or restrict any other rights or remedies that the Company may have at law or in equity. Each of the rights and remedies of the Company enumerated in this Section shall be independent of the other, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity. ARTICLE 8 GENERAL PROVISIONS 8.1 This Agreement is intended to be the final, complete and exclusive agreement between the parties relating to the employment of Lowell by the Company and all prior or contemporaneous understandings, representations and statements, oral or written, are merged herein and that the Severance Agreement between Employee and the Company dated January 1, 1998 is terminated and of no further force or effect. 8.2 No waiver, by conduct or otherwise, by any party of any term, provision, or condition of this Agreement, shall be deemed or construed as a further or continuing waiver of any such term, provision, or condition. 8.3 No modification, waiver, amendment, discharge or change of this Agreement shall be valid unless the same is in writing and signed by the party against whom enforcement of such modification, waiver, amendment, discharge, or change is sought. 8.4 The rights under this Agreement, or by law or equity, shall be cumulative and may be exercised at any time and from time to time. No failure by any party to exercise, and no delay in exercising, any rights shall be construed or deemed to be a waiver thereof, nor shall any single or partial exercise by any party preclude any other or future exercise thereof or the exercise of any other right. 8.5 Except as otherwise provided in this Agreement, any notice, approval, consent, waiver or other communication required or permitted to be given or to be served upon any person in connection with this Agreement shall be in writing. Such notice shall be personally served, sent by telegram, tested telex or cable, or sent prepaid by registered or certified mail with return receipt requested and shall be deemed given (i) if personally served, when delivered to the person to whom such notice is addressed, (ii) if given by telegram, telex or cable, when sent, or (iii) if given by mail, four (4) business days following deposit in the United States mail. Any notice given by telegram, telex or cable shall be confirmed in writing within forty-eight (48) hours after being sent. Such notices 7 8 shall be addressed to the party to whom such notice is to be given at the party's address set forth below or as such party shall otherwise direct. If to the Company: auytobytel.com inc. 18872 MacArthur Boulevard Irvine, California 92612-1400 Attn: Chief Executive Officer If to Employee: Michael J. Lowell 32942 Barque Way Dana Point, CA 92629 8.6 Dispute Resolution, Forum. ANY DISPUTE OR CLAIM ARISING HEREUNDER SHALL BE SUBMITTED TO BINDING ARBITRATION, and conducted in accordance with the National Rules for the Resolution of Employment Disputes as published by the American Arbitration Association, ("AAA"). The parties hereunder further agree: (i) Any request for arbitration shall be made in writing and must be made within a reasonable time after the claim, dispute or other matter in question has arisen; (ii) the arbitrator or arbitrators appointed must be former or retired judges or attorneys at law with at least ten (10) years experience in the area employment law; (iii) all proceedings involving the parties shall be reported by a certified shorthand reporter and written transcripts of any such proceedings shall be prepared and made available to the parties (iv) the arbitrator or arbitrators decision must be made within ninety (90) days from the date the arbitration proceedings are initiated; (v) the prevailing parties shall be awarded reasonable attorney's fees, expert and non-expert witness costs, and expenses and other costs incurred in connection with the arbitration, unless the arbitrator or arbitrators, for good cause, determine otherwise, (vii) costs and fees of the arbitrator or arbitrators shall be borne by the non-prevailing party, unless the arbitrator or arbitrators determine otherwise, (viii) the award or decision of the arbitrator or arbitrators, which may include equitable relief, shall be final and judgment may be entered on such award in accordance with applicable law in any court having jurisdiction over the matter. The parties agree that in connection with any such arbitration, that the General Principles of Evidence, as enacted or hereafter amended, beginning at Section 1856 and continuing to Section 1866, of the California Code of Civil Procedure; and all provisions of the Civil Discovery Act, as enacted or hereafter amended, beginning at Section 2016, et seq., of the California Code of Civil Procedure shall apply. 8.7 The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto. 8.8 This Agreement shall be construed and enforced in accordance with the laws of the State of California. 8.9 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one instrument. 8 9 8.10 The provisions of this Agreement are agreed to be severable, and if any provision or application thereof, is held invalid or unenforceable, then such holding shall not affect any other provision or application. 8.11 As used herein, and as the circumstances require, the plural term shall include the singular, the singular shall include the plural, the neuter term shall include the masculine and feminine genders, and the feminine term shall include the neuter and the masculine genders. 8.12 Each party hereto shall pay its or their own expenses incident to the negotiation, preparation and consummation of this Agreement, including all fees and expenses of its or their respective counsel. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY AUTOBYTEL.COM INC. By: /s/ MARK W. LORIMER -------------------------------- Mark W. Lorimer President Chief Executive Officer EMPLOYEE /s/ MICHAEL J. LOWELL ----------------------------------- Michael J. Lowell 9 EX-10.15 7 CONTENT LICENSE & CHANNEL SPONSORSHIP TERM SHEET 1 EXHIBIT 10.15 [*] Confidential Treatment has been requested for certain portions of this exhibit. CONTENT LICENSE AND CHANNEL SPONSORSHIP TERM SHEET This agreement ("Agreement") is entered into as of the [*] ("Effective Date"), by and between Excite, Inc., a California corporation, located at 555 Broadway, Redwood City, California 94063 ("Excite"), and Auto-By-Tel, a California corporation, located at 18872 MacArthur Blvd., #200, Irvine, California, 92612-1400 ("Auto-By-Tel"). RECITALS A. Excite maintains a site on the Internet at http://www.excite.com and owns and/or manages related Web sites worldwide (collectively, the "Excite Network") which, among other things, allow its users to search for and access content and other sites on the Internet. B. Within the Excite Network, Excite currently organizes certain content into topical channels, including the Excite Automotive Channel. C. Excite also maintains and/or manages certain Web pages which may be delivered to users via email, desktop "channels" or Internet "push" technologies (collectively, "Broadcast Pages") which may incorporate content supplied to Excite by third parties for the purpose of providing value to Excite users and providing access to the content, products and/or services of such third parties. D. Auto-By-Tel owns or has the right to distribute certain content relating to online automobile buying and maintains a related site on the Internet at http://www.autobytel.com (the "Auto-By-Tel Site") for which it wishes to generate increased traffic. E. Auto-By-Tel wishes to promote use of the Auto-By-Tel Site to Excite's users by sponsoring the Excite Automotive Channel and purchasing banner advertising on the Excite Network. Therefore, the parties agree as follows: 1. SPONSORSHIP OF EXCITE AUTOMOTIVE CHANNEL a) Auto-By-Tel will be the exclusive online automobile buying service sponsor of the Excite Automotive Channel, located at http://www.excite.com. b) During the term of the Agreement, Excite will not display any banner advertising or promotional placements for any of Auto-By-Tel's direct competitors (listed in Exhibit C) in the Excite Automotive Channel. Not more than once per quarter, Auto-By-Tel may update this list of competitors. 1 2 [*] Confidential Treatment Requested c) In the event that Excite intends to enter into an agreement with a third party with respect to sponsorship of the Excite Automotive Channel before the expiration of the term of the Agreement, Excite will deliver to Auto-By-Tel a written notice describing the relevant opportunity. Although Excite will not be required to disclose any information in violation of any nondisclosure agreement between Excite and any third party, the notice will include information sufficient to permit Auto-By-Tel to evaluate the requirements for meeting the competing offer for sponsorship of the Excite Automotive Channel and to formulate a meaningful response. Auto-By-Tel will have ten (10) days after receipt of such written notice to provide notice to Excite that it is prepared to enter into an agreement with Excite on the same terms and conditions as Excite proposes to accept from such third party. Excite and Auto-By-Tel will then promptly commence good faith negotiations to conclude the agreement. If Auto-By-Tel rejects said offer or fails to notify Excite of its acceptance within the ten (10) day period, Excite shall have the right to enter into the agreement with such third party, provided the terms and conditions of the agreement are not less favorable to Excite than previously offered by Auto-By-Tel. 2. MARKETING AND PROMOTION a) Excite will feature Auto-By-Tel in the Auto Buying Services department of the Excite Automotive Channel for the term of the Agreement. b) Excite will conduct three (3) two-week car give away promotions on the Excite home page promoting Auto-By-Tel during the first year of the Agreement, with one promotion coinciding with the launch of Auto-By-Tel's sponsorship and the other two to be mutually scheduled. Excite will conduct similar promotions in years two and three of the Agreement. Auto-By-Tel will provide the cars to be given away through these promotions. c) Auto-By-Tel will purchase banner advertising on the Excite Network in Year One of the Agreement in the amounts described in Exhibit A. Auto-By-Tel will purchase banner advertising on the Excite Network in Year Two and Year Three in amounts substantially comparable to the amounts agreed upon in Exhibit B. d) Excite will deliver a minimum of [*] impressions of Auto-By-Tel promotional placements during the term of the Agreement, including the placement in the Auto Buying Services department of the Excite Automotive Channel, the car give-away promotions and the banner advertisements described above, the display of Auto-By-Tel's content described below and other promotional placements that may be determined by the parties. e) Neither party will make any public statement, press release or other announcement relating to the terms of or existence of this Agreement without 2 3 [*] Confidential Treatment Requested the prior written approval of the other. Notwithstanding the foregoing, Auto-By-Tel hereby grants to Excite the right to issue an initial press release, the timing and wording of which will be subject to Auto-By-Tel's reasonable approval, regarding the relationship between Excite and Auto-By-Tel. 3. CONTENT PROVIDED TO EXCITE a) Auto-By-Tel will provide to Excite mutually agreed upon content relating to online automobile buying such as AutoSite and The Bank Rate Monitor (the "Content") which is described in Exhibit D. Excite may display the Content in the Excite Automotive Channel and in other locations in the Excite Network. Excite will determine the "look and feel" of the Excite Automotive Channel and the Excite Network. b) Auto-By-Tel will not provide the Content to any of Excite's competitors during the term of the Agreement, including, but not limited to, AltaVista, HotBot, Infoseek, Lycos, Search.com and Yahoo, or any other Web site promoting itself as a provider of Internet search and navigation services. Not more than once per quarter, Excite may update this list of competitors. c) Auto-By-Tel and Excite will determine mutually agreeable methods for the transmission and incorporation of updates to the Content. Other than updates to the Content or revisions as needed to reflect changes to Auto-By-Tel's name and/or brand, Auto-By-Tel will not alter the Content without Excite's prior consent. d) Auto-By-Tel will ensure that the Content will at all times feature the full array of content and functionality as made generally available by Auto-By-Tel at the Auto-By-Tel Site, through any other means of distribution of Auto-By-Tel's own branded service or through any other third-party relationship. e) Auto-By-Tel will have sole responsibility for providing, at its expense, the Content to Excite. f) Reasonable excerpts or portions of the Content may be incorporated into "Broadcast Pages" delivered by Excite via email, desktop "channels" or Internet "push" technologies. Excite will determine the "look and feel" of the Broadcast Pages. 4. SPONSORSHIP AND ADVERTISING FEES AND REVENUE SHARING a) A "set-up fee" of [*] will be due to Excite upon execution of the Agreement as compensation for exclusivity, costs of initiating access to the Excite Network, programming costs associated with the incorporation of the Content into the Excite Network, set-up costs and other expenses associated 3 4 [*] Confidential Treatment Requested with Excite's initiation of the links, placements, advertisements and promotions contemplated by this Agreement. b) Separate and apart from the set-up fee, sponsorship and advertising fees will be due to Excite as follows:
Year 1 Year 2 Year 3 ---------- ---------- ---------- Sponsorship [*] [*] [*] Banners - US [*] [*] [*] Banners - WebTV/ [*] [*] [*] International Total [*] [*] [*]
In the event that Excite is unable to deliver the agreed-upon amount of banner advertising in the WebTV and/or International rotations, Excite will provide the undelivered amounts in rotation on its primary Web site. c) Auto-By-Tel will pay Excite a bounty per unique purchase request submitted by users referred to the Auto-By-Tel Site from the Excite Network of [*] for the first [*] unique purchase requests in each year of the Agreement, [*] for the second [*] unique purchase requests in each year of the Agreement and [*] for each unique purchase request in excess of [*] in each year of the Agreement. [*]. d) If the number of unique purchase requests submitted by users referred directly to the Auto-By-Tel Site from the Excite Network in any year of the Agreement exceeds [*], the bounty increases to [*] for the first [*] unique purchase requests in the following year of the Agreement, [*] for the second [*] unique purchase requests In the following year of the Agreement and [*] for each unique purchase request in excess of [*] in the following year of the Agreement. e) The set-up, sponsorship and advertising fees are gross amounts and do not reflect any agency commissions to be paid by Auto-By-Tel. The bounty payment amounts are net of any agency commissions to be paid by Auto-By-Tel. f) Sponsorship and advertising fees will be paid in twelve equal monthly installments commencing on the execution of the Agreement. Bounty payments will be made quarterly. The parties will conduct annual reviews to ensure accurate payments and accounting. 4 5 [*] Confidential Treatment Requested g) Auto-By-Tel will maintain accurate records with respect to the calculation of all payments due under this Agreement. Excite may, upon no less than thirty (30) days prior written notice to Auto-By-Tel, cause an independent Certified Public Accountant to inspect the records of Auto-By-Tel reasonably related to the calculation of such payments during Auto-By-Tel's normal business hours. The fees charged by such Certified Public Accountant in connection with the inspection will be paid by Excite unless the payments made to Excite are determined to have been less than ninety-five percent (95%) of the payment owed to Excite, in which case Auto-By-Tel will be responsible for the payment of the reasonable fees for such inspection. 5. CUSTOMER INFORMATION a) Auto-By-Tel will retain all rights to customers acquired pursuant to the Agreement. b) Once per quarter, in connection with Auto-By-Tel's bounty payments, Auto-By-Tel will provide Excite with all of the customer information it acquires through the purchase requests submitted by users referred directly to Auto-By-Tel's Web site from the Excite Network. This customer information will be deemed to be the joint property of the parties. Under no circumstances will Excite sell, provide or transfer this customer information to any third party. 6. OPERATIONAL SUPPORT a) Excite will provide, at its sole expense, Account Management support of the Auto Buying Services department of the Excite Automotive Channel sufficient to support for the level of sales and marketing contemplated by the Agreement. b) The parties will hold formal reviews on a monthly basis to maintain anticipated results according to the sponsorship objectives. Advertising and sponsorship placements will be adjusted monthly by mutual agreement. 7. TERM AND TERMINATION a) The Agreement will have an initial term [*]. b) Auto-By-Tel will have the option to cancel the Agreement if, at the end of the first year of the Agreement, users referred to the Auto-By-Tel Site from the Excite Network do not submit [*] unique purchase requests. c) Either party may terminate this Agreement it the other party materially breaches its obligations hereunder and such breach remains uncured for thirty (30) days following the notice to the breaching party of the breach, with the following exceptions: 5 6 (i) In the event of three or more errors, failures or outages of the Content in any thirty (30) day period, Excite may elect to immediately terminate this Agreement upon written notice to Auto-By-Tel and enter into an other arrangements for the acquisition of similar content; or (ii) Auto-By-Tel will ensure that the Content will at all times be at least comparable to any other source of similar topical content available on the Internet in terms of the following factors, taken as a whole: (i) breadth and depth of coverage, (ii) timeliness of content updates and (iii) reputation and ranking based on a cross-section of third party reviewers in terms of features, functionality, quality and other qualitative factors. In the event that Auto-By-Tel fails to meet these quality criteria, Excite may terminate this agreement on thirty (30) days written notice and enter into an other arrangements for the acquisition of similar content. d) All payments that have accrued prior to the termination or expiration of this Agreement will be payable in full within thirty (30) days thereof. e) The provisions of Section 10 (Confidentiality), Section 11 (Warranty and Indemnity), Section 12 (Limitation of Liability) and Section 13 (Dispute Resolution) will survive any termination or expiration of this Agreement. 8. CONTENT OWNERSHIP AND LICENSE a) Auto-By-Tel will retain all right, title and interest in and to the Content worldwide (including, but not limited to, ownership of all copyrights and other intellectual property rights therein). Subject to the terms and conditions of this Agreement, Auto-By-Tel hereby grants to Excite a royalty-free, nonexclusive, worldwide license to use, reproduce, distribute, transmit and publicly display the Content in accordance with this Agreement and to sublicense the Content to Excite's wholly-owned subsidiaries or to joint ventures in which Excite participates for the sole purpose of using, reproducing, distributing, transmitting and publicly displaying the Content in accordance with this Agreement. b) Excite will retain all right, title, and interest in and to the Excite Network and the Broadcast Pages worldwide (including, but not limited to, ownership of all copyrights, look and feel and other intellectual property rights therein). 9. TRADEMARK OWNERSHIP AND LICENSE a) Auto-By-Tel will retain all right, title and interest in and to its trademarks, service marks and trade names worldwide, subject to the limited license granted to Excite hereunder. 6 7 b) Excite will retain all right, title and interest in and to its trademarks, service marks and trade names worldwide, subject to the limited license granted to Auto-By-Tel hereunder. c) Each party hereby grants to the other a non-exclusive, limited license to use its trademarks, service marks or trade names only as specifically described in this Agreement. All such use shall be in accordance with each party's reasonable policies regarding advertising and trademark usage as established from time to time. d) Upon the expiration or termination of this Agreement, each party will cease using the trademarks, service marks and/or trade names of the other except: i) As the parties may agree in writing; or ii) To the extent permitted by applicable law. 10. CONFIDENTIALITY a) For the purposes of this Agreement, "Confidential Information" means information about the disclosing party's (or its suppliers') business or activities that is proprietary and confidential, which shall include all business, financial, technical and other information of a party marked or designated by such party as "confidential" or "proprietary"; or information which, by the nature of the circumstances surrounding the disclosure, ought in good faith to be treated as confidential. b) Confidential Information will not include information that (i) is in or enters the public domain without breach of this Agreement, (ii) the receiving party lawfully receives from a third party without restriction on disclosure and without breach of a nondisclosure obligation or (iii) the receiving party knew prior to receiving such information from the disclosing party or develops independently. c) Each party agrees (i) that it will not disclose to any third party or use any Confidential Information disclosed to it by the other except as expressly permitted in this Agreement and (ii) that it will take all reasonable measures to maintain the confidentiality of all Confidential Information of the other party in its possession or control, which will in no event be less than the measures it uses to maintain the confidentiality of its own information of similar importance. d) Notwithstanding the foregoing, each party may disclose Confidential Information (i) to the extent required by a court of competent jurisdiction or other governmental authority or otherwise as required by law or (ii) on a 7 8 "need-to-know" basis under an obligation of confidentiality to its legal counsel, accountants, banks and other financing sources and their advisors. e) The information contained in the Usage Reports provided by each party hereunder will be deemed to be the Confidential Information of the disclosing party. f) The terms and conditions of this Agreement will be deemed to be the Confidential Information of each party and will not be disclosed without the written consent of the other party. 11. WARRANTY AND INDEMNITY a) Auto-By-Tel warrants that it owns, or has obtained the right to distribute and make available as specified in this Agreement, any and all content provided to Excite or made available to third parties in connection with this Agreement. b) Auto-By-Tel warrants that the Content will comply with the description and technical specifications contained in Exhibit D. c) Auto-By-Tel will indemnify, defend and hold harmless Excite, its affiliates, officers, directors, employees, consultants and agents from any and all third party claims, liability, damages and/or costs (including, but not limited to, attorneys fees) arising from: i) The breach of any warranty, representation or covenant in this Agreement; ii) Any claim that the Content infringes or violates any third party's copyright, patent, trade secret, trademark, right of publicity or right of privacy or contains any defamatory content; or iii) Any claim arising from content displayed on the Auto-By-Tel Site. Excite will promptly notify Auto-By-Tel of any and all such claims and will reasonably cooperate with Auto-By-Tel with the defense and/or settlement thereof; provided that, it any settlement requires an affirmative obligation of, results in any ongoing liability to or prejudices or detrimentally impacts Excite in any way and such obligation, liability, prejudice or impact, can reasonably be expected to be material, then such settlement shall require Excite's written consent (not to be unreasonably withheld or delayed) and Excite may have its own counsel in attendance at all proceedings and substantive negotiations relating to such claim, d) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF 8 9 MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER. 12. LIMITATION OF LIABILITY EXCEPT UNDER SECTION 11(c), IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE LIABILITY OF EXCITE FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED, THE AMOUNTS ACTUALLY PAID BY AUTO-BY-TEL TO EXCITE HEREUNDER. 13. DISPUTE RESOLUTION a) The parties agree that any breach of either of the parties' obligations regarding trademarks, service marks or trade names and/or confidentiality would result in irreparable injury for which there is no adequate remedy at law. Therefore, in the event of any breach or threatened breach of a party's obligations regarding trademarks, service marks or trade names or confidentiality, the aggrieved party will be entitled to seek equitable relief in addition to its other available legal remedies in a court of competent jurisdiction. For the purposes of this section only, the parties consent to venue in either the state courts of the county in which Excite has its principal place of business or the United States District Court for the Northern District of California. b) In the event of disputes between the parties arising from or concerning in any manner the subject matter of this Agreement, other than disputes arising from or concerning trademarks, service marks or trade names and/or confidentiality, the parties will first attempt to resolve the dispute(s) through good faith negotiation. In the event that the dispute(s) cannot be resolved through good faith negotiation, the parties will refer the dispute(s) to a mutually acceptable mediator for hearing in the county in which Excite has its principal place of business. c) In the event that disputes between the parties arising from or concerning in any manner the subject matter of this Agreement, other than disputes arising from or concerning trademarks, service marks or trade names and/or confidentiality, cannot be resolved through good faith negotiation and mediation, the parties will refer the dispute(s) to the American Arbitration Association for resolution through binding arbitration by a single arbitrator pursuant to the American Arbitration Association's rules applicable to 9 10 commercial disputes. The arbitration will be held in the county in which Excite has its principal place of business. 14. GENERAL a) Assignment. Neither party may assign this Agreement, in whole or in part, without the other party's written consent (which will not be unreasonably withheld), except that no such consent will be required in connection with a merger, reorganization or sale of all, or substantially all, of such party's assets. Any attempt to assign this Agreement other than as permitted above will be null and void. b) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of California, notwithstanding the actual state or country of residence or incorporation of Auto-By-Tel. c) Notice. Any notice under this Agreement will be in writing and delivered by personal delivery, express courier, confirmed facsimile, confirmed email or certified or registered mail, return receipt requested, and will be deemed given upon personal delivery, one (1) day after deposit with express courier, upon confirmation of receipt of facsimile or email or five (5) days after deposit in the mail. Notices will be sent to a party at its address set forth below or such other address as that party may specify in writing pursuant to this Section. d) No Agency. The parties are independent contractors and will have no power or authority to assume or create any obligation or responsibility on behalf of each other. This Agreement will not be construed to create or imply any partnership, agency or joint venture. e) Force Majeure. Any delay in or failure of performance by either party under this Agreement will not be considered a breach of this Agreement and will be excused to the extent caused by any occurrence beyond the reasonable control of such party including, but not limited to, acts of God, power outages and governmental restrictions. f) Severability. In the event that any of the provisions of this Agreement are held by to be unenforceable by a court or arbitrator, the remaining portions of the Agreement will remain in full force and effect. g) Entire Agreement. This Agreement is the complete and exclusive agreement between the parties with respect to the subject matter hereof, superseding any prior agreements and communications (both written and oral) regarding such subject matter. This Agreement may only be modified, or any rights under it waived, by a written document executed by both parties. 10 11 Auto-By-Tel Excite, Inc. By: /s/ Mark W. Lorimir By: /s/ Robert C. Hood -------------------------------- ------------------------------ Name: Mark W. Lorimir Name: Robert C. Hood ------------------------------ ---------------------------- Title: EVP & COO Title: EVP & CFO ------------------------------ ---------------------------- Date: ______________________________ Date: ____________________________ [ADDRESS] 555 Broadway Redwood City, California 94063 415.568.6000 (voice) 415.568.6030 (fax) 11 12 EXHIBIT C AUTO-BY-TEL LIST OF COMPETITORS 14 13 EXHIBIT D CONTENT DESCRIPTION AND TECHNICAL SPECIFICATIONS 15 14 [*] Confidential Treatment Requested CONTENT LICENSE AND CHANNEL SPONSORSHIP TERM SHEET This term sheet describes the basic points regarding a proposed transaction between Excite, Inc. ("Excite") and Auto-By-Tel. The parties will enter into a definitive agreement ("Agreement") incorporating the terms and conditions contained in this term sheet as soon as reasonably possible. Until the execution of the Agreement, the parties will be bound by the terms and conditions contained in this term sheet. 1. SPONSORSHIP OF EXCITE AUTOMOTIVE CHANNEL a) Auto-By-Tel will be the exclusive online automobile buying service sponsor of the Excite Automotive Channel, located at http://www.excite.com. If, based upon customer feedback, Excite reasonably establishes that the user traffic level on this channel is not being optimized due to a lack of diversity in the user experience, the parties will work together in good faith to test enhancements for the user experience and to generate optimum traffic. b) During the term of the Agreement, Excite will not display any banner advertising or promotional placements for any of Auto-By-Tel's direct competitors in the Excite Automotive Channel. c) Auto-By-Tel will have a right of first refusal to renew its sponsorship of the Excite Automotive Channel upon the expiration of the Agreement. 2. MARKETING AND PROMOTION a) Excite will feature Auto-By-Tel in the Auto Buying Services department of the Excite Automotive Channel for the term of the Agreement. b) Excite will conduct three (3) two-week car give away promotions on the Excite home page promoting Auto-By-Tel during the [*] of the Agreement, with one promotion coinciding with the launch of Auto-By-Tel's sponsorship and the other two to be mutually scheduled. Excite will conduct similar promotions three (3) times per year in years [*] of the Agreement. Auto-By-Tel will provide the cars to be given away through these promotions. c) Auto-By-Tel will purchase banner advertising on the Excite Network in the amounts described below, d) Excite will deliver an annual minimum of [*] impressions of Auto-By-Tel promotional placements during the term of the Agreement, including the placement in the Auto Buying Services department of the Excite Automotive Channel, the car give-away promotions and the banner advertisements described above, the display of Auto-By-Tel's Content (described below) and 1 15 [*] Confidential Treatment Requested other promotional placements that may be agreed upon by the parties. Attached Exhibits A and B are examples of a Year One Promotional Plan and a [*] Promotional Plan, respectively. e) The parties will issue an initial, mutually agreed upon press release. 3. CONTENT PROVIDED TO EXCITE a) Auto-By-Tel will provide to Excite mutually agreed upon content relating to online automobile buying such as AutoSite and The Bank Rate Monitor (the "Content"). Excite may display the Content in the Excite Automotive Channel and in other locations in the Excite Network. Excite will determine the "look and feel" of the Excite Automotive Channel and the Excite Network. b) Auto-By-Tel and Excite will determine mutually agreeable methods for the transmission and incorporation of updates to the Content. c) Reasonable excerpts or portions of the Content may be incorporated into "Broadcast Pages" delivered by Excite via email, desktop "channels" or Internet "Push" technologies. Excite will determine the "look and feel" of the Broadcast Pages. 4. SPONSORSHIP AND ADVERTISING FEES AND REVENUE SHARING a) A set-up fee of [*] will be due to Excite upon execution of the Agreement as compensation for exclusivity, costs of initiating access to the Excite Network, programming costs associated with the incorporation of the Content into the Excite Network, set-up costs and other expenses associated with Excite's initiation of the links, placements, advertisements and promotions contemplated by this Agreement. b) Sponsorship and advertising fees will be due to Excite as follows:
Year 1 Year 2 Year 3 ---------- ---------- ---------- Sponsorship [*] [*] [*] Banners - US [*] [*] [*] Banners - WebTV/ [*] [*] [*] International Total [*] [*] [*]
In the event that Excite is unable to deliver the agreed-upon amount of banner advertising in the WebTV and/or international rotations, Excite will provide the undelivered amounts in rotation on its primary Web site. 2 16 [*] Confidential Treatment Requested c) Auto-By-Tel will pay Excite a bounty per unique auto purchase request (the "Bounty") submitted by users referred to Auto-By-Tel's Web site from the Excite Network. The Bounty will be payments of [*] for the first [*] unique auto purchase requests in each year of the Agreement, [*] for the second [*] unique auto purchase requests in each year of the Agreement and [*] for each unique auto purchase request in excess of [*] in each year of the Agreement. For the purposes of the Agreement, a "unique auto purchase request" is one new-automobile purchase or lease request submitted by any particular user in a sixty (60) day period, as measured by Auto-By-Tel. d) If the number of unique auto purchase requests submitted by users referred to Auto-By-Tel's Web site from the Excite Network in any year of the Agreement exceeds [*], the Bounty increases to [*] for the first [*] unique auto purchase requests In the subsequent year(s) of the Agreement, [*] for the second [*] unique auto purchase requests in the subsequent year(s) of the Agreement and [*] for each unique auto purchase request in excess of [*] in the subsequent year(s) of the Agreement. e) The set-up, sponsorship and advertising fees are gross amounts and do not reflect any agency commissions to be paid by Auto-By-Tel. The Bounty payment amounts are net of any agency commissions to be paid by Auto-By-Tel. f) Sponsorship and advertising fees will be paid in twelve equal monthly installments commencing on the execution of the Agreement. Bounty payments will be made quarterly. The parties will conduct annual reviews to ensure accurate payments and accounting. 5. CUSTOMER INFORMATION a) Auto-By-Tel will retain all rights to customers acquired pursuant to the Agreement. b) Once per quarter, in connection with Auto-By-Tel's Bounty payments, Auto-By-Tel will provide Excite with all of the customer information it acquires through the purchase requests submitted by users referred directly to Auto-By-Tel's Web site from the Excite Network. This customer information will be deemed to be the joint property of the parties. Under no circumstances will Excite sell, provide or transfer this customer information to any third party. 6. OPERATIONAL SUPPORT a) Excite will provide. at its sole expense, Account Management support of the Auto Buying Services department of the Excite Automotive Channel sufficient 3 17 [*] Confidential Treatment Requested to support for the level of sales and marketing contemplated by the Agreement. b) The parties will hold formal reviews on a monthly basis to maintain anticipated results according to the sponsorship objectives. Advertising and sponsorship placements will be adjusted monthly by mutual agreement, 7. TERM AND TERMINATION a) The Agreement will have an initial term [*]. b) Auto-By-Tel will have the option to cancel the Agreement it, at the end of the first year under the term of the Agreement, users referred to Auto-By-Tel's Web site from the Excite Network do not submit [*] unique AUTO purchase requests. c) Excite will have the option to cancel the Agreement if. at the end of the [*] under the term of the Agreement, Excite has not received an aggregate of [*] million in Bounty. d) Either party may terminate if the other party breaches the Agreement and the breach remains uncured for thirty (30) days. 8. CONTENT OWNERSHIP AND LICENSE Auto-By-Tel will retain all right, title and interest in and to the Content worldwide, subject to a limited license necessary to perform the Agreement. Excite will retain all right, title, and interest in and to the Excite Network, the Excite Automotive Channel and the Broadcast Pages worldwide. 9. TRADEMARK OWNERSHIP AND LICENSE Auto-By-Tel and Excite will retain all right, title and Interest in and to their trademarks, service marks and trade names worldwide, subject to limited cross-licenses necessary to perform the Agreement. 10. CONFIDENTIALITY The terms and conditions of the Agreement will be confidential. 11. WARRANTY AND INDEMNITY Auto-By-Tel will indemnify Excite from third party claims that the Content infringes or violates any third party's copyright, patent, trade secret, trademark. right of publicity or right of privacy or contains any defamatory content, 12. LIMITATION OF LIABILITY 4 18 Except for liability for indemnity, neither Party will have liability for any damages other than direct damages. Excite's liability will be limited to the amounts actually paid by Auto-By-Tel. 13. DISPUTE RESOLUTION Disputes about trademarks, service marks, trade names and confidentiality can be resolved in court. All other disputes must be resolved through mediation and then binding arbitration. All proceedings will be held in the county in which Excite has its principal place of business. 14. GENERAL The Agreement will be governed by California law. Excite, Inc. Auto-By-Tel By: [SIG] By: /s/ MARK W. LORIMER -------------------------- -------------------------- Name: [ILLEGIBLE] Name. Mark W. Lorimer ------------------------ ------------------------ Title: Pres. and CEO Title: EVP & COO ----------------------- ----------------------- Date: 9/10/97 Date: 9/12/97 ------------------------ ------------------------ 5 19 [*] Confidential Treatment Requested AUTO-BY-TEL AND EXCITE [*] PROMOTIONAL PLAN EXHIBIT A
[COLUMN HEADS ILLEGIBLE] - ---------------------------------------------------------------------------------------------------------------------- BASE PAYMENT 10/1 Base payment excluding Purchase Y [*] requests EXCITE AUTOMOTIVE CHANNEL Sole buying service 10/1 Link under "Buying Services" to Y [*] [*] [*] sponsorship with link off custom area home page to Custom area Link under "Used Cars": Search ABT's Y Used Car Cyberstore Link under "News": Weekly Automotive Y Report Link under "Insurance & Finance": Y Generic Text/graphic on all pages Y KEYWORDS* Excite (Auto brand, keyword) 10/1 Minimum 12.5% "Gen'l Auto"* per month Y** [*] [*] [*] Integrated Search [*] ------ [*] Webcrawler (Auto brand, 10/1 Minimum 15% "Gen'l Auto"* per month N [*] [*] [*] keyword) LIFESTYLE DIRECTORIES/GEN'L Various & Specific 10/1 Business & Investing N [*] [*] [*] preferences Shopping Computers & Internet General Rotation 10/1 Various keyword results N [*] [*] [*] AUTOMOTIVE SHOPPING*** 10/1 Graphic link N [*] [*] [*] imp's/year EXCITE HOME PAGE SPONSOR*** 2 Weeks on Home Page (3X/yr.) 10/1 Car giveaway [*] Y [*] [*] [*] imp's/wk. subsequent years) ABT to provide cars [*] retail value per car) WEB TV, EUROPE, CANADA Programs TBD 10/1 25% Auto keywords on Web TV/possible Y [*] [*] [*] in Auto area Auto Keywords (Europe/Canada) TBD TOTAL [*] [*] [*] PURCHASE REQUEST PROGRAM [*] Unique requests annual 10/1 Net: [*] up to [*], [*] up to [*], N/A [*] guarantee [*] after [*]. [*] [*], [*], [*] GRAND TOTAL [*] [*] [*]
* Keywords: Car(s), Auto(s), Automobile(s), Automotive, Dealer, Incentive, Buyer(s) ** Category Exclusivity on the [*] Keywords listed above only, not Auto brand words *** impressions included within Autochannel 20 [*] Confidential Treatment Requested AUTO-BY-TEL AND EXCITE [*] PROMOTIONAL PLAN EXHIBIT B
Date of Impression Negotiate Content Area Description BASE PAYMENT Base payment excluding Purchase requests Y [*] [*] EXCITE AUTOMOTIVE CHANNEL Sole buying service sponsorship Link under "Buying Services" to Custom area Y [*] [*] [*] [*] with link off home page to "Used Cars": Search ABT's Used Car Cyberstore Y custom area Link under "News": Weekly Automotive Report Y Link under "Insurance & Finance". Generic Y Text/graphic on all pages Y KEYWORDS* Excite (Auto brand, keyword) Minimum 12.5% "Gen'l Auto"* Y [*] [*] [*] [*] Integrated Search Webcrawler (Auto brand, keyword) Minimum 15% "Gen'l Auto"* per month N [*] [*] [*] [*] LIFESTYLE DIRECTORIES/GEN'L Various Specific Preferences Business Investing N [*] [*] [*] Shopping Computers & Internet General Position Various keyword results N [*] [*] [*] [*] AUTOMOTIVE SHOPPING*** Graphic link N [*] [*] [*] [*] imp's/year EXCITE HOME PAGE SPONSOR*** 2 weeks on Home Page [*] Car giveaway [*] in 1997 [*] subsequent years Y [*] [*] [*] [*] imp's/wk. ABT to provide cars ([*] retail value per car) WEB TV, EUROPE, CANADA Programs TBD 25% Auto keywords on Web TV/possible in Auto area Y [*] [*] [*] [*] Auto Keywords (Europe/Canada) 100 TOTAL [*] [*] [*] [*] PURCHASE REQUEST PROGRAM [*] Unique requests Net [*] illegible to [*], $?? after [*] N/A [*] [*] annual guarantee Years ??? illegible GRAND TOTAL [*] [*] [*] [*]
BASE PAYMENT Base payment excluding Purchase (requests) Y [*] [*] EXCITE AUTOMOTIVE CHANNEL Sole buying service sponsorship Link under "Buying Services" to Custom area Y [*] [*] [*] [*] with link off home page to "Used Cars": Search ABT's Used Car Cyberstore Y custom area Link under "News": Weekly Automotive Report Y Link under "Insurance & Finance" Generic Y Text/graphic on all pages Y KEYWORDS* Excite (Auto brand, keyword) Minimum 12.5% "Gen'l Auto"* Y [*] [*] [*] [*] Integrated Search Webcrawler (Auto brand, [*] [*] [*] [*] keyword) Minimum 15% "Gen'l Auto"* per month N LIFESTYLE DIRECTORIES/GEN'L [*] [*] [*] [*] Various Specific Preferences Business Investing N Shopping Computers & Internet [*] [*] [*] [*] General Position Various keyword results N [*] [*] [*] [*] AUTOMOTIVE SHOPPING*** Graphic link N [*] imp's/year EXCITE HOME PAGE SPONSOR*** [*] [*] [*] [*] 2 weeks on Home Page (3x/yr.) Car giveaway (1X in 1997 [*] subsequent years Y [*] imp's/wk. ABT to provide cars ([*] retail value per car) WEB TV, EUROPE, CANADA [*] [*] [*] [*] Programs TBD 25% Auto keywords on Web TV/possible in Auto area Y Auto Keywords (Europe/Canada) 100 [*] [*] [*] [*] TOTAL PURCHASE REQUEST PROGRAM [*] Unique requests Net [*] up to [*], [*] up to [*], [*] after ? [*] [*] annual guarantee [*]. Years 2 & 3: [*], [*], [*] GRAND TOTAL [*] [*] [*] [*]
*Keywords: Car(1), Auto(2), Automobile(3), AutoCenter, Dealer Incentive, Buyer(s). **Category Exclusivity on the [*] keywords rated above only, not auto brand words. ***impressions included within Autochannel number. 21 [*] Confidential Treatment Requested Auto-By-Tel and Excite [*] Promotional Plan EXHIBIT A
- ------------------------------------------------------------------------------------------------------------------------------------ Material Start Date of Impression Negotiate Content Area Closing Date Date Description ??????? ???????? ?????? GBM - ------------------------------------------------------------------------------------------------------------------------------------ BASE PAYMENT 10/1 Base payment excluding Purchase requests Y [*] EXCITE AUTOMOTIVE CHANNEL Sole buying service sponsorship 10/1 Link under "Buying Services" to custom area Y [*] [*] [*] with link off home page to Custom area Link under "Used Cars": Search ABT's Used Car Cyberstore Y Link under "News": Weekly Automotive Report Y Link under "Insurance & Finance": Generic Y Text/graphic on all pages Y KEYWORDS* Excite (Auto brand, keyword) 10/1 Minimum 12.5% "Gen'l Auto"* per month Y** [*] [*] [*] Integrated Search [*] -------- [*] Webcrawler (Auto brand, keyword) 10/1 Minimum 15% "Gen'l Auto"* per month N [*] [*] [*] LIFESTYLE DIRECTORIES/GEN'L Various & Specific preferences 10/1 Business & Investing N [*] [*] [*] Shopping Computers & Internet General Rotation 10/1 Various keyword results N [*] [*] [*] AUTOMOTIVE SHOPPING*** 10/1 Graphic link N [*] [*] [*] imp's/year EXCITE HOME PAGE SPONSOR*** 2 Weeks on Home Page (3X/yr.) 10/1 Car giveaway (1X in 1997 3X/yr subsequent years) Y [*] [*] [*] imp's/wk. ABT to provide cars ([*] retail value per car) WEB TV, EUROPE, CANADA Programs TBD 10/1 25% Auto keywords on Web TV/ possible Y [*] [*] [*] in Auto area Auto Keywords (Europe/Canada) TBD TOTAL [*] [*] [*] PURCHASE REQUEST PROGRAM [*] Unique requests annual guarantee 10/1 Net: [*] up to [*], [*] up to [*], [*] after [*]. N/A [*] [*] [*], [*], [*] GRAND TOTAL [*] [*] [*]
*Keywords: Car(s), Auto(s), Automobile(s), Automotive, Dealer, Inventive, Buyer(s). **Category Exclusively on the [*] Keywords listed above only not Auto brand words. ***impressions included within Autochannel number. 22 [*] Confidential Treatment Requested AUTO-BY-TEL AND EXCITE [*] PROMOTIONAL PLAN EXHIBIT B
BASE PAYMENT Base payment excluding Purchase requests Y [*] [*] EXCITE AUTOMOTIVE CHANNEL Sole buying service sponsorship Link under "Buying Services" to custom area Y [*] [*] [*] [*] with link off home page to Link under "Used Cars": Search ABT's Used Y Custom area Car Cyberstore Y Link under "News": Weekly Automotive Report Y Link under "Insurance & Finance": Generic Y Text/graphic on all pages KEYWORDS* Excite (Auto brand, keyword) Minimum 12.5% "Gen'l Auto"* per month Y** [*] [*] [*] [*] Integrated Search Webcrawler (Auto brand, keyword) Minimum 15% "Gen'l Auto"* per month N [*] [*] [*] [*] LIFESTYLE DIRECTORIES/GEN'L Various & Specific preferences Business & Investing N [*] [*] [*] [*] Shopping Computers & Internet General Rotation Various keyword results N [*] [*] [*] [*] AUTOMOTIVE SHOPPING*** Graphic link N [*] [*] [*] [*] imp's/year EXCITE HOME PAGE SPONSOR*** 2 Weeks on Home Page [*] Car giveaway(1x in 1997, 3X/yr subsequent Y [*] [*] [*] [*] imp's/wk years) ABT to provide cars ([*] retail value per car) WEB TV, EUROPE, CANADA Programs TBD 25% Auto keywords on Web TV/possible in Y [*] [*] [*] [*] Auto area TBD TOTAL Auto Keyword (Europe Canada) [*] [*] [*] [*] PURCHASE REQUEST PROGRAM [*] Unique requests annual Net: [*] up to [*], [*], up to [*] N/A [*] [*] guarantee [*]. [*] [*], [*], [*] GRAND TOTAL [*] [*] [*] [*]
BASE PAYMENT Base payment excluding Purchase requests [*] [*] EXCITE AUTOMOTIVE CHANNEL Sole buying service sponsorship Link under "Buying Services" to custom area [*] [*] [*] [*] with link off home page to Link under "Used Cars": Search ABT's Used Custom area Car Cyberstore Link under "News": Weekly Automotive Report Link under "Insurance & Finance": Generic Text/graphic on all pages KEYWORDS* Excite (Auto brand, keyword) Minimum 12.5% "Gen'l Auto"* per month [*] [*] [*] [*] Integrated Search Webcrawler (Auto brand, keyword) Minimum 15% "Gen'l Auto"* per month [*] [*] [*] [*] LIFESTYLE DIRECTORIES/GEN'L Various & Specific preferences Business & Investing [*] [*] [*] [*] Shopping Computers & Internet General Rotation Various keyword results [*] [*] [*] [*] AUTOMOTIVE SHOPPING*** Graphic link [*] [*] [*] [*] imp's/year EXCITE HOME PAGE SPONSOR*** 2 Weeks on Home Page (3X/yr.) Car giveaway [*] in 1997, [*] subsequent [*] [*] [*] [*] imp's/wk years) ABT to provide cars ([*] retail value per car) WEB TV, EUROPE, CANADA Programs TBD 25% Auto keywords on Web TV/possible in [*] [*] [*] [*] Auto area TOTAL Auto Keyword (Europe Canada) [*] [*] [*] [*] PURCHASE REQUEST PROGRAM [*] Unique requests annual Net: [*] [*], [*], [*] [*] guarantee [*] Years 2 & 3: [*], [*], [*] GRAND TOTAL [*] [*] [*] [*]
* Keywords: Car(s), Auto(s), Automobile(s), Automotive, Dealer, Incentive, Buyer(s). ** Category Exclusivity on the [*] Keywords listed above only, not Auto brand words. *** impressions included within Autochannel number. EX-10.22 8 SPONSORSHIP AGREEMENT 1 EXHIBIT 10.22 [*] Confidential Treatment has been requested for certain portions of this exhibit. CONFIDENTIAL ------------ SPONSORSHIP AGREEMENT This agreement ("Agreement") is entered into as of the 24th day of June, 1998 ("Effective Date"), by and between Excite, Inc., a California corporation, located at 555 Broadway, Redwood City, California 94063 ("Excite"), and Auto-By-Tel Corporation, a California corporation, located at 18872 MacArthur Boulevard, #200, Irvine, California 92612-1400 ("Client"). RECITALS A. Excite has obtained the right to program certain content and sell and display advertising on the site on the Internet maintained by Netscape Communications Corporation ("Netscape") located at http://home.netscape.com and/or other URLs or locations designated by Netscape (the "Excite Portion of the Netscape Site") pursuant to an agreement dated April 29, 1998 ("the Netcenter Agreement"), which, among other things, allow Netscape's users to search for and access content and other sites on the Internet. B. Within the Excite Portion of the Netscape Site, Excite plans to organize certain content into topical channels (each, a "Channel") and to provide an Internet search service ("Netscape Search"). C. Client is engaged in the business of, among other things, (i) providing online information and data to prospective purchasers of motor vehicles through its Web site located at http://www.autobytel.com (the "Client Site") and facilitating the acquisition of vehicles through a network of dealer subscribers; (ii) offering to any such purchaser vehicle financing and leasing programs, insurance programs and after market products, and (iii) offering an incentive "rewards" based membership program featuring a co-branded credit card, roadside assistance and select retail providers (the "Mobalist" Program). D. Client wishes to promote its business to Netscape's users through promotions, content and advertising in the Excite Portion of the Netscape Site. Therefore, the parties agree as follows: 1. SPONSORSHIP OF THE AUTOS CHANNEL (a) Client acknowledges that Excite's right to display promotional placements on the Excite Portion of the Netscape Site is conditioned on the Netcenter Agreement remaining in effect. However, Excite represents that it will, in good faith, perform all of its obligations under the Netcenter Agreement and do all other commercially 1 2 CONFIDENTIAL ------------ reasonable acts necessary to keep such Agreement in place, subject at all times to Netscape's rights to terminate the Netcenter Agreement for reasons unrelated to Excite's performance or breach. Therefore, subject to the Netcenter Agreement remaining in effect, commencing on the Launch Date (as defined below), Client will be promoted in the Autos Channel of the Excite Portion of the Netscape Site: (i) A link to the Client Site (consistent with the format used on similar links on the same page) will be displayed in the Autos Channel home page for the duration of the term of the Agreement. (ii) A link to the Client Site (consistent with the format used on similar links on the same page) will be displayed in the "Buy A Car Online" department of the Autos Channel (or a similar portion of the Autos Channel featuring comparable content) for the duration of the term of the Agreement. (iii) A link to the Client Site (consistent with the format used on similar links on the same page) will be displayed in the "Take a Test Drive" department of the Autos Channel (or a similar portion of the Autos Channel featuring comparable content) for the duration of the term of the Agreement. (iv) A link to the Client Site (consistent with the format used on similar links on the same page) will be displayed in the "Auto Makers" promotional area in the "SUV," "Truck," "Cars" and "Luxury Cars" departments of the Autos Channel (or a similar portion of the Autos Channel featuring comparable content) for the duration of the term of the Agreement. (b) Client acknowledges that Excite's right to display content on the Excite Portion of the Netscape Site is conditioned on the Netcenter Agreement remaining in effect. Therefore, subject to the Netcenter Agreement remaining in effect, commencing of the Launch Date (as defined below), motor vehicle related content supplied by Client ("Client Content") will be promoted in the Autos Channel of the Excite Portion of the Netscape Site: (i) Client Content from Bank Rate Monitor, Edmunds, Auto-By-Tel, and/or AIG (subject to approval by Excite) will be displayed in the Autos Channel for the duration of the term of the Agreement. The selection and placement of Client Content to appear in the Autos Channel will be subject to Excite's discretion. (ii) A module containing text and graphics links of less than 6K in file size, the pixel dimensions to be mutually determined by the parties, featuring Client's "Mobalist" program which will be displayed in the Autos Channel for the 2 3 [*] Confidential Treatment Requested CONFIDENTIAL ------------ duration of the term of the Agreement. The placement of the "Mobalist" module in the Autos Channel will be subject to Excite's discretion and continued positive user feedback. (iii) All Client Content will link to the Client Site. The "Mobalist" module will link to http://www.mobalist.com; unless, upon reasonable notice, Client directs Excite to link the Mobalist module to an additional or alternative address. (iv) Client and Excite will determine mutually agreeable methods for the transmission and incorporation of updates to the Client Content and "Mobalist" module. Other than updates to the Client Content and "Mobalist" module, Client will not alter the Client Content or "Mobalist" module without Excite's prior consent. (v) Netscape and Excite, on the one hand, and Client, on the other, will cooperate in good faith regarding the "look and feel" of the "Mobalist" module, but Netscape and Excite will have final decision authority over of the "look and feel" of the Client Content, the "Mobalist" module and the Autos Channel. (vi) Client will have sole responsibility for providing, at its expense, the Client Content and "Mobalist" module to Excite. 2. SWEEPSTAKES (a) Every [*] months, Client, at its sole expense, will supply Excite with up to [*] new motor vehicles to be used by Excite as sweepstakes prizes offered to Netscape users. The parties agree that the aggregate suggested manufacturer's retail price for the vehicle(s) selected by Excite though Client shall not exceed [*] in any twelve-month period. (b) Client and Excite will cooperate in good faith to identify appropriate opportunities to promote these sweepstakes and Client in the Excite Portion of the Netscape Site during the term of the Agreement. (c) Other than the motor vehicles supplied by Client, Excite will assume all expenses involved in administering and promoting these sweepstakes. (d) Either party may issue press releases regarding the sweepstakes, the timing and wording of which will be mutually agreed upon. Any such press releases will 3 4 [*] Confidential Treatment Requested CONFIDENTIAL ------------ identify Excite as the host of the sweepstakes and Client as the provider of the prize vehicle. 3. ADVERTISING ON THE EXCITE PORTION OF THE NETSCAPE SITE (a) Client acknowledges that Excite's right to display advertising on the Excite Portion of the Netscape Site is conditioned on the Netcenter Agreement remaining in effect. Therefore, subject to the Netcenter Agreement remaining in effect, commencing of the Launch Date (as defined below), Excite will display Client's banner advertising in rotation on the Channels on the Excite Portion of the Netscape Site for the term of the Agreement. (b) Subject to the Netcenter Agreement remaining in effect, Excite guarantees the display of [*] of Client's advertising banners, which shall be distributed evenly and equitably per month, during the term of the Agreement. 4. EXCLUSIVITY (a) For the term of the Agreement, Excite will not enter into any agreement to display and shall not display on the Autos, Arts & Leisure, Auctions, Education, Games, Lifestyle, Real Estate or Shopping Channels of the Excite Portion of the Netscape Site content created by Excite promoting Client's "Competitors," content created by Client's Competitors or promotional placements and/or advertising banners from Client's Competitors. (b) For the purposes of this Agreement, "Competitors" means those merchants whose primary business is (i) the online referral of new motor vehicle purchase and/or leasing requests or the online referral of used motor vehicle purchase requests to a nationwide network of automobile dealers, (but does not include Excite's subsidiary, Classifieds2000, Inc. ("Classifieds2000")), together with the offering of ancillary motor vehicle products in connection with any such purchase or lease including financing, insurance and aftermarket products as well as (ii) the offering of a rewards-based incentive program targeted to motorists featuring a co-branded credit card, roadside assistance and select retail dealers (but does not include any rewards-based incentive program offered by Excite under the "Excite" brand). (c) Notwithstanding the foregoing, Excite may display links to Client's Competitors in Excite's general directory of Web sites that appears on the Netscape Site, in search results displayed in "Jango" shopping search services, in Netscape Search results 4 5 CONFIDENTIAL ------------ pages and in classified advertising listings, subject to any agreement entered into by Client and Classifieds2000, pursuant to Section 5 below. 5. RIGHT OF FIRST NEGOTIATION FOR CLASSIFIEDS CHANNEL (a) Client will have a right of first negotiation with Classifieds2000 for an exclusive sponsorship of the Classifieds Channel of the Excite Portion of the Netscape Site. (b) Excite will not propose, solicit or negotiate offers from entities other than Client for any exclusive sponsorships of the Classifieds Channel of the Excite Portion of the Netscape Site by any of Client's Competitors, if at all, prior to fifteen (15) business days from the Effective Date. (c) Classifieds2000 will negotiate with Client in good faith with respect to the terms and conditions under which Client would become the exclusive online seller of new motor vehicles sponsoring the Classifieds Channel of the Excite Portion of the Netscape Site. If Client and Classifieds2000 have not entered into a written sponsorship agreement by close of business on the fifteenth business day from the Effective Date, Excite and/or Classifieds2000 may enter into negotiations with any third party with respect to exclusive sponsorships of the Classifieds Channel of the Excite Portion of the Netscape Site. 6. LAUNCH DATE AND REPORTING (a) Client and Excite will use reasonable efforts to implement the display of the promotional placements, content and advertising described in the Agreement by July 1, 1998 (the "Launch Date"). The parties recognize that the scheduled Launch Date can be met only if Client provides final versions of all graphics, text, keywords, banner advertising, promotional placements, other promotional media and valid URL links necessary to implement the promotional placements, content and advertising described in the Agreement (collectively, "Impression Material") to Excite five (5) days prior to scheduled Launch Date. (b) In the event that Client fails to provide the Impression Material to Excite five (5)days in advance of the scheduled Launch Date, Excite may, at its sole discretion (i) reschedule the Launch Date at the earliest practicable date according to the availability of Excite's engineering resources after delivery of the complete Impression Material or (ii) commence delivery of Impressions based on Impression Material in Excite's possession at the time and/or reasonable placeholders created by Excite. 5 6 [*] Confidential Treatment Requested CONFIDENTIAL ------------ (c) Excite will provide Client with monthly reports substantiating the number of impressions of Client's advertising banners, content and promotional placements displayed on the Excite Portion of the Netscape Site. 7. SPONSORSHIP, ADVERTISING AND TRANSACTION FEES (a) Client will pay Excite sponsorship and advertising fees of [*] in the first year of the term of the Agreement. These fees will be paid in equal monthly installments of [*]. The first monthly payment will be due upon the display of the first of the promotional placements and advertising described in the Agreement. Subsequent installments will be due on a monthly basis thereafter. (b) Client will pay Excite sponsorship and advertising fees of [*] in the second year of the term of the Agreement. These fees will be paid in equal monthly installments of [*]. The first monthly payment will be due upon the first anniversary of the display of the first of the promotional placements and advertising described in the Agreement. Subsequent installments will be due on a monthly basis thereafter. (c) Separate and apart from the sponsorship and advertising fees, Client will pay Excite for each "Unique Purchase Request" completed by users referred to the Client Site from the Excite Portion of the Netscape Site during the first year of the term of the Agreement. For the purposes of this Agreement, a "Unique Purchase Request" shall be a new car purchase request electronic form with all data fields deemed mandatory by Client completed by the user, which has been received by Client from Excite, and for which Client has not, within the previous [*] period, received a duplicate new car purchase request from the Excite Portion of the Netscape Site for the same or similar vehicle, as determined by the year, make and model; from the same user, as identified by the same name, zip code and/or the same e-mail address. Client will pay Excite for each Unique Purchase Request during the first year of the term of the Agreement as follows: (i) [*] per Unique Purchase Request up to the first [*] Unique Purchase Requests; (ii) [*] per Unique Purchase Request for between [*] and [*] Unique Purchase Requests; and 6 7 [*] Confidential Treatment Requested CONFIDENTIAL ------------ (iii) [*] per Unique Purchase Request in excess of [*] Unique Purchase Requests. (d) Separate and apart from the sponsorship and advertising fees, Client will pay Excite for each Unique Purchase Request completed by users referred to the Client Site from the Excite Portion of the Netscape Site during the second year of the term of the Agreement as follows: (i) [*] per Unique Purchase Request up to the first [*] Unique Purchase Requests; (ii) [*] per Unique Purchase Request for between [*] and [*] Unique Purchase Requests; and (iii) [*] per Unique Purchase Request in excess of [*] Unique Purchase Requests. (e) The sponsorship fees and transaction payments are net of any agency commissions to be paid by Client. (f) Client will provide Excite with monthly reports of the number of "Unique Purchase Requests." It is currently Client's goal to provide these reports to Excite on or about the fifth business day after the close of the preceding month. Client shall pay Excite the transaction payments within [*] days after Excite's receipt of Client's report of the number of "Unique Purchase Requests" each month. In the event that Client does not pay the transaction payments within [*] days after Excite's receipt of Client's report of the number of "Unique Purchase Requests" for any month, that month shall be deemed to be a "Late Payment Month" for the purposes of this Agreement. In the event that there are [*] Late Payment Months in any [*] period during the term of the Agreement, Client will increase by [*] the monthly payment otherwise due for the second and any other Late Payment Month that occurs in the [*] period. (g) Client will provide complete reports to Excite within thirty (30) days of each month describing the month's transaction activity by users referred to the Client Site from the Excite Portion of the Netscape Site including, but not limited to, the total number of purchase requests submitted and the number of Unique Purchase Requests completed. Client will make good faith efforts to develop tracking and reporting capabilities to correlate this transaction information to the various promotional placements, content and advertising banners on the Excite Portion of the Netscape 7 8 [*] Confidential Treatment Requested CONFIDENTIAL ------------ Site in order to facilitate optimization of Client's sponsorship program. Client's reports will be delivered to Excite in a mutually agreed-upon electronic format to an email address or URL designated by Excite. In the event that Client does not provide the required reports to Excite within sixty (60) days after the end of any month, that month shall be deemed to be a "Late Reporting Month" for the purposes of this Agreement. In the event that there are [*] Late Reporting Months in any [*] month period during the term of the Agreement, Client will increase by [*] the monthly payment otherwise due for the second and any other Late Reporting Month that occurs in the [*] month period. To the extent that interim reports regarding the quality of the performance of Client's sponsorship program on the Excite Portion of the Netscape Site, as described in Section 9(b)(i), are available more frequently than quarterly, Client will make good faith efforts to supply such interim reports to Excite as soon as reasonably practical. (h) Client will maintain accurate records with respect to the calculation of all transaction payments and reporting due under this Agreement. Once per year, the parties will review these records to verify the accuracy and appropriate accounting of all payments made pursuant to the Agreement. In addition, Excite may, upon no less than thirty (30) days prior written notice to Client, cause an independent Certified Public Accountant to inspect the records of Client reasonably related to the calculation of such payments during Client's normal business hours. The fees charged by such Certified Public Accountant in connection with the inspection will be paid by Excite unless the payments made to Excite are determined to have been less than [*] of the payments actually owed to Excite, in which case Client will be responsible for the payment of the reasonable fees for such inspection. 8. PUBLICITY Unless required by law, neither party will make any public statement, press release or other announcement relating to the terms of or existence of this Agreement without the prior written approval of the other. Notwithstanding the foregoing, the parties agree to issue an initial press release regarding the relationship between Excite and Client, the timing and wording of which will be mutually agreed upon. 9. TERM AND TERMINATION (a) The term of this Agreement will begin on the Launch Date and will end at the earlier of [*] or the expiration or termination of the Netcenter Agreement. In the event that the Netcenter Agreement expires or is terminated prior to [*] 8 9 [*] Confidential Treatment Requested CONFIDENTIAL ------------ [*] Client and Excite will negotiate in good faith to resolve all outstanding promotional and financial issues. (b) Despite Excite's performance of its obligations hereunder, Client may terminate this Agreement under the following limited conditions: (i) Client and Excite will meet once per quarter throughout the term of the Agreement to review the performance of Client's sponsorship program on the Excite Portion of the Netscape Site. At the quarterly meeting, refers to the Client Site generated on the Excite Portion of the Netscape Site will be evaluated for quality and compared to an index (the "Performance Index") based on the performance of refers to the Client Site from the excite.com Web site (the "Excite Site"). The Parties agree that the Performance Index shall use June 1998 performance results of the Excite Site as its baseline, which shall be deemed "100%" for the purposes of comparison to the Excite Portion of the Netscape Site. Quality performance will be monitored and provided by Client's independent auditors (currently, Arthur Andersen). This information will be shared with Excite at the quarterly performance meetings. (ii) In the event that purchase request quality performance from the Excite Portion of the Netscape Site is materially below that from the Excite Site during any ninety (90) day period during the term of the Agreement, Client will notify Excite in writing of the poor performance. Excite will undertake commercially reasonable efforts to remedy the poor performance. (iii) In the first year of the term of the Agreement only, if Excite's efforts do not materially improve performance after a reasonable period of time after receiving Client's written notice of poor performance pursuant to Section 9(b)(ii), then, no later than forty-five (45) days prior to the end of the first year of the term of the Agreement, Client can give written notice to Excite of termination of the Agreement at the end of the first year due to the purchase request quality performance from the Excite Portion of the Netscape Site being materially below that from the Excite Site. This written termination notice must include supporting reports or analysis by the accredited neutral third party. Client may not terminate the Agreement prior to the end of the first year of the term of the Agreement under Sections 9(b)(ii) or 9(b)(iii). (iv) In the event that purchase request quality performance from the Excite Portion of the Netscape Site is materially below that from the Excite Site 9 10 [*] Confidential Treatment Requested CONFIDENTIAL ------------ during any ninety (90) day period during the [*] [*] of the Agreement and Excite's efforts do not materially improve performance after a reasonable period of time after receiving Client's notice of poor performance then, in any quarterly meeting in the second year of the term of the Agreement, Client may give notice to Excite that Excite has sixty (60) days to remedy the poor performance or the Agreement will be subject to termination. Should Excite not be able to remedy purchase request quality performance within the sixty (60) day period, Client may give Excite written notice that the Agreement will be terminated in thirty (30) additional days. (v) In the event that Client receives less than [*] Unique Purchase Requests from users referred to the Client Site from the Excite Portion of the Netscape Site in the first year of the term of the Agreement, Client can terminate the Agreement upon written notice to Excite. Notwithstanding Section 7(c), within thirty (30) days of any such termination, Client will pay Excite the difference between (i) [*] and (ii) the amounts previously paid to Excite pursuant to 7(c)(i) for the Unique Purchase Requests from users referred to the Client Site from the Excite Portion of the Netscape Site in the first year of the term of the Agreement under the [*] minimum. (vi) As soon as it becomes reasonably apparent that Client is likely to pay Excite [*] for Unique Purchase Requests from users referred to the Client Site from the Excite Portion of the Netscape Site within the next sixty (60) days, Excite and Client will meet to discuss Client's plans to continue or terminate the Agreement. After that meeting, Client may, in its sole discretion, give Excite written notice terminating the Agreement effective thirty (30) days after Client has paid to Excite [*] for Unique Purchase Requests from users referred to the Client Site from the Excite Portion of the Netscape Site. Once Client gives written notice to Excite of its election to terminate the Agreement under this Section 9(b)(vi), Excite will be free to commence negotiations for replacement advertising and/or sponsorships of the Excite Portion of the Netscape Site with any third party, including Client's Competitors. (c) Either party may terminate this Agreement if the other party materially breaches its obligations hereunder and such breach remains uncured for thirty (30) days following the notice to the breaching party of the breach. 10 11 CONFIDENTIAL ------------ (d) All undisputed payments that have accrued prior to the termination or expiration of this Agreement will be payable in full within thirty (30) days thereof. (e) The provisions of Section 12 (Confidentiality), Section 13 (Indemnity), Section 14 (Limitation of Liability) and Section 15 (Dispute Resolution) will survive any termination or expiration of this Agreement. 10. TRADEMARK OWNERSHIP AND LICENSE (a) Client will retain all right, title and interest in and to its trademarks, service marks and trade names worldwide, subject to the limited license granted to Excite hereunder. (b) Excite will retain all right, title and interest in and to its trademarks, service marks and trade names worldwide, subject to the limited license granted to Client hereunder. (c) Each party hereby grants to the other a revocable, royalty-free, nonexclusive, limited license to use its trademarks, service marks or trade names only as specifically described in this Agreement. All such use shall be in accordance with each party's reasonable policies regarding advertising and trademark usage as established from time to time. (d) Upon the expiration or termination of this Agreement, each party will cease using the trademarks, service marks and/or trade names of the other except as the parties may agree in writing. 11. CONTENT OWNERSHIP AND LICENSE (a) Client will retain all right, title and interest in and to the Client Site worldwide including, but not limited to, ownership of all copyrights and other intellectual property rights therein. (b) Client will retain all right, title and interest in and to the Client Content and the content of the "Mobalist" module worldwide (including, but not limited to, ownership of all copyrights and other intellectual property rights therein). Subject to the terms and conditions of this Agreement, Client hereby grants to Excite a revocable, royalty-free, non-exclusive, worldwide license to use, reproduce, distribute, transmit and publicly display the Client Content and "Mobalist" module in accordance with this Agreement and to sub-license the Client Content and "Mobalist" module to Excite's wholly-owned subsidiaries or to joint ventures in 11 12 CONFIDENTIAL ------------ which Excite participates for the sole purpose of using, reproducing, distributing, transmitting and publicly displaying the Client Content and "Mobalist" module in accordance with this Agreement (c) Netscape and Excite will retain all right, title, and interest in and to the Excite Portion of the Netscape Site worldwide including, but not limited to, ownership of all copyrights, look and feel and other intellectual property rights therein. 12. CONFIDENTIALITY AND USER DATA (a) For the purposes of this Agreement, "Confidential Information" means information about the disclosing party's (or its suppliers') business or activities that is proprietary and confidential, which shall include all business, financial, technical and other information of a party marked or designated by such party as "confidential or "proprietary" or information which, by the nature of the circumstances surrounding the disclosure, ought in good faith to be treated as confidential. (b) Confidential Information will not include information that (i) is in or enters the public domain without breach of this Agreement, (ii) the receiving party lawfully receives from a third party without restriction on disclosure and without breach of a nondisclosure obligation, (iii) the receiving party knew prior to receiving such information from the disclosing party or (iv) the receiving party develops independent of any information originating from the disclosing party. (c) Each party agrees (i) that it will not disclose to any third party or use any Confidential Information disclosed to it by the other except as expressly permitted in this Agreement and (ii) that it will take all reasonable measures to maintain the confidentiality of all Confidential Information of the other party in its possession or control, which will in no event be less than the measures it uses to maintain the confidentiality of its own information of similar importance. (d) The usage reports provided by Excite to Client hereunder will be deemed to be the Confidential Information of Excite. The reports provided to Excite under Section 7(g) will be deemed to be the Confidential Information of Client. (e) The terms and conditions of this Agreement will be deemed to be Confidential Information and will not be disclosed without the written consent of the other party. (f) The parties acknowledge that Client is in the process of obtaining access to data base marketing capabilities and that it is Client's current goal to enable such data base marketing capabilities on or about January 1999. The parties will cooperate in good 12 13 CONFIDENTIAL ------------ faith to develop a program whereby Excite may leverage Client's data base marketing opportunities under the following guidelines: (i) Excite will not have direct access to any user data collected on the Client Site; (ii) Excite will have the right to market Excite's own services and/or products to Client's users coming through the Excite Portion of the Netscape Site, by specifying a profile of the target audience (e.g., male, 25 - 40 years old, etc.); (iii) Excite will deliver any marketing material to Client. Client will then arrange for delivery of the marketing material to the target audience; (iv) Excite will bear all direct expenses in connection with the creation and delivery of the marketing material. Client will not charge Excite for usage of Client's user data; (v) Excite's marketing plans and the results of Excite's marketing efforts through Client will be "Confidential Information" of Excite under this Agreement; and (vi) Excite will not conduct such marketing through Client on behalf of Client's Competitors. (g) Client will not use User Data to directly or indirectly target for solicitations any Excite users as a unique subset of Client's user data base (except as specifically provided in this Agreement or except to encourage the continued use of Client's own products and/or services) either individually or in the aggregate during the term of this Agreement and for a period of twelve (12) months following the expiration or termination of this Agreement (except to encourage the continued use of Client's own products and/or services). (h) Neither party will sell, disclose, transfer or rent any user data obtained from users referred to the Client Site from the Excite Portion of the Netscape Site which could reasonably be used to identify a specific named individual ("Individual Data") to any third party nor will either party use Individual Data on behalf of any third party without the express permission of the individual user. Where user permission for dissemination of Individual Data to third parties has been obtained, each party will use commercially reasonable efforts to require the third party recipients of Individual Data to provide an "unsubscribe" feature in any email communications generated by, or on behalf of, the third party recipients of Individual Data. 13 14 CONFIDENTIAL ------------ (i) Notwithstanding the foregoing, each party may disclose Confidential Information or user data obtained from users referred to the Client Site from the Excite Portion of the Netscape Site (i) to the extent required by a court of competent jurisdiction or other governmental authority or otherwise as required by law or (ii) on a "need-to-know" basis under an obligation of confidentiality to its legal counsel, accountants, banks and other financing sources and their advisors. Notwithstanding the foregoing, Excite may disclose Confidential Information or user data obtained from users referred to the Client Site from the Excite Portion of the Netscape Site to Netscape as required under the terms of the Netcenter Agreement. 13. INDEMNITY (a) Client will indemnify, defend and hold harmless Excite, its affiliates, officers, directors, employees, consultants and agents from any and all third party claims, liability, damages and/or costs (including, but not limited to, attorneys fees) arising from: (i) The breach of any representation or covenant in this Agreement; or (ii) Any claim that Client's Impression Material, the Client Content or the content of the "Mobalist" module infringe or violate any third party's copyright, patent, trade secret, trademark, right of publicity or right of privacy or contain any defamatory content; or (iii) Any claim arising from content displayed on the Client Site. Excite will promptly notify Client of any and all such claims and will reasonably cooperate with Client with the defense and/or settlement thereof; provided that, if any settlement requires an affirmative obligation of, results in any ongoing liability to or prejudices or detrimentally impacts Excite in any way and such obligation, liability, prejudice or impact can reasonably be expected to be material, then such settlement shall require Excite's written consent (not to be unreasonably withheld or delayed) and Excite may have its own counsel in attendance at all proceedings and substantive negotiations relating to such claim. (b) Excite will indemnify, defend and hold harmless Client, its affiliates, officers, directors, employees, consultants and agents from any and all third party claims, liability, damages and/or costs (including, but not limited to, attorneys fees) arising from: (i) The breach of any representation or covenant in this Agreement; or 14 15 CONFIDENTIAL ------------ (ii) Any claim arising from the Excite Portion of the Netscape Site other than content or services provided by Client. Client will promptly notify Excite of any and all such claims and will reasonably cooperate with Excite with the defense and/or settlement thereof; provided that, if any settlement requires an affirmative obligation of, results in any ongoing liability to or prejudices or detrimentally impacts Client in any way and such obligation, liability, prejudice or impact can reasonably be expected to be material, then such settlement shall require Client's written consent (not to be unreasonably withheld or delayed) and Client may have its own counsel in attendance at all proceedings and substantive negotiations relating to such claim. (c) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER. 14. LIMITATION OF LIABILITY EXCEPT UNDER SECTIONS 13(a) AND 13(b), IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. EXCEPT UNDER SECTIONS 13(a) AND 13(b), THE LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED, THE AMOUNTS TO BE PAID BY CLIENT TO EXCITE HEREUNDER. 15. DISPUTE RESOLUTION (a) The parties agree that any breach of either of the parties' obligations regarding trademarks, service marks or trade names, confidentiality and/or User Data would result in irreparable injury for which there is no adequate remedy at law. Therefore, in the event of any breach or threatened breach of a party's obligations regarding trademarks, service marks or trade names or confidentiality, the aggrieved party will be entitled to seek equitable relief in addition to its other available legal remedies in a court of competent jurisdiction. 15 16 CONFIDENTIAL ------------ (b) In the event of disputes between the parties arising from or concerning in any manner the subject matter of this Agreement, other than disputes arising from or concerning trademarks, service marks or trade names, confidentiality and/or User Data, the parties will first attempt to resolve the dispute(s) through good faith negotiation. In the event that the dispute(s) cannot be resolved through good faith negotiation, the parties will refer the dispute(s) to a mutually acceptable mediator. (c) In the event that disputes between the parties arising from or concerning in any manner the subject matter of this Agreement, other than disputes arising from or concerning trademarks, service marks or trade names, confidentiality and/or User Data, cannot be resolved through good faith negotiation and mediation, the parties will refer the dispute(s) to the American Arbitration Association for resolution through binding arbitration by a single arbitrator pursuant to the American Arbitration Association's rules applicable to commercial disputes. 16. GENERAL (a) Assignment. Neither party may assign this Agreement, in whole or in part, without the other party's written consent (which will not be unreasonably withheld), except that no such consent will be required in connection with (i) a merger, reorganization or sale of all, or substantially all, of such party's assets or (ii) either party's assignment and/or delegation of its rights and responsibilities hereunder to a wholly-owned subsidiary or joint venture in which the assigning party holds an interest. Any attempt to assign this Agreement other than as permitted above will be null and void. (b) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of California, notwithstanding the actual state or country of residence or incorporation of Excite or Client. (c) Notice. Any notice under this Agreement will be in writing and delivered by personal delivery, express courier, confirmed facsimile, confirmed email or certified or registered mail, return receipt requested, and will be deemed given upon personal delivery, one (1) day after deposit with express courier, upon confirmation of receipt of facsimile or email or five (5) days after deposit in the mail. Notices will be sent to a party at its address set forth in this Agreement or such other address as that party may specify in writing pursuant to this Section. (d) No Agency. The parties are independent contractors and will have no power or authority to assume or create any obligation or responsibility on behalf of each other. 16 17 CONFIDENTIAL ------------ This Agreement will not be construed to create or imply any partnership, agency or joint venture. (e) Force Majeure. Any delay in or failure of performance by either party under this Agreement will not be considered a breach of this Agreement and will be excused to the extent caused by any occurrence beyond the reasonable control of such party including, but not limited to, acts of God, power outages and governmental restrictions. (f) Severability. In the event that any of the provisions of this Agreement are held to be unenforceable by a court or arbitrator, the remaining portions of the Agreement will remain in full force and effect. (g) Entire Agreement. This Agreement is the complete and exclusive agreement between the parties with respect to the subject matter hereof, superseding any prior agreements and communications (both written and oral) regarding such subject matter. This Agreement may only be modified, or any rights under it waived, by a written document executed by both parties. (h) Counterparts. This Agreement may be executed in counterparts, each of which will serve to evidence the parties' binding agreement. Auto-By-Tel Corporation Excite, Inc. By: /s/ Anne Benvenuto By: /s/ Tod C. Harmon ------------------------- ------------------------- Name: Anne Benvenuto Name: Tod C. Harmon ------------------------- ------------------------- Title: Senior V.P., Marketing Title: Dir. Financial Planning ------------------------- ------------------------- Date: June 25, 1998 Date: June 29, 1998 ------------------------- ------------------------- 18872 MacArthur Blvd., #200 555 Broadway Irvine, California 92612-1400 Redwood City, California 94063 949-225-4500 (Voice) 650-566-6000 (Voice) 949-662-1323 (Fax) 650-566-6030 (Fax) 17 EX-10.33 9 MARKETING AGREEMENT 1 EXHIBIT 10.33 [*] Confidential treatment has been requested for certain portions of this exhibit. AGREEMENT This Agreement, dated as of February 18, 1999 (the "Effective Date"), is made by and between Lycos, Inc., a Delaware corporation with a principal place of business at 400-2 Totten Pond Road, Waltham, MA 02154 ("Lycos") and autobytel.com, Inc., a Delaware corporation with a principal place of business at 18872 MacArthur Blvd., Suite 200, Irvine, CA, 92612. ("autobytel") Recitals A. Lycos is the owner or licensee of certain Web services (collectively, the "Lycos Services"), which are accessible through the URLs www.lycos.com (the "Lycos Site"), www.tripod.com (the "Tripod Site"), www.whowhere.com (the "WhoWhere Site"), and www.mailcity.com (the "Mailcity Site") (all of the above-named sites are referred to collectively as the "Lycos Network"). B. autobytel is the operator of a Web site accessible through the URL www.autobytel.com (the "autobytel Site") on which autobytel promotes information about car purchases, and provides referrals to, among others, new car dealers (all the content and information on the autobytel Site shall be referred to herein as the "Content"). C. Lycos and autobytel wish to establish a relationship through which Lycos will integrate links throughout the Lycos Network to a co-branded version of the autobytel Site (the "Linked Site"). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lycos and autobytel hereby agree as follows: Terms 1. Linked Site. a. Serving and Hosting. autobytel shall launch the Linked Site on or before [*] (the "Launch Date"). Each page on the Linked Site that is related to new car buying shall identify Lycos by the placement of the Lycos logo in a prominent position substantially in the form and dimensions as set forth on the attached EXHIBIT C. The Lycos logo shall serve as a hyperlink to contextually relevant pages of Lycos' choice on the Lycos Site. autobytel will operate and serve the Linked Site in a manner consistent with the present quality standards of Lycos and which meets response performance standards for Lycos users at least as good as those of the Lycos Site. In addition, autobytel will be responsible for system operation software costs, hardware costs, and network costs. Additional services and functionality that are developed by autobytel for the autobytel Site (or any successor to it) will be provided by autobytel at no cost so that the Linked Site is maintained at a level substantially equal to the 2 [*] Confidential treatment requested. autobytel Site as it appears from time to time. Lycos shall have the right to provide online access to the Linked Site to Lycos' subsidiaries, joint venture partners of Lycos, and licensees of the Lycos Services. b. Branding. The Linked Site will have the autobytel "look and feel" but with Lycos' logo displayed on the home page and each page related to new car buying. Branding for Lycos on the Linked Site shall consist of a "Back to Lycos" button in substantially the form illustrated on the attached EXHIBIT C, incorporated herein by reference, unless otherwise agreed to by both parties. c. Referrals. autobytel and the entities to which autobytel refers car-buyers shall be responsible for all aspects of purchase requests generated from the Linked Site, including, without limitation, taking orders, processing payments, ordering and stocking inventory, etc. Lycos shall take no part in, and have no responsibility or liability for, the actual transactions. 2. Lycos Network Integration. During the Term, commencing on the Launch Date, Lycos shall provide autobytel with a total of [*] on the Lycos Network (including [*] in yet-to-be-determined, mutually agreed, contextually relevant areas of sites within the Lycos Network). Each impression shall link directly to the Linked Site. Such impressions shall conform with the Placement Summary, attached hereto as EXHIBIT D, and shall consist of the following number of links displayed in the following places: a. Lycos Site. Lycos shall provide autobytel with links (i) on Web search results pages generated by queries of mutually agreed keywords and phrases (including, without limitation, those keywords and phrases listed on the attached Exhibit A, incorporated herein by reference) ([*]), (ii) in the Autos Web Guide ([*]), (iii) in the Lycos Classifieds section ([*]), (iv) in the Lycos Roadmaps section ([*]), (v) in the Lycos Sports Web Guide ([*]), (vi) in the Lycos Investing section ([*]), and (vii) within the Shopping Network (no guaranteed impression level). b. Tripod Site. Lycos shall provide autobytel with links from the Car & Truck Zone ([*]). c. WhoWhere Site. Lycos shall provide autobytel with a text link from the home page of WhoWhere for new car buying ([*]). d. MailCity. Lycos shall provide autobytel with links from those places on the MailCity Site that, at Lycos' discretion, target the automotive profile (as determined by user input upon registration) ([*]). e. Redesigning of the Lycos Site. autobytel acknowledges that, consistent with Lycos' need for editorial discretion, Lycos may redesign, delete or replace the pages on which the impressions described in this Section 2 will be displayed or may redesign or 3 [*] Confidential treatment requested. replace the type of links and banners described above; provided, that Lycos will use good faith efforts to provide autobytel with comparable links and banners on any re-designed or replacement pages. f. Redesigning of the autobytel.com Site. Lycos acknowledges that, consistent with autobytel's need for editorial discretion, autobytel may redesign all or part of its Site, provided, that autobytel will use good faith efforts to provide Lycos with comparable links on any re-designed areas of the Site subject to this Agreement. g. Reporting. Lycos shall provide autobytel with weekly reports regarding the impressions outlined in this Sections 2. h. autobytel Audit Rights. autobytel will have the right, at its expense to audit Lycos' books and records for the purpose of verifying impressions. Such audits will be made not more than [*] per year, on not less than [*] written notice, during regular business hours, by auditors reasonably acceptable to Lycos. If the auditor's figures reflect impressions lower than those reported by Lycos, Lycos will provide autobytel with [*]. If the auditor's figures vary more than [*] from the figures provided by Lycos, Lycos will also pay [*]. 3. Standard Terms and Conditions. Any standard advertising products provided pursuant to this Agreement will be subject to the Terms and Conditions outlined in the attached Exhibit B, which Terms and Conditions are incorporated herein by reference. Throughout the Term, all advertising banners must meet the Lycos specification found at http://adreporting.lycos.com/specs.html, as they appear from time to time. 4. autobytel' Implementation Obligations. autobytel shall provide Lycos with any assistance requested by Lycos in establishing the links between the Lycos Network and the Linked Site, and with all artwork (subject to Lycos' approval) for the advertising banners and links. autobytel also shall provide and implement affiliate management software with which to track traffic and transactions from the Lycos Network sites to the Linked Site. 5. [*]. autobytel shall be the [*] new car referral service featured on those areas of the Lycos Network on which the links described in Section 2 above appear. Notwithstanding the foregoing, the terms of the [*] granted herein shall not prevent Lycos from displaying banners, advertisements or hyperlinks to new car manufacturers, provided however, that any such banners, advertisements or hyperlinks shall not promote, display or feature any on-line service for the purposes of selling new vehicles directly to consumers or distributing referrals for the purchase of new vehicles. Neither autobytel's promotional links (including, without limitation, banner ads) nor autobytel's "Fast Track" units (functional showcase boxes) on the Lycos Network and Linked Sites shall include information on, or promotion of, used cars, auto insurance, or financing/leasing options. 6. Fees and Royalties. a. Lycos Network Integration Fees. autobytel shall pay Lycos [*], 4 [*] Confidential treatment requested. payable as follows: (i) [*]. b. Lycos Transaction Royalties. In addition to the integration fees outlined above, during the Term, autobytel shall pay Lycos [*] for each Purchase Request over [*] Purchase Requests submitted from the Linked Site by users who click through on any of the impressions outlined in Section 2 above. A "Purchase Request" is submitted when a user completes all reasonably required fields on a referral form, submits that form, and receives a confirmation from autobytel. Payment will be made in the month following the month in which the user submits such Purchase Request. c. Reporting. autobytel shall provide Lycos with monthly reports regarding the number of unique Purchase Requests submitted by users who click through on any of the impressions outlined in Section 2 above. For the purposes of this Agreement, a "Unique Purchase Request" shall be a purchase request deemed valid by autobytel in accordance with its standard de-duping policy as presently in effect, or as amended from time to time during the term of this Agreement. A copy of the current de-duping policy in effect is attached hereto, marked EXHIBIT E. autobytel shall reconcile and confirm or correct (as is appropriate) such reports on a monthly basis. d. Lycos Audit Rights. Lycos will have the right, at its expense to audit autobytel's books and records relating to reports and data provided hereunder for the purpose of verifying Purchase Requests. Such audits will be made not more than [*] per year, on not less than [*] written notice, during regular business hours, by auditors reasonably acceptable to autobytel. If the auditor's figures reflect Purchase Requests higher than those reported by autobytel, and if the auditor's figures reflect more than [*] Purchase Requests, autobytel will pay Lycos an amount equal to [*] multiplied by the difference; provided, however, that autobytel shall not pay for any Purchase Requests below the [*] threshold. If the auditor's figures vary more than [*] from the figures provided by autobytel, autobytel will also pay the [*]. 7. Customer Profile Data. Subject to the provisions of Section 14 below, autobytel shall provide Lycos with a brief write-up that provides a profile of autobytel's customer profile analysis created from actual purchase requests processed through autobytel's system or the results from autobytel's most recent research in effect. 8. Licenses. To the extent access to the Linked Site is deemed a use, public display, transmission, distribution or reproduction of the Content, or to the extent the Content is actually used, publicly displayed, transmitted, distributed or reproduced on the Lycos Network sites, autobytel hereby grants Lycos limited, revocable, non-transferable (except as provided herein), royalty-free (except as provided herein), worldwide licenses to use, publicly display, transmit, distribute and reproduce the Linked Site and the Content during the Term solely for the purposes described herein. 5 [*] Confidential treatment requested. 9. Term: The term ("Term") of this Agreement shall commence on the Effective Date and continue until the [*] anniversary of the Launch Date, unless terminated earlier as provided in Section 15 below. 10. Marks: Lycos hereby grants to autobytel a non-exclusive, non-transferable license to reproduce and display Lycos' and Tripod's trademarks, service marks, logos and the like solely for the purposes specified in this Agreement. autobytel hereby grants Lycos a non-exclusive, non-transferable license to reproduce and display autobytel's trademarks, service marks, logos and the like solely for the purposes specified in this Agreement. Except as expressly stated herein, neither party shall make any other use of the other party's marks. Upon request of either party, the other party shall provide appropriate attribution of the use of the requesting party's marks. (e.g., "Go Get It(R) is a registered service mark of Lycos, Inc. All Rights Reserved."). Such licenses shall terminate automatically upon the effective date of expiration or termination of this Agreement. 11. Representations and Warranties: Each party hereby represents and warrants as follows: a. Corporate Power. Such party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. b. Due Authorization. Such party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder. c. Binding Agreement. This Agreement is a legal and valid obligation binding upon it and enforceable with its terms. The execution, delivery and performance of this Agreement by such party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. d. Intellectual Property Rights. i. autobytel has the full and exclusive right to grant or otherwise permit Lycos to access the autobytel Site and the Linked Site, and to use autobytel's intellectual property, and autobytel is aware of no claims by any third parties adverse to any of such intellectual property rights. ii. Lycos has the full and exclusive right to grant or otherwise permit autobytel to access the Lycos Network and to use Lycos' intellectual property, and Lycos is aware of no claims by any third parties adverse to any of such intellectual property rights. iii. If either party's (the "Infringing Party") intellectual property rights are alleged or held to infringe the intellectual property rights of a third party, the Infringing Party 6 shall, at its own expense, and in its sole discretion, (1) procure for the non-Infringing Party the right to continue to use the allegedly infringing intellectual property or (2) replace or modify the intellectual property to make it non-infringing; provided, however, if neither option is possible or economically feasible and if the inability to use such intellectual property would cause a material breach of this Agreement (as determined by the non-Infringing Party), the Infringing Party may terminate this Agreement. The representations and warranties and covenants in this Section 11 are continuous in nature and shall be deemed to have been given by each party at execution of this Agreement and at each stage of performance hereunder. These representations, warranties and covenants shall survive termination or expiration of this Agreement. 12. Limitation of Warranty. EXCEPT AS EXPRESSLY WARRANTED IN SECTION 11 ABOVE, EACH PARTY EXPRESSLY DISCLAIMS ANY FURTHER WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LYCOS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE LYCOS NETWORK, THE LINKED SITE, AND LYCOS SHALL NOT BE LIABLE FOR THE CONSEQUENCES OF ANY INTERRUPTIONS OR ERRORS RELATED THERETO. LYCOS SPECIFICALLY DISCLAIMS ALL LIABILITY FOR THE COMPANY SITE, THE LINKED SITE, AND THE CONTENT THEREIN, AND COMPANY SPECIFICALLY DISCLAIMS ALL LIABILITY FOR THE LYCOS NETWORK AND THE CONTENT THEREIN. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LYCOS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO ANY PRODUCTS OFFERED OR SOLD THROUGH THE LYCOS NETWORK, THE COMPANY SITE OR THE LINKED SITE (INCLUDING, WITHOUT LIMITATION, WARRANTIES OF FITNESS, MERCHANTABILITY, NON-INFRINGEMENT OR ANY IMPLIED WARRANTIES ARISING OUT OF A COURSE OF PERFORMANCE, DEALING OR TRADE USAGE). 13. Indemnification. a. autobytel Indemnity. autobytel will at all times defend, indemnify and hold harmless Lycos and its officers, directors, shareholders, employees, accountants, attorneys, agents, successors and assigns from and against any and all third party claims, damages, liabilities, costs and expenses, including reasonable legal fees and expenses, arising out of or related to any breach of any warranty, representation, covenant or agreement made by autobytel in this Agreement or the development, operation or maintenance of the autobytel Site or the Linked Site, including the Content thereon. Lycos shall give autobytel prompt written notice of any claim, action or demand for which indemnity is claimed. autobytel shall have the right, but not the obligation, to control the defense and/or settlement of any claim in which it is named as a party and which arises as a result of autobytel's breach of any warranty, representation, covenant or agreement under this Agreement. Lycos shall have the right to participate in any defense of a 7 claim by autobytel with counsel of Lycos' choice at Lycos' own expense. The foregoing indemnity is conditioned upon: prompt written notice by Lycos to autobytel of any claim, action or demand for which indemnity is claimed; complete control of the defense and settlement thereof by autobytel; and such reasonable cooperation by Lycos in the defense as autobytel may request. b. Lycos Indemnity. Lycos will at all times defend, indemnify and hold harmless autobytel and its officers, directors, shareholders, employees, accountants, attorneys, agents, successors and assigns from and against any and all third party claims, damages, liabilities, costs and expenses, including reasonable legal fees and expenses, arising out of or related to any breach of any warranty, representation, covenant or agreement made by Lycos in this Agreement or the development, operation or maintenance of the Lycos Network, including the content thereon (but specifically excluding any content posted by users and appearing in search results, chat or bulletin boards). autobytel shall give Lycos prompt written notice of any claim, action or demand for which indemnity is claimed. Lycos shall have the right, but not the obligation, to control the defense and/or settlement of any claim in which it is named as a party. autobytel shall have the right to participate in any defense of a claim by Lycos with counsel of autobytel's choice at autobytel's own expense. The foregoing indemnity is conditioned upon; prompt written notice by autobytel to Lycos of any claim, action or demand for which indemnity is claimed; complete control of the defense and settlement thereof by Lycos; and such reasonable cooperation by autobytel in the defense as Lycos may request. c. Settlement. Neither party shall, without the prior written consent of the other party, settle, compromise or consent to the entry of any judgment with respect to any pending or threatened claim unless the settlement, compromise or consent provides for and includes an express, unconditional release of all claims, damages, liabilities, costs and expenses, including reasonable legal fees and expenses, against the indemnified party. 14. Confidentiality, Press Releases. a. Non-Disclosure Agreement. The parties agree and acknowledge that, as a result of negotiating, entering into and performing this Agreement, each party has and will have access to certain of the other party's Confidential Information (as defined below). Each party also understands and agrees that misuse and/or disclosure of that information could adversely affect the other party's business. Accordingly, the parties agree that, during the Term of this Agreement and thereafter, each party shall use and reproduce the other party's Confidential Information only for purposes of this Agreement and only to the extent necessary for such purpose and shall restrict disclosure of the other party's Confidential Information to its employees, consultants or independent contractors with a need to know and shall not disclose the other party's Confidential Information to any third party without the prior written approval of the other party . Notwithstanding the foregoing, it shall not be a breach of this Agreement for either party to disclose Confidential Information of the other party if required to do so under law or in a judicial or other governmental investigation or proceeding, provided the other party has been given prior notice and the disclosing party has sought all available safeguards against widespread dissemination prior to such disclosure. 8 [*] Confidential treatment requested. b. Confidential Information Defined. As used in this Agreement, the term "Confidential Information" refers to: (i) the terms and conditions of this Agreement; (ii) each party's trade secrets, business plans, strategies, methods and/or practices; (iii) any and all information relating to Purchase Requests submitted through the Linked Site, including reports produced pursuant to Section 6(c) of this Agreement; and (iv) other information relating to either party that is not generally known to the public, including information about either party's personnel, products, customers, marketing strategies, services or future business plans. Notwithstanding the foregoing, the term "Confidential Information" specifically excludes (A) information that is now in the public domain or subsequently enters the public domain by publication or otherwise through no action or fault of the other party; (B) information that is known to either party without restriction, prior to receipt from the other party under this Agreement, from its own independent sources as evidenced by such party's written records, and which was not acquired, directly or indirectly, from the other party; (C) information that either party receives from any third party reasonably known by such receiving party to have a legal right to transmit such information, and not under any obligation to keep such information confidential; and (D) information independently developed by either party's employees or agents provided that either party can show that those same employees or agents had no access to the Confidential Information received hereunder. c. Press Releases. Lycos and autobytel may jointly prepare press releases concerning the existence of this Agreement and the terms hereof. Otherwise, no public statements concerning the existence or terms of this Agreement shall be made or released to any medium except with the prior approval of Lycos and autobytel or as required by law. 15. Termination. Either party may terminate this Agreement if (a) the other party files a petition for bankruptcy or is adjudicated bankrupt; (b) a petition in bankruptcy is filed against the other party and such petition is not dismissed within [*] of the filing date; (c) the other party becomes insolvent or makes an assignment for the benefit of its creditors pursuant to any bankruptcy law; (d) a receiver is appointed for the other party or its business; (e) upon the occurrence of a material breach of a material provision by the other party if such breach is not cured within [*] after written notice is received by the breaching party identifying the matter constituting the material breach; (f) upon [*] written notice if the other party's service or product viewed as a whole, ceases to be competitive with substantially similar services then being offered by third parties; or (g) by mutual consent of the parties; (h) Lycos may terminate this Agreement upon [*] written notice to autobytel; (i) In addition, if autobytel fails to pay to Lycos any amount due Lycos under this Agreement when such amount is due, Lycos may terminate this Agreement immediately upon the sending of written notice in accordance with Section 26. The Parties agree that in the event that this Agreement is terminated prior to the expiration of this Agreement by autobytel pursuant to Subsection (e) or by Lycos pursuant to Subsection (h), above, any and all unearned fees or royalties due Lycos hereunder shall be returned to autobytel.com on a pro-rata basis on or before the effective date of termination. 16. Force Majeure. In the event that either party is prevented from performing, 9 or is unable to perform, any of its obligations under this Agreement due to any cause beyond the reasonable control of the party invoking this provision, the affected party's performance shall be excused and the time for performance shall be extended for the period of delay or inability to perform due to such occurrence. 17. Relationship of Parties. autobytel and Lycos are independent contractors under this Agreement, and nothing herein shall be construed to create a partnership, joint venture or agency relationship between autobytel and Lycos. Neither party has authority to enter into agreements of any kind on behalf of the other. 18. Assignment, Binding Effect. Neither Lycos nor autobytel may assign this Agreement or any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other. Notwithstanding the foregoing, Lycos may assign this Agreement to any successor of Lycos upon reasonable notice to autobytel. 19. Choice of Law and Forum. This Agreement, its interpretation, performance or any breach thereof, shall be construed in accordance with, and all questions with respect thereto shall be determined by, the laws of the Commonwealth of Massachusetts applicable to contracts entered into and wholly to be performed within said state. autobytel hereby consents to the personal jurisdiction of the Commonwealth of Massachusetts, acknowledges that venue is proper in any state or Federal court in the Commonwealth of Massachusetts, agrees that any action related to this Agreement must be brought in a state or Federal court in the Commonwealth of Massachusetts, and waives any objection autobytel has or may have in the future with respect to any of the foregoing. 20. Good Faith. The parties agree to act in good faith with respect to each provision of this Agreement and any dispute that may arise related hereto. 21. Additional Documents/Information. The parties agree to sign and/or provide such additional documents and/or information as may reasonably be required to carry out the intent of this Agreement and to effectuate its purposes. 22. Counterparts and Facsimile Signatures. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Facsimile signatures will be considered original signatures. 23. No Waiver. The waiver by either party of a breach or a default of any provision of this Agreement by the other party shall not be construed as a waiver of any succeeding breach of the same or any other provision, nor shall any delay or omission on the part of either party to exercise or avail itself of any right, power or privilege that it has, or may have hereunder, operate as a waiver of any right, power or privilege by such party. 24. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns; provided however 10 that this Agreement shall immediately terminate should any successor or assign of this Agreement own or operate a service deemed competitive with a party hereto. 25. Severability. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 26. Notices. All notice required to be given under this Agreement must be given in writing and delivered either in hand, by certified mail, return receipt requested, postage pre-paid, or by Federal Express or other recognized overnight delivery service, all delivery charges pre-paid, and addressed: If to Lycos: Lycos, Inc. 400-2 Totten Pond Road Waltham, MA 02154 Fax No.: (781) 370-2600 Attention: General Counsel With a copy to: Lycos, Inc. 400-2 Totten Pond Road Waltham, MA 02154 Fax No.: (781) 370-2600 Attention: Chief Financial Officer If to autobytel: autobytel.com inc. 18872 MacArthur Boulevard Irvine, CA 92612-1400 Fax No.: (949) 862-1323 Attention: General Counsel 27. Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the transactions and matters contemplated hereby, supersedes all previous agreements between Lycos and autobytel concerning the subject matter, and cannot be amended except by a writing signed by both parties. No party hereto has relied on any statement, representation or promise of any other party or with any other officer, agent, employee or attorney for the other party in executing this Agreement except as expressly stated herein. 28. LIMITATIONS OF LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF SUCH DAMAGES ARE FORSEEABLE OR THAT PARTY HAS BEEN ADVISED OR HAS CONSTRUCTIVE KNOWLEDGE OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM SUCH PARTY'S PERFORMANCE OR NON-PERFORMANCE PURSUANT TO ANY PROVISION OF THIS AGREEMENT OR THE OPERATION OF SUCH PARTY'S SITE (INCLUDING SUCH DAMAGES INCURRED BY THIRD 11 PARTIES), SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN EXCESS OF THE AMOUNT RECEIVED BY SUCH PARTY UNDER THIS AGREEMENT. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, HOWEVER, THIS SECTION SHALL NOT LIMIT EITHER PARTY'S LIABILITY TO THE OTHER FOR (A) WILLFUL AND MALICIOUS MISCONDUCT; (B) DIRECT DAMAGES TO REAL OR TANGIBLE PERSONAL PROPERTY; (C) BODILY INJURY OR DEATH CAUSED BY NEGLIGENCE; OR (D) INDEMNIFICATION OR CONFIDENTIALITY OBLIGATIONS HEREUNDER. 29. Survival. All terms of this Agreement which by their nature extend beyond its termination remain in effect until fulfilled, and apply to respective successors and assigns. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date set forth above. autobytel.com inc. LYCOS, INC. By: /s/ ANNE BENVENUTO By: /s/ DAVID PETERSON ------------------------------- ----------------------------- Name: Anne Benvenuto Name: David Peterson ------------------------------- ----------------------------- Title: Senior Vice President Marketing Title: Vice President Sales ------------------------------- ----------------------------- Date: 2-18-99 Date: 2-25-99 ------------------------------- ----------------------------- 12 EXHIBIT A 4x4 trucks accord acura alfaromeo alfa romeo alfa romero audi auto auto nation autobytel autobytell automobile automobiles autonation autos beemer benz bmw bodyshop buick buying cars cabriolet cadillac camaro car cars cherokee chevrolet chevy convertible convertibles corolla corvette cougar daewo daihatsu delorean explorer ferrari ford general motors gm trucks honda hondas hummer hummers infinity 13 isuzu jaguar jeep kia landcruiser land rover landrover lexus limousine lincoln M3 maserati mazda mechanics mercedes mercedes benz mercury mgb minivan minivans mitsubishi motorcycle motorcycles mustang new vehicles nissan pickup truck plymouth pontiac range rover rangerover renault rolls royce rollsroyce saab saturn sedan sedans sentra station wagons stationwagon stationwagons sting ray stingray subaru suburban suburban suv suzuki taurus thunderbird toyota 14 toyotas trans am truck trucks used cars used pickup van vans vans vehicle vehicle prices vehicles viper volkswagon volvo vw 15 EXHIBIT B ADDITIONAL ADVERTISING TERMS 1. CHANGES AND CANCELLATIONS. All artwork must be received at least five days in advance of publication date. Cancellations or copy changes will not be accepted after the published closing date of the update to the Lycos site. Changes to artwork must be received by Lycos at least five days in advance of requested change date. Lycos' ad banner specifications are accessible through the URL adreporting.lycos.com/specs.html; Lycos reserves the right to change any of its ad banner specifications at any time. Any cancellations or change orders must be made in writing and acknowledged by Lycos. Change orders cannot be submitted any more frequently than once every fourteen days. 2. LICENSES AND INDEMNIFICATION. autobytel represents that it is the owner or is licensed to use the entire contents and subject matter contained in its advertising and collateral information, including, without limitation, (a) the names and/or pictures of persons; (b) any copyrighted material, trademarks, service marks, logos, and/or depictions of trademarked or service marked goods or services; and (c) any testimonials or endorsements contained in any advertisement submitted to Lycos. In consideration of Lycos' acceptance of such advertisements and information for publication, autobytel will jointly and severally indemnify and hold Lycos harmless against all loss, liability, damage and expense of any nature (including attorney's fees) arising out of Lycos' performance under this contract or the copying, printing, distributing, or publishing of autobytel's advertisements. If autobytel possesses any preexisting copyright interests in the advertisements, advertiser grants Lycos the right to use, reproduce, and distribute the advertisements. 3. KEY WORDS AND PHRASES. Each advertiser may be given a "first right" to its exact company name and trademarks for keyword/phrase advertising. Lycos may pre-empt an existing key word/phrase advertiser by submitting a three-month advertising contract. The existing contract-holder for the key word/phrase will be provided with a two-week notification of preemption and will receive a pro-rated refund for any unfulfilled number of guaranteed impressions. If two or more advertisers have the same name or trademark, the allocation will be on a first-come basis and the existing contract will take precedence. 4. REJECTIONS. Lycos reserves the right, without liability, to reject, omit or exclude any advertisement or to reject or terminate any links for any reason at any time, with or without notice to autobytel, and whether or not such advertisement or link was previously acknowledged, accepted, or published. 5. LIMITATION OF LIABILITY. Lycos shall not be liable for any errors in content or omissions. Should an error appear in an advertisement, Lycos' liability will be limited to the cost of the advertisement (prorated for the publishing completed). 16 EXHIBIT C MOCK-UP OF THE LINKED SITE [GRAPHIC OF A WEB PAGE] 17 [*] Confidential treatment requested EXHIBIT D LYCOS PLACEMENT SUMMARY
================================================================================================================================= AREA/COMPONENT SECTION/CHANNEL UNIT/ITEM EXCLUSIVITY ================================================================================================================================= [*] IMPRESSIONS TOTAL ANNUAL IMPRESSIONS [*] [*] AUTO IMPRESSIONS [*] [*] NON-AUTO IMPRESSIONS [*] [*] NOTE: ENCBS = Exclusive New Car Buying Service ECBS = Exclusive Car Buying Service Non-Excl. = Non-Exclusive
18 EXHIBIT E UNIQUE PURCHASE REQUEST A Unique Purchase Request shall be defined as follows: i. The Purchase Request is the product of an end user visiting the linked site. ii. A Purchase Request which has been received by ABT from the linked site for which autobytel has not, within the previous ninety (90) day period, received a Purchase Request for the same or similar Vehicle from a person identified by the same name and/or the same e-mail address; and iii. The end user indicates his or her intention to purchase the desired vehicle within forty-eight (48) hours; two (2) weeks or thirty (30) days as prompted on the autobytel purchase request form. iv. All fields in the present Purchase Request form presently deemed mandatory by autobytel which are the fields currently employed in such form, have been completed by the user including but not limited to name, address, phone number and valid email address. v. The end user provides a valid USPS zip code. EX-21.1 10 SUBSIDIARIES 1 EXHIBIT 21.1 Subsidiary List pursuant to Regulation S-K Item 601 All of the following entities are corporations organized in the state of Delaware. The names of the entities are: Autobytel Services Corporation Auto-By-Tel Insurance Services, Inc. Auto-By-Tel Acceptance Corporation Autobytel.ca, Inc. Kre8.net, Inc. AutoVisions Communications, Inc. Auto-By-Tel Europe LLC EX-23.1 11 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.1 [ARTHUR ANDERSEN LLP LETTERHEAD] Consent of Independent Public Accountants As independent public accountants, we hereby consent to the inclusion in this registration statement on Amendment No. 2 to Form S-1 (Registration No. 333-70621) of our report dated February 3, 1999 on our audits of the consolidated balance sheets of autobytel.com inc. and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years ended December 31, 1996, 1997 and 1998. We also consent to the reference to our firm under the caption "Experts". /s/ ARTHUR ANDERSEN LLP ----------------------------------- ARTHUR ANDERSEN LLP Los Angeles, California March 3, 1999 -----END PRIVACY-ENHANCED MESSAGE-----